Evening Headlines
Bloomberg:
- Russia Capital Control Jitters Appear in Moscow-to-London Spread. Evidence
is surfacing in Russia’s bond market that investors are concerned
President Vladimir Putin will impose capital controls to stem the
ruble’s 39
percent plunge this year. Bond buyers are demanding a growing premium to
own ruble-denominated bonds traded in Moscow rather than ruble debt
that
trades in London and other international markets. The yield gap
between the two securities has swelled to 0.66 percentage point,
the widest since January 2013 and more than six times the
average over the past two years, according to data compiled by
Bloomberg. It had been as small as 0.03 percentage point in
September.
- Ukraine to Observe One-Day Truce Amid Plan for New Peace Talks. Ukraine
will observe a day of truce
in the east, which may set the stage for a new round of peace talks with
pro-Russian separatists this week. Ukraine will hold a “day of silence”
today after a deal with representatives from Russia, rebels and the
Organization for Security and Cooperation in Europe. Talks in the
Belarusian capital Minsk are possible later this week, the Tass news
service reported, citing representatives of separatists and
unidentified officials in Kiev.
- China’s Rate Swaps Surge Most Since June 2013 as Bonds Tumble. China’s
one-year interest-rate swaps jumped 29 basis points, the most since a
record cash crunch in June 2013, to 3.67 percent. The yield on
government debt due October 2019 surged 16 basis points to 3.90 percent
as of 9:04 a.m. in Shanghai,
according to prices from the National Interbank Funding Center.
That’s the biggest increase for a five-year note since
November 2013, ChinaBond data show. China has halted new corporate bond repurchase applications
for debt with ratings below AAA, according to a statement posted
to the China Securities Depository and Clearing Corp.’s website
yesterday. Rising rates in the bond and money markets pose a challenge
for policy makers as they seek to spur spending in an economy
that’s forecast to expand this year at the slowest pace in more
than two decades.
- Australian Business Confidence at 16-Month Low as Rate Cuts Seen. Australian business sentiment dropped
to the lowest level since before last year’s election, National
Australia Bank Ltd. said as its economists predicted the central
bank will cut interest rates twice in 2015. The confidence index
dropped to 1 in November from a revised 5 a month earlier, a NAB survey
of more than 400 companies taken Oct. 27-31 and released in Sydney today
showed.
The business conditions gauge, a measure of hiring, sales and
profits, slid to 5 from 13.
- Brazil’s Real Touches Nine-Year Low as China’s Imports Decline.
Brazil’s real touched a nine-year low after an unexpected decline in
China’s imports last month added to concern that Latin America’s largest
economy will struggle to regain momentum. The real dropped 0.5
percent to 2.6004 per U.S. dollar at the close of trade in Sao Paulo,
after falling to 2.6174, the weakest intraday level since April 2005.
Swap rates, a gauge of
expectations for changes in Brazil’s borrowing costs, climbed
seven basis points, or 0.07 percentage point, to 12.48 percent
on the contract maturing in January 2016.
- Asian Stocks Follow U.S. Shares Lower as Oil Slides, Yen Gains.
Asian stocks fell, after U.S. shares dropped the most in almost seven
weeks, as oil extended its decline and a stronger yen weighed on
Japanese exporters. The MSCI Asia Pacific Index (MXAP) slid 0.3
percent to 139.70 as of 9:06 a.m. in Tokyo after adding 0.1 percent
yesterday. Japan’s Topix (TPX) index decreased 0.7 percent after the yen
added
0.6 percent against the dollar yesterday.
- JPMorgan Cuts Iron Ore Outlook as Growth in Supply Beats Demand. Iron ore prices will extend declines as growth in low-cost supply from the world’s largest producers
outstrips demand, according to JPMorgan Chase & Co., which
reduced forecasts through 2017. The steel-making raw material will average $67 a metric ton
next year, 24 percent less than previously forecast, and $65 in
2016, down 23 percent, the bank said in an e-mailed report
received today. So far this year, it’s averaged $98.95 a ton,
according to data from Metal Bulletin Ltd. In 2017, prices will
average $69 a ton, 16 percent less, the bank said.
- Copper Retreats for Third Day as Demand Seen Slowing.
Copper for delivery in three months on the London Metal Exchange slipped
0.2 percent to $6,393 a metric ton at 9:58 a.m. in Shanghai. In New
York, March futures retreated 0.2 percent to $2.8785 a pound, while in
Shanghai the metal for February delivery fell 0.5 percent to 45,670 yuan
($7,385) a ton.
- Too-Big-to-Fail May Lead to U.S. Bank Pay Rules: Hoenig. U.S. lawmakers may follow their
European counterparts and regulate bankers’ pay if reforms aimed
at ending government bailouts for lenders stall, Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig said. Regulatory focus on bankers’ pay “will become more of an issue in the U.S. if we don’t solve the too-big-to-fail
problem,” Hoenig said in an interview in Amsterdam yesterday.
“If we focus on that and get that solved, then the remuneration
issue will become less significant and we’ll just see how that
plays.”
Wall Street Journal:
- Fed Aims to Signal Shift on Low Rates. Central Bank Could Drop ‘Considerable Time’ Phrasing in Policy Statement. Federal Reserve officials are seriously considering an important shift
in tone at their policy meeting next week: dropping an assurance that
short-term interest rates will stay near zero for a “considerable time”
as they look more confidently toward rate increases around the middle of
next year.
- ObamaCare’s Casualty List. Three elections later, the law continues to be a political catastrophe for Democrats. Mary Landrieu’s defeat in Saturday’s Louisiana Senate runoff was no
surprise, but that doesn’t mean it should be ignored as inevitable. Ms.
Landrieu was a widely liked three-term incumbent, and her GOP foe was
hardly a juggernaut, yet she lost by 14 points after Washington
Democrats all but wrote her off. Think of Ms. Landrieu as one more
Democrat who has sacrificed her career to ObamaCare.
Fox News:
- St. Louis police allege hate crime in latest attack on Bosnian resident. The St. Louis police chief has asked for the FBI's help investigating
what he believes was a hate crime attack against a woman in the same
Bosnian neighborhood where a man was beaten to death days earlier by
hammer-wielding teens, and where assaults have spiked dramatically in
recent months.
Zero Hedge:
Business Insider:
Telegraph:
Securities Times:
- Local Chinese Regulator Warns of Margin-Trading Risk. A local
securities regulator in China expressed concerns over rapidly growing
risks in margin trading and short-selling businesses at a meeting
yesterday, citing a person who participated in the meeting. Securities
cos.' margin trading and short selling businesses will face high risks
if stock market encounters sharp decline after surging. Some brokerages
use working capital on these businesses, which may result in liquidity
risks once the market shifts direction. Brokerages that open accounts
for unqualified clients will be severely punished.
Evening Recommendations
Night Trading
- Asian equity indices are -1.0% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 101.50 +.5 basis point.
- Asia Pacific Sovereign CDS Index 63.25 +1.5 basis points.
- NASDAQ 100 futures -.10%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
7:30 am EST
- The NFIB Small Business Optimism Index for November is estimated to rise to 96.5 versus 96.1 in October.
10:00 am EST
- The JOLTS Job Openings report for October is estimated to rise to 4790 versus 4735 in September.
- Wholesale Inventories for October are estimated to rise .2% versus a +.3% gain in September.
- Wholesale Trade Sales for October are estimated to rise +.1% versus a +.2% gain in September.
- The IBD/TIPP Economic Optimism Index for December is estimated to rise to 47.0 versus 46.4 in November.
Upcoming Splits
Other Potential Market Movers
- The
Fed's meeting on risk-based capital, Japan CPI report, China CPI
report, $25B 3Y Note auction, US weekly retail sales reports, Wells
Fargo Energy Symposium, CapitalOne Energy Conference, Goldman Financial
Services Conference, Barclays Tech Conference, (BRCM) analyst day, (PHM)
investor day, (WEX) investor day and the (TSO) analyst presentation could also impact trading today.
BOTTOM LINE: Asian
indices are mostly lower, weighed down by industrial and commodity
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: Substantially Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 13.83 +17.01%
- Euro/Yen Carry Return Index 155.11 -.45%
- Emerging Markets Currency Volatility(VXY) 8.85 +1.61%
- S&P 500 Implied Correlation 66.66 +2.39%
- ISE Sentiment Index 66.0 -30.53%
- Total Put/Call 1.01 -1.94%
Credit Investor Angst:
- North American Investment Grade CDS Index 64.56 +3.43%
- European Financial Sector CDS Index 57.29 +2.35%
- Western Europe Sovereign Debt CDS Index 25.67 +1.62%
- Asia Pacific Sovereign Debt CDS Index 62.87 +1.85%
- Emerging Market CDS Index 322.23 +5.69%
- China Blended Corporate Spread Index 327.48 unch.
- 2-Year Swap Spread 22.0 +.75 basis point
- TED Spread 22.50 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -10.25 +.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .01% unch.
- Yield Curve 163.0 -4.0 basis points
- China Import Iron Ore Spot $69.80/Metric Tonne -2.74%
- Citi US Economic Surprise Index 15.90 +1.0 point
- Citi Eurozone Economic Surprise Index -21.40 +3.9 points
- Citi Emerging Markets Economic Surprise Index -6.8 -2.2 points
- 10-Year TIPS Spread 1.72 -3.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating -80 open in Japan
- DAX Futures: Indicating -40 open in Germany
Portfolio:
- Higher: On gains in my biotech/medical sector longs, index hedges and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Russia Bond Yields Surge to 5-Year High as Rate Pressure Mounts.
Russia’s borrowing costs jumped to a five-year high as the tumbling
ruble sparked speculation the central bank will raise interest rates as
early as this week to stem the depreciation. The yield on 10-year
local-currency bonds rose 60 basis points to 12.67 percent at 7:26 p.m.
in Moscow and the ruble lost 2.3 percent to 53.75 per dollar. Shares of
Mail.ru Group tumbled to a record in London after UBS Group AG
downgraded the internet company amid growing concern that an economic
slowdown
will curtail corporate earnings next year. Pipemaker OAO TMK’s
dollar bonds fell further past levels deemed as distressed.
- Russia's Ruble Disaster in One Chart.
- Emerging-Markets Currencies Tumble to Decade-Low on Dollar, Oil. Nothing’s going right for emerging-market currencies these days. Oil
prices are falling the most in six years, undermining exchange rates of
energy producers from Latin America to Russia, just as slowing growth
in China and a tumbling yen weigh on currencies across Asia. And
surging demand for the dollar, the result of speculation that U.S.
interest rates will rise, is adding to the woes of developing-nation
currencies. An index tracking 20 key exchange rates has fallen to levels last seen more than
a decade ago, down 10.2 percent this year and headed for the biggest
annual slide since 2008.
- Economists Wrong-Footed by Investment Drop at Japanese Companies. Differences
between how Japan’s finance ministry and cabinet office assess
corporate investments caught economists off-guard today, resulting in
gross domestic product forecasts that missed their mark. Economists
last week started narrowing their estimates for the size of Japan’s
economic contraction in the third quarter, trimming their figures
following the finance ministry’s release of data showing investment by
companies rose in the three months through September. The statistics
used by the cabinet office that fed into updated GDP numbers today
showed business spending dropping 0.4 percent.
- Europe Stocks Drop From 7-Year High as Sika, Energy Shares Slump. A plunge in construction and energy
companies sent European stocks down after a four-week rally. The Stoxx Europe 600 Index slid 0.7 percent to 348.61 at the close of trading in London
after a 1.1 percent gain last week propelled it to its highest level
since January 2008. Sika AG tumbled a record 22 percent today and Cie.
de Saint-Gobain SA also fell as a hostile bid by Europe’s biggest
supplier of building materials sparked a management revolt at the Swiss
company. Oil and gas producers reached a three-year low. The DAX
Index dropped 0.7 percent from an all-time high after a report
showed German industrial production climbed less than forecast.
- Copper Declines on Concern China Metals Demand Will Wane.
Copper for delivery in three months on the London Metal
Exchange dropped 0.7 percent to $6,405 a metric ton ($2.91 a
pound) at 5:02 p.m. local time. Prices fell for the fourth time
in five sessions.
- Paulson Comeback Reverses as Event Fund Drops 27% in Year.
John Paulson’s lousy 2014 is getting worse. The billionaire’s
firm posted a 27 percent year-to-date loss in its event-driven fund
after a 3.1 percent decline in November, according to two people
familiar with the matter. The Paulson Recovery Fund has declined 14
percent this year and a version of the event-driven strategy that can
buy new share issues such as Alibaba Group Holding Ltd. (BABA) has
fallen 17 percent.
ZeroHedge:
Business Insider:
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Oil Tankers -5.85% 2) Oil Service -4.51% 3) Gaming -3.62%
Stocks Falling on Unusual Volume:
- MCC, HAL, HEES, TDW, WMB, ADT, TCAP, FUEL, TASR, GLF, AR, NGLS, MRD, CLR, DRIV, NOAH, MYCC, GLP, ARP, ANET, BBEPP, MERC, AB, NMM, SSL, JMLP, PRTA, CLR, CTP, SGEN, LGCY, AIMC, JMF, CBA, SFL, MRD, KWEB, BKW, BTE, LINE, WLL, OAS and VNR
Stocks With Unusual Put Option Activity:
- 1) TSO 2) WMB 3) MCD 4) AMD 5) COP
Stocks With Most Negative News Mentions:
- 1) PBR 2) COP 3) GM 4) TWTR 5) RHAT
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Biotech +2.28% 2) Hospitals +1.29% 3) Utilities +1.06%
Stocks Rising on Unusual Volume:
- CBST, LPX, ISIS, XLRN, BLUE, ISIS, CEMP, TTPH and ACAD
Stocks With Unusual Call Option Activity:
- 1) DWA 2) LPI 3) CRUS 4) ASHR 5) ZQK
Stocks With Most Positive News Mentions:
- 1) EBAY 2) ITW 3) NDAQ 4) SBUX 5) LUV
Charts:
Weekend Headlines
Bloomberg:
- Russia Contagion Spreads to Former Soviet States Amid Rout.
Russia’s currency and bond rout is
spreading to former Soviet states. Currencies are tumbling after holding
steady since
President Vladimir Putin annexed Crimea in March. Russia’s deepening
crisis and the ruble’s 34 percent slump over the past six months hurt
economies that rely on remittances and imports from the country. Georgia’s lari lost 10 percent against the dollar last
week, surpassing the 6.5 percent decline in the ruble as the
biggest loser among 169 currencies tracked by Bloomberg. The
Armenian dram slumped 2.8 percent, the sixth weekly drop, the
longest slump since March 2010. Kazakhstan’s dollar-denominated
notes due in 2024 slid, sending yields up 57 basis points, or
0.57 percentage point, to 4.76 percent.
- Ruble’s Rout Is Tale of Failed Threats, Missteps and Blown Cash. Russian
President Vladimir Putin has tried everything from selling dollars to
threatening speculators in his bid to stem this year’s plunge in the
ruble. None of it has worked. The attached graph provides an upclose look at the ruble’s
collapse over the past two months. It dropped 25 percent during
that time to 52.51 rubles per dollar, extending this year’s
slide to 37 percent. The only currency in the world that’s
fallen more is that of Ukraine, the country where all of Putin’s
financial troubles began when his troops invaded the Crimea
peninsula in March.
- Ukraine Accuses Rebels of More Attacks as Talks Seen. Ukraine said rebel attacks dropped
off in the eastern part of the country, while the two sides
neared an agreement to resume peace talks as soon as this week. The
Defense Ministry said pro-Russia separatists had shelled government
forces about 33 times as of 6 p.m. local time yesterday, down from 58 in
the same period the day before.
- Japan’s Recession Deepens as Election Looms for Abe: Economy.
Japan’s recession was deeper than initially estimated as company
investment unexpectedly shrank, a blow to Prime Minister Shinzo Abe as
he campaigns for re-election on his economic credentials. The economy
contracted an annualized 1.9 percent in the July to September period
from the previous quarter, weaker than the 1.6 percent drop reported in
preliminary data. The result was also below every forecast in a
Bloomberg News survey that showed a median 0.5 percent decrease.
- ECB Loans Seen as Underwhelming Banks to Stoke Draghi’s Resolve. Mario Draghi is about to get an idea of how far reality falls short of his intentions. A
round of long-term loans by the European Central Bank to lenders this
week won’t even cover the repayments they owe from a previous program,
according to a Bloomberg News survey of analysts. The operation could
show that stimulus measures the ECB president says are “intended” to add
as much as 1 trillion euros ($1.23 trillion) to the financial system
won’t suffice without large-scale buying of assets such as government
bonds.
- China A-Shares ETF Slumps as Regulator Urges Caution. The
largest U.S. exchange-traded fund that tracks mainland stocks fell
after China’s securities regulator urged caution as a rally in Shanghai
shares pushed their premium over Hong Kong companies to a 30-month high.
- Emerging Markets Masking Corporate Foreign-Debt Levels, BIS Says. Foreign-debt
levels of companies in emerging markets from China to India and Brazil
are underestimated, threatening financial stability, the Bank for
International Settlements said. Companies are raising more foreign
funds through their offshore affiliates and accounting practices
understate the currency risk in such transactions, the Basel,
Switzerland-based institution said in its quarterly report. Almost half
of the
$554 billion that the firms raised in the five years through
2013 came from the affiliates, the BIS said.
- China Stocks Set for Record Run; Oil Heads to 5-Year Low.
China’s CSI 300 Index (SHSZ300) advanced a 12th day, the longest streak
ever, as the country reported a record trade surplus. Crude oil dropped
toward a five-year low while emerging-market currencies were weaker
against the dollar after a U.S. payrolls report beat all estimates. The
CSI 300 climbed 2.3 percent by 11:47 a.m. in Tokyo, as China’s exports
exceeded imports by $54.47 billion. The MSCI
Asia Pacific Index swung between gains and losses.
- Oil Declines From 5-Year Low on Signs U.S. Taking Fight to OPEC. WTI for January delivery dropped as much as $1.21 to $64.63
a barrel in electronic trading on the New York Mercantile
Exchange and was at $65.08 at 2:31 p.m. Sydney time. It slid 97
cents to $65.84 on Dec. 5, the lowest close since July 2009. The
volume of all futures traded was about 27 percent above the 100-day average. Prices have decreased 34 percent this year.
- Merck(MRK) in Talks to Buy Cubist(CBST) for $7 Billion, NYT Reports.
Merck & Co. (MRK) is in talks to acquire Cubist Pharmaceuticals
Inc. (CBST), a maker of antibiotics, in a deal valued at more than $7
billion, the New York Times reported,
citing people briefed on the matter. Merck would pay about $100 a share,
and an agreement could
be announced as early as next week, the newspaper said. An offer
in that range would represent a 34 percent premium over Cubist’s
closing share price yesterday.
Wall Street Journal:
- Big Australian Banks Could Face Higher Capital Requirements. Panel Makes Recommendations to Prepare Against Potential Financial Crises. Australia’s big banks could face additional capital requirements to
buffer against potential financial crises and new challenges to their
dominance in mortgage lending from regional lenders, following the first
comprehensive review of the country’s financial industry in 17 years.
- ObamaCare’s Threat to Private Practice. The payment system is forcing doctors to sell out to hospitals. The trend, and the law, will be unstoppable without reform. Here’s a dirty little secret about recent attempts to fix ObamaCare.
The “reforms,” approved by Senate and House leaders this summer and set
to advance in the next Congress, adopt many of the Medicare payment
reforms already in the Affordable Care Act. Both favor the consolidation
of previously independent doctors into salaried roles inside larger
institutions, usually tied to a central hospital, in effect ending
independent medical practices.
Barron's:
- The Case for Hedge Funds. Morgan
Stanley advisor Deborah Montaperto has boosted her assets under
management sixfold in six years. Why she’s a huge fan of hedge funds.
Fox News:
- Will GOP's control of the South play significant role in 2016 races? The defeat Saturday of Louisiana Democratic Sen. Mary Landrieu was
essentially the final act in the Republican Party’s control this fall of
the South -- a transition expected to have a significant impact on the
2016 White House races. The victory by Republican challenger and Louisiana Rep. Bill Cassidy
means that Democrats in January will be left without a single U.S.
senator or governor across nine states -- stretching from the Carolinas
to Texas.
CNBC:
- Keep an eye on the Fed's accelerating asset sales. The U.S. monetary authorities (Fed) are stepping up the contraction of
their balance sheet at a surprisingly fast pace. Since peaking at $4.07
trillion last August, the Fed's monetary base has been reduced by $259.2
billion as of the latest reserve reporting date on November 26, 2014.
USA Today
Financial Times:
- Merkel accuses Putin of ‘creating problems’. German
chancellor Angela Merkel delivered a sweeping criticism of President
Vladimir Putin over the Ukraine crisis, warning that Russia was
“creating problems” in Moldova and Georgia, and trying to make some
Balkan states “politically and economically dependent”.
China Securities Journal:
- China Faces Rising Debt Ratio, Local Govt Debt. The Chinese
economy faces a rising debt ratio, swelling local government debt and a
possible property market correction, citing Li Yang, vice president of
the government-backed Chinese Academy of Social Sciences.
People's Daily:
- China to Adopt 'Strong' Measures to Reduce Overcapacity. China
won't allow any projects to build capacity in industries with "serious
overcapacity such as steel and will charge more for power and water in
the sectors, according to an article written by Renzhou, an official
with the Ministry of Industry and Information Technology.
Weekend Recommendations
Barron's:
- Bullish on (CFX), (HPQ), (HON), (DOOR), (DIS) and (GOOG).
Night Trading
- Asian indices are -.50% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 101.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 61.75 unch.
- NASDAQ 100 futures -.01%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:00 am EST
- Labor Market Conditions Index Change for November.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Lockhart speaking, German Industrial Production report, KeyBanc
Engineering/Construction/Utilities Conference, UBS Media/Communications
Conference, (AMGN) investor meeting, (DOV) investor meeting and the
(SLG) investor conference could
also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology 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 week.
