Barchart's Chart of the Day

Barchart Morning Call

BC - Fri Jun 01, 7:00AM CDT

Overnight Developments

• June E-mini S&Ps this morning are trading -15.00 points (-1.15%) on the much weaker-than-expected Chinese May manufacturing PMI report released last night of -2.9 to 50.4. The market is also worried about this morning's US payroll report. Commodity prices are sharply lower this morning with an average loss of -0.88%. Crude oil is down -1.90%, gold is down -0.84%, copper is down -1.01%, and agricultural commodities are mostly lower. June T-notes are up 12 ticks. The dollar index is up 0.30% and EUR/USD is down -0.29%.
• The Euro Stoxx 50 is down -1.15% this morning on the Chinese PMI report and on today's climb in the Eurozone unemployment rate to a record high of 11.0%. Asian stocks today closed lower nearly across the board: Japan -1.20%, Hong Kong -0.38%, China +0.04%, Taiwan -2.68%, Australia -0.30%, Singapore -0.97%, South Korea -0.44%, India -1.56%, Turkey -0.59%.
• The German 10-year bund yield today fell 4 bp to a new record low of 1.16% on today's sell-off in European stocks and continued flight-to-quality. Spain's 10-year yield this morning is up 1 bp at 6.57%, mildly below this week's peak of 6.66% on Wednesday. The price of Spanish credit default swaps (the cost of insuring against a Spanish sovereign default) rose by 9 bp today to a record 609 basis points.
• The Eurozone April unemployment rate was unchanged from March at 11.0%, the highest since the data series began in 1995. The report was in line with market expectations. March was revised higher to 11.0% from 10.9%. The number of unemployed persons rose by 110,000 to 17.4 million. Spain had the highest unemployment rate at 24.3%, up from 24.1% in March.
• The markets are still awaiting the results of the Irish vote on the fiscal pact, which is a constitutional balanced budget agreement. One Irish official quoted by the local media predicted the measure will win by 57% to 43% based on early counts. The final results are due to 4pm Dublin time. A "yes" vote is critical because Ireland will not be able to get another bailout from the Eurozone if that becomes necessary unless the country approves the fiscal pact.
• China's May manufacturing purchasing managers index (PMI), which was released last night, fell sharply by -2.9 points to 50.4 and was much weaker than expectations of 52.0. In addition, the PMI new orders index fell even more sharply by 4.7 points to 49.8, which was below the expansion-contraction level of 50.
  Market Comments
  • June E-mini S&Ps this morning are trading -15.00 points on last night's weak Chinese PMI report, this morning's 1.15% sell-off in European stocks, and fears of a weaker-than-expected U.S. May payroll report today. U.S. stocks on Thursday closed mildly lower: S&P 500 -0.23%, Dow Jones -0.21%, Nasdaq 100 -0.49%. U.S. stocks were hit with a raft of weak U.S. economic data that included the May ADP employment report of +133,000 (versus expectations of +150,000), the downward revision in Q1 GDP to +1.9% from +2.2% and in Q1 personal consumption to +2.7% from +2.9%, the +13,000 rise in weekly initial unemployment claims, and the sharp 3.5 point drop in the Chicago PMI index to 52.7 versus expectations for a 0.6 point rise. The stock market was also undercut by continued worries about Spain as Spanish Finance Minister Luis de Gindos said on Thursday that, "The future of the euro is going to be at play in the next weeks in Spain and Italy. I don't know if we're on the edge of a precipice, but we're in a very, very, very difficult situation."
  • June 10-year T-notes this morning are up 12 ticks and the 10-year T-note yield has fallen to a new record low of 1.534%. Safe-haven demand continues with today's sell-off in stocks. T-note prices on Wednesday closed sharply higher: TYM2 +7.5, FVM2 +1.25. The 10-year bond yield on Thursday fell to a new record low of 1.53% and closed the day at 1.56%. In addition to safe-haven demand, T-note prices yesterday received a boost from the raft of weak U.S. economic data, which not only dampened the inflation outlook but also raised the odds that the FOMC at its next meeting on June 19-20 will either extend its Operation Twist program or adopt a reserve-neutral mortgage securities purchase program.
  • The dollar index this morning is up +0.25 points (+0.30%) as safe-haven buying continues. EUR/USD is down 0.0036 (-0.29%) and USD/JPY is down 0.12 (-0.15%). The dollar index on Thursday closed slightly higher after edging to a new 1-2/3 year high: Dollar Index +0.03 (+0.03%), EUR/USD -0.0002 (-0.02%), USD/JPY -0.95 (-0.50%). EUR/USD fell to a new 2-year low on continued capital flight out of Europe. USD/JPY fell sharply by 0.95 cents to a new 3-1/2 month low as Japanese investors pulled capital back home to flee global volatility and as non-Japanese investors invested in Japan as a safe-haven. Japanese officials are not happy about the strength in the yen and are implicitly threatening forex intervention.
  • July WTI crude oil prices this morning are sharply lower by 1.64 (-1.90%) on the rally in the dollar and general commodity market weakness tied to the weak Chinese manufacturing PMI report. July gasoline this morning is sharply lower by -4.52 (-1.66%). Bloomberg reported today that OPEC production in May rose by 20,000 bpd to 31.595 million bpd, the highest level since 2008. Meanwhile, Saudi production rose by 80,000 bpd to 9.9 million bpd, the highest level since January 1989.
  • July crude oil and gasoline prices on Thursday closed sharply lower: CLN2 -1.29 (-1.47%), RBN2 -0.0512 (-1.85%). Bearish factors for crude oil prices included (1) the raft of weak U.S. economic data, (2) news that India's Q1 GDP eased to a 9-year low of +5.3% y/y, which was weaker than market expectations of +6.1% y/y and down from Q4's report of +6.1% y/y. (3) ongoing worries about the fall-out from the European debt crisis, and (4) the continued climb in U.S. crude oil inventories to a new 2-year high. Thursday's weekly DOE report showed a 2.213 million barrel (+0.6%) rise in U.S. crude oil inventories to a new 22-year high. Crude oil inventories are now 9.5% above their 5-year seasonal average, the highest such level since December 2010. Meanwhile the DOE report was bullish for the products with a 833,000 barrel decline in gasoline inventories (versus expectations of 250,000 barrel decline) and a 1.709 million barrel drop in distillate inventories (versus expectations of unchanged). Gasoline inventories are now 3.7% below their 5-year seasonal average and distillate inventories are 12.3% below average. The refinery utilization rate rose by 1 point to 89.1% where it is 1.5 points above its 5-year seasonal average.
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    Today's U.S. Earnings Reports Earnings reports (sorted by mkt cap): GAME-Shanda Games (consensus $0.20), CHRS-Charming Shoppes (0.19).
    Global Financial Calendar
    

    Friday 6/1/12
    United States
    0830 ET	May non-farm payrolls expected +150,000, Apr +115,000. May private payrolls expected +160,000, Apr +130,000. May manufacturing payrolls expected +16,000, Apr +16,000. May average hourly earnings expected +0.2% m/m, Apr unch m/m and +1.8% y/y. May average weekly hours expected unch at 34.5 hours. May unemployment rate expected unch at 8.1%, Apr -0.1 to 8.1%.
    0830 ET	Apr personal income expected +0.3% m/m, Mar +0.4% m/m. Apr personal spending expected +0.3% m/m, Mar +0.3% m/m. Apr PCE deflator expected +0.1% m/m and +1.9% y/y, Mar +2.1% y/y. Apr core PCE deflator expected +0.2% m/m and +2.0% y/y, Mar +0.2% m/m and +2.0% y/y.
    1000 ET	Apr construction spending expected +0.4%, Mar +0.1%.
    1000 ET	May ISM manufacturing index expected -1.0 to 53.8, Apr +1.4 to 54.8. May ISM prices paid sub-index expected -4.5 to 56.5, Apr unch at 61.0.
    1700 ET	May U.S. total vehicle sales expected 11.46 mln, May 14.38 mln. May domestic vehicle sales expected 11.20 mln, Apr 11.12 mln.
    Japan
    0100 ET	Japan May vehicle sales, Apr 92.0% y/y.
    Euro-Zone
    0400 ET	Eurozone May final manufacturing PMI expected unrevised at 45.0.
    0500 ET	Eurozone Apr unemployment rate expected +0.1 to 11.0%, Mar 10.9%.
    Germany
    0355 ET	German May final manufacturing PMI expected unrevised at 45.0.
    United Kingdom
    0430 ET	UK May manufacturing PMI expected -0.8 to 49.7, Apr 50.5.

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