Monday, October 27, 2014

Monday Watch

Weekend Headlines 
Bloomberg:
  • Israel’s Lapid Says Relations With U.S. in ‘Crisis'. Israeli Finance Minister Yair Lapid told a gathering in Tel Aviv today that relations between Israel and the U.S. are in a “crisis.” The administration of President Barack Obama blocked some senior officials, including Vice President Joe Biden, from meeting with Israeli Defense Minister Moshe Ya’alon during his recent visit to the U.S., Ynet website reported yesterday. The decision was meant to signal displeasure with Ya’alon’s criticism of U.S. efforts to reach an Israeli-Palestinian peace agreement and Obama’s policy on Iran, the website reported. “There is a crisis with the Americans and it has to be treated like a crisis,” Lapid said, according to comments relayed in an e-mail by his spokesman. “Relations with the U.S. are critical and important to Israel, and everything must be done to resolve the crisis and restore good ties.” Lapid didn’t mention Ya’alon in his comments.
  • Rousseff Re-Elected on Call to Save Brazil’s Social Gains. Brazil’s President Dilma Rousseff won re-election and stretched her Workers’ Party’s rule to a record 16 years by convincing voters her opponent threatened social gains she pledged to expand in her second term. Rousseff, who has maintained record-low unemployment even as the economy posted the slowest growth under any Brazilian president in more than two decades, had 52 percent of the vote with 99.99 percent of ballots counted by the electoral court in Brasilia. Senator Aecio Neves, a former governor of Minas Gerais state, had 48 percent. The result was the closest presidential election since the return of democracy in 1985.
  • Brazil Stock ETF Tumbles in Tokyo on Rousseff’s Victory. An exchange-traded fund investing in Brazilian equities plunged the most in three years in Tokyo after President Dilma Rousseff won re-election, damping speculation for a change in policies that have wiped out $553 billion of stock market value and left the economy in recession. The NEXT FUNDS Ibovespa Linked ETF (1325) dropped 6.3 percent at 10:06 a.m. in Tokyo, heading for the biggest drop since September 2011.
  • Iran Hangs Woman at Center of Amnesty Group Campaign. Iranian authorities executed a woman found guilty of murder despite a campaign by rights group Amnesty International to have her sentence overturned on grounds that the investigation had been “deeply flawed.” Reyhaneh Jabbari, 26, was hanged yesterday, state-run Islamic Republic News Agency reported, citing Tehran’s prosecutor’s office.
  • EU Stress Test Shows How Capital Rules Give Room to Hide. The European Union’s toughest-ever stress test was meant to leave banks with nowhere to hide. The results show how the bloc’s capital rules got in the way. A total of 24 lenders failed the European Banking Authority’s stress test with a capital shortfall of 24.6 billion euros ($31.2 billion). The EBA used EU rules as applicable over the three-year horizon of the test. These give national supervisors scope to allow banks to count instruments whose eligibility as core capital will be gradually eliminated over the next four years.
  • Italy Banks Emerge as Biggest Losers in ECB Health Check. Italian banks showed the largest combined capital shortfall in the European Central Bank’s review of the region’s lenders as the country struggles to emerge from its third recession in six years. Banca Monte dei Paschi di Siena SpA, Italy’s third-largest lender, emerged with a capital gap of 2.1 billion euros ($2.7 billion) while Banca Carige SpA (CRG) must replenish 814 million euros of capital after taking into account funds raised this year, the ECB said in a statement today. Of the nine Italian banks that failed a stress test, four still showed holes after measures they took this year, according to the ECB’s report.
  • Russia Brain Drain Saps Talent as Sanctions Hit Financing. “Russian venture-capital funds want to invest their money only in Russia, but we want to build an international business and they won’t support us,” Kulizhnikov, a former analyst at investment firm Alor SPB, said at a forum at Moscow’s Digital October center on Oct. 10. “We don’t need that much. Maybe $5 million to $10 million, to hire engineers, specialists, etc.” 
  • China Stocks Head for Longest 2014 Losing Streak on Link Delay. China’s stocks fell for a fifth day, sending the benchmark index toward its longest losing streak this year, amid concern the delay to the start of the Hong Kong-Shanghai bourse link will sap demand for shares. Citic Securities Co. and Haitong Securities Co., the nation’s biggest-listed brokerages, dropped more than 2 percent in Shanghai and Hong Kong. Hong Kong Exchanges & Clearing Ltd. plunged 4.6 percent after Charles Li, the chief executive officer of the bourse operator, said he had no idea when authorities will give the green light to proceed on the link. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. slid to a three-month low after third-quarter profit dropped. The Shanghai Composite Index (SHCOMP) slid 0.7 percent to 2,285.66 at 9:53 a.m., while the Hang Seng China Enterprises Index (HSCEI) declined 1 percent.
  • Asia Stocks Rise as ECB Stress Tests Ease Europe Concern. Asian stocks rose, after the regional benchmark gauge capped its first weekly advance in seven weeks, as a stress test passed by most European banks added to signs of recovery in the region. The MSCI Asia Pacific Index (MXAP) gained 0.5 percent to 138.22 as of 9:01 a.m. in Tokyo, the highest intraday level since Oct. 10, before markets opened in Hong Kong and China.
  • Goldman(GS) Cuts Brent, WTI Forecast as Production to Outpace Demand. Goldman Sachs Group Inc. (GS) cut its forecasts for Brent and West Texas Intermediate crude prices next year and said OPEC was losing its pricing power as U.S. shale oil output increases. Brent will average $85 a barrel in the first quarter, down from a previous forecast of $100 a barrel, and WTI will sell for $75 a barrel in the period, from an earlier estimate of $90 a barrel, analysts including Jeffrey Currie wrote in a report. 
  • Copper to Nickel Drop on Concern China’s Demand Remains Subdued. Copper retreated for a second day and nickel extended its longest weekly slump in 13 years on concern that demand will remain weak in China, the world’s biggest consumer of industrial metals. Copper in London fell as much as 0.5 percent and nickel slid as much as 0.7 percent. China’s economic growth will slow to 7.2 percent in the current quarter, Song Guoqing, an academic member of the People’s Bank of China monetary policy advisory committee, said on Oct. 25. The second-biggest economy in the world may expand 7.3 percent next year, according to Song. China set the 2014 growth target at 7.5 percent.
  • S&P 500 Rising at Five Times GDP Shows Recovery Priced In. For almost six years, one of the most powerful bull markets on record has coexisted with the weakest economic recovery since World War II. This month’s selloff in stocks shows how much investors want that to change. In the latest fit of nerves, market volatility soared to a three-year high and the Standard & Poor’s 500 Index dropped as much as 9.8 percent in the 26 days ending Oct. 15. Everything from Ebola to Europe and the Federal Reserve were blamed for the retreat, the fourth to exceed 3 percent this year. Another explanation is that investors are finding their patience taxed after waiting five years for economic growth to catch up with the market. From March 2009 through June 2014, the S&P 500 has increased 4.7 percent a quarter, about five times faster than gross domestic product, data compiled by Bloomberg show. That’s the biggest gap since at least 1947.
Wall Street Journal: 
  • Christie Defends Mandatory Ebola Quarantine for Health-Care Workers. But Administration’s Fauci Says Quarantines Send Wrong Message. The White House pushed back against the governors of New York, New Jersey, Illinois and other states that instituted procedures to forcibly quarantine medical workers returning from West Africa, deepening an emotional debate brought on by recent Ebola cases in the U.S. A senior administration official said Sunday that new federal guidelines under development would protect Americans from imported cases of the disease but not interfere with the flow of U.S. health workers to and from West Africa to fight the epidemic there.
  • New Alarm Sounds in U.S. Over ‘Lone Wolf’ Attacks. New York Hatchet Attack Shows Danger of Self-Radicalized Terrorists. New York City’s top counterterrorism official went to Florida last week to warn a group of police chiefs about the growing threat of self-radicalized terrorists. Back home in New York on Thursday, a 32-year-old man provided Exhibit A, attacking two police officers with a hatchet before he was shot and killed by police. At first glance, the attack outside a Queens department store seemed simply the act of a deranged man acting alone. But to a growing number of local and national law-enforcement officials, the attack...
  • The Incredibility Infection. The White House objects to the state quarantines its own failures invited. So the Obama Administration is pressuring the Governors of New York and New Jersey behind the scenes to reverse their decision on Friday to impose a mandatory quarantine on health workers returning from treating Ebola patients in West Africa. Well, if it weren’t for the Administration’s incompetence in handling Ebola risks on U.S. soil, maybe the state leaders wouldn’t have felt they had to take matters into their own hands.
Barron's:
Fox News:
Zero Hedge:
Business Insider:
Spiegel:
  • Merkel Annoyed by CEOs Wanting to Ease Russia Sanctions. German Chancellor Angela Merkel is "irritated" by DAX CEOs calling to try to loosen EU sanctions against Russia, citing people close to the events.
Financial News:
  • China Won't Loosen Monetary Policy Comprehensively. Overall monetary policy easing is not an option for the central government now as the debt problem could hinder economic restructuring, according to a commentary written by reporter Xu Shaofeng.
Night Trading
  • Asian indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 115.0 unch.
  • Asia Pacific Sovereign CDS Index 67.75 -.25 basis point.
  • FTSE-100 futures +.44%.
  • S&P 500 futures +.09%.
  • NASDAQ 100 futures +.19%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (AWI)/.78
  • (MRK)/.88
  • (STX)/1.25
  • (ADVS)/.36
  • (AMGN)/2.11
  • (AVB)/2.13
  • (BWLD)/1.07
  • (CLF)/.02
  • (HIG)/.83
  • (MSTR)/-.26
  • (TWTR)/.01
Economic Releases
9:45 am EST
  • The Preliminary Markit US Services PMI for October is estimated to fall to 57.8 versus 58.9 in September.
10:00 am EST
  • Pending Home Sales for September are estimated to rise +1.0% versus a -1.0% decline in August.
10:30 am EST
  • Dallas Fed Manufacturing Activity for October is estimated to rise to 11.0 versus 10.8 in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German IFO and the (SCHW) business update could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate 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 50% net long heading into the week.

Sunday, October 26, 2014

Weekly Outlook

Week Ahead by Bloomberg. 
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on Ebola fears, global growth worries, rising European/Emerging Markets debt angst, technical selling, profit-taking and yen strength. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.

Friday, October 24, 2014

Market Week in Review

  • S&P 500 1,964.58 +4.13%*
 photo yop_zps09bff3eb.png


The Weekly Wrap by Briefing.com.


*5-Day Change

Stocks Rising into Final Hour on Central Bank Hopes, Earnings Optimism, Short-Covering, Transport/Biotech Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Slightly Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 16.53 unch.
  • Euro/Yen Carry Return Index 142.88 -.06%
  • Emerging Markets Currency Volatility(VXY) 7.91 +.13%
  • S&P 500 Implied Correlation 66.88 +5.44%
  • ISE Sentiment Index 95.0 -31.16%
  • Total Put/Call .86 +4.88%
  • NYSE Arms .79 -19.76% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 65.20 -1.17%
  • European Financial Sector CDS Index 67.32 -1.08%
  • Western Europe Sovereign Debt CDS Index 32.0 -.90%
  • Asia Pacific Sovereign Debt CDS Index 67.85 -.15%
  • Emerging Market CDS Index 255.34 -2.72%
  • China Blended Corporate Spread Index 329.72 -1.52%
  • 2-Year Swap Spread 26.25 +.75 basis point
  • TED Spread 22.25 +1.25 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -7.75 +.5 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 189.0 unch.
  • China Import Iron Ore Spot $80.48/Metric Tonne +.24%
  • Citi US Economic Surprise Index 17.20 -2.0 points
  • Citi Eurozone Economic Surprise Index -36.8 +2.1 points
  • Citi Emerging Markets Economic Surprise Index -17.60 -.6 point
  • 10-Year TIPS Spread 1.90 -1.0 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +144 open in Japan
  • DAX Futures: Indicating +6 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my tech/medical/biotech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
  • Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:  
  • Ebola Patient’s Home Decontaminated as Officials Reassure Public. (video) New York City authorities began decontaminating the apartment of the doctor who tested positive for Ebola as questions mounted over whether health-care workers caring for patients should be isolated. As officials fanned out today to reassure the public, the doctor, Craig Spencer, 33, was being treated in an isolation unit at Bellevue Hospital Center in Manhattan. Officials are tracing his contacts and monitoring those who have been with him since his return from West Africa. He traveled on the subway, went bowling and had close contact with several people in the days before developing an elevated temperature and alerting authorities. 
  • N.Y. Ebola Case Shows Doctor Quarantine Needed: Lawmaker. (video) Doctors returning from treating Ebola patients in West Africa should be quarantined for at least three weeks, Representative Jason Chaffetz said today as Congress held a second hearing on the response to the virus’ outbreak. Chaffetz, a Utah Republican, said a New York City doctor’s self-monitoring for Ebola symptoms after he returned to the U.S. “didn’t work.” Doctors should be in “some sort of quarantine or isolation” for 21 to 42 days, he said. “He went into West Africa to help people who have Ebola,” Chaffetz said in an interview today on Bloomberg Television before the hearing. “You gotta love a person like that, but for them to come back, and then be out in the public in such a populous city like New York City. I think that scares a lot of people.”
  • Putin Accuses U.S. of Blackmail, Weakening Global Order. The U.S. is behaving like “Big Brother” and blackmailing world leaders, while making imbalances in global relations worse, Russia’s president said. Current conflicts risk bringing world order to collapse, Vladimir Putin told the annual Valdai Club in the Black Sea resort of Sochi. The Cold War’s “victors” are dismantling established international laws and relations, while the global security system has become weak and deformed, with the U.S. acting like the “nouveau riche” as global leader, he said.
  • Merkel Says Ukraine May Lose EU Gas Without Russia Deal. German Chancellor Angela Merkel said Ukraine risks losing gas supplied by its European supporters if it doesn’t reach an agreement on payments to Russia. The European Union is showing solidarity with Ukraine through reverse flow gas deliveries in its conflict with Russia, Merkel said at an EU summit in Brussels. She urged negotiators to come up with a financing agreement before the turmoil disrupts gas supplies to Europe in the winter.
  • China Stocks Post Biggest Weekly Loss in 4 Months on IPO Concern. China’s benchmark stock index posted its biggest weekly loss in four months amid concerns new share sales are diverting funds from existing equities and a slowing economy is hurting profits. Great Wall Motor Co., the biggest Chinese maker of SUVs, slid 6.7 percent in Shanghai after third-quarter profit dropped 22 percent. China Construction Bank Corp. (601939) retreated to a one-week low after earnings trailed estimates. Anhui Conch Cement Co., the largest producer of building materials, slumped 2.4 percent in Hong Kong after new-home prices in China fell in all but one city monitored by the government last month. The Shanghai Composite Index (SHCOMP) dropped 1.7 percent this week, the most since the five-day period ended June 20
  • European Stocks Decline as Stoxx 600 Trims Weekly Advance. European stocks fell, paring their biggest weekly jump of the year, after a report on U.S. new-home sales, and as a draft communique showed 25 lenders are set to fail the European Central Bank’s euro-area bank health check. The Stoxx Europe 600 Index slipped 0.3 percent to 327.17 at the close, after briefly extending its decline to 0.7 percent following the U.S. report. Commodity producers and oil and gas companies retreated the most among the 19 industry groups on the gauge as Brent dropped. CaixaBank SA slid 3.4 percent and Royal Bank of Scotland Group Plc lost 0.9 percent.
  • Aluminum Caps Biggest Two-Day Slide in Three Weeks. Aluminum capped the biggest two-day loss in three weeks as signs of a weaker housing market raised concern that demand will slow in China, the world’s top metals consumer. New-home prices fell in all but one Chinese city monitored by the government in September, the nation’s statistics bureau said today. Aluminum’s uses in construction include sheet products for roofing and wall cladding, according to Rio Tinto Group, which produces the lightweight metal. 
  • WTI Heads for Weekly Drop as Saudi Policy Seen Unchanged. West Texas Intermediate retreated from the biggest gain since September amid speculation a drop in Saudi Arabian oil supplies isn’t a signal that OPEC’s largest producer has decided to cut production. Brent slid in London. Futures fell as much as 1.3 percent in New York and are poised for a fourth weekly decline.
Wall Street Journal:
ZeroHedge:
Business Insider:
Reuters:
  • Russia still has troops in Ukraine, NATO says. Russia still has troops in eastern Ukraine and retains a very capable force on the border despite a partial withdrawal, NATO's military commander said on Friday. "We've seen a pretty good withdrawal of the Russian forces from inside Ukraine but, make no mistake, there remain Russian forces inside eastern Ukraine," U.S. Air Force General Philip Breedlove told reporters at NATO's military headquarters near Mons in Belgium. Some Russian troops stationed near the Ukraine border had left and others appeared to be preparing to leave. "But the force that remains and shows no indications of leaving is still a very, very capable force," said Breedlove, NATO's supreme allied commander Europe.
Mirror:
Daily Times:

Bear Radar

Style Underperformer:
  • Small-Cap Value -.33%
Sector Underperformers:
  • 1) Internet -1.42% 2) HMOs -1.24% 3) Networking -1.20%
Stocks Falling on Unusual Volume:
  • IMS, SYNA, AMZN, HUBG, PGI, P, QIWI, DECK, LOGM, FTK, EGOV, FWRD, JNPR, NLNK, HTLD, LAKE, NPSP, CFX, LPNT, AEO, F, GRUB, TCB, VMI, SWN, SIVB, F and BAS
Stocks With Unusual Put Option Activity:
  • 1) CTXS 2) XLU 3) DECK 4) MTW 5) XLE
Stocks With Most Negative News Mentions:
  • 1) GM 2) DDD 3) STE 4) ANF 5) AEO
Charts: