Broad Equity Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- Volatility(VIX) 15.01 -.92%
- Euro/Yen Carry Return Index 141.06 -.38%
- Emerging Markets Currency Volatility(VXY) 10.54 +.67%
- S&P 500 Implied Correlation 64.93 -2.78%
- ISE Sentiment Index 106.0 +47.22%
- Total Put/Call .91 -10.78%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.64 +.12%
- America Energy Sector High-Yield CDS Index 1,070.0 -.70%
- European Financial Sector CDS Index 74.94 -.44%
- Western Europe Sovereign Debt CDS Index 23.77 -4.80%
- Asia Pacific Sovereign Debt CDS Index 60.81 +1.53%
- Emerging Market CDS Index 298.34 +.48%
- iBoxx Offshore RMB China Corporates High Yield Index 118.03 -.10%
- 2-Year Swap Spread 26.75 +1.0 basis point
- TED Spread 26.50 -1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -22.0 -1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .01% unch.
- Yield Curve 156.0 -4.0 basis points
- China Import Iron Ore Spot $60.36/Metric Tonne -.87%
- Citi US Economic Surprise Index -64.70 +2.6 points
- Citi Eurozone Economic Surprise Index 17.1 -1.9 points
- Citi Emerging Markets Economic Surprise Index -13.9 +4.1 points
- 10-Year TIPS Spread 1.89 -2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +101 open in Japan
- DAX Futures: Indicating +10 open in Germany
Portfolio:
- Higher: On gains in my biotech/medical/tech/retail sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- ECB Gives Greece Another Week to Make a Deal. (video) Greece needs to show it’s serious about reaching an agreement with
international creditors next week or risk tighter liquidity rules being
imposed on its banks. European Central Bank officials want progress at a meeting of
euro-region finance ministers on May 11 or they will consider tightening
Greek banks’ access to emergency liquidity they need to stay afloat,
said two officials who spoke on condition of anonymity as the talks are
private. One policy maker said they’re prepared to raise haircuts -- the
discounts imposed on collateral pledged by Greek banks in return for
funding -- to levels seen last year. The ECB declined to comment.
- Greece on the Brink, Again. (video)
- Bond Bears Risk Self-Destruction by Betting on Draghi’s Success. Too
much success for Mario Draghi risks ending up in defeat for investors.
The euro-area’s currency is climbing with bond yields, while equities
are sliding, as financial markets bet the monthly bond-buying of
President Draghi’s European Central Bank will successfully revive
inflation. There is even talk of the 1.1 trillion-euro ($1.2 trillion)
program being tapered. The problem for Draghi is that recent trading goes in the opposite
direction of what he needs to cement stronger inflation and economic
growth. Higher borrowing costs will curb the ability of consumers and
companies to spend, as well as making it costlier for governments to
borrow after falling yields reduced the need for austerity. The euro
will impede exporters which had welcomed the currency’s previous slide,
while lower stocks mean quantitative easing has less of a wealth effect.
- European Opportunities ‘More Hype Than Reality,’ Weingord Says. Money managers promising big returns from European credit
investments are probably overstating the opportunity, Seer Capital
Management Chief Executive Officer Philip Weingord said. “There are interesting opportunities in Europe but it’s more hype than reality,” Weingord
said in a Bloomberg Television interview Thursday with Stephanie Ruhle
and Erik Schatzker at the SkyBridge Alternatives Conference in Las
Vegas. While fund managers have been
touting for years the potential for European banks to unload large
swaths of assets as they face tougher regulations, “it’s not happening,”
he said.
- ArcelorMittal(MT) Cuts Forecast as Iron Ore Conquers Steel Gains. ArcelorMittal
cut its annual profit target as decade-low iron ore prices overwhelm a
recovery in steel. The world’s biggest steelmaker expects $6 billion to
$7 billion of
earnings before interest, taxes, depreciation and amortization this
year, down from the $6.5 billion to $7 billion it forecast earlier. It’s
the fifth-largest iron-ore producer. “We faced a number of headwinds in the first quarter, including a
declining iron-ore price, a stronger dollar and surge of imports in the
United States,” Chief Executive Officer Lakshmi Mittal said in a
statement on Thursday.
- Siemens Cuts Another 4,500 Jobs as Oil Slump Hits Profit. Siemens AG, Europe’s largest engineering company, will cut another
4,500 jobs after second-quarter profit fell more than analysts
estimated, burdened by the declining oil price. Profit from so-called industrial operations fell 4.9 percent to 1.66
billion euros ($1.9 billion), the Munich-based company said in a
statement. That missed the 1.71 billion-euro average estimate of
analysts surveyed by Bloomberg.
- Europe Stocks Halt Two-Day Drop as German Equities Reverse Loss. German equities swung to gains from losses, helping erase an intraday decline in European stocks. The Stoxx Europe 600 Index added less than 0.1 percent to 388.98 at
the close of trading, after plunging as much as 1.8 percent. A drop in
oil and metal prices sent commodity shares tumbling, while travel
companies gained. The Stoxx 600 has fallen 6.1 percent from a record in
April, when valuations were at the highest in at least a decade.
- Oil Producers Cast Aside Gloom as Rally Spurs Drilling Plans. Oil producers battered by the steepest market collapse in a
generation are signaling for the first time that they believe the worst
is behind them. Carrizo Oil & Gas Inc., Devon Energy Corp. and Chesapeake Energy
Corp. all lifted their full-year production outlooks this week. Shale
explorer EOG Resources Inc. said on Tuesday it plans to increase
drilling as soon as crude stabilizes around $65 a barrel, while Pioneer
Natural Resources Co. has said it is preparing to deploy more rigs as
soon as July.
- Consumer Comfort in U.S. Declines to Lowest Level in Eight Weeks. Consumer confidence declined to an eight-week low as attitudes about
the economy dimmed, particularly among those at the bottom of the
income ladder. The Bloomberg Consumer Comfort Index decreased to 43.7 in the week
ended May 3, the fourth straight decline, from 44.7 the prior period.
- Tesla(TSLA) Falls After Analyst Calls Its Cash Burn ‘Eye Watering’. Tesla Motors Inc. fell Thursday after Morgan Stanley said the
company’s “eye watering” use of cash puts more pressure on a good
production start for the Model X sport utility vehicle. Shares of the electric-car maker led by Chief Executive Officer Elon
Musk fell 2.1 percent to $225.68 at 9:37 a.m. New York time.
- Here's What to Look for in Friday's Jobs Report.
ZeroHedge:
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Coal -2.74% 2) Oil Service -2.71% 3) Oil Tankers -2.30%
Stocks Falling on Unusual Volume:
- INCR, VRNS, VSAR, WFM, TUMI, CPA, PMT, THS, INXN, EPAM, FOX, TPVG, INOV, GMCR, CCOI, AAON, NUS, WLKP, TDC, TA, SHG, PRFT, LCI, ACAS, FOXA, HTWR, FANG, CXW, PCLN, UNT, CONE, TASR, MEMP, SLH, ALDW, CNSL, FRSH, WCG, ABMD, TROX, SHAK, KATE and CCRN
Stocks With Unusual Put Option Activity:
- 1) XRT 2) BX 3) HYG 4) WFM 5) DOW
Stocks With Most Negative News Mentions:
- 1) SCMP 2) VRNS 3) AAON 4) TASR 5) RYAM
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Hospitals +2.59% 2) REITs +1.64% 3) Homebuilders +1.63%
Stocks Rising on Unusual Volume:
- QLTY, PHH, GEVA, HUBS, BABA, ATSG, ALXN, ANN, AHS, MMS, QRVO, OVAS, VECO, COTY, ATVI, RGEN, CORE, SUNE, VECO, LDRH, GSM, BLUE, ANN, BWC, ATSG, CBPX, ALB, PRAA, WBMD, INSY, YHOO, EQC and VC
Stocks With Unusual Call Option Activity:
- 1) ATVI 2) HFC 3) QRVO 4) PRU 5) MO
Stocks With Most Positive News Mentions:
- 1) ATML 2) QRVO 3) MSI 4) BABA 5) CONN
Charts:
Evening Headlines
Bloomberg:
- ECB Decision on Greek Haircuts Said to Depend on Political Talks. The European Central Bank will decide after next week’s meeting of
euro region finance ministers whether to tighten Greek access to
emergency liquidity, two people familiar with the matter said. The ECB is prepared to raise the discount demanded on Greek
collateral to a level last seen in 2014 unless the country’s government
shows a willingness to compromise in bailout talks, said one of the
officials, who spoke on condition of anonymity. An ECB spokesman
declined to comment.
- Euro-Area Bonds Caught in QE Paradox as Short Sellers Book Gains. The European Central Bank’s bond-buying program has landed investors
in a quandary that’s whipping up volatility in the region’s
fixed-income markets. Signs the plan is helping turn around the euro area’s economy
triggered a 1.4 percent loss on the region’s government bonds in April,
the first in 16 months. That selloff has spiraled into a rout in the
first days of May, with seven straight days of declines for German
10-year bonds.
- Morgan Stanley(MS) Ends Seven-Year Bullish Call on Chinese Equities. Morgan Stanley downgraded Chinese stocks for the first time in more
than seven years, saying the market has become expensive after share
prices surged and profitability fell to the weakest level since the
global recession in 2009.
The U.S. brokerage lowered its rating to equal-weight from overweight
on the MSCI China Index, Jonathan Garner, its Hong Kong-based head of
strategy for Asia and emerging markets, wrote in a report dated May 7.
- China’s Manufacturing Hub Faces Labor Shortage and Higher Wages. Chinese exporters in the Pearl River Delta manufacturing hub are
facing persistent labor shortages and rising wages even as the economy
continues to slow. Wages in the region are forecast to rise by 8.4 percent this year,
according to a survey of manufacturing clients by Standard Chartered
Plc. Over 85 percent of respondents said labor shortages are at least as
bad as last year.
- Global Bond Rout Spreads to Japan as Three-Day Break Ends. Japan’s government bonds joined a worldwide rout in sovereign debt
as investors in Tokyo returned from a three-day national holiday. Benchmark 10-year yields were set for their biggest increase since
Feb. 3 after losses in U.S. Treasuries mounted following comments by
Federal Reserve Chair Janet Yellen on Wednesday that long-term
government debt is overpriced. Yields on 10-year German bunds rose to
their highest level this year as investors bet whether European yields
were too low given rising oil prices and a deadlock in Greece’s debt
talks.
- China’s Stocks Head for Biggest Three-Day Rout Since June 2013. China’s stocks headed for their worst three-day performance in
almost two years amid speculation new share sales will sap funds,
valuations have become excessive and the government will take measures
to control margin trading. Utilities and industrial companies, which posted the biggest gains in
Shanghai in the past three months, led declines. China Railway Group
Ltd. and Huadian Power International Corp. dropped more than 5 percent.
China Life Insurance Co. slid 4.8 percent after rising 6 percent
yesterday.
The Shanghai Composite Index fell 1.4 percent to 4,168.23 at 9:50 a.m.
- Asian Stocks, Bonds Extend $2 Trillion Global Selloff; Oil Drops. Asian stocks and bonds retreated, extending a global rout, as Japan
returned from a three-day holiday. Oil slipped after reaching its
highest this year.
The MSCI Asia Pacific Index slid 1 percent by 11.06 a.m. in Tokyo, with all major gauges in the region retreating.
- The World Has Shrunk for Goldman as Commodity Rout Sinks Freight. The collapse in global rates for shipping commodities from the
world’s mines to mills and utilities will persist until at least 2020 on
a glut of vessels and stalling cargo growth, according to Goldman Sachs
Group Inc. The extended slump is set to intensify competition in the iron ore
and coal markets, benefiting the biggest, low-cost suppliers, analysts
Christian Lelong and Amber Cai wrote in a report. Higher-cost producers
may suffer, they said.
- Loeb Says Buffett Full of Inconsistencies on Hedge Funds, Taxes. Hedge-fund manager Daniel Loeb said he enjoys reading Warren
Buffett’s annual letters to shareholders of Berkshire Hathaway Inc., and
finds the billionaire full of inconsistencies on topics like hedge
funds and taxes. “I love contrasting his words with his actions,” Loeb said at the
SkyBridge Alternatives Conference in Las Vegas on Wednesday, a gathering
of hedge fund managers, former politicians and celebrities at the
Bellagio hotel. “But I also like how he criticizes hedge funds yet he
really had the first hedge fund. He criticizes activists. He was the
first activist. He criticizes financial service companies, yet he likes
to invest in them. He thinks that we should all pay more taxes but he
loves avoiding them himself.”
CNBC:
Zero Hedge:
Business Insider:
Reuters:
- GM(GM) says China April vehicle sales down 0.4 pct. General Motors and its
Chinese joint ventures sold 258,484 vehicles in China in April,
down 0.4 percent from a year earlier, the U.S. automaker said on
Thursday.
GM for the first time reported retail sales to customers
rather than wholesale vehicle sales to dealers. Retail figures
are generally viewed as a more accurate gauge of consumer
demand. Under the previous methodology, the automaker had reported
an 8 percent year-on-year rise in March and a 1.3 percent
increase in February.
- Keurig cuts 2015 forecast as new brewer sales fail to take off. Keurig Green Mountain Inc cut its
full-year sales and profit forecasts as the company struggles to
convince consumers to take up its new Keurig 2.0 brewing system,
sending its shares sharply lower in extended trading. Sales of Keurig's brewers have slowed in the past two
quarters due to high prices of the 2.0 brewing system, poor
initial reviews and confusion over whether the new machine could
still brew certain brands. Shares of the company, which also reported
lower-than-expected second-quarter profit and sales, fell as
much as 19 percent in extended trading.
China Securities Journal:
- China Checks Banks' Non-Compliant Stock Investment. Regulators
asked for "strict" scrutiny over whereabouts of bank funds, especially
loans, citing an unidentified industry participant.
Evening Recommendations
Night Trading
- Asian equity indices are -1.25% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 108.0 +2.5 basis points.
- Asia Pacific Sovereign CDS Index 60.0 -.5 basis point.
- NASDAQ 100 futures +.07%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
7:30 am EST
- Challenger Job Cuts for April.
8:30 am EST
- Initial Jobless Claims are estimated to rise to 278K versus 262K the prior week.
- Continuing Claims are estimated to rise to 2270K versus 2253K prior.
3:00 pm EST
- Consumer Credit for March is estimated at $15.8B versus $15.516B in February.
Upcoming Splits
Other Potential Market Movers
- The
German Factory Orders report, weekly Bloomberg Consumer Comfort Index,
weekly EIA natural gas inventory report, (ALK) annual meeting, (BID)
annual meeting and the (ETFC) annual meeting could also impact trading
today.
BOTTOM LINE: Asian indices are lower, weighed down by real estate
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.
