Barchart Morning Call Tue, 15 May 2012 07:00:00 -0500
Overnight Developments
- E-mini S&Ps this morning are mildly higher by 8.0 points (+0.60%) on this morning's stronger-than-expected European GDP reports. Commodity prices are mildly higher on balance on some short-covering. The dollar index is trading slightly lower by 0.02 points and EUR/USD is up 0.30 cents. June 10-year T-notes are down 5 ticks on reduced safe-haven demand. European stocks are trading slightly higher this morning with the Euro Stoxx 50 up +0.07%. European stocks received some support from the European GDP reports but the market remains on edge as the Greek political situation has yet to be resolved. Francois Hollande will be inaugurated today as French president. He will then travel to Berlin to have dinner with German Chancellor Merkel and they will give a joint news conference after the dinner. Ms. Merkel's spokesman said the two leaders will not make any policy decisions today. The Eurozone Q1 GDP report of unchanged q/q was stronger than the market consensus of -0.2% q/q. Eurozone GDP received a significant boost from Germany's Q1 GDP report of +0.5% q/q (+2.0% annualized), which was stronger than market expectations of +0.1% q/q (+0.4% annualized) and returned to positive growth after the -0.2% q/q decline seen in Q4. French Q1 GDP was unchanged q/q. Italy's Q1 GDP fell sharply by -0.8% q/q (-3.2% annualized). This morning's ZEW confidence indexes were mixed. The Eurozone May ZEW economic sentiment index fell to -2.4% from 13.1 in April. The May German ZEW economic sentiment index fell to 10.8 from 23.4 in April, which was weaker than the consensus of 19.0. The German ZEW May ZEW current situation index rose to 44.1 from 40.7 in April, which was stronger than the market consensus of 39.0. Greek President Papoulias today will meet with the leaders of the main parties at 2PM Athens time to see if he can convince them to allow a new technocratic government to rule the country. However, the odds appear slim since that idea has already been shot down by the leaders of the Democratic Left and Syriza. Greece appears to be moving towards new elections in June, at which time the anti-bailout forces will have even more power based on recent voter polling. Greece today successfully sold 1.3 billion euros of 13-week Treasury bills with a yield of 4.34% and with a bid cover ratio of 2.32 times. The markets are waiting to see how Greece handles a 436 billion euro payment that is due today on a floating rate note covered by non-Greek law. Greece may simply fail to make the payment but claim a 30-day grace period. Today's note is one of 7 billion euros worth of Greek securities that are covered by non-Greek law and were not part of the recent Greek bond swap, which forced a haircut of about 50% on the bond holders. The markets are waiting to see if Greece will pay the note or whether it will default and end up in a long litigation process with the holders of the note, who are still demanding 100% payment. Greece previously said that bond holders of the non-Greek-law debt will receive a deal no better than the haircut on the bond swap deal. Asian stock markets today closed mixed: Japan -0.81%, Hong Kong +0.81%, China +0.07%, Taiwan +0.25%, Australia -0.71%, Singapore +0.44%, South Korea -0.70%, India +0.69%, Turkey -0.22%. Chinese April foreign direct investment (FDI) fell -0.7% y/y to $8.4 billion. That was the sixth consecutive decline in FDI, illustrating that foreign companies are pulling back from investing in China with the slowing economy and real estate markets.
Overnight U.S. Stock News
- June E-mini S&Ps this morning are trading +8.00 points (+0.60%) on the better-than-expected European GDP report and slightly higher European stocks. Earnings reports today include Home Depot, TJX and JC Penney. Facebook raised its IPO range to $34-38 from $28-$35, suggesting demand is running strong for the largest-ever Internet-company IPO. US stocks on Monday closed sharply lower: S&P 500 -1.11%, Dow Jones -0.98%, Nasdaq 100 -0.98%. The US stock market on Monday took another heavy hit on continued worries about Greece, the poor showing of German Chancellor Merkel's CDU party in state elections in North Rhine-Westphanlia which is likely to make Ms. Merkel even less willing to provide more bailout money, the sharp 2.33% sell-off in the Euro Stoxx 50, the 0.3% decline in Eurozone March industrial production, and the growing trading loss at JPMorgan which is reportedly already doubled to $4 billion from $2 billion last Thursday.
Today's Market Focus
- June 10-year T-notes this morning are trading -5 ticks on some reduced safe-haven demand with the mild rally in E-mini S&Ps. T-note prices on Monday closed higher: TYM2 +11, FVM2 +3.25. June 10-year T-note prices posted another new record high on Monday while the 10-year bond yield fell to 1.77%, which is just 10 bp above the record low of 1.67% posted last September. Bullish factors included continued safe-haven demand with the ongoing slump in stocks, increasing doubt even among Eurozone officials about whether Greece can stay in the Eurozone given its political climate, and the increasing chance for further Fed security programs if the global situation continues to get worse. The dollar index this morning is trading slightly lower by -0.02 points on reduced safe-haven demand. EUR/USD is up +0.30 cents and USD/JPY is up 0.07 yen. The dollar index on Monday closed higher: Dollar Index +0.34, EUR/USD -0.94 cents, USD/JPY -0.08 yen. The dollar index on Monday edged to a new 2-month high and nearly posted a 4-month high. Meanwhile, the euro extended its 2-week plunge to a new 4-month low. The dollar was boosted by safe-haven demand and the euro was undercut by the increasing speculation about Greece leaving the Eurozone. July WTI crude oil prices this morning are trading unchanged and July gasoline is up 0.85 cents in mostly technical trade as the market awaits Wednesday's DOE report. Crude oil and gasoline prices on Monday closed sharply lower: CLM12 -1.35 (-1.40%), RBM2 -0.0418 (-1.39%). Oil prices were hit hard along with the rest of the commodity sector on commodity liquidation and the rally in the dollar. 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 closed at $112.26, which means Mr. Naimi is calling for another 11% drop in oil prices from last Friday's level. The market consensus for Wednesday's weekly DOE inventory report is as follows: U.S. crude oil +1.5 million barrels (+0.4%), which would be a 21-3/4 year high, Cushing crude oil +470,000 barrels, gasoline +800,000 barrels, and distillates +300,000 barrels. The consensus is that the refinery utilization rate will rise 0.5 point to 86.9%.
Today's U.S. Earnings Reports
Earnings reports (sorted by mkt cap): HD-Home Depot (consensus $0.65), TJX-TJX Co. (0.54), JCP-JC Penney (-0.08), CG-Carlyle Group, DKS-Dick's Sporting (0.38), VAL-Valspar (0.82), RAH-Ralcorp (0.85), SINA-Sina Corp (-0.23), SKS-Saks (0.18).
Global Financial Calendar
| Tuesday, May 15 | |
|---|---|
| 1130 ET | |
| US American Iron and Steel Institute's steel production report for period ended May 11 | |
| 1200 ET | |
| USDA weekly weather-crop summary for period ended May 13 | |
| 1630 ET | |
| American Petroleum Institute's US oil statistics for week ended May 11 | |
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