This brings me back to an earlier point, that profits and earnings are likely peaking. All of these point to a top forming.
- JPMorgan $13 Billion Mortgage Deal Seen as Lawsuit Shield (BBG)
- J.P. Morgan Is Haunted by a 2006 Decision on Mortgages (WSJ)
- World powers, Iran in new attempt to reach nuclear deal (Reuters)
- Keystone Foes Seek to Thwart Oil Sands Exports by Rail (BBG) - mostly Warren Buffet?
- How Would Fed Deal With Debt Ceiling Crisis? Look to Minutes for Clues (Hilsenrath)
- Anything to prevent the loss of prop trading: 'Volcker Rule' Faces New Hurdles (WSJ)
- BOE Sees Case for Keeping Record-Low Rate Beyond 7% Jobless (BBG)
- Obama Backs Piecemeal Immigration Overhaul (WSJ)
- Abenomics Seen Cutting Japan Bad-Loan Costs to 2006 Low (BBG)
By now, thanks to Edward Snowden, it is common knowledge and not just conspiracy theory, that every bit of information sent out into the wired or wireless ether is scanned, probed, intercepted and ultimately recorded by the NSA and subsequently all such information is and can be used against any US citizen without a court of law (because the president's pet secret NISA "court" is anything but). Sadly, in a country in which courtesy of peak social networking, exhibitionism has become an art form, the vast majority of Americans not only could not care less about Snowden's sacrificial revelations, but in fact are delighted the at least someone, somewhere cares about that photo of last night's dinner. However, it turns out that far from being a passive listener and recorder, the NSA is quite an active participant in using the internet. The weaponized internet.
- China to Ease One-Child Policy (WSJ), China announces major economic and social reforms (Reuters)
- Consumers line up for launch of PlayStation 4 (USAToday)
- Trust frays between Obama, Democrats (Politico)
- Yellen Stands by Fed Strategy (Hilsenrath)
- Hero to zero? Philippine president feels typhoon backlash (Reuters)
- Brussels warns Spain and Italy on budgets (FT)
- Moody’s Downgrades Four U.S. Banks on Federal Support Review (BBG)
- CIA's Financial Spying Bags Data on Americans (WSJ)
- Germany Digs In Against Risk Sharing in EU Bank-Failure Plan (BBG)
- Bill Gates wants Norway's $800 billion fund to spend more in Africa, Asia (RTRS)
In addition to the bevy of ugly European unemployment and inflation news just reported, the overnight session had a dollop of more ugly macro data for the algos to kneejerkingly react to and ramp stocks to fresh time highs on. First it was China, where the PBOC did another reverse repo, however this time at a fixed 4.3% rate, 0.2% higher than the Monday iteration and well above the 3%-handle from early October, indicating that China is truly intent on tightening its monetary conditions. Then Japan confirmed that despite the soaring imported food and energy inflation, wages just refuse to rise, and have declined now for nearly 1.5 years. Then, adding core insult to peripheral injury, Germany reported retail sales that missed expectations of a +0.4% print wildly, declining -0.4% from a prior downward revised 0.5% to -0.2%. And so on: more below. However, as usual what does matter is how the market digests the FOMC news, and for now the sense is that the risk of a December taper has risen based on the FOMC statement language, whether warranted or not, which as a result is pushing futures modestly lower following an epic move higher in the month of October on nothing but pure balance sheet and multiple expansion. The big data week in the US rolls on with the highlights being the Chicago PMI and initial jobless claims, which are expected to print their first accurate, non-impaired reading since August.
Just as it is easy being a weatherman in San Diego ("the weather will be... nice. Back to you"), so the same inductive analysis can be applied to another week of stocks in Bernanke's centrally planned market: "stocks will be... up." Sure enough, as we enter October's last week where the key events will be the conclusion of the S&P earnings season and the October FOMC announcement (not much prop bets on a surprise tapering announcement this time), overnight futures have experienced the latest off the gates, JPY momentum ignition driven melt up.
- Government Heads Toward Shutdown (WSJ), First U.S. Shutdown in 17 Years at Midnight Seen Probable (BBG), Congress in game of chicken (RTRS)
- Italian Premier Pursues Last-Ditch Rescue of Government (WSJ)
- Election risk rattles Italian government bonds (RTRS)
- Obama and Ryan Stay on Sidelines on Budget (WSJ)
- Volcker Rule Costs Tallied as U.S. Regulators Press Deadline (BBG)
- Faltering Chinese Factory Growth Adds to Rebound Fears (FT)
- Health Law Hits Late Snags as Rollout Approaches (WSJ)
- Apple Overtakes Coca-Cola as Most Valuable Brand, Study Finds (BBG)
- Euro-Area September Inflation Slows More Than Forecast on Energy (BBG) - Puting will fix that shortly
Early weakness in Asia driven by US-follow thru selling and ongoing concerns about the us fiscal showdowns as well as the debt ceiling, if not by actual news, resulted in a red close in both the Nikkei and SHCOMP, as well as other regional indices such as the Sensex. This then shifted to Europe, where however stocks reversed the initial move lower and are seen broadly flat, with Bunds remaining bid on the back of month-end, as well as coupon and redemption related flows. However the move higher in stocks was led by telecommunications and health care sectors, which indicates that further upside will require another positive catalyst. There was little in terms of fresh EU related macroeconomic commentary, but according to a report published by the European Banking Authority, the EU’s biggest 42 banks cut their aggregate capital shortfall with respect to the “fully loaded” 2019 Basel III requirements to €70.4bln as of December 2012. This is amusing since not one European bank has actually raised capital, but merely redefined what constitutes capital courtesy of a liberal expansion of RWA, Tier 1 and various other meaningless definition which works until such time as the perilous European balance kept together by the non-existent OMT, is tipped over.
It has been a quiet start to Quadruple Witching Friday (expiration of stock index futures, stock index options, stock options and single stock futures) but expect that to change, as erratic price action is a recurring hallmark of Quad Witches, especially with persistent low volume and markets that tend to shut down for no reason. So far stocks have traded steady in Europe this morning, credit spreads widened and Bunds traded in positive territory as market participants positioned for the much-anticipated German elections which are to be held on Sunday, with exit polls to be made available after the close of polling stations at 6pm local time. Ahead of that, and as reported here previously, Germany’s AfD Eurosceptic party could win enough support in the general election on Sunday to gain seats in the German Bundestag, an opinion poll published for a leading newspaper has forecast for the first time. Basic materials and utilities underperformed in Europe, with RWE trading sharply lower in Germany after the company announced plans to cut its dividend by half (and with the Adidas fiasco yesterday, one wonders just how bad things in Europe really are).
As we asked (rhetorically, of course) over 3 months ago, why has the little nation of Qatar spent 3 billion dollars to support the rebels in Syria? Could it be because Qatar is the largest exporter of liquid natural gas in the world and Assad won't let them build a natural gas pipeline through Syria? Of course. Qatar wants to install a puppet regime in Syria that will allow them to build a pipeline which will enable them to sell lots and lots of natural gas to Europe. If the U.S. is successful in getting rid of the Assad regime, it will be good for either the Saudis or Qatar (and possibly for both), and it will be really bad for Russia. This is a strategic geopolitical conflict about natural resources, religion and money, and it really has nothing to do with chemical weapons at all...
With crude prices at multi-year highs and India promising to save its oil companies it is perhaps not entirely surprising that all the attention in this opposite world pushed the Energy sector (most notably the biggest names) to lead the market higher on low volumes today. Sadly, Chevron and Exxon accounted for 40 of the Dow's 48 point gain and the S&P energy sector gained an impressive 1.8% as the rest sat around close to unchanged (and Staples lower). Treasuries began selling off from the Asian open last night with the belly 6-7bps higher in yield on the day (-3-5bps on the week)... But 330RAMP was missing as all indices gave back considerable gains into the close with Trannies red (and S&P at its 100DMA again).
- Obamacare, tepid U.S. growth fuel part-time hiring (Reuters)
- Cameron was behind UK attempt to halt Snowden reports (Reuters), Britain defends detention of journalist's partner (Reuters)
- Goldman Options Error Shows Peril Persists One Year After Knight (BBG)
- China expresses 'shock' as Japan's nuclear crisis deepens (Reuters)
- Inquiry into China insurance firm rattles industry (Caixin)
- Cheaper rivals eat into Apple’s China tablet share (FT)
- Exporting fast food: Subway Targets Europe With as Many as 1,000 New Outlets in 2014 (BBG)
- Reserve Bank of India boosts liquidity to ease pressure on banks (FT)
- Justice Department Plans New Crisis-Related Cases (WSJ) - Holder doing his cutest attempt to pretend the TBTProsecute aren't
- Syrian Opposition Alleges Gas Attack, Which Government Denies (WSJ)
- JPMorgan Nears Settlement With SEC on London Whale Loss (BBG)
- Without even a wristslap: Iksil to face no U.S. charges in 'Whale' probe (Reuters)
- China’s Credit Expansion Slows as Li Curbs Shadow Banking (BBG)
- China slowdown shows signs of abating (FT), even as...
- Australia central bank Lowers Growth Outlook as Economy Transitions From Mining (BBG)
- SAC Business Plan Goes to Judge, Plan Would Allow Firm to Maintain Business Operations but Restrict Its Ability to Move Assets (WSJ)
- Another buyer of Herbalife? - Norway’s oil fund plans to turn active (FT)
- Mark Carney plays down scepticism over interest rate policy (FT)
- Orders Evaporate for Celebrity Perfumes (WSJ)
What the Quebec tragedy demonstrates, says Banica, is that pipelines are a far better option than rail. “Whereas pipelines do not kill as many people as rail (or even truck transport, as more drivers die due to accidents), they do pose a bigger environmental risk than rail due to larger potential leaks and releases.” So the issue of pipeline leak detection will increasingly be on everyone’s radar. Most leaks are found eventually - but there is money to be saved and damage to be avoided by catching them at the smallest rupture. Right now, we rely on 'pigs' in the pipeline to do this, but there is new technology out there.
If there is an investment theme shaping up for Q3 2013, it would appear to be "Go big or go home." As ConvergEx's Nick Colas notes, that means being maxed out long U.S. stocks, but how broad a net do you cast? If you only go with the S&P 500, then your July 2013 return was 5.0%. Not bad, Colas scoffs, until you consider that the small cap universe of U.S. stocks, as measured by the Russell 2000, was up 6.9% this month. Before you load up on four letter symbols and/or small cap ETFs though, Nick warns that investors should consider that there are several important differences between these alternative universes. Among the most important (discussed below) are sector weights are very different, with Russell short Energy and Consumer Non-Cyclicals versus S&P; and, the S&P 500 is heavily overweight its top five names (APPL, XOM, JNJ, GE and CVX), which represent 10.7% of the index. The corresponding weight of the top 5 names in the Russell 2000 (CGSP, ATHN, CVLT, FMER and AYI) is 1.3%. Be sure you know what all-time high you are buying...