Broad Market Tone:
- Advance/Decline Line: About Even
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 108.0 +9.1%
- Total Put/Call .78 -2.50%
Credit Investor Angst:
- North American Investment Grade CDS Index 71.63 -1.48%
- European Financial Sector CDS Index 136.52 -2.79%
- Western Europe Sovereign Debt CDS Index 88.67 +.76%
- Emerging Market CDS Index 241.69 +2.59%
- 2-Year Swap Spread 14.25 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -15.75 -.5 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- China Import Iron Ore Spot $126.40/Metric Tonne -1.33%
- Citi US Economic Surprise Index -10.60 -2.9 points
- 10-Year TIPS Spread 2.29 -3 bps
Overseas Futures:
- Nikkei Futures: Indicating +129 open in Japan
- DAX Futures: Indicating -1 open in Germany
Portfolio:
- Slightly Higher: On gains in my medical/tech/retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
- Market Exposure: 75% Net Long
Bloomberg:
- Euro-Area Recession Deepens as Slowdown Exceeds Estimates. The euro-area economy shrank more than economists forecast
in the three months through March, extending a recession to a record
sixth quarter and increasing pressure on the currency bloc’s leaders to
spur growth. Gross domestic product in the 17-nation euro zone
fell 0.2 percent after a 0.6 percent decline in the previous quarter,
the European Union’s statistics office in Luxembourg said today. The
median of 39 estimates in a Bloomberg News survey was for a 0.1 percent
contraction. From a year earlier, the economy shrank 1 percent. The
slowdown has spread to the euro core. The German economy, Europe’s
largest, expanded less than forecast in the first quarter.
- France Slips Into Recession, Adding Pressure on Hollande. The French economy fell back into
recession, increasing pressure on President Francois Hollande to adopt policies to revive growth. Gross
domestic product shrank 0.2 percent in the three months through March,
following a revised 0.2 percent contraction in the previous quarter,
national statistics office Insee said today. Economists expected a 0.1
percent drop, the median of 25 forecasts gathered by Bloomberg News showed.
- China Banks’ Bad Loans Rise for Sixth Quarter as Economy Slows. Non-performing
loans climbed by 33.6 billion yuan ($5.5 billion) in the three months
ended March 31, to 526.5 billion yuan, the China Banking Regulatory
Commission said in a statement on its website today. Soured debt rose
across all
lender categories, including state-owned and regional banks.
- Moody’s Focuses on Emerging Currency Risk Amid Record Bonds.
Moody’s Investors Service said it’s
assessing the risk of currency depreciation damaging the
creditworthiness of emerging-market companies after record foreign bond
sales. Companies from 15 emerging markets sold a record $130 billion
of bonds in dollars and euros last year, Moody’s said in an e-mailed
report. Total corporate and government international issuance may soar
to a peak of $600 billion this year from $430 billion last year, and
reach $1 trillion in three years, Hakan Wohlin, global head of debt origination at Deutsche Bank AG in London, said in an interview yesterday. “The amount of U.S. dollar and euro debt outstanding has increased considerably year-by-year, and with it the risk of
currency mismatch,” Moody’s analysts including Philip Robinson
in London said in the report.
- EU Oil Manipulation Probe Shines Light on Platts Pricing. Two weeks after Royal Dutch Shell Plc (RDSA)
and Platts changed the way more than half of the world’s crude
is valued, the companies along with BP Plc (BP/) and Statoil ASA (STL) are
being probed by European antitrust regulators about potential
manipulation of oil prices.
- Iron Ore Tumbles Into Bear Market on China Growth Concerns. Iron ore slumped into a bear market
on concern that slowing economic growth in China, the world’s
biggest buyer, will reduce demand as global supplies increase. Ore with 62 percent iron content delivered to the Chinese
port of Tianjin fell 1.3 percent to $126.40 a ton today,
according to The Steel Index Ltd. The benchmark price has lost
20 percent since Feb. 20, when it reached a 16-month high of
$158.90, meeting the common definition of a bear market.
- Copper Declines to One-Week Low on Slowing Growth, Ample Supply. Copper
fell to a one-week low in New York amid signs that economies are
weakening in countries that are the world’s biggest consumers of the
metal, contributing to a surge in stockpiles that are the highest since
2003. Germany expanded less than forecast in the first quarter,
government statistics showed today. Bank of America Merrill Lynch cut
its estimate for growth this year in China, following JPMorgan Chase
& Co. by a day. U.S. industrial production declined in April by
the most in eight months, the Federal Reserve said. The three nations
are the largest copper users. “Every bit of data lately seems to be
showing less industrial production, and less manufacturing is going to
be a problem for copper,” Frank Lesh, a trader at FuturePath Trading in
Chicago, said in a telephone interview. “The buyers just aren’t there, and we’re seeing a buildup in inventories.” Copper futures for delivery in July fell 1.4 percent to
$3.2415 a pound by 10:57 a.m. on the Comex in New York, after
touching $3.224, the lowest since May 3. Prices tumbled 2.1
percent yesterday and are down 11 percent this year.
- New York Area Manufacturing Unexpectedly Contracts. The
Federal Reserve Bank of New York’s general economic index declined to
minus 1.4 this month from 3.1 in April. Readings less than zero signal
contraction in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey called for an increase to 4.
Wall Street Journal:
- Lawmakers Press Holder on AP, IRS. Attorney General Testifies Before House Committee; Chairman Calls for 'Answers and Accountability'. Members of Congress expressed concern Wednesday about the Justice
Department's subpoena of Associated Press phone records at a hearing
where Attorney General Eric Holder faced questions over his record.
MarketWatch:
CNBC:
Zero Hedge:
Business Insider:
New York Times:
- Why Hedge Funds’ Criticism of the Fed May Be Right. This prebubble euphoria only undermines the Federal Reserve’s fragile
credibility. It reinforces the notion that it seems to know only two
things: how to inflate bubbles and how to studiously not recognize them.
Chicago Tribune:
- Deere(DE) cuts outlook for the year; shares fall. Deere & Co. on Wednesday said its second quarter profit inched
higher, beating analysts expectations, but warned that global financial
pressures and the cool, wet weather North America could affect sales the
rest of the year. The stock gave up almost 5 percent.
Moody's:
Hedge Fund Alert:
- Dow 15,000 Is Boon for Long-Only Strategies. As long/short equity funds continue to underperform the stock market,
increasing numbers of managers and investors alike are betting on
long-only vehicles.
“The long side of the portfolio is what clients are demanding,” said an
investment professional who researches hedge funds for a $1.6 billion
endowment. “They just want those longs.”
Gartner:
Financial Times:
- Spanish banks face fresh hit from bad loans. Spanish
banks are bracing themselves for a fresh financial hit, amid rising
pressure from the Bank of Spain on lenders to write down the value of
their €200bn portfolio of restructured loans to the country’s troubled
companies and struggling households.
The move is likely to trigger a further rise in bad loan ratios
across the system and reduce earnings at a time when most Spanish banks
are already suffering from low profitability. Analysts believe the
crackdown could also shine a harsh new light on the capital position of
some of the weaker banks, forcing them to sell assets to avoid the need
to raise fresh capital.
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -3.0% 2) Steel -2.03% 3) Biotech -1.20%
Stocks Falling on Unusual Volume:
- ANV, SLW, AAPL, RDS/A, VALE, VIP, RCI, BNS, RKUS, XONE, WMC, EXLS, DE, NBL, CSC, FMS, PIKE, GLNG, GTU, COO, SIRO, ACAT, BNS, RCI, AG, THC, SOHU, CCXI, FLT, QCOR, FANG, TD and OAK
Stocks With Unusual Put Option Activity:
- 1) PXP 2) CSC 3) DE 4) ATVI 5) IBB
Stocks With Most Negative News Mentions:
- 1) GLNG 2) WYN 3) DPZ 4) SLV 5) MUR
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Airlines +2.80% 2) Alt Energy +1.92% 3) Internet +.96%
Stocks Rising on Unusual Volume:
- EVC, NTT, YPF, INSM, YRCW, SPWR, SCTY, A, BMY, YOKU, ARO, TER, SLCA, MRIN, DAL, EXP, INVN and CHMT
Stocks With Unusual Call Option Activity:
- 1) A 2) SHLD 3) WM 4) RHT 5) BMY
Stocks With Most Positive News Mentions:
- 1) ASH 2) FLIR 3) NOC 4) TSS 5) LWAY
Charts:
Evening Headlines
Bloomberg:
- Bank of France Touts Securitization Plan as Template for ECB. The Bank of France wants to help
banks package loans to businesses into tradable securities with
the creation of a special-purpose vehicles, in what could become a template for the euro area.
As the European Central Bank looks for ways to improve the flow of
credit to small and medium-sized enterprises, or SMEs, the project
started by the French central bank in July last year
could provide one possible solution, the head of its markets
division, Alexandre Gautier, said in a telephone interview.
- Save Europe: Split the Euro. On
the eve of the American Civil War, Abraham Lincoln famously said that
“a house divided cannot stand.” Today, the European Union -- committed
for decades to the quest for “ever closer union” --
must confront an agonizing truth. Lincoln’s maxim must be inverted. For
the EU to survive, the euro must divide.
- Li Signals Reluctance on Stimulus to Boost China Growth. Chinese
Premier Li Keqiang signaled policy makers are reluctant to use stimulus
to counter a slowdown in the world’s second-largest economy because the
risks outweigh the benefits. “To achieve this year’s targets, the room
to rely on stimulus policies or government direct investment is not big
-- we must rely on market mechanisms,” Li said in a May 13 speech
broadcast to officials around the country, according to a transcript
published last night on the central government’s website. Relying on
government-led investment for growth “is not only difficult to sustain
but also creates new problems and risks,” he said. The comments indicate
China may be unlikely to boost government spending or follow central
banks across Asia in cutting interest rates as Li tries to pare the state’s role in
the economy.
- Hong Kong Home Prices at Record Gap to Sales. (graph)
The gap between Hong Kong home prices and sales is the widest on record
as new taxes, rising supply and the prospect of higher mortgage costs
deter buyers in the world’s most
expensive housing market.
- Asian Stocks Advances as Nikkei 225 Surges Above 15,000.
Asian stocks rose as Japan’s Nikkei 225 Stock Average climbed above
15,000 for the first time since January 2008 after the yen touched a 4
1/2-year low against the dollar, boosting the earnings outlook for
exporters. Sony Corp. surged 12 percent as billionaire Danie Loeb pushed
for the initial public offering of the Japanese electronics maker’s
entertainment business. Toyota Motor Corp. (7203), the world’s biggest
carmaker, climbed 2.6 percent in Tokyo. Neptune Orient Lines Ltd. rose
1.8 percent in Singapore after
Southeast Asia’s largest container-shipping company returned to
profit in the first quarter. The MSCI Asia Pacific Index gained 0.8 percent to 143.16 as
of 12:22 p.m. in Tokyo, with almost two shares rising for each
that fell.
- Rebar Falls With Iron Ore Prices Amid Concern China to Slow. Steel reinforcement-bar futures
declined a second day on concern that China’s growth is slowing and as iron-ore prices dropped.
Rebar for delivery in October on the Shanghai Futures Exchange fell as
much as 0.7 percent to 3,607 yuan ($587) a metric tonand was at 3,617 at
10:15 a.m. local time. The most-active contract has retreated 9.3 percent this year.
- Rubber Falls as Oil Drop Lowers Costs for Synthetic Alternative.
Rubber fell a second day after oil
dropped to the lowest level in almost two weeks, increasing
speculation that prices may weaken for synthetic products. Rubber for
delivery in October lost as much as 1.6 percent to 283 yen a kilogram
($2,768 a metric ton) and was at 285.9 yen on the Tokyo Commodity
Exchange at 10:44 a.m. Futures have lost
5.5 percent this year.
- Death Cross on Lumber Chart Signals Decline: Technical Analysis. (video)
Lumber prices, down 13 percent this
year, may extend the slump to the lowest since October after
moving averages formed a “death cross,” according to technical analysis
by Paul Kavanaugh at FuturePath Trading LLC. The attached chart shows
that on May 9, lumber’s 50-day moving average fell below the 100-day
measure, often considered a bearish indicator to traders who follow
price patterns. Yesterday, lumber futures for July delivery on the Chicago Mercantile Exchange tumbled 2.9 percent, the most in eight
months. The price settled at $327.70 per 1,000 board feet, below
the $329.10 close on Nov. 27, a key support, Kavanaugh said. “Lumber may be below $300 by the end of the month,”
Kavanaugh, the director of business development at FuturePath in
Chicago, said in a telephone interview. “The cross of the 50-and 100-day moving averages is validating the trend lower.”
- CFTC Said to Review Wall Street Banks for Off-Exchange Trades. The top U.S. derivatives regulator is
seeking documents from Wall Street banks about trades that
combine features of swaps and futures since the Dodd-Frank Act
became law, according to two people briefed on the matter. The
Commodity Futures Trading Commission made the request in a so-called
special call for data on energy and metals trades since July 2010, when
President Barack Obama enacted the rules overhaul including new
derivatives measures, according to the people, who asked not to be named
because the review isn’t public. The Financial Times, which reported
on the CFTC’s probe earlier, said banks that received requests included
JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and
Citigroup Inc. (C) Spokespeople for all three banks declined to comment.
- Iran-Based Hackers Traced to Cyber Attack on U.S. Company. A previously unknown hacking group
believed to be based in Iran has started cyber attacks inside
the U.S., according to Mandiant Corp., a security company that’s
linked China’s army to similar activity. The Iranian group emerged within the last six months and
has infiltrated the networks of at least one U.S. corporation,
Richard Bejtlich, Mandiant’s chief security officer, said in an
interview in Washington today. “You’re starting to see the Iranians get more active,”
Bejtlich said. “We’ve got at least one case where we think it’s
Iran, and we think what they are doing is trying to gain some
experience on a live network.”
Wall Street Journal:
- FBI Launches Probe of IRS. Treatment of Tea-Party Groups Eyed; Internal Review Blames Higher-Ups.
Attorney General Eric Holder said Tuesday the Justice Department has
opened a criminal probe of the Internal Revenue Service's treatment of
tea-party groups, while an investigative report blamed the agency's
managers for allowing the practices to continue for more than 18 months.
- SEC Eyes Charles Schwab Exec For Top Post.
Securities and Exchange Commission Chairman Mary Jo White is eyeing a
Charles Schwab Corp. executive for a top post overseeing trading firms
and stock exchanges, according to a person familiar with the talks. Ms.
White is considering tapping Jeff Brown, who runs Schwab's Washington
office, to potentially head the agency's trading and markets division,
this person said. The two met privately to discuss the position last
week. Mr. Brown declined to comment and an SEC spokesman declined to
comment. The SEC unit has broad responsibilities, including overseeing the
operations of stock exchanges, which are at the center of a debate over
whether the speed and complexity of stock trading poses risks to markets
more broadly.
- Your Next IRS Political Audit. The tax agency is getting vast new power in health care. Even as the politicized tax enforcement scandal expands, the Internal
Revenue Service continues to expand its political powers thanks to the
Affordable Care Act. A larger government always creates more openings
for abuse, as Americans will learn when the IRS starts auditing their
health care in addition to their 1040 next year.
Fox News:
- Lawmakers say IRS targeted dozens more conservative groups than initially believed. The IRS targeting of conservative groups is far broader than first
reported, with nearly 500 organizations singled out for additional
scrutiny, according to two lawmakers briefed by the agency. IRS officials claimed on Friday that roughly 300 groups received
additional scrutiny. Reps. Darrell Issa, R-Calif., and Jim Jordan,
R-Ohio, said Tuesday that the number has actually risen to 471. Further,
they said it is "unclear" whether Tea Party and other conservative
groups are being targeted to this day. The lawmakers disclosed the additional information in a letter
Tuesday to Lois Lerner, the IRS official who first disclosed the
inappropriate practice. They sent the letter as a highly anticipated
watchdog report was released, finding "inappropriate" action at the
IRS. The Republican congressmen also revealed that the IRS itself
determined their effort was biased against conservatives more than a
year ago.
MarketWatch.com:
CNBC:
- Nikkei Getting 'Bubbly,' Correction Coming: Mr Yen. (video) Japanese
equities have risen a "bit too fast" and appear to be
somewhat "bubbly," according to the former vice finance minister of
Japan, Eisuke Sakakibara, as the Nikkei crossed the key 15,000 level for
the first time since 2008 on Wednesday. "The movement of equity
prices seems to be somewhat bubbly - there will be some corrections in
the equity market in the months to come probably by the summer,"
Sakakibara told CNBC Asia's "Squawk Box" when asked about the negative
consequences of "Abenomics" - Prime
Minister Shinzo Abe's aggressive policies to reflate the economy.
- China’s Corporate Debt Market Set to Challenge US. China is forecast to surpass the U.S. as the world's largest
corporate debt market for non-financial companies in the next two years,
according to a report from Standard & Poor's. The
rating agency expects the debt needs of companies in China to reach
upwards of $18 trillion by the end of 2017, accounting for a third of
the forecast $53 trillion in new debt and refinancing needs of global
companies in the next five years. Debt includes bank loans and bonds and
is drawn from public information collated by S&P.
- Australia the Next Euro Zone? Maybe.
A higher than expected deficit figure revealed in Australia's budget on
Tuesday has raised concerns that the country could follow in the same
path as the highly indebted euro zone, said one expert. According to John Daley, CEO of the Australian think tank the Grattan
Institute, Australia's economy is facing a "very real danger" of
following down the same path as Europe and words like austerity have
come into the vocabulary of economic commentators.
Zero Hedge:
Business Insider:
The Blaze:
USA Today:
- IRS approved liberal groups while Tea Party in limbo. In February 2010, the Champaign Tea Party in Illinois received
approval of its tax-exempt status from the IRS in 90 days, no questions
asked. That was the month before the Internal Revenue Service
started singling out Tea Party groups for special treatment. There
wouldn't be another Tea Party application approved for 27 months. In that time, the IRS approved perhaps dozens of applications from
similar liberal and progressive groups, a USA TODAY review of IRS data
shows.
Reuters:
Financial Times:
- JPMorgan(JPM) investors take heat off Dimon. Some
of JPMorgan Chase’s largest shareholders are sparing Jamie Dimon but
voting against other directors in a contentious ballot on the board of
the largest US bank, according to people familiar with the matter.
DAF-German Investor Television:
- Ex-ECB's Issing
Says German Euro Exit 'No Alternative'. Former ECB Chief Economist
Otmar Issing said Germans need to be convinced that everything needs to
be done to remain in the euro, citing an interview.
Economic Information Daily:
- China
1H Power Use May Rise 5.5%-6.5% Y/Y. China's economy currently faces
"relatively large" downward pressure, citing Ouyang Changyu, deputy
secretary-general at the China Electricity Council.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 102.0 -.5 basis point.
- Asia Pacific Sovereign CDS Index 82.25 +.25 basis point.
- NASDAQ 100 futures +.01%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Empire Manufacturing for May is estimated to rise to 4.0 versus 3.05 in April.
- The Producer Price Index for April is estimated to decline -.6% versus a -.6% decline in March.
- The PPI Ex Food & Energy for April is estimated to rise +.1% versus a +.2% gain in March.
9:00 am EST
- Net Long-Term TIC Flows for March are estimated at $35.0B versus -$17.8B in February.
9:15 am EST
- Industrial Production for April is estimated to fall by -.2% versus a +.4% gain in March.
- Capacity Utilization for April is estimated to fall to 78.3% versus 78.5% in March.
- Manufacturing Production for April is estimated to rise +.1% versus a -.1% decline in March.
10:00 am EST
- The NAHB Housing Market Index for May is estimated to rise to 43.0 versus 42.0 in April.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+450,000 barrels versus a +230,000 barrel gain the prior week. Gasoline
supplies are estimated to fall by -1,100,000 barrels versus a -910,000
barrel decline the prior week. Distillate inventories are
estimated to rise by +475.000 barrels versus a +1,812,000 barrel gain
the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a +2.6% gain the prior week.
Upcoming Splits
Other Potential Market Movers
- The Eurozone GDP report, BoE inflation report, IAEA/Iran meeting, Japan GDP report, weekly MBA mortgage applications report and the BofA Merrill Transport Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly higher and weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- ISE Sentiment Index 99.0 +20.73%
- Total Put/Call .82 -4.65%
Credit Investor Angst:
- North American Investment Grade CDS Index 72.35 -1.72%
- European Financial Sector CDS Index 140.44 +.29%
- Western Europe Sovereign Debt CDS Index 88.0 -.31%
- Emerging Market CDS Index 235.56 -.25%
- 2-Year Swap Spread 14.25 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -15.25 -.5 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- China Import Iron Ore Spot $128.10/Metric Tonne -1.0%
- Citi US Economic Surprise Index -7.70 +.3 point
- 10-Year TIPS Spread 2.32 unch.
Overseas Futures:
- Nikkei Futures: Indicating +330 open in Japan
- DAX Futures: Indicating +11 open in Germany
Portfolio:
- Higher: On gains in my medical/biotech/tech/retail sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 75% Net Long
