All day and every day, some of the stock market's best and brightest traders and money managers share their ideas, insights, and analysis in real-time on Minyanville's Buzz & Banter.
Here is a small sampling of this week's activity in the Buzz.
Monday, July 1, 2013
Random Sniffage: UST Liquidity Update
I've been chatting this morning with active players in the US Treasury space to get a sense of what's what in terms of liquidity now that quarter-end is over. The Friday before last and the Monday following ,I pointed out that liquidity in UST's was dangerously low as the dealer community had figuratively closed up shop for the rest of the quarter. Not to say that there was no trading getting done in fixed income. Today thus far, liquidity is "better" or "decent" and my screens are looking a bit more full, but swap related trading still remains very light so things are getting better as the risk leash gets loosened. Volumes are also very light across the board. Of course, with this week being a vacation week, light trading is to be expected to a certain extent.
The ISM report was better than expected across all sectors with the exception of the employment subindex, which recorded the first sub 50 (contractionary) reading since September 2009. On the conference call, ISM Chairman Holcomb attempted to sound more upbeat saying that employment gains would follow the gains elsewhere in the survey. That strikes me as odd as logically, manufacturers should be increasing staff or hours alongside increasing new orders, which makes me question whether or not this is a blip from oversold (for lack of a better word) prices and inventories.
Prior to today's ISM release I would have hypothesized that the risks to NFP were to a better number than the consensus. Those risks still appear to be there with ADP, ISM non-manufacturing, and the last weekly jobless claims reading from June on Wednesday morning being the final clues. Unfortunately, NFP remains the biggest economic related market catalyst due to Fed policy.
On Friday's release of the Commitment of Traders (COT) report, speculative short positions in the ultra bond ("long bond" on CBOT) were reduced by 21% of total contracts outstanding. This is a very sizable move and could be indicative of steepener trades being unwound or outright short covering.
EM carry trade currencies remain under pressure, specifically the Real (BRL), Ruble (RUB), Rand (ZAR), and Lira (TRY) amongst others. EM CDX has stabilized over the past few trading days, consistent with similar stabilization in real rates over the last week. A BofA report this morning of FX flows during the last week showed hedge funds heavily selling EM and Latin American currencies for the fifth week in a row, specifically BRL, South Korean Won (KRW), TRY, and Israeli Sheckle (ILS). Additionally, corporations and real money (institutions) were sellers of all EM currencies.
Just as there were Q2 agendas, there are Q3 agendas and we're seeing that re-positioning now. The tone and tenor are firm and firmer but that doesn't preclude an "upset;; case in point, Serena Williams just lost to Sabine Lisicki at Wimbledon!
Market breadth is 4:1 positive as the banks, transports and tech lead the upside speed; note the price action in Apple (AAPL) and Google (GOOG) now that the second-quarter letters are inked.
My checks around the street indicated that most dealers are half-staffed, which is consistent with what we thought we would see: Agendas + thin ranks = volatility.
The S&P 500 (^INX) 50-day -- the second of four technical resistances -- is right here, right now at 1623.
I scaled into my current positioning (SPY puts); rather than "buy to sell," I used strength to my advantage and layered into exposure. As of Friday, I was a stone's throw from my cost basis; today, I'm about 27 handles under water. Time will tell (it's December paper) but thus far, and shockingly enough, I've been early.
Loose lips sink ships but loose grips (on the handlebars) make for a smoother ride.
Societal acrimony? What societal acrimony? Below is a picture of Tahrir Square in Cairo; the Egyptian military just ordered a 48-hour ultimatum to find a solution.
As always, I hope this finds you well.
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The beginning/end of quarters is often an important turning point for stocks and markets.
Apple squared out at 385 on April 19, followed by a significant rally.
AAPL has another square-out at the end of June at 389.
Friday's low was 388.87.
Combined, the two square-outs may indicate a successful test has played out.
AAPL is up strongly pre-market so it will be interesting to see the behavior this week.
See the Square of 9 and daily charts below:
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Tuesday, July 2, 2013
Good morning Minyans -- no new corporate bond issuance yesterday, as expected. Pretty quiet on the CDS front this morning with US financials CDS flat to better, PIIGS CDS tighter, and broad indices CDS steady to better. HY spreads have improved a little bit again, but 2-year swaps are again between 16-17bps and there is clearly uncertainty there.
A quick comment on HY spreads: if the chart of HY were the chart of a stock, considering how fast the yield moved from 500bps to 700bps, the pullback down to 660bps would look more like consolidation before another leg up than the change of the trend.
However, fear not; by all accounts, bond buyers are still there waiting for the right deals at the right prices. They may soon be rewarded as Bloomberg is reporting that Oracle (ORCL) will likely hit the market with an 11-figures deal (as in $10+ billion) to... yes, you guessed it, pay dividends and buy back stock.
Another Solid Week for Nintendo
VGChartz just posted its latest weekly sales estimates, showing another solid week for the Nintendo (NTDOY) 3DS.
While the 3DS had been a significant disappointment since its early 2011 release, sales began picking up in mid-June with the US/Europe release of Animal Leaf: New Crossing (it was already out in Asia), which is why I recently went long the stock. (Deeper explanation here.)
According to VGChartz, global sales of the 3DS were 201K for the week ended June 22. That's below slowdown from the 264K sold the week before, when ALNC was released .
However, in the four weeks before that, the 3DS had averaged sales of just 131K.
On the software side, Nintendo's seen an equally impressive jump. For the week ended June 15, Nintendo moved 1.1 million software units, with 706K being sold the June 22 week. This compares to an average of 566K for the prior four weeks.
Time will tell whether the 3DS will now be stepping up to a higher sustained level of unit sales, but this healthy activity.
On the negative side, the Wii U is still struggling, though that's not a surprise.
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On a Mission
Equity markets are on a mission, and as is often the case, news will not matter for very long until it reaches its goal. So far, the mission seems to be holding the market up right until Friday's NFP, in a game tactic opposite of last month's trade, which sold off before then rallied for three days.
This would suggest a sell the news event on Friday. If that scenario plays out, then we could be targeting SPX 1631.37, 78.6% 2013, around 1626 for ES before we come down hard. NQ (NDX futures) would have upside risk to multiple confluences around 2968/2969. So for now, we are in a buy the dip mode, but beware of the risks involved. SPX 1631.37 is a brick wall, as it collides with the ex-rising trendline support for the year.
To quote Jesse Livermore: "There is also the Wall Street fool, who thinks he must trade all the time".
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Wednesday, July 3, 2013
For What It's Worth
I just spoke to a friend in the packaging sector who mentioned that they can't get paid on invoices sent to Chinese customers. I am passing this along because it may provide some insight into how the recent disruptions in the Chinese cash markets are impacting the broader economy. I caution that this is one comment from one company, with no specific context about how far past due these invoices are, but it bears watching accounts receivable balances when earnings start next week.
Moto X -- Born in the USA
Tomorrow, Google's (GOOG) Motorola unit will unveil the Moto X smartphone, which has two interesting things going for it:
1) It is being pushed as 'the first smartphone designed, engineered and assembled in the USA'. This is a big dig at Apple, which uses the moniker 'Designed in California' for its products, which are assembled in China.
2) The Moto X is also being called 'the first smartphone you can design yourself'. This is actually more compelling, especially if it goes beyond the obvious concept of being able to select colors for the casing.
This product is worth watching. As of yet, Google's Motorola unit has been a financial disaster (though possibly a longer-term strategic win on patent/IP side). If Google simply stabilizes Motorola's market-share losing smartphone unit, estimates will have to go up.
The full rollout is coming tomorrow on the 4th of July -- stay tuned!
Thursday, July 4, 2013
Markets closed in observance of Independence Day.
Friday, July 5, 2013
NFP Instant Reaction
In a normal world, this would be a solid report:
- Revisions of +70k to prior two months shows continued strength.
- Hourly earnings bumped up a bit for May and a decent amount of 0.4% for this month -- the Fed will not like seeing that as they believe the only non-transitory inflation comes from wage inflation.
- The job mix seems like it could have been better with leisure adding a lot and manufacturing slipping.
- Household report was down to 160k and unemployment rate remained at 1.6% while those working part-time who would prefer to have been working full time increased.
So in the old, pre-taper world, it's a pretty good report that still leaves in doubt what sort of economy we are generating, and whether a service-based economy is competitive in the long run.
But, sadly we don't live in a pre-taper, pre-QE world.
Stock futures aren't as high as they were at 3am on the European open. We were already in the throes of a rally based on some ECB statements. So, as much as we might want to think out data is driving the market, some central banker comments around the globe had a greater impact.
The real problem is that this data will spur the argument that we will see tapering sooner rather than later, and worse than, we might see rate hikes.
We are once again seeing a bear flattener with 5-year yields up more than 10-year yields which are up more than 30-year yields. Bear flatteners are not good for risk in the longer run.
I think the job report is probably in the end neutral for risk because of the increased fear that tapering will hit and that has not been supportive for stocks. The wage inflation will hit the radar screen. At the same time, these yield increases are occurring in an economy where the quality of jobs remains dubious.
You can probably safely enjoy the rest of your 4th of July weekend (as about 2/3 of the market seems out), but I think we continue to live in a world where what a few central bankers say and threaten to do across the globe trump our own data, and they all pale in comparison to the Fed's efforts to turn the market into their very own little marionette.
So an okay jobs report in the old world is likely to have mediocre consequences for the market in this central banker dominated one.
Dancing With the One Who Brung Ya, SHIBOR Edition
I have been on vacation this past week, but I wanted to take a moment to update where things stand in China. Forgive me for how busy this first chart is, but I think it's important to see the way the shape of the SHIBOR curve has changed since we called it out a few weeks ago. (see chart 1)
You'll see the front end of curve has seen a dramatic flattening in the past two weeks. Clearly the PBoC has taken a more moderate tone in its efforts to curtail credit growth. A couple of weeks ago there were concerns about whether we'd see a bank run in China. That doesn't appear to be the case now, as the second chart shows, which looks at differences in the overnight, 1 week, 2week, 1 month and 3 month SHIBOR rates to the 1 year SHIBOR rate:
You'll see the spreads have gone negative. That's actually a good thing since I calculated the difference to show inverted curves to be positive and normal curves to be negative. So the curve is starting to normalize; overnight, one week and two week rates are less than the one year rate. One month rates are still higher than one year, but that's on a path to correcting itself as well.
What will be interesting to see now is what the Fed does. Because before I went on vacation, I noted the similarities in timing on both the PBoC and the Fed in their tone and mood regarding rates, credit growth and tapering. It will be interesting to see if they continue to dance to the same tune together or not.
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Goldilocks or Not?
NQ (Nasdaq 100 futures) is bumping up against trendline resistance and battling the 61.8% retrace of the correction at 2963.50.
NFP looks like a goldilocks scenario, with the unemployment rate staying at 7.6% but a beat on employment change. However, pay attention to this NQ chart. In ETF land, PowerShares QQQ Trust (QQQ) 72.76 is the 61.8% retrace which coincides with the 6/19 gap (72.76). With TNX approaching 2.7% and August 2011 levels, competition with stocks is a potential negative if you factor in the 15% gains already achieved.
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