BETWEEN THE HEDGES

Tuesday, May 19, 2015

Wednesday Watch

Posted by Gary .....at 11:17 PM

Evening Headlines
Bloomberg:

Greek Conundrum Puts ECB in Tight Spot as Bailout Talks Progress. European Central Bank policy makers will discuss Greek bank aid on Wednesday in a chore that is getting more uncomfortable every week. The Governing Council will meet in Frankfurt to debate whether to tighten rules on Greek access to Emergency Liquidity Assistance as the country veers toward default. At the same time, officials are well aware their decision could worsen the political crisis just as bailout talks show signs of progress.
Buyer-Beware Guide to Emerging-Market Debt, From Brazil to China. As the U.S. prepares to start raising interest rates for the first time in almost a decade, speculation is brewing that emerging-market corporate borrowers could be among the hardest hit. The concern stems largely from the growth of the market: There's $1.3 trillion worth of developing-nation dollar bonds today. Five years ago, that figure was just $444 billion. With so many new names tapping the market, the argument goes, surely some of them must be suspect. Throw in the weakening of economies across much of Latin America, Asia and Eastern Europe -- slowdowns that will cut into companies' sales and government tax revenue -- and the worries only mount. Not that anyone is expecting a full-blown crisis. Emerging-market debt has actually held up well over the past month, preserving gains this year of 5 percent, as the global bond market swooned. Still, investors and analysts are poking around in search of the industries that will be hurt the most by rising borrowing costs. Here's a quick look at some of their findings:
Asian Stocks Rise as Yen Weakness Spurs Japanese Share Gains. Asian stocks rose, with a weaker yen boosting Japanese shares, after data showing U.S. housing starts surged to a seven-year high strengthened the case for an interest-rate increase this year. The MSCI Asia Pacific Index gained 0.2 percent to 153.41 as of 9:01 a.m. in Tokyo.
Leveraged-Loan Buyers Pinched by Shrinking Yields in Supply Drop. Investors who purchase risky corporate loans are being squeezed by borrowers that are taking advantage of a supply shortage to cut rates on their existing debt, sending yields to their lowest in almost a year-and-a-half. Yields have fallen to 4.6 percent from more than 6 percent at the beginning of 2015 as borrowers from PetSmart Inc. to the owner of Burger King and Tim Hortons reduced the interest they pay, according to data compiled by Bloomberg and Standard & Poor’s Capital IQ Leveraged Commentary & Data. Companies are seeking to cut rates on more than $29 billion of loans this month, the most since at least 2013, Bloomberg data show.
SEC Said to Propose That Mutual Funds Disclose Risk of Rate Rise. The U.S. Securities and Exchange Commission is set to propose a requirement that mutual-fund companies report how vulnerable their bond portfolios are to interest-rate changes, two people familiar with the matter said. The proposal, which the five-member commission is scheduled to vote on Wednesday, is among the agency’s first moves to address regulators’ concerns that many bond funds could face steep losses if the Federal Reserve’s first interest-rate hike in almost seven years forces them to sell assets quickly.
Yellen Says Regulators Ready to Act as Panel Cites Risks. Federal Reserve Chair Janet Yellen said regulators will take steps to address risks to financial stability as officials cited high-speed trading and clearinghouses as potential threats. Yellen, speaking Tuesday at a meeting of the Financial Stability Oversight Council, focused on clearinghouses, platforms where swaps transactions are cleared and settled. The Fed will work with other regulators to evaluate whether rules and risk-management practices are strong enough, she said.

Wall Street Journal:

Hillary Clinton’s State Department Staff Kept Tight Rein on Records. Aides scrutinized, sometimes blocked release of documents requested under public-records law. When Hillary Clinton was secretary of state, her staff scrutinized politically sensitive documents requested under public-records law and sometimes blocked their release, according to people with direct knowledge of the activities. In one instance, her chief of staff, Cheryl Mills, told State Department records specialists she wanted to see all documents requested on the controversial Keystone XL pipeline...
Theft of Debit-Card Data From ATMs Soars. Thieves are stealing information to make counterfeit plastic.
White House Threatens to Veto Trade Bill Over Currency Measure. Fight heats up over currency-manipulation amendment to fast-track bill. The White House on Tuesday threatened to veto a crucial trade bill if it contains legislation with binding punishments for currency manipulation, the main point of contention between President Barack Obama and congressional critics of his trade policy.
Who Is Sid Blumenthal? The many roles of Hillary’s secret diplomatic adviser.

Fox News:

Ramadi refugees trapped on road to Baghdad as Shias prepare to retake city. (video) A full-blown humanitarian crisis has developed from ISIS takeover of Ramadi, as an estimated 25,000 Iraqi refugees are now making their way east toward Baghdad, seeking food and shelter wherever they can and facing the prospect of being blocked from the capital city amid fears their ranks could include militants. The United Nations and other aid agencies were handing out food, water and medical supplies along the 60-mile route between the cities, but the situation was worsening amid dwindling supplies and reports the Iraqi army was blocking the refugees from reaching the safety of Baghdad.

Zero Hedge:

Business Insider:

Financial Times:

Regulators warn of cyber threat to financial stability. US regulators are increasingly concerned about the threat that cyber attacks pose to financial stability after assaults on Sony Pictures and Target highlighted the proliferating range of techniques used by digital raiders.

Evening Recommendations
BMO:

Raised (LC) to Overweight, target $23.

Night Trading

Asian equity indices are -.25% to +.75% on average.

Asia Ex-Japan Investment Grade CDS Index 105.50 +.5 basis point.

Asia Pacific Sovereign CDS Index 59.0 -.5 basis point.

S&P 500 futures -.06%.

NASDAQ 100 futures +.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

(AEO)/.12
(CTRN)/.75
(EV)/.60
(HRL)/.63
(LOW)/.74
(SFUN)/.04
(SPLS)/.17
(TGT)/1.03
(HGR)/.44
(LB)/.60
(NTAP)/.72
(CRM)/.14
(SNPS)/.63
(WSM)/.44

Economic Releases
10:30 am EST

Bloomberg consensus estimates call for a weekly crude oil inventory decline of -730,000 barrels versus a -2,191,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +200,000 barrels versus a -1,142,000 barrel decline the prior week. Distillate inventories are estimated to rise by +120,000 barrels versus a -2,503,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.27% versus a -1.8% decline prior.

2:00 pm EST

April FOMC Minutes release.

Upcoming Splits

None of note

Other Potential Market Movers

The Fed's Evans speaking, weekly MBA mortgage applications report, BMO Farm to Market conference, (VMW) conference call, (YELP) annual meeting, (HAL) annual meeting, (NVDA) annual meeting, (MDLZ) annual meeting, (TSS) analyst day, (ANN) annual meeting and the (FAF) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and real estate shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Reversing Slightly Lower into Final Hour on Rising Long-Term Rates, US High-Yield Debt Angst, Technical Selling, Commodity/Telecom Sector Weakness

Posted by Gary .....at 3:29 PM

Broad Equity Market Tone:

Advance/Decline Line: Modestly Lower

Sector Performance: Mixed

Volume: Below Average

Market Leading Stocks: Performing In Line

Equity Investor Angst:

Volatility(VIX) 12.85 +.94%

Euro/Yen Carry Return Index 140.69 -.81%

Emerging Markets Currency Volatility(VXY) 9.42 +.21%

S&P 500 Implied Correlation 62.80 -3.03%

ISE Sentiment Index 129.0 -3.01%

Total Put/Call 1.08 +12.5%

NYSE Arms 1.12 +6.89%

Credit Investor Angst:

North American Investment Grade CDS Index 63.45 +.08%

America Energy Sector High-Yield CDS Index 1,079.0 +.96%

European Financial Sector CDS Index 72.95 -5.3%

Western Europe Sovereign Debt CDS Index 21.77 -2.25%

Asia Pacific Sovereign Debt CDS Index 59.0 -.85%

Emerging Market CDS Index 289.08 +.25%

iBoxx Offshore RMB China Corporates High Yield Index 119.22 +.03%

2-Year Swap Spread 25.75 -.25 basis point

TED Spread 26.75 +.25 basis point

3-Month EUR/USD Cross-Currency Basis Swap -19.5 -.25 basis point

Economic Gauges:

3-Month T-Bill Yield .01% unch.

Yield Curve 166.0 unch.

China Import Iron Ore Spot $58.53/Metric Tonne -3.5%

Citi US Economic Surprise Index -64.5 +7.9 points

Citi Eurozone Economic Surprise Index -4.50 -5.1 points

Citi Emerging Markets Economic Surprise Index -10.7 +.7 point

10-Year TIPS Spread 1.88 unch.

Overseas Futures:

Nikkei 225 Futures: Indicating +118 open in Japan
China A50 Futures: Indicating +53 open in China

DAX Futures: Indicating -21 open in Germany

Portfolio:

Slightly Lower: On losses in my tech/retail sector longs and emerging markets shorts

Disclosed Trades: Added to my (IWM)/(QQQ) hedges

Market Exposure: Moved to 25% Net Long

Today's Headlines

Posted by Gary .....at 3:04 PM

Bloomberg:

Greece, Creditors Said to Disagree on Proposals For Sales Tax. Greece’s proposed tax overhaul isn’t passing muster with the nation’s creditors because it wouldn’t do enough to help the country’s budget, people familiar with the matter said. Greek Prime Minister Alexis Tsipras told lawmakers the plan won’t gain approval from creditors and that Greece will submit a new offer in coming days, according to another person. The people asked not to be identified speaking on confidential matters.
Merkel Gives Greece 12 Days to Reach Financing Accord. (video) German Chancellor Angela Merkel and French President Francois Hollande gave Greece until the end of May to reach a deal on its aid program, urging faster talks to end the standoff over the country’s financing. Merkel and Hollande, standing side-by-side after meeting in Berlin on Tuesday, said they would impress the message on Greek Prime Minister Alexis Tsipras when they all attend a European Union meeting in Riga, Latvia, this week.
ECB to Frontload Asset Purchases in May, June. (video)
NATO Says Russian Troops Must Leave Ukraine as Truce Strains. NATO called on Russian troops to withdraw from Ukraine, while the Kremlin warned that Europe’s security would be threatened by a renewed outbreak of fighting as the fragile cease-fire came under strain. Events must be stopped from “spiraling out of control,” Jens Stoltenberg, secretary general of the North Atlantic Treaty Organization, said after talks with Russian Foreign Minister Sergei Lavrov in Brussels on Tuesday. Russia must “withdraw all its troops and support for the separatists” in eastern Ukraine, he said.
German Investor Confidence Falls Amid Slower Growth. German investor confidence fell more than analysts forecast after growth in Europe’s largest economy slowed at the start of the year. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to 41.9 in May from 53.3 in April. That’s the lowest level since December. Economists had forecast a decline to 49, according to the median of 31 estimates in a Bloomberg survey.
U.K. Inflation Falls Below Zero for First Time Since 1960. Britain’s inflation rate fell below zero for the first time in more than half a century, as the drop in food and energy prices depressed the cost of living. Consumer prices declined 0.1 percent in April from a year earlier, the Office for National Statistics said in London on Tuesday. Economists had forecast the rate to be zero, according to the median of 35 estimates in a Bloomberg News survey. Core inflation slowed to 0.8 percent, the lowest since 2001.
Even the Bears May Be Too Bullish on China. Survey forecasts for several key indicators have overshot the reality so far this year. As China's economy slows, economists are proving too bullish. The median forecasts in Bloomberg surveys for industrial production, fixed-assets investment and retail sales have all overshot the reality so far in 2015.
China Said to Ready Plans to Buoy Local Government Borrowing. China is considering relaxing rules for bond sales in a bid to boost slowing economic growth, people familiar with the matter said Tuesday. After two years of telling local authorities not to take kickbacks and don’t borrow too much, President Xi Jinping’s national government is tweaking the missive. With the economy undershooting its 7 percent growth target, the admonition against borrowing is being wound back, at least in part. China’s economic planning agency, the National Development and Reform Commission, is now seeking opinions on a draft proposal that would change rules on the bond sales it regulates in order to help investment funding, the people familiar said, asking not to be identified because the details are private. Xi and Premier Li Keqiang’s crackdown on the old, debt-fueled model of unrestrained growth have gummed up stimulus mechanisms, and restrictions on off-balance sheet financing vehicles are being relaxed. “The government is running out of choices — investment is weak not only in the property market but also in infrastructure, and the government has to do something,” Yao Wei, a Paris-based China economist at Societe Generale SA, said. While allowing local government financing vehicles to sell more bonds and telling banks to lend money to them aren’t “in line with China’s long-term reform goals, it’s necessary to address short term slowdown problems."
Chinese Professors Charged With Economic Espionage. Six Chinese citizens, including two university professors, have been indicted on U.S. charges of pilfering sensitive mobile-phone technology from two companies in the U.S. and sharing it with the Chinese government. The charges represent the U.S. government’s latest salvo in its long-running effort to pressure Beijing to stop what American officials allege is the widespread theft of trade secrets to benefit China’s commercial and military industries. In this case, the Justice Department alleges, two Chinese researchers at U.S. companies conspired with officials at a state-run university in China to steal the wireless technology and mass produce it in their homeland.
Goldman’s(GS) Call Sinks Petrobras as Ibovespa Leads World Declines. Goldman Sachs Group Inc.’s prediction that oil will tumble sank Petroleo Brasileiro SA, sending the Ibovespa to the biggest drop among major stock benchmarks. Oil slid for a fifth day as the New York-based firm said a continuing surplus would drag prices down to $45 a barrel by October. Petrobras, the producer at the center of Brazil’s largest graft probe, has said offshore investments are economically viable with crude above that level. The shares led losses in the Ibovespa, which retreated 1.9 percent to 55,143.62 at 12:36 p.m. in Sao Paulo. The gauge was set for the biggest slump since March. The state-owned oil company extended a two-day rout to 7.3 percent as crude decreased 2.7 percent to $57.81 a barrel in New York.
European Stocks Rally With Carmakers as ECB Plans to Boost QE. Stocks in Europe climbed to a three-week high after a European Central Bank official said it plans to increase bond buying in May and June. The Stoxx Europe 600 Index added 1.6 percent to 404.89 at the close of trading.

ZeroHedge:

Recession Check: Updating The Indicators. (graph)
State Department To Release Hillary Emails... In January 2016!
What The Fed's Computer Model Predicts About The Future Of The US Economy.
Spot The Housing Starts Outlier. (graph)
Why Chicago Bonds Are Junk, In 7 Charts. (graph)
Chart of The Day: China Suspends Chinese Lottery Firm, CEO Resigns; Stock Rallies 25%. (graph)
Commodity Carnage. (graph)
ECB Blames Leak To Hedge Funds On "Internal Procedural Error". (graph)
This Is Central Planning: A "World Of Activist Central Banks" Who "Manage Price Levels In Markets".
Housing Starts Surge to Highest Since Nov 2007, Permits At 7 Year Highs. (graph)
Oil Prices Will Fall: A Lesson In Gravity. (graph)
Merkel Faces German Parliament "Revolt" On Greece.

Business Insider:

Telegraph:

Europe faces second revolt as Portugal's ascendant Socialists spurn austerity. Germany is worried that any concession to Greece will set off political contagion and cause fiscal discipline to collapse across southern Europe.
France warned to curb 'critically high' public spending by IMF. International Monetary Fund says "high and rising government spending has been at the heart of France’s fiscal problems for decades".