Evening Headlines
Bloomberg:
- World Bank Cuts Global Growth Forecast After ‘Bumpy’ 2014 Start. The
World Bank cut its global growth forecast amid weaker outlooks for the
U.S., Russia and China, while calling on emerging markets to strengthen
their economies before the Federal Reserve raises interest rates. The
Washington-based lender predicts the world economy will expand 2.8
percent this year, compared with a January projection of 3.2 percent. The
U.S. forecast was reduced to 2.1 percent from 2.8 percent while
outlooks for Brazil, Russia, India and China were also lowered.
- Ukraine Crisis Chokes East Europe Growth, World Bank Says. Economic
growth in eastern Europe will slow “sharply” this year because of
dwindling demand from Russia, which may face wider sanctions from the
U.S. and the European Union if it fails to help end violence in Ukraine. Expansion will slow to 1.7 percent this year in the post-communist east from 2.2 percent last year, the Washington-based
lender said on its website. The forecast includes the Czech
Republic, Poland and Russia, which are considered high income by
the World Bank.
- China Building Dubai-Style Fake Islands in South China Sea. Sand,
cement, wood and steel are the latest tools in China’s territorial
arsenal as it seeks to literally reshape the South China Sea.
Chinese ships carrying construction materials regularly ply the waters
near the disputed Spratly Islands, carrying out work that will see new
islands
rise from the sea, according to Philippine fishermen and officials in
the area. China’s efforts are reminiscent of Dubai’s Palm resort-style
land reclamation, they say.
- Euro Drops as Aussie Yields Track Treasuries; Topix Rises.
The euro slipped against most major peers and Australian bonds followed
Treasuries lower before a sale of 10-year U.S. notes. Japanese stocks
rose, with the Asian benchmark equity gauge near a one-year high, and
nickel fell. The euro weakened 0.2 percent versus the dollar by 11:06
a.m. in Tokyo, falling against 15 of 16 peers. The yield on 10-year
Australian notes climbed six basis points after the rate on equivalent
U.S. Treasuries hit a four-week high. Japan’s Topix (TPX) added 0.4 percent as the MSCI Asia Pacific Index extended its highest close since May 21 last year.
- China’s Record Oil Hoarding Seen Keeping Crude Above $100. China is hoarding crude at the
fastest pace in at least a decade, shielding itself from supply
disruptions and helping keep prices above $100 a barrel. The country
imported a record volume in April as it
emulates steps taken by the U.S. in the 1970s to create a strategic
petroleum reserve, government data show. Chinese President Xi Jinping is
building stockpiles as his nation clashes with Vietnam over resources
in the South China Sea and faces potential risks to oil sales from
Russia, Africa and the Middle East because of sanctions and violence.
- Al-Qaeda Offshoot Seizes Iraq’s Second City in Threat to Maliki. Fighters
from a breakaway al-Qaeda group seized control of Mosul, Iraq’s
second-biggest city, driving out government forces and highlighting
Prime Minister
Nouri al-Maliki weakening grip on the country. The city is entirely in the hands of the Islamic State of
Iraq and Levant, or ISIL, with no army or police presence
remaining, Noureddin Qablan, the vice chairman of Nineveh
provincial council, said by phone late yesterday. Maliki called
for parliament to declare a state of emergency, and pledged
swift action to recapture the city in a televised speech.
- Obama Popularity Hits Low in Poll After Prisoner Exchange. President
Barack Obama’s favorability ratings hit the lowest point of his
presidency in a Bloomberg National Poll, with just 44 percent of
Americans saying they have positive feelings about him. That drop in
personal popularity has become a broader drag on the public’s perception
of his performance in office. Obama, already given poor marks on the
economy and health care, also gets low ratings on two recent political
firestorms: the management of the Department of Veterans Affairs and
the deal that freed the last U.S. prisoner of war in Afghanistan,
according to the poll. His
job-approval rating fell to 43 percent -- near the level at the end of
2013 after the botched rollout of the Affordable Care Act, his signature
health-care law.
- Even Toilets Aren’t Safe as Hackers Target Home Devices. Come home to a hot iron and
smoldering clothes this afternoon? Soon, it may not be a sign of
forgetfulness, but rather evidence that you’ve been hacked. In coming years, your smartphone will be able to lock your
house, turn on the air conditioning, check whether the milk is
out of date, or even heat up your iron. Great news, except that
all that convenience could also let criminals open your doors,
spy on your family or drive your connected car to their lair.
Wall Street Journal:
- Officials Predicted Detainees in Bowe Bergdahl Swap Would Rejoin Taliban. Classified Assessment Says Two of the Men Would Return to Senior Positions. Before the U.S. transferred five Afghan Taliban detainees to secure
the freedom of Sgt. Bowe Bergdahl, American intelligence officials
predicted that two of the men would return to senior positions with the
militant group, according to U.S. officials. The classified
assessment, a consensus of spy agencies compiled during the
prisoner-swap deliberations, said two others of the five were likely to
assume active roles within the Taliban, while only one of the five
released detainees was considered likely to end...
- U.S. Tax Enforcement Plans Put Korean Banks in Spotlight. The Foreign Account Tax Compliance Act, or FATCA, is causing a stir in
South Korea—particularly among those who hold American citizenship or
permanent residency, and those within the Korean financial institutions
that manage money for this group.
- Volatility Traders Have More to Fear than Fear Itself. The latest big worry to hit markets is an unusual one: calm. With
stock prices high and various gauges of risk low, investors appear to
have thrown caution to the wind. That isn't entirely true,
though. Exchange-traded notes that profit handsomely from market-shaking
events have boomed since the financial crisis. But they have two big
shortcomings: They may not work as designed in another financial crisis
since their value depends on...
- The Short Unhappy Life of ObamaCare. By 2024 there will be more than 40 million uninsured, roughly 10% more than today.
President Obama claims the debate over the Affordable Care Act is
"over," but in coming weeks and months expect it to intensify.
Health-insurance companies will soon begin releasing preliminary rate
estimates for next year's plans. Industry experts say consumers should
once again brace for significantly higher premiums. Fearing the
political fallout before November's elections, the administration last
month quietly...
- The Fall of Mosul. A strategic disaster assisted by Obama's withdrawal from Iraq. So much for al Qaeda being on a path to defeat, as President Obama
used to be fond of boasting. On Tuesday fighters for the Islamic State
of Iraq and al-Sham, an al Qaeda affiliate known as ISIS, seized total
control of the northern city of Mosul—with nearly two million
people—after four days of fighting. Thousands of civilians have fled for
their lives, including the governor of Nineveh province, who spoke of
the "massive collapse" of the Iraqi army. This could also describe the
state of U.S. policy in Iraq. ...
Fox News:
MarketWatch.com:
- Fed needs to start raising rates, top forecaster says. The Federal Reserve needs to start raising interest rates pretty soon or find itself staring at another financial crisis, said
Joseph LaVorgna, chief U.S. economist for Deutsche Bank and the winner
of the MarketWatch Forecaster of the Month award for May.
Zero Hedge:
Business Insider:
Reuters:
- MSCI says will not add China A shares to emerging index, to remain on review. Equity
index provider MSCI on Tuesday said it will not add China's
mainland-based A shares to its benchmark emerging markets index but that
the shares will remain on review for a possible move in 2015. China, the world's largest emerging market, is already the
biggest component of the MSCI emerging market index,
which is benchmarked by more than $1.3 trillion global assets
under management.
South China Morning Post:
- China Property Collapse Would Shave 1% Off GDP, Fitch Says.
Bursting of real estate bubble would also cause "serious problems" for
the nation's banks, citing Jonathan Cornish, Fitch's head of north Asia
banks.
- Hong Kong Retailers Cut Size of Shops as Spending
Drops. Luxury retailers are taking smaller shop space of 300 square
feet, down from 500 square feet, as Chinese shoppers focus on daily
necessities, citing property brokers. Leasing activity had
declined by 20% to 30% in the past two months, with increasing number of
empty shops: Pat Wong, senior regional sales director at Centaline
Property Agency's retail department. Retail rents may fall as much as
15% this year.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 100.50 +1.0 basis point.
- Asia Pacific Sovereign CDS Index 74.5 -.5 basis point.
- NASDAQ 100 futures -.07%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-1,654,550 barrels versus a -3,431,000 barrel decline the prior week.
Gasoline supplies are estimated to rise by +745,450 barrels versus a
+210,000 barrel gain the prior week. Distillate inventories are
estimated to rise by +1,090,910 barrels versus a +2,012,000 barrel gain
the prior week. Finally, Refinery Utilization is estimated to rise by
+.16% versus a +.9% gain prior.
2:00 pm EST
- The Monthly Budget Deficit is estimated to come in at -$131.0B.
Upcoming Splits
Other Potential Market Movers
- The $21B 10Y T-Note auction, weekly MBA mortgage applications report and the USDA's WASDE report could impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 10.97 -1.61%
- Euro/Yen Carry Return Index 144.69 -.51%
- Emerging Markets Currency Volatility(VXY) 6.51 -1.21%
- S&P 500 Implied Correlation 50.10 -4.04%
- ISE Sentiment Index 121.0 +.83%
- Total Put/Call .72 -13.25%
Credit Investor Angst:
- North American Investment Grade CDS Index 57.51 +.35%
- European Financial Sector CDS Index 59.49 +3.26%
- Western Europe Sovereign Debt CDS Index 28.55 +1.67%
- Asia Pacific Sovereign Debt CDS Index 74.36 -.92%
- Emerging Market CDS Index 237.51 +1.02%
- China Blended Corporate Spread Index 313.20 -.62%
- 2-Year Swap Spread 13.75 -.75 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -7.25 +1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 220.0 +1.0 basis point
- China Import Iron Ore Spot $93.60/Metric Tonne -.74%
- Citi US Economic Surprise Index -13.20 unch.
- Citi Emerging Markets Economic Surprise Index -11.90 +1.3 points
- 10-Year TIPS Spread 2.20 unch.
Overseas Futures:
- Nikkei Futures: Indicating -5 open in Japan
- DAX Futures: Indicating -2 open in Germany
Portfolio:
- Slightly Lower: On losses in my medical sector longs and emerging markets shorts
- Market Exposure: 50% Net Long
Bloomberg:
- Merkel Warns on Threats as Cameron Steps Up EU Exit Talk. German
Chancellor Angela Merkel warned that threats aren’t the way to win
arguments in the European Union as Prime Minister David Cameron
suggested that failing to get his way may increase the chances of a U.K.
exit. After an overnight meeting hosted by Swedish Prime Minister
Fredrik Reinfeldt at his country residence in Harpsund, Merkel and
Cameron were still at loggerheads over the candidacy of Jean-Claude
Juncker to head the European Commission. Merkel urged her fellow leaders
to proceed in the “European spirit” to enable compromise.
- Ukraine Peace Talks Progress as Evacuation Route Set Up. Russian,
German and Polish officials met in St. Petersburg to advance Ukraine
peace talks after President Petro Poroshenko called for an evacuation
corridor so civilians can flee fighting in the country’s battle-torn
east.
- China Commodity Financing Seen Declining by Goldman Sachs. Foreign
banks are projected by Goldman Sachs Group Inc. to lend less money
against commodity inventories in China amid a probe into metals
stockpiles in the biggest consumer of raw materials. Claims that single batches of copper and aluminum at Qingdao Port were pledged as collateral for multiple loans risks
undermining a broader practice in which traders use everything
from iron ore to rubber to get funding. The investigation is
already weighing down copper prices and may curb foreign
exchange inflows to China, according to a report by Goldman.
- European Stocks Extend Six-Year High Amid Draghi Optimism.
European stocks rose, extending their highest level in more than six years, amid optimism that measures announced by the European Central Bank last week to increase inflation will help propel equities higher. Gemalto NV (GTO) rose 2 percent after saying China Telecom Corp. chose it to supply software for chips that can be used for contactless payments by mobile phone. Bank of Ireland Plc dropped 3.2 percent after U.S. billionaire Wilbur Ross put on sale his remaining shares in the country’s largest lender by assets. Booker Group (BOK) Plc slid 2.2 percent after Goldman Sachs Group Inc. removed the stock from its conviction-buy list. The Stoxx Europe 600 Index gained 0.3 percent to 349.71 at
the close of trading, its highest level since January 2008.
- Trampling Democracy to Fight Climate Change. Republicans
are calling President Barack Obama's new coal-plant regulations a
"power grab." The truth is more complicated, and ominous, than that. This isn't a case where the executive branch has simply gone beyond its
authority. It's a case where officials in all three branches of
government have found a way to achieve their policy goals while
shielding themselves from accountability.
- Higher P/E, Lower VIX Cause U.S. Stock Caution. (graph) Rising valuations and falling
volatility suggest the next 5 percent move in stocks will be
lower, according to David Bianco, chief U.S. equity strategist
at Deutsche Bank AG.
The CHART OF THE DAY depicts an indicator that Bianco used
to support this conclusion in a June 6 report.
- Inflation Signs Amid Froth Top Sonders’ Stock Worries. In diagnosing U.S. stocks, Liz Ann Sonders generally has
given the all-clear sign during the rally in equities over the
past five years. So while she continues to believe the U.S. is
still in the “middle innings” of a secular bull market, it’s
worth listening when the chief investment strategist at Charles
Schwab Corp. talks about a few results in the bloodwork that may
signal some short-term sickness.
Wall Street Journal:
- Militants Overrun Iraq's Second-Largest City As Government Forces Flee. Mosul Strike Is Serious Blow to Baghdad's Efforts to Control Widening Insurgency. Al Qaeda-inspired militants seized control
of Iraq's second-largest city on Tuesday in a brazen military operation
that underscored the weakness of the Baghdad government across vast
swaths of the country. Hours after
government forces fled Mosul in disarray following four days of
fighting, Prime Minister
Nouri al-Maliki
declared a nationwide "state of maximum preparedness" but didn't
indicate whether government forces were mobilizing to retake the Iraqi
city, 220 miles north of the capital Baghdad.
Fox News:
- ‘Just Admit It’: Administration privately concedes risk of Taliban swap, despite Kerry comments. Secretary of State John Kerry's dismissive "baloney" response to
whether five Taliban members released from Guantanamo pose a risk to
American troops is receiving pushback from, of all places, Obama
administration officials. Despite Kerry brushing off such concerns in an interview on Sunday,
Fox News is told that administration officials who briefed members of
the House on Monday evening were not ready to rule out the possibility
that the freed inmates could endanger Americans. Several lawmakers said administration officials admitted Monday there
could be some additional risk to Afghan civilians and Americans because
the five hardened Taliban members have been freed, in exchange for Sgt.
Bowe Bergdahl. Republican Rep. Adam Kinzinger told Fox News that Kerry's claims were
"absolutely bewildering," particularly in light of the Monday
briefing. He said administration officials told lawmakers that the release "could potentially endanger American soldiers." The
administration, he said, has "got to get their message straight." To
Kinzinger, there's no question the release poses a risk. "This is putting Americans in danger, it is putting the Afghan people
in danger, and just come out and admit it," he told Fox News. "I mean,
just admit it and say that you thought this was worth it, but don't try
to pretend like it's not an issue."
CNBC:
ZeroHedge:
ValueWalk:
Business Insider:
- POLL: Fox Is The Most Trusted TV News Source In America. In response to the question, "Which of the following television news
sources do you trust the most to provide accurate information about
politics and current events?," 25% of survey respondents answered Fox
News: MSNBC netted an embarrassing 5% of the vote, including only 10% of Democrats saying it's the most trustworthy.
Market News International:
- China
System-Wide Reserve Requirement Cut Unlikely. The probability for China
to cut reserve requirements for all institutions seems very small,
citing an official with the NDRC.
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Computer Services -1.37% 2) Hospitals -1.36% 3) I-Banks -.99%
Stocks Falling on Unusual Volume:
- FRAN, EDN, EHTH, CQP, IBP, BAS, BEAV, EMES, TSN, HCLP, SBNY, VRNT, TS, EBAY, NBCB, QIWI, GNRC, CASY, DSLV, RLYP, DMND, CLX, PNRA, SNDK, BCR, INO, VRNT and RLYP
Stocks With Unusual Put Option Activity:
- 1) AMD 2) GME 3) LEN 4) NVDA 5) ATHN
Stocks With Most Negative News Mentions:
- 1) GM 2) AAPL 3) WFC 4) SNDK 5) WEN
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gold & Silver +1.31% 2) Drugs +.21% 3) Tobacco +.20%
Stocks Rising on Unusual Volume:
- RCPT, TOUR, TAP, CHS, SGMS, AMCC, FIVE, BURL, WB, IGT, ISIS, INO, RPTP and VNDA
Stocks With Unusual Call Option Activity:
- 1) QEP 2) ZTS 3) TAP 4) CPB 5) PF
Stocks With Most Positive News Mentions:
- 1) AGN 2) AEM 3) TAP 4) CHR 5) TWTR
Charts:
Evening Headlines
Bloomberg:
- Japan’s Top Creditor Title at Risk as Surplus End Looms: Economy. Japan risks losing its position as the world’s top creditor nation, as dwindling savings become insufficient to finance growing public debt, a Bloomberg News survey of economists indicates. A run of current-account surpluses that drove Japan’s net asset position to the largest in the world starting in 1991 is set to reverse, according to 10 of 16 economists in a Bloomberg News survey, with nine projecting sustained deficits by the end of 2020. Japan had net assets of 325 trillion yen ($3.2 trillion) at the end of 2013, with China in second place with 208 trillion yen, according to Japan’s finance ministry. As an aging population draws down its savings, Japan will become more dependent on foreign creditors to finance its budget deficits and manage the world’s biggest debt burden.
- China Inflation Accelerates to Fastest Pace in 4 Months on Food. China’s inflation accelerated in May to the fastest pace in four
months on food costs, while a decline in factory-gate prices moderated. Consumer
prices rose 2.5 percent from a year earlier, the statistics bureau said
today in Beijing. That exceeded the median 2.4 percent estimate in a
Bloomberg News survey of economists. The producer-price index fell 1.4
percent after a 2 percent decline the previous month.
- Hackers Linked to China Seen Attacking U.S., European Industry. An additional hacking group linked to
the People’s Liberation Army may have targeted U.S. defense and
European satellite and aerospace industries since 2007,
according to network security company CrowdStrike Inc. The group,
known as Putter Panda, “is believed to hack
into victim companies throughout the world in order to steal
corporate trade secrets, primarily relating to the satellite, aerospace
and communication industries,” according to an undated report from the
company released on June 9.
- Asian Stocks Pare Gain as Casinos Retreat in Hong Kong.
Asian stocks pared their advance as
Japanese shares fell on a stronger yen and casino operators slid in Hong
Kong after Macau moved to restrict money flows from China. Oil was near
the highest price since March before a report on American stockpiles,
and corn extended drops. The MSCI Asia Pacific Index (MXAP) added 0.1 percent by 11:45 a.m.
in Tokyo after closing at the highest since Oct. 22 yesterday.
- Three Strategists Share This Concern About Stocks. (video)
Wall Street Journal:
- Banks Cut Credit to Chinese Metals Traders. Alleged Fraud Being Investigated. Some
banks are becoming cautious about issuing financial guarantees to
Chinese metals-trading firms amid an investigation into alleged fraud
involving the use of commodities to obtain multiple loans. The
operator of Qingdao port, on China's eastern coast, confirmed on Monday
that Chinese authorities were conducting a probe into allegations of
fraud relating to aluminum and copper products stored at the port.
- Big Auto Turns on Tesla(TSLA). Tesla
has been fighting a running battle with car dealer groups around the
country, many of whom have pushed against the company’s decision to sell
its vehicles directly to customers through its own showrooms, rather
than the traditional option of going through a dealer. In many
states, the dealer groups have appealed to legislators claiming the
company is breaching franchise laws that require cars to be sold through
dealers, a claim Tesla rejects.
- VA Halted Visits to Troubled Hospitals. Change Came as Growing Number of Facilities Had High Death Rates. The Department of Veterans Affairs stopped sending teams of
turnaround experts to underperforming hospitals at the same time a
growing number of VA facilities showed consistently high death and
complication rates, internal agency records and interviews reveal. Starting
in 2011, when the VA instituted a new system to track performance
standards, five VA hospitals notched consistently poor scores on a range
of critical-care outcomes,...
- 'Dark Pools' Face New SEC Probe. Venue Operated by Barclays Is Among the Targets.
- GoDaddy Files for IPO. Internet Company GoDaddy Plans to Raise Up to $100 Million in IPO.
- Boko Haram Kidnaps More Girls in Nigeria. Abductions Near Town Where Students Were Grabbed Reflect Lack of Protection.
- The Latest Student-Loan Charade. Having
induced $1 trillion in debt, Democrats now want to write it off. You
can tell an election is coming, because President Obama is
promising more student-loan relief to young people who are growing less
enthralled with his economic record. The latest exercise unveiled Monday
is also supposed to make these young people forget the loan burden that
earlier free lunches supposedly provided. The taxpayer losses will come
on some other President's watch. Specifically, Mr. Obama
announced an expansion of the burgeoning disaster known as his Pay As
You Earn program. This gift from taxpayers caps...
CNBC:
- 4 in 10 millennials overwhelmed by debt: Study. Four in 10 millennials are overwhelmed by debt, with almost half
spending at least 50 percent of their monthly paycheck paying off debt, a
new study by Wells Fargo found. More than half—56 percent—reported
living paycheck to paycheck.
Zero Hedge:
Business Insider:
Reuters:
- Fund managers fret about valuations in wake of ECB rate cut. When the European Central Bank
put its economy-boosting stimulus plan into high gear last week,
it sent European stock prices to six-year highs. But mutual fund
managers who might be expected to like that are instead voicing
a new worry: The policy leaves them without enough reasonably priced stocks to buy.
Telegraph:
China Securities Journal:
- China to Cap Energy Consumption for Local Govts. China will cap
local government coal consumption and other energy use to meet 2011-2015
emission reduction targets, citing NDRC Vice Chairman Xie Zhenhua as
saying. China will also stop new heavy-polluting projects for local
governments that don't meet emission reduction targets, Xie is cited as
saying.
Evening Recommendations
Jefferies:
- Rated (PEP) Buy, target $102.
- Rated (MNST) Buy, target $82.
Night Trading
- Asian equity indices are -.50% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 99.50 -.5 basis point.
- Asia Pacific Sovereign CDS Index 75.0 unch.
- NASDAQ 100 futures -.15%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (CBK)/.02
- (ULTA)/.74
- (UNFI)/.73
Economic Releases
7:30 am EST
- The NFIB Small Business Optimism Index for May is estimated to rise to 95.5 versus 95.2 in April.
10:00 am EST
- JOLTs Job Openings for April are estimated to rise to 4038 versus 4014 in March.
- Wholesale Inventories for April are estimated to rise +.5% versus a +1.1% gain in March.
- Wholesale Sales for April are estimated to rise +.9% versus a +1.4% gain in March.
Upcoming Splits
Other Potential Market Movers
- The
China inflation data, UK industrial production, $28B 3Y T-Note auction,
weekly US retail sales reports, Piper Jaffray Consumer Conference,
William Blair Growth Stock Conference, Morgan Stanley Financials
Conference, Goldman Sachs Healthcare Conference, (DDD) analyst meeting
and the (MET) investor conference 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
