Optimism abounds after bond auctions

The chase by Marty Cej:

European stocks are higher, U.S. stock index futures are pointing to early gains and most industrial commodities are advancing after bond auctions in Spain and Italy garnered greater demand than expected and borrowing costs fell. The auctions not only raised billions of much-needed euros but also optimism that demand for European debt may be robust enough to help keep borrowing costs low for the countries that need the help most.

It's important to note, however, that the demand for Italian and Spanish debt is not so much a vote in the countries' plans for fiscal austerity but a no-brainer bet for the euro-zone's banks who can borrow money from the European Central Bank for next to nothing and buy short-term paper that yields almost three times as much. Still, it seems that everyone is getting the money they need, so what's the harm? The ECB and Bank of England left their benchmark interest rates unchanged this morning. The ECB's decision comes after two straight cuts and could help underpin optimism that Europe might be righting the ship.

Market sentiment was also helped by a drop in China's inflation to a 15-month low, raising expectations that monetary authorities will ease policy to spur growth. Risk on, risk off? Today, Mr. Miyagi says, "Risk on."

One commodity that is not benefiting from improving economic data out of the U.S., expectations for lower rates in China and better-than-expected European bond auctions is natural gas. The hard-luck case of the commodity world is down another 2 percent today and sitting at a two-year low. It seems as if any hillbilly out shootin' for some food can bust a hole in the ground with a shotgun blast and find a few billion cubic feet of natural gas. I must also note that it is January 12 and I walked to work in the rain. In Canada. I'm in Canada. Two weeks ago, Vero Energy sold its natural gas assets because the company could no longer bear up under the pressure of tumbling gas prices. Vero got a great price for the assets but that was two weeks ago. How many more small oil and gas companies are in the same boat? What kind of asset sales can we expect to see out of Alberta and Saskatchewan? Who are the potential buyers? Are we poised for a surge of M&A?

Also, let's talk about the drillers. Are they switching from gas to oil? Is the case for exploration companies as strong now as it was a few weeks ago?
Shaw Communications reported fiscal first-quarter earnings that fell short of analysts' average expectations. Paul Bagnell will pick the report apart for the details that matter most to investors.

Chevron warned after the close last night that fourth-quarter earnings will fall "significantly" below the third-quarter's numbers. While operating earnings will be broadly in-line with the preceding quarter, currencies played havoc with the company's bottom line. Chevron said that while it generated a foreign exchange gain of $450 million in the third quarter, it will take a loss in the fourth. The Chevron story sharpens our focus on one of the most important emerging themes this earnings season: the impact of the stronger U.S. dollar on earnings from abroad. We need to do more on this front.

In economics, we're watching retail sales and first time claims for unemployment benefits out of the U.S. and the new housing price index out of Canada.
And we're waiting to hear from Prime Minister Harper who is slated to speak from Halifax in a few moments before jetting off to Vancouver for more of the same. He is taking part in ceremonies related to the massive $33-billion shipbuilding contracts doled out in Nova Scotia and BC.