North American Investment Grade CDS Index 105.25.0 bps +2.18%
European Financial Sector CDS Index 112.34 bps +10.65%
Western Europe Sovereign Debt CDS Index 125.50 bps +4.30%
Emerging Market CDS Index 212.11 bps +1.61%
2-Year Swap Spread 19.0 -1 bp
TED Spread 26.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .14% unch.
Yield Curve 224.0 -4 bps
China Import Iron Ore Spot $145.10/Metric Tonne +.42%
Citi US Economic Surprise Index -33.0 unch.
10-Year TIPS Spread 1.81% +2 bp
Overseas Futures:
Nikkei Futures: Indicating -56 open in Japan
DAX Futures: Indicating +27 open in Germany
Portfolio:
Lower: On losses in my Retail and Technology long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 is trading off session lows despite rising worries over China's economy and dovish US Fed rhetoric. On the positive side, Telecom, Utility, Wireless, Drug, Food, Medical, Computer Service and Gold stocks are relatively strong, rising on the day. Weekly retail sales rose +3.0% this week versus a +2.9% gain the prior week and a +2.8% increase two weeks ago, which is a positive considering recent sentiment readings. On the negative side, Semi, Computer, Coal, Gaming, Education and Homebuilding shares are especially weak, falling 1.5%+. Cyclical and Small-cap shares are underperforming. Tech stocks have also underperformed throughout the day. The 10-year yield is falling another -6 bps to 2.77%, which is a negative. The Spain sovereign cds is rising +4.9% to 202.34 bps and the UK sovereign cds is rising +5.16% to 60.15 bps. The US Muni CDS Index is gaining +3.75% to 217.09 bps. The large increase in the Euro Financial Sector CDS Index is a big negative. As well, I am concerned by the recent action in the tech sector and that investors are paying attention to China's difficulties again. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting and mostly positive earnings reports.
Fed to Reinvest Mortgage Proceeds Into Treasuries. Federal Reserve officials will reinvest principal payments on their mortgage holdings into long-term Treasury securities, the central bank’s first attempt to bolster growth in more than a year. “The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement in Washington. “To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level.” The Fed retained a commitment to keep its benchmark interest rate close to zero for an “extended period.” Stocks pared losses, the dollar weakened and Treasuries rallied. With growth weakening in the second quarter and company job gains in July falling short of estimates, today’s step signals that risks of a downturn have increased enough for the Fed to delay its exit from unprecedented stimulus. Chairman Ben S. Bernanke told Congress last month that the Fed was “prepared to take further policy actions as needed.” The Fed said it will “continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.” The reinvestment policy applies to agency debt and agency mortgage- backed securities held by the central bank.
U.S. Economy: Productivity Unexpectedly Fell in Second Quarter. Productivity in the U.S. unexpectedly decreased in the second quarter after employers expanded the workweek by the most in four years even as the world’s largest economy cooled. The measure of employee output per hour fell at a 0.9 percent annual rate, the first drop since late 2008, the Labor Department said today in Washington. Hours worked climbed at a 3.6 percent rate, leading to a 2.6 percent increase in the amount of goods and services produced. A lengthening workweek signals employers have reached efficiency limits after productivity climbed by the most in five decades in the 12 months to March. The Labor Department revised the first-quarter gain in efficiency to a 3.9 percent pace from 2.8 percent. Labor costs after adjusting for the drop in efficiency rose at a 0.2 percent pace, less than estimated and the first increase in a year, today’s report showed. The increase in expenses followed a 3.7 percent drop in the first three months of the year that was larger than previously estimated. Economists projected costs would rise at a 1.5 percent pace, according to the survey median. For Joel Naroff, the data show additional gains in employment may be on the way. “This could be a turning point,” Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania, said in a note to clients. “If working people longer and harder is no longer bringing larger returns to businesses, executives may have to find other ways to expand production. They might actually have to hire more workers.” Among manufacturers, productivity increased at a 4.5 percent pace as output climbed faster than hours worked. Labor costs at factories dropped at a 6.1 percent pace from the previous three months.
Sovereign Debt Swaps Rise to Two-Week High on Recession Concern. Credit-default swaps on European governments from Spain to Germany rose to the highest level in two weeks amid concern the U.S. Federal Reserve may signal the world’s biggest economy is in need of support. The Markit iTraxx SovX Western Europe Index of swaps on 15 nations climbed 1 basis point to 123.5 basis points, the highest since July 26, according to data provider CMA. Contracts on Spanish government debt climbed 6 basis points to 201.5 basis points, while swaps on Germany rose 2 to 42.3. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings climbed 9 basis points to 479, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 2 basis points to 105. The costs of hedging against losses on bank debt also rose with the Markit iTraxx Financial Index of 25 banks and insurers climbing 4 basis points to 121.5 basis points.
The Baltic Dry Index, a measure of commodity shipping costs, jumped for a fourth session in London as iron ore demand strengthened. The gauge rose 98 points, or 4.6%, to 2,212 points, according to the Baltic Exchange in London. Iron ore-carrying capesize vessels jumped 13% to $24,153 a day. "It's more demand for iron ore generally" that's driving up shipping rates, Kjetil Sjuve, a director at Oslo-based shipbroker Lorentzen & Stemoco AS, said.
Apollo Said to Close Down Metals Hedge Fund in London. Apollo Management LP, a private- equity firm co-founded by Leon Black, closed its metals hedge fund in London, according to two people with direct knowledge of the matter.
Chief Executives in U.S. Less Confident on Jobs, Survey Shows. Confidence among U.S. chief executive officers fell this quarter for the first time in a year as their outlook on sales, employment and the economy weakened, a private survey showed. The Young Presidents’ Organization’s gauge of sentiment fell to 57.5 in July from 61 in April, according to the Dallas- based group. A reading higher than 50 shows more chief executives had a positive outlook than a negative one. Sixty-two percent of CEOs surveyed said they plan to hold employment steady in the coming year, while fewer officials expect to boost staff. Forty-two percent of CEOs said they expect business to be better in six months than it is today, and 20 percent said it will be worse. In the April survey, 64 percent were optimistic and 8 percent pessimistic. The proportion of CEOs indicating they’ll keep staff levels at about the same a year from now increased to 62 percent in the July survey from 58 percent in the April poll. Those who expected to expand staff by at least 10 percent dropped to 30 percent from 36 percent. The percentage of CEOs projecting a sales gain of at least 10 percent in the coming year fell to 57 percent in July, from 69 percent in April, the survey showed. Thirty-five percent expected revenue to be unchanged, up from 26 percent. Sixty-six percent of CEOs projected fixed investment would be about the same or lower in the next 12 months, up from 60 percent in the prior report. CEO confidence was most negative in the construction industry and most positive in manufacturing, where more than 70 percent of companies forecast sales would rise in the next 12 months. Thirty-one percent of builders projected higher sales. Thirty-five percent of small companies, defined as those with fewer than 100 workers, said they expect to hire in the coming year, compared with 24 percent for large firms, which have more than 500 workers. Twenty-eight percent of medium-sized companies, those with 100 to 500 workers, expect to hire in the next year. Small businesses also were more optimistic about sales gains than larger companies, the report said.
India Expresses Concern on 'Discriminatory' U.S. Bill. India called a proposed U.S. bill that could double visa costs as “highly discriminatory” and said such a measure will erode the competitiveness of the nation’s software services companies. In a letter to U.S. Trade Representative Ron Kirk, India’s Trade Minister Anand Sharma said the legislation will hurt primarily companies of Indian origin, according to a statement on the government’s website today. “Though the need of the U.S. government to strengthen their border security is understandable, it is inexplicable to our companies to bear the cost of such a highly discriminatory law,” according to the Indian government statement. Indian companies account for less than 12 percent of the visas issued in the U.S., it said.
California City With $800,000 Manager Gets Junk Rating. Bell, the Los Angeles suburb that paid its city manager almost $800,000 a year, had its credit cut five steps to junk by Standard & Poor’s on concerns about the city’s ability to refinance or pay debt due Nov. 1. S&P lowered Bell’s general obligation and pension bond ratings to BB, two levels below investment grade, from A-, and put it on a watchlist for potential further downgrade.
Wall Street Journal:
Fed to Keep Balance Sheet From Shrinking. Federal Reserve officials moved to prevent the Fed's huge balance sheet from shrinking, an attempt to spur the U.S. economy's recovery and avoid deflation.
Frenzy in Energy Partnerships. Lured by hefty yields, investors are pouring billions of dollars into a small corner of the stock market—energy-focused master limited partnerships—which has seen a huge rally of 15% this year. And that makes some people nervous. MLPs are mostly companies that own and operate pipelines, primarily for natural gas and oil. Benefiting from the tremendous expansion of energy infrastructure in the U.S., MLPs essentially collect rent from energy producers who use their facilities. Over the past decade, the Alerian MLP index, the main benchmark for the group, is up about 11% a year. That is a handsome payoff compared with the Standard & Poor's 500-stock index, which is down 2.6% a year. Their major appeal is payouts to investors these days averaging around 7% a year at a time when bond yields are at all-time lows. MLPs are expected to increase those distributions by another five percentage points or so a year.
Smart Money Missed Wheat, Commodities Surge. The smart money didn’t see this coming. Hedge funds and other speculative traders were caught flat-footed by the surge in wheat and related commodity prices have been playing a furious game of catch-up lately. Just a few weeks ago, many of these investors were downright bearish about wheat, arguing that heavy inventories and limp demand would drag prices down. On June 15, “non-commercial” investors, including hedge funds, commodity trading advisors and similar investors, held net short positions of nearly 56,000 wheat lots, close to the largest level of negative positions since at least 1986, according Barclays Capital. “A lot of people initially got caught on the wrong side of the trade,” says a senior trader who requested anonymity.
Trading of Emerging-Market CDSs Rose to $658 Billion in 2Q - EMTA. Trading of emerging-market credit default swaps rose to $658 billion in the second quarter, underscoring an increase in demand for credit protection as concerns over the European debt crisis amplified, industry group EMTA said in the results of a survey released Tuesday. The second-quarter total represents an 85% increase from the same period a year ago and a 35% jump in activity from the first quarter of this year.
NY Times:
Merrill's Risk Disclosure Dodges Are Unearthed. Barely visible to any but a few inside Merrill, Pyxis was created at the height of the mortgage mania as a sink for subprime securities. Intended for one purpose and operated off the books, this entity and others like it at Merrill helped the bank obscure the outsize risks it was taking. The Pyxis story is about who knew what and when on Wall Street — and who did not. Publicly, banks vastly underestimated their exposure to the dangerous mortgage investments they were creating. Privately, trading executives often knew far more about the perils than they let on.
Agents' Union Disavows Leaders of ICE.The union that represents rank-and-file field agents at U.S. Immigration and Customs Enforcement has unanimously passed a "vote of no confidence" for the agency's leadership, saying ICE has "abandoned" its core mission of protecting the public to support a political agenda favoring amnesty. The National Immigration and Customs Enforcement Council of the American Federation of Government Employees, which represents 7,000 ICE agents and employees, voted 259-0 for a resolution saying there was "growing dissatisfaction and concern" over the leadership of Assistant Secretary John Morton, who heads ICE, and Phyllis Coven, assistant director for the agency's office of detention policy and planning. The resolution said ICE leadership had "abandoned the agency's core mission of enforcing U.S. immigration laws and providing for public safety," instead directing its attention "to campaigning for programs and policies related to amnesty and the creation of a special detention system for foreign nationals that exceeds the care and services provided to most U.S. citizens similarly incarcerated.
KTUU.com:
Stevens Killed in Crash Near Dillingham. Dave Dittman, a former aide and longtime family friend of former Sen. Ted Stevens says Stevens was killed in a plane crash near Dillingham Monday night. Nine people were on board, including former NASA Chief Sean O'Keefe. Five people were killed in the crash, but other identities were not known, nor are the conditions of the survivors.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).
Politico:
Charlie Rangel: 'Fire Your Best Shot'. From the well of the House chamber, embattled Rep. Charles Rangel told his colleagues Tuesday that a 13-count ethics case against him will not force him to resign just to make their lives easier. "You're not going to tell me to resign to make you feel comfortable," the 80-year-old New York Democrat said after reminding the Democratic side of the aisle that "I'm the guy that was raising money in Republican districts to get you here."
USA Today:
Federal Workers Earning Double Their Private Counterparts. At a time when workers' pay and benefits have stagnated, federal employees' average compensation has grown to more than double what private sector workers earn, a USA TODAY analysis finds. Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade. Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis. The data are the latest available. The federal compensation advantage has grown from $30,415 in 2000 to $61,998 last year. "Americans are fed up with public employee pay scales far exceeding that in the private sector," says Rep. Eric Cantor, R-Va., the second-ranking Republican in the House. Sen. Ted Kaufman, D-Del., says a pay freeze would unfairly scapegoat federal workers without addressing real budget problems. Federal workers received average benefits worth $41,791 in 2009. Most of this was the government's contribution to pensions. Employees contributed an additional $10,569. The average federal salary has grown 33% faster than inflation since 2000. USA TODAY reported in March that the federal government pays an average of 20% more than private firms for comparable occupations. The analysis did not consider differences in experience and education. Federal compensation has grown 36.9% since 2000 after adjusting for inflation, compared with 8.8% for private workers.
Reuters:
New RIM(RIMM) Offer to Saudis is BlackBerry 'Codes' - Source. BlackBerry maker Research In Motion, aiming to avert a ban on its Messenger service in Saudi Arabia, has agreed to hand over coveted "codes" to users' phones, an industry source familiar with the talks told Reuters on Tuesday.
Financial Times:
Time to Regulate Volatile Food Markets. With the current extreme price increases for wheat, we are observing potentially the early stages of another global food-price crisis. Even if this does not evolve into something as dramatic as the crisis of 2007-08, when prices of major agricultural commodities from corn to rice shot up to record levels, triggering food riots from Bangladesh to Haiti, it is a stark indication of the perilous state of the world food market. Some lessons have been learned from 2008, but too little has been done to prevent future crises. In particular the malfunctioning of world grain markets has not been addressed – a failure now haunting world markets. The fixing of international food prices today is the result of three forces: expectations on future supply and demand; the growing role of speculators in commodity markets, and the importance of food prices for political stability in countries such as Egypt. Today, low-income countries and the poor are actually more vulnerable than before the last food crisis.
Contrarian Institutional Investing, Hedge Fund Edition. A third of institutional investors – by common consent the holy grail of hedge fund clients thanks to their willingness to ride out a little bit of vega – say they’re looking to up their allocations to hedge fund managers, according to a new survey.
Maeil Business Newspaper:
Hyundai Motor Co. and affiliate Kia Motors Corp. may increase capacity in the U.S. to meet growing demand, citing a company executive.
China Property Prices Rise 10.3% in July. China’s property prices climbed at the slowest pace in six months in July as the government clamped down on speculation to prevent asset bubbles and keep housing affordable. Prices in 70 major cities climbed 10.3 percent from a year earlier, the statistic bureau’s newspaper, China Information News, reported today. That was less than an 11.4 percent increase in June and the median estimate of 10.5 percent in a Bloomberg News survey of eight economists. China’s banking regulator said Aug. 6 that the government will maintain policies to cool the property market, damping speculation that slowing economic growth would encourage an easing of the measures. The regulator has told lenders to conduct stress tests to gauge the impact of home prices falling as much as 60 percent in the hardest-hit markets, a person with knowledge of the matter said last week. “The government’s resolve on property curbs will be tested as increasing risks to external demand and slowing domestic production and investment cool growth later this year,” Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said before today’s release. On the southern tropical island of Hainan, prices in the city of Sanya rose 50.4 percent in July from a year earlier, the biggest increase in the country, while sliding 1.3 percent from the previous month. In Beijing, the gain was 12.4 percent from the same month in 2009. In Shanghai, the increase was 6.8 percent. The value of July property sales fell 19.3 percent to 306.6 billion yuan ($45.3 billion) from a year earlier. By floor area, the decline was 15.4 percent to 64.7 million square meters (696 million square feet). Investment in real-estate development rose 37.2 percent to 2.39 trillion yuan in the first seven months of 2010 from a year earlier, the statistics bureau newspaper said. That compared with 33 percent from July alone and a 38.1 percent gain in the first six months.
U.S. Refiners Cut Oil Processing Rates, Analysts Estimate: Energy Markets. U.S. refiners probably cut back on crude-oil processing last week as profit margins sank to the lowest level in five months, a Bloomberg News survey showed. Refineries probably ran at 90.7 percent of nationwide capacity, down 0.5 percentage point from the prior week, the median of 11 analyst estimates showed before a government report tomorrow. The margin for refining oil into the motor fuel, based on New York futures prices, fell to $7.505 a barrel yesterday, the lowest level since Feb. 17. Refiners increased operating rates to a 34-month high of 91.5 percent last month. U.S. gasoline demand in the four weeks ended July 30 averaged 9.41 million barrels a day, little changed from 9.4 million in the four weeks ended July 23, according to a report last week from the Energy Department. Supplies have increased for the past six weeks. Gasoline stockpiles were 6.9 percent above the five-year average in the week ended July 30. “You’re in the time of year when you usually see a pretty big drop in gasoline inventories as you get rid of summer grades, and we just haven’t seen that yet,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “I keep looking for them to reduce refinery runs to get that gasoline number to a reasonable number.” Oil Supplies were at the highest level in 20 years for the last week in July in last week’s report and 8.9 percent above the five-year average. Oil inventories at Cushing, Oklahoma, the delivery point for New York-traded futures, jumped 5.7 percent in the four weeks ended July 30 to 37.8 million barrels. That’s less than 1 percent below the all-time high set in May, according to the Energy Department. Distillate inventories last week were 25 percent above the five-year average.
Japan Says Economy is 'Picking Up,' Keeps Assessment Unchanged in August. The Japanese government kept its assessment of the economy unchanged in August and cut its evaluation of factory output after production fell the most in more than a year. “The economy has been picking up steadily and the foundation for a self-sustaining recovery is being laid,” the Cabinet Office said in a monthly report in Tokyo today. The language was the same as that used in July.
Wall Street Journal:
Rights Groups Join Criticism of WikiLeaks. A group of human-rights organizations is pressing WikiLeaks to do a better job of redacting names from thousands of war documents it is publishing, joining the list of critics that claim the Web site's actions could jeopardize the safety of Afghans who aided the U.S. military.
U.S., BP(BP) Near Deal on Fund. The Obama administration and BP PLC are close to a deal to use future revenues from the oil giant's Gulf of Mexico operations to guarantee its $20 billion cleanup and compensation fund, a move that would give both sides an incentive to continue production in the Gulf, scene of the U.S.'s worst-ever offshore oil spill.
Ethics Charges Cite Role of Water's Grandson. A central figure in the ethics controversy surrounding Rep. Maxine Waters is her chief of staff, who is also her grandson, according to formal charges unveiled by a House committee Monday. At issue is whether Ms. Waters (D., Calif.) violated congressional ethics rules by urging the Treasury Department in October 2008 to give $12 million in government bailout funds to a minority-owned bank in which her husband owned stock.
CNBC:
Since 2008, Fed Days Historically Good for Stocks. According to Bespoke, since the zero interest rate policy (ZIRP) was put into effect in December 2008, Fed days have typically been positive for the S&P 500. On the day, the index has averaged a gain of 1.18% with positive returns 85% of the time.
Oracle(ORCL) Chief Faults H.P.(HPQ) Board for Forcing Hurd Out. Lawrence J. Ellison, the chief executive of Oracle, denounced Hewlett-Packard’s directors on Monday for forcing the resignation of the H.P. chief executive, Mark V. Hurd, who is a friend of Mr. Ellison’s. Mr. Hurd stepped down Friday after a sexual harassment inquiry found that he had filed inaccurate expense reports. In an impassioned e-mail sent to The New York Times, Mr. Ellison chided H.P.’s board for what he said was a grave mistake. “The H.P. board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago,” Mr. Ellison wrote. “That decision nearly destroyed Apple and would have if Steve hadn’t come back and saved them.”
Ahmadinejad Drops A Bomb. A few days ago in remarks made to the young advisers of Iran's Ministry of Education, President Mahmoud Ahmadinejad's chief of staff, Esfandiar Mashai, claimed that his boss, Ahmadinejad, talked about the possibility of Iran enriching Uranium well over 90% and that, "Laser activities can assist in weapon enrichment activities." Ahmadinejad declared this during his visit to an exhibition on the achievements of the Center for Laser Science and Technology in February 2010. Mashai continues that his boss was talking about building a nuclear bomb, and that, "not a single foreign media outlet created an uproar over this, and this shows that they are not worried about the nuclear bomb."
Electronista:
Nearly Half of Student Notebook Buyers Choosing Macs. A new Student Monitor study revealed this weekend that almost half of college students getting a notebook plan to buy Macs. Of the 87 percent of prospective buyers, 47 percent plan to get some form of MacBook. The figure is an all-time high for Apple and has seen interest in Dell and HP shrink to just 12 and 11 percent each.
LA Times:
Netflix(NFLX) and Epix Working on Major Digital Partnership to Share Up Pay TV Landscape. In a deal that could transform the landscape for digital movie distribution, start-up pay-TV channel Epix is in serious negotiations to give Netflix exclusive online rights to films from its three equity partners -- Paramount Pictures, Lionsgate and Metro-Goldwyn-Mayer. The five-year arrangement would allow Netflix subscribers to watch movies such as "Iron Man 2," "Dinner for Schmucks" and this week's release "The Expendables" via the company's Internet streaming service, according to several people familiar with the situation.
Crossroads Poll: Dem Senate in Peril. A new poll conducted for American Crossroads, the independent conservative group founded by Karl Rove and former Republican National Committee Chairman Ed Gillespie, suggests the 2010 landscape might be just volatile enough to give Republicans at least a chance at that prize.
AP:
US Engineer Convicted of Selling Secrets to China. A federal jury in Hawaii on Monday convicted a former B-2 stealth bomber engineer of selling military secrets to China. Noshir Gowadia was convicted on 14 counts, including conspiracy, violating the arms export control act and money laundering.
Reuters:
Exclusive: Lone Star's BI-LO Up for Sale: Source.BI-LO LLC, a U.S. supermarket chain owned by Lone Star Funds LONESB.UL, is up for sale and has drawn interest from strategic and private equity buyers, a source familiar with the matter said on Monday. U.S. supermarket chains Kroger Co (KR) and Publix Super Markets are among potential bidders and are considering buying at least a significant number of BI-LO stores, the source said.
Investors Pull $3.7 Billion Form Hedge Funds in June. Investors pulled $3.7 billion out of hedge funds in June, punishing these loosely regulated portfolios for their poor performance in May, according to data released on Monday. Investors added $4 billion in May after having pulled out $3.4 billion in April. Emerging market hedge funds saw the biggest outflows with clients pulling $2.1 billion from these types of portfolios, data compiled by industry research firms BarclayHedge and TrimTabs showed. Managers specializing in fixed income funds pulled in $1.4 billion in new money, marking the biggest flows as investors sought the safety of bonds.
Deccan Herald:
RIM(RIMM) Likely to Get Ultimatum to Set Up India Server.Top sources in the Department of Telecom told Deccan Herald that the government is firm in its stand that unless the RIM—makers of BlackBerry —set up its server in India and allows the Indian security agencies to intercept its data, it will not be allowed to run its service in the country.
Evening Recommendations Citigroup:
Reiterated Sell on (STP), target $7.
Night Trading
Asian equity indices are -1.0% to unch. on average.
Asia Ex-Japan Investment Grade CDS Index 114.0 -4.0 basis points.
Asia Pacific Sovereign CDS Index 110.50 -4.0 basis points.
The NFIB Small Business Optimism Index for July is estimated to fall to 88.0 versus 89.0 in June.
8:30 am EST
Preliminary 2Q Non-farm Productivity is estimated to rise +.1% versus a +2.8% increase in 1Q.
Preliminary 2Q Unit Labor Costs are estimated to rise +1.5% versus a -1.3% decline in 1Q.
10:00 am EST
Wholesale Inventories for June are estimated to rise +.4% versus a +.5% gain in May.
2:15 pm EST
The FOMC is expected to leave the benchmark fed funds rate at .25%.
Upcoming Splits
None of note
Other Potential Market Movers
The $24 Billion 3-Year Treasury Notes Auction, weekly retail sales reports, IBD/TIPP Economic Optimism Index for August, weekly ABC Consumer Confidence reading, Oppenheimer Telecom/Media/Tech Conference, Jefferies Industrial Conference and the JPMorgan Auto Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day
North American Investment Grade CDS Index 103.0 bps -.82%
European Financial Sector CDS Index 102.69 bps +1.22%
Western Europe Sovereign Debt CDS Index 119.66 bps -.38%
Emerging Market CDS Index 208.67 bps -1.22%
2-Year Swap Spread 20.0 unch.
TED Spread 27.0 unch.
Economic Gauges:
3-Month T-Bill Yield .14% unch.
Yield Curve 228.0 -3 bps
China Import Iron Ore Spot $144.50/Metric Tonne unch.
Citi US Economic Surprise Index -33.0 -.1 point
10-Year TIPS Spread 1.79% +1 bp
Overseas Futures:
Nikkei Futures: Indicating +63 open in Japan
DAX Futures: Indicating +9 open in Germany
Portfolio:
Higher: On gains in my Retail, Biotech and Technology long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 is trading near session highs, despite the decline in the euro and recent stock gains. On the positive side, Airline, Homebuilding, Wireless, Internet, Restaurant and Gaming stocks are especially strong, rising 1.5%+ on the day. Small-Cap shares are outperforming. (IYR) has outperformed throughout the day. Copper continues to trade well, rising another +.6%. On the negative side, Tobacco, Computer, Gold, Ag, Oil Service, Oil Tanker and Coal shares are slightly lower on the day. The 10-year yield is hovering near recent lows, which is a negative. Volume is very light today, however it is a big positive that expectations regarding any significant FOMC move tomorrow have been ratcheted down, yet stocks are at the upper end of their recent trading range. One of my longs, (VRX), is hitting another new all-time high today. While I still see substantial upside to the shares longer-term, I would wait for a pullback to purchase additional shares. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, technical buying, less financial sector pessimism and mostly positive earnings reports.
