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Barchart Morning Call 8/8

Barchart Morning Call
Barchart.com - 25 mins ago
Overnight Developments
  • Global stocks are sinking with the European Euro Stoxx 50 down -1.54% at a 2-year low and Sep S&Ps down -29.80 points at a 9-1/2 month low. The dollar is weaker and commodities plunged with copper at a 1-1/2 month low and crude oil down over -$2.00 a barrel, except for gold which surged to a nearest-futures (GCQ) record high of $1,714.30 an ounce, after Standard & Poor's cut the AAA credit rating on America's debt one level to AA+ and kept its outlook at "negative." Treasuries rose, despite the downgrade, as global equity markets tumbled, and after Japanese Finance Minister Noda said that US Treasuries were "attractive." The G-7 sought to head off a collapse of investor confidence when it issued the statement to "take all necessary measures to support financial stability and growth." Italian and Spanish bonds rallied and credit-default swaps to insure the government debts of Euro-Zone countries fell after the ECB issued a statement following an emergency Governing Council conference last night in which the ECB welcomed Spain's and Italy's efforts to reduce their budget deficits and said it will "actively implement" its bond purchase program as it bought Italian and Spanish bonds today. The ongoing European debt crisis has already taken a toll on investor confidence as the Aug Euro-Zone Sentix investor confidence fell a more than expected -18.8 to -13.5, a 22-month low, while the Jul Bank of France business sentiment slipped -1 to 98, its lowest level in 20 months.
  • The Asian stock markets today closed with Japan down -2.18%, China -3.57%, Australia -2.91%, South Korea -3.75%, India -1.82%. China's Shanghai Stock Index sank to a 1-year low after Jiangxi Copper and PetroChina, the nation's biggest producers of copper and oil, dropped more than 3% as metals and crude oil slumped. Asian shipping companies and exporters all tumbled on concern trade will falter, while Japanese banks that hold US government debt all declined. Asian markets may see a surge in capital flows that threaten to push up currencies and hurt exports after the US sovereign-debt downgrade, which prompted Japan's Vice Finance Minister Igarashi to say Japan is ready to intervene in the currency markets again if it sees speculative trades pushing the yen higher, while the Reserve Bank of India pledged to provide "adequate rupee and forex liquidity" to curb excess moves in interest and exchange rates.
Overnight U.S. Stock News
  • September S&Ps this morning are trading sharply lower by -29.80 points as S&P's downgrade of the US credit rating sends global stocks into a tailspin. The US stock market last Friday rallied sharply after the larger-than-expected increase in Jul US non-farm payrolls but erased its advance and headed lower on concern the US will lose its top credit rating only to recover its losses and settle mixed on speculation the ECB will buy Spanish and Italian government bonds to halt the contagion of the European debt crisis: Dow Jones +0.54%, S&P 500 -0.06%, Nasdaq Composite -0.94%. The S&P 500 fell to a 9-month low and the Dow and Nasdaq dropped to 8-month lows. Bullish factors included (1) the larger-than-expected increase in Jul nonfarm payrolls along with the upward revision to Jun (Jul +117,000 versus expectations of +85,000 and Jun revised up to +46,000 from the originally reported +18,000), (2) the unexpected decline in the Jul unemployment rate (-0.1 to 9.1% versus expectations of unchanged at 9.2%), (3) the larger-than-expected increase in Jul avg hourly earnings (+0.4% m/m and +2.3% y/y versus expectations of +0.2% m/m and +1.9% y/y), which bodes well for US consumer spending, (4) the larger-than-expected increase in Jun US consumer credit which rose by the most in 3-3/4 years (+$15.532 billion versus expectations of +$5.00 billion), and (5) speculation that the ECB will expand its government bond purchases to Spain and Italy in order to stem the contagion of the European debt crisis.
  • Bearish factors included (1) concern that the top credit rating of the US will soon be cut, (2) the rebuke by Germany to a European Commission proposal to increase the European Financial Stability Facility rescue fund, which may further prolong the European debt crisis, and (3) the action by Goldman Sachs to lower its 2011 US GDP forecast to 1.7% from 1.8% and to cut its 2012 US GDP forecast to 2.1% from 3.0%.
  • Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) both fell 1.8% and Bank of America (NYSE:BAC) slipped 2% in European trading as US bank stocks follow other global bank stocks lower.
  • Exxon Mobil (NYSE:XOM) fell 3.1% in pre-market trading after crude oil slumped over $2 a barrel in overnight trading.
Today's Market Focus
  • September 10-year T-notes this morning are trading up +19.5 ticks. T-note prices last Friday retreated from a 2-1/2 year nearest-futures high after the US economy added more jobs than expected in July and as the S&P 500 recovered from a 9-month low: TYU11 -30.5, FVU11 -17, EDZ11 +1.0. The 10-year T-note yield dropped to a 10-month low of 2.335% before closing above 2-1/2%. Bearish factors included (1) the larger-than-expected increase in Jul nonfarm payrolls along with the upward revision to Jun (Jul +117,000 versus expectations of +85,000 and Jun revised up to +46,000 from the originally reported +18,000), (2) the unexpected decline in the Jul unemployment rate (-0.1 to 9.1% versus expectations of unchanged at 9.2%), (3) the larger-than-expected increase in Jul avg hourly earnings (+0.4% m/m and +2.3% y/y versus expectations of +0.2% m/m and +1.9% y/y, with the +2.3% y/y gain the biggest annual increase in 21-months), (4) reduced safe-haven demand for Treasuries after stocks recovered from sharp losses on speculation the ECB will purchase Italian and Spanish government bonds to stem the contagion of the European debt crisis, and (5) long liquidation pressures after Sep T-notes surged over 5+ points in just the past 2 weeks. Bullish factors included (1) increased safe-haven demand for Treasuries after the S&P 500 sank to a 9-month low and (2) the action by Goldman Sachs to lower its 2011 and 2012 US GDP forecasts.
  • The dollar index this morning is weaker with the dollar/yen -0.62 and the euro/dollar -0.06 cents. The dollar index last Friday fell back from a 2-1/2 week high and settled lower on reduced safe-haven demand after US employers added more jobs than forecast in July and the unemployment rate unexpectedly fell: Dollar Index -0.526, USDJPY -0.432, EURUSD +0.01885. Bearish factors included (1) the stronger-than-expected US Jul nonfarm payrolls that dampened the safe-haven demand for the dollar, (2) strength in the euro on speculation the ECB will purchase Italian and Spanish government bonds to stem the contagion of the European debt crisis, and (3) the action by Goldman Sachs to lower its 2011 US GDP forecast to 1.7% from 1.8% and to cut its 2012 US GDP forecast to 2.1% from 3.0%. the plunge in the S&P 500 to a 9-month low, which increased the safe-haven demand for the dollar. Bullish factors included (1) the unexpected decline in Jun German industrial production, which is euro negative and (2) the early plunge in the S&P 500 Index to a 9-month low, which boosted the safe-haven demand for the dollar.
  • Sep crude oil prices this morning are down sharply by -$2.98 a barrel and Sep gasoline is -7.70 cents per gallon as commodity prices tumble in the wake of the US debt downgrade. Sep crude oil and gasoline prices last Friday gyrated between gains and losses and finally settled higher as a stronger-than-expected increase in Jul US non-farm payrolls and an unexpected drop in the Jul unemployment rate temporarily soothed fears of an economic slowdown: CLU11 +$0.25, RBU11 +6.80. Sep crude plunged to an 8-1/2 month low and Sep gasoline fell to a 5-month low but both markets recovered and closed higher. Bullish factors included (1) a reversal in the dollar after the dollar index fell back from a 2-1/2 week high and closed lower, (2) the larger-than-expected increase in Jul US nonfarm payrolls along with the unexpected drop in the Jul unemployment rate, which signals a stronger than expected labor market that may increase US consumer confidence, spending and fuel demand, and (3) the rebound in the stock market. Bearish factors included (1) the early plunge in the S&P 500 Stock Index to a 9-month low, which reduced confidence in the economic outlook and energy demand, (2) the action by the RBA to slash its 2011 Australian economic growth forecast to 2.0% from its previous estimate of 3.25%, which signals reduced energy consumption, and (3) the unexpected decline in Jun German industrial production, which signals reduced fuel consumption in Europe's largest economy.
Today's U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): MGM-MGM Resorts International (BEST earnings consensus -$0.11), TSN-Tyson Foods (0.40), CFN-CareFusion (0.50), MWE-MarkWest Energy Partners LP (0.40), USM-United States Cellular (0.42), YOKU-Youku.com (-0.05), BEXP-Brigham Exploration (0.30), SMG-Scotts Miracle-Gro (2.19), NGLS-Targa Resources Partners LP (0.38), MR-Mindray Medical International (0.41), GEN-GenOn Energy (-0.05), BWC-Babcock & Wilcox (0.37), TDS-Telephone & Data Systems (0.35), OAS-Oasis Petroleum (0.15), AGO-Assured Guarenty Ltd. (0.86).

Global Financial Calendar

Monday 8/8/11
United States
1130 ET Weekly 3-mo and 6-mo and monthly 1-year T-bill auctions.
Japan
0030 ET Jul Japan bankruptcies, Jun +1.5% y/y.
0100 ET BOJ releases its monthly economic report.
0100 ET Jul Japan Eco watchers survey current expected 50.0, Jun 49.6. Jul Eco watchers survey outlook, Jun 49.0.
France
0230 ET Jul Bank of France business sentiment, Jun -4 to 99.
Euro-Zone
0430 ET Aug Euro-Zone Sentix investor confidence expected -1.9 to 3.4, Jul +1.8 to 5.3.
United Kingdom
1901 ET Jul UK RICS house price balance expected -28%, Jun -27%.
CHI
2130 ET Jul China CPI expected unchanged at 6.4% y/y.
2130 ET Jul China PPI expected +7.5% y/y, Jun +7.1% y/y.
2200 ET Jul China industrial production expected +14.6% y/y, Jun +15.1% y/y.
2200 ET Jul China retail sales expected +17.7% y/y, Jun +17.7% y/y.

 

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