Friday, March 07, 2014

Friday Watch

Evening Headlines 
  • Russia Urged to Ease Crimea Crisis Under Sanctions Threat. The U.S. and European Union put Russian President Vladimir Putin on notice that they will be united on imposing sanctions if he’s unwilling to defuse the Ukraine crisis and pursue a negotiated solution. As Crimean separatists backed by Russian forces pushed to split from Ukraine, the U.S. banned visas for Russian officials and others it said were complicit in violating the sovereignty of the ex-Soviet state of 45 million. U.S. President Barack Obama signed an order authorizing financial sanctions, while EU leaders halted trade and visa talks with Russia and threatened punitive economic measures in what’s become the worst rift between Russia and the West since the Cold War era. 
  • Echoes of U.S. Subprime Seen in China Debt Ratings for Dagong. Competition among China’s credit-rating agencies is intensifying, leading to a slide in standards reminiscent of what happened in the U.S. before the financial crisis, according to Dagong Global Credit Rating Co. China’s onshore bond market faces the possibility of its first default, with Shanghai Chaori Solar Energy Science & Technology Co. (002506) having warned this week it may not be able to make an 89.8 million yuan ($14.7 million) interest payment due today. The solar cell maker sold 1 billion yuan of five-year debt in March 2012 and the notes were rated AA, the fourth-highest investment grade, by Pengyuan Credit Rating Co. when they were issued. The debt was subsequently downgraded twice, most recently to BBB+ in April 2013. 
  • Zombies Spreading Shows Chaori Default Just Start: China Credit. The number of Chinese companies with debt double equity has surged since the global financial crisis, suggesting the first onshore bond default won’t be the last. Publicly traded non-financial companies with debt-to-equity ratios exceeding 200 percent have jumped 57 percent to 256 from 163 in 2007, according to data compiled by Bloomberg on 4,111 corporates. The yield on five-year AA- notes leapt 13 basis points in two days to 7.82 percent on March 6, the most in almost four months, after Shanghai Chaori Solar Energy Science & Technology Co. (002506) said it won’t be able to fully pay a coupon due today on its March 2017 bonds.
  • Emerging World Poses More Danger Than in 1990s: Cutting Research. Developed economies are less resilient to an emerging-market shock than they were in the 1990s, when crises from Thailand to Russia rattled investors without triggering a global recession. That’s according to an 81-page study released March 5 by Morgan Stanley economists and strategists. They estimate a 1990s-style slump in emerging-market demand would create an average drag of 1.4 percent for four quarters on the growth of the U.S., while the euro area and Japan probably would be tipped into recession. Reasons for the greater vulnerability include the fact that developing markets, and especially China, now have a stronger impact on the world’s economy, supply chains and trade. Emerging economies account for about half of global gross domestic product, up from 37 percent in 1997-1998. Developed economies are also more exposed to their smaller counterparts via exports, corporate revenue and banking, and the financial crisis of 2008 means they are weaker now than two decades ago, said the authors, including London-based Manoj Pradhan. 
  • China Heralding $1.5 Trillion Emerging Debt Wall: Credit Markets. A surge in interest rates and the worst currency rout since 2008 in developing nations from Russia to Brazil are inflating corporate borrowing costs as $1.5 trillion of obligations come due by the end of 2015. Companies in the MSCI Emerging-Market Index are facing the highest debt loads since 2009 as profit margins narrow to the least in four years, according to data compiled by Bloomberg. More than 36% of bonds and loans by Turkish companies will mature by 2015, while Chinese firms need to pay of $630 billion, or 29%, of their borrowings just as the country faces its first-ever onshore corporate-bond default.
  • RBA’s Stevens Says He Doesn’t See Need to Reduce Rates Further. Australia’s central bank Governor Glenn Stevens said he’s not sure how long a flagged period of interest-rate stability will last and doesn’t see the need to further loosen “very accommodative” policy at the moment. “I haven’t said how long a period because I don’t know,” Stevens told a parliamentary panel in Sydney. “That’s a bit of a shift on our part, where we had been saying that there might be scope to go down a bit more if needed. I don’t think we do need to at this point in time.”
  • Asian Stocks Pare Gain as Risk Falls Before U.S. Payrolls. Asian stocks pared gains, with the regional index heading for a fourth weekly increase, as bond risk fell to the lowest in 11 weeks before U.S. jobs data today. Indonesia’s rupiah jumped and nickel headed for its longest winning streak since 2010. The MSCI Asia Pacific Index added 0.3 percent by 1:07 p.m. in Tokyo.
Wall Street Journal: 
  • Ukraine's Crimea Raises Tension by Setting Secession Vote. Western Diplomats Convene in Rome in Bid to Resolve Ukrainian Crisis. Crimea's Moscow-backed government voted to secede from Ukraine and join Russia and accelerated a snap referendum to ratify the move, a dramatic escalation of tension that pushed the West closer to imposing sanctions if Russian troops don't withdraw. The scheduling of the vote for March 16 means that Crimea could be absorbed into Russia in a matter of weeks. It also means the referendum could be held while the region is under de facto Russian occupation—with no opportunity for a free and fair campaign.
  • Regulator deletes problematic broker data: Study. A study released Thursday showed that the Financial Industry Regulatory Authority "routinely deletes" problematic information that should be highlighted on stockbrokers in data released to investors, The Wall Street Journal said.
Zero Hedge: 
Washington Post: 
  • China says no casinos for resort island Hainan. China's balmy holiday island of Hainan, long touted as a place where the country could liberalise gambling, will not permit casinos, senior officials announced this week. The decision may dampen investment appetite from scores of international and national developers betting on stellar profits in the southern province.
  • Fed's Bullard the biggest market-mover in 2013, research shows. Federal Reserve Bank of St Louis President James Bullard had the biggest impact on bond markets of all Fed policymakers in 2013, according to a new tally. Research by Macroeconomic Advisers showed Bullard, seen as a policy centrist, beat former Fed Chairman Ben Bernanke for the mantle of most market-moving U.S. central banker, although the Fed chief had a bigger impact on a per-speech basis. 
  • Turkey PM says YouTube, Facebook(FB) could be banned. Turkey's embattled prime minister has warned that his government could ban social media networks YouTube and Facebook after a raft of online leaks added momentum to a spiralling corruption scandal.
    The Obama administration will press ahead Friday with tough requirements for new coal-fired power plants, moving to impose for the first time strict limits on the pollution blamed for global warming. The proposal would help reshape where Americans get electricity, away from a coal-dependent past into a future fired by cleaner sources of energy. It's also a key step in President Barack Obama's global warming plans, because it would help end what he called "the limitless dumping of carbon pollution" from power plants.
Evening Recommendations
 Goldman Sachs:
  • Cut (ANR) to Sell, target $4.
  • Cut Russian stocks to Underweight from Overweight.
Night Trading
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 125.0 -5.0 basis points.
  • Asia Pacific Sovereign CDS Index 94.0 -3.0 basis points.
  • FTSE-100 futures +.07%.
  • S&P 500 futures +.18%.
  • NASDAQ 100 futures  +.13%.
Morning Preview Links

Earnings of Note

  • (ANN)/.08
  • (BWS)/.10
  • (CTRN)/.09
  • (EBIX)/.32
  • (HIBB)/.70
Economic Releases
8:30 am EST
  • The Trade Deficit for January is estimated at -$38.5B versus -$38.7B in December.
  • The Change in Non-Farm Payrolls for February is estimated at 149K versus 113K in January.
  • The Unemployment Rate for February is estimated at 6.6% versus 6.6% in January.
  • Average Hourly Earnings for February is estimated to rise +.2% versus a +.2% gain in January.
3:00 pm EST
  • Consumer Credit for January is estimated at $14.0B versus $18.756B in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Dudley speaking and German Industrial Production could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

No comments: