SMF Notes Morning Call for Tuesday, September 25, 2012 Overnight Developments

• Dec E-mini S&Ps this morning are little changed as the market treads water ahead of today's U.S. economic reports. European stocks are mildly lower while Asian stocks today closed narrowly mixed. Commodity prices this morning are up by +0.30% with Nov crude oil +0.52%, Dec gold up +0.04%, Dec copper up +0.60%, and agricultural prices mixed. The dollar index this morning is up +0.13% with EUR/USD down -0.07% and USD/JPY down -0.08%. Dec 10-year T-notes this morning are up +6 ticks.
• President Obama speaks to the UN today and is expected to reiterate his administration's commitment to preventing Iran from obtaining a nuclear weapon. Mr. Obama is unlikely to stake out any new ground on threatening Iran, but the markets will nevertheless be listening for any increased chance that the U.S. or Israel will take military action against Iran. Governor Romney and President Obama both speak today at former President Clinton's Global Initiative in New York.
• Caterpillar in a presentation late yesterday forecast "anemic" global economic growth through 2015 and cut its 2012-2015 earnings forecast to $12-18 from $15-20 per share due to weak mining industry demand for capital equipment. Caterpillar's stock is down 2.4% in European trading this morning.
• Spain today successfully sold 4 billion euros of 3 and 6-month bills although yields were higher than the previous auctions. Spanish Prime Minister Rajoy on Thursday is expected to unveil additional austerity measures when he presents his 2013 budget. Italy today successfully sold zero-coupon 2014 bonds at 2.532%, down from 3.064% on Aug 28.
• The GfK Oct German consumer confidence index of 5.9 was unchanged from September's 5.9 and was in line with market expectations.
• Japan's Sep small business confidence index rose slightly to 45.1 from 44.8 in August.
• China's Aug leading economic indicator rose 1.7% m/m after a +0.6% m/m gain in July, which was a possible sign that the Chinese economy is stabilizing. Positive factors in the leading indicator included a rebound in real estate and credit growth, and an improvement in consumer expectations. The market consensus is that Chinese GDP likely eased to about +7.4% in Q3 from +7.6% in Q2.
• China's central bank today injected a record 290 billion yuan ($46 billion) into the banking system to address a liquidity squeeze ahead of next week's Chinese holiday week.

Market Comments

• Dec E-mini S&Ps this morning are little changed. E-mini S&Ps are seeing some downside pressure from the -0.34% sell-off in the Euro Stoxx 50 index and the 2.4% sell-off in Caterpillar on the firm's outlook for "anemic" global economic growth through 2015. A supportive factor this morning is the 1.7% increase in the Chinese leading economic indicator. The S&P 500 index on Monday faded from the recent 4-3/4 year high and closed lower: S&P 500 -0.22%, Dow Jones -0.15%, Nasdaq 100 -0.62%. Stocks on Monday suffered from some fatigue and long liquidation pressure on the lack of fresh bullish catalysts and instead moved lower on the weaker-than-expected German Ifo business confidence report and on worries about the lack of agreement between Germany and France about the timetable for centralized Eurozone banking regulation. The Nasdaq was undercut by a 1.3% sell-off in Apple on disappointment that supply constraints are preventing Apple from taking full advantage of extremely strong iPhone demand.
• Dec 10-year T-notes this morning are up 6 ticks on continued support from the outlook for weak near-term global economic growth. Dec 10-year T-note prices on Monday closed mildly higher: TYZ2 +8, FVZ2 +1.75. T-notes moved higher on lower global stocks and concerns about European and Chinese economic data. The T-note market is looking ahead to today's 2-year T-note auction as the kickoff for this week's $99 billion T-note package.
• The dollar index this morning is up +0.10 points (+0.13%) and EUR/USD is down -0.0009 (-0.07%) on continued doubts about Spain, which is vacillating on whether to accept aid from the ECB/ESM bond-buying program. USD/JPY is down -0.06 (-0.07%). The dollar index on Monday closed higher: Dollar index +0.19 (+0.24%), EUR/USD -0.0049 (-0.38%), USD/JPY -0.32 (-0.41%). The dollar index on Monday received a boost from increased safe-haven demand with the global sell-off in stocks. In addition, EUR/USD was undercut by the weak German Ifo confidence index and by concerns about German-French disagreements on the pace of banking regulation. The German Ifo Sep business climate index fell by -0.9 points to a new 2-1/2 year low of 101.4 from 102.3 in August. That was weaker than market expectations for a 0.3 point increase to 102.5. The Ifo expectations index fell by 1.0 point to a 3-1/3 year low of 93.2 from 94.2 in Aug. Germany continues to suffer from weaker growth in the rest of the Eurozone.
• Nov WTI crude oil prices this morning are up +0.48 (+0.52%) and Nov gasoline is up +0.0136 (+0.49%) as the market sees a modest recovery after Monday's sell-off. In addition, Iran today fired four missiles into the Persian Gulf as part of a military exercise, increasing tensions with the U.S. and its allies which are still conducting their mine-sweeping exercises in the Persian Gulf. Nov crude oil and gasoline prices on Monday closed with fairly sharp losses: CLX2 -0.96 (-1.03%), RBV2 -0.0318 (-1.13%). Nov crude oil managed to avoid taking out last Thursday's 1-1/2 month low but continued to trade on a weak note. Crude oil prices continue to see downward pressure from long liquidation, Saudi Arabia's intention to raise production through year-end as needed to push oil prices lower, and expectations for a 2.0 million barrel in crude oil inventories in Wednesday's DOE report to add to last week's surge of 8.5 million barrels. The market consensus for Wednesday's DOE report is for a 2.0 million barrel increase in crude oil inventories, a 500,000 barrel increase in gasoline inventories, a 900,000 barrel increase in distillates, and a 0.3 point increase in the refinery utilization rate to 89.2% of capacity.