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) 16.30 +13.91%
- Euro/Yen Carry Return Index 141.50 +1.02%
- Emerging Markets Currency Volatility(VXY) 10.43 +.29%
- S&P 500 Implied Correlation 67.57 -.47%
- ISE Sentiment Index 66.0 -49.23%
- Total Put/Call 1.03 -15.57%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.57 +2.71%
- America Energy Sector High-Yield CDS Index 1,076.0 -.31%
- European Financial Sector CDS Index 75.27 +1.50%
- Western Europe Sovereign Debt CDS Index 24.97 -.40%
- Asia Pacific Sovereign Debt CDS Index 59.80 -1.0%
- Emerging Market CDS Index 296.23 -.96%
- iBoxx Offshore RMB China Corporates High Yield Index 118.14 +.07%
- 2-Year Swap Spread 25.75 -.25 basis point
- TED Spread 27.50 +1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -21.0 -.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .01% unch.
- Yield Curve 160.0 +5.0 basis points
- China Import Iron Ore Spot $60.89/Metric Tonne +3.73%
- Citi US Economic Surprise Index -67.30 -2.0 points
- Citi Eurozone Economic Surprise Index 19.0 +13.8 points
- Citi Emerging Markets Economic Surprise Index -18.0 +.1 point
- 10-Year TIPS Spread 1.91 -2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating -278 open in Japan
- DAX Futures: Indicating -27 open in Germany
Portfolio:
- Slightly Higher: On gains in my index hedges and emerging markets shorts
- Market Exposure: 25% Net Long
Bloomberg:
- ECB Mulls Tighter Greece Rules After 100 Days of Tspiras. (video) European Central Bank officials will debate tighter rules for the
liquidity that Greek lenders rely on for survival, two people familiar
with the matter said, a move that underscores the fragility of the
country’s financial system. The Governing Council will discuss Wednesday whether to raise
discounts on the collateral Greek banks pledge in exchange for emergency
funding, said the people, who are familiar with the agenda and asked
not to be identified. Governors will also review how much more Emergency
Liquidity Assistance to offer Greek banks.
- ECB Said to Raise Cap on Emergency Liquidity for Greek Banks. The European Central Bank increased the cap on emergency cash
available to Greek lenders as the nation continues to struggle with a
financial crisis, people familiar with the decision said. Policy makers meeting in Frankfurt on Wednesday raised the limit on
Emergency Liquidity Assistance by 2 billion euros ($2.3 billion) to 78.9
billion euros, the people said, asking not to be identified as the
meeting is private. ELA is offered by the Greek central bank against
lower quality collateral than the ECB typically accepts.
- German-Bond Investors Just Lost 25 Years of Yield in 14 Days. Exit bull, pursued by bear. Over the past couple of weeks, investors in German government bonds have
received a crash course in "duration," a geeky concept that is
nevertheless a driving force in fixed income.
- Ukrainian Army Suffers Deadliest Day in 3 Weeks in Blow to Truce. Ukraine’s military suffered its deadliest day since mid-April,
heaping further pressure on a shaky truce with pro-Russian militants in
its easternmost regions. Five servicemen were killed in the past 24 hours, four by a land mine
and one in an ambush, Defense Ministry spokesman Andriy Lysenko said
Wednesday. Twelve were injured, while the separatists target the town of
Shyrokyne, near the Mariupol port, he said. The rebels accused Ukraine
of breaking the cease-fire 55 times in the past day, including with
artillery.
- IMF Warns on EU Insurers’ Business Models as JPMorgan(JPM) Cuts. European life insurers’ business models are becoming unsustainable
after interest rates slumped across the continent, International
Monetary Fund analysts said. Low yields on government bonds mean euro-area firms are incurring
more financial stress than in recent tests by regulatory authorities,
when almost a quarter were unable to meet requirements, analysts
including Reinout De Bock and Andrea Maechler said in a report dated
Tuesday.
- Credit Markets Frothier Than in 2007: Byrne. (video)
- Shanghai Composite Going Back to 6,000, Matthews Says. (video)
- Indian Stocks Slump to Five-Month Low as Foreigners Extend Sales. Indian
stocks tumbled, with the benchmark index falling to its
lowest level this year, after block deals in index futures and foreign
funds extended the longest selloff in local shares this year. Bharat
Heavy Electricals Ltd., the top power-equipment maker, was the
biggest loser on the S&P BSE Sensex, while NTPC Ltd., the
largest
utility, fell the most in eight weeks. ICICI Bank Ltd. slid to a
three-month low, sending a gauge of lenders its sharpest loss since
April 27. The yield on sovereign bonds due 2024 climbed to a four-month
high and the rupee weakened. The Sensex plunged 2.6 percent to 26,717.37, the lowest close since
Dec. 17. The gauge briefly extended losses to more than 10 percent from
its Jan. 29 record, meeting the definition of correction, as more
investors seek more evidence that the government’s efforts to bolster
growth will lead to a revival in company profits. Foreigners sold $475
million of shares on Thursday and Monday, and have been sellers of CNX
Nifty futures since April 23.
- European Stocks Decline for a Second Day After Yellen’s Comments. European stocks slid for a second day, extending declines as the
euro strengthened and Federal Reserve Chair Janet Yellen said equity
market valuations are high.
The Stoxx Europe 600 Index slid 0.6 percent to 388.68 at the close of
trading, having swung between losses of 1 percent and gains of 0.3
percent.
- Yellen Says Equity-Market Valuations Are ‘Quite High’. Federal Reserve Chair Janet Yellen said equity-market valuations are
“quite high” and could be a potential source of financial instability. “I would highlight that equity-market valuations at this point
generally are quite high,” Yellen said in Washington on Wednesday in a
response to a question at a forum on finance. “Now, they’re not so high when you compare the returns on equities to
the returns on safe assets like bonds, which are also very low, but
there are potential dangers there.”
- Tesla's(TSLA) New Battery Doesn't Work That Well With Solar. Tesla
Chief Executive Elon Musk introduced a new family of batteries designed
to stretch the solar-power revolution into its next phase. There's just
one problem: Tesla's new battery doesn't work well with
rooftop solar—at least not yet. Even Solar City, the supplier led by
Musk, isn't ready to offer Tesla's battery for daily use.
Wall Street Journal:
MarketWatch.com:
Fox News:
- Purported ISIS warning claims terror cells in place in 15 states. (video) A grim online warning from a self-described American jihadist said
Sunday's terror attack in Texas was the work of ISIS and that the
terrorist group has scores of "trained soldiers" positioned in 15
states, awaiting orders to carry out more operations.
ZeroHedge:
Business Insider:
Style Underperformer:
Sector Underperformers:
- 1) Disk Drives -2.89% 2) Gaming -1.48% 3) Alt Energy -1.43%
Stocks Falling on Unusual Volume:
- WLKP, ACHC, ALXN, CMLP, TNET, FOSL, NDLS, VSI, ZU, DTLK, AXLL, HYGS, KONA, HAIN, RUBI, NWS, ENPH, STRA, ALL, NWSA, ZLTQ, MASI, AFAM, OTTR, TSU, OKS, INVN, SUPN, MYGN, EXAM, OKE, CMLP, NXTM, CHK, WAGE, ZLTQ, DDD and NWSA
Stocks With Unusual Put Option Activity:
- 1) JNK 2) KRE 3) CIEN 4) APC 5) FOSL
Stocks With Most Negative News Mentions:
- 1) ZU 2) NDLS 3) CTB 4) DDD 5) CHK
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Biotech +.87% 2) Road & Rail +.67% 3) HMOs +.47%
Stocks Rising on Unusual Volume:
- BRDR, GEVA, LC, WU, RARE, SRPT, WEN, PLCE, HLF, TOUR, MGI, WD, SWC, ZEN, BMRN and GMED
Stocks With Unusual Call Option Activity:
- 1) FXCM 2) WEN 3) HUM 4) ALXN 5) FOSL
Stocks With Most Positive News Mentions:
- 1) OSTK 2) IDXX 3) SRPT 4) CAH 5) EL
Charts:
Evening Headlines
Bloomberg:
- Bond Damage Tally: $340 Billion Lost as Slump Put in Perspective. Global bond markets have lost about $340 billion since the start of
last week as investors ponder the end of a six-year rally that sent
yields to record lows. Traders returning from Europe’s May Day holidays sent yields surging
across the continent as tensions between Greece and its creditors
worsened, adding to the anxiety. Yields began the climb last week as
billionaire bond investors Jeffrey Gundlach to Bill Gross questioned the
viability of negative yields with the European Central Bank’s stimulus
measures appearing to put an end to the risk of deflation.
- It's Time to Get Ready for the End of China's Bull Market. For Chinese investors with a sense of history, the nation’s world-beating equity rally is looking long overdue for a reversal. The bull market turned 883 days old on Tuesday, topping China’s
previous record by 56 days, after a 119 percent surge in the Shanghai
Composite Index since December 2012. Even if the advance is measured
from June 2013 -- when the gauge narrowly avoided a bear-market drop of
20 percent -- it’s still the second longest since Chinese bourses opened
for trading in 1990.
- Origins of Chinese Bond Default Buried in Accounting Footnotes. Investors still wondering how Kaisa Group Holdings Ltd. doubled its
debt in six months and triggered China’s first property bond default may
want to read page 63 of its 2014 interim report. There, in footnote No. 15 of the Shenzhen-based company’s balance
sheet, is a reference to 11 billion yuan ($1.8 billion) in advance
deposits for property projects from third parties and for 1.15 billion
yuan that needed to be refunded.
- China Trusts Fuel Rally With Record Rise in Equities Investment. China’s trust companies, part of the shadow-banking industry,
boosted their investment in equities by a record 225 billion yuan ($36
billion) in the first quarter, adding fuel to the country’s stock-market
rally.
About 777 billion yuan of high-yield trust products were invested in
stocks at the end of March, more than double the 314 billion yuan a year earlier, according to data released by the China Trustee Association on Wednesday.
- Alibaba's(BABA) Slowing Growth in China Costs Investors $70 Billion, After Alibaba Group Holding Ltd. raised a record $25 billion last
year, founder Jack Ma said the Chinese e-commerce company faced the
danger of high expectations. He might be right. About $70 billion of market value has evaporated since Ma made that statement
in November as investors worry about slowing growth. Alibaba’s
dominance at home as a marketplace for buyers and sellers of goods is
being undermined by a Chinese economy projected to grow at the slowest
pace since 1990 and a consumer shift to mobile shopping that crimps
advertising revenue.
- Asian Stocks Outside Japan Fall Second Day, Following U.S. Slump. Asian
stocks outside of Japan dropped for a second day, with the
regional gauge extending a two-week low, as banks and information
technology shares declined following a slump in U.S. equities.
Woolworths Ltd. fell 3.8 percent after Australia’s biggest supermarket
chain announced job cuts as sales missed estimates. Commonwealth Bank of
Australia slid 4.3 percent as the nation’s top lender by market value
posted third-quarter cash profit that was unchanged from a year earlier.
HSBC Holdings Plc slipped 1 percent in Hong Kong after first-quarter
revenue
fell short of expectations at Europe’s largest bank.
The MSCI Asia Pacific excluding Japan Index fell 0.8 percent to 509.12 as of 9:34 a.m. in Hong Kong.
- Dollar Tantrum Screams Buy to Goldman Sachs(GS) Seeing GDP Rebound. Goldman Sachs Group Inc. said investors should build positions that
seek to profit from the dollar’s strength as U.S. growth is set to pick
up. A gauge of the dollar fell last month for the first time since June.
Lower-than-forecast economic data, including first-quarter gross
domestic product, fueled speculation the Federal Reserve will keep U.S.
interest rates lower for longer.
- BlackRock’s(BLK) On a Mission to Save the Credit-Default Swaps Market. BlackRock Inc. is leading a push to revive trading in a key part of
the credit derivatives market that’s shrunk 57 percent as post-crisis
regulations made it costlier to trade. The world’s biggest asset manager is targeting contracts known as
single-name credit-default swaps -- those tied to individual companies
and countries. That piece of the market has declined disproportionately
because it has been slower to adapt to new standards for trading.
BlackRock has had preliminary discussions with banks and other debt
investors for a plan that would route trades through clearinghouses
intended to curb risks to the financial system.
- Secret Shorts: Nameless Naysayers Shake Markets in Twitter Age. They
were reviled in the age of Rembrandt, outlawed in the time of
Newton and, in the days of Napoleon, branded enemies of the state. Now
short sellers have embraced the age of Twitter -- and the results are
almost as explosive. The Internet has given a new generation of short sellers and
researchers tools to spread bearish investment advice in a blink, and,
sometimes, do so anonymously. Accusations fly, many fall on deaf ears,
but occasionally a post or tweet from a faceless source can wipe out
billions of market value.
- U.S. Is Probing Apple(AAPL) Over Its Deals for Beats Music. U.S. antitrust officials are scrutinizing Apple Inc.’s efforts to
line up deals with record labels as it prepares to debut a new version
of the Beats Music streaming service, according to people familiar with
the matter. The Federal Trade Commission is looking at whether Apple is using its
position as the largest seller of music downloads through its iTunes
store to put rival music services like Spotify Ltd. at a disadvantage,
one of the people said.
Wall Street Journal:
- Market U-Turn Rams Hedge Funds. Firms’ bets go sour, as U.S. economy stalls, German bonds fall and oil rebounds. A broad market reversal is battering hedge funds, spoiling the industry’s strongest annual start since the financial crisis. Many
funds that bet on global financial and economic trends run by firms
such as Fortress Investment Group LLC and Discovery Capital Management
LLC suffered losses in April as they tried to benefit from a
constellation of market moves that gained momentum in mid-2014 and were
widely expected to continue...
- Yellen Meetings With Financial Firm Come Under Scrutiny. Efforts to press Federal Reserve for more details on possible leak focus attention on chairwoman’s contacts. Congressional efforts to press the Federal Reserve for more details
about a possible leak have suddenly focused attention on Chairwoman
Janet Yellen’s contacts with financial firms.
CNBC:
Zero Hedge:
Business Insider:
Reuters:
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are -1.0% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 105.50 +.5 basis point.
- Asia Pacific Sovereign CDS Index 60.50 +.5 basis point.
- NASDAQ 100 futures +.23%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:15 am EST
- ADP Employment Change for April is estimated at 200K versus 189K in March.
8:30 am EST
- Preliminary 1Q Non-Farm Productivity is estimated to fall -1.9% versus a -2.2% decline in 4Q.
- Preliminary 1Q Unit Labor Costs are estimated to rise +4.5% versus a +4.1% gain in 4Q.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+900,000 barrels versus a +1,910,000 barrel gain the prior week.
Gasoline supplies are estimated to rise by +387,500 barrels versus a
+1,713,000 barrel gain the prior week. Distillate inventories are
estimated to fall by -75,000 barrels versus a -66,000 barrel decline the
prior week. Finally, Refinery Utilization is estimated to rise by +.57%
versus a +.1% gain the prior week.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Yellen speaking, Fed's George speaking, Fed's Lockhart speaking,
Eurozone Services PMI report, Australia Employment report, 1Q MBA
Mortgage Foreclosures/Mortgage Delinquencies reports, weekly MBA
mortgage applications report, Sanford Bernstein Energy Conference,
Deutsche Bank Health Care Conference, (FLEX) investor day and the (AMD)
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 25% net long heading into the day.
