Friday, July 10, 2015

Friday Watch

Posted by Gary .....at 12:11 AM
Evening Headlines 
Bloomberg:   
  • The Chinese Stock Meltdown That Makes the Greece Saga Look Trivial. The bear market by the numbers, below. The Shanghai Stock Exchange Composite Index has lost 28 percent since its peak on June 12, the worst selloff in two decades. About $3.9 trillion in market valuation has evaporated, more than the total annual output of Germany—the world’s fourth-largest economy—and 16 times Greece’s gross domestic product. As shares tumbled, companies rushed to apply for trading suspension. More than 1,400 companies stopped trading on mainland exchanges, locking sellers out of 50 percent of the market. The China Securities Regulatory Commission also banned major shareholders, corporate executives, and directors from selling stakes in listed companies for six months.  
  • Already Weakening, China Economy Faces New Blow From Stocks. While the extent of damage to China’s growth has yet to emerge as policy makers battle to shore up the stock market, Chen’s story flashes a warning sign for an economy already burdened with a property-market slump and export slowdown. Two-thirds of economists surveyed by Bloomberg this week saw at least some hit to gross domestic product this quarter. “The impact on household wealth and future consumption growth can’t be ignored,” said Shen Jianguang, the chief Asia economist for Mizuho Securities Asia Ltd. in Hong Kong. “For those who were lured into the stock market earlier this year, the losses are already huge.” 
  • China Trading Halts Slip After Rally With 47% Still Frozen. The number of companies with trading suspensions on mainland Chinese exchanges fell as the nation’s stock indexes rebounded. About 1,365 companies have halted trading, equivalent to 47 percent of total listings on Friday, down from 1,439 or 50 percent a day earlier, according to data compiled by Bloomberg. Current suspensions have locked up about $2.4 trillion worth of shares, or 36 percent of China’s market capitalization.
  • China's Dream of World Class Stock Markets Suffers Intervention Blow. It’s hard for Alex Wolf to believe that the Chinese officials he met four months ago are the same ones running the world’s second-largest stock market today. When Wolf, an emerging market economist at Standard Life Investments, sat down with the nation’s securities regulators in Edinburgh in March, they had a clear message: China is enacting the free-market reforms needed to lure foreign investors and gain entry into MSCI Inc.’s global indexes. Now, after a week of unprecedented government intervention to prop up the stock market, it’s clear to Wolf that reform has taken a back seat to easing the pain from a rout that many analysts say was inevitable. He's among international investors at Aberdeen Asset Management and Clough Capital Partners who say market meddling threatens to further delay MSCI inclusion after the index provider decided to leave China’s domestic shares out of its equity gauges in June.
  • Greece Seeks $59.2 Billion Bailout as Tsipras Bows to Demands. In an 11th-hour bid to stay in the euro, the government of Greek Prime Minister Alexis Tsipras offered to meet most of the demands made by creditors in exchange for a bailout of 53.5 billion euros ($59.2 billion). The proposal submitted to European institutions late Thursday almost mirrored the one from creditors on June 26, which was rejected by voters in a July 5 referendum. The package of spending cuts, pension savings and tax increases will face its first hurdle in the Greek Parliament on Friday. Though Tsipras ceded ground, he insists long-term debt to be made more manageable to allow Greece to recover from a crisis that has erased a quarter of its economy. In this, he has a growing support base that includes the U.S., European Union President Donald Tusk and the International Monetary Fund.
  • Singapore New Office Leases Drop by Half as Companies Cut Costs. Singapore’s new office leases declined by more than half as tenants such as Barclays Plc gave up space, while companies including Google Inc. moved out of prime office districts to cut costs. The proportion of new leases dropped to 6 percent of all signed in the first six months from 15 percent a year earlier, according to the latest figures compiled by commercial-property broker Cushman & Wakefield Inc.
  • Australian Mortgage Approvals Drop Most in Five Years in May. Australian home-loan approvals fell in May by the most in more than five years as the country’s banks tighten lending criteria. The number of mortgages approved for owners that occupy their home fell 6.1 percent in May from April, the largest drop since December 2009, according to government data released Friday. In New South Wales, which counts Sydney as its capital, such approvals fell 5.9%, the most since February 2012.
  • Iran Talks Stall as Russia, West Spar Over Arms Restrictions. Talks on Iran’s nuclear program were deadlocked and set to miss another deadline as the Islamic Republic’s interlocutors argued over persistent differences, including lifting restrictions on arms sales. Senior officials involved in the negotiations said it was too late to reach a deal by Friday morning in Vienna, the last chance to qualify for a 30-day review in the U.S. Congress. An agreement after that would be subject to 60 days of scrutiny, pushing back the date when Iran could qualify for sanctions relief, its main objective.
  • Chinese Stocks Head for Biggest Two-Day Rebound Since 2008. Chinese stocks rallied, sending the benchmark index toward its biggest two-day jump since 2008, as a flurry of government measures to stem an equity rout started to take effect. The Shanghai Composite Index climbed 5.2 percent to 3,900.20 at 10:14 a.m., adding to Thursday’s 5.8 percent surge, as health-care, industrial and consumer companies advanced. Only two stocks fell on the benchmark gauge with about 49 percent of companies on mainland exchanges still halted from trading on Friday, down slightly from the previous day.
  • Asia Stocks Track Global Gains as Greece Proposal Spurs Optimism. Asian stocks rose, following gains in global equities, after Greece submitted a bailout proposal similar to that proposed by its creditors. The MSCI Asia Pacific Index climbed 0.1 percent to 140.85 as of 9:00 a.m. in Tokyo, trimming its decline this week to 3.8 percent, which would be the largest weekly drop since 2012.
  • PC Shipments Fall 9.5% as Companies Limit Tech Spending. Worldwide personal-computer shipments fell 9.5 percent in the second quarter, hurt by restrained corporate technology spending and the strength of the U.S. dollar, market researcher Gartner Inc. said. Manufacturers shipped 68.4 million units, compared with 75.6 million a year earlier, the steepest quarterly decline since the third quarter of 2013. U.S. unit sales fell to 15.1 million, down 5.8 percent, with desktop PCs hit particularly hard, Gartner said Thursday in a report. Researcher IDC also said shipments slumped in the period. The second quarter’s decline, following a 5.2 percent drop in the prior period, underscores the persistent challenges for PC makers in an increasingly mobile world dominated by smartphones and tablets.
  • Three Banks’ Too-Big-to-Fall Plans Hamper ETN Sales. At least three major U.S. banks trying to show they’re not too big to fail said they stopped issuing very short-term debt, halting growth in their exchange-traded note programs in a way that may put investors at risk of losses. Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. aren’t issuing new shares of their ETNs, which count as short-term debt because holders can typically redeem them on about a week’s notice, according to “living wills” submitted to the Federal Deposit Insurance Corp. and the Federal Reserve last month, details of which were released Monday. Existing shares will continue to trade. 
  • Citigroup Sees Student-Loan Bonds on Course for Disruptions. Top-rated securities backed by U.S. government-guaranteed student loans face cuts to as low as junk that may further roil the market for the debt, according to Citigroup Inc. A review by rating companies that may lead to downgrades is unlikely to take into consideration that in some instances the securities have sponsors such as Navient Corp. that can accelerate repayments by buying out the underlying loans. The rating drops, which could also be avoided by amending the deals’ maturities, could rock the market, Citigroup’s Mary Kane and Eugene Belostotsky wrote Thursday.
  • Apple Stock at Brink of Correction After Consecutive 2% Declines. Apple Inc. fell for a fifth day, posting its first consecutive 2 percent declines since 2013 and pushing shares to the brink of a 10 percent correction. The slide comes amid a rout in China’s market that is occurring two weeks before the company reports earnings. The iPhone maker’s stock decreased 2 percent to $120.07, bringing its five-day loss to 5.2 percent -- a drop that wiped out $38 billion of market value. Since reaching its all-time high of $133 on Feb. 23, the stock is down 9.7 percent, leaving it about 40 cents away from a correction.
Wall Street Journal: 
  • New Greek Proposal Appears Closer to Creditor Demands. Plan would raise taxes, overhaul pensions, but may not be enough to unlock a new bailout. A new Greek proposal for economic policy overhauls and budget cuts appears to have moved closer to creditors’ demands on some of the most divisive issues, but there was no immediate word on whether it would be enough to unlock a new bailout package. The 13-page plan, submitted Thursday night to Greece’s eurozone creditors, the... 
Fox News:
  • FBI head: Several potential attacks thwarted ahead of July 4. (video) FBI Director James Comey said Thursday that the agency believes it stopped potential acts of violence in the month before the July 4 holiday. Comey said authorities suspect that some of the more than 10 people arrested during that time were planning to commit violence tied to the holiday. But he declined during a wide-ranging discussion with reporters to describe any of the potential plots that might have been thwarted or to identify specific individuals the FBI thought might carry out an attack.
  • Barracuda Networks(CUDA) says fewer customers signed big storage contracts in 1st qtr; stock slumps. The cloud-based security and storage services provider said it didn't sign as many large and lengthy storage deals in the first quarter as it had in the previous quarter and said more customers chose virtual and cloud products. Barracuda Networks said it signed some more big storage contracts after the quarter ended. The company also said the strong dollar affected its results. Barracuda Networks Inc. stock declined $6.70, or 17.1 percent, to $32.42 in extended trading.
CNBC:
  • Greece asks for $59B in aid, IMF says it needs more. International Monetary Fund (IMF) Chief Economist Olivier Blanchard warned that Greece may require even more debt relief and funding than the 60 billion euros ($66 billion) the fund forecast only a few days ago.
  • FDA Strengthens Heart Safety Warnings on Painkillers. The warning covers drugs called nonsteroidal anti-inflammatory drugs or NSAIDS for short. They include ibuprofen, sold under brand names like Advil or Motrin; naproxen (Aleve), as well as prescription arthritis drugs known as COX-2 inhibitors, such as Celebrex. Tylenol, known generically as acetaminophen, is not an NSAID.
Zero Hedge: 
Business Insider: 
Reuters: 
  • China's companies at risk of stock-backed loan recalls. Chinese companies that borrowed money using shares as collateral may have to put up more assets or repay their debts, carrying the ripples from the stock market plunge into the wider economy. A near 30 percent collapse in share prices has started to endanger some businesses using such financing, and the country's banking regulator said on Thursday it would let financial institutions renegotiate lending terms in these circumstances.
Telegraph: 
Yonhap News:
  • Hyundai, Kia see China sales plunge in June. Hyundai Motor Co. and its smaller affiliate Kia Motors Corp. saw their combined sales in China plunge in June amid intensifying competition and a lack of new models, industry data showed Friday. Hyundai Motor, South Korea's largest carmaker, sold around 60,000 cars in China last month, down 30.8 percent from a year earlier. Kia Motors saw its China sales in June drop 26.5 percent on-year to some 38,000 units, according to the data.
Financial News:
  • BoCom Sees Little Room for China Rate Cut in 2H. There's little room for an interest rate cut in 2H as new loans my rise about 13% to about 10.5t yuan in 2015, citing Bank of Communications as saying. Financial News is a publication of China's central bank.
South China Morning Post:
  • China's sweeping national security law sparks uncertainty for foreign firms. German envoy warns of legal uncertainty and hurdles to investment. The mainland's sweeping national security law and a series of related laws in the making have created legal uncertainty for foreign companies and new hurdles for their investment, said Michael Clauss, the German ambassador to China.
Evening Recommendations 
Mizuho:
  • Rated (LNKD) Buy, target $240.
Night Trading
  • Asian equity indices are +.25% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 112.0 -5.75 basis points.
  • Asia Pacific Sovereign CDS Index 61.75 -2.75 basis points.
  • S&P 500 futures +.99%.
  • NASDAQ 100 futures +.94%.

Earnings of Note
Company/Estimate
  • None of note
Economic Releases
10:00 am EST
  • Wholesale Inventories for May are estimated to rise +.3% versus a +.4% gain in April.
  • Wholesale Sales for May are estimated to rise +.9% versus a +1.6% gain in April.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Yellen speaking, Fed's Rosengren speaking, Wasde Crop report, UK Trade Balance report and the (PBY) annual meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by healthcare and financial shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.

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