Thursday, December 12, 2013

Thursday Watch

Evening Headlines 
  • Asian Sovereigns Lose for First Year Since 2008 as Growth Stalls. Dollar-denominated bonds sold by Asia’s sovereigns are losing money for the first time since 2008 as growth slows in four of the region’s five largest economies. Debt issued by countries outside Japan lost 7.1 percent since Dec. 31, the worst performance in five years, according to JPMorgan Chase & Co. indexes. Quasi-sovereign borrowers, such as Indonesia’s PT Perusahaan Listrik Negara, fell 2.8 percent while corporates gained 1 percent. Emperor International Holdings Ltd., which develops real estate in Hong Kong, Macau and China, hired banks for a possible sale in the U.S. currency, according to a Dec. 10 statement.
  • Shenzhen Finds H7N9 Flu Virus in Markets Near Hong Kong. The risk of sporadic human infection is high after three samples collected from live-poultry markets in the southern city of Shenzhen tested positive for the H7N9 avian influenza virus, the Chinese government said. The Guangdong province health authority examined 70 samples from 13 live poultry markets in Shenzhen, it said in a statement yesterday. Shenzhen is an hour’s train ride from downtown Hong Kong and a popular day-trip destination for shopping and dining.
  • Asian Stocks Drop Second Day Amid Concern Fed Will Taper. Asian stocks fell, with the regional index heading for its lowest close in two months, as investors speculate the U.S. budget deal will give the Federal Reserve confidence to curb stimulus as soon as next week. Doosan Heavy Industries and Construction Co. sank 4.6 percent in Seoul after the maker of factory equipment said it will sell 9.5 million treasury shares. QBE Insurance Group Ltd. lost 5.1 percent in Sydney, extending this week’s slump to 32 percent, as Fitch Ratings cut the outlook on Australia second-largest insurer by market value to negative from stable. Full Speed Inc. surged 16 percent in Tokyo as the Internet-marketing firm returned to profit. The MSCI Asia Pacific Index slid 1.1 percent to 138.27 as of 12:16 p.m. in Hong Kong, with all 10 industry groups on the gauge falling.
  • Rebar Near 11-Week High as Steel Mills in China Reduce Output. Steel reinforcement-bar futures in Shanghai traded near the highest in 11 weeks as China’s steel mills are under pressure from the government to reduce output on environmental considerations. Rebar for May delivery, the most-active contract on the Shanghai Futures Exchange, was little changed at 3,730 yuan ($615) a metric ton at 11:02 a.m. local time, after climbing as much as 0.3 percent to 3,745 yuan, the highest since Sept. 24.
  • Draghi Builds Stress-Test Credibility as ECB Readies Bank Review. The European Central Bank is showing that it can repair the reputation of stress tests. More than 90 percent of economists surveyed by Bloomberg News said that stress tests next year, in the final part of an ECB-led review of the euro area’s most prominent banks, will be more credible than previous exercises by the London-based European Banking Authority. Details of the examinations of about 130 lenders from Banco Santander SA to ABN Amro Bank NV are due to be released at the end of January.
  • Fed to Come Under ‘Rigorous’ House Scrutiny, Hensarling Says. Representative Jeb Hensarling, chairman of the U.S. House committee that oversees the Federal Reserve, said he plans to subject the Fed to unprecedented scrutiny while considering legislation over the coming year that may focus on its structure, mandates and powers. “It will be the most rigorous examination and oversight of the Federal Reserve in its history,” Hensarling, a Republican from Texas and Financial Services Committee chairman, said today to reporters, referring to a series of hearings scheduled to start tomorrow. “We will be studying the history, purposes and policies of the Fed.”  
  • Senators Vow to Add to Iran Economic Sanctions in 2014. A number of U.S. senators vowed to continue seeking new sanctions against Iran after meeting with Secretary of State John Kerry and Treasury Secretary Jack Lew, who say such measures endanger an international accord designed to limit that nation’s nuclear program.
  • Airlines Get Relief Under U.S. Budget While Passengers Pay. U.S. airlines won a repeal of $380 million in fees they pay for aviation security each year as part of a congressional budget deal that raised related charges on their passengers. The Aviation Security Infrastructure Fee is to be repealed on Oct. 1, 2014, according to a summary of the deal released by the House Rules Committee today. The Sept. 11 Security Fee paid by passengers on airline tickets will more than double, over the objection of lawmakers who set aviation policy. “The government and the administration shouldn’t treat airline passengers to be like piggy banks,” House Transportation and Infrastructure Chairman Bill Shuster, a Pennsylvania Republican, said in a speech in Washington today. “Those of us who fly are paying more than our fair share to reduce the deficit in this country.”  
  • Big U.S. Bank Stocks Unlikely to Beat Market in 2014, KBW Says. Stocks of the largest U.S. banks probably won’t outperform the broader market in 2014 after many climbed more than 30 percent this year, said Christopher Mutascio, an analyst at Stifel Financial Corp.’s KBW unit. The median growth in earnings per share at 11 of the largest banks, including JPMorgan Chase & Co. and Wells Fargo & Co., is likely to be 2 percent next year, after a 16 percent jump in 2013, Mutascio wrote in a report today. Adjusted earnings per share may fall at JPMorgan and PNC Financial Services Group Inc., he said. “The large-cap banks no longer appear cheap,” Mutascio wrote. “The three primary tailwinds for large bank earnings growth in recent years are either becoming headwinds or are likely to represent much less of a catalyst going forward.”
Wall Street Journal: 
  • Fischer Poised to Be Picked as Fed's No. 2. Stanley Fischer, widely seen as a dean among the world's top central bankers, is President Barack Obama's choice to become second-in-command at the Federal Reserve, according to people familiar with the matter. A White House nomination isn't far off, said one person familiar with the matter. Another said talks with Mr. Fischer were well advanced, but an announcement could take as long as a couple of weeks. Unforeseen events could derail a nomination, as has happened to other Obama candidates in recent years.
  • Top Western-Backed Rebel In Syria Is Forced to Flee. Islamic Front Takes Over Aid Warehouses From Moderate Rebels. Islamist fighters ran the top Western-backed rebel commander in Syria out of his headquarters, and he fled the country, U.S. officials said Wednesday. The Islamists also took over key warehouses holding U.S. military gear for moderate fighters in northern Syria over the weekend. The takeover and flight of Gen. Salim Idris of the Free Syrian Army shocked the U.S., which along with Britain immediately froze delivery of nonlethal military aid to rebels in northern Syria.
  • Businesses Stung by $15-an-Hour Pay. Small Businesses Discuss the Problems Posed by a Rising Minimum Wage. With 40 employees and less than $5 million in annual revenue, the franchise hotel in SeaTac, Wash., could be the typical American small business. But the Holiday Inn Express will soon have to give most of its staff pay raises that are anything but routine.
  • Juking the ObamaCare Stats. HHS won't disclose the enrollment data that really matter. Most of Washington seems to have bought the White House claim that the 36 federal exchanges are finally working, and glory, glory, hallelujah. But if that's really true, then what explains the ongoing secrecy and evasion? 
  • Norman Podhoretz: Strike Iran Now to Avert Disaster Later. A conventional-weapons attack is preferable to the nuclear war sure to come. Not too many years ago, hardly anyone disagreed with John McCain when he first said that "the only thing worse than bombing Iran is letting Iran get the bomb." Today hardly anyone disagrees with those who say that the only thing worse than letting Iran get the bomb is bombing Iran. And in this reversal hangs a tale. 
  • Hilton Worldwide prices IPO at $20. Hilton Worldwide, the world's largest hotel operator, raised roughly $2.34 billion in its IPO on Wednesday after pricing shares toward the high end of its range.
Zero Hedge:
Business Insider:
Financial Times: 
  • ECB Aims to Require Banks to Hold Capital Against Sovereign Bonds. Central bank will seek to combine its new powers as principal banking regulator with current role as currency issuer to strengthen requirements on sovereign bonds, which have traditionally been classes as risk free, citing an interview with Peter Praet, ECB executive board member. Bank to seek change in regulatory thinking through its health check of euro zone's 130 biggest lenders combined with any new offer of cheap long-term liquidity. If sovereign bonds were treated "according to the risk that they pose to banks' capital," lenders would be less likely to use central-bank liquidity to buy more government debt, Praet said.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.25% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 129.0 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 103.0 -1.25 basis points. 
  • FTSE-100 futures -.64%.
  • S&P 500 futures -.13%.
  • NASDAQ 100 futures -.04%.
Morning Preview Links

Earnings of Note

  • (HOV)/.17
  • (CIEN)/.24
  • (ADBE)/.32
  • (ZQK)/.04
  • (RH)/.28
Economic Releases
 8:30 am EST
  • Retail Sales Advance for November are estimated to rise +.6% versus a +.4% gain in October.
  • Retail Sales Ex Autos for November are estimated to rise +.2% versus a +.2% gain in October.
  • Retail Sales Ex Autos and Gas for November are estimated to rise +.3% versus a +.3% gain in October.
  • Initial Jobless Claims are estimated to rise to 320K versus 298K the prior week.
  • Continuing Claims are estimated to rise to 2757K versus 2744K prior.
  • The Import Price Index for November is estimated to fall -.7% versus a -.7% decline in October.
10:00 am EST
  • Business Inventories for October are estimated to rise +.3% versus a +.6% gain in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The 30Y $13B T-Bond Auction, SNB rate decision, Bloomberg Dec. US Economic Survey, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (UTX) Analyst Meeting, (MYGN) Investor Day, (ABC) Investor Day, (DHR) Analyst Meeting, (AET) Investor Conference and the (DTV) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology 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.

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