Tuesday, October 27, 2015

Wednesday Watch

Evening Headlines 
  • UBS Analyst Who Called Emerging-Market Rout Sees Rebound Fading. The one-month long rebound in emerging-market assets is poised to reverse, according to Bhanu Baweja, a UBS Group AG strategist, who correctly called this year’s rout. While expectations for more monetary easing from global central banks have helped stabilize developing-nation stocks and currencies in the past month, weakness in exports and commodity prices as well as higher debt repayments will keep the assets under pressure, said Baweja, USB’s head of emerging-market cross asset strategy in London. “Today EM sentiment is taking a break from perceived extreme negativity,” Baweja wrote in a note Tuesday. “However, fundamentals are still slowly worsening.” South Africa’s rand, the Indonesian rupiah, Malaysia’s ringgit and the Columbian peso will lead the renewed decline “before long,” while emerging-market stocks will start underperforming their peers in advanced economies again, he said.  
  • Landlord Boom a Bigger Risk for Aussie Bad Debts Than Businesses. The boom in Australian buy-to-let mortgages that has helped fuel record household borrowing could be the next driver of bank bad debts rather than corporate defaults. While business-loan losses were behind the biggest bad debt cycles in the past three decades, according to a discussion paper from the Reserve Bank of Australia, unprecedented borrowing by individuals and signs that the residential property market is coming off the boil mean that for banks the next one might be different.
  • Moody's Says Iron Ore to Extend Slump in 2016 on Excess Supplies. Iron ore’s slump will deepen next year as rising supplies from the biggest producers overwhelm weakening demand in China, according to Moody’s Investors Service. Prices will probably average $45 a metric ton next year and in 2017, said Carol Cowan, senior vice president in New York. So far this year, they averaged about $58. The glut may expand as the majors boost low-cost output and billionaire Gina Rinehart’s Roy Hill mine starts up, Cowan said in an interview. 
Wall Street Journal:
  • Budget Deal Stirs Anger on the Right. Two-year plan reduces risk of a government shutdown. Congressional leaders worked Tuesday to marshal support for a sweeping budget and debt deal that offered an end to fiscal fights with President Barack Obama but opened up top Republicans to criticism from conservatives, including GOP presidential hopefuls.
  • U.S. Looks at Proposals to Step Up Fight Against Islamic State. Washington may send Apache attack helicopters to Iraq. The White House is seriously considering deploying a small squadron of Apache attack helicopters to Iraq as part of a package of new assistance programs to counter Islamic State, according to U.S. officials.
  • The Best Worst Budget Deal. Obama gets more spending, the GOP gets some disability reform. The Obama Presidency staged a last policy gasp Tuesday, as the White House and congressional leaders completed a budget deal that defers every serious choice to the next Administration. The mutual nonaggression pact is the product of a hyper-polarized Washington, and perhaps the only thing worse than passing it would be not passing it. 
Fox News: 
  • House Republicans introduce measure to impeach IRS Commissioner Koskinen. House Republicans on Tuesday introduced a resolution to impeach IRS Commissioner John Koskinen, accusing him of making "false statements" under oath and failing to comply with a subpoena for evidence. House Oversight Committee Chairman Jason Chaffetz, R-Utah, and 18 other committee members introduced the resolution to begin impeachment proceedings. In doing so, they followed through on a threat first made over the summer, when Republicans accused the IRS leader of making inaccurate statements to Congress regarding the Tea Party targeting scandal and its aftermath.
Zero Hedge:
  • Gilead(GILD) hepatitis C drug sales trend flattens, shares dip. Gilead Sciences Inc on Tuesday said its quarterly profit rose 70 percent, but sales growth for its hepatitis C drugs flattened as health insurers limited access to the expensive treatments. Shares of the biotechnology company fell slightly. Gilead's quarterly product sales rose 37 percent to $8.2 billion. Sales of hepatitis C drugs Sovaldi and Harvoni totaled $4.8 billion, which was just ahead of the $4.5 billion average Wall Street estimate, but little changed from second quarter sales. Company officials said hepatitis C sales were likely to stay flat through 2016 as health insurers restrict patient access to Gilead's drugs, which have list prices of more than $1,000 a pill. Gilead's shares, which rose 2 percent in regular trading, were down 2 percent at $108.75 after hours.
  • FTC looking at Valeant's contact lens dealings -source. The U.S. Federal Trade Commission is looking into whether Canadian drugmaker Valeant Pharmaceuticals International Inc illegally cornered the market for a component of a new type of contact lens, an industry source told Reuters. Valeant said on Monday it had received a letter from the FTC on or about Oct. 16 seeking more information about Valeant's recent acquisition of Paragon Vision Sciences, which produces a material used to make gas permeable lenses. That probe focuses primarily on a small subset of the contact lens market, Ortho-K lenses, according to the contact lens industry source, who asked not to be named to protect business relationships.
  • Akamai(AKAM) forecasts revenue, profit below analysts' estimates. Akamai Technologies Inc, a provider of services that help deliver Internet content faster, forecast current-quarter revenue and profit below analysts' expectations, citing a strong dollar and slowing online traffic growth. The company's shares fell about 14 percent in extended trading on Tuesday.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 131.0 -2.75 basis points.
  • Asia Pacific Sovereign CDS Index 73.75 +2.0 basis points.
  • Bloomberg Emerging Markets Currency Index 71.79 -.07%. 
  • S&P 500 futures +.16%.
  • NASDAQ 100 futures +.16%.

Earnings of Note
  • (AGCO)/.50
  • (ADP)/.65
  • (BSX)/.23
  • (CMC)/.43
  • (GRMN)/.54
  • (GD)/2.13
  • (HSY)/1.13
  • (HES)/-1.20
  • (HLT)/.23
  • (IDXX)/.53
  • (ICE)/2.92
  • (IP)/.93
  • (JLL)/2.01
  • (MDLZ)/.41
  • (NOV)/.55
  • (NSC)/1.41
  • (NOC)/2.19
  • (OXY)/.03
  • (Q)/.81
  • (HOT)/.71
  • (WOOF)/.68
  • (WEX)/1.42
  • (aem)/.02
  • (AMGN)/2.38
  • (ABX)/.07
  • (BWLD)/1.30
  • (CRUS)/.59
  •  (ESV)/.75
  • (FFIV)/1.74
  • (GPRO)/.29
  • (MTW)/.09
  • (MAR)/.74
  • (NEM)/.18
  • (ORLY)/2.38
  • (TSO)/6.05
  • (WDC)/1.56
  • (WMB)/.15
  • (YELP)/.07
Economic Releases
8:30 am EST
  • Advance Goods Trade Balance for Sept. is estimated at -$64.3B versus -$67.19B in August.  
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,560,000 barrels versus a +8,028,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,050,000 barrels versus a -1,518,000 barrel decline the prior week. Distillate inventories are expected to fall by -1,765,000 barrels versus a -2,622,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.08% versus a +.4% gain prior.
2:00 pm EST
  • The FOMC is expected to leave the benchmark Fed Funds rate at 0.0%-.25%.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The $35b 5Y T-Note Auction, $15B 2Y FRN Treasury Auction, weekly MBA mortgage applications report, (ABCO) investor day, (ABM) investor day and the (PH) General Meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and financial 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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