Sunday, July 24, 2016

Monday Watch

Today's Headlines
  • EU Considers Migration ‘Emergency Brake’ for U.K., Observer Says. The European Union is considering giving the U.K. a seven-year exemption from rules allowing free movement of people while permitting it to maintain access to the single market, The Observer newspaper reported. The plan is just one idea being discussed as part of Brexit negotiations and the talks are still in early stages, the Observer said, citing high-ranking U.K. officials it didn’t identify. Under the plan, the U.K. would continue paying contributions to the EU budget, the paper said.
  • Deadliest Afghan Attack in 15 Years Shows Islamic State Potency. President Ashraf Ghani’s claim four months ago to have wiped out Islamic State in Afghanistan was shattered Saturday when the militant group struck the capital, Kabul, the country’s deadliest attack in 15 years of war. More than 80 people were killed and another 231 were wounded when suicide bombers triggered two explosions at a rally by hundreds of ethnic Hazaras on Saturday, according to an e-mailed statement via the Afghanistan Interior Ministry. A third bomber was shot dead by police before detonating an explosive vest. “The attacks by ISIS reveal how far the group has gone beyond its bases in the eastern region," Ahmad Saeedi, a former Afghan diplomat in Pakistan, said by phone. “The U.S., Afghanistan and international community must go after them to destroy these new wolves before they destroy us." 
  • G-20 Pledges to Use All Tools to Fight Weak Global Recovery. The Group of 20 economies reiterated a pledge to use all policy tools to help boost confidence and growth, while stepping up an emphasis on fiscal and structural measures rather than pumping additional monetary stimulus. "The global economic recovery continues but remains weaker than desirable," finance ministers and central bank governors from the world’s top developed and emerging nations said in a joint communique at the close of a two-day gathering in Chengdu, China Sunday. "We will carefully calibrate and clearly communicate our macroeconomic and structural policy actions to reduce policy uncertainty, minimize negative spillovers and promote transparency." 
  • World Bank’s Kim Sees Disappointing Growth on Brexit. World Bank President Jim Yong Kim said continued uncertainty following the U.K.’s vote to leave the European Union could hurt global growth.
  • Asian Defaults Are Just Getting Started
  • Yuan Flunks Fed Haven Test as IMF Prepares It for Reserve Basket. Just two months before it is to be included in the International Monetary Fund’s influential basket of global reserve currencies, a new report distributed by the Federal Reserve is casting doubt on the ability of China’s yuan to achieve haven status for investors. While the yuan performed better than some of its major peers from 2011 through late 2015, its relative value has fallen since then against the traditional haven currencies as market volatility increased, according to a study published last week. The report tested the relationship between a gauge of stock-market price swings and the value of the yuan against the U.S. dollar, yen, euro, the British pound and the Swiss franc, currencies perceived as safe exchange rates because their value rises relative to others during uncertainty.
  • Japan Exports Down for 9th Month. Exports to the U.S. fell 6.5 percent in June from a year earlier, while shipments to the EU declined 0.4 percent and sales to China, Japan’s largest trading partner, dropped 10 percent.
  • Overwhelming Majority See More Stimulus From Kuroda This Week. Haruhiko Kuroda hasn’t faced such intense expectations for more monetary stimulus anytime since his debut meeting as Bank of Japan governor in 2013. Thirty-two of 41 analysts forecast that Kuroda and the BOJ board will expand their record program at the two-day meeting ending on July 29, according to a Bloombergsurvey conducted July 15-22. That is the highest percentage of respondents in any poll since his first decision more than three years ago, when economists were unanimous in estimates that Kuroda would add to easing.
  • Gloss Comes Off Dubai as Oil Woes Spill Into Expat Promised Land
  • Deutsche Bank(DB) Set for Investor Scrutiny as Short Sellers Circle. The quarterly update on Wednesday comes nine months after Cryan announced plans to cut thousands of jobs and shrink risky assets to boost profitability and capital levels. The chief executive officer has since had to put the sale of German consumer lender Deutsche Postbank AG on hold, scrap the development of a “digital bank” and contend with the departure of several senior bankers.
  • Apple’s(AAPL) China Problem Is That Local Phones are Good -- and Cheap. For Beijing resident Nie Miao, spending 5,000 yuan ($749) on a new iPhone 6S from Apple Inc. “just isn’t an option.” That’s because the lion’s share of his 7,000 yuan monthly pay goes toward the mortgage on the downtown apartment he bought last year. And he’s perfectly happy with the 2,000 yuan handset he got from Huawei Technologies Co. The 29-year-old embodies the challenges in China for Apple, which has lost ground to local competitors.
  • Nintendo Set to Plunge After Saying Pokemon Go’s Impact Limited. Shares are set to open at about 23,235 yen, down 17 percent from Friday’s close, according to the exchange order book as of 9:01 a.m. in Tokyo. Its U.S.-listed shares dropped 11 percent on Friday in New York. The company cannot fall more than 18 percent today in Tokyo, as per exchange rules on the maximum a stock can move per day.
  • Saudi Stocks Lead Gulf Equity Drop as Trading Volumes Plummet. Saudi Arabian stocks led a retreat across Gulf Arab equities as trading volumes plunged. Four benchmark gauges in the six-nation Gulf Cooperation Council declined, with Bloomberg’s GCC 200 Index posting its longest losing streak in two months. Saudi Arabia’s Tadawul All Share Index dropped 1.2 percent as trading volumes sank 23 percent below the six-month average. Dubai’s DFM General Index lost 0.8 percent as about 123 million shares were traded, 59 percent below the average.
  • Asian Stocks Rise as Yen Boosts Japan, Investors Await Fed, BOJ. The MSCI Asia Pacific Index gained 0.1 percent to 134.14 as of 9:01 a.m. in Tokyo, with utilities and financial shares leading the advance. The BOJ iswidely expected to add to stimulus at the end of a two-day meeting on July 29, with 32 of the 41 analysts surveyed by Bloomberg predicting policy makers will expand their record program. Futures traders see the odds of the Fed raising interest rates on Wednesday at just 10 percent.
  • Oil Trades Near Two-Month Low as U.S. Drilling Gains Amid Glut. Oil traded near the lowest close in two months as U.S. producers increased drilling amid a global glut. Futures were little changed in New York after slipping 3.8 percent last week. Rigs targeting oil in the U.S. rose for a fourth week to 371, the longest run of gains since August, Baker Hughes Inc. said Friday. Money managers added the most bets in a year on falling West Texas Intermediate prices during the week ended July 19, according to Commodity Futures Trading Commission data.
  • Oil Bulls Headed Over Demand Cliff as Refinery Shutdowns Loom. Beware, oil bulls: Just as U.S. oil production sinks low enough to drain supplies, demand is about to fall off a cliff. American gasoline consumption typically ebbs in August and September as vacationers return home, and refiners use that dip to shut for seasonal maintenance. Over the past five years, refiners’ thirst for oil has dropped an average of 1.2 million barrels a day from July to October.
Wall Street Journal:
Zero Hedge: 
  • PBOC Adviser Sees Downward Pressure on China Economy. Downward pressure on Chinese economy is still fairly strong, PBOC adviser Bai Chongen said. Tax cuts would be more effective in boosting growth than interest rate reductions at this point, he said.
People's Daily:
  • China Auto Industry May Face Overcapacity Risks. China will have to face the problem of structural overcapacity in the auto industry with the slowing down of the market growth. Producer's capacity utilization for passenger cars with 81% in 2015 while that for commercial vehicles was only 52%, citing report covering 37 major auto producers. China's auto industry needs to act early to prevent and defuse overcapacity risks, the report said.
Night Trading
  • Asian indices are unch. to +.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 118.25 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 47.5 -.5 basis point.
  • Bloomberg Emerging Markets Currency Index 72.19 -.09%.
  • S&P 500 futures +.13%.
  • NASDAQ 100 futures +.14%.

Earnings of Note
  • (DHR)/1.22
  • (KMB)/1.47
  • (PETS)/.31
  • (COL)/1.58
  • (S)/-.08
  • (AVB)/2.04
  • (ESRX)/1.57
  • (GILD)/3.02
  • (LVS)/.56
  • (TXN)/.77 
Economic Releases
10:30 am EST
  • The Dallas Fed Manufacturing Index for July is estimated to rise to -8.0 versus -18.3 in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German IFO Index and the 2Y T-Note auction could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial 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 week.

No comments: