Evening Headlines
Bloomberg:
- Calm Broken in Global Markets Amid Concern of Emerging Contagion.
Declines that erased $1.7 trillion
from global stocks as currencies from Turkey to Argentina slid are
proving a Wall Street maxim, according to Brian Barish of Cambiar
Investors LLC. “You’re never fully prepared for something like this,” Barish, president of Denver-based Cambiar, which manages $9
billion, said in a phone interview. “You say to yourself, ‘I
know the froth is picking up, I know this is starting to get a
little out of hand, this is going to get ugly when the hammer
comes down.’ You know all of that, but you just don’t know what
is going to get sold and why and by who.”
- China Said to Probe Credit Loophole Used to Access Cash. China is probing a loophole that allowed executives at steel traders and other companies to
bridge liquidity shortages for their firms by exceeding credit-card limits, according to three people familiar with the matter. The People’s Bank of China opened an investigation into
abuses of credit card pre-authorizations earlier this month, the
people said, asking not to be identified because the probe
hasn’t been made public. The probe is examining transactions in
December and early January, and found that companies and people
gained an aggregate of as much as 10 billion yuan ($1.6 billion)
in that time.
- Record Cash Leaves Emerging Market ETFs on Lira Drop: Currencies.
Investors are pulling money from exchange-traded funds that track
emerging markets at the fastest rate on record, as China's slowing
growth and cuts to central-bank stimulus sink currencies from Turkey to
Brazil. More than $7 billion flowed from ETFs investing in
developing-nation assets in January, the most since the securities were
created, data compiled by Bloomberg show. The iShares MSCI Emerging
Markets ETF(EEM) has seen its assets shrink by 11%, while the Vanguard
FTSE Emerging Markets ETF is poised for the biggest monthly redemption
since the fund was started in 2005. The WisdomTree Emerging Markets
Local Debt Fund is on track for an eighth straight month of withdrawals.
- Abe Crunch Year Sees Biggest Risk Jump Among Peers: Japan Credit. Japan’s
default risk jumped the most
among developed nations this year as the world’s third-largest
economy faces mounting challenges from energy import costs and a
budget overhaul. Credit-default swaps that insure Japanese government
bonds against nonpayment for five years touched 56 basis points on Jan.
27, the highest since Nov. 5, according to data provider
CMA. It has risen 14 basis points this month, the most among the
22 sovereigns tracked by Bloomberg, followed by Iceland’s 13
basis point increase.
- Treasury Wine Slumps as China Austerity Hits Earnings. Treasury Wine Estates Ltd. (TWE), the Australian maker of A$785-a-bottle ($686) Penfolds Grange, said
first-half earnings fell as China’s crackdown on official gift
giving curbed demand for premium vintages. The shares slumped by
a record. Profit before interest, tax and other items dropped to
between A$42 million and A$46 million in the six months ended
Dec. 31, from A$73.4 million a year earlier, the Melbourne-based
company said in a regulatory filing based on unaudited figures.
Full-year earnings will be between A$190 million and A$210
million, compared with an earlier forecast for as much as A$250
million, it said.
“Chinese austerity may be an ongoing issue for some
time,” said Will Seddon, who helps manage about A$550 million
at White Funds Management Pty. in Sydney.
- Erdogan to Give Rate Rise Time Before Trying Plan B. Turkey’s prime minister said he’ll give the central bank’s
emergency interest-rate increase time to succeed in halting a market
slump, before trying alternative measures that he said are ready to be
deployed. Recep Tayyip Erdogan said his government will be
“patient” as it waits to see the impact of the decision to raise all
Turkey’s main rates, according to Hurriyet newspaper and other local
media, which cited comments he made to reporters late yesterday during a
plane journey back from Iran. Erdogan said he won’t be able to
maintain faith in the central bank’s policy shift unless it leads to a
revival in the lira and the country’s stock market, and interest rates
come back down. He said rates “aren’t the only instrument” and the
government may announce its “plan B or plan C” within a few weeks,
without giving details.
- Asian Stocks Slump on Fed Cuts to Bond Buying, China PMI.
Asian stocks fell for the fifth time in six days after the Federal
Reserve pressed on with cuts to U.S. economic stimulus and as a report
showed China’s manufacturing industry contracted. Honda Motor Co., which
gets 83 percent of its auto sales abroad, lost 2.6 percent as Japanese
exporters retreated after the yen gained from the close of equity
markets in Tokyo yesterday. Treasury Wine Estates Ltd. (TWE) slumped by a
record 20 percent in Sydney as the world’s second-largest publicly
traded wine maker said earnings fell. Hitachi Metals Ltd. surged 4.9
percent in Tokyo, leading gains on the regional benchmark index, after
profit at the steel manufacturer topped analyst estimates. The MSCI Asia Pacific Index lost 1.6 percent to 134.54 as of 12:23 p.m. in Hong Kong, with all 10 industry groups on the
gauge falling.
- Rubber Near 16-Month Low as Yen Gains After Fed Cuts Bond Buying.
Rubber in Tokyo declined, trading near a 16-month low as Japan’s
currency advanced against the dollar, reducing the appeal of
yen-denominated futures, after the Federal Reserve cut the pace of bond
buying. The contract for delivery in July fell as much as 1.7 percent to 228.6 yen a kilogram ($2,238 a metric ton) on the
Tokyo Commodity Exchange. Futures have lost 16 percent in
January, heading for the biggest monthly drop since September
2011. They slipped into a bear market on Jan. 28.
- Rebar Heads for Monthly Drop on Iron Ore Before Chinese Holidays.
Steel reinforcement-bar futures in
Shanghai headed for a second monthly decline as iron ore prices dropped
to the lowest in more than six months and as demand for the construction
material slowed before Lunar New Year holidays. Rebar for May delivery fell as much as 0.3 percent to 3,433
yuan ($567) a metric ton on the Shanghai Futures Exchange before
trading at 3,442 yuan by 10:37 a.m. local time. The most-active
contract is set for a 3.6 percent declined in January after a
2.7 percent loss in December.
- Fed Officials Unite Behind Taper as Yellen Era Begins: Economy. Federal
Reserve policy makers cut the pace of bond buying for a second straight
meeting, uniting behind a strategy of gradual withdrawal from Ben S.
Bernanke’s unprecedented easing policy as Janet Yellen prepares to
succeed him as chairman. The Federal Open Market Committee said it will trim monthly purchases by
$10 billion to $65 billion, citing labor-market indicators that “were
mixed but on balance showed further improvement” and economic growth
that has “picked up in recent quarters.”
Wall Street Journal:
CNBC:
Zero Hedge:
Business Insider:
The Blaze:
Reuters:
- Exclusive - Mitsubishi UFJ, Morgan Stanley eye deal to serve hedge funds. Morgan
Stanley and Mitsubishi UFJ Financial Group Inc (8306.T) are considering
forming a partnership to provide administrative services to hedge funds,
a senior official of the Japanese lender said on Wednesday. The two
banks have been examining ways to collaborate in that area since MUFG
purchased a fund-servicing business last year, Masaaki Tanaka, deputy
president of MUFG, told Reuters in an interview.
- Egypt to put Al Jazeera journalists on trial -prosecutor. Egypt will put an Australian, two
Britons and a Dutchwoman on trial for aiding 16 Egyptians
belonging to a "terrorist organisation", the public prosecutor
said on Wednesday, describing the four as Al Jazeera
correspondents. Three of the Qatar-based television network's journalists -
Peter Greste, an Australian; Mohamed Fahmy, a Canadian-Egyptian
national; and Baher Mohamed - were detained in Cairo on Dec. 29
and remain in custody, Al Jazeera said.
- Qualcomm(QCOM) says year on track, focuses on China. Leading mobile
chipmaker Qualcomm Inc posted higher fiscal first-quarter revenue that
slightly missed estimates as smartphone growth shifted to China, but it
bumped up its full-year earnings outlook and said 2014 was playing out as expected.
- FOREX-Yen in favour again as risk aversion flares up. Investors ploughed back into the
yen early on Thursday as safe-haven demand returned with a
vengeance, while the New Zealand dollar came in the cross hair
of sellers after the central bank left interest rates steady.
- Weak PC shipments hit Symantec revenue. Symantec
Corp reported a 5 percent fall in quarterly revenue as a decline in
sales of personal computers hurt demand for its security software. Shares of the company, the maker of Norton anti-virus software, fell 3 percent after the bell.
- Turkey's face-saving rate hike spares lira, may hit growth. A massive rate hike
may have stalled the Turkish lira's fall and salvaged the central
bank's credibility, but it stunts growth at a politically fraught time
for Prime Minister Tayyip Erdogan and may not shield Turkey from a fragile global backdrop for long.
Telegraph:
- World risks deflationary shock as BRICS puncture credit bubbles. As matters stand, the next recession will push the Western economic system
over the edge into deflation.
Half the world economy is one accident away from a deflation trap. The
International Monetary Fund says the probability may now be as high as 20pc.
China Securities Journal:
- China's Property Cos. May Face Financing Problems. Some property
developers in China may face financing problems as regulators rein in
shadow lending. There is an oversupply of real estate in tier-3 and
tier-4 cities, says Chen Yifeng, chairman of Topina Capital, adding co.
is "very cautious" in choosing property projects to finance.
People's Daily:
- China Should Probe China Credit Trust, Product Seller. China
should investigate China Credit Trust Co. and its sales agency,
Industrial & Commercial Bank of China, about why a bailed-out
trust co. failed to conduct due diligence on underlying projects,
according to a commentary. China should investigate on if China Credit
Trust fulfilled its duty in investigating investment targets, if it got
any kickback and if it highlighted investment risks.
Shanghai Securities News:
- China PBOC May Control M2 Growth at About 13% in 2014. People's
Bank of China may control M2 growth at about 13% this year and new yuan
loans at about 9t yuan, citing research jointly made with Industrial and
Commercial Bank of China.
Evening Recommendations
Night Trading
- Asian equity indices are -1.25% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 147.50 +6.5 basis points.
- Asia Pacific Sovereign CDS Index 115.75 +3.0 basis points.
- NASDAQ 100 futures +.29%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Advance 4Q GDP is estimated to rise +3.2% versus a prior estimate of +4.1%.
- Advance 4Q Personal Consumption is estimated to rise +3.7% versus a +2.0% prior estimate.
- Advance 4Q GDP Price Index is estimated to rise +1.2% versus a prior estimate of a +2.0% gain.
- Advance Core PCE is estimated to rise +1.1% versus a prior estimate of a +1.4% gain.
- Initial Jobless Claims are estimated to rise to 330K versus 326K the prior week.
- Continuing Claims are estimated to fall to 3000K versus 3056K prior.
10:00 am EST
- Pending Home Sales for December are estimated to fall -.3% versus a +.2% gain in November.
Upcoming Splits
Other Potential Market Movers
- The
Japan CPI, 7Y T-Note auction, German Unemployment rate, Eurozone
Consumer Confidence, weekly EIA natural gas inventory report and the
Costco(COST) annual meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology
and industrial shares in the region. I expect US stocks to open
modestly higher 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: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 17.58 +11.28%
- Euro/Yen Carry Return Index 145.55 -.83%
- Emerging Markets Currency Volatility(VXY) 10.16 +5.72%
- S&P 500 Implied Correlation 58.13 +4.03%
- ISE Sentiment Index 109.0 -16.15%
- Total Put/Call .90 +13.92%
Credit Investor Angst:
- North American Investment Grade CDS Index 72.78 +5.41%
- European Financial Sector CDS Index 101.36 +1.35%
- Western Europe Sovereign Debt CDS Index 53.65 -.65%
- Asia Pacific Sovereign Debt CDS Index 114.19 +1.35%
- Emerging Market CDS Index 337.20 +7.15%
- 2-Year Swap Spread 12.0 -2.5 basis points
- TED Spread 19.50 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -4.0 -1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .04% -1.0 basis point
- Yield Curve 232.0 -9.0 basis points
- China Import Iron Ore Spot $122.60/Metric Tonne -1.05%
- Citi US Economic Surprise Index 50.70 -1.3 points
- Citi Emerging Markets Economic Surprise Index 10.4 +2.4 points
- 10-Year TIPS Spread 2.14 unch.
Overseas Futures:
- Nikkei Futures: Indicating -398 open in Japan
- DAX Futures: Indicating -51 open in Germany
Portfolio:
- Lower: On loses in my tech/biotech/medical/retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Investors Rebel as EM Rate Hikes Fail to Buoy Curencies.
Investors beating a retreat from emerging markets tested the resolve
of central banks fighting to protect their economies from sliding
exchange rates. The Turkish lira resumed a decline and South
Africa’s rand touched its lowest level in more than five years against
the dollar after policy makers raised interest rates higher than
predicted by economists. Russia’s ruble tumbled to a record, Brazil’s
real slid to the weakest since August and Hungary’s forint tumbled the
most in more than 18 months.
- Ruble Weakens to Record Low Against Basket as Currencies Slide.
The ruble dropped to a record low
against the basket as steps by central banks in Turkey and South Africa
failed to shore up emerging-market currencies. The ruble weakened 1.2
percent to 40.9632 against Bank Rossii’s target dollar-euro basket, the
lowest level on a closing basis, as of 6:01 p.m. in Moscow. The currency
was at 40.9332 by 6 p.m., when the central bank stops its market
operations. The yield on ruble-denominated OFZ bonds due
February 2027 rose 14 basis points to 8.39 percent.
- Yen Advances as South Africa Stokes Rout in Emerging Markets. The yen gained against all except
one of 24 emerging-market currencies as South Africa’s central
bank joined Turkey in raising its benchmark interest-rate in
moves that failed to reassure investors. The dollar rose for a fourth day against the euro as the
Federal Reserve ends a policy meeting and after a European
Central Bank official said euro appreciation runs counter to the
bank’s price-stability aim. The rand fell the most since April
as policy makers said their actions weren’t aimed at the
currency. Russia’s ruble extended its slump to 13 days and
Hungary’s forint weakened. “It’s a broad-based theme of bold-but-futile attempts by
central banks in the most beleaguered countries to fight the
avalanche and ferocity of the attack on their currencies --
which is obviously failing,” Robbert Van Batenburg, director of
market strategy at Newedge Group in New York, said by phone.
“It’s denting if not completely diminishing the faith the
currency market has in the ability of central banks to fight
against the attacks on currencies.”
- Abe Crunch Year Sees Risk rise Most After Iceland: Japan Credit.
Japan's default risk jumped the most among developed nations after
Iceland this year as the world's third-largest economy faces mounting
challenges from energy import costs and a budget overhaul.
Credit-default swaps that insure Japanese government bonds against
nonpayment for five years touched 56 basis points on Jan. 27, the
highest since Nov. 5, according to CMA. It has risen 12.8 basis points
this month, the most among the 22 sovereigns tracked by Bloomberg after
Iceland's 13 point increase. A global rout in emerging markets in 2014
has shifted investor attention on Japan's more than 1 quadrillion yen
($9.7 trillion) debt load, the world's heaviest as a proportion of gross
domestic product. "There are concerns about Japan's growing fiscal and
trade deficits," said Takayuki Atake, the Tokyo-based head of credit
research at SMBC Nikko Securities Inc. a unit of Japan's second-largest
banking group by market value. "The risk scenario we need to be on a
lookout for is for the fiscal situation to deteriorate while the economy
lags behind, leading to questions about Japan's credibility."
- Canon Forecast Misses Analyst Estimates Amid Camera Slump. Canon
Inc. (7751)’s forecast for annual net income missed analyst estimates
as the world’s largest camera maker stumbles amid slowing demand.
Net income will probably total 240 billion yen ($2.3 billion) in 2014,
the Tokyo-based company said in a statement today. That’s less than the
267 billion yen average of 22analyst estimates compiled by Bloomberg.
- Merkel Warns of ‘Deceptive Calm’ as Euro Crisis Risk Remains. German Chancellor Angela Merkel
called for a fresh push to create “real economic union”
through changes to European treaties, saying that the euro-area
debt crisis isn’t yet defeated. Addressing lawmakers in Berlin today in her first policy
speech of the year, Merkel said that Europe risks falling behind
unless the 18-nation euro region expands binding commitments and
improves its current “unsatisfactory” coordination on economic
policy. “Without decisive progress on this front, without a
quantum leap, we won’t overcome the European sovereign-debt
crisis,” Merkel said.
- Europe Stocks Decline as Bank Shares, Automakers Retreat.
European stocks fell, as automakers and retailers declined, and the
Turkish central bank’s interest rate increases failed to support
emerging-market currencies. Fiat (F) SpA slid 4.1 percent after posting
earnings that missed analysts’ forecasts. Nordea Bank AB (NDA) lost 2.3
percent after its chief executive said it will need to cut more jobs to
adjust to slow growth. Mulberry Group Plc tumbled 27 percent after
saying full-year pre-tax profit will miss market estimates. Anglo
American Plc gained 5.7 percent after saying fourth-quarter platinum
production rose 25 percent. The Stoxx Europe 600 Index dropped 0.6 percent to 322.38 at
the close of trading, paring earlier losses of as much as 1.5
percent.
- Gold Climbs on Speculation of Emerging Markets Safe-Haven Demand.
Gold advanced in London and New York
on speculation a global rout of emerging markets will spur demand for
precious metals as a safe haven. Turkey’s financial markets have plunged
since news of a corruption scandal broke last month. That coincided
with a flow of money out of emerging economies that weakened currencies
from Brazil to South Africa. Gold fell earlier today amid expectations
the Federal Reserve will cut stimulus more today. “Gold should be in
demand as long as the turmoil persists,” Daniel Briesemann, an analyst
at Commerzbank AG in Frankfurt, said by e-mail today. “That’s why gold
has recovered its early losses.” Gold for immediate delivery rose 0.2 percent to $1,259.81 an ounce by 12:37 p.m. in London, after falling as much as 0.6
percent. April futures climbed 0.7 percent to $1,259.40 an ounce
on the Comex in New York. Trading on Comex was 62 percent higher
than the average for the past 100 days for this time of day,
according to data compiled by Bloomberg.
- Natural Gas Soars to Four-Year High on Outlook for Supply Drop. Natural gas surged to a four-year
high on the last day of February futures trading on speculation
that a government report tomorrow will show a bigger-than-normal
inventory drop as frigid weather eroded supplies. Gas jumped as much
as 13 percent as the Energy Information Administration may say
stockpiles slid by 232 billion cubic feet last week, compared with a
five-year average decrease of 162 billion, according to the median of
12 analyst estimates compiled by Bloomberg. WSI Corp. in Andover,
Massachusetts, said the weather may be colder than usual in most of the
contiguous
U.S. from Feb. 3 through Feb. 7.
- Copper Heads for Longest Slump in 15 Months on Economy. Copper
futures headed for the
longest slump in 15 months on speculation that rising borrowing costs in
emerging markets will damp economic growth, eroding demand for
industrial metals. The South Africa Reserve Bank unexpectedly
increased its benchmark interest rates, following central banks from
Turkey to Brazil. Countries tightened monetary policy to bolster their
currencies. A gauge of global equities approached the lowest in six
weeks, while aluminum, nickel, zinc and lead dropped. Copper has dropped 12 percent in the past 12 months, partly as economic growth eased in China,
the world’s largest user. Global production will outstrip consumption
by 167,000 metric tons this year, following a deficit of 137,000 tons in
2013, Barclays Plc has said. “More problems in emerging markets are going to limit the demand for copper,” Michael Smith, the president of T&K Futures & Options Inc. in Port St. Lucie, Florida, said in a telephone
interview. “Some people think anytime a country has to raise
interest rates just to keep money there, that means there’s
something wrong.”
- Fed Tapers QE to $65 Billion.
The Federal Reserve will trim its monthly bond buying by $10 billion to
$65 billion, sticking to its plan for a gradual withdrawal from
departing Chairman Ben S. Bernanke’s unprecedented easing policy.
“Labor market indicators were mixed but on balance showed further
improvement,” the Federal Open Market Committee (FDTR) said today in a
statement following a two-day meeting in Washington that was the last
for Bernanke, who will be succeeded by Vice Chairman Janet Yellen on
Feb. 1. “The unemployment rate declined but remains elevated.”
Wall Street Journal:
MarketWatch:
- Turkey rate hike stirs Black Wednesday memories. Parallels lie mostly on the surface, but illustrate central bankers’ lament. Don’t take it too far, but the failure of Turkey’s stunning rate hike to
provide lasting support for the Turkish lira is stirring memories of
the currency crisis that made billionaire George Soros a household name
more than two decades ago.
CNBC:
- Obama's education focus overlooks next financial contagion. With the $1.2 trillion student loan crisis accelerating, President
Barack Obama gave a nod in his State of the Union speech to the millions
of young Americans starting their adult lives in crushing debt but
offered no new proposals for relief.
ZeroHedge:
Business Insider:
The Blaze:
Reuters:
Finanz und Wirtschaft:
- Capital Controls Part of Solution, Stiglitz says. Controls part
of solution to capital flight, Joesph Stiglitz said in an interview.
Style Underperformer:
Sector Underperformers:
- 1) Education -2.92% 2) Airlines -2.02% 3) Gaming -1.85%
Stocks Falling on Unusual Volume:
- TGI, CVLT, BCA, BKU, TUP, RES, MKC, GIB, CRUS, ENR, SI, BDE, T, GHL, BA, LBTYK, VPRT, CTRL, CFX, LBTYA, BOKF, VMW, SDRL, KMP, RXN, HOMB, BDE, GHL, ESI, YHOO and FLDM
Stocks With Unusual Put Option Activity:
- 1) EWY 2) BID 3) XLP 4) SMH 5) KRE
Stocks With Most Negative News Mentions:
- 1) MCD 2) TGT 3) JPM 4) KMP 5) CRUS
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Steel +1.49% 2) Gold & Silver +1.18% 3) HMOs +.72%
Stocks Rising on Unusual Volume:
- FSL, EZPW, PRTA, MDVN, POL, LIVE, BABY, MTOR, RKT, FSL, ONVO, EFII and MPC
Stocks With Unusual Call Option Activity:
- 1) SGMO 2) VRNG 3) WLP 4) SLCA 5) RFMD
Stocks With Most Positive News Mentions:
- 1) DOW 2) X 3) IBM 4) BA 5) WMT
Charts:
Evening Headlines
Bloomberg:
- Biggest Money Fund Shuns Companies on Default Risk: China Credit. China’s
biggest money-market fund has cut its holdings of corporate debt by
more than 50 percent and sought safety in deposits as rising borrowing
costs increase the threat of default. “We won’t touch high-risk bonds that can have credit
risks,” said Wang Dengfeng, Beijing-based manager at Tianhong
Asset Management Co., which oversees the Yu’E Bao fund sold
online by Internet billionaire Jack Ma. “Liquidity will remain
relatively tight this year, as deleveraging continues to be the
central bank’s focus. Authorities’ regulation of the interbank
business and shadow banking may result in a period of pain.”
- Citic Group Unit May Invest in Trust Product, Morning Post Says. A
unit of Citic Group Corp., a Chinese state-backed conglomerate, may
take part in bailing out investors in a troubled 3 billion-yuan ($496
million) trust product, Oriental Morning Post reported. The
transaction is under way, the newspaper reported yesterday, citing a
person close to Industrial & Commercial Bank of China Ltd. (601398)
The person declined to give the name of the unit
or the amount it plans to invest, according to the report.
- China Starts Briefing Officials on Zhou Probe, Morning Post Says. China
has started briefing officials
about a corruption investigation of Zhou Yongkang, the nation’s former
security chief, paving the way for a public announcement soon, the South
China Morning Post said. The briefings indicate that the probe of
the former Politburo Standing Committee member is in its “final stage”
and results may be disclosed as soon as after the Lunar New Year
break, which ends next week, the Hong Kong-based newspaper said,
citing two unidentified people who received the information. The
investigation focused solely on financial issues and
corruption, not on any larger offenses, and the “amount of
money involved in the case would be far less than some reports
have suggested,” the newspaper said.
- Chinese Homebuyers Thronging Sydney Create Mini-Bubble Frenzy.
Such buying by locally resident Chinese and those from mainland China
is inflating housing bubbles in and around Sydney, where prices in some
suburbs have surged as much as 27 percent in the past year. That’s
almost three times faster than the overall market. Many of the
neighborhoods with the biggest price gains “are areas that are popular
with Chinese buyers,” said Andrew Wilson, senior economist at real
estate data firm Australian Property Monitors. “Some of these suburbs
are seeing price growth that we haven’t seen in Sydney since the early
2000s.” The proportion of foreigners purchasing new homes in Australia
more than doubled to 12.5 percent in the three months to September, from
5 percent throughout most of 2011, according to a survey of more than
300 property professionals by National Australia Bank Ltd.
- Turkey Raises Rates to End Lira Fall as Basci Defies Erdogan. Turkey's central bank raised all its main interest rates at an emergency
late-night meeting in an effort to shore up the lira, resisting
government pressure and reversing years of policy aimed at stoking growth. The currency surged after the bank raised the one-week repo rate to 10 percent from 4.5 percent. Investors should treat that as the benchmark, the Ankara-based bank said on its website at midnight,
promising to “simplify” policy after an experiment in using a variety of
rates left many analysts baffled.
- Asian Stocks Snap 4-Day Rout After Turkey Rate Increase.
Asian stocks rose, with the regional benchmark index on course for its
first gain in five days, after Turkey’s central bank more than doubled
interest rates to arrest a currency slide that roiled global markets.
Honda Motor Co., which gets 83 percent of its car sales outside Japan,
gained 2.2 percent as the yen weakened against the dollar. Atlas Iron
Ltd. (AGO) climbed 7.6 percent in Sydney after the producer of the metal
used to make steel raised its production target. Advantest Corp., a
maker of electronic measuring instruments, sank 7.3 percent in Tokyo
after widening its full-year net loss forecast. The MSCI Asia Pacific Index advanced 1.1 percent to 135.74
as of 11:01 a.m. in Tokyo, with all 10 industry groups in the
measure rising.
- Rubber Rebounds From 16-Month Low as Weaker Yen Raises Appeal. Rubber rallied from the lowest level
in 16 months as Japan’s currency weakened against the dollar before the U.S. Federal Reserve ends a policy meeting, boosting
the appeal of yen-denominated futures. The contract for delivery in July, the most-active by
volume, climbed to 233.1 yen a kilogram ($2,258 a metric ton) on
the Tokyo Commodity Exchange by 11:40 a.m. local time. Futures
slipped into a bear market yesterday, settling at 226.7 yen, the
lowest level since September 2012.
- Rebar Rises for First Time in Three Days on Production Cost Gain.
Steel reinforcement-bar futures in Shanghai rose for the first time in
three days as a rebound in iron ore prices increased production costs. Rebar for May delivery gained as much as 0.5 percent to 3,448 yuan ($570) a metric ton before trading at 3,439 yuan at
11:06 a.m. local time on the Shanghai Futures Exchange. The
contract has declined 3.7 percent in January.
- Too-Big-to-Fail Plan for EU Banks Seen Too Late to Win Approval. Michel Barnier, the European Union’s
financial services chief, faces opposition as he prepares to
unveil plans to curb the activities of about 30 of the bloc’s
biggest banks to prevent them being too big to fail. While France
and Germany (GDBR10) say parts of today’s proposals may hamper lending
and threaten an exodus of banking services, European Parliament
lawmakers argue the plans have simply come
too late for them to review and approve ahead of May elections.
Many will have left office or switched jobs by the time the
assembly gets a chance to vote on the measures.
- AT&T(T) Forecasts Profit on Low End of Estimates Amid Rivalry. AT&T
Inc. (T:US), the second-largest U.S. wireless carrier, forecast 2014
profit on the low end of analysts’ estimates as price competition heats
up with T-Mobile US Inc. Earnings per share will grow this year at a “mid-single-digit” rate, AT&T said today. That compared with analysts’
estimates for an increase of 7 percent, according to data
compiled by Bloomberg. Sales will climb 2 percent to 3 percent,
AT&T said, compared with analysts’ 2 percent projection.
Wall Street Journal:
- Republicans Criticize Obama's Push to Use Executive Power. GOP Lawmakers Accuse President of Overreaching His Authority in Use of 'Pen and Phone'. President
Barack Obama's new drive to use executive power to advance his policy
goals is drawing fire from Republicans who accuse him of overreaching
his authority. "House Republicans will continue to look closely at
whether the president is faithfully executing the laws, as he took an
oath to do," House Speaker John Boehner (R., Ohio) said.
- Ted Cruz: The Imperial Presidency of Barack Obama. In the nation's history, there is simply no precedent for an American president so wantonly ignoring federal law. Of all the troubling aspects of the
Obama
presidency, none is more dangerous than the president's
persistent pattern of lawlessness, his willingness to disregard the
written law and instead enforce his own policies via executive fiat. On
Monday, Mr. Obama acted unilaterally to raise the minimum wage paid by
federal contracts, the first of many executive actions the White House
promised would be a theme of his State of the Union address Tuesday
night.
Fox News:
- Obama vows to act without Congress in 2014, amid second-term woes. President Obama vowed Tuesday to use the power of the pen to chip
away at his agenda in 2014, making clear he’ll sidestep Congress through
executive actions while also lowering his sights for what is achievable
at this stage in his presidency. In his State of the Union address, Obama stopped short of proposing
any sweeping new initiatives. He renewed his call for Congress to
approve an immigration overhaul “this year,” but for the most part
narrowed his focus to smaller-ticket items he’s vowing to do on his own.
Zero Hedge:
Business Insider:
CNN:
- Yahoo(YHOO) shares sink as sales and profit continue to slide. Yahoo's core business shows no signs of improving after the company once again announced lower earnings and sales Tuesday.
Sales of banner and video ads slipped 6% in the fourth quarter and
search ad sales fell 4%. Yahoo (YHOO, Fortune 500) was once the Web's
advertising leader, but over the past several years has fallen behind
rivals Google (GOOG, Fortune 500) and Facebook (FB, Fortune 500).
NY Times:
- Hedge Funds Sniff for Even Bigger Payouts From Banks. One of the biggest bets on Wall Street rests on a theory that also deeply unsettles Wall Street. The provocative theory is that the big banks
have not paid enough in recent legal settlements to make amends for
their role in stoking the subprime housing boom and bust. Hedge funds,
contending that the banks have so far underpaid, have bought subprime
mortgage-backed bonds, which they hope will rise in value. That would
happen if Wall Street banks ultimately pay out a lot more money to
settle other, more stringent litigation tied to these bonds. And the
hedge funds holding the bonds may often be behind these more demanding
lawsuits.
Telegraph:
Kyodo:
- Biden in
Mid-Dec. Asked Abe Not to Visit Yasukuni Shrine. U.S. Vice President Joe
Biden asked Japanese PM Shinzo Abe to avoid visiting the war shrine in a
teleconference on Dec. 12, citing people familiar with the matter. Abe replied he would make the final decision by himself.
Evening Recommendations
Night Trading
- Asian equity indices are +.50% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 141.0 -9.0 basis points.
- Asia Pacific Sovereign CDS Index 112.75 -4.75 basis points.
- NASDAQ 100 futures +.50%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+2,560,000 barrels versus a +990,000 barrel gain the prior week.
Gasoline supplies are estimated to rise by +1,370,000 barrels versus a
+2,123,000 barrel gain the prior week. Distillate supplies are estimated
to fall by -2,125,000 barrels versus a -3,212,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.49% versus a -3.5% decline the prior week.
2:00 pm EST
- The FOMC is expected to leave the benchmark fed funds rate at .25%.
- The Fed's QE3 Pace for January is estimated to fall to $65B versus $75B in December.
Upcoming Splits
Other Potential Market Movers
- The Japan Retail Trade data, German GFK Consumer Confidence, weekly MBA mortgage applications report and the (KMP) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by consumer and industrial 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
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- Volatility(VIX) 16.04 -7.92%
- Euro/Yen Carry Return Index 146.55 +.20%
- Emerging Markets Currency Volatility(VXY) 9.75 -.61%
- S&P 500 Implied Correlation 57.18 -2.31%
- ISE Sentiment Index 138.0 +5.34%
- Total Put/Call .76 -11.63%
Credit Investor Angst:
- North American Investment Grade CDS Index 70.22 -3.26%
- European Financial Sector CDS Index 99.41 -4.88%
- Western Europe Sovereign Debt CDS Index 54.0 -1.82%
- Asia Pacific Sovereign Debt CDS Index 112.27 -4.49%
- Emerging Market CDS Index 323.20 -3.83%
- 2-Year Swap Spread 14.50 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -3.0 -.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .05% unch.
- China Import Iron Ore Spot $123.90/Metric Tonne -.32%
- Citi US Economic Surprise Index 52.0 -7.0 points
- Citi Emerging Markets Economic Surprise Index 8.0 +.9 point
- 10-Year TIPS Spread 2.14 unch.
Overseas Futures:
- Nikkei Futures: Indicating +158 open in Japan
- DAX Futures: Indicating +53 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/biotech/medical sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
