Evening Headlines
Bloomberg:
- Putin Paints a Besieged Russia, Says U.S. Wants to 'Rip Out Its Teeth and Claws'. Vladimir Putin is digging in. Blaming the U.S. and Europe for an economic crisis gripping his country of 144 million and warning
the slump could drag on for two years,Putin today signaled a sustained
standoff over Ukraine. “He believes that the economy is capable
of withstanding the shock,” said Alexei Makarkin, deputy director of the
Moscow-based Center for Political Technologies. “Putin’s psychology is
very simple. From his point of view Russia has made concessions for
years and to no effect.” Putin held his annual press conference, speaking to hundreds of
reporters for more than three hours. The event took on heightened
importance as a 40-percent plunge in the ruble evoked memories of the
country’s 1998 default and talk of hoarding staples.
- U.S. Weighs ‘Proportional Response’ to Hack of Sony Pictures. The Obama administration is weighing a “proportional response” to the
cyber-attack on Sony Pictures Entertainment computers and is wary that
the intrusion may have been designed to provoke a large-scale U.S.
reaction, White House spokesman Josh Earnest said. Earnest refused
to say whether the U.S. had concluded that North Korea was behind the
attack, which crippled Sony’s computers and forced the studio to pull
its movie “The Interview” from its planned released. The attack was
“initiated by a sophisticated actor” and the U.S. investigation is
making progress, he said. The character of the
intrusion makes it a national security matter, not just an economic one,
he said.
- BOJ Keeps Record Easing as Oil’s Fall Challenges Kuroda.
The Bank of Japan maintained unprecedented stimulus, as Governor
Haruhiko Kuroda’s bid to stoke inflation faces increasing challenges
from the tumble in oil prices. The central bank will boost the monetary
base at an annual pace of 80 trillion yen ($671 billion), it said in a
statement, as forecast by all 33 economists surveyed by Bloomberg News. Exports have shown signs of picking up, while production has started to bottom out, the BOJ said, striking a more upbeat tone in its view of the
world’s third-largest economy. Oil has lost more than a quarter of its
value since the central bank boosted easing on Oct. 31 to end a
“deflationary mindset.”
- China’s Shandong Province First to Step Up Curbs on LGFV Debt. Authorities in Shandong said they won’t bail
out the borrowings of cities or counties in the region, becoming
the first province in China to follow the central government’s campaign to curb regional debt. Shandong
province, on the country’s east coast, banned all new debt raisings by
local government financing vehicles, according to a statement dated Dec.
10 and posted on its website yesterday. Local governments should
reasonably control financing
demand for projects under construction, it said.
- China Money Rate Jumps Most Since 2013 Cash Crunch on New Shares.
The seven-day repurchase rate, a gauge of interbank funding availability
in the banking system, surged 154 basis points, or 1.54 percentage
points, today and 213 basis points this week to 5.94 percent,
according to a fixing released by the National Interbank Funding Center
at 11 a.m. in Shanghai. That’s the biggest increase since June 20, 2013,
when the rate touched a record 10.77 percent.
- Yuan Forwards Sink to Biggest Discount to PBOC Fixing Since 2008. Yuan
forwards are trading at the biggest discount to the official exchange
rate in six years as China’s economic growth slows and the dollar surges
amid expectations for higher U.S. interest rates. Twelve-month non-deliverable forwards dropped 0.5 percent, the most since March 10, to 6.3482 a dollar on Thursday in New
York, according to data compiled by Bloomberg. The contracts,
which traders use to speculate on or hedge against moves in the
yuan, are 3.6 percent weaker than the central bank’s reference
rate, the most since December 2008.
- China Stocks Fall Most in Week as Smallcaps Slump on IPO Concern.
China’s stocks fell, trimming a weekly gain, amid concern recent gains
have been excessive as new share offerings may divert funds from
existing equities. Citic Securities Co. (600030) and China Merchants
Securities Co. led declines for brokerages with losses of more than 3
percent after more than doubling over the past month. The ChiNext index
of smaller companies dropped 3.3 percent as money-market rates rose on
the biggest initial public offering sales this year. BYD Co. rebounded
18 percent in Hong Kong after the electric carmaker said it confirmed
with shareholder Berkshire Hathaway Inc. that it has no intention to
reduce its stake. The Shanghai Composite Index (SHCOMP) retreated 0.8 percent to
3,033.49 at 1:07 p.m.
- Asian Stocks Extend Global Rally on Fed as Oil Pares Drop.
Asian stocks rose, extending a global surge in equities as the regional
index headed for its steepest two-day advance in 13 months. Crude oil
pared a fourth weekly decline, the euro traded near a two-year low and
wheat fell. The MSCI Asia Pacific Index jumped 1.7 percent by 11:44 a.m. in Tokyo, after a 0.7 percent gain yesterday. Japan’s Topix index (TPX) climbed 1.9 percent as the yen traded near a one-week low.
- Oil Crash Exposes New Risks for U.S. Shale Drillers. Tumbling
oil prices have exposed a weakness in the insurance that some U.S.
shale drillers bought to protect themselves against a crash. At least
six companies, including Pioneer Natural Resources Co. (PXD) and Noble
Energy Inc. (NBL), used a strategy known as a three-way collar that
doesn’t guarantee a
minimum price if crude falls below a certain level, according to company
filings. While three-ways can be cheaper than other hedges, they can
leave drillers exposed to steep declines.
- OPEC’s Loss of Control Creates Contagion Fears, Mitsui Says. OPEC has lost control of the oil market, casting a shadow over the world economy, Japan’s top crude trader says. It
could take oil company bankruptcies, production stoppages at
higher-cost OPEC members, or a widespread shutdown of shale output in
the U.S. to stabilize prices, said Joji Okada, chief financial officer
at trading house Mitsui & Co., which has $107 billion in assets
spanning 66 countries. Oil’s plunge is hitting hardest in Russia,
the world’s biggest energy producer, which has seen the government sell
foreign exchange reserves in an attempt to stem a ruble collapse. The
big risk now is contagion, said Okada. “I’m really concerned for the global economy,” Okada said in an
interview at the company’s Tokyo headquarters this week. Russia’s woes
alone wouldn’t hurt Mitsui’s profits “but a spillover from the Russian
economy will impact other countries and that’ll come back to us. That, I
am afraid of.”
- MetLife(MET) Gets Risk Tag From U.S. Panel, Weighs Options. MetLife Inc. (MET),
the biggest U.S. life insurer by assets, was labeled a systemically
important financial institution by a council of regulators and said it
will consider whether to sue the government over the decision. The
Financial Stability Oversight Council voted to designate New York-based
MetLife a SIFI, the insurer said today in a statement. The ruling
subjects MetLife to stricter Federal Reserve oversight that could
include tougher capital, leverage and liquidity requirements. The
company can appeal in U.S. district court within 30 days.
Wall Street Journal:
- U.S. Struggles for Response to Sony Hack. White House Walks Fine Line to Find Way to Retaliate for North Korea’s Apparent Attack. The U.S. government is looking for ways to retaliate for North Korea’s
apparent hacking of Sony Pictures but is struggling for an appropriate
solution, according to people familiar with the discussions.
Fox News:
CNBC:
Zero Hedge:
Business Insider:
Reuters:
- Security experts fear Sony attack to fuel more company extortion. Sony Pictures' decision to
shelve the film "The Interview" in the face of cyberattacks has
set a worrying precedent and is sending companies scrambling to
guard sensitive data, security experts said on Thursday. Sony's capitulation could mean that more businesses will be
targeted for cyberwarfare and extortion, they said.
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are +.75% to +1.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 105.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 68.5 -30 basis points.
- NASDAQ 100 futures +.62%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
11:00 am EST
- The Kansas City Fed Manufacturing Activity Index for December is estimated to remain at 7.0 versus 7.0 in November.
Upcoming Splits
Other Potential Market Movers
- The Fed's Evans speaking, Fed's Lacker speaking and the German Consumer Confidence Index could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and technology 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.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 17.61 -9.41%
- Euro/Yen Carry Return Index 152.36 -.39%
- Emerging Markets Currency Volatility(VXY) 11.15 unch.
- S&P 500 Implied Correlation 63.92 +.55%
- ISE Sentiment Index 145.0 +35.51%
- Total Put/Call .78 -37.10%
Credit Investor Angst:
- North American Investment Grade CDS Index 66.43 -4.67%
- America Energy Sector High-Yield CDS Index 622.0 -4.41%
- European Financial Sector CDS Index 65.68 -3.94%
- Western Europe Sovereign Debt CDS Index 30.10 -7.47%
- Asia Pacific Sovereign Debt CDS Index 69.12 -3.26%
- Emerging Market CDS Index 352.74 -6.10%
- China Blended Corporate Spread Index 348.30 -1.99%
- 2-Year Swap Spread 21.75 -.25 basis point
- TED Spread 22.25 +1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -14.5 -1.75 basis points
Economic Gauges:
- 3-Month T-Bill Yield .04% +2.0 basis points
- Yield Curve 157.0 +3.0 basis points
- China Import Iron Ore Spot $68.42/Metric Tonne +.54%
- Citi US Economic Surprise Index 31.60 +.4 point
- Citi Eurozone Economic Surprise Index -2.10 +.4 point
- Citi Emerging Markets Economic Surprise Index -12.90 +.8 point
- 10-Year TIPS Spread 1.65 -1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating +350 open in Japan
- DAX Futures: Indicating +13 open in Germany
Portfolio:
- Higher: On gains in my retail/tech/biotech/medical sector longs
- Market Exposure: 50% Net Long
Style Underperformer:
Sector Underperformers:
- 1) Oil Service -.45% 2) Coal -.20% 3) Energy +.36%
Stocks Falling on Unusual Volume:
- DNKN, KEX, MLHR, CAF, ATU, STLD, SJT, LINE, APOG, SM, JONE, CAG, ASPS, RRC, CIVI, SAFM, CP, PTR, LNCO, ANET, DK, AMZN, STLD, LNCO, LINE, KEX, WGO and WOR
Stocks With Unusual Put Option Activity:
- 1) MYL 2) EWG 3) MDR 4) BHI 5) JOY
Stocks With Most Negative News Mentions:
- 1) XL 2) SD 3) HGR 4) ABMBC 5) LGCY
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Software +3.35% 2) Gold & Silver +2.88% 3) Hospitals +2.86%
Stocks Rising on Unusual Volume:
- OVAS, MGNX, EXAM, ACN, ORCL, GRUB, KRFT, BTE, TTPH, CPHD, FSLR, NAV, LNG, MEMP, EMES, MGM and ARCC
Stocks With Unusual Call Option Activity:
- 1) ZQK 2) KRFT 3) RAD 4) OCR 5) GNC
Stocks With Most Positive News Mentions:
- 1) WDR 2) ORCL 3) RAD 4) OCR 5)
Charts:
Evening Headlines
Bloomberg:
- U.S. Said to Conclude North Korea Is Behind Sony Hack. U.S. investigators have concluded North
Korea is responsible for the cyber-attack that crippled Sony
Pictures Entertainment computers and forced the studio to pull
“The Interview,” a person with knowledge of the situation
said. An announcement could come as soon as Thursday, CNN reported.
The person wasn’t authorized to speak publicly on the matter and asked
not to be named. Sony Corp. (6758)’s Culver City, California-based
studio today canceled the planned Dec. 25 release, after several major
theater chains said they wouldn’t
show the picture.
- Russia Bailout Talk Absent as Pariah Putin No Latter-Day Yeltsin. Here’s
what is happening with Russia: Its currency has lost half its value and
investors have pulled out tens of billions of dollars amid a plunge in
oil, its biggest export. Here’s what isn’t happening: any public discussion among world leaders of a rescue package.
Russia, desperate to stem the ruble’s collapse, has been a diplomatic
pariah since it annexed Crimea in March, prompting the U.S. and European
Union to impose sanctions on Vladimir Putin’s government and setting
the stage for its worst economic crisis since the 1998 default. Back
then, Boris Yeltsin’s fledgling democracy was opening its financial
markets and had a reservoir of goodwill with the U.S. and Europe, which
assembled a $22.6 billion bailout from the International Monetary Fund
and World Bank.
- Draghi Counts Cost of Outflanking ECB’s Home Nation in QE Battle. As
Mario Draghi prepares to push the European Central Bank into
quantitative easing, he’s counting the cost of alienating its home
nation. With the ECB president signaling that he’ll override
German-led concerns on government bond purchases if needed, his
institution is under attack in the country whose DNA inspired
it. The outrage reflects concern that the Frankfurt-based
central bank, which is modeled on the Bundesbank, is taking
risks that its forerunner would never tolerate.
- China Fault Lines: Where a Hard Landing Could Be Exposed in 2015. China’s leaders are seeking to deleverage the economy without a hard landing. Six fault lines will be closely watched next year to gauge their success. Risks to a soft-landing scenario include a credit crunch sparked by a shadow bank default or capital outflows, an external shock that undermines business confidence, a further slump in home sales, or rising U.S. interest rates, said economists and analysts interviewed by Bloomberg. While they don’t expect such outcomes, these are the areas identified that could trigger a plunge in growth or systemic risk in the financial industry.
- China Said to Plan Sweeping Shift From Foreign Technology to Own. China
is aiming to purge most foreign technology from banks, the military,
state-owned enterprises and key government agencies by 2020, stepping up
efforts to shift to Chinese suppliers, according to people familiar
with the effort. The push comes after a test of domestic
alternatives in the northeastern city of Siping that was deemed a
success, said the people, who asked not to be named because the details
aren’t public. Workers there replaced Microsoft Corp.’s (MSFT) Windows
with a homegrown operating system called NeoKylin and swapped foreign
servers for ones made by China’s Inspur Group Ltd., they said.
- Asian Stocks Rise After S&P 500 Surges on Fed; Oil Swings.
Asian stocks climbed, with the regional benchmark index rebounding from
an almost nine-month low, after a Federal Reserve pledge to be patient
on interest-rate increases sent U.S. equities up the most since 2013.
Metals advanced and oil swung between gains and losses. The MSCI Asia
Pacific Index advanced 0.9 percent by 11:27 a.m. in Tokyo, as Hong
Kong’s Hang Seng Index (HSI) climbed from its lowest since May and
Japan’s Topix index headed for its biggest gain in six weeks.
- Iron Ore Shipping Rates, Prices Slump to 5-Year Low on China. Iron
ore prices and shipping costs fell to the lowest levels in five years
amid signs China’s slowing growth is sapping demand for cargoes just as
the world’s largest mining companies press on with raising output and
spur a glut. The rate to ship the steel-making commodity on a Capesize
vessel to Qingdao, China from Tubarao, Brazil fell 4.4 percent to $12.47
a ton yesterday, the lowest since Jan. 9, 2009, data from the Baltic Exchange in London show. Iron ore delivered to
Qingdao declined 0.8 percent to $68.05 a ton yesterday, the
lowest since June 3, 2009, according to Metal Bulletin Ltd.
- Yellen Makes It Clear That Fed’s Patience on Rates Has Limits. Federal Reserve Chair Janet Yellen restored
clarity to the central bank’s monetary policy plans, saying it
was on course to raise interest rates, though not right away,
after officials issued a statement that some Fed-watchers found
confusing. Yellen told reporters following a two-day meeting that
the Fed is likely to hold rates near zero at least through the first
quarter. She also laid out the economic parameters that would need to be
met for liftoff to begin later in the year and said that rates probably
would be raised gradually thereafter. They
may not return to more normal levels until 2017, she added.
Wall Street Journal:
- Fed Sets Stage for Rate Hikes in 2015. Central Bank Plans Patient Approach to Tightening Monetary Policy. The Federal Reserve took a delicate step toward raising short-term
interest rates in 2015, but at the same time exposed its skittishness
about signaling a historic move away from easy-money policies in place
since the global financial crisis.
Fox News:
- Radar ‘blimps’ to monitor Washington-area skies. The first of two radar-detecting blimps is slated to rise up over
Aberdeen Proving Grounds in Maryland on Friday as part of a three-year
exercise testing the integration of an Army air surveillance system with
the North American Aerospace Defense Command.
CNBC:
- Investors walking, not running out of Russia funds. Investors
pulled just $55.9 million over Monday and Tuesday from the largest
Russia-focused exchange-traded fund, Van Eck's Market Vectors Russia,
according to data from ETF.com. The Russian stock-focused fund still
manages $1.23 billion and has seen net inflows of $1.22 billion over
2014 despite losing more than 50 percent of its value (The net flow
number reflects big swings over 2014; the fund started the year at $1.05
billion, with a high point of $2.1 billion and a low point of $719
million).
Zero Hedge:
Business Insider:
South China Morning Post:
China Times:
- China to Cut Central SOE Executives' Pay by 30%. Central
govt-administrated state-owned cos. will cut compensation for executives
by an average 30%, while executives at monopolies will see a bigger
cut, citing a person involved in plan drafting.
China Securities Journal:
- China
TV Set Market Won't Likely Grow Next Year. Sales volume may remain at
42m units, a 6.7% decline from 2013, citing an industry report.
Evening Recommendations
Night Trading
- Asian equity indices are unch. to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 111.0 -8.0 basis points.
- Asia Pacific Sovereign CDS Index 71.5 -6.75 basis points.
- NASDAQ 100 futures -.19%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 pm EST
- Initial Jobless Claims are estimated to rise to 295K versus 294K the prior week.
- Continuing Claims are estimated to fall to 2436K versus 2514K prior.
9:45 am EST
- Preliminary US Markit Services PMI for December is estimated to rise to 56.3 versus 56.2 in November.
10:00 am EST
- Philly Fed Business Outlook for December is estimated to fall to 26.0 versus 40.8 in November.
- Leading Index for November is estimated to rise +.5% versus a +.9% gain in October.
Upcoming Splits
Other Potential Market Movers
- The German IFO, Bloomberg Economic Expectations Index for December and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted
by industrial and technology shares in the region. I expect US
stocks to open modestly lower and to rally into the afternoon, finishing
mixed. The Portfolio is 50% net long heading into the day.