Thursday, July 31, 2014

Thursday Watch

Evening Headlines 
  • 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: 
Zero Hedge: 
Business Insider:
  • 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
  • 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.
  • FTSE-100 futures +.07%.
  • S&P 500 futures -.12%.
  • NASDAQ 100 futures  -.09%.
Morning Preview Links

Earnings of Note

  • (RYL)/.68
  • (CL)/.73
  • (H)/.45
  • (ADP)/.63
  • (BZH)/.22
  • (CME)/.79
  • (AVP)/.21
  • (MA)/.77
  • (STRA)/1.26
  • (MCK)/2.33
  • (CI)/1.84
  • (BDX)/1.68
  • (BG)/1.37
  • (COP)/1.61
  • (ITT)/.52
  • (MOS)/.74
  • (APA)/1.64
  • (K)/1.02
  • (XOM)/1.86
  • (PPS)/.65
  • (TRLA)/-.16
  • (JLL)/1.37
  • (MHK)/2.20
  • (LNKD)/.39
  • (SPF)/.13
  • (FLR)/.99
  • (EXPE)/.76
  • (MCHP)/.67
  • (TSLA)/.04
  • (DDD)/.18
  • (GPRO)/.07
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
  • None of note
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.

Wednesday, July 30, 2014

Stocks Reversing Slightly Lower into Final Hour on Escalating Rate Hike Worries, Russia-Ukraine/Mideast Tensions, Rising Emerging Markets Debt Angst, Homebuilding/Utility Sector Weakness

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%
  • NYSE Arms .71 -46.58% 
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
  • Higher: On gains in my retail/biotech/medical/tech sector longs and emerging markets shorts
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long

Today's Headlines

  • Russia May Aid Sanctioned Banks as MH17 Probe Stymied. Russia’s central bank said it’s ready to help lenders targeted by the U.S. and Europe in their latest round of sanctions, as Dutch experts again abandoned an attempt to visit the crash site of Malaysian Air Flight 17. European Union governments agreed yesterday on their most sweeping sanctions against Russia to date, barring state-owned banks from selling shares or bonds in Europe, restricting the export of equipment to modernize the oil industry and barring the sale of technology with military uses. The sanctions are an attempt to get President Vladimir Putin to back down in Ukraine.
  • Sanctions Fallout Seen Worsening as Russia Curve Inverts. Bond investors are signaling the deepest concern for Russia’s economy in at least two years as the U.S. and European Union toughen sanctions because of the crisis with Ukraine. Russia’s five-year ruble notes yielded more than 10-year debt this week for the first time since June 2012, data compiled by Bloomberg show. Government bonds headed for their worst monthly losses since May 2009, while the Finance Ministry scrapped its weekly debt auction yesterday, the first back-to-back cancellations since April. Bonds risk extending the worst performance in emerging markets as harsher penalties over Russia’s role in the fighting in eastern Ukraine amid rising interest rates threaten to drive the economy into a recession. The inverted yield curve is signaling investors are expecting relatively high rates in the short term, a headwind for growth, said Fedor Bizikov at GHP Group in Moscow
  • Twin Strikes Claim 37 Lives in Gaza as Israel War Widens. Twin strikes on a United Nations school and the main public market in Gaza City claimed the lives of 37 people, Palestinians said, as Israel expanded its three-week-old offensive in the territory. The UN Relief and Works Agency accused Israel of violating international law with the attack on the school, which it said was sheltering 3,300 people who had sought refuge there from the fighting. The Israeli army said troops were responding to fire launched at them from the vicinity. It also said it was looking into the report of an air strike on the market. 
  • European Stocks Fall as Earnings Misses Offset U.S. GDP. European stocks fell as worse-than-forecast earnings from companies including Schneider Electric SE and Holcim Ltd. outweighed a better-than-expected U.S. growth report, while the U.S. joined Europe in imposing new sanctions on Russia for its role in the insurgency in Ukraine. Schneider declined the most in more than two years after first-half adjusted earnings missed analysts’ estimates. Holcim Ltd. lost the most since November 2011 after the cement maker posted lower-than-expected profit because of weak emerging-market currencies. Barclays Plc advanced 4.2 percent after posting a return to profit for the second quarter. PSA Peugeot Citroen rallied the most in five months after reporting its first half-yearly profit since 2011. The Stoxx Europe 600 Index retreated 0.5 percent to 340.44 at the close of trading.
  • Gross Says Investors Should Say ‘Good Evening’ to Asset Gains. Pacific Investment Management Co.’s Bill Gross said investors should say “good evening” to the prospect of future capital gains in asset markets as interest rates are set to rise while the economy grows at a slow pace. “The global economy is left to depend on economic growth for further advances and it is growth that is now and has recently been historically deficient,” the manager of the world’s biggest bond fund wrote in a commentary on Newport Beach, California-based Pimco’s website. “As yields have bottomed and are now expected by the markets to gradually rise, it’s down to growth, and growth is a question mark.”
  • ARMs Race Leaves Yellen Able to Raise Before Carney. Federal Reserve Chair Janet Yellen still may beat Bank of England Governor Mark Carney to the punch bowl. While investors bet the U.K. central bank will raise its benchmark interest rate as soon as the end of this year, with its U.S. counterpart following six months later, economists at London-based Fathom Consulting aren’t so sure. They “would not be surprised” if monetary policy is tightened first in the U.S., satisfying former Fed Chairman William McChesney Martin’s edict that the job of the Fed is “to take away the punch bowl just as the party gets going.”
Wall Street Journal:
  • Fed tapers another $10 billion. (video) A second-quarter economic rebound did nothing to change the outlook of the Federal Reserve, which stayed the course Wednesday with ultra-easy monetary policy. While the U.S. central bank voted to cut its monthly bond-buying program another $10 billion, it left its short-term interest rate target near zero and expressed only tepid encouragement about growth
Business Insider: 

Bear Radar

Style Underperformer:
  • Mid-Cap Value -.42%
Sector Underperformers:
  • 1) HMOs -2.32% 2) Utilities -1.66% 3) Homebuilders -1.22%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) GNW 2) XLP 3) BWLD 4) AKAM 5) XLI
Stocks With Most Negative News Mentions:
  • 1) GM 2) LVLT 3) ROK 4) KORS 5) ETN

Bull Radar

Style Outperformer:
  • Small-Cap Growth +.27%
Sector Outperformers:
  • 1) Biotech +.95% 2) Oil Tankers +.74% 3) Banks +.49%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) BRCM 2) EA 3) PNRA 4) OREX 5) AEGR
Stocks With Most Positive News Mentions:
  • 1) TWTR 2) AMGN 3) EW 4) YELP 5) NFLX