Tuesday, May 10, 2016

Wednesday Watch

Posted by Gary .....at 10:31 PM
Evening Headlines
Bloomberg: 
  • China Coal Province GDP Just Enough to Repay Its Miner Debts. Debt of mining companies in China’s leading coal province has ballooned to about the same level as its annual economic output, casting doubt over the ability of the regional authority to backstop their new bonds. The Shanxi government plans to guarantee note sales from seven coal producers owned by the northern province, people familiar with the matter said earlier this month. Total debt of those firms climbed to 1.2 trillion yuan ($184 billion) at the end of 2015, just 100 billion yuan less than the province’s gross domestic product that year, according to a May 5 report from Citic Securities Co. Shanxi Jincheng Anthracite Mining Group Co., one of the seven firms, had to offer investors nearly double the yield of similarly-rated notes when it sold AAA rated five-year bonds at the end of last month. “Investors are avoiding coal companies right now so it will get harder for them to issue new debt,” said Li Ning, the general manager of the fixed-income department at Western Securities Co. in Beijing. “Plus the Shanxi government supporting the region’s coal companies is financially weak.” 
  • RBNZ `Seriously Looking' at More Policies to Curb Housing Boom. New Zealand’s central bank said it is looking at additional lending restrictions to help curb the nation’s booming housing market. “It’s fair to say we’re seriously looking at macro-prudential” policies, Reserve Bank Governor Graeme Wheeler said at a news conference Wednesday in Wellington following the release of the semi-annual Financial Stability Report. There is no specific timetable for introducing extra restrictions because the bank is still doing its analysis and needs to consult with the government, he said.
  • Japan's Biggest Traders See No Commodities Recovery in Sight. Japan’s top trading houses see no recovery on the horizon for the commodities crash that forced some of the first-ever annual losses by the champions of the nation’s economy, accelerating their shift away from energy and raw materials. The country’s five biggest traders all expect further declines in oil, which has already slumped about 60 percent over the past two years. Mitsubishi Corp. sees prices sliding 19 percent in the current fiscal year, while rival Mitsui & Co. sees a 15 percent decline. Itochu Corp. sees Brent, the global benchmark, slumping almost 29 percent. 
  • Churn, Baby, Churn: China's Commodity Frenzy. (video)
  • Asian Stocks Rise for Second Day Amid Rally in Commodity Prices. Asian stocks rose, with the regional benchmark index heading for a second day of advance, as Japanese shares rallied amid a recovery in commodity prices. The MSCI Asia Pacific Index added 0.3 percent to 127.99 as of 9:02 a.m. in Tokyo. The bearish sentiment that hit traders in the past two weeks eased amid a bounce in commodities, with U.S. stocks rising the most in two months on Tuesday. Japan’s Topix index gained 0.9 percent as the yen traded near a two-week low.
  • Bulk of Canada's Oil-Sands Plants Seen Starting in Days to Weeks. Canadian oil-sands facilities representing more than 90 percent of production taken offline during a wildfire in northern Alberta have emerged unscathed and are expected to restart within days to a couple of weeks. Mines and drilling projects north of Fort McMurray are already bringing back some of the roughly 1 million barrels a day of supply that was curbed, Steve Williams, chief executive officer of the nation’s largest energy company Suncor Energy Inc., said Tuesday, speaking for the industry. Facilities south of the energy hub that represent much less of the lost supply and were more affected by the fire may take longer, he said.
  • Gold Climbs on Investment Demand as Goldman Raises Forecast. Gold climbed for a second day as assets in bullion-backed funds rose to their highest since December 2013 and Goldman Sachs Group Inc. raised its price forecasts. Bullion for immediate delivery rose 0.3 percent to $1,269.40 an ounce at 9:35 a.m. in Singapore, according to Bloomberg generic pricing. Prices ended 0.2 percent higher on Tuesday after sinking to $1,256.96, the lowest intraday level since April 28, as the dollar fell for the first time since six days, making commodities less expensive in other currencies.
  • Burbank Sees U.S. Recession, China Devaluation Within Year. John Burbank, the hedge fund manager who in 2015 warned of a China-led global economic slowdown, said he expects a “major” Chinese currency devaluation and a U.S. recession within the next year as debt levels rise and central banks are stymied on monetary policy. China will enter a liquidity crisis with the largest sum of non-performing debt in the world, Burbank, the founder of $4.1 billion Passport Capital, said in a May 5 investor letter. The U.S. economy will contract at a time when the Federal Reserve has the fewest options in history to cut interest rates, he said. “For both it will be a normal ending after decades of extending their booms,” Burbank said in the letter obtained by Bloomberg. “We think this is a time full of peril and repositioning that heralds either the start of a new market reality, i.e. inflation and too much liquidity, or the beginning of the liquidation.”Burbank, who bet against U.S. housing a decade ago, is among the U.S. macro investors to sound the alarm on global markets. Billionaire Stan Druckenmiller said last week that the U.S. equities bull market has "exhausted itself" and George Soros contends China resembles the U.S. slump of 2007-08.
  • Three More Signs Smartphone Downturn Is Going From Bad to Worse. For investors contemplating prospects for the smartphone market after a shaky earnings report from Apple Inc., Asian suppliers just provided a few hints: It’s going to get worse before it gets better. Three suppliers that seldom command much attention, working behind the scenes to make devices sold under the brands of better-known customers, put out back-to-back earnings reports Tuesday. They spell trouble ahead for smartphone makers and other companies that once thrived on mobile mania. Pegatron Corp., which assembles iPhones, missed profit expectations and said April sales dived 16 percent. Minebea Co., which makes LED lights for mobiles, lagged its own forecasts for revenue and earnings. Japan Display Inc., which supplies screens to Apple and others, said profit has deteriorated so rapidly it will lose money for the fiscal year and suspend a promised dividend. Adding to the gloom, Lenovo Group Ltd. tumbled to a four-year low as analysts warned of rising competition.
Wall Street Journal:
Fox News:
Zero Hedge:
Business Insider:
Telegraph: 
Economic Information Daily:
  • China Should Avoid Short-Term A-Share Intervention. State-backed funds such as the China Securities Finance Corp. should be long-term investors in the A-share market and avoid short-term intervention, according to a front-page commentary.
Night Trading 
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 143.0 -3.0 basis points. 
  • Asia Pacific Sovereign CDS Index 52.75 -1.75 basis points. 
  • Bloomberg Emerging Markets Currency Index 71.92 +.02%. 
  • S&P 500 futures -.18%. 
  • NASDAQ 100 futures -.15%.
Morning Preview Links

Earnings of Note
Company/Estimate 
  • (CSIQ)/.18
  • (M)/.37
  • (WEN)/.06
  • (JACK)/.70
  • (NTES)/2.43
  • (SINA)/.03
  • (WB)/.04
Economic Releases 
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -144,440 barrels versus a +2,784,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -666,670 barrels versus a +536,000 gain the prior week. Distillate inventories are estimated to fall by -660,000 barrels versus a -1,261,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.49% versus a +1.6% gain prior.    
2:00 pm EST
  • The Monthly Budget Statement for April is estimated at $107.0B versus $156.7B  in March.   
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The UK Manufacturing PMI, $23B 10Y T-Note auction, weekly MBA Mortgage Applications report, Jefferies Tech conference, (CSX) general meeting and the (BA) investor conference 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 day.

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