Evening Headlines
Bloomberg:
- Russia Suspended From G-8 as Leaders Warn of Sanctions. The world’s top industrial powers threatened further
sanctions to deter Russian President Vladimir Putin from taking over
other parts of Ukraine and suspended Russia from participating in the
Group of Eight. Meeting for the first time since last week’s
annexation of Crimea by Russia, Group of Seven leaders said last night
they won’t attend a planned G-8 meeting which was to have to been held
in Sochi, site of the Winter Olympics, and will instead hold their own
summit in June in Brussels.
- Goldman Cuts Topix Forecasts on ‘Unanticipated Weakness’. Goldman
Sachs (GS) Group Inc. lowered its forecasts for Japanese stocks, citing
“the market’s unanticipated weakness and limited near-term catalysts.”
The brokerage reduced its three-month target for the Topix index (TPX)
to 1,200 from 1,350, Chief Japan Strategist Kathy Matsui wrote in a note dated March 20. The new forecast is 3.1 percent
higher than the gauge’s level of 1,163.63 at the trading break
in Tokyo today. Goldman Sach cut its six-month Topix forecast to
1,300 from 1,375, while maintaining its 12-month target at 1,450
on expectations that earnings per share will rise 21 percent in
the fiscal year starting April.
The Topix slumped 11 percent this year through yesterday,
trailing all other major developed markets tracked by Bloomberg.
- Short China Stocks to Win From Rising Default Risk, Maglan Says. Investors
should avoid China’s bond market after the first onshore default
because state intervention and debt restructuring could prompt losses,
according to New York-based hedge fund Maglan Capital LP. The best way
to make money from distressed companies in the
world’s second-largest economy is by betting against listed
stocks, according to David Tawil, co-founder of Maglan Capital,
which invests in companies struggling to repay their debt. “In China, government involvement is much more pervasive,
especially in industries like banking and real estate,” Tawil
said in a March 21 phone interview. “The only way to play the
distressed cycle is shorting equities.
- China Money Rate Rises a Ninth Straight Day as PBOC Drains Funds. The seven-day repurchase rate, a gauge of funding availability in the interbank market, climbed four basis points
to 3.62 percent as of 10:51 a.m. in Shanghai, according to a
weighted average compiled by the National Interbank Funding
Center. It’s advanced a total of 140 basis points since March 12
and reached 3.68 percent yesterday, the highest in three weeks.
- China Banks Drained by Funds Called Vampires Seek Rules. It has been labeled a “blood-sucking vampire” by a prominent
commentator on state-run television. Executives at China’s largest
banks have called for regulators to curb its rapid expansion. The
focus of this ire is Internet financing, specifically Yu’E Bao, the
fund pioneered nine months ago by Alibaba Group Holding Ltd.’s
online-payment affiliate Alipay. Its ease of use, involving a few taps
on a smartphone, has drawn deposits from 81 million customers, more than
the population of Germany, as they chase returns higher than China’s
banks can offer. The total exceeded 500 billion yuan ($80 billion) as of
Feb. 28, according to the official Xinhua news agency, double the
amount reported by Alipay in mid-January.
- Deutsche Bank Says China Private Stocks Riskier Than SOEs. John-Paul Smith, the Deutsche Bank
AG strategist who’s been writing about the dangers of buying
state-owned Chinese stocks since 2010, says private companies
are now a bigger risk to investors as valuations surge. Smith’s warnings about government intervention in the
world’s second-largest economy foreshadowed a shift by money
managers away from state-controlled banks, commodity producers and industrial companies, known as SOEs. Investors
have instead been piling into privately-owned firms that sell services
and consumer goods, propelling an MSCI Inc. gauge of Chinese technology
stocks to valuations seven times more expensive than financial companies
this month, the biggest gap since 2001.
- Brazil’s Credit Rating Cut to BBB- by S&P on Sluggish Growth. Brazil’s credit rating was cut by
Standard & Poor’s, which said sluggish economic growth and an
expansionary fiscal policy are fueling an increase in the
country’s debt levels. S&P downgraded the government one
level to BBB-, its lowest investment-grade rating, from BBB. The new
ranking is in line with countries including Spain and the Philippines
and one notch below Russia. Yields on the country’s $2.15 billion of
bonds due
2023 have climbed 1.01 percentage point in the past year to 4.26
percent, according to data compiled by Bloomberg.
- Asia Stocks Swing After U.S. Manufacturing Index Falls.
Asian stocks swung between gains and losses, after the biggest rally in
a month for the regional benchmark index yesterday, as data showed a
slowdown in U.S. manufacturing and investors weighed the prospect of a
recession in Russia. The MSCI Asia Pacific Index was little changed at 134.29 as
of 12:14 p.m. in Tokyo.
Wall Street Journal:
Zero Hedge:
Business Insider:
Telegraph:
South China Morning Post:
- China
Acts Like Russia in Dispute, Japan Official Says. China's attempt to
unilaterally grab disputed islands from Japan are similar to Russia'
behavior in seizing Crimea, citing Yasutoshi Nishimura, sr. cabinet
office vice minister.
Shanghai Securities News:
- China May Face 'Serious' Cash Flow Problems, Ex-CBRC Head Says.
China may face "serious" cash flow problems and needs good management of
liquidity for the next two years, according to a transcript of former
China Banking Regulatory Commission Chairman Liu Mingkang's remarks
published today. Fed tapering may keep impacting China and emerging
economies in 2014 and 2015, Liu says. Fed fund rate may rise to about 4%
and the liquidity problems behind it can't be underestimated, Liu says.
Structural bull market for sovereign bonds of developed countries and
Asian emerging nations is over, Liu says.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 134.0 unch.
- Asia Pacific Sovereign CDS Index 95.25 -.5 basis point.
- NASDAQ 100 futures +.17%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (GIII)/.49
- (CCL)/-.08
- (MKC)/.58
- (WAG)/.93
- (PVH)/.142
- (SCS)/.17
- (SFD)/.82
Economic Releases
9:00 am EST
- The House Price Index for January is estimated to rise +.6% versus a +.8% gain in December.
10:00 am EST
- Consumer Confidence for March is estimated to rise to 78.5 versus 78.1 in February.
- The Richmond Manufacturing Index for March is estimated to rise to 4 versus -6 in February.
- New Home Sales for February are estimated to fall to 445K versus 468K in January.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Lockhart speaking, Fed's Plosser speaking, G7 Meeting, UK
inflation data, $32B 2Y T-Note auction, (AKAM) investor summit, (PNRA)
investor day and the (NVDA) investor day could also impact trading
today.
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 15.03 +.2%
- Euro/Yen Carry Return Index 147.61 +.28%
- Emerging Markets Currency Volatility(VXY) 8.93 -.56%
- S&P 500 Implied Correlation 54.97 +1.16%
- ISE Sentiment Index 81.0 -28.32%
- Total Put/Call .96 +7.87%
Credit Investor Angst:
- North American Investment Grade CDS Index 71.51 +1.20%
- European Financial Sector CDS Index 100.82 +2.88%
- Western Europe Sovereign Debt CDS Index 47.34 +1.28%
- Asia Pacific Sovereign Debt CDS Index 95.45 -.42%
- Emerging Market CDS Index 312.41 -1.41%
- China Blended Corporate Spread Index 379.91 -.16%
- 2-Year Swap Spread 13.75 unch.
- TED Spread 19.0 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -3.0 -.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .05% unch.
- Yield Curve 229.0 -3.0 basis points
- China Import Iron Ore Spot $110.50/Metric Tonne -.18%
- Citi US Economic Surprise Index -33.80 -1.2 points
- Citi Emerging Markets Economic Surprise Index -4.80 -.6 point
- 10-Year TIPS Spread 2.16 +1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating -110 open in Japan
- DAX Futures: Indicating +45 open in Germany
Portfolio:
- Slightly Lower: On losses in my biotech/medical/tech sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- World Leaders Discuss Ukraine as Worry Grows Over Russia. World
leaders pledged further measures against Russia amid growing concern
that it’s building up its forces on the border with Ukraine after
annexing the Crimean peninsula. President Barack Obama and the other
Group of Seven heads of government hold a meeting in The Hague tonight
to decide what steps to take next in the crisis, including suspending
Russia from the larger G-8 grouping in the worst standoff between
the former Cold War enemies since the Soviet Union collapsed. Ukraine
said today it deployed more troops to the frontier.
- Russia Facing Recession as Sanctions Likely to Intensify. Sanctions imposed by the U.S. and the European Union are pushing
Russia toward a recession as the intensity of their economic penalties
increases after the annexation of Crimea earlier this month. Banks
including state-run VTB Capital say the world’s ninth-biggest economy
will shrink for at least two quarters as penalties for annexing Crimea
rattle markets, curb investment and raise the cost of borrowing.
Sanctions that have so far focused on individuals via visa bans and
asset freezes may be expanded to target specific areas of the economy.
- China’s Urbanization Loses Momentum as Growth Slows. The
pace of migration of rural
Chinese to cities, a dynamic hailed by Premier Li Keqiang as key to the
nation’s development, is set to slow by a third in coming years,
deepening economic-growth concerns. A government report released this month projected a 6.3
percentage-point rise in the share of people living in cities
from 2013 to 2020 -- down from a 9.4-point gain the previous
seven years. Nomura Holdings Inc. estimates that slower
urbanization will slice as much as half a percentage point from
annual gross domestic product growth over the next half decade.
- China Money Rate Completes Longest Rising Streak in Eight Months. China’s benchmark money-market rate
rose for an eighth day, the longest stretch since July, after a
central bank official said the nation will make “substantial
progress” in freeing up interest rates. “While much needed, the
deposit-rate reform is likely to raise costs throughout the economy and
will be a drag on growth,” said Dariusz Kowalczyk, a Credit Agricole CIB
strategist in Hong Kong. Lou’s comments are positive for the
long-term potential, but may temper market hopes for policy
stimulus, he said.
- Turkey Threatens Syria With Further Action After Warplane Downed. Turkey told Syria that it was ready
to act again in defense of its borders after the shooting down
of a warplane said to have flown into its territory. Foreign Minister Ahmet Davutoglu said today that the
incursion should not be repeated, as the military justified
yesterday’s action by Turkish combat aircraft against a Syrian
MiG-23 that had ignored four warnings and briefly penetrated 1
kilometer (0.6 mile) into Turkish airspace, according to a
statement. A Syrian SA-5 surface-to-air missile system locked on
a Turkish F-16 for more than four minutes during a border patrol
yesterday, the military said, without elaborating.
- European Stocks Decline Most in Two Weeks; KPN Retreats.
European stocks fell, after posting
their biggest weekly advance in more than a month, as world
leaders pledged further measures against Russia, and manufacturing
gauges slipped in China, Germany and the U.S. Royal KPN NV lost 4.2
percent after Citigroup Inc. downgraded the stock. Stada Arzneimittel AG
slumped 15 percent after cutting its 2014 forecast. CEZ AS, the largest
Czech utility, climbed 5.1 percent after the nation’s finance minister
said the government is seeking a 100 percent dividend payout. The Stoxx Europe 600 Index fell 1.1 percent to 324.39 at the close of trading in London.
- Gold Drops Most in 13 Weeks; Palladium Extends Rally.
Gold futures for June delivery fell 1.9 percent to settle
at $1,311.10 an ounce at 1:45 p.m. on the Comex in New York, the
biggest drop since Dec. 19. Earlier, the price touched
$1,308.40, the lowest for a most-active contract since Feb. 20.
Trading was 54 percent above the average for the past 100 days
for this time, data compiled by Bloomberg showed.
- Record U.S. Small-Caps Rally Sends Valuation 26% Above 1990s. In
one corner of the U.S. equity
market, investor enthusiasm is exceeding the frenzy of the
Internet bubble. Small-cap shares tracked by the Russell 2000 Index have
rallied for seven straight quarters, the longest stretch ever,
sending valuations 26 percent above levels at the height of the 1990s
rally. Gains in stocks from LogMeIn (LOGM:US) Inc. to Athenahealth Inc.
have pushed the gauge up 248 percent since the bull market began five
years ago, leaving price-earnings ratios about three
times as high as for shares in the Standard & Poor’s 500 Index.
Wall Street Journal:
Fox News:
MarketWatch:
- El-Erian: Markets should be worrying about Ukraine. Markets have been lulled to complacency by geopolitical tensions in
recent years, says to Mohamed El-Erian, who’s still typing up a storm
after his departure from Pimco. But, he says, beware of Ukraine.
CNBC:
ZeroHedge:
Business Insider:
Washington Post:
Financial Times:
- Fed’s growing repo role risks backfiring. Don’t
fight the Fed is an oft-quoted adage among investors. Now the dictum
may extend to the “shadow banking” world as the US central bank muscles
into the murky realm of funding and leveraging between established banks
and other financial players.
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -4.51% 2) Biotech -3.72% 3) Alt Energy -3.57%
Stocks Falling on Unusual Volume:
- NFLX, SCTY, SKYY, QQEW, ARWR, BIB, UGLD, IBB, HQH, HAE, HQL, BCEI, DATA, KPTI, QRE, TKMR, BOFI, SHO, LCI, KONG, DQ, MRTX, PNQI, KWEB, SRNE, TRIB, CLDX, RGP, BBCN, ZIO, JAZZ, DISH, SHO, DRTX, FMI, TIF, PCLN, WDAY, FNSR, DXCM, KBH, ILMN, PCYC, QRE, UCTT, ALKS, GTAT, ALXN, SUSS, N, INCY, ENDP, DATA, ARRS, HAE, FEYE, KS, HZNP, NPSP, P, RCPT, LCI, SGMO, UBNT, SPLK, OHRP and ARWR
Stocks With Unusual Put Option Activity:
- 1) PBI 2) ADBE 3) GPS 4) WDC 5) MON
Stocks With Most Negative News Mentions:
- 1) FB 2) GM 3) INTC 4) NFLX 5) NTAP
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Utilities -.08% 2) Computer Services -.12% 3) Ag -.13%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
- 1) EA 2) NEE 3) CLDX 4) STSI 5) IDRA
Stocks With Most Positive News Mentions:
- 1) CMCSA 2) NUS 3) AAPL 4) WMT 5) YELP
Charts:
Weekend Headlines
Bloomberg:
- Ukraine’s Top Diplomat Says Risk of War With Russia Grows. Ukraine’s
foreign minister said the chances of war with Russia are increasing as
thousands of Russian troops gather on his country’s border. “We are
ready to respond,” Foreign Minister Andrii
Deshchytsia said in an interview broadcast today on ABC-TV’s
“This Week” program. “The Ukraine government is trying to use all the peaceful,
diplomatic means and diplomatic means to stop Russians, but the
people are also ready to defend their homeland,” he said.
- NATO Must Be Ready to Counter Russian Threat, Top Commander Says. U.S. Air Force General Philip Breedlove said the buildup of Russian troops on the country’s
border with Ukraine means NATO forces need to reposition
themselves and increase their readiness. Russian troops massing at the border are “very, very
sizable and very, very credible,” Breedlove, the top NATO
commander, said today at the German Marshall Fund conference in
Brussels. “We need to think about our allies, the positioning
of our forces in the alliance and our readiness of our forces in
the alliance, such that we can be there to defend against them
if required, especially in the Baltics and other places."
- China Manufacturing Gauge Unexpectedly Falls as Slowdown Deepens.
A Chinese manufacturing index (SHCOMP) unexpectedly fell, underscoring
the risk that leaders will need to add stimulus to meet this year’s
economic-growth goal. The Purchasing Managers’ Index from HSBC
Holdings Plc and Markit Economics dropped to 48.1 in March, the
companies said today. The preliminary reading compares with the 48.7
median estimate of 22 analysts surveyed by Bloomberg News and the final
number of 48.5 in February.
- Japan’s Plutonium Potential Stokes China Tensions on A-Bomb Risk. Japan is planning to start a $21
billion nuclear reprocessing plant, stoking concern in China the
facility’s output could be diverted for use in an atomic bomb. The issue will be one of the flashpoints for a summit on
nuclear security that Japan Prime Minister Shinzo Abe and
China’s President Xi Jinping are due to attend in The Hague
today. It’s adding to bitterness marked by territorial disputes
and left over issues from World War II between Asia’s two
largest economies. “Japan has stockpiled large volumes of sensitive nuclear
materials, including not only plutonium but also uranium, and
that’s far exceeding its normal needs,” Chinese Foreign
Ministry spokesman Qin Gang told reporters on March 11.
- Asian Stocks Rise as Japan Reopens Before China Data.
Asian stocks rose, with the regional benchmark index paring last week’s
losses, as Japanese markets reopened ahead of a private gauge of
factory production in China. Japan’s Topix (TPX) index gained 1.2
percent after a three-day weekend. Macquarie Group Ltd. gained 3.6
percent as Australia’s biggest investment bank said it expects full-year
earnings to rise as much as 45 percent. Yamato Holdings Co., a parcel
delivery company, surged 4.9 percent in Tokyo on a report it will form a
tie with China Post Group. The MSCI Asia Pacific Index rose 0.5 percent to 133.43 as
of 9:22 a.m. in Tokyo after declining 1.2 percent last week. The
MSCI Asia Pacific excluding Japan Index gained 0.1 percent.
- Stein Says Fed Should Weigh Financial Risks of Loose Policy. Federal Reserve Governor Jeremy Stein said monetary policy should be less accommodative when
bond markets are overheated even if it raises the risk of higher
unemployment. The remarks suggest financial stability should receive
strong consideration as the Fed pursues its two mandates --
stable prices and maximum employment -- because financial crises
can do so much damage to jobs and growth. “All else being equal, monetary policy should be less
accommodative -- by which I mean that it should be willing to
tolerate a larger forecast shortfall of the path of the
unemployment rate from its full-employment level -- when
estimates of risk premiums in the bond market are abnormally
low,” Stein said. He didn’t comment on the current stance of
policy.
- Zuckerberg Says Obama Moves on NSA Spying Don’t Go Far Enough. Facebook Inc.(FB) Chief Executive
Officer Mark Zuckerberg left a meeting with President Barack Obama unsatisfied with administration assurances that the
government can protect privacy while continuing surveillance. Zuckerberg and five other Internet and technology
executives were invited to the White House yesterday to discuss
National Security Agency spying following revelations the NSA
may have infected millions of computers globally with malware to
advance surveillance.
Wall Street Journal:
MarketWatch.com:
- Stock buybacks likely to peak with end of cheap debt. Corporate share buybacks, which have risen to record amounts along with
market highs, may begin to lose their luster for investors as an
earnings booster as the end of cheap debt nears and fundamental growth
gets more scrutiny.
Business Insider:
Reuters:
- China credit strains rise as Beijing embraces failure. Credit
warning signs are flashing for heavily indebted Chinese semiconductor,
software and commodities firms as the government cautiously steps aside
to let market forces play a bigger role in deciding
winners and losers.
Financial Times:
- European regulators warn as risky loans rise above bubble peak.
Debt
investors are abandoning normal creditor protections on European
leveraged buyout loans as they snap up riskier securities at a faster
rate and in greater proportions than at the peak of the credit bubble.
Growing volumes of euro-denominated “covenant light” loans have now
aroused the interest of European regulators, who are increasing their
monitoring of lenders’ behaviour.
WirtschaftsWoche:
- EU May Start Tax-Haven Proceedings Against Countries.
Task force has been created that is now asking Belgium, Ireland,
Luxembourg and the Netherlands for comment of their corporate tax
practices, citing EU antitrust chief Joaquin Almunia.
China Securities Journal:
- China Researcher Sees 7% Economy Growth This Year. The Chinese
economy may grow about 7% this year, and quarterly growth may trend
lower in 2014, citing Wang Jian, a researcher under the National
Development and Reform Commission. China may face an overcapacity crisis
next year and a possible international financial crisis can't be ruled
out, Wang is cited as saying.
Weekend Recommendations
Barron's:
- Bullish commentary on (AAPL), (TGT), (MDR), (VC), (ESRX) and (MTB).
Night Trading
- Asian indices are unch. to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 134.0 -5.5 basis points.
- Asia Pacific Sovereign CDS Index 95.75 -1.0 basis point.
- 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 February is estimated to rise to .1 versus -.39 for January.
9:45 am EST
- The Preliminary Markit US Manufacturing PMI for March is estimated to fall to 56.5 versus 57.1 in February.
Upcoming Splits
Other Potential Market Movers
- The Eurozone Flash PMI could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial 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 week.
