Evening Headlines
Bloomberg:
- The $6.5 Trillion China Rally That’s Making Stock-Market History. It’s enough money to buy Apple Inc. eight times over, or circle the Earth 250 times with $100 bills. The figure, $6.5 trillion, sums up the value created in just 12
months of trading on Chinese stock exchanges -- and why some see a rally that’s gone too far, too fast. As
China’s boom surpasses the headiest days of the U.S. Internet bubble,
signs of excess are everywhere. Mainland speculators have borrowed a
record $348 billion to bet on further gains, novice investors are piling
into shares at an unprecedented pace and price-to-earnings ratios have
climbed to the highest levels in five years. The economy, meanwhile, is
mired in its weakest expansion since 1990. “We have a wonderful bubble
on our hands,” said Michael Every, the head of financial markets
research at Rabobank International in Hong Kong. “Of course, there’s
short-term money to be made. But I fear it will not end well.” Chinese shares face their next big test on Tuesday, when MSCI Inc. decides whether mainland securities are
eligible for indexes used by $9.5 trillion of funds worldwide.
- China Deflation Risks Linger, Underscoring Weak Domestic Demand. China’s consumer prices rose at a slower pace in May and
factory-gate deflation extended a record stretch of declines,
underscoring tepid demand at home and abroad. The consumer-price index increased 1.2 percent last month from a year
earlier, according to China’s National Bureau of Statistics. That
compared with the 1.3 percent median estimate in a Bloomberg survey of
analysts and the 1.5 percent increase in April. The producer-price index
fell 4.6 percent, extending a record stretch of declines.
- Macau Casino Stocks Tumble as Analysts Slash Gambling Forecasts. Macau’s casino stocks tumbled after several analysts slashed their
forecasts for June gambling revenue in the world’s largest gambling hub. Analysts said overnight that June’s casino revenue will be below their initial
estimates because of weaker-than-expected figures in the first week of
the month.
- Indonesia Default Risk Jumps Most in Asia on Fund Outflow Fears. The cost to insure Indonesia’s sovereign bonds against default rose
to a five-month high as the falling rupiah and accelerating inflation
heighten outflow risk. Five-year credit default-swaps on the country’s debt advanced 17
basis points to 175 in the two weeks through Friday, the most in Asia.
Central bank Governor Agus Martowardojo said Monday that the authority
sees opportunities to buy government notes when yields, already at a
15-month high, increase as the U.S. prepares to raise borrowing costs.
- Most Asian Stocks Retreat as Yen Gain Weighs on Japanese Shares. Most Asian stocks fell as a rebound in the yen hurt Japanese shares
and investors weighed the outlook for U.S. interest rates and Greece’s
debt talks.
About three shares dropped for each that gained on the MSCI Asia
Pacific Index, which traded little changed at 147.44 as of 9:01 a.m. in
Tokyo. Japan’s Topix index slid 0.8 percent after the yen gained 0.9
percent against the dollar on Monday, when the Standard & Poor’s 500
Index fell to a two-month low.
- U.S. Stocks on Wrong Side of History With Rate Rise in Sight. Never before has a rally in the U.S. stock market gone on this long
without a Federal Reserve interest-rate increase. Expecting valuations
to keep rising once one comes is asking too much, if history is any
guide. While Standard & Poor’s 500 Index price-earnings ratios are far from
records, they’ve shown no ability to expand after the U.S. central bank
starts raising rates, according to data compiled by Goldman Sachs Group
Inc. and Bloomberg. In the quarter after the last 12 tightening cycles
began, P/Es contracted by an average of 7.2 percent.
- Terror Links Found to 73 Workers in Secure U.S. Airport Jobs. Investigators found 73 people were cleared by the Transportation
Security Administration to work in sensitive jobs at U.S. airports despite possible links to terrorism in their backgrounds,
according to a government report made public on Monday. The lapse was
partly due to the TSA not having access to all names on the federal
government’s terrorist watchlists, the Department of Homeland Security
inspector general said. In addition, local criminal
background checks on employees at 467 airports were even “less
effective,” the report concluded.
Wall Street Journal:
Fox News:
- Obama under fire for saying no ‘complete strategy’ yet for training Iraqis. (video) President Obama took heat Monday for admitting he doesn't yet have a
"complete strategy" in hand for training Iraqis to fight the Islamic
State -- months into the coordinated campaign to defeat the deadly
terrorist network. "When a finalized plan is presented to me by the Pentagon, then I
will share it with the American people," Obama said, adding, "We don't
yet have a complete strategy."
MarketWatch.com:
CNBC:
- US will erase student debt for Corinthian students. The federal government will erase much of the debt of students who
attended the now-defunct Corinthian Colleges, officials announced
Monday, as part of a new plan that could cost taxpayers as much as $3.6
billion.
Zero Hedge:
Business Insider:
Financial Times:
- Paul Volcker warns on health of US state finances. Paul
Volcker, former chairman of the Federal Reserve, has warned that US
states rely on faulty practices to balance their budgets, masking the
true nature of their finances and leading to poor policy making.
Evening Recommendations
Night Trading
- Asian equity indices are -1.5% to -.5% on average.
- Asia Ex-Japan Investment Grade CDS Index 110.5 -.5 basis point.
- Asia Pacific Sovereign CDS Index 63.0 +3.25 basis points.
- NASDAQ 100 futures +.08%.
Earnings of Note
Company/Estimate
Economic Releases
6:00 am EST
- The NFIB Small Business Optimism Index for May is estimated to rise to 97.2 versus 96.9 in April.
10:00 am EST
- Wholesale Inventories for April are estimated to rise +.2% versus a +.1% gain in March.
- Wholesale Sales for April are estimated to rise +.6% versus a -.2% decline in March.
- JOLTS Job Openings for April are estimated to rise to 5044 versus 4994 in March.
Upcoming Splits
Other Potential Market Movers
- The Japan GDP report, weekly US retail sales reports, Deutsche Bank Consumer conference, Piper Jaffray Consumer conference, Goldman Sachs Healthcare conference, William Blair Growth Stocks conference, Morgan Stanley Financials conference, (TSLA) shareholder meeting, (CSCO) investor day and the (BBY) annual meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial 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.
