Thursday, July 07, 2016

Friday Watch

Evening Headlines
  • EU Has a Tough Balancing Act in Weighing Spain, Portugal Fines. The European Union is in a political bind as it looks into the unprecedented step of slapping sanctions against Spain and Portugal for breaching budget-deficit limits. The European Commission is seeking the go-ahead from finance ministers to propose fines and a suspension of some EU regional-development funding after concluding that Spain and Portugal took inadequate steps to narrow deficits. Should the finance ministers support the request as soon as next week, the commission would have 20 days to propose a set of penalties. Any fines could be as high as 0.2 percent of the countries’ gross domestic product, while the possible freezing of regional funds could be up to 0.5 percent of their GDP. The EU has three broad options, which involve different strategic considerations.
  • Xi Boosts Party Say in China’s $18 Trillion State Company Sector. Chinese President Xi Jinping is putting more of the "state" in "state-owned enterprise." Carmaker FAW Car Co., fiber producer Sinoma Science & Technology Co. and miner Tibet Mineral Development Co. have recently modified their bylaws to give Xi’s Communist Party more oversight of management decisions. For example, company boards will now have an obligation to listen to internal party committees before making major decisions. "Communist Party officials are stepping up intervention in day-to-day operations of state-owned corporations," said Xu Baoli, a senior researcher with the State-owned Assets Supervision and Administration Commission, the government’s main SOE regulator. "There were cases in the past where the board would reject a proposal that had gone through the party. I doubt whether that will happen in the future."
  • S&P Puts Australia Banks on Watch. (video)
  • Shoppers Tightening Purse Strings Make Japan’s Retailers See Red. Japan’s discount-seeking shoppers drove some retailers into the red last quarter as an uncertain economic outlook persuaded consumers to tighten their purse strings. Supermarkets and clothing stores will probably cut prices more to spur sluggish sales, which caused Aeon Co., the nation’s biggest retailer by sales, to report its worst first quarter in eight years -- a 6.3 billion yen ($62 million) loss. Seven & i Holdings Co. posted operating profit that missed analysts’ estimates as its department store business that includes retailer Sogo & Seibu widened its operating loss to 1 billion yen.
  • Boeing’s(BA) Agreement With Iran Comes Under Congressional Scrutiny. Boeing Co.’s historic agreement to provide 109 aircraft to Iran’s national airline is coming under increasing pressure from lawmakers in Washington. “I am extremely concerned that by relaxing the rules, the Obama administration has allowed U.S. companies to be complicit in weaponizing the Iranian regime,” Republican Representative Bill Huizenga of Michigan said Thursday at a hearing of a House Financial Services subcommittee.
  • Brazil Real Extends Five-Day Decline as Central Bank Intervenes. Brazil’s real dropped as commodities traded lower and the central bank intervened for a fifth consecutive day to weaken the currency. The real declined 1.1 percent to 3.3675 per dollar Thursday as the monetary authority placed all 10,000 reverse swaps it offered, equivalent to buying $500 million in the futures market. The currency has declined 4.6 percent this month, the most in the world.
  • Asian Stocks Head for Weekly Decline Ahead of U.S. Jobs Report. Asian stocks headed for a weekly decline as investors awaited a monthly U.S. jobs report to assess its implications for monetary policy. The MSCI Asia Pacific Index added 0.1 percent to 129.08 as of 9:06 a.m. in Tokyo, on course for a 0.4 percent retreat this week as concern over the fallout from the U.K.’s vote to leave the European Union returned to markets. Energy shares declined after crude fell to an almost two-month low on Thursday on renewed fears of oversupply in America. Taiwan shut financial markets and some offices Friday as Typhoon Nepartak approached the island.
  • Big Oil’s $45 Billion of New Projects Signal Spending Revival. Two projects worth $45 billion announced this month show the world’s largest oil companies are regaining the confidence to make big investments, emboldened by rising crude prices and low costs that promise to trigger more expansion ahead. Chevron Corp. gave the go-ahead to a $37 billion expansion in Kazakhstan, the industry’s biggest undertaking since crude started tumbling two years ago. BP Plc signed off on the $8 billion expansion of a liquefied natural gas plant in Indonesia. Two more big projects are likely to get a green light this year, according to industry consulting firm Wood Mackenzie Ltd. and Jefferies International Ltd. -- BP’s Mad Dog Phase 2 in the Gulf of Mexico and Eni SpA’s Coral LNG development off Mozambique.
  • Australia Cuts 2017 Iron Ore Forecast 20% on Outlook for Supply. The world’s biggest iron ore shipper cut its outlook for prices next year by 20 percent as the global market remains well supplied, loss-making mines are still churning out production and steel output in China is set to shrink further. Iron ore is seen at $44.80 a metric ton next year, Australia’s Department of Industry, Innovation and Science said in a quarterly report on Friday. That compares with its previous forecast of $56 given in the March quarter. The prediction for 2016 was little changed at $44.20 a ton from $45.
Wall Street Journal:
Fox News:
  • State Department reopens Clinton emails probe. The State Department is reopening an internal investigation of possible mishandling of classified information by Hillary Clinton and top aides. Spokesman John Kirby says the emails probe is restarting now that the Justice Department isn't pursuing a criminal prosecution. The State Department suspended its review in April to avoid interfering with the FBI's inquiry. Kirby set no deadline for the investigation's completion. Clinton was secretary of state until early 2013. Most of her top advisers left shortly thereafter. But Kirby said this week former officials can still face "administrative sanctions." The most serious is loss of security clearances, which could complicate Clinton's naming of a national security team if she becomes president. Beyond the Democratic front-runner, the probe is most likely examining confidants Cheryl Mills, Jake Sullivan and Huma Abedin.
  • Fox News Electoral Map: Clinton has 2016 edge, but many toss-ups in play. Utilities, a sector traditionally viewed as a safety play in times of market turmoil, have risen 21.2% in the first half of 2016—the sector’s best first-half performance in over 25 years. But if you ask some analysts, the run-up in prices leaves the sector extremely overextended and valuations dangerously high; some analysts believe the sector is in bubble territory.
Zero Hedge:
Business Insider:
China Securities Journal:
  • Risks in China's Credit Market Remain High in 2H. Cos.' profitability and internal cash flows continue to deteriorate in recent years amid economic restructuring, resulting in weakening debt payment ability, according to a commentary published on the front page, written by reporter Zhang Qinfeng. Credit risks will keep accumulating as pressure from bonds due in 2H won't ease and investors may continue to favor safer assets, he said.
Night Trading 
  • Asian equity indices are -.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 139.25 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 54.0 -.5 basis point.
  • Bloomberg Emerging Markets Currency Index 71.90 +.03%
  • S&P 500 futures +.02%. 
  • NASDAQ 100 futures -.01%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases  
8:30 am EST
  • The Change in Non-Farm Payrolls for June is estimated to rise to 180K versus 38K in May.
  • The Unemployment Rate for June is estimated to rise to 4.8% versus 4.7% in May.
  • Average Hourly Earnings MoM for June are estimated to rise +.2% versus a +.2% gain in May. 
3:00 pm EST:
  • Consumer Credit for May is estimated to rise to $16.0B versus $13.416B in April.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The German Export/Import data could also impact trading today.
BOTTOM LINE:  Asian indices are mostly lower, weighed down 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 day.

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