U.S. Stock Futures Point Higher; Overall Risk Appetite Increasing

The MorningSnapshot
June 12, 2013

Yesterday’s Wrap-Up
U.S. stock indices opened -1% lower on a number of central bank policy worries, attempted to make-up those losses, but still managed to closed lower with the S&P 500 sliding -1.02%.  Financial stocks led the way lower, with XLF declining -1.65% on the day. U.S. wholesale inventories for April rose to $504.8B, up 0.2% from the prior month. Despite this gain, growth slowed relative March. The Redbook Retail Sales Index climbed +0.5% for the first two weeks of May versus April, and the ICSC/Goldman Sachs Retail Chain Stores Sale Index fell almost -3% for the past week, as compared to the week prior.

Morning Commentary

S&P 500 futures are rising this morning, indicating the index may snap a two-day decline, as euro-area stocks rebounded and the yen weakened after gaining the most versus the dollar in three years. Asian equities were lower with the Topix falling -1% yesterday after the BOJ refrained from adding stimulus or expanding its toolkit to reign in volatility in its sovereign debt. More than $2.5 trillion in global equity values have been erased since Ben Bernanke first said on May 22 that the Fed “could” scale back stimulus efforts if the employment outlook shows “sustainable improvement.” Crude oil and gold are nearly unchanged, while front-month copper futures are higher by +0.6%. Wheat futures are nearly +2% higher on U.S. crop concerns, halting the longest slump in four months. Treasuries were steady overnight before the Treasury sells $21B 10yr notes in a reopening; yields on tens are currently trading at 2.17%.  Overall, sentiment is deteriorating into the U.S. market open with sovereign CDS widening and the CHF rallying.

Today’s Economic Data Lineup (EST)

7:00am: MBA Mortgage Applications, June 7 (prior -11.5%)

11:00am: Fed to purchase $750k-$1b notes in 2023-2031 sector

1:00pm: U.S. to sell $21b 10Y notes in reopening

2:00pm: Monthly Budget Statement, May, est. -$136.5b (prior -$124.6b, May 2012)

Global

·         In a developing story, traders at some of the world’s largest banks are said to have manipulated benchmark forex rates that are used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice.

·         PIMCO told investors to cut risk out of their portfolios  as the risk of a global recession in the next three to five years grew to more than 60%.

North America

·         The SEC has informed exchange executives, long shielded from legal scrutiny in the U.S., on notice that may be changing after regulators fined the CBOE $6M for unprecedented lapses in supervision.

Europe

·         Jobless claims in the U.K. fell more than forecast by economists in May, falling -8.6K from April to 1.51M and leaving the unemployment rate at a two and a half year low of 4.5%. Unemployment as measured by International Labour Organisation methods fell -5K in the three months through April to 2.51M, a rate of 7.8%. Employment rose 24,000 to a record 29.8M.

·         Euro-area industrial output increased unexpectedly in April, with factory production rising +0.4% from March when it increased a revised +0.9% and compared with the median forecast of 36 economists that called for no increase. Industrial output in Europe’s largest economy, Germany, expanded +1.2% and French output rebounded with +2.3% growth.

Asia

·         India’s industrial-output growth slowed in April, with production at factories, utilities, and mines rising +2% YoY after a revised 3.4% gain in March, adding pressure for the government to take steps to spur economic growth in Asia’s third-largest economy. A separate report showed that consumer prices climbed 9.31% in May YoY, exceeding the median estimate of 9%.

·         Fitch Ratings revised India’s credit-rating outlook to stable from negative, following a nine-month policy push by the government to shore up the nation’s finances and revive economic growth. The long-term foreign and local currency ratings were affirmed at BBB-, the lowest investment grade.

·         North Korea called off talks in protest of South Korea’s proposed delegate. The North insisted that South Korea’s unification minister meet its “much lower-ranking” official and rejected the South’s revised proposal for vice minister-level discussions, Unification Ministry spokesman Kim Hyung Suk said in a televised briefing last night. The two-day talks were to begin today in Seoul and focus on the reopening of a joint factory park.

“The more difficulties one has to encounter, within and without, the more significant and the higher in inspiration his life will be.”
-Horace Bushnell
____________________________
Taylor Anderson
Chief Strategist

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Sources: Bloomberg, Reuters, Wall Street Journal, Financial Times, Moody’s, S&P, others.