Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 138.0 -12.66%
- Total Put/Call .81 +15.71%
Credit Investor Angst:
- North American Investment Grade CDS Index 82.51 -1.43%
- European Financial Sector CDS Index 142.80 -4.15%
- Western Europe Sovereign Debt CDS Index 99.83 +.85%
- Emerging Market CDS Index 239.53 -.30%
- 2-Year Swap Spread 14.25 +.75 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -16.25 +2.5 bps
Economic Gauges:
- 3-Month T-Bill Yield .10% unch.
- China Import Iron Ore Spot $146.30/Metric Tonne +.34%
- Citi US Economic Surprise Index 5.1 -1.9 points
- 10-Year TIPS Spread 2.58 +1 bp
Overseas Futures:
- Nikkei Futures: Indicating +182 open in Japan
- DAX Futures: Indicating +5 open in Germany
Portfolio:
- Slightly Higher: On gains in my retail/tech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 75% Net Long
Bloomberg:
- Draghi Keeps Gradual Recovery Faith as ECB Cuts Forecasts. European Central Bank President
Mario Draghi stuck to his view that the euro region will
gradually recover later this year even as officials trimmed
their economic forecasts and considered cutting interest rates. “Later in 2013 economic activity should gradually recover,
supported by a strengthening global backdrop and our
accommodative monetary policy stance,” Draghi told a press conference
in Frankfurt after the ECB left its benchmark interest rate at 0.75
percent, a record low. While officials discussed cutting borrowing costs
today, the “prevailing consensus was to leave the rates unchanged,”
Draghi said.
- Bersani Clings to Premiership Goal as Allies Predict Failure.
Pier Luigi Bersani will probably
fail to win the consensus needed to form a government in Italy, some
allies said yesterday after giving the Democratic Party head a mandate
to negotiate parliamentary backing with rivals. Bersani revamped his
program to entice Beppe Grillo’s Five Star Movement into an alliance
with the Democratic Party, or PD. He repudiated his previous commitment
to budget rigor and added policy proposals reminiscent of Five Star’s.
Still, success depends on smoothing over differences with Grillo, who
called Bersani a “dead man talking” after the PD failed to win a
parliamentary majority in Feb. 24-25 elections.
- Berlusconi Is Convicted in Wiretapping Trial. Former Italian Prime Minister Silvio Berlusconi was convicted in a wiretapping case related to the
2006 battle for control of Banca Nazionale del Lavoro SpA, the
first of three corruption rulings he faces this month.
- German Factory Orders Fall as Euro Crisis Curbs Demand. German factory orders unexpectedly
fell in January as the sovereign debt crisis curbed demand in
the euro area. Orders, adjusted for seasonal swings and inflation,
declined 1.9 percent from December, when they rose a revised 1.1
percent, the Economy Ministry in Berlin said today. Economists
forecast a 0.6 percent gain, according to the median of 41
estimates in a Bloomberg News survey. In the year, workday-
adjusted orders dropped 2.5 percent.
- China Inflation Over 3.5% May Prompt Rate Rise: NDRC Chen. China
may need to raise interest rates should gains in the consumer-price
index stay at more than 3.5 percent for three months, a senior
researcher affiliated with the country’s top planning agency said.
“In theory, if CPI remains above 3.5 percent for three months, there
should be an interest-rate movement,” Chen Dongqi, the deputy head of
the National Development and Reform Commission’s macroeconomic research
institute, said in an interview yesterday after a speech at Tsinghua
University in Beijing.
- Academic Use of CFTC’s Private Derivatives Data Investigated. The top U.S. derivatives regulator
has suspended a program of visiting academic researchers over
concerns about the handling of confidential trading data. The Commodity Futures Trading Commission said in a
statement yesterday that it began an internal management review
and asked the agency’s inspector general to investigate its
oversight of data used to research issues including high-
frequency trading. The commission’s concerns were initially triggered by an
outside person who raised questions about academic research that
referenced CFTC data, according to the statement. “The management review, which is ongoing, has
preliminarily discovered issues regarding the manner in which
academic consultants and contractors were brought into the
agency, their status with respect to the agency, their access to
CFTC systems and information, and the adequacy of related
documentation,” the CFTC said. “To date, we have not confirmed
any specific incidents of improper or unauthorized data
disclosure.”
- Fed's Balance Sheet Has Nothing on These Banks.(video)
- U.S. Will Be 99% Energy Independent by 2030: BP CEO. (video)
Wall Street Journal:
- U.S. Household Wealth at Highest Level Since Late '07. The net worth of U.S. families rose by $1.17 trillion at the end of
2012 to the highest level since late 2007, as rising home values and
gains in stock holdings boosted household balance sheets. U.S.
households' net worth—the value of homes, stocks and other investments
minus debts and other liabilities—rose 1.8% to $66.07 trillion from
October through December, the highest level since the fourth quarter of
2007, according to a Federal Reserve report released Thursday.
- Bad-News Bears Crash the Party. The Dow Jones Industrial Average has hit an all-time high. The Standard &
Poor's 500-stock index is close behind. Stock prices remain reasonably priced
based on many measures, individual investors are shifting back to stocks and
corporate profits have been strong. So what are a group of hedge funds and other investors doing? Selling.
CNBC:
Zero Hedge:
Business Insider:
NYPost:
- Pink slips are high fashion at JCPenney(JCP).
The flailing retailer — whose CEO, Ron Johnson, is now fighting for his
own job — has fired 1,500 store-level department managers and
merchandising positions across its chain, The Post has learned.
Reuters:
Telegraph:
- Accounting change could cost banks billions. Banks could be hit with billions of pounds in new losses under changes to the
way they are required to account for assets, in a move intended to make the
financial system less prone to a crisis.
People's Daily:
- New policies announced by the government may cause "panic
selling" and lead to a subsequent drop in existing home sales, citing
Qin Hong, director of policy research at the Ministry of Housing and
Urban-Rural Development.
Style Underperformer:
Sector Underperformers:
- 1) Road & Rail -1.55% 2) Gold & Silver -.96% 3) Computer Hardware -.77%
Stocks Falling on Unusual Volume:
- BKU, HFC, VLO, ENOC, NSANY, FMX, KAR, KYN, NX, PETM, SCTY, YY, MDP, MYRG, AVAV, SHG, ROST, FLT, MEOH, DWRE, DLLR, PIR, SN, FIS, WDAY, SRPT, NSM, MCY, FRED, CPRT, ZUMZ, ROST and BLT
Stocks With Unusual Put Option Activity:
- 1) PETM 2) CIEN 3) NAV 4) HON 5) DOW
Stocks With Most Negative News Mentions:
- 1) F 2) TSCO 3) PETM 4) PSA 5) DVA
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Networking +2.20% 2) Steel +1.03% 3) Banks +.94%
Stocks Rising on Unusual Volume:
- UPL, PBR, IRE, NAV, CPL, CIG, HOTT, DISCK, CIEN, SFD, ANGI, LVLT, SMTC, CPL, ROVI, GPS, JDSU, SDT, FNSR, UPL, PRIM and MDVN
Stocks With Unusual Call Option Activity:
- 1) ASTX 2) CIEN 3) KEY 4) NAV 5) SYMC
Stocks With Most Positive News Mentions:
- 1) CL 2) COST 3) LTD 4) T 5) KR
Charts:
Evening Headlines
Bloomberg:
- Draghi Confronts Italy Impact as ECB Seen Keeping Rates on Hold. The
European Central Bank has to decide how big a threat Italy poses to
Europe’s recovery. A rejection of austerity in the euro area’s
third-largest economy has produced a political stalemate that’s driven
up bond yields and undermined confidence in ECB President Mario Draghi’s
scenario of a gradual economic upturn. While that’s prompted some
observers to bring forward expectations for lower interest rates,
economists from Nomura International Plc to ABN Amro Bank NV say the ECB
is more likely to hold fire and keep the pressure on governments to
enact reforms. “The Italian election has brought the centrifugal force
of dysfunctional politics back into focus, but rate cuts are not the
answer,” said Richard Barwell, senior economist at Royal Bank of
Scotland Group Plc in London. “The ECB cannot save
governments and countries that do not want to save themselves.”
- Napolitano Girds for Battle to Resolve Italy Election Impasse. President
Giorgio Napolitano, a
former communist resistance fighter who negotiated Silvio Berlusconi’s
resignation, is preparing his final political battle as he seeks to
steer Italy out of its latest government crisis before his term expires
in May. Napolitano, 87, is charged with resolving the political logjam
caused by elections last month that produced a hung parliament. To avoid
a new vote, he can try to forge a national- unity government, accept an
administration without a majority or appoint a non-politician to head a
so-called technical government, similar to that of Prime Minister Mario
Monti. Markets are pricing in two scenarios, “another technical government or the possibility, which is less and less likely, of
a bipartisan government,” Mario Spreafico, who manages 1.5
billion euros ($1.95 billion) as chief investment officer at
Schroders Private Banking for Italy, said in a phone interview.
“Both would be temporary solutions” before new elections.”
- Merkel’s One Europe Attacked by Adenauer Grandson. Stephan Werhahn remembers playing at
the feet of his grandfather as a child. The man was a towering
figure in more ways than one. Lionized as Der Alte, or the Old
One, Konrad Adenauer was West Germany’s first post-war
chancellor, a founder of the Christian Democratic Union (CDU)
political party and an early proponent of European unification. At 59, Werhahn is adding politics to a 30-year career in
finance by running against Chancellor Angela Merkel in an
election scheduled for Sept. 22, Bloomberg Markets will report
in its April issue. Werhahn says he’s doing his bit to protect
his grandfather’s greatest legacy, the European Union. Werhahn’s proposed resolution to the crisis is harsh in its
own way: He would forgive most of the money owed by Greece and
other debt-choked countries and then banish them from the euro
area in order to save the single currency.
- China Opposes Others’ Loose Policy, Li Keqiang Co-Author Says. China
doesn’t approve of excessively loose monetary policies by other
nations, according to a senior government adviser who wrote a book with
Li Keqiang, the country’s incoming premier. “We have already taken a
position on this before and China doesn’t approve of some countries’
overly accommodative monetary policy,” Li Yining, 82, a Peking
University professor and delegate to China’s top advisory body, said at a
briefing in Beijing today when asked about Japan’s recent easing. “This
is an act of transferring the crisis to others.” The remarks may
reflect official displeasure over the yen’s depreciation amid Japanese
Prime Minister Shinzo Abe’s campaign
for more monetary easing to fight deflation.
- Fed’s Fisher Says He’s Worried Abe Has ‘Politicized’ BOJ. Federal Reserve Bank of Dallas
President Richard Fisher said Japanese Prime Minister Shinzo Abe
has “politicized” the Bank of Japan (8301) in a quest to halt more
than a decade of falling prices. “He’s aggressive. He has basically politicized the central
bank, which worries me personally,” Fisher said today in a
speech in San Antonio.
- Korea Data Heralds Surprise China Exports Drop: Chart of the Day. South Korea is the only one of Asia’s 10 biggest economies
to report February trade data thus far. Given that China is its
biggest export market, Korea’s sales drop signals that its
larger neighbor is poised to report weaker-than-expected
shipments, said Zhang Zhiwei, Nomura’s chief China economist. “The data suggests China’s recovery is not so strong,”
Hong Kong-based Zhang said. “We still call for the People’s
Bank of China to tighten policies, hike interest rates and
regulate shadow banking activities this year. But recent weak
macro data will only make the central bank delay it.”
- China’s Property Curbs Are Not Successful, Billionaire Lo Says.
China’s property curbs in the past decade have been unsuccessful and
the new round of measures will slow property sales, said billionaire
Vincent Lo, also a member of the government’s advisory board. “Certainly
they haven’t been,” said Lo, chairman of Shui On Land Ltd. (272), a
Shanghai-based developer, in an interview in Beijing yesterday. “Had
they been successful, home prices wouldn’t have risen higher the more
the government curbed.” The new measures will slow down property sales immediately because the 20 percent tax is not that easy to bear, Lo said.
- Chinese Anger Over Pollution Becomes Main Cause of Social Unrest. Pollution
has replaced land disputes as the main cause of social unrest in China,
a retired Communist Party official said, as delegates to the country’s
legislature lamented environmental degradation. China
now sees 30,000 to 50,000 so-called mass incidents every year, Chen
Jiping, a former leading member of the party’s Committee of Political
and Legislative Affairs, said yesterday. Increased use of mobile phones
and the Internet has allowed protesters to show their anger more
effectively, he said.
- BOJ Rejects Accelerated Open-Ended Asset Buys as Shirakawa Exits.
The Bank of Japan (8301) rejected a call for an immediate start to
open-ended asset purchases in Governor Masaaki Shirakawa’s final meeting
before new leaders take over. The board voted against a proposal by
member Sayuri Shirai, the BOJ said in a statement in Tokyo today after a
two-day meeting. Policy makers left an asset-purchase fund unchanged at
76 trillion yen ($810 billion) as forecast by all 23 analysts in
a Bloomberg News survey.
- Iron Peaked After Restocking Rally, Morgan Stanley Says. Iron
ore is poised to decline over the rest of the year as global supply
increases and a rally spurred by restocking in China ends, according to
Morgan Stanley. The price probably peaked at about $159 a ton last
month and will average $129 over the rest of the year, analysts Joel
Crane and Peter Richardson said in a report. The raw material
may average $133 a ton over 2013, with prices seen dropping to
$130 in the fourth quarter from $142 in the first, they said.
- Sumitomo Sees Aluminum Surplus at Highest Level in Two Years. Sumitomo Corp. (8053), Japan’s fourth-
largest trading house, raised its forecast for a global aluminum
surplus to the highest level in two years as demand from China,
the biggest consumer, won’t be enough to absorb new capacity. Supply will outpace demand for a seventh year by 866,000
metric tons this year from 760,000 tons in 2012, said Shingi Yamagiwa, manager of light metals trading at Sumitomo, which has
stakes in smelters in Australia, Brazil, Malaysia and Indonesia.
- Impotent Mursi Losing Grip on Egypt as Unrest Prompts Reversals. Egyptian President Mohamed Mursi’s declaration of a state of
emergency in three restive provinces had all the earmarks of an
autocrat’s command, right down to the 9 p.m. curfew. “When I see
the security of the nation is in peril, then I act. And I now act,”
Mursi thundered in a Jan. 27 late-night television broadcast. After
protestors ignored him -- some in the port of Ismailia played 9 p.m.
soccer games in front of the provincial government headquarters -- the
president backed down. Within 48 hours, he allowed local officials to
relax the late-night ban.
Wall Street Journal:
- Tracking Sensors Invade the Workplace. Devices on Workers, Furniture Offer Clues for Boosting Productivity. As Big Data becomes a fixture of office life, companies are turning to
tracking devices to gather real-time information on how teams of
employees work and interact. Sensors, worn on lanyards or placed on
office furniture, record how often staffers get up from their desks,
consult other teams and hold meetings.
- Mideast Defies U.S. Bid to 'Pivot'. The Obama administration hopes to "pivot" away from a hyper-focus on
the Middle East during its second term, but John Kerry's maiden overseas
mission as secretary of state—a nine-nation odyssey across Europe and
the Persian Gulf—highlighted why that goal may be elusive. Imminent threats posed by Syria's civil war and Iran's nuclear
program, and longer-term challenges of Egypt's flagging economy and the
moribund Arab-Israeli peace process, dominated Mr. Kerry's 11-day trip,
even his stops in European capitals.
- Offshore Tax Probe Picks Up. U.S. Chase for Cheats With Secret Accounts Looks to Israel, India and Elsewhere. We're still coming after you. That is the message from the U.S. government to Americans who evaded
federal taxes by stashing money in secret offshore accounts, say lawyers
who represent some of those people.
Fox News:
- Paul mounts Senate filibuster of Obama's CIA nominee over drone concerns. Business in the Senate ground to a halt Wednesday as Sen. Rand Paul
-- aided by colleagues from both parties -- launched into an
old-fashioned filibuster, as he tried to hold up the nomination of John
Brennan for CIA director over concerns about the president’s authority
to kill Americans with drones. Paul's filibuster was shaping up to be among the longest in U.S.
history. The late Rep. Strom Thurmond holds the record, at more than 24
hours, but Paul was cruising into his ninth hour -- which is around when
most filibusters flame out. As of 8 p.m., Paul was still talking on the
Senate floor.
MarketWatch.com:
CNBC:
- Sorry, Stock Pickers—You're Still Getting Crushed. Just 37 percent are faring better than the basic indexes they compete
against, according to data from JPMorgan Chase, while 63 percent are
missing. A mere 7 percent are topping benchmarks by more than 2.5
percentage points.
Zero Hedge:
Business Insider:
Vanity Fair:
- The Big Short War. Hedge-fund titan Bill Ackman has vowed to bring down Herbalife, the
33-year-old nutritional-supplement company, which he views as a pyramid
scheme. With his massive shorting of Herbalife stock, the price
plummeted, prompting two fellow billionaires—Ackman’s former friend Dan
Loeb and activist investor Carl Icahn—to take the opposing bet on
Herbalife. As the public brawl rivets Wall Street, William D. Cohan
learns why, this time, it’s personal.
Politico:
- Holder: Obama could order lethal force in U.S. President Barack Obama could order the use of deadly force against an
American inside the United States, Attorney General Eric Holder said in
a letter to Sen. Rand Paul (R-Ky.) released Tuesday.
Paul and other senators had asked various administration officials
whether deadly drones strikes like the ones the U.S. carries out in
Pakistan, Yemen and other foreign countries could ever be used in the
U.S. Paul said he would seek to block the confirmation of John Brennan
as Central Intelligence Agency director if the question was not
answered.
Reuters:
- Leaked email leads traders to fear worst from USDA furloughs. A leaked Agriculture
Department email briefly rattled the U.S. livestock market on
Wednesday as traders interpreted it as meaning the department
might implement mandatory budget cuts in ways that deliberately
worsen disruptions at meat-packing plants.
- U.S. economy, world's engine, remains in 'neutral' -Fed's Fisher. Despite
the efforts of the
U.S. Federal Reserve to use easy monetary policy to boost jobs,
the country's economy is stuck in "neutral" more than three years after
the end of the recession, a top Fed official said on Wednesday. "It
is not possible to create jobs through monetary policy alone," Dallas
Fed President Richard Fisher said at a World Affairs Council of San
Antonio event. "The U.S. remains the economic engine of the world ...
it's not China, it's not Europe, it's the U.S., and the U.S. remains in
neutral." Fisher, repeating a well-worn analysis of the limits of the
Fed's super-easy monetary policies, said the U.S. central bank
did not have the power to pull the economy from its standstill
as long as U.S. lawmakers did not do their part. "You know how horrid things are in Washington," Fisher said.
"We have provided fuel for an economic recovery because Congress
and the executive have not provided the incentives for growth."
- Illinois governor calls budget plan toughest in state's history. Illinois Governor Pat
Quinn presented on Wednesday what he called the most difficult
budget in the state's history, saying he was slashing spending
on programs such as education to pay the skyrocketing costs of
public pensions. Democrat Quinn, the most unpopular governor in the nation
according to one polling firm, proposed a "balanced" operating
budget of $35.6 billion in revenue and spending in the fiscal
year starting July 1, up just over 3 percent from fiscal 2013. All of the increased state revenue in fiscal 2014 would be
gobbled up by an $929 million increase in pension costs for
state workers such as teachers, bringing the cost of pensions to
nearly one in every five dollars, according to the budget. Illinois faces a fiscal crisis with the worst funded state
pension system in the nation and the lowest debt rating among
the states analyzed by major agencies Moody's Investors Service
and Standard & Poor's.
Telegraph:
Sueddeutsche Zeitung:
- Germany to Lose Supervisory Powers Over Banks. The German govt, parliament to lose authority over the financial system under EU plans due to take effect in 2014. All systemically important banks to be monitored by the ECB. The ECB won't be accountable to the German govt, unlike BaFin. This marks the largest transfer of sovereignty
since the creation of the euro, citing Carsten Schneider of SPD. The
ECB will have the right to supervise smaller banks as well.
Hong Kong Economic Times:
- Liu
Mingkang Says U.S. Quantitative Easing "irresponsible'. The
expansionary measures are leading to inflation pressures in China,
citing the former chairman of the China Banking Regulatory Commission.
Current easing in the U.S. and E.U. aren't solving the real economic
problems and only creating moral risks, Liu said.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 103.50 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 81.50 -2.5 basis points.
- NASDAQ 100 futures +.06%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Final 4Q Non-farm Productivity is estimated at -1.6% versus a prior estimate of a -2.0% decline.
- Final 4Q Unit Labor Costs are estimated to rise +4.3% versus a prior estimate of a +4.7% gain.
- Initial Jobless Claims are estimated to rise to 355K versus 344K the prior week.
- Continuing Claims are estimated to rise to 3120K versus 3074K prior.
3:00 pm EST
- Consumer Credit for January is estimated to rise to $14.7B versus $14.595B in December.
Upcoming Splits
Other Potential Market Movers
- The Fed's Powell speaking, ECB's Draghi speaking, ECB rate decision,
BoJ rate decision, BoE rate decision, Bank CCAR Results/Dodd-Frank
tests, Japan gdp report, Challenger Job Cuts for February, RBC Consumer
Outlook Index for March, weekly Bloomberg Consumer Comfort Index, 4Q
Household Change in Net Worth, weekly EIA natural gas inventory report,
BofA Refining Conference, JPM Gaming/Lodging/Restaurant/Leisure
Conference, Morgan Stanley Utilities Conference, (TXN) Mid-Quater
Update, (FB) Event, (A) analyst meeting and the (MTH) analyst day 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: About Even
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 173.0 +66.35%
- Total Put/Call .72 -35.71%
Credit Investor Angst:
- North American Investment Grade CDS Index 83.68 +.42%
- European Financial Sector CDS Index 148.99 -1.85%
- Western Europe Sovereign Debt CDS Index 98.99 -1.78%
- Emerging Market CDS Index 240.10 +.19%
- 2-Year Swap Spread 13.50 -.5 bp
- TED Spread 18.25 -1.75 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -18.75 -1.5 bps
Economic Gauges:
- 3-Month T-Bill Yield .10% +2 bps
- China Import Iron Ore Spot $145.80/Metric Tonne +.41%
- Citi US Economic Surprise Index 7.0 +.7 point
- 10-Year TIPS Spread 2.57 +1 bp
Overseas Futures:
- Nikkei Futures: Indicating +150 open in Japan
- DAX Futures: Indicating +9 open in Germany
Portfolio:
- Slightly Lower: On losses in my retail sector longs and emerging markets shorts
- Disclosed Trades: None
- Market Exposure: 50% Net Long
