Thursday, April 17, 2014

Stocks Rising into Final Hour on Diminished Russia/Ukraine Tensions, Less Global Growth Fear, Yen Weakness, Tech/Energy Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.25 -6.56%
  • Euro/Yen Carry Return Index 147.68 +.20%
  • Emerging Markets Currency Volatility(VXY) 8.43 -1.17%
  • S&P 500 Implied Correlation 55.68 +.65%
  • ISE Sentiment Index 94.0 -5.06%
  • Total Put/Call .86 -4.44% 
  • NYSE Arms .78 -28.37% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 67.66 -.61%
  • European Financial Sector CDS Index 79.97 -.23%
  • Western Europe Sovereign Debt CDS Index 34.91 -.54%
  • Asia Pacific Sovereign Debt CDS Index 88.08 +.46%
  • Emerging Market CDS Index 277.27 -1.09%
  • China Blended Corporate Spread Index 354.40 -1.37%
  • 2-Year Swap Spread 15.0 unch.
  • TED Spread 20.5 +.25 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -2.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .02% -1.0 basis point
  • Yield Curve 233.0 +6.0 basis points
  • China Import Iron Ore Spot $116.50/Metric Tonne +.26%
  • Citi US Economic Surprise Index -26.10 +4.3 points
  • Citi Emerging Markets Economic Surprise Index -23.70 -.8 point
  • 10-Year TIPS Spread 2.21 +4.0 basis points
Overseas Futures:
  • Nikkei Futures: Indicating +135 open in Japan
  • DAX Futures: Indicating +70 open in Germany
  • Slightly Higher: On gains in my tech/medical sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 75% Net Long

Today's Headlines

  • Ukraine Talks End With Accord on Steps to De-Escalate Conflict. Four-way talks on the crisis in Ukraine ended with an accord aimed at taking the first steps toward de-escalating the conflict after President Vladimir Putin said he hopes he won’t have to send troops. Talks in Geneva today between Russian Foreign Minister Sergei Lavrov, his Ukrainian counterpart, Andriy Deshchytsia, U.S. Secretary of State John Kerry and Catherine Ashton, the European Union’s foreign-policy chief, went on for more than six hours, longer than scheduled. Kerry said Russia must start implementing the deal within the next few days.
  • Forcing Russia Out of Markets Seen as Ukraine Leverage. Forcing Russia out of global financial markets is the strongest tool at U.S. President Barack Obama’s disposal if he wants to stop Vladimir Putin’s territorial ambitions, according to former government officials and sanctions specialists.
  • Japan Consumer Confidence Drops to Lowest Since 2011. Japan’s consumer confidence fell to the lowest level since August 2011, and the government cut its economic assessment for the first time in 17 months, as a sales-tax increase on April 1 sapped the public’s spending power. The March confidence reading of 37.5 fell by 1 from the previous month, the Cabinet Office said in Tokyo today.
  • Korean Companies Facing Debt Wall Turn to Dollar Bond Market. Bond investors are readying for a slew of South Korean deals as companies from Asia’s fourth-biggest economy face the most maturing dollar notes since 1999. “South Korean companies have significant refinancing requirements this year,” said Mark Reade, a Hong Kong-based desk analyst at Mizuho Securities Asia Ltd. “And with low Treasury yields driving inflows into U.S. investment-grade funds, there’s plenty of appetite for high-quality names from Asia.”
  • European Stocks Climb on U.S. Unemployment-Claims Report. European stocks climbed for a second day as a report showed fewer Americans claimed unemployment benefits last week than estimated. Renault SA and Daimler AG each gained more than 1.5 percent as a report showed European car sales rose in March. Remy Cointreau SA and Diageo Plc (DGE) declined more than 3 percent after reporting lower sales. SAP AG lost 1.2 percent as Germany’s biggest technology company said that revenue from new software licenses dropped in the quarter. Akzo Nobel NV (AKZA) slid the most in nine months as its sales missed projections. The Stoxx Europe 600 Index added 0.5 percent to 332.43 at the close of trading.
  • Obama Budget Raises Taxes $1.4 Trillion in Decade, CBO Says. President Barack Obama’s proposed 2015 budget would increase taxes by $1.4 trillion over the next decade compared with current law, the budget agency said. In a fresh analysis of the White House budget plan for the fiscal year starting Oct. 1, the Congressional Budget Office said the proposal would result in a $446 billion spending increase for the 10 years ending in 2024. The agency projected that under the plan, the U.S. budget deficit would increase over a three-year period.
Wall Street Journal:
NY Times:
  • Russia Economy Worsens Even Before Sanctions Hit. Margarita R. Zobnina, a professor of marketing here, has been watching the Russian economy’s gathering woes with mounting alarm: friends who have moved abroad with no plans to return; others who put off new business ventures because of rising uncertainty. Meanwhile, Ms. Zobnina and her husband, Alexander, also a professor, have rented a safe deposit box to hold foreign cash as a hedge against the declining ruble.
    Most shocking, she says, is that her local grocery is now selling anchovies packed in sunflower oil rather than olive oil, an obvious response to the soaring cost of imports. “That really freaks me out,” she said.
  • Report Confirms Obamacare Restricts Access to Life-Saving Medical Care. A Congressional Budget Office (CBO) report now documents that Obamacare exchange plans, while often cheaper, are restricting access to life-saving medical care. According to the CBO’s recently released “Updated Estimates of the Effects of the Insurance Coverage Provisions of the Affordable Care Act, April 2014,” Obamacare’s insurance provisions will cost $104 billion less than projected over the next decade. However, these savings will come at tremendous cost. The CBO goes on to describe the reality — that while there are savings on insurance premiums, there is solid and growing evidence that these plans restrict access to life-saving medical treatment for ourselves, our family members, and our loved ones. CBO writes,
USA Today:
  • Jews Ordered to Register in East Ukraine. Jews in the eastern Ukrainian city of Donetsk where pro-Russian militants have taken over government buildings were told they have to "register" with the Ukrainians who are trying to make the city become part of Russia, according to Israeli media. Jews emerging from a synagogue say they were handed leaflets that ordered the city's Jews to provide a list of property they own and pay a registration fee "or else have their citizenship revoked, face deportation and see their assets confiscated," reported Ynet News, Israel's largest news website.

Bear Radar

Style Underperformer:
  • Small-Cap Growth -.10%
Sector Underperformers:
  • 1) HMOs -2.50% 2) Computer Services -2.31% 3) Homebuilders -1.21%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) GOOG 2) JWN 3) KRE 4) EWH 5) TGT
Stocks With Most Negative News Mentions:
  • 1) PM 2) FB 3) WLP 4) SO 5) ABX

Bull Radar

Style Outperformer:
  • Small-Cap Growth +.39%
Sector Outperformers:
  • 1) Semis +1.53% 2) Defense +.88% 3) I-Banks +.87%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) RSH 2) CAR 3) GOOG 4) OIH 5) SD
Stocks With Most Positive News Mentions:
  • 1) SABR 2) UNH 3) UNP 4) PEP 5) WMT

Thursday Watch

Evening Headlines 
  • U.S. Grain Losses Seen Up to $6.3 Billion on China Ban. China’s rejection of U.S. grain grown with seeds genetically modified by Syngenta AG may cost U.S. growers as much as $6.3 billion in losses through August 2015, a U.S. trade group estimated. The Asian nation turned away at least 1.45 million metric tons of corn since late November, “substantially greater” than the 908,800 reported by the Chinese government, the National Grain & Feed Association, based in Washington, said today in a statement. The grain contained a gene developed by Basel, Switzerland’s Syngenta, and that MIR 162 variety hasn’t been approved by China. 
  • Weibo Said to Raise $286 Million With Bottom-End Pricing. Weibo Corp., the Chinese microblogging service owned by Sina Corp. and Alibaba Group Holdings Ltd., raised $285.6 million its U.S. initial public offering after pricing the shares at the low end of a marketed range, people with knowledge of the matter said. Weibo sold 16.8 million Class A American depositary shares for $17 each, said the people, who asked not to be identified discussing a private matter. The shares had been offered for $17 to $19 apiece. The Beijing-based company’s shares will be listed on the Nasdaq Stock Market under the symbol WB.
  • Asia Stocks Rise Second Day on U.S. Data, Yellen Comments. Asian stocks rose for a second day after U.S. industrial production increased more than forecast in March and Federal Reserve Chair Janet Yellen said the central bank remains committed to supporting the economic recovery. GungHo Online Entertainment Inc. (3765) surged 17 percent in Tokyo after the Internet games maker said six of its titles are generating profit. Canon Inc. gained 2.2 percent after the Nikkei reported earnings in the March quarter increased about 50 percent. Santos Ltd. sank 1.5 percent in Sydney as first-quarter sales at the oil and natural gas explorer missed estimates. The MSCI Asia Pacific Index gained 0.3 percent to 138.44 as of 9:30 a.m. in Tokyo, before markets open in Hong Kong and China.
  • Rubber Surplus Seen Exceeding Forecast as Thai Output Revised. A surplus in the global natural-rubber market this year will be 78 percent more than estimated in December as demand growth weakens and production in Thailand surpasses forecasts, according to The Rubber Economist Ltd. The glut is seen at 652,000 metric tons in 2014, compared with 366,000 tons predicted in December, Prachaya Jumpasut, managing director of the London-based industry adviser, said in an e-mail. The surplus for 2013, previously estimated at 336,000 tons, was put at 714,000 tons.
  • Senators Urge Ban on Banks’ Physical Commodity Ownership. U.S. banks including Goldman Sachs Group Inc. (GS) should be banned from owning commodities businesses because they could threaten the institutions and global supply chains, Senators Sherrod Brown and Elizabeth Warren told the Federal Reserve. Financial holding companies “should be prohibited from owning physical assets like warehouses, pipelines and tankers,” Democrats Brown of Ohio and Warren of Massachusetts said in a letter to the Fed today. “These activities pose significant safety and soundness, legal and reputational risks to the institutions.”
  • IBM(IBM) Sales Fall Again, Pressuring Rometty’s Profit Goal. Ginni Rometty’s profit goal for IBM just got harder to reach. First-quarter revenue for the computer-services company led by Rometty fell 3.9 percent from a year earlier to $22.5 billion, the eighth straight decline as sales continued to tumble in its hardware unit and in developing countries. Analysts had estimated $22.9 billion on average. IBM shares fell 3.9 percent in late trading
  • Google Revenue Falls Short of Estimates, Ad Prices Drop. Google Inc. (GOOG:US)’s costs are rising as the search provider finds it harder to keep up with a shift to advertising on mobile phones and sales fell short of estimates. Revenue, excluding sales passed on to partners, was $12.2 billion in the first quarter, missing a projection by analysts for $12.3 billion, according to data (GOOGL:US) compiled by Bloomberg. Reporting for the first time since Google held a de-facto split of the stock earlier this month, the shares fell as much as 6.4 percent in extended trading. The stock advanced 3.8 percent to $556.54 at the close in New York.
Wall Street Journal: 
Fox News:
  • Fox News Poll: Many voters say Obama lies to the country on important matters. About six in ten American voters think Barack Obama lies to the country on important matters some or most of the time, according to a Fox News poll released Wednesday. Thirty-seven percent think Obama lies “most of the time,” while another 24 percent say he lies “some of the time.” Twenty percent of voters say “only now and then” and 15 percent “never.”
Zero Hedge: 
  • The Richest Man In Asia Is Selling Everything In China. Here’s a guy you want to bet on– Li Ka-Shing. Li is reportedly the richest person in Asia with a net worth well in excess of $30 billion, much of which he made being a shrewd property investor. Li Ka-Shing was investing in mainland China back in the early 90s, way back before it became the trendy thing to do. Now, Li wants out of China. All of it. Since August of last year, he’s dumped billions of dollars worth of his Chinese holdings. The latest is the $928 million sale of the Pacific Place shopping center in Beijing– this deal was inked just days ago. Once the deal concludes, Li will no longer have any major property investments in mainland China. This isn’t a person who became wealthy by being flippant and scared. So what does he see that nobody else seems to be paying much attention to?
Business Insider:
Financial Times:
  • Too Much Leverage Makes Banks Too Vulnerable. Banks have too little capital, new regulations "enshrine" excess leverage, Robert Jenkins, former member of BOE's Financial Policy Committee, writes in FT op-ed.
Market News International:
  • China March FDI Falls 1.47% y/y. March non-financial foreign direct investment in China fell 1.47% y/y to $12.24b, without citing a source.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 123.0 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 87.75 +.25 basis point.
  • FTSE-100 futures -.10%.
  • S&P 500 futures -.20%.
  • NASDAQ 100 futures  -.15%.
Morning Preview Links

Earnings of Note

  • (BLK)/4.10
  • (BBT)/.70
  • (PPG)/1.85
  • (BHI)/.78
  • (KEY)/.24
  • (HON)/1.26
  • (AN)/.72
  • (SHW)/1.10
  • (BX)/.55
  • (ADS)/2.71
  • (UNH)/1.09
  • (SLB)/1.20
  • (DD)/1.59
  • (MAT)/.07
  • (GE)/.32
  • (FITB)/.42
  • (MS)/.60
  • (BAX)/1.09
  • (PM)/1.16
  • (PEP)/.75
  • (GS)/3.49
  • (UNP)/2.37
  • (CMG)/2.87
  • (WERN)/.20
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated to rise to 315K versus 300K the prior week.
  • Continuing Claims are estimated to rise to 2780K versus 2776K prior.
10:00 am EST
  • The Philly Fed Business Outlook Index for April is estimated to rise to 10.0 versus 9.0 in March. 
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German inflation data, Bloomberg Economic Expectations Index for April, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (LULU) analyst day and (DIS) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.