Barchart Morning Call
Barchart.com - Wed Feb 22, 7:00AM CST
Overnight Developments - Global stocks this morning are lower with the Euro Stoxx 50 down 0.9% and Mar S&Ps down 2.00 points (-0.15%). The main bearish factor was the drop in the Feb Eurozone composite PMI to 49.7 from 50.4 in January, which was weaker than market expectations for a small 0.1 point increase to 50.5. The Eurozone manufacturing PMI rose by 0.2 points to 49.0 from 48.8 in January, while the services PMI fell by 1.0 point to 49.4 from 50.4 in January. On the brighter side, the Eurozone industrial new orders report of +1.9% m/m and -1.7% y/y was stronger than market expectations of +0.5% m/m and -2.8% y/y. European stocks are also lower as the market waits to see if all the conditions and approvals for the Greek bailout deal are completed. The Obama administration today plans to release a plan to reduce the corporate tax rate to 28% from 35% and close corporate tax breaks to cover the lost revenue.
- Asian stocks today closed mostly higher: Japan +0.96%, Hong Kong +0.33%, China +1.37%, Taiwan +1.01%, Australia +0.4%, Singapore -0.97%, South Korea +0.28%, India -1.54%.
Overnight U.S. Stock News - March S&Ps this morning are trading -2.00 points on negative carry-over from the 0.89% sell-off in European stocks and the weaker-than-expected Eurozone PMI report. The US stock market Tuesday settled mostly higher after China cut banks reserve requirements by 50 bp and after European leaders agreed on a 130 billion euro bailout for Greece: Dow Jones +0.12%, S&P 500 +0.07%, Nasdaq Composite -0.11%. The S&P 500 posted a 9-1/2 month high, the Dow Jones climbed to its highest level in 3-3/4 years and the Nasdaq climbed to an 11-year high. Bullish factors Tuesday included (1) optimism Chinese growth will strengthen and boost the overall global economy after the PBOC cut banks' reserve requirements Saturday by 50 bp to 20.5% from Feb 24, (2) reduced Greek default concerns after European finance ministers approved a 130 billion euro aid plan for Greece, and (3) strength in energy and raw-material producers as most commodities rallied on optimism global economic growth will expand.
- Bearish factors included (1) concern that the Greek debt crisis remains unresolved after IMF and European officials indicated that Greece may remain encumbered by debt even after the bailout and that Greece's debt may still balloon to 160% of GDP in a worst case scenario, which would violate the terms of its bailout and send it to default, (2) weakness in airline and transportation stocks after crude prices surged to a 9-1/2 month high, which may increase fuel costs and reduce their profit margins, and (3) the jump in the 10-year T-note yield to a 4-week high of 2.077%.
Today's Market Focus - March 10-year T-notes this morning are trading -2 ticks on continued negative technicals. T-note prices Tuesday tumbled to a 4-week low and settled lower for a third day after EU finance ministers agreed on a second bailout package for Greece, which reduced the safe-haven demand for Treasuries: TYH2 -9.0, FVH2 -5.0, EDM2 +0.5. Bearish factors Tuesday included (1) long-liquidation pressures in Treasuries as the action by EU finance ministers to agree to a 130 billion euro aid package for Greece fueled a rally in the S&P 500 to a 9-1/2 month high that curbed the safe-haven demand for U.S. government debt, and (2) supply pressures ahead of the Treasury's $35 billion auction of 5-year T-notes on Wed. Bullish factors included (1) increased safe-haven demand for Treasuries after IMF and European officials indicated that Greece may remain encumbered by debt even after the bailout and that Greece's debt may still balloon to 160% of GDP in a worst case scenario, which would violate the terms of its bailout and send it to default and (2) decent demand for the Treasury's $35 billion auction of 2-year T-notes that had a bid-to-cover ratio of 3.54, stronger than the 12-auction average of 3.42.
- The dollar index this morning is up 0.119 points with USDJPY up 0.51 and the EURUSD unchanged. The dollar index Tuesday fell to a 1-week low on reduced safe-haven demand after Greece won a second international bailout: Dollar Index -0.287, USDJPY +0.112, EURUSD -0.00082. Bearish factors included (1) strength in the euro after European finance ministers approved 130 billion euros of aid for Greece, (2) reduced safe-haven demand for the dollar after the S&P 500 rose to a 9-1/2 month high, (3) the euro supportive statement from Germany's Bundesbank that "the outlook for the German economy improved perceptibly" even as risks remain from the European debt crisis, and (4) reduced safe-haven demand for the dollar after China cut banks' reserve ratios by 50 bp, which should improve global economic prospects. Bullish factors Tuesday included (1) weakness in the yen which remained near Monday's 6-1/2 month low against the dollar after Standard & Poor's on Monday affirmed Japan's sovereign-debt rating at AA- while maintaining a negative outlook and warned that "a downgrade is likely if medium-term growth prospects weaken," (2) concern the Greek debt crisis may still be unresolved after IMF and European officials indicated that Greece may remain encumbered by debt even after the bailout and that Greece's debt may still balloon to 160% of GDP in a worst case scenario, and (3) increased safe-haven demand for the dollar on heightened geopolitical concerns after Iran's Fars news agency reported an Iranian military commander who said Iran would consider taking pre-emptive action in response to threats from the West.
- Apr crude oil prices this morning are down 41 cents and Mar gasoline is down 0.98 cents per gallon on general commodity weakness. Crude oil and gasoline prices Tuesday rallied sharply after Euro-Zone finance ministers agreed to a bailout for Greece along with Iran's halt to oil exports to the U.K. and France: CLJ12 +$2.65, RBJ +6.09. Apr crude posted a 9-1/2 month high and Apr gasoline rose to a 6-1/2 month high. Bullish factors included (1) the slide in the dollar index to a 1-week low, (2) the action by EU finance ministers to award Greece with 103 billion euros in aid for financing its debt, which reduces he chances of a Greek default, (3) the action by Iran to stop selling crude to the U.K. and France and its pledge to press on with its nuclear program, which increases geopolitical risks in the Middle East, and (4) the action by China to cut banks' reserve requirements by 50 bp, which may stimulate economic growth and fuel demand in the world's second-largest crude consumer, and (5) the rally in the S&P 500 to a 9-1/2 month high, which boosts confidence in the economic outlook and energy demand.
Today's U.S. Earnings Reports Earnings reports (confirmed releases, sorted by mkt cap): HPQ-Hewlett-Packard (BEST earnings consensus $0.87), TJX-TJX Cos. (0.63),ESRX-Express Scripts (0.85), WPZ-Williams Partners LP (0.98), WMB-Williams Cos. (0.41), CLR-Continental Resources (0.78), LTD-Limited Brands (1.46), LBTYA-Liberty Global (0.26), ADI-Analog Devices (0.48), CXO-Concho Resources (1.19), DLTR-Dollar Tree (1.58), FLR-Fluor (0.82), AVGO-Avago Technologies Ltd. (0.58), GRMN-Garmin Ltd. (0.64), WIN-Windstream (0.20), MGM-MGM Resorts International (-0.20).
Global Financial Calendar
| Wednesday 2/22/12 |
| United States |
| 0700 ET | Weekly MBA mortgage applications, previous -1.0% with purchase mortgage sub-index -8.4% and refinancing sub-index +0.8%. |
| 0745 ET | ICSC (Int?l Council of Shopping Centers) weekly retailer sales. |
| 0855 ET | Redbook weekly retailer sales. |
| 1000 ET | Jan existing home sales expected +1.1% to 4.66 million, Dec +5.0% to 4.61 million. |
| 1130 ET | Weekly 4-week T-bill auction. |
| 1300 ET | Treasury auctions $35 billion 5-year T-notes. |
| France |
| 0130 ET | Jan French CPI (EU harmonized) expected -0.2% m/m and +2.8% y/y, Dec +0.4% m/m and +2.7% y/y. |
| 0300 ET | Feb French PMI manufacturing expected +0.5 to 49.0, Jan -0.4 to 48.5. |
| 0300 ET | Feb French PMI services expected -0.3 to 52.0, Jan +2.0 to 52.3. |
| Germany |
| 0330 ET | Feb German PMI manufacturing expected +0.5 to 51.5, Jan +2.6 to 51.0. |
| 0330 ET | Feb German PMI services expected +0.1 to 53.8, Jan +1.3 to 53.7. |
| Euro-Zone |
| 0400 ET | Feb Euro-Zone PMI composite expected +0.1 to 50.5, Jan +2.1 to 50.4. |
| 0500 ET | Dec Euro-Zone industrial new orders expected +0.5% m/m and -2.8% y/y, Nov -1.2% m/m and -2.7% y/y. |
| United Kingdom |
| 0430 ET | Minutes of the Feb 8-9 BOE policy meeting. |
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