A happy Monday morning to all and it looks like more of what we had last week with stock futures flat --albeit slightly off and that's better than most futures. News seems unsteady:
World stocks tumble on weak China, Japan data
Japan has record deficit, lowers growth estimate
Aussie Drops for Second Day on China Trade Data; Yuan Weakens
NYSE Mid-Day Update:
NYSE MAC DESK MID-DAY MARKET UPDATE:
DOW 16,394 (-57 points), S&P500 1875 (-3 handle), Brent Crude $108.10/barrel (-$0.90), Gold $1,340.60/oz. (+$2.40)
MARKET DRIVERS: (Stocks are under pressure in response to some shockingly disappointing trade data out of China and continuing geo-political tensions in Ukraine. Volume is extremely light as the U.S. economic calendar is empty today.)
• Chinese exports dropped 18.1% year-over-year in February after expanding 10.6% in January and badly missed consensus of +6.8%. The reading definitely caught markets off-guard; sending the Shanghai Composite tumbling 2.9% and dragging other Asian indices lower.
• In addition, consumer prices in China rose 2% y-o-y in February, down from a 2.5% rise in January, adding to concerns that the economy is losing steam.
• A survey of euro-zone investor confidence conducted by market research firm Sentix revealed the highest confidence in 35 months. The report’s headline index advanced to 13.9 in March from February’s 13.3 reading. Market economists projected that the index would rise to 14.0 this month.
• Japan revised down its Q4 GDP growth calculation to 0.2% from an initial 0.3%, with the economy held back by weaker-than-estimated capex and consumer spending.
Three issues dominated the news wires over the weekend: 1) the shocking disappearance of the Malaysian airliner over Vietnam airspace; 2) China’s February economic data, specifically the surprise announcement that Beijing reported a trade DEFICIT for the month of $23 billion; and 3) the news that Russia is moving forward with an annexation of Crimea… None of this news is positive for the market; and while the damage is nowhere near the levels seen in China overnight, (the Shanghai Index fell by ~640 Dow-equivalent points), stocks are feeling a bit of pressure in response to these headlines… On a side note, yesterday, March 9th, marked the fifth anniversary of the multi-year bear market lows. The S&P is up something like 180% since then. Amazing, (up almost 200% if you count the dividends). Looking back, there’s a huge difference between now and then: there was a financial meltdown looming then, and prices obviously reflected that gloomy possibility. The “Armageddon scenario” is now gone. One thing that hasn’t changed; however, is the yield on the 10-year US Treasury note. Today, the yield is 2.79%, and five years ago it was about the same… Moving on, the Dow has moved off of session-lows, and volume is very light, with just 220M shares on the tape at this time… Internally, breadth is mixed with issues and volume bearish while new highs to new lows are bullish (positive divergence). Advancing Issues: 1233 / Declining Issues: 2962 — for a ratio of 0.4 to 1. New 52-Week Highs: 110/ New 52-Week Lows: 37… Technically, Friday, the S&P rallied to the resistance band at the 1883/1886-level. We see support at 1871… Meanwhile, in the trading pits, copper is down another 1.25% today after a 4% drop on Friday; it’s now near its lowest levels in a year as China demand wanes… More big news hitting the tape over the weekend, as the Bulldawgs pulled off another huge upset; beating Willingboro, (Carl Lewis went to high school there), in a close hard-fought battle 71-69! The boys are going for the first sectional State championship in school history tomorrow night… And I’ve got butterflies in my stomach the size of pterodactyls!! Have a tremendous day!
John’s Options Commentary: The technology ETF (XLK) sees a big caller seller today. When the index was trading $36.35, off 7 cents, investors sold the Mar 37 calls at an average price of 6 ½ cents per contract. More than 80,000 contracts are now on the tape and the biggest block was a 40,000 lot at 7 cents. The activity may close the position opened last week when 77,000 contracts were bought for a dime. VIX option volume has picked up a bit over the last 2 days. Friday afternoon, investors bought the Mar 17-20 call spread for 32 cents, 80,000 times. The activity was opening and appears to be a bet on higher volatility over the next 8 trading days (VIX expires the Wednesday prior to the Quad Witch next Friday). In today’s action, with the VIX trading up .54 to 14.65, players are focused on April contracts. It looks as if traders are buying the Apr 16-18 call spread and selling the Apr 23-28 call spread. The flow seems to be traders positioning themselves for a spike in volatility—we shall see!
• Materials underperforming with the S&P Materials Index (0.7%)
o Industrial metals underperforming amid demand concerns out of China. CLF (5%) and SCCO (2.9%) leading the copper-related names lower. The former was initiated sell at Axiom Capital. X (2.8%), STLD (2.8%) and SCHN (2.8%) the laggards among the steel names. X failing to get any support from an upgrade at Nomura Securities. AA (3.5%), CENX (3.1%) and NOR (1.5%) the notable decliners in the aluminum space. Global miners underperforming with BHP (3.1%), RIO (2.9%) and VALE (2.8%).
o Paper, forest products and packaging underperforming, with LPX (2.5%), UFS (1.3%) and IP (1%) leading the space lower.
o Precious metals equities mostly lower. Underlying assets slightly higher, with GLD +0.3% and SLV +0.2%. NEM (1.1%), SSRI (1%) and GG (0.8%) the notable underperformers. Juniors underperforming with the GDXJ (1%).
o Other notable performers: FMC +5.5%, which announced plans to separate into two independent public companies.
• Industrials underperforming with the S&P Industrials Index (0.7%)
o Machinery underperforming. AGCO (3.2%), MTW (3.1%) and JOY (2.9%) leading the space lower.
o Aerospace/defense underperforming. BA (2.8%) lagging after one of its 777’s disappeared mid-flight en route to Beijing. BAESY (2%), LLL (1.3%) and NOC (1.3%) the other notable decliners.
o Building materials underperforming. OC (2.4%), CX (1.6%) and VMC (1.5%) leading the space to the downside.
o Multis lower across the board. TXT (2.5%), IR (1.8%) and ROP (1.4%) the worst performers. TYC (0.6%) another notable performer after Atkore proposed to redeem the company’s remaining stake.
o Transports relatively outperforming. Airlines topping gains, led higher by LUV +1.2%, SKYW +0.9%, AAL +0.6% and JBLU +0.2%. LUV reported February PRASM +5%. AAL and JBLU discontinued their partnership. JBLU also guided Q1 PRASM +1-2% y/y. CNW +1% the notable gainer among the trucking names, while ABFS (1.2%) lags. EXPD (1.8%) the notable performer among the parcel/logestics following a downgrade at FBR Capital. Railways underperforming, led lower by CP (1.2%) and GWR (1%).
o Other notable performers: FLR (1.7%), URI +3.7%. The latter announced the acquisition of National Pump for an initial payment of $780M.
• Consumer discretionary underperforming with the S&P Consumer Discretionary Index (0.5%)
o Homebuilders underperforming. BofA-ML downgraded KBH (3%) and MTH (2.6%), citing gross margin headwinds. BZH (2.3%), DHI (1.6%) and TOL (1.3%) the other notable decliners.
o Gaming space led lower by WYNN (1.8%) and LVS (1.6%).
o Restaurants underperforming. BWLD (2.1%), RT (2.1%) and JACK (1.3%) the laggards. Note rising concerns about food price inflation. MCD (0.3%) lower after reported a decline in global comps for February, including a fourth straight month of declines in the US.
o Retail mostly lower with the S&P Retail Index (0.4%). Apparel space led lower by ARO (3.8%), AEO (2.2%) and GPS (1%). ARO lower following comments from ITG Investment Research, which said they expect Q4 revenues come to in below consensus. CE space mixed, with BBY +1.4% topping gains and GME (0.3%) lagging. SPLS +2.7% outperforming despite a downgrade at BB&T Capital Markets. Department stores mostly lower, with BONT (3.3%) and JCP (1.3%) the notable decliners. JWN +0.4% the notable outperformer. BBBY +0.3% the notable performer in the housing-related space after lowering Q4 earnings guidance, citing bad weather. A number of analysts pointed out that ex-weather, the company estimates comps would have performed near the top end of the previously guided range.
o Auto group mostly lower. GM (1.9%), HMC (1.9%) and HAR (1.4%) the notable underperformers. CTB +0.8% and MGA +0.5% outperforming.
o Other notable performers: MNI +18.6%, AHC +3.3%, GCI +2.2% - amid reports that Classified Ventures, a joint venture of the companies, is putting Cars.com up for sale at a price of up to $3B.
• Tech outperforming with the S&P Information Technology Index (0.1%)
o Hardware outperforming. WDC +1.1% and STX +0.8% topping gains. Pacific Crest had a positive note on the HDDs, saying meetings with STX management supports their bullish view on growth of enterprise drives. The firm said it is buyers of both STX and WDC. Downside rather limited with IBM (0.6%) and NTAP (0.6%) the worst performers.
o Semis relatively outperforming with the SOX (0.2%). VECO +8.7% leading the way higher after an upgrade at UBS, which sees MOCVD order recovery as sustainable over the next 2-3 years. AIXG +1% and OVTI +0.7% the other notable gainers. AMD (2%), MRVL (2%), ONNN (1.8%) and TER (1.8%) the notable performers to the downside.
o Internet space mostly lower. P (3.4%), NFLX (2.6%), BIDU (2.3%) and AKAM (1.9%) leading the space lower. FB +2.8% the notable outperformer after a target increase at UBS, which said Q1 checks show continuing pricing strength and notes the company is gaining increased traction with brands. TWTR +0.7% trading higher after MKM Partners increased its target on the stock. The firm believes that the market has accepted disappointing user metrics and is now likely to be focused on revenue growth.
o Software underperforming. CVLT (2.5%), RHT (1.6%), CHKP (1.6%) and FTNT (1.5%) the notable decliners.
o Other notable performers: CIEN (2.6%)
THE SIZE of global debt markets swelled to over $100 trillion (£59.79 trillion) in the middle of last year, according to a report by the Bank for International Settlements (BIS).
The figure has grown from $70bn in the middle of 2007, driven up partly by additional government borrowing in the wake of the financial crisis.
According to a report released yesterday by the BIS, outstanding debt issued by governments has grown by 80 per cent in the same six year period, up to $43bn.
While domestic debt markets have expanded, growth in international debt markets has stalled since mid-2007, and cross-border debt investments made up a smaller portion of the market in late 2012 than in 2007.
Questions: Is the world's GDP growing faster than the size of the world's debt? Do we need to worry more about individual entity's (i.e. Euro) GDP vs Debt ratio? One entity could and probably will cause the dominos to fall. How big a problem is it when "international" debt markets stall while domestic debt markets expand as expected?