Wednesday, January 07, 2015

Wednesday Watch

Evening Headlines 
  • Euro-Area Prices Seen Falling as Risk of Deflation Spiral Mounts. Consumer prices in the euro area probably fell for the first time in more than five years last month, pushing the European Central Bank closer to adding stimulus as it battles to revive inflation. Prices dropped an annual 0.1 percent in December, according to the median forecast of economists in a Bloomberg survey. That would be the first decline since October 2009
  • Shorts in Tokyo Soars to Record on Abenomics Skepticism. Bearish bets on Japanese stocks surged to a record because foreign investors are increasingly skeptical that Prime Minister Shinzo Abe will succeed in reviving the world’s third-biggest economy, said Reorient Group Ltd. Short-selling of shares on the Tokyo Stock Exchange accounted for 37.8 percent of trading value yesterday, the highest ratio since the bourse began keeping daily records in 2008. The Topix index sank 2.9 percent yesterday. Investors pulled $245 million out of the biggest U.S.-listed exchange-traded fund that tracks Japanese shares on Jan. 5, the second-largest daily outflow since May 2013, data compiled by Bloomberg show.
  • There's a Leadership Crisis in Chinese Property Firms -- They're Defaulting. Who's Next to Go? The loan default by Kaisa Group Holdings Ltd., after the second surprise exit of a Chinese property tycoon in six months, is prompting investors to ask who’s next. The 2019 notes from the builder, based in the southern city of Shenzhen, have tumbled 38.4 cents on the dollar to a record low of 25.3 cents, after the resignation of the developer’s chairman triggered a loan default Dec. 31. The perpetual securities of Agile Property Holdings Ltd. dropped 17 cents to 67 since its billionaire chairman was placed under control of prosecutors in September before being released last month without details of the detention. China’s junk dollar notes have lost 3.9 percent in 2015, the worst start to a year ever in Bank of America Merrill Lynch indexes, after Kaisa Chairman Kwok Ying Shing resigned days after two other executives left their positions. Developers that rely on personal relations in securing land from the government are among the most at risk from President Xi Jinping’s local-government financing shakeup and anti-graft drive.
  • Asian Stocks Extend Drop, Led by Energy Companies on Oil Plunge. Asian stocks fell, after yesterday sinking the most in nine months, as U.S. equities extended declines and the slump in crude oil deepened. The MSCI Asia Pacific Index (MXAP) declined 0.3 percent to 134.57 as of 9:03 a.m. in Tokyo, with energy companies dropping the most. The Asian gauge slumped 1.7 percent yesterday and the Standard & Poor’s 500 Index fell for a fifth day, extending the longest losing streak in 13 months. West Texas Intermediate oil sank below $48 a barrel in New York amid speculation data on U.S. supplies today will fuel concern over a global glut. “With the U.S. markets again under pressure, the lead for Asia looks bleak,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., wrote in an e-mail to clients today. “Until oil finds bottoms, the markets will remain in a downward trajectory.” Japan’s Topix index dropped 0.5 percent. Short-selling on the Tokyo Stock Exchange reached 37.8 percent of total trading value yesterday, the highest since at least October 2008, when bourse data became available.
  • Copper, Aluminum Hold Losses as Oil’s Slump Fuels Growth Concern. Copper held near a four-year low while aluminum languished near the weakest in seven months on fears oil’s slump signals a slowdown in economic growth and weaker commodities demand. Oil in New York traded near $48 a barrel and the euro area is poised to post its first drop in consumer prices since 2009, fueling pessimism over the global economy.
  • Obama Picks Ex-Bank of Hawaii CEO Landon to Be Fed Governor. President Barack Obama plans to nominate Allan Landon, the former chief executive officer of Bank of Hawaii Corp. (BOH), to be a Federal Reserve governor after months of pressure to select a policy maker with community banking experience.
Wall Street Journal:
  • Deep Debt Keeps Oil Firms Pumping. Producers Have Increased Their Borrowings by 55% Since 2010. American oil and gas companies have gone heavily into debt during the energy boom, increasing their borrowings by 55% since 2010, to almost $200 billion. Their need to service that debt helps explain why U.S. producers plan to continue pumping oil even as crude trades for less than $50 a barrel, down 55% since last June. But signs of strain are building in the oil patch, where revenue growth hasn’t kept pace.
Zero Hedge:
Business Insider:
  • German Govt Preparing for Possible Greek Euro Exit. Chancellery sees risk of bank collapse in the event of possible election of leftwing alliance Syriza, citing government officials. If alliance wins and cancels reform program, final installment of EU10b in aid won't be transferred to Athens. Concern that if Greece leaves the euro, there may be a customer deposit run to secure euros that could lead to a banking collapse and possibly oblige the European banking union to spend billions.
  • Oil Oversupply Could Take Years to Fix, Mazrouei Says. Oversuppy in crude markets "needs time to be absorbed," U.A.E. Energy Minister Suhail Al Mazrouei says. Oil prices could see correction this year, depending on production growth from non-OPEC members; oversupply could take "months or years" to be absorbed depending on reaction from non-OPEC producers. UAE not changing oil industry development plans due to crude price fluctuations; plans to boost country's output to 3.5m b/d under way, won't be changed.
Evening Recommendations 
  • Rated (JWN) Outperform, target $91.
  • Rated (SIG) Outperform, target $150.
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 123.50 +8.5 basis points.
  • Asia Pacific Sovereign CDS Index 74.25 +3.75 basis points.
  • S&P 500 futures +.29%.
  • NASDAQ 100 futures  +.26%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases
8:15 am EST
  • The ADP Employment Change for December is estimated at 225K versus 208K in November.
8:30 am EST
  • The Trade Deficit  for November is estimated at -$42.0B versus -$43.4B in October.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +911,110 barrels versus a -1,754,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +3,666,670 barrels versus a +2,951,000 gain the prior week. Distillate inventories are estimated to rise by +1,972,220 barrels versus a +1,874,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall -.04% versus a +.9% gain the prior week.
2:00 pm EST
  • Fed Minutes from 12/17 meeting.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Evans speaking, Eurozone CPI, China Trade Balance, weekly MBA mortgage applications report, Goldman Sachs Energy Conference, (LLY) guidance call and the (ROVI) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

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