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Barchart Morning Call 12/29

|Includes: Northwest Pipe Company (NWPX)
Barchart Morning Call Thu, 29 Dec 2011 07:00:00 -0600Overnight Developments
  • Global stocks this morning are mostly higher with the Euro Stoxx 50 up +0.06% and Mar S&Ps up +2.40 points. Stocks rose after Italian borrowing costs declined in its final debt sale of the year. The euro weakened to a fresh 1-1/4 year low against the dollar when Italy auctioned 7.02 billion euros of bonds, below the maximum target of 8.5 billion euros, although yields fell from a previous auction last month. The 3-year Italian notes sold at 5.62%, below the 7.89% at a Nov auction, while the 10-year Italian note was sold at 6.98% compared with 7.56% at last month's auction. Stocks also received a boost as bank deposits at the ECB fell to 437 billion euros compared to the record 452 billion euros on Tuesday. The dollar strengthened to an 11-1/2 month high against the euro, which sent gold tumbling to a 5-1/2 month low, after the Dec Italy manufacturing-sentiment index fell -1.5 to 92.5, weaker than expectations of -0.3 to 93.7 and its lowest level in 2 years.
  • Asian stocks today closed mostly lower with Japan down -0.29%, China +0.15%, Australia -0.43%, South Korea -0.03%, India -1.17%. Japanese stocks closed slightly lower as exporters were undercut after the euro plunged to a 10-1/2 year low against the yen. Asian shipping companies rose led by a rally in China Shipping Container after the company said it will raise rates beginning next month. South Korean stocks were undercut after Nov South Korea industrial production unexpectedly declined for a second month as it fell -0.4% m/m, weaker than expectations of a +0.4% m/m increase after European sovereign-debt woes and the global economic slowdown sapped demand for South Korean goods.
Overnight U.S. Stock News
  • March S&Ps this morning are trading up +2.40 points. The US stock market yesterday sold-off from the opening and settled lower on European sovereign-debt concerns after the ECB's balance sheet rose to a record when it increased lending to Euro-Zone banks to help stem a liquidity crisis: Dow Jones -1.14%, S&P 500 -1.25%, Nasdaq Composite -1.34%. Bearish factors included (1) carry-over weakness from a fall in European stocks after the ECB said it lent 214 billion euros to Euro-Zone banks in the week ended Dec 23, which helped push its balance sheet up to a record 2.73 trillion euros and highlights the risks from the ongoing debt turmoil, (2) concern that a lack of lending by European banks will drag down economic growth after the ECB said Euro-Zone banks parked a record 452 billion euros with them on Tuesday rather than lend it, and (3) the slump in energy and raw-material producers after strength in the dollar fueled a decline in most commodities.
  • Bullish factors included (1) the action by Italy to sell 9 billion euros of 179-day bills at a rate of 3.251%, down from 6.504% at a similar auction last month, which shows strong demand for distressed European government debt and temporarily reduced European debt concerns and (2) data from the ICSC that said sales at U.S. retailers were up +4.5% y/y in the week ended Dec 24, which signals strong consumer spending that may help sustain the economic recovery.
Today's Market Focus
  • March 10-year T-notes this morning are down -1.5 ticks. T-note prices yesterday moved higher the entire day and settled with moderate gains on increased safe-haven demand over concern the European debt crisis will undermine the global economic recovery: TYH2 +24.0, FVH2 +9.7, EDM2 -0.5. Bullish factors included (1) increased safe-haven demand for Treasuries after stocks slumped when the ECB said its balance sheet surged to a record 2.73 trillion euros when it increased lending to Euro-Zone banks last week in an attempt to prevent a liquidity squeeze, and (2) increased demand for Treasuries on risk aversion ahead of Italy's 8.5 billion euro auction of T-notes on Thursday. Bearish factors included (1) data from the ICSC that said sales at U.S. retailers were up +4.5% y/y in the week ended Dec 24, which signals strong consumer spending and (2) reduced safe-haven demand for Treasuries after Italy sold 9 billion euros of 179-day bills at a rate of 3.251%, down from 6.504% at a similar auction last month, a sign of strong demand.
  • The dollar index this morning is higher and at a 11-1/2 month high with the dollar/yen -0.11 yen and the euro/dollar -0.75 cents at a 1-1/4 year low. The dollar index yesterday rallied to a 1-week high and settled sharply higher after the euro slumped when the ECB reported that its balance sheet had soared to a record as it lent more to European banks to keep credit flowing: Dollar Index +0.700, USDJPY +0.067, EURUSD -0.01299. Bullish factors included (1) the plunge in the euro to an 11-1/2 month low against the dollar when the ECB said it lent 214 billion euros to Euro-Zone banks in the week ended Dec 23, which helped push its balance sheet up to a record 2.73 trillion euros and weakened the euro's interest rate differentials on concern that the ECB may monetize its debt and (2) increased safe-haven demand for the dollar as the stock market plummeted. A bearish factor for the dollar was the decline in Italian borrowing costs after Italy sold 9 billion euros of 179-day bills at a rate of 3.251%, down from 6.504% at a similar auction last month, which is euro supportive.
  • Feb crude oil prices this morning are up +29 cents a barrel and Feb gasoline is +0.08 of a cent per gallon. Crude oil and gasoline prices yesterday closed lower for the first time in the last seven sessions as the euro plunged on European debt concerns, which boosted the dollar and sent stock and commodity prices tumbling: CLG12 -$1.98, RBG12 -3.54. Bearish factors included (1) the rally in the dollar index to a 1-week high, which curbs investment demand for commodities, (2) heightened European debt concerns which sent stocks falling after the ECB said its balance sheet surged to a record 2.73 trillion euros as it increased lending to Euro-Zone banks in an attempt to prevent a liquidity squeeze, and (3) the larger-than-expected fall in Nov Japan industrial production which signals reduced energy consumption for the world's third-biggest crude consumer. Bullish factors included (1) saber-rattling from the U.S. after the U.S. Navy said it won't accept a disruption to shipping in the Strait of Hormuz saying that "any disruption will not be tolerated," and (2) the outlook for U.S. crude supplies to fall to a 3-year low when the DOE releases its weekly inventory figures on Thursday (one day late due to the Christmas Holiday). Expectations for the weekly DOE inventory report are for crude stockpiles to fall -2.5 million bbl, gasoline supplies to decline -1.2 million bbl, distillate inventories to drop -650,000 bbl and the refinery utilization rate to slip -0.1 to 84.8% of capacity.
Today's U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): NWPX-Northwest Pipe (BEST earnings consensus $0.35).

Global Financial Calendar

Thursday 12/29/11
United States
0830 ET Weekly initial unemployment claims expected +11,000 to 375,000, previous -4,000 to 364,000. Weekly continuing claims expected +54,000 to 3.600 million, previous -79,000 to 3.546 million.
0945 ET Dec Chicago purchasing managers index expected -1.6 to 61.0, Nov +4.2 to 62.6.
1000 ET Nov pending home sales expected +1.5% m/m, Oct +10.4% m/m and +7.3% y/y.
1630 ET Weekly money supply report and Fed balance sheet.
Euro-Zone
0400 ET Nov Euro-Zone M3 money supply expected +2.8% 3-mo avg and +2.5% y/y, Oct +2.8% 3-mo avg and +2.6% y/y.
Japan
1815 ET Dec Japan Markit/JMMA manufacturing PMI, Nov 49.1.
CHI
2130 ET Dec HSBC China manufacturing PMI, Nov 47.7.
Germany
n/a Dec German CPI (EU harmonized) expected +0.8% m/m and +2.4% y/y, Nov unchanged m/m and +2.8% y/y.

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