Monday, October 26, 2015

Tuesday Watch

Evening Headlines 
  • China’s Stocks Drop on Concern Slowing Economy to Hurt Profits. China’s stocks fell for the first time in four days, led by material and technology shares, amid concern the slowing economy is curbing profit growth. The Shanghai Composite Index declined 1.1 percent to 3,390.79 at 9:38 a.m. local time, as eight stocks retreated for each one that rose. Anhui Conch Cement Co., China’s biggest cement maker, slid 1.1 percent after third-quarter net income fell 40 percent from a year earlier. Leshi Internet Information & Technology Corp., which has more than tripled this year, slumped 2 percent. Official data on Tuesday showed industrial companies’ profits fell 0.1 percent in September.
  • Iran's Man in New York Is Hunting for Billions of Dollars. Iran, by its own admission, needs $150 billion of investment annually for many years ahead to repair the damage from a decade of isolation. That’s a tall order for a country that, even when sanctions are finally lifted, will still be an opaque and scary place to most foreign investors.Enter Hamid Biglari. 
  • Asia Stocks Slip From Two-Month High as Investors Await Fed, BOJ. Asian stocks fell, with the regional benchmark index retreating from its highest in two months, as energy shares led losses and investors awaited policy decisions by the Federal Reserve and the Bank of Japan later in the week. The MSCI Asia Pacific Index lost 0.1 percent to 136.31 as of 9:02 a.m. in Tokyo after closing Monday at the highest since Aug. 18.
  • Distillate Dilemma: Oil's Biggest Downside Risk. (video) The yen held its first daily advance in almost two weeks as investors remained sidelined before the U.S. Federal Reserve and the Bank of Japan set monetary policy in coming days. Japan’s currency strengthened against all of its 16 major peers after a rally in U.S. stocks stalled Monday ahead of the conclusion of the Fed’s meeting Wednesday, when it will release an economic assessment. The BOJ sets policy Friday. The New Zealand dollar dropped after the nation’s trade deficit widened to NZ$1.22 billion ($828 million) in September, exceeding NZ$825 million forecast in a Bloomberg survey. The Reserve Bank of New Zealand meets Thursday.
  • Iron Ore Sinks Back Toward $50 as Supply Gains Meet Weak Demand. Iron ore prices are on the slide again, sinking back toward $50 a metric ton after six days of losses as expanding low-cost supplies and sputtering demand in China spur concern a global glut will persist into 2016. Ore with 62 percent content delivered to Qingdao lost 1.1 percent to $51.03 a dry ton on Monday, the lowest since July 16, according to Metal Bulletin Ltd. The raw material -- which bottomed at $44.59 on July 8, a record in daily price data dating back to May 2009 -- is headed for the first monthly loss since July. Miners’ shares declined in Australia, led by Fortescue Metals Group Ltd
Wall Street Journal:
  • The Fed Strives for a Clear Signal on Interest Rates. As 2016 approaches, pressure is on the central bank and Janet Yellen to better manage market expectations. Federal Reserve officials are widely expected to announce Wednesday that short-term interest rates will remain near zero, leaving mid-December as the central bank’s last chance to raise rates this year. The timetable poses twin challenges for Fed Chairwoman Janet Yellen: Deciding whether the U.S. economy is ready for an interest-rate increase, and signaling central bank intentions without causing further market confusion.
  • White House and Boehner Close In on Budget Deal. Congressional leaders are said to be nearing an agreement that would also raise debt limit. The White House and congressional leaders neared a deal Monday on a two-year budget plan that also would raise the federal debt limit, according to lawmakers and aides.
  • Hillary Clinton Flunks Economics. She says we’re better off with Democrats in the White House. Is that so? There can be no doubt now: The U.S. economy is struggling, inequality is on the rise and too many Americans feel uncertain about their future.
  • The Fed Has Hurt Business Investment. QE is partly to blame for record share buybacks and meager capital spending. On his recent book tour, former Federal Reserve Chairman Ben Bernanke stated that low long-term interest rates are not the Fed’s doing. Low rates result from a shortage of good capital projects. If there were good investment projects, he explained, capital would flow and interest rates would rise. Mr. Bernanke insists that the absence of compelling investment opportunities in the real economy justifies continued, highly accommodative monetary policy. 
Fox News:
  • US Navy to send warship near disputed islands claimed by China. The U.S. Navy plans to send a ship to within 12 nautical miles of disputed islands in the South China Sea, a U.S. official confirmed to Fox News -- in an apparent challenge to Beijing's territorial claims. Reuters first reported that the Navy planned within 24 hours to send a destroyer near the Spratly Islands, an archipelago that China aggressively has laid claim to by building airstrips and other features on top of reefs.
  • Cheesecake Factory(CAKE) falls after earnings miss. Cheesecake Factory Inc.'s third-quarter earnings rose 8% as the company's namesake chain posted its 23rd consecutive quarter of positive same-store sales. However, total revenue was slightly below Wall Street estimates. The company's shares fell 5.7% to $49.02 in after-hours trading.
Zero Hedge:
  • Apple(AAPL) Suppliers Expect 4Q IPad Shipments to Decline. 4Q iPad shipments will probably drop y/y, citing officials in the supply chain. Initial orders for iPad Pro weaker-than-expected; shipments likely to be fewer than 2.5m units by end of 2015.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -1.0% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 133.75 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 71.75 +.5 basis point.
  • Bloomberg Emerging Markets Currency Index 72.09 -.07%. 
  • S&P 500 futures -.22%.
  • NASDAQ 100 futures -.26%.

Earnings of Note
  • (ARG)/1.29
  • (AKS)/-.05
  • (BABA)/.54
  • (BAX)/.29
  • (BP)/.07
  • (BMY)/.35
  • (COH)/.40
  • (CMCSA)/.40
  • (GLW)/.35
  • (CMI)/2.59
  • (DD)/.10
  • (F)/.46
  • (HCA)/1.19
  • (IR)/1.16
  • (LXK)/.57
  • (MDC)/.43
  • (MRK)/.92
  • (PCAR)/1.16
  • (PFE)/.51
  • (SCHN)/.31
  • (SEE)/.57
  • (AMTD)/.40
  • (TXT)/.61
  • (UPS)/1.37
  • (WYN)/1.68
  • (AFL)/1.48
  • (AKAM)/.58
  • (APC)-.74
  • (AAPL)/1.87
  • (CBG)/.46
  • (ETH)/.46
  • (ESRX)/1.44
  • (GILD)/2.87
  • (NBR)/-.13
  • (OI)/.56
  • (PNRA)/1.31
  • (SKYW)/.66
  • (TWTR)/.05
Economic Releases
8:30 am EST
  • Durable Goods Orders for September are estimated to fall -1.5% versus a -2.0% decline in August.
  • Durables Ex Transports for September are estimated unch. versus unch. in August.
  • Cap Goods Orders Non-Defense Ex Air for September are estimated to rise +.2% versus a -.2% decline in August.  
9:00 am EST
  • The S&P/CS 20 City MoM SA for August is estimated to rise +.1% versus a -.2% decline in July.
9:45 am EST
  • Preliminary Markit US Services PMI for October is estimated to rise to 55.5 versus 55.1 in September.
10:00 am EST
  • Consumer Confidence for October is estimated at 103.0 versus 103.0 in September.
  • The Richmond Fed Manufacturing Index for October is estimated to rise to -3.0 versus -5.0 in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Australia CPI, UK GDP, weekly US retail sales, (PFE) analyst call, (SCHW) business update, (KR) investor conference and the (KMX) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and technology 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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