Sunday, November 13, 2016

Monday Watch

Today's Headlines
  • China’s Economy Holds Ground as Housing Curbs Start to Bite. China’s economy held ground last month following new measures to cool property markets in almost two dozen big cities. Industrial production rose 6.1 percent from a year earlier in October, compared with a median estimate of 6.2 percent in a Bloomberg economist survey and 6.1 percent in September. Retail sales slowed to 10 percent growth last month, while fixed-asset investment increased 8.3 percent in the first ten months of the year. Any sign the world’s second-largest economy is losing steam may add to uncertainty in the global economy, which already faces the prospect that president-elect Donald Trump will impose punitive tariffs on Chinese imports when he takes office. But for now, it’s domestic drivers determining the economy’s momentum, with efforts to rein in property prices tapping the brakes on China’s consumer.
  • It’s Not Just Deutsche Bank; German Banking Gloom in Four Charts. Emerging-Market Rout Extends to Gulf Stocks on Trump Policy Risk. The biggest emerging-market stock selloff in more than a year extended to the Gulf on concern U.S. President-Elect Donald Trump will change oil agreements and his nation’s relationships with Saudi Arabia and Iran. 
  • Emerging Market Outlook: More Downside Ahead? (video)
  • Korean President Faces Tough Week as Impeachment Risk Rises. Park Geun-hye faces the prospect of becoming the first South Korean president to be grilled by investigators while in office, as opposition lawmakers edge toward trying to impeach her over an influence-peddling scandal. A protest march on Saturday that drew hundreds of thousands -- the biggest rally in at least several decades -- has added to pressure on Park to step down over the furor. With 16 months left in her single 5-year term in power, and with no sign Park is readying to resign and lose her presidential immunity, opposition politicians are becoming more vocal about moving against her.
  • Exports Drive Japan’s Economy to Unexpectedly Strong Growth. Japan’s economy expanded more than forecast in the three months through September, with a rebound in exports compensating for weak spending by people and companies. 
  • Trump’s Rise May Save Banks Billions by Disrupting Global Rules. The election of Donald Trump may allow banks to dodge the full impact of global regulators’ post-2008 crisis crackdown. The Basel Committee on Banking Supervision is racing to complete a revamp of international capital standards by year-end. The U.S. has pushed for strict rules to protect against future market meltdowns, whereas Europe and Japan want to rein in proposals that could hit banks with billions in costs. Basel Committee members including the U.S. Federal Reserve and the European Central Bank are under enormous industry pressure to soften the rules.
  • Brexit Threatens to Ignite European Skirmishes Over EU Budget. The European Union may get a preview of the impact Brexit will have on its bottom line when EU governments tackle the bloc’s budget this week. And it risks being unsettling. Battles over EU spending, which is funded mainly by national transfers, traditionally say more about the politics of Europe than about its economy. That’s because the European budget, while limited to 1 percent of EU gross domestic product, is increasingly viewed by member countries in an era of populist backlashes through the prism of net contributions and receipts.
  • Bond Rout Deepens as Trump Bets Buoy Dollar; Japan Shares Climb. Japan’s Topix index climbed 1.4 percent, while benchmarks in Hong Kong, Indonesia and Singapore slid to their lowest levels in more than three months. Markets in India are closed for a holiday.
  • Iran Pumps More Oil as Saudi Minister Calls for OPEC Output Cuts. Iran boosted oil output at three western fields faster than it expected as rival OPEC producer Saudi Arabia called for a collective output cut later this month to help rebalance the market. Output at the fields west of the Karoun River, near Iran’s border with Iraq, rose to about 250,000 barrels per day from 65,000 barrels in 2013, the Oil Ministry’s news service Shana reported Sunday, citing President Hassan Rouhani at a ceremony to formally open the project. Iran had expected to reach that output target by the end of the year, Mohsen Ghamsari, director for international affairs at the National Iranian Oil Co., saidin September. Saudi Arabia’s Energy Minister Khalid Al-Falih said OPEC must agree to implement a proposed cut in crude production for OPEC countries, Saudi Press Agency reported Sunday. OPEC members will meet on Nov. 30 to discuss a plan to limit the group’s output to a range of 32.5 million to 33 million barrels a day, compared with 33.64 million in October. That target has become harder to reach as several members boosted output.
  • Why the 2,826-Day-Old Bull Market Could Be a Headache for Trump. The election’s over, but for equity investors it’s the same old bull market, one the new president might prefer die a quick death. Donald Trump inherits a 2,826-day-old rally in U.S. stocks that has defied history, overcoming anemic economic growth and a 15-month earnings recession that pushed valuations to a seven-year high. Squeezing out even a couple more years would be a feat of unprecedented longevity, with August 2018 looming as the month the advance will exceed all that came before. Maybe it’ll keep going forever -- it’s already 32 months longer than the average advance since the 1930s. But if it doesn’t, a new president’s best hope often is that equity pain hits fast. Just ask Barack Obama and George W. Bush.
  • Betting the Farm and Losing: Banks Seek Collateral as Debts Rise. Betting the farm on record crop, livestock and dairy prices has turned into a losing investment for an expanding share of America’s agricultural heartland. The level of debt to income is the highest in three decades, and growers are increasingly unable to make loan payments. Four years after record U.S. crop and farmland values boosted purchases of land and equipment, a global surplus has sent prices tumbling and farm income into the longest slump since 1977. The Federal Reserve says growers are borrowing more to pay bills, repayment rates are plunging, and the number of bankers requesting additional collateral is the highest in 25 years.
Wall Street Journal:
  • Mexican peso up over one percent as Trump softens campaign pledges. Mexico's peso gained over 1 percent to around 20.64 pesos per dollar in Asian trading on Sunday, as U.S. President-elect Donald Trump appeared to soften some of his more incendiary campaign pledges that were seen hurting the Mexican economy. The peso MXN=D2, the world's worst-performing currency this year, has fallen to record lows after Trump's election upset last week on fears he may look to decrease trade and build a wall between the two countries, while also deporting about 11 million people living illegally in the United States. On Sunday, Trump backed away from his promise to erect a border wall, saying some areas could instead be "fencing," and added he would move to deport up to 3 million immigrants in the country illegally who have criminal records.
  • Exclusive: Siemens nears deal to buy Mentor Graphics - sources. Siemens AG (SIEGn.DE), Europe's biggest industrial group, is nearing a deal to buy Mentor Graphics Corp (MENT.O), which makes software for designing semiconductors, for $4.5 billion to $4.6 billion in cash, according to people familiar with the matter. The deal could be announced as soon as Monday, according to the sources, who requested anonymity because the matter is private.
  • World's $150 trillion debt edifice shaken by Trump victory. The spectacular sell-off in the global bond and credit markets since the election of Donald Trump has left a trail of carnage among hedge funds and revived gnawing doubts about the fragility of the eurozone's financial system. Bank of America warned that there has been violent 'violent rotation' within the structure of the bond market over the last week, with powerful implications.
  • Eric Cantor Says GOP Will Brake Trump on Trade. Moelis & Co. and former Majority Leader Eric Cantor says in interview Republicans will be ready to check President Trump on raising debt and withdrawing from trade deals. "If he takes a sledgehammer to free trade, to NAFTA and others, that would be a real problem and you would see some pushback on the part of the Republicans and any free-trade Democrats that are left. But my sense is that you are not going to see that", Cantor said.
Night Trading
  • Asian indices are -1.5% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 117.75 +15.75 basis points.
  • Asia Pacific Sovereign CDS Index 41.75 +2.75 basis points.
  • Bloomberg Emerging Markets Currency Index 70.07 -.03%.
  • S&P 500 futures +.38%.
  • NASDAQ 100 futures +.42%.

Earnings of Note
  • (AAP)/1.72
  • (PAAS)/.16
  • (ZOES)/.05
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Williams speaking, Fed's Kaplan speaking, Eurozone Industrial Production report, UBS Tech Conference and the Morgan Stanley Chemicals/Ag Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the week.

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