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Barchart Morning Call 5/18

|Includes: Donaldson Co Inc. (DCI), FL, TTC
Barchart Morning Call Fri, 18 May 2012 07:00:00 -0500

Overnight Developments

    E-mini S&Ps are up 7.25 points (+0.56%) this morning on some pre-weekend short-covering after this week's losses. T-note prices are down 6 ticks. The dollar index is slightly higher by +0.08 points. Commodity prices are mostly higher with crude oil up 14 cents (+0.15%), gold up $15.6 (+0.99%), and copper up 3.3 cents (+0.93%). Commodities trading lower include gasoline, soybeans and sugar. European stocks are moderately lower again with the Euro Stoxx 50 down -0.36. European stocks are reacting to the news after Thursday's U.S. close that Moody's downgraded 16 Spanish banks. In some good news for Europe, the Spanish 10-year yield today fell by 6 bp to 6.22% despite yesterday's downgrade of 16 Spanish banks by Moody's. However, Spanish government credit default swap prices, the price of insuring against a Spanish government default, rose 8.5 bp to a record 560 bp. Spanish bank CDS prices also rose today with CDS prices on Bankia SA rising 68 bp to 828 bp, Banco Santander SA up 25 bp to 468.5 bp, and Banco Popular Espanol up 34 bp to 785 bp. Santander's stock price, however, is up 3% this morning on a report that Spanish banks are calling for a reintroduction of a ban on short selling on financial stocks. Bankia, which has been pummeled over the past two weeks, is up 20% today. Bankia was the subject of reports and denials yesterday about whether it has been subject to heavy depositor withdrawals since it was recently taken over by the Spanish government. President Obama meets late this morning with new French President Hollande before today's start of the 2-day G-8 meeting at Camp David. The G-8 Summit agenda includes the Greek debt crisis, global food security, and using strategic oil reserves to offset the European embargo on Iranian oil that begins on July 1. After the G-8 meeting, leaders will be traveling to Chicago for the NATO summit on Sunday and Monday. The Wall Street Journal is reporting that JPMorgan's derivatives loss may widen to $5 billion from the $2 billion amount initially announced last Thursday. Asian stocks fell sharply today across the board in reaction to Thursday's weak U.S. economic data and the Moody's downgrade on 16 Spanish banks: Japan -2.99%, Hong Kong -1.30%, China -1.53%, Taiwan -2.79%, Australia -2.67%, Singapore -1.54%, South Korea -3.53%, India +0.51%, Turkey -0.43%. The price of new homes in China fell on a year-on-year basis in 46 of the 70 cities tracked by China's National Bureau of Statistics. New home prices in Beijing fell 1% y/y and in Shanghai fell 1.3% y/y. Goldman Sachs today lowered its forecast for Chinese Q2 GDP to +7.9% from +8.5%, and cut its full year forecast to +8.1% from +8.6%.

Overnight U.S. Stock News

    June E-mini S&Ps this morning are trading +7.25 points (+0.56%) as some short-covering has emerged ahead of the weekend. Facebook (NASDAQ:FB) starts trading today after the company in its IPO sold 421.2 million shares at $38 per share to raise $16 billion, which valued the company at $104.2 billion. There are earnings reports today from DCI-Donaldson (consensus $0.43), FL-Foot Locker (0.74), and TTC-Toro (2.13). U.S. stocks on Thursday closed lower: S&P 500 -1.51%, Dow Jones -1.24%, Nasdaq 100 -2.05%. U.S. stocks received some support Wednesday night from the news that Japan's Q1 GDP was stronger-than-expected at +4.1% (q/q annualized). However, the news became progressively worse with reports of a run on Spanish bank Bankia and a continued rise in most peripheral European credit default swap prices and bond yields. In addition, Thursday's U.S. economic data was weaker-than-expected with unchanged initial unemployment claims at 370,000 (versus expectations of 365,000), a drop in the May Philadelphia Fed index to -5.8 from 8.5, and a 0.1% drop in the April LEI (versus expectations of +0.1%). The Euro Stoxx 50 on Thursday closed the day down 1.1%, undercutting U.S. stocks. In addition, reports emerged during the day that Moody's after the close would downgrade Spanish banks, which in fact occurred. After the close, Facebook released news that it priced its IPO at $38.

Today's Market Focus

    June 10-year T-notes this morning are trading -6 ticks on the higher trade in E-mini S&Ps and the lack of any fresh negative news out of Europe. T-note prices on Thursday closed mixed: TYM2 +11, FVM2 -0.25. The 10-year T-note yield on Thursday closed at 1.70%, which was only 3 bp above the record low of 1.67% posted last September. T-note prices were boosted yesterday by the weak U.S. economic data combined with worries about Greek and Spanish banks. In addition, T-note prices were boosted by speculation that the recent spate of bad news may force the Fed into at least extending its Operation Twist program when it expires at the end of June, which would be bullish for the longer-term of the Treasury curve where the Fed is making its securities purchases. The dollar index this morning is slightly higher by 0.08 points. EUR/USD is up 0.0009 and USD/JPY is up 0.11 yen. The dollar index on Thursday closed mildly higher: Dollar Index +0.14, EUR/USD -0.0018, USD/JPY -1.05. USD/JPY fell sharply as the yen was boosted by the stronger-than-expected Japanese Q1 GDP report of +4.1% (q/q annualized). The dollar index edged to a new 4-month high but again stopped just short of taking out the 1-2/3 year high of 81.784 posted in mid-January. The euro was again undercut by this week's reports this week of depositor withdrawals from banks in Greece and Spain, which is putting increased pressure on the ECB for another big long-term loan operation or possibly even a rate cut, which would be euro-bearish events. July WTI crude oil prices this morning are trading +14 cents (+0.15%) but July gasoline is down 1.19 cents (-0.42%). July Brent crude oil today is down 56 cents (-0.52%) at $106.93, which is now only about $7 above the $100 target mentioned earlier this week by Saudi Oil Minister al-Naimi. Crude oil and gasoline prices on Thursday closed lower: CCLN12 -0.25 (-0.27%), RBN2 -0.0477 (-1.66%). July gasoline on Thursday fell sharply to a new 4-month low while July crude oil consolidated above Wednesday's 6-month low. Crude oil prices on Thursday continued to be pressured by the stronger dollar and concern about global economic growth with the problems in Greece and Spain and with Thursday's weaker-than-expected U.S. economic data. Nymex gasoline prices (NY harbor), which are priced more off Brent crude than WTI crude, were weak yesterday as the market bets on a narrowing of the Brent-WTI spread with the reversal of the Seaway pipeline. Enbridge said yesterday that work has been completed on reversing the Seaway Pipeline and that the 500-mile pipeline this weekend will start transporting oil from the hub at Cushing, Oklahoma to the Gulf of Mexico coast. That should cause a slow drawdown in crude oil inventories at Cushing, which is where the Nymex WTI futures contract is priced. The pipeline will initially deliver 150,000 bpd of crude oil, rising to more than 400,000 bpd by Q1-2013. The drawdown will be very slow considering that oil is flooding into Cushing from North Dakota and Canada and that it would take 10 months for the Seaway pipeline to drain the 45.127 million barrels of oil at Cushing even if oil completely stopped flowing into Cushing from elsewhere.

Today's U.S. Earnings Reports

Earnings reports (sorted by mkt cap): DCI-Donaldson (consensus $0.43), FL-Foot Locker (0.74), TTC-Toro (2.13).

Global Financial Calendar

Friday 5/18/12
United States
0830 ET Factory orders and durable goods orders benchmark revisions.
n/a G-8 Summit at Camp David (Fri/Sat)
1500 ET USDA Cattle-on-Feed report.
0130 ET Japan Apr nationwide department store sales, Mar +14.1% y/y. Apr Tokyo department store sales, Mar +26.7% y/y.
0200 ET German Apr producer prices expected +0.3% m/m and +2.5% y/y, Mar +0.6% m/m and +3.3% y/y. provides Financial Quotes, Charts and Technical Analysis for Stock and Commodity Traders.