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US stock market, economy and companies update (January 11, 2013)

Contributed by Trade The News

- The S&P 500 and the Russell 2000 index of small-cap stocks both closed at fresh five-year highs on Thursday following strong December China trade data and a moderately hawkish tone at the ECB. Overnight, the Nikkei came within a hair of closing at two-year highs after the new Abe government launched a long-promised stimulus program. But this morning the tone is more cautious and the S&P500 and DJIA are both down 0.15% a piece.

- EUR/USD finally found the gumption to move firmly above 1.3300 after testing the key level repeatedly over the last month. The bigger-than-expected US November trade deficit data provided the dollar softness the euro needed to trigger euro buy stops above 1.3300 and EUR/USD quickly tested 1.3350 after 08:00ET. Peripheral eurozone sovereign spreads continue to contract, with the Italy-bund 10-year spread dropping below 250 bps during the US pre market.

- Front-month WTI crude has gradually backed off the spike above $94 seen yesterday morning. WTI is currently below $93. Note that analysts clarify that the Saudi December production data out yesterday was a leak, as the official release is not scheduled until Jan 20th. Spot gold rapidly gave up the $25 gain seen yesterday morning, following rumors of SNB selling to support their long JPY positions.

- Minnesota Fed Governor Kocherlakota tempered some of his more hawkish comments made recently in a speech released yesterday. Kocherlakota warned that monetary policy is too tight at the moment, although he did not explicitly call for more aggressive Fed action. In remarks this morning, longstanding hawk Plosser reiterated that the benefits of QE do not exceed the costs.

- Last night IDC reported that 2012 PC sales fell 3.2% y/y, marking the first annual decline in the category since 2001 and the first dip in holiday sales in more than five years. Many analysts point out that uptake of Microsoft's new Windows 8 OS has been very sluggish, although shares of MSFT are more or less flat this morning. DELL is down 2%.

- Fourth quarter profits at Wells Fargo rose 24% y/y to record highs in the bank's Q4, while revenue saw a solid gain. However, traders seized on the bank's anemic and shrinking net interest margin as a reason to sell. Shares of WFC are down 1%, while Citi and BoA are both down nearly 2% a piece ahead of their earnings reports next week.

***Looking Ahead***
- 11:00 (US) Fed to purchase $4.75-5.75B in Notes
- 12:00 (US) WASDE Crop report
- 12:00 (US) USDA Quarterly Grain stocks Report
- 13:15 (DE) German Fin Min Schaeuble speaks on EU integration
- 14:00 (US) Dec Monthly Budget Statement: -$1.0Be v -$86.0B prior

***Weekend***
- (CZ) Czech Republic holds Presidential Elections

The U.S. Department of Agriculture is due to provide its latest answer to that question on Friday, when it releases estimates and surveys about three of the nation's most important crops: corn, soybeans and wheat. The data, scheduled to land at noon, will reflect updated evidence of the damage done by last summer's destructive drought.

Among those who will be watching closely are traders of those commodities and shareholders in companies that either buy or sell those goods or cater to farmers who grow them. If it looks like the damage is worse than expected, prices for the crops could climb, while a rosier outlook could push them down. Either way, the impact would ripple through the agricultural economy.

The January USDA Grain Stocks report has a history of being a market maker, especially in years of price rationing. The report is important to soybeans and wheat, but corn has my interest.

Corn demand can be divided into three main areas: feed and residual; food, seed and industrial(FSI); and exports. Daily and weekly statistics quantify usage for ethanol and FSI, but not for feed. Quarterly stocks reports measure total disappearance, from which FSI and exports are subtracted to come up with feed usage. The big question is whether or not high-priced corn since Sept. 1 (above $7) has influenced demand reduction and how much. Looking at the latest estimate of total usage in the 2012/13 crop year of 11.167 billion bushels, feed usage represents 37.2%, exports 10.3% and FSI 52.5% (ethanol, a component of FSI, is at 40.3%).

If the January report shows demand has not been sufficiently rationed, the market will perceive that prices are not high enough. Exports, nearly half of what they were a year ago, have paid their share, but could be further reduced. This leaves ethanol and feed usage to shoulder the burden. Ethanol stocks data show about one week a month going into storage, so there might be room for downward adjustment. Feed usage could be a curveball.

***Economic Data***
- (RU) Russia Gold & Forex Reserve w/e Jan 4th: $537.4B v $532.0B prior
- (IN) India Forex Reserves w/e Jan 3rd: $295.0B v $296.6B prior
- (IE) Ireland Dec Consumer Confidence: 49.8 v 63.8 prior
- (RU) Russia Q4 Consumer Confidence: -8 v -6 prior
- (RU) Russia Narrow Money Supply w/e Jan 7th (RUB): 7.96T v 7.53T prior
- (CA) Canada Nov Int'l Merchandise Trade: -$2.0B v -C$0.6e
- (US) Dec Import Price Index M/M: -0.1% v +0.1%e; Y/Y: -1.5% v -1.5%e
- (US) Nov Trade Balance: -$48.7B v -$41.3Be
- (MX) Mexico Nov Industrial Production M/M: 0.9% v 1.2%e; Y/Y: 2.8% v 3.2%e
- (UK) Dec NIESR GDP Estimate: -0.3% v 0.1% prior