Monday, January 18, 2016

Tuesday Watch

Posted by Gary .....at 10:27 PM
Today's Headlines
Bloomberg:  
  • Iran Captured U.S. Sailors at Gunpoint, Defense Department Finds. Ten U.S. sailors detained by Iran last week were taken at gunpoint after straying into Iranian waters, the Defense Department said in the first formal account of the confrontation in the Persian Gulf. “Armed Iranian military personnel” boarded the U.S. boats while others “conducted armed over-watch of the boats with mounted machine guns,” U.S. Central Command said in the preliminary report issued Monday. It describes an incident on Jan. 12 that began as a tense confrontation but ended quietly, with no indications the sailors were physically harmed. Sailors on two Riverine Command Boats traveling from Kuwait to Bahrain “deviated from their planned course” down the middle of the Persian Gulf, according to the report, which said the reason remains under investigation. The boats stopped for troubleshooting after indications that the diesel engine on one of the vessels had a mechanical problem. “The stop occurred in Iranian territorial waters, although it’s not clear the crew was aware of their exact location.”
  • Iran Gives Order to Boost Crude Oil Output Amid Global Glut. (video) Iran’s oil ministry issued an order to increase production by 500,000 barrels a day as the country moved ahead with plans to add supply to a glutted market even at the risk of contributing to a price collapse. The increase is possible now that Iran is unfettered by sanctions on its crude exports, the ministry’s news agency Shana reported Monday, citing comments by Roknoddin Javadi, managing director of state-run National Iranian Oil Co. If Iran doesn’t boost production, neighboring countries will pump more oil within six to 12 months and take away its market share, Javadi said. “Does Iran have the right to do so? Yes, of course,” United Arab Emirates Energy Minister Suhail Al Mazrouei said Monday in Abu Dhabi. “Is this going to help the situation? No.”
  • China’s GDP Misses Estimates as Stimulus Struggles for Traction. China’s economy slowed in December, capping the weakest quarter of growth since the 2009 global recession, as the Communist leadership struggles to manage a transition to consumer-led expansion. Industrial production, retail sales and fixed-asset investment all slowed at the end of the year, while gross domestic product rose 6.8 percent in the fourth quarter from the same period of 2014. GDP increased 6.9 percent -- the least since 1990 -- for the full year, in line with the government’s target of about 7 percent.
  • Yuan Bears Stick to Their Guns After PBOC Attacks on All Fronts. China is attacking yuan bears on multiple fronts, forcing banks to hold more of the currency, driving up offshore interest rates, issuing verbal warnings and undertaking intervention that cut reserves by $108 billion last month alone. That has only emboldened some forecasters.
  • Asia Junk Bonds One Cent Away From 2012 Low Amid Fund Flight. Asia’s junk-rated dollar bonds are trading within a cent of a four-year low after a global market selloff this month left one in every three notes with losses. Average prices of company debentures in the region fell to 93.55 cents on the dollar on Jan. 15, following a seven-day slide to the least since Sept. 30, Bank of America Merrill Lynch’s Asian Dollar High Yield Corporate Index shows. A one-cent decline in the price will drag the gauge to a level not seen since January 2012. Investor sentiment toward Asia is weakening as economic growth in China slows and all 24 emerging-market currencies tracked by Bloomberg drop against the dollar. The regional slump is raising concern that more Asian companies will struggle to service higher levels of leverage just as the Federal Reserve has started raising interest rates from near-zero.
  • Merkel's Refugee Showdown Nears Amid Party Revolt Over Borders. Faced with the biggest challenge of her decade in power, Angela Merkel is poised for a week that may determine the outcome of her quest to keep Germany open to refugees. The chancellor ran straight into the gathering storm over her policy on Monday, chairing a meeting in Berlin of her Christian Democratic Union’s national executive amid open revolt within the party ranks. Party leaders backed changing German asylum rules to make it easier to expel citizens of Algeria, Morocco and Tunisia. Merkel then heads to the Alps for mid-week talks with her rebellious Bavarian allies and ends the week by hosting a summit with Turkish government leaders, in whose hands she has placed much of the responsibility for stemming the influx of migrants to Europe.
  • Paschi, UniCredit Among Banks Pressed for Bad-Loan Data by ECB. Banca Monte dei Paschi di Siena SpA, UniCredit SpA and Banca Popolare dell’Emilia Romagna SC are among Italian lenders being asked by the European Central Bank to submit data on their non-performing loans as examiners increase scrutiny of credit quality in the region. The review is being conducted by the central bank’s oversight arm, the Single Supervisory Mechanism, and will be carried out in coming weeks, the companies said separately in statements on Monday. Banco Popolare SC, Banca Popolare di Milano Scarl and Banca Carige SpA also disclosed that they are involved in the assessment. Banks “will be subject to an assessment of NPL strategy, governance, processes and methodology, activity currently underway at European level,” Popolare dell’Emilia Romagna wrote in its statement.
  • Credit Agricole Eyes Capital Boost by Selling Bank Stakes. Credit Agricole SA, the French lender seeking ways to bolster capital, is exploring the sale of its stakes in more than three dozen regional banks in a deal that could be valued at about 17 billion euros ($19 billion), people familiar with the matter said. Under the plan, each of the regional lenders would buy back the 25 percent stakes currently owned by Credit Agricole, raising proceeds for its capital buffers, said the people, who asked not to be identified because deliberations are private. The French lender may be ready to announce a deal in March, though it is discussing various options and hasn’t made a final decision, the people said.
  • Casino Shares, Bonds Plumb Lows as S&P May Downgrade to Junk. Casino Guichard-Perrachon shares and bonds slumped after Standard & Poor’s said it’s considering cutting the French grocer’s debt rating to junk, citing concerns about leverage and a poor environment in Brazil and Asia. S&P said Saturday Casino’s BBB- long-term rating is on negative watch as its profitability will continue to be fairly weak for an extended period of time and its debt levels, primarily located at the French operations, are too high. The rating may be cut as much as two levels. S&P had confirmed Casino’s rating in December, a view which changed after the grocer on Thursday lowered its 2015 earnings expectations.
  • Portugal Spread at 6-Month High as BlackRock Says Investors Wary. The political turmoil and challenges faced by the banking sector in Portugal have undermined confidence in the nation’s bonds, according to BlackRock Inc.’s deputy chief investment officer for fundamental fixed income, Scott Thiel. The extra yield that Portuguese 10-year government bonds offer over benchmark German securities widened to 2.25 percentage points, the most based on closing-price data since July. Portugal Prime Minister Antonio Costa said Friday he was concerned by the central bank’s treatment of Novo Banco SA bondholders after some were forced to take losses on their investments, adding that it could harm confidence in the nation’s financial system.
  • Brazil Analysts Forecast 7% Inflation in 2016 as Real Weakens. Brazil’s consumer prices will rise 7 percent this year as the currency continues to depreciate, increasing pressure on the central bank to resume monetary tightening this week. Economists surveyed by the central bank raised their 2016 inflation forecast for the third straight week and expect consumer price increases to exceed the 6.5 percent upper limit of the target range for a second straight year. The real, which lost the most among all major currencies last year, is forecast to further devalue to 4.25 per U.S. dollar by the end of this year and to 4.3 per dollar by the end-2017. The real gained 0.4 percent to 4.0338 per dollar at 9:20 a.m. local time. 
  • Italian Banks Lead European Decliners on Bad Loans Concerns. Italian banks dropped in Milan, leading declines in the European Stoxx 600 Banks Index, reflecting investor concerns about lenders’ levels of bad debt as the European Central Bank seeks to toughen scrutiny of the region’s non-performing loans. Banca Monte dei Paschi di Siena SpA, bailed out twice since 2009, slumped as much as 17 percent, and was down 12 percent to 79 cents at 5:08 p.m. in  Milan. Unione di Banche Italiane SpA fell 6.3 percent, while Banco Popolare SC declined 5.3 percent. Europe’s 46-member Stoxx 600 Banks Index decreased 1.5 percent, bringing losses this year to 14 percent. “Italian banks’ asset quality is back in the spotlight,” said Wolfram Mrowetz, chairman of Alisei SIM, a Milan brokerage. “A delay in Italy’s bad-bank plan, amid quarrels between Prime Minister Matteo Renzi and European Commissioner Jean-Claude Juncker, and ECB challenges on the high level of non-performing loans are hurting stock.”
  • Davos Robot Eclipses Davos Man as Gloom Descends on World Elite. “If some of the predictions about tech and employment come true, then we should all be worried,” said Alan Winfield, a professor specializing in robotics at the University of the West of England, who will be speaking in Davos. “There need to be solutions.”
  • Asian Stocks Fluctuate as Traders Weigh China GDP; Yen Weakens. Asian equities fluctuated near a three-year low as traders weighed weaker-than-expected Chinese economic data against prospects for increased stimulus. The yen declined, while oil traded near a 12-year low. The MSCI Asia Pacific Index slipped 0.1 percent at 10:20 a.m. in Hong Kong. The yuan fell 0.1 percent in offshore trading, while Japan’s currency dropped 0.3 percent. Oil traded around $29 a barrel in New York as Iran issued an order to boost production in an already oversupplied market.
  • Iron Ore Holdings at China Ports Set to Top 100 Million Tons. The holdings will probably surge as low-cost supplies rise and steel mills rein in output before and during a nationwide, week-long holiday next month, according to China Merchants Futures Co. Both Citigroup Inc. and Australia & New Zealand Banking Group Ltd. say the threshold for the stockpiles is set to be exceeded, flagging the risk that it’ll add to pressure for prices to drop. “The increase will be driven by higher shipments from Australia and Brazil, especially in the final months of 2015, against a seasonally weak period for China demand,” Zhao Chaoyue, an analyst at China Merchants Futures, said by phone on Monday. Zhao predicted the target may be breached before the Lunar New Year break, which starts Feb. 8. The inventories rose 1.7 percent to 94.55 million tons last week, an eight-month high, according to data from Shanghai Steelhome Information Technology Co. Holdings -- which have expanded for the past four months to climb above their five-year average of 92.7 million tons -- last topped the 100 million ton mark in March.
Wall Street Journal:
  • Welcome to the Crisis Economy, Where Tumult Reigns. Be it geopolitical tension, terror threats or faltering markets, there always seems to be something testing growth. Myriad sources of anxiety are roiling global financial markets and political capitals: a weakening Chinese economy; collapsing oil prices; escalating tension in the Middle East that has spawned a refugee crisis in Europe; the possibility of financial dislocation as U.S. monetary policy tightens.
  • Normalizing Iran. Why are liberals campaigning to make this most illiberal regime acceptable? In Syria, Bashar Assad is trying to bring his enemies to heel by blocking humanitarian convoys to desperate civilians living in besieged towns. The policy is called “starve or kneel,” and it is openly supported by Hezbollah and tacitly by Iran, which has deployed its elite Quds Force to aid Mr. Assad’s war effort.
Fox News:
  • Clinton embraces Obama in final stretch, fueling GOP claims of seeking '3rd term'. (video) If you like Barack Obama, you’ll love Hillary Clinton. That seems to be the Democratic front-runner’s pitch as she charges into the final stretch to the Iowa caucuses, embracing the administration’s agenda and casting rival Bernie Sanders as a threat to that legacy – a strategy on full display at Sunday’s primary debate.
Zero Hedge:
  • Europe too relaxed about China's slowdown - ECB's Rimsevics. There is too much complacency about the prospect of contagion from the Chinese slowdown, European Central Bank policy maker Ilmars Rimsevics told Latvian Radio on Monday. "China is the world's second largest economy and, in fact, the effect will be on all the countries (of Europe)," Rimsevics, who is also the central bank governor of Latvia, said. "I am concerned that people are a bit too relaxed."
  • Strong China property data masks big problem: unsold homes. For an economy facing its slowest economic growth in a quarter century, a 7.7 percent year-on-year rise in new home prices in December would seem to offer China some light at the end of the tunnel. But the headline number, published by the National Bureau of Statistics on Monday, masks China's massive property problem - a vast amount of unsold apartments mainly in its smaller cities.
Nikkei:
  • Oil Nation Wealth Funds Seen Selling Risky Assets. Sales by sovereign wealth funds seen pushing down global stocks.
Night Trading
  • Asian indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 153.5 -4.0 basis points.
  • Asia Pacific Sovereign CDS Index 80.5 -1.0 basis point.
  • Bloomberg Emerging Markets Currency Index 67.06 +.01%.  
  • S&P 500 futures +.44%.
  • NASDAQ 100 futures +.36%.

Earnings of Note
Company/Estimate 
  • (BAC)/.27
  • (SCHW)/.25
  • (CMA)/.69
  • (DAL)/1.19
  • (MTB)/1.97
  • (MS)/.34
  • (EDU)/.04
  • (UNH)/1.38
  • (IBM)/4.81
  • (IBKR)/.30
  • (LLTC)/.45
  • (NFLX)/.02
  • (ADTN)/.07
  • (AMD)/-.10
  • (CREE)/.24
Economic Releases 
10:00 am EST
  • The NAHB Housing Market Index for January is estimated at 61.0 versus 61.0 in December. 
4:00 pm EST
  • Net Long-Term TIC Flows.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China Retail/Industrial Production/GDP reports, German ZEW Index, UK CPI report and the OPEC Monthly Update could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by tech and industrial 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 week.

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