Broad Equity Market Tone:
- Advance/Decline Line: About Even
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 13.89 +.22%
- Euro/Yen Carry Return Index 141.27 +.63%
- Emerging Markets Currency Volatility(VXY) 9.79 -1.81%
- S&P 500 Implied Correlation 63.54 -.95%
- ISE Sentiment Index 94.0 -2.08%
- Total Put/Call .84 -20.0%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.40 +.36%
- America Energy Sector High-Yield CDS Index 1,056.0 -1.68%
- European Financial Sector CDS Index 74.12 -.39%
- Western Europe Sovereign Debt CDS Index 22.87 +.42%
- Asia Pacific Sovereign Debt CDS Index 60.41 +.65%
- Emerging Market CDS Index 293.50 -1.06%
- iBoxx Offshore RMB China Corporates High Yield Index 118.62 +.08%
- 2-Year Swap Spread 26.75 -.5 basis point
- TED Spread 26.75 -.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -18.5 +1.75 basis points
Economic Gauges:
- 3-Month T-Bill Yield .02% +1.0 basis point
- Yield Curve 170.0 +4.0 basis points
- China Import Iron Ore Spot $62.58/Metric Tonne -.48%
- Citi US Economic Surprise Index -63.80 -4.3 points
- Citi Eurozone Economic Surprise Index 2.50 -6.6 points
- Citi Emerging Markets Economic Surprise Index -18.6 -1.9 points
- 10-Year TIPS Spread 1.89 unch.
Overseas Futures:
- Nikkei 225 Futures: Indicating -102 open in Japan
- China A50 Futures: Indicating -307 open in China
- DAX Futures: Indicating -36 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Greece Back in Recession as Bailout Impasse Drains Economy. Greece’s economy fell back into recession in the first quarter,
raising pressure on the government to reach an agreement with creditors
over the next bailout payment. Gross domestic product contracted 0.2 percent in the three months
through March after shrinking 0.4 percent in the previous period, the
European Union’s statistics office in Luxembourg said Wednesday. The
median estimate in a Bloomberg survey was for a 0.5 percent drop.
- Greece’s Creditors Said to Seek 3 Billion-Euro Budget Cuts. (video) Greece’s anti-austerity government needs to raise at least three
billion euros ($3.4 billion) through additional fiscal measures by the
end of this year to meet the minimum budget targets acceptable by
creditors, an official with knowledge of the discussions said. The reductions would bring the primary budget surplus in 2015 to just
over 1 percent of gross domestic product, a target Greek Interior
Minister Nikos Voutsis said today is acceptable. Without any change in
fiscal policy, Greece would end 2015 with a budget deficit of about 0.5
percent of GDP, the official said. The so-called primary budget balance
doesn’t include interest payments.
- NATO Urges President Putin to Stop Aiding Ukraine Rebels. The North Atlantic Treaty Organization expressed fears about Russian
President Vladimir Putin’s nuclear-weapons plans and demanded an
immediate halt to his support for separatists in eastern Ukraine.
With Putin stepping up Cold War rhetoric, foreign ministers from NATO
nations meeting in Antalya, Turkey, urged him to help end the conflict
in the battle-scarred region amid signs that Russian-backed rebels are
using a cease-fire agreed in February to re-equip and prepare another
offensive.
- European Stocks Reverse Gains as German Equities Tumble on Euro. A drop in German equities sent European stocks lower, reversing earlier gains as the euro climbed. The Stoxx Europe 600 Index slipped 0.2 percent to 395.47 at the close
of trading. Euro Stoxx 50 Index futures expiring next month lost 0.6
percent at 5:03 p.m. in London.
The Stoxx 600 rose as much as 1.1 percent earlier as data showed the
euro area’s economy expanded at its fastest pace in almost two years.
- IEA Says OPEC Battle for Oil Market Share Only Just Started. OPEC’s
push to defend its share of the global oil market has just
begun and the International Energy Agency said the group may further
increase production, a strategy that caused prices to crash last year.
Gulf-based members of the Organization of Petroleum Exporting
Countries are boosting supplies as they escalate a battle to preserve
sales volumes, the IEA said in its monthly market report. While the U.S.
shale oil industry appears to have “blinked” in the face of OPEC’s
move, countries including Russia are coping better than expected with
low prices and the agency increased its overall 2015 estimate for
non-OPEC production.
- BHP(BHP) Chief Warns Lower Iron-Ore Prices Are Here to Stay. BHP Billiton Ltd. Chief Executive Officer Andrew Mackenzie warned that lower iron-ore prices are here to stay. “The growth in demand for iron ore is happening at a slower rate than
the addition of low-cost supply,” he said in a phone interview from
Barcelona Tuesday. “Which is why we’re bearish about iron-ore prices in
the medium-to-long term.”
- U.S., Russia, Japan, China, Korea Hit With EU Steel Duty. The European Union imposed tariffs as high as 35.9 percent on electrical
steel from the U.S., Russia, Japan, China and South Korea, seeking to
curb competition for EU producers such as ArcelorMittal and ThyssenKrupp
AG.
- There’s a Tourist Problem in $7.8 Trillion of U.S. Company Bonds. Wondering what the next shoe to drop in the $7.8 trillion U.S.
corporate-bond market might be? The answer could be a dollar rout that’d
prompt foreign buyers to bail. As the dollar has surged in the past year, overseas investors have
poured cash into the debt, seeking returns from both the strengthening
currency and corporate credit in the world’s biggest economy. Investors
from Europe to China now own about 35 percent of the market, up from
about 20 percent in 1999, according to data compiled by Wells Fargo
& Co. If the dollar weakened significantly at the same time that bond
yields rose -- meaning losses on both the currency and price sides of
the equation -- those investors might very well leave, Wells Fargo
analysts Nathaniel Rosenbaum and George Bory wrote in a May 11 report.
- Goldman(GS), BofA(BAC) Among Banks Said to Face Fresh Swaps Scrutiny. The European Union is re-evaluating its antitrust probe into whether
13 of the world’s biggest banks conspired to shut exchanges out of the
credit-default swaps market after a series of mishaps nearly derailed
the four-year-old case, according to people familiar with the matter.
EU officials are weighing whether to send a revised antitrust
complaint to smooth over cracks exposed at a May 2014 hearing, said one
of the people, who asked not to be named because the matter is
confidential. The review is nearly finished and regulators aim to decide
on the next steps within a couple of months, the person said.
- ETF Assets Set to Overtake Hedge Funds This Year. ETFs at $3 trillion means they’ll eclipse hedge funds.
ZeroHedge:
Business Insider:
Style Underperformer:
Sector Underperformers:
- 1) Coal -2.75% 2) Road & Rail -2.44% 3) Oil Tankers -1.13%
Stocks Falling on Unusual Volume:
- EZCH, RMD, DD, DCO, ACAT, TSEM, VSLR, RICE, RAX, M, GNE, RL, FISH, ZAYO, DEPO, POST, MD, IMH, UNP, ELOS, IFF, PBYI, CNI, CSII and SFS
Stocks With Unusual Put Option Activity:
- 1) NVDA 2) KSS 3) DHR 4) RL 5) Z
Stocks With Most Negative News Mentions:
- 1) VALE 2) M 3) DUK 4) RL 5) DD
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gold & Silver +2.34% 2) Agriculture +.77% 3) Computer Hardware +.75%
Stocks Rising on Unusual Volume:
- PLL, WPZ, WMB, RENT, OI, OKS, ZBRA, USLV, FEYE, ACM, CALM and OPK
Stocks With Unusual Call Option Activity:
- 1) RAX 2) OPK 3) WMB 4) WPZ 5) OCN
Stocks With Most Positive News Mentions:
- 1) VRTX 2) LMT 3) KMB 4) GDDY 5) PLL
Charts:
Evening Headlines
Bloomberg:
- Political Will Is Keeping Greece From Bankruptcy: Vogt. (video)
- One Year In, Modi Euphoria Fades Along With Indian Stock Prices. Modi-mania is fading. Indian Prime Minister Narendra Modi, whose election last May fueled
hopes that he would unleash India’s economic potential, is finishing his
first year in office with few major legislative victories. Lawmakers on Tuesday delayed voting on a proposal to create a
national sales tax, one of the country’s biggest economic reforms in
decades. Another bill to make it easier to buy land also got sent to a
committee.
- U.S. Said Poised to Tear Up UBS Libor Accord, Seek Guilty Plea. The U.S. Justice Department is set to rip up its agreement not to
prosecute UBS Group AG for rigging benchmark interest rates, according
to a person familiar with the matter, taking a new step to hold banks
accountable for repeat offenses. The move by the U.S. would be a first for the industry, making good on a
March threat by a senior Justice Department official to revoke such
agreements and putting banks on notice that these accords can be unwound
if misconduct continues.
- Asian Junk-Bond Yield Nears Lowest as Investors Look Past. (graph) Asia’s riskiest bond issuers are getting the lowest borrowing costs
of the year as investors speculate central banks will help them overcome
default concerns flagged by Kaisa Group Holdings Ltd. Yields on dollar-denominated Asian sub-investment grade notes plunged
224 basis points to 7.54 percent as of May 11 from the January peak of
9.78 percent, according to a Bank of America Merrill Lynch index. That’s
near the year’s low of 7.52 percent marked on April 30.
- China’s Small-Company Stocks Slump After Hitting Record High. Chinese small-company stocks fell the most in a week, led by
technology companies, amid speculation the government is seeking to cool
the market after a benchmark gauge hit a record. East Money Information Co. slid 2.2 percent after rallying by the
daily limit of 10 percent in the past two days. Siasun Robot &
Automation Co. dropped 2.8 percent. PetroChina Co. led declines for
energy companies. sliding 1 percent. The government is looking at
stripping its biggest energy companies of their oil and gas pipelines as
part of sweeping industry reforms, according to people with knowledge
of the plans. Data scheduled for Wednesday include industrial production
and retail sales.The ChiNext index in Shenzhen dropped from an all-time high, losing
1.9 percent at 9:51 a.m. China’s securities regulator had an urgent
meeting with three fund management firms on Tuesday afternoon, requiring
them to control the pace of buying ChiNext stocks, the Securities Times
reported. The Shanghai Composite Index slid 0.5 percent to 4,378.98.
- Asian Stocks Retreat Second Day as Bond Rout Spreads to Equities. Asian stocks fell for a second day after a retreat in global
equities as concern mounts over the selloff in bonds. Consumer companies
led losses.
The MSCI Asia Pacific Index slid 0.1 percent to 151.43 as of 9:01 a.m. in Tokyo.
- Oil's Not Coming Back. Here's Why. Oil bulls who’ve cheered a rebound of 40 percent from a six-year low
should take heed: Unless demand accelerates, the rally is in danger.
The omens aren’t good. The U.S. government expects global consumption
to grow next year at less than half the rate of 2010, when the world was
emerging from a previous recession. The growth is insufficient to close
the gap with rising supply, according to Royal Dutch Shell Plc,
Europe’s biggest energy producer. The last time oil crashed, during
the 2008 financial crisis, China’s appetite for commodities seemed
insatiable, and powered prices higher. This time, Chinese fuel use is
growing at half the rate of the past decade, and sliding U.S. shale
output could reverse as prices rise, smothering the gains.
- Chinese iron ore mines face 'annihilation' as BHP(BHP), Rio Tinto, Vale boost output. Iron ore production in China is poised to shrink further as cheaper
imports and faltering demand threaten to close mines supplying mills in
the top steelmaker. Most private mines in China
have costs that are too high and produce ore of too low a quality to
survive, according to Sanford C Bernstein & Co. Output that fell 20
per cent to 311 million metric tons last year would drop to 271 million
tons this year and shrink further next year, Goldman Sachs said.
- Chicago Rating Cut to Junk by Moody’s on Pension Struggle. Chicago had its credit rating cut to junk by Moody’s Investors
Service after the Illinois Supreme Court’s rejection of a state
pension-overhaul plan reduced the city’s options for fixing its own
underfunded system. The two-level downgrade to Ba1 affects $8.1 billion of general
obligations, which were already the lowest-rated among the 90 biggest
U.S. cities, excluding Detroit. The outlook is still negative. Moody’s
has dropped the city seven levels since July 2013.
- Democrats Plot Revolt Behind Closed Door, Sink Trade Bill. (video) Signs of trouble for President Barack Obama’s trade bill surfaced
early Tuesday when 14 Democrats huddled behind closed doors in a room
one floor below the Senate chamber. Republicans needed just six Senate Democrats to prevail and were
counting on several in the room who had voted for the bill in committee.
- Stanford Sells Apple(AAPL) as Endowment Reduces U.S. Equity Holdings. Stanford University’s endowment liquidated its stake in Apple Inc.
in the first three months of 2015 as it trimmed holdings of U.S.
equities. The endowment sold Apple shares worth $174.5 million at the end of
last year, according to a regulatory filing. The fund’s publicly
disclosed U.S. stock holdings dropped by $250.4 million to $101.2
million at the end of March, as it also exited stakes in Cobalt
International Energy Inc. and Bank of America Corp.
Wall Street Journal:
Fox News:
- Amtrak train crashes in Philadelphia, multiple injuries reported. (video) Several people reportedly were injured after an Amtrak train crashed in Philadelphia Tuesday evening.
Northeast Regional Train 188 was traveling from Washington, D.C., to
New York City when it crashed just northeast of Philadelphia's Center
City at approximately 9:30 p.m. local time. The front of the train was
going into a corner when it shook.
- Clinton facing new ethics questions on role in Boeing deal. (video) When Hillary Clinton was America's top diplomat, she also appeared at
times like a top salesperson for America's biggest airplane maker,
Boeing. Traveling abroad on official business as secretary of state, Clinton
often visited Boeing facilities and made a pitch for the host country to
buy Boeing jets. During one visit to Shanghai in May 2010, she boasted
that "more than half the commercial jetliners operating in China are
made by Boeing."
MarketWatch.com:
CNBC:
- China outlook even worse than imagined: Morgan Stanley(MS). (video) The worst of the Chinese economic slowdown is likely still ahead
because of the nation's debt, according to a senior Morgan Stanley
investment strategist. "China, to try and sustain its growth rate in the
post-financial-crisis era, has engaged in the largest credit binge of
any emerging market in history," said Ruchir Sharma, head of emerging
markets and global macro at Morgan Stanley Investment Management,
Zero Hedge:
Business Insider:
c/net:
- Target(TGT) stores to introduce dedicated smart-home sections. Starting May 26, 1,800 Target stores will start stocking smart-home products in their all-new Connected Life sections.
Icontrol Networks first tipped us off that its $199 Piper Classic
all-in-one security system will be heading to Target shelves soon as
part of this initial launch. A Target spokesperson later confirmed the
roll-out via separate email.
Reuters:
Sina:
- China
Regulator Queries Funds' Risk Management. China's securities regulator
made queries to risk control directors at China Universal, E Fund
Management and Harvest Fund yday and found them to be in compliance.
Many mutual fund products have been investing in China's ChiNext board
recently, the report said.
Evening Recommendations
Night Trading
- Asian equity indices are unch. to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 107.5 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 60.0 +1.0 basis point.
- NASDAQ 100 futures +.32%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (IGT)/.50
- (M)/.63
- (RL)/1.31
- (PCP)/2.92
- (CSCO)/.53
- (CTRP)/-.08
- (XONE)/-.32
- (JCP)/-.77
- (JACK)/.66
- (NTES)/1.50
- (SHAK)/-.03
Economic Releases
8:30 am EST
- Retail Sales Advance for April are estimated to rise +.2% versus a +.9% gain in March.
- Retail Sales Ex Autos for April are estimated to rise +.5% versus a +.4% gain in March.
- Retail Sales Ex Autos and Gas for April are estimated to rise +.6% versus a +.5% gain in March.
- The Import Price Index for April is estimated to rise +.3% versus a -.3% decline in March.
10:00 am EST
- Business Inventories for March are estimated to rise +.2% versus a +.3% gain in February..
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+25,000 barrels versus a -3,882,000 barrel decline the prior week.
Gasoline supplies are estimated to rise by +37,500 barrels versus a
+401,000 barrel gain the prior week. Distillate inventories are
estimated to rise by +812,500 barrels versus a +1,503,000 barrel gain
the prior week. Finally, Refinery Utilization is estimated to rise by
+.4% versus a +1.7% gain prior.
Upcoming Splits
Other Potential Market Movers
- The
China Retail Sales/Industrial Production reports, Eurozone GDP report,
$24B 10Y T-Note auction, weekly MBA mortgage applications report, BofA
Merrill Transport conference, JP Morgan Tech/Media/Telecom conference,
BofA Merrill Health Care conference, (AVP) investor day, (IR) investor
conference and the (WMB) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and energy 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.
