Sunday, May 08, 2016

Monday Watch

Today's Headlines
  • Negative Rates Hit Global Shipping Market. The owner of the world’s biggest shipping line says negative interest rates are hurting the industry by delaying the consolidation wave so badly needed. The monetary policy environment “means that consolidation will be much slower because it’s easy for banks to keep weak shipping companies above water,” Nils Smedegaard Andersen, chief executive officer of A.P. Moeller-Maersk A/S, said in an interview. It’s the latest example of how negative interest rates are distorting markets and potentially even slowing growth. The policy has so far had limited success in reviving inflation while money managers in countries with negative rates are warning of the risk of asset price bubbles. With the unintended consequences potentially including a slower global shipping recovery, questions as to the policy’s efficacy are bound to persist. “Politicians aren’t making the reforms that are needed and are leaving it to the monetary policy makers to solve the economic problems that many countries face with low competitiveness and low investment levels,” Andersen said. A reliance on cheap finance in container shipping has led to “many negative effects,” he said.
  • ANZ, Westpac Discover Mortgages Backed by Dodgy Foreign Income. Two of Australia’s largest lenders have uncovered mortgages that have been backed by questionable foreign-income documentation, forcing them to stop approving such loans. Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. have identified issues with some loans that rely on foreign income for approval, the two lenders said in separate e-mails. The statement comes after the two lenders last month stopped loans to offshore customers who aren’t citizens or who don’t hold appropriate residency visas. The banks also disallowed the use of foreign income for such customers to qualify for a loan.
  • Greece Fights to Unlock Aid as Impasse Risks Political Unrest. Greece returns to center stage on Monday when aid deliberations by its international creditors will signal whether the country faces a renewed period of political drift or wins some economic breathing space after six years of turbulence. The euro area and the International Monetary Fund will assess whether Greek Prime Minister Alexis Tsipras has made enough budget-tightening commitments to gain another aid disbursement. At issue is an IMF demand for fiscal “contingency measures” worth about 3.5 billion euros ($4 billion) in case Greece strays off budgetary course. Such a package, equal to 2 percent of Greece’s gross domestic product, is politically thorny for a premier who promised voters he’d oppose any extra austerity and who governs with a three-seat parliamentary majority. Should the IMF give the Greek government insufficient wiggle room at the meeting with euro-area finance ministers in Brussels, Tsipras could end up calling snap elections or a referendum -- both of which featured last year when Greece came close to a euro exit.
  • IMF Urges Action as Negative Rates Infect Danish Property Market. After almost four years of negative interest rates, Danish policy makers need to act now to prevent a housing bubble, according to the International Monetary Fund. “We strongly encourage the authorities to take early action to lean against the wind on house price increases,” David Hofman, IMF mission chief to Denmark, said in an interview. “We see a need for action on a number of points.” No country has experienced negative rates longer than Denmark and the way the policy plays out will hold lessons for other economies, Hofman said. While banks have fared relatively well in the extreme monetary environment, it’s “exactly in the housing market” that the effect of negative rates is clear, he said. 
  • China's Stocks Decline for Second Day as Trade Data Disappoint. China’s stocks headed for their biggest two-day loss in 10 weeks, as disappointing trade data helped send commodity producers and industrial companies tumbling. The Shanghai Composite Index dropped 1.5 percent, extending Friday’s 2.8 percent retreat. A gauge of raw material companies declined to its lowest level since mid-March. Sany Heavy Industry Co. headed for its biggest loss in three weeks. The nation’s exports fell 1.8 percent in dollar terms in April, data released over the weekend showed, while imports dropped for the 18th straight month. Investor sentiment toward Chinese stocks has turned more bearish as a boom in commodities futures waned and data showed March’s pick up in economic indicators didn’t carry over to April, with manufacturing gauges missing predictions. The Shanghai Composite has lost 20 percent this year, the biggest decline among global benchmark indexes tracked by Bloomberg. "China’s trade import data in terms of dollars were worse than expected," said Sam Chi Yung, senior strategist at South China Financial Holdings Ltd. "The service economy is becoming important but domestic demand is getting worse. This is generating negative signals for China’s economy and putting pressure on A shares."
  • Most Asian Stocks Rise After U.S. Payrolls as Japan Drives Gains. Most Asian stocks rose as Japanese shares climbed on a weaker yen after the smallest U.S. jobs gain in seven months fueled speculation the Federal Reserve will look to raise interest rates gradually. About two shares advanced for each that fell on the MSCI Asia Pacific Index, which traded little changed at 127.08 as of 9:10 a.m. in Tokyo. Japan’s Topix index added 0.9 percent.
  • Iron Ore Futures Drop in Asia as Holdings at China's Ports Swell. Iron ore futures tumbled in Asia as port stockpiles in China expanded to the highest level in more than a year, triggering concern that a glut will persist. The SGX AsiaClear contract for June settlement sank as much as 6.1 percent to $52.20 a metric ton in Singapore and was at $52.90 at 9:41 a.m. local time. Futures on China’s Dalian Commodity Exchange fell as much as 6.4 percent. Losses in the contracts in Asia typically presage a drop in the benchmark Metal Bulletin Ltd. price for 62 percent content spot ore in Qingdao, which is updated daily.
  • Copper Imports by China Slump From Record as Stockpiles Rise. Imports of copper by China slumped in April from a record the previous month after swelling stockpiles in the top user discouraged purchases. Prices tumbled in London and Shanghai on Monday. Cargoes of unwrought copper and products dropped to 450,000 metric tons from 570,000 tons in March, according to data from the General Administration of Customs on Sunday. In the first four months, the imports totaled 1.88 million tons, 23 percent more than the same period a year earlier.
Wall Street Journal:
Fox News:
  • Trump 'blindsided' by Ryan, flip-flops with 'change' on minimum wage. (video) Presumptive GOP presidential nominee Donald Trump on Sunday appeared to nudge his fiscal policies -- including those on taxes and the minimum wage -- closer to the center ahead of the general election, while downplaying a lack of party support for his candidacy. Trump suggested on ABC’s “This Week” that his tax plan, which now includes a tax break for the country’s top wage-earners, would likely be different if he becomes president, considering it would likely need support from Democrats as well as Republicans on Capitol Hill. "By the time it gets negotiated, it's going to be a different plan," the billionaire businessman said in a pre-taped interview that aired Sunday. "On my plan, (tax rates) are going down. But by the time it's negotiated, they'll go up."
Zero Hedge:
Economic Daily News:
  • Chinese Group Tourists to Taiwan Drop 30% Y/Y in May. Daily number of Chinese group tourists to Taiwan has fallen ~30% Y/Y on avg since beginning of May, citing data from Taiwan tourism bureau.
People's Daily:
  • China Should Give High Priority to De-Leveraging. High leverage will lead to rising risks in forex, stock, debt, property and bank loans, citing interview with an "authoritative" person who wasn't identified.
Night Trading
  • Asian indices are -.75% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 145.75 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 55.0 +.5 basis point.
  • Bloomberg Emerging Markets Currency Index 72.26 +.11%.
  • S&P 500 futures +.13%.
  • NASDAQ 100 futures +.06%.

Earnings of Note
  • (AES)/.21
  • (EBIX)/.58
  • (HCP)/.69
  • (INCY)/.30
  • (JD)/-.14
  • (NAT)/.33
  • (BID)/-.20
  • (SSYS)/-.05
  • (HTZ)/.01
  • (MBI)/.12
  • (SCTY)/-2.37 
Economic Releases
10:00 am EST
  • The Labor Market Conditions Index for April. 
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Kashkari speaking, China inflation data, German Factory Orders, Deutsche Bank Clean Tech/Utilities/Power conference, (BAX) investor conference and the (MLM) investor 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.

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