Evening Headlines
Bloomberg:
- Asian Stocks Advance From One-Month Low as Drugmakers Lead Gains. Asian stocks headed for their first advance
this week, after the regional benchmark index closed Wednesday
at a one-month low, as health-care and financial shares climbed.
The MSCI Asia Pacific Index added 0.1 percent to 142.33 as
of 9:01 a.m. in Tokyo after closing yesterday at the lowest
since Feb. 12.
- Oil Shock Leaves Gulf Arabs Ruing Missed Chance to End Addiction. Salim Al Aufi, Oman’s undersecretary for oil
and gas, likens attempts to cut the reliance on oil during a
price slump to acting “with a gun pointed at your head.” If you have to make decisions under pressure, “you will
probably make the wrong ones,” he said March 3 in Muscat during
a panel discussion on the impact of the oil shock. Oman relied
too much on revenue from crude exports when prices were high, he
said.
Wall Street Journal:
- Iran Occupies Iraq. As the U.S. leads from behind, Tehran creates a Shiite arc of power. While Washington focuses on Iran-U.S. nuclear talks, the Islamic
Republic is making a major but little-noticed strategic advance. Iran’s
forces are quietly occupying more of Iraq in a way that could soon make
its neighbor a de facto Shiite satellite of Tehran. That’s the
larger import of the dominant role Iran and its Shiite militia proxies
are playing in the military offensive to take back territory from the
Islamic State, or ISIS.
- Euro Plunge Is Picking Up Pace. ECB bond buying continues to drive euro and eurozone-bond yields lower. The yawning gap between the world’s two most influential central banks
continued to leave a deep mark on currencies markets Wednesday, with the
euro plunging to a 12-year low against the U.S. dollar.
CNBC:
- ISIS and Russia threaten, and NATO cuts spending. NATO
warships conducted rapid reaction drills in the Black Sea this week,
and the alliance's chief accused Russia of continued aggression in
Ukraine. Meanwhile, NATO member states continue to battle ISIS
extremists, who insist their goals include sacking Rome. The North
Atlantic Treaty Organization is more
relevant than it has been for years. But many of its members are moving
further away from meeting their defense spending obligations.
Zero Hedge:
Business Insider:
Reuters:
- Shake Shack(SHAK) says comparable sales growth likely to slow in 2015. Shake Shack Inc forecast
slowing same-restaurant sales growth in 2015 and swung to a loss
in the fourth quarter, helping to send the hamburger chain's
shares down as much as 9 percent after its first quarterly
report as a public company. Sales at Shacks open at least two years grew 4.1 percent in
the year ended Dec. 31, down from 5.9 percent a year earlier,
the company said. The company said it expected same-restaurant sales to grow
in the low single digits in 2015.
Financial Times:
- Bloated valuations arrest US bull run. Entering its seventh year, the ageing US equity bull market looks vulnerable. Rising concerns about the outlook for US equities
reflect their lofty valuations and expectations of higher interest
rates. In the past, the combination of rich share prices during periods
of tighter monetary policy has proved challenging for the market.
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are +.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 107.75 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 67.25 -.75 basis point.
- NASDAQ 100 futures +.19%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Retail Sales Advance for February are estimated to rise +.3% versus a -.8% decline in January.
- Retail Sales Ex Autos for February are estimated to rise +.5% versus a -.9% decline in January.
- Retail Sales Ex Autos and Gas for February are estimated to rise +.3% versus a +.2% gain in January.
- Initial Jobless Claims are estimated to fall to 305K versus 320K the prior week.
- Continuing Claims are estimated to fall to 2400K versus 2421K prior.
- The Import Price Index for February is estimated to rise +.2% versus a -2.8% decline in January.
10:00 am EST
- Business Inventories for January are estimated to rise +.1% versus a +.1% gain in December.
12:00 pm EST
- 4Q Household Change in Net Worth.
2:00 pm EST
- The monthly budget deficit for February is estimated at -$191.0B versus -$193.5B in January.
Upcoming Splits
Other Potential Market Movers
- The
Australia unemployment rate, $13B 30Y T-Bond auction, Bloomberg US
Economic Survey for March, weekly Bloomberg Consumer Comfort Index,
weekly EIA natural gas inventory report and the (UTX) analyst meeting
could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and pharmaceutical 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: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 16.79 +.60%
- Euro/Yen Carry Return Index 133.72 -1.22%
- Emerging Markets Currency Volatility(VXY) 10.65 -1.21%
- S&P 500 Implied Correlation 61.14 +1.03%
- ISE Sentiment Index 84.0 unch.
- Total Put/Call 1.17 +10.38%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.06 -.10%
- America Energy Sector High-Yield CDS Index 738.0 +3.62%
- European Financial Sector CDS Index 56.72 -1.29%
- Western Europe Sovereign Debt CDS Index 20.40 +1.49%
- Asia Pacific Sovereign Debt CDS Index 67.20 -1.07%
- Emerging Market CDS Index 413.22 -.97%
- iBoxx Offshore RMB China Corporates High Yield Index 113.84 -.02%
- 2-Year Swap Spread 26.5 -.75 basis point
- TED Spread 26.25 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -20.25 +3.25 basis points
Economic Gauges:
- 3-Month T-Bill Yield .02% +1.0 basis point
- Yield Curve 142.0 -3.0 basis points
- China Import Iron Ore Spot $57.61/Metric Tonne -.93%
- Citi US Economic Surprise Index -50.50 -.4 point
- Citi Eurozone Economic Surprise Index 46.3 -.8 point
- Citi Emerging Markets Economic Surprise Index 3.30 -9.0 points
- 10-Year TIPS Spread 1.73 -1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating +81 open in Japan
- DAX Futures: Indicating +39 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/medical/retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Ukraine Truce Remains ‘Fragile’ as Weapons Pullback Urged. The U.S. imposed sanctions on officials
close to former Ukrainian President Viktor Yanukovych as NATO
called for the warring parties in the eastern European nation to
pull back weapons to support a “fragile” truce. The U.S. approved $75 million in non-lethal aid after the
Treasury announced an asset freeze against Mykola Azarov, prime
minister under Yanukovych, for “misappropriation of state
assets.” Former First Deputy Prime Minister Serhiy Arbuzov,
Health Minister Raisa Bohatyriova and five others also had their
assets blocked, along with the Russian National Commercial Bank,
the Treasury said Wednesday.
- Monti Says Time for Greece to ‘Play Games’ Running Out. Mario Monti, the economist who served as
prime minister of Italy during the country’s financial crisis,
said the time for the Greek government to “play games” was
running out. Monti, 71, who led a technocratic government in 2011-2013
and was hailed then as Italy’s savior, told Bloomberg TV the
time had come for Greece to comply with European Union
agreements and that he didn’t believe the country would leave
the euro area.
- Draghi Has Investors Flagging Risks as They Buy. Mario Draghi’s unprecedented stimulus is
warping Europe’s credit market, and investors are starting to
question what happens when it ends. Bondholders are paying to lend to national governments,
companies can raise funds with no interest payments, the
region’s issuers can borrow for less than higher-rated U.S.
counterparts and investors are accepting more risk for minimum
yield. The European Central Bank president’s efforts to stimulate
inflation and growth are pushing borrowing costs negative across
the region, creating a financial landscape not seen before where
companies are free to binge on debt. Bond investors say they are
now trying to look beyond the 1.1 trillion-euro ($1.2 trillion)
quantitative-easing program when interest rates will rise and
cause losses. “You can feel the pressure building in credit markets,”
said Luke Hickmore, the Edinburgh-based senior investment
manager at Aberdeen Asset Management Plc, which oversees about
$504 billion. “The eventual exit to this will have a big shock.
When QE stops, it could kick the market quite hard.”
- ECB ‘Chasing Own Tail’ as Bond Rates Turn Negative: SocGen. The amount of bonds eligible for the
European Central Bank to buy under its quantitative-easing
program is poised to shrink as the purchases risk pushing more
yields below zero, according to Societe Generale SA. The ECB, led by President Mario Draghi, began buying euro-area sovereign debt on Monday under the 19-month plan to inject
1.1 trillion euros ($1.2 trillion) into the region’s economy to
spur growth. While the ECB was said to have purchased debt with
negative yields this week, including that of Germany and the
Netherlands, its rules preclude buying of securities yielding
less than its deposit rate of minus 0.20 percent.
- Ex-Soviet Republics Feeling Putin’s Ruble Pain Now. A key element to President Vladimir Putin’s
vision of growing Russian influence in the world is his plan to
lead the former Soviet republics into an economic union. Right now, though, what he’s mostly doing is wiping out
their currencies. Just as Russia’s financial crisis is finally
showing signs of easing amid a tenuous cease-fire in Ukraine,
the aftershocks are spreading from Moscow to former Kremlin
satellites including Belarus, Azerbaijan and Moldova.
- Reluctant Warrior Obama Wavers as Iran Steps Up in Terror Fight.
Days after Ashton Carter became defense
secretary, he huddled with 30 American diplomats and generals on
a U.S. Army base in Kuwait to review President Barack Obama’s
plan for battling Islamic State.
Emerging from the six-hour meeting, Carter delivered his
verdict: The U.S., he said, has “the ingredients” of a
strategy. That less-than-stellar endorsement of the president’s
response to a major security threat comes six months after Obama
promised to “degrade and ultimately destroy” the self-proclaimed Islamic caliphate. As Islamic State vows to
consolidate its rule, Obama’s plan is being criticized on both
political and military grounds.
- Caterpillar(CAT) Faces ‘Aggressive’ Komatsu Fueled by Yen. Caterpillar Inc. has grappled with the
commodities slump and a slowdown in Chinese demand. Now it faces
pressure from its largest competitor, reinvigorated by the
turmoil in global currency markets. Japan’s Komatsu Ltd. is benefiting from the 20 percent
plunge in the yen against the dollar since the beginning of
July. That’s helping it compete worldwide on prices for
construction equipment such as excavators and dump trucks,
according to Mike DeWalt, a Caterpillar vice president. Caterpillar dealers say that when they are bidding for big
deals, “maybe the Komatsu dealer is getting some help from the
factory,” DeWalt, who oversees Caterpillar’s finance services
division, said Thursday. “What we are hearing from dealers is
Komatsu is being aggressive.”
- IMF Approves Ukraine Aid Package of About $17.5 Billion. The International Monetary Fund approved a
$17.5 billion loan program for Ukraine to help the former Soviet
republic stave off default amid a conflict with pro-Russia
rebels. The IMF’s executive board, which represents the 188 member
nations, gave the go-ahead for the four-year program, Managing
Director Christine Lagarde said in a statement on Wednesday. The
aid is part of what the Washington-based lender and Ukraine’s
government hope will be a $40 billion package, including aid
from the U.S. and European Union and a prospective $15 billion
in savings to be negotiated with Ukraine’s bondholders.
- European Stocks Rise Most in Six Weeks as Exporters Gain on Euro. European stocks rose the most in more than
six weeks as a weaker euro boosted exporters.
The Stoxx Europe 600 Index added 1.5 percent to 395.48 at
the close of trading. Automakers led gains as the single
currency traded near a 12-year low and headed for a record
quarterly drop.
- Russia to Keep Oil Output Steady to 2035 Despite Price Drop. Russia plans to maintain oil output at
current levels for the next two decades, Energy Minister
Alexander Novak said, shrugging off sanctions and the slump in
crude prices. Production will remain at about 525 million metric tons a
year, or 10.5 million barrels a day, until 2035, Novak said
Wednesday at a conference in Moscow. Russia, which ranks with
Saudi Arabia and the U.S. among the world’s biggest producers,
pumped 10.71 million barrels a day in January, a post-Soviet
record.
- AP Sues State Department for Clinton E-Mails.
The Associated Press sued the U.S. State
Department for Hillary Clinton’s e-mails and other records, a
day after the potential presidential candidate said she wouldn’t
consent to an outside review of her private server where the e-mails were stored. The AP said it sought Clinton’s e-mail under the Freedom of
Information Act in 2013 and the State Department didn’t disclose
the former secretary of state used a private e-mail account. The AP asked in the lawsuit that the records be turned over
within 20 days.
Wall Street Journal:
- NATO Chief Warns Ukraine Cease-Fire Is Fragile. Location of heavy weapons following withdrawal remains unclear, says Jens Stoltenberg. The cease-fire in Ukraine appears to be holding, but there is clear
evidence Russia is still supporting the rebels and the relative calm
remains fragile, the North Atlantic Treaty Organization chief said
Wednesday.
MarketWatch.com:
- Fed is already 'little bit too late:' Bullard.
The Federal Reserve is already a "little bit too late" in the tightening
process, with current economic conditions no longer justifying leaving
rates at zero, said St. Louis Fed President James Bullard. "I think we
have to move now or soon, in order to be in the right position as the economy continues to evolve," Bullard said
in an interview with the Financial Times. Inflation is not that far
below the Fed's 2% annual rate target excluding oil prices, he said,
also dismissing concerns about the
soaring dollar. Recent soft data was likely due to cold and snowy
conditions in the northeast, he added. "To the extent we have had
weakness in the first quarter it will probably bounce back in the second
quarter, as it did last year," he said.
CNBC:
- Goldman's Gary Cohn: Beware $30 oil. (video)
Goldman Sachs President Gary Cohn told CNBC on Wednesday he is very
concerned about the short-term window for oil and said crude prices
could fall to $30 a
barrel as the industry runs out of storage space.
ZeroHedge:
Business Insider:
Reuters:
- U.S. slaps sanctions on Ukrainian rebels, Russian bank. The
United States on Wednesday placed sanctions on eight Ukrainian
separatists and a Russian bank, warning that recent attacks by rebels
armed by Russia violated a European-brokered ceasefire in the war-torn
country.
The sanctions signal
Washington is ratcheting up pressure on Moscow a day after accusing
Russia of sending tanks and heavy military equipment into Ukraine, which
a top U.S. official also said breached the Minsk accord agreed on Feb.
12.
Financial Times:
- China data point to sharper slowdown. China's economy. China's economy slowed
at its sharpest rate in the first two months of the year since the
global financial crisis, heightening fears that this deceleration will
undermine global growth. Chinese industrial production, regarded as a good proxy for
broader economic growth, expanded 6.8 per cent in January and February
from a year earlier. Excluding the financial crisis, it was the slowest
reading since records started in 1995, Goldman Sachs said.
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Gaming -1.76% 2) Computer Hardware -.98% 3) Disk Drives -.81%
Stocks Falling on Unusual Volume:
- SXL, VRA,
MRD, RAVN, BLT, HABT, HTHT, RESN, ACAD, TSN, RWLK, BWS, EMC, ERA, SINA,
HMIN, AAC, MR, PPC, SAFM, TDW, SCMP, MA, HRL, USLV, ACAD and SCMP
Stocks With Unusual Put Option Activity:
- 1) VFC 2) RL 3) EMC 4) DO 5) XLP
Stocks With Most Negative News Mentions:
- 1) EMC 2) MR 3) VRA 4) PPC 5) WDC
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Hospitals +1.21% 2) Banks +.61% 3) Airlines +.59%
Stocks Rising on Unusual Volume:
- SUPN, KYTH, LL, MYL, PAY, QIHU, SNDK, IPXL, WTW and AXTA
Stocks With Unusual Call Option Activity:
- 1) MYL 2) TTWO 3) ACAD 4) TAP 5) EUO
Stocks With Most Positive News Mentions:
- 1) LUV 2) PAY 3) UTX 4) NFLX 5) IBM
Charts:
Evening Headlines
Bloomberg:
- China's Solution to $3 Trillion Debt Is to Deal with It Later. China’s government has a creative solution
to address repayment concerns hanging over more than $3 trillion
in regional debt. It will deal with it later. The Finance Ministry issued a 1 trillion yuan ($160
billion) quota for local governments to convert maturing high-cost debt into lower-yielding municipal notes to be repaid at a
future date, according to a March 8 statement. Questions left
unanswered include whether investors will be forced into the
swap, how much transparency there will be over assets involved
and whether the liabilities will strain the nation’s finances.
- Suburb With 27% Jobless Shows Danger of Australian Recession. In a shopping center full of sale signs in
Broadmeadows, a Melbourne suburb with 27 percent unemployment,
Soney Kul is struggling to shift half-price jewelry. “People don’t want to spend,” the 27-year-old said,
gesturing at the sparsely-filled display cases in his family-owned store, Altinbas. “They’re too scared to spend because
they don’t know what the next day will hold.” After a decade-long mining boom powered by Chinese demand,
Australia’s economy is falling back to earth fast. Among the
worst hit are industrial areas like Broadmeadows, whose Ford
Motor Co. plant will shut after a record-high currency made
operations untenable, and the slowdown is spreading. Only four
months after economists were forecasting interest-rate increases
in 2015, the country’s central bank has cut its benchmark to a
fresh record low.
- Asian Stocks Drop as Dollar Spurs World Rout; Oil Sub-$50. Asian stocks fell, extending a global
selloff sparked by gains in the dollar as U.S. monetary policy
diverges from the rest of the world. Copper slipped before
Chinese economic data, and U.S. oil was below $49 a barrel.
The MSCI Asia Pacific Index lost 0.3 percent by 9:55 a.m.
in Tokyo, falling for a third day as Australia’s S&P/ASX 200
Index sank 0.7 percent. Japanese shares slipped 0.2 percent,
with the yen close to a 7 1/2-year low. The greenback touched
its strongest level since April 2003 against the euro and added
0.3 percent versus the Malaysian ringgit.
- Euro Racing Toward Record Quarterly Drop on Draghi’s Bond Buying. The euro is poised for its biggest quarterly
decline as the European Central bank embarks on purchases of
sovereign debt this week to spur inflation. The shared currency has weakened about 11.5 percent this
year, eclipsing the 10.6 percent decline during the credit
crunch in the third quarter of 2008. The euro slumped to a 12-year low Wednesday as national central banks in the euro region
were said to have purchased sovereign debt for a second day on
Tuesday in their quantitative-easing program.
- Junk-Bond Protections Hit Lowest Quality on Record, Moody’s Says. Investor protections in new U.S. junk bonds
fell to the weakest level in at least four years as risky
borrowers are able to dictate terms to yield-starved investors,
according to Moody’s Investors Service. The rating company’s gauge of the strength of investor
safeguards registered its worst reading in February for newly
issued speculative-grade bonds in data going back to January
2011, analysts Alexander Dill and Evan Friedman wrote in a
report today. Moody’s covenant-quality gauge, in which 5
indicates the weakest protections and 1 the strongest, measured
4.51 for bonds issued in February, up from 4.41 in January and
surpassing the previous record of 4.43 in September 2014.
Covenants are protections written into bond documents that can
restrict an issuer’s ability to borrow more.
- GE’s(GE) Immelt Earns $37 Million Payday After 2014 Business Revamp. General Electric Co. Chief Executive Officer
Jeffrey Immelt’s compensation almost doubled in 2014 as his
pension soared and he signed the company’s largest-ever
acquisition. Immelt pocketed $37.3 million last year, including a bonus
of $5.4 million, the Fairfield, Connecticut-based company said
Tuesday in a filing with the U.S. Securities and Exchange
Commission. His base salary rose 8.2 percent to $3.8 million.
Wall Street Journal:
- Fed Likely to Remove ‘Patient’ Barrier for Rate Increase as Soon as June. by Jon Hilsenrath. Shift at March meeting would create policy flexibility; inflation outlook key on fed-funds increase. The Federal Reserve is strongly considering removing a barrier to
raising short-term interest rates as early as June by dropping its
promise to be “patient” before acting. Discussions about
interest-rate guidance and an uncertain inflation outlook are likely to
take center stage at the Fed’s next meeting March 17-18.
- The Fatal Flaw in Obama’s Dealings With Iran. Taking a collaborative approach to negotiating with bad actors always turns out badly. Better to coerce them. ‘Extraordinarily reasonable,” President Obama called it in an
interview aired on Sunday, referring to the multiparty deal being
negotiated on Iran’s nuclear-weapons program. When the talks began, Mr.
Obama said it was “unacceptable” for Iran to acquire nuclear weapons.
Now it isn’t clear whether that is actually his view. On Capitol
Hill, distrust of the president is intense, fueled by resentment that he
doesn’t intend to submit the nuclear deal for congressional approval.
Forty-seven Republican .
Fox News:
MarketWatch.com:
Zero Hedge:
Business Insider:
Reuters:
- Japan machinery orders fall in sign of soft capex demand. Japan's core machinery orders
fell 1.7 percent in January, suggesting that companies remain
reluctant to increase capital expenditure given the uncertain
economic outlook. The data underscores the challenges Prime Minister Shinzo
Abe and the Bank of Japan face as they attempt to nudge firms
into boosting spending on wages and equipment with their
stimulus policies.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 109.25 +3.5 basis points.
- Asia Pacific Sovereign CDS Index 68.0 +2.75 basis points.
- NASDAQ 100 futures +.25%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory
build of +4,595,000 barrels versus a +10,303,000 barrel increase the
prior week. Gasoline supplies are estimated to fall by -1,680,000
barrels versus a +46,000 barrel gain the prior week. Distillate supplies
are estimated to fall by -2,260,000 barrels versus a -1,722,000 barrel
decline the prior week. Finally, Refinery Utilization is estimated to
fall by -.26% versus a -.8% decline the prior week.
Upcoming Splits
Other Potential Market Movers
- The
China retail sales report, CCAR results, $21B 10Y T-Note auction,
weekly MBA mortgage applications report, Barclays Healthcare conference,
(SNCR) analyst meeting, (MET) investor conference and the (TREX)
analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity 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
50% net long heading into the day.
