Evening Headlines
Bloomberg:
- Gunmen Attack North of Baghdad. Islamist
militants in Iraq fought with the army in a town near Baghdad and with
Kurds in the oil-rich province of Kirkuk, as the U.S. weighed options to
stem an offensive that threatens to fracture the country. Gunmen from
the Islamic State in Iraq and the Levant attacked Kurdish forces in
Kirkuk yesterday, leaving two soldiers and a civilian dead and almost 50
people injured, al-Mada news agency said. An earlier attack left five police dead, while ISIL also regained
control of the mostly Turkmen village of Bashir south of Kirkuk,
al-Mada said.
- Japan’s Exports Decline in May on Weak U.S., Asian Demand.
Japan’s exports fell in May for the first time in 15 months on weak
demand from the U.S. and Asia, adding to challenges for Prime Minister
Shinzo Abe as he tries to steer the economy through a forecast
contraction this quarter. Outbound shipments decreased 2.7 percent
from a year earlier, the finance ministry said in Tokyo today, steeper
than a median forecast for a 1.3 percent decline in a Bloomberg News
survey of 29 economists. Imports dropped 3.6 percent, with the trade
deficit narrowing to 909 billion yen ($8.9 billion). Slowing demand
from the U.S. and China - Japan’s two biggest export destinations --
threatens to weigh on shipments, which are losing impetus as the yen’s
slide against the
dollar stalls.
- China Blocks European Shipping Pact, Sending Maersk Down. China
blocked the formation of a global alliance by the world’s three biggest
shipping lines in a surprise move that ignored Western approval of the
plan and sent A.P. Moeller-Maersk A/S (MAERSKB) shares tumbling the most
in two years.
- Most Asia Stocks Rise Before Fed Policy Meeting Concludes.
Most Asian stocks rose, led by health-care shares, ahead of a Federal
Reserve monetary policy decision today. Energy producers declined.
Tsuruha Holdings Inc. surged 7.1 percent in Tokyo after the drugstore
operator forecast profit will gain 14 percent. Aquila Resources Ltd.
climbed 7 percent in Sydney after the coal producer recommended a
takeover offer from China’s Baosteel Group Corp. and Australia’s Aurizon
Holdings Ltd. Woodside Petroleum Ltd. led energy firms lower, falling
3.6 percent, after Royal Dutch Shell Plc sold most of its stake in
Australia’s second-largest energy producer. The MSCI Asia Pacific
Index was little changed at 143.51 as of 9:27 a.m. in Tokyo, as three
shares gained for every two that fell before markets open in China and
Hong Kong.
- Brent Above $113 as U.S. Weighs Military Options in Iraq.
Brent for August settlement added 51 cents, or 0.5 percent,
to $113.45 a barrel on the ICE Futures Europe exchange, the
highest closing price for a front-month contract since Sept. 9.
The volume of all futures traded was 17 percent above the 100-day average for the time of day.
Wall Street Journal:
- U.S. Rules Out Iraq Airstrikes for Now. President Barack Obama Is Opting to Pursue Alternate Strategies. President Barack Obama decided against immediate air strikes on
marauding Sunni extremists in Iraq, opting instead to pursue strategies
such as providing intelligence to the Iraqi military, addressing the
country's political divisions and seeking support from regional allies. Mr.
Obama will convene a White House meeting Wednesday with Republican and
Democratic leaders from the House and Senate to brief them on what...
- China Shows Regulatory Heft by Sinking Shipping Deal. Beijing Blocks European Freight Alliance Out of Concern Over Pricing. China is flexing its growing power over global deals, after it put
the kibosh on a shipping alliance that officials here said would hold
too much sway over trade lanes to Europe. Tuesday's decision by
China's Ministry of Commerce came despite approvals for the shipping
alliance in Europe and the U.S. It marks only the second time the
Chinese regulator has stepped in to block a corporate combination since
the country enacted...
- Pro-Russia Militia in Ukraine Seeks Urgent Help from Moscow. The Kremlin Hasn't Responded to the Request That Comes as Ukrainian Forces Retake Borders Areas. A Kiev offensive to retake control of restive areas along the
country's eastern border has accelerated in recent days, prompting
leaders of an armed pro-Russia uprising to appeal to Moscow for urgent
military help on Tuesday. Ukrainian government troops have
advanced from the north and south in a bid to cut off the fighters and
weapons that Kiev says are flowing over its border from Russia. So far,
though, Moscow has given little...
- The Collapsing Obama Doctrine. Rarely has a U.S. president been so wrong about so much at the expense of so many. As the terrorists of the Islamic State of Iraq and Syria (ISIS) threaten
Baghdad, thousands of slaughtered Iraqis in their wake, it is worth
recalling a few of President
Obama's
past statements about ISIS and al Qaeda. "If a J.V. team puts on
Lakers' uniforms that doesn't make them Kobe Bryant" (January 2014).
"[C]ore al Qaeda is on its heels, has been decimated" (August 2013).
"So, let there be no doubt: The tide of war is receding" (September
2011).
Fox News:
- Clinton claims she had doubts about video explanation after Benghazi strike.
Hillary Clinton, in a sit-down interview with Fox News, suggested
Tuesday that she had doubts from the outset about whether the Benghazi
terror attack was triggered by a protest over an anti-Islam film --
though her State Department ended up pushing that narrative for days.
"This was the fog of war," Clinton said, when asked about the
administration's controversial public explanation of the attack. "My own
assessment careened from the video had something to do with
it, the video had nothing to do with it -- it may have affected some
people, it didn't affect other people," she said in the interview with
Fox News' Bret Baier and Greta Van Susteren. Clinton added: "There's no doubt terrorists were involved."
MarketWatch.com:
CNBC:
- Fed pouring fire on glowing embers of inflation: Grant. In
an interview with "Closing Bell," Grant said the Fed's monetary policy
has led to an inflation of asset values, will likely lead to a measured
rate of consumer price inflation
and will certainly lead to "financial turmoil." If that turmoil is
severe enough, he thinks it could introduce another risk of deflation.
Zero Hedge:
ValueWalk:
Business Insider:
Reuters:
- Adobe results beat estimates on strong subscription growth.
Adobe Systems Inc, the maker of Photoshop and Acrobat software,
reported better-than-expected quarterly profit and revenue, helped by
higher subscription sales of its Creative Cloud and Marketing Cloud
suites. Adobe's shares rose 8.6 percent in after-hours trading.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 106.50 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 78.0 +.5 basis point.
- NASDAQ 100 futures +.11%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Current Account Deficit for 1Q is estimated at -97.0B versus -81.1B in 4Q.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-575,000 barrels versus a -2,596,000 barrel decline the pior week.
Gasoline supplies are estimated to fall by -387,500 barrels versus a
+1,697,000 barrel gain the prior week. Distillate supplies are estimated
to fall by -37,500 barrels versus a +860,000 barrel gain the prior
week. Finally, Refinery Utilization is estimated to rise +.7% versus a
-2.9% decline the prior week.
2:00 pm EST
- The FOMC is expected to keep the benchmark Fed Funds Rate at .25%.
- The Fed's pace of QE3 is estimated to fall to $35B in June versus $45B prior.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Yellen speaking, BoE minutes, weekly MBA mortgage applications
report, Jefferies Consumer Conference, (AMZN) product launch and the
Keystone Pipeline Senate Committee vote could impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and technology
shares in the region. I expect US stocks to open modestly higher
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: Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 12.20 -3.56%
- Euro/Yen Carry Return Index 144.43 +.11%
- Emerging Markets Currency Volatility(VXY) 6.33 +4.11%
- S&P 500 Implied Correlation 51.25 -3.66%
- ISE Sentiment Index 119.0 +56.58%
- Total Put/Call .80 +15.94%
Credit Investor Angst:
- North American Investment Grade CDS Index 59.99 -.53%
- European Financial Sector CDS Index 62.44 +.26%
- Western Europe Sovereign Debt CDS Index 30.21 +3.65%
- Asia Pacific Sovereign Debt CDS Index 79.22 +2.09%
- Emerging Market CDS Index 256.44 +.99%
- China Blended Corporate Spread Index 312.41 +.56%
- 2-Year Swap Spread 14.75 -.25 basis point
- TED Spread 20.0 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -13.0 +2.0 basis points
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 217.0 +3.0 basis points
- China Import Iron Ore Spot $89.30/Metric Tonne +.34%
- Citi US Economic Surprise Index -11.60 +3.8 points
- Citi Emerging Markets Economic Surprise Index -9.80 -3.1 points
- 10-Year TIPS Spread 2.21 +3.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +48 open in Japan
- DAX Futures: Indicating +13 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/medical/retail sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Style Underperformer:
Sector Underperformers:
- 1) Energy -.91% 2) Coal -.54% 3) Defense -.30%
Stocks Falling on Unusual Volume:
- QIWI, DOM, CBI, REI, ACOR, BT, KFY, MRTN, ACMP, PGEM, KORS, IPCM, WPZ, SAIA, WSTC, CUB, BMA, SHPG, E, SGEN, DPZ, UTHR, ENV, OPHT, BHP and ZOES
Stocks With Unusual Put Option Activity:
- 1) NUAN 2) FIO 3) GT 4) IYR 5) DXJ
Stocks With Most Negative News Mentions:
- 1) GM 2) BSX 3) DPZ 4) BAH 5) AVAV
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Alt Energy +1.69% 2) I-Banks +1.49% 3) Hospitals +.75%
Stocks Rising on Unusual Volume:
- ANFI, COV, GWPH, SCTY, WB, TSLA, WPRT, GLOG, JASO, ETFC, SCHW and GTIV
Stocks With Unusual Call Option Activity:
- 1) MBI 2) ONVO 3) RHT 4) GNW 5) URI
Stocks With Most Positive News Mentions:
- 1) NFLX 2) MS 3) AGN 4) JAZZ 5) WMB
Charts:
Evening Headlines
Bloomberg:
- Kurds Grab Fourth-Largest Iraq Oilfield Amid ISIL Advance. Kurdish
troops were defending Iraq’s fourth-biggest oilfield against Islamist
militants after deploying outside their semi-autonomous region in the
country’s north to seize the deposit claimed by the central government.
More than 100,000 Kurdish fighters, known as peshmergas, are guarding a
“front line” from Iraq’s eastern border with Iran to the northern town
of Fishkabur near Turkey, Jabbar Yawar, Peshmerga Ministry
secretary-general, said yesterday in an interview in Erbil, the Kurdish
region’s capital. They now occupy areas around the contested
city of Kirkuk where BP Plc has been in talks with Iraq’s government to
help reverse declining output at the oilfield discovered in 1927.
- French Jihadis With ISIL Leave Europe at Risk of Iraq Blowback. The
young man in a video posted on YouTube last July identified
himself as Abu Abd Al-Rahman and told his French “brothers” it was their
religious duty to join him in Syria to fight the Assad regime. In
perfect French, he called on President Francois Hollande to convert to
Islam and to distance himself from Jewish and American allies. His
real name was Nicolas Bons and he was from Toulouse. On Jan. 2, his
mother Dominique Bons received an SMS saying her 30-year-old son was
dead. She called the number and someone told her in French he’d died in a
suicide attack near Homs. Her stepson and Nicolas’s half-brother
Jean-Daniel, 22, had already died in combat in August near Aleppo. The
Bons brothers aren’t unique. The Islamic State of Iraq and the Levant,
the group that burst into prominence last week by seizing much of
northern Iraq, is the destination of choice for
Europeans who have joined the radical Islamist cause in Syria.
- China Aggression Sounds Wake-Up Call for Vietnam’s Manufacturers.
For more than eight years, Luong Thi
Kim Oanh bought cases of thread from China for her garment factory in
Hanoi. Last month, rattled by an anti-China riot in her country, she
placed her first order from South Korea. “I used to buy 90 percent of my
thread from China,” said Oanh, 52, who employs about 200 people at Viet
Hung Garments &
Embroidery. “Shifting sourcing may cost us more, but we need to
think of it now, or it may be too late. You never know how
things may turn out.”
- Macau Tightens Chinese Visitor Stays in Visa-Abuse Crackdown. Macau will reduce the maximum number
of days that Chinese passport holders with transit visas can
stay in the city to five days from a week, in an attempt to prevent them from abusing the law.
Transit visitors from China who don’t depart for another destination
within the five days will be in violation of the new rules, effective
July 1, and will be penalized upon their next visit, the city’s Public
Security Police Force said in a statement yesterday. Repeat violations
will result in denial of
entry, according to the statement.
- Asia Stocks Swing; Energy Explorers Fall, Drugmakers Rise. Asian stocks swung between gains and losses as a decline in telecommunication shares countered gains by health-care firms.
SoftBank Corp. (9984) fell 2 percent in Tokyo as telecom companies
posted the largest drop among the regional index’s 10 industry groups.
Takeda Pharmaceutical Co., Asia’s largest drugmaker, advanced 1 percent
in Tokyo. Konica Minolta Inc. surged 8.7 percent, the biggest advance on
the regional index, after JPMorgan Chase & Co. advised buying
shares in the Japanese office-equipment maker. New World China Land Ltd.
plunged as much as 22 percent in Hong Kong after a $2.4 billion plan by
its parent to privatize the China property business collapsed. The
MSCI Asia Pacific Index (MXAP) was little changed at 143.71 as of 11:26
a.m. in Hong Kong, with about four shares rising for every three that
fell.
- Republicans Demand Answers From IRS on Missing E-Mails. Congressional Republicans are
seeking answers from the Internal Revenue Service, which has
lost more than two years’ worth of e-mails requested by
lawmakers. The e-mails belonged to Lois Lerner, who was the director
of exempt organizations during the period when the IRS gave
extra scrutiny to some Tea Party groups seeking tax-exempt
status.
Wall Street Journal:
- Unlikely Allies Aid Militants in Iraq. Radical Sunni Fighters Are Aided by Local Tribes Who Sympathize With Their Goal to Oust Baghdad Government. Radical Sunni fighters, who seized another northern Iraqi city on
Monday, are being aided by local tribes who reject the Islamists'
extreme ideology but sympathize with their goal of ousting the
Shiite-led government in Baghdad. The uneasy alliance helps
explain how several hundred insurgents from Islamic State of Iraq and Al
Sham, or ISIS, have handily defeated a far larger, better-equipped
Iraqi army and come to control about a...
- Russia's Gazprom Cuts Gas to Ukraine, Sparking EU Shortage Fears. Natural-Gas
Shutoff Threatens to Further Destabilize Ukrainian Economy. Russian
state gas giant OAO Gazprom said it suspended natural-gas
deliveries to Ukraine on Monday, a move that threatens to further
destabilize the country's crippled economy and sparked concerns of
possible gas shortages in Europe. After a final round of
late-night talks mediated by the European Union to resolve the impasse
ended in failure, Gazprom made good on a threat it has held out for
weeks and halted shipments...
- The Pace of Obama's Disasters. Bergdahl one week. Then Ukraine. Now Iraq. What could be next? Was it only 10 months ago that President Obama capitulated on Syria?
And eight months ago that we learned he had no idea the U.S.
eavesdropped on Angela Merkel? And seven months ago that his
administration struck its disastrous interim nuclear deal with Tehran?
And four months ago that Chuck Hagel announced that the United States
Army would be cut to numbers not seen since the 1930s? And three months
ago that Russia seized Crimea? And two months ago that John Kerry's
Israeli-Palestinian peace effort sputtered into the void? And last month
that Mr. Obama announced a timetable for total withdrawal from
Afghanistan—a...
Fox News:
- House GOP investigators argue IRS targeting influenced by Obama. House Republicans seeking a direct link between President Obama and the
IRS targeting of conservative groups -- a connection Democrats say is
essential for a legitimate White House scandal -- have released a report
detailing dozens of examples that they say prove the president and
fellow Democrats pressured the agency to act.
CNBC:
- Few-strings-attached loans at record levels. Bank lending to companies with few restrictions has surged back since the financial crisis virtually killed the practice. The record issuance of so-called covenant-lite
loans raises questions over whether a fresh wave of debt defaults and
losses will return—probably not in the short term, according to experts, but becoming more likely as the trend plays itself out in coming years. U.S. "cov-lite" loan volume recently hit $83.6
billion over 82 deals in 2014, up 41 percent from the same period in
2013 ($59.4 billion over 68 deals), according to data tracker Dealogic.
That represents the highest year-to-date volume and deal activity on
record.
Zero Hedge:
Washington Post:
- Obama’s Iraq disaster. In 2011, the situation in Iraq was so good that the Obama administration
was actually trying to take credit for it, with Vice President Joe
Biden declaring that Iraq “could be one of the great achievements of
this administration.”
Now in 2014, as Iraq descends into chaos, Democrats are trying to blame the fiasco on — you guessed it — George W. Bush.
Reuters:
Financial News:
- China Local Govt Bond Sale Necessary, Researcher Says. Allowing
local govts to sell bonds can help stabilize economy as it faces
increasing downward pressure this year, according to Wei Jianing, a
researcher from the State Council's Development Research Center. Local
govts need huge funds for infrastructure construction, Wei wrote.
Central govt can have better risk-control if they allow local govt to
issue debt as it boosts transparency.
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 105.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 77.5 +.25 basis point.
- NASDAQ 100 futures +.12%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The CPI for May is estimated to rise +.2% versus a +.3% gain in April.
- The CPI Ex Food and Energy for May is estimated to rise +.2% versus a +.2% gain in April.
- Housing Starts for May are estimated to fall to 1030K versus 1072K in April.
- Building Permits for May are estimated to fall to 1050K versus 1080K in April.
Upcoming Splits
Other Potential Market Movers
- The
UK inflation/retail sales reports, Eurozone ZEW Index, weekly US retail
sales, (BLK) investor day, (ADI) analyst day, RBC Metals/Mining
Conference and the Wells Fargo Healthcare Conference could impact
trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate
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: About Even
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 12.62 +3.61%
- Euro/Yen Carry Return Index 144.24 +.02%
- Emerging Markets Currency Volatility(VXY) 6.04 -8.35%
- S&P 500 Implied Correlation 52.94 unch.
- ISE Sentiment Index 76.0 unch.
- Total Put/Call .70 -7.89%
Credit Investor Angst:
- North American Investment Grade CDS Index 60.30 +.90%
- European Financial Sector CDS Index 62.37 +3.39%
- Western Europe Sovereign Debt CDS Index 29.73 +5.05%
- Asia Pacific Sovereign Debt CDS Index 78.11 +.90%
- Emerging Market CDS Index 254.21 +3.17%
- China Blended Corporate Spread Index 310.67 -1.18%
- 2-Year Swap Spread 15.0 +.5 basis point
- TED Spread 20.5 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -15.0 -1.25 basis points
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 214.0 -1.0 basis point
- China Import Iron Ore Spot $89.0/Metric Tonne -2.09%
- Citi US Economic Surprise Index -15.40 +4.1 points
- Citi Emerging Markets Economic Surprise Index -6.70 -.6 point
- 10-Year TIPS Spread 2.18 unch.
Overseas Futures:
- Nikkei Futures: Indicating +27 open in Japan
- DAX Futures: Indicating +14 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/medical sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 25% Net Long
