Bloomberg:
- Emerging-Market Shakeout Putting Reserves Into Focus: Currencies. Foreign-exchange reserves are emerging as the latest battleground
between traders and developing nations trying to stem the worst rout in
their currencies since 2008. Nations with the smallest reserves
to fend off currency speculators will continue to see their exchange
rates under pressure, options prices show. Of the 31 major currencies
tracked by Bloomberg, traders are most bearish on Argentina’s peso,
Turkey’s lira, Hungary’s forint, Indonesia’s rupiah and South Africa’s
rand, while the forwards market signals that Ukraine’s hryvnia will fall
20 percent in a year. “If you start to burn too quickly through your
foreign reserves, it’s an ominous sign -- and of course in the forex
market, they smell blood,” Robbert Van Batenburg, the director of market
strategy at broker Newedge Group SA in New York, said Feb. 5 by phone.
“It creates this domino effect.”
- PBOC Singling Out Industries Fuels Nomura Anxiety: China Credit. The
singling out of three debt types
most at risk by the People’s Bank of China has prompted Nomura Holdings
Inc. to warn that rising borrowing costs will make it even harder to
avoid a default by these issuers. The PBOC will enhance monitoring of local government financing vehicles, industries with overcapacity and property
developers to prevent default risks from spreading, according to
its fourth-quarter policy report issued on Feb. 8. Jinzhou
Economic Technology Zone Development Group Co., an LGFV in
Liaoning province, sold new seven-year bonds at 9.1 percent in
January, while Guangxi Nonferrous Metal Group Co. issued nine-month bills at 8.5 percent. That’s almost twice as high as the
yield on 2021 government debt.
- RBS May Be Cut by Moody’s on Weaker Capital Position. Royal
Bank of Scotland Group Plc’s credit rating may be downgraded by Moody’s
Investors Service after the bank said last month that full-year results
would be hurt by provisions and conduct-related costs. “As a result, the bank will report a weaker than
previously anticipated regulatory capital position at end-December 2013, weakening its standalone credit profile,”
Moody’s said in a statement today.
- Draghi Said to Face Backlash in Dispute Over Italian Colleague. Mario
Draghi is facing resistance from euro-area central bank chiefs on his
choice for a senior position in the currency bloc’s new bank supervisor,
said three people with knowledge of the matter. Ignazio Angeloni,
an Italian who is Director General of the institution’s
financial-stability wing, is the European Central Bank president’s pick
for one of four seats the Governing Council will appoint to the
Supervisory Board that starts oversight of the region’s biggest lenders
in November, the people said. Draghi encountered heated opposition at a
council dinner on Feb. 5, said two of the people, who asked not to be
identified as the issue is private.
- European Stocks Rise for Sixth Day on ING, SocGen Profit. European stocks rose for a sixth day, their longest winning streak this year, as companies from ING Groep NV (INGA) to Societe Generale SA (GLE) posted profit that beat estimates, and a report showed Chinese exports surged. ING and Societe Generale each gained more than 3.5 percent. Norsk Hydro ASA (NHY) added 3.6 percent after reporting quarterly sales that exceeded estimates. Telenor ASA (TEL) dropped the most since May 2012 after the Norwegian telecommunications operator reported earnings that trailed analysts’ predictions.
The Stoxx Europe 600 Index advanced 0.8 percent to 332 at
the close of trading.
- WTI Crude Rises to 4-Month High as Cushing Supply Drops. WTI for
March delivery advanced 37 cents, or 0.4 percent, to $100.31 a barrel
at 12:29 p.m. on the New York Mercantile Exchange after climbing to
$101.38, the highest level since Oct. 18. Oil traded at $101.21 a barrel before the report. The volume
of all futures was 49 percent above the 100-day average.
- Fed Makes ‘Fool’s Paradise’ on Low Rates, AIG’s Miller Says. Record-low borrowing costs that
helped fuel the stock market rebound are insufficient to sustain
a U.S. economic recovery, said Steve Miller, the chairman of
American International Group Inc. “It’s a fool’s paradise,” Miller said on Bloomberg Television today. “We’re basically printing money to keep
everybody happy in the short term.” “Janet is going to keep rates low for a while,” Miller
said in an interview with Tom Keene and Scarlet Fu. “But you
can’t keep that going forever. So we need to get real on
government spending.”
- Obamacare Raises Medicaid Cost as Insurers Shift Tax Bill. Health
insurers told to pay $150 billion in taxes over a decade to help fund
Obamacare are now shifting at least part of that cost back to taxpayers. Congress passed the insurer tax four years ago to help cover the uninsured under the Patient Protection and Affordable
Care Act. Now, the industry is pushing to include some of the
cost in contracts with Medicaid programs for the poor that are
jointly funded by state and federal governments.
- ‘Historic’ Storm Ices Atlanta as Northeast Faces Snow. A
potentially historic winter storm
threatens to coat Georgia with ice, knocking out power and grounding
thousands of planes, before bringing snow to Northeastern cities
including Washington and New York. New York may get 1-3 inches (3-8
centimeters) of snow tonight, and Washington as much as 4 inches,
according to the latest update by the National Weather Service at 6:51
a.m. in
New York. Atlanta is forecast to receive as much as half an inch
of ice today.
Wall Street Journal:
CNBC:
ZeroHedge:
Business Insider:
Rolling Stone:
Forbes:
Reuters:
Style Underperformer:
Sector Underperformers:
- 1) HMOs -1.32% 2) Airlines -.77% 3) Retail -.60%
Stocks Falling on Unusual Volume:
- RLOC, AMAG, EEFT, VSAT, MKTO, RAX, WCG, SBGI, ANDE, FEYE, LO, QLYS, HELE, AAWW, RCI, INTU, TRI, JBT, OMC, WPC, ASPS, RNR, CSOD, SDRL, MNK, AMZN, PGEM, INTU, TRI, NLNK and CVA
Stocks With Unusual Put Option Activity:
- 1) LO 2) FOSL 3) WFM 4) Z 5) STZ
Stocks With Most Negative News Mentions:
- 1) CVX 2) FEYE 3) JCP 4) INTU 5) WMB
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Computer Hardware +.68% 2) Education +.65% 3) Hospitals +.37%
Stocks Rising on Unusual Volume:
- ACO, FSL, DHRM, BLOX, MRIN, CTRL, PNK, TRMB, OC, SGEN, SCI, PKG, PHH, CNVR, FOSL, VAL, SN, TRIP, DVA and SALE
Stocks With Unusual Call Option Activity:
- 1) ZTS 2) SBGI 3) TRIP 4) FIG 5) CXO
Stocks With Most Positive News Mentions:
- 1) HII 2) A 3) MSFT 4) TWTR 5) WU
Charts:
Evening Headlines
Bloomberg:
- Japan Core Machinery Orders Fall Most Since ’98 in Abe Challenge.
Japan’s core machine orders fell in December the most since 1998,
signaling business investment growth could slow in coming months and
weigh on a recovery in the world’s third-biggest economy. Core orders fell 15.7 percent from the previous month, the Cabinet Office said in Tokyo today, compared with the median
estimate of a 4 percent decline in a Bloomberg survey of 31
economists.
- China Military Spending Threatens U.S. Superiority, Kendall Says.
China’s increased defense spending coupled with shrinking U.S. budgets
threatens to end U.S. military superiority, a top American procurement
official said. “We’ve relied on technological superiority for decades
now as one of the fundamental things that sets our military apart and I
do see that that’s not assured given the investments being made by
China as well as by other powers,” Frank Kendall, under secretary of
defense for acquisition, technology and logistics, told reporters in
Singapore today.
- Emerging-Market Sharks Circle Reserves
in Rapid Dive: Currencies. Foreign-exchange reserves are emerging as the
latest battleground between traders and developing nations trying to
stem the worse rout in their currencies since 2008.
- Asian Stocks Climb as Aussie Rises After China Data.
Asian stocks climbed for a sixth day, led by Japanese shares, while the
Australian dollar rose to a one-month high after Chinese trade data
exceeded estimates. Gold slid, halting a five-day gain, and South
Korea’s won strengthened. The MSCI Asia Pacific Index added 1 percent as of 11:19 a.m. in Tokyo, where the Topix Index rose 1.5 percent after being closed yesterday for a holiday.
- Rebar Near 17-Month Low as Rising Ore Imports Swell Stockpiles.
Steel reinforcement-bar futures in Shanghai traded near the lowest
level in more than 17 months as iron ore inventory climbed amid record
imports in January. Rebar for May delivery on the Shanghai Futures
Exchange traded at 3,388 yuan ($558) a metric ton at 10:14 a.m. local
time. Futures settled at 3,386 yuan yesterday, the lowest close
for a most-active contract since September 2012.
Wall Street Journal:
Fox News:
CNBC:
Zero Hedge:
Business Insider:
Forbes:
Washington Examiner:
Reuters:
- Icahn calls for return of Glass-Steagall - FOX Business. Billionaire activist Carl Icahn, who has
been making headlines with his epic battle with Apple Inc. , might have another one on his hands - this time with his banker friends.
In an interview with FOX Business Network on Tuesday, Icahn called for
the reinstatement of the Glass-Steagall Act, which separated investment
banks and commercial banks. "I think what they should do is go back to Glass-Steagall,"
he told FOX Business. "A lot of my friends at these investment banks are going to be real mad at me for saying it, but I really
think that was one of the problems in '08."
- Fed to emerging markets: Think on your policy shortcomings. The U.S.
Federal Reserve on Tuesday acknowledged it likely triggered a financial
market sell-off in the developing world, but said policies in countries
such as Turkey, Brazil and India made them especially vulnerable
to external shocks.
Nikkei:
- BOJ's Kiuchi Says More Easing May Do More Harm Than Good. Additional monetary easing to avoid potential economic downturn triggered by April's sales tax increase may bring negative side effects, Bank of Japan policy board member Takahide Kiuchi said in an interview. Kiuchi says it's difficult to tell effectiveness of extra easing in boosting inflation.
China Securities Journal:
- China Iron Ore Inventory at Ports 96.3M Tons. Iron ore inventory
at China's 34 ports was 96.3 tons as of Feb. 7, near the historical
record high of 100m tons, citing custeel.com.
Evening Recommendations
Night Trading
- Asian equity indices are +.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 136.0 -8.0 basis points.
- Asia Pacific Sovereign CDS Index 106.5 -2.0 basis points.
- NASDAQ 100 futures +.10%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+2,630,000 barrels versus a +440,000 barrel gain the prior week.
Gasoline supplies are estimated to fall by -10,000 barrels versus a
+505,000 barrel gain the prior week. Distillate supplies are estimated
to fall by -1,865,000 barrels versus a -2,360,000 barrel decline the
prior week. Finally, Refinery Utilization is estimated to fall by -.41%
versus a -2.1% decline the prior week.
2:00 pm EST
- The Monthly Budget Deficit for January is estimated at -$10.0B versus $2.9B in December.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Bullard speaking, BoE inflation report, $24B 10Y T-Note auction,
Australia Unemployment report, weekly MBA mortgage applications report,
(RCII) investor day, (SCHW) Business Update, BB&T Transport
Conference, BofA Insurance Conference and the Leerlink Healthcare
Conference could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by industrial 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 75% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 14.32 -6.16%
- Euro/Yen Carry Return Index 146.02 +.33%
- Emerging Markets Currency Volatility(VXY) 9.13 -1.83%
- S&P 500 Implied Correlation 51.52 -1.62%
- ISE Sentiment Index 97.0 -23.62%
- Total Put/Call .89 -4.30%
Credit Investor Angst:
- North American Investment Grade CDS Index 65.07 -3.93%
- European Financial Sector CDS Index 89.54 -5.41%
- Western Europe Sovereign Debt CDS Index 53.0 unch.
- Asia Pacific Sovereign Debt CDS Index 106.48 -1.96%
- Emerging Market CDS Index 319.93 -2.79%
- China Blended Corporate Spread Index 361.71 -.16%
- 2-Year Swap Spread 12.25 +.25 basis point
- TED Spread 19.0 +1.25 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -4.25 -.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .05% -1.0 basis point
- Yield Curve 239.0 +2.0 basis points
- China Import Iron Ore Spot $120.0/Metric Tonne -.66%
- Citi US Economic Surprise Index 25.70 +1.1 point
- Citi Emerging Markets Economic Surprise Index 13.10 +.7 point
- 10-Year TIPS Spread 2.17 -1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating +230 open in Japan
- DAX Futures: Indicating +25 open in Germany
Portfolio:
- Higher: On gains in my tech/medical/biotech/retail sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 75% Net Long
Bloomberg:
- Brevan Said to Shut Emerging Markets Fund After Losses.
Geraldine Sundstrom is leaving Brevan Howard Capital Management LP and
the firm is shutting her hedge fund after it lost money amid a rout in
emerging markets, according to a person with direct knowledge of the
decision. Sundstrom’s Brevan Howard Emerging Markets Strategies Master Fund declined 15 percent last year after a sell off for
bonds and currencies, said the person, who asked not to be
identified because the matter is private. Her fund, which had
$2.7 billion in assets as of last June, fell another 1.6 percent
in January after investor concerns that emerging markets would
continue to decline, the person said.
- Europe Stocks Rise as Yellen Says Jobs Recovery Not Over. European stocks rose for a fifth day as Federal Reserve Chairman Janet Yellen pledged to continue reducing stimulus as the economy strengthens. Carmakers posted the biggest gain among 19 industry groups in the Stoxx 600 after Goldman Sachs Group Inc. boosted its growth forecasts for auto sales in western Europe. Michelin &
Cie. gained 3.3 percent after maintaining its 2015 earnings
projection. Barclays Plc sank 3.8 percent after saying its
investment-bank division swung to a loss in the fourth quarter.
The Stoxx Europe 600 Index added 1.3 percent to 329.52 at
the close of trading, taking its five-day gain to 3.8 percent.
- Farm Profits Seen Falling as Five-Year Crop Boom Ends. A
waning boom in U.S. crop prices will cut annual farm
profits 27 percent this year from a record, potentially denting demand
for Deere & Co. (DE:US) tractors and Monsanto Co. (MON:US)
chemicals, the government said. Agricultural net income will be $95.8
billion, down from a revised $130.5 billion last year, the U.S.
Department of Agriculture said today in its first 2014 forecast. Income
for major crops including corn, soybeans and wheat
will be $189.4 billion, down 12 percent, while all expenses for feed,
chemicals and other items will be $348.2 billion, down 11 percent. Flat
demand for corn to make ethanol and fewer exports to China may halt
gains in farmland values after a 37 percent jump since 2009, leaving
farmers with less to invest.
- Job Openings in U.S. Decrease in December as Hiring Slows.
Job openings in the U.S. fell in December from an almost six-year high
and hiring slowed, a sign the labor market cooled at the end of the
year. The number of positions waiting to be filled declined by 43,000
to 3.99 million, from a revised 4.03 million the prior month, the Labor
Department said today in Washington. Fewer
Americans quit their jobs.
- Hillary Clinton Emerged as Top Obama Ally on Health: Book. Hillary
Clinton, once President Barack Obama’s political foe, emerged as his
top ally on what would become his signature policy achievement:
revamping the U.S. health-care system. She quietly advised
administration officials and lawmakers uneasy after a summer of attacks
by the small-government Tea Party movement, according to the book “HRC:
State Secrets and
the Rebirth of Hillary Clinton.” (Crown, 440 pages, $26.).
Wall Street Journal:
Fox News:
- Boehner backs down, says House to vote on 'clean' debt-limit hike. House Speaker John Boehner, in an abrupt shift, announced Tuesday
that the House would vote on an increase in the nation's borrowing cap
without any strings attached. A senior House GOP leadership source told Fox News that the vote is
expected Tuesday night, with lawmakers trying to beat the impending
snowstorm.
MarketWatch:
CNBC:
- Fed's Plosser 'worried' about not raising rates. Charles Plosser, president of the Federal Reserve Bank of Philadelphia,
said Tuesday history is not on the side of the central bank when it
comes to raising interest rates in a timely manner, and the risk is
financial markets will force its hand.
- 'This isn't your father's Fed': GOP congressman. (video) The
chairman of the House Financial Services Committee questioned on
Tuesday the usefulness of the Federal Reserve's forward guidance
tool—ahead of new Fed Chair Janet Yellen's testimony to the panel.
ZeroHedge:
Business Insider:
Reuters:
- European regulators to exempt some banks from harshest stress tests. Regulators
will exempt banks that had mandatory European Commission-approved
restructuring plans in place last year - such as Monte dei Paschi di
Siena - from the harshest of stress tests in 2014, Italian
government officials say. The European Banking Authority (EBA) is due to
conduct stress tests of euro zone lenders as part of a sector-wide
check up by the European Central Bank before taking it takes on
supervision from national regulators in November.
- France's SocGen, BNP prepare retail banking cuts - sources. Paribas
and Societe Generale, are
preparing to make cuts to their domestic retail operations to help
contend with the sluggish economy, union sources told Reuters. Retail
banking in France has long been a cash cow for the country's top lenders
but over the past two years there has been a slowdown in revenue growth
as a stalled economy hit household
budgets, triggering a drive to cut costs.
Telegraph:
Bild:
- German
Economic Adviser Warns of Further ECB Rate Cut. Another interest rate
cut wouldn't have direct economic impact, citing an interview with
Christoph Schmidt, head of council of economic advisers.