Thursday, December 05, 2013

Thursday Watch

Evening Headlines 
  • China Risks Cooler South Korea Ties With Air Defense Zone. China’s overlap of its new air zone with that of South Korea in the East China Sea has complicated its efforts to forge closer ties with President Park Geun Hye and gives her an incentive to further strengthen relations with the U.S. Park will tomorrow meet Vice President Joseph Biden, who has called on South Korea and Japan to stand with the U.S. in the face of China’s assertion of its military muscle. Park and her top defense officials were hosting Chinese state councilor Yang Jiechi less than three weeks ago as part of her effort to boost trade and secure China’s help in containing North Korea. 
  • China Swap Rate Rises for Fifth Day After PBOC Doesn’t Add Funds. China’s one-year interest rate swaps rose for a fifth day as the central bank refrained from adding funds to the interbank market. The People’s Bank of China didn’t inject money by selling 14-day reverse-repurchase agreements today, according to two traders at primary dealers required to bid at the auctions. The monetary authority auctioned the contracts on Nov. 21 and Nov. 28, after a two-week halt. The PBOC drained a net 47 billion yuan ($7.7 billion) this week, after injecting 17 billion yuan last week, according to data compiled by Bloomberg. The cost of interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, rose one basis point, or 0.01 percentage point, to 4.7 percent as of 10:15 a.m. in Shanghai, according to data compiled by Bloomberg. That matched yesterday’s intra-day peak, which was the highest level since June 21.
  • Most Asian Stocks Drop After U.S. Data; Aussie Bonds Fall. Most Asian stocks fell, while Australian bond yields climbed to a two-year high and gold retreated. Indian equities rallied with the rupee as votes were counted for state elections. Almost two shares dropped for each that gained on the MSCI Asia Pacific Index, which was little changed at 1:03 p.m. in Tokyo.
  • Copper Falls Amid Speculation Fed May Taper Monetary Stimulus. Copper fell after the biggest daily gain yesterday in 11 weeks as traders turned their attention to the likelihood of stimulus cuts by the Federal Reserve. Metal for delivery in three months on the London Metal Exchange fell as much as 0.4 percent to $7,065 a metric ton and traded at $7,066 at 10:49 a.m. in Tokyo
  • Rebar Falls From 7-Week High on Ore Inventory, Freezing Weather. Steel reinforcement-bar futures in Shanghai fell with iron ore as inventory of the raw material in China surged and freezing temperatures slowed construction projects. Rebar for May delivery, the most-active contract on the Shanghai Futures Exchange, fell as much as 0.3 percent to 3,701 yuan ($608) a metric ton, and traded 3,703 yuan at 10:40 a.m. local time.
  • Currency Volatility Climbs to 8-Week High Before U.S. Data, ECB. “After what has been a relative dearth of U.S. data, markets have swung back to focusing on the U.S.,” said Callum Henderson, the Singapore-based global head of currency research at Standard Chartered Plc. “I would think we’re going to see more choppy price action from now until year end.” JPMorgan’s Global FX Volatility Index was at 8.8 percent, headed for the highest close since Oct. 9.
  • Treasury Yields Climb to 11-Week High as ADP Spurs Jobs Optimism. Treasuries slid, pushing 10-year yields to the highest level since September, as industry data showed job growth accelerated more than forecast, adding to bets the Federal Reserve may reduce bond purchases this month. The difference in yields on two- and 10-year notes approached the widest level since July 2011.
  • Spain Credit Falls to ’05 Shadow After Price Collapse: Mortgages. Spanish property broker Donpiso pledges on its website it can sell homes within 60 days. That’s possible, said Juan Luis Nolasco, who runs one of the firm’s Madrid branches, only if owners are realistic about prices and the difficulties buyers face getting mortgages after six years of falling values. “A lot of sellers are still living in the land of Peter Pan,” Nolasco said, referring to the fictional Neverland. “The biggest problem is lack of access to financing for buyers.” Currently, it can take about six months to sell a property, he said. Buying a home hasn’t gotten any easier for Spaniards, even after home prices tumbled as much as 40 percent. Rising borrowing costs, currently more than one-and-a-half times the cost in Germany, the end of mortgage tax breaks, and shrinking disposable incomes are making it increasingly difficult for Spanish families to own their own home. Fewer than 15,000 mortgages were granted in September compared with about 129,000 at the September 2005 peak, according to the National Statistics Institute
  • Job Cuts Loom at European Banks as Stagnant Economy Pinches Fees. European banks, which eliminated more than 140,000 jobs in two years, are poised to keep shrinking. Lenders in the region probably will cut at least 5 percent of trading and advisory staff next year, according to a survey of three London-based investment-bank recruiters, and the reductions could reach 15 percent, two of them said. That would be twice the 7 percent shrinkage across the industry since 2011.
  • RBS and S&P Sued by European CPDO Investors in Class Action. Royal Bank of Scotland Group Plc (RBS) and Standard & Poor’s were sued in the Netherlands by 16 investors over a complex derivative product that fell in value by as much as 90 percent during the financial crisis. The class-action lawsuit relates to so-called constant-proportion debt obligations created by RBS’s ABN Amro unit and rated AAA by McGraw Hill Financial Inc.’s S&P, according to Bentham IMF Ltd. (IMF), the company which is funding the case. The investors are seeking about $250 million.
Wall Street Journal: 
  • Volcker Rule Won't Allow Banks to Use 'Portfolio Hedging". In a defeat for Wall Street, the "Volcker rule" won't allow banks to enter trades designed to protect against losses held in a broad portfolio of assets, according to people familiar with the rule. The practice, known as portfolio hedging, has become a focal point of regulators drafting the rule, a controversial plank of the 2010 Dodd-Frank financial law that seeks to prevent banks from putting their own capital at risk in pursuit of trading profits.  
  • Apple(AAPL), China Mobile Sign Deal to Offer iPhone. Tie-Up Would Give Apple Access to 700 Million Subscribers. China Mobile Ltd. has signed a long-awaited deal with Apple Inc. to offer iPhones on its network, a person familiar with the situation said, an arrangement that would give the U.S. technology giant a big boost in the world's largest mobile market. The rollout of iPhones on the world's largest mobile carrier by users, with over 700 million subscribers, is expected to start later this month, around the time of a Dec. 18 China Mobile conference in Guangzhou, according to two people familiar with the carrier's plans. China Mobile is one of the world's last major carriers that doesn't offer the iPhone. At the Dec. 18 event, China Mobile plans to unveil a brand for its fourth-generation, or 4G, network. China Mobile executives have said they would only begin to sell the iPhone after introducing 4G services. China's Ministry of Industry and Information Technology said Wednesday it gave licenses to China Mobile and its smaller rivals to operate the higher-speed mobile networks, clearing one of the last hurdles.
  • Medicaid Is Latest Health-Site Victim. States are warning that they may not process Medicaid enrollments from people who have signed up for the health program through the troubled site, raising the prospect that several hundred thousand low-income people who thought they had obtained insurance actually may not have it. The federal health-insurance site, which serves residents in 36 states, is designed to sell policies from private insurers. But some people who apply for coverage through the site discover they are eligible instead for Medicaid, the joint federal-state health-insurance program for the poor and disabled.
  • Jihadists Returning Home to Europe from Syria Pose New Terror Threat. Series of Arrests Heighten Fears, Problem Expected to Grow as Conflict Drags On. Scores of jihadist fighters from Europe who streamed to Syria to join Islamic extremist rebels have begun returning home, where some are suspected of plotting terror attacks, according to U.S. and European intelligence and security officials. Authorities in the U.K. and France recently made several terror-related arrests of individuals suspected of links to Syria. "They're real committed jihadists," a senior U.S. intelligence official said. "The concern is that we're at the very early stages of this." 
  • Drug-Cost Surprises Lurk Inside New Health Plans. Americans with chronic illnesses—who are expected to be among the biggest beneficiaries of the health law—face widely varying out-of-pocket drug costs that could be obscured on the new insurance exchanges. Under the law, patients can't be denied coverage due to existing conditions or charged higher rates than healthier peers. The law also sets an annual out-of-pocket maximum of up to $6,350 for individuals and $12,700 for families, after which insurers pay the full tab.
Fox News: 
  • Reid exempts some staff from having to buy insurance on ObamaCare exchange. Senate Majority Leader Harry Reid is allowing some staffers to keep their health insurance instead of making them buy it through an ObamaCare exchange, although he was one of the strongest Capitol Hill supporters of the 2010 law. The Nevada Democrat is exercising his discretion under the president’s signature law to designate which staffers can keep their federal insurance plan and which must now purchase a policy through the District of Columbia’s health-care exchange. However, he purportedly is the only top congressional leader to exercise that option, which resulted in sharp criticism Wednesday from Texas Republican Sen. Ted Cruz, perhaps the staunchest ObamaCare opponent on the Hill.
  • Christmas taper talk picking up steam. Even with spotty economic data, the unofficial odds are rising that the Fed will announce plans at its December meeting to taper its bond-buying program.
Zero Hedge: 
Business Insider: 
  • U.S. House passes bill to exempt private equity funds from rules. The U.S. House of Representatives passed a bill on Wednesday that would largely spare private equity fund advisers from federal regulations enacted after the 2007-2009 financial crisis. The bill would exempt many private equity fund advisers from a provision in the 2010 Dodd-Frank Wall Street Reform law which required advisers with more than $150 million in assets under management to register with the U.S. Securities and Exchange Commission.
  • Aeropostale's(ARO) holiday quarter forecast disappoints. Apparel retailer Aeropostale Inc forecast a much bigger-than-expected loss for the holiday shopping quarter as it struggles to keep up with the tastes of young shoppers, sending its shares down 4 percent in extended trading. Aeropostale, under pressure from some investors to sell itself, also reported its fourth straight quarterly loss.
Financial Times:
  • Brazil trade growth poor in spite of weak currency. Brazilian trade has grown much less than expected this year in spite of a sharp weakening of the local currency against the dollar, highlighting the country’s declining competitiveness. Brazilian container traffic is forecast to rise 4 per cent in 2013 compared with earlier expectations of 6-7 per cent, according to the world’s largest shipping company by volume, Maersk Line.
  • Iran threatens to trigger oil price war. Tension between Iran and Saudi Arabia over Tehran’s plans to raise oil output spilled into the open on Wednesday as Opec rolled over its production target in the belief a wall of supply will fail to materialise next year. The oil producers’ cartel controls around a third of the global oil market and, as the only source of spare capacity, exerts a big influence over prices.
  • Japan May Cut Tax Exemption for Workers on Over 10m Yen. Japan's govt and ruling coalition are considering reducing income tax exemption on company workers with annual salary of more than 10m yen. Change may be included in 2014 tax system plan to be compiled this month. Change would mean additional 70,000 - 110,000 yen in annual taxes for worker on 15m yen salary.
China Business News:
  • Shanghai Warns on Commercial Property Financing Risks. China Banking Regulatory Commission's Shanghai branch asks banks to pay "high attention" to risks of financing to the city's commercial real estate, citing a notice issued by the regulator. The regulator says Shanghai commercial property prices rose "too fast" and the potential risks are "way larger" than those in residential property sector, according to the report. Banks in Shanghai have issued over 70b yuan outstanding loans to 149 city complexes as of September, 30-40% higher than the same period last year, the report cites regulator's survey as saying.
Evening Recommendations
Deutsche Bank:
  • Downgraded (MS) to Hold.
  • Downgraded (C) to Hold. 
Night Trading
  • Asian equity indices are -1.0% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 135.50 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 111.0 +.75 basis point. 
  • FTSE-100 futures -.15%.
  • S&P 500 futures -.03%.
  • NASDAQ 100 futures -.02%.
Morning Preview Links

Earnings of Note

  • (DG)/.70
  • (KR)/.53
  • (JOSB)/.50
  • (TTC)/.03
  • (COO)/1.80
  • (ULTA)/.74
  • (FNSR)/.39
  • (ZUMZ)/.46
  • (TITN)/.48
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated to rise to 322K versus 316K the prior week.
  • Continuing Claims are estimated to rise to 2800K versus 2776K prior.
  • 3Q GDP is estimated to rise 3.1% versus a prior estimate of a +2.8% gain.
  • 3Q Personal Consumption is estimated to rise +1.5% versus a prior estimate of a +1.5% gain.
  • 3Q GDP Price Index is estimated to rise +1.9% versus a prior estimate of a +1.9% gain.
  • 3Q Core PCE is estimated to rise +1.4% versus a prior estimate of a +1.4% gain.
10:00 am EST
  • Factor Orders for October are estimated to fall -1.0% versus a +1.7% gain in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Fisher speaking, Fed's Lockhart speaking, ECB's Draghi speaking, BoE rate decision, ECB rate decision, Challenger Job Cuts report for November, RBC Consumer Outlook Index for December, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index and the (HSP) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

1 comment:

theyenguy said...

Bloomberg reports a major fallout of the rise in the Benchmark Rate Aussie Bonds fall strongly. For years, Australia dividends, coming from Australian Government Debt, and Westpac Banking, and other high yield sources has been bundled into the AUSE ETF, and today, it’s recent daily chart shows a 1.3% lower to support at the edge of a huge head and shoulders pattern at 57.66. It’s monthly chart going back to 2009 shows how the US Fed monetary policy of QE restarted global investment. And its daily chart shows how the rise in the Benchmark Rate, ^TNX, destroys fiat wealth in the Australian Dollar, FXA, natural resource, that is Global Industrial Mining, PICK, Iron Ore Miner, BHP. US Fed interventionist policy inflated currencies under liberalism with the result of rewarding investors; but now with the failure of fiat money, that is Credit, AGG, and Currencies, such as the Australian Dollar, FXA, the bond vigilantes are destroying fiat wealth, and introducing authoritarianism.

Liberalism featured inflationism coming from the creation of fiat money; it was the age of investment choice and credit. Another word for credit is trust. Investors trusted in the monetary policies of the central bankers, and schemes of debt trade investing and currency carry trade investing, to create prosperity, all for the purpose of corporatism, commercialism, and globalism.

But authoritarianism, introduced by Jesus Christ on October 23, 2013, with the bond vigilantes calling the interest rate higher on the US Ten Year Note, ^TNX, higher from 2.48%, terminated the banker regime and introduced the beast regime, features destructionism coming from the death of fiat money and the introduction of diktat money. It is the age of diktat and schemes of debt servitude. Debt serfs trust in the economic policies of nannycrats to enforce austerity, all for the purpose of regionalism.

Today, December 4, 2013, the bond called the Interest Rate on the US Ten Year Note, ^TNX, higher to 2.84%, with the result that the chart of Aggregate Credit, AGG, and Mortgage Backed Bonds, MBB, manifested a severe breakdown. Clearly Fed monetary policy to maintain the value of these bonds has failed. An inquiring mind asks, will the value of US Treasuries, TLT, hold at the current level?

Zero Hedge reports The Fed now owns 1/3 of the entire US bond market. I add that much of that is in Distressed Investments, such as those traded by Fidelity's FAGIX mutual fund, which the Fed acquired in 2009, with the trade out of “money good” US Treasuries for all kinds of horrific debt owned by the banks, so as to restart the global economy and benefit the investor.

With the Fed owning such a large amount of US Debt, such as Distressed Investments, FAGIX, Ten Year Government Bonds, TLT, and Mortgage Backed Bonds, is there any “money good” at the Fed?