Monday, May 09, 2016

Tuesday Watch

Evening Headlines

  • The World's Most Extreme Speculative Mania Unravels in China. From the Dutch tulip craze of 1637 to America’s dot-com bubble at the turn of the century, history is littered with speculative frenzies that ended badly for investors. But rarely has a mania escalated so rapidly, and spurred such fevered trading, as the great China commodities boom of 2016. Over the span of just two wild months, daily turnover on the nation’s futures markets has jumped by the equivalent of $183 billion, outpacing the headiest days of last year’s Chinese stock bubble and making volumes on the Nasdaq exchange in 2000 look tame. What started as a logical bet -- that China’s economic stimulus and industrial reforms would lead to shortages of construction materials -- quickly morphed into a full-blown commodities frenzy with little bearing on reality. As the nation’s army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu.
  • Brazil Impeachment Resumes Bumpy Course After House Challenge. (video) Brazil’s political system fell further into disarray on Monday when the new head of the lower house annulled that body’s vote to impeach President Dilma Rousseff while the chief of the Senate said he would go ahead anyway with hearings on the ouster. The announcement by the Senate head seemed to take precedence and suggested that the drive to impeach Rousseff was back on track after a day of chaos. But the Supreme Court might still get involved. If the proceedings go back to the lower house they could delay by weeks a Senate vote expected as early as Wednesday on whether to put the unpopular president on trial and temporarily remove her from office. She is charged with illegally using state banks to plug a hole in the budget, and newspaper surveys show the opposition has the majority it needs to win in the Senate.
  • Ringgit Falls to Six-Week Low as Oil Slide Spurs Export Concern. Malaysia’s ringgit fell to the lowest level in more than six weeks after the dollar strengthened and crude prices tumbled. The ringgit dropped 0.9 percent to 4.0512 per dollar as of 8:35 a.m. in Kuala Lumpur and earlier reached 4.0525, the weakest since March 25, according to prices from local banks compiled by Bloomberg. Brent extended declines Tuesday after sinking 3.8 percent overnight, casting doubt over the sustainability of a recent rebound in energy prices and reviving concern about Malaysia’s oil export earnings.
  • Asian Stocks Outside Japan in Longest Losing Streak Since 2000. Asian stocks outside Japan dropped, with a regional benchmark index heading for its longest losing streak since September 2000, as commodity producers fell with crude oil and industrial metals. Japanese equities climbed as the yen weakened. The MSCI Asia Pacific excluding Japan Index fell 0.4 percent to 401.08 as of 9:07 a.m. in Tokyo, heading for a 10th day of losses. Stocks around the world have lost momentum over the past two weeks amid simmering pessimism over the pace of global growth and lackluster corporate earnings.
  • Why Are Iron Ore Prices in Free Fall? (video)
  • Riding the ‘Solarcoaster’ as Shares Plunge Even More Than Coal. For all the upbeat forecasts about the growth of solar power, this is a punishing year for the industry. And it won’t improve anytime soon. SunEdison Inc., the world’s biggest clean-energy company, is bankrupt. Yingli Green Energy Holding Co., once the top panel maker, warned it may be inching toward default. A Bloomberg index of 20 major solar companies has plunged more than 30 percent this year, with every member in the down column. Solar shares are performing even worse than coal stocks. 
  • Summer Swoon? Why the S&P 500 Might Retest the Lows. (video)
  • Gap(GPS) Plummets After Comeback Plan Fails to Revive Sales Growth. Gap Inc. shares plunged as much as 15 percent in late trading after the apparel chain posted disappointing results, a sign the company’s much-vaunted springtime comeback hasn’t materialized. Same-store sales -- a key benchmark -- dropped 7 percent in April, the San Francisco-based retailer said in a statement Monday. Analysts had predicted a gain of 1.1 percent, according to Retail Metrics. Preliminary earnings ranged from 31 cents to 32 cents a share in the first quarter, well below the 44 cents estimated by analysts.
  • SolarCity(SCTY) Shifting Strategy Spurs Questions About Business Model. “What is SolarCity?” The question, from Ben Kallo, an analyst at Robert Baird & Co., came after SolarCity Corp. pulled back its installation estimate for the third time in seven months, and announced a loan program for residential solar customers. Those are significant shifts for SolarCity, which became the the biggest U.S. rooftop installer by offering leases and pursuing growth at any cost. Analysts have become frustrated trying to keep pace with the changes in strategy and revised forecasts.
Wall Street Journal:
  • Wall Street Cops to Hedge Funds: Treat Investors Better. Regulators ramp up scrutiny, with investigations focusing on how thinly traded investments are valued. Regulators are ramping up a new approach in policing the $3 trillion hedge-fund industry, focusing on how fairly managers treat their investors. The tack has emerged in a series of recent investigations into the way hedge funds value their thinly traded holdings and how they respond when investors ask for their money back.
  • Hillary: The Conservative Hope. The right can survive liberal presidents. The best hope for what’s left of a serious conservative movement in America is the election in November of a Democratic president, held in check by a Republican Congress. Conservatives can survive liberal administrations, especially those whose predictable failures lead to healthy restorations—think Carter, then Reagan. What isn’t survivable is a Republican president who is part Know Nothing, part Smoot-Hawley and part John Birch. The stain of a Trump administration would cripple the conservative cause for a generation.
Fox News:
Zero Hedge:
Business Insider:
Night Trading 
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 146.0 +.25 basis point. 
  • Asia Pacific Sovereign CDS Index 54.50 -.5 basis point. 
  • Bloomberg Emerging Markets Currency Index 71.77 -.02%. 
  • S&P 500 futures +.10%. 
  • NASDAQ 100 futures +.17%.
Morning Preview Links

Earnings of Note

  • (AGN)/3.02
  • (CS)/-.08
  • (DF)/.38
  • (LL)/-.23
  • (SODA)/.11
  • (EA)/.42
  • (FOSL)/.16
  • (JAZZ)/2.32
  • (DIS)/1.40
Economic Releases 
6:00 am EST
  • The NFIB Small Business Optimism Index for April is estimated to rise to 93.0 versus 92.6 in March.    
10:00 am EST
  • Wholesale Inventories MoM for March are estimated to rise +.1% versus a -.5% decline in February.
  • Wholesale Trade Sales MoM for March are estimated to rise +.5% versus a -.2% decline in February.
  • JOLTS Job Openings for March are estimated at 5450 versus 5445 in February.   
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The German Industrial Production report, $24B 3Y T-Note auction, weekly US retail sales reports, USDA WASDE report, Oppenheimer Industrial Growth Conference, Citi Energy/Utilities Conference, BofA Healthcare Conference, BofA Metals/Mining/Steel Conference, Wells Fargo Industrial/Construction Conference, (WTW) annual meeting, (COP) annual meeting, (TSM) April Sales report and the (HAE) analyst meeting 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 modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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