Wednesday, February 03, 2016

Thursday Watch

Evening Headlines

  • Asian Bondholders' High-Risk Amnesia. The law of supply and demand can at times generate market imbalances. Right now, Asian credit markets are bucking a rout in stocks simply because there aren’t enough new bonds to go around. On Monday, the difference between the premium Asian and U.S. dollar corporate bonds pay over Treasuries narrowed to 95 basis points, the least since 2008, as measured by two Bank of America Merrill Lynch indexes: 
  • Brazil House Takes First Step Toward Capital Gains Tax Hike. Brazil’s lower house of Congress approved legislation to increase taxes on capital gains, as part of a push to boost government revenue and shrink its expanding budget deficit. Legislators voted 205 to 176 in favor of the bill Wednesday, which still must be approved in the Senate before it can become law. The proposal raises taxes on capital gains from the sale of real-estate and corporate assets, changing the rate starting in 2017 from a flat 15 percent to a progressive scale with a higher top rate.
  • Kiwi Dollar's Surge Falters With Loonie as Oil's Rebound Doubted. The New Zealand and the Canadian dollars pared weekly gains as investors remained skeptical that a rally in commodity prices will last. The kiwi and loonie climbed to their highest levels in at least four weeks Wednesday as the greenback plunged after signs of a slowing U.S. economy helped derail bets on diverging policies between global central banks. Oil rose for a second day Thursday, extending the biggest gain in almost two weeks and paring its loss for the year to 12 percent.
  • Yen Shows Limit of Negative Rates by Wiping Out BOJ Drop in Days. Traders are reminding the Bank of Japan of the limits of monetary policy in weakening a currency. With the ink barely dry on the central bank’s Jan. 29 commitment to implement negative interest rates, the yen has already undone all of its 1.9 percent drop that day and measures of purchasing power parity show the currency is still far from expensive. Commonwealth Bank of Australia is recommending its clients use options to bet on yen strength and Societe Generale SA’s Kit Juckes says he’ll favor bullish trades if the currency holds firm.
  • Asian Stocks Outside Japan Rise, Buoyed by Oil Rally. Most Asian stock indexes climbed as a selloff in the dollar underpinned a resurgence in crude oil, while Japanese equities were set to wipe out gains spurred by the central bank’s stimulus boost as the yen traded near a two-week high. The MSCI Asia Pacific excluding Japan Index rose 0.9 percent as of 8:51 a.m. Tokyo time, with Australia’s S&P/ASX 200 Index up 1.1 percent. BHP Billiton Ltd., the world’s biggest mining company, rallied for the first time in four days. The S&P/NZX 50 Index added 0.2 percent in Wellington, while South Korea’s Kospi index gained 0.4 percent.The Topix fell 1.5 percent, headed for its lowest close since Jan. 26, three days before the Bank of Japan ignited a momentary equity rally by unexpectedly imposing a negative interest rates policy.
  • Texas Isn't Scared of $30 Oil. (video) Texas has a message for $30 crude doomsayers: Bring it on. A handful of shale patches in the state, which would be the world’s sixth-largest oil producer if it were a country, are profitable with crude below $30 a barrel, according to an analysis by Bloomberg Intelligence. In the Eagle Ford’s DeWitt County, which produced more than 100,000 barrels a day in November, the average well can be profitable with U.S. benchmark crude at $22.52 a barrel, $4 below the lowest level this year.
Wall Street Journal:
  • Investors Cast Wary Eye on Fed Rate Increases. Broad decline in the dollar and a sharp drop this year in U.S. Treasury yields mark significant shift in investor sentiment. Investors are rethinking their expectations for interest-rate increases this year, converging on a view that the Federal Reserve is unlikely to raise rates in March and possibly not even for the rest of the year. The shift was evident in a broad decline in the dollar on Wednesday and in the sharp drop this year in U.S. Treasury yields. Futures markets now are predicting there is little chance that the Fed will raise interest rates... 
  • Redstone Resigns as CBS(CBS) Executive Chairman. CEO Moonves will become chairman, while Redstone becomes chairman emeritus.
  • Fed’s Brainard Makes Case for ‘Watchful Waiting’. Fed governor says emerging-market stress and slow growth in developed economies could spill over to the U.S. Federal Reserve governor Lael Brainard thinks the reasons for going slow on further interest-rate increases are powerful. The 54-year-old economist is emerging as a significant influence at an uncertain time for monetary policy and market tumult, one whose arguments have traction with the Fed’s leadership.
Fox News:
  • Santorum suspends 2016 presidential campaign, endorses Marco Rubio. (video) Former Pennsylvania Sen. Rick Santorum announced Wednesday in an exclusive interview on Fox News’ "On the Record with Greta Van Susteren" he is suspending his 2016 presidential campaign and endorsing Florida Sen. Marco Rubio. Santorum said he came to the decision after discussing it with his wife Karen after the Iowa caucuses. “We decided that we could be better advocates in supporting someone who shared those values and will do better in this race,” Santorum told Van Susteren. While saying he does not “endorse lightly,” Santorum described Rubio as “the new generation, and someone who can bring the country together.” “We wanted to find a candidate that really espoused the values we believed in,” he said
  • Cruz fires back at Trump's cheating charges, says 'he's losing it'. (video) Ted Cruz fired back at Donald Trump Wednesday over allegations that he “stole” the Iowa election, accusing the billionaire businessman of throwing a “Trumpertantrum” and questioning whether he has the “temperament” to lead. Speaking to reporters in New Hampshire, Cruz quipped that with Trump in charge, Americans might wake up and find he’s “nuked Denmark.” “It seems his reaction to everything is to throw a fit,” the Republican presidential candidate said, adding: “He’s losing it.”
  • US ally packed with refugees reaches a 'boiling point'. The leader of a key U.S. ally in the Middle East warned Tuesday that his country is so packed with Syrian refugees, many with ties to the Islamic State terror group, that his nation has reached a "boiling point." "Sooner or later, I think, the dam is going to burst," King Abdullah of Jordan told the BBC. He said his country is housing more than a million Syrians, many of whom came after the 2011 civil war in Syria broke out. Up to 100 new refugees are admitted each day, the network reports. Jordan's welcoming nature has to stop, he said. "We can't do it anymore."
Business Insider:
Night Trading 
  • Asian equity indices are +.25% to +1.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 155.75 +1.75 basis points.
  • Asia Pacific Sovereign CDS Index 81.25 -.5 basis point.
  • Bloomberg Emerging Markets Currency Index 68.47 +.21%.
  • S&P 500 futures +.56%.
  • NASDAQ 100 futures +.66%.

Earnings of Note 
  • (ABC)/1.25
  • (AZN)/.91
  • (BZH)/-.08
  • (BSX)/.25
  • (CSL)/1.11
  • (CI)/1.79
  • (CLX)/1.05
  • (COP)/-.64
  • (CS)/.24
  • (CMI)/2.12
  • (ICE)/3.01
  • (OXY)/-.11
  • (PM)/.81
  • (PJC)/.78
  • (RL)/2.14
  • (RDS.A)/.27
  •  (SNA)/2.18
  • (VMC)/.60
  • (ATHN)/.41
  • (DECK)/4.76
  • (DV)/.66
  • (LNKD)/.78
  • (PPS)/.77
  • (SKYW)/.44
  • (WYNN)/.78
  • (YRCW)/.26 
Economic Releases
7:30 am EST
  • Challenger Job Cuts YoY for January.
8:30 am EST
  • Preliminary 4Q Non-farm Productivity is estimated to fall by -2.0% versus a +2.2% gain in 3Q.
  • Preliminary 4Q Unit Labor Costs are estimated to rise +4.3% versus a +1.8% gain in 3Q.
  • Initial Jobless Claims for last week are estimated to fall to 277K versus 278K the prior week. 
  • Continuing Claims are estimated to at 2240K versus 2268K prior.  
10:00 am EST:
  • Factory Orders for December are estimated to fall by -2.8% versus a -.2% decline in November.
  • Final Durable Goods Orders for December are estimated to fall -4.5% versus a prior estimate of a -5.1% decline.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Mester speaking, BoE rate decision, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and commodity shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.

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