Monday, March 17, 2014

Monday Watch

Weekend Headlines 
  • West Warns Russia Not to Annex Crimea After Referendum. The U.S. and the European Union warned Russia not to annex Crimea after a referendum in Ukraine’s southern region, setting the stage for sanctions on Russia in the worst diplomatic standoff since the Cold War. A total of 95.5 percent of voters in Black Sea peninsula backed leaving Ukraine to join Russia in the referendum, preliminary results show. The Ukrainian government, the EU and the U.S. consider the vote illegal, while Russia said it “fully met international norms.” Turnout was 82.7 percent, according the election commission. 
  • Russia Facing Escalating Sanctions as EU Foreign Ministers Meet. European and U.S. officials will probably hold their most punitive sanctions on Russia in reserve as they wait for President Vladimir Putin to show his hand on whether he plans to push his forces deeper into Ukraine. EU foreign ministers due to meet in Brussels tomorrow are set to impose travel bans and asset freezes on some Russian officials as Putin’s government prepares to annex Crimea after today’s referendum on secession from Ukraine. The “additional and far-reaching consequences” that were floated by the bloc on March 6 will be held back until EU leaders meet later this week in a bid to corral Putin’s ambitions in eastern Ukraine.
  • Riots Fuel Fear of Russian Provocation in Ukraine’s Second City. Police patroled Ukraine’s second-biggest city, near the Russian border, after riots last night left two people dead and an officer critically wounded. An attack late yesterday on a Ukrainian cultural organization’s office was a “well planned provocation by pro-Russian activists,” Kharkiv’s regional governor, Ihor Baluta, said today in statement on the administration’s website. A fire still smoldered this morning by the office of Prosvita, a group set up in 1868 to protect and promote Ukraine’s language, as forensics officers removed evidence. The blaze burned a smaller building in a courtyard and the offices were ransacked.
  • Micex Rout Seen Worsening as ETF Shorts Grow: Russia Overnight. Russian stock traders are bracing for more losses after the benchmark index entered a bear market last week as concern mounted the country’s push to annex Ukraine’s Crimea region will lead to international sanctions. Wagers that the Market Vectors Russia (RSX:US) exchange-traded fund will decline in New York trading reached a 22-month high after the Micex Index (INDEXCF) fell 7.6 percent in Moscow last week, extending its rout this month to 14 percent. Open interest on put options giving investors the right to sell the ETF reached about 283,000 on March 13, almost double the four-week average and up from a 2014 low of 54,000 in January, data compiled by Bloomberg show. 
  • Yuan Volatility Climbs to 18-Month High as Trading Band Doubles. A gauge of expected price swings in China’s yuan climbed to an 18-month high and the offshore exchange rate weakened as the central bank doubled the currency’s trading limits versus the dollar. One-month implied volatility, which is used to price options, rose 29 basis points, or 0.29 percentage point, to 2.72 percent as of 8:22 a.m. in Hong Kong, according to data compiled by Bloomberg. It touched 2.73 percent, the highest since September 2012. The offshore yuan weakened 0.11 percent to 6.1623 per dollar and reached the lowest intra-day level since May. The People’s Bank of China will announce the daily reference rate at around 9:15 a.m, while the yuan in Shanghai will start trading at 9:30 a.m.
  • Twin-Deficit Risk Looms for MOF as Yield Jump Seen: Japan Credit. Japan's Ministry of Finance is flagging the risk of twin current-account and fiscal deficits for the first time in at least three decades, just as faster inflation threatens to drive up bond yields. The shortfall in the broadest measure of trade widened almost fivefold in January from a year earlier and the ministry said in a March 10 paper that export deficits could eventually overwhelm income from overseas investments. While Bank of Japan stimulus has weakened the yen by 6.9 percent in the past year against its peers, it hasn't helped the nation's overseas sales enough to offset swelling import costs. "If a current-account shortfall becomes the trend, Japan's fiscal deficits will draw attention and threaten to spur a jump in yields amid capital flight," said Hidenori Suezawa, an SMBC Nikko Securities Inc. analyst who is a member of a MOF advisory panel on government finances. "Such a risk will increase from 2015 onwards."
  • ECB Data Demands Called Excessive by Banks Facing Asset Review. Euro-area banks urged the European Central Bank to reduce the information they have to provide as part of a review of their balance sheets because they say the demands are excessive. European Banking Federation Chief Executive Officer Guido Ravoet wrote to the ECB yesterday, asking it to consider “substantially simplifying” the template for part of the Asset Quality Review. In the letter, which was obtained by Bloomberg News, the EBF also said that some of the data sought is not useful. A spokeswoman for the ECB couldn’t immediately confirm that the letter had been received. 
  • Nigerian Troops Battle Islamist Insurgents in Northeast City. Nigerian troops repelled an attack by Boko Haram insurgents attempting to free fellow Islamists at an army detention center in the northeastern city of Maiduguri. Soldiers fought with rebels remaining after an attack on the Giwa Barracks in Maiduguri yesterday, killing and arresting some of them, Major-General Chris Olukolade said today in an e-mailed statement. One soldier died, while a “massive armory” used by Boko Haram around the Lake Chad region was captured, Olukolade said. 
  • Asian Stocks Slip on Crimea Vote as Gold to Silver Climb. Asian stocks fell, extending the regional index’s steepest weekly slump since 2012, as western nations disputed Crimea’s vote to rejoin Russia and China eased control over the yuan. Gold drove an advance in precious metals while the yen maintained gains against the dollar. The MSCI Asia Pacific Index lost 0.2 percent by 9:45 a.m. in Tokyo, extending last week’s worst weekly decline since May 2012. Japan’s Topix Index dropped 0.4 percent.
  • Copper Trades Near 2010 Low as China Widens Yuan Trading Band. Copper in London traded near a 44-month low as China doubled the yuan’s trading limits versus the dollar. The metal for delivery in three months was little changed at $6,466.75 a metric ton at 10:39 a.m. in Hong Kong after rising as much as 0.3 percent and falling as much as 0.4 percent. The contract closed at $6,415 on March 13, the lowest since July 2010.
  • Speculators See Gold Gaining With Wheat on Ukraine: Commodities. After shunning gold and wheat for most of last year, hedge fund managers are piling back in as the escalating crisis in Ukraine spurs a rebound in the prices of both commodities. Speculators have the biggest bet on a gold rally since December 2012 and turned bullish on wheat for the first time since November, government data show. Bullion last week reached a six-month high and wheat entered a bull market as Crimea prepared for a referendum. A majority in the disputed vote March 16 chose to leave Ukraine and join Russia, exit polls showed.
Wall Street Journal:
Fox News:
Zero Hedge:
Yahoo Finance:
  • State TV says Russia could turn US to 'radioactive ash'. A leading anchor on Russian state television on Sunday described Russia as the only country capable of turning the United States into "radioactive ash", in an incendiary comment at the height of tensions over the Crimea referendum. "Russia is the only country in the world realistically capable of turning the United States into radioactive ash," anchor Dmitry Kiselyov said on his weekly news show on state-controlled Rossiya 1 television.
 People's Daily: 
  • China to Control Population of 'Super Large' Cities. China will strictly control population of large cities with population of more than 5m, according to the text of China's 2014-202 urbanization plan.
Weekend Recommendations 
  • Bullish commentary on (AEM), (CQB), (PX), (FEIC), (RHT) and (EMC).
  • Bearish commentary on (MATX) and (MW).
Night Trading
  • Asian indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 135.50 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 101.75 -.5 basis point.
  • FTSE-100 futures -.04%.
  • S&P 500 futures +.03%.
  • NASDAQ 100 futures -.01%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases 
8:30 am EST
  • Empire Manufacturing for March is estimated to rise to 7.0 versus 4.48 in February.
 9:00 am EST
  •  Net Long-Term TIC Flows for January are estimated at $30.0B versus -$45.9B in December.
9:15 am EST
  • Industrial Production for February is estimated to rise +.2% versus a -.3% decline in January.
  • Capacity Utilization for February is estimated to rise to 78.6% versus 78.5% in January.
  • Manufacturing Production for February is estimated to rise +.3% versus a -.8% decline in January.
10:00 am EST
  • The NAHB Housing Market Index for March is estimated to rise to 50 versus 46 in February.
Upcoming Splits
  • (WLK) 2-for-1
Other Potential Market Movers
  • The Eurozone CPI, China property price report and the BofA Smid-Cap 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 25% net long heading into the week.

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