Broad Equity Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 19.34 -5.38%
- Euro/Yen Carry Return Index 139.80 +.89%
- Emerging Markets Currency Volatility(VXY) 10.32 +4.45%
- S&P 500 Implied Correlation 65.99 -5.17%
- ISE Sentiment Index 65.0 -26.97%
- Total Put/Call 1.16 +19.59%
Credit Investor Angst:
- North American Investment Grade CDS Index 68.09 -.34%
- America Energy Sector High-Yield CDS Index 752.0 +1.75%
- European Financial Sector CDS Index 64.32 +.40%
- Western Europe Sovereign Debt CDS Index 25.45 +3.24%
- Asia Pacific Sovereign Debt CDS Index 69.81 +.91%
- Emerging Market CDS Index 398.45 -.43%
- iBoxx Offshore RMB China Corporates High Yield Index 113.01 +.12%
- 2-Year Swap Spread 22.75 -2.5 basis points
- TED Spread 23.75 -.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -14.5 -2.0 basis points
Economic Gauges:
- 3-Month T-Bill Yield .01% -1.0 basis point
- China Import Iron Ore Spot $63.27/Metric Tonne +.29%
- Citi US Economic Surprise Index 1.1 +5.1 points
- Citi Eurozone Economic Surprise Index -2.30 -3.9 points
- Citi Emerging Markets Economic Surprise Index -6.40 +1.0 point
- 10-Year TIPS Spread 1.63 +2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +229 open in Japan
- DAX Futures: Indicating +48 open in Germany
Portfolio:
- Higher: On gains in my tech/retail/biotech/medical sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- EU Moves Toward Tougher Russia Sanctions as Greece Yields. European Union governments moved toward
imposing further economic sanctions on Russia as Greece’s new
administration refrained from casting a veto that could leave it
isolated in Europe.
EU foreign ministers gave the go-ahead to prepare steps
that would go beyond last year’s decisions to ban financing for
Russian state-owned banks and prohibit the export of advanced
energy-exploration technology. The EU will also extend a
blacklist of 132 people including Russian politicians and
military officers involved in the Ukraine conflict by six months
to September, and add more names to the list by Feb. 9. “It does include preparatory work for further punitive
measures,” EU foreign policy chief Federica Mogherini told
reporters after the 28 national ministers met Thursday in
Brussels. “We hope this can help put pressure in particular on
Russia to make positive steps.”
- Greek Market Moves Don’t Alter EU Stance, Official Says. (video) Market tension in Greece hasn’t weakened the
European Union’s determination that officials in Athens stick to
commitments under the nation’s international bailout, said
Valdis Dombrovskis, the European Commission’s vice president for
the euro. Stocks in Athens fell this week to lows not seen since the
worst of the debt crisis, with Greek banks losing more than $10
billion of value within 48 hours of the appointment of an anti-bailout cabinet under new Prime Minister Alexis Tsipras. The
markets rebounded Thursday as the government sought to downplay
the prospect of a clash with creditors, with the stocks gaining
3 percent and the yield on benchmark 10-year Greek bond falling
21 basis points to 10.12 percent.
- Greek Government’s Signals are ‘Very Mixed,’ ECB’s Jazbec Says. Greece’s new government is sending “very
mixed signals” on its aid program and it's too soon to say how
the country will be treated in the European Central Bank's bond-buying plan, ECB Governing Council member Bostjan Jazbec said. “Our concerns and hopes are related to how the Greek
government will understand the situation and react to it,” he
said in an interview in Ljubljana on Thursday. “It’s too early
to directly answer questions on when and how the ECB can buy
Greek government bonds.”
Jazbec’s comments are the most explicit yet from an ECB
policy maker on the Greek government’s stance.
- German Inflation Rate Is Negative for First Time Since 2009. Germany’s inflation rate turned negative in
January for the first time in more than five years, aggravating
a slump in consumer prices in the euro area. Prices in Europe’s largest economy fell 0.5 percent from a
year earlier, the Federal Statistics Office in Wiesbaden said
today. That’s the lowest rate since September 2009. Economists
predicted a drop of 0.2 percent.
- Nigeria Torn Asunder as Boko Haram Drive Fuels Caliphate Threat. Islamist fighters have declared a caliphate
in northeastern Nigeria that’s the size of Belgium. Whether the
region becomes autonomous or not, the damage has been done. As Nigeria prepares to hold general elections next month,
Boko Haram is expanding a six-year campaign to impose its strict
version of Islamic law on a region around Nigeria’s northeast
and spilling into neighboring Chad and Cameroon. While it’s
failed to capture the Borno’s capital, Maiduguri, the state’s
emergency agency said this month that its officials can’t travel
to 20 of 27 local government areas in Borno.
- Emerging Stocks Decline Amid Crisis Signs From Russia to Greece. Emerging-market stocks fell the most in
three weeks as China intensified its crackdown on speculative
trading and a flareup in the Ukraine conflict stoked concern
that economies in the region are being pushed into crisis. Citic Securities Co. and Haitong Securities Co. fell in
Shanghai as regulators planned a new round of checks into the
margin-lending businesses of brokerages. Russia’s ruble weakened
for a second day and stocks declined on speculation it will face
tougher international sanctions linked to Ukraine. The Ibovespa
sank for a second day in Sao Paulo. Greek banks rebounded from a
slump driven by the new government’s pledge to end austerity.
The MSCI Emerging Markets Index lost 1.4 percent to 971.10
at 11:07 a.m. in New York.
- European Stocks Trim Best Month Since 2009 as Shell Declines. European stocks closed little changed,
paring earlier losses, as German inflation data missed
forecasts, while U.S. jobless claims fell to a 15-year low. Royal Dutch Shell Plc slid 4.3 percent after reporting that
fourth-quarter profit rose less than analysts predicted.
Vallourec SA lost 3.8 percent after saying it will write down
the value of assets by as much as 1.2 billion euros ($1.35
billion) as lower oil prices force some customers to cut
spending. Deutsche Bank AG rose 2.6 percent after posting a
surprise quarterly profit.
The Stoxx Europe 600 Index fell 0.1 percent to 368.76 at
the close of trading, after earlier losing 0.8 percent and
rising 0.2 percent.
- Commodity Shipping Rate Falls to 28-Year Low on China Demand. A measure of global shipping costs for
commodities fell to a 28-year low as slowing growth in China’s
demand exacerbates the effect of a fleet glut. The Baltic Dry Index plunged 5.1 percent to 632 points, the
lowest since Aug. 22, 1986, according to data from the Baltic
Exchange in London on Thursday. Freight rates for all the vessel
types within the measure declined.
- Oil’s Plunge Hurts Houston Office Sales, Calgary Leases. These are early signs that demand is weakening for
commercial properties in cities that depend on the energy
industry after crude oil prices fell below $50 a barrel, the
lowest in five-and-a-half years, from more than $100 in June.
Oil companies looking to reduce costs are cutting jobs and
choosing to stay put rather than buy or lease new space, said
Ross Moore, director of Canada research for CBRE.
- Wall Street Creating CLOs That May Bypass Rules: Credit Markets. Wall Street has another rule it’s trying to
get around: regulations seeking to limit risk-taking by managers
of collateralized loan obligations. Leon Black’s Apollo Global Management LLC, Carlyle Group LP
and a unit of Credit Suisse Group AG have all taken steps in the
past two months to create CLOs now that they may be able to
refinance after the rules take effect in December 2016 without
having to comply with the new regulations, according to three
people with knowledge of the matter. The firms are trying to
avoid a requirement to hold a stake in the funds they manage.
- U.S. Homeownership Rate Falls to a 20-Year Low. The U.S. homeownership rate fell to the
lowest in more than two decades in the fourth quarter as many
would-be buyers stayed on the sidelines, giving the rental
market a boost. The share of Americans who own their homes was 64 percent
in the fourth quarter, down from 64.4 percent in the previous
three months, the Census Bureau said in a report. The rate was
at the lowest since the second quarter of 1994, data compiled by
Bloomberg show.
Fox News:
- Obama seeking to 'fully reverse' sequester cuts, raise spending caps in budget plan. (video) President Obama will push to "fully reverse" the so-called sequester
cuts and significantly raise government spending caps as part of his
upcoming budget plan, a proposal likely to anger fiscal conservatives
who want to see spending limits in place. The across-the-board cuts, agreed to by both parties, have been in
effect since 2013, after lawmakers were unable to produce a more
strategic deficit-cutting plan. Members of both parties have problems
with the cuts, which indiscriminately affect both domestic and defense
programs.
CNBC:
ZeroHedge:
Business Insider:
Reuters:
- Greece could face rating downgrade if troika talks stall - Fitch. Greece could face a rating
downgrade if it cannot come to an agreement with its
international creditors by the time Fitch next assesses the
country in May, said Douglas Renwick, the firm's head of western
European sovereigns on Thursday.
"If by our next review on the 15th of May there is no
progress on these talks or they look to be failing, of course
that would be a trigger for a downgrade," said Renwick during a
conference call.
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Steel -3.79% 2) Oil Service -3.70% 3) Gold & Silver -3.65%
Stocks Falling on Unusual Volume:
- TGI, CLB, AERI, POST, ALB, FTNT, OSTK, QCOM, YHOO, HSY, WRLD, CAVM, DSKY, SWFT, PAYC, KNX, HP, BABA, USLV, PCH, VRTX, RTN, UBSH, MMYT, RCL, CRS, GLW, FCX, CHMT, BEAV, CAM, CRUS, RTN, TKR, FNSR, X, GHL, STLD, WWWW and RES
Stocks With Unusual Put Option Activity:
- 1) NFX 2) EWG 3) CTSH 4) HON 5) HOG
Stocks With Most Negative News Mentions:
- 1) VRTX 2) CAT 3) BABA 4) OSTK 5) GHL
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Homebuilders +2.47% 2) Restaurants +1.68% 3) Airlines +1.13%
Stocks Rising on Unusual Volume:
- XNCR, HZO, HAR, KATE, CMPR, IRE, COH, CSH, VAR, AZPN, NOW, MCD, LRN, CSII, OMER, ABMD, CL, PHM, JBLU, APD, BC, SWK, CEMP and TSCO
Stocks With Unusual Call Option Activity:
- 1) VNDA 2) MCD 3) ADT 4) EMES 5) CL
Stocks With Most Positive News Mentions:
- 1) HOLX 2) BA 3) PG 4) FB 5) NOC
Charts:
Evening Headlines
Bloomberg:
- Russia Set to Hold Main Rate at 17% With No Cut Seen Before June. Russia will probably keep its main interest
rate unchanged this week and is unlikely to cut it from an
emergency level before June as stabilizing the ruble and taming
inflation take precedence over a looming recession, according to
two surveys of economists. The first reduction this year is likely in June or July,
according to a majority of respondents in a survey of 23
economists. The central bank will act once the inflation rate
has dropped to 11.2 percent or less, based on the median of 18
estimates. All but one analyst in a separate survey of 19
economists predict the Bank of Russia will hold its benchmark at
17 percent at a meeting on Friday.
- Russian Consumer Crunch Spurs Tinkoff Stock Volatility. Price swings in TCS Group Holding Plc have
surged to the highest level in eight months as analysts cut
projections for the consumer lender amid a financial crisis
that’s making it more difficult for Russians to pay their debts. Fifty-day historical volatility, a measure of price
fluctuations during the period, jumped to 73 percent Wednesday
as the company’s London-traded shares headed for an eighth
straight monthly decline. The stock has sunk 84 percent from its
October 2013 initial public offering price of $17.50.
- Greece Wants a Debt Break. What About Its Poorer Neighbors? The 40-year-old prime minister’s rise to power has put him on a
collision course with Germany, as he struggles to deliver on his
campaign promises to renegotiate his country’s debt and overturn the
painful austerity demanded by Greece's creditors. But if Tsipras is to bring home the deal he feels Greece deserves, he
will have to more than face down the Germans. He’ll have to win over
skeptical taxpayer in other euro zone countries, reassure European
leaders worried about insurgent challenges of their own and make the
case that – in a Europe still reeling from the 2008 global financial
crisis – Greece is uniquely deserving of assistance.
- Japan’s Retail Sales Unexpectedly Slump in Challenge to Abe. Japanese retail sales unexpectedly fell in
December, underscoring challenges to Prime Minister Shinzo Abe’s
effort to stoke a recovery in the world’s third-biggest economy. Sales slid 0.3 percent from November for a third straight
monthly decline, the trade ministry said Thursday in Tokyo. That
compared with the median estimate for a 0.3 percent gain in a
Bloomberg News survey. Sales increased 1.7 percent in 2014.
- With India Bulls Everywhere, a Rare Look at the Risks. There are times in financial-market rallies
where the gains become so spectacular and the euphoria reaches
such a pitch that it becomes easy to forget about the risks. India, it could be argued, is going through such a moment.
- China Stocks Fall for Third Day as CSRC Starts New Margin Probe. China’s stocks fell for a third day, sending
the benchmark index to a one-week low, amid speculation
increased regulatory scrutiny of margin loans will spur some
leveraged investors to reduce holdings. Citic Securities Co. and Haitong Securities led declines
for financial companies with losses of at least 1.8 percent. The
securities regulator plans a new round of checks into the
margin-lending businesses of brokerages, the Xinhua News Agency
reported Wednesday night. Trainmakers China CNR Corp. and CSR
Corp. rose at least 1.6 percent after the government said it
will promote railway firms’ overseas investments. “The authorities sent a signal that they don’t feel
comfortable,” said Yuliang Chang, Hong Kong-based strategist at
Deutsche Bank AG. The pace of growth in margin lending and
umbrella trusts “is creating a systemic risk in the financial
industry,” he said. The Shanghai Composite Index dropped 0.9 percent to
3,275.18 at 10:28 a.m. local time.
- Asian Stocks Track U.S. Declines After Federal Reserve Statement. Asian stocks fell, tracking declines in U.S.
equities, after the Federal Reserve cited international risks to
the American economy and oil slumped below $45 per barrel. The MSCI Asia Pacific Index slid 0.5 percent to 141.74 as
of 9:01 a.m. in Tokyo. The Fed acknowledged global risks in its
statement Wednesday, saying that it will take into account
readings on “international developments” as it decides how
long to keep key rates near zero. While boosting their
assessment of the economy, policy makers said inflation will
probably slow further. U.S. oil supplies climbed to their
highest level in data going back more than 30 years,
exacerbating concerns over a global supply glut.
- Tesla(TSLA) Bears Rev Engine on Falling Oil, China Skepticism. Slumping oil prices have restored Tesla
Motors Inc.’s status as a favorite among short sellers and
bearish options traders. Speculation that a 58-percent plunge in West Texas
Intermediate crude since June and competition from General
Motors Co. will hurt demand have pushed short sales to a one-year high. The difference in the cost of bearish options versus
bullish ones has almost quadrupled from September, reaching the
highest level since November 2012, data compiled by Bloomberg
show.
Wall Street Journal:
- U.S. Must Return Guantanamo for Normal Relations With Cuba, Raúl Castro Says. Demands Come as Two Nations Move Toward Renewing Full Diplomatic Relations. Cuban President Raúl Castro demanded Wednesday that the U.S. return
the base at Guantanamo Bay, lift the half-century trade embargo on Cuba
and compensate his country for damages before the two nations
re-establish normal relations.
- Islamic State Offshoots Spring Up in Egypt, Other Countries. Egyptian Army Battles a Deadly Sinai Insurgency. The video looks hard to distinguish from the ones filmed in Syria and
Iraq. Islamic State gunmen arrive in a fleet of pickup trucks, set up
checkpoints on a busy highway and start hauling away suspected
collaborators with the “apostate” government. It ends, predictably, with
forced confessions and gruesome, close-up shots of killings.
- Militants Driven From Pakistan Flock to Afghan Towns. Migration to Lawless Regions Pose New Threat to National Security. Arab and Central Asian Islamist militants have moved into Afghanistan
after a military offensive by Islamabad largely eliminated havens in
Pakistan’s tribal areas, Afghan officials and local residents say,
posing a potential new threat to the country’s already tenuous security.
- Up to Six Million Households Facing Penalty for Skipping Health Insurance. The Fine for Not Carrying Insurance in 2014 is $95 per Adult, or 1% of Family Income. The U.S. government estimates as many as six million households may have
to pay a penalty for not having had health-insurance coverage last year
as required under the Affordable Care Act, officials said Wednesday.
- Building Toward Another Mortgage Meltdown. In the name of ‘affordable’ loans, the White House is creating the conditions for a replay of the housing disaster. The Obama administration’s troubling flirtation with another mortgage
meltdown took an unsettling turn on Tuesday with Federal Housing
Finance Agency Director Mel Watt’s testimony before the House Financial
Services Committee.
Fox News:
MarketWatch.com:
- Sands China's quarterly profit falls 18%.
Sands China Ltd. (1928.HK), the Macau unit of Las Vegas Sands Corp.
(LVS), said Thursday fourth-quarter net income dropped 18% from a year
earlier amid a softer gaming market in Macau.
Zero Hedge:
Business Insider:
Reuters:
- Qualcomm(QCOM) says key customer passed on new chip, stock drops. Qualcomm Inc reduced its outlook for fiscal 2015, saying it expects its newest Snapdragon mobile chip will not be used in a major customer's flagship smartphone, sending its shares lower. The San Diego, California, company also warned that
"challenges" with another of its chips had hurt its
competitiveness in China, where Qualcomm has been disappointed
with growth that has fallen short of expectations.
Bild:
- EU's
Schulz Sees Non Majority for Greek Debt Cut. EU Parliament President
Martin Schulz says he will speak frankly to Greek Prime Minister Alexis
Tsipras on trip to Athens and tell him to ask the billionaires who
stashed money abroad to pay their taxes, citing an interview. Sees
coalition with right-wing populist party as problematic, remains to be
seen how the parties will cope with their internal contradictions. Greece's rejection of sanctions against Russia doesn't mark a successful debut; EU sanctions have held together and solo efforts don't go so easily without consultations.
Le Figaro:
- EC President Juncker Says Greece Should Respect Europe. Europe won't provide credit unless Greece sticks to commitments, European Commission President Jean-Claude Juncker says in an interview. No question of forgiving Greek debt, he said. A country can't take "democratic choice" to go against European treaties, Juncker said.
Economic Information Daily:
- China 2014 Tax Revenue Growth Lowest in 20 Years. Tax revenue grew 8.8% to 10.4t yuan, citing data from the State Administration of Taxation.
Evening Recommendations
Night Trading
- Asian equity indices are -1.0% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 112.0 +2.0 basis points.
- Asia Pacific Sovereign CDS Index 69.25 -1.25 basis points.
- NASDAQ 100 futures +.13%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to fall to 300K versus 307K the prior week.
- Continuing Claims are estimated to fall to 2405K versus 2443K prior.
10:00 am EST
- Pending Home Sales for December are estimated to rise +.5% versus a +.8% gain in November.
Upcoming Splits
Other Potential Market Movers
- The
Eurozone CPI, Japan CPI, $35B 5Y T-Note auction, $29B 7Y T-Note
auction, weekly EIA natural gas inventory report, weekly Bloomberg
Consumer Comfort Index and the (KATE) conference call could also impact
trading today.
BOTTOM LINE: Asian indices are lower, weighed down by real estate 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: Most sectors declining
- Volume: Slightly Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 18.44 +7.08%
- Euro/Yen Carry Return Index 139.10 -.67%
- Emerging Markets Currency Volatility(VXY) 9.74 -3.37%
- S&P 500 Implied Correlation 67.66 +2.05%
- ISE Sentiment Index 93.0 -12.28%
- Total Put/Call .95 -12.04%
Credit Investor Angst:
- North American Investment Grade CDS Index 67.75 +1.22%
- America Energy Sector High-Yield CDS Index 737.0 +.06%
- European Financial Sector CDS Index 64.06 +6.96%
- Western Europe Sovereign Debt CDS Index 24.65 +4.18%
- Asia Pacific Sovereign Debt CDS Index 68.47 -2.89%
- Emerging Market CDS Index 398.02 +1.33%
- iBoxx Offshore RMB China Corporates High Yield Index 112.88 +.53%
- 2-Year Swap Spread 25.25 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -12.5 -.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 124.0 -7.0 basis points
- China Import Iron Ore Spot $63.09/Metric Tonne -.65%
- Citi US Economic Surprise Index -4.0 -.3 point
- Citi Eurozone Economic Surprise Index 1.60 +1.6 points
- Citi Emerging Markets Economic Surprise Index -7.40 +3.6 points
- 10-Year TIPS Spread 1.61 -4.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating -115 open in Japan
- DAX Futures: Indicating -35 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech sector longs, index hedges and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
- Market Exposure: Moved to 25% Net Long
