Friday, December 20, 2013

Stocks Rising into Final Hour on Lower Long-Term Rates, Seasonality, Investor Performance Angst, Biotech/Tech Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.55 -4.24%
  • Euro/Yen Carry Return Index 148.34 -.12%
  • Emerging Markets Currency Volatility(VXY) 9.13 +.77%
  • S&P 500 Implied Correlation 51.79 -1.31%
  • ISE Sentiment Index 205.0 +48.55%
  • Total Put/Call .68 -8.11%
  • NYSE Arms 1.16 +28.16% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 64.47 -2.29%
  • European Financial Sector CDS Index 87.32 -.99%
  • Western Europe Sovereign Debt CDS Index 60.33 -1.65%
  • Emerging Market CDS Index 267.50 -.49%
  • 2-Year Swap Spread 8.0 -.25 basis point
  • TED Spread 19.75 +1.25 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -2.25 +1.5 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .05% -1 basis point
  • Yield Curve 251.0 -6.0 basis points
  • China Import Iron Ore Spot $132.70/Metric Tonne unch.
  • Citi US Economic Surprise Index 47.0 +7.9 points
  • Citi Emerging Markets Economic Surprise Index -12.0 +1.4 points
  • 10-Year TIPS Spread 2.16 +1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +115 open in Japan
  • DAX Futures: Indicating +16 open in Germany
Portfolio: 
  • Higher: On gains in my tech/biotech/retail/medical sector longs and emerging markets shorts
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
  • Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:
  • EU Loses AAA Rating at S&P as States’ Creditworthiness Falls. The European Union lost its top credit rating from Standard & Poor’s, which cited the deteriorating creditworthiness of the bloc’s 28 member nations. S&P cut its long-term rating on the EU to AA+, with a stable outlook, from AAA and maintained its short-term rating at A-1+. The downgrade came after S&P last month lowered its AAA rating on the Netherlands
  • Spain Markets Splinter as Europe Builds Bank Union: Euro Credit. Spanish Prime Minister Mariano Rajoy is faced with a splintering of domestic financial markets, just as European governments move closer to a banking union. In the coming months, the country’s 17 semi-autonomous regions will be allowed to create a levy on bank deposits, Budget Minister Cristobal Montoro said on Dec. 18 after a meeting with local budget chiefs. The government decided to comply with a ruling by the Constitutional Court saying that the tax is within the regions’ powers, he said. “Banks will suffer from the tax more than the regions will benefit from it,” said Santiago Carbo-Valverde, an economist at Spain’s saving banks’ association Funcas, who also teaches banking and finance at Bangor University in the U.K. “The tax isn’t justified from an economic point of view and will penalize banking liquidity when it’s most needed.” 
  • Prada Says 2014 Sales May Miss Estimates on China, Italy. Prada SpA (1913) said it may fall short of analysts’ predictions for fiscal-year revenue after unfavorable currency moves and slowing demand for luxury goods in Europe and Asia weighed on third-quarter profit. “Consensus at the moment is challenging,” Chief Financial Officer Donatello Galli said, without specifying a figure, during a conference call after Milan-based Prada reported quarterly profit today. Before the announcement, analysts were predicting that sales in the year through January would rise to 3.71 billion euros ($5.1 billion) from 3.3 billion euros, according to the average of 32 estimates compiled by Bloomberg. Prada, whose products include $2,950 leather handbags, joins European luxury-goods makers including LVMH Moet Hennessy Louis Vuitton SA (MC) and Gucci owner Kering SA (KER) in reporting slowing revenue growth as Chinese demand wanes and the euro strengthens against currencies including the Japanese yen. Fewer Chinese consumers are shopping in Europe, preferring instead to go to the U.S., while domestic consumption remains under pressure in Italy and Spain, Chief Executive Officer Patrizio Bertelli said on the call. “Unfavorable exchange rates and softening consumption patterns in some regions could weigh on results, and thus will require increasing attention by the management in order to ensure profitability and continue the retail expansion,” Prada said in a statement. 
  • European Stocks Post Biggest Weekly Advance Since April. European stocks posted their biggest weekly rally since April as the Federal Reserve’s decision to reduce its monthly bond purchases increased investors’ confidence in the strength of the U.S. economic recovery. Cable & Wireless Communications Plc (CWC) surged 16 percent after U.K. newspapers named it as a potential acquisition target. Carnival Plc jumped 10 percent after the world’s largest cruise-ship operator posted quarterly sales (CCL) that beat estimates. CGG SA slumped 15 percent after the world’s biggest seismic surveyor of oilfields cut its earnings forecast for 2013. The Stoxx Europe 600 Index rose 3.7 percent to 321.14 this week, trimming its decline from the beginning of the month to 1.2 percent.
  • China’s Stocks Extend Slump in Longest Streak Since 1994. China’s stocks fell, with the benchmark index posting longest losing streak in almost two decades, as targeted fund injections by the central bank failed to alleviate the worst cash crunch since June. China Construction Bank Corp. sank 6.2 percent after touching its lowest level in almost five years. China Everbright Bank Co. slid 4 percent in its debut in Hong Kong. Ping An Insurance (Group) Co. dropped 4.7 percent. The People’s Bank of China conducted short-term liquidity operations recently, it said on its microblog yesterday, without giving details of the recipients, amount or rate charged. The Shanghai Composite Index (SHCOMP) dropped 2 percent to 2,084.79 at the close in a ninth straight day of losses and capping a 5.1 percent weekly decline. The seven-day repurchase rate, a gauge of liquidity in the financial system, increased 100 basis points to 7.60 percent, according to a daily fixing by the National Interbank Funding Center. It jumped 328 basis points this week, the most since January 2011. 
  • WTI Oil Rises to 2-Month High. WTI for February delivery increased 20 cents to $99.24 a barrel at 1:32 p.m. on the New York Mercantile Exchange. Futures touched $99.40, the highest intraday level for a contract closest to expiration since Oct. 22. The volume of all futures traded was 32 percent below the 100-day average.
Wall Street Journal:  
  • China Money Market Interest Rates Jump. Interbank Rates Hit Highest Since the Summer Despite Central Bank's Cash Injection.  A cash squeeze is rippling through the Chinese financial system despite three days of liquidity injections by the country's central bank, as borrowers scramble to secure funds before the end of the year. The situation worsened Friday as the interest rate banks charge each other for short-term loans jumped to 8.2%, the highest level since a crippling liquidity shortage in the summer. The stress in the banking system is starting to spread: Stocks in Shanghai fell for a ninth consecutive day to the weakest level in four months, while government bonds dropped, pushing the 10-yield near to its highest level in eight years.
MarketWatch:
  • All-cash home sales reach new high. Why the Fed tapering may help drive more all-cash buyers. More Americans are buying homes in all-cash deals, according to a new report. But real-estate experts say this increase may not be a good sign for the health of the housing market, which may also be impacted by the Federal Reserve’s decision to pull back on its bond-buying program.
CNBC:
ZeroHedge: 
ValueWalk:
Business Insider: 
Washington Post:
  • Obamacare's Radicalism Exposed. The lie of the year, according to Politifact, is “If you like your health care plan, you can keep it.” But the story of the year is a nation waking up to just how radical Obamacare is — which is why it required such outright deception to get it passed in the first place.
@Fmirw:
Reuters:  
Financial Times: 
  • Short-focused fund to launch in Canada. Investors in Canada are to get the chance to bet against their own real estate market as one of the first short-focused funds is set to launch in the country, where concerns have grown that there is a housing bubble ready to burst.
TheGuardian:
  • GCHQ and NSA targeted charities, Germans, Israeli PM and EU chief. British and American intelligence agencies had a comprehensive list of surveillance targets that included the EU's competition commissioner, German government buildings in Berlin and overseas, and the heads of institutions that provide humanitarian and financial help to Africa, top secret documents reveal.

Bear Radar

Style Underperformer:
  • Large-Cap Value +.26%
Sector Underperformers:
  • 1) Coal -2.73% 2) Steel -2.03% 3) Gaming -.42%
Stocks Falling on Unusual Volume:
  • LUX, TIBX, KMX, AVD, FAST, WGO, AIR, IDCC, DGLD, SWFT, NAV, SAIC, ESS, BNNY, IOC, GWW, NKE, WOR, PRAA, GOGO, HLS, IACI, BRE, LL, FOSL and MD
Stocks With Unusual Put Option Activity:
  • 1) GLW 2) RHT 3) JNY 4) AKS 5) CT B
Stocks With Most Negative News Mentions:
  • 1) BTU 2) KMX 3) OMC 4) BAC 5) MR
Charts:

Bull Radar

Style Outperformer:
  • Small-Cap Growth +1.08%
Sector Outperformers:
  • 1) Computer Hardware +1.69% 2) Biotech +1.53% 3) Homebuilding +1.49%
Stocks Rising on Unusual Volume:
  • MKTG, JNY, CCIX, TRAK, RHT, WMC, MKTO, CTCT, FINL, AMBA, AGN, JAZZ, SWIR, ARRS, GPRE, WETF, AFSI and ISIS
Stocks With Unusual Call Option Activity:
  • 1) NBL 2) FE 3) WPX 4) ERX 5) TIBX
Stocks With Most Positive News Mentions:
  • 1) RHT 2) GOOG 3) WHR 4) ORCL 5) TWTR
Charts:

Friday Watch

Evening Headlines 
Bloomberg:
  • Heavy Pollution Returns in Shanghai After Week of Improved Skies. Pollution in China’s commercial hub worsened today after a week of improved air quality as authorities warned children and the elderly to avoid all outdoor activities with PM2.5 pollutants exceeding eight times the level recommended by the World Health Organization for safe breathing. The air quality index was 206 as of 10 a.m., indicating “heavy pollution,” the Shanghai Environmental Monitoring Center said on its website today.
  • China Money Rate Climbs, Stocks Slide as Cash Crunch Persists. China’s benchmark money-market rate rose and stocks dropped for a ninth day, the longest losing streak in 19 years, as targeted cash injections by the central bank failed to alleviate the worst cash crunch since June. The seven-day repurchase rate, a gauge of funding availability in the banking system, increased 100 basis points to a six-month high of 7.60 percent in Shanghai, according to a daily fixing by the National Interbank Funding Center. It has jumped 328 basis points this week, the most since January 2011. Transactions had been reported at rates ranging from 3.80 percent to 9.5 percent as of 11:08 a.m. local time, with a weighted average of 7.76 percent. The Shanghai Composite Index (SHCOMP) of shares dropped 0.8 percent.
  • Asian Stocks Drop Amid Chinese Funding-Cost Concerns. Asian stocks fell, led by Chinese shares amid concern funding costs for the nation’s lenders will remain high even after the central bank injected cash into the financial system. Agricultural Bank of China Ltd. lost 1 percent in Hong Kong. McDonald’s Holdings Co. Japan Ltd. (2702) declined 1.6 percent after cutting its full-year profit forecast by more than half in the fast-food chain’s second-largest market. Telstra Corp. (TLS) rose 1 percent, pushing Australia’s benchmark index toward the biggest two-day gain in six months, after agreeing to sell its Hong Kong mobile phone business. The MSCI Asia Pacific Index fell 0.2 percent to 138.07 as of 11:14 a.m. in Hong Kong. Hong Kong’s Hang Seng China Enterprises Index of mainland shares listed in the city retreated 0.9 percent, on course to lose 3 percent this week.
  • Rebar in Shanghai Narrows Weekly Loss After China PBOC Adds Cash. Steel reinforcement-bar futures in Shanghai rose for the first time in seven days, trimming a weekly loss after China’s central bank injected funds to selected lenders to alleviate a cash squeeze. Rebar for May delivery on the Shanghai Futures Exchange rose as much as 0.4 percent to 3,665 yuan ($604) a metric ton, before trading at 3,661 yuan at 10:55 a.m. local time. The gain cut the week’s loss to 0.4 percent, the second weekly drop.
  • EU Leaders Delay Deal on Incentives for Economic Reforms. European Union leaders pushed back the introduction of a German-inspired system to encourage nations to modernize their economies, as northern and southern countries wrangled over financial incentives. A June deadline was delayed until October as leaders sparred over whether steps to boost competitiveness would be binding and what sort of rewards countries would get for enacting them.
  • Fed Seen Tapering QE in $10 Billion Steps in Next Seven Meetings. The Federal Reserve is likely to reduce its bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, economists said. The median forecast in a Bloomberg survey of 41 economists matches the $10 billion reduction announced yesterday as the Fed began to unwind the unprecedented stimulus that has defined Ben S. Bernanke’s chairmanship.
  • Lew Says U.S. Ability to Borrow May Run Out by Late February. Treasury Secretary Jacob J. Lew warned Congress that the U.S. will exhaust its borrowing authority as soon as late February and urged lawmakers to raise the federal debt limit weeks before then. The Treasury Department estimates that so-called extraordinary measures used to avoid breaching the debt limit “would be able to extend the nation’s borrowing authority only until late February or early March 2014,” Lew said in a letter today to House Speaker John Boehner and other congressional leaders.
Wall Street Journal:
  • Obama Issues Rare Veto Threat on Iran Bill. Bipartisan Senate Bill Would Slap Tehran With New Sanctions. The White House issued a rare veto threat in response to a bipartisan Senate bill that would slap Iran with new sanctions if it violates an interim deal reached last month to curb its nuclear program. The threat sets up a standoff in the new year between President Barack Obama and more than two dozen Senate Democrats and Republicans who introduced the legislation on Thursday. The challenge to Mr. Obama is particularly stark because half of the lawmakers sponsoring the new bill are from his own party. 
  • Europe's Banking Deal Leaves Doubts. Decision Reached on Centralized Handling of Failing Lenders. Europe's leaders have their banking union, but Europe's financial system is far from unified. Eighteen months ago, euro-zone leaders set out to revolutionize their banking system, promising to secure their common currency against the kind of crises that had almost bankrupted Spain and Ireland and sent shockwaves across the Continent. They pledged to "break the vicious circle between banks and sovereigns."
  • Mary Landrieu and All That JAZZ. The Louisiana senator says she's pro-energy, but her PAC has raised a lot of money to elect opponents of the oil and gas industry
  • John Beale's EPA. An amazing fraud by an architect of government climate policies. Last month we told you about John Beale, the Environmental Protection Agency employee who bilked taxpayers out of almost $900,000 by pretending to be a secret agent. Telling EPA colleagues that he was a CIA operative, Beale was paid for long absences while on imaginary missions for "Langley." Now there is a disturbing new question about John Beale that goes to the heart of the EPA's mission. What was he doing when he actually showed up for work?
Fox News:
  • Administration announces new ObamaCare exemption. The Obama administration, in an 11th-hour change just before the holiday break,announced a major exemption in ObamaCare that will let people who lost coverage and are struggling to get a new plan sign up for bare-bones policies. The move Thursday to allow potentially hundreds of thousands of people to sign up for "catastrophic" coverage plans was blasted by the insurance industry as a shift that would cause "tremendous instability.”
CNBC:
Zero Hedge:
ValueWalk:
Reuters:
  • Target(TGT) breach could cost hundreds of millions, probe starts. The theft of credit and debit card data from 40 million Target Corp customers could end up costing hundreds of millions of dollars, but it is unclear who will bear the expense, lawyers and industry sources said. Target said on Thursday hackers had stolen the data of shoppers who visited its stores during the first three weeks of the holiday season. Americas's third-largest retailer said it was working with federal law enforcement and outside experts to prevent similar attacks in the future. It did not disclose how its systems were compromised.
  • Jazz Pharma(JAZZ) to buy Italy's Gentium for $1 blnIreland-based Jazz Pharmaceuticals Plc said it would buy Italian biotech company Gentium S.p.A. for about $1 billion to get access to its lead product candidate, Defitelio, a drug used for the treatment of a rare liver condition. The $57 per-share deal is at a premium of 2.4 percent over Gentium's Thursday close of $55.65 on the Nasdaq.
Telegraph:
Yonhap News:
  • North Korea Threatens South to Strike Without Prior Notice. North Korea's National Defense Commission commented in a telegraph message to national security office of South Korea's presidential house, citing a South Korean official. South Korea replied that it will sternly punish North Korea if it provokes.
People's Daily:
  • China Urges Officials to Hold Frugal Funerals. Party members and government officials should set an example with simple, civilized funerals, general offices of the State Council and the Chinese Communist Party's Central Committee said. Party members and officials are strictly banned from hosting luxurious funerals or taking advantage of the occasion to collect condolence money from visitors, citing the notice.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.0% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 122.0 -5.5 basis points.
  • Asia Pacific Sovereign CDS Index 101.75 -.5 basis point. 
  • FTSE-100 futures +.38%.
  • S&P 500 futures +.16%.
  • NASDAQ 100 futures +.19%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (BBRY)/-.43
  • (KMX)/.48
  • (FINL)/.02
  • (NAV)/-1.57
  • (WAG)/.72
Economic Releases
 8:30 am EST
  • 3Q GDP is estimated to rise +3.6% versus a prior estimate of a +3.6% gain.
  • 3Q Personal Consumption is estimated to rise +1.4% versus a prior estimate of a +1.4% gain. 
  • 3Q GDP Price Index is estimated to rise +2.0% versus a prior estimate of a +2.0% increase.
  • 3Q Core PCE is estimated to rise +1.5% versus a prior estimate of a +1.5% gain.
11:00 am EST
  • Kansas City Fed Manufacturing Activity for Dec. is estimated to fall to 6.0 versus 7.0 in November.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone Consumer Confidence data and the Canadian inflation data could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial 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 day.

Thursday, December 19, 2013

Stocks Slightly Lower into Final Hour on Rising Long-Term Rates, Emerging Markets Debt Angst, Earnings Concerns, Homebuilding/REIT Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.77 -.22%
  • Euro/Yen Carry Return Index 148.38 -.29%
  • Emerging Markets Currency Volatility(VXY) 9.09 +.44%
  • S&P 500 Implied Correlation 51.96 +1.76%
  • ISE Sentiment Index 122.0 -.81%
  • Total Put/Call .73 -14.12%
  • NYSE Arms .81 +10.72% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 66.15 -1.95%
  • European Financial Sector CDS Index 88.20 -7.46%
  • Western Europe Sovereign Debt CDS Index 61.34 -1.06%
  • Emerging Market CDS Index 268.64 +.46%
  • 2-Year Swap Spread 8.25 +1.5 basis points
  • TED Spread 18.5 +.25 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -3.75 -1.25 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .06% unch.
  • Yield Curve 257.0 +2.0 basis points
  • China Import Iron Ore Spot $132.70/Metric Tonne -.52%
  • Citi US Economic Surprise Index 39.10 -5.0 points
  • Citi Emerging Markets Economic Surprise Index -13.4 +.9 point
  • 10-Year TIPS Spread 2.15 -1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +9 open in Japan
  • DAX Futures: Indicating +5 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my tech sector longs, index hedges and emerging markets shorts
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 50% Net Long