Thursday, February 28, 2013

Stocks Slightly Higher on Less Eurozone Debt Angst, US Economic Data, Short-Covering, Road&Rail/Biotech Sector Strength

Today's Market Take:

Broad Market Tone:
  • Advance/Decline Line: Slightly Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 14.90 +1.15%
  • ISE Sentiment Index 111.0 +11.0%
  • Total Put/Call .96 -1.03%
  • NYSE Arms 1.05 +134.08%
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
  • TED Spread 18.50 +.5 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -20.25 -.75 bp
Economic Gauges:
  • 3-Month T-Bill Yield .10% -1 bp
  • Yield Curve 164.0 -2 bps
  • 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

Today's Headlines

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.

Bear Radar

Style Underperformer:
  • Large-Cap Value +.27%
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:

Bull Radar

Style Outperformer:
  • Small-Cap Value +.24%
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:

Thursday Watch

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 
  • None of note
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.
  • FTSE-100 futures +.51%.
  • S&P 500 futures +.05%.
  • 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
  • None of note
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.

Wednesday, February 27, 2013

Stocks Surging into Final Hour on Less Eurozone Debt Angst, Better Economic Data, Short-Covering, Transport/Homebuilding Sector Strength

Broad Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 14.47 -14.23%
  • ISE Sentiment Index 108.0 -3.57%
  • Total Put/Call .98 -11.71%
  • NYSE Arms .60 -21.27%
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
  • TED Spread 18.0 +.5 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -19.5 +2.0 bps
Economic Gauges:
  • 3-Month T-Bill Yield .11% unch.
  • Yield Curve 166.0 +2 bps
  • 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

Today's Headlines

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:

Bear Radar

Style Underperformer:
  • Large-Cap Growth +.79%
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:

Bull Radar

Style Outperformer:
  • Mid-Cap Growth +1.29%
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:

Tuesday, February 26, 2013

Wednesday Watch

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.
  • FTSE-100 futures +.03%.
  • S&P 500 futures -.05%.
  • 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
  • None of note
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.

Stocks Rebounding on More Dovish Fed Commentary, Short-Covering, Homebuilding/Metals Sector Strength

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:
  • VIX 17.13 -9.79%
  • ISE Sentiment Index 105.0 +23.53%
  • Total Put/Call 1.09 -4.39%
  • NYSE Arms .85 -70.47%
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
  • TED Spread 17.5 +.5 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -21.5 -1.75 bps
Economic Gauges:
  • 3-Month T-Bill Yield .11% -1 bp
  • Yield Curve 164.0 unch.
  • 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

Today's Headlines

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.