Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Almost Every Sector Declining
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 16.68 +1.89%
- Euro/Yen Carry Return Index 142.34 -.22%
- Emerging Markets Currency Volatility(VXY) 7.10 +2.60%
- S&P 500 Implied Correlation 59.25 +.15%
- ISE Sentiment Index 100.0 +9.89%
- Total Put/Call .93 -16.96%
Credit Investor Angst:
- North American Investment Grade CDS Index 67.70 +2.54%
- European Financial Sector CDS Index 78.70 +6.89%
- Western Europe Sovereign Debt CDS Index 40.08 +2.35%
- Asia Pacific Sovereign Debt CDS Index 76.22 +2.60%
- Emerging Market CDS Index 298.19 +1.24%
- China Blended Corporate Spread Index 317.55 +1.27%
- 2-Year Swap Spread 22.0 +1.25 basis point
- TED Spread 21.75 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -11.75 +.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% +1.0 basis point
- Yield Curve 298.0 -3.0 basis points
- China Import Iron Ore Spot $96.0/Metric Tonne +.10%
- Citi US Economic Surprise Index 2.6 +2.6 points
- Citi Emerging Markets Economic Surprise Index -.9 +.2 point
- 10-Year TIPS Spread 2.23 unch.
Overseas Futures:
- Nikkei Futures: Indicating -260 open in Japan
- DAX Futures: Indicating -56 open in Germany
Portfolio:
- Slightly Higher: On gains in my index hedges and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- U.S. Weighs Aid Drops, Airstrikes on Islamist Militants in Iraq. The
U.S. is considering airdrops of aid for thousands of refugees driven
from their homes by Islamist militants in Iraq, and possible airstrikes
against the insurgents, according to a defense official. Aircraft
dropping food and other humanitarian supplies to the refugees would be
accompanied by military planes, the official said, asking not to be
identified because discussions are private. If the insurgents target the
planes, the U.S. and Iraq would consider a larger air campaign against
them, the official said. The potential escalation in U.S.
involvement comes as the Islamic State, the group that seized swathes of
northern Iraq in June, extended its advance today by seizing the Mosul
dam, the country’s largest. They have also driven tens of thousands of
people from their homes during an offensive in the past week, many from
minority Yezidi and Christian communities.
- Putin Ban Hits Cold War Foes as Developing Nations Gain. President
Vladimir Putin countered U.S. and European sanctions over Ukraine with a
ban on a range of food products, opening the door for developing
nations such as Brazil to fill the $9.5 billion hole created by the
curbs. The restrictions include all cheese, fish, beef, pork, fruit,
vegetables and dairy products, Prime Minister Dmitry Medvedev told ministers today in Moscow, fulfilling a presidential decree issued yesterday. The curbs hit nations that have penalized or supported measures against Russia, including Canada, Australia and Norway. Russia
may also introduce “supportive measures” for the car, shipping and
aerospace industries, Medvedev said.
- Russian Retail Stocks Slide on Putin Import Ban as Ruble Weakens. Most Russian stocks dropped as OAO
Magnit slid the most in five months on concern food-import bans
imposed in retaliation for U.S. and European sanctions will hurt
earnings of retailers. The ruble fell for a sixth day. Magnit, the nation’s largest supermarket chain, retreated
5.2 percent and its shares in London slumped. OAO Dixy Group and
Lenta Ltd. lost 1.8 percent and 4.1 percent. The Micex Index (INDEXCF)
slid as much as 2.1 percent before trimming declines after an
unconfirmed report that a leader of a pro-Russian separatist
group in Ukraine resigned. The ruble weakened 0.3 percent versus
the dollar by 6 p.m. in Moscow, when the central bank stops
market operations.
- Israel, Hamas Trade Threats Amid Truce Countdown, Cairo Talks.
Israeli officials and Hamas leaders
exchanged warnings with a three-day cease-fire set to expire
early tomorrow and negotiations in Cairo resuming to reach a
long-term deal to end the Gaza conflict and rebuild the area.
- Draghi Says Geopolitical Risks to Economy Increasing. Mario
Draghi said risks to the euro area’s economic recovery are increasing
because of conflicts such as the Ukraine crisis. “Heightened
geopolitical risks, as well as developments in emerging-market economies
and global financial markets, may have the potential to affect economic
conditions negatively,” the European Central Bank president told
reporters in Frankfurt today after policy makers kept interest rates
unchanged. “We are strongly determined to safeguard the firm anchoring
of
inflation expectations over the medium to long term.”
- Germany’s Bond Advance Sends 2-Year Note Yield Below Zero. German
bond gains sent the two-year rate below zero for the first time since
May 2013 and 10-year yields to an all-time low as the European Central
Bank kept interest rates at a record low today. German securities
have rallied this year, with higher returns than stocks, as the ECB cut
borrowing costs and introduced stimulus measures including targeted
longer-term loans to banks to try to counter the threat of deflation.
Now they’re extending gains with bonds from Austria to Finland as
investors seek haven assets after Russia massed troops along its border
with Ukraine and data points to slower growth in the 18-nation currency
bloc.
- European Stocks Decline as Munich Re Misses, Draghi Warns.
European stocks fell to their lowest level in more than
three-and-a-half months as European Central Bank President Mario Draghi
warned that geopolitical risks in countries such as Ukraine could hurt
the economic recovery, while Munich Re’s earnings missed forecasts.
Munich Re slipped 2.3 percent. Adidas AG lost 4.5 percent after cutting
its profit forecast for 2014. Commerzbank AG rose after saying
second-quarter profit more than doubled as it shed unwanted assets.
Nestle (NESN) SA added 3.4 percent after it announced plans for a share
buyback as first-half revenue growth beat analysts’ estimates. The
Stoxx Europe 600 Index retreated 0.7 percent to 326.96 at the close of
trading, for a second day of declines. The benchmark posted its first
back-to-back monthly losses in two years in July as the crisis in
Ukraine escalated. The measure has fallen 6.5 percent from a six-year
high on June 10.
- HSBC Sage Flags Emerging-Market Pullback on Dollar.
HSBC Holdings Plc (HSBA), which in February foresaw the longest
emerging-market currency rally in five years, says it’s time to pull
back as increasing signs of U.S. growth support the dollar. HSBC, which
operates in 74 countries worldwide and gets more than half its revenue
from emerging markets, recommends clients reassess their investments in
South Africa’s rand, Russia’s ruble and Mexico’s peso. A Bloomberg index
of 20 developing currencies has slipped 2.2 percent in the past two
weeks, retracing half its gains from February to July. “The tide is
turning,” David Bloom, HSBC’s global head of currency strategy in
London, said in an Aug. 5 phone interview. “It’s a mini-wobble in
emerging markets. Be careful.”
- Default Risk Rises on 20% of Boom-Era Home-Equity Loans. As
much as 20 percent of home equity lines of credit worth $79 billion are
at increased risk of default as their payments jump a decade after the
loans were made during the U.S. housing boom, according to TransUnion Corp. Borrowers face rate shocks as payments on the credit lines, known as HELOCs,
switch from interest-only to include principal, causing monthly bills to
surge more than 50 percent, according to a report today by the
Chicago-based credit information company.
Wall Street Journal:
MarketWatch.com:
CNBC:
ZeroHedge:
Business Insider:
Telegraph:
Bild:
- German Exports to Russia Declined Almost 16% in 2014. Exports to
Ukraine down 32%. German automakers' sales volume in Russia fell 23% in
June. Federation of German Wholesale, Foreign Trade and Services expects
20% slump in demand in wake of sanctions.
Gatestone Institute:
- World Ignores Christian Exodus from Islamic World. While the world fixates on the conflict between Israel and Hamas—and
while most mainstream media demonize Israel for trying to survive amid a
sea of Arab-Islamic hostility—similar or worse tragedies continue to go
virtually ignored.
Style Underperformer:
Sector Underperformers:
- 1) HMOs -2.82% 2) Gaming -2.54% 3) Oil Tankers -1.53%
Stocks Falling on Unusual Volume:
- THOR, MNTX, CPA, RVNC, OME, ICE, ZU, LPI, BRKR, HAR, ANN, CSOD, DRTX, BWC, RARE, MHG, ATHM, PER, AR, MPEL, AGU, CF, SNCR, CAF, MMS, AKRX, MMS, SAPE, HAR, SNI, VNDA, ENS, KND, HSC, BWC and COUP
Stocks With Unusual Put Option Activity:
- 1) AXL 2) JNS 3) DG 4) CVS 5) NVDA
Stocks With Most Negative News Mentions:
- 1) ANN 2) CLF 3) CVS 4) UNH 5) UNG
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Hospitals +1.29% 2) Utilities +.48% 3) Defense +.25%
Stocks Rising on Unusual Volume:
- SSYS, GEOS, JACK, CST, TROX, CTRP, GPOR, DXCM, EAT, MIDD, SUNE, LEAF, GDP, WTI, WWAV, DEPO, XONE, NXTM and FOXA
Stocks With Unusual Call Option Activity:
- 1) GDP 2) ONVO 3) SSYS 4) TROX 5) CROX
Stocks With Most Positive News Mentions:
- 1) SSYS 2) SRE 3) LNKD 4) BKS 5) AAPL
Charts:
Evening Headlines
Bloomberg:
- U.S. Joins Ukraine Incursion Concern as Putin Hits Back. The U.S.
joined NATO and Poland in warning about the risk of Russia sending
troops into Ukraine. Russia called reports of a military buildup on its
western border “groundless” and hit back at sanctions against it. The
threat of an incursion is “reality,” U.S. Defense Secretary Chuck Hagel
said yesterday in Germany. Earlier, the North Atlantic Treaty
Organization said there’s a threat of Russian troops crossing the border
under the “pretext” of a humanitarian or peacekeeping mission. Russia
ordered limits on food imports from nations that have sanctioned it.
- Putin Hits Tipping Point as Ukraine Tightens Rebel Noose.
As the military endgame in Ukraine approaches, President Vladimir Putin
must decide just how far he’s prepared to go to defend the pro-Russian
insurgency. His options range from an invasion under the guise of a
peacekeeping mission to abandonment of the rebels to avoid further
sanctions from the U.S. and the European Union, said politicians,
advisers and analysts. With Ukrainian forces closing in on the
remaining separatist strongholds in the eastern part of the country,
military analysts say the revolt sparked by Putin’s annexation of Crimea
in March is destined to fail without a sharp increase in aid from
Russia. That means Putin must now decide whether to escalate his support
to rebels and risk further international isolation, which seems likely, according to Olga Kryshtanovskaya, a sociologist studying the country’s elite at the Russian Academy of Sciences. “Putin has a very difficult choice in front of him,” Kryshtanovskaya said by
phone from Moscow. “He has to protect his position in Russia. He has to
show that he’s successfully pursuing his goals. He can’t afford to look
like a loser in the eyes of the people.”
- Rajan Sees Risk of New Crisis on Loose Policy, CB Journal Says.
Reserve Bank of India Governor Raghuram Rajan said the world is at risk
of another financial crisis as monetary stimulus in developed economies
encourages investors to take risks and boost asset prices, the Central
Banking Journal reported, citing an interview. “We are taking a
greater chance of having another crash at a time when the world is less
capable of bearing the cost,” Rajan, a former International Monetary
Fund chief economist who warned in 2005 about the last crisis, is quoted
as saying. Rajan said investors are counting on “easy money” being
available for the foreseeable future and thinking they can sell before
everyone else does. “They put the trades on even though they know what
will happen as everyone attempts to exit positions at the same time,” he
said, according to the Journal. “There will be major market
volatility if that occurs.” He said the problems arising “are not so
much from credit growth, which is relatively tepid in the industrial
markets and has been much stronger in emerging markets, but from asset
prices due to financial risk-taking and so on.”
- China Home Glut May Worsen as Developers Avoid Price Drop. The biggest immediate risk facing China’s economy is about to get worse.
A reluctance among some developers to sell units at prices lower than
they could fetch just months ago threatens to cause a swelling in unsold
properties. The worsening glut would extend a slide in construction that’s already put a drag on the world’s second-largest economy, and
counter policy makers’ efforts to stimulate the real-estate industry
with loosened rules.
- Australian Jobless Rate Tops U.S. First Time Since 2007: Economy.
Australia’s jobless rate jumped to a 12-year high in July, surpassing
the U.S. level for the first time since 2007, sending the local currency
tumbling. The unemployment rate rose to 6.4 percent from 6 percent, the statistics bureau said in
Sydney today, versus the median estimate for unemployment to hold steady
in a Bloomberg News survey of economists. The number of people employed
fell by 300.
- Prada’s Sales Growth Slows on Weaker Asia, Europe Demand. Prada SpA (1913) the Milan-based luxury handbag maker, posted the slowest half-yearly sales growth in three years as demand weakens in some Asian countries and in Europe amid economic and political uncertainties. Shares fell.
Prada’s revenue climbed 1 percent to 1.75 billion euros
($2.34 billion) in the six months through July as demand weakens
in some Asian countries and in Europe amid economic and
political uncertainties, according to the company’s preliminary
figures filed to Hong Kong’s stock exchange yesterday.
- Malaysia Builders Hit by Tax Amid Worst Slump Since 1998. UEM Sunrise Bhd. (UEMS), Malaysia’s biggest developer by market value, said it faces lower profit margins
from a new tax and may delay some projects amid the nation’s
steepest slump in property sales since the 1998 recession.
- Draghi Outlook Menaced by Putin as Ukraine Crisis Bites. The
crisis in eastern Europe may be starting to disrupt Mario Draghi’s
economic outlook. Evidence is building that the conflict in Ukraine and
European Union sanctions against Vladimir Putin’s Russia are
undermining a euro-area recovery that the European Central Bank
president already describes as weak.
- Asian Stocks Poised for Third Day of Decline on Ukraine.
Asian stocks fell, with the regional benchmark index heading for a
third day of losses, after Australia’s unemployment rate unexpectedly
climbed to a 12-year high and as tensions mounted over Ukraine. DeNA
Co., a Japanese mobile game and social-media service, slumped 8 percent
after cutting its profit forecast. Galaxy Entertainment Group Ltd. sank
5.9 percent in Hong Kong after workers at its Macau casino staged a
protest yesterday demanding higher wages. Nippon Telegraph &
Telephone Corp. gained 2.9 percent in Tokyo after its price target was
raised at SMBC Nikko Securities Inc. and Nomura Holdings Inc. The MSCI Asia Pacific Index (MXAP) dropped 0.4 percent to 145.62
as of 9:58 a.m. in Hong Kong, after rising 0.2 percent earlier.
- Nickel Stockpiles at Record High as China Turns Exporter. Nickel
inventories in warehouses
monitored by the London Metal Exchange extended gains to a record after
China, the biggest producer and consumer, shipped more metal out than it
imported amid a financing scandal. Stockpiles climbed to 317,874
metric tons, for a 21 percent increase this year, according to the LME
data. Exports of refined nickel from China almost tripled in June to
16,737 tons, exceeding imports for the first time ever by 5,723 tons, customs data show.
Wall Street Journal:
- Crises Undercut Support for Obama's Long Game in Foreign Policy. Attempts to Keep Distance From Daily Melee Lead to Uncomfortable Moments. President
Barack Obama and his top aides believe they are putting in place a new
global security structure that will frame international relations for
decades. Every day, however, brings a split-screen contrast between the White House's
confidence in its long-term strategy and the daily chaos playing out
from Ukraine to the Middle East. The
disconnect is reflected in the president's declining poll ratings. The
Wall Street Journal/NBC News poll released this week shows Americans'
approval of his foreign-policy record at a new low of 36%.
- African Health Workers Feel Ebola's Wrath. Mounting Deaths Increase Strain on Front-Line Medical Staffers; Obama Says Better Infrastructure Can Help Control Virus. The number of people to have died in the worst Ebola outbreak in
history has risen to at least 932, the World Health Organization said on
Wednesday, as overworked hospital staff struggled to quell the epidemic
and in many cases became its front-line victims. Between
Saturday and Monday, 45 people died of the disease in West Africa, with
108 new cases reported during that period, the WHO said as it began a
two-day emergency meeting in..
- Summertime Living Isn't Easy for Macro Funds. Graham Capital, Rubicon Among Hedge-Fund Firms Feeling Heat of Poor Returns. The market's summer stumble has dealt a new blow to a group of macro
hedge funds that seek to anticipate trends in global markets. Graham
Capital Management LP has laid off more than 10% of its staff, or more
than 20 employees, according to people close to the matter. Six funds at
the firm, run by Kenneth Tropin, have posted declines of as much as
5.9% this year, the people said. Rubicon Fund Management LLP's Rubicon Global..
- Deals' Demise Wrecks Funds' Bets. Busted Buyouts and Warning by Obama Sting Big Investors; It's 'Arbageddon'. On a day some traders dubbed "Arbageddon," hedge funds who bet on big
corporate takeovers, known as arbitragers, suffered their worst rout in
years after two deals fell apart and regulators indicated they may take
steps to stymie others. In a rapid-fire series of moves over the
course of 24 hours, 21st Century Fox Inc. dropped its $80 billion bid
for Time Warner Inc., and Sprint Corp. abandoned its plans to acquire
T-Mobile US Inc. Walgreen Co. wrong-footed other traders by deciding not
to move offshore to lower..
- China Steps Up Antitrust Duel With West. Regulators
Inspect Microsoft's Offices and Investigate Accenture. Chinese
antitrust regulators are intensifying pressure on foreign
technology and auto companies in separate moves that experts say show
Beijing's desire to give Chinese companies greater heft in their
dealings with foreign firms. Regulators from the State
Administration for Industry and Commerce said they conducted surprise
inspections Wednesday of Microsoft Corp.'s China offices in regard to
suspected monopolistic practices. They...
Fox News:
MarketWatch.com:
CNBC:
- Obama aims to move fast to curb inversions. (video) President Barack Obama said on Wednesday his administration plans to
move quickly to curb what he called a "herd mentality" by companies
doing business deals that help them escape U.S. corporate taxes, saying
the practice was unfair to Americans.
- Unsold land in China signals developer uncertainty. For the first time in three years lands plots up for auction in Beijing went unsold last week, signaling that developers are nervous about ongoing weakness in the country's property market. Two of the five lots put up for
sale by the Beijing government last week received no bids – for the
first time since April 2011, according to Chinese media reports.
In another auction on Monday, two of four lots were sold to developers
at lower-than-expected prices. According to Ryan Huang, strategist at
IG's Singapore office, the unsold auctions suggest "a mismatch between
what increasingly cautious developers are willing to pay versus what
local
governments want."
Zero Hedge:
Business Insider:
Reuters:
- Risk-averse China seen pushing back plans to free yuan. China
is quietly pushing back its loose timetable to make the yuan freely
convertible, policy insiders say, as authorities fear removing capital
controls too soon could unleash damaging speculative flows that will
make it harder to reshape the economy.
Financial Times:
- US banks warn on ‘excessive’ risk-taking. An influential group of Wall Street banks has warned the US Treasury
that low volatility in many markets is creating a feedback loop that
exacerbates “excessive risk-taking” by investors.
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 110.0 +2.5 basis points.
- Asia Pacific Sovereign CDS Index 74.25 +.75 basis point.
- NASDAQ 100 futures +.02%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to rise to 305K versus 302K the prior week.
- Continuing Claims are estimated to fall to 2512K versus 2539K prior.
3:00 pm EST
- Consumer Credit for June is estimated to fall to $18.650B versus $19.602B in May.
Upcoming Splits
Other Potential Market Movers
- The
BoE rate decision, ECB rate decision, BoJ rate decision, China trade
data, weekly EIA natural gas inventory report, weekly Bloomberg Consumer
Comfort Index, (IDXX) analyst day, (TIVO) annual meeting and the
Needham Advanced Industrial Technologies Conference could also impact
trading today.
BOTTOM LINE: Asian
indices are mostly lower, weighed down by financial 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: Modestly Higher
- Sector Performance: Mixed
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 16.40 -2.79%
- Euro/Yen Carry Return Index 142.54 -.51%
- Emerging Markets Currency Volatility(VXY) 6.95 +1.46%
- S&P 500 Implied Correlation 58.92 -2.69%
- ISE Sentiment Index 97.0 -5.83%
- Total Put/Call 1.14 -4.20%
Credit Investor Angst:
- North American Investment Grade CDS Index 66.20 +.96%
- European Financial Sector CDS Index 73.86 +4.04%
- Western Europe Sovereign Debt CDS Index 39.16 +6.47%
- Asia Pacific Sovereign Debt CDS Index 74.50 +1.24%
- Emerging Market CDS Index 292.98 +.76%
- China Blended Corporate Spread Index 313.57 +.35%
- 2-Year Swap Spread 21.75 -.5 basis point
- TED Spread 21.25 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -12.25 -1.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 201.0 -1.0 basis point
- China Import Iron Ore Spot $95.90/Metric Tonne +.42%
- Citi US Economic Surprise Index 0.0 +6.2 points
- Citi Emerging Markets Economic Surprise Index -1.1 -.4 point
- 10-Year TIPS Spread 2.23 unch.
Overseas Futures:
- Nikkei Futures: Indicating -65 open in Japan
- DAX Futures: Indicating -20 open in Germany
Portfolio:
- Higher: On gains in my tech/biotech/retal sector longs and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
- Market Exposure: Moved to 25% Net Long
