Month: February 2014

There is one main reason why complacency is bad: selloffs. Because as Bank of America explains, in an environment in which there are “too few bears“, and where investors are “not prepared for a downside correction”, when you do finally get a sell off for whatever reason, with nobody hedged and otherwise prepared for such an outcome, the only logical continuation is piling on until one gets selling exhaustion. And in a world in which hedge fund leverage is about 500%, by the time exhaustion comes, there will be very few left standing.

From Bank of America:

Sentiment an equity market risk: II % Bears dropped to 14.1% = too few bears

Even with the increased volatility since mid-January, there are still too few bears out there based on Investors Intelligence (II) % Bears. The most recent survey reading as of January 24 was 15.3% vs. 15.1% the prior week. This is complacent and contrarian bearish from a sentiment standpoint. With II % Bulls moving down to 53.1% from 57.6%, the bulls did reign in their horns, but not enough to move II % Correction to a contrarian bullish level that would suggest that too many investors are looking for a correction. As of December 20, 2013, Investors Intelligence (II) % Bears extended deep into contrarian bearish territory below the 20% level hitting a 14.1% – the lowest level for II % Bears since March 1987. II % Bulls moved up to 61.6% as of December 27, 2013 – the highest level since October 2007. Sentiment is an equity market risk and confirms the complacent readings for the 5-day put/call ratios .

Put-call ratios are complacent & contrarian bearish

Both the 5-day and 25-day CBOE Total put/call ratios are overbought and contrarian bearish. The 5-day total put/call ratio reached the lowest level since early 2010 while the 25-day total put/call reached the lowest level since early late 2004. These put/call ratios are at levels that suggest investors are not prepared for a downside correction. In terms of market sentiment, this is contrarian bearish.

via Zero Hedge http://ift.tt/1ip8iKp Tyler Durden

There is one main reason why complacency is bad: selloffs. Because as Bank of America explains, in an environment in which there are “too few bears“, and where investors are “not prepared for a downside correction”, when you do finally get a sell off for whatever reason, with nobody hedged and otherwise prepared for such an outcome, the only logical continuation is piling on until one gets selling exhaustion. And in a world in which hedge fund leverage is about 500%, by the time exhaustion comes, there will be very few left standing.

From Bank of America:

Sentiment an equity market risk: II % Bears dropped to 14.1% = too few bears

Even with the increased volatility since mid-January, there are still too few bears out there based on Investors Intelligence (II) % Bears. The most recent survey reading as of January 24 was 15.3% vs. 15.1% the prior week. This is complacent and contrarian bearish from a sentiment standpoint. With II % Bulls moving down to 53.1% from 57.6%, the bulls did reign in their horns, but not enough to move II % Correction to a contrarian bullish level that would suggest that too many investors are looking for a correction. As of December 20, 2013, Investors Intelligence (II) % Bears extended deep into contrarian bearish territory below the 20% level hitting a 14.1% – the lowest level for II % Bears since March 1987. II % Bulls moved up to 61.6% as of December 27, 2013 – the highest level since October 2007. Sentiment is an equity market risk and confirms the complacent readings for the 5-day put/call ratios .

Put-call ratios are complacent & contrarian bearish

Both the 5-day and 25-day CBOE Total put/call ratios are overbought and contrarian bearish. The 5-day total put/call ratio reached the lowest level since early 2010 while the 25-day total put/call reached the lowest level since early late 2004. These put/call ratios are at levels that suggest investors are not prepared for a downside correction. In terms of market sentiment, this is contrarian bearish.

via Zero Hedge http://ift.tt/1ip8iKp Tyler Durden

In the aftermath of yesterday’s Developed Market rout, it may come as a surprise how – relatively – quiet the EM bourses were. Because while the now ongoing Argentina reserve depletion continues (the country has $28 billion left – a drain of over $2 billion in two weeks, the Turkish political instability is still there, and everyone from Hungary to South Africa to India are lamenting the Fed’s taper, for the most part traders were ignoring developments out of the emerging world. This may change today when just over an hour ago, Russia announced it would cancel a bond auction for the second consecutive week after an emerging-market rout sent yields on January 2028 bonds to record highs. The reason cite: market conditions.

From Bloomberg:

The Finance Ministry scrapped the sale after “an analysis of market conditions,” it said in a website statement today. The government plans to offer 275 billion rubles ($7.8 billion) of securities this quarter, according to a timetable published at the end of last year.

 

Appetite for riskier developing-nation assets has soured amid signs of a slowdown in China as the Federal Reserve cut stimulus. The yield on the 2028 security fell one basis point, or 0.01 percentage point, to 8.44 percent today, compared with a record high of 8.58 percent on Jan. 30.

 

The ruble has weakened 6.9 percent this year, the worst-performing among 24 emerging-market currencies tracked by Bloomberg after Argentina’s peso.

Below is the rather unverbose statement posted on the Minfin.ru website:

On 5 February, 2014 OFZ auction cancellation

 

The Ministry of Finance of the Russian Federation hereby informs on OFZ auction cancellation on 5 February, 2014. Decision to cancel the auction was taken with a view to the current market conditions.

It goes without saying that one particular group of investors hoping the history does not rhyme are those currently holding Russian assets: after all the last emerging market crisis which peaked in 1998 did not have a happy ending for anyone invested in Russia. Or LTCM’s Nobel-prize winning economists’ models for that matter.

via Zero Hedge http://ift.tt/1emU1yI Tyler Durden

In the aftermath of yesterday’s Developed Market rout, it may come as a surprise how – relatively – quiet the EM bourses were. Because while the now ongoing Argentina reserve depletion continues (the country has $28 billion left – a drain of over $2 billion in two weeks, the Turkish political instability is still there, and everyone from Hungary to South Africa to India are lamenting the Fed’s taper, for the most part traders were ignoring developments out of the emerging world. This may change today when just over an hour ago, Russia announced it would cancel a bond auction for the second consecutive week after an emerging-market rout sent yields on January 2028 bonds to record highs. The reason cite: market conditions.

From Bloomberg:

The Finance Ministry scrapped the sale after “an analysis of market conditions,” it said in a website statement today. The government plans to offer 275 billion rubles ($7.8 billion) of securities this quarter, according to a timetable published at the end of last year.

 

Appetite for riskier developing-nation assets has soured amid signs of a slowdown in China as the Federal Reserve cut stimulus. The yield on the 2028 security fell one basis point, or 0.01 percentage point, to 8.44 percent today, compared with a record high of 8.58 percent on Jan. 30.

 

The ruble has weakened 6.9 percent this year, the worst-performing among 24 emerging-market currencies tracked by Bloomberg after Argentina’s peso.

Below is the rather unverbose statement posted on the Minfin.ru website:

On 5 February, 2014 OFZ auction cancellation

 

The Ministry of Finance of the Russian Federation hereby informs on OFZ auction cancellation on 5 February, 2014. Decision to cancel the auction was taken with a view to the current market conditions.

It goes without saying that one particular group of investors hoping the history does not rhyme are those currently holding Russian assets: after all the last emerging market crisis which peaked in 1998 did not have a happy ending for anyone invested in Russia. Or LTCM’s Nobel-prize winning economists’ models for that matter.

via Zero Hedge http://ift.tt/1emU1yI Tyler Durden

• Global makets plunge (Reuters)
• Goodbye Mrs. Watanabe – Japan Sees Worst Developed-Stock Rout as Nikkei 225 Drops (BBG)
• Who could have possibly predicted this – Firms Pinched by Pressure to Hold Down Their Prices (WSJ)
• RBA Shifts to Neutral as It Signals Comfort With Aussie’s Level (BBG)
• Fractures Emerge Between Obama, Congressional Democrats (WSJ)
• Brazil suffers record trade deficit (FT)
• One-year prison sentence for 21-year-old Twitter user who glorified terrorists (El Pais)
• El Salvador fisherman washes up in Marshall Islands after year adrift (Reuters)
• Apple Quietly Builds New Networks (WSJ)
• UBS CEO Says Emerging-Markets Selloff Overdone as Investors Exit (BBG)
• SAC’s Mathew Martoma found ‘canary in coal mine’, court told (FT)
• Going on 30, Living With Mom and Dad (BBG)
• Heroin Use, and Deaths, Rise (WSJ)
• Web companies give first look at secret government data requests (Reuters)
• Spying Fears Abroad Hurt U.S. Tech Firms (WSJ)

 

Overnight Media Digest

WSJ

* Ten big drug companies that have spent billions racing one another to find breakthroughs on diseases like Alzheimer’s have formed an unusual pact to cooperate on a government-backed effort to accelerate the discovery of new medicines.

* American companies are struggling with falling prices for a number of their key products amid intense competition and pressure from cost-conscious customers. Corporate revenues are showing the strain, whether from lower prices, weak demand or a combination of the two.

* The head of the nation’s top telecommunications regulator conveyed skepticism about further consolidation in the wireless industry during a meeting with Sprint Corp board members on Monday, a person briefed on the meeting said.

* Revelations about NSA eavesdropping have given foreign governments an opening to restrict U.S.-based IT companies, which are being depicted as either too compliant with or complicit in the spying.

* Hewlett-Packard Co said it found major accounting errors in an audit of the 2010 financial statements of UK software maker Autonomy, the first significant evidence backing up HP’s claim that Autonomy inflated its revenue and profit before the U.S. company acquired it.

* As Panasonic’s vaunted television business fades, a string of lesser-known niche businesses-such as solar panels and airplane entertainment systems-are rising to take its place.

* Walt Disney’s interactive-media unit is preparing to lay off several hundred people despite a strong launch for its videogame “Infinity.”

* Heidrick & Struggles International Inc chose former Goldman Sachs Group Inc partner Tracy R. Wolstencroft as its first outside chief executive, concluding an unusually long search by the big executive-search company.

* A new Pew Research survey on Facebook Inc users, released 10 years after the social network’s founding, sheds new light on how relationships are changing in the age of social media. While there are more people than ever using Facebook, only a small percentage of users are sharing details about their lives every day.

* U.S. regulators plan to require auto makers to equip new cars and trucks with technology that allows vehicles to communicate with each other to avoid crashes.

* Barrick Gold Corp and Goldcorp Inc the world’s largest gold miners, are close to selling their jointly owned Marigold mine in Nevada for more than $250 million, according to a person familiar with the matter.

* Western Union Co will remain under the supervision of a monitor and faces the possibility of new financial penalties after Arizona’s attorney general said the money-transfer company had failed to put in place sufficient controls to prevent money laundering.

* America’s dominant tobacco company is getting serious about electronic cigarettes. Marlboro cigarette maker Altria Group Inc said Monday it will buy e-cigarette upstart Green Smoke Inc for $110 million in the latest sign the battery-powered devices are moving from fad to mainstay and pose a rising competitive threat to traditional smokes.

* Volkswagen AG is going to allow employees at its Chattanooga, Tennesse, plant to vote later this month on whether to unionize under an agreement it worked out with the United Auto Workers union.

* January’s severe cold spell in the United States punished auto sales with industry volume falling for the first time since September and most major auto makers blaming the harsh weather for temporarily depressing vehicle demand.

* Duke Energy Corp on Monday said it is in talks to buy certain generating assets from a power utility in North Carolina.

* Intel Corp unveiled a series of changes to its executive compensation structure Monday, including boosting the number of management employees required to own stock.

* Lockheed Martin Corp is launching a new civilian version of its C-130J Super Hercules military cargo aircraft that a senior executive said could be available for energy and mining companies to supply remote areas with personnel and equipment by 2018.

 

FT

Billionaire John Malone, chairman of Liberty Global and Liberty Media, has held preliminary talks with Formula One backer CVC Capital Partners about buying a stake in the motor racing series, people familiar with the matter said.

U.S. technology company Hewlett-Packard has claimed that Autonomy, the British software company it bought for $11 billion in 2011, massively overstated its revenue and profit for the previous year.

UniCredit, Italy’s biggest bank by assets, said it had sold 700 million euros ($943.98 million) of non-performing loans to AnaCap Financial Partners last December. The lender said the sale had an unspecified impact on its 2013 balance sheet.

The United States’ two biggest carmakers by revenue, General Motors and Ford, posted lower January domestic sales figures, raising questions about the robustness of the U.S. auto boom.

Elliott Advisors has accumulated a 99 percent stake in British video game chain Game Retail, setting the fund manager up for a huge windfall if plans for a 300 million pound ($489.96 million) initial public offering are successful.

 

NYT

* “Gig City,” as Chattanooga is sometimes called, has what city officials and analysts say was the first and fastest – and now one of the least expensive – high-speed Internet services in the United States.

* Poor numbers on factory orders and car sales left investors wondering if their view of the economy was too rosy, and the three major indexes each fell more than 2 percent.

* The jury is expected to start deliberating on Tuesday in the trial of Mathew Martoma, a former top portfolio manager at SAC Capital Advisors, accused of using insider information to make trades.

* Hewlett-Packard Co has disclosed to the authorities that it found what it said were serious accounting errors at Autonomy, the British software maker it acquired in 2011, leading to a number of major revisions in the acquired company’s financial report for 2010.

* The federal government said on Monday that it planned to require all new cars to broadcast their location, speed, direction and other data, and to receive similar data from other vehicles, to warn drivers of impending collisions. But regulators cautioned that any new rules would be years away.

* Automakers reported on Monday sharp declines in United States sales in January as a harsh freeze and winter storms thwarted purchases across much of the country.

* In what will be one of the most closely watched unionization elections in the South in decades, Volkswagen AG announced on Monday that the 1,600 workers at its assembly plant in Chattanooga, Tennessee, will vote next week on whether to join the United Automobile Workers.

* Barclays Plc’s chief executive, Antony Jenkins, said Monday that he would forgo a bonus for 2013 in light of the bank’s continued restructuring costs and litigation expenses.

* Warburg Pincus plans to announce that it will invest up to $100 million in Dude Solutions, a provider of cloud-based software that helps schools, hospitals and government agencies manage building maintenance.

* Smith & Nephew, the British medical technology giant, has agreed to buy ArthroCare Corp, an American specialist in sports medicine, for an enterprise value of $1.5 billion.

 

Canada

THE GLOBE AND MAIL

* The head of Canada’s foreign-intelligence electronic-eavesdropping agency, John Forster, has for the first time defended the government’s secret surveillance programs that collect telecommunications “metadata,” calling it fundamental for the Canadian government to pick out foreign terrorists and other targets. (http://ift.tt/LuHuwj)

* Health authorities have stepped up a fight against a drug-resistant family of bacteria that has spread among a small number of patients in one unit at Royal Columbian Hospital in New Westminster. The Fraser Health Authority officially declared an outbreak on Monday, isolating patients in the ward and requiring medical staff to be gowned and gloved. (http://ift.tt/MWoFDH)

Reports in the business section:

* A new study by the University of Toronto’s environmental chemistry research group has suggested that the environmental health risks of oilsands operations in Alberta’s Athabasca region have probably been underestimated. (http://ift.tt/LuHuMx)

NATIONAL POST

* Gary Giroux, the lead detective investigating allegations of criminal activity involving Toronto Mayor Rob Ford, says the case is still “very active.” Giroux said he has been commanded to “take the investigation any direction it goes involving criminality in the mayor or the mayor’s office.” (http://ift.tt/MWoGHY)

FINANCIAL POST

* Canadian home prices are overvalued by 10 percent according to two new reports issued by Toronto-Dominion Bank and the International Monetary Fund on Monday. (http://ift.tt/LuHuMz)

 

Britain

The Telegraph

BARCLAYS CHIEF ANTONY JENKINS DECLINES 2.7 MLN STG BONUS

Antony Jenkins, chief executive of Barclays, has turned down an annual bonus that could have been worth as much as 2.7 million pounds ($4.41 million), saying it “would not be right” to accept the award.

PUBLIC TO BE OFFERED LLOYDS SHARES AS EARLY AS MARCH

The public could be offered the chance to buy shares in Lloyds Banking Group as early as next month after the taxpayer-backed lender said it was in the advanced stages of preparing a prospectus for a retail offer.

RANDGOLD EYES ACQUISITIONS AND HIGHER GOLD PRODUCTION

London-listed African mining company Randgold Resources is on the lookout for acquisitions and plans to increase gold production amid a better-than-expected start to the year for the precious metal.

AMAZON’S UK SALES SLOW AMID CALLS FOR BOYCOTT

Amazon’s sales growth in Britain slowed last year amid calls from members of Parliament and consumer groups to boycott the online retailer over its low UK tax payments.

The Guardian

AUTONOMY’S UK PROFITS ‘OVERSTATED BY 80 PCT’, HEWLETT-PACKARD FINDS

Hewlett-Packard’s long-running investigation into claims of accounting irregularities by the former management team of Autonomy, the British software company it bought for more than 10 billion pounds, has concluded that the firm’s main UK trading company overstated profits by 80 percent and revenues by 54 percent. ()

LLOYDS PPI COMPENSATION BILL NOW CLOSE TO 10 BLN STG

Lloyds Banking Group has set aside an extra 1.8 billion pounds to compensate customers it mis-sold payment protection insurance, taking the total cost to almost 10 billion pounds.

THREE ANGLO IRISH EXECUTIVES BLAMED FOR IRISH BANKING CRISIS GO ON TRIAL

The trial of senior executives at the bank that almost bankrupted Ireland begins this week with tight security around the Dublin courthouse where the men being blamed for the Irish banking crisis are to be tried.

The Times

RYANAIR FIGHTS BACK BY PARKING ITS AIRCRAFT IN FLAG CARRIERS’ BACK YARDS

A dismal winter for Ryanair has prompted the Irish airline to plot aggressive tactics in challenging traditional flag carriers with cut-price fares at primary airports serving European capital cities.

The Independent

NEW SAINSBURY’S CHIEF MIKE COUPE INVESTS IN CONTROVERSIAL ‘TAX AVOIDANCE’ SCHEME

Sainsbury’s new chief executive is a member of a controversial tax avoidance scheme that uses legal loopholes in a way that can reduce tax bills.

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Factory orders for December will be reported at 10:00–consensus down 1.8%

ANALYST RESEARCH

Upgrades

Allergan (AGN) upgraded to Buy from Neutral at Citigroup
Angie’s List (ANGI) upgraded to Outperform from Market Perform at Barrington
BBCN Bank (BBCN) upgraded to Outperform from Market Perform at Keefe Bruyette
Bryn Mawr Bank (BMTC) upgraded to Buy from Neutral at Guggenheim
Cabot (CBT) upgraded to Buy from Neutral at SunTrust
Cathay General (CATY) upgraded to Outperform from Market Perform at Keefe Bruyette
Chevron (CVX) upgraded to Strong Buy from Outperform at Raymond James
Devon Energy (DVN) upgraded to Outperform from Neutral at Credit Suisse
Duke Realty (DRE) upgraded to Outperform from Sector Perform at RBC Capital
East West Bancorp (EWBC) upgraded to Buy from Hold at Deutsche Bank
First Republic (FRC) upgraded to Outperform from Market Perform at Keefe Bruyette
Gap (GPS) upgraded to Buy from Neutral at UBS
Gilead (GILD) upgraded to Outperform from Neutral at RW Baird
Merck (MRK) upgraded to Buy from Neutral at SunTrust
Nielsen (NLSN) upgraded to Buy from Hold at Pivotal Research
OpenTable (OPEN) upgraded to Neutral from Sell at Citigroup
Pfizer (PFE) upgraded to Buy from Hold at Jefferies
Prospect Capital (PSEC) upgraded to Buy from Hold at Wunderlich
Salesforce.com (CRM) upgraded to Buy from Neutral at Roth Capital
Wilshire Bancorp (WIBC) upgraded to Outperform from Market Perform at Keefe Bruyette
Zynga (ZNGA) upgraded to Buy from Neutral at UBS

Downgrades

Callon Petroleum (CPE) downgraded to Neutral from Buy at SunTrust
Credit Acceptance (CACC) downgraded to Market Perform from Outperform at JMP Securities
Helmerich & Payne (HP) downgraded to Underperform from Neutral at Credit Suisse
Newmont Mining (NEM) downgraded to Neutral from Overweight at JPMorgan
Peregrine (PSMI) downgraded to Neutral from Overweight at JPMorgan
U.S. Silica (SLCA) downgraded to Hold from Buy at Jefferies

Initiations

AMC Networks (AMCX) initiated with a Buy at Topeka
Brown-Forman (BF.A) initiated with a Buy at Deutsche Bank
C&J Energy (CJES) initiated with a Buy at Jefferies
GlycoMimetics (GLYC) initiated with a Buy at Canaccord
GlycoMimetics (GLYC) initiated with a Buy at Jefferies
GlycoMimetics (GLYC) initiated with a Buy at Stifel
Kofax (KFX) initiated with a Buy at Craig-Hallum
LifeLock (LOCK) initiated with a Buy at Sterne Agee
Lionsgate (LGF) initiated with a Buy at Topeka
Madison Square Garden (MSG) initiated with a Buy at Topeka
Progressive Waste (BIN) initiated with an Underperform at Macquarie
StealthGas (GASS) initiated with an Overweight at Barclays
Symantec (SYMC) initiated with a Neutral at Sterne Agee

HOT STOCKS

Anadarko (APC) sees potential damages from Tronox (TROX) proceeding up to $5.15B
Yum! Brands (YUM) reported Q4 China division SSS down 4%
Yum! Brands (YUM) CEO Novak said well positioned to deliver double digit EPS growth
SWS Group (SWS) formed special committee to review Hilltop Holdings (HTH) proposal
Duke Energy (DUK) announced pipe break, ash release at Dan River Steam Station
Silver Standard (SSRI) to purchase Marigold Mine (GG, ABX) for $275M
W.R. Grace (GRA) emerged from Chapter 11
Church & Dwight (CHD) raised its dividend 11% to 31c per share, announced $500M share repurchase plan

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Sensata (ST), Centene (CNC), Becton Dickinson (BDX), PartnerRe (PRE), Sparton (SPA), Yum! Brands (YUM), Hartford Financial (HIG), UGI Corporation (UGI), Luminex (LMNX), Take-Two (TTWO), Hologic (HOLX), Edwards Lifesciences (EW)

Companies that missed consensus earnings expectations include:
Church & Dwight (CHD), Brown & Brown (BRO), Stanley Furniture (STLY), Dun & Bradstreet (DNB), Landauer (LDR), Anadarko (APC), Peregrine (PSMI)

Companies that matched consensus earnings expectations include:
AmeriGas (APU), CareFusion (CFN)

NEWSPAPERS/WEBSITES

FCC’s Wheeler skeptical about Sprint (S), T-Mobile (TMUS) deal, Reuters reports
UBS (UBS) CEO Ermotti: Selloff in emerging markets a ‘bit overdone,’ Bloomberg reports
Google’s (GOOG) Schmidt confident of approval for Lenovo (LNVGY), Motorola deal, Reuters reports
Google (GOOG) told to move its ‘mystery’ barge in San Francisco, AP reports
AT&T (T) ends promotion to pay T-Mobile (TMUS) subscribers to switch providers, WSJ reports
Challenges face new Microsoft (MSFT) CEO as Wall Street watches, Reuters reports
Web firms (FB, MSFT, GOOG, YHOO) offer details about secret government requests for data, Reuters reports
Liberty Global (LBTYA), Discovery (DISCA) make joint approach to Formula One, Telegraph reports
Disney (DIS) unit to cut several hundred workers, WSJ reports

SYNDICATE

ARCA Biopharma (ABIO) files to sell common stock and warrants
Halozyme (HALO) files to sell $100M in common stock
Spherix (SPEX) files to sell 7.54M shares of common stock for holders
USA Compression (USAC) files $1B mixed securities shelf, 33.3M shares of common units

via Zero Hedge http://ift.tt/1bZfmbs Tyler Durden

It is still all about the Yen carry which overnight tumbled to the lowest level since November, dragging the Nikkei down by 4.8% which halted its plunge at just overf 14,000, only to stage a modest rebound and carry US equity futures with it, even if it hasn’t helped the Dax much which moments ago dropped to session lows and broke its 100 DMA, where carmakers are being especially punished following a downgrade by HSBC of the entire sector.

Also overnight the Hang Seng entered an official correction phase (following on from the Nikkei 225 doing the same yesterday) amid global growth concerns and has filtered through to European trade with equities mostly red across the board. Markets have shrugged off news that ECB’s Draghi is seeking German support in the bond sterilization debate, something which we forecast would happen a few weeks ago when we pointed out the relentless pace of SMP sterilization failures, with analysts playing down the news as the move would only add a nominal amount of almost EUR 180bln to the Euro-Area financial system. Elsewhere, disappointing earnings from KPN (-4.3%) and ARM holdings (-2.5%) are assisting the downward momentum for their respective sectors.

In FX markets, GBP has seen gains following the latest impressive release from the UK which showed the highest UK Construction PMI reading since August 2007 and helped retrace some of yesterday’s heavy losses. Elsewhere, AUD has seen broad based strength after the RBA decided to keep rates on hold and drop their easing bias, saying that the most prudent course is a period of rate stability. Fixed income products are trading steady with Gilts seeing modest downside following the UK data release, with Gilts unreactive to this morning’s auction. Elsewhere, Bunds trade with minor gains alongside the move lower in equities.

Turning to the day ahead, the data calendar in Europe is fairly light with Spanish unemployment and Italian CPI. The focus in the US is factory orders and IBD/TIPP economic optimism index. The Congressional Budget Office will release its annual Budget and Economic Outlook, which will provide an official update of the projected budget deficit for fiscal year 2014. The Fed’s Lacker and Evans will be speaking today which may be one of the more interesting things to follow given the recent poor data and EM stress.

Overnight bulletin headlines from Bloomberg and RanSquawk

• Negative sentiment in Asia-Pacific trade which saw the Hang Seng index enter an official correction phase amid global growth concerns has guided European equities into slight negative territory, with volumes remaining light ahead of upcoming key risk events.
• GBP has seen outperformance this morning following the UK Construction PMI reading printing the highest figure since Aug. 2007.
• Looking ahead for the session, later sees the release of US Durable Goods Revisions, with Fed’s Evans and Lacker due to speak. Markets are set to remain quiet with position squaring ahead of key risk events including BOE and ECB rate decision and NFP.
• Treasuries decline as EMFX recover some of recent steep losses; 10Y yields 2.602%, near early November lows, and near 200-DMA at 2.489%.
• Russia canceled a bond auction for a second consecutive week; the Finance Ministry cited market conditions in a statement on its web site
• Draghi would only consider ending sterilization of crisis-era bond purchases if he’s openly backed by Bundesbank, two euro-area central bank officials said; ECB meets Thursday
• Bank of America cut the bonus pool for interest-rate traders by 15% to 20%  as revenue fell, said two people with direct knowledge of the matter
• Australia’s central bank signaled the end of a two-year easing cycle and foreshadowed stronger economic growth, sending the nation’s currency higher
• U.K. construction expanded at the fastest pace since August 2007 last month as residential activity led a pickup in all areas of building
• Companies from banks and technology firms to energy suppliers are set to face EU swaps rules, amid warnings from some businesses that they may not have all the systems in place to meet this month’s deadline
• Snow will start falling across the Northeastern U.S. again later today, according to the National Weather Service said; freezing rain and sleet will join the mix later tomorrow, according to AccuWeather Inc.
• Sovereign yields mostly higher. EU peripheral spreads widen. Asian and European stocks slide, U.S. stock-index futures gain. WTI crude and copper higher; gold falls

US Event Calendar

• 8:30am: Fed’s Lacker speaks in Winchester, Va.
• 9:45am: ISM New York, Jan. (prior 63.8)
• 10:00am: Factory Orders, Dec., est. -1.8% (prior 1.8%)
• 10:00am: IBD/TIPP Economic Optimism, Feb., est. 44.5 (prior 45.2)
• 12:30pm: Fed’s Evans speaks in Detroit Supply
• POMO – Fed to purchase $2.25b-$2.75b in 2021-2023 sector

Asian Headlines

BoJ Governor Kuroda said Japan is likely to eye 2% inflation around the latter half of fiscal 2014 and through early fiscal 2015. Kuroda also commented that the BoJ can conduct appropriate exit policy as needed and that it is too early now to mention specifically how BoJ will exits its ultra easy monetary policy. (BBG) This follows 2013 being the first year in half a decade to post positive inflation.

Hang Seng index preliminary close, down 2.90% at 21,397.77 and entered an official correction phase after declining 10% since Dec 3rd high.

EU & UK Headlines

UK PMI Construction (Jan) M/M 64.6 vs Exp. 61.5 (Prev. 62.1) – Highest since Aug. 2007.

ECB’s Draghi is seeking German support in the bond sterilization debate, according to sources. The sources say the move could add almost EUR 180bln to the Euro-area financial system, but add that Draghi would only consider ending the sterilization of crisis-era bond purchases if he’s openly backed by the Bundesbank. (BBG) It is strongly suggested that the Bundesbank would support an end to the ECB’s sterilization tool, as source comments last week suggested this would be the preferred measure over and above other policy tools.

ECB allots EUR 95.146bln in regular 7-day MRO, 116 bidders. This means that we will see a reduction in excess liquidity of EUR 20.5bln on Wednesday in addition to the EUR 0.6bln related to 3y LTRO repayments that was announced on Friday.

US Headlines

Newsflow from the US remains light with market participants positioning ahead of key risk events including tomorrow’s US ADP Employment Change and Nonfarm Payrolls release on Friday.

Equities

Negative sentiment in Asia-Pacific trade which saw the Hang Seng index enter an official correction phase amid global growth concerns has guided European equities into negative territory. This move lower was exacerbated by disappointing earnings from Arm Holdings and KPN and has consequently put pressure on the tech and telecoms sector. One of the stand-out performers for the session has UBS following their pre-market earnings release which has seen their shares higher by over 5% and led the financials sector into the green.

FX

GBP outperformed its major counterparts this morning, supported by the release of much better than expected Construction PMI data, while EUR/GBP which was buoyed yesterday by touted residual month-end buying also traded lower. Elsewhere, AUD gained across the board overnight after the RBA kept rates on hold at 2.50% and dropped its easing bias. The central bank also said that policy is appropriately configured to foster growth and that the most prudent course is period of rate stability. In spite of the sell off by Asian equity markets overnight, touted buying by real-money accounts saw USD/JPY recover losses posted overnight and edge into positive territory.

Commodities

Morgan Stanley says WTI crude is a backwardation ‘boon’ for investors and new pipelines moving crude out of US oilstorage center, will ‘leave the hub structurally short of crude oil’. (BBG)

Better weather is allowing the opening of Libya’s Mellitah, Zawiya Bouri, Jurf, and Brega ports, however Es Sider, Ras Lanouf, Zueitina, Hariga ports are closed amid protests, according to NOC. (BBG)

India is unlikely to cut gold import duties to the original level of 4% and the rollback is likely to happen in tranches according an official source. (Hindustan Times)

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We conclude as usual with Jim Reid’s overnight recap

Fascinating markets at the moment as the strong selling pressure extends into the Asian session. It’ll be interesting to see how far this needs to go before the market chatter switches towards debating whether the Fed will pause from tapering in March. If they are data dependant then there has been some reasons for them to doubt their baseline view over the past few weeks although as you’ll see below, the FOMC’s Fisher (speaking yesterday) suggests the Fed has so far been unmoved by recent events. Nevertheless Friday’s payrolls certainly looks set to be another pivotal release. The problem is clearly trying to understand how much the polar vortex has been impacting activity and also whether the mini-EM crisis has legs and influence. There’s certainly a lot going on at the moment.

Looking at the Asian session the Nikkei (-3.7%) and TOPIX (-4.2%) are once again in focus particularly with dollar-yen getting closer to the 100 mark (100.9 as we type). Japanese automakers (-5.2%) are leading the losses after some disappointing US auto sales numbers released yesterday (more below). Some soothing words from the BoJ’s Kuroda helped Japanese equities stem the losses earlier in the session, with the governor saying that Japan is likely to move to 2% inflation around the end of 2014/start of 2015. Including today’s moves, the Nikkei is down more than 13% in the year-to-date in local currency terms, and a slightly more mild 10% on a USD basis. Markets in Hong Kong have reopened post CNY holidays with the Hang Seng falling 2.2% and HSCEI shedding 3% as they “catch down” to market moves over the last couple of days. On a YTD basis, the EM selloff has certainly impacted Asian equities and its difficult to find a country which has not suffered a >6% fall in their equity market. Elsewhere The AUDUSD is up more than 1% today, trading at 0.887, after the RBA left rates unchanged and said that current policy settings were “appropriately configured” to foster growth –removing the Bank’s previous easing bias. 10yr UST yields are unchanged at three month lows of 2.58%.

So the debate about the weather impact on US growth looks set to continue and it seems likely that wintry conditions will also have a bearing on February’s macro data as well judging by conditions in the US north east on Monday. Forecasts suggest another round of wintry weather is in store for much of the area this week and there is also talk of a bigger storm over the weekend lasting into early next week. Meanwhile, there is talk that continental Europe will be warmer than average in February as it experiences the flip side of the polar vortex that has been affecting the weather State-side (Bloomberg).

Inclement weather was once again blamed for yesterday’s disappointing January ISM manufacturing report (51.3 vs 56.0 consensus, 57.0 previous) which printed at a nine-month low. Markets reacted poorly to the data as investors began adding DM growth to their litany of worries in emerging markets, but the reality is that risk assets had already begun selling off in advance of the ISM. The day ended with the S&P500 (-2.28%) breaking through its 100 day moving average on its way to its worst performance since June with talk of stop losses being triggered late in the US session. Just nine stocks in the S&P500 closed in positive territory, and only 1 in the Dow Jones, so it’s fair to say that the selling was broad based.

Looking more closely at the ISM report, DB’s Joe Lavorgna highlights that there was broad-based weakness in new orders (51.2 vs. 64.4 previous), production (54.8 vs. 61.7) and employment (52.3 vs. 55.8). This was the lowest reading on the survey since last May (50.0) and stands in stark contrast to the relatively sturdy results in the main regional surveys (New York Fed Empire, Philadelphia Fed and Chicago PMI). One small positive from the report was that new export orders (54.5 vs. 55.0) were largely unchanged on the month. The ISM’s survey chairman noted that weather impacted the survey results this month but this didn’t stop the selling. There was some positive news from the Fed’s senior loan officer survey which suggested a further easing of credit standards in January as demand for credit increased. Despite the surprisingly disappointing ISM, Dallas Fed President Richard Fisher stated that it was not enough to affect Fed policy, and neither was the drop in EM stock markets cause for the Fed to pause tapering. Fisher suggested that the Fed was more focused on the fixed income markets, noting the recent rally in seven and ten year bonds.

While we debate whether the recent US data disappointments were indeed weather-related or not, the auto industry provided some anecdotal evidence that perhaps things are slowing down in some sectors. The latest US auto sales numbers indicated that January sales fell for Ford (down 7% yoy), General Motors (down 12%), Toyota (down 7%), Honda (down 2%) and Volkswagen (down 19%). Ford and GM both blamed the polar vortex with a representative from Ford suggesting that sales had actually improved after the first polar vortex struck at the start of January, but deteriorated again when another Arctic blast hit later in the month. But there was also evidence that lower discounts during the month may have deterred some would-be buyers, rather than the weather, particularly given that a number of manufacturers were able to record sales growth in January including Chrysler (+8%) and Nissan (+12%).

Though it may seem strange, there was some comfort in the relative calm of the emerging market world yesterday given what was going on elsewhere. Though the tranquility may well be shortlived, yesterday saw the MSCI EM equity index fall only 1.05% versus larger falls in both the S&P500 and Stoxx600. The CDX EM index widened by 6bp which was a slightly firmer performance relative to the European Crossover (+9bp) and European subordinated financials index (+14bp). The latter was affected by an announcement from ISDA that it would be postponing the rollout of 2014 Credit Definitions until the September contract roll (from March). LATAM USD government bonds were largely unchanged even as Brazil announced its biggest monthly trade deficit in history in January as the depreciation of the Real has yet to translate into an improvement in exports.

Turning to the day ahead, the data calendar in Europe is fairly light with Spanish unemployment and Italian CPI. The focus in the US is factory orders and IBD/TIPP economic optimism index. The Congressional Budget Office will release its annual Budget and Economic Outlook, which will provide an official update of the projected budget deficit for fiscal year 2014. The Fed’s Lacker and Evans will be speaking today which may be one of the more interesting things to follow given the recent poor data and EM stress.

via Zero Hedge http://ift.tt/1fDTxTA Tyler Durden

Despite the hope-driven exuberance exhibited immediately post the Abe/Kuroda show, the USDJPY-pumping stock-momentum fest has ended – abruptly. Japan’s Nikkei 225 has lost all its gains and is now trading below US day-session lows (3-month lows) but it is the broader TOPIX index (more akin to the S&P 500) that is collapsing. Down almost 5% on the day (its biggest drop since the May collapse), the TOPIX is at 4-month lows. The TOPIX Real Estate index just hit a bear-market – down 20% from Dec 31st highs. Japanese sell-side shops are in full panic desparation mode as “suggestions” that a sub-14,000 Nikkei will prompt an acceleration of Japan’s QQE money-printing idiocy. This is getting ugly fast.

TOPIX collapses to 4-month lows…

As Bloomberg notes, the sell-side is in full panic mode…

Japan’s central bank will probably boost purchases of ETFs as early as this month if Nikkei 225 drops to about 14,000, Hidenao Miyajima, chief strategist at Parnassus Investment Strategies in Tokyo, says in interview.

 

But this won’t help as the ramp in USDJPY is not helping…

 

and The TOPIX Real Estate Index is in Bear market territory – down 20% from Dec 31st highs… and 6 month lows…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1kIVxLw Tyler Durden