Sunday, January 25, 2015

Monday Watch

Weekend Headlines 
  • Ukraine Rebels Launch ‘Offensives Everywhere,’ Renew Push to Sea. Ukraine said rebels and regular Russian troops pushed north and south from their strongholds in eastern Ukraine with an unprecedented shelling campaign that included the deadliest yet on the strategic port city of Mariupol. At least 20 civilians died and 87 more were wounded in rocket attacks this morning on residential districts in the eastern outskirts of the Black Sea city, Ukrainian officials said during an emergency meeting called by Prime Minister Arseniy Yatsenyuk in Kiev. Overnight shelling in Luhansk, which borders Donetsk to the north, was the worst the region has suffered during the 10-month conflict, the local governor said. 
  • Syriza Rides Anti-Austerity Wave to Decisive Victory in Greece. Syriza leader Alexis Tsipras said that Greece’s era of bowing to international creditors is over, as he celebrated his party’s victory in Greek elections dominated by a public backlash against years of budget cuts. Tsipras, addressing supporters in central Athens Sunday night after Prime Minister Antonis Samaras conceded defeat, said that Greece is turning a page and putting austerity behind it. The Syriza government’s priority “will be for Greece and its people to regain their lost dignity,” he said. “There will neither be a catastrophic clash nor will continued kowtowing be accepted,” said Tsipras, 40. “We are fully aware that the Greek people hasn’t given us carte blanche but a mandate for national revival.” 
  • What Syriza's Sweep Means for Greece and Europe. by Mohamed El-Erian. Q: Are there broader implications? A: Yes. The outcome of the Greek elections is indicative of a broader political phenomenon in Europe that involves the growth of non-traditional parties. Fueled by concerns about disappointing growth, unemployment and social issues, it is powered by large-scale dissatisfaction with the established political order. And it isn't limited to the peripheral economies.
  • Greece Syriza Win Puts Question Mark on Europe Stocks After Jump. European investors enter the week with one of their biggest anxieties confirmed, just after a stretch in which equities posted the largest jump in three years. Greek opposition party Syriza defeated Prime Minister Antonis Samaras’s New Democracy in the Sunday election, putting the future of the nation’s austerity programs in doubt.
  • Islamic State Demands Swap After Beheading One Japanese Hostage. Islamic State militants dropped their demand for a $200 million ransom and are now seeking a prisoner exchange after the release of a video that purported to show the corpse of one of two Japanese hostages held by the group. The video had images of hostage Kenji Goto holding a blurred photo purported to be the headless corpse of Haruna Yukawa, a self-styled security contractor, who was captured in Syria by Islamic State last summer. Japanese Prime Minister Shinzo Abe said Sunday that analysis showed the video was “highly likely” to be credible.
  • China Property Agony Deepens as Trust-Loan Lifelines Cut. China’s investment trusts are pulling financing for the real estate industry as Kaisa Group Holdings Ltd. (1638)’s missed payments heighten default concerns. Issuance of property-related products, which channel money from wealthy individual investors, tumbled 62 percent from a year earlier to 38.5 billion yuan ($6.2 billion) in the fourth quarter, data compiled by research firm Use Trust show. Builders must repay 241 billion yuan of trusts in 2015, up from 178 billion yuan last year. Kaisa, which missed a bond coupon payment this month, failed to repay a 2.5 billion yuan trust last week, people familiar with the matter said.
  • Shanghai Scraps Growth Target With ‘New Normal’ Focus on Quality. Shanghai city became the first of China’s 31 provinces and municipalities to not set a 2015 growth target, underscoring the shift away from unfettered expansion. The financial center’s municipal government said its economy should “rise steadily, improve structure, enhance quality and efficiency” this year, according to its annual work report released Sunday. Out of 10 other regions that have so far announced 2015 growth targets, nine have cut them.
  • China Bull Market Masks Momentum Breakdown as Stock Volumes Sink. Just below the surface of China’s world-beating equity rally, signs of trouble are emerging. While the Shanghai Composite Index touched a five-year high on Friday after a 63 percent gain during the past year, other gauges of investor enthusiasm are tumbling. Turnover sank 47 percent from its peak in December, while new equity account openings fell 50 percent and purchases using borrowed money dropped 38 percent. The number of stocks reaching new 52-week highs has declined 75 percent in the past six weeks. The indicators suggest to Deutsche Bank AG and Fortune SG Fund Management Co. that China's mainland-traded A shares are no longer a one-way bet after monetary stimulus and a flood of new individual traders propelled the Shanghai gauge to eight consecutive months of gains through December. Windsor Capital, one of China’s top 10 performing hedge funds, said last week investors will have to wait until the middle of this year before the $5.1 trillion market resumes its advance. “We have seen fewer new account openings, narrower trading turnover and heightened market volatility recently in the A-share market,” Yuliang Chang, the chief China and Hong Kong strategist at Deutsche Bank, Germany’s largest lender, said in e-mailed comments on Jan. 23. “This does not bode well for this liquidity-driven rally.” 
  • Euro Slips With U.S. Futures on Greece as Treasuries Gain. The euro slipped with U.S. equity-index futures, while Treasuries rallied as Greek voters handed victory to a party that’s pledged to renegotiate the terms of an international bailout. Asian stocks dropped with crude oil and industrial metals. The 19-nation euro dropped 0.3 percent to $1.1168 by 11:12 a.m. in Tokyo, near a more than 11-year low reached last week after the European Central Bank announced plans to expand asset purchases. The yield on 30-year Treasuries fell to a record low. Standard & Poor’s 500 Index futures sank 0.6 percent and the MSCI Asia Pacific Index (MXAP) lost 0.3 percent. U.S. crude declined 1.1 percent and nickel slid 1.2 percent. China’s yuan slumped a second day
  • Oil Slides to Near 6-Year Low; Saudi Arabia Holds Firm Despite Supply Glut. Oil fell to the lowest level in almost six years as signs that Saudi Arabia’s new king will maintain its production policy and rising U.S. crude inventories bolstered speculation that a global glut will persist. Futures dropped as much as 2.7 percent in New York, extending a 6.4 percent slide last week
  • For Saudis, Falling Demand for Oil Is the Biggest Concern. As the world’s oil producers wring their hands over a global glut that’s pushing down prices, evidence is mounting that Saudi Arabia is more concerned about shrinking demand. The world’s largest exporter has chosen not to cut production, counting instead on lower prices to stimulate consumption, said Mohammad Al Sabban, an adviser to Saudi Arabia’s petroleum minister from 1988 to 2013. The Saudis are keeping an eye on investments in fuel efficiency and renewable energy, according to Francisco Blanch, Bank of America Corp.’s head of global commodity research. “Nobody should imagine the world will continue to demand oil as long as you have it in your fields,” Al Sabban said in an interview. “We need to prepare ourselves for that stage.
  • Hedge Funds Bet Oil Will Fall Further. Hedge funds boosted bearish wagers on oil to a four-year high as U.S. supplies grew the most since 2001. Money managers increased short positions in West Texas Intermediate crude to the highest level since September 2010 in the week ended Jan. 20, U.S. Commodity Futures Trading Commission data show. Net-long positions slipped for the first time in three weeks. 
  • Copper Extends Declines as Dollar Gains Against Euro on Greece. Copper extended losses as the U.S. dollar gained against the euro after elections in Greece fueled concern that the country may exit the currency bloc, curbing demand for commodities priced in the greenback. Copper dropped as much as 1.2 percent after closing Jan. 23 at the lowest since July 2009. Nickel lost as much as 1.6 percent. The dollar rose to the highest level in more than 11 years against the euro after a general election victory by Syriza, the anti-austerity party committed to renegotiating Greece’s debt obligations.
  • Precious Metals Coveted Once More as Draghi Acts: Commodities. Investors’ desire for precious metals is deepening after Mario Draghi’s $1.3 trillion pledge drove gold to a five-month high and silver to the brink of a bull market. Their buying helped boost the value of exchange-traded products backed by gold and silver by $8.94 billion this month, the most since September 2012, data compiled by Bloomberg show. Hedge funds and other speculators in futures are the most bullish on gold in two years and have bet more on silver in all but two weeks since the start of November.
  • Obama Moves to Put Much of Refuge Off Limits to Drilling. President Barack Obama’s administration will take steps to restrict 12 million acres of the Arctic National Wildlife Refuge from oil and gas exploration, a move immediately denounced by Alaskan lawmakers. A plan released Sunday recommends designating “core areas” of the 19.8 million-acre refuge as wilderness, including its Coastal Plain, according to a statement from the Interior Department. The move requires approval from Congress.
  • Company Bond Sales at $93 Billion See Slowest Start Since 2008. Sales of corporate bonds in the U.S. are off to their slowest start since 2008, as company treasurers wager they can afford to wait while global central banks continue to suppress borrowing costs. Issuers from American International Group Inc. to Ford Motor Co. have sold $92.8 billion in bonds so far this year, down 27 percent from this point last year and 34 percent from 2013. The drop comes even as investment-grade bond yields have fallen to 3.05 percent, below the 3.49 percent average of the past five years, according to a Bank of America Merrill Lynch index. 
Wall Street Journal:
  • U.S., Europe Threaten New Sanctions Against Moscow. Threats Come After Missile Attack in Eastern Ukraine. U.S. and European leaders threatened new sanctions against Moscow after a missile attack blamed on pro-Russian separatists killed 30 civilians in the eastern Ukrainian city of Mariupol, the latest escalation in violence that has brought Kiev’s fight with rebels back toward full-scale war. Russia reacted with defiance, blaming Kiev and its Western backers for the surge in fighting, but it also called for urgent talks on implementing a September cease-fire. 
  • Leftists Sweep to Power in Greece. Syriza Clinches Coalition Deal With Independent Greeks. Greek voters were set to hand power to a radical leftist party in national elections on Sunday, a popular rebellion against the bitter economic medicine Greece has swallowed for five years and a rebuke of the fellow European countries that prescribed it.
  • Cal Dive Preparing Chapter 11 Filing. Filing Could Come in Next Few Weeks as Rout in Oil Prices Hit Company. Oil-and-gas contractor Cal Dive International Inc. is preparing for a potential Chapter 11 bankruptcy filing that could come as soon as the next few weeks, people familiar with the matter said, as the oil-price rout exacerbates the company’s business challenges.
  • First U.S. Bitcoin Exchange Set to Open. Coinbase Has Backing From the NYSE, Banks and Venture Capitalists. The virtual currency bitcoin is getting a very real boost on Monday with the opening of the first licensed U.S. exchange.
  • The Greek Warning. Radical parties rise when mainstream parties tolerate stagnation. The exit polls Sunday night suggested that Greece’s far-left Syriza party will score a major victory in the weekend’s parliamentary election. The fallout for Europe will take time to sort out, but the warning should be clear enough about the political consequences of economic stagnation.
Zero Hedge:
  • Auto Loan Surge Fuels Fears Of Another Subprime Crisis. There's a big potential downside that's evoking comparisons to the subprime mortgage boom. Auto dealers are extending loans to a growing number of people with weak credit, and more of them are having trouble making payments.
  • Freeport Indonesia copper exports seen declining over next 6 months. U.S. mining firm Freeport-McMoRan Inc is expected to export 500,000 tonnes of copper concentrate from its Indonesian operations over the next six months, down 100,000 tonnes from the previous six months, a company official said. The official from Freeport's Indonesian unit, who made the comment late on Sunday and declined to be named, did not give a reason for the expected fall in exports.
Financial Times:
  • Synthetic CDO volumes double amid hunt for yield. Yield-starved European investors are helping to drive a resurgence of structured credit securities that were blamed for worsening the global financial crisis six years ago. Global volumes of synthetic collateralised debt obligations roughly doubled last year to about $20bn, in new and existing issues, according to two banks that help structure the products, in part because of European investors seeking higher-yielding securities.
  • Bundesbank's Weidmann Warns of Real-Estate Bubble. Bundesbank President Jens Weidmann tells Bild that the ECB's decision to buy government bonds will drive up real-estate prices.
Malay Mail online:
China Youth Daily:
  • Beijing Not a Livable City at the Moment. Mayor Wang Anshun said govt's top priority is to control population. Beijing has been considering since last year to implement odd-even driving days during severe smog.
Night Trading
  • Asian indices are -.75% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 110.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 68.75 +.25 basis point.
  • S&P 500 futures -.60%.
  • NASDAQ 100 futures -.54%.
Morning Preview Links

Earnings of Note

  • (NVR)/24.53
  • (STX)/1.35
  • (DHI)/.34
  • (NSC)/1.64
  • (TXN)/.69
  • (ASH)/1.41
  • (BRO)/.36
  • (MSFT)/.75
  • (PCL)/.34
  • (MSTR)/1.04
  • (CR)/1.13
Economic Releases
10:30 am EST
  • The Dallas Fed Manufacturing Activity Index for January is estimated to fall to 3.2 versus 4.1 in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German IFO and China Industrial Profits reports could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the week.

No comments: