Broad Market Tone:
- Advance/Decline Line: About Even
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 89.0 -16.82%
- Total Put/Call 1.05 +31.25%
Credit Investor Angst:
- North American Investment Grade CDS Index 88.80 -.85%
- European Financial Sector CDS Index 134.33 +2.15%
- Western Europe Sovereign Debt CDS Index 100.0 +1.11%
- Emerging Market CDS Index 212.72 -1.25%
- 2-Year Swap Spread 12.75 -.5 bp
- TED Spread 22.25 -1.5 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -17.75 -.75 bp
Economic Gauges:
- 3-Month T-Bill Yield .08% +2 bps
- China Import Iron Ore Spot $152.90/Metric Tonne -1.10%
- Citi US Economic Surprise Index 7.90 -1.0 point
- 10-Year TIPS Spread 2.53 unch.
Overseas Futures:
- Nikkei Futures: Indicating +19 open in Japan
- DAX Futures: Indicating +18 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/retail sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- Fitch Says Top AAA Sovereign Ratings Under Pressure in 2013. Fitch
Ratings said its AAA credit rankings on France, the U.S. and the U.K.
are likely to come under pressure this year due to slow economic growth
and high debt levels. The three nations, which all have a negative
outlook from the company, have seen gross domestic product struggle to
recover from the global financial crisis while debt levels have
increased amid efforts to spur growth. A failure of U.S. lawmakers
to raise the nation’s debt ceiling would prompt a “formal review” of its
credit rating, Fitch said in a press release today. “Triple A
sovereigns are under threat,” Ian Linnell, Fitch’s analytical group
manager, said at a briefing in London as the company published its
European Credit Outlook. “Debt-to- GDP ratios are significantly high,” compared with previous
periods, he said. “In particular the U.S., France and the U.K.
all have negative outlooks, reflecting a combination of a
challenging fiscal position and low-to-negligible growth."
- Euro Extends Losses as Juncker Says Currency ‘Dangerously High’.
The euro extended losses against the
dollar and yen as Luxembourg Prime Minister Jean-Claude Juncker said the
shared currency’s foreign-exchange rate is “dangerously high.” Juncker,
who leads the group of euro-area finance ministers, spoke at an
event in Luxembourg. Japan’s currency gained earlier for the first time
in five days against the dollar and the yen on bets its drops were
excessive. The Swiss franc slid to a 13-month low versus the euro as
signs Europe’s debt crisis is easing cut demand for the currency as a
haven. “If the exchange rate is very high, that’s going to hurt trade and weigh on growth in the euro zone through trade channels,” Sireen Harajli, a foreign-exchange strategist in New
York at Credit Agricole SA, said in a telephone interview.
- German Economy Probably Contracted 0.5% in Fourth Quarter. Germany’s
economy, Europe’s largest, probably shrank in the final quarter of 2012
as the sovereign debt crisis and weaker global growth damped exports
and company investment. Gross domestic product may have dropped as much
as 0.5 percent from the third quarter, the Federal Statistics Office in Wiesbaden said today in a preliminary
estimate.
- Renault to Cut 17% of French Jobs on European Car Market. Renault SA (RNO), the automaker whose sales in Europe dropped the most in 2012, will cut 17 percent of
its French workforce in the next four years to reduce costs as
the region’s market sinks for a sixth straight year in 2013.
- Manufacturing in New York Region Contracts for Sixth Month.
Manufacturing in the New York region contracted in January for the
sixth straight month as the industry continued to face the effects of
fiscal uncertainty in the U.S. and lackluster demand overseas. The Federal Reserve Bank of New York’s general economic index fell to minus 7.8 from a revised minus 7.3 in December.
The median forecast of 54 economists in a Bloomberg survey
called for a reading of zero, which signals no change in
conditions.
- Copper Falls to 2-Week Low After Rio’s Beats Forecasts. Copper
dropped to a two-week low as Germany’s economy slowed and U.S.
lawmakers struggled to reach an agreement to raise the nation’s
borrowing limit. Manufacturing in the New York region contracted for a
sixth straight month in January and German growth slowed more than
expected last year, separate reports today showed. President Barack Obama said at a White House news conference yesterday
that he won’t negotiate over raising the debt ceiling, warning
of economic calamity if Congress fails to increase the $16.4
trillion limit.
- Lennar(LEN) Earnings Beat Analysts’ Estimates as Revenue Jumps.
Lennar Corp. (LEN), the largest U.S. homebuilder by market value,
reported fiscal fourth-quarter earnings that beat analysts’ estimates as
revenue jumped 42
percent and profit margins climbed.
Net income for the three months through Nov. 30 rose to
$124.3 million, or 56 cents a share, from $30.3 million, or 16
cents, a year earlier, the Miami-based company said today in a
statement.
- Intel(INTC) to GE(GE) Stuck in Earnings Slump as U.S. Rebound Stalls. U.S. companies from Intel Corp. to General Electric
Co. are caught in an earnings slump that shows few signs of improving
until midyear as a weak global economy and gridlock in Congress weigh
on profits. Intel, the world’s largest
semiconductor maker, is poised to report its biggest quarterly earnings
drop in 3 1/2 years this week, based on analysts’ estimates compiled by
Bloomberg. GE, the maker of jet engines and electrical generation
equipment, may post its slowest profit growth in three quarters.
- India Says ‘No Business as Usual’ With Pakistan After Clash.
Indian Foreign Minister Salman Khurshid said Pakistan’s failure to
investigate the killing of Indian troops in Kashmir meant an end to
“business as usual,”
sharpening the country’s diplomatic offensive against its long-
time rival. The two governments and their militaries have for more than
a week traded accusations of deadly raids across the de facto
frontier in the disputed Himalayan region, skirmishes that have
become the biggest threat to normalizing ties since peace talks
resumed two years ago.
- China Will ‘Gradually’ Implement Property Tax System, Wen Says. China should “gradually” establish
a property taxation system that covers trading and ownership,
Premier Wen Jiabao said during a visit to the finance ministry today.
The comments were published in a statement posted on the central
government’s website. In its more than two-year effort to curb the
property market, the government has raised down- payment and mortgage
requirements, imposed a property tax for
the first time in Shanghai and Chongqing, increased building of
low-cost social housing, and placed home-purchase restrictions
in about 40 cities.
Many Chinese cities are preparing to introduce property tax
trials, the China Securities Journal reported on Nov. 16, citing
unidentified people.
Wall Street Journal:
- IEA Head: Decline in Crude Production Unlikely.
The head of the International Energy Agency Maria Van der Hoeven said
Monday she doesn't see a further decline in global crude production in
2013, after top oil exporter Saudi Arabia made its deepest cut in almost
three years. Saudi Arabia cut its oil production by close to 5% to 9.025 million
barrels a day in December in response to lower demand chiefly from Asian
customers, and comes amid expectations for lower demand for crude
oil
from the Organization of the Petroleum Exporting Countries this year.
Asked by Dow Jones Newswires in an interview if the market is likely
to see further production cuts this year, Mrs. Van der Hoeven said: "I
don't think so."
- Fed’s Plosser Thinks Policy Will Need to Be Curtailed Sooner Than Anticipated. Federal Reserve Bank of Philadelphia President Charles Plosser
held firm in his view that the central bank’s loose monetary policy
will need to be reined in sooner than anticipated to prevent an
acceleration of inflation in the coming years. Mr. Plosser maintained his view that inflation would remain close to the
Fed’s 2% target over the medium to long term, but added that “this
expectation is based on my assessment that the appropriate monetary
policy is likely to tighten more quickly” than the Federal Reserve Open
Market Committee indicated in its latest statement.
Reuters:
- Exclusive: Morgan Stanley to defer bonuses for top earners - sources.
Morgan Stanley is deferring 100 percent of bonuses for top-earning
employees, according to three sources familiar with the situation. The
deferral applies to all employees, except for financial advisers,
making more than $350,000 and whose bonuses are at least $50,000 over a
three-year period, one source said.
- SAP(SAP) falls short of expectations as Oracle makes running. Quarterly
earnings from SAP AG fell short of expectations on Tuesday, showing the
German business software maker failed to keep up with arch-rival Oracle
Corp and sending its shares sharply lower. SAP's results, released
more than a week before they had been scheduled, showed group revenue
rose 12 percent to 5.06 billion euros ($6.8 billion), below an average
analyst forecast of 5.17 billion, according to Reuters data.
Operating profit rose more slowly than revenue, gaining 10 percent to
1.96 billion euros, resulting in SAP's operating margin narrowing by 0.8
percentage points to 38.8 percent in the three months through December.
- U.S. taxes will rise for more than just the ultra-wealthy. The big numbers under
discussion following the American Taxpayer Relief Act of 2012
have been $400,000, the income level where new marginal rates
kick in for singles, and $450,000, for married couples filing
jointly. But two limitations on tax breaks for high-income earners
are returning at much lower income thresholds, amounting to
something of a stealth increase. And there are few ways to get
around them.
- US condemns comments by Egypt's Mursi in 2010 as Islamist leader. White House spokesman Jay Carney told reporters that the
language Mursi had used was "deeply offensive" and that U.S.
officials raised concerns with the Egyptian government on the
matter. Nearly three years ago, Mursi, as an Islamist political
leader, delivered a speech urging Egyptians to "nurse our
children and our grandchildren on hatred" for Jews and Zionists,
the New York Times reported. In a television interview months
later, he described Zionists as "these bloodsuckers who attack
the Palestinians, these warmongers, the descendants of apes and
pigs," the newspaper said.
Telegraph:
DigiTimes:
- Entry-level iPhone reportedly may adopt plastic chassis. Apple's(AAPL) rumored entry-level iPhone reportedly may adopt plastic for its
chassis instead of reinforced glass or unibody metal as in the company's
standard iPhone models, to save cost, according to sources from the
upstream supply chain.
Style Underperformer:
Sector Underperformers:
- 1) Computer Hardware -.70% 2) Papers -.61% 3) Semis -.60%
Stocks Falling on Unusual Volume:
- LEAP, BBCN, CBSH, BODY, SYA, MFC, HL, GIVN, GMAN, LULU, ARMH, FISV, SAP, PSMI, LEN, LPL, NILE, WCG, MX, HTHT, INFY, HDB, SSL, AAPL, IMOS, SYA, AAWW, ED, ISRG and ALNY
Stocks With Unusual Put Option Activity:
- 1) XLB 2) XLI 3) KBH 4) USB 5) GT
Stocks With Most Negative News Mentions:
- 1) ALTR 2) AFL 3) REGN 4) MS 5) MFLX
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Education +1.29% 2) Gold & Silver +.64% 3) Hospitals +.34%
Stocks Rising on Unusual Volume:
- EXPR, SNTS, QLGC and SPLK
Stocks With Unusual Call Option Activity:
- 1) EXPR 2) FXY 3) DELL 4) DLTR 5) CMCSK
Stocks With Most Positive News Mentions:
- 1) M 2) LMT 3) JEC 4) UPS 5) CVX
Charts:
Evening Headlines
Bloomberg:
- Draghi’s Bond Rally Masks Debt Doom Loop Trapping Spain. The bond rally that has sent Spanish
borrowing costs to 10-month lows has distracted attention from
the nation’s growing debt pile. Spain’s budget deficit probably exceeded 9 percent for a
fourth year in 2012 as Europe’s highest unemployment rate, a
third recession in four years and the cost of bailing out its
banks offset almost all of the government’s 62 billion euros
($83 billion) of spending cuts and tax increases, according to
economists at Societe Generale SA (GLE), Lombard Street Research and
the Madrid-based Applied Economic Research Foundation. Total debt will reach 97 percent of gross domestic product
this year, the International Monetary Fund forecasts. “This is a classic example of the doom loop,” Societe
Generale’s London-based chief European economist, James Nixon,
said in a Jan. 10 telephone interview. “They just aren’t making
any progress.”
- Berlusconi Gains in Polls as Italians Swayed by Media Blitz. Public support for Berlusconi’s coalition rose to 27.9
percent from 25.3 percent a month ago, according to a poll by
EMG released by television station La 7 late yesterday. Front-
runner Pier Luigi Bersani’s coalition of center-left parties
slipped to 37.4 percent from 40.3 percent.
- RBS Said to Face $800 Million Libor Fine as Early as Next Week. Royal
Bank of Scotland Group Plc may pay as much as 500 million pounds ($804
million) in fines next week to settle allegations traders tried to rig
interest rates,
two people with knowledge of the matter said.
- KeyBanc
Cuts 2013 U.S. Steel-Scrap Forecast on Lower Demand. Scrap-price outlook
lowered to $360 a long ton, from $410-$415, KeyBanc Capital Markets
analysts led by Cleveland-based Mark Parr said today. Lower prices for
seaborne iron ore and "tepid" demand for scrap exports signal lower
prices, KeyBanc said.
- Bernanke to Scrutinize QE Costs as Fed Assets Near Record. Federal Reserve Chairman Ben S. Bernanke indicated he will closely scrutinize the potential
costs of asset purchases aimed at spurring economic growth as
the Fed’s balance sheet approaches $3 trillion. “So far, we think we are getting some effect, it is kind of
early,” Bernanke said today at the University of Michigan’s
Gerald R. Ford School of Public Policy in Ann Arbor. “We are
going to continue to assess how effective” the program is
“because it is possible that as you move through time and the
situation changes that the impact of these tools could vary.”
- Bernanke Sees ’No Completely New’ Stimulus Method for Fed. Federal Reserve Chairman Ben S. Bernanke said he isn’t aware
of any new stimulus tool for the central bank to use to try to boost
growth. “As far as I’m aware, there’s no completely new method
that we haven’t” already tapped, Bernanke said today in Ann Arbor,
Michigan. The Fed lowered its benchmark interest rate to near
zero in December 2008. Since doing so, its two main approaches for
further easing have been communications about the outlook for interest
rates and asset-purchase programs, both of which the central bank has
used, Bernanke said.
- IMF’s Zhu Says Japanese Debt Overhang Is Getting More Serious. International Monetary Fund official
Zhu Min said Japan’s debt burden is becoming “more serious” as
the government takes extra steps to stimulate growth in the
world’s third-biggest economy. “The debt overhang is becoming more serious so they need
to go further in fiscal consolidation,” Zhu, a deputy managing
director at the IMF, said in an interview in Hong Kong today,
where he’s attending the Asian Financial Forum. Japan announced 10.3 trillion yen ($115 billion) in fiscal
stimulus last week as Prime Minister Shinzo Abe followed through
on election pledges to weaken the yen, counter deflation and
spur economic growth. The risk is that the nation’s debt burden,
estimated by the IMF at 237 percent of gross domestic product
last year, will lead to a surge in government bond yields.
- Yen Rallies as Japan Official Amari Comments on Currency. The yen rose against its major peers
after comments by Japan’s economy minister stoked speculation
the nation won’t try to spur further weakness in its currency. The yen ended four days of declines against the dollar
after Akira Amari said an excessively weak currency has negative
effects on livelihoods. The dollar traded near a 10-month low
against the euro as Treasury Secretary Timothy F. Geithner warned that
failure to raise the debt ceiling by early March would “impose severe
economic hardship.” “The world has gone massively short yen on the
idea that Japan is going to be more aggressive with its stimulus under
the new prime minister,” said Imre Speizer, a strategist in Auckland at
Westpac Banking Corp. (WBC) “Comments like Amari’s are
likely to spook those holding yen shorts.”
- Morgan Stanley(MS) Said to Pare Asia Investment Bank Jobs by 15%.
- Blavatnik Says JPMorgan(JPM) ‘Stuffed’ Fund With Risky Mortgages.
JPMorgan Chase & Co. filled a fund started by billionaire Leonard
Blavatnik with risky mortgage securities instead of the conservative
investments it was told to make, lawyers for Blavatnik told a New York
state judge today. Blavatnik, 55, sued New York-based JPMorgan in
New York state Supreme Court in June 2009, accusing the biggest U.S.
bank by assets of putting more money into mortgage securities than his
investment guidelines allowed.
- Lululemon(LULU) Drops as Quarterly Outlook Trails Analysts’ Estimates. Lululemon Athletica Inc. slid by as
much as 10 percent after the Canadian yoga-wear retailer
forecast fourth-quarter sales that trailed analysts’ estimates. The shares fell 7.7 percent to $66.70 at 4:38 p.m. in New
York after earlier dropping to $65. The Vancouver-based company,
which gained 63 percent in 2012, closed at $72.30 today.
- Apple(AAPL) IPhone Suppliers Decline on Report Orders Cut by 50%.
Wall Street Journal:
- Obama Escalates Debt Fight. President Warns Congress He Won't Pay 'Ransom'; GOP Insists on Spending Cuts.
President Barack Obama, facing a battle over raising the U.S. borrowing
limit, made clear Monday that he sees no alternative to Congress voting
for an increase and said that not doing so would be "irresponsible" and
"absurd." Mr. Obama's confrontational
message—that a debate over the debt limit was already harming the
economy and could push the U.S. into a recession—was primarily aimed at
Republicans, who plan to use the debt-limit vote as leverage to extract
cuts in federal spending. But it also served as a warning to Democrats
who have pressed him to increase the borrowing limit unilaterally by
invoking executive powers.
- Wall Street Pay Gets Tougher Look. Hedge-Fund Manager Loeb Takes Aim at Morgan Stanley(MS)
Compensation Levels.
- Hedge Funds' Manhattan Migration. Hedge-fund managers have long viewed New York as a prime location for
business because of its appeal to employees and its status as one of
the world's financial centers. It doesn't hurt that many managers call
the island home. But in a difficult fundraising environment that favors funds that
already oversee billions of dollars, startup managers have had to work
harder to get noticed. More are betting they can catch the eye of
potential investors by helping them avoid the journey up the New England
Thruway.
- CBOE Revamping Board to Drop Traders. The biggest U.S. stock-options exchange is cutting ties between its
board and traders on its markets following a federal probe into the
exchange's regulation of its members, according to people close to the
situation. CBOE Holdings Inc. plans to revamp its 15-member board
by replacing three directors who also run trading firms with existing
board members that have no direct ties to the options business, while
adding several new directors.
- Behind Lance Armstrong's Decision to Talk.
Last month, Lance Armstrong boarded a plane for Denver to do something
several of his lawyers had advised against: sitting down for a private
conversation with the head
of the U.S. Anti-Doping Agency.
- The Next Tax Increase. The new tax hike is barely law and Obama already wants more. In case you missed it, President Obama held a press conference Monday to
make essentially two points: He won't negotiate with Republicans over
raising the federal debt limit, and if Republicans want any spending
cuts at any time in the next four years they'll have to raise taxes
along with it. He won, so get used to it, chumps.
Fox News:
- CFTC Follows SEC in Permitting Offsets for Cleared CDS at ICE. A federal regulator gave the green light Monday for investors clearing
credit derivatives trades with a unit of IntercontinentalExchange Inc.
(ICE) to offset certain positions in the clearinghouse, a move that is
expected to lead to savings for traders.
CNBC:
Zero Hedge:
Business Insider:
Reuters:
- Japan-China tension weighs on Nissan investments. Nissan Motor Co.
will remain cautious about future Chinese investments including Infiniti
brand production until the country's relations with Japan improve, Chief Executive Carlos Ghosn said on Monday. Ghosn
was speaking at the Detroit auto show after the three main Japanese
automakers all said an anti-Japan consumer backlash continued to depress
their Chinese sales by between 16 and 30 percent. "Unless there's a
complete normalization between the two countries, every single
investment decision is going to have to be weighed" against the risk of
further disruption, the Nissan chief told Reuters in an interview.
- Bremmer: Nasty economic battle looms for China & Japan. (video) Risk expert and Eurasia Group President Ian Bremmer says Japan and
China have switched places as the world’s second and third largest
economies and “ hate each other.” Bremmer adds with growing nationalism
in each country and Japan’s position as a key U.S. alley, it’s one of
the biggest financial risks of 2013.
Financial Times:
- EU berates China over steel subsidies. The
European Commission has concluded that China is providing illegal
subsidies to its steel manufacturers, paving the way for European
companies to seek higher import tariffs on a wide range of Chinese
products. The EU executive arm said Beijing was helping makers of organic
coated steel – used in construction and to make household appliances –
to obtain materials at below market prices, according to a report
obtained by the Financial Times.
Telegraph:
Evening Recommendations
CSFB:
- Rated (INFI) Outperform, target $42.
Night Trading
- Asian equity indices are -.75% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 104.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 83.50 -1.25 basis points.
- NASDAQ 100 futures -.11%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (LEN)/.45
- (CBSH)/.72
- (FRX)/-.08
- (IBKR)/.21
- (LLTC)/.39
Economic Releases
8:30 am EST
- Empire Manufacturing for January is estimated to rise to 0.0 versus -8.1 in December.
- Advance Retail Sales for December are estimated to rise +.2% versus a +.3% gain in November.
- Retail Sales Less Autos for December are estimated to rise +.2% versus unch. in November.
- Retail Sales Ex Autos & Gas for December are estimated to rise +.4% versus a +.7% gain in November.
- The Producer Price Index for December is estimated to fall -.1% versus a -.8% decline in November.
- The PPI Ex Food & Energy for December is estimated to rise +.2% versus a +.1% gain in November.
10:00 am EST
- Business Inventories for November are estimated to rise +.3% versus a +.4% gain in October.
Upcoming Splits
- (HEP) 2-for-1
- (SGA) 4-for-3
Other Potential Market Movers
- The Fed's Plosser speaking, Fed's Kocherlakota speaking, Fed's Rosengren speaking, Eurozone trade data, Eurozone inflation data, weekly retail sales reports, Needham Growth Conference, Deutsche Bank Auto Industry Conference and the (FB) speak event could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.
Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 98.0 -7.55%
- Total Put/Call .80 +12.68%
Credit Investor Angst:
- North American Investment Grade CDS Index 89.16 +2.25%
- European Financial Sector CDS Index 131.58 +3.15%
- Western Europe Sovereign Debt CDS Index 98.90 +1.0%
- Emerging Market CDS Index 215.81 +.14%
- 2-Year Swap Spread 13.25 -.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -17.025 -.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .06% unch.
- China Import Iron Ore Spot $154.60/Metric Tonne -.19%
- Citi US Economic Surprise Index 8.90 -2.0 points
- 10-Year TIPS Spread 2.53 +2 bps
Overseas Futures:
- Nikkei Futures: Indicating +209 open in Japan
- DAX Futures: Indicating +9 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech sector longs and emerging markets shorts
- Market Exposure: 25% Net Long
