Wednesday, April 23, 2014

Wednesday Watch

Evening Headlines 
  • Ukraine May Resume Push in East as Russian Deal Crumples. Ukraine considered resuming operations to oust militants from eastern cities as an agreement with Russia to reduce tensions in the region lay in tatters. Acting Ukrainian President Oleksandr Turchynov yesterday called on security forces to move against the separatists after the discovery of two bodies in the country’s eastern region, saying that “terrorists” backed by Russia had “crossed the line.” He spoke hours after meeting in Kiev with U.S. Vice President Joe Biden, who pledged American support including $50 million in aid. With the April 17 accord faltering, Ukraine is inching closer to a renewed push to dislodge militants in defiance of Russia’s warnings that such a move risks sparking civil war.
  • China Defies Obama’s Slow Asia Pivot With Rapid Military Buildup. President Barack Obama’s trip to Asia this week will be dominated by a country he’s not even visiting: China. Each of the four nations on the president’s itinerary is involved in territorial disputes with an increasingly assertive China. And years of military spending gains have boosted the capabilities of the People’s Liberation Army faster than many defense analysts expected, casting a shadow over relations between China and its neighbors and sparking doubts about long-term prospects for the U.S. presence in the Pacific. 
  • China’s Stocks Fall After Manufacturing Data Signals Contraction. China’s stocks fell, led by energy and financial companies, after a manufacturing gauge signaled a fourth month of contraction. The yuan touched its lowest level since 2012. China Shenhua Energy Co. paced declines for coal shares in Hong Kong and Shanghai. China Citic Bank Corp. lost 1.2 percent in Shanghai. Liquor maker Kweichow Moutai Co. rose 1.7 percent as a gauge of consumer companies least reliant on economic growth climbed the most among industry groups. The Shanghai Composite Index (SHCOMP) fell 0.4 percent to 2,065.37 at 9:54 a.m. The index has slid for four out of the past five days on concern new initial public offerings will divert funds. A preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was 48.3 in April, below the level of 50 that’s the dividing line between expansion and contraction.
  • Asian Stocks Pare Advance After Chinese, Australian Data. Asian stocks pared their advance after China’s preliminary manufacturing data signaled persisting weakness in the world’s second-largest economy and Australia’s inflation rose less than expected. Resona Holdings Inc. climbed 2.9 percent after Greenlight Capital Inc., a hedge fund run by David Einhorn, said it bought shares in the Japanese lender. Seibu Holdings Inc. jumped 5.1 percent as Japan’s biggest hotel chain started trading on the Tokyo bourse. China Overseas Land & Investment Ltd., the largest mainland developer traded in Hong Kong, sank 4.1 percent, leading declines on the Hang Seng Index. The MSCI Asia Pacific Index gained 0.1 percent to 138.75 as of 12:12 p.m. in Tokyo, paring gains of as much as 0.6 percent.
  • Copper Drops for First Time in Four Days on China Data. Copper fell for the first time in four days after a private gauge of Chinese factory production signaled a fourth month of contraction, curbing demand prospects in the world’s biggest user of industrial metals. The contract for delivery in three months on the London Metal Exchange retreated as much as 0.4 percent to $6,646 a metric ton and was at $6,652 by 10:47 a.m. in Tokyo. The metal has lost 9.6 percent this year, the worst performer among the six main metals traded on the LME.
Wall Street Journal:
  • U.S. to Move Troops to Allies Near Russia as Tensions Flare in Eastern Ukraine. Pentagon Seeks to Reassure NATO Allies as Kiev Accuses Pro-Russian Forces of Killings. Hundreds of U.S. troops are headed for maneuvers in Eastern Europe through year's end, the Pentagon announced, new deployments intended to reassure allies on Russia's borders as violence took a sinister turn Tuesday in embattled Ukraine.
  • In Chinese Property, Smart Players Are Selling. The Tycoon Li Ka-shing Unloads Projects in Shanghai, Guangzhou; Richard Li Sells in Beijing. For years, Chinese property has been a sure bet for savvy investors looking to ride the country's economic surge. Now, some of the best-known names in Chinese investing are cutting back, at least for the present. Since September, Hong Kong tycoon Li Ka-shing, widely considered Asia's richest man, has sold office and shopping-mall projects in the cities of Shanghai and Guangzhou. His son, businessman Richard Li, sold a prime piece of real estate, a mixed-use complex in Beijing's Sanlitun shopping district, for US$928 million in early April. 
  • Numericable Set to Issue Record Junk Bond. Debt Offering Could Raise $11.6 Billion. A French cable operator is preparing what could be the largest junk-bond sale in history—a sign of investors' ravenous appetite for risk in an era of low rates and a mark of the profound shift in bond financing on a continent that had long borrowed heavily from its banks. Bankers working on the deal say Numericable Group SA was expected to raise the equivalent of €8.4 billion ($11.6 billion) from the bond sale Wednesday, about... 
  • Keystone Uncensored. A labor leader calls the Administration 'gutless,' 'dirty' and more. Republicans are denouncing President Obama's latest delay on the Keystone XL pipeline, six long years after it was proposed. But for cold political fury they have nothing on Terry O'Sullivan, who runs the Laborers' International Union that represents a half-million construction workers.
Fox News:
  • Republicans warn BLM eyeing land grab along Texas-Oklahoma border. Texas officials are raising alarm that the Bureau of Land Management, on the heels of its dust-up with Nevada rancher Cliven Bundy, might be eyeing a massive land grab in northern Texas. The under-the-radar issue has caught the attention of Texas Attorney General Greg Abbott, who fired off a letter on Tuesday to BLM Director Neil Kornze saying the agency “appears to be threatening” the private property rights of “hard-working Texans.”
Zero Hedge:
Business Insider:
ABC News:
  • Bill Ackman’s Secret $$ Deal for Herbalife Whistleblower. In his year-long campaign against the embattled Herbalife company, Wall Street hedge fund manager Bill Ackman secretly promised a disgruntled former company executive as much as $3.6 million over 10 years if he lost his job after providing information to government investigators and the media.
  • Juniper's(JNPR) revenue rises as telecom clients ramp up networks. Network gear maker Juniper Networks Inc reported a higher-than-expected 10 percent rise in quarterly revenue as U.S. telecom carriers spent more to ramp up their networks to manage increasing data traffic on smartphones and tablets. Juniper's shares were little changed in extended trading.
  • VMware(VMW) revenue beats estimates, but shares dip on sales delays. Virtualization software maker VMware Inc reported better-than-expected first-quarter revenue and forecast current-quarter revenue largely above analysts' average estimate as more customers opt for its cloud infrastructure services. However, the company's shares slipped more than 6 percent in extended trading after it acknowledged a delay in closing some of its enterprise license agreements (ELAs) in the first quarter as customers looked to sign expanded deals. 
  • Intuitive Surgical(ISRG) cuts outlook for growth in robot procedures. Intuitive Surgical Inc on Tuesday lowered its forecast for procedure growth for its da Vinci surgical robots, citing a slowdown in U.S. gynecology procedures. The medical device maker said it now expects da Vinci procedure growth in a range of 2 percent to 8 percent, down from the prior forecast of 9 percent to 12 percent. The lower, wider range reflects uncertainty about the impact on procedure volumes as hospitals adjust to the implications of the Affordable Care Act, company officials said on a conference call after the release of first-quarter earnings.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 123.50 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 86.5 -1.0 basis point.
  • FTSE-100 futures +.06%.
  • S&P 500 futures -.02%.
  • NASDAQ 100 futures  -.10%.
Morning Preview Links

Earnings of Note

  • (EAT)/.83
  • (DOW)/.71
  • (PX)/1.51
  • (DAL)/.29
  • (PG)/1.02
  • (BA)/1.54
  • (GD)/1.64
  • (JCI)/.65
  • (APD)/1.35
  • (BIIB)/2.55
  • (TUP)/1.16
  • (KNX)/.23
  • (GCI)/.46
  • (R)/.87
  • (MAN)/.68
  • (NOC)/2.15
  • (OC)/.33
  • (DPS)/.59
  • (EMC)/.35
  • (IR)/.26
  • (NSC)/1.15
  • (QCOM)/1.22
  • (SYK)/1.09
  • (RHI)/.44
  • (FFIV)/1.25
  • (CTRX)/.58
  • (CAKE)/.49
  • (TXN)/.41
  • (AAPL)/10.17
  • (SWY)/.18
  • (XLNX)/.55
  • (CCI)/1.12
  • (TSCO)/.37
  • (LRCX)/1.14
  • (FB)/.24
  • (AVB)/1.63
  • (SLG)/1.37
  • (FLS)/.75
  • (ORLY)/1.57
  • (AMTD)/.34
  • (VMI)/2.16
Economic Releases
9:45 am EST
  • The Preliminary Markit US Manufacturing PMI for April is estimated to rise to 56.0 versus 55.5 in March.
10:00 am EST
  • New Home Sales for March are estimated to rise to 450K versus 440K in February. 
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,680,000 barrels versus a +10,013,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,495,000 barrels versus a -154,000 barrel decline the prior week. Distillate inventories are estimated to fall by -495,000 barrels versus a -1,278,000 barrel decline the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone PMI, BoE Minutes, $35B 5Y T-Note auction and the weekly MBA mortgage applications report also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and financial 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.

Tuesday, April 22, 2014

Stocks Rising into Final Hour on Earnings Optimism, Buyout Speculation, Short-Covering, Biotech/Gaming Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Gaining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • Volatility(VIX) 12.92 -2.49%
  • Euro/Yen Carry Return Index 147.80 +.11%
  • Emerging Markets Currency Volatility(VXY) 8.40 +1.20%
  • S&P 500 Implied Correlation 56.40 -1.23%
  • ISE Sentiment Index 119.09 -23.72%
  • Total Put/Call .65 -12.1% 
  • NYSE Arms .95 -10.33% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 65.24 -2.31%
  • European Financial Sector CDS Index 78.37 -1.98%
  • Western Europe Sovereign Debt CDS Index 35.0 -.30%
  • Asia Pacific Sovereign Debt CDS Index 86.97 -.46%
  • Emerging Market CDS Index 275.31 +.94%
  • China Blended Corporate Spread Index 349.71 -.42%
  • 2-Year Swap Spread 13.75 -.75 basis point
  • TED Spread 20.75 +.75 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -1.0 +1.0 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .02% -1.0 basis point
  • Yield Curve 231.0 -2.0 basis point
  • China Import Iron Ore Spot $113.56/Metric Tonne -.71%
  • Citi US Economic Surprise Index -22.90 +.7 point
  • Citi Emerging Markets Economic Surprise Index -25.40 -.6 point
  • 10-Year TIPS Spread 2.21 unch.
Overseas Futures:
  • Nikkei Futures: Indicating +101 open in Japan
  • DAX Futures: Indicating +19 open in Germany
  • Higher: On gains in my tech/medical/biotech/retail sector longs and emerging markets shorts
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  • Market Exposure: Moved to 50% Net Long

Today's Headlines

  • Biden Vows Support for Ukraine as Deal With Russia Frays. Ukraine’s president urged the resumption of an offensive against militants after U.S. Vice President Joe Biden’s visit as an agreement with Russia to ease tensions in the former Soviet republic’s east neared collapse. With eastern Ukraine in control of “terrorists” supported by Russia, the separatists have “crossed the line” after bodies of a local lawmaker and a member of the Batkivshchyna party were found today, acting President Oleksandr Turchynov said in a statement on the parliament website. Biden expressed U.S. support for Ukraine during a visit to Kiev.
  • Chinese Bad-Loan Ratio Rises ‘Significantly,’ Huarong Says. China’s bad-loan ratio rose “significantly” in the first quarter, increasing risks for the nation’s banking industry, according to the nation’s largest manager of soured debt. The business environment this year has been “grim and complicated” as lenders face pressures on asset quality, liquidity and lending margins, China Huarong Asset Management Co. Chairman Lai Xiaomin said during an internal meeting on April 15, according to a statement today on the website of the Beijing-based company. China’s slowing economy has made it tougher for borrowers to repay debt, driving up banks’ sour loans for a ninth straight quarter as of December to the highest level since 2008, data from the banking regulator show. New nonperforming loans amounted to more than 60 billion yuan ($9.6 billion) in the first two months of this year, compared with 100 billion yuan for all of 2013, China Business News reported on April 9, citing people it didn’t identify. “The economic indicators we’ve seen so far are quite disappointing and repayment risks are rising across sectors from property to small businesses due to weak demand,” Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp., said by phone. “Banks will be hit in such an operating environment but managers of bad assets like Huarong and China Cinda Asset Management Co. stand to benefit” because they can accumulate more sour loans, she said. 
  • European Stocks Advance as Glaxo Shares Increase on M&A. European stocks rose the most in seven weeks as health-care companies lead gains amid mergers and acquisitions activity. GlaxoSmithKline Plc rose 5.2 percent after Novartis AG agreed to buy the U.K. company’s cancer-drug business and form a consumer-health venture with Glaxo. AstraZeneca Plc (AZN) jumped the most since August 2011 after reports that Pfizer Inc. discussed acquiring the drugmaker in informal, now-discontinued talks. Royal Philips NV posted its biggest decline in almost a year after the world’s biggest lighting company reported first-quarter profit that missed analysts’ projections. The Stoxx Europe 600 Index added 1.4 percent to 337.03 at the close of trading, bringing its three-day gain to 3.2 percent, the most since June
  • Williams Urges Fed to Avoid Stoking Risk as It Boosts Jobs. Federal Reserve Bank of San Francisco President John Williams said the central bank should avoid encouraging excessive financial risk-taking as it pursues its goals of full employment and stable prices. “We’re exactly on the right track” with current policy, Williams said in an interview yesterday in San Francisco, predicting unemployment will fall to 5.5 percent by the end of next year and inflation will accelerate to about 1.7 percent. Trying to achieve the Fed’s goals sooner “would take policy actions that might have more negative effects,” he said
  • PE Firms’ Dividend ‘Epidemic’ Intensifies Junk-Debt Alarm. Companies owned by private-equity firms are borrowing money to pay dividends like it’s 2007, adding to concern among regulators that excesses are emerging in the riskier parts of the debt markets. With defaults by the neediest U.S. borrowers approaching record lows, buyout firms are taking advantage of the Federal Reserve’s (FDTR) easy-money policies to extract payouts by piling more junk debt onto the companies they own. The central bank, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency have warned in recent months that underwriting standards for speculative-grade issuers are weakening as investors become more willing to accept looser terms.
  • McDonald’s(MCD) Sees April Sales Growth After Profit Fell. McDonald’s Corp. (MCD)’s free coffee may have slowed diners’ rush to check out Taco Bell’s waffle tacos. While McDonald’s today posted falling sales at its established U.S. locations and first-quarter profit that trailed analysts’ estimates, the world’s largest restaurant chain is showing some encouraging signs. The March drop in U.S. sales was the smallest in five months, and the company today said global store sales may be “modestly positive” in April, which would be the second straight monthly gain.
Wall Street Journal: 
  • Einhorn: Tech bubble brewing, shorting momentums. David Einhorn has a clear warning for technology investors: we're in a bubble. "Now there is a clear consensus that we are witnessing our second tech bubble in 15 years," Greenlight Capital said in an investor letter Tuesday. "What is uncertain is how much further the bubble can expand, and what might pop it."
Business Insider: 
  • Eli Lilly(LLY) to buy Novartis' animal health unit for $5.4 billion. Eli Lilly and Co said on Tuesday it will buy Swiss drugmaker Novartis AG's animal health business for $5.4 billion in cash to strengthen and diversify its Elanco unit. Lilly said it plans to fund the deal with about $3.4 billion of cash on hand and $2 billion of loans.

Bear Radar

Style Underperformer:
  • Large-Cap Value +.43%
Sector Underperformers:
  • 1) Steel -1.60% 2) Coal -1.54% 3) Computer Hardware -.73%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) AGN 2) RSH 3) CTIC 4) YUM 5) DO
Stocks With Most Negative News Mentions:
  • 1) ACI 2) LXK 3) PNR 4) LMT 5) VRX

Bull Radar

Style Outperformer:
  • Small-Cap Growth +.93%
Sector Outperformers:
  • 1) Gaming +4.66% 2) Biotech +2.98% 3) HMOs +1.88%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) HD 2) AGN 3) RDN 4) VRX 5) CAG
Stocks With Most Positive News Mentions:
  • 1) TWC 2) TSLA 3) NFLX 4) AGN 5) DDD