Evening Headlines
Bloomberg:
- China Tells Banks to Improve Disclosures in Shadow-Lending Fight. China’s banking regulator told lenders to publish data including
off-balance-sheet assets and interbank liabilities as the government
steps up scrutiny of the shadow-finance industry. Lenders with total
assets of 1.6 trillion yuan ($264 billion) or more must publish 12
indicators within four months of the end of each financial year, the
China Banking Regulatory Commission said in a statement yesterday. The
requirement is in line with rules published by the Basel
Committee on international banking regulation in July, the CBRC said.
- China’s Producer Prices Slide in Sign of Weakness in Economy.
China’s producer prices, a measure of the cost of goods as they leave
the factory, extended the longest slide since the 1990s in December,
adding to evidence that the world’s second-largest economy weakened last
month. The producer-price index (SHCOMP) fell 1.4 percent from a
year before, the 22nd straight drop, and consumer prices rose 2.5
percent -- less than the 2.7 percent median forecast in a Bloomberg News
survey, a government report showed in Beijing. Today’s
releases followed declines in gauges of manufacturing and services based
on surveys of purchasing managers.
- Shadow Banking. The
scale of it is almost unfathomable: over $70 trillion worldwide. The
Financial Stability Board says it poses “systemic risks” to the global
financial system. It’s growing at phenomenal rates in China and India
and booming in Western banking capitals as well. The catchall phrase
“shadow banking” encompasses risky investment products, private lending
between individuals, pawnshop and loan-shark operations in emerging
markets, as well as more respectable activities like derivatives,
money-market funds, securities lending and repurchase agreements at
financial institutions in Europe and the U.S. The common denominator
is that these activities flourish outside the regular banking system
and often beyond the control of regulators and monetary policy. Together
they show how hard it is to restrict risky lending without causing
harm.
- Bank of Korea Holds Rate Even as Yen Clouds Export Outlook. The Bank of Korea kept its benchmark interest rate unchanged for an eighth straight month, even as a
weak yen clouds the outlook for exporters competing with
Japanese companies. Governor Kim Choong Soo and his board held the
seven-day repurchase rate at 2.5 percent after a cut in May, the central
bank said in a statement in Seoul today. Eighteen of 19 economists
surveyed by Bloomberg News predicted the outcome,
with Goldman Sachs Group Inc. foreseeing a cut.
- Asian Stocks Fall as China Producer Prices Extend Decline.
Asian stocks fell as China’s factory-gate prices extended the longest
streak of declines since the Asian financial crisis and Federal Reserve
minutes showed officials saw diminishing benefits from bond buying.
Canon Inc. lost 1.8 percent in Tokyo on a report operating profit at the
world’s biggest camera maker probably missed its own forecast. Belle
International Holdings Ltd., China’s No. 1
seller of footwear, fell 2.3 percent after surging 13 percent
yesterday. Daiei Inc. slumped 7.3 percent in Tokyo as the
supermarket operator cut full-year forecasts.
The MSCI Asia Pacific Index lost 0.5 percent to 139.16 as
of 11:26 a.m. in Tokyo, with about five stocks falling for every
three that rose.
- Rebar Rises for a Second Day as China Steel Output Declines.
Steel reinforcement-bar futures in Shanghai climbed for a second day,
extending a recovery from an almost seven-month low, as China’s crude
steel output fell. Rebar for May delivery on the Shanghai Futures
Exchange gained as much as 0.6 percent to 3,488 yuan ($576) a metric ton
before trading at 3,478 yuan at 10:05 a.m. local time. The most-active contract closed at 3,465 yuan on Jan. 7, the lowest close
since its inception in May.
- Corn Falls to 40-Month Low, Wheat Drops on Global Supply Outlook. Corn futures tumbled to a 40-month
low and wheat fell to the cheapest since 2011 on speculation
that a U.S. government report this week will show ample world
supplies. Oilseeds also slumped. Inventories of corn in the season
ending Oct. 1 probably
will rise to 163.08 million metric tons, the highest since 2001,
and U.S. winter-wheat planting climbed to a six-year high,
according to Bloomberg surveys before the Department of
Agriculture’s report on Jan. 10. Canadian Canola futures extended a
slump to the lowest since August 2010, and soybeans in Chicago dropped.
- Iraq Is New Schism for Saudis in Strained Alliance With West. Few goods transit the desert border
between the Middle East’s two biggest oil producers, and Saudi
authorities have built a fence to help ensure that political
instability in Iraq doesn’t cross over either. Dysfunctional ties between the countries have come into
focus as a wave of violence sweeps Iraq, turning it into another
arena where Saudi interests are diverging from those of the U.S.
Fighting is centered in Anbar province, bordering Saudi Arabia,
where Sunni fighters with ties to al-Qaeda are rebelling against
the Shiite-led government of Nouri al-Maliki, which is supported
by Iran.
- Bed Bath & Beyond(BBBY) Falls After Profit Trails Analysts’ Estimates.
Bed Bath & Beyond Inc. (BBBY) fell in extended trading after it
reported quarterly net income and forecast fourth quarter profit that
trailed analysts’ estimates. The shares declined 8.4 percent to $72.99 at 4:50 p.m. after gaining less than 1 percent to $79.68 at the close in New York.
Wall Street Journal:
- Fed Eyes Bubble Risks, Minutes Show. Federal Reserve officials in December turned
their attention to the risk of dangerous financial bubbles emerging as
they scanned a brightening economic outlook and formulated a plan to
gradually wind down their bond-buying program this year. While
officials agreed that threats to financial stability were modest, the
issue was at the center of wide-ranging discussions about emerging
threats to the economy, according to minutes of the central bank's Dec.
17-18 policy meeting, which were released Wednesday with the traditional
three-week lag. Watching for bubble threats could become one of the first big issues on the plate of Fed Vice Chairwoman Janet Yellen, who takes the reins as chairwoman on Feb. 1 after Ben Bernanke's term as the Fed's leader ends.
- Borrowers Hit Social-Media Hurdles. Regulators Have Concerns About Lenders' Use of Facebook(FB), Other Sites.
More lending companies are mining Facebook, Twitter and other
social-media data to help determine a borrower's creditworthiness or
identity, a trend that is raising concerns among consumer groups and
regulators. Lending companies—some of which are backed with venture
funding from Google Ventures, the venture-capital arm of Google Inc.,
and Accel Partners, an early Facebook Inc. investor—are looking at
potential problems such as whether applicants put the same job
information on their loan application as they posted on LinkedIn, or if
they shared on Facebook that they had been let go by an employer. A
small business that draws negative reviews on eBay also could undermine
its chances of getting more credit, lending companies say.
- Bridge-Spat Emails Pose Questions For Christie.
Emails suggesting that close aides to New Jersey Gov. Chris Christie
engineered traffic jams as political retribution against a Democratic
mayor are turning into a major test for the national ambitions of a
popular Republican considered a leading 2016 presidential contender.
- Gates on Obama. The former Pentagon chief's memoir explains what the world knows. The open secret of Washington memoirs is that they typically confirm
what we already know or suspect. In the case of the excerpts from the
forthcoming book by
Robert Gates,
who was Defense Secretary for two years under George W. Bush and two and a half under President
Obama,
this isn't reassuring.
Fox News:
MarketWatch.com:
CNBC:
Zero Hedge:
Business Insider:
Reuters:
- Novartis sued by U.S. states over alleged kickbacks to pharmacy firm. U.S.
states have sued Novartis over accusations the Swiss drugmaker paid
kickbacks to a New York pharmacy company to promote its Exjade drug to
treat excessive iron in the blood, the New York Attorney General
said. The complaint, unsealed on Wednesday, says Novartis paid New
York-based specialty pharmacy company BioScrip to keep
patients on Exjade at a time when the Swiss company feared patients were
discontinuing its use because of harmful side effects.
- Russia again blocks U.N. Security Council from condemning Syria attacks. Russia blocked a U.N. Security Council
statement on Wednesday that would have expressed outrage at deadly
airstrikes by Syrian President Bashar al-Assad's forces and condemned
the use of missiles and "barrel bombs" in towns, U.N. diplomats said.
Russia, a staunch Assad ally, opposed a similar statement on
December 19 that would have condemned attacks by Syrian government
troops on civilians. Russia, joined by China, has also vetoed three
Security Council resolutions that would have condemned Assad's
government and threatened it with sanctions.
- Qualcomm(QCOM) CEO says still in the dark on China antitrust probe.
Qualcomm's CEO
Paul Jacobs said on Wednesday that the U.S. mobile chipmaker still has
not been notified about why it has come under antitrust scrutiny in
China since late last year. In November, Qualcomm announced that China's
National
Development and Reform Commission had launched an antitrust
probe into the company. The chipmaker said it was unaware of any
possible violations.
- U.S. Senate panel to mull regulation of banks, physical commodities. A subcommittee of the powerful Senate
Banking Committee has scheduled a hearing for Jan. 15 to discuss
regulating Wall Street's role in physical commodity markets.
Among the witnesses scheduled to speak at the panel are top oversight
officials with the Federal Energy Regulatory Commission and the
Commodity Futures Trading Commission, and an official from the Federal
Reserve's banking supervision arm. The hearing comes as the Fed
reconsiders exemptions given to banks since the early 2000s that allow
them to engage in the previously prohibited trading of physical
commodities.
Financial Times:
- France
Should Impose Tax on Smartphones, Film Report Says. Govt-commissioned
film industry report revives proposal to introduce 1% tax on sale of
devices such as smartphones, tablets.
Telegraph:
21st Century Business Herald:
- China
to Cut 2014 Railway Fixed-Asset Investment. China's 2014 railway
fixed-asset investment will be lower than the 660b yuan spent in 2013,
citing a person who will attend a railway work conference organized by
China Railway Corp. today. China Railway Corp. is cutting investment to
pay more attention to investment returns, the report says.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 138.50 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 108.0 -1.5 basis points.
- NASDAQ 100 futures -.02%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to fall to 335K versus 339K prior.
- Continuing Claims are estimated to rise to 2850K versus 2833K prior.
Upcoming Splits
Other Potential Market Movers
- The Fed's Kocherlakota speaking, Fed's George speaking, ECB rate decision, BoE rate decision, China Industrial Production/Consumer Confidence, China CPI, $13B 30Y T-Bond auction, Challenger Job Cuts report for December, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the RBC Consumer Outlook for January could also 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 25% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Mixed
- Volume: Slightly Above Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 12.95 +.23%
- Euro/Yen Carry Return Index 148.40 -.10%
- Emerging Markets Currency Volatility(VXY) 9.11 -.11%
- S&P 500 Implied Correlation 50.36 +.86%
- ISE Sentiment Index 155.0 +1.31%
- Total Put/Call .72 +1.41%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.19 +1.52%
- European Financial Sector CDS Index 83.87 +3.74%
- Western Europe Sovereign Debt CDS Index 52.0 unch.
- Emerging Market CDS Index 281.20 +2.64%
- 2-Year Swap Spread 11.0 +.75 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -1.25 +.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- Yield Curve 257.0 +3 basis points
- China Import Iron Ore Spot $131.50/Metric Tonne -1.72%
- Citi US Economic Surprise Index 63.40 +2.4 points
- Citi Emerging Markets Economic Surprise Index 3.10 +1.6 points
- 10-Year TIPS Spread 2.28 +4 basis points
Overseas Futures:
- Nikkei Futures: Indicating -106 open in Japan
- DAX Futures: Indicating +3 open in Germany
Portfolio:
- Higher: On gains in my biotech/medical sector longs, index hedges and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Euro-Area Unemployment at 12.1% Shows Economic Struggles.
Euro-area unemployment held at a record in November as policy makers
struggled to bolster the recovery from the currency bloc’s longest
recession. The jobless rate remained at 12.1 percent, the European
Union’s statistics office in Luxembourg said today. That’s in line with
the median estimate in a Bloomberg News survey of 26 economists.
After several revisions of previous months’ data, unemployment has been
stable at that level since April.
- Did Soros Just Predict a China Crash? George Soros probably shouldn't expect any warm invitations to Beijing -- not with
the much-reviled short seller warning of a giant Chinese crash.
- Europe Stocks Remain Little Changed After ADP Jobs Report.
European stocks were little changed, near their highest level since May
2008, after a report showed U.S. companies hired more workers than
forecast. A gauge of European banks rose for a fourth day as bond yields
fell for the region’s most indebted countries. Celesio AG rallied 9.3
percent amid a report that McKesson Corp. may increase its bid for the
drug distributor. J Sainsbury Plc lost 2.4 percent after the retailer
cut its full-year sales forecast. Kion Group AG slid 2 percent after its
biggest shareholder sold a 10.8 percent stake in the forklift maker. The
Stoxx Europe 600 Index added 0.1 percent to 329.75 at the close of
trading in London after the equity benchmark yesterday climbed to its
highest level in five years and seven months.
- Gold Declines for Third Day on Dollar Strength, U.S. Jobs Data.
Gold futures for February delivery lost 0.7 percent to
$1,220.70 an ounce at 10:02 a.m. on the Comex in New York.
Prices declined 0.7 percent in the previous two days.
- WTI Oil Falls to Five-Week Low on Products Supply. WTI for February delivery dropped 74 cents, or 0.8 percent,
to $92.93 a barrel at 12:30 a.m. on the New York Mercantile Exchange. It touched $92.81, the lowest level since Dec. 2. Futures traded at $93.54 before the release of the report at 10:30 a.m. in Washington. The volume of all futures traded was
13 percent above the 100-day average.
- Companies in U.S. Added 238,000 Jobs in December, ADP Says. Companies added more workers than
projected in December as U.S. employers grew more optimistic
about the prospects for demand, a private report based on
payrolls showed today. The 238,000 increase in employment was the biggest since
November 2012 and followed a revised 229,000 gain in November
that was stronger than initially estimated, according to the ADP
Research Institute in Roseland, New Jersey. The December tally exceeded the most optimistic forecast in a Bloomberg survey in
which the median projection called for a 200,000 advance.
- Treasuries Retreat While U.S. Stocks Fluctuate After Jobs Report. The yield on 10-year Treasury notes rose five basis points to 2.99
percent as of 11:09 a.m. in New York. The Standard & Poor’s 500
Index slid 0.1 percent to 1,836.17. The dollar appreciated versus 14 of
16 major peers and gold dropped 0.7 percent.
- Calls to Drop 1970s-Era U.S. Oil Export Ban Stir Fight. Almost four decades after the Arab oil embargo, political leaders are
beginning to contemplate what was once unthinkable: lifting
restrictions on the export of U.S. crude oil. Senator Lisa Murkowski
of Alaska, the top Republican on the Senate’s energy committee, and the
American Petroleum Institute held events yesterday to push for an end to
the export ban. U.S. Energy Secretary Ernest Moniz has said it’s
time to revisit the policy amid forecasts the U.S. will surpass Saudi
Arabia and Russia to become the world’s largest oil producer by next
year.
- Forest(FRX) Agrees to Acquire Aptalis for $2.9 Billion in Cash. Forest Laboratories Inc. (FRX), maker of the Alzheimer’s drug Namenda, will buy Aptalis Pharma for $2.9
billion, adding treatments for gastrointestinal ailments and
cystic fibrosis.
- J.C. Penney(JCP) Sinks After Statement Lacks Sales Data.
J.C. Penney Co. (JCP) tumbled after raising doubts about its turnaround
by releasing a two-paragraph statement on holiday results that didn’t
include sales data it had provided the previous three months. The shares sank 7.6 percent to $7.57 at 12:13 p.m. in New York and earlier fell as much as 9.3 percent for the largest
intraday drop since Dec. 5.
- Riverbed(RVBD) Receives $3.08 Billion Takeover Offer From Elliott.
Elliott, which along with its affiliates owns about 10.5
percent of Riverbed, offered to pay $19 a share, according to a
statement today, a 6.4 percent premium to the stock’s close
yesterday.
Wall Street Journal:
Fox News:
- Outbreak of 'nightmare bacteria' in Illinois stirs worry. The largest outbreak to date of one strain of what authorities have
called "nightmare bacteria" is adding to concerns about the spread of
such drug-resistant bugs. The outbreak, centered on a hospital in a Chicago suburb, has
infected 44 people in Illinois over the past year, the Centers for
Disease Control and Prevention said. The bug, known as
carbapenem-resistant enterobacteriaceae, bears a rare enzyme that breaks
down antibiotics. "This is a huge cluster," said Alex Kallen, a medical officer with
the CDC and supervisor for the Illinois outbreak investigation, noting
that only 97 cases of the infection have been reported to the agency
since 2009.
- Obama administration under pressure to turn attention back to Iraq. As Al Qaeda-aligned insurgents make unprecedented post-war gains in
Iraq, U.S. military officials and others in the Obama administration are
keeping their distance -- despite mounting calls to ratchet up
involvement amid fears the country is teetering on the brink of civil
war. Administration officials are now trying to find some middle ground,
which so far includes sending additional shipments of Hellfire missiles
to Baghdad, as well as surveillance drones. Lawmakers, though, claim
it's clear the administration could be doing more.
MarketWatch:
- Fed tapered as it saw QE benefits slip over time. Federal Reserve officials agreed in December to start to wind down their
asset-purchase program as most believed that the benefits of the
controversial policy were eroding over time, according to minutes from
their last meeting released Wednesday.
CNBC:
- US moves closer to letting banks into pot business. (video) Recreational marijuana is legal in Colorado and Washington, and
medicinal marijuana laws exist in 20 states. New York soon will become
No. 21 on that list. But federal law currently prohibits banks and
credit card companies from processing pot business transactions. That may all be about to change.
- Consumers say they're shelling out more for health insurance. Feeling lighter in the wallet and unhappier about Obamacare? You're not alone. Support
for the Affordable Care Act has plummeted since late last summer, and
people with employer-based health insurance say they increasingly are
paying more for out-of-pocket medical expenses, a new Bankrate.com
survey released Wednesday revealed.
ZeroHedge:
Business Insider:
Quartz:
Reuters:
- Alibaba division bans bitcoin after China crackdown as IPO looms. China's biggest
online marketplace, Alibaba Group Holding Ltd's Taobao, will ban the
sale of bitcoins on the heels of a government crackdown against the
virtual currency to plug a potential gap in its tight controls on
capital flows.
- 2014’s top 10 political risks by Ian Bremmer.
- Brazil posts biggest dollar outflow in over a decade. Brazil recorded a net foreign exchange outflow of $12.3 billion in 2013, the first negative result since the global financial crisis in 2008, and the
worst deficit since investors panicked over the election of President
Luiz Inacio Lula da Silva in 2002, central bank data showed on
Wednesday.
- High liquidity mustn't create bubbles, Schaeuble says. Policymakers
must closely watch
ultra-high liquidity provided by the world's big central banks to ensure
no new asset bubbles form, German Finance Minister Wolfgang Schaeuble
said on Wednesday, reiterating a long-standing warning. "We must
keep a watch on liquidity levels to ensure new bubbles aren't being
created," Schaeuble said at a news conference with visiting U.S.
Treasury Secretary Jack Lew. "We share a responsibility to do everything
to prevent new crises and new bubbles from emerging," he said, adding
however that politicians should not tell central banks how to do their
jobs.
AP:
- Reversals in Hard-Won Iraqi City Vex Veterans. The
image of two charred American bodies hanging from a bridge as a
jubilant crowd pelted them with shoes seared the name Fallujah into the
American psyche. The brutal house-to-house battle to tame the Iraqi
insurgent stronghold cemented its place in U.S. military history. So it
is no surprise that the city's recent fall to al-Qaida-linked
forces has touched a nerve for the service members who fought and bled
there.
Some call the news "disheartening," saying it revives painful memories of their sacrifice.
Telegraph:
Echoing fears that
European policymakers remain in a state of cognitive dissonance –
recognizing the need for root-and-branch overhaul of peripheral banks,
but backtracking on joint liability plans – Christopher Flowers, the
legendary FIG investor who now runs the £2.3 billion ($3.5 billion)
private equity group JC Flowers, sounded the alarm over the negative
sovereign-bank feedback loop.
In a shot across the bows of market bulls, who cite the return of
capital flows to weaker eurozone states, Flowers issued a stark warning:
"There is a scenario where we have a Lehman-type event: we wake up some
Thursday and a big country is in trouble.
"And the ECB will have to decide to support banks x, y, z. And then the
ECB will, in fact, decide to own bank x, y, z.
While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true
Kyodo:
- Japan's Ruling LDP Scraps No-War Pledge in 2014 Draft. The draft
deletes a phrase vowing devotion to a peaceful state, while adding
language honoring the war dead in the section on visiting the Yasukuni
shrine.
Nikkei:
- Canon FY Op Profit About 320b Yen, Below Forecast. Misses co. forecast of 360b yen. Mean analyst est. 359.6b yen.
Style Underperformer:
Sector Underperformers:
- 1) Coal -1.08% 2) Energy -.85% 3) Retail -.75%
Stocks Falling on Unusual Volume:
- AZZ, AMBA, SNY, BR, KRO, NBIX, RBCN, GLPI, SHOO, TAL, INGR, SI, QCOR, AKRX, FEYE, REV, CLI, HRS, HOMB, CLX, VRSK, SCSS, TXTR, ABAX, GES, ITG, IBKR, GOGO, ARII and TCS
Stocks With Unusual Put Option Activity:
- 1) UTX 2) COH 3) JNPR 4) SNDK 5) BHI
Stocks With Most Negative News Mentions:
- 1) TWTR 2) FB 3) THC 4) HUM 5) GS
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Biotech +1.63% 2) Semis +1.18% 3) Gaming +.87%
Stocks Rising on Unusual Volume:
- FRX, APOL, PWRD, CCIH, STZ, ORMP, TASR, SB, QIHU, FLIR, MCK, BITA, MTW, MU, ROVI, RVBD, SODA, SNDK, YELP, MCK, DV and ENDP
Stocks With Unusual Call Option Activity:
- 1) TMO 2) APOL 3) RVBD 4) HUM 5) IRM
Stocks With Most Positive News Mentions:
- 1) FRX 2) STZ 3) YELP 4) RVBD 5) SBUX
Charts:
Evening Headlines
Bloomberg:
- China’s Credit Hole Seen Limiting 2014 Growth Prospects. China’s new credit probably fell by a record in the second half amid a crackdown on speculative lending, limiting prospects for economic expansion this year as policy makers focus on controlling financial risks. The broadest measure, aggregate financing, was 7.1 trillion yuan ($1.2 trillion) based on published figures plus economists’ median estimate for December data due in coming days. That would be about 931 billion
yuan less than in July-to-December 2012, the largest drop in figures
going back to 2002.
- Crisis Risk Flagged by Haitong as
Debt Snowballs: China Credit. China's second-biggest brokerage said
record debt threatens to trigger a financial crisis as borrowing costs
jump to unprecedented highs despite a cooling economy. Liabilities at
non-financial companies may rise to more than 150% of gdp in 2014,
raising default risks, according to Haitong Securities Co. The ratio of
139% at the end of 2012 was already the highest among the world's 10
biggest economies, according to the most recent data. "We are concerned
that the debt snowball may be bigger and bigger and turn into a crisis,"
Li Ning, a Shanghai-based bond analyst at Haitong Securities, said in
an interview.
- Thai Army Chief Urges Public to Ignore Rumors of a Coup. Thailand’s army chief urged the public not to believe rumors of a possible coup, saying the movement of military hardware into Bangkok was for an annual parade and not to oust Prime Minister Yingluck Shinawatra. “People are scared of something that hasn’t taken place
yet,” Army Chief Prayuth Chan-Ocha told reporters in Bangkok
yesterday. “Don’t be scared if you can’t see it. Everything
must happen for a reason,” he said, before adding, “without a
reason, nothing will happen.”
- Asian Stocks Rebound Before Minutes; Gas Climbs on Cold. Asian stocks climbed for the first time this year as Japanese shares rallied on a weaker yen before the release of Federal Reserve minutes. Gold fell a second day while natural gas advanced. The MSCI Asia Pacific Index rose 0.5 percent by 12:53 p.m. in Tokyo, after falling to a 2 1/2-week low yesterday.
- Rebar Climbs From 7-Month Low on Signs China Supporting Equities.
Steel reinforcement-bar futures rose
for the first time in four days on speculation that China’s government
will take steps to shore up equity markets and as some investors
considered a drop to a seven-month low overdone. Rebar for May delivery on the Shanghai Futures Exchange gained as much as 0.5 percent to 3,481 yuan ($575) a metric ton
and traded at 3,471 yuan at 10:15 a.m. local time. The most-active contract ended at 3,465 yuan yesterday, the lowest close
since its inception in May.
- Stress Tests Spurring $82 Billion Bad Debt Selloff: Euro Credit.
Skaters gliding across the ice rink
at the five-star Le Meridien Lav hotel are unwitting extras in the final
acts of the financial crisis as they practice their turns on the shores
of the Adriatic Sea. Paying as much as 700 euros ($952) a night,
they’ve kept the Split, Croatia-based hotel afloat since it was seized
by Hypo Alpe-Adria-Bank International AG when the owners failed to
manage repayments on about 50 million euros of loans.
- EU Puts Banking-Union Credibility on Line in Resolution Talks. The credibility of Europe’s efforts
to restore confidence in its financial system hangs in the
balance as lawmakers try to broker a deal on a bank-failure
authority for the 18-nation euro area. As U.S. Treasury Secretary Jacob J. Lew tours European
Union capitals to push for tougher banking regulations,
negotiators in Brussels begin a sprint today to create a central
agency for saving or shuttering euro-zone banks before elections
in May.
- Hedge Funds Up 7.4% in 2013 to Trail S&P 500 for Fifth Year. Hedge funds returned an average of
7.4 percent in 2013, trailing the Standard & Poor’s 500 Index (SPX)
for the fifth straight year as U.S. markets rallied to record
levels. Hedge funds rose less than 0.1 percent in December,
compared with the S&P 500’s 2.4 percent return. The Bloomberg
Hedge Funds Aggregate Index is down 1.8 percent from its July
2007 peak. The index is weighted by market capitalization and
tracks 2,257 funds, 1,264 of which have reported returns for
December.
Wall Street Journal:
- Top 10 Revelations From Robert Gates’s Memoir. Mr. Gates says that domestic politics factored into “virtually every
major national security problem” the Obama White House faced. At one
point, Mr. Gates writes, he witnessed a conversation between Mr. Obama
and Mrs. Clinton in which the president “conceded vaguely” that his
opposition to the 2007 military surge in Iraq was a political
calculation. Mr. Gates called the exchange “remarkable.”
- Selloff Accelerates in Emerging Markets. Worries Over Coming Elections, Growth Prospects Rattle Investors. Investors are bailing out of emerging
markets from Turkey and Brazil to Thailand and Indonesia, extending a
selloff that began last year, amid concerns about faltering economies
and political unrest. Indonesia's
currency on Tuesday hit its lowest level against the dollar since the
financial crisis in Asia trading. Meanwhile, the Turkish lira plumbed
record lows against the greenback this week. The
MSCI Emerging Markets Index, a gauge of stocks in 21 developing
markets, slipped 3.1% in the first four trading days of 2014, building
on a 5% loss in 2013. This compares with double-digit-percentage rallies
in stock markets in the U.S., Japan and Europe last year.
- The Future of Coal: New Pollution Rules Choke Old Power Plants. Southern Co. Builds New Plant That Captures CO2. The Price: $5.24 Billion. The world was riveted in October by eerie
photos of Harbin, an industrial city in northeastern China that was
smothered by thick smog from burning coal. The
U.S. had its own encounters with choking pollution several decades ago.
Though nearly forgotten today, the incidents sparked the creation of
the Environmental Protection Agency and federal regulations that have
reshaped the electricity industry—then and now the country's largest
industrial source of air pollution.
- Shanghai Tower Developers Seek Leasing Agent. The state-owned developer of what will be China's tallest building is
taking the unusual step of moving to hire a leasing agent, underscoring
the challenges of finding tenants as the country's economy cools.
- Federal Probe Targets Banks Over Bonds. Inquiry Looks for Deliberate Mispricing of Mortgage Bonds Key to Financial Crisis.
Federal investigators are probing whether a number of Wall Street banks
cheated clients in the years following the financial crisis by
deliberately mispricing a type of mortgage bond that was central to the
economic turmoil, according to people close to the inquiry. The
investigation is a potential blow to the banks, who are just starting to
move on from years of intense scrutiny tied to their roles in the
crisis.
Fox News:
- Former Defense Secretary Robert Gates slams Obama's leadership style in new book. Former Defense Secretary Robert Gates, in his upcoming memoir, has
harsh words for President Obama’s leadership style and commitment to the
Afghanistan war, accusing the president of losing faith in his own
strategy. “For him, it’s all about getting out,” he wrote. The tone of Gates’ book is a break from Washington decorum, in which
former Cabinet members rarely level tough judgments against sitting
presidents. Gates writes that by early 2010 he had concluded the president
“doesn’t believe in his own strategy, and doesn’t consider the war to be
his.” The book, “Duty: Memoirs of a Secretary at War,” is scheduled for a
Jan. 14 release by the Knopf DoubleDay Publishing Group. Excerpts,
confirmed by Fox News, were first reported by The Washington Post and
New York Times.
- Vermont plots course for single-payer health care system. While all eyes are on the ObamaCare rollout, an ambitious health care
experiment is going forward in Vermont that would create a
government-run alternative know as a "single-payer" system -- and it's
starting to attract more attention from liberals frustrated with the
Affordable Care Act's implementation.
CNBC:
Zero Hedge:
Business Insider:
FXStreet.com:
Crain's Chicago Business:
- Chicago vote set on $15 minimum wage.
In a potentially big development that hasn't drawn much attention, the
Chicago Board of Elections gave the OK for a vote in March on whether
the city ought to implement a $15-an-hour minimum wage for many
companies.
The Blaze:
Reuters:
- Fed's Williams expects steady, measured cuts to bond buys.
The Federal Reserve will
make gradual cuts to its massive bond- buying program in coming months
as long as the economy continues to improve, and only a significant
deviation from those expectations would force it to
change tack, a top Fed official said on Tuesday.
"I see us continuing, over the next few meetings, steady
measured reductions in the pace of asset purchases," San
Francisco Federal Reserve Bank President John Williams told
reporters after a speech.
South China Morning Post:
- China
Develops 'Too Dangerous' Web-Profiling Program. Program developed by
Chinese Academy of Sciences can determine an Internet-user's personality
with 90% accuracy, citing Zhu Tingshao, director of academy's
Computational Cyber Psychology Lab. Program is too dangerous to let out
of lab without greater privacy protections.
21st Century Business Herald:
- China
May Levy Property Taxes on Rural Real Estate. Chinese authorities are
considering the possibility of levying property taxes on real estate
built on collectively-owned land in rural areas, citing a person close
to the Ministry of Housing and Urban-Rural Development.
Evening Recommendations
CSFB:
- Rated (CAKE), (CMG), (EAT), (SBUX) Outperform.
- Rated (DRI) Underperform.
Night Trading
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 137.0 +2.5 basis points.
- Asia Pacific Sovereign CDS Index 109.50 unch.
- NASDAQ 100 futures +.04%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:15 am EST
- ADP Employment Change for December is estimated at 200K versus 215K in November.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-1,651,000 barrels versus a -7,007,000 barrel decline the prior week.
Gasoline supplies are estimated to rise by +2,430,000 barrels versus a
+844,000 barrel gain the prior week. Distillate inventories are
estimated to rise by +2,060,000 barrels versus a +5,042,000 barrel gain
the prior week. Finally, Refinery Utilization is estimated to rise by
+.28% versus a -.3% decline the prior week.
2:00 pm EST
- Dec. 17-18 FOMC Meeting Minutes.
3:00 pm EST
- Consumer Credit for November is estimated at $14.250B versus $18.186B in October.
Upcoming Splits
Other Potential Market Movers
- The
China Trade data, Eurozone retail sales, $21B 10Y T-Note auction,
Goldman Sachs Energy Conference, (ROVI) investor meeting and the weekly
MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and consumer
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 day.
Broad Equity Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Volume: Around Above Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 12.97 -4.28%
- Euro/Yen Carry Return Index 148.42 +.15%
- Emerging Markets Currency Volatility(VXY) 9.15 -2.56%
- S&P 500 Implied Correlation 49.60 -1.80%
- ISE Sentiment Index 165.0 +29.92%
- Total Put/Call .70 -1.45%
Credit Investor Angst:
- North American Investment Grade CDS Index 63.77 +1.19%
- European Financial Sector CDS Index 80.82 -1.13%
- Western Europe Sovereign Debt CDS Index 52.0 -3.98%
- Emerging Market CDS Index 274.11 +.38%
- 2-Year Swap Spread 10.25 -.5 basis point
- TED Spread 20.0 +.75 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -1.75 +2.5 basis points
Economic Gauges:
- 3-Month T-Bill Yield .04% -1 basis point
- Yield Curve 254.0 -3 basis points
- China Import Iron Ore Spot $133.80/Metric Tonne -.74%
- Citi US Economic Surprise Index 61.0 +11.9 points
- Citi Emerging Markets Economic Surprise Index 1.5 -.1 point
- 10-Year TIPS Spread 2.24 -1 basis point
Overseas Futures:
- Nikkei Futures: Indicating +186 open in Japan
- DAX Futures: Indicating +1 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/tech/medical sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- Euro-Area Inflation Slows to 0.8% as Economy Strains to Grow.
Euro-area inflation slowed in
December, retreating farther from the European Central Bank’s ceiling as
the 18-nation currency bloc struggled to strengthen its recovery from a
record-long recession. The annual rate dipped to 0.8 percent from
0.9 percent in November, the European Union’s statistics office in
Luxembourg said in a preliminary estimate today. That’s in line with
the median forecast in a Bloomberg News survey of 31 economists. The
rate has been below the ECB’s 2 percent ceiling for 11 months,
and sank to a four-year low of 0.7 percent in October.
- Gold Falls for Second Day on Dollar Rally, Fed Taper Bets.
Gold futures for February delivery fell 0.8 percent to
$1,227.60 an ounce at 9:56 a.m. on the Comex in New York.
Yesterday, the price settled less than 0.1 percent lower after
plunging by more than $30 in about a minute, spurring a 10-second trading pause.
- Syria Rebel Infighting Erupts on Rising al-Qaeda Influence. Syrian rebels seeking to topple
President Bashar al-Assad are turning on al-Qaeda militants who
previously fought alongside them as the rising influence of the
group threatens to scuttle their foreign backing. Fighters from the Free Syrian Army, the main rebel force,
and other Islamist groups clashed with the al-Qaeda linked
Islamic State of Iraq and the Levant in its northeastern
stronghold, the U.K.-based Syrian Observatory for Human Rights
said yesterday. Other battles broke out in the northern Aleppo
province. At least 274 people, including 46 civilians, were killed in
fighting from Jan. 3 to Jan. 6, the Observatory said in an e-mailed statement.
- Yellen’s Record-Low Senate Support Reflects Fed’s Politicization.
Janet Yellen’s confirmation as chairman of the Federal Reserve with the
least Senate support on record shows that the central bank still faces
intense political scrutiny six years after the financial crisis. The
Senate vote of 56-26 to confirm Yellen means she garnered even less
support than outgoing Chairman Ben S. Bernanke, whose 2010 confirmation
for a second term by a vote of 70-30 represented the most opposition for a Fed chief.
Bernanke’s term ends Jan. 31.
- Rosengren Signals Support for Taper Strategy After Dissent.
Federal Reserve Bank of Boston President Eric Rosengren, the only
dissenter against a Fed decision to taper bond buying, said he is now
comfortable with the strategy to gradually cut monthly purchases in the
future. “I preferred to wait before beginning the program, but the
program it looks like we’re embarked on is a very gradual program and I
think a gradual removal of accommodation is appropriate,” Rosengren said today in an interview with Bloomberg News, indicating he would not persist in objecting to
the Fed’s strategy.
Wall Street Journal:
- Brazil Stocks Reverse to Decline Intraday on Ratings Worries. Brazil's Bovespa stocks index gave up an early advance to decline in
intraday trading Tuesday following talk that ratings agency Standard
& Poors could consider lowering the country's credit ratings in
2014. As of 12:30 p.m. EST, the main Sao Paulo index declined 0.9% to 50,513 points. Traders noted the Bovespa erased moderate gains posted earlier in the
session after reports that S&P representatives in a roundtable
discussion with journalists Tuesday affirmed they might still consider a
ratings cut this year before Brazil's October general elections.
CNBC:
- Danger on the rails: New rules could hit stocks. Recent
accidents involving crude oil being shipped from the Bakken area of
North Dakota and Montana are raising eyebrows on Wall Street and have
analysts looking at companies that could be exposed to new rules
governing oil shipments
from the region.
ZeroHedge:
Business Insider:
Reuters:
Telegraph:
-
Eurozone losing 'safety margin' against deflation trap as core gauge falls to record low. Fall in inflation raises fears that eurozone is 'sleepwalking into a deflation
trap'.
The great unknown is what will happen in China, now the epicentre of global
risk. Societe Generale said Beijing may be tempted to push down the yuan to
cushion the blow as it pops the credit bubble, and to counter devaluation by
Japan. This would risk a repeat of the East Asia currency war in 1998, this
time on a bigger scale and with the world less able to handle the
consequences.
Xinhua:
- China to Improve GDP Calculation Method in 2014. Ma Jiantang,
head of China's statistics bureau, said China will be rigorous in
calculating quarterly GDP data and local GDP data this year. China faces
problem that the sum of provincial GDP data is higher than the national
figure, the report said. NBS will steadily promote setting up a
"national unified economic calculation system," Ma said.
Style Underperformer:
Sector Underperformers:
- 1) Coal -1.70% 2) Gold & Silver -1.15% 3) Steel -1.02%
Stocks Falling on Unusual Volume:
- TWTR, NFLX, PKY, PKT, PBF, TXTR, HGG, EIG, DL, HTGC, CST, MGI, GPOR, PEGI, DISH, TREX, KMX, NOAH, MON, MKTO, MAT, VRTU, MANH, ARMH, ADS, KORS and CCRN
Stocks With Unusual Put Option Activity:
- 1) VWO 2) CBS 3) DXJ 4) FDO 5) JCP
Stocks With Most Negative News Mentions:
- 1) RSH 2) MAT 3) KORS 4) GPOR 5) CHK
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Computer Hardware +2.79% 2) Gaming +2.49% 3) HMOs +2.41%
Stocks Rising on Unusual Volume:
- NBIX, EPZM, CRAY, ANIP, CVG, PCYC, VRX, WPRT, SONC, WDAY, RMTI, SYNA, P, SPLK, PVA, SUNE and LNG
Stocks With Unusual Call Option Activity:
- 1) ELNK 2) HA 3) DISH 4) SD 5) EOG
Stocks With Most Positive News Mentions:
- 1) LMT 2) T 3) PCYC 4) INTC 5) GOOG
Charts:
