Barchart Morning Call 7/27

Barchart Morning Call

BC - 23 mins ago

Overnight Developments

• Sep E-mini S&Ps this morning are slightly higher by +0.24% on continued optimism that the ECB appears ready to restart its bond buying program, although the Bundesbank today restated its opposition to the program. European stocks are trading mildly higher by +0.21%. Commodity prices are trading up +0.58% on average with crude oil up +0.34%, gold up +0.39%, copper up +1.06%, and agricultural prices trading mostly higher. The dollar index is trading slightly lower while EUR/USD is up +0.17%. Sep 10-year T-notes are down 7.5 ticks.
• Asian stocks today closed higher on support from Thursday's sharp rally in the U.S. stock market: Japan +1.46%, Hong Kong +2.02%, china +0.07%, Taiwan +2.21%, Australia +1.50%, Singapore -0.20%, South Korea +2.93%, India +1.20%, Turkey +0.06%.
• France's Le Monde today reported that that ECB is preparing to restart its Securities Market Program and start buying bonds again of troubled countries such as Spain and Italy. That will be followed by bond purchases in the secondary market by the Eurozone's bailout facilities. However, the Bundesbank's spokesman today said that restarting the ECB's bond buying program is not the best way to resolve the crisis. Bundesbank officials in the past have opposed the ECB's bond purchase program because it blurs the line between monetary and fiscal policy, takes the pressure off countries to make the necessary fiscal consolidation to regain the trust of bond investors, and puts impaired securities on the ECB's balance sheet.
• German Chancellor Merkel and French President Hollande plan to speak today at 1PM Paris time by telephone to discuss how to help Spain as quickly as possible and to implement last month's summit agreements.
• Spain's Q2 unemployment rate rose by 0.2 points to a new record high of 24.6%, underlining the severe state of the Spanish economy.
• Chinese industrial company earnings in Jan-June fell 2.2% y/y, underlining the profit pressure that companies are under due to slower Chinese GDP growth.
• Japan's July CPI fell -0.2% y/y, down from +0.2% y/y in June and weaker than market expectations of unchanged. The report highlighted that Japan remains subject to deflationary pressure despite years of near-zero interest rates and large quantitative easing programs. Separately, Japan's June retail trade fell -1.2% m/m, which was much weaker than market expectations for a gain of +0.2% m/m and a reversal from the +0.7% m/m gain seen in May.
  Market Comments
  • Sep E-mini S&Ps this morning are up +3.25 points (+0.24%) on continued optimism that the ECB appears ready to start buying Spanish and Italian bonds in the secondary market. Facebook is down 10% in European trading this morning after reporting slower sales growth and narrower profit margins late yesterday afternoon. Starbucks is down 10% in European trading after fiscal Q4 earnings guidance was weaker than expected. The U.S. stock market on Thursday closed sharply higher: S&P 500 +1.65%, Dow Jones +1.67%, Nasdaq 100 +1.40%. Bullish factors centered on ECB President Draghi's strong statement that the ECB will do whatever it needs to do to support the euro and his implicit promise to push peripheral bond yields lower. Spanish and Italian bond yields plunged on Mr. Draghi's comments, making funding costs a little more reasonable for Spain and Italy. U.S. stock market participants are also hopeful that the Fed may announce a QE3 program at either next week's FOMC meeting or the next meeting in September.
  • Sep 10-year T-notes this morning are down 7.5 ticks on reduced safe-haven demand. Sep 10-year T-note prices on Thursday closed moderately lower: -6.5, FVU2 -2.25. T-note prices fell on reduced safe-haven demand with the sharp rally in stocks and the sharp decline in Spanish and Italian bond yields.
  • The dollar index this morning is slightly lower by -0.082 points (-0.10%) while EUR/USD is up +0.0021 (+0.17%) on the ECB's apparent intention to restart its bond buying program. USD/JPY is down -0.09 (-0.12%). The dollar index on Thursday closed sharply lower: Dollar index -0.716 (-0.86%), EUR/USD +0.0125 (+1.03%), USD/JPY +0.05 (+0.06%). The dollar index fell and EUR/USD rallied on Mr. Draghi's strong promise of support for the Eurozone and his implication that something big might be in the works. The ECB meets next Thursday and could be ready to announce new support measures for the Eurozone.
  • Sep WTI crude oil prices this morning are mildly higher by +0.30 (+0.34%) and Sep gasoline is up +0.0164 +0.60%) on some optimism about Europe with the ECB stepping in to try to reduce Spanish and Italian bond yields. Crude oil and gasoline prices on Thursday closed moderately higher: CLU2 +0.42 (+0.47%), RBU2 +0.0208 (+0.77%). Bullish factors centered on the sharp sell-off in the dollar index and the improved economic sentiment that came with ECB President Draghi's strong statement of support for the Eurozone.
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    Today's U.S. Earnings Reports Earnings reports (ranked by market cap): Chevron (Consensus $3.22), MRK-Merck (1.01), LYB-Lyndellbasell (1.40), Newmont Mining (0.93), AON-Aon Plc (1.02), WY-Weyerhaeuser (0.10), DTE-DTE Energy (0.70), KKR-KKR & Co (0.16), CPN-Calpine (0.01), DHI-DR Horton (0.20), NWL-Newell Rubbermaid (0.45), HP-Helmerich & Payne (1.15), CVH-Coventry Health (0.64), NVE-NV Energy (0.18), BOKF-BOK Financial (1.13), NS-Nustar Energy (0.30).
    Global Financial Calendar
    

    Friday 7/27/12
    United States
    0830 ET	Q2 GDP expected +1.4% annualized, Q1 +1.9% q/q annualized. Q2 personal consumption expected +1.3%, Q1 +2.5%. Q2 GDP price index expected +1.6%, Q1 +2.0%. Q2 PCE expected +1.8% q/q, Q1 +2.3% q/q.
    0955 ET	Final-July U.S. consumer confidence index (University of Michigan) unchanged from early-July at 72.0, early-July -1.2 to 72.0.
    Germany
    0800 ET	Jul German CPI (EU harmonized) expected +0.4% m/m and +1.9% y/y, Jun -0.2% m/m and +2.0% y/y. German state July CPIs.

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