Wednesday, August 24, 2016

Thursday Watch

Posted by Gary .....at 10:09 PM
Evening Headlines
Bloomberg:
  • The Democratic Senator’s Daughter Who Raised Prices on the EpiPen. (video) Members of Congress are in an unusual position as they demand an explanation for Mylan NV’s 400 percent price hike for the EpiPen and focus attention squarely on its CEO: Heather Bresch. If lawmakers follow the usual script, Bresch could get called up to Capitol Hill next month to explain her company’s justification for raising the price on the life-saving allergy shot. But that could be awkward, since she’s the daughter of Democratic Senator Joe Manchin of West Virginia. While CEO Bresch’s family ties may mute the ire of some lawmakers, others are already asking the company about taxpayers having to foot the bill for these price increases -- particularly after Bresch and the company successfully pushed legislation to encourage use of the EpiPen in schools nationwide. 
  • China Oil Giants Unmoved by Bull Rally After Worst-Ever Earnings. After posting their worst-ever half-year results, two of China’s oil giants aren’t getting carried away by crude’s return to a bull market, forecasting a rocky path ahead. PetroChina Co., the country’s biggest oil and gas company, and Cnooc Ltd., China’s main offshore explorer, reported the weakest earnings since they were both publicly listed. About a week after oil capped a 22 percent gain from its previous low, the two producers that together account for about 70 percent of the country’s crude output both struck a cautious note about the outlook for prices in the coming months.
  • Why China's Shadow Finance Echoes Pre-Crisis U.S. The shadow financing that is fueling China’s economic growth is unsustainable and “eerily similar” to developments in the U.S. before the global financial crisis, says Logan Wright at research firm Rhodium Group. The nation has at most about 18 months before this funding -- derived largely from wealth-management products offering higher returns on riskier underlying investments -- hits a wall, says Wright, director of China markets strategy for New York-based Rhodium. Banks will then be unable to generate new credit needed to maintain the current pace of economic growth, which is likely to slow to a range of 5 to 5.5 percent for about two years, he says. “It’s pretty shocking just how important this has become and how the funding structures for this type of asset creation have changed,” he said. “Everyone assumes it’s a stable system, it’s deposit-funded. It’s just not true any more.”
  • Mongolia's Meltdown Won't Be Saved by a Mining Revival Yet. The commodity super-cycle that peaked in 2011 powered Mongolia to world-beating growth. Then came the bust and China’s recent economic slowdown that’s pushed the land of Genghis Khan into an unprecedented economic crisis this summer. Yet even though the commodity market finally has a pulse again after a five-year collapse, a modest revival in prices isn’t going to be enough to rescue Mongolia’s mineral-rich, $12 billion economy.
  • Weapons Inspectors Find Evidence Syria Has Chemical Program. Inspectors working in Syria have detected the presence of previously undeclared chemical warfare agents, suggesting President Bashar al-Assad hasn’t given up his capabilities to wield such weapons and casting a shadow over an achievement claimed by the Obama administration. Samples collected by the Organization for the Prohibition of Chemical Weapons at multiple sites in Syria revealed chemical agents that Syria never declared after it agreed in 2013 to turn over all its stockpiles for destruction and join the Chemical Weapons Convention, according to a two-page summary of a confidential OPCW report that was given to the United Nations Security Council.
  • Asia Stocks Fall as Commodity Shares Slump Before Yellen Speech. Asian stocks fell as commodity shares slumped with oil before a speech Friday from Federal Reserve Chair Janet Yellen that may provide further clues to the path of U.S. interest rates. The MSCI Asia Pacific Index dropped 0.2 percent to 138.72 as of 9:09 a.m. in Tokyo. The Topix index fell 0.2 percent as the yen traded at 100.56 per dollar.
  • CEO of Legendary Trader Phibro Recommends Shorting Crude at $50. It’s almost time to short this year’s crude rally, according to the new chief executive officer of Phibro LLC, the century-old commodities firm that was once the largest independent oil refiner in the U.S. Simon Greenshields, who became Phibro’s CEO in January after his firm bought the merchant trader, said traders should short benchmark West Texas Intermediate crude at $50 to $55 a barrel. Members of the Organization of the Petroleum Exporting Countries, meeting next month, probably won’t cut output, and Iran’s production is set to rise, Greenshields said in an interview Wednesday. WTI fell 2.8 percent to $46.77 on Wednesday. “The fundamentals remain bearish,” he said at Phibro’s headquarters in Stamford, Connecticut. “If we get a rally into the OPEC meeting through September, it’s an opportunity to get short. We are in a range-bound market. I’d rather sell rallies than buy dips.”
  • Masters of the Universe Flummoxed by Fed as Yellen Takes Stage. The world’s biggest bond traders are getting fed up with Fedspeak. Weeks of conflicting economic reports have whipsawed investors seeking to handicap the path of interest rates, and money managers overseeing about $6 trillion, including Pacific Investment Management Co. and Vanguard Group Inc., say policy makers aren’t making their task any easier.
  • Hedge Funds See Biggest Redemptions Since ’09 as Returns Lag. For hedge funds, the news is getting worse. Investors pulled an estimated $25.2 billion from hedge funds last month, the biggest monthly redemption since February 2009, according to an eVestment report. The withdrawals were the second straight for the beleaguered industry, which saw $23.5 billion pulled in June. They bring total outflows this year to $55.9 billion, driven by “mediocre” performance after a number of funds lost money last year, according to Wednesday’s report. “Unless these pressures recede, 2016 will be the third year on record with net annual outflows, and the first since the outflows in 2008 and 2009 -- a result of the global financial crisis,” eVestment said. 
Wall Street Journal:
  • Big Oil Companies Binge on Debt. Exxon, Shell, BP and Chevron have combined debt of $184 billion amid two-year slump.
  • The Federal Reserve Needs New Thinking. Its models are unreliable, its policies erratic and its guidance confusing. It is also politically vulnerable.
  • In University Purge, Turkey’s Erdogan Hits Secularists and Boosts Conservatives. Crackdown, which has snagged associates of imam Fethullah Gulen and others, is designed to remake country’s higher education in president’s image.
  • Fed Officials to Meet With Activists Ahead of Jackson Hole Conference. Eight central bankers to answer questions from left-leaning Fed Up Campaign members. When Federal Reserve officials gather for the Kansas City Fed’s high-profile policy conference in Jackson Hole, Wyo. this week, some of them will start with an unprecedented event. On Thursday, eight central bankers, among them Fed governor Lael Brainard and New York Fed President William Dudley, will meet with and answer questions from about 120 activists from the Campaign for Popular Democracy’s Fed Up Campaign, a left-leaning group working to change the way the powerful central bank works.
Fox News:
Zero Hedge: 
Business Insider:
Telegraph:
Night Trading 
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 112.25 +.75 basis point.
  • Asia Pacific Sovereign CDS Index 41.25 -.25 basis point.
  • Bloomberg Emerging Markets Currency Index 72.91 +.04%. 
  • S&P 500 futures -.08%. 
  • NASDAQ 100 futures -.07%.
Morning Preview Links

Earnings of Note
Company/Estimate 
  • (BURL)/.30
  • (DG)/1.09
  • (DLTR)/.73
  • (JKS)/1.74
  • (MDT)/1.01
  • (MIK)/.17
  • (PDCO)/.51
  • (SAFM)/2.23
  • (SHLD)/-3.48
  • (SIG)/1.46
  • (TECD)/1.43
  • (TIF)/.72
  • (TITN)/-.05
  • (TD)/1.21
  • (ADSK)/-.13
  • (GME)/.27
  • (SPLK)/.03
  • (ULTA)/1.40
  • (ZAYO)/.03
Economic Releases  
8:30 am
  • Preliminary Durable Goods Orders for July are estimated to rise +3.4% versus a -3.9% decline in June.
  • Initial Jobless Claims are estimated to rise to 265K versus 262K the prior week.
  • Continuing Claims are estimated to fall to 2155K versus 2175K prior.
  • Preliminary Cap Goods Orders Non-Defense Ex-Air for July are estimated to rise +.2% versus a +.4% gain in June.  
9:45 am EST
  • Preliminary Markit US Services PMI for August is estimated to rise to 51.8 versus 51.4 in July.
11:00 am EST
  • Kansas City Fed Manufacturing Activity Index for August is estimated to rise to -2.0 versus -6.0 in July.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Jackson Hole Fed Conference Day 1, German IFO Business Climate Index, Japan CPI 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 lower, weighed down by financial 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 25% net long heading into the day.

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