Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Most sectors declining
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 17.19 +10.79%
- Euro/Yen Carry Return Index 139.78 +.57%
- Emerging Markets Currency Volatility(VXY) 10.07 -.20%
- S&P 500 Implied Correlation 66.82 +2.34%
- ISE Sentiment Index 106.0 +45.21%
- Total Put/Call 1.05 +16.67%
Credit Investor Angst:
- North American Investment Grade CDS Index 66.97 +1.80%
- America Energy Sector High-Yield CDS Index 739.0 +1.84%
- European Financial Sector CDS Index 59.78 +4.03%
- Western Europe Sovereign Debt CDS Index 23.67 +.38%
- Asia Pacific Sovereign Debt CDS Index 70.51 +1.13%
- Emerging Market CDS Index 392.78 +.33%
- iBoxx Offshore RMB China Corporates High Yield Index 112.29 +.46%
- 2-Year Swap Spread 25.0 -.25 basis point
- TED Spread 24.0 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -11.75 -1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% +1.0 basis point
- China Import Iron Ore Spot $63.50/Metric Tonne -.06%
- Citi US Economic Surprise Index -3.70 unch.
- Citi Eurozone Economic Surprise Index 0.0 +.4 point
- Citi Emerging Markets Economic Surprise Index -11.0 -.5 point
- 10-Year TIPS Spread 1.65 +4.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating -123 open in Japan
- DAX Futures: Indicating +43 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech/medical sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- EU Renews Push for Russian Sanctions; Putin Blames Ukraine. European
Union leaders threatened to tighten sanctions on Russia as soon as
Thursday over its support for pro-Kremlin rebels in eastern Ukraine, who
are engaged in the worst clashes with government troops since a
September truce. The leaders condemned the killing of
dozens of civilians in “indiscriminate shelling” of the Ukrainian port
city of Mariupol and said EU foreign ministers meeting on Jan. 29 will
“consider any appropriate action, in particular on further restrictive
measures,” EU President Donald Tusk said in an e-mailed statement in
Brussels.
- Putin Needles Ukraine as He Shuns Wartime Allies at Auschwitz. As
European leaders and U.S. representatives gathered in Poland to mark
the 70th anniversary of the liberation of the Auschwitz concentration
camp by the Soviet Red Army, Russian President Vladimir Putin skipped
the ceremony to visit the Jewish Museum in Moscow. “The Russian people
bore the main burden of the fight
against Nazism on their shoulders,” Putin said Tuesday in a
speech at the Jewish Museum and Center of Tolerance in Moscow
that included an historical dig at Ukraine.
- Russian Corporate Bonds Fall After S&P Cuts Nation to Junk.
Russian companies led declines in European
corporate bonds after Standard & Poor’s cut the nation’s credit
rating to junk for the first time in a decade. Bonds sold by OAO Russian
Railways and OAO Gazprom were the
worst performing among 1,925 investment-grade securities in Bank
of America Merrill Lynch’s Euro Corporate Index. The state-owned
rail operator’s 1 billion euros ($1.1 billion) of 3.3744 percent
bonds due May 2021 fell 2.1 cents to 70.8 cents while the
natural gas provider’s 1 billion euros of 3.389 percent bonds
due March 2020 dropped 1.7 cents to 84.2 cents.
- Tsipras Names Cabinet Heading for Clash Over Bailout and Russia. Greek Prime Minister Alexis Tsipras unveiled
a cabinet that threatens to maximize friction with other
European Union governments on issues ranging from the country’s
bailout agreement to sanctions on Russia. Yanis Varoufakis, a 53-year-old economics professor, will
handle negotiations with the euro region and International
Monetary Fund over the country’s 240 billion-euro ($273 billion)
bailout, after being appointed finance minister. He has called
it a “trap” that was destructive for Greece. Foreign Minister Nikos Kotzias is due in Brussels on
Thursday to discuss possible additional sanctions on Russia over
the conflict in Ukraine. Before the cabinet even meets for the
first time tomorrow, the Greek government said that it disagreed
with an EU statement in which President Donald Tusk raised the
prospect of “further restrictive measures” on Russia.
- China Private Bond Faces Stress as LGFV Says No Pledge. China’s
private bond market is facing increased scrutiny after a
local-government financing vehicle in the eastern province of Jiangsu
said it has no obligation to guarantee notes sold by a manufacturer. Dongfei Mazuoli Textile Machinery Co., based in the city of
Dongtai, can’t pay principal and interest on the securities as
of Jan. 25, according to a report today on Tencent Holdings
Ltd.’s QQ.com. The LGFV had signed a contract with the
manufacturer in 2012 to guarantee its bond credit ratings, but
doesn’t guarantee the note payments themselves, according to a
statement from the financing unit dated Jan. 26.
- What Clampdown? China Margin Traders Boost Debt to Record.
It didn’t take long for the flood of
borrowed money to come pouring back into Chinese stocks. After a two-day
decline spurred by regulatory efforts to curb margin lending on Jan.
16, the value of shares purchased with borrowed cash has rebounded to
an all-time high. The outstanding balance of margin debt on the
Shanghai Stock Exchange climbed to a record 771.4 billion yuan ($123
billion) yesterday, up from about 751 billion yuan on Jan. 20. China’s suspension of new margin accounts at three of the nation’s biggest brokerages and notice to ban loans to traders
with less than 500,000 yuan has done little to damp the
enthusiasm of leveraged investors.
- Greek Bonds, Stocks Drop as Leaders to Spar on Writedown. Greece’s
bonds and stocks plunged for a second day as the nation’s newly named
cabinet looked set to clash with euro-area finance ministers over its
funding needs. While finance chiefs from the 19-nation euro area on Monday signaled their willingness to do a deal with Greek Prime
Minister Alexis Tsipras, it’s on the condition he drops his
demand for a debt writedown. Representing the Greek side in
negotiations with their international creditors will be finance
minister Yanis Varoufakis, who has argued that Greece should
default while staying a member of the euro area. Greek three-year
yields rose 198 basis points, or 1.98
percentage point, to 14.03 percent at 5 p.m. London time, after
jumping 197 basis points the previous day. The 3.375 percent
notes due in July 2017 fell 3.38, or 33.80 euros per 1,000-euro ($1,132)
face amount, to 78.975. The nation’s 10-year yield increased 38 basis
points to 9.48 percent.
- Boko Haram Attacks Leave at Least 30 Dead in Nigeria’s Northeast. Boko Haram Islamists in Nigeria attacked two
northeastern towns leaving at least 30 people dead and many
injured, a lawmaker said. “They attacked our people in Madagali, Michika and
surrounding villages” yesterday, Adamu Kamale, a member of the
Adamawa state legislature representing the area, said by phone
today from Yola, the state capital. “They destroyed houses and
shops and killed a lot of people.”
- Why Fink Says Swiss Avoiding Recession May Be Bad News for Euro. Larry Fink says he’s worried about a recession in Switzerland. That there won’t be one. If the export-dependent Swiss avoid a slump after a surge in the franc it would make the idea of surviving an overvalued currency -- and leaving the euro -- a little more conceivable in Germany, according to Fink, the co-founder and chief executive officer of BlackRock Inc. Think Gerexit.
- European Stocks Fall as Siemens Disappoints, Greek Banks Slide.
European stocks declined from a seven-year high, snapping their longest
winning streak since April, as Siemens AG and Royal Philips NV posted
disappointing earnings, and Greek stocks tumbled. Siemens slid 3
percent, contributing the most to a drop in a gauge of industrial
companies, after Europe’s largest engineering firm reported a decline in
first-quarter profit. Philips lost 5.9 percent after saying it is
behind on its 2016 financial targets. Greek banks dragged a gauge of
lenders down. The Stoxx Europe 600 Index slipped 1 percent to 368.7 at the close of trading, after earlier falling as much as 1.4 percent.
- Stronger Dollar Punishes U.S. Earnings From P&G(PG) to DuPont(DD). The dollar’s
surge is reducing earnings at American companies from Procter &
Gamble Co. (PG) to Pfizer Inc. (PFE) and DuPont Co. that make a large
portion of their revenue abroad. P&G, the world’s biggest
consumer-products maker, today reported profit that missed analysts’
estimates in the quarter ended Dec. 31 after what Chief Executive
Officer A.G. Lafley called “unprecedented” foreign-exchange rate
fluctuations reduced sales by 5 percentage points. DuPont and
drugmakers Pfizer and Bristol-Myers Squibb Co. (BMY) all posted annual
forecasts that trailed predictions, in part because of the dollar.
- Oil Drop Hits Private Equity as Carlyle Seen Leading Decline. Private
equity firms, which made record profits in the past two years, are
preparing to share the cost of their forays into the U.S. oil business.
Combined earnings per share at the four largest firms, which start
reporting fourth-quarter results this week, probably fell 58 percent
from a year ago, according to 13 analysts surveyed by Bloomberg.
Carlyle Group LP (CG) is expected to lead the decline with a 73 percent
drop, driven by its energy holdings, and Apollo Global Management LLC
(APO) is expected to report a 63 percent drop in earnings. Blackstone
Group LP (BX), the most diversified of the buyout firms, should be least
affected, with an estimated 32 percent slide.
- Copper Falls Near 5-Year Low as China Seen Slowing Down.
Copper futures approached a five-year low as industrial profit last
year posted the smallest gain in data that started in 2000 in China
(CNPRTTLY), the world’s largest metal consumer. Earnings in 2014
increased 3.3 percent, Chinese government
data showed. In December, profit contracted 8 percent, falling
for the third straight month. Copper prices declined as orders
for business equipment dropped for the fourth consecutive month
in the U.S., the second-biggest user. On the Comex in New York, copper futures for March delivery
fell 3.2 percent to settle at $2.4625 a pound at 1:13 p.m.
Earlier, the price touched $2.446. On Monday, the metal dropped
to $2.419, the lowest for a most-active contract since 2009. Copper is piling up in London Metal Exchange warehouses
with inventories climbing for 11 straight sessions, the longest
run since April 2013. They have increased to 238,225 metric
tons, the highest since April.
CNBC:
ZeroHedge:
David Stockman's Contra Corner:
Reuters:
- Exclusive - Apple(AAPL) supplier Foxconn to shrink workforce as sales growth stalls.
Taiwan's Foxconn
Technology Group, the world's largest contract electronics manufacturer,
will cut its massive workforce, the company told Reuters, as the Apple
Inc supplier faces declining revenue growth and rising wages in China.
Under its flagship unit Hon Hai Precision Industry Co Ltd, the group
currently employs about 1.3 million people during peak production times,
making it one of
the largest private employers in the world. Special
assistant to the chairman and group spokesman Louis Woo did not specify
a timeframe or target for the reduction, but noted that labour costs
had more than doubled since 2010, when the company faced intense media
scrutiny following a spate of worker suicides. Revenue growth at the conglomerate
tumbled to 1.3 percent in 2013 and only partially recovered to 6.5
percent last year after a long string of double-digit increases from
2003 to 2012. That decade
saw the firm ride an explosion of popularity in PCs, smartphones and
tablets, largely driven by its main client Apple, but now it is feeling
the effects of falling growth and prices in the gadget markets it
supplies, a trend that is expected to continue. Growth
in smartphone sales will halve this year from 26 percent in 2014,
according to researcher IDC, while PC sales will contract by 3 percent. Similarly, the average smartphone will sell for 19 percent less in 2018 than last year's $297. "Even
if technology is improving, the price will still come down," Woo said.
"We've come to accept that, our customers have come to accept that." Automation
will be key to keeping labour costs under control in the long-term, Woo
said, as the company pushes to have robotic arms complete mundane tasks
currently done by workers.
Telegraph:
- Sadly for all our futures, cheap money is here to stay. Just get used to it. Central banks have been struggling to normalise interest rate policy.
Increasingly, there is reason to doubt they ever will be able to.
In the meantime debtors are accommodated at the detriment of creditors,
borrowers are favoured at the expense of savers, and the holders of assets
are further boosted to the growing exclusion of those who have none. It’s
ever harder to believe in a happy ending.
la Repubblica:
- IMF Lagarde Rules Out Greek Debt Cancellation. IMF will restart
dialogue with Greece to implement planned structural reforms, IMF
Managing Director Christine Lagarde says in an interview. Europe has
internal rules that must be respected.
Style Underperformer:
Sector Underperformers:
- 1) Software -3.83% 2) Disk Drives -1.91% 3) Internet -1.73%
Stocks Falling on Unusual Volume:
- MSFT, PLT, PKG, CAT, SANM, FCFS, HQY, PHG, SAGE, GGG, MWV, STX, MSTR, TDG, PH, ROK, ENR, HOG, FCX, TTM, GNRC, CRH, CMI, INTC, ZNH, PG and SANM
Stocks With Unusual Put Option Activity:
- 1) HUN 2) MSFT 3) JOY 4) RL 5) CAT
Stocks With Most Negative News Mentions:
- 1) DDD 2) FB 3) AAL 4) COP 5) MRO
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gold & Silver +1.91% 2) Agriculture -.03% 3) Utilities -.08%
Stocks Rising on Unusual Volume:
- COMM, LGCY, RMTI and RMBS
Stocks With Unusual Call Option Activity:
- 1) PLUG 2) WLT 3) ZIOP 4) ARIA 5) MNKD
Stocks With Most Positive News Mentions:
- 1) CTCT 2) WAT 3) PLD 4) NEE 5) SCSS
Charts:
Evening Headlines
Bloomberg:
- S&P Cuts Russia's Rating to Junk; Sanctions and Oil Slump Hammer Ruble. Russia’s
foreign-currency credit rating was cut to junk by Standard &
Poor’s, putting it below investment grade for the first time in a
decade, as policy makers struggle to boost growth amid international
sanctions and a drop in oil prices. S&P, which last downgraded Russia in April, cut the sovereign one step to BB+,
according to a statement released on Monday, the same as countries
including Bulgaria and Indonesia. The ratings firm said the outlook is
“negative.” Russian stocks on U.S. exchanges tumbled with the ruble
following the announcement which came
after the close of equity trading in Moscow.
- Greece’s Odd-Couple Coalition Only Agrees About Ending Austerity. The two men disagree on just about
everything, except this: for Greece, the time of German-dictated austerity must end. Alexis Tsipras became prime minister of Greece on Monday by
vowing to challenge the budget-cutting policies demanded by the
European Union and International Monetary Fund in return for a
240 billion euro ($270 billion) rescue plan.
- Syriza’s ‘Bella Ciao’ Casts Shadow Over Italy Presidential Vote. As Greeks welcome Syriza’s historical
victory with the Italian partisan anthem “Bella Ciao”, Italian
Premier Matteo Renzi is nervously eying resistance within his
own party before a key presidential vote this week. “By gaining a clear
lead and moving to form a new government in a short time, Syriza leader
Alexis Tsipras is also galvanizing his Italian supporters, including a
significant number of Renzi’s opponents within his party”, Francesco Galietti, founder of research firm Policy Sonar in Rome, said in a phone interview.
- Nomura says odds up of Abenomics derailing as tax pledge doubted. Nomura Holdings Inc. says the probability that Prime Minister Shinzo Abe's economic policies will end badly is increasing. The worst-case scenario for Nomura chief credit strategist Toshihiro
Uomoto to the end of 2017: the economy contracts in the first half of
2016, Abe delays a sales tax rise for a second time, and the Bank of
Japan boosts asset purchases to suppress interest rates, causing the yen
to tumble. This month, he raised the probability of these events
unfolding to 10 per cent to 20 per cent or more, from about 10 per cent.
"Signs are mounting that Japan's fiscal sustainability is beginning
to crumble," said Uomoto, ranked Japan's No. 1 credit analyst for the
past two years by Nikkei Veritas.
- UBS Says Wealthy Asians Are Abandoning Australian Dollars. Asia’s
wealthy are falling out of love with the Aussie dollar as record-low
yields and sustained declines persuade them to look elsewhere, according
to UBS Group AG. (UBSG) Many of the bank’s wealthiest clients in
the region began to abandon the currency as Australia’s bond yield
premium over the U.S. slid and the Federal Reserve discussed raising
interest rates, said Simon Smiles, Zurich-based chief investment officer
for ultra-high-net-worth individuals. The 10-year yield is 74 basis
points above that of the U.S., down from 130 a year ago.
- Rising Vacancies and Default Auctions Show Singapore Property Is on the Decline.
The bargain hunters who stuffed themselves into the 50-seat conference
room are another sign of the decline of Singapore’s housing market. After five years of price gains, values are falling and defaults are rising following government measures to curb lending and a
decline in the number of foreign buyers. Banks auctioned 118
repossessed homes last year, about 10 times the number in 2013, said Mok
Sze Sze, head of Singapore auctions at broker Jones Lang LaSalle Inc.
- Asian Stocks Head for Two-Month High on Yen, Europe Optimism.
Asian stocks rose, poised for a two-month high, as a weaker yen buoyed
Japanese shares amid optimism the actions of Greece’s new government
won’t force the nation to leave the euro currency bloc. The MSCI Asia Pacific Index (MXAP) advanced 0.4 percent to 141.24 as of 9:03 a.m. in Tokyo.
- Nickel Leads Most Metals Lower as China Industrial Profits Slow.
Most base metals declined as data showed
industrial profits grew at the slowest pace on record last year in
China, adding to signs that demand in the largest consumer may contract.
Nickel lost as much as 1.4 percent while copper dropped as much as
0.5 percent. Industrial profits in 2014 grew at 3.3 percent, the weakest
in records going back to 2000, according to data released by the National Bureau of Statistics in Beijing on Tuesday. The
figure contracted for a third month in December, falling 8 percent.
China’s industrial profits are “just another bit of bad news on top of
other bad news,” said David Lennox, a resource analyst at Fat Prophets
in Sydney. “Because the outlook is so gloomy for some time, it’s just
reinforcing the downward movement.”
- Goldman Sachs’s Cohn Sees Oil Falling to $30 in Extended Slump. Oil prices will probably continue to decline
and could reach as low as $30 a barrel, according to Gary Cohn,
president of Goldman Sachs Group Inc. “We’re probably in the lower, longer view,” Cohn, a
former oil trader, said Monday in an interview with CNBC.
- U.S. Says Russian Spy Ring Sought NYSE, Sanction Secrets. Three
Russians charged by the U.S. with
espionage allegedly sought secrets tied to the New York Stock Exchange
and U.S. economic sanctions on Russia, even while one bemoaned his
tedious job’s lack of a James Bond flair. The U.S. investigation of
the alleged spy ring started within months of the Federal Bureau of
Investigation’s June 2010 arrest of 10 Russian agents dubbed the
“Illegals,” who had been on “deep cover” assignments, some living in the
U.S. for as long as a decade. That year, each of the 10 pleaded guilty
to
conspiring to act as an unregistered agent of a foreign
government, after which they were returned to Russia in a
prisoner exchange.
- Microsoft(MSFT) Business-Software License Sales Miss Estimates. Microsoft
Corp. (MSFT)’s software-license sales to businesses fell short of
analysts’ estimates in the fiscal second quarter, hurt by weak sales in
Japan and China. Commercial-licensing revenue fell to $10.7 billion
in the period that ended Dec. 31, the world’s largest software maker
said Monday in a statement. Analysts on average had projected $10.9
billion, based on a survey conducted by Bloomberg. Unearned revenue, a
measure of future sales, was
$21.2 billion, compared with estimates of $21.8 billion. The stock
slipped 3 percent in extended trading.
- United Technologies(UTX) Cites Surprise Dollar Gain as Forecast Pared.
A surging U.S. dollar against the euro and other currencies surprised
United Technologies Corp. (UTX) and forced a cut in the company’s annual
profit forecast just weeks after it was given to investors. United Technologies slid 2.1 percent to $116.20 at 5:04 p.m. in New York after the close of regular trading. The euro climbed 0.3 percent to $1.1238 at 5 p.m. in New York after
sliding to $1.1098, the weakest level since September 2003.
Wall Street Journal:
MarketWatch.com:
- U.S. spies on millions of cars. DEA uses license-plate readers to build database for federal, local authorities. The Justice Department has been building a national database to track in
real time the movement of vehicles around the U.S., a secret domestic
intelligence-gathering program that scans and stores hundreds of
millions of records about motorists, according to current and former
officials and government documents.
Zero Hedge:
Business Insider:
NY Times:
- Investment Riches Built on Auto Loans to Poor. Across the country, there is a booming business in lending to the
working poor — those Americans with impaired credit who need cars to get
to work. But this market is as much about Wall Street’s perpetual
demand for high returns as it is about used cars. An influx of investor
money is making more loans possible, but all that money may also be
enabling excessive risk-taking that could have repercussions throughout
the financial system, analysts and regulators caution.
Reuters:
Telegraph:
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 108.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 69.75 +1.0 basis point.
- NASDAQ 100 futures -.06%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Durable Goods Orders for December are estimated to rise +.4% versus a -.7% decline in November.
- Durables Ex Transports for December are estimated to rise +.6% versus a -.4% decline in November.
- Cap Goods Orders Non-Defense Ex Air for December are estimated to rise +.9% versus unch. in November.
9:00 am EST
- The S&P/CS 20 City MoM SA for November is estimated to rise +.65% versus a +.76% gain in October.
9:45 am EST
- The Preliminary Markit US Services PMI for January is estimated to rise to 53.8 versus 53.3 in December.
10:00 am EST
- New Home Sales for December are estimated to rise to 450K versus 438K in November.
- The Consumer Confidence Index for January is estimated to rise to 95.5 versus 92.6 in December.
- The Richmond Fed Manufacturing Index for January is estimated to fall to 5.0 versus 7.0 in December.
Upcoming Splits
Other Potential Market Movers
- The
Australia Consumer Price Index, US weekly retail sales reports and the
(CRZO) analyst conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly
higher, boosted by industrial and commodity shares in the region. I
expect US stocks to open modestly lower and to rally into the
afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Modestly Higher
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 16.0 -3.96%
- Euro/Yen Carry Return Index 139.32 +1.02%
- Emerging Markets Currency Volatility(VXY) 10.28 -3.38%
- S&P 500 Implied Correlation 65.22 +.38%
- ISE Sentiment Index 68.0 +9.68%
- Total Put/Call .89 -29.37%
Credit Investor Angst:
- North American Investment Grade CDS Index 66.22 -2.28%
- America Energy Sector High-Yield CDS Index 725.0 -.75%
- European Financial Sector CDS Index 57.46 -.70%
- Western Europe Sovereign Debt CDS Index 23.58 +1.55%
- Asia Pacific Sovereign Debt CDS Index 67.99 +1.48%
- Emerging Market CDS Index 391.37 +.79%
- iBoxx RMB China Corporates High Yield Index 111.78 +.02%
- 2-Year Swap Spread 25.25 unch.
- TED Spread 24.5 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -10.75 +1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .01% -1.0 basis point
- China Import Iron Ore Spot $63.54/Metric Tonne -4.34%
- Citi US Economic Surprise Index -3.70 -2.2 points
- Citi Eurozone Economic Surprise Index -.4 +.1 point
- Citi Emerging Markets Economic Surprise Index -10.50 -.2 point
- 10-Year TIPS Spread 1.61 +1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating +247 open in Japan
- DAX Futures: Indicating +29 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/retail sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
