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Brachart Morning Call 5/25

 Barchart Morning Call

Barchart.com - Wed May 25, 7:00AM CDT
Overnight Developments
  • Global stocks are mixed with the European Euro Stoxx 50 up +0.40% and June S&Ps down -2.10 points. The dollar and Treasuries are higher amid speculation Europe's debt crisis is getting worse. European stocks rose, led by gains in German utility companies, after the Financial Times Deutschland reported that the German government may scrap a tax on nuclear reactors. Limiting stock gains was the 3% drop in Applied Materials after the world's largest producer of chip-making equipment forecast earnings that missed estimates. The euro weakened against the dollar after EU Economic and Monetary Affairs Commissioner Rehn told the French newspaper Les Echos that Greece is the "most difficult case" among the three countries that have received bailouts from the EU and IMF. The euro was also pressured after the Jun German GfK consumer confidence survey fell -0.2 to 5.5, weaker than expectations of -0.1 to 5.6 and its lowest level in 6-months.
  • The Asian stock markets today closed mixed with Japan down -0.57%, Hong Kong +0.07%, China -1.19%, Taiwan -0.34%, Australia -0.95%, Singapore +0.18%, South Korea -1.16%, India -0.91%. Japanese stocks closed lower after Apr Japan exports plunged -12.5% y/y, their biggest decline in 1-1/2 years as Japan posted its first trade deficit (-463.7 billion yen) for the month of April in 31 years. BOJ Governor Shirakawa said his board members were "examining whether there's a way to enhance" a 3 trillion yen ($37 billion) lending program for industries that can spur growth. Asian technology stocks took a hit after Applied Materials forecast weaker-than-expected Q3 profit and sales. China's Shanghai Stock Index fell for a fifth day and posted a 3-3/4 month low as a decline in lenders led the index lower after Standard & Poor's said policy tightening may spur a jump in credit losses and weaken profitability in Chinese banks. Chinese property developers weakened after the Shanghai Securities News reported that China will curb speculative demand for homes and maintain basically stable real estate prices to control the property market. Societe Generale predicts that the PBOC will raise interest rates twice more this year and increase lenders' reserve-rate requirements three more times in an attempt control excess liquidity in the markets.
Overnight U.S. Stock News
  • June S&Ps this morning are tradingdown -2.10 points. The US stock market yesterday fluctuated on both sides of unchanged and closed slightly lower as a decline in financial stocks offset an unexpected increase in US new home sales: Dow Jones -0.20%, S&P 500 -0.08%, Nasdaq Composite -0.46%. The Nasdaq fell to a 1-month low. Bearish factors for stocks included (1) weakness in financial companies after Kansas City Fed President Hoenig said that banks' businesses should be confined to loans and deposits to avert a recurrence of Fed bailouts and the near-collapse of the financial system from 2008, (2) the unexpected decline in the May Richmond Fed manufacturing index which fell to a 2-year low (-16 to -6 versus expectations of unchanged at 10), and (3) the warning from St. Louis Fed President Bullard who said the intensification of Europe's debt crisis "is the top threat to the US economy today."
  • Bullish factors included (1) the unexpected increase in Apr US new home sales (+7.3% to 323,000 versus expectations of unchanged at 300,000), (2) strength in energy and raw material producers after Goldman Sachs said it's turning "more bullish" on raw materials, and (3) a rally in for-profit schools after William Clair & Co. said that for-profit school stocks will trade higher within a year because the publication of a rule linking federal student aid to gainful employment will settle a controversy that has discouraged investment.
  • Applied Materials (NASDAQ:AMAT) fell 3% in European trading after it forercast profit excluding certain costs for the current period will be 31 cents to 37 cents a share, below analysts' estimates of 38 cents.
Today's Market Focus
  • June 10-year T-notes this morning are up +2.5 ticks. T-note prices yesterday traded sideways in negative territory due to stronger-than-expected US new home sales but rallied in the early afternoon and closed higher after stocks faltered and strong demand was seen at the Treasury's $35 billion 2-year T-note auction: TYM11 +2.5, FVM11 +1, EDU11 unchanged. Bullish factors included (1) the unexpected decline in the May Richmond Fed manufacturing index which fell to a 2-year low (-16 to -6 versus expectations of unchanged at 10), (2) strong demand for the Treasury's $35 billion auction of 2-year T-notes that had a bid-to-cover ration of 3.46, higher than the 12-auction average of 3.35, (4) weak stock prices which prompted safe-haven demand for Treasuries, and (5) comments from St. Louis Fed President Bullard who said the Fed may keep its policy rate, the size of its balance sheet and policy language on hold to "give the FOMC more time to assess economic conditions." Bearish factors include (1) the unexpected increase in Apr US new home sales (+7.3% to 323,000 versus expectations of unchanged at 300,000), and (2) supply pressures ahead of a $35 billion Treasury auction of 5-year T-notes on Wed.
  • The dollar index this morning is higher with the dollar/yen +0.08 yen and the euro/dollar -0.38 cents. The dollar index yesterday closed lower as the euro strengthened on stronger than expected German business confidence and reduced European sovereign-debt concerns: Dollar Index -0.269, USDJPY -0.052, EURUSD +0.00518. Bearish factors included (1) the stronger-than-expected May German IFO business climate index, (2) the action by the Greek government to endorse an asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid, which reduced European debt concerns, and (3) comments from St. Louis Fed President Bullard who said the Fed may keep its policy rate, the size of its balance sheet and policy language on hold to "give the FOMC more time to assess economic conditions." Bullish factors included (1) the unexpected increase in Apr US new home sales, which suggest economic strength and is dollar supportive, and (2) the larger-than-expected declines in May French business confidence and in Mar Euro-Zone industrial new orders, which is euro negative.
  • July crude oil prices this morning are trading down -11 cents a barrel and July gasoline is -1.01 cents per gallon. Crude oil and gasoline prices yesterday settled higher due to the weak dollar and after Goldman Sachs said it was turning "more bullish" on commodities: CLN11 +$1.89, RBN11 +5.21. Bullish factors included (1) a decline in the dollar which encourages investment demand in commodities, (2) fund buying of crude after the statement from Goldman Sachs that it's turning "more bullish" on commodities and its prediction that "It is only a matter of time until inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supplies," and (3) the outlook for weekly crude supplies to decline when the DOE reports weekly crude oil inventories on Wed. Bearish factors included (1) the unexpected decline in May Richmond Fed manufacturing index to a 2-year low, which indicates weakened energy consumption, and (2) the outlook for gasoline supplies to increase on Wednesday's weekly DOE inventory report. Expectations for weekly inventories from the DOE are for crude oil supplies to fall -1.7 million bbl, gasoline stockpiles to rise +500,000 bbl, distillate inventories to increase +50,000 bbl and the refinery utilization rate to rise +0.5 to 83.7% of capacity.
Today's U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) COST-Costco Wholesale (BEST earnings consensus $0.76), NTAP-NetApp (0.53), RL-Polo Ralph Lauren (0.77), HRL-Hormel Foods (0.40), CSC-Computer Sciences (1.17), GES-Guess? (0.44), TOL-Toll Brothers (-0.04), AEO-American Eagle Outfitters (0.14), ASNA-Ascena Retail Group (0.65), SMTC-Semtech (0.43), FRO-Frontline Ltd. (-0.10), NDN-99 Cents Only Stores (0.27), STP-Suntech Power Holdings Ltd. (0.37), RPXC-RPX Corp. (0.16).

Global Financial Calendar

Wednesday 5/25/11
United States
0700 ET Weekly MBA mortgage applications, last market index +7.8% with purchase mortgage sub-index -3.2% and refinancing sub-index +13.0%.
0830 ET Apr durable goods orders expected -2.5% and +0.5% ex transportation, Mar +4.1% and +2.3% ex transportation.
1000 ET Mar FHFA house price index purchase only expected -0.5% m/m, Feb -1.6% m/m. Q1 FHFA house price index purchase only expected -1.2% q/q, Q4 0.8% q/q.
1300 ET Treasury auctions $35 billion 5-year T-notes.
1330 ET Minneapolis Fed President Narayana Kocherlakota speaks to the Rochester Area Chamber of Commerce.
Germany
0200 ET Jun German GfK consumer confidence survey expected -0.1 to 5.6, May-0.2 to 5.7.
United Kingdom
0430 ET Q1 UK total business investment, Q4 unchanged q/q and +12.2% y/y.
0430 ET Revised Q1 UK GDP expected no change at +0.5% q/q and +1.8% y/y
0430 ET Mar UK index of services expected +0.5% m/m and +0.9% 3-mo/3-mo, Feb +0.6% m/m and -0.3% 3-mo/3-mo.
Euro-Zone
0815 ET ECB Council members Mario Draghi and Erik Liikanen speak at an event in Berlin.
Canada
0900 ET Mar Canada Teranet/National Bank home price index, Feb +3.8% y/y.
France
1200 ET Apr French jobseekers net change expected -20,000, Mar -21,100. Apr total jobseekers, Mar 2.680,000.
Japan
1950 ET Apr Japan corporate service price index expected -1.1% y/y, Mar -1.2% y/y.

 

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