Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Slightly Higher
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 111.0 +11.0%
- Total Put/Call .96 -1.03%
Credit Investor Angst:
- North American Investment Grade CDS Index 87.11 -.21%
- European Financial Sector CDS Index 156.94 -.57%
- Western Europe Sovereign Debt CDS Index 103.66 -3.25%
- Emerging Market CDS Index 245.58 +3.45%
- 2-Year Swap Spread 14.0 -1.5 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -20.25 -.75 bp
Economic Gauges:
- 3-Month T-Bill Yield .10% -1 bp
- China Import Iron Ore Spot $151.70/Metric Tonne -.13%
- Citi US Economic Surprise Index 2.80 -3.9 points
- 10-Year TIPS Spread 2.55 +2 bps
Overseas Futures:
- Nikkei Futures: Indicating +17 open in Japan
- DAX Futures: Indicating +18 open in Germany
Portfolio:
- Slightly Higher: On gains in my medical/biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- European Recovery Path in Danger as Politics Menace Growth. The euro region’s path to recovery is facing a new challenge from Italy’s political stalemate. The
election highlights the risk that Europe’s recovery turns into a slog
lasting years, especially if voters continue to stream toward
anti-austerity populists such as Italy’s Beppe Grillo, said
economists from ABN Amro Bank NV to Daiwa Capital Markets. With European
Central Bank interest rates already at record lows, officials may have
little choice other than to let Europe grind its way out of the slump.
- Hollande Is Most Unpopular French Leader Since 1981 on Economy. President
Francois Hollande’s
popularity slipped this month as France’s economic slump rendered more
people jobless, leaving him the most unpopular leader since 1981, a poll
showed. After nine months in office, Hollande’s approval rating fell
five points to 30 percent, the poll for Figaro Magazine weekly by
TNS-Sofres showed today. His predecessor Nicolas Sarkozy had a 37
percent rating at the same point in his presidency in March 2008. The
small bump in popularity Hollande got from France’s military
intervention in Mali has evaporated, the pollster said. “Already at the
start of Hollande’s presidency, there was little confidence in him,
especially from opposition parties’ supporters,” Carine Marce a
political analyst at TNS, said in an interview. “The positive effect of
the war in Mali has vanished and news of low growth, high deficits and
unemployment
are accelerating the fall.”
- Euro Declines as Cooling Inflation Gives ECB Scope for Easing. The euro fell versus the dollar,
extending its first monthly drop since July, amid Italian
political wrangling about forming a government and as cooling
regional inflation opens the door for central bank stimulus.
The 17-nation currency weakened against most of its major
peers as European Central Bank President Mario Draghi signaled at an
event in Munich late yesterday that the bank has no intention of
tightening monetary policy anytime soon. The U.S. economy barely
expanded in the fourth quarter, erasing a
previously estimated contraction.
- Obama-Congress Paychecks Safe From Automatic Budget Cuts. While
hundreds of thousands of U.S. government employees may be furloughed
due to federal spending cuts, President Barack Obama and members of
Congress won’t need to worry about their paychecks.
- Climbing Student-Loan Delinquencies Hurt Young Homebuyers.
More people borrowing for education are failing to pay off their loans.
Almost a third of student-loan borrowers in repayment were delinquent
at the end of last year, up from about a quarter in 2008 and 20 percent
in 2004, according to a report on household debt and credit by the
Federal Reserve Bank of New York. The amount of educational debt, which includes federally backed and
private loans taken out by students and parents, has almost tripled in
the past eight years to $966 billion, the bank said. With costs to
attend college continuing to outpace the inflation rate, more borrowers
are struggling to pay. That makes it harder for people — especially
those between 25 and 30 — to secure other types of credit, including
home mortgages. About 44 percent of student loan borrowers aren’t repaying their loans,
because of deferments, forbearances or they are still in school.
Wall Street Journal:
- Euro-Zone Slump Set to Continue. The euro-zone economy seems unlikely to emerge this quarter from a
contraction that has already lasted for nine months, despite a low rate
of unemployment in Germany, its largest member. The Centre for Economic Policy Research and the Bank of Italy
Thursday said their Eurocoin indicator—which is intended to estimate
quarter-on-quarter growth in gross domestic product—showed the euro-zone
economy shrank again in February, although at a slower pace than in
recent months.
MarketWatch:
CNBC:
- Distressed Homes Still Drive Sales. The housing market
appears to be surging ahead suddenly on all cylinders, but that does not
mean it is free of the remnants of its recent downfall. The
number of distressed home sales, either bank-owned or short sales, may
be shrinking, but it is still making up a significant share of the
overall housing market. Foreclosure-related sales made up 21 percent of
all U.S. sales in 2012 and short sales, when the home is sold for less
than the value of the mortgage, made up 22 percent, according to a new
report from RealtyTrac. Add it up and 43 percent of all 2012 sales were
of distressed properties.
Zero Hedge:
Business Insider:
Reuters:
Telegraph:
- EU 'Troika' rule in Ireland worse than British Empire. Ireland's trade union chief has accused the EU-IMF troika in charge of Irish
austerity policies of tipping the economy into downward spiral and acting as
an imperial oppressor.
- Spain's economy shrinks 1.4pc in 2012 as Bankia posts biggest ever loss. Spain's ongoing recession was confirmed on Thursday after official figures
showed that the economy shrank by 1.4pc in 2012. The eurozone's
fourth largest economy contracted for the seventh straight
quarter in the final three months of 2012, shrinking by 0.8pc as the
recession worsened by more than previously estimated. Output shrank by
4.7pc, due to a fall in domestic demand, while exports grew by 2.8pc
over the quarter, Spain's National Statistics Institute said on
Thursday. Economists had expected output to decline by 0.7pc in the
three months to the end of December.
- Just one in 14 believe economy will pick up. Just one in 14 Britons believes the country’s economy will be in better shape
in six months’ time, making them more pessimistic than Spain and Italy.
Handelsblatt:
- Germany is liable for EU134b of bailout money, citing Finance
Ministry calculations it obtained. Liability risk for credits paid out
to Greece, Ireland, Portugal and Spain amounts to EU112b.
Ansa:
- Italy's Democratic Party Rejects Broad Coalition, Official Says.
Nicola Stumpo, the PD's chief of staff said the Democratic Party "is
against any form of broad coalition". PD leader Bersani still candidate
to lead the government, Stumpo said.
Economic Times:
- Italy Faces Worst Six Months in 50 Years: Giorgio Squinzi.
The head of Italy's main business federation warned in an interview
today that the next six months will be the worst for the country in 50
years as the economic crisis reaches its peak. "The next six months will
be terrible, the worst in 50 years," Giorgio Squinzi, the head of the
Confindustria lobby, told La Repubblica daily. "The situation is very
serious," Squinzi said. "GDP ( gross domestic product) has shrunk 8.1
percent since 2007 and 3.2 million people have been out of work," he
said. "Politicians have to create the conditions for growth. This is a
last chance," he warned. Asked about the political situation, Squinzi suggested a grand coalition government to deal with urgent issues. "The real economy cannot wait for political machinations," he said. Squinzi
called for "shock therapy" for Italy, with tax cuts and immediate
payment of debts that the state has accrued with the private sector.
He also dismissed the idealistic economic proposals made by the
anti-establishment Five Star Movement led by former comedian Beppe
Grillo, which had a shock electoral success. "If we applied Grillo's programme, Italian industry would be finished. We would become a rural and bucolic country," he said.
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -1.93% 2) Homebuilders -.47% 3) Computer Services-.40%
Stocks Falling on Unusual Volume:
- RBS, ANV, SA, CM, LFC, TEO, CVC, ANW, NTLS, IOC, HDB, BSFT, AGNC, PKT, VCRA, ARCP, IMH, DGI, AFCE, JCP, DPM, TRLA, GVA, CPRT, TRS, LKQ, CM, ACTG, VNO, CTRX, AYI, SHLD, AYI and RPXC
Stocks With Unusual Put Option Activity:
- 1) CVC 2) SHLD 3) TXN 4) JCP 5) NUE
Stocks With Most Negative News Mentions:
- 1) ANR 2) RVBD 3) CAT 4) MU 5) ALL
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gaming +1.01% 2) Oil Tankers +.91% 3) Alt Energy +.77%
Stocks Rising on Unusual Volume:
- CLR, BDBD, CBI, AGO, PANL, CLR, MNST, OCN and SPWR
Stocks With Unusual Call Option Activity:
- 1) AMTD 2) AGNC 3) DLTR 4) P 5) RPRX
Stocks With Most Positive News Mentions:
- 1) PNRA 2) JOY 3) P 4) T 5) JAH
Charts:
Evening Headlines
Bloomberg:
- ECB
Masks Crisis as Italy Revives Austerity Debate: Euro Credit. The bond
market, aided and abetted by the European Central bank, is letting
politicians slide on economic reforms. The drop in Spanish and Italian
borrowing costs since the ECB said in September it would support
troubled euro members took the heat off governments without tying them
to the conditions of the mooted bond-buying program, said Mike Turner,
head of strategy at Aberdeen Asset Management Plc. "It's been revealed
that the emperor has no clothes," said Turner.
- Central Banks Spewing Cash Must Consider Exit Timing, Rohde Says. Central bankers across the globe
need to plan for monetary tightening to avoid feeding asset
bubbles, Danish central bank Governor Lars Rohde said. “Beyond the short horizon, central banks have to be
vigilant of the effects, including the effect of negative real
interest rates, and they have to plan for an exit as
normalization progresses,” Rohde said in an e-mailed reply to
questions. Asked whether such policies could fuel asset bubbles, Rohde said, “Yes.”
The warning from the head of Denmark’s central bank, which has kept its
deposit rate below zero since July, comes as policy makers from Japan
to Europe to the U.S. commit to unprecedented
monetary stimulus to jolt their economies into recovery mode.
- Australia Business Investment Unexpectedly Fell Last Quarter. Australian business investment
unexpectedly declined last quarter amid weakness in
manufacturing, while mining companies pared spending plans. Capital spending fell 1.2 percent from the third quarter, when it rose a revised 1.1 percent, the Bureau of Statistics
said in Sydney today. That compares with the median forecast for
a 1 percent gain in a Bloomberg News survey of 19 economists.
- J.C. Penney(JCP) Posts Wider Fourth-Quarter Net Loss. J.C.
Penney Co. (JCP) said its fourth- quarter net loss widened to $552
million and posted its lowest annual sales in more than two decades as
Chief Executive
Officer Ron Johnson’s turnaround plans falter. The net loss in
the quarter ended Feb. 2 expanded to $2.51 a share, from a loss of $87
million, or 41 cents, a year earlier, the Plano, Texas-based company
said today in a statement. Revenue slid 28 percent to $3.88 billion as
sales at stores open at least a year fell 32 percent. Analysts estimated
revenue of $4.08 billion, on average.
- Vale Has Record Quarterly Loss on $5.66 Billion Writedowns. Vale SA (VALE3), the world’s largest iron- ore producer, posted a record quarterly loss after writing down
the value of some of its assets. Profit missed analysts’
estimates on an adjusted basis.
Wall Street Journal:
- Jockeying Stalls Deal on Cuts. Obama, Republicans Bet They'll Have a Stronger Hand After Deadline Expires.
With mandatory across-the-board spending cuts set to begin Friday, the
White House and congressional Republicans are poised to let the deadline
pass, each calculating that their hand in negotiations only grows
stronger if they scorn a quick compromise. The first face-to-face
meeting on the issue between President Barack Obama and congressional
leaders won't happen until Friday—the deadline for Mr. Obama to set in
motion $85 billion in broad spending cuts. None of
the participants expect the morning meeting at the White House to
produce a breakthrough. In the run-up, with no serious talks under way, each side is maneuvering
to ensure the other catches the blame if the cuts kick in.
- Islamists Gain Momentum in Syria. Extremists intent on establishing an Islamist state in Syria have
gained power within the rebel insurgency, while moderates have lost
clout since moves by Washington late last year aimed at the opposite
result, U.S. officials and rebel fighters say. On the eve of the
most recent gathering of the Friends of Syria international opposition
support group in December, the Obama administration designated Syrian
jihadist group Jabhat al-Nusra a terrorist organization, and on the same
day, officially endorsed the moderate face of the rebellion, the
umbrella Syrian Opposition Coalition.
- Gas Boom Projected to Grow for Decades. U.S. natural-gas production will accelerate over the next three
decades, new research indicates, providing the strongest evidence yet
that the energy boom remaking America will last for a generation. The most exhaustive study to date of a key natural-gas field in
Texas, combined with related research under way elsewhere, shows that
U.S. shale-rock formations will provide a growing source of moderately
priced natural gas through 2040, and decline only slowly after that. A
report on the Texas field, to be released Thursday, was reviewed by The
Wall Street Journal.
- EU Reaches Deal to Curb Bank Bonuses. The European Union moved to slap a strict limit on bank executives'
bonuses in the latest effort to curb what is seen by many as corporate
and banking excess. Negotiators for the European Parliament and EU states said they
reached a preliminary deal on a measure that would forbid bonuses that
exceed a bankers' fixed salary. Flexible pay could increase to twice
fixed salary, but only with explicit shareholder approval. The initiative, part of a broader law that forces lenders to build up
more-robust financial cushions, is designed to reduce incentives for
the type of risky behavior widely blamed for contributing to the 2008
financial crisis.
- Henninger: The Obamaian Universe. A place where everything revolves around the fixed planet of public spending.
It may be that we have to move beyond politics alone to explain events
in Washington. We are in the fifth year of the Obama presidency, and
Washington is still dead in the water. Four straight years in which the government of the United States of America fails to
enact a budget is, well, amazing.
CNBC:
Zero Hedge:
Business Insider:
- Sturm Ruger(RGR) fourth-quarter sales jump 52 percent. Gun maker
Sturm Ruger Inc reported a 52 percent jump in quarterly sales as people
rushed to stock up on firearms amid debates over implementing stricter
gun laws, sending its shares up 3 percent after market. Recent concerns over possible
changes to gun laws following mass shootings, unease over the economic
backdrop and the increased acceptance of gun ownership among women and
older people have driven up sales over the last few months. Data
from the FBI's National Instant Criminal Background Check System (NICS)
-- commonly used to gauge the industry's performance -- show background
checks for firearm sales rose nearly 50 percent in December.
- White House, Republicans dig in ahead of budget talks. Positions hardened on
Wednesday between U.S. President Barack Obama and Republican congressional leaders over the budget crisis even as they arranged to hold last-ditch talks to prevent harsh automatic
spending cuts beginning this week.
- Japan govt nominates Kuroda for BOJ governor. Japan's government
nominated Asian Development Bank President Haruhiko Kuroda to be the
next Bank of Japan governor on Thursday, aiming to install an advocate
of aggressive monetary easing who has extensive international experience.
- Fed's Fisher would start tapering of QE3 immediately. An outspoken policy hawk at the
Federal Reserve on Wednesday upped the ante on his criticism of
the U.S. central bank's bond-buying program, arguing he would
like to see the purchases of Treasury and mortgage securities
tapered immediately. Richard Fisher, president of the Federal Reserve Bank of
Dallas, had not previously been explicit about when the Fed
should begin tapering its $85 billion in monthly asset buys.
- Limited(LTD) forecasts profit for quarter and year below estimates. Limited Brands Inc on Wednesday forecast profit for the current quarter and fiscal year below analysts' expectations, and its shares fell 1.3 percent in
after-market trading.
Telegraph:
Xinhua:
- U.S. may levy countervailing duties on hardwood, decorative plywood from China. The U.S. Commerce Department on Wednesday announced
its preliminary affirmative determination in the countervailing duty
(CVD) investigation against imports of hardwood and decorative plywood
from China, signaling that it may pose punitive duties on the products. The department said that Chinese producers and exporters of hardwood
and decorative plywood had received countervailing subsidies of 0.22
percent to 27.16 percent. The Commerce launched antidumping (AD) duty and CVD investigations
against imports of hardwood and decorative plywood from China on Oct.
18, 2012, alleging that these products were sold at less than fair value
in U.S. market, with a dumping margin of 298.36 percent and 321.68
percent and additional subsidies. The department is scheduled to make its preliminary determination of AD investigation at the end of April 2013.
Shanghai Securities News:
- China May Tighten Liquidity in Short Term, ICBC Says. China's
central bank may tighten liquidity in the short term on rising inflation
and capital inflow pressure, Industrial and Commercial Bank of China
said in a research report published today. China may also raise interest
rates if 2H inflation is higher than expected, the report said.
Evening Recommendations
Night Trading
- Asian equity indices are +.50% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 107.0 -3.0 basis points.
- Asia Pacific Sovereign CDS Index 82.5 -1.75 basis points.
- NASDAQ 100 futures +.09%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (RDC)/.48
- (CVC)/.09
- (SHLD)/.97
- (KSS)/1.62
- (DPZ)/.60
- (BID)/1.09
- (GPS)/.71
- (DECK)/2.58
- (JOE)/.01
- (MDR)/.23
- (CRM)/.40
Economic Releases
8:30 am EST
- 4Q GDP is estimated to rise +.5% versus a prior estimate of a -.1% decline.
- 4Q Personal Consumption is estimated to rise +2.3% versus a prior estimate of a +2.2% gain.
- 4Q GDP Price Index is estimated to rise +.6% versus a prior estimate of a +.6% gain.
- 4Q Core PCE is estimated to rise +.9% versus a prior estimate of a +.9% gain.
- Initial Jobless Claims are estimated to fall to 360K versus 362K the prior week.
- Continuing Claims are estimated to fall to 3143K versus 3148K prior.
9:45 am EST
- Chicago Purchasing Manager for February is estimated to fall to 54.0 versus 55.6 in January.
11:00 am EST
- Kansas City Fed Manufacturing Activity for February is estimated to rise to -1 versus -2 in January.
Upcoming Splits
Other Potential Market Movers
- The Fed's Evans speaking, Fed's Fisher speaking, 7Y T-Note auction, China Manufacturing PMI Official, weekly EIA natural gas inventory report, Germany inflation/unemployment/consumer confidence data, NAPM-Milwaukee for February, weekly Bloomberg Consumer Comfort Index, (STT) Analyst Forum, (DUK) analyst meeting, (HBI) Investor Day, (WLP) investor day and the (COP) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by industrial and financial 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: Higher
- Sector Performance: Almost Every Sector Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 108.0 -3.57%
- Total Put/Call .98 -11.71%
Credit Investor Angst:
- North American Investment Grade CDS Index 86.71 -3.09%
- European Financial Sector CDS Index 157.70 -5.86%
- Western Europe Sovereign Debt CDS Index 107.15 -.17%
- Emerging Market CDS Index 234.57 -.97%
- 2-Year Swap Spread 15.50 +.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -19.5 +2.0 bps
Economic Gauges:
- 3-Month T-Bill Yield .11% unch.
- China Import Iron Ore Spot $151.90/Metric Tonne unch.
- Citi US Economic Surprise Index 6.70 -1.0 point
- 10-Year TIPS Spread 2.53 +2 bps
Overseas Futures:
- Nikkei Futures: Indicating +193 open in Japan
- DAX Futures: Indicating +41 open in Germany
Portfolio:
- Higher: On gains in my tech/retail/medical/biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
- Market Exposure: 50% Net Long
