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Barchart Morning Call - 5/27

May 27, 2011 10:41 AM ET
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Jim Van Meerten's Blog
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Barchart Morning Call
Barchart.com - 2 hrs 38 mins ago
Overnight Developments
  • Global stocks are mixed with the European Euro Stoxx 50 up +0.43% and June S&Ps up +1.00 point. The dollar weakened and commodities advanced after leaders of the Group of Eight said the strengthening of the world economy will pave the way for reductions in debt. European debt concerns eased after ECB Council member Wellink said he?s "fully confident" Greece will meet conditions to receive its 3.3 billion-euro ($4.7 billion) aid payment by the IMF next month. Treasury and bund prices gained on a flight-to-safety after Japan's credit outlook was lowered to negative by Fitch Ratings while European confidence in the economic outlook weakened for a third month in May as the worsening debt crisis and surging commodity costs weighed on sentiment. The May Euro-Zone economic confidence slipped -0.6 to a 7-month low of 105.5, weaker than expectations of -0.5 to 105.7. European money supply growth rose less than expected in April, which may prompt the ECB to pause in its interest rate tightening cycle, after the Apr Euro-Zone M3 money supply rose +2.1% 3-month avg and +2.0% y/y, weaker than expectations of +2.3% 3-month avg and +2.4% y/y. Strength in European banking shares in leading gains in European stocks after Citigroup raised its recommendation on the sector to "overweight."
  • The Asian stock markets today closed mixed with Japan down -0.42%, Hong Kong +0.95%, China -0.51%, Taiwan +0.25%, Australia +0.51%, Singapore +0.38%, South Korea +0.37%, India +1.23%. Japan had its AA- credit rating outlook lowered to negative from stable by Fitch Ratings which cited "rising government indebtness." Japan's gross government debt reached 210% of GDP by the end of 2010, the highest ratio for any Fitch rated sovereign, the ratings company said. A weaker than expected Q1 US GDP along with a rally in the yen to a 1-1/2 week high against the dollar undercut Japanese exporters, while China's Shanghai Stock Index tumbled to a 4-month low after profit growth slowed among industrial companies and concern intensified inflation will accelerate this month. The National Bureau of Statistics reported that profit at China's industrial companies rose +29.7% in the first four months y/y, weaker than the +32% y/y gain in Q1, while the National Business Daily reported that China's consumer prices may increase as much as +5.5% y/y this month, higher than April's +5.3% y/y pace.
Overnight U.S. Stock News
  • June S&Ps this morning are trading up +1.00 point. The US stock market yesterday settled higher as a rally in raw material producers and technology stocks offset concern the US economic recovery may be losing momentum after Q1 US GDP expanded less than expected and weekly initial jobless claims unexpectedly rose: Dow Jones +0.07%, S&P 500 +0.40%, Nasdaq Composite +0.78%. Bullish factors for stocks included (1) strength in raw material producers as a weak dollar prompted a broad-based rally in commodities, (2) a rally in Microsoft, which led technology stocks higher, after Gamco Investors said shares of the world's biggest software maker are "statitistically" cheap, and (3) reduced interest rate concerns after the 10-year T-note yield fell to a 5-1/2 month low of 3.06%.
  • Bearish factors included (1) the weaker-than-expected Q1 US GDP (unrevised at +1.8% annualized, weaker than expectations for an upward revision to +2.2% annualized), as Q1 personal consumption was unexpectedly revised down to +2.2% from the originally reported +2.8%, (2) the unexpected increase in weekly US initial unemployment claims (+10,000 to 424,000 versus expectations of -5,000 to 404,000), and (3) carry-over weakness from a decline in European stocks on concern that Europe's debt crisis may worsen after the head of the European finance ministers, Jean-Claude Juncker, said the IMF may not release its portion of aid to Greece next month.
  • Marvell Technology Group (MRVL) rallied 8.9% in pre-market trading after the company forecast Q2 profit of 35 cents to 39 cents a share, stronger than analysts' estimates of 33 cents.
Today's Market Focus
  • June 10-year T-notes this morning are down -0.5 of a tick. T-note prices yesterday rallied to a 6-month high and finished moderately higher on concern the economic recovery is losing momentum: TYM11 +19.5, FVM11 +12.7, EDU11 +0.5. The 10-year T-note yield slipped to a 5-1/2 month low of 3.056%. Bullish factors included (1) the weaker-than-expected Q1 US GDP (unrevised at +1.8% annualized, weaker than expectations for an upward revision to +2.2% annualized), (2) the unexpected increase in weekly US initial unemployment claims (+10,000 to 424,000 versus expectations of -5,000 to 404,000), (3) increased safe-haven demand for Treasuries after the head of the Euro-Zone finance ministers, Jean-Claude Juncker, said the IMF may not release its portion of aid to Greece next month, and (4) strong demand for the Treasury's $29 billion auction of 7-year T-notes that had a bid-to-cover ratio of 3.24, well ahead of the 12-auction average of 2.86.
  • The dollar index this morning is weaker with the dollar/yen -0.17 yen and the euro/dollar +0.94 cents. The dollar index yesterday settled with modest losses as weaker-than-expected US economic data fueled speculation that the US will lag behind other countries in raising interest rates: Dollar Index -0.383, USDJPY -0.678, EURUSD -0.00562. Bearish factors included (1) the weaker-than-expected Q1 US GDP along with the unexpected increase in weekly US initial unemployment claims, which bolsters the outlook for the Fed to maintain its overly easy monetary policy, (2) comments from ECB President Trichet who said policy makers are ?carefully? monitoring inflation, which bolsters speculation the ECB is prepping the markets for another interest rate hike, and (3) comments from the CEO of the European Financial Stability Facility that Asian investors, including the Chinese government, may compromise a "strong proportion" of Portuguese bailout bond buyers when the EFSF sells the bailout bonds next month, which eases concern that the European debt crisis will spread. Bullish factors included (1) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the IMF needs "financing assurances" before it releases its share of aid to Greece next month, which undercut the euro as it raises uncertainty over additional aid for Greece, and (2) the prediction from Fidelity Investments that the dollar is set to strengthen over the next 18 months to 3 years because of competitive advantages in the US.
  • July crude oil prices this morning are trading up +12 cents a barrel and July gasoline is up +0.15 of a cent per gallon. Crude oil and gasoline prices yesterday settled mixed as refinery outages in the Midwest boosted gasoline but weaker-than-expected economic data undercut crude: CLN11 -$1.09, RBN11 +2.07. Jul gasoline rose to a 1-week high and Jul crude climbed to a 2-week high but crude shed its gains and closed lower. Bullish factors included (1) the weaker dollar, which boosts investment demand in commodities, and (2) strength in gasoline on speculation that outages at 2 Illinois refineries owned by Marathon Oil and Exxon Mobil will reduce gasoline supplies during the Memorial Day holiday weekend. Bearish factors included (1) the weaker-than-expected US Q1 GDP, which signals reduced fuel consumption, and (2) the unexpected increase in weekly US initial jobless claims, which suggests labor market weakness that may lead to reduced fuel demand.
Today's U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) EXXI-Energy XXI Bermuda Ltd. (BEST earnings consensus $0.49), MENT-Mentor Graphics (0.17), QRE-QR Energy LP (0.28), NX-Quanex Building Products (0.11), AMSC-American Superconductor (-0.21).

Global Financial Calendar

Friday 5/27/11
United States
0830 ET Apr personal spending expected +0.5%, Mar +0.6%. Apr personal income expected +0.4%, Mar +0.5%. Apr PCE deflator expected +2.2% y/y, Mar +1.8% y/y. Apr core PCE deflator expected +0.2% m/m and +1.0% y/y, Mar +0.1% m/m and +0.9% y/y.
0955 ET Final May U.S. University of Michigan consumer confidence expected unchanged at 72.4, previous +2.6 to 72.4.
1000 ET Apr pending home sales expected -1.0% m/m, Mar +5.1% m/m and -11.5% y/y.
United Kingdom
0200 ET May UK nationwide house prices expected +0.1% m/m and -1.7% y/y, Apr -0.2% m/m and -1.3% y/y.
0400 ET Apr Euro-Zone M3 money supply expected +2.3% 3-mo avg and +2.4% y/y, Mar +2.0% 3-mo avg and +2.3% y/y.
0400 ET ECB Board member and Slovenia?s central bank Governor Marko Kranjec speaks at a business conference in Portoroz, Slovenia.
0500 ET May Euro-Zone economic confidence expected -0.5 to 105.7, Apr -1.1 to 106.2. Mar business climate indicator expected -0.08 to 1.20, Apr -0.15 to 1.28.
n/a May German CPI (EU harmonized) expected +0.1% m/m and +2.7% y/y, Apr +0.3% m/m and +2.7% y/y.


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