Monday, March 10, 2014

Monday Watch

Weekend Headlines 
  • Pro-Russia Forces Occupy Ukraine as Separatist Vote Looms. Pro-Russian forces advanced in Ukraine’s Crimean peninsula, ignoring Western calls to halt a military takeover before the region’s separatist referendum. Ukrainian Prime Minister Arseniy Yatsenyuk said today he’d travel to Washington on March 12 as Russian President Vladimir Putin defended the actions of Crimea’s local government, which may use the March 16 vote to leave Ukraine and join the country’s Soviet-era master. Russian troops detained Ukrainian border guards at a base a day after gunmen fired warning shots at international observers and barred them from Crimea.
  • Crimea Takeover Builds to Expose Ukraine Escalation Risk. Russian President Vladimir Putin is showing no signs of heeding Western calls to ease the standoff in Crimea, where pro-Kremlin forces stepped up their takeover of the Ukrainian region preparing for a separatist referendum. Gunmen fired warning shots as international observers tried to enter Crimea for a third day and a Ukrainian border patrol plane came under fire that didn’t cause injuries. TV5 reported that a military agency in the regional capital Simferopol was captured, and 70 unidentified trucks entered the city. 
  • Bank of China Supervisor Says Country Should Allow More Defaults. China should allow companies to default on their bonds, an external supervisor at the Bank of China said today, after a solar-cell maker couldn’t repay full interest on its debt. “We need to be more accepting and allow such defaults to happen,” Mei Xingbao told reporters during a meeting of the Chinese People’s Consultative Conference in Beijing. “The debtor must be responsible for his own debt. He must tell the investors that there is risk involved in the product.” Mei’s remarks offer add to indications that China’s Communist Party leaders will allow more debt to go bad rather than intervening to bail out investors. The party agreed last year to let markets to play a more decisive role in the economy. 
  • Li Target Challenged by China Exports, Producer Prices. China’s biggest drop in exports since 2009 and deepening factory-gate deflation highlight the challenges for Premier Li Keqiang in achieving this year’s economic-growth target of 7.5 percent. Overseas shipments unexpectedly declined 18.1 percent in February from a year earlier, customs data showed March 8, compared with analysts’ median estimate for a 7.5 percent increase. Producer prices fell 2 percent, the most since July, according to a statistics bureau report yesterday, extending the longest decline since 1999.
  • Developers Slump as Yuan Drop Closing Fund Window: China Credit. Volatility in the yuan is raising dollar borrowing costs for Chinese developers already choked by a domestic property-market crackdown and slowing sales
  • China Pays Environmental Price for Growth, Minister Says. China is paying a heavy environmental price for growth in gross domestic product and leaders will only solve the pollution problem if they change the country’s development model, a vice minister said. China’s efforts to protect the environment have been weakened because power is spread among too many departments, Vice Environmental Protection Minister Wu Xiaoqing told a briefing. Seventy-one of 74 Chinese cities last year failed to meet air quality standards set for them, he said. Extremely heavy pollution in late February affected 15 provinces, Wu said. “We are suffering in our pursuit of GDP growth,” Wu said at the briefing today during the annual session of the National People’s Congress in Beijing. “Our GDP needs to make a contribution to solving our environmental pollution problems.” 
  • China Stocks Fall With Yuan After Exports Decline. China’s stocks fell, sending the benchmark index to the lowest level in seven weeks, and the yuan weakened as an unexpected plunge in exports spurred concern that the world’s second-largest economy is slowing. The Shanghai Composite Index (SHCOMP) slid 1.7 percent to 2,023.22 at the 11:30 a.m. break, set for the lowest close since Jan. 21, as Jiangxi Copper Co. and China Southern Airlines Co. retreated. The yuan fell as much as 0.5 percent against the dollar, which would be the steepest decline on a closing basis since December 2008, before paring its drop to 0.2 percent. Money-market rates slumped to a 21-month low amid speculation demand for cash is diminishing as economic growth weakens.
  • Copper Slips With Asian Stocks on China; Ringgit Weakens. Copper futures slid with Asian stocks and emerging-market currencies as weaker-than-estimated Chinese data stoked concern over the outlook for the world’s second-largest economy. U.S. index futures dropped as crude oil and corn fell while gold led a retreat in precious metals. Copper futures on the Comex sank 1.9 percent by 9:59 a.m. in Tokyo to $3.0255 a pound, after touching the lowest level since June. The MSCI Asia Pacific Index dropped 0.4 percent as stock gauges from Japan to Australia slipped
  • Coutts Adds Gold as Demand in China Climbs With Ukraine Risk. Coutts & Co. is adding gold for investors as rising wealth in China and increasing political risks including in Ukraine spur demand, helping prices rally from the biggest annual decline in more than three decades. The private-banking division of Royal Bank of Scotland Group Plc holds 3 percent to 4 percent in its portfolios, from 1 percent to 2 percent last year, said Gary Dugan, chief investment officer for Asia and the Middle East. Coutts had 29.7 billion pounds ($49.7 billion) under management as of Dec. 31.
  • Forward Guidance Risks Stoking Instability, BIS Says. Central banks employing forward guidance risk creating financial instability by revising the policy or keeping borrowing costs low for too long, according to economists at the Bank for International Settlements. As they seek to foster economic growth, the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan have pledged to hold down interest rates to spur lending to households and businesses. Evidence on the effectiveness of the policies is mixed, meaning no firm conclusions can be drawn about their ultimate value, Andrew Filardo and Boris Hofmann argued in a paper published today in the BIS Quarterly Review.
  • ‘Mom, I’m Scared’ as Childhood Traumas Compound Syrian War Cost. At 4 years old, Edmond Michael Abdel-Nour can distinguish the sound of a bullet from that of a mortar hitting his Damascus neighborhood. A toddler when the conflict in Syria began, Abdel-Nour has lived through war for most of his life, learning to correctly identify an outgoing shell from an incoming one before he’s even managed to master the alphabet.
Wall Street Journal:
Fox News:  
  • Malaysia Airlines Flight MH370 mystery: Jet's door may have been found, officials say. Vietnamese aircraft spotted what they suspected was one of the doors belonging to the ill-fated Malaysia Airlines Flight MH370 on Sunday, as troubling questions emerged about how two passengers managed to board the Boeing 777 using stolen passports. The discovery comes as officials consider the possibility that the plane disintegrated mid-flight, a senior source told Reuters. 
  • Perfect storm for inflation could rock the market. As investors cheer the good news for job growth that came with the February employment report, they may be overlooking a troublesome dynamic: A tightening jobs market, in combination with rising commodity costs, could stir inflation, cutting into corporate profits and forcing the Federal Reserve to become more hawkish.
Zero Hedge:
Business Insider:
  • Suicide bomber kills 45 in Iraqi city of Hilla. A suicide bomber driving a minibus packed with explosives killed at least 45 people and wounded 157 on Sunday in the southern Iraqi city of Hilla, police and medical sources said. The attacker approached a main checkpoint at a northern entrance to the largely Shi'ite Muslim city and detonated the minibus, a police officer said on condition of anonymity.
Financial Times:
  • Klarman warns of impending asset price bubble. One of the world’s most respected investors has raised the alarm over a looming asset price bubble, calling out “nosebleed valuations” in technology shares like Netflix and Tesla Motors and warning of the potential for a brutal correction across financial markets. Seth Klarman, the publicity shy head of the $27bn Baupost Group whose investment opinions have attracted a near cult-like following, said that investors were underplaying risk and were not prepared for an end to central banks reversing a five-year experiment in ultra-loose money.
  • Japan's Taxation Panel May Raise Dividend Taxes. A taxation panel advising Japan's government will consider raising the tax rate on dividends to offset the cost of reducing corporate taxes. Panel also considering tax increase on stock sales. Panel meeting scheduled for March 12.
Shanghai Morning Post:
People's Daily:
  • China Congress Drafting Law for Property Taxes. Relevant agencies in the National People's Congress and the State Council are drafting legislation for a property tax, citing Kan Ke, deputy director of the Commission for Legislative Affairs of the Standing Committee of the NPC.
China Securities Journal:
  • China 2014 Growth Target Won't be Easy to Achieve. It won't be easy for China to achieve the 7.5% economic growth target of this year, according to a commentary written by reporter Gu Xin.
Weekend Recommendations
  • Bullish commentary on (MET), (FAST) and (NVR).
  • Bearish commentary on (DDD), (SSYS), (XONE) and (VJET).
Night Trading
  • Asian indices are -1.50% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 127.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 96.0 +2.0 basis points.
  • FTSE-100 futures +.03%.
  • S&P 500 futures -.29%.
  • NASDAQ 100 futures -.20%.
Morning Preview Links

Earnings of Note

  • (URBN)/.54
  • (CASY)/.49
  • (UNFI)/.56
Economic Releases 
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Evans speaking, Fed's Plosser speaking, BoJ decision, USDA WASDE report, JPMorgan Aviation/Transport/Industrial Conference, CSFB Services Conference, Deutsche Bank Media/Internet/Telecom Conference and the (MT) 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. The Portfolio is 25% net long heading into the week.

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