Evening Headlines
Bloomberg:
- Lost Decade in Emerging Markets: Investors Already Halfway There. (graph) Just 14 years ago Wall Street fell in love with the BRICs, the tidy acronym for four major emerging economies that, to many, looked like sure winners. Today, after heady runs and abrupt reversals, most of the BRICs -- in fact, most developing nations -- look like big-time losers.The history of emerging markets is a history of booms and busts, but the immediate future may hold something more prosaic: malaise. Investors today confront what could turn out to be a lost decade of returns, with four or five more meager years ahead. “These are very much the lean years after the bonanza decade,” said Harvard Kennedy School economist Carmen Reinhart, one of the world’s top experts on financial crises and developing economies.
- Man Who Called Top of China Stock Rally Says Rout Will Get Worse. More than two decades’ experience poring over stock charts helped Thomas Schroeder lock in profits in April before Chinese companies in Hong Kong went into freefall. Now he’s bearish again, betting the slump in Chinese shares won’t stop anytime soon. The Shanghai Composite Index will decline to as low as 3,100 in two months, Schroeder said, 16 percent below the closing level Wednesday, despite intermittent rallies as the government steps up efforts to stabilize the market. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong will drop about 10 percent, he said. To Schroeder, slowing Chinese economic growth and collapsing commodities prices are heightening the chance that the indexes will fall below key equity market support levels.
- Hyundai China Sales Slump to Four-Year Low. Hyundai Motor Co. posted its lowest monthly plant sales in China in four years and said it would reduce prices to entice consumers in the world’s largest auto market. Hyundai produced and sold 54,160 vehicles from its plants in China last month, down 32 percent from a year earlier. That’s the lowest monthly sales since July 2011, when the company sold 52,016 vehicles made in China, its biggest market by volume. Weak demand in China contributed to Hyundai posting its sixth consecutive decline in quarterly profit in the three months ending in June, when plant sales in China slumped 14 percent. To help revive sales, the company said it will cut prices of sport utility vehicles, boost incentive spending and review the mix of models it offers in the country.
- Malaysia Links Reunion Part to MH370 in Clue to Jet Mystery. Malaysian Prime Minister Najib Razak confirmed that a jet part found on an island near Africa came from Malaysia Airlines’ Flight 370, the first physical evidence from the jetliner that vanished 17 months ago. Investigators “conclusively” linked the piece to the missing aircraft, Najib said Thursday. A French prosecutor stopped short of that assessment, saying only that officials have a “strong presumption” that the debris being studied in a government laboratory is from the doomed plane.
- China Stocks Drop for Second Day as Traders Test State Support. China’s stocks fell for a second day amid growing concern unprecedented government intervention will fail to stop a $4 trillion rout. The Shanghai Composite Index dropped 0.7 percent to 3,699.01 at 9:55 a.m. local time after slumping as much as 2.1 percent. Energy and telecom companies led losses. Trading volume in the index was 50 percent lower than the 30-day average for this time of day.
- Asian Stocks Advance as U.S. Data Boost Confidence, Weaken Yen. Asian stocks rose, following a rebound in global shares, amid optimism over the American economy. Japanese equities climbed as the yen weakened. The MSCI Asia Pacific Index gained 0.4 percent to 141.64 as of 9:02 a.m. in Tokyo.
- Wall Street’s Profit Boost From Asia Derivatives Boom May Stall. Earnings at investment banks including Goldman Sachs Group Inc. and Citigroup Inc. received a boost in the first half as access to China helped increase derivatives sales and trading income from the region. Gains may moderate as the stock rally subsides. Financial statements and post-earnings commentary from Credit Suisse Group AG, UBS Group AG, Societe Generale SA and Deutsche Bank AG also highlighted derivatives and structured products’ impact with the German bank saying in its 2015 interim report that revenues in equity derivatives in the second quarter were “significantly higher than the prior year quarter driven by strong performance in Asia.”
Wall Street Journal:
- Obama Presses Case on Iran Nuclear Deal. President says ‘choice we face is ultimately between diplomacy or some form of war’. President Barack Obama delivered a detailed defense of his pre-eminent foreign-policy objective, arguing Wednesday that a diplomatic agreement to restrict Iran’s nuclear program presents Congress with a fundamental choice between war and peace. Mr. Obama’s nearly hourlong speech at American University was aimed less at winning...
- Cleveland Debate Offers GOP Hopefuls a Chance to Break Away from the Pack. Largest candidate field in history of televised debates heads to Cleveland for Thursday’s event. Republican candidates will descend on Cleveland for a presidential debate Thursday that obliterates party precedent and tradition: The largest candidate field in the history of televised debates is spilling off the stage, and Donald Trump, a celebrity showman and first-time contender, threatens to steal the show.
- Activist Takes $5.5 Billion Stake in Snacks Giant Mondelez(MDLZ). Ackman thinks Oreo maker needs to cut costs and grow revenue, or sell to rival like Kraft Heinz.
- Cash for the Revolutionary Guards. The nuclear deal is a financial windfall for Iran’s military wing. President Obama’s Iran deal has been losing support in the polls and on Capitol Hill, and so on Wednesday he tried to reason with his critics. “It’s those hardliners [in Iran] chanting ‘death to America’ who have been most opposed to the deal,” he said in a speech at American University. “They’re making common cause with the Republican Caucus.”
CNBC:
- Tesla(TSLA) beats on top and bottom, but lowers guidance. (video) Tesla reported second-quarter results on Wednesday that beat Wall Street expectations, but it lowered its deliveries guidance for the year. The company said it saw a quarterly loss of 48 cents per share on $1.20 billion in adjusted revenue. Analysts expected Tesla to report a loss of 60 cents per share on $1.18 billion in revenue, according to a consensus estimate from Thomson Reuters. The company lowered its full-year delivery guidance—a key figure—to "between 50,000 and 55,000." Tesla said in May that it expected about 55,000 for its Model S and Model X combined.
Zero Hedge:
Business Insider:
- One of the biggest dealmakers on Wall Street is sounding the alarm on M&A. One of Wall Street's biggest dealmakers is sounding the alarm about the frenetic level of mergers and acquisitions activity. Centerview Partners co-founder Blair Effron highlighted similarities between the current market environment and that of 2007 in an interview with CNBC's David Faber on Wednesday. "You have to step back and look at valuations," Effron said. "The average valuation in the M&A market today is 13 times EBITDA. As a reminder, in 2012 it was 10 times. In fact, the last time we were at 13 times was 2007." "We'll have YTD 40 or so transactions over $10 billion," he continued. "The last time we saw that was 2007."
- KEURIG CRASHES(GMCR). Keurig Green Mountain shares crashed 26% in after-hours trading Wednesday after the company reduced its forecast for sales and announced plans for layoffs.
- Fitbit(FIT) is tumbling. Fitbit reported second-quarter earnings results on Wednesday evening, and the company absolutely crushed expectations for sales and profits. Shares plunged as much as 10% in after-hours trading. The stock hit an all-time high during the session Wednesday and closed up 4% at $51.74.
Washington Free Beacon:
Washington Post:
- Bill Clinton called Trump ahead of his 2016 launch. Former president Bill Clinton had a private telephone conversation in late spring with Donald Trump at the same time that the billionaire investor and reality-television star was nearing a decision to run for the White House, according to associates of both men. Four Trump allies and one Clinton associate familiar with the exchange said that Clinton encouraged Trump’s efforts to play a larger role in the Republican Party and offered his own views of the political landscape. The revelation of the call comes as many Republicans have begun criticizing Trump for his ties to Democrats, including past financial donations to the Clintons and their charitable foundation.
Telegraph:
- Saudi Arabia may go broke before the US oil industry buckles. It is too late for OPEC to stop the shale revolution. The cartel faces the prospect of surging US output whenever oil prices rise.
Shanghai Securities News:
- China's Economy to Further Slow Through 2016. Deflation pressures and recent stock market slump will lead to further economic slowdown at year-end and next year, State Information Center researcher Zhu Baoliang wrote.
Evening Recommendations
William Blair:
- Raised (ZTS) to Outperform.
Night Trading
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 112.0 -.75 basis point.
- Asia Pacific Sovereign CDS Index 63.75 -.5 basis point.
- S&P 500 futures -.06%.
- NASDAQ 100 futures -.09%.
Earnings of Note
Company/Estimate
- (DDD)/.08
- (AGN)/4.38
- (APA)/-.26
- (BDX)/2.01
- (EAT)/.96
- (CTB)/.70
- (DUK)/.99
- (ENR)/.47
- (KORS)/.75
- (MBLY)/.08
- (TAP)/1.32
- (ZEUS)/-.02
- (SFY)/-.82
- (TK)/.21
- (VIAB)/1.47
- (CECO)/.00
- (ED)/.63
- (MHK)/2.62
- (MNST)/.91
- (NVDA)/.20
- (SFM)/.22
Economic Releases
7:30 am EST
- Challenger Job Cuts for July.
- Initial Jobless Claims are estimated to rise to 272K versus 267K the prior week.
- Continuing Claims are estimated to fall to 2249K versus 2262K prior.
- None of note
Other Potential Market Movers
- The BoE rate decision, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (LB) July sales call, (VIP) analyst meeting and the (HAR) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.
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