Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 19.52 +2.20%
- Euro/Yen Carry Return Index 143.11 -.13%
- Emerging Markets Currency Volatility(VXY) 9.68 -1.02%
- S&P 500 Implied Correlation 59.25 -1.55%
- ISE Sentiment Index 122.0 -17.57%
- Total Put/Call 1.01 unch.
Credit Investor Angst:
- North American Investment Grade CDS Index 72.98 +.07%
- European Financial Sector CDS Index 99.37 -2.33%
- Western Europe Sovereign Debt CDS Index 55.0 -1.22%
- Asia Pacific Sovereign Debt CDS Index 114.19 -2.26%
- Emerging Market CDS Index 331.72 unch.
- 2-Year Swap Spread 12.75 -.5 basis point
- TED Spread 18.0 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -7.0 -1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .06% +1.0 basis point
- Yield Curve 235.0 +4.0 basis points
- China Import Iron Ore Spot $122.40/Metric Tonne -.16%
- Citi US Economic Surprise Index 30.30 -.8 point
- Citi Emerging Markets Economic Surprise Index 10.20 -.8 point
- 10-Year TIPS Spread 2.12 unch.
Overseas Futures:
- Nikkei Futures: Indicating +38 open in Japan
- DAX Futures: Indicating +18 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/medical sector longs and index hedges
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
- Market Exposure: Moved to 75% Net Long
Bloomberg:
- Emerging Stocks Fall to Five-Month Low as Petrobras(PBR) Sinks. Emerging-market stocks dropped to a
five-month low as Petroleo Brasileiro SA to Samsung Electronics
Co. slumped amid concern the global economy will slow down.
The MSCI Emerging Markets Index declined 0.2 percent to 915.70 at 10:40 a.m. in New York, extending this year’s slide to
8.6 percent.
- Hong Kong Stocks Decline as Casinos Companies Tumble.
Hong Kong stocks dropped, dragging the city’s benchmark index down to
its lowest level since July, as casino companies tumbled on signs of a
slowdown in Macau gambling revenue and property developers declined.
Galaxy Entertainment Group Ltd. (27) and Sands China Ltd. (1928) plunged
more than 7 percent to lead losses in Hong Kong. Gambling sales growth
in Macau slumped to 7 percent in January, the slowest pace since October
2012, according to official data. A gauge of property shares dropped
for an eighth day as Cheung Kong Holdings Ltd. (1), the developer
controlled by billionaire Li Ka-shing, slid to its lowest level since
September. The Hang Seng Index retreated 0.6 percent to 21,269.38 at
the close, with more than two stocks dropping for each that rose. The
Hang Seng China Enterprises Index (HSCEI) of mainland companies listed
in Hong Kong, known as the H-share index,
declined 0.4 percent to 9,470.62. China’s markets are closed for
holidays until Feb. 7.
- European Stocks Climb as Investors Weigh U.S. Data.
European stocks advanced for the first time in four days as investors
weighed data that showed U.S. services-industries growth accelerated
while employers in the world’s largest economy hired fewer workers than
estimated. GlaxoSmithKline Plc gained 1.6 percent after saying it
expects revenue and profit to increase this year. Swatch Group
AG rose 3.9 percent after posting full-year earnings that beat
projections. Svenska Handelsbanken AB jumped 3 percent after
announcing a special dividend that boosted its annual payout by
53 percent. Hargreaves Lansdown Plc plunged the most since
August 2011 after saying profit margin fell in its first half.
The Stoxx Europe 600 Index added 0.1 percent to 318.04 at
the close.
- Inverse VIX Fund Gets Record Cash on Calm Market Bet: Options. An
exchange-traded fund that appreciates as calm is restored to financial
markets has never been more popular. About $196 million was added last
week to the VelocityShares Daily Inverse VIX (XIV:US) Short-Term ETN,
which rises in value as swings decline, the most since its debut in
November 2010, according to data compiled by Bloomberg.
- Fed’s Plosser Sees 3% Growth in 2014 Warranting Faster QE Taper. Federal
Reserve Bank of Philadelphia
President Charles Plosser, who votes on policy this year, said he
expects the economy to expand 3 percent in 2014 as the jobless rate
falls to 6.2 percent by year-end, warranting a quicker tapering to bond
purchases by the central bank. Policy makers made the first two cuts to asset purchases in
December and January, slowing to $65 billion a month from $85
billion. While welcoming the trims, Plosser said they “may
prove to be insufficient” if growth keeps accelerating.
“My preference is to scale back our purchase program at a
faster pace to reflect the strengthening economy,” he said
today in a speech in Rochester, New York.
- Contagion Rejected as Biggest Bond Buyers Double Down on Junk.
Michael Buchanan knew exactly what to do as markets were rocked in
recent weeks on concern turmoil in developing nations from Argentina to
China and Turkey would cause the global economic recovery to derail: buy
junk bonds.Money managers from Western Asset to AllianceBernstein
Holding LP say they are uncowed by the selloff in emerging markets and stocks, betting that the global economy is strong enough to
withstand such shocks as central banks keep filling the world with cheap
cash.
- Merck(MRK) to Partner With Drugmakers on Immune Cancer Drug Plan. Merck & Co. (MRK:US), the second-biggest U.S. drugmaker by sales, will work with three other drugmakers to
find the most-promising combination treatments for its top
pipeline prospect, an immune system-based cancer medicine.
Wall Street Journal:
MarketWatch:
CNBC:
- The Obamacare tax deconstructed. Several developments related to the Affordable Care Act will be hitting
many filers in the pocketbook this tax season, but they need to keep an
eye on two other issues that could begin affecting millions of people
next tax season.
- Union vote in Tennessee could be labor rally point. Workers
at the Volkswagen assembly plan in Chattanooga, Tenn., will vote next
week on whether to join the United Auto Workers union.
ZeroHedge:
Business Insider:
NY Times:
- E.P.A. Staff Struggling to Create Pollution Rule. In
marathon meetings and tense all-day drafting sessions, dozens of
lawyers, economists and engineers at the Environmental Protection Agency
are struggling to create what is certain to be a divisive but
potentially historic centerpiece of President Obama’s climate change
legacy. If
the authors succeed in writing a lawsuit-proof regulation that is
effective in cutting carbon emissions from America’s 1,500 power plants —
the largest source of the nation’s greenhouse gas pollution — the
result could be the most significant action taken by the United States
to curb climate change.
Reuters:
- Italy investigates rating agencies over 2011, 2012 cuts. The
Corte dei Conti, Italy's main public audit body, has told three rating
agencies that it is investigating cuts in Italy's sovereign debt ratings
in 2011
and 2012, the prosecutor in charge of the case said on Wednesday.
India's
statistics office is likely to say in two weeks that growth this year
will slump further to an 11-year low, undermining the government's
optimism that it would at least be flat at 5% on the back of a recovery
in the second half.
The advanced estimate for FY14 is set to come in below that level, said an official who didn't want to be named.
The economy expanded 4.6% in the first half and would need to rise
5.4% in the second for growth to come in at 5%, which doesn't lo ..
Gloomy outlook: India's GDP may sink below 5% to an 11-year low
Xinhua:
- China reports 11 new H7N9 human cases. Eleven Chinese people were confirmed to be infected
with the H7N9 bird flu on Wednesday in four regions, with 8 in critical
condition, according to local health authorities. The southern province of Guangdong reported 4 new cases, including a
5-year-old girl and a 42-year-old man in Zhaoqing City, a 49-year-old
man in Foshan City and a 56-year-old man in Shenzhen City, said the
provincial health and family planning commission.
South China Morning Post:
Japan’s defence ban must be revised, says government panel. Rewriting
constitution is too hard for now, so reinterpretation to let Tokyo help
allies is vital to counter a resurgent China, advisers warn. Japan’s defence ban must be revised, says government panel. Rewriting
constitution is too hard for now, so reinterpretation to let Tokyo help
allies is vital to counter a resurgent China, advisers warn.
Style Underperformer:
Sector Underperformers:
- 1) Coal -2.54% 2) Oil Service -1.52% 3) Biotech -1.22%
Stocks Falling on Unusual Volume:
- RL, XOOM, DDD, EPZM, HAIN, BWLD, TDW, GHDX, EL, CLNE, CBL, CHRW, CERN, SYT, SSYS, AMBA, RDEN, CTSH, CSGS, GIMO, HUM, ITMN, PNQI, MTH, RGR, LQDT, GILD, HALO, CAMP, GLF, ENV, EL, IACI, MTH, AMBA, NUS, RDEN, XONE, CENX, ENTA, CLNE and BBG
Stocks With Unusual Put Option Activity:
- 1) AKS 2) BWLD 3) RL 4) NAV 5) AKAM
Stocks With Most Negative News Mentions:
- 1) IACI 2) S 3) HUM 4) CTSH 5) ANGI
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Steel +.57% 2) Medical Equipment +.43% 3) Tobacco +.15%
Stocks Rising on Unusual Volume:
- OHRP, DATA, TVIX, MYGN, OMER, ORMP, LVLT, OMCL and CVD
Stocks With Unusual Call Option Activity:
- 1) DATA 2) BWLD 3) HUM 4) BEAM 5) FNSR
Stocks With Most Positive News Mentions:
- 1) GOOG 2) RL 3) LUV 4) TSLA 5) MRK
Charts:
Evening Headlines
Bloomberg:
- China Savers’ Penchant for Property Magnifies Bust Danger. Chinese households’ concentration of wealth in real estate is
magnifying the danger to the world’s second-largest economy of any
property bust, as the nation grapples with the consequences of its
record credit surge. Some 66.1 percent of family assets were in
housing in 2013, a national survey of about 28,000 households shows.
Mortgage debt as a share of disposable income rose to 30 percent from 18
percent in 2008, according to estimates by Nicholas Lardy at the
Peterson Institute for International Economics in Washington. The
buildup raises the stakes for any slide in property prices amid China’s
efforts to head off defaults by local governments and developers that
propelled a run-up in borrowing that now amounts to more than double the
size of the economy, according to Goldman Sachs Group Inc. A hit to household wealth could impair consumer spending, rebuffing policy maker efforts to rebalance the economy toward domestic demand.
- Pimco’s Bill Gross Says He Avoids China ‘Mystery Meat'.
Bill Gross, who oversees the world’s biggest bond fund at Pacific
Investment Management Co., said the pace of economic growth in China is
among the biggest questions in developing nations and the largest risks
for markets. “I call China the mystery meat of emerging-market
countries,” Gross said yesterday during an interview on Bloomberg
Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle.
“Nobody knows what’s there and there’s a little bit of bologna, so
we’re just going to have to wonder going forward through this year as to
the potential problems in
China and other emerging markets.”
- Deadly New Bird Flu Strain Spawned by Virus Behind H5N1. The new bird flu that’s infected two
people in China, killing one, was spawned by the same pathogen that produced two other deadly flu strains, a study found.
The new H10N8 strain, which hasn’t previously been reported in humans,
contains six out of eight genes from the H9N2 virus that also provided
the genetic foundation for the H5N1 virus that’s killed 386 people since
2003, and the H7N9 strain that led to at least 70 fatalities, Chinese
researchers wrote in The Lancet medical journal today.
- Japan Real Wages Fall to Global Recession Low in Spending Risk. Japan’s base wages adjusted for
inflation last year matched a record low in 2009 when the world
was gripped by recession, posing a risk to consumer spending as
the nation girds for a higher sales tax.
Pay excluding bonuses and overtime payments dropped to 98.9
in 2013 on a labor ministry index that takes price changes into
account, equaling the level four years earlier. The gauge is
based at 100 in 2010 in data dating back to at least 2002.
- Chinese Shares Decline to Six-Month Low in Hong Kong.
The Hang Seng China (HSCEI) Enterprises Index dropped to a six-month
low as financial companies and energy producers retreated. Ping An
Insurance Group Co. slid 1.4 percent, while Huaneng Power International
Inc. slumped 2.9 percent. Cheung Kong Holdings Ltd., the Hong Kong
developer controlled by billionaire Li Ka-shing, fell 1.5 percent,
heading for its lowest close since September. Anhui Conch Cement Co.
gained 2.1 percent after
Credit Suisse Group AG named the stock as one of its top picks.
The Hang Seng China gauge of mainland companies, known as
the H-share index, lost 0.3 percent to 9,482.01 at the midday
break in Hong Kong, heading for its lowest close since Aug. 7.
- Asian Stocks Follow U.S. Rebound as Earnings Boost Japan.
Asian stocks rose, with the regional benchmark index rebounding from
its biggest slump since June, after U.S. shares rebounded and Japanese
companies posted earnings that cheered investors. Toyota Motor Corp.,
the world’s largest carmaker, jumped 6.2 percent in Tokyo after
forecasting a record profit. Panasonic Corp. surged 21 percent, heading
for its largest gain in almost 40 years of trading, after Japan’s
biggest consumer-electronics maker posted third-quarter profit that beat
analyst estimates. Hyundai Development Co-Engineering &
Construction
gained 5.7 percent in Seoul after the homebuilder’s rating was
raised at KTB Securities Co.
The MSCI Asia Pacific Index climbed 0.8 percent to 131.25
as of 11:03 a.m. in Tokyo, after plunging the most since June 20
yesterday.
- Rubber in Tokyo Trades Near 17-Month Low Amid China Holidays.
Rubber in Tokyo traded near the lowest level in 17 months as demand
from biggest-user China remains subdued during holidays, while output in
major producing nations is poised to decline. The contract for delivery
in July rose and fell by at least 1.2 percent before trading at 220.6
yen a kilogram ($2,177 a metric ton) by 11:48 a.m. local time on the
Tokyo Commodity Exchange. Futures earlier touched 217.8 yen, the
lowest intraday level for a most-active contract since Sept. 5, 2012.
The commodity entered a bear market last week and has lost 20
percent this year.
- Fed Presidents Say Stock Decline Unlikely to Derail QE Taper. Two Federal Reserve district bank
presidents signaled a decline in global stock markets probably
won’t deter the Fed from further trimming bond buying that has
pushed up central bank assets to $4.1 trillion. “The hurdle ought to
remain pretty high for pausing in tapering,” Richmond Fed President
Jeffrey Lacker said after a speech today in Winchester, Virginia.
Chicago’s Charles Evans said in Detroit that policy makers probably face
“a high hurdle to deviate” from $10 billion cuts in monthly bond buying
at
each of their next several meetings.
Wall Street Journal:
- Assault on California Power Station Raises Alarm on Potential for Terrorism. April Sniper Attack Knocked Out Substation, Raises Concern for Country's Power Grid.
The attack began just before 1 a.m. on April
16 last year, when someone slipped into an underground vault not far
from a busy freeway and cut telephone cables. Within
half an hour, snipers opened fire on a nearby electrical substation.
Shooting for 19 minutes, they surgically knocked out 17 giant
transformers that funnel power to Silicon Valley. A minute before a
police car arrived, the shooters disappeared into the night. To
avoid a blackout, electric-grid officials rerouted power around the
site and asked power plants in Silicon Valley to produce more
electricity. But it took utility workers 27 days to make repairs and bring the substation back to life. Nobody
has been arrested or charged in the attack at PG&E Corp.'s
Metcalf transmission substation. It is an incident of which few
Americans are aware. But one former federal regulator is calling it a
terrorist act that, if it were widely replicated across the country,
could take down the U.S. electric grid and black out much of the
country.
- Steel Scrapyards in U.S. Feel Effects of Turkey's Tarnished Economy.
The reach of Turkey's economic turmoil stretches to a sprawling
scrapyard in this blue-collar town and to veteran metals trader
Ken Puckett. Turkey is the world's largest
consumer of scrap steel, meaning strong demand from the country is
essential to keeping prices firm for the $20 billion U.S. industry. But
with the Turkish economy in crisis, demand is drying up. The country's
imports of scrap from the U.S., Turkey's top supplier, fell 18% to 4.9
million tons in the first 11 months of last year. That means that scrap
that had been destined to be used in Turkish steel mills remains in the
U.S. looking for buyers.
- The Jobless Care Act. Congress's budget office says ObamaCare will increase unemployment.
There are 7.8 million Americans working part-time who want full-time
work, including a fry cook whose restaurant cut his hours to avoid
Affordable Care Act mandates and confronted President Obama in an online
Google Q&A last week: "We can't survive. It's not a living."
Mr. Obama changed the subject to raising the minimum wage. But he can't dodge reality forever as the evidence piles up that ObamaCare is harming the labor market.
Fox News:
- S&P Cuts Puerto Rico Debt to Junk. Standard & Poor’s on Tuesday cut Puerto Rico’s credit rating to
junk status, citing the Caribbean island’s inability to borrow money to
cover looming budget deficits. All of Puerto Rico’s general obligation debt was cut one level to
BB+, the high level of junk status debt. S&P said all of its ratings
on Puerto Rico remain on watch for additional downgrades.
CNBC:
Zero Hedge:
Business Insider:
Forbes:
The Federalist:
Reuters:
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 151.0 -6.0 basis points.
- Asia Pacific Sovereign CDS Index 116.75 -2.5 basis points.
- NASDAQ 100 futures -.20%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:15 am EST
- The ADP Employment Change for January is estimated to fall to 185K versus 238K in December.
10:00 am EST
- ISM Non-Manufacturing for January is estimated to rise to 53.7 versus 53.0 in December.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+2,270,000 barrels versus a +6,421,000 barrel gain the prior week.
Gasoline supplies are estimated to rise by +920,000 barrels versus a
-819,000 barrel decline the prior week. Distillate inventories are
estimated to fall by -2,120,000 barrels versus a -4,584,000 barrel
decline the prior week. Finally, Refinery Utilization is estimated to
fall by -.29% versus a +1.7% gain the prior week.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Plosser speaking, Fed's Lockhart speaking, Eurozone Services PMI,
Australian Trade Balance report, weekly MBA mortgage applications
report and the Cowen Aerospace/Defense Conference could also impact
trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and consumer shares in the region. I expect US stocks to open mixsed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 18.22 -12.22%
- Euro/Yen Carry Return Index 143.21 +.53%
- Emerging Markets Currency Volatility(VXY) 9.87 -4.27%
- S&P 500 Implied Correlation 60.33 -2.99%
- ISE Sentiment Index 147.0 +50.0%
- Total Put/Call 1.05 +31.25%
Credit Investor Angst:
- North American Investment Grade CDS Index 72.71 -2.45%
- European Financial Sector CDS Index 101.20 -2.25%
- Western Europe Sovereign Debt CDS Index 55.68 +1.24%
- Asia Pacific Sovereign Debt CDS Index 115.71 -3.06%
- Emerging Market CDS Index 332.06 -4.12%
- 2-Year Swap Spread 13.25 unch.
- TED Spread 18.50 -3.0 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -6.0 +.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .05% +3.0 basis points
- Yield Curve 231.0 +3.0 basis points
- China Import Iron Ore Spot $122.60/Metric Tonne unch.
- Citi US Economic Surprise Index 31.10 -1.5 points
- Citi Emerging Markets Economic Surprise Index 11.0 -2.0 points
- 10-Year TIPS Spread 2.12 -1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating +329 open in Japan
- DAX Futures: Indicating +19 open in Germany
Portfolio:
- Slightly Lower: On losses in my index hedges and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
