Wednesday, November 06, 2013

Wednesday Watch

Evening Headlines 
Bloomberg: 
  • Bubble Trouble Seen Brewing in Australia Home Prices. Gigi Wong beat four other bidders in an auction of a three-bedroom Sydney house with peeling wallpaper, cracked doors and an overgrown backyard by paying A$856,000 ($811,060), 14 percent more than the realtor expected the property to fetch. “I’m not sure if I paid too much,” said Wong, an accountant at the University of Sydney, after winning the bidding war for the investment property in an inner-west suburb where prices have tripled in the past 15 years. “Since I can, and have capacity to borrow money, I should utilize it.” 
  • Indonesia GDP Grows Less Than 6%. Indonesia’s economy expanded less than 6 percent last quarter as higher interest rates weighed on consumption and exports fell. Gross domestic product increased 5.62 percent in the three months ended Sept. 30 from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with a previously reported 5.81 percent pace for the second quarter and the median estimate of 5.6 percent in a Bloomberg News survey of 23 economists. The third-quarter data highlights the vulnerability of Southeast Asia’s largest economy as it weathers a depreciated exchange rate, faster inflation and diminished foreign capital inflows ahead of elections in 2014. Bank Indonesia has raised its benchmark rate by 1.5 percentage points since early June to shore up the rupiah and stem price gains, while the government has acknowledged growth next year will be slower as it reins in spending to narrow a record current-account gap.
  • Asian Stocks Gain, Snap Four-Day Decline, as Yen Weakens. Asian stocks rose, snapping a four-day drop on the regional equities benchmark, as Japanese shares were boosted by the yen weakening against the dollar and Commonwealth Bank of Australia posted a surge in profit. Canon Inc. gained 1 percent as the yen dropped, boosting the outlook for earnings at Japanese exporters. Commonwealth, Australia’s largest lender by market value, climbed 1.2 percent to a record after saying first-quarter cash profit jumped 14 percent on lower bad-debt charges. HTC Corp. climbed 2.9 percent after analysts said the smartphone maker’s fourth-quarter forecast was better than estimated. The MSCI Asia Pacific Index gained 0.3 percent to 141.39 as of 12:29 p.m. in Hong Kong as nine of the 10 industry groups on the measure advanced.
  • Rebar Futures Fall for Second Day as Construction in China Slows. Steel reinforcement-bar futures in China fell for a second day on concern that construction will slow in winter, crimping demand. Rebar for May delivery, the most-active contract by volume on the Shanghai Futures Exchange, fell as much as 0.9 percent to 3,636 yuan ($596) a metric ton, and traded 3,649 yuan a ton at 11:30 a.m. local time
  • Rubber Swings Near One-Month Low on Oil Rebound, Yen Strength. Rubber swung between gains and losses, trading near a one-month low, as a rebound in crude oil prices weighed against concern that the Federal Reserve will reduce stimulus earlier than anticipated. The contract for delivery in April on the Tokyo Commodity Exchange was little changed at 255.8 yen a kilogram ($2,591 a metric ton) at 12:08 p.m. after gaining 0.3 percent and dropping 0.7 percent. Futures settled at 255.7 yen yesterday, the lowest close for a most-active contract since Oct. 4.
  • Brazil Real Tumbles on Concern Government Lax on Budget Deficits. Brazil’s real fell the most among emerging-market currencies and swap rates surged on concern the government isn’t doing enough to control budget deficits and avoid a credit rating cut. The real dropped 1.9 percent to 2.2890 per U.S. dollar, deepening its one-month selloff to 3.4 percent, the worst among 16 major currencies tracked by Bloomberg. Swap rates on contracts maturing in January 2016 climbed 15 basis points, or 0.15 percentage point, to a two-year high of 11.54 percent on concern that widening budget shortfalls will lead to an increase in borrowing costs
  • Obama’s 39% Gallup Rating Lowest Amid Health Care Fallout. President Barack Obama’s rating in the daily Gallup poll has fallen to its lowest level since October 2011 as his administration continues to be tarnished by the rocky debut of his health-care program. The Democrat’s approval rating stands at 39 percent in the survey, down since the start of October when the rollout of online health exchanges began.
  • Two Senate Democrats Push for Delay to Obamacare Penalties. Two Democratic senators from states that lean Republican are rallying support for proposals that would delay penalties or let people keep existing health plans after flaws hobbled the federal online exchanges. Senate Democratic leaders aren’t saying whether they will allow votes on the proposals by Mary Landrieu of Louisiana on existing policies or Joe Manchin of West Virginia to delay fines for a year. The efforts underscore Democrats’ anxiety over the failures of the online exchanges 
  • Wells Fargo(WFC) Said to Face U.S. Mortgage-Bond Probe. Wells Fargo & Co. (WFC) is among firms facing federal scrutiny of mortgage-bond sales under a 1989 law the government is using to extend probes of banks’ roles in the credit crisis, two people with knowledge of the matter said.
  • NYSE’s Next Owner Says Small U.S. Investors Get Ripped Off. The head of IntercontinentalExchange Inc. (ICE), which is about to own the New York Stock Exchange, said U.S. equity markets are flawed because sophisticated traders are taking advantage of small investors. A decade of regulatory and technological changes have fragmented trading across more than 50 markets and given rise to firms that use computerized algorithms to execute transactions in less than a thousandth of a second, far faster than humans. Also, almost 40 percent of volume takes place on private platforms, data compiled by Bloomberg show. That means investors saving money to send their kids to college or to buy a home can be taken advantage of by traders who possess more information, ICE Chief Executive Officer Jeff Sprecher told analysts today during a conference call. Sophisticated firms are incentivized to “take advantage of the people that are the weakest on the day they have to trade, and I think that that is fundamentally wrong,” Sprecher said. “Increasingly, when I go talk to friends and when I listen to people that are not involved specifically in what we do, there is a sense that things aren’t fair.” 
Wall Street Journal: 
Fox News:
  • McAuliffe narrowly defeats Cuccinelli in Virginia, ObamaCare troubles loom over vote. Democrat Terry McAuliffe won the Virginia governor’s race on Tuesday, in a surprisingly close victory over Republican rival Ken Cuccinelli -- who was heavily outspent and trailed in the polls for much of the race. With nearly all precincts reporting, McAuliffe was ahead with just 48 percent of the vote, to Cuccinelli’s 46 percent. Though McAuliffe previously held a double-digit lead, exit polls showed voters opposed to the federal health care law overwhelmingly backed Cuccinelli, helping him narrow the gap on Tuesday. "Despite being outspent by an unprecedented $15 million, this race came down to the wire because of ObamaCare," Cuccinelli said in his concession speech. "That message will go out to the entire country tonight."
  • ObamaCare price hikes hit 'red states' hardest. Experiencing sticker-shock at the price of insurance on ObamaCare exchanges? That's more likely if you live in a "red state" that didn't vote for Obama, according to price data compiled by the Heritage Foundation. In red states, premiums for 27-year-olds rose an average of 78% on ObamaCare exchanges, whereas in "blue states" that voted for Obama, premiums rose a smaller 50%.
CNBC:
Zero Hedge: 
Business Insider: 
NY Times:
  • After SAC Plea, Fellow Funds May Pay. In striking its $1.2 billion settlement with SAC Capital Advisors, the government set a record for insider trading penalties. For the hedge fund industry, the hidden costs of the deal are even bigger. Tougher regulatory scrutiny since the financial crisis and changes in the law have forced hedge funds to spend millions of dollars a year on new compliance measures to make sure that they are not ensnared in the same net as SAC. This has added to the cost of doing business, which can cut into returns. “It is getting much more expensive for hedge funds,” said Thomas A. Sporkin, a partner at Buckley Sandler and a former enforcement lawyer at the Securities and Exchange Commission. “What kind of returns are you going to need to make in this business given the compliance and regulatory burdens?”
Reuters:
Telegraph:
Yonhap News:
  • PACOM chief says N. Korea's ICBM threat is serious. A top U.S. military commander voiced concerns Tuesday over North Korea's long-range missile program, calling it a serious issue. Adm. Samuel Locklear, the commander of the U.S. Pacific Command, pointed out the reclusive communist nation wants the U.S. to believe it has the capability of sending missiles to the mainland U.S.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 138.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 109.25 +1.5 basis points. 
  • FTSE-100 futures +.42%.
  • S&P 500 futures +.47%.
  • NASDAQ 100 futures +.43%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (CHK)/.42
  • (TWX)/.89
  • (MMC)/.46
  • (HUM)/2.15
  • (DUK)/1.51
  • (RL)/2.20
  • (QCOM)/1.08
  • (PRU)/2.11
  • (MDLZ)/.40
  • (WFM)/.31
  • (TSO)/.49
  • (SCTY)/-.50
  • (CXW)/.62
  • (TAP)/1.39
  • (SKYW)/.46
Economic Releases
10:00 am EST
  • The Leading Index for September is estimated to rise +.6% versus a +.7% gain in August.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,686,000 barrels versus a +4,087,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -27,000 barrels versus a -1,713,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,241,000 barrels versus a -3,058,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.1% versus a +1.4% gain the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Pianalto speaking, Eurozone Services PMI, Germany Factory Orders, Australia Unemployment, Challenger Job Cuts for Oct., weekly MBA mortgage applications report, Raymond James Airline/Transport Conference, (MON) Investor Event, (ANF) analyst meeting and the (HAL) Analyst Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and industrial 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.

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