Broad Market Tone:
- Advance/Decline Line: Slightly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- ISE Sentiment Index 128.0 +37.63%
- Total Put/Call .89 -1.11%
Credit Investor Angst:
- North American Investment Grade CDS Index 87.30 -1.08%
- European Financial Sector CDS Index 140.77 -5.7%
- Western Europe Sovereign Debt CDS Index 99.71 -3.28%
- Emerging Market CDS Index 232.95 -.21%
- 2-Year Swap Spread 15.25 -.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -16.75 +.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .09% +1 bp
- China Import Iron Ore Spot $155.10/Metric Tonne n/a
- Citi US Economic Surprise Index -7.0 +2.0 points
- 10-Year TIPS Spread 2.57 +1 bp
Overseas Futures:
- Nikkei Futures: Indicating +75 open in Japan
- DAX Futures: Indicating -5 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/tech sector longs
- Disclosed Trades: None
- Market Exposure: 50% Net Long
Bloomberg:
- King Says U.K. Faces Inflation Bout Plus Weak Growth.
Bank of England Governor Mervyn King said Britain faces a further bout
of inflation and a muted economic recovery, and pledged officials will
look through the volatility in prices to keep nurturing growth where
they can. “Inflation is likely to rise further in the near term and
may remain above the 2 percent target for the next two years,” King said
as he presented the central bank’s Inflation Report in
London today. “The MPC’s remit is to deliver price stability in
the medium term in a way that avoids undesirable volatility in
output in the short run. The prospect of a further prolonged
period of above-target inflation must therefore be considered
alongside the weakness of the real economy.”
- Fracking Threatens OPEC as U.S. Output at 20-Year High.
A surge in U.S. oil production has
pushed the country’s output to the highest level since 1992,
threatening the dominance of the Organization of Petroleum
Exporting Countries. The U.S. pumped 7.06 million barrels a day in the
week ended Feb. 8, up 1 percent from the previous week and extending
last year’s 19 percent gain, the Energy Information Administration said today. OPEC production fell to the lowest level in a year in January, the Paris-based International Energy Agency said today in its monthly report. Improvements
in horizontal drilling and hydraulic fracturing, or fracking, have
spurred drilling in states such as Texas, North Dakota and Oklahoma.
Saudi Arabia, OPEC’s largest producer, reduced output in December
because customers asked for less, Ibrahim al-Muhanna, an adviser to
Saudi Arabian Oil Minister Ali al-Naimi, said Jan. 14. “Increasing
amounts of North American oil production puts pressure on OPEC to find
other markets for their oil,” Andy Lipow, president of Lipow Oil
Associates LLC in Houston, said by phone today. “It changes the
political dynamics between the U.S. and OPEC.” U.S. crude imports have fallen 5.9 percent so far this
year, extending a 21 percent decline last year, according to
data from the EIA, the statistical arm of the Energy Department.
The U.S. met 84 percent of its energy needs in the first 10
months of last year, on pace to reach the highest annual rate of
self-sufficiency since 1991.
Wall Street Journal:
- Euro's Rise Threatens Corporate Recovery.
The euro's high exchange rate is dimming a rare bright spot for European companies: exports. With the euro up 12% against the dollar since July and up 35% to a
three-year high against the yen, European companies are squirming. A
stronger currency makes a country's exports more expensive abroad—and
thus less competitive—and reduces profit when it is brought back home.
CNBC:
- Zell: US Border Not a Problem, 'Jobs Aren't Here'. (video) America should not worry too much about protecting its porous borders
from illegal immigrants because "the jobs aren't here" so they're not
coming anymore, entrepreneur Sam Zell told CNBC on Wednesday. Zell noted that the president's call to increase the federal minimum
wage from $7.25 an hour to $9 would cost jobs. "There's no history that
says raising the minimum wage does anything other than eliminate jobs,"
he said.
- Drop Coverage or Cut Hours? Big Companies Grapple With Obamacare. For large retail and restaurant chains the big unknown in the year
ahead is how much more they'll pay for health coverage. Employers with
50 or more workers who put in 30 hours a week will be required to
provide health care coverage or pay a fine, under the Affordable Care
Act, also called the ACA or Obamacare. But the details haven't been
settled. "We can't really calculate what it's going to be like," said
John Mackey, Co-Founder and Co-CEO of Whole Foods, an outspoken critic
of the Obama health reform law.
- State of the Union Reaction: Gun Sales Still Strong. The
day after President Barack Obama's emotional plea in his State of the
Union message for a "vote" on new gun control measures, it is business
as
usual at the Blue Ridge Arsenal in Chantilly, Va. The post-Sandy Hook
boom in gun sales and even ammunition continues.
Reuters:
Style Underperformer:
Sector Underperformers:
- 1) Restaurants -1.45% 2) Gold & Silver -1.36% 3) Telecom -1.18%
Stocks Falling on Unusual Volume:
- AMX, NIHD, AZN, SNSS, BCS, CLF, DPS, KOS, FITB, BP, RDS/B, TCB, EZCH, RAX, RATE, HSP, NTGR, CTRN, LPSN, BLT, DPS, SAPE, BWLD, AREX, GWAY, PLCM, LBTYK, RXN, TRI, DF, PNK, DE, FOSL, SGEN, SKT, EEFT, WLP, WWAV, CDE and RKUS
Stocks With Unusual Put Option Activity:
- 1) DNKN 2) DISH 3) EQIX 4) TRIP 5) EWW
Stocks With Most Negative News Mentions:
- 1) CCL 2) SAPE 3) ACI 4) FWRD 5) ADBE
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Tobacco +1.1% 2) Airlines +.89% 3) Hospitals +.87%
Stocks Rising on Unusual Volume:
- IOC, ACHN, CMCSA, PRLB, WCG, ALB, Z, FTI, PCYC, LO, MM, HTSI and CYH
Stocks With Unusual Call Option Activity:
- 1) SNTA 2) RAX 3) ZIOP 4) BWLD 5) CLF
Stocks With Most Positive News Mentions:
- 1) BWLD 2) DE 3) AVP 4) DE 5) PEP
Charts:
Evening Headlines
Bloomberg:
- EU Sees ‘Increasing Signs’ Carbon to Drop More Without Glut Fix. The European Union warned member
states that carbon prices are likely to decline further without
action to curb oversupply in the world’s biggest emissions
market, according to an EU document obtained by Bloomberg News. At stake is the fate of the 54 billion-euro ($72.5 billion)
EU cap-and-trade system after an excess of allowances caused by
an economic crisis drove prices to a record low of 2.81 euros a
metric ton, down as much as 91 percent from a record in April
2006. The Parliament’s environment committee is due to vote on
Feb. 19 on the first element of the commission’s proposal: a
change to the emissions law to enable postponing auctions of
some permits.
- Obama Calls for Accord to Expand Trade With 27 Nations of EU. President
Barack Obama vowed to begin talks on a trade agreement with the
European Union, expanding the world’s largest economic relationship,
while at
the same time finishing discussions for a Pacific-region accord. “Trade that is free and fair across the Atlantic supports
millions of good-paying jobs,” Obama said in prepared remarks
for his State of the Union speech tonight. It was his strongest
commitment to trade negotiations with the EU.
- Bond Yields Deny Draghi Claim of Confidence Return: Euro Credit. If Dutch bonds are anything to go by, investors still need convincing the debt crisis is ending.
- North Korean Blast Complicates Obama’s Nuclear-Cut Plans. North
Korean dictator Kim Jong Un’s latest test of a nuclear device is
complicating U.S. President Barack Obama’s plan to reduce the American
nuclear arsenal. Any new nuclear weapons treaty would need Senate
ratification, and the prospect of support from Congress was clouded by
North Korea’s underground nuclear test blast yesterday, its third since
2006. Republican lawmakers cited what they called a growing threat
from Kim’s totalitarian regime in demonstrating their opposition to
further U.S. arms cuts, including to the nuclear arsenal. North Korea’s
nuclear test poses a threat to the U.S. and “underscores the need for
the United States to maintain its strong deterrent capabilities,” said
Republican Senator John Hoeven of North Dakota, a member of Senate Appropriations Committee. “Yet
now, even before implementing the reductions required under the New
START Treaty of 2010, the Obama administration has signaled that it may
be willing to reduce unilaterally the U.S. nuclear capability even
further,” he said in a statement yesterday. “In light of North Korea’s actions today, this is clearly
not the time to diminish these critical strategic forces.”
- G-7 Roils Currency Markets With Split on Concern Over Yen. Group of Seven policy makers roiled
the currency markets they sought to calm amid conflicting
messages on how much of an economic threat is posed by the
weakening yen. The yen whipsawed as the G-7 appeared at first yesterday to
signal joint acceptance of the Japanese currency’s recent drop,
only to see its members offer contradictory interpretations of
the group’s stance. One G-7 official said there’s concern about
excessive moves in the yen, while the U.K. said the group wasn’t
singling out an individual country or exchange rate.
- Japan Margin Trade Doubles Amid Rally, Looser Regulation. Japan’s
margin trading doubled last month after collateral rules were eased
amid the Nikkei 225 Stock Average’s longest weekly rally in a half
century. Margin trades at Matsui Securities Co. and the brokerage unit
of SBI Holdings Inc., the two biggest providers, jumped 2.2 times last
month to 6.58 trillion yen ($70 billion) from December as the Nikkei
225 capped a 12-week advance. The Financial Services Agency on Jan. 1
eliminated a three-day waiting period on rolling over proceeds from the
trades into new
investments. Margin accounts allow investors to borrow to buy or sell
shares. After a two-decade slide that’s left Japan’s benchmark gauge 71
percent below its 1989 peak, the Nikkei 225’s best three-month run since
2009 is luring individual investors. Retail investors made up 33
percent of equity turnover in the
final week of January, up from a weekly average of 21 percent last year
before the rally. Margin trades accounted for about 61 percent of
transactions by individuals in the week ending Feb. 1, according to
Japan Exchange data. That’s up from 55 percent for the week
ended Dec. 28 before the rules were relaxed.
- Fed’s Lacker Says Crisis in 2007 Worsened by Rescue Policy. Federal
Reserve Bank of Richmond President Jeffrey Lacker said the financial
system was weakened further as it began to fall into crisis in 2007 and
2008 by an “ambiguous rescue policy.” The Richmond Fed president has
been one of the biggest critics of an expanded safety net which he says
reduces market
discipline and creates more risk by raising expectations of
bailouts. The Fed used multiple tools to aid financial
institutions during the crisis, including opening a funding
facility for corporate commercial paper and offering direct
support for the Bear Stearns Cos. and American International
Group Inc. Richmond Fed researchers estimate that as of December 31,
2011, that 57 percent of financial sector liabilities benefit
from perceived government support, up from 45 percent over a
decade ago. “It seems quite plausible to me that the signal sent by
the Fed’s lending actions in August 2007 dampened the
willingness of troubled institutions, such as Bear Stearns and
Lehman Brothers, to seek safer solutions to the strains they
were facing -- whether by raising capital, selling assets or
reducing reliance on short-term funding,” Lacker said in a
speech at his alma mater, Franklin & Marshall College in
Lancaster, Pennsylvania.
- Apple(AAPL) Said to Have Team Developing Wristwatch Computer. Apple
Inc. has a team of about 100 product designers working on a
wristwatch-like device that may perform some of the computing tasks now
handled by the iPhone
and iPad, two people familiar with the company’s plans said. The team, which has grown in the past year, includes
managers, members of the marketing group and software and
hardware engineers who previously worked on the iPhone and iPad,
said the people, who asked not to be named because the plans are
private. The team’s size suggests Apple is beyond the
experimentation phase in its development, said the people.
- Pharmacyclics(PCYC) Gains ‘Breakthrough’ Status for Cancer Drug. Pharmacyclics
Inc., a drugmaker developing an experimental therapy for blood cancers,
won “breakthrough” status from U.S. regulators for the medicine that
may lead to quicker marketing approval. Pharmacyclics and its
partner, New Brunswick, New Jersey- based Johnson & Johnson,
will submit the therapy, ibrutinib, to the Food and Drug Administration
for approval before the end of the year, the companies said today in
separate statements. “This is a historic moment in oncology,” Bob
Duggan, chief executive officer of Sunnyvale, California-based
Pharmacyclics said in the statement. “We are truly honored to have
received this breakthrough designation and are pleased for
patients and clinicians with the FDA’s decision to expedite the
development of ibrutinib.”
Wall Street Journal:
- Obama Readies Executive Action on Climate. After
catapulting climate change to the top of the political agenda
with an impassioned call for action in his second inaugural address,
President Barack Obama Tuesday night said he’s ready to take unilateral
action using executive powers to curb greenhouse-gas emissions if
Congress doesn’t. In his first term, President Obama saw a
cap-and-trade plan that would cut emissions pass the House, only to die
in the Senate in 2010.
In his State of the Union speech, he urged Congress to take up the
cudgel yet again, but with House Republicans opposed to any plan that
would put a price on carbon emissions, that seems unlikely. In the
absence of legislation, Mr. Obama said, “I will direct my
Cabinet to come up with executive actions we can take, now and in the
future, to reduce pollution, prepare our communities for the
consequences of climate change, and speed the transition to more
sustainable sources of energy.”
- Bid on Minimum Wage Revives Issue That Has Divided Economists.
President Barack Obama's proposal Tuesday to raise the federal
minimum wage is likely to rekindle debates over whether the measure
helps or hurts low-income workers.
White House officials say the move to boost the wage to $9 an hour,
from $7.25, is aimed at addressing poverty and helping low-income
Americans. But the proposal likely will be opposed by Republicans and business
groups, which have traditionally said raising the minimum wage
discourages companies from hiring low-skilled workers.
- A President Hungry for Action Has Bite-Size Budget. Behind that rhetoric lies a starker reality: The president actually has
very little money to spend, so he proposed only limited new funding for
these programs his party's liberal base loves. Spending caps, tax cuts,
Republicans in Congress and the giant squeeze of entitlement programs
that are sucking funds away from all else—all are tying his hands.
- French Hint at Lower Growth Forecasts. President François Hollande laid the groundwork Tuesday for lowering
France's growth forecasts as the state auditor warned the country will
likely miss this year's deficit targets, leaving the Socialist with a
policy dilemma as he battles to rein in public finances. France, the second-largest economy in the euro zone after Germany,
has so far escaped recession and the depths of crisis seen in Southern
Europe. But the country has posted little to no growth since April 2011.
Unemployment is above 10% and rising. "It's pointless to present targets if they can't be met," Mr.
Hollande said after a meeting with Luxembourg Prime Minister Jean-Claude
Juncker. The French president said the government will "change [the
growth forecasts] in the coming days if necessary." Mr. Hollande's comments follow the publication of a report by
France's state auditor, the Cour des Comptes, that said the
deficit-reduction targets were at significant risk because of the
slowdown. The auditor said the government has depended too much on
raising taxes in trying to balance its budget and needed to focus more
on spending cuts. Taxes currently account for over 75% of the effort to
bring the deficit down this year, the auditor said. "After three years of using tax-revenue increases massively, the
absolute priority can only be to increase efforts already begun to
control spending," said Didier Migaud, the head of the audit body.
- Embattled Economies Cling to Euro. The euro has weighed on winemaker Elio Grasso for years. The
currency's high exchange rate shaves into profits of his U.S. exports,
while his domestic customers suffer in Italy's long recession.
But the silver-haired maker of Barolo wines doesn't want Italy to
abandon the euro. "If we were on our own, we'd have bigger problems than
Greece," he said in the cavernous cellar below his vineyard. Europe's common currency has left the continent's southern countries
depressed, indebted and struggling to compete internationally.
- Apple(AAPL) Defends Position on Cash. Apple
Inc. Chief Executive Tim Cook fired back against hedge-fund mogul David
Einhorn, defending the company's distribution of cash to its
shareholders and
calling a recent lawsuit filed by Mr. Einhorn's firm "a silly sideshow."
- Sequester Looms, No Deal in Sight. Senate
Democrats and Republicans squared off Tuesday over whether to try to
block across-the-board spending cuts set to begin March 1. Senate
Majority Leader Harry Reid (D., Nev.) said his party would seek to avert
the cuts, known in Washington as the sequester. Senate Democrats were
crafting a bill they
plan to introduce this week to replace the cuts with a package of tax
increases and other spending reductions that would lower the deficit by
$120 billion over 10 years, senior Democratic aides said.
But Senate Minority Leader Mitch
McConnell (R., Ky.) said it was "pretty clear" the cuts will happen,
saying he wasn't interested in "last-minute negotiations" to try to
avoid the budgetary belt-tightening.
He
repeated that Republicans wouldn't support any effort by Democrats to
increase federal revenue to avoid or defer the cuts. When asked if he
had met with House Speaker John Boehner (R., Ohio) to
kick-start talks to avert the sequester, Mr. Reid said he would meet
with him later this week.
- Millions Improperly Claimed U.S. Phone Subsidies. The U.S. government spent about $2.2 billion last year to provide phones
to low-income Americans, but a Wall Street Journal review of the
program shows that a large number of those who received the phones
haven't proved they are eligible to receive them.
CNBC:
- Plosser: Fed Too Vague With Guidance on Future Path of Rates. The Federal Reserve should be more explicit about the likely future path
of interest rates, a top Fed official said on Tuesday, saying that
while the central bank's recent changes to guidance on interest rates
are a step in the right direction they do not go far enough.
Zero Hedge:
Business Insider:
NY Times:
- Big Banks Are Told to Review Their Own Foreclosures. Washington is seeking help from an unlikely group in its effort to
distribute billions of dollars to struggling homeowners in foreclosure:
the same banks accused of abusing homeowners with shoddy foreclosure
practices.
The Blaze:
Reuters:
- Cliffs Natural(CLF) posts loss after writedown, cuts payout. Cliffs Natural
Resources Inc (CLF.N) reported a quarterly loss on Tuesday, dragged
down by a writedown in the value of a Canadian acquisition, higher costs
and lower iron ore prices, prompting the miner to slash its dividend by
76 percent. Shares of the Cleveland-based producer of iron ore and metallurgical coal dropped 7.5 percent to $33.86 in after-market trading.
- Comcast(CMCSA) to buy rest of NBC stake for $16.7 billion. Comcast
Corp on Tuesday said it would buy General Electric's remaining 49
percent equity stake in their NBCUniversal joint venture for about $16.7
billion, speeding up a deal that had not been expected until at least
late 2014. Analysts said Comcast was
getting a good deal at that price, while Comcast's chief executive said
the company moved because it was eager to take control of the business
sooner than planned. Comcast shares rose 7.5 percent in afterhours
trading.
- Rackspace(RAX) revenue misses as web hosting growth slows. Web hosting company Rackspace Hosting Inc reported a 25 percent rise in quarterly revenue that narrowly missed analysts' estimates, sending its shares down nearly 10 percent in
extended trading on concerns that growth is slowing.
Yomiuri:
- Japan's Suda Says 2% Inflation Goal Not Easy.
Central bank's 2% inflation goal isn't easily achievable, former Bank
of Japan policy board member Miyako Suda says in an interview. If Japan
govt pressures BOJ into hastily achieving goal, central bank may be
forced to undertake endless monetary easing, Suda said. The Bank of
Japan's credibility would be undermined if BOJ law changed to give govt
power to remove governor, Suda said.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 111.50 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 86.50 -1.5 basis points.
- NASDAQ 100 futures +.13%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Import Price Index for January is estimated to rise +.8% versus a -.1% decline in December.
- Advance Retail Sales for January are estimated to rise +.1% versus a +.5% gain in December.
- Retail Sales Less Autos for January are estimated to rise +.1% versus a +.3% gain in December.
- Retail Sales Ex Auto & Gas for January are estimated to rise +.4% versus a +.6% gain in December.
10:00 am EST
- Business Inventories for December are estimated to rise +.2% versus a +.3% gain in November.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,200,000
barrels versus a +2,623,000 barrel gain the prior week. Gasoline
supplies are estimated to rise by +500,000 barrels versus a +1,738,000
barrel gain the prior week. Distillate inventories are estimated to fall
by -1,750,000 barrels versus a -1,042,000 decline the prior week.
Finally, Refinery Utilization is estimated unch. versus a -.8% decline the prior week.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Bullard speaking, Eurozone GDP report, Eurozone Industrial
Production, Itlay 10Y Bond auction, 10Y T-Note auction, BoE Inflation
report, Japan GDP data, weekly MBA Mortgage Applications report, (WAG)
analyst day, BofA Merrill Insurance Conference, BB&T Transport
Services Conference and the Leerink Swan Healthcare Conference could
also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity 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 day.
Broad Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 99.0 -2.9%
Credit Investor Angst:
- North American Investment Grade CDS Index 87.30 -2.42%
- European Financial Sector CDS Index 149.44 -4.65%
- Western Europe Sovereign Debt CDS Index 103.10 -1.75%
- Emerging Market CDS Index 230.35 +1.78%
- 2-Year Swap Spread 15.75 -.25 bp
- TED Spread 21.0 -1.75 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -17.0 +1.0 bp
Economic Gauges:
- 3-Month T-Bill Yield .08% +2 bps
- China Import Iron Ore Spot $155.10/Metric Tonne n/a
- Citi US Economic Surprise Index -9.0 +1.0 point
- 10-Year TIPS Spread 2.56 +2 bps
Overseas Futures:
- Nikkei Futures: Indicating +27 open in Japan
- DAX Futures: Indicating +1 open in Germany
Portfolio:
- Slightly Lower: On losses in my biotech/tech sector longs and index hedges
- Disclosed Trades: None
- Market Exposure: 50% Net Long
