Barchart Morning Call 1/11

Barchart Morning Call

BC - Fri Jan 11, 7:00AM CST

Overnight Developments

• March E-mini S&Ps this morning are slightly lower by -0.05% as the market waits for today's U.S. trade and import price reports. European stocks are slightly higher by +0.10%. Japanese stocks rallied by 1.40% today on the announcement of the Japanese government's big fiscal stimulus program. Other Asian stock markets today closed mostly lower. Hong Kong closed down -0.39% and China closed sharply lower by -1.87%. on the jump in China's CPI to a 7-month high of +2.5% y/y, which reduces the Chinese government's policy flexibility. Commodity prices are down -0.24% today after yesterday's rally. Feb crude oil is down -0.67%, Feb gasoline is down -1.45%, Feb gold is down -0.49%, March copper is down -0.78%, and agricultural prices are trading mostly lower. The dollar index is slightly higher by +0.15%, EUR/USD is down -0.11%, and USD/JPY is up +0.06%. March 10-year T-note prices are up 3 ticks.
• Japanese Prime Minister Abe's government announced a 10.3 trillion yen ($116 billion) fiscal stimulus program. The government claims the plan will create 600,000 new jobs and boost GDP by 2 percentage points. PM Abe is risking a loss of investor confidence in Japanese government bonds by further boosting deficit spending. Japan's debt load as of 2012 rose to an alarming 237% of GDP, according to the IMF.
• China's Dec CPI was reported last night at a 7-month high of +2.5% y/y, up from +2.0% in November and stronger than market expectations of +2.3%. China's Dec PPI strengthened to -1.9% y/y from -2.2% in November but was slightly below expectations of -1.8%. The jump in China's Dec CPI to +2.5% suggests that China's consumer inflation has bottomed out for the cycle and reduces the flexibility of the Chinese central bank to ease monetary policy. There have recently been some media reports that the PBOC might be close to cutting the bank reserve ratio.
• Japan's Nov adjusted current account surplus of 225.9 bln yen was narrower than market expectations of 277 bln yen and was down from 414 bln yen in October. The report was bearish for the yen.
• Italy today successfully sold 5 billion euros of securities.
• Moody's cut Cyprus' credit rating by three notches to Caa3 from B3 due to the government's poor finances. Cyprus is already in the process of getting a bailout from the Eurozone.
• The UK Nov industrial production report of +0.3% m/m was weaker than market expectations of +0.8%, but was at least stronger than October's decline of -0.9% m/m.
• Minneapolis Fed President Narayana Kocherlakota said last night at a town hall meeting in Minneapolis that, "If anything, monetary policy is currently too tight, not too easy."
  Market Comments
  • March E-mini S&Ps this morning are trading slightly lower by -0.75 points (-0.05%) on some overhang from the jump in China's CPI to +2.5% and the sharp sell-off in Chinese stocks today. The S&P 500 index on Thursday posted a 3-3/4 month high and closed higher after a stronger-than-expected +14.1% y/y increase in Chinese Dec exports reduced global economic concerns and after ECB President Draghi said the Eurozone economy should recover this year. Closes: S&P 500 +0.76%, Dow Jones +0.60%, Nasdaq +0.61%.
  • March 10-year T-notes this morning are up 3 ticks. March 10-year T-note prices on Thursday retreated and closed lower on improved global economic prospects after China's Dec exports rose more than expected and after ECB President Draghi said the Euro-Zone economy should slowly recover this year. Prices recovered from their worst levels on strong demand for yesterday's 30-year T-bond auction that had a bid-cover ratio of 2.77 (above the 12-auction average of 2.60) and with 37.8% taken by indirect bidders (above the 12-auction average of 33.7%). Closes: TYH3 -11.0, FVH3 -4.75.
  • The dollar index this morning is up +0.12 points (+0.15%), EUR/USD is down -0.0014 (-0.11%), and USD/JPY is up +0.05 (+0.06%). The dollar index on Thursday closed lower on reduced safe-haven demand after the S&P 500 posted a 3-month high and as EUR/USD rallied to a 1-week high after ECB President Draghi said the Eurozone economy should gradually recover. Another bullish factor for EUR/USD was a successful Spanish bond auction that pushed the Spanish 2-year bond yield to a new 2-year low and pushed the 10-year yield below 5% for the first time since March. Closes: Dollar index -0.819 (-1.02%), EUR/USD +0.02073 (+1.59%), USD/JPY +0.188 (+0.21%).
  • Feb WTI crude oil prices this morning are down -0.63 (-0.67%) and Feb gasoline is down -0.0405 (-1.45%) on the disappointing rise in the Chinese CPI. Feb crude oil and gasoline prices on Thursday rose to 3-month highs and settled higher on (1) the weaker dollar, (2) reduced global economic growth concerns after China's Dec exports rose by +14.1% y/y, and (3) a report from an unnamed Saudi Arabian oil official who said that Saudi Arabia cut its oil output in Dec by -4.9% to 9.025 million barrels a day, a 19-month low. Closes: CLG3 +0.72 (+0.77%), RBG3 +0.0144 (+0.52%).
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    Today's U.S. Earnings ReportsEarnings reports (ranked by market cap): WFC-Wells Fargo (consensus $0.89), WAFD-Washington Fed (0.32).
    Global Financial Calendar

    Friday 1/11/13
    United States
    0830 ET	Dec import price index expected +0.1% m/m and -1.5% y/y, Nov -0.9% m/m and -1.6% y/y.
    0830 ET	Nov U.S. trade deficit expected -$41.2 bln, Oct -$42.2 bln.
    0930 ET	Philadelphia Fed President Charles Plosser speaks on U.S. economic outlook at NJ Economic Leadership Forum in Somerset, NJ.
    1200 ET	USDA WASDE report and Quarterly Grain Stocks.
    1400 ET	U.S. Dec monthly budget statement expected -$20 bln.
    United Kingdom
    0430 ET	UK Nov industrial production expected +0.8% m/m and -1.9% y/y, Oct -0.8% m/m and -3.0% y/y. Nov manufacturing production expected +0.5% m/m and -1.3% y/y, Oct -1.3% m/m and -2.1% y/y.
    1000 ET	UK Dec NIESR GDP estimate, Nov +0.1%.

    
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