Monday, January 25, 2016

Tuesday Watch

Evening Headlines

  • China Seen Making Fewer Reserve Ratio Cuts Amid Policy Shift. The People’s Bank of China is seen making fewer reductions to the proportion of deposits that lenders must lock away as the central bank retools its policy framework. The PBOC will lower banks’ reserve required ratio to 17 percent in the first quarter and 16.5 percent in the second, from 17.5 percent now for the largest lenders, according to the latest Bloomberg survey. The RRR is now seen at 15.5 percent at the end of the year, versus 15 percent seen in the previous survey.
  • Are China Stocks Repeating the 2008 Bust? (video)
  • Trader Who Made 6,200% on China Futures Says Go Short or Get Out. Huang Weimin, the hedge fund manager whose Chinese stock-index futures wagers returned more than 6,200 percent last year, has some advice for investors in 2016: Sell your shares now, before it’s too late. The 45-year-old former worker at a state-owned company, a virtual unknown until last year, has become a star of the Chinese futures market after a slew of timely bets on the direction of share prices propelled his Yourong Fund to the top of the country’s performance rankings. He’s carried the winning streak into 2016, returning 35 percent through Jan. 22 after selling stock-index futures just days before the market’s worst-ever start to a year. Huang, who opened the Yourong Fund in 2014, says China’s benchmark Shanghai Composite Index could drop another 15 percent in the first half as slowing economic growth and a weaker yuan fuel capital outflows. While he’s sticking with bearish futures bets to take advantage of further losses, he says the average Chinese stock investor would be better off shifting into cash.
  • China Stock Chartist Sees Shanghai Composite Retreating to 2,400. Thomas Schroeder, the chartist who predicted in October that a rebound in Chinese stocks wouldn’t last, is sticking to a call that the selloff has further to go. The Shanghai Composite Index will drop to 2,400, according to Schroeder. Any bounce will likely be short-lived as the moving average convergence-divergence line, a measure of momentum, is trending lower, he said. A two-day rally in the Shanghai gauge -- which closed at 2,938.52 on Monday -- was just setting the stage for further declines, according to Schroeder. The equity index slid 1.7 percent as of 10:12 a.m. local time on Tuesday. 
  • Junk Bonds in Europe Find Greater Losses From Brazil Than China. European investors focused on risks from China to the east should also be looking west. More than half of the region’s worst-performing junk bonds in euros over the past year were sold by companies with operations in Brazil, exceeding those with even indirect exposure to China, according to data compiled by Bloomberg. Bonds sold by French retailer Casino Guichard-Perrachon SA and Spanish engineering firm Grupo Isolux Corsan SA, both with links to Latin America’s largest economy, are among 10 billion euros ($11 billion) of securities with the biggest losses. European firms piled into emerging markets as they sought to mitigate the sovereign debt crisis at home. Brazil is now heading toward its deepest two-year recession in more than a century and a widening corruption scandal involving state-run oil producer Petroleo Brasileiro SA is undermining any political effort to revive growth.
  • Scotiabank Is Downgraded by Moody's One Level on Riskier Lending. Bank of Nova Scotia, Canada’s third-largest lender by assets, had its credit rating cut one level by Moody’s Investors Service for its focus on credit cards and auto financing while expanding internationally.
  • China's Stocks Fall Amid Concern Capital Outflows May Accelerate. China’s stocks fell for the first time in three days amid concern capital outflows may intensify as the economy slows. The Shanghai Composite Index dropped 1.5 percent to 2,896.03 as of 10 a.m. local time. PetroChina Co. and coal producers slumped after oil prices slid below $30 a barrel. The Hang Seng China Enterprises Index decreased 2.3 percent.
  • Asian Stocks Follow Oil Lower as Japanese Shares Lead Declines. Asian stocks fell, halting a two-day rebound, as oil slipped back below $30 a barrel and Japanese shares led losses.The MSCI Asia Pacific Index declined 0.9 percent to 118.75 as of 9:10 a.m. in Tokyo after capping its biggest two-day rally since October 2011.
  • Cheaper Oil May Hurt More Than Help Importers, Citigroup Says. Lower oil prices may prove to be more a curse than a blessing for commodity importers in developing nations. That is because oil-exporting countries will liquidate their investments in emerging markets to plug the shortfall in revenues, according to Citigroup Inc. The capital outflows will more than offset the cost savings from cheaper import bills for countries such as Turkey and India, undermining economic growth. Sovereign wealth funds in oil-producing nations “help to create the global liquidity that generates capital flows to EM,” David Lubin, London-based head of emerging-market economics at Citigroup, wrote in a report Monday. “As that liquidity disappears, capital flows and growth could continue to suffer.” Lubin correctly forecast in February 2014 that the rout of emerging-market currencies would continue.
  • China Copper Premium Surges on Fears of Weaker Yuan: Chart.
Wall Street Journal:
  • Why the Fed Is the Root of Much Market Turmoil. Fed is a key reason markets have plunged and risk of recession rising
  • China Slowdown Stokes Fears of Peak Oil Demand. Exxon(XOM) cuts China energy demand forecast to 2025. A bedrock belief among oil forecasters has been that China’s voracious appetite for fossil fuels would stoke global energy demand for decades to come. That assumption now appears increasingly shaky.
  • As Stock Prices Slump, Don’t Count on Buybacks. Companies tend to repurchase stock at times when market logic suggests they should be selling.
  • The Deficit Rises Again. Obama has set up deficits and debt to soar after he leaves office. Perhaps you’ve heard President Obama’s talking point that the federal budget deficit has fallen by two-thirds on his watch. That overlooks that the deficit first soared on his watch, and then fell thanks largely to the GOP House and modest economic recovery, and that as he leaves office he is going to need one more asterisk: The deficit in 2016 has begun to rise again, in dollars and as a share of the economy. And after he leaves office, it takes off.
Fox News:
  • Fox News Poll: Clinton drops below 50 percent as her lead over Sanders shrinks. (video) Hillary Clinton’s lead in the Democratic primary race has narrowed to its slimmest margin yet. The front-runner’s support has slipped under 50 percent, and cracks may be appearing in what some called her “firewall” -- the African-American voter bloc
  • Grand jury in Texas indicts activists behind Planned Parenthood videos. (video) A Houston grand jury investigating criminal allegations against Planned Parenthood stemming from a series of undercover videos on Monday instead indicted two of the anti-abortion activists who shot the footage. In a stunning turn of events, the grand jury declined to indict officials from the abortion provider, and instead handed up a felony charges of tampering with a government record against Center for Medical Progress founder David Daleiden and center employee Sandra Merritt. Daleidon was also charged with a misdemeanor count related to purchasing human organs.
Zero Hedge:
Business Insider: 
Economic Information Daily:
  • Over 10 Chinese Provinces Set Lower Consumption Targets. Provinces and municipalities including Chongqing, Inner Mongolia, Fujian and Jiangxi set lower consumption growth targets this year, citing its own calculation. 
Night Trading 
  • Asian equity indices are -1.25% to -.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 154.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 77.5 +2.5 basis points.
  • Bloomberg Emerging Markets Currency Index 66.94 -.08%.
  • S&P 500 futures unch.
  • NASDAQ 100 futures +.04%.

Earnings of Note 
  • (MMM)/1.62
  • (AKS)/.06
  • (ATI)/-.45
  • (COH)/.66
  • (GLW)/.31
  • (DHR)/1.27
  • (DD)/.27
  • (FCX)/-.16
  • (JNJ)/1.42
  • (LMT)/2.92
  • (NVR)/29.63
  • (PH)/1.18
  • (PII)/1.64
  • (PG)/.98
  • (S)/-.26
  • (AAPL)/3.23
  • (T)/.63
  • (COF)/1.62
  • (CB)/2.29
  • (ETH)/.44
  • (SYK)/1.55
  • (X)/-.86
  • (VWM)/1.25 
Economic Releases
9:00 am EST
  • The FHFA House Price Index MoM for November is estimated to rise +.5% versus a +.5% gain in October.
  • The S&P/CS 20 City MoM SA for November is estimated to rise +.8% versus a +.84% gain in October.
9:45 am EST
  • The Preliminary Markit US Services PMI for January is estimated to fall to 54.0 versus 54.3 in December.
10:00 am EST
  • Consumer Confidence for January is estimated at 96.5 versus 96.5 in December.
  • The Richmond Fed Manufacturing Index for January is estimated to fall to 2.0 versus 6.0 in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China Industrial Production report, Australian CPI, $26B 2Y T-Note auction, weekly US retail sales reports, TD Securities Mining conference and the (GRA) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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