U.S. Stock News

Overnight Developments

European stocks are little changed with the European DJ Stoxx 50 -0.19% and Dec S&Ps up +4.10 points. The dollar is slightly weaker and Treasuries and most commodities are higher. The euro is under pressure as European leaders disagreed on how to stem the sovereign-debt crisis. France backed Germany in refusing to add to the European Union's 440 billion ($581 billion) rescue fund and rejected the idea of issuing joint euro-bonds, which deepens bloc-wide divisions before the Dec 16-17 EU summit. European stocks are slightly weaker after Oct French industrial and manufacturing production both unexpectedly declined -0.8% m/m, after strikes and protests blocked ports and triggered the shutdown of refineries and petrochemical plants. On the positive side, Goldman Sachs predicts that European equities will climb 12% through the end of 2011 as rising earnings and record-low interest rates help companies overcome the sovereign-debt crisis.

The Asian markets today closed mixed with Japan down -0.72%, Hong Kong -0.04%, China +1.24%, Taiwan -0.40%, Australia +0.10%, Singapore -0.77%, South Korea -0.22%, India +1.39%. China's Shanghai Stock Index closed higher after China's trade surplus and lending exceeded forecasts in November. Nov China exports rose +24.9% y/y to a record $153.3 billion and imports advanced +37.7% y/y to a record $130.4 billion, leaving a +$22.9 billion surplus, higher than expectations of +$21.0 billion. Nov Chinese new lending was reported at 564 billion yuan ($85 billion), which exceeded market expectations of 500 billion yuan and leaves this year's total about 50 billion yuan short of the government's maximum target of 7.5 trillion yuan. Undercutting gains in Chinese stocks was the action by the PBOC to raise the reserve requirements for banks by 50 bp to 18.5%, the third increase in the last five weeks, as the central bank tries to counter an increase in inflation. Chinese leader s meet tomorrow in Beijing to set economic guidelines for next year. Chinese inflation data is also to be released tomorrow with Nov China CPI expected at +5.1% y/y, the highest since Jul 2008.

March S&Ps this morning are up +4.10 points. The stock market yesterday swung between gains and losses and finally settled mixed as weakness in commodity producers offset better-than-expected data on jobless claims: Dow -0.02%, S&P 500 +0.38%, Nasdaq Composite +0.29%. Bearish factors included (1) a slump in commodity producers after a rally in the dollar prompted losses in most commodities, (2) worries that congressional bickering may delay extension of the Bush-era tax cuts after Oregon Representative DeFazio said that House Democrats approved a resolution to block a floor debate on the tax agreement between President Obama and congressional Republicans, and (3) concern the European sovereign-debt crisis may worsen after Fitch Ratings cut Ireland's credit rating 3 levels to BBB+ from A+, citing "the additional fiscal costs of restructuring and supporting the banking system."

Bullish factors included (1) the larger-than-expected decrease in weekly US initial unemployment claims (-17,000 to 421,000 versus expectations of -11,000 to 425,000), (2) strength in asset managing stocks after Barclay's advised buying the companies to benefit from an improving equity market, (3) Fed data that said US household wealth rose by $1.2 trillion in Q3 and that US household debt in Q3 fell -1.7%, its 10th consecutive quarterly decline, which may lead to an increase in consumer confidence that helps boost personal spending, and (4) strong economic data from the Asia-Pacific region which signals strength in the global economy after Q3 Japan GDP was revised higher and Nov Australian payrolls posted their biggest increase in 10 months.

Procter & Ganble (PG) rose 1% in European trading after Goldman Sachs upgraded the world's largest consumer-products company to "buy" from "neutral," saying P&G is the "turnaround story of 2011" and analysts are "underestimating emerging market sales."

Today's Market Focus

March 10-year T-notes this morning are trading up +5 ticks. T-note prices yesterday traded mixed the entire day as Fed purchases of Treasuries offset a larger than expected decline in weekly unemployment claims: TYH11 -1, FVH11 -8.5, EDM11 +3.5. Bullish factors included (1) the Fed's purchase of $8.309 billion in Treasuries as part of its QE 2 program, (2) increased safe-haven demand for Treasuries after Fitch Ratings cut Ireland's credit rating, and (3) strong demand for the Treasury's $13 billion auction of 30-year T-bonds that had a bid-to-cover ratio of 2.74, higher than the 12-auction average of 2.64. Bearish factors include (1) the larger-than-expected decrease in weekly initial unemployment claims (-17,000 to 421,000 versus expectations of -11,000 to 425,000), and (2) Fed data that said US household wealth rose by $1.2 trillion in Q3 and that US household debt in Q3 fell -1.7%, its 10th consecutive quarterly decline, which may lead to an increase in consume r confidence that helps boost personal spending.

The dollar index this morning is trading lower with the dollar/yen -0.25 yen and the euro/dollar +0.17 cents. The dollar index yesterday closed higher for the fourth consecutive session on increased safe-haven demand after Ireland's credit rating was downgraded: Dollar Index +0.072, USDJPY -0.290, EURUSD -0.00237. Bullish factors included (1) weakness in the euro after Fitch Ratings cut Ireland's credit rating 3 levels to BBB+ from A+, citing "the additional fiscal costs of restructuring and supporting the banking system," and (2) the ECB's monthly bulletin which said the central bank will keep its emergency liquidity measures "as long as necessary, and at least" until mid-April. Bearish factors for the dollar included (1) strength in the yen after Q3 Japan GDP was revised higher, and (2) the euro positive statement from Fitch Ratings that said the Euro-Zone's "underlying credit fundamentals" are stronger than markets show and that the ri sk of a break-up of the Euro-Zone "is not sufficiently great to be factored into its sovereign debt ratings."

January crude oil prices this morning are trading +55 cents a barrel and January gasoline is +0.47 of a cent per gallon. Crude oil and gasoline prices fluctuated on either side of unchanged and settled slightly higher as optimism the economy was improving offset the negative effects of a stronger dollar: CLF11 +$0.09, RBF11 +3.58. Bullish factors included (1) the larger-than-expected decline in weekly initial unemployment claims, which indicates improvement in the labor market, (2) the upward revision to Q3 Japan GDP along with the biggest increase in Australian payrolls in 10 months, which signals strength in the global economy that may boost energy demand, and (3) strength in gasoline after Hovensa LLC shut its 150,000 barrel-a-day fluid catalytic cracker at its St. Croix refinery for repairs, which may reduce gasoline supplies available to the US East Coast. Bearish factors included (1) a stronger dollar, and (2) concern that the European credit crisis may worsen after Fitch Ratings cut Ireland's credit rating 3 levels, citing "the recent intensification of the financial crisis."