Broad Equity Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 15.29 +.39%
- Euro/Yen Carry Return Index 135.95 +.04%
- Emerging Markets Currency Volatility(VXY) 10.47 unch.
- S&P 500 Implied Correlation 56.61 -1.51%
- ISE Sentiment Index 134.0 unch.
- Total Put/Call 1.30 +26.21%
Credit Investor Angst:
- North American Investment Grade CDS Index 84.50 -.06%
- America Energy Sector High-Yield CDS Index 1,320.0 -.05%
- European Financial Sector CDS Index 68.23 +.34%
- Western Europe Sovereign Debt CDS Index 17.77 -4.36%
- Asia Pacific Sovereign Debt CDS Index 69.04 +.75%
- Emerging Market CDS Index 319.33 +.41%
- iBoxx Offshore RMB China Corporate High Yield Index 124.14 -.13%
- 2-Year Swap Spread 5.25 +.5 basis point
- TED Spread 22.25 -1.25 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -53.25 -6.25 basis points
Economic Gauges:
- Bloomberg Emerging Markets Currency Index 70.37 -.31%
- 3-Month T-Bill Yield .16% -1.0 basis point
- China Import Iron Ore Spot $44.50/Metric Tonne +1.18%
- Citi US Economic Surprise Index -15.5 +1.0 point
- Citi Eurozone Economic Surprise Index 28.20 +6.0 points
- Citi Emerging Markets Economic Surprise Index 5.4 +1.4 points
- 10-Year TIPS Spread 1.63 -1.0 basis point
- # of Months to 1st Fed Rate Hike(Morgan Stanley) 1.85 -.03
Overseas Futures:
- Nikkei 225 Futures: Indicating -3 open in Japan
- China A50 Futures: Indicating -119 open in China
- DAX Futures: Indicating +2 open in Germany
Portfolio:
- Higher: On gains in my biotech/medical/tech sector longs and emerging markets shorts
- Market Exposure: 50% Net Long
Evening Headlines
Bloomberg:
- Terror Suspect on the Loose Leaves Fearful Brussels in Bind. Authorities put Brussels on its highest terror alert because they
feared Salah Abdeslam was on the loose and planning a murderous attack on the city. He hasn’t been found. Now what?
With Abdeslam, a suspect linked to the Nov. 13 massacre that left 130
people dead in Paris, probably at large in the Belgian capital, the
government wasted no time on Saturday warning people of an
“imminent” terror strike on multiple targets. It closed schools,
shopping centers and the subway network, advised cafes to shut early and
told people to avoid large gatherings. Soldiers patrolled the streets. On
Wednesday, after four days of lockdown, the government allowed
schools, malls and public transport to re-open with increased security,
while keeping the terror threat level for Brussels at the maximum of 4,
as Abdeslam continued to elude police. “The Belgian government is in a
bind,” said Roland Freudenstein, policy director of the Martens Centre
for European Studies in Brussels. “They probably did not anticipate a
situation in which they would have to lift the lockdown -- for obvious
economic, financial and even psychological reasons -- without any
substantial new arrests or discovery of weapons caches, let alone
finding Abdeslam.”
- Terror and Refugees May Weigh on Euro-Area Economy, EU Says. Conflict
in the Middle East, the biggest wave of refugees to Europe since World
War II and the terrorism threat is having an impact on the euro area’s
economy, the European Commission said, underscoring the fragile nature
of the region’s
recovery. With euro-area growth forecast to be 1.8 percent in
2016, compared to 2.8 percent in the U.S., the European Union warned
that international instability could further undermine efforts to
resuscitate the currency zone’s economy. “There are a number of
conflicts in our neighborhood and, as regards security challenges, of
course this is something we need to pay particular attention to in the
aftermath of the Paris terror attacks,” European Commission Vice
President Valdis Dombrovskis told a press conference in Brussels. “It’s
premature at this stage to draw far-reaching conclusions as regards the
impact of those factors on the economy,” he said.
- Cameron Urges Syria Strikes to Counter Islamic State Threat. David Cameron appealed to lawmakers to back his calls for British
airstrikes in Syria, saying Islamic State poses an “urgent” threat that
will intensify the longer the organization is allowed to grow. The
prime minister addressed Parliament on Thursday, setting out his case
for action against the terrorist group, also known as ISIL, in the wake
of the attacks on Paris and following progress at Syrian peace talks in
Vienna. If the government believes it has enough support, Cameron
has suggested he wants to call a vote in the House of Commons next week.
- Russia Retaliates for Jet Downing as Erdogan Calls for Calm. Russia began retaliating for the downing of one of its warplanes by
Turkey, whose president made conciliatory gestures while reiterating
that his military would do the same again if its airspace was violated. Turkey
hasn’t apologized for its “treacherous stab in the back” or offered
compensation after shooting down the jet, President Vladimir Putin said
Thursday in Moscow at a meeting with new ambassadors to Russia. “It
seems that the Turkish government is deliberately pushing
Russian-Turkish relations into deadlock. We regret that.”
- China to Probe Largest Brokerage for Alleged Rule Violations. China’s securities regulator will probe Citic Securities Co. for
alleged rule violations in the latest move against the country’s largest
brokerage, where some top executives have already been placed under
investigation. The firm received a notice from the China
Securities Regulatory Commission on Thursday saying it will be
investigated because it allegedly violated regulations on the
supervision and administration of securities firms, Citic said in a
Shanghai stock exchange statement. The brokerage said it will fully
cooperate with the probe and that all of its operations are normal.
- China seen warning bond market about overheating with rules. The
new regulations from the China Securities Depository and Clearing Corp.
apply to exchange market investors who use existing noteholdings as
collateral to borrow funds for new debt purchases. China is adjusting rules concerning the use of borrowed money to buy
certain bonds, prompting speculation authorities are signalling that
they won’t tolerate overheating. The new regulations from the
China Securities Depository and Clearing Corp apply to exchange market
investors who use existing noteholdings as collateral to borrow funds
for new debt purchases, it said in a statement on its website Wednesday.
CSDC may adjust the amount of borrowing that’s allowed in proportion to
the face value of the debentures used as collateral, based on the
number of holders of the pledged notes, their trading volume and the
issuer credit profile, it said without giving more details.
- Morgan Stanley(MS) Sees 11% Won Drop as Euro Hammers Asian Exports. When Morgan Stanley’s top currency strategist visited Asia last week
he told clients their fixation with the U.S. Federal Reserve was causing
them to overlook risks in Europe. Asian currencies will weaken
next year as declines in the euro, already at a seven-month low on bets
the European Central Bank will step up monetary stimulus on Dec. 3, acts
as a drag on the region’s export-driven economies, Hans Redeker, New
York-based global head of foreign-exchange strategy, said in an
interview in Singapore. Overseas shipments shrank in eight months this
year in China, 10 months in South Korea and nine months in Taiwan. In
the euro-area, September marked an eighth straight gain from
year-earlier levels. “You shouldn’t underestimate the impact of
the euro," Redeker said, adding that Europe has a “significant
manufacturing base.” Asian companies face high debt levels and excess
capacity as economies reel from a slowdown in China, he said.
- IMF Ratio Concern Depresses Yuan as Mizuho Warns of Further Drop. The
yuan fell toward a three-month low amid concern China will win a
smaller weighting in the IMF’s Special Drawing Rights than some analysts
predict. While International Monetary Fund staff estimate a weighting
of 14 to 16 percent, the market consensus is for 10 percent because of
the currency’s limited usability, according to Mizuho Bank
Ltd. Anything less than that will spark a decline, said Ken Cheung, a
Hong Kong-based strategist at the Japanese lender. Many observers are
still going by the IMF projection, said Sue Trinh, head of Asia
foreign-exchange strategy at Royal Bank of Canada.
- China Brokerages Lead Drop as Haitong Securities Halts Trading. Chinese stocks slumped as some of the nation’s largest brokerages
disclosed regulatory probes and falling profit at industrial companies
signaled no improvement in the country’s economic slowdown. The Shanghai Composite Index dropped for a second day, while the Hang Seng China Enterprises Index sank 2 percent. Citic Securities Co. and Guosen Securities Co. plunged at least 6
percent in Shanghai after saying they were under investigation by the
China Securities Regulatory Commission for alleged rule violations,
while Haitong Securities Co. suspended trading in its shares without
giving a reason. Industrial profits slid 4.6 percent last month, data
showed Friday, compared with a 0.1 percent drop in September. The
Shanghai Composite dropped 1.5 percent to 3,580.18 at the 11:30 a.m.
local-time break, while the Hang Seng China Enterprises Index headed
for its lowest close in almost two months. The Hang Seng Index retreated
1.2 percent.
- Emerging-Market Assets Head for Weekly Decline as China Tumbles. Emerging-market stocks and currencies headed for a weekly decline as
China’s economy showed further signs of slowing. The Turkish lira was
poised for its biggest weekly drop since March as Russia began
retaliating for the downing of a warplane this week. The MSCI
Emerging Markets Index lost 0.7 percent at 12:15 p.m. Hong Kong time,
and a gauge of developing-nations currencies decreased for a third day.
Chinese stocks declined and the yuan fell toward a three-month low as
industrial profits tumbled and brokerages said they were under official
investigation for rule violations. Citic Securities Co. slumped the most
in two months in Hong Kong, while Air Asia Bhd. slid after swinging to a
quarterly loss. A decline in China’s industrial earnings adds to signs the country’s worst economic slowdown in 25 years is deepening.
- China Pig Iron Maker Says It May Miss Bond Payments Next Month. A Chinese producer of pig iron said it may not be able to repay bonds
next month if investors demand their early redemption as it struggles
with a cash shortage. Sichuan Shengda Group Ltd., based in the
southwestern province of Sichuan, is uncertain it can repay the notes
due in 2018 that holders can opt to sell back to the company early on
Dec. 5, it said in a statement on Chinamoney’s website Thursday. Sichuan
Shengda issued the 300 million yuan ($46.9 million) of securities in
2012 with a 7.25 percent coupon.
- Don't Catch the Metals Knife. The
China Nonferrous Metals Industry Association has asked the
government's National Development and Reform Commission to buy nickel,
aluminum and other metals to prop up prices, people with knowledge of
the matter told Bloomberg News. They're also pushing regulators to
investigate short-selling of metals contracts, according to other people. Chinese nickel and copper
producers will meet Friday and Saturday to discuss their response to the
price slump, people familiar with companies in those industries said. Nickel
and aluminum contracts traded in London, and copper traded in Chicago,
all gained more than 2 percent Thursday on the news. This won't end well.
- Black Friday Retailers Pile on Discounts to Lure Frugal Shoppers. The shaky condition of U.S. retail will be put to the test this
weekend, when Wal-Mart Stores Inc., Macy’s Inc. and other chains roll
out their Black Friday specials. About 135.8 million Americans are
expected to shop in stores or online over the four-day
weekend, according to the National Retail Federation, the largest U.S.
retail trade organization. The amount they’ve spent has declined over
the past two years, dropping 11 percent to $50.9 billion in 2014.
Wall Street Journal:
- Paris Attacks: Plot Was Hatched in Plain Sight. Terrorists used tools of everyday modern life to plan the attacks on the French capital undetected. Three days before the attacks that ripped through Paris, Djazira
Boulanger handed the keys to her row house, across the street from a
kindergarten, to a guest who had booked it over the website
Homelidays.com. His name was Brahim Abdeslam. She didn’t know that Mr. Abdeslam was a central figure in plotting the deadly assault.
- Big Banks Cut Back on Loans to Small Business. Small businesses get fewer loans from banks, turning to alternative lenders that charge significantly higher rates. The biggest banks in the U.S. are making far fewer loans to small
businesses than they did a decade ago, ceding market share to
alternative lenders that charge significantly higher rates.
Zero Hedge:
CNN:
- Turkey Won't Apologize for Russian Warplane, Erdogan Says.
Turkish President Recep Tayyip Erdogan says in interview with CNN,
published on its website, that Russia needs to apologize. "I think if
there is a party that needs to apologize, it is not us." "Those who
violated our airspace are the ones who need to apologize. Our pilots and
our armed forces, they simply fulfilled their duties, which consisted
of responding" to "violations of the rules of engagement."
Evening Recommendations
Night Trading
- Asian equity indices are -1.25% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 128.75 -1.75 basis points.
- Asia Pacific Sovereign CDS Index 68.50 -1.5 basis points.
- Bloomberg Emerging Markets Currency Index 70.56 -.04%.
- S&P 500 futures +.18%.
- NASDAQ 100 futures +.23%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
Upcoming Splits
Other Potential Market Movers
- The UK GDP report could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
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
