Broad Equity Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- 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%
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
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.
Style Underperformer:
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:
Style Outperformer:
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:
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 bln. Ireland-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
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.
- NASDAQ 100 futures +.19%.
Morning Preview Links
Earnings of Note
Company/Estimate
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
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.
Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Mixed
- 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%
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
