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Overnight Global News

• The European DJ Stoxx 50 this morning is up +1.39% at a 1-3/4 month high although March S&Ps are down -1.30 points (-0.14%). Asia-Pacific stocks today closed mostly higher. Japan +2.07%, Hong Kong +3.46%, China +3.59%, Taiwan +2.33%, Australia -0.72%, Singapore +5.20%, South Korea +1.77%, India +3.19%. Japanese financial companies garnered support today on a report from the Sankei newspaper that the Japanese government may buy nonperforming loans from banks and export-dependent companies in both Asia and Europe rallied after a transition official from the Obama administration said the President-elect is asking for US tax cuts to make up 40% of a stimulus package that may constitute more than $300 billion. Also supporting stocks globally were comments made over the weekend at an economics conference in SanFrancisco from SanFrancisco Fed President Yellen that "it's worth pulling out all of the stops" with an economic recovery package and from Chicago Fed President Evans that he believes a "big stimulus is appropriate." Steel companies in China rallied today after the Chinese government said it will support the steel and automobile industries, European investor confidence increased for the first time in seven months in January as the Sentix investor confidence index climbed to -34.4 from a record low of -42.3 in December as government measures to stimulate the economy along with tumbling energy prices bolstered confidence among European investors.
• The markets this week will focus on (1) the incoming economic data and the implications for the depth of the US economic recession, (2) the US stock market which got off to a strong start last Friday on the first trading day of 2009 as market participants hope that aggressive monetary and fiscal measures by the US government will be successful in arresting the current plunge in the US economy, (3) 10-year T-note prices which fell sharply last week due to the stock market rally and the idea that the worst of the credit crisis may soon pass, (4) the dollar index which edged to a 2-week high last week, (5) the credit crisis which should continue to ease now that the year-end statement date has passed with its high liquidity demands, and (6) crude oil prices which rallied sharply last week and will focus this week on the Israel-Hamas conflict and the extent to which OPEC follows through on its January 1 production cut.
• Fed policy – The market expects the Fed to maintain its current federal funds target range of zero to 0.25% through April 2009. The market is then discounting a slow increase in the funds rate to 0.74% by the end of 2009 and to 1.69% by the end of 2010. That indicates that the market is currently expecting a very slow recovery in the US economy and continued financial strains over the next two years.
• Auto sales – Today’s Dec total vehicle sales report is expected to fall to 10.0 million units from 10.2 million units in November. US auto sales in the past year have plunged from the average of about 16.0 million units seen in 2007 to November’s 26-year low of 10.2 million units. US auto sales are currently weaker than at any time since 1982 after the double-dip recession. US auto sales took a heavy hit in the first half of 2008 from the surge in crude oil prices above $100 per barrel and then took a heavy hit in late 2008 from the credit crisis and the sharp pull-back in consumer spending. US consumers are currently in no hurry to go out and buy a new car with the difficult financing conditions and the alarming state of the US economy. Yet US automakers are in dire need of some buyers to stay afloat. The Bush administration recent gave a $17 billion loan package to GM and Chrysler to keep them out of bankruptcy and to pass off to the Obama administration the problem about how to restructure the US auto industry.

Overnight U.S. Stock News

• March S&Ps this morning are trading -1.30 points as prices gyrate on either side of unchanged as the bullishness from President elect Obama's reported $300 billion in tax cuts in his stimulus package is offset on concerns that a slump in corporate profits will continue to deepen this year. The US stock market last Friday rallied sharply and closed at a 2-month high (Dow +2.94%, S&P 500 +3.16%, Nasdaq Composite +3.50%).
• Bullish factors for stock prices last Friday included (1) carry-over support from a rally in European and Asian equity markets on speculation that their respective governments will step up efforts to revive the global economy, (2) the rally in big name oil companies and energy producers after crude oil prices rallied to a 2-week high, (3) the 16% surge in Oshkosh after the maker of military trucks won a contract valued at as much as $1.12 billion to build heavy and medium-duty trucks for the US government, (4) the rally in coal producers after a Barron's report highlighted the strength of their 2009 sales contracts, and (5) the 14% gain in General Motors as the largest US automaker received its first cash infusion from the Treasury to help it avoid bankruptcy.
• Bearish factors for stock prices last Friday included (1) the larger-than-expected decline in the US ISM manufacturing index for Dec to a 28-1/2 year low with the ISM sub-index of new orders in Dec tumbling to its lowest level since records began in 1948, raising concern that the current economic slowdown may be worsening, and (2) the contraction in Chinese manufacturing in Dec for the fifth straight month and the unexpected downward revisions to the European PMI manufacturing indexes in Dec to record lows (data since 1998), increasing the chances of a deepening global recession

Today's U.S. Market Focus

• March 10-year T-notes this morning are trading -9.5 ticks. Undercutting T-note prices today is optimism that President-elect Obama's push for $300 billion in tax cuts in his stimulus package may shore up the ailing US economy and sap damand for Treasuries. March T-note prices last Friday rallied early before selling-off and finishing the day down sharply by 1-14.5/32 points at a 3-week low. Bearish factors for T-note prices last Friday included (1) the continued rally in the equity market on expectations that the US government's stimulus efforts will shorten the duration of the current recession, and (2) reduced demand for Treasuries as the 3-month dollar Libor rate declined to a 4-1/2 year low and the TED spread (the difference between what banks and the Treasury pay to borrow money for three months) narrowed to 1.32%, 3 bp below the 1.35% level that prevailed the day before Lehman Brothers collapsed on Sep 15. Bullish factors for T-note prices last Friday included (1) the larger-than-expected decline in the Dec ISM manufacturing index to its lowest level in 28-1/2 years (-3.8 to 32.4 versus expectations of -0.7 to 35.5), and (2) declining inflation concerns with the larger-than-expected fall in the Dec ISM prices-paid sub-index to its lowest level since June 1949 (-7.5 to 18.0 versus expectations of -5.5 to 20.0)
• The dollar is trading higher this morning with the dollar/yen up 1.47 yen to a 3-week high and the euro/dollar down 3.11 cents to a 3-week low. Supporting the rally in the dollar index to a 2-week high today is speculation that President-elect Obama's fiscal stimulus will help the US economy recover from recession. The dollar index last Friday rallied to a 2-week high and closed higher. Bullish factors for the dollar last Friday included (1) the unexpected downward revisions to the Dec European PMI manufacturing indexes to their lowest levels since the indexes were created in 1998, raising concern the the recession is deepening in the Euro-Zone, and (2) the fall in the yen to a 2-1/2 week low against the dollar as the US stock market rallied and encouraged the resumption of yen carry trades. Bearish factors for the dollar last Friday included (1) the deeper-than-expected contraction in the US Dec ISM manufacturing index to its lowest level in 28-1/2 years, and (2) fears that the near-zero interest rates in the US may damp global demand for the dollar.

• February crude oil prices this morning are up +75 cents a barrel (+1.62%) and February gasoline is up 2.95 cents a gallon (+2.66%). Crude oil prices today are trading at 2-week highs on fears that the Israeli ground offensive into the Gaza Strip may escalate the conflict and threaten stability in the Middle East. February crude oil prices last Friday closed higher by +$1.74 a barrel and February gasoline closed up +4.85 cents a gallon, both at 2-week highs. Bullish factors for crude oil prices last Friday included (1) continued air attacks by Israeli warplanes against Hamas militants in the Gaza Strip, raising concern that Middle East tensions may escalate and threaten crude oil supplies, and (2) the rally in the stock market. Bearish factors for crude oil prices last Friday included (1) the rally in the dollar index to a 2-week high, (2) the 10% increase in oil exports from Russia, the largest oil exporter behind Saudi Arabia, to 5.38 million bpd in Dec from 4.89 million bpd in Nov after Russia's government lowered duties on exports, (3) the plunge in the Dec ISM manufacturing index to a 28-1/2 year low, raising speculation that US energy demand may weaken further, (4) the unexpected downward revisions to the Dec European PMI manufacturing indexes to record lows (data from 1998), and (5) the contraction in Chinese manufacturing for the fifth straight month in Dec, as recessions in Europe Japan and the US sapped demand for Chinese exports and lowered Chinese demand for energy.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): MOS-Mosaic (BEST earnings consensus $1.52 per share)

Global Financial Calendar