Morning Call For Monday, Feb. 5
OVERNIGHT MARKETS AND NEWS
Mar E-mini S&Ps (ESH18 -0.53%) this morning are down -0.59% and European stocks are down -1.04%, both at 1-month lows, as equity markets extend Friday's plunge. The sharp decline in stocks the past two sessions has lifted the VIX volatility index to a new 2-year high and further exacerbated selling in equity markets. The 10-year T-note yield rose to a 4-year high of 2.88% in overnight trading as the rout in government debt markets continues. Friday's stronger-than-expected U.S. Jan payroll report boosted inflation expectations as the 10-year T-note breakeven inflation rate rose to a 3-1/3 year high of 2.14% and bolstered the outlook for a rate hike at next month's FOMC meeting. Asian stocks settled mostly lower: Japan -2.55%, Hong Kong -1.09%, China +0.73%, Taiwan -1.62%, Australia -1.55%, Singapore -1.33%, South Korea -1.14%, India -0.88%. Japan's Nikkei stock index plunged to a 1-1/2 month low as it followed losses in U.S. and European markets, although China's Shanghai Composite bucked the trend and closed higher on signs of strength in China's economy after the China Jan Caixin services PMI unexpectedly rose +0.8 to a record high 54.7.
The dollar index (DXY00 +0.09%) is up +0.05%. EUR/USD (^EURUSD) is down -0.15%. USD/JPY (^USDJPY) is down -0.42%.
Mar 10-year T-note prices (ZNH18 +0.23%) are up +5.5 ticks.
The Eurozone Jan Markit composite PMI was revised upward to 58.8 from the previously reported 58.6, the fastest pace of expansion in nearly 3 years.
The Eurozone Feb Sentix investor confidence unexpectedly fell -1.0 to 31.9, weaker than expectations of +0.3 to 33.2.
Eurozone Dec retail sales fell -1.1% m/m, weaker than expectations of -1.0% m/m.
The China Jan Caixin services PMI unexpectedly rose +0.8 to a record high 54.7, stronger than expectations of -0.4 to 53.5.
U.S. STOCK PREVIEW
Key U.S. news today includes: (1) revised Jan Markit services PMI (expected unrevised at 53.3, prelim-Jan -0.4 to 53.3), (2) Jan ISM non-manufacturing PMI (expected +0.7 to 56.7, Dec -1.3 to 56.0), (3) USDA weekly grain export inspections.
Notable S&P 500 earnings reports today include: Bristol-Myers (consensus $0.67), Everest Re (5.29), Sysco (0.65), Leggett & Platt (0.61), Church & Dwight (0.50), National Oilwell Varco (-0.04), Hess (-0.95).
U.S. IPO's scheduled to price today: none.
Equity conferences this week: Wind Power Finance & Investment Summit on Tue, Cowen & Co. Aerospace/Defense Conference on Wed-Thu, Capital Link Greek Shipping Forum on Thu, American Society of Clinical Oncology Genitourinary Cancers Symposium on Thu-Fri.
OVERNIGHT U.S. STOCK MOVERS
Wells Fargo (WFC -2.20%) tumbled over 8% in pre-market trading after the Federal Reserve said the bank is banned from any further asset growth until it can resolve compliance problems and settle its recent history of consumer abuses.
Dick's Sporting Goods (DKS +0.35%) was downgraded to 'Underweight' from 'Equal Weight' at Barclays with a price target of $25.
Accenture (ACN -2.22%) was upgraded to 'Overweight' from 'Equal Weight' at Morgan Stanley.
Southern Copper (SCCO -3.56%) was downgraded to 'Sell' from 'Neutral' at Banco BTG Pactual SA with a price target of $44.
Marathon Petroleum (MPC -1.86%) was downgraded to 'Hold' from 'Buy' at Jeffries.
Norwegian Cruise Line Holdings Ltd (NCLH -2.62%) was upgraded to 'Overweight' from 'Neutral' at JPMorgan Chase with a price target of $70.
Lowe's (LOW -2.27%) was upgraded to 'Buy' from 'Hold' at Jeffries.
Illumina (ILMN -4.39%) was upgraded to 'Buy' from 'Neutral' at Citigroup with a price target of $275.
Amgen (AMGN +0.78%) was downgraded to 'Neutral' from 'Overweight' at Atlantic Equities LP.
ON Semiconductor (ON -2.59%) reported Q4 revenue of $1.38 billion, higher consensus of $1.35 billion, and said it sees Q1 revenue of $1.34 billion to $1.39 billion, the midpoint above consensus of $1.34 billion.
Ambac Financial Group (AMBC -3.43%) may open higher this morning after it reported after the close Friday it expects total Q4 revenue of $170 million-$199 million, well above consensus of $124 million.
Sprint (S +5.10%) was upgraded to 'Sector Weight' from 'Underweight' at KeyBanc Capital Markets.
MARKET COMMENTS
Mar S&P 500 E-mini stock futures (ESH18 -0.53%) this morning are down -16.25 points (-0.59%) at a 1-month low. Friday's closes: S&P 500 -2.12%, Dow Jones -2.54%, Nasdaq -2.05%. The S&P 500 on Friday sold off to a 3-week low and settled sharply lower. Stocks were undercut by interest rate concerns as the 10-year T-note yield jumped to a 4-year high of 2.85% after U.S. Jan nonfarm payrolls rose +200,000, stronger than expectations of +180,000, and after Jan average hourly earnings rose +2.9% y/y, the fastest pace of increase in 8-1/2 years, which bolsters the case for the Fed to keep raising interest rates.
Mar 10-year T-note prices (ZNH18 +0.23%) this morning are up +5.5 ticks. Friday's closes: TYH8 -15.50, FVH8 -4.25. Mar T-notes on Friday tumbled to a new contract low and the 10-year T-note yield climbed to a 4-year high. T-note prices were undercut by the +2.9% y/y increase in U.S. Jan average hourly earnings, stronger than expectations of +2.6% y/y and the largest year-on-year increase in 8-1/2 years. In addition, inflation expectations rose after the 10-year T-note breakeven rate rose to a 3-1/3 year high of 2.14%.
The dollar index (DXY00 +0.09%) this morning is up +0.049 (+0.05%). EUR/USD (^EURUSD) is down -0.0019 (-0.15%) and USD/JPY (^USDJPY) is down -0.46 (-0.42%). Friday's closes: Dollar Index +0.524 (+0.59%), EUR/USD -0.0047 (-0.38%), USD/JPY +0.77 (+0.70%). The dollar index on Friday closed higher on the stronger-than-expected U.S. Jan payroll and hourly earnings reports, which bolstered the case for additional Fed rate hikes. In addition, USD/JPY rallied to a 1-1/2 week high after the BOJ offered to buy an unlimited amount of bonds at a fixed rate for the first time since July, which dampened speculation the BOJ was moving closer to ending QE and undercut the yen.
Mar crude oil (CLH18 -0.95%) this morning is down -43 cents (-0.66%) and Mar gasoline (RBH18 -1.30%) is 09.0216 (-1.15%). Friday's closes: Mar WTI crude -0.35 (-0.53%), Mar gasoline -0.0238 (-1.26%). Mar crude oil and gasoline on Friday closed lower with Mar gasoline at a 2-week low. Crude oil prices were undercut by a stronger dollar and by the plunge in the crack spread to a 7-1/2 month low, which reduces the incentive for refiners to purchase crude oil to refine into gasoline.
Metals prices this morning are higher with Apr gold +2.2 (+0.16%), Mar silver +0.106 (+0.63%), and Mar copper +0.012 (+0.36%). Friday's closes: Apr gold -10.6 (-0.79%), Mar silver -0.446 (-2.60%), Mar copper +0.0215 (-0.67%). Metals on Friday closed lower with Apr gold at a 2-week low and Mar silver at a 5-week low. Metals prices were undercut by a stronger dollar and by stronger-than-expected U.S. economic data on Jan payrolls, hourly earnings and Dec factory orders, which all bolster the case for the Fed to continue to raise interest rates.
Disclosure: None.