Evening Headlines
Bloomberg:
- Russia Crisis Makes East European Companies Fret Over 1998 Redux. Shedding communism and embracing the
European Union was supposed to shield the former eastern bloc from Russia’s economic pains. A quarter of a century later, there are companies that remain vulnerable.
The ruble’s decline is reviving memories of the 1998 default. Moscow’s
former satellites have tied their economic fortunes to western Europe
and the proportion of exports to Russia is less than 5 percent, yet the
financial turmoil is aggravating the pain caused by the trade
confrontation between
the 28-member EU bloc and Russia.
- China Stock Fever Fails to Infect Foreigners Amid 26% Share Jump.
Since the day China loosened access to its stocks in November, the
Shanghai Composite Index (SHCOMP) has soared 26 percent as the rest of
the world’s markets stood still. Rather than attract overseas buyers, it’s repelling them. While individuals in China are opening the most equity
trading accounts since 2007, professionals such as Tai Hui, the
chief Asia market strategist at JPMorgan Asset Management, warn
the advance has gone too far, too fast.
- RBA Frustrated as Weaker Aussie Goal Thwarted: Australia Credit.
The Australian dollar is set for its first annual gain versus its major
peers in three years as it outperforms the euro and the yen,
frustrating central bank efforts to stimulate the economy with a weaker
currency. A correlation-weighted gauge against nine developed-nation
counterparts has risen 1.2 percent this year, even as an iron-ore glut halved prices of the nation’s key export. The Aussie
climbed 3.9 percent versus the yen and 2.4 percent to the euro.
Reserve Bank of Australia Governor Glenn Stevens said this month
the local dollar “remains above most estimates of its
fundamental value” as he kept interest rates at a record low.
- China’s Stocks Fall From Four-Year High as ICBC, PetroChina Drop.
China’s benchmark stock index fell from a four-year high amid concern a
world-beating rally over the past month was excessive relative to the
outlook for the economy. Industrial & Commercial Bank of China Ltd.
and PetroChina Co., the nation’s biggest companies, dropped more than 2
percent. Aluminum Corp. of China Ltd. plunged 6.9 percent after rallying
25 percent in three days. Zijin Mining Group Co. plunged 4.7 percent
after its controlling stakeholder cut its stake in the company. Leshi
Internet Information & Technology (Beijing) Co. climbed 2.9 percent
as the ChiNext small-caps gauge rebounded from the biggest drop in a
year. The Shanghai Composite Index (SHCOMP) slid 1.8 percent to 3,071 at
10 a.m., heading for the biggest loss in two weeks and paring a
rally over the past month to 24 percent.
- Asian Stocks Drop as Dollar Holds Gains While Oil Climbs.
Asian stocks fell, with commodity shares driving the regional index
lower for the first time in four days. The dollar traded near a two-week
high versus the yen before data on the U.S. economy, while crude oil
climbed. The MSCI Asia Pacific excluding Japan Index lost 0.3
percent by 10:01 a.m. in Hong Kong, with a gauge of materials
shares sliding 1.4 percent.
- Outlook Sours for Europe’s Oil Titans on Crude Slump: S&P. The
U.S. shale-oil industry has made another enemy: Europe’s largest crude
explorers. Standard & Poor’s Ratings Services revised its outlook to
negative for Royal Dutch Shell Plc (RDSA), Total SA (FP) and BP Plc
(BP/) as the oil-market rout driven by weakening demand and a flood of
supply from American shale fields threatens cash flow into 2016.
Wall Street Journal:
- De Blasio, Police Unions Postpone Debate Until After NYPD Funerals. Law-Enforcement Agencies Nationwide Assess the Safety of Their Members. Mayor Bill de Blasio and police unions on Monday agreed to end a war
of words until two officers fatally shot this past weekend are laid to
rest, as law-enforcement agencies nationwide assessed the safety of
their members.
Fox News:
MarketWatch.com:
Zero Hedge:
Business Insider:
Reuters:
- ECB's Hansson: ECB govt bond buys would be 'borderline' - Sueddeutsche Zeitung. Any move by the European
Central Bank to buy government bonds would be "very borderline"
and should not be made hastily, ECB Governing Council member
Ardo Hansson told a German newspaper.
"Governments could borrow more money than before because the
interest costs would be lower," Sueddeutsche Zeitung quoted
Hansson as saying in a summary of an interview to be published
on Saturday. One would then have to ask "whether the ECB is illegally
financing states or not," said Hansson, who is the head of
Estonia's central bank.
Telegraph:
People's Daily:
- Ruble Drop Won't Change China-Russia Ties. Ruble's depreciation
affected China's exports to Russia and made it more difficult for the
two countries to implement joint projects, yet the challenges shouldn't
be exaggerated, according to the commentary.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 103.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 65.25 -2.5 basis points.
- NASDAQ 100 futures +.11%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Durable Goods Orders for November are estimated to rise +3.0% versus a +.4% gain in October.
- Durables Ex Transports for November are estimated to rise +1.0% versus a -.9% decline in October.
- Cap Goods Orders Non-Defense Ex Air for November are estimated to rise +1.0% versus a -1.3% decline in October.
- 3Q GDP is estimated to rise +4.3% versus a prior estimate of a +3.9% gain.
- 3Q Personal Consumption is estimated to rise +2.5% versus a prior estimate of a +2.2% gain.
- 3Q Core PCE is estimated to rise +1.4% versus a prior estimate of a +1.4% gain.
9:00 am EST
- FHFA House Price Index for October is estimated to rise +.3% versus unch. in September.
9:55 am EST
- Final Univ. of Mich. Consumer Confidence for December is estimated to fall to 93.5 versus a prior estimate of 93.8.
10:00 am EST
- Richmond Fed Manufacturing Index for December is estimated to rise to 7.0 versus 4.0 in November.
- New Home Sales for November are estimated to rise to 460K versus 458K in October.
- Personal Income for November is estimated to rise +.4% versus a +.2% gain in October.
- Personal Spending for November is estimated to rise +.5% versus a +.2% gain in October.
- The PCE Core for November is estimated to rise +.1% versus a +.2% gain in October.
Upcoming Splits
Other Potential Market Movers
- The French GDP report, UK GDP report, $35B 5Y T-Note auction, weekly US retail sales reports and the (FDO) special meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial
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: Modestly Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 15.81 -4.12%
- Euro/Yen Carry Return Index 153.22 +.39%
- Emerging Markets Currency Volatility(VXY) 11.04 +.36%
- S&P 500 Implied Correlation 63.97 -.34%
- ISE Sentiment Index 102.0 +50.0%
- Total Put/Call .79 -9.20%
Credit Investor Angst:
- North American Investment Grade CDS Index 64.76 +.44%
- America Energy Sector High-Yield CDS Index 613.0 -2.20%
- European Financial Sector CDS Index 63.28 -4.10%
- Western Europe Sovereign Debt CDS Index 26.72 -9.33%
- Asia Pacific Sovereign Debt CDS Index 65.11 -4.05%
- Emerging Market CDS Index 317.99 -2.60%
- China Blended Corporate Spread Index 344.54 +.38%
- 2-Year Swap Spread 23.5 +.75 basis point
- TED Spread 22.75 +1.75 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -14.75 -.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% -1.0 basis point
- Yield Curve 150.0 -4.0 basis points
- China Import Iron Ore Spot $67.90/Metric Tonne -1.84%
- Citi US Economic Surprise Index 32.70 +1.2 points
- Citi Eurozone Economic Surprise Index 1.90 +2.7 points
- Citi Emerging Markets Economic Surprise Index -12.80 unch.
- 10-Year TIPS Spread 1.67 +4.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +195 open in Japan
- DAX Futures: Indicating +39 open in Germany
Portfolio:
- Slightly Lower: On losses in my biotech sector longs and emerging markets shorts
- Market Exposure: 50% Net Long
Bloomberg:
- Russian Rating May Fall to Junk in Economic Crisis, Kudrin Says. Russia’s sovereign debt rating will tumble
into junk territory next year as the country plunges into a
“full-fledged economic crisis,” former Finance Minister Alexei Kudrin said. Gross domestic product may contract by at least 2 percent
in 2015, while inflation will accelerate to 12 percent to 15
percent, Kudrin told reporters in Moscow today. Russia failed to
make changes to the economy during “quiet years” and now must
face the current crisis unprepared, said Kudrin, who served as
finance minister for more than a decade until 2011.
- Bank of Russia Pledges to Bail Out Trust as Ruble Crisis Hits. Russia’s
central bank pledged as much as 30 billion rubles ($531 million) to
support National Bank Trust after the ruble plunged and liquidity
tightened. The central bank is selecting an investor to help
shore up the lender, and the Deposits Security Agency will take over its
management, Bank of Russia said in a statement today. The ruble has
depreciated 38 percent against the dollar since June, and
volatility has soared to the highest since Russia defaulted on
local-currency debt 16 years ago, stoking concern that Russian lenders’
asset quality has deteriorated.
- Ruble’s Rescue Comes With Cost for Russian Economy. Russian policy makers are signaling they’re
prepared to sacrifice economic growth in order to stabilize the
ruble. The Bank of Russia raised its benchmark interest rate by the most in 16 years last week and created a money-market cash
squeeze, helping the ruble strengthen 45 percent from a record
low on Dec. 16. The consequence of this means the oil producer’s
economy may shrink 7.9 percent in 2015, Danske Bank A/S said on
Dec. 19, revising a view for a 1.8 percent contraction.
- China Stock-Manipulation Probe Spurs Concern on Small-Cap Rally. An
investigation into stock market
manipulation in China is spurring concern of further losses for shares
of smaller companies after a benchmark gauge plunged by the most in a
year. The China Securities Regulatory Commission is probing
companies and individuals involved in suspected market manipulation on
18 stocks and has set up a task force, the regulator said in a Dec. 19
statement on its microblog, citing
an unnamed spokesman. Most of these stocks are small companies
listed in Shenzhen, according to the statement.
- Brazil Economists Cut GDP and Raise Inflation Forecasts for 2015.
Brazil economists cut their gross domestic product forecast and raised
their inflation estimate above the official target range as
deteriorating confidence will present a
challenge for the government’s new economic team. Analysts reduced to 0.55 percent their GDP estimate for
2015 from 0.69 percent the previous week, according to the Dec.
19 central bank survey of about 100 analysts published today.
Analysts also cut to 0.13 percent the estimate for growth this
year, from 0.16 percent last week.
- European Stocks Advance for Fifth Day as Lenders Lead. European stocks advanced for a fifth day, with banks contributing the most to the gains. The
Stoxx Europe 600 Index rose 0.5 percent to 341.97 at the close of
trading in London, after earlier adding as much as 0.9 percent.
- Copper Futures Fall on ‘Disappointing’ Drop in U.S. Home Sales.
Copper futures for March delivery fell 0.4 percent to
settle at $2.8725 a pound at 1:10 p.m. on the Comex in New York.
This year, the price has declined 15 percent amid concern that global
mined supplies will top demand as the economy cools in China, the
largest user.
CNBC:
ZeroHedge:
Business Insider:
MEES:
- Saudi's Naimi Says $20 Oil 'Irrelevant' to OPEC Policy. "Whether
it goes to $20/b, $4-0/b, $50b, $60/b, it is irrelevant," Saudi Arabian
Oil Minister Ali Al-Naimi said when asked what price would prompt OPEC
to cut output. Naimi was asked in interview whether OPEC would maintain
output even if prices were to drop to $40-$30/bbl. Naimi said Russia
indicated it was unable to cut production during talks with Saudi,
Mexico, Venezuela last month. Naimi said Saudi oil production costs are
$4-$5/bbl at most.
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -5.57% 2) Oil Service -2.39% 3) Biotech -1.86%
Stocks Falling on Unusual Volume:
- OCN, ASPS, GILD, OTIC, FINL, LJPC, RESI, BIIB GLP, USAC, TCRD, ISIS, AR, BBL, STMP, VNRCP, ALDW, WLL, NBR, SSLT, HQH, MVO, UPL, BTE and SDRL
Stocks With Unusual Put Option Activity:
- 1) EXAS 2) VRX 3) OCN 4) GILD 5) IBB
Stocks With Most Negative News Mentions:
- 1) FINL 2) STX 3) JPM 4) C 5) OCN
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Road & Rail +1.25% 2) Airlines +1.16% 3) Internet +1.03%
Stocks Rising on Unusual Volume:
- ACHN, RDUS, CUBA, ENTA, CZR, CHL, TASR, KN and WNC
Stocks With Unusual Call Option Activity:
- 1) VHC 2) ARCP 3) SIRI 4) NFX 5) GILD
Stocks With Most Positive News Mentions:
- 1) RTN 2) BWS 3) AAPL 4) PFE 5) QCOM
Charts:
Weekend Headlines
Bloomberg:
- North Korea Threatens Greater Pain If Punished Over Sony Hacking. North
Korea warned that any U.S. punishment over the hacking attack on Sony
Pictures Entertainment would lead to damage “thousands of times
greater,” with targets including the White House and Pentagon.
Hackers including the “‘Guardians of Peace’’ group that forced Sony to
pull a comedy about the assassination of Kim Jong Un ‘‘are sharpening
bayonets not only in the U.S. mainland but in all other parts of the
world,’’ the
Kim-led National Defense Commission said in a statement published
yesterday by the official Korean Central News Agency. Even so, North
Korea doesn’t know who the Guardians are, the commission said.
- North Korea: 1.2 Million Troops, Nukes and a 3,000-Strong Cyber-Elite.
North Korea’s alleged ability to hack into Sony Pictures Entertainment
is extending Kim Jong Un’sreach far beyond the range of his missiles. While
North Korea has kept Western defense officials guessing for years about
a nuclear program that it may or may not ever use, the regime’s ability
to wage cyber war adds a new dimension to its standing abroad.
- Poroshenko Meets Belarus Leader as Ukrainian Peace Efforts Stall. Ukrainian President Petro Poroshenko met the
leader of Belarus, whose country hosted negotiations that
clinched a cease-fire in September, as efforts faltered to agree
on a new round of talks with pro-Russian separatists. The agreements
reached in Minsk are the “basis of the peace process in Ukraine,”
Poroshenko told Belarusian President Aleksandr Lukashenko yesterday in
Kiev. “There’s now no
alternative model to de-escalate the situation.”
- China Offers Enhanced Cooperation as Russia Struggles.
China offered enhanced economic ties with Russia at a regional summit
this week as its northern neighbor struggled to contain a currency
crisis. “To help counteract an economic slowdown, China is ready to
provide financial aid to develop cooperation,” Premier Li Keqiang said
at a Dec. 15 gathering in Astana, Kazakhstan. While the remark
applied to any of the five other nations represented at the meeting of
the Shanghai Cooperation Organization group,
it was directed at Russia, according to a person familiar with
the matter who asked not to be named as the plans weren’t
public.
- U.S. Soldiers Fight Islamic State in Iraq, Kurds Advance. U.S. soldiers clashed with Islamic State
militants, helping the Iraqi army repel attacks against the town
of al-Baghdadi in the western Anbar province, Al Jazeera TV reported, as Kurdish forces advanced in the north.
The U.S. troops were from al-Assad military base, the biggest in Anbar,
First Lieutenant Muneer al-Qoud from the Iraqi police said by phone.
Meanwhile, a U.S. senior military official said there are no U.S. ground
troops fighting in Iraq, though forces can engage in self-defense if
required.
- U.S. to Release Four Guantanamo Bay Prisoners to Afghanistan. Four
prisoners from the U.S. detention facility at Guantanamo Bay, Cuba, are
to be repatriated to Afghanistan, the Defense Department said. Shawali
Khan, Khi Ali Gul, Abdul Ghani and Mohammed Zahir were to be released as
part of an effort by President Barack Obama to accelerate transfers and
close the facility. An interagency task force reviewed their cases to determine whether
the prisoners met the standards for release and examined issues
including security before unanimously approving the transfers.
- South Korea Cuts 2015 Growth Forecast, Warns on External Risks.
South Korea lowered its growth forecast and said it will revise capital
controls to guard against higher U.S. interest rates and other external
risks to Asia’s fourth-biggest economy. The economy will expand 3.8 percent next year, less than a July estimate of 4 percent, the finance ministry said, citing
weaker-than-expected domestic demand. The ministry may revise
rules in 2015 on currency forwards and foreign currency
liabilities to prevent abrupt outflows, a statement showed.
- Asian Stocks Rise as Crude Extends Gains While Kiwi Drops.
Asian stocks rose, with the regional index headed for its steepest
three-day advance in almost two months, as commodity shares climbed amid
a rally in crude oil. New Zealand’s dollar dropped while Japanese bonds
extended gains. The MSCI Asia Pacific Index climbed 0.6 percent by 11:04 a.m. in Tokyo, bringing its gain since Dec. 18 to 3 percent.
- Iron Ore Price Outlook Cut 33% by Australia as Glut Expands. Australia cut its iron ore price estimate
for next year by 33 percent as surging output in the world’s top
exporter outpaces Chinese demand growth, adding to a surplus. Prices will average $63 a metric ton, the Department of
Industry said today. That compares with $94 a ton forecast in
September by the Bureau of Resources and Energy Economics, which
is now part of the department. The commodity is set to average
about $88 this year, today’s quarterly report says.
- Age of Plenty Seen Over for Gulf Arabs as Oil Tumbles. The boom that adorned Gulf Arab monarchies
with glittering towers, swelled their sovereign funds and kept
unrest largely at bay may be over after oil prices dropped by
almost 50 percent in the last six months. The sheikhdoms have used the oil wealth to remake their
region. Landmarks include man-made islands on reclaimed land, as
well as financial centers, airports and ports that turned the Arabian
desert into a banking and travel hub. The money was also deployed to
ward off social unrest that spread through the Middle East during the
Arab Spring.
Wall Street Journal:
- White House Weighs Options Against North Korea. Moves Include Financial Sanctions, Restoring to List of Terror Sponsors. The White House is considering an array of options for responding to
North Korea’s alleged hacking of Sony Pictures, including measures that
would intensify financial pressure on Pyongyang by targeting banks and
trading companies controlled by leader Kim Jong Un and his ruling elite,
according to senior administration officials.
CNBC:
- Castro thanks US in speech but reaffirms Communism. President
Raúl Castro declared victory for the Cuban Revolution on Saturday in a
wide-ranging speech, thanking President Obama for “a new chapter” while
also reaffirming that restored relations with the United States did not
mean the end of Communist rule in Cuba.
Financial Times:
- US regulator probes ETF pricing structures. Extreme
movements in the prices of bonds, commodities and other assets have
prompted regulators at the Federal Reserve Bank of New York to take a
closer look at the inner workings of exchange traded funds.
Wall Street’s top regulator has been talking to the firms responsible
for ensuring the smooth functioning of such ETFs as it seeks to gauge
the resilience of the structures to sharp fluctuations in the underlying
market they track.
Telegraph:
Wirtschaftswoche:
- ECB's Constancio Sees Negative Inflation Rate. Oil Price decline
"doesn't create a simple situation for us in the short-term," ECB Vice
President Vitor Constancio cited as saying in interview. Sees negative
inflation rate in coming months. ECB wants to prevent "dangerous vicious
circle of declining prices, rising real wage costs, falling profits,
shrinking demand and further declining prices," he said. Given that many
economist expect weak economy in euro area until 2018 sees downward
pressure on inflation expectations.
Yonhap News:
- N. Korea threatens ultra-harsh action on U.S. soil over hacking allegation. North
Korea threatened to carry out ultra-harsh military action on U.S. soil
Sunday, one day after U.S. President Barack Obama vowed a proportional
response against the North's alleged hacking attack into Sony Picture.
In a follow-up to the FBI's recent hacking accusation against
Pyongyang, Obama vowed Friday (U.S time) to "respond proportionally,"
hinting at retaliatory action over the communist country's alleged
hacking attack on the distributor of a controversial movie about North
Korea, "The Interview."
Kyodo News:
- China building military base on islands near Senkakus: sources. China's military is building large-scale base facilities on islands
near the Senkaku Islands southwest of mainland Japan, several Chinese
sources said Sunday. Construction is under way in the Nanji Islands in Zhejiang Province,
lying about 300 kilometers to the northwest of the
Japanese-administered, uninhabited Senkaku Islands in the East China
Sea. China claims the Senkakus as Diaoyu.
WantChinaTimes:
Night Trading
- Asian indices are +.25% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 105.0 unch.
- Asia Pacific Sovereign CDS Index 67.75 -.75 basis point.
- NASDAQ 100 futures -.05%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Chicago Fed National Activity Index for November is estimated to rise to .25 versus .14 in October.
10:00 am EST
- Existing Home Sales for November are estimated to fall to 5.2M versus 5.26M in October.
Upcoming Splits
Other Potential Market Movers
- The China Leading Economic Index and the 2Y T-Note auction could
also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by financial and commodity
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.
