Sunday, April 24, 2016

Monday Watch

Posted by Gary .....at 10:37 PM
Today's Headlines
Bloomberg: 
  • China's Biggest Banks Stand Exposed After Profit Buffers Eroded. China’s biggest banks stand exposed to their first annual profit declines in more than a decade. That’s because lenders such as Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. have let their provision coverage for bad loans -- a key swing factor in earnings reports -- fall close to the regulatory minimum. With the largest lenders set to release first-quarter numbers this week, the big question is: Will the government come to their rescue soon by cutting the mandatory minimum for their bad-loan provisions, currently set at 150 percent of existing nonperforming debt? “Some big banks are probably torn between whether to breach the 150 percent threshold or report a profit decline,” said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co. “For the first quarter, they can still maneuver a bit by cutting costs here and there, and end up with zero profit growth and still maintain the minimum NPL coverage ratio -- but for the full year nobody can achieve both.”
  • Foreign Car Dealers in China, Ubiquitous as KFCs, Face Shakeout. China has set six straight annual records for the most new vehicles bought by any country in the 150-year history of the automobile. And yet, a troubling trend has emerged among the dealers moving all that metal -- most are just spinning their wheels. Three-in-four dealers were either unprofitable last year or just breaking even, according to the China Automobile Dealers Association. With little sign of improvement in the economy and carmakers pushing too much inventory onto their ever-growing networks of retailers, the situation may worsen this year, said Zhu Kongyuan, secretary general of the China Auto Dealers Chamber of Commerce. “It’s getting more and more difficult for dealers to stay in business, as new car sales are not making much profit anymore with all the competition on price,” said Zhou Jincheng, an analyst at researcher Fourin Inc. in Nagoya, Japan. “Under this situation, dealerships won’t stay as they are. They’ll be reorganized, and some may be integrated.”
  • Inside One of the World’s Most Secretive iPhone Factories. 
  • Hanjin Shipping Falls by Record on Debt Reform Uncertainty. Hanjin Shipping Co. fell the most since it began trading in 2009 because of investor uncertainty over whether a proposal by South Korea’s largest container carrier to restructure debt would help improve its financials amid years of low rates in the cargo-transportation industry. Shares of Hanjin Shipping fell as much as 30 percent, the biggest decline since their trading debut in December 2009, to 1,825 won. The stock traded at 1,845 won as of 9:49 a.m. in Seoul, on volume that was 11 times the daily average in the past six months. It was the worst performer on the benchmark Kospi index Monday.
  • China Stocks Fall to Lowest Level in Month on Commodities Slump. China’s stocks fell, extending the biggest weekly decline in almost three months, as financial and commodity companies slumped. The Shanghai Composite Index dropped 1.1 percent. The benchmark gauge tumbled 3.9 percent last week after commodity exchanges moved to cool trading in raw materials and the central bank signaled less of an appetite for adding monetary stimulus following evidence of an acceleration in growth. The Shanghai index dropped to 2,925.74 at 9:37 a.m. local time, heading for the lowest level since March 29.
  • Asian Stocks Retreat as Oil Falls With Copper; Yen Strengthens. Asian shares were set for the first back-to-back declines in a month as the Japanese yen strengthened and crude oil retreated from a five-month high. Japan’s Topix Index slipped from its highest close since early February, while Singapore’s benchmark fell to a one-week low. The yen led gains among major currencies, after tumbling by the most since 2014 on Friday amid speculation Japan’s central bank will widen the use of negative interest rates. The British pound rose to a one-month high after U.S. President Barack Obama sought to deter U.K. voters from leaving the European Union. Crude fell for the first time in a week in New York. Financial markets in Australia and New Zealand are closed for the Anzac Day holiday. The MSCI Asia Pacific Index dropped 0.3 percent as of 10:24 a.m. Tokyo time, after sliding 0.8 percent on Friday. Japan’s Topix Index fell 0.3 percent as benchmarks declined in Hong Kong, Shanghai, Singapore and South Korea.
  • Saudi Key Rate Climbs to 2009 High as Funding Squeeze Tightens. (graph) A key interest rate in Saudi Arabia climbed to the highest level in seven years as oil’s slump and increased government borrowing put further strain on bank funding in the biggest Arab economy. The three-month Saudi Interbank Offered Rate, a benchmark used to price loans, advanced 1.5 basis points to 2.004 percent on Sunday, surpassing 2 percent for the first time since January 2009, according to data compiled by Bloomberg. The rate has risen 46 basis points this year, the biggest increase for the period since 2005, the data show.
  • Aramco Said to Expand Oilfield in May to Maintain Saudi Capacity. Saudi Arabian Oil Co. will complete the expansion of its Shaybah oilfield by the end of May, allowing the biggest crude exporter in the world to maintain the level of its total production capacity, according to two people with knowledge of the plan. Shaybah’s production capacity will rise to 1 million barrels a day from 750,000 barrels, said the people, who asked not to be identified because the information isn’t public. The field, in the Empty Quarter desert near the border with the United Arab Emirates, produces extra light grade crude with API gravity of 42 degrees, they said. Shaybah’s expansion will help Saudi Aramco, as the state producer is known, to keep the company’s output capacity at 12 million barrels a day, they said.
  • Crude Oil Tankers Bound For China Surge Amid Stockpiling Signals. China, the world’s second-biggest crude consumer, may be poised for another increase in imports after the number of supertankers bound for the Asian country’s ports rose to a 16-month high amid signs it’s stockpiling. There were 83 headed to China, the most since December 2014, according to a ship-tracking snapshot compiled by Bloomberg on Friday. Assuming standard cargo sizes, they would be able to deliver about 166 million barrels. China is hoarding crude at the fastest pace in at least a decade, filling inventories at a time when oil futures remain about 60 percent below where they were just two years ago. The nation added 787,000 barrels a day to stockpiles in the first quarter, the most for the period since at least 2004 when Bloomberg started calculations based on customs data.
  • Aging Baby Boomers Push Spam, Diaper Stocks to Record Valuations. For all the attention paid to the massive snap-back in riskier stocks in the last two months, a somewhat less glamorous group has quietly been reaching record valuations. They’re the companies that peddle soap, diapers and ready-to-eat food that also happen to be the market’s biggest payers of dividends. Prized as ports in the storm, their run-up is now neck-and-neck with virtually any equity category you can name in the Standard & Poor’s 500 Index, amid one of its biggest rebounds in cyclical equities on record.
Wall Street Journal:
  • Campaign’s Populist Tone Rankles America’s CEOs. Executives worry rhetoric on immigration and trade will have repercussions beyond November. Chief executives at big American companies are increasingly frustrated by the populist tone of the presidential campaign, and concerns are mounting in boardrooms and corner offices that antibusiness rhetoric may solidify even after the November election.
  • Oil Producers Lock In Once-Snubbed Prices. Oil producers’ withdrawal from hedging as prices fell is expected to show up as damage to their first-quarter results.
  • Department Stores Need to Cull Hundreds of Sites, Study Says. Research firm estimates that restoring 2006 productivity would require closing fifth of anchor space in U.S. malls.
  • Virginia Governor Restores Voting Rights to Thousands of Felons. More than 200,000 felons who have completed their sentence would be eligible to vote or run for office. Virginia Gov. Terry McAuliffe signed an order Friday to restore the voting rights of more than 200,000 felons, a sweeping move that could benefit his fellow Democrats in a critical swing state in the November presidential election.
  • Ted Cruz Outflanks Donald Trump in Weekend Delegate Battle. Senator’s supporters secure delegate slots in Maine and Utah.
  • Obama’s British Trade Threat. A U.S.-U.K. deal would be possible and desirable. Britons now know how Americans feel. The most politically polarizing U.S. President in modern history decided on Friday to inject himself into the British debate over the June referendum to leave the European Union, as ever leading with a dubious political threat.
Fox News:
CNBC:
  • China debt load reaches record high as risk to economy mounts. China’s total debt rose to a record 237 percent of gross domestic product in the first quarter, far above emerging-market counterparts, raising the risk of a financial crisis or a prolonged slowdown in growth, economists warn. Beijing has turned to massive lending to boost economic growth, bringing total net debt to Rmb163 trillion ($25 trillion) at the end of March, including both domestic and foreign borrowing, according to Financial Times calculations. Such levels of debt are much higher as a proportion of national income than in other developing economies, although they are comparable to levels in the U.S. and the eurozone. While the absolute size of China’s debt load is a concern, more worrying is the speed at which it has accumulated — Chinese debt was only 148 percent of GDP at the end of 2007. “Every major country with a rapid increase in debt has experienced either a financial crisis or a prolonged slowdown in GDP growth,” Ha Jiming, Goldman Sachs chief investment strategist, wrote in a report this year.
Zero Hedge:
Business Insider:
FitchRatings:
  • Fitch: Chinese Steel Price Surge Not Sustainable. Fitch Ratings-Hong Kong/Shanghai-24 April 2016: The rapid increase in Chinese steel prices so far this year is not sustainable, as it is largely due to a seasonal pick-up in construction and elevated speculation in the steel futures market, says Fitch Ratings. Fitch expects supply of steel to increase as rising prices lead to capacity resumption, but without a sustainable rise in demand. This will put significant pressure on steel prices in the near term.
Financial Times:
  • Iron ore’s surprise rally looks on borrowed time. Caught between slowing Chinese demand and relentless production growth 2016 was supposed to be bring more pain for the iron ore industry, which has seen prices tumble since peaking at nearly $200 a tonne five years ago. So far things haven’t played out that way.
Telegraph:
  • China's fresh boom nears peak just as amateurs pile in. Elite global banks have begun to warn clients that China's latest credit-driven boom is nearing its peak and will lose momentum by late summer, dashing hopes for a genuine cycle of fresh economic growth and commodity demand. Morgan Stanley, Nomura, and Societe Generale have all issued cautionary notes just as amateur investors belatedly turn bullish again on China and start to pile into both commodities and emerging market equities.
Mehr:
  • Iran in Talks W/Nations to Set Up Opec for Petrochemicals. Turkey, Egypt, Malaysia, Nigeria also in talks to form core of OPEC for petrochemicals, citing Ahmad Mahdavi, secretary-general of the Petrochemical Industry Management Association. Iran has annual production capacity of 60m t of petrochemicals, making it one of the world's largest producers/exporters.
Night Trading
  • Asian indices are -.75% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 138.5 +1.25 basis points.
  • Asia Pacific Sovereign CDS Index 56.0 -.5 basis point.
  • Bloomberg Emerging Markets Currency Index 72.53 -.08%.
  • S&P 500 futures -.01%.
  • NASDAQ 100 futures -.02%.

Earnings of Note
Company/Estimate
  • (HAL)/.04
  • (KKR)/-.32
  • (LH)/1.96
  • (SOHU)/-.44
  • (CR)/.86
  • (ETH)/.31
  • (ESRX)/1.22
  • (NBR)/-.33
  • (OII)/.36
  • (ZION)/.39
Economic Releases 
10:00 am EST
  • New Home Sales for March are estimated to rise to 520K versus 512K in February. 
10:30 am EST
  • Dallas Fed Manufacturing Activity for April is estimated to rise to -10.0 versus -13.6 in March.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German import prices report and the $26B 2Y T-Note auction could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial 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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