Monday, October 05, 2015

Tuesday Watch

Evening Headlines 
  • Bank of America's Woo Says Chinese Yuan May Drop 10 Percent. China’s yuan may have further to fall after the nation shocked markets in August by devaluing its currency, according to David Woo, Bank of America Corp.’s head of global rates and currencies research. “My gut tells me it could be as much as 10 percent,” Woo said in an interview on Bloomberg Television. “Letting the currency go is going to be part of a package of monetary easing, let’s call it Chinese quantitative easing.” Woo likened China’s monetary policy to QE programs in Japan and the euro area, which prompted the yen and euro to depreciate. Financial markets aren’t prepared for a big slide in the Chinese currency, he said. Chinese markets are closed for national holidays.
  • Gross, Seeing Stocks Plunging Another 10%, Urges Flight to Cash. Bill Gross, who in January predicted that many asset classes would end the year lower, said U.S. equities have another 10 percent to fall and investors should sit out the current volatility in cash. The whipsaw market reaction to the lackluster U.S. jobs report last week shows that markets, especially stocks, high-yield bonds and some emerging market debt, are trading like a casino, Gross said in an interview on Friday. He was speaking from a cruise ship which had taken shelter near New York City amid stormy weather over the Atlantic.
  • Asia Stocks Rise Fifth Day, Following Longest U.S. Rally in 2015. Asian stocks rose for a fifth day, following gains in U.S. equities, amid speculation that global central bank policy will remain accommodative to counteract weak economic growth. The MSCI Asia Pacific Index climbed 0.8 percent to 128.88 as of 9 a.m. in Tokyo, extending its five-day gain to 6.4 percent.
  • Commodity Collapse Has More to Go as Goldman to Citi See Losses. Even with commodities mired in the worst slump in a generation, Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc. are warning bulls that prices may stay lower for years. Crude oil and copper are unlikely to rebound because of excess supplies, Goldman predicts, and Morgan Stanley forecasts that weaker currencies in producing countries will encourage robust output of raw materials sold for dollars, even during bear markets. Citigroup says the sluggish world economy makes it “hard to argue” that most prices have already bottomed.
Wall Street Journal:
  • U.S. Concludes Russia Targeting CIA-Backed Rebels in Syria. American allies seen as most direct threat to Assad regime. Russia has targeted Syrian rebel groups backed by the Central Intelligence Agency in a string of airstrikes running for days, leading the U.S. to conclude that it is an intentional effort by Moscow, American officials said. The assessment, which is shared by commanders on the ground, has deepened U.S. anger at Moscow and sparked a debate within the administration over how the U.S. can come to the aid of its proxy forces without getting sucked deeper into a proxy war that President. 
  • Iran Nuclear Deal Fails to Ease Middle East Rifts. U.S. diplomatic hopes generated by July accord fade as Russia cements alliance with Tehran in Syria, to Saudis’ chagrin. Russia’s move to cement its alliance with Iran in Syria during last week’s meeting of 200 world leaders here underscored a troubling development for the Obama administration and its European allies: Despite July’s nuclear deal, battle lines have deepened in the Middle East.
  • Are Activist Investors Helping or Undermining American Companies? Journal examines 71 campaigns at big companies, finds runaway winners, a few duds. The rise of activist investing has sparked debate across markets, boardrooms and even during the presidential campaign: Are activist shareholders good or bad for business? The Wall Street Journal examined that question with a comprehensive look at what happens to large U.S. companies after an activist arrives. The conclusion: Activism often improves a company’s operational results—and nearly as often doesn’t. Bad Bets Take Down a Pair of Hedge Funds
  • MeehanCombs fund closes after bets on junk and Europe; Armored Wolf also returning client money. A messy stretch in global markets claimed two more victims as a pair of hedge-fund firms decided to shut down. MeehanCombs LP, a Connecticut firm that managed about $300 million at its peak last year, will return most of its client money at the end of the month, President Eli Combs said. The fund was down 6% last year and 7% this year through August after it suffered mounting losses in the spring and summer.
  • Illumina(ILMN) Plunges 16% as Sales Slump. Shares of Illumina (ILMN) have plunged more than 15% after the maker of tools for genetic analysis offered guidance that fell shy of the Street consensus. Illumina said it would post sales of $550 million during the third quarter, below forecasts for $569 million, according to FactSet. Fourth-quarter sales, meanwhile, were guided to$570 million, missing forecasts for$603 million. In a press release, CEO Jay Flatley blamed disappointing sales in Europe and “continued weakness in the Asia-Pacific region.” Shares of Illumina have dropped 16% to $137.62 at 4:23 in after-hours trading.
Fox News:
  • Were ISIS intelligence assessments modified to paint a better picture? (video)
    ISIS intelligence assessments have been modified to use measures such as the number of sorties and body counts, something that has not been widely used since Vietnam, to paint a more positive picture of the progress made by the U.S. government strategy, according to sources familiar with allegations made by analysts at Central Command (CENTCOM.)
    Critics say this "activity based approach" to battle damage assessments does not present a comprehensive picture of whether ISIS is being degraded, nor does it reflect its resiliency.
Zero Hedge:
NY Times:
  • Fantasy Sports Employees Bet at Rival Sites Using Inside Information. A major scandal is erupting in the multibillion dollar industry of fantasy sports, the online and unregulated business in which players assemble their fantasy teams with real athletes. On Monday, the two major fantasy companies were forced to release statements defending their businesses’ integrity after what amounted to allegations of insider trading, that employees were placing bets on information not available to the public.
  • Brazil's Petrobras(PBR) cuts spending plan on real, oil price slump. State-controlled Petróleo Brasileiro SA , struggling with the biggest debt load among global oil firms, on Monday cut capital spending plans for this year and next by $11 billion in the wake of a slump in Brazil's currency and in oil prices. In a securities filing, the company, commonly known as Petrobras, said planned investments will be cut to $25 billion and $19 billion for 2015 and 2016, respectively, from $28 billion and $27 billion previously. Budgeted costs plus operating expenses excluding purchases of raw materials were trimmed for this year and next as well, the filing said.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are +.75% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 149.25 -7.25 basis points.
  • Asia Pacific Sovereign CDS Index 84.0 -6.25 basis points.
  • S&P 500 futures -.19%.
  • NASDAQ 100 futures -.20%.

Earnings of Note
  • (PEP)/1.27
  • (YUM)/1.07
  • (TISI)/.22
Economic Releases
8:30 am EST
  • The Trade Deficit for August is estimated to widen to -$48.0B versus -$41.86B in July.
10:00 am EST
  • The IBD/TIPP Economic Optimism Index for October is estimated to rise to 44.5 versus 42.0 in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Williams speaking, RBA rate decision, German Factory Orders report, $24B 3Y T-Note auction, weekly US retail sales reports, (ADBE) financial analyst meeting and the (BCO) investor day could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by consumer 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 50% net long heading into the day.

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