Bloomberg:
- France Usurps Germany as Terror Refocuses EU Toward Hard Power. French warplanes taking off from the Charles de Gaulle aircraft
carrier may not remake the Middle East, but are already reshaping
Europe’s balance of power after years of German economic dominance. Refugees,
Syria’s civil war, Libya’s dissolution, rumblings from Russia,
terrorism in Paris and a red alert in Brussels put hard power back atop
the European agenda, burying the notion of the economically bold but
militarily shy Germany as Europe’s unchallenged leader. France,
never comfortable with Germany’s low-deficit strictures, has cast them
off; President Francois Hollande first huddled with U.K. Prime Minister
David Cameron to hammer out war plans against Islamic State, not with
German Chancellor Angela Merkel; and Merkel is under fire at home for
letting in too many refugees, amid fears that future terrorists are
among them.
- The Turkish Wild Card in Syria That Russia and U.S. Both Need. Turkey just reinforced its role as a wild card in the Syrian civil
war, and one that both sides of the conflict ultimately have to deal
with. After becoming the first NATO country in more than half a
century to shoot down a Russian warplane, it sent the alliance
scrambling to deescalate tension with Moscow as President Recep Tayyip
Erdogan vowed to continue to protect his country’s airspace. It was a
reminder of how Turkish priorities for Syria, its southern neighbor,
remain out of step as its unflinching opposition to Kurdish separatists
and Syrian President Bashar al-Assad overshadows the fight against
Islamic State.
- ECB Warns Asia Risks Rising. (video)
- Yuan Fixing Near Post-Devaluation Low Is Bearish Sign to SocGen. China’s reference rate for the yuan is approaching the weakest level
since an August devaluation and a breach of the low would likely fuel
speculation that policy makers are prepared to let the currency
depreciate, according to Societe Generale SA. The People’s Bank of
China on Aug. 11 surprised global investors by switching to a more
market-driven fixing regime that sparked the yuan’s steepest plunge in
two decades. It set the currency’s reference rate at 6.3896 per dollar
on Thursday, about 0.3 percent stronger than an Aug. 27 level that was
the weakest in four years. The spot rate in Shanghai is allowed to trade
a maximum 2 percent on either side of the fixing.
- China Fishery Bonds Drop 34% After HSBC Asks Court to Wind It Up. Bonds issued by China Fishery Group Ltd. plunged 34 percent on Thursday
after HSBC Holdings Plc said it asked the Hong Kong High Court to wind
up the company and appoint a liquidator.
- China's Winsway Proposes Restructuring on Defaulted Dollar Debt. Winsway Enterprises Holdings Ltd., the Chinese coking-coal importer that
has defaulted on dollar bonds, has proposed terms for a restructuring
on the debt that some investors have accepted.
- Australian Business Investment Falls by Record as Mining Slumps. Australian business investment fell by the most on record last
quarter as spending by firms in mining and other industries slumped,
sending the currency lower. Capital expenditure plunged 9.2
percent in the three months through September from the prior quarter,
the largest decline in records going back to 1989, according to
calculations by Bloomberg based on government data released Thursday.
- Asian Stocks Rise as Japan Advances on Yen; BHP Billiton Drops. Asian stocks rose as a weaker yen boosted Japanese exporters and
health-care shares led the advance. BHP Billiton Ltd. slumped in Sydney. The
MSCI Asia Pacific Index gained 0.4 percent to 134.37 as of 9:00 a.m. in
Tokyo. Japan’s Topix index added 0.4 percent after the yen slid 0.2
percent against the dollar on Wednesday.
- Copper Faces at Least Two More Years of Pain, Rio Estimates. The copper market is facing two or three years more of pain, though
the good news for the metal, which hit a six-year low this week, is that
it will recover faster than other commodities, according to Rio Tinto
Group. Copper has tumbled 27 percent this year as China’s
faltering expansion curbs demand and with the dollar trading near its
highest level since at least 2005, making commodities more expensive for
buyers in other currencies.
- Big Banks Accused of Monopolizing Interest Rate-Swap Market. Twelve of the biggest players in interest-rate swap trading were sued
for allegedly conspiring to block fund managers from entering the
exchange market. The antitrust complaint filed in New York federal
court by a public pension fund names most of the biggest U.S. and
European investment banks among the defendants as well as trading
platforms ICAP Capital Markets LLC and Tradeweb Markets LLC. Big
banks have been accused of colluding in other areas of trading such as
interbank rates, currencies and credit default swaps. Financial
institutions have paid billions of dollars to settle some of the cases
brought by investors and governments.
- Junk-Bond Issuance Surges to $26 Billion in the Last Stages of Boom. The U.S. junk bond market reopened for business in November -- but only for a select group of companies.Speculative-grade
borrowers raised about $26 billion of debt this month, more than double
what was sold in October. That made it the busiest month for the
riskier borrowings since May. Issuance was dominated by companies whose
credit profile is on the rise and those who were willing to pay up.
- UMich Survey Director: We're Witnessing the Decline of American Economic Aspirations.
Wall Street Journal:
- Russia-Turkey Tensions Simmer After Jet Shootdown. Moscow resumes airstrikes in Syria near border, calls strike ‘planned provocation’. A day after Turkey shot down a Russian warplane, Russia resumed its
airstrikes in Syria on Wednesday, hitting near the Turkish border even
as both sides steered clear of further direct military confrontation.
- The Pressure on Corporate Profits May Last Longer Than Expected.
- Congress Can Cool Off Obama’s Climate Plans. At the Paris talks next week, the U.S. may make harmful commitments on spending and carbon. When the U.N. climate-change talks convene in Paris next week, the risks
will be high for American taxpayers. President Obama wants a climate
deal and is willing to pay dearly to get it. The inevitable outcome is a
plan with unproven benefits and unreachable goals, but very real costs.
It will be up to Congress to check the president’s ambition of
committing the U.S. to an international green scheme that will produce
little or no return.
Fox News:
- Paul campaign slams CNN, says emails show reporter 'colluding' with Clinton aide. Rand Paul’s presidential campaign slammed CNN on Wednesday after
emails were released that the campaign claimed showed a reporter
“colluding” with a Hillary Clinton aide to “attack” the Kentucky
senator. The CNN global affairs correspondent, Elise Labott, already
has been suspended over a separate incident – a tweet last week
criticizing a House bill limiting Syrian refugees. But her
communications with then-Clinton State Department official Philippe
Reines turned up Tuesday in a batch of emails obtained and published by
Gawker.
CNBC:
Zero Hedge:
Reuters:
- Fed gives largest U.S. banks extra year for debt rule calculation. The Federal Reserve said on
Wednesday that bigger U.S. banks would have an extra year to
calculate a capital requirement known as the supplementary
leverage ratio for stress testing. Institutions subjected to the leverage ratio requirement
will have to show regulators what the ratio would be in a
stressed scenario beginning in 2017.
The extension applies to banks with more than $50 billion of
assets, of which there were 39 at the end of the third quarter,
according to data from the Federal Deposit Insurance Corp.
- Brazil central bank keeps interest rate at 14.25 pct. Brazil's central bank kept
interest rates on hold for the third straight meeting on
Wednesday as expected in a move to avoid further damage to an
ailing economy, despite a surge in inflation. In a divided vote, the bank's monetary policy committee,
known as Copom, maintained its benchmark Selic rate at 14.25
percent, its highest in nine years and well above that of
emerging market peers like India and Mexico. Two of the 8-member
Copom voted to raise the Selic to 14.75 while the rest voted for
the rate to remain steady.
- Brazil corruption probe widens; Senate leader, BTG Pactual CEO arrested. The chief executive
of Brazil's biggest independent investment bank and the leading
senator in the governing coalition were arrested on Wednesday on
suspicion of obstructing the country's most sweeping corruption
investigation ever. The detention of such prominent power brokers on orders from
the Supreme Court raised the stakes dramatically in a bribery
scandal that started with state-run oil company Petrobras and
now threatens the heights of Brazilian banking and politics.
The Economist:
Broad Equity Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 15.46 -2.95%
- Euro/Yen Carry Return Index 136. 16 -.07%
- Emerging Markets Currency Volatility(VXY) 10.35 unch.
- S&P 500 Implied Correlation 57.21 +.10%
- ISE Sentiment Index 176.0 +120.0%
- Total Put/Call 1.12 +5.66%
Credit Investor Angst:
- North American Investment Grade CDS Index 84.85 -.77%
- America Energy Sector High-Yield CDS Index 1,314.0 -.08%
- European Financial Sector CDS Index 68.28 -3.11%
- Western Europe Sovereign Debt CDS Index 18.86 -1.15%
- Asia Pacific Sovereign Debt CDS Index 69.23 -1.03%
- Emerging Market CDS Index 318.71 +.64%
- iBoxx Offshore RMB China Corporate High Yield Index 124.33 -.01%
- 2-Year Swap Spread 5.75 unch.
- TED Spread 23.50 -3.5 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -47.0 +2.0 basis points
Economic Gauges:
- Bloomberg Emerging Markets Currency Index 70.74 -.30%
- 3-Month T-Bill Yield .17% +1.0 basis point
- Yield Curve 130.0 -1.0 basis point
- China Import Iron Ore Spot $44.07/Metric Tonne +.41%
- Citi US Economic Surprise Index -16.5 +.7 point
- Citi Eurozone Economic Surprise Index 34.20 -1.2 points
- Citi Emerging Markets Economic Surprise Index 4.0 +1.2 points
- 10-Year TIPS Spread 1.63 -1.0 basis point
- # of Months to 1st Fed Rate Hike(Morgan Stanley) 1.88 -.17
Overseas Futures:
- Nikkei 225 Futures: Indicating +69 open in Japan
- China A50 Futures: Indicating -31 open in China
- DAX Futures: Indicating -2 open in Germany
Portfolio:
- Higher: On gains in my biotech/retail sector longs and emerging markets shorts
- Market Exposure: 50% Net Long
Evening Headlines
Bloomberg:
- U.S. Urges Russia, Turkey to Cool Standoff Over Downed Warplane. (video) U.S. President Barack Obama and the NATO military alliance called for
a de-escalation of tensions between Turkey and Russia, as their war of
words over the downing of a Russian fighter jet threatened to undermine
efforts for a united front against Islamic State. Turkey shot down
the plane near its border with northwestern Syria early Tuesday,
drawing an angry rebuke from President Vladimir Putin and marking the
first direct clash between foreign powers embroiled in the Syrian civil
war. Turkey said the pilots ignored repeated warnings about violating
its airspace, while Putin called the attack “a stab in the back from the
accomplices of terrorism.”
- China's Earliest Monthly Economic Indicators Flash Warning Sign. China’s economy is still showing a muted response to waves of
monetary and fiscal easing as of the half-way mark for the last quarter
of the year, some of the earliest indicators suggest. A privately
compiled purchasing managers’ index and a gauge based on search engine
interest in small and medium-sized businesses deteriorated this month,
while a sentiment indicator dropped sharply from October. Combined, the
reports make gloomy reading ahead of official releases, the earliest of
which will be manufacturing and services PMI reports due Dec. 1. Six
interest-rate cuts in a year and expedited fiscal spending have yet to
revive growth as overcapacity and weakness in old drivers like
manufacturing and residential construction weigh on the world’s
second-biggest economy. If official data confirm the sluggishness,
Premier Li Keqiang’s growth goal may be missed for a second-straight
year.Here’s a look at what the economy’s earliest tea leaves show:
- Stevens Says `Chill Out' on Rates as Australia Bows to Slowdown. Australia’s central bank Governor Glenn Stevens says markets should
“chill out” on prospects for another interest-rate cut as the nation’s
Treasury bowed to mounting evidence that the economy’s speed limit for
growth had declined. Stevens, who stood pat for the past six
months at a record-low 2 percent cash rate, told economists Tuesday
evening in Sydney they should enjoy the festive season and then reassess
the economic data in February. “I’m more than content to lower it
if that actually helps but is that the best thing to do at any
particular time?” Stevens said in response to a question on the cash
rate. “We’ve got Christmas. We should just chill out, come back and see
what the data says.”
- Asian Stocks Retreat as Japan Slides on Yen Amid Syria Tensions. Asian stocks fell, dragged lower by Japanese shares as the yen gained
after Turkey downed a Russian warplane, fueling demand for haven
assets. The MSCI Asia Pacific Index lost 0.1 percent to 134.37 as of 9:02 a.m. in Tokyo.
- If China Killed Commodities Super Cycle, Fed Is About to Bury It. For commodities, it’s like the 21st century never happened. The
last time the Bloomberg Commodity Index of investor returns was this
low, Apple Inc.’s best-selling product was a desktop computer, and you
could pay for it with francs and deutsche marks. The gauge
tracking the performance of 22 natural resources has plunged two-thirds
from its peak, to the lowest level since 1999. That shows it’s back to
square one for the so-called commodity super cycle, a hunger for coal,
oil and metals from Chinese manufacturers that powered a bull market for
about a decade until 2011.
- BlackRock(BLK) Sees More Commodity Pain on Slowing China, Dollar. The world’s largest money manager says the worst commodity selloff in a generation still has room to run. “We’re
still unfortunately heading lower,” Russ Koesterich, global chief
investment strategist at BlackRock Inc., said in a Bloomberg TV
interview. “We’re seeing a slowdown in demand as the global economy
slows, particularly commodity-intensive economies like China.” Raw
materials are headed for a fifth annual loss after slumping on Monday
to the lowest level since 1999 as economic growth in China slows amid
gluts of everything from crude oil to base metals. A strengthening
dollar as the Federal Reserve prepares to raise U.S. interest rates was
adding a headwind to prices, according to Koesterich.
- Nickel Slides With Copper After Metals Climb Most in Six Weeks. Nickel and copper declined amid concerns over Chinese demand after
industrial metals posted their biggest increase in more than six weeks. Nickel
fell as much as 1.5 percent and copper lost 0.5 percent. The London
Metal Exchange index of six metals climbed 2.2 percent on Tuesday, the
most since Oct. 9, as traders closed out some bearish bets and crude oil
prices surged. Nickel slumped this week to the lowest in more than a
decade, while copper and aluminum plumbed six-year lows.
- Energy Companies Risk $2.2 Trillion as Climate Goals Cut Demand. Oil, natural gas and coal producers are risking $2.2 trillion by
investing in projects for which there will be no demand if the world
meets a United Nations target of limiting the rise in temperature to
less than 2 degrees Celsius, a non-profit think tank said. No new
coal mines are needed, oil demand will peak around 2020 and growth in
gas will disappoint industry expectations, Carbon Tracker Initiative
said Wednesday in a report. The U.S. has the greatest exposure with $412
billion of projects at risk up to 2025, followed by Canada with $220
billion, China $179 billion, Russia $147 billion and Australia $103
billion, according to the think tank.
- Introducing the New OPEC Member That Likes Lower Oil Prices. After defending the interests of oil-exporting nations for five
decades, OPEC has made a surprising choice with its newest member: a
country that consumes about twice as much crude as it pumps. Indonesia
will rejoin the Organization of Petroleum Exporting Countries as its
13th nation next month, almost seven years after suspending its
membership. The country says that as OPEC’s only Asian constituent it
will provide a vital link to the region where demand is growing fastest.
Still, saddled with an oil-import bill of about $13 billion last year,
Indonesia makes an unlikely addition to the exporters’ club. “If
you’re accepting net-oil importers into the organization, it speaks
volumes about the marginalization of OPEC,” said Seth Kleinman, head of
energy strategy at Citigroup Inc. Indonesia is “never going to cut”
supply, he said.
- Airlines Bet on Long Oil Slump After Millions Lost to Hedging. Two of the world’s biggest airlines are betting that oil prices won’t
rally any time soon, growing more cautious after losing hundreds of
millions of dollars on hedges. United Continental Holdings Inc.
and Delta Air Lines Inc. have reduced fuel hedging as oil plunged close
to a six-year low. They’ve become more like American Airlines Group
Inc., the biggest global carrier, which closed its last hedging position
in 2014. “There is a growing realization that American’s approach
was the smarter one,” Bob Mann, president of airline consultant R.W.
Mann & Co., said in a phone interview. “These programs have not met
expectations, costs are very high and the results have underperformed.”
- Junk-Bond Losses Pile Up as Traders Flee Any Whiff of Bad News. The morning after cancer-center firm 21st Century Oncology Inc. cut
its earnings forecast for 2015 last week, money manager Rajay Bagaria
woke up to find his holdings of the junk-rated company’s bonds had lost
19 percent of their market value overnight. Investors who own
Chesapeake Energy Corp.’s $11.3 billion of bonds watched about a third
of their value disappear over the past three weeks. Similar free-falls
have appeared on the computer screens of traders in debt of retailer
Men’s Wearhouse Inc., gambling-equipment maker Scientific Games Corp.
and the owner of New York Sports Club. By one measure tracked by
Deutsche Bank AG analysts, the debt of the riskiest companies is selling
off at four times the rate of the least-risky junk borrowers -- a ratio
that’s typically 1.6 times.
Wall Street Journal:
- Turkey Shoots Down Russian Military Jet. Turkish officials say jet violated its airspace; Russia says jet was over Syria. Turkish F-16s shot down a Russian military jet along the Syrian
border on Tuesday, sparking fury in Moscow that threatened to undercut
efforts to create a new international coalition to confront expanding
Islamic State terrorism. The Turkish strike, captured by dramatic
video, marked the first time since 1952 that a North Atlantic Treaty
Organization member has shot down a Russian warplane. As Russian
helicopters searched for the two pilots, President Vladimir Putin
accused Turkey of a “stab in the back” and of aiding terrorists, and
state media began a propaganda blitz against Turkey. The Defense
Ministry suspended military contacts, Foreign Minister Sergei Lavrov
canceled a Wednesday meeting in Istanbul and Russian tourists were urged
to stay away from Turkey, one of the most popular vacation
destinations.
- Falling Corporate Profits Blur U.S. Growth Outlook. GDP revs up as inventories proved less of a drag, but headwinds loom. Profits at U.S. companies during the third quarter posted their largest
annual decline since the recession, underscoring the competitive
pressure from a strong dollar and weak global demand that could limit
businesses’ ability to support stronger economic growth in the coming
months.
- Federal Judge Chides Obama Administration Over Guantanamo Policies. Judge Royce Lamberth is puzzled that the government stalls detainee hearings while saying it wants prison closed.
- For Poor Countries, Well-Worn Path to Development Turns Rocky.
- Congress Can Cool Off Obama’s Climate Plans. At the Paris talks next week, the U.S. may make harmful commitments on spending and carbon. When the U.N. climate-change talks convene in Paris next week, the risks
will be high for American taxpayers. President Obama wants a climate
deal and is willing to pay dearly to get it. The inevitable outcome is a
plan with unproven benefits and unreachable goals, but very real costs.
It will be up to Congress to check the president’s ambition of
committing the U.S. to an international green scheme that will produce
little or no return.
- Turkey’s Warning Shot. Putin may be testing NATO’s resolve, and the Turks need U.S. support. A pair of Turkish F-16s shot down a Russian Su-24 over Turkish airspace
on Tuesday, and Russian President Vladimir Putin called it a “stab in
the back” that would have “serious consequences for Russian-Turkish
relations.” This is what we mean when we say the last months of the
Obama Administration will be the most dangerous since the end of the
Cold War.
Zero Hedge:
Reuters:
- HP Inc(HPQ) profit forecast misses Street on weak PC, printer sales. HP Inc, which houses former
Hewlett-Packard Co's legacy printer and PC business, forecast
adjusted profit for the first quarter below market expectations
as it struggles with weak sales of PCs and printers. However, Hewlett Packard Enterprise Co, which is
headed by Meg Whitman and holds the corporate hardware and
services businesses, maintained its adjusted profit forecast for
the year. HP Inc's shares were down 7.1 percent in extended trading on
Tuesday, while HPE's shares were up 2.3 percent.
- Macau's house of cards topples as investors lose big on junkets. The theft of millions of dollars
from investors in a Macau junket operator has sparked months of
protests and hastened the demise of a business model that
greased the wheels of the $44 billion global gambling hub for
over a decade.
Financial Times:
- States warn US climate plan is illegal. State
officials in West Virginia and Texas are sending a letter to the
governments of China, India and other countries, arguing that US
President Barack Obama’s plan to cut greenhouse gas emissions is
unlawful and likely to be struck down in court. In an intervention aimed at the international climate talks
that begin in Paris next Monday, the attorneys-general of the two states
warn that there are “significant legal limits [on Mr Obama’s] ability
either to carry out the promises he has made in advance of Paris 2015 or
to enforce any agreement arising out of the summit.”
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 130.50 +2.5 basis points.
- Asia Pacific Sovereign CDS Index 70.0 +1.75 basis points.
- Bloomberg Emerging Markets Currency Index 71.04 +.13%.
- S&P 500 futures -.08%.
- NASDAQ 100 futures -.10%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Personal Income for October is estimated to rise +.4% versus a +.1% gain in September.
- Personal Spending for October is estimated to rise +.3% versus a +.1% gain in September.
- The PCE Core for October is estimated to rise +.1% versus a +.1% gain in September.
- Durable Goods Orders for October are estimated to rise +1.7% versus a -1.2% decline in September.
- Durables Ex Transports for October are estimated to rise +.3% versus a -.4% decline in September.
- Cap Goods Orders Non-Defense Ex-Air for October are estimated to rise +.2% versus a -.3% decline in September.
- Initial Jobless Claims for last week are estimated to fall to 270K versus 271K the prior week.
- Continuing Claims are estimated to fall to 2161K versus 2175K prior.
9:00 am EST
- The FHFA House Price Index for September is estimated to rise +.4% versus a +.3% gain in August.
9:45 am EST
- Preliminary Markit US Services PMI for November is estimated to rise to 55.1 versus 54.8 in October.
10:00 am EST
- New Home Sales for October are estimated to rise to 500K versus 468K in September.
- Final Univ. of Mich. Consumer Sentiment for November is estimated at 93.1 versus a prior estimate of 93.1.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+1,195,000 barrels versus a +252,000 barrel gain the prior week. Gasoline supplies are expected to rise by +280,000 barrels versus a +1,009,000 barrel
gain the prior week. Distillate inventories are estimated to fall by
-425,000 barrels versus a -791,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.34% versus a +.8% gain prior.
Upcoming Splits
Other Potential Market Movers
- The Japan Leading Index, weekly Bloomberg Consumer Comfort Index, weekly MBA Mortgage Applications report and the 5Y/7Y T-Note auction could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial 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 50% net long heading into the day.
