Barchart Morning Call 9/6

Barchart Morning Call

BC - Thu Sep 06, 7:00AM CDT

Overnight Developments

• Sep E-mini S&Ps this morning are moderately higher by +0.57% while the Euro Stoxx 50 is up 1.12%. Asian stocks closed mostly higher today on expectations for the ECB's bond-buying plan and on China's approval of a subway plan for 18 cities that boosted government stimulus expectations. Japanese stocks closed +0.01%, Hong Kong stocks closed +0.34%, and Chinese stocks closed +0.82%. Commodity prices are up by +0.51% on average with Oct crude oil up +1.16%, Dec gold up 1.06%, Dec copper down -0.47%, and agricultural prices trading mostly higher. The dollar index is slightly lower and EUR/USD is slightly higher. Dec 10-year T-notes are down 4 ticks.
• The ECB at its meeting today left its refinancing rate unchanged at 0.75%, which was a bit disappointing as the market had discounted about a 50-50 chance of a 25 bp rate cut to 0.50%. The markets are now waiting for ECB President Draghi to hold his press conference starting at around 8:30 AM ET, where Mr. Draghi is expected to announce the details of the ECB's bond-buying program.
• The Bank of England today after its policy meeting announced that it left the base rate unchanged at 0.50% and left its asset purchase target unchanged at 375 billion pounds, which was in line with market expectations. The Bank of England expanded its asset purchase target by 50 billion pounds to the current level of 375 billion pounds back in July. The Bank of England continues to maintain a very stimulative monetary policy as it tries to support the economy and offset the impact of fiscal tightening.
• Sweden's central bank today cut its key policy rate by 25 bp to 1.25%, leading to a 0.2% drop in the Swedish krona against the euro.
• Spain today successfully sold 3.5 billion euros of debt. The government sold 2-year notes at an average yield of 2.798%, down sharply from 4.706% at the last 2-year sale in June. However, the bid cover ratio was only 2.01, down from 3.97 at the last auction. The government also sold 3 and 4-year securities today.
• Eurozone Q2 GDP was left unrevised at -0.2% q/q although the year-on-year figure was revised slightly lower to -0.5% y/y from the preliminary estimate of -0.4% y/y.
• German July factory orders rose +0.5% m/m, which was slightly stronger than market expectations of +0.3% m/m and a big improvement from the revised -1.6% m/m decline seen in June.
• The Chinese stock market rose +0.7% today in part because of increased stimulus expectations after a government agency approved a subway plan for 18 cities.
  Market Comments
  • Sep E-mini S&Ps this morning are up +8.00 points (+0.57%) on the ECB's announcement of its bond-buying plan, which should help to contain the Eurozone debt crisis. The broad U.S. stock market on Wednesday closed slightly lower: S&P 500 -0.11%, Dow Jones +0.09%, Nasdaq 100 -0.18%. Bearish factors included (1) the 2% decline in FedEx, which was forced to downgrade its earnings guidance due to weak global shipping business, (2) the sharp decline in the NY Aug manufacturing PMI index to 51.4 from July's 55.2, (3) carry-over worries about Tuesday's 0.2 point decline in the Aug ISM manufacturing index to 49.6, (4) weak European economic data with the decline in Eurozone July retail sales (-0.2% m/m and -1.7% y/y) and the downward revision in the Eurozone final-Aug services PMI by 0.3 points to 47.2 from 47.5, and (5) a report from a Chinese government agency that China's 2012 industrial output will slow to about +10% y/y from +13.9% in 2011 and +15.7% in 2010, Bullish factors supporting the stock market included the report that the ECB's proposed bond-buying plan will involve the unlimited purchase of bonds of less than 3 years in maturity and continued hopes that the FOMC next week will decide to launch QE3.
  • Dec 10-year T-notes this morning are down 4 ticks as the ECB's bond-buying plan has reduced safe-haven demand for Treasury securities. Dec 10-year T-note prices on Wednesday closed slightly lower: TYZ2 -1.5, FVZ2 +0.5. T-notes saw some reduced safe-haven demand with the ECB's apparent intention to buy unlimited amounts of short-term bonds to try to contain the European debt crisis.
  • The dollar index this morning is down -0.09 points (-0.11%) while EUR/USD is slightly higher by +0.0011 (+0.09%) on the ECB's bond-buying program. USD/JPY is up +0.09 points (+0.11%). The dollar index on Wednesday closed slightly lower: Dollar index -0.08 (-0.10%), EUR/USD +0.0035 (+0.28%), USD/JPY -0.04 (-0.05%). The dollar index on Wednesday saw some reduced safe-haven demand and EUR/USD saw some support on the report that the ECB plans to buy unlimited quantity of bonds to contain the Eurozone debt crisis. The bullish aspects of that news included (1) that the bond-buying plan could actually contain the Eurozone debt crisis and lead to a slow improvement in the Eurozone economy, and (2) that the ECB intends to sterilize, or offset, the bond purchases with reserve draining operations, meaning that the operation would not involve the printing of new euros.
  • Oct WTI crude oil prices this morning are up +1.11 (+1.16%) and Oct gasoline is up +0.0277 (+0.94%). Oct crude oil and gasoline prices on Tuesday closed narrowly mixed: CLV2 +0.06 (+0.06%), RBV2 -0.0024 (-0.08%). Crude oil and gasoline prices continue to see underlying support from the ongoing disruptions in the Gulf of Mexico from Hurricane Isaac, although the six refineries that were shut down by Isaac are now mostly back up and running. As of Wednesday at 12:30 PM ET, 49% of oil production in the Gulf and 26% of natural gas production was still shut down from Isaac. The loss of crude oil production in the Gulf of Mexico over the past week will help bring U.S. crude oil inventories down to less excessive levels than existed before the hurricane. Today's weekly DOE report is expected to show a 5.5 million barrel drop in crude oil inventories due to distortions from Hurricane Isaac, which closed about 95% of oil platforms in the Gulf of Mexico and temporarily halted tanker deliveries of crude oil from overseas. The refinery utilization rate may have fallen by as much as 1.8 points to 89.4% of capacity. The market is looking for a 3 million barrel decline in gasoline inventories and a 1.5 million barrel drop in distillate inventories due to the refinery shut-downs.
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    Today's U.S. Earnings Reports Earnings reports (ranked by market cap): ULTA-Ulta Salon Cosmetics (Consensus $0.51), COO-Cooper (1.29), UTIW-UTI Worldwide (0.23), NAV-Navistar (-1.41).
    Global Financial Calendar
    

    Thursday 9/6/12
    United States
    0730 ET	Aug Challenger job cuts, July -44.5% y/y.
    0815 ET	Aug ADP employment change expected +145,000, July +163,000.
    0830 ET	Weekly initial unemployment claims expected -4,000 to 370,000, previous unch at 374,000. Weekly continuing claims expected -1,000 to 3.315 million, previous -5,000 to 3.316 mln.
    1000 ET	Aug ISM non-manufacturing index expected -0.1 to 52.5, July +0.5 to 52.6.
    1030 ET	DOE Weekly Petroleum Status Report.
    1100 ET	Treasury announces amounts of 3-year T-notes (previous $32 billion), 10-year T-notes (previous $24 billion) and 30-year T-bonds (previous $16 billion) to be auctioned Sep 11-13.
    1630 ET	Weekly money supply report and Fed balance sheet.
    n/a	Aug ICSC chain store sales, July +1.9% y/y.
    Euro-Zone
    0500 ET	Eurozone Q2 GDP expected -0.2% q/q and -0.4% y/y.
    0745 ET	ECB announces outcome of policy meeting; refi rate expected unchanged at 0.75%.
    1330 ET	ECB Council members Yves Mersch and Luc Coene speak at the Executive Club Luxembourg.
    Germany
    0600 ET	German July factory orders expected +0.3% m/m and -4.5% y/y, Jun -1.7% m/m and -7.8% y/y.
    United Kingdom
    0700 ET	BOE announces outcome of policy meeting with base rate expected unchanged at 0.50%. BOE asset purchase target expected unchanged at 375 billion pounds.

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