- E-mini S&Ps this morning are down 12.50 points (-0.93%) on the lack of a Greek government and the poor showing of German Chancellor Merkel's CDU party in Sunday's state elections. Commodity prices are generally trading sharply lower with crude oil down 2.05%, gold down 1.40%, copper down 2.23%, and agricultural commodities mostly lower. The dollar index is up 0.30% on safe-haven demand and EUR/USD is down 0.35%. June 10-year T-note prices are up 12 ticks this morning on safe-haven demand. European stocks are trading sharply lower with the Euro Stoxx 50 down 1.87%. The Greek stock market this morning is sharply lower by 4.92%. Greek President Papoulias will try again today to broker a coalition but there does not appear to be much hope after his efforts failed over the weekend. If there is no government, then an interim government will be appointed and Greek voters will go back to the polls in June. That means that the markets will have to wait a month for a new attempt at forming a government, at which time the anti-bailout forces are likely to have even more seats in the Parliament. ECB Governing Council member Patrick Honohan said on Saturday that Greek withdrawal from the Eurozone "is not necessarily fatal, but it is not attractive." Eurozone officials are now starting to admit the possibility that Greece may be destined to leave the Eurozone. European stocks are also trading lower after German Chancellor Merkel's Christian Democratic Union (CDU) in Sunday's elections had its worst showing in post-war history in the German state of North Rhine-Westphalia. That is likely make the European debt crisis even worse as Ms. Merkel becomes even less willing to provide concessions and bailouts to troubled European countries as she heads to federal elections in autumn 2013. Adding to the bad European news, the Eurozone March industrial report this morning showed a decline of -0.3% m/m and -2.2% y/y, which was weaker than market expectations of +0.5% m/m and -1.8% y/y. European bond yields are sharply higher today with the Spanish 10-year bond yield rising by 28 bp to 6.28%. Italy's 10-year bond yield is up 23 bp to 5.74%. Spanish 5-year credit default swaps this morning are up 21 bp at a record high of 538 bp. Asian stock markets today closed mostly lower: Japan +0.23%, Hong Kong -1.15%, China -0.81%, Taiwan -0.33%, Australia +0.28%, Singapore -0.67%, South Korea +0.04%, India -0.47%. China's central bank over the weekend cut its reserve requirement ratio for large banks by 50 bp to 20.0%. That should free up $65-70 billion of bank lending. India's April wholesale inflation rate rose to +7.23% y/y from +6.89% y/y in March, reducing the scope of India's central bank to cut rates in response to weaker economic growth. The markets had been looking for a decline to +6.67%.
Overnight U.S. Stock News
- June E-mini S&Ps this morning are trading -12.50 (-0.93%) on the sharp -1.82% sell-off in European stocks and the bad European news, which includes the lack of a Greek coalition government, the poor showing of Chancellor Merkel's party in Sunday's German state election, and the 0.3% decline in Eurozone industrial production. US stocks on Friday closed mildly lower: S&P 500 -0.34%, Dow Jones -0.27%, Nasdaq 100 -0.01%. The U.S. stock market was undercut on Friday by weak bank stocks after JPMorgan late Thursday afternoon reported a $2 billion trading loss and subsequently received credit rating downgrades on Friday. U.S. stocks were also undercut Friday by disappointing Chinese economic data. China's April industrial production eased to +9.3% y/y from +11.9% y/y in March and was weaker than the market consensus of +12.2% y/y. China's April retail sales eased to +14.1% y/y from +15.2% in March and was weaker than market expectations of +15.1%. Stocks on Friday continued to see downward pressure from the ongoing Greek political turmoil as the parties by Friday's U.S. stock market close had yet to find a way to form a coalition government. On the positive side, the U.S. stock market on Friday was boosted by the 1.4 point rise in the U.S. consumer confidence index to a new 4-year high of 77.8, taking out the previous 4-year high of 77.4 posted in Feb 2011.
Today's Market Focus
- June 10-year T-notes this morning are trading +12 ticks on increased safe-haven demand with the sharp sell-off in global stocks and worries about Greece. T-note prices on Friday closed higher: TYM2 +9.5, FVM2 +3.5. T-notes on Friday were boosted by continued safe-haven demand with lower stocks and on concern about JPMorgan's $2 billion trading loss, which JPMorgan's CEO said could get worse before it's over. The T-note market continued to see support from the Greek political situation, which could yet result in a Greek default and exit from the euro. The dollar index this morning is trading +0.24 points (+0.30%) on safe-haven demand with the sharp sell-off in European stocks. EUR/USD is down -0.45 cents (-0.35%) and USD/JPY is down -0.04 yen. The dollar index on Friday closed slightly higher: Dollar Index +0.13, EUR/USD -0.0019, USD/JPY unch. The dollar index on Friday extended the 2-week rally and posted a new 2-month high. The dollar has rallied in the past two weeks mainly on the Greek political troubles and on the political austerity backlash in Europe, which may eventually produce an even more stimulative policy from the ECB and thereby further undercut the euro. The European Commission last Friday reaffirmed its forecast that the Eurozone economy will decline -0.3% in 2012, and then recover mildly to show 1% growth in 2013. June crude oil prices this morning are sharply lower by -$1.98 (-2.05%) and July gasoline is down 1.91 cents (-1.71%). Oil prices are lower on sharply lower stock prices and worries about global economic growth. In addition, Saudi Oil Minister Ali al-Naimi on Sunday said that crude oil prices should fall because global supply is outweighing demand. He said, "We want a lower price than where it is right now. We need to get the price to a level of around $100 a barrel" for London Brent crude oil. June Brent crude last Friday fell by 0.8% to $112.26, which means Mr. Naimi is calling for another 11% drop in oil prices from last Friday's level. Crude oil and gasoline prices on Friday closed mixed: CLM12 -0.95, RBM2 -0.0094. Oil prices were undercut on Friday by the weaker-than-expected Chinese industrial production report (+9.3% y/y versus expectations of +12.2%), continued heavy hedge-fund selling of commodities, and ongoing concern about the global economy. The International Energy Agency on Friday raised its estimate for 2012 world oil consumption by a modest 80,000 bpd. The markets this week will be watching to see if there is another new 21-1/2 year high in U.S. oil inventories. The Seaway Pipeline is scheduled to be reversed late this week, which should produce a slow drawdown in oil inventories at the Cushing, Oklahoma hub as the oil will start moving from Cushing to refineries on the coast of the Gulf of Mexico. The process of transporting oil from North Dakota and Canada to the Gulf of Mexico will become much more efficient after the Seaway Pipeline reversal.
Today's U.S. Earnings Reports
Earnings reports (sorted by mkt cap): A-Agilent (consensus $0.73), GRPN-Groupon (0.01), IOC-Interoil (0.05).
Global Financial Calendar
|1100 ET||USDA weekly grain export inspections.|
|1130 ET||Weekly 3-mo and 6-mo T-bill auctions.|
|1600 ET||USDA Crop Progress|
|0200 ET||German Apr wholesale price index, Mar +0.9% m/m and +2.2% y/y.|
|0500 ET||Eurozone Mar industrial production expected +0.4% m/m and -1.4% y/y, Feb +0.8% m/m and -1.5% y/y.|
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