Sunday, August 24, 2014

Monday Watch

Weekend Headlines 
  • Ukraine Claims Russian Military Buildup Along Border. Ukraine said there is a buildup of Russian military equipment along the eastern border, as President Petro Poroshenko in Kiev announced an armed forces upgrade worth $3 billion. German Chancellor Angela Merkel is seeking to give momentum to a diplomatic resolution to the conflict convulsing Ukraine as Poroshenko prepares to meet Russian President Vladimir Putin this week. The Russian buildup of military equpiment is taking place in the region around the city of Rostov, in at least one case 1.5 kilometers (1 mile) from the Ukraine border, according to military spokesman Andriy Lysenko. Pro-Russia rebels have ruined “almost all” of the infrastructure in the city of Luhansk while shelling of Ukrainian troops from the Russian side continues, Lysenko told reporters today. 
  • Ukraine Says Army Spending Raised As Merkel Warns on Gas. Ukraine announced a military spending increase before preliminary peace talks with President Vladimir Putin tomorrow, as German Chancellor Angela Merkel pressed for resolution of a parallel dispute over Russian natural gas supplies to Europe this winter. The armed conflict with pro-Russian rebels showed no signs of abating in war-torn eastern Ukraine. Putin will meet with his Ukrainian counterpart Petro Poroshenko during trade talks in the Belarus capital Minsk. “Unfortunately, there will always be a military threat to Ukraine,” Poroshenko said yesterday in revealing the spending increase of more than 40 billion hryvnia ($3 billion). “War has come from the side nobody expected.”
  • Russian Media Stocks Lead Drop as Ukraine Crisis Deepens. Media companies led a rout in Russian stocks in New York after Group Ltd. (MAIL), which operates the country’s biggest social networks, cut its sales forecast amid a slowing economy and tension in Ukraine. Yandex NV, Russia’s largest Internet company, fell for a third day and CTC Media Ltd., which owns the nation’s sixth-biggest TV station, declined the most in two weeks on Aug. 22. plunged 12 percent in London. The Bloomberg Russia-US Equity Index of the country’s most-traded shares in the U.S. slumped 0.8 percent after stocks in Moscow ended a ten-day advance, the longest stretch of gains in almost nine years.
  • Israel Threatens Expanded Airstrikes, Gaza Ground Operation. Israeli Prime Minister Benjamin Netanyahu told residents of the Hamas-ruled Gaza Strip that any militant target was fair game, as aircraft struck dozens of sites and his defense minister hinted at a new ground incursion. “I urge Gaza residents to immediately evacuate all facilities used by Hamas to carry out terrorist activities,” Netanyahu said at a cabinet meeting held at military headquarters today in Tel Aviv, according to an e-mailed statement. “Every such site is a target for us.”
  • Chinese Jet Barrel-Rolls Over U.S. Plane Bringing Protest. A Chinese fighter jet in international waters buzzed a U.S. Navy surveillance aircraft within 20 feet and did a barrel roll over it in what the White House called a provocation. The Aug. 19 incident took place about 135 miles (217 kilometers) east of Hainan Island, the southernmost tip of China, amid international tensions over China’s increasingly assertive territorial claims. U.S. and Chinese planes have had several close encounters over the sea since March. 
  • Asian Stocks Decline as Investors Weigh Yellen Comments. Asian stocks fell as investors weighed comments from central bank leaders for clues to monetary policy ahead of conflict negotiations between Russia and Ukraine. Chugai Pharmaceutical Co. slumped 8.7 percent after a person familiar with the matter said Roche Holding AG will decide against bidding for the almost 40 percent of the Japanese drugmaker that it doesn’t already own. Caltex Australia Ltd. (CTX) climbed 4.6 percent after the Australian oil refiner said it plans to cuts 350 jobs and raised its interim dividend more than analyst forecasts. The MSCI Asia Pacific Index (MXAP) slid 0.1 percent to 148.31 as of 9:36 a.m. in Hong Kong.
  • Hedge Fund Crude Bets Tumble Amid Surging Global Supply. Speculators are the least bullish on U.S. crude oil prices in 16 months as refinery maintenance weakens demand at a time when Libya and Iraq are swelling global supplies. Futures dropped a fifth consecutive week after money managers reduced net-long positions in West Texas Intermediate, the U.S. benchmark grade, by 14 percent in the seven days ended Aug. 19, the Commodity Futures Trading Commission said.
Wall Street Journal: 
  • Pressure Mounts on Obama to Act on Islamic State. Republicans Press for More Action Against Islamic State. President Barack Obama faces pressure at home and in the Middle East to quickly step up strikes at Islamic State militants, but also reluctance from some within his own party and European allies to do so. The leading options under consideration for strikes in Syria—if Mr. Obama decides to expand the fight—are narrow in scope, designed to prevent the Islamic State from carrying out any plots that threaten Americans and from...
  • France Calls for Action to Cut Off ISIS Money Supply. France on Friday called for coordinated international action to cut off the Islamic State's access to financial resources amid fears that the Sunni insurgency has become the world's richest jihadist movement. French Foreign Minister Laurent Fabius said the extremist group, already a formidable military force, has enhanced its power by amassing huge piles of cash, thanks in part to individual donors from the Middle East. "The attacks in New York on Sept. 11, 2001, cost $1 million," Mr. Fabius told French radio RMC. "Today, we estimate the Islamic State has several billions."  
  • Ukraine Showcases Military Might in Independence Day Celebration. Parade Draws Mixed Reaction as Conflict Continues in East. Soldiers, rockets and armored vehicles paraded through central Kiev on Sunday, some of them on their way to the front lines in the east, as Ukraine celebrated its Independence Day with a crisp display of military might that stood in contrast to a grinding conflict in which the Ukrainian offensive appears to be losing momentum.
Fox News:
  • Northern California rocked by magnitude 6.0 earthquake. A magnitude 6.0 earthquake hit Northern California near Napa Valley Sunday, injuring at least 120 — 3 critically — and causing extensive damage, including fires sparked by burst gas lines, in the largest tremor to rock the Bay Area since the magnitude 6.9 Loma Prieta quake in 1989.
Zero Hedge:
  • Sapin Says Euro Area Risks Spiraling Contraction. French Finance Minister Sapin says euro members must slow pace of deficit reduction to help economy, according to interview in la Repubblica.
  • Japan Sales Tax Increase Loses Public Support. Support fell 6 points to 30% from month-earlier, while opposition rose 4 points to 63%, citing poll by Nikkei and TV Tokyo.
  • 57 Children in Fukushima Found to Have Thyroid Cancer. Fukushima prefecture has found 57 people with thyroid cancer who were 18 years old or younger during the Fukushima Dai-Ichi reactor disaster in March 2011.
China Daily:
  • China May Start Nationwide Property Tax Next Year. China may introduce a nationwide property tax next year following trials in Chongqing and Shanghai, citing an official from the National People's Congress. Planned property tax swill target land, not just housing as in the trials, the report said.
Weekend Recommendations
  • Bullish commentary on (PEP), (BG), (APA), (HD) and (HAS).
  • Bearish commentary on (SHLD).
Night Trading
  • Asian indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 101.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 67.75 -.75 basis point.
  • FTSE-100 futures n/a.
  • S&P 500 futures +.17%.
  • NASDAQ 100 futures +.23%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases
8:30 am EST
  • The Chicago Fed Nat Activity Index for July is estimated to rise to .2 versus .12 in June.
9:45 am EST
  • Preliminary Markit US Services PMI for August is estimated to fall to 58.0 versus 60.8 in July.
10:00 am EST
  • New Home Sales for July are estimated to rise to 429K versus 406K in June.
10:30 am EST
  • Dallas Fed Manufacturing Activity for August is estimated to rise to 12.8 versus 12.7 in July.
Upcoming Splits
  • (RKT) 2-for-1
Other Potential Market Movers
  • The German IFO and the (VMW) Analyst Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and real estate 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 week.

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