Bloomberg:
- Brazil December Industrial Output Drops Below Every Estimate.
Brazil’s industrial production in December fell by the most in five
years, surprising analysts, as the central bank continues to boost
interest rates in the world’s second-biggest emerging market. Swap rates
fell. Industrial output dropped 3.5 percent from the previous month
after declining a revised 0.3 percent in November, the national
statistics agency said today in Rio de Janeiro. That was the biggest
fall since December 2008, and steeper than predicted by all 37
economists surveyed by Bloomberg, whose median estimate was for a 1.7
percent decline.
- Pimco Sees Delay in Emerging Markets Recovery on Interest Rates. A recovery in emerging-market growth
will be pushed back amid rising interest rates and declines in developing-nations currencies, according to Pacific Investment
Management Co. “There is a real possibility that this vicious cycle of
rate adjustments in EM coupled with currency weakness will
further postpone EM growth recovery,” Masha Gordon, who
oversees more than $2.5 billion in assets as London-based head
of emerging-market equities at Pimco, said by e-mail today.
- Emerging-Market Stocks Extend Worst Start Ever on Economy.
Emerging-market stocks fell, extending the worst start to a year on
record, on concern the global economic recovery will wane. Lenovo Group
Ltd. (992) drove a selloff in technology companies after five analysts
downgrades. The MSCI Emerging Markets Index dropped 0.8 percent to
919.59 at 12:45 p.m. in New York, the lowest in five months. The decline
brought this year’s slump to 8.3
percent, the most in the same period since at least 1988.
- Japanese Banks’ Record Earnings Mask Profit-Growth Prospects. Japan’s
biggest banks, poised to achieve record annual earnings after last
year’s stock-market surge, may still disappoint investors as the equity
rally fades, leaving them reliant on a lending recovery for profit.
- Real Yields at Two-Year High Offer Little Comfort: Turkey Credit.
Turkish bond yields near the highest in two years once inflation is
accounted for are proving insufficient to lure traders seeing the need
for further rate increases to shore up the weakening currency. Real
yields on Turkey’s two-year notes touched 3.66 percent on Jan. 28, the
most since October 2011, according to data compiled by Bloomberg. That’s
higher than Russia, India, Indonesia and South Africa, the data show. Turkish
producer prices surged 10.7 percent in January from a year earlier, a
report showed yesterday, suggesting the full effect of lira weakness has
yet to be passed onto consumers, who saw inflation accelerate more than
forecast in the period, to 7.5 percent.
- Owl Creek Said to Short Denmark Expecting Debt Crisis. Owl
Creek Asset Management LP, one of
last year’s best-performing hedge-fund firms, is betting against
Denmark’s sovereign bonds in anticipation of a debt crisis, according to
two people familiar with the matter. The $3.2 billion New
York-based firm also bought credit default swaps on Danske Bank A/S
(DANSKE), the country’s biggest lender, founder and investment chief
Jeffrey Altman said last week at a
conference panel discussion in Palm Beach, Florida, according to
the people, who attended and asked not to be identified because
the information is private.
- European Stocks Little Changed; Vestas Drops as UBS Jumps. European stocks were little changed, paring earlier losses, as banks rallied while telecommunication companies fell.
UBS (UBSN) AG jumped 5.4 percent after Switzerland’s biggest bank posted
earnings that exceeded analysts’ projections. Royal KPN NV lost 4.8
percent after the biggest Dutch telecommunications provider said it
would cut jobs as a mobile-phone price war hurt earnings. Vestas Wind
Systems A/S dropped 4.8 percent after saying it seeks to raise capital. The Stoxx Europe 600 Index slipped 0.2 percent to 317.58 at the close of trading after
earlier dropping as much as 0.8 percent. The Stoxx 600 has fallen 5.5
percent from its six-year high on Jan. 22.
- Copper Rises, Snapping Longest Slump Since 1995, as Dollar Drops.
Copper futures for March delivery rose 0.3 percent to
settle at $3.192 a pound at 1:21 p.m. on the Comex in New York.
The price dropped in the previous nine sessions, the longest
slump since December 1995.
- Natural Gas Surges as Forecasts Show Arctic Cold Persisting. Natural gas futures jumped in New
York, rising for the first time in four days, on forecasts for a
polar blast that would deplete stockpiles of the heating fuel. Gas gained as much as 7.2 percent as MDA Weather Services
predicted below-normal temperatures in most of the lower-48
states through Feb. 13.
- U.S. 1-Month Bill Rate Highest Since October Debt Ceiling Debate. Rates on one-month bills reached the
highest since October’s debt-ceiling deadlock after Treasury
Secretary Jacob J. Lew reiterated yesterday that the U.S.
expects to run out of borrowing capacity by the end of February. Rates surged to as high as 0.14 percent from 0.0304
percent, Bloomberg Bond Trader data show.
- Plunging Stocks Push Volatility to Biggest January Gain: Options. Investors snapping up insurance
against stock losses after $1 trillion was erased from U.S.
equity values have pushed the cost of options to a record increase for the start of a year. The
Chicago Board Options Exchange Volatility Index jumped 34 percent last
month for the biggest January advance since it was created in 1990, according to data compiled by Bloomberg.
The VIX climbed 16 percent yesterday to 21.44, a one-year high.
Wall Street Journal:
- Health-Care Law Expected to Take Greater Toll on Workforce. The
Affordable Care Act is projected to reduce the number of full-time
workers by roughly 2.3 million people through 2021 and insure 2 million
fewer people this year
than previously estimated, the Congressional Budget Office said Tuesday. The
CBO had previously estimated the labor force impact would be around
800,000 people in that time frame. CBO said the jobs figures largely
represent Americans who will choose not to work rather than those who
will lose their jobs or have their workweeks reduced because of the law. The
new estimates could further complicate the political landscape ahead of
the midterms for some vulnerable Democrats, as Republicans are planning
to use the health-care law as a cudgel in November. While the White
House has been working to reverse the number of workers who are leaving
the labor market, and CBO's new estimates on this phenomenon could
embolden many in the GOP.
- Microsoft(MSFT) Names Satya Nadella as CEO. Bill Gates Leaves Chairman Post to Become Technology Adviser.
- Mexico's Stocks Fall After Long Weekend. Mexico's stocks opened sharply lower Tuesday as local investors
returned from a long holiday weekend, while the peso recovered from the
previous session's losses in international trading. The benchmark IPC index was recently down 1.5% at 40268 points on
volume of 16.7 million shares worth 519.1 million pesos ($38.8 million).
Bellwether America Movil (AMX, AMX.MX) L shares were down 1.2% at
MXN14.11.
Fox News:
- Obama heaps more blame on Fox in part-two of O'Reilly interview. (video) President Obama extended his criticism of Fox News during the second
part of his interview with host Bill O’Reilly, suggesting the network
has profited by unfairly covering such stories as the Benghazi terror
attacks and the IRS targeting of conservative groups.
MarketWatch:
- Hang Seng in correction as Hong Kong stocks drop. Hong Kong shares dropped into correction
territory Tuesday, hitting their lowest level since late July as a U.S.
stock selloff extended to Asia. The blue chip Hang Seng Index
fell 637.65 points, or 2.9%, to 21,397.77, just above a session low of
21,388.61 hit shortly before the close.
CNBC:
ZeroHedge:
ValueWalk:
Business Insider:
Financial News:
- Risk rises, yields fall – but hunger for debt grows. Investor appetite for higher returns is pushing many of them
into ever-riskier debt investments, apparently undaunted by fears of
overheating and last week’s emerging-market rout. Overheating in debt markets – government and corporate – was
identified as the top concern of top finance industry professionals
polled by Financial News at the start of 2014, but the past month has
seen investors willing to accept ever more aggressive terms in their
hunt for yield. Among the signs:
Forbes:
Reuters:
- Fed's Lacker says tough to see pause in tapering ahead. The U.S. Federal
Reserve will probably keep reducing monthly asset purchases at its
current pace and it would be hard to make the case for a pause in the
tapering process, a senior Fed official said on Tuesday.
Richmond Federal
Reserve President Jeffrey Lacker said U.S. stocks had performed well
looking at the last year and recent moves likely reflected a downward
adjustment in expectations for growth.
- Fed's Evans sees 'high hurdle' to deviating from pace of QE3 taper. Only a sharp economic downturn or
unexpected rise in inflation could force the Federal Reserve to
pause or speed up the pace at which it is cutting its massive
bond-buying program, a top Fed official said on Tuesday. "I think it's probably a high hurdle to deviate from that
pace over the next several meetings," Chicago Federal Reserve
Bank President Charles Evans told reporters after a speech here.
Evans said that world financial markets should not be surprised at the
Fed's decision to keep tapering its third round of quantitative easing,
or QE3, because the cuts come in response to improved momentum in the
economy.
- Farm machinery maker Agco forecasts weak demand for 2014. Agriculture machinery maker Agco Corp
warned of weak demand in 2014 due to reduced farm
income and forecast current-quarter earnings well below Wall
Street expectations. Economic uncertainty in Europe, coupled with a slowdown in
demand from U.S. farmers, has weighed on Agco as corn prices
continue to slide, pressured by a record crop in 2013.
- Boehner: House Republicans want to tackle debt drivers as part of deal. U.S. Congressional Republicans
are aiming for deficit-reduction steps as part of any deal to
raise the nation's debt limit but have not decided on a strategy
yet, House Speaker John Boehner said on Tuesday.
Style Underperformer:
Sector Underperformers:
- 1) Hospitals -.87% 2) Utilities -.64% 3) Disk Drives -.23%
Stocks Falling on Unusual Volume:
- TTWO, ARMH, AFOP, DNB, BRO, FN, PPS, CFN, OAS, UTX, MDT, TVIX, ETN, CPHD, LGP, VRSN, TMH, CEO, LMNX, ORMP, FUEL, VLRS, TX, SU, ADVS, SZYM and GDOT
Stocks With Unusual Put Option Activity:
- 1) JRCC 2) BBT 3) VLO 4) LL 5) XHB
Stocks With Most Negative News Mentions:
- 1) PCG 2) EMC 3) F 4) DO 5) TTWO
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Restaurants +1.71% 2) Steel +1.31% 3) Construction -1.28%
Stocks Rising on Unusual Volume:
- ATMI, FURX, IPHI, ENTG, KORS, YUM, HW, IDTI, ITUB, ABG, ACM, OZM, LL, ITMN, FOSL, AOL and XYL
Stocks With Unusual Call Option Activity:
- 1) TTWO 2) HZNP 3) XLU 4) EA 5) EDC
Stocks With Most Positive News Mentions:
- 1) YUM 2) KORS 3) AMZN 4) CME 5) LLY
Charts:
Evening Headlines
Bloomberg:
- Yen's
Role in Abenomics Threatened by Tokyo Vote: Currencies. Tokyo's
gubernatorial elections this weekend could hardly come at a worse time
for Japanese Prime Minister Shinzo Abe and his efforts to boost the
economy by depreciating the yen. Among the frontrunners is Morihiro
Hosokawa, an opponent of the premier's pro-nuclear stance whose victory
would undermine faith in the government's Abenomics policy and may push
up the currency, according to firms from Sumitomo Mitsui Banking Corp.
to Nomura Securities Co. The economic plan is already being tested by
the yen's 4.3% jump this year as investors fleeing emerging markets seek
havens for their cash.
- Fukushima Wash-Up Fears in U.S. Belie Radiation Risks: Energy. Seaborne radiation from Japan’s wrecked Fukushima nuclear plant will wash up on the West Coast of the U.S. this year.
That’s raising concerns among some Americans including the residents of
the San Francisco Bay Area city of Fairfax, which passed a resolution on
Dec. 6 calling for more testing of coastal seafood.
- Japanese
Banks' Record Earnings Mask Prospects for Profit Growth. Japan's
biggest banks, poised to achieve record annual earnings after last
year's stock-market surge, may still disappoint investors as the equity
rally fades, leaving them reliant on a lending recovery for profit.
- Japan Sees Worst Developed-Stock Rout as Nikkei 225 Drops. What a difference a year makes. At the end of January 2013,
Japanese stocks trailed only Portugal for the biggest rally among
developed markets. Now the Nikkei 225 Stock Average is leading declines,
slumping 8.5 percent last month and yesterday capping a 10 percent drop
from its Dec. 30 peak.
- Lenovo Slumps on Analyst Downgrades After Buying Spree.
Lenovo Group Ltd. (992), which announced $5 billion of deals last month
to bolster its server and smartphone businesses, plunged the most in
five years in Hong Kong after the stock was downgraded by at least five
brokerages. Lenovo fell as much as 15 percent to HK$8.55, headed for its biggest decline since January 2009.
The world’s biggest maker of personal computers was cut at UBS AG
(UBSN), Morgan Stanley (MS), Jefferies Group LLC, JI-Asia Research Ltd.
and Kim Eng
Securities Ltd., according to data compiled by Bloomberg.
- Asian Stocks Extend Rout With Copper; Credit Risk Rises.
Asian stocks tumbled, extending a global selloff, with Japanese and Hong
Kong shares dragging the regional index toward its lowest close in five
months. Copper headed for its longest losing streak in 28 years and
Australia’s currency surged as the country’s central bank held rates. The
MSCI Asia Pacific Index lost 2.4 percent by 12:46 p.m. in Tokyo, the
most since June. Japan’s Topix index plunged toward a correction and the
Hang Seng Index slid 2.3 percent in Hong Kong. Copper fell as much as 0.3 percent in London, a 10th straight decline.
The so-called Aussie climbed 1.1 percent. Asian credit risk rose
to the highest in five months.
- Copper Heads for Longest Slump in 27 Years on Factory Outlook. Copper dropped for a 10th day,
heading for the longest losing streak since at least April 1986,
on signs of weakening demand after manufacturing slowed in China and the U.S., the world’s top metals consumers.
Copper for delivery in three months on the London Metal Exchange slid
as much as 0.3 percent to $7,016 a metric ton, the lowest intraday level
since Dec. 4, and was at $7,028.75 at 10:51 a.m. in Tokyo.
- Rubber Falls to Near 17-Month Low as U.S. Factory Growth Slows.
Rubber futures in Tokyo declined to the lowest level in almost 17
months after signs of slowing global industrial output boosted demand
for the Japanese currency as a haven. The commodity for delivery in
July fell as much as 2.3 percent to 221.8 yen a kilogram ($2,192 a
metric ton) on the Tokyo Commodity Exchange, the lowest intraday price
for a most-active contract since Sept. 6, 2012. Futures traded at $223.3
yen by 10:25 a.m. local time, down 19 percent this year after entering a
bear market last week.
- Banks to Corporates Prepare for Big Bang of EU Swaps Rules.
Companies from banks and technology firms to energy suppliers are set
to face European Union swaps rules, amid warnings from some businesses
that they may not have all the systems in place to meet this month’s
deadline. Starting Feb. 12, firms in the EU must begin systematic
reporting of their derivatives transactions to data banks known
as trade repositories. The measure marks the EU’s implementation
of a global agreement targeted at preventing any repeat of the
financial crisis that followed the collapse of Lehman Brothers
Holdings Inc.
- U.S. Said to Probe Banks Over Sovereign Wealth Fund Dealings. The U.S. Justice Department is
investigating whether financial firms made improper payments to
secure investments from sovereign wealth funds, according to two
people familiar with the matter. The probe, which grew out of a Securities and Exchange
Commission inquiry, looks at firms including Goldman Sachs Group
Inc.(GS) that sought business from Libya’s sovereign wealth fund
before Muammar Qaddafi’s regime was toppled in 2011, said one of
the people, who asked not to be identified because the
investigation isn’t public.
Wall Street Journal:
Fox News:
- O'Reilly v Obama, Round 2 : Keystone, poverty and veterans. President Obama told Bill O’Reilly Monday on “The O’Reilly Factor”
that he was waiting to get an official recommendation from Secretary of
State John Kerry before proceeding with the Keystone Pipeline. Obama
also took issue with the number of jobs the pipeline would create after
supporters said it would create tens of thousands.
CNBC:
Zero Hedge:
Business Insider:
Washington Post:
- House GOP finalizes debt-limit playbook. Several House members told The Washington Post on Monday that Republican
leaders have narrowed their list of possible debt-limit strategies to
two options: trading a one-year extension for approval of the Keystone
XL pipeline, or trading a one-year extension for repeal of the
Affordable Care Act’s risk corridors.
Reuters:
Telegraph:
People's Daily:
- China 2014 Job Market Needs to Absorb 7.3m Graduates. Job market
will face pressure this year to absorb 7.3m college graduates, citing
Yuan Guiren, Minister of Education.
Evening Recommendations
Night Trading
- Asian equity indices are -2.25% to -1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 157.0 +6.0 basis points.
- Asia Pacific Sovereign CDS Index 119.25 +3.25 basis points.
- NASDAQ 100 futures +.35%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:00 am EST
- Factory Orders for December are estimated to fall -1.8% versus a +1.8% gain in November.
- The IBD/TIPP Economic Optimism Index for February is estimated to fall to 44.5 versus 45.2 in January.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Evans speaking, Fed's Lacker speaking, UK Construction PMI
report, weekly retail sales reports, ISM New York for January, (MBT)
investor day and the (SAP) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology
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 25% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 21.24 +15.37%
- Euro/Yen Carry Return Index 142.57 -.71%
- Emerging Markets Currency Volatility(VXY) 10.30 +.59%
- S&P 500 Implied Correlation 62.26 +4.85%
- ISE Sentiment Index 86.0 -8.2%
- Total Put/Call .78 -10.34%
Credit Investor Angst:
- North American Investment Grade CDS Index 74.43 +4.31%
- European Financial Sector CDS Index 104.51 +3.44%
- Western Europe Sovereign Debt CDS Index 55.0 unch.
- Asia Pacific Sovereign Debt CDS Index 117.74 +1.40%
- Emerging Market CDS Index 347.33 +2.50%
- 2-Year Swap Spread 13.25 +.25 basis point
- TED Spread 21.50 -.75 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -6.75 +1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 228.0 -4.0 basis points
- China Import Iron Ore Spot $122.60/Metric Tonne unch.
- Citi US Economic Surprise Index 32.60 -16.4 points
- Citi Emerging Markets Economic Surprise Index 13.0 +.5 point
- 10-Year TIPS Spread 2.13 unch.
Overseas Futures:
- Nikkei Futures: Indicating -430 open in Japan
- DAX Futures: Indicating -61 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech/biotech/medical/retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Emerging Stocks Fall on Data as Brazil Leads World Losses. Emerging-market
stocks fell to a
five-month low as a manufacturing slowdown in China and the U.S.
bolstered concern global growth will falter. Brazil’s Ibovespa led
losses in world equities as Petroleo Brasileiro SA tumbled. The MSCI
Emerging Markets Index dropped 1.1 percent to 926.18 at 1:32 p.m. in New
York. Brazil’s Ibovespa posted the biggest decline among the 94 global
equity gauges tracked by Bloomberg as oil producer Petrobras sank to
an eight-year low. Turkey’s lira extended its worst start to a year
since 2009 after inflation quickened to the highest level in three
months. Ukrainian bonds rallied on speculation the European Union will
offer financial aid to rival emergency loans from Russia. “When both the U.S. and China show slowing growth in manufacturing, it’s a really big deal,”
Paul Zemsky, the head of multi-asset strategies at ING U.S. Investment
Management, which oversees $200 billion, said by phone from New York.
“There is no place in the world right now that investors are comfortable
about economic growth.” All 10 groups in the measure for
developing-nation equities decreased, led by commodity companies. The iShares MSCI Emerging
Markets Index exchange-traded fund fell 2.4 percent to $37.27
today. The Chicago Board Options Exchange Emerging Markets ETF
Volatility Index, a measure of options prices on the fund and
expectations of price swings, advanced 7.1 percent to 30.96.
- Emerging-Market Rout Seen Enduring on Low Real Rates. Inflation-adjusted
interest rates are
still too low in developing nations for Citigroup Inc. and
Goldman Sachs Group Inc. to foresee an end to the worst
emerging-market currency selloff in five years. One-year borrowing costs
in Turkey are 3.6 percent, less than half of the average in the three
years before the 2008 global financial crisis, even after the central
bank doubled its benchmark rate last week, according to data
compiled by Bloomberg. The real yield for Mexico is almost zero, while
South Africa’s is 1.4 percent, compared with an average of 2 percent
over the past decade. Central-bank rate increases in Turkey, India
and South Africa last week failed to contain January’s 3 percent selloff
in emerging-market currencies. Citigroup says yields aren’t high
enough to attract the capital needed to finance current-account deficits
in some of those nations. Competition for capital is intensifying with
the Federal Reserve paring monetary stimulus, while the International
Monetary Fund is calling for “urgent
policy action.”
- Europe Stocks Drop as Lloyds Falls on Compensation Costs.
European stocks declined, following their worst start to a year since
2010, as Lloyds Banking Group Plc dragged a gauge of banks lower and a
report showed U.S. manufacturing expanded at the slowest pace in eight
months. Lloyds posted its biggest drop since September 2012 after saying
it set aside 1.8 billion pounds ($2.9 billion) in the fourth quarter to
cover the cost of compensating customers for mis-sold payment
protection insurance. Colruyt SA tumbled the most in more than two years
after cutting its annual profit forecast. Ryanair Holdings Plc (RYA)
rallied the most in eight months after saying more people have booked
flights for this summer than at this stage a year ago. The Stoxx
Europe 600 Index fell 1.3 percent to 318.21 at the close of trading,
dropping to its lowest level in six weeks. The benchmark slid 1.8
percent in January. It has slumped 5.3 percent from a six-year high on
Jan. 22 as the Argentinian government’s decision to allow the peso to
devalue triggered a rout in emerging-market currencies.
Wall Street Journal:
MarketWatch:
CNBC:
- After swearing in, Yellen's next hurdle is GOP scrutiny. The
Janet Yellen era officially began with the new Fed chair's swearing in
at the central bank Monday morning. But Yellen's real challenges start
next week, when she faces the House Financial Services Committee on
Tuesday and the Senate Banking Committee on Thursday.
ZeroHedge:
ValueWalk:
Business Insider:
Reuters:
- Brazil posts widest trade deficit ever in January. Brazil's trade deficit in
January was the biggest on record, after a rise in raw material
exports failed to offset greater imports of consumer and capital
goods, the Trade Ministry said on Monday.
- METALS-Copper hits 2-month low; China, U.S growth concerns drag. Copper fell to a two-month low on
Monday, with slowing factory growth in top consumer China and the United States compounding a deteriorating demand outlook for
the metal. China's factory growth eased to an expected six-month low in
January, hurt by weaker local and foreign demand, heightening
worries of an economic slowdown. Also, growth in China's
services sector slowed to a five-year low in January.
- GLOBAL ECONOMY-China, U.S. drag on global manufacturing revival. Slower growth in the
Chinese and U.S. factory sectors raised worries about global
growth on Monday, even though European manufacturers enjoyed a
solid start to the year. Data showed growth in China's manufacturing sector slowed to
a six-month low, while its service sector grew at its slowest
pace in five years.
Financial Times:
- Investors turn wary on US earnings growth. There is one certainty in the stock market: companies usually beat their
lowballed earnings forecasts. At least, that is what equity bulls say.
Others have turned wary.
Telegraph:
