Evening Headlines
Bloomberg:
- China Local-Government Borrowing Costs Drop After Trust Bailout.
Borrowing costs for China’s financiers of roads, subways and sewage
plants dropped after a troubled trust product was bailed out, averting a
threatened default that added to concern about record local debt. The
average yield on five-year notes rated AA, the most common grade for
the so-called local-government financing vehicles, dropped two basis
points yesterday to 7.58 percent, thebiggest decline in more than two weeks. “The news is good for all high-yield bonds,
including LGFVs. The positive sentiment may last until the next
repayment problem arises.”
- China's Trade Data Under Scrutiny as Hong Kong Imports Diverge. China's trade numbers, distorted by fake
exports last year, are set to come under renewed scrutiny after a
discrepancy between Hong Kong and Chinese figures for bilateral trade
widened to the largest in eight months. Hong Kong's December imports
from China fell 1.9% from a year earlier to HK$176 billion($22.7
billion). the city's statistics department said today. That compares
with $38.5 billion in exports to Hong Kong reported earlier this month
by China's customs administration, up 2.3%, based on data compiled by
Bloomberg.
- Asian Stocks Swing Between Gains, Losses on China, Fed.
Asian stocks swung between gains and losses before the Federal Reserve
meets to discuss a further reduction in stimulus and as profit growth at
China’s industrial companies slowed. BHP Billiton Ltd., the world’s
biggest mining company that counts China as its No. 1 market, fell 1.9
percent to be the biggest drag on the index as Australian markets opened
after a holiday. LG Display Co. (034220) lost 4.4 percent in Seoul
after customer Apple Inc. forecast sales that trailed analyst estimates.
Komatsu Ltd., the world’s second-largest maker of construction
equipment, gained 2.2 percent in Tokyo after bigger rival
Caterpillar Inc. projected earnings that topped expectations.
The MSCI Asia Pacific Index was little changed at 134.76 as
of 12:22 p.m. in Tokyo, having swung between a gain of 0.2
percent and a loss of 0.3 percent.
- Rebar Drops in Shanghai as Demand Slows Before Lunar New Year.
Steel reinforcement-bar futures in Shanghai declined for a second day
as physical demand slowed before the Lunar New Year holiday. Rebar
for May delivery fell as much as 1 percent to 3,437 yuan ($568) a metric
ton on the Shanghai Futures Exchange and traded at 3,451 yuan at 10:44
a.m. local time. Most-active
prices, which declined on Jan. 22 to the lowest level since
June, are heading for a second monthly drop.
- Rubber Futures Poised for Bear Market as China’s Inventory Rises. Rubber futures in Tokyo headed
toward a bear market as stockpiles in China swelled to a nine-year high, signaling weakening demand from the largest consumer
of the commodity used in tires. Rubber for delivery in June on the Tokyo Commodity Exchange
fell as much as 1.2 percent to 226.5 yen a kilogram ($2,207 a
metric ton) before trading at 227.3 yen at 9:13 a.m. local time.
A close at or below 228.8 yen would be 20 percent decline from
the Sept. 9 settlement for a most-active contract, meeting the
common definition of a bear market. That would mark the end of bull run that started on Aug. 26
and stalled as stockpiles monitored by the Shanghai Futures
Exchange climbed, advancing for eight straight weeks to 204,451
tons, the largest amount since October 2004.
- STMicro(STM) Posts $36 Million Fourth-Quarter Loss, Trails Estimates.
STMicroelectronics NV (STM) reported fourth-quarter results that trailed
analysts’ estimates as Europe’s largest semiconductor maker works to
restructure plants and revamp its offerings. The net loss narrowed
to $36 million, or 4 cents a share, from $428 million, or 48 cents, a
year earlier, the Geneva-based company said in a statement yesterday.
The loss excluding impairment and restructuring charges totaled 1 cent a
share. Analysts projected profit of 2 cents, the average of estimates
compiled by Bloomberg.
Wall Street Journal:
- Request to SEC for AIG Files Nets Heavily Redacted Documents. Regulator Keeps Details—and Much More—Secret Despite Request for Info on AIG Probe.
The Securities and Exchange Commission recently released documents
related to its probe into the near-collapse of American International
Group Inc. with hundreds of redactions to keep information secret. SEC
officials blacked out information more than 800 separate times in one
transcript of a witness interview that lasted less than three hours. On
one page, redactions left just four words remaining: "okay," "by," "in"
and "did." On another page, "um hmm" is one of three short phrases left
untouched. Among the blacked-out
details: the names of witnesses, their lawyers, the SEC enforcement
officials and even the proofreaders who checked the transcripts.
- Government Reaches Deal With Tech Firms on Data Requests. Deal Would Allow Internet Companies to Tell Public More Details About Requests. The Obama administration agreed Monday to let technology companies make
more information public about how often the government monitors Internet
use, a move that aims to ease public distrust and corporate complaints
about snooping.
Fox News:
MarketWatch.com:
CNBC:
- Emerging markets are still vulnerable to panic. Emerging markets may be unrecognizable from the small and fragile
economies that fell like dominoes 15 years ago, but they are just as
vulnerable today to the same sort of indiscriminate selling when
investor panic sets in. As even the relatively robust
economies of Mexico and Poland now feel the heat from disparate
flashpoints from Turkey to Argentina, there are growing doubts that
emerging markets have built any immunity to such contagion. The
wildfire engulfing the developing world is starting to look very like
the currency runs of the past, such as the Asian, Russian and Latin
American collapses that began in 1997. Dominic Rossi, Global
CIO for equities at fund manager Fidelity, likens the current wave of
plunging currencies, equities and bonds to watching an old film—one in
which some of the biggest emerging markets could feature.
- Apple(AAPL) drops 5% on weak iPhone sales, revenue outlook. Apple
posted quarterly results that beat estimates Monday, but reported weak
iPhone sales and handed in a current-quarter revenue forecast that
underwhelmed, sending shares lower in extended-hours trading. The
company posted earnings of $14.50 a share on sales of $57.59
billion, surpassing expectations for $14.07 a share on sales of $57.46
billion, according to a consensus estimate from Thomson Reuters.
Shares dropped more than 5 percent in extended-hours trading.
- America’s recovery a 'false dawn,' says Stephen Roach. Despite signs that the U.S. economy is gaining traction, Stephen
Roach, former chairman of Morgan Stanley Asia, says the recovery appears
to be a "false dawn." "Financial markets and the so-called
Davos consensus are in broad agreement that something close to a classic
cyclical revival may finally be at hand for the U.S. But is it?" Roach,
a senior fellow at Yale University, wrote in an op-ed published on the
Project Syndicate website on Monday.
Zero Hedge:
Business Insider:
Washington Post:
- The lie that hangs over the State of the Union. Today,
a record 72 percent of Americans say big government is the biggest
threat to our country — the highest that number has been in 50 years of
polling. Concern with
big government is so bad, even a majority of Democrats — 56 percent —
consider it the biggest threat the nation faces. So not only do
Americans not trust Obama, they also have never been more skeptical of
bi -government solutions to our nation’s problems. So the president can
talk all he wants about income inequality, but it’s unlikely anyone will
trust him with a solution. That is Obama’s dilemma as he delivers his State of the Union address tomorrow night.
Reuters:
- China details $3-trillion local public debt risk. China's local
governments have published separate audit reports detailing their
combined public debt of $3 trillion for the first time ever, to increase
transparency and quell investor concerns.
The audits showed China's
wealthiest eastern provinces are the most indebted, though repayment
burdens are more onerous in poorer areas such as the southwestern
province of Guizhou, where the ratio of debt to GDP is the highest, at
79 percent. Most governments were
shown repaying the vast majority of their debt on time, though a
handful, such as Inner Mongolia, have fallen behind, with the portion of
loans due but unpaid running as high as 28 percent.
- U.S. Steel(X) loss widens as steel shipments fall. United States Steel Corp. reported a
wider fourth quarter loss as total steel shipments declined compared to last year. The Pittsburgh-based steelmaker had a net loss of $122
million, or 84 cents per share, compared to a loss of $50
million, or 35 cents per share, a year earlier.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 150.0 -5.5 basis points.
- Asia Pacific Sovereign CDS Index 117.50 -1.5 basis points.
- NASDAQ 100 futures -.66%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Durable Goods Orders for December are estimated to rise +1.8% versus a +3.5% gain in November.
- Durables Ex Transports for December are estimated to rise +.5% versus a +1.2% gain in November.
- Cap Goods Orders Non-Defense Ex Air for December are estimated to rise +.3% versus a +4.5% gain in November.
9:00 am EST
- The S&P/CaseShiller Home Price Index for November is estimated to fall to 165.72 versus 165.91 in October.
10:00 am EST
- Consumer Confidence for January is estimated to fall to 78.0 versus 78.1 in December.
- The Richmond Fed Manufacturing Index for January is estimated at 13.0 versus 13.0 in December.
Upcoming Splits
Other Potential Market Movers
- The
State of the Unions, German Retail Sales, UK GDP, 2Y $32B T-Note
auction, weekly retail sales report, TD Securities Mining Conference and
the (VIP) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer 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 25% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 17.10 -5.73%
- Euro/Yen Carry Return Index 146.49 +.36%
- Emerging Markets Currency Volatility(VXY) 9.93 +1.43%
- S&P 500 Implied Correlation 57.41 +.07%
- ISE Sentiment Index 141.0 +78.48%
- Total Put/Call .86 -4.44%
Credit Investor Angst:
- North American Investment Grade CDS Index 71.72 -1.58%
- European Financial Sector CDS Index 104.88 +.83%
- Western Europe Sovereign Debt CDS Index 55.0 +3.13%
- Asia Pacific Sovereign Debt CDS Index 117.95 -.85%
- Emerging Market CDS Index 334.63 -.82%
- 2-Year Swap Spread 15.0 unch.
- TED Spread 19.0 -1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -3.25 +.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .05% +1.0 basis point
- Yield Curve 241.0 +2.0 basis points
- China Import Iron Ore Spot $124.30/Metric Tonne unch.
- Citi US Economic Surprise Index 59.0 -3.6 points
- Citi Emerging Markets Economic Surprise Index 7.1 +.4 point
- 10-Year TIPS Spread 2.14 +1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating +25 open in Japan
- DAX Futures: Indicating +27 open in Germany
Portfolio:
- Slightly Higher: On gains in my index hedges and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- Emerging-Market Stocks Decline as Ruble Breaches Band. Emerging-market stocks dropped the
most in almost seven months amid concern a slowdown in the
Chinese economy will curb global growth. Russia’s ruble breached the upper boundary of Bank Rossii’s target corridor. The MSCI Emerging Markets Index fell 1.9 percent to 931.61 at 2:31 p.m. in New York, set for the biggest slump since July
3. Benchmark gauges from China to India and South Africa
decreased at least 1 percent. The ruble sank to lowest level on
a closing basis since 2009 against its dollar-euro basket,
before paring declines. Turkey’s lira snapped a 10-day slide on
speculation the central bank will raise interest rates tomorrow. “The sluggish growth we see in China underscores the
general concern that the economy is a lot weaker than it
seemed,” Bruce McCain, who helps oversee more than $25 billion
as chief investment strategist at the private-banking unit of
KeyCorp in Cleveland, said in a telephone interview. “If you
look at economic data from China, you see that there are few
chances things are going to get better, more likely things are
going to get worse.”
- China's Trade Data Under Scrutiny
as Hong Kong Imports Diverge. China's trade numbers, distorted by fake
exports last year, are set to come under renewed scrutiny after a
discrepancy between Hong Kong and Chinese figures for bilateral trade
widened to the largest in eight months. Hong Kong's December imports
from China fell 1.9% from a year earlier to HK$176 billion($22.7
billion). the city's statistics department said today. That compares
with $38.5 billion in exports to Hong Kong reported earlier this month
by China's customs administration, up 2.3%, based on data compiled by
Bloomberg.
- China Deepens Crackdown on Dissent With Jail Term for Xu. China’s ruling Communist Party
intensified its crackdown on dissent with the jailing of legal
scholar Xu Zhiyong and another prominent dissident saying on
Twitter that he was taken away by police. Xu, the most prominent activist jailed since Nobel Peace
Prize winner Liu Xiaobo in 2009, was sentenced by a Beijing
court yesterday to four years in prison on charges of gathering
a crowd to disturb public order. While he was not given a formal
opportunity to respond, Xu, 40, told the court that “the last
dignity of Chinese law has been destroyed,” his lawyer Zhang
Qingfang said by telephone.
- Top Trades in Disarray Amid Emerging-Market Rout: Currencies. It’s less than a month into 2014 and
already currency strategists are seeing their top trade
recommendations for the year upended by the rout in emerging markets.
Buying Mexico’s peso versus the yen has lost about 1 percent since Bank
of America Corp. named the trade one of its top picks in November, with
a targeted return of 9.4 percent. Danske Bank A/S exited a trade this
month buying Turkey’s lira versus Denmark’s krone at a loss of 2.9
percent. Of 31 major emerging-market currencies, 13 have already
weakened beyond
their median year-end forecasts in Bloomberg analyst surveys.
- LG Electronics Posts Surprise Quarterly Loss on Currency. LG Electronics Inc. (066570), the world’s second-largest maker of televisions, posted an unexpected loss
as a stronger South Korean won curbed the value of overseas
sales and the company boosted promotion of the G2 smartphone.
- Sony Cut to Junk by Moody’s as Mobile Devices Lure Buyers. Sony
Corp. (6758) had its credit rating cut to junk by Moody’s Investors
Service as Japan’s biggest television maker struggles to capture
consumer demand for smartphones and tablet computers. The rating was
lowered to Ba1, one level below investment grade, from Baa3 and the
outlook is stable, Moody’s said in an e-mailed statement today. Sony is
also rated junk at Fitch Ratings, while Standard & Poor’s has
the company on the second-lowest investment grade.
- Euro Jobless Record Not Whole Story as Italians Give Up. Euro-area data this week will probably show the region ended 2013
with a record jobless rate that reveals only part of the social legacy of the debt crisis. While
economists predict unemployment in December stayed at an all-time high
of 12.1 percent, with about 19 million jobless, that tally excludes
legions of adults who would also work if they could. Bloomberg
calculations for the third quarter show a wider total of 31.2 million
people of all ages are either looking for jobs, willing to do so though
unavailable, or else have given up.
- Italy Banks Tumble as Banco Popolare Spreads Concerns on Capital. Banco Popolare SC led a decline in Italian bank shares after
announcing an unexpected loss and plans for a capital increase, fueling
doubts about the quality of assets at the country’s lenders. Banco
Popolare, Italy’s fourth-biggest bank, dropped as much as 16 percent,
the most since December 2008, and was 13 percent lower at 1.31 euros by
12:23 p.m. in Milan. Banca Popolare dell’Emilia Romagna SC, Italy’s No. 7
bank by assets, declined 9 percent, while Banca Popolare di Milano
Scarl, the eighth-biggest lender, fell 8 percent.“Banco Popolare’s capital hike raises additional questions over Italian banks’
asset quality,” analysts at Goldman Sachs Group Inc., including
Jean-Francois Neuez, wrote in a note to clients today.
- RBS Set for Biggest Loss Since 2008 After $5.1 Billion Provision. Royal
Bank of Scotland Group Plc set aside a further 3.1 billion pounds ($5.1
billion) to cover legal and compensation claims, putting Britain’s
biggest bailed-out lender on track to post its largest pretax loss since
2008. The provision includes 1.9 billion pounds for lawsuits and
fines tied mostly to the sale of $91 billion of mortgage-backed
securities from 2005 to 2007, according to the lender. It follows
agreements Deutsche Bank AG, JPMorgan Chase & Co. and UBS AG (UBSN)
struck with U.S. regulators to settle claims they didn’t
provide adequate disclosure about mortgage-backed debt sold in
the housing bubble that preceded the 2008 financial crisis.
- ECB Confronted by Banks Testing Exit, Threat to Recovery. Rising market rates are posing a
dilemma for European Central Bank officials trying to keep their
ultra-expansive monetary policy in place. Overnight borrowing costs for banks have surged above the
ECB’s benchmark rate even as policy makers argue that it’s not yet time to exit emergency stimulus.
When officials meet in Frankfurt on Feb. 6 they’ll have to assess
whether the tighter financing conditions show a resurgence of tensions
that warrant
a policy response or simply increased confidence in the region’s
economic recovery.
- Europe Stocks Drop for Third Day; BG Group, Vodafone Fall. European stocks fell for a third day, sending the Stoxx Europe 600 Index to its lowest level in a
month, with BG Group Plc and Vodafone Group Plc tumbling. BG Group plunged 14 percent after the U.K. oil and gas
producer said 2013 earnings would be lower than forecast.
Vodafone lost 3.9 percent after AT&T Inc. said it doesn’t intend
to make an offer for Europe’s largest mobile-phone operator.
Lanxess AG climbed 8.2 percent after the chemical maker named
Merck KGaA finance chief Matthias Zachert as its chief executive
officer. Merck tumbled 10 percent.
The Stoxx 600 dropped 0.8 percent to 322.02 at the close of
trading in London, sending its three-day decline to 4.2 percent.
- Fed Would Need to Reveal More on Bank Oversight Under New Bill. The Federal Reserve would have to
disclose more about supervision of the biggest, riskiest banks
under legislation aimed at increasing Fed accountability
introduced by Representative Scott Garrett, a New Jersey Republican on the House panel overseeing the central bank.
The bill would require the Fed (FDTR) to perform a cost-benefit
analysis of any new banking rule and disclose more about bank stress
tests. The Fed vice chairman would have to testify on financial
rulemaking if the post of vice chairman for
supervision remains unfilled, and the Fed Board would need to
release to Congress its internal audit of supervision and
regulation.
- Obama’s Plan to Use Executive Action Triggers Criticism.
Republican lawmakers said President Barack Obama risks antagonizing an
already polarized Congress by threatening to use executive authority to
make good on the policy agenda he will outline in his State of the Union
address. Senate Republican Leader Mitch McConnell of Kentucky said
Obama is wrong to think he can bypass lawmakers if they don’t make
legislative progress this year. “Ronald Reagan didn’t think that and Bill Clinton didn’t think that,”
McConnell said yesterday on Fox’s “Fox News Sunday” program.
“Frequently, times of divided government are quite good times in terms
of achieving things for the American people.”
Wall Street Journal:
CNBC:
ZeroHedge:
Wall Street All-Stars:
Business Insider:
The Atlantic:
- Is China's Historic Credit Bubble About to Pop? What happens if the shadow-bank boom turns to bust? Bad, bad things.
The Chinese government would presumably bail out any state-owned
banks and companies that got into trouble, but not the shadow banks. It
would leave them to die. In fact, the central bank has been trying to
kill—or at least rein in—the riskiest of these underground lenders by engineering three credit crunches the past half-year.
SafeHaven:
- What Blows Up First? Part 3: Subprime Countries.
The crucial point here is that this crisis is not a case of one or two
little countries screwing up. It's everywhere, from Latin America to
Asia to Eastern Europe. Each country's problems are unique, but
virtually all can be traced back to the destabilizing effects of hot
money created by rich countries attempting to export their debt
problems to the rest of the world. ZIRP, QE and all the rest
succeeded for a while in creating the illusion of recovery in the US,
Europe and Japan, but now it's blow-back time. The mess we've made in
the subprime countries will, like rising defaults on liar loans and
interest-only mortgages in 2007, start moving from periphery to core.
Reuters:
Financial Times:
- Emerging markets will have to tighten, says Brazil’s Tombini. Emerging
market countries faced fresh pressure on Monday to hike interest rates
as Brazil warned that others would need to follow its lead in tightening
monetary policy and Turkey’s central bank convened an emergency
rate-setting meeting. Alexandre Tombini, Brazil’s central bank governor, said the “vacuum
cleaner” of rising interest rates in the developed world would continue
to suck money out of emerging markets and force other central banks to
tighten policy to beat inflation.
Xinhua:
- China to Cut Number of Counties Getting Poverty Aid. China will
reduce the number of key counties that need poverty-alleviation aid,
citing Wang Guoliang, deputy director of the State Council Leading Group
Office of Poverty Alleviation and Development.
Style Underperformer:
Sector Underperformers:
- 1) Airlines -2.77% 2) I-Banks -2.43% 3) Biotech -2.42%
Stocks Falling on Unusual Volume:
- RGS, BIB, LBTYK, VOD, PNQI, CEMP, LBTYA, VIV, XRS, DL, CEO, ZIV, EOPN, WETF, JAZZ, IRE, ALGN, HQH, BNS, SNE, IBB, CE, GLNG, GOOG, OTEX, IGT, WAB, SF, OII, TRW, BX, CELG, NKTR, CEQP, CAMP, ANN, YELP, SPLK, N, RLYP, ALKS, KERX, EVR, MOD, KBH, BABY, SSYS, PGR, DDD, ANIK, RGS and EPZM
Stocks With Unusual Put Option Activity:
- 1) SPLS 2) XLF 3) KRE 4) IWO 5) IBB
Stocks With Most Negative News Mentions:
- 1) UNG 2) C 3) TOL 4) MS 5) BIDU
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Computer Hardware +.32% 2) Telecom +.29% 3) Utilities -.06%
Stocks Rising on Unusual Volume:
- CAT, RYN, ORMP, SIG, LIVE, CSTM and HIMX
Stocks With Unusual Call Option Activity:
- 1) TWX 2) RHT 3) SWK 4) MO 5) GTAT
Stocks With Most Positive News Mentions:
- 1) GOOG 2) ADBE 3) AAPL 4) CB 5) SBUX
Charts:
Weekend Headlines
Bloomberg:
- Japan Posts Record Annual Trade Deficit as Import Bill Soars.
Japan reported a record annual trade deficit last year as energy
shipments and weakness in the yen pumped up the nation’s import bill. The
shortfall was 11.5 trillion yen ($113 billion), almost double the
previous year’s 6.9 trillion yen, a finance ministry report showed in
Tokyo today. Imports rose 25 percent in December from a year earlier
and exports gained 15 percent, leaving a monthly deficit of 1.3
trillion yen. A record 18 straight monthly deficits show how nuclear
plant shutdowns, higher import costs, and limited gains in
export volumes are dragging on Prime Minister Shinzo Abe’s
efforts to sustain momentum in the world’s third-biggest
economy.
- Default-Swap Bets at 14-Month High on Trust Flops: China Credit.
Credit traders have taken out the most protection on China's debt in 14
months just as the world's second-biggest economy faces a default test
in its $1.7 trillion market for trust products. The net notional amount
of credit-default swaps outstanding on Chinese sovereign bonds totaled
$9.125 billion on Jan. 17, the most since November 2012, according to
figures published by Depository Trust & Clearing Corp.
December's 12% jump to $9.066 billion was the biggest monthly gain since
October 2011. The cost of the contracts surged 25 basis points since
Dec. 31, poised for the largest monthly increase since a record cash
crunch in June. Local-government financing vehicles set coupons of more
than 9% in two debt sales last week, levels not seen since at least
2012, according to Nomura Holdings. "If the market sees serious credit
risks, local governments' financing channels will be closed," Xu Gao,
chief economist at Everbright in Beijing, said in a phone interview.
"The consequence is not what top leaders can accept and would lead to a
hard landing of the economy."
- Emerging-Market VIX Surges Most in Two Years on Selloff.
Equity volatility from India to Brazil and Turkey jumped the most in
two years as turmoil spread across global markets amid a selloff in
developing-country currencies and growing concern over China’s economy. The
Chicago Board Options Exchange Emerging Markets ETF Volatility Index
rose 40 percent to 28.26 last week, the biggest increase since September
2011, according to data compiled by Bloomberg.
- Yen Touches 7-Week High as Emerging-Market Rout Fuels Haven Rush. The yen touched a seven-week high
versus the dollar after a selloff in emerging-market assets
boosted its appeal as a haven. Japan’s currency held its biggest
weekly gain since August against its U.S. peer after Treasury yields
posted a fourth weekly decline, damping the relative allure of the
greenback.
The Federal Reserve starts a two-day policy meeting tomorrow.
Argentina led a slump in emerging-market currencies last week as
the country devalued its peso.
- Chinese Stocks Sink to Five-Month Low as Economic Concern Mounts.
Chinese stocks fell, with a gauge of mainland companies traded in Hong
Kong headed for a five-month low, amid concern an economic slowdown will
hurt earnings. China Coal Energy Co. (601898), the nation’s
second-largest coal producer, tumbled 5.2 percent in Hong Kong after
saying 2013 profit probably fell as much as 65 percent. Anhui Conch
Cement Co., the nation’s biggest coal producer, sank 5.3 percent. Gains
in all eight companies trading for the first time in Shenzhen triggered
trading halts. The Hang Seng China Enterprises Index (HSCEI) lost 2.5
percent to 9,766.60 at 10:01 a.m. in Hong Kong, taking its decline this
year to 9.8 percent. The Shanghai Composite Index (SHCOMP) slid 0.9
percent to 2,036.30.
- Asian Stocks Head for Biggest 3-Day Drop in Seven Months.
Asian stocks declined, with the region’s benchmark index heading for
its steepest three-day loss since June, as concern that the global
economic recovery is faltering spurred investors to sell riskier assets.
Samsung Electronics Co., the world’s biggest maker of smartphones, fell
1.3 percent in Seoul, while Honda Motor Co. (7267) slipped 1.9 percent
in Tokyo, pacing losses among Japanese exporters amid a stronger yen.
GCL-Poly Energy Holdings Ltd., the world’s largest maker of polysilicon,
sank 7.8 percent in Hong Kong after China set a lower-than-expected
target for installed solar-energy capacity this year. The MSCI Asia
Pacific Index dropped 2.1 percent to 134.79 by 11:05 a.m. in Tokyo,
extending four straight weekly declines and headed for its lowest close
since Sept. 6. Japan’s Topix index sank 2.8 percent as the yen touched a
seven-week high
versus the greenback.
- Rubber Drops to 6-Month Low on Rising China Supply, Yen Advance.
Rubber in Tokyo tumbled to a six-month low as growing stockpiles in
China signaled a slowdown in demand from the world’s largest consumer,
and a strong Japanese currency weakened the appeal of yen-denominated
futures. The contract for delivery in June on the Tokyo Commodity
Exchange dropped as much as 3.8 percent to 232.3 yen a kilogram
($2,273 a metric ton), the lowest level for the most-active
futures since July 16. It was the biggest daily loss since Jan.
14. Prices dropped 4.6 percent last week, capping a sixth weekly
decline in the longest losing streak since October 2008.
- Gold Bulls Boost Bets Amid Longest Rally Since 2012: Commodities. Hedge funds got more bullish on gold for a fourth straight week
before prices capped the longest rally in 16 months on mounting global
growth concerns. The net-long position in gold climbed 0.2 percent to
43,353 futures and options in the week ended Jan. 21, U.S. Commodity
Futures Trading Commission data show. Long wagers declined 0.2 percent,
while short bets slid 0.4 percent. Net-bullish holdings across 18
U.S.-traded commodities increased 5.6 percent, led by natural gas and
copper.
- Venice Prices Sink in Italian-Style Deflation: Euro Credit.
Consumer prices in Venice are following the sinking city’s downward
trajectory, and costume maker Stefano Nicolao says it’s just another
symptom of the debilitating economic environment. “The truly characteristic activities that defined Venice
through the centuries have been absolutely flattened,” said
Nicolao. “It’s war among poor people.”
- Lagarde Cautions Davos on Global Deflation Risk.
When Christine Lagarde arrived in Davos in 2008 as French finance
minister, the battle was just beginning against a financial crisis that
would bring the world economy to its knees. Six years later, as head of
the
International Monetary Fund, she warned the World Economic Forum at the
Swiss mountain resort that the fight isn’t over, just before a currency
crisis 7,000 miles away in Argentina reinforced her view. She urged
policy makers to remain alert for asset bubbles and prevent a looming
threat to prosperity: deflation.
- Ukraine Violence Ups Ante at Kiev Camp as Opposition Sway Fades. For demonstrators at Kiev’s
Independence Square, the uprising against Ukraine’s rulers has
also become a battle for their own freedom. On permanent alert against a police attack and with the
threat of years in prison looming over them, protesters carry
plastic shields and don green metal army helmets over the woolen
hats that stave off temperatures of as low as minus 20 Celsius
(minus 4 Fahrenheit). Guards at tent camp entrances wield
baseball bats. Car tires burn nearby, creating a thick black
smoke that hinders vision and movement for police.
- JPMorgan(JPM) Seen Paying Dimon $34 Million Award This Year.
JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon, who
got a 74 percent raise for his work in 2013, stands to reap a separate
and bigger payday within months. The bank’s board of directors, having delayed a decision
for more than a year, has yet to say whether Dimon, 57, can
collect 2 million stock options originally granted in 2008 and
now worth about $34 million. Last week, the board increased his
annual pay to $20 million from $11.5 million a year ago, when he
was penalized for faulty oversight of botched derivatives bets.
Wall Street Journal:
- Needed in Europe: More Inflation. Stagnant Prices Restrain Recovery in Weaker 'Peripheral' Countries Such as Spain, Italy. As
Europe's economy recovers from its
crisis, afflicted countries such as Spain and Italy are trying to pare
their debts while also becoming more internationally competitive. The
trouble is, it's hard to do both at once. And the euro zone's weak
inflation is making it even harder. So,
even as the world's economic elite welcomed a strengthening global
recovery at last week's gabfest in Davos, Switzerland, the euro zone's
wounds are likely to heal only very slowly—and might even reopen.
Marketwatch.com:
- Strange bedfellows no more: Google(GOOG) cozies up to Republicans. Google and other new-age tech firms have cozied up to Republicans in
Washington after years of slanting their support toward progressive
causes and politicians. In Google’s case, the company found that its conspicuous support of
Barack Obama and Democrats gave it little influence with Republicans
when agencies run by leaders appointed by the president challenged the
firm on antitrust and other regulatory grounds.
Fox News:
- The new face of food stamps: working-age Americans. In a first, working-age people now make up the majority in U.S.
households that rely on food stamps -- a switch from a few years ago,
when children and the elderly were the main recipients.
Some of the change is due to demographics, such as the trend toward
having fewer children. But a slow economic recovery with high
unemployment, stagnant wages and an increasing gulf between low-wage and
high-skill jobs also plays a big role.
CNBC:
- ‘Hard to see long-term solution’ to debt ceiling: Mayer.
Negotiations over the U.S. debt ceiling are still one of the biggest
risks facing the world, according to Davos delegates including Marissa
Mayer, chief executive of Yahoo and Judith Rodin, president of the
Rockefeller Foundation.
- A ban on autos? Major cities consider going carless. Germany, home of the high-speed autobahn, is perhaps one of the few countries
that has had as intense a love affair with the automobile as the U.S.
But in an effort to go green, the country's second-largest city is
studying ways to eliminate cars by 2034.
Business Insider:
- If The Emerging-Market Sell-Off Is A Bubble Bursting, Then The Fed Failed Again. If this bubble is about to burst, then once again Fed officials didn’t
see it coming. They’ve been aware of the possibility, but minimized its
likelihood. Obviously, they once again are failing to learn from
history, which shows that easy credit conditions always lead to
speculative bubbles that inevitably burst. Let’s review what Fed
officials said (or did not say) on this subject:
Washington Post:
- NY teachers union pulls its support from Common Core, urges removal of state ed chief. The action is a blow to supporters of the Common Core, which was
approved several years ago in 45 states and the District of Columbia but
which has become increasingly controversial around the country, with a
number of states pulling back from the initiative or changing the
standards. Some states, such as Florida, are actually changing the name
so as not to be seen as being identified with the Core.
Financial Times:
- US solar power trade war with China heats up. The
escalation of a trade war between the US and China over solar power
components threatens to do serious damage to the American industry, its
leading association has warned. Hostilities rose with a missive issued by the China’s Ministry of
Commerce to the United States on Sunday over its anti-dumping measures
and counter investigations on Chinese solar products.
Telegraph:
The Guardian:
- Despite signs of recovery, the next financial crisis might not be that far off. Financial crises come round every seven years on average. There
was the stock market crash of 1987, the emerging market meltdown in the
mid-1990s, the popping of the dotcom bubble in 2001 and the collapse of
Lehman Brothers in 2008. If history is any guide, the next crisis
should be coming along sometime soon. The fact that the financial
markets are betting on global recovery becoming more firmly established
over the next two years does not really signify much.
NZZ am Sonntag:
- Euro-Zone
Recovery to Take Decades W/o Haircut, Rogoff Says. Euro-zone not even
close to recovery seen in U.S., citing Harvard University Professor
Keneth Rogoff as saying in an interview. Growth in periphery will barely
be possible as long as there's bank debt, private and public debt.
Without debt haircuts recovery phase will take decades.
WirtschaftsWoche:
- German
Minimum Wage Risks Tens of Thousands of Jobs. "Several 100.000"
low-paid jobs will be lost or move to black economy if government
introduces countrywide minimum wage of EU8.50 per hour, citing Christoph
Schmidt, head of German Chancellor Angela Merkel's council of economic
advisers, in interview. Minimum wage will hurt lower income workers more
than it will benefit them.
China Securities Journal:
- China May Release Policies to Support Chipmakers. China may
release policies to support the integrated circuit industry soon, citing
a person familiar with the matter. The country will support some
chipmakers and projects with a focus on equipment and manufacturing
through an industrial investment fund.
Weekend Recommendations
Barron's:
- Bullish commentary on (URBN) and (WTR).
Night Trading
- Asian indices are -2.0% to -1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 155.50 +9.5 basis points.
- Asia Pacific Sovereign CDS Index 119.0 +5.5 basis points.
- NASDAQ 100 futures +.05%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:00 am EST
- New Home Sales for December are estimated to fall to 455K versus 464K in November.
10:30 am EST
- Dallas Fed Manufacturing Activity for January is estimated to rise to 3.3 versus 3.1 in December.
Upcoming Splits
Other Potential Market Movers
- The Germany IFO index and China industrial profits report could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by financial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the week.
