Monday, January 05, 2015

Monday Watch

Weekend Headlines 
  • Samaras Warns of Euro Exit Risk as Greek Campaign Starts. Greece’s political parties embarked on a flash campaign for elections in less than three weeks that Prime Minister Antonis Samaras said will determine the fate of the country’s membership in the euro currency area. Samaras used a Jan. 2 speech to warn that victory for the main opposition Syriza party would cause default and Greece’s exit from the 19-member euro region, while Syriza leader Alexis Tsipras said his party would end German-led austerity. Der Spiegel magazine reported Chancellor Angela Merkel is ready to accept a Greek exit, a development Berlin sees as inevitable and manageable if Syriza wins, as polls suggest.
  • China’s Cities Face Judgment Day on Debts as Costs Soar. China’s local government bond issuers face judgment day as authorities in the world’s second-largest economy decide which debt they will or won’t support. Borrowing costs soared by a record amount last month before today’s deadline for classifying liabilities, on speculation some local government financing vehicles will lose government support after the finance ministry starts reviewing regional authorities’ debt reports. Yield premiums on one-year AA notes, the most common ranking for such issuers, jumped a record 98 basis points in December. Premier Li Keqiang has stepped up curbs on local borrowings just as LGFVs prepare to repay 558.7 billion yuan ($89.7 billion) of bonds this year amid economic growth that’s set for the slowest pace in more than two decades.
  • Dubai Shares Lead Gulf Declines as Oil Rout Extends Into 2015. Dubai and Abu Dhabi stocks fell on speculation sliding oil prices will curb revenue for a region that accounts for about a third of the world’s crude reserves. Dubai’s DFM General Index (DFMGI) dropped 2.3 percent to close at 3,689.06, its lowest in more than two weeks, as markets reopened after the end-of-year holidays. Emirates NBD PJSC (EMIRATES) and Dubai Islamic Bank PJSC (DIB) led Dubai’s drop. The ADX General Index (ADSMI) in Abu Dhabi, home to about 6 percent of the world’s proven oil reserves, lost 1.7 percent while Qatar’s gauge declined 0.5 percent. Saudi Arabian stocks fell 0.6 percent in Riyadh
  • Euro Extends Slide on ECB Outlook; Asian Stocks, Oil Slip. The euro weakened to an almost nine-year low, Asian stocks fell and U.S. index futures dropped amid concern Greece will exit the currency union. Oil slumped to its lowest level since 2009, while silver climbed. The euro depreciated 0.4 percent to $1.1957 at 11:01 a.m. in Tokyo, after touching its weakest level since March 2006. The dollar gained against 14 of its 16 major peers, while the yen advanced. The MSCI Asia Pacific Index (MXAP) declined 0.8 percent.
  • Euro Drops to Lowest Since March 2006 as ECB Splitting From Fed. The euro slumped to the weakest in almost nine years after the European Central Bank signaled it will embark on large-scale government-bond purchases as the Federal Reserve moves closer to raising interest rates. The 19-nation common currency extended declines today after falling for a third week as ECB President Mario Draghi said he can’t rule out deflation in the euro area. The greenback strengthened versus all 10 major developed-market peers. The Australian dollar fell to a 5 1/2 year low as the yield on the nation’s 15-year bonds dropped to an all-time low.
  • Copper Trades Near Four-Year Low on Weaker China Demand Concern. Copper for delivery in three months on the London Metal Exchange slid 0.1 percent to $6,250 a metric ton at 10:25 a.m. in Shanghai. Prices fell 0.7 percent to $6,255 a ton on Jan. 2, the lowest since June 2010. The metal dropped 14 percent in 2014, the biggest annual loss in three years. In New York, copper futures for March declined 0.2 percent to $2.813 a pound. The March contract on the Shanghai Futures Exchange dropped 1.2 percent to 45,250 yuan ($7,276) a ton.
  • Mester Says Pace of Tightening More Important Than Liftoff Date. Federal Reserve Bank of Cleveland President Loretta Mester said that while interest rates could rise in the first half of this year, the pace of tightening is more important than the date of the initial increase. “In some sense, when exactly liftoff is -- a meeting here or a meeting there -- is probably not the right question,” she said in an interview in Boston. Mester, who doesn’t vote on policy this year, said she expects the benchmark federal funds rate to rise to 3.75 percent -- the level that fed officials forecast for the longer run -- over the next three years
  • New York City Police Turn Backs on Mayor at Second Funeral. Police officers again protested against New York Mayor Bill de Blasio by turning their backs as he paid tribute to slain cop Wenjian Liu as a man who represented “the very best” of New York City, at a funeral attended by thousands of mourners.
Wall Street Journal: 
  • CFPB Sets Sights on Payday Loans. U.S. officials are taking their first crack at writing rules for payday loans, responding to concerns that the short-term, high-rate debt can trap consumers in a cycle of borrowing they can’t afford.
Fox News:
Zero Hedge:
Business Insider:
Financial Times:
  • Merkel Adviser Bofinger Says Greek Exit Risk to Euro Area. Greek exit from euro area would mean "very high risk" for stability of currency union, citing Peter Bofinger, an economic adviser to German Chancellor Angela Merkel, as saying in an interview. While the situation in Greece isn't comparable to that in other states, an exit would result in a situation that would be difficult to manage, Bofinger says.
  • Brazil Vehicle Sales Drop 7.1% in 2014, Worst in 12 Years.
Night Trading
  • Asian indices are -.5% to +.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 109.0 unch.
  • Asia Pacific Sovereign CDS Index 68.25 +1.0 basis point.
  • S&P 500 futures +.04%.
  • NASDAQ 100 futures +.11%.
Morning Preview Links

Earnings of Note

  • (SD)/.04
Economic Releases
  • Wards Total Vehicle Sales for December are estimated to fall to 16.9M versus 17.08M in November.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China HSBC PMI, Australia Trade Balance report, RBC Consumer Outlook Index for January, ISM New York for December, (F) Dec. sales conference call and the Citi Internet/Media/Telecom conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the week.

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