Barchart Morning Call 10/18

Barchart Morning Call

BC - 1 hr 49 mins ago

Overnight Developments

• Dec E-mini S&Ps are trading slightly lower by -0.14% on the -0.17% sell-off in European stocks and as the markets await today's U.S. initial unemployment claims report and developments from the 2-day EU Summit that begins today. E-minis received underlying support from relief that last night's Chinese Q3 GDP report of +7.4% was in line with market expectations and that the Chinese retail sales and industrial production reports were a little stronger than expected. Asian stocks today closed higher nearly across the board. Japanese stocks today closed +2.00% and Chinese stocks closed +1.53%. Commodity prices are slightly higher by +0.06% today with Nov crude oil down -0.20%, Dec gold down -0.47%, Dec copper down -0.04%, and agriculture prices trading mostly higher. The dollar index is mildly higher by +0.14% and EUR/USD is slightly lower by -0.10%. Dec 10-year T-notes are up 3 ticks.
• China's Q3 GDP eased to +7.4% from +7.6% in Q2, which was exactly in line with market expectations. In other data released last night, China's Sep industrial production report of +9.2% y/y was up from +8.9% in August and was stronger than market expectations of +9.0%. The Sep retail sales report of +14.2% was up from +13.2% in August and was stronger than market expectations of +13.2%. The Sep fixed asset investment report of +20.5% was up from +20.2% in August and was stronger than market expectations of +20.2%.
• The markets are awaiting the outcome of the 2-day EU Summit that begins today. Troika officials are reportedly close to an agreement with Greece needed to release the 31 billion euro tranche of bailout aid, but the deal will apparently not be done in time for approval at this summit. Greek Prime Minister Samaras will be pleading with EU leaders for an extra two years to meet austerity targets. EU leaders will also be discussing the terms under which Spain can obtain a precautionary line of credit from the ECB/ESM bailout program. EU leaders will discuss proposals for further banking and fiscal integration.
• Spain today successfully sold a total of 4.61 billion euros of 3-year, 4-year and 10-year bonds, which was slightly more than the targeted amount of 4.5 billion euros. The Spanish 10-year bond yield is down 4 bp at 5.40% this morning on relief about the successful auction.
• The UK Sep retail sales report (excluding auto fuel) of +0.6% m/m and +2.9% was stronger than market expectations of +0.3% m/m and +2.4% y/y. The report was supportive for GBP/USD and UK stocks.
  Market Comments
  • Dec E-mini S&Ps this morning are down -2.00 points (-0.14%) on some nervousness ahead of today's U.S. initial unemployment claims report and the 2-day EU Summit that begins today. However, there is support from last night's Chinese economic data. The S&P 500 index on Wednesday closed moderately higher: S&P 500 +0.41%, Dow Jones +0.04%, Nasdaq 100 -0.10%. Bullish factors included the sharp 15% increase in U.S. housing starts, optimism about Europe with this week's sharp decline in Italian and Spanish bond yields, and Chinese Premier Wen's comment that China's Q3 economic situation is "relatively good." Stocks were undercut by disappointing earnings news from IBM and Intel. U.S. Sep housing starts soared by 15.0% to a new 4-year high of 872,000, which was much stronger than market expectations of +2.7% to 770,000.
  • Dec 10-year T-notes this morning are up 3 ticks on a little short-covering after yesterday's plunge. Dec 10-year T-note prices on Wednesday closed with sharp losses: TYZ2 -25.5, FVZ2 -13.25. T-note prices fell sharply and posted a new 1-month low on the very strong U.S. housing starts report and reduced safe-haven demand with the sharp drop in Spanish and Italian bond yields.
  • The dollar index this morning is up +0.11 (+0.14%) and EUR/USD is down -0.0013 (-0.10%) ahead of the 2-day EU Summit that begins today. USD/JPY is up +0.37 (+0.47%). The dollar index on Wednesday closed moderately lower once again and posted a new 1-month low: Dollar index -0.39 (-0.49%), EUR/USD +0.0065 (+0.50%), USD/JPY +0.04 (+0.05%). The dollar was undercut by the sharp drop in Spanish and Italian bond yields that followed the late-Tuesday announcement from Moody's that it was leaving Spain's investment-grade credit rating unchanged.
  • Nov WTI crude oil prices this morning are down -0.18 (-0.20%) and Nov gasoline is down -0.0317 (-1.14%). Nov crude oil and gasoline prices closed mixed on Wednesday: CLX2 +0.03 (+0.03%), RBX2 -0.0636 (-2.24%). Crude oil saw some support from optimism about the U.S. economy from the surge in housing starts, but was undercut by the unexpectedly large 2.860 million barrel in crude oil inventories. Gasoline prices fell sharply in part due to the 1.720 million barrel increase in gasoline inventories, which was stronger than market expectations of +250,000 barrels. As a summary, the DOE report showed a bearish 2.860 million barrel increase in U.S. crude oil inventories (versus expectations of +1.5 million barrels), a bearish 1.720 million barrel increase in gasoline inventories (versus expectations of +250,000 barrels), and a bullish 2.218 million barrel decline in distillate inventories (versus expectations of -1.25 million barrels). The refinery operation rate rose by 0.7 point to 87.4%, which was 4.3 points above the 5-year average and was bearish for products since refineries are working harder than usual this time of year to take advantage of the wide crack profit margin spreads.
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    Today's U.S. Earnings Reports Earnings reports (ranked by market cap): MSFT-Microsoft (Consensus:$0.57), GOOG-Google (10.65), PM-Philip Morris (1.39), VZ-Verizon (0.64), UNP-Union Pacific (2.18), DHR-Danaher (0.79), MS-Morgan Stanley (0.25), COF-Capital One (1.69), BAX-Baxter (1.14), TRV-Travelers (1.60), BBT-BB&T (0.72), PPG-PPG Industries (2.20), BX-Blackstone ((0.42), FITB-Fifth Third BanC (0.39), NUE-Nucor (0.41), SNDK-Sandisk (0.34), DO-Diamond Offshore (1.02), GPC-Genuine Parts (1.12), CMG-Chipotle (2.29), LH-Laboratory CP (1.74), BSX-Boston Scientific (0.11), KEY-Keycorp (0.21), ADS-Alliance Data (2.23), LUV-Southwest Air (0.12), HBAN-Huntington Banc (0.17), PII-Polaris (1.20), HUB-Hubbell (1.44).
    Global Financial Calendar
    

    Thursday 10/18/12
    United States
    0830 ET	Weekly initial unemployment claims expected +26,000 to 365,000, previous -30,000 to 339,000. Weekly continuing claims expected +2,000 to 3.275 mln, previous -15,000 to 3.273 mln.
    0830 ET	USDA weekly Net Export Sales.
    1000 ET	Oct Philadelphia Fed index expected +2.9 to +1.0, Sep +5.2 to -1.9.
    1000 ET	Sep leading indicators expected +0.2% m/m, Aug -0.1% m/m.
    1100 ET	Treasury announces 2, 5 and 7-year T-note auctions for next week.
    1300 ET	Treasury auctions $7 billion in 30-year TIPS.
    1630 ET	Weekly money supply report and Fed balance sheet.
    United Kingdom
    0430 ET	UK Sep retail sales ex-auto fuel expected +0.3% m/m and +2.4% y/y, Aug -0.3% m/m and +3.1% y/y. UK retail sales with auto fuel expected +0.4% m/m and +2.1% y/y, Aug -0.2% m/m and +2.7% y/y.
    China
    2135 ET	China MNI Oct flash business sentiment indicator.

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