Monday, February 20, 2017

Tuesday Watch

Today's Headlines
  • Le Pen Advances in French Polls as Security Concerns Sway Voters. Marine Le Pen gained ground on her rivals for the French election as she benefits from concerns about security while other candidates trained their fire on independent front-runner Emmanuel Macron. Monday’s daily OpinionWay poll showed that first-round support for anti-euro candidate Le Pen rose 1 percentage point to 27 percent, with Macron and Republican Francois Fillon unchanged at 20 percent each. While no surveys so far have shown Le Pen even close to a victory in May’s run-off, she’s quickly narrowing the gap to her rivals. OpinionWay showed Macron would defeat Le Pen by 58 percent to 42 percent in the second round. His advantage has halved in less than two weeks.
  • China Can Do More Than Stop Buying Coal to Pressure North Korea. If China really wanted to pressure North Korea, it could go a lot further than a ban on buying the isolated country’s coal. Fuel and commodity exports to North Korea, worth at least about $450 million last year, may be more vital to Kim Jong Un’s regime than the cash it will lose after Beijing pledged on Saturday to halt coal imports. Despite pressure from the U.S, it’s unlikely China will clamp down on the trade it views as livelihood assistance because that would risk destabilizing its neighbor, according to Jonathan Berkshire Miller, a fellow at the Council on Foreign Relations.
  • U.A.E. to Build Russian Warplane as Iran Stokes Mideast Tensions. The United Arab Emirates signed an outline agreement to buy Sukhoi Su-35 warplanes and will work with Russia to develop a next-generation fighter that could enter service in seven or eight years, according to Moscow-based industrial conglomerate Rostec Corp. While the latest version of the Sukhoi jet, based on the Su-27 Flanker and previously exported to China, would satisfy the Gulf state’s more immediate requirements, the proposed future model would essentially be “a brand new fighter,” Rostec Chief Executive Officer Sergey Chemezov said Monday.
  • Greek Bailout Deal Delayed for Months as Deadline Missed Again. The latest stand-off between Greece and its creditors looks set to go on for several more months as euro-area finance ministers poured cold water on a quick agreement that would unlock further loans. Where once officials had pinpointed Monday’s meeting of euro-area finance chiefs as the final chance for a deal before Europe’s politicians get too distracted with national elections, now the maximum that can be achieved at the talks in Brussels is agreement on when to send bailout monitors back to Athens.
  • European Stocks Inch Higher in Thin Trading as Unilever Drops. European stocks edged higher, with gains in miners and telecommunications firms tempered by a slide in Unilever NV. The Stoxx Europe 600 Index added 0.2 percent at the close, with commodity producers snapping a two-day drop as metal prices increased.
  • Dollar Strengthens While Most Asian Equities Climb. The U.S. currency advanced against its major peers after a Federal Reserve official said a March interest rate hike is not off the table. The pound was the strongest among G-10 currencies as a debate among British lawmakers on Brexit headed into a second day. Traders are awaiting earnings from HSBC Holdings Plc and BHP Billiton Ltd. after a U.S. holiday damped activity on Monday. The yen fell 0.3 percent to 113.47 per dollar, after declining 0.2 percent Monday. The Aussie slipped 0.3 percent to 76.69 U.S. cents after a 0.3 percent advance on Monday. The Topix index added 0.3 percent, rising for a second day. South Korea’s Kospi index climbed 0.8 percent to the highest level since July 2015. Australia’s S&P/ASX 200 Index fell 0.1 percent. Hong Kong’s Hang Seng added 0.1 percent and the Shanghai Composite Index was little changed.
  • Burger King Owner Said in Advanced Talks to Buy Popeyes. Restaurant Brands International Inc., the owner of Burger King, is in advanced talks with Popeyes Louisiana Kitchen Inc. about a takeover of the fried-chicken chain, according to people familiar with the matter. Negotiations between the companies are ongoing, and a transaction could be announced as early as this week, said the people, who asked not to be identified as the details aren’t public. Talks could still fall apart, the people said. Popeyes has a market value of about $1.37 billion, while Restaurant Brands is worth $25 billion.
Wall Street Journal:
  • Amid Trump Controversies, Tax Overhaul’s Uncertain Path. Congressional Republicans say an ambitious plan is in the works, but obstacles remain. Almost lost in the multiple recent Trump White House controversies—some significant, some silly—is this reality on a matter of real substance: Clouds of uncertainty hang over the one matter that many Republicans would put atop their priority list, a big tax cut.
Zero Hedge:
Digital Look:
  • Citi sees copper futures peaking above $8,000 by 2020. A "dramatic" crunch in miners' capital spending had set the stage for the price of copper to peak above $8,000 per metric tonne by the end of the decade, Citi said. Citi's analysts said the worst investment drought copper miners had seen since 2012 had "eviscerated the copper project pipeline for much of the remainder of the current decade."
Night Trading
  • Asian indices are unch. to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 101.25 -.25 basis point.
  • Asia Pacific Sovereign CDS Index 26.75 -.25 basis point.
  • Bloomberg Emerging Markets Currency Index 71.38 -.08%.
  • S&P 500 futures +.17%.
  • NASDAQ 100 futures +.20%.

Earnings of Note
  • (AAP)/1.09
  • (CBRL)/2.14
  • (EXPD)/.59
  • (HD)/1.33
  • (LL)/-.31
  • (M)/1.95
  • (MDT)/1.11
  • (PWR)/.58
  • (RRGB)/.35
  • (SOHU)/-2.29
  • (WMT)/1.29
  • (CPRT)/.57
  • (DDS)/2.30
  • (FSLR)/.99
  • (FE)/.40
  • (LZB)/.45
  • (NEM)/.32
  • (PZZA)/.65
  • (TEX)/-.06
  • (VMI)/1.45 
Economic Releases 
9:45 am EST
  • Preliminary Markit US Manufacturing PMI for February is estimated to rise to 55.2 versus 55.0 in January.
  • Preliminary Markit US Services PMI for February is estimated to rise to 55.8 versus 55.6 in January. 
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Harker speaking, Eurozone Manufacturing & Services PMI, 2Y T-Note auction, (SMG) investor day and the (UPS) investor conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

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