Barchart Morning Call 9/11

Barchart Morning Call

BC - Tue Sep 11, 7:00AM CDT

Overnight Developments

• Sep E-mini S&Ps this morning are up +3.75 points (+0.26%) as general sentiment remains positive going into the Wednesday/Thursday FOMC meeting, which is widely expected to produce a QE3 announcement. European stocks are down -0.33% this morning on worries ahead of tomorrow's ruling on the ESM by the German Federal constitutional Court and as Spain continues to show a reluctance to accept the ECB's bond-buying program. Asian stocks today closed mixed with Japan down -0.70%, Hong Kong +0.15%, and China -0.64%. Commodity prices are slightly higher by +0.10% on average with Oct crude oil virtually unchanged, Dec gold up +0.06%, Dec copper down -0.07%, and agricultural prices narrowly mixed. The dollar index is down -0.21 this morning on a generally stable environment while EUR/USD is up +0.22%. Sep 10-year T-notes are up 4.5 ticks as this week's $66 billion Treasury coupon auction package begins today with the sale of $32 billion in 3-year T-notes.
• Chinese stocks fell -0.7% today due to a weaker-than-expected auto sales report of +11% to 1.22 million units (versus expectations of 1.24 million units) and general concerns about slower economic growth. Chinese stocks were also hurt by reports expressing concern about the health of Vice President Xi Jinping's, who has been absent from public view for more than a week and has missed a series of scheduled meetings. Xi Jinping is believed to be the leading candidate to succeed Chinese President Hu Jintao in next month's leadership change.
• Germany's Federal Constitutional Court today said it will issue its ruling tomorrow at 10 AM local time on the permanent ESM bailout facility as previously scheduled, rejecting a bid to delay its ruling. Germany cannot ratify its participation in the ESM until the Court provides the go-ahead. The markets are generally expecting a decision in favor of allowing Germany to proceed with ratification, but it is possible that the Court could impose conditions, even going so far as to require a public referendum on whether the ESM can proceed. The ESM has already been delayed by two months by waiting for the Court's decision and the markets would be very disappointed with any further delays or obstacles.
• Spanish Prime Minister Rajoy said late yesterday that he will not allow the EU or the ECB to dictate how the Spanish government narrows its budget deficit as a condition for the ECB's bond-buying program.
• Germany's Aug wholesale price index rose +1.1% m/m and +3.1% y/y, which was substantially stronger than July's report of +0.3% m/m and +2.0% y/y.
• Japan's Aug machine tool orders report of -2.6% y/y improved from July's poor report of -6.7% y/y.
• China's money supply report was weaker than expected, providing additional evidence pointing to an economic slowdown. M2 growth eased to +13.5% y/y from +13.9% in July and was below market expectations of +14.0% y/y. M1 growth eased slightly to +4.5% from +4.6% in July and was weaker than market expectations of +4.7%.
• China's Aug new lending of 704 billion yuan ($111 billion) was higher than the expected 600 billion yuan and was up from 540 billion yuan in July. The higher lending level suggested that banks are successfully force-feeding loans to businesses in an attempt to meet the government's stimulus plans.
• UK's trade deficit was substantially narrower than expected, providing some support for the pound. UK's total trade deficit narrowed to -1.517 billion pounds from a revised -4.333 billion pounds in June and was much narrower than market expectations of -3.2 billion pounds.
  Market Comments
  • Sep E-mini S&Ps this morning are mildly higher by +3.75 (+0.26%) as the market basically treads water ahead of the FOMC decision on Thursday. U.S. stocks on Monday closed with fairly sharp losses: S&P 500 -0.61%, Dow Jones -0.39%, Nasdaq 100 -1.30%. Bearish factors included (1) long liquidation pressure and nervousness ahead of the Wed/Thur FOMC meeting where market participants are strongly expecting QE3, (2) the $3.3 billion drop in U.S. consumer credit, which indicated weak consumer confidence in July, (3) generally weak Chinese economic data released over the weekend with the main negative number being the 2.6% y/y decline in Chinese imports, which highlighted weak domestic demand, and (4) the downward revision in Japan's Q2 GDP to +0.7% from +1.4% q/q annualized. The stock market is mainly focused on whether the FOMC at its Wed/Thur meeting will launch QE3.
  • Dec 10-year T-notes this morning are up 4.5 ticks going into today's 3-year T-note auction. T-note prices on Monday closed slightly lower: TYZ2 -5, FVZ2 -2.75. T-note prices saw some weakness on Monday as the market started to wonder whether the chances have been overplayed for a QE3 decision from the Fed on Thursday. There was also some supply overhang as the Treasury today begins its $66 billion auction of 3-year, 10-year, and 30-year securities.
  • The dollar index this morning is down -0.21 (-0.26%) on continued bearishness tied to expectations for QE3 on Thursday. EUR/USD is up +0.22% and USD/JPY is down -0.27 (-0.34%). The dollar index on Monday closed slightly higher: Dollar index +0.15 (+0.18%), EUR/USD -0.0058 (-0.45%), USD/JPY +0.05 (+0.06%). The dollar closed slightly higher on some technical short-covering after last week's sharp decline. In addition, there was some weakness in EUR/USD tied to meetings this week between Greek Prime Minister Samaras and troika officials. Mr. Samaras has yet to obtain an agreement from his coalition partners on the 11.5 billion euro austerity package that Mr. Samaras must get passed to satisfy Eurozone officials and qualify for its next bailout tranche.
  • Oct WTI crude oil prices this morning are down -0.01 (-0.01%) and Oct gasoline is up +0.0058 (+0.19%). Oct crude oil and gasoline prices on Monday closed slightly higher: CLV2 +0.12 (+0.12%), RBV2 +0.0044 (+0.15%). Crude oil prices received a boost from continued tight U.S. refinery conditions and Israel's push-back against U.S. Secretary of State Hillary Clinton's comment that the U.S. does not intend to impose deadlines and red lines in the dispute with Iran over its nuclear program. Production in the Gulf of Mexico from Hurricane Isaac (which made landfall on Aug 29) has now been mostly restored with only 8% of oil production and 6% of natural gas production still shut down as of mid-day Monday. Oil prices saw some downward pressure on Monday from Saudi Arabian Oil Minister Ali al-Naimi's comment that the current supply and demand situation do not justify crude oil's high price at present. He said, "The market is well balanced, forward cover remains within an acceptable range and inventories are more than adequate." The market consensus for Wednesday's weekly DOE report is for a 2.6 million barrel drop in crude oil inventories, a 1.65 million barrel decline in gasoline inventories, a 1.15 million barrel decline in distillate inventories, and a 1.0 point increase in the refinery utilization rate to 87.1% from last week's 86.1%. The inventory declines are expected to stem from the continued shut-down of a significant amount of oil production and refinery operation during the reporting week ending Sep 7 due to Hurricane Isaac.
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    Today's U.S. Earnings Reports Earnings reports (ranked by market cap): UNFI-United Natural (Consensus $0.51).
    Global Financial Calendar
    

    Global Calendar - Tuesday 9/11/12
    United States
    0745 ET	ICSC (Int'l Council of Shopping Centers) weekly retailer sales.
    0830 ET	July trade balance expected -$44.0 billion, Jun -$42.9 billion.
    0855 ET	Redbook weekly retailer sales.
    1130 ET	Weekly 4-week T-bill auction.
    1300 ET	Treasury auctions $32 bln in 3-year T-notes.
    1630 ET	API weekly U.S. oil statistics.
    Japan
    0200 ET	Japan Aug machine tool orders, July -6.7% y/y.
    1950 ET	Japan July machine orders expected +2.0% m/m and -3.6% y/y, June +5.6% m/m and -9.9% y/y.
    1950 ET	Japan July tertiary index expected -0.5% m/m, June +0.1% m/m.
    1950 ET	Japan Aug domestic CGPI expected +0.1% m/m and -1.9% y/y, July -0.4% m/m and -2.1% y/y.
    United Kingdom
    0430 ET	UK July visible trade balance expected -9.0 bln pounds, June -10.119 bln pounds. July non-EU trade balance expected -4.5 bln pounds, June -5.176 bln pounds. July total trade balance expected -3.2 bln pounds, June -4.308 bln pounds.

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