Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 12.25 +.99%
- Euro/Yen Carry Return Index 145.63 -.40%
- Emerging Markets Currency Volatility(VXY) 7.19 +.14%
- S&P 500 Implied Correlation 56.59 +2.43%
- ISE Sentiment Index 87.0 -26.27%
- Total Put/Call 1.07 +21.59%
Credit Investor Angst:
- North American Investment Grade CDS Index 63.02 +.97%
- European Financial Sector CDS Index 72.80 +.76%
- Western Europe Sovereign Debt CDS Index 31.94 +.69%
- Asia Pacific Sovereign Debt CDS Index 82.03 -1.09%
- Emerging Market CDS Index 264.64 -1.34%
- China Blended Corporate Spread Index 354.73 -.59%
- 2-Year Swap Spread 13.75 +.25 basis point
- TED Spread 20.5 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -7.0 -.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- Yield Curve 217.0 -6.0 basis points
- China Import Iron Ore Spot $103.50/Metric Tonne +.49%
- Citi US Economic Surprise Index -11.40 +1.3 points
- Citi Emerging Markets Economic Surprise Index -27.10 -.4 point
- 10-Year TIPS Spread 2.17 +2.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating -145 open in Japan
- DAX Futures: Indicating -12 open in Germany
Portfolio:
- Slightly Lower: On losses in my biotech/tech/retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Ukraine ‘Close to Civil War as You Can Get,’ Russia Says. Ukraine
“is as close to civil war as you can get” and a solution must be found
that satisfies all regions, Russian Foreign Minister Sergei Lavrov said.
Russia has “no intention” of sending its troops anywhere, Lavrov said in an interview today with Bloomberg Television at the
Foreign Ministry building in central Moscow. While holding Russia
accountable for Ukraine’s presidential election on May 25 is
“ridiculous,” the vote can’t be legitimate if it’s impeded by fighting,
he said. There’s already a “real war” between government forces and
separatist
fighters in the country’s east and south, Lavrov said. Any attempt to
grant NATO membership to Ukraine would be “an issue for Russia” and its
inclusion in the alliance would hurt European security, he said.
- Mizuho Leads Japan’s Big Banks in Forecasting Annual Profit Drop. Mizuho Financial Group Inc. (8411) led
Japan’s three biggest banks in forecasting a drop in earnings
for this year as loan growth loses momentum and returns from
stock investments wane.
- China Insurers’ Investment Risks Accumulating, Regulator Writes. Chinese
insurers face increasing
risks from their investments in property and local government debt as
the nation’s economic growth slows, according to a senior regulatory
official. The China Insurance Regulatory Commission will focus more on
risk prevention, and seek to avert any systemic or regional crisis, Chen Wenhui, a vice chairman of the watchdog, wrote in an article published in the Shanghai Securities News today.
The regulator’s warnings add to signs of growing concerns
among policy makers about risks from an economic slowdown.
- China Plays Cat and Mouse With Vietnam Coast Guard on Rig. From his Vietnamese Coast Guard boat
at night, Lieutenant Phan Chi Cuong can see the yellow lights of
an oil rig 10 nautical miles away. Owned by a Chinese company,
it sits in waters near islands claimed by both nations in the
South China Sea.
- Sony Unexpectedly Forecasts Loss on PC Exit, Restructuring Costs. Sony
Corp. (6758) unexpectedly forecast an annual loss, the sixth in seven
years, casting further doubt on Chief Executive Officer Kazuo Hirai’s
ability to revive the company amid restructuring efforts. The net
loss will probably be 50 billion yen ($490 million) in the 12 months
ending March 31, the Tokyo-based company said in a statement yesterday.
That compares with the 57.1 billion-yen profit average of 19 estimates
compiled by Bloomberg and a
128.4 billion-yen net loss the year earlier.
- Deere(DE) Cuts Sales Forecast After Decline in Equipment Volumes. Deere & Co. (DE), the largest agricultural-equipment maker, posted lower-than-expected sales
and reduced its full-year revenue outlook after shipping less
machinery while the dollar weakened against other currencies. Equipment sales in the fiscal second quarter through April
dropped to $9.25 billion from $10.3 billion a year earlier, the
Moline, Illinois-based company said today in a statement. That
trailed the $9.65 billion average of 12 analysts’ estimates
compiled by Bloomberg.
ZeroHedge:
Financial Times:
- European banks’ bad loans hit €1tn. A
majority of Europe’s banks have suffered a jump in bad loans even as
investors lined up to lend them money, according to a study by Fitch,
the rating agency. Impaired loan volumes rose 8.1 per cent in 2013 to slightly
more than €1tn compared with the year before, said the Fitch analysis,
which used banks’ financial results for the years ending 2012 and 2013.
Style Underperformer:
Sector Underperformers:
- 1) Gaming -2.52% 2) Homebuilding -2.31% 3) Banks -1.51%
Stocks Falling on Unusual Volume:
- JGW, ENZY, AR, HYGS, FOSL, LFL, TTWO, BANC, URS, INSY, WAT, DOOR, MMLP, RDY, LLL, SNE, NVO, NXPI, ICON, CUB, RDEN, TRAK, SQM, WHR, DXYN and RAX
Stocks With Unusual Put Option Activity:
- 1) FOSL 2) M 3) CSCO 4) DE 5) WY
Stocks With Most Negative News Mentions:
- 1) C 2) DE 3) WMT 4) ZLC 5) PCLN
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Steel +1.24% 2) Biotech +.89% 3) Gold & Silver +.71%
Stocks Rising on Unusual Volume:
- ZU, STKL, OSIR, IRM, CLDX, CRTO, ISIS, KATE, IMPV, RUBI, BLUE, XON, XONE and VMI
Stocks With Unusual Call Option Activity:
- 1) HUN 2) RAI 3) NEE 4) WIN 5) IRM
Stocks With Most Positive News Mentions:
- 1) M 2) RNF 3) ISIS 4) SHLD 5) YHOO
Charts:
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
