Wednesday, June 27, 2012

Stocks Rising into Final Hour on Quarter-End Window-Dressing, Short-Covering, Eurozone Debt Crisis Hopes, Financial/Homebuilding Sector Strength

Posted by Gary .....at 3:50 PM

Broad Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 19.90 +.91%
  • ISE Sentiment Index 75.0 -15.73%
  • Total Put/Call .94 -6.0%
  • NYSE Arms .94 +.98%
Credit Investor Angst:
  • North American Investment Grade CDS Index 118.05 -.88%
  • European Financial Sector CDS Index 287.10 -1.61%
  • Western Europe Sovereign Debt CDS Index 297.02 -1.03%
  • Emerging Market CDS Index 296.95 -.50%
  • 2-Year Swap Spread 23.50 +.25 basis point
  • TED Spread 38.5 +.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -57.75 +.25 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .08% -1 basis point
  • Yield Curve 131.0 -2 basis points
  • China Import Iron Ore Spot $135.40/Metric Tonne unch.
  • Citi US Economic Surprise Index -60.90 +1.3 points
  • 10-Year TIPS Spread 2.08 unch.
Overseas Futures:
  • Nikkei Futures: Indicating +55 open in Japan
  • DAX Futures: Indicating -1 open in Germany
Portfolio:
  • Slightly Higher: On gains in my tech, medical and biotech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite Eurozone debt angst, rising energy prices, consumer discretionary sector weakness and rising global growth fears. On the positive side, Coal, Oil Tanker, Oil Service, Ag, I-Banking, Hospital, Construction and Homebuilding shares are especially strong, rising more than +1.25%. Small-cap stocks are outperforming. Copper is gaining +.8%. Major Asian indices were mostly higher overnight, led by a +1.03% gain in Hong Kong. However, Shanghai fell another -.23% and is down -3.64% in 5 days despite more talk of rate cuts and stimulus. Major European indices are rising about +1.25%, led by a +2.4% gain in Italy. The Bloomberg European Bank/Financial Services Index is gaining +2.48%. The France sovereign cds is down -1.3% to 198.0 bps, the Spain sovereign cds is down -1.5% to 587.33 bps, the UK sovereign cds is down -2.2% to 70.99 bps and the Japan sovereign cds is down -5.11% to 88.74 bps. Moreover, the European Investment Grade CDS Index is down -1.3% to 177.06 bps. On the negative side, Steel, Disk Drive, Telecom, HMO, REIT, Retail and Restaurant shares are lower-to-flat on the day. The UBS-Bloomberg Ag Spot Index is rising another +1.1%, Lumber is down -.3%, Oil is up +1.3% and Gold is up +.2%. The Citi Latin America Economic Surprise Index is falling to -12.9 today, which is the lowest since mid-Oct. of last year. Brazil is down another -1.0% today, is now down -6.8% in 5 days and is down -6.2% ytd, which is another red flag for the global economy. The Germany sovereign cds is gaining +.9% to 102.75 bps and the China sovereign cds is gaining another +.28% to 125.17 bps(+7.1% in 5 days). Moreover, the Spain 10Y Yld is rising +.8% to 6.93% and the Italian 10Y Yld is gaining +.4% to 6.2%. US weekly retail sales have decelerated to a sluggish rate at +2.3%, which is the slowest since the week of April 5th of last year. US Rail/Trucking Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to late-Aug. levels. Lumber is -12.0% since its March 1st high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +130.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -25.2% since May 2nd of last year. Overall, credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The euro currency, oil, lumber and copper all continue to trade poorly given global central bank stimulus hopes, some better US economic data and recent stock gains. As well, the 10Y continues to trade too well as the yield is unch. today at 1.62%. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Equity investors appear to be pricing in another big kick-the-can “solution” to the European debt crisis, which is surprising given how many disappointments we have seen out of these summits and the rapid deterioration in some key economies in the region. The Citi Eurozone Economic Surprise Index is at -90.50 points, which is the lowest since early-Sept. of last year. Moreover, the “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. The "US fiscal cliff "will likely become more and more of a focus for investors as the year progresses. Finally, the upcoming earnings season could prove more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. I still believe there is too much uncertainty on the horizon to conclude a durable stock market low is in place. The declines in retail/restaurant shares today are noteworthy. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on quarter-end window-dressing, short-covering, bargain-hunting and financial/homebuilding sector strength.
0 comments

Today's Headlines

Posted by Gary .....at 2:53 PM

Bloomberg:
  • Merkel Rebuffs Rajoy Plea, Shuts Door To Euro Area Bonds. German Chancellor Angela Merkel shut the door to joint euro-area bonds as a means of lowering Spain’s borrowing costs, saying they are the “wrong way” to achieve the greater European integration needed to stem the debt crisis. Speaking three hours after Spanish Prime Minister Mariano Rajoy made a plea for help from tomorrow’s European summit, Merkel said that euro bonds, euro bills and debt redemption funds are unconstitutional in Germany and economically “wrong and counterproductive.” “I fear that at the summit there will be much too much talk about mutual liability and far too little about improved oversight and structural measures,” Merkel told lower-house lawmakers in Berlin today. “Oversight and liability have to go hand in hand. There can only be joint liability when adequate oversight is ensured.” Merkel is under growing pressure from her European and global counterparts to soften her opposition to debt sharing in the euro area and do more to cut borrowing costs for Spain and Italy. Rajoy, outlining his goals for the two-day European Union summit beginning in Brussels tomorrow, said that Spain can’t go on financing itself at current borrowing rates for long. “The most important thing today is being able to finance ourselves in the markets, that’s the main issue,” Rajoy said in Parliament in Madrid. “And on that point Spain, Italy and other countries are going to push for reasonable decisions to be made,” using the “available instruments.”
  • Spain Scraps Election Pledge as Worsening Slump Hits Deficit. Spain’s government is studying tax increases to rein in the budget deficit, including scrapping a rebate for homeowners that Prime Minister Mariano Rajoy introduced six months ago to meet a campaign pledge. The government needs to plug the deficit as data showed the central administration’s shortfall for the first five months approaching the full-year target and the Bank of Spain said the recession deepened in the second quarter. The government in Madrid may eliminate the tax rebate for mortgage holders and create environmental levies, Deputy Budget Minister Marta Fernandez Curras said yesterday. Spain’s six-month old government enacted two election pledges at its second Cabinet meeting in December, raising pensions and restoring the rebate for homeowners scrapped by the previous administration. That policy is now in danger after the government already broke campaign promises by cutting firing costs and raising income tax as it battles the deficit amid a recession. The yield on Spain’s benchmark 10-year bond rose for a third day, reaching 6.93 percent at 3:49 p.m. in Madrid, compared with 6.38 percent on June 22. The spread with similar German maturities widened to 541 basis points from 536 basis points yesterday.
  • Spanish Yield Curve Flattening May Sink Euro: Technical Analysis. Trading patterns suggest a flattening of the yield curve for Spanish sovereign debt to levels last seen in November would push the euro to less than $1.2288, according to Citigroup.
  • China's Stocks Fall for 6th Day After Daiwa Cuts Growth Estimate. China’s stocks fell for a sixth day, the longest losing streak in six months, after Daiwa Securities Group Inc. cut its second-quarter growth estimate for the world’s second-biggest economy. Inner Mongolia Baotou Steel Rare Earth Hi-Tech Co. led a gauge of material producers lower on the prospect of weaker demand. Shanxi Coal International Energy Group Co. (600546) dropped to the lowest level since August 2010 after the board approved the resignation of its chairman. China Oilfield Services Ltd. (2883) and Offshore Oil Engineering Co. jumped more than 6 percent on expectations oil equipment makers will benefit after Cnooc Ltd. invited bids for oil blocks. “The market is bearish on the long-term outlook for China’s economic growth and we haven’t seen a new driver for the economy emerge so far,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million.
  • Copper Backwardation Widens as One Firm Holds 40-49% of Stocks. Copper for immediate delivery rose to $20 a metric ton more than the three-month contract after the LME reported one unidentified company holds almost half of copper stockpiles in warehouses. The so-called backwardation, signaling limited supplies in the near future, was the most since May 28 by 3:18 p.m. in London. One company held 40-49% of copper worth at least $669 million and stored in LME warehouses by June 25, the LME's daily Warrant Banding Report showed. Inventories in LME-approved warehouses have climbed 10% this month, heading for the first monthly increase since September.
  • Iron-Ore Price Forecast Lowered by Australia as China Cools. Australia, the world’s biggest iron ore exporter, cut its price forecast and said rates may decline 11 percent from last year as slowing growth in China, the largest buyer, curbs demand. The steelmaking raw-material will average $136 a metric ton in 2012, the Bureau of Resources and Energy Economics said in a report today. That compares with $140 estimated by the Canberra- based bureau in March and an average of $153 last year. Shipments from the country may total 479 million tons, down from the 493 million tons predicted in March, it said. Prices dropped 2.2 percent this year as the Chinese economy expands at the slowest pace since 2009 and Europe’s debt crisis threatens global growth.
  • Oil Pares Gain on Gasoline Supply Increases. Oil futures pared gains after the Energy Department said gasoline stockpiles increased more than twice as much as expected last week. Gasoline inventories climbed 2.08 million barrels as refineries raised their production levels to a five-year high, Energy Department data showed. Stockpiles were forecast to gain 1 million barrels, according to a Bloomberg survey. Crude inventories fell less than expected. Crude oil for August delivery advanced $1.12, or 1.4 percent, to $80.48 a barrel at 12:22 p.m. on the New York Mercantile Exchange. Oil traded at $80.69 a barrel before release of the inventory report at 10:30 a.m. Earlier, it touched $80.92. Brent oil for August settlement increased 72 cents, or 0.8 percent, to $93.74 a barrel on the London-based ICE Futures Europe exchange, after surging 2.2 percent yesterday. Gasoline stockpiles increased to 204.8 million barrels in the week ended June 22, the highest level since May 4, the Energy Department reported. Refineries raised their utilization rate to 92.6 percent, up from the previous week’s 91.9 percent and the highest level since July 2007, the report showed.
  • Slowdown Concern Ebbs on Durable Goods, U.S. Home Sales. Orders for durable goods and the number of Americans signing contracts to buy an existing home rebounded in May, easing concern the world’s largest economy is faltering. Bookings for goods meant to last at least three years rose 1.1 percent, the first increase since February, a Commerce Department report showed today in Washington. Pending home sales climbed 5.9 percent after slumping 5.5 percent in April, according to data from the National Association of Realtors.
  • Older Workers In U.S. Drive Competition In Labor Market. About 74 percent of Americans say they plan to work past age 65, according to a May study by economists Jay Bryson and Sarah Watt of Wells Fargo Securities LLC in Charlotte, North Carolina. Thirty-nine percent said they need to earn to make ends meet or maintain their lifestyle, and 35 percent wanted to stay employed. “Many seniors simply aren’t in a position to retire,” said Watt, whose research was based on a Wells Fargo retirement survey done in 2011. “More people are hanging on to the job longer,” she said, as a result of the recession and some longer-term trends.
  • Facebook(FB) Analysts See Shares Staying Less Than $38 IPO Price.
  • Arena's(ARNA) Weight-Loss Pill Approved By U.S. Regulators. Arena Pharmaceuticals Inc. (ARNA) won Food and Drug Administration approval of its weight-loss pill lorcaserin, making it the first obesity medication cleared for sale in the U.S. in 13 years. Arena gained backing to market the treatment, dubbed Belviq, which affects an area of the brain that helps a person eat less and feel full after consuming small amounts of food, the FDA said today in a statement. Arena has licensed the medicine to Tokyo-based Eisai Co. (4523) to sell in the U.S.
  • Japan Sales Tax Risks Growth Grinding to Halt in 2014: Economy. Japan’s Prime Minister Yoshihiko Noda risks stalling the economy by pushing through a higher sales tax that may damp consumption even as it aids efforts to tame the world’s largest debt burden. The nation’s recovery after last year’s earthquake and tsunami could grind to a halt in 2014 when the first increase will take effect, according to UBS AG and Itochu Corp. (8001)
Wall Street Journal:

CNBC.com:

  • McDonald's(MCD) comp. sales haven't necessarily bottomed out for the year, CEO Jim Skinner said in an interview.
  • Europe's Worst Nightmare: What If Euro Can't Be Saved? Here's a nightmare for Europe's leaders to ponder as they prepare for yet another summit to tackle the euro zone crisis: a bond auction fails in Spain, spreading solvency worries to Italy and beyond and triggering uncontrollable bank runs that spell the single currency's end.
  • Merkel Says No Rash Decisions as Spain Sounds Alarm. German Chancellor Angela Merkel said on Wednesday, one day before a crunch European Union summit, that there were no quick or easy solutions to end the euro zone's debt crisis and leaders should avoid making rash promises they could not keep.
  • US Mortgage Applications Fell Last Week. Applications for U.S. home mortgages fell last week as refinancing applications for government loans slowed, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 7.1 percent in the week ended June 22. The MBA's seasonally adjusted index of refinancing applications decreased by 8.3 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell by 1.4 percent.

Business Insider:

Zero Hedge:

Reuters:

Telegraph:

Times:

  • Infrastructure Spending Is No Panacea, HSBC's King Says. Infrastructure spending, the latest "big idea" for generating economic growth in Europe, is a road to nowhere, Stephen King, the chief economist at HSBC Holdings Plc, wrote. Whatever else has been lacking in southern Europe, it has not been a willingness to spend on infrastructure, as the new airports at Athens and Madrid demonstrate, he said. Spain has made a colossal investment in high-speed rail and its ambition is to construct a 6,000-mile high-speed network by 2020, the world's densest relative either to land mass or population size, King said. If infrastructure investment equals economic salvation, it may be asked why Greece's economy has shrunk by 16% in the past 2 years, and why youth unemployment in both Greece and Spain is above 50%, he said.

Europa:

L'Hebdo:

  • German Finance Minister Wolfgang Schaeuble said introducing euro bonds would prompt countries to spend more, citing an interview. "Anyone who has the possibility to spend money at the expense of others will not hesitate to do so," he said. "You would, I would. The markets know that. And that is why you would not be convinced either by euro bonds."

Folha de S. Paulo:

  • Silval Barbosa, governor of the Brazilian state of Mato Grosso, signed a letter of intent with China Development Bank Corp. to build a railroad between the state's capital Cuiaba and the city of Santarem in the state of Para, citing the Mato Grosso government. The bank agreed to lend $10 billion for the project in return for products and services being imported from China.
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Bear Radar

Posted by Gary .....at 1:45 PM

Style Underperformer:
  • Large-Cap Growth +.39%
Sector Underperformers:
  • 1) Restaurants -1.72% 2) Retail -1.01% 3) Steel -.52%
Stocks Falling on Unusual Volume:
  • ORLY, AZO, CMG, TSCO, ROST, JWN, PNRA, DLTR, HNR, WIN, PWE, OMER, MNRO, QSII, SHFL, HAS, TNGO, SHOO, AT and GPC
Stocks With Unusual Put Option Activity:
  • 1) MAKO 2) CTXS 3) MON 4) HRB 5) RSH
Stocks With Most Negative News Mentions:
  • 1) JWN 2) M 3) SKS 4) MCD 5) XOM
Charts:
0 comments

Bull Radar

Posted by Gary .....at 11:24 AM

Style Outperformer:
  • Small-Cap Value +.77%
Sector Outperformers:
  • 1) Coal +2.90% 2) Homebuilding +2.79% 3) Oil Tankers +1.36%
Stocks Rising on Unusual Volume:
  • BBG, EVEP, GEOY, LORL, AMRN, AVAV, LNCR, WPRT, UIS, SSYS, COG, LEN, NSM, RRC and TOL
Stocks With Unusual Call Option Activity:
  • 1) ACAS 2) COG 3) AMRN 4) GIS 5) LNCR
Stocks With Most Positive News Mentions:
  • 1) AVAV 2) UNH 3) BA 4) LMT 5) UIS
Charts:
0 comments

Wednesday Watch

Posted by Gary .....at 12:29 AM

Evening Headlines
Bloomberg:
  • Draghi May Enter Twilight Zone Where Bernanke Fears to Tread. European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve. While cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15. “The European recession is worsening, the ECB has to do more,” said Julian Callow, chief European economist at Barclays Capital in London, who forecasts rates will be cut at the ECB’s next policy meeting on July 5. “A negative deposit rate is something they need to consider but taking it to zero as a first step is more likely.” Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight. The Fed rejected cutting its deposit rate from 0.25 percent last year. With Europe’s debt crisis damping inflation pressures and curbing growth, the ECB may feel the benefits outweigh the negatives.
  • German Parliament to Meet to Vote on Spain Bailout, Bild Reports. The German parliament will probably hold a special meeting on July 6, its first extraordinary session on the debt crisis, to vote on Spain’s request for a bailout, the Bild Zeitung newspaper reported, citing unidentified coalition lawmakers. Germany has to approve a so-called memorandum of understanding on Spain’s bailout petition, the newspaper said in a pre-release of an article to be published today. The parliament may meet again a week later to decide on Cyprus’s request for aid, the newspaper said.
  • Mario Monti and the Limits of Technocracy. When Mario Monti was appointed -- not elected -- prime minister of Italy in November, most Italians saw him as a welcome respite from the flamboyant, bankrupt leadership of Silvio Berlusconi. With the economy headed for collapse, technocratic leadership and a break from politics as usual were exactly what they wanted. So they thought. Now, opinion polls put Monti’s approval rating at slightly more than 30 percent, down from more than 70 percent at the start of his tenure. The country’s media are disenchanted. Monti has failed to produce the miracle that Italy was hoping for, offering only painful remedies for years of misgovernment. It turns out that politics matter, and technocrats aren’t much good at politics.
  • Monti Plays Italian Politics in Labor-Law Overhaul: Euro Credit. Italian Prime Minister Mario Monti, seeking to bridge European differences over how to end the region's debt crisis, is pushing a labor market overhaul at home that has divided his allies and sapped his support. The law, designed to revive Italy's economy by making it easier for distressed companies to fire workers, will pass parliament today ahead of tomorrow's European Union summit in Brussels. Italy's 10-year bond yield, at more than 6%, has jumped 30 basis points since June 9 when Spain became the fourth euro-region country to seek aid. "In the European scenario, Monti is doing very well said Tommaso Nannicini, a professor of political economy at Bocconi University in Milan. "However, on the domestic side he looks more and more incapable of keeping together his majority and gives the impression of a lack of political action."
  • No Second-Half Rally for China’s Stocks, Top Fund Manager Says. China’s economy will probably stay in the “doldrums” in coming months, preventing a second-half rally for the nation’s equities, according to the country’s best-performing fund manager. The government will do just enough to prevent the world’s second-biggest economy from slowing further instead of taking more aggressive measures to boost growth, Yu Guang of Invesco Great Wall Fund Management Co. in Shenzhen, said in an e-mailed interview on June 21. Property, auto and household-appliance stocks may outperform even as the overall market stalls, said Yu, whose Core Competitiveness Fund has returned 25 percent this year, ranking it first among 714 China-based mutual funds, according to data compiled by Bloomberg as of June 25.
  • SEC Said to Authorize Lawsuit Against Philip Falcone. Philip Falcone, the billionaire founder of Harbinger Capital Partners LLC, faces a lawsuit from U.S. regulators as soon as this week over claims he improperly borrowed client money from his hedge fund to pay his taxes, according to two people familiar with the matter.
  • Russia Must Drop Assad Before Talks, U.S. Official Says. A meeting of world powers to discuss ending the conflict in Syria won’t happen unless Russia first agrees that Syrian President Bashar al-Assad must be replaced, a U.S. State Department official said. United Nations Special Envoy Kofi Annan is seeking to convene a June 30 gathering in Geneva to persuade major powers and neighboring states to support a political transition to end the Syrian conflict, which has claimed more than 10,000 lives, according to human rights groups.
  • Coal Set for Worst Rout Since Post-Lehman Slump: Energy Markets. Coal for power stations is headed for its worst quarter in more than three years as China's slowing economy tempers demand for electricity amid brimming stockpiles and increased shipments into Asia. Thermal coal at the Australian port of Newcastle, the benchmark price for Asia, cost $83.1 a metric ton as of June 22, down 20% this quarter, according to IHS McCloskey, a coal-data provider.
Wall Street Journal:
  • Expanded Oil Drilling Helps U.S.Wean Itself From Mideast. America will halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035 due to declining demand and the rapid growth of new petroleum sources in the Western Hemisphere, energy analysts now anticipate. The shift, a result of technological advances that are unlocking new sources of oil in shale-rock formations, oil sands and deep beneath the ocean floor, carries profound consequences for the U.S. economy and energy security. A good portion of this surprising bounty comes from the widespread use of hydraulic fracturing.
  • Has Peak Oil Peaked? Remember the days when a threatened hurricane and news of Syria downing a Turkish jet would send oil prices spiking? Peak oil, the Malthusian scenario whereby global oil-supply growth has reached its limit, appears to have, er, peaked. Oil prices aren't responding to the usual stimuli.
  • Down and Out in Stockton. The latest city to confront bankruptcy and how it got there.
MarketWatch:
 Business Insider:
 Zero Hedge:
 CNBC:
  • Germany's Credit Rating Slashed by Egan-Jones. Credit ratings agency Egan-Jones on Tuesday downgraded its credit rating for Germany to "A+" with a negative outlook from "AA-," noting the need to watch for fallout should Greece exit the euro zone. Whether or not Greece or other euro-zone members exit the monetary union, Germany will be left with "massive" additional, uncollectible receivables, Egan-Jones said in a statement.
  • Spain Considers Sweeping Tax Hikes to Please EU. Spain is considering raising consumer, energy and property taxes, the government said on Tuesday, as it struggles to reduce a public deficit that may have already exceeded one of its budgeted ceilings for the full year.
  • US Judge Issues Injunction on Samsung Galaxy Tab Sales. A U.S. judge on Tuesday granted Apple's bid to stop Samsung Electronics from selling its Galaxy Tab 10.1 tablet in the United States, giving the iPhone maker a significant win in the global smartphone and tablet patent wars.

IBD:

NY Times:

  • Spanish Officials Hailed Banks as Crisis Built. As Spain edged closer to a real estate and banking crisis that led to its recent bank bailout, Spanish financial leaders in influential positions mostly played down concerns that something might go terribly wrong.
Forbes:
  • Brazil's 'Sub Prime' Defaults Rising. It doesn’t matter that Brazil’s benchmark interest rates are at historic lows, last year’s push by the government to extend debt payments for car loans brought in a rash of “subprime” borrowers. Now the banks, from Itau Unibanco (ITUB) to Bradesco (BBD) are paying the price for miscalculating the safety of those new car loans. The default rate on consumer and corporate loans over 90 days late rose 0.1 percentage points to a total of 6 percent, the Central Bank of Brazil said Tuesday, marking the highest ever default rate since the bank starting monitoring it in June 2000. While the default rate is not rising quickly, it is not falling either, as the Central Bank had hoped to see in their latest report. That’s the overall number. Car loans are the worst of the lot. Defaults on auto loans increased 0.2 percentage points to a total of 6.1 percent in May. Auto loan default rates are up 2.5 percent over the last 12 months, the highest out of all the consumer credit monitoring by the Central Bank.
Reuters:
 Financial Times:
  • Monti lashes out at Germany ahead of summit. Mario Monti has set the stage for a tough fight with Germany at the EU summit this week, insisting that he will continue to push Italy’s proposal to use eurozone bailout funds in an attempt to stabilise financial markets. Italy’s technocratic prime minister’s frustration with Germany surfaced in a combative speech to parliament, saying he would not go to Brussels to “rubber-stamp” pre-written documents and was ready to extend the two-day summit until Sunday night if needed to reach agreements before markets reopen on Monday.
Telegraph:

Sueddeutsche Zeitung:
  • Weidmann Says Bids to Cheat Treaty Undermine Euro. "Crafty" attempts to "cheat" one's way past EU treaties by quick introduction of euro-area liability such as euro bonds, deposit insurance, joint debt fund undermine confidence in monetary union, Bundesbank President Jens Weidmann wrote. Attempts to first take what should be a final step of ever close integration threatens monetary union. It is "irritating" that some govts openly push for central banks to clean up fiscal problems and solve difficulties by printing money, he said. The central bank mandate is to maintain price stability; financing govt debt is forbidden.
Yonhap News Agency:
  • Global PC Sales May Fall Up To 10% in Q3: Report. Global sales of personal computers (PCs) may drop as much as 10 percent in the third quarter from a year earlier due to weakening demand, according to a Forbes report known in Seoul on Wednesday. PC sales could fall around 5-10 percent in the July-September period from the previous year as PC giants such as Dell(DELL) and Hewlett-Packard(HPQ) continue to suffer softening demand, according to a recent Forbes report that cites Jefferies & Company Inc. analyst Peter Misek.
China Business News:
  • Shanghai Bans Non-Local Singles From Buying Homes. Single residents without Shanghai registration, so-called hukou, are no longer allowed to buy property in the city, citing several district real estate trading centers. The ban has yet to spread to the whole city, but started 2 weeks ago in districts including Huangpu, Jingan, Yangpu and Baoshan. The ban was also confirmed by unidentified developers.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 186.0 -1.5 basis points.
  • Asia Pacific Sovereign CDS Index 151.25 +1.75 basis points.
  • FTSE-100 futures +.37%.
  • S&P 500 futures -.01%.
  • NASDAQ 100 futures +.08%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (CMC)/.37
  • (GIS)/.59
  • (LEN)/.16
  • (MKC)/.60
  • (MON)/1.58
  • (PAYX)/.34
Economic Releases
8:30 am EST
  • Durable Goods Orders for May are estimated to rise +.5% versus a +.2% gain in April.
  • Durables Ex Transports for May are estimated to rise +.7% versus a -.6% decline in April.
  • Cap Goods Orders Non-defense Ex Air for May are estimated to rise +1.9% versus a -1.9% decline in April.
10:00 am EST
  • Pending Home Sales for May are estimated to rise +1.5% versus a -5.5% decline in April.

10:30 am EST

  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,300,000 barrels versus a +2,861,000 barrel gain the prior week. Distillate inventories are expected to rise by +1,225,000 barrels versus a +1,156,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +1,000,000 barrels versus a +943,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a -.1% decline the prior week.

Upcoming Splits

  • (DLTR) 2-for-1

Other Potential Market Movers

  • The 5Y T-Note auction, weekly MBA mortgage applications report, CSFB Basic Materials Conference, (TDG) analyst day and the (BWS) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and consumer 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.
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Tuesday, June 26, 2012

Stocks Bouncing into Final Hour on Quarter-End Window Dressing, Euro Bounce, Short-Covering, Bargain-Hunting

Posted by Gary .....at 4:05 PM

Broad Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 19.50 -4.32%
  • ISE Sentiment Index 88.0 +15.79%
  • Total Put/Call .97 -15.65%
  • NYSE Arms .92 -62.12%
Credit Investor Angst:
  • North American Investment Grade CDS Index 119.22 -.25%
  • European Financial Sector CDS Index 291.52 +.32%
  • Western Europe Sovereign Debt CDS Index 299.33 +.53%
  • Emerging Market CDS Index 297.97 -.81%
  • 2-Year Swap Spread 23.25 -.25 basis point
  • TED Spread 37.50 -1 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -58.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .09% +1 basis point
  • Yield Curve 133.0 +2 basis points
  • China Import Iron Ore Spot $135.40/Metric Tonne -1.24%
  • Citi US Economic Surprise Index -62.20 -.6 point
  • 10-Year TIPS Spread 2.08 +1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +33 open in Japan
  • DAX Futures: Indicating +34 open in Germany
Portfolio:
  • Slightly Higher: On gains in my tech, retail and biotech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite rising Eurozone debt angst, diminished global central bank stimulus hopes and rising global growth fears. On the positive side, Education, Homebuilding, Ag, Retail and Steel shares are especially strong, rising more than +1.25%. Cyclical shares are mildly outperforming. Gold is falling -.8%. The Saudi sovereign cds is down -2.4% to 128.96 bps. On the negative side, Defense, Coal, Alt Energy, Computer Service, Gaming, Medical, Networking and Disk Drive shares are lower-to-flat on the day. The UBS-Bloomberg Ag Spot Index is rising another +1.2%. Major Asian indices were mostly lower, led down by a -.81% decline in Japan. Major European indices were lower, led down by a -1.4% decline in Spain. Spanish stocks are now down -2.5% in 5 days and down -23.8% ytd. The Bloomberg European Bank/Financial Services Index fell -1.0%. The Germany sovereign cds rose +.43% to 101.25 bps, the France sovereign cds gained +1.3% to 200.66 bps, the Spain sovereign cds rose +2.3% to 595.01 bps and the Italy sovereign cds is up +3.0% to 545.01 bps. The Spain 10Y Yld rose +3.5% to 6.87% and the Italian/German 10Y Yld Spread gained +2.9% to 467.69 bps. Weekly retail sales have decelerated to a sluggish rate at +2.3%, which is the slowest since the week of April 5th of last year. US Rail/Trucking Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to late-Aug. levels. Lumber is -12.0% since its March 1st high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +130.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -25.9% since May 2nd of last year. Overall, credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The euro currency, oil, lumber and copper all continue to trade very poorly given global central bank stimulus hopes, eurozone debt crisis "solution" hopes and this year's equity rally. As well, the 10Y continues to trade too well as the yield is rising just +3 bps today to 1.63%. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. The Citi Eurozone Economic Surprise Index is plunging another -18.80 points today to -94.6 points, which is the lowest since early-Sept. of last year. The “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. Moreover, investors are ignoring today's comments from Merkel, which seem to be very damaging for the hopes of another big kick-the-can. Some key economies in the region are likely accelerating their contractions right now based on recent data. The European debt crisis is really beginning to bite emerging market economies now, which will also further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. The "US fiscal cliff "will likely become more and more of a focus for investors as the year progresses. Finally, the upcoming earnings season could prove more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. I still believe there is too much uncertainty on the horizon to conclude a durable stock market low is in place. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising eurozone debt angst, diminished global central bank stimulus hopes, rising global growth fears and more shorting.
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