Bloomberg:
- U.S. Sees No Sign of Russian Troop Pullback From Border. The
U.S. said there was as yet no evidence that Russian forces in regions
bordering Ukraine have started a withdrawal announced by President
Vladimir Putin two days ago. “We have not seen any withdrawal
activity as of 2:45 this afternoon, and we’re watching as best we can
constantly,” Pentagon spokesman Rear Admiral John Kirby told reporters
at a briefing yesterday. “We’ve seen
them say this before, we’re going to withdraw, we’re going to move.” Kirby’s
comments echo assessments by the Ukrainian government and NATO. Russian
state television said yesterday soldiers in three regions had started
to return to their bases following Putin’s order.
- Moody’s Turns Negative on China Property Developers’ Outlook. Moody’s
Investors Service revised its
credit outlook for Chinese developers to negative from stable, citing a
slowdown in home sales growth as liquidity weakens and inventories rise
in the coming 12 months. The outlook change is the first by the
credit rating provider on China’s property market since November 2012,
it said in a statement today. Home sales growth will decelerate to 5
percent at most on a year-on-year basis over the next year, “materially
lower” than 27 percent growth last year, it said. “The liquidity of
developers with relatively weak credit quality will be more vulnerable
in 2014, and their refinancing risk will increase as banks became more
selective in credit
extension following recent defaults in China,” Franco Leung, a
Hong Kong-based analyst at Moody’s, said in the statement.
- German Unease With ECB Simmers as Anti-Euro Party Gains. Lawmakers from Chancellor Angela Merkel’s party are criticizing
European Central Bank policies as a German anti-euro party gains support
before elections across Europe this week. Misgivings by Finance
Minister Wolfgang Schaeuble about the ECB’s threat of unlimited
bond-buying and Merkel’s warning of “deceptive calm” in financial
markets are the latest signs that German policy makers and economists
don’t want to discount the lingering risk to taxpayers from the debt
crisis.
- Trader Spends $13 Million to Bet VIX Will Jump 56% by September. A
trader paid almost $13 million to buy call options that pay off if the
Chicago Board Options Exchange Volatility Index rises at least 56
percent in the next
four months. The person used a strategy known as a call spread, designed
for bets that a security will trade within a certain range.
About 150,000 bullish contracts on the VIX expiring in September
with a strike price of 19 were bought, according to an e-mailed
note from Lake Hill Capital Management LLC, a hedge fund that
provides analysis on equity derivatives. The cost was offset by
selling the same amount of Sept. 28 calls.
- Junk-Rated? Horribly Illiquid? Perfect, I’ll Buy Them All. It’s getting harder to trade bonds. Hours, sometimes days can go by
before investors can complete a transaction. That’s not dissuading them
from piling into the most-illiquid debt out there. Junk-bond
investors are earning practically nothing extra to own older, smaller
bond issues that don’t typically trade as often as bigger, newer debt
offerings, according to Barclays Plc (BARC) data. The gap has collapsed
to almost zero from a 1.05 percentage point premium for the less-liquid
notes in the fourth quarter of 2011. That
means bondholders aren’t really being compensated for the risk that
there might be no one who wants to buy their obscure securities if
demand dries up and they’re forced to sell. They’re not worrying about
that now, though, with volatility at historic lows and cash flowing into
credit markets amid a sixth year of unprecedented Federal Reserve
stimulus. “The ‘roach motel’ dynamic is as pernicious as ever,”
Pacific Investment Management Co.’s Christian Stracke wrote in a May
note posted on the Newport Beach, California-based firm’s website. “Investors should beware of credit funds that offer daily liquidity where managers are reaching for yield
and are not paying close attention to the prospective liquidity profile
of what they buy.”
- What Lurks Beneath? Market Calm Unnerves Central Bankers. Global central bankers sounded the
alert about the calmness in financial markets, saying it risked
creating future instability and complicating monetary policy. Twenty-four hours of warnings were led by Federal Reserve
Bank of New York President William Dudley’s acknowledgment that
the slide in market volatility “makes me a little nervous.”
Bank of England Deputy Governor Charlie Bean said conditions
were “eerily reminiscent” of the pre-crisis era, while
Bundesbank board member Andreas Dombret said “we do see risks
despite the fact that the markets are calm.” The concern of policy makers is that their easy money is
making investors complacent, pushing them to search for risk and
leaving markets prone to a swift reversal similar to that which
began in 2007. Reflecting the lull, Bank of America Corp.’s
Market Risk Index last week reached its lowest in seven years.
ZeroHedge:
Business Insider:
Helsingin Sanomat:
- Russia Testing Finnish Military Response. Two violations of
Finland's airspace by state aircraft yesterday show Russia is testing
Finnish military responses, citing researcher Charly Salonius-Pasternak. Russia probing when Finns detect aircraft, how long it takes air force to launch fighter jets.
Style Underperformer:
Sector Underperformers:
- 1) REITs -.80% 2) Coal -.62% 3) Retail -.34%
Stocks Falling on Unusual Volume:
- PETM, DKS, ARCP, DOOR, VSAT, OPHT, BAH, CRM, AEO, CNMD, UVV, VLUE, PSX, NGVC, ICPT, DY, ARLP, ATK, ADI, DLTR, DATA, FI, SHLD, HRL, DRTX and BLUE
Stocks With Unusual Put Option Activity:
- 1) BBY 2) TIF 3) FST 4) CBS 5) CRM
Stocks With Most Negative News Mentions:
- 1) TGT 2) EBAY 3) PETM 4) CREE 5) DLTR
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Alt Energy +2.23% 2) Hospitals +2.04% 3) Gaming +.96%
Stocks Rising on Unusual Volume:
- CMRX, TIF, DISCK, QIWI, TSL, MXWL, EV and GBX
Stocks With Unusual Call Option Activity:
- 1) ARCP 2) END 3) LGF 4) MNKD 5) PETM
Stocks With Most Positive News Mentions:
- 1) TIF 2) NFLX 3) TJX 4) AMZN 5) MSFT
Charts:
Evening Headlines
Bloomberg:
- Russian Army Starts Withdrawing as Medvedev Sees Cold War. Russia
said its troops are pulling back from Ukraine’s border, as Prime
Minister Dmitry Medvedev warned the U.S. and the European Union they
risk provoking a new Cold War. Ukraine and the U.S. said they
haven’t yet seen signs of the pullback reported by Russian state TV,
which said yesterday that soldiers in three Russian
regions bordering Ukraine have started to return to their bases.
- Japan Trade Deficit Shrinks as Tax Increase Crimps Imports. Japan’s trade deficit shrank in April as imports rose the least in 16
months after the first sales-tax increase in 17 years crimped consumer spending.
Inbound shipments rose 3.4 percent from a year earlier, the Ministry of
Finance said today in Tokyo. Exports (JNTBEXPY) increased 5.1 percent,
leaving a deficit of 808.9 billion yen ($8 billion), down 7.8 percent
from a year earlier.
- U.S. Said to Seek More than $5 Billion in BNP Settlement. U.S.
authorities are seeking more
than $5 billion from BNP Paribas SA (BNP) to settle federal and state
investigations into the lender’s dealings with sanctioned countries
including Sudan and Iran, according to a person familiar with the
matter. The amount sought to resolve the investigation has escalated and
now far exceeds the $2.6 billion that Credit Suisse AG (CSGN) agreed to
pay in a settlement with the U.S. for helping Americans evade taxes.
Discussions are continuing and
the final number could change, the person said.
- Asia Stocks Fall Fourth Day Before Bank of Japan Decision.
Asian stocks fell for a fourth day, with the regional benchmark index
heading for its longest losing streak since January, as the yen
strengthened ahead of a Bank of Japan decision on monetary policy today.
Raw-material suppliers led declines on the regional gauge, with BHP
Billiton Ltd. losing 1.8 percent in Sydney after benchmark prices for
iron-ore delivered to China’s Tianjin port dropped to the lowest since
2012. Mazda Motor Corp. fell 2.6 percent as the yen traded near its
strongest level in more than three months. Japan Petroleum Exploration
Co. (1662) led energy suppliers higher, jumping 6.3 percent, after its
stock rating was raised by SMBC Nikko Securities Inc.
The MSCI Asia Pacific Index slipped 0.5 percent to 138.46
as of 9:41 a.m. in Hong Kong, with nine of its 10 industry
groups declining.
- BlackRock’s Fink Says Housing Structure More Unsound Now. BlackRock
Inc. (BLK)’s Chief Executive Officer Laurence D. Fink said the U.S.
housing market is “structurally more unsound” today than before the
financial crisis because it depends more on government-backed mortgage
companies such as Fannie Mae and Freddie Mac. “We’re more dependent
on Fannie and Freddie than we were before the crisis,” Fink said today
at a conference held by the Investment Company Institute in Washington,
noting that he was
one of the first Freddie Mac bond traders on Wall Street.
Wall Street Journal:
- Debt Rises in Leveraged Buyouts Despite Warnings. Regulators Urge Banks to Avoid Financing High Levels of Debt. Wall Street banks are financing more private-equity takeovers with
high levels of debt, despite warnings by regulators to reduce the amount
of risky loans they make. The Federal Reserve and the Office of
the Comptroller of the Currency last year issued guidance urging banks
to avoid financing leveraged buyouts in most industries that would put
debt on a company of more than six times its earnings before interest,
taxes, depreciation and amortization, or Ebitda. The Fed and the OCC
also told banks to limit borrowing...
- Investor Demand High as Fannie Mae Sets Price Range for Risky Mortgage Securities. Investors Say Fannie Lowers Yields on Offering From Initial Discussions. The latest place where investors are taking on more risk in exchange for apparently meager returns: the U.S. housing market.
Bond
buyers on Tuesday jockeyed to get a piece of $1.6 billion of riskier
Fannie Mae securities, enabling the government-backed mortgage company
to twice cut the yields it offered on the debt. The offering is Fannie's
third sale of so-called risk-sharing certificates that enlist investors
to pay for...
- After Martial Law Declaration, Thailand Waits for General's Next Move. A day after Thailand's military imposed nationwide martial law, the
country faced uncertainty over whether a coup d'état was imminent or if
its civilian leaders could broker a deal to end months of bitter and
often violent feuding. The military urged calm and insisted the
declaration—made under a 100-year-old constitutional decree that gives
the army sweeping powers to maintain order—wasn't a coup. No curfew was
imposed, and residents were encouraged to go about business as usual.
Some Thais were seen taking...
Fox News:
- Pentagon prepares for possible evacuation of US personnel from Libya, amid upheaval. The Obama administration is moving military assets into place in
preparation for a possible evacuation of Americans from Libya, as a
political crisis threatens to touch off a new wave of violence in the
unstable country. Officials say no decision has been made on whether to move U.S.
personnel, particularly those at the U.S. Embassy in Tripoli, out of
Libya. But the U.S. military is preparing in case the State Department
makes the call.
Barron's:
MarketWatch.com:
CNBC:
- European bonds signaling trouble? The quick move higher in the yields of Europe's weakest sovereigns from
historic lows may be just the beginning and on the edges it could start
to affect other low-rated credits where investors have hunted for
yield—such as U.S. junk bonds.
Zero Hedge:
ValueWalk:
- Dudley: Some Pockets In Financial Markets “Are Concerning”. Dudley on whether there are any bubbles in the financial markets:
“Well we look at the financial issues all the time to asset whether
the current level interest rates is going to generate excesses in
financial markets. Excesses that we need to be concerned about in terms
of financial stability. I would say there are pockets that are
concerning. Leverage loan markets for example are quite frothy.
Business Insider:
Reuters:
- Bombings kill at least 118 in central Nigerian city of Jos. Back-to-back
bomb blasts killed at least 118 people and wounded 45 in the crowded
business district of the central Nigerian city of Jos on Tuesday,
emergency services said, in an attack that appeared to bear the hallmarks of the
Boko Haram insurgents.
Financial Times:
- Hedge funds wrongfooted by choppy markets. It
was meant to be the year of the hedge fund. After near indiscriminate
gains for shares in 2013, the choppier markets of this year were hailed
as the perfect conditions for the
specialist and skilled active fund manager.
It has not turned out that way.
- China property slowdown spells trouble for Asia bonds. Investing in Chinese developers becoming iffy. In May Central China Real Estate, one
of the Chinese mainland’s many property developers, proposed issuing
Singapore dollar-denominated notes, to refinance a convertible bond due
in August.
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 123.0 +2.0 basis points.
- Asia Pacific Sovereign CDS Index 87.75 +2.0 basis points.
- NASDAQ 100 futures -.02%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+243,750 barrels versus a +947,000 barrel gain the prior week. Gasoline
supplies are estimated to rise by +400,000 barrels versus a -772,000
barrel decline the prior week. Distillate inventories are estimated to
fall by -306,250 barrels versus a -1,124,000 barrel decline the prior
week. Finally, Refinery Utilization is estimated to rise +.41% versus a
-1.4% decline the prior week.
2:00 pm EST
- FOMC Minutes from April 29-30 Meeting.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Kocherlakota speaking, Fed's George speaking, China HSBC
Manufacturing PMI, BoJ decision, BoE minutes, weekly MBA mortgage
applications report, BMO Capital Farm to Market Conference, (MXIM)
investor day, (AVY) investor meeting, (BA) investor conference, (FLEX)
analyst day and the (AWI) investor day could impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology 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 day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 13.08 +5.31%
- Euro/Yen Carry Return Index 144.75 -.33%
- Emerging Markets Currency Volatility(VXY) 7.18 +.84%
- S&P 500 Implied Correlation 58.16 +3.51%
- ISE Sentiment Index 95.0 -12.84%
- Total Put/Call .91 +16.67%
Credit Investor Angst:
- North American Investment Grade CDS Index 66.43 +2.10%
- European Financial Sector CDS Index 81.70 +2.96%
- Western Europe Sovereign Debt CDS Index 38.84 +4.31%
- Asia Pacific Sovereign Debt CDS Index 87.27 +1.77%
- Emerging Market CDS Index 269.80 +2.25%
- China Blended Corporate Spread Index 358.99 unch.
- 2-Year Swap Spread 15.5 unch.
- TED Spread 20.25 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -6.5 -.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% +1.0 basis point
- Yield Curve 218.0 -1.0 basis point
- China Import Iron Ore Spot $97.50/Metric Tonne -1.02%
- Citi US Economic Surprise Index 3.30 +.3 point
- Citi Emerging Markets Economic Surprise Index -23.30 +1.3 points
- 10-Year TIPS Spread 2.15 -1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating -95 open in Japan
- DAX Futures: Indicating -30 open in Germany
Portfolio:
- Lower: On losses in my biotech/medical/retail/tech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
- Market Exposure: Moved to 25% Net Long
Style Underperformer:
Sector Underperformers:
- 1) Retail -3.10% 2) Gaming -2.20% 3) Coal -1.92%
Stocks Falling on Unusual Volume:
- DKS, URBN, TJX, SPLS, HGR, NTLS, DCI, TTEC, CMRX, CAB, VASC, BGFV, ARMH, PWRD, ICPT, SFL, DTV, VOD, VSI, SFM, NMBL, COO, HTH, ROST, PETM, MOH, CRCM and ATK
Stocks With Unusual Put Option Activity:
- 1) TIF 2) HD 3) TGT 4) XME 5) X
Stocks With Most Negative News Mentions:
- 1) DKS 2) GM 3) SPLS 4) JCP 5) ICPT
Charts:
