Evening Headlines
Bloomberg:
- India Fighting Worst Crisis Since ’91 Limits Capital Flows. India increased efforts to stem the
rupee’s plunge and stop capital outflows that are pushing the
economy towards its biggest crisis in more than two decades. The Reserve Bank of India, whose Governor Duvvuri Subbarao
steps down next month, cut the amount local companies can invest
overseas without seeking approval to 100 percent of their net
worth, from 400 percent, according to a statement late
yesterday. Residents can remit $75,000 a year versus the
previous $200,000 limit. Rupee forwards rose for the first time
in three days.
- Asian Stocks Fall Amid Mixed Earnings, Fed Concern.
Asian stocks fell, snapping the regional benchmark’s longest winning
streak in six weeks, amid mixed corporate earnings across the region and
after economists predicted the Federal Reserve will reduce stimulus
next month. Sony Corp., an electronics maker that gets about 68 percent
of sales from overseas, slid 1.6 percent, pacing declines among Japanese
exporters as the yen rose. Thai Beverage Pcl (THBEV), the brewer
controlled by billionaire Charoen Sirivadhanabhakdi, sank 6.1 percent in
Singapore after posting lower sales and profit.
Li & Fung Ltd. jumped 13 percent after saying business is
recovering, leading an advance in Hong Kong’s Hang Seng Index,
which briefly erased losses for the year. The MSCI Asia Pacific Index dropped 0.4 percent to 135.51 as of 11:49 a.m. in Tokyo, with five shares falling for every
two that rose.
- WTI Rises for Fifth Day on Egypt Crackdown, U.S. Oil Stockpiles.
West Texas Intermediate rose for a
fifth day as worsening violence in Egypt fanned concern over Middle East
oil supplies and U.S. crude stockpiles declined for a second week. Futures
climbed as much as 0.5 percent in New York, extending the longest
rising streak since April. Crude inventories fell by 2.8 million barrels
last week, Energy Information Administration data showed, almost double
a median
1.5 million drop forecast by analysts in a Bloomberg News
survey. Egypt declared a state of emergency and hundreds were
killed after security forces broke up sit-ins by protesters.
- Rubber Retreats From 11-Week High as Stronger Yen Cuts Appeal. Rubber fell from an 11-week high as
the Japanese currency strengthened after a U.S. Federal Reserve
official cautioned against excessive optimism over the economy. Rubber for delivery in January on the Tokyo Commodity
Exchange declined as much as 1.1 percent to 263.1 yen a kilogram
($2,693 a metric ton) and was at 265 yen at 11:25 a.m. Futures
settled at 265.9 yen yesterday, the highest close for a most-active contract since May 29. Rubber has lost to 13 percent this
year.
- European Recovery Means Little for Jobless Generation. Francisco Justicia Carrasco has been
sending off 50 resumes every Monday for more than three years.
He doesn’t expect a job for a long time to come yet. “The situation is screwed up,” said the 28-year-old who
lives in Ripollet, close to Barcelona, and has worked in a range
of jobs from shop cashier to packaging over the past decade. “I
don’t see any improvement at all from last year or even the year
before.”
- Henkel CEO Sees No Short-Term Catalyst for Europe Rebound. Henkel
AG Chief Executive Officer
Kasper Rorsted, whose company makes products from Right Guard deodorant
to Loctite adhesives, said he sees no short-term catalyst for
improvement in Europe’s economy. “The only economy that gives us worries
is the European economy,” with the region’s 28 million unemployed, he
said
yesterday in an interview at Bloomberg headquarters in New York.
- U.S. Re-Evaluating Egypt Assistance After Protest Crackdown. The Obama administration is
considering canceling planned military exercises with Egypt and
is re-evaluating other aid following the violent crackdown on
protesters by the country’s military-backed government,
according to a U.S. official. The U.S. and Egypt are scheduled to start the “Bright
Star” exercises next month. Other military assistance already
in the pipeline may also be held up to put pressure on Egypt’s
interim government, said the official, who asked for anonymity
to discuss internal deliberations.
- Cisco(CSCO) Cutting Jobs as Revenue Forecast Misses Estimates. Cisco
Systems Inc. (CSCO), the biggest maker of networking equipment, said
it’s cutting about 5 percent of its workforce after issuing a fiscal
first-quarter sales forecast that missed most analysts’ estimates. Cisco
is eliminating 4,000 jobs as weaker sales in Japan, China and Europe
weigh on revenue growth, Chief Executive Officer John Chambers said
on a conference call today. Revenue for the current quarter through
October will be $12.2 billion to $12.5 billion, the San Jose,
California-based company said in a statement. Analysts on average were
projecting sales of $12.5 billion for the current period. Chambers is
grappling with concerns that Cisco’s growth rate may slow as companies
and network operators postpone costly overhauls of their networks. The
results suggest the CEO is struggling to deliver on his turnaround plan
for the company, said Bill Kreher, an analyst at Edward Jones & Co.
in St. Louis, Missouri. “The guidance is below the long-term plan, which
can be concerning,” said Kreher, who has a hold rating on Cisco shares.
“Cisco has eliminated low-hanging fruit and has effectively managed their costs, but looking forward the company
must continually find ways to generate new sources of revenue.” Cisco fell as much as 11 percent in extended trading.
- Paulson Cuts SPDR Gold(GLD) Stake 53% as Soros Sells Out. Billionaire John Paulson, the biggest investor in the SPDR Gold
Trust, reduced his holdings by 53 percent as the metal plunged into a
bear market. George Soros sold his entire position. Paulson & Co.
reduced its stake to 10.2 million shares in the three months ended June
30 from 21.8 million at the end of the first quarter, and Soros Fund
Management LLC sold its 530,900 shares, Securities and
Exchange Commission filings showed today. The SPDR fund is the world’s
largest exchange-traded product backed by gold.
Wall Street Journal:
- Hundreds Dead in Egypt Crackdown. Security Forces' Efforts to Clear Cairo Sit-Ins Sparks Violence; At Least 278 People Killed Across Egypt. Egypt's military regime, aided by snipers and bulldozers, swept the
streets of Islamist protesters—setting off a day of violence that left
more than 278 people dead, the government fractured and ties with its
international partners in tatters. Muslim Brotherhood sympathizers stormed police stations, burned down
churches and battled with government supporters in several
neighborhoods, after police sweeps left scores of protesters dead at two
Cairo squares. The raid ended more than a month of sit-ins by thousands
of Brotherhood supporters—sometimes joined by families, and daring the
government to disperse them—who demanded the reinstatement of ousted
President Mohammed Morsi.
- Violence Draws Censure and Silence.
International reaction to the Egyptian military's crackdown against
protest camps Wednesday morning was swift and strident, with Turkish
leaders who are ideologically close to the ousted President Mohammed
Morsi calling the move a "massacre" and regional diplomats saying the
escalating violence was worrisome for Middle East stability.
- Chinese Banks Feel Strains After Long Credit Binge. Rapid Loan Growth Has Led to Serious Debt Problems at Local Governments. A cornerstone of China's financial edifice is beginning to show some cracks. The country's banking sector, a key part of a financial system that
has powered China through three decades of breakneck expansion, is
feeling the strain of years of rapid credit growth. Bank-fueled lending
to state enterprises and local governments has led to overcapacity;
serious debt problems for local governments, companies and lenders
alike; and numerous white-elephant projects, from nearly empty malls and
resorts to bridges to nowhere. Chinese banks now are trying to strengthen their balance sheets ahead
of an expected rise in bad loans coupled with slower earnings growth.
Raising capital will likely be expensive for the banks because
investors, who have sold off shares of banks, are worried about their
deteriorating health and China's slowing growth. "The problem [banks] face is that market sentiment is very bad," says
Mark Mobius, executive chairman of Templeton Emerging Markets Group, a
part of Franklin Templeton Investments, who manages more than $50
billion of emerging-market equities
- Many Health Insurers to Limit Choices of Doctors, Hospitals. Main Reason Behind These Limited Plans: Cost.
This fall, Indiana's new online health-insurance marketplace will
present some tough choices for consumers like John Nowak, who will be
able to pick a plan from his current insurer—or go for one that includes
his primary-care doctor. That is because Mr. Nowak's current insurer
won't include Indiana's
biggest health-care provider, 19-hospital Indiana University Health, in
the plans it sells on the consumer exchange. If Mr. Nowak buys a new
exchange plan from WellPoint Inc.'s WLP -0.41% Anthem Blue Cross and
Blue Shield, he will generally have to pay the cost out of his own pocket if he sees the system's doctors, because they
aren't in the network.
Fox News:
- DOJ, FBI admit they inflated claims about mortgage fraud crackdown last year. The Justice Department and FBI have quietly acknowledged they grossly
overstated the scope of a mortgage fraud crackdown, which the
administration heralded with much fanfare a few weeks before last year's
presidential election. According to a memo circulated by the FBI and a correction posted
online by the Justice Department, the number of defendants, the number
of victims and the size of the losses are, in reality, a fraction of
what officials claimed last October.
- Summertime Blues: Polls show ObamaCare support eroding amid roll-out problems. As problems continue to pile up over the implementation of the
Affordable Care Act, summertime polls from Fox News, Gallup and
Rasmussen signal that growing confusion over the complexities of the
law, how it will be rolled out and how much it will cost is eroding
public support. A majority of Americans say they believe the new health care law will
increase their medical costs and taxes, according to an Aug. 8 Fox News
poll. The survey found 57 percent of those polled felt the way
ObamaCare was being rolled out was "a joke." Overall, 63 percent of voters believe that the 2010 health care law
needs to be changed. That number is up from 58 percent of those asked
the question in July 2012.
Zero Hedge:
Business Insider:
New York Times:
USA Today:
Reuters:
- Cayman Islands, U.S. reach pact to fight tax evasion. The United States has cut a deal with the Cayman Islands that will
smooth implementation in the Caribbean island nation of a new U.S.
anti-tax evasion law, while pressuring other low-tax and no-tax countries to follow suit.
Criticized by President Barack Obama and others as a tax haven, the
Cayman Islands said it has agreed to cooperate with the Foreign Account
Tax Compliance Act (FATCA), enacted
in 2010 and set to take effect in July 2014.
- Japan govt spokesman: No truth PM Abe instructed corp tax cut. Japan's Chief Cabinet Secretary
Yoshihide Suga said on Thursday there is no truth to a report
that Prime Minister Shinzo Abe instructed ministers to consider
cutting the country's corporate tax rate.
The issue will be decided
after taking into account various
views from the business sector, Suga told a regular news conference.
Citing government sources, the Nikkei newspaper reported on Tuesday that
Abe could consider lowering the corporate tax rate to foster an
economic recovery.
- NetApp(NTAP) forecasts lackluster second-quarter, shares down.
Data storage equipment maker NetApp Inc forecast current-quarter
results largely below expectations, sending its shares down 4 percent in
extended trading. The company forecast second-quarter adjusted earnings
of 60 to 65 cents per share, while analysts on average were looking for
63 cents. The company expects revenue to be between $1.56 billion and
$1.66 billion, largely below the $1.63 billion Wall Street had
estimated according to Thomson Reuters I/B/E/S. Shares down 4 pct after market.
Financial Times:
- Indian Industrial Companies' Debt Rising as Economy Slows. Combined
gross debt of 10 most indebted industrial conglomerates rose 15% in
latest financial year, citing Credit Suisse research. Debt increased at 9 of the 10 cos. studied. The
stagnation in the nation’s industrial sector was driven home again on
Monday, as shares in state-run Bharat Heavy Electricals plunged 19 per
cent, after the country’s largest power equipment manufacturer by sales
released unexpectedly weak earnings. The group’s figures are only the latest in a series of
disappointing results from companies providing capital goods to India’s
power and infrastructure sectors, as well as those supplying other
struggling heavy industries, such as steel and car making.
Telegraph:
Xinhua:
- China
Xiamen Bans Govt Debt If Exceeds Fiscal Ability. Xiamen city in the
eastern Chinese province of Fujian starts new rules this month to
regulate local governments' borrowing in order to prevent risks, citing
the city's fiscal bureau. Govts' debt will not be approved if the source
for repayment is not clear, funds of the debt are used for projects
banned by the government, the borrowing is more than governments' fiscal
capability, citing the rules.
China Securities Journal:
- China Should Speed Up Fiscal, Tax Reform. China should speed up
fiscal, tax reform to reduce local governments' dependence on land sale
revenues, says a front-page commentary written by reporter Gu Xin. China
should also allow local governments to see bonds in order to guard
against the growth of "hidden" debt, the commentary said.
Economic Infomation Daily:
- China May Announce Long-Term Property Controls. China may this
year announce property control policies that have long-term effects,
citing Zhu Zhongyi, vice chairman of the China Real Estate Association.
Zhu made the comments at a real estate forum in Hainan province's Boao.
The nation will use more tax, credit and other economic measures to
control the property market, the report said, citing Zhu.
Evening Recommendations
Night Trading
- Asian equity indices are -1.0% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 136.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 108.0 +.75 basis point.
- NASDAQ 100 futures -.35%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to rise to 335K versus 333K the prior week.
- Continuing Claims are estimated to fall to 3000K versus 3018K prior.
- Empire Manufacturing for August is estimated to rise to 10.0 versus 9.46 in July.
- The Consumer Price Index for July is estimated to rise +.2% versus a +.5% gain in June.
- The CPI Ex Food and Energy for July is estimated to rise +.2% versus a +.2% gain in June.
9:00 am EST
- Net Long-Term TIC Flows for June are estimated at -$17.5B versus -$27.2B in May.
9:15 am EST
- Industrial Production for July is estimated to rise +.3% versus a +.3% gain in June.
- Capacity Utilization for July is estimated to rise to 77.9% versus 77.8% in June.
- Manufacturing Production for July is estimated to rise +.2% versus a +.3% gain in June.
10:00 am EST
- The NAHB Housing Market Index for August is estimated at 57.0 versus 57.0 in July.
- The Philly Fed for August is estimated to fall to 15.0 versus 19.8 in July.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Bullard speaking, UK retail sales reports, weekly EIA natural gas
inventory report, weekly Bloomberg Consumer Comfort Index and the (F)
analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.
Click Here for Today's Market Take.
Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 12.89 +4.71%
- Euro/Yen Carry Return Index 135.60 -.17%
- Emerging Markets Currency Volatility(VXY) 9.38 +.32%
- S&P 500 Implied Correlation 49.14 +2.48%
- ISE Sentiment Index 148.0 +21.31%
- Total Put/Call .80 +5.26%
Credit Investor Angst:
- North American Investment Grade CDS Index 75.34 +.07%
- European Financial Sector CDS Index 133.83 -.29%
- Western Europe Sovereign Debt CDS Index 82.50 +.61%
- Emerging Market CDS Index 300.51 +2.50%
- 2-Year Swap Spread 17.75 -.5 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -8.75 unch.
Economic Gauges:
- 3-Month T-Bill Yield .05% unch.
- China Import Iron Ore Spot $142.80/Metric Tonne +.71%
- Citi US Economic Surprise Index 39.0 -1.2 points
- Citi Emerging Markets Economic Surprise Index -29.20 +.4 point
- 10-Year TIPS Spread 2.22 -3 bps
Overseas Futures:
- Nikkei Futures: Indicating -130 open in Japan
- DAX Futures: Indicating +5 open in Germany
Portfolio:
- Slightly Lower: On losses in my retail/tech/medical/biotech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Merkel Warns Against Debt Perils as She Begins Re-Election Bid. Chancellor
Angela Merkel warned against the perils of excessive debt as she began
campaigning for Germany’s Sept. 22 election, seeking to defend her lead
in the polls to clinch a third term. Addressing a crowd of more than
1,000 in the Hessian city
of Seligenstadt today, Merkel embraced a report that the 17-nation euro
area had emerged from recession as “good news,”
though she said growth must not be based on debt. “We’ve seen what can happen if you accumulate too much
debt,” Merkel said. Higher borrowing costs spur rising interest
rates, putting businesses in danger, she said. “Then you have
unemployment -- and at that point you have a spiral."
- European Stocks Climb for Fifth Day on Euro-Area Growth.
European stocks rose for a fifth day, with the benchmark Stoxx Europe
600 Index advancing to a 12-week high, as a report showed the euro
area’s economy emerged from a record-long recession in the second
quarter. Subsea 7 SA, an offshore oil services provider, surged the most
in three years after reporting a smaller-than-expected quarterly loss.
Rentokil Initial Plc (RTO) jumped to the highest price in more than two
years after reporting an
increase in first-half earnings and sales. RWE AG lost 4.5 percent after
second-quarter net income missed analysts’ estimates. The Stoxx 600 rose 0.3 percent to 308.62 at the close of trading.
- India Inflation Tops Estimates as Rupee Plunge Tests Rajan. Indian inflation accelerated more
than economists estimated in July as a plunging rupee stoked
import costs, with the central bank today announcing curbs on
foreign-exchange outflows to try and support the currency. The
wholesale-price index rose 5.79 percent from a year earlier, a
five-month high that exceeded the median 5 percent estimate in a
Bloomberg News survey of 34 analysts, a government report showed today. The Reserve Bank of India later reduced the
amount some companies can invest overseas, as well as the limit
on resident individuals’ remittances abroad.
- Cathay Profit Misses Estimates on Cargo Slump, North Asia.
Cathay Pacific Airways Ltd. (293), Asia’s biggest international
carrier, reported first-half profit that missed analyst estimates as
cargo revenue dropped and declining yields in North Asia masked gains
from carrying more passengers. Net income totaled HK$24 million ($3.1
million) in the six months ended in June, Cathay said in a stock
exchange statement today, compared with the HK$590 million median profit
estimate in a Bloomberg News survey of five analysts. It was the
smallest profit in at least 15 years for the Hong Kong-based airline.
- S&P
500 Valuation vs VIX Shows Concern Lacking: Chart of the Day. Investors
are becoming overly content about the prospects for stocks after more
than four years of gains, according to David Bianco, chief US equity
strategist at Deutsche Bank AG. Bianco's P/E-VIX ratio closed yesterday
at 1.2. At that level, a lack of concern that share prices may fall
starts to supplant "realistic and disciplined" investing, he wrote.
- Janus Funds Post Highest Withdrawals in More Than Three Years.
Janus Capital Group Inc. (JNS) had its biggest monthly mutual-fund
withdrawals in more than three years after a large client pulled money
from the money manager’s oldest fund. Investors pulled a net $2.2
billion from the Denver-based company’s long-term funds in July, the
most since May 2010, according to research firm Morningstar Inc. (MORN) A
single client redeemed $1.3 billion from the now $7 billion Janus Fund
in July, John Groneman, head of investor relations at Denver-based
Janus, said today in a telephone interview.
Wall Street Journal:
- Egypt's Deadly Crackdown Spurs Street Violence. Health Ministry Says 149 Killed in Effort to Clear Antigovernment Sit-Ins in Cairo. Egypt's efforts to end Muslim Brotherhood protests turned deadly
Wednesday morning, with well over 100 people killed across the country
in violence set off when police, later backed by Egyptian soldiers,
moved in against two antigovernment sit-ins in Cairo. The move to clear supporters of former President Mohammed Morsi,
which had been anticipated since his ouster by the military on July 3,
set off violent upheaval across Cairo. Protesters tried to storm police
stations across Egypt's capital, while entire neighborhoods succumbed to
fighting between neighbors on opposite sides of the political divide,
an early taste of the bloodshed that has been feared for weeks by many
Egyptians. Several observers worried that the violence has spiraled
out
of control and taken on sectarian shadings. Egypt's interim president
declared a monthlong national state of emergency to start Wednesday
afternoon.
Fox News:
- Former Rep. Jesse Jackson Jr. sentenced to 30 months in prison. Former Rep. Jesse Jackson Jr. was sentenced to two and a half years
in prison Wednesday after pleading guilty to scheming to spend $750,000
in campaign funds on TV's, restaurant dinners, an expensive watch and
other costly personal items. His wife received a sentence of one year. Jackson, the 48-year-old son of civil rights leader Jesse Jackson,
had been a Democratic congressman from Illinois from 1995 until he
resigned last November. In an emotional speech to the judge during which
he became choked up and used tissues to blow his nose, he apologized
and said he wanted to "take responsibility for my actions." "I misled the American people," he said.
CNBC:
- Mortgage apps defy rate dip, hit lowest in more than a month. Applications for U.S. home loans fell last week to their lowest level in
more than a month despite a slight decline in interest rates, data from
an industry group showed on Wednesday. The gauge of loan requests for home purchases, a leading indicator of
home sales, fell 5.4 percent, resuming a downward trend that was
interrupted with a slight rise the prior week.
- Newly revealed Obamacare delay draws fire. Obamacare
might not be a "train wreck," but the wheels sure do keep coming off of
it. Yet another delay in a key part of the Affordable Care Act gave
critics more ammunition and raised further questions about the Obama
administration's authority to delay implementing sections of the law
without congressional approval.
Zero Hedge:
Business Insider:
Minyanville:
Yahoo:
- Away from Egypt, Bahrain’s Own Arab Spring Uprising Heats Up Again. While violence rages in Cairo, the dysfunctional epicenter of the Arab
Spring, another unresolved conflict from that season of unrest in the
region is flaring. Amid increasing tension and violence in the tiny Gulf
kingdom of Bahrain, pro-democracy protesters planned to mass in
nationwide demonstrations on Wednesday that marked the
two-and-a-half-year anniversary of the nation’s own frustrated Arab
Spring moment.
Derivatives Intelligence:
- Asian Emerging Markets Spreads Widen On China Fears. Spreads
on Asia's emerging market credit default swaps have widened in the last
three months, as prices on developed market CDS have tightened,
according to data from Markit. And China's economic situation suggests
the trend may be set to strengthen.
Reuters:
- Deere(DE) posts strong profit, but farmbelt spending a concern. Deere &
Co (DE.N) reported a much higher-than-expected quarterly profit on
Wednesday on strong sales of its tractors and harvesters in the
Americas, but some
analysts said the results represented the high-water mark for the
company in the current farm cycle.
Deere also said sales for the current quarter would be 5 percent lower than a year earlier. Its shares fell more than 1 percent.
- Macy's(M) same-store sales fall 0.8 percent. Macy's
Inc on Wednesday reported lower-than-expected sales and profit, citing
consumers' limited willingness to spend on non-essentials, leading the
department store chain to reduce prices on items.
Macy's, which also operates the upscale Bloomingdale's
chain, reported net income of $281 million, or 72 cents a share,
for the quarter that ended Aug. 3, up slightly from $279
million, or 67 cents per share a year earlier. That was six
cents per share less than expected, according to Thomson Reuters
I/B/E/S, The retailer said comparable sales and overall sales fell
0.8 percent. Analysts expected comparable sales to be up 2.3
percent.
Style Outperformer:
Sector Outperformers:
- Gold & Silver +4.39% 2) Steel +.81% 3) Biotech +.39%
Stocks Rising on Unusual Volume:
- WAGE, HMIN, JKS, GDP, TTM, AG, PAAS, ZLC and IMGN
Stocks With Unusual Call Option Activity:
- 1) PAYX 2) BRCD 3) CREE 4) XLU 5) M
Stocks With Most Positive News Mentions:
- 1) TXN 2) MRVL 3) SCHW 4) DE 5) PGR
Charts:
Evening Headlines
Bloomberg:
- Whither China Seen in Australia as RBA Notes Slowdown: Economy.
From his Manhattan office, Steven Englander looks to commentary from
policy makers and executives
in Sydney, not Beijing, for the best take on China’s economy. “They get a
direct, immediate view of China demand for highly cyclical products and
have an incentive to give it a close read, so if they are sensing an
extended slowdown I would take their views seriously,” said Englander,
58, head of Group of 10 currency strategy at Citigroup Inc. “It may
be better to have an accurate view of a limited but important segment of
Chinese demand, than an uncertain view of aggregate demand.” Doubts
over the accuracy of Chinese data focus attention on readings and
statements more than 3,500 miles south of Beijing, to Australia, China’s
biggest iron-ore supplier. The Reserve Bank of Australia said Aug. 9
China’s growth isn’t likely to “pick up much, if at all, in coming
quarters,” while Prime Minister Kevin Rudd has flagged the danger of a
Chinese credit
crunch in a re-election pitch based on economic management.
- Japan Studies Ice Wall to Halt Radioactive Water Leaks. Turning soil into virtual permafrost with refrigerated coolant piped
through the earth was first used in the 1860s to shore up coal mines.
One hundred and fifty years on, it’s the newest idea for containing the
Fukushima nuclear disaster.
- Indian Submarine Sinks After Explosion With 18 Sailors Aboard. An Indian submarine sank at a navy
facility near Mumbai with 18 sailors trapped on board after an
internal explosion triggered a fire. The cause of the blast and the sailors’ condition wasn’t
yet known, the Indian Navy said in an e-mailed statement. The
explosion occurred shortly after midnight and the submarine is
partially submerged in a navy dock, the navy said.
- Dollar Strengthens as Commodities Fall; Asia Stocks Mixed.
The dollar strengthened and most
commodities declined, while Asian stocks swung between gains and
losses. Bonds fell in Asia after the 30-year Treasury yield
approached a two-year high on signs of faster U.S. growth. The Bloomberg
Dollar Index advanced for a third day, the
longest winning streak since June. South Korea’s won slid 0.4 percent
versus the greenback as of 11:50 a.m. in Tokyo, Brent crude fell 0.4
percent and Aluminum dropped 0.5 percent. The MSCI Asia Pacific Index rose less than 0.1 percent
as a storm delayed trading in Hong Kong. Australia’s 10-year bond yield
climbed to a one-month high after the 30-year Treasury yield
added 13 basis points in the last two days.
- Rebar Snaps 10-Day Rally in Shanghai as Steel Mills Sell Futures.
Steel reinforcement-bar futures in Shanghai fell for the first time in
11 days as steel mills and investors sold to take advantage of prices at
the highest level in four months. Rebar for January delivery on the
Shanghai Futures Exchange fell 0.6 percent to 3,815 yuan ($623) a metric
ton at 10:33 a.m. local time. The contract closed at 3,838 yuan yesterday, the highest close for a most-active contract since April 12.
- Rubber Climbs to Highest in 11 Weeks as Weaker Yen Boosts Appeal. Rubber advanced to the highest level
in 11 weeks as a weakening Japanese currency made yen-based
contracts more attractive and data yesterday added to signs the
global economy is improving. Rubber for delivery in January on the Tokyo Commodity
Exchange rose as much as 1.5 percent to 269 yen a kilogram
($2,739 a metric ton), the highest level for a most-active
contract since May 29. Futures traded at 266.6 yen at 10:54 a.m.
and have lost 12 percent this year.
- Mexico Plans Oil Reserve Sweetener to Lure Exxon(XOM), Chevron(CVX). Mexico
has come up with an
inducement for private companies such as Exxon Mobil Corp. (XOM) to bid
on contracts that would end a 75-year state energy monopoly. Though the government will retain ownership of oil, President Enrique Pena Nieto plans to lift restrictions on
companies registering the value of contracts with the U.S.
Securities and Exchange Commission, Deputy Energy Minister
Enrique Ochoa said in an interview today. Those values could
then be converted into volume and recognized on balance sheets.
- Merkel Blasts Tax Increases as ‘Poison’ as She Starts Campaign. German
Chancellor Angela Merkel blasted tax increases as “poison” as she waded
into the German election campaign vowing to remain in office for the
full four-year legislative period if she wins a third term. Speaking
in Berlin after returning from a two-week vacation, Merkel rebuffed the
charge that her election effort is excessively cautious. She cited
“very clear” differences with the opposition Social Democrats over
taxes, which SPD chancellor candidate Peer Steinbrueck has pledged to
raise.
- Fed Seen Slowing QE in September by 65% of Economists in Survey. Sixty-five percent of economists in
a Bloomberg survey said Federal Reserve Chairman Ben S. Bernanke
will probably reduce the central bank’s $85 billion in monthly
bond purchases in September. The Federal Open Market Committee’s first step will
probably be small, with monthly purchases tapered by $10 billion
to a $75 billion pace, according to the median estimate in a
survey of 48 economists conducted Aug. 9-13. The Fed will end
the buying by the middle of 2014, they said. In a survey last
month, half of economists predicted a Fed reduction in bond
buying at the next scheduled meeting Sept. 17-18.
Wall Street Journal:
- U.S. Agrees Not to Prosecute 'London Whale'. Criminal Charges Against Two Others Could Come as Early as Wednesday.
The J.P. Morgan Chase & Co. trader known as the "London whale"
has reached an agreement with federal authorities to avoid criminal
prosecution over a $6 billion
trading loss, but two former colleagues are expected to be charged as
soon as Wednesday, according to people close to the case.
- Buyers Tackle a Fear of Debt.
After Selloff in May and June, Money Is Pouring Back Into Corporate
Bonds. Investors aren't afraid of the bond market anymore. After a broad
selloff in May and June, investors are pouring money
back into corporate bonds and riskier types of debt, some with complex
structures and favorable terms for issuers. Pension funds, insurance
companies, mutual funds and hedge funds are resuming a hunt for higher
yields that petered out earlier this spring when the Federal Reserve
said it may begin to wind down its $85 billion-a-month bond-buying
program, known as quantitative easing.
- Strassel: Behind an Ethanol Special Favor. An Alon USA Energy refinery in Louisiana was the only one—out of 143—exempted from an EPA mandate. Why? Why does the public demand transparency in government? Read on.
- Problems With Authority. Lawless regulators and the White House earn a judicial rebuke. President Obama asserted the unilateral power to "tweak" inconvenient
laws in last Friday's news conference, underscoring his Administration's
increasingly cavalier notions about law enforcement. So it's good that
the judiciary—a coequal branch of government, in case the Administration
forgot—is starting to check the White House.
MarketWatch.com:
CNBC:
- As bears growl, fund managers' optimism shoots up. Global fund managers are more upbeat about the world economy, and
optimism about the euro zone doubled in the last month to a nine-year
high, according to a new survey. The Bank of America Merrill
Lynch monthly global fund manager survey showed more fund managers were
upbeat in August than at any time since December 2009. A net 72 percent
of managers were optimistic that the world's economy would pick up over
the next 12 months, up 20 percent from July.
Zero Hedge:
- US Treasury Finally Admits The Truth: It's All POMO. So, thanks to the US Treasury, we know that between January 2009
and April 2013, on days in which the Fed POMO was more than $5 billion,
the stock market rose a total of 570 points, on days in which the POMO
was less than $5 billion, the cumulative stock market gain was "only"
141 points, and when there was no POMO, the S&P gained... -51 points.
Business Insider:
New York Times:
- Few Clues to Regulatory Goals of Fed Rivals. Lawrence H. Summers, as Treasury secretary, presided over the group of
senior Clinton administration officials who reached the fateful decision
in the late 1990s that there was no need to regulate a new family of
financial transactions known as over-the-counter derivatives. Janet
Yellen attended some of those meetings, too, as chairwoman of President
Clinton’s Council of Economic Advisers. But she did not speak.
Reuters:
- Textron Systems(TXT) eyes rising foreign demand for drones, weapons. Textron
Systems, a unit of Textron Inc , says strong demand from the Middle
East and Asia for unmanned systems, ground vehicles and smart weapons
will help expand foreign sales to about half of the division's total
revenues in coming years. Ellen Lord, president and
chief executive officer of Textron Systems, said international sales
had already grown to about 35 percent of total revenues from less than
10 percent in 2009, and would continue to expand toward a 50-50 split in
coming years.
- China investigating carmakers over pricing: industry body. A Chinese automotive
association is collecting data on the price of all foreign cars
sold in the country for a government agency that has fined
companies for price-fixing in sectors ranging from milk powder
to jewellery, officials at the industry body said.
- Euro zone may exit from recession yet give little to cheer about.
The euro zone economy may learn later on Wednesday that it has moved
out of its longest recession, needing seven quarters to dig up modest
growth in the three months to June. Data is expected to show growth in
the quarter - but just 0.2 percent, according to economists polled by
Reuters. In the first quarter it shrank by that amount. The overall
picture is expected to be mixed. Peripheral countries, such as Spain,
Greece and Portugal are struggling with high double-digit unemployment,
on-and-off political rows and painful austerity. By contrast, the
bloc's largest economy, Germany, is expected to have gathered speed.
France, the bloc's second-largest economy, and Germany release
second-quarter data early. They will be followed by overall euro zone
figures at 0900
GMT.
Financial Times:
- Tarnished outlook for Brazil steelmakers. Stagnant
demand for scrap metal, the raw material used in about 30 per cent of
Brazil’s steel production, according to the industry body Inesfa, is one
of the many signs that the long-awaited recovery of the country’s
steelmakers is yet to materialise.
Kyodo:
- Panel
to Propose Japan Defend Allies Under Attack. A Japanese govt panel on
security issues will propose that Japan help defend U.S. and other
allied nations when under attack by exercising its right to collective
self-defense, citing an interview with Shinichi Kitaoka, acting chairman
of the panel.
Shanghai Securities News:
- China 2H Fixed Asset Investment May Grow 19%-20%. China's 2H
fixed asset investment growth may be about 19%-20%, according to a
research report. China can't greatly expand fixed asset investment in
short-term because the government doesn't have much room in terms of
fiscal and monetary policy, the report said. Investment growth in
manufacturing and infrastructure will continue to slow, while real
estate may remain stable, according to the report.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 138.0 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 107.25 -1.5 basis points.
- NASDAQ 100 futures -.04%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Producer Price Index for July is estimated to rise +.3% versus a +.8% gain in June.
- The PPI Ex Food and Energy for July is estimated to rise +.2% versus a +.2% gain in June.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-1,500,000 barrels versus a -1,320,000 barrel decline the prior week.
Gasoline supplies are estimated to fall by -1,600,000 barrels versus a
+135,000 barrel gain the prior week. Distillate inventories are
estimated to rise by +1,000,000 barrels versus a +469,000 barrel gain
the prior week. Finally, Refinery Utilization is estimated to fall by
-.2% versus a -.4% decline the prior week.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Bullard speaking, China FDI data, Eurozone gdp report, German gdp
report, BoE minutes, NY Fed Household Debt/Credit report, weekly MBA
mortgage applications report and the Canaccord Growth Conference could
also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology 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.
Broad Equity Market Tone:
- Advance/Decline Line: Slightly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 12.49 -2.50%
- Euro/Yen Carry Return Index 135.71 +.98%
- Emerging Markets Currency Volatility(VXY) 9.25 +1.31%
- S&P 500 Implied Correlation 47.64 -3.33%
- ISE Sentiment Index 122.0 -2.40%
- Total Put/Call .75 -1.32%
Credit Investor Angst:
- North American Investment Grade CDS Index 75.48 -.17%
- European Financial Sector CDS Index 134.23 -1.67%
- Western Europe Sovereign Debt CDS Index 82.0 -1.20%
- Emerging Market CDS Index 292.17 -.18%
- 2-Year Swap Spread 18.25 +1.25 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -8.75 unch.
Economic Gauges:
- 3-Month T-Bill Yield .05% unch.
- China Import Iron Ore Spot $141.80/Metric Tonne +2.24%
- Citi US Economic Surprise Index 40.20 +2.2 points
- Citi Emerging Markets Economic Surprise Index -29.60 +.2 point
- 10-Year TIPS Spread 2.25 unch.
Overseas Futures:
- Nikkei Futures: Indicating +120 open in Japan
- DAX Futures: Indicating +23 open in Germany
Portfolio:
- Slightly Higher: On gains in my retail/tech/biotech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
