Sunday, May 15, 2016

Monday Watch

Today's Headlines
  • China April Slowdown Shows Debt Addiction Will Be Tough to Shake. China’s run of disappointing April data underscore the bind facing policy makers seeking to cut capacity from the worst-performing sectors and curb credit excesses in recovering ones without stalling the economy. Bloomberg’s monthly gross domestic product tracker shows growth slowed to 6.88 percent in April, from 7.11 percent in March. Weak steel and coal output dragged on industrial production, which increased 6 percent from a year earlier versus economists’ forecasts of 6.5 percent, while retail and investment readings also disappointed, according to reports released on Saturday. A day earlier, data showed a slump in new credit last month.
  • U.S. Bears Pile on Large-Cap China ETF as Stimulus Wanes: Chart.
  • Australia 10-Year Yield Drops to Record Low as China Sags: Chart.
  • Johnson Invokes Hitler as Brexit Debate Rhetoric Intensifies. Boris Johnson capped a weekend of intensified campaigning over the Brexit debate with an interview invoking Napoleon Bonaparte and Adolf Hitler, saying that attempts to unify Europe have tended to end “tragically.” “The truth is that the history of the last couple of thousand years has been broadly repeated attempts by various people or institutions -- in a Freudian way -- to rediscover the lost childhood of Europe, this golden age of peace and prosperity under the Romans, by trying to unify it,” the former London mayor told the Sunday Telegraph. “Napoleon, Hitler, various people tried this out, and it ends tragically.”
  • JPM's Chatain: We Downgraded Japan on Stronger Yen. (video) 
  • Aussie Hits 10-Week Low as China Reports Show Growth Slowdown. Australia’s dollar fell to the lowest in 10 weeks and New Zealand’s currency declined following reports from China pointing to slowing growth in the Asian nation that both countries count as their biggest export market. The Aussie held a decline from last week against most major peers before the release Tuesday of minutes from the central bank’s May meeting when it surprised some by lowering its benchmark rate. China’s retail sales, industrial production and fixed-asset investment data released at the weekend missed economists’ estimates. A gauge of the dollar closed at a six-week high Friday after data showed U.S. consumer purchases in April increased by the most in a year. Traders will look to minutes of the Federal Reserve’s last meeting, due May 18, for signs of when officials plan to resume raising the nation’s key rate. “The weaker Chinese data and the delayed reaction to U.S. data should keep currencies like the Aussie and kiwi on the back foot,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand in Auckland. A Fed repricing should mean a stronger dollar, though “it obviously won’t be as strong as it was before because markets will be much more hesitant to go ahead of the Fed this time.”Australia’s dollar slid to 72.37 U.S. cents, the weakest since March 2, and bought 72.75 as of 9:12 a.m. in Tokyo, little changed from Friday.
  • Asian Stocks Outside Japan Fall After China Data Disappoints. Asian stocks outside Japan fell, heading for its lowest level in two and a half months, after China reported a string of disappointing economic data. The MSCI Asia Pacific Index excluding Japan slipped 0.2 percent to 397.3300 as of 9:10 a.m. in Tokyo, heading for its lowest close since March 3. Chinese retail sales, industrial production and fixed-asset investment data released on Saturday missed economist estimates, while the biggest gain in U.S. retail sales in a year reignited speculation the Federal Reserve may raise interest rates as early as June. “Weak economic data, disappointing earnings reports and constant debate about central bank armory and efficacy have investors wanting to avoid downside risk,” Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney, which manages about $21 billion, said by e-mail. “This produces plenty of cross currents and market volatility for markets to navigate.”
  • Oil Drillers Betting Three-Month Crude Rally Is Nearing the End. Oil producers are taking advantage of the rebound in crude markets to lock in protection against another slump. They increased their bets on falling prices to the highest level in 4 1/2 years as U.S. inventories of stored oil remained near an 87-year high, while a natural disaster in Canada and militant attacks in Africa curtailed output. Negative sentiment among the group expanded for a third consecutive week, the longest streak since February. Energy companies from EOG Resources Corp. to Chesapeake Energy Corp. used financial instruments such as futures, swaps and collars to guard against another fall in prices. West Texas Intermediate oil, the benchmark U.S. crude, has gained more than 75 percent since hitting a 12-year low in mid-February. “They’ve been getting more and more active in hedging ever since the first initial jump,” said John Kilduff, a partner at Again Capital LLC in New York. Oil producers “appear to be drawn to this market as everyone tries to stay alive through the downturn,” he said.
  • China’s Record Daily Steel Output Bodes Ill for Export Rivals. China’s record daily steel output in April bodes ill for an embattled global steel industry already reeling from a deluge of exports from the world’s top producer. Crude steel output over the month rose 0.5 percent to 69.42 million metric tons from a year earlier, the National Bureau of Statistics said on Saturday. The gains came after mills ramped up production to take advantage of a spurt higher in prices that has given them the best profits this decade. While below March’s record monthly figure of 70.65 million tons, the daily rate of 2.314 million tons was higher due to fewer producing days and surpassed the previous best set in June 2014. “Given how high margins went, we’ve been expecting to see a supply response like this,” Ian Roper, Singapore-based analyst at Macquarie Group Ltd., said in a WeChat message. “Chinese mills will likely look back to the export market as domestic oversupply reappears.”
  • Top Currency Traders Warn White House Race May Echo Brexit Chaos. Traders wanting to know what November’s U.S. presidential election will mean for the dollar need look no further than the U.K. The pound plunged to a seven-year low and volatility soared, exceeding all other Group-of-10 nations, on risks created by a referendum on European Union membership. Given the tough talk on dollar strength from candidates vying for the White House, the greenback is just as vulnerable to politics, according to Deutsche Bank AG, JPMorgan Chase & Co., and Standard Bank Group Ltd.
Wall Street Journal:
Fox News:
  • News Analysis: Sorry, We Don’t Take Obamacare. "Anytime one of us needs a doctor," she continued, "we send out an alert: 'Does anyone have anyone on an exchange plan that does mammography or colonoscopy? Who takes our insurance?' It's really a problem."
Zero Hedge:
Night Trading
  • Asian indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 144.75 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 53.75 +.75 basis point.
  • Bloomberg Emerging Markets Currency Index 71.57 +.32%.
  • S&P 500 futures -.01%.
  • NASDAQ 100 futures -.02%.

Earnings of Note
  • (A)/.39 
Economic Releases
8:30 am EST
  • Empire Manufacturing for May is estimated to fall to 6.35 versus 9.56 in April. 
10:00 am EST
  • The NAHB Housing Market Index for May is estimated to rise to 59.0 versus 58.0 in April.
4:00 pm EST
  • Net Long-Term TIC Flows for March.  
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Kashkari speaking, Japan Industrial Production report and the (TASR) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly mixed. The Portfolio is 25% net long heading into the week.

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