Morning Call: Optimism about new trade negotiations between the U.S. and China lifts global stocks; Sep E-mini S&Ps up +0.59%; USD/JPY up +0.53% at a new 6-month high.
Barchart.com - Thu Jul 12, 6:34AM CDT
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 ESU18 - S&P 500 E-Mini
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Overnight Markets and News

Sep E-mini S&Ps (ESU18 +0.55%) this morning are up +0.59% and European stocks are up +0.52% as trade tensions ease on the prospects of more trade talks between the U.S. and China after China's Vice Minister of Commerce, Wang Shouwen, said "we should sit down and try to find a solution to this trade problem." European stocks also received a boost from stronger-than-expected industrial output after Eurozone May industrial production rose +1.3% m/m, the biggest increase in 6 months. Gains in European stocks were limited after the European Commission cut its Eurozone 2018 GDP forecast to 2.1% from a prior estimate of 2.3%, citing U.S. trade policies. Asian stocks settled mostly higher: Japan +1.17%, Hong Kong +0.60%, China +2.16%, Taiwan +0.58%, Australia +0.85%, Singapore +0.12%, South Korea -0.01%, India +0.78%. Asian stocks rebounded from Wednesday's sell-off on the prospects for trade negotiations between the U.S. and China. The yuan strengthened against the dollar and China's Shanghai Composite rose to a 1-week high, while a rally in Japanese exporters led the Nikkei Stock Index higher after USD/JPY climbed to a new 6-month high.

The dollar index (DXY00 +0.21%) is up +0.17% at a 1-week high after Cleveland Fed President Mester said the U.S. economy "can certainly handle two more rate increases this year." EUR/USD (^EURUSD -0.14%) is down -0.11%. USD/JPY (^USDJPY +0.51%) is up +0.53% at a fresh 6-month high.

Sep 10-year T-note prices (ZNU18 -0-065) are down -6.5 ticks.

The WSJ reported that Cleveland Fed President Mester said the U.S. economy "can certainly handle two more rate increases this year" to raise the fed funds rate to 3% to reach a neutral level.

Eurozone May industrial production rose +1.3% m/m, stronger than expectations of +1.2% m/m and the biggest increase in 6 months.

The European Commission cut its Eurozone 2018 GDP forecast to 2.1% from a prior estimate of 2.3% and said, "if trade tensions with the U.S. were to escalate further, this could dampen confidence more permanently, weighing on global investment and trade flows, and likely disrupting the current global cyclical upswing."

U.S. Stock Preview

Key U.S. news today includes: (1) weekly initial unemployment claims (expected -6,000 to 225,000, previous +3,000 to 231,000) and continuing claims (expected -9,000 to 1.730 million, previous +32,000 to 1.739 million), (2) Jun CPI (expected +0.2% m/m and +2.9% y/y, May +0.2% m/m and +2.8% y/y) and Jun CPI ex food & energy (expected +0.2% m/m and +2.3% y/y, May +0.2% m/m and +2.2% y/y), (3) USDA weekly Export Sales, (4) Minneapolis Fed President Neel Kashkari (non-voter) speaks on a panel discussing immigration issues, (5) USDA Jul WASDE crop production, (6) Philadelphia Fed President Patrick Harker (non-voter) speaks at the annual Rocky Mountain Economic Summit in Victor, ID, (7) Treasury auctions $14 billion of 30-year T-bonds, and (8) Jun monthly budget statement expected -$80.0 billion, May -$146.8 billion.

Notable Russell 1000 earnings reports today include: Delta Airlines (consnsus $1.72), Commerce Bancshares (0.90).

U.S. IPO's scheduled to price today: none.

Equity conferences during the remainder of this week: none.


Market Comments

Sep S&P 500 E-minis (ESU18 +0.55%) this morning are up +16.50 points (+0.59%). Wednesday's closes: S&P 500 -0.71%, Dow Jones -0.88%, Nasdaq 100 -0.53%. The S&P 500 on Wednesday sold off and closed lower on an escalation of trade tensions between the U.S. and China that may undercut economic growth after the U.S. proposed a 10% tariff on an additional $200 billion of Chinese products starting Aug 30. There was also weakness in energy stocks after crude oil prices plunged 5% to a 2-week low. There were concerns about a tighter Fed policy after the U.S. Jun core PPI rose +2.8% y/y, stronger than expectations of +2.6% y/y and largest year-on-year increase in 6-3/4 years.

Sep 10-year T-notes (ZNU18 -0-065) this morning are down -6.5 ticks. Wednesday's closes: TYU8 +7.50, FVU8 +4.75. Sep 10-year T-notes on Wednesday closed higher on increased safe-haven demand with the sell-off in stocks and on the decline in inflation expectations after the 10-year T-note breakeven inflation rate fell to a 1-week low.

The dollar index (DXY00 +0.21%) this morning is up +0.157 (+0.17%) at a 1-week high, EUR/USD (^EURUSD -0.14%) is down -0.0013 (-0.11%) and USD/JPY (^USDJPY +0.51%) is up +0.59 (+0.53%) at a fresh 6-month high. Wednesday's closes: Dollar Index +0.568 (+0.60%), EUR/USD -0.0070 (-0.60%), USD/JPY +1.01 (+0.91%). The dollar index on Wednesday climbed to a 1-week high and closed higher on the stronger-than-expected U.S. Jun PPI report, which was hawkish for Fed policy. USD/JPY rallied to a 6-month high on divergent central bank policies with the Fed expected to keep raising interest rates and the BOJ expected to continue its QE program.

Metals this morning are mixed with Aug gold (GCQ18 -0.12%) -1.2 (-0.10%), Sep silver (SIU18 +0.24%) +0.043 (+0.27%), and Sep copper (HGU18 +0.86%) +0.025 (+0.89%). Wednesday's closes: Aug gold -11.00 (-0.88%), Sep silver -0.270 (-1.68%), Sep copper -0.0960 (-3.38%). Metals on Wednesday sold off with Sep silver at a 1-week low and Sep copper at an 11-3/4 month low. Metals prices were undercut by strength in the dollar and ramped up US/Chinese trade tensions that may curb economic growth and demand for industrial metals after the U.S. proposed tariffs on an additional $200 billion of Chinese products.

Aug WTI crude oil prices (CLQ18 +0.65%) this morning are up +37 cents (+0.53%) and Aug gasoline (RBQ18 +0.37%) is +0.0056 (+0.27%). Wednesday's closes: Aug crude -3.73 (-5.03%), Aug gasoline -9.89 (-4.58%). Aug crude oil and gasoline on Wednesday sold off to 2-week lows and closed sharply lower. Crude oil prices were undercut by a rally in the dollar index to a 1-week high and by concern that the escalation of a trade war with China will slow economic growth and energy demand after the U.S. proposed a 10% tariff on an additional $200 billion of Chinese products and China vowed to retaliate. Crude oil prices were supported by the -12.63 million bbl plunge in EIA crude inventories to a 3-1/3 year low, a bigger decline that expectations of -3.75 million bbl, and by the -2.062 million bbl drop in crude supplies at Cushing, the delivery point of WTI futures, to a 3-1/2 year low.

Overnight U.S. Stock Movers

NetApp (NTAP +0.44%) was rated a new 'Buy' at Guggenheim Securities with a price target of $94.

Pioneer Natural Resources (PXD -3.81%) was rated a new 'Overweight' at Morgan Stanley with a price target of $240.

Netflix (NFLX +0.73%) lost 1% in after-hours trading after it was downgraded to 'Neutral' from 'Buy' at UBS.

Broadcom (AVGO -2.84%) slid 5% in after-hours trading after it agreed to purchase CA Technologies for $19 billion. CA Technologies CA jumped nearly 16% on the news.

Honeywell International (HON -2.38%) was rated a new 'Buy' at Deutsche Bank with a price target of $166.

Bank of the Ozarks (OZRK unch) slid 3% in after-hours trading after it reported Q2 net interest margin of 4.66%, weaker than consensus of 4.69%.

Emerson Electric (EMR -2.70%) was rated a new 'Buy' at Deutsche Bank with a price target of $81.

Crestwood Equity Partners LP (CEQP -0.93%) was rated a new 'Buy' at SunTrust Robinson Humphrey with a price target of $36.

Zumiez (ZUMZ -1.46%) fell almost 4% in after-hours trading after it reported June comparable sales rose +2.7%, below consensus of +3.9%.

Eaton Corp Plc (ETN -3.26%) was rated a new 'Buy' at Deutsche Bank with a price target of $86.

Galmed Pharmaceuticals (GLMD -4.09%) rallied 12% in after-hours trading after it was rated a new 'Overweight' at Cantor Fitzgerald with a price target of $59.

Weatherford International PLC (WFT -0.85%) jumped 7% in after-hours trading after it sold its drilling rigs business in Kuwait, Saudi Arabia and Algeria to ADES International Holding for $287.5 million.

Zion Oil & Gas (ZN +0.76%) slumped 19% in after-hours trading after it said it received a subpoena from the SEC to produce documents citing "non-public, fact-finding inquiry into the company."