Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Mixed
- Volume: Slightly Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 19.47 -2.11%
- Euro/Yen Carry Return Index 142.75 -.37%
- Emerging Markets Currency Volatility(VXY) 10.86 -2.25%
- S&P 500 Implied Correlation 65.44 +1.88%
- ISE Sentiment Index 85.0 +28.79%
- Total Put/Call 1.09 +37.97%
Credit Investor Angst:
- North American Investment Grade CDS Index 70.71 -1.97%
- America Energy Sector High-Yield CDS Index 739.0 -.93%
- European Financial Sector CDS Index 62.58 -2.47%
- Western Europe Sovereign Debt CDS Index 25.97 +4.05%
- Asia Pacific Sovereign Debt CDS Index 71.36 -4.71%
- Emerging Market CDS Index 393.67 +1.12%
- China Blended Corporate Spread Index n/a
- 2-Year Swap Spread 24.25 -.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -14.75 +1.5 basis points
Economic Gauges:
- 3-Month T-Bill Yield .02% +1.0 basis point
- Yield Curve 136.0 +5.0 basis points
- China Import Iron Ore Spot $67.81/Metric Tonne -.51%
- Citi US Economic Surprise Index 5.50 +.7 point
- Citi Eurozone Economic Surprise Index -3.4 -.1 point
- Citi Emerging Markets Economic Surprise Index -12.20 +1.6 points
- 10-Year TIPS Spread 1.61 +1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating +55 open in Japan
- DAX Futures: Indicating +9 open in Germany
Portfolio:
- Slightly Lower: On losses in my biotech sector longs and emerging markets shorts
- Market Exposure: 50% Net Long
Bloomberg:
- Poroshenko Sees Grave Danger Ukraine Conflict Will Escalate. Ukraine is in “grave danger” of an escalation in its conflict against
separatists, President Petro Poroshenko said, as diplomats prepare to
revive peace talks and NATO accused Russia of involvement in the
fighting. “The situation can get worse in days,” Poroshenko said on
Wednesday in an interview with Bloomberg TV in Davos, Switzerland.
Additional Russian fighters and equipment crossing the border are
putting pressure on Ukraine’s army, which is “defending democracy and
freedom,” he said. Russian Foreign Minister Sergei Lavrov reiterated
there was no proof that his country is providing military support to
the separatists.
- Swiss Add to Russian Corporate Despair as Debt Costs Jump.
Thomas Jordan just cost some of Russia’s biggest state-run companies
half a billion dollars. The Swiss National Bank president’s surprise
decision to ditch the franc cap last week swelled what Russian
corporates owe through the end of next year on debt denominated in the
currency by 33 billion rubles ($502 million). Since the Jan. 15
change, the extra yield investors demand to hold OAO VTB Bank’s
franc notes due in May 2018 versus its dollar debt jumped 2.70
percentage points. As recently as Dec. 24, the rate was at a
record discount of 2.63 percentage points. Rising costs for the debt is another hurdle for at least
nine companies already reeling from the fallout of sanctions over the war in Ukraine, plunging oil prices, the slumping ruble
and an economy teetering on the edge of a recession.
- ECB Seeks to Inject Up to 1.1 Trillion Euros Into Economy in Deflation Fight. (video) Mario Draghi called on the European Central Bank to make its biggest push yet to fend off deflation and revive the economy by unleashing a debt-buying spree of 1.1 trillion euros ($1.3 trillion). The ECB president and his Executive Board proposed
spending 50 billion euros a month through December 2016, two euro-area
central-bank officials said. The plan still faces a tense debate in the
Governing Council and may change before the final decision on Thursday,
the people said, asking not to be identified as the talks are private.
An ECB spokesman declined to comment.
- Top Concern for Davos Bankers: Credit Disruption After Fed Tightens. Deutsche Bank AG (DBK) co-Chief Executive Officer Anshu Jain’s biggest worry this year?
Unexpected aftershocks when the Federal Reserve starts tightening,
especially in the corporate bond market. “A disruptive credit event following a Fed turn would be at the top of my worry list,” Jain said at a panel discussion at the World Economic Forum in Davos, Switzerland on Wednesday. “Sometime in the next six, max 12
months, we are going to get that Fed turn. That’s going to be very
significant.”
- IMF Says Gulf States Set to Swing Into Deficit as Oil Falls. The
oil-rich nations of the Persian Gulf are set to post budget deficits
this year after a plunge in crude prices, the International Monetary
Fund said. The six nations of the Gulf Cooperation Council will have a
collective fiscal gap of 6.3 percent of gross domestic product,
a swing of about 11 percentage points from last year’s surplus,
the IMF said in a report published in Washington on Wednesday.
While many nations have enough savings to avoid steep cuts and
“limit the drag on growth,” they will need to adjust spending
plans in the longer term, it said.
- Manhattan Luxury Condos Sit on Market While Foreign Buyers
Manhattan real estate agent Lisa Gustin listed a four-bedroom Tribeca
loft for $7.45 million in October, expecting a quick sale. Instead, she
cut the price this month by $550,000. “I thought for sure a
foreign buyer would come in,” said Gustin, a broker at Brown Harris
Stevens who is still marketing the 3,800-square-foot (353-square-meter)
apartment at 195 Hudson St. “So many new condos are coming up right now.
They’ve been building them for the past few years and now they’re
really hurting
the resales.” A flood of new high-priced condominiums and
mansions are coming to market in New York, Miami and Los Angeles just as
international buyers, who helped fuel demand in the three cities, are
seeing their purchasing power wane with the strengthening dollar. Signs
of a pullback may already be showing in Manhattan, where luxury-home
sales have slowed amid a surge in construction of towers aimed at U.S.
millionaires and foreign investors.
- Central Banks Step Up Low-Inflation Fight as Canada Cuts Rate. Global central banks intensified their battle against slowing inflation as the risk of defeat mounts. The
Bank of Canada unexpectedly cut its main interest rate for the first
time since 2009 on Wednesday in Ottawa, saying the oil-price shock will
drag down inflation. The Bank of Japan expanded and extended a
lending program, while two Bank of England policy makers dropped calls
for higher interest rates.
- ECB Proposes QE Stimulus of 50 Billion Euros a Month. (video) European stocks extended a seven-year high as the European Central Bank was said to plan further stimulus measures. The Stoxx Europe 600 Index rose 0.6 percent to 358.12 at the close of trading in London, reversing earlier losses after two euro-area central-bank officials said the ECB Executive Board has recommended asset purchases of 50
billion euros ($58 billion) a month until December 2016.
- Kurd Oil Producers Unrelenting to Boost Supply at low Prices. Oil
producers in Iraqi Kurdistan are unrelenting in their goal to boost
output even after the collapse in international prices to below $50 a
barrel. Genel Energy Plc (GENL), headed by former BP Plc chief Tony
Hayward, is sticking with plans to increase capacity 74 percent to
400,000 barrels a day this year at its Kurdish Taq Taq and Tawke fields.
Norway’s DNO ASA (DNO) owns 55 percent of Tawke.
- Crude Collapse Has Investors Braced for ’80s-Like Oil Casualties. When a glut of crude flooded the market in
the 1980s, scores of energy companies disappeared through almost
five years of depressed prices. Investors are worried history is
repeating itself. The supply overhang led to a 66 percent slide in prices
over four months, starting in November 1985. Bankruptcies and
mergers reduced the number of U.S. producers by 54 percent
before a price rebound took hold in 1990.
- Oil Rebounds From Biggest Drop in Week as Drilling Slows. Oil rebounded from the biggest drop in a week amid signs that prices near a 5 1/2-year low are slowing drilling in the U.S. Futures
rose as much as 3.7 percent in New York and 3.3 percent in London. BHP
Billiton Ltd., the largest overseas investor in U.S. shale, said it will
cut the number of active drill rigs in the country by almost 40
percent. The rapid decline in oil prices may deter investment in all
types of energy needed to meet future demand, the head of the
International Energy Agency said.
- Fat Junk-Bond Fees Are Hard to Get in Latest Wall Street Lament.
Wall Street’s biggest bond brokers just limped through a rough year for
trading revenues. They may be in for more pain as one of their most
lucrative businesses dries up. They’ve shepherded only $9.7 billion of U.S. junk bonds into the hands of investors this year, making 2015 the slowest
start in six years, according to data compiled by Bloomberg. The
fees to underwrite this debt are about three times
those on higher-rated corporate notes -- and will be sorely missed by
the likes of JPMorgan Chase & Co. (JPM), Bank of America Corp. and
Citigroup Inc. (C) The three biggest U.S. banks just
posted their first annual decline in aggregate net income since
the global financial crisis.
Wall Street Journal:
- J.P. Morgan(JPM) Creates Unit to Meet New Bond Trading Patterns. J.P. Morgan Chase, the world’s largest investment bank in fixed income trading
by revenue, has set up a new 12-person unit focused solely on trading
credit index products such as credit default swap benchmarks and
exchange-traded funds. The bank says the Global Credit Index business, which it claims is
the first of its kind at a major investment bank, was established in
response to a boom in customer demand for trading indexes instead of
individual bonds, where investors and bankers complain that liquidity
has been drying up.
Fox News:
ZeroHedge:
Business Insider:
Handelsblatt:
- Rajan Says Capital Flows Threaten Emerging Markets. Global
liquidity flows prompted by central banks in industrial countries could
threaten financial stability in emerging markets if they're not properly
managed, Reserve Bank of India Governor Raghuram Rajan says in opinion
article. "Global growth remains weak. In the U.S., it may look as if the
recovery is strengthening, but the euro area is threatening to follow
Japan into recession. Emerging markets are concerned about suffering,
through their export-oriented strategies, because of stagnation abroad."
Style Underperformer:
Sector Underperformers:
- 1) Computer Services -2.22% 2) Gold & Silver -1.92% 3) Computer Hardware -1.15%
Stocks Falling on Unusual Volume:
- ALNY, SMCI, IGTE, ACTG, NVS, AFFX, IMKTA, IBM, ID, CA, EDU, TM, SAIA, ILMN, GPI, OTIC, ZINC, GRFS, AAVL, ADMS, BCPC, KITE, BMA, ISSI and RCI
Stocks With Unusual Put Option Activity:
- 1) CMA 2) EBAY 3) BSX 4) SMH 5) IBM
Stocks With Most Negative News Mentions:
- 1) VNO 2) DNB 3) FITB 4) MCD 5) MS
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Coal +2.71% 2) HMOs +1.84% 3) Energy +1.59%
Stocks Rising on Unusual Volume:
- NFLX, DAN, CREE, NTRS, SNE, FANG, AMZN, SGY, CLDX, TGTX, WWD and ICPT
Stocks With Unusual Call Option Activity:
- 1) FXCM 2) SYMC 3) QLIK 4) FITB 5) TWX
Stocks With Most Positive News Mentions:
- 1) WFM 2) CREE 3) NFLX 4) UNH 5) NTRS
Charts:
Evening Headlines
Bloomberg:
- Ukraine Violence Forces Rush of Diplomacy as Airport Fight Rages. The
escalation of fighting in Ukraine after a lull last month, which is
threatening to tip the country into full-blown war, is forcing diplomats
across Europe to seek ways to stem the violence. Foreign Ministers
from Ukraine, Russia and France have been invited by Germany to meet in
Berlin Wednesday to try to revive peace negotiations as some of the
fiercest clashes in months go on in the shattered remains of Donetsk
airport in eastern Ukraine between separatists and government troops. “The situation is very dangerous,” Anton Lavrov, an
independent defense analyst in Torzhok, Russia, said by phone.
“It’s not clear at all that they will be able to renew the
cease-fire. It could lead to full-scale clashes across the front
and big losses on both sides.”
- World’s Wildest Stocks Show Chinese Booms and Busts Getting Bigger on Debt. The
one thing China’s bulls and bears can agree on is that swings in the
world’s most-volatile major stock market are only going to get bigger
after equity traders took on record amounts of debt. Both Bank of
America Corp. strategist David Cui, who predicts Chinese shares will
fall, and JPMorgan Chase & Co.’s Adrian Mowat, who has an overweight
rating, say the surge in margin lending to
all-time highs is amplifying price fluctuations in the $4.9 trillion
market. Volatility in the benchmark Shanghai Composite Index reached the
highest level since 2009 this week after rising more than fourfold
since July.
- China Stock Euphoria Fading, 58% of Investors Say Rally Over: Bloomberg Poll. China’s
world-beating stock rally is over, according to the latest Bloomberg
Global Poll. Fifty-eight percent of the survey’s 481 respondents said
the Shanghai Composite Index (SHCOMP) will either decline or remain
little changed over the next six months after posting a 55 percent advance since June. Only 30 percent said the gauge will extend gains. The number of poll participants that picked
China as among the best opportunities for investing fell by almost half
from the fourth quarter to just 13 percent.
- Samaras Pledges No More Cuts for Greeks in Election Fight. The
following are the main pledges of Greek Prime Minister Antonis Samaras,
leader of governing New Democracy party, ahead of the national election
on Jan. 25. Samaras, 63, made the pledges in New Democracy’s election
prospectus and on the campaign trail. -- Victory for New Democracy “will keep Greece in the euro area,” Samaras says, while a Syriza win would set the country
on a collision course with its creditors, potentially forcing it
out of the currency bloc
- Abe Leaves Middle East Facing Islamic State Hostage Crisis. Japanese
Prime Minister Shinzo Abe shortened a Middle East trip to deal with a
hostage crisis after Islamic State militants threatened to kill two
Japanese hostages within 72 hours. Abe departed Israel an hour earlier than planned on Tuesday evening having earlier pledged
$200 million in non-military aid to nations confronted by the al-Qaeda
breakaway group, public broadcaster NHK reported. Islamic State demanded
a ransom equivalent to the promised financial support.
- Asian Stocks Retreat Before BOJ Decision as Consumer Shares Fall. Asian stocks fell, led by consumer-discretionary shares, ahead of a Bank of Japan statement on monetary policy. The MSCI Asia Pacific Index (MXAP) dropped 0.2 percent to 138.29 as of 9:03 a.m. in Tokyo. All 33 economists surveyed by Bloomberg forecast no change to BOJbond-buying after it
expanded the already unprecedented program in October. Japanese
shares slid in Tokyo.
- Druckenmiller Alums at PointState Make $1 Billion on Oil.
Hedge fund manager Zach Schreiber stood on
stage at Avery Fisher Hall in New York eight months ago and made a bold
prediction. “We believe crude oil is going lower -- much lower,”
Schreiber, 42, told the audience of roughly 3,000 investors,
including some of the biggest money managers in the industry.
“If you are long, I’m sorry for you.” Then he showed a slide
of a car stuffed with clowns.
- Junk Replaces Government Debt as Most-Disdained in Investor Poll. Junk bonds have supplanted sovereign debt as
the asset investors would most like to bet against amid concern
that a slowdown in global economic expansion will make it harder
for the world’s neediest borrowers to meet their obligations. With
both the International Monetary Fund and World Bank lowering their world
growth forecast this month, 18 percent of the respondents to a
quarterly Bloomberg Global Poll chose speculative-grade debt as the
favored asset class to short, or set up trades that would profit
from a decline in prices, given the chance. That exceeds the 13 percent
that would bet against government securities from the Group of Seven
nations.
Wall Street Journal:
- Uprising in Yemen Fans U.S. Concerns. Capture of Presidential Palace Raises Worries About Instability That Could Plague Fight Against Terrorism. A militia group demanding a greater say over Yemen’s new constitution
took over the presidential palace here Tuesday, sparking fresh concerns
about a country that has become a cornerstone of U.S. counterterrorism
strategy.
- The Gaslight Presidency. Obama’s policies have crushed middle-class incomes, and he proposes more of the same. In the 1944 film “Gaslight,” a con artist manipulates his new wife
psychologically to make her doubt her own sanity in a scheme to steal
her inheritance. That’s increasingly the way to understand President
Obama’s behavior toward Congress and especially the tax increase he
floated in Tuesday’s State of the Union. The only plausible rationale is
that he thinks he can gain politically by driving Republicans nuts.
Fox News:
CNBC:
Zero Hedge:
Business Insider:
Politico:
AFP:
- Ukrainian President Cuts Short Visit to Davos. President cuts short visit as situation deteriorates in rebel-held east.
Financial Times:
Telegraph:
- Central bank prophet fears QE warfare pushing world financial system out of control. Former BIS chief economist warns that QE in Europe is doomed to failure and
may draw the region into deeper difficulties. The economic
prophet who foresaw the Lehman crisis with uncanny accuracy is
even more worried about the world's financial system going into 2015.
Beggar-thy-neighbour devaluations are spreading to every region. All the
major
central banks are stoking asset bubbles deliberately to put off the
day of reckoning.
This time emerging markets have been drawn into the quagmire as well,
corrupted by the leakage from quantitative easing (QE) in the West. "We are in a world that is dangerously unanchored," said William White, the
Swiss-based chairman of the OECD's Review Committee. "We're seeing true
currency wars and everybody is doing it, and I have no idea where this is
going to end."
The Guardian:
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 121.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 74.75 -1.75 basis points.
- NASDAQ 100 futures +.10%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Housing Starts for December are estimated to rise to 1040K versus 128K in November.
- Building Permits for December are estimated to rise to 1060K versus 1035K in November.
9:45 am EST
- Chicago Purchasing Managers Revise Seasonally Adjusted Data.
Upcoming Splits
Other Potential Market Movers
- The
UK unemployment rate, CIBC Institutional Investor Conference, weekly
MBA mortgage applications report and the (MSFT) Windows 10 Event could
also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate 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: Lower
- Sector Performance: Most Sectors Declining
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 20.11 -4.01%
- Euro/Yen Carry Return Index 143.26 +.49%
- Emerging Markets Currency Volatility(VXY) 11.05 unch.
- S&P 500 Implied Correlation 65.34 -3.03%
- ISE Sentiment Index 70.0 -46.15%
- Total Put/Call .74 -18.68%
Credit Investor Angst:
- North American Investment Grade CDS Index 72.44 +1.04%
- America Energy Sector High-Yield CDS Index 747.0 +.10%
- European Financial Sector CDS Index 64.16 -.52%
- Western Europe Sovereign Debt CDS Index 24.96 -.97%
- Asia Pacific Sovereign Debt CDS Index 74.8 -2.43%
- Emerging Market CDS Index 389.20 +.54%
- China Blended Corporate Spread Index n/a
- 2-Year Swap Spread 24.5 +.5 basis point
- TED Spread 23.5 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -16.25 +2.0 basis points
Economic Gauges:
- 3-Month T-Bill Yield .01% -1.0 basis point
- Yield Curve 131.0 -3.0 basis points
- China Import Iron Ore Spot $68.16/Metric Tonne +.1%
- Citi US Economic Surprise Index 4.80 -2.4 points
- Citi Eurozone Economic Surprise Index -3.3 +.5 point
- Citi Emerging Markets Economic Surprise Index -13.80 +1.9 points
- 10-Year TIPS Spread 1.60 unch.
Overseas Futures:
- Nikkei Futures: Indicating +71 open in Japan
- DAX Futures: Indicating +11 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/tech sector longs, index hedges and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
