Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 11.52 -.43%
- Euro/Yen Carry Return Index 144.87 +.25%
- Emerging Markets Currency Volatility(VXY) 6.89 -.58%
- S&P 500 Implied Correlation 55.06 +1.21%
- ISE Sentiment Index 103.0 +18.39%
- Total Put/Call .88 +27.54%
Credit Investor Angst:
- North American Investment Grade CDS Index 62.32 +.18%
- European Financial Sector CDS Index 72.79 +.37%
- Western Europe Sovereign Debt CDS Index 34.85 -.01%
- Asia Pacific Sovereign Debt CDS Index 79.21 -1.14%
- Emerging Market CDS Index 246.83 +.29%
- China Blended Corporate Spread Index 328.99 -5.65%
- 2-Year Swap Spread 14.0 +1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -8.75 -.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 210.0 +2.0 basis points
- China Import Iron Ore Spot $91.80/Metric Tonne -4.08%
- Citi US Economic Surprise Index-4.80 -1.9 points
- Citi Emerging Markets Economic Surprise Index -20.40 -1.1 points
- 10-Year TIPS Spread 2.21 -2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +85 open in Japan
- DAX Futures: Indicating +4 open in Germany
Portfolio:
- Higher: On gains in my medical/retail sector longs and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Russian Forces Back Off Ukraine Border as Fighting Rages. Russia has pulled back most of its troops from the border with Ukraine,
according to a U.S. defense official, as government forces continued a
campaign to wipe out separatist rebels in the former Soviet Republic’s
east. A “majority of the Russian forces” have been withdrawn
from the Ukrainian border, Rear Admiral John Kirby, a Pentagon
spokesman, told reporters traveling to Singapore with U.S. Defense
Secretary Chuck Hagel. About seven battalions of Russian troops, or
“several thousands,” remain, he said. Russia’s
withdrawal may be marred by a gas dispute. Talks with Ukraine in Berlin
today won’t advance, Ukrainian First Deputy Energy Minister Yuri Zyukov
said yesterday.
- Abe Offers Japan’s Support to Southeast Asia on Sea Disputes. Prime
Minister Shinzo Abe said Japan
would spare no effort in helping Southeast Asian nations secure the seas
and pledged strong support for the Philippines and Vietnam in their
maritime disputes with China. “Japan will offer its utmost support
for the efforts of the countries of Asean as they work to ensure the
security of the seas and the skies, and thoroughly maintain freedom of
navigation and freedom of overflight,” Abe said in Singapore today,
referring to the 10-member Association of Southeast Asian Nations. Abe’s
speech to defense officials at the Shangri-La security forum comes at a
time of rising tensions over China’s assertiveness in the East and
South China Sea.
- Vietnam Prepares Legal Action Against China, Prime Minister Says. Vietnam has prepared evidence for a legal suit challenging China’s claim to waters off the Vietnamese coast and is considering the best time to file it, Prime Minister Nguyen Tan Dung said yesterday in an interview. “We are prepared and ready for legal action,” Dung
said, sitting in the prime minister’s compound in Hanoi in front of a
bronze bust of Ho Chi Minh, the founder of communist Vietnam. “We are
considering the most appropriate timing to take this measure.”
- Brazil Growth Slowed in First Quarter as Investment Fell. Brazil’s economic growth slowed in
the first quarter as President Dilma Rousseff, who is up for re-election in October, struggles to rebuild confidence that led to
the biggest decline in investment in two years. Gross domestic product increased 0.2 percent in the first
quarter, the equivalent to 0.8 percent on an annual basis, down
from a revised 0.4 percent in the last three months of 2013. The
result was in line with the median estimate of 41 analysts
surveyed by Bloomberg. Investment fell 2.1 percent in the quarter.
- Vale Set for Worst Losing Streak Since 2008.
Vale SA (VALE5), the world’s largest iron-ore producer, is posting its
worst streak of monthly losses in five years as prices for the
steel-making ingredient sink. The shares fell 3.2 percent to 25.79 reais
at 11:42 a.m. in Sao Paulo today, bringing losses this month to 2.4
percent. The stock is now set for its seventh monthly drop, the longest
losing rout since 2008. Brazil’s benchmark Ibovespa gauge is up 0.2
percent this month, its third straight gain. Iron ore sank 4.1
percent today to $91.80 a dry ton and has lost 13 percent in May, a
sixth monthly retreat. That’s the longest losing run since the data
series began in November 2008. The commodity is down 32 percent this
year, entering a bear market in March as the biggest miners raised
output, spurring forecasts for a rising global surplus while slowing
growth in China capped demand. “The best way to begin to understand
Vale’s weakness is to look to China,” Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about
$366 billion, said in a telephone interview. “If China were to
decelerate further, it’s reasonable to expect pressure on
commodities to continue.”
- European Stocks Little Changed for Seventh Weekly Gain.
European stocks were little changed,
with the Stoxx Europe 600 Index advancing for a seventh week, as a
better-than-expected report on U.S. business activity offset
consumer-confidence data that missed forecasts. Societe Generale SA
slipped 2.2 percent after Les Echos reported that the French bank’s
Russian unit posted a decline in first-quarter profit. BNP Paribas SA
fell 2.4 percent as a
person familiar with the matter said U.S. authorities are
seeking more than $10 billion from the bank to settle
investigations into dealings with sanctioned countries. Rio
Tinto Group and BHP Billiton Ltd. slid as a gauge of commodity
producers declined the most on the Stoxx 600.
The Stoxx 600 fell 0.1 percent to 344.24 at the close of
trading.
Wall Street Journal:
- Moody's Warns on EU New Banking Rules. Rating Agency Says Directive Could Leave Stakeholders Vulnerable to Banking Crises.
Moody's Investors Service Inc. has become the latest of the three big
debt rating firms to warn that new European Union rules could make
stakeholders more vulnerable to losses in any future banking crisis. In
response to the EU's so-called Bank Recovery and Resolution Directive,
under which shareholders, bondholders and some depositors may have to
stomach big losses or commit to so-called bail ins to help rescue ailing
banks, Moody's has cut its long-term rating outlook on 82 European
banks to negative. That means the...
Fox News:
- Shinseki resigns over growing VA scandal. President Obama announced Friday that embattled Veterans Affairs
Secretary Eric Shinseki would take the fall for the rapidly growing
scandal over veterans' health care, accepting his resignation under
pressure from members of both parties. The president announced that Shinseki would resign after they met at the
White House and he received an update on an internal review of the
problems at the VA. The review showed the problems were not limited to
just a few facilities, Obama said, adding: "It's totally unacceptable.
Our veterans deserve the best."
CNBC:
- Fast food CEO: Minimum wage hikes closing locations. CKE Restaurants' roots began in
California roughly seven decades ago, but you won't see the parent
company of Carl's Jr. and Hardee's expanding there much anymore. What's causing what company CEO Andy Puzder describes as "very little growth" in the state? In part it's because "the minimum wage is so high
so it's harder to come up with profitable business models," Puzder said
in an interview. The state's minimum wage is set to rise to $9 in July,
making it among the nation's highest, and $10 by January 2016.
ZeroHedge:
Business Insider:
meps:
- Steel Price Hike in U.S. Heightens Import Threat from China. US
flat product producers have successfully implemented at least a
proportion of their latest round of proposed increases. However, the
upward movements now appear to have stalled. Local supply is slowly
returning to normal and the recent hikes, together with expanding
domestic delivery lead times, have spurred an interest in imported
material.
Business Recorder:
- Real Slides on Swaps; Bovespa Suffers with GDP. Brazil's real fell the most among Latin American currencies on Friday as
investors tried to curb losses related to the expiration of currency
swaps next week, while Brazilian stocks suffered with weak economic data
and a fall in iron-ore prices.
Valor:
- Brazil Vehicle Sales Fall 11% Y/Y in May.
Xinhua:
- China's Instant Messaging Cos. to Crack Down on Rumors. Tencent's
WeChat, NetEase's Yixin and other 5 instant messaging applications
vowed to clean up illegal contents after the nation's public security
ministry started to crack down on spreading rumors or information of
violence, terrorism, pornography and fraud from May 27, citing the
companies.
Sina:
- CBRC Official Says China Property Loan Risk Controllable. China
will not relax or offer discounts for property development loans or
mortgages, citing an official at China Banking Regulatory Commission.
China must "strictly" control risks from property loans, CBRC says in
its 2013 annual report issued today.
Style Underperformer:
Sector Underperformers:
- 1) Steel -2.67% 2) Disk Drives -2.21% 3) Alt Energy -2.01%
Stocks Falling on Unusual Volume:
- BLOX, BNNY, CSTE, NMBL, EXPR, SPLK, RCAP, LGF, VEEV, GES, QSII, MTZ, AFSI, RNET, DISCK, RIO, AERI, NRP, REX, AFOP, ENS, TWTR, AVA, HQL, USLV, NRP and QSII
Stocks With Unusual Put Option Activity:
- 1) JNPR 2) XLU 3) FFIV 4) XLY 5) COG
Stocks With Most Negative News Mentions:
- 1) NFLX 2) LGF 3) CLI 4) JD 5) VALE
Charts:
Style Outperformer:
Sector Outperformers:
- 1) REITs +.36% 2) Retail +.35% 3) Utilities +.29%
Stocks Rising on Unusual Volume:
- OVTI, RTRX, NPSP, BIG, NLNK, DKS, ANN, PANW and PCYC
Stocks With Unusual Call Option Activity:
- 1) CL 2) OVTI 3) NPSP 4) SPLK 5) PEP
Stocks With Most Positive News Mentions:
- 1) BIG 2) OVTI 3) AAPL 4) MNKD 5) NOC
Charts:
Evening Headlines
Bloomberg:
- Investing for a China Crisis. China's growing list of problems, including a slowing economy, rising
militarism, messy corruption crackdown and increasingly troubled shadow
banking sector, could provoke a major financial crisis. In the "never
waste a crisis" spirit, a number of investment opportunities present
themselves: -- Short Chinese stocks. The Shanghai Composite Index is down 67 percent from its October 2007 peak. Even though Chinese stocks may seem inexpensive -- the price-to-earnings ratio for the Shanghai index over the last 12 months is 9.8, compared with 17.3 for the far more costly S&P 500 -- there is no obvious floor. If China has a financial crisis, the risk to Chinese equities is considerable. Bank stocks may be especially
vulnerable. Investors who lack direct access to mainland Chinese stocks
can use Hong Kong-listed equities and exchange-traded funds. --
Sell commodities. Industrial and agricultural commodity prices
took off
in 2002, right after China joined the World Trade Organization. As
manufacturers in Europe and North America shifted production to China,
its thirst for commodities kept growing. Many producers of industrial
materials, including base metals, iron ore and coal, also increased
capacity as prices leaped.
- Asian Stocks Rise on Faster Japan Inflation, U.S. Outlook.
Asian stocks rose, with the regional benchmark index heading for its
biggest monthly advance since September, as a report showed Japanese
inflation accelerated and investors speculated the U.S. economy is
recovering from its first contraction in three years. Toyota Motor Corp.
(7203), the world’s biggest carmaker, added 1.1 percent in Tokyo.
Envestra Ltd. gained 1.1 percent in Sydney as billionaire Li Ka-shing’s
Cheung Kong Group agreed to buy the Australian gas supplier for A$2.4
billion ($2.2 billion). Lynas Corp., which spent $930 million on a
rare-earths processing plant in Malaysia, tumbled 16 percent in Sydney
after completing a share placement and as debt-restructuring talks
continue. The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 142.35 as
of 10:04 a.m. in Hong Kong, heading for its highest close since
November.
- Iron Ore Heads for Record Losing Streak as Goldman Eyes Supply.
Iron ore is heading for a sixth straight monthly decline in the longest
losing streak on record as increasing supplies from Australia and
Brazil spur a global surplus just as demand growth in China slows. Ore
with 62 percent content delivered to Tianjin was at $95.70 a dry ton
yesterday, 9.2 percent lower this month, according to data from The
Steel Index Ltd. The steel-making raw material, which is at a 20-month
low, has dropped every month since December in the longest run of
monthly losses since the
data series began in November 2008.
- Food Replacing Oil as China M&A Commodity of Choice: Commodities. After spending the past decade and
more than $200 billion acquiring mines and oilfields from Australia to Argentina, China’s attention is turning to food. The world’s most populous nation is confronting a harsh reality: For every additional bushel of wheat or pound of beef
the world produces, China will need almost half of that to keep
its citizens fed.
- Beware of Exotic ETFs Bearing Credit-Default Swaps. If you’ve always wanted to bet your savings on risky credit derivatives,
now’s the time. In May regulators signed off on a plan to allow trading
in eight exchange-traded funds (ETFs) created by ProShares that will
hold credit-default swaps—the derivatives that helped bring on the
global credit crisis in 2008.
Wall Street Journal:
- China Hacking Is Deep and Diverse, Experts Say. Intruders Often Work As Hackers For Hire, According to Officials. China's Internet espionage capabilities are deeper and more widely
dispersed than the U.S. indictment of five army officers last week
suggests, former top government officials say, extending to a sprawling
hacking-industrial complex that shields the Chinese government but also
sometimes backfires on Beijing. Some of the most sophisticated
intruders observed by U.S. officials and private-sector security firms
work as hackers for hire and at makeshift defense contractors, not the
government, and aren't among those named in...
- Borrowers Tap Their Homes at a Hot Clip. Helocs Jumped 8% in the First Quarter. A rebound in house prices and near-record-low interest rates are prompting homeowners to borrow against their properties, marking the return of a practice that was all the rage before the financial crisis. Home-equity lines of credit, or Helocs, and home-equity loans jumped 8% in the first quarter from a year earlier, industry newsletter Inside Mortgage Finance said Thursday. The $13 billion extended was the most for the start of a...
- The VA Scandal Is a Crisis of Leadership. Obama's inattention to managing the government may kill the progressive project. The Veterans Administration scandal involves charges of manipulation
and falsification of medical waiting lists and systemwide rigging to
hide delayed or inadequate treatment, which may have caused the deaths
of some of those waiting for care. There are whistle-blowers,
allegations of local coverups, and the possibility of criminal charges.
Also becoming clearer are two motives for those involved in what appears
to have been a racket: their compensation and their career
trajectories. This scandal won't go away as others...
CNBC:
Zero Hedge:
Business Insider:
- Michael Bloomberg Blasts Ivy League For Liberal 'Censorship'. Former New York City Mayor Michael Bloomberg accused the entire Ivy
League of liberal political bias during a particularly fiery
commencement address at Harvard University Thursday. "It is just a modern form of McCarthyism," Bloomberg said of
university "censorship" of conservatives. "Think about the irony: In the
1950s, the right wing was attempting to repress left wing ideas. Today,
on many college campuses, it is liberals trying to repress conservative
ideas even as conservative faculty members are at risk of becoming an
endangered species" "And that is probably nowhere more true than it is here in the Ivy League," declared Bloomberg.
Reuters:
- Japan consumer spending, factory output skid after sales tax hike. Japan's household spending in
April fell at the fastest rate in three years in a sign that
consumption could be slow to recover from an increase in the
nationwide sales tax, raising questions over the pace of
economic recovery. Japanese household spending fell 4.6 percent in April from a
year ago, more than the median market forecast for a 3.2 percent
annual decline. That marked the fastest annual decline since
March 2011, when an exceptionally powerful earthquake triggered
a nuclear disaster. Compared to the previous month, spending tumbled by a record
13.3 percent in April, more than the 13.0 percent decline
expected by economists. Government data published with the new figures show that
household spending fell further after the April 1 sales tax hike
than it did after the 3 percent sales tax in was imposed in
1989, and when it raised the tax to 5 percent in 1997.
Financial Times:
- IMF warns ‘rising’ African nations on sovereign debt risks. The International Monetary Fund has warned African nations issuing billions of dollars in sovereign bonds
that they could overload their economies with too much debt and derail
the best economic period for the region in a generation.
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 110.0 -.5 basis point.
- Asia Pacific Sovereign CDS Index 80.25 unch.
- NASDAQ 100 futures -.11%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Personal Income for April is estimated to rise +.3% versus a +.5% gain in March.
- Personal Spending for April is estimated to rise +.2% versus a +.9% gain in March.
- The PCE Core for April is estimated to rise +.2% versus a +.2% gain in March.
9:00 am EST
- The ISM Milwaukee for May is estimated to rise to 52.0 versus 47.26 in April.
9:45 am EST
- The Chicago Purchasing Manager for May is estimated to fall to 61.0 versus 63.0 in April.
9:55 am EST
- Final Univ. of Mich. Consumer Confidence for May is estimated to rise to 82.5 versus a prior estimate of 81.8.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Plosser speaking, Fed's Lacker speaking, Fed's Pianalto speaking,
Canada gdp report and the ASCO Meeting 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: Modestly Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 11.76 +.68%
- Euro/Yen Carry Return Index 144.41 -.05%
- Emerging Markets Currency Volatility(VXY) 6.97 -1.27%
- S&P 500 Implied Correlation 55.34 +.31%
- ISE Sentiment Index 99.0 -2.94%
- Total Put/Call .68 -24.44%
Credit Investor Angst:
- North American Investment Grade CDS Index 62.21 -1.13%
- European Financial Sector CDS Index 72.52 -.32%
- Western Europe Sovereign Debt CDS Index 34.86 -.56%
- Asia Pacific Sovereign Debt CDS Index 79.72 -.75%
- Emerging Market CDS Index 246.32 -2.30%
- China Blended Corporate Spread Index 348.68 +.77%
- 2-Year Swap Spread 13.0 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -8.25 +.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 208.0 +1.0 basis point
- China Import Iron Ore Spot $95.70/Metric Tonne -1.14%
- Citi US Economic Surprise Index-2.90 -4.0 points
- Citi Emerging Markets Economic Surprise Index -19.30 unch.
- 10-Year TIPS Spread 2.23 +2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +49 open in Japan
- DAX Futures: Indicating +11 open in Germany
Portfolio:
- Higher: On gains in my medical/biotech/tech/retail sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 75% Net Long
