Tuesday, February 23, 2016

Wednesday Watch

Posted by Gary .....at 10:48 PM
Evening Headlines
Bloomberg:
  • Yuan Falls a Fourth Day as Fix Cut After Data Suggests Outflows. China’s yuan fell for a fourth day as the central bank cut its daily fixing and a report suggested outflows persisted in January. The People’s Bank of China set its reference rate at the lowest level in almost three weeks after figures from the nation’s foreign-exchange regulator released Tuesday afternoon showed banks net sold overseas currencies to their clients for a seventh straight month in January. The data indicate outflows were still significant but not as rapid as some had feared, Goldman Sachs Group Inc. economists led by MK Tang in Hong Kong wrote in a note. The yuan fell 0.08 percent to 6.5319 a dollar as of 10:24 a.m. in Shanghai, according to China Foreign Exchange Trade System prices. It dropped to 6.5326 earlier, the weakest level since Feb. 15, and has lost 0.23 percent in a four-day streak. The central bank cut the reference rate by 0.04 percent to 6.5302 following a 0.17 percent reduction on Tuesday. "Sentiment hasn’t fully recovered, and there’s still depreciation pressure in the long run considering China’s fundamentals and capital outflows," said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp.
  • Tucking 10,000-Yen Bills Under the Mattress Spells Worry for Abe. Japanese turn to cash on fears of tax and negative interest rates. Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases. While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts -- where it can make its way back into the financial system and be put to productive use. That’s a big problem for Prime Minister Shinzo Abe and his central bank chief, Haruhiko Kuroda, as they try to spur consumption and reflate the stuttering economy.
  • Russian Bank Collapse Shines Light on Risks in Irish Shadows. Based in a drab office building in Dublin down the road from a pub frequented by Prime Minister Enda Kenny, VPB Funding Ltd. had no employees but one function: selling bonds. In 2013, it issued $225 million of unsecured notes. The proceeds of that sale were funneled to Vneshprombank Ltd., a Moscow lender whose license was revoked last month when Russian authorities accused management of pilfering its assets and falsifying accounts. VPB’s notes have plunged to pennies on the dollar.
  • Chinese Stocks in Hong Kong Head for Steepest Loss in Two Weeks. Chinese stocks trading in Hong Kong fell the most in almost two weeks, led by financial and commodity shares, amid lingering concern the nation’s economic slowdown will deepen and the yuan may extend losses. The Hang Seng China Enterprises Index slid 1.5 percent to 8,050.03 at 10:58 a.m., heading for the steepest loss since Feb. 12. PetroChina Co. slumped for the first time in three days as oil dropped, while China Life Insurance Co. fell 2.9 percent. The yuan weakened for a fourth day before the start of Group of 20 meetings this week. The Shanghai Composite Index was little changed as drugmakers and industrial companies gained on speculation they will benefit from policies to be announced at annual legislative meetings next week. “The overnight tumble in oil prices may have re-ignited bearish positions in energy-related shares in the Chinese and Hong Kong markets,” said Bernard Aw, a strategist at IG Asia Pte. in Singapore. “The global risk-off mood could have also added to the downbeat sentiment.”
  • Global Stock Slump Deepens in Asia With Oil Sub-$32; Pound Sinks. Appetite for equities continued to sour in Asia as oil’s drop and a revival in demand for low-risk assets saw stocks from Japan to Australia decline with emerging-market currencies. Asian shares fell the most in a week as a resurgent yen weighed on Japan’s Topix index, while mining and energy shares drove a 1.6 percent retreat in Australia’s benchmark. Crude lingered below $32 a barrel in New York after sliding last session as Iran’s oil minister called a plan forged by Saudi Arabia and Russia to lock production at January levels “ridiculous.” Gold built on Tuesday’s advance, while yields on 10-year Japanese government debt fell back below zero. The pound slipped beyond a key level last breached in 2009 as Malaysia’s ringgit dropped by the most in a week. The MSCI Asia Pacific Index fell 0.8 percent as of 11:55 a.m. Tokyo time, with raw-materials producers leading the drop. The Topix slipped 0.7 percent, building on Tuesday’s retreat as the yen solidified its gains.
  • Iran Oil Minister Calls Freeze Proposal 'Ridiculous'. (video)
  • Shale Oil Architect Predicts Doom for Some Drillers Amid Slump. Mark Papa, the former EOG Resources Inc. chief executive officer who helped create the shale industry more than a decade ago, said drillers are “grievously wounded” as crashing crude prices exact their toll. Shale explorers will be “decimated” in coming months amid a wave of restructurings and bankruptcies, fallout from the 70 percent drop in oil prices since mid-2014, Papa, who is now a partner at private-equity firm Riverstone Holdings LLC, said during a panel discussion at the IHS CERAWeek event in Houston on Tuesday. Low prices probably will linger for another 16 to 24 months before supply cuts cause a rebound, he said.
  • Ringgit Falls to Four-Week Low as Inflation, Oil Dim Prospects. The ringgit fell to a four-week low as its oil-related losses were exacerbated by forecasts Malaysia’s inflation quickened to the fastest in seven years. The currency led a drop in emerging markets on Wednesday as the commodity resumed declines, dimming the outlook for Malaysia’s finances as a net oil exporter. General risk-off sentiment didn’t help as Asian equities joined a global selloff. Consumer-price gains estimated at 3.7 percent from a year earlier in January would be the highest since 2009 and would almost wipe out the interest paid on the nation’s bonds maturing in less than a decade. The currency weakened 1.2 percent to 4.2443 a dollar as of 10:41 a.m. in Kuala Lumpur and touched 4.2467, the lowest since Jan. 28, according to prices from local banks compiled by Bloomberg.
  • Fed's George Urges FOMC to Keep March on the Table for Rate Hike. Federal Reserve policy makers should be prepared to consider raising interest rates in March despite recent financial market volatility, said Kansas City Fed President Esther George, whose outlook for solid growth this year remains intact. “It absolutely should be on the table” at the next meeting, George told Pimm Fox and Kathleen Hays in a Bloomberg Radio interview Tuesday from the bank. “At this point I would not say that the data have suggested there has been a fundamental shift in the outlook.” The policy-setting Federal Open Market Committee is weighing how fast to raise rates this year, balancing concern over market turmoil and slowing economies globally with indications that U.S. inflation may be picking up. The median projection of FOMC members submitted at the December meeting, at which officials lifted rates for the first time in nearly a decade, called for four additional quarter-point increases in 2016.
  • The $400 Billion Money-Fund Exodus With Banks in Its Crosshairs. Banks and other companies that have seen borrowing costs rise in the past year are about to feel more pressure in a $1 trillion market for short-term IOUs. Investors are poised to pull as much as $400 billion from U.S. money-market funds that buy such debt, known as commercial paper, JPMorgan Chase & Co. predicts. The looming exodus, a consequence of steps to make money markets safer after the financial crisis, is set to accelerate before October. That’s when Securities and Exchange Commission rules take effect mandating that so-called institutional prime funds, among the main buyers of commercial paper, report prices that fluctuate. Traditionally, those funds have stuck to $1 per share.
Wall Street Journal:
  • Williams Cos.(WMB) to Put Canadian Assets Up for Sale. Sale could generate proceeds of up to $1 billion for pipeline operator. 
  • Donald Trump’s Republican Foes Step Up Efforts to Defeat Him. The candidate’s detractors tell conservative activists and donors that their window is closing. Donald Trump’s primary wins and perch atop the polls with barely a week to go before a string of crucial contests has triggered frantic hand-wringing from his many critics in the Republican Party who worry time is running out to deny him the presidential nomination.
  • Only Eight Justices? So What. A Supreme Court vacancy doesn’t make the justice system grind to a halt. History shows that it merely delays rulings in a small number of cases. Justice Antonin Scalia’s death leaves the Supreme Court in a tough spot, but it is one for which the institution is prepared. Due to death, retirement or resignation—or recusal in individual cases—the high court has often been short-handed. Since World War II there have been 15 periods when the court had eight justices, and each time the court managed its docket without a hitch. 
  • Guantanamo at Bay. Americans won’t close a terror prison when the terror threat is rising. The day after he was first sworn in, President Obama issued an executive order declaring that he would shut down the terrorist detention camp at Guantanamo Bay in Cuba “no later than 1 year from the date of this order.” That was January 2009 in one of his first acts as President. Congress has since used its power of the purse to frustrate the President’s effort. So on Tuesday he said he’s going to try again in one of his last acts as President.
Fox News:
MarketWatch:
  • Fed’s Fischer: Market selloff may not leave imprint on economy. “We have seen similar periods of volatility in recent years — including the second half of 2011 — that have left little visible imprint on the economy, and it is still too early to judge the ramifications of the increased market volatility of the first seven weeks of 2016,” Fischer said in a dinner speech at an oil market conference in Houston.
  • Hedge fund exposure has been bad news for stocks in 2016. Stocks with a high level of hedge fund ownership have underperformed the S&P 500 for the first time after four straight years of beating the market, according to the investment bank. Goldman’s 20 highest stocks—defined as companies with the largest share of market capitalization held by hedge funds—fell 10% to lag the S&P 500 by 457 basis points since the end of last year, said David Kostin, Goldman’s chief U.S. strategist, in the latest issue of the firm’s Hedge Fund Trend Monitor.
CNBC:
  • From high to low end, the consumer's in hiding. (video) First Wal-Mart, then Nordstrom, and now Macy's. As more retailers reveal their fourth quarter 2015 sales and 2016 outlooks, it's getting harder to identify pockets of strength in consumer spending.
Zero Hedge:
Business Insider: 
FXStreet:
Reuters:
  • Yen favored as sagging stocks and oil generate safety bids. The yen stood firm against key peers like the dollar and euro on Wednesday as sagging stocks and crude oil drove bids for the safe-haven currency. Undercutting upward momentum for equities, oil prices retraced earlier gains made at the week's start and tumbled on Tuesday after Saudi Arabia ruled out production cuts. The euro hovered close to 123.09 yen EURJPY=, a near three-year low hit on Tuesday. The dollar was flat at 112.05 yen JPY= after losing 0.7 percent overnight, with mixed U.S. data and dovish comments from a Fed policymaker weighing on the greenback.
  • How long before the cracks show in China's great currency wall? China still owns the world's largest currency reserves, but it has been burning through them at such a pace that some think Beijing might soon have to allow a sharp fall in the yuan or back-pedal on liberalization and tighten its capital controls. Foreign exchange reserves in China declined $99.5 billion in January to $3.23 trillion, following a record fall the previous month, and have shrunk by $762 billion since mid-2014, more than the gross domestic product of Switzerland. 
  • U.S. banks to cut credit lines for energy firms -JP Morgan(JPM). Cash-strapped energy firms are coming under increasing pressure from U.S. bank lenders and, on average, could see a 15 percent to 20 percent cut in their credit lines, the head of JP Morgan's commercial bank told investors on Tuesday.
Telegraph: 
  • Saudi Arabia dashes hopes of output cut as oil woes deepen. Saudi Arabia has warned that there is almost no chance of a cut in oil production by the OPEC cartel to lift prices and avert a bloodbath for the energy industry, dashing hopes for a quick reprieve as the supply glut continues to build. "It's not going to happen," said the country's veteran oil minister Ali Al-Naimi, accusing other major producers of cheating on accords and undermining past efforts to stabilize crude prices. "They will not deliver, so there is no point wasting time," he said, speaking at the IHS CERAWeek forum of energy leaders in Houston.
  • China hints at steel wars as it says excess production is global issue. China has warned of the consequences of the EU imposing tariffs on its steel exports, saying the overcapacity in the metal industry is a global problem. Speaking at a Beijing press conference, Gao Hucheng, minister of commerce, said the issue which has caused more than 5,000 job losses in Britain’s steel industry needed to be tackled on an international basis. “Steel oversupply is a global problem and requires collaborative efforts by all countries,” he said, but also raised the prospect of the Beijing government hitting back if other countries attempt to stem China’s steel exports with trade tariffs.
Night Trading 
  • Asian equity indices are -1.50% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 156.5 +1.0 basis point. 
  • Asia Pacific Sovereign CDS Index 79.0 +2.0 basis points. 
  • Bloomberg Emerging Markets Currency Index 68.57 -.1%. 
  • S&P 500 futures -.22%. 
  • NASDAQ 100 futures -.28%.
Morning Preview Links

Earnings of Note
Company/Estimate 
  • (AES)/.32
  • (CHK)/-.18
  • (EV)/.52
  • (EE)/.00
  • (LOW)/.59
  • (MBLY)/.14
  • (SHOO)/.43
  • (TGT)/1.60
  • (TJX)/.94
  • (NLY)/.28
  • (DYN)/-5.55
  • (ETP)/.52
  • (ESV)/.74
  • (HPQ)/.36
  • (LB)/2.05
  • (CLI)/.45
  • (NTES)/2.51
  • (PHH)/-.21
  • (RLYP)/-1.32
  • (CRM)/.19
  • (RGR)/.75
  • (RIG)/.70
  • (WPX)/-.20
Economic Releases 
9:45 am EST
  • Preliminary Markit US Services PMI for February is estimated to rise to 53.5 versus 53.2 in January. 
10:00 am EST
  • New Home Sales for January are estimated to fall to 520K versus 544K in December. 
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,416,670 barrels versus a +2,147,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -662,500 barrels versus a +3,036,000 barrel gain the prior week. Distillate inventories are estimated to fall by -733,330 barrels versus a +1,399,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.46% versus a +2.2% gain prior.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking, Fed's Kaplan speaking, Fed's Bullard speaking, $34B 5Y T-Note auction, weekly MBA Mortgage Applications report, Wells Fargo Real Estate Conference and the (STT) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and commodity 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.

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)