Barchart's Morning Call 6/11

Barchart Morning Call

BC - 2 hrs 2 mins ago

Overnight Developments

• E-mini S&Ps this morning are up +0.64% and European stocks are up 1.83% on the weekend news of a Spanish bank bailout and on a strong Chinese May export report of +15.3% y/y. The dollar index is down -0.42% and EUR/USD is up +0.36%, which is providing a boost for commodity prices. Commodity prices are up by an average of +0.56%, with crude oil up 1.01%, gold up 0.08%, copper up 1.80%, and agricultural prices trading higher. T-notes are down -6 ticks and Bunds are down -0.24 points on reduced safe-haven demand.
• The Euro Stoxx 50 is up sharply by +1.83% this morning on the Spanish bank bailout. The Spanish stock market is seeing the largest gain with the Spain IBEX 35 index up +2.40%. The Asian stock markets today closed higher on support from last Friday's U.S. stock market rally, the weekend Chinese economic data, and the weekend Spanish bailout news: Japan +1.96%, Hong Kong +2.44%, China +1.34%, Taiwan +1.72%, Singapore +1.82%, South Korea +1.89%, India -0.30%, Turkey +1.63%.
• The Spanish 10-year yield today fell by 14 bp to 6.07% in response to Saturday's news of a Eurozone bailout of Spain's banking sector of up to 100 billion euros. The markets are still waiting to hear whether the bailout will come from the temporary EFSF or from the permanent ESM bailout facility. If the bailout comes from the ESM, then the ESM will have seniority over Spanish bond holders and Spain's bond yields will remain higher than if Spanish bond holders had equal seniority to the bailout facility. The good news is that Spanish yields fell 14 bp today even though there is still uncertainty about the seniority of Spanish bond holders relative to the bailout facility.
• The French Socialist party had a good showing in Sunday's first round of voting. However, it is necessary to wait for the results from this coming Sunday's second round of voting to see whether the Socialist party can obtain an outright majority of seats. French President Hollande will only have substantial power if his Socialist party can gain a majority of seats or can at least form a coalition government with closely allied parties. A strong government would be good for the European debt crisis since Mr. Hollande would have more power to push potentially controversial measures such as additional austerity through the parliament.
• China's exports in May rose sharply by +15.3%, which was stronger than market expectations of +7.1%. China's May trade balance of $18.70 billion down from $18.43 billion in April but was higher than market expectations of $16.25 billion. Meanwhile, China's May industrial production strengthened slightly to +9.6% y/y from +9.3% in April but was a bit weaker than market expectations of +9.8%. China May retail sales eased to +13.8% from +14.1% in April and were a bit weaker than market expectations of +14.2%. China's May CPI ease to +3.0% y/y from +3.4% in April, which was weaker than market expectations of +3.2% and gives the Chinese central bank more flexibility to ease rates down the road.
• In positive news for China, May new bank lending was 793.2 billion yuan ($125 billion), which was stronger than market expectations of 700 billion yuan. That suggested that the Chinese economy is a bit stronger than expected.
• Japan's May consumer confidence index rose to 40.7 from 40.0 in April and was stronger than market expectations of 39.8. However, the Japan May machine tool orders report of -2.9% y/y was down from +0.4% y/y in April.
  Market Comments
  • June E-mini S&Ps this morning are trading up 8.50 points (+0.63%) on the Spanish bank bailout and generally favorable economic news out of China. The US stock market on Friday closed with solid gains: S&P 500 +0.81%, Dow Jones +0.75%, Nasdaq 100 +0.94%. The stock market on Friday rallied on expectations for a Spanish bank bailout over the weekend. The bank bailout overcame bearish factors such as Fitch's 3-step credit rating cut for Spain and the 1.7% drop in German exports.
  • Sep 10-year T-notes this morning are down 6 ticks on reduced safe-haven demand with the rally in stocks and the Spanish bank bailout. Sep 10-year T-note prices on Friday closed slightly higher: TYU2 +2, FVU2 +0.25. The T-note market closed higher on Fitch's credit rating cut for Spain and the 1.7% drop in Spanish exports, which outweighed the decline in safe-haven demand tied to the rally in stocks.
  • The dollar index this morning is down -0.42% on reduced safe-haven demand with the Spanish bank bailout and the rally in stocks. EUR/USD is up 0.00045 (+0.36%) and USD/JPY is -0.07 yen (-0.09%). The dollar index on Friday closed slightly higher: Dollar Index +0.046 (+0.56%), EUR/USD -0.0044 (-0.35%), USD/JPY -0.14 (-0.18%). The dollar on Friday closed slightly higher while EUR/USD closed mildly lower. EUR/USD was undercut by Fitch's credit rating cut for Spain and the 1.7% decline in German exports. EUR/USD failed to get much upside support from expectations for a Spanish bank bailout over the weekend. The U.S. April trade deficit narrowed to -$50.1 bln from a revised -$52.6 bln in March, which was wider than expectations of -$49.5 bln.
  • July WTI crude oil prices this morning are up +0.85 (+1.01%) and July gasoline is up +0.0186 (+0.69%) on the weaker dollar, the Spanish bank bailout, and the generally positive Chinese economic data. Crude oil and gasoline prices on Friday closed mixed: CLN2 -0.72 (-0.85%), RBN2 +0.0002 (+0.01%). Crude oil and on Friday closed moderately lower while gasoline closed virtually unchanged as the market remains pessimistic about global fuel demand, although Friday's lack of any IAEA-Iran progress on inspections was a longer-term bullish factor.
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    Today's U.S. Earnings Reports Earnings reports (sorted by mkt cap): FNSR-Finisar (consensus $0.21).
    Global Financial Calendar
    

    Monday 6/11/12
    United States
    1100 ET	USDA weekly grain export inspections.
    1130 ET	Weekly 3-mo and 6-mo T-bill auctions.
    1200 ET	Fed's Lockhart speaks on U.S. economy in Chicago.
    1600 ET	USDA Crop Progress
    1800 ET	Fed's Pianalto speaks on improving educational attainment.
    2015 ET	Fed's Evans speaks on U.S. economy in Chicago.
    Japan
    0100 ET	Japan May consumer confidence expected 39.8, Apr 40.
    0200 ET	Japan final-May machine tool orders, last 0.40% y/y.
    1950 ET	Japan Apr tertiary industry index expected +0.3% m/m, Mar -0.6% m/m.
    1950 ET	Japan May domestic CGPI expected -0.4% m/m and -0.4% y/y, Apr +0.3% m/m and -0.2% y/y.
    Germany
    1801 ET	Germany Q3 manpower employment outlook.
    United Kingdom
    1901 ET	UK May RICS house price balance expected -0.17%, Apr -0.19%

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