Broad Equity Market Tone:
- Advance/Decline Line: Substantially Lower
- Sector Performance: Every Sector Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 16.35 +22.73%
- Euro/Yen Carry Return Index 143.78 +.02%
- Emerging Markets Currency Volatility(VXY) 6.80 +6.75%
- S&P 500 Implied Correlation 60.50 +10.08%
- ISE Sentiment Index 61.0 -40.20%
- Total Put/Call .96 -1.03%
Credit Investor Angst:
- North American Investment Grade CDS Index 63.96 +6.06%
- European Financial Sector CDS Index 73.23 +7.44%
- Western Europe Sovereign Debt CDS Index 35.19 +3.23%
- Asia Pacific Sovereign Debt CDS Index 74.33 +4.62%
- Emerging Market CDS Index 271.86 +3.57%
- China Blended Corporate Spread Index 305.91 +.72%
- 2-Year Swap Spread 20.25 +2.25 basis points
- TED Spread 21.75 +1.25 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -9.5 -.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% -1.0 basis point
- Yield Curve 203.0 +3.0 basis points
- China Import Iron Ore Spot $95.60/Metric Tonne -.31%
- Citi US Economic Surprise Index -12.50 -7.3 points
- Citi Emerging Markets Economic Surprise Index -2.40 -.2 point
- 10-Year TIPS Spread 2.28 +1.0 basis point
Overseas Futures:
- Nikkei Futures: Indicating -95 open in Japan
- DAX Futures: Indicating -13 open in Germany
Portfolio:
- Slightly Lower: On losses in my retail/biotech/medical/tech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Oligarchs Blacklisted by EU as U.S. Weighs More Measures. The U.S. is considering further punitive measures on Russian business
after Europe blacklisted tycoons close to the Kremlin to pressure
President Vladimir Putin to halt backing for separatists in east
Ukraine. Rising pressure comes as Ukraine laid the blame on
rebels for blocking investigators seeking to reach the crash site of
Malaysian Air Flight MH17 in past days. The Organization for Security
and Cooperation in Europe said an international team reached the area
today.
- U.S. Could Move to Sanction Russia Derivatives, Short-Term Funds. The U.S. might move to limit derivatives trading and short-term loans
with Russian companies if sanctions already imposed fail to sway
President Vladimir Putin to end support for rebels in eastern Ukraine. U.S. citizens and businesses are still permitted to trade in outstanding
debt of any maturity and new short-term debt and derivatives with
sanctioned Russian companies. Restrictions on money-market financing and
derivatives could be imposed if tougher penalties are necessary, said a
Treasury Department official who asked not to be named because further
options are still being discussed.
- Argentine Bonds Tumble After Default as Banks Seek Holdout Deal. Argentina’s
dollar bonds sank after the country missed a payment on $13 billion of
its debt as JPMorgan Chase & Co. (JPM) and other banks sought a deal
that would allow the country to resume servicing its securities. A group of international investment banks met with Elliott Management
Corp. and other so-called holdout creditors to buy the securities they
hold from the country’s 2001 default, according to a bank official
familiar with the matter, who asked not to be identified because the
information is private. The official said talks would continue. Buenos
Aires-based newspaper Ambito reported that a deal on the amount was
reached, while other issues had yet to be resolved.
- Netanyahu Says Israel Must Destroy Hamas Tunnels in Gaza. Israel
won’t sign up to a truce that curtails its ability to destroy tunnels
Hamas dug to launch attacks, Prime Minister Benjamin Netanyahu said
today, as the country called up an additional 16,000 reservists. “We are determined to complete this operation, with or without a
cease-fire,” Netanyahu said in remarks broadcast by radio before a
meeting of the cabinet. “We won’t agree to any proposal that doesn’t let
the Israeli army complete this important job.”
- Euro Flows Reveal Shift in Sentiment as Losses Mount: Currencies. The international appetite for euro-zone financial assets that underpinned the local currency the
past two years is beginning to erode. While broad data showing real-time flows into and out of
the region’s stocks and bonds are hard to find, strategists
point to items such as U.S. exchange-traded funds, which pulled $1.1
billion from European assets this month, the first outflow since April
2013. Bonds of Italy and Spain that yielded as much as 7.05
percentage points more than Treasuries two years ago now pay less than
their U.S. counterparts, diminishing their appeal. The result is the euro’s biggest monthly loss since
February 2013, and Morgan Stanley said this week selling the 18-nation currency remains the surest bet in the developed world.
- Why a French Bank Would Expand in U.S. High-Yield Bond Sales Now. The world’s biggest banks are pouncing on one of the only
bright spots in their fixed-income businesses: helping junk-rated
companies sell bonds. Case in point is Credit Agricole SA (ACA),
which is boosting its U.S. high-yield debt unit by hiring Michael
Stiuso, Cindy Cash and Justin Brody in the last several months. The
lender has risen to become 12th most-active manager of the debt sales
this year, its highest rank ever, up from 17th place in 2013, according
to data compiled by Bloomberg. “We have made a conscious decision
to develop further our New York sales presence across asset classes,
with a focus on U.S. high yield,” Tim Hall, Credit Agricole’s global
head of debt capital markets, said in an e-mail. The firm “has made it
clear that it is a debt-centric house.”
- Adidas Plunges After Reducing Forecast on Russia, Golf. Adidas AG(ADS) shares fell by a record after the world’s second-largest
sporting-goods maker slashed its full-year profit forecast, bursting
euphoria around the German company less than a month after its national
team’s victory in the World Cup. Adidas said profit this year
will miss its forecast by at least 180 million euros ($241 million). The
shoemaker and apparel maker scrapped a long-standing growth target for
next year, citing a slump in demand for golf supplies in North America
combined with turmoil in Russia. The shares tumbled as much as 16
percent in Frankfurt trading, the biggest intraday drop since the
company’s 1995 initial public offering.
- Large Banks Enjoy ‘Too-Big-To-Fail Subsidy’ in Crises, GAO Finds.
A study by the Government Accountability Office, to be released in full
later today, comes after two years of congressional and industry debate
over whether large banks continue to get what has come to be known as a
too-big-to-fail subsidy despite regulatory changes.
- Ebola Deaths Rise as Quarantines Seek to Limit Disease. The presidents of Sierra Leone and Liberia took drastic actions to
control citizen movements in their countries and global health officials
promised to send more help to West Africa as the Ebola death toll rose
to 729, or 57 more than a week earlier.
- Euro Inflation Slowed to 0.4% in July, Lowest Since 2009. Euro-area
inflation (ECCPEST) unexpectedly slowed in July to the weakest in
almost five years, underscoring the European Central Bank’s concerns
that the economy is too feeble to drive price growth. Inflation was 0.4
percent compared with 0.5 percent in June, the European Union’s statistics office in Luxembourg said today. That is the weakest since October 2009 and
below a median forecast of 0.5 percent in a Bloomberg News survey of 42
economists.
- European Stocks Drop Most in Three Weeks; Adidas Forecast.
European stocks declined the most in three weeks as Adidas AG lowered
its profit forecast and Banco Espirito Santo SA led a plunge in
Portuguese equities. Adidas slumped the most in 15 years as the
sporting-goods maker said the crisis in Ukraine will reduce its profit
from Russia. Banco Espirito Santo sank 42 percent after making
provisions of 4.3 billion euros ($5.7 billion). Afren Plc
tumbled 26 percent after suspending senior managers following an
investigation into unauthorized payments. Royal Dutch Shell Plc (RDSA)
added 2.5 percent after beating profit estimates. The Stoxx Europe
600 Index fell 1.3 percent to 335.99 at the close of trading, extending
its decline in July to 1.7 percent. The benchmark posted its first
back-to-back monthly losses in two years. Portugal’s PSI 20 Index
dropped 3.1 percent today as benchmark indexes retreated in every
western-European market except Iceland. Germany’s DAX Index slid 1.9
percent and France’s CAC 40 Index slipped 1.5 percent. The U.K.’s FTSE
100
Index decreased 0.6 percent.
- Mortgage-Bond Price Tumble Signals New Risks in Markets. Prices
of a new type of U.S. mortgage bonds are plunging this month, teaching
investors a lesson on the risks to markets wrought by the growing
constraints on Wall Street banks. The $8.2 billion of risk-sharing
securities sold in the last year by government-controlled Fannie Mae and
Freddie Mac can shift their losses from homeowner defaults to bond
buyers. One slice of a deal issued in May traded at 95.7 cents on the
dollar yesterday, down from 99.7 cents at the end of last month,
according to Trace, the bond-price reporting system of the
Financial Industry Regulatory Authority. With JPMorgan Chase & Co.
analysts failing to see “any
fundamental reason” for the tumble, investors from CQS U.K. LLP
to Calvert Investment Management Inc. are speculating that the
drop is mainly about the growing amount of the debt running into
limits created by new regulations on bond dealers’ ability to
smooth trading by building up their inventories. “It could be symbolic of what could happen more broadly in a real ‘risk-off’ environment,” Bill Murray, a New York-based
money manager at $14 billion hedge-fund firm CQS, said in an
interview.
- Orange Juice Falls to Six-Month Low Amid ‘Dismal’ U.S. Demand.
Orange-juice futures fell to the lowest since January as Americans are
shunning the breakfast drink, driving down prices even as disease
ravages groves in Florida, the world’s second-biggest citrus grower. In
the four weeks ended July 5, retail sales in U.S., the world’s biggest
consumer, fell 8.3 percent from a year earlier to the lowest for the
period since 2002, the Florida Department of Citrus said last week,
citing Nielsen Co. data. In 2013-2014, world consumption will drop 3.4
percent, the U.S. Department of Agriculture said July 24.
- Consumer Confidence Declines in U.S. to Lowest Since June. Confidence among U.S. consumers retreated last week to an
almost two-month low as limited wage growth chipped away at perceptions
about personal finances. The Bloomberg Consumer Comfort Index
fell to 36.3 in the period ended July 27, the lowest June 8, from 37.6
the week before. A gauge of households’ financial well-being dropped by
the most since mid-May.
- Colorado Overwhelmed by Immigrant License Requests. Undocumented immigrants in Colorado may face waits of a year or more
to obtain drivers licenses under a program starting tomorrow, as
thousands seeking to apply overwhelm an online scheduling system and
available staff. When the state’s Department of Motor Vehicles
started accepting appointments from foreign nationals online July 1, it
received as many as 107,500 page views an hour, crashing the system for
several days. The DMV expects to process 9,551 applicants through
September.
CNBC:
- US banks braced for large deposit outflows. US
banks are steeling themselves for the possibility of losing as much as
$1tn in deposits as the Federal Reserve reverses its emergency economic
policies and raises interest rates.
ZeroHedge:
Business Insider:
Reuters:
- BES senior bonds sink on bail-in fears. The massive 3.6bn loss at Banco
Espirito Santo has fuelled fears that senior bondholders may
also be at risk from the raft of problems at the troubled
Portuguese bank.
Style Underperformer:
Sector Underperformers:
- 1) HMOs -3.04% 2) Alt Energy -2.55% 3) Networking -2.54%
Stocks Falling on Unusual Volume:
- EHTH, ASGN, PHK, AVG, TTEK, ARCB, RRTS, TSN, ATEN, YUM, LLL, SOXX, GSJK, ALB, FEIC, MTW, ANIK, VCYT, CODE, GRFS, PNR, UAN, CRR, HTWR, RGR, GMT, UPL, EGN, PTEN, VNR, CNL, ABMD, CHTR, LGCY, TQNT, VNTV, SFY, KBR, KRFT, SHOO, GNW, MU, K, MOH, HP, ZLTQ, ULTI, RFMD, MUR, KS, MAA, RYL, GEVA, PNR, ALKS, CODE, CJES, CRR, TASR, SWC, PVA, BZH, MINI, PES, DDD, OCN, YELP and MDAS
Stocks With Unusual Put Option Activity:
- 1) XLE 2) KBH 3) CMI 4) EWT 5) OIH
Stocks With Most Negative News Mentions:
- 1) LLL 2) NKE 3) MET 4) DDD 5) YUM
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Tobacco -1.0% 2) REITs -1.02% 3) Utilities -1.11%
Stocks Rising on Unusual Volume:
- JRN, OTEX, LPSN, TSRA, VPRT, TKMR, SNE, CNW, LRCX, BG, BMRN, WWE, SSP, DRII, NEWM, SCI, ALL, AVP and MPC
Stocks With Unusual Call Option Activity:
- 1) MTW 2) RMD 3) RMBS 4) WTW 5) FAZ
Stocks With Most Positive News Mentions:
- 1) ENDP 2) AMRN 3) TD 4) AMT 5) HSP
Charts:
Evening Headlines
Bloomberg:
- EU Blacklists Russian Oligarchs to Pressure Putin. Assets of Russian oligarchs Arkady Rotenberg and Yury Kovalchuk were frozen by the European Union
in its effort to pressure President Vladimir Putin to stop supporting rebels in eastern Ukraine.
Rotenberg, who helps control SMP Bank and InvestCapitalBank OAO, and
Kovalchuk, the biggest shareholder in OAO Bank Rossiya, were among eight
people that the EU added yesterday to its blacklist of individuals and
organizations being punished for the Ukrainian unrest. Three entities --
Russian National Commercial Bank, weapons maker Almaz-Antey and airline
Dobrolet -- also were added, according to the EU’s Official Journal. The
move marks the bloc’s first strike against business figures described
by European leaders as Putin’s “cronies,” and it aligns EU policy more
with that of the U.S.
- Samsung Profit Misses Estimates on Phone Slowdown. Samsung
Electronics Co. (005930) posted second-quarter profit that missed
analysts’ estimates on increased marketing for its cheaper smartphones
as it tries to fend off competition from Apple Inc. and Chinese
producers. Net income, excluding minority interests, was 6.18
trillion won ($6 billion) in the three months ended June, the Suwon,
South Korea-based company said in a filing today. That compares with the
6.83 trillion-won average of 17 analyst estimates compiled by
Bloomberg. The shares fell.
- Asian Stocks Poised for Third Monthly Gain After U.S. GDP.
Asian stocks rose, with the regional index poised to cap a third
monthly gain, as the U.S. economy grew faster than forecast and Federal
Reserve comments on the jobs market added to the case for keeping
interest rates low. Mitsubishi Motors Corp. gained 3.3 percent in Tokyo
after the carmaker posted profit that beat analyst estimates. Casio
Computer Co. jumped 9 percent after the Japanese electronics
manufacturer raised its earnings forecasts for the first half. Samsung
Electronics Co. fell 2.1 percent in Seoul after the world’s biggest
maker of smartphones posted net income that fell short of expectations
amid increased competition from Apple Inc. and Chinese producers. The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 149.78 as
of 9:25 a.m. in Tokyo, with almost three stocks rising for each
that fell.
- Investment Bank Job Cuts Loom as Cost Drop Trails Revenue. The
largest global investment banks face further cost reductions, like the
job cuts JPMorgan Chase & Co. (JPM) began this month, after a drop
in first-half expenses failed to match a decline in revenue. Pretax profit at the banking and trading units at seven of
the nine largest firms fell in the first six months as costs for
the group decreased less than 1 percent from the same period a
year earlier, according to data compiled by Bloomberg. Revenue
dropped 5 percent, driven by the worst first-half trading
results since the financial crisis.
Wall Street Journal:
- Growth Rebound Stokes Fed Debate. Economy Bounces Back After Weak Start to Year, but Central Bank Signals Patience as Questions Linger. Federal Reserve officials delivered a modestly more upbeat
assessment of the economy Wednesday amid a second-quarter growth rebound
and deepening debate inside the central bank about when to start
raising interest rates. U.S. gross domestic product, a broad
measure of the nation's output of goods and services, advanced at a
seasonally adjusted annual rate of 4.0% in the second quarter, the
Commerce Department said Wednesday, a...
- Winds of War, Again. One wishes Barack Obama and John Kerry more luck in Ukraine and the Middle East than Neville Chamberlain had in Munich.
Fox News:
CNBC:
Zero Hedge:
Business Insider:
Reuters:
Telegraph:
- Global QE ends as China opens second front in bond tapering. China's central bank, and others, have become "major players on world
equity markets", effectively fuelling stock bubbles in much the same
way they previously fuelled credit bubbles. "There are major shifts going on global capital markets. People have been
lulled into a false sense of security by low volatility and they haven't
paid attention. We're not seeing any risk aversion in financial markets," he
said.
Evening Recommendations
Susquehanna:
- Rated (LULU) Positive, target $49.
Night Trading
- Asian equity indices are -.25% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 103.5 -.25 basis point.
- Asia Pacific Sovereign CDS Index 71.0 -.5 basis point.
- NASDAQ 100 futures -.09%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
7:30 am EST
- The Challenger Job Cuts report for July.
8:30 am EST
- The 2Q Employment Cost Index is estimated to rise +.5% versus a +.3% gain in 1Q.
- Initial Jobless Claims are estimated to rise to 300K versus 284K the prior week.
- Continuing Claims are estimated to fall to 2492K versus 2500K prior.
9:00 am EST
- ISM Milwaukee for July is estimated to rise to 61.0 versus 60.57 in June.
9:45 am EST
- Chicago Purchasing Manager for July is estimated at 63.0 versus 62.6 in June.
Upcoming Splits
Other Potential Market Movers
- The
Eurozone CPI/Unemployment reports, China HSBC Manufacturing PMI, weekly
EIA natural gas inventory report, RBC Consumer Outlook Index, weekly
Bloomberg Consumer Comfort Index, (KORS) annual meeting and the (MLHR)
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.
Broad Equity Market Tone:
- Advance/Decline Line: Slightly Higher
- Sector Performance: Mixed
- Volume: Slightly Below Average
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- Volatility(VIX) 13.49 +1.66%
- Euro/Yen Carry Return Index 143.73 +.55%
- Emerging Markets Currency Volatility(VXY) 6.37 +4.43%
- S&P 500 Implied Correlation 55.16 -2.63%
- ISE Sentiment Index 99.0 -6.60%
- Total Put/Call .99 +19.28%
Credit Investor Angst:
- North American Investment Grade CDS Index 60.41 +.23%
- European Financial Sector CDS Index 68.0 -1.10%
- Western Europe Sovereign Debt CDS Index 34.09 +.92%
- Asia Pacific Sovereign Debt CDS Index 70.85 -1.01%
- Emerging Market CDS Index 262.32 +1.99%
- China Blended Corporate Spread Index 303.72 +1.27%
- 2-Year Swap Spread 18.0 +1.0 basis point
- TED Spread 20.50 -1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -9.25 -1.0 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% +1.0 basis point
- Yield Curve 200.0 +8.0 basis points
- China Import Iron Ore Spot $95.90/Metric Tonne +.63%
- Citi US Economic Surprise Index -5.20 +12.8 points
- Citi Emerging Markets Economic Surprise Index -2.20 -1.6 points
- 10-Year TIPS Spread 2.27 unch.
Overseas Futures:
- Nikkei Futures: Indicating +104 open in Japan
- DAX Futures: Indicating +8 open in Germany
Portfolio:
- Higher: On gains in my retail/biotech/medical/tech sector longs and emerging markets shorts
- Market Exposure: 50% Net Long