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Tuesday, January 27, 2015

Wednesday Watch

Posted by Gary .....at 11:08 PM
Evening Headlines 
Bloomberg: 
  • Sanctions Aren't Enough to Stop Putin, and He Knows It. The European Union wants to tighten sanctions on Russia again, as renewed fighting in eastern Ukraine causes heavy casualties and raises fears that Russian-backed separatists will seize control of more territory. The EU, in a statement issued today, said it saw "evidence of continued and growing support given to the separatists by Russia, which underlines Russia's responsibility" for the bloodshed. On Jan. 29, EU foreign ministers are expected to consider widening a list of Russians and separatist leaders facing visa bans and asset freezes.  
  • Russia at Junk Risks $42 Billion Company Debt: Chart of the Day.
  • Banks Decline as Stress Tests Heighten Concern: China Overnight. Chinese banks retreated in New York amid concern credit risks may increase for lenders as a housing market slowdown in the Asian nation constrains their ability to recover their advances. Industrial and Commercial Bank of China Ltd., the world’s largest lender by assets, fell 2.7 percent to $14.66 in over-the-counter trading, the biggest drop in seven weeks. China Construction Bank Corp. (939) and Bank of China Ltd. each slipped at least 2 percent. The Bloomberg China-US Equity Index declined 1.7 percent to 113.70 after four days of gains.   
  • China Accuses Alibaba(BABA) of Lax Oversight of Merchants. Alibaba Group Holding Ltd. failed to properly oversee merchants and allowed the sale of counterfeit products on its e-commerce platforms, according to a Chinese government report. Many merchants didn’t apply for a business license and misled consumers during holiday promotions, including the Nov. 11 Singles’ Day, according to a document published by a media outlet run by the State Administration for Industry & Commerce. A meeting was held in July, though the report wasn’t published until now to avoid affecting Alibaba’s initial public offering, it said.
  • Singapore Dollar Is Weakest Since 2010 on Monetary Policy Shift. Singapore’s central bank unexpectedly eased monetary policy, sending the currency to the weakest since 2010 as the country joined global policy makers in shoring up growth amid dwindling inflation. The Monetary Authority of Singapore, which uses the currency as its main policy tool, said it will reduce the slope of the policy band for the island’s dollar in an unscheduled policy statement Wednesday. It also cut the inflation forecast for 2015, predicting prices may fall as much as 0.5 percent.  
  • Asian Stocks Slide From Four-Month High as Japan Retreats on Yen. Asian stocks fell, with the regional benchmark index retreating from a four-month high, as Japanese shares slid on a stronger yen and U.S. earnings and durable-goods orders disappointed investors. The MSCI Asia Pacific Index declined 0.4 percent to 141.81 as of 9:00 a.m. in Tokyo after climbing yesterday to its highest close since Sept. 25. Japan’s Topix index slid 0.7 percent.
  • Goldman(GS) Downgrades Commodity Outlook as Energy, Metals Tumble. Goldman Sachs Group Inc. downgraded its three-month commodity outlook to underweight as mounting global supply gluts sent energy and metals prices tumbling this year. There is a greater risk that raw material prices may drop in the near term than rise, Goldman strategists and analysts including Christian Mueller-Glissmann, Peter Oppenheimer and Jeffrey Currie wrote in a research report. The Bloomberg Commodity Index of 22 components reached a 12-year low this week, with crude oil, hogs and copper leading losses in 2015.
  • Crude at $49 Sinks Big Oil Growth Prospects as Profits Falter. Financial results from a fourth quarter that saw the collapse of the crude market will provide a window into how the world’s biggest oil companies are adjusting to a new reality of slowing growth and low prices. Oil that topped $115 a barrel as recently as June has been trading below $50 a barrel since the first week of the year, portending a bleak 2015 for the world’s five so-called supermajors -- Exxon Mobil Corp., Royal Dutch Shell Plc (RDSA), Chevron Corp., Total SA (FP) and BP Plc. (BP/) The companies, whose businesses combine oil and natural gas exploration with refining and chemical manufacturing, have historically been among the most resilient players during down cycles. This could be the oil bust that breaks that pattern.
  • Fed Decision Day Guide: From Rate Patience to Too-Low Inflation. Here’s what to look for when the Federal Open Market Committee releases its policy statement at 2 p.m. on Wednesday in Washington. There will be no press conference and no new economic projections.
  • Get Ready for the Return of Risky-Mortgage Bonds: Credit Markets. The business of bundling riskier U.S. mortgages into bonds without government backing is gearing up for a comeback. Just don’t call it subprime. Hedge fund Seer Capital Management, money manager Angel Oak Capital and Sydney-based bank Macquarie Group Ltd. are among firms buying up loans to borrowers who can’t qualify for conventional mortgages because of issues such as low credit scores, foreclosures or hard-to-document income. They each plan to pool the mortgages into securities of varying risk and sell some to investors this year. JPMorgan Chase & Co. analysts predict as much as $5 billion of deals could get done, while Nomura Holdings Inc. forecasts $1 billion to $2 billion.
Wall Street Journal:
  • Overseas Forex Trades Laid FXCM Low. Big Bets by Customers Who Aren’t Subject to U.S. Rules Stung Firm. Retail foreign-exchange broker FXCM Inc. was nearly felled by outsize bets made by foreign customers who aren’t subject to U.S. regulations, according to people familiar with regulators’ review of the firm.
  • Hard Choices on Easy Money Lie Ahead for Fed Chief. In Year 2 at Helm, Yellen Must Map Course for Higher Rates, a Trickier Policy Path Than Ending Bond-Buying Program.
  • Investors Rethink Taking a Leap Into Junk Bin. Slowdown in Debt Sales Comes Amid Concerns About Pace of Economic Growth. U.S. junk-bond investors are showing fresh caution, renewing concerns of a wholesale retreat that could hobble financing for low-rated companies and hamstring the economic recovery.
  • President Costanza’s Jobs Boom. A new study shows that Mr. Obama needs a ‘Seinfeld’ epiphany. In a 1994 “Seinfeld” episode, George realizes that “every decision that I have ever made in my entire life has been wrong. My life is the complete opposite of everything I want it to be.” Jerry replies: “If every instinct you have is wrong, then the opposite would have to be right.”
Fox News: 
  • Obama drops plan to end tax breaks for popular college savings accounts. (video) President Obama has dropped his plan to end tax breaks for popular college savings accounts known as 529s, sources told Fox News on Tuesday. The decision comes in the wake of stern criticism from Republicans and pleas from top Democrats, including House Minority Leader Nancy Pelosi, to drop the plan.
CNBC:
  • Apple(AAPL) just a bit of a respite from currency concerns.
  • Apple(AAPL) posts blowout quarter, will ship Watch in April. (video) Apple reported a blockbuster quarter on Tuesday, blowing past Wall Street's most optimistic expectations. The company sold almost 9 million more iPhones than expected, while its cash pile ballooned to the point that it could buy about 480 of the S&P 500 companies outright. Apple also revealed during a conference call with analysts that it plans to ship its new Apple Watch wearable device in April of this year. Shares rose 5 percent in after-hours trading.
  • Yahoo(YHOO) to spin off its remaining Alibaba stake. Yahoo on Tuesday said it would spin off its remaining Alibaba stake in a tax-free deal. The stock jumped more than 7 percent after the announcement. Yahoo's 384 million shares of Alibaba, valued at $40 billion, will be wrapped into a newly formed independent entity, SpinCo.
Zero Hedge:
  • Is The BLS Overstating Jobs? (graph)
  • Medvedev Warns Of "Unlimited Reaction" If Russia Cut From SWIFT.
  • Bonds & Bullion Best Since The Fed 'Spice' Stopped Flowing. (graph)
  • King Dollar CATastrophe: Currency War Drags Dow Down Almost 300 Points.
  • Cleanest Dirty Shirt? US Macro Data Worst Start To A Year In Over A Decade.
  • How Much More GDP "Growth" Will Be Due To Obamacare? (graph)
  • Singapore Enters The Currency Wars: Weakens SGD By Most In 3 Years. (graph)
  • Greece Begins The Great Pivot Toward Russia.
  • Failing Stimulus And The IMF's New 'Multilateral' World Order.
  • "New Normal" Fundamentals Hit Chinese Stocks. (graph)
Business Insider:
  • The QE-Fueled Euphoria In Europe Won't Last.
  • Juniper(JNPR) Shares Jump More Than 5% On Earnings Surprise.
Financial Times:
  • Russia’s downgrade deepens political crisis with Europe. Country will run out of cash if oil prices do not rise and sanctions remain, writes Sergei Guriev.
Telegraph:
  • Things could get ugly if Greece's never-never actually means never. Saying you won’t reduce Greece’s debts but are prepared to increase the repayment period is sophistry; they’re the same thing.
  • Germany's top institutes push 'Grexit' plans as showdown escalates. Germany’s Wolfgang Schäuble is 'relaxed' about Greek exit from the euro.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 110.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 70.5 +1.75 basis points.
  • S&P 500 futures +.72%.
  • NASDAQ 100 futures +1.17%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (ADT)/.49
  • (AEP)/.51
  • (ABC)/.97
  • (BA)/2.10
  • (EAT)/.68
  • (ENR)/2.15
  • (GD)/2.13
  • GNTX)/.25
  • (HES)/.26
  • (IP).48
  • (KLIC)/-.02
  • (MKC)/1.5
  • (MDC)/.6
  • (PX)/1.56
  • (PGR)/.45
  • (STJ)/1.03
  • (TUP/13
  • (ATK)/2.89
  • (AVB)/1.77
  • (CRUS)/.75
  • (FB)/.48
  • (LRCX)/1.13
  • (LVS)/.78
  • (MUR)/.27
  • (QCOM)/1.25
  • (STLD)/.41
  • (TSCO)/.76
  • (VAR)/.86
Economic Releases 
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +4,000,000 barrels versus a +10,071,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +610,000 barrels versus a +588,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,530,000 barrels versus a -3,272,000 barrel gain the prior week.
2:00 pm EST
  • The FOMC is expected to leave the benchmark Fed Funds rate at .25%.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German Consumer Confidence Index, $26B 2Y T-Note auction, weekly MBA Mortgage Applications report and the (KMI) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and consumer shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.

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