Broad Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Most Sectors Declining
- Volume: Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- VIX 15.33 +.59%
- ISE Sentiment Index 106.0 -18.5%
- Total Put/Call 1.07 +44.59%
- NYSE Arms 1.08 +106.97%
Credit Investor Angst:
- North American Investment Grade CDS Index 101.75 bps -1.25%
- European Financial Sector CDS Index 169.90 bps -3.79%
- Western Europe Sovereign Debt CDS Index 116.68 bps -2.3%
- Emerging Market CDS Index 244.75 bps +.18%
- 2-Year Swap Spread 12.25 -.75 basis point
- TED Spread 24.0 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -27.75 +1.0 basis points
Economic Gauges:
- 3-Month T-Bill Yield .07% -1 basis point
- Yield Curve 140.0 +4 basis points
- China Import Iron Ore Spot $120.60/Metric Tonne-1.79%
- Citi US Economic Surprise Index 48.40 +1.6 points
- 10-Year TIPS Spread 2.40 +1 basis point
Overseas Futures:
- Nikkei Futures: Indicating +43 open in Japan
- DAX Futures: Indicating -5 open in Germany
Portfolio:
- Slightly Higher: On gains in my Medical/Biotech sector longs
- Disclosed Trades: None
- Market Exposure: 50% Net Long
Bloomberg:
- French Downgrade Widens Gulf With Germany as Talks Loom: Economy. France’s
loss of the top credit rating at Moody’s Investors Service may weaken
President Francois Hollande’s leverage in European budget talks and
deepen concern in Germany over its neighbor’s lagging competitiveness.
The downgrade late yesterday of Europe’s second-biggest economy
underscores the concern expressed by allies of German Chancellor Angela
Merkel that the Socialist Hollande’s failure
to recognize the urgency of France’s woes risks a deepening of
Europe’s slump. “This downgrade will certainly increase pressure on
France
big-time,” Jan Techau, director of the Carnegie Endowment for
International Peace office in Brussels, said today in a phone
interview. “It gives Germany more of an edge over France.” With French
bonds rallying since Standard & Poor’s stripped the country of
its AAA credit rating in January, the impact of the Moody’s downgrade
may be more political than financial. Just last week, German Finance
Minister Wolfgang Schaeuble spoke out against his countrymen calling
France the “sick man” of Europe. The day before, France’s Liberation
newspaper ran a
front-page article highlighting German anxiety about Hollande’s
policies.
- French Swaps Rise on Downgrade as Bonds, European Banks Decline. The
cost of insuring France’s government debt rose to a one-month high and
its bonds declined after Moody’s Investors Service cut the nation’s
credit rating. European bank stocks fell before the region’s finance ministers meet to discuss Greece’s debt burden. Credit-default
swaps on France jumped to 92 basis points, the highest since Oct. 15,
and the yield on the country’s 10- year bonds climbed five basis points
to 2.12 percent at 7:52 a.m. in New York. German bund yields also
increased. The Stoxx Europe 600 Index dropped 0.2 percent and Standard
& Poor’s 500 Index futures were little changed. Commodities slid
as crude oil fell from a one-month high. “The downgrade raises
concerns about the structure of the euro zone and adds more of a burden
on to the shoulders of German sovereign creditworthiness,” said John
Wraith, a fixed- income strategist at Bank of America Merrill Lynch in
London. “It’s another sign that things continue to deteriorate in
Europe.”
- Hewlett-Packard(HPQ) Profit Forecast; $8.8 Billion Charge. Hewlett-Packard Co. plunged to the lowest price in a decade after it
said the British software company purchased last year falsified its
finances, resulting in an $8.8 billion charge to write down the value of
the Autonomy Corp. business. “HP is extremely disappointed to find that some former members of
Autonomy’s management team used accounting improprieties,
misrepresentations and disclosure failures to inflate the underlying
financial metrics of the company, prior to Autonomy’s acquisition by
HP,” Palo Alto, California-based Hewlett-Packard said today in a
statement.
- Housing Starts in U.S. Increase. Housing starts rose 3.6 percent to a 894,000 annual rate, the fastest
since July 2008 and exceeding all estimates in a Bloomberg survey,
Commerce Department figures showed today in Washington. The median
forecast of 82 economists called for an 840,000 pace. Permits for the
construction of single-family homes also advanced to the highest in four
years.
- Oil Falls on Signs Gaza Cease-Fire Imminent. Oil
tumbled from a one-month high in
New York as Hamas said a draft accord for a cease-fire that
would end fighting between Israel and Palestinian groups in the Gaza
Strip is almost ready. Futures dropped as much as 3.5 percent after
Hamas official Osama Hamdan said by phone from Beirut that an
announcement was likely at 9 p.m. Cairo time and that it will take
effect at midnight. His comments came as U.S. Secretary of State Hillary
Clinton flew to the region to join truce talks. Prices surged 2.7
percent yesterday as the conflict escalated. “Crude is down because
cooler heads are prevailing in the Middle East,” said Stephen Schork,
president of the Schork Group Inc., an energy advisory company in
Villanova, Pennsylvania. “The huge run-up yesterday is being exorcised.”
Crude oil for January delivery declined $2.92, or 3.3 percent, to
$86.36 a barrel at 12:25 p.m. on the New York Mercantile Exchange.
- Dimmer Profit Outlook Seen Weighing on Stocks: Chart of the Day. Lower earnings estimates are dragging down stocks from this year's highs and their full effect has yet to be felt, according to Hasan S. Tevfik, a global equity strategist at Citigroup Inc. Since the first week of May, the revision index has been less than zero, which means there were more estimate cuts than increases among analysts. "ERI remains an anchor for global equity markets," Tevfik wrote. A similar disparity between estimate changes and share prices in 2011 was resolved when stocks declined in July and August of that year, he added. Earnings projections for next year are poised to decline further, he wrote, citing the gap between analysts' estimates for companies and strategists' projections for stock indexes.
- Ex-SAC Manager Martoma Charged in Record Insider-Trading Scheme. A former portfolio manager for
Steven A. Cohen’s SAC Capital Advisors LP was charged with what
U.S. prosecutors called a record-setting insider-trading scheme
that netted as much as $276 million for the hedge fund. Prosecutors
in the office of U.S. Attorney Preet Bharara in
Manhattan today charged the portfolio manager, Mathew Martoma,
with trading on insider tips about clinical trials of bapineuzumab,
a drug to treat Alzheimer’s disease. Martoma, 38, is accused of advising
Cohen to sell shares of Wyeth LLC (PFE) and Elan Corp. (ELN) before bad
news about the drug's
prospects was announced. Cohen's firm made $276 million in
profits or losses avoided after receiving the advice,
prosecutors said in a criminal complaint.
Wall Street Journal:
Reuters:
Telegraph:
- Eurozone split over Greek debt. Greece's international lenders remained split on how to deal with Greece's
next loan deal and it was not clear if a deal would be reached at a key
meeting being held in Brussels this evening, which could be set to turn into
an all-nighter.
Les Echos:
- ArcelorMittal Sees Europe Steel Demand Drop in 2013. The company
told unions at a meeting Nov. 19 in Paris that it doesn't expect any
improvement next year, citing labor rep. Francois Pagano.
The Economic Times:
- Moody's to review EFSF, ESM ratings after French cut.
Credit ratings agency Moody's said on Tuesday it would assess the
ratings of the euro zone's EFSF and ESM bailout funds in light of its
decision to strip France of its AAA rating on Monday. "The ratings of
the European Financial Stability Fund (EFSF) and European Stability
Mechanism (ESM) remain (P)Aaa and Aaa
respectively, in each case with a negative outlook," Moody's said in a
statement. "Moody's will assess the implications of the
downgrade of the French government's rating for the EFSF's and ESM's
ratings as a matter of course, focusing in particular on whether the
support available from the remaining Aaa guarantors and shareholders is
consistent with the EFSF and ESM retaining the highest ratings," it
said.
Xinhua:
- Wen Says Huangyan Island Belongs to China. Chinese Premier Wen Jiabo said here Tuesday that the Huangyan Island is an integral part of China's territory, and its sovereignty is indisputable. Wen, when responding to remarks from leaders of certain countries at the seventh East Asia Summit, said China's actions to defend the island's sovereignty is legitimate and necessary.
Yunnan Info Daily:
- China
CBRC Halts Some Infrastructure, Vehicle Loan Trusts. The China Banking
Regulatory Commission ordered some trust companies to halt their vehicle loan, infrastructure and pool businesses, citing people in the trust industry.
Style Underperformer:
Sector Underperformers:
- 1) Education -3.20% 2) Computer Hardware -2.61% 3) Coal -2.11%
Stocks Faling on Unusual Volume:
- SHF, PRI, HPQ, BBY, VCRA, PDCO, SCVL, RAVN, URBN, NMM, NUAN, SIG, CLF, A, HNZ, TZOO, HRL, STMP, PENN, CPB, EOC, BOBE, GEOS, RMD, LGCY, BANR, MNTA, SNTA and TEA
Stocks With Unusual Put Option Activity:
- 1) HYG 2) KSS 3) HPQ 4) DE 5) CRM
Stocks With Most Negative News Mentions:
- 1) INTC 2) HPQ 3) CSX 4) CLF 5) GS
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Homebuilders +2.44% 2) Tobacco +1.27% 3) Biotech +1.19%
Stocks Rising on Unusual Volume:
- DSW, GMCR, REGN, CLNE, DY, RGR, DECK and RYL
Stocks With Unusual Call Option Activity:
- 1) A 2) TEA 3) ADM 4) HPQ 5) URBN
Stocks With Most Positive News Mentions:
- 1) WFM 2) CAT 3) GMCR 4) HNZ 5) ADM
Charts:
Evening Headlines
Bloomberg:
- France Loses Top Rating at Moody’s in Blow to Hollande. France
lost its top credit rating at Moody’s Investors Service, which also
maintained a negative outlook for Europe’s second-largest economy,
citing what it called a worsening growth outlook. France was cut to
Aa1 from Aaa, the rating company said yesterday. The Moody’s downgrade
follows one by Standard & Poor’s in January and increases pressure
on President Francois Hollande to find ways to bolster growth. “France’s
fiscal outlook is uncertain as a result of its deteriorating economic
prospects, both in the short term due to subdued domestic and external
demand” and “structural rigidities” in the longer term, Moody’s said
in a statement in Frankfurt. Since taking office in May, Hollande has
pressed Germany to do more to end the European debt crisis, while focusing on tax increases at home to pare France’s budget shortfall. With an economy that has failed to grow in three
quarters and unemployment at a 13-year high, Hollande needs to
act quickly to address France’s lack of competitiveness by
improving labor-market flexibility and lowering wage costs,
economists say.
- Europe Leaders Face Greek Aid Gap in Brinkmanship With IMF. European
finance ministers will try to plug a 15 billion-euro ($19 billion) hole
in Greece’s finances and win over the International Monetary Fund in
the latest installment of three years of debt-crisis brinkmanship.
Recycling European Central Bank profits on Greek bonds, charging Greece
lower interest rates and extending repayment deadlines are among the
options under consideration today for filling the new gap in Greece’s
public accounts. European governments tore open the hole last week,
by giving Greece two extra years to cut its budget deficit. The required
extra financing provoked a clash with the IMF, since it would add to
Greece’s debt load instead of reducing it. “Greece is in a mess,” James
Mirrlees, a Nobel economics laureate, told Bloomberg Television
yesterday. Europe won’t solve the problem by “fiddling around with
little bits of extra bailout and allowing them to go a bit slower.”
- Misconstruing Germany Will Prove to Be Death of the Euro. When I go from one European capital
to another, talking to officials and senior politicians about
the future of the euro, Germany feels less like another country
than a different planet. In Madrid and Dublin, a euro-area banking union -- the
prerequisite for bailing out banks directly -- is discussed as
if it were a foregone conclusion. Both Spain and Ireland are
hoping their governments ultimately won’t have to finance the
rescue of their banks alone. Top officials in Germany work on the assumption that a
meaningful banking union will never happen.
- China Foreign Investment Falls for 11th Time in 12 Months.
Foreign direct investment in China fell for the 11th time in 12 months
as labor costs rose, a slowdown threatened to drag growth to a 13-year
low and a territorial dispute with Japan weighed on trade. Investment dropped 0.2 percent in October from a year earlier to $8.31 billion, the Ministry of Commerce said in
Beijing today. FDI inflows in the first 10 months of the year
declined 3.5 percent to $91.7 billion, compared with a slide of
3.8 percent in the first nine months.
- Purple Palace Abandoned Shows China Shadow-Banking Risk. “The risks are significant there, and something must be done by the
government to stop potential defaults of property trusts from spreading
nationwide,” said Lian Ping, an economist at Shanghai-based Bank of
Communications Co. “Trusts have become too large to fail.”
- Most Chinese Stocks Fall After FDI Drops; Banks, Ping An Decline. Most
Chinese stocks fell, led by financial companies, as a decline in
foreign direct investment in China overshadowed a jump in U.S. home
sales. China Construction Bank Corp. (939) slumped 1.4 percent,
dragging a gauge of financial companies to the steepest loss among
industry groups in the CSI 300 Index. Foreign direct investment in China
fell 0.2 percent in October. Ping An Insurance Group Co. (2318) slid
2.6 percent as Bank of Communications Co. said HSBC
Holdings Plc’s possible sale of Ping An shares may hurt investor
sentiment.
- Oil Trades Near One-Month High as Israel Unrest Threatens Supply.
Wall Street Journal:
- Norquist Derides ‘Fantasy’ of Higher Tax Rates. A defiant Grover Norquist said Monday it was a
“fantasy” that Republicans would agree to raise tax rates for the top
two income brackets to reach a deal to avert a year-end fiscal crisis. “The
fantasy is that Republicans would cave on marginal tax rates,”
Mr. Norquist, a prominent anti-tax conservative, said Monday at an event
sponsored by the Center for the National Interest. He concluded it was
“a little tough to see a strong mandate” for President Barack Obama to
raise taxes because the president won re-election by a smaller margin
than in 2008. The comments, which reflect a strain of thinking within the
Republican party, raise the prospects of challenging negotiations over
avoiding the combination of tax increases and spending cuts set for next
year.
- Entitlements Split Democrats. Changes to Medicare, Other Safety-Net Programs Debated as 'Fiscal Cliff' Looms.
- Exchanges Get Closer Inspection. Federal securities regulators are stepping up oversight of stock
exchanges as they scramble to catch up to trading advantages that some
say have developed for sophisticated clients at the expense of ordinary
investors. That effort has led the Securities and Exchange
Commission to expand an enforcement probe into a broader look at how
exchanges develop new products, communicate with investors and provide
incentives to trade, according to people familiar with the probe.
- Gaza Toll Rises as a Top Militant Is Targeted. Hamas's leader refused to stop rocket attacks on Israel on Monday
while Israeli forces stepped up their bombardment of Hamas targets in
the Gaza Strip, deepening the conflict even as officials on both sides
held up a faint hope for a diplomatic resolution. The death toll
from nearly a week of Israeli strikes into the Gaza Strip hit 115 on
Monday, with the day's fatalities including a propaganda chief for a
Gaza militant group.
- Islamists Reject Syria Rebel Group, as EU Embraces It. Syrian Islamists fighting the Assad regime rejected a newly formed
opposition umbrella group, raising questions about whether the new
alliance can achieve its objective: to create a moderate force that can
get funds and arms from foreign allies. The umbrella group also
got a boost Monday when the European Union labeled the coalition
"legitimate representatives" of the Syrian people. The move stopped
short of a French push for the EU to formally recognize the group, as
did France, Qatar and Turkey earlier.
- Health Panel Backs Broad HIV Tests. A government health panel on Monday for the first time recommended
testing for the human immunodeficiency virus for all Americans aged 15
to 65, in an effort to slow its spread. There are many people who are skeptical about wider HIV testing, said
Michael S. Lyons, an emergency room physician at the University of
Cincinnati. "The benefits of diagnosing someone as early as possible are
basically proven," he said, "but the difficulty is how do you do that?" Mr. Lyons said many relatively poor people who show up at the
emergency room may well be HIV-positive, "but emergency departments are
very strained at this point. This is a compelling example of the tension
between what would be good to do and what practically can be done."
- As Coal Mines Shut, 'Big Iron' Gets Dirt Cheap.
CNBC:
- France Is Dealt Another Downgrade — Who Is Next? Ratings agency Moody's Investors Service
stripped France of its prized triple-A credit rating on Tuesday,
triggering worries the move could heighten the risk of a downgrade for
other top-rated nations, including the United States and the single
currency bloc’s largest economy Germany. “The downgrade is extremely significant considering there has been a lot
of talk about the U.S. being downgraded as well. The first image that
comes to mind is a line of dominos all standing upright, and one of them
now tipping,” Ben Lichtenstein, president at Tradersaudio.com told CNBC
Asia’s “Squawk Box" on Tuesday, adding that the spotlight could turn to
Germany next.
Zero Hedge:
Business Insider:
NY Times:
- American Shippers Are Left Behind in Cargo Program. It began in the mid-1990s as a way to boost America’s vanishing
international shipping business. But an obscure program to subsidize the
shipment of United States military cargo around the world has become
something quite different: a $2 billion operation that, paradoxically,
is dominated by a handful of shipping giants, all owned overseas.
USA Today:
- Indiana home explosion now homicide investigation. The investigation into the Nov. 10 explosion that killed two people
and damaged dozens of homes in the Richmond Hills subdivision is now a
criminal homicide investigation that includes a hunt for a white van
seen in the neighborhood before the blast, authorities announced Monday
night. "At this time we're here to inform you that we're turning
this into a criminal homicide investigation," Gary Coons, chief of the
Indianapolis Department of Public Safety's Homeland Security division,
told the media at a press conference.
Financial Times:
- Credit Suisse faces NY lawsuit. The New York attorney-general is preparing to file a lawsuit against
Credit Suisse, alleging the Swiss bank misled investors who lost more
than $11bn on mortgage-backed securities. In the lawsuit, which is
expected to be filed this week, Credit Suisse faces claims that it
misled investors regarding its due diligence practices on home loans it
packaged into bonds, people familiar with the matter said. The bank also allegedly
misled investors over the lending practices of the loan originators it
worked with, the lawsuit is to claim.
Telegraph:
- Greek companies face 'annihilation' amid debt crisis. Greece's recession-hit businesses face "annihilation", a leading chamber of
commerce has warned, as a fatal combination of falling sales and job cuts
meant the country was in its worst economic shape for 14 years.
China Daily:
- Central bank warns of capital flows. Rising
inflation, commodity prices major threats to emerging markets. It is
vital for emerging markets to cooperate better in monitoring
cross-border capital flows and reducing the risks of currency
exchange-rate fluctuation, a deputy governor of China's central bank
said on Monday. Pan Gongsheng also said the international monetary
system should be further reformed to reflect the increasing influence of
emerging currencies. This would help reduce global dependence on the
dollar and thus avoid US monetary policy from affecting other parts of
the world too much. Pan said increasing volatility of capital flows in
and out of emerging economies, including China, have placed great
pressure on domestic macroeconomic regulation and financial stability.
"The economic adjustment and recovery is still at a difficult stage. Easing
policies of certain developed economies would generate a negative
spill-over effect in emerging markets and hinder the global economic
recovery," said Pan, deputy governor of the People's Bank of China. "And
inflation would be a threat as commodity prices would rise after a
further easing in monetary stance."
China Securities Journal:
- China
should gradually replace administrative controls on the property market
with market-based measures such as property taxes, according to a
commentary written by reporter Zhang Ming. The "technical conditions"
exist to expand property tax trials. The expansion will break the
current "deadlock" in home market controls.
China.com.cn:
- China has "decided on the direction" of an expansion of a property tax trial, Jia Kang, a researcher for the Ministry of Finance, was cited as saying. The expansion is expected to begin with commercial properties and then extend to residential properties, citing researchers.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 121.0 -5.0 basis points.
- Asia Pacific Sovereign CDS Index 90.50 -4.5 basis points.
- FTSE-100 futures -.05%.
- S&P 500 futures -.10%.
- NASDAQ 100 futures -.03%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (TECD)/1.35
- (CHS)/.23
- (HPQ)/1.14
- (HRL)/.50
- (PDCO)/.48
- (BWS)/.46
- (HNZ)/.88
- (CPB)/.85
- (DSW)/.89
- (MDT)/.88
- (BBY)/.12
- (EV)/.48
- (CRM)/.32
Economic Releases
8:30 am EST
- Housing Starts for October are estimated to fall to 840K versus 872K in September.
- Building Permits for October are estimated to fall to 864K versus 894K in September.
Upcoming Splits
Other Potential Market Movers
- The Fed's Bernanke speaking, Fed's Lacker speaking, Euro Group Meeting on Greece, Eurozone PPI, Germany PPI, BOJ meeting and the weekly retail sales reports could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- Volume: Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- VIX 15.39 -6.22%
- ISE Sentiment Index 130.0 +31.31%
- Total Put/Call .71 -30.39%
- NYSE Arms .68 -47.56%
Credit Investor Angst:
- North American Investment Grade CDS Index 104.19 bps -4.61%
- European Financial Sector CDS Index 176.52 bps -5.57%
- Western Europe Sovereign Debt CDS Index 121.53 bps -2.8%
- Emerging Market CDS Index 244.50 bps -3.14%
- 2-Year Swap Spread 143.0 -1.25 basis points
- TED Spread 23.5 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -28.75 +1.5 basis points
Economic Gauges:
- 3-Month T-Bill Yield .08% unch.
- Yield Curve 136.0 +2 basis points
- China Import Iron Ore Spot $122.80/Metric Tonne unch.
- Citi US Economic Surprise Index 46.80 -.7 point
- 10-Year TIPS Spread 2.39 +1 basis point
Overseas Futures:
- Nikkei Futures: Indicating +62 open in Japan
- DAX Futures: Indicating -5 open in Germany
Portfolio:
- Higher: On gains in my Tech/Medical/Biotech and Retail sector longs
- Disclosed Trades: Covered some of my (IWM), (QQQ) hedges and some of my (EEM) short
- Market Exposure: Moved to 75% Net Long
