Click Here for Today's Market Take.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 14.95 -.99%
- Euro/Yen Carry Return Index 136.06 +.29%
- Emerging Markets Currency Volatility(VXY) 10.27 -1.53%
- S&P 500 Implied Correlation 52.03 -.25%
- ISE Sentiment Index 118.0 +11.32%
- Total Put/Call .90 -1.10%
Credit Investor Angst:
- North American Investment Grade CDS Index 82.26 -2.37%
- European Financial Sector CDS Index 146.25 +.46%
- Western Europe Sovereign Debt CDS Index 83.50 +1.83%
- Emerging Market CDS Index 326.19 -1.40%
- 2-Year Swap Spread 18.75 -.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -9.25 -.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- China Import Iron Ore Spot $139.0/Metric Tonne -.14%
- Citi US Economic Surprise Index 34.20 -.9 point
- Citi Emerging Markets Economic Surprise Index -31.50 -4.4 points
- 10-Year TIPS Spread 2.17 +3 bps
Overseas Futures:
- Nikkei Futures: Indicating +19 open in Japan
- DAX Futures: Indicating -3 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/retail sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 25% Net Long
Bloomberg:
- Asian Dollar Bond Yields Rise Most in 6 Weeks as Funds Exit Debt. Yields on U.S. dollar-denominated
bonds sold by Asian issuers rose the most in six weeks yesterday
as investors pull cash from the region in favor of more
developed economies. Bond risk climbed. Average rates rose 13 basis points, the most since July 8,
to 5.57 percent yesterday, according to JPMorgan Chase & Co.
indexes. The cost of insuring the region’s corporate and
sovereign bonds against non-payment meanwhile increased to the
highest level in almost six weeks, according to traders of
credit-default swaps.
- India May Delay Capital Infusion Into Banks as Stocks Slump. India may delay injecting capital
into state-run banks due to slumping stock prices, said Rajiv Takru, the Finance Ministry’s banking secretary. The government, which usually infuses capital into lenders
by buying their shares, doesn’t want to lose money as prices
slide, Takru said in an interview yesterday in New Delhi. He had
said on July 9 the government will inject as much as 140 billion
rupees ($2.2 billion) by the end of September to strengthen
banks’ risk buffers and bolster credit growth. The S&P BSE Bankex Index, which tracks 13 banks, has lost
31 percent from a record on May 17 as central bank steps to
support the rupee caused interbank rates to surge.
- UBS Sees Rupee at 70 as Rajan Lacking Magic Wand: India Credit.
Pictet Asset Management SA sees no
immediate policy fix as demand collapses for Indian rupee bonds,
prompting UBS AG to predict a further 10.5 percent slump in the
nation’s currency. Yields on 10-year government securities surged 130
basis points in the past month to a five-year high of 9.24 percent as
global funds cut holdings of local debt to a 19-month low of $28.7
billion on Aug. 13. The rate on similar Chinese notes rose 24 basis
points to 3.93 percent. The rupee has tumbled almost 14 percent since
March and touched an all-time low of 63.23 per dollar yesterday after
the Reserve Bank of India slashed the amount companies and individuals
can invest abroad. “We are not anticipating that India will take
strategic steps that bring sustainable flows in the immediate term,”
Philippe Petit, a Singapore-based senior investment manager at
Pictet, which manages $30 billion of emerging-market debt, said
in an interview on Aug. 16. “The aim should be to accelerate
inflows rather than curb outflows. The measures won’t
significantly ease the current account situation.”
- Rupee Drops to Record. India’s
rupee plummeted past 64 per dollar for the first time on concern
foreign outflows will accelerate as the Federal Reserve prepares to trim
stimulus. Overseas funds have pulled about $12 billion from local
debt and equities since May 22 when Fed Chairman Ben S. Bernanke
first signaled the central bank may pare its $85 billion monthly
bond-buying program. The rupee, which sank as much as 1.5 percent to touch an
unprecedented 64.12 a dollar, pared most of the losses on
speculation the Reserve Bank of India intervened to arrest the
slide, said two traders with knowledge of the matter, asking not
to be named as the information isn’t public. It ended the day at
63.23.
- Indonesia Stocks Drop for Fourth Day as Outflows Weaken Rupiah. Indonesian
stocks tumbled, capping
the biggest four-day plunge since 2011, amid growing concern
that capital outflows will accelerate. The rupiah dropped to the
weakest level in four years. The Jakarta Composite Index (JCI) fell 3.2
percent to 4,174.98, extending its four-day slide to 11 percent. The
gauge has
dropped 19.9 percent from its record close on May 20. The rupiah
fell 1.8 percent to 10,685 per dollar after reaching 10,728
earlier, the weakest level since April 2009, prices from local
banks show. The cost to insure Indonesian debt against default
rose to an almost two-year high yesterday, according to CMA. Five-year credit-default swaps insuring the Southeast Asian nation’s debt against default rose 43 basis points to 283 yesterday, according
to CMA.
- Thousands of Syrians Surge Into Iraq to Escape Collapse at Home. An economic collapse fueled by
bombings is pushing tens of thousands of Syrians to cross into
neighboring Iraq in the largest exodus since Syria’s civil war
erupted more than two years ago, the United Nations refugee
agency said. A group of 2,000 to 3,000 people is expected to cross into
northern Iraq today, following about 30,000 others who have made
the same trip since Aug. 15, Dan McNorton, a spokesman for the
UN High Commissioner for Refugees, told reporters today in
Geneva, according to an agency e-mail summarizing his comments.
- Bond Risk Climbs to Five-Week High in Europe on Tapering Concern. The cost of insuring corporate bonds
against losses rose for a second day in Europe on investor
concern the Federal Reserve will start curbing asset purchases
as soon as next month. The Markit iTraxx Europe Index of
credit-default swaps on
125 companies with investment-grade ratings gained 1.2 basis
points to 104 basis points at 9:11 a.m in London, the highest level
since July 17. The average yield on the debt climbed 4 basis points to a
six-week high of 2.1 percent, according to Bloomberg bond index data.
- Crude Drops for Second Day on Fed Tapering Speculation. West Texas Intermediate crude fell
for a second day amid speculation that the Federal Reserve will reduce stimulus measures next month, curbing investors’ appetite
for commodities. WTI for September delivery dropped 77 cents, or 0.7
percent, to $106.33 a barrel at 1:12 p.m. on the New York Mercantile
Exchange. It slipped 0.3 percent yesterday, snapping a six-day rally
that was the longest since April 25.
- Bubbles Bloom Anew in Desert as Buyers Wager on Las Vegas.
A five-bedroom house in Las Vegas sold in mid-July for $499,000, double
the price it went for three months ago. In Phoenix, a similar house
sold this month for $600,000, gaining $273,000 since March. Bubbles
are inflating in Nevada and Arizona even as housing in the rest of the
country recovers at a more sustainable pace. Gains in the two desert
cities are the biggest since the height of the real estate boom, just
before their plunge to the bottom of the national housing collapse.
This year, Las Vegas and Phoenix have topped the nation in price
increases, according to the S&P/Case-Shiller property-value
index. “They’re clearly in bubbles,” said Karl Case, one of the
creators of the index. “What can go up can go down -- real quick.” In
May, Phoenix prices jumped 21 percent and in Las Vegas, they rose 23
percent from a year earlier. Nationally, home prices were up 12 percent
from a year ago, the most since the beginning of 2006, according to the S&P/Case-Shiller index of 20 cities.
- BHP(BHP) Second-Half Profit Drops After Prices Slump, Slowing Growth. BHP Billiton Ltd. (BHP), the world’s biggest mining company, had a 6.9 percent drop in second-half
profit after growth in emerging economies slowed and metal
prices fell.
Profit, excluding one-time items, was $6.7 billion in the
six months to June 30, from $7.2 billion a year ago, according
to Bloomberg calculations. That missed a median forecast of $6.8
billion of seven analysts surveyed by Bloomberg.
- Home Depot(HD) Profit Tops Analysts’ Estimates on Housing. Net income in the quarter ended Aug. 4 advanced 17 percent to $1.8 billion, or $1.24 a share, from $1.53 billion, or $1.01,
a year earlier, the Atlanta-based company said today in a
statement. Analysts projected $1.21, the average of 25 estimates
in a Bloomberg survey.
Wall Street Journal:
- TransUnion: U.S. Auto Loan Delinquency Rate Slightly Higher in 2nd Quarter. The U.S. auto-loan delinquency rate rose slightly in the second quarter from
the same period a year ago, with delinquencies for subprime buyers remaining
somewhat flat, according to TransUnion. The credit-information company said the percentage of auto-loan accounts at
least 60 days past due moved up to 0.8% in the second quarter from 0.79% a year
ago, and was down from 0.88% in the first quarter. Average auto-loan account balances jumped 4% to $13,435 from $12,875 a year
earlier, with every state other than Michigan experiencing an increase in
average balances during the period. Even as subprime debt increased more than 7% in the past year, delinquencies
for subprime borrowers edged up to 5.02% from 4.94% last year. Delinquencies
also dropped from 5.5% from the first quarter.
Fox News:
MarketWatch:
- National activity index less negative in July. The national activity index produced by the Chicago Fed rose to a
negative 0.15 reading in July from negative 0.23 in June, and the
three-month average did virtually the same, rising to negative 0.15 from
negative 0.24 in June, the regional central bank said Tuesday. The
three-month average has been below zero for five straight months.
CNBC:
- Banks are falling short in planning for the worst, Fed says. Most large banks appear to have been sailing through the annual
"health checkups" they have had to undergo since the financial crisis. But on Monday, the Federal Reserve described some significant shortcomings in the banks' responses to the so-called stress tests.
Zero Hedge:
Business Insider:
New York Times:
- New Chinese Agency to Increase Financial Coordination. The Chinese authorities said Tuesday that they would set up a group to
coordinate financial regulation, in an apparent attempt to reduce risk
and wean the economy off of easy credit and steer it toward slower, more
sustainable expansion.
Reuters:
- S&P maintains negative outlook on India's rating. Standard & Poor's maintains its negative outlook on India's BBB- sovereign
credit rating, the rating agency said in an emailed response to Reuters on
Tuesday. Recent measures taken to restrict capital outflows have increased uncertainty
among foreign and domestic investors, said Kim Eng Tan, senior director,
sovereign and international public finance, Asia Pacific at S&P. "If the uncertainty continues, business financing conditions could
deteriorate further and investment growth could slow further," Tan
said. "India's long term growth prospects could weaken on a sustained basis, with
negative implications for the sovereign credit fundamentals," he said. "It is, however, too early now to tell if this scenario will come to pass.
This will be largely dependent on policymakers' reactions to these latest
developments," Tan said. India has the lowest investment grade rating and S&P is the only agency
which has a negative outlook while Moody's and Fitch have a stable outlook on
India.
- Tight cost controls boost Best Buy's(BBY) profit. Best Buy Co Inc (BBY.N) reported its first quarterly profit in a year after keeping a tight lid on costs, further confirming that Chief Executive Officer Hubert Joly's
turnaround plan for the world's largest consumer electronics chain is
working.
- Global steel output up in July on US, Chinese increases.
Global crude steel production rose in July as a recent price upturn
helped boost output in top producer China and in the United States,
while suffering European steelmakers continued to curb volumes. World production rose 2.7 percent to 132 million tonnes in July from the same month a year ago, figures from industry body the World Steel Association showed on Tuesday.
Financial Times:
- Asia’s debt conundrum reawakens ghosts of 1990s crisis.
When China unleashed the largest stimulus package in its history in
response to the 2008 crisis and slowing export markets in the west, it
came at a price. Today China is grappling with a bill that some
economists say has driven total debt to gross domestic product past 200
per cent. While China offers the most extreme example of using debt to
fund growth, it is a pattern that has been repeated across Asia.
Without exports, central banks turned on the taps, leading to a jump in
household and corporate borrowing.
Telegraph:
Echoing fears that
European policymakers remain in a state of cognitive dissonance –
recognizing the need for root-and-branch overhaul of peripheral banks,
but backtracking on joint liability plans – Christopher Flowers, the
legendary FIG investor who now runs the £2.3 billion ($3.5 billion)
private equity group JC Flowers, sounded the alarm over the negative
sovereign-bank feedback loop.
In a shot across the bows of market bulls, who cite the return of
capital flows to weaker eurozone states, Flowers issued a stark warning:
"There is a scenario where we have a Lehman-type event: we wake up some
Thursday and a big country is in trouble.
"And the ECB will have to decide to support banks x, y, z. And then the
ECB will, in fact, decide to own bank x, y, z.
While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true
Valor Economico:
- Brazil Concerned About Losing Control of Currency. Govt's
economic team is more concerned about possibility of BRL falling to
2.5/dollar or 2.70/dollar than potential pass-through of FX depreciation
to inflation, columnist Claudia Safatle reports. Govt expects effect of
FX depreciation on domestic prices to be partly neutralized by economic
slowdown, which makes it harder for cos. to adjust prices.
- Brazil's Figueiredo Says Swap Rates May Cause Recession.
Style Underperformer:
Sector Underperformers:
- 1) Steel -.23% 2) Agriculture -.15% 3) Medical Equipment -.02%
Stocks Falling on Unusual Volume:
- ANW, PUK, AEG, TCK, HMC, BHP, TTM, PTR, STO, Z, BKS, DKS, PWRD, AMAP, CODE, HTHT, RVBD, NTI, MKTO, SSNI, QIHU, ALDW, VIPS, QUAD, RNF, TSO, TLK, MDT, LQDT and PHI
Stocks With Unusual Put Option Activity:
- 1) JNK 2) IYT 3) JOY 4) JWN 5) JNPR
Stocks With Most Negative News Mentions:
- 1) DO 2) RVBD 3) NFLX 4) TGT 5) PNRA
Charts:
Style Outperformer:
Sector Outperformers:
- Gold & Silver +2.85% 2) REITs +2.05% 3) Retail +1.77%
Stocks Rising on Unusual Volume:
- TIVO, BBY, URBN, NTES, PIR, ANN and TJX
Stocks With Unusual Call Option Activity:
- 1) K 2) JWN 3) URBN 4) SH 5) TJX
Stocks With Most Positive News Mentions:
- 1) ANN 2) NLSN 3) HD 4) ONXX 5) TJX
Charts:
Evening Headlines
Bloomberg:
- Egypt Army Looms Over Politics as Deadly Crackdown Cements Power. Hend Soliman said she knows exactly
who should lead Egypt out of a state of emergency after last
week’s bloody suppression of Islamist protests: a military man. “We need an iron fist,” said Soliman, 37, a manicurist in
Cairo. “These people know the country and how to run it.” While the conflict has led to further divisions among
Egyptians, there are signs many of those opposed to former
President Mohamed Mursi are allying with the military leaders
who ousted him rather than the civilian politicians appointed to
steer the Arab state toward elections.
- Muslim Brotherhood Leader Arrested in Egypt as Death Toll Mounts. The
spiritual leader of Egypt’s Muslim Brotherhood was arrested in Cairo as
part of an army crackdown on supporters of ousted President Mohamed
Mursi that has killed about 1,000 people. Mohammed Badie was detained in
an apartment in the Rabaa
district and accused of giving instructions to Muslim
Brotherhood supporters nearby who were protesting Mursi’s
removal by the military on Feb. 3, said Public Security
Department spokesman Yasser Abdel-Rauf. The Brotherhood’s
Freedom and Justice Party also said on its website that Badie
had been arrested along with fellow member Youssef Talaat.
- JPMorgan(JPM)
Says Buy Indian Options as Swings Widen on Rupee. India's biggest
stock-market swings in 16 months are poised to continue, boosting
options prices as the prospect of reduced Federal Reserve stimulus spurs
further weakness in the rupee, according to JPMorgan Chase. The India
VIX, which measures the cost of Nifty index options, surged 37% in the
past 2 days. The last time it jumped this much, in August 2011, the
Nifty lost 8% in two weeks.
- Rupiah Forwards Plunge to Lowest Since 2009 as Bond Risk Surges. Rupiah
forwards slumped to a four-year low after Indonesia’s debt risk surged
to the highest since October 2011 on concern the Federal Reserve will
taper stimulus that has driven funds into emerging-market assets. Five-year credit-default swaps insuring the Southeast Asian nation’s debt against default has risen 56 basis points to 283
since the central bank kept its reference rate at 6.5 percent on
Aug. 15, according to CMA, which is owned by McGraw-Hill Cos.
- Indonesia Stocks Drop as Index Falls as Much as 20% From Peak. Indonesia stocks declined for a
fourth day, sending the benchmark index down as much as 20
percent from its record high three months ago. The Jakarta Composite Index (JCI) fell 2.7 percent to 4,197.09 as of 10 a.m. local time, extending its four-day drop to 11
percent, as trading volumes climbed to 43 percent above the 30-day average. The gauge lost as much as 3.4 percent to 4,167.59,
versus its closing record of 5,214.98 on May 20. Financial
shares were the biggest drag on the index, with PT Bank Mandiri
sinking 3.9 percent to the lowest level since July 2012.
- China
Money-Market Rate Climbs to 2-Week High on Policy Concern. China's
benchmark money-market rate rose to the highest level in more than two
weeks and swaps advanced on concern about the direction of monetary
policy. "The PBOC is still not very transparent on their intent to relax
monetary policy," said Rees Kam, a strategist at SJS Markets Ltd., a
Hong Kong-based financial services company that specializes in fixed
income. "The market is not very clear on their intent, whether they will
inject a lot of liquidity. The auction will have an impact on the yield
as well." The seven-day repurchase rate, a gauge of funding
availability in the banking system, climbed 29 basis points to 4.47% as
of 11:32 am in Shanghai, the highest level since Aug. 5.
- China Won’t Barter Away Territorial Interest, Chang Says. China
is prepared to defend its interests and won’t trade away its
territorial claims in the Asia-Pacific region, General Chang Wanquan,
the country’s Defense Minister, said during a visit to the Pentagon.
While China prefers to solve disputes in the region through “dialogue
and negotiation, no one should fantasize that China would barter away
our core interests,” Chang said at a news conference yesterday in
Washington alongside U.S. Defense Secretary Chuck Hagel. “No one should underestimate our will and determination in defending our territorial sovereignty and
maritime rights.”
- Thai Baht Slumps to One-Year Low as Economy Enters Recession.
Thailand’s baht slumped to a one-year low after Southeast Asia’s
second-largest economy entered a recession for the first time since
2009. Government bonds were little changed. Gross domestic product
unexpectedly decreased 0.3 percent in the three months through June from
the previous quarter, when it contracted a revised 1.7 percent, the
National Economic and Social Development Board said yesterday. The
agency cut its 2013 expansion forecast to 3.8 percent to 4.3 percent
from 4.2 percent to 5.2 percent.
- Asian Stocks to Aussie Bonds Drop as Ringgit, Baht Slide.
Asian stocks fell for a fourth day after U.S. Treasury yields reached a
two-year high. Currencies from Malaysia to Thailand declined amid an
emerging market exodus that’s seen investors withdraw $8.4 billion from
exchange-traded funds this year. The MSCI Asia Pacific Index lost 0.4 percent at 12:08 p.m. in Tokyo. Indonesia’s Jakarta Composite Index dropped 3 percent,
taking a four-day rout beyond 10 percent.
- Rubber Declines as Oil Rally Stalls, Thailand Enters Recession. Rubber declined the most in a week
as a drop in oil eased speculation that prices of competing
synthetic products will increase and as Thailand, the biggest
producer, entered a recession for the first time since 2009. Rubber for delivery in January fell as much as 1.6 percent
to 262.3 yen a kilogram ($2,685 a metric ton), the most for a
most-active contract since Aug. 13, and traded at 263.8 yen on
the Tokyo Commodity Exchange at 12:09 p.m. local time.
- Rebar Swings as Investors Weigh Rising Demand With Higher Output. Steel reinforcement-bar futures
swung between gains and losses as investors weighed increasing
production at Chinese steel mills against prospects of stronger demand. Rebar
for January delivery rose 0.3 percent to 3,824 yuan ($624) a metric ton
at 10:37 a.m. on the Shanghai Futures Exchange, after advancing as high
as 3,828 yuan and falling as
low as 3,801 yuan.
- Tombini Says Brazil Traders Pushed Market Interest Rates Too Far. Brazil’s central bank President
Alexandre Tombini said traders, who are now betting policy
makers will accelerate the pace of interest rate increases, have
pushed swap rates too far. “The recent movement seen in interest rates in the market
has incorporated excessive premium,” Tombini said in a
statement posted on the bank’s website today. Yields on swap contracts due in January 2015 have soared
0.94 percentage point to 10.66 percent in the past week,
indicating traders are pricing in the likelihood that borrowing
costs may rise by as much as 75 basis points, or 0.75 percentage
point, at this month’s monetary policy meeting. A week ago, they
were betting on a 50 basis point increase in August.
- Dubai Sees Need for Tallest Office Tower Amid 45% Vacancy. In Dubai, where almost half of the
offices sit empty, the head of a state-owned business zone says
there’s room to build the world’s tallest office tower. Ahmed Bin Sulayem, chairman of the Dubai Multi Commodities
Centre, said the Persian Gulf business hub can still attract
tenants and investors with such a project because many of its
buildings are unsuitable for large businesses. Bin Sulayem
helped lead the development of the DMCC’s 68-story Almas Tower,
Dubai’s tallest building when it was completed in 2007. The
tower’s full and has a waiting list for tenants, he said. Dubai’s
speculation-driven property boom saddled the
Persian Gulf sheikhdom with thousands of offices that are
unattractive to businesses because of their design, location or
ownership. Companies looking for at least 5,000 square meters
(54,000 square feet) are frequently unable to find what they want and
are increasingly looking for “built-to-suit” deals, broker Jones Lang
LaSalle Inc. (JLL) said in an April 14 report. About 45 percent of the
city’s offices are empty, according to CBRE
Group Inc., another broker.
Wall Street Journal:
- Allies Thwart America in Egypt. Israel, Saudis and U.A.E. Support Military Moves. The U.S.'s closest Middle East allies are undercutting American policy
in Egypt, encouraging the military to confront the Muslim Brotherhood
rather than reconcile, U.S. and Arab officials said. The parallel efforts by Israel, Saudi Arabia and the United Arab
Emirates have blunted U.S. influence with Egypt's military leadership
and underscored how the chaos there has pulled Israel into ever-closer
alignment with those Gulf states, officials said. A senior Israeli
official called the anti-Muslim Brotherhood nations "the axis of
reason." The Obama administration first had sought to persuade Egyptian
military leader
Gen. Abdel Fattah Al Sisi not to overthrow the elected government of
President Mohammed Morsi and then to reconcile with his Muslim
Brotherhood base. Gen. Sisi has done the opposite—orchestrating the
president's
overthrow and a crackdown in which over 900 people have been killed
since Wednesday—reflecting his apparent confidence in the Egyptian
government's ability to weather an American backlash, U.S. and Arab
officials said.
- J.P. Morgan(JPM) Faces New Probe on Energy Trades. Justice Department Investigation Is Latest Legal Hurdle for Bank. The Justice Department is investigating whether J.P. Morgan Chase & Co. manipulated U.S. energy markets,
according to people familiar with the case, marking the latest legal
hurdle for a bank already facing a mountain of litigation and regulatory
scrutiny. J.P.
Morgan last month agreed to pay $410 million to settle allegations
raised by the Federal Energy Regulatory Commission that the bank
manipulated markets in California and the Midwest. J.P. Morgan, the
nation's largest bank by assets, didn't admit to wrongdoing as part of
the settlement.
- Cash-Poor Companies Feed Investor Hunger for 'Happy Meals'. Critics
Say Deals Can Exacerbate Problems for Issuing Companies. When Energy
Conversion Devices Inc. needed cash, the struggling
solar-panel maker turned itself into what Wall Street likes to call a
"Happy Meal." To make $316 million in bonds more appetizing, the company agreed to
lend millions of its shares to hedge funds buying the bonds so they
could simultaneously sell the stock in a bet against Energy Conversion's
success. A subsequent crisis in the solar-power industry hit Energy Conversion
hard. The bonds, issued in 2008, plunged in value, and last year the
company filed for bankruptcy protection, wiping out shareholders. But
the negative wagers paid off for the hedge funds. A Wall Street Journal
examination showed that hedge funds that bought the bonds were
positioned to earn upward of 20% on their investments.
- Fear of Fed Retreat Roils India. Economic Weakness in Developing Nations Is Laid Bare as Easy Money Dries Up. The U.S. Federal Reserve's plan to reduce monthly bond purchases is
exposing the deep-seated fragility of India's economy, unnerving
investors and underscoring the risks to emerging markets at a time of
rising global interest rates. India's stock market tumbled 1.6% Monday, adding to a 4% decline
Friday, and the rupee hit a fresh low against the dollar.
Government-bond prices slumped, sending yields sharply higher.
- The Die Harder States. Minnesota has increased the incentive to move to Florida. The think tank's conclusion should be required reading for policy makers
in every state still imposing a death tax: "If enough people move away
and stop paying Minnesota taxes, then Minnesota will experience a net
revenue loss due to the estate and gift tax." This will mean that people
making less than $1 million a year will be left paying the tab. So much
for spreading the wealth.
CNBC:
- China’s new leadership takes hard line in secret memo. Communist Party cadres have filled meeting halls around China to
hear a somber, secretive warning issued by senior leaders. Power could
escape their grip, they are being told, unless the party eradicates
seven subversive currents coursing through Chinese society. These seven perils were enumerated in a memo referred to as Document No.
9 that bears the unmistakable imprimatur of Xi Jinping, China's new top
leader. The first was "Western constitutional democracy"; others
included promoting "universal values" of human rights, Western-inspired
notions of media independence and civil society, ardently pro-market
"neo-liberalism," and "nihilist" criticisms of the party's traumatic
past.
- Spiking interest rates rattle the market's cage. Benchmark
10-year note yields climbed as high as 2.90 percent Monday, the highest
level since July 2011 and up from nearly 2.60 percent a week ago. Yields have gained more than a full percentage point since early May when Fed Chairman Ben
Bernanke first hinted the central bank may scale back its asset
purchases. Art Cashin, director of floor operations at UBS Financial
Services warned earlier Monday that "alarm bells" will go off for stocks
once the yield hit the 2.90 percent level, adding that rising interest
rates are already causing problems for equities in emerging markets.
"India is beginning to look particularly strange ... Indonesia is
getting pounded," Cashin told CNBC. "You don't usually have these at the
top of your list, but they lurk in the background."
Zero Hedge:
Business Insider:
Washington Post:
- U.S. Postal Service May Withdraw From Federal Health Plan. Postal Service officials have proposed withdrawing from FEHBP, which
also serves federal employees generally, in order to save money. In its
place, USPS would run its own health insurance plan. The proposal
requires congressional approval.
Reuters:
- Judge endorses U.S. use of fraud law against Bank of America. A federal judge has endorsed a
broad interpretation of a savings-and-loan era law that the U.S.
Justice Department is trying to use in cases against Wall Street banks. U.S. District Judge Jed Rakoff in Manhattan said Monday that a "straightforward application of the plain words" of the
Financial Institutional Reform, Recovery and Enforcement Act
(FIRREA) allowed the interpretation sought by the government.
- Fannie, Freddie should recognize bad loan costs immediately-watchdog. Fannie
Mae and Freddie Mac are possibly masking billions of dollars in losses
because of the level of delinquent home loans they carry, a federal
watchdog said on Monday, adding that the companies should immediately be
required to recognize the costs of some bad mortgages. In 2012, the
Federal Housing Finance Agency began work on accounting changes to
require the two housing finance firms to set aside loan loss reserves
for mortgages delinquent at least
180 days. The new standard is set to go into effect in 2015. In its report released on Monday, the FHFA's inspector
general called the timeline for implementation "inordinately
long."
- Bond funds have $19.7 bln outflow so far in August-TrimTabs. Investors have withdrawn $19.7
billion from bond mutual funds and exchange-traded funds so far
in August as fears of a pullback in the Federal Reserve's
stimulus continue to drive bond selling, data from research
provider TrimTabs Investment Research showed on Monday.
Financial Times:
- Fed advises US banks to lift capital targets. The
largest US banks should hold regulatory capital beyond their own
internal targets to better prepare them for periods of market stress,
according to a study published by the Federal Reserve on Monday.
Passauer Neue Presse:
- Merkel Tells Passauer She Rejects Joint Euro Region Bond Sales. German Chancellor Angela Merkal said she rejects opposition proposals to introduce euro bonds and a common European debt redemption fund. Merkel said "we reject both because we're convinced that this would set wrong incentives and prevent the necessary reforms in some countries".
China Securities Journal:
- China
Banks Shouldn't Mislead On Financial Products. Banks in China should
make a strict distinction between their own products and those they sell
for other companies and shouldn't mislead consumers when selling
financial products, citing a statement issued by the China Banking
Regulatory Commission yesterday.
Securities Times:
- Chinese banks should supervise and strictly approve lending to
local government projects as banks face risks in funding local
government projects, Wang Yong, an academic at the PBOC's Zhengzhou
training institute, says in an article published today.
21st Century Business Herald:
- China's Hebei to Cut 60m Ton Steel Capacity by 2017. Northern
Chinese province of Hebei will cut steel capacity by 60m tons by 2017 to
curb air pollution, citing 2 plans that the province plans to release
in the near term. Hebei will cut steel capacity by another 26m tons
2018-2020, according to the report.
Evening Recommendations
Night Trading
- Asian equity indices are -1.50% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 158.50 +17.5 basis points.
- Asia Pacific Sovereign CDS Index 122.75 +9.0 basis points.
- NASDAQ 100 futures -.01%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Chicago Fed National Activity Index for July is estimated to rise to -.1 versus -.13 in June.
Upcoming Splits
Other Potential Market Movers
- The UK 10Y bond auction and the weekly retail sales reports could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by financial and industrial 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: Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 15.01 +4.45%
- Euro/Yen Carry Return Index 135.74 +.05%
- Emerging Markets Currency Volatility(VXY) 10.26 +6.43%
- S&P 500 Implied Correlation 51.61 +2.32%
- ISE Sentiment Index 100.0 +28.21%
- Total Put/Call .89 -2.20%
Credit Investor Angst:
- North American Investment Grade CDS Index 83.19 +2.02%
- European Financial Sector CDS Index 145.61 +4.42%
- Western Europe Sovereign Debt CDS Index 82.0 -.35%
- Emerging Market CDS Index 331.79 +4.20%
- 2-Year Swap Spread 19.25 +.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -9.0 +.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- China Import Iron Ore Spot $139.20/Metric Tonne +.94%
- Citi US Economic Surprise Index 35.10 -1.5 points
- Citi Emerging Markets Economic Surprise Index -27.10 +2.4 points
- 10-Year TIPS Spread 2.14 -3 bps
Overseas Futures:
- Nikkei Futures: Indicating -158 open in Japan
- DAX Futures: Indicating -17 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/medical sector longs, index hedges and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
