Broad Equity Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 13.11 +1.55%
- Euro/Yen Carry Return Index 147.82 -.09%
- Emerging Markets Currency Volatility(VXY) 7.74 -.26%
- S&P 500 Implied Correlation 56.73 -.70%
- ISE Sentiment Index 113.0 unch.
- Total Put/Call .87 -9.37%
Credit Investor Angst:
- North American Investment Grade CDS Index 64.19 -.05%
- European Financial Sector CDS Index 78.11 -.07%
- Western Europe Sovereign Debt CDS Index 34.0 -.31%
- Asia Pacific Sovereign Debt CDS Index 88.38 +1.03%
- Emerging Market CDS Index 281.81 +.28%
- China Blended Corporate Spread Index 351.30 -.58%
- 2-Year Swap Spread 14.0 +1.5 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -3.75 -.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 219.0 +3.0 basis points
- China Import Iron Ore Spot $105.90/Metric Tonne -.09%
- Citi US Economic Surprise Index -12.60 +6.3 points
- Citi Emerging Markets Economic Surprise Index -29.20 -2.6 points
- 10-Year TIPS Spread 2.18 -1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating -75 open in Japan
- DAX Futures: Indicating +14 open in Germany
Portfolio:
- Higher: On gains in my biotech/tech/medical sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- Ukraine Troops Killed in Slovyansk as Rebels Down Chopper. Ukrainian troops facing off against pro-Russian separatists in the
eastern city of Slovyansk suffered fatalities in an ambush and a
helicopter was shot down as unrest spread and roadblocks were set up
around the capital. The pilots survived after the military
chopper was hit with machine-gun fire and crashed into a river near the
city in the Donetsk region, the Defense Ministry said on its website. Four Interior Ministry troops were killed and 30 were wounded fighting rebels in Slovyansk, the ministry said
in a statement. The campaign to drive out insurgents from the
easternmost regions is in danger of stalling as a growing death toll
threatens the government’s efforts to retake positions from Russian
sympathizers in the run-up to May 25 presidential elections. With
violence spiraling in Ukraine after dozens died in Odessa three days
ago, the authorities moved to erect roadblocks around the capital Kiev
to prevent provocations.
- EU Cuts Euro-Area Growth Outlook as Inflation Seen Slower.
The European Commission predicted low
inflation will remain a threat to euro-area expansion for at
least the next two years as it trimmed its economic-growth
forecast and warned of the impact of tensions with Russia. The
18-nation euro zone’s inflation rate will be 0.8 percent this year and
1.2 percent in 2015, both lower than forecast in February and well below
the European Central Bank’s target of just below 2 percent, the
Brussels-based commission
said today. Gross domestic product is projected to rise 1.7
percent in 2015, compared with the commission’s previous
forecast of 1.8 percent.
- Iron Ore Seen Slumping Below $100 as Supply Surge Widens Glut.
Iron ore may drop to less than $100 a ton for the first time since 2012
as swelling global supplies push the global seaborne market into surplus
and demand growth in China, the largest user, slows amid tighter
credit. Prices of the steelmaking ingredient may decline to $95 in the
fourth quarter, according to CLSA Ltd., a unit of Citic Securities Co.,
China's largest brokerage by market value. SSY Futures Ltd. sees a
retreat below $100 "very shortly." The commodity may drop as Australian
exports increase and Chinese demand growth slows, according to Wood
Mackenzie Ltd. Goldman Sachs Group Inc. forecasts a fourth-quarter
average of $100. Shipments from Australia's Port Hedland rose to a
record last month, while stockpiles at ports in China are at an all-time
high.
- E-House Falls as Property Concern Mounts: China Overnight. Chinese
stocks trading in the U.S.
snapped a four-day gain as E-House China Holdings Ltd. (EJ) led a drop
in real estate companies amid mounting concern that home sales in the
world’s second-largest economy are slowing. The Bloomberg index of
the most-traded Chinese shares in the U.S. fell 0.8 percent to 99.31 as
of 12:17 p.m. in New York. The American depositary receipts of E-House, a
real-estate
agent, dropped as much as 6.1 percent.
- European Stocks Decline on Ukraine, Chinese Manufacturing.
European stocks fell, following a third week of gains for the region’s
equities, as violence intensified in eastern Ukraine, while a report
showed Chinese
manufacturing contracted for a fourth month. Credit Suisse Group AG
dropped 2.3 percent after JPMorgan
Chase & Co. forecast its own trading revenue will slide this
quarter. Wincor Nixdorf AG lost 5.1 percent after the maker of
self-checkout tills in supermarkets posted worse-than-expected
earnings. Wacker Chemie AG dropped 3 percent after the chemical
maker also reported earnings that missed estimates. The Stoxx Europe 600 Index slid 0.3 percent to 336.89 at
the close after earlier falling as much as 0.9 percent.
- Investors Tiring of Junk Bonds Lift Trades Most Since ’09.
The more than doubling of their money
since 2008 has some junk-bond investors getting restless. Trading
(NTMBHV) in the highest-risk corporate debt is climbing as money
managers show a willingness to part with securities that
handed them 144 percent returns in five years. Average volumes
increased 5 percent in April from the previous three months, the
first advance for the period since 2009, according to data
compiled by the Financial Industry Regulatory Authority.
- Holder Signals Criminal Charges Coming Against Some Banks. U.S. Attorney General Eric Holder said his department is readying
criminal cases against banks that show financial institutions aren’t too
big to prosecute. Holder, in a video message posted today on
the department’s website, said improved coordination with regulators is
creating a relationship that “will prove key in the coming weeks and
months” as prosecutors pursue charges. The government is nearing
decisions on whether to charge Credit Suisse Group AG (CSGN) and BNP Paribas SA, (BNP) people familiar with those probes said. Holder didn’t specify any banks.
- JPMorgan(JPM) Leads Wall Street Banks Lower on Trading-Slump Forecast. JPMorgan Chase
& Co. (JPM:US) led shares of Wall Street banks lower, dropping
the most in almost a month, after warning that a deepening trading slump
may last through the second quarter. Shares of the company tumbled
2.7 percent to $54.08 at 9:58 a.m., the worst performance in the
83-company Standard & Poor’s 500 Financials Index. Morgan
Stanley, Goldman Sachs Group Inc., Citigroup Inc. (C:US) and Bank of
America Corp. (BAC:US) all lost at least 1.3
percent.
Wall Street Journal:
- China’s Property Bubble Has Already Popped, Report Says. China’s great real-estate bust has begun, says Nomura. A combination
of a huge oversupply of housing and a shortage of developer financing is
producing a housing market downturn that could drive China’s GDP to
less than 6% this year. “To us, it is no longer a question of ‘if’ but rather ‘how severe’
the property market correction will be,” three Nomura analysts wrote in a
report released Monday. And there isn’t much the government can do to
head off problems.
Fox News:
- US aid indirectly helps Hamas, under deal with Palestinian Authority. The Palestinian Authority's announcement that it will send 3,000 police
officers to Gaza as part of a unity agreement with Hamas could mean U.S.
taxpayers are now at least indirectly helping an officially designated
terror organization maintain law and order -- and its grip on power.
- Rep. Gowdy named to lead Benghazi select committee. South Carolina Republican Rep. Trey Gowdy, a former federal prosecutor
known for his aggressive style of questioning at congressional hearings,
has been tapped to lead a select committee tasked with investigating
the 2012 Benghazi attacks.
ZeroHedge:
Wall Street All-Stars:
Business Insider:
Reuters:
- Target(TGT) removes CEO in wake of devastating cyber attack. Target
Corp removed Chairman and Chief Executive Gregg Steinhafel on Monday in
the wake of a devastating data breach that hurt the No. 3 U.S.
retailer's profits, shook customer confidence in the company and
prompted congressional hearings.
Telegraph:
China National Radio:
- China Stats Bureau Sees GDP Over Estimated by ICP Report. The
comparison figures underestimated China's price levels and overestimated
GDP scale, citing a person with the National Bureau of Statistics.
Figures about China didn't reflect the real situation, the person said.
Style Underperformer:
Sector Underperformers:
- 1) Gaming -2.03% 2) Steel -1.74% 3) Homebuilding -1.33%
Stocks Falling on Unusual Volume:
- BSFT, RLGY, KOS, TREX, LCUT, VCRA, MEMP, CLX, TGT, RBA, LXFT, TSN, MASI, KMPR, KOP, AZN, RAIL, OCIP, SXT, YELP, WFM, AMBA, PFE, MSG, MGA and MCC
Stocks With Unusual Put Option Activity:
- 1) A 2) EXC 3) TGT 4) MMM 5) DHI
Stocks With Most Negative News Mentions:
- 1) GM 2) CIT 3) WFM 4) NBR 5) HST
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Biotech +1.02% 2) Telecom +.53% 3) Utilities +.47%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
- 1) RMD 2) NKE 3) HRB 4) TBT 5) GDXJ
Stocks With Most Positive News Mentions:
- 1) FDS 2) AMZN 3) AAPL 4) CRM 5) NGVC
Charts:
Weekend Headlines
Bloomberg:
- Ukraine Unrest Flares as Kiev’s Control Slips. Ukraine pursued an offensive to dislodge rebels from its
eastern industrial heartland as violence that’s spread to its remaining
southern Black Sea gateway threatens to loosen Kiev’s control of the
regions. Troops in the Donetsk area, near the Russian border,
took back a television tower overnight that had been seized by
pro-Russian forces, Interior Minister Arsen Avakov said on his Facebook
account. Fighting in Kramatorsk, in northern Donetsk, left seven people
dead, the local website Kramatorsk.info said. Clashes continued in
Odessa today. There is a “real war and this is the truth,” Prime
Minister Arseniy Yatsenyuk said in an interview with BBC. The conflict
is “due to Russian aggression and due to Russian-led protesters.”
- Ukraine Presses Assault on Rebels With Warning of ‘War'. Ukrainian forces pressed their assault on separatists today and the
head of the anti-terrorist center warned eastern regions are
“essentially” at war, even as OSCE hostages were released. The
Ukrainian anti-terrorist operation in the Donetsk region left five dead
and 12 wounded, said the center’s chief, Vasyl Krutov. Government forces
secured Slovyansk as operations in Kramatorsk continued, he said.
Another 42 people were killed and 125 were injured in a building fire
and street battle in Odessa that began last night when pro-Russians
attacked marching football fans and a pro-Ukrainian rally. “What is happening in the east is not a short-term action, this is essentially a war,” Krutov said today.
- Dozens Killed in Ukraine Fire as Clashes Erupt in Odessa. Dozens
were killed in Ukraine after a building in Odessa was set ablaze during
clashes and government forces attacked separatists near the Russian
border in one of the deadliest days since the Ukrainian conflict
erupted. The violence reached Odessa, where the government of Ukraine’s
third-largest city said more than 40 people died and 174 were injured in
a building fire and street battle that started when pro-Russian
protesters in the
port city attacked a rally in favor of a unified country. Earlier,
Interior Minister Arsen Avakov said government units had advanced on the
eastern city of Slovyansk to drive out militants and free hostages. “We’re
ready to hold talks with protesters or their representatives,” Avakov
said yesterday on the government website as troops surrounded Slovyansk.
“But terrorists and armed separatists will only get the inevitable
payback.”
- China Slowdown Weighs on Indonesia’s Export Outlook, Basri Says. China’s economic slowdown is weighing
on the outlook for Indonesia’s exports even as the Southeast
Asian nation’s trade balance improves, Finance Minister Chatib Basri said. “What we need to watch carefully is the slowdown in
China,” Basri said May 2 in an interview with Bloomberg News in
Astana, Kazakhstan, where he is attending the Asian Development
Bank’s annual meeting. The slower pace of growth in Asia’s
largest economy is the biggest concern for Indonesia’s exports
this year, he said.
- China’s Stocks Fall on Holiday Home Sales, Manufacturing Report.
China’s stocks fell, led by property and metal companies, after
weaker-than-estimated manufacturing data and a plunge in home sales
spurred concern that economic growth will slow. Poly Real Estate Group
Co. and Gemdale Corp. dropped at least 3 percent after China Business
News reported that new home sales tumbled 47 percent to a four-year low
during the May Day holiday. Aluminum Corp. of China Ltd., the nation’s
biggest
producer of the lightweight metal, declined to the lowest level
since July. The final reading of a purchasing managers’ index
compiled by HSBC Holdings Plc and Markit Economics was at 48.1, compared
with a preliminary reading of 48.3. The Shanghai Composite Index (SHCOMP) slid 0.8 percent to 2,009.57
at 9:59 a.m.
- Asian Stocks Fall as China Manufacturing Misses Estimates.
Asian stocks fell amid low trading volumes after a private gauge of
Chinese manufacturing contracted for a fourth month, missing analysts’
estimates. China Longyuan Power Group Corp. sank 2.5 percent, leading
energy companies lower in Hong Kong. Westpac Banking Corp., Australia’s
second-biggest lender by market value, slid 1.4 percent in Sydney even
as first-half cash profit grew. HTC Corp. soared 5.7 percent in Taipei
as investors awaited a conference call where the smartphone maker is
expected to give a forecast for second-quarter profit. The MSCI Asia Pacific excluding Japan Index slipped 0.4
percent to 473.75 at 10:31 a.m. in Hong Kong, following three
weeks of losses.
- Gold Extends Climb to Three-Week High as Ukraine Spurs Demand. Gold jumped to the highest level in
almost three weeks, extending its biggest advance in a month, as
conflict in Ukraine escalated. Bullion for immediate delivery rose as much as 0.7 percent
to $1,308.40 an ounce, the highest level since April 15, and was at $1,306.24 by 9:28 a.m. in Singapore,
according to Bloomberg generic pricing. Gold climbed 1.2 percent on May
2, the biggest increase since April 4. Metal for June delivery gained
0.2 percent to $1,305.80 an ounce on the Comex in New York.
- IRS Probing Caterpillar(CAT) Parts Deals Examined by Senators. The
Internal Revenue Service is challenging Caterpillar Inc. (CAT) on
overseas transactions involving its spare-parts business, the company
disclosed yesterday in a regulatory filing. The transactions were
the focus of a congressional hearing last month at which Senator Carl
Levin, a Michigan Democrat, said Caterpillar had made a “paper change”
to book U.S. profits in Switzerland that saved the company $2.4 billion
in
U.S. taxes from 2000 to 2012.
Wall Street Journal:
- Borrowing Cash to Buy Complex Assets Is In Vogue Again. Banks Are Offering Leverage to Investors in CLOs Ahead of Rules That Limit Holdings. Banks again are doling out money to hedge funds and other investors
to finance purchases of complex debt securities, returning to a practice
that helped fuel the debt boom ahead of the financial crisis. RBC
Capital Markets, Société Générale SA and Wells Fargo & Co. are
among the banks offering to let investors borrow money, also known as
providing leverage, to buy collateralized loan obligations, say
investors and bankers. CLOs...
Business Insider:
Rolling Stone:
Reuters:
Financial Times:
- IMF’s José Viñals warns on eurozone bond market.
A top IMF official has warned that the rally in eurozone bond markets
risks ending in disappointment, with investors now lending to
governments at rates that assume the region’s return to full health will
be glitch free.
- Smaller China banks step up shadow lending activity.
Smaller Chinese banks have ramped up their shadow lending activity,
adding to the financial risks that threaten to trip up the world’s
second-biggest economy. The 2013 results of unlisted banks, published
over the past week, reveal that city-based lenders have been among the
most aggressive in China in using complex credit structures to evade
regulatory controls and issue higher-yielding loans.
Bild Zeitung:
-
France's Valls Call to Weaken Euro Attacked by Bundesbank. "We need a clear change, making our currency an instrument for for economic growth and jobs, an instrument that serves people," French Prime Minister Manuel Valls told French Young Socialists at weekend meeting. France is reverting back to the mentality of the 1970s when its currency lacked stability of later decades, citing a senior Bundesbank official.
NZZ am Sonntag:
- U.S. Seeks Guilty Plea From Credit Suisse. Credit Suisse received
demands in past couple of weeks from U.S., including guilty plea, names
of American tax evaders with Credit Suisse accounts, citing a person
familiar with the matter.
HKET:
- Some
Chinese Property Trusts May Face Default Risk. An estimated $101b of
property trusts to reach maturity this year, citing Haitong Securities.
Property trusts involving small- and medium-sized developers may face
payment difficulties, citing people in the industry familiar with the
matter. Small- and medium-sized developers under funding pressure as
property market cools, transaction volume falls and banks tighten
lending to real estate companies, they said.
Weekend Recommendations
Barron's:
- Bullish commentary on (RF), (AWK), (DHR), (RXN), (MUR), (HTZ) and (HDS).
- Bearish commentary on (SUNE) and (TWTR).
Night Trading
- Asian indices are -1.0% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 127.50 unch.
- Asia Pacific Sovereign CDS Index 89.75 unch.
- NASDAQ 100 futures -.13%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
9:45 am EST
- The Final Markit US Services PMI for April is estimated at 54.5 versus a prior estimate of 54.2.
10:00 am EST
- The ISM Non-Manufacturing Composite for April is estimated to rise to 54.0 versus 53.1 in March.
Upcoming Splits
Other Potential Market Movers
- The RBA decision, Eurozone PPI, China HSBC PMI and the (BEAV) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate
and financial shares in the region. I expect US stocks to open mixed
and to weaken into the afternoon, finishing modestly lower. The
Portfolio is 50% net long heading into the week.
U.S. Week Ahead by MarketWatch (audio).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.
BOTTOM LINE: I expect US stocks to finish the week modestly lower on
Russia/Ukraine tensions, rising emerging markets/European debt angst,
yen strength, technical selling and earnings concerns. My
intermediate-term trading indicators are giving neutral signals and the
Portfolio is 50% net long heading into the week.
