Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 18.43 +23.77%
- Euro/Yen Carry Return Index 153.47 -.78%
- Emerging Markets Currency Volatility(VXY) 9.05 +.56%
- S&P 500 Implied Correlation 68.95 +3.34%
- ISE Sentiment Index 86.0 +26.47%
- Total Put/Call .99 -5.71%
Credit Investor Angst:
- North American Investment Grade CDS Index 68.39 +5.70%
- America Energy Sector High-Yield CDS Index 603.0 +4.03%
- European Financial Sector CDS Index 61.50 +3.19%
- Western Europe Sovereign Debt CDS Index 29.84 +10.2%
- Asia Pacific Sovereign Debt CDS Index 65.87 +.59%
- Emerging Market CDS Index 352.44 +7.13%
- China Blended Corporate Spread Index 330.79 +.73%
- 2-Year Swap Spread 23.0 +.75 basis point
- TED Spread 21.25 -1.25 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap 7.0 +2.75 basis points
Economic Gauges:
- 3-Month T-Bill Yield .03% +2.0 basis points
- Yield Curve 159.0 -1.0 basis point
- China Import Iron Ore Spot $69.14/Metric Tonne +.12%
- Citi US Economic Surprise Index 18.10 +.2 point
- Citi Eurozone Economic Surprise Index -19.40 -2.3 points
- Citi Emerging Markets Economic Surprise Index -7.1 -.6 point
- 10-Year TIPS Spread 1.71 -3.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating -172 open in Japan
- DAX Futures: Indicating -52 open in Germany
Portfolio:
- Slightly Higher: On gains in my index hedges and emerging markets shorts
- Market Exposure: 25% Net Long
Bloomberg:
- Russia Set to Raise Main Lending Rate. Russia’s
central bank will probably raise borrowing costs to avert threats to
financial stability as oil prices near the lowest in more than five
years and sanctions over Ukraine risk the collapse of the ruble. The
Bank of Russia will increase its key rate to 10.5 percent from 9.5
percent, according to the median estimate of 34 economists surveyed
by Bloomberg. Nine analysts predict a bigger increase. Fifty of 77
traders polled by brokerage Tradition project a rate increase of between
100 and 400 basis points. The regulator will announce the decision at
about 1:30 p.m. tomorrow in Moscow, followed by a news conference.
- Greece Reruns Doomsday Scenario. (video) Political tumult in Greece,
plunging stock and bond markets, the threat of default and exit from the
euro: the script is eerily similar to the nightmare scenarios of 2010
and 2011. Debt-infested
Greece skidded close to the edge then, saved by 240 billion euros ($297
billion) in emergency loans improvised by European governments led by a
reluctant Germany. Now, after achieving some signs of economic recovery,
the government in Athens is again teetering, provoking a fresh round of
doomsday speculation.
- Bank of Canada Says Home Prices Overvalued as Much as 30%.
Canada’s housing prices are
overvalued by as much as 30 percent, the central bank said in its latest
assessment of a financial risk that’s built up over years of rising
prices and low interest rates. Home prices are 10 percent to 30
percent above where the bank’s model suggests they should be, according
to the Ottawa-based bank’s Financial System Review. Today’s report is
the
first time the central bank has published such a direct
calculation of housing overvaluation.
- Bank of Canada Warns of Liquidity Risk in Corporate Bonds. Canadian corporate bond investors
may be underestimating the difficulty of selling their holdings
in a market downturn, leaving them open to greater losses, the
Bank of Canada said. Rising holdings of corporate bonds in mutual
and exchange-traded funds could exacerbate price swings if the funds are
forced to sell in a rout, the central bank said in its semi-annual
Financial System Review. Some market participants also believe dealers
are reducing market-making activity, or acting as the middleman between
trades, which may make it harder to
unwind large positions.
- Airbus Slumps Most in Six Years on Muted Earnings Outlook. Airbus
Group NV (AIR) fell the most in more than six years after saying
earnings will be “rather flat” in 2016 and that generating cash will be
tough as it
spends more to upgrade aircraft and turn around its military
unit.
- Europe Stocks Drop Third Day as OPEC Outlook Weighs on Oil Firms. (video) A drop in oil and gas companies sent European stocks down a third day
after OPEC said it sees demand for crude in 2015 at the weakest level
in 12 years. The Stoxx Europe 600 Index declined 0.3 percent to
339.32 at the close of trading, erasing an earlier advance of as much as
0.9 percent. A measure of energy stocks retreated to a three-year low,
posting the worst performance among 19 industry groups on the Stoxx 600.
Royal Dutch Shell Plc, BP Plc and Total SA lost more than 1 percent.
- Brent Crude Drops Below $65 as OPEC Sees Less Demand.
Brent fell below $65 for the first time in more than five years as OPEC
cut the demand forecast for its crude oil to a 12-year low. West Texas
Intermediate dropped as U.S. inventories grew.
- Copper Drops as Lower Chinese Producer Prices Damp Demand. Copper futures fell the most in a
week on concern that demand is ebbing in China, the world’s top consumer of industrial metals. China’s producer-price index in November fell 2.7 percent
from a year earlier, government data showed today. The record
33rd straight decline was the biggest since mid-2013. Copper has
dropped 15 percent this year, heading for a consecutive annual
decline for the first time since 2001.
- Corn, Soybeans Decline as USDA Raises Forecast for World Crops. Corn futures fell after the U.S.
government raised its outlook for global supplies as an
expanding grain glut drives down global food costs. Soybeans
declined for the first time in six sessions.
- JPMorgan(JPM) Sees ‘High Teens’ Decline in Trading Revenue. JPMorgan Chase & Co. (JPM)
probably will report a “high teens” percentage drop in fourth-quarter
trading revenue from a year ago, Chief Financial Officer Marianne Lake
said. The shares fell as much as 2.3 percent. Most of the revenue decline will stem from the sale of the
bank’s physical-commodities business and higher interest costs
from the issuance of preferred stock, Lake said today at an
investor conference in New York. The “core performance” of the
trading business probably will slip 4 percent, she said.
Wall Street Journal:
- Oil Price Fall Deepens BOJ Policy Board Rift. Opponents
to October’s Easing May Reject Push to ‘Mechanically’ Ease. The
continued fall in crude oil prices is deepening a rift among Bank of
Japan policy-board members, indicating that some of them may reject any
push for extra stimulus next year.
ZeroHedge:
ValueWalk:
Business Insider:
interfax:
- Russian Companies Lost Tens of Billions of Rubles on FX Derivatives.
Russian cos. lost tens of billions of rubles on OTC forex derivatives,
citing Sergey Moiseev, head of the financial stability debt at Bank of
Russia. Central bank has seen tens of billions of rubles in losses at
large Russian cos. on FX side of contracts, he said. Central bank
doesn't know size of "shadow" derivatives market, or actual amount of
losses.
Style Underperformer:
Sector Underperformers:
- 1) Energy -3.51% 2) Oil Service -3.32% 3) Gaming -3.30%
Stocks Falling on Unusual Volume:
- KB, LE, ENBL, GLP, KKD, LNCO, CONN, CPG, OAS, GSK, TOL, YUM, SFL, MSM, SXE, OKE, NEE, NGLS, BTI, ST, BPT, BTE, TRGP, CMTL, JMLP, VZ, RRTS, HP, ARII, WYNN, KPTI, WLL, OKE, ATLS, LINE, ROSE and APL
Stocks With Unusual Put Option Activity:
- 1) CONN 2) XLV 3) AA 4) XLNX 5) SPLS
Stocks With Most Negative News Mentions:
- 1) GS 2) PBR 3) LRCX 4) XOM 5) TK
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Airlines +1.43% 2) Gold & Silver +.25% 3) REITs +.07%
Stocks Rising on Unusual Volume:
- NBIX, BDC, NCS, KITE, GMCR and BMS
Stocks With Unusual Call Option Activity:
- 1) ALLY 2) COST 3) XLU 4) WLL 5) DG
Stocks With Most Positive News Mentions:
- 1) COST 2) PGR 3) HOV 4) WDFC 5) AEO
Charts:
Evening Headlines
Bloomberg:
- Russia Set to Raise Main Rate as Ruble Rout Endangers Stability. Russia’s
central bank will probably
raise borrowing costs to avert threats to financial stability as oil
prices near the lowest in more than five years and sanctions over
Ukraine risk the collapse of the ruble. The Bank of Russia will
increase its key rate to 10 percent from 9.5 percent, according to the
median estimate of 27 economists surveyed by Bloomberg. Eleven forecast
no change. Fifty of 77 traders polled by brokerage Tradition project a
rate
increase of between 100 and 400 basis points. The regulator will
announce the decision at about 1:30 p.m. tomorrow in Moscow,
followed by a news conference.
- AAA-or-Nothing Ruling Adds to China Bond Default Concern.
With $90 billion of bonds sold by local government financing vehicles
coming due next year, China is walking a fine line between teaching
investors a lesson and preventing widespread defaults. The nation’s clearing agency said this week that local
bonds rated lower than the highest AAA grade are too risky to be
used as collateral for short-term loans. That means about half
of the outstanding 1 trillion yuan ($162 billion) securities
sold by local government financing vehicles, or LGFVs, in the
exchange market can no longer be pledged to raise funds,
according to Morgan Stanley.
- Asia Stocks Drop With Oil as Dollar Gains After China CPI.
Asian stocks fell, with the regional index heading for for its biggest
two-day drop in a month, and the dollar advanced as oil erased
yesterday’s gains. Chinese stocks fluctuated as inflation data missed
estimates, underscoring growth concerns in Asia’s largest economy. The
MSCI Asia Pacific Index slid 1.3 percent by 11:29 a.m. in Tokyo, set
for its lowest close since Oct. 24 as Japan’s Topix gauge slid 1.5
percent. The Hang Seng China Enterprises Index (HSCEI) was little
changed after tumbling 4.6 percent yesterday. The Bloomberg Dollar Spot
Index increased 0.1 percent as the yen weakened and the Australian
currency held a record losing
streak. Oil fell for the fourth time in five days.
- Copper Leads Industrial Metals Lower on China Growth. Copper
fell for the third time in four days on concern demand is slowing in
China after factory-gate deflation deepened and consumer prices climbed
at the
slowest pace since 2009 in the world’s largest metals user.
Copper dropped as much as 0.7 percent.
- Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord. Brent
resumed its decline as an
Iranian official predicted a further slump in prices if solidarity among
OPEC members falters. West Texas Intermediate in New York also erased
yesterday’s gains. Futures slid as much as 1.6 percent in London
after snapping a five-day losing streak. Crude could fall to as low as
$40 a barrel amid a price war or if divisions emerge in the Organization
of Petroleum Exporting Countries, said an official
at Iran’s oil ministry. The 12-member group, which supplies 40
percent of the world’s oil, may need to call an extraordinary
meeting in the first quarter if the drop continues, according to
Energy Aspects Ltd.
Wall Street Journal:
- Beijing Taps Brakes, and Markets Drop. China Notches Biggest Market Loss in 5 Years After Surprise Move to Rein In Lending. China notched its biggest market loss in five years after Beijing
made a surprise move to rein in lending, fueling concerns about growth
in the world’s No. 2 economy. Tuesday’s selloff came as policy
makers convened in Beijing to plot an economic policy course for the
next year—a meeting widely expected to yield a drop in the 2015 growth
target to 7% from 7.5%.
- Fed Sets Tough New Capital Rule for Big Banks. J.P. Morgan(JPM) Would Face $21 Billion Shortfall. Eight of the largest U.S. banks will need fatter capital cushions as
part of U.S. regulators’ latest efforts to make the financial system
less risky. The biggest impact will be felt by J.P. Morgan Chase
& Co., the nation’s largest bank by assets, which is $21 billion
short of the requirement, according to Fed officials.
- Spooks of the Senate. The report on CIA interrogations is a collection of partisan second-guessing. The Senate Intelligence Committee report on CIA interrogations is a
moment for reflection, but not for the reasons you’re hearing. The
outrage at this or that ugly detail is politically convenient. The
report is more important for illustrating how fickle Americans are about
their security, and so unfair to those who provide it. After
the trauma of 9/11 and amid the anthrax letters in 2001, Americans
wanted protection from another terror attack.
Fox News:
- House leaders unveil budget bill, race to avert partial shutdown. (video) House leaders unveiled a $1.1 trillion spending bill Tuesday night
that would avert a partial government shutdown while delaying a fight
over President Obama's immigration actions until early 2015. The
GOP-led House Appropriations Committee released the plan, which would
keep most of the government funded through September 2015, following
days of backroom negotiations.
Zero Hedge:
Business Insider:
Evening Recommendations
Night Trading
- Asian equity indices are -1.25% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 104.75 +3.25 basis points.
- Asia Pacific Sovereign CDS Index 65.5 +2.25 basis points.
- NASDAQ 100 futures -.13%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 pm EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-2,625,000 barrels versus a -3,689,000 barrel decline the prior week.
Gasoline supplies are estimated to rise by +2,450,000 barrels versus a
+2,143,000 barrel gain the prior week. Distillate supplies are estimated
to rise by +887,500 barrels versus a +3,028,000 gain the prior week.
Finally Refinery Utilization is estimated to rise by +.31% versus a
+1.9% gain the prior week.
2:00 pm EST
- The Monthly Budget Deficit for November is estimated at -$65.0B versus -$135.2B in October.
Upcoming Splits
Other Potential Market Movers
- The
Australian Unemployment report, $21B 10Y Note auction, weekly MBA
mortgage applications report, USDA's WASDE report, Oppenheimer
Healthcare Conference, BofA Basic Materials Conference, (DBD) investment
conference, (TSN) investor day, (BGG) investor day and the (BF/A)
analyst meeting 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 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: Higher
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 15.30 +7.67%
- Euro/Yen Carry Return Index 154.42 -.52%
- Emerging Markets Currency Volatility(VXY) 9.01 +1.81%
- S&P 500 Implied Correlation 67.59 +1.14%
- ISE Sentiment Index 64.0 -3.03%
- Total Put/Call 1.09 +4.81%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.50 +1.47%
- European Financial Sector CDS Index 59.95 +4.77%
- Western Europe Sovereign Debt CDS Index 26.70 +3.99%
- Asia Pacific Sovereign Debt CDS Index 65.28 +3.32%
- Emerging Market CDS Index 332.18 +2.77%
- China Blended Corporate Spread Index 328.40 +.81%
- 2-Year Swap Spread 22.25 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -9.75 +.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .01% unch.
- Yield Curve 160.0 -3.0 basis points
- China Import Iron Ore Spot $69.06/Metric Tonne -1.06%
- Citi US Economic Surprise Index 17.90 +2.0 points
- Citi Eurozone Economic Surprise Index -17.10 +4.3 points
- Citi Emerging Markets Economic Surprise Index -6.5 +.3 point
- 10-Year TIPS Spread 1.74 +2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating -123 open in Japan
- DAX Futures: Indicating +62 open in Germany
Portfolio:
- Higher: On gains in my biotech/retail sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
