Jim Van Meerten's  Instablog

Barchart Morning Call

BC - 1 hr 43 mins ago

Overnight Developments

• June E-mini S&Ps this morning are little changed with some underlying support from reports that German Chancellor Merkel may be open to the idea of creating a joint debt redemption fund to help pay down Eurozone debt. EUR/USD is up 0.44 cents (+0.35%) on the report and the dollar index is down 0.23 points (-0.29%). June 10-year T-notes are down 1 tick. Commodity prices are mostly higher this morning with crude oil up 0.29%, gold up 0.24%, copper up 0.54%, and agricultural commodities trading mostly higher.
• The Euro Stoxx 50 index this morning is down -0.23%. Asian stocks today closed mixed: Japan +0.20%, Hong Kong +0.25%, China -0.85%, Taiwan -0.75%, Australia -0.66%, Singapore -0.24%, South Korea +0.45%, India -0.03%, Turkey -0.06%.
• German Chancellor Merkel today made a concession to the German opposition parties to reconsider a proposal on common liability for sovereign debt and discuss that plan further on June 13. Specifically, Ms. Merkel agreed to reconsider a plan published by her council of economic advisors that would create a European debt redemption fund that would help governments pay down their outstanding debt below 60% in return for constitutional commitments on economic reform. The redemption fund would be limited to 25 years, would be worth 2.3 trillion euros, and would be backed by Eurozone country gold reserves. Ms. Merkel at Wednesday's EU summit refused to consider joint euro bonds, but she is apparently becoming a bit more flexible on similar ways to help pay down Eurozone debt given her isolation. Italian Prime Minister Monti yesterday said that the majority of Eurozone leaders favor joint euro bonds and that he thought Ms. Merkel could be persuaded. A 2.3 trillion euro debt redemption fund backed by gold, should it ever come into existence, would be a huge step forward in containing the European debt crisis.
• Chinese stocks fell 0.85% today due in part to yesterday's reports that China's biggest banks will fall short of loan targets for the first time in 7 years due to reduced demand for credit. Loan demand weakened in April and May and loan demand for the year may reach only 7 trillion yuan ($1.1 trillion), below the government's apparent goal of 8.0-8.5 trillion yuan. China's March new bank loans fell by 33% m/m to 682 billion yuan, well below the market consensus for the report of 780 billion yuan. Recent data strongly indicates that the Chinese economy did not bottom out in Q1 as market participants had earlier expected. A recent survey by Bloomberg News found a consensus for +7.9% Chinese GDP growth in Q2 down from earlier estimates of +8.3% and down from +8.1% growth in Q1.
• China's central bank today in its annual report said that China's economy faces downward pressure and that officials will fine-tune policies as needed to address that slower growth.
• Japan's April CPI rose +0.2% y/y, which remained well below the BOJ's inflation target of +1.0% and indicated that Japan continues to face a serious deflation problem. Today's CPI report will keep the pressure on the BOJ to further expand its asset purchase target, possibly in July since the BOJ just recently boosted the target. Market Comments
  • June E-mini S&Ps this morning are little changed. The market remains worried about Chinese economic growth and the Eurozone debt crisis, but today's news was encouraging that Ms. Merkel will at least consider a big debt redemption fund to pay down Eurozone debt.
  • U.S. stocks on Thursday closed mixed: S&P 500 +0.14%, Dow Jones +0.27%, Nasdaq 100 -0.62%. The stock market on Thursday continued to see some short-covering after the plunge seen in stock prices in the first three weeks of May to a 4-month low last Friday. The stock market on Thursday managed to close mixed despite several bearish factors including the weaker-than-expected April durable goods orders report ex-transportation of -0.6%, the weak Eurozone manufacturing PMI report of -0.9 to 45.0, the decline in the German IFO confidence indexes, the 0.5 point decline to 48.7 in China's May HSBC/Markit May flash manufacturing purchasing managers index, and news that China's major banks will fall short of lending targets because of weak long demand. In addition, a poll was released showing that the Greek Radical Left Syriza party picked up another 2 percentage points of support in the polls to 30% and is now 4 points ahead of the pro-bailout New Democracy Party. If the anti-bailout Syriza party wins most seats in Parliament in the Greek election on June 17, the chances are higher than Greece will overplay its hand on repudiating the bailout agreement and end up leaving the Eurozone. Supportive factors on Thursday included (1) a 3.5% rally in HP on positive earnings results and cost-cutting, (2) Italy Prime Minister Monti's comment that the majority of Eurozone leaders favor joint euro bonds and that Germany can eventually be persuaded to agree to joint euro bonds, and (3) the fact there will be a third round of nuclear talks with Iran on June 18-19 and that military action is still not imminent.
  • June 10-year T-notes this morning are down 1 tick as the market treads water ahead of the holiday weekend. T-note prices on Thursday closed lower: TYM2 -10.5, FVM2 -6. T-note prices on Thursday ran into some long liquidation pressure on the mostly stable close in U.S. stock prices. The 10-year T-note yield closed the day at 1.77%, which was 11 bp above the record low of 1.67% posted last September. T-notes are consolidating near the top of their rally on (1) support from safe-haven demand tied to the European debt crisis, and (2) concerns about slowing growth in Europe and China.
  • The dollar index this morning is down 0.24 (-0.29%) and EUR/USD is up 0.0044 (+0.35%) on this morning's report that Ms. Merkel will consider a debt redemption fund. USD/JPY is down -0.07 yen (-0.09%) this morning. The dollar index on Thursday closed higher while EUR/USD fell by 0.40%: Dollar Index +0.16 (+0.19%), EUR/USD -0.0050 (-0.40%), USD/JPY +0.03 (-0.03). The dollar index on Thursday posted another new 1-2/3 year high on technical buying and ongoing concern about the European debt crisis. The euro showed further weakness as global investors dumped European investments and got out of the euro altogether due to the risks of Greece leaving the Eurozone after its June 17 election if the anti-bailout parties get control of the government.
  • July WTI crude oil prices this morning are up 0.26 (+0.29%) and July gasoline is up 0.58 (+0.21%) on some help from the lower dollar and some short-covering going into the holiday weekend. Crude oil and gasoline prices on Thursday closed moderately higher: CLN12 +1.08 (+1.20%), RBN2 +0.0220 (+0.79%). July crude oil prices were able to rally on short-covering and reduced downward pressure on the commodity complex with stocks remaining stable for the last two sessions. There was no progress to speak of at the 2-day talks with Iran on its nuclear program. A third round of talks was set for June 18-19. Iran effectively refused to make any significant concessions unless sanctions were eased, although that was a non-starter for the U.S. and Europe. If Iran cannot get sanctions eased, then its main goal is likely to drag out the talks as long as it can to defer possible military action and to build up even bigger stocks of enriched uranium.
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    Earnings reports (sorted by mkt cap): MENT-Mentor Graphics (consensus $0.25), BRLI-Bio-Refer Labs (0.32).

    Global Financial Calendar

    Friday 5/25/12
    United States
    0530 ET	Fed's Plosser speaks in Eltville, Germany.
    0955 ET	Final-May University of Michigan U.S. consumer confidence index expected unch at 77.8, early-May +1.4 to 77.8.
    Germany
    0200 ET	German Jun GfK consumer confidence survey expected unch at 5.6, May 5.6.

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