Evening Headlines
Bloomberg:
- China Stocks Extend Rout as Traders Lose Faith in State Support. Chinese stocks fell, extending the biggest one-day loss since 2007, as concern grew unprecedented government intervention will fail to shore up equities. The Shanghai Composite Index slid 4.8 percent to 3,548.65 at 10:01 a.m. local time, dragged down by technology and industrial companies. More than 30 shares dropped for every one that climbed in the gauge, which plunged 8.5 percent on Monday. Chinese traders reduced leveraged stock bets on Monday by the most in two weeks as the stock plunge erased $613 billion in value. The securities regulator assured investors in a statement late Monday the government hasn’t withdrawn support for equities. “An absence of late-night measures after such a big crash is unnerving retail investors,” said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. “The government’s current intervention was not able to stop the market’s slide and only delayed the decline.” Chinese stocks traded in Hong Kong fell past the low reached in the depths of this month’s rout. The Hang Seng China Enterprises Index dropped 1.6 percent, putting the measure on course for the lowest close since December.
- Analyst Who Predicted Bottom for Shanghai Stocks Sees Further 14% Plunge. (graph) Chinese stocks will decline by an additional 14 percent over the next three weeks as the market demonstrates a trading pattern that mimics that of the U.S. crash in 1929, according to Tom DeMark, who predicted the bottom of the Shanghai Composite Index in 2013.
- End of the Affair? China’s Love of Stock Leverage Is Waning. “Let women fall in love with managing wealth, let men borrow to invest in stocks,” says the recorded message at an online lending company in Shanghai. “For stock loans, press two.” It’s a message that customers won’t hear for much longer after the firm pledged to fall into line with Chinese government efforts to limit online funding for stock purchases. Taming debt could be a double-edged sword, aiding the government’s efforts to curb market volatility while also limiting the potential for stocks to bounce back.
- Treasuries Are Stars of the Markets as Traders See Deflation. Treasuries are becoming the stars of the financial markets as tumbling commodities and stocks raise concern inflation will turn to deflation. U.S. government securities have returned 1 percent in July, headed for their biggest gain since January, based on Bloomberg World Bond Indexes. With the Bloomberg Commodity Index down 10 percent this month, Treasuries are beating the gauge by the most in three years.
- Asian Stocks Fall as China Rout Triggers Drop in Global Equities. Asian stocks dropped after a rout in Chinese equities drove global shares lower. The MSCI Asia Pacific Index declined 0.7 percent to 139.94 as of 9:04 a.m. in Tokyo, extending its five-day fall to 3.7 percent.
- Oil Extends Decline in Bear Market Amid Signs Glut Will Persist. Oil extended declines in a bear market amid signs producers from the Middle East to the U.S. will continue adding supplies to a global glut. Futures slid as much as 1 percent in New York, dropping for a fifth day. Oil exports from southern Iraq rose to a record this month, while a Bloomberg survey forecasts U.S. crude stockpiles expanded for a second week through July 24. Brent in London closed Monday more than 20 percent lower than its peak reached in May, meeting the common definition of a bear market. Oil’s rebound from a six-year low has faltered on signs the global surplus will persist as the U.S. produces near the fastest rate in three decades and leading OPEC members pump at a record. The Bloomberg Commodity Index dropped for a fourth straight session Monday, extending its plunge to a 13-year low.
- Credit Suisse Sees ‘Extraordinary’ Steel Exports From China. Steel exports from China have increased to extraordinary levels as demand in the world’s largest producer slows and the surge in shipments threatens to spark a rise in trade disputes, according to Credit Suisse Group AG. Overseas sales from China rose to 52.4 million metric tons in the first half of the year, in line with Japan’s total crude-steel production of 52.6 million tons for the period, Tokyo-based analyst Shinya Yamada said in a report. As export growth continues, trade frictions could escalate, Yamada wrote.
- Iron Ore Bargain-Hunting by China Wins Reprieve for Shipping. The bear market in iron ore is sending Chinese steel mills on a bargain hunt and giving shipping companies their best rates this year. Analysts and brokers are already warning the good times won’t last. The acceleration in bookings of Capesizes, 960-foot-long vessels that dominate the ore trade, pushed daily rates to the most since November this month. They are mainly headed to China, which added 3 million metric tons of imported ore to stockpiles at ports in July, the biggest expansion since May 2014. That replenishment may be short-lived. China’s steel production, the driver of demand for iron ore, will remain flat before declining by the mid-2020s, according to the World Steel Association. Consumption is being eroded by slowing economic growth and a shift toward services from manufacturing.
Wall Street Journal:
- China Stocks Tumble 8.5%, Calling Into Question Beijing’s Market-Rescue Effort. Chinese shares suffer their biggest one-day percentage drop in more than eight years. The Chinese government is struggling to contain the collapse of a stock-market rally it helped engineer, announcing late Monday that it will step up its purchases of shares to prop up sagging indexes. Chinese shares suffered their biggest one-day percentage drop in over eight years Monday, wiping out hundreds of billions of dollars of market value and putting an end to...
- Pell Grants to Be Restored for Prisoners. Obama administration plans a 3- to 5-year test to see if college classes help reduce prison recidivism. The Obama administration plans to restore federal funding for prison inmates to take college courses, a potentially controversial move that comes amid a broader push to overhaul the criminal justice system. The plan, set to be unveiled Friday by the secretary of education and the attorney general, would allow potentially thousands of inmates in the U.S. to gain access to Pell grants, the...
- The Syria Sham and the Iran Deal. Syria cheated on its chemical commitments. Iran will cheat on its nuclear ones. Obama provides cover for both.
Fox News:
- DOJ facing bipartisan criticism for move to 'undermine' gov't watchdogs. The Justice Department is facing bipartisan criticism for clamping down on government watchdogs' access to documents, in a decision lawmakers say defies Congress and undermines those tasked with rooting out government misconduct.
- Planned Parenthood ‘sponsors’ deny funding organization amid hidden camera controversy. (video) Planned Parenthood once boasted a list of sponsors that read like a who's who of the Fortune 100, but now some of the biggest companies say they never gave money to the embattled organization.
CNBC:
- Why this China stock market plunge could be different. (video) "The real worry is that this undermines Chinese people's confidence in the real economy and the government's ability to make policy," says an analyst.
Business Insider:
Evening Recommendations
- None of note
Night Trading
- Asian equity indices are -1.0% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 110.25 -.75 basis point.
- Asia Pacific Sovereign CDS Index 63.25 +1.75 basis points.
- S&P 500 futures +.28%.
- NASDAQ 100 futures +.28%.
Earnings of Note
Company/Estimate
- (AMG)/3.01
- (AGCO)/1.01
- (ARG)/1.15
- (AKS)/-.39
- (AUO)/.55
- (BP)/.09
- (CPLA)/.81
- (CIT)/.66
- (CNX)/-.05
- (GLW)/.37
- (CMI)/2.56
- (DHI)/.50
- (DD)/1.22
- (FSS)/.27
- (F)/.37
- (IR)/1.23
- (IPI)/.01
- (JBLU)/.44
- (LH)/2.03
- (LYB)/2.73
- (MRK)/.81
- (NOV)/.64
- (PCAR)/1.15
- (PFE)/.52
- (PCP)/3.01
- (UPS)/1.27
- (WYN)/1.26
- (AFL)/1.52
- (AKAM)/.58
- (APC)/-.52
- (BWLD)/1.28
- (CHRW)/.86
- (ESRX)/1.40
- (GILD)/2.71
- (IACI)/.59
- (PNRA)/1.63
- (RGR)/.78
- (TWTR)/.04
- (X)/-.60
- (YELP)/.16
Economic Releases
9:00 am EST
- The S&P/CS 20 City MoM SA for May is estimated to rise +.3% versus a +.3% gain in April.
- The S&P CaseShiller US HPI MoM for May is estimated to rise +.1% versus a -.02% decline in April.
9:45 am EST
- The Preliminary Markit US Services PMI for July is estimated to rise to 55.0 versus 54.8 in June.
- Consumer Confidence for July is estimated to fall to 100.0 versus 101.4 in June.
- Richmond Fed Manufacturing Index for July is estimated to rise to 7.0 versus 6.0 in June.
- None of note
Other Potential Market Movers
- The UK GDP report, $26B 2Y T-Note auction, weekly US retail sales reports, Keefe Bruyette Community Bank conference, (INTC)/(MU) joint press conference and the (PII) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.