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Barchart Morning Call 10/10

|Includes: ADTN, Costco Wholesale Corporation (COST), HELE, HST, PGR

Barchart Morning Call

BC - Wed Oct 10, 7:00AM CDT

Overnight Developments

  • Dec E-mini S&Ps are slightly lower by -0.05% on the sell-off of -0.50% in European stocks and mostly lower Asian stocks. The main bearish factor this morning is concern about weaker Chinese growth after Chinese vehicle shipments unexpectedly declined and Alcoa cut its forecast for aluminum demand this year to +6% from +7% due to slower Chinese growth. Commodities are mildly lower by -0.22% this morning with Dec crude oil down -0.38%, Dec gold down -0.07%, Dec copper down -0.52%, and agriculture prices mixed. The dollar index is this morning is slightly higher by +0.12% while EUR/USD is slightly lower by -0.07%. USD/JPY is slightly higher by +0.05%. Dec 10-year T-notes this morning are down 2 ticks.
  • The weekly MBA mortgage applications index fell 1.2% after last week's 16.6% surge despite the 4 bp drop in the 30-year mortgage rate to a new record low of 3.36%. The refinancing sub-index ran out of steam and fell 2.0% after last week's 19.6% report. However, purchase sub-index rose 2.4% to add to last week's 3.9% increase in some good news for home-buying interest.
  • China's wholesale auto deliveries unexpectedly fell -0.3% to 1.32 million, which was the first decline in 8 months and was below market expectations for a report of 1.35 million. The report raised concern about slowing Chinese consumer demand and spending, although part of the reason for the decline was a boycott of Japanese cars by Chinese consumers due to the Chinese-Japanese dispute over the islands in the East China Sea. The report was an example of the direct economic fallout from the dispute.
  • Alcoa late Tuesday reported a loss of 13 cents a share and said that China's slowing growth will cause global demand for aluminum in 2012 to rise +6%, 1 point lower than Alcoa's forecast of +7% in July.
  • Spanish Prime Minister Rajoy meets today with French President Hollande in Paris.
  • Italy today was able to sell a total of 11 billion euros worth of 3-month and 1-year bills but yields were higher than previous auctions of the same maturities. Germany today sold 3.1 billion euros of 5-year bonds.
  • The IMF said that European banks may need to sell up to $4.5 trillion worth of assets through 2013 if European officials cannot contain the Eurozone debt crisis. That estimate was 18% higher than its April estimate.
  • The yen showed little net impact to Japanese Prime Minister Noda's implicit threat of FX intervention when he said today that, "We have to observe the market closely to see whether there are excessive or disorderly moves" in the currency market. He said that the yen's strength is a "serious problem" and that "when necessary, we will take decisive action."
  • China's top finance officials are boycotting the IMF meetings in Tokyo over the the dispute with Japan over the group of islands in the East China Sea. China's finance minister Xie Xuren and People's Bank of China Governor Xhou Xiaochuan will not attend the meetings and will send deputies. China's four largest state-owned banks are also boycotting the IMF meeting since they are not sending representatives to the IMF meeting as they normally would.
  • Germany's Sep wholesale price index of +1.3% m/m and +4.2% y/y was stronger than market expectations of +1.1% m/m and +3.1% y/y.
  • Japan's Sep machine tool orders fell -2.7% y/y, which was a smaller drop than market expectations of -3.0% y/y. Market Comments
    • Dec E-mini S&Ps this morning are trading slightly lower by -0.75 points (-0.05%) on the weak Chinese vehicle delivery report and Alcoa's cut in its 2012 aluminum demand forecast to +6% from +7%. The S&P 500 index on Tuesday closed sharply lower: S&P 500 -0.99%, Dow Jones -0.81%, Nasdaq 100 -1.61%. Bearish factors included the IMF's global downgrade, worries about Q3 earnings season which is expected to show a 2.4% decline in earnings growth for the S&P 500 companies, the sharp rally in oil prices, and a 2.7% sell-off in Intel on a downgrade by Sanford Bernstein. The IMF late Monday cut its global growth forecast for 2012 by 0.2 points to 3.3% from July's prediction of +3.5% and for 2013 by 0.3 points to +3.6% from +3.9%. The IMF says it sees "alarmingly high" risks of a steeper slowdown with a one-in-six chance for world economic growth to slip below +2%.
    • Dec 10-year T-notes this morning are down 2 ticks. Dec 10-year T-note prices on Tuesday closed lower from Monday's Global close: TYZ2 -7, FVZ2 -6. However, the T-note market saw underlying support from the sharp sell-off in stocks and record demand for the 3-year T-note auction with a bid cover ratio of 3.96.
    • The dollar index this morning is mildly higher by +0.10 (+0.12%). EUR/USD is down -0.0009 (-0.07%) while USD/JPY is up +0.04 (+0.05%). The dollar index on Tuesday closed moderately higher: Dollar index +0.41 (+0.52%), EUR/USD -0.0083 (-0.64%), USD/JPY -0.07 (-0.09%). The dollar index rallied on (1) increased safe-haven demand with the sell-off in stocks and the Turkish-Syria conflict with continued cross-bordering shelling, and (3) weakness in EUR/USD tied to the public protests that greeted German Chancellor Merkel on her visit to Athens.
    • Nov WTI crude oil prices this morning are down -0.35 (-0.38%) and Nov gasoline is up +0.0140 (+0.47%). Nov crude oil and gasoline on Tuesday closed sharply higher: CLX2 +3.06 (+3.43%), RBV2 +0.0656 (+2.27%). Bullish factors included (1) geopolitical concerns with the continued cross-border shelling between Turkey and Syria, (2) reports of delayed shipments of North Sea oil, which gave a boost to Brent crude oil futures, and (3) the recent refinery disruptions. The market consensus for Thursday's weekly DOE report (delayed a day due to Monday's government holiday) is for a 1.5 million barrel increase in crude oil inventories, a 500,000 barrel increase in gasoline inventories, a 500,000 barrel increase in distillate inventories, and an unchanged refinery utilization rate of 88.2% of capacity. In last week's DOE report, U.S. oil production rose 11,000 to a 15-3/4 year high of 6.52 million bpd.
    • For the complete subscription version of this daily report (plus a 13-page big-picture weekly report), along with the earliest possible delivery in the morning, please visit Today's U.S. Earnings Reports

      Earnings reports (ranked by market cap): COST-Costco (Consensus:$1.31), PGR-Progressive Corp (0.26), HST-Host Hotels (-0.02), HELE-Helen of Troy (0.85%), ADTN-Adtran (0.18).

      Global Financial Calendar

      Wednesday 10/10/12
      United States
      0700 ET Weekly MBA mortgage applications, previous +16.6% with purchase sub-index +3.9% and refi sub-index +19.6%.
      1000 ET Aug wholesale inventories expected +0.4% m/m, July +0.7% m/m.
      1300 ET Treasury auction of $21 billion in 10-year T-notes.
      1400 ET Fed's Beige Book.
      1445 ET Minneapolis Fed President Narayana Kocherlakota speaks in Montana.
      1630 ET Fed Governor Daniel Tarullo speaks on financial stability regulation in Philadelphia.
      1645 ET Dallas Fed President Richard Fisher speaks at Cato conference.
      0200 ET Japan Sep machine tool orders, Aug -2.7% y/y.
      1950 ET Japan Aug machine orders expected -2.3% m/m and -4.6%, July +4.6% m/m and +1.7% y/y.
      1950 ET Japan Sep bank lending ex-trusts, Aug +1.1% y/y.
      2200 ET Tokyo Sep office vacancies, Aug 9.17%.
      0200 ET German Sep wholesale price index, Aug +1.1% m/m and +3.1% y/y. provides Financial Quotes, Charts and Technical Analysis for Stock and Commodity Traders.