Evening Headlines
Bloomberg:
- China’s Stocks Extend Rout Amid Concern State to Reduce Support. China’s stocks slumped, extending Tuesday’s plunge, amid growing
concern the government will pare back support for the equity market. The Shanghai Composite Index dropped 5 percent to 3,560.17 at 11:05
a.m. local time, poised for its lowest close since July 8 and falling
below the 200-day moving average. About 39 stocks declined for each that
rose on the gauge, which sank 6.2 percent on Tuesday. The Hang Seng
China Enterprises Index slid 1.9 percent to a nine-month low.
- These Are the Biggest Losers Since the Yuan's Shock Devaluation.
A week has passed since China roiled global markets with its first
major devaluation in more than two decades. The epochal move hit
beleaguered emerging markets the hardest, contributing to new record
lows in the currencies of Colombia and Turkey. From Lima to Kuala Lumpur, here are the biggest losers since the orchestrated drop in the people's currency.
- Malaysia Riskier Than Mexico Has UBS Warning of Worse to Come. Malaysia is paying the price for weak foreign currency holdings and
messy politics as the cost to protect its debt soars to near a four-year
high. UBS Group AG predicts even more pain ahead. The spread on the nation’s credit-default swaps widened 74 basis
points in 2015 to 180 this week, a level not seen since October 2011.
It’s the worst performing in Asia and almost 40 basis points more than
similar-rated oil-producer Mexico, which the Swiss bank says best
illustrates the malaise for Malaysia. “The moves in CDS are telling us that the market is increasingly
nervous about the central bank’s ability to manage the foreign-exchange
selloff in light of its relatively light reserves position,” said Manik
Narain, a London-based strategist at UBS. “Malaysia’s situation may now
be more precarious.”
- Japan Export Growth Slows in July, Putting Pressure on Manufacturers. Japan’s
export growth slowed in July, a sign that foreign demand is
failing to provide much support to the world’s third-biggest economy.
Shipment values increased 7.6 percent from a year earlier, slowing
down from a 9.5 percent gain in June, the Ministry of Finance said
on Wednesday. The volume of exports slipped 0.7 percent. Japan’s economy
is struggling to emerge from a contraction last quarter driven by weak
consumption and the biggest tumble in exports in four years. A slowdown
in China is taking a toll, with export volumes to Japan’s biggest
trading partner falling for a sixth month on weaker demand for cars.
- Bank of Japan pushing on a string as shrinking economy needs tow. Just as the Bank of Japan most needs to revive a contracting economy,
the effectiveness of its monetary policy is at a record low. The
money multiplier, a gauge of activity generated when the central bank
eases, fell to 3.92 last month, the lowest in data dating to 2003.
That's even as BOJ debt purchases of as much as 12 trillion yen ($97
billion) a month caused the monetary base to balloon about 150 percent.
The phrase "pushing on a string" was adopted during the 1930s Great
Depression to describe the difficulty in reviving demand with fund
injections.
- ‘Buffett Indicator’ Flashes Warning on Japan’s Stock-Price Gains. One of Warren Buffett’s favorite gauges for valuing share prices is flashing warning signals
for Japan after data showing that the world’s third-largest economy
shrank in the second quarter while the stock market kept rising. Japan’s gross domestic product report this week makes for sobering
reading, with the economy contracting an annualized 1.6 percent in the
second quarter as consumers cut back purchases, businesses trimmed
spending, and exports declined. Yet, the broader Topix index reached to
the highest level since 2007 this month.
- Yen Traders Sense Currency Bottoming Even as Fed Rate Rise Looms. Traders are betting the yen is about as weak as it’s going to get
this year, cutting their expectations for price swings by the most among
major currencies this year, even as the Federal Reserve may increase
interest rates next month. The yen is the only major currency where traders are paying a premium
on options to protect against the exchange rate strengthening versus
the dollar in three months. A gauge of demand for hedges against price
swings over the next year sank to the lowest since November. U.S. policy
makers release minutes from their July meeting later on Wednesday.
- Daewoo Shipbuilding Falls on Concern Liabilities Exceed Assets. Daewoo Shipbuilding & Marine Engineering Co. fell to the lowest
price in almost 13 years in Seoul trading on concern that its
liabilities outpace assets. Shares of the world’s second-largest shipbuilder dropped 6.2 percent
to 6,070 won as of 10:42 a.m., the lowest intraday level since November
2002. The stock earlier declined as much as 7.9 percent and is among the
10 worst performing stock among the 1,002 members of the MSCI Asia
Pacific Index today.
- Won Forwards Approach Four-Year Low as China Deters Risk Taking. Offshore forward contracts in the won traded near a four-year low on
concern a slump in Chinese equities will spur outflows from South
Korean assets. China’s benchmark stock index dropped the most in three weeks on
Tuesday on speculation authorities will pare back efforts to support the
market. South Korea’s Kospi index fell to a six-month low Wednesday.
Global funds have pulled almost $1 billion from local equities this
month. One-month non-deliverable forwards fell 0.3 percent to 1,186.86 a
dollar as of 10:16 a.m. in Seoul, data compiled by Bloomberg show. They
reached 1,196.85 on Aug. 12, the lowest since October 2011. In onshore
trading, the spot rate was little changed at 1,184.70. The won has
weakened 7.9 percent this year.
- Asian Stocks Fall as Oil Decline Signals Slowing China Economy. Asian stocks fell a fourth day as a deepening commodities selloff
raised concern growth may be slowing in China, and as investors await
clues from the Federal Reserve on the timing of a U.S. interest-rate
increase.
The MSCI Asia-Pacific Index dropped 0.1 percent to 136.83 as of 9:01 a.m. in Tokyo, extending a seven-month low.
- OPEC's ‘Fragile Five’ Face Rising Cost in the Fight for Oil Market Share. The costs of OPEC’s plan to protect members' share of the oil market by out-producing rivals are mounting. As
oil prices slump to six-year lows, the risks of worsening political
turmoil are rising in the organization’s most vulnerable nations. This
includes Algeria, Iraq, Libya, Nigeria and Venezuela, a group dubbed the
`Fragile Five' by RBC Capital Markets Ltd.
- One of the Most Successful Trading Strategies This Year May be Coming to an End. (graph) Investors who've been minting money according to the Wall Street
adage that the trend is your friend just got a reminder that nothing
works forever. A Citigroup Inc. index that tracks U.S. momentum
stocks like Apple Inc. and Netflix Inc. did something last week it
hadn't done since June -- it fell. While still trouncing the Standard
& Poor's 500 Index in 2015, analysts at the bank have warned that
the strategy is approaching a threshold where rotations have occurred in
the past.
- Bond Traders Aren’t Buying Into Good News on U.S. Economy. Good
economic news just isn’t that bad for Treasuries any more. The reaction
in the $12.8 trillion U.S. government bond market to
surprisingly strong data has become more muted in recent months,
according to Goldman Sachs Group Inc. At the same time, the influence of
unexpectedly weak data has grown for longer maturities, while staying
about the same for others, the New York-based bank wrote in a report
published Tuesday. That’s a sign investors are taking a dim view of the world’s biggest
economy, even as the Federal Reserve prepares to raise interest rates
for the first time in a decade.
Wall Street Journal:
- Yuan’s Devaluation Brings Losses for Some. Investors assumed China would keep the currency stable. They were wrong. In the rough-and-tumble world of global currencies, where exchange rates
can swing by double-digit percentages in days, the yuan’s 3% fall
against the U.S. dollar marked a minor change. But it is proving
cataclysmic for investors who watched the yuan climb for a decade and
anchored bets around the notion it would hold steady.
Fox News:
- Billionaire George Soros warms up to coal as stock prices hit bottom. Billionaire investor George Soros, who has demonized fossil fuels for
years through his think tanks and political contributions, seems to
have warmed up to Big Coal now that stocks are dirt cheap. The left-wing hedge fund legend has raised eyebrows with major
purchases of stock in two large coal companies, firms his critics say he
helped bring to their knees. While buying low is the hallmark of any
shrewd investor, buying coal goes against the political and
environmental ideology Soros has long espoused. “I find it very interesting that George Soros would buy shares in
those coal companies,” said Daniel Simmons, vice president for Policy at
the Washington DC-based free market energy group, Institute for Energy
Research. “I am confused given the non profits he funds and how hard
they have worked to demonize coal.”
MarketWatch.com:
CNBC:
- Hackers post stolen Ashley Madison user data: Report. Hackers who breached the networks of cheating website
AshleyMadison.com have made the sensitive customer information publicly
available, according to a report by Wired. Almost 10 gigabytes worth of data, including
member account details, log-ins and payment transaction details, were
posted on Tuesday to the dark web.
Reuters:
- U.S. FDA approves 'female Viagra' with strong warning. The first drug to
treat low sexual desire in women won approval from U.S. health
regulators on Tuesday, but with a warning about potentially
dangerous low blood pressure and fainting side effects,
especially when taken with alcohol. The U.S. Food and Drug Administration said the pink pill, to
be sold under the brand name Addyi and made by privately held
Sprout Pharmaceuticals, will only be available through certified
and specially trained health care professionals and pharmacies
due to its safety issues. Addyi, whose chemical name is flibanserin, is designed for
premenopausal women whose lack of sexual desire causes distress.
The condition is formally known as hypoactive sexual desire
disorder, or HSDD.
Financial Times:
-
Surge in emerging market capital outflows hits growth and currencies. A
surge of capital gushing out of emerging markets has risen toward $1tn
over the past 13 months, roughly double the amount that fled during the
financial crisis amid slumping confidence in the world’s developing
economies. The sustained exodus of capital reinforces concerns that
emerging market economies, suffering slowing growth and weakening
currencies, are relinquishing their longstanding role as locomotives for
global growth to become a drag on demand instead.
Evening Recommendations
Night Trading
- Asian equity indices are -1.5% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 120.5 +4.25 basis points.
- Asia Pacific Sovereign CDS Index 71.0 -.25 basis point.
- NASDAQ 100 futures -.13%.
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The CPI for July is estimated to rise +.2% versus a +.3% gain in June.
- The CPI Ex Food & Energy for July is estimated to rise +.2% versus a +.2% gain in June.
- Real Avg Weekly Earnings YoY for July.
10:30 am EST
- Bloomberg
consensus estimates call for a weekly crude oil inventory decline of
-354,000 barrels versus a -1,682,000 decline the prior week. Gasoline
supplies are estimated to fall by -1,090,000 barrels versus a -1,251,000
barrel decline the prior week. Distillate inventories are estimated to
rise by +1,490,000 barrels versus a +2,994,000 barrel gain the prior
week. Finally, Refinery Utilization is estimated to fall by -.36% versus
unch. prior.
2:00 pm EST
- US Fed releases minutes from July 28-29 FOMC meeting.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Kocherlakota speaking, weekly MBA mortgage applications report
and the (CAT) investor conference call 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 mixed and to
weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.
