Russian Forces Back Off Ukraine Border as Fighting Rages. Russia has pulled back most of its troops from the border with Ukraine,
according to a U.S. defense official, as government forces continued a
campaign to wipe out separatist rebels in the former Soviet Republic’s
east. A “majority of the Russian forces” have been withdrawn
from the Ukrainian border, Rear Admiral John Kirby, a Pentagon
spokesman, told reporters traveling to Singapore with U.S. Defense
Secretary Chuck Hagel. About seven battalions of Russian troops, or
“several thousands,” remain, he said. Russia’s
withdrawal may be marred by a gas dispute. Talks with Ukraine in Berlin
today won’t advance, Ukrainian First Deputy Energy Minister Yuri Zyukov
Abe Offers Japan’s Support to Southeast Asia on Sea Disputes. Prime
Minister Shinzo Abe said Japan
would spare no effort in helping Southeast Asian nations secure the seas
and pledged strong support for the Philippines and Vietnam in their
maritime disputes with China. “Japan will offer its utmost support
for the efforts of the countries of Asean as they work to ensure the
security of the seas and the skies, and thoroughly maintain freedom of
navigation and freedom of overflight,” Abe said in Singapore today,
referring to the 10-member Association of Southeast Asian Nations. Abe’s
speech to defense officials at the Shangri-La security forum comes at a
time of rising tensions over China’s assertiveness in the East and
South China Sea.
Vietnam Prepares Legal Action Against China, Prime Minister Says. Vietnam has prepared evidence for a legal suit challenging China’s claim to waters off the Vietnamese coast and is considering the best time to file it, Prime Minister Nguyen Tan Dung said yesterday in an interview. “We are prepared and ready for legal action,” Dung
said, sitting in the prime minister’s compound in Hanoi in front of a
bronze bust of Ho Chi Minh, the founder of communist Vietnam. “We are
considering the most appropriate timing to take this measure.”
Brazil Growth Slowed in First Quarter as Investment Fell. Brazil’s economic growth slowed in
the first quarter as President Dilma Rousseff, who is up for re-election in October, struggles to rebuild confidence that led to
the biggest decline in investment in two years. Gross domestic product increased 0.2 percent in the first
quarter, the equivalent to 0.8 percent on an annual basis, down
from a revised 0.4 percent in the last three months of 2013. The
result was in line with the median estimate of 41 analysts
surveyed by Bloomberg. Investment fell 2.1 percent in the quarter.
Vale Set for Worst Losing Streak Since 2008.
Vale SA (VALE5), the world’s largest iron-ore producer, is posting its
worst streak of monthly losses in five years as prices for the
steel-making ingredient sink. The shares fell 3.2 percent to 25.79 reais
at 11:42 a.m. in Sao Paulo today, bringing losses this month to 2.4
percent. The stock is now set for its seventh monthly drop, the longest
losing rout since 2008. Brazil’s benchmark Ibovespa gauge is up 0.2
percent this month, its third straight gain. Iron ore sank 4.1
percent today to $91.80 a dry ton and has lost 13 percent in May, a
sixth monthly retreat. That’s the longest losing run since the data
series began in November 2008. The commodity is down 32 percent this
year, entering a bear market in March as the biggest miners raised
output, spurring forecasts for a rising global surplus while slowing
growth in China capped demand. “The best way to begin to understand
Vale’s weakness is to look to China,” Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about
$366 billion, said in a telephone interview. “If China were to
decelerate further, it’s reasonable to expect pressure on
commodities to continue.”
European Stocks Little Changed for Seventh Weekly Gain.
European stocks were little changed,
with the Stoxx Europe 600 Index advancing for a seventh week, as a
better-than-expected report on U.S. business activity offset
consumer-confidence data that missed forecasts. Societe Generale SA
slipped 2.2 percent after Les Echos reported that the French bank’s
Russian unit posted a decline in first-quarter profit. BNP Paribas SA
fell 2.4 percent as a
person familiar with the matter said U.S. authorities are
seeking more than $10 billion from the bank to settle
investigations into dealings with sanctioned countries. Rio
Tinto Group and BHP Billiton Ltd. slid as a gauge of commodity
producers declined the most on the Stoxx 600.
The Stoxx 600 fell 0.1 percent to 344.24 at the close of
Wall Street Journal:
Moody's Warns on EU New Banking Rules. Rating Agency Says Directive Could Leave Stakeholders Vulnerable to Banking Crises.
Moody's Investors Service Inc. has become the latest of the three big
debt rating firms to warn that new European Union rules could make
stakeholders more vulnerable to losses in any future banking crisis. In
response to the EU's so-called Bank Recovery and Resolution Directive,
under which shareholders, bondholders and some depositors may have to
stomach big losses or commit to so-called bail ins to help rescue ailing
banks, Moody's has cut its long-term rating outlook on 82 European
banks to negative. That means the...
Shinseki resigns over growing VA scandal. President Obama announced Friday that embattled Veterans Affairs
Secretary Eric Shinseki would take the fall for the rapidly growing
scandal over veterans' health care, accepting his resignation under
pressure from members of both parties. The president announced that Shinseki would resign after they met at the
White House and he received an update on an internal review of the
problems at the VA. The review showed the problems were not limited to
just a few facilities, Obama said, adding: "It's totally unacceptable.
Our veterans deserve the best."
Fast food CEO: Minimum wage hikes closing locations.CKE Restaurants' roots began in
California roughly seven decades ago, but you won't see the parent
company of Carl's Jr. and Hardee's expanding there much anymore. What's causing what company CEO Andy Puzder describes as "very little growth" in the state? In part it's because "the minimum wage is so high
so it's harder to come up with profitable business models," Puzder said
in an interview. The state's minimum wage is set to rise to $9 in July,
making it among the nation's highest, and $10 by January 2016.
Steel Price Hike in U.S. Heightens Import Threat from China. US
flat product producers have successfully implemented at least a
proportion of their latest round of proposed increases. However, the
upward movements now appear to have stalled. Local supply is slowly
returning to normal and the recent hikes, together with expanding
domestic delivery lead times, have spurred an interest in imported
Real Slides on Swaps; Bovespa Suffers with GDP. Brazil's real fell the most among Latin American currencies on Friday as
investors tried to curb losses related to the expiration of currency
swaps next week, while Brazilian stocks suffered with weak economic data
and a fall in iron-ore prices.
Brazil Vehicle Sales Fall 11% Y/Y in May.
China's Instant Messaging Cos. to Crack Down on Rumors. Tencent's
WeChat, NetEase's Yixin and other 5 instant messaging applications
vowed to clean up illegal contents after the nation's public security
ministry started to crack down on spreading rumors or information of
violence, terrorism, pornography and fraud from May 27, citing the
CBRC Official Says China Property Loan Risk Controllable. China
will not relax or offer discounts for property development loans or
mortgages, citing an official at China Banking Regulatory Commission.
China must "strictly" control risks from property loans, CBRC says in
its 2013 annual report issued today.
Investing for a China Crisis. China's growing list of problems, including a slowing economy, rising
militarism, messy corruption crackdown and increasingly troubled shadow
banking sector, could provoke a major financial crisis. In the "never
waste a crisis" spirit, a number of investment opportunities present
themselves: -- Short Chinese stocks. The Shanghai Composite Index is down 67 percent from its October 2007 peak. Even though Chinese stocks may seem inexpensive -- the price-to-earnings ratio for the Shanghai index over the last 12 months is 9.8, compared with 17.3 for the far more costly S&P 500 -- there is no obvious floor. If China has a financial crisis, the risk to Chinese equities is considerable. Bank stocks may be especially
vulnerable. Investors who lack direct access to mainland Chinese stocks
can use Hong Kong-listed equities and exchange-traded funds. --
Sell commodities. Industrial and agricultural commodity prices
in 2002, right after China joined the World Trade Organization. As
manufacturers in Europe and North America shifted production to China,
its thirst for commodities kept growing. Many producers of industrial
materials, including base metals, iron ore and coal, also increased
capacity as prices leaped.
Asian Stocks Rise on Faster Japan Inflation, U.S. Outlook.
Asian stocks rose, with the regional benchmark index heading for its
biggest monthly advance since September, as a report showed Japanese
inflation accelerated and investors speculated the U.S. economy is
recovering from its first contraction in three years. Toyota Motor Corp.
(7203), the world’s biggest carmaker, added 1.1 percent in Tokyo.
Envestra Ltd. gained 1.1 percent in Sydney as billionaire Li Ka-shing’s
Cheung Kong Group agreed to buy the Australian gas supplier for A$2.4
billion ($2.2 billion). Lynas Corp., which spent $930 million on a
rare-earths processing plant in Malaysia, tumbled 16 percent in Sydney
after completing a share placement and as debt-restructuring talks
continue. The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 142.35 as
of 10:04 a.m. in Hong Kong, heading for its highest close since
Iron Ore Heads for Record Losing Streak as Goldman Eyes Supply.
Iron ore is heading for a sixth straight monthly decline in the longest
losing streak on record as increasing supplies from Australia and
Brazil spur a global surplus just as demand growth in China slows. Ore
with 62 percent content delivered to Tianjin was at $95.70 a dry ton
yesterday, 9.2 percent lower this month, according to data from The
Steel Index Ltd. The steel-making raw material, which is at a 20-month
low, has dropped every month since December in the longest run of
monthly losses since the
data series began in November 2008.
Food Replacing Oil as China M&A Commodity of Choice: Commodities. After spending the past decade and
more than $200 billion acquiring mines and oilfields from Australia to Argentina, China’s attention is turning to food. The world’s most populous nation is confronting a harsh reality: For every additional bushel of wheat or pound of beef
the world produces, China will need almost half of that to keep
its citizens fed.
Beware of Exotic ETFs Bearing Credit-Default Swaps. If you’ve always wanted to bet your savings on risky credit derivatives,
now’s the time. In May regulators signed off on a plan to allow trading
in eight exchange-traded funds (ETFs) created by ProShares that will
hold credit-default swaps—the derivatives that helped bring on the
global credit crisis in 2008.
Wall Street Journal:
China Hacking Is Deep and Diverse, Experts Say. Intruders Often Work As Hackers For Hire, According to Officials. China's Internet espionage capabilities are deeper and more widely
dispersed than the U.S. indictment of five army officers last week
suggests, former top government officials say, extending to a sprawling
hacking-industrial complex that shields the Chinese government but also
sometimes backfires on Beijing. Some of the most sophisticated
intruders observed by U.S. officials and private-sector security firms
work as hackers for hire and at makeshift defense contractors, not the
government, and aren't among those named in...
Borrowers Tap Their Homes at a Hot Clip. Helocs Jumped 8% in the First Quarter. A rebound in house prices and near-record-low interest rates are prompting homeowners to borrow against their properties, marking the return of a practice that was all the rage before the financial crisis. Home-equity lines of credit, or Helocs, and home-equity loans jumped 8% in the first quarter from a year earlier, industry newsletter Inside Mortgage Finance said Thursday. The $13 billion extended was the most for the start of a...
The VA Scandal Is a Crisis of Leadership. Obama's inattention to managing the government may kill the progressive project. The Veterans Administration scandal involves charges of manipulation
and falsification of medical waiting lists and systemwide rigging to
hide delayed or inadequate treatment, which may have caused the deaths
of some of those waiting for care. There are whistle-blowers,
allegations of local coverups, and the possibility of criminal charges.
Also becoming clearer are two motives for those involved in what appears
to have been a racket: their compensation and their career
trajectories. This scandal won't go away as others...
Michael Bloomberg Blasts Ivy League For Liberal 'Censorship'. Former New York City Mayor Michael Bloomberg accused the entire Ivy
League of liberal political bias during a particularly fiery
commencement address at Harvard University Thursday. "It is just a modern form of McCarthyism," Bloomberg said of
university "censorship" of conservatives. "Think about the irony: In the
1950s, the right wing was attempting to repress left wing ideas. Today,
on many college campuses, it is liberals trying to repress conservative
ideas even as conservative faculty members are at risk of becoming an
endangered species" "And that is probably nowhere more true than it is here in the Ivy League," declared Bloomberg.
Japan consumer spending, factory output skid after sales tax hike. Japan's household spending in
April fell at the fastest rate in three years in a sign that
consumption could be slow to recover from an increase in the
nationwide sales tax, raising questions over the pace of
economic recovery. Japanese household spending fell 4.6 percent in April from a
year ago, more than the median market forecast for a 3.2 percent
annual decline. That marked the fastest annual decline since
March 2011, when an exceptionally powerful earthquake triggered
a nuclear disaster. Compared to the previous month, spending tumbled by a record
13.3 percent in April, more than the 13.0 percent decline
expected by economists. Government data published with the new figures show that
household spending fell further after the April 1 sales tax hike
than it did after the 3 percent sales tax in was imposed in
1989, and when it raised the tax to 5 percent in 1997.
IMF warns ‘rising’ African nations on sovereign debt risks. The International Monetary Fund has warned African nations issuing billions of dollars in sovereign bonds
that they could overload their economies with too much debt and derail
the best economic period for the region in a generation.
Personal Income for April is estimated to rise +.3% versus a +.5% gain in March.
Personal Spending for April is estimated to rise +.2% versus a +.9% gain in March.
The PCE Core for April is estimated to rise +.2% versus a +.2% gain in March.
9:00 am EST
The ISM Milwaukee for May is estimated to rise to 52.0 versus 47.26 in April.
9:45 am EST
The Chicago Purchasing Manager for May is estimated to fall to 61.0 versus 63.0 in April.
9:55 am EST
Final Univ. of Mich. Consumer Confidence for May is estimated to rise to 82.5 versus a prior estimate of 81.8.
None of note
Other Potential Market Movers
Fed's Plosser speaking, Fed's Lacker speaking, Fed's Pianalto speaking,
Canada gdp report and the ASCO Meeting could impact trading today.
BOTTOM LINE: Asian
indices are mostly lower, weighed down by industrial and technology
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 day.
Rebels Kill 14 Downing Ukraine Chopper as Russia Sees War. Pro-Russian
rebels downed a military helicopter in eastern Ukraine, killing 13
troops and a general, as an adviser to President Vladimir Putin accused
the U.S. of pushing the world toward war through proxies in Kiev.
Insurgents shot down an Mi-8 transport chopper with a shoulder-fired
heavy fighting in Slovyansk, 100 miles (160 kilometers) from the Russian
border, Speaker Oleksandr Turchynov told parliament today. They also
attacked a military base near Luhansk, according to the National Guard. Russia
demanded Ukraine halt its “fratricidal war” and withdraw troops from
the mainly Russian-speaking regions of the east after separatists
suffered the heaviest casualties of their campaign. Western countries
should use their influence to stop Ukraine from “sliding into a national
catastrophe,” the Foreign Ministry in Moscow said on its website.
Russia Sanctions Threat Seen Abating Amid Recession Risk. Russia is less likely to face further
sanctions from the U.S. and the European Union as the government
is sending conciliatory signals toward Ukraine, a Bloomberg
survey of economists showed. The U.S. will refrain from escalating punitive measures,
according to 66 percent of respondents in a survey of 32
economists, compared with 28 percent last month. The EU will
hold off on sanctions according to 84 percent, up from 78
percent in April. The probability of the Russian economy
slipping into recession in the next 12 months remained at 50
percent, according to the median forecast in a separate survey.
China Threatens Further Action Against U.S. Over Hacking Dispute. China
said it will take further action against the U.S. for prosecuting five
of its military officers for alleged hacking, saying it has evidence its
companies have also been hacked. Online attacks from a “specific
country” have targeted Chinese companies, its military and important
websites, Ministry of National Defense spokesman Geng Yansheng said.
Geng didn’t specify the country in remarks posted on the ministry’s
today in response to a question about the indictment.
Bond Surge Worldwide Drives Index Yield to One-Year Low. A worldwide bond-market surge pushed
yields to the lowest levels in a year on growing evidence
central banks can keep stimulating economic growth without
igniting inflation. Treasury 10-year note yields fell to the least
A rally yesterday drove the yield on the Bloomberg Global Developed
Sovereign Bond Index to 1.28 percent, the lowest since May 2013.
Australia’s (GACGB10) 10-year yield dropped to an 11-month low, Japan’s
slid to the least in 12 months, while European bond yields were close to
the lowest since the formation of the region’s shared currency. The U.S. sold $29 billion of seven-year notes at the lowest yield since October.
Copper Drops From 11-Week High AMid Demand Concerns.
Copper fell from an 11-week high in
London on signs of slowing economic growth in China and the U.S., the
biggest users of the metal. U.S. gross domestic product fell at a 1
percent annualized rate in the first quarter, a bigger drop than
economists surveyed by Bloomberg projected, government figures showed
today. A purchasing managers index due later this week may show
little acceleration this month in Chinese manufacturing after
the gauge grew less than estimated in April. Copper has lost 6.4
percent this year amid signs of slowing economies.
Obama Seeks Climate Legacy as Coal-State Democrats Cringe.
Obama now is set to release new limits on greenhouse gas emissions by
power plants as early as next week. That comes atop the unveiling of a
National Climate Assessment in May and executive actions including
renewable fuels and building better defenses against extreme weather. Liberated from re-election politics, he’s freer to speak about the
challenges of a warming planet and is using his bully pulpit to create
urgency on an issue that most Americans rank as a low priority, the
aides said. The expansive action is alarming some in the business community, who say the administration’s policies will hurt the economy. “This administration is setting up the next energy crisis in this
country,” said Laura Sheehan, a spokeswoman for the American Coalition
for Clean Coal Electricity in Washington. “They’re not looking at the
long-term consequences.” Obama also faces push-back from some
within his own party, who warn that tighter regulations could hamper
Democratic candidates in areas where coal is a major source of jobs.
Democrats in Kentucky and West Virginia already are distancing
themselves from the president’s energy policies, highlighting their
opposition to a “war on coal” on the campaign trail.
Consumer Comfort in U.S. Falls to Lowest Level Since November. Consumer confidence declined last week to the lowest level
since November as Americans’ views of their finances and the buying
climate weakened. The Bloomberg Consumer Comfort Index fell to
33.3 in the period ended May 25 from 34.1 the prior week. A measure of
personal finances retreated for the third time in four weeks, and a
gauge of whether this is a good time to buy goods and services dropped
to the lowest point since mid-February.
Credit Trader’s Shift to Rates Shows Where Anxieties Lie. Rate derivatives have become more popular than ever for wagering on
whether borrowing costs will rise or fall as the Federal Reserve scales
back its unprecedented stimulus. The amount of over-the-counter
interest-rate swaps has swelled 30 percent since the end of 2009, to a record notional $584.4 trillion as of December, according to a May 23 CME Group Inc. (CME) report. At
the same time, the volume of privately negotiated credit-default swaps
has plunged to a notional $21 trillion, 64 percent below the peak of
$58.2 trillion in December 2007.
Wall Street Journal:
DOJ Opened At Least 10 Probes into Bank Processing Activities. 'Operation Choke Point' Disclosed in Government Memo. The U.S. Department of Justice has opened at
least 10 civil and criminal investigations into whether banks and
payment processing firms helped enable fraudulent activity, according to
an internal Justice Department memo viewed by The Wall Street Journal. More
than 850 pages of internal documents on the DOJ's probe of alleged
fraud in the financial industry were obtained by the House Oversight and
Government Reform Committee. Ms. Frimpong, in her memo, wrote that the government had the opened
civil investigations into 10 banks and payment processors and was in
settlement talks with three of them.
Doctors' War Stories From VA Hospitals. Administrators limited operating time so that work stopped by 3 p.m. With the recent revelations about the disgraceful treatment of patients
by the Veterans Affairs hospitals, the public is discovering what the
majority of doctors in this country have long known: The VA health-care
system is a disaster.
Hedge fund assets to hit $5.8 trillion by 2018: Citi survey. The
hedge fund industry will double its assets in the next four years to
nearly $6 trillion by diversifying products and giving retail investors
more access, according to a new survey. Traditional hedge fund
clients are high-net-worth individuals, but more and more retail
investors will have access to the asset class, according to the latest
Citi Investor Services Survey.
Obama under bipartisan pressure to oust Shinseki on heels of IG report. President Obama is coming under heavy pressure from both sides of the
aisle following a scathing inspector general report to tackle the
problems at the Department of Veterans Affairs head-on -- first, by
relieving VA Secretary Eric Shinseki of his command. More than a half-dozen Democratic senators are now calling for
Shinseki's resignation, since the Office of Inspector General released
an interim report on Wednesday finding "systemic" problems with clinics
lying about patient wait times.
Derivatives Worldwide Hit 710 Trillion, According To BIS Study.
The Bank for International. Settlements (BIS) just published a
statistical study on the amount of derivatives worldwide at the end of
2013, and they reach the astronomical amount of $710 Trillions
($710,000,000,000,000). For comparison purposes, the United States GDP in 2013 amounts to $16
Billion, or 44 times less. And this mass of derivatives beats by 20% the
preceding record, dating just before the 2008 crisis… We hear a lot
about bubbles these days, in the stock market, the bond market or in the
commodities market, but this one is without a doubt the greatest one.
Govt Sees Possibility of 2014 GDP Growth Below 2%. Economic growth has
become main concern for govt, citing President Dilma Rousseff's aides it
didn't identify. Govt sees possibility of trade deficit this year.
Investments may be below 2013 level. Govt sees no room for fiscal
expansion to stimulate economy; inflation still high.