Wednesday, May 25, 2016

Thursday Watch

Evening Headlines

  • Lending in China Is So Risky That Cows Are Now Collateralized. In the creative world of Chinese lending, there’s a new trade in town: the cow leaseback. China Huishan Dairy Holdings Co., which operates the largest number of dairy farms in the country, is selling about a quarter of its herd -– some 50,000 animals -- to Guangdong Yuexin Finance Lease Co. for 1 billion yuan ($152 million) and then renting them back. With an estimated $1.3 trillion of risky loans in the country, Chinese banks are becoming more cautious about lending, forcing some companies to look for new ways to borrow. Finance leasing has been growing in popularity, especially for purchases of equipment. But cows?
  • Europe’s Troubles Pile Up at Home as Leaders Cross Globe for G-7. When Germany hosted last year’s Group of Seven summit, European leaders assured President Barack Obama they were up to dealing with the crises on their doorstep. Twelve months on, Europe’s challenges have multiplied to an extent that questions the wisdom of making the 6,000-mile trip to Japan for the G-7. From Brexit to migration, home-grown terrorism to the destabilizing impact of surging populism, Europe has seldom looked in more need of political leadership at home. Global summits usually provide an opportunity for heads of government to play the role of international dealmakers. But right now Prime Ministers David Cameron and Matteo Renzi, Chancellor Angela Merkel and President Francois Hollande are faced with coalescing crises -- and restive electorates -- that demand attention in their own countries.
  • Saudi Arabia Has a Plan B to Try to Stop Iran’s Economic Rise. Saudi Arabia couldn’t stop the Iran nuclear deal from being signed. Plan B is to limit Iran’s ability to reap its benefits. The kingdom is mobilizing its Gulf allies to make sure that, more than four months after the lifting of sanctions on the Islamic Republic, Iran’s opening-up to the global economy doesn’t go smoothly. Last month the Saudis scuttled a bid to stabilize crude prices because it would have allowed their bitter foe to grab a larger share of oil markets. And in Dubai, once their main gateway to the world, Iranian businessmen privately complain of increasing restrictions. It’s a rearguard action by the Saudis as the U.S. reassesses its role in the Middle East and investors are drawn to the allure of Iran as the world’s last untapped major frontier market. Still, there are other drags on doing business with Iran that play into the Saudi effort: European banks are still reluctant to do business in the Islamic Republic for fear of possible U.S. sanctions.
  • Fed Rate Speculation Casts Shadow on Emerging Currencies: Chart.
  • Asia Stocks Rise as Economic Optimism Fuels Global Stocks Rally. Asian stocks rose, sending the regional equities benchmark gauge toward the biggest two-day gain in more than a month, as optimism the U.S. economy is strong enough for increased interest rates fueled a global equity rally. The MSCI Asia Pacific Index climbed 0.7 percent to 127.62 as of 9:05 a.m. in Tokyo, after a global rally sent U.S. equities to the highest level in almost a month.
Wall Street Journal:
  • Trillions in Debt. U.S. household borrowing nears precrisis peaks; global debt has already topped 2008 levels. If current trends persist through the end of the year, U.S. households will owe as much as they did at the peak of borrowing in 2008. Global debt has already topped 2008 levels and keeps rising. That’s pretty astonishing so soon after debt-driven crises in the U.S. and Europe and endless worries about too much borrowing in Japan, China and emerging markets.
  • Watchdog Faults Hillary Clinton’s Email Practices at State Department. Report to Congress also faults previous secretaries of state for lapses and criticizes the broader lapses at the department.
  • Fannie, Freddie and an Outbreak of Amnesia. The growing ‘recap and release’ movement is a bad idea that could lead to another financial disaster.
  • HP(HPQ) reports mixed quarter, falling PC and printing revenues. (video) HP Inc. reported on Wednesday that its quarterly adjusted earnings topped Wall Street estimates, but its revenues fell short of analyst expectations. The company said it saw second-quarter adjusted earnings of 41 cents per share on net revenues of $11.59 billion. Analysts expect HP to post earnings of 38 cents per share on $11.72 billion in revenue for its fiscal 2016 second quarter, according to a Thomson Reuters consensus estimate. Those results represented a roughly 11 percent decline in revenue and a 5 percent increase in earnings per share over the comparable year-ago period, HP said. Shares in the company fell about 3 percent in after-hours trading after the results were released, but then moved into positive territory as investors digested the news.
Zero Hedge:
Business Insider:
Economic Information Daily:
  • China's Consumption-To-GDP Ratio May Exceed 60% This Year. Ratio is expected to be a record high in past 10 years, citing a report from the research institute at the China Council for the Promotion of International Trade.
Night Trading 
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 142.0 -1.75 basis points. 
  • Asia Pacific Sovereign CDS Index 52.75 -.5 basis point.
  • Bloomberg Emerging Markets Currency Index 70.87 +.06%
  • S&P 500 futures -.14%. 
  • NASDAQ 100 futures -.16%.
Morning Preview Links

Earnings of Note

  • (ANF)/-.51
  • (CHS)/.31
  • (DG)/.95
  • (DLTR)/.81
  • (FRED)/.02
  • (GCO)/.39
  • (IGT)/.48
  • (PDCO)/.75
  • (SAFM)/1.52
  • (SHLD)/-3.20
  • (TSL)/.24
  • (DECK)/.06
  • (GME)/.61
  • (PANW)/.42
  • (ULTA)/1.29
Economic Releases 
8:30 am EST
  • Initial Jobless Claims for last week are estimated to fall to 275K versus 278K the prior week.
  • Continuing Claims are estimated to fall to 2142K versus 2152K prior.
  • Preliminary Durable Goods Orders for April are estimated to rise +.5% versus a +.8% gain in March.  
  • Preliminary Durables Ex Transports for April are estimated to rise +.3% versus a -.2% decline in March.
  • Preliminary Cap Goods Orders Non-Defense Ex-Air are estimated to rise +.3% versus a +.1% gain in March.  
10:00 am EST
  • Pending Home Sales MoM for April are estimated to rise +.7% versus a +1.4% gain in March. 
11:00 am EST
  • Kansas City Fed Manufacturing for May is estimated to rise to -3 versus -4 in April.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Fed's Powell speaking, Fed's Bullard speaking, Japan CPI report, UK GDP report, $20B 7Y T-Note auction, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Confidence Index, (DHR) analyst event, (SANM) analyst day, (MCD) annual meeting, (FIT) general meeting(FLO) annual meeting, (WDC) Q4 guidance call and the (SYMC) analyst day could also impact trading today.
BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial and consumer 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 day.

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