Evening Headlines
Bloomberg:
- Putin Says Sanctions Jeopardize U.S., EU Energy Deals. Russian
President Vladimir Putin warned that further economic sanctions over
the Ukraine crisis may lead Russia to reconsider participation by U.S.
and European Union companies in energy and other key industries. While his government has prepared measures to retaliate for penalties imposed
by the U.S. and its allies, Putin told reporters in Minsk, Belarus,
yesterday that he doesn’t consider them necessary for now, though that
may change. If sanctions continue, “then of course we will have
to consider who’s working and how in the Russian Federation, in the key
sectors of the Russian economy, including energy,” he said. “We really
don’t want to take these reciprocal steps.”
- Moody’s Says Developer Default Risk to Slow Sales: China Credit. Moody’s
Investors Service said the
risk more Chinese property developers will default, after the collapse
of Zhejiang Xingrun Real Estate Co., will make it harder for them to
raise funds just as apartment sales cool. The builders have issued $500
million of offshore yuan or dollar bonds this month, compared with $1.6
billion in the same period last year and a record $9.2 billion in the
first quarter, data compiled by Moody’s show. The price of property securities,
which account for 32 percent of a Bank of America Merrill Lynch
index of China dollar bonds, slumped 4.9 percent in the past
year, paring their returns to 0.9 percent. That compares with a
1.6 percent total gain for dollar bonds globally, according to
Bank of America.
- Asian Stocks Rise Ahead of Bank of Japan, Fed Decisions. Asian stocks rose as investors weighed corporate earnings before the Bank of Japan and Federal Reserve report on monetary policy.
Kyocera Corp. climbed 4.2 percent in Tokyo after the electronics and
solar-panel maker reported full-year profit that beat analyst estimates.
SoftBank Corp., the Japanese phone company controlled by Masayoshi Son,
gained 1.7 percent after
unit Sprint Corp. boosted its full-year forecast and reported
first-quarter sales that topped estimates. Woolworths Ltd.
slipped 2.6 percent as quarterly food and liquor sales by the
Australian retailer fell short of expectations. The MSCI Asia Pacific Index gained 0.2 percent to 137.76 as
of 9:40 a.m. in Tokyo, with all 10 industry groups on the gauge
rising.
- Deutsche Bank Among 15 Europe Lenders Cut to Negative by S&P. Deutsche
Bank AG (DBK), Germany’s largest lender, was among 15 European banks
that had their outlooks cut to negative by Standard & Poor’s on the
prospect that governments are less likely to provide aid. The outlooks were lowered from stable “to reflect our view that extraordinary government support is likely to diminish as
regulators implement resolution frameworks,” the ratings firm
said yesterday in a statement.
- Boiled Frog Syndrome Invades CMBS as Risks Mount: Credit Markets. The growing din surrounding loosening standards in the
commercial-mortgage bond market is doing little to deter buyers.
Investors are lapping up the debt and accepting less interest to do so
even as Moody's Investors Service warns that risk are building in debt
linked to properties ranging from shopping malls and skyscrapers to hotels. After a month-long lull in issuance, Wall Street banks were poised to sell about $3.6 billion of the securities yesterday, a week after the ratings company said investors were facing a case of "boiling frog syndrome," where they fail to react to gradually increasing threats until it's too late. "There is no doubt underwriting is getting weaker," Keerthi Raghavan, a debt analyst at Barclays Plc in New York, said in an interview. The pace of deterioration "really picked up steam starting in the middle of 2013."
Wall Street Journal:
- Supreme Court Revives EPA Rule on Air Pollution Across State Lines. Court's 6-2 Ruling Is Victory for Obama Administration; 28 States Will Have to Reduce Power-Plant Emissions. The Environmental Protection Agency can reinstate limits
on power-plant pollution that blows across state lines, the Supreme
Court ruled Tuesday, handing a defeat to electric utilities that opposed
the effort as costly regulatory overreach. The court's 6-2
ruling breathes new life into a 2011 EPA measure known as the
Cross-State Air Pollution Rule, which requires 28 states to reduce
emissions that hurt air quality in...
- Enrollment in Student-Debt Forgiveness Programs Soars in 2014. Two federal programs that offer to wipe away huge accumulations of student debt have grown at a rapid clip this year, putting them among the government’s fastest-growing forms of financial assistance. The
Journal reported last week that enrollment in the plans—which allow
students to rack up big debts and then forgive the unpaid balance after a
set period—surged nearly 40% in the second half of 2013.
- Pro-Russia Forces Extend Grasp in Ukrainian City of Luhansk. Militants Break Down Doors to Government Building; President Criticizes Local Police. Pro-Russia militants in masks broke down doors and stormed government
buildings Tuesday in another area of Ukraine that hugs the Russian
border, as the new government in Kiev criticized local police for
failing to stem the growing unrest.
- A Foreign Policy Flirting With Chaos. The most egregious case of fecklessness has been on Syria. Doubts about American dependability were raised far and wide. American foreign policy is in troubling disarray. The result is
unwelcome news for the world, which largely depends upon the United
States to promote order in the absence of any other country able and
willing to do so. And it is bad for the U.S., which cannot insulate
itself from the world.
Fox News:
CNBC:
- California drove Toyota out of state: Torrance Mayor. (video)
Torrance Mayor Frank Scotto blames the state of California for Toyota
Motor's decision to relocate its North American headquarters from the
city to Plano, Texas. "The state of California lost Toyota," Scotto
said on "Power Lunch" Tuesday. He pointed to a number of issues in the
Golden State that negatively
affect companies' bottom line: tax structure, workers' compensation
and liability insurance.
Zero Hedge:
Business Insider:
CNN:
- SEC chair: We've found 'bogus' private equity and hedge fund fees.
SEC Chairwoman Mary Jo White today testified in front of the U.S.
House Committee on Financial Services, to discuss the Agency's recent
activities and 2015 budget request. As part of that overview, White
suggested that recent examinations of hedge fund and private equity fund
managers have uncovered some very unsavory activities. Namely, charging
improper fees to investors and portfolio companies.
Reuters:
- U.S. Steel(X) returns to profit but warns of weaker 2nd qtr. United States Steel Corp returned to profit in the first quarter, but the steelmaker said Tuesday it expected reduced operating income in the second quarter as cold weather slowed transportation of raw materials and finished products. The Pittsburgh-based steelmaker also said it expects to
report a loss in its flat-rolled segment, its biggest unit by
shipments, in the second quarter. Its shares fell in after-hours
trading.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 125.50 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 88.5 -.25 basis point.
- NASDAQ 100 futures -.35%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:15 am EST
- The ADP Employment Change for April is estimated to rise to 210K versus 191K in March.
8:30 am EST
- The 1Q Employment Cost Index is estimated to rise +.5% versus a +.5% gain in 4Q.
- Advance 1Q GDP is estimated to rise +1.2% versus a +2.6% gain in 4Q.
- Advance 1Q Personal Consumption is estimated to rise +2.0% versus a +3.3% gain in 4Q.
- Advance 1Q GDP Price Index is estimated to rise +1.6% versus a +1.6% gain in 4Q.
- Advance 1Q Core PCE is estimated to rise +1.2% versus a +1.3% gain in 4Q.
9:00 am EST
- ISM Milwaukee for April is estimated to fall to 56.0 versus 56.03 in March.
9:45 am EST
- Chicago Purchasing Manager for April is estimated to rise to 57.0 versus 55.9 in March.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+2,111.110 barrels versus a +3,524,000 barrel gain the prior week.
Gasoline supplies are estimated to fall by -422,220 barrels versus a
-274,000 barrel decline the prior week. Distillate supplies are
estimated to rise by +683,330 barrels versus a +597,000 barrel gain the
prior week.
2:00 pm EST
- The Fed's QE3 Pace for April is estimated to fall to $45B versus $55B prior.
- The Fed is estimated to leave the benchmark fed funds rate at .25%.
Upcoming Splits
Other Potential Market Movers
- The
China Manufacturing PMI, Eurozone inflation data, German unemployment
rate, BoJ decision and the weekly MBA mortgage applications report could
impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Most Sectors Rising
- Volume: Slightly Below Average
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- Volatility(VIX) 13.64 -2.36%
- Euro/Yen Carry Return Index 147.80 -.22%
- Emerging Markets Currency Volatility(VXY) 8.21 -1.20%
- S&P 500 Implied Correlation 54.76 -1.93%
- ISE Sentiment Index 144.0 +69.41%
- Total Put/Call .91 +1.11%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.44 -.81%
- European Financial Sector CDS Index 80.76 -1.95%
- Western Europe Sovereign Debt CDS Index 35.30 +.31%
- Asia Pacific Sovereign Debt CDS Index 88.98 +.11%
- Emerging Market CDS Index 279.28 -2.50%
- China Blended Corporate Spread Index 358.31 +.96%
- 2-Year Swap Spread 11.0 -.5 basis point
- TED Spread 21.50 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -5.25 -3.25 basis points
Economic Gauges:
- 3-Month T-Bill Yield .01% unch.
- Yield Curve 225.0 -1.0 basis point
- China Import Iron Ore Spot $108.30/Metric Tonne -.28%
- Citi US Economic Surprise Index -21.0 +.4 point
- Citi Emerging Markets Economic Surprise Index -26.30 -.2 point
- 10-Year TIPS Spread 2.17 -2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +202 open in Japan
- DAX Futures: Indicating +21 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
- Market Exposure: Moved to 75% Net Long
Bloomberg:
- EU Joins U.S. With New Sanctions on Russia Over Ukraine. The
European Union widened sanctions against Russia for its actions in
Ukraine, following similar steps yesterday by the U.S., which called
separatist violence in the country’s east “terrorism, pure and simple.”
The EU added Russian Deputy Premier Dmitry Kozak to a list of people
facing travel bans and asset freezes along with others including
pro-Russian separatist leaders, according to a statement today in the
EU’s Official Journal. The U.S. targeted seven people, including Kozak
and Igor Sechin, head of oil giant OAO Rosneft (ROSN), and 17 companies
yesterday linked to allies of President Vladimir Putin, such as
InvestCapitalBank.
- China Test Shows Bad Loan Surge Would Hurt Banks’ Capital.
China’s systemically important banks may see their capital adequacy
ratio fall to 10.5 percent in the event bad loans surge fivefold,
according to a stress test by the nation’s central bank. The average
capital adequacy ratio of the 17 banks, which account for 61 percent of
China’s banking assets, may fall to 10.5 percent from the end-2013 level
of 11.98 percent should nonperforming loans increase 400 percent in the
worst-case scenario, the People’s Bank of China said in its annual financial stability report yesterday.
- European Stocks Advance to Three-Week High Amid Earnings.
European stocks rose to a three-week high as companies from Deutsche
Bank AG to Statoil ASA reported earnings that beat estimates. Deutsche Bank climbed 2.2 percent after Europe’s largest investment bank said first-quarter profit dropped less than
projected. Statoil gained 4.5 percent. Nokia Oyj gained 2.9
percent after naming a new chief executive officer and saying it
will spend about 5 billion euros ($6.9 billion) on dividends,
share buybacks and debt reduction. ABB Ltd. fell the most in
four years after the world’s largest maker of power transformers
posted quarterly profit that missed estimates. The Stoxx Europe 600 Index rallied 1.2 percent, the most in
a week, to 338.12 at the close of trading in London.
- Apollo’s Rowan Sees ‘Danger Signs’ of Crisis in Debt Markets. Apollo
Global Management LLC (APO) co-founder Marc Rowan said he sees many
signs of a bubble in the credit markets that could lead to a financial
crisis. “All the danger signs are there of a future crisis,” Rowan
said today at the Milken Institute Global Conference in Beverly Hills,
California. “We’re back to doing exactly the
same things that were done in the credit markets during the
crisis. Our job is to step wisely and try to avoid that.”
Rowan joins a growing chorus of regulators and investors,
including Marathon Asset Management LP and DoubleLine Capital LP’s
Jeffrey Gundlach, expressing concern about aggressive underwriting
standards as the Federal Reserve’s zero-interest policy extends into a
sixth year.
- Senate Democrats Weigh Vote Backing Keystone XL.
U.S. Senate Democratic leaders are considering scheduling a vote on a
non-binding resolution urging approval of TransCanada Corp. (TRP)’s
Keystone XL pipeline, according to two Senate Democratic aides.
- Growing Concern on Job Openings Dents U.S. Confidence: Economy. Americans grew concerned in April
that jobs have become more difficult to land, prompting an
unexpected drop in confidence from a six-year high. The Conference Board’s sentiment index decreased to 82.3
from 83.9 a month earlier.
Wall Street Journal:
CNBC:
ZeroHedge:
Business Insider:
Financial Times:
Telegraph:
-
Nul points for EU’s stress-test comedy, but French property slump rings true. Be careful if you are planning to buy a house in
France. The EU stress test for banks released this morning expects
French property to fall 1.6pc this year and another 1pc in 2015 even if
things go well. The “adverse scenario” is a cumulative drop of 31pc by the end of
2016. This reflects the worries of French regulators who fed the data to
the European Banking Authority.
Valor:
- Brazil Carmakers See 2014 Truck Sales Falling 5-12%.
Style Underperformer:
Sector Underperformers:
- 1) Hospitals -1.12% 2) Construction -.70% 3) Utilities -.62%
Stocks Falling on Unusual Volume:
- DDD, NRF, ROK, WNC, RYN, CLGX, KN, PRTA, GTLS, COH, GOGO, CLGX, ABB, SLAB, JEC, CP, TCS, WAT, SHPG, CHKP, CIT, DBD, GT, NANO, BSX, FTK, IPGP, ENT and ADEP
Stocks With Unusual Put Option Activity:
- 1) COH 2) RAX 3) EXC 4) CRUS 5) CZR
Stocks With Most Negative News Mentions:
- 1) GT 2) HCA 3) WAT 4) UIS 5) JEC
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gaming +4.11% 2) Coal +3.39% 3) Social Media +2.49%
Stocks Rising on Unusual Volume:
- FUR, ORB, CRUS, BWLD, KLIC, WLK, FDP, SGY, IRWD, WWW, WDAY, CBST, LMNX, HW, AMG, ATK, CRUS, MGM, SCOR, CMP, ADVS, DFRG, CLC, P, CNX, N and PBPB
Stocks With Unusual Call Option Activity:
- 1) CNX 2) THC 3) FE 4) WLL 5) SFLY
Stocks With Most Positive News Mentions:
- 1) MGM 2) CMI 3) HRB 4) T 5) IBM
Charts:
Evening Headlines
Bloomberg:
- U.S. Drip-Feed of Sanctions Seen Risking Putin Backlash. The
latest U.S. penalties against Vladimir Putin’s inner circle may provoke
the Russian president into escalating the Ukraine crisis without
crippling key sectors of his nation’s economy. The sanctions imposed by
the Obama administration yesterday on seven officials and 17 companies
won’t go unanswered, Deputy Foreign Minister Sergei Ryabkov told
Interfax. While markets showed relief as Russia’s largest banks avoided
U.S. measures, Putin may take this round personally,
according to Konstantin Simonov, president of Russia’s National
Energy Security Foundation.
- Russia Recession Risk Seen at Record High as Sanctions Escalate. Russia faces a fifty-fifty chance
of recession, the highest since Bloomberg started to track the
measure, as the crisis in Ukraine raises the risk of further
sanctions, according to a survey of economists. The probability of a recession over the next 12 months rose
to 50 percent, the highest since the first such Bloomberg survey
in June 2012, according to the median estimate of eight
economists surveyed before the U.S. and the European Union
announced their latest salvo of sanctions yesterday. The gauge
was at 45 percent last month.
- China’s Provinces Miss Growth Goals Even After Ambitions Lowered. Almost all Chinese provinces failed
to meet their growth targets in the first quarter even after
scaling back their ambitions as the government instructs
officials to focus on reining in debt and curbing pollution. Thirty of 31 provinces and municipalities reported missing
their goals, with the biggest shortfall in northeastern
Heilongjiang, where an expansion of 4.1 percent compared with an
8.5 percent target for the year. Most localities’ targets are lower
than in 2013. The latest data were released by government websites and
newspapers. Premier Li Keqiang risks the nation sliding into a deeper
slowdown as the government cracks down on overcapacity in the steel
industry, wrestles with shadow banking risks and rolls out
economic restructuring measures.
- Asian Stocks Swing From Gain to Loss on Earnings Outlook. Asian stocks swung between gains and losses as investors weighed corporate earnings and after U.S. equities advanced.
Posco climbed 3.1 percent after the Korean Economic Daily said South
Korea’s largest steelmaker is considering the sale of Daewoo
International Corp. Samsung Electronics Co. fell 0.1 percent in Seoul
after rising as much as 0.5 percent as the world’s No.1 maker of
smartphones posted first-quarter profit that beat analyst estimates.
Newcrest Mining Ltd., Australia’s
biggest gold producer, slipped 1.4 percent as the price of the
bullion headed for a second day of decline.
The MSCI Asia Pacific Excluding Japan Index was little
changed at 475.84 as of 9:49 a.m. in Seoul.
- Aluminum Declines to Lowest in Two Weeks as Inventories Expand. Aluminum fell to the lowest in more
than two weeks in London as inventories expanded. Copper declined for the first time in seven sessions. Inventories
of unwrought aluminum climbed to 1.215 million metric tons in March,
from a revised 1.171 million tons a month earlier, the International
Aluminium Institute said in a report today. In the warehouses tracked by
the London Metal Exchange, stockpiles rose for a third day to 5.3
million tons, the longest
stretch of gains this year.
- Zell Says Homeownership Rate to Fall as Marriages Delayed. The
U.S. homeownership rate may fall to as low as 55 percent because more
Americans are choosing to rent as they postpone getting married and
having children, said Sam Zell, chairman of landlord Equity Residential.
Demographic and lifestyle changes, more than economic factors, are
driving down the ownership rate over the long term, Zell said today at
the Milken Institute Global Conference in Beverly Hills, California. As
of 2010, about 54 percent of
adults were married, down from 57 percent a decade earlier,
according to the U.S. Census Bureau.
- LinkedIn(LNKD) Slumps as Social-Media Stock Plunge Accelerates.
The selloff in social-media stocks
is gathering steam. Facebook Inc. (FB), Twitter Inc. (TWTR), LinkedIn
Corp. (LNKD) and Yelp Inc. (YELP) fell today, marking at least four
straight days of declines. All have lost at least 19 percent of their
market value this year except Facebook, which is up 2.7 percent. That
stands in contrast to last year, when each stock was up by a record.
Investors are questioning whether the Web companies can keep up revenue
expansion, as some show signs of slowing gains in the number of users. Social-media
companies, which generate revenue via advertisements or subscriptions,
have been valued on their promises of fast growth, not the fundamentals
of their business, according to Jeff Sica, chief investment officer at
Sica Wealth Management LLC in Morristown, New Jersey.
Wall Street Journal:
Fox News:
CNBC:
- 'Almost every asset is overvalued': Apollo pro. "The quantitative easing and the excess money and the low interest rates
have driven pricing up of almost all financial assets to beyond what
their intrinsic value might be," Joshua Harris, co-founder and chief
investment officer of $161 billion private equity firm Apollo Global
Management, said Monday at the Milken Institute's Global Conference in
Los Angeles.
Zero Hedge:
ValueWalk:
Business Insider:
Reuters:
- US CFTC launches inquiry into evasion of swaps rules.
The U.S. swaps regulator
plans to research whetherU.S. banks' overseas trading activity is
complying with its rules, a senior official said on Monday, as Wall
Street adapts to new rules for the $690 trillion global market. Scott
O'Malia, a Republican member of the Commodity Futures Trading
Commision, said he had asked the agency's staff for a legal opinion on
whether U.S. banks were possibly evading its rules when doing business
in Europe.
Telegraph:
China Securities Journal:
- China May Use Fiscal Policy to Curb Overcapacity. China will
continue its proactive fiscal policy with fine-tuning at appropriate
times with more specific industry targets to curb overcapacity,
according to a front-page commentary, written by reporter Gu Xin.
Heavily polluting industries may have their export quotas reduced if
cos. fail to meet pollutant emission standards, the commentary wrote.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 128.0 +.5 basis point.
- Asia Pacific Sovereign CDS Index 88.75 -1.0 basis point.
- NASDAQ 100 futures +.21%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
9:00 am EST
- S&P/CS 20 City MoM SA for February is estimated to rise +.8% versus a +.85% gain in January.
10:00 am EST
- Consumer Confidence for April is estimated to rise to 83.2 versus 82.3 in March.
Upcoming Splits
Other Potential Market Movers
- The
Senate vote on Fed Board nominations, Eurozone confidence/German CPI
reports, UK gdp report, weekly retail sales reports and the Barclays
Retail/Consumer Discretionary Conference could impact trading today.
BOTTOM LINE: Asian
indices are mostly lower, weighed down by technology and financial
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.
