- Global stocks this morning are mixed with the Euro Stoxx 50 down -0.06% and Mar S&Ps up +2.40 points. The dollar and Treasuries are lower and most commodities rose after the IMF proposed a $500 billion expansion of its lending resources to insulate the global economy against any worsening of Europe's debt crisis. The IMF is pushing China, Brazil, Russia, India, Japan and oil exporting nations to be the top contributors to the bailout fund that may be initiated at the Feb 25-26 meeting of G-20 finance ministers and central bankers in Mexico City. The IMF currently has $385 billion available for lending and wants to boost that amount to $885 billion. A positive for European bank stocks was the decline in the 3-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, to 78 bp below the euro interbank offered rate, a 5-1/4 month low. Limiting gains in stocks and the euro was the action by Germany's Economy Ministry to cut its 2012 German GDP forecast to +0.7%, down from an Oct forecast of +1.0% as the debt crisis dampens the outlook for sustaining exports. The World Bank also cut its growth estimates as they reduced their 2012 global growth forecast to +2.5% from a June estimate of +3.6%, saying a recession in the Euro-Zone threatens to exacerbate a slowdown in emerging markets.
- Asian stocks today closed mixed with Japan up +0.99%, China -1.56%, Australia +0.05%, South Korea unchnaged, India -0.09%. Asian stocks found support after German investor confidence rose to a 6-month high, which suggests concern over the European debt crisis is receding. Energy and raw-material producers gained as most commodities rallied, while Japanese makers of factory equipment rose after Japan's Machine Tool Builders' Association said that Japan Dec orders for machine tools climbed +17.4% y/y, a number Credit Suisse AG said was "unexpectedly firm." Chinese stocks closed lower as property developers slid on concern a property-market slowdown will crimp demand for building materials and consumer goods. China's 7-day repurchase rate, a gauge of funding availability in the financial system, jumped 58 bp to 7.72%, the highest in 6-3/4 months as banks hoard cash in the run up to the Lunar New Year holiday next week.
- March S&Ps this morning are trading up +2.40 points. The US stock market on Monday settled higher on speculation a slowdown in Chinese growth will prompt its government to ease monetary policy, while European debt concerns eased after German business sentiment surged and Spanish and Greek borrowing costs declined: Dow Jones +0.48%, S&P 500 +0.36%, Nasdaq Composite +0.64%. The S&P 500 and the Dow posted 5-1/2 month highs and the Nasdaq climbed to a 2-1/2 month high. Bullish factors included (1) speculation that China will avoid a hard landing after Q4 China GDP expanded at a +8.9% y/y pace, although stronger than expectations of +8.7% y/y, was the slowest pace of growth in 2-1/2 years and also bolstered speculation the Chinese government will ease monetary policy, (2) reduced European debt concerns after the Jan German ZEW survey of economic sentiment surged to its best level in 6-months (+32.8 to -21.6) and as borrowing costs for Spain and Greece declined when their yields fell at auctions of government debt, and (3) the stronger-than-expected Jan Empire manufacturing index which expanded at its fastest pace in 9-months (+5.3 to 13.5 versus expectations of +1.0 to 10.5).
- Bearish factors on Monday included (1) the action by Standard & Poor's to downgrade the European Financial Stability Facility to AA+ from AAA, which may reduce the lending capacity of the bailout fund, (2) concern the European sovereign debt crisis may worsen after the Managing Director of Fitch Ratings said Greece is insolvent and will default on its debts as it is unlikely to be able to honor a Mar 20 bond payment of 14.5 billion euros, and (3) weakness in cruise-line companies after Barclays Capital said the action by Carnival's Costa Concordia to run aground off the coast of Italy will hurt the cruise industry as the incident happened at the start of the industry's peak booking season.
- Yahoo! (YHOO) climbed 4.1% in pre-market trading after co-founder Jerry Yang stepped down, which fueled speculation that the company will sell its Asian assets valued at more than $10 billion.
- March 10-year T-notes this morning are up +3 ticks. T-note prices on Tuesday settled slightly higher as European debt concerns and Fed buying of long-term Treasuries offset reduced safe-haven demand after the S&P 500 rose to a 5-1/2 month high: TYH2 +1.5, FVH2 +0.7, EDM2 +1.0. Bullish factors included (1) the action by the Fed to purchase $2.75 billion of Treasuries maturing between 2036 and 2041 as part of its Operation Twist program to replace $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to keep long-term rates low and (2) increased safe-haven demand for Treasuries on concern the European sovereign debt crisis may worsen after the Managing Director of Fitch Ratings said Greece is insolvent and will default on its debts as it is unlikely to be able to honor a Mar 20 bond payment of 14.5 billion euros. Bearish factors included (1) decreased safe-haven demand for Treasuries after stocks rallied when Q4 China GDP expanded at a +8.9% y/y pace, stronger than expectations of +8.7% y/y which reduced concerns of a hard-landing for China, (2) reduced European debt concerns after the Jan German ZEW survey of economic sentiment surged to its best level in 6-months and as borrowing costs for Spain and Greece declined when their yields fell at auctions of government debt, and (3) the stronger-than-expected Jan Empire manufacturing index which expanded at its fastest pace in 9-months (+5.3 to 13.5 versus expectations of +1.0 to 10.5).
- The dollar index this morning is lower with the dollar/yen unchanged and the euro/dollar +0.49 cents. The dollar index on Tuesday settled lower after the euro gained when Jan German business sentiment surged and as Spanish and Greek borrowing costs declined: Dollar Index +0.745, USDJPY +0.204, EURUSD -0.01352. Bearish factors included (1) the surge in the Jan German ZEW survey of economic sentiment to its best level in 6 months, (2) the decline in the borrowing costs of Spain and Greece when yields fell at auctions of government debt, which reduces concern that the indebted European countries will be able to finance their debts, and (3) reduced safe-haven demand for the dollar after the S&P 500 rallied to a 5-1/2 month high. Bullish factors included (1) increased safe-haven demand for the dollar when the Managing Director of Fitch Ratings said Greece is insolvent and will default on its debts as it is unlikely to be able to honor a Mar 20 bond payment of 14.5 billion euros, (2) the action by Standard & Poor's to downgrade the European Financial Stability Facility to AA+ from AAA, which may reduce the lending capacity of the bailout fund, and (3) concern about the European banking system as lenders continue to refrain from lending due to counter-party risk after Euro-Zone banks parked 501.9 billion euros in overnight funds at the ECB on Monday, the most since the euro was introduced in 1999.
- Feb crude oil prices this morning are up +45 cents a barrel and Feb gasoline is +0.25 of a cent per gallon. Crude oil and gasoline prices Tuesday settled sharply higher as the dollar weakened, Jan German investor confidence surged and as France pushed for faster enforcement of the EU's proposed ban on oil imports from Iran: CLG12 +$2.01, RBG12 +3.71. Bullish factors included (1) the weaker dollar, (2) the greater-than-expected increase in the Jan German ZEW survey of economic sentiment to its best level in 6 months, which reduces concern the European debt crisis will hinder economic growth and energy demand, (3) comments from 2 unnamed French officials who said that France wants the embargo on Iranian crude to be delayed by no more than 3 months rather than the 6-month delay other EU members are seeking, (4) comments from Saudi Arabian Oil Minister Ali al-Naimi who said that Saudi Arabia aims to stabilize the average crude price worldwide at $100 a barrel in 2012, and (5) the rally in the S&P 500 to a 5-1/2 month high, which bolsters confidence in the economic outlook and fuel demand. Bearish factors included (1) the decline in Q4 China GDP to +8.9% y/y, the weakest pace of growth in 2-1/2 years and signals reduced fuel demand in China, the world's second-largest crude consumer, (2) concern the European debt crisis may worsen after the Managing Director of Fitch Ratings said that Greece is insolvent and will default on its debts as it is unlikely to be able to honor a Mar 20 bond payment of 14.5 billion euros, and (3) carry-over weakness from a fall in natural gas prices to a 10-year nearest-futures low as a milder-than-normal U.S. winter reduces heating demand.
Earnings reports (confirmed releases, sorted by mkt cap): USB-US Bancorp (BEST earnings consensus $0.63), GS-Goldman Sachs Group (1.23), EBAY-Ebay (0.57), PNC-PNC Financial Services (1.49), KMP-Kinder Morgan Energy Partners (0.61), KMI-Kinder Morgan Inc. (0.29), BK-Bank of New York Mellon (0.53), STT-State Street Corp. (0.94), SCHW-Charles Schwab (0.13), FAST-Fastenal (0.29), NTRS-Northern Trust (0.68), XLNX-Xilinx (0.38), FFIV-F5 Networks (1.01), SLM-SLM Corp. (0.49), CLC-CLARCOR (0.67).
Global Financial Calendar
|0700 ET||Weekly MBA mortgage applications, previous +4.5% with purchase mortgage sub-index +8.1% and refinancing sub-index +3.3%.|
|0745 ET||ICSC (Int?l Council of Shopping Centers) weekly retailer sales.|
|0830 ET||Dec PPI expected +0.1% m/m and +5.1% y/y, Nov +0.3% m/m and +5.7% y/y. Dec PPI ex food & energy expected +0.1% m/m and +2.8% y/y, Nov +0.1% m/m and +2.9% y/y.|
|0855 ET||Redbook weekly retailer sales.|
|0900 ET||Nov net long-term TIC flows expected +$40.0 billion, Oct +$4.8 billion.|
|0915 ET||Dec industrial production expected +0.5%, Nov -0.2%. Dec capacity utilization expected +0.3 to 78.1%, Nov 0.2 to 77.8%.|
|0930 ET||Fed Governor Daniel Tarullo testifies before the Financial Services Committee on the proposed Volcker Rule and its impact on the economy.|
|1000 ET||Jan NAHB housing market index expected +1 to 22, Dec +2 to 21.|
|1130 ET||Weekly 4-week T-bill auction.|
|0430 ET||Dec U.K. jobless claims change expected +7,000, Nov +3,000. Dec claimant count rate expected 5.0%, Nov 5.0%.|
|0430 ET||Nov U.K. avg weekly earnings expected +2.0% 3-mo/year-over-year, Oct +2.0% 3-mo/year-over-year.|
|0430 ET||Nov U.K. weekly earnings ex-bonus expected +1.9% 3-mo/year-over-year, Oct +1.8% 3-mo/year-over-year.|
|0430 ET||Nov U.K. ILO unemployment rate expected 8.3% 3-months, Oct 8.3% 3-months.|
|1901 ET||Dec U.K. nationwide consumer confidence expected -2 to 38, Nov +4 to 40.|
|0500 ET||Nov Euro-Zone construction output, Oct -1.4% m/m and -2.8% y/y.|
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