Wednesday, March 30, 2016

Thursday Watch

Evening Headlines

  • MSCI Says China's Trading Halts May Keep It Out of Stock Indexes. MSCI Inc. said China’s inclusion in global benchmark stock indexes will rest on whether authorities are prepared to prevent a repeat of the trading halts that closed down half the market amid last year’s rout. Investors remain concerned about liquidity risks, the index provider said in a statement announcing a fresh round of discussions on whether to add mainland equities to its emerging-markets gauge. A decision is due in June. Since MSCI deferred including A shares last year, a plunge wiped $5 trillion off the value of Chinese stocks and spurred unprecedented intervention from policy makers. In July, half the companies listed on China’s exchanges suspended their shares from trading, while the government also effectively shut down the mainland futures market, banned large shareholders from selling stakes and cracked down on short-selling. MSCI said a decision to include 5 percent of A shares in its index will depend on authorities implementing changes so that widespread trading halts can’t happen again.
  • China Shipping Profits Sink on Low Rates, Lingering Overcapacity. China Cosco Holdings Co. posted a 22 percent slump in earnings last year, while China Shipping Container Lines Co. swung to a loss as overcapacity of vessels led to lower rates. Net income for China Cosco fell to 283.4 million yuan ($43.8 million) in 2015, from 362.5 million yuan in 2014, the company said in a statement to the Hong Kong stock exchange Wednesday. China Shipping Container Lines Co. posted a net loss of 2.9 billion yuan last year, compared with profit of 1.04 billion yuan in 2014, the nation’s second-biggest container shipping company said in a separate statement Wednesday. China Shipping in January had forecast a loss of 2.8 billion yuan for 2015.
  • Templeton Names Dover to Replace Mobius as Emerging Markets Head. Mark Mobius, who is credited as a pioneer in emerging-market investing, will pass on his responsibilities of overseeing the Templeton Emerging Markets Group to Stephen Dover as he steps down from day-to-day management.
  • Asia Stocks Set for Best Monthly Gain Since 2009 on Fed Optimism. Asian stocks rose, with the regional benchmark index heading for biggest monthly gain since May 2009, amid optimism the Federal Reserve is in no hurry to lift interest rates. Material and consumer-discretionary shares led the advance. The MSCI Asia Pacific Index climbed 0.5 percent to 129.48 as of 9:04 a.m. in Tokyo. The gauge is up 8.6 percent for the month and down 1.9 percent this quarter. Japan’s Topix index added 0.5 percent to pare its loss this year to 12 percent.
  • Welcome to New `Ice Age' as Top China Mill Warns of Steel Crisis. The crisis engulfing the global steel industry has become so severe that one of China’s top producers has warned of a new Ice Age as mills confront overcapacity and increased competition that threatens their survival. “In 2015, China experienced slowdown in economic growth and excess steel capacity, which caused the domestic and overseas steel industry to enter into an ‘Ice Age’,” Angang Steel Co. said after posting a net loss of 4.59 billion yuan ($710 million) for last year. There are severe challenges, fierce competition and difficult survival conditions, it said.
  • Iron Ore's 24% Surge Is Set to Fade as McKinsey Highlights Risks. Iron ore will probably snap back to $45 a metric ton as a nascent real-estate rebound in China won’t bolster construction demand in the world’s biggest user and supplies remain plentiful, according to McKinsey & Co. The commodity will trade between $45 and $50 a ton this year, eroding a first-quarter rally to as high as $63.74 that was spurred by speculation demand growth will rise, Oliver Ramsbottom, a Tokyo-based partner, said in an interview. There’s no real improvement in Chinese steel consumption, said Ramsbottom, who’s covered commodities for almost two decades. “There’s plenty of supply, there’s relatively weak downstream demand and sure, you get some uplift in price, but it’s not really that significant,” said Ramsbottom. “There’s little reason that iron ore is going to go above $45-to-$50 per ton. If anything, there’s probably more downside risks.”
 Wall Street Journal:
  • Obama’s Greatest Triumph. He is six months away from destroying both the Republican Party and Reagan’s legacy. By early 2015, when the primary season began, virtually all issues inside the Republican Party had been reframed as proof of betrayal—either of conservative principle or of “the middle class.” Trade is a jobs sellout. Immigration reform is amnesty. With his Cheshire Cat grin, Barack Obama faded into the background and let the conservatives’ civil war rip. For Republicans, every grievance, slight or loss became a scab to be picked, day after day. In time, the attacks on “the establishment” and “donor class” became indiscriminate, ostracizing good people in the party and inside the conservative movement. The anti-establishment offensive created a frenzy faction inside the Republican base. And of course, it produced Donald Trump
  • Trump’s Abortion Gaffe. His campaign will be a daily political adventure from here to November. Some months ago we wrote that Republicans who nominate Donald Trump for President would be diving off a cliff without knowing what’s at the bottom, and Wednesday was the latest illustration. The first-time candidate showed how little he understands about the politics of abortion by suggesting that “there has to be some kind of punishment” if abortion were made illegal. 
Zero Hedge:
Business Insider:
Financial Times:
  • EM credit binge will exact painful price. Markets are underestimating the danger in corporate credit. The ebb and flow of asset values through this year’s young life has been larger than on previous occasions, but it is very unlikely that we are at a long-term inflection point for emerging markets. In the background of sentiment-motored noise one can pick up the steadily louder hum of increasing EM leverage, the bulk of it in the corporate sector
  • Investment banks face sharp trading falls in tough climate.
The Standard:
  • Hong Kong Luxury Mall rents tipped to drop by up to 25pc. UBS has issued a pessimistic outlook for the local property market, warning rents in shopping malls could drop by up to 25 percent. The investment house said rents in luxury malls will drop by 20 to 25 percent by the end of 2017, while other malls are also likely to see rents fall by 15 percent. This comes after many malls issued rent hikes last year when renewing leases with tenants. But UBS said it believed the drop would come from the heightened supply of retail space in the next three years. "Supply is to triple compared to the historical average," said UBS head of Hong Kong and China real estate research Eva Lee Chi-wing.
Night Trading 
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 147.0 -2.25 basis points. 
  • Asia Pacific Sovereign CDS Index 55.25 -1.75 basis points
  • Bloomberg Emerging Markets Currency Index 72.15 -.07%. 
  • S&P 500 futures -.16%. 
  • NASDAQ 100 futures -.25%.
Morning Preview Links

Earnings of Note

  • (LNN)/.56
  • (MOV)/.39
  • (FC)/.05 
Economic Releases  
8:30 am EST
  • Initial Jobless Claims for last week are estimated at 265K versus 265K the prior week.
  • Continuing Claims are estimated to rise to 2200K versus 2179K prior.      
9:00 am EST
  • ISM Milwaukee for March. 
9:45 am EST
  • Chicago Purchasing Manager for March is estimated to rise to 50.8 versus 47.6 in February.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Fed's Evans speaking, Fed's Dudley speaking, China Manufacturing PMI report, UK GDP report, EIA weekly natural gas inventory report, Challenger Job Cuts report for March, weekly Bloomberg Consumer Comfort Index, Sidoti Emerging Growth Convention, (CX) shareholder's meeting and the (NDAQ) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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