Wednesday, October 23, 2013

Wednesday Watch

Evening Headlines 
Bloomberg:
  • Biggest China Banks Triple Debt Write-Offs to Brace for Defaults. China’s biggest banks tripled the amount of bad loans written off in the first half, cleaning up their books ahead of what may be a fresh wave of defaults. Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four largest rivals expunged in the first six months 22.1 billion yuan ($3.65 billion) of debt that couldn’t be collected, up from 7.65 billion yuan a year earlier, filings showed. 
  • Junk Rally Sparks Sales by Nikko Amid Bubble Risk: China Credit. Nikko Asset Management Ltd. and GAM Holding AG are trimming holdings of Chinese dollar-denominated junk bonds amid their strongest rally in almost a year, concerned over a surge in issuance and a possible asset bubble. Speculative-grade securities in China gained 3 percent in September, the most since November, beating the 1 percent advance for U.S. counterparts, according to Bank of America Merrill Lynch indexes. Nikko and GAM decreased holdings earlier this month, while Morgan Stanley favors investment-grade Hong Kong-based corporates as leverage among Chinese companies soars.
  • Li’s Hong Kong Sales Signal Peak as European Growth Beckons. Hong Kong billionaire Li Ka-shing made his fortune over a half-century of well-timed bets on everything from property to power generation. His latest deals suggest he’s wagering the city’s era of fast growth may be drawing to an end. Asia’s richest man may raise as much as $18 billion selling stakes in his retail unit and Hong Kong’s second-largest power supplier.
  • China’s Stocks Fall as Small Companies Tumble on Money Rates. China’s stocks fell for a second day, with the benchmark index for smaller companies tumbling the most in three months, after money-market rates surged. Leshi Internet Information & Technology (Beijing) Co. (300104), the operator of online-video portal LeTV.com, plunged by the 10 percent daily limit for a second day. Dairy producer Inner Mongolia Yili Industrial Group Co. (600887) declined by the most in three months. Huaneng Power International Inc., the listed unit of China’s largest power group, slumped 4.8 percent after earnings missed analysts’ estimates. The Shanghai Composite Index slid 1.2 percent to 2,183.45 at 11:25 a.m., heading for the lowest level since Sept. 30. The ChiNext index of small companies plunged 3.8 percent, after a 3.6 percent loss yesterday when trading volumes surged to a record. “The valuations of small-caps are too high and it looks like the bubble has started to burst,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “Even if some companies fall by 50 percent, their valuations are still very high as their earnings growth isn’t fast enough to catch up with share-price gains.”
  • Asian Stocks Climb as Won to Aussie Jump; Copper Retreats. Asia’s benchmark stock index headed for the highest close in five years and emerging-market currencies rose on bets the U.S. Federal Reserve will hold off cutting stimulus until next year. Australia’s dollar jumped after inflation data. The MSCI Asia Pacific Index added 0.5 percent by 11 a.m. in Tokyo, on course for the highest close since June 2008.
  • Rubber Falls as Yen Rebounds on Weaker-Than-Expected Jobs Data. Rubber dropped for the first time in three days as Japan’s currency gained against the dollar after U.S. employers added fewer jobs than estimated. A stronger yen weakens the appeal of yen-based futures. The contract for March delivery lost as much as 0.8 percent to 266.4 yen a kilogram ($2,716 a metric ton) on the Tokyo Commodity Exchange and was at 267.8 yen by 10:53 a.m. local time. The most-active contract fell 11 percent this year.
  • Banking Balkanization Prevails in Europe on Eve of Review. As the European Central Bank prepares to take its first big step toward a banking union, the financial industry in the region remains as fragmented as ever. Access to credit is choked off in the economies that need it most, banks are more dependent on government bonds of their home countries, and European Central Bank reviews of the region’s biggest lenders, intended to restore investor confidence, may backfire. ECB supervision alone probably won’t reverse the fracturing of lending along national lines that has driven up borrowing costs in some countries and worsened the co-dependence between indebted governments and their banks. As long as the bill for rescuing or shuttering failing lenders rests with individual states, regulators will be loath to relax their grip, according to current and former banking supervisors and economists
Wall Street Journal: 
  • Carl Icahn Sells Half of His Netflix(NFLX) Stake, Thanks Reed, Kevin. Like some blockbuster movies, Netflix flew out of the gates only to bomb when the reviews rolled in on Tuesday, and even hedge-fund titan Carl Icahn took some profits, selling roughly half his stake in the company. Netflix’s more than $66 a share price swing on Tuesday snapped a four-day winning streak for the high-flying video distributor and knocked it from its perch as the best performing stock in the S&P 500. The stock ended the day down 9.2%, losing $32.47 to $322.52, its biggest dollar drop in two years and biggest percentage fall in one year, according to data from WSJ’s Market’s group.
  • ObamaCare 2016: Happy Yet? The website problems were finally solved. But the doctor shortage is a nightmare. Three years after the disastrous launch of the Affordable Care Act, most of the website troubles finally have been ironed out. People are now able to log on to the government's ACA website and to most of the state health-insurance exchanges. The public has grudgingly come to accept higher insurance premiums, new taxes and increases in part-time workers who were formerly full-time. But Americans are irate anyway—because now they're seeing the health-care law's destructive effect on the fundamental nature of the way their care is delivered. Even before the ACA's launch in 2013, many physicians—seeing the changes in their profession that lay ahead—had begun talking their children out of going to medical school. After the launch, compensation fell, while nothing in the ACA stopped lawsuits and malpractice premiums from rising. Doctors must now see many more patients each day to meet expenses, all while dealing with the mountains of paperwork mandated by the health-care law.
CNBC:
  • Cerberus, others explore deal for Safeway(SWY) -sources. A handful of buyout firms, including Cerberus Capital Management, are exploring a deal for all or part of supermarket chain Safeway, according to people familiar with the matter, in what could potentially shape up to be one of the largest leveraged buyouts since the financial crisis. 
  • China's factory sector may contract in October. China's manufacturing sector may have slipped into a contractionary phase in October following two months of expansion, according to Nomura. The bank forecasts HSBC's flash Purchasing Managers' Index (PMI), which is due out on Thursday, slipped to 49.8 in October, below the key 50-mark which separates expansion from contraction.
Zero Hedge:
Business Insider:
Washington Post:  
NY Times:
  • Apple(AAPL) Targets Microsoft Office With Free Apps. At an event meant to feature its latest iPad tablet computing devices, Apple on Tuesday took aim at one of the biggest and seemingly unassailable businesses of its rival Microsoft, its Office software for tasks like word processing and spreadsheets.
The Detroit News: 
  • Obamacare's middle-class sticker shock. Last week I got news that my health insurance costs are going up. A lot. In 2014 my monthly premium for a family of four will increase 15 percent to $575, my deductible will double to $3,000 and I will lose my drug coverage, adding another $100 a month to my expenses. My story is typical for employees of Gannett, the Detroit News’ parent company, and other businesses across the country. Obamacare is not just creating havoc in state exchanges, it is roiling the larger private health insurance market. Costs are skyrocketing thanks to the expensive mandates, regulations and taxes buried in the Affordable Car Act. Call it the Unaffordable Care Act.
The Atlantic:
  • Samsung and Starbucks(SBUX) Are 'Bullying' Chinese Customers, Says China's State TV. Chinese state media just took aim at another foreign company: Samsung, which happens to make the most popular smartphones in the country. Late on Oct. 21, China Central Television (CCTV) ran a segment lambasting the South Korean company for charging Chinese customers for repairs of defective phones. The aim is to “protect domestic consumers from the bullying of foreign brands,” according to a government consultant interviewed. CCTV said software in Samsung Note and S series smartphones causes them to crash.
Reuters:
  • Nabors(NBR) results hit by tough U.S. oil service market. Nabors Industries Ltd posted a quarterly loss on Tuesday and a decline in adjusted profit as the oilfield services and drilling company grappled with an over-supplied North American market for certain services and older rigs. 
Financial Times:
  • Boom-era credit deals raise fears of overheating. Eight years since the Pik-toggle entered the market, companies are again using the esoteric structures, along with a host of riskier borrowing practices associated with the buyout boom that helped inflate the 2006-07 credit bubble.
China Securities Journal:
  • China May Seek New Property Curbs in 4Q. The central government may release new property curbs in 4Q and "hot-spot" cities may intensively announce finetune policies, citing an analyst familiar with the matter.
China Information News:
  • China Local Govts Should Set Practical 2014 Goals. Local governments should set practical 2014 growth targets and leave room for economic transformation, according to a report posted on the statistics bureau's website.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -1.0% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 132.0 -1.5 basis points.
  • Asia Pacific Sovereign CDS Index 100.75 -2.25 basis points. 
  • FTSE-100 futures -.20%.
  • S&P 500 futures -.28%.
  • NASDAQ 100 futures -.31%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (BEAV)/.88
  • (DPS)/.83
  • (MTH)/.83
  • (EAT)/.45
  • (WLP)/1.82
  • (LLY)/1.04
  • (WYN)/1.36
  • (GD)/1.68
  • (NOC)/1.82
  • (CAT)/1.67
  • (BA)/1.51
  • (BMY)/.44
  • (NSC)/1.39
  • (T)/.65
  • (AKAM)/.46
  • (TSCO)/.41
  • (CTXS)/.69
  • (RJF)/.63
  • (ORLY)/1.65
  • (CAKE)/.52
  • (LRCX)/.70
  • (ETFC)/.16
  • (VAR)/1.11
  • (KNX)/.19
  • (SWFT)/.29
  • (ETH)/.31
  • (TEX)/.59
  • (AVB)/1.17
  • (SLG)/1.28
  • (SYMC)/.44
  • (FFIV)/1.19
  • (HBI)/1.13
Economic Releases
8:30 am EST
  • Import Price Index for September is estimated to rise +.2% versus unch. in August.
9:00 am EST
  • House Price Index for August to rise +.8% versus a +1.0% gain in July.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,855,00 barrels versus a +3,999,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -695,000 barrels versus a -2,570,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,540,000 barrels versus a -1,801,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.2% versus a +.2% gain the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The HSBC China Manufacturing PMI, Bank of Canada rate decision and the weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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