Sunday, March 20, 2016

Monday Watch

Posted by Gary .....at 9:10 PM
Today's Headlines
Bloomberg: 
  • China's Central Bank Chief Sounds Warning Over Rising Debt. People’s Bank of China Governor Zhou Xiaochuan sounded a warning over rising debt levels, saying corporate lending as a ratio to gross domestic product had become too high and the country must develop more robust capital markets. China still has a problem with illegal fundraising and financial services are insufficient, Zhou said in a speech at the China Development Forum in Beijing on Sunday. He said the country still needs regulation to guard against excessive leverage in foreign currencies. “Lending as a share of GDP, especially corporate lending as a share of GDP, is too high,” Zhou said. He said a high leverage ratio is more prone to macroeconomic risk. Corporate debt alone now stands at 160 percent of China’s GDP, according to the Organization for Economic Cooperation and Development. 
  • China Revives Support for Margin Trading That Fueled Boom-Bust. China’s policy makers are loosening controls on margin lending in the stock market. China Securities Finance Corp., the state-backed agency that provides funding to brokerages for margin trading, will restart offering loans to securities firms for periods ranging from 7 days to 182 days, according to a statement posted on its website Friday. The agency will cut interest rates on the debt to as low as 3 percent, it said. China’s offshore equity-index futures rose.
  • China Has a $590 Billion Problem With Unpaid Bills. Not since 1999 have China’s companies had so much trouble getting customers to actually pay for what they’ve bought. It now takes about 83 days for the typical Chinese firm to collect cash for completed sales, almost twice as long as emerging-market peers. As payment delays spread from the industrial sector to technology and consumer companies, accounts receivable at the nation’s public firms have swelled by 23 percent over the past two years to about $590 billion, exceeding the annual economic output of Taiwan. The raft of unpaid bills -- bigger than at any time since former Premier Zhu Rongji shuttered thousands of state-run companies at the turn of the century -- shows how cash shortages at the weakest firms threaten not only banks and bondholders, but also China’s vast web of interconnected supply chains. With corporate bankruptcies projected to climb 20 percent this year, more Chinese businesses may be forced to choose between two unpleasant options: keep extending credit to potentially insolvent customers, or cut off the taps and watch sales sink. “There is a knock-on effect through the economy,” said Fraser Howie, the Singapore-based co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise,” who has followed the nation’s markets for more than two decades. “Part of the end game is default and closure.” 
  • Bank of Tianjin Said to Price $949 Million IPO Near Bottom End. Bank of Tianjin Co., a commercial lender based in the northern Chinese port city, and its owners raised $949 million after pricing a Hong Kong initial public offering near the bottom end of a marketed range, according to people with knowledge of the matter. The bank and some existing investors sold a combined 995.5 million shares at HK$7.39 apiece, the people said, asking not to be identified as the information is private. The shares were offered at HK$7.37 to HK$9.58 each, according to the lender’s prospectus.
  • These Eight EU Countries Are in the Budget Danger Zone. For the 28 members of the European Union, managing public finances comes down to a single all-important number: three. When it comes to fiscal discipline in the European Union, three is the magic number. That's a deficit limit of 3 percent of GDP, and five EU states will make the budgetary bad books this year by breaching that level, according to economists surveyed by Bloomberg since January. These five — the U.K., France, Spain, Greece, and Croatia — include three of Europe's five largest economies. Three more countries — Finland, Poland, and Romania — are seen posting deficits at the threshold. 
  • BlackRock(BLK) Isn't Buying the Aussie's Rally. The Australian dollar is poised for its best month since October 2011 but the currency’s momentum isn’t strong enough to budge the world’s biggest fund manager. BlackRock Inc.’s Sydney-based head of fixed income for Australia Stephen Miller -- who started avoiding the Aussie as it peaked in 2011 and picked its 2008 nadir -- is sticking with a bearish call he’s maintained for about three years. He sees the Aussie plunging at least 15 percent back past the seven-year low it hit in January. That contrasts with hedge funds and other large speculators whose bullish positions earlier in March reached the most in 18 months, with the currency gaining 6.5 percent since Feb. 29. “The Aussie dollar is a volatile currency, it’s sometimes a case of five steps down and two steps up,” said Miller. “We’re in the two steps up phase and the next phase will be the five steps down phase.”
  • Oil Extends Drop as Dollar Stabilizes While Asian Stocks Advance. Crude oil fell, extending declines below $40 a barrel as the dollar reasserted itself following last week’s selloff and data showed the first increase this year in the U.S. rig count. Most Asian stocks climbed with markets in Japan closed for a holiday. West Texas Intermediate oil neared $39, extending losses from Friday that knocked the Bloomberg Commodity Index from a three-month high. The New Zealand dollar weakened with the Canadian and South African currencies, while the Korean won snapped a two-day advance after the greenback halted a slump on Friday that was sparked by the Federal Reserve paring its interest-rate outlook for 2016.
  • Hedge Fund 'Wolf Pack'. Attention all you hedge-fund wolfs out there: Your pack is being stalked by some Washington lawmakers. Two Senate Democrats introduced a bill that would reduce the time large shareholders have to report stakes of 5 percent or more in a company to two days from 10. (Here's a good New York Times article with all the details.) The idea is to prevent "wolf packs" of fund managers from forming after a lead fund tips off the other wolves that it's planning to disclose a large stake.
Wall Street Journal: 
  • M&A Bankers Saying No to More Junk. Banks retreat from the lucrative but risky business of backing debt-heavy buyouts. Banks are increasingly turning down companies seeking financing to pay for debt-laden takeovers after the recent market rout left them saddled with debt from earlier deals.
  • Pharma Gloom Spreads. Concerns about the fate of Valeant has investors also fleeing shares of companies that resemble the Canadian pharmaceutical firm. Concerns about the fate of Valeant Pharmaceuticals International Inc. has investors not only fleeing Valeant’s stock but also shares of companies that bear a resemblance to the Canadian pharmaceutical firm.
  • Airlines Pull Back on Hedging Fuel Costs. Reappraisal of costly strategy comes after some carriers get burned by low oil prices. After decades of spending billions of dollars to hedge against rising fuel costs, more airlines, including some of the world’s largest, are backing off after getting burned by low oil prices.
  • ObamaCare vs. Little Sisters of the Poor. The Supreme Court will decide what could be a landmark case for or against religious liberty. On Wednesday the Supreme Court will hear oral arguments in Little Sisters of the Poor v. Burwell, a landmark case challenging the Department of Health and Human Services contraceptive mandate under the Affordable Care Act. In addition to the Little Sisters of the Poor, an order of Catholic nuns whose mission is to “offer the neediest elderly of every race and religion a home where they will be welcomed as Christ,” the objecting...
Barron's:
  • Had bullish commentary on (ILMN) and (FDX). 
  • Had bearish commentary on (TWTR).
Fox News:
MarketWatch:
  • Trump owes a quarter of a billion dollars to banks backing his real estate projects. Republican presidential candidate Donald Trump owes at least $250 million to banks for various real estate projects, according to his personal finance disclosure forms. His creditors mostly are small firms, from New Jersey–based Amboy Bank to specialized real-estate firm Ladder Capital Finance LLC. Deutsche Bank is the only bank with a big Wall Street presence that continues to lend to him, the Wall Street Journal reported Saturday.
Zero Hedge:
Business Insider:
Night Trading
  • Asian indices are -.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 130.75 -4.75 basis points.
  • Asia Pacific Sovereign CDS Index 60.25 -1.75 basis points.
  • Bloomberg Emerging Markets Currency Index 71.61 -.07%.
  • S&P 500 futures -.10%.
  • NASDAQ 100 futures -.14%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (IHS)/1.35
  • (MFRM)/.56
  • (NQ)/.03 
Economic Releases 
8:30 am EST
  • The Chicago Fed National Activity Index for February is estimated to fall to .22 versus .28 in January.
10:00 am EST
  • Existing Home Sales for February are estimated to fall to 5.32M versus 5.47M in January.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking, Fed's Lockhart speaking, Fed's Bullard speaking, Australia home price report and the (AAPL) product event could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.

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