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Barchart Moring Call 5/30

|Includes:BAH, Cosan Limited (CZZ), TFM
Barchart Morning Call Wed, 30 May 2012 07:00:00 -0500

Overnight Developments

  • June E-mini S&Ps this morning are trading -7.25 points (-0.54%) on the 1.40% sell-off in European stocks and on today's jump in Spanish and Italian bond yields. The commodity sector this morning is trading with an average loss of -0.64%. Crude oil is down 1.33%, copper is down 1.39%, and agricultural commodities are trading mostly lower, although gold is mildly higher by +0.28%. The dollar index is mildly higher by +0.10 points (+0.12%) and EUR/USD is down -0.52 cents (-0.42%) on the rise in Spanish and Italian bond yields. June 10-year T-notes are up 9.5 ticks this morning.
  • European stocks this morning are sharply lower with the Euro Stoxx 50 index down 1.40% due to the jump in Italian and Spanish bond yields and today's poor Eurozone confidence reports. The Spanish stock market is down -2.58% and the Italian stock market is down -2.00%. Asian stocks closed lower across the board today: Japan -0.28%, Hong Kong -1.92%, China -0.32%, Taiwan -1.10%, Australia -0.49%, Singapore -0.64%, South Korea -0.24%, India -0.77%, Turkey -0.92%.
  • Italy today sold 5.73 billion euros of 5-year and 10-year bonds, which was less than the maximum target of 6.25 billion euros. The 10-year debt was sold at 6.03% and the 5-year debt was sold at 5.66%. The 10-year Italian bond yield today soared by 24 bp to 6.01%.
  • Spain's 10-year bond yield today rose by 24 bp to 6.68%, the highest since late November. The price of 5-year Spanish credit default swaps (the price of insuring against a sovereign default) today rose by 22 bp to a new record high of 583 bp. Market worries are growing about whether Spain will be able to recapitalize its troubled banking system without a Eurozone bailout.
  • The Eurozone May economic confidence index, measuring business and consumer confidence, fell by 2.3 points to 90.6 from a revised 92.9 in April, which was a 2-1/2 year low and weaker than the consensus of 91.9.
  • Eurozone April M3 growth fell to +2.5% y/y from a revised +3.1% y/y in March, which was weaker than market expectations of +3.4% and indicated slow money demand.
  • The European markets are on edge ahead of Thursday's voter referendum in Ireland about whether to approve the terms of the European fiscal pact, which is effectively a constitutional balanced budget requirement. The polls currently indicate that Irish voters will approve the fiscal pact, which would provide some good news for the European debt crisis. Ireland would not be able to receive a second round of bailout funds, if that becomes necessary when the first round runs out, unless it approves the fiscal pact.
  • The European Commission today called for the European Stability Mechanism (ESM) to be allowed to provide direct aid for European banks that need to be recapitalized, which would be a big help for resolving the European debt crisis but has been opposed by some Eurozone countries such as Germany. Under current rules, the ESM (when it becomes operational in July) can only provide aid to national governments, which in turn can use the funds to recapitalize their banking sectors.
  • Israeli Defense Minister Ehud Barak today said that the clock is "ticking faster" for Iran and for the U.S. He added, "The metaphorical sword is at our neck." Mr. Barak, together with Israeli Prime Minister Netanyahu, are the two main hawks in Israel and hold a large amount of power on if and when to attack Israel's nuclear facilities, although an attack is not believed to be imminent while the world powers are negotiating with Iran. The third round of talks with Iran is scheduled for June 18-19 in Moscow. Market Comments
    • June E-mini S&Ps this morning are down -7.25 points (-0.54%) on the worsening European debt crisis situation and today's declines in the European confidence indexes. U.S. stocks on Tuesday closed moderately higher: S&P 500 +1.11%, Dow Jones +1.01%, Nasdaq 100 +1.26%. Bullish factors on Tuesday centered on (1) short-covering after the recent sharp decline, (2) expectations for additional growth measures from China, and (3) and weekend news that the Greek pro-bailout party New Democracy party is now ahead in the polls, reducing the chances that Radical Left Syriza will win the June 17 election and force a show-down with the Eurozone over its bailout package and end up forcing Greece to leave the Eurozone. Bearish factors included (1) worries about the Spanish banking system with the government's confusion over how it plans to fund the 19 billion bailout of Bankia, Spain's third largest bank, (2) the unexpected 3.8 point decline in the U.S. consumer confidence index from the Conference Board to a 4-month low of 64.9, (3) the smaller-than-expected +0.09% rise in the April Case-Shiller Composite-20 home price index, although that was the first back-to-back gain in two years.
    • June 10-year T-notes this morning are up 9.5 ticks as flight-to-quality continues with today's sharp rise in Italian and Spanish bond yields. T-note prices on Tuesday closed slight lower: TYM2 -3, FVM2 -2.25. T-note prices were undercut by the rally in U.S. stocks and the +0.58% close in the Euro Stoxx 50 on Tuesday. Still, there is a firm safe-haven bid tied to worries that Spain will eventually need a Eurozone bailout in order to cover banking system losses and deficits at the state/regional level.
    • The dollar index this morning is mildly higher by +0.10 points (+0.12%) as capital flight from Europe continues. EUR/USD is down -0.0052 (-0.42%) and USD/JPY is down -0.40 yen (-0.50%). The dollar index on Tuesday closed slightly higher after edging to a new 1-2/3 year high: Dollar Index +0.07 (+0.09%), EUR/USD -0.0038 (-0.30%), USD/JPY +0.02 (+0.03%). The dollar index saw a little strength as EUR/USD posted a new 1-3/4 year low. There was good news for Europe from the polls showing pro-bailout New Democracy gained support. However, the market remains very worried about Spain, which has flip-flopped on how to finance the 19 billion euro Bankia bailout. Spain on Monday said it would effectively give Bankia an IOU from the government to fund its gap, but that brought significant criticism and Spanish officials backtracked to say that their preferred method is to use cash raised in the bond markets. The government's attempt to use an IOU to back Bankia suggests that the Spanish government is losing confidence in its ability to raise cash in the debt markets, where the 10-year Spanish yield on Monday rose sharply by 16 bp to 6.45%.
    • July WTI crude oil prices this morning are down $1.21 (-1.33%) and July gasoline is down 2.63 (-0.93%) on (1) concerns about global economic growth with the worsening European situation, and (2) expectations for another rise in Thursday's DOE crude oil inventory report to a new 21-3/4 year high. July crude oil and gasoline prices on Tuesday closed mixed: CLN12 -0.05 (-0.06%), RBN2 +0.0108 (+0.38%). July crude oil prices closed slightly lower after consolidating near the bottom of the recent $15 per barrel plunge. Crude oil was undercut by the higher dollar but saw some support from (1) the rally in stocks, (2) expectations for additional Chinese growth measures, and (3) reports that Iran is becoming more intransigent in its attitude towards the nuclear talks, which raises the chances for a military attack down the road. Gasoline prices were boosted by reports that Petroplus's Coryton refinery in the U.K. (175,000 bpd capacity) may have to close due to the insolvency of its owner and the lack of a buyer, which would reduce European shipments of gasoline to the U.S.
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      Earnings reports (sorted by mkt cap): CZZ-cosan (consensus $0.13), TFM-Fresh Market (0.35), BAH-Booz Allen (0.40).

      Global Financial Calendar

      Wednesday 5/30/12
      United States
      0700 ET Weekly MBA mortgage applications, previous +3.8%, purchase sub-index -3.0%, refi sub-index +5.6%..
      1000 ET Apr pending home sales expected unch m/m and +22.0% y/y, Mar +4.1% m/m and +10.8% y/y.
      1330 ET Fed's Dudley speaks on regional economy in NY.
      1630 ET Fed's Rosengren speaks in Worcester, MA.
      0400 ET Eurozone Apr M3 expected +3.4% y/y and +3.1% 3mo avg, Apr +3.2% y/y and +2.8% 3mo avg.
      0500 ET Eurozone May consumer confidence expected -19.3, last -19.3. May economic confidence expected 91.9, last 92.8. May industrial confidence expected -10.2, last -9. May services confidence expected -2.8, last -2.4.
      n/a German Apr retail sales, Mar 1.6% m/m and +2.3% y/y.
      United Kingdom
      0430 ET UK Apr new consumer credit expected +0.2 bln pounds, Mar +0.4 bln pounds. May net lending secured on dwellings expected 1.0 bln pounds, Mar +1.0 bln pounds.
      0430 ET UK Apr mortgage approvals, Mar 49,900.
      0430 ET UK Apr M4 money supply, Mar -0.8% m/m and -5.0% y/y.
      1901 ET UK May GfK consumer confidence survey expected -32, Apr -31.
      1950 ET Japan Apr industrial production expected +0.5% m/m and +13.7% y/y, Mar +1.3% m/m and +14.2% y/y.
      2130 ET Japan Apr labor cash earnings expected +1.1% y/y, Mar +1.3% y/y. provides Financial Quotes, Charts and Technical Analysis for Stock and Commodity Traders.

Stocks: CZZ, TFM, BAH