Broad Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 95.0 -9.52%
- Total Put/Call .99 -2.94%
Credit Investor Angst:
- North American Investment Grade CDS Index 72.98 +1.75%
- European Financial Sector CDS Index 135.96 +7.90%
- Western Europe Sovereign Debt CDS Index 79.66 +2.85%
- Emerging Market CDS Index 256.30 +3.1%
- 2-Year Swap Spread 15.50 +.75 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -14.50 +.75 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- China Import Iron Ore Spot $123.20/Metric Tonne unch.
- Citi US Economic Surprise Index -17.80 +1.6 points
- 10-Year TIPS Spread 2.25 -1 bp
Overseas Futures:
- Nikkei Futures: Indicating +290 open in Japan
- DAX Futures: Indicating +21 open in Germany
Portfolio:
- Higher: On gains in my tech/biotech sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my to (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- Spanish Bonds Slide With Italy’s Amid Signs of Global Slowdown. Spanish
and Italian bonds led losses among the securities of Europe’s so-called
peripheral nations as China’s manufacturing and euro-area services and
factory output all contracted, sapping demand for higher-yielding assets.
Spanish five-year yields climbed the most in eight weeks as the
nation’s borrowing costs increased at a 4.08 billion-euro ($5.26
billion) sale of debt maturing between 2016 and 2026. Portuguese and
Greek bonds also slid as Europe’s benchmark stock index slumped 2
percent and Japan’s Topix index tumbled the most
since March 2011. German bunds were little changed.
- Europe’s Carmakers Fall on Chinese Manufacturing Decline. Volkswagen
AG (VOW) (VOW), PSA Peugeot Citroen (UG) and Renault SA (RNO) (RNO),
Europe’s three largest carmakers, all dropped 5 percent or more after
preliminary data showed Chinese manufacturing is unexpectedly
contracting. Peugeot declined as much as 7.5 percent, VW fell as much as
5.3 percent and Renault lost as much as 5.1 percent after the figures
indicated manufacturing in the country is shrinking in May for the first
time in seven months. Europe’s automakers are banking on continued
gains in China, the world’s biggest car market, to help offset plunging
demand in their home region, where deliveries are at a 20-year low.
The manufacturing drop adds to signs that economic growth in China is
losing steam for a second straight quarter. “China economic data was
weaker and raises concern about a possible slowdown in car demand,” said
Juergen Pieper, a Frankfurt-based automotive analyst with Bankhaus
Metzler. “Automakers have a lot to lose in China, not only from a sales
volume perspective, but also because they earn above-average profit
margins there.” Peugeot dropped as much as 55 cents to 6.83 euros and
traded 5.9 percent lower as of 11:20 a.m. in Paris. Renault was down 4.3
percent and VW was 3.5 percent lower. Bayerische Motoren Werke AG (BMW)
was down 3.5 percent and Daimler AG (DAI) was 4.7 percent lower.
- Credit Risk Surges From Three-Year Low on Slowing Growth Concern. The cost of insuring European
corporate debt rose from a three-year low as disappointing
Chinese manufacturing data triggered concern global economic
growth will slow. The Markit iTraxx Europe Index of credit-default
swaps on
125 companies with investment-grade ratings rose seven basis
points, or eight percent, to 94 basis points at 9:30 a.m. in London, the
biggest increase in more than nine months. The Markit iTraxx Crossover
Index of default swaps on 50 companies with high-yield credit ratings
jumped 25.5 basis points to 392, the highest in a week and the biggest
rise since March 20. An increase signals deterioration in perceptions of credit quality. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose eight basis points to 134, and the
subordinated index climbed 13 basis points to 190.
- Yen Jumps Most in 3 Months as Risk Appetite Shrinks. The
yen climbed the most in almost
three months versus the dollar as risk appetite shrank, with
Japanese stocks tumbling after a technical signal that they had gained
too much, too fast. Japan’s currency surged 2.7 percent versus South
Korea’s won and 1.6 percent against the Mexican peso amid speculation
the U.S. may reduce monetary easing that’s helped support global markets
and as data showed China’s manufacturing contracted. The Swiss
franc climbed the most against the euro since the nation’s central bank
imposed a currency floor in 2011. The Dollar Index fell after reaching
an almost three-year high. The yen strengthened 1.2 percent to 101.95
per dollar at 12:13 p.m. in New York after climbing as much as 2.3
percent,
the most since Feb. 25. It slid to 103.74 yesterday, the weakest
since October 2008. Japan’s currency rose 0.6 percent to 131.89
per euro. The dollar dropped 0.6 percent to $1.2938 per euro.
- JPMorgan(JPM) to Daiwa See Rate Rise Amid Slower Growth: China Credit.
Economists are forecasting that the
People’s Bank of China is more likely to raise interest rates than cut
them in the coming year, even as they slash growth projections for the
world’s second-largest economy. Eight of 15 analysts surveyed by
Bloomberg News this month
project an increase in the benchmark deposit rate by the end of
June 2014, compared with two who see a reduction.
- Bearish
S&P 500 Bets Fall Most Ever After Stocks Record: Options. A record
drop in the cost of bearish bets on U.S. stocks and surging call-option
trading shows speculators grew in confidence after the S&P 500 Index
climbed to a record. The Credit Suisse Fear Barometer, which measures
the relative cost of S&P 500 bearish options over bullish ones three
months from now, has plunged 35% in May, heading for the biggest
monthly decline in data going back to 1994. More than 508,000 bullish
options on the U.S. equity benchmark changed hands daily on average last
week, the third-highest volume in 18 years, according to Bloomberg.
Hedge funds are purchasing equity call options to make up for returns
that have trailed the S&P 500 this year, said Peter Cecchini, global
head of institutional equity derivatives at Cantor Fitzgerald LP. "The
dominant fear in the market is the fear of missing out," Jason Thomas,
chief investment officer of Aspiriant, said in an interview.
- Commodities Drop on Double Blow of China Data, Bernanke Remarks. Commodities
fell for a third day,
paced by declines in copper and oil, as manufacturing in China
unexpectedly shrank for the first time in seven months and the
head of the Federal Reserve hinted that stimulus may be tapered. The
Standard & Poor’s GSCI Index (SPGSCI) of 24 commodities dropped
as much as 1.2 percent to the lowest level in a week, and was 0.5 percent lower at 623.11 at 11:46 a.m. in London.
- Copper Falls Most in Three Weeks as China Manufacturing Shrinks. Copper
fell the most in three weeks in New York after manufacturing shrank for
the first time in seven months in China, the world’s biggest user of
the metal. A Purchasing Managers’ Index from HSBC Holdings Plc and
Markit Economics showed a preliminary reading today of 49.6 for May,
below the level of 50 separating growth and contraction. The Standard
& Poor’s GSCI Index of raw materials dropped for a
third day and Japanese shares slid the most since the aftermath
of the Fukushima disaster in 2011 as global equities plunged. Copper for
delivery in July declined 2.8 percent to $3.286
a pound by 8:12 a.m. on the Comex in New York. Prices retreated as
much as 2.9 percent, the most since May 1. Copper for delivery in three
months fell 3 percent to $7,253 a metric ton on the London Metal
Exchange and nickel, lead and zinc tumbled.
- Freddie Mac Begins Creating Bonds Backed by Modified Mortgages. Freddie Mac, the government-controlled mortgage financier, said that it’s begun packaging
modified home loans into bonds that it guarantees, with $1
billion of securitizations already completed. The “vast majority” of the mortgages reworked to help
homeowners had previously been contained in its bonds and were
bought out after delinquencies, the McLean, Virginia-based
company said today in an e-mailed statement. Since November
2011, the firm has been repackaging into bonds those loans that
were once delinquent and began performing again without
modifications, it said.
Wall Street Journal:
Fox News:
CNBC:
Zero Hedge:
Business Insider:
The Bubble Bubble:
- The Emerging Markets Bubble (or The “BRIC” Bubble). (graph) The Emerging Markets Bubble is a derivative of the bubbles in China and commodities and will pop when they inevitably do. Cheap
credit and soaring real estate prices have led to rampant "bubble
drunk" behavior in emerging market countries. Singapore seems hell-bent
on repeating the mistakes [15] made by Dubai during its mid-2000s
bubble as it builds extraordinarily opulent vanity projects such as the
Marina Bay Sands, the world’s most expensive standalone resort that
looks like a cruise ship (and has a massive pool on top of it) [16], and
an artificial forest comprised of 150-foot tall biometric "supertrees."
[17] Singapore’s bubble economy is fueled by interest rates that are
linked to the U.S.’ ultra-low interest rates, which are far too low for
Singapore’s fast-growing and inflation-prone economy [18].
Bespoke Investment Group:
- AAII Bullish Sentiment Approaches 50%. (graph)
Investors sure picked a bad time to turn increasingly bullish this
week. According to the weekly sentiment survey from the American
Association of Individual Investors (AAII), bullish sentiment increased
by more than ten percentage points rising from 38.49% to 48.97%. This is the largest weekly increase since 3/14, and represents the highest weekly reading since 1/24.
CNNMoney:
Reuters:
- Exclusive :China urbanization plan hits roadblock over spending fears - sources. China's
plan to spend $6.5 trillion on urbanization to bolster the economy is
running into snags, sources close to the government said, as top leaders
fear another spending binge could push up local debt levels and inflate
a property bubble. Premier Li Keqiang has rejected
an urbanization proposal drafted by the National Development and Reform
Commission (NDRC), seeking changes to put more emphasis on economic
reform, according to the sources, who are familiar with the matter. Many
local authorities have already lobbied to get funding for projects,
ringing alarm bells among top leaders in Beijing. "The leadership aims to jumpstart reforms, but
local governments see this in a different perspective - they view this
as the last opportunity to boost investment," said the economist who
requested anonymity due to the sensitivity of the issue.
- Fed's Williams: No 'autopilot' by Fed if tapering starts -Bloomberg. The Federal Reserve will maintain policy
flexibility and respond to incoming economic data that
theoretically could cause it to initially taper its pace of bond
purchases and then adjust the purchases higher, the president of
the San Francisco Fed, John Williams, said in an interview
published by Bloomberg News on Thursday.
- Mexico annual inflation rises more than expected in early May. Mexico's annual inflation
rate rose more than expected in early May, holding well above
the central bank's limit and hemming in policymakers' ability to
lower interest rates in the coming months. Inflation in the 12 months through the first half of May rose
to 4.72 percent, the national statistics agency said on
Thursday, compared to 4.65 percent for the full month of April.
- Ralph Lauren(RL) sales miss estimates, but it sees a pick-up. Ralph Lauren
Corp on Thursday reported sales that fell below its own projections,
hurt by fewer deliveries to European department stores, but gave a
fiscal year forecast that suggests it expects its overall business to pick up.
Moody's:
- Moody's: Looser Covenants Could Leave Investors Exposed in a Downturn. Robust issuance of covenant-lite loans and high-yield bonds
with weak protections suggest a "covenant bubble" that could
leave fixed-income investors exposed to losses in a credit cycle
downturn, Moody's Investors Service says in a new report,
"Signs of a 'Covenant Bubble' Suggest Future Risks for
Investors." And in a distressed scenario, subordinated
bondholders would suffer the brunt of losses. "Whether or not record bond and loan issuance points to a 'bubble'
in the US corporate fixed-income markets, we do see evidence
of a 'covenant bubble' driven by strong demand for higher-yielding
instruments at a time of low interest rates," says Senior
Vice President and author of the report, Christina Padgett.
"Credit metrics of US speculative-grade companies have held
relatively steady over the past five years, suggesting that the
quest for yield, rather than changes in debt issuers' underlying
credit quality, is a primary driver of looser covenant terms."
Financial Times:
- Spain’s banks face €10bn more provisions. Spanish
banks will need to put aside extra provisions of up to €10bn to cover
loans that borrowers will struggle to repay, according to an internal
estimate by the Bank of Spain. According to recent data, Spanish banks rolled over more than €200bn
of loans before they expired – often because corporate borrowers would
be unable to repay their debt on time and in full. The €10bn estimate is
the first official assessment of the likely impact of the central bank’s new approach towards these refinanced loans.
Telegraph:
Bild:
- CDU's
Kauder Says ECB Shouldn't Print Money. ECB shouldn't follow Japanese
policy of printing money, Chancellor Angela Merkel's CDU/CSU Caucus
Leader Volker Kauder said. Says only structural reforms help to reach
durable growth. Says doubling amount of money "problematic" causes only
short-term success.
Style Underperformer:
Sector Underperformers:
- 1) REITs -1.94% 2) Gaming -1.82% 3) Steel -1.80%
Stocks Falling on Unusual Volume:
- EWJ, HK, INFN, KOS, HBC, PTR, ARRY, IRWD, PANL, DPS, LG, OAK, CRUS,
SMTC, NJ, JRS, FARO, WETF, BKE, OHI, AVB, MAIN, IFGL, CCK, HQL, YRCW, RJF, NOAH, BSMX, SRE, CEO, SSW, TM, GMCR, SSTK, O and OZM
Stocks With Unusual Put Option Activity:
- 1) SYMC 2) NAV 3) EWW 4) CRUS 5) DXJ
Stocks With Most Negative News Mentions:
- 1) SANM 2) DVN 3) CMA 4) GM 5) AA
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Computer Hardware +2.09% 2) Homebuilders +.78% 3) Hospitals +.29%
Stocks Rising on Unusual Volume:
- HPQ, LOGI, RUE, LPS, FNF, YY, PLCE, DOV, SCTY, VVUS, DLTR, WDAY and INFI
Stocks With Unusual Call Option Activity:
- 1) MNKD 2) ZIOP 3) HPQ 4) ZTS 5) P
Stocks With Most Positive News Mentions:
- 1) HOT 2) PAY 3) RL 4) DLTR 5) AAP
Charts:
Evening Headlines
Bloomberg:
- Spain’s Bad Bank Begins 15-Year Suicide With Bull Sale. Spain’s
Sareb, set up last year to acquire 90 billion euros ($116 billion) of
soured real estate assets at a discount from rescued lenders, is
preparing its
first sale, known as ‘Project Bull,’ to test the beleaguered
property market’s ability to attract investors.
- Nobel Laureate Phelps Warns Against EU as Iceland Abandons Talks. Nobel Laureate Edmund Phelps warned
against the dangers of European Union membership as Iceland
became the latest nation to question the sense of affiliation
with a bloc mired in economic crisis. Iceland’s new government said yesterday it will halt its
EU bid and drop the previous coalition’s goal of euro adoption.
Prime Minister-elect Sigmundur Gunnlaugsson, whose Progressives
won last month’s vote together with the Independence Party,
said he doesn’t want to join a bloc in crisis as his own economy
recovers. According to Phelps, the decision will spare Iceland
many of the risks plaguing the EU.
- JPMorgan(JPM) to Daiwa
See Rate Rise Amid Slower Growth: China Credit. Economists are
forecasting that the People's Bank of China is more likely to raise
interest rates than cut them in the coming year, even as they slash
growth projections for the world's second-largest economy. Eight of 15
analysts surveyed by Bloomberg News this month project an increase in
the benchmark deposit rate by the end of June 2014, compared with two
who see a reduction. The government "seems to have become more tolerant"
of weaker growth, UBS AG says, as Premier Li Keqiang grapples with
credit expansion and price gains seen approaching the official target.
The gap between two- and 10-year yields has narrowed to an 18-month low
of 38 basis points, suggesting the market is anticipating a slowdown
without stimulus. The similar gap in India, which is expanding at its
slowest pace in a decade, is 11 basis points.
- China
Rule Changes May Halt Copper-Financing Deals, Goldman(GS) Says. New
rules from China's State Administration of Foreign Exchange, effective
from June, are likely to end commodity-financing deals, Goldman says in
e-mailed report. An end to Chinese copper financing deals would be
bearish for prices, Goldman says. Goldman sees downside risks to
six-month $8,000/ton forecast, analysts say in report. Goldman unwinds
long September copper recommendation, according to report. The LME
market may need to "carry" as much as 250,000 tons of additional
physical copper over one to three months, Goldman says.
- Asian Stocks Drop on China PMI, Fed Stimulus Concerns.
Asian stocks declined, with the regional benchmark index heading for
its biggest drop in five weeks, after China’s manufacturing output
unexpectedly contracted and amid speculation the Federal Reserve may
soon wind back stimulus. Jiangxi Copper Co. (358), China’s biggest
producer of the metal, dropped 2.5 percent in Hong Kong. Westpac Banking
Corp. slipped 4.2 percent, leading Australian lenders lower. Fast
Retailing Co., a clothier that has nearly 11 percent weighting on the
Nikkei 225, gained 3.9 percent on speculation sales at Japanese
retailers will increase after a report showed foreign visitors
last month climbed almost a fifth. The MSCI Asia Pacific Index declined 1.1 percent to 141.87
as of 11:56 a.m. in Tokyo, heading for its biggest drop since
April 18. Almost four shares fell for each that rose on the
gauge.
- Rubber Declines Most in 3 Weeks as Drop in Oil Reduces Appeal. Rubber declined the most in three
weeks as a slump in oil reduced the appeal of the commodity as
an alternative to synthetic products used in tires. The contract for delivery in October lost as much as 2.7
percent, the most since May 2, to 282.5 a kilogram ($2,732 a metric ton). Futures traded at 283.8 yen on the Tokyo Commodity
Exchange at 10:28 a.m., extending losses for the most-active
contract to 6.2 percent this year.
- Copper Falls Most in a Week on China Manufacturing Contraction. Copper dropped the most in a week
along with other industrial metals after a report showed
manufacturing in China, the world’s biggest metals consumer, is
contracting for the first time in seven months. Copper for delivery in three months declined as much as 2.7
percent, the most since May 14, to $7,276.25 a metric ton on the London Metal Exchange and was at $7,310 at 11:47 a.m. in Seoul.
The contract for September delivery fell 1.7 percent to 52,690 ($8,617)
yuan a ton in Shanghai, while futures for July delivery
declined 2 percent to $3.3135 a pound on the Comex.
- Rebar Drops After China’s Manufacturing Unexpectedly Contracts.
Steel reinforcement-bar futures
declined after data showed an unexpected contraction in China’s
manufacturing this month, hurting the outlook for bulk commodities. Rebar
for delivery in October dropped as much as 1.2 percent to 3,551 yuan
($579) a metric ton on the Shanghai Futures Exchange and traded at 3,565
yuan at 10:49 a.m. local
time. The price has lost 11 percent this year.
- Syrian Army Advances Signal Assad May Survive for Years. Syria’s
President Bashar al-Assad, whose government was last year described as
close to collapse by groups ranging from the North Atlantic Treaty
Organization to the armed opposition, may remain in power for years to
come. “The regime is still in place, strong and not going anywhere,” Julien Barnes-Dacey, a senior policy fellow at the
European Council on Foreign Relations, said in an interview.
Widespread predictions of his demise reflected an
“unwillingness to assess the regime’s strength, wishful
thinking, a desire for a swift end, and a failure to recognize
this is a civil war.”
- Detroit ‘Crushing’ Debt Among First City Overhauls, Orr Says. Detroit’s bond payments are
“crushing” the city by hindering spending on public safety and
are among the first liabilities that need to be addressed,
emergency financial manager Kevyn Orr said. “The debt service that the city can’t bear is crushing it
under its weight,” Orr said at a luncheon in New York for the
bankruptcy and reorganization group of the UJA-Federation of New
York, a Jewish philanthropic organization. “First order of
business is to get a hold of our balance-sheet issues.”
Wall Street Journal:
- Fed Leaves Market Guessing. Bernanke Signals Cautious Tack on Bond Buying; Meeting Minutes Blur Picture. In a day of conflicting messages from the Federal Reserve that roiled
financial markets, Chairman Ben Bernanke left some straightforward new
clues about the central bank's plans for its $85 billion-a-month
bond-buying program.
The Fed could take a first step toward
reducing the program at one of its "next few meetings," Mr. Bernanke
said, but he cautioned that he was reluctant to move prematurely or
aggressively. The comments, given at a congressional hearing Wednesday, gave
markets a dose of clarity for a few hours, though a subsequent release
of minutes from the Fed's April 30-May 1 Fed policy meeting added to
investor anxiety about the Fed's plans. The minutes disclosed that some
officials were prepared to start pulling back the program as early as
the Fed's next meeting in June, though the group as a whole, too,
expressed hesitance.
- China Falls Short on Efforts to Rebalance. Beijing Continued to Spend in 2012, New Economic Details Show, Missing Promised Shift Toward Consumer-Driven Growth. A more detailed look at China's economic performance in 2012 shows it
tipped further off balance, relying more than ever on credit-fueled
investment, a trend it had tried to rein in.
A further tilt toward capital spending
flies in the face of Beijing's goals to shift to a consumption-driven
economic model and threatens to add to a mounting debt problem,
exacerbate industrial overcapacity that is dragging down profits, and
produce more empty "ghost cities."
China's economy also showed signs of losing momentum in May.
- Lamar Alexander: Kathleen Sebelius, Meet Oliver North. Is the Department of Health and Human Services engaged in a domestic Iran-Contra? Major news outlets in recent days have reported that U.S. Department of
Health and Human Services Secretary Kathleen Sebelius is raising money
from the private sector—including from health-care executives—for use by
a private entity that is helping to implement ObamaCare. The entity,
Enroll America, is run by a former White House aide.
Fox News:
- IRS official who refused to testify facing more scrutiny over scandal, past. The IRS official who refused to testify at a House hearing Wednesday
has become a key focus of the congressional investigations into the IRS
practice of singling out conservative groups. Now under the
protection of her lawyers and the Fifth Amendment, Lois Lerner is facing
a maelstrom of controversy. Members of Congress are calling her
evasive, and question why she
didn't reveal the program sooner -- plus her history at the Federal
Elections Commission is coming under scrutiny.
CNBC:
- Nikkei Skids 4% After Weak China PMI. Japan's Nikkei, together with the rest of regional stock indices, were
sharply lower on Thursday after a preliminary survey of China's
manufacturing sector raised alarm bells while fears grew that the U.S.
Federal Reserve may withdraw its bond buying sooner than expected. The
index was up 2 percent earlier in the day.
Zero Hedge:
Business Insider:
New York Times:
- Holder Letter on Counterterror Strikes Against U.S. Citizens. The day before President Obama’s
planned speech on drone policy, Attorney General Eric H. Holder Jr. wrote a
letter to members of Congress acknowledging the deaths of four Americans,
including Anwar al-Awlaki, in counterterrorism strikes
“outside of areas of active hostilities.” Though these strikes had long
been the subject of press reports about the administration’s use of
drones, the letter marks the first time the classified operations have been publicly acknowledged.
ABCNews:
- GOP Super PAC Takes Aim at McAuliffe, Car Company. The
group today posted online 688 pages of emails between Virginia Economic
Development Partnership officials and GreenTech Automotive, an electric
car company founded by
McAuliffe that sought to locate in Virginia in 2009.
MercuryNews.com:
Reuters:
- DryShips(DRYS) posts another loss, expects rates to remain weak. DryShips Inc, a drybulk shipper and offshore contract driller, posted a sixth straight quarterly loss and said it did not expect charter rates to improve this
year. Shares of DryShips, considered to be a bellwether stock for
the industry, fell as much as 7 percent in aftermarket trade.
Financial Times:
- London hedge funds ‘mapped’ by G8 protesters. A
number of London-based hedge funds including Man Group and Brevan
Howard have been targeted by an anti-capitalist group ahead of the G8
summit next month. The group, Stop G8, has drawn up an “action map” of what
they call the “hiding places of power in the West End”, which highlights
potential targets for protesters.
Telegraph:
- BRICS risk 'sudden stop' as dollar rally builds. The
stock of capital flowing into emerging markets has doubled from $4
trillion to $8 trillion since the Lehman Crisis, chasing a catch-up
growth story that looks tired and has largely sputtered out in Brazil,
Russia and South Africa.
Financial Review:
- Ford(F) to pull out of Australian manufacturing. Ford has announced it will close its manufacturing operations in
Broadmeadows and Geelong in October 2016, with the loss of 1200 jobs. Ford Australia president Bob Graziano announced the closure on
Thursday after Ford recorded a $141 million after-tax loss for 2012 and
losses of almost $600 million over five years. He cited the high cost of doing business in Australia, which was larger than that in Asia and Europe. “The business case did not stack up,’’ he said.
Shanghai Securities News:
- China Air Pollution Curb Plan to Be Submitted. A national air
pollution prevention and control plan may be submitted to China's State
Council in near-term, citing Yang Tiesheng, an official at the Ministry
of Industry and Information Technology.
China Securities Journal:
- China Evaluates Result of Property Curbs. Chinese policy makers
are evaluating result of current property curbs and may adjust policies,
citing a recent meeting of the real estate industry. China may expand
property tax trials to several new cities this year, China Securities
Journal reported May 20th.
Quartz:
- Investors just gave Galaxy Securities $1 billion to make China’s bad debt problem worse.
China Galaxy Securities Co., which is majority owned by one of China’s
sovereign wealth funds, raised $1.07 billion in its Hong Kong IPO
today—capital that will go toward building up its margin financing and
securities lending businesses, its core money-spinners. Many are
hailing the event as a revival of Hong Kong’s moribund IPO market, and
that may be. But Galaxy’s prospectus tells another story too:
Over-regulation of China’s stock market is warping incentives for its
brokerages.
Evening Recommendations
Night Trading
- Asian equity indices are -2.0% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 103.0 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 87.0 +2.0 basis points.
- NASDAQ 100 futures -.33%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to fall to 345K versus 360K the prior week.
- Continuing Claims are estimated to fall to 3000K versus 3009K prior.
8:58 am EST
- Preliminary Markit US PMI for May is estimated to rise to 51.2 versus 52.1 in April.
9:00 am EST
- The House Price Index for March is estimated to rise +.8% versus a +.7% gain in April.
10:00 am EST
- New Home Sales for April are estimated to rise to 425K versus 417K in March.
11:00 am EST
- Kansas City Fed Manufacturing for May is estimated to rise to -4 from -5 in April.
Upcoming Splits
Other Potential Market Movers
- The Fed's Bullard speaking, Spanish 10Y auction, Eurozone Services PMI, UK GDP/Retail Sales reports, 10Y TIPS auction, China Business Sentiment Index, BoJ's Kuroda speaking, weekly EIA natural gas inventory report and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity shares in the region. I expect US stocks to open modestly lower and maintain looses into the afternoon. The Portfolio is 50% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 110.0 -22.54%
- Total Put/Call .96 +3.23%
Credit Investor Angst:
- North American Investment Grade CDS Index 71.82 +2.62%
- European Financial Sector CDS Index 126.06 -4.1%
- Western Europe Sovereign Debt CDS Index 77.46 -12.7%
- Emerging Market CDS Index 248.91 +.33%
- 2-Year Swap Spread 14.75 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -15.25 -.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- China Import Iron Ore Spot $123.20/Metric Tonne -.32%
- Citi US Economic Surprise Index -19.40 -.7 point
- 10-Year TIPS Spread 2.26 -1 bp
Overseas Futures:
- Nikkei Futures: Indicating +8 open in Japan
- DAX Futures: Indicating -74 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech/medical/biotech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
- Market Exposure: Moved to 50% Net Long
