Sunday, July 30, 2017

Monday Watch

Today's Headlines
  • Europe's Eastern Rebels Expose Next Fault Line for EU Leaders. European leaders are declaring the continent’s financial crisis to be over, but now a political one is fermenting. A battle between European Union regulators and the Polish government over its plans to weaken the judiciary’s independence is splitting eastern and western Europe in a way that the euro region erupted along a north-south fault line. As Greece returned to the bond market last week, Poland faced the threat of unprecedented EU penalties from the first-ever probe of a member’s respect for the rule of law.
  • Australian Airport Security Tightened After Plot to Down Plane. Security checks at all major Australian airports have been ramped up following a counter-terrorism operation that foiled an alleged plot to bring down a plane. Four men were arrested in counter-terrorism raids on homes in the Sydney suburbs of Surry Hills, Punchbowl, Wiley Park and Lakemba on Saturday after authorities discovered plans for an attack to “bring down” an aircraft, Prime Minister Malcolm Turnbull said in a televised press conference on Sunday. Air passengers should expect delays caused by additional security measures at screening points. “Some of the measures will be obvious to the public, some will not be,” Turnbull said.
  • China Bond Buyers Quiz Taxi Drivers to See If Credit Good. In China, taxi rides aren’t just a form of transportation any more. They’ve also become useful for bond buyers doing due diligence. Dining out at restaurants is also helpful. It’s all part of a boom in field trips by market participants coming to grips with a new reality in China: the potential for bond defaults. After decades when authorities effectively provided blanket assistance to keep troubled companies from going under, the Communist leadership’s focus on shuttering unproductive assets has upended the market. A total of 45 onshore corporate bonds have defaulted since the start of last year, a surge from the eight recorded in 2014 and 2015 -- which themselves were the first since the market was established in the 1980s. While China has the world’s third-largest bond market, corporate financial transparency can be limited, forcing investors to get creative.
  • China Factory Gauge Suggests Economic Momentum Faded in July. The manufacturing purchasing managers index fell to 51.4 in July, compared to the 51.5 median forecast in a Bloomberg survey of economists, and the 51.7 reading in June. The non-manufacturing PMI stood at 54.5 compared to 54.9 a month earlier.
  • Japan Industrial Output Rebounds in Sign of Further Recovery. A pick-up in global demand and a weak yen have helped Japanese exporters, lifting the nation’s economy to the longest run of expansion in a decade. Reports last week showed that household spending rose in June for the first time in more than a year, while retail sales gained for an eighth month, signaling that both output and consumption were reasonably healthy in the second quarter. Still, stronger gains in wages and inflation are needed to put the economic recovery onto a firmer footing.
  • Asia Stocks Open Little Changed; Oil Nudges $50. Asian stocks were little changed at the start of the trading week as raw-material producers advanced after a surge in commodity prices bolstered optimism the global economy can gather momentum. Oil extended last week’s strongest rally this year. Equity gauges in Japan and South Korea were little changed, while Australia’s benchmark advanced. A bout of volatility last week sent the Nasdaq 100 Index lower and S&P 500 Index lower. Oil added to gains from Friday, which came as inventories for crude and gasoline shrank. Copper’s rally has further to go, Citigroup Inc. said last week after the metal reached a two-year high while top producer Chile raised its price forecasts. Japan’s Topix index swung between gains and losses and Australia’s S&P/ASX 200 Index rose 0.3 percent. South Korea’s Kospi index lost 0.1 percent. Contracts on the FTSE China A50 Index advanced 0.3 percent, while futures on Hong Kong’s Hang Seng Index were 0.1 percent higher.
Wall Street Journal: 
Zero Hedge:
Night Trading
  • Asian indices are -.25% to +.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 82.75 +1.25 basis points.
  • Asia Pacific Sovereign CDS Index 20.0 unch.
  • Bloomberg Emerging Markets Currency Index 73.92 +.04%.
  • S&P 500 futures -.08%.
  • NASDAQ 100 futures -.10%.

Earnings of Note
  • (AMG)/3.24
  • (DO)/.24
  • (ICPT)/-3.60
  • (L)/.71
  • (SOHU)/-1.29
  • (CGNX)/.54
  • (OI)/.67
  • (P)/-.24
  • (VNO)/1.26
Economic Releases 
9:45 am EST
  • The Chicago Purchasing Manager Index for July is estimated to fall to 60.0 versus 65.7 in June.
10:00 am EST
  • Pending Home Sales MoM for June are estimated to rise +1.0% versus a -.8% decline in May.
10:30 am EST
  • Dallas Fed Manufacturing Activity for July is estimated to fall to 13.0 versus 15.0 in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone CPI report and the Australia Private Sector Credit report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

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