Tuesday, August 22, 2017

Wednesday Watch

Evening Headlines
  • Wage Hikes in China Bring Jobs, Factories Back to Japan. Southeast Asia is in focus for Japanese off-shoring. While there is no end in sight to off-shoring by Japanese companies, signs are emerging that surging wages in China are encouraging at least some of them to bring jobs, factories and businesses back home. According to an annual survey of about 3,000 firms by the Japan External Trade Organization, among those that had recently moved or planned to move operations across national borders, 8.5 percent came back to Japan from China. In the first reversal since Jetro began asking the question in 2006, there were fewer cases -- just 6.8 percent -- going to China from Japan, according to poll released in March.
  • Citigroup Sees ‘Significant’ Inflows Into China's Bond Market. Citigroup Inc., which obtained a bond underwriting license in China last month, said there may be “significant” inflows into China’s debt market after the government started another channel for offshore investors to access local notes. The U.S. bank became the fifth foreign institution approved to underwrite non-financial corporate bonds in China’s interbank market last month. In July, overseas investors were allowed to invest via Hong Kong through the bond-connect program in the bigger of China’s two debt markets, which has $8.2 trillion of outstanding securities, about 89 percent of all the notes in China.
  • Asian Stocks Set to Rise as Risk Appetite Returns. Asian stocks are set to track gains on Wall Street as risk appetite returned to global markets with political tensions taking a back seat to optimism about the Trump administration’s efforts on business-friendly reforms. Futures contracts on Asian indexes pointed to a broadly firmer open. The S&P 500 Index jumped 1 percent and the Dow Jones Industrial Average added almost 200 points amid reports the Trump team and lawmakers may be making progress toward pro-business reforms. The risk-on tone lifted the dollar and weighed on havens from Treasuries to gold. Crude gained ahead of a U.S. government report that’s forecast to show stockpiles fell. Hong Kong trading is likely to be affected as Typhoon Hato moved closer to the city. Contracts on the Nikkei 225 Stock Average added 0.3 percent, while those on the Kospi index climbed 0.6 percent with futures on Australia’s main gauge.
  • Harvey Threatens Gulf Coast, Sending Gasoline Higher. The Gulf Coast from Corpus Christi, Texas, to Lake Charles, Louisiana, is home to nearly 30 refineries -- making up about 7 million barrels a day of refining capacity -- and is in the path of heavy rainfall expected to start as early as Friday. Flooding poses risks to operations, while torrential rains can shut units and cause supply disruptions.
Wall Street Journal:
21st Century Business Herald:
  • China's 2017 GDP Growth Expected to Exceed Target. Economic growth in 2017 may exceed target set at the beginning of this year as major indicators in 1H were better than expected, Wang Yiming, deputy director of State Council Development Research Center, wrote.
Night Trading 
  • Asian equity indices are +.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 81.0 -2.75 basis points. 
  • Asia Pacific Sovereign CDS Index 21.0 -.5 basis point.
  • Bloomberg Emerging Markets Currency Index 73.88 -.02%.
  • S&P 500 futures -.05%.
  • NASDAQ 100 futures -.05%.
Morning Preview Links

Earnings of Note

  • (AEO)/.16
  • (EV)/.68
  • (LOW)/1.63
  • (GES)/.10
  • (HPQ)/.42
  • (PVH)/1.63
  • (WSM)/.59
Economic Releases 
9:45 am EST
  • Preliminary Markit US Manufacturing PMI for August is estimated to rise to 53.5 versus 53.3 in July. 
  • Preliminary Markit US Services PMI for August is estimated to rise to 55.0 versus 54.7 in July.
10:00 am EST
  • New Home Sales for July are estimated at 610K versus 610K in June.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -3,257,250 barrels versus a -8,945,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -568,630 barrels versus a +22,000 barrel gain the prior week. Distillate supplies are estimated to rise by +31,000 barrels is estimated to rise by +702,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.29% versus a -.2% decline the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Kaplan speaking, Eurozone Services PMI report and the weekly MBA Mortgage Applications report could also impact trading today.
BOTTOM LINE:  Asian indices are 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 100% net long heading into the day.

Stocks Surging into Final Hour on Tax Reform Hopes, Diminishing Geopolitical Fears, Short-Covering, Tech/Biotech Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 11.54 -12.43%
  • Euro/Yen Carry Return Index 134.21 -.06%
  • Emerging Markets Currency Volatility(VXY) 7.30 -.27%
  • S&P 500 Implied Correlation 34.01 -14.0%
  • ISE Sentiment Index 122.0 +12.96%
  • Total Put/Call 1.0 +2.04%
  • NYSE Arms .86 -22.49%
Credit Investor Angst:
  • North American Investment Grade CDS Index 60.80 -2.26%
  • America Energy Sector High-Yield CDS Index 472.0 +2.12%
  • European Financial Sector CDS Index 55.42 -.60%
  • Western Europe Sovereign Debt CDS Index 5.78 +3.03%
  • Asia Pacific Sovereign Debt CDS Index 21.19 -1.12%
  • Emerging Market CDS Index 189.50 -1.15%
  • iBoxx Offshore RMB China Corporate High Yield Index 141.05 -.17%
  • 2-Year Swap Spread 25.50 -.5 basis point
  • TED Spread 31.75 +.25 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -26.0 +.5 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 73.88 -.04%
  • 3-Month T-Bill Yield 1.0% +2.0 basis points
  • Yield Curve 89.0 +1.0 basis point
  • China Import Iron Ore Spot $79.65/Metric Tonne -.35%
  • Citi US Economic Surprise Index -27.40 +.2 point
  • Citi Eurozone Economic Surprise Index 6.60 -2.0 points
  • Citi Emerging Markets Economic Surprise Index 19.60 +.1 basis point
  • 10-Year TIPS Spread 1.77 +1.0 basis point
  • 15.8% chance of Fed rate hike at Nov. 1 meeting, 42.7% chance at Dec. 13 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +75 open in Japan 
  • China A50 Futures: Indicating +38 open in China
  • DAX Futures: Indicating +7 open in Germany
  • Higher: On gains in my tech/retail/biotech/medical sector longs 
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 100% Net Long

Today's Headlines

  • China’s Robot Revolution May Affect the Global Economy. China is installing more robots than any other nation, and that may affect every other nation. Shipments jumped 27 percent to about 90,000 units last year, a single-country record and almost a third of the global total, and will nearly double to 160,000 in 2019, the International Federation of Robotics estimates.
  • GOP Eyes Budget Maneuver to Allow $450 Billion More in Tax Cuts. (video) Under the proposal, the GOP would not account for things like expiring tax breaks when gauging the budgetary impact of tax legislation -- giving tax writers more room for cuts. Senate budget and tax panels are discussing the move to a “current policy” baseline -- instead of the standard “current law” baseline -- said the people who asked not to be identified because the discussions are private. The chief House tax writer, Kevin Brady, also signaled openness to the approach last month, saying it would lead to deeper tax cuts.
  • Home Prices in U.S. Rose 6.6% in the Second Quarter, FHFA Says. Prices rose 1.6 percent on a seasonally adjusted basis from the previous three months, the Federal Housing Finance Agency said in a statement Tuesday. In June, prices climbed 0.1 percent from May, less than the 0.5 percent average estimate of 12 economists.
  • Energy Transfer Suit Claims Greenpeace Incites Eco-Terrorism. Energy Transfer Partners LP accused Greenpeace International, Earth First! and other groups of inciting terrorist acts and vandalism to generate publicity and raise money for their causes while hampering the Dakota Access pipeline majority owner’s ability to raise money for projects.
Wall Street Journal:

Bear Radar

Style Underperformer:
  • Mid-Cap Value +.5%
Sector Underperformers:
  • 1) Hospitals -.9% 2) Gold & Silver -.5% 3) Tobacco -.5%
Stocks Falling on Unusual Volume: 
Stocks With Unusual Put Option Activity:
  • 1) NWL 2) SAVE 3) PSX 4) SM 5) EL
Stocks With Most Negative News Mentions:
  • 1) TEDU 2) HAIN 3) CPN 4) NXTM 5) TNET