Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 14.77 +3.79%
- Euro/Yen Carry Return Index 145.02 -.23%
- Emerging Markets Currency Volatility(VXY) 9.06 +1.23%
- S&P 500 Implied Correlation 55.11 +.99%
- ISE Sentiment Index 78.0 -33.33%
- Total Put/Call .85 +13.33%
Credit Investor Angst:
- North American Investment Grade CDS Index 70.63 +1.42%
- European Financial Sector CDS Index 98.40 +3.22%
- Western Europe Sovereign Debt CDS Index 60.0 unch.
- Emerging Market CDS Index 301.99 +.64%
- 2-Year Swap Spread 9.75 +.25 basis point
- TED Spread 20.50 +1.5 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -2.75 unch.
Economic Gauges:
- 3-Month T-Bill Yield .04% -1 basis point
- Yield Curve 250.0 -1 basis point
- China Import Iron Ore Spot $138.20/Metric Tonne +1.02%
- Citi US Economic Surprise Index 5.10 -2.9 points
- Citi Emerging Markets Economic Surprise Index -11.60 +3.9 points
- 10-Year TIPS Spread 2.14 -2 basis points
Overseas Futures:
- Nikkei Futures: Indicating -250 open in Japan
- DAX Futures: Indicating -5 open in Germany
Portfolio:
- Higher: On gains in my index hedges and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 25% Net Long
Bloomberg:
- Xi Says 2014 Environment for Economic Development Not Optimistic. Chinese President Xi Jinping said the
environment for economic and social development next year isn’t
optimistic, in a signal that leaders may be willing to accept
slower growth in 2014. All of society should be allowed to feel “tangible
benefits” from reforms, Xi said at a symposium on Nov. 22,
according to the official Xinhua News Agency. Xi’s comments, which echoed past statements by party
officials, may reflect efforts to tamp expectations for growth in 2014. While
industrial investment is picking up and the Ministry of Commerce says
retail sales will rise more than 13 percent this year, China faces
headwinds that include factory overcapacity, excessive corporate debt
and slower export demand.
- China Air Zone Seen Step to West Pacific Access as Navy Expands. China’s
escalation in its challenge to Japan’s administration of islands near
Taiwan reflects an effort to gain greater command of the air and seas in
the western Pacific as it builds itself into a maritime power.
Establishing control over airspace covering uninhabited islands which
China claims as its own would offer cover for warships heading east
between Taiwan and Japan’s Okinawa Islands. The islands lie along one of
two direct channels from China’s coast to the Pacific Ocean, to which
the U.S. has unfettered approaches from its west coast as well as
Alaska, Hawaii and other island possessions.
- Brazil Economy Shrinks More Than Forecast on Investment Fall. Brazil’s
economy shrank in the third quarter more than analysts forecast as
above-target inflation, deteriorating fiscal accounts and rising
interest rates sapped confidence and crimped investment. Swap rates fell. Brazil’s
gross domestic product fell 0.5 percent in the July to September period
from the previous three months, the biggest drop since the first
quarter of 2009, the national statistics agency said today in Rio de Janeiro. The drop was larger than forecast from 38 economists surveyed by Bloomberg,
whose median estimate was for a 0.3 percent drop, and follows a
revised 1.8 percent gain in the second quarter. On an annualized
basis, the third quarter decline was 1.9 percent.
- European Stocks Drop Most Since August as Orange Falls.
European stocks fell the most in more than three months as investors
weighed valuations before U.S. jobs data this week that may help gauge
when the Federal Reserve will pare its stimulus. ThyssenKrupp AG slid to
a 10-week low after raising 882.3 million euros ($1.2 billion) through a
share sale. Antofagasta Plc led a measure of mining companies lower.
Orange SA slipped 3.4 percent amid concern a price war in the French
mobile market will extend to fourth-generation data services. Sonova
Holding AG (SOON) declined 1.8 percent as Morgan Stanley cut its rating
on the Swiss hearing-aid maker. The Stoxx Europe 600 Index fell 1.5 percent to 319.13 at
the close of trading, its biggest loss since Aug. 27.
- Miners Slump as U.S. Growth Signs Fuel Tapering Speculation.
Shares in the world’s biggest mining companies fell to the lowest in
almost four months as signs the U.S economy is strengthening increased
speculation that the Federal Reserve will reduce its monetary stimulus. The 108-member Bloomberg World Mining Index dropped as much as 1.2 percent to the lowest since Aug. 8.
- Copper Falls as Reviving U.S. Economy Fuels Tapering Speculation.
Copper futures for delivery in March slumped 0.5 percent to settle at
$3.1675 a pound at 1:20 p.m. on the Comex in New York, after touching
$3.158, the lowest since Nov. 21. Prices have
retreated 13 percent in 2013, heading for a second drop in three
years.
- Morgan Stanley(MS) Says Munis Set for Unprecedented Two-Year Slump. Investors in the $3.7 trillion municipal market will probably face
negative returns in 2014 following declines this year, the first
back-to-back annual losses since at least the 1980s, according to Morgan
Stanley. The company’s base-case scenario for city and state debt in 2014 calls
for a loss of 1.7 percent to 4.1 percent, Michael Zezas, the bank’s
chief muni strategist, said in a report released today. A year ago, he
correctly predicted that munis would lose money in 2013 as yields rose
from the lowest since the 1960s.
- Holiday Angst Seen in U.S. Discretionary-Staples: EcoPulse. Investor optimism about U.S. holiday sales is declining, as signaled by the performance of two small-cap stock groups. The
Russell 2000 Consumer Discretionary Index has trailed the Russell 2000
Consumer Staples Index by 2 percentage points since Nov. 25 as of 10
a.m. in New York, reversing about one-third of its relative gains during
the prior two months.
CNBC:
- US oil prices surge on expectations of supply drop. Nymex WTI oil futures climbed more than $2 a barrel to reach a session
high of $96.04 a barrel. Front-month WTI futures have not settled above
the $96-a-barrel mark since Oct. 31. Brent crude oil futures rose more
modestly, up about $1 to a session high of $112.70 a barrel.
Zero Hedge:
ValueWalk:
Business Insider:
Washington Examiner:
Reuters:
- Brazil real sinks to 3-month low, fueling inflation concern. Brazil's real sank to a three-month low on Tuesday, fueling inflation fears and causing interest-rate
futures to change course and rise as investors bet the central bank
will be forced to keep tightening monetary policy despite a weak economy.
- Expiring jobless benefits to lower U.S. unemployment rate. The U.S. unemployment rate
could fall substantially early next year as belt-tightening in
Washington throws more than a million long-term unemployed
Americans off the benefit rolls.
The loss of benefits could spur former recipients to either
drop out of the labor force or accept jobs they previously would
not have considered. Some economists estimate this could lower
the current unemployment rate of 7.3 percent by as much as half
a percentage point.
Financial Times:
- Europe to unleash heavy rate-fixing fines. Brussels
will unveil hefty fines as soon as Wednesday on global banks that
allegedly formed cartels to rig two global interest rate benchmarks, in a
settlement that is set to break European antitrust enforcement records.
Financial Post:
- Potash Corp(POT) slashes 18% of its workforce because of weak demand. Potash Corp. of Saskatchewan Inc. has announced plans to slash 18% of
its workforce as fertilizer demand in emerging markets remains at
extremely sluggish levels. Prices for potash, phosphate and nitrogen have been trending down
since last year, and the potash market was thrown into chaos last summer
when OAO Uralkali disbanded a cartel-like marketing company. Buyers
have pulled back on purchases because of the uncertainty.
Style Underperformer:
Sector Underperformers:
- 1) Airlines -2.20% 2) Biotech -2.01% 3) Banks -1.65%
Stocks Falling on Unusual Volume:
- TAXI, WES, KKD, ST, RAX, UVE, NCR, AMRI, CIE, AGX, BMO, GME, SHLD, MMM, SDRL, MMLP, DLR, WPZ, POWR, LCC, LDOS, MYGN, FELE, YUM, WAB, LCC, ASGN, UAN and SALE
Stocks With Unusual Put Option Activity:
- 1) FITB 2) AKAM 3) HYG 4) PAYX 5) GM
Stocks With Most Negative News Mentions:
- 1) SHLD 2) POT 3) ITW 4) JAZZ 5) BLK
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Oil Service +.26% 2) Utilities +.17% 3) Networking +.12%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
- 1) FST 2) FRX 3) UPL 4) OLN 5) GDXJ
Stocks With Most Positive News Mentions:
- 1) XNCR 2) EBAY 3) DAL 4) F 5) SCVL
Charts:
Evening Headlines
Bloomberg:
- Japan Salaries Extend Slide as Inflation Begins to Take Root. Japan’s salaries extended the longest tumble since 2010, increasing pressure on household finances as
inflation begins to take root. Regular wages excluding overtime and bonuses fell 0.4
percent in October from a year earlier, a 17th straight monthly
decline, according to labor ministry data released today.
- Hong Kong Confirms City’s First Human Case of Bird Flu. Hong Kong reported its first case of a form of bird flu that
killed 45 people in China this year, suggesting the virus is spreading
further south in poultry. A 36-year-old Indonesian domestic
helper is in critical condition after being infected with the new H7N9
flu strain, Hong Kong’s government said yesterday. She’d traveled to the
neighboring mainland Chinese city of Shenzhen, where she bought and
slaughtered a chicken, according to a statement.
- Rio Tinto(RIO) to Halve Capital Spending by 2015 in Focus on Cash. Rio Tinto Group (RIO), the world’s second-biggest mining company, will cut capital spending to about $8
billion in 2015, less than half its outlay last year, as mineral
producers conserve cash after prices fell. “Our capex is reducing, and will come down further,” Sam Walsh, chief executive officer of London-based Rio, said today
in a statement. “From where I stand, we continue to see market
fragility and volatility.” Rio’s cutback underlines efforts by the world’s largest
mining companies to rein in spending as a decade-long boom in
metal prices wanes. Vale SA (VALE5), the biggest iron ore producer,
yesterday slashed its investment budget for a third straight
year to $14.8 billion, the lowest since 2010. “It’s quite a substantial drop and it does suggest that
right now Sam Walsh is concentrated very, very hard on
affordability,” Evan Lucas, a Melbourne-based markets
strategist at IG Ltd., said by phone.
- Asian Stocks Outside Japan Fall on Fed Tapering Outlook.
Asian stocks outside Japan fell as signs the U.S. economy is
strengthening fueled speculation that the Federal Reserve will soon
start tapering stimulus. Newcrest Mining Ltd. (NCM), Australia’s biggest
gold producer, sank 6.6 percent as the bullion’s price headed for its
first annual drop in 13 years as it traded near a five-month low.
Hyundai Motor Co., South Korea’s No. 1 carmaker, fell 4.2 percent as
November sales fell. Sekisui Chemical Co. led Japanese stocks higher,
rising 7.5 percent after a report that it developed a cheaper and
longer-lasting material for lithium-ion batteries used in the electric
vehicles. The MSCI Asia Pacific excluding Japan Index dropped 0.6 percent to 471.88 as of 12:41 p.m. in Tokyo, with eight of the
10 industry groups on the gauge falling.
- Rubber Retreats as Rally to Two-Month High May Weaken Demand. Rubber dropped from a two-month high,
snapping a three-day winning streak amid concern that rising
prices may sap demand from China, the largest consumer. The contract
for delivery in May on the Tokyo Commodity Exchange lost as much as 1
percent to 272.5 yen a kilogram ($2,643 a metric ton) and traded at
274.1 yen at 11:35 a.m.
local time. Futures settled yesterday at the highest level since
Sept. 26.
- Rebar Trades Near Highest in Six Weeks.
Steel reinforcement-bar futures in Shanghai traded near the highest
level in six weeks on speculation that the Chinese economy is
stabilizing. Rebar for May delivery, the most-active contract on the
Shanghai Futures Exchange, climbed as much as 0.2 percent to 3,702 yuan
($608) a metric ton, the highest level since Oct. 17,
before trading little changed at 3,693 yuan at 10:51 a.m. local
time.
- NCR(NCR) to Buy Digital Insight for $1.65 Billion for Web Banking. NCR Corp. (NCR), the 129-year-old maker of cash registers and other payment-processing systems, agreed to
acquire Digital Insight Corp. for $1.65 billion to gain software
for online and mobile banking. The purchase of Digital Insight, controlled by private-equity firm Thoma Bravo LLC, is expected to be completed in the
first quarter of next year, NCR said today in a statement. The
transaction will boost adjusted 2014 profit, the company said.
Wall Street Journal:
- Speed Cited in Fatal Crash. NTSB: Metro-North train was traveling 82 mph as it entered a 30 mph zone ahead of derailment. Federal investigators said the commuter train that crashed Sunday,
killing four people, was going 82 miles an hour as it entered a 30-mph
zone along a tight curve and that there was no apparent problem with its
brakes.
- A Profitable Trade: Illicitly Shipping BMWs to China. Lucrative Re-Sales of Luxury Cars Targeted by Federal U.S. Investigators. In
the U.S., the sticker price for a BMW X5 sport-utility vehicle is just
over $56,000. In China, BMW advertises the same car for nearly three
times that, creating an opening for arbitragers to buy the vehicles in
the U.S. and ship them to China
for a quick profit.
- Easy Credit Puts Car Sellers in Driver's Seat. Credit conditions keep getting looser. An
average credit score for new car loans calculated by Experian Automotive
was 753 points as of the third quarter, down 22 points over the prior
four years and only four points above the easy-money days of late 2007.
Overall auto-loan balances hit an all-time high last month at $783
billion, up 15% in a year. A record 84.5% of car buyers used a loan or
lease in the second quarter. One sign of
froth is a rebound in subprime lending and a spike in leases, a
sometimes expensive way for borrowers to stretch affordability.
- Kissinger and Shultz: What a Final Iran Deal Must Do. A credible agreement must dismantle or mothball the key parts of Tehran's nuclear infrastructure. The interim nuclear deal with Iran has been described as the first step
toward the elimination of Iran's ability to build a nuclear weapon. That
hope resides, if at all, in the prospects of the next round of
negotiations envisaged to produce a final outcome within six months.
Standing by itself, the interim agreement leaves Iran, hopefully only
temporarily, in the position of a nuclear threshold power—a country that
can achieve a military nuclear capability within months of its choosing
to do so. A final agreement leaving this threshold capacity unimpaired
would institutionalize the Iranian nuclear threat, with profound
consequences for global nonproliferation policy and the stability of the
Middle East.
Fox News:
Zero Hedge:
Business Insider:
- 'Quant' Hedge Funds: Computer Says No.
IF SOMETHING has not worked for five years, most people would conclude
that it was broken. Tell that to the geeks managing "quant" hedge funds,
who craft elaborate algorithms to profit from market movements. Once
money-spinners, their prized formulae have misfired since 2009, losing
money in four of the past five years. Unless their results improve
markedly, the giant funds will finish this year as the worst-performing
of the most common hedge-fund strategies.
Washington Post:
- For Democrats in 2014, the Web site is not the problem. Democrats are praying that this weekend’s relaunch of the Obamacare Web
site will save them from an electoral bloodbath in 2014. Their hopes are
misplaced. Here are five numbers that suggest that public anger over
Obamacare will only grow as Election Day 2014 approaches:
Reuters:
- Islamists take Syrian Christian town, monastery: state media. Islamist
fighters in Syria have taken over the ancient quarter of the Christian
town of Maaloula and are holding several nuns in a monastery there, state news agency SANA said on Monday. Fighting for the town, about
five km (three miles) from the main road linking Damascus to Homs, is
part of a wider struggle between rebel fighters and President Bashar
al-Assad's forces for control of the strategic central Syrian highway.'
Nikkei:
- Japan LDP Tax Reform Plan to Forgo Tax Breaks for Capex. Japan's
ruling Liberal Democratic Party plans to forgo giving breaks on
fixed-asset levy for capital investment, citing the party's FY 2014 tax
reform draft.
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 132.0 +1.0 basis point.
- Asia Pacific Sovereign CDS Index 107.75 +1.25 basis points.
- NASDAQ 100 futures +.05%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:00 am EST
- IBD/TIPP Economic Optimism for December is estimated to rise to 43.0 versus 41.4 in November.
Afternoon:
- Total Vehicle Sales for November are estimated to rise to 15.8M versus 15.15M in October.
Upcoming Splits
Other Potential Market Movers
- The Australia GDP report, UK Construction PMI, weekly retail sales reports, ISM New York for November, Citi Basic Materials Conference, UBS Emerging Markets Conference, Piper Jaffray Healthcare Conference, CS Industrials Conference and the FBR Investor 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 25% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 13.83 +.95%
- Euro/Yen Carry Return Index 145.65 +.39%
- Emerging Markets Currency Volatility(VXY) 8.99 +1.81%
- S&P 500 Implied Correlation 53.54 -1.36%
- ISE Sentiment Index 153.0 -6.71%
- Total Put/Call .72 -11.11%
Credit Investor Angst:
- North American Investment Grade CDS Index 68.98 -.84%
- European Financial Sector CDS Index 95.15 -1.99%
- Western Europe Sovereign Debt CDS Index 60.0 unch.
- Emerging Market CDS Index 298.15 +1.69%
- 2-Year Swap Spread 9.5 +.25 basis point
- TED Spread 18.75 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -2.75 +.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .05% -1 basis point
- Yield Curve 251.0 +4 basis points
- China Import Iron Ore Spot $136.80/Metric Tonne +.29%
- Citi US Economic Surprise Index 8.0 +1.1 points
- Citi Emerging Markets Economic Surprise Index -15.50 -.5 point
- 10-Year TIPS Spread 2.16 unch.
Overseas Futures:
- Nikkei Futures: Indicating +190 open in Japan
- DAX Futures: Indicating +11 open in Germany
Portfolio:
- Higher: On gains in my medical/biotech sector longs, index hedges and emerging markets shorts
- Market Exposure: 50% Net Long
