Evening Headlines
Bloomberg:
- Rebel Stronghold Holds Breath as Shellfire Escalates in Donetsk. The grass is being trimmed, the flowers tended and the potholes on
roads filled. Jazz plays out from a café, and a few people are out
enjoying the sunshine. Yet puncturing the scene of a European summer is the distant boom, boom, boom of artillery fire and emptiness. This
is Donetsk, nicknamed the Ukrainian city of a million roses and now the
headquarters of a pro-Russia group wanting to break up the country.
With separatists blamed by the U.S. for shooting down a Malaysia
Airlines plane last week and killing almost 300 people, the semblance of
normality masks a foreboding among residents as to the fate of their
city with Ukrainian forces fighting militants in the suburbs.
- Pressure for Cease-Fire Builds on Hamas. Diplomats stepped up pressure on Hamas to accept a cease-fire in Gaza
and end a conflict that has killed more than 600 people, as global
airlines suspended flights to Tel Aviv because of rocket fire. U.S.
Secretary of State John Kerry, who’s in Cairo to promote the Egyptian
plan for a truce, said Hamas has “a fundamental choice to make.”
Palestinian President Mahmoud Abbas said late yesterday that Hamas
agreed to a proposed cease-fire to be followed by five days of talks,
even though it rejected the Egyptian initiative last week while Israel
accepted it. There was no immediate response from Hamas to the
Palestinian Authority leader’s remarks.
- Asian Stocks Gain as Rupiah Climbs With Zinc; Crude Drops.
Asian stocks rose, with the regional index extending gains from a
six-year high, after U.S. inflation data eased concern over the outlook
for Federal Reserve interest-rate increases. Indonesia’s rupiah climbed
and zinc rose a third day, while crude oil fell. The MSCI Asia Pacific Index added 0.2 percent by 10:08 a.m. in Tokyo, rising a third day and set to hold its highest close
since June 2008.
- Obamacare Subsidy Loss May Boost Premiums, Chase Insurers. A future court ruling that Americans in 36 states can no longer get
U.S. subsidies for Obamacare’s insurance plans would boost premiums by
76 percent, allowing many to flee the program and chasing away insurers.
It’s a worst-case scenario that could affect almost 5 million
people who use subsidies now, and millions more who haven’t yet
enrolled. Under the health law, anyone whose premiums exceed 8 percent
of their income is exempt from the law’s mandate that all Americans be
covered. That may leave only the sickest and most desperate on the
rolls, raising coverage costs
for insurers.
- Wall Street Cut From Guest List for Jackson Hole Fed Meeting. Wall Street (SPX) doesn’t lead to Jackson Hole this year.
As the Federal Reserve Bank of Kansas City prepares to host next month’s
annual gathering of central bankers in Wyoming, seasoned Fed watchers
from the financial markets, including the chief U.S. economists of the
biggest American banks, aren’t being invited, according to past
participants.
Wall Street Journal:
- Iraqi Leader Maliki Loses Backing of Shiite Figure and Iran for New Term. Iraqi Prime Minister Nouri al-Maliki is losing political support for his bid for
a third term from core backers, including the country's Shiite religious
establishment and ally Iran, say Iraqi officials. The shift,
officials said, is prompting members of the premier's own alliance
to reconsider their support and dimming the prospect of his stay in
power. In recent days, high-level delegations of Iranian military
officials and
diplomats held a flurry of meetings in Baghdad and the Shiite religious
capital
Najaf, where they were told that Mr. Maliki, a Shiite, has lost the
confidence
of all but his most loyal inner circle, Iraqi officials with knowledge
of the
meetings said.
- U.S. Officials Lay Out Case Against Russians. Washington Seeks to Counter Russian Claims About MH17 Crash. U.S. intelligence officials presented reporters with their most
detailed case yet Tuesday that Russian-backed Ukrainian separatists shot
down a Malaysia Airlines jetliner last week, in a bid to counter what
American officials see as Russian efforts to muddy the waters with
claims of Ukrainian culpability. The officials relied on
photographs, social media, and voiceprint analysis of Ukrainian
communications intercepts to make their...
CNBC:
Zero Hedge:
Business Insider:
Reuters:
China Securities Journal:
- China Should Allow Defaults to Re-Evaluate Risks. China should allow some companies to default, and encourage financial institutions and investors to re-evaluate the risks of investing in local government debt and the property market,
reporter Zhang Chaohui says in a front-page commentary. Funds will move
back to industries with low risks from sectors with overcapacity after
the market recognizes investment risks. Local governments may face
bigger payment pressure in 2H on slower economic growth and cooling of
land sales and property market, the commentary said.
Evening Recommendations
Night Trading
- Asian equity indices are unch. to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 103.0 -.5 basis point.
- Asia Pacific Sovereign CDS Index 71.50 -1.0 basis point.
- NASDAQ 100 futures -.04%.
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
-2,422,220 barrels versus a -7,525,000 barrel decline the prior week.
Gasoline supplies are estimated to rise by +1,133,330 barrels versus a
+171,000 barrel gain the prior week. Distillate inventories are
estimated to rise by +1,844,440 barrels versus a +2,528,000 barrel gain
the prior week. Finally, Refinery Utilization is estimated to fall -.1%
versus a +2.2% gain the prior week.
Upcoming Splits
Other Potential Market Movers
- The HSBC China Manufacturing PMI and the weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian
indices are mostly higher, boosted by industrial and real estate
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: Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 12.04 -6.01%
- Euro/Yen Carry Return Index 142.65 -.35%
- Emerging Markets Currency Volatility(VXY) 5.86 -.51%
- S&P 500 Implied Correlation 51.75 -.71%
- ISE Sentiment Index 154.0 +63.8%
- Total Put/Call .91 +1.11%
Credit Investor Angst:
- North American Investment Grade CDS Index 58.54 -1.60%
- European Financial Sector CDS Index 67.48 -4.69%
- Western Europe Sovereign Debt CDS Index 34.87 -1.66%
- Asia Pacific Sovereign Debt CDS Index 71.45 -1.41%
- Emerging Market CDS Index 241.0 -1.50%
- China Blended Corporate Spread Index 306.45 +.10%
- 2-Year Swap Spread 20.0 unch.
- TED Spread 21.25 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -8.75 +1.25 basis points
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 199.0 +1.0 basis point
- China Import Iron Ore Spot $95.40/Metric Tonne -.62%
- Citi US Economic Surprise Index -23.40 -5.4 points
- Citi Emerging Markets Economic Surprise Index -4.30 +.5 point
- 10-Year TIPS Spread 2.22 unch.
Overseas Futures:
- Nikkei Futures: Indicating +43 open in Japan
- DAX Futures: Indicating -9 open in Germany
Portfolio:
- Higher: On gains in my tech/biotech/medical sector longs
- Market Exposure: 50% Net Long
Style Outperformer:
Sector Outperformers:
- 1) Gaming +1.82% 2) Networking +1.68% 3) Homebuilding +1.58%
Stocks Rising on Unusual Volume:
- CROX, HLF, CIT, PII, CMG, WWD, SANM, LEJU, STLD, ARMH, HLX, CNC, WAT, INVN and APA
Stocks With Unusual Call Option Activity:
- 1) GPOR 2) TIBX 3) HLF 4) CMG 5) A
Stocks With Most Positive News Mentions:
- 1) CMG 2) APA 3) LMT 4) CMCSA 5) SANM
Charts:
Evening Headlines
Bloomberg:
- Malaysia Air Search Chaos Evokes Korean-Air Crash Cover-Up. The
seizing of flight recorders from the downed Malaysian Airlines (MAS)
jet by Russia-backed Ukrainian rebels has parallels with the Soviet
response to the destruction of another civil airliner more than three
decades ago. After Sukhoi Su-15 interceptors used air-to-air
missiles to shoot down Korean Air Lines (003490) Flight 007 when the
Boeing Co. (BA) 747 strayed into Soviet airspace in 1983, a security
clampdown was immediately imposed at the crash site off Sakhalin Island,
with the
jet’s so-called black boxes spirited away from the scene.
- Bank of Japan Majority Won’t Be Swayed by Kuroda Ideology. More
than a year after securing support at the Bank of Japan for
unprecedented monetary stimulus, Governor Haruhiko Kuroda has yet to
persuade most board members that they have the power to achieve their
inflation target. A majority of the nine members disagree with
Kuroda’s view that flooding the economy with cash is sufficient to get
stable 2 percent gains in consumer prices, according to people familiar
with their thinking. Most conclude it cannot be done without government
steps to raise Japan’s growth potential, they said, asking not to be
named because the discussions are private.
- Dubai Haven Status Frays as CDS Follow Iraq Higher: Arab Credit. Dubai is losing the trust of debt
investors faster than any nation in the Middle East except Iraq as regional turmoil threatens its haven status. The cost of insuring the emirate’s bonds against non-repayment using credit-default swaps climbed to 165 basis points
on July 20, the highest level since May 5, according to prices
compiled by CMA. Swaps gained 30 basis points since June 9,
compared with an increase of 93 basis points for Iraq, where
militants from Islamic State, an al-Qaeda offshoot formerly
known as ISIL, have taken control of parts of the country.
- Asia Stocks Gain With Oil Near 3-Week High; Soybeans Fall.
Asian stocks rose as Japanese markets resumed after a holiday. Crude
oil held near a three-week high and Indonesian rupiah forwards gained,
while soybean futures extended declines into a fourth day. The MSCI Asia Pacific Index added 0.2 percent by 10:01 a.m. in Tokyo, rising a second day. Japan’s Topix index, which slid
0.8 percent when it last traded July 18, rose 0.5 percent.
Wall Street Journal:
- Small-Cap Stocks Run Into Big Trouble. Small-company shares' summer swoon deepened Monday, underscoring investor concern about valuations. The
Russell 2000 index of smaller companies, typically those with market
values below $1 billion, dropped 0.4% Monday, outpacing a 0.3% decline
in the Dow Jones Industrial Average and a 0.2% slide in the S&P 500. Monday's drop comes as...
MarketWatch.com:
CNBC:
Zero Hedge:
Business Insider:
Reuters:
- Rent-A-Center(RCII) sees weak demand, cuts forecast. Rent-to-own
home furniture retailer Rent-A-Center Inc cut its full-year forecast
for revenue and profit, saying it expected demand to remain weak,
sending its shares down as much as 2 percent in extended trade.
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 104.0 +2.0 basis points.
- Asia Pacific Sovereign CDS Index 72.50 unch.
- NASDAQ 100 futures +.11%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The CPI for June is estimated to rise +.3% versus a +.4% gain in May.
- The CPI Ex Food & Energy for June is estimated to rise +.2% versus a +.3% in May.
9:00 am EST
- The FHFA House Price Index for May is estimated to rise +.2% versus unch. in April.
10:00 am EST
- The Richmond Fed Manufacturing Index for July is estimated at 5.0 versus 3.0 in June.
- Existing Home Sales for June are estimated to rise to 4.99M versus 4.89M in May.
Upcoming Splits
Other Potential Market Movers
- The Euro Area Govt Debt report, Senate Corp Tax Hearing and the US weekly retail sales reports could impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and real estate 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 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) 12.75 +5.72%
- Euro/Yen Carry Return Index 143.11 +.02%
- Emerging Markets Currency Volatility(VXY) 5.94 -.34%
- S&P 500 Implied Correlation 51.76 +3.41%
- ISE Sentiment Index 94.0 unch.
- Total Put/Call .88 -2.22%
Credit Investor Angst:
- North American Investment Grade CDS Index 59.56 +1.91%
- European Financial Sector CDS Index 71.0 +2.73%
- Western Europe Sovereign Debt CDS Index 35.46 -2.56%
- Asia Pacific Sovereign Debt CDS Index 72.77 +1.58%
- Emerging Market CDS Index 245.11 +2.94%
- China Blended Corporate Spread Index 306.13 -.48%
- 2-Year Swap Spread 20.0 +.75 basis point
- TED Spread 21.75 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -10.0 unch.
Economic Gauges:
- 3-Month T-Bill Yield .02% +1.0 basis point
- Yield Curve 198.0 -2.0 basis points
- China Import Iron Ore Spot $96.0/Metric Tonne -.62%
- Citi US Economic Surprise Index -18.0 unch.
- Citi Emerging Markets Economic Surprise Index -4.80 unch.
- 10-Year TIPS Spread 2.22 unch.
Overseas Futures:
- Nikkei Futures: Indicating +73 open in Japan
- DAX Futures: Indicating +22 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/biotech sector longs and index hedges
- Market Exposure: 50% Net Long
Bloomberg:
- Malaysia Says Accord Reached to Hand Over Bodies of MH17. Malaysian
Prime Minister Najib Razak said rebels in eastern Ukraine agreed to
hand over bodies of crash victims and grant access to the site where a
passenger jetliner was brought down last week near the Russian border. The agreement to
transfer the remains of 282 people to the Netherlands was reached with
Alexander Borodai, prime minister of the self-proclaimed Donetsk
People’s Republic, Najib said today at his official residence in the
administrative capital of Putrajaya. The two black boxes will be handed
over to a Malaysian team in Donetsk tonight, he said.
- Four Die in Gaza Hospital Shelling as Death Toll Tops 500. Israeli tank shells slammed into a Gaza Strip hospital, killing a
patient and three relatives and wounding 50 other people, Gaza health officials said,
as U.S. Secretary of State John Kerry headed to the Middle East on a
mission to halt two weeks of violence. The Israeli military, which has
been fighting to quell rocket fire from
Hamas-controlled Gaza and destroy tunnels dug for cross-border raids,
said it was looking into the report.
- Junk Sales Soaring 92% as Fed Pledge Spurs Deluge: Mexico Credit. Mexico’s riskiest companies have
almost doubled their bond sales abroad this year as surging
demand for junk debt sends borrowing costs to a record low. “With rates staying this low, reaching down for yield is
the new sport,” Claudio Robertson, the head of fixed-income
trading at Investment Placement Group, said by e-mail.
“Comparable bonds are very hard to get.”
- Godot Seen Showing Up Sooner Than Stronger Global Growth. IMF could well stand for “It’s
Moderating Forecasts” -- so often has the International Monetary Fund downgraded the outlook for world economic growth. The Washington-based lender is poised this week to cut its
estimate for global expansion in 2014 from 3.6 percent in April.
That was a reduction from the 3.7 percent it anticipated in
January and the 4.1 percent in January 2013.
- McDonald’s(MCD), Yum(YUM) Cease Using Chinese Meat Supplier During Probe. McDonald’s Corp. (MCD) and Yum! Brands Inc. (YUM) halted buying meat products from a Shanghai supplier while authorities
investigate allegations that the company sold chicken and beef past
their expiration date.
- Alan Krueger Says Europe at Risk of Bank Runs. (video)
- Russia Stocks, Bonds Slide as Putin Faces More Sanctions.
Russian stocks fell the most since the nation’s incursion in Crimea,
bonds slid and default risk climbed as global indignation over the
downing of a Malaysian Air jet spurred speculation new sanctions will be
imposed. The Micex Index (INDEXCF) dropped 2.7 percent to 1,384.50 by the close in Moscow, the most since
March 3. About $47 billion was erased from the gauge’s market value last
week, the most in four months, according to data compiled by Bloomberg.
OAO Gazprom, the bourse’s biggest weighted company, dropped 2.3
percent. The yield on ruble debt due 2027 rose 19 basis points to 9.23
percent, a more than two-month high. The cost of insuring against losses
on Russia’s sovereign debt rose to the highest level since May.
- European Stocks Drop as Russia Faces Tougher Sanctions.
European stocks fell, after posting a weekly gain, as the U.S. and
Europe threatened tougher sanctions on Russia over its suspected role in
the shooting down of flight MH17 in Ukrainian airspace. Commerzbank AG
dropped 1.9 percent after a report that Germany’s financial-markets
regulator found high operational risks at the country’s second-biggest
lender. Deutsche Post AG lost 1.6 percent after JPMorgan Chase & Co.
lowered its earnings and stock-price estimate for Europe’s largest
postal company. Julius Baer Group Ltd. jumped the most since at least
October 2009 after saying first-half profit rose 56 percent. The Stoxx Europe 600 Index fell 0.5 percent to 337.95 at the close in London.
- Fed’s Junk Loan Bubble-Busting Faces Trouble as Sales Jump. One of the Federal Reserve’s first post-crisis tests of its
ability to quash excessive risk-taking using regulatory tools is so far
looking like a failure. The Fed’s Board of Governors told
Congress last week that it’s engaged in “strong supervisory follow-up”
to guidance given to banks in 2013 to improve their underwriting
standards for high-yield loans. Despite those efforts, Chair Janet
Yellen said she’s still seeing a “marked deterioration” in quality. For
the first time, more than half of the junk-rated loans arranged in the
U.S. this year lack typical lender protections like limits on the amount
of debt borrowers can amass relative to earnings. Yellen’s own
easy-money policies are boosting demand for such high-yielding products
at the same time that she tests her doctrine that financial bubbles
should be constrained by supervisory actions, not a general rise in
interest rates.
- Ex-Jefferies Bond Trader Anticipates Junk Swoon. Fiera Quantum, one of the winners of
the meltdown in Canada’s asset-backed commercial paper market,
is looking for its next trade idea in junk bonds. The Toronto-based
hedge fund manager owned by Fiera Capital Corp. (FSZ) started the FQ
Income Opportunities Fund in May to take short positions, or bearish
bets, balancing bullish investments in U.S. and Canadian high-yield
bonds. Fiera Capital oversees C$82 billion ($76 billion) of assets. “If there’s ever a time to get more cautious, it’s now,”
said Angus Rogers, who left his job as head of high-yield
trading at Jefferies Group LLC in New York in March and moved to
Toronto to start the fund with Greg Foss, who started betting on
restructured commercial paper four years ago. “Most of the
credit rally has happened. Over the next two years, defaults are
definitely going higher.”
- Carmelo Anthony Forms Fund to Invest in Technology Startups. New York Knicks All-Star Carmelo Anthony formed a fund to invest in technology startups.
Wall Street Journal:
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