Barchart's Morning Call 7/13

Barchart Morning Call

BC - 2 hrs 28 mins ago

Overnight Developments

• Sep E-mini S&Ps are trading +0.36% on higher European stocks (+0.76%) and on hopes for more Chinese stimulus after the slightly weaker-than-expected Chinese Q2 GDP report of +7.6% y/y. The markets were relieved that the Chinese Q2 GDP report was just slightly below expectations of +7.7%. The markets are shaking off Moody's downgrade of Italian debt. Commodity prices are up by an average of 1.0% today. Crude oil is up 1.18%, gold is up 1.19%, copper is up +1.90%, and agricultural commodities are trading mostly higher. The dollar index this morning is little changed. Sep 10-year T-notes are down 0.5 tick.
• Asian stocks today closed mostly higher: Japan +0.05%, Hong Kong +0.35%, China +0.06%, Taiwan -0.37%, Australia +0.35%, Singapore +0.79%, South Korea +1.75%, India -0.11%, Turkey +0.76%.
• JPMorgan Chase this morning restated its Q1 net income downward by $459 million to $4.92 billion from $5.38 billion after saying that losses from the troubled CIO department were larger than earlier thought in Q1 and that traders may have tried to hide the losses. JPMorgan reported Q2 net income of $4.96 billion or $1.21 per share. The CIO trading loss was reported at $4.4 billion, which was a bit larger than market expectations of $4 billion. Q2 earnings excluding accounting adjustments were $1.09 per share.
• China's Q2 real GDP report of +7.6% y/y was slightly weaker than market expectations of +7.7% y/y and was down from +8.1% in Q1. The weak report caused market participants to step up expectations for further growth measures from the Chinese government.
• The other Chinese economic reports released last night either matched or were stronger than market expectations. June retail sales eased to +13.7% y/y from +13.8% in May but was stronger than market expectations of +13.4%. June fixed asset investment (excluding rural) was reported at +20.4% year-to-date, which was up from +20.1% in May and higher than the market consensus of +20.0%. June industrial production eased to +10.5% from +10.7% in May and was in line with market expectations.
• Moody's last night cut Italy's bond rating by two steps to Baa2 from A3 and put the country on negative outlook, saying that a further downgrade is possible. That was just two steps above junk and one step higher than Spain. Italian bond prices fell on the news and the 10-year Italian bond yield rose by 12 bp to 6.01%, moving back above the 6.00% threshold. Italian 5-year credit default swap prices rose by 18 bp to 521 bp today as the cost of insuring against a sovereign default rose. The rating downgrade was made because Italy faces higher funding costs, slower growth, and contagion risk from Greece and Spain. Moody's said, "Italy's near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets. Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding." Italy today was able to successfully sell a range of securities despite the downgrade.
  Market Comments
  • Sep E-mini S&Ps this morning are trading +4.75 points (+0.36%) on higher European stocks (+0.76%) and hopes for additional Chinese stimulus measures. The US stock market on Thursday closed moderately lower: S&P 500 -0.50%, Dow Jones -0.25%, Nasdaq 100 -1.00%. Bearish factors included (1) general worries about global economic growth and about Thursday night's Chinese Q2 GDP report in particular, (2) expectations for a decline in earnings in Q2 as earnings reports start in earnest next week, and (3) carry-over weakness from Wednesday's FOMC minutes in which it was clear that there is little support for QE3 on the Committee.
  • Sep 10-year T-notes this morning are down 0.5 tick with the higher trade in S&Ps. T-note prices on Thursday closed slightly lower: TYU2 +2, FVU2 +0.5. Bullish factors included (1) safe-haven demand tied to the stock market sell-off and the small 5 bp rise in the Spanish bond yield, and (2) the conclusion of the $66 billion Treasury coupon package with Thursday's 30-year bond being sold at a record low of 2.58%.
  • The dollar index this morning is trading slightly lower by -0.027 (-0.03%). EUR/USD is down -0.0011 (-0.09%) and USD/JPY is down -0.02 (-0.03%). The dollar index on Thursday closed mildly higher: Dollar index +0.25 (+0.30%), EUR/USD -0.0036 (-0.29%), USD/JPY -0.45 (-0.56%). The dollar index on Thursday posted a new 2-year high and EUR/USD edged to a new 2-year low. The dollar index rallied on continued safe-haven demand as global stocks fell and as the Spanish 10-year bond yield rose by 5 bp to 6.59%.
  • Aug WTI crude oil prices this morning are up +1.02 (+1.18%) and Aug gasoline is up +0.0072 (+0.26%) on hopes for additional Chinese stimulus measures. Crude oil and gasoline prices on Thursday closed higher: CLQ2 +0.27 (+0.31%), RBQ2 +0.0373 (+1.35%). Bullish factors included (1) carry-over support from Wednesday's news that that U.S. oil inventories fell by more than 4 million barrels for the second consecutive week, suggesting that oil inventories are finally headed lower on a sustained basis due to the high operating rate for U.S. refineries, and (2) the Obama administration's announcement that it is targeting more Iran companies with sanctions that provide a front for weapons and oil sales.
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    Today's U.S. Earnings Reports Earnings reports (ranked by market cap): WFC-Wells Fargo (Consensus $0.81), JPM-JPMorgan Chase (0.76), WBS-Webster Financial (0.44).
    Global Financial Calendar
    

    Friday 7/13/12
    United States
    0830 ET	June PPI expected -0.4% m/m and +0.2% y/y, May -1.0% m/m and +0.7% y/y. June core PPI expected +0.2% m/m and +2.6% y/y, May +0.2% m/m and +2.7% y/y.
    0955 ET	Early-July U.S. consumer confidence (University of Michigan) expected +0.3 to 73.5, June -6.1 to 73.2.
    1320 ET	Fed's Lockhart speaks on U.S. economy in Jackson, MS.
    Japan
    0030 ET	Japan final-May industrial production, prelim-May -3.1% m/m and +6.2% y/y. Final-May capacity utilization, prelim-May -0.6% m/m.

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