Broad Equity Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 17.47 +.81%
- Euro/Yen Carry Return Index 139.97 -.71%
- Emerging Markets Currency Volatility(VXY) 10.67 +.57%
- S&P 500 Implied Correlation 65.30 +1.89%
- ISE Sentiment Index 129.0 +31.63%
- Total Put/Call .93 -1.06%
Credit Investor Angst:
- North American Investment Grade CDS Index 66.68 +1.09%
- America Energy Sector High-Yield CDS Index 750.0 -3.37%
- European Financial Sector CDS Index 62.40 -.55%
- Western Europe Sovereign Debt CDS Index 24.71 -2.77%
- Asia Pacific Sovereign Debt CDS Index 68.41 +.93%
- Emerging Market CDS Index 390.45 +1.78%
- iBoxx Offshore RMB China Corporates High Yield Index 113.60 +.09%
- 2-Year Swap Spread 24.75 -.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -16.5 -1.25 basis points
Economic Gauges:
- 3-Month T-Bill Yield .01% -1.0 basis point
- Yield Curve 128.0 +1.0 basis point
- China Import Iron Ore Spot $62.58/Metric Tonne -.95%
- Citi US Economic Surprise Index -13.0 unch.
- Citi Eurozone Economic Surprise Index 20.80 +8.2 points
- Citi Emerging Markets Economic Surprise Index -5.90 unch.
- 10-Year TIPS Spread 1.71 +1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating -5 open in Japan
- DAX Futures: Indicating -25 open in Germany
Portfolio:
- Higher: On gains in my retail/tech/medical sector longs
- Market Exposure: 50% Net Long
Bloomberg:
- OSCE Seeks Truce for Debaltseve Exodus, Reports Cluster Bomb Use. The OSCE called for a truce to evacuate
civilians from the crossroad town of Debaltseve and said two
people were killed in a strike with cluster bombs last week in
the rebel-held city of Luhansk. “On humanitarian grounds” the group called on “all
actors in and around the Debaltseve area to establish a local
temporary truce for a minimum of three days, taking immediate
effect,” Ivica Dacic, the chairman of the Organization for
Security and Co-Operation in Europe, said in a statement on
Tuesday. Debaltseve, a strategic transport hub on a road connecting
the rebel-held areas of Donetsk and Luhansk, remained under
heavy fire from separatists, Ukrainian military spokesman Leonid
Matyukhin said Wednesday. Nearly 2,000 civilians were evacuated
from the area at the end of January, according to Ukrainian
military officials.
- Greece May Run Out of Cash as Early as March. (video) As Greece’s creditors line up to oppose the
country’s demand for a debt restructuring, Prime Minister Alexis
Tsipras’s refusal to accept more bailout loans may result in a
cash crunch as early as next month, two people familiar with the
country’s financial position said. Unless the 15 billion-euro ($17 billion) limit on short-term borrowing set by Greece’s troika of official creditors is
raised, the government may run out of cash on Feb. 25, said one
of the people, who asked not to be named because the figures are
confidential. Three weeks ago, international officials reckoned
Greece could hang on until mid-year.
- Merkel Says Greek Diplomatic Offensive Is Failing. German Chancellor Angela Merkel indicated
that a diplomatic offensive by newly elected Greek Prime
Minister Alexis Tsipras to ease his nation’s bailout-aid
requirements is failing to win over converts. “I don’t think that the positions of the member states
within the euro area with regard to Greece differ, at least in
terms of substance,” Merkel told reporters in Berlin on
Wednesday. Later in Paris, Tsipras was told by French President
Francois Hollande that “respecting the rules is necessary for
all, for France too, and it’s not always easy.” While Tsipras has retreated from demands for a writedown of
Greece’s debt, yielding to virtually unanimous opposition in the
19-member bloc, his pledge to increase spending threatens to
collide with conditions of aid commitments totaling 240 billion
euros ($275 billion).
- Greeks Spooked by Debt Clashes Put Cash Under Bathroom Tiles. Withdrawals from Greek banks may have exceeded 15 billion
euros ($17.2 billion) in the run-up to the elections that
catapulted Alexis Tsipras and his anti-austerity Syriza party to
power, including at least 11 billion euros in January, according
to four bankers citing preliminary data. Tensions between the
new government, which won on a platform of debt relief, and
Greece’s creditors, including Germany, may keep up the pressure. “Talks with the creditors is going to be a protracted
process so you can’t rule out more pressure on deposits,” said
Wolfango Piccoli, managing director at Teneo Intelligence in
London. “There is plenty of uncertainty and that can make
depositors nervous again.”
- North Korea Rules Out Any Talks With U.S. ‘Gangster’ State. North Korea said it won’t agree to talks
with the U.S. and is now focused on its ability to destroy the
country with conventional, nuclear and cyber-warfare attacks. Kim Jong Un’s regime accused the U.S. of “inching closer
to the stage of igniting a war of aggression” by stepping up
its sanctions, holding military drills with South Korea and
predicting the future collapse of the administration, the
official Korean Central News Agency said, citing a statement
from the National Defense Commission.
- Rajan Says U.S. Must Accept Strong Dollar as Fed Normalizes. India’s central bank chief said the U.S.
will have to accept a stronger exchange rate as the Federal
Reserve turns toward raising interest rates for the first time
since 2006. “The Fed will have to start at some point normalizing
interest rates,” Raghuram Rajan, 52, said in an interview with
Bloomberg TV India at the Reserve Bank of India headquarters in
Mumbai. “Unless the Fed starts doing it, others aren’t going to
follow suit. And the Fed, when it does that, will have to accept
some appreciation of the dollar simply because it’s the first
one out of the box.” He also warned Indian firms against borrowing in dollars,
likening it to “Russian roulette.”
- European Stocks Rise Third Day as Drugmakers, Greek Shares Gain. European stocks climbed for a third day, as
an increase in health-care shares and Greek companies outweighed
a drop in energy producers.
The Stoxx Europe 600 Index rose 0.5 percent to 372.1 at the
close of trading, reversing losses of as much as 0.3 percent.
- Oil’s Surge to Bull Market Viewed as Temporary Bounce. Oil is back! Or maybe not. After suffering its longest rout in history, crude
rebounded Tuesday, entering a bull market after soaring 24
percent from a six-year low reached in January. Behind the gain
was speculation that curbs in investment will cut production. For all the optimism among traders, firms from Barclays Plc
to Societe Generale SA and UBS Group AG say the rally is just
temporary because less spending won’t eliminate a glut overnight. Instead of heading back to $100 a barrel, oil could
fall as low as $30 because supply surpluses won’t disappear
overnight, said Miswin Mahesh, a commodities analyst at
Barclays. “We don’t think we’ve seen the bottom yet,” Giovanni
Staunovo, a commodities analyst at UBS in Zurich, said by e-mail
on Tuesday. “We expect U.S. commercial crude oil stocks to hit
a new 84-year high on Wednesday, while U.S. oil production is
likely to stay strong in the near term.”
- No Bust Seen as Dakota Oil Firms Keep Staff Amid Price Drop. A plunge in global energy prices that has
put some North Dakota oil rigs in a deep freeze has yet to chill
the state’s hiring climate. By almost any metric -- the jobless rate, payrolls, claims
for unemployment benefits -- there is scant evidence to indicate
the state at the epicenter of the U.S. shale-oil boom is about
to stumble.
- Fed’s Mester Says Rates Should Rise ‘Soon’ Amid Labor Gains. Federal Reserve Bank of Cleveland President
Loretta Mester said interest rates should be raised “soon”
amid mounting economic momentum, “significant improvement” in
labor markets, and the boost consumers will get from cheaper
fuel. The improvement in the world’s largest economy is likely to
be sustained as headwinds that held back the expansion abate,
she said today in a speech in Columbus, Ohio. Mester said she
would be “comfortable with liftoff in the first half of this
year” and she sees inflation gradually rising back to the Fed’s
2 percent target.
- Ralph Lauren(RL) Falls After Currency Woes Weigh on Its Forecast. Ralph Lauren Corp., the upscale apparel
company known for Polo and other brands, fell the most in more
than 16 years after third-quarter earnings trailed analysts’
estimates and the company cut its sales forecast. Net income dropped 9.3 percent to $215 million, or $2.41 a
share, from about $237 million, or $2.57, a year earlier, the
New York-based company said Wednesday in a statement. The
average of analysts’ estimates compiled by Bloomberg was $2.50.
The company said revenue may gain about 4 percent this year,
down from a previous projection of as much as 7 percent.
CNBC:
ZeroHedge:
Business Insider:
Washington Post:
- Defense nominee Carter ‘inclined’ to provide U.S. arms to Ukraine. Ashton B. Carter, President Obama’s choice to become his fourth
secretary of defense, said Wednesday that he was “very much inclined” to
provide arms to Ukraine to fend off Russian-backed rebels, something
the White House so far as resisted. “We need to support the Ukrainians in defending themselves,” Carter said at his Senate confirmation hearing.
Reuters:
- Greece seeks ECB funds, Germany rejects austerity roll-back. Greece's
new
leftist government appealed to the European Central Bank on Wednesday to
keep its banks afloat as it seeks to negotiate debt relief with its
euro zone partners, but Germany rejected any roll-back of agreed
austerity policies. Finance Minister Yanis
Varoufakis said after meeting ECB President Mario Draghi in Frankfurt
he believed Athens could count on central bank support during the short
period it would take to conclude talks with international lenders.
Die Welt:
- European Commission Worried About Possible Greek Bank Run.
European Commission is concerned that bank clients in Greece may start
withdrawing funds in large volumes in coming days, citing people close
to the commission.
Style Underperformer:
Sector Underperformers:
- 1) Gaming -3.03% 2) Oil Service -2.95% 3) Construction -2.52%
Stocks Falling on Unusual Volume:
- SNH, RL, PEGI, AL, CMG, CHRW, MYGN, IACI, FAST, TROX, SPLS, OHI, VCLT, SAGE, GILD, WRB, TTWO, GWW, LFUS, POWL, ACHN, PVH, VFC, ABBV, RDCM, HP, PEGI, NOV, OAS, VFC, ADM, PTEN, WYNN, ISIS, RARE, AI and ACHN
Stocks With Unusual Put Option Activity:
- 1) LRCX 2) APO 3) VFC 4) CNX 5) SMH
Stocks With Most Negative News Mentions:
- 1) RIG 2) CHRW 3) FCX 4) RCL 5) DF
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Airlines +1.89% 2) Homebuilders +1.07% 3) HMOs +.83%
Stocks Rising on Unusual Volume:
- SJM, DIS, SNE, RNG, KSS, WNC, CTSH, WHR, EW and MANH
Stocks With Unusual Call Option Activity:
- 1) EPI 2) DIS 3) LVLT 4) USG 5) LNCO
Stocks With Most Positive News Mentions:
- 1) CLX 2) ATHN 3) COST 4) TE 5) DIS
Charts:
Evening Headlines
Bloomberg:
- Inflation Outpaces Annual Earnings Gain for Japanese Workers. Rising living costs in Japan outpaced annual
earnings that increased for the first time in four years in 2014
as the government sought to reflate the world’s third-largest
economy. Average earnings climbed 0.8 percent last year while
adjusted for inflation, pay fell 2.5 percent, the labor ministry
said in Tokyo. Base wages excluding overtime and bonuses were
unchanged in 2014, ending eight years of declines, preliminary
data released Wednesday show.
Earnings that trail inflation crimp the spending power of
Japanese households, undermining the sustainability of price
gains.
- Russia’s Shock Rate Turnaround Seen as Harbinger of More Easing. It didn’t take long for economists to change
their minds about the road ahead for Russian monetary policy. After a surprise cut on Jan. 30, the Bank of Russia’s next
move will be another reduction, according to 30 of 33 economists
surveyed by Bloomberg, with 70 percent forecasting the move by
the end of April. That compares with a majority predicting last
week that borrowing costs would be held until at least June.
Four economists now said the key rate may be lowered at an
unscheduled meeting as early as this month.
- PBOC Resists Rate-Cut Wave on $91 Billion Outflow: China Credit. China’s markets signal the central bank
won’t join a global wave of interest-rate cuts, as capital
outflows that reached $91 billion last quarter weaken the yuan. The cost of one-year swaps, a fixed payment to receive the
floating seven-day repurchase rate, climbed 16 basis points last
week, the most in two months, and was at 3.36 percent as of
10:50 a.m. in Shanghai Wednesday. The Shanghai Composite stock
index fell 4.2 percent, the biggest five-day drop in more than a
year, as regulators curbed buying of shares with borrowed funds.
- China Services Gauge Slips to Six-Month Low as Slowdown Spreads. A gauge of China’s services industry
expanded at the weakest pace in six months as a slowdown spreads
to areas of the economy that had been outperforming the nation’s
flagging factories and sagging property market. The Services Purchasing Managers’ Index from HSBC Holdings
Plc and Markit Economics for January was at 51.8, down from 53.4
a month earlier. Numbers above 50 indicate expansion.
- Asia Stocks Extend Global Gains; Oil Slips as Bonds Slide. Asian stocks headed for the biggest gain in
six weeks and emerging-market currencies strengthened after a
three-day rally in commodities. The yen weakened and sovereign
bonds fell. The MSCI Asia Pacific Index gained 1.5 percent by 11:08
a.m. in Tokyo, as sub-indexes of materials and energy companies
surged more than 2 percent. Standard & Poor’s 500 Index futures
were little changed. U.S. oil slipped 1.7 percent after a four-day, 19 percent rebound through yesterday, its biggest such
rally since January 2009. Malaysia’s ringgit rose with the
country’s stocks after a two-day holiday. The yen was 0.4
percent weaker as yields on Japan’s 10-year bond rose three
basis points and Australian and U.S. notes dropped.
Wall Street Journal:
- Russian Intransigence on Ukraine Prompts U.S. to Reconsider Policy. As
Kerry Heads to Kiev, Obama Administration Reconsiders Lethal Military
Aid. Nearly a year after Russia began its military campaign in Ukraine,
the
U.S. and its European allies find themselves in a familiar predicament:
struggling to devise a strategy to get Moscow to back off. While Western economic sanctions, combined with a steep drop in the
price of oil, have inflicted heavy damage on the Russian economy,
they’ve done nothing to temper the Kremlin’s support for eastern
Ukraine’s separatist insurgency, U.S. officials acknowledge. “It’s
fair to say that costs haven’t risen high enough for the Russian
leadership to rethink their course of action,” a senior Obama
administration official said.
- Wisconsin GOP Gov. Walker Takes Aim at College Outlays, Professors. Likely Presidential Candidate Proposes a $300 Million Cut to State’s University System.
Wisconsin Gov. Scott Walker’s 2011 fight with public-sector unions
sparked huge protests—and elevated him into a national figure in
conservative politics. Now, as he eyes a run for president, he is
targeting another group on the public payroll: university professors.
CNBC:
Zero Hedge:
Business Insider:
- Chipotle(CMG) sales disappoint, stock falls 6%.
Chipotle's fourth-quarter results are out, and the numbers are mostly
in line with expectations, though same-store sales came in below
expectations. In after-hours trading following the results, shares of the Mexican-food chain were down as much as 7%.
- Wynn(WYNN) earnings were somehow worse than everyone imagined.
Macau's malaise strikes again. This time its victim is Steve Wynn and
his Wynn Resorts casino empire. The company just released its fourth
quarter 2014 earnings, and they were even worse than the mess analysts
had pictured. The stock is now falling in after hours trading, down about 3.5%.
Reuters:
- Gilead(GILD) boosts hepatitis C drug discounts, shares slide. Gilead Sciences Inc on Tuesday said it is offering steeper-than-expected discounts on its hepatitis C drugs to health insurers and other group payers who
had complained about the price, and the drugmaker's shares slid
more than 5 percent.
Bild:
- Three-Fourths of Germans Oppose New Aid for Greece. 73% believe
the European Union shouldn't yield to Greek demands for additional
financial assistance, citing a survey by the research institute INSA for
the newspaper.
vbw-Unternehmermagazin:
- Weidmann
Says Sovereign QE Is Not Normal Policy Instrument. "The purchase of
government bonds is not a normal monetary-policy instrument in my
opinion," Bundesbank President Jens Weidmann says in interview. QE entails "too many risks and side effects, which outweigh the benefits from the current point of view," he said.
Nikkei:
-
Japan
to Consider Patrolling South China Sea. Govt will consider dispatching
self-defense force ships, aircraft to South China Sea, citing Japanese
Defense Minister Gen Nakatani.
Evening Recommendations
Night Trading
- Asian equity indices are +.25% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 107.0 -3.0 basis points.
- Asia Pacific Sovereign CDS Index 67.75 -2.25 basis points.
- NASDAQ 100 futures -.19%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:15 am EST
- The ADP Employment Change for January is estimated at 220K versus 241K in December.
9:45 am EST
- Final Markit US Services PMI for January is estimated at 54.1 versus a prior estimate of 54.0.
10:00 am EST:
- ISM Non-Manufacturing Composite for January is estimated to rise to 56.4 versus 56.2 in December.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+3,940,000 barrels versus a +8,874,000 barrel gain the prior week.
Gasoline supplies are estimated to fall by -450,000 barrels versus a
-2,587,000 barrel decline the prior week. Distillate supplies are
estimated to fall by -1,210,000 barrels versus a -3,892,000 barrel
decline the prior week.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Mester speaking, Fed's Powell speaking, Eurozone Services PMI,
weekly MBA Mortgage Applications Report, Cowen Aerospace/Defense
Conference, (TXN) strategy update and the (NAV) analyst day could also
impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and industrial shares in the region. I expect US stocks to open mixed and to weakend into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 17.93 -7.72%
- Euro/Yen Carry Return Index 141.08 +1.21%
- Emerging Markets Currency Volatility(VXY) 10.72 -2.01%
- S&P 500 Implied Correlation 65.01 +.40%
- ISE Sentiment Index 67.0 -31.6%
- Total Put/Call .96 -9.43%
Credit Investor Angst:
- North American Investment Grade CDS Index 66.22 -3.04%
- America Energy Sector High-Yield CDS Index 768.0 -.11%
- European Financial Sector CDS Index 62.75 -5.97%
- Western Europe Sovereign Debt CDS Index 25.42 -3.49%
- Asia Pacific Sovereign Debt CDS Index 68.78 -1.72%
- Emerging Market CDS Index 383.48 -4.88%
- iBoxx Offshore RMB China Corporates High Yield Index 113.50 +.02%
- 2-Year Swap Spread 25.0 +1.25 basis points
- TED Spread 24.25 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -15.25 -.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% +1.0 basis point
- Yield Curve 127.0 +7.0 basis points
- China Import Iron Ore Spot $63.18/Metric Tonne +1.17%
- Citi US Economic Surprise Index -13.0 -4.5 points
- Citi Eurozone Economic Surprise Index 12.60 +.6 point
- Citi Emerging Markets Economic Surprise Index -5.90 -.7 point
- 10-Year TIPS Spread 1.70 +6.0 basis points
Overseas Futures:
- Nikkei Futures: Indicating +245 open in Japan
- DAX Futures: Indicating +24 open in Germany
Portfolio:
- Higher: On gains in my retail/tech/medical sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
