Barchart Morning Call 7/24

Barchart Morning Call

BC - 1 hr 8 mins ago

Overnight Developments

• Sep E-mini S&Ps are trading mildly lower by -0.26% on the -0.55% sell-off in European stocks and Moody's announcement late Monday of a shift to a negative outlook for the Aaa ratings for Germany, Netherlands, and Luxembourg. In addition, Germany's manufacturing and services PMI reports today were weaker than expected. However, the markets received some good news overnight with the 1.2 point rise in China's HSBC/Markit flash July manufacturing PMI to 49.5. Commodity prices are down -0.58% on average with Sep crude oil down -0.23%, Aug gold down -0.36%, Sep copper down -0.58%, grains down by about 2% on average, and meats and softs trading mixed. The dollar index is up +0.18%. Sep 10-year T-notes are up 1.5 ticks.
• Asian stocks today closed mixed: Japan -0.24%, Hong Kong -0.79%, China +0.45%, Taiwan -0.29%, Australia +0.10%, Singapore +0.53%, South Korea +0.38%, India +0.24%, Turkey +0.43%.
• The 10-year German bond yield today rose by 6 bp to 1.23% and the Dutch bond yield rose by 10 bp to 1.72% after Moody's late Monday cut the Aaa rating outlook to negative for Germany, the Netherlands, and Luxembourg. Moody's made the change because of the risks that Greece may leave the euro and an "increasing likelihood" that Spain and Italy may need bailouts.
• The Spanish 10-year bond yield today rose by another 13 bp to a new euro-era record high of 7.57%. Spanish Economy Minister Luis de Guindos is in Berlin today to meet with German Finance Minister Wolfgang Schaeuble, who is leaving shortly for a 3-week vacation. The Spanish government today was able to sell 3.05 billion euros of bills, but had to pay 2.434% for the 3-month bills. Spanish bond yields have risen sharply since last week in part because Spain's regions are now lining up for bailouts from the central government, which has set up a facility totaling 18 billion euros.
• China's July manufacturing PMI from HSBC/Markit rose by 1.3 points to 49.5 from 48.2 in June, which suggested that conditions in China's manufacturing sector improved a bit. In a separate report, China's June leading index rose +0.1% after the +1.1% increase in May.
• Germany's PMI indexes were weaker than expected while the Eurozone PMI indexes were mixed. Germany's July manufacturing PMI of 43.3 was substantially weaker than market expectations of 49.7 and was down from 45.0 in June. Moreover, the German July services PMI of 49.7 was weaker than market expectations of 50.0 and was down from 49.9 in June. The Eurozone's manufacturing PMI of 44.1 was below market expectations of 45.2 and was down from 45.1 in June. However, the Eurozone July services PMI of 47.6 was stronger than market expectations of 47.1 and was up from 47.1 in June. The Eurozone July composite PMI of 46.4 was in line with market expectations and was unchanged from 46.4 in June.
  Market Comments
  • Sep E-mini S&Ps this morning are down -3.50 points (-0.26%) on lower European stocks, although E-minis found some support from the stronger-than-expected Chinese manufacturing PMI report. There is a raft of Q2 earnings reports today. The U.S. stock market on Monday closed sharply lower: S&P 500 -0.89%, Dow Jones -0.79%, Nasdaq 100 -1.07%. The European debt crisis has substantially worsened in the past week and 10-year bond yields on Monday rose by 22 bp to 7.44% for Spain and by 16 bp to 6.31% for Italy. The markets were alarmed by fresh events including (1) German Economy Minister Roesler's comment that he is "very skeptical" about whether Greece can meet its austerity requirements and that a Greek exit from the euro has "lost its terror," (2) news that Spain's regional governments appear to be lining up for bailouts from the Spanish central government, and (3) news after close that Moody's lowered its Aaa rating outlooks to negative for Germany, the Netherlands and Luxembourg because the "rising uncertainty" about the debt crisis and the increasing likelihood that those countries will be called upon to provide even larger bailouts. US stocks were also undercut by Chinese central bank advisor Song Guoqing's comment on Saturday that Chinese Q3 GDP may cool to +7.4% from +7.6% in Q2 and +8.1% in Q1, meaning that the Chinese economy has yet to bottom.
  • Sep 10-year T-notes this morning are trading +1.5 ticks on the mildly lower trade in U.S. and European stock indexes. The T-note market is looking ahead to today's sale of $35 billion in 2-year T-notes, which is currently trading at a yield of 0.22%. Sep 10-year T-note prices on Monday closed higher: TYU2 +5, FVU2 +3. T-note prices were boosted by increased safe-haven demand with the sharp global sell-off in stocks and the increased worries about the European debt crisis with the Spanish 10-year bond yield surging to a new euro-era record high of 7.44%.
  • The dollar index this morning is mildly higher by +0.15 points (+0.18%) on the continued European troubles, while EUR/USD is down -0.0021 (-0.17%). USD/JPY is down -0.23 points (-0.29%). The dollar index on Monday closed higher: Dollar index +0.228 (+0.27%), EUR/USD -0.0040 (-0.33%), USD/JPY -0.09 (-0.11%). The dollar index posted a new 2-year high on Monday and EUR/USD posted a new 2-year low. The dollar index was once again boosted by safe-haven demand tied to the Eurozone debt crisis, while EUR/USD continued to see losses on capital flight from Europe. On the current course, Spain will need a full bailout on the order of 350-450 billion euros, which would nearly drain the Eurozone's bailout resources. In addition, a Greek exit from the Eurozone is now back on the table with troika officials arriving in Athens on Tuesday for an examination of Greece's progress, or lack therefore, on meeting the terms of its austerity program.
  • Sep WTI crude oil prices this morning are mildly lower by -0.20 (-0.23%) and Sep gasoline is down -0.0241 (-0.87%) on continued technical long liquidation pressure and worries about Europe. Crude oil and gasoline prices on Monday closed sharply lower: CLU2 -3.69 (-4.02%), RBU2 -0.0807 (-2.84%). Bearish factors included the sharp sell-off in global stocks, worries about global economic growth and fuel demand, and long liquidation pressure after the sharp rally seen in the first half of July. The market consensus for Wednesday's weekly DOE report is for a 1.5 million barrel drop in crude oil inventories for the fifth consecutive weekly decline, a 500,000 barrel drop in gasoline inventories, a 1 million barrel increase in distillate inventories, and a 0.5 point drop in the refinery utilization rate to 91.5% of capacity from 92.0% last week.
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    Today's U.S. Earnings Reports Earnings reports (ranked by market cap): Apple (Consensus $10.38), AT&T (0.63), UPS-United Parcel (1.17), MO-Altria (0.57), EMC-EMC corp (0.39), SPG-Simon Property (0.71), DD-DuPont (1.46), BIIB-Biogen Idec (1.56), LMT-Lockheed Martin (1.91), RAI-Reynolds America (0.76), ITW-Illinois Tool (1.10), NSC-Norfolk Southern (1.53), AFL-Aflac (1.61), BRCM-Broadcom (0.67), APD-Airproducts (1.41), PCAR-Paccar (0.81), EW-Edwards Life (0.65), WU-Western Union (0.43), ALTR-Altera Corp (0.39), FTI-FMC Technologies (0.48), RRC-Range Resources (0.09), CHRW-CH Robinson (0.71), RF-Regions Financial (0.14), SIAL-Sigma-Aldrich (0.97), COG-Cabot Oil & Gas (0.06), JNPR-Juniper Networks (0.16).
    Global Financial Calendar
    

    Tuesday 7/24/12
    United States
    0745 ET	ICSC (Int'l Council of Shopping Centers) weekly retailer sales.
    0845 ET	Fed Chairman Bernanke speaks on early childhood education in Cincinnati.
    0855 ET	Redbook weekly retailer sales.
    0858 ET	Markit July US PMI preliminary expected 52.0, last 52.5.
    1000 ET	July Richmond Fed manufacturing index expected +2 to -1, June -7 to -3.
    1000 ET	May FHFA house price index expected +0.4% m/m, Apr +0.8% m/m.
    1130 ET	Weekly 4-week T-bill auction.
    1300 ET	Treasury sells $35 bln in 2-year T-notes.
    1630 ET	API weekly U.S. oil statistics.
    Germany
    0330 ET	Jul German manufacturing PMI expected +0.1 to 45.1, Jun 45.0. Jul German PMI services expected +0.1 to 50.0, Jun 49.9.
    Euro-Zone
    0400 ET	Jul Eurozone PMI composite expected unch at 46.4, Jun 46.4. July PMI manufacturing expected +0.1 to 45.2, June 45.1. July PMI services expected unch at 47.1, June 47.1.
    United Kingdom
    0430 ET	UK BBA loans for house purchases.
    Japan
    1950 ET	Jun Japan merchandise trade balance (sa) expected -398 bln yen, May -657.2 bln yen. June trade exports expected -3.0% y/y, May +10.0% y/y. June trade imports expected +1.1% y/y, May +9.3% y/y.

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