- Global stocks this morning are mixed with the Euro Stoxx 50 up +0.76% and Dec S&Ps up +1.40 points. The euro rose and stocks gained before the start of the 2-day G-20 summit and before ECB President Draghi addresses his first policy meeting as ECB President. Emergency crisis talks ended last night with German Chancellor Merkel and French President Sarkozy withholding 8 billion euros of assistance to Greece with French President Sarkozy saying Greece won't receive a "single cent" in aid without holding to the terms of the bailout agreement made last week. Jean-Claude Juncker, head of the Euro-Zone finance ministers, said that Euro-Zone governments would like Greece to remain a member of the currency bloc, although not "at all costs." Greek 2-year yields rose to a record 107% on the EU ultimatum as the prospects of a Greek default rise, while the 10-year yield on Italy's 10-year bond climbed to 6.40%, the highest since the introduction of the euro in 1999. The dollar is lower and Treasuries rose after Fed Chairman Bernanke said yesterday that economic improvement will probably be "frustratingly slow" and that the prospect of additional stimulus "remains on the table."
- Asian stocks today closed mostly lower with Japan closed for holiday, China up +0.07%, Australia -0.31%, South Korea -1.59%, India +0.10%. Asian stocks finished mostly lower on uncertainty in Europe and after the Fed cut its growth forecasts for this year and next, which weakened exporters. China's Shanghai Stock Index rose to a 2-month high on speculation the government will accelerate measures to boost the economy after the Oct China non-manufacturing PMI slipped -1.6 to 57.7, indicating tight monetary policies are hurting businesses. Chinese bank stocks rose after the Shanghai Securities News reported that an unidentified banker said restrictions on lending for some Chinese banks that meet regulatory requirements have been eased within a "reasonable scope." A decline in property developers limited stock gains after the Economic Information Daily reported that data from SouFun Holdings showed that about 133 Chinese cities sold 20 million square meters of land for residential housing development in Oct, down -45% from a year earlier as developers faced a cash crunch.
- December S&Ps this morning are trading up +1.40 points. The US stock market yesterday finished higher after the Oct ADP employment change showed employers hired more workers than expected and the Fed said that economic growth strengthened in Q3: Dow Jones +1.53%, S&P 500 +1.61%, Nasdaq Composite +1.27%. Bullish factors included (1) carry-over strength from a rally in European stock markets, (2) the larger-than-expected increase in the Oct ADP employment change along with the upward revision to Sep (Oct +110,000 versus expectations of +100,000 and Sep revised up to +116,000 from the originally reported +91,000), (3) the post-FOMC statement that said "economic growth strengthened somewhat in Q3, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year," and (4) strength in phone stocks after the U.S. House voted to bar new state and local taxes on wireless services.
- Bearish factors included (1) concern that European economic growth is slowing after the unexpected downward revision to the Oct Euro-Zone PMI manufacturing index to a 2-1/4 year low of 47.1 from 47.3 and the unexpected increase in Oct German unemployment for the first time in over 2 years (+10,000 versus expectations of -10,000), (2) the ongoing turmoil in Greece and whether the country will reject the EU's latest bailout attempt and default on its debt, (3) the post-FOMC statement in which the Fed said it sees "significant downside risks to the economic outlook, including strains in global financial markets," (4) disappointment that the Fed refrained from announcing additional stimulus measures following the FOMC meeting, and (5) the action by the Fed to cut its 2011 U.S. GDP forecast to 1.6% to 1.7% from a Jun estimate of 2.7% to 2.9% and the cut in its 2012 U.S. GDP forecast to 2.5% to 2.9% from a Jun estimate of 3.3% to 3.7%.
- December 10-year T-notes this morning are unchanged. T-note prices yesterday settled slightly higher as the Fed's action to cut its growth forecasts for this year and next offset stronger stocks: TYZ11 +2, FVZ11 +1.7, EDH12 +0.5. Bullish factors included (1) the Fed's post-FOMC statement that repeated it will provide "exceptionally low" interest rates through at least mid-2013 as it reiterated that it sees "significant downside risks to the economic outlook, including strains in global financial markets," (2) the action by the Fed to cut its 2011 U.S. GDP forecast to 1.6% to 1.7% from a Jun estimate of 2.7% to 2.9% and cut its 2012 U.S. GDP forecast to 2.5% to 2.9% from a Jun estimate of 3.3% to 3.7%, and (3) comments from Fed Chairman Bernanke who said "inflation appears to have moderated." Bearish factors included (1) the larger-than-expected increase in the Oct ADP employment change along with the upward revision to Sep (Oct +110,000 versus expectations of +100,000 and Sep revised up to +116,000 from the originally reported +91,000), (2) the post-FOMC statement that said "economic growth strengthened somewhat in Q3, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year," and (3) reduced safe-haven demand as stocks rallied.
- The dollar index this morning is weaker with the dollar/yen -0.02 yen and the euro/dollar +0.33 cents. The dollar index yesterday closed lower on reduced safe-haven demand as the euro and stocks strengthened: Dollar Index -0.244, USDJPY -0.330, EURUSD +0.00448. Bearish factors included (1) strength in the euro after a Greek official said the Cabinet gave Prime Minister Papandreou unanimous backing for his call for a national vote on the EU's latest rescue package, which eased concern that there was a division between the Cabinet and the Greek government, (2) strength in stocks, which reduced the safe-haven demand for the dollar, and (3) the action by the Fed to cut its 2011 and 2012 U.S. GDP forecasts, which is dollar negative. Bullish factors included (1) the unexpected downward revision to the Oct Euro-Zone PMI manufacturing index to a 2-1/4 year low, which is euro negative and (2) the unexpected increase in Oct German unemployment for the first time in over 2 years, which signals economic weakness and may prompt the ECB to expand its stimulus measures.
- Dec crude oil prices this morning are up +30 cents a barrel and Dec gasoline is -1.03 cents per gallon. Crude oil and gasoline prices yesterday settled higher after the dollar weakened, stock prices rose and after the Oct ADP employment change showed employers added more jobs than forecast: CLZ11 +$0.32, RBZ11 +0.36. Bullish factors included (1) the weaker dollar, which boost investment demand in commodities, (2) the stronger than expected Oct ADP employment change, which reduced recession fears and is positive for fuel demand, (3) the larger than expected drop in weekly distillate inventories which fell to a 4-1/2 month low (-3.58 million bbl to 141.9 million bbl versus expectations of -1.75 million bbl), and (4) a rally in stocks, which improves confidence in the economic outlook and energy demand. Bearish factors included (1) the larger-than-expected increase in weekly DOE crude supplies and the unexpected increase in weekly gasoline supplies (crude +1.83 million bbl versus expectations of +1.0 million bbl and gasoline +1.36 million bbl versus expectations of a -800,000 bbl decline, (2) the +0.7% y/y increase in Oct Russian oil production to a Soviet-era record of 10.34 million barrels a day, and (3) the action by the Fed to cut its 2011 and 2012 U.S. GDP forecasts, which signals reduced energy demand and consumption.
Earnings reports (confirmed releases, sorted by mkt cap): CVS-CVS Caremark (BEST earnings consensus $0.68), AIG-American International Group (-0.30), APA-Apache (2.79), DTV-DirecTV (0.72), SBUX-Starbucks (0.36), DUK-Duke Energy (0.46), PSA-Public Storage (0.81), K-Kellogg (0.89), EL-Estee Lauder (1.18), SE-Spectra Energy (0.40), CHK-Chesapeake Energy (0.67), PCG-PG&E (1.06), PPL-PPL Corp. (0.69), CBS-CBS Corp. (0.46), PGN-Progress Energy (1.18), TEL-TE Connectivity Ltd. (0.86). (0.86).
Global Financial Calendar
|0830 ET||Weekly initial unemployment claims expected -2,000 to 400,000, previous -2,000 to 402,000. Weekly continuing claims expected +48,000 to 3.693 million, previous -96,000 to 3.645 million.|
|0830 ET||Q3 U.S. non-farm productivity expected +3.0%, Q2 -1.0%. Q3 unit labor costs expected -0.5%, Q2 +3.3%.|
|0830 ET||Atlanta Fed President Dennis Lockhart delivers opening remarks at a conference at Emory University titled ?What Should We Really Expect from Macroeconomic Policy??|
|1000 ET||Oct ISM non-manufacturing index expected +0.5 to 53.5, Sep -0.3 to 53.0.|
|1000 ET||Sep factory orders expected -0.2%, Aug -0.2%.|
|1030 ET||Oct ICSC chain store sales expected +5.3% y/y, Sep +5.5% y/y.|
|1630 ET||Weekly money supply report and Fed balance sheet.|
|n/a||G-20 finance ministers and central bankers meet in Cannes, France.|
|0530 ET||Oct U.K. PMI services expected -0.9 to 52.0, Sep +1.8 to 52.9.|
|0745 ET||ECB announces interest rate decision (expected no change to the 1.50% 2-week refinancing rate).|
|0830 ET||ECB President Mario Draghi speaks at monthly press conference.|
|n/a||Japanese markets closed for Culture Day.|
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