Broad Equity Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 16.60 +1.41%
- Euro/Yen Carry Return Index 136.18 +.93 +.32%
- Emerging Markets Currency Volatility(VXY) 10.67 +.28%
- S&P 500 Implied Correlation 56.75 -2.36%
- ISE Sentiment Index 71.0 -20.22%
- Total Put/Call 1.01 -10.99%
Credit Investor Angst:
- North American Investment Grade CDS Index 85.82 +1.69%
- European Financial Sector CDS Index 164.09 +.28%
- Western Europe Sovereign Debt CDS Index 93.50 -.46%
- Emerging Market CDS Index 325.34 +3.31%
- 2-Year Swap Spread 17.50 +2.0 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -9.75 unch.
Economic Gauges:
- 3-Month T-Bill Yield .02% +! bp
- China Import Iron Ore Spot $119.30/Metric Tonne +2.05%
- Citi US Economic Surprise Index -1.80 +1.8 points
- Citi Emerging Markets Economic Surprise Index -35.40 -.8 point
- 10-Year TIPS Spread 2.05 +3 bps
Overseas Futures:
- Nikkei Futures: Indicating +212 open in Japan
- DAX Futures: Indicating -34 open in Germany
Portfolio:
- Higher: On gains in my tech/biotech sector longs and emerging markets shorts
- Market Exposure: 25% Net Long
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -2.16% 2) Airlines -2.02% 3) Steel -1.26%
Stocks Falling on Unusual Volume:
- FMS, LINE, BRY, DVA, IDT, BBEP, MMS, LNCO, AZZ, WBMD, GBX, ENV, MJN, HON, SHLM, CACI, LGND, TRN, WPRT, COR, PBF, FLTX, KRO, KCAP and BRY
Stocks With Unusual Put Option Activity:
- 1) IYT 2) ONXX 3) HON 4) KLAC 5) COF
Stocks With Most Negative News Mentions:
- 1) ILMN 2) TSCO 3) RIG 4) NEM 5) DVA
Charts:
Style Outperformer:
Sector Outperformers:
- Oil Service +1.28% 2) REITs +1.27% 3) Coal +.96%
Stocks Rising on Unusual Volume:
- CREE, ACRX, AM, PWRD, RKUS, CLDX, YELP, FHN and ANF
Stocks With Unusual Call Option Activity:
- 1) CLWR 2) AWAY 3) ONXX 4) ACHN 5) WLL
Stocks With Most Positive News Mentions:
- 1) COF 2) LVS 3) T 4) STX 5) CSTR
Charts:
Evening Headlines
Bloomberg:
- Chinese Malls Waive Rents as Vacancies Loom: Real Estate.
Chinese landlords are forgoing rent and paying to outfit stores for
mass-market fashion brands including Zara and H&M, a bid to blunt
the impact of a boom in shopping-mall construction that threatens to
push up vacancies. Preferential
leasing terms were reserved until recently for luxury brands such as
Louis Vuitton and Gucci, which are coveted because they bring shoppers
into malls. Now moderately priced labels are being enticed with offers
as landlords work harder to fill shops, according to Cushman &
Wakefield Inc. and RET Property Consultancy Ltd. Consumer demand is cooling as China’s economy slows and President Xi Jinping reins in lavish spending by officials.
- Golden Era Fades for China’s Banks as Crunch Raises Default Risk. Chinese banks’ valuations are close
to their lowest on record as the nation’s interbank funding
crisis exacerbated investors’ concern that earnings growth will
stall and defaults may surge as the economy slows. Investors’
disenchantment with Chinese banks reflects concern that a crackdown on
shadow banking and measures to direct new credit away from repaying old
loans and toward boosting economic productivity will undermine earnings
and trigger a surge of bad loans. President Xi Jinping also signaled
last week that China’s new leaders will tolerate slower growth. “The
golden era of banking is over,” said Mike Werner, an analyst at Sanford
C. Bernstein & Co. in Hong Kong who recommends clients buy shares of
ICBC and divest mid-sized Chinese lenders. “Investors have to recognize that more market discipline is going to be imposed upon the banks.”
Shares of ICBC and its three largest local competitors -- China
Construction Bank (939), Agricultural Bank of China Ltd. and Bank of
China Ltd. -- fell by an average 12 percent in Hong Kong last month,
erasing the year’s gains and underperforming the 7.1 percent decline in
the benchmark Hang Seng Index. The shares dropped by an average 9
percent in Shanghai, where the broader market of Chinese stocks also
declined, with the CSI 300 Index (SHSZ300) losing 16 percent on the
month and entering a bear market June 24.
- Hong Kong Realtors May Lose Jobs on Curbs, Midland Says. About a third of Hong Kong’s property agents may lose their jobs over
the next year if the government persists with its real estate curbs,
according to realtor Midland Holdings Ltd. (1200) “For the industry,
we’re probably looking at the lowest point for over two decades,” Angela
Wong, deputy chairman and the daughter of Midland chairman and founder
Freddie Wong, said. “The worst thing is that it’s now a stagnant market so we’re not sure whether we should expand or contract. This is tough.”
- Bets
on Japan Stocks Most Bullish Since 2000: Chart of the Day. Japanese
investors who trade stocks using borrowed money are the most bullish
since 2000. The number of Japanese shares bought through margin accounts
that profit when stocks rise outnumbered those that make money during
declines by about 7 to 1, a ratio not seen for 13 years, data compiled
by Bloomberg show.
- Banks Stay Bond-Addicted as Cash Hoarders Prevail: Japan Credit. Japanese
banks’ addiction to government bonds is proving hard to break,
potentially undermining Prime Minister Shinzo Abe’s plans to revive the
world’s third-largest economy. Lenders, which loaded up on debt as
loan demand stagnated in recent years, want to reduce the risk of losses
on their 151 trillion yen ($1.5 trillion) in holdings as the bond
market gyrates and yields climb following efforts by the government and
central bank to spark inflation. Yet more than six months after Abe
took office, even as banks try to trim their bond holdings, households
and companies aren’t taking out enough loans, saddling lenders with
record excess deposits. Abe’s vision for ending deflation, stoking loan
demand and creating economic growth -- termed Abenomics -- remains “far
removed from the current reality,” said Satoshi Yamada, a debt-trading manager for Okasan Asset Management Co.,
which oversees the equivalent of $11 billion in assets.
- Japanese Men’s Allowance at 1982 Low as They Await Abenomics. The average Japanese husband’s
monthly allowance slumped to the lowest level since 1982 at the
start of the financial year as workers await the dividends
promised by Abenomics. Salarymen’s spending money, typically set by
wives managing family budgets, was 38,457 yen ($386), down 3 percent
from last year and less than half the 1990 peak, according to Shinsei
Bank Ltd., a Tokyo-based lender whose data go back to 1979. The
survey of 2,000 people was done April 20th and 22nd via the
Internet, the report published June 28 showed.
- Australia Recession Risk Flagged by Rudd in Rhetoric Shift. Kevin Rudd is ditching the optimism
of his predecessor and selling himself as the best leader to steer Australia through a downturn as Chinese demand wanes.
The new prime minister, who ousted Julia Gillard last week as the
ruling Labor party headed toward a landslide election loss, is
channeling his ex-boss Ross Garnaut in flagging that the end of a
China-led mining boom could lead to a recession. He’s highlighted the dangers posed by a slowing China in at least five statements and warned policies advocated by his opponent Tony Abbott would result in British-style contraction.
- China’s Stocks Fall.
Industrial & Commercial Bank of China Ltd. (3988), the nation’s
biggest lender, slid 1.2 percent, sending financial companies to the
biggest loss among industry groups. Shandong Gold Mining Co., China’s
second-largest gold company, plunged 10 percent for a second day on
plans to buy assets from its parent. Goertek Inc. paced an advance for
technology companies after the China Securities Journal said the
government plans to introduce policies to increase industry sales. The Shanghai Composite Index (SHCOMP) slipped 0.4 percent to 1,987.70 at the 11:30 a.m. local-time break.
- Asian Stocks Rally on Global Output; Copper, Zinc Retreat.
Asian stocks rose for a fifth day, the longest winning streak since
April, and U.S. futures advanced on signs the global economy is
improving. Industrial metals retreated, following their biggest gain in
eight weeks. The MSCI Asia Pacific Index climbed 0.7 percent as of 12:21 p.m. in Tokyo, where the Topix Index (TPX) gained 1.1 percent.
Standard & Poor’s 500 Index (SPX) futures rose 0.2 percent after
the gauge climbed 0.5 percent in New York. The dollar traded near its
strongest level in almost a month versus the euro, while
Copper, zinc and tin all fell at least 0.4 percent. China’s
benchmark money-market rate declined for an eighth day amid
signs policy makers injected cash to alleviate a cash crunch.
- Ship Rates Drop as U.S. Oil Imports Fall Most Since ’91: Freight.
Growing U.S. energy independence is driving the biggest drop in crude
imports in two decades and rates for the oil tankers most reliant on the
shipments to the weakest in at least 16 years. Seaborne imports will decline 11 percent to 5.4 million
barrels a day in 2013, the largest slide since at least 1991,
according to Clarkson Plc, the leading shipbroker. Suezmaxes
hauling 1 million-barrel cargoes earned $10,652 a day this year,
the least since 1997, its data show. The rate is 55 percent less
than Euronav NV says it needs to break even on the 22 tankers it
owns. Shares of the company will fall 8.3 percent in a year, the
average of six analyst estimates compiled by Bloomberg shows.
- Port Hedland Iron Ore Exports Decline as Chinese Demand Wanes.
Iron ore shipments from Australia’s Port Hedland, the world’s biggest
bulk terminal, declined from a record last month after exports to China
dropped. Exports totaled 27.7 million metric tons in June from 27.9
million tons in May, data on the Port Hedland Port Authority’s website
showed. Shipments to China decreased to 22.9 million tons from 23.3
million tons. Iron ore fell 26 percent from a 16-month high in February
on concern that expansion in China is faltering.
- Katainen Monitoring Finnish Debt as ECB Policy Splits Euro Area.
Finnish Prime Minister Jyrki Katainen said his government is monitoring
the nation’s housing market to ensure record-low euro-zone rates don’t
fuel risks that would warrant regulatory intervention. “It’s certainly a
very sensitive issue for Finland as it
is for other euro countries,” Katainen said yesterday in an
interview in Helsinki. “It must be monitored constantly.”
Wall Street Journal:
- Emerging Markets Hit by Converging Forces. Countries from Turkey to Brazil to China are getting hit by a brutal
combination of events, as economies slow, investors pull out cash,
commodity prices tumble and protesters take to the streets—all fresh
reminders that these markets can be difficult places to try to make
money. An outflow of funds from so-called emerging markets has picked up
pace over the past month, triggered by expectations among some investors
that the days of easy money globally are coming to an end as the U.S.
economy recovers.
Fox News:
- Republicans use 'war on coal' charge to tarnish Dems ahead of elections. Foes of President Obama's alleged "war on coal" climate plan are
hoping to use the combustible issue to tarnish Democrats in the next
round of elections. The political backlash started almost immediately after the president
announced last week he's ordering the EPA to draft new rules to limit
emissions at coal-fired power plants. In Virginia, it didn't take long for Republican gubernatorial
candidate Ken Cuccinelli to label the plan the "Obama-Biden-McAuliffe
war on coal," in his race for governor against former Democratic Party
chairman Terry McAuliffe.
CNBC:
- Why We’re More Gloomy About BRICs: Goldman(GS). Goldman Sachs says it has ended a recommendation to buy a basket of
U.S. stocks with the highest sales exposure to Brazil, Russia, India
and China (BRIC) and instead prefers U.S. firms with most exposure to
the domestic market – just one more sign that sentiment towards emerging
markets is fading fast. The U.S. investment bank said its
decision was based on revised expectations for slower growth in China,
the world's second largest economy.
- Hard Choices for Self-Employed Caught in Obamacare Gaps. As he tries to build his consulting business, David Ferreira is making
sure he doesn't get sick over the next six months. He's counting down
the days until he can sign up for insurance under the Affordable Care
Act, or ACA.
Zero Hedge:
- The Biggest Problem Currently Is... The biggest problem currently is that there is virtually no
expectation, or analysis that incorporates the impact, of an average
economic recession ever occurring again.
Business Insider:
Hong Kong Economic Journal:
- Hong Kong's Tsang Says More Property Curbs Possible. The
government won't rule out the possibility of introducing more property
cooling measures in the short term if earlier curbs failed to contain
property prices, citing an interview with Financial Secretary John Tsang.
China Daily:
- Foreign
Movie Ticket Sales in China Decline 26.8%. Ticket sales for
foreign-made movies in China this year as of June 23 had fallen 26.8%,
citing EntGroup Consulting.
China Securities Journal:
- China 2Q Growth May Slow. China's economic growth may slow to
about 7.5% in 2Q on weak demand and de-stocking of companies, citing a
person familiar with the data.
Evening Recommendations
Keefe Bruyette:
- Cut (WFC) to Market Perform, target $43.
Night Trading
- Asian equity indices are -.50% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 148.50 -4.0 basis points.
- Asia Pacific Sovereign CDS Index 110.75 -3.5 basis points.
- NASDAQ 100 futures +.21%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:00 am EST
- Factor Orders for May are estimated to rise +2.0% versus a +1.0% gain in April.
Afternoon:
- Total Vehicle Sales for June are estimated to rise to 15.5M versus 15.24M in May.
Upcoming Splits
Other Potential Market Movers
- The Fed's Powell speaking, Fed's Dudley speaking, Spain Unemployment Rate report, RBA rate decision, weekly retail sales reports, ISM New York for June, IBD/TIPP Economic Index for July and US regulator decision on bank capital requirements could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and commodity 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 Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 16.15 -4.21%
- Euro/Yen Carry Return Index 135.76 +.93%
- Emerging Markets Currency Volatility(VXY) 10.71 -2.28%
- S&P 500 Implied Correlation 58.05 +.2%
- ISE Sentiment Index 94.0 +4.44%
Credit Investor Angst:
- North American Investment Grade CDS Index 84.10 -3.45%
- European Financial Sector CDS Index 163.62 -1.93%
- Western Europe Sovereign Debt CDS Index 93.93 -1.13%
- Emerging Market CDS Index 314.95 -1.59%
- 2-Year Swap Spread 15.5 +.25 bp
- TED Spread 26.25 +2.0 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -9.75 +.75 bp
Economic Gauges:
- 3-Month T-Bill Yield .01% -2 bps
- China Import Iron Ore Spot $116.90/Metric Tonne +.34%
- Citi US Economic Surprise Index -3.6 +5.4 points
- Citi Emerging Markets Economic Surprise Index -34.60 +2.5 points
- 10-Year TIPS Spread 2.02 +3 bps
Overseas Futures:
- Nikkei Futures: Indicating +208 open in Japan
- DAX Futures: Indicating -14 open in Germany
Portfolio:
- Higher: On gains in my tech/biotech/medical/retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short
- Market Exposure: Moved to 25% Net Long
Style Underperformer:
Sector Underperformers:
- 1) Oil Tankers -.42% 2) Utilities -.31% 3) REITs -.17%
Stocks Falling on Unusual Volume:
- INSM, IDCC, FLTX, EQM, AAWW, SAP, HURN, UIL, WEC, TWC, ABX, VSAT, GOLD, CDE, NXST, PTR, SRE, NEM and OAK
Stocks With Unusual Put Option Activity:
- 1) STZ 2) ITB 3) MA 4) OIH 5) ADBE
Stocks With Most Negative News Mentions:
- 1) BBRY 2) BRCM 3) MMM 4) MGM 5) ORCL
Charts:
