Tuesday, April 22, 2014

Today's Headlines

Bloomberg:
  • Biden Vows Support for Ukraine as Deal With Russia Frays. Ukraine’s president urged the resumption of an offensive against militants after U.S. Vice President Joe Biden’s visit as an agreement with Russia to ease tensions in the former Soviet republic’s east neared collapse. With eastern Ukraine in control of “terrorists” supported by Russia, the separatists have “crossed the line” after bodies of a local lawmaker and a member of the Batkivshchyna party were found today, acting President Oleksandr Turchynov said in a statement on the parliament website. Biden expressed U.S. support for Ukraine during a visit to Kiev.
  • Chinese Bad-Loan Ratio Rises ‘Significantly,’ Huarong Says. China’s bad-loan ratio rose “significantly” in the first quarter, increasing risks for the nation’s banking industry, according to the nation’s largest manager of soured debt. The business environment this year has been “grim and complicated” as lenders face pressures on asset quality, liquidity and lending margins, China Huarong Asset Management Co. Chairman Lai Xiaomin said during an internal meeting on April 15, according to a statement today on the website of the Beijing-based company. China’s slowing economy has made it tougher for borrowers to repay debt, driving up banks’ sour loans for a ninth straight quarter as of December to the highest level since 2008, data from the banking regulator show. New nonperforming loans amounted to more than 60 billion yuan ($9.6 billion) in the first two months of this year, compared with 100 billion yuan for all of 2013, China Business News reported on April 9, citing people it didn’t identify. “The economic indicators we’ve seen so far are quite disappointing and repayment risks are rising across sectors from property to small businesses due to weak demand,” Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp., said by phone. “Banks will be hit in such an operating environment but managers of bad assets like Huarong and China Cinda Asset Management Co. stand to benefit” because they can accumulate more sour loans, she said. 
  • European Stocks Advance as Glaxo Shares Increase on M&A. European stocks rose the most in seven weeks as health-care companies lead gains amid mergers and acquisitions activity. GlaxoSmithKline Plc rose 5.2 percent after Novartis AG agreed to buy the U.K. company’s cancer-drug business and form a consumer-health venture with Glaxo. AstraZeneca Plc (AZN) jumped the most since August 2011 after reports that Pfizer Inc. discussed acquiring the drugmaker in informal, now-discontinued talks. Royal Philips NV posted its biggest decline in almost a year after the world’s biggest lighting company reported first-quarter profit that missed analysts’ projections. The Stoxx Europe 600 Index added 1.4 percent to 337.03 at the close of trading, bringing its three-day gain to 3.2 percent, the most since June
  • Williams Urges Fed to Avoid Stoking Risk as It Boosts Jobs. Federal Reserve Bank of San Francisco President John Williams said the central bank should avoid encouraging excessive financial risk-taking as it pursues its goals of full employment and stable prices. “We’re exactly on the right track” with current policy, Williams said in an interview yesterday in San Francisco, predicting unemployment will fall to 5.5 percent by the end of next year and inflation will accelerate to about 1.7 percent. Trying to achieve the Fed’s goals sooner “would take policy actions that might have more negative effects,” he said
  • PE Firms’ Dividend ‘Epidemic’ Intensifies Junk-Debt Alarm. Companies owned by private-equity firms are borrowing money to pay dividends like it’s 2007, adding to concern among regulators that excesses are emerging in the riskier parts of the debt markets. With defaults by the neediest U.S. borrowers approaching record lows, buyout firms are taking advantage of the Federal Reserve’s (FDTR) easy-money policies to extract payouts by piling more junk debt onto the companies they own. The central bank, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency have warned in recent months that underwriting standards for speculative-grade issuers are weakening as investors become more willing to accept looser terms.
  • McDonald’s(MCD) Sees April Sales Growth After Profit Fell. McDonald’s Corp. (MCD)’s free coffee may have slowed diners’ rush to check out Taco Bell’s waffle tacos. While McDonald’s today posted falling sales at its established U.S. locations and first-quarter profit that trailed analysts’ estimates, the world’s largest restaurant chain is showing some encouraging signs. The March drop in U.S. sales was the smallest in five months, and the company today said global store sales may be “modestly positive” in April, which would be the second straight monthly gain.
Wall Street Journal: 
CNBC:
  • Einhorn: Tech bubble brewing, shorting momentums. David Einhorn has a clear warning for technology investors: we're in a bubble. "Now there is a clear consensus that we are witnessing our second tech bubble in 15 years," Greenlight Capital said in an investor letter Tuesday. "What is uncertain is how much further the bubble can expand, and what might pop it."
ZeroHedge:
Business Insider: 
Reuters:
  • Eli Lilly(LLY) to buy Novartis' animal health unit for $5.4 billion. Eli Lilly and Co said on Tuesday it will buy Swiss drugmaker Novartis AG's animal health business for $5.4 billion in cash to strengthen and diversify its Elanco unit. Lilly said it plans to fund the deal with about $3.4 billion of cash on hand and $2 billion of loans.

Bear Radar

Style Underperformer:
  • Large-Cap Value +.43%
Sector Underperformers:
  • 1) Steel -1.60% 2) Coal -1.54% 3) Computer Hardware -.73%
Stocks Falling on Unusual Volume:
  • MDSO, ALSN, LXK, FMER, PNR, ASTE, AZN, ATI, BIS, FSS, RUSHA, PHG, KMB, HSTM, ATHN, RCI, HXL, KPTI, ERJ, OMC, BRO, EDU, FWRD and SBNY
Stocks With Unusual Put Option Activity:
  • 1) AGN 2) RSH 3) CTIC 4) YUM 5) DO
Stocks With Most Negative News Mentions:
  • 1) ACI 2) LXK 3) PNR 4) LMT 5) VRX
Charts:

Bull Radar

Style Outperformer:
  • Small-Cap Growth +.93%
Sector Outperformers:
  • 1) Gaming +4.66% 2) Biotech +2.98% 3) HMOs +1.88%
Stocks Rising on Unusual Volume:
  • WB, GWPH, AGN, VRX, CNC, HOG, RCII, NFLX, HLX, JNS, IPG, ICPT, AMBC, SGMS, NKTR, DDS, CLDX, SRPT, CE, LVS, SGMO, FEYE, PRGO, XON, JNS, ANGI and THRX
Stocks With Unusual Call Option Activity:
  • 1) HD 2) AGN 3) RDN 4) VRX 5) CAG
Stocks With Most Positive News Mentions:
  • 1) TWC 2) TSLA 3) NFLX 4) AGN 5) DDD
Charts:

Tuesday Watch

Evening Headlines 
Bloomberg: 
  • Russia, U.S. Trade Blame as Ukraine Accord Nears Collapse. Russia and the U.S. traded blame for failing to rein in extremists in Ukraine, as a diplomatic accord reached last week all but collapsed. U.S. Secretary of State John Kerry warned Russian Foreign Minister Sergei Lavrov today that “there will be consequences” if Russia fails to act “over the next pivotal days” to restrain pro-Russian militants in eastern Ukraine, spokeswoman Jen Psaki said in Washington.
  • Obama Faces Asia Allies Uncertain of U.S. Commitment. President Barack Obama’s trip to Asia this week brings him face-to-face with allies who have grown uncertain about his commitment to the region. Even with the president’s pledge to continue “rebalancing” U.S. policy toward Asia, the region’s leaders have been unnerved by Obama’s focus on the crises in Syria and Ukraine, military budget cuts, and that the U.S. wants a new “great power relationship” with China that they worry will reduce Japan and other U.S. allies to second-class status.
  • Chinese Steel Industry Won't Turn Around Soon, UBS Says. Remains "relatively cautious" as Angang, Maanshan could record losses in 1Q due to weak steel market, UBS analyst Mick Mi writes in note to clients.
  • Japan’s Abe Sends Traditional Offering to Yasukuni Shrine. A group of 146 lawmakers visited the Yasukuni Shrine in Tokyo, after China and South Korea rebuked Prime Minister Shinzo Abe for sending a traditional offering to the site that honors Japan’s war dead.
  • Plane Hunt Yields No Debris as Search Enters Last Zone. An international team hunting for the missing Malaysian passenger jet is trawling the last third of a search zone for wreckage after an unmanned submarine failed to find traces of the aircraft.
  • Asian Stocks Rise as Japan Exporters Gain on Weaker Yen. Asian stocks rose as U.S. equities capped their longest stretch of gains since October and the yen extended losses, boosting the outlook for Japanese exporters. Komatsu Ltd. (6301), a maker of construction equipment that gets about 80 percent of sales overseas, added 0.8 percent, pacing gains among Japanese exporters. NHN Entertainment Corp. climbed 3 percent after the South Korean online gaming company said it’s considering a share buyback. Newcrest Mining Ltd., Australia’s biggest gold producer, slipped 2.2 percent after the bullion fell to a two-week low as signs of an improving U.S. economy reduced the appeal of haven assets. The MSCI Asia Pacific Index added 0.2 percent to 139.17 as of 10:52 a.m. in Tokyo, with all 10 industry groups on the gauge rising.
  • Dividend Deal 'Epidemic' Intensifies Junk Alarm: Credit Markets. Companies owned by private-equity firms are borrowing money to pay dividends like it's 2007, adding to concern among regulators that excesses are emerging in the riskier parts of the debt markets. Borrowers including Madison Dearborn Partners LLC's mobile-phone insurer Asurion LLC obtained almost $21 billion in junk-rated loans this year to enrich their owners, the most in seven years, according to S&P's Capital IQ LCD. Some of the least-creditworthy companies are even selling notes that may pay interest with more debt, which BMC Software Inc. did for its $750 million payout to a group led by Bain Capital LLC. With defaults by the neediest U.S. borrowers approaching record lows, buyout firms are taking advantage of the Fed's easy-money policies to extract payouts by piling more junk debt onto the companies they own. The central bank, the FDIC and the Office of the Comptroller of the Currency have warned in recent months that underwriting standards for speculative-grade issuers are weakening as investors become more willing to accept looser terms.
  • Keystone Route Ruling Should Be Overturned, Nebraska Says. A court challenge holding up TransCanada Corp. (TRP)’s Keystone XL pipeline should be dismissed, Nebraska’s governor said, urging his state’s high court to allow the project to move forward.
Wall Street Journal: 
Fox News:
CNBC:
Zero Hedge:
ValueWalk:
Evening Recommendations
CSFB:
  • Raised (FB) to Outperform, target $87.
Night Trading
  • Asian equity indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 120.50 -4.0 basis points.
  • Asia Pacific Sovereign CDS Index 87.5 -.75 basis point.
  • FTSE-100 futures +.42%.
  • S&P 500 futures +.01%.
  • NASDAQ 100 futures  +.08%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (SPG)/2.24
  • (RF)/.20
  • (LMT)/2.53
  • (MCD)/1.24
  • (LXK)/.87
  • (AKS)/-.43
  • (HOG)/1.09
  • (OMC)/.79
  • (GPC)/1.02
  • (BK)/.54
  • (UTX)/1.27
  • (ITW)/.98
  • (CREE)/.38
  • (GILD)/.91
  • (JNPR)/.29
  • (ISRG)/3.28
  • (IGT)/.19
  • (T)/.70
  • (AMGN)/1.94
  • (VMW)/.79
  • (ILMN).44
  • (YUM)/.84
  • (TRV)/2.16
  • (ETH)/.21
  • (CMCSA)/.64
Economic Releases
9:00 am EST
  • FHFA House Price Index MoM for February is estimated to rise +.5% versus a +.5% gain in January.
10:00 am EST
  • The Richmond Fed Manufacturing Index for April is estimated to rise to 2.0 versus -7.0 in March.
  • Existing Home Sales for March are estimated to fall to 4.56M versus 4.6M in February. 
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China HSBC Manufacturing PMI, Australia CPI, Eurozone Construction Output, $32B 2Y T-Note auction, weekly retail sales report and the (MED) analyst 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 mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Monday, April 21, 2014

Stocks Rising into Final Hour on Yen Weakness, Short-Covering, Technical Buying, Biotech/Drug Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Higher
  • Sector Performance: Most Sectors Gaining
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.21 -1.12%
  • Euro/Yen Carry Return Index 147.68 +.04%
  • Emerging Markets Currency Volatility(VXY) 8.27 -1.73%
  • S&P 500 Implied Correlation 56.21 -.44%
  • ISE Sentiment Index 165.0 +77.42%
  • Total Put/Call .71 -15.49% 
  • NYSE Arms 1.09 +26.73% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 66.85 -1.28%
  • European Financial Sector CDS Index 79.89 -.08%
  • Western Europe Sovereign Debt CDS Index 35.11 -.07%
  • Asia Pacific Sovereign Debt CDS Index 87.67 -.70%
  • Emerging Market CDS Index 272.68 -1.61%
  • China Blended Corporate Spread Index 351.19 -.91%
  • 2-Year Swap Spread 14.50 -.5 basis point
  • TED Spread 20.0 -.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -2.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .03% +1.0 basis point
  • Yield Curve 233.0 unch.
  • China Import Iron Ore Spot $113.30/Metric Tonne -2.75%
  • Citi US Economic Surprise Index -23.60 +2.5 points
  • Citi Emerging Markets Economic Surprise Index -24.80 -1.1 points
  • 10-Year TIPS Spread 2.21 unch.
Overseas Futures:
  • Nikkei Futures: Indicating +83 open in Japan
  • DAX Futures: Indicating n/a open in Germany
Portfolio: 
  • Higher: On gains in my tech/medical/biotech/retail sector longs and emerging markets shorts
  • Disclosed Trades: None
  • Market Exposure: 75% Net Long

Today's Headlines

Bloomberg: 
  • Russia Says Ukraine Failing to Halt Extremists Seeking Civil War. Russia accused the Ukrainian government of failing to rein in extremists as escalating tensions threaten to undermine a diplomatic accord reached last week and stoke calls in the U.S. for economic sanctions. Ukrainian and Russian officials traded accusations about responsibility for attacks that killed three during the weekend. Foreign Minister Sergei Lavrov in Moscow called on the U.S. to hold the Ukrainian authorities accountable for observing the agreement signed in Geneva, which calls for all illegal groups to disarm and seized buildings to be returned.
  • Copper Seen Falling as Stronger Dollar Cuts Demand for Metals. Copper futures, trading little changed, were poised to decline for the first time in three sessions as gains in the dollar reduced the metal’s appeal as an alternative investment. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, rose for a seventh session, heading for the longest streak since May. Through April 17, copper dropped 11 percent this year amid signs that slowing economic growth would reduce metals consumption in China, the world’s top consumer. 
  • Gold Falls to Two-Week Low as Platinum, Palladium Slump. Gold futures for June delivery fell 0.6 percent to $1,285.60 an ounce at 10:39 a.m. on the Comex in New York.
  • Keystone Pipeline Fate Now in Hands of Nebraskan Jurists. The focus of the Keystone XL debate has shifted from a fierce lobbying war in Washington to Lincoln, Nebraska, where the state Supreme Court has been asked to weigh a legal challenge to the pipeline.
Wall Street Journal:
Fox News: 
MarketWatch: 
CNBC:
ZeroHedge:
ValueWalk:
Business Insider:
Reuters: