Monday, September 07, 2015

Tuesday Watch

Posted by Gary .....at 10:01 PM
Today's Headlines 
Bloomberg:
  • China Large-Caps Drop in Sign State Funds Absent. China’s biggest companies plunged in Shanghai on speculation state-backed funds had stopped buying. The Shanghai Composite Index declined 2.5 percent to 3,080.42 at the close in a fourth day of declines. Industrial & Commercial Bank of China Ltd. led losses on the SSE 50 Index, which sank 4.9 percent. 
  • China's Foreign Exchange Reserves Fall in August on Yuan Support. (video) China’s foreign-exchange reserves fell by a record last month as the central bank sold dollars to support the yuan after the biggest devaluation in two decades spurred bets on continued weakness. The currency hoard declined by $93.9 billion to $3.56 trillion at the end of August, from $3.65 trillion a month earlier. Economists surveyed by Bloomberg had forecast a median $3.58 trillion. The yuan weakened in offshore trading and 10-year Treasury futures contracts fell after the data.
  • GM Posts Fourth China Sales Drop in Five Months. General Motors Co. said sales in China declined for the fourth time in five months, deepening its slump in the world’s largest auto market. GM and its China joint ventures delivered 248,815 vehicles in August, 4.8 percent fewer than a year earlier, according to a statement on its website Monday. The company attributed the drop to “softness in the overall vehicle market.” The largest U.S. automaker’s exposure to the slowdown in China’s car sales has contributed to its stock slumping to an almost 2 1/2 year low on Aug. 25. GM is among the global automakers that are tempering their forecasts for industywide demand after years of plowing billions of dollars into Chinese factories to keep up with a market that surpassed the U.S. in 2009. 
  • Emerging Currencies Drop as Ambiguity on Fed Timing Hurts Stocks. Emerging-market currencies weakened to a record and stocks fell as investors grappled with the prospect for higher U.S. interest rates. Malaysia’s ringgit tumbled to a 17-year low and a bomb attack in Turkey sent the lira plunging to a record. A gauge tracking 20 developing-nation currencies declined for a fifth day, losing 0.3 percent to a record, as the ringgit depreciated 1.6 percent and the lira slid as much as 1.2 percent to 3.0465 per dollar. Investors have dumped riskier assets since China’s shock devaluation almost a month ago worsened the outlook for trade with the world’s second-largest economy, while also making a Federal Reserve interest-rate increase this month less certain. 
  • Indonesian Rupiah Rout Swells Cost of $304 Billion Foreign Debt. Investors selling the rupiah on concern Indonesia will suffer a debt crisis risk a self-fulfilling prophesy. The rupiah has slumped to its lowest level since the peak of the Asian financial crisis, when Indonesia was bailed out by the International Monetary Fund. Its nine-week decline is the longest since June 2004. That’s unfortunate timing for the nation’s government, banks and companies that owe a record $304 billion in foreign debt, almost three times the country’s $105.4 billion of international reserves, according to central bank data.
  • EU Prepares Plan to Relocate 120,000 Refugees. The European Union will this week announce plans to redistribute 120,000 migrants who have arrived in Greece, Italy and Hungary, as the bloc moves to address the biggest refugee crisis since World War II. European Commission President Jean-Claude Juncker will unveil the proposals on Wednesday, saying the best way to cope with the sudden influx of people fleeing war and poverty in Syria and elsewhere in the Middle East and north Africa is to spread them across the 28-nation bloc -- from Finland in the north to Spain in the south.
  • Asset-Backed Debt Losses Mount as Draghi Support Proves Feeble. Investors in Europe’s asset-backed securities market thought they’d scored a win when Mario Draghi endorsed the debt last year. Now the notes are poised for their first annual decline since 2011 after five straight months of losses. Bonds backed by business loans, mortgages and credit-card debt from the Netherlands to Spain lost an average 0.5 percent this year through Sept. 4, according data compiled by Barclays Plc. That’s on track for the first annual decline since the securities lost 2.6 percent in 2011, the data show. The European Central Bank’s attempts to encourage lending in the region by buying asset-backed bonds have underwhelmed investors, leading to a reversal of gains in some securities that rallied after investors prepared for large ECB purchases. The Greek debt crisis and turmoil in Chinese equity markets have also contributed to losses.   
  • Spain's Bonds Yield Most Versus Italy in 2 Years Before Election. In Spain’s government-debt market, the nation’s elections in December are dominating investor sentiment and outweighing the impact of the European Central Bank’s bond-buying program. Spanish securities underperformed their regional peers on Monday, pushing the yield premium 10-year bonds have over Italy’s to the most in two years. The elections come as the Catalonia region bids for independence while anti-austerity parties may force traditional parties into coalitions. The uncertainty of the election result is being priced into bond markets, according to Amundi, a European money manager with more than 954 billion euros ($1.1 trillion.) 
  • Yen Bulls Are Back: Morgan Stanley Ranks It Cheapest of All. An unlikely event is developing as the Federal Reserve moves closer to its first interest-rate increase in almost a decade: Yen bulls have re-emerged. Japan’s currency is on course to avoid a record fourth-straight annual loss as a stuttering global economy revives haven demand and weakens the case for the Fed to raise rates more than once in 2015.
  • European Stocks Rebound From Weekly Drop as Miners Lead Gains. European stocks rose, following a selloff that wiped out two days of gains. The Stoxx Europe 600 Index advanced 0.5 percent to 354.81 at the close of trading, after earlier rising as much as 1.2 percent. Shares extended a weekly loss on Friday as mixed U.S. jobs data stoked concern about an impending Federal Reserve rate increase and the strength of the global economy. 
  • Asian Stocks Rise Before China Trade Data as Japan Shares Climb. Asian stocks rose, with the regional benchmark index climbing from its lowest close since 2012, as Japanese shares advanced and investors awaited trade data from China.The MSCI Asia Pacific Index added 0.1 percent to 124.25 as of 9:07 a.m. in Tokyo. Japan’s Topix index gained 0.3 percent after a revised report showed gross domestic product shrank less than previously reported.
  • Oil Extends Decline as Russia Rules Out Deal With OPEC on Output. Oil declined for a second day after another Russian official ruled out cooperation on production cuts with OPEC, adding to signs that a global oversupply will persist. Brent lost 4 percent in London. Russia won’t join the Organization of Petroleum Exporting Countries and isn’t able to cut production in the same way, said OAO Rosneft Chief Executive Officer Igor Sechin. Russia’s Deputy Prime Minister Arkady Dvorkovich said last week there is no way the country can artificially reduce supply. Oil has fluctuated the past three weeks as concerns over slowing demand in China fueled volatility in global markets. Prices are down more than 25 percent from this year’s closing peak in June on signs the surplus will persist. OPEC members are sustaining output and U.S. crude stockpiles remain almost 100 million barrels above the five-year seasonal average. WTI for October delivery dropped $1.79, or 3.9 percent, to $44.26 a barrel on the New York Mercantile Exchange. The contract slid 70 cents to $46.05 on Friday. The volume of all futures traded was about 74 percent below the 100-day average. All electronic transactions Monday, when trading was halted at 1 p.m., will be booked with Tuesday’s for settlement purposes because of the Labor Day holiday.
  • Surging Atlantic Crude Adds to Seasonal Pressure on Prices. The North Sea and Nigeria will ship the most crude in more than three years in October, adding to downward pressure on oil prices just as demand wanes from refiners shutting down for seasonal maintenance. Output of North Sea grades will reach the highest since May 2012 next month, according to loading programs compiled by Bloomberg. Supplies from Nigeria, the biggest oil producer in Africa, are set to reach a level not seen since August of that year.
  • Asian Shrimp Imports Are Chewing Up U.S. Suppliers. The most-popular seafood in the U.S. isn’t very American anymore, but it sure is getting cheaper. A surge of imported shrimp from Indonesia, Ecuador and India has sent prices plunging by more than a third in the past year. While that’s good news for consumers, who eat more of the crustaceans than any aquatic creature, including salmon and tuna, record supplies from foreign shrimp farms is compounding the strain on U.S. fishermen, who have seen their share of the domestic market shrink to about 10 percent.
Wall Street Journal: 
  • Uncharted Waters in Iran Deal Partisanship. Nuclear pact likely to survive challenge in Congress, but lack of GOP support would be almost unprecedented. Congress returns this week from its August recess and dives immediately into a bruising debate over the nuclear agreement with Iran. The argument will be nasty and highly partisan. In the end, the deal almost certainly will survive. And then the nation will launch into uncharted waters.
  • San Francisco Fed’s Williams Sees Rate Increase ‘This Year,’ If Risks Dissipate. John Williams seems on the fence, and his views tend to reflect the center of thinking inside the Fed. “All of the data that we have had up until nowhas been, I think, encouraging. It …has been about as good, or better, than I was expecting, in terms of the U.S. economy,” Mr. Williams said. “But there are some pretty significant—and I would say have now grown larger—headwinds that have developed.”
  • Glencore Scraps Dividends, Raises Cash to Cut Debt. Measures include a $2.5 billion equity issue partly taken up senior executives. Mining giant Glencore PLC said Monday it will scrap dividend payments and sell up to $2.5 billion in stock among other measures in preparation for the possibility that commodity prices might fall even further during a period of global market turmoil. 
Fox News:
  • Congress returns to tight deadlines, key votes on Iran deal, Planned Parenthood. Congress returns Tuesday to face several key decisions and short-term deadlines -- including votes on the Iran nuclear deal and a spending bill that, if connected to efforts to defund Planned Parenthood, creates the potential for another government shutdown. The House and Senate could vote as early as this week on the Iran nuclear deal. Both GOP-controlled chambers are expected to pass motions of disapproval for the deal. But President Obama is expected to veto the motions and ultimately complete his historic foreign policy deal because neither chamber has the two-thirds majority to override the presidential veto.
  • Biden walks with big labor, to cheers of 'Run, Joe, run'. Vice President Joe Biden, who is contemplating a 2016 presidential bid, on Monday kicked off a Labor Day parade in Pittsburgh with a fiery, pro-worker speech that concluded with hundreds of union employees and others chanting “Run, Joe, run.” "I am hot. I am mad. I am angry," roared Biden after telling the crowd that too few Americans are benefiting from continually increasing U.S. productivity. “Productivity went up 73 percent, but wages only went up 9 percent. … Something is wrong folks,” Biden said before the parade, on a stage he shared with AFL-CIO President Richard Trumka. “CEOs now make 400-times as much as the average worker.”
Reuters:
Financial Times:
Sueddeutsche Zeitung:
  • IEA's Birol Says Oil Prices to Say Low. Oil Prices to stay low for time being without new geopolitical events, Fatih Birol IEA's executive director says in interview.
Economic Information Daily:
  • Chinese Banks Should Reduce Risks From Rising Bad Loans. Chinese banks should reduce risks from non-performing loans in 2H in the face of high NPL ratios in Zhejiang and Jiangsu provinces and steel trade, solar and shipping industries, according to a commentary.
Weekend Recommendations
  • None of note
Night Trading
  • Asian indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 142.75 +6.25 basis points.
  • Asia Pacific Sovereign CDS Index 86.75 +5.25 basis points.
  • S&P 500 futures +.83%.
  • NASDAQ 100 futures +.71%.

Earnings of Note
Company/Estimate 
  • (CASY)/1.40
  • (PLAY)/.23
  • (KFY)/.46
  • (MW)/1.05
  • (PBY)/.13
Economic Releases
6:00 am EST
  • The NFIB Small Business Optimism Index for August is estimated to rise to 96.0 versus 95.4 in July.
10:00 am EST
  • The Labor Market Conditions Index for August is estimated to rise to 1.5 versus 1.1 in July.
3:00 pm EST
  • Consumer Credit for July is estimated to fall to $18.6B versus $20.74B in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Kocherlakota speaking, China Trade Balance report, $24B 3Y T-Note auction, Barclays Energy-Power Conference, Barclays Consumer Staples Conference, Citi Tech Conference and the Rodman and Renshaw Investment Conference 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 modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the week.

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