Sunday, August 10, 2014

Monday Watch

Weekend Headlines 
  • Ukraine Rebuffs Rebels’ Cease-Fire Call; Sanctions Mulled. Ukraine’s military demanded that pro-Russian rebels surrender and dismissed their offer of a cease-fire, as lawmakers prepared to consider new sanctions that may cut Russian shipments of natural gas to Europe. “If there is an initiative, it should be implemented by practical means, not only with words -- by raising white flags and putting down weapons,” Andriy Lysenko, a spokesman for the country’s military, told reporters in Kiev yesterday. “In that case no one will shoot at them.” Ukraine is trying to dislodge separatists from strongholds in Donetsk and Luhansk as Russia raises the pressure on its western neighbor to halt the campaign and allow immediate assistance. President Vladimir Putin, who has been blamed by Ukraine and its U.S. and European allies of stoking the conflict, has said the fighting is creating a humanitarian disaster and offered to provide aid.
  • Putin Pushes Talks Over Karabakh Amid Discord Near Russia. Talks between the leaders of Armenia and Azerbaijan yielded nothing after Russian President Vladimir Putin brokered their first meeting in nine months following the deadliest clashes between the ex-Soviet republics in 20 years. The meeting between the Azeri and Armenian leaders, Ilham Aliyev and Serzh Sargsyan, was “useful,” with both presidents reaffirming their commitment to “seeking a solution exclusively on the basis of a peaceful approach,” Russian Foreign Minister Sergei Lavrov told reporters in the Black Sea resort of Sochi. Two days of talks at the Russian leader’s retreat were marked by another fatality on the frontlines of the disputed border region of Nagorno-Karabakh, with an Azeri soldier killed last night by Armenian fire, according to the Defense Ministry in Baku. That brought the death toll to 24 since July 26. 
  • Maliki Deploys Tanks in Baghdad as U.S. Backs President. Iraqi Prime Minister Nouri al-Maliki deployed troops and tanks on the streets of Baghdad as he resists U.S. President Barack Obama’s push for a more inclusive Iraqi government. Iraqi soldiers, security forces and tanks poured into Baghdad yesterday, many concentrated around the Green Zone, where government buildings and the U.S. embassy are located, CNN reported. The move came after the parliament adjourned until Aug. 19 without designating a prime-minister candidate after inconclusive elections in April. U.S. air strikes against Islamic militants ravaging the north of the country continued yesterday. Before leaving for a vacation on Martha’s Vineyard over the weekend, Obama said that greater U.S. assistance in pushing back Islamic State forces would only come if a more inclusive government was formed that didn’t marginalize Sunni and other minorities.
  • China Thwarts U.S. Effort at Easing Tensions in South China Sea. China’s refusal to refrain from “provocative” actions in the South China Sea is undermining U.S. efforts to ease territorial disputes and hampering the establishment of a code of conduct for one of the world’s busiest shipping lanes. At a regional security meeting this weekend, China rebuffed a U.S. proposal for nations involved in disputes to voluntarily cease activities that inflame tensions. The proposal, and a similar measure by the Philippines at the Asean Regional Forum in Myanmar, were aimed at breathing life into stalled talks on a code of conduct. “They are not going anywhere because the Chinese don’t see any value in it,” said Richard Bitzinger, a senior fellow at the S. Rajaratnam School of International Studies in Singapore. “Their argument is increasingly there is no reason to do this stuff. In their mind it’s a settled issue.”  
  • China Loosens Monetary Conditions in Test of Credit Power. China loosened monetary conditions last quarter at the fastest pace in almost two years, a Bloomberg LP gauge showed, testing the waning effectiveness of credit in supporting economic growth. Bloomberg’s new China Monetary Conditions Index -- a weighted average of loan growth, real interest rates and China’s real effective exchange rate -- rose 6.71 points to 82.81 in the second quarter from the previous three months. That’s the biggest jump since the July-September period of 2012, with May and June’s numbers the first back-to-back readings above 80 since January 2012. New yuan loans in July will be a record high for that month, according to a Bloomberg News survey of analysts before data due by Aug. 15, suggesting officials are keeping the credit spigot open even as debt risks mount. Total debt reached 251 percent of gross domestic product as of June, up from 234 percent in 2013 and 160 percent in 2008, according to Standard Chartered estimates.
  • Property Defaults Seen as Financing Stresses Mount: China Credit. China’s slumping property market is fueling speculation the industry is set for a shakeout as small developers face difficulty raising funds to pay off debt. Yield premiums on Chinese real-estate bonds denominated in dollars have jumped 35 basis points this month to 582 basis points over Treasuries, the sharpest increase among emerging Asian countries, according to Bank of America Merrill Lynch indexes. That compares with a 19 basis-point advance for Indonesian builders. Moody’s Investors Service and Standard & Poor’s said some smaller Chinese developers may default in the second half amid falling sales and shrinking access to credit.
  • Asian Stocks Rebound From Biggest Decline Since May. Asian stocks rose, with the benchmark index rebounding from the steepest drop since May, as Japanese shares led gains. Mitsui Mining & Smelting Co., a maker of lead and copper alloys, jumped 7.4 percent in Tokyo after raising its full-year profit forecast. Japan Tobacco Inc. gained 3.1 percent, providing the biggest boost to the Topix index. Malaysian Airline System Bhd. soared 8.3 percent after sovereign wealth fund Khazanah Nasional Bhd. offered to take the carrier private. SK Hynix Inc., a South Korean maker of semiconductors, gained 1.7 percent after Eugene Investment & Securities Co. said higher estimated chip prices will boost second-half earnings. The MSCI Asia Pacific Index (MXAP) advanced 0.8 percent to 145.26 as of 10:32 a.m. in Tokyo. The measure sank 1.4 percent Aug. 8, its biggest drop since May 7.
  • Europe’s Growth Engine Stutters as Spain Beats Germany. Germany probably underperformed Spain last quarter for the first time in more than five years as the euro-area recovery almost ground to a halt. After leading the currency bloc out of its longest-ever recession last year, Europe’s largest economy contracted in the three months through June, according to a Bloomberg News survey. The downturn in the region’s powerhouse highlights the fragility of a revival that European Central Bank President Mario Draghi has described as modest and uneven.
  • Billionaire Rich Kinder Streamlines Empire For Spree. Houston billionaire Richard Kinder is consolidating his pipeline empire to strengthen it for growth as the U.S. shale drilling boom opens up $1.5 trillion in potential purchases and expansion projects. Kinder Morgan Inc. (KMI) plans to acquire all of Kinder Morgan Energy Partners LP (KMP), Kinder Morgan Management LLC (KMR) and El Paso Pipeline Partners LP (EPB) in a series of transactions valued at about $44 billion, according to a statement yesterday.

Wall Street Journal:
  • Obama's Jaw-Dropping Iraq Claim. Conservatives react quickly to president's claim that it wasn't his decision to withdraw U.S. troops from Iraq. In a Saturday morning address, before departing on a two-week vacation, President Barack Obama gave an update on the progress of air strikes against Islamic militants in Iraq and the dropping of supplies to the starving Yazidi people. He also took questions from reporters, and one response in particular drew attention. The president was asked whether he regretted withdrawing troops from the country given how swiftly the Islamic State group, alternately called ISIS and ISIL, has taken parts of the country. “What I just find interesting is the degree to which this issue keeps on coming up, as if this was my decision,” Obama said.
Fox News:
  • Back-to-School Costs Soar, Burdening the Poor. From binders and backpacks to USB drives and other gadgets, ballooning back-to-school supply lists are pinching poor families' budgets and creating what some see as a have and have-not public education system.
Zero Hedge:
Business Insider:
Wall Street All-Stars:
Washington Post:
  • Islamic State militants tell 300 Yazidi families: convert or die. Islamic State militants have threatened to kill more than 300 families from Iraq's Yazidi ethnic minority unless they convert to Islam, witnesses and a Yazidi lawmaker told Reuters on Saturday. The families in the villages of Koja, Hatimiya and Qaboshi are surrounded by the Sunni militants who are mounting an offensive through northern Iraq which has sent tens of thousands of Yazidis and Christians fleeing for their lives, prompting international outrage.
China Securities Journal:
  • China 2H Monetary Loosening May Be Weaker Than 1H. China monetary policy loosening in 2H might not be as strong as in 1H, according to a front-page commentary written by reporter Ren Xiao.
Weekend Recommendations
  • Bullish commentary on (TWX), (COV), (SHPG), (TMUS), (TEX), (INTC), (URI), (STL) and (WAG).
  • Bearish commentary on (Z).
Night Trading
  • Asian indices are +.50% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 109.0 -6.5 basis points.
  • Asia Pacific Sovereign CDS Index 76.75 unch.
  • FTSE-100 futures +.52%.
  • S&P 500 futures +.20%.
  • NASDAQ 100 futures +.25%.
Morning Preview Links

Earnings of Note

  • (SYY)/.50
  • (DF)/-.05
  • (PCLN)/12.02
  • (MTZ)/.40 
  • (ICPT)/.12
  • (RAX)/.16
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German Wholesale Price Index, Japan Industrial Production and the Jefferies Industrials Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and industrial shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the week.

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