Broad Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Volume: Slightly Above Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- VIX 18.87 +7.34%
- ISE Sentiment Index 83.0 -45.75%
- Total Put/Call 1.23 +29.47%
- NYSE Arms 1.61 +190.0%
Credit Investor Angst:
- North American Investment Grade CDS Index 99.42 bps +3.26%
- European Financial Sector CDS Index 174.55 bps +3.57%
- Western Europe Sovereign Debt CDS Index 111.18 bps -.03%
- Emerging Market CDS Index 231.80 bps +1.68%
- 2-Year Swap Spread 10.25 -.75 basis point
- TED Spread 21.75 -.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -25.5 +.25 unch.
Economic Gauges:
- 3-Month T-Bill Yield .09% unch.
- Yield Curve 137.0 -8 basis points
- China Import Iron Ore Spot $121.60/Metric Tonne +.41%
- Citi US Economic Surprise Index 50.50 -.2 point
- 10-Year TIPS Spread 2.47 -2 basis points
Overseas Futures:
- Nikkei Futures: Indicating -100 open in Japan
- DAX Futures: Indicating +38 open in Germany
Portfolio:
- Lower: On losses in my tech, biotech, medical and retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Obama May Levy Carbon Tax to Cut U.S. Deficit, HSBC Says. Barack Obama may consider introducing
a tax on carbon emissions to help cut the U.S. budget deficit
after winning a second term as president, according to HSBC
Holdings Plc. A tax starting at $20 a metric ton of carbon dioxide
equivalent and rising at about 6 percent a year could raise $154
billion by 2021, Nick Robins, an analyst at the bank in London,
said today in an e-mailed research note, citing Congressional
Research Service estimates.
- Smith & Wesson(SWHC), Gunmakers Rally After Obama Re-Elected.
Smith & Wesson Holding Corp. (SWHC) climbed the most in two months
to lead a rally among firearms manufacturers as traders speculated that
President Barack Obama’s re-election will spur gun sales. Smith &
Wesson, a maker of pistols and rifles, jumped 7.8 percent to $10.20 at
11:51 a.m. in New York following an 11 percent gain that was the biggest
in intraday trading since Sept. 7. Sturm Ruger & Co. (RGR) rose 5.5
percent to $47.10.
- Republicans to Hold Most Governor Offices Since 2000. Republicans won the North Carolina governor’s office from
Democrats to take control of 30 U.S. statehouses, the most in more than a
decade. The party also held off re-election challenges in Utah
and North Dakota, and retained the corner office in Indiana, where
Republican Mitch Daniels stepped down because of term limits. Democrats
previously controlled the governor’s offices in eight of the 11 states
voting for their chief executives yesterday. The Republican
victories build on gains made two years ago, when the party’s candidates
rode a wave of economic discontent to capture 11 governor’s offices
from Democrats and reclaim a majority it lost in 2006. Its winners this
year pledged to cut taxes and spur economic growth. There were 29
Republicans in governors’ seats heading into yesterday’s election,
compared with 20 held by Democrats and one filled by an independent.
- EU Cuts 2013 Growth Forecast as Crisis Weighs on Germany. The
European Commission said the
euro-zone economy will virtually grind to a halt next year as the debt
crisis ravages southern Europe and gnaws at the economic performance of
export-driven Germany. The 17-nation euro economy will expand 0.1
percent in 2013, down from a May forecast of 1 percent, the commission
said today. It cut the forecast for Germany, Europe’s largest
economy, to 0.8 percent from 1.7 percent.
- German Economy Will Fail to Pick Up in 2013, Advisers Say. German economic growth will fail to
pick up next year as the euro region’s sovereign debt crisis
saps demand for German exports, the government’s council of
economic advisers said in its annual report. The German economy,
Europe’s biggest, will expand 0.8 percent in 2013, the same pace as this
year, the five-member council said in the 476-page report, which was
published in Berlin today. Foreign trade won’t contribute to growth as
imports accelerate faster than exports, it said. “The second half of
2012 is characterized by widespread recessionary trends in the euro zone
that impact on the German
economy through foreign trade and confidence” and damp the
economy’s expansion through declining investment, the report
said.
- Samaras Faces Down Parliament Dissenter as Greeks Strike. Greek Prime Minister Antonis Samaras
faces a test of his fragile coalition government today as he
seeks parliamentary approval of austerity measures to unlock
bailout funds amid the third general strike in six weeks. The bill on pension, wage and benefit cuts was brought to
the 300-seat Parliament today with a roll-call vote expected to
be held late in the evening. Approval of the legislation is the
first of the votes required by Nov. 12 to get a 31 billion-euro
($40 billion) aid tranche.
- Merkel Euro Budget Veto Policy Is Wrong, Council of Advisers Say. Efforts by German Chancellor Angela Merkel’s government to expand powers of the European Commission
to allow it to veto euro area states’ budgets are misplaced and
unrealistic, her panel of economic advisers said. Sovereign rights over budgets must remain under control of
national governments while obligations to follow the fiscal
arrangements devised to stabilize the euro are tightened, said
the group, known as the “Five Wise Men,” in their annual
report presented to Merkel in Berlin today. The veto plan, aired
last month by German Finance Minister Wolfgang Schaeuble,
sparked opposition in France, Italy and Spain.
- Europe Stocks Drop on Economy Concern, U.S. Fiscal Cliff.
European stocks fell the most in two weeks as the European Commission
cut its growth forecast for the region and concern over an impending
fiscal crisis in the U.S. increased after the re-election of President
Barack Obama. Randgold Resources Ltd. (RRS) slumped the most in six
months after predicting that its annual output will be at the bottom of
its target. Holcim Ltd. (HOLN), the world’s largest cement maker, slid
2.4 percent as earnings missed analysts’ estimates. The Stoxx Europe 600 Index (SXXP) declined 1.4 percent to 271.04
at the close of trading, erasing an earlier gain of as much as
0.7 percent.
Wall Street Journal:
- Election 2012.
- Post-Election: Live Blogging the Market Reaction.
- Financials Sink on Regulatory Worries, 'Cliff'.
- Hope Over Experience. A divided country gives Obama a second chance.
Some of our conservative friends will argue that Mr. Obama's victory
thus represents a decline in national virtue and a tipping point in
favor of the "takers" over the makers. They will say the middle class
chose Mr. Obama's government blandishments over Mr. Romney's opportunity
society. We don't think such a narrow victory of an incumbent President
who continues to be personally admired justifies such a conclusion.
Perhaps this fear will be realized over time, but such a fate
continues to be in our hands. There are few permanent victories or
defeats in American politics, and Tuesday wasn't one of them. The battle
for liberty begins anew this morning.
Barron's:
- Fitch Warns of U.S. Rating Downgrade if Fiscal Cliff Isn’t Averted. The election results are barely 12 hours old but Fitch Ratings
has already sent a warning shot across the bow of Obama’s second term
as president, saying on Wednesday that the U.S. triple-A credit rating
is at risk if Washington can’t avoid the fiscal cliff and reduce the
deficit.
MarketWatch.com:
- Gephardt warns of ‘bad days’ for markets. “If it looks like that is happening you could have a couple really bad
days on Wall Street,” Dick Gephardt said at an event hosted by National
Journal magazine. “You could have the markets drop by 1,000 or 2,000
points.”
HedgeFundBlogger.com:
- Hedge Funds Fell in October as Earnings Disappointed. Hedge funds took it on the chin in October, according to recent data compiled by
Bloomberg. Hedge funds reportedly lost 1.9% on average last month as weak
earnings reports appeared to betray an even weaker economy.
Bespoke Investment Group:
Reuters:
- Exclusive: Boeing(BA) to announce major defense division restructuring. Boeing
Co announced a major restructuring of its defense division on Wednesday
that will cut 30 percent of management jobs from 2010 levels, close
facilities in California and consolidate several business units to cut costs. The company told employees about the changes ahead of the planned announcement set for later
Wednesday, a copy of which was reviewed by Reuters. Boeing,
the Pentagon's second-largest supplier, said the changes were the
latest step in an affordability drive that has already reduced the
company's costs by $2.2 billion since 2010, according to the document.
- Colorado, Washington first states to legalize recreational pot. Colorado and
Washington became the first U.S. states to legalize the possession and
sale of marijuana for recreational use on Tuesday in defiance of federal
law, setting the stage for a possible showdown with the Obama
administration. Supporters
of a Colorado constitutional amendment legalizing marijuana were the
first to declare victory, and opponents conceded defeat, after returns
showed the measure garnering nearly 53 percent of the vote versus 47
percent against. But another ballot measure to
remove criminal penalties for personal possession and cultivation of
recreational cannabis was defeated in Oregon, where significantly less
money and campaign organization was devoted to the cause. "Colorado will no
longer have laws that steer people toward using alcohol, and adults will
be free to use marijuana instead if that is what they prefer. And we
will be better off as a society because of it," said Mason Tvert,
co-director of the Colorado pro-legalization campaign.
-
Merkel warns Britain against European Union exit. Germany's Angela Merkel
on Wednesday warned Britain not to turn its back on Europe ahead
of talks in London with Prime Minister David Cameron aimed at
overcoming divisions that threaten to block a European Union
budget deal later this month. Cameron has said he is ready to veto the EU's seven-year
budget and has attacked its "ludicrous" spending plans, in
comments likely to fuel a view among many in Europe that London
is drifting away from the 27-nation union.
USA Today:
Il Sole 24 Ore:
- The European Commission expects Italian gross domestic product to drop -.5% next year. The Italian govt had said on Sept. 20 that the economy would contract -.2% next year.
Style Underperformer:
Sector Underperformers:
- 1) Coal -7.23% 2) Education -6.82% 3) Disk Drives -5.33%
Stocks Faling on Unusual Volume:
- MS, GS, JPM, C, PQ, GDP, TDS, NIHD, TBBK, MBFI, SBGI, DISH, AMED, SFLY, PLXS, LPSN, ACHC, ADES, ONE, AGU, ARLP, AUXL, PRGO, VOLC, AT, KKR, BTH, EZPW, HUM, NRP, BZH, BBEP, CHTR, VSAT, PHMD, NLY, PWE, KELYA, EXXI, BTH, MNTA, BTU, INFI, VVUS, APOL, REXX, WLT, SGY, CLNE, CRZO, DVN, CLD, LLL, XLS, AOL, RAX, LNC, MET, BV, BR, WLP, PCYC, NSM, FGP, LMT, FGP, IACI, NOC, UNH, NS, PBI, AMTG, HII, SLM, BBT, PNC, PRU, MM, FSC, SLCA, KKR, VNR and TXT
Stocks With Unusual Put Option Activity:
- 1) FITB 2) XLV 3) APA 4) JRCC 5) SPLS
Stocks With Most Negative News Mentions:
- 1) UNH 2) AOL 3) RIMM 4) CVX 5) AGU
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Hospitals +.95% 2) REITs -.53% 3) Gold & Silver -.71%
Stocks Rising on Unusual Volume:
- VHS, HCA, BBY, THC, CYH, HMSY, SWHC, RGR, UHS, CDE, CNC, GGC, CIEN and TNGO
Stocks With Unusual Call Option Activity:
- 1) FITB 2) GRPN 3) SWHC 4) SLM 5) CLR
Stocks With Most Positive News Mentions:
- 1) T 2) HRS 3) S 4) TWX 5) BAC
Charts:
Night Trading
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 113.0 -4.0 basis points.
- Asia Pacific Sovereign CDS Index 87.0 -2.5 basis points.
- FTSE-100 futures +.19%.
- S&P 500 futures -.61%.
- NASDAQ 100 futures -.42%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (BDX)/1.40
- (WLP)/1.83
- (TWX)/.82
- (DVN)/.69
- (M)/.29
- (THC)/.36
- (QCOM)/.82
- (WFM)/.60
- (MNST)/.55
- (PRU)/1.67
Economic Releases
10:30 am EST
- Bloomberg consensus estimates call
for a weekly crude oil inventory build of +2,000,000 barrels versus a
-2,045,000 barrel decline the prior week. Distillate supplies are
estimated to fall by -1,250,000 barrels versus a -93,000 barrel decline the prior week. Gasoline inventories are estimated to fall by -1,500,000 barrels versus a +935,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -1.5% versus a +.5% gain the prior week.
3:00 pm EST
- Consumer Credit for September is estimated to fall to $10.175B versus $18.123B in August.
Upcoming Splits
Other Potential Market Movers
- The US election results, Eurozone retail sales data, EC report on Spanish budget, Troika report on Greece, EU forecast for Europe, EU assessment of Spanish budget, 10Y T-Note auction, weekly MBA mortgage applications report and the Wells Fargo Tech/Media/Telecom Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and consumer staple shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Almost Every Sector Rising
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- VIX 17.30 -6.08%
- ISE Sentiment Index 153.0 +35.3%
- Total Put/Call .94 +16.05%
- NYSE Arms .54 -40.39%
Credit Investor Angst:
- North American Investment Grade CDS Index 96.34 bps -.62%
- European Financial Sector CDS Index 168.59 bps -3.09%
- Western Europe Sovereign Debt CDS Index 111.21 bps -.12%
- Emerging Market CDS Index 229.85 bps -2.49%
- 2-Year Swap Spread 11.0 +1.5 basis points
- TED Spread 22.0 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -25.5 +.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .09% unch.
- Yield Curve 145.0 +4 basis points
- China Import Iron Ore Spot $121.10/Metric Tonne +.50%
- Citi US Economic Surprise Index 50.70 -2.1 points
- 10-Year TIPS Spread 2.49 +2 basis points
Overseas Futures:
- Nikkei Futures: Indicating +100 open in Japan
- DAX Futures: Indicating +33 open in Germany
Portfolio:
- Higher: On gains in my tech, biotech, medical and retail sector longs
- Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 75% Net Long
