Friday, June 07, 2013

Friday Watch

Evening Headlines 
  • Aso Says Japan Won’t Intervene After Biggest Yen Gain in 3 Years. Japanese Finance Minister Taro Aso said that the government won’t intervene in the currency market for now after the yen strengthened by the most in three years against the dollar. “We are carefully watching, but we don’t have any immediate intention of taking any action, such as intervention,” the finance minister told reporters in Tokyo today, when asked to respond to the currency’s surge. The yen traded unchanged for today at 96.97 per dollar as of 10:38 a.m. in Tokyo. Japan’s currency jumped 2.2 percent yesterday, adding to the headwinds of a slide in stocks and volatility in bonds as Prime Minister Shinzo Abe campaigns to revive the world’s third-biggest economy. As attention turns to a Bank of Japan meeting on June 10-11, Governor Haruhiko Kuroda’s actions may be limited by his pledge to avoid “incremental” steps after announcing a plan to double the monetary base over two years
  • Bearish Bets on Emerging-Market Bond ETF Surge to Record on Fed. Investors are the most bearish ever on the largest exchange traded fun for emerging-market bonds as concern the Federal Reserve will reduce stimulus prompts investors to dump debt from developing nations. Short interest, a measure of shares borrowed and sold on speculation they will fall, on the iShares JPMorgan USD Emerging Markets Bond Fund surged to 8.5 million on June 5, according to data compiled by London-based Markit Group Ltd. That's up from 1.9 million on Dec. 31 and is equivalent to 18% of the outstanding shares, the data showed. JPMorgan's EMBI Global Index for dollar-denominated bonds fell 4.9% over the past month, the most since 2008, as anti-government protests in Turkey, mining strikes in South Africa and slower growth in China hurt investor confidence.  
  • Asian Stocks Drop as Yen Surge Weighs on Japanese Shares. Asian equities fell, with the regional benchmark index poised for the largest weekly drop in a year, as the yen’s biggest surge in three years weighed on Japanese shares and investors awaited a U.S. jobs report. Japan’s Topix index slid 2.2 percent with all but one of the 33 industry groups on the gauge falling. Newcrest Mining Ltd. slumped 8.1 percent as Australia’s biggest gold producer said it will write down the value of its mines by as much as A$6 billion ($5.7 billion). Honda Motor Co., a Japanese carmaker that gets 47 percent of its revenue in North America, dropped 3.9 percent. Texhong Textile Group Ltd. (2678) surged 11 percent toward a record in Hong Kong after the fabric maker said earnings may jump. The MSCI Asia Pacific Index fell 0.3 percent to 130.87 at 12:01 p.m. in Tokyo, with two stocks declining for each that rose on the gauge.
  • Rebar Trades Near Lowest in Nine Months Ahead of China Holiday. Steel reinforcement-bar futures in Shanghai traded near the lowest level in nine months as the price of iron ore fell and investors continued to reduce positions in the last trading day before a holiday. Rebar for delivery in October on the Shanghai Futures Exchange fell as much as 0.6 percent to 3,402 yuan ($555) a metric ton, the lowest level for a most-active contract since Sept. 7, and was at 3,417 yuan at 10:53 a.m. Futures are little changed this week after falling for the past three weeks
  • Rubber Falls to Seven-Week Low on Strong Yen, Demand Concerns. Rubber declined for a third day to a seven-week low as a strengthening Japanese currency reduced the appeal of yen-denominated contracts and on concern that slowing economies will cut demand. The contract for delivery in November on the Tokyo Commodity Exchange fell as much as 1.7 percent to 243.6 yen a kilogram ($2,514 a metric ton), the lowest level since April 18. Futures extended losses for this year to 19 percent
  • Swings Suppressed as World Volatility Reveals No Panic. Price swings across assets and around the world are holding below historical averages even as central banks roil markets. Levels of investor concern in equities, commodities, bonds and currencies as measured by Bank of America Corp.’s Market Risk index of cross-asset volatility are below readings from about 75 percent of days since 2000, according to data compiled by Bloomberg. Among those markets, the cost of options has risen in Treasuries and foreign exchange in 2013 and fallen in stocks and raw materials.
  • Jumbo Severance Packages for Top CEOs Are Growing. Corporate governance advocates and shareholder activists have long complained that chief executive officer pay, which has jumped by a third since 2007, is sometimes way out of line with a top executive’s on-the-job performance. Severance packages for executives fired by their boards are often far bigger than those corner-office salaries. At least a dozen executives of companies in the Standard & Poor’s 500-stock index stand to receive more than $100 million if they’re dismissed, according to a Bloomberg review of proxy data.
Wall Street Journal: 
  • Austerity Isn't Europe's Only Burden. Arguments continue in Europe over whether governments should relax budgets to encourage growth. But some analysts argue this debate is drawing attention from something more important that is generating serious headwinds for the region's economies: Europe's broken financial sector. António Borges, a former European director of the International Monetary Fund who is now at the Católica Lisbon School of Business and Economics, says arguing about austerity misses the point. In most of Europe, he says, governments have no scope for expansionary budgets because there is no market appetite for more of their debt.
  • Junk Bond Funds See Record $4.6 Billion of Outflows - Lipper. Bond funds saw waves of outflows in the week ended Wednesday, with funds dedicated to low-grade, or "junk," debt seeing record withdrawals, according to fund tracker Lipper. As much as $4.63 billion was pulled from mutual funds and exchange-traded funds dedicated to junk bonds, the data provider said late Thursday, compared with $875 million in outflows the prior week. That reading contributed to what was the second largest weekly outflow on record for taxable bond funds overall, at $9.1 billion
  • Criminal Cases Loom in Rate Rigging. U.S. and British authorities are preparing to bring criminal charges against former employees of Barclays Plc for their alleged roles trying to manipulate benchmark interest rates, according to people familiar with the plans, marking an escalation of a global investigation now entering its sixth year.
  • In Qusayr, Signs of Holy War. A day after it fell to forces loyal to President Bashar al-Assad, the remains of this onetime Syrian rebel stronghold spoke of a battle as deep in sectarian wrath as it was in destructive power.
  • An IRS Political Timeline. President Obama spent months in 2010 warning Americans about the 'threat' to democracy posed by conservative groups, right at the time the IRS began targeting these groups.
Fox News: 
  • New York Times editorial board says administration has 'lost all credibility'. The New York Times editorial board, which twice endorsed President Obama and has championed many planks of his agenda, on Thursday turned on the president over the government's mass collection of phone data -- saying the administration has "lost all credibility." The grey lady's editorial section lately has shown frustration with the administration's civil liberties record. It has criticized the escalation of the lethal drone program, and it lashed out after the Justice Department acknowledged seizing reporters' phone records last month. The report that the National Security Agency has been collecting phone records from millions of Verizon subscribers appeared to be the last straw
  • Dollar-Yen Shake-Out Could Just Be the Start. A day after the U.S. dollar suffered its largest one-day fall in three years against the yen, strategists say the wild currency moves may be far from over and much is dependent on Friday's key U.S. jobs report.
Zero Hedge: 
Business Insider: 
Washington Post:
  • Documents: U.S. mining data from 9 leading Internet firms; companies deny knowledge. The National Security Agency and the FBI are tapping directly into the central servers of nine leading U.S. Internet companies, extracting audio and video chats, photographs, e-mails, documents, and connection logs that enable analysts to track one target or trace a whole network of associates, according to a top-secret document obtained by The Washington Post. The program, code-named PRISM, has not been made public until now. It may be the first of its kind. The NSA prides itself on stealing secrets and breaking codes, and it is accustomed to corporate partnerships that help it divert data traffic or sidestep barriers. But there has never been a Google or Facebook before, and it is unlikely that there are richer troves of valuable intelligence than the ones in Silicon Valley. Equally unusual is the way the NSA extracts what it wants, according to the document: “Collection directly from the servers of these U.S. Service Providers: Microsoft, Yahoo, Google, Facebook, PalTalk, AOL, Skype, YouTube, Apple.”
New York Times:
  • Chinese hacked Obama, McCain campaigns, took internal documents, officials say. The U.S. secretly traced a massive cyberespionage operation against the 2008 presidential campaigns of Barack Obama and John McCain to hacking  units backed by the People’s Republic of China, prompting  high level warnings to Chinese officials to stop such activities,  U.S. intelligence officials tell NBC News.
The Blaze:
  • U.S. quietly allows military aid to Egypt despite rights concerns. Secretary of State John Kerry quietly acted last month to give Egypt $1.3 billion in U.S. military aid, deciding that this was in the national interest despite Egypt's failure to meet democracy standards. Kerry made the decision well before an Egyptian court this week convicted 43 democracy workers, including 16 Americans, in what the United States regards as a politically motivated case against pro-democracy non-governmental organizations. Rights groups believe Egyptian President Mohamed Mursi is retreating from democratic freedoms, notably in a new civil society law and in proposals for judicial reform that critics see as a way to purge judges perceived as hostile to the government.
  • S&P takes negative outlook on Brazil due to slow growth. Standard & Poor's revised its outlook on long-term ratings for Brazil's sovereign debt to negative from stable on Thursday, citing deteriorating fiscal fundamentals and slow economic growth under left-leaning President Dilma Rousseff. The darker outlook was the latest blow to Latin America's largest economy, which has also seen its currency battered and economic growth data fall short of expectations in the last few weeks as investors lose faith in what just two years ago was considered an overwhelming success story. The ratings agency affirmed its BBB long-term and A2 short-term ratings, but said the negative outlook reflects the at least one-in-three probability of a downgrade of Brazil over the next two years. "Continued slow economic growth, weaker fiscal and external fundamentals, and some loss in the credibility of economic policy given ambiguous policy signals could diminish Brazil's ability to manage an external shock," S&P said.
  • Internet giants deny granting government 'direct access' to servers. Major tech companies including Apple Inc, Google and Facebook Inc on Thursday said they do not provide any government agency with "direct access" to their servers, contradicting a Washington Post report that they have granted such access under a classified data collection program. 
  • In commodity pricing, silence and secrecy not limited to oil. A major European probe into the manipulation of global oil prices has raised concerns that could equally resonate across opaque cash markets for a host of raw materials ranging from iron ore to fertilizer. Benchmarks established by journalists assessing the value of commodities are not unique to oil, and are used in markets for many raw materials to price cash contracts worth billions of dollars a day globally. Producers, consumers and middlemen in those markets seek prices favourable to their business, and have leeway to be selective about what they reveal to the reporters assessing trade and prices. Cash commodity markets are subject to little regulation, and companies are not required by law to disclose every trade they execute in the often illiquid markets.
  • Bank holdings of U.S. municipal bonds hit record high. The banking sector is becoming a greater force in the U.S. municipal bond market, with Federal Reserve data on Thursday showing that banks' holdings of municipal bonds reached a record $374.2 billion in the first quarter of 2013.
  • U.S. Fed balance sheet grows in latest week. The U.S. Federal Reserve's balance sheet grew in the latest week on larger holdings of U.S. Treasuries, Fed data released on Thursday showed. The Fed's balance sheet, which is a broad gauge of its lending to the financial system, stood at $3.357 trillion on June 5, compared to $3.342 trillion on May 29.
Financial Times: 
  • Yen’s rebound poses currencies headache. It looked like the world’s easiest trade. Hedge funds made billions on it. Some investors made 30 per cent in a matter of months. Yet selling Japan’s currency has lately become a headache. Just two weeks after the yen hit its weakest level against the dollar since the collapse of Lehman Brothers in 2008, the dollar-yen trade is under attack. “Abenomics” has left investors underwhelmed. Prime minister Shinzo Abe’s much anticipated economic reforms – dubbed the “third arrow” in addition to stimulus spending and looser monetary policy – have disappointed the financial markets this week, amplifying swings in Japanese equities and bonds. The result has been a stronger yen.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -1.50% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 128.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 104.5 +.75 basis point.
  • FTSE-100 futures -.10%.
  • S&P 500 futures -.11%.
  • NASDAQ 100 futures -.09%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases
8:30 am EST
  • The Change in Non-farm Payrolls for May is estimated to rise to 165K versus 163K in April.
  • The Unemployment Rate for May is estimated at 7.5% versus 7.5% in April.
  • Average Hourly Earnings for May are estimated to rise +.2% versus a +.2% gain in April.
3:00 pm EST
  • Consumer Credit for April is estimated to rise to $12.9B versus $7.96B in March.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone trade data could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open mixesd and weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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