Broad Equity Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 13.17 -6.79%
- Euro/Yen Carry Return Index 142.97 +.18%
- Emerging Markets Currency Volatility(VXY) 6.86 -.87%
- S&P 500 Implied Correlation 52.88 -4.17%
- ISE Sentiment Index 75.0 -33.63%
- Total Put/Call .95 -11.21%
Credit Investor Angst:
- North American Investment Grade CDS Index 60.89 -3.55%
- European Financial Sector CDS Index 68.48 -5.52%
- Western Europe Sovereign Debt CDS Index 34.92 -4.62%
- Asia Pacific Sovereign Debt CDS Index 72.26 -2.32%
- Emerging Market CDS Index 275.49 -2.78%
- China Blended Corporate Spread Index 316.63 -.77%
- 2-Year Swap Spread 23.0 unch.
- TED Spread 20.25 -.75 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -12.0 -1.25 basis points
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- China Import Iron Ore Spot $93.20/Metric Tonne -.85%
- Citi US Economic Surprise Index -.30 -3.6 points
- Citi Emerging Markets Economic Surprise Index -5.5 -3.5 points
- 10-Year TIPS Spread 2.23 unch.
Overseas Futures:
- Nikkei Futures: Indicating +94 open in Japan
- DAX Futures: Indicating -10 open in Germany
Portfolio:
- Higher: On gains in my tech/biotech/medical/biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 75% Net Long
Bloomberg:
- Ukraine Will Accept Russian Aid If Red Cross Hands It Out. Ukraine
said it would only accept humanitarian aid arriving on hundreds of
trucks from Russia if the supplies are distributed by the Red Cross.
Ukraine also demanded that its own customs and border
officers examine the shipments first near a checkpoint into the
Luhansk region, where pro-Russian separatists have been battling
government troops for months. Maria Zakharova, spokeswoman for
Russia’s Foreign Ministry, didn’t answer a call to her mobile
phone outside of office hours in Moscow. There were conflicting
reports on the location of the truck convoy.
The location of the convoy remained unclear. Russia’s
state-run Rossiya 24 television said the trucks had stopped at a
military base in the city of Voronezh, about 350 kilometers (220
miles) by road from Luhansk.
- Putin’s Ukraine Aid Doubted in Market as Hryvnia Sets Record Low. Ukrainians didn’t wait to see what’s inside Russian humanitarian trucks heading to the country. Warnings
by NATO that Russia may use its aid convoy for a military invasion
triggered “panic,” the central bank in Kiev said yesterday as the
hryvnia slumped as much as 6.5 percent to a record 13.715 per dollar.
The currency rallied 1.9 percent today to 13.15 by 3:30 p.m. in Kiev,
paring its 2014 loss to 37 percent as the bank said it was ready to
prevent depreciation. Traders in forward contracts are betting on a
further 3 percent slide in three months.
- Kurds Push Attack in North Iraq as Maliki Clings to Power. Kurdish
forces fought to retake positions overrun last week by Islamic State
fighters in northern Iraq, as Prime Minister Nouri al-Maliki sought to
cling to power even after losing the backing of key ally Iran.
Kurdish peshmerga troops, bolstered by U.S. airstrikes, fought the Sunni
militants near the town of Sinjar, according to Nineveh provincial
council member Hisham al-Brefkani. The push came as France said it would
supply the Kurds with weapons, and the U.S. and Britain readied plans
to rescue ethnic Yazidis trapped by the insurgents in the
mountains of northern Iraq.
- Spanish Prices Drop at Fastest Pace Since 2009 Credit Crunch.
Consumer prices in Spain fell at the fastest pace since the depths of
the credit crunch in 2009 as declining wages curbed the pricing power of
retailers. Spanish prices dropped 0.4 percent from a year earlier as
measured by a harmonized European Union method. That compared with the
median forecast for a 0.3 percent drop in a Bloomberg News survey of 12
economists. Prices slid 1.5 percent on the month while core inflation,
which excludes energy and fresh food
prices, was zero.
- European Stocks Rise as EON, Swiss Life Climb on Earnings.
European stocks rose to their highest level in a week as EON SE and
Swiss Life Holding AG (SLHN) reported better-than-expected profit. EON
rose the most since September as Germany’s largest utility said higher
production at its North Sea fields benefited earnings. Swiss Life
rallied 7.1 percent on increased sales of
occupational benefits in its home market. Gagfah SA added 2.9 percent
after the third-biggest German property company raised its 2014 earnings
forecast for a second time. The Stoxx Europe 600 Index gained 0.4 percent to 330.02 at the close of trading.
- Junk-Bond Anxiety Grows as Traders Buy Up Bearish Puts. U.S. options traders are bracing for more losses in junk bonds. Demand
for protection against declines has pushed the number of outstanding
puts on the iShares iBoxx $ High Yield Corporate Bond exchange-traded
fund to five for each call, up from a ratio of 1.6 at the start of 2014, data compiled by Bloomberg show. The eight contracts on the fund with the highest ownership are all bearish.
Investors are turning skeptical on the five-year bull
market in speculative debt amid concern the gains have gone on
too long and that violence in the Middle East and Ukraine will
boost demand for safer assets. Speculation that the Federal Reserve will
raise interest rates within the next year is also supporting demand for
put options, often used as a hedge because their value rises when the
ETF (HYG) falls. “Sometimes when an asset class gets to be expensive, you don’t need a catalyst,” Alan Higgins, who helps oversee about
$48 billion as U.K. chief investment officer at Coutts & Co. in
London, said by phone. “It’s simply that the value is not
there.”
- Icahn’s Bubble Worry Meets Onslaught of Debt Complacency. Not even escalating geopolitical conflicts can grind this rally in high-risk debt to a true halt. Consider
this: High-yield bonds are up 0.35 percent for August, gaining again
after posting their first monthly loss in almost a year. The market’s
poised for an annual return of 7.6 percent, building on a 135 percent
return in the previous five years. And this: Investors are also bidding up credit-focused closed-end funds that use borrowed money to amplify bets.
- Wall Street Faces Pushback on CMBS Deals as Supply Booms. Wall
Street is running into resistance unloading commercial-mortgage backed
securities. JPMorgan Chase & Co. (JPM) and Barclays Plc (BARC)
sweetened terms on a piece of a $1.2 billion bond deal last week to
attract buyers, while Deutsche Bank AG (DBK) and Cantor Fitzgerald LP
increased the
yield they’re offering on securities today, according to people
with knowledge of the matter.
- Macy’s Cuts Sales Forecast as Discounts Fail to Spark Growth.
Macy’s Inc. (M) missed quarterly earnings estimates and trimmed its
annual sales forecast, indicating that the back-to-school and Christmas
shopping seasons won’t make up for a sluggish first half of the year.
Second-quarter net income rose 3.9 percent to $292 million,
or 80 cents a share, from $281 million, or 72 cents, a year
earlier, the Cincinnati-based company said today in a statement.
Analysts had estimated 86 cents on average, according to data
compiled by Bloomberg. The shares tumbled the most in two years.
ZeroHedge:
Reuters:
- Deere(DE) posts lower quarterly profit, cuts full-year outlook. Deere
& Co posted a lower quarterly profit on Wednesday and cut its
full-year outlook as declining grain prices discouraged farmers from
purchasing its tractors, harvesters and other agricultural machinery. Deere
also cut its forecast for South America, where rising interest rates in
Brazil and tight credit in Argentina are hurting sales. Deere said it
now expects full-year industry sales in the region to fall 15
percent in 2014, down from a previously forecast decline of 10 percent.
Style Underperformer:
Sector Underperformers:
- 1) Retail -.90% 2) Steel -.52% 3) Telecom -.20%
Stocks Falling on Unusual Volume:
- SEAS, KING, VSAT, CREE, NVDQ, JDSU, M, FOSL, MYGN, NOAH, TIF, DE, PCOM, LIN, CGI, AXE, KSS, AG, IMOS, WBAI, PKG, JWN, PLCE, RKT, ICE and REXX
Stocks With Unusual Put Option Activity:
- 1) HUN 2) M 3) MMM 4) FOSL 5) NTAP
Stocks With Most Negative News Mentions:
- 1) KING 2) SEAS 3) VSAT 4) JCP 5) JDSU
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Biotech +1.75% 2) REITs +1.23% 3) Alt Energy +1.21%
Stocks Rising on Unusual Volume:
- KATE, CSIQ, INSM, FLT, ICPT, ITMN, JD, INSY, MYCC, GRUB, JAZZ, EMES and PANW
Stocks With Unusual Call Option Activity:
- 1) AMJ 2) ARNA 3) M 4) ARWR 5) CREE
Stocks With Most Positive News Mentions:
- 1) PGR 2) F 3) AMZN 4) ITMN 5) GOOG
Charts:
Evening Headlines
Bloomberg:
- Ukraine to Block Russian Aid Trucks as It Tightens Noose Around Rebels. A
convoy Russia says is loaded with humanitarian assistance for
rebel-held areas of Ukraine headed for the border, as the government in
Kiev set conditions for letting the aid in and the Red Cross demanded
more details. Russia’s
government said 280 trucks with 2,000 metric tons of donated food,
medicine and water left Moscow yesterday and would proceed into Ukraine
under the auspices of the Geneva-based International Committee of the
Red Cross. Ukraine expressed fears the convoy is carrying military
equipment to aid the pro-Russian separatists.
- Iran Joins U.S. in Backing Replacement for Iraq’s Maliki. Iran
endorsed premier-designate Haidar al-Abadi to lead neighboring Iraq,
leaving current Prime Minister Nouri al-Maliki without his strongest
international backer as he continued to defy calls to step down. Ali Shamkhani, secretary of Iran’s Supreme National Council, said
yesterday in Tehran that he congratulates Abadi on his selection as the
next prime minister, the Islamic Republic News Agency reported. The explicit embrace of Abadi was a step beyond an earlier
Iranian statement approving of Iraq’s “political process.”
- China Credit Gauge Plunges as Expansion in Money Supply Slows. China’s
broadest measure of new credit unexpectedly plunged to the lowest level
since the global financial crisis, adding risks to economic growth
already headed for the weakest annual pace in 24 years. Aggregate
financing was 273.1 billion yuan ($44.3 billion) in July, the People’s
Bank of China said today in Beijing, compared with the 1.5 trillion yuan
median estimate of analysts surveyed by Bloomberg News. New
local-currency loans of 385.2 billion yuan were half of projections,
while M2 money supply grew a less-than-anticipated 13.5 percent from a
year earlier.
- Asia Stocks Fluctuate on Earnings, Japan Economic Data.
Asian stocks swung between gains and losses as investors weighed
earnings reports and data showing Japan’s economy shrank the most since
2011. Trend Micro Inc. fell 1.1 percent in Tokyo after the maker of
anti-virus software reported results. CSL Ltd., the world’s
second-biggest maker of blood-derived therapies, rose 2.8 percent in
Sydney after reporting an increase in annual profit. Bank of Queensland
Ltd. slid 1.3 percent after the Australian lender said its chief
executive officer resigned. The MSCI Asia Pacific Index (MXAP) was little changed at 146.59 as
of 9:44 a.m. in Tokyo after rising as much as 0.1 percent and
falling 0.2 percent.
- JPMorgan(JPM) Joins Goldman(GS) in Designing Derivatives for a New Generation. Derivatives that helped inflate the 2007 credit bubble are being remade for a new generation. JPMorgan
Chase & Co. is offering a swap contract tied to a speculative-grade
loan index that makes it easier for investors to wager on the debt.
Goldman Sachs Group Inc. is planning as much as 10 billion euros ($13.4
billion) of structured investments that bundle debt into top-rated
securities, while ProShares last week started offering exchange-traded
funds backed by credit-default swaps on company debt. Wall
Street is starting to return to the financial innovation that helped
extend the debt rally seven years ago before exacerbating the worst
financial crisis since the Great Depression.
Wall Street Journal:
- U.S. Weighs Military Rescue Mission for Yazidi Refugees. Proposal
Under Development Could Put Americans in Direct Confrontation with
Islamic State Militants. The U.S. is weighing a military mission in Iraq
to rescue thousands
of Yazidi refugees, a move that risks putting American forces in direct
confrontation with Sunni fighters for the Islamic State. The
proposal is still under development and hasn't been approved by
President Barack Obama. U.S. officials said the rescue mission is one of
many options the U.S. military is weighing after dropping food and
water to dying...
Fox News:
- Kurdish fighters hold off Islamic State, await more help from US, Baghdad. Kurdish fighters in northern Iraq are desperate for arms from Baghdad
or even the U.S. to help fend off an onslaught from Islamic militants
that may be aimed at creating a corridor for jihadist reinforcements
from Turkey. Despite U.S. air strikes aimed at fighters from Islamic State, the
militant group formerly known as ISIS, Kurdish fighters known as
Peshmerga say they remain under sustained attack on multiple fronts.
Rumors of weapons and ammo en route from Baghdad and the U.S. are rife,
yet a number of sources confirm they have not yet been seen.
CNBC:
- White House loosens restrictions on lobbyists. President
Barack Obama is loosening restrictions on lobbyists who want to serve
on federal advisory boards, a White House official said on Tuesday, a
setback to the president's efforts to tamp down special interest
influence in
Washington. Obama came to office pledging to curtail the sway
of lobbyists and banned lobbyists from serving on such panels, which
guide government policy on a range of topics ranging from cancer to
towing safety.
Zero Hedge:
Business Insider:
Reuters:
Shanghai Securities News:
- China Should Move on Property Tax, PBOC Academic Writes. China
should adopt a property tax as soon as possible, Wang Yong, professor at
PBOC's Zhengzhou training institute, writes in an article.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 106.0 -.5 basis point.
- Asia Pacific Sovereign CDS Index 75.0 -1.0 basis point.
- NASDAQ 100 futures +.01%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Retail Sales Advance for July are estimated to rise +.2% versus a +.2% gain in June.
- Retail Sales Ex Auto for July are estimated to rise +.4% versus a +.4% gain in June.
- Retail Sales Ex Auto and Gas for July are estimated to rise +.4% versus a +.4% gain in June.
10:00 am EST
- Business Inventories for June are estimated to rise +.4% versus a +.5% gain in May.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-1,577,780 barrels versus a -1,756,000 barrel decline the prior week.
Gasoline supplies are estimated to fall by -1,044,440 barrels versus a
-4,387,000 barrel decline the prior week. Distillate Supplies are
estimated to rise by +88,890 barrels versus a -1,798,000 barrel decline
the prior week. Finally, Refinery Utilization is estimated to fall by
-.55% versus a -1.1% decline the prior week.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Dudley speaking, Fed's Rosengren speaking, Eurozone Industrial
Production report, China Retail Sales/Industrial Production, 10Y $24B
T-Note Auction, weekly MBA Mortgage Applications report and the
Canaccord Growth Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and consumer
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: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 14.53 +2.11%
- Euro/Yen Carry Return Index 142.67 -.07%
- Emerging Markets Currency Volatility(VXY) 6.89 +.15%
- S&P 500 Implied Correlation 56.71 +2.38%
- ISE Sentiment Index 113.0 +13.0%
- Total Put/Call 1.04 +40.54%
Credit Investor Angst:
- North American Investment Grade CDS Index 63.22 +.16%
- European Financial Sector CDS Index 72.49 +.75%
- Western Europe Sovereign Debt CDS Index 36.12 -1.95%
- Asia Pacific Sovereign Debt CDS Index 73.67 -1.87%
- Emerging Market CDS Index 283.70 -.59%
- China Blended Corporate Spread Index 319.08 -.96%
- 2-Year Swap Spread 23.0 -.5 basis point
- TED Spread 21.0 -.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -13.25 -.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 200.0 +1.0 basis point
- China Import Iron Ore Spot $94.0/Metric Tonne -1.36%
- Citi US Economic Surprise Index 3.30 -.8 point
- Citi Emerging Markets Economic Surprise Index -2.0 -4.0 points
- 10-Year TIPS Spread 2.23 -1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating -62 open in Japan
- DAX Futures: Indicating -1 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech/biotech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedge
- Market Exposure: Moved to 25% Net Long
