Thursday, September 19, 2013

Thursday Watch

Evening Headlines 
Bloomberg:
  • U.S. Raises Prospect That Syria Will Miss Date for Disclosures. The U.S. raised the prospect that Syria will miss the first test of its compliance with an agreement to give up its chemical weapons. While Secretary of State John Kerry has said that Syria “must submit” a full disclosure of its chemical weapons by Sept. 21, as called for in the U.S.-Russia accord, State Department spokeswoman Marie Harf said today that the U.S. was prepared for some delay. She said the date -- one week after the accord was reached in Geneva that averted U.S. military strikes -- was more a “timeline” than “a hard and fast deadline.” 
  • Kuroda Cash Heading to U.S. Dulls Stimulus Impact: Japan Credit. Bank of Japan Governor Haruhiko Kuroda's unprecedented cash provisions are flowing into U.S. bonds and overseas loans instead of fueling investment at home. Treasuries held by Japanese investors rose $52 billion to a record $1.135 trillion as other nations' holdings of the securities dropped by $63 billion in July, U.S. government data show. At the same time, Japanese lenders have become the world's biggest providers of cross-border loans, a report from the Bank for International Settlements showed on Sept. 15.
  • Goldman Drawing Negative Loops as SBI Risk Climbs: India Credit. Goldman Sachs Group Inc. warned that “negative feedback loops” triggered by waning investor confidence are threatening India’s finances, after state-owned lenders’ bond risk surged the most in Asia this quarter. The investment bank said in a Sept. 16 report the rupee may drop to 72 per dollar in six months from 63.385 now as weaker capital inflows force the central bank to raise interest rates, hurting lenders and the economy. Rising bad loans then require more capital injections, further worsening perceptions of India’s finances. “There might be a need to recapitalize banks above the budgeted amounts, but there is not much fiscal room available this year,” Tushar Poddar, Mumbai-based economist at Goldman Sachs, said in an interview yesterday.
  • Asia Stocks, Bonds Jump on Fed as Copper to Baht Surge. Asian stocks jumped to a four-month high, bond yields and credit risk declined while industrial metals rallied after the Federal Reserve unexpectedly refrained from reducing U.S. economic stimulus. The Thai baht strengthened the most in six years. The MSCI Asia Pacific Index climbed 1.9 percent as of 12:20 p.m. in Tokyo, set for the highest close since May 22. Standard & Poor’s 500 Index futures added 0.1 percent after the measure rose 1.2 percent to a record yesterday. Australian 10-year bond yields fell the most in more than six weeks. Copper jumped 1.6 percent and oil advanced 0.4 percent. The baht gained 2 percent, the Indian rupee surged 2.5 percent and the Malaysian ringgit was up 2.2 percent.
  • WTI Oil Gains for Second Day as Fed Maintains Economic Stimulus. West Texas Intermediate crude rose for a second day after the Federal Reserve said it will maintain monthly bond purchases to stimulate economic growth in the U.S., the world’s biggest oil consumer. Futures advanced as much as 0.6 percent in New York after climbing the most in more than three weeks yesterday.
  • Gold Jumps Most in 15 Months as Fed Refrains From Stimulus Taper. Gold jumped the most in 15 months after the Federal Reserve unexpectedly refrained from reducing the pace of monthly U.S. bond purchases, increasing demand for the metal as a store of value. Gold for immediate delivery climbed 4.1 percent to $1,364.02 yesterday, the biggest gain since June 1, 2012, rebounding from a drop of as much as 1.4 percent to $1,292.02, the lowest since Aug. 8.
  • Merkel Rejects Joint Euro Debt, Promises to Stay Hard Course. German Chancellor Angela Merkel told supporters she’ll stand as a bulwark against joint debt in the euro area if she’s re-elected in four days and continue to extract conditions from indebted nations. Speaking at an election rally of several thousand at a portside warehouse in Hamburg, Merkel denounced plans that have been supported by the opposition Social Democrats, such as a debt-redemption fund and jointly issued euro bonds to overcome the nearly four-year-old European debt crisis.
Wall Street Journal:
  • House GOP Ties Government Funding to Health Law. Boehner, Republican Leaders Press Plans to Tie Priorities With Derailing Obamacare. House Republicans said Wednesday that stripping funding from the health-care law championed by President Barack Obama would be their price for keeping federal agencies open after the end of this month, a move that sharply increases the risk of a partial government shutdown in two weeks. GOP leaders said the House would vote Friday on a bill to fund federal agencies for the first 2 1/2 months of the fiscal year, which starts Oct. 1, but strip all health-law funding.
  • Stock Investors Are Left Wondering When on Fed's Taper. Stocks Welcomed the Fed Sticking to Its Policy, but Big Questions Remain. One of the oldest clichés on Wall Street is that financial markets hate uncertainty and confusion. On Wednesday, the Federal Reserve gave the markets uncertainty and confusion about plans to wind down its bond-buying program, and markets loved it, sending U.S. stock indexes to records.
Fox News:
  • Defiant Assad claims government did not use chem weapons, vows to abide by agreement. (video) Syrian President Bashar Assad, in an exclusive interview with Fox News, claimed he is fully committed to carrying out a plan to turn over and destroy his government's chemical weapons -- while continuing to deny responsibility for last month's deadly chemical weapons attack despite new evidence that officials say implicates the Assad regime
CNBC:
  • Oracle(ORCL) shares skid after cautious outlook. Oracle delivered a cautious second-quarter outlook, which the company attributed to lackluster business-technology spending in the U.S. and Europe. Shares fell nearly 3 percent after-hours. The company said it expects earnings of 64 to 69 cents a share and for revenue to grow 1 percent to 4 percent during the quarter. Analysts currently expect earnings of 69 cents a share and revenue growth of 3 percent.
Zero Hedge:
  • As Bernanke Blows A Bigger Bubble, Everything Is Bought. "We have got to turn the page on this kind of bubble-and-bust mentality that helped to create this mess in the first place, we have got to build a housing system that’s durable and fair and rewards responsibility for generations to come.  That is what we have got to do," - Barack Obama, August 6, 2013.
Business Insider:
New York Times:
  • JPMorgan(JPM) Set to Pay More Than $900 Million in Fines. JPMorgan Chase is expected to pay more than $900 million in fines to government authorities in Washington and London and make a rare admission of wrongdoing on Thursday, a pact that will settle a range of investigations over a multibillion trading blunder the bank suffered last year, according to people briefed on the matter.
Reuters:
  • Cleveland Clinic announces job cuts to prepare for Obamacare. The world-renowned Cleveland Clinic said on Wednesday it would cut jobs and slash five to six percent of its $6 billion annual budget to prepare for President Barack Obama's health reforms. The clinic, which has treated celebrities and world leaders such as musician Lou Reed, former Italian Prime Minister Silvio Berlusconi and former Olympic gold medal skater Scott Hamilton, did not say how many of its 44,000 employees would be laid off. But a spokeswoman said that $330 million would be cut from its annual budget
  • Japan firms' mood dips as emerging economies slow -Reuters Tankan. Confidence among Japanese manufacturers slipped in September from a three-year high the previous month, a Reuters poll showed on Thursday, as concerns about slowing growth in emerging markets hit exporters and a weaker yen pushed up import costs. Since mid-year, the market gains have plateaued, a planned sales tax rise has been a major political issue and some major emerging markets have been badly hit by capital outflows. The index of sentiment at manufacturers fell to plus 12 in September, its lowest since May, from 16 in August in the monthly Reuters poll, which is strongly correlated with the Bank of Japan's tankan poll.
Telegraph:
  • No taper: the Fed loses its nerve. So for now, the Fed is holding back, even though it must know that QE has become little more than a confidence trick in so far as the real economy is concerned. It keeps markets happy, and asset prices growing, but it does nothing to address the underlying fault lines in the US and global economies, and indeed in the long term threatens only to make them a great deal worse. The can has been kicked further down the road, but it's still there, and the longer this failure to face up to reality persists, the more painful the eventual denouement will be.
  • China's credit boom is spiralling out of control, warns Fitch. China's massive credit boom is rapidly growing to unsustainable levels and over-extended financial institutions risk being pushed over the edge by rising interest rates, according to rating agency Fitch. Fitch warned that China's credit-fuelled expansion continued unabated, despite talk of contracting credit. "To the extent people think there's deleveraging underway, or growth is coming back in a strong way - nothing has really changed," said Charlene Chu, senior director at Fitch Ratings. "The bottom line is we continue to be in the middle of this very large credit boom." According to Fitch's calculations, annual new credit in China climbed to 21 trillion yuan (£2.15 trillion) in August, up from 19 trillion yuan in August 2012, the fifth year that net new credit has exceeded more than one-third of GDP. "It is difficult to see how a situation in which credit – already twice as large as GDP – continues to grow by twice as fast can be sustainable indefinitely," the report said.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are +1.0% to +1.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 114.50 -17.5 basis points.
  • Asia Pacific Sovereign CDS Index 102.5 -7.75 basis points.
  • FTSE-100 futures +1.30%.
  • S&P 500 futures +.10%.
  • NASDAQ 100 futures +.19%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (PIR).21
  • (IHS)/1.17
  • (RAD)/-.04
  • (SCHL)-.68
  • (CAG)/.39
  • (TIBX)/.22
  • (CTAS)/.63
Economic Releases
8:30 am EST  
  • Initial Jobless Claims are estimated to rise to 330K versus 292K the prior week.
  • Continuing Claims are estimated to rise to 2900K versus 2871K prior.
  • The Current Account Deficit for 2Q is estimated at -$97.0B versus -$106.1B in 1Q.
10:00 am EST 
  • Philly Fed for Sept. is estimated to rise to 10.3 versus 9.3 in August.
  • Existing Home Sales for August are estimated to fall to 5.25M versus 5.39M in July.
  • Leading Index for August is estimated to rise +.6% versus a +.6% gain in July.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The BoJ's Kuroda speaking, Fed's Pianalto speaking, (MSFT) financial analyst meeting, UK retail sales report, Bloomberg Economic Expectations Index for Sept. and the weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are sharply higher, boosted by financial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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