Sunday, March 22, 2015

Monday Watch

Weekend Headlines 
  • U.S. Should Consider Arming Ukrainians, Top NATO General Says. The U.S. should consider sending defensive weapons to Ukraine amid signs that last month’s cease-fire is crumbling, Air Force General Philip Breedlove said Sunday in Brussels. “I do not think that any tool of the U.S. or any other nation’s power should necessarily be off the table,” said Breedlove, the North Atlantic Treaty Organization’s top military commander. “Could it be destabilizing? The answer is yes. Inaction could also be destabilizing.” Rebels are amassing forces in the former Soviet republic’s eastern Donetsk and Luhansk regions, Ukrainian military spokesman Andriy Lysenko said in Kiev Sunday. Breedlove’s comments followed declarations by pro-Russian insurgents that they are preparing for a new offensive to expand their territory.  
  • Greece Faces Decisive Week as Tsipras Is Set to Meet Merkel. Greek Prime Minister Alexis Tsipras is set to meet German Chancellor Angela Merkel for the second time in five days on Monday, at the start of a week that may prove decisive for Greece’s future in the euro area. The meeting in Berlin with the leader of the biggest contributor to Greece’s stalled 240 billion-euro ($259 billion) bailout is a precursor to make-or-break decisions Tsipras faces as his country’s financial predicament becomes ever more perilous. His government needs to spell out economic measures it plans to undertake as early as this week to unlock long-withheld aid payments that will keep the country afloat.
  • Draghi Cheerleads for Economy as Greek Risk Looms Over Euro Area. Mario Draghi can gauge this week whether his optimism in the economy is well-founded. From business confidence in Germany to manufacturing in France and consumer spending in Italy, a smattering of data from across the 19-nation euro area will provide a glimpse at the state of the recovery. The European Central Bank president, who has become more upbeat on the economy since announcing his quantitative-easing program two months ago, will get a chance to present his view on Monday when he addresses the European Parliament in Brussels.
  • No Risk Too Big as Bond Traders Plot Escape From Negative Yields. In the negative-yield vortex that is the European bond market, investors are discovering just what lengths they’re willing to go to generate returns. Norway’s $870 billion sovereign wealth fund said this month that it added Nigeria and lifted its share of lower-rated company debt to the highest since at least 2006. Allianz SE, Europe’s biggest insurer, is shifting from German bunds to bulk up on mortgages. JPMorgan Asset Management is buying speculative-grade corporate debt to boost returns. With the European Central Bank’s fight against deflation pushing yields on almost a third of the euro area’s $6.26 trillion of government bonds below zero, even the most risk-averse investors are taking chances on assets and regions that few would have considered just months ago. That’s exposing more clients to the inevitable trade-off that comes with the lure of higher returns: the likelihood of deeper losses 
  • Iran Talks Set for Decisive Week as Leaders Say Deal Reachable. Diplomats and leaders seeking an accord on Iran’s nuclear program said a deal is achievable as they prepare to enter a potentially decisive week for the talks. “We have not yet reached the finish line, but make no mistake, we have the opportunity to try to get this right,” U.S. Secretary of State John Kerry said on Saturday in Lausanne. A six-day session in the Swiss city broke up a day earlier, and talks are due to resume in the coming week.
  • Topix Charts Evoking Calm Before 2013 Rout as Momentum Whips Up. Takashi Aoki has seen this chart before. The Tokyo-based fund manager is watching momentum indicators flashing signals Japan’s stock market is overheating, just as they were two years ago. Then and now, he says, few investors cared. When the pullback came in May 2013, it was abrupt: hints that the U.S. Federal Reserve would unwind stimulus drove the Topix index down 15 percent in 10 days
  • China Internet Company Yielding 18% Shows Default Risks Brewing. Bonds of 11 Chinese companies now yield more than 15 percent as investors brace for the nation’s second onshore default amid record maturities in the coming quarter. Companies in Asia’s largest economy need to repay 1.5 trillion yuan ($242 billion) of local-currency notes in the period to June 30, the most for a quarter in Bloomberg data going back to 1998. The yield on Cloud Live Technology Group Co.’s 2017 debt jumped 157 basis points to 17.9 percent since the Beijing-based Internet company said on March 4 its ability to meet debt obligations next month face “big uncertainties.”
  • China’s Internet Boom Starts to Fade. Just as the Nasdaq Composite Index surges to the cusp of the record high set during the dot-com-era, the excitement about China’s Internet boom is fading. Half of the 14 Chinese dot-coms that debuted in the U.S. last year are now trading below their initial sale prices. Even Alibaba Group Holding Ltd., one of those still up in price, has dropped 28 percent from its record high in November. On average, the 14 Chinese shares are down 3.1 percent this year, compared with a 6.1 percent advance in the Nasdaq. Investor confidence, so high when Alibaba brought its record $25 billion initial public offering to market last September, is being undermined now by a wave of poor earnings at Chinese technology companies. Those that went public last year including Weibo Corp., the microblogging service, and mobile dating app developer Momo Inc. have failed to deliver the revenue investors were expecting.   
  • Evergrande Scraps $15 Billion Solar Push as China Property Drops. Evergrande Group, the parent of China’s most-indebted publicly traded homebuilder, scrapped its 90 billion-yuan ($14.5 billion) plan to branch out into solar power, stymieing its ambitions to become a clean-energy developer. After surveying the market, Evergrande, owned by billionaire Hui Ka Yan, concluded “the current timing is immature” to enter into solar power, the Guangzhou-based company said in an e-mailed statement to questions seeking an update on the plans. No funds have so far been spent on the solar business, the company added.
  • Asian Stocks Advance From Six-Month High on Fed Rate Optimism. Asian stocks rose, with the regional benchmark index extending a six-month high, as speculation the Federal Reserve will proceed more slowly with interest-rate increases spurs a worldwide equity advance. The MSCI Asia Pacific Index gained 0.4 percent to 148.11 as of 9:01 a.m. in Tokyo, heading for its highest close since Sept. 8.
  • Saudi’s Naimi Optimistic on Oil With Output Close to Record High. Saudi Arabia’s Oil Minister Ali al-Naimi is “optimistic” about the oil market and the world’s biggest exporter is pumping about 10 million barrels of crude a day, close to the record amount produced in 2013. Saudi Arabia is able to meet demand from any customer, al-Naimi said at a conference in Riyadh, Saudi Arabia, on Sunday. While global demand for oil is improving, there isn’t enough need to raise the nation’s production capacity beyond its current level of 12.5 million barrels a day, he said. OPEC’s refusal to cut production amid the surge in U.S. shale output fed a surplus that contributed to a drop of almost half in prices over the past year. The Organization of Petroleum Exporting Countries would have lost market share if it had cut output at the group’s Nov. 27 meeting, al-Naimi said. “Saudi Arabia cut output in 1980s to support prices. I was responsible for production at Aramco at that time, and I saw how prices fell, so we lost on output and on prices at the same time,” al-Naimi said. “We learned from that mistake.” Saudi Arabian Oil Co. is the state oil company known as Saudi Aramco.
Wall Street Journal:
  • NATO Military Chief Philip Breedlove Flags Ukraine Risks. ‘Inaction could be destabilizing,’ says Breedlove. The North Atlantic Treaty Organization’s top military commander said Sunday that not delivering weapons to Ukraine carries risks and registered continued concerns about the implementation of the war-torn country’s cease-fire agreement signed in February.
  • Sen. Ted Cruz of Texas to Announce 2016 GOP Presidential Bid. Champion of tea party movement sees advantage to starting early. Sen. Ted Cruz of Texas, a champion of the tea party movement who hopes to woo the GOP’s most conservative voters, is to announce on Monday that he is a candidate for his party’s presidential nomination in 2016, Cruz campaign aides say. Mr. Cruz would be the first major Republican candidate to officially announce a start to his campaign in what is sure to be a crowded field. 
  • Strong Dollar Hammers Profits at U.S. Multinationals. Analysts have sharply reduced earnings estimates; smaller, domestically focused firms gain allure. The soaring dollar is crunching profits at giant U.S. multinationals, prompting Wall Street analysts to make their deepest cuts to earnings forecasts since the financial crisis and boosting the appeal of smaller, domestically focused companies. The dollar has jumped 12% in 2015 against the euro and is up 27% from a year ago. The WSJ Dollar Index, which measures the dollar against a basket of currencies, is up 5.3% this year. 
  • It’s High Time to ‘Audit’ the Federal Reserve. Since 2008 the Fed has run vast, and risky, economic experiments without effective congressional oversight. The calls in Washington to “audit” the Federal Reserve are not for a narrow, bean-counting review of the institution’s financial statements. The audit’s goal is more fundamental: to assure that the checks and balances in a democratic government also apply to central bankers. It means figuring out how our elected representatives can effectively oversee unelected monetary “experts.” History shows that these so-called experts are prone to destructive inflationary and deflationary blunders, and that the Fed’s actions over... 
Fox News:
  • UN Envoy warns: Yemen is being pushed 'to the edge of civil war'. (video) The U.N. special envoy for Yemen warned an emergency meeting of the U.N. Security Council on Sunday that events appear to be leading the country "to the edge of civil war" and urged all parties to step back from the brink and resolve the conflict peacefully. Jamal Benomar stressed repeatedly in a video briefing from Qatar that "peaceful dialogue is the only option we have."
Zero Hedge:
  • The Farce That Is The "Market" In One Chart. This is what happened to the world's most valuable company(AAPL) in the last minutes of trading, when a few million shares in the last 10 minutes, and a volume slam in the last few seconds, sent the stock from just shy of $128 where it had been trading most of the day, to just over $125. A nearly $10 billion move in market cap in seconds.... on nothing. 
Business Insider:
  • Iran's leader says ‘Of course, yes, death to America’ amid tense nuclear talks. Iran’s Supreme leader Ali Khamenei called for “Death to America” on Saturday, a day after President Barack Obama appealed to Iran to seize a “historic opportunity” for a nuclear deal and a better future, and as US Secretary of State John Kerry claimed substantial progress toward an accord. Khamenei told a crowd in Tehran that Iran would not capitulate to Western demands. When the crowd started shouting, “Death to America,” the ayatollah responded: “Of course yes, death to America, because America is the original source of this pressure.
  • Abe-Kuroda honeymoon soured by fiscal friction. A rift is emerging between Prime Minister Shinzo Abe and his hand-picked central bank boss on how to fix Japan's tattered finances, which could blunt the impact of the "Abenomics" stimulus policies they have worked together to prosecute. Two years into Bank of Japan Governor Haruhiko Kuroda's tenure, the cracks are becoming hard to conceal and could affect the timing of any further monetary easing and an eventual end to the massive money-printing program he set in train.
Financial Times:
  • Greece’s leader warns Merkel of ‘impossible’ debt payments. Alexis Tsipras, the Greek prime minister, has warned Angela Merkel that it will be “impossible” for Athens to service debt obligations due in the coming weeks if the EU fails to distribute any short-term financial assistance to the country. The warning, contained in a letter sent by Mr Tsipras to the German chancellor and obtained by the Financial Times, comes as concerns mount that Athens will struggle to make pension and wage payments at the end of this month and could run out of cash before the end of April.
Economic Daily News:
  • Suppliers Say Apple(AAPL) Watch Monthly Shipments Target Halved. Apple halved Apple Watch shipment target to 1.25m-1.5m a month because of suppliers' relatively low yield rates of assembling and display panels, citing people in the supply chain.
  • Iran Is Not Given to Concessions, Negotiator Araghchi Tells IRNA. Iran is not to give away any concessions in talks with the 5+1, senior nuclear negotiator Abbas Araghchi cited as saying by the country's official Islamic Republic News Agency.
Night Trading
  • Asian indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 1113.0 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 60.5 -3.5 basis points.
  • S&P 500 futures +.13%.
  • NASDAQ 100 futures +.13%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases
8:30 am EST
  • The Chicago Fed National Activity Index for February is estimated to fall to .1 versus .13 in January.
10:00 am EST
  • Existing Home Sales for February are estimated to rise to 4.92M versus 4.82M in January.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Fisher speaking, Fed's Williams speaking, Fed's Mester speaking and the HSBC China PMI data could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate 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 50% net long heading into the week.

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