Morning Call: Increased Italian political risks hammer U.S. and European stocks; Dec E-mini S&Ps down -0.22%; EUR/USD down -0.54% to a 2-week low.
Barchart.com - Fri Sep 28, 6:38AM CDT
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Overnight Markets and News

Dec E-mini S&Ps (ESZ18 -0.25%) this morning are down -0.22% and European stocks are down -1.19% at a 1-week low as a sell-off in Italian bank stocks leads the overall market lower. Political risks in Italy are undercutting stocks after the Italian government agreed to set next year's budget deficit target at 2.4% of GDP, above the EU's budget limit of 2.0%. The Italian government now has to present its 2019 budget to the European Commission by mid-October for approval. The slump in European stocks boosted the safe-haven demand for German bunds as the 10-year bund yield fell to a 1-week low of 0.448%. Asian stocks settled mostly higher: Japan +1.36%, Hong Kong +0.26%, China +1.06%, Taiwan -0.25%, Australia +0.43%, Singapore +0.64%, South Korea -0.69%, India -0.27%. Japan's Nikkei Stock index soared to a 26-3/4 year high on the strength of Japanese exporter stocks. Exporters rallied after USD/JPY (^USDJPY +0.06%) jumped to a 9-1/2 month high, which improves the earnings prospects of exporters with the weaker yen. Chinese stocks rallied on short-covering ahead of China's week-long holiday that begins Monday.

The dollar index (DXY00 +0.43%) is up +0.46% at a 2-week high. EUR/USD (^EURUSD -0.50%) is down -0.54% at a 2-week low after an unexpected slowdown in Eurozone Sep core CPI prices bolstered speculation the ECB may by slow to tighten monetary policy. USD/JPY (^USDJPY +0.06%) is up +0.04% at a 9-1/2 month high as divergent central bank policies undercut the yen with the Fed raising interest rates as the BOJ continues its QE program.

Dec 10-year T-note prices (ZNZ18 +0-065) are up +6 ticks.

The Eurozone Sep CPI estimate rose +2.1% y/y, right on expectations and matched July as the fastest pace of increase in 5-3/4 years. The Sep core CPI rose +0.0% y/y, weaker than expectations of +1.1% y/y.

The German Sep unemployment change fell -23,000 to 2.303 million, stronger than expectations of -9,000. The Sep unemployment rate unexpectedly fell -0.1 to record low of 5.1% (data from 1990), better than expectations of no change at 5.2%.

UK Sep Gfk consumer confidence fell -2 to -9, weaker than expectations of -1 to -8

The Japan Aug unemployment rate fell -0.1 to 2.4%, stronger than expectations of no change at 2.5%. The Aug job-to-applicant ratio was unch at 1.63, as expected.

Japan Aug industrial production rose +0.7% m/m, weaker than expectations of +1.4% m/m.

Japan Aug retail sales rose +0.9% m/m, stronger than expectations of +0.5% m/m.

U.S. Stock Preview

Key U.S. news today includes: (1) Aug personal spending (expected +0.3%, Jul +0.4%) and Aug personal income (expected +0.4%, Jul +0.3%), (2) Aug PCE deflator (expected +0.1% m/m and +2.2% y/y, Jul +0.1% m/m and +2.3% y/y) and Aug core PCE deflator (expected +0.1% m/m and +2.0% y/y, Jul +0.2% m/m and +2.0% y/y), (3) Chicago Sep PMI (expected -1.6 to 2.0, Aug -1.9 to 63.6), (4) revised-Sep University of Michigan U.S. consumer sentiment index (expected -0.3 to 100.5, prelim-Sep +4.6 to 100.8), (5) New York Fed President John Williams (voter) gives keynote speech at the New York Money Marketeers Conference on “Reserve Reductions, Money Markets, and Future Frameworks.”

Notable Russell 2000 earnings reports today include: Vail Resorts (consensus $-2.26).

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

Equity conferences during the remainder of this week: none.

Market Comments

Dec S&P 500 E-minis (ESZ18 -0.25%) this morning are down -6.50 points (-0.22%). S&P 500 +0.28%, Dow Jones +0.21%, Nasdaq 100 +0.88%. The S&P 500 on Thursday closed higher on the +4.5% increase in U.S. Aug durable goods orders, stronger than expectations of +2.0%. There was also strength in technology stocks. Energy stocks found support from the +0.77% rally in crude oil prices. Stocks were undercut by the -1.8% decline in U.S. Aug pending home sales, weaker than expectations of -0.5% m/m and the biggest decline in 7 months.

Dec 10-year T-notes (ZNZ18 +0-065) this morning are up +6 ticks. Thursday's closes: TYZ8 +0.50, FVZ8 -0.75. Dec 10-year T-notes on Thursday climbed to a 1-week high and closed higher on U.S. Aug pending home sales report of -1.8% m/m (the largest decline in 7 months) and on the unexpected -0.5% decline in U.S. Aug capital goods new orders non-defense ex aircraft (weaker than expectations of +0.4%). T-note prices were undercut by the rally in stocks that reduced safe-haven demand for T-notes.

The dollar index (DXY00 +0.43%) this morning is up +0.44 (+0.46%) at a 2-week high, EUR/USD (^EURUSD -0.50%) is down -0.0063 (-0.54%) at a 2-week low, and USD/JPY (^USDJPY +0.06%) is up +0.05 (+0.04%) at a 9-1/2 month high. Thursday's closes: Dollar Index +0.701 (+0.74%), EUR/USD -0.0098 (-0.83%), USD/JPY +0.65 (+0.58%). The dollar index on Thursday climbed to a 1-week high and closed higher on carry-over support from Wednesday's FOMC meeting where the number of Fed officials who favor four rate hikes this year increased from 8 out of 16 in June to 12. There was also weakness in EUR/USD which fell to a 1-week low after Eurozone Sep economic confidence fell more than expected to a 15-month low and after Germany's top research institutes cut their German 2018 GDP forecast to 2.2% from 2.7%.

Metals prices this morning are mixed with Dec gold (GCZ18 -0.03%) -1.3 (-0.11%) at a 6-week low, Dec silver (SIZ18 +0.24%) +0.025 (+0.17%) and Dec copper (HGZ18 -0.20%) -0.009 (-0.32%). Thursday's closes: Dec gold -11.7 (-0.98%), Dec silver -0.111 (-0.77%), Dec copper -4.50 (-1.59%). Metals on Thursday closed lower with Dec gold at a 1-1/4 month low. Metals prices were undercut by the rally in the dollar index to a 1-week high and by Wednesday's post FOMC information that said the number of Fed officials who favor four rate hikes this year increased from 8 out of 16 in June to 12. Gold prices were undercut by continued fund liquidation as long gold positions in ETFs fell to a 1-year low on Wednesday.

Nov WTI crude oil prices (CLX18 +0.04%) this morning are down -1 cent (-0.01%) and Nov gasoline (RBX18 +0.09%) is unch. Thursday's closes: Nov crude oil +0.55 (+0.77%), Nov gasoline +2.27 (+1.11%). Nov crude oil and gasoline on Thursday closed higher on comments from U.S. Energy Secretary Perry who said the U.S. does not plan to tap the SPR crude reserves when U.S. sanctions on Iranian crude oil take effect in November. Crude oil prices were also boosted by the increase in the crack spread to a 2-week high, which boosts incentive for refiners to increase crude purchases to refine the crude into gasoline.

Overnight U.S. Stock Movers

Tesla (TSLA -0.67%) dropped 11% in pre-market trading after the SEC accused CEO Elon Musk of misleading investors when he tweeted that he had funding lined up to take Tesla private. Tesla was then downgraded to 'Sell' from 'Neutral' at Citibank with a price target of $225.

Phillips 66 Partners Lp (PSXP +1.35%) was downgraded to 'Underweight' from 'Equal Weight' at Morgan Stanley with a price target of $50.

Lowe's (LOW -0.25%) was upgraded to 'Buy' from 'Hold' at SunTrust Robinson Humphrey with a price target of $138.

Raytheon (RTN +0.34%) was awarded a $482.3 million contract from the U.S. Navy that runs through Aril 2024 for MK 15 Close-In Weapon System upgrades and conversions, system overhauls and associated hardware.

General Dynamics (GD +0.11%) was awarded a $4.03 billion contract from the U.S. Navy that runs through Mar 2018 for construction of additional DDG 51 class ships.

Progress Software (PRGS +1.92%) tumbled 15% in after-hours trading after it forecast full-year adjusted EPS of $2.45 to $2.48, weaker than consensus of $2.50.

HCP Inc (HCP +0.35%) was upgraded to 'Overweight' from 'Neutral' at Cantor Fitzgerald with a price target of $29.

CalAmp (CAMP -1.20%) rose 7% in after-hours trading after it reported Q2 adjusted EPS of 31 cents, higher than consensus of 28 cents.

Natera (NTRA -10.65%) was reiterated an 'Overweight' at Morgan Stanley who raised their price target on the stock to $41.

Great Lakes Dredge & Dock (GLDD unch) rose more than 2% in after-hours trading after it announced that it had won a $113 million contract for deepening of Jacksonville, Florida's harbor.

TherapeuticsMD (TXMD -1.34%) climbed more than 3% in after-hours trading after it said it had entered into discussions with the FDA on the proposed label for its bio-identical hormone therapy TX-001HR.

Zynga (ZNGA +0.25%) gained 2% in after-hours trading after it was rated a new 'Buy' at Stifel with a price target of $5.