Thursday, October 15, 2015

Friday Watch

Evening Headlines 
  • China’s State Sector: Bigger Than Ever. The giant corporations are deemed essential to the party. The poor showing of the SOEs comes as President Xi Jinping is launching his long-awaited state-sector reform. Don’t expect mass shuttering or privatization of China’s more than 100,000 government companies, many of them money losers. Instead, policymakers aim to make “stronger and better” state champions, according to a five-year plan released on Sept. 13 by the State Council and the Communist Party’s Central Committee. 
  • Chinese Cyber Spies Fish for Enemies in South China Sea Dispute. In the midst of a weeklong hearing on a South China Sea territorial dispute, the website of the Permanent Court of Arbitration in The Hague went offline. The incident happened in July as the Philippines challenged China’s claim to more than 80 percent of the South China Sea, an assertion that Manila says encroaches on its exclusive economic zone. Based on an analysis of the software and infrastructure used, the site was infected with malware by someone in China, according to ThreatConnect Inc., a U.S. security company. China didn’t take part in the Hague hearing.
  • RBA Sees Signs Home Market Slowing, Oversupply in Some Areas. Australia’s over-heated housing market could be starting to slow while rapid home construction in some areas is creating an oversupply, the central bank said in its semiannual assessment of risks to the country’s financial system. “There have been tentative signs of some slowing in the Sydney and Melbourne housing markets,” the Reserve Bank of Australia said Friday in its financial stability review. “While the housing market remains a long way from oversupply nationwide, some geographic areas appear to be reaching that point, particularly the inner-city areas of Melbourne and Brisbane.” 
  • Asian Stocks Track U.S. Gains as Tech, Finance Shares Advance. Asian stocks followed U.S. shares higher, with the regional benchmark index heading for a third straight weekly advance, as technology and financial companies led gains. The MSCI Asia Pacific Index added 0.4 percent to 134.53 as of 9:01 a.m. in Tokyo.
  • Rio Iron Ore Output Jumps 12% as Ports, Mines Expanded. Rio Tinto Group, the world’s second-largest mining company, reported third-quarter iron ore production rose 12 percent after completing key elements of its infrastructure expansion in Western Australia and boosting mine capacity. Total output expanded to 86.1 million metric tons in the three months to Sept. 30, London-based Rio said Friday in a statement. That compared with 76.8 million tons a year earlier and the 87 million ton median estimate of five analysts surveyed by Bloomberg.
Wall Street Journal:
  • Israeli Police Begin to Seal Palestinian Areas in East Jerusalem. Prime Minister Benjamin Netanyahu seeks to restrict movement of potential attackers. The Palestinian neighborhood of Jabel Mukaber in East Jerusalem was surrounded by border police on Thursday, as Israel put into place some of the tightest security measures in years.
  • Valeant(VRX) Probe Reprises Federal Focus on Drug Pricing. Drug pricing, a key issue in the federal investigation of Valeant Pharmaceuticals International Inc., has been a frequent focus of federal prosecutions and whistleblower lawsuits in recent years. Pharmaceutical companies have paid more than $3 billion in fines to resolve pricing cases over the past decade, according to Patrick Burns, co-director of Taxpayers Against Fraud, a group that promotes whistleblowing.
  • U.S. Pursues Several Paths in Volkswagen Probe. Investigators expand review, evaluating pollution rules, official statements and consumer claims. The U.S. attorney’s office in Detroit and the Justice Department’s Fraud Section joined a sweeping federal probe of Volkswagen AG over emissions-test cheating, according to people familiar with the matter, signaling the government’s intent to cast a broad net and explore numerous paths to a possible criminal case.
  • Presidential Candidates Burn Through Cash Quickly, FEC Filings Show. Two Republicans, Sen. Rand Paul and Gov. Chris Christie, are getting low on funds.
    The 2016 presidential candidates in both parties are burning through their cash about 25% faster than in prior elections, despite the expanded role of super PACs that have collectively raised hundreds of millions of dollars to back their campaigns, new disclosures show.
  • No Wonder Growth Has Been So Anemic. President Obama thinks more union membership will help the middle class. No, jobs are what’s needed. In his remarks at a White House event last week called the Summit on Worker Voice, President Obama said that people who work hard “should be able to get ahead” but went on to acknowledge that workers are “seeing their wages and their incomes flatlining.” The reason, according to Mr. Obama, is dwindling union membership. “Union membership today is as low as it’s been in about 80 years, since the ’30s,” he said. “And I...
Fox News: 
  • Source: FBI probe of Clinton email focused on ‘gross negligence’ provision. (video) Three months after Hillary Clinton’s use of a private email address and server while secretary of state was referred to the FBI, an intelligence source familiar with the investigation tells Fox News that the team is now focused on whether there were violations of an Espionage Act subsection pertaining to "gross negligence" in the safekeeping of national defense information.
  • Hedge funds having worst year since 2011. (video) A miserable September saw hedge funds lose 1.44 percent, thanks to a 2.2 percent decline in equity-based strategies and a 2.5 percent drop in North America strategy, according to numbers Preqin released Thursday.
  • Bad news for some Medicare beneficiaries. (video) The year 2016 will send shockwaves to some Medicare beneficiaries — roughly 7 million Americans. They're going to be paying a lot more for their monthly Medicare Part B premium.
Zero Hedge: 
Business Insider: 
  • Federal Reserve policymakers downplay divisions on U.S. rate hike. U.S. Federal Reserve policymakers are not as divided as it may appear and are generally operating under the same framework for determining when to raise interest rates, one Fed official said on Thursday, while another said the differences of opinion reflect the countervailing economic data.
    "At the end of the day people are exaggerating" the divisions, Dudley said in response to a question after a panel presentation in Washington on Thursday. "We are all pretty much on the same page."
  • Yum Brands(YUM) cuts 2015 adjusted profit forecast. Yum Brands Inc on Thursday cut its 2015 adjusted profit forecast, saying it expects a strong dollar to further eat into profit. The company said it now expects full-year adjusted profit to be between flat with a year ago and a low-single-digit percentage gain. Earlier this month, the company had said it expected 2015 earnings per share growth to be well below its target of at least 10 percent.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are +.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 138.50 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 75.25 -5.75 basis points.
  • S&P 500 futures +.05%.
  • NASDAQ 100 futures +.10%.

Earnings of Note
  • (CMA)/.69
  • (GE)/.26
  • (HON)/1.55
  • (KSU)/1.22
  • (PGR)/.48
  • (STI)/.84
  • (GWW)/3.06 
Economic Releases
9:15 am EST
  • Industrial Production MoM for September is estimated to fall -.2% versus a -.4% decline in August.
  • Capacity Utilization MoM for September is estimated to fall to 77.3% versus 77.6% in August.
  • Manufacturing Production for September is estimated to fall -.2% versus a -.5% decline in August.
10:00 am EST
  • JOLTS Job Openings for August are estimated to fall to 5580 versus 5753 in July. 
  • Preliminary Univ. of Mich. Consumer Sentiment for October is estimated to rise to 89.0 versus 87.2 in September.
4:00 pm EST
  • Net Long-Term TIC Flows for August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone CPI report and (SAFM) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted 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 50% net long heading into the day.

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