Wednesday, July 26, 2017

Thursday Watch

Evening Headlines
  • Crisis-Plagued Europe Sees a New Dawn After Greek Market Return. (video) Five years after the sovereign debt crisis nearly tore the euro area apart, Europe’s biggest problem child appears on the road to recovery as the region continues to tick off boxes underscoring its revival. Greece sold 3 billion euros ($3.5 billion) of bonds this week for the first time since 2014, when the prospect of Alexis Tsipras’s election catapulted borrowing costs to unsustainable levels. The country’s return from the wilderness comes as a new French president has raised expectations about deeper economic integration following successive defeats of europhobic parties.
  • South Korean Economy Slows From Fastest Expansion Since 2015. South Korea’s economic growth slowed in the second quarter as expansion in construction investment eased and export volumes fell from the previous three months. Economists said the slowdown is mostly due to a base effect from a solid first-quarter performance and that it shouldn’t be seen as a negative sign for the outlook.
  • Japan Recommends Nationwide 3 Percent Minimum Wage Hike for 2017. The Bloomberg Dollar Spot Index held at the lowest in more than a year, while the 10-year Treasury yield extended losses after the Fed held rates steady and indicated it would start unwinding its balance sheet “relatively soon.” The MSCI Asia Pacific Index rose to the highest since December 2007 after earnings from Samsung Electronics Co. and Nintendo Co. beat analysts’ estimates, and the Dow Jones Industrial Average closed at a record high. Japan’s Topix index rose 0.3 percent, while Australia’s S&P/ASX 200 Index added 0.3 percent. South Korea’s Kospi index climbed 0.2 percent. In Hong Kong, the Hang Seng Index added 0.2 percent, while the Shanghai Composite Index dropped 0.4 percent.
  • The Fed May Not Be the Master of Its Balance-Sheet Fate. (video) The Federal Reserve signaled on Wednesday that it intends to kick off the long-awaited reduction in its $4.5 trillion balance sheet in September, although a final decision to go ahead may not be entirely its to make. A looming deadline for raising the government’s debt ceiling could end up complicating the Fed’s plans if it significantly disrupts financial markets, particularly for U.S. Treasury securities. “September is the most likely outcome” for the launch of the balance-sheet drawdown, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “But I can’t rule out the idea that they would wait until November if the debt ceiling really looks messy.”
  • Trump Pick for Fed's Wall Street Watchdog Plans to Ease Rules. President Donald Trump’s pick to be the Federal Reserve’s top Wall Street watchdog said it’s time to reconsider the restrictions imposed on banks in recent years, even as he credited regulations with helping stabilize the financial system after the 2008 crisis. “As with any complex undertaking, after the first wave of reform, and with the benefit of experience and reflection, some refinements will undoubtedly be in order,” said Randal Quarles, Trump’s nominee to be the Fed’s first vice chairman of supervision.
Wall Street Journal:
Zero Hedge:
Night Trading 
  • Asian equity indices are +.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 82.0 -2.0 basis points. 
  • Asia Pacific Sovereign CDS Index 20.25 -.5 basis point.
  • Bloomberg Emerging Markets Currency Index 74.03 +.07%.
  • S&P 500 futures +.16%.
  • NASDAQ 100 futures +.50%.
Morning Preview Links

Earnings of Note

  • (AGCO)/1.05
  • (ALXN)/1.26
  • (AB)/.47
  • (MO)/.86
  • (AMT)/1.51
  • (BUD)/1.00
  • (MT)/1.05
  • (AZN)/.82
  • (ADP)/.67
  • (BWA)/.89
  • (BSX)/.31
  • (BMY)/.73
  • (BC)/1.33
  • (CBG)/.53
  • (CELG)/1.78
  • (CLF)/.17
  • (CMCSA)/.49
  • (COP)/-.03
  • (DOW)/1.00
  • (DPS)/1.28
  • (FCAU)/.52
  • (HTLD)/.18
  • (IP)/.65
  • (JCI)/.71
  • (LLL)/2.02
  • (MA)/1.04
  • (MCK)/2.83
  • (MGM)/.30
  • (POT)/.17
  • (PG)/.78
  • (RTN)/1.76
  • (LUV)/1.20
  • (TWTR)/.05
  • (UPS)/1.47
  • (VLO)/1.13
  • (VZ)/.96
  • (ZBH)/2.10
  • (AFL)/1.63
  • (AMZN)/1.39
  • (BIDU)/1.44
  • (CERN)/.61
  • (CY)/.16
  • (DECK)/-1.67
  • (EA)/.27
  • (EXPE)/.93
  • (FSLR)/.04
  • (INTC)/.68
  • (KLAC)/1.59
  • (MHK)/3.59
  • (SBUX)/.55
  • (WDC)/2.86
Economic Releases  
8:30 am EST
  • Initial Jobless Claims are estimated to rise to 240K versus 233K the prior week.
  • Continuing Claims are estimated to fall to 1960K versus 1977K prior.
  • Preliminary Durable Goods Orders for June are estimated to rise +3.5% versus a -.8% gain in May.
  • Preliminary Durables Ex Transports for June are estimated to rise +.4% versus a +.3% gain in May.
  • Preliminary Cap Goods Orders Non-Defense Ex-Air for June are estimated to rise +.3% versus a +.2% gain in May.
  • Advance Goods Trade Balance for June is estimated at -$65.5B versus -$66.3B in May.
  • Preliminary Wholesale Inventories MoM for June are estimated to rise +.3% versus a +.4% gain in May.
  • Chicago Fed National Activity Index for June is estimated to rise to .35 versus -.26 in May.
11:00 am EST
  • Kansas City Fed Manufacturing Activity for July is estimated at 11.0 versus 11.0 in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Japan Inflation Data report, $28B 7Y T-Note auction, weekly Bloomberg Consumer Comfort Index and the EIA weekly natural gas inventory report could also impact trading today.
BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon.  The Portfolio is 100% net long heading into the day.

Stocks Slightly Higher into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Earnings Optimism, Oil Gain, Biotech/REIT Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Around Even
  • Sector Performance: Mixed
  • Volume: Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 9.39 -.42%
  • Euro/Yen Carry Return Index 135.98 +.03%
  • Emerging Markets Currency Volatility(VXY) 7.51 -.40%
  • S&P 500 Implied Correlation 27.82 +8.1%
  • ISE Sentiment Index 62.0 -40.95%
  • Total Put/Call .70 -12.5%
  • NYSE Arms 1.13 +95.72%
Credit Investor Angst:
  • North American Investment Grade CDS Index 56.21 +.08%
  • America Energy Sector High-Yield CDS Index 431.0 -2.32%
  • European Financial Sector CDS Index 50.14 -.37%
  • Western Europe Sovereign Debt CDS Index 4.93 +16.71%
  • Asia Pacific Sovereign Debt CDS Index 20.36 -1.62%
  • Emerging Market CDS Index 192.11 -1.6%
  • iBoxx Offshore RMB China Corporate High Yield Index 140.38 -.05%
  • 2-Year Swap Spread 23.75 -.25 basis point
  • TED Spread 19.25 +5.75 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -27.0 +2.0 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 73.94 +.53%
  • 3-Month T-Bill Yield 1.12% -3.0 basis points
  • Yield Curve 93.0 -1.0 basis point
  • China Import Iron Ore Spot $70.43/Metric Tonne +1.37%
  • Citi US Economic Surprise Index -44.40 +1.1 points
  • Citi Eurozone Economic Surprise Index 13.60 +.7 point
  • Citi Emerging Markets Economic Surprise Index 15.60 +.5 basis point
  • 10-Year TIPS Spread 1.80 -1.0 basis points
  • 19.7% chance of Fed rate hike at Nov. 1 meeting, 48.6% chance at Dec. 13 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating -20 open in Japan 
  • China A50 Futures: Indicating +8 open in China
  • DAX Futures: Indicating -39 open in Germany
  • Higher: On gains in my tech/biotech sector longs 
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long

Today's Headlines

  • Russia Warns of ‘Painful’ Response If Trump Backs U.S. Sanctions. (video) Russia threatened to retaliate against new sanctions passed by the U.S. House of Representatives, saying they made it all but impossible to achieve the Trump administration’s goal of improved relations. The measures push U.S.-Russia ties into uncharted territory and “don’t leave room for the normalization of relations” in the foreseeable future, Deputy Foreign Minister Sergei Ryabkov said Wednesday, according to the Interfax news service. Hope “is dying” for improved relations because the scale of “the anti-Russian consensus in Congress makes dialogue impossible and for a long time,” Konstantin Kosachyov, chairman of the international affairs committee in Russia’s upper house of parliament, said on Facebook. Russia should prepare a response to the sanctions that’s “painful for the Americans,” he said.
  • Your Evening Briefing
  • Tax Overhaul Framework May Go Public This Week. A set of broad guidelines on a tax overhaul bill could be released as early as this week, according to people familiar with ongoing tax discussions between congressional leaders and White House officials.
Wall Street Journal: