Durable Goods Orders for November are estimated to fall -.5% versus a -3.3% decline in October.
Durables Ext Transports for November are estimated to rise +1.8% versus a -2.7% decline in October.
Cap Goods Orders Non-defense Ex Air for November are estimated to rise +3.1% versus a -4.5% decline in October.
Personal Income for November is estimated to rise +.2% versus a +.5% gain in October.
Personal Spending for November is estimated to rise +.5% versus a +.4% gain in October.
PCE Core for November is estimated to rise +.1% versus unch. in October.
Initial Jobless Claims for last week are estimated at 420K versus 420K the prior week.
Continuing Claims are estimated to fall to 4100K versus 4135K prior.
9:55 am EST
Final Univ. of Mich. Consumer Confidence for December is estimated to rise to 74.5 versus a prior estimate of 74.2.
10:00 am EST
New Home Sales for November are estimated to rise to 300K versus 283K in October.
Upcoming Splits
(ABV) 5-for-1
Other Potential Market Movers
The weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 84.94 -.37%
European Financial Sector CDS Index 158.44 bps +3.80%
Western Europe Sovereign Debt CDS Index 194.50 bps +1.04%
Emerging Market CDS Index 176.28 bps -15.81%
2-Year Swap Spread 23.0 +2 bps
TED Spread 17.0 -1 bps
Economic Gauges:
3-Month T-Bill Yield .13% +1 bp
Yield Curve 273.0 +2 bps
China Import Iron Ore Spot $171.0/Metric Tonne +.65%
Citi US Economic Surprise Index +14.30 -3.3 points
10-Year TIPS Spread 2.31% +3 bps
Overseas Futures:
Nikkei Futures: Indicating +40 open in Japan
DAX Futures: Indicating +26 open in Germany
Portfolio:
Slightly Higher: On gains in my Medical and Retail long positions
Disclosed Trades: None of note
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades slightly higher despite recent stock gains, some earnings disappointments and rising eurozone sovereign debt angst. On the positive side, Defense, Disk Drive, Bank, Construction, Homebuilding and Education shares are especially strong, rising more than 1.0%. (IYR)/(XLF) have outperformed throughout the day again. The S&P GSCI Ag Spot Index is rising another +.5% and is very close to its record high set in Feb. 2008. Lumber is also rising +1.5%. The 10-year yield is stable again. On the negative side, Airline, Gaming and Steel shares are under mild pressure. The Greece sovereign cds is climbing +3.85% to 1,020.58 bps, the UK sovereign cds is climbing +4.86% to 72.41 bps and the Italy sovereign cds is rising +2.35% to 225.35 bps. The Euro Financial Sector CDS Index is rising to the highest level since mid-June and the Western Europe Sovereign CDS Index remains very near its record high set last month, which is also a big negative. The broad market continues to display exceptional resiliency as negatives continue to be ignored. The slow grind higher in the major averages to new 52-week highs could result in a short-term spike higher in stocks before any meaningful pullback commences as shorts throw in the towel and underperforming longs come in to finish out the year. A short-covering rally in the euro could be a potential short-term upside equity catalyst. I expect US stocks to trade mixed-to-higher into the close from current levels on seasonal strength, less economic fear, diminishing financial sector pessimism, short-covering, technical buying, buyout speculation and investment manager performance angst.
Banks Best Basel as Regulators Dilute or Delay Capital Rules. More than 500 representatives from 27 nations, including top regulators and central bankers, met dozens of times this year to hammer out 440 pages of new rules to govern the world’s banks. What’s not in the documents published by the Basel Committee on Banking Supervision, and the escape hatches that are, may have more impact on how financial institutions will operate following a global credit crisis that led to $1.8 trillion in bank losses and writedowns. The committee’s most significant achievement, members say, an agreement to increase the amount of capital banks need to hold, won’t go into full effect for eight years. Other measures that regulators had hoped would prevent future crises -- liquidity standards, a capital surcharge on the biggest lenders and a global resolution mechanism for failing firms -- were postponed, allowing banks to escape the toughest rules that would force them to change the way they do business.
Japan's Export Growth Accelerated in November. Japan’s export growth accelerated for the first time in nine months as a rebound in global demand helped the nation’s economy withstand the yen’s advance to a 15- year high. Overseas shipments rose 9.1 percent in November from a year earlier, from October’s 7.8 percent gain, the Finance Ministry said in Tokyo today.
Spain Power Debt Infects Enel With Sovereign Bond Market Woes: Euro Credit. Europe’s spreading sovereign debt crisis is making it tougher for Spain to pay electricity bills, and that’s infecting corporate bonds beyond its borders. Enel SpA, the Italian owner of Spanish power company Endesa SA, was put under review for a possible downgrade last week by Moody’s Investors Service because the Spanish government’s surging financing costs led it to freeze plans to repay 14.6 billion euros ($19.2 billion) owed to its utilities. Enel bonds were the worst performers this month among the 50 biggest non- financial issuers in Bank of America’s EMU Corporate Index. “The contagion between corporate and sovereign is already happening,” said Tom Sartain, a fund manager at London-based Schroders Plc, which oversees $245 billion of assets. “The instability of the sovereign is filtering through.”
North Korea Deployed Missiles on West Coast Dec. 20, Chosun Ilbo Reports. North Korea deployed more missiles on its west coast on Dec. 20, when South Korea conducted artillery drills on an island in waters along the two nation’s western sea border, the Chosun Ilbo newspaper reported, citing an unidentified government official.
Energy Put Trades to Double Average After Single Bet. Trading of bearish options on U.S. energy companies jumped to 2.6 times the four-week average, boosted by a single bet that an exchange-traded fund tracking 40 companies including Exxon Mobil Corp. and Chevron Corp. will retreat by February. Almost 56,000 puts to sell the Energy Select Sector SPDR Fund changed hands as of 4 p.m. in New York, nine times the number of calls to buy. The ETF rose to the highest since September 2008, climbing 1 percent to $66.99. Most of the volume was concentrated in a single trade in which an investor initiating a new position bought 20,000 February $66 puts and sold 10,000 February $69 puts in a spread strategy, options strategists at Susquehanna International Group LLP wrote in a report. Using a spread strategy caps potential gains while cutting the cost of the trade. “This investor is likely positioning for substantial weakness in shares heading into February expiration,” the Bala Cynwyd, Pennsylvania-based strategists wrote. Those contracts expire Feb. 18.
Fuel-Oil Loss in Asia Set to Jump to Two-year High on Glut: Energy Markets. Refining losses from producing fuel oil in Asia may widen 30 percent to the most in two years in the next month as an increase in crude processing leads to a glut. The loss from turning crude into the fuel, the so-called crack spread, may rise to $13 a barrel by the end of January from about $10 this month, a Bloomberg News survey of four traders showed. The last time it was at that level was in November 2008, when crude traded below $60 a barrel, compared with almost $90 today, according to data compiled by Bloomberg.
Bloomberg Sues ECB to Force Disclosure of How Greece's Swaps Hid Deficit. Bloomberg News filed a lawsuit against the European Central Bank, seeking to make it disclose documents showing how Greece used derivatives to hide its fiscal deficit and helped trigger the region’s sovereign debt crisis.
China Raises Gasoline Prices for Third Time This Year as Global Costs Jump. China raised gasoline and diesel prices today by less than half of what crude oil has gained in the past month as the world’s fastest-growing major economy seeks to contain inflation. The price of gasoline will rise by as much as 4 percent to 310 yuan ($47) a metric ton and diesel by 300 yuan a ton, the National Development and Reform Commission said in a statement on its website yesterday, the third increase this year in the world’s second-largest oil consumer.
China's Risk-Weighting Rule May Cut Banks' Capital, Profits, Barclays Says. China’s higher risk-weighting requirements on $1.2 trillion of loans to local governments will cut banks’ capital adequacy ratios and profits, according to Barclays Capital. The China Banking Regulatory Commission may require lenders to assign 100 percent risk weightings for loans fully covered by cash flows, up from the current 50 percent, and as much as a 300 percent for uncovered loans, Barclays said in a note today, citing a China Business News report published yesterday. The risk-weighting rule has already been made official, the note said, citing unidentified banks.
Wall Street Journal:
Trader Holds $3 Billion of Copper in London. As commodity prices soar to new records, the ability of a few traders to hold huge swaths of the world's stockpiles is coming under scrutiny. The latest example is in the copper market, where a single trader has reported it owns 80% to 90% of the copper sitting in London Metal Exchange warehouses, equal to about half of the world's exchange-registered copper stockpile and worth about $3 billion. The report coincided with copper prices soaring to new records on Tuesday.
The Net Neutrality Coup. The campaign to regulate the Internet was funded by a who's who of left-liberal foundations. The Federal Communications Commission's new "net neutrality" rules, passed on a partisan 3-2 vote yesterday, represent a huge win for a slick lobbying campaign run by liberal activist groups and foundations. The losers are likely to be consumers who will see innovation and investment chilled by regulations that treat the Internet like a public utility.
China Banks May Face Higher Reserve Ratios in 2011. Leading Chinese banks could be required to set aside 23% of their deposits as reserves next year, as authorities seek to increase administrative measures to drain excess cash from the financial system, according to a China Daily report Wednesday, citing a leading economist's comments. The reserve-ratio hike will elevate the rate to the highest on record for any central bank, the state-run newspaper reported Industrial Bank Co.'s chief economist Lu Zhengwei as saying Tuesday.
$305 on Gas This Month - Bah! Humbug! Holiday shoppers will need to bump up their budget for one purchase this year, and they can't even put it under the tree: gasoline. The price of fuel is up 13.6% from last December and 76% higher from December 2008, according to a new study from the Oil Price Information Service. Nationwide, drivers are estimated to spend $305 on gasoline in December.
EPA to Double Down on Climate. The Obama administration is expected to roll out a major greenhouse gas policy for power plants and refineries as soon as Wednesday, signaling it won’t back off its push to fight climate change in the face of mounting opposition on Capitol Hill. The Environmental Protection Agency has agreed to a schedule for setting greenhouse gas emission limits, known as “performance standards,” for the nation’s two biggest carbon-emitting industries, POLITICO has learned.
Reuters:
Red Hat(RHT) Outlook Beats Wall Street View. Business software maker Red Hat Inc issued an outlook for profit and revenue above Wall Street projections on Tuesday, echoing optimism about the technology spending climate shown by bigger industry companies last week. Red Hat Chief Executive Jim Whitehurst said that market demand for his company's products was "strong" as revenue exceeded Wall Street projections. "We are seeing expansion of green shoots," he said in an interview.
Tibco Software(TIBX) Forecasts Strong Q1. Business software maker Tibco Software Inc forecast first-quarter revenue above analysts' estimates and reiterated its fiscal 2011 earnings growth forecast.
Xilinx(XLNX) Sees Larger Rev Drop in Q3, Shares Fall. n">Programmable chipmaker Xilinx Inc said it expects a sequential decline in third-quarter revenue due to weaker sales to a few large communications customers, sending its shares down 6 percent after the bell. The company now expects a 7-9 percent sequential decline in quarterly revenue, which is greater than the flat to 4 percent fall it had forecast earlier.
Lai Fung Says China Property Sales May Decline 20%. Lai Fung Holdings expects property sales on the mainland to slow down next year as the impact of wider macroeconomic curbs are beginning to be felt in the real estate market.
Evening Recommendations Citigroup:
Reiterated Buy on (FINL), target $21.
Reiterated Buy on (CCL), boosted target to $56.
Night Trading
Asian equity indices are unch. to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 104.5 -1.5 basis points.
Asia Pacific Sovereign CDS Index 105.25 -1.5 basis points.
Revised 3Q GDP is estimated to rise +2.8% versus a prior estimate of a +2.5% gain.
Revised 3Q Personal Consumption is estimated to rise +2.9% versus a prior estimate of a +2.8% gain.
Revised 3Q GDP Price Index is estimated to rise +2.3% versus a prior estimate of a +2.3% increase.
Revised 3Q Core PCE is estimated to rise +.8% versus a prior estimate of a +.8% gain.
10:00 am EST
Existing Home Sales for November are estimated to rise to 4.75M versus 4.43M in October.
The House Price Index for October is estimated to fall -.2% versus a -.7% decline in September.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory decline of -3,400,000 barrels versus a -9,854,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +1,500,000 barrels versus a +809,000 barrel gain the prior week. Distillate inventories are expected unch. versus a +1,094,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a +.5% gain the prior week.
Upcoming Splits
None of note
Other Potential Market Movers
The weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 85.25 -1.17%
European Financial Sector CDS Index 159.94 bps +3.73%
Western Europe Sovereign Debt CDS Index 192.50 bps -.69%
Emerging Market CDS Index 209.12 bps -.76%
2-Year Swap Spread 21.0 -2 bps
TED Spread 18.0 -2 bps
Economic Gauges:
3-Month T-Bill Yield .12% +2 bps
Yield Curve 271.0 -3 bps
China Import Iron Ore Spot $169.90/Metric Tonne +.18%
Citi US Economic Surprise Index +17.60 +.2 point
10-Year TIPS Spread 2.28% unch.
Overseas Futures:
Nikkei Futures: Indicating +45 open in Japan
DAX Futures: Indicating +18 open in Germany
Portfolio:
Higher: On gains in my Tech, Ag, Biotech and Retail long positions
Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades higher despite recent stock gains, US muni debt worries and rising eurozone sovereign debt angst. On the positive side, Airline, Road & Rail, REIT, Homebuilding, Construction, Insurance, I-Banking, Bank, Disk Drive, Computer, Software, Coal, Alt Energy, Oil Tanker, Energy, Ag and Steel shares are especially strong, rising more than 1.0%. Cyclicals and small-caps are relatively strong. (IYR)/(XLF) have outperformed throughout the day. Copper is jumping another +1.8% despite euro weakness. The 10-year yield is stable again. On the negative side, Medical Equipment, Restaurant and Education shares are down today. The Greece sovereign cds is climbing +3.23% to 1,005.91 bps, the Russia sovereign cds is gaining +4.81% to 151.83 bps, the Portugal sovereign cds is climbing +3.44% to 483.97 bps and the Italy sovereign cds is rising +6.03% to 220.55 bps. The Euro Financial Sector CDS Index is jumping to the highest level since mid-June and the Western Europe Sovereign CDS Index remains very near its record high set last month, which is also a big negative. Moreover, the Illinois muni cds is rising +4.03% to 330 bps, which is 40 bps away from its record set in late June. US stocks remain extremely resilient as the S&P 500 breaks out of its recent range to a new 52-week high despite these headwinds. Seasonality, diminishing attacks from Washington on business and better US economic data continue to trump these concerns. I expect US stocks to trade mixed-to-higher into the close from current levels on seasonal strength, less economic fear, diminishing financial sector pessimism, short-covering, technical buying and investment manager performance angst.
