Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 95.0 -25.2%
- Total Put/Call 1.03 +19.77%
Credit Investor Angst:
- North American Investment Grade CDS Index 92.92 +4.8%
- European Financial Sector CDS Index 138.83 +3.1%
- Western Europe Sovereign Debt CDS Index 110.14 +1.1%
- Emerging Market CDS Index 211.27 +1.3%
- 2-Year Swap Spread 13.25 +.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -25.5 unch.
Economic Gauges:
- 3-Month T-Bill Yield .05% unch.
- China Import Iron Ore Spot $135.40/Metric Tonne -.07%
- Citi US Economic Surprise Index 54.80 -1.2 points
- 10-Year TIPS Spread 2.48 -1 bp
Overseas Futures:
- Nikkei Futures: Indicating +111 open in Japan
- DAX Futures: Indicating +11 open in Germany
Portfolio:
- Slightly Higher: On gains in my index hedges and emerging markets shorts
- Market Exposure: 25% Net Long
Style Underperformer:
Sector Underperformers:
- 1) Homebuilders -2.70% 2) Coal -2.12% 3) Steel -2.02%
Stocks Falling on Unusual Volume:
- GDP, SZYM, UBS, PBR, STI, TRMK, XOM, CLUB, HLF, GBX, ICE, PFS, RIMM, NX, RECN, TISI, MSA, NUS, KBR, PAYX, GSM, ARII, YUM, THR, DAR, FFIN, MATW, ACO, AGII, SYT, SHEN, TTWO, SGI, WAC, CTAS, USNA, THR, WAG, PNRA, YUM, SHLD, KBR and GTIV
Stocks With Unusual Put Option Activity:
- 1) AET 2) USB 3) XOM 4) SPLS 5) CTSH
Stocks With Most Negative News Mentions:
- 1) UNP 2) ENH 3) DAR 4) XOM 5) BHI
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gold & Silver -.03% 2) REITs -.31% 3) Drugs -.70%
Stocks Rising on Unusual Volume:
- MHK, NKE, ASCA, PNK, TIBX, RHT and CIG
Stocks With Unusual Call Option Activity:
- 1) KEY 2) XRX 3) NIHD 4) AEGR 5) MU
Stocks With Most Positive News Mentions:
- 1) TYC 2) PWR 3) LMT 4) ORCL 5) MSFT
Charts:
Evening Headlines
Bloomberg:
- Spain 2012 Deficit Slippage Looms as Recession Deepens. Spain
will struggle to meet its 2012 deficit target as a contracting economy
hinders the impact of the deepest budget cuts in the nation’s democratic
history, Deputy Budget Minister Marta Fernandez Curras said. “It will be difficult, but who says it’s impossible?”
Curras told reporters in Madrid yesterday evening after Budget
Ministry data showed the central-government’s shortfall through
November was 4.37 percent of gross domestic product. Curras said the social security system, combining Spain’s
tax-funded pensions and unemployment insurance, is expected to
register a gap of around 1 percent of output in 2012. The
central government and social security together have a full-year
deficit goal of 4.5 percent.
- Monti Praised by Merkel Favored Less by Taxed Italians. European leaders have praised
outgoing Italian Prime Minister Mario Monti and encouraged him
to run in next year’s elections. Italians are less enthusiastic. Monti, who will resign as soon as tomorrow after 13 months
in office, would win at most 20 percent of votes in elections
expected on Feb. 24, said Maurizio Pessato, vice-president of
polling company SWG SpA. Sixty-one percent don’t even want him
to run, a Dec. 14 poll by SWG showed. “Monti has managed to get policies pushed through because
he was seen as ‘super partes,’” said Pessato, using the Latin
term for above the political fray. “If he chooses to run, then
he has to choose his ‘partes.’”
- U.K. Consumer Confidence Index Falls as Economic View Plunges. A sentiment index fell to minus 29 from minus 22 in
November, which was the strongest reading since May 2011, the
London-based research group said in an e-mailed report today.
Economists had forecast a drop to minus 25, according to the
median of 21 estimates in a Bloomberg News survey. A measure of Britons’ outlook for the economy over the next
12 months fell 16 points to minus 31, the lowest in six months.
- Copper
Traders Turn Bearish as Hedge Funds Buy More: Commodities. Copper
traders are bearish for the first time in 10 weeks after stockpiles
surged, at a time when hedge funds are making their biggest bullish bet
in two months because of mounting confidence economic growth will
accelerate. 14 traders and analysts surveyed by Bloomberg said they
expect prices to decline next week, seven were bullish and six were
neutral. That's the highest proportion of bears since Oct. 12.
Stockpiles monitored by the LME rose 14% in the past four days to the
highest since February. Supply will exceed demand by the widest margin
in a decade next year, the Intl. Copper Study Group estimates. Hedge
funds turned bullish this month, after bettering on lower prices since
Nov. 13. "The fact that LME stocks have surged has been unnerving a
few," said Ole Hansen, the head of commodity strategy at Saxo Bank A/S
in Coperhagen, who has traded raw materials for more than a decade.
- Diggers Pile Up Unsold After Caterpillar(CAT) Adds to China Capacity. Caterpillar
Inc. (CAT), Komatsu Ltd. (6301) and other construction-equipment makers
have built enough capacity in China to satisfy global demand twice over
while sales in the country are falling, according to a research company. Manufacturing capacity in China is almost 600,000 excavators a year while the worldwide market is about 300,000, according to London-based Off-Highway Research. Inventories of crawler excavators in China are about 100,000, almost equal to projected 2012 domestic sales, the firm’s Managing Director
David C.A. Phillips said. The supply glut is a blow to Peoria, Illinois-based
Caterpillar and its competitors who built factories and bought
local companies to grab a share of the biggest construction
equipment market. Now, with government property controls slowing
construction, those companies are cutting output and trying to
export unsold equipment. “It’s all very scary,” Phillips, who visited China in
November, said in an Dec. 12 interview.
- Major Banks Under Renewed Cyber Attack Targeting Websites. The websites of major U.S. banks are
facing a new round of cyber attacks linked to the same group
responsible for similar assaults earlier this year. The latest
attacks started last week and have hit Bank of America Corp. (BAC),
SunTrust Banks Inc. (STI), JPMorgan Chase & Co. (JPM), U.S. Bancorp,
Wells Fargo & Co. (WFC) and PNC Financial Services Group Inc. (PNC),
according to two executives at companies providing security to some of
the targeted banks, who asked for anonymity because they weren’t
authorized to discuss clients and didn’t want their companies to become
targets of computer assaults. PNC
was under attack today, the executives said.
- Peter Madoff Gets 10 Years for Aiding Brother’s Ponzi Scheme. Peter
Madoff, who admitted aiding Bernard Madoff’s fraud while claiming he
didn’t know his older brother was running a vast, decades-long Ponzi
scheme, was
sentenced to 10 years in prison. U.S. District Judge Laura Taylor Swain today sentenced
Peter Madoff after considering pleas from victims of the fraud
that she not show him any mercy. As part of an agreement with
prosecutors, Madoff agreed not to seek less than the maximum 10-
year prison term allowed by law.
Wall Street Journal:
- Boehner's Budget 'Plan B' Collapses. House
Speaker John Boehner, facing a rebellion in his party's conservative
ranks, abandoned his own plan to avert tax increases for most Americans
Thursday night, throwing Washington's high-stakes budget negotiations
into disarray and bringing the prospect of tumbling over the fiscal
cliff into sudden focus. After pulling his bill without taking a formal
vote, Mr. Boehner unexpectedly disbanded the House until after
Christmas, leaving behind uncertainty about whether Congress and
President Barack Obama would be able to avoid $500 billion in spending
cuts and tax increases that begin in January. House Republicans' refusal
to go along
with Mr. Boehner's tax plan represents a rebuke to the Speaker that
raises questions about his ability to lead his party in further budget
negotiations with Mr. Obama.
- Teetering on the Cliff. Boehner's tax bill failure reflects Obama's failure to negotiate seriously. Republicans pulled their Plan B tax bill from the House floor late
Thursday, announcing that they lacked the votes to pass it and won't
return to Washington until after Christmas. The White House may chortle
that the GOP is in disarray, and it is, but this failure to govern also
owes much to President Obama's failure to negotiate with any degree of
seriousness. If Washington now goes off the tax cliff, Mr. Obama may not
enjoy the plunge as much as some of his partisans believe.
- CEOs Frustrated Over Fiscal-Cliff Talks. A long line of America's top chief executives have rotated through
Washington in recent weeks, loudly urging lawmakers and the White House
to reach a broad deal to fix the budget. They once sounded optimistic.
Now many of them aren't talking, and if they are, they're gloomy.
Mark Bertolini, chief executive of health-insurance company Aetna Inc.,
AET +2.15% called the state of play "pitiful and embarrassing," saying the chances are growing that a deal might not be reached by the end of the year to avert $500 billion in tax increases and spending cuts. "Set aside my interest as the CEO of a participant in the economy here—as an
American, I'm embarrassed if that's where we end up," Mr. Bertolini
said in an interview. "It feels like it's starting to fall apart."
- S&P Cuts Cyprus Rating, Calling Default Risk 'Considerable'. Standard & Poor's Ratings Services has cut Cyprus's rating two
notches into highly speculative territory, citing escalating financial
pressure and uncertainty as bailout negotiations remain unresolved ahead
of a presidential election. S&P now rates Cyprus's long-term sovereign credit rating at
triple-C-plus, seven steps into junk territory. The outlook is negative. The firm said the risk of a sovereign default is "considerable and
rising" amid continuing negotiations between Cyprus and its euro-zone
partners and the International Monetary Fund on a bailout package.
Cyprus applied for a bailout in June 2012, and the S&P noted
intensifying pressures ahead of the presidential elections scheduled for
Feb. 2013. The government's short-term financing is "increasingly vulnerable," the firm said.
Fox News:
- Nike's(NKE) 2Q Net Sinks 18%, Tops Views Despite China Trouble.
Nike (NKE) disclosed an 18% slide in fiscal second-quarter profits on
Thursday amid slumping sales in China, but the apparel and sneaker
maker’s
earnings still topped forecasts from analysts. Shares of Nike, which
have been stagnant for much of this year, turned about 3% higher on the
stronger-than-expected numbers. Despite a double-digit decline in Greater China, overall revenue rose
7% to $5.96 billion, nearly matching the Street’s view of $5.99
billion. Excluding the impact of currency fluctuations, revenues would
have climbed 10%. However, gross margins shrank for the eighth quarter in a row,
dropping to 42.5% last quarter from 42.8% the year before amid higher
labor costs and unfavorable forex rates. Nike said global futures orders, a closely-watched metric, climbed 6%
year-over-year last quarter to $9.3 billion. Excluding currency
changes, orders would be up 7%.
Zero Hedge:
Reuters:
- Chipmaker Micron(MU) posts net loss as PC industry wavers. Micron Technology posted a quarterly net loss and lower revenue as it
struggled with a slowing PC industry and macroeconomic uncertainty. Consumers' growing preference for smartphones and tablets
instead of laptops has been hurting PC manufacturers, which
traditionally have been major buyers of DRAM chips made by Micron and
rivals like Samsung Electronics.
- Red Hat(RHT) revenue beats estimates on subscription gains.
Red Hat Inc, the world's largest distributor of Linux operating
software, posted third-quarter revenue above analysts' estimates on
strong growth in its subscription business, sending its shares up 6 percent in
after-market trading.
- Egyptian Islamists plan big rally as referendum looms. Egyptian Islamists are planning a
mass protest in Alexandria on Friday in a move likely to raise
tensions on the eve of a divisive referendum that will determine
the political future of the Arab world's biggest nation. The Muslim Brotherhood called for the rally after a violent
confrontation between Islamists and the liberal, secular
opposition in Egypt's second city last week ended with a Muslim
preacher besieged inside his mosque for 14 hours. Rival factions
were armed with clubs, knives and swords.
forexlive:
AFP:
- China ships in disputed waters, first since poll. Chinese state-owned ships entered the territorial
waters of disputed islands on Friday, Japan's coastguard said, in the
first intrusion since a new government was elected in Tokyo. The move is a setback to hopes in Japan that Beijing might use the
poll as a chance for a fresh start after months of bitter wrangling and
rhetoric over an issue that neither side is prepared to budge on. "Three Chinese surveillance ships entered the territorial waters near
Kubajima," said a Japanese coastguard official, referring to one of the
islands in the Senkaku chain, known as Diaoyu in China.
Financial Times:
- US banks face rise in bad loans cover. The
US accounting standards setter has unveiled tough new rules that will
increase the amount of money banks have to set aside to cover soured
loans and bonds. The proposed rules from the US Financial Accounting Standards Board
are likely to prove controversial among bankers, as well as FASB’s
counterparts at the International Accounting Standards Board.
Telegraph:
- Doubts remain over Spain's austerity miracle. Spain has made dramatic strides in cutting labour costs and reviving exports
since the debt crisis erupted, turning the country into the new poster-child
of Europe’s austerity regime.
Les Echos:
- Insee Says France GDP to Contract .2% in 4Q. GDP to grow .1% in 1Q, citing Insee. France won't meet target for .8% growth. France to borrow EU169b in 2013, according to Insee. Unemployment to be at 10.5% mid-2013.
China Securities Journal:
- China May Introduce New Housing Curbs. China will likely introduce new housing curbs after the property market rebounded in Nov. and some regions saw "irrational exuberance."
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 108.0 unch.
- Asia Pacific Sovereign CDS Index 85.75 +.5 basis point.
- NASDAQ 100 futures -1.57%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Personal Income for November is estimated to rise +.3% versus unch. in October.
- Personal Spending for November is estimated to rise +.4% versus a -.2% decline in October.
- PCE Core for November is estimated to rise .1% versus a +.1% gain in October.
- Durable Goods Orders for November are estimated to rise +.3% versus unch. in October.
- Cap Goods Orders Non-Defense Ex Air for November are estimated unch. versus a +2.9% gain in October.
9:55 am EST
- Final Univ. of Mich. Consumer Confidence for December is estimated to rise to 75.0 versus a prior estimate of 74.5.
11:00 am EST
- Kansas City Fed Manufacturing Activity for December is estimated to rise to -5 versus -6 in November.
Upcoming Splits
Other Potential Market Movers
- The Chicago Fed National Activity Index for Dec. and the UK/Canadian GDP reports could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 127.0 +33.7%
- Total Put/Call .84 -11.58%
Credit Investor Angst:
- North American Investment Grade CDS Index 89.41 -.55%
- European Financial Sector CDS Index 134.59 -2.74%
- Western Europe Sovereign Debt CDS Index 108.99 -.31%
- Emerging Market CDS Index 208.85 +1.49%
- 2-Year Swap Spread 12.75 +.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -25.5 -.75 bp
Economic Gauges:
- 3-Month T-Bill Yield .05% unch.
- China Import Iron Ore Spot $135.50/Metric Tonne unch.
- Citi US Economic Surprise Index 56.0 +9.8 points
- 10-Year TIPS Spread 2.49 unch.
Overseas Futures:
- Nikkei Futures: Indicating +109 open in Japan
- DAX Futures: Indicating +13 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
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- Rebar Extends Decline as Leading Index Signals Slower Recovery. Steel
reinforcement-bar futures
dropped for a second day after a leading indicator for China’s economy
rose at a slower pace, boosting concern that demand growth for the
construction material may slow. Rebar for delivery in May fell as much
as 1.4 percent to 3,764 yuan ($604) a metric ton on the Shanghai
Futures Exchange, the biggest intraday loss since Nov. 29. It ended the
morning session at 3,779 yuan. The gauge rose 1.1 percent in November,
compared with a revised 1.6 percent gain the previous month, the New
York-based Conference Board said today. “We’ve had a rally that was
largely pinned on people’s
optimistic outlook for a faster economic recovery and therefore
steel consumption,” Lv Xiaohua, an analyst at Everbright
Futures Co., said by phone from Shanghai. “The immediate market
is not reinforcing that view.”
- Copper Falls for a Fourth Day in New York on U.S. Budget. Copper futures fell for a fourth day
in New York, heading for the longest string of declines since
October, as signs that U.S. budget talks are faltering dimmed
prospects for economic growth and metals demand. Copper futures for
March delivery dropped 1.8 percent to $3.5405 a pound at 11:09 a.m. on
the Comex in New York after touching $3.523 a pound, the lowest since
Nov. 28. The metal hasn’t fallen for four straight sessions since Oct.
29. Comex copper fell below its 100-day and 200-day moving
averages, a bearish signal to analysts who study historical
price patterns. Stockpiles monitored by the London Metal Exchange expanded
for an 11th session to 311,925 metric tons, the longest rising
streak since January 2011.
- New Rebel Islamist Groups Shun Free Syrian Army, UN Says. Syria’s newest insurgent groups
increasingly operate independently of the rebel military command
and some are affiliated with al-Qaeda, a United Nations panel
said. Many of the foreign fighters are linked to extremist groups
and “are Sunnis hailing from countries in the Middle East and
North Africa,” the UN Independent Commission of Inquiry on
Syria said in a report published today on its website. While the
new groups sometimes coordinate attacks with the Free Syrian
Army, they’re not under its control, it said.
Wall Street Journal:
- How Did Fiscal Talks Hit Impasse Again? After a brief and happy stretch of several days in which negotiations to
avoid the fiscal cliff seemed to be humming along nicely, they have
gone into the ditch once again.
- Philly Fed Manufacturing Bounces Back. Business conditions for mid-Atlantic manufacturers this month
improved dramatically, according to a report released Thursday by the Federal Reserve Bank of Philadelphia. The Philadelphia Fed said its index of general business activity
within the factory sector increased to 8.1 in December from -10.7 in
November. Economists surveyed by Dow Jones Newswires expected the latest index
to improve only to -2.1. Readings under zero denote contraction, and
above-zero readings denote expansion.
Barron's:
- How the NYSE-ICE Deal Could Hurt CME(CME).
NYSE Euronext (NYX) has for the last two years tried unsuccessfully to
challenge CME Group (CME) in the commodities business. CME has largely
been viewed as an impregnable fortress with an iron grip of U.S.
commodities trading, and all the firms that engage in commodities
trading — much
in the same way NYSE dominates its slice of stock trading.
CNBC:
- Manufacturing Jobs Making a Comeback in Southern U.S. Apple CEO Tim Cook's announcement earlier this month that the company will start building Macs closer to home in 2013 was seen as a milestone that could
help jump-start U.S. manufacturing. But over the past few years,
factories in the American South from the Carolinas to Alabama to
Kentucky have already experienced such are birth.
Bespoke Investment Group:
Reuters:
- Higher costs hurt KB Home(KBH) profit, shares tumble. KB
Home reported a 20 percent
rise in quarterly revenue as selling prices rose, but higher
costs prevented the fifth-largest U.S. homebuilder from taking full
advantage of a recovering housing market and the company's shares fell
as much as 7 percent. Homebuilding costs and expenses jumped 18 percent in the
fourth quarter while gross margins shrank to 14.2 percent from
14.7 percent a year earlier, dulling the effect of a 14 percent
rise in the company's average selling price to $270,700. "We're just not seeing any real growth in their business
here and our overall concern is that they're driving ASPs
(average selling prices) well beyond what the rest of the (peer)
group is," Williams Financial Group analyst David Williams said. Cancellations as a percentage of gross orders rose to 35
percent from 34 percent a year earlier.
- Hunger and homelessness rise in U.S. cities -report. Amidst the holiday season of family feasts and corporate
dinners, the mayors released a report that found requests for
emergency food assistance rose in 21 out of the 25 cities it
surveyed in 2012 and remained at the same level in three. More
than half the cities said homelessness increased.
Telegraph:
