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Overnight Global News

• Stock markets worldwide are under pressure today on concerns that government stimulus plans may fail to revive the global economy. The European DJ Stoxx 50 this morning is down -1.27% and March S&Ps are down -7.70 points (-0.93%). The Asia-Pacific stock markets today closed mostly lower with Japan (-3.03%), Hong Kong (-2.30%), China (-0.55%), Taiwan (-2.39%), Australia (+1.15%), Singapore (-2.15%), South Korea (-1.03%), India (-1.59%). December industrial production in the Euro-Zone fell by the largest amount since the data series began in 1986. Dec Euro-Zone industrial production tumbled -2.6% m/m and -12.0% y/y and hints at a dramatic contraction in growth when Q4 Euro-Zone GDP data is released tomorrow. EDF, the biggest operator of nuclear reactors, dropped over 9% today after saying 2008 net income fell to 3.4 billion euros ($4.39 billion) because of costs associated with regulated power rates and lower industrial demand amid the economic slowdown. Commerzbank AG slid over 5% after being downgraded by Morgan Stanley to "underweight" from "equal weight" because of "a lack of visibility on financials, including Dresdner and the operating enviroment." In Asia, Mitsubishi UFJ Financial Group Ltd., Japan's biggest lender, slumped 3.5% as a lack of details in the US bank-rescue plan continues to pressure bank stocks globally while Guangzhou Shipyard International and China State Shipbuilding both surged 10% after the Chinese government banned construction of new shipyards for three years and said it will urge banks to boost trade financing. South Korea's central bank cut its seven-day repurchase rate today by 50 bp to a record low 2.00% and said "the possibility of a further interest rate cut is still open" after South Korea's economy shrank by the most in 10 years last quarter.
• Unemployment claims Today's weekly initial unemployment claims report is expected to show a decline of 16,000 to 610,000, reversing about one-half of last week's surge of +35,000 to 626,000. Meanwhile, weekly continuing claims are expected to rise +12,000 to 4.800 million, adding to last week's rise of +20,000 to 4.788 million. Initial claims last week rose to a 26-year high and continuing claims rose to a record high. The rise in initial claims illustrates the heavy layoffs that have been seen since in the past several months, particularly since the beginning of January. The rise in continuing unemployment claims illustrates the accumulation of people that are on the unemployment rolls. The unemployment rate in January rose by 0.4 points to a 16-year high of 7.6% and appears destined to easily exceed the 25-year high of 7.8% posted in 1992. The US unemployment during this recession cycle will hopefully remain below the record high of 10.8% posted in 1982.
• Retail sales Today's Jan retail sales report is expected to show another hefty decline of 0.8% and 0.4% ex-autos, adding to the plunge seen in December of 2.7% and 3.1% ex-autos. Total vehicle sales in December were already reported at a 26-year low of 9.6 million units, down 30% from 13.7 million units in August 2008 before the credit crisis emerged in September 2008. US retail sales fell every month on a month-on-month basis in the last six months of 2008 and plunged by 9.8% on a year-on-year basis in December. US consumers have been shell-shocked by the meltdown in the US financial markets, economy, and labor market, causing them to halt much of their discretionary spending and prepare for a long and severe recession. The US economy cannot start to recover until US consumer confidence stabilizes and US consumers feel more comfortable about spending money.
• Business inventories Today's Dec business inventories report is expected to show a decline of 0.9%, adding to November's decline of 0.7%. However, the level of inventories in the US economy compared to sales soared in Q4-2008, creating an inventory overhang that now needs to be worked off before businesses will start ordering more goods. The business-to-inventories ratio rose very sharply from the record low of 1.27 months in August to a 7-year high of 1.41 months in November. The banking crisis that emerged in mid-September and the subsequent melt-down in consumer spending happened so quickly that businesses did not have a chance to draw down their inventories to match lower demand. Now those inventories are acting like a wet blanket thrown on the economy to add to the other problems including the housing and credit crisis.
• 30-year T-bond auction This week's $67 billion refunding operation concludes today with the sale of $14 billion in 30-year T-bonds. The $14 billion size of today's auction is up by $4 billion from the last two 30-year T-bond auctions in August and November 2008. Today's 30-year T-bond issue was trading at 3.44% in when-issued trading late yesterday afternoon. The 6-auction averages for the 30-year are as follows: 2.26 bid cover, $18 million in non-competitive bids (by individual investors), 4.97 bp tail to the median yield, 12.28 bp tail to the low yield, and 53% taken at the high yield. The 30-year is not particularly popular among foreign central banks. Indirect bidders, a category that is mainly composed of foreign central banks, have taken an average of 21.4% of the last six 30-year auctions, which is well below the average of 32.1% across all recent Treasury coupon auctions.

Overnight U.S. Stock News

• March S&Ps this morning are down -7.70 points ahead of a Jan retail sales report that may show US retail sales falling for a seventh straight month. The US stock market yesterday gyrated on both sides of unchanged before closing slightly higher (Dow +0.64%, S&P 500 +0.80%, Nasdaq Composite +0.38%).
• Bullish factors for stock prices yesterday included (1) the 6% gain in the KBW Bank Index as bank stocks rallied after Congress said it will reach an agreement on a $789 billion economic stimulus plan to revive the economy, (2) the 12% surge in CB Richard Ellis Group after the world's largest commercial-property broker reported Q4 profit of 37 cents a share, handily beating analysts' estimates of 27 cents, and (3) the 9.6% gain in Coca-Cola Enterprises as the world's largest soft-drink bottler said it earned 22 cents a share in Q4, 3 cents above analysts' estimates.
• Bearish factors for stock prices yesterday included (1) the fall in big-name energy producers and oil service companies after crude oil prices slumped to a 3-week low, (2) the 15% plunge in Research In Motion after the company projected Q4 profit of at least 83 cents a share, below analysts' estimates of 86 cents, signaling the maker of the BlackBerry phone may have sacrificed profit margins to gain customers, and (3) the prediction from Bank of America analyst Bernstein that the US Treasury's bank-rescue plan won't repair the financial system or revive credit markets and instead stymies the consolidation process by letting troubled banks stay afloat.
• Kohl's (KSS) may be active today after Goldman Sachs downgraded the department-store chain to "sell" from "neutral" and added the company to their "conviction sell" list

Today's U.S. Market Focus

• March 10-year T-notes this morning are up +13 ticks as global equity markets tumble. March T-note prices yesterday extended Tuesday's rally and closed up +18.5 ticks. Bullish factors for T-note prices yesterday included (1) comments from Chicago Fed President Evans who said the US economy will probably go through a "protracted" slump before government policies rekindle growth sometime in the second half of the year, (2) increased demand for Treasuries as the stock market continues to languish over the possibility of a deeper and longer recession, and (3) the prediction from Goldman Sachs that US Treasury yields may fall even as government spending accelerates as near-zero inflation will end a global bond rout and "protect" government securities amid record supply. Bearish factors for T-notes yesterday included (1) comments from Chicago Fed President Evans who said that the Fed should wait to see the results of its emergency credit programs before deciding whether to buy long-term Treasuries to lower yields, and (2) supply pressures ahead of today's $14 billion 30-year T-bond auction, the last leg of the Treasury's quarterly refunding.
• The dollar is trading at a 1-1/2 week high this morning with the dollar/yen -0.39 yen and the euro/dollar -0.49 cents. The dollar index yesterday rallied for the second straight session and closed higher. Bullish factors for the dollar yesterday included (1) weakness in the euro after comments from ECB Governing Council member Ordonez that its "very probable" that the ECB will cut interest rates further in March and from ECB Executive Board member Stark that there is "surely" room for the ECB to cut interest rates again, and (2) the prediction from UBS that the euro will stay in a "broad downtrend" against the dollar as ECB policy makers cut borrowing costs "rather aggressively." Bearish factors for the dollar yesterday included (1) strength in the yen as weakness in global stocks is causing investors to abandon the yen carry trade, and (2) comments from US Treasury Secretary Geithner that the US is experiencing a "terribly challenging fiscal environment and a terribly challenging economic and financial crisis."

• March crude oil prices this morning are down -33 cents a barrel although March gasoline is up +2.33 cents a gallon. March crude oil prices yesterday moved lower throughout the day and closed down -$1.61 a barrel at a 3-week low. March gasoline rallied to a 2-1/2 month high and closed up +2.59 cents a gallon. Bearish factors for crude oil prices yesterday included (1) the larger-than-expected climb in weekly DOE crude oil inventories (+4.72 million bbl to a 1-1/2 year high of 350.8 million bbl versus expectations of +2.5 million bbl), (2) the stronger dollar, (3) continued weakness in global energy demand after China's crude oil imports declined 10% to 2.9 million bpd in Jan, a 13-month low, and (4) the action by the IEA in cutting for the sixth consecutive month its 2009 crude oil demand forecast (-570,000 bpd to 84.7 million bpd) as the worldwide recession deepens. Bullish factors for crude oil prices yesterday included (1) the rally in gasoline prices to a 2-1/2 month high after weekly DOE gasoline inventories unexpectedly fell by the largest amount since Sep (-2.66 million bbl versus expectations of a +500,000 bbl rise), and (2) the prediction from the IEA that lower oil prices may cut investment in new supplies, leading to shortfalls and a surge in prices when demand recovers.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $5.0 bln listed by mkt cap): KO-Coca-Cola (BEST earnings consensus $0.61 per share), AET-Aetna (0.94), WMI-Waste Management (0.49), PGN-Progress Energy (0.46), ECL-Ecolab (0.45), LH-Laboratory Corporation of America Holdings (1.09), NRG-NRG Energy (0.41), CEPH-Cephalon (1.37), MAR-Marriott International (0.40), EQ-Embarq (1.26)

Global Financial Calendar