Evening Headlines
Bloomberg:
- China Money Rate Jumps Most This Year as PBOC Skips Injections. China’s benchmark money-market rate surged by the most this month as the central bank refrained from adding funds even as dealers expect tax payments and pre-holiday demand to reduce the supply of cash. The People’s Bank of China didn’t issue 14-day reverse-repurchase agreements today, the second week it hasn’t injected any money, according to data compiled by Bloomberg. The seven-day repurchase rate, a gauge of
cash availability in the banking system, jumped 27 basis points to 4.29
percent as of 11:01 a.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That was the biggest
increase since Dec. 31.
- Actavis to Exit China as Unfriendly Government Not Worth It. Actavis Plc, the second-biggest
generic drugmaker by market capitalization, said it will end its
presence in China because of the difficult business climate. While the country has more than 1.3 billion potential
customers, the government has made it a difficult place to
conduct business, Actavis Chief Executive Officer Paul Bisaro
said in an interview. The company has sold one operation there
and is in talks to sell another. “It is not a business friendly environment,” Bisaro said
at the JPMorgan Chase & Co. health-care conference in San
Francisco. “If we’re going to allocate capital, we’re going to
do so where we can get the most amount of return for the least
amount of risk. And China is just too risky.”
- Asian Stocks Rise.
Asian stocks rose for a second day as better-than-projected bank
earnings boosted investor confidence and drove U.S. stock gauges to
record highs. China South City Holdings Ltd. soared 57 percent in Hong
Kong as Tencent Holdings Ltd. said it will buy a stake in the
logistics-center operator. Newcrest Mining Ltd., Australia’s biggest
gold producer, jumped 6.6 percent after saying gold
production will be around the top of its forecast range. Tokyo
Electric Power Co. rose 1.4 percent as the Japanese utility’s
profit forecast exceeded analyst estimates.
The MSCI Asia Pacific Index rose 0.2 percent to 139.67 as
of 11:24 a.m. in Tokyo.
- Rebar Falls From One-Week High Amid China’s Lower Credit Growth. Steel
reinforcement-bar futures
dropped for the first time in three days in Shanghai, slipping from a
one-week high, amid concern that China’s lower credit growth may crimp
demand for the building material. Rebar for May delivery on the
Shanghai Futures Exchange retreated as much as 0.5 percent to 3,481 yuan
($576) a metric ton before trading at 3,490 yuan at 10:14 a.m. local
time.
- Brazil Lifts Rate to 10.5% as CPI Defies Biggest Rate Rise. Brazil’s central bank maintained the
pace of the world’s biggest interest rate increases after
inflation last month surged the most in more than a decade. The bank’s board, led by President Alexandre Tombini, voted
8-0 to raise the benchmark Selic by a half-point for a sixth
straight meeting to push the key rate to 10.50 percent from 10
percent.
- RBS to UBS Boosting Junk-Debt Teams Once Gutted:
Credit Markets. Dealers from Royal Bank of Scotland Group Plc to UBS AG
that gutted their credit units after the 2008 financial crisis are now
hiring to trade junk debt, seeking to tap into the biggest fixed-income
gains during the past year.
- BNP Derivatives Boss Says Few Banks Are Making Money in Equities. Most
banks are losing money trading
stocks in Europe when their cost of capital is considered, said the top
equity derivatives executive at BNP Paribas SA. (BNP) “A lot of banks
are running unprofitable equity businesses, which cannot be
sustainable,” Yann Gerardin, head of global equities and commodity
derivatives at France’s largest bank, said in an interview in Paris.
Barclays Plc (BARC), UniCredit SpA and Nomura Holdings Inc. are among
banks that have cut their equity businesses in Europe amid a decline in
trading volumes and profitability. Europe’s biggest investment banks’
return on equity has tumbled to between 10 percent and 12 percent on
average in the past three years, close to their cost of capital,
according to analysts at Barclays Capital.
- Big Banks Face Sharper Risk-Management Focus in OCC Policy Shift. Big
banks such as JPMorgan Chase & Co. (JPM) may face quicker
reprimands for risk-management failures under a new Office of the
Comptroller of the Currency effort set to be announced tomorrow. The
national-bank regulator’s policy shift will remove hurdles to targeting
lenders with certain enforcement actions, according to OCC Chief
Counsel Amy Friend. The change follows Comptroller Thomas Curry’s push
to clean up management at banks
hit with billions of dollars in penalties over misdeeds in the
wake of the 2008 credit crisis.
- Banks Push for Changes to Volcker Rule Following CDO Fix. Bank-industry groups and Republican
lawmakers called for broader Volcker Rule revisions a day after
regulators permitted exemptions for some collateralized debt
obligations faulted for obscuring lenders’ capitalization. Representatives of the Securities Industry and Financial
Markets Association and other groups joined House Financial
Services Committee members in highlighting the “unintended
consequences” of the proprietary-trading rule at a Washington
hearing today. Lawmakers and lobbyists alike said yesterday’s
move to shield some CDOs backed by trust-preferred securities
wasn’t enough to protect banks and the public from harm.
- Citigroup(C) Sells Servicing to Fannie Mae on $10 Billion Loans. Citigroup
Inc. (C), the third-largest U.S. lender, agreed to sell servicing
rights for about 64,000 Fannie Mae residential first-mortgage loans as
it seeks to reduce a portfolio of unwanted assets. The contracts,
held in the Citi Holdings unit, are tied to loans with about $10.3
billion in unpaid principal balances, the New York-based bank said today
in a statement. Fannie Mae acquired the rights and will transfer the
servicing of the loans to another firm, Andrew Wilson, a Fannie Mae
spokesman, said in a phone interview. Terms weren’t specified.
Wall Street Journal:
- Australia Dollar Tumbles After Weak Jobs. Asian stocks moved higher on Thursday, while
the Australian dollar fell to its lowest in over three years against
the U.S. dollar following weak jobs data. The
Australian dollar fell as low as US$0.8796, a level not seen since
August 2010, from US$0.8912 late Wednesday in New York as the number of
people employed unexpectedly fell by 22,600 in December, undershooting a
forecast for a 10,000 increase.
- How Big Government Drives Inequality by Daid Malpass. Stifling economic growth and benefiting insiders with Washington access do not help the middle class. Inequality is the wedge issue that Democrats hope will carry them
through the 2014 and 2016 elections, neutralizing the ObamaCare fiasco.
The issue has popular appeal because median incomes (after inflation)
have been falling throughout the recovery, while high-end incomes are
increasing rapidly. For progressives, this situation seems made to order: If you want a
flatter income distribution, don’t you need bigger government to get it?
Yet experience shows the opposite: Washington’s increased size and
power has concentrated income and wealth in fewer hands. Making
government bigger will exacerbate this problem—it is already too big,
intrusive and expensive to allow a robust economy that benefits
everyone.
CNBC:
- NLRB files retaliation complaint against Wal-Mart. The National
Labor Relations Board said Wednesday it filed a complaint against
Wal-Mart Stores Inc, alleging the world's largest retailer threatened
people with reprisal if they mounted strikes against the company.
- South Korean fund weighs Bank of America stake sale. Korea
Investment Corp (KIC) will decide whether to sell its around $1 billion
stake in Bank of America within a month, after watching its value fall
by half since 2008, Korean media reported on Thursday.
- Amazon(AMZN) Warehouse Workers Vote Against Joining Union.
In the first vote of its kind among workers employed by Amazon in the
U.S., a group of up to 30 of the commerce giant’s warehouse workers at a
Delaware distribution center voted against unionization today. The
group, which consists of equipment technicians and mechanics, was voting
on whether it wanted to join the International Association of
Machinists and Aerospace Workers. A source with knowledge of the vote
told Re/code that 27 of the 30 workers voted, and 21 voted against unionization.
Zero Hedge:
Business Insider:
NY Post:
- Another 25 Million ObamaCare Victims. It now looks like ObamaCare will hurt twice as many people as it
helps — because the law isn’t nearly done with canceling people’s
insurance. The 5 million-plus Americans who’ve seen their health plans canceled
thanks to ObamaCare will be joined by millions more this year — because
the Affordable Care Act makes their employer-provided policies illegal,
as well.
NY Times:
- With China Awash in Money, Leaders Start to Weigh Raising the Floodgates. Move
over, Janet Yellen and Ben Bernanke. Step aside, Mario Draghi and
Haruhiko Kuroda. When it comes to monetary stimulus, Zhou Xiaochuan, the
longtime governor of the People’s Bank of China, has no rivals. The
latest data released by China on Wednesday show that the country’s
rapid growth in money supply has continued. Mr. Zhou and his colleagues
at the Chinese central bank have only begun the difficult and dangerous
task of reining it in. The
amount of money sloshing around China’s economy, according to a broad
measure that is closely watched here, has now tripled since the end of
2006.
Reuters:
- Early holidays point to grim outlook for China's small factories. Scores
of
factories in China's manufacturing heartlands have closed earlier than
usual for the country's biggest annual holiday due to weak orders and
rising costs, workers and owners say, suggesting a rocky outlook for a
key sector of the economy. While official trade data remains mildly
positive, visits to five factory towns in coastal industrial hubs found
that in some areas perhaps a third of manufacturers had already begun
closing weeks before the Lunar New Year break in late January. In
some cases anemic orders from key markets such as the United States and
Europe were blamed. Others were being forced to curtail production
because of a labor shortage, a symptom of shifting demographics, that
has afflicted manufacturers for several years and many say is getting
worse. "Lots of people have left already. I would say around a third
of the workers," said Ren Lipeng, a factory worker riding a rusty
bicycle along a dusty avenue where many shops and restaurants were
shuttered in Changping, southern China.
- Exclusive: China's CITIC backs new fund set up by ex-FX Concepts execs. CITIC Capital
Holdings Ltd, a unit of China's sovereign wealth fund, has invested in a
new U.S.-based asset management fund set up by former executives of
bankrupt hedge fund FX Concepts, two sources familiar with the matter
said on Wednesday.
The new fund will be run by Bob
Savage, FX Concepts' former chief operating officer and chief
strategist, and Ron DiRusso, the firm's co-chief investment officer and
director of research.
- CSX(CSX) 4th-qtr profit misses Street view; coal volumes weak. CSX on Wednesday posted a
fourth-quarter profit that fell short of Wall Street's estimates
as rising shipments of chemicals, autos and agricultural products failed to make up for weak coal volumes. Shares of the company fell 3 percent after the bell.
- Shrugging off China risks, Australia miners dig deep for more iron ore. Australian miners shoveled record
tonnages of iron ore in the December quarter, supported by billions of
dollars worth of expansion plans coming on stream and despite signs of weakening demand from top consumer China.
Iron ore continues to generate big returns even as prices fall, and
miners in Australia - the world's biggest supplier - are counting on
economies of scale to maintain profits for the steel making material.
- Riskier financings persist amid regulatory warnings.
Investor demand for deals that regulators view as risky,
including a $1.1 billion loan for software maker Applied Systems , shows
no signs of abating, but banks are looking at new transactions more
carefully to try to avoid raising red flags with regulators. U.S.
market watchdogs are trying to clamp down on loans with higher leverage
levels and dodgier repayment prospects, seeking to avert the problems
emanating from the mortgage market that spurred the last financial
markets meltdown and recession.
Telegraph:
The Globe and Mail:
- Household-debt surge merits caution, but don’t panic, Harper says. Prime
Minister Stephen Harper says rising household debt levels are “not a
reason to panic,” but urged Canadians to consider what will happen when
interest rates rise in the coming years. Mr. Harper made the
comments in a 45-minute discussion with what he called “cultural media”
in Vancouver last week. It was unannounced publicly and closed to major
media outlets, including The Globe and Mail, but a recording of the
event was obtained and posted online by 24 Hours, a Sun Media paper in
Vancouver.
NHK:
- Abe Aide Says 10% Sales Tax Possible if 3Q GDP Growth >3%. Etsuro Honda, an adviser to Japanese Prime Minister Shinzo Abe, says it is possible for Japan to raise sales tax to 10% if 2014 3Q real GDP growth is above 3% and nominal GDP growth above 4%.
Shanghai Securities News:
- China Reforms Should Reduce Financial Risks. China should use
financial reforms to effectively reduce financial risks, Chen Daofu, a
researcher at the State Council's Development Research Center, writes in
an article. Financial risks include more bad loans from banks and
shocks in the stock and property markets, Chen writes.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 139.0 -1.0 basis points.
- Asia Pacific Sovereign CDS Index 106.50 -2.0 basis points.
- NASDAQ 100 futures +.11%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Consumer Price Index for December is estimated to rise +.3% versus unch. in November.
- The CPI Ex Food & Energy for December is estimated to rise +.1% versus a +.2% gain in October.
- Initial Jobless Claims are estimated to fall to 328K versus 330K prior.
- Continuing Claims are estimated to fall to 2850K versus 2865K prior.
9:00 am EST
- Net Long-Term TIC Flows for November are estimated to fall to $18.5B versus $35.4B in October.
10:00 am EST
- The Philly Fed Business Outlook Index for January is estimated to rise to 8.7 versus 7.0 in December.
- The NAHB Housing Market Index for January is estimated at 58 versus 58 in December.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Bernanke speaking, Fed's Williams speaking, Eurozone CPI, weekly
EIA natural gas inventory report, Bloomberg Jan. US Economic Survey,
Bloomberg Economic Expectations Index for January, weekly Bloomberg
Consumer Comfort Index, (ILMN) investor day and the (BBY) holiday sales
report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 12.11 -1.38%
- Euro/Yen Carry Return Index 148.38 -.19%
- Emerging Markets Currency Volatility(VXY) 8.58 +1.42%
- S&P 500 Implied Correlation 50.84 +2.54%
- ISE Sentiment Index 175.0 +10.76%
- Total Put/Call .75 +10.29%
Credit Investor Angst:
- North American Investment Grade CDS Index 63.38 -2.31%
- European Financial Sector CDS Index 84.54 -2.10%
- Western Europe Sovereign Debt CDS Index 50.0 -3.84%
- Emerging Market CDS Index 282.18 -.76%
- 2-Year Swap Spread 12.75 +.5 basis point
- TED Spread 20.25 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap .75 +2.0 basis points
Economic Gauges:
- 3-Month T-Bill Yield .04% +1 basis point
- Yield Curve 249.0 +1 basis point
- China Import Iron Ore Spot $129.60/Metric Tonne +.08%
- Citi US Economic Surprise Index 72.70 +2.4 points
- Citi Emerging Markets Economic Surprise Index .5 -.1 point
- 10-Year TIPS Spread 2.27 +2 basis points
Overseas Futures:
- Nikkei Futures: Indicating +68 open in Japan
- DAX Futures: Indicating +31 open in Germany
Portfolio:
- Higher: On gains in my medical/tech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- ECB Said to Favor 6% Capital Requirement in Stress Test.
The European Central Bank favors requiring banks to show their capital
won’t fall below 6 percent of their assets when it puts them through a
simulated recession later this year, said two euro-area officials with
knowledge of the matter.
- Europe Stocks Advance for Fourth Day; Burberry Increases. European stocks rose, with the benchmark Stoxx Europe 600 Index reaching a six-year high, after the World Bank raised its global growth forecast. Burberry Group Plc gained 4.6 percent after the U.K.’s largest luxury-goods maker reported quarterly revenue that topped analysts’ estimates. Peugeot SA and Daimler AG gained as a gauge of European carmakers posted the best performance of 19 industry groups in the Stoxx 600. Chr. Hansen A/S declined 4.8 percent after it said net income missed projections. The Stoxx 600 climbed 1 percent to 334.51 at the close of trading in London.
- Dollar Climbs to Highest in 4 Months as Growth Boosts Taper Bets.
The dollar rose to the highest in
four months as signs the world’s biggest economy is recovering fueled
speculation the Federal Reserve will keep monetary cutting stimulus. The
Bloomberg Dollar Spot Index (SAPMI), which measures the currency’s
value against 10 major counterparts, gained 0.5 percent to 1,030.03 at
1:18 p.m. New York time and touched
1,030.54, the strongest since Sept. 9. It jumped 0.4 percent
yesterday. The dollar rose 0.6 percent to $1.3592 per euro after
sliding to $1.3699 yesterday, the weakest since Jan. 2. The U.S.
currency gained 0.4 percent to 104.64 yen after jumping 1.2
percent yesterday. The euro dropped 0.2 percent to 142.22 yen.
- WTI Crude Climbs After U.S. Inventories Tumble to 22-Month Low. West Texas Intermediate crude
advanced after a government report showed that U.S. inventories
tumbled to the lowest level in almost 22 months. Futures rose as much as 2.1 percent. WTI for February delivery climbed $1.82, or 2 percent, to
$94.41 a barrel at 12:34 p.m. on the New York Mercantile
Exchange. The contract traded at $93.46 before the release of
the report at 10:30 a.m. in Washington. The volume of all
futures traded was 27 percent above the 100-day average.
- Artic Cold Begins to Sweep Into the U.S. Next Week. Lows of zero degrees Fahrenheit
(minus 18 Celsius) for Chicago and single-digit readings from Washington to Boston are possible by next week,
said Matt Rogers, president of Commodity Weather Group LLC. Average
temperatures in the eastern U.S. are expected to be at least 3 degrees
below normal from Minnesota to Alabama and across the East from Jan. 20
to 24, said Rogers, based in Bethesda, Maryland. That would be followed
by a more widespread
and intense outbreak of cold from Jan. 25 to 29.
- CLOs Should Be Exempt From Volcker Rule Clause, LSTA's Ganz Says.
The Loan Syndications and Trading Association is warning regulators
that the Volcker Rule may force U.S. banks to sell their holding of
collateralized loan obligations and reduce credit to U.S. companies.
"The final rule as written would cause banks to recognize significant
losses on otherwise safe, high-quality assets, which furthers no
regulatory objective," Elliot Ganz, general counsel at the NY-based
trade group, said today. The LSTA is asking regulators to modify parts
of the rule so CLOs aren't treated as equity securities, which would
make them ineligible to be held by banks.
Wall Street Journal:
- IMF Chief Warns on Rising Risks of Deflation. Lagarde Says 'Growth Stuck in Low Gear', Too Fragile. The head of the International Monetary Fund
Wednesday warned that deflation in advanced economies threatens to
derail a strengthening, but still fragile global recovery this year,
requiring central banks in the U.S. and Europe to keep easy money
flowing. "With inflation running below
many central banks' targets, we see rising risks of deflation, which
could prove disastrous for the recovery," IMF Managing Director
Christine Lagarde said in a speech at the National Press Club. "If inflation is the genie, then deflation is the ogre that must be fought decisively," she said.
Fox News:
- Senate report: Benghazi attackers tied to Al Qaeda groups. A comprehensive report by the Senate Intelligence Committee definitively declared that individuals tied to Al Qaeda groups were
involved in the Benghazi attack, challenging recent claims that the
terror network was not a factor. The report was released Monday, nearly one year after then-Secretary
of State Hillary Clinton, under congressional questioning over the
nature of the attack, shouted at lawmakers: “What difference, at this
point, does it make?”
MarketWatch:
- Bank of America's(BAC) 4Q net surges as credit improves.
Bank of America Corp.'s fourth-quarter profit surged sharply, beating
analyst estimates, as the banking giant bounced back from a year-ago
weighed down by one-time
charges, while also benefiting from stronger credit quality.
CNBC:
- Jim O’Neill: Global income redistribution could be coming. (video) "I wonder if we could be in the very early stages of a redistribution of
wealth from capital back to mass income through government policies,
whether it be from taxes or things being done to boost minimum wages,"
O'Neill told CNBC's "Squawk on the Street" on Wednesday. "But obviously this is something else just as human
beings, nevermind investors, that we all have to watch closely."
ZeroHedge:
ValueWalk:
Business Insider:
Reuters:
- Fed's Evans: reasonable to continue to taper unless get 'really offbeat' data. Chicago Federal Reserve
Bank president Charles Evans, one of the Fed's most dovish
policymakers, told reporters he expects the U.S. central bank to
continue to taper its massive bond-buying at a measured pace of
perhaps $10 billion at each meeting, unless data comes in
unexpectedly weak.
"At the moment the plan seems quite reasonable," he told
reporters after a speech here. Bond-buying will likely continue
until after the first half of the year, he said, although if
data comes in better than expected, the Fed could taper the
program more aggressively. Asked if the Fed could pause its program of tapering should
data weaken, Evans suggested that was unlikely, because the Fed
has determined to move away from bond-buying and toward forward
guidance on rate policy as its main tool.
Financial Times:
- China’s shadow banking loans leap. Funding
from trust companies and other entities in the shadow sector rose to
its highest level on record and accounted for 30 per cent of the
Rmb17.3tn ($2.9tn) in total credit issued last year, the People’s Bank
of China said, up from a 23 per cent share of aggregate financing in
2012.
Style Underperformer:
Sector Underperformers:
- 1) Airlines -.71% 2) Biotech -.70% 3) Energy -.60%
Stocks Falling on Unusual Volume:
- LKQ, IHS, QIWI, NUS, FAST, MMYT, KOS, GM, XONE, BPT, SBGI, VC, USNA, SPH, HTWR, ABG, PETM, LAD, ORMP, UBNT, BCRX, ULTA, NFLX, UN, INCY, ENOC, ECOM, ICE, AN, NXST, LIN and VEEV
Stocks With Unusual Put Option Activity:
- 1) EWJ 2) FAST 3) ULTA 4) XONE 5) KRE
Stocks With Most Negative News Mentions:
- 1) XEL 2) TGT 3) SPLS 4) GRPN 5) CELG
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Coal +2.37% 2) Oil Tankers +2.11% 3) Computer Hardware +1.57%
Stocks Rising on Unusual Volume:
- NUVA, FEYE, MWW, KBR, GMED, MDRX, NQ, NTAP, TDC, BAS, MWV, REXX, RHI and IPI
Stocks With Unusual Call Option Activity:
- 1) VNDA 2) NTAP 3) NUS 4) TDC 5) BEAM
Stocks With Most Positive News Mentions:
- 1) T 2) BAC 3) GM 4) 5) GOOG
Charts:
Evening Headlines
Bloomberg:
- China’s Credit Growth Slows. China’s
broadest measure of new credit fell in December while money-supply
growth and new yuan loans trailed estimates amid a cash crunch and
government efforts to curb speculative lending. Aggregate financing was
1.23 trillion yuan ($204 billion), the People’s Bank of China said today
in Beijing. That compared with 1.63 trillion yuan a year earlier.
China’s foreign-exchange reserves, the world’s largest, rose to a record
$3.82 trillion at the end of December from September’s $3.66 trillion. A
record decline in new credit in the second half is set to limit the
pace of economic expansion this year as policy makers focus on
controlling financial risks and implementing the broadest reforms since
the 1990s. China’s debt buildup has evoked comparisons to Japan before
its lost decade and the run-up to the Asian financial crisis.
- China Stocks Drop as Financial, Utility Companies Lead Retreat.
China’s stocks fell, dragged down by financial and utility companies.
Data today showed new bank loans and money supply trailed economists’
estimates, while the government’s broadest measure of credit beat
projections. Industrial & Commercial Bank of China Ltd. and Huaxia
Bank Co. slid at least 0.9 pecent to pace declines for financial
companies. Great Wall Motor Co., the biggest maker of sport-utility
vehicles, dropped 1.9 percent, extending losses after it delayed the
introduction of a model. Anhui Conch Cement Co. (600585), China’s
biggest cement maker, climbed 2.3 percent after it estimated profit
increased 50 percent last year. The Shanghai Composite Index (SHCOMP) slipped 0.4 percent to 2,018.17 as of 10:19 a.m.
- Asian Stocks Rebound as Yen Drop Fuels Japan; Won Falls.
Asian stocks rose, rebounding from the benchmark index’s biggest drop
since September, and the dollar appreciated on optimism the global
economy is strengthening. Gold fell for a second day. The MSCI Asia Pacific Index gained 0.4 percent at 10:56 a.m. in Tokyo, following yesterday’s 1.5 percent tumble.
- Hollande Faces Investors Deserting French Debt: Euro Credit.
President Francois Hollande’s surest supporters since taking office have
been buyers of French bonds. Some of them are now deserting the
country's debt. The French government debt auction last week drew the
weakest demand in a decade as investors piled into Spanish and
Italian securities. The yield on France’s benchmark 10-year
bonds is at 2.5 percent now from a record low of 1.74 percent in
April last year. French and Belgian bonds are the worst
performers among the euro region’s major issuers this year.
- Firms Tripling Junk Returns Lure Most Since '07: Credit
Markets. Firms that use borrowed money to lend to the smallest and
riskiest companies are attracting cash at the fastest pace since before
the crisis, wooing buyers with returns that are triple those of the
broader junk-debt market. Investors from retirees to wealthy individuals
plowed $4.1 billion into publicly traded business development
corporations last year, the most since 2007, as the firms known as BDCs
gained an average 16.4%. The entities are juicing returns by borrowing
about 50 cents for every dollar raised from equity investors, up from 36
cents in 2011. After shunning funds that used derivatives and leverage
in the years after the 208 credit crisis, buyers are returning to pad
yields that reached record lows last year.
Wall Street Journal:
- Apple's(AAPL) China Mobile Deal to Extend Beyond Handsets. Millions of iPhones Already Ordered, Says Asian Wireless Carrier. Speaking in a small media briefing to
Chinese media and The Wall Street Journal, Apple Chief Executive Tim
Cook said he is "incredibly optimistic" about the outcome of the
cooperation with the Chinese carrier. "We've
gotten to know each other....today is a beginning, and I think there
are lots more things our companies can do together in the future," Mr.
Cook said.
Fox News:
- The Benghazi Transcripts: Did White House exaggerate Obama's preparation for 9/11 anniversary? On the eve of the terrorist attacks that killed U.S. Ambassador to
Libya Christopher Stevens and three other Americans in Benghazi, the
Obama White House may have exaggerated the scope and depth of President
Obama's preparation for such attacks, newly declassified documents
show. On Sept. 10, 2012 -- the day before Al Qaeda-linked terrorists
carried out the bloody assault on the U.S. consulate and a related annex
in Benghazi -- the White House Press Office issued a press release
entitled "Readout of the President's Meeting with Senior Administration
Officials on Our Preparedness and Security Posture on the Eleventh
Anniversary of September 11th."
MarketWatch.com:
Zero Hedge:
Business Insider:
Washington Post:
NY Times:
- N.S.A. Devises Radio Pathway Into Computers. The National Security Agency has implanted software in nearly 100,000 computers around the world
that allows the United States to conduct surveillance on those machines
and can also create a digital highway for launching cyberattacks. While
most of the software is inserted by gaining access to computer
networks, the N.S.A. has increasingly made use of a secret technology
that enables it to enter and alter data in computers even if they are
not connected to the Internet, according to N.S.A. documents, computer
experts and American officials.
Reuters:
- Senate panel to criticize State Dept. over Benghazi response.
A report by the Senate Intelligence Committee to be released on
Wednesday was expected to criticize the State Department for inadequate
security at the U.S. diplomatic post in Benghazi, Libya, when it
suffered a deadly attack on September 11, 2012. Sources familiar with
the findings said the report, which had bipartisan approval, found that
in the previous months U.S. intelligence agencies repeatedly warned
about possible attacks in Benghazi, but the State Department paid too
little attention.
- Fannie, Freddie watchdog in probe of alleged Wall St front running. A
U.S. government watchdog is
involved in an investigation of whether bank traders manipulated markets
and engaged in front running of orders from Fannie Mae and Freddie Mac
in the interest-rate swaps market, according to an FBI intelligence
bulletin reviewed by Reuters. Reuters reported on Monday that the FBI had warned
regulators and security officers at financial services firms
about potential abuse by traders with advance knowledge of large
orders submitted by the U.S. government-owned mortgage giants.
People's Daily:
- China to Curb Coal-Fired Power Projects to Cut Pollution. China won't approve new coal-fired power plan projects in Shanghai, Tianjin, Hebei province, and the Yangtze River and Perarl River deltas in 2014 to curb air pollution.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 140.0 unch.
- Asia Pacific Sovereign CDS Index 108.50 +1.0 basis point.
- NASDAQ 100 futures -.04%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Empire Manufacturing for January is estimated to rise to 3.5 versus .98 in December.
- The Producer Price Index for December is estimated to rise +.4% versus a -.1% decline in November.
- The PPI Ex Food & Energy for December is estimated to rise +.1% versus a +.1% gain in November.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-673,000 barrels versus a -2,675,000 barrel decline the prior week.
Gasoline supplies are estimated to rise by +2,495,000 barrels versus a
+6,243,000 barrel gain the prior week. Distillate supplies are estimated
to rise by +1,214,000 barrels versus a +5,826,000 barrel gain the prior
week. Finally, Refinery Utilization is estimated to fall by -.31%
versus a -.1% decline the prior week.
2:00 pm EST
- U.S. Fed's Beige Book release.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Lockhart speaking, Fed's Evans speaking, Eurozone Trade balance,
Australia Unemployment, weekly MBA mortgage applications report and the
(DPZ) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- Volume: Slightly Below Average
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- Volatility(VIX) 12.31 -7.30%
- Euro/Yen Carry Return Index 148.62 +1.17%
- Emerging Markets Currency Volatility(VXY) 8.41 +.24%
- S&P 500 Implied Correlation 50.40 -1.66%
- ISE Sentiment Index 158.0 +42.3%
- Total Put/Call .67 -6.94%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.01 -1.73%
- European Financial Sector CDS Index 86.37 -1.1%
- Western Europe Sovereign Debt CDS Index 51.99 +1.95%
- Emerging Market CDS Index 284.53 +.32%
- 2-Year Swap Spread 12.25 +5 basis point
- TED Spread 20.75 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -1.25 +1.5 basis points
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 248.0 +1 basis point
- China Import Iron Ore Spot $129.50/Metric Tonne -1.07%
- Citi US Economic Surprise Index 70.30 +4.2 points
- Citi Emerging Markets Economic Surprise Index .6 +.5 point
- 10-Year TIPS Spread 2.25 -1 basis point
Overseas Futures:
- Nikkei Futures: Indicating +328 open in Japan
- DAX Futures: Indicating +26 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/medical/tech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- China Provinces Set Lower Growth Goals for 2014. At least seven Chinese provinces are
setting lower growth targets for this year than in 2013, adding
to signs that expansion will slow as the government focuses on policies to sustain the economy in the long term. Hebei, which borders Beijing in the north, set an 8 percent
growth goal amid “unprecedented pressure” from air-pollution
controls, according to an annual work report published yesterday
in the official Hebei Daily. Last year’s target was 9 percent.
Fujian in the southeast and Gansu and Ningxia in the northwest
are also targeting slower expansion, state-run websites show. President Xi Jinping is trying to shift local officials’
focus to environmental protection and containing debt rather
than just short-term economic growth. The latest regional
targets suggest leaders will set a national goal this year of 7
percent, down from 7.5 percent in 2013, said Dariusz Kowalczyk,
a senior economist and strategist at Credit Agricole CIB. “We are facing increasingly severe difficulties and
contradictions,” Hebei Governor Zhang Qingwei said in the work
report delivered Jan. 8, according to Hebei Daily.
- Great Wall’s H8 Dents Confidence in Asia’s Richest Car Executive. Great Wall Motor Co. (2333)’s billionaire Chairman Wei Jianjun pushed back deliveries of the company’s most expensive SUV after the automotive press panned the Haval H8 in test drives. It turned out to be a $2.4 billion decision. That’s how much his company lost in market value yesterday after the delay prompted Great Wall shares to plunge 12 percent, the most in five years, in Hong Kong trading the following day.
- European Stocks Erase Drop as RWE Rises on Court Ruling.
European stocks erased their decline in the final half an hour of
trading as RWE AG rallied, leading utility shares higher. RWE jumped 5
percent after a German federal court ruled in its favor. Celesio AG slid
4.4 percent after McKesson Corp. said
it failed to gain support from enough of the drug wholesaler’s
shareholders to complete an acquisition. Jeronimo Martins SGPS
SA declined 2.8 percent after the Portuguese retailer said sales
growth slowed in Poland, its largest market.
The Stoxx Europe 600 Index added 0.2 percent to 331.23 at
the close of trading in London.
- WTI Crude Rises. WTI for February delivery rose 85 cents, or 0.9 percent, to $92.65 a barrel at 12:55 p.m.
on the New York Mercantile Exchange. The volume of all futures traded
was 24 percent above the 100-day average. Prices have fallen in eight of
the 11 days
since they topped $100 on Dec. 27.
- Fed Weighs Further Restrictions on Banks’ Commodities Operations. The Federal Reserve today said it is considering whether to impose
new restrictions on banks’ trading and warehousing of physical
commodities. The Fed is seeking comment on ways to curb
ownership and trading of commodities such as oil, gas and aluminum by
deposit-taking banks. The regulator asked the industry 24 questions,
including ones on the risk the activities could pose, potential
conflicts of interests, and risks and benefits of imposing additional
capital standards.
- U.S. Regulators Said Ready to Ease Volcker CDO Limits for Banks. U.S. regulators are set to give
banks an exemption from Volcker Rule limits for collateralized
debt obligations composed mostly of small-bank securities,
according to two people briefed on the agencies’ plans. The adjustment to the rule, which could come as soon as
today, would allow banks to keep CDOs backed by trust-preferred
securities while limiting the level of insurance and big-bank
content, said the people, who requested anonymity because the
regulators haven’t acted.
- GameStop(GME) Tumbles After Cutting Forecast as Game Sales Drop.
GameStop Corp. (GME) tumbled the most in 11 years after the video-game
retailer cut its earnings forecast because of lower-than-expected sales
of games and reduced profit margin from consoles in the holiday period. GameStop shares fell 18 percent to $37.34 at 12:03 p.m. in New York, after dropping to $36.20, the biggest intraday decline
since December 2002.
- State Fiscal Strains Lingering in Recovery, Report Says.
U.S. state revenue isn’t rising fast
enough to keep up with the cost of funding pensions, health care
and public works projects, underscoring financial strains that
persist during the economic recovery, according to a report.
- Regeneron’s(REGN) Eylea Tops Analysts’ Fourth-Quarter Sales Estimates.
Regeneron Pharmaceuticals Inc. (REGN) reported fourth-quarter revenue
of the eye drug Eylea, the company’s top-selling product, that beat
analysts’ estimates. Sales were $400 million last quarter, Chief
Executive Officer Len Schleifer said today at the annual JPMorgan Chase
& Co. (JPM) health-care conference in San Francisco. The demand beat
the
$377.5 million average of eight analyst estimates compiled by
Bloomberg.
- Tesla(TSLA) Rises After Model S Sales in 2013 Exceed Forecast.
Tesla Motors Inc. (TSLA), the maker of high-end electric cars, gained
the most in six weeks after the carmaker said it delivered 6,900 Model S
sedans in the fourth quarter, pushing full-year sales beyond a company
target. Tesla rose 12 percent, the biggest intraday increase since Dec.
3, to $156.40 at 1:41 p.m. New York time, after earlier rising to as
much as$156.44.
Wall Street Journal:
- Regulators at Odds on Reining In China's Shadow Lending. PBOC Sees the Banking Commission as Unwilling to Get Tough. China's effort to rein in runaway credit is
being hampered by infighting between the central bank and the nation's
banking regulator, say officials at both institutions, with the two
agencies sparring especially over how hard to press so-called shadow
bankers. The officials say that the
People's Bank of China, concerned about banks finding ways to move loans
off their books, has been frustrated at what it sees as the
unwillingness of the China Banking Regulatory Commission to toughen
regulation of banks' dealings with shadow lenders, an array of formal
and informal institutions creating credit outside the formal bank
channels. The differences highlight the competing interests of the PBOC, which
looks at overall financial stability, and the CBRC, which oversees the
formal banking sector. Neither has clearly defined authority over shadow
lending, the fastest-growing part of China's financial sector that
often lends to borrowers considered too risky for traditional banks,
including local governments, property developers and big companies
burdened by overcapacity.
Fox News:
- Leaked private comments reveal Israeli defense minister’s scorn for Kerry. Israel's hawkish defense minister trashed Secretary of State John
Kerry and the peace deal he is trying to broker between Israel and the
Palestinian Authority in off-the-record comments nonetheless published
by the nation's leading daily newspaper. “In reality, there have been no negotiations between us and the
Palestinians for all these months – but rather between us and the
Americans,” Moshe Ya’alon said in comments published in the pages of
Yediot Aharonot. “The only thing that can 'save us' is for John Kerry to
win a Nobel Prize and leave us in peace.”
- Rouhani: World powers ‘surrendered’ to Iran with nuclear deal. Iranian President Hassan Rouhani boasted on Twitter that the United
States and other world powers effectively "surrendered" to Tehran with
the newly struck nuclear deal. "Our relationship w/ the world is based on Iranian nation's
interests. In #Geneva agreement world powers surrendered to Iranian
nation's will," a tweet from the Iranian leader's account said on
Tuesday.
MarketWatch:
- Gold ends lower on equities strength, Fed comments. Gold futures settled lower on Tuesday with strength in U.S. equities, a
rise in retail sales and comments from Federal Reserve officials
pointing to the prospects of further tapering of the central bank’s
bond-buying program fueling the metal’s first loss in four sessions.
CNBC:
ZeroHedge:
Business Insider:
NY Times:
Tradersmagazine.com:
- The Big Data Edge for Hedge Funds. The
term ‘Big Data’ has been around for some time but questions remain
exactly how hedge funds and other buysides exploit the vast stores of
data that has never been available to them in the past and continue to
grow each day.
Reuters:
- US holiday sales rise but discounts to hit margins -NRF. U.S. retail sales rose 3.8
percent in the 2013 holiday season, the National Retail
Federation said, but the trade body warned that deep discounting
could hurt retailers' profits. Retailers offered the biggest promotions since the 2008
recession to get shoppers to spend, but many slashed profit
forecasts last week because of the deals.
- Wells Fargo(WFC) profit beats estimates; mortgage loans slump. Wells Fargo & Co reported a
better-than-expected 11 percent jump in fourth-quarter profit,
though mortgage financing was at its slowest in five years, and
the bank's shares fell in morning trading. The fourth-largest U.S. bank by assets said cost cuts, and
dipping into money it had set aside to cover bad loans, helped
it post a record profit even though revenue fell 6 percent, as
fewer consumers refinanced home loans due to higher mortgage
rates.
Red Orbit:
Financial Times:
- Fannie Mae warns of fall in US house prices. Weakening
demand by financial companies that have been snapping up thousands of
US homes on the cheap could fuel a future fall in house prices, the
chief economist of Fannie Mae has warned. The warning is one of the first instances of a US government agency
voicing concern about the increased involvement of institutional buyers –
including some from the “shadow banking” sector – in the country’s
property market.
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -.94% 2) Steel -.33% 3) Retail +.08%
Stocks Falling on Unusual Volume:
- APU, GME, ICPT, SSYS, SGI, TNXP, RTRX, FDO, WWW, DDD, TKMR, MCK, PNTR, ZLTQ, ATK, BBBY, XONE, GALT, ECOM, FLT, WAC, BONT, BA, ALNY and CPA
Stocks With Unusual Put Option Activity:
- 1) FDO 2) EWJ 3) NUE 4) SSYS 5) TXN
Stocks With Most Negative News Mentions:
- 1) GME 2) SBUX 3) TGT 4) YRCW 5) BONT
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Semis +1.84% 2) Biotech +1.71% 3) Gaming +1.59%
Stocks Rising on Unusual Volume:
- ISRG, DAN, GES, NXTM, AZN, FTNT, AMBA, HWAY, JBL, RESI, PAY, LOCK, SUNE, BAS, XEC, AFSI and TXTR
Stocks With Unusual Call Option Activity:
- 1) MPC 2) IGT 3) ARR 4) TWC 5) ISIS
Stocks With Most Positive News Mentions:
- 1) ISRG 2) INTC 3) HCA 4) EVHC 5) GOOG
Charts:
