Monday, May 30, 2016

Tuesday Watch

Today's Headlines
  • China's Slowdown Hits Nearby Economies Hardest. Hong Kong and Mongolia alike are feeling the pinch. Those nearest to China are among the hardest hit as growth in the world's second-largest economy grinds to the slowest pace in a quarter century. Hong Kong, Macau, and Taiwan all saw their economies shrink in the first quarter, while Mongolia's commodities-fueled boom has faltered. And the bad news doesn't stop there. "The ripples are likely to spread further out," said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. "As China's economy continues to cool, it will provide an ongoing drag on global output, curtailing inflation pressures in the process and anchoring interest rates in the process. The economic malaise currently experienced by China's immediate neighbors, therefore, is only a portend of a milder version to afflict economies elsewhere as China comes off the boil." That's already the reality facing Hong Kong.
  • The Big Short Is Back in Chinese Stocks. Chinese equities are once again in the cross hairs of short sellers. Short interest in one of the largest Hong Kong exchange-traded funds tracking domestic Chinese stocks has surged fivefold this month to its highest level in a year, according to data compiled by Markit and Bloomberg. The last time bearish bets were so elevated, such pessimism proved well-founded as China’s bull market turned into a $5 trillion rout.
  • Factory Output in South Korea Drops Further Amid Weak Exports. South Korea’s industrial production fell more than economists expected as weak exports and corporate restructuring of shipbuilders continue to hurt demand and business sentiment. Factory output dropped 2.8 percent from a year earlier in April, Statistics Korea said Tuesday, compared with a 1.3 percent decline estimated by economists in a Bloomberg survey. Production fell 1.3 percent from a month earlier. "The negative factory output data trend shows that the foundations of growth are weak," said Suh Dae Il, an economist at Mirae Asset Daewoo Co. "The government’s push to restructure shipbuilders and shipping companies will further hurt domestic demand." 
  • European Stocks Little Changed as Investors Mull U.S. Rate Hike. European stocks were little changed in thin trading as investors considered the implications of a possible increase in U.S. interest rates after Federal Reserve Chair Janet Yellen said a hike is likely in the coming months. The Stoxx Europe 600 Index added 0.1 percent to 350.14 at the close of trading, after briefly rising as much as 0.2 percent, with automakers rising the most.
  • Asian Stocks Little Changed as Investors Weigh Data, Rate Hike. Asian stocks were little changed, poised for the biggest monthly drop since January, as investors assessed economic data and the prospects for higher U.S. interest rates. The MSCI Asia Pacific Index rose less than 0.1 percent to 128.28 as of 9:16 a.m. in Tokyo. The gauge is down 2.2 percent this month, the worst showing since an 8 percent plunge in January, amid investors’ anxiety over the U.S. central bank’s plan to raise interest rates.
  • Fed Outlook Hits Bonds to Emerging-Market Currencies; Oil Climbs. Anxiety over the prospect of a U.S. interest-rate hike as soon as June dominated global trading, battering government debt and most developing-nation currencies. Emerging-market currencies extended losses from Friday, on track for their worst month since August against the dollar after Federal Reserve Chair Janet Yellen signaled Friday that a rate increase is likely some time in the coming months. Gold fell for a ninth day in its longest slump in a year, while Mexican bonds sank with German bunds amid a tumble in 10-year treasury futures. A gauge of global stocks held near a four-week high with trading volumes in the Americas and Europe more than 50 percent below their daily average amid market closures in the U.S. and the U.K. The yen slumped a second day.
Wall Street Journal:
  • Iraqi Forces Begin Ground Assault on Fallujah. The city is one of Islamic State’s most significant remaining strongholds in Iraq. Iraqi special forces advanced to the edge of Fallujah on Monday but struggled to enter the city, where Iraqi and U.S. officials said Islamic State extremists were amassing civilians to serve as human shields.
  • Business Makes Senate Push. U.S. Chamber of Commerce hopes to keep the GOP from losing control of the Senate in November. The country’s biggest business lobby will launch an initiative Tuesday to deploy influential Republicans to raise funds for tight Senate races, hoping to keep the GOP from losing control of the chamber in November.
Fox News: 
  • Former State Dept. watchdog debunks central Clinton email claim. (video) The State Department’s former top watchdog, in an interview with Fox News, rejected Hillary Clinton’s repeated claims that her personal email use was in line with her predecessors’ – while saying he would have immediately opened an investigation if he caught wind of a secretary of state using such an account.
Zero Hedge: 
Financial Times:
  • Iata warns of slowdown in air travel. Global demand for air travel may be “shifting down a gear”, according to Iata, the aviation industry’s main trade body, sounding a warning that will send jitters through the sector.
Night Trading
  • Asian indices are -.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 140.5 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 52.75 -.25 basis point.
  • Bloomberg Emerging Markets Currency Index 70.73 -.1%.
  • S&P 500 futures +.26%.
  • NASDAQ 100 futures +.37%.

Earnings of Note
  • (MDT)/1.26
  • (SCOR)/.26
  • (ITRI)/.34
  • (NX)/.09
  • (WDAY)/.02
  • (ZOES)/.04
Economic Releases
8:30 am EST
  • Personal Income for April is estimated to rise +.4% versus a +.4% gain in March.
  • Personal Spending for April is estimated to rise +.7% versus a +.1% gain in March.
  • PCE Core MoM for April is estimated to rise +.2% versus a +.1% gain in March. 
9:00 am EST
  • The S&P/CS 20 City MoM SA for March is estimated to rise +.7% versus a +.66% gain in February.
9:45 am EST
  • Chicago Purchasing Manager for May is estimated to rise to 51.0 versus 50.4 in April.
10:00 am EST
  • Consumer Confidence for May is estimated to rise to 96.0 versus 94.2 in April. 
10:30 am EST
  • Dallas Fed Manufacturing Activity for May is estimated to rise to -8.0 versus -13.9 in April.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China PMI report, German retail sales report, Australia GDP report, weekly US retail sales reports and the Deutsche Bank Financial Services could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

No comments: