Monday, January 26, 2015

Tuesday Watch

Evening Headlines 
  • S&P Cuts Russia's Rating to Junk; Sanctions and Oil Slump Hammer Ruble. Russia’s foreign-currency credit rating was cut to junk by Standard & Poor’s, putting it below investment grade for the first time in a decade, as policy makers struggle to boost growth amid international sanctions and a drop in oil prices. S&P, which last downgraded Russia in April, cut the sovereign one step to BB+, according to a statement released on Monday, the same as countries including Bulgaria and Indonesia. The ratings firm said the outlook is “negative.” Russian stocks on U.S. exchanges tumbled with the ruble following the announcement which came after the close of equity trading in Moscow.
  • Greece’s Odd-Couple Coalition Only Agrees About Ending Austerity. The two men disagree on just about everything, except this: for Greece, the time of German-dictated austerity must end. Alexis Tsipras became prime minister of Greece on Monday by vowing to challenge the budget-cutting policies demanded by the European Union and International Monetary Fund in return for a 240 billion euro ($270 billion) rescue plan. 
  • Syriza’s ‘Bella Ciao’ Casts Shadow Over Italy Presidential Vote. As Greeks welcome Syriza’s historical victory with the Italian partisan anthem “Bella Ciao”, Italian Premier Matteo Renzi is nervously eying resistance within his own party before a key presidential vote this week. “By gaining a clear lead and moving to form a new government in a short time, Syriza leader Alexis Tsipras is also galvanizing his Italian supporters, including a significant number of Renzi’s opponents within his party”, Francesco Galietti, founder of research firm Policy Sonar in Rome, said in a phone interview.
  • Nomura says odds up of Abenomics derailing as tax pledge doubted. Nomura Holdings Inc. says the probability that Prime Minister Shinzo Abe's economic policies will end badly is increasing. The worst-case scenario for Nomura chief credit strategist Toshihiro Uomoto to the end of 2017: the economy contracts in the first half of 2016, Abe delays a sales tax rise for a second time, and the Bank of Japan boosts asset purchases to suppress interest rates, causing the yen to tumble. This month, he raised the probability of these events unfolding to 10 per cent to 20 per cent or more, from about 10 per cent. "Signs are mounting that Japan's fiscal sustainability is beginning to crumble," said Uomoto, ranked Japan's No. 1 credit analyst for the past two years by Nikkei Veritas
  • UBS Says Wealthy Asians Are Abandoning Australian Dollars. Asia’s wealthy are falling out of love with the Aussie dollar as record-low yields and sustained declines persuade them to look elsewhere, according to UBS Group AG. (UBSG) Many of the bank’s wealthiest clients in the region began to abandon the currency as Australia’s bond yield premium over the U.S. slid and the Federal Reserve discussed raising interest rates, said Simon Smiles, Zurich-based chief investment officer for ultra-high-net-worth individuals. The 10-year yield is 74 basis points above that of the U.S., down from 130 a year ago. 
  • Rising Vacancies and Default Auctions Show Singapore Property Is on the Decline. The bargain hunters who stuffed themselves into the 50-seat conference room are another sign of the decline of Singapore’s housing market. After five years of price gains, values are falling and defaults are rising following government measures to curb lending and a decline in the number of foreign buyers. Banks auctioned 118 repossessed homes last year, about 10 times the number in 2013, said Mok Sze Sze, head of Singapore auctions at broker Jones Lang LaSalle Inc.
  • Asian Stocks Head for Two-Month High on Yen, Europe Optimism. Asian stocks rose, poised for a two-month high, as a weaker yen buoyed Japanese shares amid optimism the actions of Greece’s new government won’t force the nation to leave the euro currency bloc. The MSCI Asia Pacific Index (MXAP) advanced 0.4 percent to 141.24 as of 9:03 a.m. in Tokyo
  • Nickel Leads Most Metals Lower as China Industrial Profits Slow. Most base metals declined as data showed industrial profits grew at the slowest pace on record last year in China, adding to signs that demand in the largest consumer may contract. Nickel lost as much as 1.4 percent while copper dropped as much as 0.5 percent. Industrial profits in 2014 grew at 3.3 percent, the weakest in records going back to 2000, according to data released by the National Bureau of Statistics in Beijing on Tuesday. The figure contracted for a third month in December, falling 8 percent. China’s industrial profits are “just another bit of bad news on top of other bad news,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “Because the outlook is so gloomy for some time, it’s just reinforcing the downward movement.” 
  • Goldman Sachs’s Cohn Sees Oil Falling to $30 in Extended Slump. Oil prices will probably continue to decline and could reach as low as $30 a barrel, according to Gary Cohn, president of Goldman Sachs Group Inc. “We’re probably in the lower, longer view,” Cohn, a former oil trader, said Monday in an interview with CNBC.
  • U.S. Says Russian Spy Ring Sought NYSE, Sanction Secrets. Three Russians charged by the U.S. with espionage allegedly sought secrets tied to the New York Stock Exchange and U.S. economic sanctions on Russia, even while one bemoaned his tedious job’s lack of a James Bond flair. The U.S. investigation of the alleged spy ring started within months of the Federal Bureau of Investigation’s June 2010 arrest of 10 Russian agents dubbed the “Illegals,” who had been on “deep cover” assignments, some living in the U.S. for as long as a decade. That year, each of the 10 pleaded guilty to conspiring to act as an unregistered agent of a foreign government, after which they were returned to Russia in a prisoner exchange.
  • Microsoft(MSFT) Business-Software License Sales Miss Estimates. Microsoft Corp. (MSFT)’s software-license sales to businesses fell short of analysts’ estimates in the fiscal second quarter, hurt by weak sales in Japan and China. Commercial-licensing revenue fell to $10.7 billion in the period that ended Dec. 31, the world’s largest software maker said Monday in a statement. Analysts on average had projected $10.9 billion, based on a survey conducted by Bloomberg. Unearned revenue, a measure of future sales, was $21.2 billion, compared with estimates of $21.8 billion. The stock slipped 3 percent in extended trading
  • United Technologies(UTX) Cites Surprise Dollar Gain as Forecast Pared. A surging U.S. dollar against the euro and other currencies surprised United Technologies Corp. (UTX) and forced a cut in the company’s annual profit forecast just weeks after it was given to investors. United Technologies slid 2.1 percent to $116.20 at 5:04 p.m. in New York after the close of regular trading. The euro climbed 0.3 percent to $1.1238 at 5 p.m. in New York after sliding to $1.1098, the weakest level since September 2003. 
Wall Street Journal:
  • U.S. spies on millions of cars. DEA uses license-plate readers to build database for federal, local authorities. The Justice Department has been building a national database to track in real time the movement of vehicles around the U.S., a secret domestic intelligence-gathering program that scans and stores hundreds of millions of records about motorists, according to current and former officials and government documents.
Zero Hedge:
Business Insider:
NY Times:
  • Investment Riches Built on Auto Loans to Poor. Across the country, there is a booming business in lending to the working poor — those Americans with impaired credit who need cars to get to work. But this market is as much about Wall Street’s perpetual demand for high returns as it is about used cars. An influx of investor money is making more loans possible, but all that money may also be enabling excessive risk-taking that could have repercussions throughout the financial system, analysts and regulators caution.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 108.0 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 69.75 +1.0 basis point.
  • S&P 500 futures -.03%.
  • NASDAQ 100 futures -.06%.
Morning Preview Links

Earnings of Note

  • (MMM)/1.80
  • (AKS)/.08
  • (AAL)/1.51
  • (BMY)/.41
  • (CAT)/1.57
  • (CIT)/.89
  • (COH)/.66
  •  (GLW)/.38
  • (DHR)/1.03
  • (DD)/.71
  • (FCX)/.34
  • (ITW)/1.13
  • (LXK)/1.15
  • (LMT)/2.85
  • (NUE)/.56
  • (OSK)/.25
  • (PH)/1.55
  • (AMGN)/2.05
  • (AAPL)/2.59
  • (T)/.60
  • (BXP)/1.26
  • (EA)/.92
  • (ILMN)/.78
  • (JNPR)/.31
  • (SYK)/1.44
  • (X)/.80
  • (VMW)/1.07
  • (WDC)/2.11
  • (YHOO)/.29
Economic Releases
8:30 am EST
  • Durable Goods Orders for December are estimated to rise +.4% versus a -.7% decline in November.
  • Durables Ex Transports for December are estimated to rise +.6% versus a -.4% decline in November.
  • Cap Goods Orders Non-Defense Ex Air for December are estimated to rise +.9% versus unch. in November.
9:00 am EST
  • The S&P/CS 20 City MoM SA for November is estimated to rise +.65% versus a +.76% gain in October.
9:45 am EST
  • The Preliminary Markit US Services PMI for January is estimated to rise to 53.8 versus 53.3 in December.
10:00 am EST
  • New Home Sales for December are estimated to rise to 450K versus 438K in November.
  • The Consumer Confidence Index for January is estimated to rise to 95.5 versus 92.6 in December.
  • The Richmond Fed Manufacturing Index for January is estimated to fall to 5.0 versus 7.0 in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Australia Consumer Price Index, US weekly retail sales reports and the (CRZO) analyst conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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