North American Investment Grade CDS Index 110.62 bps +1.94%
European Financial Sector CDS Index 119.22 bps +4.04%
Western Europe Sovereign Debt CDS Index 136.33 bps +1.0%
Emerging Market CDS Index 226.08 bps +2.45%
2-Year Swap Spread 19.0 +2 bps
TED Spread 23.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .14% unch.
Yield Curve 219.0 +1 bp
China Import Iron Ore Spot $148.30/Metric Tonne +.47%
Citi US Economic Surprise Index -56.1 -1.1 points
10-Year TIPS Spread 1.68% -8 bps
Overseas Futures:
Nikkei Futures: Indicating -17 open in Japan
DAX Futures: Indicating +8 open in Germany
Portfolio:
Higher: On gains in my Biotech and Ag long positions
Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and then added them back
Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 is trading near session highs despite more disappointing economic data, a weaker euro and tech sector worries. On the positive side, Airline, Gaming, Drug, Biotech, Telecom, Paper, Gold, Ag, Oil Tanker and Coal stocks are especially strong, rising .75%+. Despite today's disappointing jobs data, the 10-year yield is rising +6 bps to session highs and copper is rising +.8%. Moreover, the S&P GSCI Ag Spot Index is jumping another +3.02%. The Spain sovereign cds is falling -5.46% to 200.95 bps. On the negative side, Networking, Disk Drive, Computer and Internet shares are especially weak, falling 2.25%+. (IYR) has also underperformed throughout the day. The ongoing rise in eurozone credit default swaps is a major negative. Moreover, the action in the tech sector is very poor. I will closely monitor the bond market's reaction to tomorrow's likely weaker-than-expected consumer confidence reading before further shifting market exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, tech sector concerns, rising economic fear and China worries.
Jobless Claims in U.S. Unexpectedly Climbed Last Week. More Americans than forecast filed applications for unemployment benefits last week, signaling firings stepped up as the economy slowed. Initial jobless claims rose by 2,000 to 484,000 in the week ended Aug. 7, the highest level since mid February, Labor Department figures showed today in Washington. Companies may be losing confidence in the recovery and are hesitant to hire, raising the risk of further erosion in consumer spending, the biggest part of the economy. Economists forecast claims would fall to 465,000, according to the median of 42 projections in a Bloomberg News survey. The four-week moving average of claims climbed to 473,500 from 459,250, today’s report showed.
Sovereign Debt Risk Surges as Slowdown May Deepen Deficit Woes. A gauge of government bond risk rose to the highest level in five weeks on concern Europe’s deficit crisis will worsen as slowing economic growth exacerbates bank bailout costs. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose for a seventh day, climbing 4 basis points to 140, according to data provider CMA. The gauge is the highest since July 7 and up from a three-month low of 109.5 on Aug. 3. Swaps on Ireland climbed to a 17-month high on speculation the $32 billion bailout bill for Anglo Irish Bank Corp. will add to the country’s fiscal deficit. The cost of the Anglo bailout may trigger a surge in Ireland’s budget deficit to 25 percent of GDP this year, before dropping to 10 percent in 2011, analysts at Dublin-based Davy Research wrote in a note today. The European Union limit for members of the euro area is 3 percent. Default swaps on Ireland climbed 15 basis points to 286, the highest since March 2009, CMA prices show. Contracts on Anglo Irish jumped 17.5 to 551.5, Allied Irish Banks Plc increased 17.5 to 441 and Irish Life & Permanent Group Holdings Plc rose 14.5 to 337. Germany may also have to absorb the holdings of two so- called bad banks, raising the nation’s debt to 90 percent of gross domestic product, Die Zeit reported. Contracts on Germany increased 3 basis points to 47, the highest since June 29. Swaps on Greece jumped 17.5 basis points to 809.5 as the wage-cuts and tax increases that aim to trim the European Union’s second-biggest budget deficit deepened a recession. Contracts on Portugal climbed 8.5 basis points to 277, Italy rose 10 to 182 and Spain was 7 higher at 221. The cost of insuring corporate debt against default also rose with the Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings increasing 16 basis points to 520, according to JPMorgan Chase & Co., the highest in three weeks. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 4.25 basis points to 116.25, and the Markit iTraxx Financial Index of 25 banks and insurers rose 5.5 to 137.5, JPMorgan prices show.
Wheat, Corn Stockpiles Dwindle After Russia's Drought. The world’s appetite for meat, flour and ethanol is expanding faster than the supply of the crops needed to produce them, eroding inventories and increasing the chance of accelerating food prices. Wheat stockpiles may slip to a two-year low as demand rises and a drought damages the crop in Russia, whose exports will plunge 84 percent, the U.S. Department of Agriculture said today. Inventories of corn, used to feed livestock and make fuel, will be little changed from a year earlier, even as output rises to a record, the USDA said.
Crude Oil Falls a Third Day as U.S. Jobless Claims Increase. Crude oil declined for a third day after U.S. jobless claims increased, bolstering concern that economic growth will slow and fuel demand will drop. Oil decreased as much as 2.5 percent as initial jobless claims rose by 2,000 to 484,000 last week, the highest level since February. Yesterday, a government report showed that U.S. gasoline supplies climbed for a seventh week and stockpiles of distillate fuel, a category that includes heating oil and diesel, advanced to the highest level since January 1983. U.S. gasoline supplies rose 409,000 barrels to 223.4 million, according to an Energy Department report yesterday. The gain left stockpiles 8.6 percent higher than the five-year average for the week. Inventories of distillate fuel climbed 3.46 million barrels to 173.1 million, 27 percent higher than the five-year average. Crude oil supplies declined 2.99 million barrels to 355 million in the week ended Aug. 6, the report showed. Stockpiles were 8.1 percent higher than the five-year average for the period, the department said. The Organization of Petroleum Exporting Countries will reduce shipments this month as refineries close for maintenance, according to tanker-tracker Oil Movements. “There is a developing argument that Eastern demand isn’t particularly strong,” Roy Mason, Oil Movements founder, said today by phone from Halifax, England.
Shanghai's July New Mortgage Loans Slump 98% on Curbs. Shanghai’s new mortgage loans plunged 98 percent in July from a year earlier as a government crackdown on property speculation deterred investors from buying homes in China’s richest city. Loans dropped by 11.4 billion yuan ($1.68 billion) to 270 million yuan, the lowest in at least a year, the Shanghai branch of the People’s Bank of China said in an e-mailed statement today. The amount was 91 percent lower than the previous month. Real estate prices stalled nationwide in July and transaction volumes slumped 29 percent from a month earlier, a government survey showed on Aug. 10. New home sales in Shanghai fell 11 percent in the week ended Aug. 8 from the previous seven days to 137,000 square meters, according to property consultant Shanghai UWin Real Estate Information Services Co. Choi sees home prices declining a further 20 percent by the end of the year as China maintains its tightening measures on the property market.
Market Fragmentation Shows High-Frequency Hazard. The May 6 crash shows how the fragmentation of U.S. stock trading across 50 venues dominated by computerized traders is hurting investors, executives from Invesco Ltd. and TD Ameritrade Holding Corp. said.
GM's Whitacre Says Akerson Will Take Over as CEO. General Motors Co. Chief Executive Officer Ed Whitacre, who led the largest U.S. automaker from bankruptcy to two straight profitable quarters, will step down as CEO on Sept. 1 and be replaced by director Dan Akerson. Akerson, 61, also will take over the 68-year-old Whitacre’s role as chairman at the end of the year, Detroit-based GM said today.
Wall Street Journal:
Food Makers Chew Over Prices. Nestlé SA has joined a growing list of global food makers warning about higher prices for key commodities like tea and cocoa, which could pinch margins and ripple through the grocery store in the remainder of the year.
Blagojevich Jurors Agree on Just Two Counts. Jurors in the corruption trial of former Illinois Gov. Rod Blagojevich and his brother have reached agreement on just two of the 28 combined counts against the pair after 12 days of deliberation.
Economists Want Policy Makers to Back Off. Economists are getting more pessimistic about the strength of the recovery, but they don't think policy makers should do anything more to support it, according to the latest Wall Street Journal forecasting survey.
Bank Repossessions Drive Up US Foreclosures. More Americans fell into foreclosure in July as a sour job market kept them from making payments, and banks took over homes at a near record pace.
NY Times:
Debts Rise, and Go Unpaid, as Bust Erodes Home Equity. During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back. The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association. Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared. The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.
Chinese Hospitals Are Battlegrounds of Discontent. Forget the calls by many Chinese patients for more honest, better-qualified doctors. What this city’s 27 public hospitals really needed, officials decided last month, was police officers. And not just at the entrance, but as deputy administrators. The goal: to keep disgruntled patients and their relatives from attacking the doctors.
Business Insider:
Government Bails Out Bank CEO After He Expenses Mansion, Jaguar, And Porsche. Inside the Maxine Waters' ethics trial case comes the story of the government bailing out a corrupt Boston bank that Waters' husband owned stock in and sat on the board of. When Kevin Cohee, the CEO and Chairman of OneUnited, asked the government to loan the bank $50 million in TARP funds, it was discovered that Cohee had expensed quite a lifestyle to the bank's account.
Zero Hedge:
14th Sequential Week of Equity Outflows. We have now had over a quarter of non-stop redemptions by mutual funds, which of course means, by end-retail investors.
SEC Enforcement Division Granted Permanent Subpoena Powers. The Securities and Exchange Commission on Wednesday quietly made permanent a vast expansion of the power of its enforcement division's ability to subpoena documents and compel testimony. The move should ensure that investigators can move swiftly to pursue cases of financial wrongdoing. But some securities lawyers warn that it could lead to excessive costs as well as unfair treatment for the executives and companies that are targets of SEC probes.
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 25% 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 -20 (see trends).
Reuters:
Russia may not have grain available for export after a ban on outbound shipments ends Dec. 31, citing data from the Agriculture Ministry.
ICE(ICE) Cuts Staff at Chicago Climate Exchange -Sources.Market operator Intercontinental Exchange Inc. (ICE) is laying off staff at newly acquired U.S. environmental bourse the Chicago Climate Exchange (CCX), industry sources told Reuters, citing a lack of U.S. action on climate change. They said the first round of layoffs began on July 23 and, although the total number of jobs to be cut was unknown, one said around 25 employees, or roughly half CCX's headcount at the time of ICE's acquisition, had already been or were being let go.
Mortgage Rates Hit Fresh Lows on Soft U.S. Economy. Home loan rates set new lows in the latest week on more evidence of a soft U.S. economy and high unemployment, home funding company Freddie Mac said on Thursday. The average 30-year mortgage rate fell to 4.44 percent in the week ended Aug. 12, the lowest since Freddie Mac records began in 1971. The prior record low was 4.49 percent a week ago, which was well below 5.29 percent a year ago.
Telegraph:
'Flash Crash' Curbs Under Discussion by US Regulators. The so-called "flash crash" that saw the Dow Jones index plunge almost 1,000-points in 45 minutes could see US regulators restrict the range shares can move in a single day.
Xinhua:
China Mobile Ltd. and the Xinhua News Agency signed a framework agreement today to establish a search engine joint venture.
Beijing Times:
BYD Co. sales fell 6.5% to 33,046 vehicles in July from June, citing a person from the company. Sales in July rose 4% year-on-year, the report said.
Spanish Crisis Threatens Second Front as Catalonia Rates Rise. Prime Minister Jose Luis Rodriguez Zapatero may face a second front in his battle to contain Spain’s fiscal crisis as borrowing costs for the country’s regional governments climb. Catalonia, which accounts for a fifth of Spanish gross domestic product, has been shut out of public bond markets since March and the extra yield it pays over national government debt has almost tripled this year. Galicia, in the northwest, has asked to freeze payments of debt it owes the central government and the Madrid region postponed a bond sale last month. Spain’s regions, which borrowed at similar rates to the central government before the global credit crisis started in 2007, are key players in Zapatero’s drive to get his budget in order and push down the country’s borrowing costs. They control around twice as much spending as the state, employ more than half of all public workers and piled on debt during the recession. “If investors focused more on the problems in the regions, they would be less optimistic on Spain’s central government debt, and see that the rally in July was a bit overdone,” said Olaf Penninga, who helps manage 140 billion euros ($182 billion) at Rotterdam-based Robeco Group, and sold Spanish bonds last year. “If the central government has to help the regions it would aggravate an already bad situation.”
Fed Embraces Japan-Style Tools With Floor on Securities. The Federal Reserve’s decision to sustain the current level of its assets intensifies the focus of the central bank on policy tools similar to those used with little impact by Japan last decade.
Cisco(CSCO) Sales Miss Estimates on Sluggish Corporate Spending. Cisco Systems Inc., the largest maker of networking equipment, forecast sales this quarter that missed analysts’ estimates as companies rein in spending because of the sluggish economy. The stock dropped 7.9 percent.
Crude Falls a Third Day on Signals Growth will Slow, Rise in Stockpiles. Oil fell for a third day in New York as U.S. fuel stockpiles rose more than forecast, adding to signs of slowing economic growth in the world’s biggest crude consumer. Oil has slumped 5.1 percent in the past three days after the Energy Department said gasoline supplies climbed, reaching the highest level for the weekly reporting period in at least 10 years. Distillate stockpiles increased to the highest since January 1983. “The U.S. inventory report was bearish, showing that there wasn’t much of a summer driving season again,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “Global economic concerns are becoming the top of mind issue so we’ve seen equities pull back. China is showing signs of weakness in growth.” Crude oil for September delivery dropped as much as 90 cents, or 1.2 percent, to $77.12 a barrel in electronic trading on the New York Mercantile Exchange.
U.S. Dollar May Rise by Year-End Like Euro After Crisis, Mizuho Trust Says. The dollar may rise above 90 yen by year-end as its 8.5 percent drop this year boosts U.S. exports and eases concerns about economic growth, much like the euro’s rebound from the debt crisis, said Mizuho Trust & Banking Co. The dollar may rise above 90 yen by year-end as its 8.5 percent drop this year boosts U.S. exports and eases concerns about economic growth, much like the euro’s rebound from the debt crisis, said Mizuho Trust & Banking Co.
Foreclosure Crisis Spreads Across U.S. as Defaults Jump in Idaho, Illinois. Home foreclosures are climbing in the Northwest and Midwest, areas that had earlier dodged the worst of the mortgage crisis, according to real estate data firm RealtyTrac Inc. With 14.6 million Americans out of work and consumer spending declining, further weakness in housing could push the economy back into recession, former Federal Reserve Chairman Alan Greenspan said Aug. 1. Foreclosure rates in Utah, Idaho, Illinois and Colorado rose in the second quarter compared with a year earlier, and rank among the 10 highest in the country. The number of homes seized by lenders at least doubled in 19 states and more than tripled in seven of them, according to Irvine, California-based RealtyTrac.
Wall Street Journal:
Climate-Change Fight Shifting to Western US Coal Mines. Western U.S. coal producers are increasingly coming under fire by environmental groups that see a chance to fight climate change by curbing output from the nation's largest coal basin. For years environmentalists have lobbied for tougher limits on the emissions of heat-trapping gases blamed for climate change from power plants, vehicles and other direct sources. But the collapse of federal climate-change legislation in recent weeks and growth of coal exports to Asia is leading some groups to look past the smoke stacks and aim to quash emissions by stymieing production of fuel.
Grim Voter Mood Turns Grimmer. Americans are growing more pessimistic about the economy and the war in Afghanistan, and are losing faith that Democrats have better solutions than Republicans, according to a new Wall Street Journal/NBC News poll.
Investors Reload The Guns On Euro. Hedge funds surprised by the euro's recent advance once again are turning bearish on the common currency, which tumbled Wednesday against the dollar. For much of the year, the hot trade on Wall Street was wagering against the euro and the debt of various European countries. When bonds issued by Greece, Italy, Spain and other nations fell in price amid pangs of worry in the spring, some funds posted huge profits. In recent weeks, however, as economic prospects in the bloc of nations that use the euro appeared to improve, and Greece and other nations pursued austerity measures, the euro staged a startling rally. The turnaround hurt hedge funds clinging to bearish positions and prompted others to trim their trades. "You can't be dogmatic, you have to be respectful of the market," said William Allen, a New Jersey hedge-fund manager who cut bearish euro positions to limit losses. Now, he said, it is time to bet against the euro again. He isn't alone in the view.
Most Americans Favor Keeping All Bush Tax Cuts for Now. Most Americans would go along with temporarily extending the Bush tax cuts for all taxpayers, including the wealthy, until the economy recovers, a new NBC News/Wall Street Journal survey has found. That finding represents encouraging news for Republicans as they prepare for a fall battle over tax cuts in advance of mid-term elections.
China National Petroleum Corp., the country's state oil company, has banned the word "monopoly" from all its public statements and communications. CNPC, as the company is called, has a vocabulary list with as many as 100 words that must only be used with caution "to accurately direct public opinion," citing a list circulating the internet.
Economic Times:
India May Ban Key BlackBerry Services. India may temporarily ban messenger and enterprise e-mail services offered on BlackBerry phones should the device maker Research In Motion(RIMM) and mobile phone service providers fail to address concerns raised by security agencies, citing an official.
Evening Recommendations Citigroup:
Upgraded (EBAY) to Buy, target $28.
Wells Fargo:
Rated (AAPL), (GOOG), (IBM) and (NTAP) Outperform.
Night Trading
Asian equity indices are -1.25% to -.75% on average.
Asia Ex-Japan Investment Grade CDS Index 126.0 +7.0 basis points.
Asia Pacific Sovereign CDS Index 118.0 +4.25 basis points.
The Import Price Index for July is estimated to rise +.3% versus a -1.3% decline in June.
Initial Jobless Claims are estimated to fall to 465K versus 479K the prior week.
Continuing Claims are estimated to fall to 4535K versus 4537K prior.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Duke speaking, the $16 Billion 30-Year Treasury Bond Auction, Goldman Sachs Utility Conference, Jefferies Industrial Conference and the BofA Specialty Pharma Conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.
North American Investment Grade CDS Index 108.51 bps +3.10%
European Financial Sector CDS Index 116.69 bps +8.14%
Western Europe Sovereign Debt CDS Index 134.50 bps +7.0%
Emerging Market CDS Index 218.04 bps +3.31%
2-Year Swap Spread 17.0 -2 bps
TED Spread 24.0 -2 bps
Economic Gauges:
3-Month T-Bill Yield .14% unch.
Yield Curve 218.0 -6 bps
China Import Iron Ore Spot $147.60/Metric Tonne +1.72%
Citi US Economic Surprise Index -55.0 -22.0 points
10-Year TIPS Spread 1.75% -6 bps
Overseas Futures:
Nikkei Futures: Indicating -140 open in Japan
DAX Futures: Indicating +5 open in Germany
Portfolio:
Lower: On losses in my Medical, Biotech and Technology long positions
Disclosed Trades: Added to my (IWM)/(QQQQ) hedges, added to my (EEM) short
Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 is trading near session lows as it breaks convincingly back below its 200-day moving average. On the positive side, Tobacco, Food, Education and Telecom stocks are holding up relatively well, falling less than -1.5%. The ongoing trend lower in the 2-Yr Swap, Libor-OIS and TED spreads is a positive. On the negative side, Airline, Road & Rail, Construction, Bank, Networking, Steel, Oil Tanker, Alt Energy, Coal and Defense shares are especially weak, falling 4.0%+. Cyclical and Small-cap shares are underperforming again. (XLF) has been very heavy throughout the day. European bank stocks are under significant pressure again. The Euro Financial Sector CDS Index has risen substantially in the last two days and the Western European Sovereign CDS Index is now following suit. The Portugal sovereign cds is jumping +7.4% to 265.70 bps, the UK sovereign cds is rising +9.5% to 65.84 bps and the Greece sovereign cds is rising +4.9% to 829.0 bps. The euro currency has likely put in another meaningful top. The latest US scrap steel index quote is showing a decline of -11.13%, which puts it below its 200-day moving average for the first time since June 2009. The 10-year yield is falling another -7 bps to 2.69%, which is also a big negative. The market's reaction to Cisco's earnings report after the close today is key given recent tech sector concerns. I am not ruling out the possibility that another meaningful move lower in stocks has begun. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, technical selling, profit-taking, rising sovereign debt angst, increasing financial sector pessimism and China worries.
