Friday, February 28, 2014

Market Week in Review

S&P 500 1,859.45 +1.26%*

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The Weekly Wrap by

*5-Day Change

Weekly Scoreboard*

  • S&P 500 1,859.45 +1.26%
  • DJIA 16,321.70 +1.36%
  • NASDAQ 4,308.11 +1.05%
  • Russell 2000 1,183.03 +1.58%
  • S&P 500 High Beta 31.16 +1.27%
  • Wilshire 5000 19,637.50 +1.31%
  • Russell 1000 Growth 880.12 +1.41%
  • Russell 1000 Value 929.56 +1.12%
  • S&P 500 Consumer Staples 433.77 +1.75%
  • Morgan Stanley Cyclical 1,488.24 +1.71%
  • Morgan Stanley Technology 934.46 +1.13%
  • Transports 7,348.37 +.54%
  • Utilities 518.77 -.90%
  • Bloomberg European Bank/Financial Services 111.83 +.25%
  • MSCI Emerging Markets 39.76 +.71%
  • HFRX Equity Hedge 1,177.21 +.48%
  • HFRX Equity Market Neutral 963.90 +.14%
  • NYSE Cumulative A/D Line 208,698 +1.21%
  • Bloomberg New Highs-Lows Index 458 +93
  • Bloomberg Crude Oil % Bulls 12.90 -9.73%
  • CFTC Oil Net Speculative Position 416,438 unch.
  • CFTC Oil Total Open Interest 1,643,886 -.39%
  • Total Put/Call .82 +18.84%
  • OEX Put/Call .78 -38.58%
  • ISE Sentiment 110.0 +4.76%
  • NYSE Arms 1.07 -19.55%
  • Volatility(VIX) 14.0 -4.63%
  • S&P 500 Implied Correlation 54.40 +5.41%
  • G7 Currency Volatility (VXY) 7.55 -.40%
  • Emerging Markets Currency Volatility (EM-VXY) 8.75 -.79%
  • Smart Money Flow Index 11,921.83 +.31%
  • ICI Money Mkt Mutual Fund Assets $2.684 Trillion +.75%
  • ICI US Equity Weekly Net New Cash Flow $4.145 Billion
  • AAII % Bulls 39.7 -6.0%
  • AAII % Bears 21.1 -7.2%
Futures Spot Prices
  • CRB Index 302.43 +.28%
  • Crude Oil 102.59 +.28%
  • Reformulated Gasoline 294.0-2.28%
  • Natural Gas 4.61 -26.12%
  • Heating Oil 301.63 -2.67%
  • Gold 1,321.60 -.33%
  • Bloomberg Base Metals Index 191.13 -.56%
  • Copper 318.75 -3.03%
  • US No. 1 Heavy Melt Scrap Steel 374.33 USD/Ton unch.
  • China Iron Ore Spot 118.10 USD/Ton -3.51%
  • Lumber 352.20 -2.92%
  • UBS-Bloomberg Agriculture 1,461.01 +2.0%
  • ECRI Weekly Leading Economic Index Growth Rate 1.7% -80 basis points
  • Philly Fed ADS Real-Time Business Conditions Index -.3428 +3.92%
  • S&P 500 Blended Forward 12 Months Mean EPS Estimate 120.79 +.21%
  • Citi US Economic Surprise Index -13.4 -5.7 points
  • Citi Emerging Markets Economic Surprise Index 12.50 -1.1 points
  • Fed Fund Futures imply 30.0% chance of no change, 70.0% chance of 25 basis point cut on 3/19
  • US Dollar Index 79.69 -.70%
  • Euro/Yen Carry Return Index 146.52 -.27%
  • Yield Curve 233.0 -8 basis points
  • 10-Year US Treasury Yield 2.65% -8 basis points
  • Federal Reserve's Balance Sheet $4.117 Trillion +.28%
  • U.S. Sovereign Debt Credit Default Swap 27.03 +5.78%
  • Illinois Municipal Debt Credit Default Swap 143.0 +.27%
  • Western Europe Sovereign Debt Credit Default Swap Index 53.0 unch.
  • Asia Pacific Sovereign Debt Credit Default Swap Index 101.02 -3.48%
  • Emerging Markets Sovereign Debt CDS Index 265.40 +8.64%
  • Israel Sovereign Debt Credit Default Swap 91.0 -3.70%
  • South Korea Sovereign Debt Credit Default Swap 65.50 -2.96%
  • China Blended Corporate Spread Index 364.94 +2.64%
  • 10-Year TIPS Spread 2.18% +4 basis points
  • TED Spread 19.0 -1.0 basis point
  • 2-Year Swap Spread 13.0 -.75 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -5.0 +.25 basis point
  • N. America Investment Grade Credit Default Swap Index 63.15 -2.07%
  • European Financial Sector Credit Default Swap Index 86.49 -4.16%
  • Emerging Markets Credit Default Swap Index 305.85 -3.92%
  • CMBS AAA Super Senior 10-Year Treasury Spread  to Swaps 88.50 -1.5 basis points
  • M1 Money Supply $2.697 Trillion -.69%
  • Commercial Paper Outstanding 1,012.10 -1.6%
  • 4-Week Moving Average of Jobless Claims 338,300 -200
  • Continuing Claims Unemployment Rate 2.3% unch.
  • Average 30-Year Mortgage Rate 4.37% +4 basis points
  • Weekly Mortgage Applications 348.50 -8.51%
  • Bloomberg Consumer Comfort -28.6 +2.0 points
  • Weekly Retail Sales +3.0% unch.
  • Nationwide Gas $3.45/gallon +.06/gallon
  • Baltic Dry Index 1,250 +6.38%
  • China (Export) Containerized Freight Index 1,1115.23 -1.65%
  • Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 32.50 -7.14%
  • Rail Freight Carloads 253,358 +7.1%
Best Performing Style
  • Small-Cap Value +2.0%
Worst Performing Style
  • Large-Cap Value +1.1%
Leading Sectors
  • Gaming +4.8%
  • HMOs +4.1%
  • Retail +3.9%
  • Homebuilding +3.4%
  • Airlines +2.5%
Lagging Sectors
  • Utilities -.9% 
  • Hospitals -.9%
  • Biotech -1.6%
  • Gold & Silver -3.2%
  • Steel -3.3%
Weekly High-Volume Stock Gainers (35)
Weekly High-Volume Stock Losers (27)
Weekly Charts
*5-Day Change

Stocks Reversing Lower into Final Hour on Rising Russia/Ukraine Tensions, Yen Strength, Technicnal Selling, Biotech/Tech Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Slightly Lower
  • Sector Performance: Mixed
  • Volume: Slightly Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.88 -1.14%
  • Euro/Yen Carry Return Index 146.79 +.52%
  • Emerging Markets Currency Volatility(VXY) 8.75 -1.13%
  • S&P 500 Implied Correlation 54.52 +3.0%
  • ISE Sentiment Index 118.0 -34.35%
  • Total Put/Call .75 -16.67%
  • NYSE Arms 1.45 +88.49% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 63.97 +.45%
  • European Financial Sector CDS Index 86.55 -2.72%
  • Western Europe Sovereign Debt CDS Index 52.33 -1.37%
  • Asia Pacific Sovereign Debt CDS Index 101.12 -1.09%
  • Emerging Market CDS Index 303.22 -.65%
  • China Blended Corporate Spread Index 364.93 +1.08%
  • 2-Year Swap Spread 13.0 +.75 basis point
  • TED Spread 19.50 -.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -5.0 -1.0 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .04% unch.
  • Yield Curve 233.0 +1.0 basis point
  • China Import Iron Ore Spot $118.10/Metric Tonne +.08%
  • Citi US Economic Surprise Index -13.40 -.2 point
  • Citi Emerging Markets Economic Surprise Index 12.50 -2.2 points
  • 10-Year TIPS Spread 2.18 +1.0 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +3 open in Japan
  • DAX Futures: Indicating -60 open in Germany
  • Slightly Higher: On gains in my index hedges and emerging markets shorts
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  • Market Exposure: Moved to 25% Net Long

Today's Headlines

  • Defiant Yanukovych Urges Russia Restraint in Crimea. Ukraine’s deposed ex-President Viktor Yanukovych said he’s still the nation’s rightful leader and urged Russia to refrain from military intervention in the southern Crimea region, where unrest spread. Speaking for the first time since leaving Ukraine, Yanukovych told reporters today in the southern Russian city of Rostov-on-Don that the country should abide by a peace accord sealed a week ago with European Union diplomats under which he’d remain leader through December. He labeled the parliament in Kiev illegitimate and vowed to return when it’s safe
  • IMF History With Ukraine Leaders May Cloud Aid Negotiations. The International Monetary Fund has extensive experience lending to Ukraine in recent years. It’s not a track record favoring the country as it seeks aid to stave off default. Twice since 2008, the IMF froze loans to the former Soviet republic after governments at the time balked at measures they had agreed to carry out. After failed attempts to revive loan talks with Ukraine, the Washington-based lender concluded in December it shouldn’t commit as much money to nations that don’t embrace economic change.
  • Chinese Army in Your Toaster Signals Rising Grid Attacks.  New technology promising to weave the Internet in to North America’s power grid could bring cyber-attacks all the way into your home kitchen, according to a new study. Opportunities for computer-driven sabotage will rise with the number of web-connected devices deployed by utilities and energy companies into homes and businesses, said former Director of the Central Intelligence Agency Michael Hayden, one of the authors of the study released today by the Bipartisan Policy Center in Washington.
  • India’s Economy Slows as Interest-Rate Increases Dim Outlook. India’s economic growth slowed last quarter, holding below 5 percent and denting the Congress party’s chances of extending its decade-long rule in national elections due by May. Gross domestic product rose 4.7 percent in the three months ended Dec. 31 from a year earlier, compared with 4.8 in the previous quarter, the Statistics Ministry said in New Delhi today. That matched the median estimate in a Bloomberg survey. 
  • Italy Unemployment Rises to Record High in Challenge for Renzi. Italy’s unemployment rate rose to a record high in January, signaling that companies may fail to hire even after the economy returned to growth in the last quarter of 2013. Unemployment increased to 12.9 percent from 12.7 percent in December, the Rome-based national statistics office Istat said in a preliminary report today. The January rate is the highest since the data series began in the first quarter of 1977. The median estimate of five economists surveyed by Bloomberg called for an unemployment rate of 12.7 percent last month.
  • Iceland Seen Threatened by Capital Flight From Its Own Citizens. U.S. hedge funds aren’t the only ones trying to exit Iceland. Its own citizens may follow if the government doesn’t show it can lift capital controls in place since 2008 without triggering a currency sell-off, according to Iceland’s biggest insurance firm. “If people lack confidence, they will take their money elsewhere as soon as the controls are lifted,” Sigrun Ragna Olafsdottir, chief executive officer of Vatryggingafelag Islands hf, said in an interview in Reykjavik. 
  • European Stocks Are Little Changed as Erste Group Falls. European stocks were little changed, with equities posting their biggest monthly gain since July, as Ukraine accused Russia of stoking tension on its territory and data showed U.S. fourth-quarter economic growth slowed more than estimated. Erste Group Bank AG tumbled the most since May 2009 after it projected a slow start to the year. Pearson Plc plunged to a three-year low after reporting a drop in full-year earnings. Serco Group Plc posted the biggest gain since 2001 after naming a new chief executive officer. Old Mutual Plc rose 5.8 percent after making an acquisition in the U.K. The Stoxx Europe 600 Index gained 0.2 percent to 338.02.
  • Natural Gas Futures Gain on Forecasts for Frigid March Weather. Natural gas futures rose in New York after four days of declines on forecasts for below-normal March temperatures that would cut stockpiles of the heating fuel. Gas gained as much as 2.5 percent. MDA Weather Services in Gaithersburg, Maryland, predicted colder-than-normal weather in the eastern half of the U.S. through March 13. Inventories totaled 1.348 trillion cubic feet in the week ended Feb. 21, the lowest for the time of year since 2004, government data show. 
  • Copper Set for Secnd Monthly Loss on China Concern, Yuan. Copper traded near the lowest in more than two months on concern China’s slowing growth and a weaker yuan may reduce demand for the metal in the world’s biggest user. The contract for delivery in three months on the London Metal Exchange was little changed at $7,034.25 a metric ton by 4:24 p.m. in Tokyo after trading between $7,054 and $6,995. Futures touched $6,993.50 yesterday, the lowest intraday level since Dec. 4. The price has lost 0.4 percent this month, extending a 4 percent drop in January.
  • Mt. Gox Seeks Bankruptcy After $463 Million Bitcoin Loss. Mt. Gox, once the world’s largest Bitcoin exchange, filed for bankruptcy in Japan, and said that 850,000 Bitcoins belonging to its customers and the firm were missing. “The company believes there is a high possibility that the Bitcoins were stolen,” Mt. Gox said in a statement. “It is considering filing a criminal complaint.”
  • Citigroup(C) Cuts 2013 Earnings After Finding Fraud in Mexico Unit. Citigroup Inc. (C), the third-biggest U.S. lender, said it discovered fraud on loans to a Mexican oil-services company, forcing the bank to lower last year’s profit by $235 million. The fraud occurred on loans made to Oceanografia SA that were backed by payments from state-owned oil producer Petroleos Mexicanos, known as Pemex, Citigroup Chief Executive Officer Michael Corbat said today in a memo to employees. Invoices from Oceanografia were falsified to represent that Pemex had approved them and processed by a Citigroup employee, Corbat said.
  • Apple(AAPL) Investors Reject All Shareholder Proposals. Apple Inc. (AAPL) shareholders approved the company’s proposals and rejected those that the board opposed at its annual meeting, in a show of support for Chief Executive Officer Tim Cook. Cook told stockholders at the event in Cupertino, California, that Apple is on the right track.
Wall Street Journal:
  • Armed Men Occupy Two Airports in Ukraine's Crimea. Interior Minister Arsen Avakov Calls Move 'Armed Invasion and Occupation'. Ukraine's new government appeared to lose control over the restive pro-Russia territory of Crimea on Friday after heavily equipped gunmen surrounded its two main airports, and armed checkpoints were established on the key roads leading into the region. Authorities in Kiev accused Russia of fomenting an "armed invasion" and said the men—who wore unmarked military uniforms and bore automatic weapons—appeared to be Russian soldiers. 
Fox News:
Business Insider:
NY Times:
  • Too much flexibility could risk efficacy of Fed policy -Plosser. The Federal Reserve must revamp its guidance to markets on how long it plans to keep interest rates near zero because its current low-rate vow is no longer relevant, a top Fed official said on Friday. And when it remakes its forward guidance, Philadelphia Federal Reserve Bank President Charles Plosser said, the central bank must take care to convince markets that it is serious about whatever promises it makes, or risk those policies becoming ineffective.
  • Fugitive Yanukovich urges Russia's Putin to take firm line over Ukraine. Viktor Yanukovich urged Russian President Vladimir Putin to take a bolder line with Ukraine's new rulers who had ousted him, telling him on Friday that Russia could not remain indifferent to what had happened in the former Soviet republic. Appearing in southern Russia where he has taken refuge since fleeing Ukraine on Feb. 21, Yanukovich said: "I think that Russia should act and is obliged to act. "Knowing Vladimir Putin's personality, I am surprised that he is still saying nothing. Russia cannot be indifferent, cannot be a bystander watching the fate of as close a partner as Ukraine," the 63-year-old Yanukovich said. "Russia must use all means at its disposal to end the chaos and terror gripping Ukraine," he said, clearly encouraging the Kremlin leader to take a firm tack with the new pro-Europe Ukrainian leadership.
  • Hedge funds battle to show their worth in EM sell-off. A sell-off in emerging markets has given hedge funds a chance to prove they can profit from even the most testing market conditions - and try to justify their lucrative fees. These are conditions in which hedge funds are meant to be able to outperform, using their much wider array of trading tactics to capitalise on default risks, currency routs and share price falls.
  • Economists warn of more market 'tantrums' as U.S. Fed tightens. Turbulence on Wall Street will likely return when the Federal Reserve decides to hike interest rates, top U.S. economists said in a paper that warned the Fed's huge stimulus program could have harmful consequences. The paper, released on Friday, focused on a financial market selloff in mid-2013 after Fed officials said they planned to trim monthly bond-buying.
Financial Times:
  • Investors ignore rising chorus of US valuation warnings. Stocks looking overpriced if growth fails to pick up. US equities are heating up, while the economy is feeling the cold. A bruising start to the year, when emerging market worries briefly boiled to the surface, has quickly been transformed by the fear of missing out on the next leg of a US bull market run, on the cusp of celebrating its fifth anniversary.

Bear Radar

Style Underperformer:
  • Small-Cap Growth -.10%
Sector Underperformers:
  • 1) Education -1.93% 2) Homebuilders -1.11% 3) Biotech -.71%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) JNPR 2) DECK 3) MBI 4) AMAT 5) XLB
Stocks With Most Negative News Mentions:
  • 1) GM 2) RL 3) KBR 4) UAL 5) BYD

Bull Radar

Style Outperformer:
  • Large-Cap Value +.42%
Sector Outperformers:
  • 1) HMOs +1.34% 2) Oil Service +.84% 3) Insurance +.79%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) OVTI 2) MDVN 3) JOSB 4) GDP 5) DECK
Stocks With Most Positive News Mentions:
  • 1) CRM 2) AAPL 3) TRIP 4) FRO 5) MRK

Friday Watch

Evening Headlines 
  • Ukraine Premier Starts ‘Kamikaze’ Mission as Crimea Anger Flares. With deposed ex-President Viktor Yanukovych claiming he’s still the country’s rightful leader, Yatsenyuk must seal a financial lifeline as investors pull out of Ukraine. Yatsenyuk in an interview before his confirmation yesterday said he was prepared to be “the most unpopular prime minister in the history” of the nation. “The fate of all the members of this cabinet is the fate of a political kamikaze,” Yatsenyuk said on his website after getting the support of protesters on Feb. 26. “The treasury is empty, pensions haven’t been paid in full for more than a month, gold and foreign currency reserves have been robbed
  • Japan’s Output Climbs Most Since ’11 as Tax Rise Looms: Economy. Japan’s industrial production grew the most since 2011, indicating the economy is strengthening as a looming sales-tax bump stimulates demand, while inflation matched the highest level in more than five years. Output rose 4 percent in January from the previous month, the trade ministry said today in Tokyo, more than a 2.8 percent median estimate in a Bloomberg News survey of 33 economists. Consumer prices excluding fresh food climbed 1.3 percent from a year earlier, the statistics bureau said.
  • China Must End Its GDP Worship. For China to get off the growth treadmill would be a giant reform all its own. Why? Well, there are at least three major challenges China will never be able to address if leaders feel obliged to keep growth above a specified level: local government finances, pollution and the shadow-banking system.
  • China Yuan Set for Worst Month in 20 Years on Band-Widening Bets. China’s yuan headed for the worst month in two decades on speculation the government will broaden the currency’s trading band after allowing more volatility in the exchange rate. The yuan in Shanghai slid 1.5 percent in February, according to China Foreign Exchange Trade System prices. That’s the biggest monthly loss in CFETS figures since 2007 and in Bloomberg data before that.
  • Soho China Sells Shanghai Buildings Amid Deepening Office Glut. Soho China Ltd. (410), the biggest developer in Beijing’s central business district, will sell two office buildings in Shanghai as an office glut deepens in the country’s financial center. The company signed an agreement with Financial Street Holdings Co., a developer of Beijing’s central business area, to sell its entire equity stake in Soho Hailun Plaza and related loans, and Soho Jing’an Plaza for about 5.23 billion yuan ($853 million), it said in a statement to the Hong Kong stock exchange today.
  • North Korea Fires Missiles After Recent Easing of Tensions. North Korea fired four short-range missiles, the first confirmed launch in more than nine months, disrupting a period of easing tensions with the South. The missiles were fired into the sea from North Korea’s east coast shortly before 6 p.m. local time yesterday, and had a range of at least 200 kilometers (124 miles), South Korea’s Defense Ministry said. 
  • Asian Stocks Erase Advance as Yuan Drops Most on Record. Asian stocks fell, with the benchmark gauge erasing gains, after China’s yuan posted its steepest one-day loss against the dollar. China’s Shanghai Composite Index lost 1 percent, set for a third monthly slide amid speculation a weaker currency will curb earnings. Hong Kong’s Hang Seng China Enterprises Index slid 1 percent, erasing gains of as much as 0.8 percent, while the benchmark Hang Seng Index fell 0.4 percent. The MSCI Asia Pacific Index declined 0.4 percent to 137.45 as of 11:44 a.m. in Hong Kong after rising as much as 0.2 percent, and is little changed on the week.
  • Yen Gains Versus Euro Amid Crimea Tensions; Oil Falls. Japan’s yen headed for its longest streak of gains versus the euro in 15 months as reports that armed men seized an airport in Ukraine’s Crimea region stoked haven demand. Crude oil fell, trimming its February advance, while South Korea’s won and New Zealand’s dollar climbed. The yen rose 0.2 versus Europe’s currency at 11:01 a.m. in Tokyo, a fifth straight advance.
  • Gold Heads for Second Monthly Advance as Haven Demand Increases. Gold headed for the first back-to-back monthly gain since August as concern that the U.S. recovery may be losing momentum and turmoil in emerging markets boosted haven demand. Assets in bullion-backed exchange-traded products were set for the first monthly increase in 14 months. Bullion for immediate delivery was at $1,332.61 an ounce at 9:26 a.m. in Singapore from $1,331.33 yesterday. Prices are up 7 percent this month and reached a 17-week high of $1,345.46 on Feb. 26. Holdings in ETPs are up 0.3 percent in February after declining last year for the first time since the first product was introduced in 2003, data compiled by Bloomberg show.
  • Gold Fix Study Shows Signs of Decade of Bank Manipulation. The London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say. Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behavior and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper. 
  • Natural Gas Heads for Biggest Weekly Drop in New York Since 1996. Natural gas futures fell for a fifth day in New York and headed for the biggest weekly drop in 17 years after a government report showed a U.S. stockpile decline that was smaller than forecasts. Natural gas for April delivery fell as much as 1.3 percent in today’s electronic trading on the New York Mercantile Exchange and was at $4.486 per million British thermal units at 10:08 a.m. in Singapore. Volume for all futures traded was 86 percent below the 100-day average. Gas is down 27 percent this week, approaching the biggest slump since December 1996, and down 9.2 percent for February.
  • Deckers Outdoor(DECK) Falls After Forecasting Surprise Quarterly Loss. Deckers Outdoor Corp. (DECK), the maker of Ugg boots and Teva sandals, dropped as much as 20 percent in late trading after the company forecast an unexpected first-quarter loss. The company, based in Goleta, California, projected a loss of 16 cents a share for the current quarter. Analysts had estimated a profit of 10 cents on average, according to data compiled by Bloomberg.
Wall Street Journal: 
  • People’s Daily Arms Netizens to ‘Kill the Devils’. An online platform for China’s Communist Party is encouraging citizens to take out their hostility toward the Japanese in the virtual world. While Beijing flexes its muscles in a very real way in the East China Sea, ordinary Chinese can now play a game called “Kill the Devils” on the website of the People’s Daily newspaper, the official mouthpiece of the party here.
Zero Hedge:
Business Insider: 
NY Times: 
  • Sovereigns to increase borrowing in 2014 to $7.1 trillion -S&P. Sovereign debt borrowing is expected to rise by 2.7 percent to $7.1 trillion this year, with the biggest relative increase coming in sub-Saharan Africa, a new study by Standard & Poor's showed on Thursday. The increase in long-term debt borrowing, equivalent to $185 billion, will be led mainly by the United States and Japan, which will account for 57 percent of the total in 2014. The next biggest sovereign borrowers this year are projected to be Italy, China and Brazil.
Shanghai Securities News:
  • China Should Set Up Shadow Banking Regulatory Indicators. China should set up a "regulatory indicator system" for shadow banking risks, according to a commentary by Lei Wei, a researcher with the Development Research Center of the State Council. China should strengthen regulations on shadow banking risks for liquidity, maturities mismatches, leverage ratios and counterparties, Lei wrote.
  • China's Property Industry Can't Maintain High Growth. China's property industry can't maintain the high growth of recent years because the nation's economy has entered a period of medium-high growth, citing Li Wei, head of the Development Research Center of the State Council. The supply-demand situation in the property market will see major changes after more than 10 years of high growth, the report cites Li as saying.
Evening Recommendations
 BNP Paribas:
  • Cut (BIDU) to Reduce, target $130.
  • Rated .
Night Trading
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 133.0 -4.0 basis points.
  • Asia Pacific Sovereign CDS Index 102.25 -.75 basis point.
  • FTSE-100 futures -.03%.
  • S&P 500 futures -.18%.
  • NASDAQ 100 futures  -.11%.
Morning Preview Links

Earnings of Note

  • (DDD)/.20 
  • (BSFT)/.41
  • (IRM)/.22
  • (NRG)/.17
  • (PMC)/.38
  • (SUP)/.23
Economic Releases
8:30 am EST
  • 4Q GDP is estimated to rise +2.5% versus a prior estimate of a +3.2% gain.
  • 4Q Personal Consumption is estimated to rise +2.9% versus a prior estimate of a +3.3% gain.
  • 4Q GDP Price Index is estimated top rise +1.3% versus a prior estimate of a +1.3% gain. 
  • 4Q Core PCE is estimated to rise +1.1% versus a prior estimate of a +1.1% gain.
9:45 am EST
  • Chicago Purchasing Manager for February is estimated to fall to 56.4 versus 59.6 in January.
9:55 am EST
  • Final Univ. of Mich. Consumer Confidence for February is estimated at 81.2 versus a prior estimate of 81.2.
10:00 am EST
  • Pending Home Sales for January are estimated to rise +1.8% versus a -8.7% decline in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Kocherlakota speaking, Fed's Evans speaking, Fed's Plosser speaking, China Manufacturing PMI, Eurozone Flash CPI, German retail sales report and the (ETN) analyst conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Thursday, February 27, 2014

Stocks Rising into Final Hour on Less Emerging Markets Debt Angst, Central Bank Hopes, Short-Covering, Telecom/Gaming Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 14.43 +.56%
  • Euro/Yen Carry Return Index 145.99 -.11%
  • Emerging Markets Currency Volatility(VXY) 8.89 -1.11%
  • S&P 500 Implied Correlation 53.81 -.43%
  • ISE Sentiment Index 156.0 +59.18%
  • Total Put/Call .91 +7.06%
  • NYSE Arms .80 -29.96% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 63.88 -1.0%
  • European Financial Sector CDS Index 88.97 +.49%
  • Western Europe Sovereign Debt CDS Index 53.0 unch.
  • Asia Pacific Sovereign Debt CDS Index 102.44 -.59%
  • Emerging Market CDS Index 305.45 -1.85%
  • China Blended Corporate Spread Index 361.05 -.38%
  • 2-Year Swap Spread 12.25 +1.0 basis point
  • TED Spread 20.0 +.75 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -6.0 -.25 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .04% unch.
  • Yield Curve 232.0 -2.0 basis points
  • China Import Iron Ore Spot $118.0/Metric Tonne +.17%
  • Citi US Economic Surprise Index -13.20 -1.8 points
  • Citi Emerging Markets Economic Surprise Index 14.70 +1.4 points
  • 10-Year TIPS Spread 2.17 unch.
Overseas Futures:
  • Nikkei Futures: Indicating -35 open in Japan
  • DAX Futures: Indicating +4 open in Germany
  • Slightly Higher: On gains in my biotech/tech/mdedical sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 50% Net Long

Today's Headlines

  • Hagel Warns Russia on Ukraine Miscalculation Amid Crimea Unrest. U.S. Defense Secretary Chuck Hagel cautioned the Kremlin against making a “miscalculation” in maneuvering ground and air forces near the border with Ukraine, which is still without a full-time government after the toppling of its pro-Russian president. Joined by NATO allies, Hagel issued the warning after Interfax reported that Russia put fighter jets on alert, stepping up a military drill announced yesterday. Adding to tensions, the parliament of the southern Ukrainian region of Crimea was seized by armed backers of union with Russia. 
  • Yanukovych to Appear in Russia Tomorrow as Swiss Freeze Assets. Deposed Ukrainian President Viktor Yanukovych will hold a press conference in neighboring Russia tomorrow, one day after an interim government took charge in Kiev and the Swiss government told banks to freeze his assets. Yanukovych will brief reporters in Rostov-on-Don in southern Russia at 5 p.m. Moscow time, state-run RIA Novosti reported, citing a person close to Yanukovych. The location of the briefing will be announced separately, according to RIA. 
  • Emerging Outflows Top $11 Billion as Cash Sent to Europe. Investors are stepping up withdrawals from emerging-market exchange-traded funds and shifting into Europe as concern mounts that growth is faltering in developing nations while advanced economies strengthen. Withdrawals from U.S.-based ETFs investing in emerging-market equities and bonds totaled $11.3 billion this year, already surpassing the redemption of $8.8 billion for the whole 2013, according to data compiled by Bloomberg. Funds investing in European assets added $5 billion in the first two months of 2014, compared with $18 billion full-year inflows in 2013.
  • Allianz Names El-Erian as Chief Economic Adviser. Allianz SE (ALV) named Mohamed El-Erian to the new role of chief economic adviser following his surprise resignation at the insurer’s Pacific Investment Management Co. unit last month. El-Erian, the former chief executive officer and co-chief investment officer at Newport Beach, California-based Pimco, will spend 50 percent of his time working for Allianz, CEO Michael Diekmann said at a press conference in Munich today. He will dedicate the rest of his time to his family and book projects, Diekmann said.
  • European Stocks Retreat as Tension Escalates in Crimea. European stocks declined for a second day as tension escalated in Crimea, following Ukraine’s change of government. WPP Plc (WPP) slid 3.5 percent and Allianz SE dropped 2.3 percent after posting profit that missed estimates. Royal Bank of Scotland Group Plc (RBS) slumped 7.7 percent after the state-owned lender reported its biggest full-year loss since receiving a bailout in 2008. Man Group Plc rallied 14 percent after the world’s largest publicly traded hedge-fund firm announced a $115-million stock buyback. The Stoxx Europe 600 Index slipped 0.2 percent to 337.21 at the close of trading
  • Yen Climbs as Ukraine Tension Boosts Safety Bid; Ruble Declines. “Putin is conducting military exercises and putting Russian forces on high alert,” said Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. “That’s risk-negative.” The yen strengthened 0.2 percent to 102.19 per dollar at 1:59 p.m. New York time, rising the most on a closing basis since Feb. 3. The Japanese currency was little changed at 140.07 per euro, having rallied as much as 0.9 percent earlier. The euro climbed 0.2 percent to $1.3707, after falling as much as 0.3 percent.
  • Copper Declines to Three-Week Low on China, U.S. Demand Concerns. Copper futures fell to a three-week low in New York on concern that the U.S. recovery may falter as China’s economy slows, hurting demand from the two largest users of the metal. Jobless claims in the U.S. increased by 14,000 to 348,000 in the week ended Feb. 22, the highest in a month and above all forecasts in a survey, a Labor Department report showed today. Chinese manufacturing probably slowed this month, economists surveyed by Bloomberg said before an official gauge due March 1. Copper prices are down 5.8 percent this year. “We need to see some real strong economic data before the market starts trading higher,” Tom Power, a senior commodities broker at RJO Futures in Chicago, said in a telephone interview. Copper futures for delivery in May slid 0.5 percent to close at $3.201 a pound at 1:18 p.m. on the Comex in New York, after touching $318.35, the lowest since Feb. 4. Prices dropped for seven straight sessions.
  • Yellen Repeats Fed Likely to Keep Trimming Asset Purchases. Federal Reserve Chair Janet Yellen said the central bank is likely to keep trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary. “Unseasonably cold weather has played some role,” she said in response to a question today from the Senate Banking Committee. “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”  
  • U.S. Retail Chains See First Profit Decline Since Recession. U.S. retailers last quarter suffered their darkest days since the recession. With results in from 62 of 122 retail chains, the industry has posted its first profit quarterly drop since the economic contraction that ended in 2009, according to Retail Metrics Inc. Revenue also rose at the lowest rate since that year, the research firm found. The results paint a grim picture of an industry hit hard by the sluggish job recovery and slow wage growth, which have turned U.S. consumers into a nation of penny pinchers. Earnings are expected to drop 6.1 percent on average during the holiday quarter, according to Retail Metrics data. The broader pool of Standard & Poor’s 500 Index companies, meanwhile, are estimated to see profit rise 8.5 percent.
  • Study Finds SEC Staff Sold Shares Before Cases Made Public. People working for the U.S. Securities and Exchange Commission who owned stock in companies under investigation were more likely to sell shares than other investors in the months before the agency announced it was taking enforcement actions, according to a new academic paper.
Wall Street Journal:
Fox News:
  • US-China ties could end badly: Scholar. (video) The United States needs to break out of its co-dependent relationship with China before it's too late, the former chairman of Morgan Stanley Asia told CNBC on Thursday. China is already taking steps to reduce its "unhealthy reliance" on the U.S., which has been slower to make reciprocal strides, said Stephen Roach, senior fellow at the Yale School of Management.
Business Insider:
  • Australia Had An Ugly Day. Dylan Grice summed up the concerns when he wrote that Australia is "a credit bubble built on a commodity market built on an even bigger Chinese credit bubble." 
  • Gunmen seize government buildings in Ukraine's Crimea, raise Russian flag. Dozens of armed men seized the regional government administration building and parliament in Ukraine's southern Crimean region Thursday and raised the Russian flag in a challenge to the Eastern European country's new leaders. Crimea, a Black Sea peninsula with an ethnic Russian majority, is the last big bastion of opposition to the new political leadership in the capital, Kiev, after Ukrainian President Viktor Yanukovych's ouster Saturday.
NY Post:
  • Russian warship in Cuban port while troops train near Ukraine border. In a pair of brazen moves that resembled 1960s Cold War tactics, a Russian warship cruised into a Cuban port Wednesday as President Vladimir Putin massed troops near his country’s border with Ukraine. The Viktor Leonov, an armed Vishnya-class intelligence-gathering ship, was mysteriously docked at the Port of Havana’s cruise-ship area. The warcraft, which has a crew of around 200, is reportedly armed with 30mm guns and anti-aircraft missiles.
Institutional Investor:
  • Fed's Fisher says happy with pace of QE withdrawal. Dallas Federal Reserve Bank President Richard Fisher said on Thursday he would like the U.S. central bank to continue scaling back its monthly bond-buying stimulus at the current pace of $10 billion at each policy meeting. If U.S. economic growth picked up significantly, Fisher said, he "of course might be in favour of further reduction", but even if he did support such a step, he said he knew he "wouldn't win the argument".
Financial Times:
  • Falling renminbi heightens derivatives risks. Chinese companies will face billions of dollars in losses from complex hedging products if the renminbi continues to weaken, analysts and investors have warned. Mainland companies and global investors have bought hundreds of billions of dollars worth of structured products that benefit from renminbi appreciation over the past year, and now face growing pressure after the Chinese currency fell to its lowest level since July.
  • GCHQ intercepted webcam images of millions of Yahoo users worldwide. Britain's surveillance agency GCHQ, with aid from the US National Security Agency, intercepted and stored the webcam images of millions of internet users not suspected of wrongdoing, secret documents reveal. GCHQ files dating between 2008 and 2010 explicitly state that a surveillance program codenamed Optic Nerve collected still images of Yahoo webcam chats in bulk and saved them to agency databases, regardless of whether individual users were an intelligence target or not. In one six-month period in 2008 alone, the agency collected webcam imagery – including substantial quantities of sexually explicit communications – from more than 1.8 million Yahoo user accounts globally.
  • China to Mark Anti-Japanese War Victory Day on Sept. 3. Standing Committee of National People's Congress also approves China to set Dec. 13 as memorial day for victims of Nanjing Massacre.
  • UN nuclear agency drops sensitive Iran report, sources say. IAEA worries probing deeper into Iran's suspected atomic bomb plans could hinder talks. The UN nuclear watchdog planned a major report on Iran that might have revealed more of its suspected atomic bomb research, but held off as Tehran's relations with the outside world thawed, sources familiar with the matter said Thursday.