World crude oil inventories have fallen mildly since October but the Saudi oil minister said on Dec 1 that there was more work to do to cut production and bring inventories into line. The Wall Street Journal today is reporting on its web site that OPEC ministers are backing a proposal to leave the official production target unchanged and delay a further 500,000 bpd production cut until Feb 1.
Mr. Paulson after the first day of meetings with Chinese officials today said there had been some progress and he called for more Chinese currency flexibility. However, China's Vice Premier, Wu Yi, who is leading the Chinese delegationd during this week's meetings, released a statement saying that China must move gradually on reforms and that "some American friends are not only having limited knowledge of, but harboring much misunderstanding about, the reality of China.
This is not conducive to the sound development of our bilateral relationships."
However, market talk about additional rate hikes was dampened by the fact that the Swiss National Bank cut its inflation forecast and said that it now expects inflation to remain below its 2% ceiling through Q3-2009.
8% in October, although it was stronger than the market consensus of +26.3%. The report confirms that the Chinese government's various efforts to curb investment are seeing some success as the government tries to curb excess investment and prevent an eventual bust in hot sectors.
Overnight U.S. Stock News
- March S Ps this morning are trading -1.
30 points on some technical pressure and on this morning's higher trade in oil prices (+36 cents). The US stock market yesterday closed slightly higher (Dow +0.02%, S P 500 +0.
12%, Nasdaq Composite +0.03%). The stock market yesterday was relieved by the strong US retail sales report, which suggested that US consumer confidence and spending remains strong.
However, the stock market was undercut by the sharp sell-off in T-note prices that followed the retail sales report.
- The US markets are looking ahead to positive earnings reports today from Lehman Brothers ($1.68) and Bear Stearns ($3.
36). Costco (50 cents) and Adobe (33 cents) are also due to release earnings today.
- Chiquita Brands (CQB) rallied 2% in after-hours trading yesterday after an Oppenheimer analyst rated the stock a "buy" in new research coverage.
- Supervalu (SVU) rallied 2.5% in after-hours trading yesterday after boosting its 2007 earnings guidance to $2.32-2.
43 from $2.18-2.41.
- Valero Energy Corp fell -0.3% in after-hours trading yesterday after a Deutsche Bank analyst cut his rating on the US oil refiner to "hold" from "buy" because of his concern that demand for gasoline may ease due to increased ethanol usage.
- Massey Energy may show some weakness today after JP Morgan cut its rating on the coal producer to "underweight" from "neutral" due to projected lower coal demand from anticipation of a warm winter and slower economic growth in 2007.
- Netflix (NFLX) fell -2.5% in after-hours trading yesterday after a Banc of America analyst initiated research coverage with a "sell" because of concern about increased competition, increased video downloading, and a potential increase in postage prices.
- United Technologies (UTX) may show some strength today after news that its board authorized a 60 mln share ($4 bln) stock buyback program.
- Time Warner is up +0.3% in European trading this morning after Jim Cramer on his "Mad Money" show recommended the stock due to his view that revenue will accelerate faster than competitors. Cramer also recommended AT T as a buy.
- Claims ?
Today's initial unemployment claims report is expected to show a small decline of -4,000 to 320,000, adding to last week's sharp decline of -34,000 to 324,000. Meanwhile, weekly continuing claims are expected to fall sharply by -49,000 to 2.475 mln, reversing most of the previous week's gain of +57,000 to 2.
524 mln, which was caused by distortions tied to the Thanksgiving holiday. Still, both series are expected to remain above their respective 13-week trend averages, indicating some possible softness in the US labor market.
- The market is still on guard for labor market weakness since the downshift in US GDP growth to the mid-2% area could cause US businesses to cut back on new hiring.
Last Friday's Nov payroll report of +132,000 was stronger than expectations of +100,000 and there was a net upward revision in Sep-Oct payrolls by +42,000 (Oct to +79,000 from +92,000; Sep to +203,000 from +148,000). Still, a payroll report of +132,000 is a lackluster increase and there was a +0.1 point rise in the Nov unemployment rate to 4.
5%. The market will therefore remain on guard for any signs of labor market weakness.
- Import prices ?
Today's Nov import price index report is expected to show a small gain of +0.1% m/m, stabilizing after the sharp -2.0% m/m decline seen in Oct due to oil prices.
On a year-on-year basis, Nov import prices actually fell -0.2%. More interesting for the inflation outlook, however, is that import prices excluding petroleum prices eased to a 4-year low of +0.
5% y/y in October. That was a favorable development for the US inflation outlook. The decline in import prices is all the more impressive since the weak dollar should actually be boosting import prices.
The fact that import prices are falling despite the weak dollar is a good sign that importers are continuing to keep prices low in order to boost sales and market share, which is a benefit for US consumers.
- March 10-year T-note prices this morning are trading unchanged. March T-note prices yesterday fell sharply by 19-ticks due to the much stronger than expected Nov retail sales report of +1.
0% overall and +1.1% ex-autos. The report suggested that a strong holiday shopping season is in progress even though consumers are focusing on finding bargains.
- The dollar/yen is little changed this morning while the euro/dollar is down -0.32 cents. The dollar is seeing some continued strength against the euro today based on yesterday's stronger-than-expected US retail sales report.
The dollar is being undercut today against the yen by Treasury Secretary Paulson's call for a stronger Chinese yuan and by today's new 13-year low in the dollar/yuan.
- Jan crude oil prices this morning are trading +36 cents. Jan crude oil prices yesterday closed +35 cents at $61.
37 on the bullish weekly DOE report, nervousness ahead of today's OPEC meeting, and the fact that the IEA yesterday did not cut its demand forecasts further and said that OPEC supply cuts may push oil prices higher. The IEA said that "November's output cuts (by OPEC) have the potential to tighten the oil market this winter." Yesterday's DOE report was bullish with a sharp -4.
3 mln bbl decline in oil inventories, a -174,000 bbl decline in gasoline inventories and a -445,000 bbl decline in distillate inventories. Product inventories have fallen sharply in the past 2 months and gasoline inventories are now 2.6% below the 5-year seasonal average and distillate inventories are only 2.
2% above the 5-year seasonal average. However, US crude oil inventories so far remain plentiful at 11.1% above the 5-year seasonal average.
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