Evening Headlines
Bloomberg:
- Fastest Japan Inflation Since ’08 Stokes Wage Pressure: Economy.
Japan’s inflation accelerated to the fastest pace since 2008 last
month, bringing the rate closer to policy makers’ target while
threatening to erode household spending power unless employers boost
wages. Prices excluding fresh food rose 1.2 percent from a year earlier, the statistics bureau said today in Tokyo, more than a
median forecast of 1.1 percent in a Bloomberg News survey of
economists. A separate report showed industrial output rose 0.1
percent from October, less than forecast, in a risk for
projections of an acceleration in economic growth this quarter.
- Abe Shrine Visit Risks Upending Japan’s China Export Gains.
Hurdles for Japan’s economy next year may increase after Prime Minister
Shinzo Abe’s visit to a shrine honoring war criminals and others risked
deepening tensions with his nation’s largest trading partner. The
economy, already facing the first bump in the sales tax in 17 years and
contending with an erosion in household purchasing power as consumer
prices rise, now confronts the
potential for damage to exports.
- Asian Stocks Climb With Metals as Yen Drops to 2008 Low.
Asian stocks climbed with metals,
while the yen weakened to a five-year low, on speculation the Bank of
Japan will sustain monetary easing, while an improving U.S. jobs market
allows the Federal Reserve to taper stimulus. China’s money market rates
fell for a fourth day. The MSCI Asia Pacific Index was up 0.2 percent at 11:36 a.m. in Tokyo, set for a 1 percent weekly gain.
- Rebar Climbs in Shanghai as Tangshang City Vows to Curb Output.
Steel reinforcement-bar futures rose in China, trimming a third weekly
loss, after a report that Tangshang city vowed to boost measures to curb
output and reduce emissions. Rebar for May delivery on the Shanghai
Futures Exchange rose as much as 0.4 percent to 3,619 yuan ($596) a
metric ton, and traded at 3,611 yuan at 10:28 a.m. local time. Futures
are
set to drop 0.4 percent this week.
- Turkey Prosecutor Says Probe Block Threaten Rule of Law. Turkey’s
legal morass thickened after a prosecutor said Prime Minister Recep
Tayyip Erdogan’s government is obstructing a graft probe by preventing
detentions, disobeying court orders and allowing suspects to
flee. The lira extended losses after his comments.
- Latin America’s Rout Seen Extending Into Next Year: Currencies. Foreign
investors are betting the
worst rout in Latin American currencies since 2008 will extend into next
year as commodity export prices slump and rising U.S. bond yields lure
money out of the region. The Bloomberg JPMorgan Latin America Currency Index of the region’s six most-traded currencies fell 9.5 percent this year
and touched 94.65 on Dec. 24, within 1 percent of a four-year
low. International investors boosted wagers to a record
$21.5 billion this week that Brazil’s real will keep falling,
data compiled by BM&FBovespa SA show.
Wall Street Journal:
- Government Pulls in Reins On Disability Judges. The Social Security Administration, smarting
from recent scandals, this weekend is set to tighten its grip on 1,500
administrative law judges to ensure that disability benefits are awarded
consistently and to rein in fraud in the program. The
agency is rewriting the job descriptions of its judicial corps,
allowing officials more latitude to crack down on judges who are
awarding disability benefits outside the norm.
- Millions of Tons of Metals Stashed in Shadow Warehouses. The world's metal is slipping into the shadows. Banks,
hedge funds, commodity merchants and others are stashing tens of
millions of tons of aluminum, copper, nickel and zinc in a hidden system
of warehouses that span the globe. These
facilities are known to some in the industry as "shadow warehouses"
because they are unregulated and don't disclose their holdings. They
operate outside the London Metal Exchange system of warehouses, the
traditional home for these metals. As
of October, a record seven million to 10 million tons of aluminum were
being housed in these facilities, in countries as far apart as Malaysia
and the Netherlands, according to estimates from several analysts. The
amount dwarfs the 5.5 million tons of aluminum in the LME-licensed
warehouses, based on LME figures as of Tuesday. Just 12 months ago, the
figures were about equal. A similar shift is taking place with other industrial metals, analysts say. As
a result, producers and consumers are bracing for potentially wild
swings in metals prices as market participants have difficulty
accurately gauging supplies of these metals. With no clear insight into
how much metal is in the shadow system, setting prices will become
increasingly difficult, they say.
- Bomb Near Cairo Bus Raises Fear of Growing Militancy. Deepening Political Polarization and Crackdown on Muslim Brotherhood Could Push Egyptians Toward Violent Groups. A small bomb exploded near a municipal bus
here on Thursday, raising fears that deepening political polarization of
the country is fueling a violent insurgency. The
bombing, which injured five passengers, came two days after an apparent
suicide car bombing killed 16 people at a police headquarters in the
Nile Delta city of Mansoura.
- Recession Frays Ties at Spain's Co-ops. Home Appliance Maker Fagor Shuts Factories After Failing to Get Lifeline. For decades, the giant network of industrial
and retail cooperatives born in this small town was held up as an
international model. Whenever one co-op got into trouble, the rest of
the Mondragón Corporation would rescue it with cash or take on workers
at risk of losing their jobs. Then the unthinkable happened.'
- Marc Siegel: The Death of the Bedside Manner. ObamaCare is speeding the decline in the quality of medical practice. 'It is as painful perhaps to be awakened from a vision as to be born,"
James Joyce
wrote famously in his masterpiece "Ulysses." I recently had such
an experience when my office manager—who protects me from the daily
insurance grind of referrals and approvals and pre-certifications and
blood drawing—was out sick. Thus the veil was lifted from my eyes, and I
awoke to the harsh realities of our medical future.
Fox News:
- Even in Hawaii, Obama can't escape troubled state health insurance exchanges. The president may be vacationing in a tropical paradise, but there's
no escaping the buffeting winds of troubled state health insurance
exchanges, even in Hawaii. For openers, the botched roll out of the state exchange in Hawaii has
hurt Democratic Gov. Neil Abercrombie's approval ratings: 51% of likely
Democratic primary voters say they don't like the way he's doing his
job.
CNBC:
- Market is ignoring the bubble in housing: Pro. (video) While the data supporting the case for a housing bubble are out
there, few people are actually paying attention, real estate advisor
Mark Hanson said Thursday on CNBC. "According to our research,
house prices on a monthly payment basis today, with rates at 4¾ percent,
are more expensive than they were in 2006 at the height of the bubble.
And that's because from 2003 to 2006, people used other than 30-year
fixed-rate loans," he said.
- Energy deal tightens Russia ties to Assad. An energy deal between Moscow and Damascus could influence strategic
calculations for both the civil war in Syria and the drive by regional
powers to exploit offshore oil and gas deposits off the east
Mediterranean coast.
Zero Hedge:
- 100 Years Of Success? - Fed 'Inflation' Style. Inflation slowly eats away at your purchasing power yet having
access to debt has given the middle class the false impression that they
are still protected from the unraveling impacts of inflation. They are not...
Business Insider:
TownHall.com:
- Obama Job Approval Falls Below 40, Worse Than Bush At Same Point in Presidency.
Fewer than 40 percent of the American people now approve of the job
President Obama is doing as president, according to the latest Gallup
daily tracking poll. Meanwhile, the percentage of American's who disapprove of Obama's job as president has risen to 54 percent. Obama's new 39 percent approval rating may be the lowest of his
second-term, but it is not the lowest of his presidency.
Evening Recommendations
Night Trading
- Asian equity indices are unch. to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 125.0 +1.0 basis point.
- Asia Pacific Sovereign CDS Index 102.75 -.25 basis point.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
11:00 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory
decline of -1,920,000 barrels versus a -2,941,000 barrel decline the
prior week. Gasoline supplies are estimated to rise by +950,000 barrels
versus a +1,337,000 barrel gain the prior week. Distillate inventories
are estimated to fall by -670,000 barrels versus a -2,110,000 barrel
decline the prior week. Finally, Refinery Utilization is estimated to
fall by -.13% versus a -1.1% decline the prior week.
Upcoming Splits
Other Potential Market Movers
- The weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and consumer
shares in the region. I expect US stocks to open modestly higher
and to weaken into the afternoon, finishing mixed. The Portfolio is 50%
net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: About Even
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 12.11 -2.96%
- Euro/Yen Carry Return Index 149.61 +.60%
- Emerging Markets Currency Volatility(VXY) 9.04 +.11%
- S&P 500 Implied Correlation 49.27 -2.03%
- ISE Sentiment Index 151.0 -15.17%
Credit Investor Angst:
- North American Investment Grade CDS Index 61.98 -.64%
- European Financial Sector CDS Index 85.23 unch.
- Western Europe Sovereign Debt CDS Index 60.76 +.02%
- Emerging Market CDS Index 267.44 +.17%
- 2-Year Swap Spread 9.75 -.25 basis point
- TED Spread 18.50 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -8.0 -6.25 basis points
Economic Gauges:
- 3-Month T-Bill Yield .06% -1 basis point
- China Import Iron Ore Spot $132.10/Metric Tonne +.08%
- Citi US Economic Surprise Index 49.4 +1.0 point
- Citi Emerging Markets Economic Surprise Index -9.70 +.7 point
- 10-Year TIPS Spread 2.20 +1 basis point
Overseas Futures:
- Nikkei Futures: Indicating +115 open in Japan
- DAX Futures: Indicating +2 open in Germany
Portfolio:
- Higher: On gains in my biotech/retail/tech sector longs and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- Xi Reply to Abe Shrine Visit Looms as Test for China-Japan Ties. Chinese President Xi Jinping’s
reaction to Japanese Prime Minister Shinzo Abe’s visit to a
shrine that honors wartime leaders will determine whether Asia’s top two economies come closer to a hostile incident.
Xi’s options after Abe’s appearance yesterday at Yasukuni shrine -- the
first by a sitting prime minister since 2006 -- range from sticking with
verbal condemnation to unleashing public anti-Japanese protests to
stepping up naval or air challenges against Japan’s forces in the East
China Sea.
- Japan's carmakers brace for China backlash from shrine visit. Japanese automakers are bracing for a potential consumer backlash should
tensions with China escalate after Prime Minister Shinzo Abe visited a
shrine memorializing those killed by war on Chairman Mao Zedong's
birthday. Nissan Motor Co. said it was "closely monitoring" developments in
Japan-China ties after Abe's visit. The appearance at Tokyo's Yasukuni
Shrine, which honors the war dead including 14 World War II leaders
convicted as Class A war criminals, drew a condemnation from China.
- Emerging Stocks Drop as China and Turkey Slump; Baht Weakens. Turkey’s gauge extended a rout after
Prime Minister Recep Tayyip Erdogan overhauled his cabinet amid
a corruption scandal. The Thai baht weakened for an eighth day. Foreign-currency denominated shares of Chongqing Changan
Automobile Co. (200625), the Chinese partner of Mazda Motor Corp. (7261), lost
3.2 percent in Shenzhen. Kasikornbank Pcl (KBANK) decreased 3.6 percent
in Bangkok. The Borsa Istanbul National 100 Index slipped 0.6
percent, set for the lowest close since August, after Erdogan
replaced 10 ministers in his cabinet. The baht depreciated to
the weakest level since March 2010. The Shanghai Composite Index (SHCOMP) dropped 1.6 percent, falling
to the lowest level since Aug. 23. Chongqing Changan Automobile
fell the most in almost two weeks. Automakers are bracing for a
potential consumer backlash should tensions with China escalate
after Japan’s Prime Minister Shinzo Abe visited a shrine
memorializing war-dead on Chairman Mao Zedong’s birthday.
- Rebar Drops in Shanghai as Suppliers Cut Prices on Weaker Demand. Steel reinforcement-bar futures fell
to the lowest level in more than a month as inventory climbed
amid weakening demand while the nation’s second cash crunch this
year reduced investment in the commodity. Rebar for May delivery on the Shanghai Futures Exchange lost as much as 0.6 percent to 3,583 yuan ($590) a metric ton,
the lowest since Nov. 18. It traded little changed at 3,605 yuan
at 10:46 a.m. local time.
- Gasoline Futures Jump to Three-Month High on Refinery Shutdowns.
Gasoline for January delivery rose 2.98 cents, or 1.1 percent, to
$2.844 a gallon at 12:54 p.m. on the New York Mercantile Exchange after reaching $2.8463, the highest intraday price since Sept. 9. Trading volume was 47 percent below the
100-day average. The futures have climbed 6 percent this month
and 1 percent this year.
- U.S. bond downgrades escalate as leverage climbs. Credit quality for U.S. companies is showing signs of weakening as
issuers from Verizon Communications Inc. to Apple Inc. borrow
unprecedented amounts of money to expand and reward shareholders. A total of 223 companies had their bond ratings cut by Moody’s
Investors Service in the six months ended November, compared with 172
increases, the highest proportion of downgrades since April. Issuers
took advantage of borrowing costs that averaged a record-low 3.83% this
year to sell an unprecedented amount of bonds, with 15% of offerings
funding shareholder payouts, the most in five years. Companies in the U.S. sold US$1.5-trillion of bonds through Dec. 24,
with the highest percentage of proceeds used to fund
shareholder-friendly transactions since at least 2008, according to data
compiled by Moody’s and Bloomberg. About 4% of bond offerings in 2008
were used to reward shareholders, Moody’s data show. Potential downgrades exceeded those of upgrades by Standard &
Poor’s on Nov. 29 by 222 to 188, according to a report by S&P
analysts led by Diane Vazza, the New York-based head of global
fixed-income research.
- Amazon(AMZN) Refunds Shipping After UPS Can’t Deliver by Christmas. Amazon.com
Inc., the largest online retailer, offered customers $20 gift cards and
refunds on shipping charges after an avalanche of orders caused United
Parcel Service Inc. to miss delivery of some packages by Christmas. Amazon
cited failures in UPS’s transportation network in messages to
customers, saying its own fulfillment centers processed customers’
orders in time for holiday delivery.
Wall Street Journal:
- Abe Visit to Controversial Japanese Shrine Draws Rare U.S. Criticism. Visit to Yasukuni Raises Concern Premier Shifting Focus From Economy to Nationalistic Goals. Japanese Prime Minister
Shinzo Abe's
surprise visit to a shrine linked to the country's militarist
past threatens to damage ties with the U.S. and has raised concerns that
after a year in office, he may be shifting his focus to a nationalist
agenda at the expense of his program to revitalize the economy.
- Foreign Investors Face Hurdles in China's Bond Market. High Yields Lure Overseas Investors, but Obstacles Stand in the Way.
China's cash crunch is leading to a selloff in onshore bonds, but the
resultant high yields in the nation's $4 trillion bond market are
drawing in foreign
investors in droves. The problem for
foreign investors: At a time when Chinese banks, the main buyers of
onshore bonds, are selling, their capacity to pile in and buy is limited
by government quotas.
- What to Do When ObamaCare Unravels. Health insurance should be individual, portable across jobs, states and providers, and lifelong and renewable. The
unraveling of the Affordable Care Act presents a historic opportunity
for change. Its proponents call it "settled law," but as Prohibition
taught us, not even a constitutional
amendment is settled law—if it is dysfunctional enough, and if Americans
can see a clear alternative.
- Twitter’s(TWTR) Ballooning Market Cap.
The stock has surged 75% this month and is up 180% since the company
priced its $26 initial public offering in November. Twitter now sports a
$38.1 billion market capitalization, according to FactSet. If
Twitter were in the S&P 500, it would be among the top 20% of
biggest companies based on market value. By comparison, retail giant
Target Corp. has a $39 billion market cap, Yahoo Inc. has a $41.1
billion market value and Time Warner Cable has a market cap of $37.6
billion.
The rally has confounded investors and analysts alike, who question
whether the unprofitable company warrants such a high valuation.
CNBC:
- Big tax surprise looming for high earners. (video) According to Joe Perry, a partner overseeing tax and business services
at Marcum, about 1,200 of his clients earning more than $400,000 will
see their 2013 tax bills grow by an average of 7 percent compared to
2012. The changes amounted to a total of $250 million more in taxes this
year, he told CNBC on Thursday.
- Depreciation hits electric cars hard. Plug-in electric cars may be cutting-edge technology, but an analysis
suggests that most will depreciate more dramatically over five years
than their conventional counterparts.
ZeroHedge:
- What Could Go Wrong Here? (graph) US
investors have turned the euphoria dial to 11 this week as the
percent bullish is the highest since the peak in Fall 2007 and bears are
at their lowest percentage since Spring 1987. Thus, the Bull-bear
spread (based on AAII's survey) has never been wider.
Business Insider:
CNN:
AAII:
Echoing fears that
European policymakers remain in a state of cognitive dissonance –
recognizing the need for root-and-branch overhaul of peripheral banks,
but backtracking on joint liability plans – Christopher Flowers, the
legendary FIG investor who now runs the £2.3 billion ($3.5 billion)
private equity group JC Flowers, sounded the alarm over the negative
sovereign-bank feedback loop.
In a shot across the bows of market bulls, who cite the return of
capital flows to weaker eurozone states, Flowers issued a stark warning:
"There is a scenario where we have a Lehman-type event: we wake up some
Thursday and a big country is in trouble.
"And the ECB will have to decide to support banks x, y, z. And then the
ECB will, in fact, decide to own bank x, y, z.
While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true
Kyodo:
- China's
Ambassador Calls Abe Shrine Visit Major Obstacle. Japanese Prime
Minister Shinzo Abe's visit to the Yasukuni war shrine creates a "major
obstacle" in relations with China, citing Ambassador Cheng Yonghua.
Japan must take responsibility for fallout, Cheng said.
Style Underperformer:
Sector Underperformers:
- 1) Utilities -.53% 2) Disk Drives -.43% 3) REITs -.22%
Stocks Falling on Unusual Volume:
- ORMP, TXTR, TKC, WMC, PTY, PCN, PDI, GDP, RLI, BIO, PKO, SHLO, GIII, MR, WX, RTI, QDEL and CLNE
Stocks With Unusual Put Option Activity:
- 1) FCX 2) TWTR 3) TOL 4) XLE 5) XLNX
Stocks With Most Negative News Mentions:
- 1) JPM 2) BAC 3) TXTR 4) EV 5) EBAY
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gold & Silver +1.05% 2) Gaming +.85% 3) Defense +.65%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
- 1) TMO 2) CLDX 3) TWTR 4) TASR 5) GOGO
Stocks With Most Positive News Mentions:
- 1) HRB 2) FAST 3) TGT 4) AAPL 5) SCTY
Charts:
Night Trading
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 124.0 +2.0 basis points.
- Asia Pacific Sovereign CDS Index 103.0 unch.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to fall to 345K versus 379K the prior week.
- Continuing Claims are estimated to fall to 2827K versus 2884K prior.
Upcoming Splits
Other Potential Market Movers
- The China Industrial Profits report, Japan Employment/CPI/Production data and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology
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.
