Broad Equity Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 11.62 -3.81%
- Euro/Yen Carry Return Index 144.42 +.31%
- Emerging Markets Currency Volatility(VXY) 5.80 -.34%
- S&P 500 Implied Correlation 48.43 -3.87%
- ISE Sentiment Index 134.0 +22.94%
- Total Put/Call .92 +4.56%
Credit Investor Angst:
- North American Investment Grade CDS Index 56.92 -2.53%
- European Financial Sector CDS Index 70.1 -2.23%
- Western Europe Sovereign Debt CDS Index 36.98 +.26%
- Asia Pacific Sovereign Debt CDS Index 71.24 -1.0%
- Emerging Market CDS Index 227.26 +.76%
- China Blended Corporate Spread Index 304.46 +.35%
- 2-Year Swap Spread 17.0 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -11.25 +.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 208.0 +1.0 basis point
- China Import Iron Ore Spot $97.90/Metric Tonne +1.03%
- Citi US Economic Surprise Index -15.90 -2.8 points
- Citi Emerging Markets Economic Surprise Index -4.40 unch.
- 10-Year TIPS Spread 2.25 -2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +56 open in Japan
- DAX Futures: Indicating +2 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 75% Net Long
Bloomberg:
- Ukraine Says Russia May Have Shot Down Transport Plane. Ukraine’s Defense Ministry said Russian forces may have shot down one of its airplanes to bolster the Kremlin-backed insurgency and sabotage efforts to end a conflict that’s already claimed hundreds of lives. An An-26 transport
plane was shot down in eastern Ukraine today by a “powerful weapon” not
previously used by the separatists, probably from inside Russia, Defense
Minister Valeriy Geletey told President Petro Poroshenko, according to
the president’s website. The plane was hit at 6,500 meters, an altitude
shoulder-fired missiles can’t reach, he said. The aircraft was
probably struck either by an air-to-air missile from a jet based at
Russia’s Millerovo base or a surface-to-air rocket from a mobile ground
system, Andriy Lysenko, a ministry spokesman, told reporters in Kiev.
- Israel Extends Gaza Air Strikes, Downs Palestinian Drone. Israel
struck back against fire from the Gaza Strip, Syria and Lebanon and
downed a Palestinian drone that breached its airspace as its offensive
against Gaza militants entered a seventh day. Israel targeted
about 100 “terror sites” in Hamas-controlled Gaza today while more than
70 rockets were fired at Israel from the Palestinian enclave, the
military said. “The heavier the blow we give from the air the easier it
will be to carry out a ground operation, if that proves necessary,”
Israeli Deputy Foreign Minister Zeev Elkin said today on Israel Radio.
- China Auto Association Cuts Sales Forecast. China’s
state-backed auto association forecast that vehicle sales will slow
more than it previously projected, as the economy showed little signs of
improvement and more cities consider purchase restrictions. Total industry vehicle deliveries will probably rise 8.3
percent to 23.83 million units, compared with its January
prediction for 10 percent growth, the China Association of
Automobile Manufacturers said in a statement today. Last year,
sales increased 14 percent, making China the first country in
which more than 20 million vehicles were sold in any given year.
- China’s Local Governments Pile on Stimulus. Any borrowing to fund the investment risks exacerbating
financial dangers from local-government debt that swelled to about $3 trillion as of June 2013.
While Premier Li Keqiang is trying to expedite spending from existing
budgets and avoid broad stimulus, provinces such as Hebei are facing
bigger shortfalls on their own growth goals than Li is with the
nationwide target of about 7.5 percent. “The motivation is there --
currently GDP is still the key performance indicator for local officials,”
said Shen Jianguang, chief Asia economist at Mizuho Securities Asia
Ltd. in Hong Kong, who previously worked at the European Central Bank.
The challenge for local governments is to find financing
at a time when bank loans and shadow banking are constrained,
Shen said.
- European Stocks Rise After Weekly Drop; Shire Shares Gain.
European stocks climbed, after the Stoxx Europe 600 Index posted its
biggest weekly drop since March, as Shire Plc and Kuehne & Nagel
International AG gained. Shire advanced after saying it is
willing to recommend an offer from AbbVie Inc. Kuehne & Nagel rose
the most in three months after reporting earnings that beat analyst
forecasts. Sports Direct International Plc increased 3.6 percent after
saying it will expand into Australia and New Zealand. Banco Espirito
Santo SA dropped 7.5 percent after appointing a chief executive officer.
The Stoxx 600 added 0.9 percent to 339.79 at the close of trading.
- VIX Contracts Signal Bigger U.S. Stock Swings Ahead. Investors haven’t seen this much volatility in U.S. stocks since April, and options traders are betting there’s more to come. The
Chicago Board Options Exchange Volatility Index (VIX) jumped 17 percent
to 12.08 last week and a similar measure for European equities surged
the most in almost six months. The ratio of contracts wagering that the
volatility measure known as the VIX will rise versus those betting on
declines is almost 4-to-1, the
highest level since before the financial crisis in 2007,
according to data compiled by Bloomberg.
Wall Street Journal:
- Russian's 'Imperial Dream' Faces Last Stand in Donetsk. Muscovite Heading Separatist Movement in Ukraine Seeks Return of Empire. The military noose was tightening around the rebel city, and
Alexander Borodai, now the leader of pro-Russia separatists in Donetsk,
was urging decisive action. That was more than a decade ago, in a
different war and a different city—Grozny, the capital of Chechnya,
which was fighting for independence from Russia. Mr. Borodai,
accompanying Russian troops as a war correspondent, wanted to see Grozny
hit hard, all...
ZeroHedge:
The New Yorker:
El Mundo:
- Independent Fiscal Authority Says Spain May Miss Deficit. AIReF,
Spain's independent authority for fiscal responsibility, sees very high
risk that Spain will not meet target of reducing debt to 60% of GDP in
2020. AIReF says in report that it sees as not feasible the official
road map established by financial stability and sustainability law to
gradually reduce Spain's debt from 96.8% of GDP now to a maximum of 60%
in 2020. Report says debt will be higher than pledged in 2016 and will
be at 97% of GDP in 2017.
TheDailyStar:
- NATO denounces new Russian troop build-up on Ukraine border. NATO on Monday said Russia had increased its troops near the Ukraine border to as many as 12,000 after reducing them to less than 1,000 in June, hurting efforts to ease the crisis.
"This is not a step in the right direction. It is a step away from
de-escalating the situation," a NATO official said. "Our current
assessment is that between 10,000 and 12,000 Russian troops are in the
area."
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -2.59% 2) Utilities -.95% 3) Hospitals -.40%
Stocks Falling on Unusual Volume:
- RVBD, VISN, CHUY, TS, X, GTAT, RICE, AG, BPT, PBPB, SODA, UGLD, DYN, WTW, CLR, DFRG, FUN, HSY, PSMT, BURL, KORS, BMA, CSH, FGP and GNCA
Stocks With Unusual Put Option Activity:
- 1) NFX 2) GPRO 3) EXC 4) TXN 5) M
Stocks With Most Negative News Mentions:
- 1) RVBD 2) EBAY 3) PBPB 4) ZEP 5) WHR
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Social Media +1.99% 2) Construction +1.54% 3) Alt Energy +1.43%
Stocks Rising on Unusual Volume:
- URS, ACM, KOG, WLL, PRGO, KNDI, C, PEIX and EGOV
Stocks With Unusual Call Option Activity:
- 1) PVH 2) URI 3) ARUN 4) WLL 5) MYL
Stocks With Most Positive News Mentions:
- 1) SNCR 2) MYL 3) AAPL 4) PRGO 5) AMZN
Charts:
Weekend Headlines
Bloomberg:
- Russia Vows to Respond After Shelling From Ukraine. Russia pledged to respond to a
Ukrainian shelling that it said killed one person in the south
of the country as President Vladimir Putin prepared to meet
German Chancellor Angela Merkel in Brazil. One Russian citizen died
and two others were seriously wounded today after the Ukrainian army
fired a shell into the Rostov region, the Foreign Ministry said in a
website statement. Ukraine did not shoot at its neighbor, Andriy
Lysenko, a spokesman for the Defense Ministry, told reporters in Kiev. As Russia described events as an “aggressive act,” Merkel arrived in Rio, where she will attend soccer’s World Cup final
and meet Putin, Steffen Seibert, a German government spokesman,
said on Twitter. Ukrainian President Petro Poroshenko, who had
earlier been reported as planning to attend the match as well,
won’t be making the trip, his office said. The Rostov incident is an “escalation of the danger to our
citizens on our own territory,” Russian Deputy Foreign Minister
Grigory Karasin said on state television. “Clearly, this won’t
go unanswered.”
- Israel Extends Offensive as Gazans Seek Shelter. Israel’s
airstrikes against Hamas entered a seventh day as militants in the Gaza
Strip kept firing cross-border rockets and thousands of Palestinians
fled their homes in advance of a possible ground invasion. Israeli
forces dropped leaflets yesterday and left voice and text messages
urging residents in the northern Gaza town of Beit Lahiya to leave
because it intends to attack “terrorists and terror infrastructure,” the
army said. About 17,000 Gazans of all ages sought refuge in shelters
run by the United Nations Relief and Works Agency, spokesman Chris
Gunness said on Twitter. As trucks carrying tanks traveled south to the
Gaza border, Israel edged closer to its first ground assault on the
territory since 2009 and world leaders appealed for a cease-fire. The
Palestinian Authority appealed to the United Nations yesterday
for international protection.
- Merkel Warns of Euro Fragility, Citing Portugal Turmoil. German
Chancellor Angela Merkel said turmoil in global markets caused by a
Portuguese bank underscores the euro region’s fragility and shows the
need for governments to respect debt and deficit limits. Merkel’s
warning at a campaign rally of her Christian Democratic Union today was a
renewed message to France and Italy to refrain from softening euro-area
rules as she revived rhetoric reminiscent of the peak of Europe’s debt
crisis. While policy makers put “many rules” in place to prevent a repeat of the crisis, “if we now move away from those rules,
for instance on the Stability and Growth Pact, on everything
we’ve done to stabilize the euro, we could very quickly get into
a situation where we start foundering,” Merkel said in a speech
in the eastern German city of Jena.
- Europe Needs $795 Billion Problem Property Loan Solution. European banks and asset managers
plan to sell or restructure 584 billion euros ($795 billion) of
riskier real estate as they try to clean up their balance
sheets, Cushman & Wakefield Inc. said. The region’s lenders,
asset managers and bad banks, such as Spain’s Sareb, sold 40.9 billion
euros of loans tied to property in the first six months, 611 percent
more than a year earlier, the New York-based broker said in a report
today. Transactions will reach a record 60 billion euros this year,
Cushman &
Wakefield estimates.
- Singapore GDP Unexpectedly Shrinks as Manufacturing Declines.
Singapore’s economy unexpectedly contracted in the second quarter as a
tight labor supply and company moves to shift production overseas hurt
manufacturing. Gross domestic product fell an annualized 0.8 percent
in the three months through June from the previous quarter, when it
expanded a revised 1.6 percent, the trade ministry said in a statement
today. The median of 17 estimates in a Bloomberg News survey was for a
2.4 percent gain. Manufacturing fell 19.4 percent in the second quarter from
the previous three months, data showed.
- Asia Stocks Rise First Time in 5 Days, Led by Health Care.
Asian stocks rose, with the regional benchmark gauge on course for its
first gain in five days, as telecommunications firms and health-care
shares advanced. SoftBank Corp. added 1.4 percent in Tokyo, leading
phone companies to the largest gain among 10 industry groups on the
regional index. Sumitomo Dainippon Pharma Co. surged 4 percent after
Canada approved the use of one of the Japanese pharmaceutical
manufacturer’s drugs. Hyundai Hysco Co. slumped 3.2 percent as the U.S.
government imposed duties on steel pipe from South Korea and eight other
nations. The MSCI Asia Pacific Index added 0.3 percent to 146.47 as of 9:42 a.m. in Hong Kong.
- Individuals Pile Into Stocks as Pros Say Bull Is Spent. Main Street and Wall Street are
moving in opposite directions. Individual investors are plowing money back into the U.S.
stock market just as professional strategists say gains for this
year are over. About $100 billion has been added to equity
mutual funds and exchange-traded funds in the past year, 10
times more than the previous 12 months, according to data
compiled by Bloomberg and the Investment Company Institute. The growing
optimism contrasts with forecasters from UBS AG to HSBC Holdings Plc,
who say the stock market will be stagnant with valuations at a four-year
high. While the strategists have a mixed record of being right, history
shows the bull market has already lasted longer than average and
individuals tend to pile in at the end of the rally.
Wall Street Journal:
- Obama Contends With Arc of Instability Unseen Since '70s. Convergence of Security Crises Poses Serious Challenge to Barack Obama's Foreign Policy. A convergence of security crises is playing out around the globe,
from the Palestinian territories and Iraq to Ukraine and the South China
Sea, posing a serious challenge to President Barack Obama's foreign
policy and reflecting a world in which U.S. global power seems
increasingly tenuous. The breadth of global instability now
unfolding hasn't been seen since the late 1970s, U.S. security
strategists say, when the Soviet...
- Flood of Child Migrants Spurs Local Backlash. The federal government is scrambling to find temporary housing for
thousands of children streaming across the Mexican border, asking states
for help as an increasing number of governors and local officials
protest efforts to send the migrants to their communities. While
some officials are welcoming the children, concerns voiced in states and
communities near the southwest border and beyond demonstrate the depth
of the Obama...
MarketWatch.com:
Fox News:
CNBC:
- What happened to Japan's yen-driven export boom?
When Japan's Prime Minister Shinzo Abe came to power in late 2012, he
hoped a weaker yen would give exporters a much-needed boost as well as
spur the inflation needed to revive the world's third biggest economy. Eighteen months on and after
an almost 30 percent decline in the yen's value driven by massive
monetary stimulus from the Bank of Japan, the currency has failed to
lead to the export boom the government had hoped for.
Business Insider:
Reuters:
Telegraph:
-
BIS chief fears fresh Lehman from worldwide debt surge. Jaime Caruana says investors are ignoring prospect of higher interest rates in
the hunt for returns. The world economy is just as vulnerable to a financial crisis as it was in
2007, with the added danger that debt ratios are now far higher and emerging
markets have been drawn into the fire as well, the Bank for International
Settlements has warned.
Credit spreads have fallen to to wafer-thin levels. Companies are borrowing
heavily to buy back their own shares. The BIS said 40pc of syndicated loans
are to sub-investment grade borrowers, a higher ratio than in 2007, with
ever fewer protection covenants for creditors. The disturbing twist in this cycle is that China, Brazil, Turkey and other
emerging economies have succumbed to private credit booms of their own,
partly as a spill-over from quantitative easing in the West. Their debt ratios have risen 20 percentage points as well, to 175pc. Average
borrowing rates for five-years is 1pc in real terms. This is extemely low,
and could reverse suddenly. “We are watching this closely. If we were
concerned by excessive leverage in 2007, we cannot be more relaxed today,”
he said.
Welt am Sonntag:
- ECB Loose Policy Jeopardizes Reform Effort. ECB's "expansionary
measures and announcements" could further weaken countries' will for
reform and budget consolidation, putting more pressure on monetary
policy, ECB Governing Council member Jens Weidmann says. Weidmann
rejects ECB plans to buy asset-backed securities linked to loans to
enterprises, as central bank would risk "becoming Europe's bad bank".
Der Spiegel:
- Germany's
Merkel to Resign Voluntarily Before Term Ends. Chancellor Angela Merkel
"determined" to step down willingly, not wait until electoral defeat or
replacement by another party member, citing members of her cabinet, CDU
party. Merkel undecided whether to run in future for top UN or EU posts.
Hong Kong Economic Times:
- China May Need 4-5 Years to Restabilize Property Market. China economic situation in 2H depends on the performance of the property market, citing an exclusive interview with Zhu Baoliang, head of the State Information Center's economic forecasting department in Beijing. If the govt doesn't handle the situation properly, a property market crisis may emerge next year, Zhu says. Downward pressure for the economy exists as government stimulus can't "genuinely" help stabilize the economy, Zhu said.
Weekend Recommendations
Barron's:
- Bullish commentary on (WFM), (GME), (TJX), (BBBY), (SPLS), (TGT), (JCI), (BA) and (DOV).
- Bearish commentary on (SHLD), (JCP), (HE) and (AMZN).
Night Trading
- Asian indices are -.25% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 102.50 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 72.0 +.5 basis point.
- NASDAQ 100 futures +.14%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
Upcoming Splits
Other Potential Market Movers
- The RBA minutes could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by health care and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.
Week Ahead by Bloomberg.
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.
BOTTOM LINE: I expect US stocks to finish the week modestly lower on
rising Mideast turmoil/Ukraine-Russia tensions, earnings outlooks,
technical selling, profit-taking, rising European/emerging markets debt
angst and yen strength. My intermediate-term trading indicators are
giving neutral signals and the Portfolio is 50% net long heading into the week.