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Overnight Global News

• The European DJ Stoxx 50 this morning is down -0.72% and March S&Ps are down -0.50 points (-0.06%) as the Bank of England's rate cut lifts stock prices off of their lows. Asia-Pacific stocks ended lower with Japan -3.93%, Hong Kong -3.81%, China -2.24%, Taiwan -5,30%, Australia -2.26%, Singapore -2.82%, South Korea -2.23%. The Bank of England today cut its benchmark interest rate by 50 bp to 1.5%, the lowest since the BOE was founded in 1694, as its policy makers try to prevent the credit squeeze from deepening Britain's recession. Negative economic news continues to flow out of Europe with December Euro-Zone economic confidence tumbling -7.8 to 67.1, its lowest level since the index began in 1985, while unemployment in the Euro-Zone rose to a 2-year high of 7.8% in November. Undercutting the equity markets and also adding pressure on the ECB for more interest rate cuts was the -6.0% m/m decline in November German factory orders which have now declined in 11 of the past 12 months along with -10.6% drop in German exports in Nov, the largest monthly decline since records for a reunified Germany began in 1990. Economic conditions out of Asia are not much better as Lenovo Group, China's biggest personal-computer maker, plunged 26% today after forecasting its first loss in 11 quarters and saying it will cut 11% of its workforce and Macquarie Group Ltd., Australia's biggest securities firm, losing 3.7% today after saying "exeptionally challenging" conditions will erode earnings. Exports out of Taiwan plummeted by a record -41.9% in December on weaker US and Chinese demand for its laptops, mobile phones and computer chips. Confidence in Indian stocks may be hard to find after India's Sensex index tumbled 7.3% yesterday led by the 78% plunge in Satyam after Satyam's Chairman said the company's profits had been inflated for years. India's stock markets are closed today for a public holiday.
• Unemployment Claims – Today’s weekly initial unemployment claims report is expected to show a large increase of +53,000 to 545,000, reversing nearly one-half of last week’s plunge of –94,000 to 492,000. Meanwhile, weekly continuing claims are expected to fall –23,000 to 4.483 million, reversing a small part of last week’s surge of +140,000 to 4.506 million. The unemployment claims series are being distorted to some extent by the holiday season. However, the initial claims series is only moderately below its recent 26-year high and the continuing claims series hit a 26-year high in the latest report, indicating a sharp deterioration in the US labor market. Regarding the labor market, attention is focused on tomorrow’s Dec unemployment report. Tomorrow’s Dec payroll report is expected to show a big decline of –500,000, adding to the –533,000 decline seen in November. The market may be braced for an even weaker payroll report given yesterday’s news that ADP payrolls fell by –693,000, which was larger than the expected decline of –495,000. Tomorrow’s Dec unemployment rate is expected to rise +0.3% points to new 15-year high.
• 10-year T-note auction – The Treasury today will sell $16 billion in reopened 10-year T-notes. The size of today’s auction is unchanged from the $16 billion auction in December. The 12-auction averages for the 10-year are as follows: 2.35 bid cover, $89 million in non-competitive bids, 4.24 bp tail to the median yield, 14.93 bp tail to the low yield, and 39% taken at the high yield. Indirect bidders, a category comprised mainly by foreign central banks, have taken an average of 23.8% of the last twelve 10-year T-note auctions, which is well below the average of 32.6% across all recent Treasury coupon auctions.
• Consumer credit – Today’s Nov consumer credit report is expected to show a small increase of +$0.5 billion following the -$3.5 billion decline seen in October. Consumer credit is falling as consumers stop spending and try to conserve cash and even save some money. US consumer credit growth on a year-on-year basis eased to +2.9% in October, which was a 15-1/2 year low. The record post-war low for the consumer credit series was –1.9% y/y in November 1991. However, the series during World War II hit a low of –17.9% y/y in January 1944

Overnight U.S. Stock News

• March S&Ps this morning are trading down -0.50 points, rebounding from earlier losses after the BOE cut its interest rates by 50 bp. The US stock market yesterday sold-off from the opening and finished the day sharply lower (Dow -2.72%, S&P 500 -3.00%, Nasdaq Composite -3.23%).
• Bearish factors for stock prices yesterday included (1) fears of a protracted US economic recession after the ADP employment change plunged in Dec by its largest monthly amount (-693,000) since the data series began in 2001, (2) the surge in vacancies in US malls and shopping centers in Q4 2008 to 7.1%, the highest since the research firm Reis Inc. began tracking them in 2000, with their prediction that vacancies will rise further as declining retail sales put more stores out of business, (3) the plunge in financial stocks after the prediction from Oppenheimer analyst Whitney that US banks will need to raise more capital after downgrades of mortgage-backed securities surged in Q4 2008 and that bank earnings in 2009 will be hurt by an expected $40 billion of further writedowns as asset prices continue to drop and credit-ratings are cut on mortgage-related securities, (4) the tumble in commodity producing companies after oil prices fell almost -$6.00 a barrel and Alcoa, the largest US aluminum producer, fell 10% after announcing its third production cut in as many months along with cutting its global workforce by 13,500, and (5) the 6% fall in Intel after the chipmaker reported Q4 sales down 23%, missing its already-lowered guidance, as the economic slump continues to hurt demand for personal computers.
• Bullish factors for stock prices yesterday included (1) the 18% jump in shares of Monsanto after the world's largest seed producer said fiscal Q1 net income more than doubled and it increased its full-year forecast after it boosted sales of corn seeds and Roundup weed-killer, (2) the 14% gain in Family Dollar Stores after the retailer boosted its full-year profit forecast after reporting Q1 net income gained 14%, and (3) the 4.8% rise in General Motors after the automaker said it has enough government loans to cover its worst-case forecast for US auto sales and it won't need additional funding if the economy holds up.
• Sun Microsystems (JAVA) tumbled 3.7% this morning after Goldman Sachs lowered the company's share-price projection and 2009 earnings estimate and put Sun on its "sell" list, citing "deteriorating fundamentals.

Today's U.S. Market Focus

• March 10-year T-notes this morning are down -3.5 ticks ahead of today's $16 billion 10-year T-note auction. March T-note prices yesterday traded on both sides of unchanged before closing up +4 ticks. Bullish factors for T-note prices yesterday included (1) the +274.5% increase in announced job cuts in Dec, according to the Dec Challenger job cut survey, with the 1.22 million total job cuts for all of 2008 the largest amount in 5-years, (2) the much weaker-than-expected Dec ADP employment change (-693,000 versus expectations of -493,000 and the biggest monthly fall since the data series began in 2001), and (3) comments from Kansas City Fed President Hoenig that the US economic outlook for the first half of 2009 looks "grim" and a recovery may not emerge until Q3-2009. Bearish factors for T-note prices yesterday included (1) slack demand for yesterday's record $30 billion 3-year T-note auction with added concerns that demand may also be weak for today's $16 billion 10-year T-note auction, and (2) the report from the CBO that the US budget deficit will more than double this year to $1.2 trillion which doesn't even include President-elect Obama's pending economic stimulus package, raising fears that the Treasury will increase debt sales to unprecedented levels.
• The dollar is slightly weaker this morning with the dollar/yen -0.87 and the euro/dollar -0.94 cents. The dollar index yesterday retreated and closed lower. Bearish factors for the dollar yesterday included (1) the much larger-than-expected decline in the Dec ADP employmnet change, sparking fears of a protracted US recession, and (2) comments from Kansas City Fed President Hoenig that the US economic outlook through the first half of 2009 is "grim," and the first signs of a recovery may not happen until Q3 of this year. Bullish factors for the dollar yesterday included (1) the prediction from Merrill Lynch that the dollar will "re-assert itself" as deterioration of the global economy leads US investors to sell overseas assets and repatriate their funds back home, and (2) speculation that with a continued easing of European inflation (Nov Euro-Zone PPI -1.9% m/m, the largest monthly decline since records began in 1991), will provide the ECB with enough cover to lower interest rates when it meets next Thursday.

• February crude oil prices this morning are higher by +62 cents a barrel and February gasoline is +2.28 cents a gallon. Supporting crude oil prices this morning is concern that the Gaza conflict will widen and threaten Middle East oil supplies after rockets fired from Lebanon hit northern Israel last night. February crude oil prices plunged yesterday and closed down -$5.95 a barrel and February gasoline closed down -11.28 cents a gallon. Bearish factors for crude oil prices yesterday included (1) the much larger-than-expected increases in crude oil, gasoline and distillate inventories in yesterday's weekly DOE inventory report (crude oil +6.68 milliion bbl versus expectations of +1.0 million bbl, gasoline +3.33 million bbl versus expectations of +1.0 million bbl and distillates +1.70 million bbl versus expectations of +750,000 bbl), (2) continued slack demand with US fuel consumption during the four weeks ended Jan 2 of down -2.9% from a year earlier, and (3) the threat of a deeper-than-expected recession in the US after the Dec ADP employment change plummeted -693,000, the biggest drop since the data began in 2001. Bullish factors for crude oil prices yesterday included (1) the weaker dollar, and (2) the continued dispute over natural gas prices between Russia and the Ukraine which led to Russia halting natural-gas exports through the Ukraine to Europe, threatening to create natural-gas shortages in Europe and increase the demand for other fuels.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): APOL-Apollo Group (BEST earnings consensus $0.97 per share), IHS-IHS Inc. (0.51), MSM-MSC Industrial Direct (0.68), SGR-Shaw Group (0.66), RPM-RPM International (0.36), MDRX-Allscripts Misys Healthcare Solutions (0.13), SCHN-Scnitzer Steel (-0.60)

Global Financial Calendar