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Barchart's Morning Call 5/24

|Includes:Costco Wholesale Corporation (COST), KHC, PAY, SIG, THFF

Barchart Morning Call

BC - 41 mins ago

Overnight Developments

  • June E-mini S&Ps this morning are trading mildly higher by +5.75 points (+0.44%) on this morning's 1.25% upward rebound in European stocks and some short-covering. The news overnight has generally been negative with weaker-than-expected Eurozone PMI and German IFO confidence reports and a 0.5 point drop in the China May flash manufacturing PMI to 48.7. The dollar index is slightly lower by 0.033 points on the higher trade in U.S. and European stocks. Commodity prices have rebounded higher this morning with crude oil up +1.07%, gold up 1.12%, copper up 1.41%, and agricultural commodities trading mostly higher.
  • The Euro Stoxx 50 is up +1.25% this morning on some short-covering after the recent sharp losses. Yesterday's EU summit resulted in a spirited exchange of views and was not intended to deliver any policy decisions, although German Chancellor Merkel once again made clear her opposition to joint euro bonds. European Union President Herman Van Rompuy was given the task of outlining "building blocks" for a more integrated Eurozone to present at the next EU summit on June 28-29.
  • Asian stocks closed mostly lower today as gloom continued to hang over the markets: Japan +0.08%, Hong Kong -0.64%, China -0.83%, Taiwan -0.32%, Australia -0.28%, Singapore -0.03%, South Korea +0.31%, India +1.72%, Turkey +0.04%.
  • World powers today are meeting with Iran for a second day of the talks on Iran's nuclear program. A member of the Iranian delegation today said that "There's been no progress in this round of talks." The world powers are pressing Iran for an immediate halt to the enrichment of uranium to 20% purity.
  • Today's May Eurozone PMI Manufacturing index fell by -0.9 points to 45.0 from 45.9 in April and was weaker than market expectations for a 0.1 point increase to 46.0. The May PMI services index fell by -0.4 points to 46.5 from 46.9 in April and was weaker than expectations for a -0.2 point decline to 46.7.
  • Today's German IFO confidence report was substantially weaker than expected. The German May IFO Business Climate index fell by 3.0 points to 106.9 from April's 109.9 versus expectations for a 0.5 point decline to 109.4. The May IFO Current Assessment index fell by 4.2 points to 113.3 from April's 117.5 and was weaker than expectations for a 0.4 point decline to 117.1. The IFO Expectations index fell by 1.8 points to 100.9 from April's 102.7, and was weaker than expectations for a 0.7 point decline to 102.0.
  • UK Q1 GDP was revised lower to -0.3% q/q (-1.2% q/q annualized) from the earlier report of -0.2% q/q (-0.8% q/q annualized).
  • china's May HSBC/Markit flash manufacturing PMI fell by 0.5 points to 48.7 from 49.3 in April. Market Comments
    • June E-mini S&Ps this morning are up +5.75 points (+0.44%) on some follow-through technical buying from yesterday's late rally and on today's 1.25% rally in European stocks. Hewlett-Packard is up 8% in European trading this morning after HP reported above-consensus sales and profit and announced plans to cut 27,000 jobs. There are earnings reports today from COST-Costco (consensus $0.87), HNZ-Heinz (0.79), TIF-Tiffany (0.70), PAY-Verifone (0.61), SIG-Signet Jewelers (0.91).
    • U.S. stocks on Wednesday closed narrowly mixed after an upward rebound from early losses: S&P 500 +0.17%, Dow Jones -0.05%, Nasdaq 100 +0.31%. The stock market on Wednesday was down early on sharp losses in European stocks and ongoing worries about Greece, Spain, and potential conflict between France and Germany. However, the market was able to recover later in the session on some improved optimism about European cooperation and on the stronger-than-expected U.S. March new home sales (+3.3%) and March FHFA U.S. home price index (+1.8% m/m) reports. The markets were also encouraged that Spain's Economy Minister said that Bankia, Spain's fourth largest bank, will get whatever public money it needs to be recapitalized. The markets have been worried that the Spanish government has yet to produce a specific rescue plan for Bankia after it was partially nationalized two weeks ago due to its heavy losses on property loans. Also, Greece's four largest banks this week received cash from the Eurozone bailout fund to replenish their capital levels, which put the Greek banking system on a stronger footing to be able to weather the storm through the July 17 Greek parliamentary elections.
    • June 10-year T-notes this morning are down 6 ticks due to reduced safe-haven demand with the upward rebound in U.S. stock index futures and European stocks. The Treasury today sells $29 billion in 7-year T-notes. T-note prices on Wednesday closed higher: TYM2 +11.5, FVM2 +5.25. June 10-year T-note prices on Wednesday posted a new record high. The 10-year T-note yield closed the day at 1.73%, which was just 6 bp above the record low of 1.67% posted last September. T-notes continue to see strength on the recent indications of slowing world economic growth. T-notes are also receiving strong safe-haven demand with speculation that Greece may choose to leave the Eurozone and that Spain may need a bailout to recapitalize its banking sector and cover deficits for its state/regional governments.
    • The dollar index this morning is slightly lower by 0.033 points (-0.04%) due to the higher trade in U.S. and European stocks. EUR/USD is down -0.0003 (-0.02%). USD/JPY is down -0.09 (-0.11%). The dollar index on Wednesday decisively broke out to a new 1-2/3 year high and closed with fairly sharp gains: Dollar Index +0.58 (+0.72%), EUR/USD -0.0102 (-0.80%), USD/JPY -0.49 (-0.62). The dollar continues to see safe-haven demand, combined with technical buying on Wednesday's upside technical breakout. The recent events in Europe are bearish for the euro both because of a loss of confidence in the euro itself and because the ECB is coming under increasing pressure to easy monetary policy another notch either by cutting interest rates or by conducting another long-term loan operation. French President Hollande is also revived pressure for the idea of having the ECB lend money to the permanent European Stability Mechanism to boost its firepower, which would amount to an easing of monetary policy. The ECB in December and February loaned more than 800 European banks a total of 1 trillion euros to reliquefy the European banking system. French President Hollande at Wednesday's informal summit gained support from other EU leaders for his growth policies but was stonewalled by the Germans on the joint euro bond concept.
    • July WTI crude oil prices this morning are up 0.96 (+1.07%) and July gasoline is up 0.42 (+0.15%) on some short-covering after the recent sharp losses. Crude oil and gasoline prices on Wednesday closed lower once again: CLN12 -1.46 (-1.59%), RBN2 -0.0435 (-1.52%). July crude oil prices fell to a new 7-month low and closed at $90.44, the first close near $90 since last October. Meanwhile, July Brent crude oil futures closed at $105.56, which is still above $5 higher than where Saudi Oil Minister al-Naimi recently said he would like to see Brent crude oil trading. Oil prices continue to see downward pressure from the weaker global economy, the European debt crisis, rising U.S. inventories, and the Iran talks. There was little news out of yesterday's negotiating session between Iran and the world powers. Negotiations broke off at midnight Wednesday but will resume Thursday morning Baghdad time. The fact that the negotiations went into a second day was a sign of at least some modest progress, which is bearish for oil prices since the talks are delaying the day of any military attack.
    • Wednesday's DOE report showed a continued rise in crude oil inventories and a continued decline in product inventories. U.S. crude oil inventories rose by 3.299 million barrels, which was a larger increase than the consensus of +1.5 million barrels, and posted a new 21-3/4 year high. Crude oil inventories have now soared by 16% since the beginning of the year, which has been a major bearish factor for crude oil prices in recent weeks. U.S. crude oil inventories are now 8.4% above the 5-year seasonal average, the highest such level since December 2010. Crude oil inventories at the Cushing hub in the week ended May 18 rose by 1.7 million barrels to a new record high of 46.795 million barrels, but should now start to slowly decline since the Seaway pipeline to the Gulf was reversed on May 19. Gasoline inventories fell by 3.3 million barrels, which was a much tighter report than expectations for an increase of +500,000 barrels. Distillate inventories fell by 309,000 barrels, which was a little less than the consensus for a decline of 500,000 barrels. Gasoline inventories are now 3.5% below their 5-year seasonal average and distillate inventories are 10.8% below their 5-year average. The refinery utilization rate fell slightly by 0.2 points to 88.1%, which was weaker than expectations for a 0.4 point increase to 88.7%. The utilization rate is now 1.1 point above the 5-year seasonal average.
    • For the full subscription version of this report, please visit www.barchart.com/register/crbfms_usmc.php Today's U.S. Earnings Reports

      Earnings reports (sorted by mkt cap): COST-Costco (consensus $0.87), HNZ-Heinz (0.79), TIF-Tiffany (0.70), PAY-Verifone (0.61), SIG-Signet Jewelers (0.91).

      Global Financial Calendar

      Thursday 5/24/12
      United States
      0830 ET Weekly initial unemployment claims expected unchanged at 370,000, previous unchanged at 370,000. Weekly continuing claims expected -15,000 to 3.250 mln, previous +18,000 to 3.265 mln.
      0830 ET Apr durable goods orders expected +0.3%, Mar -3.9% m/m. Apr durable goods orders ex-transportation expected +0.8%%, Mar -1.3% m/m.
      0830 ET USDA weekly exports.
      0900 ET International Grains Council releases its global wheat, corn and rice production estimates.
      1030 ET DOE natural gas storage.
      1100 ET May Kansas City Fed manufacturing activity index expected +2 to 5, Apr 3.
      1100 ET U.S. Climate Prediction Center issues its preseason Atlantic hurricane season forecast.
      1300 ET Treasury auction of $29 billion in 7-year T-notes.
      1300 ET Fed's Dudley speaks at Council on Foreign Relations in NY.
      1630 ET Weekly money supply report and Fed balance sheet.
      Japan
      0100 ET Bank of Japan monthly economic report.
      1930 ET Japan Apr CPI expected +0.4% y/y, Mar +0.5% y/y. Apr CPI ex-food and energy expected -0.4% y/y, Mar -0.5% y/y. May Tokyo CPI expected -0.3% y/y, Apr -0.3% y/y. May Tokyo CPI ex-fresh food expected -0.5% y/y, Mar -0.5% y/y. May Tokyo CPI ex-food and energy expected -1.0% y/y, Apr -1.0% y/y.
      Germany
      0200 ET German Q1 GDP expected unrevised from +0.5% q/q and +1.7% y/y.
      0330 ET German May PMI manufacturing expected +0.8 to 47.0, Apr 46.2. May PMI Services expected -0.2 to 52.0, Apr 52.2.
      0400 ET German May IFO business climate expected -0.5 to 109.4, Apr 109.9. May IFO current assessment expected 0.4% to 117.1, 117.5. May IFO expectations expected -0.7 to 102.0, Apr 102.7.
      Euro-Zone
      0400 ET Eurozone May PMI composite expected -0.1 to 46.6, Apr 46.7. May PMI manufacturing expected +0.1 to 46.0, Apr 45.9. May PMI services expected -0.2 to 46.7, Apr 46.9.
      United Kingdom
      0430 ET UK Apr BBA loans for house purchase.
      0430 ET UK Q1 GDP expected -0.2% q/q and unch y/y, last -0.2% q/q and unch y/y.
      0430 ET Q1 total business investment expected -1.0% q/q and +9.2% y/y, last -3.3% q/q and -0.4% y/y.
      0430 ET UK Mar index of services expected +0.3% m/m and +0.2% 3mo/3mo, Apr -0.4% m/m and +2.2% 3mo/3mo.
      CHI
      n/a MNI May business condition survey.
      Click to enlarge

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Stocks: COST, KHC, THFF, PAY, SIG