Evening Headlines
Bloomberg:
- Goldman(GS) to Citigroup(C) Miss World’s Worst Selloff in China.
The China reform trade is backfiring in the stock market. After soaring
the most in two years on Nov. 18 as the Communist Party unveiled its
biggest policy changes since the 1990s, the Hang Seng China Enterprises
Index has since posted the world’s worst drop. An index of stocks JPMorgan Chase & Co. says benefit most from reform sank 10 percent this year through yesterday.
- Ex-BOJ Policy Maker Sees Scary Japan Inflation Dilemma. The
Bank of Japan faces a “terrifying dilemma” of inflation forcing it to
tighten monetary policy just as the central bank most needs to support
the bond market, according to a former board member. There’s about a
50-50 percent chance the BOJ will achieve its 2 percent goal for
consumer-price increases, which could push the 10-year yield above 3
percent, said Kazuo Ueda, who served as a BOJ policy maker from 1998 to
2005, and was also senior adviser to the Government Pension Investment
Fund. Bond market expectations for inflation have risen to 1.36 percent
from 0.94 percent in October, data compiled by Bloomberg show.
- Asian Stocks Index Extends Biggest Rally in Seven Weeks.
Asian stocks rose, with the regional benchmark index extending its
biggest rally in seven weeks yesterday, as U.S. equity gauges held at
record highs and investors weighed earnings. Kadokawa Corp., a Japanese
book publisher, surged 10 percent on a report it will merge with Dwango
Co. Hotel Properties Ltd., which manages hotels, surged 7.3 percent in
Singapore after reporting higher quarterly profit. Dentsu Inc., an
advertising company, slid 4.9 percent in Tokyo after forecasting net
income that missed estimates. The MSCI Asia Pacific Index rose 0.3 percent to 139.72 as
of 10:56 a.m. in Tokyo with all but one of its 10 industry
groups climbing.
- Split-Second Lurches Affect Stocks From AOL(AOL) to Caterpillar(CAT). A trading firm’s mistake caused wild price swings in U.S. stocks
including Caterpillar Inc., AOL Inc. and Nabors Industries Ltd. about 10
minutes before markets closed today, according to people familiar
with
the matter. Caterpillar, which had been trading around $107.12, jumped
to an intraday high of $108.21 within a second at 3:49 p.m. New York
time before almost immediately sinking back to where it had been. More
than $11 million worth of shares changed hands at the elevated levels,
according to data compiled by Bloomberg. The shares were moved by orders tied to the
close of trading that were incorrectly entered, said the people, who
asked to not be named because the details aren’t public.
Wall Street Journal:
- U.S. Steel Imports Spark Wave of Trade Complaints. Global Production Capacity Has Doubled.
- U.S. Backs Off Tight Mortgage Rules. In Reversal, Administration and Fannie, Freddie Regulator Push to Make More Credit Available to Boost Housing Recovery. The Obama administration and federal regulators are reversing course
on some of the biggest postcrisis efforts to tighten mortgage-lending
standards amid concern they could snuff out the fledgling housing
rebound and dent the economic recovery. On Tuesday, Mel Watt, the
newly installed overseer of Fannie Mae and Freddie Mac, said the
mortgage giants should direct their focus toward making more credit
available to...
- Google(GOOG) Faces Challenges in Europe After Privacy Ruling. Surprise Decision Could Prove Highly Disruptive to Search-Engine Operators. Europe's top court ruled that Google Inc. can be forced to erase
links to content about individuals on the Web, a surprise decision that
could disrupt search-engine operators and shift the balance between
online privacy and free speech across Europe. Under Tuesday's
ruling—which doesn't trigger any specific new enforcement, but sets a
strong legal precedent across the European Union—individuals can request
that search engines remove links to news articles, court judgments and
other documents in search results for their...
- Nigerian Militant Makes a Name for Himself Through Terror. Boko Haram Leader Steps Up Attacks to Emerge From Shadows of Other Radical Groups. When he appeared in a video on Monday boasting of having abducted
more than 200 schoolgirls, the leader of terror group Boko Haram took
the occasion to egg on the U.S. Army and get in a dig at ancient Egypt. "We
don't fear any American troops," shouted Abubakar Shekau, whose
Islamist insurgency has terrorized northern Nigeria and recently drawn
search-and-rescue advisers from the U.S. and other countries....
- U.S. Military Pressed on Climate Change. Retired Officers' Report to Call for Updated War Plans and Building More Ships to Operate in Arctic. The military must do more to prepare for the impacts of a changing
climate, including updating war plans and building more ships to operate
in the Arctic, a report by a group of retired military officers will
say Wednesday.
- Stopping Keystone Ensures More Railroad Tank-Car Spills. Pipelines in the U.S. carry 25 times more oil than tank cars do, yet derailments are by far the biggest threat. The Keystone XL Pipeline got another nail in its coffin Monday, in the
form of a Senate energy vote that excluded the pipeline issue. But
Keystone was already near death thanks to the
Obama's
administration's recent decision to ignore the evidence of a
definitive government study—and instead keep listening to
environmentalists' dubious claims. The upshot will be more political
fires in Washington caused by train derailments in the absence of a
pipeline to transport oil more safely.
MarketWatch.com:
Zero Hedge:
Business Insider:
Reuters:
- U.S. Fed warns of more bank scrutiny over leveraged loans. A senior Federal Reserve official warned banks on Tuesday the central bank may have to take further action to ensure compliance with U.S. guidance on leveraged
lending, in the clearest sign yet it is seeking to dispel a
perception that it is lenient.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 117.5 -2.25 basis points.
- Asia Pacific Sovereign CDS Index 83.0 -1.75 basis points.
- NASDAQ 100 futures +.08%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (DE)/2.49
- (M)/.60
- (A)/.73
- (CSCO)/.48
- (JACK)/.52
- (XONE)/-.12
- (RMAX)/.27
Economic Releases
8:30 am EST
- The PPI Final Demand MoM for April is estimated to rise +.2% versus a +.5% gain in March.
- PPI Ex Food & Energy for April is estimated to rise +.2% versus a +.5% gain in March.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+36,360 barrels versus a -1,781,000 barrel decline the prior week.
Gasoline supplies are estimated to rise by +90,910 barrels versus a
+1,608,000 barrel gain the prior week. Distillate inventories are
estimated to rise by +381,820 barrels versus a -447,000 barrel decline
the prior week. Finally, Refinery Utilization is estimated to rise by
+.46% versus a -.8% decline the prior week.
Upcoming Splits
Other Potential Market Movers
- The
Japan GDP report, Eurozone CPI, UK Unemployment report, BoE minutes,
weekly MBA mortgage applications report, JPMorgan Homebuilding/Building
Products Conference, (WMB) analyst day and the (MWW) briefing day could
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 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
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 12.24 +.08%
- Euro/Yen Carry Return Index 146.22 -.25%
- Emerging Markets Currency Volatility(VXY) 7.19 -.96%
- S&P 500 Implied Correlation 55.58 +1.35%
- ISE Sentiment Index 110.0 -17.91%
- Total Put/Call .85 +32.81%
Credit Investor Angst:
- North American Investment Grade CDS Index 62.49 +.27%
- European Financial Sector CDS Index 71.38 -1.91%
- Western Europe Sovereign Debt CDS Index 31.72 -2.19%
- Asia Pacific Sovereign Debt CDS Index 83.54 -1.55%
- Emerging Market CDS Index 266.34 +.09%
- China Blended Corporate Spread Index 356.82 -1.01%
- 2-Year Swap Spread 13.5 -.25 basis point
- TED Spread 20.25 -.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -6.25 -2.0 basis points
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 223.0 -3.0 basis points
- China Import Iron Ore Spot $103.0/Metric Tonne n/a
- Citi US Economic Surprise Index -12.70 -6.1 points
- Citi Emerging Markets Economic Surprise Index -26.70 -2.3 points
- 10-Year TIPS Spread 2.15 -2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +43 open in Japan
- DAX Futures: Indicating +9 open in Germany
Portfolio:
- Slightly Lower: On losses in my biotech sector longs and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- Ukraine in ‘Undeclared War’ With Russia as Rebels Unite. Insurgents
killed six Ukrainian soldiers and wounded eight
others in an ambush near an eastern rebel-held stronghold as the defense
minister said the country was fighting an “undeclared war” with Russia.
More than 30 attackers struck a convoy near the Donetsk region
city of Kramatorsk at about 1 p.m., according to a statement on the
Defense Ministry’s website. As fighting flared, Europe tried to rev up
diplomatic efforts, with Germany’s Foreign Minister Frank-Walter
Steinmeier visiting Kiev and Odessa in a bid to broker talks between the
central government and separatists. “Russia is already engaged”
in Ukraine “in supporting Russian-led protesters and terrorists,”
Ukrainian Prime Minister Arseniy Yatsenyuk told reporters in Brussels
today after talks with European Commission President Jose Barroso. “We
urge Russia to condemn them, to urge all these so-called protesters --
or really, terrorists -- to leave and vacate the buildings, and to do
everything they can to stabilize the situation in Ukraine. Russia will
fail to make Ukraine a failed state.”
- Russia Bans Rocket Engine Sales to U.S. Military. Russia
said it will no longer export rocket engines to the U.S. to launch
military satellites, adding to a dispute in Washington that already pits
the two biggest U.S. defense contractors against billionaire Elon Musk. Russian Deputy Prime Minister Dmitry Rogozin told reporters
in Moscow today that Russian engines can be used only to launch
civilian payloads, amid tensions over Russia’s support for
separatists in Ukraine and the U.S. and European economic
sanctions that have followed.
- China Slowdown Deepens.
China’s economic slowdown deepened with unexpected decelerations in
industrial-output and investment growth and a decline in home sales,
testing policy makers’ reluctance to step up monetary stimulus. Factory
production rose 8.7 percent in April from a year earlier, the National
Bureau of Statistics said in Beijing, compared with the 8.9 percent
median estimate of analysts surveyed by Bloomberg News. Fixed-asset
investment increased 17.3 percent in the first four months of the year,
the slowest for the period since 2001, and home sales fell 9.9 percent.
- Asian Junk Left Behind as Defaults Expose Cracks: Credit. Asia’s junk bond returns are lagging
behind investment-grade debt like never before as China’s
weakest projected growth since 1990 and escalating leverage expose cracks across the region’s economies. Speculative-grade
notes denominated in dollars have gained 2.76 percent this year through
May 9, 1.95 percentage points less than high-grade bonds, according to
index data compiled by
JPMorgan Chase & Co. The underperformance is the worst over the
same period since at least 2005. Globally, returns were about even at 4.1 percent, Bloomberg indexes show.
- German Investor Confidence Drops for Fifth Straight Month.
German investor confidence fell for a fifth month in May in a sign of
growing concern that threats from low inflation (ECCPEST) to a strong
euro may undermine the recovery. The ZEW Center for European Economic
Research in Mannheim said its index of investor and analyst
expectations, which aims to predict economic developments six months in
advance, slid to 33.1 from 43.2 in April. The gauge is at the lowest
level since January 2013. Economists forecast a decline to 40, according to the median of 33 estimates in a Bloomberg News survey. The index
has dropped every month since reaching a seven-year high of 62
in December.
- Bundesbank Support for ECB Stimulus Not to Be Automatic. The Bundesbank’s support for any more stimulus for the euro
area won’t be automatic even if the European Central Bank cuts its
inflation forecast for 2016, two people with knowledge of the matter
said. While the German central bank will focus on the outlook for
price stability at the end of the ECB’s forecast horizon and is open to
a package of measures from a negative deposit rate to halting the
sterilization of crisis-era bond purchases, nothing is decided yet, said
the people, who asked not to be identified because the matter is
private.
- Europe Stocks Rise to Six-Year High; ThyssenKrupp Climbs.
European stocks climbed to a six-year high amid better-than-estimated
earnings from ThyssenKrupp AG to Airbus Group NV. (AIR) ThyssenKrupp
rose 4.1 percent after Germany’s biggest steelmaker also raised its
full-year earnings forecast. Airbus advanced 6.2 percent. Pandora A/S
jumped 8.1 percent after increasing its sales projection. Telecom Italia
SpA (TIT) declined 5.2 percent as quarterly revenue missed estimates. The Stoxx Europe 600 Index gained 0.3 percent to 341.89 at the close of trading in London.
- Why Chart Watchers Are Skeptical of S&P 500’s New Record. There are soldiers and there are
generals in the stock market, according to Oppenheimer & Co.’s
Ari Wald, and they need to march together for this army to keep
winning.
- Grandma Gets to Play Hedge Fund With New Credit Swap ETFs.
If your grandmother wants to bet her
savings on a bundle of credit derivatives, it’ll be easy for her
to do so through a new swath of exchange-traded funds. The ETFs may not
have been created with her in mind, but she’ll be able to buy their
shares. Regulators this month signed off on a plan to allow trading
in eight new ProShares ETFs backed by wagers on the creditworthiness of
the riskiest to the
safest corporate borrowers. Those funds, which package credit-default
swaps, join more than 250 others that are based on
derivatives, an arena traditionally dominated by hedge funds.
- Wells Fargo(WFC) Needs to Answer for Bad Home Loans, U.S. Says. Wells Fargo
& Co. (WFC:US)’s $5 billion payment two years ago in a national
mortgage settlement was for loan servicing abuses, and the bank still
needs to answer for making bad government-insured loans, a U.S. Justice
Department
lawyer told a federal appeals court.
Wall Street Journal:
CNBC:
ZeroHedge:
ValueWalk:
Business Insider:
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Coal -1.03% 2) REITs -.43% 3) Retail -.42%
Stocks Falling on Unusual Volume:
- DXPE, RDEN, EXAM, TOUR, TRAK, CALL, OPHT, BWC, DTV, INSY, PBPB, CWCO, OCIP, SFE, CBPX, DQ, OPEN, WIX, WDR, PVA, AR, DATA, FMI, MCF, ATHN, UVE and PER
Stocks With Unusual Put Option Activity:
- 1) DE 2) HON 3) CY 4) MNST 5) OIH
Stocks With Most Negative News Mentions:
- 1) CUB 2) RAI 3) DXPE 4) EXAM 5) WHR
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Hospitals +1.06% 2) Homebuilders +.59% 3) Road & Rail +.54%
Stocks Rising on Unusual Volume:
- RAX, GMCR, VNTV, CVG, ALNY, MCK, UBNT and BKD
Stocks With Unusual Call Option Activity:
- 1) HSH 2) DXM 3) IDRA 4) RAX 5) GMCR
Stocks With Most Positive News Mentions:
- 1) KO 2) GMCR 3) RAX 4) BBRY 5) PFE
Charts:
Evening Headlines
Bloomberg:
- Modi Calls for Indian Unity as Exit Polls Signal He Will Take Power. Narendra
Modi called for unity in India as exit polls signaled his opposition
bloc would win a majority in national elections, boosting his chances of
taking power after pledging to revive Asia’s third-largest economy.
Modi’s Bharatiya Janata Party and its allies will win 249 to 340 seats,
according to six exit polls released yesterday, with 272 needed for a
majority. The Congress party and its allies, in power for the past
decade, are projected to win 70 to 148 seats. Results will be announced
on May 16.
- Asian Stocks Advance After U.S. Gauges Rally to Records. Asian
stocks rose, with the regional benchmark gauge on course for its
biggest increase in six weeks, after U.S. equity indexes climbed to
records and as investors weighed earnings. Nissan Motor Co., Japan’s
second-biggest carmaker, jumped 4.6 percent after forecasting profit
will rise to the highest since 2008. Samsung Electronics Co., Asia’s
largest technology company, advanced 1.6 percent in Seoul after adding 4
percent yesterday. Sharp Corp., a Japanese electronics maker, soared
5.8 percent after full-year results beat estimates. The MSCI Asia
Pacific Index gained 0.9 percent to 139.02 as of 9:26 a.m. in Tokyo,
heading for the steepest advance since
March 31, as all of its 10 industry groups rose.
- Tire Rubber Plunging as Vietnam Tappers Expand World Glut. Producers
of natural rubber used
mostly in tires are creating a global surplus for the fourth
straight year, leaving prices mired in a bear market that is the worst
of any major commodity. Farmers will expand output faster in 2014 than
the gain in demand from surging car sales, creating the biggest glut in
at least a decade, the International Rubber Study Group said May 2
in an estimate that was triple its forecast in December. Futures in
Tokyo, down 62 percent from a record in 2011 after touching a four-year
low last month, may drop 11 percent further to 180 yen a kilogram
($1,761 a metric ton) this year, a survey of 13 analysts by Bloomberg
News showed.
Wall Street Journal:
Fox News:
CNBC:
- AT&T(T) could strike deal for DirecTV as soon as 2 weeks: Report. AT&T
and DirecTV are discussing a cash and stock deal that could be struck
in as soon as two weeks, according to a report from Dow Jones, citing
sources. The deal would come in at around $100 a share, according to Reuters citing a source.
- Credit Suisse deal with US authorities could top $2B: Report. New
York state's banking regulator is seeking hundreds of millions of
dollars from Credit Suisse in a probe into potential tax evasion that
could push a settlement with U.S. authorities over $2 billion, sources close to the matter told Reuters. The New York regulator made an opening bid of $1
billion, one of the sources said, though negotiations are expected to
push down the amount of the final penalty.
Zero Hedge:
Reuters:
- U.S. investor Jim Rogers pegs junk bonds as a short-sell candidate. Junk
bonds, which have done well this year, look like the most promising
short trade the bond market has to offer, prominent investor Jim Rogers
told Reuters in an interview on Monday. Rogers said the group's narrow spreads made it an attractive target relative to other types of bonds. He added that he is not
making the trade himself without giving further details.
- Australian iron ore trade faces labour unrest as boom fades. Tugboat
workers at Australia's
main iron ore port threaten to hold a strike that could halt a
quarter of the world's iron ore exports and cost miners $100 million a
day, just as the industry battles to slash costs and get more out of its
workers. The dispute comes as resource firms say Australia has
become far more expensive than other locations as a now maturing project
construction boom, driven by Chinese demand, led to fat
pay packets and lavish conditions.
- Rackspace(RAX) results beat estimates as web-hosting demand rises. Rackspace Hosting Inc reported better-than-expected quarterly results as demand rose for its
web-hosting services, and the company forecast current-quarter
revenue above Wall Street estimates. The company's shares rose as much as 12 percent in trading
after the bell.
Financial Times:
- This time China’s property bubble really could burst by George Magnus. Chinese
property is the most important sector in the global economy. It has
been pivotal in the country’s economic development, provided lucrative
business for industrial commodity producers from Perth to Peru, and been
the backbone of the surge in world exports to China. In the past
few years, predictions that the sector was about to implode at any
moment have not been borne out – but now is the time for the world to
pay attention. Property activity indicators have been trending lower
since mid-2013, and the downturn in the sector now threatens to turn
into a bust. At best, China is entering a deflationary phase at a time
of global fragility. The default risks in the weakly regulated shadow
banking sector – and the rapid rise in local government debt – are
real, and property-related.
TheHinduBusinessLine:
- India's Public sector banks’ bad debts hit 9-year high. Bad debts of public sector banks have surged to a
nine-year high, with the corporate sector accounting for the biggest
increase. This will be one of the key challenges before the new
government. Indeed, the current favourite to form
the new government, the Bharatiya Janata Party, had in its manifesto
expressed concerns over the bad debt situation. It promised “necessary
steps to reduce non-performing assets (NPAs) in the banking sector” if
it comes to power.
Evening Recommendations
Night Trading
- Asian equity indices are +.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 119.75 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 84.75 +.25 basis point.
- NASDAQ 100 futures +.12%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (CVG)/.27
- (FOSL)/1.17
- (TTWO)/.09
Economic Releases
7:30 am EST
- The NFIB Small Business Optimism Index for April is estimated to rise to 94.5 versus 93.4 in March.
8:30 am EST
- Retail Sales Advance for April are estimated to rise +.4% versus a +1.1% gain in March.
- Retail Sales Ex Auto MoM for April are estimated to rise +.6% versus a +.7% gain in March.
- Retail Sales Ex Auto and Gas for April are estimated to rise +.5% versus a +.8% gain in March.
- Import Price Index for April is estimated to rise +.3% versus a +.6% gain in March.
10:00 am EST
- Business Inventories for March are estimated to rise +.4% versus a +.4% gain in February.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Lockhart speaking, Fed's Lacker speaking, Germany ZEW Index,
China Retail Sales/Industrial Production, China FDI, weekly US retail
sales reports, Oppenheimer Industrial Growth Conference, BofA Healthcare
Conference and the Citi Energy/Utilities Conference could impact
trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.
