Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Slightly Higher
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 111.0 +11.0%
- Total Put/Call .96 -1.03%
Credit Investor Angst:
- North American Investment Grade CDS Index 87.11 -.21%
- European Financial Sector CDS Index 156.94 -.57%
- Western Europe Sovereign Debt CDS Index 103.66 -3.25%
- Emerging Market CDS Index 245.58 +3.45%
- 2-Year Swap Spread 14.0 -1.5 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -20.25 -.75 bp
Economic Gauges:
- 3-Month T-Bill Yield .10% -1 bp
- China Import Iron Ore Spot $151.70/Metric Tonne -.13%
- Citi US Economic Surprise Index 2.80 -3.9 points
- 10-Year TIPS Spread 2.55 +2 bps
Overseas Futures:
- Nikkei Futures: Indicating +17 open in Japan
- DAX Futures: Indicating +18 open in Germany
Portfolio:
- Slightly Higher: On gains in my medical/biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- European Recovery Path in Danger as Politics Menace Growth. The euro region’s path to recovery is facing a new challenge from Italy’s political stalemate. The
election highlights the risk that Europe’s recovery turns into a slog
lasting years, especially if voters continue to stream toward
anti-austerity populists such as Italy’s Beppe Grillo, said
economists from ABN Amro Bank NV to Daiwa Capital Markets. With European
Central Bank interest rates already at record lows, officials may have
little choice other than to let Europe grind its way out of the slump.
- Hollande Is Most Unpopular French Leader Since 1981 on Economy. President
Francois Hollande’s
popularity slipped this month as France’s economic slump rendered more
people jobless, leaving him the most unpopular leader since 1981, a poll
showed. After nine months in office, Hollande’s approval rating fell
five points to 30 percent, the poll for Figaro Magazine weekly by
TNS-Sofres showed today. His predecessor Nicolas Sarkozy had a 37
percent rating at the same point in his presidency in March 2008. The
small bump in popularity Hollande got from France’s military
intervention in Mali has evaporated, the pollster said. “Already at the
start of Hollande’s presidency, there was little confidence in him,
especially from opposition parties’ supporters,” Carine Marce a
political analyst at TNS, said in an interview. “The positive effect of
the war in Mali has vanished and news of low growth, high deficits and
unemployment
are accelerating the fall.”
- Euro Declines as Cooling Inflation Gives ECB Scope for Easing. The euro fell versus the dollar,
extending its first monthly drop since July, amid Italian
political wrangling about forming a government and as cooling
regional inflation opens the door for central bank stimulus.
The 17-nation currency weakened against most of its major
peers as European Central Bank President Mario Draghi signaled at an
event in Munich late yesterday that the bank has no intention of
tightening monetary policy anytime soon. The U.S. economy barely
expanded in the fourth quarter, erasing a
previously estimated contraction.
- Obama-Congress Paychecks Safe From Automatic Budget Cuts. While
hundreds of thousands of U.S. government employees may be furloughed
due to federal spending cuts, President Barack Obama and members of
Congress won’t need to worry about their paychecks.
- Climbing Student-Loan Delinquencies Hurt Young Homebuyers.
More people borrowing for education are failing to pay off their loans.
Almost a third of student-loan borrowers in repayment were delinquent
at the end of last year, up from about a quarter in 2008 and 20 percent
in 2004, according to a report on household debt and credit by the
Federal Reserve Bank of New York. The amount of educational debt, which includes federally backed and
private loans taken out by students and parents, has almost tripled in
the past eight years to $966 billion, the bank said. With costs to
attend college continuing to outpace the inflation rate, more borrowers
are struggling to pay. That makes it harder for people — especially
those between 25 and 30 — to secure other types of credit, including
home mortgages. About 44 percent of student loan borrowers aren’t repaying their loans,
because of deferments, forbearances or they are still in school.
Wall Street Journal:
- Euro-Zone Slump Set to Continue. The euro-zone economy seems unlikely to emerge this quarter from a
contraction that has already lasted for nine months, despite a low rate
of unemployment in Germany, its largest member. The Centre for Economic Policy Research and the Bank of Italy
Thursday said their Eurocoin indicator—which is intended to estimate
quarter-on-quarter growth in gross domestic product—showed the euro-zone
economy shrank again in February, although at a slower pace than in
recent months.
MarketWatch:
CNBC:
- Distressed Homes Still Drive Sales. The housing market
appears to be surging ahead suddenly on all cylinders, but that does not
mean it is free of the remnants of its recent downfall. The
number of distressed home sales, either bank-owned or short sales, may
be shrinking, but it is still making up a significant share of the
overall housing market. Foreclosure-related sales made up 21 percent of
all U.S. sales in 2012 and short sales, when the home is sold for less
than the value of the mortgage, made up 22 percent, according to a new
report from RealtyTrac. Add it up and 43 percent of all 2012 sales were
of distressed properties.
Zero Hedge:
Business Insider:
Reuters:
Telegraph:
- EU 'Troika' rule in Ireland worse than British Empire. Ireland's trade union chief has accused the EU-IMF troika in charge of Irish
austerity policies of tipping the economy into downward spiral and acting as
an imperial oppressor.
- Spain's economy shrinks 1.4pc in 2012 as Bankia posts biggest ever loss. Spain's ongoing recession was confirmed on Thursday after official figures
showed that the economy shrank by 1.4pc in 2012. The eurozone's
fourth largest economy contracted for the seventh straight
quarter in the final three months of 2012, shrinking by 0.8pc as the
recession worsened by more than previously estimated. Output shrank by
4.7pc, due to a fall in domestic demand, while exports grew by 2.8pc
over the quarter, Spain's National Statistics Institute said on
Thursday. Economists had expected output to decline by 0.7pc in the
three months to the end of December.
- Just one in 14 believe economy will pick up. Just one in 14 Britons believes the country’s economy will be in better shape
in six months’ time, making them more pessimistic than Spain and Italy.
Handelsblatt:
- Germany is liable for EU134b of bailout money, citing Finance
Ministry calculations it obtained. Liability risk for credits paid out
to Greece, Ireland, Portugal and Spain amounts to EU112b.
Ansa:
- Italy's Democratic Party Rejects Broad Coalition, Official Says.
Nicola Stumpo, the PD's chief of staff said the Democratic Party "is
against any form of broad coalition". PD leader Bersani still candidate
to lead the government, Stumpo said.
Economic Times:
- Italy Faces Worst Six Months in 50 Years: Giorgio Squinzi.
The head of Italy's main business federation warned in an interview
today that the next six months will be the worst for the country in 50
years as the economic crisis reaches its peak. "The next six months will
be terrible, the worst in 50 years," Giorgio Squinzi, the head of the
Confindustria lobby, told La Repubblica daily. "The situation is very
serious," Squinzi said. "GDP ( gross domestic product) has shrunk 8.1
percent since 2007 and 3.2 million people have been out of work," he
said. "Politicians have to create the conditions for growth. This is a
last chance," he warned. Asked about the political situation, Squinzi suggested a grand coalition government to deal with urgent issues. "The real economy cannot wait for political machinations," he said. Squinzi
called for "shock therapy" for Italy, with tax cuts and immediate
payment of debts that the state has accrued with the private sector.
He also dismissed the idealistic economic proposals made by the
anti-establishment Five Star Movement led by former comedian Beppe
Grillo, which had a shock electoral success. "If we applied Grillo's programme, Italian industry would be finished. We would become a rural and bucolic country," he said.
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -1.93% 2) Homebuilders -.47% 3) Computer Services-.40%
Stocks Falling on Unusual Volume:
- RBS, ANV, SA, CM, LFC, TEO, CVC, ANW, NTLS, IOC, HDB, BSFT, AGNC, PKT, VCRA, ARCP, IMH, DGI, AFCE, JCP, DPM, TRLA, GVA, CPRT, TRS, LKQ, CM, ACTG, VNO, CTRX, AYI, SHLD, AYI and RPXC
Stocks With Unusual Put Option Activity:
- 1) CVC 2) SHLD 3) TXN 4) JCP 5) NUE
Stocks With Most Negative News Mentions:
- 1) ANR 2) RVBD 3) CAT 4) MU 5) ALL
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gaming +1.01% 2) Oil Tankers +.91% 3) Alt Energy +.77%
Stocks Rising on Unusual Volume:
- CLR, BDBD, CBI, AGO, PANL, CLR, MNST, OCN and SPWR
Stocks With Unusual Call Option Activity:
- 1) AMTD 2) AGNC 3) DLTR 4) P 5) RPRX
Stocks With Most Positive News Mentions:
- 1) PNRA 2) JOY 3) P 4) T 5) JAH
Charts:
Evening Headlines
Bloomberg:
- ECB
Masks Crisis as Italy Revives Austerity Debate: Euro Credit. The bond
market, aided and abetted by the European Central bank, is letting
politicians slide on economic reforms. The drop in Spanish and Italian
borrowing costs since the ECB said in September it would support
troubled euro members took the heat off governments without tying them
to the conditions of the mooted bond-buying program, said Mike Turner,
head of strategy at Aberdeen Asset Management Plc. "It's been revealed
that the emperor has no clothes," said Turner.
- Central Banks Spewing Cash Must Consider Exit Timing, Rohde Says. Central bankers across the globe
need to plan for monetary tightening to avoid feeding asset
bubbles, Danish central bank Governor Lars Rohde said. “Beyond the short horizon, central banks have to be
vigilant of the effects, including the effect of negative real
interest rates, and they have to plan for an exit as
normalization progresses,” Rohde said in an e-mailed reply to
questions. Asked whether such policies could fuel asset bubbles, Rohde said, “Yes.”
The warning from the head of Denmark’s central bank, which has kept its
deposit rate below zero since July, comes as policy makers from Japan
to Europe to the U.S. commit to unprecedented
monetary stimulus to jolt their economies into recovery mode.
- Australia Business Investment Unexpectedly Fell Last Quarter. Australian business investment
unexpectedly declined last quarter amid weakness in
manufacturing, while mining companies pared spending plans. Capital spending fell 1.2 percent from the third quarter, when it rose a revised 1.1 percent, the Bureau of Statistics
said in Sydney today. That compares with the median forecast for
a 1 percent gain in a Bloomberg News survey of 19 economists.
- J.C. Penney(JCP) Posts Wider Fourth-Quarter Net Loss. J.C.
Penney Co. (JCP) said its fourth- quarter net loss widened to $552
million and posted its lowest annual sales in more than two decades as
Chief Executive
Officer Ron Johnson’s turnaround plans falter. The net loss in
the quarter ended Feb. 2 expanded to $2.51 a share, from a loss of $87
million, or 41 cents, a year earlier, the Plano, Texas-based company
said today in a statement. Revenue slid 28 percent to $3.88 billion as
sales at stores open at least a year fell 32 percent. Analysts estimated
revenue of $4.08 billion, on average.
- Vale Has Record Quarterly Loss on $5.66 Billion Writedowns. Vale SA (VALE3), the world’s largest iron- ore producer, posted a record quarterly loss after writing down
the value of some of its assets. Profit missed analysts’
estimates on an adjusted basis.
Wall Street Journal:
- Jockeying Stalls Deal on Cuts. Obama, Republicans Bet They'll Have a Stronger Hand After Deadline Expires.
With mandatory across-the-board spending cuts set to begin Friday, the
White House and congressional Republicans are poised to let the deadline
pass, each calculating that their hand in negotiations only grows
stronger if they scorn a quick compromise. The first face-to-face
meeting on the issue between President Barack Obama and congressional
leaders won't happen until Friday—the deadline for Mr. Obama to set in
motion $85 billion in broad spending cuts. None of
the participants expect the morning meeting at the White House to
produce a breakthrough. In the run-up, with no serious talks under way, each side is maneuvering
to ensure the other catches the blame if the cuts kick in.
- Islamists Gain Momentum in Syria. Extremists intent on establishing an Islamist state in Syria have
gained power within the rebel insurgency, while moderates have lost
clout since moves by Washington late last year aimed at the opposite
result, U.S. officials and rebel fighters say. On the eve of the
most recent gathering of the Friends of Syria international opposition
support group in December, the Obama administration designated Syrian
jihadist group Jabhat al-Nusra a terrorist organization, and on the same
day, officially endorsed the moderate face of the rebellion, the
umbrella Syrian Opposition Coalition.
- Gas Boom Projected to Grow for Decades. U.S. natural-gas production will accelerate over the next three
decades, new research indicates, providing the strongest evidence yet
that the energy boom remaking America will last for a generation. The most exhaustive study to date of a key natural-gas field in
Texas, combined with related research under way elsewhere, shows that
U.S. shale-rock formations will provide a growing source of moderately
priced natural gas through 2040, and decline only slowly after that. A
report on the Texas field, to be released Thursday, was reviewed by The
Wall Street Journal.
- EU Reaches Deal to Curb Bank Bonuses. The European Union moved to slap a strict limit on bank executives'
bonuses in the latest effort to curb what is seen by many as corporate
and banking excess. Negotiators for the European Parliament and EU states said they
reached a preliminary deal on a measure that would forbid bonuses that
exceed a bankers' fixed salary. Flexible pay could increase to twice
fixed salary, but only with explicit shareholder approval. The initiative, part of a broader law that forces lenders to build up
more-robust financial cushions, is designed to reduce incentives for
the type of risky behavior widely blamed for contributing to the 2008
financial crisis.
- Henninger: The Obamaian Universe. A place where everything revolves around the fixed planet of public spending.
It may be that we have to move beyond politics alone to explain events
in Washington. We are in the fifth year of the Obama presidency, and
Washington is still dead in the water. Four straight years in which the government of the United States of America fails to
enact a budget is, well, amazing.
CNBC:
Zero Hedge:
Business Insider:
- Sturm Ruger(RGR) fourth-quarter sales jump 52 percent. Gun maker
Sturm Ruger Inc reported a 52 percent jump in quarterly sales as people
rushed to stock up on firearms amid debates over implementing stricter
gun laws, sending its shares up 3 percent after market. Recent concerns over possible
changes to gun laws following mass shootings, unease over the economic
backdrop and the increased acceptance of gun ownership among women and
older people have driven up sales over the last few months. Data
from the FBI's National Instant Criminal Background Check System (NICS)
-- commonly used to gauge the industry's performance -- show background
checks for firearm sales rose nearly 50 percent in December.
- White House, Republicans dig in ahead of budget talks. Positions hardened on
Wednesday between U.S. President Barack Obama and Republican congressional leaders over the budget crisis even as they arranged to hold last-ditch talks to prevent harsh automatic
spending cuts beginning this week.
- Japan govt nominates Kuroda for BOJ governor. Japan's government
nominated Asian Development Bank President Haruhiko Kuroda to be the
next Bank of Japan governor on Thursday, aiming to install an advocate
of aggressive monetary easing who has extensive international experience.
- Fed's Fisher would start tapering of QE3 immediately. An outspoken policy hawk at the
Federal Reserve on Wednesday upped the ante on his criticism of
the U.S. central bank's bond-buying program, arguing he would
like to see the purchases of Treasury and mortgage securities
tapered immediately. Richard Fisher, president of the Federal Reserve Bank of
Dallas, had not previously been explicit about when the Fed
should begin tapering its $85 billion in monthly asset buys.
- Limited(LTD) forecasts profit for quarter and year below estimates. Limited Brands Inc on Wednesday forecast profit for the current quarter and fiscal year below analysts' expectations, and its shares fell 1.3 percent in
after-market trading.
Telegraph:
Xinhua:
- U.S. may levy countervailing duties on hardwood, decorative plywood from China. The U.S. Commerce Department on Wednesday announced
its preliminary affirmative determination in the countervailing duty
(CVD) investigation against imports of hardwood and decorative plywood
from China, signaling that it may pose punitive duties on the products. The department said that Chinese producers and exporters of hardwood
and decorative plywood had received countervailing subsidies of 0.22
percent to 27.16 percent. The Commerce launched antidumping (AD) duty and CVD investigations
against imports of hardwood and decorative plywood from China on Oct.
18, 2012, alleging that these products were sold at less than fair value
in U.S. market, with a dumping margin of 298.36 percent and 321.68
percent and additional subsidies. The department is scheduled to make its preliminary determination of AD investigation at the end of April 2013.
Shanghai Securities News:
- China May Tighten Liquidity in Short Term, ICBC Says. China's
central bank may tighten liquidity in the short term on rising inflation
and capital inflow pressure, Industrial and Commercial Bank of China
said in a research report published today. China may also raise interest
rates if 2H inflation is higher than expected, the report said.
Evening Recommendations
Night Trading
- Asian equity indices are +.50% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 107.0 -3.0 basis points.
- Asia Pacific Sovereign CDS Index 82.5 -1.75 basis points.
- NASDAQ 100 futures +.09%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (RDC)/.48
- (CVC)/.09
- (SHLD)/.97
- (KSS)/1.62
- (DPZ)/.60
- (BID)/1.09
- (GPS)/.71
- (DECK)/2.58
- (JOE)/.01
- (MDR)/.23
- (CRM)/.40
Economic Releases
8:30 am EST
- 4Q GDP is estimated to rise +.5% versus a prior estimate of a -.1% decline.
- 4Q Personal Consumption is estimated to rise +2.3% versus a prior estimate of a +2.2% gain.
- 4Q GDP Price Index is estimated to rise +.6% versus a prior estimate of a +.6% gain.
- 4Q Core PCE is estimated to rise +.9% versus a prior estimate of a +.9% gain.
- Initial Jobless Claims are estimated to fall to 360K versus 362K the prior week.
- Continuing Claims are estimated to fall to 3143K versus 3148K prior.
9:45 am EST
- Chicago Purchasing Manager for February is estimated to fall to 54.0 versus 55.6 in January.
11:00 am EST
- Kansas City Fed Manufacturing Activity for February is estimated to rise to -1 versus -2 in January.
Upcoming Splits
Other Potential Market Movers
- The Fed's Evans speaking, Fed's Fisher speaking, 7Y T-Note auction, China Manufacturing PMI Official, weekly EIA natural gas inventory report, Germany inflation/unemployment/consumer confidence data, NAPM-Milwaukee for February, weekly Bloomberg Consumer Comfort Index, (STT) Analyst Forum, (DUK) analyst meeting, (HBI) Investor Day, (WLP) investor day and the (COP) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by industrial and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Almost Every Sector Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 108.0 -3.57%
- Total Put/Call .98 -11.71%
Credit Investor Angst:
- North American Investment Grade CDS Index 86.71 -3.09%
- European Financial Sector CDS Index 157.70 -5.86%
- Western Europe Sovereign Debt CDS Index 107.15 -.17%
- Emerging Market CDS Index 234.57 -.97%
- 2-Year Swap Spread 15.50 +.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -19.5 +2.0 bps
Economic Gauges:
- 3-Month T-Bill Yield .11% unch.
- China Import Iron Ore Spot $151.90/Metric Tonne unch.
- Citi US Economic Surprise Index 6.70 -1.0 point
- 10-Year TIPS Spread 2.53 +2 bps
Overseas Futures:
- Nikkei Futures: Indicating +193 open in Japan
- DAX Futures: Indicating +41 open in Germany
Portfolio:
- Higher: On gains in my tech/retail/medical/biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- Italy Confronts Vacuum as Leaders Seek to Avoid Election. Italian political leaders sparred
over forming a government after inconclusive elections fueled
concern about the outlook for the euro region and the country’s
deepening recession. Beppe Grillo, whose anti-establishment movement was the top vote-getter in Italy’s election this week, rejected a call made
yesterday by Democratic Party leader Pier Luigi Bersani to back
a coalition. Grillo’s movement “must say what they want to do
for this country and for their children,” Bersani said.
- Hollande Jobs Pledge Turning Into Achilles Heel as Claims Rise. French President Francois Hollande’s promise to create jobs by the end of the year is turning into his Achilles heel. Jobless claims rose last month to a 15-year high at 3.17 million, the labor ministry said yesterday. The increase brings
such claims close to the country’s historic peak in January 1997
-- when they stood at 3.21 million -- with no signs they’ll fall
any time soon.
- Spain’s Bankia-Led Bailout Won’t Spell End of Bank Troubles.
Spain’s 41 billion-euro ($54 billion) rescue of lenders, prompted by
record losses at Bankia (BKIA), won’t spell the end of troubles for the
nation’s financial industry as the economy remains mired in recession.
- China Needs Tighter Monetary Policy, State Research Agency Says. China needs to lean toward a tighter
monetary-policy stance as the economy faces risks from excessive
liquidity and credit, according to a research unit of the
nation’s top economic-planning agency. Authorities should drain more cash from the financial
system to manage liquidity and regulators need to enhance
oversight of banks’ off-balance-sheet business, the State
Information Center, a research arm of the National Development
and Reform Commission, said in a report published today in the
official China Securities Journal.
The report adds to signs that the central bank and other
agencies will step up efforts to counter risks from rising
property prices and debt as the economy recovers from the
weakest growth in 13 years.
- China Provinces Cut Growth Targets in Sign Debt Concerns Heeded. Almost half of China’s provinces are
setting their growth sights lower in the wake of the central
government’s emphasis on the quality of expansion over speed, a sign of an increased focus on tackling rising debt.
- Canada Losing Debt Halo as Bull Market Housing Peaks With Carney.
- Gross Says Corporate Bonds Irrationally Priced. Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said asset-price irrationality is rising after years of record low benchmark interest rates by the Federal Reserve. The
level of asset prices signal investors should be cautious and the
degree of irrationality is about six on a scale of one to 10 and rising,
Gross wrote in his monthly investment outlook posted on Newport Beach,
California-based Pimco’s website today. He noted that Fed Governor
Jeremy Stein earlier this month said some credit markets, such as
corporate debt, are showing signs of excessive risk-taking, while not
posing a threat to financial stability.
Wall Street Journal:
- Budget Battle: Live Stream.
- Bernanke: Fed Must Review Exit Strategy Sometime Soon.
Federal Reserve Chairman Ben Bernanke on Wednesday said the Fed sometime
soon will need to review its strategy for exiting its easy money
policies, though it must be careful
not to choke off economic growth by raising interest rates too soon. Mr. Bernanke, in his second day of testimony before Congress, also
defended the central bank's policies against criticism that it is
hurting retirees and other savers. He said raising interest rates too
soon would hurt them and the rest of the economy.
- Italy's Grillo Rules Out Forming Coalition. Beppe Grillo, the former comedian whose upstart Five-Star Movement
increasingly appears to be the only real winner of Italy's general
election, on Wednesday described center-left leader Pier Luigi Bersani
as a "dead man walking" and said his own party wouldn't be joining any
coalition to form a government.
- Phil Gramm: Obama and the Sequester Scare. Governing isn't about blaming someone else. It is about choosing.
MarketWatch:
CNBC:
Zero Hedge:
Business Insider:
Mortgage Bankers Assoc.:
- Mortgage Applications Decrease in Latest MBA Weekly Survey. Mortgage applications decreased 3.8 percent from one week earlier,
according to data from the Mortgage Bankers Association’s (MBA) Weekly
Mortgage Applications Survey for the week ending February 22, 2013 This
week’s results did not include an adjustment for the Presidents’ Day
holiday. The Market Composite Index, a measure of mortgage loan
application volume, decreased 3.8 percent on a seasonally adjusted basis
from one week earlier. On an unadjusted basis, the Index decreased 3
percent compared with the previous week. The Refinance Index decreased 3
percent from the previous week. The seasonally adjusted Purchase
Index decreased 5 percent from one week earlier and is at its lowest
level since the week ending December 28, 2012.
Reuters:
- Italian president snubs German candidate over "clown" comment. Italian President
Giorgio Napolitano canceled a dinner with the German opposition's
chancellor candidate on Wednesday after he described Italian former
premier Silvio Berlusconi and comic-turned-politician Beppe Grillo as
"clowns". Peer Steinbrueck, a Social
Democrat who will take on Chancellor Angela Merkel in Germany's next
national election in September, has a reputation for gaffes and his
remark created the first diplomatic incident of his accident-prone
campaign.
- Joy Global(JOY) says starting to see big mining projects come back. Mining equipment maker Joy Global Inc
said it was starting to see big projects come back to
the market as global miners, looking for more returns than
volumes, begin to open up their purses to low-risk projects.
Financial Times:
- China to tighten shadow banking rules. China
will rein in its shadow banking system by requiring banks to provide
greater disclosure about their off-balance sheet activities, according to people briefed on the new rules. The
Chinese shadow banking system – credit flows beyond traditional bank
loans – has quadrupled in size since 2008 to about Rmb20tn ($3.2tn), or
40 per cent of economic output.
These flows were crucial in reviving the country’s growth last year.
But banking analysts and rating agencies have warned that they pose an
increasingly serious risk to Chinese economic stability.
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -1.71% 2) Alt Energy -.84% 3) Steel +.15%
Stocks Falling on Unusual Volume:
- NTT, LO, ABV, CRAY, MRCY, MO, CWH, PZZA, CRI, FSLR, TGT, MX, BSFT, WRLD, INVN, TG, HXM, ORA, TAC, TRLA, WTI, SCTY, LO, NEM, TDC, SHOS, ABV, MSTR, GG, RPRX, SSP and SPWR
Stocks With Unusual Put Option Activity:
- 1) RDN 2) EWI 3) FSLR 4) KSS 5) TGT
Stocks With Most Negative News Mentions:
- 1) VRSN 2) AH 3) RIG 4) SCHW 5) GLF
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Road & Rail +2.69% 2) Oil Tankers +2.01% 3) Homebuilders +1.67%
Stocks Rising on Unusual Volume:
- GPOR, OPTR, GWRE, VHC, UNXL, MAKO, QCOR, DLTR, PDCE, COH, JBHT, VRSK, EAT, LNKD, SLCA, GPOR, KSU, TPX, VRTX, STWD and CRZO
Stocks With Unusual Call Option Activity:
- 1) ENDP 2) DLTR 3) DF 4) UNXL 5) NI
Stocks With Most Positive News Mentions:
- 1) ETN 2) DE 3) IP 4) EXPD 5) TJX
Charts:
Night Trading
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 110.0 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 84.25 +1.0 basis point.
- NASDAQ 100 futures -.01%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (CRI)/.85
- (NRG)/-.12
- (AES)/.30
- (LAMR)/.10
- (JOY)/1.14
- (ITT)/.38
- (TGT)/1.48
- (TJX)/.81
- (JCP)/-.24
- (LTD)/1.74
- (RGR)/.82
- (MYL)/.64
- (MNST)/.41
- (CECO)/-.33
- (CPRT)/.36
- (DLTR)/.99
Economic Releases
8:30 am EST
- Durable Goods Orders for January are estimated to fall -4.7% versus a +4.6% gain in December.
- Durables Ex Transports for January are estimated to rise +.2% versus a +1.3% gain in December.
- Cap Goods Orders Nondef Ex Air for January are estimated to fall -1.3% versus a +.3% gain in December.
10:00 am EST
- Pending Home Sales for January are estimated to rise +1.8% versus a -4.3% decline in December.
10:30 am EST
-
Bloomberg consensus estimates call for a weekly crude oil inventory
build of +2,500,000 barrels versus a +4,143,000 barrel gain the prior
week. Gasoline supplies are estimated to fall by -1,000,000 barrels
versus a -2,884,000 barrel decline the prior week. Distillate
inventories are estimated to fall by -1,550,000 barrels versus a
-2,277,000 barrel decline the prior week. Finally, Refinery Utilization
is estimated to rise +.2% versus a -.9% decline the prior week.
Upcoming Splits
Other Potential Market Movers
- The Fed's Bernanke addressing House, UK GDP, weekly MBA mortgage applications report, German consumer confidence, (CSTR) analyst day, (AAPL) annual meeting, BofA Merrill Ag Conference, Keefe Bruyette Woods Bank Conference and the KeyBanc Consumer Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by mining and consumer shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Volume: Slightly Below Average
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- ISE Sentiment Index 105.0 +23.53%
- Total Put/Call 1.09 -4.39%
Credit Investor Angst:
- North American Investment Grade CDS Index 89.28 -1.01%
- European Financial Sector CDS Index 167.54 +11.5%
- Western Europe Sovereign Debt CDS Index 107.33 +8.85%
- Emerging Market CDS Index 237.60 +.79%
- 2-Year Swap Spread 15.0 +.75 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -21.5 -1.75 bps
Economic Gauges:
- 3-Month T-Bill Yield .11% -1 bp
- China Import Iron Ore Spot $151.90/Metric Tonne unch.
- Citi US Economic Surprise Index 7.70 +12.7 points
- 10-Year TIPS Spread 2.51 -1 bp
Overseas Futures:
- Nikkei Futures: Indicating +5 open in Japan
- DAX Futures: Indicating +36 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/retail sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- Merkel’s Euro Doctrine Threatened as Italians Snub Austerity. Silvio Berlusconi may have the last
laugh -- at Europe’s expense. Once the subject of German Chancellor Angela Merkel’s
barely suppressed titters, the former Italian leader roared back
from the political wasteland in yesterday’s election, blocking
the formation of a new Italian government and fracturing the
euro zone’s brittle newfound stability. The billionaire’s resurrection coupled with the emergence
of comedian-turned-politician Beppe Grillo risked igniting anti-
austerity forces in southern Europe’s depressed economies,
overturning the German-led crisis-management formula and
renewing doubts about popular backing for the euro. “This is a catastrophe for Europe,” Luxembourg Foreign
Minister Jean Asselborn said in a telephone interview. “There
are a lot of people in Italy, in Europe, who think that Europe
is to blame for Italy’s problems. Second, I have very serious
doubts that populism would make it possible to find a solution
to create stability in Italy.”
- Italy Confronts Vacuum as Leaders Seek to Avoid Election.Italian party chiefs began jockeying to forge a coalition of
rivals and head off a second vote as a political vacuum of at least a
month loomed, threatening to whipsaw financial markets. In the
aftermath of an inconclusive election, Democratic Party leader Pier
Luigi Bersani and resurgent ex-Premier Silvio Berlusconi may be seeking
to avoid a ballot that would favor populist Beppe Grillo, whose movement
was the top vote-getter in its first national contest. No formal steps
can be taken until a new parliament convenes March 15. “If they
don’t change strategy and go vote again with similar candidates, the
risk is a Grillo landslide,” Giovanni Orsina, a history professor at
Luiss Guido Carli University in Rome, said in an interview today.
- Italy’s Bonds Slump After Inconclusive Elections.
Italy’s government bonds slumped, leading declines among securities
from Europe’s high-deficit nations, as inconclusive election results
triggered renewed concern that the region’s sovereign-debt crisis will
worsen. Italian 10-year yields climbed the most in 14 months as results
showed pre-election favorite Pier Luigi Bersani won the
lower house by less than a half a percentage point, while Silvio
Berlusconi, the former premier fighting a tax-fraud conviction,
gained a blocking minority in the Senate. Spanish and Portuguese
securities also slid, while German and Finnish bonds advanced
for a fourth day. Italy sold 8.75 billion euros ($11.4 billion)
of six-month bills at the highest yield since October. Italy’s 10-year yield climbed 40 basis points, or 0.4
percentage point, to 4.89 percent at 4:42 p.m. London time after
rising as much as 44 basis points, the biggest increase since
Dec. 19, 2011. The extra yield, or spread, investors demand to hold
Italian 10-year securities instead of similar-maturity bunds
widened 50 basis points to 344 basis points after expanding to
347 basis points, the most since Dec. 11.
- Bank Credit Risk Surges in Europe Amid Italian Election Deadlock. The cost of insuring against default
on European bank debt surged to the highest in three months on
concern deadlock in Italy’s elections will trigger a flight from risky assets as a political vacuum roils markets. The
Markit iTraxx Financial Index of credit-default swaps on 25 banks and
insurers climbed 12 basis points to 163, at 11:30 a.m. in London, the
highest since Nov. 28 and headed for the biggest monthly increase since
May. Contracts insuring
Italy’s bonds rose 43 basis points to a 2 1/2-month high of 293,
the biggest jump since December 2011. Italy faces months of political turbulence which may
see President Giorgio Napolitano install an interim government
to write a new election law as the prelude to another vote.
- “Gridlock in parliament means gridlock in the economy,” Alberto
Gallo, the head of European macro credit research at Royal Bank of
Scotland Group Plc in London, wrote in a client note. “The longer the
instability lasts, the more the recession can deepen, pushing up
unemployment, defaults and bad loans. In the worst-case scenario, the
weaker banks could see deposit outflows re-emerge.” The Markit iTraxx
Europe Index of swaps on investment-grade companies rose seven basis
points to 120, the highest since Nov. 30. The Markit iTraxx Crossover
Index of swaps on 50 companies
with mostly speculative-grade ratings climbed as much as 26
basis points to 470, the highest this year before paring the
gain to 465 basis points.
- European Stocks Decline on Italian Election Deadlock.
European stocks declined as Italy’s inconclusive parliamentary election
renewed concern that the Mediterranean nation will dilute its austerity
program and the region’s sovereign-debt crisis will deepen. Italian shares led the retreat, with the FTSE MIB Index (FTSEMIB) tumbling 4.9 percent.
- ECB Should Join ‘Currency War’ to Weaken Euro, Montebourg Says. The European Central Bank should
weaken the euro, confronting the new “currency war” head on to
help address economic stagnation in the region, French Industry
Minister Arnaud Montebourg said today. Calling for a more activist and “political” management of
the currency shared by 17 European nations, Montebourg said at a
press conference in Paris that he wants “the European Central
Bank to do its job.” “The euro is too strong and doesn’t correspond to economic
fundamentals,” he said. The ECB “should prepare to confront a
new currency war in which the weakening of currencies becomes a
political tool.”
- Italy Votes for Chaos and the Euro Crisis Is Back. Italy’s parliamentary election could
not have gone worse for the country or the euro area. It is now possible that in the coming months the currency
zone’s third-largest economy will need a bailout from
international creditors, at a time when Italy will have no
government in place to ask for, or negotiate, a rescue. In case
you had any doubts, the euro-area crisis is back.
- UBS Sees Iron Ore Plunging 54% to Lowest Since ’09 on Supply. Iron ore, trading near 16-month
highs, may slump 54 percent to the lowest level since 2009 as China boosts production and global supply climbs, said UBS AG.
(UBSN) Rates may tumble to $70 a ton in the three months ending
September after trading between $130 and $160 through June, Sydney-based
commodity analyst Tom Price said in a phone
interview today. China is the world’s biggest importer. “We expect a big
correction in the third quarter,” said
Price. “We see a big lift in supply.”
- Aluminum Falls as Commodities Slide on Inconclusive Italian Vote. Aluminum
fell for a seventh session in London as commodities slid amid concern
that the euro-area debt crisis might worsen, following an inconclusive
election in Italy. The Standard & Poor’s GSCI Spot Index of 24
raw materials fell to the lowest since Jan. 17. China, the biggest
aluminum consumer, is set to have a “significant” surplus of about
700,000 metric tons that is likely to be partly shipped in the
form of semi-fabricated products, according to Goldman Sachs
Group Inc. “There is selling across the board as there is so much
uncertainty because of Italy,” Walter de Wet, an analyst at
Standard Bank Plc, said today in a telephone interview. “The
fundamentals are also very weak.” Aluminum for delivery in three months declined 0.5 percent
to $2,027.50 a metric ton at 3:09 p.m. local time on the London
Metal Exchange. Prices earlier touched $2,010, the lowest since
Nov. 29.
- Brazil’s Unemployment Rises More Than Forecast in January.
Brazil’s unemployment rate rose more than analysts predicted in January
as the world’s second-biggest emerging economy continues to respond
slowly to government efforts to spur growth. The jobless rate jumped to 5.4 percent from the record low 4.6 percent in December,
the national statistics agency said in Rio de Janeiro today. Economists
had forecast unemployment would rise to 5.2 percent, according to a
survey by Bloomberg of 28
analysts.
- Consumer Confidence in U.S. Increases More Than Forecast. The Conference Board’s index climbed to 69.6, exceeding all
forecasts in a Bloomberg survey of economists, from a revised
58.4 in January, data from the New York-based private research
group showed today. It was the first improvement in four months
and the biggest since November 2011.
Wall Street Journal:
MarketWatch:
Fox News:
CNBC:
- Foreign Autos Shut Out Big 3 In New Report. In a report that will trouble fans of the Big 3, the annual selection of top automobiles and top brands by Consumer Reports shows Detroit falling behind its foreign competitors. In fact, for
the first time since 2007 the top ten vehicles picked by Consumer
Reports does not include a model built by General Motors, Ford or
Chrysler.
- Bernanke: My Inflation Record at the Fed Is One of the Best.
Federal Reserve Chairman Ben Bernanke strongly defended the central
bank's easy monetary policy before a Senate committee on Tuesday and
said there's
little risk of a spike in inflation in the near term. In
criticizing the central bank's easy monetary policy, Sen. Bob Corker, a
Republican from Tennessee, called Bernanke the biggest dove since World
War II.
- Why Italy’s Stalemate Could Mean Chaos for Euro Zone.
Zero Hedge:
Business Insider:
Reuters:
- Strong sales help Home Depot(HD) outshine Lowe's(LOW). Improvements in the U.S. housing market and sales tied to Hurricane Sandy helped Home Depot Inc report a higher-than-expected quarterly profit and outshine rival Lowe's Cos Inc for the 15th straight quarter.
- French jobless claims hit 15-year high in Jan. The
number of people out of work in France shot up again in January after a
smaller rise in December, piling new pressure on Socialist President
Francois Hollande who has made tackling joblessness his top priority.
The number of jobseekers in mainland France jumped by 43,900 or 1.4
percent, signalling a return to the rapid pace of increase seen over 19
straight months to December - although
half of the rise was due to a change in methodology in January. Without the adjustment the January increase would have been
22,800, still a much bigger jump than the 8,000 seen in December
and dealing a blow to Hollande, who has promised to stem the
rise in unemployment by the end of 2013.
Telegraph:
Frankfurter Allgemeine Zeitung:
- Lars Feld, a member of a panel of economic advisers to German
Chancellor Angela Merkel, said the euro crisis will return "with a
vengence" as capital loss will lead to higher risk premiums for Italy's
interest rates, citing an interview. Anton Boerner, head of Germany's
BGA exporters' association, says Italy must reform tax, labor, judicial
system or risk "irreparable damage" of euro. Boerner says if Italy not
willing to reform, "we have to think about how to deal with a modified
eurozone".
Baltic News Service:
- European Union President Herman Van Rompuy said Italy has "no
alternatives" to continuing fiscal reforms. "Now it's up to the leading
politicians to make the necessary compromises to form a government on a
stable basis and keep the course of fiscal consolidation and reforms.
There is no way back, there are no alternatives."
Valor:
- Bank of America's(BAC) Brazil credit exposure has risen to $10 billion.
