Broad Equity Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 16.57 +.79%
- Euro/Yen Carry Return Index 135.38 -.59%
- Emerging Markets Currency Volatility(VXY) 11.08 +2.88%
- S&P 500 Implied Correlation 56.75 +1.32%
- ISE Sentiment Index 97.0 +34.72%
- Total Put/Call 1.05 +2.94%
Credit Investor Angst:
- North American Investment Grade CDS Index 85.69 -.47%
- European Financial Sector CDS Index 169.88 +4.03%
- Western Europe Sovereign Debt CDS Index 103.12 +10.3%
- Emerging Market CDS Index 334.63 +1.76%
- 2-Year Swap Spread 18.0 +.5 bp
- TED Spread 24.0 -1.25 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -11.0 -1.25 bps
Economic Gauges:
- 3-Month T-Bill Yield .04% +2.0 bps
- China Import Iron Ore Spot $120.50/Metric Tonne +1.0%
- Citi US Economic Surprise Index -13.20 -11.4 points
- Citi Emerging Markets Economic Surprise Index -34.80 +.8 point
- 10-Year TIPS Spread 2.04 -1 bp
Overseas Futures:
- Nikkei Futures: Indicating -12 open in Japan
- DAX Futures: Indicating unch. open in Germany
Portfolio:
- Higher: On gains in my tech sector longs and emerging markets shorts
- Market Exposure: 25% Net Long
Style Underperformer:
Sector Underperformers:
- 1) Hospitals -2.42% 2) Coal -2.06% 3) REITs -1.70%
Stocks Falling on Unusual Volume:
- LINE, VNR, BSBR, DB, AMT, CVC, DLLR, MXWL, NQ, BBRY, SAP, ARP, BBEP,
MJN, LINE, NVR, QRE, LNCO, ALDW, TS, RHI, KYE, VC, REG, KMF, CVRR,
OSTK, TW, THC, PSX, X, WNR, HCA, APA, BUD, UHS, NTI, HCA, CYNO, QRE, X, SCO, RHI and ATLS
Stocks With Unusual Put Option Activity:
- 1) DELL 2) APA 3) SKS 4) TSO 5) DKS
Stocks With Most Negative News Mentions:
- 1) LULU 2) AA 3) MJN 4) COP 5) BTU
Charts:
Style Outperformer:
Sector Outperformers:
- Gold & Silver +1.49% 2) Computer Services +.59% 3) Networking +.58%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
- 1) FTNT 2) DELL 3) SVU 4) MJN 5) SNTA
Stocks With Most Positive News Mentions:
- 1) AN 2) PEG 3) BEAT 4) VLO 5) APA
Charts:
Evening Headlines
Bloomberg:
- Zhou Pulling China Punch Bowl Set to Shape PBOC Legacy: Economy.
Zhou Xiaochuan earned distinction as the G-20’s longest-serving central
bank chief helping keep China out of a financial crisis the past
decade. In the wake of June’s record liquidity squeeze, his legacy hangs
in the balance. Zhou and his colleagues at the People’s Bank of
China left investors, bankers and market participants in the dark for
four days after the overnight lending rate between banks hit a record
11.7 percent June 20 before releasing a week-old statement as
the central bank’s first word on its objectives. Zhou himself
kept mum until he reiterated a pledge to maintain market
stability on June 28.
- Glaxo, Danone Probed as China Scrutinizes Foreign Firms. China’s
probes of GlaxoSmithKline Plc (GSK) and Danone highlight challenges for
foreign companies in a market where they may be a bigger “prize” for
regulators seeking to allay concerns that medicines and foods are unsafe.
The U.K. drugmaker is being probed for alleged bribery, while Danone,
along with Nestle SA’s (NESN) Wyeth brand, Mead Johnson Nutrition Co.
(MJN) and Abbott Laboratories (ABT), are under investigation
for pricing that may have violated anti-monopoly laws.
- Expanding
Aluminum Glut Signals Price Declines: Chart of the Day. Aluminum
prices, which have fallen for three straight quarters, may be poised for
further declines as new production in China and the Middle East
increases global output even as Alcoa Inc.(AA) trims capacity.
Production has gained 5.1% since the end of 2011, helping drive prices
down 9.3%, according to data from the Intl Aluminum Institute. Output
will reach a record near 50 million metric tons this year, up from 45
million in 2012, Harbor Intelligence forecasts.
- China Hongqiao Adding Aluminum Output as Global Smelters Cut. China
Hongqiao Group Ltd. (1378), the nation’s largest non-state aluminum
producer, and competitors are boosting or maintaining output as the
government seeks to trim capacity amid a global glut. China
Hongqiao’s production will rise about 10 percent to 2 million metric
tons this year, said Christine Wong, executive director secretary and
head of investor relations. Xinfa Group and East Hope Group said they
aren’t planning cuts. The companies are three of China’s five biggest
aluminum makers. Their stance may hamper curtailment efforts by top
global producers including Aluminum Corp. of China Ltd., United Co.
Rusal and Alcoa Inc. (AA) who are cutting output to ease worldwide over
supply.
- Chinese Stocks Slump on Growth Concern as Banks, Developers Fall. China’s
stocks fell for the first time in four days, led by financial and
industrial companies, as growth in services industries slowed and
investors speculated initial public offerings will resume this quarter.
Industrial & Commercial Bank of China Ltd., the nation’s biggest
lender, slid 2.2 percent and developer Gemdale Corp. sank 4.5 percent.
Sany Heavy Industry Co., the largest machinery maker, tumbled 3.6
percent to its lowest level in almost three years as oil surged in New
York. The non-manufacturing purchasing managers’ index fell to 53.9
in June, an official report showed, while Credit Suisse Group AG said
regulators may allow share sales by October. The Shanghai Composite
Index (SHCOMP) slumped 2 percent to 1,966.30 at 11:06 a.m. local time,
heading for the biggest loss since June 24 and snapping a three-day, 2.9
percent rally. The CSI 300 Index declined 2.3 percent to 2,170.59. The
Hang Seng China Enterprises Index slumped 3.1 percent, taking its loss
this year to 22 percent. “Leading indicators like PMI suggest the
economy is still weak,” said Wu Kan, a Shanghai-based fund manager at
Dazhong Insurance Co., which oversees $285 million. “Uncertainty over when IPOs will be resumed also weighs on sentiment. The earlier
rebound isn’t sustainable.” The Shanghai Composite has tumbled 19 percent from its
recent peak on Feb. 6 as data from industrial production to
exports pointed to a sustained slowdown in the world’s second-largest economy. Stocks also slumped as overnight money-market
rates surged to record highs.
- Oil Climbs on Egypt as Asian Stocks Decline; Won Weakens. Crude oil rallied above $100 a barrel
for the first time in nine months on political turmoil in Egypt
and shrinking U.S. stockpiles. Asian stocks snapped a five-day
gain, as South Korea’s won and Australia’s dollar fell. West Texas
Intermediate Crude surged 2.4 percent to $101.92 a barrel by 12:08 p.m.
in Tokyo, set to close at a 14-month high. The MSCI Asia Pacific Index
of equities slid 1.2 percent, ending the longest run of gains since
April. The won lost 0.6 percent after the yen breached the 100 per
dollar mark for the first time in a month, as the Aussie weakened 0.4
percent. Standard & Poor’s 500 Index (SPX) futures slipped 0.2
percent, while
the Shanghai Composite Index dropped 1.9 percent as a gauge of
services declined in June.
- U.S. Gears to Impose Stricter Rules on 8 Largest Banks.
JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and Goldman
Sachs Group Inc. are among eight U.S. banks facing new domestic rules
on capital and debt that would be even stricter than global standards
approved yesterday. Lenders will be forced to maintain a ratio of
capital to assets that exceeds the 3 percent floor set by the Basel
Committee on Banking Supervision, Federal Reserve Governor Daniel
Tarullo said yesterday. Another measure would compel banks to hold a
minimum amount of equity and long-term debt to help authorities
dismantle failing lenders, Tarullo said. The remarks show U.S. regulators plan to ratchet up demands for
bigger buffers against losses to prevent a repeat of the 2008 credit
crisis, ignoring bankers who say lending and profit will suffer. The
measures would come on top of toughened global standards known as Basel
III that Fed governors approved unanimously, even as Tarullo said parts
remain too weak. “We’re in the first few chapters of a horror
story for the big banks, with the worst to come,” said Coryann
Stefansson, a managing director at PricewaterhouseCoopers LLP. “It’s
clear that the U.S. is willing to push for stronger capital.”
Fox News:
- Egypt teeters on brink of overthrow, 23 reported killed in Tuesday clashes. Egypt teetered on the brink of overthrow late Tuesday after a defiant
Egyptian President Mohammed Morsi rejected an ultimatum issued by the
military and at least 23 people were reported killed in clashes between
his supporters and opponents. Defense officials have pledged to intervene if the government does
not address public demands and end the political turmoil engulfing
Cairo. In a speech to the nation broadcast live late Tuesday, Morsi said he
would not step down and would protect his "constitutional legitimacy"
with his life.
The deadly clashes came just one day before the deadline set by the
military for Morsi and his opponents to work out their differences. The Associated Press reported that at least 23 people were killed in
Cairo Tuesday and more than 200 injured, according to hospital and
security officials who spoke on condition of anonymity because they were
not authorized to talk to the media.
- Administration delays key ObamaCare insurance mandate.
The Obama administration announced Tuesday that it is delaying a
major provision in the health care overhaul, putting off until 2015 a
requirement that many employers offer health insurance. The announcement
was made late Tuesday by the Treasury Department, at
the beginning of the holiday week while Congress was on recess. It
comes amid reports that the administration is running into roadblocks as
it prepares to implement ObamaCare. The change in the employer mandate
is arguably the most significant concession the administration has made
to date. Sen. John Barrasso, R-Wyo., a critic of the law, seized on the delay
as a "clear admission" that the law is "unaffordable, unworkable and
unpopular." "It's also a cynical political ploy to delay the coming train wreck
associated with ObamaCare until after the 2014 elections," he said.
MarketWatch.com:
- China services data show sluggish growth in June. A pair of surveys monitoring China's services sector released Wednesday
showed weak growth for June. The government-sponsored version of China's
services Purchasing Managers' Index fell to 53.9 for June from May's
54.3.
CNBC:
- S&P Cuts Ratings of Credit Suisse, Barclays, Deutsche Bank. Standard & Poor's announced Tuesday that it is cutting the
credit ratings of three major European banks: Credit Suisse, Barclays
and Deutsche Bank. The downgrades, to A from A+, are because
of higher risk, the company said in a statement, citing greater
regulation and "uncertain market conditions."
- Portugal Throws New Curve Ball in Euro Debt Crisis. Portugal faced a full-blown crisis on Tuesday after Foreign
Minister Paulo Portas became the second minister to resign from the
center-right government in a 24-hour period. Portugal's Prime
Minister Pedro Passos Coelho, speaking live on TV to the nation on
Tuesday night said he had not accepted Portas' resignation and would
speak to his coalition partner. The leader of the opposition
Socialist party speaking to the nation on TV on Tuesday night called for
fresh elections and said the government had lost the confidence of the
people.
Zero Hedge:
Reuters:
StraitsTimes:
- Singapore debt levels 'among highest in Asia'. Singapore
households are among the most indebted in Asia relative to what they
earn, according to a Standard Chartered report this week. Households had borrowings worth 151 per cent of their annual income
last year, second in the region only to Malaysia, with debt at 182 per
cent of income. This is mainly because consumers here take on large dollops of
property debt, amounting to 111 per cent of household income - the
highest level in the region, Stanchart said.
Evening Recommendations
Night Trading
- Asian equity indices are -1.75% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 152.50 +4.0 basis points.
- Asia Pacific Sovereign CDS Index 109.75 -1.0 basis point.
- NASDAQ 100 futures -.19%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:15 am EST
- The ADP Employment Change for June is estimated to rise to 160K versus 135K in May.
8:30 am EST
- The Trade Deficit for May is estimated at -$40.1B versus -$40.3B in April.
- Initial Jobless Claims are estimated to fall to 345K versus 346K the prior week.
- Continuing Claims are estimated to fall to 2958K versus 2965K prior.
10:00 am EST
- The ISM Non-Manufacturing Composite for June is estimated to rise to 54.0 versus 53.7 in May.
10:30 am EST
- Bloomberg consensus
estimates call for a weekly crude oil inventory decline of -2,250,000
barrels versus an +18,000 barrel gain the prior week. Gasoline supplies
are estimated to rise by +700,000 barrels versus a +3,653,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,000,000 barrels versus a +1,567,000 barrel gain the prior week.
Upcoming Splits
Other Potential Market Movers
- The Eurozone Services PMI/Retail Sales reports, Japan 30Y bond auction, BoJ's Kuroda speaking, weekly MBA Mortgage Applications report, Challenger Job Cuts for June, RBC Consumer Outlook Index for July and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity shares in the region. I expect US stocks to open mixed 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: 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:
