Tuesday, November 15, 2016

Wednesday Watch

Evening Headlines
  • Another Financial Warning Sign Is Flashing in China. Add another credit indicator to the financial warning signs flashing in China. The adjusted loan-to-deposit ratio, which includes a range of off-balance sheet items and is an indicator of the banking system’s ability to weather stress, climbed to 80 percent as of June 30, according to S&P Global Ratings. For some smaller lenders, the ratio has already topped 100 percent, S&P estimates. S&P’s adjusted measure is rising much faster than the official loan-to-deposit ratio as banks pile into off-balance sheet lending, sidestepping government efforts to rein in credit. At the current pace, overall credit could surpass deposits on an adjusted basis within a few years -- a level that would give China little leeway to stave off financial turmoil, S&P says.
  • China's Tech Unicorns Look Increasingly Cursed.
  • Trump Sends EM Defaults to the Edge. Talk about great timing. Trump's election has sent the U.S. dollar and Treasury yields soaring, increasing the cost of funding for emerging-market countries and companies in one week. And it's happening just as the biggest pile of dollar bonds in the history of developing nations is coming due. 
  • Asian Stocks Advance With South Korea’s Won as Trump Shock Fades. Asian stocks rose for the first time in four days and South Korea’s won strengthened as volatility in global markets shows signs of dying down a week after Donald Trump’s shock U.S. election victory. Energy shares led gains on the MSCI Asia Pacific Index after crude oil posted the biggest jump in seven months amid optimism OPEC members will finalize a deal to cut output. The won rose versus all of its major peers, while Bloomberg’s dollar index held near a nine-month high and New Zealand’s dollar weakened. Japan’s 10-year bond yield stayed at zero, having ended almost eight weeks of negative rates in the last session, and Australia’s stayed near its highest level since April. The MSCI Asia Pacific Index added 0.6 percent as of 9:17 a.m. Tokyo time, with a gauge of energy stocks climbing 1 percent.
  • Awash in Gasoline, U.S. Refiners Export Fuel at Record Pace. The U.S. has more gasoline than it knows what to do with. Exports have risen above imports for three consecutive weeks as recurring pipeline outages and higher production levels by refiners caused Gulf Coast inventories to grow. Typically a net importer of gasoline, the U.S. has shipped a record amount of the motor fuel abroad and doesn’t show signs of stopping.
  • Fed Rate-Hike Odds Approach 100% in Anticipation of Trumpenomics. Analysts spent early November warning a Trump victory in the U.S. presidential election would make the Federal Reserve less likely to raise interest rates. What happened instead is that it made a December increase almost a certainty. Traders assign about a 94 percent probability, the highest level this year, to a Fed move at its final meeting for the year on Dec. 13-14, futures contracts indicate. Trump’s spending plans are driving expectations the Fed may pick up its pace of rate increases as inflation expectations climb.
  • Trump’s Team Discussing Tax Overhaul With House, Brady Says. House Republicans are talking with President-elect Donald Trump’s transition team about how to fashion the biggest U.S. tax overhaul in three decades, the chairman of the House Ways and Means Committee says. “We’re talking to the Trump team about timing” for producing written legislation that would slash tax rates on businesses and individuals and remake the U.S. tax code next year, said Kevin Brady, the Texas Republican who chairs the House’s tax-writing panel. “We’re writing provisions of the bill as we speak.” Trump and House Republicans, led by Speaker Paul Ryan, want dramatic rate cuts. They also want to scrap features of U.S. tax law that they say put American companies at a disadvantage globally -- and have spurred companies to leave as much as $2.6 trillion in profit overseas, where it remains untaxed.
  • Obamacare Startup Oscar Has $45 Million Loss in Three States. Oscar Insurance Corp., the Silicon Valley-backed health-care startup, continued to lose tens of millions of dollars in the third quarter as the company undertakes a strategy shift. The New York-based company sells health insurance to individuals in new markets set up by the Affordable Care Act. Its attempt to reinvent the insurance business has been marked by large losses -- in the third quarter, closely held Oscar lost $45 million in New York, Texas and California, according to filings with regulators. That follows losses of $83 million in those states during the first six months of this year. 
  • Gundlach Says Trump Presidency Will Be Bumpy Ride for Stocks.
Wall Street Journal:
  • Trouble Brewing in Commercial Real Estate. Delinquency rates climb on debt, pointing to downturn in $11 trillion market. Defaults are rising in a key corner of the commercial real-estate debt market just as borrowing costs are set to jump, raising the likelihood of a slowdown of the $11 trillion U.S. commercial property sector in 2017.
  • China Consumer Group Reports Problems With iPhones. China Consumers Association looking into complaints that some Apple iPhones are spontaneously shutting off.
China Business News:
  • China May Levy 10% Consumption Tax on Luxury Cars. Chinese govt is considering imposing 10% consumption tax on the retail sales price for cars priced 1.2m yuan or more, citing an unidentified person.
Night Trading 
  • Asian equity indices are unch. to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 125.75 -5.75 basis points. 
  • Asia Pacific Sovereign CDS Index 42.75 -3.25 basis points.
  • Bloomberg Emerging Markets Currency Index 70.0 +.09%
  • S&P 500 futures +.16%
  • NASDAQ 100 futures +.31%.
Morning Preview Links

Earnings of Note

  • (HAIN)/.56
  • (JKS)/.83
  • (LOW)/.97
  • (TGT)/.83
  • (CSCO)/.59
  • (HI)/.57
  • (LB)/.40
  • (NTAP)/.54
Economic Releases 
8:30 am EST
  • PPI Final Demand MoM for October is estimated to rise +.3% versus a +.3% gain in September.
  • PPI Ex Food and Energy MoM for October is estimated to rise +.2% versus a +.2% gain in September.
9:15 am EST
  • Industrial Production MoM for October is estimated to rise +.2% versus a +.1% gain in September.
  • Capacity Utilization for October is estimated to rise to 75.5% versus 75.4% in September.
  • Manufacturing Production for October is estimated to rise +.3% versus a +.2% gain in September.
10:00 am EST
  • The NAHB Housing Market Index for November is estimated at 63.0 versus 63.0 in October. 
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +596,000 barrels versus a +2,432,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -425,400 barrels versus a -2,841,000 barrel decline the prior week. Distillate supplies are estimated to fall by -1,469,5000 barrels versus a -1,948,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.61% versus a +1.9% gain prior.
4:00 pm EST
  • Net Long-Term TIC Flows for September.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Fed's Bullard speaking, Fed's Kashkari speaking, Fed's Harker speaking, UK Jobless Claims report, weekly MBA Mortgage Applications report, Barclays Automotive conference, UBS Industrials/Transports conference, BofA Merrill Energy conference, Jefferies Healthcare conference, Goldman Metals & Mining conference,   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 mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

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