Tuesday, December 24, 2013

Tuesday Watch

Evening Headlines 
  • Starbucks(SBUX) to Audi Face China Clampdown on Foreign Firms. As Chinese President Xi Jinping promises the nation’s biggest market opening in two decades, the reality for some of the most successful foreign companies in the country is a raft of probes and laws that curb their operations. This month, after China’s ruling Communist Party promised to make markets “decisive” in shaping the world’s second-largest economy, carmakers Jaguar Land Rover Automotive Plc, Fuji Heavy Industries Ltd. (7270)’s Subaru division and Audi AG became the latest targets when state media accused them of charging “unfair” prices for spare parts.    
  • Beijing Warns Against Outdoor Activities on Heavily Polluted Air. Beijing warned the young, elderly and ill among its 20 million inhabitants to stay indoors as air pollution exceeded World Health Organization-recommended levels by more than 10 times today. The concentration of PM2.5, fine air particulates that pose the greatest health risk, was 260 micrograms per cubic meter at 10 a.m. near Tiananmen Square, compared with an average of 188 over the past 24 hours, the Beijing Municipal Environmental Monitoring Center said on its website. The WHO recommends 24-hour exposure to PM2.5 concentrations no higher than 25 micrograms per cubic meter. 
  • Most Asian Stocks Climb on U.S. Most Asian stocks gained after data showed the U.S. economic recovery gaining momentum and as Japan’s Nikkei 225 Stock Average topped 16,000 for the first time in six years. Energy shares rose the most among the MSCI Asia Pacific Index sectors, while consumer staples led declines. Mitsubishi Motors Corp. jumped 4.8 percent after the Japanese carmaker raised its operating-profit forecast. Agricultural Bank of China Ltd., the nation’s third-biggest lender, gained 1.3 percent as China’s central bank acted to ease a cash crunch. The MSCI Asia Pacific Index gained 0.1 percent to 139.33 as of 11:57 a.m. in Tokyo, with about two shares rising for each that fell.
  • Rebar Rises From Four-Week Low as China Vows to Curb Pollution. Steel reinforcement-bar futures in Shanghai climbed for the first time in nine days after state media reported China would halt new steel plant projects and take stricter measures to curb air pollution. Rebar for May delivery on the Shanghai Futures Exchange rose as much as 0.4 percent to 3,627 yuan ($597) a metric ton, and traded at 3,621 yuan at 10 a.m. local time. The most-active contract yesterday closed at 3,612 yuan a ton, the lowest level since Nov. 21. 
  • Rubber in Tokyo Drops to Two-Week Low as China Stockpiles Jump. Rubber futures fell to a two-week low after data showed stockpiles in biggest-consumer China expanded and shipments from Vietnam jumped, raising speculation supply may grow faster than demand. The contract for delivery in May on the Tokyo Commodity Exchange declined as much as 2.8 percent to 275 yen a kilogram ($2,635 a metric ton), the lowest level since Dec. 6, and traded at 276 yen at 10:41 a.m. local time. The drop expanded losses this year to 8.8 percent.
  • Fed’s Fisher Says He Argued for $20 Billion Taper to Asset Buys. Federal Reserve Bank of Dallas President Richard Fisher, who will be a voting member of the policy-setting committee next year, said he argued for a $20 billion reduction in the Fed’s monthly bond purchasing pace instead of the $10 billion announced last week. “The market could have digested that,” he said in an interview with Fox Business Network today. The Federal Open Market Committee announced on Dec. 18 that it would dial back its monthly bond purchases to $75 billion from $85 billion on signs of an improved labor market. Fisher has been among the most vocal critics of the so-called quantitative easing program that began in September 2012 and has been calling for an early slowdown to the purchases.
Wall Street Journal: 
  • Merkel Hits Wall With Europe Fix. Angela Merkel's Signature Project Is Floundering a Week Into the German Chancellor's Third Term. Angela Merkel's signature project for the next four years—re-engineering the euro zone—is floundering just a week into the German chancellor's third term. Other European governments, wary of Berlin's growing dominance in the region, are blocking a proposal by Ms. Merkel that would grant the European Union's executive arm direct oversight of members' economic policies. The standoff, which is unlikely to be resolved in the short term, leaves the euro zone without a strategy for the far-reaching overhauls that governments in the currency bloc had previously insisted were vital for the euro's survival
Fox News:
  • US sending Marines to Africa in preparation for evacuations in South Sudan. The U.S. military is sending Marines and aircraft to the Horn of Africa in anticipation they may be needed to respond to the violence in South Sudan, Fox News confirms.  A senior U.S. Defense official told Fox News that 150 Marines are being moved from Moron, Spain, to Camp Lemonnier in Djibouti, in case the State Department asks for their assistance in evacuating U.S. citizens left in South Sudan.
  • ABA threatens to sue regulators over Volcker Rule. The American Bankers Association said it will file a lawsuit challenging the Volcker Rule unless regulators agree to suspend portions that restrict certain collateralized debt obligations of trust-preferred securities, American Banker reported Monday. 
  • As the clock ticks, retail traffic continues slide. Brick-and-mortar retailers saw no signs of relief last week, as store traffic in the final week before Christmas posted the third straight week of double-digit declines, according to the most recent report from ShopperTrak. According to the analytics firm, traffic for the week ended Dec. 22—which included the crucial final weekend before Christmas—was down 21.2 percent year over year. The first two weeks of December saw double-digit decreases, which trailed a 4 percent decline over Black Friday weekend, it said. In-store sales fell 3.1 percent from the same week in 2012, ShopperTrak added.
Zero Hedge: 
Business Insider: 
  • The Biggest Financial Story In The World Is Playing Out Right Now In China. Patrick Chovanec, chief strategist at Silvercrest Asset Management, told Business Insider in a telephone interview, that China's financial system has "high blood pressure." He said China's interbank lending market is "a petri dish of risk," and that this is the most important financial story this holiday season. Here are some key points from our interview with Chovanec:
Washington Post: 
The Blaze:
  • Exclusive: Assad's secret oil lifeline: Iraqi crude from Egypt. The Syrian government of President Bashar al-Assad has received substantial imports of Iraqi crude oil from an Egyptian port in the last nine months, shipping and payments documents show, part of an under-the-radar trade that has kept his military running despite Western sanctions. Assad's government has been blacklisted by Western powers for its role in the two-and-a-half year civil war, forcing Damascus to rely on strategic ally Iran - itself the target of Western sanctions over its nuclear program - as its main supplier of crude oil.
Japan Daily Press:
  • China strongly criticizes Japan on increased military spending plans. China has criticized Japan’s move to boost military spending and accused the country of using regional tensions and disputes as an “excuse” to bolster defense capabilities. This after Prime Minister Shinzo Abe and his cabinet members approved spending of 24.7 trillion yen ($240 billion) from 2014 to 2019, increasing the military budget by 5% over a period of 5 years.
Shanghai Securities News:
  • China Central, Western Govt Debt Riskier. China's local government debt in central and western regions has higher risks than in eastern regions, citing Li Yang, vice president at Chinese Academy of Social Sciences.
China Securities Journal:
  • BOC Researcher Sees 2014 Liquidity Not Optimistic. China's liquidity outlook in 2014 isn't optimistic, and the central bank should "appropriately" cut banks' reserve requirement ratio 1-2 times, citing Bank of China researcher Wen Bin.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 122.0 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 103.0 +1.25 basis points. 
  • FTSE-100 futures +.07%.
  • S&P 500 futures -.03%.
  • NASDAQ 100 futures +.06%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases
 8:30 am EST
  • Durable Goods Orders for November is estimated to rise +2.0% versus a -2.0% decline in October. 
  • Durables Ex Transports for November is estimated to rise +.7% versus a -.1% decline in October.
  • Cap Goods Orders Non-defense Ex-Air for November is estimated to rise +.7% versus a -1.2% decline in October.
9:00 am EST
  • The House Price Index for October is estimated to rise +.5% versus a +.3% gain in September.
10:00 am EST
  • New Home Sales for November are estimated to fall to 440K versus 444K in October.
  • Richmond Fed Manufacturing Index for December is estimated to fall to 10.0 versus 13.0 in November.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The BoJ economic report, weekly retail sales reports and the weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity 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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