Monday, January 11, 2016

Tuesday Watch

Posted by Gary .....at 11:00 PM
Evening Headlines
Bloomberg:  
  • China’s Shanghai Composite Index Falls Below 3,000 Level. (video) China’s benchmark stock index fell below the 3,000 level in volatile trading as concern grew about the government’s ability to revive the economy and stabilize the yuan. The Shanghai Composite Index decreased 1 percent to 2,986.18 at 10:53 a.m. local time, after gaining as much as 1 percent. Energy and material companies led declines.  
  • In Rush to Exit Yuan, China Traders Buy Sinking Hong Kong Stocks. Chinese investors are so desperate to shift their money out of yuan-denominated assets that they’re piling into some of the world’s worst-performing stocks. Mainland buyers purchased Hong Kong shares through the Shanghai stock link for a 10th week last week, even as the Hang Seng Index tumbled 6.7 percent. Chinese traders held 112.5 billion yuan ($17.1 billion) of the city’s equities by Monday, the most since the bourse program started in 2014, and up by 23.7 billion yuan since late October. With the yuan weakening, investors are looking for a  way out, according to Reorient Group Ltd.
  • China Rout Infects Aussie Resource Giants as Bond Risk Surges. Australia’s credit market is having its shakiest start to a year since at least 2008 as the prospects for resource and gaming companies are clouded by China’s market turmoil. The cost of insuring debt from Woodside Petroleum Ltd. jumped 39 basis points to 226, while casino owner Crown Resorts Ltd. saw its credit-default swaps rise 32 to 285 and BHP Billiton Ltd. contracts increased 25 to 205. They’re the worst performers in the Markit iTraxx Australia index, which climbed 9 basis points so far this month, the biggest early January increase in CMA data that stretches back eight years. “The concerns have really been around things like China,” said Gavin Goodhand, who helps oversee the equivalent of about $450 million as a money manager at Altius Asset Management in Sydney. “Those moves at the beginning of the year can actually be easily connected to what’s been going on globally with equity markets and concerns about economic growth.”
  • Japan Stocks Sink for Sixth Day as Markets Reopen After Holiday. Japanese stocks fell for a sixth straight day, as markets reopened after a public holiday. Energy explorers led declines as crude oil prices tumbled. The Topix index lost 2.4 percent to 1,413.17 at the lunch break in Tokyo. The Nikkei 225 Stock Average dropped 2.1 percent to 17,322.56, after posting its worst first week of a year since 1997 amid turmoil in Chinese equity and currency markets. The yen traded at 117.64 per dollar, from 118.29 when Japan’s stock market closed on Friday. “Investors are questioning when the weak yuan and the fall in Chinese shares will stop and concerns over the Chinese economy is worsening market sentiment,” Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, said by phone. “Japanese stocks are oversold from a valuation perspective.”
  • Asian Stocks Outside Japan Rally With U.S. Futures; Oil Near $31. Asian stocks rose outside of Japan as China kept its yuan fixing little changed, while oil extended declines to a seventh day. Australian equities rose for the first time this year, while the Shanghai Composite Index swung between gains and losses following a $1.4 trillion rout. Japanese shares fell as they traded for the first time this week. The Chinese currency traded in Hong Kong’s free market rose 0.2 percent. A Bloomberg gauge of dollar strength was near its highest level since at least 2005. Crude slumped toward $31 a barrel in New York.
  • Petronas Predicts More Tough Years as $30 Oil Seen on Oversupply. Petroliam Nasional Bhd. said crude prices could average $30 a barrel and warned the Malaysian state oil company faces two to three tough years.
    Just two months after the company was assuming an average price of $48 a barrel, Chief Executive Officer Wan Zulkiflee Wan Ariffin laid out the new "low-price" scenario for 2016. Petronas remains committed to its multi-billion dollar projects as it sticks to its capital expenditure plan of as much as 350 billion ringgit ($80 billion) over the next five years, he said Monday.
    - See more at: http://www.rigzone.com/news/oil_gas/a/142433/Petronas_Predicts_More_Tough_Years_as_30_Oil_Seen_on_Oversupply#sthash.OKBH3IP5.dpuf
  • Shipyards vanish as China loses appetite for consuming iron ore. The weakening yuan and China’s waning appetite for raw materials have come around to bite the country’s shipbuilders, raising the odds that more shipyards will soon be shuttered. About 140 yards in the world’s second-biggest shipbuilding nation have gone out of business since 2010, and more are expected to close in the next two years after only 69 won orders for vessels last year, JPMorgan Chase & Co. analysts Sokje Lee and Minsung Lee wrote in a Jan 6 report. That compares with 126 shipyards that fielded orders in 2014 and 147 in 2013. Total orders at Chinese shipyards tumbled 59% in the first 11 months of 2015, according to data released Dec. 15 by the China Association of the National Shipbuilding Industry.
  • Iron Ore Slump Threatens $2 Billion Australian Mine. The plunge in the price of iron ore looks set to claim another casualty with Gindalbie Metals Ltd. questioning its future, as partner Anshan Iron and Steel Group Corp. considers withdrawing funds for a $2 billion mine. Anshan engaged a third party to assess the viability of its Karara iron ore mine in Western Australia amid the steel making material’s price collapse, according to a statement from Gindalbie. Shares in the Perth-based company slumped 48 percent to 1.1 cents at 11:26 a.m. in Sydney, giving it a market value of A$16.5 million compared with A$780 million at the end of the 2011 fiscal year.
  • Third Avenue Sees Assets Fall 21% in Quarter as Investors Flee. Third Avenue Management, which took the rare step of freezing redemptions in a distressed debt mutual fund last month, saw investors also pull money from its equity funds, contributing to a 21 percent decline in the firm’s assets last quarter. Third Avenue managed $6.3 billion as of Dec. 31, down from $8 billion as of Sept. 30, Daniel Gagnier, a spokesman, said in an e-mail. Investors withdrew an estimated $720 million, or almost 13 percent of total assets, from Third Avenue’s four equity mutual funds in December, according to data compiled by  Bloomberg.
  • Worst Start to Health Conference Since 2001 Has Investors Glum. (video) Health care investors have grown accustomed to four days of optimism when Wall Street decamps to San Francisco each January to hear about science, deals and fresh opportunities at the J.P. Morgan Health Care Conference. Instead, on Monday, it was practically a bloodbath. The 190-member Nasdaq Biotechnology Index fell 3.4 percent, the worst opening day of trading during the conference since 2001, when the broader market was in a downturn. The 56-member Standard & Poor’s Health Care Index fell 1.2 percent, its worst conference Monday since 2009. Stocks plunged, taking down everything from tiny biotechs to large cap drugmakers.
Wall Street Journal: 
  • Why China’s Market Illness Has Gotten More Contagious. Global investors worry about Beijing’s management of nation’s huge economy. Last week’s global-markets rout began with people like Wu Yizhang. The 65-year-old retiree had just taken a seat facing the trading board in his favorite Shanghai stock-trading hall on Thursday morning when he saw the market go into free fall. Panicked, Mr. Wu unloaded shares.
  • Oil Plunge Sparks Bankruptcy Concerns. Crude’s plunge to near $30 a barrel fans worries that it could sink a third of U.S. oil producers. Crude-oil prices plunged more than 5% on Monday to trade near $30 a barrel, making the specter of bankruptcy ever more likely for a significant chunk of the U.S. oil industry. Three major investment banks—Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc.—now expect the price of oil to crash through the $30 threshold and into $20 territory in short order as a result of China’s slowdown, the U.S. dollar’s appreciation and the...   
Fox News:
  • ISIS burns fighters alive for letting Ramadi fall. (video) ISIS fighters who fled to the terror group’s Iraqi stronghold of Mosul after being defeated in Ramadi were burned alive in the town square, sources told FoxNews.com, in an unmistakable message to fighters who may soon be defending the northern city from government forces.
MarketWatch.com:
Zero Hedge:
Reuters:
  • Fed's Kaplan says he'll 'wait and see' on China's U.S. impact. Robert Kaplan, the new chief of the Dallas Federal Reserve Bank, said on Monday he would take a "wait-and-see" approach on assessing how China's slowdown will affect the U.S. economy. Kaplan told the Dallas chapters of Financial Executives International, the Association for Corporate Growth and the National Association of Corporate Directors that he was not surprised that China's stock market volatility had jarred markets around the world. But he said it was still too soon to tell if it will get worse, or if in a couple of months China will turn out to have rebounded. 
Telegraph:
Night Trading 
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 149.75 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 76.25 unch.
  • Bloomberg Emerging Markets Currency Index 68.12 -.04%.
  • S&P 500 futures +.01%
  • NASDAQ 100 futures +.01%.

Earnings of Note 
Company/Estimate
  • (IHS)/1.56
  • (CSX)/.46
  • (PRGS)/.49
Economic Releases
6:00 am EST
  • The NFIB Small Business Optimism Index for December is estimated to rise to 95.0 versus 94.8 in November.
10:00 am EST
  • JOLTS Job Openings for November are estimated to rise to 5450 versus 5383 in October.
  • IBD/TIPP Economic Optimism Index for January is estimated to rise to 47.5 versus 47.2 in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking, UK Industrial Production report, $24B 3Y T-Note auction, USDA WASDE report, US weekly retail sales reports, Deutsche Bank Auto conference, (BOJA) investor meetings and the Needham Growth Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 50% net long heading into the day.

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