Broad Market Tone:
- Advance/Decline Line: Slightly Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 136.0 +25.93%
- Total Put/Call .88 +7.32%
Credit Investor Angst:
- North American Investment Grade CDS Index 87.03 +1.29%
- European Financial Sector CDS Index 142.05 +1.17%
- Western Europe Sovereign Debt CDS Index 99.66 -.33%
- Emerging Market CDS Index 231.92 +.12%
- 2-Year Swap Spread 15.25 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -17.25 unch.
Economic Gauges:
- 3-Month T-Bill Yield .10% unch.
- China Import Iron Ore Spot $155.10/Metric Tonne n/a
- Citi US Economic Surprise Index -2.0 +3.0 points
- 10-Year TIPS Spread 2.55 -2 bps
Overseas Futures:
- Nikkei Futures: Indicating +120 open in Japan
- DAX Futures: Indicating -3 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech sector longs and index hedges
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Spanish Core Inflation Up Even as Recession Deepens. Spain’s
core inflation rate accelerated in January as the deepest austerity
measures in the nation’s democratic history sustained price increases
while pushing the economy deeper into recession. Core inflation, which
excludes energy and fresh food prices, accelerated to 2.2 percent in
January, the National Statistics Institute in Madrid said today.
That’s more than the 2.1 percent median of four forecasts in a Bloomberg
survey. Underlying prices fell 1.6 percent from the previous month.
Spain, the euro area’s fourth largest economy, is headed for a second
straight year of recession as Prime Minister Mariano Rajoy’s tax
increases and spending cuts undermine
domestic demand.
- Draghi Says Exchange Rate Is Important for Growth, Inflation. European Central Bank President
Mario Draghi said while the ECB doesn’t target the exchange
rate, it plays an important role in assessing the economic
outlook. The ECB’s mandate is to pursue price stability “in both
directions,” Draghi said at a press conference today in Moscow,
where he’s attending a Group of 20 meeting. “The exchange rate
is not a policy target but important for growth and price
stability,” he said, adding the central bank will publish new
projections next month.
- Wal-Mart(WMT) Executives Sweat Slow February Start in E-Mails.
Wal-Mart Stores Inc. had the worst sales start to a month in seven
years as payroll-tax increases hit shoppers already battling a slow
economy, according to internal e-mails obtained by Bloomberg News. “In case you haven’t seen a sales report these days, February MTD sales are a total disaster,”
Jerry Murray, Wal- Mart’s vice president of finance and logistics, said
in a Feb. 12 e-mail to other executives, referring to month-to-date
sales. “The worst start to a month I have seen in my ~7 years with the company.” Wal-Mart
and discounters such as Family Dollar Stores Inc. are bracing for a
rise in the payroll tax to take a bigger bite from the paychecks of
shoppers already dealing with elevated
unemployment. The world’s largest retailer’s struggles come
after executives expected a strong start to February because of
the Super Bowl, milder weather and paycheck cycles, according to
the minutes of a Feb. 1 officers meeting Bloomberg obtained.Murray’s comments about February sales follow disappointing
results from January, a month that Cameron Geiger, senior vice
president of Wal-Mart U.S. Replenishment, said he was relieved
to see end, according to a separate internal e-mail obtained by
Bloomberg News. “Have you ever had one of those weeks where your best-
prepared plans weren’t good enough to accomplish everything you
set out to do?” Geiger asked in a Feb. 1 e-mail to executives.
“Well, we just had one of those weeks here at Walmart U.S.
Where are all the customers? And where’s their money?” Wal-Mart fell 3.3 percent to $68.46 at 2:12 p.m. in New
York and earlier slid as much as 3.8 percent for the biggest
intraday decline since Nov. 15. Both executives attributed the performance to increased
payroll taxes and delayed tax returns, which Geiger called “a
potent one-two punch,” according to the e-mails. When a payroll-tax break expired Dec. 31, Americans began
paying 2 percentage points more in Social Security taxes on
their first $113,700 in wages. For a person making $40,000 a
year, that is about $15 a week. The extra tax bite is about equal to a year of car
insurance for a family making $30,000 or a basket of groceries
per month for a family making $50,000, according to Wal-Mart’s
analysis. Other retailers who court low-income Americans also are
bracing for the rising taxes. Higher payroll taxes “go against our customers’ wallet,”
Family Dollar Chief Executive Officer Howard Levine said on a Jan. 3 conference call. “Clearly,
they do not have as much for discretionary purchases than they did.”
Simon cited negative economic growth, declining consumer confidence and
rising unemployment as challenges facing the company. The U.S.
economy shrank at a 0.1 percent annual rate in the fourth quarter, and
the unemployment rate rose 0.1 percentage point to 7.9 percent in
January. The Conference Board’s measure of consumer confidence declined
last month to
the lowest since November 2011.
- Biggest Buyers Stampede From Junk Bonds on Loss: Credit Markets. The biggest buyers of junk bonds are
in retreat as exchange-traded funds suffer unprecedented
withdrawals with the debt facing its first losses in eight
months. The outflows sent the combined value of the five biggest
junk-debt funds down 7 percent from a four-month high in January to
$29.8 billion, according to data compiled by Bloomberg. State Street Corp.’s $11.9 billion fund reported withdrawals of about
$988 million in the 12 days ended Feb. 13, the longest stretch
since August 2011.
- Commodities Revenue of 10 Biggest Banks Slumped 24% Last Year. Commodities revenue of the 10
largest banks slumped 24 percent last year, the first
contraction since at least 2008, according to Coalition, a
London-based analytics company. The total fell to $6 billion from $8 billion in 2011,
Coalition said in a report today. Their investment banking
revenue rose 10 percent to $159 billion, the first gain in three
years, Coalition estimates. “Low volatility and reduced client activity led to a 24 percent drop in revenues,” Coalition said in the report. “Performance
was also subdued by ongoing concerns about increased regulation and
capital sensitivity, pushing banks to re-evaluate their commodities
strategies.” Banks including Goldman Sachs Group Inc. and Morgan Stanley face higher capital requirements and tightening regulation that
restrict commodities trading.
- Democrats’ Plan Furthers U.S. Tax Divide as Budget Cuts Near.
Senate Democrats unveiled a $110 billion plan to delay federal spending
cuts that includes tax increases Republicans already say they won’t
accept. “No one takes it seriously,” said Senator Bob Corker, a Tennessee Republican. “It is my guess that sequester is going to kick in on March 1.”
- Oil Drops on U.S. Industrial Output, Euro-Area Exports.West Texas Intermediate oil fell
after U.S. industrial production unexpectedly shrank and euro-
area exports declined the most in five months, raising concern
that fuel demand may be weakened.
Prices erased the week’s gain as U.S. factory output
slipped 0.1 percent last month while euro-area exports dropped a
seasonally adjusted 1.8 percent in December.
Wall Street Journal:
- Fed Official Says Bond Purchases Could Slow. A veteran central-bank official on Friday said the time may be coming
for the Federal Reserve to start lowering its purchases of Treasury and
mortgage bonds. "While our policies have been effective, our experience with our
asset-purchase programs is limited and, as a result, we must analyze their benefits and costs carefully," Federal Reserve Bank of Cleveland President Sandra Pianalto said. "Over time, the benefits of our asset purchases may be diminishing,"Ms.
Pianalto said, as she pointed to concerns she has with
the program. While the nonvoting member of the Federal Open Market
Committee said Fed bond buying and other stimulus measures have helped
to get the economy back on its feet, there are risks that may encourage
changes in the pace of purchases. "It is critical that we take these
risks into consideration" as officials look to the future, Ms. Pianalto
said. "To minimize some of these risks, we could aim for a smaller-sized
balance sheet than would otherwise occur if we were to maintain the
current pace of asset purchases through the end of this year, as some
financial-market participants are expecting," she said. "This course of
action would be all the more attractive if the economic outlook
continues to improve, as I expect it will."
- Meteorite Hits Russia, Causing Panic. A meteor plunged toward earth over Russia's Ural Mountains Friday,
exploding into flames in a powerful blast that damaged buildings in
nearby areas, injuring around 1,000 people.
Fox News:
- Egypt: Islamists rally in Cairo against opposition. Several thousand mostly hard-line Islamists protested in Cairo on
Friday against a recent wave of violent anti-government protests, while
liberal activists staged a smaller demonstration across town to call for
accountability and justice from the country's leaders. The parallel rallies mirror the deep divisions that have plagued
Egypt in the two years since longtime autocrat Hosni Mubark's ouster,
leaving the country's politics polarized and its economy battered by the
continuous turmoil in the streets.
CNBC:
- State Online Sales Tax Bill Revived in U.S. Congress. U.S. states could collect millions of dollars in online sales taxes,
with members of both parties in Congress sponsoring legislation on
Thursday that would resolve states' decades-long struggle to tax
businesses beyond their borders.
- Should You Worry About Your Money Market Fund? The $2.7 trillion money market fund industry is in dire need of new
regulations to keep it from collapsing, and is vulnerable to a massive
run on assets similar to what occurred in 2008, according a government
oversight panel.
Zero Hedge:
Business Insider:
Politico:
Reuters:
- Brazil finance minister says inflation raises concerns -report. Brazil's Finance Minister
Guido Mantega on Friday expressed concern about Brazil's
inflation rate, fueling market bets that the central bank could
raise interest rates this year. Mantega, who is in Moscow for a
meeting of the G20 group,
said that "inflation above the center of (the government's)
target raises a yellow flag," according to a report published on
the Web site of Valor Economico's website. "Fortunately, it has been
under control for the past few
years," he added, arguing that inflation has been pressured by seasonal
factors, such as higher food prices, rather than structural reasons. Brazil
targets inflation of 4.5 percent, with a tolerance band of 2 percentage
points up or down. In the 12-month period through January, consumer
inflation rose to 6.15 percent, the highest reading in a year.
- Exclusive: North Korea tells China of preparations for fresh nuclear test - source. North
Korea has told its key ally, China, that it is prepared to stage one or
even two more nuclear tests this year in an effort to force the United
States into diplomatic talks with Pyongyang, said a source with direct knowledge of the message. Further tests could also be
accompanied this year by another rocket launch, said the source who has
direct access to the top levels of government in both Beijing and
Pyongyang.
Valor Economico:
- Brazil is More Worried About Inflation Than Growth. Inflation is
the govt's biggest concern this year, citing govt. officials. Demand is
still moderate and economic activity hasn't yet shown unequivocal signs
of recovering; inflationary pressure comes from lack of supply. If
necessary, central bank won't be blocked from increasing rates. The
12-month inflation rate won't fall below 6% until 2H at the earliest.
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -3.51% 2) Coal -1.90% 3) Oil Service -1.83%
Stocks Falling on Unusual Volume:
- RIG, HLX, SWC, PZE, COF, SU, STI, SNFCA, WTI, SGY, TSU, TEF, ING, DTV, KOS, LOGM, IPGP, ASGN, EHTH, BGS, LNCO, UPL, A, IPHS, DLR, SAND, SSS, APA, STRA, PRLB, FNV, HSP, DDD, TOT, RDY, NEM, PRO, SPWR, LINE, ORB, STJ, RES, IPI and RKUS
Stocks With Unusual Put Option Activity:
- 1) CIM 2) SMH 3) FITB 4) APA 5) A
Stocks With Most Negative News Mentions:
- 1) LOGM 2) RIG 3) MWW 4) APA 5) BAC
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Airlines +.93% 2) Homebuilders +.78% 3) HMOs +.64%
Stocks Rising on Unusual Volume:
- QLIK, ELLI, MWV, NTSP, HLF, MNST, WPRT, MM, TILE, AFFY, QCOR and GPS
Stocks With Unusual Call Option Activity:
- 1) TJX 2) HOT 3) MNST 4) XLU 5) UUP
Stocks With Most Positive News Mentions:
- 1) ABX 2) COF 3) PEP 4) VFC 5) CPB
Charts:
Evening Headlines
Bloomberg:
- Hollande Tiptoes Toward Raid on Pensions Under Pressure From EU. President
Francois Hollande is preparing to take on a French sacred cow:
pensions. Facing European Union pressure to reach budget targets, the
Socialist president is risking the wrath of his core supporters
to shrink the pension system, which had a deficit of 14 billion
euros ($19 billion) in 2011. While leaving the issue of fixing the retirement age
to talks between representatives of employees and employers,
Hollande may propose separating pension increases from
inflation, government officials said. He’s venturing upon a
pension overhaul -- which few of his predecessors have managed
without drawing millions into the streets -- as his government
says it’s unlikely to meet this year’s budget-deficit target.
- Asian Stocks Retreat on Earnings. Rio Tinto declined 2.5 percent in Sydney after the miner
reported its biggest loss in at least 15 years. Trend Micro
tumbled 7.8 percent after the Japanese anti-virus software maker’s net income fell 23 percent.
Auckland International Airport Ltd. slumped the most in four years
after a New Zealand pension fund reduced its stake in the nation’s
busiest terminal. The MSCI Asia Pacific Index slid 0.5 percent to
133.23 as of 12:56 p.m. in Hong Kong. Japan’s Nikkei 225 Stock Average
slid 1.9 percent, led by banks and exporters, after Russia’s finance
minister said Group
of 20 nations should take a stronger stance against currency
manipulation.
- Park May Face Prolonged Korea Growth Underperformance: Economy.
South Korea’s incoming President Park Geun Hye may be saddled with an
economy that underperforms for a prolonged period, increasing the allure
of stimulus
spending that could undermine the nation’s fiscal strength.
Growth may stay below potential for a “considerable
time,” the Bank of Korea said yesterday after officials voted
to keep interest rates on hold. Policy makers are concerned
about the need to regain momentum after last year’s 2 percent
expansion, the weakest since 2009.
- Fed’s Bullard Says Balance-Sheet Growth Lifts Exit Concern.
Federal Reserve Bank of St. Louis President James Bullard said central
bank stimulus has been ramped up this year with the decision to increase
outright bond purchases to $85 billion a month and
that a growing balance sheet could be complicated to unwind. “The
current stance of U.S. monetary policy is considerably easier than it
was in 2012,” Bullard said in a speech prepared for delivery today in
Starkville, Mississippi. “The size of the balance sheet could inhibit”
the Fed’s “ability to exit appropriately from the current very expansive
monetary policy.”
- China, Iran Boost Cyber Attacks on U.S., Lawmaker Says. China and Iran are intensifying cyber assaults against the U.S., the
head of the House Intelligence Committee said as he pressed for
legislation to encourage companies to share information on hacker
threats. China’s cyber espionage effort targeting U.S.
industrial secrets “has grown exponentially both in terms of its volume
and damage it’s doing to our economic future,” the intelligence panel’s
chairman, Mike Rogers, said at a hearing yesterday. “We have no
practical deterrents in place today.”
- Oil Heads for Ninth Gain in 10 Weeks as OPEC Seen Cutting Supply. West Texas Intermediate oil headed
for its ninth weekly gain in 10 weeks after a report signaled
OPEC will cut crude shipments this month. Open interest for the
U.S. benchmark contract rose to a record. Futures were little changed in New York after climbing 0.3
percent yesterday, and are up 1.7 percent this week. The number
of contracts outstanding climbed to 1,665,014, the highest level
since the futures began trading on the New York Mercantile
Exchange in March 1983, the exchange’s owner said. The
Organization of Petroleum Exporting Countries will cut crude
shipments by 0.9 percent this month amid lower production by
Saudi Arabia, according to Oil Movements, a tanker tracker.
Crude for March delivery was at $97.33 a barrel, up 2
cents, in electronic trading in New York at 9:15 a.m. in Tokyo.
The volume of all futures traded was 40 percent above the 100-
day average.
- Drone Tests Must Adhere to Privacy Rules, U.S. FAA Says. U.S. aviation regulators will
require test facilities for unmanned aircraft to comply with
federal and state privacy laws, as the government develops the
first rules for operating drones in U.S. skies. “Each site operator and its team members will be required
to operate in accordance with federal, state and other laws
regarding the protection of an individual’s right to privacy,”
the Federal Aviation Administration said in an e-mailed
statement today.
The agency is opening a contest to create six drone test
sites to be run by government agencies or universities, it said
in the statement.
- Heinz(HNZ) Turnaround CEO May Reap $100 Million After Buyout.
Having turned around H.J. Heinz Co., Chief Executive Officer Bill
Johnson may reap about $100 million from the company’s buyout. Warren
Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital
Inc. agreed to buy the iconic ketchup maker for about $23 billion. The
billionaire buyers will pay $72.50 a share, compared with yesterday’s
closing price of $60.48, according to a statement today. Johnson, 64,
held 1.38 million Heinz shares as of Dec. 17, according to data compiled
by Bloomberg News. His total compensation in the fiscal year ended in
March was $16.2 million, including $1.3 million of salary.
- SEC Investigators Review Surge in Heinz(HNZ) Trades Before Merger.
U.S. Securities and Exchange
Commission investigators are reviewing whether a surge in bullish bets
on H.J. Heinz Co. was fueled by inside information about Berkshire
Hathaway Inc. and 3G Capital’s plan to buy the
ketchup maker, a person familiar with the matter said.
Wall Street Journal:
- Abe Nears Decision on BOJ Governor. Japanese
Prime Minister Shinzo Abe is facing a rift with his finance minister,
longtime ally Taro Aso, over who to pick as the next Bank of Japan
governor, a division that epitomizes the difficulty of the selection
process. Government officials said Mr. Abe may make his final decision
in a few
days and order his aides to begin private talks with the opposition
parties to win their support.
- Deferred Pay Draws Fed's Scrutiny. U.S. banks and securities firms would have to step up their
compensation disclosures under rules being considered by the Federal
Reserve, said a person familiar with the central bank's regulatory
efforts. The rules are in the formative stages and wouldn't
take effect for some time. But an early draft has circulated internally
at the Fed, this person said, marking a step on the path toward a public
proposal.
- GOP Stalls Vote on Pick for Pentagon.
Senate Republicans on Thursday blocked, at least temporarily, Chuck
Hagel's nomination to be defense secretary, leaving him damaged and
offering the latest example of how fierce the partisan divide has become
in Congress.
- Shifting Blame Muddles S&P Suit.
Like many other collateralized debt obligations, Delphinus CDO 2007-1
got a triple-A rating and then defaulted within months, causing painful
losses to investors. Who is responsible for the mess? Last year, the
Securities and Exchange Commission blamed Mizuho Financial Group Inc.,
8411.TO -8.17% and the Japanese bank paid $127.5 million to settle a
lawsuit filed by the U.S. agency.
CNBC:
- Currency Wars Come to Moscow as G-20 Meets. It won't quite be hand-to-hand combat, but 'currency wars' will come to
Moscow on Friday as finance officials from the Group of 20 nations spar
over Japan's expansive policies that have driven down the value of the
yen.
Zero Hedge:
Business Insider:
- Mexican Drug Kingpin Named Chicago's First Public Enemy No. 1 Since Al Capone.
Guzman has been on the Forbes' list of billionaires since 2009, and
Washington has a $5 million reward for his capture. However, there are allegations that Guzman works with the U.S. government.
In court documents, a high-ranking member of Sinaloa currently in U.S.
custody asserted that Guzman is a U.S. informant, Sinaloa was "given
carte blanche to continue to smuggle tons of illicit drugs into
Chicago," and Operation Fast and Furious was part of an agreement to
finance and arm the cartel in exchange for information used to take down
its rivals. The claims were corroborated by a Mexican foreign service
officer who doubled as a confidential source for the U.S. security firm
Stratfor when he alleged that the U.S. government works with Mexican
cartels to traffic drugs into the U.S., adding that in 2010 the U.S.
sided with Sinaloa in an attempt to limit the violence in Mexico.
Reuters:
- JP Morgan(JPM) star trader Gulati quits to set up hedge fund: FT. JPMorgan
Chase & Co's global head of equity proprietary trading has quit the
investment bank to set up a hedge fund in Switzerland, the Financial
Times reported on Thursday. Deepak Gulati, one of the
bank's star traders, will launch Argentière Capital sometime in the
second or third quarter of this year, the financial daily quoted two
people familiar with the plans.
Financial Times:
- US residential securities make a comeback. You
might have thought that credit market investors would be glad to see
the back of all those suburban McMansions that homebuilders flung up
across the American sunbelt, back when lenders barely checked a
borrower’s pulse, let alone their credit score. After all, it was the collapse in the value of those homes, used as
collateral in trillions of dollars of mortgage-backed securities, that
triggered a credit crisis from which the US has still not fully
recovered. But
if bankers have their way, the very same McMansions may find their way
back into credit market investors’ portfolios, and soon, as the
collateral behind a whole new kind of security.
Evening Recommendations
Night Trading
- Asian equity indices are -1.25% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 110.75 -.25 basis point.
- Asia Pacific Sovereign CDS Index 85.0 -.5 basis point.
- NASDAQ 100 futures -.13%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Empire Manufacturing Index for February is estimated to rise to -2.0 versus -7.78 in January.
9:00 am EST
- Net Long-Term TIC Flows for December are estimated to fall to $35.0B versus $52.3B in November.
9:15 am EST
- Industrial Production for January is estimated to rise +.2% versus a +.3% gain in December.
- Capacity Utilization for January is estimated to rise to 78.9% versus 78.8% in December.
- Manufacturing Production for January is estimated unch. versus a +.8% gain in December.
9:55 am EST
- Preliminary Univ. of Mich. Consumer Confidence for February is estimated to rise to 74.8 versus 73.8 in January.
Upcoming Splits
Other Potential Market Movers
- The Fed's Pianalto speaking, Eurozone Trade Data and the (ONNN) Analyst Day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and mining shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Slightly Higher
- Sector Performance: Mixed
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 114.0 -12.31%
- Total Put/Call .84 -6.67%
Credit Investor Angst:
- North American Investment Grade CDS Index 85.75 -.16%
- European Financial Sector CDS Index 140.28 -.34%
- Western Europe Sovereign Debt CDS Index 100.0 +.28%
- Emerging Market CDS Index 230.40 -1.28%
- 2-Year Swap Spread 15.25 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -17.25 -.5 bp
Economic Gauges:
- 3-Month T-Bill Yield .10% +1 bp
- China Import Iron Ore Spot $155.10/Metric Tonne n/a
- Citi US Economic Surprise Index -5.0 +2.0 points
- 10-Year TIPS Spread 2.57 unch.
Overseas Futures:
- Nikkei Futures: Indicating -67 open in Japan
- DAX Futures: Indicating +14 open in Germany
Portfolio:
- Slightly Higher: On gains in my medical/tech sector longs
- Market Exposure: 50% Net Long
