Today's Market Take:
Broad Equity Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Mixed
- Volume: Slightly Above Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 18.37 -10.35%
- Euro/Yen Carry Return Index 133.78 -.21%
- Emerging Markets Currency Volatility(VXY) 11.81 -.51%
- S&P 500 Implied Correlation 56.17 -5.04%
- ISE Sentiment Index 74.0 +80.49%
- Total Put/Call 1.17 -15.22%
Credit Investor Angst:
- North American Investment Grade CDS Index 93.93 +.98%
- European Financial Sector CDS Index 180.56 +4.0%
- Western Europe Sovereign Debt CDS Index 95.0 +1.06%
- Emerging Market CDS Index 377.77 +1.56%
- 2-Year Swap Spread 20.0 +1.75 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -13.0 -.5 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- Yield Curve 216.0 +10 bps
- China Import Iron Ore Spot $118.60/Metric Tonne -1.66%
- Citi US Economic Surprise Index -12.0 +.9 point
- Citi Emerging Markets Economic Surprise Index -43.70 +1.1 points
- 10-Year TIPS Spread 1.94 -3 bps
Overseas Futures:
- Nikkei Futures: Indicating +230 open in Japan
- DAX Futures: Indicating +43 open in Germany
Portfolio:
- Slightly Lower: On losses in my emerging markets shorts and tech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 25% Net Long
Bloomberg:
- Asian Currencies Tumble Most in 21 Months.
India’s rupee touched a record low and Malaysia’s ringgit had its worst
week in three years after Bernanke said June 19 that $85 billion a
month of debt purchases, known as quantitative easing, may be trimmed
this year and ended in 2014 as long as the U.S. economy performs in line
with Fed estimates. The Bloomberg-JPMorgan Asia Dollar Index (ADXY),
which tracks the region’s 10 most-active currencies, dropped 1.1
percent since June 14 to 115.51 as of 5 p.m. in Hong Kong, the biggest
decline
since Sept. 23, 2011. The rupee retreated 3.1 percent to 59.3600
per dollar, the ringgit fell 2.7 percent to 3.2 and the
Philippine peso lost 2.1 percent to 43.735.
- Japan Government Pension Fund Says Holdings Close to Target. Fund
President Takahiro Mitani spoke in a Tokyo interview. "Very difficult"
for Japan to reach 2% inflation target. Doesn't plan to change
allocation of foreign currencies. No further discussions this year on
allocations, MItani said.
- Minsky Moment Alarm Sounded in China: Cutting Research. China may be approaching a “Minsky
moment” -- a sudden fall in asset values bloated by credit. Credit
growth in the world’s most populous country has
outstripped economic expansion for five quarters, raising the
question of where the money has gone, Societe Generale SA (GLE)
economist Yao Wei wrote in two recent reports. In the first quarter, for
example, bank loans, shadow banking credit and corporate bonds together
accelerated more than 20 percent year-over-year, while gross domestic
product grew less than half that
much. The gap has been widening since early 2012. Yao says the answer to
where the money is going is a
growing “debt snowball” which doesn’t contribute to economic
activity. The result is both companies and the public sector
face burgeoning interest expenses.
- Stress Test for Banks Inflicting Collateral Damage: China Credit. China’s decision to tolerate the
worst cash crunch on record is evolving from a stress test of
banks into a threat to the ability of companies to raise funds. As
their overnight borrowing costs neared 13 percent, banks switched focus
toward shoring up their own finances and slashed investments in the bond
market they dominate. The one-year yield on AAA corporate debt jumped a
record 121 basis points this month to 5.15 percent, ChinaBond indexes
show. Bond sales slumped to 157.9 billion yuan ($26 billion) in June,
the least
in 17 months and down 57 percent from May, data compiled by
Bloomberg show.
- EU Battles Over Rules on Investor Losses When Banks Fail. European
Union finance ministers are
battling in Luxembourg over how they’ll set rules for assigning losses
when banks fail. The new rules will set standards for how to prop up or
shut down failing banks, along with requirements for the kind of
backstops each country must have in place. During staff-level
talks this afternoon, nations were considering requiring a
certain level of losses on bank creditors before they could
shield specific investors from writedowns, according to two EU
officials.
- Credit Risk Rises for Fifth Week in Europe. The cost of insuring European
company bonds against losses headed for a fifth weekly increase
as the Federal Reserve confirmed it will slow asset purchases if
the economy continues to strengthen. The Markit iTraxx Europe Index of credit-default swaps on
125 companies with investment-grade ratings climbed 13 basis
points to 123, the longest rising streak since the week ending
Aug. 26, 2011, according to data compiled by Bloomberg. The
average yield investors demand to hold European corporate bonds
rose 15 basis points to a four-month high of 2.19 percent, Bank
of America Merrill Lynch index data show. “The market has been addicted to liquidity injections
through quantitative easing,” said Geraud Charpin, a fund
manager at Bluebay Asset Management Ltd. in London which
oversees $55 billion. “Just the mere thought of reducing the
dose makes people feel a bit sick. We are seeing withdrawal
symptoms.” The Markit iTraxx Crossover Index of default swaps on 50
high-yield companies also rose for a fifth week, climbing 45
basis points to 496, the biggest weekly increase since March 22.
An increase signals deterioration in perceptions of credit
quality. The Markit iTraxx Financial Index linked to senior debt of
25 banks and insurers rose 20 basis points to 179, while the
subordinated index climbed 35 basis points to 271.
- Brazilian Revolt Claims Second Life as Violence Erupts. (video) Brazil’s
swelling street rebellion claimed its second fatality in the largest
and most violent protests yet, as 1 million demonstrators rallied for
better public services and an end to corruption. Marches took place in hundreds of cities across Brazil last night in
what began as a peaceful protest. Violence later erupted with police
battling mobs trying to storm the Foreign Relations Ministry in Brasilia
and Rio de Janeiro’s city hall.
- Emerging Stocks Set for Biggest Weekly Loss in 13 Months. Emerging-market stocks were poised
for the steepest weekly tumble in 13 months, bonds retreated and
South Korea’s won led declines in currencies amid speculation
the Federal Reserve will pare economic stimulus. The MSCI Emerging Markets Index fell 0.9 percent to 900.06
at 1:25 p.m. in New York, extending its weekly drop to 5.6
percent. It’s down 17 percent from its Jan. 3 high. Poland’s WIG20
index sank to the lowest since Aug. 30, while Brazil’s Ibovespa (IBOV)
was set for a four-year low. The won posted the biggest weekly slump in
21 months. The extra yield investors demand to
own emerging-market debt over U.S. Treasuries rose 0.3
percentage point this week to 347 basis points, according to
JPMorgan Chase & Co.’s EMBI Global Diversified Index.
- Crude Falls for Third Day as Dollar Rises on Fed.
West Texas Intermediate crude fell
to a two-week low as the dollar rose on expectations the Federal Reserve
will trim its monthly bond purchases in September and on concern that
China’s cash squeeze may curb its economic growth. “The dollar
strength is definitely weighing on prices,” said John Kilduff, a partner
at Again Capital LLC, a New York-based hedge fund that focuses on
energy. “Crude oil is coming
down because the Fed is reducing its support. There is a lot of
concern over the situation in China and this potential
disruption within China’s banking system.” WTI for August delivery dropped $1.91, or 2 percent, to
$93.
CNBC:
- What's Really Behind China's Cash Crunch. When it comes to the economy, China's policy makers have often been
criticized for a heavy-handed approach, stepping in at the first signs
of trouble. That makes the reluctance by the central bank to pump in
cash and alleviate a credit squeeze for local lenders highly
significant, analysts say. "There is a sea change taking
place in China," said David Mann, the head of regional research for Asia
at Standard Chartered Bank in Singapore. "The reluctance to intervene
in the money markets, the tolerance of a lower rate of growth, it's all
part of the same story of China trying to secure a better long-term
outlook for the economy."
Zero Hedge:
- The Party Is Over. The Fed came out and said as clearly as any Fed has ever said; "We are going to unwind the trade."
Business Insider:
- The ETF Market Kind Of Broke Yesterday. Kauffman said that the problem with ETFs was that they end up driving
the price of the underlying assets that make them up. The actual value
of the asset ceases to matter as the activity of the ETF takes it over. That, Kauffman said, could cause what we saw yesterday — "failure to
settle" (market participants freaking completely out because they can't
get their money). Investors are starting to talk about this too.
ValueWalk:
- CTAs Suffer one of The Worst Months in Recorded History. Directional strategies are found at the bottom of the ranking. The
massive underperformance of CTAs (-5%, i.e. one of the 10 worst months
recorded since 1999) suggests that the trend reversal in Japan,
especially in the bond market, took these managers by surprise. Global
Macro suffered as a result of their long exposure to US Treasuries and
posted a very slightly negative performance (-0.05%).
Real Clear Politics:
Reuters:
- Rupee weakness affects India credit profile: Moody's. The rupee's weakness reflects domestic economic challenges, primarily a high
current account deficit and lower capital flows, but does not
significantly
impact India's foreign debt repayment capacity, Moody's told Reuters on
Friday. "Given the very low level of foreign currency debt owed by the
Indian
government, rupee depreciation does not significantly affect sovereign
debt
repayment capacity," said Atsi Sheth, vice-president of the sovereign
risk group
at Moody's Investors Service, in an e-mailed response. "However, it is a
reflection of macro-economic challenges, which do affect
the country's credit profile."
- Investors poured $4.5 bln into stock funds ahead of Fed -BofA. Investors worldwide poured
$4.5 billion into stock funds in the latest week, reversing the
prior week's outflows on expectations that the U.S. Federal Reserve would keep its bond-buying steady, data from Bank of America Merrill Lynch showed on Friday.
- Losses loom for investors enmeshed in U.S. mortgage chaos. Since
the financial crash, banks have been accused of wrongfully foreclosing
on homeowners because they failed to create and maintain proper mortgage
paperwork. Now, there are signs that chaotic document management is
harming investors in mortgage bonds, too.
MNI:
- China PBOC Tells Banks It Won't Help With Liquidity: Press. The People's Bank of China met with lenders earlier this
week to tell them it won't help ease liquidity conditions, the official Shanghai
Securities News reported Friday. The report, which cited sources from leading brokerage Shenyin Wanguo
Securities, said 18 big banks were told at a meeting Tuesday to reduce their
leverage ratios and not expect the PBOC to step in with liquidity.
Money market rates have shot up to record levels in recent days amid a
cash
squeeze that's being engineered by the PBOC to force banks to lend
responsibly. Analysts believe the central bank will have to step in
before long or risk
generating the kind of financial crisis that regulators say they are
committed
to avoiding. Notes of the meeting, which was reported by MNI on Thursday, said lenders
must cut their leverage ratios, curb bill financing activities and reduce their
loans to industries facing overcapacity. "Banks shouldn't hope that the PBOC will ease liquidity," the notes said. The newspaper also said the current interbank liquidity shortage is
temporary and structural and that a recent State Council meeting, as well as the
PBOC, underlined the government's resolve not to ease liquidity.
Telegraph:
Xinhua:
- China Vice Premier Warns Against Intl Liquidity Overflow.
Countries should improve co-ordination of macro-economic policies to
avoid global overflow of liquidity, inflation, citing Zhang Gaoli's
address to forum in St. Petersburg, Russia.
Style Underperformer:
Sector Underperformers:
- 1) Education -2.70% 2) Software -2.30% 3) Gaming -1.92%
Stocks Falling on Unusual Volume:
- ORCL, RBS, IOC, REN, C, STT, IRE, ELP, ENOC, SLF, CLMT, ING, TOT, ACRE, AHT, HLSS, AGN, KMR, KMX, PMC, LL, MGLN, VR, LZB, SGEN, BLK, SFI, WHR, C, CM, TLLP, TREX, CLFD, FBHS, WTR, PENN, CAR, DRI, WMGI, EAT, AB, ROC, MGLN, NSM, BGFV, TEX and AHT
Stocks With Unusual Put Option Activity:
- 1) AVP 2) WNR 3) WHR 4) ORCL 5) OIH
Stocks With Most Negative News Mentions:
- 1) AGN 2) ANF 3) WHR 4) SWK 5) ESI
Charts:
Style Outperformer:
Sector Outperformers:
- HMOs +.98% 2) Tobacco +.85% 3) Telecom +.41%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
- 1) WU 2) SVU 3) ATML 4) DFS 5) AMGN
Stocks With Most Positive News Mentions:
- 1) LMT 2) FRX 3) SO 4) BWA 5) MS
Charts:
Evening Headlines
Bloomberg:
- China Money-Market Turmoil Poses Test for New Leaders: Economy.
China’s cash squeeze over the past two weeks is testing the management
skills of new Communist Party leaders saddled with risks from a record
credit expansion under their predecessors. The one-day repurchase rate
touched an unprecedented high of 13.91 percent yesterday, prompting
speculation the central bank was forced to pump liquidity, before diving
today by the most since 2007. Premier Li Keqiang signaled determination
to stamp out speculation funded by cheap money with a June 19 State
Council statement saying banks must make better use of existing credit
and step up efforts to contain financial risks. Any prolonged
constriction of interbank liquidity risks triggering a broader credit
crunch, further depressing an economy that’s already slowing. The
dangers add to burdens on a global recovery contending with the prospect
of reduced Federal Reserve stimulus in coming months. “It’s really hard
to deflate these things in an orderly way,” said Michael Pettis, a
finance professor at Peking University in Beijing. “The problem is that
when debt levels
have got so high, and it’s more debt that keeps the existing
debt afloat, you absolutely have to stop the process but it’s
very difficult to stop the process in an orderly way.”
- Stress
Test for Banks Inflicting Collateral Damage: China Credit. China's
decision to tolerate the worst cash crunch on record is evolving from a
stress test of banks into a threat to the ability of companies to raise
funds. As their overnight borrowing costs neared 13%, banks switched
focus toward shoring up their own finances and slashed investments in
the bond market they dominate. The one-year yield on AAA corporate debt
jumped a record 121 basis points this month to 5.15%, ChinaBond indexes
show. Bond sales slumped to $26 billion in June, the least in 17 months
and down 57% from May, Bloomberg data show.
- China Grain
Policies Stock Imports, Inflation: Chart of the Day. China's effort to
boost grain output by raising guaranteed prices and stockpiling harvests
has inadvertently turned the world's biggest producer into a net
importer while fueling inflation, according to research by the Chinese
Academy of Social Sciences.
- China Funds Lose in Fifth Week of Asian Outflows, Citigroup Says. International
money managers pulled a combined $1.2 billion from Asian funds this
past week, a fifth straight week of outflows, according to Citigroup
Inc. (C) China funds posted the biggest losses with $558 million of net
withdrawals in the week ended June 19, followed by regional funds at
$521 million, Citigroup’s Hong-Kong based chief Asian strategist Markus Rosgen wrote in a note to clients today. Foreigners net sold Asia by $3.6 billion in the week, with South Korea and Taiwan taking up the largest shares, he wrote.
- Minsky
Moment Alarm Sounded in China by SocGen: Cutting Research. Credit
growth in the world's most populous country has outstripped economic
expansion for five quarters, raising the question of where the money has
gone, Societe Generale SA economist Yao Wei wrote in two recent
reports. In the first quarter, for example, bank loans, shadow banking
credit and corporate bonds together accelerated more than 20 percent
year-over-year, while gdp grew less than half that much. The gap has
been widening since early 2012. Yao says the answer to where the money
is going is a growing "debt snowball" which doesn't contribute to
economic activity. The result is both companies and the public sector
face burgeoning interest expenses. This fits with the theory first put
forward by economist Hyman Minsky of Washington University in St. Louis.
His financial instability hypothesis showed how markets create waves of
credit expansion and asset inflation, followed by periods of
contraction and deflation.
- Bond Auctions Fail From Russia to Korea as Brazil Protests Rage. Developing nations around the world
are scaling back or canceling billions of dollars of bond sales
as borrowing costs climb the most since 2008, just as spending
needs increase amid slowing economic growth. Romania’s Finance
Ministry rejected all bids at a seven-year bond sale yesterday because
of market volatility, while South Korea raised less than 10 percent of
the amount planned in an auction of inflation-linked bonds. Russia
scrapped a sale of 15-year ruble-denominated bonds June 19, the second
time it canceled an auction this month, and Colombia pared an offering
of 20-year peso debt by 40 percent. A cash shortage led to failures last
week of China Ministry of Finance debt sales. The tumble in bonds,
stocks and currencies, spurred by
investors’ biggest retreat from emerging markets in two years, is
tightening credit as the Federal Reserve says it may end cheap money
that had made investment plentiful. Yields on local-currency emerging
nation bonds surged 74 basis points this month to 6.5 percent, the
biggest increase in five years. In Turkey and Brazil, anti-government protests are challenging development plans that require additional funding.
- Asian Stocks Decline on Fed Stimulus, China Concerns. Asian
stocks fell, with the regional benchmark index heading for its biggest
two-day decline since September 2011, amid concern the Federal Reserve
will reduce stimulus and China’s economic slowdown may deepen as a cash
crunch worsens. Jiangxi Copper Co. (358), China’s biggest producer
of the metal, sank 2 percent in Hong Kong as copper futures fell.
Newcrest Mining Ltd., Australia’s No. 1 gold producer, slumped 6.7
percent as the bullion touched a September 2010 low. Mitsubishi UFJ
Financial Group. Inc., Japan’s largest lender, fell 2.6 percent after a
unit agreed to settle claims in New York that it
transferred billion of dollars for countries facing sanctions
including Iran, Sudan and Myanmar. The MSCI Asia Pacific Index slid 0.9 percent to 126.45 as of 11:02 a.m. in Tokyo, with about 12 shares falling for each
that rose.
- Rubber Tumbles to Nine-Month Low on Concern China Demand to Slow. Rubber declined to a nine-month low
amid concerns that an economic slowdown in China, the biggest buyer, will reduce demand for the commodity used in tires. The contract for delivery in November on the Tokyo
Commodity Exchange plunged as much as 4.2 percent to 228 yen a
kilogram ($2,345 a metric ton), the lowest level since September,
at 10:06 a.m. local time. Futures are heading for a sixth weekly
fall and have lost 24 percent this year.
- U.S. Said to Consider Doubling Leverage Standard for Big Banks. U.S. regulators are considering
doubling a minimum capital requirement for the largest banks,
which could force some of them to halt dividend payments. The standard would increase the amount of capital the
lenders must hold to 6 percent of total assets, regardless of
their risk, according to four people with knowledge of the
talks. That’s twice the level set by global banking supervisors. U.S. regulators last year proposed implementing the 3
percent international requirement for what’s known as the simple
leverage ratio. Now the Federal Reserve and Federal Deposit
Insurance Corp., under pressure from lawmakers, are weighing
increasing that figure for some of the biggest banks, according
to the people, who asked not to be identified because the
discussions are private. “The 3 percent was clearly inadequate, nothing really,”
said Simon Johnson, an economics professor at the Massachusetts
Institute of Technology and a former chief economist for the
International Monetary Fund. “Going up to five or six will make
the rule be worth something. Having a lot of capital is crucial
for banks to be sound. The leverage ratio is a good safety tool
because risk-weighting can be gamed by banks so easily.”
- Debt Sales Halted in U.S. as Companies Weigh Fed Taper Prospect. Corporate bond sales in the U.S.
have all but halted after the Federal Reserve said this week
that it’s prepared to taper its stimulus program later this
year, prompting the biggest increase in investment-grade yields
in 21 months. Solar Star Inc. was the only borrower said to be marketing
bonds yesterday, with a $1 billion issue, following $330 million
in offerings June 19. The slowdown is trimming a daily average
of $7 billion as of June 18 that put 2013 on pace for a record
year, according to data compiled by Bloomberg.
Wall Street Journal:
- Turmoil Exposes Global Risks. The turmoil exposed vulnerabilities in the financial markets and the
world economy that had been mostly ignored because central banks were
willing to ride to the rescue with huge amounts of money.
- Greece Faces Fresh Threats. Greece's shaky coalition government was hit Thursday with a double
blow as talks over the shutdown of the state broadcasting company
threatened to fracture the government and new worries over the financing
of the country's bailout program emerged. The breakdown in the talks sparked a threat from the junior partner
in the three-party coalition to withdraw its support from the
government, representing the coalition's gravest internal crisis to
date. "No agreement has been reached," Democratic Left's leader, Fotis
Kouvelis, said after a two-hour meeting—the third in a week—of the three
party chiefs. A meeting of his parliamentary deputies is scheduled for Friday
morning to decide the party's future in the coalition government.
- As Belts Tighten, Darden(DRI) Feels Squeeze.
Since the recession ended, Americans' disposable personal income has
risen by 3.1% at a compound annual rate. At the same point after the
previous two recessions ended in 1991 and 2001, annualized growth was
5.5% and 4.8%, respectively. The payroll-tax increase this year has
recently pushed year-over-year growth down to one of the lowest levels
of the expansion.
- Case Closed? Far From It. The FBI seems blasé about the IRS investigation, so it's crucial Congress make it a priority.
- John Kerry's ObamaCare Boondoggle. A backroom deal he cut for Massachusetts hospitals has caused a bipartisan uproar in Congress. A bipartisan backlash is growing against another section of President
Obama's health-care law. The president can blame this latest
embarrassment on none other than Secretary of State John Kerry.
CNBC:
- Oracle's(ORCL) Cloud Subscriptions Disappoint; Shares Dive.
Oracle missed expectations for software sales and subscriptions for the
second straight quarter, sending its shares plunging as investors
worried CEO
Larry Ellison may have trouble getting the technology giant back on
track. On Thursday, Oracle executives forecast new software
sales and subscriptions will rise 0 percent to 8 percent this quarter,
blaming weakness in the past quarter on disappointing sales in Asia and
Latin America.
Zero Hedge:
Business Insider:
New York Times:
- U.S. Approves a Label for Meat From Animals Fed a Diet Free of Gene-Modified Products. The
Agriculture Department has approved a label for meat and liquid egg
products that includes a claim about the absence of genetically
engineered products. It is the first time that the department, which
regulates meat and poultry processing, has approved a non-G.M.O. label
claim, which attests that meat certified by the Non-GMO Project came
from animals that never ate feed containing genetically engineered
ingredients like corn, soy and alfalfa.
ValueWalk:
AP:
- 1M Brazilians fill streets with protest, violence. More than a million Brazilians poured into the streets of at least 80
cities Thursday in this week's largest anti-government demonstrations
yet, protests that saw violent clashes break out in several cities as
people demanding improved public services and an end to corruption faced
tear gas, pepper spray and rubber bullets. In Rio de Janeiro, where an estimated 300,000 demonstrators swarmed
into the seaside city's central area, running clashes played out between
riot police and clusters of mostly young men, their T-shirts wrapped
around their faces. But several peaceful protesters were up in the
crackdown, too, as police fired tear gas canisters into their midst and
at times indiscriminately used pepper spray. Thundering booms echoed off stately colonial buildings as rubber bullets and the gas were fired at fleeing crowds.
At least 40 people were injured in Rio.
Reuters:
- Illinois' finances worst ever in FY 2012: auditor. Illinois'
finances sank deeper into the red in fiscal 2012, with the general
revenue fund deficit hitting a record $9.1 billion as increased spending
outran a jump in revenue, according to a report released on Thursday by
the state auditor general.
The deficit for the fiscal year
that ended June 30, 2012, was up $1.1 billion from fiscal 2011 when
measured by generally accepted accounting principles, according to the
comprehensive annual financial report. The
bigger deficit was driven by a nearly $4.7 billion increase in spending
that eclipsed revenue growth of $3.7 billion, the audit said.
- Euro bailout fund conditions complicate efforts to separate bad banks and sovereigns. Euro
zone finance ministers on Thursday agreed on how its bailout fund can
invest in troubled banks, but imposed so many conditions that they may
not completely succeed in their goal of separating problem banks from
their indebted home countries. The 500 billion-euro bailout fund was
originally set up to help struggling governments and was later expanded
to include banks in an effort to restore confidence in the financial
markets, ravaged by three years of debt and financial crisis.
- U.S. senators urge inclusion of food safety in Smithfield(SFD) review.
A bipartisan group of 15 U.S. senators urged the Obama administration
on Thursday to consider whether the proposed sale of Smithfield Foods
Inc to the Chinese meat company Shuanghui International posed a threat
to the U.S. food supply that could justify blocking the deal. "We believe that our food supply is critical infrastructure
that should be included in any reasonable person's definition of
national security," the senators said in a letter to Treasury
Secretary Jack Lew, whose department chairs the interagency
panel that reviews foreign investment for national security
threats.
- Pipeline foes say Obama's climate plan no tradeoff for Keystone. Foes of the proposed
Keystone XL pipeline, which would carry oil from Canada to
Texas, said on Thursday that an expected White House package of
proposals to combat climate change was not an adequate trade-off
for approval of the controversial project.
- U.S. Fed balance sheet grows in latest week. The U.S. Federal Reserve's
balance sheet grew in the latest week on increased holdings of
U.S. Treasuries and mortgage-backed securities, Fed data
released on Thursday showed.
The Fed's balance sheet liabilities, which is a broad gauge
of its lending to the financial system, stood at $3.427 trillion
on June 19, compared with $3.367 trillion on June 12.
Telegraph:
Financial News:
- PBOC Unlikely to Loosen Monetary Policy Greatly. PBOC may increase open market adjustments to keep "reasonable and stable" inter-bank liquidity, citing a market analyst. China's economic slowdown risks may rise in the short-term as policymakers may keep prudent policy to control financial risks.
South China Morning Post:
- Bad loans rise sharply in Shanghai bank sector.
Mid-sized lenders pressured amid slump as regulator urges tighter risk
controls. The Shanghai branches of several mid-sized mainland banks have
seen
rapid increases in bad loans this year as private companies feel the
pinch of the nationwide economic slowdown. At the Shanghai branch of
Beijing-headquartered China Citic Bank -
listed in Shanghai and Hong Kong - the non-performing loan (NPL) ratio
jumped to about 5 per cent of total outstanding loans this month, far
higher than the national average of about 1 per cent, according to
sources familiar with the matter. A 5 per cent NPL ratio translates into
about six billion yuan (HK$7.5 billion) of bad loans, the sources
added. "It's not just Citic Bank. Other banks' Shanghai branches are
also
facing trouble and could wind up with similarly huge bad loans on their
books," one of the sources said. Bad loans began to increase rapidly since the third quarter of last
year. It worsened in the first half of this year, in particular among
many small- and medium-sized enterprises in the wealthy Yangtze River
Delta economic zone in the east, including Shanghai city and Zhejiang
and Jiangsu provinces.
China Daily:
- State Researcher Says China 2H Growth to Slow From 1H. Chen Dongqi, deputy director of the National
Development and Reform Commission's Academy of Macro Economic Research,
says China's economic growth in the second half will be slower than the
first half.
Evening Recommendations
Wells Fargo:
Night Trading
- Asian equity indices are -2.25% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 166.0 +7.0 basis points.
- Asia Pacific Sovereign CDS Index 134.25 +19.0 basis points.
- NASDAQ 100 futures +.09%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
Upcoming Splits
Other Potential Market Movers
- The BoJ's Kuorda speaking could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 20.44 +22.8%
- Euro/Yen Carry Return Index 134.32 +.49%
- Emerging Markets Currency Volatility(VXY) 12.0 +8.70%
- S&P 500 Implied Correlation 60.87 +8.81%
- ISE Sentiment Index 42.0 -55.32%
- Total Put/Call 1.31 +20.18%
Credit Investor Angst:
- North American Investment Grade CDS Index 93.80 +9.44%
- European Financial Sector CDS Index 173.57 +13.10%
- Western Europe Sovereign Debt CDS Index 94.0 +4.44%
- Emerging Market CDS Index 378.18 +8.30%
- 2-Year Swap Spread 18.25 +2.25 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -12.50 -.5 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- China Import Iron Ore Spot $120.60/Metric Tonne +.5%
- Citi US Economic Surprise Index -12.90 +1.2 points
- Citi Emerging Markets Economic Surprise Index -44.80 +.6 point
- 10-Year TIPS Spread 1.97 -7 bps
Overseas Futures:
- Nikkei Futures: Indicating -75 open in Japan
- DAX Futures: Indicating -41 open in Germany
Portfolio:
- Slightly Higher: On gains in my index hedges and emerging markets shorts
- Disclosed Trades: None
- Market Exposure: 25% Net Long
