Monday, April 24, 2017

Tuesday Watch

Evening Headlines
  • China's Hidden Debt Stirs Investor Angst as Local Defaults Rise. Rising defaults in China are unearthing hidden debt at companies across the country. Small firms that can’t get loans by themselves have been winning banks over by getting other companies to guarantee their borrowings. The companies making those pledges exclude them from their balance sheets, leaving creditors in the dark. Borrowers often extend the guarantees for each other, raising the risk that failures could ricochet, at a time when increasing borrowing costs have already added to strains. China’s banking regulator has ordered checks of such cross-guaranteed loans, Caixin reported Friday. Scrutiny is mounting after a corn oil producer in the eastern province of Shandong said last month it had guaranteed debt of a neighboring aluminum product manufacturer which is now stuck in a cash crunch. Just days before that, a local government financing vehicle in China’s southwest had to repay an auto parts maker’s loans it had guaranteed after the latter defaulted.
  • Banks Are Backing Out of $1.7 Trillion in Chinese Investments. A $1.7 trillion source of inflows into Chinese markets has suddenly switched into reverse, roiling the nation’s money management industry and sending local bonds and stocks to their biggest losses of the year. The turbulence has centered on so-called entrusted investments -- funds that Chinese banks farm out to external asset managers. After years of funneling money into such investments, banks are now pulling back in response to a series of regulatory guidelines over the past three weeks that put a spotlight on the risks. Critics have blamed entrusted managers for adding leverage to China’s financial system and reducing transparency.
  • Asian Stocks Gain After Global Rally; Yen Steady. Asian equities edged higher, after a rally that swept across financial markets in the wake of French elections. The euro held on to its biggest advance since June while the yen was steady after Monday’s declines. Japanese equities rose for a fourth day, after the MSCI All-Country World Index closed at a record and European shares surged to a 20-month high. Markets jumped after Emmanuel Macron advanced as the favorite in the presidential runoff over nationalist Marine Le Pen, easing concerns that the country will leave the euro currency bloc. Australia and New Zealand are closed Tuesday for Anzac Day. Japan’s Topix rose 0.1 percent as of 9:12 a.m. in Tokyo, after jumping 1 percent on Monday. South Korea’s Kospi increased 0.2 percent.
  • Alcoa(AA) Earnings Sizzle Brings Life to Party After Share Surge. Alcoa Corp.’s first full quarter as a standalone company vindicates investors’ faith and signals even better times may be ahead. Profit excluding one-time items was 63 cents a share compared with a 62-cent loss a year earlier, New York-based Alcoa said Monday in a statement. That beat the 48-cent average profit estimated by seven analysts tracked by Bloomberg. Sales climbed to $2.66 billion from $2.13 billion.
  • Fresenius Buys Akorn for $4.3 Billion in U.S. Expansion. In just 10 months at the head of Germany’s Fresenius SE, Chief Executive Officer Stephan Sturm has now inked the health-care provider’s two biggest-ever deals. With the $4.3 billion acquisition of Illinois-based generic drugmaker Akorn Inc., announced late Monday, Fresenius will get a stronger foothold in the U.S., with access to a network of retail pharmacies and outpatient clinics as well as the hospitals where it has traditionally marketed its products. Akorn will complement Fresenius’s Kabi medicines unit, which specializes in intravenous drugs.
Wall Street Journal:
Night Trading 
  • Asian equity indices are unch. to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 95.25 -2.75 basis points
  • Asia Pacific Sovereign CDS Index 23.0 -1.0 basis point.
  • Bloomberg Emerging Markets Currency Index 72.66 -.07%.
  • S&P 500 futures -.02%
  • NASDAQ 100 futures -.03%.
Morning Preview Links

Earnings of Note

  • (MMM)/2.06
  • (AKS)/.13
  • (ATI)/.11
  • (AN)/.91
  • (BHI)/-.21
  • (BIIB)/4.98
  • (EAT)/.85
  • (CAT)/.63
  • (KO)/.44
  • (GLW)/.35
  • (DD)/1.39
  • (LLY)/.96
  • (FCX)/.15
  • (GCI)/.11
  • (JBLU)/.22
  • (LH)/2.20
  • (LMT)/2.79
  • (MDR)/-.01
  • (MCD)/1.33
  • (PCAR)/.88
  • (PHM)/.29
  • (R)/.84
  • (SAP)/.74
  • (VLO)/.60
  • (WAT)/1.34
  • (T)/.74
  • (CHRW)/.81
  • (COF)/1.96
  • (CMG)/1.28
  • (CB)/2.42
  • (ILMN)/.64
  • (JNPR)/.42
  • (PNRA)/1.84
  • (SYK)/1.43
  • (TXN)/.86
  • (X)/.35
  • (WYNN)/.99
Economic Releases
9:00 am EST 
  • The FHFA House Price Index MoM for February is estimated to rise +.4% versus unch. in January.
  • The S&P CoreLogic CS 20-City MoM for February is estimated to rise +.77% versus a +.86% gain in January.
10:00 am EST
  • New Home Sales for March are estimated to fall to 584K versus 592K in February.
  • Consumer Confidence for April is estimated to fall to 122.5 versus 125.6 in March.  
  • The Richmond Fed Manufacturing Index for April is estimated to fall to 16.0 versus 22.0 in March.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The $26B 2Y T-Note auction, Eurozone Government Balance report, weekly US retail sales reports, (ABX) annual meeting, (VFC) annual meeting, (HUM) investor day and the (CLF) annual meeting could also impact trading today.
BOTTOM LINE:  Asian indices are slightly higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.

Stocks Surging into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Healthcare/Tax Reform Hopes, Earnings Optimism, Financial/Tech Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Slightly Above Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • Volatility(VIX) 11.07 -24.3%
  • Euro/Yen Carry Return Index 124.50 +1.88%
  • Emerging Markets Currency Volatility(VXY) 8.50 -5.76%
  • S&P 500 Implied Correlation 42.21 -4.74%
  • ISE Sentiment Index 82.0 +9.3%
  • Total Put/Call 1.0 -2.91%
  • NYSE Arms .71 -59.83%
Credit Investor Angst:
  • North American Investment Grade CDS Index 64.50 -4.21%
  • America Energy Sector High-Yield CDS Index 373.0 +.28%
  • European Financial Sector CDS Index 77.98 -13.50%
  • Western Europe Sovereign Debt CDS Index 9.56 -18.64%
  • Asia Pacific Sovereign Debt CDS Index 23.05 -4.08%
  • Emerging Market CDS Index 200.41 -2.98%
  • iBoxx Offshore RMB China Corporate High Yield Index 137.0 -.02%
  • 2-Year Swap Spread 33.25 -1.5 basis points
  • TED Spread 37.0 -.75 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -27.0 +6.25 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 72.68 +.05%
  • 3-Month T-Bill Yield .78% unch.
  • Yield Curve 105.0 unch.
  • China Import Iron Ore Spot $66.53/Metric Tonne -2.48%
  • Citi US Economic Surprise Index .80 -2.0 points
  • Citi Eurozone Economic Surprise Index 51.40 +2.1 points
  • Citi Emerging Markets Economic Surprise Index 37.4 -2.4 points
  • 10-Year TIPS Spread 1.88 +2.0 basis points
  • 66.5% chance of Fed rate hike at June 14 meeting, 69.6% chance at July 26 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +60 open in Japan 
  • China A50 Futures: Indicating -12 open in China
  • DAX Futures: Indicating +42 open in Germany
  • Higher: On gains in my biotech/retail/tech/medical sector longs 
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long

Bear Radar

Style Underperformer:
  • Mid-Cap Value +.9%
Sector Underperformers:
  • 1) REITs -1.1% 2) Gold & Silver -1.0% 3) Homebuilders -.1%
Stocks Falling on Unusual Volume: 
  • MZOR, AKTX, KW and RLJ
Stocks With Unusual Put Option Activity:
  • 1) CBS 2) AKRX 3) GGP 4) SLCA 5) GME
Stocks With Most Negative News Mentions:
  • 1) CCLP 2) ICBK 3) SBH 4) TBK 5) GWW