Barchart Morning Call 8/10

Barchart Morning Call

BC - Fri Aug 10, 7:00AM CDT

Overnight Developments

• Sep E-mini S&Ps this morning are down -0.45% due to the -0.77% sell-off in European stocks and a much weaker-than-expected Chinese export report that indicated further deceleration in China's economy. Commodity prices are down by an average -0.34% this morning with Sep crude oil down -1.21%, Dec gold down -0.52%, Sep copper down -1.31%, and agricultural prices trading mostly higher. The grain markets are looking ahead to this morning's key USDA WASDE report where the USDA is expected to slash its corn and soybean estimates due to this summer's severe drought. The dollar index this morning is up +0.11 (+0.13%) on increased safe-haven demand, while EUR/USD is down -0.0037 (-0.30%). USD/JPY is down -0.20%. Sep 10-year T-notes are up +11 ticks this morning.
• Asian stocks today closed mostly lower due to the alarming Chinese export news: Japan -0.97%, Hong Kong -0.66%, China -0.50%, Taiwan +0.10%, Australia -0.72%, Singapore +0.06%, South Korea +0.32%, India -0.02%, Turkey -0.27%.
• China's July trade surplus fell to $25.15 billion from $31.72 billion in June and was substantially narrower than market expectations for a surplus of $35.05 billion. July exports rose by only +1.0% y/y, which was sharply below expectations of +8.0% y/y and +11.3% in June. July imports rose by +4.7%, down from +6.3% in June and well below expectations of +$7.0% y/y. The sharply lower level of export growth indicated that the Chinese economy is quickly losing its growth capacity due to poor overseas demand for Chinese exports. In fact, Chinese exports to Europe fell -16.2% y/y and Chinese exports to the U.S. were very weak at +0.6% y/y vs +10.6% y/y in June. The report bolstered expectations that the Chinese government will soon step in with additional growth measures such as a bank reserve ratio cut, a possible interest rate cut, and possibly new fiscal stimulus spending.
• China's July new loan report of 540.1 billion yuan was down sharply from June's 919.8 bln and was well below market expectations of 700 billion yuan. The weak level of bank lending was another indicator of slower Chinese economic growth.
• French June industrial production was unchanged m/m and -2.3% y/y, which was weaker than market expectations of +0.1% m/m and -1.8% y/y but an improvement from May's revised report of -2.1% m/m and -3.7% y/y.
• The UK PPI report was close to market expectations. The UK July input PPI rose by +1.3% m/m, the July output PPI was unchanged m/m, and the July core output PPI was unchanged m/m.
• The Russian central bank today after its policy meeting left rates unchanged and highlighted that there are "significant" inflation risks from a weaker harvest and that higher interbank rates are constraining lending growth.
• The International Energy Agency cut its estimate for oil use growth to +0.9% y/y in 2013, down from growth of +1.0% in 2012 and less than its prediction last month for 2013 growth of +1.1% y/y.
• Japan's upper house of Parliament approved an increase in the sales tax for the first time since 1997 in a victory for Prime Minister Noda who is trying to rein in Japan's massive budget deficit and debt load. The new law will double the 5% sales tax by 2015. Japan's lower house already passed the sales tax increase in June.
  Market Comments
  • Sep E-mini S&Ps this morning are down -0.45% thanks to the -0.77% sell-off in the Euro Stoxx 50, the very weak Chinese export growth report of +1.0%, the weak Chinese new loan report, and a slightly weaker than expected French industrial production report. The stock market on Thursday closed narrowly mixed: S&P 500 +0.04%, Dow Jones -0.08%, Nasdaq 100 +0.21%. Stocks were supported by the unexpected 6,000 decline in initial unemployment claims to 361,000, which was only 9,000 above the 4-1/3 year low of 352,000 posted in early July. The report was particularly encouraging since a Labor Department official said that the data was free of distortions from auto plant closures for retooling, which indicated the labor market is in better shape than earlier thought. The stock market was able to shake off bearish overnight news that included a weaker-than-expected Chinese July industrial production report +9.2% y/y (vs market expectations of +9.7% y/y), Chinese July retail sales +13.1% y/y (vs expectations of +13.5% y/y), India industrial production of -1.8% y/y (vs expectations of +0.4% y/y), and Japan June machine orders of +5.6% m/m (vs expectations of +12.0% m/m).
  • Sep 10-year T-notes this morning are sharply higher by +11 ticks due to poor Chinese export report, the sell-off in global stocks, and some supply relief after the conclusion of this week's $72 billion refunding operation. T-note prices on Thursday closed slightly lower: TYU2 -1, FVU2 -0.5. T-note prices were pressured by the decline in initial unemployment claims, which provided more evidence of a stronger-than-expected labor market following last Friday's news that July payrolls rose by +163,000.
  • The dollar index this morning is up +0.11 (+0.13%) on increased safe-haven demand with the sell-off in global stocks. EUR/USD is down -0.0037 (-0.30%) and USD/JPY is down -0.16 (-0.20%). The dollar index on Thursday closed mildly higher: Dollar index +0.24 (+0.29%), EUR/USD -0.0059 (-0.48%), USD/JPY +0.14 (+0.18%). The dollar was supported by the positive U.S. labor market data as seen in the 6,000 decline in initial unemployment claims. EUR/USD was undercut by the news in the ECB's monthly report that the ECB's survey of private forecasters found expectations for a -0.3% decline in 2012 Eurozone GDP, a slightly larger decline than its previous survey of -0.2%. Spanish and Italian bond yields were little changed on Thursday.
  • Sep WTI crude oil prices this morning are down -1.13 (-1.21%) and Sep gasoline is down -0.0322 (-1.07%) on pessimism about Chinese economic growth. Crude oil and gasoline prices on Thursday closed mildly lower: CLU2 +0.01 (+0.01%), RBU2 +0.0204 (+0.68%). Crude oil and gasoline saw support from the positive U.S. economic data as seen with the drop in initial unemployment claims. Meanwhile, a new tropical depression formed in the Atlantic that appears to be headed along roughly the same path as Ernesto, i.e., towards Central America and Mexico, and not towards the Gulf of Mexico. The storm may be designated as Tropical Storm Gordon by today. Gasoline prices in California continue to see upward pressure from the August 6 fire at Chevron's refinery in Richmond, California.
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    Today's U.S. Earnings Reports Earnings reports (ranked by market cap): JC Penney (Consensus $-0.15), HAR-Harman Intl (0.64), HRG-Harbinger Group (na), EEQ-Enbridge Energy (na), RNF-Rentech Nitrogen (0.98).
    Global Financial Calendar
    

    Friday 8/10/12
    United States
    0830 ET	Jul import price index expected +0.2% m/m and -2.4% y/y, Jun -2.7% m/m and -2.6% y/y.
    1400 ET	Jul monthly budget statement expected -$103.0 billion, Jun -$59.741 billion.
    Japan
    0030 ET	Japan revised Jun industrial production, previous -0.1% m/m and -2.0% y/y. Revised June capacity utilization, previous -2.2% m/m.
    Germany
    0200 ET	German revised July CPI (EU harmonized) expected no change at +0.4% m/m and +2.0% y/y.
    United Kingdom
    0430 ET	U.K. July PPI input prices expected +1.3% m/m and -1.5% y/y, June -2.2% m/m and -2.3% y/y.

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