Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Almost Every Sector Rising
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 133.0 -3.62%
- Total Put/Call .86 -5.49%
Credit Investor Angst:
- North American Investment Grade CDS Index 86.42 -2.72%
- European Financial Sector CDS Index 145.57 -.62%
- Western Europe Sovereign Debt CDS Index 102.0 -.79%
- Emerging Market CDS Index 225.42 -2.14%
- 2-Year Swap Spread 16.0 -.75 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -14.25 -2.25 bps
Economic Gauges:
- 3-Month T-Bill Yield .06% -1 bp
- China Import Iron Ore Spot $153.2/Metric Tonne +.46%
- Citi US Economic Surprise Index -28.1 -.2 point
- 10-Year TIPS Spread 2.56 unch.
Overseas Futures:
- Nikkei Futures: Indicating +104 open in Japan
- DAX Futures: Indicating +4 open in Germany
Portfolio:
- Higher: On gains in my tech/medical/biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
Style Underperformer:
Sector Underperformers:
- 1) Coal -1.20% 2) Disk Drives -1.15% 3) Retail +.13%
Stocks Falling on Unusual Volume:
- HA, RL, COH, FIO, BCS, CVI, SD, CTCM, TWC, LTM, NMM, SDR, ALKS, VPRT, HTSI, BCO, DWRE, CPSI, SIMO, BCR, OPLK, NOV, GNC, PKI, MRK, MW, WYNN, PER, MCK, SDT, CHTR, AON, AT, CAB, BRLI and BCO
Stocks With Unusual Put Option Activity:
- 1) RL 2) GDI 3) NOV 4) IYT 5) HOG
Stocks With Most Negative News Mentions:
- 1) HTSI 2) BA 3) RBN 4) POT 5) VALE
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Insurance +1.59% 2) Banks +1.27% 3) Software +1.23%
Stocks Rising on Unusual Volume:
- DELL, ADNC, CTRP, PRGO, MTW, CAVM, CB, CRR, MTW, RDEN, PRGO, DELL and RGA
Stocks With Unusual Call Option Activity:
- 1) RAD 2) ALL 3) MAT 4) UUP 5) CAVM
Stocks With Most Positive News Mentions:
- 1) T 2) CB 3) CVX 4) MSFT 5) BEN
Charts:
Evening Headlines
Bloomberg:
- Croatia Cut to Junk by Moody’s on Fiscal Weakness, External Risk. Croatia’s
credit rating was cut to junk by Moody’s Investors Service, which cited
a stalled recovery, lack of budget discipline and the nation’s
vulnerability to external shocks. The Balkan country’s government
bond rating was lowered to Ba1 from Baa3, joining Hungary and Ireland at
that level, Moody’s said in a statement released in London today.
Standard & Poor’scut Croatia to junk in December. Moody’s also
changed the
nation’s outlook to stable from negative, saying the risk the
government’s fiscal position and debt will “materially
deteriorate any further” is limited.
- Australia Manufacturing Gauge Fell to 3 1/2-Year Low in January. A
gauge of Australian manufacturing fell to a 3 1/2-year low in January
as the sustained strength of the currency outweighed the central bank’s
reduction in interest rates to a half-century low. The manufacturing
index dropped 4.1 points to 40.2 last month, the lowest level since June
2009, the Australian Industry Group said in a survey released today.
The last reading above 50, the divide between expansion and contraction,
was in
February 2012.
- Egypt Opposition Gears Up for Protest After Pledge to End Unrest. Egypt’s secular opposition pushed
ahead with plans for protests today against President Mohamed Mursi, hours after joining forces with their Islamist rivals in
pledging to work to stabilize a nation mired in violence. Exactly a
week earlier, demonstrations marking the second
anniversary of the Jan. 25 uprising that ousted Hosni Mubarak unleashed a
wave of street battles that left over 50 dead. The rallies today may
risk more of the kind of conflict that
prompted Mursi’s secular and youth activist critics to band with
the Islamists in backing an initiative they hoped would lay the
foundation for a “serious dialogue.”
- Militants in Northern Africa Said to Pose Growing Threat. Islamist groups in northern Africa
are trading personnel, equipment and expertise and pose a
growing threat to potential targets there, including Western
businesses and diplomats, according to U.S. officials. Three intelligence officials said that what they called
cross-pollination among groups such as al-Qaeda in the Islamic
Maghreb, Ansar al-Dine and al Mulathameen have prompted U.S.
agencies to focus more closely on the desert lands from
Mauritania to Niger, especially in light of recent terrorist
attacks in Libya, Algeria and Mali.
Wall Street Journal:
- Chinese Hackers Target U.S. Media. Chinese
hackers have been conducting wide-ranging electronic
surveillance of media companies including The Wall Street Journal in an
apparent effort to spy on reporters covering China and other issues,
people familiar with incidents said. Journal publisher Dow Jones &
Co. said Thursday that the paper's computer systems had been infiltrated
by Chinese hackers for the apparent purpose of monitoring its China
coverage. New York Times Co. disclosed Wednesday night that its
flagship newspaper also had been the victim of cyberspying. Chinese
hackers for years have targeted major U.S. media companies with hacking
that has penetrated deep inside some newsgathering systems, several
people familiar with the response to the cyberattacks said.
- Lingering Bad Debts Stifle Europe Recovery. Many Europeans are on the hook for unpaid mortgage balances even
after losing their homes. And millions struggle to pay for apartments
and houses that are worth far less than they paid.
Data released by Eurostat on Thursday
showed average euro-zone house prices declined further in the third
quarter, dropping 0.7% from the previous quarter. Prices in the
Netherlands fell 3.9%, the biggest drop in the euro zone, and prices
fell 3.7% in Spain.
- ObamaCare's Broken Promises. Every one of the main claims made for the law is turning out to be false. As the federal government moves forward to implement President Obama's
Affordable Care Act, the Department of Health and Human Services is
slated to spend millions of dollars promoting the unpopular legislation.
In the face of this publicity blitz, it is worth remembering that the
law was originally sold largely on four grounds—all of which have become
increasingly implausible.
MarketWatch.com:
CNBC:
Zero Hedge:
Business Insider:
Washington Post:
- Senate ethics panel reviews gift accusations against Menendez.
The Senate Ethics Committee is reviewing allegations that Sen. Robert
Menendez accepted inappropriate gifts from a Florida doctor who has
flown the New Jersey Democrat to his estate in the Dominican Republic, a
senior member of the panel confirmed Thursday. Sen.
Johnny Isakson (Ga.), the ranking Republican on the committee, said the
panel saw reports of the Tuesday FBI raid on the West Palm Beach
offices of Salomon Melgen, a Menendez friend and political supporter who
is also in an $11 million tax dispute with the Internal Revenue
Service. That was followed by Menendez’s confirmation Wednesday night
that he wrote a personal check of more than $58,000 to pay for flights
on Melgen’s private jet to his Dominican estate — for a pair of trips
there more than two years ago.
NY Times:
- Doubt Is Cast on Firms Hired to Help Banks. Federal authorities are scrutinizing the private consultants hired by
banks to clean up financial misdeeds like money laundering and
foreclosure abuses, taking aim at a conflict-riddled, billion-dollar
industry.
AP:
- US looking at action against China cyberattacks. The Obama
administration is considering more assertive action against Beijing to
combat a persistent cyber-espionage campaign it believes Chinese hackers
are waging against U.S. companies and government agencies. As The New York Times and Wall Street Journal reported Thursday that their computer systems had been infiltrated by China-based hackers, cybersecurity experts said the U.S. government is eyeing more pointed diplomatic and trade measures.
Reuters:
- Korea becomes the red flag for Asia's currency war. South Korea's threat to impose
a broad tax on financial transactions is the first sign of
deepening concern in Asia that speculation of competitive
currency devaluations is prompting investors to head for the
exit.
- US seeks greater ethanol use despite efforts to cut it. Corn
ethanol would get a
larger share of the U.S. gasoline market under a government proposal on
Thursday while ranchers, environmentalists and the oil industry aim to
kill the renewable fuels mandate altogether. The Obama
administration proposed a 9 percent increase in the so-called renewable
fuels standard from 2012, in line with a 2007 law. Half of the 1.35
billion-gallon increase would go to corn ethanol and half to "advanced"
biofuels that produce half the greenhouse gases of first-generation
ethanol. Overall, biofuels would be allotted 16.5 billion gallons of
the fuel market for cars and light trucks. The mandate reaches
36 billion gallons in 2022, with half of the mandate going to
new-generation biofuels.
- Wynn(WYNN) posts lower-than-expected profit, cites Macau decline. Hotel-casino operator Wynn
Resorts Ltd on Thursday posted a quarterly profit that
was below Wall Street's estimates as its share of the Macau
market declined.
Fourth-quarter profit, excluding items, totaled $118.2
million, or $1.17 per share, down from $194.4 million, or $1.55
per share, a year earlier.
- Canadians' possible role in Algeria attack of great concern to US. Signs that Canadian citizens
were involved in the attack by hostage-taking Islamist militants
on a remote gas plant in Algeria are of great concern to
American authorities, U.S. intelligence officials said on
Thursday. While Algerian authorities apparently have not yet provided
Western governments with cast-iron proof, a senior U.S.
intelligence official said, "We're taking very seriously the
reports of the two Canadians' involvement."
Financial Times:
- US banks squeezed as mortgage profits hit. US
banks are suffering a squeeze on mortgage profits after a bumper two
years, adding to pressure on the earnings of Wells Fargo, Bank of
America and the other large lenders.
China News Service:
- Wenzhou Pressures Banks to Not Call in Loans. The eastern Chinese
city of Wenzhou may withdraw deposits from banks that call loans from
companies.
Evening Recommendations
ISI Group:
- Rated (ZTS) Buy, target $30.
Night Trading
- Asian equity indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 115.0 +1.0 basis point.
- Asia Pacific Sovereign CDS Index 90.0 +1.0 basis point.
- NASDAQ 100 futures +.37%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Change in Non-farm payrolls for January is estimated at 165K versus 155K in December.
- The Unemployment Rate for January is estimated at 7.8% versus 7.8% in December.
- Average Hourly Earnings for January are estimated to rise +.1% versus a +.3% gain in December.
8:58 am EST
- The Final Markit US PMI for January is estimated to fall to 55.5 from a prior estimate of 56.1.
9:55 am EST
- Final Univ. of Michigan Consumer Confidence for January is estimated to rise to 71.5 versus 71.3 in December.
10:00 am EST
- Construction Spending for December is estimated to rise +.6% versus a -.3% decline in November.
- ISM Manufacturing for January is estimated to rise to 50.6 versus 50.2 in December.
- ISM Prices Paid for January is estimated to rise to 56.0 versus 55.5 in December.
Afternoon:
- Total Vehicle Sales for January are estimated to fall to 15.2M versus 15.3M in December.
Upcoming Splits
Other Potential Market Movers
- The Fed's Dudley speaking, Eurozone/UK PMI data and the (STJ) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 133.0 +70.5%
Credit Investor Angst:
- North American Investment Grade CDS Index 89.15 -1.27%
- European Financial Sector CDS Index 146.40 +2.94%
- Western Europe Sovereign Debt CDS Index 102.81 +1.92%
- Emerging Market CDS Index 230.55 +.66%
- 2-Year Swap Spread 16.75 +1.0 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -12.0 +.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .07% +1 bp
- China Import Iron Ore Spot $152.5/Metric Tonne +2.07%
- Citi US Economic Surprise Index -27.9 +2.9 points
- 10-Year TIPS Spread 2.56 +1 bp
Overseas Futures:
- Nikkei Futures: Indicating +17 open in Japan
- DAX Futures: Indicating -5 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/retail/medical/biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- Monte Paschi Rating Cut by S&P on Concern Losses May Increase. Banca Monte dei Paschi di Siena SpA (BMPS), the Italian lender facing a government investigation stemming from money-losing structured deals, had its credit rating cut by Standard & Poor’s. Losses on the transactions “may be higher than initially
anticipated” and demonstrate “a risk of management
weaknesses,” S&P said today in a statement. The Siena-based
lender had its long-term grade cut to BB from BB+ and remains on
watch negative, which means it may be downgraded again.
- Spain Lifts Short-Selling Ban on Stocks After IBEX 35 Rallies. Spain lifted a ban on short-selling
stocks as the benchmark IBEX 35 Index (IBEX) rallied and the country’s banks took steps to repair their balance sheets. Authorities won’t extend restrictions that expired today,
the stock market regulator, known as CNMV, said in an e-mailed
statement today. Short-sellers sell borrowed shares with plans
to buy them back later at a lower price, a practice some
politicians and investors blame for roiling markets.
- European Stocks Trim Month Gain. European
stocks fell for a second day, paring their biggest monthly advance
since July, as companies from AstraZeneca Plc to Banco Santander SA
(SAN) slid after reporting earnings. AstraZeneca lost 3.2 percent after the drugmaker forecast
that profit and sales will slide this year. Santander and Royal
Dutch Shell Group Plc both declined more than 2.5 percent as
fourth-quarter earnings missed analysts’ estimates. The Stoxx Europe 600 Index (SXXP) retreated 0.5 percent to 287.22
at the close, as more than two stocks fell for every one that
rose.
- OPEC January Crude Production Falls to 15-Month Low in Survey.
OPEC crude oil production declined to a 15-month low as Saudi Arabia
reduced output because of waning demand from consumers, a Bloomberg
survey showed. Output in the 12-member OPEC slipped 525,000 barrels, or
1.7%, to an average 30.479 million barrels a day this month from a
revised 31.004 million in December, the survey of oil companies,
producers and analysts showed. The December total was revised 430,000
barrels a day lower mostly because of the change to the Saudi number.
"OPEC members are cutting because of concern about demand and a surplus
in stockpiles and are responding to a lack of market interest," said
Sarah Emerson, managing director of Energy Security Analysis Inc. in
Wakefield, Massachusetts.
- Consumer Comfort in U.S. Falls for Fourth Straight Week. Consumer
confidence fell again last week, raising the risk that the payroll tax
increase that kicked in at the start of the year will make it difficult
to sustain a pickup in spending. The Bloomberg Consumer Comfort Index
dropped to minus 37.5 in the period ended Jan. 27, the fourth
consecutive decrease and the lowest reading since October.
- Business Activity in U.S. Grew More Than Forecast in January. Business activity in the U.S.
expanded more than forecast in January, a sign manufacturing picked up at the start of the year. The MNI Chicago Report’s business barometer rose to 55.6
this month, the highest since April, after 50 in December. The median forecast of 48 economists surveyed by
Bloomberg was 50.5.
- Jobless Claims in U.S. Rose 38,000 Last Week to 368,000. Claims for U.S. unemployment benefits increased more than forecast
last week, nearly erasing a slide in the prior two weeks and reflecting
the difficulty of adjusting the figures for swings at the start of a
year. Initial jobless claims rose 38,000 in the week ended Jan. 26,
the most since Nov. 10, to 368,000, the Labor Department reported today
in Washington. Economists forecast 350,000 filings, according to the
Bloomberg survey median.
- Troubled Companies Seen Winning Lifelines in ‘Fragile’ Market. While U.S. icons from Hostess Brands Inc. to Eastman Kodak Co. (EKDKQ) succumb to bankruptcy, credit
markets awash with cash are allowing many of the riskiest companies to
stay afloat, pushing off restructurings and raising the stakes
for investors pursuing higher returns. Junk-bond sales soared to a record last year and
speculative-grade borrowers raised the most in loans since the
2007 peak, while business bankruptcies fell 22.4 percent to
57,500 compared with 2011. Chapter 11 cases, where companies
reorganize or sell assets, dropped by 12.4 percent, according to
data compiled from court records by Epiq Systems Inc. At the
same time, storied U.S. brands struggling with legacy
liabilities and outdated products proved vulnerable.
- Gross Says Credit-Based Markets Running Out of Energy. Bill Gross, manager of the world’s
biggest bond fund, said investors are increasingly at risk as
global financial markets run out of energy and time. “The countdown begins when investable assets pose too much
risk for too little return,” Gross wrote in his monthly
investment outlook posted on Newport Beach, California-based
Pacific Investment Management Co.’s website today. The record monetary stimulus of the Federal Reserve,
triggering near-zero interest rates, has crippled savers and
prior business models that were based on a positive real return,
he said. Real growth of the economy has suffered in the process
as net interest margins at banks fall, insurance companies
struggle to make returns and pension funds are increasingly
underfunded.
- Biggest IPO Since Facebook(FB) Tests Pfizer’s(PFE) Pigs and Dogs Strategy.
Pfizer Inc. is taking its animal- health unit public in the biggest
U.S. initial offering since Facebook Inc., a bet that growing affluence
means more spending on caring for livestock and pets. Pfizer’s Zoetis
Inc. is seeking to sell 86.1 million shares today for $22 to $25
each, giving the unit a market value of about $11.8 billion at the
midpoint of the range, regulatory filings show.
- InBev Sued by U.S. to Block $20 Billion Grupo Modelo Deal. The
U.S. sued to block Anheuser- Busch InBev NV (ABI)’s proposed $20.1
billion purchase of the half of Grupo Modelo SAB it doesn’t already own,
saying the deal would hurt competition and raise prices. Shares of
both companies plunged after the Justice Department filed a complaint
today in federal court in Washington, arguing the transaction violates
antitrust law
because it would eliminate the “substantial head-to-head
competition” that currently exists between AB InBev and Modelo.
- Immelt-Led Advisory Council on Jobs Allowed by Obama to Expire. President
Barack Obama won’t renew the charter of an advisory council on jobs
that he formed two years ago with General Electric Co. (GE) Chief
Executive Officer Jeffrey Immelt as its chairman. The 27-member
President’s Council on Jobs and Competitiveness was part of the
administration’s business outreach at a time when the country was
dealing with the longest stretch of unemployment rates above 9 percent
since monthly
records began in 1948.
Fox News:
- Hagel faces tough questioning from McCain, others during confirmation hearing. Chuck Hagel faced tough questioning from senators Thursday as he
tried to convince at least five Republicans to back his nomination for
Defense secretary -- but lawmakers, including fellow Vietnam War veteran
Sen. John McCain, dug in their heels during a tense confirmation
hearing. Another Republican lawmaker accused Hagel of "appeasing our
adversaries." But McCain's position on Hagel could be a significant
bellwether for his nomination. The two veterans once had a close
relationship during their years in the Senate, but politics and Hagel's
opposition to increased troop numbers in Iraq divided the two men. It
was the troop surge in Iraq that became a flashpoint between
McCain and Hagel during Thursday's hearing. McCain repeatedly tried to
get Hagel to answer whether he was "right or wrong" when he once called
the troop surge a "dangerous foreign policy blunder."
CNBC:
- Main Street Remains Pessimistic, Sees Little 2013 Hiring: Survey.
While there's evidence suggesting the jobs market is slowly recovering, a
large chunk of small-business owners remain pessimistic and expect the
economy to remain stagnant or worsen in 2013, according to a new survey
of 600 small firms. Most respondents also said they plan to trim costs, and 87 percent said they did not plan to hire additional employees.
Zero Hedge:
- Short-Term Palliatives And The 5 Terrible Tendencies Of Government. The short-term palliatives we are currently pursuing go against
everything a long-term oriented society should aspire to achieve.
Today’s policies encourage spending over saving, reward the profligate
over the prudent, and support the failing at the expense of the
successful. The antidote now being dispensed puts us squarely in
uncharted territory in which the risks are outside the range of
historical experience. There is no obvious exit and no path to normalcy.
Reuters:
- Syria warns of "surprise" response to Israel attack. Syria
warned on Thursday of a possible "surprise" response to Israel's attack
on its territory and Russia condemned the air strike as an unprovoked
violation of international law. Damascus could take "a surprise
decision to respond to the aggression of the Israeli warplanes", Syrian
ambassador to Lebanon Ali Abdul-Karim Ali said a day after Israel struck
against Syria. "Syria is engaged in defending its sovereignty and its
land," Ali told a website of the Lebanese militant group Hezbollah.
AP:
- MSNBC Criticised For Editing of Gun Hearing Video. MSNBC invited viewers Wednesday to draw their own conclusions about
whether the parent of a Connecticut school shooting victim was heckled
at a legislative hearing but didn't address criticism that it aired a
deceptively edited video of the event. The NBC-owned cable news network found itself under attack for its
editing practices less than a year after three employees of NBC or an
NBC-owned station lost their jobs over the editing of a 911 call in the
Trayvon Martin case.
Financial Times:
- Chinese cities put tax heat on steel mills. Cash-strapped
local governments in China have started demanding taxes from the
country’s steel mills up to two years in advance, an unusual practice
that highlights how desperate some cities have become for funds. Chinese
mills, which produce nearly half the world’s steel, have traditionally
been cash cows for local governments because of the tax revenues they
create. But
last year, as China’s economy slowed, profits at the country’s biggest
steel mills dropped 98 per cent from the previous year, according to the
China Iron and Steel Association. Losses reported by unprofitable mills
increased more than sevenfold. Yet that did not stop municipalities in northern and northeastern
China – also feeling the pinch from the economic downturn – from
pressuring some mills to pay tax up to two years ahead of time,
according to Zhang Changfu, CISA secretary-general. Unco-operative
companies have found themselves subject to audits, investigations, and
often big fines.
Handelsblatt:
- Germany's opposition Social Democratic Party won't support
Chancellor Angela Merkel's plan for a fifth euro-area bailout for
Cyprus, citing people in the SPD. Some lawmakers from Merkel's CDU, as
well as FDP coalition partner, may vote against the plan.
