Sunday, August 07, 2016

Monday Watch

Today's Headlines
  • Putin Senses Syria Victory That’ll Cement Assad, Confound U.S. Vladimir Putin may be on the cusp of a pivotal victory in Syria’s civil war that would make it much harder for the U.S. to achieve its stated goal of ousting Bashar al-Assad without a major military escalation. Assad’s troops, backed by Russian air power, are bearing down on rebels entrenched in Aleppo, Syria’s most populous city before fighting erupted in 2011. Reclaiming Syria’s commercial capital would give Assad control over all major population centers and cement his hold on a contiguous swath of land from Turkey to Jordan that makes up almost half of the country. “Russia will stick to its guns in Syria and show the whole world we are right,” Frants Klintsevich, deputy head of the defense committee in the upper house of parliament, said by phone from Moscow. Driving the last rebel groups out of Aleppo within a few months is now “quite realistic,” he said.
  • Hostile Raid on China Developer Flashes Shadow-Banking Warnings. China’s most high-profile battle for corporate control is casting a spotlight on one of the murkiest corners of its booming shadow-banking system. For almost eight months, the nation’s biggest developer, China Vanke Co. has been trying to fend off a little-known firm it depicts as a corporate raider. Amid the finger-pointing, a more important issue for regulators and investors in China’s securities markets may lie in the way the investor -- Baoneng Group --- has financed some of its stock purchases to become Vanke’s biggest shareholder. Baoneng used funding structures known as asset-management plans, or AMPs, to help amass a 25.4 percent stake worth around 43 billion yuan ($6.5 billion) in Vanke. Backed by banks already burdened with surging bad loans, such products have become a popular way of financing stock purchases. The concern is that these funds use leverage, exposing banks and other investors to losses in the event of a steep decline in share prices. They’re also fanning a debate about whether shadow-banking risks are threatening to engulf the Chinese financial system.
  • The Seven-Year Short. Mark Hart of Corriente Advisors has been betting that China’s currency will collapse. He’s not about to give up now.
  • Iran Hangs Nuclear Scientist for Giving U.S. Secret Information. Iran said it executed a nuclear scientist accused of having provided “secret information” to the U.S., confirming earlier reports of his death by foreign media. Shahram Amiri “was hanged for spying for the U.S.,” Tasnim news agency reported, citing judicial spokesman Gholamhossein Mohseni-Ejei. Amiri had access to secret information and “established contact with Iran’s number 1 enemy, meaning the U.S., and relayed essential intelligence,” Mohseni-Ejei said. The U.S. transferred Amiri to its territory via Saudi Arabia, Mohseni-Ejei said without providing details, saying Iran had been aware of his contacts with U.S. intelligence services. Following his return to Iran, Amiri was tried and sentenced to death, the official said, refuting statements he had been sentenced to 10 years in jail.
  • Aussie AAA at Risk Prompts Push by Treasurer on Budget Savings. Australia’s Treasurer Scott Morrison warned of risks to the nation’s top credit rating and urged opposition and minor party lawmakers to back plans aimed at reining in the budget deficit. Australia’s credit score “remains more generally under risk because of the impact of global parameters hitting our budget,” Morrison said in a television interview on Sunday with Sky News. “It will be difficult to retain that rating under existing economic circumstances, and we’ll work very hard to achieve it, but what makes that job easier is passing savings that restore the budget to balance.”
  • Asia Stocks Rise, Led by Japan, as Yen Falls After U.S. Payrolls. Asian stocks rose as the yen weakened after a strong U.S. jobs report, sending Japanese exporters higher. The MSCI Asia Pacific Index climbed 0.2 percent to 136.04 as of 9:00 a.m. in Tokyo. Japan’s Topix index gained 1.1 percent after nonfarm payrolls climbed by 255,000 last month, exceeding all forecasts in a Bloomberg survey of 89 economists. The yen fell 0.3 percent to 102.08 per dollar, after dropping 0.6 percent on Friday as demand for haven assets waned.
  • Singapore Faces Risk of More Oil Bond Defaults. Singapore bondholders and lenders, already stung by Swiber Holdings Ltd.’s woes, face mounting pain as a drop in oil leaves more companies in the industry starved for cash. Investment bank UOB Kay Hian Pte warned last week that the sector may suffer a "cascade" of defaults. Bank of Singapore Ltd. said sustained weakness in crude prices could increase risks. Oil-related firms face S$1.4 billion ($1 billion) of Singapore dollar bonds maturing through 2018, with S$325 million due by the year end, according to Bloomberg-compiled data. The borrowing that helped build one of Singapore’s biggest export industries is showing signs of strain as crude has tumbled about 19 percent from its high for the year in June. The pain is part of a broader global trend in which smaller, independent oil and gas companies have stumbled. U.S. firms Halcon Resources Corp. and Atlas Resource Partners LP filed for bankruptcy at the end of July.
  • Western Europe’s Biggest Oil Producer Has a Surprise for Markets. If oil production continued to exceed at the same pace for the remainder of the year, it would rise to 91.5 million cubic meters from 90.8 million cubic meters in 2015, Bloomberg calculations based on NPD figures show. That would defy a forecast drop and mean output unexpectedly rose for a second year. It would also be a third consecutive annual increase, after output halved from a peak in 200.
  • Libya Starts Work at Biggest Oil Port in Step to Increase Output. Libya has started maintenance work at Es Sider port, the nation’s largest oil export terminal, as part of plans to increase output from Africa’s biggest holder of crude reserves. Exports should resume in a month once official orders are received to reopen the port, Galal Mohamed, head of operations at Waha Oil Co. , said in a phone interview Sunday from Libya’s eastern city of Ras Lanuf. Es Sider, operated by Waha Oil, has been closed since December 2014 when armed groups attacked the port. 
  • Steinhoff to Acquire Mattress Firm for About $2.4 Billion. Steinhoff International Holdings NV agreed to buy Mattress Firm Holding Corp. for about $2.4 billion, a deal that vaults the South African discount retailer into the U.S. market while creating the world’s largest bedding giant.
Wall Street Journal:
Fox News:
  • ISIS claims to have captured trove of U.S. military gear. (video) ISIS fighters in Afghanistan claimed to have recently seized a trove of sensitive U.S. military equipment – including communications gear, a rocket launcher and the ID card of a U.S. soldier –but it remains unclear how the items came into the terror group’s possession.
Zero Hedge:  
Financial Times:
  • Fed’s Powell warns US at risk of being trapped in low growth. Era of weak long-term growth a rising concern for central bank’s board member. There is an increasing risk that the US economy has become trapped in a prolonged period of subdued growth that requires lower official rates than was previously expected, a leading Federal Reserve policymaker has warned.
China Securities Journal:
  • China 2016 Property Investment Growth May Be Less Than 5%. Property development investment will slow in 2H as the date lags behind sales by 6 months, a team of researchers at the State Information Center writes. Room for interest rate cut is limited, he said. Transactions in second-tier cities will drop in 2H.
Night Trading
  • Asian indices are +.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 116.25 -3.25 basis points.
  • Asia Pacific Sovereign CDS Index 45.5 -1.0 basis point.
  • Bloomberg Emerging Markets Currency Index 72.56 -.08%.
  • S&P 500 futures +.03%.
  • NASDAQ 100 futures +.10%.

Earnings of Note
  • (AGN)/3.33
  • (DF)/.40
  • (BID)/1.04
  • (TSN)/1.06
  • (CSC)/.45
  • (HTZ)/.59
  • (MBI)/.12
  • (MCHP)/.75
  • (NWSA)/.12
  • (SINA)/.17
  • (WB)/.10
  • (WBMD)/.39 
Economic Releases
10:00 am EST
  • The Labor Market Conditions Index for July.  
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China Inflation/Trade Balance reports could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by industrial and technology 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 week.

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