Monday, August 10, 2015

Tuesday Watch

Posted by Gary .....at 11:37 PM
Evening Headlines 
Bloomberg:
  • China Weakens Yuan Reference Rate by Record 1.9% Amid Slowdown. China devalued the yuan by the most in two decades, ending a de facto peg to the dollar that’s been in place since March and battered exports. The People’s Bank of China cut its daily reference rate for the currency by a record 1.9 percent, triggering the yuan’s biggest one-day loss since China unified official and market exchange rates in January 1994. The change was a one-time adjustment, the central bank said in a statement, adding that it plans to keep the yuan stable at a “reasonable” level and will strengthen the market’s role in determining the fixing. “It looks like this is the end of the fixing as we know it,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “The one-off devaluation of the fix and allowing more market-based determination takes us into a new currency regime.”
  • China’s Credit Slumps as Funds Used to Prop Up Stock Market. (graph) China’s efforts to halt a stock market rout spurred a surge in new lending to financial institutions last month, while credit to the real economy weakened. Aggregate financing slumped to 718.8 billion yuan ($116 billion) in July, from 1.86 trillion originally reported for June, according to the People’s Bank of China, missing the estimate for 1 trillion yuan in a survey of economists. New yuan loans jumped to 1.48 trillion yuan, almost double economists’ estimate, with 891 billion yuan going to financial institutions as the central bank backed stock rescue efforts.
  • With Sales Slowing, Luxury Brands Are Finding Hong Kong Rent Too High. Landlords on Hong Kong’s Russell Street a year ago could boast the highest retail rents in the world. Now they are adjusting to a new reality. Burberry Group Plc, Kering SA and jewelry retailer Chow Tai Fook Jewellery Group Ltd. are pushing landlords to lower rents on existing properties as luxury brands are scaling back amid plummeting sales. TAG Heuer closed its Russell Street store last week, citing high rents and declining traffic.
  • Aussie Firms on Alert as Confidence Slides Over China Slowdown. Australian business confidence fell in July, led by mining and construction firms as concerns mount about resource demand in response to China’s faltering growth outlook. National Australia Bank Ltd.’s sentiment index slumped to 4 from a revised 8 in June, a survey taken July 27-July 31 showed. The business conditions gauge, a measure of hiring, sales and profits, slid to 6 from a revised 10.
  • Aussie Drops 1% as China’s Record Yuan Cut Fractures Confidence. The Australian and New Zealand dollars tumbled after China, the South Pacific nations’ key trading partner, cut the yuan reference rate by the most on record. The Aussie and the kiwi are each down more than 10 percent this year against the greenback as weakening Chinese demand drives down prices for the commodity exports on which the Antipodean nations’ economies depend.
  • Ringgit Tracks Asia Currency Losses as China Slashes Yuan Fixing. Malaysia’s ringgit fell along with other Asian currencies as China’s record weakening in its daily reference rate spurred the biggest decline in the yuan since a dollar peg ended a decade ago. China took the unprecedented step just days after data showed exports contracted in July for a fifth month this year, underscoring concern that the region’s largest economy is slowing. Malaysia’s currency is Asia’s worst performer in 2015 as a slump in Brent crude weighs on the oil exporter’s earnings. A political scandal involving the prime minister and a looming U.S. interest-rate increase have sent the ringgit to a 17-year low, triggering capital outflows.
  • Chinese Airlines Tumble Most in Six Years on Slump in Currency. China Southern Airlines Co. led a plunge by the nation’s carriers on concern a weaker yuan will increase the size of their dollar-denominated debt and hurt earnings. China Southern sank 14 percent in Hong Kong trading at 10:23 a.m. local time, set for its biggest loss since April 2009. Air China Ltd. dropped 13 percent and China Eastern Airlines Corp. declined 10 percent.  
  • Goldman Sachs Cuts Aluminum Outlook Predicting Glut Through ’19. Goldman Sachs Group Inc. reduced its aluminum price forecasts by at least 21 percent from 2016 through 2018 because of a global surplus. The bank cuts its predictions to $1,525 a metric ton in 2016, to $1,625 in 2017 and to $1,700 in 2018 from $1,925, $2,100 and $2,200 as it projected a glut of about 2.5 million tons to 3 million tons from 2016 to 2019. Prices fell to a six-year low on the London Metal Exchange this month as exports from China surged. While shipments from the country, the world’s biggest producer, fell in July from the highest level this year, they have still increased 28 percent in the first seven months from a year earlier, customs figures showed on Saturday.  
Wall Street Journal: 
  • The World-Wide Undermining of Free Markets. China’s interference in its stock markets reflects a global trend of states trying to govern economic activity. Chinese authorities have gotten creative in their efforts to control the fall in the Shanghai and Shenzhen stock markets, which recently experienced their steepest one-day plunge in more than eight years. Prohibiting large shareholders and executives from selling their stocks, as announced last month, was a bold step, as was providing central-bank money to brokerage firms for equity purchases. Shutting down a large part of the markets was...
MarketWatch.com: 
CNBC: 
  • Australia’s CSL warns of biotech bubble. CSL, the Australian company that recently bought Novartis' influenza business, has warned of a "biotech bubble" amid a frenzy of mergers and acquisition activity across the healthcare sector.
Business Insider:
  • CITI: We've identified 'the most important consequence' of China's stock market crash. "The diminished credibility of policymakers may be the most important consequence of the crisis," a team of Citi Research economists said in a note to clients. The way they see it, officials were in charge of pumping up the stock market in an attempt to move the economy from one based on investment to based on consumption. The stock market's crash highlighted their inability to do so.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.75% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 114.25 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 64.5 -.75 basis point.
  • S&P 500 futures -.39%.
  • NASDAQ 100 futures -.11%.

Earnings of Note
Company/Estimate
  • (JASO)/.15
  • (ZBRA)/1.18
  • (CSC)/1.02
  • (CREE)/-.03
  • (FOGO)/.22
  • (FOSL)/.82
  • (MTGN)/.41
  • (SLW)/.13
  • (SYMC)/.43
Economic Releases
6:00 am EST
  • The NFIB Small Business Optimism Index for July is estimated to rise to 95.4 versus 94.1 in June.
8:30 am EST
  • Preliminary 2Q Non-Farm Productivity is estimated to rise +1.6% versus a -3.1% decline in 1Q.
  • Preliminary 2Q Unit Labor Costs are estimated unch. versus a +6.7% gain in 1Q.
10:00 am EST
  • Wholesale Inventories for June are estimated to rise +.4% versus a +.8% gain in May.
  • Wholesale Trade Sales for June are estimated to rise +.5% versus a +.3% gain in May.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German ZEW Index, $23B 3Y T-Note auction, weekly US retail sales reports, JPMorgan Auto conference, Wedbush PacGrow Healthcare conference, Goldman Power/Utilities/MLP/Pipeline conference, Oppenheimer Tech/Internet/Communications conference and the (ORLY) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity 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.

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