Bloomberg:
- Russia Threatens to Counter NATO Buildup as Ties Fray. Russia will take measures against a buildup of NATO forces on its borders as regional and global security weakens with the rupture of ties between
the former Cold War enemies, the country’s top military commander said. The
Ukrainian conflict is “practically a civil war” as the authorities in
Kiev are using the army against “unarmed civilians,” Valery Gerasimov,
the head of the Russian military’s General Staff, told a security
conference in Moscow today. Internal conflicts “are no longer purely
domestic and take on an increasingly international character.”
- Russia Sanction Naysayers Collect $90 Billion: Chart of the Day. Investors who have ignored international sanctions against Russia are being rewarded.
The
CHART OF THE DAY shows the MSCI Russia Index of stocks has gained 22
percent, adding about $90 billion in market value since March 17, when
the U.S. banned President Vladimir Putin’s business allies in response
to his annexation of Crimea.
- Ukraine’s Chocolate Tycoon Set for Victory as Unity Frays. A billionaire chocolate magnate is sure he’s the man to hold Ukraine
together as gun-toting separatists threaten to rip it apart. Petro
Poroshenko, the front-runner in the May 25 presidential election, says
he’ll unite the nation by bolstering democracy and sealing deeper European ties.
A regular presence at the Kiev protests that toppled President Viktor
Yanukovych and a minister in the last two governments, the tycoon is a
pragmatist
who can strike deals to ease tensions, according to Iryna Bekeshkina,
head of the Democratic Initiatives Foundation.
- Australia’s Pollution U-Turn Threatening UN Climate Talks. Australia’s program to rein in pollution is losing momentum,
the latest in a series of setbacks for the international effort to
tackle global warming. With the highest per-capita fossil fuel
emissions among industrial countries, Australia’s participation in
United Nations-led climate talks is seen as crucial to sway China and
India to step up pollution controls even as developed nations backslide.
Now, Australia’s environmental stance is undergoing an about-face as
the country’s new government and its political opponents haggle over the
best way to dismantle earlier regulations. The shift in
Australia comes just ahead of a series of global climate talks set for
later this year. The UN is aiming to craft an agreement in 2015 that
would include 190 nations. That pact would limit emissions in both
industrialized and developing nations for the first time. Yet China and
India have signaled their reluctance to join without broad participation
from richer industrial nations, including Australia.
- European Stocks Advance on U.S. Data as Randstad Gains.
European stocks rose, with the
region’s benchmark index capping its longest streak of weekly
gains since November, as data showed a drop in German business
confidence and a rebound in U.S. housing activity. Randstad Holding NV
(RAND) advanced 3.1 percent as UBS AG advised investors to buy shares in
the biggest Dutch staffing company. Pandora (PNDORA) A/S fell 4.2
percent as some shareholders sold a stake of about 10 percent in the
Danish jewelry maker. Orange SA dropped 1.6 percent after Societe
Generale SA lowered its recommendation on France’s largest phone
company. The Stoxx Europe 600 Index added 0.2 percent to 341.76 at the close of trading as investors also weighed the Ukraine
situation before the May 25 presidential election.
- Bond Buyers Skip Fine Print as Low Rates Sow Complacency. To understand the rising concern about complacency in the
corporate-debt market, look no further than the Clear Channel
Communications Inc. bonds that investors showed up in droves to buy last
month. While the radio broadcaster has debt that’s 12 times its
earnings and a credit rating that implies a default is a virtual
certainty, it was still able to more than double the offering to $850
million. Not only that, the indentures governing the notes designed to
protect bondholders lacked restrictions typically found in such risky
offerings, such as limits on the company’s ability to issue more debt or
shift cash to shareholders. A sixth year of financial
repression brought on by the Federal Reserve’s near-zero interest-rate
policy are intensifying the risks in the $2 trillion global market for
speculative-grade corporate bonds. Lenders are more willing to forgo
standard protections to capture increasingly paltry returns. A measure
of the strength of junk-bond covenants is about the weakest since
Moody’s Investors Service started tracking the data in 2011.
- The Bearish Signs Junk Buyers Reject in Stoking ’14 Rally. This year’s unexpected bond boom may
look like a rally, but it doesn’t smell like one. At least not to Morgan Stanley strategists, who detect
something amiss in the way different securities are performing
relative to one another. Here’s an example: Stocks of the smallest
companies usually
move in tandem with high-yield bonds. Small caps are slumping
this year, with the Russell 2000 (RTY) Index down 3.8 percent, while
junk-rated securities have gained 4.4 percent. The extra yield
investors demand to hold the notes instead of government debt
has shrunk by 0.22 percentage point this year. Then there’s this: The
top-tier of speculative-grade bonds
is beating the bottom level. That doesn’t make sense if
investors are buying risky assets because they feel good about the
economy. The lowest-ranked assets usually outperform when there’s an
optimistic outlook, yet bonds rated BB have returned 4.8 percent in
2014, compared with a 4.4 percent return for securities rated CCC and
lower, Bank of America (BAC:US) Merrill Lynch index data show. “Given these factors, as well as low volatility, we think hedging credit risk is both cheap and a
sensible strategy in this environment.”
- Retailers Miss Quarterly Estimates by Most in 13 Years. U.S. retailers’ first-quarter earnings are trailing analysts’
estimates by the widest margin in 13 years after bad weather and weak
spending by lower-income consumers intensified competition. Chains are missing projections by an average of 3.1 percent, with 87
retailers, or 70 percent of those tracked, having reported, researcher
Retail Metrics Inc. said in a statement today. That’s the worst
performance relative to estimates since the fourth quarter of 2000, when
they missed by 3.3 percent. Over the long term, chains typically beat
by 3 percent, the firm said.
Wall Street Journal:
- Kuroda Signals Concern Over Yen's Strength. BOJ Governor Said He Sees Little Reason for Currency to Strengthen More. Bank of Japan Gov. Haruhiko Kuroda said he saw little reason for the
yen to strengthen against key currencies, signaling concern that a
further rebound could cast a shadow over the Japanese economy and the
central bank's fight against deflation. While previous BOJ
governors have traditionally avoided openly discussing exchange rates,
in an exclusive interview with The Wall Street Journal this week, Mr.
Kuroda described at...
- Treat Veterans With Respect, Not Pity. Too many Americans assume that troops who served in Iraq and Afghanistan must be traumatized.
- Mexico Cuts Economic Growth Forecast. Economy Is Now Seen Expanding 2.7% in 2014 After A Weaker-Than-Expected First Quarter.
ZeroHedge:
Business Insider:
Reuters:
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -.87% 2) Networking -.19% 3) Oil Service -.17%
Stocks Falling on Unusual Volume:
- ARUN, MTDR, SALE, VNET, HIBB, YOKU, PF, MONT, CNMD, ESI, PCYC, RMD, KIRK, QIWI, TWTR and PAYC
Stocks With Unusual Put Option Activity:
- 1) DNR 2) HPQ 3) JOE 4) EWJ 5) WY
Stocks With Most Negative News Mentions:
- 1) BK 2) FE 3) AFL 4) SALE 5) YOKU
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Homebuilders +2.12% 2) Computer Hardware +1.61% 3) Airlines +1.31%
Stocks Rising on Unusual Volume:
- PTCT, TOUR, TFM, HPQ, ZUMZ, JOE, RKUS, SRPT, BCEI, GME, ISIS, RTI, NDSN, RXN and MOVE
Stocks With Unusual Call Option Activity:
- 1) DNR 2) GME 3) LPX 4) WY 5) DLTR
Stocks With Most Positive News Mentions:
- 1) HPQ 2) GME 3) TFM 4) ISIS 5) JOE
Charts:
Evening Headlines
Bloomberg:
- Russia Dismisses Industrywide Sanctions as Empty Threat. Russia is confident it won’t face
industrywide sanctions over its policies in Ukraine because
trade bans would hurt the world economy, especially Europe’s,
Russian Economy Minister Alexei Ulyukayev said. The threat from the U.S. and Europe that Russia will face
sanctions on entire sectors “is like a nuclear weapon -- nobody
uses it,” Ulyukayev said yesterday in an interview with
Bloomberg Television at the St. Petersburg International
Economic Forum.
- Asian Stocks Rise on Weaker Yen; Baht Rebounds After Drop. Asian stocks rose, fueling a second straight weekly advance in the regional index, as the yen held declines near a one-week low. Platinum and palladium retreated while Thailand’s baht advanced, regaining some of yesterday’s losses following the military coup.
The MSCI Asia Pacific Index added 0.4 percent by 10:03 a.m.
in Tokyo, bringing its weekly gain to 0.8 percent.
Wall Street Journal:
- Penny Stocks Like Latteno Foods Rally, Fueling Big-Dollar Dreams. Fannie, Freddie and Other Cheap Names Spur a Rush in Activity on OTC Markets. Investors are piling into the shares of small, risky companies at the
fastest clip on record, in search of investments that promise a chance
of outsize returns. The investors are buying up so-called penny
stocks—shares of mostly tiny companies that aren't listed on major U.S.
exchanges—at a pace that far eclipses the tech boom of the late 1990s.
Those include firms that focus on areas from medical marijuana and
biotechnology to...
- The Government Health-Care Model. The Veterans scandal shows where ObamaCare ends up. President Obama addressed the Veterans Affairs scandal on Wednesday,
saying he's waiting for an Inspector General "audit" of what went wrong.
And the press corps is debating whether VA Secretary Eric Shinseki
should be fired. These are sideshows. The real story of the VA scandal
is the failure of what liberals have long hailed as the model of
government health care. Don't take our word for it. As recently
as November 2011, Paul Krugman praised the VA as a triumph of
"socialized medicine," as he put it:...
CNBC:
Zero Hedge:
Business Insider:
Reuters:
- Fed on road to 'normal' may be rocky: Williams. The Federal Reserve is
finally moving back to "normal" monetary policy, a top Fed
official said on Thursday, even as he warned of possible lurches
along the way.
Painting a largely upbeat picture of the economic outlook,
San Francisco Fed President John Williams forecast 3 percent
growth this year and next, a return to a normal U.S. job market
by 2016, and a rise in inflation toward the Fed's 2 percent
target over roughly the same period.
Shanghai Securities News:
- China CIRC Warns Risks of County-Level LGFV Bonds. The China
Insurance Regulator Commission has issued rules to asset management
units of insurers to increase risk prevention for bond investments in
county-level local government financing vehicles, citing a person close
to the regulatory departments.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 118.0 unch.
- Asia Pacific Sovereign CDS Index 85.0 -1.0 basis points.
- NASDAQ 100 futures +.10%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:00 am EST
- New Home Sales for April are estimated to rise to 425K versus 384K in March.
Upcoming Splits
Other Potential Market Movers
- The Eurozone gdp report and US New Home Sales Revisions could impact trading today.
BOTTOM LINE: Asian
indices are mostly higher, boosted by industrial and technology
shares in the region. I expect US stocks to open modestly higher
and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net
long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- Volatility(VIX) 11.77 -1.18%
- Euro/Yen Carry Return Index 145.07 +.21%
- Emerging Markets Currency Volatility(VXY) 6.96 -1.83%
- S&P 500 Implied Correlation 55.57 -.09%
- ISE Sentiment Index 125.0 +43.68%
- Total Put/Call .86 -2.27%
Credit Investor Angst:
- North American Investment Grade CDS Index 63.73 -2.11%
- European Financial Sector CDS Index 79.48 -1.40%
- Western Europe Sovereign Debt CDS Index 39.44 -.25%
- Asia Pacific Sovereign Debt CDS Index 85.56 -.47%
- Emerging Market CDS Index 265.90 -.17%
- China Blended Corporate Spread Index 360.35 unch.
- 2-Year Swap Spread 15.5 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -5.75 +.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- China Import Iron Ore Spot $98.80/Metric Tonne +.30%
- Citi US Economic Surprise Index -.3 -3.5 points
- Citi Emerging Markets Economic Surprise Index -18.70 +3.0 points
- 10-Year TIPS Spread 2.22 +5.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +100 open in Japan
- DAX Futures: Indicating +7 open in Germany
Portfolio:
- Higher: On gains in my biotech/retail/tech sector longs
- Market Exposure: 75% Net Long
Bloomberg:
- Ukraine Forces Suffer Worst Losses of Crisis Amid Unrest. Fighting
flared anew in Ukraine four days before a presidential election, with
16 people killed near a checkpoint in the deadliest clash for the
military since the
secession campaign began after Russia annexed Crimea. An attack by
insurgents near Volnovakha, about 50
kilometers (31 miles) south of Donetsk, left 13 soldiers dead,
acting President Oleksandr Turchynov said in a statement on parliament’s
website. The local government said fighting left a total of 16 dead and
32 wounded. One soldier was killed and two injured in the Luhansk
region, the Defense Ministry said. “There’s a brutal war under way against our country,”
Turchynov said. “Ukraine will never return to a post-Soviet
neo-empire, which the Russian government dreams about.”
- French Recovery Fades as Manufacturing, Services Contract.
French manufacturing and services unexpectedly shrank this month,
highlighting President Francois Hollande’s struggle to revive the euro
area’s second-largest economy. A Purchasing Managers Index of factory
activity dropped to 49.3 from 51.2 in April, while a services gauge
fell to 49.2 from 50.4, Markit Economics said today in London.
Economists had forecast readings above 50, the level that divides
expansion from contraction. A composite gauge of both manufacturing
and services declined to 49.3 in May from 50.6 in April, Markit said. A
measure of new business also dropped and
employment fell at the fastest pace in three months. Markit said a
number of companies indicated that payrolls were cut “in line with
falling business activity.”
- European Stocks Rise for Second Day as Daily Mail Jumps. European stocks rose for a second day as better-than-forecast manufacturing figures in China and the U.S. offset euro-area output data. Daily Mail and General Trust Plc surged 8.9 percent after announcing Zoopla Property Group’s initial public offering. Raiffeisen Bank International AG added 6 percent after posting first-quarter profit that beat analysts’ estimates. Royal Mail Plc slid the most since its initial public offering last year after reporting earnings that missed projections. The Stoxx Europe 600 Index rose 0.2 percent to 341.02 at
the close in London.
- Finra Fines Cost JPMorgan 3 Minutes of Profit.
The world’s biggest bond dealers, including JPMorgan Chase & Co.
(JPM) and Morgan Stanley, failed to properly report trades to the
industry’s price-tracking system more than 11,000 times. JPMorgan’s
penalty: About three minutes
of its annual profit.
- Americans’ Outlook for U.S. Economy Falls to Seven-Month Low. Americans’ expectations for the economy deteriorated to a seven-month
low in May, a sign that the rebound from weakness earlier this year may
be limited by still-cautious consumers. An expectations gauge that tracks where the economy is heading declined to 42.5 in May from 48 in the month prior,
data from the Bloomberg Consumer Comfort Index showed today. The share
of respondents who said the economy was getting worse climbed to the
highest level this year. The weekly measure of sentiment declined to
34.1 in the period ended May 18 from 34.9, the third straight drop.
Wall Street Journal:
CNBC:
ZeroHedge:
Business Insider:
NY Times:
- Russia and China Block Security Council Move to Prosecute Syria War Crimes. Russia
and China on Thursday vetoed a Security Council resolution that would
have empowered the International Criminal Court to investigate and
prosecute war crimes in Syria, defying widespread support for such a
move by human rights advocates and many United Nations members,
including the United States. It
was the fourth time that Russia and China used their veto power as
permanent Security Council members to block any coercive action by the
international body in the Syrian conflict, which began more than three
years ago and has claimed at least 150,000 lives.
Reuters:
- Russia could build eight nuclear reactors for Iran. Russia
could sign an agreement this year to build eight new reactors for
nuclear power plants in Iran, state-run Russian news agency RIA reported
on Thursday, citing a source it did not identify. Russia built
Iran's only operating nuclear power reactor, at the Bushehr
plant.Longstanding Western fears that the Bushehr project could help
Iran develop nuclear weapons - something it denies it is seeking to do -
receded after Iran promised to send the spent fuel from the plant back
to Russia.
Xinhua:
- China Overcapacity to Take Years to Resolve, Survey Says. Survey
by State Council's Development Research Center says 68% of 3,545
enterprises represented at conference expect process to take more than 3
years; 23% say over 5 years.
Shanghai Securities:
- China
GDP Growth May Slow to About 5% in 2-3 Years. Ren Zeping, a researcher
at the Development Research Center of the State Council, expects China's
economy to grow about 5% for 20 years, after slowing to about 5% in 2-3
years, citing Ren. China's GDP growth may be about 6.0% next year.