Tuesday, October 25, 2016

Wednesday Watch

Evening Headlines
  • China's Banks Are Running Out of Ways to Keep Profits Growing. China’s five largest banks are facing an increasingly daunting balancing act as they try to avoid snapping a streak of rising earnings. The state-controlled lenders have managed to keep profits increasing every year since 2004, sending a message about the resilience of China’s financial system. Keeping that trend alive is becoming tougher because of rising bad loans and pressure on lending margins. While analysts expect another quarter of profit growth when Bank of China Ltd., Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp. and Bank of Communications Co. report earnings this week, it might just be a matter of postponing the inevitable. For the full year, the five are projected to post a 2 percent decline in net income, according to analysts surveyed by Bloomberg.
  • Xi’s Agents of Fear Keep Party On Edge as Graft Fight Ploughs On.
  • ‘Tough’ Earnings Season Looming for Australia's Banking Giants. It’s going to be a “tough” earnings season for Australia’s biggest banks, according to Goldman Sachs Group Inc. Full-year results due from three of the lenders -- starting with National Australia Bank Ltd. on Thursday -- are poised to show that a record-breaking run of profits is coming to an end amid higher funding costs, lower interest margins and rising bad-debt charges. Australia & New Zealand Banking Group Ltd. may report its lowest cash profit in four years, while Westpac Banking Corp.’s may be little changed, analyst surveys by Bloomberg indicate. The lenders all reported weaker-than-expected cash profit in the first half, the first time in at least a decade that three of the nation’s largest lenders missed estimates at the same time, according to data compiled by Bloomberg.
  • Most Asian Stocks Decline as Apple’s Margins Drop; Oil Slides. Most Asian shares dropped and U.S. equity index futures fell after Apple Inc., the world’s largest company, disappointed investors with its first annual decline in sales since 2001. Crude oil slid to a three-week low and South Korea’s won strengthened. About five shares declined for every two that advanced on the MSCI Asia Pacific Index, with energy companies leading losses. Apple fell as much as 2.9 percent in after-hours U.S. trading, dragging Nasdaq index futures 0.3 percent lower.
Wall Street Journal:
Fox News:
  • 'We need to clean this up': Clinton aide cried foul on Obama's email denial. (video) One of Hillary Clinton’s top aides urged colleagues to “clean this up” after President Obama claimed in March 2015 he only learned of Clinton’s private email system from news reports -- a statement the aide pointedly challenged by noting the president "has emails" from her non-department address. The directive from Cheryl Mills, one of the Democratic presidential nominee’s most trusted aides, was revealed Tuesday in the newest batch of Campaign Chairman John Podesta’s emails posted by anti-secrecy site WikiLeaks. It is one of several showing how Clinton's inner circle scrambled to correct the record after Obama's initial remarks.
Night Trading 
  • Asian equity indices are -1.0% to -.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 114.75 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 33.5 -1.0 basis point.
  • Bloomberg Emerging Markets Currency Index 72.59 -.01%.
  • S&P 500 futures -.27%.
  • NASDAQ 100 futures -.34%.

Earnings of Note 
  • (AGCO)/.36
  • (BIIB)/4.98
  • (BA)/2.62
  • (BSX)/.27
  • (KO)/.48
  • (CMCSA)/.91
  • (GD)/2.38
  • (HES)/-1.24
  • (HLT)/.23
  • (IR)/1.29
  • (LEA)2/96
  • (NSC)/1.44
  • (NOC)/2.81
  • (SPG)/2.68
  • (LUV)/.88
  • (STT)/1.25
  • (WYN)/1.88
  • (ABX)/.20
  • (BWLD)/1.22
  • (ESV)/.13
  • (FFIV)/1.94
  • (MUR)/-.20
  • (NEM)/.50
  • (RHI)/.71
  • (TER)/.27
  • (TSLA)/.05
  • (TXN)/.91
  • (VMW)/1.10
  • (WDC)/1.05 
Economic Releases
8:30 am EST
  • Advance Goods Trade Balance for September is estimated at -$60.5B versus -$59.2B in August.
  • Preliminary Wholesale Inventories MoM for September are estimated to rise +.1% versus a -.2% decline in August.
9:45 am EST
  • Preliminary Markit US Services PMI for October is estimated to rise to 52.5 versus 52.3 in September.
10:00 am EST
  • New Home Sales for September are estimated to fall to 600K versus 609K in August.
10:30 am EST
  • Bloomberg Consensus estimates call for a weekly crude oil inventory build of +1,169,000 barrels versus a -5,247,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -550,270 barrels versus a +2,469,000 barrel gain the prior week. Distillate supplies are estimated to fall by -1,332,180 barrels versus a -1,240,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.56% versus a -.5% decline prior. 
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The weekly MBA mortgage applications report, $34B 5Y T-Note auction and the (ETH) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.

Stocks Falling into Final Hour on Earnings Outlook Worries, Oil Decline, Technical Selling, Hospital/Homebuilding Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Slightly Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.6 +4.2%
  • Euro/Yen Carry Return Index 118.59 +.19%
  • Emerging Markets Currency Volatility(VXY) 9.39 -.84%
  • S&P 500 Implied Correlation 42.90 +8.33%
  • ISE Sentiment Index 93.0 +12.1%
  • Total Put/Call .99 +8.79%
  • NYSE Arms 1.07 -8.2
Credit Investor Angst:
  • North American Investment Grade CDS Index 74.25 +.64%
  • America Energy Sector High-Yield CDS Index 520.0 +.01%
  • European Financial Sector CDS Index 94.50 +3.3%
  • Western Europe Sovereign Debt CDS Index 18.1 -2.69%
  • Asia Pacific Sovereign Debt CDS Index 33.49 -.56%
  • Emerging Market CDS Index 229.63 unch.
  • iBoxx Offshore RMB China Corporate High Yield Index 132.52 -.03%
  • 2-Year Swap Spread 23.0 -1.5 basis points
  • TED Spread 54.75 -.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -44.0 +.25 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 72.60 +.31%
  • 3-Month T-Bill Yield .33% +1.0 basis point
  • Yield Curve 91.0 -2.0 basis points
  • China Import Iron Ore Spot $61.96/Metric Tonne +4.52%
  • Citi US Economic Surprise Index -13.1 +1.6 points
  • Citi Eurozone Economic Surprise Index 35.7 +1.4 points
  • Citi Emerging Markets Economic Surprise Index -17.40 +1.2 points
  • 10-Year TIPS Spread 1.70% +1.0 basis point
  • 74.2% chance of Fed rate hike at Dec. 14 meeting, 75.3% chance at Feb. 1 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +23 open in Japan 
  • China A50 Futures: Indicating +1 open in China
  • DAX Futures: Indicating +4 open in Germany
  • Slightly Lower: On losses in my medical/retail sector longs 
  • Disclosed Trades: Added to my (IWM)/(QQQ) shorts
  • Market Exposure: Moved to 25% Net Long