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Barchart Morning Call 8/4

Barchart Morning Call
Barchart.com - 1 hr 3 mins ago
Overnight Developments
  • Global stocks are mixed with the European Euro Stoxx 50 down -0.44% and Sep S&Ps down -9.90 points. The dollar is higher and most commodities are lower, with crude oil falling to a fresh 5-week low and copper sliding to a 4-week low. As expected, the BOE kept its benchmark interest rate at 0.50% and maintained its asset purchase plan at 200 billion pounds following its monetary policy meeting. The euro and credit-default swaps to insure European government bonds fell on speculation that ECB President Trichet may signal measures to halt contagion from the sovereign debt crisis when he speaks later today following the monthly ECB monetary policy meeting. Helping to limit declines in European stocks was the unexpected increase in Jun German factory orders for a third month as they climbed +1.8% m/m and +9.5% y/y, stronger than expectations of -0.5% m/m and +6.7% y/y.
  • The Asian stock markets today closed mixed with Japan up +0.23%, China +0.18%, Australia -1.30%, South Korea -2.34%, India -1.38%. The yen tumbled to a 3-week low against the dollar and helped Japanese stocks close higher after the BOJ intervened in the currency market to sell the yen and also increased its liquidity measures to help the economy. The BOJ expanded its asset-purchase fund to 15 trillion yen ($189 billion) from 10 trillion yen and expanded a credit facility by 5 trillion yen to 35 trillion yen. Japan's unilateral move to sell the yen follows efforts by the Swiss central bank yesterday to curb gains in the Swiss franc. The recent sell-off in global equity markets had prompted investors to the relative safety of the two currencies, which strengthened the currencies to abnormal levels and threatened to damage their export competitiveness.
Overnight U.S. Stock News
  • September S&Ps this morning are trading down -9.90 points. The US stock market yesterday erased an early rally on the larger-than-expected increase in Jul ADP employment and headed lower after the Jul ISM non-manufacturing index unexpectedly weakened, but stocks recovered from their losses and settled higher after former Fed Vice Chairman Kohn said the Fed may consider a new round of quantitative easing: Dow Jones +0.25%, S&P 500 +0.50%, Nasdaq Composite +0.89%. The S&P 500 plunged to a 7-1/2 month low, the Dow slumped to a 4-1/2 month low and the Nasdaq fell to a 5-week low, but they all recovered and closed higher. Bullish factors included (1) the larger-than-expected increase in the Jul ADP employment change (+114,000 versus expectations of +100,000), (2) a WSJ report that stated Former Fed Vice Chairman Kohn said the Fed will consider implementation of QE3 if inflation slows and the economy continues to under perform, (3) relatively cheap valuations as the S&P 500 traded at 13.6 times reported earnings, the cheapest level in 13 months, and (4) the fall in the 10-year T-note yield to an 8-3/4 month low of 2.545%.
  • Bearish factors included (1) carry-over weakness from a plunge in European stocks which sank to a 13-month low on concern the European debt crisis may worsen after credit-default swaps to insure the government debts of France, Italy and Spain all climbed to records, (2) additional signs that the US economy is slowing after the unexpected decline in the Jul ISM non-manufacturing index which dropped to its lowest level in 1-1/2 years (-0.6 to 52.7 versus expectations of +0.2 to 53.5), (3) weakness in energy producers after crude oil tumbled to a 5-week low, and (4) the warning from Moody's Investors Service that the US is still at risk of losing its top credit rating.
Today's Market Focus
  • September 10-year T-notes this morning are trading up +4.5 ticks. T-note prices yesterday posted an 8-3/4 month nearest-futures high and closed higher for the fifth consecutive session on concern the economy is slowing after the Jul ISM non-manufacturing index unexpectedly declined: TYU11 +26, FVU11 +12, EDZ11 -3.5. The 10-year T-note yield dropped to an 8-3/4 month low of 2.545%. Bullish factors included (1) the unexpected decline in the Jul ISM non-manufacturing index which dropped to its lowest level in 1-1/2 years (-0.6 to 52.7 versus expectations of +0.2 to 53.5) and (2) increased safe-haven demand for Treasuries after the S&P 500 fell to a 7-1/2 month low along with concern the European debt crisis may worsen after credit-default swaps to insure the government debts of France, Italy and Spain all climbed to records. Bearish factors included (1) the larger-than-excepted increase in the Jul ADP employment change (+114,000 versus expectations of +100,000), (2) the warning from Moody's Investors Service that the US is still at risk of losing its top credit rating, which may dampen foreign demand for US debt, and (3) the late-day rebound in stock prices which diminished the safe-haven demand for Treasuries.
  • The dollar index this morning is higher with the dollar/yen +2.78 yen at a 3-week high and the euro/dollar -0.78 cents. The dollar index yesterday settled lower on signs the US economy is slowing along with the action by Moody's to place the US credit rating on a negative outlook: Dollar Index -0.469, USDJPY -0.090, EURUSD +0.01202. Bearish factors included (1) the unexpected slide in the Jul ISM non-manufacturing index to its lowest level in 1-1/2 years, which may prompt the Fed into additional emergency stimulus measures that would further weaken the dollar's interest rate differentials, (2) the warning from Moody's Investors Service that the US is still at risk of losing its top credit rating, and (3) the stronger-than-expected Jun Euro-Zone retail sales, which is euro supportive. Bullish factors included (1) concern the European debt crisis may worsen after credit-default swaps to insure the government debts of France, Italy and Spain all climbed to records and (2) increased safe-haven demand for the dollar after the S&P 500 plunged to a 7-1/2 month low.
  • Sep crude oil prices this morning are down -90 cents a barrel at a 5-week low and Sep gasoline is -3.63 cents per gallon at a 1-month low. Sep crude oil and gasoline prices yesterday closed lower for a third day on economic concerns along with a decrease in gasoline demand and a larger than expected build in weekly gasoline supplies: CLU11 -$1.86, RBU11 -10.60. Sep crude tumbled to a 5-week low and Sep gasoline dropped to a 4-week low. Bearish factors included (1) the unexpected decline in the Jul ISM non-manufacturing index to a 1-1/2 year low, which signals a slowdown in economic growth and energy demand, (2) the larger-than-expected increase in weekly DOE gasoline stockpiles which climbed to their highest level since Apr 1 (+1.70 million bbl to 215.2 million bbl versus expectations of +250,000 bbl), (3) slack demand after US gasoline demand measured on a 4-week average was down -3.6% from a year earlier, and (4) the plunge in the S&P 500 Stock Index to a 7-1/2 month low, which reduces confidence in the economic outlook and energy demand. Bullish factors included (1) the weaker dollar, which encourages investment demand for commodities, (2) the smaller-than-expected increase in weekly crude oil inventories (+950,000 bbl versus expectations of +1.5 million bbl), and (3) the first increase in three months in the Jul China non-manufacturing index, which may keep demand strong in the world's second-largest crude oil consuming country.
Today's U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): KFT-Kraft Foods (BEST earnings consensus $0.58), AIG-American Interantional Group (0.98), CVS-CVS Caremark (0.64), APA-Apache (3.13), GM-General Motors (1.20), DTV-DirecTV (0.85), PCLN-Priceline.com (4.85), PSA-Public Storage (0.76), PCG-PG&E Corp. (1.02), DISCA-Discovery Communications (0.61), ED-Consolidated Edison (0.53), EP-El Paso (0.24), VTR-Ventas (0.35), CAH-Cardinal Health (0.58), PGN-Progress Energy (0.64), CI-Cigna (1.29), FLR-Fluor (0.81).

Global Financial Calendar

Thursday 8/4/11
United States
0830 ET Weekly initial unemployment claims expected +7,000 to 405,000, previous -24,000 to 398,000. Weekly continuing claims expected -3,000 to 3.700 million, previous -17,000 to 3.703 million.
1030 ET Jul ICSC chain store sales, Jun +6.9% y/y.
1630 ET Weekly money supply report and Fed balance sheet.
Germany
0600 ET Jun German factory orders expected -0.5% m/m and +6.7% y/y, May +1.8% m/m and +12.2% 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).
Euro-Zone
0745 ET ECB announces interest rate decision (expected no change to the 1.50% 2-week refinancing rate).
0830 ET ECB President Jean-Claude Trichet speaks at monthly news conference.

 

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