Tuesday, March 25, 2014

Tuesday Watch

Evening Headlines 
  • Russia Suspended From G-8 as Leaders Warn of Sanctions. The world’s top industrial powers threatened further sanctions to deter Russian President Vladimir Putin from taking over other parts of Ukraine and suspended Russia from participating in the Group of Eight. Meeting for the first time since last week’s annexation of Crimea by Russia, Group of Seven leaders said last night they won’t attend a planned G-8 meeting which was to have to been held in Sochi, site of the Winter Olympics, and will instead hold their own summit in June in Brussels. 
  • Goldman Cuts Topix Forecasts on ‘Unanticipated Weakness’. Goldman Sachs (GS) Group Inc. lowered its forecasts for Japanese stocks, citing “the market’s unanticipated weakness and limited near-term catalysts.” The brokerage reduced its three-month target for the Topix index (TPX) to 1,200 from 1,350, Chief Japan Strategist Kathy Matsui wrote in a note dated March 20. The new forecast is 3.1 percent higher than the gauge’s level of 1,163.63 at the trading break in Tokyo today. Goldman Sach cut its six-month Topix forecast to 1,300 from 1,375, while maintaining its 12-month target at 1,450 on expectations that earnings per share will rise 21 percent in the fiscal year starting April. The Topix slumped 11 percent this year through yesterday, trailing all other major developed markets tracked by Bloomberg.
  • Short China Stocks to Win From Rising Default Risk, Maglan Says. Investors should avoid China’s bond market after the first onshore default because state intervention and debt restructuring could prompt losses, according to New York-based hedge fund Maglan Capital LP. The best way to make money from distressed companies in the world’s second-largest economy is by betting against listed stocks, according to David Tawil, co-founder of Maglan Capital, which invests in companies struggling to repay their debt. “In China, government involvement is much more pervasive, especially in industries like banking and real estate,” Tawil said in a March 21 phone interview. “The only way to play the distressed cycle is shorting equities.
  • China Money Rate Rises a Ninth Straight Day as PBOC Drains Funds. The seven-day repurchase rate, a gauge of funding availability in the interbank market, climbed four basis points to 3.62 percent as of 10:51 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It’s advanced a total of 140 basis points since March 12 and reached 3.68 percent yesterday, the highest in three weeks.
  • China Banks Drained by Funds Called Vampires Seek Rules. It has been labeled a “blood-sucking vampire” by a prominent commentator on state-run television. Executives at China’s largest banks have called for regulators to curb its rapid expansion. The focus of this ire is Internet financing, specifically YuĆ¢€™E Bao, the fund pioneered nine months ago by Alibaba Group Holding Ltd.’s online-payment affiliate Alipay. Its ease of use, involving a few taps on a smartphone, has drawn deposits from 81 million customers, more than the population of Germany, as they chase returns higher than China’s banks can offer. The total exceeded 500 billion yuan ($80 billion) as of Feb. 28, according to the official Xinhua news agency, double the amount reported by Alipay in mid-January. 
  • Deutsche Bank Says China Private Stocks Riskier Than SOEsJohn-Paul Smith, the Deutsche Bank AG strategist who’s been writing about the dangers of buying state-owned Chinese stocks since 2010, says private companies are now a bigger risk to investors as valuations surge. Smith’s warnings about government intervention in the world’s second-largest economy foreshadowed a shift by money managers away from state-controlled banks, commodity producers and industrial companies, known as SOEs. Investors have instead been piling into privately-owned firms that sell services and consumer goods, propelling an MSCI Inc. gauge of Chinese technology stocks to valuations seven times more expensive than financial companies this month, the biggest gap since 2001.
  • Brazil’s Credit Rating Cut to BBB- by S&P on Sluggish Growth. Brazil’s credit rating was cut by Standard & Poor’s, which said sluggish economic growth and an expansionary fiscal policy are fueling an increase in the country’s debt levels. S&P downgraded the government one level to BBB-, its lowest investment-grade rating, from BBB. The new ranking is in line with countries including Spain and the Philippines and one notch below Russia. Yields on the country’s $2.15 billion of bonds due 2023 have climbed 1.01 percentage point in the past year to 4.26 percent, according to data compiled by Bloomberg.
  • Asia Stocks Swing After U.S. Manufacturing Index Falls. Asian stocks swung between gains and losses, after the biggest rally in a month for the regional benchmark index yesterday, as data showed a slowdown in U.S. manufacturing and investors weighed the prospect of a recession in Russia. The MSCI Asia Pacific Index was little changed at 134.29 as of 12:14 p.m. in Tokyo.
Wall Street Journal:
Zero Hedge:
Business Insider:
South China Morning Post:
  • China Acts Like Russia in Dispute, Japan Official Says. China's attempt to unilaterally grab disputed islands from Japan are similar to Russia' behavior in seizing Crimea, citing Yasutoshi Nishimura, sr. cabinet office vice minister.
Shanghai Securities News:
  • China May Face 'Serious' Cash Flow Problems, Ex-CBRC Head Says. China may face "serious" cash flow problems and needs good management of liquidity for the next two years, according to a transcript of former China Banking Regulatory Commission Chairman Liu Mingkang's remarks published today. Fed tapering may keep impacting China and emerging economies in 2014 and 2015, Liu says. Fed fund rate may rise to about 4% and the liquidity problems behind it can't be underestimated, Liu says. Structural bull market for sovereign bonds of developed countries and Asian emerging nations is over, Liu says.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 134.0 unch.
  • Asia Pacific Sovereign CDS Index 95.25 -.5 basis point.
  • FTSE-100 futures +.44%.
  • S&P 500 futures +.20%.
  • NASDAQ 100 futures  +.17%.
Morning Preview Links

Earnings of Note

  • (GIII)/.49
  • (CCL)/-.08
  • (MKC)/.58
  • (WAG)/.93
  • (PVH)/.142
  • (SCS)/.17
  • (SFD)/.82
Economic Releases
9:00 am EST
  • The House Price Index for January is estimated to rise +.6% versus a +.8% gain in December.
10:00 am EST
  • Consumer Confidence for March is estimated to rise to 78.5 versus 78.1 in February. 
  • The Richmond Manufacturing Index for March is estimated to rise to 4 versus -6 in February.
  • New Home Sales for February are estimated to fall to 445K versus 468K in January.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking, Fed's Plosser speaking, G7 Meeting, UK inflation data, $32B 2Y T-Note auction, (AKAM) investor summit, (PNRA) investor day and the (NVDA) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate 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.

No comments: