Morning Call For May 25, 2016

OVERNIGHT MARKETS AND NEWS

Jun E-mini S&Ps (ESM16 +0.39%) are up +0.37% and European stocks are up +1.35%, both at 3-week highs, on speculation a stronger U.S. economy can handle higher interest rates. A +1.09% rally in July WTI crude oil (CLN16 +1.07%) to a 7-1/4 month high is fueling gains in energy producing stocks and M&A activity is giving equities a lift as well with Hewlett Packard Enterprise up 11% in pre-market trading after it said it will merge its enterprise-services division with Computer Sciences Corp. in a deal valued at $8.5 billion for HP Enterprise shareholders. European stocks also found support on an increase in German business confidence after the German May IFO business climate rose to a 5-month high. Asian stocks settled mostly higher: Japan +1.57%, Hong Kong+2.71%, China -0.23%, Taiwan +1.15%, Australia +1.45%, Singapore +0.60%, South Korea +1.37%, India +2.28%.

The dollar index (DXY00 -0.03%) is up +0.02% at a 1-3/4 month high. EUR/USD (^EURUSD) is up +0.02%. USD/JPY (^USDJPY) is up +0.19%.

Jun T-note prices (ZNM16 -0.06%) are down -3 ticks.

The German May IFO business climate rose +1.0 to 107.7, stronger than expectations of +0.2 to 106.8 and a 5-month high.

The Chinese yuan tumbled to a 3-1/2 month low against the dollar after the PBOC weakened its reference rate by -0.3% to 6.5693 per dollar, the lowest in 5 years. The PBOC is attempting to guide the yuan lower and avoid panic selling as it deals with the prospects of a Fed rate hike that has boosted the dollar.

U.S. STOCK PREVIEW

Key U.S. news today includes: (1) weekly MBA mortgage applications (previous -1.6% with purchase sub-index -5.7% and refi sub-index +1.4%), (2) Philadelphia Fed President Patrick Harker (non-voter) speaks at a forum on America’s economy in 2016 at the National Constitution Center in Philadelphia, (3) Mar FHFA house price index (expected +0.5% m/m, Feb +0.4% m/m), (4) prelim-May Markit U.S. services PMI (expected +0.2 to 53.0, Apr +1.5 to 52.8), (5) Minneapolis Fed President Neel Kashkari (non-voter) participates in a conversation about the relationship between the energy sector and monetary policy at a conference in Bismarck, ND, (6) Dallas Fed President Robert Kaplan (non-voter) speaks at the Greater Houston Partnership Thought Leader Series, (7) the Treasury auctions $34 billion of 5-year T-notes and $13 billion of 2-year floating-rate notes, and (8) EIA Weekly Petroleum Status Report.

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