Thursday, March 12, 2015

Stocks Surging into Final Hour on Central Bank Hopes, Euro Bounce, Less Emerging Markets Debt Angst, Financial/Utility Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 15.65 -7.23%
  • Euro/Yen Carry Return Index 134.47 +.50%
  • Emerging Markets Currency Volatility(VXY) 10.63 -.56%
  • S&P 500 Implied Correlation 61.68 -.65%
  • ISE Sentiment Index 76.0 23.23%
  • Total Put/Call 1.07 -3.60%
  • NYSE Arms 1.26 +41.92% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 64.26 -1.52%
  • America Energy Sector High-Yield CDS Index 723.0 -2.18%
  • European Financial Sector CDS Index 56.29 -.83%
  • Western Europe Sovereign Debt CDS Index 20.90 +1.98%
  • Asia Pacific Sovereign Debt CDS Index 65.30 -2.99%
  • Emerging Market CDS Index 408.32 -.91%
  • iBoxx Offshore RMB China Corporates High Yield Index 113.76 -.06%
  • 2-Year Swap Spread 27.5 +1.0 basis point
  • TED Spread 25.25 -1.0 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -18.0 +2.25 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .02% unch.
  • Yield Curve 144.0 +2.0 basis points
  • China Import Iron Ore Spot $57.97/Metric Tonne +.62%
  • Citi US Economic Surprise Index -55.60 -5.1 points
  • Citi Eurozone Economic Surprise Index 45.3 -1.0 point
  • Citi Emerging Markets Economic Surprise Index 6.30 +3.0 points
  • 10-Year TIPS Spread 1.72 -1.0 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +208 open in Japan
  • DAX Futures: Indicating +36 open in Germany
Portfolio: 
  • Higher: On gains in my biotech/medical/retail sector longs 
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:
  • Large-Cap Value +.82%
Sector Underperformers:
  • 1) Coal -5.20% 2) Oil Service -1.67% 3) Computer Hardware -.66%
Stocks Falling on Unusual Volume:
  • EQM, RP, ACAD, INGN, SGMS, PGEM, CYBR, CMTL, EPZM, TTPH, LMOS, ANIP, KIRK, PLOW, KKD, INTC, WSTC, CNX, DEST, HABT, MRD, MMI, AKRX, QIWI, GCO, TRGP, IM, ANIP, MRD, WK, TECD, KKD, EYES and BOX
Stocks With Unusual Put Option Activity:
  • 1) NTAP 2) CSX 3) EWT 4) MOS 5) APA
Stocks With Most Negative News Mentions:
  • 1) CNX 2) BTU 3) ALKS 4) PBR 5) CVX
Charts:

Bull Radar

Style Outperformer:
  • Small-Cap Value +1.09%
Sector Outperformers:
  • 1) Airlines +1.95% 2) Utilities +1.69% 3) Banks +1.55%
Stocks Rising on Unusual Volume:
  • ISSI, LL, LBIO, MW, PLCE, MYL, MTN, OLED and JBLU
Stocks With Unusual Call Option Activity:
  • 1) SGMS 2) BOX 3) SLXP 4) ARO 5) BAX
Stocks With Most Positive News Mentions:
  • 1) DG 2) F 3) BABA 4) STI 5) RMAX
Charts:

Wednesday, March 11, 2015

Thursday Watch

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 
  • None of note
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.
  • S&P 500 futures +.14%.
  • NASDAQ 100 futures +.19%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (DG)/1.17
  • (GCO)/2.38
  • (HOV)/-.07
  • (PLCE)/.92
  • (ARO)/-.05
  • (LOCO)/.12
  • (ULTA)/1.28
  • (ZUMZ)/.79
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
  • None of note
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.

Stocks Slightly Lower into Final Hour on Global Growth Fears, Earnings Worries, Oil Decline, Gaming/Tech Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • 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%
  • NYSE Arms .79 -69.90% 
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

Today's Headlines

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: