Evening Headlines
Bloomberg:
- Wenzhou Shadow Banking Unscathed by China Crunch as Rates Steady.
China’s efforts to rein in shadow banking, which contributed to the
nation’s worst credit crunch in at least a decade, haven’t driven up
costs for borrowers in at least one place: Wenzhou. On June 20, as
the nation’s banks demanded a record 30 percent to lend to each other
for one day, small businesses in the export hub paid 23.42 percent for
one-month loans from pawn shops, small lending companies and
individuals, according to data from a local government-backed agency.
That’s almost unchanged from this month’s average of 23.17 percent.
- Asian Stocks Rise as Gold Slumps With Metals; Won Gains.
Asian stocks rose, lifting the regional benchmark index from the lowest
in almost seven months, after housing data bolstered the U.S. economic
outlook and China’s cash crunch eased. Gold slid, while the won gained. The
MSCI Asia Pacific Index climbed 0.3 percent at 11:39 a.m. in Tokyo,
after closing at the lowest level since Dec. 4 yesterday. Japan’s Topix
Index (TPX) slid 0.9 percent.
- Portugal Throws Open Europe’s Them-And-Us Divide Over Austerity. When
it comes to sharing the burden
of austerity, some Portuguese feel more equal than others. Half way
through his four-year term, Prime Minister Pedro Passos Coelho is trying
to curb popular resentment over what opponents say is a widening gulf
between private employees and about 600,000 public workers who have
mostly stayed immune to mass job cuts. Portugal’s two biggest unions scheduled a general
strike for tomorrow, the second since the country asked for
international aid in April 2011, to protect benefits, including
a 35-hour working week and early retirement.
- Australia Cuts Commodity Export Earnings Outlook as Prices Drop.
Australia, the largest iron ore shipper, lowered its forecast for
earnings from the export of minerals and energy resources after prices
tumbled. The value of exports may total A$197 billion ($182 billion) in
the year starting July 1, the Bureau of Resources and Energy Economics
said in a report today. That compares with A$205 billion forecast in
March. Earnings are set to total A$177 billion in the year ending
June 30, less than the A$186 billion previously estimated, and the first
decline since 2009-2010, the Canberra-based bureau said. Iron ore has
tumbled 21 percent this year and slipped into a bear market last month
amid concerns slowing economic growth
in China, the world’s biggest metals consumer, will reduce
demand.
- Gold Drops to Cheapest Since September 2010 as Silver Tumbles. Gold fell to the lowest level since September 2010 as U.S. economic
data beat estimates, backing the case for reduced stimulus from the
Federal Reserve as the dollar strengthened. Silver sank to the cheapest
since August 2010. Cash bullion dropped as much as 2.6 percent
to $1,244 an ounce, the cheapest since Sept. 13, 2010, and was at
$1,249.25 at 11:57 a.m. in Singapore. It’s lost 22 percent since the
start of April, heading for its worst quarterly performance since 1920,
according to data compiled by Bloomberg. Silver retreated as much as 4.5
percent to $18.7630 an ounce.
- Steelmaking
Coal Slides to Four-Year Low After Billiton Deal. A key contract that
determines prices of coal used in the $1.3 trillion market for steel
slid to a four-year low amid a global supply glut. The coking-coal
benchmark contract for the third quarter was settled at $145 a metric
ton in quarterly negotiations between BHP Billiton Ltd., the world's
biggest coking coal exporter, and Nippon Steel & Sumitomo Metal
Corp., Doyle Trading Consultants LLC said today in a report. That
compares with $172 in the second quarter.
- Rebar Falls as Iron Ore Declines, Liquidity Uncertainty Persists. Steel reinforcement-bar futures in Shanghai fell as iron ore declined for the third day and as
uncertainty persisted over liquidity in the Chinese economy. Rebar for delivery in October on the Shanghai Futures
Exchange declined as much as 0.9 percent to 3,426 yuan ($557) a
metric ton before trading at 3,433 at 10:40 a.m. local time.
- Brazil Further Dismantles Capital Controls as Real Weakens. Brazil dismantled capital controls
for the third time this month in a bid to temper the biggest
decline among major currencies. The central bank starting July 1 will eliminate reserve
requirements on short dollar positions held by local banks. The
new rule comes after the government earlier this month removed
taxes on currency derivatives and foreign purchases of bonds.
- Fed’s Fisher Urges Bank Breakup Amid Too-Big-to-Fail ‘Injustice’. Federal Reserve Bank of Dallas
President Richard Fisher said an implicit government guarantee
for the biggest U.S. banks is an “injustice” that prompts them
to take excessive risks and that they should be allowed to fail. The largest financial firms should be restructured so each
of their units “is subject to a speedy bankruptcy process,”
and creditors should be notified their investments won’t be
guaranteed by the government, Fisher said in testimony prepared
for a House Financial Services Committee hearing in Washington
tomorrow on the risk of taxpayer-funded bailouts for banks.
- Banks Could Face U.S. Home-Equity ‘Payment Shock,’ Moody’s Says. Home-equity lenders could see
delinquencies rise in the next two years as borrowers face a
“payment shock,” Moody’s Investors Service said. The majority of home-equity loans were issued during the
housing bubble before the 2008 financial crisis when
underwriting standards were “dismal,” Moody’s said today in a
report. Those loans will reach the 10-year mark between 2015 and
2017, when borrowers who are paying only interest must start
repaying principal, and some won’t be able to keep up, Moody’s
said. Home-equity loans were among the largest sources of bad
debt in the Federal Reserve’s stress tests of U.S. banks
conducted earlier this year, with $37.2 billion of projected
losses on junior-lien and home-equity loans.
- Munis Extend Worst Losses Since 2008 as Illinois Sets Sale. The
U.S. municipal market is poised
for its worst monthly loss since 2008, leading investors to
offer a record amount of tax-exempt debt as yields surged to 26-month
highs. The selloff is the backdrop for a $1.3 billion general-obligation
sale tomorrow by Illinois, the lowest-rated U.S.
state. Local-government debt has lost 5.1 percent this month,
matching the drop in September 2008, when Lehman Brothers
Holdings Inc. filed for bankruptcy, Bank of America Merrill
Lynch data show.
Wall Street Journal:
- President Details Sweeping Climate Policies. A
far-reaching plan to fight climate change detailed by President Barack
Obama on Tuesday would profoundly reshape the way the U.S. produces and
consumes electricity, though the resistance it is sure to encounter
promises to sow uncertainty for an industry already buffeted by shifting
rules and economics.
As part of a much-anticipated speech
at Georgetown University, in which the president laid out the first-ever
federal effort to rein in greenhouse-gas emissions from the power
sector, Mr. Obama also said he would approve the controversial Keystone
XL pipeline later this year if it didn't "significantly" increase net
greenhouse-gas emissions. Mr. Obama's conditional remark was meant, in
part, to blunt criticism that approving an oil pipeline would be at odds
with his climate policy.
- Weak Links Mar Investing in China. Stocks Trail the Rest of the Economy as State-Owned Companies Get Preferential Treatment for IPOs. The selloff in China's stock market abated on Tuesday, but a key issue
for investors remains: The country's financial system puts state-owned
companies ahead of private businesses.
- Bottom Is Falling Out of Copper Prices. Copper's world is coming apart. The price has fallen 16% so far this
year and is 34% below February 2011's all-time closing high. This isn't just a case of slowing economic growth. The global forces
propelling the metal's stunning rise over the past decade are shifting.
Copper's supercycle is entering its downhill run.
- The Carbonated President. Obama
unveils a war on fossil fuels he never disclosed as a candidate.
President Obama's climate speech on Tuesday was grandiose even for him,
but its surreal nature was its particular hallmark. Some 12 million
Americans still can't find work, real wages have fallen for five years,
three-fourths of Americans now live paycheck to check, and the economy
continues to plod along four years into a quasi-recovery. But there was
the President in tony Georgetown, threatening more energy taxes and
mandates that will ensure fewer jobs, still lower incomes and slower
growth.
Fox News:
MarketWatch.com:
- How China officials’ obsession drives fudging. The falsification of statistics is not surprising news in China. In the most recent case of number fudging, statistics officials in
Henglan County, Guangdong Province, vastly overstated local gross
industrial output to an extent that was unusual even in a country where
economic data is routinely massaged.
CNBC:
- Junk Bonds Suddenly Don't Look So Good Anymore. June has been a brutal month for bonds but particularly in the
high-yield space, where issuance has cooled after a record run. Junk bond volume has slowed to $7.1 billion this month, the slowest
pace since December 2011 and about one-fifth the average monthly total
previously in 2013, according to Dealogic.
Zero Hedge:
Business Insider:
Reuters:
- Markit presses on with IPO, interviews banks -sources. Financial
information services company Markit Group is moving ahead with an
initial public offering and has hired Goldman Sachs (GS.N) as the lead
coordinator of the deal, four people familiar with the process said on Tuesday.
- More big-name hedge funds nurse wounds from bond sell-off. One of last
year's top-performing hedge fund managers, Deepak Narula, is suffering a
reversal of fortune as the mortgage bonds that steered him to the top
of the industry in 2012 are now delivering losses.
His Metacapital Management's
roughly $1.5 billion flagship fund was down 5.66 percent for the year
through June 14, according to an investor with knowledge of the numbers. The loss is particularly notable given the fund's 41 percent gain last year. Narula's
fund is just one of many credit-oriented hedge funds that have seen
gains posted earlier this year turn into losses in the wake of a
ferocious sell-off in bonds sparked by fears the Federal Reserve could
pull back from its easy money policies later this year. Other
large hedge funds with significant credit exposure that are posting
negative numbers since Fed Chairman Ben Bernanke signaled a potential
end to the monthly purchases of $85 billion in Treasuries and mortgage
securities include Brevan Howard, Bridgewater Associates and BlueCrest
Capital Management.
- Europe seeks to shield taxpayers from bank collapses. The European Union will make a
fresh attempt on Wednesday to share out the costs of future bank
failures, starting a regime to spare taxpayers further bailouts
and maintain momentum to integrate the bloc's crisis response.
Financial Times:
- Italy faces restructured derivatives hit.
Italy risks potential losses of billions of euros on derivatives
contracts it restructured at the height of the eurozone crisis,
according to a confidential report by the Rome Treasury that sheds more
light on the financial tactics that enabled the debt-laden country to
enter the euro in 1999. A 29-page report by the Treasury, obtained by the Financial Times,
details Italy’s debt transactions and exposure in the first half of
2012, including the restructuring of eight derivatives contracts with
foreign banks with a total notional value of €31.7bn.
China Securities Journal:
- China Central Bank May Seek to Improve Debt Ratio. China's
central bank may intend to improve the nation's debt ratio, Zhang Monan,
a researcher at the State Information Center, wrote. Macro policies
aimed at lowering borrowing costs can't relay on interest rates or
reserve requirement ratio cuts alone, Zhang wrote. The debt ratio
should be prevented from rising too quickly and financial risks limited,
he said.
Evening Recommendations
Janney Montgomery:
- Rated (GOOG) Buy, target $1,050.00.
Night Trading
- Asian equity indices are -.50% to +1.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 159.50 -8.0 basis points.
- Asia Pacific Sovereign CDS Index 130.5 -10.25 basis points.
- NASDAQ 100 futures -.14%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- 1Q GDP is estimated to rise +2.4% versus a prior estimate of a +2.4% gain.
- 1Q Personal Consumption is estimated to rise +3.4% versus a prior estimate of a +3.4% gain.
- 1Q GDP Price Index is estimated to rise +1.1% versus a prior estimate of a +1.1% gain.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-1,750,000 barrels versus a +313,000 barrel gain the prior week.
Gasoline inventories are estimated to rise by +875,000 barrels versus a
+183,000 barrel gain the prior week. Distillate supplies are estimated
to rise by +650,000 barrels versus a -489,000 barrel decline the prior
week. Finally, Refinery Utilization is estimated to rise by +.25% versus
a +1.8% gain the prior week.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Kocherlakota speaking, Fed's Fisher speaking, 5Y T-Note auction,
BOE Financial Stability report, GfK German Consumer Climate Index,
weekly MBA mortgage applications report, CSFB Basic Materials
Conference, (HRL) investor day and the (PRXL) investor day could also
impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- Volatility(VIX) 18.13 -9.85%
- Euro/Yen Carry Return Index 133.51 -.11%
- Emerging Markets Currency Volatility(VXY) 11.30 -3.67%
- S&P 500 Implied Correlation 60.04 -2.09%
- ISE Sentiment Index 92.0 -9.52%
- Total Put/Call 1.09 +7.92%
Credit Investor Angst:
- North American Investment Grade CDS Index 91.43 -6.42%
- European Financial Sector CDS Index 181.04 -4.81%
- Western Europe Sovereign Debt CDS Index 97.0 +1.57%
- Emerging Market CDS Index 350.89 -5.24%
- 2-Year Swap Spread 17.0 -2.5 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -11.75 +1.0 bp
Economic Gauges:
- 3-Month T-Bill Yield .06% +2 bps
- China Import Iron Ore Spot $114.0/Metric Tonne -2.23%
- Citi US Economic Surprise Index 1.30 +9.4 points
- Citi Emerging Markets Economic Surprise Index -38.20 +.4 point
- 10-Year TIPS Spread 1.96 +4 bps
Overseas Futures:
- Nikkei Futures: Indicating +325 open in Japan
- DAX Futures: Indicating +30 open in Germany
Portfolio:
- Higher: On gains in my tech/biotech/retail sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 75% Net Long
Bloomberg:
- Spain Retail Slump Keeps Exports as Guindos Growth Hope: Economy. Spanish officials predicting an end
in the next quarter to the worst recession in the country’s
democratic history are pinning that hope on its export recovery
as a consumer slump shows little sign of abating. With record unemployment weighing on domestic demand,
supermarket chain Eroski sought to kickstart sales last week by
cutting prices of 2,000 branded products from olive oil to
diapers in more than a third of its 1,500 stores. Such tactics
show the pain retailers are willing to endure to revive spending
in an economic downturn that started in 2008.
- European Stocks Rebound as China Allays Crunch Concern. The Stoxx Europe 600 Index increased 1.5 percent to 279.69
at the close of trading, its biggest gain in two months. The
benchmark gauge entered a correction yesterday, having slumped
more than 10 percent since May 22.
- Obama Seeks Emissions Limits to Revive Climate Proposal. President Barack Obama will attempt
a revival of U.S. efforts to tackle climate change today by
announcing a sweeping plan that would impose limits on
greenhouse gas emissions from all U.S. power plants. The mandatory reductions by operators of power plants, the
biggest single source of carbon-dioxide emissions in the U.S.,
are the centerpiece of Obama’s initiative, which also includes
increasing energy efficiency and promoting renewable fuels,
according to senior administration officials who briefed
reporters on the proposal and asked not to be identified before
it was formally released. The officials wouldn’t put a price on the package, which
they said can be accomplished without congressional approval.
- Export Bank’s Financing Curbed Under Obama Overseas Coal Pledge. President Barack Obama pledged to
end U.S. government financing of overseas coal projects, a
promise that could end millions of dollars in support for power
plants in nations such as Vietnam and India. As part of a “Climate Action Plan” released today, Obama
called for ending U.S. support of foreign coal-fired power
plants, unless they are in the poorest nations or have expensive
carbon-capture technology. “This is an important move to stand up and say, ‘Coal is
not an acceptable fuel source for the 21st century,’” Justin
Guay, a Washington representative for the Sierra Club, said in
an interview. “It’s a really strong political signal.”
- Keystone Gains as Study Shows Oil Sands Pose No Added Spill Risk. Heavy crude oil to be carried by the
proposed Keystone XL pipeline poses no greater risk of a spill
than other types of oil, the National Research Council said in a
report. The report disputes arguments made by Keystone opponents
that diluted bitumen, a tar-like substance mined in Alberta’s
oil sands, is more corrosive than conventional crude oil and is
more likely to create ruptures and oil spills in pipelines. The review of spills “did not find any causes of pipeline
failure unique to the transport of diluted bitumen,” according
to a statement from the council, part of the National Academy of
Sciences that advises the U.S. government on science policy.
- Senators to Offer Bill to End Fannie Mae, Freddie Mac. A bipartisan group of senators is
planning to introduce a proposal today for replacing U.S.-owned
mortgage financiers Fannie Mae and Freddie Mac (FMCC) with a newly created government reinsurer. The bill to be offered by Senators Bob Corker and Mark Warner reflects a prevailing view among lawmakers that the two
government-sponsored enterprises should cease to exist while a
federal role in backing mortgage lending should remain. Corker,
a Tennessee Republican, and Warner, a Virginia Democrat, have
set a news conference for 2:15 p.m. to introduce the measure.
- Kirk’s Cantab Hedge Fund Said to Drop 14% in June Selloff. Cantab Capital Partners LLP, a
hedge-fund firm partly owned by Goldman Sachs Group Inc., has
lost 14 percent in its main fund this month as bonds and
currencies fell, two people familiar with the performance said.
The $4.5 billion fund, based in Cambridge, England, dropped
19 percent for the year through June 21, said the people, who
asked not to be named because the firm is private. “It’s unusual for one to see a selloff in risk assets and
a selloff in bonds at the same time,” Kirk said in an
interview. “Being a systematic fund, we had quite a significant
exposure to bonds and currencies.” He declined to comment on
June’s performance.
- Consumer Confidence in U.S. Increases More Than Forecast. The
Conference Board’s index rose to 81.4, exceeding all forecasts in a
Bloomberg survey and the highest since January 2008, from a revised 74.3
in May, data from the New York-based private research group showed
today. The median forecast of 77 economists surveyed by Bloomberg called
for a reading of 75.1.
- Gold Futures Fall for Second Straight Day on U.S. Economic Data. Gold futures for August delivery slipped 0.2 percent to
settle at $1,275.10 an ounce at 1:43 p.m. on the Comex in New
York. The metal reached $1,268.70 on June 21, the lowest since
September 2010.
Fox News:
MarketWatch:
- TransUnion: Auto-loan delinquency rate rose in Q1. The first-quarter national auto-loan delinquency rate rose slightly from
a year earlier, due primarily to an increase in delinquencies for
subprime borrowers, according to TransUnion Corp. The credit-information company said the percentage of auto-loan accounts
at least 60 days past due edged up to 0.88% in the first quarter from
0.82% a year ago, but was down from 1% in the fourth quarter.
Delinquencies for subprime borrowers climbed to 5.5% from 5.09% last year.
CNBC:
- New Homes Sales Hit Third Straight Month of Gains. Sales of new U.S. single-family homes rose to their highest level in
nearly five years in May, confirming the housing market's strengthening
tone.
- Luxury Real Estate Braces for Troubles From China, Brazil. Troubles in emerging markets could stretch to the luxury apartment towers of New York and Miami. Wealthy investors from Brazil and China have been big drivers of the
high-end real-estate recovery—especially in New York, Miami and Los
Angeles. But now, as emerging markets face slowing economies, sliding
currencies and plunging stocks, the high-end real-estate market could
feel the chill.
Zero Hedge:
Business Insider:
New York Times:
- U.S. Poised to Sue Corzine Over MF Global. Federal regulators are preparing to sue Jon S. Corzine over the collapse
of MF Global and the brokerage firm’s misuse of customer money, DealBook’s Ben Protess reports. The Commodity Futures Trading Commission, the agency that regulated MF
Global, plans to approve the lawsuit as soon as this week against Mr.
Corzine, the former New Jersey governor who ran the firm until its
bankruptcy in 2011, according to law enforcement officials with
knowledge of the case.
Reuters:
Style Underperformer:
Sector Underperformers:
- 1) Coal -3.20% 2) Gold & Silver -.53% 3) Medical Equipment -.31%
Stocks Falling on Unusual Volume:
- WAG, BVN, ABX, EVC, EXXI, E, TWC, AVD, BKS, SGEN, TDG, IPCM, SMTC, ISIS, INSM, GHDX, GTU, RPRX, PBYI, TGI, IVR, MELI, SAVE, VRA, CNX, COV, INFI and PRXL
Stocks With Unusual Put Option Activity:
- 1) BKS 2) BK 3) STZ 4) WFM 5) CRF
Stocks With Most Negative News Mentions:
- 1) GHDX 2) COH 3) AVD 4) JRCC 5) PEP
Charts:
Style Outperformer:
Sector Outperformers:
- Education +3.51% 2) Homebuilders +2.98% 3) Gaming +2.05%
Stocks Rising on Unusual Volume:
- BBEP, HLSS, MLNX, CCL, PHM, IPXL, FSLR, MW, PRLB, NAV, AWAY, BPO, CCL, KBH and JOSB
Stocks With Unusual Call Option Activity:
- 1) NWS 2) VWO 3) CCL 4) BKS 5) PFE
Stocks With Most Positive News Mentions:
- 1) FLR 2) QCOM 3) LRCX 4) ZTS 5) PRLB
Charts:
Evening Headlines
Bloomberg:
- Li’s Cash Squeeze Risks 1st China GDP-Goal Miss Since ’98. China’s
biggest squeeze on credit in at least a decade is increasing the chance
that Li Keqiang will be the first premier to miss an annual growth
target since the Asian financial crisis in 1998. Goldman Sachs
Group Inc. and China International Capital Corp. yesterday joined banks
from Barclays Plc to HSBC Holdings Plc in paring their growth
projections this year to 7.4 percent, below the government’s 7.5 percent
goal. The cuts followed a tightening in central bank liquidity that
yesterday left the overnight repurchase rate more than double the year’s
average. “The current leadership is trying to build its reputation
in a
different way than the previous administration, which felt that its
target was holy and had to be met regardless of the circumstances,” said
Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc
in Hong Kong, who previously worked for the World Bank. The danger is
that putting the growth goal aside undermines public confidence in
China’s economic policy making that’s already been shaken
by limited communication on the government’s objectives behind the cash
squeeze. The central bank yesterday contributed to the biggest drop in
Chinese stocks in almost four years by releasing a week-old statement
saying liquidity was “reasonable.”
- PBOC Opaque Stress Test Catches Funds in Crossfire. China’s lack of transparency during
a stress test on the nation’s banks became a cause of worldwide
concern as it rocked bond and commodity markets and helped wipe
out $4.5 trillion in global equity value.
- China Beige Book Shows Fewer Firms Borrowing as Rates Rise. Chinese bankers are reporting
increased lending while fewer companies are taking out loans, an
incongruity that helps explain the recent increase in borrowing
costs, a private survey showed. The number of companies reporting loan applications in the
second quarter fell 13 percentage points from the previous
period to 38 percent, the survey from New York-based China Beige
Book International said yesterday. The proportion of banks
showing higher lending to businesses rose 10 percentage points
to 45 percent, indicating that “credit appears to be
concentrated on a few borrowers,” according to the report.
- Morgan Stanley(MS) Cuts Base Metals Outlook as China’s Growth Slows. Morgan Stanley reduced its forecasts
for industrial metals on concerns slowing growth in China, the
world’s biggest consumer, and the nation’s worst cash squeeze in
at least a decade will curb demand. The bank cut its 2013 copper estimate by 3 percent to $3.42
a pound and lowered its nickel prediction by 7 percent to $7.23
a pound, according to analysts Peter Richardson and Joel Crane
in a report e-mailed today. Copper for September delivery traded
at $3.0285 on the Comex in New York. “The headwinds to commodity price performance have been
intensified by growing signs of deterioration in the quality of
this lower growth,” the report said. “Strong credit growth in
total social financing in China has raised some increasingly
serious market concerns about the direction, composition and
risks embedded in this development.”
- U.S. Said to Explore Possible China Role in Snowden Leaks. U.S. intelligence agencies are investigating whether Edward
Snowden’s leaks may be a Chinese intelligence operation or whether China
might have used his concerns about U.S. surveillance practices to
exploit him, according to four American officials. The officials
emphasized there’s no hard evidence yet that Snowden was a Chinese agent
or that China helped plan his flights to Hong Kong and then to Moscow,
directly or through a witting or unwitting intermediary. Rather, they
are duty-bound to probe such a worst-case scenario for the U.S., said
the officials, who are familiar with the case and asked not to be
identified to discuss classified intelligence.
- Cisco(CSCO) China Sales Vulnerable as Media Urge Domestic Shift. Cisco
Systems Inc. (CSCO) faces a backlash in China, where it generates about
$2 billion in annual sales, after state-run media said the company
poses a security threat and urged a shift toward domestic suppliers. While Cisco has said it didn’t participate in U.S.
surveillance programs revealed earlier this month by former
government contractor Edward Snowden, state-owned Chinese media
outlets are calling for the company to face restrictions there.
- Philippine Stocks Enter Bear Market as Foreign Outflows Surge.
Philippine stocks entered a bear market as the nation’s benchmark
equity index slumped for a fifth day amid the biggest monthly foreign
sell-off on record. The Philippine Stock Exchange Index (PCOMP) fell 2
percent to 5,854.13 at 10:48 a.m. in Manila. The gauge has lost 21 percent since closing at a record 7,392.20 on May 15. Overseas funds
sold a net $344 million of Philippines stocks this month through
yesterday, heading for the biggest monthly selloff since
Bloomberg began compiling the data in 1999.
- Chinese Stocks Plunge as Australian Dollar Falls, Copper Drops. Chinese stocks tumbled deeper into a
bear market, dragging the Asian benchmark share-index lower,
amid concern a cash squeeze will hurt growth. The Australian
dollar weakened and copper declined. The CSI 300 Index (SHSZ300) of the biggest companies in Shanghai and
Shenzhen slumped 4.8 percent at 12:40 p.m. in Tokyo, extending
yesterday’s 6.3 percent retreat. The MSCI Asia Pacific Index
slipped 0.8 percent. Standard & Poor’s 500 Index futures fell
0.3 percent, erasing earlier gains. Currencies in Australia and
New Zealand lost at least 0.4 percent versus the greenback,
while the yen climbed 0.4 percent to 97.39 per dollar. Copper
slid to its lowest level since July 2010.
- Rebar Falls for 2nd Day as China Credit Squeeze Damps Sentiment. Steel reinforcement-bar futures fell
for a second day as China’s biggest squeeze on credit in at
least a decade increased concern that demand for the
construction material will falter. Rebar for delivery in October on the Shanghai Futures
Exchange fell as much as 0.8 percent to 3,423 yuan ($557) a
metric ton and was at 3,434 yuan at 10:36 a.m. local time.
- Rubber Futures Swing Amid China Demand Concerns, Weaker Yen. Rubber swung between gains and
losses as investors weighed a weaker Japanese currency against China’s biggest squeeze on credit in a decade. The
contract for delivery in November on the Tokyo Commodity Exchange
gained as much as 1.3 percent and fell as much as 1.1 percent before
trading at 230.9 yen a kilogram
($2,364 a metric ton) at 11:57 a.m. Futures touched a nine-month
low of 228 yen on June 21.
- Berlusconi’s Sex Conviction Raises Tension in Letta’s Government. Italian Prime Minister Enrico Letta
is facing discord among parliamentary supporters after his
coalition partner, Silvio Berlusconi, was convicted of paying a
minor for sex and sentenced to seven years in prison. The verdict, announced yesterday by Judge Giulia Turri in
Milan, was criticized by Deputy Prime Minister Angelino Alfano
and Renato Brunetta, chief whip of the second-biggest party in
the lower house of parliament. Letta’s own Democratic Party said
it would respect the judge’s decision. Berlusconi, a 76-year-old
billionaire and former premier, has said he is innocent and
remains free as he prepares his appeal.
- Wall Street’s $8 Billion CMBS in Limbo as Bulls Retreat. Wall Street firms spent the past six
months increasing commercial mortgage origination as investors
bought the most debt in six years. That’s now backfiring as
banks prepare to market $7.5 billion of loans earmarked to be
sold as bonds before credit markets took a dive this month. Investors demanded 1.03 percentage point more than the
benchmark swap rate to buy new commercial mortgage backed
securities tied to shopping malls, skyscrapers, hotels and
apartment buildings on June 14, according to data compiled by
Bloomberg. That’s up from 72 basis points in February, the narrowest
spread since sales revived in 2009, the data show. Lenders’ profits are
eroded when values of the securities fall. The CMBS market is poised
for its worst month in almost two years after the Federal Reserve
signaled it may curb stimulus efforts as the economy shows sign of
improvement. That’s
complicating efforts by banks to sell new deals and making it
more expensive for landlords to refinance loans backed by
everything from Manhattan office space to suburban grocery
stores.
- Homebuilders Approach Bear Market on Rising Mortgage Rates. U.S. homebuilders fell for a fourth day, approaching a
bear market, as concern mounted that rising mortgage rates could
restrain a revival in the housing market. The
11-member Standard & Poor’s Supercomposite Homebuilding Index slid 1
percent today to the lowest level since the end of 2012. It has fallen
19.6 percent from a May 14 peak, close to the 20 percent threshold
considered to be a bear market.
Wall Street Journal:
- China's 'Shadow Banks' Fan Debt-Bubble Fears.
In a 52-story office tower overlooking the leafy streets of this city's
embassy district, some 400 deal makers at Citic Trust Co. arrange
financing for property developers, steel mills and other businesses
starved for cash and shunned by China's traditional banks. The lenders at Citic and other institutions that make up China's
"shadow banks" have created the closest thing China has to the culture
of Wall Street. They take risks that traditional banks won't, going so
far as to create investment funds for assets like top-shelf liquor and
mahogany furniture. Their top executives drive luxury cars and frequent
expensive clubs. Now, China's shadow banks—a mélange of
trust companies, insurance firms, leasing companies, pawnbrokers and
other informal lenders subject to limited oversight—are at the center of
mounting concerns over whether the country's slowing economy could
trigger a debt crisis.
- Explosions, Gunfire Rock Central Kabul. Gunfire and explosions rocked central Kabul, a week after the Taliban opened a negotiating office in the Gulf emirate of Qatar. A plume of dark smoke was visible close to embassies and government
buildings, and an alarm warning coalition and diplomatic personnel to
take cover was audible in the city's diplomatic quarter.
- Underwater Drones Are Multiplying Fast. Robots Are Invading the Sea for All Kinds of Inspections—With
an Eye on Prey. The next army of unmanned drones are scurrying beneath the ocean's
surface. Hundreds of small camera-equipped robots developed by a range of companies
are sending video and other data to laptop and tablet screens above.
- Army Plans Cuts to Combat Forces.
The Army will announce Tuesday it will cut more than 10 brigade
combat teams, a significant reduction in the size of its fighting forces
and combat power, according to defense officials. The Army has previously announced it will reduce the size of its
force from its current level of 541,000 to 480,000 by 2017 under the
$487 billion of spending reductions mandated by the 2011 Budget Control
Act, but hasn't detailed precisely which parts of its active-duty force
it will cut.
- Texas' Next Big Oil Rush. New Pipelines Ferrying Landlocked Crude Expected to Boost Gulf Coast Refiners. New pipelines are beginning to carry a glut of domestic crude from the
middle of the country to Texas' Gulf Coast, boosting the fortunes of the
area's big refineries and further fueling a decline in oil imports.
Fox News:
- Senate advances immigration bill in key test vote. An immigration overhaul that would legalize millions of undocumented
immigrants while boosting border security passed a major test in the
Senate on Monday, as lawmakers voted to advance a compromise measure
despite resistance from some Republicans. The Senate voted 67-27 to advance an amendment that was only
submitted late last week. Critics complained that the Senate was voting
on the 119-page proposal before having a chance to analyze it.
Zero Hedge:
Business Insider:
Washington Post:
- The Insiders: The president plans to raise your power bill. If you accept the science of global warming, then you accept the fact
that the president’s unilateral action on climate change will have
absolutely no effect in terms of adjusting the global thermostat to a
temperature Obama finds desirable. The rest of the developing world,
anchored by India and China, are building carbon-burning factories,
power plants and even whole new cities that will overwhelm any new rules
the president may impose on Americans and our struggling economy.
New York Times:
- Exit From the Bond Market Is Turning Into a Stampede. Wall Street never thought it would be this bad. Over the last
two months, and particularly over the last two weeks, investors have
been exiting their bond investments with unexpected ferocity, moves that
continued through Monday.
- Credit Warnings Give World a Peek Into China’s Secretive Banks. China’s hidden banking system is coming out of the shadows as the
government seeks to rein in the excessive lending that it fears could
spin out of control. The People’s Bank of China, the central bank,
let the world know on
Monday that it was putting the nation’s banks on notice: the loose money
and the speculation it fed had to stop. It said banks had to step up
risk controls and improve cash management. And they had to do it, the
bank said, by avoiding a “stampede” mentality. The banks had quietly
received that very message a week earlier, which set off, if not a rush
for the exits, certainly widespread worry in China and financial
centers around the world.
Reuters:
- Six more U.S. municipal bond sales postponed. With yields on the U.S. municipal bond
market rising, local issuers on Monday postponed another six
bond sales, totaling $331 million, that were originally
scheduled to price later this week.
- Asia driving "explosion" in global arms trade-study. Asian powers are outpacing the
United States to become the biggest spenders on defence by 2021
and are fuelling an "explosion" in the global arms trade, a
study showed. The global arms trade
jumped by 30 percent to $73.5 billion between 2008-2012 in spite of the
economic downturn, driven by surging exports from China and demand from
countries like India, and is set to more than double by 2020, defence
and security consultancy IHS Jane's said on Tuesday.
Telegraph:
- Italy could need EU rescue within six months, warns Mediobanca. Italy is likely to need an EU rescue within six months as the country slides
into deeper economic crisis and a credit crunch spreads to large companies,
a top Italian bank has warned privately. Mediobanca, Italy’s second biggest bank, said its “index of solvency risk” for
Italy was already flashing warning signs as the worldwide bond rout
continued into a second week, pushing up borrowing costs. “Time is running out fast,” said Mediobanca’s top analyst, Antonio Guglielmi,
in a confidential client note. “The Italian macro situation has not improved
over the last quarter, rather the contrary. Some 160 large corporates in
Italy are now in special crisis administration.” The report warned that Italy will “inevitably end up in an EU bail-out
request” over the next six months, unless it can count on low borrowing
costs and a broader recovery. Emphasising the gravity of the situation, it compared the crisis with when the
country was blown out of the Exchange Rate Mechanism in 1992 despite drastic
austerity measures.
Sueddeutsche Zeitung:
- Weidmann Calls for Strict Balance-Sheet Tests for Banks, Sueddeutsche Zeitung. Bundesbank President Jens Weidmann says balance sheets of European banks need to be
cleaned up, citing an interview. Says "thorough and rigorous review
essential to avoid further unpleasant surprises". Says failure to
implement might damage credibility of banking union. European Central
Bank plans "quality" test for 130-150 banks that will be under the
bank's supervision in future. Says need to maintain option to shut banks
down. Says if there's common supervision, there should also be joint restructuring and settlement. Says private investors should be the first to provide financing and only when that isn't possible should governments decide if public funding will be used.
Says only when banks are adequately capitalized and have sustainable
business models will they be able to carry risk and provide credit.
China Daily:
- China Prepared for Pain to Ensure Reform: Editorial. Drop in benchmark Shanghai Composite Index yesterday shows authorities are preparing to continue painful and necessary reforms to keep the economy growing in a more sustainable manner, the editorial said. Exposing problems for "early treatment" is better than "tinkering" that delays a crisis. The direction of reform cannot be clearer, the editorial said.
- China
Should Target EU Trade, Investment in Solar Dispute. China should
launch retaliatory trade investigations to "hit back" at the EU after
the region imposed tariffs on Chinese solar panels, Mei Xinyu, a
researcher at the Chinese Academy of International Trade and Economic
Cooperation affiliated to the Ministry of Commerce, writes in a
commentary. The government could also curb investments and trade orders
to the EU as the region is trapped in a a debt crisis and depends on
Chinese investment and trade, Mei wrote. China could also take action
specifically against France, Italy, Lithuania and Portugal, which
supported the tariffs, he said.
- China Shouldn't Ease
Liquidity to Rescue Market. China's stock market would be hurt if
central bank eased liquidity or regulators continue a suspension of
IPOs., according to a commentary published by Gao Yuncai.
Shenzhen Daily:
- Hedge fund manager expects market crash. FORMER chess grandmaster-turned hedge fund manager Patrick Wolff is
betting on a stock market crash in China, where he says bad debts have
spiraled to dangerous levels. Speaking to reporters on the
sidelines of the GAIM conference in Monaco last week, Wolff said
investors were too focused on trying to work out when easy money
policies will taper off in the United States and ignoring a looming
correction in China. “People are talking way too much about the
Federal Reserve and not enough about China,” he said. “We’ve been saying
that the United States is the safest place to invest, while China is a
crash waiting to happen.” He is short on Chinese stocks and generally long on U.S. equities.
Evening Recommendations
Night Trading
- Asian equity indices are -3.0% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 167.50 +7.5 basis points.
- Asia Pacific Sovereign CDS Index 140.75 +14.5 basis points.
- NASDAQ 100 futures -.28%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Durable Goods Orders for May are estimated to rise +3.0% verus a +3.3% gain in April.
- Durables Ex Transports for May are estimated unch. versus a +1.3% gain in April.
- Cap Goods Orders Non-defense Ex Air for May are estimated to rise +.5% versus a +1.2% gain in April.
9:00 am EST
- S&P/CS 20 City MoM% SA for April is estimated to rise +1.2% versus a +1.12% gain in March.
- The House Price Index for April is estimated to rise +1.1% versus a +1.3% gain in March.
10:00 am EST
- The Richmond Fed Manufacturing Index for June is estimated to rise to 2.0 versus -2.0 in May.
- Consumer Confidence for June is estimated to fall to 75.1 versus 76.2 in May.
- New Home Sales for May are estimated to rise to 460K versus 454K in April.
Upcoming Splits
Other Potential Market Movers
- The Italian 10Y auction, Italian Retail Sales reports, 2Y T-Note auction, weekly retail sales reports, (CSCO) Investor Day and the Global Hunter Energy Conference could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.
