Tuesday, July 04, 2017

Wednesday Watch

Evening Headlines
  • Kim Jong Un Seeks to Exploit U.S.-China Tensions With Missile Claims. (video) When Kim Jong Un gave the order for what North Korea claims to be its first successful intercontinental ballistic missile test, he knew it would ruffle feathers in Washington and Beijing. He may have even timed the launch of the missile, which Pyongyang dubbed the Hwasong-14, for maximum effect, ahead of the July 4 holiday in the U.S. and to throw a wrench into a planned meeting between President Donald Trump and Chinese counterpart Xi Jinping at the G-20 summit in Germany this week.
  • U.S. Confirms North Korea Missile Was ICBM, Warns of UN Action. (video) The U.S. confirmed a rocket launched by North Korea on July 4 was an intercontinental ballistic missile, with Secretary of State Rex Tillerson calling it a “new escalation of the threat” to the U.S. and its allies that would be brought before the United Nations Security Council. “Global action is required to stop a global threat,” Tillerson said in a statement. “Any country that hosts North Korean guest workers, provides any economic or military benefits, or fails to fully implement UN Security Council resolutions is aiding and abetting a dangerous regime.”
  • China's $162 Billion of Dealmaker Debt Raises Alarm. China struck deal after deal to acquire companies abroad over the last few years. Now the bill is coming due. The nation’s top corporate dealmakers, including HNA Group Co. and Fosun International Ltd., must pay off the equivalent of at least $11.5 billion in bonds and loans by the end of 2018 -- a feat now complicated by government efforts to rein in their aggressive rush overseas.
  • ECB's `Flexible' QE Model Falls Short on German Bond Purchases. European Central Bank data showed it fell short of its target for purchases of German bonds under its quantitative-easing program for a third straight month in June, while favoring French and Italian securities as it combats a shortage in the euro region’s benchmark sovereign debt. The ECB fell short of its implied buying target, as dictated by the capital key, by 304 million euros ($345 million) last month, following a shortfall of 277 million euros in May, while the weighted average maturity rose to 5.33 years from a record-low 3.99 years in May.
  • Macron's Premier Says France Must Break Spending Addiction. Prime Minister Edouard Philippe said France must break the addiction to public spending that has left its economy trailing peers as he outlined plans to rein in the budget and cut taxes. In his maiden speech at the National Assembly as premier, Philippe promised 20 billion euros ($23 billion) of tax cuts by the end of President Emmanuel Macron’s term in 2022. Spending will drop by the equivalent of 3 percentage points of gross domestic product in that time and taxation will fall by 1 point, he said. “We must face the truth about the financial situation of the country,” Philippe said. “France can no longer be the champion of both public spending and of taxes. France has an addiction to public spending, and like all addictions it requires willpower and courage to kick it.”
  • Havens Advance as Missile Test Rattles Traders. A risk-off mood settled over markets on Tuesday, with haven assets including gold and the Japanese yen climbing and stocks slipping in the wake of an apparent milestone in North Korea’s weapons program. Early market optimism in Asia -- sparked by bullish American economic data yesterday -- gave way after North Korea said it successfully test-fired an intercontinental ballistic missile, moving the state closer to its goal of building a device capable of hitting the continental U.S. Gold headed for its first advance in four days. European stocks edged lower as miners rallied but telecom and utility shares dropped. Oil fluctuated between gains and losses.
  • Russia Said to Oppose Any Move to Deepen OPEC Cuts at July Talks. Russia wants to stick to the current OPEC deal and would oppose any proposal for deeper production cuts at the group’s ministerial meeting later this month, said four Russian government officials. Any further supply reductions so soon after the existing agreement was extended would send the wrong message to the oil market, said one of the people. Such a move would suggest that OPEC, Russia and their allies are nervous that their pact to reduce output by a combined 1.8 million barrels a day through March 2018 isn’t doing enough to support prices, the official said. All four people spoke on condition of anonymity.
Wall Street Journal:
Zero Hedge:
Business Insider:
Night Trading 
  • Asian equity indices are -.25% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 88.25 +2.0 basis points. 
  • Asia Pacific Sovereign CDS Index 21.75 +2.0 basis point.
  • Bloomberg Emerging Markets Currency Index 72.66 +.02%.
  • S&P 500 futures -.01%.
  • NASDAQ 100 futures -.15%.
Morning Preview Links

Earnings of Note

  • (MLHR)/.55
  • (PSMT)/.68
  • (YUMC)/.28
Economic Releases 
10:00 am EST
  • Factory Orders for May are estimated to fall -.5% versus a -.2% decline in April.
2:00 pm EST
  • The June 14 FOMC Meeting Minutes. 
Upcoming Splits
  • (MRTN) 5-for-3
Other Potential Market Movers
  • The Eurozone Manufacturing PMI report, weekly US retail sales reports and the (PSMT)/(ZUMZ)/(COST) monthly sales reports could also impact trading today.
BOTTOM LINE:  Asian indices are mostly lower, weighed down by technology 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 50% net long heading into the day.

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