Sunday, January 24, 2016

Monday Watch

Today's Headlines
  • Offshore Yuan Advances as Xinhua Claims Short Sellers Will Lose. The offshore yuan rose for the first time in five days after China stepped up verbal defense of its currency to ward off speculators betting on depreciation. Those entering short positions in the yuan are expected to "suffer huge losses" as Chinese policy makers will take measures to stabilize the exchange rate, according to a commentary on Saturday by the official Xinhua News Agency. Yuan stability is of "paramount importance" as the central bank is refraining from cutting banks’ reserve requirements because such a move could weaken the currency, Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong, wrote in a note Monday.
  • China Bears Descend on Alibaba(BABA) as Investors Fret About Economy. U.S. short sellers have pushed bets against Alibaba Group Holding Ltd. to the highest in more than 14 months on concern that China’s deepest economic slowdown since 1990 will only get worse. Short interest in China’s biggest online retailer surged to 7.5 percent of shares outstanding on Jan. 21, the highest since November 2014, according to data compiled by Markit and Bloomberg. That is more than double from a Dec. 1 low. Bearish bets on rival Inc. have hovered around 2 percent since last month. Pessimists are once again taking aim at Alibaba -- a bellwether for U.S. investor sentiment on China -- as mainland stocks entered a bear market last week. Those wagers are already starting to pay off as a selloff since the start of the year sent the American depositary receipts of Alibaba down more than 13 percent.
  • Foreign Investors Bail on Russian Stocks. International investors are exiting their investments in some of the most liquid Russian companies as soaring volatility in the country’s stocks and currency push them to turn to less risky assets. They are getting out of Russian stocks faster than local traders are selling shares on the Moscow Exchange, causing the valuation gap between onshore and offshore-traded equities to narrow to levels not seen in as long as a year. The asset dump comes after oil, the country’s main source of revenue, plunged to a 12-year low last week and the ruble retreated the most among developing-nation peers.
  • Kuroda in Davos Gives No Hint of BOJ Appetite to Expand Stimulus. Bank of Japan Governor Haruhiko Kuroda has preserved his capacity to surprise the market when his policy board meets this week after using his trip to Davos to play down the impact of recent turbulence on Japan’s economy. "At this stage, we don’t think the current market situation has been affecting corporate behavior unduly," he said in an interview with Bloomberg in the Swiss mountain resort. "But, as I said, the market is the market, and markets could affect the real economy -- so we carefully watch." Kuroda, 71, was speaking ahead of what could be an agonizing decision about whether to add to the central bank’s record asset-purchase program. Waning inflation expectations, sliding oil prices and a reversal in the yen’s declines have put pressure on the BOJ to do more. Even so, some analysts question how much impact a move would have now and others suggest Kuroda has only one more shot in his monetary arsenal and say he should save it.
  • Asia Stocks Extend Global Rebound as Japan, Material Shares Rise. Asian stocks extended the rally that sent global equities to their biggest gain in 3 1/2 years as Japanese shares and materials companies climbed. The MSCI Asia Pacific Index added 0.5 percent to 119.07 as of 9:02 a.m. in Tokyo, with materials and health-care shares leading the advance. Japan’s Topix index climbed 1.1 percent as markets across the region extended gains that began after European Central Bank President Mario Draghi signaled it may boost economic support. Bank of Japan Governor Haruhiko Kuroda, who decides on policy on Jan. 29, played down the impact of recent market gyrations on his economy, while traders are predicting the Federal Reserve will hold interest rates when it also meets this week.
  • Japan Crude Oil Imports Plunge to Lowest Since 1988. Japan’s crude oil imports last year fell to the lowest level since 1988 as demand weakens amid a declining population and more efficient vehicles. The world’s third-biggest economy imported 195.5 million kiloliters of oil, or about 3.37 million barrels a day in 2015, a 2.3 percent drop from the previous year, according to preliminary data from the Ministry of Finance on Monday. That’s the lowest since 1988 when the nation imported 192.2 million kiloliters, data from the ministry shows
  • Hedge Funds Cut Bearish Oil Bets Before Rebound From 12-Year Low. Speculators’ short position in WTI shrank 8.4 percent in the week ended Jan. 19, data from the U.S. Commodity Futures Trading Commission show. Their net-long position increased 17 percent.
  • What's Worrying the Davos Elite? Plenty. A polarized U.S. presidential race; question marks over China’s economic management; and a once-dominant German chancellor suddenly under threat. Those were the flash points that dominated last week’s annual gathering of the World Economic Forum as executives, investors and policy makers fretted about the lack of leadership in a world beset by multiple crises. With the global economy already slowing and financial markets whipsawing, the risk is that an otherwise manageable set of challenges could cascade out of control without a firmer hand from governments.
  • Why Robots Mean Interest Rates Could Go Even Lower In The Future. If robots rise, interest rates will fall. That was the assumption of delegates at the World Economic Forum’s annual meeting in Davos, Switzerland, as revolutions in automation and artificial intelligence reshape how economies work. The argument goes like this: As machines become more and more advanced, many workers will lose their jobs and others will see their wages fall. New technology will also increase the chances of a 1990s-style jump in productivity. Those forces will combine to restrain prices across the world economy, meaning that the era of slow inflation now challenging central bankers may only prove a sign of things to come.
Wall Street Journal:
  • Russian Oil: Output Grows as Prospects Shrink. Plummeting prices and U.S.-led sanctions raise questions about Russian oil’s capacity to continue underwriting Putin’s global ambitions. In the frosty swamplands of West Siberia, the drilling rigs of oil giant OAO Lukoil are helping raise Russia’s oil output to its highest levels since the breakup of the Soviet Union a quarter century ago.
  • Time to Say Goodbye to Long Bull Market? U.S. stocks are flashing lots of bearish signs; investors aren’t panicking
  • Asset Managers Are Hard Hit. Low interest rates, rising competition and market swoon press industry.
  • The Climate Snow Job. A blizzard! The hottest year ever! More signs that global warming and its extreme effects are beyond debate, right? Not even close. An East Coast blizzard howling, global temperatures peaking, the desert Southwest flooding, drought-stricken California drying up—surely there’s a common thread tying together this “extreme” weather. There is. But it has little to do with what recent headlines have been saying about the hottest year ever. It is called business as usual.
  • Trump Laid Out His Playbook 30 Years Ago. His presidential campaign is ‘The Art of the Deal’ in action. “I play to people’s fantasies” and a “little hyperbole never hurts.” Mr. Trump has proposed a 2,000-mile-long wall at the Mexican border, a “deportation force” to expel an estimated 11 million undocumented immigrants, and a ban on all noncitizen Muslims entering the country. Those pledges represent the extreme wish-list items of Mr. Trump’s most ardent fans. They are also completely unrealistic.
  • Buckle up! This economic doomsayer sees plenty more volatility. The stock market may be taking a breather from its big fall — the S&P 500 was up about 1.5 percent on Jan. 22 — but one economist thinks that we're going to see plenty more volatility in the next few months and another big correction in about two years.
Zero Hedge:
Business Insider:
  • More holes than fingers? Beijing struggles to plug capital flight. As a slick slide presentation runs for the well-heeled investors jammed into the banqueting hall of Shanghai's Renaissance Yangtze Hotel, an image flashes up of a grinning Chinese man pushing a wheelbarrow full of cash into Europe. Another slide features a car bearing a Chinese flag preparing to drive into a pit. For wealthy Chinese, desperate to avoid further falls in a currency that has shed 6 percent against the dollar since August, the message is clear. "The yuan will keep depreciating as time goes by, so we should swap the money we have in hand into tangible assets," Li Xiaodong, chairman of Canaan Capital, tells his audience, while exhorting them to pull their money out of China while the going is still good and pour it into property in Spain and Portugal.
Financial Times:
  • India’s optimism blurred by economic gloom. Arun Jaitley should have been in a bullish mood this month as he gathered a dozen economists to chew over India’s buoyant prospects. However, instead of savouring the start of a golden period of expansion, the finance minister listened as they warned glumly that dark forces were set to derail India’s renaissance before it had really begun.
  • US junk-rated energy debt hits two-decade low. The value of debt issued by junk-rated US energy companies has plummeted to the lowest level for more than two decades, sending a warning signal about the outlook for the North American oil industry.
Slovenian Press Agency STA:
  • ECB's Nouy Says Property Loans May Cause Problems for Banks. Real estate mortgages a "possible source of difficulties" for European banks, Daniele Nouy, chair of European Central Bank's Supervisory Board, says in interview. 
Night Trading
  • Asian indices are +1.0% to +1.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 152.0 -2.25 basis points.
  • Asia Pacific Sovereign CDS Index 75.0 -1.75 basis points.
  • Bloomberg Emerging Markets Currency Index 67.39 +.11%.  
  • S&P 500 futures -.04%.
  • NASDAQ 100 futures -.15%.
Morning Preview Links 

Earnings of Note
  • (DHI)/.41
  • (HAL)/.24
  • (KMB)/1.43
  • (MCD)/1.23
  • (PETS)/.24
  • (ASH)/1.39
  • (BXS)/.37
  • (CR)/1.11
  • (GGG)/.78
  • (RMBS)/.15
  • (SANM)/.58
  • (STLD)/.07
  • (SWFT)/.47
  • (ZION)/.42
Economic Releases 
9:30 am EST
  • Dallas Fed Manufacturing Activity for January is estimated to rise to -14.0 versus -20.1 in December. 
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German IFO data could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

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