Monday, February 16, 2015

Tuesday Watch

Weekend Headlines 
Bloomberg:
  • Ukraine Fight Grinds On as First Deaths Reported After Truce. The conflict in Ukraine escalated with the first deaths since a cease-fire went into effect after midnight on Feb. 15 as government troops battled pro-Russian militants. Five government soldiers were killed and 25 wounded in fighting near the strategic port city of Mariupol, Ukrainian military spokesman Dmytro Chalyi said by phone on Monday. Debaltseve, a key rail junction, was the focus of shelling by insurgents, according to the Defense Ministry in Kiev. Rebels blame Ukraine for repeatedly violating the truce, according to comments carried by the separatist-run DAN news service. The Obama administration Monday said it’s “gravely concerned” and urged a halt to attacks near Debaltseve. 
  • Eurogroup to Greece: Your Move. The abrupt ending to the Eurogroup meeting this evening in Brussels points to the fundamental differences between the two sides of the negotiations. The Eurogroup, for their part, will not renegotiate the program without an extension of the current program in place. Greece will not agree to an extension of the current program. Eurogroup chief Jeroen Dijsselbloem, speaking after the meeting, said that there is not enough time to renegotiate the program. Instead Greece must agree to an extension to the current bailout first, which would then allow time to explore flexibility in the Greek program. Greece rejected this insistence on an extension of the bailout as "absurd" and "unacceptable." That is where we stand this evening.
  • Islamic State Video Shows Beheadings of Coptic Christians. A purported video by Islamic State fighters appears to show the beheading of 21 Egyptian Christians kidnapped in Libya, according to the Site Intelligence Group, which reports and analyzes terrorist threats. The video, posted on social media Sunday, shows a line of men in orange jumpsuits walking along a beach, each accompanied by a masked man in black wielding a knife. The men are forced to kneel and then lie face down in the sand as they are decapitated. If its authenticity is confirmed, the video would underscore the geographic spread of Islamic State, which declared a self-styled caliphate in parts of Iraq and Syria. A spokesman for the Christian Coptic Church in Egypt confirmed the identities of those who appeared slain in the video, according to the Middle East News Agency. The video is entitled “A message signed with blood to the nation of the cross,” and later refers to “the followers of the hostile Egyptian Church.”   
  • Egypt Bombs Islamic State in Libya to Avenge Christian Beheadings. Egypt bombed Islamic State targets in Libya to avenge the beheading of 21 Egyptian Christians there, and called on other nations to strike at the militants operating in its oil-rich western neighbor. The airstrikes, which the military said hit camps and weapons depots, threatened to draw Egypt deeper into the chaos engulfing Libya. “Avenging Egyptian blood is a national imperative,” the military said in the statement aired early Monday on state television. The strikes killed three children and two women, state-run LANA news agency said, citing Al-Nabaa television. The aerial attacks marked Egypt’s first open military action in Libya, where a security collapse and a power struggle between Islamists and the elected government have driven the nation to the brink of chaos. 
  • Greek Euro Exit Risk Signals ECB’s QE Safeguards Wanting. Mario Draghi’s assurance that the European Central Bank has ring-fenced the risks of its bond-buying program has a caveat. While the ECB president says the euro area’s 19 national central banks will buy and hold their own country’s debt, the money they create -- at least 1.1 trillion euros ($1.3 trillion) -- can flow freely across borders through the region’s Target2 payment system. Should a nation build up liabilities and then leave the currency union, the remaining members may have to share the bill.
  • How a Liquidity Squeeze Could Push Greece Out of the Euro. The standoff between Greece and its creditors on how to proceed on its bailout program risks triggering a simultaneous cash and credit crunch, which could drive the country out of the euro area. Here’s how a worst-case scenario could unfold:
  • Ukraine Bonds Drop on Debt Restructuring, Strains in Cease-Fire. Ukraine’s foreign-currency bonds fell as the government said it was looking to restructure its debt by June and a cease-fire showed signs of strain. Bonds headed for their biggest two-day decline in four weeks after Ukraine said it was seeking to reach an agreement with bondholders on a $15 billion restructuring before the International Monetary Fund’s first bailout review. Fitch Ratings downgraded the country’s debt, saying the nation’s creditworthiness deteriorated and the economy would shrink 5 percent this year.  
  • Putin’s Paradise Becomes Economic No-Go Zone Where Cash Is KingNearly a year after Russia annexed Crimea, Moscow’s man here, Oleg Saveliev, is struggling with a seemingly mundane task: paying bills. Like everyone on this disputed Black Sea peninsula, the minister for Crimea is living in an economic no man’s land. International banks like UniCredit SpA, credit cards like MasterCard and Visa, global brands like McDonald’s -- all vanished with Russia’s adventurism in Ukraine and seizure of Crimea. In their place has come a cash-only society of runaway inflation, chronic shortages and growing anxiety over the conflict. Even Russian companies are staying away.
  • Why Putin Fears China. Boxed in by the U.S. and its allies, faced with an uneasy relationship with China and needing new friends and income, Russia is popping up everywhere in Asia. A new strategic agreement with Pakistan. A visit by Vladimir Putin to India. Helping search for a plane that crashed off Indonesia. Coaxing Kim Jong Un to venture out of North Korea. In a region where some governments may be less squeamish about events in Ukraine, Putin is surprisingly welcome. Russia’s forays reflect a dual strategy: To find new markets as its economy is crushed by sanctions and last year’s tumble in oil prices, and to diversify from its one big ally in Asia -- China. Putin is concerned that his relationship with Xi Jinping is becoming increasingly tilted in China’s favor
  • China Said to Ask Local Governments to Re-Examine Reported Debt. China’s finance ministry asked local governments to re-examine the amount of debt they reported previously as authorities step up efforts to limit leverage and control risks to the financial system. Some local governments inflated the amount of their debt, so all the data needs to be checked again, two people familiar with the matter said today, asking not to be identified because the details are private. The local governments should examine whether they have included any debt they don’t have to repay, and they should also make sure any debt they may incur is excluded so as the figures aren’t artificially inflated, the people said.
  • Asian Stocks Fall for First Time in Four Days on Greece Concern. Asian stocks fell from a 4 1/2 month high after talks between Greece and its creditors broke down. The MSCI Asia Pacific Index slid 0.1 percent to 143.17 as of 9:01 a.m. in Tokyo after closing yesterday at the highest since Sept. 25. Talks in Brussels ended abruptly Monday as an official from Greek Prime Minister Alexis Tsipras’s government said the euro area’s recommendation to extend the current bailout conditions was unacceptable. The Stoxx Europe 600 Index halted two days of gains. Futures on the Standard & Poor’s 500 Index sank 0.5 percent since Feb. 13, with U.S. markets closed yesterday for a holiday.
  • Appaloosa Cut U.S. Stocks By 40% as Tepper Exits Citigroup. Billionaire investor David Tepper reduced his firm’s investments in U.S. stocks last quarter, liquidating stakes in some of the largest companies. The value of Appaloosa Management’s publicly disclosed U.S. equity positions dropped by $2.74 billion last quarter to $4 billion, according to a regulatory filing Friday. The firm exited its holdings in Citigroup Inc., Halliburton Co., Facebook Inc. and Apple Inc. The firm also sold almost all its shares of an exchange-traded fund that tracks the Standard & Poor’s 500 Index. The moves came as Tepper, who manages about $20 billion, made bullish comments about U.S. stocks in interviews during the quarter. He said on CNBC in December that the S&P 500 could rise 8 percent to 10 percent in 2015 after telling Bloomberg Television in October that the price-to-earnings ratios for U.S. stocks weren’t high. “The U.S. economy is pretty good, stocks are not at high multiples right now,” he said in the October interview.
Wall Street Journal: 
  • Port Delays Starting to Damage Businesses. Backups hurt retailers and take a heavy toll on small companies as labor dispute drags on. As employers at the ports along the West Coast on Monday refused to unload ships for the sixth day out of the past 10, their nine-month contract dispute with port workers is becoming a significant business problem.
  • Dollar’s Rise Papers Over Miners’ Woes. Currency moves reduce costs, allowing them to keep operations humming. Mining companies, slammed by tumbling commodities prices, have in recent days vowed not to cut production, saying the stronger dollar is cushioning the blow of falling markets. Companies ranging from Australian miners BHP Billiton and Rio Tinto to smaller firms like South Africa’s Lonmin PLC are benefiting from the stronger greenback because they receive dollars for the gold, copper and iron ore they dig up, but pay for labor and many other costs using local currencies. When the dollar rallies, revenue generated by metals sales stretch further in covering expenses.
Fox News:
  • Police in Canada foil Valentine's Day massacre plot. A senior police official said Friday that police foiled a plot by two suspects who were planning on going to a mall and killing as many people as they could before committing suicide on Valentine's Day in Halifax. The official told The Associated Press the suspects were on a chat stream and were apparently obsessed with death and had many photos of mass killings. 
  • Egyptian beheadings show ISIS taking ‘global jihad’ to rest of Arab world. (video) The Islamic State's mass execution of Egyptian Christians is the latest sign that ISIS is pointing its sword against not just the West but the rest of the Arab world -- drawing the region into a spreading war that leaves the United States in a difficult spot as it tries to marshal a cohesive coalition.
MarketWatch.com:
Zero Hedge:
Business Insider:
Telegraph:
Bild:
  • Ukraine Premier Says He Doesn't Trust Russian Leadership. Words don't count as measures needed to solve conflict, Ukraine PM Arseniy Yatsenyuk said in an interview, casting doubt Russia will do everything to achieve peace. Yatsenyuk says it is Russian President Vladimir Putin's biggest dream to establish hegemonic control over Ukraine, which may start new version of former USSR. Russia may do everything to undermine peace process, weaken Ukraine. Says biggest challenge is to reestablish full control of the Ukrainian border, as his country aims to retake Donetsk, Luhansk step-by-step.
  • Ifo's Sinn Says Greek Euro Exit Would Be Best for Country. Previous policy to save Greece hasn't worked "because it's not making Greece competitive," citing Hans-Werner Sin, head of Germany's Ifo economic institute. If Greece doesn't exit euro, it will keep adding new debt it won't be able to repay. Debt writedown is precondition for euro exit.
Night Trading
  • Asian indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 105.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 66.75 -1.0 basis point.
  • S&P 500 futures -.42%.
  • NASDAQ 100 futures -.10%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (GPC)/1.07
  • (WM)/.60
  • (GT)/.59
  • (MGM)/.06
  • (WWW)/.30
  • (A)/.41
  • (DVN)/1.05
  • (FLS)/1.12
  • (VMI)/1.62
  • (TEX)/.69
  • (VNO)/1.23
  • (FE)/.76
  • (CF)/5.08
  • (RAX)/.19
  • (FOSL)/3.07
  • (JACK)/.87
  • (ADI)/.61
Economic Releases
8:30 am EST
  • Empire Manufacturing for February is estimated to fall to 8.5 versus 9.95 in January.
10:00 am EST
  • The NAHB Housing Market Index for February is estimated to rise to 58 versus 57 in January.
4:00 pm EST
  • Net Long-Term TIC Flows for December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Plosser speaking, China property price report, UK CPI, German ZEW Index and the (WCG) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity 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 week.

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