U.S. Morning Call for Monday, December 28, 2009

Overnight Developments

• The European DJ Stoxx 50 this morning is up +0.55% and Mar S&Ps are up +1.40 points, both at 14-3/4 month highs. Global stock markets received a boost when China on Dec 25 raised its 2008 GDP estimate to 9.6% from 9% and said this year's quarterly figures will increase, while Japan's Cabinet Office said the economy will expand for the first time in three years and that industrial production gained for a ninth month in Nov. Treasuries and the dollar are weaker while most commodities are higher, with copper surging to a 15-month high and crude climbing to a 3-week high, which has prompted a rally in European basic-resource companies and energy producers. The chief economist at Barclays Capital predicts that the US economy will expand by 3.5% in 2010 and turn in its best performance since 2004 as consumer spending picks up and companies increase investment.

• The Asian markets today closed mostly higher with Japan up +1.33%, Hong Kong -0.17%, China +1.57%, Taiwan +1.06%, Singapore +0.63%, South Korea +0.16%. Japan's Nov industrial production rose a larger-than-expected +2.6% m/m for its biggest gain in six months and helped Japanese stocks to gain on signs that Japan's exporters are coping with the impact of a stronger yen. Japan's Cabinet Office on Dec 25 predicted that the Japanese economy "will probably recover gradually" next year with a 1.4% expansion in the year starting in April. Consumer spending in Japan may be limited after Nov Japan monthly wages fell -2.8% y/y, their biggest decrease in the last four months and the 18th consecutive monthly year-over-year decline. Chinese stocks closed higher after Chinese Premier Wen Jiabao said the government will cool property prices, resist pressure for the yuan to appreciate and keep inflation at "reasonable" levels. Overnight U.S. Stock News

• March S&Ps this morning are trading up +1.40 points and posted a fresh 14-3/4 month high. The US stock market last Thursday settled with moderate gains and closed higher for the fifth consecutive session (Dow Jones +0.51%, S&P 500 +0.53%, Nasdaq Composite +0.71%). The S&P 500 Index and the Dow Jones posted 14-3/4 month highs while the Nasdaq Composite climbed to a 15-1/2 month high. Bullish factors included (1) an improvement in the labor market after weekly initial unemployment claims fell to their lowest level in 15 months (-28,000 to 452,000 versus expectations of -10,000 to 470,000), (2) an increase in economic optimism after the less volatile ex-transportation component of the Nov durable goods orders rose more than expected (+2.0% ex-transportation versus market expectations of +1.0%), (3) Morgan Stanley's hike in its US Q4 GDP estimate to a 5.1% annual rate from an earlier prediction of a 4.1% annual rate, and (4) the prediction from Fortis Global Markets that "growth in Q4 of this year and Q1 of 2010 will be particularly strong because inventories will correct to the upside," and government stimulus measures will still support the economy in that period.

• Bearish factors included (1) weakness in health-care stocks after the US Senate approved legislation that would make the broadest changes to the US health-care system in decades, and (2) a continued rise in interest rates that may dampen consumer and business spending after the 10-year T-note yield climbed to a 4-1/2 month high of 3.80% and has now risen sharply by 34 bp in the past week.

• Exxon-Mobile (XOM) rose 1% in pre-market trading after crude oil prices jumped to a 3-week high

Today's U.S. Market Focus

• March 10-year T-notes this morning are trading down -9.5 ticks. Mar T-note prices last Thursday closed lower for the fifth consecutive session and settled down -13 ticks at 115-230. TYH posted a 4-1/2 month nearest-futures low and the 10-year T-note yield rose to a 4-1/2 month high of 3.80%. Bearish factors included (1) the larger-than-expected decline in weekly initial unemployment claims which fell to their lowest level in 15 months (-28,000 to 452,000 versus expectations of -10,000 to 470,000), (2) the larger-than-expected increase in the less volatile ex-transportation component of the Nov durable goods orders report (+2.0% ex transportation versus market expectations of +1.0%), (3) reduced safe-haven demand for Treasuries after the S&P 500 Index rose to a 14-3/4 month high, (4) supply pressures ahead of this week's $118 billion in Treasury auctions that begin with Monday's $44 billion 2-year T-note auction, and (5) the prediction from Barclays Plc that the 10-ye ar T-note yield will climb to 4.50% in 2010 as a strengthening economy prompts the Fed to unwind programs put in place to revive growth. A bullish factor last Thursday was the prediction from RBS that 10-year T-notes will see an influx of demand from mutual funds, pension finds and individuals when the yield on the 10-year T-note nears 3.90%.

• The dollar index this morning is weaker with the dollar/yen +0.23 yen and the euro/dollar -0.08 cents. The dollar index last Thursday finished slightly lower. Bearish factors included (1) the report from Barclays that said global central banks in Q3 cut their purchases of dollars to a record low of less than 30% of new foreign-exchange reserves, and (2) reduced safe-haven demand for the dollar after the S&P 500 Index rose to a 14-3/4 month high. Bullish factors for the dollar last Thursday included (1) better-than-expected US economic data that may prompt the Fed to increase interest rates sooner-than-expected after US weekly initial unemployment claims fell to a 15-month low and Nov durable goods orders ex-transportation rose more than expected, and (2) the prediction from the Diawa Institute of Research that the yen may fall to 100 yen per dollar by Q3 of next year as deflation keeps the BOJ from following interest rate increases by the Fed.

• February crude oil prices this morning are trading up +68 cents a barrel and Feb gasoline is +2.21 cents a gallon. Feb crude oil last Thursday rallied for a third day and closed up +$1.38 a barrel. Feb gasoline closed up +2.38 cents a gallon. Both Feb crude and Feb gasoline posted 2-week highs. Bullish factors included (1) dollar weakness, (2) better-than-expected US economic data that may portend an increase in fuel demand after US weekly initial unemployment claims fell to a 15-month low and Nov durable goods orders ex-transportation rose more than expected, and (3) carry-over strength from a rally in gasoline after a refinery fire in Texas City, Texas closed a Valero Energy refinery with a capacity of 230,000 bbl a day. A bearish factor was the resumption of crude exports through Iraq's 450,000 bbl a day oil export pipeline to Turkey after an explosion had forced its closure on Dec 20.

U.S. Earnings ReportsEarnings reports (confirmed releases, sorted by mkt cap) NSM-National Semiconductor (BEST earnings consensus $0.18), CALM-Cal-Maine Foods (0.71), FIZZ-National Beverage (0.10), NWPX-Northwest Pipe (-0.11), LTRE-Learning Tree International (0.14)Global Financial CalendarMonday 12/28/2009 United States 1130 ETWeekly 3-mo and 6-mo T-bill auctions. 1300 ETTreasury auctions $44 billion 2-year T-notes.

United Kingdom n/a

Markets and government offices closed for Boxing Day Holiday. Canada n/a

Markets and government offices closed for Boxing Day Holiday.

Morning Quote Board

Morning Quotes (ET)LastChg%chgUpdated US Stock Futures S&P (Globex) (H0)1123.405.000.45%07:05:37 DJIA (CBOT) (H0)1047370.07%07:05:37 European Stocks Europe DJ Stoxx 502586.9614.070.55%07:10:00 London UK FTSE Index5402.410.000.00%12/24/2009 German Dax Index6001.6844.240.74%07:10:07 French CAC 40 Index3941.5828.850.74%07:10:00 Asian-Pacific Stocks Japan Nikkei Index106341401.33%02:00:13 Hong Kong Hang Seng21480-37-0.17%03:01:30 China CSI 300 Index3478541.57%02:01:43 Taiwan TAIEX Index8057851.06%00:46:01 Australian S&P 2004790.900.00%12/23/2009 Singapore Str. Times2855.6817.980.63%04:10:01 South Korea KOSPI 200222.030.360.16%04:03:28 Bombay Sensex 301736100.00%12/24/2009 Karachi KSE-100942200.00%12/24/2009 US Interest Rates 10yr T-notes (CBT)(H0)115.135-0.095-0.26%07:15:02 Cash 10yr T-note Price96.050-0.110-0.36%07:25:00 Cash 10yr T-note Yield3.8460.0431.13%07:24 5yr T-note (CBT)(H0)114.175-0.075-0.20%07:15:01 Cash 5yr T-note Price97.285-0.070-0.22%07:24:01 Cash 5yr T-note Yield2.5840.0481.91%07:23 30-yr T-bond (CBT)(H0)114.29-0.10-0.27%07:15:00 Cash 30yr T-bond Price94.225-0.115-0.38%07:23:00 Cash 30yr T-bond Yield4.7070.0230.50%07:22 Eurodollars (CME)(H0)99.625-0.015-0.02%07:14:06 Eurodollars (CME)(M0)99.330-0.010-0.01%07:10:50 Asian & European Rates 10-yr JGBs (TSE) (H0)139.38-0.36-0.26%01:00:00 EuroyenTibor(SGX)(H0)99.6250.0000.00%12/28/2009 Bunds (Eurex) (H0)121.57-0.32-0.26%07:09:53 Euribor (Eurex) (H0)99.230.00-0.01%06:08:27 UK Gilts (Liffe) (H0)114.520.000.00%12/24/2009 Short Stlg (Liffe) (H0)99.310.000.00%12/24/2009 Forex U.S. Dollar Index77.60-0.14-0.17%07:15:06 US Dollar-Japanese Yen91.530.230.25%07:25:07 EuroFX-US Dollar1.4403-0.0008-0.08%07:25:07 US Dollar-Swiss Franc1.0340-0.0021-0.21%07:25:07 British Pound-US$1.59780.00110.11%07:25:07 US$-Canadian Dlr1.0484-0.0015-0.15%07:25:07 Yen (Globex) (H0)1.09280.00080.08%07:14:39 Euro FX (Globex) (H0)1.44050.00460.32%07:13:46 SwissFranc (Globex)(H0)0.96790.00490.51%07:14:30 British Pound(Glbx)(H0)1.59670.00220.14%07:14:55 Canadian$ (Globex)(H0)0.9540.00180.19%07:14:39 Commodities Gold (Comex) (G0)1111.85.20.47%07:14:34 Silver (Comex) (H0)17.5700.0550.31%07:14:40 Copper (Comex) (H0)332.22.80.85%07:14:42 Crude Oil (Nymex) (G0)78.430.680.87%07:15:04 Gasoline (Nymex) (G0)202.462.211.10%07:11:31 Heating Oil(Nymex) (G0)207.361.910.93%07:00:50 NaturalGas(Nymex)(G0)5.8670.1522.66%07:15:06 Corn (CBOT) (H0)415.757.251.77%07:14:25 Soybeans (CBOT) (F0)1012.0012.501.25%07:15:01 Wheat (CBOT) (H0)534.259.751.86%07:07:35

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