Evening Headlines
Bloomberg:
- Asia’s Crisis of Leadership. The day Asian leaders have long dreaded is here: The era of rapid growth is over. It
has taken five years, but the fallout from what Asians call the “Lehman
shock” is finally hitting gross domestic product and living standards.
These risks are the talk of Bali, where Asia-Pacific Economic
Cooperation nations are mulling what to do about a world where “risks remain tilted to the downside.”
- Japan Current-Account Surplus Plunges to Record August Low. Japan’s
current-account surplus unexpectedly shrank to a record low for an
August, underscoring drags on the economy as Prime Minister Shinzo Abe
tries to drive an exit from 15 years of deflation. The surplus fell 64
percent from a year earlier to 161.5 billion yen ($1.7 billion), as
overseas income dropped for the first time in nine months and imports
exceeded exports, a Ministry of Finance report showed in Tokyo. The
median forecast in a Bloomberg News survey of 27 economists was for a
520 billion yen surplus.
- Asian Stocks Swing on Utilities, Telecom Services.
Asian stocks swung between gains and losses, with the regional
benchmark index trading near a three-week low, as telecommunication
shares dropped while utilities advanced. Tokyo Electric Power Co.
(9501), the owner of the crippled Fukushima Dai-Ichi nuclear power
plant, rebounded 5.9 percent after declining 20 percent over the past
five days. Cokal Ltd., a coal mine developer, slumped 22 percent in
Sydney after saying takeover talks with Blumont Group Ltd. were affected
by a record plunge in the buyer’s stock. Blumont soared 62 percent
today in Singapore after sinking 85 percent yesterday. Rakuten Inc.,
which operates a Japanese online mall, fell 12 percent after Yahoo Japan
Corp. said it would eliminate vendor fees for its
shopping and auction sites. The MSCI Asia Pacific Index climbed 0.3 percent to 138.25
as of 12:48 p.m. in Tokyo after falling as much as 0.3 percent.
- Rebar Drops to Lowest in Three Months on China Demand Concern. Steel reinforcement-bar futures fell
to a three-month low on concern Chinese demand may recede during
winter without more government-funded infrastructure projects.
Rebar for delivery in January on the Shanghai Futures
Exchange fell as much as 1 percent to 3,550 yuan ($580) a metric
ton, the lowest since July 2, and traded at 3,555 yuan at 9:51
a.m. local time.
- Vale(VALE) Sees Iron-Ore Market Oversupplied From 2015 on New Capacity. Vale
SA, the world’s largest iron-ore producer, said supply of the
steelmaking raw material is expected to grow faster than demand,
reducing support for future increases in price. Iron-ore producers may have between 5 percent and 6 percent
more capacity than demand by as early as 2018 as China steel
consumption slows and companies boost output, Vale’s head of
Ferrous & Strategy Jose Carlos Martins told reporters in Sao
Paulo yesterday.
Wall Street Journal:
- Tense Negotiations Inside the Fed Produced Muddled Signals to Markets. The Federal Reserve's decision to continue one of the most audacious
experiments in monetary history—an $85 billion-a-month bond-buying
program designed to boost growth—followed six months of tense
negotiations inside the central bank, and a stumbling effort to let the
public know what was going on. A small group of Fed officials has been privately pushing
Fed Chairman Ben Bernanke to plan an exit from his signature program,
said several people familiar with the closed-door deliberations. But
glimmers of a weakening economy prompted the Fed in September to keep
the program going—surprising markets primed by months of central-bank
suggestions that a wind-down was nearing.
- Past Rifts Over Greece Cloud Talks on Rescue. Confidential Documents Reveal Deep Divisions at IMF Over 2010 Greek Bailout. The International Monetary Fund proceeded with its record 2010 bailout
of Greece despite deep internal divisions over whether it would work,
according to confidential documents that contradict the fund's public
statements.
Fox News:
- Reid, Boehner escalate feud as Senate Dems quietly craft proposal to raise debt limit. Senate Majority Leader Harry Reid and House Speaker John Boehner
escalated their feud over the budget impasse on Monday, as Senate
Democrats quietly crafted no-strings-attached legislation to raise the
nation's debt limit. The move by Democrats comes amid Republican insistence that any
increase must include concessions on such fiscal matters as entitlement
reform or other spending cuts. The Senate proposal attempts to eliminate such fights until after the 2014 elections.
MarketWatch.com:
CNBC:
Zero Hedge:
- Buffett's Bailout Bonanza. The following chart shows just how well one can do with a few billion in your pocket and an ear for what the Government will do.
ValueWalk:
Reuters:
- Elite U.S. team questions seized al Qaeda leader on Navy ship.
An elite American interrogation team is questioning the senior al Qaeda
figure who was seized by special operations forces in Libya and then
whisked onto a Navy ship in the Mediterranean Sea, U.S. officials said
on Monday. Nazih al-Ragye, better known by
the cover name Abu Anas al-Liby, is being held aboard the USS San
Antonio, an amphibious transport dock ship, the officials said. He
is being questioned by the U.S. High Value Detainee Interrogation
Group, an inter-agency unit created in 2009 and housed in the FBI's
National Security Branch. The group specializes in garnering information
from terrorism suspects to prevent planned attacks.
- Norilsk says will take years to deplete nickel stocks, boost prices. Nickel
prices are unlikely to recover for another two years as producers
struggle with "unprecedented" low prices and a 100,000-tonne surplus, an
executive at Russia's Norilsk Nickel (GMKN.MM) said on Monday.
One-third of global output, about 600,000 tonnes, is unprofitable at
current prices, which have been hammered by weak demand and big
inventories, particularly in China, head of strategic marketing Anton
Berlin said in a telephone interview.
Sankei:
- Abe Cabinet Support Rate Drops 6.6 Points to 58.6%. Support rate for Japanese Prime Minister Shinzo Abe's cabinet falls 6.6 points m/m to 58.6%, according to a poll conducted by Sankei. Disapproval rate rises to 25.7% from 21.1% in Sept. 62.9% of interviewees oppose raising the sales tax to 10% in Oct. 2015; 28.6% supports.
China Securities Journal:
- Beijing, Shanghai Home Sales Rise During Holiday. Beijing new home sales from Oct. 1-6 almost doubled from a year earlier, citing the municipality's commission of housing and urban-rural development.
Evening Recommendations
Wells Fargo:
- Raised (PG) to Outperform.
- Raised (AVP) to Outperform.
Night Trading
- Asian equity indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 149.0 unch.
- Asia Pacific Sovereign CDS Index 117.25 +1.75 basis points.
- NASDAQ 100 futures +.02%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
7:30 am EST
- The NFIB Small Business Optimism Index for September is estimated to rise to 94.3 versus 94.0 in August.
10:00 am EST
- The IBD/TIPP Economic Optimism Index for October is estimated to fall to 44.0 versus 46.0 in September.
Upcoming Splits
Other Potential Market Movers
- The Fed's Plosser speaking, Fed's Pianalto speaking, German Factory Orders, BoJ Meeting Minutes, 3Y T-Note auction, weekly retail sales reports, (LUX) investors day, (AGU) investor day, (SFE) investor day, (ACN) analyst conference, (HAIN) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 18.69 +11.65%
- Euro/Yen Carry Return Index 137.18 -.39%
- Emerging Markets Currency Volatility(VXY) 9.77 -.31%
- S&P 500 Implied Correlation 55.87 +12.35%
- ISE Sentiment Index 80.0 -13.04%
- Total Put/Call .90 +3.45%
Credit Investor Angst:
- North American Investment Grade CDS Index 81.95 +2.94%
- European Financial Sector CDS Index 135.88 -.03%
- Western Europe Sovereign Debt CDS Index 79.0 -4.43%
- Emerging Market CDS Index 285.43 -.22%
- 2-Year Swap Spread 12.75 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -7.0 -1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 228.0 -4 basis points
- China Import Iron Ore Spot $131.40/Metric Tonne unch.
- Citi US Economic Surprise Index 44.0 -.7 point
- Citi Emerging Markets Economic Surprise Index 2.80 +2.0 points
- 10-Year TIPS Spread 2.21 unch.
Overseas Futures:
- Nikkei Futures: Indicating +32 open in Japan
- DAX Futures: Indicating +2 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech/biotech/medical/retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Hedge Funds Expand Bets With Most Junk Since ’08: Credit Markets. Hedge
funds have amassed the greatest
share of the $1.2 trillion U.S. junk-bond market since the credit
crisis, raising concern bets with borrowed cash will accelerate losses
when the Federal Reserve stops printing record amounts of money. The
funds, which typically use leverage to bolster returns,
hold as much as 23 percent of outstanding dollar-denominated
high-yield bonds, from as much as 18 percent last year and the
highest since 2008, according to Barclays Plc. Credit hedge
funds have boosted assets by 89 percent since 2008, outpacing
the 66 percent growth of the junk market, data from Hedge Fund
Research Inc. and Bank of America Merrill Lynch indexes show.
- European Stocks Drop.
Burberry Group Plc (BRBY) retreated 1.2 percent as its chief executive
officer told a newspaper that the slowdown in Chinese luxury-goods sales
may continue. SAP AG lost 2.2 percent, contributing the most to a
decline by a gauge of technology stocks, after a report that the German
software maker has held talks with BlackBerry Ltd. Solvay SA (SOLB)
climbed 1.2 percent after
agreeing to buy U.S. chemicals maker Chemlogics Group LLC. The Stoxx Europe 600 Index slid 0.2 percent to 309.18 at the close in London, after earlier falling as much as 1 percent.
- New American Economy Leaves Behind World Consumer. The rising American economy isn’t lifting all boats -- and may even sink some. A
healthier U.S. even could come at the expense of emerging markets if it
turns into more of a competitor than consumer by boosting manufacturing.
- Egypt Violence Spreads as Security Forces Attacked. A shooting and separate explosion
targeting Egyptian security forces left at least nine dead a day
after 51 people were killed in police clashes with Islamists
that fueled the turmoil threatening the nation’s political
transition. Five soldiers and one officer were killed when gunmen
opened fire on them near the Suez Canal city of Ismailiya,
according to Moustafa Younes, a police officer in the province.
Three policemen were killed in a blast outside a security installation in Southern Sinai, the Interior Ministry said.
Mohamed Darwish, an officer at provincial security directorate,
described it as a car bomb.
- Obamacare Seen Straining Clinics With Medicaid Expansion. 43
percent
of doctors in California and a third nationwide won’t take new Medicaid
patients. Low pay is one of the reasons. A shortage of Medicaid doctors
will leave many newly insured seeking care in a two-tiered system in
which they will
have access to less experienced medical staff, longer travel
times to find a doctor who accepts Medicaid, and be subject to
appointment waiting times sometimes weeks longer than those with
private coverage.
Wall Street Journal:
Fox News:
Zero Hedge:
Business Insider:
Reuters:
- U.S. venture funds raise $4.1 billion, down 18 percent. U.S. venture capital firms
raised $4.1 billion last quarter, down almost 18 percent from
the same period in 2012, according to data from the National
Venture Capital Association and Thomson Reuters released on
Monday.
- Frontier markets lure investors chasing yield. After a year of mediocre returns from emerging markets, many investors are searching for yield in so-called frontier markets in hopes that low prices and
potential growth will outweigh the risks in little-developed
lands.
Telegraph:
Les Echos:
- Burberry
CEO Says China Slowdown More Than Temporary. Burberry CEO Angela
Ahrendts says China slowdown in sales of luxury products may be more
than just a "temporary accident" and may constitute a new market trend,
according to an interview.
Style Underperformer:
Sector Underperformers:
- 1) Biotech -1.82% 2) HMOs -1.56% 3) Banks -1.21%
Stocks Falling on Unusual Volume:
- FST, MILL, IDT, VIV, UBS, CTB, MTRN, VSTM, HTHT, DECK, ANGI, LQDT, NTES, CYOU, RCPT, APFC, RWT, ARII, ANF, CLDX, WLL, NAV, ACRX, BREW, NCR, ASML, FDS, FDO and BYI
Stocks With Unusual Put Option Activity:
- 1) CTB 2) OUTR 3) DECK 4) HPQ 5) ANGI
Stocks With Most Negative News Mentions:
- 1) HPQ 2) SKS 3) DKS 4) ANF 5) IR
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gold & Silver +1.07% 2) REITs +.67% 3) Telecom -.04%
Stocks Rising on Unusual Volume:
- CEL, GTN, BFR, TKMR, OUTR, FNP, BEAT, TASR, DAR, INVN and XONE
Stocks With Unusual Call Option Activity:
- 1) IP 2) OUTR 3) CTB 4) NOG 5) DLR
Stocks With Most Positive News Mentions:
- 1) LMT 2) GOOG 3) BA 4) AAPL 5) VZ
Charts:
Weekend Headlines
Bloomberg:
- APEC Sees Growth Risks as Moody’s Says Outlook Challenging. Global growth will probably be slower
and less balanced than desired, ministers from the Asia-Pacific
Economic Cooperation member economies said as they agreed to
refrain from raising new barriers to trade and investment. The world economy is too weak and “risks remain tilted to
the downside,” ministers from the 21-member grouping said in a
statement in Bali yesterday. The Asia-Pacific region will have a
harder time preserving growth, given volatility in financial
markets and a slow recovery in advanced nations, Moody’s
Investors Service said. “What we are sensing is that there is a change in the
economic cycle and sustaining the levels of economic growth that
we have seen in the region over the last five years is going to
become more challenging,” Michael Taylor, Moody’s chief credit
officer for Asia, told reporters in Bali. The region still has
a “long way to go” to shift from export-led growth to that
driven by domestic demand, he said.
- World Bank Cuts Developing East Asia Growth Forecast on China.
The World Bank lowered its forecasts for East Asia’s developing nations
this year and next, and said the region must boost efforts to ensure
financial stability ahead of interest-rate increases in advanced
economies. Developing East Asia will probably expand 7.1 percent in
2013 and 7.2 percent in 2014, the Washington-based lender said in a
report today, down from April predictions of 7.8 percent and 7.6 percent
respectively. China (CNGDPYOY) may grow 7.5 percent in
2013, lower than an April forecast of 8.3 percent, it said.
- Caviar Off the Menu for Indian Officials as Junk Rating Looms.
For Arvind Mayaram, India’s push to avoid having its credit rating cut
to junk means he’ll have to forgo caviar and a two-meter-long flat bed
in first class on his flight from New Delhi to Washington D.C. this
week. Mayaram, India’s Economic Affairs Secretary, will fly business
class instead to the annual World Bank and International Monetary Fund
meetings, saving taxpayers at least $3,000. The change is part of
moves to narrow a budget deficit that reached almost 75 percent of the
5.4 trillion-rupee ($88 billion) target in the first five months of the
fiscal year, imperiling efforts
to limit the widest shortfall in major emerging nations.
- Tepco’s Claim Radiation Leaks Confined to Coast Called ‘Silly’. Tokyo Electric Power Co.’s (9501) claim that radioactive water leaking into the sea from the wrecked
Fukushima nuclear plant is confined to the coast doesn’t make
scientific sense, according to a U.S. researcher who surveyed
waters off the site last month.
- Asian Stocks Drop as Investors Weigh U.S. Debt Limit.
Asian stocks fell, extending last week’s drop, as U.S. lawmakers
wrangle over the debt limit and partial government shutdown. Materials
companies and utilities led declines. Blumont Group Ltd., which invests
in minerals and energy, plummeted 75 percent after the company scrapped a
deal to buy Australia’s Cokal Ltd. and Singapore’s exchange put trading
restrictions on the securities. Sun Hung Kai Properties Ltd. declined
2.4 percent on a report that the developer offered to
sell some of the remaining units at a Hong Kong residential
project at a discount. Tokyo Electric Power Co., the owner of
the crippled Fukushima Dai-Ichi nuclear power plant, sank 7.6
percent, leading the decline among utilities.
The MSCI Asia Pacific Index fell 0.8 percent to 137.93 as
of 12:06 p.m. in Tokyo, with all 10 industry groups dropping.
- Rubber Gains From Two-Month Low as Chinese Demand May Increase.
Rubber recovered from an almost two-month low on bets that demand from
China, the world’s largest user, may increase as buyers return from a
week-long holiday. The contract for March delivery on the Tokyo
Commodity
Exchange advanced as much as 1.3 percent to 257.5 yen a kilogram
($2,652 a metric ton) and traded at 255.4 yen at 11:06 a.m.
local time. The price touched 253.8 on Oct. 4, the lowest intra-day
level since Aug. 8. Futures slid 5.9 percent last week, the
worst for a most-active contract since the five days through May
24.
- Hedge Funds Expand Bets With Most Junk Since '08:
Credit Markets. Hedge funds have amassed the greatest share of the $1.2
trillion U.S. junk-bond market since the credit crisis, raising concern
bets with borrowed cash will accelerate losses when the Federal Reserve
stops printing record amounts of money. The funds, which typically use
leverage to bolster returns, hold as much as 23% of outstanding
dollar-denominated high-yield bonds, from as much as 18% last year and
the highest since 2008, according to Barclays Plc. Credit hedge funds
have boosted assets by 89% since 2008, outpacing the 66% growth of the
junk market, data from Hedge Fund Research Inc. and Bank of America
Merrill Lynch indexes show. Funds that use leverage may threaten the
financial system in a broader selloff, the US Treasury Debt.'s Office of
Financial Research wrote in a report gauging risks from investment
firms that have ballooned after five years of central bank stimulus.
- BlackBerry(BBRY) in Talks With Cisco(CSCO), Google(GOOG), SAP(SAP), Reuters Reports.
Cisco Systems Inc. (CSCO), Google Inc. (GOOG) and SAP AG (SAP) are in
talks with BlackBerry Ltd. (BBRY) about buying parts or all of the
Canadian company, Reuters reported, citing unidentified sources close to
the matter. Potential acquirers also include Intel Corp., LG Electronics Inc. (066570) and Samsung Electronics Co. (005930), the news service
said.
Wall Street Journal:
- Boehner Ties Deal to Talks on Debt. Speaker Won't Propose End to Standoff Unless Democrats Agree to Broader Deficit Negotiations.
The government shutdown enters its second week with the two parties
still bitterly divided and Republicans increasingly tying the fight to a
fast-approaching deadline to avoid a default on U.S. debt. House
Speaker John Boehner (R., Ohio) said Sunday he wouldn't bring up bills
to fully reopen the government or increase the country's borrowing limit
unless Democrats
agree to broader talks aimed at trimming the deficit. The speaker
insisted he couldn't muster enough votes to pass either one without the
concessions.
- Markit To Launch New Messaging Service. Financial data provider Markit is rolling out an open messaging
platform aimed at advancing the links between Wall Street firms and
their customers. Monday's launch of Markit Collaboration Services is the strongest sign
yet that banks and others are seeking ways to de-emphasize
communication systems that they view as clunky, expensive and open to
abuses. "It could ultimately end up being the LinkedIn of the financial
industry," said Perry Vais, co-head of quantitative strategy at hedge
fund BlueMountain Capital Management in New York.
Fox News:
- Clashes between security forces, Morsi supporters kill at least 51 in Egypt. Security forces and Islamist protesters clashed around the country
Sunday, leaving 51 killed, as a national holiday celebrating the
military turned to mayhem. Crowds from Egypt's two rival camps —
supporters of the ousted Islamist president, Mohammed Morsi, and backers
of the military that deposed him — poured into the streets and turned
on each other.
CNBC:
ValueWalk:
Business Insider:
- A Former NYPD Sergeant Can't Understand Why DC Police Shot And Killed Her Unarmed Sister. Police in Washington could have avoided shooting dead a woman pursued by
officers in a car chase that led to the lockdown of the Capitol this
week, the driver's sister, former New York police sergeant Valarie
Carey, said late on Friday. The family of Miriam Carey, whose one-year-old daughter Erica was in
the car with her during the encounter with police on Thursday, has said
she suffered from post-partum depression.
The Hill:
- Obama's approval lowest in two years. President Obama’s approval rating has dropped to one of the lowest levels in two years. Since
the government shutdown Tuesday, Obama’s approval rating has slipped 3
percentage points to 41 percent, while his disapproval went up to 52
percent, according to Gallup’s daily numbers.
Chicago Tribune:
- ComEd seeks tariff to let customers skip smart meters. ComEd has asked state regulators for permission to charge a $25
penalty for those customers who want to opt out of the smart meter
program. The request came at the Illinois Commerce Commission's regular
meeting Wednesday. The ICC initially denied it, but ComEd also filed to
implement the fee as a tariff.
Reuters:
- Suicide bomb attacks on Iraqi school, Shi'ite pilgrims, kill 29. A
suicide bomber drove a truck packed with explosives into the playground
of a primary school in northern Iraq and blew himself up, killing 14
children and their headmaster on Sunday, police and medical sources
said. Another suicide bomber attacked a group of Shi'ite pilgrims on
their way to visit a shrine in Baghdad, killing at least 14 people and
wounding more than 30, some of them critically, police said.
Financial Times:
- Cheap
Credit Spurring U.K. Car Sales Boom. Credit sued in 74.5% of U.K. auto
purchases in 12 mths to Aug., totaling GBP11b, citing Finance and
Leasing Assoc. Pre-recession norm - 50% of new cars bought with credit.
Telegraph:
- IMF chides Turkey on reckless policies as taper looms. The International Monetary Fund has told Turkey to tighten policy without
delay to control a ballooning trade deficit, warning that the country is a
prime candidate for capital flight as the US Federal Reserve starts to
withdraw global liquidity.
Investir:
- Bonduelle
Sees Sluggish European Consumer Demand. French frozen and canned
vegetable maker expects growth to come from outside Europe, citing an
interview with CEO Christophe Bonduelle.
Ming Pao:
- Hong
Kong to Develop Electric Bus at Half BYD's Price. Hong Kong
Productivity Council and local industry are spending >HK$38m to
develop buses that can travel 300km after a four-hour recharge, paper
reports, citing Lawrence Poon, principlal automotive and electronics
consultant to council.
Weekend Recommendations
Barron's:
- Bullish commentary on (PENN), (WFT) and (PICO).
- Bearish commentary on (NFLX), (BBY), (RSH), (SPLS) and (KR).
Night Trading
- Asian indices are -1.0% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 149.0 -4.0 basis points.
- Asia Pacific Sovereign CDS Index 115.5 -4.5 basis points.
- NASDAQ 100 futures -.47%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
3:00 pm EST
- Consumer Credit for August is estimated to rise to $12.0B versus $10.437B in September.
Upcoming Splits
Other Potential Market Movers
- The China HSBC Services PMI, Japan Trade data, Germany Trade data, (MOS) analyst day and the (ATU) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and technology
shares in the region. I expect US stocks to open modestly lower
and to maintain losses into the afternoon. The Portfolio is 50%
net long heading into the week.
