Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 11.65 +1.22%
- Euro/Yen Carry Return Index 144.57 -.37%
- Emerging Markets Currency Volatility(VXY) 7.07 +.14%
- S&P 500 Implied Correlation 55.47 -.04%
- ISE Sentiment Index 101.0 -22.31%
- Total Put/Call .91 +28.17%
Credit Investor Angst:
- North American Investment Grade CDS Index 62.59 +.29%
- European Financial Sector CDS Index 72.75 -2.47%
- Western Europe Sovereign Debt CDS Index 35.05 -1.39%
- Asia Pacific Sovereign Debt CDS Index 81.43 +.62%
- Emerging Market CDS Index 252.89 -3.24%
- China Blended Corporate Spread Index 346.0 -.27%
- 2-Year Swap Spread 12.5 -3.75 basis points
- TED Spread 19.75 -.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -8.5 +.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 207.0 -10.0 basis points
- China Import Iron Ore Spot $96.80/Metric Tonne -1.33%
- Citi US Economic Surprise Index 1.90 -.1 point
- Citi Emerging Markets Economic Surprise Index -19.30 +1.1 points
- 10-Year TIPS Spread 2.21 unch.
Overseas Futures:
- Nikkei Futures: Indicating -22 open in Japan
- DAX Futures: Indicating -2 open in Germany
Portfolio:
- Higher: On gains in my medical/tech sector longs and index hedges
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- Ukrainian Jets Circle Donetsk as Rebels Regroup After Rout. Ukraine stepped up air patrols over Donetsk as a convoy of
pro-Russian rebels moved through the city with an anti-aircraft gun in
tow, threatening renewed violence after clashes left dozens dead. Mayor
Oleksandr Lukyanchenko urged residents of the central part of the city
of 1 million people to stay indoors and away from their windows after
shots were fired near the local headquarters of the State Security
Service. The train of insurgents included two armored personnel
carriers, the mayor’s spokesman, Maksym Rovinskyi, said by phone from
Donetsk.
- German Unemployment Unexpectedly Rises as Growth to Slow.
German unemployment unexpectedly increased for the first time in six
months amid signs of a slowdown in Europe’s largest economy that could
weigh on the fragile euro-area recovery. The number of people out of
work rose a seasonally adjusted 23,937 to 2.905 million in May, the
Nuremberg-based Federal Labor Agency said today. Economists forecast a
decline of 15,000, according to the median of 31 estimates in a
Bloomberg News survey.
- Fed’s Junk-Loan Caution Spurs Creative Accounting Alchemy. Lenders are increasingly allowing
junk-rated borrowers to adjust their earnings to make them look
more creditworthy as U.S. regulators increase pressure on banks
to refrain from underwriting too-risky deals. Such tweaks, which are permissible under more and more
credit agreements, can help companies stay in compliance with
their loan terms or to raise debt. More than half of loans this
year for issuers backed by private-equity firms allow them to boost
earnings by an unlimited amount through projected cost savings from
acquisitions and “any other action contemplated by the borrower,” said Vince Pisano, an analyst at Xtract Research LLC, citing a sample he’s reviewed. Riskier
borrowers may have more incentive to show better financial metrics
because the Federal Reserve and the Office of the Comptroller of the
Currency are increasing pressure on banks to adhere to underwriting
criteria they laid out last year amid
concern that the market is getting frothy. Issuers such as Thoma
Bravo LLC’s TravelClick Inc. have used adjustments, called add-backs, to raise earnings and decrease leverage when seeking
funding.
- Goldman’s Kostin Sees Hedge Funds Playing in Shrinking Sand Box. Here’s
the problem facing hedge funds investing in the stock market
this year, according to Goldman Sachs Group Inc. chief equity strategist
David Kostin: the sand box they like to play in has gotten a lot
smaller. For example, equity hedge fund managers tend to have about a
quarter of their investments in consumer-discretionary stocks, Kostin
told Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s
“Market Makers” program today. The dispersion
of returns within that group is too small for managers on the prowl for
stocks to buy or short, Kostin said.
Wall Street Journal:
- China Urges Local Governments to Spend. Beijing Will Take Back Any Unspent Money. China's Finance Ministry said on Wednesday
it has asked local governments to speed up spending on infrastructure
and other budgeted investments to give sluggish economic growth a shot
in the arm.
Some spending has been
relatively slow this year and budgeted funds must reach all local
governments by the end of June, the Ministry of Finance said in a
statement on its website. If local
governments fail to spend the funds without a good reason by the end of
September, Beijing will take the unspent money back, the ministry
warned. "Certain difficulties [in the
economy] cannot be underestimated," the ministry said, pledging to give
fiscal spending a larger role in boosting economic growth. "[Local
governments] must speed up spending on infrastructure construction
projects and make spending materialize as soon as possible," said the
statement dated May 21. Over the first
four months of the year, China's fiscal spending was up 9.6% year over
year, down from an increase of 13.6% over the same period last year,
data from the finance ministry showed.
- Japan Lower House Staff: Casino Bill Won't Be Discussed This Month. Lawmakers Believe It Will Be Difficult for Casino Bill To Get Passed During Current Session.
- Iron-Ore Prices Unlikely to Rise Soon, NDRC Says. China's Top Economic Planning Agency Blames Flood of Supply. Iron-ore prices are unlikely to rise over
the next three months from their current trough, the lowest in nearly
two years, China's top economic planning agency said Wednesday. Prices
for the mineral, which is forged into steel, depend almost entirely on
demand from China, the world's second-largest economy, which consumes
two thirds of global ore supply and makes nearly half the world's steel.
- 'Serious Conditions' at Phoenix Veterans Affairs Office, Watchdog Says. The Phoenix VA Health Care System failed to properly schedule care
for its patients, according to an interim report by the inspector
general of the Department of Veterans Affairs. Accusations of delayed or
denied care appointments have led to calls for an investigation of the
department and the resignation of Veterans Affairs Secretary Eric
Shinseki. The interim report cited "substantiated serious conditions" in the Phoenix...
- New Global Accounting Rules to Affect How Companies Book Revenue. Change Affects When Firms Record Sales; Software Makers Could Do So Sooner, Auto Makers Later.
MarketWatch.com:
- 43% call Obamacare ‘mostly negative’ for America. When asked to think about their health insurance situation and their
ability to access quality health care, just 12% of Americans felt better
about this than they did last year, while 20% felt worse, according to a survey released Wednesday by Bankrate.com . And many think that could be due to Obamacare: Almost
two out of three Americans don’t think the Affordable Care Act has had a
positive impact on American lives, with 43% saying they think the ACA
has had a mostly
negative impact and 21% saying they think it hasn’t made much, if any,
impact. Fewer than one-third of Americans (28% to be exact) say that the
ACA has
had a mostly positive impact, according to the survey, which polled a
nationally representative sample of 1,000 adults living in the U.S.,
some of whom had Obamacare and others who didn’t. “The administration is saying it’s a big success, but the negative
feelings are strong still and entrenched,” says Bankrate.com insurance
analyst Doug Whiteman.
- Looming EPA ‘war on coal’ draws business backlash.
CNBC:
ZeroHedge:
Business Insider:
Real Clear Politics:
- Get Ready For the Subprime Mortgage Crack-Up 2.0. Earlier this month the following headline appeared in the Wall Street Journal:
"U.S. Backs Off Tight Mortgage Rules: In Reversal, Administration
[HUD/FHA] and Fannie, Freddie Regulator Push to Make More Credit
Available to Boost Housing Recovery." Clearly memories as to the
causes of the recent housing market collapse are short. Indeed,
political pressures are once again increasing on the private sector to
degrade sound lending practices.
Reuters:
- French jobless total hits new high in April. The number of people without a job in France rose by 14,800 in April to a new record, undermining President Francois Hollande's campaign to bring unemployment
down.
- Russia's Lavrov warns of "fratricidal war" in Ukraine. Russian
Foreign Minister Sergei
Lavrov on Wednesday accused the West of pushing Ukraine into a
"fratricidal war" and repeated Moscow's calls for an end to the interim
Ukrainian government's military action against pro-Russian separatists.
Lavrov's remarks were in line with frequent Russian statements placing
blame on the United States and EU for the turmoil in Ukraine, where
government forces killed dozens of
rebels in the eastern Donetsk province on Monday and Tuesday.
Telegraph:
CCTV:
- China's Li Says Global Economy Recovery Faces Uncertainty. China
Premier Li reiterated China's proactive fiscal policy and prudent
monetary policy.
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -1.88% 2) Steel -.92% 3) REITs -.90%
Stocks Falling on Unusual Volume:
- DSW, HCN, DAKT, GOMO, TOUR, SPNC, EXAM, DDD, VRX, AGN, CRI, HQH, HQL, CATM, ROLL, SWM, INFY, SHOO, ANF, BRX, ASCMA, CAVM, IPAR, RGLD, ALGT, RXN and BEE
Stocks With Unusual Put Option Activity:
- 1) ANF 2) WLT 3) XOP 4) AMAT 5) HYG
Stocks With Most Negative News Mentions:
- 1) HD 2) ANF 3) DG 4) CLF 5) LOW
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Alt Energy +.52% 2) Road & Rail +.42% 3) Medical Equipment +.29%
Stocks Rising on Unusual Volume:
- SNN, PDH, PTRY, QIHU, BWS, TWTR, REXX, RMTI, XON, SYNA, PTCT, ANDE, MEG and JDSU
Stocks With Unusual Call Option Activity:
- 1) SYNA 2) CTXS 3) DOW 4) DLTR 5) VVUS
Stocks With Most Positive News Mentions:
- 1) TOL 2) TWTR 3) AAPL 4) COP 5) AZO
Charts:
Evening Headlines
Bloomberg:
- Ukrainian Forces Inflict Rebel Losses After Poroshenko Win. Ukraine’s government said it will press on with military operations
against pro-Russian rebel fighters after its forces retook Donetsk
airport and inflicted “significant” losses on the separatists. Troops
killed “dozens” of rebels in Donetsk without suffering any losses,
Interior Minister Arsen Avakov said yesterday, while the mayor’s office
in the eastern city said 40 people died and 31 were wounded. President-elect
Petro Poroshenko has vowed to wipe out the rebels and re-establish
order across Ukraine after winning office May 25. He must stabilize a
shrinking economy and confront separatists who’ve captured swaths of the
Donetsk and Luhansk regions. They’ve declared themselves independent
and are fighting to join Russia, which annexed Ukraine’s Crimea
peninsula in March.
- China’s ‘Golden Era’ for Property Over, Vanke President Says.
China Vanke Co. (3333), the nation’s biggest developer, is focused on
developing homes for owner occupiers rather than investors because the
country’s property industry has passed its “golden era,” said President
Yu Liang. “The period in which everybody makes money out of property
is gone,” Yu told reporters May 26 in Dongguan, a southern city in
Guangdong province. “Vanke will take a cautiously optimistic approach to
face the slowdown and target those buyers who need homes for self-use.”
- China Banks Bad-Debt Ratio Seen Rising to Most Since 2009. China’s
biggest banks are poised to report the highest proportion of bad debts
since 2009 after late payments on loans surged to a five-year high,
indicating borrowers are struggling amid an economic slowdown. The
nation’s 10 largest lenders reported overdue loans reached 588 billion
yuan ($94 billion) at the end of 2013, a 21 percent increase from a year
earlier to the highest level since at least 2009. The rise in late
payments portends more losses on soured loans for banks in coming months
as China’s slowing economy crimps companies’ earnings, while a
government crackdown on nonbank funding makes it tougher for borrowers
to get new credit or finance older debt.
- Thailand Risks Inheriting Asia’s Sick-Man Tag on Unrest: Economy. Thailand,
once prized in Southeast Asia for its relative economic stability, is
in danger of inheriting the “Sick Man of Asia” tag as the latest coup
threatens to send investors scurrying toward once-riskier neighbors such
as the Philippines (PHGDPYOY) and Myanmar.
- Asian Stocks Rise With Gold at 15-Week Low; Wheat Slips.
Asian stocks resumed gains, with the regional index rising for the
fourth time in five days after signs of improvement in the U.S. economy
sent the Standard & Poor’s 500 Index to a record. Gold slid to a
more than 15-week low, while wheat and corn futures extended declines. The
MSCI Asia Pacific Index added 0.3 percent by 10:02 a.m. in Tokyo as
Japan’s Topix (TPX) gauge rose 0.4 percent and Australia’s S&P/ASX
200 Index climbed 0.2 percent.
- Australian Mine Project Spending Declines 5% as Boom Wanes. The value of mineral and energy projects being developed in Australia, the world’s biggest iron
ore exporter, fell 5 percent to A$229 billion ($212 billion) as
investment continued its downturn.
- Fed's Junk-Loan
Caution Spurts Accounting Alchemy: Credit Markets. Lenders are
increasingly allowing junk-rated borrowers to adjust their earnings to
make them look more creditworthy as U.S. regulators increase pressure on
banks to refrain from underwriting too-risk deals.
- Tesla(TSLA) Gets Unsolicited S&P Junk Rating on ‘Niche’ Position. Tesla Motors Inc., the electric-car
company whose stock climbed fourfold last year, was slapped with
a junk credit rating by Standard & Poor’s because of
“considerable uncertainty” about its long-term prospects.
Wall Street Journal:
- Crisis in Ukraine: Streaming Coverage.
- New Fund Stars Ride Junk Bonds to the Top. Development Shows Demand for Returns Since 2008 Financial Crisis. A handful of managers have elbowed their way to the top of the bond-fund world by loading up on riskier debt. Among
the 10 largest U.S. bond funds at the end of 2013, the four with the
fastest growth in assets since 2008 held an average 20% of their
investments in bonds rated below investment grade, also known as junk
bonds, according to an analysis by The Wall Street Journal of data from
Morningstar Inc. At the remaining six funds,...
MarketWatch.com:
- China's real-estate slump worsens. China's property slump is deepening despite growing
government efforts to give home sales a lift, adding to concerns over
the health of the world's No. 2 economy. Cities ranging from Tianjin in the north to Nanning in the south--Ningbo
lies in between--have eased government restrictions on home buying and
lending for purchases in recent weeks. The central government is also
helping, entreating banks this month to lend more.
CNBC:
- Why Marc Andreessen's 'very nervous, anxious, upset'. (video)
Tech venture capitalist Marc Andreessen criticized the Obama
administration over its handling of developing global cyber wars Tuesday
on CNBC. The co-founder of Silicon Valley venture capital firm
Andreessen Horowitz questioned whether U.S. tech companies could remain
dominant amid an increasingly "balkanized Internet," which he defined as
"different countries like Russia and many others wanting to section off
the internet and take a lot more control of it in their countries." "I'm
very nervous, upset, and anxious about this," he said on "Fast Money."
"I wish the U.S. government—I wish the Obama administration—were more in
front of these two issues. I just don't think they are."
Zero Hedge:
Business Insider:
Financial Times:
- Lagarde and Carney let fire at financial sector. Christine
Lagarde, the managing director of the International Monetary Fund, has
warned that “a fierce industry pushback” by the financial sector is
delaying much-needed reforms and risks destabilising the global economy.
Shanghai Securities News:
- China Warns Banks of LGFV Debt Risks. Chinese regulators recently
warned banks on potential risks from local government financing
vehicles debts as declining land property prices increase pressure on
repayment. Potential risks may also arise from rapidly rising local
government bond issuance and embezzlement in some regions. The regulator
asks banks to strictly control the entry requirements for new debt and
banned banks from increasing lending scale to LGFV, according to the
report.
Evening Recommendations
Night Trading
- Asian equity indices are +.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 115.0 +3.0 basis points.
- Asia Pacific Sovereign CDS Index 81.0 -1.25 basis points.
- NASDAQ 100 futures +.07%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (TOL)/.26
- (BWS)/.30
- (DSW)/.48
- (CBRL)/1.22
- (CHS)/.28
- (PANW)/.10
- (CPRT)/.48
Economic Releases
Upcoming Splits
Other Potential Market Movers
- The
Eurozone Economic Confidence/Unemployment reports, $35B 5Y T-Note
auction, US weekly retail sales, weekly MBA Mortgage Applications
report, Raymond James Internet/Software Conference, (PCAR) investor
conference, (WCG) annual meeting, Citi Consumer Conference and the Cowen
Tech/Media/Telecom Conference could impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by financial and technology 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: Substantially Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- Volatility(VIX) 11.57 +1.85%
- Euro/Yen Carry Return Index 145.11 -.06%
- Emerging Markets Currency Volatility(VXY) 7.04 +2.03%
- S&P 500 Implied Correlation 55.20 -2.42%
- ISE Sentiment Index 36.0 -4.90%
- Total Put/Call .74 -1.33%
Credit Investor Angst:
- North American Investment Grade CDS Index 62.76 -.92%
- European Financial Sector CDS Index 74.59 -3.60%
- Western Europe Sovereign Debt CDS Index 35.75 -4.04%
- Asia Pacific Sovereign Debt CDS Index 81.33 -1.22%
- Emerging Market CDS Index 260.93 -.13%
- China Blended Corporate Spread Index 349.79 n/a
- 2-Year Swap Spread 16.25 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -9.25 -2.0 basis points
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 217.0 -2.0 basis points
- China Import Iron Ore Spot $98.10/Metric Tonne -.51%
- Citi US Economic Surprise Index 2.0 +.6 point
- Citi Emerging Markets Economic Surprise Index -20.40 -1.3 points
- 10-Year TIPS Spread 2.21 -1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating +43 open in Japan
- DAX Futures: Indicating +3 open in Germany
Portfolio:
- Higher: On gains in my biotech/medical/tech sector longs and emerging markets shorts
- Market Exposure: 75% Net Long
