Thursday, June 06, 2013

Thursday Watch

Evening Headlines 
  • Bond Losses Accelerate as Junk Sales Surpass 2012: Euro Credit. Bondholder's losses on high-yield debt are deepening in Europe as issuance of junk securities this year already exceeds the total for all of 2012, with companies taking advantage of record-low borrowing costs. Investors forfeited .2 percent on the notes in the first four days of June, following a negative .6% in May and gains of 1.6% in April, Bank of America Merrill Lynch index data show. Losses are mounting as sales of high-yield bonds surge to 34.6 billion euros, the busiest start to a year on record, according to Bloomberg. "Investors are worried about what will happen to the large amount of total-return driven money that has come into credit," said Hans Lorenzen, a credit strategist at Citigroup Inc. in London. "Will investors decide the party is over and it's time to move on?" 
  • RTS Futures Signal Bear Market Isn’t Finished: Russia Overnight. Russia’s dollar-denominated RTS Index (RTSI$) entered a bear market and futures contracts pointed to further declines as prospects for weaker commodity prices sour investor sentiment in the world’s biggest energy exporter. Futures on the gauge fell 0.5 percent to 128,490 in New York after the RTS tumbled 1.6 percent to 1,301.08 in Moscow, leaving it down 20 percent from a Jan. 28 peak.
  • China Vanke Chairman Says Country Faces Risk of Property Bubble. China Vanke Co. Chairman Wang Shi said the country’s property market faces the risk of a “bubble,” reiterating concerns the nation’s biggest developer by sales raised three months ago. The bubble isn’t “light,” Wang said at a conference in Shanghai today. “If the bubble lasted, it will be dangerous.” Wang said in a March CBS Corp. broadcast of the 60 Minutes news program that the housing bubble could spell “disaster” for China’s real estate market and that debt held by developers is a serious problem. “You can’t generalize for the Chinese market,” he said. “Then of course if the bubbles are not controlled, the result will be catastrophic.” The average price in China’s 10 biggest cities, including Beijing and Shanghai, jumped 9.7 percent from a year earlier to 17,202 yuan per square meter last month, up 1.1 percent from April, SouFun said.
  • China Export Gains Seen Halved With Fake-Data Crackdown. China’s crackdown on fake export invoices used to disguise money flows is probably trimming the nation’s trade figures, revealing subdued global demand that will weigh on economic growth. Outbound shipments may have grown 7.1 percent in May from a year earlier, less than half the previous month’s reported 14.7 percent, based on the median estimate of 34 economists ahead of data due June 8. Import growth probably slowed to 6.9 percent from April’s 16.8 percent, a Bloomberg News survey showed.
  • China Blogger Who Began Querying Home Prices Taken to Tea. Two men greeted him at the police station as he was escorted in from the January cold. Peng Chengxian didn’t ask who they were. Each wore a light-colored jacket and carried a dark handbag. They must be “Guo Bao,” Peng says he thought. That’s the name of China’s secret police in charge of keeping order among more than 1.3 billion people for the ruling Communist Party. 
  • China’s Small-Company Stocks May Fall Further 10%, Shenyin Says. China’s ChiNext index of small companies may fall a further 10 percent from current levels because of valuations and concern they may miss earnings estimates, according to Shenyin & Wanguo Securities Co. The ChiNext index in Shenzhen slipped 0.4 percent to 1,029.11 as of 10:25 a.m., adding to a 5.6 percent slide from this year’s high set on May 27. “Stretched valuations and overly high expectations about the new economy and the short-term success of the economic transformation are the reasons for the correction in the ChiNext,” Wang Sheng, an analyst at the Shanghai-based brokerage, wrote in a report dated today. “Expectations about tight liquidity and lower-than-estimated earnings are catalysts for the decline.” The ChiNext traded at 58.1 times reported earnings on May 30, the highest in almost two years, according to data compiled by Bloomberg.
  • Abenomics Won’t Be ’Magic Bullet’ for Japan, Says Johnson of MIT. Japanese Prime Minister Shinzo Abe’s policies to stem deflation and spur growth won’t be a “magic bullet” that shakes the nation’s economy out of stagnation, said Simon Johnson of the Massachusetts Institute of Technology. While Abe’s efforts are “significant,” an aging population, heavy debt loads and a lack of immigration will continue to hobble the Japanese economy, Johnson, a former chief economist at the International Monetary Fund, said in an interview on “Bloomberg Surveillance” with Tom Keene and Sara Eisen.
  • RBA Rate Cuts Having Smaller Impact on Housing, Treasury Says. Australia’s record-low interest rates are having a weaker impact on the housing industry than has historically been the case, as consumers shy away from taking on more debt, Treasury said. “There’s less appetite for debt and that’s part of the smaller response to interest-rate cuts in terms of how much dwelling activity it’s generating,” Treasury official David Gruen told a parliamentary committee in Canberra today. The department indicated nominal gross domestic product for the year ending June 30 may be weaker than the May budget’s 3.25 percent forecast.
  • Asian Stocks Slide to Lowest Since January on U.S. Data. Asian stocks fell, with the regional benchmark index heading to a four-month low, after U.S. jobs and factory data missed estimates and investors speculated whether the Federal Reserve will scale back bond purchases. Japanese shares swung between gains and losses. Techtronic Industries Co. (669), a maker of power tools that gets 73 percent of its sales in North America, dropped 4.1 percent in Hong Kong. Rinnai Corp. (5947), a manufacturer of gas appliances, slumped 8.4 percent in Tokyo as it plans to raise as much as 22.5 billion yen ($227 million) in a share sale. Tokyo Electric Power Co. tumbled 8.6 percent, leading Japanese utilities lower. The MSCI Asia Pacific Index slid 0.7 percent to 131.37 as of 12:08 p.m. in Tokyo. More than three shares fell for each that rose on the gauge, which is heading for the lowest close since Jan. 28. The measure fell 8.3 percent through yesterday from this year’s high on May 20 amid concern the Federal Reserve may soon scale back stimulus and as Japanese stock indexes entered a correction last week.
  • ETF Selloff Outpacing Junk Signaling More Losses: Credit Markets. Losses on junk-bond exchange-traded funds are outpacing the broader U.S. speculative-grade market by the most in three years, signaling a deepening slump for debt that traded at record-high prices less than a month ago. BlackRock Inc.'s $14.5 billion iShares iBoxx High Yield Corporate Bond ETF, the biggest of its kind, plunged 2.6% in May, 2.1 percentage points more than the decline in the Bank of America Merrill Lynch U.S. High Yield Index. Investors redeemed 3.3 million shares, or about $305 million, from the fund June 4, its biggest one-day outflow on record. While ETFs hold less than $40 billion of the $1.15 trillion U.S. high-yield bond market, they act as a quicker gauge of market sentiment because their shares trade more frequently than most corporate bonds. "The ETFs are more reflective of where the market actually is," said Peter Tchir, founder of hedge-fund adviser TF Market Advisors. ETFs may be "a leading indicator that you're going to see more selling pressure on the market as a whole," he said.
  • U.S. Company Credit Swaps Rise as Investors Weigh Fed Stimulus. A gauge of U.S. corporate credit risk rose to the highest level in two months amid speculation on the future pace of Federal Reserve stimulus. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 3.8 basis points to a mid-price of 85.7 basis points at 4:20 p.m. in New York, according to prices compiled by Bloomberg. That’s the highest level since April 5. The risk premium on the Markit CDX North American High Yield Index rose 18.7 basis points to 426.3 basis points, Bloomberg prices show. The average relative yield on speculative-grade, or junk-rated, debt widened 16 basis points to 540.1 basis points, the biggest jump since April 8, Bloomberg data show.
  • Fed Grants Foreign Banks Leeway in Dodd-Frank Swap Pushout Rule. Foreign-based banks won leeway in Dodd-Frank Act requirements to separate swaps trading from their U.S. branches under a Federal Reserve policy released yesterday. The central bank said in an interim final rule that the banks will be eligible to apply for a transition period of 24 months in rules taking effect July 16. The Institute of International Bankers, a lobbying group representing Credit Suisse Group AG (CSGN) and Deutsche Bank AG (DBK) among others, urged the Fed to grant foreign banks the same phase-in process U.S. banks like JPMorgan Chase & Co. (JPM) received earlier this year. 
  • Rebar Falls as Stock Market Drop Spurs Concern China’s Slowing. Steel reinforcement-bar futures in Shanghai fell as a six-day decline in the stock market fueled wider concern that growth in China is slowing. Rebar for delivery in October on the Shanghai Futures Exchange fell as much as 1.7 percent to 3,422 yuan ($558) a metric ton, before trading at 3,428 at 10:40 a.m. Futures fell 14 percent this year
  • Rubber Drops as Yen Rebounds, U.S. Data Raise Demand Concerns. Rubber declined for a second day as the Japanese currency traded near a one-month high against the dollar, cutting the appeal of yen-based futures, and after U.S. jobs and factory data missed estimates. The contract for delivery in November fell as much as 2.3 percent to 251.2 yen a kilogram ($2,528 a metric ton) and was at 252.5 yen on the Tokyo Commodity Exchange at 10:08 a.m. Futures extended losses for this year to 16 percent.
  • U.S. Crude Output Exceeds Imports for First Time in 16 Years. U.S. domestic crude-oil production exceeded imports last week for the first time in 16 years, a government report showed today. Output was 32,000 barrels a day higher than imports in the seven days ended May 31, according to weekly data from the Energy Information Administration, the Energy Department’s statistical arm. Production had been lower than international purchases since January 1997. A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in states including North Dakota, Oklahoma and Texas. The surge in oil and gas production helped the U.S. meet 88 percent of its own energy needs in February, the highest monthly rate since April 1986, EIA data show. Crude inventories climbed to the highest level in 82 years in the week ended May 24. “It will help U.S. energy independence and help our trade balance quite a bit,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “You have to wonder if you are going to see downward pressure on prices.”
  • SAC Said to Tell Employees Firm to Survive Redemptions. Steven A. Cohen’s SAC Capital Advisors LP told employees it plans to stay open for outside investors after significant client redemptions, according to two people with knowledge of the matter. SAC President Tom Conheeney, in a June 4 e-mail to employees, said the firm doesn’t plan to release a number for the redemptions, said the people, who asked not to be identified because the communication is private. SAC doesn’t plan significant staff reductions, Conheeney wrote, according to the people.
Wall Street Journal: 
  • IRS Staff Cite Washington Link. Two Workers Tell Congress That Agency Officials Helped Direct Tea-Party Reviews. Two Internal Revenue Service employees in the agency's Cincinnati office told congressional investigators that IRS officials in Washington helped direct the probe of tea-party groups that began in 2010. Transcripts of the interviews, viewed Wednesday by The Wall Street Journal, appear to contradict earlier statements by top IRS officials, who have blamed lower-level workers in Cincinnati.
  • Beijing Gets a Pass on Iran Sanctions. The State Department on Wednesday exempted several countries, including China and India, from financial sanctions targeting Iranian oil sales because those countries have continued to reduce their purchases of Iranian crude oil.
  • ‘Dark Pools’ Face Scrutiny. Regulators Ask for Details on Stock Trading in Murkiest Parts of the Market. Officials are increasing their scrutiny of an opaque corner of the market where stocks change hands in the dark
  • The Hidden Jobless Disaster. At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards.
Fox News: 
  • Obama's UN ambassador pick has history of controversial comments. The former White House adviser and longtime Obama friend nominated Wednesday as the next U.S. ambassador to the United Nations has a history of controversial comments that could haunt her in confirmation -- including likening U.S. foreign policies to those of the Nazis.
  • Luxury Sales Hit by Chinese Fears of 'Ostentation'. Solid earnings and soaring share prices for Tiffany, Michael Kors and other luxury brands has led to widespread talk of a new boom in high-end goods, but it may be too early to pop the corks on the Dom Perignon. A new study from one of the world's top luxury experts predicts that growth in such sales will be as much as 50% slower this year than last. The main reason: China.
Zero Hedge: 
Business Insider:
New York Times: 
  • Tropical Storm Andrea forms over Gulf of Mexico.  Tropical Storm Andrea was swirling over the east-central Gulf, about 310 miles (500 km) southwest of Tampa, Florida, and packing maximum sustained winds of 40 miles per hour (64 kph), the Miami-based National Hurricane Center said.
Financial Times: 
  • Paris threatens EU-US talks as China trade war looms. Paris is threatening to block EU-US trade talks that Britain wants to launch at this month’s G8 summit in Northern Ireland if French demands to exclude cultural industries such as music and film are not met. Washington, London and Brussels are pushing hard for a new transatlantic trade agreement to boost the US and European economies, with President Barack Obama swinging his weight behind the move.
  • US dividend play at risk of overrunning. When it comes to buying stocks, owning high dividend paying companies has been the trend to follow for some years. But, with the US equity bull market in its fifth year and the S&P 500 occupying record territory, the preference for owning stocks that pay hefty dividends is under assault.
  • Emerging markets displace Europe as fulcrum of world risk. There is a wicked double edge to the emerging-market boom that has so enthralled us for the past decade. The economies of these rising powers are by now big enough to shake the entire world if they come off the rails. My fear is that a China-led BRICS shock will transmit a wave of deflation across the planet, pushing the West over the edge into another downward leg of trade depression. The eurozone polity cannot withstand such a blow. Youth unemployment is above 40pc in Italy, Spain, Portugal and Greece, and “nominal” GDP is contracting across the four countries, meaning that high debt is rising on a shrinking base. Another twist of the deflation knife will be lethal.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -1.0% to -.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 127.0 +6.0 basis points.
  • Asia Pacific Sovereign CDS Index 103.75 +4.25 basis points.
  • FTSE-100 futures -.26%.
  • S&P 500 futures +.23%.
  • NASDAQ 100 futures +.13%.
Morning Preview Links

Earnings of Note

  • (UTIW)/.03
  • (SJM)/1.16
  • (CIEN)/.00
  • (CONN)/.56
  • (ANN)/.40
  • (COO)/1.38
  • (ZQK)/.04
  • (THO)/.88 
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated to fall to 345K versus 354K the prior week.
  • Continuing Claims are estimated to fall to 2973K versus 2986K prior.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Plosser speaking, Fed's Sarah Bloom Raskin speaking, Spanish/French 10Y note auctions, BoE rate decision, ECB rate decision, Challenger Job Cuts for May, RBC Consumer Outlook Index for June, weekly Bloomberg Consumer Comfort Index, 1Q Change in Household Net Worth, UBS investor conference, (ETH) investor conference and the (V) investor meeting 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 modestly higher and weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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