Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 17.35 +9.19%
- Euro/Yen Carry Return Index 147.16 +.02%
- Emerging Markets Currency Volatility(VXY) 8.34 +.85%
- S&P 500 Implied Correlation 58.82 +5.09%
- ISE Sentiment Index 76.0 +4.11%
- Total Put/Call 1.19 +17.82%
Credit Investor Angst:
- North American Investment Grade CDS Index 69.86 +3.28%
- European Financial Sector CDS Index 82.67 +1.86%
- Western Europe Sovereign Debt CDS Index 42.36 unch.
- Asia Pacific Sovereign Debt CDS Index 88.28 +1.98%
- Emerging Market CDS Index 279.80 +2.64%
- China Blended Corporate Spread Index 351.33 n/a
- 2-Year Swap Spread 13.75 +.25 basis point
- TED Spread 19.5 -.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -1.5 +.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 227.0 -1.0 basis point
- China Import Iron Ore Spot $116.90/Metric Tonne -1.85%
- Citi US Economic Surprise Index -40.20 +1.6 points
- Citi Emerging Markets Economic Surprise Index -21.10 -9.9 points
- 10-Year TIPS Spread 2.14 unch.
Overseas Futures:
- Nikkei Futures: Indicating -61 open in Japan
- DAX Futures: Indicating -36 open in Germany
Portfolio:
- Slightly 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:
- Ukraine Premier Bids to Calm East as Putin Presses Europe. Ukraine’s premier sought to ease tensions among Russian
speakers in the east demanding greater autonomy as President Vladimir
Putin appealed to Europe to provide aid to the cash-strapped nation to
ensure gas supplies. Arseniy Yatsenyuk told reporters today in
the city of Donetsk, where pro-Russian protesters have seized the
local-government headquarters, that his administration in Kiev wants to
give greater powers to the regions and to resolve the crisis that’s
gripping the country as soon as possible. Having annexed Crimea
and deployed thousands of troops along the border, Putin has been
ratcheting up pressure on Ukraine, threatening yesterday to halt gas
shipments. Ukraine is dominating discussions at the spring meetings of
the International Monetary Fund and World Bank, which started today.
- Toxic Debt Condemned in Crisis Heralded as Europe’s Savior. Asset-backed securities were
denounced for causing the financial crisis. Now the debt is
being seen as a savior for Europe’s economy. The European Central Bank signaled this week that plans to
ward off deflation may center on asset-backed securities, while
policy makers are promoting an expansion of the market. The
efforts come as sales of the bonds fell to $102.5 billion in
Europe last year from $449 billion in 2007 and less than the
$174 billion of issuance in the U.S., according to JPMorgan
Chase & Co.
- China Normal Growth Needs Only Minor Policy Changes: Zhou. China’s central bank chief said the nation needs only minor policy adjustments when growth is within a normal range, adding to signals that the government will avoid taking broader action to counter a slowdown. The
State Council has a target for about 7.5 percent growth and has studied
the range, and “we don’t have to roll out significant policies” when
growth is in a normal range, People’s Bank of China Governor Zhou
Xiaochuan said today in
Boao, China.
- China Bond Sale Fails First Time Since June on Rate Outlook.
China’s Ministry of Finance failed to sell all of the bonds offered at
an auction today for the first time in 10 months amid speculation
short-term interest rates will climb as corporate tax payments tie up
funds. The ministry sold 20.7 billion yuan ($3.3 billion) of
one-year debt today, less than the planned issuance of 28 billion yuan,
according to a statement on its website. The average yield of 3.63
percent compared with the median estimate of 3.4 percent in a Bloomberg
News survey yesterday, when the yield on similar-maturity existing notes
was 3.32 percent.
- China’s H Shares Decline Most in Two Months as Tencent Retreats. Chinese stocks dropped, sending mainland companies in Hong Kong to the biggest decline in two months, as falling producer prices signaled weakening economic growth and technology shares sank on valuation concerns. Anhui Conch Cement Co. (600585), China’s biggest cement maker, slid the most since 2011 in Hong Kong. The ChiNext index, which has a 32 percent weighting in smaller technology stocks, lost 1.3 percent after U.S. peers tumbled yesterday on concern valuations are too high. Tencent Holdings Ltd. (700), Asia’s biggest Internet company, dropped 6.8 percent. The Hang Seng China Enterprises Index (HSCEI) slid 1.9 percent to
10,228.42 at the close.
- G-20 Deeply Disappointed U.S. Preventing IMF-Resources Boost. Global finance chiefs pressed the U.S. to allow an increase in the
financial resources of the International Monetary Fund as they argued
the Ukraine crisis underscores the lender’s importance. “We are
deeply disappointed with the continued delay in progressing the IMF
quota and governance reforms,” Group of 20 finance ministers and central
bankers said in a statement released after talks in Washington today.
“We urge the U.S. to ratify these reforms at the earliest opportunity.”
- Ebola Outbreak Empties Hotels as West Africa Borders Closed.
West Africa is fighting to contain the spread of the disease that has
claimed the lives of 111 people in Guinea and Liberia, the worst
outbreak in seven years, and kills as many as nine out of 10 people who
contract it. There’s no cure or vaccine for the hemorrhagic fever that
will probably continue to spread in the region for a few more months, according to the World Health Organization.
- European Stocks Drop as Stoxx 600 Posts Weekly Slide. European stocks fell for a second
day, with the benchmark index posting its biggest weekly drop in
almost a month, as investors speculated that equity gains have overshot
the earnings outlook. ARM Holdings Plc lost 4.5 percent as
information-technology shares caught up with a slump in their U.S. peers
yesterday. Thales SA declined the most since July 2012 after JPMorgan
Chase & Co. lowered its recommendation. Mediaset Espana Comunicacion
SA tumbled to the lowest price since November after its second-biggest
shareholder sold a part of its stake. Salzgitter AG rose 1.2 percent
after Citigroup Inc. advised investors to buy the stock. The Stoxx Europe 600 Index fell 1.4 percent to 328.77 at the close London.
- Nasdaq Swings Hit Highest Since 2011 as VIX Stays Calm. The selloff that is sending shares
in the Nasdaq 100 Index to the wildest swings since Europe’s
debt crisis is failing to stir equal panic in option prices.
That bothers Bruce Bittles. “They’ll have to show a lot of pessimism before this
decline is over,” said Bittles, chief investment strategist at
Milwaukee-based RW Baird & Co., which oversees $110 billion.
“It certainly looks like this correction could carry on.” Losses of 5 percent or more from Facebook Inc. to Tesla
Motors Inc. and Netflix Inc. drove the Nasdaq 100 down 3.1
percent yesterday, the worst retreat in two years. During April,
the gauge has moved 1.5 percent a day on average, the most since
November 2011. At the same time, prices for options are below
levels from February and October. Concern earnings growth is slowing, valuations are
stretched and that speculators got too bullish has erased $700
billion from the value of American equities in the past week.
Losses that began in shares with the biggest gains have spread
to the broader market, where the Standard & Poor’s 500 Index (SPX)
reached a record on April 2.
- Computer Strategies Often Rely on Unsound Math, Researchers Say. Investment strategies that use
computer models to decide when to buy and sell securities based
on historical market trends are usually unsupported
scientifically because of back-testing flaws, according to the
126-year-old American Mathematical Society. “We are not implying that those technical analysts,
quantitative researchers or fund managers are ‘snake oil
salesmen,’” David H. Bailey, a research fellow at the
University of California, Davis, and three co-authors said in a
paper in the May issue of the society’s magazine Notices.
“Hedge-fund managers are often unaware that most back-tests
presented to them by researchers and analysts may be useless.”
Wall Street Journal:
MarketWatch:
CNBC:
- It's 'hostile' for businesses today: Langone. (video) Excessive regulation has created a "hostile" environment for
business owners in the United States, curbing liquidity and putting a
drag on the economy, billionaire investment banker and business magnate
Ken Langone said Friday on CNBC.
"We are in a period of intense
and unreasonable regulation and we're seeing the fruits of that
environment," said Langone, co-founder of Home Depot, on "Squawk on the Street." "We have to accept the fact that what's going on today doesn't come without cost and the cost is economic growth."
ZeroHedge:
Business Insider:
Reuters:
Financial Times:
- Tiger Cub funds hit in tech-led stock slide. Will
hedge fund history repeat itself, or will it rhyme? In the late 1990s,
as technology shares surged ever higher, one of the world’s most
renowned hedge fund managers was distraught. Now,
as many investors ponder whether markets are in the grip of a second
technology bubble, the Cubs, it seems, are determined not to make the
same mistake that led to their mentor’s demise. As investors debate whether markets are in the grip
of a second technology bubble Tiger Cub hedge funds have piled in to
loftily valued US technology shares such as Facebook, Amazon and Tesla
Motors. And, last month, as many of these names that had performed so
strongly over last year began to fall, these hedge funds suffered heavy
losses.
Financial Express:
- Industrial production in India dips 1.9 pct in February, enters negative zone. After feeble signs of a recovery, industrial production once
again slipped into negative territory and contracted 1.9 per cent in
February due to poor performance in manufacturing, especially capital
goods.
Factory output as measured by the index of industrial production
(IIP) showed a decline of 0.1 per cent during the 11-month period from
April to February, compared with growth of 0.9 per cent in the
corresponding period a year earlier.
Manufacturing, which constitutes over 75 per cent of the index,
declined 3.7 per cent in February as against growth of 2.1 per cent in
the same month a year ago.
Production of capital goods, a barometer of demand, shrank 17.4
per cent, in sharp contrast to an expansion of 9.1 per cent in the same
month in 2012.
India's
statistics office is likely to say in two weeks that growth this year
will slump further to an 11-year low, undermining the government's
optimism that it would at least be flat at 5% on the back of a recovery
in the second half.
The advanced estimate for FY14 is set to come in below that level, said an official who didn't want to be named.
The economy expanded 4.6% in the first half and would need to rise
5.4% in the second for growth to come in at 5%, which doesn't lo ..
Gloomy outlook: India's GDP may sink below 5% to an 11-year low
Style Underperformer:
Sector Underperformers:
- 1) Coal -2.02% 2) Retail -1.41% 3) I-Banking -1.33%
Stocks Falling on Unusual Volume:
- DWCH, VJET, RLYP, HRB, PSB, WPPGY, GPS, TECD, CBSO, LDRH, PJC, FLDM, FAST, APO, WCG, NQ, JPM, OAK, HVT, PCYC, CNSL, USNA, ASML, LAZ, GWRE, SPWR, Z, ULTA and ELLI
Stocks With Unusual Put Option Activity:
- 1) COST 2) HYG 3) XLV 4) EWW 5) XLF
Stocks With Most Negative News Mentions:
- 1) JPM 2) GM 3) GPS 4) MS 5) ISRG
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Biotech +1.06% 2) Airlines +.48% 3) Gaming +.46%
Stocks Rising on Unusual Volume:
- ZIGO, GLOG, FANG, DEPO and GILD
Stocks With Unusual Call Option Activity:
- 1) HZNP 2) TIBX 3) HRB 4) NRF 5) SPXU
Stocks With Most Positive News Mentions:
- 1) ZIGO 2) OSK 3) BXP 4) WFC 5) CELG
Charts:
Evening Headlines
Bloomberg:
- U.S. Warns Russia of More Sanctions as G-7 Studies Ukraine Aid. The
U.S. threatened Russia with more sanctions for its incursion into
Ukraine as global finance chiefs debated how best to deliver aid to the
beleaguered former Soviet republic. With Group of Seven finance
ministers and central bankers meeting yesterday in Washington, U.S.
Treasury Secretary Jacob J. Lew delivered the warning in talks with his
Russian counterpart, Anton Siluanov. It was made just hours after
Russian President Vladimir Putin threatened to halt natural gas
shipments to Ukraine. “Secretary Lew emphasized that Russia’s ongoing
occupation and purported annexation of Crimea is illegal and
illegitimate,” the Treasury said in a statement after the officials met.
“The United States is prepared to impose additional significant
sanctions on Russia if it continues to escalate the situation in
Ukraine.”
- Japan Stocks Set for Worst Week Since 2011 Quake With 7.1% Slump. Japan’s Topix index fell for a
sixth day, heading for its biggest weekly slump since the March
2011 earthquake, as the yen rose and a selloff in technology
stocks resumed. Fast Retailing Co. tumbled. “As market sentiment worsens in the U.S., investors tend
to focus on negatives, creating a downward spiral,” said Juichi Wako, a Tokyo-based equity strategist at Nomura Holdings Inc.,
the nation’s biggest brokerage. “We’re seeing a necessary
correction in technology shares.” SoftBank Corp., a mobile-phone operator and Internet-company investor, was the biggest drag on the Topix today, while
Yahoo Japan Corp., which operates an online portal site, slid
2.9 percent. Fast Retailing tumbled 8 percent, extending its
weekly drop to 13 percent, after Asia’s biggest clothing
retailer cut its forecast for annual profit as costs rise and
demand weakens for the company’s casual wear in Japan. Nissan
Motor Co., a carmaker that gets about 80 percent of revenue
abroad, lost 2 percent.
- Fast Retailing Plunges in Tokyo After Cutting Profit Forecast. Fast Retailing Co. (9983), Asia’s biggest
clothing retailer, fell the most in nine months in Tokyo trading
after lowering its annual profit forecast, citing higher costs
and weak demand. Net income will be about 88 billion yen ($865 million) for
the year ending August, lower than its previous forecast of 92
billion yen, the Yamaguchi, Japan-based company said yesterday
after the market closed. That compares with a 94.5 billion yen
average of 19 analysts estimates compiled by Bloomberg.
- Property Trust Sales Drop 49% as Vicious Loop Seen: China Credit.
Chinese developers raised 49
percent less through trusts in the first quarter as the collapse
of Zhejiang Xingrun Real Estate Co. highlighted default risks. “The banking system and the shadow banking system are
becoming concerned about exposure,” David Cui, China strategist
at Bank of America said in an interview yesterday. “Once people
refuse to provide credit to developers, their balance sheets
will be under pressure, forcing them to cut prices. Once enough
of them cut prices, fewer people would buy because most people
buy property only when they think the price is going up. If this
persists, it will turn into a vicious loop.”
- China Fake Data to Skew More Export Numbers.
China’s data distortions will muddy analysis of the nation’s trade until
at least June, making it harder to assess the strength of the world’s
biggest exporter and second-largest economy. That’s when China will provide figures that compare with what Royal Bank of Scotland Group Plc economist Louis Kuijs says
are “pretty clean” numbers from May 2013 that followed a
crackdown on inflated invoices used to disguise capital inflows.
- Turkish Lira Drops Most in Three Weeks as Moody’s Cuts Outlook. Turkey’s
lira dropped the most in three weeks after Moody’s Investors Service
lowered its outlook on the nation’s debt rating to negative from stable.
Moody’s cited “increased pressure on external financing position driven
by heightened political uncertainty, lower global liquidity and slowing
near-term economic outlook” as reasons for the decision. The lira fell 0.5 percent to 2.1187 per dollar as of 9:09 a.m. in Singapore, according to data compiled by Bloomberg. The
currency was headed for a 0.3 percent weekly loss.
- Asian Stocks Sink With Aussie on Tech Rout. Asian stocks slid, pushing the
regional index down the most in three weeks, while emerging-market and commodity currencies weakened as a renewed selloff in
U.S. technology shares cut demand for riskier assets. The MSCI Asia Pacific Index sank 1 percent by 12:06 p.m. in Tokyo, its biggest drop since March 20. Fast Retailing Co. drove a 2.3 percent tumble in Japan’s Nikkei 225 Stock Average, which
is headed for the steepest weekly drop among developed markets.
- Dollar Set for Biggest Weekly Drop in Eight Months; Aussie Falls.
The dollar was set for the biggest
weekly slide in eight months against a basket of its major peers
as the Federal Reserve’s meeting minutes damped speculation that
U.S. interest rates will rise. The Bloomberg Dollar Spot Index, which
tracks the greenback against 10 major counterparts, was little changed
at 1,005.53 at 11:23 a.m. in Tokyo. It has lost 1.1 percent since April 4, set
for the biggest weekly drop since the period ended Aug. 9.
- Options Trader Spends $5.3 Million to Bet Russell 2000 Will Drop. An
investor paid about $5.3 million for a trade that will pay off if the
iShares Russell 2000 ETF falls at least 2 percent by May. The trader
bought 40,000 bearish contracts on the small-cap stock ETF (IWM)
expiring in May with a strike price of $113, while selling the same
number of May $107 puts in a strategy known as a put spread, according to JonesTrading Institutional Services LLC.
Wall Street Journal:
CNBC:
Zero Hedge:
Business Insider:
Reuters:
- GM(GM) shares drop to near IPO price of $33. Investors' concerns about
ongoing turmoil at General Motors Co, linked to the
deaths of at least 13 people, could push the automaker's shares
below GM's $33 IPO price for the first time since last June.
- China should be very cautious with any stimulus - central bank. The Chinese government and
central bank should be "very cautious" in implementing any
stimulus programs because they tend to be less efficient than
natural market forces in boosting growth, a People's Bank of China
official said on Thursday. "Any kind of stimulus package should be very cautious in the sense that you should believe that the market driver is the
natural and the most efficient way to grow, and a stimulus
growth driver is not as efficient as the natural market driver,"
Yi said. "And the government and the central bank should be very
cautious."
- Hedge funds' March performance worst in nine months - data. Hedge funds had their weakest month since mid-2013 in March, data showed on Thursday, as investments took a hit from tensions in Ukraine and fears of a slowdown in China.
The asset-weighted SS&C GlobeOp Capital Performance
Index showed the gross return of the average fund was minus 1.03
percent in March, the first and largest monthly drop since last
June, although they remain up 2.46 percent year to date.
South China Morning Post:
- China
Must Fix Housing Bubble Before Yuan Opening, Yu Says. Govt should keep
"certain capital account controls" while allowing yuan to float, Yu
Yongding said, citing the economist's comments to a housing forum.
Domestic problems including the housing bubble, inefficient allocation
of resources must be resolved before full opening.
Shanghai Securities News:
- China Drafts Plan to Control Energy Consumption. China is
drafting a plan to control energy and coal consumption as part of
pollution control efforts, citing a person from the National Development
and Reform Commission.
Hong Kong Economic Journal:
- BYD March Vehicle Sales Volume Drops 25% y/y. Co's vehicle sales
in the month dropped to 39,000 from 51,700 a year ago, citing Li Yunfei,
deputy general manager of the sales division. Total sales in the first
quarter dropped to 100,300 vs 143,000 a year ago.
Evening Recommendations
ISI Group:
- Rated (QCOM) Strong Buy, target $90.
- Rated (NXPI) Strong Buy, target $85.
- Rated (MU) Strong Buy, target $30.
- Rated (LRCX) Strong Buy, target $70.
- Rated (AMAT) Strong Buy, target $25.
- Rated (FSL) Cautious, target $20.
- Rated (LLTC) Cautious, target $46.
Night Trading
- Asian equity indices are -1.25% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 120.5 -1.25 basis points.
- Asia Pacific Sovereign CDS Index 86.5 unch.
- NASDAQ 100 futures +.09%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- PPI Final Demand MoM for March is estimated to rise +.1% versus a -.1% decline in February.
- PPI Ex Food and Energy MoM for March is estimated to rise +.2% versus a -.2% decline in February.
9:55 am EST
- Preliminary Univ. of Michigan Consumer Confidence for April is estimated to rise to 81.0 versus 80.0 in March.
Upcoming Splits
Other Potential Market Movers
- The Eurozone CPI and (DYN) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down 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 day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Every Sector Declining
- Volume: Slightly Above Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 15.47 +11.94%
- Euro/Yen Carry Return Index 147.07 -.26%
- Emerging Markets Currency Volatility(VXY) 8.21 -.24%
- S&P 500 Implied Correlation 55.54 +5.95%
- ISE Sentiment Index 58.0 -34.09%
- Total Put/Call .93 +52.46%
Credit Investor Angst:
- North American Investment Grade CDS Index 67.58 +3.22%
- European Financial Sector CDS Index 81.16 -1.01%
- Western Europe Sovereign Debt CDS Index 42.36 -.43%
- Asia Pacific Sovereign Debt CDS Index 86.36 -.11%
- Emerging Market CDS Index 270.10 -.23%
- China Blended Corporate Spread Index 351.33 -.76%
- 2-Year Swap Spread 13.5 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -1.75 -.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 228.0 -4.0 basis points
- China Import Iron Ore Spot $119.10/Metric Tonne -.25%
- Citi US Economic Surprise Index -41.80 +3.4 points
- Citi Emerging Markets Economic Surprise Index -10.20 -7.1 points
- 10-Year TIPS Spread 2.14 unch.
Overseas Futures:
- Nikkei Futures: Indicating -260 open in Japan
- DAX Futures: Indicating -50 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech/retail/biotech/medical sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
- Market Exposure: Moved to 25% Net Long
