Monday, April 25, 2016

Tuesday Watch

Posted by Gary .....at 10:01 PM
Evening Headlines
Bloomberg: 
  • Bass Said to Start Separate Fund for China-Related Trades. Kyle Bass, the hedge fund manager predicting massive losses for Chinese banks because of nonperforming loans, is raising money to start a dedicated fund for bets in the country, according to a person with knowledge of the matter. Bass, the founder of Dallas-based Hayman Capital Management, will be holding calls with investors over the next few days to provide more details, said the person, who asked not to be named because the matter is private. As of mid-February, Bass already had about 85 percent of his main fund’s portfolio in China-related trades, he said at the time. Bass told investors earlier this year that China’s banking system may see losses more than four times those suffered by U.S. banks during the financial crisis, though analysts from China International Capital Corp. and Macquarie Securities have said his estimate overstates the real situation. The International Monetary Fund this month estimated China may have $1.3 trillion in loans extended to borrowers that don’t have sufficient income to cover interest payments, with potential losses equivalent to 7 percent of the country’s gross domestic product.
  • Alere Said to Get Default Notice From Creditors on Filing Delay. Alere Inc., the medical-testing supplier under federal scrutiny, received a notice of default from a group of bondholders after the company delayed filing its 2015 financial statement, according to people with knowledge of the matter. Alere, which agreed in February to be bought by Abbott Laboratories for about $5.8 billion, hasn’t disclosed a default notice through regulatory filings. Some of the company’s senior lenders were told, over a private reporting system, of a March 21 default notice, the people said. They were given the information this month while Alere was negotiating for more time to file the annual financial report, said the people, who asked not to be identified because the information was private.
  • SK Hynix Posts Lowest Profit in Three Years as Chip Prices Tank. SK Hynix Inc., an Apple Inc. supplier, posted its lowest quarterly profit in three years after sputtering demand for smartphones and computers pressured memory-chip prices. Operating income fell 65 percent to 561.8 billion won ($489 million) in the three months ended March, the Icheon, South Korea-based company said. That compares with the 593.4 billion-won average of analyst estimates compiled by Bloomberg and is the smallest since the first quarter of 2013.
  • Asian Stocks Slip as Yen Rallies Ahead of Fed, BOJ; Oil Rebounds. Asian equities extended losses into a third day, led by Japanese shares as the yen solidified its rebound and investors looked ahead to central bank meetings in Tokyo and Washington later this week. Crude oil resumed gains while industrial metals fell. Mining shares and banks led the regional benchmark to a four-day low as exporters drove Japan’s Topix index down 0.6 percent amid a revival in the local currency. Gold maintained an advance as anxiety over oil’s swings and the forthcoming policy reviews from the Federal Reserve and Bank of Japan supported haven assets. West Texas Intermediate crude clawed back some gains following a 2.5 percent slide on Monday amid resurgent concern over the global glut. Zinc led base metals lower as copper dropped a second day. The MSCI Asia Pacific Index lost 0.4 percent as of 10 a.m. Tokyo time, with the Topix falling a second day.
  • Goldman(GS) Says China Iron Ore Speculation ‘Concerns Us the Most’. Goldman Sachs Group Inc. has expressed its concern about the surge in speculative trading in iron ore futures in China, saying that daily volumes are now so large that they sometimes exceed annual imports. The increase in futures trading in the world’s largest importer was among factors that have lifted prices, according to a report from analysts Matthew Ross and Jie Ma received on Tuesday. Iron ore volumes traded on the Dalian Commodity Exchange are up more than 400 percent from a year ago, they said. “While increased fixed-asset investment in China, a bring-forward of steel production (ahead of a government curtailment) and mining disruptions help to explain the strong rally in the iron ore price, the one driver that concerns us the most is the increased speculation in the Chinese iron ore futures market,” they wrote.
Wall Street Journal:
  • Regulators to Call for Banks to Have Year’s Worth of Liquidity. Rule to be proposed Tuesday would affect large U.S. banks and could crimp industry profits, critics say. Large U.S. banks would have to prove they have enough cash to withstand severe market turmoil lasting as long as a year under a new rule set to be proposed Tuesday. The regulation would require about 30 of the country’s biggest banks to adjust their balance sheets, cutting the odds they would run into the kind of funding crunch that crippled Bear Stearns and Lehman Brothers in 2008. But critics say it could also crimp banks’ profits by forcing them to devote more resources to low-return investments or...
  • President Xi Jinping’s Most Dangerous Venture Yet: Remaking China’s Military. The Chinese leader’s plan to revamp the armed forces, a milestone in the nation’s emergence from isolationism, faces hurdles at home.
  • Curt Schilling the Science Guy. From climate change to restrooms, Democrats are increasingly the anti-science party.
Barron's: 
Fox News:
CNBC:
  • Don’t buy into this ‘complacent’ rally, strategists warn. (video) Where did all the volatility go? Despite a slew of quarterly earnings misses, the most popular measure of expected volatility in the S&P 500, the CBOE Volatility Index, has remained notably tranquil. 
  • LeEco CEO Jia Yueting says Apple is outdated. (video) Apple is "outdated" and losing momentum in China, billionaire entrepreneur Jia Yueting told CNBC in his first international television interview. Jia is chief executive and chairman of Chinese conglomerate LeEco (formerly LeTV), which is best known for being the "Netflix of China," but has a product range that includes smartphones, televisions, mountain bikes and, most recently, electric vehicles. 
  • This quarter's earnings season trend—layoffs. (video) Layoffs and restructuring are starting to look like the trends of this earnings season. Halliburton originally scheduled its earnings call for Monday morning, but announced on Friday that it will delay the report to May 3. This past quarter, the company paid $2.1 billion in restructuring costs, partly attributable to severance costs. Halliburton laid off 6,000 people during the quarter.
Zero Hedge:
Business Insider:
Reuters:
  • CN Rail lowers profit forecast as weak freight volumes weigh. Canadian National Railway Co (CNR.TO) lowered its full-year earnings forecast, citing weaker-than-expected freight demand in some markets and a strengthening Canadian dollar. Canada's biggest railroad, which reported a 4.3 percent fall in first-quarter revenue, said it now expected 2016 adjusted earnings per share to match last year's C$4.44. The company in January forecast mid- to single-digits EPS growth.
Night Trading 
  • Asian equity indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 140.75 +2.25 basis points. 
  • Asia Pacific Sovereign CDS Index 58.0 +2.0 basis points. 
  • Bloomberg Emerging Markets Currency Index 72.46 -.03%. 
  • S&P 500 futures +.18%. 
  • NASDAQ 100 futures +.22%.
Morning Preview Links

Earnings of Note
Company/Estimate 
  • (MMM)/1.92
  • (AKS)/-.11
  • (ABX)/.10
  • (BAX)/.29
  • (BP)/-.02
  • (COH)/.42
  • (GLW)/.28
  • (DD)/1.04
  • (LLY)/.84
  • (FCX)/-.16
  • (HSY)/1.07
  • (IR)/.37
  • (LXK)/.77
  • (LMT)/2.61
  • (ODP)/.13
  • (PCAR)/.96
  • (PH)/1.44
  • (PG)/.82
  • (R)/1.05
  • (SPG)/2.54
  • (WHR)/2.69
  • (WYN)/1.11
  • (AFL)/1.63
  • (AKAM)/.63
  • (AAPL)/2.00
  • (T)/.69
  • (BXP)/1.58
  • (BWLD)/1.78
  • (CHRW)/1.82
  • (CMG)/-1.05
  • (EBAY)/.45
  • (FE)/.76
  • (KLAC)/.97
  • (PNRA)/1.50
  • (PSA)/2.19
  • (RHI)/.64
  • (TWTR)/.10
  • (X)/1.25  
Economic Releases 
8:30 am EST
  • Preliminary March Durable Goods Orders are estimated to rise +1.9% versus a -3.0% decline in February.
  • Preliminary March Durables Ex Transports are estimated to rise +.5% versus a -1.3% decline in February.
  • Cap Goods Orders Non-Defense Ex Air are estimated to rise +.6% versus a -2.5% decline in February.
9:00 am EST
  • The S&P/CS 20 City MoM SA for February is estimated to rise +.8% versus a +.8% gain in January.
9:45 am EST
  • Preliminary Markit US Services PMI for April is estimated to rise to 52.0 versus 51.3 in March.
10:00 am EST
  • Consumer Confidence for April is estimated to fall to 95.8 versus 96.2 in March. 
  • Richmond Fed Manufacturing for April is estimated to fall to 12.0 versus 22.0 in March.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The China industrial profits report, $34B 5Y T-Note auction, weekly US retail sales and the (KMX) analyst 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 higher and to weaken into the afternoon, finishing modestly mixed. The Portfolio is 50% net long heading into the day.

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