Overnight Developments

  • European stocks are little changed with the European DJ Stoxx 50 up +0.08% and Mar S&Ps up +0.40 of a point. The dollar and Treasuries are weaker and most commodities are stronger, with crude over $90 a barrel and copper at a 22-year high. The British pound weakened to a 3-1/4 month low against the dollar after Q3 UK GDP was unexpectedly revised lower to +0.7% q/q and +2.7% y/y from the previously reported +0.8% q/q and +2.8% y/y. Credit-default swaps insuring Greek government debt rose 13 bp to a 1-month high of 983 bp after Fitch Ratings said Greece may have its credit cut to non-investment grade within 6 weeks after a review of the government’s “fiscal sustainability.” Nov German import prices rose more than expected at +1.2% m/m and +10.0% y/y, with the +10.0% y/y increase the biggest annual gain in 10 years. ARM Holdings Plc climbed 8.5% after Microsoft said it will unveil a version of its Windows operating system that runs battery-powered devices, such as tablet computers and other handhelds, on the UK company’s technology.
  • The Asian markets today closed mixed with Japan down -0.23%, Hong Kong +0.22%, China -1.05%, Taiwan +0.37%, Australia +0.14%, Singapore +0.14%, South Korea +0.11%, India -0.22%. Chinese stocks closed lower, led by consumer companies and banks, after the government raised fuel prices and sparked concern that inflation will accelerate. Japanese stocks closed lower after a monthly report from Japan’s Cabinet Office said the economic rebound is “pausing” and that it is becoming more pessimistic about exports and business sentiment. Nov Japan exports rose +9.1% y/y, weaker than expectations of a +10.3% y/y increase.

Overnight U.S. Stock News

  • March S&Ps this morning are up +0.40 of a point. The stock market yesterday settled higher on optimism that the global economic recovery may continue: Dow +0.48, S&P 500 +0.60%, Nasdaq Composite +0.68%. The S&P 500 Index and the Dow posted 2-1/4 year highs, while the Nasdaq climbed to a 3-year high. The S&P 500 Index has now completely recovered the entire plunge following Lehman Brothers collapse in Oct 2008. Bullish factors included (1) carry-over support from a rally in European stocks after Chinese Vice Premier Wang Qishan said that China has taken “concrete action” to help ease the European sovereign-debt crisis, (2) stellar US company earnings with more than 70% of S&P 500 companies beating profit estimates in Q3, a record sixth straight quarter earnings have surpassed estimates, (3) strength in retailers after the ICSC reiterated that US holiday sales this year will increase 3.5% to 4.0%, the biggest increase in 4 years, and (4) a rally in bank stocks on anticipation of further M&A activity after Toronto-Dominion Bank agreed to buy Chrysler Financial from Cerberus Capital Management LP for $6.3 billion in cash.
  • Bearish factors centered on concern that the European sovereign-debt crisis may worsen after (1) the cost of insuring Portuguese government debt rose to a 3-week high when Moody’s Investors Service said it may cut Portugal’s bond rating “by a notch or two” because of concerns over “sluggish” economic growth, and (2) the warning by Fitch Ratings that Greece’s debt ratings are put on watch for possible downgrade to junk within 6 weeks after it reviews the nation’s “fiscal sustainability.”
  • Nike (NKE) slumped 5.7% in European trading after the world’s largest maker of athletic shoes said orders for Dec to Apr rose +11% y/y, weaker than analysts’ estimates of +11.6% y/y.
  • Tibco Software (TIBX) clmbed 3.7% in pre-market trading after the company reported adjusted Q4 EPS of 31 cents, better than analysts’ estiamates of 28 cents, and it also announced a $300 million stock repurchase plan.

Today’s Market Focus

  • March 10-year T-notes this morning are trading unchanged. T-note prices yesterday finished higher as safe-haven demand increased on concern the European sovereign-debt crisis may worsen: TYH11 +5, FVH11 -0.5, EDM11 +1.5. Bullish factors included (1) increased safe-haven demand for Treasuries on concerns the European debt crisis may worsen after Moody’s Investors Service said it may cut Portugal’s bond rating “by a notch or two” because of concerns over “sluggish” economic growth and Fitch Ratings put Greece’s debt ratings on rating watch negative, and (2) the action by the Fed to purchase $7.79 billion of Treasuries as part of its QE2 asset-purchase program. Bearish factors include (1) reduced safe-haven demand for Treasuries as tensions eased on the Korean Peninsula along with the surge in the S&P 500 Index to a 2-1/4 year high, and (2) rising inflation concerns after St. Louis Fed President Bullard said he’s “very concerned about feedbacks to commodity prices” from the Fed’s second round of quantitative easing.
  • The dollar index this morning is trading lower with the dollar/yen -0.23 yen and the euro/dollar +0.56 cents. The dollar index yesterday traded mixed most of the day but then rallied to a 2-week high late in the session and closed higher on increased European debt concerns: Dollar Index +0.255, USDJPY -0.107, EURUSD -0.00542. Bullish factors included (1) increased safe-haven demand for the dollar as the euro slipped to a 2-week low against the dollar on concern the European sovereign-debt crisis may worsen after the cost to insure Portuguese government debt rose to a 3-week high when Moody’s Investors Service said it may cut Portugal’s bond rating “by a notch or two” because of concerns over “sluggish” economic growth, along with the action by Fitch Ratings to put Greece’s debt ratings on rating watch negative as it reviews the nation’s “fiscal sustainability,” and (2) a possible increase in international demand for dollars after the Fed extended its dollar swap arrangement with the ECB, the BOJ, the BOE, the BOC and the SNB through Aug 1 of 2011. Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after global stock markets rallied and as tensions eased on the Korean Peninsula, and (2) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who attempted to jawbone the euro higher when he said the “euro is not in crisis” and that any such speculation is “unfounded chatter.”
  • February crude oil prices this morning are trading up +36 cents a barrel and February gasoline is +1.59 cents per gallon. Crude oil and gasoline prices yesterday moved higher on optimism that the global economic recovery can be sustained: CLG11 +$0.45, RBG11 +1.96. Feb crude posted a 1-week high and nearest-futures (Jan) gasoline jumped to a 7-1/2 month high. Bullish factors included (1) the weaker dollar, which encourages demand for commodities, (2) the +15% y/y increase in Nov China oil-product consumption with an overall +11% increase in overall Chinese oil product demand in the first 11 months of this year, and (3) the outlook for weekly US crude inventories to decline for a third week when the DOE releases its inventory figures on Wed. Bearish factors included (1) adverse weather in Europe which has forced airport closures and flight cancellations for a fourth day, which signals reduced fuel demand, and (2) the statement from Moody’s Investors Service that it may cut Portugal’s bond rating “by a notch or two” because of concerns over “sluggish” economic growth, which signals the European debt crisis may worsen and reduce economic growth and energy demand. Expectations for Wednesday’s weekly inventory report from the DOE are for crude oil supplies to fall -3.5 million bbl, gasoline inventories to increase +1.5 million bbl, distillate stockpiles to decline -500,000 bbl and the refinery capacity rate to remain unchanged at 88.0%.

Today’s U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) WAG-Walgreen (BEST earnings consensus $0.54), BBBY-Bed Bath & Beyond (0.66), MU-Micron Technolgy (0.27), NAV-Navistar International (0.59), PPC-Pilgrim’s Pride (0.19), FINL-Finish Line (0.05), AM-American Greetings (0.69), LNN-Lindsay (0.49), PKE-Park Electrochemical (0.40).

Global Financial Calendar

Wednesday 12/22/10
United States
0700 ET Weekly MBA mortgage applications, last –2.3% with purchase mortgage sub-index –5.0% and refinancing sub-index –0.7%.
0830 ET Revised Q3 US GDP expected +2.8% annualized, previous +2.5% annualized. Q3 personal consumption expected +2.9%, previous +2.8%. Q3 GDP price index, previous +2.3%. Q3 core PCE deflator, previous +0.8% q/q.
1000 ET Nov existing home sales expected +7.0% to 4.74 million, Oct –2.2% to 4.43 million.
1000 ET Oct FHFA house price index purchase only expected –0.2% m/m, Sep –0.7% m/m.
Germany
0200 ET Nov German import price index expected +0.5% m/m and +9.3% y/y, Oct –0.2% m/m and +9.2% y/y.
United Kingdom
0430 ET Minutes of the Dec 9 Bank of England policy meeting.
0430 ET Revised Q3 UK total business investment expected no change at –0.2% q/q and +4.6% y/y.
0430 ET Revised Q3 UK GDP expected no change at +0.8% q/q and +2.8% y/y.
Japan
n/a Japanese markets closed for the Emperor’s Birthday.

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