Monday, May 23, 2016

Tuesday Watch

Evening Headlines

  • Massive Bailout’ Needed in Debt-Saddled China, Analyst Chu Says. Charlene Chu, a banking analyst who made her name warning of the risks from China’s credit binge, said a bailout in the trillions of dollars is needed to tackle the bad-debt burden dragging down the nation’s economy. Speaking eight days after a Communist Party newspaper highlighted dangers from the build-up of debt, Chu, a partner at Autonomous Research, said she was yet to be convinced the government is serious about deleveraging and eliminating industry overcapacity. She also argued that lenders’ off-balance-sheet portfolios of wealth-management products are the biggest immediate threat to the nation’s financial system, with similarities to Western bank exposures in 2008 that helped to trigger a global meltdown. The former Fitch Ratings analyst uses a top-down approach to calculating China’s bad-debt levels as the credit to gross domestic product ratio worsens, requiring more credit to generate each unit of GDP. She’s on the bearish side of the debate about the outlook for China and has sounded warnings since the nation’s credit binge began in 2008.
  • Complicated U.S.-China Dance Could Be Headed for Rough Turn. U.S. Treasury Secretary Jacob J. Lew was about to urge China to move toward a market-based exchange rate when his hosts in Beijing decided the media had heard enough. While Lew addressed Premier Li Keqiang, Chinese officials tried to usher foreign reporters out of the stately reception room at Zhongnanhai, the closely guarded leadership compound next to the Forbidden City. But Treasury aides insisted the journalists stay until the end of Lew’s remarks, adding tension to an otherwise unremarkable photo-op. The Chinese conceded, but the incident in February illustrates the differences lingering between the world’s two biggest economies after more than four decades of diplomacy. 
  • China's Junk-Like 'AAA' Bonds. (video)
  • Asian Stocks Decline as Yen Weighs on Japan, Fed Hawks Speak. Asian stocks fell for the first time in three days, as a stronger yen weighed on exporters in Japan and speculation mounted the U.S. is closer to raising interest rates. The MSCI Asia Pacific Index lost 0.2 percent to 125.91 as of 9:04 a.m. in Tokyo. Japan’s Topix index slid 0.5 percent after the yen climbed 0.8 percent against the dollar on Monday.
  • Oil’s Recovery Under Threat as Tankers Run in Circles Off China. In late February, the tanker Jag Lok loaded oil from Equatorial Guinea in western Africa and set sail for the Chinese port of Qingdao, the gateway to the world’s newest buyers of crude, a journey of more than 12,000 nautical miles. After reaching its destination in early April, the ship churned in circles for 20 days before it got a chance to deliver its cargo. That’s because the port in Shandong province was struggling to handle a record number of vessels arriving to supply the privately held refineries called “teapots” that dot the region, ship-tracking data compiled by Bloomberg show.
  • Fed’s Harker Sees Two to Three Hikes in 2016 as Prices Gain. Federal Reserve Bank of Philadelphia President Patrick Harker said that he could see two to three rate hikes in 2016 and that prices will return towards the central bank’s inflation target over the medium term. “Although I cannot give you a definitive path for how policy will evolve, I can easily see the possibility of two or three rate hikes over the remainder of the year,” he told an audience Monday in Philadelphia. Harker later told reporters that “if the data comes in and it’s not that consistent with my view of the strength in the economy, then I would pause, but otherwise, I think a June rate increase is appropriate.” The policy-setting Federal Open Market Committee next meets June 14-15 in Washington.
  • Tudor Cuts Fees on Biggest Fund to Keep Investors on Board. Tudor Investment Corp., one of the oldest and most expensive hedge funds, is trimming fees as the finance industry’s highest-paid money managers face a growing backlash over their lackluster performance. The $11.6 billion firm, run by billionaire Paul Tudor Jones, will reduce fees for a share class that contains most of its biggest fund’s money to 2.25 percent of assets and 25 percent of profits, starting July 1, according to a letter sent to clients on Monday and obtained by Bloomberg. The fees were 2.75 percent and 27 percent.
Wall Street Journal:
  • A Rare Look Inside China’s Central Bank Shows Slackening Resolve to Revamp Yuan. Minutes of closed-door meetings show how leaders lost interest in making the yuan’s value more market-based; Xi Jinping’s second thoughts. Behind closed doors in March, some of China’s most prominent economists and bankers bluntly asked the People’s Bank of China to stop fighting the financial markets and let the value of the nation’s currency fall.
Fox News:
  • Insurers are looking for Obamacare price hikes. (video) Obamacare plan customers should brace for sticker shock when the administration posts insurers' preliminary rate requests for 2017 this week. Health plans are asking for sharp price increases, after suffering big losses on exchanges in the last two years. Regulators caution that these are preliminary requests and final rates could a lot different. Insurers cite rising drug costs and patients who utilize a lot of medical services for the price-hike requests, which range from 17 percent in New York, and more than 20 percent in Virginia, to 30 percent rate increase requests from Oregon's largest insurers.
Night Trading 
  • Asian equity indices are -.50% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 146.25 +.75 basis points.
  • Asia Pacific Sovereign CDS Index 53.75 +.25 basis point.
  • Bloomberg Emerging Markets Currency Index 70.52 -.13%.
  • S&P 500 futures +.05%.
  • NASDAQ 100 futures +.03%.

Earnings of Note 
  • (AZO)/10.92
  • (BBY)/.35
  • (DSW)/.46
  • (TOL)/.46
  • (CSC)/.68
  • (DY)/.74 
  • (INTU)/3.21
  • (VSAT)/.37  
Economic Releases
10:00 am EST
  • Richmond Fed Manufacturing Index for May is estimated to fall to 8.0 versus 14.0 in April
  • New Home Sales for April are estimated to rise to 523K versus 511K in March.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German ZEW Index, $31B 2Y T-Note auction, weekly US retail sales reports, SuntTrust Financial Services Conference, UBS Healthcare Conference, (CTXS) analyst meeting, (WFC) investor day and the (TSS) 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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