Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 114.0 +34.1%
Credit Investor Angst:
- North American Investment Grade CDS Index 86.04 -.24%
- European Financial Sector CDS Index 137.72 +2.01%
- Western Europe Sovereign Debt CDS Index 99.07 +.11%
- Emerging Market CDS Index 212.40 +.14%
- 2-Year Swap Spread 14.75 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -15.5 +1.25 bps
Economic Gauges:
- 3-Month T-Bill Yield .07% +1 bp
- China Import Iron Ore Spot $147.70/Metric Tonne +1.23%
- Citi US Economic Surprise Index -3.0 -.9 point
- 10-Year TIPS Spread 2.53 +1 bp
Overseas Futures:
- Nikkei Futures: Indicating +49 open in Japan
- DAX Futures: Indicating +9 open in Germany
Portfolio:
- Higher: On gains in my tech/medical sector longs and emerging markets shorts
- Market Exposure: 50% Net Long
Bloomberg:
- IMF Cuts Forecast on Second Year of Europe Contraction. The
International Monetary Fund cut its global growth forecasts and now
projects a second year of contraction in the euro region as progress in
battling Europe’s debt crisis fails to produce an economic recovery. The
world economy will expand 3.5 percent this year, less than the 3.6
percent forecast in October, the Washington-based IMF said today in an
update of its World Economic Outlook report. While the fund projects
growth this year increasing from last year’s 3.2 percent pace, it
expects the 17-country euro area to shrink 0.2 percent in 2013, instead
of growing 0.2 percent as forecast in October. While measures to
stem the debt turmoil last year helped boost financial markets around
the world and decrease sovereign bond yields from Spain to Greece, European
officials now still face a recession and unemployment at a record 11.8
percent in the euro area. The IMF warned that the region
still poses a “large” risk to the rest of the world if efforts under way
to strengthen its economies and work on a banking union slip. The
forecast for a second year of economic contraction reflects “delays
in the transmission of lower sovereign spreads and improved bank
liquidity to private sector borrowing conditions,” as uncertainty
remains over ending the turmoil that has engulfed nations from Ireland
to Cyprus, according to the report. While the forecast for Japan
was left unchanged at 1.2 percent this year amid fiscal and monetary
plans to stimulate its economy, the fund cut the 2014 prediction by 0.4
percentage point to 0.7 percent. Growth forecasts for Brazil were cut to
3.5 percent this year from 4 percent and to 4 percent from 4.2 percent
in 2014. India was lowered 0.1 percentage point to 5.9 percent this year
and was left unchanged at 6.4 percent in 2014. In Europe, German growth
was cut by 0.3 percentage point to 0.6 percent in 2013 and is seen
accelerating to 1.4 percent next year, from 1.3 percent. Spain will
contract 1.5 percent this year, compared with 1.3 percent
in October and is seen growing 0.8 percent in 2014, 0.2 percentage point
less than before. Italy will shrink 1 percent in 2013 rather
than 0.7 percent seen in October, and expand 0.5 percent in 2014,
unchanged from three months ago, according to the IMF report released
today.
- Spain’s Lost Generation Spends Salad Days Toiling in U.K.Carlos
Hernandez Sonseca studied six years for a bachelor’s degree and
couldn’t find a job near his home outside Madrid when he graduated in
2011. Last year, he took an increasingly well-worn path to the U.K.
- French-German Rejection Points to Cameron Isolation on EU. Germany
and France rebuffed U.K. Prime Minister David Cameron’s attempt to
customize the terms of membership in the European Union and vowed not to
let Britain
stand in the way of the overhaul of the euro currency. Cameron’s call today for a new EU deal drew rebukes from
government leaders in Berlin and Paris that demonstrated how the
debt crisis is driving the 17 euro countries closer together, no
matter whether the U.K. stays in the broader 27-country bloc.
- China Overheating Risk Resurfaces, Ex-PBOC Adviser Says. China’s
economic risks have shifted back to growing too quickly as new
regional-government officials try to boost development, a former central
bank adviser said. “The new problem is how to prevent overheating,”
which would stoke inflation and asset bubbles while pushing the
government to enact controls, Fan Gang, a People’s Bank of China
academic adviser from 2006 to 2010, said today in an interview in
Davos, Switzerland, where he is attending the World Economic Forum.
“That kind of complication has come back again.” Fan’s comments mark a resurfacing of concerns that had receded last year as growth, inflation and the housing market
cooled.
- Ryan Says Republican Goal Is ‘Big Down Payment’ on Debt. House
Republicans want to force “a big down payment on the debt crisis”
during the debate on spending cuts and extending the U.S. government’s
borrowing authority, said Budget Committee Chairman Paul Ryan. Ryan said
the debt-limit issue, the scheduled March 1 start
of $110 billion in automatic spending cuts -- half in defense --
and the need to extend the government’s spending authority past
March 27 “are the points” to “force the conversation” on
reducing the debt.
- Obama Could Bypass Congress to Fulfill Climate Pledge. President
Barack Obama, whose inaugural address made climate change a second-term
priority, could bypass Congress and implement much of his environmental
agenda
unilaterally through regulations and executive action.
Fox News:
- Clinton lashes out at senator over Benghazi questioning. (video) "We were misled that there were supposedly protests and something
sprang out of that. ... The American people could have known that (there
was no protest) within days, and they didn't know that." At that point, Clinton began to raise her voice.
"With all due respect, the fact is we had four dead Americans," she
said. "I understand," Johnson said. Clinton continued to speak, raising
her voice and gesturing: "Was it
because of a protest or is it because of guys out for a walk one night
and they decide they go kill some Americans? "What difference, at this point, does it make?"
CNBC:
- Gazing Into 'Dark Pools,' the Tool that Enables Anonymous Insider Trading. While federal authorities aggressively pursue individual insider stock
trading cases — including an ongoing investigation of Wall Street
titan Steven A. Cohen's SAC Capital hedge fund — financial regulators
remain years away from being able to peer into "dark pools," the
high-tech mechanism that insiders use to conduct secret, advantageous
transactions.
- Bears on the Brink: 'I Can't Fight It Anymore'. A
powerful rally in which virtually all fears have been bypassed has
pushed stock marketdetractors to the brink, ready to wave the proverbial
white flag as the only direction for the market seems to be up, up, up. "They're
almost ready to throw in the towel," Scott Bauer, of Trading Advantage,
told CNBC. "I don't want to say 'capitulation,' (but) guys down here
really are saying, 'All right, I can't fight it anymore, let's go.'"
Reuters:
- Coach(COH) North American sales sag; shares slump. Coach Inc (COH.N) on Wednesday reported holiday quarter revenue well below Wall Street forecasts, hit by stiff competition in the handbag segment it has long
dominated and a tough environment that saw many retailers cut prices to
attract shoppers.
- McDonald's(MCD) says January restaurant sales will fall. McDonald's Corp on Wednesday
forecast a decline in global restaurant sales for January, as it
and other fast-food chains fight for customers who are spending
cautiously during continued economic uncertainty.
- U.S. chain store sales point to a hit from tax hike. A slowdown in sales growth at
many big U.S. retailers suggests a clutch of tax hikes enacted
this month is already leading consumers to hold back on
spending, putting a brake on economic growth. Sales growth has cooled for three straight weeks when
measured from a year earlier in the Johnson Redbook Retail Sales Index, data showed on Wednesday. Compared to the same week one year earlier, the Redbook
index rose 1.8 percent in the week ending January 19, down from
1.9 percent in the January 12 week and 2.1 percent in the
January 5 week. Sales were up 2.9 percent in the December 29
week from a year earlier.
- Brazil inflation speeds more than expected in month to mid-Jan.
AP:
- Panetta opens combat roles to women. Senior defense officials say Pentagon chief Leon Panetta is removing
the military's ban on women serving in combat, opening hundreds of
thousands of front-line positions and potentially elite commando jobs
after more than a decade at war. The groundbreaking move
recommended by the Joint Chiefs of Staff overturns a 1994 rule banning
women from being assigned to smaller ground combat units. Panetta's
decision gives the military services until January 2016 to seek special
exceptions if they believe any positions must remain closed to women.
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Hospitals -1.87% 2) Gold & Silver -1.86% 3) I-Banks -1.25%
Stocks Falling on Unusual Volume:
- COH, SNH, CYBX, PERI, VLTR, TTM, BNNY, DGX, MSI, SEMG, ELLI, WWD, INCY, ATNI, LH, UMBF, FMBI, GTE, FTE, CEL, BBEP, SJR, EFII, IACI, LLY, PX, FCFS, DPS, PRLB, BVN, RL, WTW, UNXL and BCOR
Stocks With Unusual Put Option Activity:
- 1) PSX 2) JNPR 3) COH 4) EXC 5) CA
Stocks With Most Negative News Mentions:
- 1) JOY 2) INCY 3) MCP 4) FB 5) ETR
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Computer Services +3.79% 2) Homebuilders +1.35% 3) Internet +1.29%
Stocks Rising on Unusual Volume:
- ALLT, GOOG, IBM, MAPP, CREE, ISRG, RKT, KBH, SWY, EZPW and RES
Stocks With Unusual Call Option Activity:
- 1) PSX 2) ORLY 3) RFMD 4) SWY 5) COH
Stocks With Most Positive News Mentions:
- 1) TXN 2) MSI 3) NSC 4) IBM 5) SYMC
Charts:
Evening Headlines
Bloomberg:
- Cameron to Promise Referendum by 2017 on U.K. Leaving EU. Prime Minister
David Cameron will today promise a referendum on whether Britain should
leave the European Union, allowing U.K. voters to decide on breaking up
the 27-nation bloc. Promising to make the case to remain in the
EU once he has negotiated a return of some powers to Britain, Cameron
will say the democratic consent for the status quo in Europe is “wafer
thin.” He will pledge to put the question to a popular vote by
the end of 2017, if re-elected in two years.
- Bank Splits Should Be Paired With Shadow Bank Curbs, Koenig Says. Germany’s
top markets regulator said a plan to split bank trading and
deposit-taking activities would need to be paired with other measures to
supervise global
financial activities. Bafin President Elke Koenig told reporters regulation of
the banking industry can only be effective if entities that
provide so-called shadow banking, including money market funds,
are globally supervised as well.
- Monte Paschi Pressed to Disclose Derivative Losses as Vote Looms. Banca
Monte dei Paschi di Siena SpA executives are under pressure from
investors to fully disclose losses from derivative contracts as
shareholders prepare for a key vote on its government rescue this week.
Monte Paschi tumbled 5.7 percent in Milan yesterday, the biggest
decline in a month, after Il Fatto Quotidiano reported the bank signed a
derivative with Nomura Holdings Inc. (8604) three years ago that will
cut earnings by 220 million euros ($293
million) in 2012.
- Big Banks Seen in Need of Breakup Amid Mistrust in Poll. The world’s largest banks need to
shrink or be broken up in order to regain investors’ confidence
after four years of scandals, high-profile trading losses and
financial crises, according to a Bloomberg poll. Almost 60 percent of respondents said they were not
confident or “just somewhat confident” that banks are taking
prudent risks and conforming to the law, and getting smaller was
seen as the top fix in the Bloomberg Global Poll, with 29
percent choosing that remedy. Changing the compensation
structure was the No. 2 way to improve trust, with 23 percent.
- Republicans Renew Effort to Dismantle Obama’s Health Law. Two
top Republican senators began a
fresh effort to dismantle President Barack Obama’s U.S. health- care
system overhaul, attempting to succeed where other lawmakers have failed
in trying to annul the law. The legislation would repeal a mandate that
most Americans carry medical insurance starting in 2014, Senators Orrin
Hatch of Utah and Lamar Alexander of Tennessee said today in a
statement. The insurance mandate is the heart of the 2010
Affordable Care Act’s purpose of extending health care to most
Americans.
- Crude Oil Options Volatility Falls to Six-Year Low Below 19%. Crude options volatility fell below
19 percent for the first time in at least six years as the
underlying futures continued to climb. Implied volatility for at-the-money options expiring in
March, a measure of expected price swings in futures and a gauge
of options prices, was 18.54 percent on the New York Mercantile
Exchange as of 3:40 p.m., compared with 19.25 percent Jan. 18.
It was the first time that volatility for the front-month
options contract has dipped below 19 percent since at least
March 2006, according to data compiled by Bloomberg.
- IBM(IBM) 2013 Forecast Beats Estimates as Software Boosts Profit.
International Business Machines Corp. (IBM), the world’s biggest
computer-services provider, forecast profit that exceeded analyst
estimates as the company shifts to data analysis and
cloud computing.
- North Korea to Boost Nuclear Power After New UN Sanctions. North
Korea vowed to boost its nuclear capability after the United Nations
Security Council, including its ally China, imposed new sanctions
against the totalitarian state for last month’s rocket launch. “Denuclearization of the Korean peninsula is impossible,”
North Korea’s Foreign Ministry said in a statement carried by
the official Korean Central News Agency. “We will take physical
response measures to expand and bolster the quality of our
sovereign military power -- including our nuclear deterrence.”
Wall Street Journal:
- House GOP to Take Aggressive Stand on Deficit. The budget battle took new shape Tuesday when House Republicans
disclosed plans to design a tax and spending proposal that would lead to
a balanced budget in 10 years, something leaders from neither party
have tackled in recent decades. The government spends more money than it brings in, causing large
deficits and adding to government debt. The White House has proposed to
reduce the deficit over time, but not eliminate it. House Budget
Committee Chairman Paul Ryan (R., Wis.) last year
proposed to cut spending and reduce the deficit more sharply, but the
budget wouldn’t be balanced until around 2040.
- Italy's Banks Lobby Head Resigns on Derivatives Scandal. Giuseppe Mussari, head of Italy's banks lobby ABI, resigned late
Tuesday following a media report that under his helm back in 2009 Banca
Monte dei Paschi di Siena (BMPS.MI) carried out a derivative transaction
likely to cost the bank 220 million euros ($293 million) in losses, to
be posted in 2012 accounts. In a letter sent to ABI's Vice President Camillo Venesio, Mr. Mussari
said he has always acted respecting the law, but that, at the same time,
he didn't want to damage the association, even indirectly.
- Banks Fight Fannie Over Insurance. Banks are fighting an effort by Fannie Mae to cut costs on backup
insurance policies often imposed on cash-strapped homeowners, a step
that would crimp the lucrative fees the lenders collect on the coverage. Homeowners with mortgages are required to carry insurance policies to
protect their property, which serves as collateral for the loans. Banks
can "force" these policies on customers who allow their insurance to
lapse. Force-placed policies, as they are known, are issued
primarily through just two insurance companies. They are expensive, and
some banks are paid hefty commissions for arranging them.
- Clinton Could Face Harsh Questioning on Benghazi.
Secretary of State Hillary Clinton is making a long-awaited trek to
Capitol Hill on Wednesday to answer pent-up questions from lawmakers
about September's deadly terrorist
assault on U.S. government posts in Benghazi, Libya. The day begins with a 9 a.m. appearance before the Senate Foreign
Relations Committee and continues with a 2 p.m. appointment before the
House Foreign Affairs Committee. Both will be public. The grueling day comes as Mrs. Clinton recovers from a month of
health problems that began with a stomach virus and ended with her
hospitalization for a blood clot near her brain. She has been back at
work for two weeks, holding meetings, placing phone calls and making
several abbreviated public appearances.
- Agenda Gives Centrists Pause. Some Democrats Fear Obama's Social Emphases May Undercut Focus on Economy.
President Barack Obama's sweeping liberal agenda, as laid out in
Monday's inauguration speech, has some centrist Democrats worried the
focus on issues such as gun
control and climate change could dilute efforts to boost the economy and
create jobs. Mr. Obama's speech was a call to action on Democratic
social issues,
focusing in part on civil rights, gay rights and efforts to help
low-income Americans. But parts of his agenda—which includes controlling
gun violence,
preserving his health-care law and writing more pro-immigrant laws—could
prove a tough sell, even with some Democratic members of Congress.
- Soft PC-Chip Market Hits AMD(AMD), TI(TXN) Results. Two
prominent names in semiconductors, Advanced Micro Devices Inc. and
Texas Instruments Inc. provided more evidence Tuesday of soft demand for
personal computers and other products. AMD posted a wider
fourth-quarter loss, reflecting moves to cut costs and modify a
manufacturing partnership along with weak demand for PCs that use its
chips. The company projected revenue in the current quarter
would decline about 9% from the fourth period.
"We expect continued choppiness in the
PC market in the first half of 2013," said AMD Chief Executive Rory Read
during a conference call with analysts. Meanwhile, TI reported its fourth-quarter profit fell 11%, saying
customers are holding off on placing orders amid concerns about Europe's
economic health as well as growth in China.
- Debt-Ceiling Melodrama. GOP leverage will increase once the sequester cuts hit.
Zero Hedge:
Business Insider:
Reuters:
Telegraph:
Haaretz.com:
- Israel's right, left blocs in dead heat as 99% of votes tallied. Likud-Yisrael Beiteinu claimed 31 seats, Yesh
Atid 19, Labor 15, Shas 11, Habayit Hayehudi 11, United Torah Judaism 7,
Hatnuah 6, Meretz 6, United Arab List-Ta’al 5, Balad 3, and Kadima
likely to win 2 seats. Hours after polls closed on Tuesday, and after some 95 percent of the
votes were tallied, Prime Minister Benjamin Netanyahu claimed a mandate
to third term as premier, but the battle between the country's right-
and left-wing blocs remained virtually in a dead heat.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 107.5 +.75 basis point.
- Asia Pacific Sovereign CDS Index 85.5 -.25 basis point.
- NASDAQ 100 futures +.08%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (GD)/1.89
- (APD)/1.29
- (BHI)/.61
- (WLP)/.94
- (PX)/1.38
- (UTX)/1.03
- (TXT)/.56
- (COH)/1.28
- (DGX)/1.04
- (STJ)/.89
- (ABT)/.46
- (MCD)/1.33
- (SYK)/1.12
- (AMGN)/1.39
- (CCI)/.13
- (SNDK)/.76
- (NFLX)/-.13
- (FFIV)/1.15
- (SYMC)/.38
- (LRCX)/.44
- (WDC)/1.82
- (ALTR)/.39
- (AAPL)/13.54
- (BXS)/.24
- (PMTC)/.33
- (JEC)/.75
Economic Releases
9:00 am EST
- The House Price Index for November is estimated to rise +.7% versus a +.5% gain in October.
Upcoming Splits
Other Potential Market Movers
- The IMF World Economic Outlook, China HSBC Flash PMI, World Economic Forum, UK unemployment rate, BoE Minutes, Bank of Canada rate decision, weekly retail sales reports, weekly MBA mortgage applications report and the CIBC Institutional Investor Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly 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 mixed. The Portfolio is 50% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 85.0 -46.9%
- Total Put/Call .93 +25.68%
Credit Investor Angst:
- North American Investment Grade CDS Index 86.41 -.93%
- European Financial Sector CDS Index 135.0 +2.32%
- Western Europe Sovereign Debt CDS Index 98.9 +.93%
- Emerging Market CDS Index 212.39 -.50%
- 2-Year Swap Spread 14.75 +.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -16.75 +.75 bp
Economic Gauges:
- 3-Month T-Bill Yield .06% -1 bp
- China Import Iron Ore Spot $145.90/Metric Tonne unch.
- Citi US Economic Surprise Index -2.10 -4.3 points
- 10-Year TIPS Spread 2.52 -2 bps
Overseas Futures:
- Nikkei Futures: Indicating -72 open in Japan
- DAX Futures: Indicating +13 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/medical sector longs and emerging markets shorts
- Market Exposure: 50% Net Long
