Evening Headlines
Bloomberg:
- Ukraine’s New Cabinet Takes Office Facing War, Economic Downturn. Ukraine’s
new cabinet won approval to take office and must set to work fixing the
economy and tackling a war that has triggered the worst standoff
between Russia and its Soviet-era foes in more than two decades. With
fighting against pro-Russian separatists hammering the economy,
President Petro Poroshenko granted citizenship to three foreigners to
let them take ministerial posts. Lawmakers voted
288 against 1 with 30 abstentions to approve the cabinet
yesterday, as Russia and NATO exchanged recriminations over the
conflict that has killed more than 4,300 people.
- Australia’s Economy Slows, Sending Currency to Four-Year Low.
Australia’s economy unexpectedly slowed for a second straight quarter,
sending the currency to a four-year low and renewing pressure for
interest-rate cuts. Gross domestic product advanced 0.3 percent from the previousthree months, when it rose 0.5 percent, a Bureau of Statistics
report released in Sydney today showed. The result was less than the
weakest estimate of 29 economists, who had a median of 0.7 percent.
- Japan Leads Asia Stocks Higher on U.S. Car Sales, Yen.
Asian stocks rose, with Japan’s benchmark index climbing toward a
seven-year high, after the yen weakened and automakers posted
better-than-estimated U.S. car sales. Australia’s dollar slid to a
four-year low after economic growth unexpectedly slowed and crude oil
advanced. The Topix added 0.6 percent by 11:39 a.m. in Tokyo, rising for
a second day as Toyota Motor Corp. climbed 1.3 percent.
- Bond Offerings Take Aim at $3.97 Trillion Record: Credit Markets. Corporate bond sales worldwide are
poised to set an annual record as soon as this week as companies
lock in borrowing costs that forecasters say are bound to rise.
Amazon.com Inc. (AMZN), Volkswagen AG (VOW) and Alibaba Group Holding
Ltd. have propelled offerings to $3.96 trillion this year, about $7
billion short of the peak of $3.97 trillion in 2012, according to data
compiled by Bloomberg. Company bond sales in the U.S. have already set
annual records.
- Fire Sales, Risk-Taking Threaten Stability, Treasury Says. Fire
sales of assets, the Russia-Ukraine crisis and excessive risk-taking
driven by low interest rates all pose potential threats to financial
stability, the U.S. Treasury Department said. The Treasury’s Office of Financial Research, in its annual
report released today, pointed to “vulnerabilities associated
with declining market liquidity, and the migration of financial
activities toward opaque and less-resilient corners of the
financial system.” The OFR also cited excesses in the use of
leveraged loans and the need to fill “data gaps” in the
office’s monitoring of financial markets.
- Fed Officials Stress Data Over Dates as Rate Rise Case Builds. Federal Reserve officials are
signaling more confidence in the economy that moves them nearer
to raising interest rates, and are stressing the liftoff is linked to data rather than dates to avoid unsettling markets. Fed Vice Chairman Stanley Fischer said today the central bank was getting closer to replacing its vow to hold rates low
for a “considerable time” with guidance that tighter monetary
policy would hinge on the economy’s performance.
Wall Street Journal:
- San Francisco Pension Reconsiders Hedge-Fund Allocation. Proposal Comes in Wake of Calpers Retreat. The chairman of San Francisco’s pension fund is proposing a smaller
mix of hedge funds than previously discussed, the latest retirement
system to rethink its approach to those investments in the wake of a
retreat by the largest public pension in the U.S. The new
suggestion made by San Francisco Employees’ Retirement System Chairman
Victor Makras, according to a memo reviewed by The Wall Street Journal,
is to allocate as much as 3% of...
Fox News:
Zero Hedge:
Business Insider:
Telegraph:
Evening Recommendations
Oppenheimer:
- Rated (SLB) Outperform, target $114.
- Rated (HAL) Outperform, target $71.
- Rated (WFT) Outperform, target $19
UBS:
- Cut Australia Banks to Underweight.
Night Trading
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 101.0 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 62.5 -1.75 basis points.
- NASDAQ 100 futures +.09%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:15 am EST
- The ADP Employment Change for November is estimated to fall to 222K versus 230K in October.
8:30 am EST
- Final 3Q Non-Farm Productivity is estimated to rise +2.4% versus a +2.0% gain in 2Q.
- Final 3Q Unit Labor Costs are estimated to fall -.2% versus a +.3% gain in 2Q.
9:45 am EST:
- Final Markit US Service PMI for November is estimated to rise to 56.5 versus a prior estimate of 56.3.
10:00 am EST
- ISM Non-Manufacturing for November is estimated to rise to 57.5 versus 57.1 in October.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+950,000 barrels versus a +1,946,000 barrel gain the prior week.
Gasoline supplies are estimated to rise by +850,000 barrels versus a
+1,825,000 barrel gain the prior week. Distillate inventories are
estimated to rise by +37,500 barrels versus a -1,648,000 barrel decline
the pior week. Finally, Refinery Utilization is estimated to rise by
+.47% versus a +.3% gain prior.
2:00 pm EST
- Fed's Beige Book release.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Fisher speaking, Fed's Brainard speaking, Fed's Plosser speaking,
Eurozone Services PMI, weekly MBA Mortgage Applications report and the
(ADM) investor day could also impact trading today.
BOTTOM LINE: Asian
indices are mostly higher, boosted by commodity and real estate
shares in the region. I expect US stocks to open modestly higher
and to weaken into the early close, 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: Underperforming
Equity Investor Angst:
- Volatility(VIX) 12.93 -9.45%
- Euro/Yen Carry Return Index 154.15 -.04%
- Emerging Markets Currency Volatility(VXY) 8.52 +2.53%
- S&P 500 Implied Correlation 67.29 -.53%
- ISE Sentiment Index 121.0 +35.96%
- Total Put/Call 1.16 +19.59%
Credit Investor Angst:
- North American Investment Grade CDS Index 62.0 -1.31%
- European Financial Sector CDS Index 58.92 -1.03%
- Western Europe Sovereign Debt CDS Index 28.33 -.21%
- Asia Pacific Sovereign Debt CDS Index 62.51 -2.75%
- Emerging Market CDS Index 293.80 +2.05%
- China Blended Corporate Spread Index 328.11 -.20%
- 2-Year Swap Spread 20.25 -.25 basis point
- TED Spread 21.75 -1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -12.75 -1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .01% unch.
- Yield Curve 175.0 +2.0 basis points
- China Import Iron Ore Spot $70.67/Metric Tonne -.62%
- Citi US Economic Surprise Index 7.90 +.1 point
- Citi Eurozone Economic Surprise Index -21.60 -.8 point
- Citi Emerging Markets Economic Surprise Index -4.7 -2.0 points
- 10-Year TIPS Spread 1.79 -2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +115 open in Japan
- DAX Futures: Indicating +34 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/medical sector longs
- Market Exposure: 50% Net Long
Bloomberg:
- U.S. Says Russia Arms Ukraine Rebels, OSCE Wary on Truce. Ukraine’s
parliament began approving
a new cabinet that must fix the country’s economy and tackle a rebellion
that has ignited the worst standoff between Russia and its Cold War
enemies since the fall of the Iron Curtain. Lawmakers voted to keep Foreign Minister Pavlo Klimkin and
Defense Minister Stepan Poltorak in their posts and debated the
rest of the cabinet proposed by the new five-party ruling
coalition. With fighting against pro-Russian separatists
hammering Ukraine’s economy, President Petro Poroshenko granted
citizenship to three foreigners to let them lead ministries.
- Russian Woes Worsen as Recession Looms With Banks in ‘Panic'. (video) Russia’s economic crisis deepened as the government acknowledged it’s
heading for recession and a former central banker spoke of “some panic” in the financial system as oil prices plunged.
Speaking a day after President Vladimir Putin said Russia is scrapping a
proposed $45 billion pipeline to Europe, the government predicted the
economy will contract next year and canceled a
bond auction. It was also forced to pledge 39.95 billion rubles ($740
million) to support OAO Gazprombank, at least the third lender to secure
a capital injection since U.S. and European Union sanctions curbed
their ability to borrow.
- Putin, Oil and Ruble All Headed for 63 May Be No Russian Joke. Heard the one about Vladimir Putin,
the oil price and the ruble’s value against the dollar? They
will all hit 63 next year. That’s the joke doing the rounds of the Kremlin as the
Russian government digs in to weather international sanctions
over the conflict in Ukraine. According to at least five people
close to Putin, pressure from the U.S. and Europe is galvanizing
Russians to withstand a siege on their economy. The black humor is part of an image of defiance not seen
since the Cold War. As the economy enters its first recession in
more than five years, the ruble depreciates to records and money
exits the country, Putin’s supporters are closing ranks and say
he’s sure to run for another six-year term in 2018.
- Port Hedland Iron Ore Shipments to China Drop to Seven-Month Low. Iron ore shipments to China from Australia’s Port Hedland declined to the lowest level in seven months as the world’s biggest buyer ordered some mills to curb output to cut pollution before a global summit in November. Shipments from the world’s biggest bulk-export terminal totaled 29 million metric tons last month, the lowest since April, according to port authority data. That compares with 31.7 million tons in October and 22.3 million a year earlier, data showed. Total exports were 34.4million tons from a record 37.5
million in October and 28.1 million in November 2013.
- Japanese Workers See Wages Drop for 16th Month on Inflation.
Japanese wages adjusted for inflation dropped for a sixteenth straight
month as Prime Minister Shinzo Abe faces an election focused on his
efforts to spur economic growth. Earning declined 2.8 percent in
October from a year earlier, the labor ministry said today, following
data last week showing households cut spending for a seventh month.
- Oil Investors May Be Running Off a Cliff They Can’t See.
(video) A growing minority of investors and regulators are probing the
possibility that untapped deposits of oil, gas and coal -- valued at
trillions of dollars globally -- could become stranded assets as
governments adopt stricter climate change policies.
- Oil Rally Fizzles; Kurds Reach Deal on Exports With Iraq.
WTI for January delivery fell $1.17, or 1.7 percent, to
$67.83 a barrel at 12:34 p.m. on the New York Mercantile
Exchange. The volume of all futures traded was 5.6 percent above
the 100-day average for the time of day. Futures climbed 4.3
percent yesterday, the biggest gain since Aug. 3, 2012, after
earlier touching $63.72, the least since July 2009. Prices are
down 31 percent this year.
CNBC:
ZeroHedge:
Business Insider:
Telegraph:
interfax-Ukraine:
- Russian GDP to contract 0.8% in 2015 - Econ Ministry forecast. The Russian Economic Development Ministry now forecasts that GDP will
decline 0.8% in 2015 compared with GDP growth of 1.2% contained in the
forecast prepared in September, Deputy Economic Development Minister
Alexei Vedev said at a briefing on Tuesday. The main cause for the significant change in the forecast is the
reduction in the assumed average price of Urals crude oil next year to
$80 per barrel from $100 previously.
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -2.66% 2) Telecom -1.42% 3) Airlines -.71%
Stocks Falling on Unusual Volume:
- VNCE, NHI, TU, RDCM, CCU, HEP, BNCL, QDEL, MFRM, AER, PWRD, NVS, WRI, HTHT, CSH, UNT, CTRP, CLB, LM, RY, CRTO, DXPE, WMS, CRUS, STNR, ABCO, SBAC and THO
Stocks With Unusual Put Option Activity:
- 1) HCA 2) WMB 3) DAL 4) FLR 5) RCL
Stocks With Most Negative News Mentions:
- 1) AMT 2) PCLN 3) PWR 4) VZ 5) APA
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Alt Energy +2.18% 2) Road & Rail +2.15% 3) Energy +1.79%
Stocks Rising on Unusual Volume:
- AVNR, CY, CODE, DGLY, BIIB, RCL, TASR, QUNR, AERI, GBX, TRUE, BBEP, HCLP, OKS, OVTI, SYRG, TRGP, NS, DPM and SCOR
Stocks With Unusual Call Option Activity:
- 1) BEAV 2) NFX 3) TASR 4) ASHR 5) WLT
Stocks With Most Positive News Mentions:
- 1) BEAV 2) JEC 3) AVNR 4) CVX 5) GD
Charts:
Evening Headlines
Bloomberg:
- Russia Scraps EU Gas Link in Favor of Turkish Deliveries. Russia
scrapped a proposed natural gas pipeline that the European Union
opposed because it would bypass Ukraine, moving forward instead with
plans to ship more fuel to Turkey. The decision to shelve the $45
billion South Stream project is the latest sign that Russia’s economic
ties with Europe continue to fray as the crisis in Ukraine persists. The
route under the Black Sea would have offered Russia’s OAO Gazprom a
more direct path to feed the continent’s gas needs, a plan the European
Union objected to because it would reduce Ukraine’s
leverage against its neighbor.
- RBA Keeps Record-Low Rate to Boost Economy as Commodities Tumble.
The Reserve Bank of Australia kept its benchmark interest rate at a
record low to spur hiring in an economy struggling for traction as
commodity prices tumble. The overnight cash rate target was held at
2.5 percent for a 16th month, according to a statement today from
Governor Glenn Stevens following a board meeting in Sydney. The decision
was predicted by all 30 economists surveyed by Bloomberg News and
markets had priced almost no chance of a move.
- China ETF Outflows Show Traders Losing Faith in Rally. Exchange-traded fund investors are
showing little confidence that the world-beating rally in
China’s domestic stock market will last. Traders pulled about $845 million from the CSOP FTSE China
A50 ETF (2822) in the two weeks through Nov. 28, the biggest outflow
since the $5.7 billion fund was started in 2012, according to
data compiled by Bloomberg. The $9.7 billion iShares FTSE A50
China Index ETF lost $585 million last week, the most since
2009, as the Shanghai Composite (SHCOMP) Index rose to a three-year high.
- Draghi Treads Path of ECB Powerlessness Toward QE Without Reform. Looking
out from the top of the
European Central Bank’s new tower in Frankfurt, it’s easy to find dark
clouds on the horizon. The view for policy makers is of a euro-zone
populace so
weary of years of economic turmoil that it’s increasingly
electing politicians who say no to pan-European cooperation, and
spurn reforms that the ECB says are vital to revive the economy.
Trapped by their mandate to prevent deflation, officials fret
they might soon be forced to roll out quantitative easing that
can never succeed by itself.
- Emerging Market Distressed Debt Loses Most Since 2008.
Losses in emerging market distressed
debt have mounted to the worst since the global financial crisis
led by Indonesian coal miner PT Bumi Resources and ZAO Russian
Standard Bank. Bank of America Merrill Lynch’s distressed emerging
markets
corporate index tumbled 2.7 percent yesterday after a 5.6 percent drop
in November. The gauge, which tracks 108 dollar-and euro-denominated
debentures from Russia to China and Brazil, has retreated 9.8 percent
this year, the most since a 36.8 percent
slide in 2008.
- Oil Resumes Drop as Commodity Volatility Jumps; Won Rises.
Oil resumed declines after jumping from a five-year low and metals
retreated amid the highest commodity-price volatility in two years.
South Korea’s won led emerging-market currencies higher and Asian mining
and energy companies rebounded. West Texas Intermediate crude retreated
0.6 percent by 11:44 a.m. in Tokyo.
- Copper in London Declines on Oil, China Manufacturing Weakness. Copper declined for the sixth time in
seven days as crude oil retreated and after a gauge of
manufacturing strength fell to an eight-month low in China, the
largest metals consumer. Copper dropped as much as 0.9 percent. Oil trimmed the
biggest rally since August 2012 as investors weighed OPEC’s
decision to let the market curb a global supply glut. China’s
Manufacturing Purchasing Manager’s Index was at 50.3 in
November, the lowest since March, according to government data
yesterday, while a private gauge from HSBC Holdings Plc and Markit
Economics retreated to 50 from 50.4 in October.
- Get Ready for Big Mortgage Rate Increases. A decade ago, the housing market was heading into the busiest years of
the bubble. Ten years later, hundreds of thousands of homeowners are
about to get a nasty surprise. As their loans turn 10 years old, they
will see their monthly loan payments reset higher—in some cases more
than double.
- Beware the Vulnerable Oil Debt That Lurks in Your Junk-Bond ETFs. (video)
It pays to look a little closer at your investments in
exchange-traded high-yield funds right now to find out just how exposed
you are to plunging oil prices. Take State Street (STT) Corp.’s $9.8
billion junk-bond ETF that trades under the ticker JNK. (JNK) It’s lost
almost twice as much as a broad index of high-yield debt since the end
of August, partly because its bigger allocation to energy
companies has been a drag as oil prices plummet to the lowest since
2009.
- U.S. Corporate Bond Sales Pass $1.5 Trillion for Annual Record.
U.S. corporate bond sales swelled to an annual record as a late-year
rush by companies to lock in low interest rates pushed offerings for
2014 past $1.5 trillion. Bolstered by issues last month including $8
billion from Internet commerce company Alibaba Group Holding Ltd. (BABA)
and a $17 billion sale today by heart-rhythm device maker Medtronic
Inc. (MDT), volume passed the previous high of $1.494 trillion set last year. Companies have offered $1.168 trillion of investment-grade notes in 2014 and $344 billion of junk bonds,
propelled by multiple sales from Verizon Communications Inc. and
General Electric Co. (GE), according to data compiled by Bloomberg. That
outpaces the $1.146 trillion of high-grade notes and $348 billion of
junk notes issued last
year, the data show.
Wall Street Journal:
- Dodgy Home Appraisals Are Making a Comeback. Industry Executives See Parallels With Pre-Crisis Valuations; Regulators Are Wary. Home appraisers are inflating the values of some properties they
assess, often at the behest of loan officers and real-estate agents, in
what industry executives say is a return to practices seen before the
financial crisis.
- Basic Costs Squeeze Families. Health Care, Cellphones Eat Up Income, Leaving Less for Things Like Movies, Clothes. The American middle class has absorbed a steep increase in the cost of
health care and other necessities as incomes have stagnated over the
past half decade, a squeeze that has forced families to cut back
spending on everything from clothing to restaurants.
Fox News:
MarketWatch.com:
CNBC:
Zero Hedge:
Business Insider:
Reuters:
Telegraph:
The Independent:
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 103.50 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 64.25 +2.0 basis points.
- NASDAQ 100 futures +.11%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
9:45 am EST
- ISM New York for November is estimated to rise to 55.0 versus 54.8 in October.
10:00 am EST
- Construction Spending for October is estimated to rise +.6% versus a -.4% decline in September.
Afternoon:
- Total Vehicle Sales for November are estimated to rise to 16.6M versus 16.35M in October.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Yellen speaking, Fed's Stanley Fischer speaking, Fed's Dudley
speaking, Australia GDP report, US weekly retail sales reports, CSFB
Industrials Conference, Piper Healthcare Conference, Citi Basic
Materials Conference, (JCI) analyst meeting, (UNH) investor conference
and the (BDC) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the early close, finishing modestly lower. The Portfolio is 50% net long heading into the day.
