Thursday, August 20, 2015

Thursday Watch

Posted by Gary .....at 12:35 AM
Evening Headlines 
Bloomberg: 
  • China’s Newest Make-or-Break Level for Stocks Is Shanghai 3,500. In a Chinese stock market obsessed with round numbers, 3,500 has emerged as the latest make-or-break level for traders trying to gauge the staying power of state support. Signs of government buying have appeared at that level on the Shanghai Composite Index at least four times over the past six weeks.  
  • Bear Market Looms for Hong Kong Stocks as Index Sinks With China. Hong Kong stocks are poised to enter a bear market as declines in mainland markets and the devaluation of the yuan erode support for the city’s shares. The Hang Seng Index lost 1.8 percent to 22,743.54 as of 10:16 a.m. in Hong Kong on Thursday, bringing its decline from a seven-year high on April 28 to 20 percent. The Hang Seng China Enterprises Index of Chinese equities listed in the city, which entered a bear market last month, fell 2.5 percent on Thursday. Shares in the former British colony have been buffeted by a rout in China that destroyed about $4 trillion in market value. The Shanghai Composite Index fell by almost a third from its peak in mid-June, prompting the government to step in with unprecedented measures to support the market. “People are scared,” said Rahul Chadha, co-chief investment officer at Mirae Asset Global Investments in Hong Kong. “It’s the fear factor.”
  • China’s Stocks Resume Declines Amid Economy, Outflow Concerns. China’s stocks fell to a two-week low as traders gauged government support for the equity market amid concern a slowing economy and weaker yuan will spur capital outflows. The Shanghai Composite Index lost 1.4 percent to 3,743.77 at 9:59 a.m. local time, led by health-care and energy companies. Hong Kong’s Hang Seng Index lost 1.1 percent, taking its decline from its April 28 high to 19.5 percent, approaching the 20 percent decline that some traders consider the start of a bear market.
  • Asian Stocks Fall Fifth Day on Fed Minutes, China Slowdown Fears. Asian stocks fell for a fifth day after Federal Reserve minutes showed U.S. officials sought more progress on inflation and investors watched China as concerns heighted over the nation’s slowdown. The MSCI Asia-Pacific Index slid 0.1 percent to 135.87 as of 9:05 a.m.
  • Junk-Bond Risk Gauge Surges to '15 High Amid Escalating Oil Rout. Junk-bond investors are getting fidgety amid a renewed plunge in the energy market. The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, surged 6.3 basis points to 394 basis points, the highest level this year. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF, the largest fund of its kind, extended its slump this month trading near a four-year low. Oil prices that have dropped below $41 are rattling investors in the high-yield bond market. The debt is poised to post a third straight month of losses -- something that has never happened since 2008. “The best of times for high-yield are behind us and we are now witnessing the beginning of the end of the credit cycle,” Bank of America Corp. strategists wrote in a report Monday.
  • One-year oil at 10-year low with no respite in sight. Oil is already trading at the lowest level in a decade in New York, as far as one-year contracts go, signalling traders don't expect much reprieve from the current rout. West Texas Intermediate oil for delivery in September 2016 touched $US47.90 a barrel on the New York Mercantile Exchange Wednesday, the lowest intraday price for a contract out 12 months since February 2005. "This says that the price prospects for 12 months from now are bleak as we speak," John Kilduff, a partner at Again Capital, a New York-based hedge fund, said by phone. "The curve is a representation of the collective wisdom of the market. It's a best guess of market conditions 12 months from now."
  • Cheap Oil’s Making It Tough for Ethanol to Pay the Bills. Cheap crude oil may make it hard for ethanol companies to pay their bills on time. The lowest oil prices in six years are hitting biofuel producers two ways: They’re making ethanol less attractive as a blend for gasoline, and emboldening the arguments of petroleum backers who say the U.S. law mandating consumption of the fuel alternative is obsolete, Standard & Poor’s Rating Services Inc. said in a report Wednesday.
  • Cliffs CEO Takes Aim at Crazy China Steel Exports as Glut Grows. Steel exports from China will surge to more than 100 million metric tons this year as local mills benefit from a rising tide of cheap iron ore to produce more than Asia’s top economy needs, according to Cliffs Natural Resources Inc. “It’s like a bad virus,” Lourenco Goncalves, chief executive officer of the largest U.S. iron ore producer, said in a phone interview from the company’s headquarters in Cleveland, Ohio. “Australia continues to give iron ore to China almost for free, allowing them to produce more than they need.”
  • So Long September: Bond Traders Defer Their Date With the Fed. So much for September. Traders gearing up for the Federal Reserve to raise interest-rates next month reversed course Wednesday after minutes from the central bank’s July meeting showed policy makers were still waffling on whether the economy is strong enough to warrant higher borrowing costs. That's far short of the confidence they expected to see from a central bank supposedly just weeks away from what would be the first increase in almost a decade. The probability that futures traders assign to a rate boost next month slid to 36 percent, the lowest since July, from about 50 percent earlier in the day. The levels assume that the Fed’s target will average 0.375 percent after the first move. The chance of an increase at or before the Fed's December meeting dropped as well, to 65 percent from 73 percent Tuesday.
  • GE(GE) Said to Mull Atlanta Site Among Possible Headquarters Options. General Electric Co. has held exploratory talks about relocating its headquarters to Atlanta from Connecticut as part of a review of possible new homes, according to people familiar with the matter. GE may meet with developer Tishman Speyer Properties in the coming weeks to discuss space at Three Alliance Center, a 30-story building going up in Atlanta’s Buckhead neighborhood, said the people, who asked not to be identified because details aren’t public.
Wall Street Journal:
  • Divided Fed Puts Yellen on Hot Seat. Central bank chief faces cliffhanger decision as rate call comes down to wire. The Federal Reserve faces a potential cliffhanger about whether to raise interest rates at its September meeting, a decision that will test Chairwoman Janet Yellen’s ability to lead an uncertain policy-making committee.
  • Time to End Quarterly Reports, Law Firm Says. Wachtell Lipton argues the ritual distracts companies from long-term results. Influential law firm Wachtell, Lipton, Rosen & Katz has an idea that may be music to the ears of its big corporate clients and a nightmare for some investors and analysts: end quarterly earnings reports.
Fox News:
  • ‘Dangerous farce’: Lawmakers rip Iran deal over report Tehran can use own nuke inspectors. (video) Capitol Hill opposition to the Iranian nuclear deal was stoked Wednesday by a bombshell report that Tehran will be allowed to use its own experts to inspect one of the country's most controversial nuclear sites. "Allowing the Iranians to inspect their own nuclear sites, particularly a notorious military site, is like allowing the inmates to run the jail," Sen. Lindsey Graham, R-S.C., a presidential candidate, said in a statement.
Zero Hedge:
Reuters:
  • Hacker's Ashley Madison data dump threatens marriages, reputations. Love lives and reputations may be at risk after the release of customer data from infidelity website Ashley Madison, an unprecedented breach of privacy likely to rattle users' attitudes towards the Internet. Hackers dumped a big cache of data containing millions of email addresses for U.S. government officials, UK civil servants and high-level executives at European and North America corporations late on Tuesday, the latest cyber attack to raise concerns about Internet security and data protection. The hacker attack has been a big blow to Toronto-based assignation website firm Avid Life Media, which owns Ashley Madison and has indefinitely postponed the adultery site's IPO plans.
  • LatAm credits wider on commodity concerns. LatAm credits took another beating on Wednesday, as a rally in US Treasuries after the Fed's minutes failed to offset concerns about growth in China as well as sputtering commodity prices. Ten-year US Treasury yields fell back to around 2.12% after the minutes suggested the FOMC wanted more data on US growth and inflation before an "approaching" hike in rates. The possibility of a delay in monetary tightening in the US, however, brought little comfort to investors looking at EM assets in Latin America.
npr:
  • Government Inquiry Into Clinton Emails Likely To Widen. "I think that the FBI will be moving with all deliberate speed to determine whether there were serious breaches of national security here," said Ron Hosko, who used to lead the FBI's criminal investigative division.
Economic Information Daily:
  • China May Increase Direct Taxes in Next 5-Yr Plan. China may increase direct taxes including property and land taxes in the 2016-2020 period and cut indirect taxes, citing Gao Peiyong, head of National Academy of Economic Strategy under the Chinese Academy of Social Sciences.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -1.25% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 124.0 +3.5 basis points.
  • Asia Pacific Sovereign CDS Index 74.75 +3.75 basis points.
  • S&P 500 futures +.11%.
  • NASDAQ 100 futures +.09%.

Earnings of Note
Company/Estimate
  • (AMWD)/.69
  • (BKE)/.47
  • (JKS)/.88
  • (PERY)/.00
  • (SHLD)/-2.50
  • (SSI)/.34
  • (SMRT)/.05
  • (TECD)/.97
  • (TTC)/.91
  • (CRMT)/.86
  • (GPS)/.65
  • (HPQ)/.85
  • (INTU)/-.11
  • (MRVL)/.11
  • (ROST)/.62
  • (CRM)/.17
  • (TFM)/.40
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated to fall to 271K versus 274K the prior week.
  • Continuing Claims are estimated to fall to 2265K versus 2273K prior.
10:00 am EST
  • Existing Home Sales for July are estimated to fall to 5.43M versus 5.49M in June.
  • Philly Fed Business Outlook for August is estimated to rise to 6.8 versus 5.7 in July.
  • The Leading Index for July is estimated to rise +.2% versus a +.6% gain in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Williams speaking, UK retail sales report, Bloomberg Economic Expectations Index for August, weekly Bloomberg Consumer Comfort Index,  and the weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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