Overnight
Developments
- Sep E-mini S&Ps this morning are up +0.48% on continued optimism about the FOMC's aggressive QE3 program announced yesterday. The FOMC said its $40 billion per month in mortgage purchases will continue until the labor market shows a substantial recovery. The FOMC also extended its forecast for exceptionally low interest rates by 6 months to at least mid-2015 from late-2014. Commodity prices are sharply higher again this morning with an average +1.05% gain. Oct crude oil is sharply higher by +1.76%, Dec gold is up +0.29%, Dec copper is up +3.13%, and agricultural prices are higher nearly across the board. Stocks have rallied around the world. The Euro-Stoxx 50 index is up +1.99% and most Asian stock markets showed gains of 1-3%. Japan closed +1.83%, Hong Kong +2.9%, and China +0.74%. Sep 10-year T-note prices are down 17 ticks this morning as safe-haven demand evaporates. The dollar index is down by another -0.63% and EUR/USD is up +0.94%.
- The Spanish 10-year bond yield is down 5 bp at a 5-month low of 5.58%. Eurozone finance ministers are holding a 2-day meeting starting today where a key topic is whether Spain will formally request aid from the ECB/Eurozone bond-buying program. Spanish Prime Minister Rajoy continues to delay a decision as he waits to see if bond yields are going to stay down and what kind of conditions may be attached to requesting aid. Eurozone officials will also get a preliminary report from troika officials on Greece, but any final decisions on Greece need to wait until early October when the final troika report will be available and when it will be known if Greek Prime Minister Samaras will be able to push the 11.5 billion euro spending cut package through Parliament that Eurozone officials are demanding.
- Standard & Poors today upgraded South Korea's debt rating, leading to a 1% rally in the South Korean won.
- Reuters is reporting that China's Xi is recovering and may appear in public on Saturday. Xi is due to take command of the Chinese government in October but has been absent from public view for more than a week and has missed meetings with key foreign officials, leading to frenzied speculation about the reason for his disappearance. The lack of transparency by the Chinese government has not been encouraging to global investors although the Chinese stock market has shown no obvious weakness directly tied to the controversy.
- Japan's final industrial production report was revised slightly higher to -1.0% m/m and -0.8% y/y from the preliminary report of -1.2% m/m and -1.0% y/y.
- The Eurozone Aug CPI report of +0.4% m/m and +2.6% y/y was in line with market expectations. The Aug core CPI report of +1.5% y/y was weaker than expectations and July's report of +1.7% y/y.
- The Eurozone Q2 employment report showed weakness since it was unchanged q/q
and -0.6% y/y.
Market Comments- Dec E-mini S&Ps this morning are up +7.00 points (+0.48%) on relief that the rest of the world's stock markets have rallied sharply and have also been impressed by the FOMC's QE3 program. The S&P 500 index on Thursday closed sharply higher and posted a new 4-1/2 year high: S&P 500 +1.63%, Dow Jones +1.55%, Nasdaq 100 +1.42%. The stock market received a strong boost from the outcome of the FOMC meeting. The QE3 program of $40 billion per month of mortgage securities was on the lower end of market expectations. However, the market was very encouraged by the Fed's other statements which included (1) an extension of its forecast for "exceptionally low" interest rates from "at least late 2014" to "at least mid-2015," (2) the FOMC's statement that it will undertake "additional asset purchases and employ its other policy tools as appropriate" if the "outlook for the labor market does not improve substantially," and (3) that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."
- Dec 10-year T-notes this morning are down 17 ticks on reduced safe-haven demand as most of the world's stock markets have rallied by an average 2% overnight. In addition, inflation expectations are ticking higher due to the FOMC's aggressive QE3 program. T-note prices on Thursday closed moderately higher: TYZ2 +13.5, FVZ2 +7. The T-note market was disappointed that the QE3 program did not include Treasury purchases, but the T-note market rallied anyway because of the Fed's strong statements indicating that the extraordinarily easy monetary policy will continue even longer than the Fed earlier indicated. The longer end of the T-note market was relieved that the Fed left in place its Operation Twist program through year-end. There was also some post-auction relief yesterday after the Fed concluded its $66 billion auction package.
- The dollar index this morning has extended the sharp 1-1/2 month-long sell-off to a new 4-month low and is sharply lower by -0.50 points (-0.63%). The dollar is suffering from a combination of reduced safe-haven demand and increased concern about inflation with the Fed's new QE3 dollar-printing operation. EUR/USD is sharply higher by +0.0122 (+0.94%). USD/JPY is up +0.45 (+0.58%). The dollar index on Thursday closed sharply lower and extended the sell-off to a new 4-month low: Dollar index -0.48 (-0.60%), EUR/USD +0.0091 (+0.71%), USD/JPY -0.37 (-0.48%). The dollar was undercut by the Fed's QE3 program and the extension of the Fed's zero-interest-rate policy language to mid-2015 from late-2014, which hurt the dollar's interest rate differentials for 2014 and 2015. EUR/USD also received a boost as German Chancellor Schaeuble said that Spain would be "daft" to request the ECB's bond-buying program if it is not necessary, rejecting the French pressure for Spain to accept the bond-buying program. The markets are encouraged that the ECB may have sufficiently impressed the markets about its dedication to saving the euro that Spain and Italy might not even need the bond-buying program.
- Oct WTI crude oil prices this morning are sharply higher by +$1.73 (+1.76%) and Oct gasoline is up +0.0503 (+1.70%) as the entire commodity sector rallies sharply on QE3. Oct crude oil and gasoline prices on Thursday closed mixed: CLV2 +1.30 (+1.34%), RBV2 -0.0394 (-1.31%). Crude oil prices were boosted by the sharp sell-off in the dollar index and by the QE3 program, which could be inflationary down the road and is therefore bullish for hard assets such as commodities. Gasoline prices on Thursday bucked the bullish trend in commodity prices and closed lower on the carry-over concern about the weak 5.3% drop in weekly fuel demand seen in Wednesday's weekly DOE report and on the ramping up of refinery operations following the disruptions from Hurricane Isaac.
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Today's U.S. Earnings Reports Earnings reports (ranked by market cap): No reports.
Global Financial Calendar
Barchart.com provides Financial Quotes, Charts and Technical Analysis for Stock and Commodity Traders.Friday 9/14/12 United States 0830 ET Aug CPI expected +0.6% m/m and +1.7% y/y, July unchanged m/m and +1.4% y/y. Aug CPI ex food & energy expected +0.2% m/m and +2.0% y/y, July +0.1% m/m and +2.1% y/y. 0830 ET Aug retail sales expected +0.8% and +0.7% less autos, July +0.8% and +0.8% less autos. 0830 ET NOPA Aug soybean crush report. 0915 ET Aug industrial production expected unchanged m/m, July +0.6%. Aug capacity utilization expected -0.1 to 79.2%, July +0.4 to 79.3%. Aug manufacturing production, July +0.5% m/m. 0955 ET Preliminary Sep U.S. consumer confidence (University of Michigan) expected -0.3 to 74.0, Aug +2.0 to 74.3. 1000 ET July business inventories expected +0.3%, Jun +0.1%. Japan 0030 ET Japan final-July industrial production, prelim -1.2% m/m and -1.0% y/y. Final-July capacity utilization, preliminary -2.3% m/m Euro-Zone 0500 ET Eurozone Aug CPI expected +0.4% m/m and +2.6% y/y, July -0.5% m/m. Aug core CPI expected +1.7% y/y, July +1.7% y/y. 0500 ET Eurozone Q2 employment, Q1 -2% q/q and -0.5% y/y.
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