Monday, January 04, 2016

Tuesday Watch

Posted by Gary .....at 10:16 PM
Evening Headlines
Bloomberg:  
  • China Stocks Fluctuate as Regulator Seeks to Reassure Investors. China’s stocks swung between gains and losses as the regulator moved to reassure investors after Monday’s plunge put the nation’s new market circuit breakers to the test on their first day. The CSI 300 Index was little changed at 10:05 a.m. local time after rising as much as 1.4 percent and dropping 2.7 percent. Trading was halted on Monday after the gauge dropped 7 percent. The circuit breaker plays an important role in stabilizing the market, and the government will work to improve the system, China Securities Regulatory Commission spokesman Deng Ge said in a statement on Tuesday. The central bank conducted the biggest reverse-repurchase operations since September, adding funds to the financial system after money-market rates climbed to an eight-month high.
  • China's Big Banks in 2016: Another Challenging Year on Bad Loans. Lower interest rates, rising bad loans and a growing challenge from Internet finance companies will add up to another tough year for China’s biggest banks in 2016, with their profit growth set to pick up only marginally from the slowest pace in more than a decade in 2015. Here are five snapshots. No end is in sight for increases in nonperforming loans. Going by the official numbers, which are widely regarded as understated, bad loans rose to a seven-year high of 1.2 trillion yuan ($184 billion) as of the end of September. In a sign of the write-offs to come, policy makers are aiming for a clean-up of “zombie companies” that rely on government subsidies and bank loans to keep operating. Xuanlai He, an analyst at Commerzbank AG, is among those forecasting a worsening of asset quality in 2016. 
  • DeMark Sees ‘Big Risk’ That Chinese Stocks Will Retreat Further. Chinese stocks trading in Hong Kong may extend their worst start to a year since 1995, according to Thomas DeMark, who correctly predicted the selloff in the country’s equity market last year. “It’s critical tomorrow,” DeMark, founder of DeMark Analytics, said on Bloomberg Television on Monday in New York. “We are going to have a big risk on the downside” if the Hang Seng China Enterprises Index opens lower and trades below Monday’s intraday low, he said. If those conditions are met, the gauge will decline to 7,933, DeMark said in a follow-up phone interview. That would be about a 15 percent decline from Monday’s closing level. The direction of the market will be inconclusive if the conditions are unfulfilled, said DeMark, who has spent more than 40 years developing indicators to identify market turning points. 
  • China's Hand Feared Behind Hong Kong Publisher's Disappearance. The disappearance of a Hong Kong-based publisher of books critical of China’s Communist Party is fueling concerns that tactics used to limit dissent on the mainland are being exported to the former British colony.
  • Volkswagen Faces Billions of Dollars in Penalties From U.S. Suit. The U.S. Justice Department sued Volkswagen AG for installing illegal devices meant to defeat emissions testing, and laid out claims that could push penalties into the tens of billions of dollars -- an opening salvo in a legal battle that could be far more costly for the German carmaker than had been expected. The civil complaint filed Monday accuses the automaker of four violations of the Clean Air Act and outlines penalties that could amount to as much as $80 billion -- about four times as much as the maximum some legal experts had estimated. While the court is unlikely to come anywhere near that amount, according to a senior Justice Department official, the penalties sought against the company would still be in the billions of dollars, another senior Justice Department official said. 
  • Won Drops to Three-Month Low as China Selloff Deters Risk-Taking. The won fell to a three-month low as an equities selloff in China, South Korea’s largest export market, damped demand for emerging-market assets by curbing risk-taking. The Bank of Korea will closely monitor the impact of global volatility on local financial markets, the monetary authority said after meeting Tuesday to discuss the effects of the China rout. The worst-ever start to a year for Chinese shares triggered a trading halt in more than $7 trillion of equities, futures and options on Monday. The won declined as much as 0.4 percent to 1,192.06 a dollar, the weakest level since September, before paring the day’s loss to 0.2 percent as of 10:23 a.m. in Seoul, according to data compiled by Bloomberg. 
  • Asia Stocks Stabilize as China Adds Funds to Financial System. Asian stocks stabilized after the worst start to the year since 1988 as China’s central bank added funds to the financial system and U.S. equities staged a late rally. The MSCI Asia Pacific Index was little changed at 128.93 as of 11:05 a.m. in Tokyo, swinging between losses of 0.4 percent and gains of as much as 0.2 percent.
  • Oil shrugs as glut blunts shock from deeper Saudi-Iran conflict. At almost any other time, an escalating diplomatic conflict between OPEC members Iran and Saudi Arabia should mean a spike in oil prices. That the rally this time couldn't be sustained shows just how abnormal things are in the oil market. Brent crude erased an initial gain of more than 4 percent as a global supply glut and the slowest Chinese growth in a generation trumped mounting strife between the nations on either side of the world's busiest waterway for oil tankers. "When oil supplies were tight, we've seen bigger reactions to geopolitical tensions," Tushar Tarun Bansal, a senior oil analyst in Singapore at industry consultant FGE, said by phone. "Now the price rise has actually been quite muted because the world is in a surplus situation."
  • Why More Retailers Could Default in 2016. Last year was grim for retailers. This year could be even worse. Despite a late surge in holiday sales, companies like J. Crew Group Inc. and 99 Cents Only Stores are struggling under debt they took on in leveraged buyouts years ago. Their bond prices have plummeted -- in some cases to as little as 25 cents on the dollar -- as investors brace for possible defaults. The industry has been limping along for a while now due to a variety of forces. Spending has migrated to the Internet, lenders have turned wary and the debt burdens of pre-crisis buyouts will make it tough to revive struggling merchants. Eleven retailers defaulted last year through Dec. 14, the highest annual tally since 2009, according to Standard & Poor’s data. And the near future doesn’t look much brighter. 
Wall Street Journal: 
  • Supermines Add to Supply Glut of Metals. Giant mines, begun when prices were high, weigh down copper, iron ore and other metals. In this volcanic desert, a dusty moonscape patrolled by bats, snakes and guanacos, America’s biggest miner is piling on to the new force in industrial resources: supermines. It’s a strategy that could be driving miners into the ground.
  • The U.S. Economy’s Latest Growth Is Looking Increasingly Frail. The Federal Reserve Bank of Atlanta said Monday it now believes fourth-quarter GDP grew at just a 0.7% pace, down from a prior estimate of 1.3% growth. J.P. Morgan Chase cut its estimate in half to 1% growth from 2%. Forecasting firm Macroeconomic Advisers lowered its estimate by three-tenths of a percentage point to 1.1%. 
  • Poll Points to Upside for Ted Cruz, Marco Rubio in GOP Race. Trump and Bush would have harder time picking up supporters of other candidates, WSJ/NBC poll suggests. 
  • America’s Year of Living Dangerously. In 2016, rogue states will take a hammer to the soft plaster of Obama’s resolve. Two thousand sixteen will be the year of America living dangerously. Barack Obama will devote his last full year in office to shaping a liberal legacy, irrespective of real-world results. America’s enemies will see his last year as an opportunity to take what they can, while they can. America’s allies, or former allies, will do what they must.
Fox News:
  • Obama executive action on guns to require background checks for more sales. (video) President Obama’s series of executive actions on guns will require background checks for those purchased from dealers even if they're bought online or at gun shows, the White House announced late Monday. The Justice Department's Bureau of Alcohol, Tobacco, Firearms and Explosives will also issue updated guidance that says the government can consider someone a gun dealer regardless of where the guns are sold.
Zero Hedge: 
Evening Recommendations 
  • None of note
Night Trading 
  • Asian equity indices are -.50% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 139.25 unch.
  • Asia Pacific Sovereign CDS Index 75.5 +3.0 basis points.
  • Bloomberg Emerging Markets Currency Index 68.66 +.04%.
  • S&P 500 futures +.31%
  • NASDAQ 100 futures +.35%.
Morning Preview Links 

 Earnings of Note 
Company/Estimate
  • (CMC)/.25
  • (SONC)/.23
  • (TISI)/.84
Economic Releases
9:45 am EST
  • ISM New York for December.
Afternoon:
  • Total Vehicle Sales for December are estimated to fall to 18.0M versus 18.05M in November.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The UK Construction PMI, US weekly retail sales reports, Citi Internet/Media/Telecom conference, (F) Dec. US sales conf call and the (LLY) guidance call could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by tech and consumer shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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