Monday, March 07, 2016

Tuesday Watch

Posted by Gary .....at 10:36 PM
Evening Headlines
Bloomberg: 
  • China Export Slump Shows Growth Push Depends on Domestic Demand. China’s export slump deepened in February, highlighting the challenge for policy makers seeking to keep growth humming at home without a boost from external trade. Overseas shipments tumbled 25.4 percent in U.S. dollar terms from a year earlier, the customs administration said on Tuesday, compared with a 11.2 percent drop in January. Imports extended a streak of declines to 16 months, slumping 13.8 percent, leaving a trade surplus of $32.6 billion. A slowdown in global trade is making it harder for China’s leaders, who are gathered in Beijing this week to set the nation’s economic plans, to keep growth at the targeted 6.5 percent to 7 percent range. Reflecting the uncertainties, the government didn’t set a specific target for trade at the annual congress meeting after it failed to meet the goal last year.
  • The $5 Trillion Quandary as Negative-Yielding Japanese Debt Doubles. The amount of Japanese government bonds in the market offering negative yields has doubled this year to more than 600 trillion yen ($5.3 trillion) and that’s a major headache for the finance industry. After the Bank of Japan’s surprise decision on Jan. 29 to implement negative interest rates on some deposits, almost three-quarters of total JGBs would offer no returns or even burn a hole in balance sheets if bought now. The government got paid to borrow 2.2 trillion yen for a decade for the first time at an auction last week, and set a record-low 0.8 percent coupon for an auction of about 800 billion yen of 30-year securities Tuesday.
  • No Consolation for Abe in GDP Revision That Confirms Contraction. Japan’s economy contracted in the final quarter of 2015, according to revised government data that underscores growing concern that Prime Minister Shinzo Abe’s reflation program is falling short of expectations. The gross domestic product shrank an annualized 1.1 percent in the three months ended Dec. 31, better than the 1.4 percent contraction reported last month, according to revised data from the Cabinet Office released Tuesday. The median forecast of 29 economists surveyed by Bloomberg was for a 1.5 percent contraction. 
  • Daewoo Shipbuilding Falls on Quarterly Loss, Order Concerns. Daewoo Shipbuilding & Marine Engineering Co. dropped the most in six weeks in Seoul trading after posting a bigger-than-expected fourth-quarter loss amid concern that shipbuilding demand has dried up. Shares of the world’s second-largest shipbuilder fell as much as 12 percent, the biggest intraday decline since Jan. 25, and traded at 5,460 won as of 10:00 a.m. in Seoul. The stock has dropped 74 percent in the past 12 months and is the third-worst performer on the Kospi index.
  • Sui Generis Is Putting Shorts on Canadian Energy Stocks. (video)
  • Yen Climbs to One-Week High as Equities Slump Fuels Haven Demand. The yen climbed to the strongest level in a week against the dollar as a slump in equities fueled demand for haven assets. Japan’s currency gained against all of its 31 major peers as the Nikkei 225 Stock Average tumbled 1.6 percent. The nation’s economy shrank an annualized 1.1 percent in the three months through December, less than economists projected and an improvement from the 1.4 percent contraction reported last month. A gauge of the dollar held a six-day decline before data that will likely show China’s exports declined. “The yen will be prone to fluctuations to risk sentiment,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “We’ll keep our eye on how the Nikkei and global risk assets will trade.” The yen advanced 0.5 percent to 112.87 per dollar at 11:39 a.m. in Tokyo, after reaching 112.75, its strongest level since March 1. Against the euro, the Japanese currency appreciated 0.4 percent to 124.41, adding to Monday’s 0.2 percent gain.  
  • China Stocks Tumble as Plunging Exports Signal Deeper Slowdown. China’s stocks fell for the first time in six days after the nation’s trade worsened and as investors speculated government-backed funds were paring support for equities. The Shanghai Composite Index halted its longest winning streak since October, falling 2.5 percent as gauges of financial, industrial and technology companies slid. Exports slumped 25.4 percent in February in dollar terms from a year earlier, while imports declined for a 16th straight month. "Market sentiment has not totally been rebuilt, so when the A share market goes up there will be some selling pressure," said Linus Yip, a Hong Kong-based strategist at First Shanghai Securities Ltd. There is speculation "the government is getting out from the market," he said. The Hang Seng China Enterprises Index slid 2.1 percent at 10:45 a.m., while the Hang Seng Index declined 1 percent.
  • Asian Stocks Drop as Japan Slips, China Falls Before Trade Data. Asian stocks dropped, with the regional benchmark index heading for its biggest decline in three weeks. Japanese shares fell for a second day as a stronger yen cut the earnings outlook for exporters while China stocks slumped before data that will likely show a decline in exports. The MSCI Asia Pacific Index fell 1 percent to 124.98 as of 10:50 a.m. in Tokyo, swinging for an early gain of 0.2 percent. Japan’s Topix index declined 1.8 percent, heading for its biggest drop since Feb. 12, as the yen strengthened against the dollar and revised data showed the nation’s economy shrank an annualized 1.1 percent in the fourth quarter, the second contraction in three quarters. “We might be experiencing a bit of exuberance,” Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Ltd. in Sydney said by phone. “While we’ve seen a significant improvement in sentiment, we’ve also seen very significant movement in prices. Japanese markets have gone up significantly, making it vulnerable for a correction. The GDP has acted as a trigger for the selloff in Tokyo. ” 
  • Commodities Rebound Hinges on China's Real Estate Market: Chart. While housing inventories in bigger cities have fallen, it will “take years to clear” backlogs in smaller towns that account for 60 percent of China’s property investments, he said.
  • Wells Fargo(WFC) Said to Expand in Credit Swaps as Clients Hedge. Wells Fargo & Co. plans to ramp up trading in derivatives that allow investors to bet against companies’ debt, the latest sign of growing interest in a market that many had abandoned. The bank expects to trade credit-default swaps tied to individual companies as soon as next quarter, according to people with knowledge of the matter. Investors have grown more interested in betting and hedging with the instruments since the middle of last year, when corporate bonds started weakening
Wall Street Journal:
  • After Ferguson, Cities Face a Body-Cam Dilemma. In arming police with video devices, some cities face friction for acting fast.
  • Rising Global Debt and the Deflation Threat. Years of deficit spending and near-zero interest rates have led to massive borrowing but little growth.
  • Trump, Voters and the GOP Convention. Party rules say you need a majority of delegates, not a plurality. Donald Trump may pile up more than enough delegates in the primaries to make his GOP presidential nomination this summer a formality. But what if he doesn’t? Mr. Trump, Ted Cruz and their media mouthpieces are claiming it would be political theft to choose the nominee at a contested convention. These timid souls need an education in party rules, political history and muscular democracy.
Fox News:
CNBC:
  • China Feb vehicle sales down 3.7 pct y/y - China Passenger Car Association. China's vehicle sales in February fell 3.7 percent from a year earlier, data from China Passenger Car Association showed on Tuesday. Auto sales totaled 1.37 million, the association said in a statement on its website. The China Association of Automobile Manufacturers (CAAM), whose statistics are generally viewed as the benchmark for the industry, is expected to report wholesale data for February later this month.
Zero Hedge:
Business Insider:
Reuters:
  • ECB monitoring liquidity levels at some Italian banks-sources. The European Central Bank is checking liquidity levels at a number of Italian banks, including Banca Carige and Monte dei Paschi di Siena , on a daily basis, two sources close to the matter said on Monday. Italian banking shares have fallen sharply since the start of the year amid market concerns about some 360 billion euros of bad loans on their books and weak capital levels. The ECB has been putting pressure on several Italian banks to improve their capital position. The regulator can decide to monitor liquidity levels at any bank it supervises on a weekly or daily basis if it has any concern about deposits or funding.
  • Urban Outfitters'(URBN) Free People brand same-store sales beat estimates. Apparel retailer Urban Outfitters Inc reported better-than-expected sales at established stores for its bohemian-inspired Free People brand. Shares of the company rose 5.7 percent to $29.76 in extended trading on Monday.
Nikkei:
  • Japan Money-Market Funds Shutting on Negative Rates. All 11 Japanese asset managers running money-market funds plan to shut them and cash out investors as the industry grapples with negative interest rates.
Night Trading 
  • Asian equity indices are -1.5% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 150.25 +1.5 basis points. 
  • Asia Pacific Sovereign CDS Index 68.75 +.5 basis point. 
  • Bloomberg Emerging Markets Currency Index 70.19 -.15%. 
  • S&P 500 futures -.49%. 
  • NASDAQ 100 futures -.62%.
Morning Preview Links

Earnings of Note
Company/Estimate 
  • (DKS)/1.15
  • (NAV)/-.68
  • (ABM)/.26
  • (AVAV)/.04
Economic Releases 
6:00 am EST
  • The NFIB Small Business Optimism Index for February is estimated to rise to 94.0 versus 93.9 in January.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Eurozone GDP report, $24B 3Y T-Note auction, weekly US retail sales reports, Piper Jaffray Tech/Media/Telecom conference, RBC Financial Institutions conference, JP Morgan Aviation/Transports/Industrials conference, (JOY) annual meeting, (SWFT) mid-quarter call, (CVX) analyst meeting and the (FEYE) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.

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