Monday, March 16, 2015

Monday Watch

Weekend Headlines 
  • Russia Was Ready for Crimea Nuclear Standoff, Putin Says. Russian President Vladimir Putin said he was ready to put his country’s nuclear forces on alert when he annexed Ukraine’s Crimean peninsula last year in case of intervention by the U.S. and its allies. “We were ready to do that,” Putin said when asked in a documentary film about Russia’s takeover of Crimea aired Sunday on state television if the Kremlin had been prepared to place its nuclear forces on alert. The Russian leader said he warned the U.S. and Europe not to get involved, accusing them of engineering the ouster of Russian-backed Ukrainian President Viktor Yanukovych. “That’s why I think no one wanted to start a world conflict.”
  • Pro-Russian Rebels Hopeful on Peace as Ukraine Sees Threat. Pro-Russian rebels said they were hopeful the peace process in east Ukraine will continue as the government in Kiev accused them of breaching a cease-fire agreement amid skirmishes. Ukraine said one of its soldiers was wounded as rebels attacked government positions 32 times during the past 24 hours, military spokesman Andriy Lysenko told reporters in Kiev on Saturday. More than 6,000 people have been killed in the year-old conflict, according to the United Nations. The U.S., the European Union and Ukraine say Russia is supplying the separatists with troops and weapons. Russia denies the accusations.   
  • Germans Tired of Greek Demands Want Country to Exit Euro. Berlin cabdriver Jens Mueller says he’s had it with the Greek government and he doesn’t want Germany to send any more of his tax money to be squandered in Athens. “They’ve got a lot of hubris and arrogance, being in the situation they’re in and making all these demands,” said Mueller, 49, waiting for fares near the Brandenburg Gate. “Maybe it’s better for Greece to just leave the euro.” Mueller’s sentiment is shared by a majority of Germans. A poll published March 13 by public broadcaster ZDF found 52 percent of his countrymen no longer want Greece to remain in Europe’s common currency, up from 41 percent last month. The shift is due to a view held by 80 percent of Germans that Greece’s government “isn’t behaving seriously toward its European partners.”
  • Record China Debt Means Growth-Rally Mismatch: Chart of the Day. Concern is growing that China’s world-beating stock surge is out of kilter with the country’s economic slowdown and record debt binge. The CHART OF THE DAY shows China’s total public and private debt has increased to more than twice the nation’s economic output, soaring 83 percentage points relative to gross domestic product since 2007. No other developing country has amassed as much debt as quickly, according to data compiled by McKinsey Global Institute. While the economy is growing at the slowest pace since 1990, the Shanghai Composite Index has jumped 64 percent in the past year, the best performance among major equity gauges tracked by Bloomberg. The economic pace is destined to drop to an average 4-5 percent a year over the next five years, from the 7 percent target for 2015, says Ruchir Sharma, who manages more than $25 billion as the head of emerging markets at Morgan Stanley Investment Management. He’s kept about 12 percent of assets in Chinese stocks since 2010, compared with 18 percent in the indexes he uses for benchmarks. The index weighting is high relative to the opportunities given more than half are state-owned companies, says Sharma. Chinese debt is “a ticking time-bomb,” Michael Every, the head of Asia Pacific financial-market research at Rabobank International in Hong Kong, which manages about $700 billion of assets, said by phone March 4. “I fail to see how shares maintain these levels if we continue to see slower growth.” 
  • Slowdown Concern Spurs Record Bearish Bets on A-Share ETF. Investors are rushing to buy protection against declines in Chinese stocks amid concern an economic slowdown will undermine their world-beating rally. Demand to hedge against future losses on the largest U.S. exchange-traded fund tracking China’s mainland market climbed to the highest since the ETF was created in November 2013, according to data compiled by Bloomberg. The buying pushed the ratio of bearish to bullish contracts to a five-month high on March 11 as investors pulled $34 million from the fund in a second week of outflows.
  • Hundreds of Thousands March in Brazil to Protest Rousseff. Hundreds of thousands of Brazilians, some of them calling for President Dilma Rousseff’s impeachment, took to the nation’s streets Sunday to protest a government beset by scandal and the rising cost of living. The largest protest occurred in Sao Paulo, with 240,000 people as of 2:40 p.m. local time, according to its military police. Protests occurred in cites of 16 states and the federal capital, according to O Globo website. Its TV network reported 45,000 protesters in Brasilia, 20,000 in Belo Horizonte, and 20,000 in Belem, citing the military police of those cities. No violence or vandalism were reported.   
  • Aussie Shorts Reach Record as Bears Join BlackRock Seeing Slide. Investors are the most bearish on record about the Australian dollar as BlackRock Inc., the world’s largest money manager, expects the currency to plunge to levels well below what the Reserve Bank prefers.
  • Asian Stocks Retreat as Energy Shares Slide, Investors Await Fed. Asian stocks fell as investors awaited this week’s Federal Reserve meeting for clues on the timeline for higher U.S. interest rates. Energy companies led losses as oil resumed last week’s decline. The MSCI Asia Pacific Index dropped 0.3 percent to 143.50 as of 9:02 a.m. in Tokyo after sliding 1 percent last week as a better-than-expected U.S. jobs report spurred speculation the Fed would raise rates sooner than some investors expected.
  • Speculators Least Bullish on Oil Since 2013 as Stockpiles Swell. Speculators cut bullish oil wagers to the lowest level in more than two years amid warnings the U.S. supply glut may soon strain storage capacity. Hedge funds and other money managers reduced their net-long position in West Texas Intermediate crude by 2.5 percent in the seven days ended March 10, U.S. Commodity Futures Trading Commission data show. Short wagers rose to a record.
Wall Street Journal:
  • Hedge Funds Win as Euro Falls. Bets against the common currency augment returns. The euro’s plunge has given a much-needed lift to hedge funds that have been repeatedly frustrated by the world’s central banks. A bevy of multibillion-dollar funds have gained as much as 9% this year as their managers bet against the euro, riding the European Central Bank’s push to weaken the currency...
  • For U.S. Banks, Headwinds Keep Blowing. Investors remain wary of big lenders as low rates and stricter regulation squeeze profits, limit payouts. Bank stocks popped a bit last week after the largest U.S. lenders passed the Federal Reserve “stress tests” with no major hassles. But it was a brief moment of sunshine following several challenging years...
  • Obama’s Iran Jam. The White House wants the U.N. to vote but not the U.S. Congress.
  • A shadow banking sector has gotten 65 times larger. Shadow banking in general has come back to life after getting hammered during the financial crisis, but one segment has been especially rampant. Peer-to-peer (P2P) lending, in which loans are made privately through individuals who most often connect through a network of relatively new websites, has exploded over the past five years. It is now the fastest-growing sector of non-bank lending, according to an exhaustive Goldman Sachs report on the shadow banking industry.
Zero Hedge:
Business Insider:
  • Germany Wants Russia Sanctions in Force Until Year-End. The German government intends to argue at a summit of EU leaders next week for sanctions against Russia to be linked to the full implementation of the Minsk II cease-fire agreement, citing government sources. German government expects opposition from Italy, Greece and Cyprus to such a move.
Night Trading
  • Asian indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 107.5 +2.5 basis points.
  • Asia Pacific Sovereign CDS Index 66.75 +1.75 basis points.
  • S&P 500 futures +.07%.
  • NASDAQ 100 futures +.05%.
Morning Preview Links

Earnings of Note

  • (XONE)/-.06
  • (PWRD)/.37
Economic Releases
8:30 am EST
  • Empire Manufacturing for March is estimated to rise to 8.0 versus 7.78 in February.
9:15 am EST
  • Industrial Production for February is estimated to rise +.2% versus a +.2% gain in January.
  • Capacity Utilization for February is estimated to rise to 79.5% versus 79.4% in January.
  • Manufacturing Production for February is estimated unch. versus a +.2% gain in January.
10:00 am EST
  • The NAHB Housing Market Index for March is estimated to rise to 56.0 versus 55.0 in February.
4:00 pm EST
  • Net Long-Term TIC Flows for January.
Upcoming Splits
  • (V) 4-for-1
Other Potential Market Movers
  • The Bank of Japan statement 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 mixed. The Portfolio is 50% net long heading into the week.

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