Wednesday, November 06, 2013

Wednesday Watch

Evening Headlines 
Bloomberg: 
  • Bubble Trouble Seen Brewing in Australia Home Prices. Gigi Wong beat four other bidders in an auction of a three-bedroom Sydney house with peeling wallpaper, cracked doors and an overgrown backyard by paying A$856,000 ($811,060), 14 percent more than the realtor expected the property to fetch. “I’m not sure if I paid too much,” said Wong, an accountant at the University of Sydney, after winning the bidding war for the investment property in an inner-west suburb where prices have tripled in the past 15 years. “Since I can, and have capacity to borrow money, I should utilize it.” 
  • Indonesia GDP Grows Less Than 6%. Indonesia’s economy expanded less than 6 percent last quarter as higher interest rates weighed on consumption and exports fell. Gross domestic product increased 5.62 percent in the three months ended Sept. 30 from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with a previously reported 5.81 percent pace for the second quarter and the median estimate of 5.6 percent in a Bloomberg News survey of 23 economists. The third-quarter data highlights the vulnerability of Southeast Asia’s largest economy as it weathers a depreciated exchange rate, faster inflation and diminished foreign capital inflows ahead of elections in 2014. Bank Indonesia has raised its benchmark rate by 1.5 percentage points since early June to shore up the rupiah and stem price gains, while the government has acknowledged growth next year will be slower as it reins in spending to narrow a record current-account gap.
  • Asian Stocks Gain, Snap Four-Day Decline, as Yen Weakens. Asian stocks rose, snapping a four-day drop on the regional equities benchmark, as Japanese shares were boosted by the yen weakening against the dollar and Commonwealth Bank of Australia posted a surge in profit. Canon Inc. gained 1 percent as the yen dropped, boosting the outlook for earnings at Japanese exporters. Commonwealth, Australia’s largest lender by market value, climbed 1.2 percent to a record after saying first-quarter cash profit jumped 14 percent on lower bad-debt charges. HTC Corp. climbed 2.9 percent after analysts said the smartphone maker’s fourth-quarter forecast was better than estimated. The MSCI Asia Pacific Index gained 0.3 percent to 141.39 as of 12:29 p.m. in Hong Kong as nine of the 10 industry groups on the measure advanced.
  • Rebar Futures Fall for Second Day as Construction in China Slows. Steel reinforcement-bar futures in China fell for a second day on concern that construction will slow in winter, crimping demand. Rebar for May delivery, the most-active contract by volume on the Shanghai Futures Exchange, fell as much as 0.9 percent to 3,636 yuan ($596) a metric ton, and traded 3,649 yuan a ton at 11:30 a.m. local time
  • Rubber Swings Near One-Month Low on Oil Rebound, Yen Strength. Rubber swung between gains and losses, trading near a one-month low, as a rebound in crude oil prices weighed against concern that the Federal Reserve will reduce stimulus earlier than anticipated. The contract for delivery in April on the Tokyo Commodity Exchange was little changed at 255.8 yen a kilogram ($2,591 a metric ton) at 12:08 p.m. after gaining 0.3 percent and dropping 0.7 percent. Futures settled at 255.7 yen yesterday, the lowest close for a most-active contract since Oct. 4.
  • Brazil Real Tumbles on Concern Government Lax on Budget Deficits. Brazil’s real fell the most among emerging-market currencies and swap rates surged on concern the government isn’t doing enough to control budget deficits and avoid a credit rating cut. The real dropped 1.9 percent to 2.2890 per U.S. dollar, deepening its one-month selloff to 3.4 percent, the worst among 16 major currencies tracked by Bloomberg. Swap rates on contracts maturing in January 2016 climbed 15 basis points, or 0.15 percentage point, to a two-year high of 11.54 percent on concern that widening budget shortfalls will lead to an increase in borrowing costs
  • Obama’s 39% Gallup Rating Lowest Amid Health Care Fallout. President Barack Obama’s rating in the daily Gallup poll has fallen to its lowest level since October 2011 as his administration continues to be tarnished by the rocky debut of his health-care program. The Democrat’s approval rating stands at 39 percent in the survey, down since the start of October when the rollout of online health exchanges began.
  • Two Senate Democrats Push for Delay to Obamacare Penalties. Two Democratic senators from states that lean Republican are rallying support for proposals that would delay penalties or let people keep existing health plans after flaws hobbled the federal online exchanges. Senate Democratic leaders aren’t saying whether they will allow votes on the proposals by Mary Landrieu of Louisiana on existing policies or Joe Manchin of West Virginia to delay fines for a year. The efforts underscore Democrats’ anxiety over the failures of the online exchanges 
  • Wells Fargo(WFC) Said to Face U.S. Mortgage-Bond Probe. Wells Fargo & Co. (WFC) is among firms facing federal scrutiny of mortgage-bond sales under a 1989 law the government is using to extend probes of banks’ roles in the credit crisis, two people with knowledge of the matter said.
  • NYSE’s Next Owner Says Small U.S. Investors Get Ripped Off. The head of IntercontinentalExchange Inc. (ICE), which is about to own the New York Stock Exchange, said U.S. equity markets are flawed because sophisticated traders are taking advantage of small investors. A decade of regulatory and technological changes have fragmented trading across more than 50 markets and given rise to firms that use computerized algorithms to execute transactions in less than a thousandth of a second, far faster than humans. Also, almost 40 percent of volume takes place on private platforms, data compiled by Bloomberg show. That means investors saving money to send their kids to college or to buy a home can be taken advantage of by traders who possess more information, ICE Chief Executive Officer Jeff Sprecher told analysts today during a conference call. Sophisticated firms are incentivized to “take advantage of the people that are the weakest on the day they have to trade, and I think that that is fundamentally wrong,” Sprecher said. “Increasingly, when I go talk to friends and when I listen to people that are not involved specifically in what we do, there is a sense that things aren’t fair.” 
Wall Street Journal: 
Fox News:
  • McAuliffe narrowly defeats Cuccinelli in Virginia, ObamaCare troubles loom over vote. Democrat Terry McAuliffe won the Virginia governor’s race on Tuesday, in a surprisingly close victory over Republican rival Ken Cuccinelli -- who was heavily outspent and trailed in the polls for much of the race. With nearly all precincts reporting, McAuliffe was ahead with just 48 percent of the vote, to Cuccinelli’s 46 percent. Though McAuliffe previously held a double-digit lead, exit polls showed voters opposed to the federal health care law overwhelmingly backed Cuccinelli, helping him narrow the gap on Tuesday. "Despite being outspent by an unprecedented $15 million, this race came down to the wire because of ObamaCare," Cuccinelli said in his concession speech. "That message will go out to the entire country tonight."
  • ObamaCare price hikes hit 'red states' hardest. Experiencing sticker-shock at the price of insurance on ObamaCare exchanges? That's more likely if you live in a "red state" that didn't vote for Obama, according to price data compiled by the Heritage Foundation. In red states, premiums for 27-year-olds rose an average of 78% on ObamaCare exchanges, whereas in "blue states" that voted for Obama, premiums rose a smaller 50%.
CNBC:
Zero Hedge: 
Business Insider: 
NY Times:
  • After SAC Plea, Fellow Funds May Pay. In striking its $1.2 billion settlement with SAC Capital Advisors, the government set a record for insider trading penalties. For the hedge fund industry, the hidden costs of the deal are even bigger. Tougher regulatory scrutiny since the financial crisis and changes in the law have forced hedge funds to spend millions of dollars a year on new compliance measures to make sure that they are not ensnared in the same net as SAC. This has added to the cost of doing business, which can cut into returns. “It is getting much more expensive for hedge funds,” said Thomas A. Sporkin, a partner at Buckley Sandler and a former enforcement lawyer at the Securities and Exchange Commission. “What kind of returns are you going to need to make in this business given the compliance and regulatory burdens?”
Reuters:
Telegraph:
Yonhap News:
  • PACOM chief says N. Korea's ICBM threat is serious. A top U.S. military commander voiced concerns Tuesday over North Korea's long-range missile program, calling it a serious issue. Adm. Samuel Locklear, the commander of the U.S. Pacific Command, pointed out the reclusive communist nation wants the U.S. to believe it has the capability of sending missiles to the mainland U.S.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 138.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 109.25 +1.5 basis points. 
  • FTSE-100 futures +.42%.
  • S&P 500 futures +.47%.
  • NASDAQ 100 futures +.43%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (CHK)/.42
  • (TWX)/.89
  • (MMC)/.46
  • (HUM)/2.15
  • (DUK)/1.51
  • (RL)/2.20
  • (QCOM)/1.08
  • (PRU)/2.11
  • (MDLZ)/.40
  • (WFM)/.31
  • (TSO)/.49
  • (SCTY)/-.50
  • (CXW)/.62
  • (TAP)/1.39
  • (SKYW)/.46
Economic Releases
10:00 am EST
  • The Leading Index for September is estimated to rise +.6% versus a +.7% gain in August.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,686,000 barrels versus a +4,087,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -27,000 barrels versus a -1,713,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,241,000 barrels versus a -3,058,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.1% versus a +1.4% gain the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Pianalto speaking, Eurozone Services PMI, Germany Factory Orders, Australia Unemployment, Challenger Job Cuts for Oct., weekly MBA mortgage applications report, Raymond James Airline/Transport Conference, (MON) Investor Event, (ANF) analyst meeting and the (HAL) Analyst Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker 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 50% net long heading into the day.

Tuesday, November 05, 2013

Stocks Slightly Lower into Close on Rising Emerging Markets Debt Angst, Rising Long-Term Rates, Technical Selling, Homebuilding/REIT Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.22 +2.32%
  • Euro/Yen Carry Return Index 138.47 -.33%
  • Emerging Markets Currency Volatility(VXY) 8.90 +4.34%
  • S&P 500 Implied Correlation 39.29 +2.43%
  • ISE Sentiment Index 143.0 +27.7%
  • Total Put/Call .77 +2.67%
  • NYSE Arms .98 +32.11% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 74.40 +1.57%
  • European Financial Sector CDS Index 114.32 -.03%
  • Western Europe Sovereign Debt CDS Index 67.0 -1.47%
  • Emerging Market CDS Index 284.36 +3.45%
  • 2-Year Swap Spread 12.0 +.25 basis point
  • TED Spread 19.25 -1 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -4.25 +.75 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .05% +1 basis point
  • Yield Curve 236.0 +6 basis points
  • China Import Iron Ore Spot $136.80/Metric Tonne +.74%
  • Citi US Economic Surprise Index 0.0 +3.8 points
  • Citi Emerging Markets Economic Surprise Index -12.40 +.1 point
  • 10-Year TIPS Spread 2.14 unch.
Overseas Futures:
  • Nikkei Futures: Indicating -26 open in Japan
  • DAX Futures: Indicating +3 open in Germany
Portfolio: 
  • Higher: On gains in my biotech/retail sector longs, index hedges and emerging markets shorts
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:
  • Small-Cap Value -.41%
Sector Underperformers:
  • 1) Hospitals -4.30% 2) Homebuilders -2.60% 3) Disk Drives -2.16%
Stocks Falling on Unusual Volume:
  • BSFT, PPO, HTZ, LAYN, EPD, EXLS, IMGN, GIMO, BGC, BDE, ASH, CSU, SNCR, THC, EXR, PSB, MR, GVA, RKT, VOLC, LMNX, RRTS, TGH, EDMC, FARO, OMI, CAR, WPC, THO, SZYM, CF, CHTR, FAST, LINE, LNCO, WPC, THO, CHTR, LNCO, APL, CRK, LPX, EXPD, RKT, SGY, CSU and GTIV
Stocks With Unusual Put Option Activity:
  • 1) HTZ 2) IGT 3) RL 4) SMH 5) KSS
Stocks With Most Negative News Mentions:
  • 1) THC 2) T 3) MA 4) EBIX 5) BSFT
Charts:

Bull Radar

Style Outperformer:
  • Large-Cap Value -.22%
Sector Outperformers:
  • 1) Restaurants +.62% 2) Utilities +.42 3) Networking +.28%
Stocks Rising on Unusual Volume:
  • ENDP, ORIG, OTEX, VSI, GTAT, KERX, PMC, RBCN, AOL, KORS, CSOD, ECA, YRCW, HDS, FANG, DDD, RBA, VSI, AEL, DATA, REGN and XONE
Stocks With Unusual Call Option Activity:
  • 1) TMUS 2) DNR 3) GTAT 4) HTZ 5) LF
Stocks With Most Positive News Mentions:
  • 1) AOL 2) REGN 3) BA 4) KORS 5) DDD
Charts:

Tuesday Watch

Evening Headlines 
Bloomberg:
  • BOJ Struggles to Convince on 2% as Abenomics Shine Fades. Half a year after Bank of Japan Governor Haruhiko Kuroda unleashed record monetary easing, economists see the bank failing to meet its inflation target, underscoring the case for stronger steps to revive the economy. While the median estimate of BOJ board members released last week showed the bank expects consumer prices to rise 1.9 percent in the 2015 fiscal year -- in line with a 2-percent-in-two-years goal laid out in April -- just two of 34 analysts surveyed by Bloomberg News seethe target met in that timeframe. 
  • JGBs Declared Dead by Mizuho as Kuroda Hides Risks: Japan Credit. Mizuho Securities Co. said Bank of Japan dominance has killed the nation’s sovereign bond market, leaving it unable to reflect either the success of stimulus policies or fiscal risks. Monthly trading of Japanese government bonds among the biggest holders including banks and insurers shrank to 37.9 trillion yen ($385 billion) last quarter, the least on record going back to 2004, according to Japan Securities Dealers Association data. Totan Research Co. and Spiro Sovereign Strategy also said BOJ monetary stimulus is cutting the tie between economic fundamentals and bonds, which yield 0.6 percent for 10 years, the least in the world.
  • Japan Watchdog Begins Probe of Megabanks Amid Crime Loan Scandal. Japan’s financial regulator started inspecting the nation’s three largest banks today after finding Mizuho Financial Group Inc. failed to end loans to gangsters. The probe covers Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan’s biggest and second-largest lenders, as well as Mizuho, which last week submitted a plan to the Financial Services Agency outlining measures to improve internal controls.
  • Double Whammy Widens Bank Spreads Most Since 2011: China Credit. Chinese banks' borrowing costs are climbing at the fastest pace in two years as competition for deposits hurts earnings at a time of increasing bad loans. The extra yield investors demand to hold five-year AAA bonds instead of similar-maturity sovereigns increased 31 basis points to 1.55 percentage points in September and October, the biggest two-month jump since a 48 basis point urge in the period through September 2011. The average yield on the lenders' debt advanced 34 basis points last month, the most since August 2012, to a two-year high of 5.62%. That compares with 4.1% for top-rated U.S. banks. 
  • Asia Stocks Drop as China Shares Fall; Copper Rebounds. Asia’s benchmark stock index fell for a fourth day as Chinese shares retreated and the yen gained. Copper snapped three days of losses while Australia’s dollar weakened and precious metals advanced. The MSCI Asia Pacific Index slid 0.2 percent by 12:33 p.m. in Tokyo, after rising as much as 0.5 percent. Hong Kong’s Hang Seng Index dropped 0.8 percent and the Shanghai Composite Index slid 0.7 percent.
  • Rebar Falls on Concern China Property Controls May Reduce Demand. Steel reinforcement-bar futures in China fell for the first time in three days on concern that the government may step up property curbs, reducing demand for the building material. Rebar for May delivery, the most-active contract by volume on the Shanghai Futures Exchange, declined as much as 0.6 percent to 3,654 yuan ($599) a metric ton before trading at 3,667 yuan at 11:19 a.m. local time.
  • Cotton Slumping as Glut Expands Record China Hoard: Commodities. China is hoarding a record amount of cotton to aid farmers as global production exceeds demand for a fourth consecutive year, increasing the risk of a supply surge that would tip prices into a bear market. The biggest producer and user will have 12.7 million metric tons in inventory by July 31, 62 percent of the global total and enough to make about 71 billion t-shirts, the U.S. Department of Agriculture estimates. The government may end its stockpiling program the following season, Macquarie Group Ltd. says. Prices will drop 10 percent to 69.5 cents a pound in a year, according to the median of 12 analyst estimates compiled by Bloomberg. 
  • Treasuries Recover From Bottom Rank as Surprise Index Declines. Treasuries rebounded over the past two months from their rank as the world’s worst-performing bonds as a measure of U.S. economic data showed figures are falling short of expectations by the most since July. Debt due in 10 years and more gained 4.1 percent in the period, No. 34 of 144 indexes complied by the European Federation of Financial Analysts Societies and Bloomberg. The securities are the biggest losers for 2013 with a 9.2 percent loss. The Citigroup Economic Surprise Index fell to negative 3.8 yesterday as economic data trailed analysts’ estimates by the most since July 30.
Wall Street Journal:
  • Young Avoid New Health Plans. Early Buyers of Coverage Are Older Than Expected, Raising Expense Concerns. Early Buyers of Coverage Are Older Than Expected, Raising Expense Concerns.
  • Microloans Catch On in Europe, Too. Idea Spreads Beyond Developing World to Help Jobless Europeans, as Traditional Credit Dries Up. Microloans, a lifeline usually associated with the world's poorest countries, are growing across Europe, giving tens of thousands of people like Fátima Fernández a chance to start small businesses and avoid falling into poverty.
Fox News:
  • Gunman opens fire inside popular New Jersey mall. A gunman reportedly dressed in black body armor opened fire inside the Garden State Plaza Mall in Paramus, N.J. Monday night, New Jersey State Police reported. Paramus Mayor Richard LaBarbiera said no injuries were reported and the mall was being swept for the gunman. Police and SWAT teams swarmed the scene.
CNBC:
Zero Hedge:
Business Insider:
Reuters:
  • CF Industries(CF) profit falls 42 pct as nitrogen sales slip. U.S. fertilizer producer CF Industries reported a 42 percent drop in quarterly profit on Monday as nitrogen sales and prices slipped, due to weak global fertilizer markets. Lower fertilizer prices, combined with buyer expectations that they will fall further, and competition from a high volume of Chinese nitrogen exports, resulted in a weaker quarter year-over-year, the company said.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.75% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 137.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 107.75 +4.25 basis points. 
  • FTSE-100 futures +.24%.
  • S&P 500 futures -.03%.
  • NASDAQ 100 futures unch.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (MOS)/.73
  • (HCA)/.79
  • (DTV)/1.00
  • (BDX)/1.46
  • (ENR)/1.32
  • (AMG)/2.15
  • (REGN)/1.90
  • (EMR)/1.11
  • (CVS)/1.02
  • (ZTS)/.34
  • (ICE)/1.83
  • (D)/.90
  • (RDC)/.40
  • (AOL)/.51
  • (COCO)/-.07
  • (CHRW)/.73
  • (ODP)/.06
  • (SSS)/.97
  • (RGR)/1.21
  • (OPEN)/.41
  • (FOSL)/1.36
  • (Z)/-.08
  • (TSLA)/.10
  • (MYGN)/.46
  • (RRGB)/.29
Economic Releases
10:00 am EST
  • The ISM Non-Manufacturing Composite for October is estimated to fall to 54.0 versus 54.4 in September.
  • The IBD/TIPP Economic Optimism Index for Nov. is estimated to rise to 42.0 versus 38.4 in October.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking, Fed's Williams speaking, Australia trade report, BoJ minutes, weekly retail sales reports and the (UTEK) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Monday, November 04, 2013

Stocks Slightly Higher into Final Hour on Central Bank Hopes, Short-Covering, Investor Performance Angst, Commodity/Healthcare Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.03 -1.88%
  • Euro/Yen Carry Return Index 138.94 +.05%
  • Emerging Markets Currency Volatility(VXY) 8.53 -.61%
  • S&P 500 Implied Correlation 38.81 -3.67%
  • ISE Sentiment Index 112.0 unch.
  • Total Put/Call .75 -18.48%
  • NYSE Arms .76 +15.0% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 73.39 -.27%
  • European Financial Sector CDS Index 114.36 -1.92%
  • Western Europe Sovereign Debt CDS Index 68.0 -.56%
  • Emerging Market CDS Index 274.48 -1.15%
  • 2-Year Swap Spread 11.75 unch.
  • TED Spread 20.25 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -5.0 -.75 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .04% unch.
  • Yield Curve 230.0 -1 basis point
  • China Import Iron Ore Spot $135.80/Metric Tonne +.37%
  • Citi US Economic Surprise Index -3.80 -9.1 points
  • Citi Emerging Markets Economic Surprise Index -12.50 -3.7 points
  • 10-Year TIPS Spread 2.14 unch.
Overseas Futures:
  • Nikkei Futures: Indicating +124 open in Japan
  • DAX Futures: Indicating +8 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my medical/retail sector longs 
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long