Wednesday, August 10, 2016

Thursday Watch

Evening Headlines
  • French Voters’ Fear of Terror Puts Hollande in a Political Bind. As the terrorist threat moves to center stage in France’s presidential election campaign, Francois Hollande finds himself paralyzed. He’s stuck between an opposition-stoked desire for tougher, even authoritarian, measures to provide security, and a historic reluctance by his own Socialist Party to impinge on basic democratic freedoms in the name of law and order. It’s a dilemma that’s already contributed to one major election defeat for the Socialists. A shift in the security-versus freedom debate has become palpable since July, when two very different attacks brought the civilian death toll from terrorism on Hollande’s watch to 236. Suddenly polls show security, not jobs, as the main preoccupation of voters, and the president himself acknowledges this is tricky political terrain for a Socialist candidate just eight months from the next election.
  • Pitfalls of Global Hunt for Yield Highlighted in Mongolia Crisis. Investors who piled into some of the world’s riskiest bonds to escape near-zero interest rates got a reality check on Wednesday when Mongolia sent its debt plunging by sounding the alarm on its economic crisis. The government’s $1 billion of notes due in six years tumbled the most on record after the finance minister went on television to say his critical goal was to avoid default as growth slows and the debt burden soars. Barclays Plc removed its overweight recommendation on the nation’s bonds, which have offered some of the highest returns in a rally fueled by accommodative policies in the developed world. After cash poured into debt funds tracking emerging nations at the fastest pace on record last month, the shock to Mongolia’s bond market highlights the dangers of plowing into junk-rated credits. Money managers have turned to more exotic issuers like Mongolia to take advantage of yields more than 400 basis points above the average rate for sovereigns in developing countries. “Central bank policy has given investors a license to move down the risk spectrum,” Gregory Saichin, who helps manage $2.4 billion, including Mongolian bonds, as chief investment officer for developing-world fixed-income at Allianz Global Investors. “The risks are there. People shouldn’t come into a story like this and say they didn’t know about it.”
  • Singapore Cuts Top End of 2016 GDP Forecast on Weak Outlook. Singapore cut the top end of its 2016 growth forecast after the economy expanded less than previously estimated in the second quarter. Gross domestic product expanded an annualized 0.3 percent from the first quarter, the Ministry of Trade and Industry said Thursday. That compares with last month’s advance estimate of 0.8 percent, which was also the median forecast in a Bloomberg survey of nine economists. The economy grew a revised 0.1 percent in the first quarter. The new 2016 forecast of 1 percent to 2 percent expansion is "in line with weaker global growth outlook, and barring the full materialization of downside risks," the ministry said. The previous forecast was for as much as 3 percent.
  • Crude Slump Sinks Asian Shares Amid Weaker Dollar; Kiwi Surges. Oil’s selloff deepened in Asian trading, weighing on energy stocks amid resurgent concern over global supplies of the commodity. New Zealand’s dollar touched a one-year high as the greenback held losses. U.S. crude fell for a third day, trading below $42 a barrel after a surprise gain in American stockpiles inflamed concerns about oversupply. While markets in Japan were closed for a holiday, equities in Australia and South Korea tracked Wednesday’s pullback in the S&P 500 Index. As the Bloomberg Dollar Spot Index fell for a third day, the kiwi jumped more than 1 percent after the country’s central bankcut rates to a fresh record low but signaled a more gradual easing path than some investors had anticipated. Australian bonds extended gains. Nickel snapped a four-day climb, while silver jumped. The MSCI Asia Pacific excluding Japan Index fell 0.2 percent as of 9:26 a.m. Tokyo time, halting a five-day advance. Australia’s S&P/ASX 200 Index dropped 0.6 percent, amid a drop of similar magnitude in the country’s energy shares, while the Kospi index in Seoul lost 0.2 percent.
  • Steel’s Big Comeback Might Be Running Out of Steam Already. After eight years of misery, 2016 has been something of a boon for the steel industry. The big question is can they keep the winning run going? While many steelmakers surprised analysts with better profits and the stocks enjoyed the best rally in years, the industry’s biggest problem hasn’t been solved. China still exports at a record rate and there are hundreds of millions of tons of surplus capacity around the world still undercutting prices. “We don’t think at this point that the recovery is sustainable,” said Alon Olsha, an analyst at Macquarie Group Ltd. in London. “There remains a huge amount of overcapacity in steel and latent capacity that can easily be turned back on.”
Wall Street Journal:
Fox News:
  • ObamaCare problems deepen as insurers scramble to stem losses. (video) Six years after ObamaCare was signed into law – and countless assurances later that the law is “working” – America’s major insurance companies are facing mounting losses and threatening to pull out of the exchanges, leaving customers facing higher costs and fewer options. In the most recent example, Tennessee regulators are bowing to pressure to let insurers refile their 2017 rate requests, which could lead to steep hikes for customers.
Zero Hedge:
Business Insider:
Night Trading 
  • Asian equity indices are -.75% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 114.75 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 44.0 -.75 basis point.
  • Bloomberg Emerging Markets Currency Index 73.52 -.09%
  • S&P 500 futures -.%. 
  • NASDAQ 100 futures -.%.
Morning Preview Links

Earnings of Note

  • (CSIQ)/.41
  • (HAIN)/.60
  • (JKS)/1.75
  • (PERY)/.01
  • (SHLD)/-3.48
  • (SSI)/.05
  • (WMT)/1.01
  • (CRMT)/.46
  • (AMAT)/.48
  • (DV)/.60
  • (GPS)/.59
  • (ROST)/.67 
Economic Releases 
8:30 am EST
  • The Import Price Index MoM for July is estimated to fall -.4% versus a +.2% gain in June.
  • Initial Jobless Claims for last week are estimated to fall to 265K versus 269K the prior week.
  • Continuing Claims are estimated to fall to 2133K versus 2138K prior.   
10:00 am EST
  • 2Q Mortgage Delinquencies/Foreclosures.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The China Production/Retail Sales reports, $15B 30Y T-Bond auction, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the (HWAY) investor day could also impact trading today.
BOTTOM LINE:  Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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