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Monday, December 01, 2014

Tuesday Watch

Posted by Gary .....at 11:47 PM
Evening Headlines 
Bloomberg: 
  • Russia Scraps EU Gas Link in Favor of Turkish Deliveries. Russia scrapped a proposed natural gas pipeline that the European Union opposed because it would bypass Ukraine, moving forward instead with plans to ship more fuel to Turkey. The decision to shelve the $45 billion South Stream project is the latest sign that Russia’s economic ties with Europe continue to fray as the crisis in Ukraine persists. The route under the Black Sea would have offered Russia’s OAO Gazprom a more direct path to feed the continent’s gas needs, a plan the European Union objected to because it would reduce Ukraine’s leverage against its neighbor.
  • RBA Keeps Record-Low Rate to Boost Economy as Commodities Tumble. The Reserve Bank of Australia kept its benchmark interest rate at a record low to spur hiring in an economy struggling for traction as commodity prices tumble. The overnight cash rate target was held at 2.5 percent for a 16th month, according to a statement today from Governor Glenn Stevens following a board meeting in Sydney. The decision was predicted by all 30 economists surveyed by Bloomberg News and markets had priced almost no chance of a move. 
  • China ETF Outflows Show Traders Losing Faith in Rally. Exchange-traded fund investors are showing little confidence that the world-beating rally in China’s domestic stock market will last. Traders pulled about $845 million from the CSOP FTSE China A50 ETF (2822) in the two weeks through Nov. 28, the biggest outflow since the $5.7 billion fund was started in 2012, according to data compiled by Bloomberg. The $9.7 billion iShares FTSE A50 China Index ETF lost $585 million last week, the most since 2009, as the Shanghai Composite (SHCOMP) Index rose to a three-year high.
  • Draghi Treads Path of ECB Powerlessness Toward QE Without Reform. Looking out from the top of the European Central Bank’s new tower in Frankfurt, it’s easy to find dark clouds on the horizon. The view for policy makers is of a euro-zone populace so weary of years of economic turmoil that it’s increasingly electing politicians who say no to pan-European cooperation, and spurn reforms that the ECB says are vital to revive the economy. Trapped by their mandate to prevent deflation, officials fret they might soon be forced to roll out quantitative easing that can never succeed by itself.
  • Emerging Market Distressed Debt Loses Most Since 2008. Losses in emerging market distressed debt have mounted to the worst since the global financial crisis led by Indonesian coal miner PT Bumi Resources and ZAO Russian Standard Bank. Bank of America Merrill Lynch’s distressed emerging markets corporate index tumbled 2.7 percent yesterday after a 5.6 percent drop in November. The gauge, which tracks 108 dollar-and euro-denominated debentures from Russia to China and Brazil, has retreated 9.8 percent this year, the most since a 36.8 percent slide in 2008.
  • Oil Resumes Drop as Commodity Volatility Jumps; Won Rises. Oil resumed declines after jumping from a five-year low and metals retreated amid the highest commodity-price volatility in two years. South Korea’s won led emerging-market currencies higher and Asian mining and energy companies rebounded. West Texas Intermediate crude retreated 0.6 percent by 11:44 a.m. in Tokyo.
  • Copper in London Declines on Oil, China Manufacturing Weakness. Copper declined for the sixth time in seven days as crude oil retreated and after a gauge of manufacturing strength fell to an eight-month low in China, the largest metals consumer. Copper dropped as much as 0.9 percent. Oil trimmed the biggest rally since August 2012 as investors weighed OPEC’s decision to let the market curb a global supply glut. China’s Manufacturing Purchasing Manager’s Index was at 50.3 in November, the lowest since March, according to government data yesterday, while a private gauge from HSBC Holdings Plc and Markit Economics retreated to 50 from 50.4 in October.
  • Get Ready for Big Mortgage Rate Increases. A decade ago, the housing market was heading into the busiest years of the bubble. Ten years later, hundreds of thousands of homeowners are about to get a nasty surprise. As their loans turn 10 years old, they will see their monthly loan payments reset higher—in some cases more than double.
  • Beware the Vulnerable Oil Debt That Lurks in Your Junk-Bond ETFs. (video) It pays to look a little closer at your investments in exchange-traded high-yield funds right now to find out just how exposed you are to plunging oil prices. Take State Street (STT) Corp.’s $9.8 billion junk-bond ETF that trades under the ticker JNK. (JNK) It’s lost almost twice as much as a broad index of high-yield debt since the end of August, partly because its bigger allocation to energy companies has been a drag as oil prices plummet to the lowest since 2009.
  • U.S. Corporate Bond Sales Pass $1.5 Trillion for Annual Record. U.S. corporate bond sales swelled to an annual record as a late-year rush by companies to lock in low interest rates pushed offerings for 2014 past $1.5 trillion. Bolstered by issues last month including $8 billion from Internet commerce company Alibaba Group Holding Ltd. (BABA) and a $17 billion sale today by heart-rhythm device maker Medtronic Inc. (MDT), volume passed the previous high of $1.494 trillion set last year. Companies have offered $1.168 trillion of investment-grade notes in 2014 and $344 billion of junk bonds, propelled by multiple sales from Verizon Communications Inc. and General Electric Co. (GE), according to data compiled by Bloomberg. That outpaces the $1.146 trillion of high-grade notes and $348 billion of junk notes issued last year, the data show.
Wall Street Journal: 
  • Dodgy Home Appraisals Are Making a Comeback. Industry Executives See Parallels With Pre-Crisis Valuations; Regulators Are Wary. Home appraisers are inflating the values of some properties they assess, often at the behest of loan officers and real-estate agents, in what industry executives say is a return to practices seen before the financial crisis. 
  • Supreme Court Weighs When Social-Media Threats Become Criminal Acts. Justices Seen Seeking Middle-Ground Approach in Setting Threshold.
  • Basic Costs Squeeze Families. Health Care, Cellphones Eat Up Income, Leaving Less for Things Like Movies, Clothes. The American middle class has absorbed a steep increase in the cost of health care and other necessities as incomes have stagnated over the past half decade, a squeeze that has forced families to cut back spending on everything from clothing to restaurants.
  • UVA, Ferguson and Media Failure. Narratives and allegations are not facts, despite what the media would have us believe. 

Fox News:
  • Lawsuit claims ICE mounted campaign to ‘purge’ senior officials amid immigration changes. A longtime federal immigration attorney claims Immigration and Customs Enforcement managers mounted a campaign of "humiliation" and "brutal scape-goating" to purge officials they didn't want, raising concerns from a top GOP lawmaker that the administration was trying to "force compliance" with its controversial policies.
MarketWatch.com:
  • China plays big role in oil’s slide. If you want to understand why the demand side of oil has been unraveling — and why it could continue — look no further than China. 
  • Iran, Venezuela, Russia may face pain from cratering oil prices. Falling oil prices are good news for the average U.S. consumer. But tanking oil is likely to crimp the fiscal budgets of regimes like Iran, Venezuela and Russia — regimes that have proved antagonistic to the U.S.
  • Cypress, Spansion agree to $4 billion all-stock merger.
CNBC: 
  • As crude tumbles, oil drillers seek to temporarily idle more rigs. Offshore drillers globally are increasingly considering "warm stacking" their rigs to take them temporarily off the market, as they gear up for a slowdown in the hunt for oil with crude prices sliding to five-year lows. 
  • U.S. shale producers' 'knives are already out': Yergin. (video) While oil prices are down after OPEC refused to curtail production, it won't have a big impact on output from U.S. shale producers, at least for the near term, IHS' Dan Yergin told CNBC on Monday.
Zero Hedge:
  • Total US Debt Rises Over $18 Trillion; Up 70% Under Barack Obama.
  • It's Muppet-Slaughtering Time - Goldman(GS) Unveils 2015 Global Equity Themes. (graph)
  • The Fed's Biggest Nightmare: Consumers Are "Losing Faith" Their Cost Of Living Won't Keep Rising.
  • US Debt In Public Hands Doubles Under Barack Obama. (graph)
  • The Longest Streak In Stock Market History... Is Over. (graph)
  • Crude Crash Slams Venezuelan Bonds To Close At 5-Year Lows: 21% Yield. (graph)
  • Tensions Between US & Russia Are Worse Than You Realize – Foreign Minister Sergey Lavrov.
  • 2014 Is Now The Worst Year For US Macro Data Performance Since 2008. (graph)
Business Insider:
  • Hedge Funds Are Closing Like It's 2009.
  • ISIS Is Running An Alarmingly Effective Terrorist State.
  • FBI Warns US Businesses Of New Destructive Cyber Attacks.
  • US Retailers Are Becoming Wary Of Alibaba(BABA).
Reuters: 
  • Cyber ring stole secrets for gaming U.S. stock market -FireEye(FEYE). Security researchers say they have uncovered a cyber espionage ring focused on stealing corporate secrets for the purpose of gaming the stock market, in an operation that has compromised sensitive data about dozens of publicly held companies.
  • Speculators add to net U.S. long dollars, highest since 2008-CFTC. 
  • Bond funds worldwide attract $204 bln inflows, beat stocks -BofA. Investors worldwide have poured $204 billion into bond funds year to date, easily surpassing inflows of $121 billion into stock funds, a Bank of America Merrill Lynch Global Research report showed on Monday.
Telegraph: 
  • Capital controls feared as Russian rouble collapses. 'Funding problems are increasing dramatically. We think Russia is now flirting with systemic problems,' said Danske Bank.
The Independent:
  • Russian rouble suffers biggest fall since 1998 crisis as oil price tumbles. The plummeting oil price pulled Russia’s currency down with it today, with the rouble recording its biggest interday fall since its 1998 currency crisis.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 103.50 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 64.25 +2.0 basis points.
  • FTSE-100 futures n/a.
  • S&P 500 futures +.10%.
  • NASDAQ 100 futures  +.11%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (VNCE)/.33
  • (BOBE)/.33
  • (OVTI)/.51
Economic Releases
9:45 am EST
  • ISM New York for November is estimated to rise to 55.0 versus 54.8 in October.
10:00 am EST
  • Construction Spending for October is estimated to rise +.6% versus a -.4% decline in September.
Afternoon:
  • Total Vehicle Sales for November are estimated to rise to 16.6M versus 16.35M in October.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Yellen speaking, Fed's Stanley Fischer speaking, Fed's Dudley speaking, Australia GDP report, US weekly retail sales reports, CSFB Industrials Conference, Piper Healthcare Conference, Citi Basic Materials Conference, (JCI) analyst meeting, (UNH) investor conference and the (BDC) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the early close, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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