Wednesday, May 28, 2014

Wednesday Watch

Evening Headlines 
Bloomberg:
  • Ukrainian Forces Inflict Rebel Losses After Poroshenko Win. Ukraine’s government said it will press on with military operations against pro-Russian rebel fighters after its forces retook Donetsk airport and inflicted “significant” losses on the separatists. Troops killed “dozens” of rebels in Donetsk without suffering any losses, Interior Minister Arsen Avakov said yesterday, while the mayor’s office in the eastern city said 40 people died and 31 were wounded. President-elect Petro Poroshenko has vowed to wipe out the rebels and re-establish order across Ukraine after winning office May 25. He must stabilize a shrinking economy and confront separatists who’ve captured swaths of the Donetsk and Luhansk regions. They’ve declared themselves independent and are fighting to join Russia, which annexed Ukraine’s Crimea peninsula in March. 
  • China’s ‘Golden Era’ for Property Over, Vanke President Says. China Vanke Co. (3333), the nation’s biggest developer, is focused on developing homes for owner occupiers rather than investors because the country’s property industry has passed its “golden era,” said President Yu Liang. “The period in which everybody makes money out of property is gone,” Yu told reporters May 26 in Dongguan, a southern city in Guangdong province. “Vanke will take a cautiously optimistic approach to face the slowdown and target those buyers who need homes for self-use.” 
  • China Banks Bad-Debt Ratio Seen Rising to Most Since 2009. China’s biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a five-year high, indicating borrowers are struggling amid an economic slowdown. The nation’s 10 largest lenders reported overdue loans reached 588 billion yuan ($94 billion) at the end of 2013, a 21 percent increase from a year earlier to the highest level since at least 2009. The rise in late payments portends more losses on soured loans for banks in coming months as China’s slowing economy crimps companies’ earnings, while a government crackdown on nonbank funding makes it tougher for borrowers to get new credit or finance older debt.
  • Thailand Risks Inheriting Asia’s Sick-Man Tag on Unrest: Economy. Thailand, once prized in Southeast Asia for its relative economic stability, is in danger of inheriting the “Sick Man of Asia” tag as the latest coup threatens to send investors scurrying toward once-riskier neighbors such as the Philippines (PHGDPYOY) and Myanmar.
  • Asian Stocks Rise With Gold at 15-Week Low; Wheat Slips. Asian stocks resumed gains, with the regional index rising for the fourth time in five days after signs of improvement in the U.S. economy sent the Standard & Poor’s 500 Index to a record. Gold slid to a more than 15-week low, while wheat and corn futures extended declines. The MSCI Asia Pacific Index added 0.3 percent by 10:02 a.m. in Tokyo as Japan’s Topix (TPX) gauge rose 0.4 percent and Australia’s S&P/ASX 200 Index climbed 0.2 percent.
  • Australian Mine Project Spending Declines 5% as Boom Wanes. The value of mineral and energy projects being developed in Australia, the world’s biggest iron ore exporter, fell 5 percent to A$229 billion ($212 billion) as investment continued its downturn.
  • Fed's Junk-Loan Caution Spurts Accounting Alchemy: Credit Markets. Lenders are increasingly allowing junk-rated borrowers to adjust their earnings to make them look more creditworthy as U.S. regulators increase pressure on banks to refrain from underwriting too-risk deals.
  • Tesla(TSLA) Gets Unsolicited S&P Junk Rating on ‘Niche’ Position. Tesla Motors Inc., the electric-car company whose stock climbed fourfold last year, was slapped with a junk credit rating by Standard & Poor’s because of “considerable uncertainty” about its long-term prospects.
Wall Street Journal:
  • Crisis in Ukraine: Streaming Coverage.
  • New Fund Stars Ride Junk Bonds to the Top. Development Shows Demand for Returns Since 2008 Financial Crisis. A handful of managers have elbowed their way to the top of the bond-fund world by loading up on riskier debt. Among the 10 largest U.S. bond funds at the end of 2013, the four with the fastest growth in assets since 2008 held an average 20% of their investments in bonds rated below investment grade, also known as junk bonds, according to an analysis by The Wall Street Journal of data from Morningstar Inc. At the remaining six funds,...
MarketWatch.com:
  • China's real-estate slump worsens. China's property slump is deepening despite growing government efforts to give home sales a lift, adding to concerns over the health of the world's No. 2 economy. Cities ranging from Tianjin in the north to Nanning in the south--Ningbo lies in between--have eased government restrictions on home buying and lending for purchases in recent weeks. The central government is also helping, entreating banks this month to lend more.
CNBC:
  • Why Marc Andreessen's 'very nervous, anxious, upset'. (video) Tech venture capitalist Marc Andreessen criticized the Obama administration over its handling of developing global cyber wars Tuesday on CNBC. The co-founder of Silicon Valley venture capital firm Andreessen Horowitz questioned whether U.S. tech companies could remain dominant amid an increasingly "balkanized Internet," which he defined as "different countries like Russia and many others wanting to section off the internet and take a lot more control of it in their countries." "I'm very nervous, upset, and anxious about this," he said on "Fast Money." "I wish the U.S. government—I wish the Obama administration—were more in front of these two issues. I just don't think they are." 
Zero Hedge:
Business Insider:
Financial Times: 
  • Lagarde and Carney let fire at financial sector. Christine Lagarde, the managing director of the International Monetary Fund, has warned that “a fierce industry pushback” by the financial sector is delaying much-needed reforms and risks destabilising the global economy.
Shanghai Securities News:
  • China Warns Banks of LGFV Debt Risks. Chinese regulators recently warned banks on potential risks from local government financing vehicles debts as declining land property prices increase pressure on repayment. Potential risks may also arise from rapidly rising local government bond issuance and embezzlement in some regions. The regulator asks banks to strictly control the entry requirements for new debt and banned banks from increasing lending scale to LGFV, according to the report.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are +.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 115.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 81.0 -1.25 basis points.
  • FTSE-100 futures +.07%.
  • S&P 500 futures +.04%.
  • NASDAQ 100 futures  +.07%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (TOL)/.26
  • (BWS)/.30
  • (DSW)/.48
  • (CBRL)/1.22
  • (CHS)/.28
  • (PANW)/.10
  • (CPRT)/.48
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone Economic Confidence/Unemployment reports, $35B 5Y T-Note auction, US weekly retail sales, weekly MBA Mortgage Applications report, Raymond James Internet/Software Conference, (PCAR) investor conference, (WCG) annual meeting, Citi Consumer Conference and the Cowen Tech/Media/Telecom Conference could impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by financial and technology 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.

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