BETWEEN THE HEDGES

Thursday, May 14, 2015

Morning Market Internals

Posted by Gary .....at 11:22 AM

NYSE Composite Index:

Volume Running 8.7% Below 100-day average
10 Sectors Rising, 0 Sectors Declining
77.5% of Issues Advancing, 20.5% Declining
59 New 52-Week Highs, 19 New Lows
52.8% of Issues Above 200-day Moving Average
Average 14-Day RSI 42.2
Vix 12.99
Total Put/Call .84
TRIN/Arms 1.37

Wednesday, May 13, 2015

Thursday Watch

Posted by Gary .....at 11:26 PM

Evening Headlines
Bloomberg:

Russia Rejects Automatic Sanctions Return If Iran Cheats on Deal. The Obama administration is trying to sell a nuclear deal with Iran to skeptical Arabs, Israelis and U.S. lawmakers by saying that United Nations sanctions will be restored automatically if the Iranians are caught cheating. Not so, say the Russians, who have one of five vetoes in the 15-member UN Security Council. “There can be no automaticity, none whatsoever” in reimposing UN sanctions if Iran violates the terms of an agreement to curb its nuclear program, Russia’s UN Ambassador Vitaly Churkin told Bloomberg News on Wednesday.

Man Who Brought Down Barings Warns on China. Twenty years after bringing down a major British bank, Nick Leeson is sounding alarm bells about China. Unless the country reforms its stock markets, he warns, it's only a matter of time until his earlier disaster repeats itself on a larger scale.

Japan Markets Most Disjointed in 23 Years Show Kuroda Heavy Hand. The weakest correlation between Japanese bond yields and stocks in 23 years is showing how dependent the nation’s markets have become on central bank support. The 60-day measure tracking moves between Japan’s Topix stock index and the 10-year benchmark government bond yield fell to negative 0.33 on Wednesday, the lowest since 1992 and below the 1 level that would represent lockstep moves. The last time the relationship broke down in April 2013, the Topix fell for four straight months, the longest since the rout triggered by Lehman Brothers Holdings Inc.’s collapse in 2008. A similar pattern can also be seen in December 2010 and February 2007.

Saudi Arabia Is Making Its First Real Attempt to Be a Military Power. In the more assertive Saudi Arabia that’s emerging after the Arab Spring, war is no longer taboo as an instrument of policy and Washington’s approval isn’t required. Once known for cautious diplomacy, the oil-rich kingdom is turning more frequently to hard power. The shift has been under way since unrest swept across the Arab world in 2011. It accelerated after the succession of King Salman in January, and the promotion of his son as defense chief. Since then, the Saudis have started an air war in Yemen against Shiite Muslim rebels they accuse of being tools of Iran.

Asian Stocks Fall as Japan Drops on Yen After U.S. Retail Sales. Asian stocks declined after weaker-than-forecast U.S. retail sales fueled concern about growth in the world’s largest economy, strengthening the yen and sending Japanese shares lower. The MSCI Asia Pacific Index fell 0.1 percent to 152.45 as of 9:06 a.m. in Tokyo.

Stan Druckenmiller Sees ‘Massive’ Problem Caused by Aging. Billionaire investor Stan Druckenmiller said an aging population will present a “massive, massive problem” in 15 years. “The young people are not going to be talking about cutting back,” Druckenmiller said at a New York event hosted by Addepar, a technology company that provides software to financial advisers, fund managers and family offices. “There will be nothing to cut back.”

Wall Street Journal:

Ralph Lauren to Hike Prices in Some Countries to Offset FX Hit. Clothing company Ralph Lauren Corp. will raise prices across the board in Japan, Canada, Australia and Europe during the next year in an effort to offset losses from a stronger U.S. dollar.

Senate Deal Gives Trade Bill New Life. Accord opens door to new vote on fast-track after Democrats blocked the measure Tuesday.

Trader Accused in ‘Flash Crash’ Accused Rivals of Misconduct. Navinder Singh Sarao complained to CME more than 100 times.

Investors Double Down on Spring Turnaround. Traders are piling into assets that rose as dollar fell—but how long will the rally last?

Springtime for Dictators. Raúl Castro’s “very friendly” meeting with Pope Francis.

Fox News:

Amtrak engineer applied brakes while train hurtling at twice speed limit: NTSB. (video) The engineer of the Amtrak train that derailed near Philadelphia -- killing at least seven and sending more than 200 to area hospitals -- applied the emergency brakes just seconds before the train jumped the tracks while hurtling along at almost twice the speed limit, a National Transportation Safety Board spokesman said Wednesday.

Zero Hedge:

A Generational Storm Is Coming. (graph)

Less 'Goldilocks', More 'Three Bears': Bullion Bid As Stocks & Bonds Skid. (graph)

It's Only Fair To Tax The Wealthy, Obama Says: "They Are Society's Lottery Winners".

Consequences? Barclays Exec Involved In LIBOR Fixing Becomes Bank's Head Of Asia-Pac.

China Goes "Unconventional" In Effort To Tackle Trillions In Debt, Rescue Economy. (graph)

London Housing Bubble Watch: $630/Month For A Bed "In" A Shared Kitchen!

It's Official: The BoJ Has Broken The Japanese Stock Market.

"We The People" Need To Circle The Wagons: The Government Is On The Warpath.

Business Insider:

Former Australian leader: We're about to see a world with '2 Asias'.

John Chambers just squashed the rumor that Cisco(CSCO) is buying FireEye for $8 billion.

We are witnessing a commuter nightmare in the Northeast US after the fatal Amtrak crash.

Reuters:

Cisco(CSCO) profit edges past estimates despite weak telecom spending. Cisco Systems Inc's quarterly profit edged past market estimates as demand for new switches, routers, wireless gear and servers made up for sluggish spending by telecom customers and weak sales in emerging markets.

Higher prices help Shake Shack(SHAK) post unexpected profit. Hamburger chain Shake Shack Inc reported a surprise quarterly profit, as they raised prices for their hormone- and antibiotic-free burgers, popular with increasingly health-conscious U.S. customers. The company, which also reported better-than-expected revenue for the first quarter, raised its full-year revenue forecast, sending its shares up nearly 10 percent in after-hours trading on Wednesday.

Wal-Mart(WMT) challenges Amazon(AMZN) with unlimited shipping service for $50 per year. Wal-Mart Stores Inc is planning to test a new unlimited online shipping service this summer for $50 per year, a move that may hurt Amazon's annual $99 Prime shipping service. Wal-Mart's service, which will be by invitation only for now, will offer selected products on the company's website to customers within three days or less, company spokesman Ravi Jariwala told Reuters. Wal-Mart offers more than 7 million products on its website.

Brazil's Petrobras expects to export 50 pct more oil in 2015. Brazil's state-run oil company Petrobras on Wednesday estimated nearly 50 percent growth in oil exports in 2015, thanks to new offshore output and as its refineries lack capacity to process more crude.

Puma Biotech(PUMA) breast cancer trial detailed, shares fall 25 pct. Details from a late-stage trial of Puma Biotechnology's experimental breast cancer pill neratinib showed that it improved disease-free survival for certain breast cancer patients, but only by 2.3 months. Puma shares slid 25 percent after hours following release of the findings on Wednesday by the American Society of Clinical Oncology ahead of its annual meeting later this month.

Financial Times:

Rubio vows ‘moral clarity’ abroad. Marco Rubio, the Cuban-American Republican running for president, on Wednesday vowed to restore a “moral clarity” to US foreign policy in a speech that outlined a tough stance on China, Russia and Iran.

Caixin:

China Everbright Bank Has Most Umbrella Trust Exposure. China Everbright Bank has the highest exposure to umbrella trusts at 200b yuan, citing a person familiar with the matter. China Merchants Bank and Industrial Bank have 100b yuan each of umbrella trusts, the report said.

Evening Recommendations

None of note

Night Trading

Asian equity indices are -.75% to unch. on average.

Asia Ex-Japan Investment Grade CDS Index 107.25 -.25 basis point.

Asia Pacific Sovereign CDS Index 60.25 +.25 basis point.

S&P 500 futures +.06%.

NASDAQ 100 futures unch.

Morning Preview Links

Earnings of Note
Company/Estimate

(KSS)/.55

(PERY)/.63

(PBH)/.45

(TK)/.14

(PLCE)/.83

(AMAT)/.28

(DDS)/2.78

(LOCO)/.17

(JWN)/.71

(SINA)/.02

(SYMC)/.44

(WB)/.01

Economic Releases
8:30 am EST

PPI Final Demand for April is estimated to rise +.1% versus a +.2% gain in March.

PPI Ex Food and Energy for April is estimated to rise +.1% versus a +.2% gain in March.

Initial Jobless Claims are estimated to rise to 273K versus 265K the prior week.

Continuing Claims are estimated to rise to 2232K versus 2228K prior.

Upcoming Splits

None of note

Other Potential Market Movers

The BoJ's Kuroda speaking, $16B 30Y T-Bond auction, Bloomberg US Economic Survey for May, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (CPLA) analyst day, (ADT) investor day and the (KSS) annual meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity 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.

Stocks Reversing Slightly Lower into Final Hour on Rising Long-Term Rates, Global Growth Fears, Yen Strength, Transport/Utility Sector Weakness

Posted by Gary .....at 2:56 PM

Broad Equity Market Tone:

Advance/Decline Line: About Even

Sector Performance: Mixed

Volume: Below Average

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%

NYSE Arms 1.03 -5.26%

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

Today's Headlines

Posted by Gary .....at 2:37 PM

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.