Thursday, December 08, 2016

Morning Market Internals

NYSE Composite Index:

Wednesday, December 07, 2016

Thursday Watch

Evening Headlines
  • The Factory to the World Has a New Export: Inflation. The factory to the world has a new export: inflation. And it’s shipping faster than many thought possible just a few months ago. China’s weakening yuan, stimulus designed to ensure robust growth ahead of a crucial Communist Party Congress next year, and rebounding commodity prices are pushing up factory prices. Having turned positive in September for the first time in more than four years, producer prices rose 1.2 percent in October from a year earlier. That will almost double to 2.3 percent in November, according to analysts surveyed ahead of data due Friday.
  • Japan Unexpectedly Cuts Third-Quarter GDP Growth Figure to 1.3%. Japan revised third-quarter economic growth to an annualized 1.3 percent, compared with a preliminary reading that showed 2.2 percent expansion. The revision was driven by drops in capital spending and in private inventories, which both dragged down growth. The official size of Japan’s economy expanded as the nation revamped how it calculates gross domestic product, classifying research and development differently.
  • Asian Stocks Take Cue From U.S., Rising With Bonds Ahead of ECB. Fresh U.S. equity records lit a fire under the Asian market, with benchmarks from Tokyo to Sydney extending gains as bond yields declined ahead of policy updates from two of the world’s biggest central banks. The regional Asian stock index rose to a more than one-month high as banks drove Australia’s S&P/ASX 200 Index to its highest level since August and Japanese shares jumped. The euro and the yen maintained gains with gold ahead of Thursday’s European Central Bank decision, amid mounting speculation policy makers will prolong the euro-zone’s asset-buying program. The New Zealand dollar and Korean won strengthened. Yields on Australian bonds fell to their lowest level this month amid a debt rally across developed markets. Oil nudged $50 a barrel after a surge in U.S. stockpiles. The MSCI Asia Pacific Index climbed by .8% as of 10:01 am Tokyo time, rising for a third day as Japan's Topix index gained 1.1%.
  • The World's Top Oil Market Is Starting to Lose Its Sheen. One of the biggest engines soaking up the world’s oil is starting to sputter. Growth in crude imports by China, the second largest consumer after the U.S., will probably slow by more than 60 percent in 2017, according to a Bloomberg survey of analysts including FGE and Energy Aspects Ltd. Private refiners that helped boost purchases to record levels are expected to be constrained by tighter licenses and increased scrutiny on their taxes. At the same time, the current space available for stockpiles may run out. While OPEC’s deal to curb output may help erode a glut and lift prices, Chinese imports remain key for any sustained recovery. It’s the biggest buyer in Asia, the world’s top oil market, and its insatiable appetite was a significant driver for crude’s climb to more than $100 a barrel in the past decade.
  • Iraq Can’t Count on Kurds or Oil Companies for Help on OPEC Cuts. Iraq can’t count on the self-governed Kurds in the north or international oil companies to help it cut crude production as promised at an OPEC meeting last week. That may leave the country with no option but to slash state-controlled supplies to comply with its quota. Under the deal the Organization of Petroleum Exporting Countries reached last Wednesday, Iraq must reduce crude output by 210,000 barrels a day from October levels. But to achieve that, OPEC’s second-biggest producer may have to rely on the crude it fully controls. International companies including BP Plc and Royal Dutch Shell Plc pump most of Iraq’s oil, and the semi-autonomous Kurds contribute more than half a million barrels a day on top.
  • A Century-Old Stock Signal Is Flashing Buy as U.S. Transports Surge. (graph)
  • Lululemon(LULU) Surges After Third-Quarter Earnings Top Estimates. 
Wall Street Journal:
USA Today: 
  • Italian patriotism will teach foolish markets a lesson. The blistering rally of Italian equities and sovereign bonds is a marvel to behold. Short-covering rallies are always the most glorious, and the most treacherous. The market bounce after Brexit made perfect sense. Half the world immediately loosened policy to cushion an imaginary shock. It even made more sense after the election of Donald Trump. His triple pledge of tax cuts, a building boom, and an imperial navy - if enacted - will flood the US economy with even greater fiscal stimulus than Reaganomics.
Night Trading 
  • Asian equity indices are +.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 118.25 +.25 basis point.
  • Asia Pacific Sovereign CDS Index 37.25 -2.25 basis points.
  • Bloomberg Emerging Markets Currency Index 70.37 +.05%
  • S&P 500 futures +.02%. 
  • NASDAQ 100 futures +.11%.
Morning Preview Links

Earnings of Note

  • (CIEN)/.46
  • (HOV)/.14
  • (SHLD)/-4.06
  • (VNCE)/.08
  • (AVGO)/3.38
  • (COO)/2.25
  • (FNSR)/.46
  • (FRED)/-.19
  • (RH)/.16
Economic Releases
8:30 am EST
  • Initial Jobless Claims for last week are estimated to fall to 255K versus 268K the prior week.
  • Continuing Claims are estimated to fall to 2048K versus 2081K prior.
12:00 pm EST
  • Household Change in New Worth for 3Q.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The ECB decision/press conference, China inflation data, Bloomberg Dec. US Economic Survey, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, Barclays Tech/Media/Telecom Conference, Goldman Sachs Automotive Conference, (BHI) investor meeting, (EW) investor conference and (LUV) November traffic data could also impact trading today.
BOTTOM LINE:  Asian indices are higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Surging into Final Hour on Economic Optimism, Less European/Emerging Markets/US High-Yield Debt Angst, Lower Long-Term Rates, Tech/Transport Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Slightly Above Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • Volatility(VIX) 11.6 -1.3%
  • Euro/Yen Carry Return Index 127.96 +.22%
  • Emerging Markets Currency Volatility(VXY) 10.92 +.46%
  • S&P 500 Implied Correlation 49.88 +3.57%
  • ISE Sentiment Index 100.0 +28.21%
  • Total Put/Call .85 +3.66%
  • NYSE Arms 1.23 +26.96%
Credit Investor Angst:
  • North American Investment Grade CDS Index 68.12 -2.625%
  • America Energy Sector High-Yield CDS Index 481.0 -9.92%
  • European Financial Sector CDS Index 99.50 -1.85%
  • Western Europe Sovereign Debt CDS Index 23.0 -1.81%
  • Asia Pacific Sovereign Debt CDS Index 37.17 -6.12%
  • Emerging Market CDS Index 247.68 -4.21%
  • iBoxx Offshore RMB China Corporate High Yield Index 132.97 +.02%
  • 2-Year Swap Spread 22.50 -.5 basis point
  • TED Spread 45.75 -.25 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -51.5 +4.75 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 70.31 +.49%
  • 3-Month T-Bill Yield .50% +1.0 basis point
  • Yield Curve 124.0 -4.0 basis points
  • China Import Iron Ore Spot $82.25/Metric Tonne +3.16%
  • Citi US Economic Surprise Index 30.10 unch.
  • Citi Eurozone Economic Surprise Index 64.60 -1.5 points
  • Citi Emerging Markets Economic Surprise Index 4.2 +.3 point
  • 10-Year TIPS Spread 1.97% -2.0 basis points
  • 100.0% chance of Fed rate hike at Feb. 1 meeting, 100.0% chance at March 15 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +173 open in Japan 
  • China A50 Futures: Indicating +61 open in China
  • DAX Futures: Indicating +67 open in Germany
  • Slightly Higher: On gains in my retail/tech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 75% Net Long

Today's Headlines

  • China's Yuan Pessimists Are Multiplying. (video) China is tightening capital controls as the imminent renewal of a foreign-exchange conversion quota adds to depreciation pressure on the yuan. Chinese citizens are allowed to convert $50,000 worth of yuan annually, and with the new year less than a month away, the potential for capital flight is building. Individuals and households are the biggest threat to the yuan now, because they can easily be influenced by short-term volatility, according to Xia Le, a Hong Kong-based economist at Banco Bilbao Vizcaya Argentaria SA. The yuan has weakened 3.1 percent this quarter amid concern the Federal Reserve will raise borrowing costs, strengthening the dollar.
  • German Industrial Production Rose Less Than Forecast in October. German industrial production rose less than analysts forecast in October, signaling that Europe’s largest economy took a slow start to the final quarter of the year. Production, adjusted for seasonal swings, gained 0.3 percent from the previous month, when it declined a revised 1.6 percent, data from the Economy Ministry in Berlin showed on Wednesday. The reading, which is typically volatile, compares with a median estimate for a 0.8 percent increase in a Bloomberg survey. Output was up 1.2 percent from a year earlier.
  • European Stocks Rise for a Third Straight Day. (video)
  • AAA Ratings Return for Securities Backed by Riskier Home Loans. Two ratings firms are assigning AAA ratings to bonds backed by new riskier home loans, one of the few times such securities have won top grades since the financial crisis, according to documents obtained by Bloomberg. Fitch Ratings and DBRS Inc. are giving the ratings to more than $210 million of bonds backed by loans made by Caliber Home Loans, a unit of Lone Star Funds, and by loans from Sterling Bank & Trust and LendSure Mortgage Corp. The bonds are partially backed by mortgages in which the lender verified a borrower’s income with bank statements rather than tax returns. Another ratings firm, Moody’s Investors Service, recently called out those types of mortgages as risky.
Wall Street Journal:
  • Senate Clears Bill to Ease FDA Drug and Device Approvals. Measure includes money for NIH, cancer moonshot, precision medicine initiative. Passage of legislation aimed at speeding up Food and Drug Administration approvals, combined with an incoming president who has pledged to “cut red tape” at the agency, is expected to usher in a new, more industry-friendly era of drug and device regulation.
  • China’s Banks Are Hiding More Than $2 Trillion in Loans. Accounting sleight of hand means banks don’t have to set aside capital for potential losses, sowing fears of a crisis; new apartments with no residents.
Zero Hedge: