Sunday, November 30, 2014

Monday Watch

Weekend Headlines 
  • Russia’s New Aid Convoy to Rebels Riles Ukraine as Crisis Mounts. Russia is sending a convoy of more than 100 vehicles with what it says is humanitarian assistance to rebel-held territory in Ukraine, drawing accusations from the authorities in Kiev that it’s aiding separatists. The dispatch marks the eighth such mission since August by Russia, which says it’s acting to mitigate the humanitarian suffering caused by the unrest. Ukraine has called the convoys an invasion and blamed Russia for the toll on civilians. The repeated sight of trucks covered with white tarpaulins crossing from Russia underscores Ukraine’s loss of control over parts of the border amid its bloodiest conflict since the Second World War.
  • Russian Warships Enter English Channel Amid Tension Over Ukraine. Russian warships entered the English Channel amid simmering tensions with the U.S. and Europe over the conflict in Ukraine. The squadron will conduct exercises in the area, according to a spokeswoman for Russia’s Northern Fleet. At least four vessels led by the anti-submarine ship Severomorsk plan drills in the expanse of water separating England from continental Europe, the state-run news service RIA Novosti said yesterday, citing a statement by the Russian Navy. NATO said the foray isn’t “alarming, it’s normal maritime traffic.” Russia is embroiled in its most serious confrontation with the U.S. and its European allies since the collapse of the Soviet Union in 1991.
  • ETF Tumbles on Crude’s Plunge as Ukraine Crisis Weighs. The biggest exchange-traded fund for Russian equities plunged to a five-year low amid concern a deepening oil rout will push the world’s largest energy exporter, already beset by international sanctions, further toward a recession. The Market Vectors Russia ETF (RSX) sank 5.5 percent on Nov. 28 to $19.56, the lowest since April 2009, extending November’s tumble to 11 percent. The ruble, the worst performing emerging-market currency in 2014, fell for the first time below 50 versus the dollar, completing a 13 percent slide for the month.
  • ECB’s Lautenschlaeger Rebuffs QE as German Opposition Grows. European Central Bank Executive Board member Sabine Lautenschlaeger said quantitative easing isn’t the right policy choice for the euro area currently, hardening a split among officials over the right response to slowing inflation. “A consideration of the costs and benefits, and the opportunities and risks, of a broad purchase program of government bonds does not give a positive outcome,” Lautenschlaeger, a former Bundesbank vice president, said at an event in Berlin today. “There are very few shared competencies in fiscal policy. As long as this is the case, the ECB’s purchase of government securities is inevitably linked to a serious incentive problem.” 
  • Japan Dairies Losing as Abe’s Weak Yen Boosts Corn Costs. Japan’s dairies and cake lovers just can’t seem to catch a break. A weakening yen is making it more expensive for farmers to import the U.S. corn their cows eat at a time when record crops have reduced livestock-feeding costs around the world. And while Japanese milk demand is increasing and prices of some dairy products are at record highs, domestic production is the lowest in three decades even as rising output everywhere else creates a global surplus.
  • Xi Says China Will Keep Pushing to Alter Asia Security Landscape. China will continue its efforts to rewrite Asia’s security architecture to increase its influence, President Xi Jinping said in a foreign policy speech over the weekend, according to Xinhua, the state-run news agency. “We should be fully mindful of the complexity of the evolving international architecture, and we should also recognize that the growing trend toward a multi-polar world will not change,” Xi said, according to Xinhua
  • Hong Kong Protesters Clash With Police for Street Control. Hong Kong police used batons, pepper spray and water hoses in battles with pro-democracy protesters for control of streets near the government’s headquarters, as student leaders pledged to fight on for free elections. Student leaders called this morning for people to head to the Admiralty district as demonstrators, some with makeshift shields and head gear, clashed with police along Lung Wo Road and other junctions near the main protest site in the city. Traffic was flowing on the roadway as of 9:30 a.m. local time. 
  • Global Bond Yields Decline to 18-Month Low on Inflation Outlook. A gauge of government bond yields around the world fell to an 18-month low as tumbling oil prices push down inflation expectations and economic growth falters. The average yield among securities in the Bank of America Merrill Lynch World Sovereign Bond Index dropped to 1.59 percent at the end of last week, the lowest level since May 2013. Australian 10-year yields dropped below 3 percent for the first time in two years.
  • Chinese Stocks in Hong Kong Fall Most in Two Weeks on PMI Data. Chinese stocks trading in Hong Kong fell, sending the benchmark index to its biggest loss in two weeks, as a drop in the nation’s manufacturing gauge increased concern economic growth is slowing. Jiangxi Copper Co., the largest Chinese producer of the metal, plunged 4 percent, while PetroChina Co., the biggest oil company, declined 2.7 percent. Ping An Insurance (Group) Co., China’s second-biggest insurer, gained 2.2 percent after it said it will raise HK$36.8 billion ($4.75 billion) in a Hong Kong share sale. Airlines rallied in Shanghai as oil prices extended losses, while lenders climbed after the government said it will start an insurance system for bank deposits. Hong Kong’s Hang Seng China Enterprises Index (HSCEI) slipped 1.2 percent to 11,003.28 at 10:51 a.m.
  • Asia Stocks Fall With U.S. Futures on China, Holiday Data. Asian stocks fell with U.S. index futures as a Chinese manufacturing gauge dropped, American holiday spending slowed and oil tumbled to a five-year low. Malaysia’s ringgit headed for the biggest two-day retreat since 1998 and precious metals slumped. The MSCI Asia Pacific Index (MXAP) fell 0.7 percent by 11:42 a.m. in Tokyo, with Standard & Poor’s 500 Index futures dropping 0.4 percent. West Texas Intermediate crude lost 2.1 percent to $64.74 a barrel, sending Australian energy stocks toward the biggest three-day loss since the global financial crisis. Gold sank as Swiss voters rejected a measure to force the central bank to hold bullion. The Bloomberg-JPMorgan Asia Dollar Index fell to a four-year low as the ringgit weakened 1.2 percent
  • Ringgit Set for Biggest Two-Day Drop Since 1998 on Oil Decline. Malaysia’s ringgit headed for its biggest two-day decline since the 1997-98 Asian financial crisis and led losses in emerging markets on concern a protracted slide in crude will erode the net oil-exporting nation’s revenue. The currency weakened 1.3 percent to 3.4250 per dollar as of 10:38 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The ringgit has dropped 2.3 percent in two days, the sharpest decline since June 1998.
  • Commodities Retreat to Five-Year Low as Oil Tumbles With Gold. Commodities fell to the lowest level in more than five years as oil sank on prospects for a glut, gold fell after Swiss voters rejected a move to force the central bank to buy more bullion and data from China confirmed a slowdown in the world’s top user of fuels and metals. The Bloomberg Commodity Index (BCOM) of 22 raw materials lost as much as 1.3 percent to 111.4738, the lowest level since May 2009, and traded at 111.4777 at 11:03 a.m. in Singapore. West Texas Intermediate crude fell below $65 a barrel for the first time since July 2009, while gold, silver and copper declined.
  • Miners ‘Covering Their Eyes’ on China’s Commodity Cliff. After spending $1 trillion since 2002 on projects to feed China’s commodity boom, the world’s mining companies have a lot riding on their biggest customer. While commodities may be trading at five-year lows, the heads of three top miners BHP Billiton Ltd. (BHP), Vale SA (VALE3) and Rio Tinto Group (RIO) last week all backed China, the world’s second-biggest economy, to keep buying increasing amounts of their products deep into the next decade. Not everyone agrees. “The commodity guys are just too optimistic,” Tao Dong, chief regional economist for Asia excluding Japan at Credit Suisse Group AG in Hong Kong, said in an interview, without referring to particular companies.
  • BHP(BHP) Sees No Slowdown in Iron-Ore Supply Increase as Prices Slump. BHP Billiton Ltd. (BHP), the world’s biggest mining company, signaled there will be no slowdown in the drive by global iron-ore producers to boost production even as prices slump. “Even the iron-ore price where it is today can induce more volume,” Jimmy Wilson, BHP’s president of iron ore, said in an interview broadcast today by Australia’s Nine Network. “If that volume doesn’t come from our business, it’s going to come from other businesses around the world and other countries around the world.”
  • OPEC Gusher to Hit Weakest Players, From Wildcatters to Iran. Saudi Arabia and its OPEC allies’ firm stand against cutting crude output to slow the plunge in oil prices has set the energy world on a painful course that will leave the weakest behind, from governments to U.S. wildcatters. A grand experiment has begun, one in which the cartel of producing nations -- sometimes called the central bank of oil -- is leaving the market to decide who is strongest and how to cut as much as 2 million barrels a day of surplus supply. 
Wall Street Journal: 
  • Bond Funds Load Up on Cash. Portfolio Managers Gird for Volatility Amid Expected Rate Increase. Large bond funds are holding the most cash since the financial crisis as portfolio managers brace for potential price swings and unruly trading ahead of an expected Federal Reserve rate increase in 2015.
  • Russian Firms Hire Lobbyists to Fight Senate Sanctions. Energy Company Partly Owned by Friend of Putin Spends at Least $280,000 on Effort. A Russian energy company partly owned by a friend of President Vladimir Putin has spent at least $280,000 in lobbying fees in the U.S. aimed in part at opposing a Senate bill that seeks to broaden U.S. economic sanctions against Russia for invading Ukraine, according to lobbying-disclosure records.
  • China's slowdown hits iron-ore prices. China's hunger for minerals to build skyscrapers, cars and bridges produced a decadelong surge in the price and production of key commodities. Now, exporting nations are feeling the hit as the China-fueled boom slows. Topping the list are big commodity players Australia and Brazil, but also smaller resource-rich countries, such as Guinea, Indonesia and Mongolia, where minerals make up a disproportionate share of the economy and employment.
  • WHO: Ebola Toll Leaps Higher to Nearly 7,000 in West Africa. (video) The death toll from the worst Ebola outbreak on record has reached nearly 7,000 in West Africa, the World Health Organization said on Saturday. The toll of 6,928 dead showed a leap of just over 1,200 since the WHO released its previous report on Wednesday. The U.N. health agency did not provide any explanation for the abrupt increase, but the figures, published on its website, appeared to include previously unreported deaths. A WHO spokesperson was not immediately available for comment.
Zero Hedge:
NY Post:
  • Terrorists Plotting to Blow Up 5 Planes in Christmas 'Spectacular': Report. Terrorists are plotting to blow up five passenger planes from European cities as part of a Christmas “spectacular,” according to a new report. “Everyone is expecting something catastrophic very soon,” a well-placed source told Britain’s Sunday Express. “We’ve been told that five planes are being targeted in a high-profile hit before Christmas. They’ve been waiting for the big one.” A source told The Post that London authorities were the first to uncover the threat, which would involve mid-air bombings. “There is a credible threat that they’re concerned about. They’ve known about it for awhile,’’ a source said.
  • Majority in Japan Say Abenomics Didn't Improve Economy. 70% of Japanese say economy hasn't improved on Abenomics, according to a Mainichi poll conducted Nov. 29- Nov. 30. Among those supporting the Cabinet, 50% say economy hasn't improved on Abenomics; 91% of those opposing the Cabinet say Abenomics hasn't improved the economy.
  • Australia Govt to Lower Assumed Iron Ore Price to $60/Ton.
Night Trading
  • Asian indices are -1.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 102.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 62.25 -.25 basis point.
  • FTSE-100 futures n/a.
  • S&P 500 futures -.37%.
  • NASDAQ 100 futures -.25%.
Morning Preview Links

Earnings of Note

  • (MFRM)/.70
  • (SCVL)/.48
  • (HGR)/.44
  • (THO)/.81
Economic Releases
9:45 am EST
  • Final Markit US Manufacturing PMI for November is estimated to rise to 55.0 versus 54.7 in October.  
10:00 am EST
  • ISM Manufacturing for November is estimated to fall to 58.0 versus 59.0 in October.
  • ISM Prices Paid for November is estimated to fall to 52.5 versus 53.5 in October.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Dudley speaking, Eurozone Manufacturing PMI, Reserve Bank of Australia Decision, Cowen Energy Conference, CSFB Tech Conference and the (BEAV) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to maintian losses into the afternoon. The Portfolio is 50% net long heading into the week.

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