Monday, October 19, 2015

Tuesday Watch

Evening Headlines 
  • U.S. Softens Criticism of Yuan Level Amid Currency Pressures. The U.S. Treasury dropped its view that China’s currency is “significantly undervalued” while saying that the forces driving appreciation in the longer term remain and China needs to allow such strengthening eventually. The yuan remains “below its appropriate medium-term valuation,” the department said Monday in its semiannual report on foreign-exchange policies. The “core factors” that have driven the appreciation of the yuan in recent years remain in place, such as a large and growing current-account surplus, and net inflows of foreign direct investment, the Treasury said.  
  • Asia Stocks Drop, Led by Material Shares, as October Rally Halts. Asian stocks fell, paring the benchmark regional equities gauge’s biggest monthly rally in five years, as material shares led losses. The MSCI Asia Pacific Index slipped less than 0.1 percent to 134.01 as of 9:08 a.m. in Tokyo.
  • OPEC Brings Oil Price War Home in Pursuit of Asia's Cash. When it comes to deciding how much to charge Asian oil buyers, OPEC members are showing little regard for tradition. Suppliers from the Organization of Petroleum Exporting Countries have long moved in lockstep, raising or lowering prices in tandem. Now, Kuwait is undercutting Saudi Arabia by the most on record and Iraq is also selling its oil more cheaply than the group’s biggest member. Qatar is pricing cargoes at the biggest discount in 27 months to competing crude from the U.A.E.’s Abu Dhabi.
  • Fed's Williams Sees Reasons to Increase Rates Soon and Slowly. The Federal Reserve is progressing toward its dual mandate of stable prices and maximum employment and should raise interest rates in the near future, said John Williams, president of the Federal Reserve Bank of San Francisco. "We always have to be looking through the front window” in setting monetary policy since it works on the economy with a lag, Williams said, speaking on Bloomberg Television with Michael McKee on Monday. "My own view is that the economy is still on a good trajectory.”
  • Illinois Downgraded by Fitch as State Budget Crisis Worsens. Illinois was lowered to three steps above junk by Fitch Ratings amid a political stalemate that has left the state without a budget for nearly four months, worsening a financial crisis that has already triggered credit downgrades to cities and local agencies. The one-step downgrade to BBB+ from A- affects $26.8 billion of general-obligation bonds. Fitch said in a statement that its outlook is now stable. Illinois is already the worst-rated state with an A3 by Moody’s Investors Service, four steps above junk, and an equivalent A- by Standard & Poor’s.
Wall Street Journal: 
  • Voters in Canada Head to Ballot Box in Tight Race. Early results in Atlantic Canada put the centrist Liberal Party in the lead. Early results from Canada’s national election put the centrist Liberal Party in the lead in Atlantic Canada, based on tallies from that region of the country, as voters waited for the majority of polls to close and ultimately decide the fate of the incumbent Conservative government.
  • As Conservation Cuts Electricity Use, Utilities Turn to Fees. Double-digit percentage increases for distribution, maintenance anger power consumers. Electric utilities across the country are trying to change the way they charge customers, shifting more of their fixed costs to monthly fees, raising the hackles of consumer watchdogs and conservation advocates.
  • Radiation Sensors in Major U.S. Cities Turned Off Because They Don’t Work. Most stations run by EPA can’t monitor for beta particles in real time, prompting criticism; agency says monitoring for gamma rays is enough.
  • Obama Takes the Military Hostage. He’ll veto a bipartisan defense bill to coerce more domestic spending. President Obama is determined to end his second term in another blaze of spending glory, and toward that end he’s taking the U.S. military hostage. That’s the way to understand his threat to veto the National Defense Authorization Act
Fox News: 
  • Top California official pushes ammo background checks. (video) Gun control advocates are launching a new regulatory push in California to impose first-in-the-nation instant background checks for ammunition sales, a move that comes as gun violence surfaces as a lightning rod issue in the 2016 presidential race.
  • Cheap imports, high inventories hurt Steel Dynamics' profit. U.S. steelmaker Steel Dynamics Inc on Monday reported a lower quarterly net profit, which it blamed on a glut of lower-priced imports and higher customer inventories but said that it expects improvement in domestic U.S. steel production in 2016. Western steel producers have been hit by a global slump in steel prices and record exports from China, which produces half the world's steel. As China's economy has lost steam, critics say it has been dumping steel at low prices, exacerbating existing over-capacity around the world.
Financial Times: 
  • US Treasury: capital outflows from China top $500bn. Capital outflows from China topped $500bn in the first eight months of this year, according to new calculations by the US Treasury that highlight the shifting fortunes in the global economy. The outflows, which peaked at some $200bn during the turbulent month of August according to the new estimates released on Monday, have also contributed to a shift by Washington in its assessment of the valuation of China's currency, the renminbi, Shawn Donnan, trade editor, reports in Washington. 
  • China still hacking US companies, cyber group warns.
Shanghai Securities News: 
  • China Power Growth May Slow to 1% in 2015. China Electricity Council cut estimate on power consumption growth from prior 2% after 3Q usage didn't meet expectation, citing Ouyang Changyu, deputy secretary general at the council.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 139.25 +.75 basis point.
  • Asia Pacific Sovereign CDS Index 75.0 -.25 basis point.
  • Bloomberg Emerging Markets Currency Index 72.81 -.15%. 
  • S&P 500 futures -.15%.
  • NASDAQ 100 futures -.16%.

Earnings of Note
  • (ATI)/-.36
  • (BK)/.71
  • (EAT)/.55
  • (CP)/2.68
  • (HOG)/.78
  • (LMT)/2.72
  • (NVR)/26.91
  • (PNR)/.89
  • (RF)/.20
  • (UTX)/1.56
  • (VZ)/1.02
  • (WWW)/.48
  • (CMG)/4.63
  • (CB)/2.01
  • (CREE)/.20
  • (ILMN)/.79
  • (ISRG)/4.22
  • (IRBT)/.25
  • (TEX)/.62
  • (VMW)/1.00
  • (WERN)/.43
  • (YHOO)/.16
Economic Releases
8:30 am EST
  • Housing Starts for September are estimated to rise to 1142K versus 1126K in August.
  • Building Permits for September are estimated at 1170K versus 1170K in August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Yellen speaking, Fed's Dudley speaking, Fed's Powell speaking, Japan Trade Balance report, weekly US retail sales reports, BIO Investor Forum, (SJM) investor day and the (GPN) investor conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and real estate 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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