Evening Headlines
Bloomberg:
- World Bank Cuts Global Outlook as China Slows, Europe Contracts.
The World Bank cut its global growth forecast for this year after
emerging markets from China to Brazil slowed more than projected, while
budget cuts and slumping investor confidence deepened Europe’s
contraction. The world economy will expand 2.2 percent, less than a January forecast for
2.4 percent growth and slower than last year’s 2.3 percent, the bank
said in a report released today in Washington. It lowered its prediction
for developing economies and sees the euro region’s gross domestic
product shrinking 0.6 percent. In contrast, forecasts were raised for
the U.S. and Japan, which was helped by fiscal and monetary stimulus.
- Hollande to Ask French to Work More as Pension Deficit Balloons. President
Francois Hollande has an
unpalatable message for the French: they need to work more. Thirty-two
years after France’s first Socialist President Francois Mitterrand cut
the retirement age by five years, his party’s successor at the Elysee
Palace is telling the French preserving their way of life means staying
in jobs longer.
Hollande’s government tomorrow kicks off three-month long talks
with employer and employee groups to save a state pension system
that last year lost 14 billion euros ($18 billion).
- EU Rights Official Asks Holder to Clarify Prism Program. European Union Commissioner Viviane Reding asked U.S. Attorney General Eric Holder for more
information on the U.S. surveillance program Prism and its
consequences for the rights of EU citizens. “Given the gravity of the situation and the serious
concerns expressed in public opinion on this side of the
Atlantic, you will understand that I will expect swift and
concrete answers to these questions,” Reding said, according to
a copy of a June 10 letter to Holder obtained by Bloomberg News. Reding, the European Commission’s vice president for
justice, fundamental rights and citizenship, said she has
serious concerns about reports that the U.S. is accessing and
processing data of EU citizens who are using U.S. online service
providers.
- Japanese Stocks Tumble as Nikkei 225 Nears Bear Market. Japan’s
Nikkei 225 Stock Average (NKY) plunged, falling more than 19 percent
from a recent high and close to entering a bear market, as the yen rose
to its strongest against the dollar in more than two months. The Nikkei
225 slumped 5.3 percent to 12,587.40 at the trading break in Tokyo, its
third fall of more than 5 percent in the past month. The gauge
dropped as much 6.6 percent today, the biggest loss since shares in
Japan plummeted on May 23. “Selling breeds selling and it’s
snowballing,” said Nader Naeimi, Sydney-based head of dynamic asset
allocation at AMP
Capital Investors Ltd., which manages $126 billion.
- China Stocks Drop to 5-Month Low on Economic Data After Holiday.
China’s stocks fell after a three-day holiday, dragging the benchmark
index to a five-month low, after government reports showed industrial
production and exports trailed estimates. SAIC Motor Corp. led declines
for automakers after growth in industrial output slowed to 9.2 percent
last month from 9.3 percent in April. Baoshan Iron & Steel Co.
(600019), the listed unit of China’s second-biggest steelmaker, lost 1.9
percent after it cut
product prices. Sany Heavy Industry Co., the biggest Chinese machinery
maker, tumbled 6.2 percent. The Shanghai Composite Index (SHCOMP) dropped 2.2 percent to
2,162.44 as of 9:38 a.m., heading for the lowest close since
Dec. 24 and extending losses since a Feb. 6 high to 11 percent.
- Bank of Korea Holds Rate After Cut in May to Fight Yen Fall. The
Bank of Korea left its interest rate unchanged after a surprise cut in
May aimed at boosting an economy hit by a yen drop that gives Japanese
companies an edge over Korean exporters. Governor Kim Choong Soo and
his board kept the benchmark seven-day repurchase rate at 2.5 percent,
the central bank said in a statement in Seoul today. All 15 economists
surveyed by Bloomberg News predicted the move.
- Prada Plummets Most in a Year on Slower Growth.
Prada SpA (1913), the Italian luxury-goods maker, fell the most in
almost 12 months in Hong Kong trading after reporting first-quarter
profit growth that decelerated to the slowest pace in at least a year. Prada dropped 6.6 percent,
headed for the biggest drop since June 21, to HK$68.40 as of 10:01
a.m., compared with a 3.2 percent decline in the city’s benchmark Hang
Seng Index.
- Hong Kong Democracy May Lead to Conflict With China, Leung Says. Increased democracy in Hong Kong may
lead to China’s refusal to appoint a leader elected by the
city’s people, Chief Executive Leung Chun-ying said. China occasionally has declined to accept officials chosen
by the city, which suggests it reserves the same right over the
chief executive position, Leung said yesterday in an interview
in New York. “The possibility exists for Beijing and Hong Kong people
not seeing eye-to-eye on the best candidate to lead Hong Kong,”
Leung said. “This is another issue we need to tackle under One
Country, Two Systems.”
- Hong Kong Chief Executive Pledges Property Curbs to Stay. Hong Kong, the world’s most expensive home market, will not
ease its real-estate curbs until there’s a steady supply of new
properties as the government seeks to address concerns that it favors
developers. Earlier actions have brought down prices and rents,
and the government can do more if needed, Chief Executive Leung
Chun-ying, 58, said in an interview in New York.
- Asian Stocks Slip on World Bank as Kiwi Drops; Yen Gains.
Asian equities dropped, with the region’s benchmark index headed toward
a correction, and the yen rose to the strongest in two months against
the dollar after the World Bank cut its global growth forecast amid
concern central banks may pare monetary stimulus. New Zealand’s currency
weakened. The MSCI Asia Pacific Index tumbled 2.6 percent at 11:16 a.m. in Tokyo, erasing this year’s gains. Japan’s Topix Index
sank 4.1 percent and the Shanghai Composite Index declined 3.1
percent after a three-day break.
- Rubber Falls to Nine-Month Low on Stronger Yen, Demand Concerns. Rubber retreated to a nine-month low
as a strengthening Japanese currency reduced the appeal of yen-based contracts and a downward growth revision by the World Bank
raised concern that demand is weakening. The contract for delivery in November fell as much as 4
percent to 230.5 yen a kilogram ($2,435 a metric ton), the lowest level since Sept. 10, on the Tokyo Commodity Exchange,
and was at 231.5 yen at 11:01 a.m. local time. Futures have
plunged 23 percent this year.
- Rebar Trades Near 9-Month Low on Signs of Slowing Chinese Growth.
Steel reinforcement-bar futures in Shanghai traded near the lowest
level in nine months as investors returning from a three-day holiday
remained concerned that economic growth shows signs of slowing in the
world’s biggest steel consumer. Rebar for delivery in October on the Shanghai Futures
Exchange fell as much as 1 percent to 3,386 yuan ($552) a metric
ton, the cheapest since Sept. 7, and was at 3,426 yuan at 11:09
a.m. local time. Futures have dropped 14 percent this year.
- Individuals Pull Most Money From Bond Mutual Funds Since 2008. Investors pulled $10.9 billion from
U.S. bond mutual funds in the past week, the biggest redemption
since October 2008, after speculation that the Federal Reserve
may scale back its bond buying sent fixed-income markets lower. Taxable bond funds suffered withdrawals of $8.7 billion and
municipal bond funds lost $2.3 billion in the week ended June 5,
according to an e-mailed statement from the Investment Company
Institute, a Washington-based trade group. Investors withdrew
$942 million from stock funds, the ICI reported.
Wall Street Journal:
- Traders Pay for an Early Peek at Key Data.
On the morning of March 15, stocks stumbled on news that a key reading
of consumer confidence was unexpectedly low. One group of investors
already knew that. They got the University of
Michigan's consumer report two seconds before everyone else.
- Debt Makes Comeback In Buyouts. Shareholders in BMC Software Inc. will
receive $6.9 billion to sell the corporate-software developer to a
group of private-equity firms. But the buyers, led by Bain Capital LLC
and Golden Gate Capital, only intend to pay $1.25 billion in cash out of
their own pockets. The rest will come from debt raised by BMC to
finance its takeover. The little-noticed acquisition is another
milestone in the return of cheap debt and higher-risk deals to Wall
Street: The cash put down by BMC's private-equity buyers is the lowest
as a percentage of the purchase price of any buyout with loans exceeding
$500 million since 2008, according to data-provider Thomson Reuters
LPC.
- Regulators Question Banks on Business Lending Risks. U.S. regulators are grilling banks over lending standards and warning them about mounting risks in business loans. Lending to companies has been a bright spot for banks searching for
revenue amid slow economic growth and historically low interest rates.
But regulators worry that banks have sweetened loan terms too much,
which could put them in jeopardy if corporate borrowers can't repay.
- Credit Helps Drive Americans to the Mall. Experian Automotive reported that the percentage of cars leased rose
during the first quarter, to the highest level since it began tracking
that statistic in 2006. The recent interest-rate spike is unlikely to derail a credit
revival. It may even be outweighed by easier lending standards. But in
the longer run, borrowing alone provides a shaky foundation for sales
growth. Cumulative growth in income has been far slower than in any
postwar recovery, while savings has only been lower during asset
bubbles. It's nice to see more Americans shopping, but not to the point that they drop.
Fox News:
- Fox News poll: Voters oppose NSA program, most lack trust in government.
Most Americans find it unacceptable for the National Security Agency
to collect the phone records of millions of U.S. citizens. In addition,
a majority lacks trust in the federal government, and an increasing
number of people say it’s too big. These are just some of the findings
of a Fox News poll released Wednesday. Sixty-two percent of voters
say the government secretly collecting the phone records of millions of
Americans is an “unacceptable and alarming invasion of privacy rights.”
That’s nearly twice as many as think it’s an “acceptable government
action to help prevent terrorism” (32 percent). Republicans (by 74-18
percent) and independents (by 67-26 percent)
think the NSA surveillance of Americans is unacceptable. Democrats
split: 48 percent say it’s acceptable, while 46 percent say
unacceptable.
MarketWatch.com:
- Martin Fridson: The junk bond market ‘hasn’t come down to earth’. High-yield bond guru Marty Fridson still thinks his sector is overpriced. The rigorous researcher of junk bonds said as much to a cohort of
high-yield research analysts from hedge funds, banks, and asset managers
during the New York Society of Security Analysts’ 23rd Annual High Yield Bond Conference.
CNBC:
Zero Hedge:
Business Insider:
Reuters:
- BOJ official: inflation caused solely by weak yen could hurt economy.
A senior Bank of Japan official said on Thursday that price hikes
caused solely by a weak yen could hurt economic recovery, stressing the
need for inflation to
accompany balanced growth.
"If price hikes are caused solely by a weak yen, that would
be cost-push (inflation) and thus could negatively affect a
steady economic recovery," BOJ Executive Director Masayoshi
Amamiya said at a parliamentary committee session.
- Emerging markets at risk when loose policies end -World Bank.
The World Bank said eventual monetary tightening in advanced economies
could crimp growth in emerging markets as interest rates rise, lowering
the nations' potential output by as much as 12 percent. That
long-term risk is likely greater than the short-term impact from
volatility in emerging market currency and bond markets, as traders try
to position themselves for when the U.S. Federal Reserve begins its exit
from ultra-loose monetary
policies, said Kaushik Basu, the World Bank's chief economist.
- Greeks strike over state TV closure as backlash grows. Greek workers stage a nationwide
strike on Thursday, forcing hospitals to work on emergency staff
and disrupting transport, in protest against the "sudden death"
of state broadcaster ERT, switched off in the middle of the
night by the government.
Financial Times:
- US debt auction raises hopes over repo failures. Some so-called “fails” are expected in the repo market, where investors come to borrow short-term funds using low-risk
collateral such as Treasury debt, but large numbers of fails have
alarmed policy makers in the past because of potential systemic risk.
China Securities Journal:
- China Growth Slowdown May Last Into 3Q. Slowdown in China's economic growth may last into 3Q. China's inflation will be moderate this year, the newspaper said. Uncertainties on investment growth will increase as China's urbanization may be slower than expected. China won't ease its monetary policy, the newspaper said.
Evening Recommendations
Night Trading
- Asian equity indices are -3.50% to -1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 142.50 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 119.0 +1.5 basis points.
- NASDAQ 100 futures -.31%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Advance Retail Sales for May are estimated to rise +.4% versus a +.1% gain in April.
- Retail Sales Less Autos for May are estimated to rise +.3% versus a -.1% decline in April.
- Retail Sales Ex Auto & Gas for May are estimated to rise +.3% versus a +6% gain in April.
- Initial Jobless Claims are estimated at 346K versus 346K the prior week.
- Continuing Claims are estimated to rise to 2978K versus 2952K prior.
- The Import Prices Index for May is estimated unch. versus a -.5% decline in April.
10:00 am EST
- Business Inventories for April are estimated to rise +.3% versus unch. in May.
Upcoming Splits
Other Potential Market Movers
- The Italian 10Y Bond auction, ECB Monthly Report, 30Y T-Bond auction, BoJ Minutes, China FDI data, Bloomberg US Economic Survey for June, weekly EIA natural gas inventory report and thee weekly Bloomberg Consumer Comfort Index could also impact trading today.
BOTTOM LINE: Asian
indices are sharply lower, weighed down by technology and financial
shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 69.0 -27.37%
- Total Put/Call 1.19 +16.67%
Credit Investor Angst:
- North American Investment Grade CDS Index 87.28 +2.02%
- European Financial Sector CDS Index 163.32 +.43%
- Western Europe Sovereign Debt CDS Index 90.0 -1.36%
- Emerging Market CDS Index 334.11 -2.53%
- 2-Year Swap Spread 17.0 -1.0 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -12.5 +.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- China Import Iron Ore Spot $110.90/Metric Tonne n/a
- Citi US Economic Surprise Index -30.0 +1.0 point
- 10-Year TIPS Spread 2.06 -3 bps
Overseas Futures:
- Nikkei Futures: Indicating -325 open in Japan
- DAX Futures: Indicating -24 open in Germany
Portfolio:
- Slightly Higher: On gains in my index hedges and emerging markets shorts
- Market Exposure: 25% Net Long
Bloomberg:
- ECB Crisis-Plan Judges Focus on Limits to Monetary Policy. German top judges examining the
European Central Bank’s plan to buy bonds of crisis-torn
countries asked whether the operation crosses the line from
legitimate monetary policy to illicit state financing. Witnesses at the second day of hearings before the Federal
Constitutional Court in Karlsruhe faced queries from the panel
on whether the central bank’s Outright Monetary Transactions
program oversteps the mark beyond the ECB’s mandate to conduct
monetary policy. Judges also asked whether the rules
underpinning that mandate should be revamped.
- Turkish Police Retake Square Amid Clashes. Turkish protesters urged people to return to Taksim Square this evening, after they were driven out by police last night. The Taksim Solidarity group, which says it represents protesters, called
in an e-mailed statement for people to return to the square from 7 p.m.
It reiterated demands including the preservation of the park, the
dismissal of governors and police chiefs in cities where demonstrators
have been attacked, and the release of those detained during the
rallies.
- Citigroup(C) Pushes Back Brazil Stock Rebound Call After Selloff.
Citigroup Inc. (C) tempered its projections for a recovery in Brazilian
stocks after the Ibovespa plunged into a bear market, predicting that
the benchmark won’t rebound until next year. The 71-stock index has
plunged more than 22 percent in 2013 from its peak of 63,312.46 on Jan.
3. Citigroup analysts Stephen Graham and Nicolas Riva, who had forecast a
return to a level of 63,000 by the end of this year, now project that
the measure will rebound by mid-2014, according to a research note
dated yesterday. The bank had already cut its year-end Ibovespa target
twice this year, according to the note. “The second half is only three weeks away, and things have just gotten uglier,” the analysts wrote. “Growth expectations
around 4 percent are a distant memory.”
The Ibovespa fell 0.9 percent to 49,304.44 at 3:13 p.m. in
Sao Paulo today.
- India’s Slower Industrial Growth Adds Policy-Change Pressure.
India’s industrial-output growth slowed in April, adding pressure for
more government steps to spur the economy as elevated consumer-price
inflation threatens to limit the central bank’s room to extend monetary
easing. Production (INPIINDY) at factories, utilities and mines rose 2
percent from a year earlier after a revised 3.4 percent gain in March,
the Central Statistical Office said in New Delhi today. Another report
showed consumer prices climbed 9.31 percent in May from a year earlier,
exceeding the median 9 percent estimate in a Bloomberg News survey.
Asia’s third-largest economy expanded at the weakest pace in a decade in
the year ended March, hurt by an uneven global
recovery and moderating investment. The rupee fell to a record
low this week, a drop that may make imports costlier and stoke
price increases that have narrowed the Reserve Bank of India’s
scope for a fourth straight interest-rate cut on June 17.
“This reaffirms that demand remains weak,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai.
- Emerging-Market Anxieties Jump by Most Since ’08: Credit Markets. The biggest drop in perceived
creditworthiness for emerging-market borrowers since the credit
crisis is deepening as speculation intensifies that central
banks will scale back record stimulus. Prices on the Markit CDX Emerging Markets index, a credit-default swaps benchmark for debtor nations from Latin America to
the Middle East and Asia, have tumbled 4 cents in the two weeks
through yesterday to 107 cents on the dollar. The decline is the
biggest since the failure of Lehman Brothers Holdings Inc.
reverberated across financial markets and caused the index to
plunge 6.7 cents in the period ended Nov. 18, 2008.
- Grain Prices Tumble as U.S. Sees Bigger Corn Supply, Wheat Crops. Corn futures tumbled the most in
five weeks, leading declines in wheat and soybeans, after the
U.S. said inventories will be bigger than analysts’ forecast as
global production rebounds from a drought last year. Record domestic
corn output of 14.005 billion bushels this
year will more than double inventories before the harvest in
2014, and soybean production will be 3.39 billion bushels, the most
ever, the U.S. Department of Agriculture said today in a report. While
drought damage late last year will reduce the 2013 U.S. wheat harvest,
global output will rise 6.1 percent.
- Protectionism Surges to Worst Since Crisis as G-8 Nears. Global trade protectionism has
surged to its highest since the financial crisis began in a
threat to economic growth, according to Global Trade Alert. Four-hundred-thirty-one new protectionist measures were
imposed from June 2012 to this month compared with 141 steps
taken to liberalize commerce, said GTA, which was created in 2009 by
University of St. Gallen professor Simon Evenett in Switzerland.
Another 183 practices aimed at restricting trade are in the pipeline.
With trade on the agenda for the upcoming U.K. meeting of
Group of Eight leaders, the report said such nations were
responsible for almost a third of protectionist measures over
the past year.
- Obama Quietly Raises 'Carbon Price' as Costs to Climate Increase. Buried
in a little-noticed rule on microwave ovens is a change in the U.S.
government’s accounting for carbon emissions that could have
wide-ranging implications for everything from power plants to the
Keystone XL pipeline. The increase of the so-called social cost of
carbon, to $38 a metric ton in 2015 from $23.80, adjusts the calculation
the government uses to weigh costs and benefits of proposed regulations. The figure is meant to approximate losses from global warming such as flood damage and diminished crops. With
the change, government actions that lead to cuts in emissions --
anything from new mileage standards to clean-energy loans -- will appear
more valuable in its cost-benefit analyses. On the flip side, approvals
that could lead to more carbon pollution, such as TransCanada Corp.
(TRP)’s Keystone pipeline or coal-mining by companies such as Peabody
Energy Corp. (BTU) on public lands, may be viewed as more costly.
“As we learn that climate damage is worse and worse, there is no
direction they could go but up,” Laurie Johnson, chief economist for
climate at the Natural Resources Defense Council, said in an interview. Johnson says the administration should go further; she estimates the carbon cost could be as much as $266 a ton.
- IBM(IBM) Said to Start U.S. Job Cuts Today Amid Global Reduction. International Business Machines Corp. (IBM) began cutting U.S. jobs today as part of a plan announced
in April to spend $1 billion globally to trim its workforce,
according to a person familiar with the move.
The reduction targets employees with a range of seniority,
from rank-and-file workers to executives, said the person, who
asked not to be named because the information is private.
- Traders Said to Rig Currency Rates to Profit Off Clients.
- Budget Deficit in U.S. Widened in May as Spending Increases 10%.
The U.S. budget deficit widened in May from a year earlier on a 10
percent increase in spending, the Treasury Department said. Outlays exceeded receipts by $138.7 billion last month compared with a $124.6 billion shortfall in May 2012, the
Treasury said today in Washington.
Fox News:
CNBC:
- Byron Wien Expects ‘Trouble Ahead’. (video)
The stock market is beginning to sense headwinds unrelated to
quantitative easing, Blackstone Advisory Vice Chairman Byron Wien said
Wednesday. "I think while valuations are still fair, I think the market's made a
lot of progress, and I think there's some trouble ahead," he said. "The
trouble is that profit margins, in my opinion, have peaked and that
earnings are going to be disappointing in the second half, and that's
what the market is beginning to sense."
Zero Hedge:
Business Insider:
New York Times:
- French Air Controller Strike Spreads to Other Countries. Air travel disruptions intensified across
Europe on Wednesday as a strike led by French air-traffic controllers
broadened in its second day to include smaller labor actions in other
countries. Unions are protesting a plan by the European Union to accelerate the
integration of air traffic management systems across the Continent.
- Indian Tire Maker to Buy Cooper Tire(CTB) for $2.5 Billion.
One of India’s largest tire makers, Apollo Tyres, announced a deal on
Wednesday to acquire the Cooper Tire and Rubber Company for $2.5 billion
in cash. The acquisition would give Apollo a major foothold in the United
States, the world’s second-largest auto market after China. Cooper,
which focuses on passenger and light- and medium-truck replacement
tires, is the fourth-largest tire maker in North America. Its brands
include Cooper, Mastercraft, Starfire, Chengshan, Roadmaster and Avon.
Index Universe:
- Shiller: Housing Rebound Could Be Flaky. Shiller
told IndexUniverse.com Managing Editor Olly Ludwig that between the
housing market’s clear dependence on the Federal Reserve’s ultra-easy
monetary policies and signs the public’s enthusiasm about home ownership
may be waning, there are clear grounds to wonder if the price gains in the past year may halt or even reverse.
Washington Post:
Reuters:
Financial Times:
- Bundesbank’s Jens Weidmann backs legal curbs on ECB. The
head of Germany’s Bundesbank said on Wednesday he would support a
clarification of the European Central Bank’s room for manoeuvre in how
it conducts monetary policy. Although Jens Weidmann did not
explicitly call for EU treaty change, any attempt to change the ECB’s
mandate would require such a move, a prospect likely to be
greeted with alarm in European capitals.
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Coal -1.31% 2) Construction -1.30% 3) Computer Services -1.01%
Stocks Falling on Unusual Volume:
- NTLS, VOD, DISH, PBR, GNMK, CLVS, IEP, LULU, SHOS, GSF, KS, PKO, JPI, BFK, ISG, WAB, MITT, HPS, MQY, TTWO, WSR, OXM, DTK, SWJ, ISF, AN, MXF, LM, GEB and BIIB
Stocks With Unusual Put Option Activity:
- 1) SIRI 2) LYV 3) AKAM 4) ITB 5) XOP
Stocks With Most Negative News Mentions:
- 1) LM 2) FCX 3) NFLX 4) GS 5) FIO
Charts:
Style Outperformer:
Sector Outperformers:
- Gold & Silver +2.31% 2) Hospitals +1.07% 3) Tobacco +.17%
Stocks Rising on Unusual Volume:
- BEAT, CTB, ULTA, SE, HMA, QCOR, CLDX and SCTY
Stocks With Unusual Call Option Activity:
- 1) KOG 2) ULTA 3) SE 4) HCA 5) DF
Stocks With Most Positive News Mentions:
- 1) EMC 2) PGR 3) RVBD 4) VZ 5) BA
Charts:
Evening Headlines
Bloomberg:
- Italy
Debt Trading Like Bunds Spells Pain for Spain: Euro Credit. Italian
borrowing costs are rising in parallel with German yields for the first
time in two years, exacerbating the risk that Europe's debt crisis will
worsen. "For the first time in a while, German and Italian bonds are
moving in the same direction as global bonds are facing the same threat
and that's central banks pulling back from extra stimulus," said Luca
Cazzulani, a senior fixed-income strategist at UniCredit Global Research
in Milan. "It will become more expensive for everyone to borrow money,
but Germany can perhaps handle this far better than Italy and Spain. The
biggest risk is when yields keep rising when there's still no growth in
peripheral nations."
- North Korea Scraps Talks on Industrial Zone, S. Korea Says. North Korea “unilaterally” called
off the highest-level talks since Kim Jong Un took power in
protest over the rank of South Korea’s proposed delegate, the
South’s Unification Ministry said. The North insisted that South Korea’s Unification Minister
meet its “much lower-ranking” official and rejected the
South’s revised proposal for vice minister-level discussions,
Unification Ministry spokesman Kim Hyung Suk said in a televised
briefing last night. The two-day talks were due to begin today
in Seoul and focus on the reopening of a joint factory park.
- Emerging-Market
Anxieties Jump by Most Since '08: Credit Markets. The biggest drop in
perceived creditworthiness for emerging-market borrowers since the
credit crisis is deepening as speculation intensifies that central banks
will scale back record stimulus. Prices on the Markit CDX Emerging
Markets index, a credit-default swaps benchmark for debtor nations from
Latin America to the Middle East and Asia, have tumbled 4 cents in the
two weeks through yesterday to 107 cents on the dollar. The decline is
the biggest since the failure of Lehman Brothers Holdings Inc.
reverberated across financial markets and caused the index to plunge 6.7
cents in the period ended Nov. 18, 2008. Investors who eight weeks ago
were willing to lend Rwanda $400 million at an interest rate of 6.625
percent in its first debt offering are now struggling to find any haven
as developing countries bear the brunt of the global bond rout.
- Indonesian Stocks Fall as Investors Sell Most Shares Since 2011.
Indonesia stocks dropped for a fifth day after overseas investors sold
the most shares in the nation yesterday since March 2011 as rising U.S.
Treasury yields lure capital from emerging markets. The Jakarta Composite Index sank 2 percent at 9:14 a.m.
local time, taking its decline from its May 20 record to 13
percent.
- Asia Stocks Drop, Extend Global Rout, on Stimulus Concern.
Asian stocks fell, extending a rout that wiped out about $400 billion
from the value of global equities yesterday, as Japanese machinery
orders declined more than expected and concern grew that central banks
from Tokyo to
Washington are increasingly reluctant to add stimulus. Toyota Motor
Corp., the world’s largest carmaker, retreated
3.2 percent in Tokyo after the yen gained the most in three
years. Hitachi Construction Machinery Co. lost 0.7 percent in
Tokyo. Hyundai Merchant Marine Co. plunged 14 percent in Seoul
after North Korea called off talks yesterday on a joint
industrial zone. The MSCI Asia Pacific Index dropped 0.8 percent to 130.54 as of 12:21 p.m. in Tokyo, with more than four shares falling
for each that advanced. Markets in China, Hong Kong, Taiwan and
the Philippines are closed for holidays.
- Goldman Maintains Neutral Recommendation on Commodity Prices. Goldman Sachs Group Inc. maintained
its neutral recommendation on commodity prices, predicting a
significant decline in agriculture in the second half of the
year even if the summer weather is worse than in 2011. “Prices are unlikely to collapse from current levels as
demand is not weak enough to create large unexpected inventory
builds while supply rarely creates a surge in inventory like
what demand can do when it falls unexpectedly,” they said.
- Copper MACD Measure Signals Drop to 2010 Low: Technical Analysis. Copper
futures in New York are poised to reach the lowest price since mid-2010
in the next two months, according to technical analysis from Paul
Kavanaugh at FuturePath Trading LLC. The moving average
convergence-divergence graph, or MACD, shows the 26-week and 12-week
moving averages traded below a nine-week measure known as the signal
line since June 7. The
crossover is a bearish sign, Kavanaugh said.
- Rubber Drops to 9-Month Low as Yen Rally Saps Investor Appetite. Rubber slumped to the lowest level
in nine months after the Japanese currency rallied the most in
three years against the dollar, sapping investor appetite for
yen-denominated futures. The contract for delivery in November lost as much as 3.9
percent to 239 yen a kilogram ($2,476 a metric ton) on the Tokyo
Commodity Exchange, the lowest since Sept. 12. Futures traded at
240.6 yen at 11 a.m., extending losses this year to 20 percent.
- Record U.S. Soybean Crop Seen Extending Bear Market: Commodities.
Stockpiles (US09ESUS) at the end of August 2014 will have gained 116
percent to 7.29 million metric tons in 12 months, according to the
average of 30 analyst estimates compiled by Bloomberg. U.S. production
will jump 12 percent to 91.74 million tons, adding almost enough extra
supply to feed India for a year. The U.S. government updates its estimates tomorrow.
- Metacapital in Worst Slide as Bloodbath Roils Funds: Mortgages. Deepak Narula rose to fame as
manager of the best-performing hedge fund last year by
navigating the government’s stimulus efforts. He’s having a far
harder time as the Federal Reserve moves closer to an exit. Metacapital Management LP’s flagship $1.5 billion fund lost
an estimated 6.4 percent last month, the worst decline since it
started in 2008, according to a letter to investors obtained by
Bloomberg News. That followed drops of 0.5 percent in April and
0.1 percent in March, after 17 months of consecutive gains
including a 41 percent return last year. Narula, like other investors in government-backed mortgage
bonds, is being punished by speculation the Fed will scale back
its debt-buying program. That has caused the securities to
underperform Treasuries by the most since 2008. Rising home
prices, President Barack Obama’s nomination of Democratic
congressman Mel Watt to oversee Fannie Mae and Freddie Mac, and
other issues have further roiled the market. “It’s been a bloodbath the last four to six weeks,” said
Troy Gayeski, a senior portfolio manager who helps invest client
money in hedge funds at SkyBridge Capital, which manages about
$7.7 billion. “It was a confluence of just about everything”
from investors’ concerns that refinancing would pick up among
some borrowers who’ve had trouble qualifying to the slump in the
mortgage debt that the Fed is buying, he said.
- Medicare Pays $900 Million a Year Too Much for Lab Tests. Medicare, the U.S. health program
for the elderly and disabled, spends $900 million more a year
than it should for medical lab services and should seek
authority from lawmakers to cut its bills, auditors said. Medicare spent about $8.2 billion on lab services in 2010,
more than any other insurer in the nation, while paying from 18
percent to 30 percent more for 20 of the highest-volume and most
expensive tests, according to the Health and Human Services
Department’s inspector general. The Centers for Medicare &
Medicaid Services, which runs the $574 billion health program,
said the agency is exploring whether it can revise payments to
labs, according to a report issued today by Daniel Levinson, the HHS inspector general. “The
lab test payment rate structure is outdated and should be changed,”
Levinson said in his report. Quest Diagnostics Inc. (DGX) and Laboratory
Corporation of America Holdings, the two largest lab services companies
in the U.S., each receive at least 15 percent of their annual revenue
from Medicare, according to data compiled by Bloomberg.
Wall Street Journal:
- Global Tumult Grips Markets. Question for Investors: Bumpy Return to Normal or New Volatility as Central Banks Step Back? The tectonic plates of the world economy are shifting, moving the yield
on the 10-year Treasury to the highest level in more than a year and
shaking financial markets from Tokyo to Mumbai and Johannesburg to São
Paulo.
- Turkish Police Move to Evict Demonstrators. Security Forces Fire Tear Gas, Water Cannons at Protesters in Istanbul Square After Premier Condemns 'Illegal Uprising'. Turkish police stormed a landmark Istanbul square in a bid to evict
entrenched protesters on Tuesday, sparking daylong clashes in the heart
of the city, as Prime Minister Recep Tayyip Erdogan clamped down after
two weeks of nationwide demonstrations. Hundreds of security forces moved into Taksim Square, the epicenter
of protests, around 7:30 a.m., firing tear gas and water cannons,
sending thousands of overwhelmingly peaceful protesters scattering from
the area. Battalions of police, which had ceded control of the area the
day after nationwide protests flared May 31, secured the square's
perimeter by 8 a.m.
- Stores Prepare to Widen Access to Plan B Pill.
Drugstores are preparing to change how they stock and sell a widely
used emergency contraceptive after the Obama administration agreed to
allow the pill to be sold over the counter to customers of all ages.
- Immigration Bill Advances in Senate. The push to rewrite the nation's immigration laws easily advanced in
the Senate Tuesday, lending the effort a burst of momentum as lawmakers
prepare to spend the rest of the month debating the issue. The Senate voted 82-15 on a motion that lets lawmakers formally
debate the bill and begin offering amendments. All 15 "no" votes came
from Republicans.
The measure, which required 60 votes to pass, won support from 28 Republicans.
- Monsanto(MON) Eyes Spring Launch in South America for New Soy Seeds. Biotechnology company Monsanto Co. (MON) plans to debut its second-generation of
genetically modified soybean seeds in its key South American market during the
next growing season. South America produces just over half the world's soybeans, with Brazil and
Argentina among the top three global producers of the oilseed, according to U.S.
Department of Agriculture data.
- Bank Indonesia Raises Overnight Deposit Rate. Bank Indonesia raised its overnight deposit facility rate by a
quarter of a percentage point to 4.25%, to help ease downward pressures
on the rupiah. The central bank said Wednesday it is "ready to take any necessary
step" to maintain monetary stability following the rupiah's recent
depreciation, Bank Indonesia said in a news release. The surprise increase in the rate, called the Fasbi, comes ahead of
the central bank's policy meeting Thursday. Analysts have said the
central bank was likely to hold its benchmark rate at 5.75% for the 16th
consecutive month.
Fox News:
- Post 9-11 terror fighting legislation under attack. In the dozen years that have passed since the Sept. 11 terror
attacks, Congress has enacted a series of laws aimed at keeping the
country safe. But today, the same measures and mandates that were once
put in place for the country’s protection have come under attack. Hardest hit: the Patriot Act.
CNBC:
Zero Hedge:
Business Insider:
New York Times:
- Insurers Inflating Books, New York Regulator Says. New York State regulators are calling for a nationwide moratorium on
transactions that life insurers are using to alter their books by
billions of dollars, saying that the deals put policyholders at risk and
could lead to another taxpayer bailout. Insurers’ use of the secretive transactions has become widespread,
nearly doubling over the last five years. The deals now affect life
insurance policies worth trillions of dollars, according to an analysis
done for The New York Times by SNL Financial, a research and data firm.
LawrenceMcDonald.com:
The Blaze:
Reuters:
- Analysis - Asia's ticking time bonds; Time to cut and run? Efforts to make
the global financial system safer could be making Asia more - not less -
vulnerable to any credit market shocks, leaving bond traders worried
that a sharp selloff since late May could turn into a rout.
Low global interest rates have
made it easier than ever to sell new bonds denominated in dollars, euros
or yen, resulting in a boom in issuance that has made Asia and its
companies ever more dependent on debt. But the market for trading those bonds is
slowly drying up, leaving it susceptible to a sharper selloff if holders
of these so-called G3 bonds decide it is time to head for the exit. "The
issue is that if any of them choose to sell their holdings, the market
may not have the capacity to absorb these flows. If we reach a stage
like that then liquidity could dry up very quickly and that can have a
spiralling effect," said Dhimant Shah, a fund manager at Mackenzie
Investments in Singapore.
- MSCI lowers Greece to emerging market status. Equity index provider MSCI on Tuesday lowered European Union member Greece to emerging market from developed market status, citing failure to qualify on several criteria for market accessibility.
- Decline in Yum's(YUM) China restaurant sales eases in May.
KFC parent Yum Brands Inc reported on Tuesday an estimated 19 percent
drop in May sales at established restaurants in China, a smaller decline
than in April when the country's bird flu outbreak caused diners to
shun chicken. That result just matched the average of eight analysts, as
compiled by Consensus Metrix. Shares in Yum fell 1.3 percent at
$70.80 in after-hours trading.
- Nasdaq short interest down 1.1 pct in late May.
Short interest on the Nasdaq dipped 1.1 percent in the last half of May,
the exchange said on Tuesday, suggesting a decrease in bearish
sentiment in the stock
market. As of May 31, short interest declined to about 7.489 billion
shares, compared with 7.574 billion shares as of May. 15.
- Germans accuse U.S. of Stasi tactics before Obama visit. German
outrage over a U.S. Internet spying program has broken out ahead of a
visit by Barack Obama, with ministers demanding the president provide a
full explanation when he lands in Berlin next week and one official likening the tactics to
those of the East German Stasi.
Quartz:
- Chinese local governments are padding their balance sheets with billions in fake assets. Even China’s most prominent cities and provinces are increasingly
relying on high-risk and murky forms of borrowing. That’s according
to a
new report from China’s National Audit Office on the finances of 36
provincial and municipal governments (link in Chinese). The report
covered the governments of cities including Shanghai, Chongqing and
Tianjin, and the provincial
governments of Guangdong, Jiangsu and others. Here’s a roundup of the
most notable numbers:
Telegraph:
Kyodo:
- Apple(AAPL) Raises Macbook Pro, IMac Prices in Japan. Co. raised notebook and desktop computer prices by as much as 40,000 yen in Japan yesterday on weakening yen. Price of 13-inch, 750GB Macbook Pro increased by 10,000 yen to 148,800 yen; iMac's most expensive model now costs 198,000 yen, 30,000 yen more than before.
Evening Recommendations
Oppenheimer:
- Rated (BOBE) Outperform, target $57.
Night Trading
- Asian equity indices are -1.25% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 141.0 +8.0 basis points.
- Asia Pacific Sovereign CDS Index 117.5 +12.5 basis points.
- NASDAQ 100 futures +.19%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-1,500,000 barrels versus a -6,267,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +500,000 barrels versus a -366,000 barrel decline the prior week. Distillate inventories are estimated to rise by +1,500,000 barrels versus a +2,611,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.3% versus a +2.0% gain the prior week.
2:00 pm EST
- The Monthly Budget Deficit for May is estimated to widen to -$136.5B versus -$124.6B in April.
Upcoming Splits
Other Potential Market Movers
- The Eurozone Industrial Production data, German CPI report, US 10Y T-Note auction, Australia Unemployment report, USDA Crop Report, weekly MBA Mortgage Applications report, Piper Jaffray Consumer Conference, Goldman European Financials Conference, Deutsche Industrials/Basic Materials Conference, (EA) analyst event and the (TAP) analyst meeting could also impact trading today.
BOTTOM LINE: Asian
indices are lower, weighed down by technology and financial shares
in the region. I expect US stocks to open mixed and weaken into
the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.
