Broad Equity Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 13.30 +3.94%
- Euro/Yen Carry Return Index 150.01 -.54%
- Emerging Markets Currency Volatility(VXY) 8.0 -2.66%
- S&P 500 Implied Correlation 43.18 +3.65%
- ISE Sentiment Index 133.0 +64.20%
- Total Put/Call .81 -17.35%
Credit Investor Angst:
- North American Investment Grade CDS Index 64.16 +.03%
- European Financial Sector CDS Index 64.63 +2.24%
- Western Europe Sovereign Debt CDS Index 30.69 +.20%
- Asia Pacific Sovereign Debt CDS Index 64.85 +.79%
- Emerging Market CDS Index 278.20 +2.32%
- China Blended Corporate Spread Index 323.55 n/a
- 2-Year Swap Spread 21.25 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -10.75 -1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- China Import Iron Ore Spot $76.20/Metric Tonne +.43%
- Citi US Economic Surprise Index 15.70 -.1 point
- Citi Eurozone Economic Surprise Index -29.70 +.5 point
- Citi Emerging Markets Economic Surprise Index -8.0 +3.5 points
- 10-Year TIPS Spread 1.92 -2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +58 open in Japan
- DAX Futures: Indicating +5 open in Germany
Portfolio:
- Slightly Higher: On gains in my retail sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- NATO Says Russia Troops Enter Ukraine as East Risks Open War. NATO
accused Russia of sending columns of troops and heavy weapons into
Ukraine in the past two days, as the government in Kiev warned the
nation’s eastern combat zone is close to returning to open war. Russia’s
Defense Ministry denied the accusations, according to state-run RIA
Novosti. Pressure has been building for days, with the government and
rebels are accusing each other of gearing up for a renewed military push
that risks swelling the death toll of more than 4,000. The UN Security
Council is scheduled to hold an emergency session in New York today over
the intensifying conflict. “We have seen columns of Russian
equipment, primarily Russian tanks, Russian artillery, Russian
air-defense systems and Russian combat troops entering into Ukraine,”
U.S. Air Force General Philip Breedlove, NATO’s top military commander, told reporters
in Bulgaria today. “We do not have a good picture at this time of how
many. We agree that there are multiple columns that we have seen.”
- Ukraine Tells Army to Prepare for Battle as Tensions Rise. Ukraine’s defense minister said the
military should prepare for clashes as growing tensions in the
nation’s eastern combat zone threatened to boil over into open
conflict. Bond yields jumped to a record high. The separatists and their Russian backers are amassing
troops in the areas of the Donetsk and Luhansk regions they’ve
seized, Defense Minister Stepan Poltorak told a government
meeting today in Kiev. One Ukrainian serviceman died and five
were wounded in the past 24 hours, a military spokesman said.
There was no independent confirmation of their accounts. “The separatists and their Russian sponsors are getting
ready to move again militarily,” said Joerg Forbrig, senior
program director at the German Marshall Fund of the U.S. in
Berlin. “That’s being anticipated by Ukraine, and the Ukrainian
side is taking measures.”
- Ukraine 2017 Yield Jumps to Record as Rebels Seen Massing Forces. Ukrainian bonds slumped, lifting the
benchmark yield to a record, as reports that pro-Russian
insurgents are preparing for a new wave of fighting sent the
hryvnia to an all-time low. The rate on the dollar-denominated note maturing July 2017
jumped 150 basis points to 17.63 percent by 1:32 p.m. in Kiev.
The hryvnia gained 0.3 percent to 15.8 per dollar after earlier
weakening to a record 15.99, according to data compiled by
Bloomberg. It slumped 18 percent in the previous five trading
days.
- Poland Renews Baltic Mission as Russian Incidents Grow. Poland will send four MIG-29
fighters to monitor the airspace over the Baltic states next
year amid growing activity by Russian military aircraft near the borders of the NATO alliance.
The government asked the president to authorize the use of the combat
jets and 120 personnel to police the airspace over Estonia, Latvia and
Lithuania Jan. 12 to April 30, according to
an e-mailed statement.
- Korea Household Debt Rises Most in Decade on Easier Loans. South Korea’s household debt
increased at the fastest pace in at least a decade after
President Park Geun Hye loosened lending requirements and the
central bank cut borrowing costs. Bank lending to households rose 6.4
trillion won in October to 507.7 trillion won ($462 billion), the
biggest gain since the Bank of Korea began compiling the data in 2003.
Mortgage lending and borrowings for long-term rent jumped by 5.5
trillion won to 355.1 trillion won. Park’s government is using credit in
an effort to stimulate
consumption to meet its economic expansion target. That comes
with risks, with higher household debt making sustained growth
less robust, Fitch Ratings said this week.
- European Stocks Decline Amid Bank Slide, Ukraine Tension. European stocks declined, as banks
dragged the Stoxx Europe 600 Index lower, and NATO said Russia
sent troops and heavy weapons into Ukraine. Banks slipped as U.S., Swiss, and British regulators fined
lenders including HSBC Holdings Plc, Royal Bank of Scotland
Group Plc and UBS AG to settle a probe into foreign-exchange
manipulation. Barclays Plc slid 2.2 percent after saying it is
not ready to settle the investigation. Enel SpA led utility-related shares lower after third-quarter profit fell more than
analysts predicted.
The Stoxx 600 retreated 1.1 percent to 335.09 at the close
of trading.
- Brent Crude Near 4-Year Low; Glut Seen Untouched by OPEC. Brent traded near its lowest level in four years amid speculation that a drop in OPEC output last month won’t eliminate a glut.
West Texas Intermediate also fell. Saudi Oil Minister Ali al-Naimi said
in Mexico that talk of a price war between producers given crude’s
plunge into a bear market was a “misunderstanding.” OPEC said earlier
that Saudi Arabia led declines in the group’s oil output last month,
weeks
before members are scheduled to meet in Vienna. WTI dropped on
speculation U.S. inventories rose last week. WTI for December
delivery dropped 61 cents, or 0.8 percent, to $77.33 a barrel on the New
York Mercantile Exchange. Volume was 18 percent above the 100-day
average.
- Junk Bond Risks Escalate With Leverage Back to ’08 Levels. The riskiest corporate debtors in
the U.S. aren’t growing fast enough to pay down their
borrowings, increasing the risk for bond investors at a time
when valuations are already at about record highs. That’s the conclusion of Deutsche Bank AG, which estimates
that the biggest jump in earnings in almost three years may be
coming too late for speculative-grade borrowers as the amount of
debt on balance sheets climbs back to levels seen in early 2008
before the financial crisis. To make matters worse, their ability to
make interest payments is about where it was in 2007, even as the
Federal Reserve has held its benchmark rate close to zero. “We
expect the next restructuring cycle will be dominated by companies with
good operations but not able to grow into their balance sheets or
refinance maturing debt,” Kenneth Buckfire, president of New York-based
restructuring firm Miller Buckfire & Co., said by e-mail
yesterday. Investors have piled into junk bonds for their relatively
high yields amid the suppressed rates. That has allowed the least
creditworthy borrowers to raise $1.64 trillion in the bond market since
the end of 2008, according to data compiled by
Bloomberg.
Wall Street Journal:
Fox News:
- Russian defense ministry says bomber patrols will reach Gulf of Mexico. Russia's long-range bombers will conduct regular patrol missions from
the Arctic Ocean to the Caribbean and the Gulf of Mexico, the military
said Wednesday, a show of muscle reflecting tensions with the West over
Ukraine.
A statement from Defense Minister Sergei Shoigu comes as NATO has
reported a spike in Russian military flights over the Black, Baltic and
North seas as well as the Atlantic Ocean. It came as NATO's chief
commander accused Moscow of sending new troops and tanks into Ukraine.
CNBC:
ZeroHedge:
Business Insider:
The Interpreter:
Reuters:
Real Clear Politics:
Style Underperformer:
Sector Underperformers:
- 1) Utilities -2.02% 2) Hospitals -1.63% 3) Alt Energy -1.14%
Stocks Falling on Unusual Volume:
- STKL, ZTS, ASPS, CSIQ, RYN, EZCH, SEAS, SJM, ICPT, SNY, KEP, TAHO, FANG, RESI, RICE, SNCR, STMP, LEN, GHDX, GAS, SLXP, DWSN, DY, CYBX, NVGS, PTX, SJM, ADTN and VDSI
Stocks With Unusual Put Option Activity:
- 1) XLNX 2) JWN 3) M 4) AMAT 5) DHR
Stocks With Most Negative News Mentions:
- 1) FSLR 2) SJM 3) YELP 4) BAC 5) ICPT
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Retail +.90% 2) Steel +.76% 3) Oil Service +.44%
Stocks Rising on Unusual Volume:
- SUSQ, FOSL, MTOR, CZR, AEO, AGIO, PE, M and ACM
Stocks With Unusual Call Option Activity:
- 1) DNKN 2) FTNT 3) CZR 4) EPI 5) VRX
Stocks With Most Positive News Mentions:
- 1) AEO 2) M 3) T 4) YHOO 5) AAPL
Charts:
Evening Headlines
Bloomberg:
- Ukraine Says Rebels Massing Forces Amid Germany’s Warning. Ukraine’s military said the
separatists battling government troops are regrouping and
mobilizing forces across the country’s war-torn east. Pro-Russian insurgents are reinforcing their positions on
the outskirts of the port city of Mariupol and massing armored
vehicles in other parts of the Donetsk region, Andriy Lysenko, a
spokesman for the Ukrainian National Security and Defense
Council, said at a briefing in Kiev yesterday, adding that a
full mobilization was announced in four rebel-held towns. The cease-fire negotiated two months ago is coming undone
as Ukraine and its allies in the U.S. and Europe accuse Russia of continuing to arm rebels in eastern Ukraine. Russian
President Vladimir Putin has denied military involvement. More
than 4,000 people have been killed and about 9,000 wounded in
the conflict, according to the United Nations.
- Russia GDP Growth Seen at Slowest Since 2009 as Oil Adds to Pain. Russia’s
third-quarter economic growth was the slowest since a 2009 contraction
as the slumping price of crude oil and the ruble’s plunge added to the
effect of sanctions over Ukraine, a survey of economists showed.
Gross domestic product grew 0.3 percent from a year earlier after
expanding 0.8 percent in the previous three months, according to the
median estimate of 20 economists in a Bloomberg
survey. The statistics office in Moscow will release the data
tomorrow or Nov. 14.
The economy is buckling under the weight of sanctions,
while the plummeting ruble stokes inflation and the sinking
price of oil erodes export revenue.
- Kuroda Ally Flags Warning on Delaying Sales-Tax Increase.
An adviser to the Bank of Japan and longtime colleague of its governor
flagged a warning on the implications for monetary policy of any move by
Prime Minister Shinzo Abe to delay next year’s sales-tax increase. “The BOJ is buying a massive amount of bonds to lower yields and create inflation,” said Masahiro Kawai, who co-wrote
an article with Haruhiko Kuroda calling for the BOJ to adopt an
inflation target years before Kuroda took over the central bank.
“By postponing the tax hike, Abe would lose fiscal trust, raise
risk premiums and make the BOJ’s job much harder.”
- Record Exports of Cheap Chinese Steel May Spark Trade War. Record
steel exports from China are undercutting foreign rivals on price,
triggering complaints from Seoul to South Africa that may signal the
start of a trade conflict. China produces about half the world’s steel
and exports are
on pace to exceed 80 million tons this year, the most ever,
according to the China Iron & Steel Association.
- Asian Stocks Advance as Topix Jumps on Tax Delay Bets.
Asian stocks rose for a fourth day as Japanese shares climbed after the
yen depreciated to a seven-year low amid speculation the nation will
delay raising its sales tax again. The MSCI Asia Pacific Index (MXAP) added 0.3 percent to 141.38 as of 9:02 a.m. in Tokyo. The Topix index advanced yesterday to its
highest close in six years amid reports Prime Minister Shinzo
Abe is considering postponing a second increase to the levy and
preparing to call snap elections next month.
- Lead Leads Metals Lower as Strengthening Dollar Erodes Appeal. Lead
fell for the first time in five
days, leading most base metals lower, as a stronger dollar lowered the
attractiveness of commodities priced in the greenback as an alternative
investment. Lead in London slipped as much as 0.4 percent and has
lost 8.2 percent since the start of the year. The Bloomberg Commodity
Index (BCOM) has dropped 6.5 percent in 2014, while the dollar traded
near the highest level since 2009 against a 10-currency basket.
- Brent Falls for Third Day on Signs OPEC Will Resist Output Cuts. Brent
crude fell for a third day amid signs that OPEC members are reluctant
to reduce supply even as prices slumped deeper into a bear market. West
Texas Intermediate dropped in New York. Futures slid as much as 0.7 percent in London.
The oversupply in global markets “didn’t come from us,” Energy Minister
Suhail Al Mazrouei said yesterday of the United Arab Emirates and the
Organization of Petroleum Exporting Countries. Crude stockpiles in the
U.S., the world’s biggest oil consumer, probably increased by 1.1
million barrels through Nov. 7 for a
sixth weekly gain, a Bloomberg News survey shows before
government data tomorrow.
Wall Street Journal:
- U.S., China Ready Deals to Avert Military Confrontations. Agreements Would Cover Alerts for Exercises, Set Rules of Behavior for Military Encounters. China and the U.S. prepared to unveil a raft of agreements
designed to avert military confrontations and tackle climate change, in a
surprise display of cooperation between two nations whose relationship
has been strained on multiple fronts.
Fox News:
CNBC:
Zero Hedge:
CNN:
- White House and China set historic greenhouse emissions levels. At the end of a trade summit in China, U.S. President Barack Obama
announced a climate change agreement with Chinese President Xi Jinping
that would cut both countries' greenhouse gas emissions by close to a
third over the next two decades. Under the agreement, the
United States would cut between 26-28% of the level of its carbon
emissions set in 2005 by 2025, and China would do the same by 2030. The
administration hopes the announcement by the two superpowers will spur
other nations to do the same. The White House said the ultimate target
is to "achieve deep economy-wide reductions on the order of 80% by
2050."
Reuters:
National Economic Daily:
- Some Chinese Provinces May Lower 2015 GDP Targets Vs 2014. It is
"almost imossible" for the provinces to meet their 2014 GDP targets if
Jan. - Sept. GDP growth is 1 percentage point lower than annual target,
citing Xu Fengxian, a researcher with Chinese Academy of Social Sciences.
Evening Recommendations
Night Trading
- Asian equity indices are -.5% to +.5% on average.
- Asia Ex-Japan Investment Grade CDS Index 106.0 unch.
- Asia Pacific Sovereign CDS Index 64.25 unch.
- NASDAQ 100 futures -.03%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:00 am EST
- Wholesale Inventories for September are estimated to rise +.2% versus a +.7% gain in August.
- Wholesale Trade Sales for September are estimated to fall -.1% versus a -.7% decline in August.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Plosser speaking, BoE inflation report, Japan industrial
production, $24B T-Note auction, weekly MBA mortgage applications
report, (TWTR) analyst day, (GWW) analyst meeting and the (SWI) analyst
day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open mixed 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: Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 13.09 +3.31%
- Euro/Yen Carry Return Index 150.31 +.91%
- Emerging Markets Currency Volatility(VXY) 8.14 -.37%
- S&P 500 Implied Correlation 42.38 +7.15%
- ISE Sentiment Index 67.0 -22.99%
- Total Put/Call .97 -9.35%
Credit Investor Angst:
- North American Investment Grade CDS Index 64.14 -.56%
- European Financial Sector CDS Index 64.0 -.62%
- Western Europe Sovereign Debt CDS Index 30.62 -3.13%
- Asia Pacific Sovereign Debt CDS Index 64.24 -.16%
- Emerging Market CDS Index 271.88 +.09%
- China Blended Corporate Spread Index 323.55 n/a
- 2-Year Swap Spread 21.25 unch.
- TED Spread 21.75 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -9.75 +.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- China Import Iron Ore Spot $75.87/Metric Tonne +.09%
- Citi US Economic Surprise Index 15.80 +.2 point
- Citi Eurozone Economic Surprise Index -30.20 +.5 point
- Citi Emerging Markets Economic Surprise Index -11.50 -1.4 points
- 10-Year TIPS Spread 1.94 unch.
Overseas Futures:
- Nikkei Futures: Indicating +110 open in Japan
- DAX Futures: Indicating -15 open in Germany
Portfolio:
- Slightly Lower: On losses in my retail/tech sector longs and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
