Tuesday, March 08, 2016

Wednesday Watch

Posted by Gary .....at 10:52 PM
Evening Headlines
Bloomberg:  
  • China May Face Japan-Like Slump Unless Yuan Weakens, KKR Says. China could be facing the same kind of anemic growth that Japan did in the 1990s unless it moves to weaken the yuan to alleviate the country’s debt burden and fend off deflation, according to KKR & Co., one of the world’s largest private equity firms. The country’s currency interventions have drained cash from the financial system, tightening liquidity further at a time when money is already leaving the country in droves, Henry Mcvey, head of KKR’s Global Macro & Asset Allocation team, said in a research note Tuesday. The tightening of money supply and falling inflation are making it more expensive for companies to repay their debt, ultimately hurting economic expansion, he said. “China cannot ignore the one-two punch of deflation and capital outflows without having to ultimately realign its currency strategy,” said Mcvey. “If it does choose to ignore these items, then we believe GDP growth could stagnate further the way it did in Japan during the 1990s (i.e., high real rates restrain growth amidst too much debt).”
  • Is China's Slowdown the Result of a Global Trade War? (video)
  • China Miner Zibo Hongda Defaults on Bond, Hurt by Economy Slump. A Chinese mining company defaulted on its bonds, the latest firm to have trouble with financing as an economic slump hurts business. Zibo Hongda Mining Co., which is based in the eastern province of Shandong, said it didn’t raise enough funds to make its full debt payment due March 8, according to a statement posted to the Shanghai Clearing House website. The iron ore miner issued 400 million yuan ($61 million) of notes in 2015 with a coupon rate of 8 percent and had to repay 431.91 million yuan in principal and interest Tuesday.
  • The Risky Japan Funds Sparking Financial Regulator Concern. Japan’s financial regulator is concerned that banks and securities companies are selling complex funds that charge high fees to individuals who may not understand the risks, and it’s talking to the firms about whether the sales are appropriate. Funds that bundle investments in assets from Japanese stocks to U.S. high-yield debt with wagers on currencies are sold by the nation’s largest brokerages and banks. Declines of more than 20 percent in emerging-market currencies against the yen in the past year have left owners of so-called double-decker or layered funds with big losses.
  • UBS's Strategist Who Forecast Rout Sees Emerging Rally Fizzle. The rally that has almost erased this year’s decline in emerging-market assets probably won’t last as economic growth remains sluggish, according to Bhanu Baweja, a strategist at UBS AG, who correctly predicted the selloff in 2015. “Leading indicators don’t point to a major inflection point,” Baweja, the head of emerging-market cross-asset strategy at UBS, wrote in an e-mailed research note Tuesday. While the pace at which developing-nation economies are weakening has moderated, it’s “more likely than not that we trudge along the bottom for a while rather than see a significant pick-up in growth,” he said. Weak global trade, high debt levels and deterioration in governments’ balance sheets suggest that emerging-market stocks may trail their developed-nation peers by as much as 15 percent over the next two years, Baweja said.
  • Why a Recession Could Mean the End of the Euro Zone. (video)
  • Won Falls Most in Three Weeks as China Data Damp Global Outlook. South Korea’s won fell the most in three weeks after disappointing Chinese economic data deepened concerns about global growth. China, South Korea’s biggest overseas market, on Tuesday reported exports in February shrank the most since 2009 and imports slumped for the 16th months. South Korean shipments have contracted for 14 straight months, the government said last week. The Kospi index of shares dropped as foreign funds sold more local stocks than they bought for a second day, paring this month’s inflows, exchange data show. The won declined 0.6 percent, the most since Feb. 17, to 1,213.99 a dollar as of 11:23 a.m. in Seoul, according to data compiled by Bloomberg.
  • China Stocks Drop as End of Day Rally Unravels on Growth Concern. China’s stocks fell, giving back gains from an end of day rally that was driven by suspected state-backed fund buying. Commodity producers led declines after oil and metal prices slumped. The Shanghai Composite Index slumped 1.9 percent. Jiangxi Copper Co. plunged the most in six weeks to lead miners lower in the wake of an industrial-metals selloff. The gauge erased a loss of 3.3 percent to close higher on Tuesday, led by Industrial & Commercial Bank of China Ltd. and PetroChina Co., which have long been considered as favored targets of government buying because of their large index weighting. The Hang Seng China Enterprises Index retreated 1.4 percent at 10:24 a.m., while the Hang Seng Index dropped 0,.6 percent. The CSI 300 Index declined 1.8 percent, with gauges tracking material and energy stocks sliding at least 3.9 percent for the steepest losses among industry groups.
  • Asian Stock Retreat Deepens as Commodity Drop Spurs Haven Demand. Asian stocks extended their decline, with Japanese shares driving losses as renewed concern over the state of the global economy underpinned demand for haven assets, weighing on commodity prices. Mining companies led the regional benchmark down for a second day as Japan’s Topix index fell more than 1 percent. Copper futures extended their drop in the wake of an industrial-metals selloff, while U.S. crude held below $37 a barrel. High-yielding currencies retreated, with the Australian dollar to the Malaysian ringgit slipping at least 0.2 percent. The yen rose a third day against the euro and the dollar as Australian and New Zealand bonds climbed. The MSCI Asia Pacific Index lost 0.8 percent as of 10:03 a.m., headed for its lowest close since March 2 as exporters led the Topix down 1.7 percent.
  • China Steel Gloom Prompts Biggest Mills to Doubt Iron Ore Rally. For any emerging bulls out there, China’s top steelmakers’ group has a sobering message: the global iron ore market is grossly oversupplied, demand in China is faltering and there’s a severe glut of steel. “Don’t let wild, short-term price swings distract us from our analysis of the market,” Li Xinchuang, deputy secretary-general of the China Iron & Steel Association, said after iron ore surged on Monday by the most on record. “How can the rally possibly be sustained?”
  • DoubleLine’s Gundlach Says S&P Has 2% Upside, 20% Downside. The Standard & Poor’s 500 Index has about 2 percent upside and 20 percent downside, making for a lousy risk-reward trade-off, according to money manager Jeffrey Gundlach. Betting on stocks is a “big losing proposition,” Gundlach said Tuesday during a webcast. The recent rebound is a “bear market rally,” he said. The S&P 500 Index, a benchmark for U.S. stocks, fell the most in two weeks Tuesday, led by a selloff in energy shares, after worsening economic data from Asia reignited concern over the outlook for global growth. Reports showed Japan’s economy and Chinese exports are shrinking, reviving anxiety that monetary policy won’t be enough to support the global economy. Oil inventories are still “through the roof” and demand is too weak to fuel a recovery in energy markets. Bankruptcies are likely to increase in the sector, with more corporate debt facing downgrades, a trend that is also hurting banks. When the defaults come, “recovery rates are going to be highly disappointing” because borrowers are so heavily levered, he said.
Wall Street Journal:
  • China, Fighting Money Exodus, Squeezes Business. Trying to slow capital outflow, Beijing makes life tougher for companies and investors. Chinese officials are trying anew to slow an unprecedented money exodus from the country, clamping down on individuals seeking to flee the yuan and making life tougher for companies that need to trade the currency for dollars to do business. China’s foreign-exchange regulator in recent months has deployed a new system to monitor individual purchases of foreign funds and has asked banks to reduce foreign-currency transactions. It has...
  • U.S. Officials Propose Test Program Aimed at Lowering Medicare Drug Costs. Goal to see if lowering reimbursements would prompt doctors to choose lower-cost drugs. The Obama administration is proposing a test program to see if lowering reimbursements for drugs administered by some Medicare doctors would prompt them to choose lower-cost, but equally effective, medications.
  • Can Trump Start a Trade War? From his first moment in office, he can take the world economy on a wild ride.
Fox News:
  • 2016 Election: Live Blog.
  • Fox News projects: Trump wins primaries in Mich., Miss.; Clinton wins in Miss. (video) Donald Trump swept to victory Tuesday in delegate-rich primaries in Michigan and Mississippi, Fox News projects, regaining momentum after his stunning march through the primaries was slowed over the weekend – while Hillary Clinton once again found herself faced with the prospect of splitting the night’s contests with rival Bernie Sanders. Trump immediately tried to use his latest wins to sideline the remaining competition. At a press conference at his golf club in Juniper, Fla., he said of his remaining rivals, “They’re pretty much all gone.” Clinton, meanwhile, notched a resounding win over Vermont Sen. Sanders in Mississippi, thanks in part to her overwhelming support from black voters. But she is locked in a surprisingly close battle for the top spot in Michigan, where Sanders leads in early returns.
  • Beheadings, imprisonment made 2015 worst year for Christian persecution, report finds.
CNBC:
  • Consumers amassed $71B in credit card debt in 2015. Could 2016 be the next 2008 for credit card debt? It's possible, according to new research by CardHub. America's outstanding credit card debt surpassed estimates in 2015, climbing to $917.7 billion, up from a forecast of $900 billion, the credit card comparison website said on Monday. In 2015, consumers amassed around $71 billion in credit card debt, up 24 percent from the previous year. In the fourth quarter alone, consumers racked up $52.4 billion in credit card debts, nearly the cumulative amount of debts owed to credit card companies in 2014, which reached $57.4 billion.
Zero Hedge:
Business Insider:
@AmYisraelChai16:
The Sun:
Night Trading 
  • Asian equity indices are -1.25% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 149.25 -1.0 basis point. 
  • Asia Pacific Sovereign CDS Index 71.5 +2.75 basis points. 
  • Bloomberg Emerging Markets Currency Index 69.80 -.13%. 
  • S&P 500 futures +.05%. 
  • NASDAQ 100 futures +.02%.
Morning Preview Links

Earnings of Note
Company/Estimate 
  • (HOV)/-.03
  • (KFY)/.51
  • (VRA)/.41 
Economic Releases 
10:00 am EST
  • Wholesale Inventories MoM for January are estimated to fall -.2% versus a -.1% decline in December.
  • Wholesale Sales for January MoM are estimated to fall -.3% versus a -.3% decline in December.
10:30 am EST
  • Bloomberg consensus estimates call for a crude oil inventory build of +3,177,780 barrels versus a +10,374,000 barrel increase the prior week. Gasoline supplies are estimated to fall by -1,494,440 barrels versus a -1,468,000 barrel decline prior. Distillate inventories are estimated to rise by +272,220 barrels versus a +2,882,000 gain prior. Finally, Refinery Utilization is estimated to fall by -.2% versus a +1.0% gain prior.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The China CPI report, UK Industrial Production report, $20B 10Y T-Note auction, Bank of Canada rate decision, weekly MBA mortgage applications report, USDA WASDE report, UBS Consumer Conference and the (MGA) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial 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 25% net long heading into the day.

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