Evening Headlines
Bloomberg:
- China Banking Stress May Come Faster on Cash Crunch, Fitch Says. China’s
worst cash crunch in at least seven years is an indicator of shadow
lending gone awry and a banking crisis may appear earlier than expected
if liquidity remains tight, according to Fitch Ratings. “We are
starting to see some issues emerging” in liquidity, Charlene Chu,
Fitch’s head of China financial institutions, said in an interview today
with Zeb Eckert on Bloomberg Television in Hong Kong. “It will be very important
over the next month or so to see how that plays out. If that
doesn’t go away, some of this may be moving ahead faster and
earlier than we thought.”
- China Swaps Rise to 2011 High as PBOC Refrains From Adding Cash.
One-year interest-rate swap, the fixed cost needed to receive the
floating seven-day repurchase rate, up 7 bps at 3.89% in Shanghai,
according to Bloomberg data. It touched 3.9%, the highest since
September 2011. "The PBOC has continued to surprise with its refusal to
inject liquidity through open-market operations despite extremely high
money market rates," Dariusz Kowalczy, a Credit Agricole CIB strategist
in Hong Kong, wrote in a report today. "The situation is untenable and
we expect the central bank to inject liquidity in the near term either
via reverse repos or a cut in the require reserve ratio."
- China May Home Prices Rise as Major Cities Post Record Gains. China’s
new home prices rose in almost all cities in May, led by major centers,
as the government’s latest property measures failed to deter buyers. Prices
climbed from a year earlier in 69 of the 70 cities tracked by the
government, the National Bureau of Statistics said in a statement today.
The southern business city of Guangzhou posted the biggest gain with
prices rising 15 percent from a year earlier. Beijing prices
climbed 12 percent, while they advanced 10 percent in Shanghai. All
three cities had their biggest advance since the government changed its
methodology for the data in January 2011.
- China Foreign-Investment Gains Ease as Economic Slowdown Deepens. Foreign
direct investment in China rose in May by the least in four months, a
sign of concern that growth is slowing in the world’s second-biggest
economy. Inbound non-financial investment increased 0.3 percent from a
year earlier to $9.26 billion, the Ministry of Commerce said today in a
statement in Beijing, after a 0.4 percent gain in
April.
- China Oil Contraction Sinks Industry’s Biggest Tankers: Freight. China’s oil imports are contracting
for the first time since 2009, reducing the biggest source of
demand for crude tankers at a time when U.S. purchases are
slowing and owners face the worst capacity glut in three
decades. The world’s second-biggest economy bought 2.1 percent less
crude in the first five months, compared with an 11 percent
expansion in the same period in 2012, customs data show. Tanker
owners are already losing money and freight swaps indicate rates
won’t be profitable before 2015.
- Directors Refuse to Go Naked for Chinese IPOs. Stephen Markscheid holds one of the riskiest jobs in the world -- or so say insurers. The
59-year-old former banker, a Mandarin-speaking American, sits on the
boards of five U.S.-listed Chinese companies, including JinkoSolar
Holding Co. (JKS) The group of about 500 Chinese firms came under
scrutiny over the past two years as a rash of accounting scandals and
irregularities sent shares tumbling, sparked investor lawsuits and
halted new stock offerings on U.S. exchanges. The U.S. Securities and
Exchange Commission has revoked more than 50 Chinese company
registrations since early 2011. “The work that I’m doing now,
it’s not for the faint of heart,” said Markscheid, who travels to China
for board meetings from his home near Chicago, in Wilmette, Illinois,
eight to 10 times a year. “I’ve been sued quite a few times.” As a result, the cost of insurance to cover directors and officers of
Chinese companies against lawsuits has skyrocketed, with premiums
reaching as high as $100,000 per $1 million of coverage in some cases,
up from a range of $10,000 to $15,000 a few years ago.
- Asian Stocks Drop as Chinese Developers Fall; Sony Jumps. Asian
stocks dropped, with the regional benchmark index heading for its first
decline in three days, as Chinese developers fell on concern gains in
home prices will limit scope for monetary easing. China Overseas
Land & Investment Ltd., the biggest mainland developer traded in
Hong Kong, slipped 1.9 percent. STX Pan Ocean Co., South Korea’s No. 1
bulk-shipping company, slumped 15 percent after a court accepted its
application to seek protection. Sony Corp. (6758) climbed 4.5 percent in
Tokyo after Third Point LLC, a hedge fund controlled by billionaire
Daniel Loeb,
increased its stake in the electronics maker. The MSCI Asia Pacific Index fell 0.3 percent to 132.02 as
of 12:43 p.m. in Tokyo, reversing earlier gains of as much as
0.3 percent. About six shares dropped for every five that rose
on the gauge.
- Sinking Spain Deposit Yields Push Cash Into
Funds: Euro Credit. A plunge in Spanish deposit yields is starting to
push savings into investment funds, threatening to work against
government efforsts to spur banks to lend.
- Obama Says Bernanke Fed Term Lasting ‘Longer Than He Wanted’. President
Barack Obama said Federal Reserve Chairman Ben S. Bernanke has stayed
in his post “longer than he wanted,” one of the clearest signals the
central bank chief will leave when his current term expires next year. “Ben Bernanke’s done an outstanding job,” Obama said in
an interview with Charlie Rose that airs tonight, when asked
about nominating him for another term subject to Senate
approval. “He’s already stayed a lot longer than he wanted or
he was supposed to.”
- Copper Drops on Concern U.S. May Cut Stimulus, China Slowdown. Copper declined for a second day on
concern that the U.S. Federal Reserve may scale back stimulus
measures and that further signs of slowdown in China, the
biggest user, will curb demand for the metal.
Copper for delivery in three months fell as much as 0.5
percent to $7,047.50 a metric ton on the London Metal Exchange
and was at $7,068.25 at 10:48 a.m. in Shanghai. Earlier it
gained as much as 0.7 percent.
- Rubber Poised for Record Glut as Shippers End Curbs: Commodities. Rubber is headed for the biggest
glut on record, prolonging the bear market that began in April,
as supply exceeds demand for a third year and Southeast Asian
exporters ended curbs on shipments. The surplus will expand 57 percent to 490,000 metric tons
this year, enough to meet U.S. demand for six months, according
to RCMA Commodities Asia Group, the Singapore-based company that
has traded rubber for nine decades. Futures in Tokyo, a global
benchmark, will drop at least another 5.1 percent to 225 yen a
kilogram ($2,376 a ton) by the end of December, according to the
median of 16 analyst estimates compiled by Bloomberg. Five
anticipate 200 yen, a price last seen in 2009.
Wall Street Journal:
- Putin and Obama Clash Over Assad's Fate. Syria at Center of G-8 Summit, as Western Leaders Press Russia; 'Terror in Europe's Backyard,' Syrian President Warns.
President Barack Obama and Russian counterpart Vladimir Putin clashed
openly over Syria as world leaders began a summit here Monday,
sharply underscoring deepening differences over the civil war.
- China Wrestles With Banks’ Pleas for Cash. China's
big banks are urging the central bank to free up funds to ease an
unusual cash squeeze, as Beijing faces a stark choice: add money to the
financial system to help lenders, or stay the course to rein in a rapid
expansion of credit.
Fox News:
- NSA chief Alexander to testify on classified leaks in rare public hearing. National Security Agency chief Gen. Keith Alexander will address the
House intelligence committee on Tuesday in a rare public hearing that
could shed new light on the scope of the federal government’s classified
phone and Internet surveillance programs. The session involving two of Washington’s most secretive bodies comes
as an NSA leaker, former contractor Edward Snowden, threatens to
reveal more government secrets from his hiding spot in Hong Kong.
- Lawmakers urge caution on US intervention in Syria. Sending Syria arms and aid and possibly more is a commitment that
could haunt the U.S. for years to come, according to some Washington
lawmakers. They are cautioning the Obama administration to carefully
consider history, a still-fragile U.S. economy and the need to develop a
clear end-strategy before agreeing to help fight and fund a civil war
6,000 miles away. “What is the plan? Where are we going in Syria? And what do you want
to accomplish?” House Intelligence Committee Chairman Mike Rogers asked
Sunday. The voices of caution are emerging after the administration agreed to
provide small arms to the rebels, citing evidence that the regime of
President Bashar al-Assad had used chemical weapons.
MarketWatch.com:
- Second-quarter profit warnings target record. Companies will close their books on the second quarter in two weeks,
and so far, the number of S&P 500 companies that have issued
earnings guidance below consensus analyst estimates is running higher
than normal. As of Friday, Thomson Reuters said it’s counted 96 negative EPS
announcements vs. 14 positive announcements, putting the running
negative-to-positive ratio at 6.9. That would be the most negative on
record, if it persists into the start of earnings season.
CNBC:
- Big Bond Bear Lurks, but Companies Still Love Debt. Despite the doom and gloom surrounding fixed income, debt issuance has
been at record levels through the year, with no signs of pullback,
particularly from companies looking to cash in on still-cheap money. Globally, corporate bond issuance has hit $853.8 billion so far
this year, up 15 percent from the same period in 2012, according to the
latest figures from Dealogic. Of particular note is the size of the deals: an average of $780 million in the U.S, a gain of 14 percent from last year. This has come even though bond funds have suffered through consecutive
weeks of record outflows. Investors pulled $14.4 billion out of all
fixed income funds last week, according to Citigroup, as part of a trend
likely to see a record in June for bond exits.
- G-8 Says World Economic Prospects Still Weak. The euro zone came under pressure from other rich economies on Monday to
press on with a banking union and Japan was urged to follow up on
massive central bank stimulus with structural reforms and measures to
tackle its budget deficit.
Zero Hedge:
- What The Fed Is Looking At. So
once again we ask - given all of this 'weakness' or missing of Fed
benchmarks- that the Fed is well aware of, why would so many members
have been out discussing 'Taper' if it were not due to their concerns of
broken markets and bubble conditions.
Business Insider:
Reuters:
Kyodo:
- Merkel critical of Japan's credit policy in meeting with Abe. German Chancellor Angela Merkel apparently criticized Japan for its
credit-easing policy that led to the yen's sharp depreciation against
major currencies earlier this year, when she met with Japanese Prime
Minister Shinzo Abe on Monday. Merkel raised the issue of foreign exchange in the meeting and
indicated current circumstances surrounding foreign exchange rates could
harm the global competitiveness of cheap labor countries, a Japanese
official told reporters. Abe dismissed the criticism saying that his government was in no
position to do anything about currency movements, the official
indicated. Merkel also asked Abe to explain how he intended to deal with the
country's snowballing fiscal deficit in the meeting on the sidelines of a
summit of the Group of Eight major nations in Northern Ireland, Deputy
Chief Cabinet Secretary Katsunobu Kato said.
Digitimes:
- Asustek
Cuts 2Q Laptop, Tablet Shipment Target. Co. sees laptop and tablet
shipments in 2Q to be 10% fewer than those in the previous quarter,
citing CFO David Chang. Chang said 2Q sales may be NT$90b-95b.
China Securities Journal:
- China
Interbank Liquidity May Be Tight to July. China's interbank market
liquidity may continue to be tight until the beginning of July,
according to a commentary by reporter Wang Hui. The commentary cited a
low likelihood of central bank intervention and relatively fewer
maturing short-term open market instruments over the next few weeks.
Evening Recommendations
Night Trading
- Asian equity indices are -.5% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 131.0 -4.0 basis points.
- Asia Pacific Sovereign CDS Index 105.25 -2.5 basis points.
- NASDAQ 100 futures +.10%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Consumer Price Index for May is estimated to rise +.2% versus a -.4% decline in April.
- The CPI Ex Food & Energy for May is estimated to rise +.2% versus a +.1% gain in April.
- Housing Starts for May are estimated to rise to 950K versus 853K in April.
- Building Permits for May are estimated to fall to 975K versus 1017K in April.
Upcoming Splits
Other Potential Market Movers
- The Obama/Merkel meeting, German ZEW Index, BoE inflation report, Japan Trade Balance report, weekly retail sales reports, RBC Mining/Materials Conference, Wells Fargo Health Care Conference, Jefferies Consumer Conference, (UTX) analyst meeting, (PRU) investor day and the (BLK) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% 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: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 81.0 -28.32%
- Total Put/Call .96 -18.64%
Credit Investor Angst:
- North American Investment Grade CDS Index 82.42 -1.92%
- European Financial Sector CDS Index 153.94 -3.57%
- Western Europe Sovereign Debt CDS Index 89.50 +.64%
- Emerging Market CDS Index 318.51 +7.0%
- 2-Year Swap Spread 16.25 +.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -11.75 +.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- China Import Iron Ore Spot $115.0/Metric Tonne +1.23%
- Citi US Economic Surprise Index -14.0 +15.7 points
- 10-Year TIPS Spread 2.05 -1 bp
Overseas Futures:
- Nikkei Futures: Indicating +39 open in Japan
- DAX Futures: Indicating -17 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/medical/retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and then covered some of them
- Market Exposure: 50% Net Long
Bloomberg:
- China Policy Bank Cuts Bond Sale Goal by 31% Amid Crunch. Agricultural
Development Bank of China Co. scaled back the size of two bond
offerings tomorrow by 31 percent as the worst cash crunch in at least
seven years curbs demand for the securities. The Beijing-based
policy bank said it will sell up to 8 billion yuan ($1.3 billion) of
three-year notes, down from 13 billion yuan previously, according to a
statement on ChinaBond, the nation’s biggest debt clearing house today.
An issue of five-year debt was reduced to 10 billion yuan from 13
billion yuan. The lender has options for each tenor that would allow the
original issuance targets to be met, the statement said. The seven-day
repurchase rate, a gauge of interbank funding
availability, has averaged 6.03 percent in June, the most since
the National Interbank Funding Center began compiling a weighted
average in 2006.
- European Stocks Advance as Investors Weigh Fed Policy.
European stocks rose to a one-week
high, rebounding from their longest streak of weekly losses in
14 months, as investors awaited this week’s Federal Reserve
meeting for signs on the pace of stimulus reduction. Telefonica SA
(TEF), Europe’s most indebted telephone company, climbed 2.4 percent
after a report that AT&T Inc. had been keen to acquire the company.
ABB Ltd. (ABBN) advanced 2.6 percent after the world’s largest supplier
of power grids named a new chief executive officer. Saipem SpA plunged
to a four-year low after cutting its 2013 guidance for the second time
in six months. The Stoxx Europe 600 Index rose 0.7 percent to 293.25 at
the close, for the first back-to-back gains this month.
- Calpers Commodity Holdings Declined 5.5% in April to $1.214B. The California Public Employees’
Retirement System, the largest U.S. pension fund, reported the
value of its commodity holdings fell 5.5 percent in April from
the previous month. The fund held $1.214 billion in commodities as
of April 30,
the most-recent data available, or 0.5 percent of the total assets
listed at $263.944 billion, according to a monthly report posted on the
fund’s website for today’s investment committee meeting. That’s down
from $1.284 billion on March 31, or 0.5 percent of total assets of
$257.395 billion. Commodities were the worst-performing asset class in the
portfolio during the 12 months through April, dropping 9.8
percent, according to the report. All other asset groups
increased, with a total fund return of 13.4 percent.
Wall Street Journal:
- Snowden Says Obama’s Failed Promises Motivated Leaks. In response to a reader question about the president, Mr. Snowden wrote: “Obama’s campaign promises and election gave
me faith that he would lead us toward fixing the problems he outlined
in his quest for votes. Many Americans felt similarly. Unfortunately,
shortly after assuming power, he closed the door on investigating
systemic violations of law, deepened and expanded several abusive
programs, and refused to spend the political capital to end the kind of
human rights violations like we see in Guantanamo, where men still sit
without charge.’’
- U.K. Prosecutors Likely to File Libor-Manipulation Charges.
British prosecutors plan to file criminal fraud charges against
former UBS AG and Citigroup Inc. trader Tom Hayes for allegedly trying
to manipulate benchmark interest rates, according to people familiar
with the plans. The planned charges, which could be filed by the U.K.'s Serious Fraud
Office as soon as Tuesday in London, represent the first effort by
British authorities to seek criminal penalties against someone they
allege was involved in manipulation of the London interbank offered
rate, or Libor.
- Ford(F) to Add Back Dashboard Buttons After Complaints. Ford Motor Co. is going back to buttons and knobs. Punished
by third-party quality reports because of the difficulty of using its
touch-screen multimedia system, called MyFord Touch, the auto maker will
reprise
tuning and volume knobs for the radio as it redesigns existing models, a
top Ford executive said. It is a reversal for Ford, which has been a first-mover with
installing mobile-phone-based technologies, voice recognition and touch
screens in its vehicles. The systems have been a big selling point for
Ford with its vehicles, but also have dragged down its reputation for
quality.
- Economists Wary as Fed's Next Forecast Looms.
The Wall Street Journal's monthly survey of private-sector economists
shows that forecasters on average expect the economy to grow 2.3% this
year and 2.8% next year. The Fed is more optimistic. Its latest growth projections, made in
March, average closer to 2.6% for 2013 and closer to 3.2% for 2014. At
the conclusion of its two-day policy meeting on Wednesday, the Fed will
release its updated projections of growth, inflation and unemployment.
Fox News:
- IRS supervisor in DC scrutinized Tea Party groups' cases. A Washington-based IRS supervisor acknowledged she was personally
involved in reviewing Tea Party applications for tax-exempt status as
far back as 2010, Fox News confirms -- a detail that further challenges
the agency's initial claim that the practice of singling out those
groups was limited to a handful of employees in Ohio.
CNBC:
- Bank of America(BAC) Paid Bonuses to Foreclose: Lawsuit. Bank of America routinely denied qualified borrowers a chance to modify their loans to more affordable terms and paid cash bonuses to bank staffers for pushing
homeowners into foreclosure, according to affidavits filed last week in
a Massachusetts lawsuit.
- Deals for Industries, Immigrants Tucked in Senate Bill. Foreign retirees could live in the United States for longer periods
each year if they agree to make hefty cash investments in real estate.
Overseas snowboard instructors could enter the USA under visas now
reserved for athletes, and beach resorts could hire more lifeguards and
groundskeepers from abroad. The massive immigration overhaul
working its way through the Senate is peppered with benefits like these
for specific industries and immigrant groups — even as it aims to tackle
three core policy objectives: creating a path to citizenship for 11
million immigrants in this country illegally, strengthening border
security and increasing enforcement of laws that guard against the
employment of undocumented workers.
Zero Hedge:
Business Insider:
Reuters:
Financial Times:
- European Car Market Won't Grow Until 2019, Study Shows. Car sales
in western Europe to drop to 12m in 2014 from 13.2m last yr, citing a
report from AlixPartners. Europe will need to cut capacity by >2m
vehicles by 2019 to have sustainable level of use. 42 of 100 biggest
auto plants in Europe will be running at >75% capacity this yr vs
60 in 2011.
- Fed likely to signal tapering move. Ben
Bernanke is likely to signal that the US Federal Reserve is close to
tapering down its $85bn-a-month in asset purchases when he holds a press
conference on Wednesday, but balance that by saying subsequent moves
depend on what happens to the economy.
Telegraph:
Bild-Zeitung:
- Balancing Germany's federal budget takes priority over additional
spending in next legislature, CSU head and Bavarian Prime Minister
Horst Seehofer said.
Valor:
- Brazil Govt Sees Serious Confidence Crisis. Govt recognizes that
Brazilian and overseas investors continue to lack confidence in the
country. Changing economic policy is no longer enough to regain
confidence. Members of govt see need for President Dilma Rousseff to
announce commitment to strengthen public accounts. Finance Minister
Guido Mantega and Treasury Secretary Arno Augustin have had images
tarnished by series of artifices used to reach fiscal targets. Govt
expects effect of real's decline on prices in Brazil to be small for 4
reasons: GDP growth below expectations in 2013, tightening monetary
policy, which tends to discourage price adjustments, falling commodities
prices and reduced indexation of rates for energy/telecoms to exchange
rate.
Echoing fears that
European policymakers remain in a state of cognitive dissonance –
recognizing the need for root-and-branch overhaul of peripheral banks,
but backtracking on joint liability plans – Christopher Flowers, the
legendary FIG investor who now runs the £2.3 billion ($3.5 billion)
private equity group JC Flowers, sounded the alarm over the negative
sovereign-bank feedback loop.
In a shot across the bows of market bulls, who cite the return of
capital flows to weaker eurozone states, Flowers issued a stark warning:
"There is a scenario where we have a Lehman-type event: we wake up some
Thursday and a big country is in trouble.
"And the ECB will have to decide to support banks x, y, z. And then the
ECB will, in fact, decide to own bank x, y, z.
While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true
CaixinOnline:
Style Underperformer:
Sector Underperformers:
- 1) Biotech -.46% 2) Road & Rail -.36% 3) Gold & Silver -.35%
Stocks Falling on Unusual Volume:
- TEX, MDVN, ANAC, SA, IRE, TWC, LINE, MYGN, SIRO, GCI, WLT, LINE, KMR, MCC, ECPG, PTR, ETE, E, GNRC, MR, CHL, BC, DD, LULU, BONT, LPNT, WABC, CASY, CFR, MITT, MLU, OXM, RXN and LNCO
Stocks With Unusual Put Option Activity:
- 1) UPL 2) CHS 3) EWJ 4) TEX 5) WLT
Stocks With Most Negative News Mentions:
- 1) GM 2) BIDU 3) CMG 4) AXP 5) CLF
Charts:
Style Outperformer:
Sector Outperformers:
- I-Banking +2.09% 2) Internet +1.88% 3) Homebuilders +1.76%
Stocks Rising on Unusual Volume:
- CRZO, NFLX, IRBT, DWA, MU and PTY
Stocks With Unusual Call Option Activity:
- 1) KR 2) TEX 3) TWC 4) AVNR 5) MYL
Stocks With Most Positive News Mentions:
- 1) COF 2) MRVL 3) SHLD 4) TIBX 5) CRZO
Charts:
Weekend Headlines
Bloomberg:
- Natto Makers to Public Baths Suffer in Abenomics Divide. Almost everything Mikio Matsushita’s
factory near Tokyo needs to produce natto is imported, from the soybeans used in the fermented Japanese snack to the polystyrene
trays in which they’re packaged. The reliance on imports, combined with the domestic market
focus for the quintessentially Japanese product, puts Matsushita
on the losing end of government policies that aid heavy
exporters by weakening the country’s currency. Expenses have
surged for Matsushita’s company as the yen’s slide boosts its costs for
beans grown in China and North America. The fuel it uses to steam the
beans and for the natto’s polystyrene packaging, both petroleum products
derived from
imported crude, have also gotten more expensive.
- Singapore Exports Fall More Than Estimated on Electronics Slump. Singapore’s exports fell more than economists estimated in May as
manufacturers shipped fewer electronics after an uneven global recovery
hurt demand. Non-oil domestic exports slid 4.6 percent from a year
earlier, after falling 1 percent in April, the trade promotion agency
said in a statement today. The median of 10 estimates in a Bloomberg
News survey was for a 0.2 percent drop. Shipments of electronics dropped
13.2 percent from a year ago, extending the slump to a 10th month.
- China’s Stocks Fall, Led by PetroChina, Anhui Conch Cement.
China’s stocks fell, led by material producers, on concern a deeper
economic slowdown would curb demand for commodities and
construction-related products. PetroChina Co. dropped 0.8 percent to a
record low after
BNP Paribas SA cut its share-price estimate for the nation’s
largest energy producer. Anhui Conch Cement Co., the biggest
producer of the building material, slumped to a nine-month low. China
Everbright Bank Co. and New China Life Insurance Co. climbed more than 2
percent after state-owned Central Huijin Investment Co. boosted its
stakes in the companies. The Shanghai Composite Index (SHCOMP) lost 0.3 percent to 2,155.26
at 9:46 a.m. local time, dropping for a ninth time in 10 days.
- Asian Stocks Climb While Yen Drops on FOMC; Corn Declines. Asian stocks rose and the yen
retreated after its biggest weekly climb in four years as
investors awaited this week’s Federal Reserve meeting and
weighed prospects of reduced economic stimulus. Corn declined
and natural gas rallied.
The MSCI Asia Pacific Index (SPGSCI) of equities climbed 0.7 percent
to 131.67 at 11:42 a.m. in Tokyo, as Japan’s Topix index added
1.3 percent.
- Italian Bonds Fall 6th Week Amid Fed Concern; German Bunds Gain. Italian government bonds fell for a
sixth week, the longest losing streak in a year, amid concern
the Federal Reserve will slow its asset-purchase program that has boosted higher-yielding securities around the world. Italy’s 10-year yields climbed to the highest level in two months after a report showed gross domestic product shrank more
than initially reported last quarter. Portuguese and Greek bonds
also dropped this week after European Central Bank President
Mario Draghi said debt purchases will only be used when prices
are out of line with fundamentals. German bunds rose as
speculation central banks will remove stimulus pushed down
stocks and boosted demand for the region’s safest securities.
- Bond
Rally Leaves HSBC Wary of Economic Recovery: Euro Credit. A rally that
makes euro-region bonds the best-performing sovereign securities this
year leaves debt burdens for the weakest economies unimproved and masks
the need for further economic reforms, HSBC Holdings Plc predicts.
Greek, Spanish and Irish bonds have had the highest returns this year
among 26 markets tracked by Bloomberg and the European Federation on
Financial Analysts Societies. Even so, those gains are not translating
into economic recovery.
- Istanbul Police Escalate Crackdown as Erdogan Rallies Supporters. Police
in Istanbul stepped up their attacks on protesters, detaining hundreds
amid some of the worst violence this month, as Prime Minister Recep
Tayyip Erdogan told a mass rally a few kilometers away that those behind
the unrest will be made to pay. The clashes spread in all directions
out of Taksim Square yesterday, a day after police moved in to clear
demonstrators
out of Gezi Park where they had been camping out to oppose a
development plan. Late yesterday, police were firing tear gas
along side streets off the square and nearby districts, beating
and arresting protesters. The Istanbul Bar Association said 350
were detained, according to Hurriyet daily. Scattered and
bedraggled groups of demonstrators sought to escape or regroup
and head back toward Taksim as a thunderstorm lashed the city.
- Rigged Benchmark Probes Proliferating From Singapore to London. The probe of Libor manipulation is proving to be the tip of the
iceberg as inquiries into assets from derivatives to foreign exchange
show that if there’s a chance to rig benchmark rates in world markets,
someone is usually willing to try. Singapore’s monetary authority
last week censured 20 banks for attempting to fix interest rate levels
in the island state and ordered them to set aside as much as $9.6
billion. Britain’s markets regulator is looking into the $4.7
trillion-a-day currency market after Bloomberg News reported that
traders have manipulated key rates for more than a decade, citing five
dealers.
- Hedge Funds Cut Gold Bets as Paulson’s Loss Widens: Commodities.
Hedge funds cut wagers on a gold rally for the first time in three
weeks on mounting speculation central banks will curb record stimulus
and as this year’s slump in bullion spurred losses for billionaire John
Paulson. The funds and other large speculators lowered their net-long
position by 4.1 percent to 54,779 futures and options by June 11, U.S.
Commodity Futures Trading Commission data show. Net-bullish wagers
across 18 U.S.-traded commodities rose 0.1 percent. Bearish copper bets
more than doubled as the metal had
its longest slump since November. Cocoa holdings advanced to the
highest since 2008 before the biggest weekly slide since January.
- Record Soybean Glut Is Seen Worsening as China’s Appetite Eases.
Soybean imports by China, the biggest buyer, may be lower than official
U.S. forecasts, deepening a glut and weighing down prices as global
reserves are set to reach a record. Inbound shipments will be 63 million
metric tons in the 12 months starting Oct. 1, less than the U.S.
Department of Agriculture’s June 13 projection of 69 million tons,
according to the median of 14 estimates of China-based crushers and
researchers by Bloomberg. Soybeans, which rose to a record $17.89 a
bushel in Chicago during the 2012 drought in the U.S., slumped 14
percent this month and are in a bear market along with corn and wheat.
Wall Street Journal:
- West to Press Iran on Nukes. Plan to Seek Resumed Talks by August After Surprise Election of Centrist President. The Obama administration and its European allies—surprised and
encouraged by Hassan Rohani's election as Iran's next president—intend
to aggressively push to resume negotiations with Tehran on its nuclear
program by August to test his new government's positions, U.S. and
European diplomats say.
- Smithfield(SFD) Pressed to Carve Itself Up. A
major Smithfield Foods Inc. investor is pressuring the company to
explore a breakup rather than follow through with its planned takeover
by a Chinese meat producer, according to a letter reviewed by The Wall
Street Journal. In
a letter to the Smithfield board, expected to be delivered by Monday,
activist investment fund Starboard Value LP says it has taken a 5.7%
stake in the world's largest hog farmer and pork processor and urges the
company to consider splitting up.
- Emerging-Market Fund Exodus Grows. Investors
continued to pull money out of emerging-market bond and equity funds on
increasing concerns about a tapering of the Federal Reserve's
bond-buying program. Investors continued to pull money out of emerging-market bond and
equity funds on increasing concerns about a tapering of the Federal
Reserve’s bond-buying program. During the week ended June 12, mutual-fund and ETF managers pulled
out $8.9 billion in total, said data provider EPFR Global. This adds to
the nearly $6 billion in outflows the previous week, bringing the total
selling of emerging-market assets to nearly $15 billion. The outflows were the second highest on record, with $2.53 billion in
net unwinding. These assets have seen a sharp fall in value after weeks
of continued selloff in emerging-market currencies and bonds.
Fox News:
- Iran reportedly preparing to send 4,000 troops into Syria.
Iran reportedly is preparing to send 4,000 Revolutionary Guard
soldiers to Syria to defend President Bashar Assad's regime, as the
United States intends to supply rebels with small arms through a CIA-run
program. Pro-Iranian sources deeply involved with Iran's security told
The Independent that the decision to move soldiers into Syria was made
before last week's presidential election.
CNBC:
- Genome Research Benefits Growing and Getting Cheaper. The ruling by the U.S. Supreme Court this week that human genes cannot
be patented comes a decade after the Human Genome Project was completed
to much fanfare, and people might be forgiven for wondering what the
fuss was about. After all, where are the miraculous benefits?
Business Insider:
New York Times:
- Faltering Economy in China Dims Job Prospects for Graduates. A
record seven million students will graduate from universities and
colleges across China in the coming weeks, but their job prospects
appear bleak — the latest sign of a troubled Chinese economy. Businesses
say they are swamped with job applications but have few positions to
offer as economic growth has begun to falter. Twitter-like microblogging
sites in China are full of laments from graduates with dim prospects. The Chinese government is worried, saying that the problem could affect
social stability, and it has ordered schools, government agencies and
state-owned enterprises to hire more graduates at least temporarily to
help relieve joblessness. “The only thing that worries them more than an
unemployed low-skilled person is an unemployed educated person,” said
Shang-Jin Wei, a Columbia Business School economist.
MercuryNews.com:
- Is Bay Area housing bubble back? It seems
absurd, but a few short years after the biggest home price crash in
memory, soaring prices are stoking fears -- or at least stirring talk --
that another housing bubble is forming in the Bay Area. That has some buyers skittish and others dropping out of a market that favors cash offers and whopping over-asking-price bids. "It's
back to the bubble," said Janine Epstein, a San Jose schoolteacher who
is having trouble finding a condominium or townhouse she can afford.
Washington Post:
- Document: Major resources needed for Obama Africa trip. When President Obama goes to sub-Saharan Africa this month, the
federal agencies charged with keeping him safe won’t be taking any
chances. Hundreds of U.S. Secret Service agents will be dispatched to secure
facilities in Senegal, South Africa and Tanzania. A Navy aircraft
carrier or amphibious ship, with a fully staffed medical trauma center,
will be stationed offshore in case of an emergency.
Military
cargo planes will airlift in 56 support vehicles, including 14
limousines and three trucks loaded with sheets of bulletproof glass to
cover the windows of the hotels where the first family will stay.
Fighter jets will fly in shifts, giving 24-hour coverage over the
president’s airspace, so they can intervene quickly if an errant plane
gets too close. The elaborate
security provisions — which will cost the government tens of millions of
dollars — are outlined in a confidential internal planning document
obtained by The Washington Post. While the preparations appear to be in
line with similar travels in the past, the document offers an unusual
glimpse into the colossal efforts to protect the U.S. commander in chief
on trips abroad.
Reuters:
- French Socialists call for weaker euro, eased EU budget rules. France's
ruling Socialists called on Sunday for a weaker euro and changes to EU
rules on budget deficits, accusing the centre-right governments of
Britain and Germany of creating economic hardship across the European
Union. At a conference on Europe, Francois Hollande's party adopted a
policy paper that toned down earlier attacks on German Chancellor Angela
Merkel, providing some relief to the French president as he seeks to
ease tensions with Berlin. "Right-wingers have ruined Europe and
thrown Europeans into precariousness," read the preamble to the 13-page
policy paper which seeks to woo voters ahead of European Parliament
elections in early 2014 where Eurosceptic and far-left and far-right
parties are expected to make gains.
Financial Times:
- Bid to relaunch synthetic CDO unravels. An
attempt by two big Wall Street banks to revive notorious credit
boom-era securities blamed for exacerbating the global financial crisis
has failed after investors balked at buying some of the derivatives on
offer. JPMorgan Chase(JPM) and Morgan Stanley(MS) have scrapped a
plan to sell “synthetic collateralised debt obligations” – sliced and
diced pools of credit derivatives – after failing to find investors
willing to take on all of the deal’s different pieces.
- G8 dispute breaks out on Syria arms. An international row has broken out on the eve of the G8 summit over arming of both sides in Syria’s civil war. President
Vladimir Putin bluntly warned the US and its allies not to arm
opposition rebels in Syria, reasserting Russia’s uncompromising support
for Bashar al-Assad’s regime and declaring that Moscow backs the
country’s “legitimate”
government.
Telegraph:
Der Spiegel:
- German unemployment rate will rise to 6.9% in 2013, 7.0% in 2014, citing a study from DIW economic institute.
FD:
- The Netherlands sees no role for IMF in future European aid
programs after crisis and current programs have ended, citing Dutch
Finance Minister Jeroen Dijsselbloem.
Folha de S. Paulo:
- Aides to Brazil President Dilma Rousseff see currency depreciation as one of the main
concerns because it may affect inflation and lead the central bank to
increase benchmark interest rates more than planned, citing the aides.
People's Daily:
- China Shouldn't Pursue Growth of Over 8%. Chinese growth of more
than 8% may lead the Asian nation into overcapacity, inflationary
pressure and bubbles, citing Cai Fang, director of the Institute of
Population and Labor Economics under the Chinese Academy of Social
Sciences, as saying.
- China Gov't Spending Curb Won't Harm
Economy. The stable consumer demand won't be affected by government
spending curbs, according to a front-page commentary written by an
unidentified reporter. The Communist Party's rules on limited government
spending aim to control "artificially" high consumption demand.
Governments at all levels should firmly implement the rules even if some
industries will be affected in the short-term, according to the commentary.
Weekend Recommendations
Barron's:
- Bullish commentary on (AMD), (EMN) and (AMGN).
Night Trading
- Asian indices are unch. to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 135.0 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 107.75 -5.5 basis points.
- NASDAQ 100 futures +.42%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Empire Manufacturing for June is estimated to rise to 0.0 versus -1.43 in May.
10:00 am EST
- The NAHB Market Index for June is estimated to rise to 45.0 versus 44.0 in May.
Upcoming Splits
Other Potential Market Movers
- The G-8 Meetings, India rate decision, RBA minutes, China Home Price data and the (DDD) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and consumer staple shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the week.
