Monday, May 05, 2014

Monday Watch

Posted by Gary .....at 1:10 AM
Weekend Headlines 
Bloomberg:
  • Ukraine Unrest Flares as Kiev’s Control Slips. Ukraine pursued an offensive to dislodge rebels from its eastern industrial heartland as violence that’s spread to its remaining southern Black Sea gateway threatens to loosen Kiev’s control of the regions. Troops in the Donetsk area, near the Russian border, took back a television tower overnight that had been seized by pro-Russian forces, Interior Minister Arsen Avakov said on his Facebook account. Fighting in Kramatorsk, in northern Donetsk, left seven people dead, the local website Kramatorsk.info said. Clashes continued in Odessa today. There is a “real war and this is the truth,” Prime Minister Arseniy Yatsenyuk said in an interview with BBC. The conflict is “due to Russian aggression and due to Russian-led protesters.”
  • Ukraine Presses Assault on Rebels With Warning of ‘War'. Ukrainian forces pressed their assault on separatists today and the head of the anti-terrorist center warned eastern regions are “essentially” at war, even as OSCE hostages were released. The Ukrainian anti-terrorist operation in the Donetsk region left five dead and 12 wounded, said the center’s chief, Vasyl Krutov. Government forces secured Slovyansk as operations in Kramatorsk continued, he said. Another 42 people were killed and 125 were injured in a building fire and street battle in Odessa that began last night when pro-Russians attacked marching football fans and a pro-Ukrainian rally. “What is happening in the east is not a short-term action, this is essentially a war,” Krutov said today.
  • Dozens Killed in Ukraine Fire as Clashes Erupt in Odessa. Dozens were killed in Ukraine after a building in Odessa was set ablaze during clashes and government forces attacked separatists near the Russian border in one of the deadliest days since the Ukrainian conflict erupted. The violence reached Odessa, where the government of Ukraine’s third-largest city said more than 40 people died and 174 were injured in a building fire and street battle that started when pro-Russian protesters in the port city attacked a rally in favor of a unified country. Earlier, Interior Minister Arsen Avakov said government units had advanced on the eastern city of Slovyansk to drive out militants and free hostages. “We’re ready to hold talks with protesters or their representatives,” Avakov said yesterday on the government website as troops surrounded Slovyansk. “But terrorists and armed separatists will only get the inevitable payback.” 
  • China Slowdown Weighs on Indonesia’s Export Outlook, Basri Says. China’s economic slowdown is weighing on the outlook for Indonesia’s exports even as the Southeast Asian nation’s trade balance improves, Finance Minister Chatib Basri said. “What we need to watch carefully is the slowdown in China,” Basri said May 2 in an interview with Bloomberg News in Astana, Kazakhstan, where he is attending the Asian Development Bank’s annual meeting. The slower pace of growth in Asia’s largest economy is the biggest concern for Indonesia’s exports this year, he said. 
  • China’s Stocks Fall on Holiday Home Sales, Manufacturing Report. China’s stocks fell, led by property and metal companies, after weaker-than-estimated manufacturing data and a plunge in home sales spurred concern that economic growth will slow. Poly Real Estate Group Co. and Gemdale Corp. dropped at least 3 percent after China Business News reported that new home sales tumbled 47 percent to a four-year low during the May Day holiday. Aluminum Corp. of China Ltd., the nation’s biggest producer of the lightweight metal, declined to the lowest level since July. The final reading of a purchasing managers’ index compiled by HSBC Holdings Plc and Markit Economics was at 48.1, compared with a preliminary reading of 48.3. The Shanghai Composite Index (SHCOMP) slid 0.8 percent to 2,009.57 at 9:59 a.m.
  • Asian Stocks Fall as China Manufacturing Misses Estimates. Asian stocks fell amid low trading volumes after a private gauge of Chinese manufacturing contracted for a fourth month, missing analysts’ estimates. China Longyuan Power Group Corp. sank 2.5 percent, leading energy companies lower in Hong Kong. Westpac Banking Corp., Australia’s second-biggest lender by market value, slid 1.4 percent in Sydney even as first-half cash profit grew. HTC Corp. soared 5.7 percent in Taipei as investors awaited a conference call where the smartphone maker is expected to give a forecast for second-quarter profit. The MSCI Asia Pacific excluding Japan Index slipped 0.4 percent to 473.75 at 10:31 a.m. in Hong Kong, following three weeks of losses.
  • Gold Extends Climb to Three-Week High as Ukraine Spurs Demand. Gold jumped to the highest level in almost three weeks, extending its biggest advance in a month, as conflict in Ukraine escalated. Bullion for immediate delivery rose as much as 0.7 percent to $1,308.40 an ounce, the highest level since April 15, and was at $1,306.24 by 9:28 a.m. in Singapore, according to Bloomberg generic pricing. Gold climbed 1.2 percent on May 2, the biggest increase since April 4. Metal for June delivery gained 0.2 percent to $1,305.80 an ounce on the Comex in New York.
  • IRS Probing Caterpillar(CAT) Parts Deals Examined by Senators. The Internal Revenue Service is challenging Caterpillar Inc. (CAT) on overseas transactions involving its spare-parts business, the company disclosed yesterday in a regulatory filing. The transactions were the focus of a congressional hearing last month at which Senator Carl Levin, a Michigan Democrat, said Caterpillar had made a “paper change” to book U.S. profits in Switzerland that saved the company $2.4 billion in U.S. taxes from 2000 to 2012. 
Wall Street Journal:
  • Borrowing Cash to Buy Complex Assets Is In Vogue Again. Banks Are Offering Leverage to Investors in CLOs Ahead of Rules That Limit Holdings. Banks again are doling out money to hedge funds and other investors to finance purchases of complex debt securities, returning to a practice that helped fuel the debt boom ahead of the financial crisis. RBC Capital Markets, Société Générale SA and Wells Fargo & Co. are among the banks offering to let investors borrow money, also known as providing leverage, to buy collateralized loan obligations, say investors and bankers. CLOs...
Zero Hedge:
Business Insider:
Rolling Stone:
Reuters:
Financial Times:
  • IMF’s José Viñals warns on eurozone bond market. A top IMF official has warned that the rally in eurozone bond markets risks ending in disappointment, with investors now lending to governments at rates that assume the region’s return to full health will be glitch free. 
  • Smaller China banks step up shadow lending activity. Smaller Chinese banks have ramped up their shadow lending activity, adding to the financial risks that threaten to trip up the world’s second-biggest economy. The 2013 results of unlisted banks, published over the past week, reveal that city-based lenders have been among the most aggressive in China in using complex credit structures to evade regulatory controls and issue higher-yielding loans.
Bild Zeitung:
  • France's Valls Call to Weaken Euro Attacked by Bundesbank. "We need a clear change, making our currency an instrument for for economic growth and jobs, an instrument that serves people," French Prime Minister Manuel Valls told French Young Socialists at weekend meeting. France is reverting back to the mentality of the 1970s when its currency lacked stability of later decades, citing a senior Bundesbank official.
NZZ am Sonntag:
  • U.S. Seeks Guilty Plea From Credit Suisse. Credit Suisse received demands in past couple of weeks from U.S., including guilty plea, names of American tax evaders with Credit Suisse accounts, citing a person familiar with the matter.
HKET:
  • Some Chinese Property Trusts May Face Default Risk. An estimated $101b of property trusts to reach maturity this year, citing Haitong Securities. Property trusts involving small- and medium-sized developers may face payment difficulties, citing people in the industry familiar with the matter. Small- and medium-sized developers under funding pressure as property market cools, transaction volume falls and banks tighten lending to real estate companies, they said.
Weekend Recommendations
Barron's:
  • Bullish commentary on (RF), (AWK), (DHR), (RXN), (MUR), (HTZ) and (HDS).
  • Bearish commentary on (SUNE) and (TWTR).
Night Trading
  • Asian indices are -1.0% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 127.50 unch.
  • Asia Pacific Sovereign CDS Index 89.75 unch.
  • FTSE-100 futures n/a.
  • S&P 500 futures -.13%.
  • NASDAQ 100 futures -.13%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (TSN)/.63
  • (PFE)/.55
  • (OXY)/1.70
  • (SYY)/.40
  • (APC)/1.15
  • (SMG)/1.97
  • (AIG)/1.07
  • (THC)/-.14
  • (VNO)/1.27
  • (RGR)/1.12
  • (ICPT)/-.75
Economic Releases 
9:45 am EST
  • The Final Markit US Services PMI for April is estimated at 54.5 versus a prior estimate of 54.2. 
10:00 am EST
  • The ISM Non-Manufacturing Composite for April is estimated to rise to 54.0 versus 53.1 in March.
Upcoming Splits
  • (TREX) 2-for-1
Other Potential Market Movers
  • The RBA decision, Eurozone PPI, China HSBC PMI and the (BEAV) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.

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