CRB FMS morning report

[Gertje]

Overnight Developments

Global stocks are trading sharply lower with the European Euro Stoxx 50 index down -2.63% and June S&Ps down -28.80 points. The dollar rose and Treasuries surged to a 3-1/4 month high on increased safe-haven demand, while commodities tumbled, with crude oil cascading down to a 2-week low, on concern a nuclear disaster is unfolding in Japan. Japanese Prime Minister Kan said "there is still a very high risk of further radioactive material escaping" after a third blast at the Fukushima Dai-Ichi nuclear power plant today sent radiation levels soaring to 8 times permitted levels outside the facility. European utility stocks plummeted on concern government officials will close existing nuclear power plants in Europe, while the euro fell against the dollar after as an unexpected decline in German investor confidence pressured stock prices further. The March German ZEW investor confidence fell -1.6 to 14.1, weaker than expectations of +0.1 to 15.8 and its first decline since October.
The Asian stock markets today closed lower as Japan sank -10.55%, Hong Kong -2.86%, China -1.81%, Taiwan -3.35%, Australia -2.11%,Singapore -2.80%, South Korea -2.46%, India -1.47%. Japan's Nikkei 225 Stock Index posted its biggest 2-day drop since 1987 as the stock index collapsed to a 1-3/4 year low. Tokyo Electric Power Co.'s stricken nuclear power plant was hit by 2 more explosions today as workers struggle to avert a meltdown that may lead to more radiation leaks in the wake of the Mar 11 earthquake. Credit-default swaps on Japan's government debt soared 25.8 bp to a record 122.3 as concerns rise about Japan's finances in regard to reconstruction from the earthquake. Tokyo Electric Power, Asia's biggest power generator, sank the daily 25% limit while Sony, Japan's biggest exporter of consumer electronics tumbled 13% after the company halted production at some factories. The BOJ injected an additional 8 trillion yen to the financial system today on top of the record 15 trillion yen the central bank pumped into money markets yesterday as it attempts to stabilize financial markets.


US Economic Previews

FOMC meeting - The FOMC at its meeting today is unlikely to make any shift in monetary policy or its tone. The Fed may provide some specific reassurance regarding its intent to help the Bank of Japan in whatever way it can with liquidity stresses that may be emerging in Japan due to the earthquake. The Fed is at about the half way mark of its $600 billion QE2 program, having already purchased about $300 billion in Treasury securities and having about $300 billion left to go. The Fed is not likely to hint at an early end to its QE2 program considering that the stock market and market confidence is already on edge with the Japanese earthquake and with higher fuel prices tied to the Middle East unrest.
Empire manufacturing index - Today's Mar Empire manufacturing index is expected to show a small +1.0 point increase to 16.4, adding to the +3.5 point increase to 15.4 seen in February. The Feb level of 15.4 was an 8-month high and indicated that the manufacturing sector in the New York area is expanding at a moderate pace. The nationwide manufacturing sector in February was very strong with the Feb ISM manufacturing index rising 0.6 points to 61.4, which matched the 27-year high originally posted in May 2004.
NAHB housing market index - Today's March NAHB housing market index is expected to show a +0.1 point increase to 17 following the March report of unchanged at 16. The index has flat-lined at 16 for four consecutive months as homebuilders remain in hibernation and wait for any signs of a significant pickup in sales and a draw-down in new homes on the market. New home sales in January remained in dismal shape at 284,000, just slightly above the record low of 274,000 posted in August 2010. Meanwhile, the supply of new homes that are on the market remained high at 7.9 months in January, which was nearly double the pre-recession level of about 4 months.
Import prices - Today's Feb import price index is expected to show another large increase of +0.9% m/m, adding to the +1.5% increase seen in January. On a year-on-year basis, Feb import prices are expected to rise to an 8-month high of +6.3% y/y from +5.3% y/y in January. Import prices are of course being pushed higher by energy prices. However, import prices excluding petroleum were high at +3.2% in January, which is above the generally-accepted 2.0% limit for inflation. Nevertheless, the import price situation is not severe enough to shift the Fed's opinion on inflation or its monetary policy stance.


U.S. Stock Market

June S&Ps this morning are trading sharply lower by -28.80 points as the risk of radiation leaks in Japan increases. The US stock market yesterday tumbled on uncertainty over how much damage Japan's worst earthquake on record will do to the global economy: Dow Jones -0.43%, S&P 500 -0.60%, Nasdaq Composite -0.54%. The Dow, S&P 500 and the Nasdaq all posted 1-1/2 month lows. Bearish factors for stocks included (1) concern that earthquake damage to Japan, the world's third-largest economy, will hurt global economic growth, (2) a slump on commodity and energy producers as commodity prices moved lower on demand concerns, (3) weakness in communications stocks after Oppenheimner & Co predicted that the communications-equipment industry may be hurt by the Japanese earthquake as supplies from Japanese component makers are cut and network spending drops in the near term, and (4) a decline in insurance stocks after AIR Worldwide said the insurance industry may face claims of as much as 2.8 trillion yen ($34 billion) from the Japanese earthquake, although estimates don't include damage caused by the tsunami that followed the quake, which could make claims costs much higher.
* Bullish factors included (1) the fall in crude oil prices to a 2-week low, which eases concern that rising energy prices will derail the economy, (2) reduced concerns over the European sovereign-debt crisis after credit default swaps on European sovereign debt declined when European leaders over the weekend agreed on a retooled bailout plan for Europe's most indebted nations, which prompted a rally in European bank stocks after JPMorgan Chase raised its recommendation for European banks to "overweight" from "neutral," and (3) strength in solar stocks on speculation that renewable energy plants will win favor from global governments after explosions at 2 Japanese nuclear plants undercut confidence in nuclear power.
General Electric (GE), which is in talks to sell nuclear reactors to India, lost 7.9% in pre-market trading on top of the 2.2% the stock lost yesterday.
Exelon (EXC), owner of the largest group of US nuclear power plants, tumbled 2.8% in pre-market trading as nuclear power stocks globally come under pressure due to nuclear concerns in Japan.


U.S. Interest Rate Markets

June 10-year T-notes this morning are trading up +24.5 ticks at a 3-1/4 month high as investors flock to the safety of Treasuries as global stocks plunge. T-note prices yesterday rallied to a 3-1/4 month high and closed higher on increased safe-haven demand as global equity markets tumbled: TYM11 +16, FVM11 +12.2, EDU11 +1.5. The yield on the 10-year T-note slipped to a 1-1/2 month low of 3.327%. Bullish factors included (1) increased safe-haven demand for Treasuries after world equity markets sold-off on concern that earthquake damage to Japan, the world's third-largest economy, will limit global economic growth, and (2) the Fed's action to purchase $7.56 billion of Treasuries as part of its QE2 asset-purchase program. Bearish factors included (1) speculation that Japanese insurance companies will sell their holdings of long-term US Treasuries to pay claims for earthquake damage, and (2) reduced safe-haven demand for Treasuries after credit default swaps on European sovereign debt declined when European leaders over the weekend agreed on a retooled bailout plan for Europe's most indebted nations, which eased concern the countries will be default on their debts.


Forex Markets

The dollar index this morning is stronger with the dollar/yen -0.26 yen and the euro/dollar -1.10 cents. The dollar index yesterday weakened for a second day after European Union leaders agreed over the weekend to expand the scope of their rescue fund in an attempt to quell the European debt crisis: Dollar Index -0.427, USDJPY -0.259, EURUSD +0.00894. Bearish factors included (1) strength in the euro after EU leaders over the weekend agreed to expand the scope of their rescue fund and allow officials to buy debt in primary markets, while also cutting the cost of bailout loans to Greece by extending the repayment period of Greek loans to 7-1/2 years from 3 years, and (2) early strength in the yen which rallied to a 4-monh high against the dollar on speculation Japanese domestic investors will repatriate yen back to Japan to pay for earthquake and tsunami damages. Bullish factors included (1) weakness in the yen which retreated from a 4-month high after the BOJ pumped a record 15 trillion yen ($183 billion) into money markets and doubled the size of its asset-purchase program in an attempt to stabilize financial markets which were hammered following the Japanese earthquake, and (2) increased safe-haven demand for the dollar after global equity markets tumbled.


Crude Oil

April crude oil prices this morning are trading down -$2.84 a barrel and April gasoline is -10.51 cents per gallon, both at fresh 2-week lows. Crude oil and gasoline prices yesterday fell to 2-week lows on speculation energy demand from Japan, the world's third-biggest economy, may decline after the strongest earthquake on record devastated its economy, but crude prices recovered their losses and finished mixed after Saudi Arabian troops entered Bahrain: CLJ11 +$0.03, RBJ11 -2.74. Bearish factors include (1) calculations from Japan's Petroleum Association that said last Friday's earthquake shut 29% of the country's domestic refining capacity, which signals reduced crude demand, (2) speculation that Japanese crude oil imports will drop as ports damaged by the quake and tsunami must be fixed before they can accept crude supplies, and (3) the tumble in global equity markets, which undercuts confidence in the global recovery and energy demand. Bullish factors included (1) the weaker dollar, and (2) the action by the Gulf Cooperation Council to send troops to Bahrain to protect "vital" oil installations, which fuels concern those violent protests in North Africa and the Middle East may be spreading to other oil-producing countries in the region.


Metals

Metals prices this morning are trading sharply lower: GCJ11 -$15.50, SIK11 -1.030 and HGK11 -0.076. Metals prices yesterday finished mixed as a weak dollar boosted demand for gold but copper moved lower on concern the worst recorded earthquake to hit Japan will reduce its copper demand: GCJ11 +$3.10, SIK11 -0.095, HGK11 -0.0210. Bullish factors included (1) the weaker dollar, (2) increased safe-haven demand for gold as global stock markets slumped over the uncertainty about the cost and damage to the global economy from the Japanese earthquake. Bearish factors included (1) concern that industrial metals demand from Japan, the world's third-largest economy, will be reduced after the earthquake prompted Sony to halt operation at 10 factories and 2 research centers, while Toyota said it would close all 12 of it Japanese factories through Mar 16, and (2) the sell-off in global equity markets which reduces confidence in the economic outlook and industrial metals demand.


Grains

Grain prices this morning are weaker: CK1 -8 cents, SK1 -11 cents, and WK1 -15-1/4 cents. The grain markets yesterday closed higher on speculation that Japan will step up grain purchases once its ports and milling operations reopen following last week's earthquake: CK1 +1-3/4 cents, SK1 +5-1/2 cents, WK1 +2 cents. Bullish factors included (1) the weaker dollar, which encourages investment demand in commodities and may boost US grain export prospects, (2) speculation that Japan will need more food and animal feed after the earthquake and subsequent tsunami damaged its grain storage facilities and power outages reduced wheat-flour production, (3) reports that only 2 of Japan's 12 major ports for receiving grain shipments were damaged by the earthquake, which signals that grain shipments to Japan should not be that negatively affected, and (4) increased foreign demand for US soybeans and wheat after the USDA reported that inspections of US soybeans and US wheat for export for the week ending Mar 10 both rose +20% from the previous week. Bearish factors included (1) the slump in gasoline, which undercuts ethanol prices and corn demand, (2) reduced US domestic demand for soybeans after the Feb NOPA soybean crush declined -13.7% m/m to 124.88 million bushels because of slack demand for animal feed, and (3) reduced foreign demand for US corn supplies after the USDA reported that inspections of US corn for export for the week ending Mar 10 fell -22% from the prior week.


Meats & Softs

Meat prices yesterday weakened on concern Japan's worst earthquake on record may limit global economic growth and reduce meat demand: LCJ1 -6.25, LHJ1 -22.00. Apr hogs sank to a 2-month low. Softs yesterday settled mostly lower on concern that last week's earthquake and tsunami to devastate Japan will limit global economic growth and demand for commodities: SBK1 -1.07, KCK1 -1.10, CCK1 -23, CTK1 -7.00 limit down. May sugar slid to a 2-week low and May coffee fell to a 1-week low.


Global Financial Calendar

Tuesday 3/15/11
US 0745 ET ICSC (Int’l Council of Shopping Centers) weekly retailer sales.
0830 ET Mar Empire manufacturing index expected +1.0 to 16.4, Feb +3.5 to 15.4.
0830 ET Feb import price index expected +0.9% m/m and +6.3% y/y, Jan +1.5% m/m and +5.3% y/y.
0855 ET Redbook weekly retailer sales.
0900 ET Jan net long-term TIC flows expected +$55.0 billion, Dec +$65.9 billion.
0900 ET FOMC begins 1-day monetary policy meeting.
1000 ET Mar NAHB housing market index expected +0.1 to 17, Feb unchanged at 16.
1000 ET Treasury Secretary Timothy Geithner testifies to Senate Banking Committee on housing finance.
1130 ET Weekly 4-week T-bill auction.
1415 ET FOMC announces interest rate decision (expected no change to the 0.00% to 0.25% fed funds rate).
JPN 0200 ET Revised Feb Japan machine tool orders, previous +73.7% y/y.
1950 ET Q1 Japan BSI large all industry business condition, Q4 was –5.0.
1950 ET Q1 Japan BSI large manufacturing business condition, Q4 was –8.0.
FRA 0230 ET Feb French CPI (EU harmonized) expected +0.6% m/m and +1.9% y/y, Jan –0.3% m/m and +1.9% y/y.
UK 0530 ET Jan UK DCLG house prices expected +2.3% y/y, Dec +3.8% y/y.
EUR 0400 ET EU finance ministers meet in Brussels.
0600 ET Q4 Euro-Zone employment, Q3 unchanged q/q and –0.2% y/y.
GER 0600 ET Mar German ZEW survey economic sentiment expected +0.1 to 15.8, Feb +0.3 to 15.7.
CAN 0830 ET Q4 Canada labor productivity expected +0.2% q/q, Q3 +0.1% q/q.


U.S. Commodity Calendar

Tuesday, Mar 15
1130 ET US American Iron and Steel Institute's steel production report for period ended Mar 11
1200 ET USDA weekly weather-crop summary for period ended Mar 13
1500 ET USDA turkey hatchery
1630 ET American Petroleum Institute's US oil statistics for week ended Mar 11