Sunday, November 15, 2015

Monday Watch

Posted by Gary .....at 11:34 PM
Today's Headlines
Bloomberg: 
  • Parisians Brace for More Violence as Police Fail to Reassure. Unease pervaded Paris after Europe’s worst terrorist bloodshed in more than a decade, with a sense among residents that the police cars cruising the streets and soldiers guarding closed parks won’t be enough to stave off more attacks. On the streets, emptier than usual, Parisians routines were disrupted over the weekend, with major parks, cinemas, museums and food markets shuttered. As they prepare to return to work and school on Monday there is foreboding, with the army presence failing to instill a sense of security. “Unfortunately, we’ll have to get used to this type of threat, like in Lebanon or Afghanistan,” said Pascal Galopin, 50, a movie producer from the suburb of Boulogne-Billancourt. “They have hit France’s ‘art de vivre.”’ Parisians’ anxiety was on display Sunday night, when firecrackers sparked a panic on Place de la Republique, where hundreds had gathered in a show of solidarity and defiance following the assaults Friday that left 132 people dead. The crowd fled for stairwells and public car parks in a near stampede amid rumors that shots had been fired.
  • Why the Attacks in France Are an Act of War. (video)
  • France Vulnerable to More Terror Attacks, Bremmer Says. (video)
  • Paris Attack Suspects Hunted as Authorities Widen Investigation. Investigators across Europe are racing to piece together how Friday’s attacks in Paris were carried out -- trying to locate an assailant who may have fled, arresting possible accomplices and attempting to determine if any entered the continent as a refugee. Authorities have the remains of seven assailants in the attacks that killed at least 129 people, and are still looking for an eighth individual who may be on the run, a French government official said. Police on Saturday night found a car loaded with Kalashnikov rifles abandoned in Montreuil, just outside Paris, which matched descriptions of one of the vehicles used in the assault. One of the attackers --identified by a severed finger at the Bataclan concert hall where 89 people were killed -- was 29-year-old Omar Ismail Mostefai, a French citizen who lived in a Paris suburb, police said. Seven of his family members were arrested in France, while at least five individuals in Belgium were taken into custody in connection with the assaults.
  • Europe's Walls Go Up, Shaping Politics After Paris Mass Murders. The walls are going up all over Europe. The euro crisis decimated the notion of continent-wide prosperity; the Paris mass murders have done the same to the late 20th century European belief in open borders, within Europe and externally. As French investigators probe the backgrounds of the killers, some French-born, one possibly a Syrian jihadist who slipped into Europe as a refugee, the anti-immigration parties are in the ascendant. They will shape Europe’s politics and economics for years to come.
  • G-20 Targets Post-Paris Terrorism Financing, Border Controls. World leaders will pledge to redouble efforts to strike at the lifeblood of terrorist organizations by targeting how they are financed and the movement of foreign extremists across borders in the wake of the attack in Paris. In a statement dedicated to tackling the global terrorist threat, Group of 20 leaders meeting in the Turkish resort of Antalya will call for better coordination and exchange of information to cut off funding and a more comprehensive approach on addressing the conditions conducive to terrorism, according to two officials familiar with the draft. They also will look at tightening borders to detect travel and bolstering aviation safety.
  • G-20 Says Inequality Causes Instability as It Urges Tax Action. The Group of 20 is set to list inequality as a threat to both global stability and economic growth, as it urges more action against cross-border tax-dodging. Draft summit conclusions called not just for “strong, sustainable and balanced growth,” but also for the world’s largest economies to ensure that this growth is “inclusive, job-rich and benefits all segments of our societies.” They went on to call on the Organization for Economic Co-operation and Development to bring developing countries into its tax cooperation project, which is aimed at stopping companies from hiding profits. This emphasis may reflect the location of the summit, in Antalya on the south coast of Turkey, which has the G-20’s 16th largest economy but the group’s 10th largest population. The country is also coping with the consequences of conflict in neighboring Syria, with millions of refugees pouring into the country. 
  • End of ‘Too-Big-to-Fail’ Banking Era Endorsed by World Leaders. World leaders are set to endorse plans by regulators to end the era of too-big-to-fail banks, forcing them to raise as much as $1.2 trillion, and backed proposals to wrap up sweeping reforms of rules for the global banking system. The Financial Stability Board, created by the Group of 20 nations after the 2008 credit crunch, last week put forward a plan on how the world’s biggest banks can collapse without taxpayer bailouts. The proposals, which force bond investors to take losses if banks fail, are due to come into effect in two steps starting in 2019. G-20 leaders signed off on them, according to a draft communique from the summit in Antalya, Turkey. The rules for “total loss absorbing capacity” complete the reconfiguration at banks designed to fix the failures and fill in the holes exposed by the crisis. It comes on top of measures that have forced banks to hold many times the amount of equity they had in the run-up to 2008. The FSB has also ordered lenders to issue bonds that can stop paying coupons and can be written off or converted into shares to preserve capital.  
  • China Wants to End Bubbles and Busts by Targeting Margin Loans. No more bubbles. That’s the takeaway from China’s move to limit leveraged bets in its equity market. The country’s two mainland stock exchanges said late Friday margin requirements will be raised to 100 percent from 50 percent starting on Nov. 23. The rule change means that investors with 1 million yuan ($156,895) in their account are limited to borrowing another 1 million yuan from a broker to buy more shares. Previously, they could borrow as much as 2 million yuan.
  • Luxury-Jet Market Value Seen Slipping for First Time Since 2009. Global long-term spending on private jets is starting to slow for the first time since 2009 as slumping commodity prices sap demand in emerging markets, according to an industry forecast. Deliveries for the 11 years ending in 2025 will be valued at $270 billion, Honeywell International Inc. said Sunday in its annual survey of the luxury-aircraft market. That’s down 3.6 percent from last year’s comparable projection, and snapped a streak of gains since the last U.S. recession ended.
  • Japan Enters Recession as Economy Contracts in the Third Quarter. Japan’s economy contracted in the third quarter as business investment fell, confirming what many economists had predicted: The nation fell into its second recession since Prime Minister Shinzo Abe took office in December 2012. Gross domestic product declined an annualized 0.8 percent in the three months ended Sept. 30, following a revised 0.7 drop in the second quarter, meeting the common definition of a recession. Economists had estimated a 0.2 percent decline for the third quarter. Weakness in business investment and shrinking inventories drove the contraction as slow growth in China and a weak global outlook prompted Japanese companies to hold back on spending and production.
  • Deutsche Bank Japan Bond Veteran Turns Author to Warn of Bubble. The Bank of Japan’s bond-buying stimulus is exposing investors to risks similar to the 2008 debt crisis, according to a Deutsche Bank AG veteran trader turned best-selling author. The monetary authority’s policies are “artificially lifting asset prices,” misleading the public, said Yoshihiro Matsumura, who headed Japanese government bond trading at the German bank in 2004. His book, whose title translates as “Why Do We Feel So Insecure About Our Future Now?” overtook Thomas Piketty’s “Capital in the Twenty-First Century” as the biggest seller online in Japan soon after being published in February. Matsumura, who retired in 2011 after trading in the world’s second-biggest bond market for more than two decades, joins other investors who have criticized the BOJ’s unprecedented stimulus for the distortions it creates. He also sees Japan’s commitment to using monetary policy to force-feed economic expansion as creating the sort of moral hazard that laid the foundations for the demise of Lehman Brothers Holdings Inc. during the crisis seven years ago. “The BOJ is driving massive, speculative dealing,” Matsumura, 51, said in an interview in Tokyo. They are “luring everybody to jump on the bandwagon and make money now because markets are looking only up. It will be the Japanese public who’ll get stuck with losses when it all ends.”
  • Debt Market Distortions Go Global as Nothing Makes Sense Anymore. Something very strange is happening in the world of fixed income. Across developed markets, the conventional relationship between government debt -- long considered the risk-free benchmark -- and other assets has been turned upside-down. 
  • Won Falls to Six-Week Low as Korea Stocks Drop Post Paris Terror. South Korea’s won fell to a six-week low on concern capital outflows from the nation’s stocks will accelerate as investors seek safer assets after terror attacks in Paris that killed at least 129 people. The Kospi index of shares dropped to the lowest in almost seven weeks as overseas investors net sold Korean shares for an eighth day Monday, taking this month’s withdrawals to $470 million. The Finance Ministry said it’s holding a meeting to discuss impact of Friday night’s attacks in France on financial markets. The blasts and shootings will fuel worries about decreasing trade in Europe and adversely affect exports from China, South Korea’s biggest overseas market, KB Investment & Securities Co. said in a report. The won weakened 0.7 percent to 1,172.35 a dollar as of 10:46 a.m. in Seoul, data compiled by Bloomberg show. 
  • Euro Falls Toward Six-Month Low as Yen Gains After Paris Attacks. The euro dropped toward a six-month low versus the dollar, erasing its first weekly gain in a month, after the terror attacks in Paris raised investor concerns about the outlook for Europe. The slide in the single currency resumes a decline that has seen it lose 5.5 percent since Oct. 16, as European Central Bank President Mario Draghi stoked market expectations for additional easing next month. The yen advanced against all its major peers Monday, joining rallies in U.S. Treasuries and gold, as traders turned to traditional havens after French warplanes bombed targets in Syria. The Swedish krona, Norwegian krone and Danish krone slumped.
  • Dubai Stocks Slump Most Since August as Mideast Markets Recoil. Disappointing company earnings, falling oil prices and a wave of terrorism culminating in Friday’s attacks in Paris unsettled investors, leading to losses in almost every Middle Eastern market. Dubai’s DFM General Index dropped 3.7 percent, the most in almost three months, after Drake & Scull International PJSC became the latest United Arab Emirates construction company to report losses. Egypt’s EGX30 Index tumbled 4.2 percent to the lowest since December 2013 and Saudi Arabia’s Tadawul All Share Index sank the most in almost three weeks. The Bloomberg GCC 200 Index, which tracks the top 200 companies in the six-nation Gulf Cooperation Council, closed at the lowest since May 2013. Drake & Scull joined larger rival Arabtec Holding Co. in reporting losses because of “challenging market conditions” after a more than 40 percent drop in Brent crude prices in the past 12 months led to deferred payments and project declines across the GCC. Oil prices may slide further after stockpiles expanded to a record of almost 3 billion barrels because of strong output from OPEC and elsewhere, the International Energy Agency said on Friday. Most governments in the region rely on income from crude to fund spending. 
  • Asian Airlines Fall on Fear Paris Attacks Will Curb Tourism. Shares of airline operators across Asia tumbled on worries that the deadly terrorist attacks in Paris will deter tourists from traveling to the French capital. Eva Airways Corp. of Taiwan was down 7.8 percent at NT$17.05 as of 9:51 a.m. local time, while China Southern Airlines Co. dropped 4.8 percent in Hong Kong to HK$5.78. China Eastern Airlines Corp. and Hainan Airlines Co. fell a much as 4.7 percent and 3.1 percent, respectively, while Cathay Pacific Airways Ltd. was down 2 percent. "There will definitely be a negative psychological impact in the short term in tourism-related sectors. Airlines are particularly affected," said Zhang Qi, a Shanghai-based analyst with Haitong Securities Co. The situation in France is "still quite uncertain now, so investors seem to be broadly risk-off today." The negative impact on China-to-France tourism will last as long as a year, with many tourists likely to cancel or change trips to France and Europe generally, China International Capital Corp Ltd. said in a note. 
  • Asian Stocks Decline as Markets Open Following Paris Attacks. Asian stocks fell as the region’s equity markets began trading for the first time since attacks in Paris killed least 129 people. The MSCI Asia Pacific Index declined 0.6 percent to 131.47 as of 9 a.m. in Tokyo, with more than 20 shares dropping for each that rose.
  • China's Copper Imports Face Unprecedented Drop on Slowdown. China is facing an unprecedented decline in refined copper imports as a slowing economy erodes demand in the world’s biggest consumer, according to the chief executive of one of the country’s largest buyers. Shipments will shrink 10 percent in 2016 as consumption weakens, domestic supplies increase and less metal is used for collateral in financing, Stephen Huang, chief executive officer of trading house Arc Resources Co., said in an interview in Shanghai. Purchases have already dropped almost 4 percent to 2.55 million metric tons in the first nine months of 2015 from a year earlier, customs data show. 
  • Miners Worldwide Are Money Pits. When John Maynard Keynes suggested governments should bury vast sums of money at the bottom of old mine shafts, it was meant as a parable about the surprising benefits of fiscal stimulus. The world's miners seem to be trying it out for real. Return on capital for companies in the Bloomberg World Mining Index has averaged minus 4.3 percent since turning negative at the end of September. That's the first time that's happened since the benchmark was created in 2003, barring a brief rounding-to-zero blip in 2013. 
Wall Street Journal:
  • Paris Attack: Latest Updates. 
  • Paris Attacks Show U.S., Allies Misjudged Islamic State. No longer a regional threat, ISIS demonstrates a long and deadly reach.
  • Lawmakers, Candidates Target High Drug Prices. Efforts attack a key driver of rising health care costs as presidential candidates also chime in. Lawmakers and the Obama administration are ratcheting up efforts to target pharmaceutical companies over high-priced drugs, a sign that legislators are trying to bridge partisan differences to tackle a key driver of rising health care costs.
  • A Bad Year for Earnings. Corporate profits are on pace for their worst year since the end of the financial crisis. The percentage that the earnings of S&P 500 companies are expected to contract this year, the first full-year decline since 2009.
  • Wake Up, Mr. President. The Paris attacks signal a new Islamist terror strategy. President Obama on Sunday promised to “redouble” U.S. efforts against Islamic State, which shows he isn’t deaf to the political impact of Friday’s murderous assault in Paris. But why should anyone believe him? After years of dismissing the rising terror threat, Mr. Obama needs an epiphany if he doesn’t want to be remembered as the President who allowed radical Islam to spread and prosper. “It is an act of war that was waged by a terrorist army, a jihadist army, by Daesh [the Arab...
Fox News:
  • French jets bomb ISIS targets in Syrian stronghold of Raqqa. (video) French jets struck the heart of ISIS-controlled territory on Sunday in the first direct retaliation for Friday’s deadly terror attacks that killed 129 in Paris. French fighter jets dropped 20 bombs on a command and control center, a jihadi recruitment center, munitions depot and ISIS training camp in the Syrian city of Raqqa, AP and Reuters reported, citing a statement from the French Defense Ministry. The "massive" raid was launched from the United Arab Emirates and Jordan and was carried out in coordination with U.S. forces. A Pentagon source told Fox News, "these were French strikes but they were conducted within the coalition. We helped with target list." Raqqa is the de facto capital of the Islamic State's "caliphate." 
  • Clinton and the other Democratic presidential candidates in debate decline to use term 'radical Islam'. (video) Hillary Clinton and the other Democratic presidential candidates are being criticized for declining to use the words “radical Islam” during Saturday night’s debate, following the deadly terror attacks in Paris. Clinton, Vermont Sen. Bernie Sanders and former Maryland Gov. Martin O’Malley declined to use the words after being asked during the CBS debate whether they would agree with GOP presidential candidate Sen. Marco Rubio saying, “We are at war with radical Islam.” The front-running Clinton said using the term “radical Islam” would be “painting with too broad a brush.” She also said the term was “not particularly helpful.” 
  • Obama plan to still bring in Syrian refugees after Paris attacks increases GOP concerns, fears. (video) The Obama administration said Sunday it will continue to bring Syrian refugees into the U.S., amid reports that at least one of the Paris attackers slipped through Europe’s system and concerns about “gaping holes” impacting America’s screening process. “Paris changes everything,” Rep. Mike McCaul, chairman of the House Homeland Security Committee, said Sunday on NBC’s “Meet the Press.” “There are a lot of holes -- gaping holes.” The Texas Republican cited several problems including the administration not having a comprehensive list of the estimated 5,000 or more foreign fighters around the world. “We don’t have the databases,” he said.
CNBC:
  • Small cap stocks serve up big warning. (video) For those trying to figure out where stocks will go next, one trader has a simple message: check out the small caps. Since the Russell 2000 index is comprised of smaller, domestically focused stocks, some traders view it as a good tell on the true state of the U.S. economy. To stock market bears, this sort of underperformance in the Russell underscores broader weakness. "The small caps have been consistently underperforming the broader stock averages and we're starting to see that weakness spread and pull broader averages down," Todd Gordon said Friday on CNBC's "Trading Nation." The Russell 2000 index is down 5 percent year-to-date, while the S&P 500 is down less than 2 percent.
Zero Hedge:
Business Insider:
Washington Post:
  • French officials think as many as 20 plotters may be behind Paris attacks. European authorities staged an international manhunt Sunday for a 26-year-old “dangerous individual,” one of three brothers involved in the deadly attacks on Paris, even as an image took shape of a larger network of terrorists that could involve as many as 20 plotters. At least eight assailants in three death squads are thought to have directly carried out Friday’s assault, which is being dubbed France’s “9/11.” Six detonated their suicide belts. Police shot and killed one. French police on Sunday issued an urgent alert and released a photo of an eighth suspect: the 5-foot-7-inch Salah Abdeslam, a Belgian-born French national.
Reuters:
  • Caterpillar(CAT) does not see return to peak China 2010 excavator demand-FT. Caterpillar Inc does not expect Chinese demand for hydraulic excavators to return to its 2010 peak, Tom Pellette, group president for construction industry equipment, told the Financial Times in an interview published on Sunday. In China, industry-wide sales of certain excavators will reach the "23,000 range" this year, Pellette said, compared to more than 27,000 sold in March 2011 alone and the more than 112,000 for all of 2010, according to the FT.
  • Bond defaults signal moment of truth for China ratings agencies, banks. China looks set to allow more bond defaults as part of its market reform agenda, but domestic ratings agencies and bond investors are still betting Beijing will lose its nerve, for fear of hammering its banks. Critics say the $4 trillion Chinese bond market, the world's third largest, has misallocated its vast sums to some of China's most inefficient companies, such as state-owned dinosaurs in sunset industries or opaque local government financing vehicles.
AFP:
  • Brazil far-right protesters call for military coup. Several hundred far-right protesters in the Brazilian capital Sunday called for a military coup against unpopular leftist President Dilma Rousseff. The demonstration in Brasilia, featuring a giant inflatable doll of a soldier and coffins meant to represent Rousseff's death, was a rare public display of support for a military takeover in Latin America's biggest country, where a two-decade dictatorship ended in 1985.
Financial Times:
  • Fed's Rosengren says lending risks a reason to hike. Boston Fed President Eric Rosengren, who is a voter in 2016, noted excesses in commercial property ending and large syndicated loans in an interview with the Fed. He said they were two areas that bear watching. "It would be a reason to maybe think about raising rates a little more quickly than I otherwise would, given the same unemployment and inflation rate," he said.Overall, however, the FT said his comments suggested his outlook is similar to the shallow interest-rate lift-off expectations in financial markets, rather than to the steeper path implied in Fed projections published in September. Earlier this month, Rosengren appeared to support a Sept liftoff.
Night Trading
  • Asian indices are -1.5% to -.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 131.75 +4.0 basis points.
  • Asia Pacific Sovereign CDS Index 71.5 +.75 basis point.
  • Bloomberg Emerging Markets Currency Index 70.41 -.15%.  
  • S&P 500 futures -.40%.
  • NASDAQ 100 futures -.41%.
Morning Preview Links 

Earnings of Note
Company/Estimate 
  • (DDS)/1.20
  • (JD)/.10
  • (A)/.47
  • (NUAN)/.35
  • (URBN)/.42 
Economic Releases
8:30 am EST
  • Empire Manufacturing for November is estimated to rise to -6.35 versus -11.36 in October.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone CPI report, BofA Merrill Banking/Financial Services Conference, UBS Tech Conference, (RAI) investor day and the (HAS) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the week.

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