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Barchart Morning Call 4/7

Apr. 07, 2011 10:01 AM ET
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 Barchart Morning Call

Barchart.com - 1 hr 57 mins ago
Overnight Developments
  • Global stocks are mixed with the European Euro Stoxx 50 index up +0.57% and June S&Ps up +0.50 of a point. The dollar is higher and Treasuries are weaker while copper rose to a 1-1/2 week high. As expected, the BOE maintained its benchmark interest rate at 0.50% and kept its asset purchase target at 200 billion pounds following the conclusion of its monetary policy meeting. A rally in European bank stocks is leading the market higher after Portugal's government asked for a bailout. According to European officials with knowledge of the situation, Portugal is aiming for a bailout that may be worth as much as 75 billion euros ($107 billion) as record high borrowing costs forced the country to be the third in the Euro-Zone to seek a rescue package. After climbing to a record high of 585 bp on Tuesday, credit-default swaps tied to Portuguese bonds tumbled to 535 bp today. German bunds tumbled on reduced safe-haven demand with the yield on the benchmark 10-year bund climbing to a 1-1/2 year high of 3.46%. Another positive for stocks and a negative for government debt is the strength in German industrial output. Feb German industrial production rose +1.6% m/m and +14.8% y/y, stronger than expectations of +0.5% m/m and +13.2% y/y.
  • The Asian stock markets today closed mixed with Japan up +0.07%, Hong Kong -0.01%, China +0.40%, Taiwan +0.56%, Australia -0.10%, Singapore +0.04%, South Korea -0.32%, India -0.11%. Following the conclusion of its 2-day monetary policy meeting today, the BOJ downgraded their economic assessment of the Japanese economy for the first time since Oct and unveiled a 1 trillion yen ($12 billion) lending facility to help the economy rebuild from last month's earthquake. The BOJ said Japan's economy is under "strong downward pressure" after the earthquake damaged production facilities and weakened financial positions of companies, and pressure will persist "for the time being" before the economy recovers. The Australian dollar climbed to $1.0482, the highest level since being freely floated in 1983, after Australia's unemployment rate fell to a 2-year low of 4.9% in March as employers added 37,800 workers, more than the 24,000 forecast.
Overnight U.S. Stock News
  • June S&Ps this morning are trading up +0.50 of a point. The US stock market yesterday finished with modest gains on carry-over support from a rally in European stocks along with strength in technology companies: Dow Jones +0.27%, S&P 500 +0.22%, Nasdaq Composite +0.31%. The Dow rose to a 2-3/4 year high and the S&P 500 posted a 1-1/2 month high. Bullish factors included (1) carry-over support from gains in European stocks after Feb German factory orders rose nearly 5 times estimates, which signals economic strength that boosts confidence in the global economic outlook, (2) strength in technology stocks after Cisco rallied on speculation it will sell or spin off its consumer business, and (3) comments from Atlanta Fed President Lockhart who said he doesn't expect the Fed to tighten monetary policy by year-end with inflation still low and the economic recovery fragile.
  • Bearish factors for stocks included (1) weakness in commodity producers led by a fall in Monsanto after the world's largest seed producer said agricultural-chemical earnings declined, and (2) the 5 bp rise in the 10-year T-note yield to a 4-week high of 3.546% as inflation expectations increased.
Today's Market Focus
  • June 10-year T-notes this morning are trading down -1.5 ticks. T-note prices yesterday weakened as inflation expectations rose along with carry-over weakness from a jump in the 10-year German bund yield to a 1-1/2 year high: TYM11 -12.5, FVM11 -6.5, EDU11 +0.5. The 10-year T-note yield climbed to a 4-week high of 3.546%. Bearish factors included (1) an increase in inflation expectations after the difference between yields on 5-year T-notes and 5-year TIPS, or the break-even rate, reached 2.41 points, the widest in 2-3/4 years, and (2) carry-over weakness after the 10-year German bund yield surged to a 1-1/2 year high of 3.436%. Bullish factors included (1) dovish comments from Atlanta Fed President Lockhart who said he doesn't expect the Fed to tighten monetary policy by year-end with inflation still low and the economic recovery fragile, and (2) the Fed's action to purchase $1.970 billion of Treasuries as part of its QE2 asset-purchase program.
  • The dollar index this morning is higher with the dollar/yen -0.43 yen and the euro/dollar -0.50 cents. The dollar index yesterday slumped to a 1-1/2 week low as the euro strengthened to a 14-1/2 month high against the dollar on speculation the ECB will raise interest rates even further after they raise them on Thursday: Dollar Index -0.368, USDJPY +0.626, EURUSD +0.01088. The yen tumbled to a 6-1/4 month low against the dollar. Bearish factors included (1) speculation the euro's interest rate differentials will widen further in favor of the euro as the ECB begins to hike interest rates while the Fed maintains its overly easy monetary policy, (2) the larger-than-expected increase in the Feb German factory orders, which is euro supportive, (3) supportive interest rate differentials for the euro after the 3-month Euribor rate increased for the fourteenth consecutive day, +0.7 bp to a 1-3/4 year high of 1.269%, and (4) comments from Atlanta Fed President Lockhart who said he is not "leaning" to Fed policy tightening this year. Bullish factors included (1) the fall in the yen to 6-1/4 low against the dollar on the outlook for further emergency stimulus from the BOJ, and (2) the attempt from Jean-Claude Juncker, head of the Euro-Zone finance ministers, to jawbone the euro down from a 14-1/2 month high against the dollar when he said the euro's exchange rate may be "slightly overstated."
  • May crude oil prices this morning are trading up +9 cents a barrel and May gasoline is -0.41 of a cent per gallon. Crude oil and gasoline prices yesterday rallied to 2-1/2 year highs but finished mixed as gasoline closed lower on the smaller-than-expected drop in weekly inventories and crude settled higher after German factory orders surged: CLK11 +$0.49, RBK11 -0.84. Bullish factors included (1) the slide in the dollar index to a 1-1/2 week low, which boosts investment demand in commodities, and (2) the surge in Feb German factory orders by nearly 5 times estimates, which signals economic strength that may lead to increased energy demand. Bearish factors include (1) weakness in gasoline after weekly DOE gasoline inventories fell less than expected (-357,000 bbl versus expectations of -1.9 million bbl), and (2) comments from the UAE Energy Minister who said that world oil markets are "adequately supplied" and "the surge in prices is a reflection of geopolitics and natural disaster but not the fundamentals."
Today's U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) STZ-Constellation Brands (BEST earnings consensus $0.26), RPM-RPM International (-0.05), PIR-Pier 1 Imports (0.47), RAD-Rite Aid Corp. (-0.24), PBY-PEP Boys-Manny Moe & Jack (0.07), GBX-Greenbrier (-0.01), AZZ-AZZ Inc. (0.73).

Global Financial Calendar

Thursday 4/7/11
United States
0345 ET Cleveland Fed President Sandra Pianalto speaks on a panel discussion at the Global Interdependence Center Conference in Rome on ?Capital Markets in the Post-Crisis Environment.?
0820 ET Richmond Fed President Jeffrey Lacker speaks to the 2011 Ferrum College Forum on Critical Thought, Innovation & Leadership on ?Innovation in he New Financial regulatory Environment.?
0830 ET Weekly initial unemployment claims expected ?3,000 to 385,000, previous ?6,000 to 388,000. Weekly continuing claims expected ?14,000 to 3.700 million, previous ?51,000 to 3.714 million.
1030 ET Mar ICSC chain store sales, Feb +4.2% y/y.
1100 ET Treasury announces amounts of 3-year T-notes (previous $32 billion), 10-year T-notes (previous $21 billion) and 30-year T-bonds (previous $13 billion) to be auctioned Apr 12-14.
1500 ET Feb U.S. consumer credit expected +$4.600 billion, Jan +$5.014 billion.
1630 ET Weekly money supply report and Fed balance sheet.
0245 ET Feb French trade balance expected ?5.70 billion euros, Jan ?5.89 billion euros.
0600 ET Feb German industrial production expected +0.5% m/m and +13.2% y/y, Jan +1.8% m/m and +12.5% y/y.
United Kingdom
0700 ET BOE announces interest rate decision and asset purchase target (expected no change to the 0.50% benchmark rate and no change to the 200 billion pound asset purchase target).
0600 ET European Commission releases quarterly report on the Euro-Zone.
0745 ET ECB announces interest rate decision (expected +25 bp increase in the 2-week refinancing rate to 1.25%).
0830 ET ECB President Jean-Claude Trichet speaks at monthly press conference.
0830 ET Feb Canada building permits expected +2.0% m/m, Jan ?5.1% m/m.
n/a BOJ announces interest rate decision (expected no change to the 0.00% to 0.10% benchmark rate).


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