Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 22.52 +9.53%
- Euro/Yen Carry Return Index 144.34 -.48%
- Emerging Markets Currency Volatility(VXY) 10.38 -.29%
- S&P 500 Implied Correlation 66.67 -.61%
- ISE Sentiment Index 89.0 +20.27%
- Total Put/Call 1.15 +29.21%
Credit Investor Angst:
- North American Investment Grade CDS Index 72.19 +.97%
- America Energy Sector High-Yield CDS Index 751.0 +2.53%
- European Financial Sector CDS Index 67.72 +.22%
- Western Europe Sovereign Debt CDS Index 27.57 -1.04%
- Asia Pacific Sovereign Debt CDS Index 75.81 +.12%
- Emerging Market CDS Index 388.65 -1.06%
- China Blended Corporate Spread Index 371.05 +1.64%
- 2-Year Swap Spread 22.75 unch.
- TED Spread 23.25 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -14.75 +.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 135.0 -1.0 basis point
- China Import Iron Ore Spot $68.30/Metric Tonne -.64%
- Citi US Economic Surprise Index 19.0 -12.0 points
- Citi Eurozone Economic Surprise Index -.2 -.4 point
- Citi Emerging Markets Economic Surprise Index -13.70 +.5 point
- 10-Year TIPS Spread 1.57 +4.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating -10 open in Japan
- DAX Futures: Indicating +35 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech sector longs, index hedges and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- Oil Leading Putin Back to Debt as 20% Yields Seen: Russia Credit. The days when Russia could
comfortably cancel weekly bond auctions are coming to an end as crude
oil tumbles toward $40 a barrel. While the Finance Ministry scrapped the first sale of the year
yesterday, citing “unfavorable market conditions,” the government will
eventually need to start selling short-dated debt at yields as high as
20 percent if crude prices stay depressed, according to Raiffeisen
Capital. The rate on five- year ruble notes surged 2.22 percentage
points this month, the most in emerging markets, as oil slumped to the
lowest since 2009. The surge in Russian borrowing costs -- the result of the plunging
ruble, sanctions over Ukraine and plummeting oil -- prompted the
ministry to pull four auctions in December alone. With the economy
verging on a recession amid a stand-off over President Vladimir Putin’s
actions in Crimea and east Ukraine, the budget deficit will increase to 3
percent of gross domestic product this year, Finance Ministry data
show. “Russia’s key source of income is shrinking,” Oleg Popov, a money
manager at Allianz Investments in Moscow, said by phone yesterday. “The
government will be forced to borrow.”
- Ruble Falls Fourth Day on Oil as Russia Says Junk Rating Likely. The ruble weakened for a fourth day as
Russia’s economy minister acknowledged the government risks
losing its investment-grade rating amid a slump in oil that is
tipping the economy into a recession. The currency lost 1.3 percent to 66.1170 per dollar by 6:32
p.m. in Moscow, bringing its four-day decline to 8.8 percent.
The ruble trimmed a drop of as much as 2 percent after Finance
Minister Anton Siluanov said Russia could convert as much as 500
billion rubles ($7.58 billion) of its $88 billion rainy-day
Reserve Fund to support the currency, which he called
“undervalued.”
- Freeport Leads Plunge in Mining Stocks After Copper Slump. (video)
Freeport-McMoRan Inc. (FCX), the largest publicly traded copper
producer, and other suppliers of the metal plunged after the metal fell
the most in six years. Freeport declined 9.5 percent to $19:05 at
9:51 a.m. in New York and traded at the lowest since April 2009.
Glencore Plc (GLEN), the third-biggest producer, dropped 12 percent in
London and First Quantum Minerals Ltd. slid 27 percent in Toronto.
- Crude Oil Futures Gain on Speculation Losses Excessive.
Crude oil advanced from the lowest level in more than 5 1/2 years on
speculation that futures prices fell more than justified. Oil rebounded as much as 6.2 percent in New York and 5.1 percent in London. The market shrugged off an Energy Information Administration report
that showed U.S. crude and fuel stockpiles increased last week.
- Treasury Bond Yield Drops to Record Low Amid Fear of Global Deflation. Treasury 30-year bonds yields are tumbling to record lows as the
collapse in oil and commodity prices fuels speculation the global
economy may drop into a deflationary spiral and stifle growth.
Global sovereign yields fell to records in the U.K., France, Canada and
Japan as a report showed retail sales in the U.S. slumped in December by
the most in almost a year, reflecting a broad-based retreat that may
prompt economists to cut growth forecasts. The slide prompted traders to
push back expectations for the timing of the first Federal Reserve
interest-rate increase into
December less than a month after speculating that rates could rise as
soon as April.
- Fed Saw Consumer Spending Rise Amid Concern on Lower Oil Prices. A
Federal Reserve survey showed most regions saw “modest” or “moderate”
economic growth driven by gains in consumer spending, while the
energy-rich Dallas district slowed as oil prices plunged. “Consumer spending increased in most districts, with generally modest
year-over-year gains in retail sales,” the Fed said today in its Beige
Book, based on reports from its 12 districts gathered on or before Jan.
5. “Auto sales showed moderate to strong growth.”
- Mortgage-Bond Slump Builds After Worst Start to Year Since 1997. Government-backed U.S. mortgage bonds are
off to their worst start relative to Treasuries since at least
1997 as investors in the $5.5 trillion market brace for a surge
in homeowner refinancing. Returns on mortgage securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae were 0.6 percentage point less than
those on similar-duration government debt this month through
yesterday, according to Bank of America Merrill Lynch index
data. Ginnie Mae securities, which package Federal Housing
Administration loans, have underperformed Treasuries by 0.9
percentage point.
- Obama Sets Plan to Cut Methane Leaks From Oil, Gas Industry. The
Obama administration said it plans to
require the oil and gas industry to cut methane emissions by as much as
45 percent over the next decade, the president’s latest step to curb
greenhouse gases tied to climate change. The U.S. Environmental
Protection Agency will issue rules this year targeting new production
and transmission systems to reduce methane leaks by 40 percent to 45
percent by 2025, the
administration said Wednesday. The EPA also will expand
voluntary programs with states and industry on equipment already
in use, a step that falls short of what environmentalists
sought.
- JPMorgan(JPM) CEO Dimon Says Banks ‘Under Assault’ by U.S. Regulators.
Jamie Dimon, grappling with multibillion-dollar legal costs and rising
capital requirements at JPMorgan Chase & Co. (JPM), lashed out
at U.S. regulators for putting his bank “under assault.” “We
have five or six regulators or people coming after us on every
different issue,” Dimon, 58, said today on a call with reporters after
New York-based JPMorgan reported fourth-quarter results. “It’s a hard
thing to deal with.”
Wall Street Journal:
- In a Record Year for Skyscrapers, China is Miles Above Everyone Else. In China, polluted skies aren’t the limit – at least for skyscrapers. The world built a record 97 buildings that were 200 meters (656 feet)
or taller in 2014, and for the seventh year in a row, the Middle Kingdom completed the greatest number of them, according to a new report (pdf) from the U.S.-based Council on Tall Buildings and Urban Habitat. China’s output of 58 skyscrapers was a 61% increase from its previous
record of 36 buildings in 2013, according to the report. Tianjin, the
eastern sister city of Beijing, completed the most 200-meter-plus
skyscrapers, totaling six. That’s more than all such skyscrapers built
in the Philippines, the world’s No. 2 builder behind China with five. Within China, there was a four-way tie for second place between Chongqing, Wuhan and Wuxi, all with four buildings each. If you were to stack all of China’s new skyscrapers on top of each
other, they would reach 13,548 meters (44,449 feet) into the sky — close
to the upper altitude limit for most commercial airliners. The
Philippines, meanwhile, built a total of 1,143 meters’ worth of
skyscrapers. Asia dominated sky-high construction in 2014, with 76% of all
200-meter-plus buildings being completed in the East. The United Arab
Emirates and Qatar tied for third after China and the Philippines.
ZeroHedge:
Business Insider:
The Bakken:
- Breakeven targets, future ND production in low oil price reality. According to the DMR, breakeven price points—the price at which new
drilling would cease—vary across the Williston Basin. With McKenzie
county being in the heart of the Bakken, new drilling wouldn’t cease
until oil prices dropped to $30 per barrel. Counties that are on the
outer-edge of the Bakken—such as McLean and Divide—will be the first to
discontinue drilling new wells with breakeven prices at $77 and $73 per
barrel, respectively. The price at which production from existing wells
would be shut-in occurs when the oil prices drop to $15 per barrel. Production projections show that as the oil prices decrease, the
number of rigs will too. But, the review showed that by the third
quarter of 2015, if oil prices reach $25 per barrel, the state’s bopd
will still be around the 1 million bopd mark. If oil prices were to
reach $25 per day by the third quarter of 2016, the state would still be
able to produce 800,000 bopd, and 700,000 bopd by third quarter 2017. To view the presentation in its entirety, click here.
MNI:
- ECB Governing Council member Ignazio Vasco says in interview with
MNI that "there is a macroeconomic risk that we may get to a downward
spiral of stagnation and low inflation, or outright deflation."
Style Underperformer:
Sector Underperformers:
- 1) Steel -5.55% 2) Banks -3.51% 3) Energy -3.01%
Stocks Falling on Unusual Volume:
- FLML, NEWM, BAP, SCCO, IOC, ANFI, FCX, CFR, FXCM, CVRR, BWA, ALTR, PRGS, FNGN, IHS, SJR, SWN, ERJ, WBAI, AA, AXDX, SNDK, JPM, FLS, MDLY, ALLY, SEM, C, TMHC, SCHW, FL, HFC, PSX, AWI, TSLA, NEWM, VIAB and EVEP
Stocks With Unusual Put Option Activity:
- 1) XLB 2) XHB 3) FCX 4) HOG 5) KRE
Stocks With Most Negative News Mentions:
- 1) PBR 2) KBH 3) FFIV 4) TSLA 5) JPM
Charts:
Style Outperformer:
Sector Outperformers:
- 1) REITs -.01% 2) Biotech -.03% 3) Utilities -.12%
Stocks Rising on Unusual Volume:
- SEMI, SRNE, HLSS, ADVS, XON, ZLTQ, GME and FCE/A
Stocks With Unusual Call Option Activity:
- 1) ZIOP 2) SGMS 3) WY 4) EXAS 5) VNDA
Stocks With Most Positive News Mentions:
- 1) IDXX 2) BEBE 3) CSX 4) AXL 5) MRCY
Charts:
Evening Headlines
Bloomberg:
- World Bank Cuts Global Growth. The World Bank cut its forecast for global
growth this year, as an improving U.S. economy and low fuel
prices fail to offset disappointing results from Europe to
China. The world economy will expand 3 percent in 2015, down from
a projection of 3.4 percent in June, according to the lender’s
semiannual Global Economic Prospects report, released today in
Washington. The report adds to signs of a growing disparity between the
U.S. and other major economies while tempering any optimism that a plunge in oil prices will boost output. Risks to the global
recovery are “significant and tilted to the downside,” with
dangers including a spike in financial volatility, intensifying
geopolitical tensions and prolonged stagnation in the euro
region or Japan. “The global economy today is much larger than what it used
to be, so it’s a case of a larger train being pulled by a single
engine, the American one,” World Bank Chief Economist Kaushik Basu told reporters on a conference call. “This does not make
for a rosy outlook for the world.”
- Russia ETF Investors Back Out as Oil Drop Deepens.
The largest exchange-traded fund tracking
Russian stocks is opening the year with the highest redemptions
in a month amid the widest price swings since 2009 as oil
extends its rout and the ruble plummets. Shares in the $1.4 billion
Market Vectors Russia ETF (RSX) ended unchanged at $14.77 after dropping
as much as 2.7 percent. Asset managers pulled $36.9 million from the fund on Monday, the biggest outflow since mid-December,
data compiled by Bloomberg show. The Bloomberg Russia-US Equity Index
of the most-traded Russian stocks fell 1 percent after the
dollar-denominated RTS Index declined to the lowest in four weeks. The
ruble tumbled
3.2 percent against the dollar.
- Asia Stares at Deflation With Rising Debt, Morgan Stanley Says. Asia’s
rapid accumulation of debt in recent years is holding back central
banks from easing monetary policy to fight the risk of deflation,
endangering private investment needed to boost faltering growth, according to Morgan Stanley. Debt to gross domestic product ratio in the region excluding Japan rose to 203 percent in 2013 from 147 percent in 2007, with most of the increase coming from companies, analysts led by Chetan Ahya in Hong Kong wrote in a report yesterday. The ratio is close to or has exceeded 200 percent in seven of 10 nations including China and South Korea, they said.
- China Bulls Cash Out as Stock Rally Overshoots Target.
After watching Chinese stocks surge 37 percent in just three months,
some of the world’s biggest banks are souring on the booming market. Citigroup
Inc. (C) became the latest to cut its outlook on Jan. 12, lowering its
rating to neutral from overweight amid concern valuations are turning
unattractive. The downgrade follows predictions in the last two weeks
from HSBC Holdings Plc (HSBA), Bocom International Holdings Co. and UBS
AG that gains in mainland-listed shares will falter. The Shanghai
Composite Index closed yesterday at 3,235.30, or 7 percent higher than
where analysts
tracked by Bloomberg predict the gauge will be in 12 months, the
biggest gap among global equity measures.
- Japan Passes Record Defense Budget in Bid to Defend Isles. Japan will step up spending on amphibious vehicles and purchase its first unmanned surveillance aircraft as it seeks to bolster defense of remote islands amid a
territorial dispute with China. Prime Minister Shinzo Abe’s cabinet today approved a record
defense budget of 4.98 trillion yen ($42 billion) for the fiscal
year starting April, up 2 percent from the previous year and
just above the previous record of 4.96 trillion yen reached in
2002.
- Most Asian Stocks Drop as Commodities Slump, Yen Extends Advance. Most Asian stocks declined as the yen gained a fourth day against the dollar and commodity prices slumped. About
five shares dropped for every three that rose on the dollar-denominated
MSCI Asia Pacific Index (MXAP), which added 0.1 percent to 137.94 as of
9:53 a.m. in Tokyo. The yen rose 0.3 percent to 117.61 per dollar,
bringing its gain since Jan. 9 to about 1.7 percent. Copper sank to its
lowest since 2009 as Brent
oil fell 1.8 percent to $46.59 a barrel overnight.
- Copper Tumbles Most in Six Years as World Bank Cuts Forecasts. Copper
fell the most in almost six years to
below $5,400 a metric ton as a cut in the World Bank’s global growth
forecast further fueled speculation demand for raw materials won’t be
enough to eliminate a supply glut.
Copper tumbled as much as 8.7 percent in London and fell to
the daily trading limit in Shanghai.
- Oil at $40, and Below, Gaining Traction on Wall Street. Brace for $40-a-barrel oil.
The U.S. benchmark crude price, down more than $60 since June to below
$45 yesterday, is on the way to this next threshold, said Societe
Generale SA and Bank of America Corp. And Goldman Sachs Group Inc. says that West Texas Intermediate
needs to remain near $40 during the first half to deter
investment in new supplies that would add to the glut.
- Oil Drop May Prompt Breitburn Debt Deal on Credit-Line Pinch. Breitburn Energy Partners LP, the oil and
gas producer that canceled a bond deal three months ago, may try
again to raise debt to pay down its $2.5 billion credit line. Tumbling crude prices mean it won’t come cheap. The company is considering tapping the loan market as it
faces a potential reduction of the credit line when its ability
to borrow, based partly on the value of its reserves, is reset
in April, according to Jim Jackson, Breitburn’s chief financial
officer.
- Suncor Cuts Jobs, Spending as Oil Rout Rattles Canada. The
company will spend C$1 billion ($836 million) less this
year than originally forecast in November, following Canadian Natural
Resources Ltd. (CNQ) in revising its budget lower this week. Suncor
also plans to reduce operating expenses by C$600 million to C$800
million in two years, according to a company statement today. “Cost
management has been an ongoing focus, with successful efforts to reduce
both capital and operating costs well underway before the decline in oil
prices,” Steve Williams, Suncor’s chief executive officer, said in the
statement. “In today’s low crude price environment, it’s
essential we accelerate this work.”
- Iron Ore, Coal Forecasts Cut by Citigroup as Energy Costs Sink.
Citigroup Inc. reduced price forecasts for iron ore and coal as cheaper
oil and declines in producers’ currencies combine to cut supply costs,
signaling how the collapse in energy may feed through to other
commodities. Iron ore will average $58 a metric ton in 2015 and $62 a
ton in 2016, down from estimates of $65 for both years, analysts
including Ivan Szpakowski wrote in a report dated today. The
bank’s forecasts for coking coal and thermal coal were also
reduced for the same period, according to the report.
- Gundlach Says U.S. Growth May Disappoint on Oil Decline. Jeffrey Gundlach, co-founder of $64 billion
investment firm DoubleLine Capital, said the U.S. economy may
grow at a slower rate this year than economists expect as
falling oil prices hurt investment and hiring in the energy
industry. While cheaper oil fueled growth in the final months of
2014, the decline has a “sinister” side that will ripple
through the economy and prompt downward revisions to forecasts
by the middle of the year, Gundlach said today in a webcast.
Stock markets may not continue their rally and yields on 10-year
Treasuries may go lower before rising again, he said.
Wall Street Journal:
- Commercial Mortgage-Backed Securities Make Comeback. Some Warn Market Could Be Getting Overheated. A hunt for yield and a gradually improving property market are
bolstering a key engine of U.S. commercial property lending, helping
borrowers to refinance but also reigniting fears the market is getting
overheated. In all, lenders made $94 billion in loans bundled together and sold off
as bonds to investors in 2014, the most since 2007 for the product known
as commercial mortgage-backed securities, according to trade
publication Commercial Mortgage Alert.
- Shunning ObamaCare. Of my company’s 5,453 eligible employees, only 420 actually enrolled. The other 5,033 opted to pay a penalty.
Fox News:
- White House hit for using security as ‘excuse’ for no-show at Paris rally. While the White House points to security concerns as the chief reason
why President Obama skipped the anti-terrorism rally in Paris over the
weekend, some suggest the Secret Service and his advance team could have
made it happen -- if they really tried. Instead, critics say the security explanation is being used as an
“excuse.” Brad Blakeman, who served on the advance team for George W.
Bush’s campaign, said the Secret Service is the “scapegoat” here. “The president can go wherever he wants to go,” Blakeman said.
Zero Hedge:
Business Insider:
Reuters:
- Stryker(SYK) expects strong dollar to hit 2015 profit. Orthopedic device maker Stryker Corp
said on Tuesday it expects the strong U.S. dollar to
have a bigger negative impact on its 2015 earnings than it
previously forecast, shaving about 20 cents from its per-share
profit. The maker of artificial hip and knee joints previously
forecast a currency impact of 10 cents to 12 cents on its 2015
earnings.
- Fed's Kocherlakota 'uneasy' about low longer-term rates. A top U.S. Federal Reserve
official said on Tuesday he was "uneasy" about the low long-term
yields on Treasury bonds because the situation indicates there
are fewer safe assets for investors, and it suggests rates could
be persistently low in the future.
- Investors cut hedge fund bets in January - data. Investors' interest in hedge
funds fell in January as they pulled out more cash than they
invested, data showed on Tuesday, part of an annual rejig of
portfolios. The SS&C GlobeOp Capital Movement Index, which
calculates monthly hedge fund subscriptions minus redemptions,
fell 2.95 percent in January, the sharpest drop in a year. That
compared with a rise of 0.39 percent in December.
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 119.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 75.75 +1.0 basis point.
- NASDAQ 100 futures -.34%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Retail Sales Advance for December are estimated to fall -.1% versus a +.7% gain in November.
- Retail Sales Ex Autos for December are estimated unch. versus a +.5% gain in November.
- Retail Sales Ex Autos and Gas for December are estimated to rise +.5% versus a +.6% gain in November.
- The Import Price Index for December is estimated to fall -2.7% versus a -1.5% decline in November.
10:00 am EST
- Business Inventories for November are estimated to rise +.3% versus a +.2% gain in October.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+1,275,000 barrels versus a -3,062,000 barrel decline the prior week.
Gasoline supplies are estimated to rise by +3,562,500 barrels versus an
+8,115,000 barrel gain the prior week. Distillate supplies are estimated
to rise by +2,375,000 barrels versus a +11,205,000 barrel gain the
prior week. Finally, Refinery Utilization is estimated to fall by -.1%
versus a -.5% decline the prior week.
2:00 pm EST
Upcoming Splits
Other Potential Market Movers
- The
Fed's Plosser speaking, EU OMT Ruling, Japan Machine Tool Orders, 30Y
T-Note auction, weekly MBA mortgage applications report, (DPZ) investor
day and the (NRG) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial 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: Almost Every Sector Declining
- Volume: Slightly Above Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 21.58 +9.85%
- Euro/Yen Carry Return Index 144.77 -1.02%
- Emerging Markets Currency Volatility(VXY) 10.41 -.29%
- S&P 500 Implied Correlation 67.34 +2.38%
- ISE Sentiment Index 63.0 -35.05%
- Total Put/Call .85 -19.05%
Credit Investor Angst:
- North American Investment Grade CDS Index 71.40 +.76%
- America Energy Sector High-Yield CDS Index 733.0 +3.02%
- European Financial Sector CDS Index 67.53 -2.46%
- Western Europe Sovereign Debt CDS Index 27.86 -.07%
- Asia Pacific Sovereign Debt CDS Index 76.23 +2.03%
- Emerging Market CDS Index 399.02 +1.55%
- China Blended Corporate Spread Index 365.05 -.43%
- 2-Year Swap Spread 22.75 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -15.25 -1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% +1.0 basis point
- China Import Iron Ore Spot $68.74/Metric Tonne -2.22%
- Citi US Economic Surprise Index 31.0 +.2 point
- Citi Eurozone Economic Surprise Index .2 +.1 point
- Citi Emerging Markets Economic Surprise Index -14.20 +2.0 points
- 10-Year TIPS Spread 1.53 -4.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating -152 open in Japan
- DAX Futures: Indicating -102 open in Germany
Portfolio:
- Slightly Lower: On losses in my retail/medical/biotech/tech sector longs
- Market Exposure: 25% Net Long
