Evening Headlines
Bloomberg:
- Ukraine Troops Advance as U.S. Warns Russia of Sanctions. Ukrainian
forces moved to flush separatists from their eastern holdouts as the
top U.S. and U.K. diplomats vowed to punish Russia with industrywide
sanctions if this month’s presidential election is undermined. “If
Russia or its proxies disrupt the elections,” the U.S. and its allies
“will impose sectoral economic sanctions as a result,” U.S. Secretary of
State John Kerry said in London yesterday after meeting his
counterparts from the U.K., Italy, France and Germany. Separatists “are
literally sowing mayhem,” seeking to “speak for everyone through the
barrel of a gun.”
- Xi’s Southeast Asia Strategy Tested by Vietnam Protests. China’s
efforts to head off a united Southeast Asia bloc against its pursuit of
control of the South China Sea faces a backlash as President Xi Jinping
considers how to respond to Vietnam’s fury over Chinese moves. Vietnam’s Prime Minister Nguyen Tan Dung called for support
from neighboring nations in his country’s attempt to force China
to withdraw an oil rig it placed in waters claimed by both
nations. Vietnamese ire over the issue spurred attacks on
Chinese workers in the country that left two dead.
- China Bad Loans Rise Most Since 2005 as Economy Slows.
Chinese banks had the biggest quarterly increase in bad loans since
2005 as a slowdown in the world’s second-largest economy causes defaults
to rise. Nonperforming loans rose by 54 billion yuan ($8.7 billion)
in the three months through March to 646.1 billion yuan, the highest
level since September 2008, according to data released by the China
Banking Regulatory Commission yesterday. Bad loans accounted for 1.04
percent of total lending, up from 1 percent
three months earlier.
The 10th straight quarterly increase in defaults adds to
concern banks’ profitability may slip as they build buffers to
cover loan losses.
- Thai Army Chief Warns of Military Action If Clashes Escalate. Thailand’s
army chief said the military may need to use force to counter any
escalation of violence linked to the nation’s six-month political
stalemate. Yesterday’s statement from Prayuth Chan-Ocha came hours
after acting Prime Minister Niwattumrong Boonsongpaisan was
forced to flee from anti-government protesters who stormed an
air force compound where he was meeting with election officials,
casting doubt on a poll tentatively planned for July 20.
- Asian Stocks Slip as Bonds Rise While Yen Holds Advance.
Asian stocks fell, with the regional index (VNINDEX) dropping from a
four-month high, as bonds from Australia to Singapore followed
Treasuries higher amid concern the global recovery is stalling. Crude
oil rose as the yen held gains versus most major peers. The MSCI Asia
Pacific Index lost 0.8 percent by 9:59 a.m. in Tokyo, falling for the
first time in four days. Japan’s Topix (TPX) gauge sank 1.7 percent.
- Nickel’s Roller-Coaster Plunge Isn’t Over, Goldman Says. Nickel’s roller-coaster ride this
year isn’t over, according to Goldman Sachs Group Inc., which
expects the highest prices in two years to prompt expanded
capacity for smelting and discourage purchases by steelmakers. Prices plunged 11 percent the previous two days, and probably will fall 15 percent further in 12 months to $16,000 a metric ton,
Goldman forecasts. Nickel had surged this year following a January ban
on ore exports by Indonesia, the world’s largest supplier from mines,
and as threats increased for economic sanctions against Russia, home to
OAO GMK Norilsk Nickel, the biggest producer of refined metal.
Wall Street Journal:
- Global Growth Worries Climb. Policy Makers in Europe, U.S. and China Grapple With What Steps to Take Next. Five years after the financial crisis ended, soft growth in Europe, a
stop-and-start U.S. recovery and waning momentum in China have policy
makers groping for what to do next. A spate of worrying economic
data Thursday shook stock and bond markets. Economic activity in the
18-country euro zone expanded at a weak annual rate of 0.8% during the
first quarter, data released Thursday showed. Excluding Germany, which
grew at a robust 3.3%...
- Pinterest Is Valued at $5 Billion. Scrapbooking Site Raises $200 Million Investment.
Pinterest Inc. still makes little revenue, yet the scrapbooking site's
value is soaring in the eyes of venture capitalists. The
company said Thursday it raised a $200 million investment that values
it at $5 billion, making Pinterest one of the most valuable
venture-capital backed startups in the world. Investors are still willing to pay...
Fox News:
- Lawmakers say Rice’s story has ‘absolutely collapsed’ amid more questions on Benghazi account. Leading Republican senators charged Thursday that National Security
Adviser Susan Rice’s public account of the Benghazi terror attack has
now “absolutely collapsed,” citing inaccuracies in her statements not
only on the origin of the attack but the level of security at the U.S.
compound.
- Poll: Trust in Government Plummets. When it comes to Washington controversies, most American voters think
Benghazi, the IRS and the government’s electronic surveillance program
are serious matters. A Fox News poll also finds that less than four in
10 voters trust the federal government.
CNBC:
Zero Hedge:
ValueWalk:
Business Insider:
Reuters:
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are -1.0% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 117.25 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 84.5 +2.75 basis points.
- NASDAQ 100 futures -.04%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Housing Starts for April are estimated to rise to 980K versus 946K the prior week.
- Building Permits for April are estimated to rise to 1010K versus 990K prior.
9:55 am EST
- Preliminary Univ. of Mich. Consumer Confidence for May is estimated to rise to 84.5 versus 84.1 in April.
Upcoming Splits
Other Potential Market Movers
- The Fed's Bullard speaking, Eurozone Trade Balance, (MCD) investor meeting and the (CHK) analyst day could impact trading today.
BOTTOM LINE: Asian
indices are mostly 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: Most Sectors Declining
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 13.14 +7.97%
- Euro/Yen Carry Return Index 145.29 -.37%
- Emerging Markets Currency Volatility(VXY) 7.45 +3.33%
- S&P 500 Implied Correlation 58.40 +3.27%
- ISE Sentiment Index 89.0 +1.14%
- Total Put/Call .99 -8.33%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.0 +2.43%
- European Financial Sector CDS Index 79.28 +8.90%
- Western Europe Sovereign Debt CDS Index 36.13 +13.1%
- Asia Pacific Sovereign Debt CDS Index 84.35 +3.1%
- Emerging Market CDS Index 269.78 +1.84%
- China Blended Corporate Spread Index 357.39 +.75%
- 2-Year Swap Spread 13.75 unch.
- TED Spread 21.0 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -7.75 -.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 214.0 -3.0 basis points
- China Import Iron Ore Spot $102.80/Metric Tonne -.68%
- Citi US Economic Surprise Index -7.40 +4.0 points
- Citi Emerging Markets Economic Surprise Index -25.30 +1.8 points
- 10-Year TIPS Spread 2.18 +1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating -213 open in Japan
- DAX Futures: Indicating +16 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
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- Ukraine Pushes On With Offensive as Russia Warns on Vote. Ukraine pushed on with an operation to flush separatists
from their eastern holdouts a day after Russia warned the violence
jeopardizes this month’s elections. Government troops eliminated
two rebel bases near the towns of Slovyansk and Kramatorsk, acting
President Oleksandr Turchynov said today in parliament in Kiev.
Militants vowed to expel the military from the region. Russian Foreign
Minister Sergei Lavrov said yesterday that Ukraine is sliding into a
civil war, making legitimate voting impossible. “The
anti-terrorist operation can stop after weapons are surrendered and
hostages released,” Turchynov said. “We’re conducting dialogue with
those who’re prepared for conversation and cooperation. We’re working on
changes to the constitution to expand powers to local self-government.
At the same time, those who conduct war will receive an adequate
answer.”
- Putin Emboldened on Instability Arc by EU Defense Divide.
Confronted by the prospect of a new Iron Curtain in Russia’s
borderlands, the European Union’s largest countries are turning the
other way. Germany, France, Italy and Spain are all cutting back on
defense just as a swath of countries on the EU’s eastern flank from the
Baltic Sea to Romania ramp up arms spending. Estonia, which borders
Russia, spent a greater share of its national output on defense than
France in 2013 for the second year running, NATO figures show.
- French Recovery Stalls as Taxes Dent Consumer Spending.
France’s economic recovery stalled in the first quarter as tax
increases used by President Francois Hollande to cut the budget deficit
squeezed consumers. Gross domestic product was unchanged in the
period, compared with a revised 0.2 percent gain in the previous three
months, national statistics office Insee said in
an e-mailed statement. That’s below the median estimate of 28 economists
in a Bloomberg survey for a 0.1 percent increase. “The biggest
factor right now is consumer spending,” said Dominique Barbet, an
economist at BNP Paribas SA in Paris. “What’s worrying beyond the first
quarter is that the level of growth is weak. There’s no
acceleration. We don’t have the recovery that other countries are
seeing.”
- Italian GDP Unexpectedly Falls Threatening Recession Exit.
Italy’s economy unexpectedly contracted last quarter, signaling the
country’s failure to sustain a pullout from its longest recession on
record. Gross domestic product in the three months through March
decreased 0.1 percent from the fourth quarter, when it rose 0.1 percent,
the national statistics institute Istat said in a preliminary report in
Rome today. The decrease contrasts with the median forecast of a 0.2
percent expansion in a Bloomberg survey of 21 economists. From a
year earlier, output shrank 0.5 percent. “Italy GDP surprised on the
downside,” said Annalisa Piazza, a fixed-income strategist at Newedge
Group in London. “Italian activity continues to contract and the already ample
output gap keeps widening."
- European Stocks Fall as Euro-Area Growth Misses Estimates.
European stocks fell the most in a month as first-quarter euro-area
economic growth missed forecasts, while companies including Deutsche
Post AG and Thomas Cook Group Plc (TCG) slid after posting results.
Deutsche Post lost the most in two years after first-quarter earnings
before interest and taxes missed projections. Thomas Cook sank the most
in more than two years after saying sales in the first-half retreated
6.6 percent. Cie. Financiere Richemont (CFR) SA gained the most in a
year after the maker of Cartier jewelry said it will raise its dividend.
Hennes & Mauritz AB climbed the most since September after
reporting higher-than-forecast sales for April. The Stoxx Europe 600 Index dropped 0.9 percent to 338.5 at
the close of trading.
- Consumer Comfort in U.S. Shows Biggest Weekly Drop Since October.
Consumer confidence last week suffered its biggest one-week drop since
the federal government shutdown in October as attitudes toward the
buying climate and personal finances soured. The Bloomberg Consumer
Comfort (COMFCOMF) Index declined by 2.2 points, the most since Oct. 13,
to 34.9 for the period ended May 11. The gauge has declined since reaching 37.9 during
the week ended April 27, the second-highest level since January 2008. Limited
wage gains, costlier food and elevated gasoline prices may help explain
the deterioration in sentiment among all age and income groups last
week.
- Stubborn Bond Bears Double Down on Money-Losing Wager. These bond bears just won’t go away. Some even appear to be doubling down as their losses mount. Exhibit
A: As the ProShares UltraShort 20+ Year Treasury (TBT) fund plunged
21.6 percent this year, investors have responded by plowing $525.3
million into the exchange-traded fund, which uses leverage and
derivatives. Exhibit B: Investors have boosted short wagers on
Treasuries using futures
contracts trading on the Chicago Board of Trade to 56 percent more than
their five-year average. A few weeks ago, there were the most since
March 2008.
- Wal-Mart(WMT) Forecast Misses Estimates as Sales Slump Lingers. Wal-Mart Stores Inc. (WMT), the world’s largest retailer, forecast second-quarter profit that missed analysts’ estimates as the company copes with slow sales in the
U.S., especially at its Sam’s Club warehouse stores.
- GM’s(GM) Latest Recalls Bring Automaker’s 2014 Total to 11.1 Million. General
Motors Co. (GM:US) is recalling an additional 2.7 million vehicles,
including models with faulty brake lights that have led to hundreds of
complaints, pushing the automaker’s total number of cars and trucks
called back for
fixes in the U.S. this year to 11.1 million.
CNBC:
ZeroHedge:
Business Insider:
Reuters:
Financial Times:
- US banks aim to cut pay of financial advisers. After
cutting the pay of traders, bank executives in the US are manoeuvring
to reduce their payroll for a 50,000-strong army of brokers who sell
stocks and bonds to retail customers.
Frankfurter Allgemeine Zeitung:
- Merkel
Says Euro Crisis Not Over, Warns of 'Deceptive Calm'. German Chancellor
Angela Merkel in interview says she shares the assessment of IMF
Managing Director Christine Lagarde, who has warned of a "deceptive
calm" in financial markets and flagging zeal for reforms in Europe.
Style Underperformer:
Sector Underperformers:
- 1) I-Banks -2.70% 2) Alt Energy -2.60% 3) Oil Service -2.35%
Stocks Falling on Unusual Volume:
- DQ, SIR, LDRH, DK, ACAT, EMES, ACXM, LXFT, FONR, STO, XONE, CXP, WX, BMY, LNC, SIVB, RDEN, XRS, INSY, AAP, A, SIG, ATK, LPLA, SQM, MET, TTS, GHL, LNC, NTI and CLDX
Stocks With Unusual Put Option Activity:
- 1) JWN 2) KSS 3) JOY 4) LEN 5) CNX
Stocks With Most Negative News Mentions:
- 1) BMY 2) NQ 3) GM 4) PSX 5) URBN
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Utilities -.18% 2) Networking -.20% 3) Telecom -.24%
Stocks Rising on Unusual Volume:
- GTIV, VIPS, CSCO, CLVS, BIS, KND, MNTA, AMED and TXTR
Stocks With Unusual Call Option Activity:
- 1) ADSK 2) AEO 3) TPX 4) RDN 5) CSCO
Stocks With Most Positive News Mentions:
- 1) D 2) WMT 3) A 4) T 5) GM
Charts:
Evening Headlines
Bloomberg:
- Ukraine Slides Deeper Toward War as Russia Warns on Vote.
Russia’s foreign minister said Ukraine is sliding into a civil war that will make it impossible to hold
legitimate elections, as Ukrainian leaders and their international
allies blamed Russia for the violence. “When Ukrainians kill
Ukrainians, I believe it’s as close to civil war as you can get,” Sergei
Lavrov told Bloomberg Television in an interview in Moscow yesterday.
“In the east and south of Ukraine, there is a war, a real war, with
heavy
weaponry used, and if this is something that is conducive to free and
fair elections, then I don’t understand something about freedom.”
- UBS Sees 20% Drop for Biggest China Stocks on Profit Drop.
UBS AG says it’s time to start
cutting Chinese profit forecasts again. Chen Li, the chief China equity
strategist at UBS,
estimates companies in the nation’s CSI 300 Index (SHSZ300) will post a 3
percent drop in earnings this year, versus consensus forecasts for a 14
percent gain. As analysts downgrade projections to account for a
weak property market and depreciating yuan, China’s biggest non-bank
stocks may extend this year’s drop to 20 percent, Chen says. The Shanghai-based strategist sees parallels with 2012,
when the nation’s slowing economy spurred analysts to reduce
profit estimates and the CSI 300 index fell more than 20 percent
from its May high through the December low.
- Japan Defense Academy Recruitment Jumps as China Tensions Rise.
A 6:00 a.m. bugle call summons 22-year-old student Mutsumi Iida to
begin a day organized by the minute between study, sports and training
until lights out at 10:30 p.m. She picked the National Defense Academy
over the freedom of an ordinary university as the best route to her
dream of becoming an officer in Japan’s Marine Self-Defense Forces. The
largest number of young people in 26 years followed in Iida’s
footsteps to the college this year, as Prime Minister Shinzo Abe
pushes a more active defense posture. Abe today will announce
plans to reinterpret Japan’s pacifist constitution to expand the
role of the military.
- Asian Stocks Fall as Yen Holds Gain; Nickel, Crude Slip.
Asian stocks dropped, pushing the regional index down from a four-month
high, as Japanese shares slid after U.S. gauges retreated from record
highs. The yen maintained gains while crude oil fell with industrial
metals. The MSCI Asia Pacific Index lost 0.5 percent by 10:02 a.m. in Tokyo, after closing at the highest level since Jan. 13
yesterday.
- Nickel Plunges More Than 9%, Biggest Slump Since 2011. Nickel slumped the most in 31 months
as investors deemed the metal’s rally this year as overdone. Contracts for delivery in three months on the London metal
Exchange dropped as much as 9.7 percent, the largest intraday
drop since September 2011, to $18,090. The metal, which touched
$21,625 on May 13 and is the still the best performer on LME
this year, traded at $18,460 at 10:13 a.m. Shanghai time.
- Obama Said to Put Personal Push Behind EPA’s Emissions Rules. U.S. President Barack Obama plans to
personally unveil proposed carbon-emissions rules for power
plants, elevating climate change policy as a top tier issue for
his final two years in office, according to two people familiar
with White House strategy. Obama is preparing to make the announcement with
Environmental Protection Agency Administrator Gina McCarthy, who
said yesterday the rules are on track to be proposed by June 2,
according to the people, who spoke on the condition of anonymity
because the schedule is still being planned.
- Cisco(CSCO) Revenue Forecast Tops Estimate on Pickup in U.S. Cisco Systems Inc. (CSCO) gave a forecast for fourth-quarter revenue that topped analysts’ estimates as orders in the U.S. climb on demand for networking machines to handle data traffic, making up for weaker emerging-market sales. Cisco’s revenue in the current period through July will be
$12 billion to $12.3 billion, based on the company’s forecast
for a decline of 1 percent to 3 percent from a year earlier.
Analysts were projecting, on average, sales of $11.8 billion.
Wall Street Journal:
- Interest Rates Sink Globally in Expectation of Stimulus. Nervous Investors Pile Into Bonds. Global bond rates dropped to their lowest levels of the year
Wednesday, as central bankers signaled their determination to jolt the
world's largest economies out of their malaise. Investors piled
into U.S., German and British government bonds—used to price everything
from mortgages to car loans—driving down their yields. The yield on the
10-year U.S. Treasury dropped to as low as 2.523%, its lowest level in
more than six months. In...
CNBC:
Zero Hedge:
ValueWalk:
Business Insider:
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 115.75 -1.75 basis points.
- Asia Pacific Sovereign CDS Index 81.75 -1.25 basis points.
- NASDAQ 100 futures +.07%.
Morning Preview Links
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology 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 25% net long heading into the day.
