Wednesday, July 06, 2016

Thursday Watch

Evening Headlines
  • Italy, EU Bank Talks Said Stuck on Sharing Burden With Investors. Talks between Italy and the European Commission to recapitalize Banca Monte dei Paschi di Siena SpA and other banks are stuck on whether creditors should face losses if taxpayer funds are used, according to people familiar with the discussions. The plan favored by Italy is for a precautionary recapitalization under the European Union’s bank resolution rules, which allow governments to fund lenders when capital gaps emerge in stress tests, said the people, who could not be named because the talks are private.
  • Is Italy Europe's Next Big Problem? (video)
  • Panic’ Withdrawals Halt Four More U.K. Property Funds. (video) Four more U.K. property funds froze withdrawals as investors sought to dump real estate holdings in the aftermath of Britain’s vote to leave the European Union. Henderson Global Investors, Columbia Threadneedle Investments and Canada Life suspended trading in at least 5.7 billion pounds ($7.4 billion) of funds. Aberdeen Fund Managers Ltd. cut the value of a property fund by 17 percent and briefly halted redemptions so that investors who asked for their money back have time to reconsider. “The problem with open-ended funds is you do start to have panic selling, so you really have no choice but to suspend the fund,” said Jason Hollands, managing director at investment firm Tilney Bestinvest. “There’s an inevitability to this now.” Investors are pulling money from U.K. property funds as analysts warn that London office values could fall by as much as 20 percent within three years of the country leaving the EU.
  • Brexit Trauma Stalks EU as Leaders Brace for More Shocks to Come. Throughout the Cold War, Bratislava stood on the front line of the ideological divide between east and west. Now the Slovak capital situated a stone’s throw from the Austrian border is again at the crux of European history. European Union leaders will gather in the city straddling the Danube River in September, after a summer of “political reflection,” to hammer out a way forward for the bloc in the shock of the post-Brexit world. Soon to be shorn of the bloc’s second-largest economy and buffeted by a rising tide of anti-EU sentiment from Paris to Warsaw, the 27 national leaders will meet knowing that Britain’s vote to leave forces them to weigh change to win back citizens’ support. They just can’t agree on what that should look like.
  • S&P Cuts U.S. Auto Sales View on Slowing Demand, Brexit Effect. S&P Global Ratings cut its estimate for U.S. auto sales this year to 17.5 million vehicles from 17.8 million, citing slowing demand from individual buyers and the effect on the nation’s economy from U.K. voters’ decision to leave the European Union. The revision comes as deliveries last month were at a seasonally adjusted annual rate of 16.6 million, Nishit Madlani, an S&P credit analyst, said in a statement Wednesday. He also said there has been “softness in used car prices.” S&P trimmed its estimate for growth this year in the U.S. economy to 2 percent from 2.3 percent. “In our view, the growth rate of U.S. auto sales will likely slow for the remainder of this year and into 2017,” S&P said.
  • Yuan Tumbling Again Leaves Investors Unperturbed in Win for PBOC. The last time China’s currency was sinking this fast, investors around the world responded by fleeing riskier assets. Now, they’re taking the declines in stride. While the yuan has depreciated 1.7 percent over the past two weeks to the lowest level since November 2010, developing-nation and U.S. equities have held steady over the same period and the VIX volatility index has tumbled. Even the added headwind of Britain’s vote to leave the European Union has failed to derail markets that just six months ago convulsed with every move lower in the Chinese currency.
  • Apple's(AAPL) iPhone Drops to #5 in China Market. (video)
  • Putin’s Military Buildup in the Baltic Stokes Invasion Fears. Vadim Kuznetsov says his excursion-boat business along Russia’s border with Poland has been torpedoed by a new Cold War. “They’re scared,” Kuznetsov said of the Poles, once his main customers, who no longer venture across the border for fishing trips. “What have they got to be afraid of?” he asked, his idle boat moored at a jetty. Some of the explanation is anchored just a few hundred meters away at the main base for Russia’s Baltic Fleet. A minesweeper and a guided-missile cruiser give a hint of the biggest Russian military build-up in the region since Communism collapsed.
  • Yen Gains on Haven Bid as Brexit Hits More U.K. Property Funds. The yen rose for a third day against the dollar as investors continued their rush for the safest assets Thursday, after four more U.K. property funds halted withdrawals, bringing the total to seven this week. Japan’s currency rose against all its developed-market peers as concern escalates about the fallout from the U.K. vote to leave the European Union. The pound held a two-day decline after slumping to a 31-year low Wednesday, with Goldman Sachs Group Inc., Deutsche Bank AG and Citigroup Inc. predicting a further 7 to 11 percent slide this year
  • Asia Stocks Fluctuate as Investors Weigh Global Growth Prospects. Asian stocks swung between gains and losses, after two days of declines, as investors weighed the prospects for global growth and the timing for higher U.S. interest rates. The MSCI Asia Pacific Index climbed 0.2 percent to 128.71 as of 9:11 a.m. in Tokyo, after falling as much as 0.2 percent. Japan’s Topix index was little changed, while stock gauges in Australia and South Korea climbed before markets opened in China. The S&P 500 Index advanced 0.5 percent as data showed the fastest expansion in U.S. services industries in seven months.
  • Gold Assets Top 2,000 Tons as Investors Pour Funds Into Havens. Global gold holdings topped 2,000 metric tons for the first time since July 2013 as the fallout from the U.K.’s vote to quit the European Union fuses with rising speculation that U.S. interest rates won’t rise any time soon to fire up a hunt for haven assets. Holdings in bullion-backed exchange-traded funds rose 4.1 tons to 2,001.4 tons on Wednesday, according to data compiled by Bloomberg. The latest uptick followed an influx of 38.1 tons on Tuesday, the most in tonnage terms in a single day since 2009.
Wall Street Journal:
  • Central Banks Put Squeeze on Sovereign-Debt Market. A buying spree by central banks is reducing the availability of government debt for other buyers and intensifying the bidding wars that break out when investors get jittery.
  • Anti-Donald Trump Forces See Convention Coup as Within Reach. Backing of 28 Rules Committee members would allow a full vote on unbinding delegates. Months after Donald Trump appeared to seal the Republican nomination for president, anti-Trump forces are making one last push to force a vote on the party’s convention floor that would throw open the GOP contest again.
  • The Big-Bank Bloodbath: Losses Near Half a Trillion Dollars. At 20 big banks, plunging share prices this year have erased a quarter of their combined market value. Big banks are nearly half a trillion dollars in the hole. Since the start of 2016, 20 of the world’s bigger banks have lost a quarter of their combined market value. Added up, it equals about $465 billion, according to FactSet data. Brexit isn’t all to blame. True, bank stocks have plummeted since the U.K. voted last month to leave the European Union. But they have been losing value since the start of the year, when a group of factors—the Chinese economy, the path of U.S. interest rates, oil prices—weighed on the markets. More than pride is at stake. Sharp share-price falls will make it much more difficult, and expensive, for banks to raise capital if that is what is ultimately needed to shore up their balance sheets. Just as bad, a serious decline in market value can breed inaction among bank executives. Instead of selling equity when they can, executives may wait for share prices to recover, only to find themselves in a worse situation as stocks drop even further.
Fox News:
  • Clinton email investigation to be closed with no criminal charges, Lynch announces. (video) The investigation into Hillary Clinton's private email server will be closed with no criminal charges, Attorney General Loretta Lynch announced Wednesday. Lynch said in a statement she had accepted the FBI's recommendation that no charges should be brought against Clinton. “Late this afternoon, I met with FBI Director James Comey and career prosecutors and agents who conducted the investigation of Secretary Hillary Clinton’s use of a personal email system during her time as Secretary of State," she said.  
  • Senate Dems block votes on immigration issues, including sanctuary cities. (video) The Republican-controlled Senate failed Wednesday to advance efforts to change federal immigration law -- including one to cut funding to so-called sanctuary cities. The vote was 53-44, failing to get the minimum 60 votes to begin debate on the issue.
Zero Hedge:
Business Insider:
  • U.S. lawmakers to debate measures to block Boeing aircraft sale to Iran. A U.S. House of Representatives panel will debate legislation on Thursday intended to block Boeing Co's planned sale of dozens of commercial aircraft to Iran, which could also affect other planemakers, including Airbus if they became law. A Financial Services subcommittee will debate three measures, including one that would prohibit the U.S. Treasury from licensing the sale announced last month. Another would bar the Treasury secretary for authorizing transactions by U.S. financial institutions connected to the export of aircraft. A third measure would bar the Export-Import Bank from financing involving any entity that does business with Iran or provides financing to another entity to facilitate transactions with Iran.
Night Trading 
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 140.25 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 54.5 +1.0 basis point.
  • Bloomberg Emerging Markets Currency Index 71.94 unch
  • S&P 500 futures -.08%. 
  • NASDAQ 100 futures -.03%.
Morning Preview Links

Earnings of Note

  • (PEP)/1.29
  • (CUDA)/.11
  • (PSMT)/.70
  • (WDFC)/.86
  • (HELE)/1.11
Economic Releases  
7:30 am EST
  • Challenger Job Cuts YoY for June.
8:15 am EST:
  • The ADP Employment Change for June is estimated to fall to 160K versus 173K in May.
8:30 am EST
  • Initial Jobless Claims for last week are estimated at 268K versus 268K the prior week.
  • Continuing Claims are estimated at 2120K versus 2120K prior. 
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,222,220 barrels versus a -4,053,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -288,890 barrels versus a +1,367,00 barrel gain the prior week. Distillate supplies are estimated to fall by -44,440 barrels versus a -1,801,000 barrel decline prior. Finally, Refinery Utilization is estimated to rise +.3% versus a +1.7% gain prior.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The German Industrial Production report, Japan Trade Balance report, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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