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Overnight Global News

• The European DJ Stoxx 50 this morning is up +2.06% and March S&Ps are up +6.40 points (+0.69%), both at 1-3/4 month highs. Asia-Pacific stocks closed mostly higher today with Japan +0.42%, Hong Kong -0.35%, China +3.18%, Taiwan +0.62%, Australia +1.51%, Singapore -0.58%, South Korea +1.92%, India +0.59%. Leading European stocks higher today is the drop in inflation with the Euro-Zone CPI estimate for Dec falling to a more than two-year low of +1.6% y/y, the first time inflation has moved below the ECB's 2% ceiling since Aug 2007 and providing the central bank enough cover to continue cutting rates at next week's policy meeting. A rally in copper prices up to a 1-month high today is supporting mining companies Rio Tinto (+5.9%) and Xstrata (+8.3%). Royal Bank of Scotland Group Plc (RBS) fell 1.9% after Britain's financial regulator lifted the short-selling ban on RBS and 33 other British financial companies that was in place since Sep 18. Supporting Asian stocks today is a rebound in chip prices, spurring optimism that Asian electronics makers will withstand the global recession. South Korean based Samsung rallied 4.6% today after benchmark chip prices soared to a 6-week high and Japan's Nippon Electric Glass, the world's third-biggest supplier of glass for liquid-crystal displays, soared 16% after Macquarie Securities forecast a rebound in monitor panel prices. Also supporting Asian stock prices today is the drop in the yen to a 1-month low against the dollar, aiding most Asian export based companies. Alternative energy-related companies gained on speculation government spending in the sector by the South Korean and Japanese governments will boost sales. South Korea's "Green Deal" will produce 956,000 new jobs over the next four years, South Korea's Ministry of Startegy and Finance said today, while Japan aims to create over 2 million jobs in enviromental technologies by 2015, according to the Nikkei newspaper. NGL Insulators Ltd., the world's only producer of sodium-sulfur batteries used to store power generated by wind turbines and solar panels, jumped nearly 9% after a 10 billion yen sale of the batteries to the UAE. Russia's OAO Gazprom said they have cut natural gas shipments to Europe through Ukraine to 74 million cubic meters, compared with 300 million normally and deliveries to the Balkans were halted at the Romanian border as a pricing dispute enters its sixth day and continues European supply disruptions.
• Pending home sales Today's Nov pending home sales report is expected to show a decline of 1.0% m/m, adding to the decline of 0.7% seen in October. On a year-on-year basis, October pending home sales were down only 0.6% y/y, not because of any significant improvement in pending home sales, but only because the year-earlier base was so low. The pending home sales report measures the change in home sales contracts and generally leads to existing home sales within one to two months, thus providing some leading information on the existing home sales series. US existing home sales are in dismal shape, falling to a new record low of 4.49 million units in November. Up to 45% of the recent home sales that have occurred involve fire sales of either foreclosures or short sales.
• ISM non-manufacturing index Today's Dec ISM non-manufacturing index is expected to fall another 0.3 points to 37.0, adding to the sharp decline of 7.1 points to 37.3 seen in November. The November level of 37.3 was a record low for the series, which has history back to 1997. The ISM non-manufacturing index was above the boom-bust level of 50 as recently as September at 52.1, but the index then plunged to 44.2 in October and 33.0 in November, clearly indicating a recession in the US economy outside the manufacturing sector. The market consensus is that US GDP will fall 4.4% in Q4, -2.4% in Q1, and -0.5% in Q2, and then turn positive in the second half of 2009 to GDP growth above 1%.
• Factory orders Today's Nov factory orders report is expected to show a decline of 2.2%, adding to the sharp decline of 5.1% seen in October. Expectations for a decline in today's factory orders report are based on the recently-reported Nov durable goods orders report of 1.0% m/m (following 8.4% in Oct) and +1.2% ex-transportation (following Oct's 6.8%). Durable goods account for more than one-half of the factory orders series. The US manufacturing sector is in dire need of new orders to prevent even more panic and layoffs in the manufacturing sector.
• 10-year TIPS auction The Treasury today will sell $8 billion 10-year inflation-protected TIPS T-notes. The size of today's auction is unchanged from the July 2008 auction when the Treasury also sold $8 billion in 10-year TIPS and then followed that up with a $6 billion reopening the following quarter in October 2008. The 12-auction averages are as follows: 1.94 bid cover, $66 million in non-competitive bids, 5.73 bp tail to the median yield, 29.02 bp tail to the low yield, and 55% taken at the high yield. Indirect bidders, a category mainly comprised by foreign central banks, have taken an average of 40.6% of the last twelve 10-year TIPS auctions. That average of 40.6% is well above the average of 32.6% across all recent Treasury coupon auctions and illustrates the popularity of the 10-year TIPS issue among foreign central banks.
• FOMC minutes The markets will be dissecting the minutes from the Dec 15-16 FOMC meeting, which was the meeting at which the Fed cut its funds rate target from 1.00% to the range of zero to 0.25%. The FOMC also promised to keep the funds rate at a very low level for an extended period of time. The markets will be looking for any indication that the Fed is about to embark on an explicit quantitative easing program by buying Treasury securities in the open market, which would not only represent a new front in the Fed's aggressive liquidity measures, but would also help boost Treasury security prices and reduce yields

Overnight U.S. Stock News

• March S&Ps this morning are trading +6.40 points as global sentiment toward equities continues to improve. The US stock market yesterday gyrated on either side of unchanged before an afternoon rally attempt failed and stocks closed lower (Dow -0.91%, S&P 500 -0.47%, Nasdaq Composite -0.26%).
• Bearish factors for stock prices yesterday included (1) the 3.9% fall in the S&P 500 Telecommunication Services Index after Sanford C. Bernstein downgraded AT&T and Verizon and said the recession will hurt growth in wireless subscribers, (2) the 6.7% drop in JPMorgan Chase after Deutsche Bank cut its Q4 earnings projection for the largest US bank by market value to 18 cents a share from an earlier estimate of 73 cents a share along with a CNBC editor predicting that JPMorgan will post a a Q4 loss, (3) the prediction from Deutsche Bank that US commercial banks have "a reasonable chance" of suffering bigger loan losses by the end of 2010 than during the Great Depression because banks face "increased structural risk" from the growth of credit cards, home-equity borrowing and construction loans, and (4) the assertion from former Fed Governor Mishkin that the "financial shock" that caused the current crisis is "worse than the one that happened during the Great Depression."
• Bullish factors for stock prices yesterday included (1) better-than-expected US construction spending in Nov which sent homebuilding stocks higher, (2) optimism that President-elect Obama's push for $300 billion in tax cuts in his stimulus plan will revive the US economy, (3) comments from Fed policy makers at an economic conference over the weekend in San Francisco that they support greater government spending to help the US economy when San Francisco Fed President Yellen that "it's worth pulling out all the stops" with an economic recovery package and from Chicago Fed President Evans that he believes a "big stimulus package is appropriate," (4) the rally in the S&P 500 Energy Index for the seventh straight day as crude oil prices rallied to a 3-week high, and (5) the prediction from UBS AG, JPMorgan Chase and Deutsche Bank AG that the Fed's decision to cut interest rates to as low as zero percent combined with lower fuel prices and a possible $850 billion spending package on infrastructure and health care will send stock prices higher this year.

Today's U.S. Market Focus

• March 10-year T-notes this morning are trading down -2 ticks. March T-note prices yesterday fell for the fifth straigtht session and closed down -4 ticks at a 3-week low. Bearish factors for T-note prices yesterday included (1) ideas 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 demand for Treasuries, (2) supply pressures ahead of $54 billion in Treasury note auctions this week starting with today's $8 billion 10-year TIPS auction, and (3) comments from Fed policy makers at an economics conference over the weekend in San Francisco calling for greater government spending to help revive the US economy when San Francisco Fed President Yellen said that "it's worth pulling out all the stops" with an economic recovery package and from Chicago Fed President Evans that he believes a "big stimulus is appropriate." Bullish factors for T-note prices yesterday included (1) the action by the Federal Reserve Bank of New York in buying mortgage-backed securities as part of its $500 billion program to support the US mortgage and housing market, and (2) the prediction from Deutsche Bank that US commercial banks have "a reasonable chance" of suffering greater loan losses by the end of 2010 than they did during the Great Depression as banks today face "increased structural risk" from the growth of credit cards, home-equity borrowing and construction loans.
• The dollar is trading higher this morning with the dollar/yen +0.66 yen at a 1-month high and the euro/dollar -2.88 cents at a 3-week low. The dollar index this morning is trading at a 3-week high on speculation that the ECB will continue its interest rate cutting cycle after the Euro-Zone CPI estimate for Dec came in at +1.6% y/y, a bigger fall than expected and the first time inflation fell below the ECB's 2% ceiling since Aug 2007. The dollar index yesterday closed higher as it rallied to a 3-week high. Bullish factors for the dollar yesterday included (1) speculation that the $300 billion in tax cuts reportedly included in President-elect Obama's fiscal stimulus plan will help the US economy recover from recession, (2) comments from San Francisco Fed President Yellen that US policy makers should enact "substantial" fiscal stimulus to stop the US economy from deteriorating further, and (3) comments that undercut the euro from ECB Vice President Papademos that further ECB interest rate cuts may be necessary if inflation keeps slowing and from fellow ECB Council member Constancio that ECB policy makers are prepared to cut interest rates further if necessary to keep inflation close to their 2% ceiling. Bearish factors for the dollar yesterday included (1) the increase in European investor confidence after the Jan Euro-Zone Sentix investor confidence rose for the first time in seven months, and (2) comments from former Fed Governor Mishkin that the "financial shock" that caused the current crisis is "worse than the one that happened during the Great Depression."

• February crude oil prices this morning are up +$1.35 (+2.77%) a barrel and February gasoline is +3.26 cents a gallon (+2.76%). Supporting a 3-week high in crude oil prices this morning is indications from Kuwait and Qatar that both countries will adhere to supply cuts implemented by OPEC along with the ongoing pricing dispute between Russia and Ukraine over natural gas prices that is reducing gas shipments to Europe. February crude oil prices yesterday rallied for the third straight session and closed higher by +$2.47 a barrel and February gasoline closed up +7.19 cents a gallon, both at 3-week highs. Bullish factors for crude oil prices yesterday included (1) fears that the Israeli ground offensive into the Gaza Strip may escalate the conflict and threaten oil supplies from other parts of the Middle East, (2) carry-over support from gasoline prices which rallied to a 3-week high on speculation that current refinery shutdowns will reduce supplies in the weeks ahead, and (3) speculation that President-elect Obama's economic stimulus package, which may include $300 billion in tax cuts, may help the US economy recover and thus increase energy demand. Bearish factors for crude oil prices yesterday included (1) the surge in the dollar index to a 3-week high, and (2) concerns that the current global economic slowdown is deepening, which may further curtail worldwide energy consumption.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): SVI-Supervalu (BEST earnings consensus $0.61 per share), GPN-Global Payments (0.58), AYI-Acuity Brands (0.78)

Global Financial Calendar