Monday, January 05, 2015

Tuesday Watch

Evening Headlines 
  • Global Sovereign Bonds Rally as Yields Fall to Record Low 1.28%. Global sovereign bonds rallied, pushing yields to a record low, after oil tumbled and traders prepared for the European Central Bank to start buying government debt as soon as this month. Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.28 percent as of yesterday, an all-time low based on data starting in 1996. Stock declines are fueling demand for the relative safety of debt. From Japan to Australia to Germany (GDBR10), yields are dropping to records. 
  • Singapore Alert to Risks as Cracks Emerge for Junk: Asean Credit. Demand for higher returns in Singapore bonds from the city’s swelling private banking industry has brought with it greater risks. Three out of every 10 notes sold last year are yielding more than 6 percent. Halcyon Agri Corp. (HACL) went to debtholders last month asking them to waive interest cover requirements before it’s even had to stump up a coupon payment. Bloomberg’s default model shows that VTB Capital SA has an almost 50 percent chance of reneging on its debt. “The recent swings have been a good wake-up call,” said Vishal Goenka, the Singapore-based head of local currency trading in Asia for Deutsche Bank AG. “Investors need to analyze the credit quality of issuers more thoroughly.”  
  • Asian Stocks Extend Selloff With Oil Near $50; Yen Climbs. Asian stocks fell the most in seven weeks, extending a global selloff after crude oil plunged to the lowest level since 2009. The yen rose and a gauge of government bond yields fell to a record as investors sought haven assets. The MSCI Asia Pacific Index sank 1.4 percent by 10:11 a.m. in Tokyo.
  • Oilfield Writedowns Loom as Market Collapse Guts Drilling Values. Tumbling crude prices will trigger a flood of oilfield writedowns starting this month after industry returns slumped to a 16-year low, calling into question half a decade of exploration. With crude prices down more than 50 percent from their 2014 peak, fields as far-flung as Kazakhstan and Australia are no longer worth pumping, said a team of Citigroup Inc. (C:US) analysts led by Alastair Syme. Companies on the hook for risky, high-cost projects that don’t make sense in a $50-a-barrel market include international titans such as Royal Dutch Shell Plc and small wildcatters like Sanchez Energy Corp. 
  • Biggest Oil-Rig Drop Since 2009 Spells Tough Year Ahead. U.S. oil drillers laid down the most rigs in the fourth quarter since 2009. And things are about to get much worse. The rig count fell by 93 in the three months through Dec. 26, and lost another 17 last week, Baker Hughes Inc. (BHI) data show. About 200 more will be idled over the next quarter as U.S. oil explorers make good on their promises to curb spending, according to Moody’s Corp. Drillers are already running the fewest rigs in nine months after a 46 percent drop in U.S. benchmark West Texas Intermediate oil in 2014, the steepest decline in six years and the second-worst since the commodity began trading in 1983.
  • Hedge Funds Resume Bullish Gold Bets as Greece Vote Looms. Hedge funds are stepping back onto the gold bandwagon as political turmoil in Greece and government actions in Asia helped send prices to their biggest monthly advance since June. Bullish wagers on the metal increased for the first time in three weeks and have more than doubled since mid-November, U.S. government data show. Short holdings dropped for the sixth week in seven. Bullion rose for a second straight month in December.
  • Trahan Pauses 39-Month Bull Call Citing Contagion Risk. Francois Trahan, a three-year U.S. equity market bull who was ranked top portfolio strategist by Institutional Investor in 2014, is turning cautious on stocks. U.S. shares are “at risk” because oil’s decline makes a crisis in a crude-producing nation “inevitable,” wrote Trahan, the head of strategy for Cornerstone Macro LP in New York, in a note to clients. Slowing growth in China and the possibility of a financial meltdown in Japan also pose threats to American equities, he wrote
Wall Street Journal:
  • IG to Play Starring Role in Review of Fed. Inspector General’s Office Will Be Front and Center in Look at Whether the Central Bank Goes Easy on Wall Street. The Federal Reserve’s inspector general, a little-noticed presence outside the central bank, is poised to play a starring role in a high-profile review of the Fed’s ability to regulate Wall Street.
Zero Hedge: 
Business Insider:
China Business News:
  • China Local Debt Estimates May Rise 'significantly'. Debt that local govts owe with fiscal funds may stand at as much as 15t yuan, compared with 10.9t yuan as of end-June in 2013 reported by the National Audit Office, citing a person familiar with the matter.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -2.0% to -1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 115.0 +6.0 basis points.
  • Asia Pacific Sovereign CDS Index 70.5 +2.25 basis points.
  • S&P 500 futures -.03%.
  • NASDAQ 100 futures  -.08%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases
10:00 am EST
  • Factory Orders for November are estimated to fall -.5% versus a -.7% decline in October.
  • ISM Non-Manufacturing Composite for December is estimated to fall to 58.0 versus 59.3 in November.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The UK Services PMI report, RBC Consumer Outlook Index for January, Final Markit US Services PMI for December, US weekly retail sales reports and CES could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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