Thursday, September 03, 2015

Friday Watch

Posted by Gary .....at 11:21 PM
Evening Headlines 
Bloomberg:    
  • China Stocks Too Far Gone to Save for Magnus Seeing Deeper Rout. Chinese stocks are nowhere near bottoming out, said George Magnus, a senior independent economic adviser to UBS Group AG, who correctly predicted in July the rout would deepen. Policy makers should stop intervening in the market and allow the Shanghai Composite Index fall to between 2,500 and 2,800, in line with its long-run average, Magnus said. For equities to rally from there, investors need to see improving company profits and evidence that the government is committed to reform, he said. The Shanghai gauge slipped to 3,160.17 on Wednesday, before markets shut for a two-day holiday. “When the equity market was falling in August, some people said this is a buying opportunity, that this is a multi-year bull market," said Magnus. “I don’t think we will see that unless there is a very significant change in the politics of China. We need to see significant change in the way in which the economy is working and in the way in which the reform is working and both of these things are on the rack at the moment."
  • China Prods Industry to Make a Great Leap. A new plan favors enterprises that are green and less labor-intensive. China’s addiction to coal doesn’t just foul its air. It pollutes the ground, too, because power plants often dump leftover ash in landfills. Yulong Eco-Materials has found a use for that plentiful waste. The company, based in the central Chinese province of Henan, uses the ash to make bricks. “The material is easy to get,” says Sam Wu, chief financial officer of Yulong, which had sales of $44.5 million in the fiscal year ended June 2014.
  • Emerging Markets Bring Woes to G-20 as Fed Ponders Rate Increase. Emerging-market policy makers are set to confront their twin fears in person. The prospect of higher U.S. interest rates alongside the deepening slowdown and devaluation in China are chilling investor sentiment toward the onetime powerhouses of global growth, roiling currencies and leaving the MSCI emerging market index down more than 16 percent so far this year.
  • Korean Bond Yield Drops to Record on Rate-Cut Bets as Won Falls. South Korea’s bonds rose, pushing the three-year yield to a record low, and the won fell for a third day as a deteriorating outlook for the economy spurred speculation interest rates will be cut. Gross domestic product rose in the second quarter at the slowest pace in two years, data showed Thursday, and Finance Minister Choi Kyung Hwan was cited by the Wall Street Journal as saying the government lowered its 2016 growth forecast to 3.3 percent from 3.5 percent. Exports dropped in August by the most since 2009, the government reported this week. The Bank of Korea reduced its benchmark interest rate to an unprecedented 1.5 percent in June and next meets to review borrowing costs on Sept. 11.
  • Japan's Topix Heads for Longest Weekly Loss Streak in 19 Months. Japan’s Topix index headed for its longest losing weekly streak since February 2014 as investors await a U.S. jobs report to provide the last major clue on the state of the world’s biggest economy before the Federal Reserve next meets. The Topix slipped 0.7 percent to 1,464.21 as of 9:25 a.m. in Tokyo, swinging from an early gain of 0.7 percent. The measure is on course for a 5.6 percent drop this week, its fourth straight weekly loss. Two shares fell for each that rose on the gauge, with volume 10 percent below the 30-day intraday average. The Nikkei 225 Stocks Average lost 0.7 percent to 18,055.65. The yen rose 0.2 percent to 119.89 per dollar, strengthening for a second day.
  • Asian Stocks Resume Retreat Amid Jitters Ahead of Payrolls Data.The MSCI Asia Pacific Index dropped for the fourth time in five days, losing 0.3 percent by 10:10 a.m. in Tokyo as Japan’s Topix index declined 0.8 percent. The Asia-Pacific benchmark has fallen 4 percent this week, on track for its longest run of weekly losses since June 2011.
  • Forced Asset Sales Seen as Banks Squeeze Canada Oil Companies. It’s crunch time on asset sales for Canada’s struggling oil producers. Starting in earnest after Labor Day, oil and natural gas companies will begin the twice-yearly pilgrimage to their banks to discuss funding. It’s not going to be easy, with companies including Penn West Petroleum Ltd. under pressure to sell assets to keep the money flowing. With no relief from the price of oil, which has tumbled under $50 a barrel, companies are cutting more staff, reducing dividends and even selling hedging positions on commodities and currencies to boost cash flow. Banks will next likely force some producers to sell their best assets to avert bankruptcy, said Rafi Tahmazian, senior portfolio manager at Canoe Financial LP in Calgary.
  • Energy Creditors Balk at Deals Aimed at Saving Miners, Drillers. Creditors of drillers and miners are getting fed up with depressed commodities prices and are clamping down on bond deals that would help heavily indebted companies to ride out the slump. The arrangements, called debt exchanges, are designed to help borrowers cut their obligations and buy time by swapping old securities for fresh ones with longer maturities. In most cases, lenders accept upfront losses based on the expectations that they’ll eventually recuperate their investments, and more, when the companies start to grow again.
  • U.S. CLOs Have Material Exposure to Commodities, Moody's Says. Collateralized loan obligations that were created after the financial crisis in the U.S. have material exposure to the commodities sector, which poses an increased risk to investors due to the plunge in crude prices. That’s the finding of a report published yesterday by Moody’s Investors Service, which shows that as of June the top 20 individual CLOs with the largest exposures to companies in the commodities-related sector ranged from 14.4 percent to 21.3 percent of their holdings. A fund managed by GoldenTree Asset Management LP had the biggest exposure followed by two CLOs issued by Halcyon Asset Management LLC, the report shows. "We are increasingly concerned about default risks among borrowers affected by commodity markets," Ramon Torres, a Moody’s analyst, said in the report. "Market signals also suggest increased defaults in the future." 
  • The U.S. Dollar Is Stronger Than Steel. The U.S. industry is battling a tide of cheap imports. The recent devaluation of the yuan could make Chinese steel even more attractive to U.S. buyers. Exports from Brazil and Russia have also jumped as the real and ruble have fallen sharply against the greenback.U.S. producers have had no choice but to pull back. 
  • The Oil-Sands Glut Is About to Get a Lot Bigger. The last place oil producers want to be when prices plummet to profit-demolishing lows is midstream on a billion-dollar project in one of the costliest parts of the planet to extract crude. Yet that’s exactly where half a dozen oil sands operators from Suncor Energy Inc. to Brion Energy Corp. find themselves with prices for Canadian oil now hovering around $30 a barrel. While all around them projects have been postponed or canceled, their investments were judged too far along when the oil game suddenly moved from offense to defense. These projects will add at least another 500,000 barrels a day -- roughly a 25 percent increase from Alberta -- to an oversupplied North American market by 2017. For companies stuck spending billions in a downturn, the time required to earn back their investments will lengthen considerably, said Rafi Tahmazian, senior portfolio manager at Canoe Financial LP.
  • Treasuries Are the Worst Investment, Except for All the Others. Treasuries are cementing their status as the world’s market oasis of choice -- at least for investors who aren’t stashing their money under the mattress. Even though the Federal Reserve may be on the cusp of raising interest rates, 10-year Treasuries outpaced their Group of Seven peers during the August equities swoon. The U.S. notes started last month yielding one percentage point above the average of the six other G-7 members. The gap shrank to 0.83 percentage point at the height of the market tumult, and remains narrower than it was on July 31, even after the European Central Bank signaled Thursday that it may expand its bond buying. 
Wall Street Journal:
  • South Korea Cuts Growth Forecast on Chinese Slowdown Risk. The Asian nation’s finance minister says a sharp deterioration of the Chinese economy would have an ‘extremely huge impact’. South Korea’s government has cut its forecast for the nation’s economic growth next year because of the risks from China’s slowdown, Seoul’s finance minister said. Close economic interlinkage between China and South Korea also means a sharp deterioration of the Chinese economy would have a “extremely huge impact” on South Korea, although a so-called hard landing for China is unlikely, South Korean Finance Minister Choi Kyung-hwan said in an interview. Concerns about the Chinese economy are particularly acute in South Korea, an export-dependent nation that sends around a quarter of its overseas shipments to China. South Korean exports fell 14.7% from a year earlier in August—the sharpest drop in six years—as exports to China slid 8.8%.
  • Migrant Crisis Divides Europe. Germany and France press to end squabble over refugee flow as Hungarian leader says his country doesn’t want ‘a large number of Muslim people’.
  • Highmark Is Latest to Trim Offerings Under Health Law. Insurer retrenches amid losses, focusing on plans that have more limited choices of providers. Highmark Health said it would reduce its range of offerings on the Affordable Care Act marketplaces, becoming the latest insurer to retrench amid steep financial losses. 
  • Ben Carson Wins in Matchup With Donald Trump, Poll Shows. If Donald Trump has an Achilles’ heel in the Republican presidential nominating contest, it just might be the candidate who is least like him: soft-spoken retired neurosurgeon Ben Carson. In a matchup with Mr. Carson, Mr. Trump didn’t even come close. He lost with 36% of GOP voters’ support, compared with 55% for Mr. Carson. Neither candidate has ever held elected office.
  • The Department of Hillary. How it is that the nation’s diplomatic corps has become an arm of the Clinton presidential campaign? 
Fox News:
  • US under new pressure to absorb Syrian refugees as Europe faces crisis. (video) The surge of refugees fleeing Syria and other war-torn regions is putting immense pressure not only on Europe but also the United States, as the Obama administration faces calls to take a more active role in the humanitarian crisis. At the same time, some lawmakers on Capitol Hill are warning that loosening immigration rules to take them in would pose a serious security risk. For the Obama administration – and the one that succeeds it – there are no easy answers.
MarketWatch.com: 
CNBC:
Reuters:
  • Bridgewater's 'All Weather Fund' slumps amid market storm. An $80 billion portfolio managed by hedge fund titan Ray Dalio's Bridgewater Associates and widely held by many pension funds slumped in August and some investors blame the strategy of such funds for the eruption in volatility that slammed stocks and commodities. Bridgewater's "All Weather Fund" fell 4.2 percent in August and is down 3.76 percent so far this year, according to three people familiar with the fund's performance on Thursday.
  • IIF warns of emerging market sell-off of crisis proportions. The current slump in emerging market stocks and currencies has reached "crisis proportions" the Institute of International Finance warned on Thursday. The Washington-based finance industry body said China's woes had been a key catalyst in the fast-moving rout, which has seen MSCI's global emerging market stocks index slump 40 percent. Vast swathes of emerging market currencies have also taken a battering, but rather than just making countries more competitive, for some it has created terms of trade and inflation problems. "The decline in equity and currency values across a range of emerging markets has reached crisis proportions," the IIF said, adding that emerging market bond markets could also soon come under pressure.
Telegraph:
Evening Recommendations 
Robert Baird:
  • Rated (VC) Outperform, target $123.
Night Trading
  • Asian equity indices are -1.0% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 138.5 -.25 basis point.
  • Asia Pacific Sovereign CDS Index 81.5 -1.5 basis points.
  • S&P 500 futures -.42%.
  • NASDAQ 100 futures -.48%.

Earnings of Note
Company/Estimate
  • None of note
Economic Releases
8:30 am EST
  • The Change in Non-Farm Payrolls for August is estimated to rise to 218K versus 215K in July.
  • The Unemployment Rate for August is estimated to fall to 5.2% versus 5.3% in July.
  • Average Hourly Earnings for August are estimated to rise +.2% versus a +.2% gain in July.
  • The Labor Force Participation Rate for August is estimated to rise to 62.7% versus 62.6% in July.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking and the German Factory Orders report could also impact trading today.
BOTTOM LINE: Asian indices are 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.
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Stocks Slightly Higher into Afternoon on Central Bank Hopes, Oil Bounce, Less Eurozone/Emerging Markets Debt Angst, Gaming/Homebuilding Sector Strength

Posted by Gary .....at 2:38 PM
Broad Equity Market Tone:
  • Advance/Decline Line: About Even
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 25.92 -.65%
  • Euro/Yen Carry Return Index 139.50 -1.17%
  • Emerging Markets Currency Volatility(VXY) 12.26 +.08%
  • S&P 500 Implied Correlation 64.32 +4.93%
  • ISE Sentiment Index 60.0 -.2%
  • Total Put/Call 1.1 -16.0%
  • NYSE Arms 1.07 +81.75% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 82.33 -.78%
  • America Energy Sector High-Yield CDS Index 1,841.0 +.78%
  • European Financial Sector CDS Index 81.84 -2.7%
  • Western Europe Sovereign Debt CDS Index 21.28 -7.6%
  • Asia Pacific Sovereign Debt CDS Index 81.40 -2.05%
  • Emerging Market CDS Index 350.52 -2.13%
  • iBoxx Offshore RMB China Corporates High Yield Index 116.84 +.02%
  • 2-Year Swap Spread 14.25 +.75 basis point
  • TED Spread 32.25 +3.0 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -24.0 -.5 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .02% -1.0 basis point
  • Yield Curve 147.0 -1.0 basis point
  • China Import Iron Ore Spot $56.50/Metric Tonne -.35%
  • Citi US Economic Surprise Index -14.7 +1.2 points
  • Citi Eurozone Economic Surprise Index 27.1 +2.6 point
  • Citi Emerging Markets Economic Surprise Index -23.2 +.3 point
  • 10-Year TIPS Spread 1.54 -2.0 basis points
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 4.39 +.21
Overseas Futures:
  • Nikkei 225 Futures: Indicating +59 open in Japan 
  • China A50 Futures: Indicating n/a open in China
  • DAX Futures: Indicating -87 open in Germany
Portfolio: 
  • Slightly Lower: On losses in my biotech/medical sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 25% Net Long
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Today's Headlines

Posted by Gary .....at 2:17 PM
Bloomberg: 
  • Draghi Unveils Revamped QE Program as ECB Downgrades Outlook. (video) Mario Draghi unveiled a revamp of quantitative easing and signaled officials might expand stimulus if the rout in financial markets continues to weigh on growth and inflation. The European Central Bank president said in Frankfurt on Thursday that the Governing Council raised the share of bonds the ECB can buy to 33 percent of each issue from 25 percent, and that policy makers are ready to make more adjustments to ensure the full implementation of the 1.1 trillion-euro ($1.2 trillion) program. A weaker global outlook prompted an across-the-board reduction of the institution’s growth and consumer-price forecasts through 2017. The euro slid to a two-week low.
  • ECB Bond-Buying Tweak Is Less Than Meets the Eye, ABN Amro Says. European Central Bank President Mario Draghi sparked a rally in euro-area government bonds Thursday when the ECB increased a cap on the amount of securities it’s able to buy under its stimulus program to 33 percent from 25 percent. To ABN Amro Bank NV, this is no game changer. That’s because the increase is only likely to be applied to bonds that were issued before 2013 as they had no collective action clauses, according to Kim Liu, a fixed-income strategist at ABN Amro in Amsterdam. 
  • Foreigners Flee Japan Stocks at Fastest Pace Since at Least 2004. Global investors are pulling money out of Japan’s equity market at the fastest pace since at least 2004, according to Mizuho Securities Co. Foreigners last week sold a net 1.85 trillion yen ($15.4 billion) of Japanese stocks and equity index futures, the biggest combined outflow since Mizuho began tracking the data more than a decade ago, said Yutaka Miura, a Tokyo-based senior technical analyst at the brokerage. Investors are fleeing amid concern about China’s economic outlook and the prospect of higher interest rates in the U.S., he said.
  • Falling Currencies Raise Debt-Service Fears Across Africa. In the past decade, countries across Africa, encouraged by surging commodity prices and a global appetite for high-risk debt, sold dollar bonds to finance everything from roads to railways to tuna-fishing fleets. Now commodity prices have halved and African currencies are tanking, making the bond payments tougher and raising the possibility of a debt crisis on the world’s poorest continent. The risk of such an outcome is denting the outlook for countries from Ghana to Mozambique. Africa in recent years boasted most of the world’s fastest-growing economies and lured investors hungry for assets yielding more than those in the rich world.
  • Global Investment Banks May See Revenue Drop, JPMorgan Says. Global investment banks may see revenue drop 19 percent in the third quarter, lowering earnings per shares across the industry, as a surge in volatility caused by turmoil in China recedes, according to analysts at JPMorgan Chase & Co. “Recent strong turnover, especially in equities, could decline materially once markets settle -- not just in Asia but globally,” analysts led by Kian Abouhossein wrote in a report on Thursday. “Although volatility is good for investment banks,” it “could impact deal completion in the third quarter and potentially the fourth quarter,” they wrote, when cutting their estimates for earnings-per-share by an average of 2 percent to 3 percent through 2017. 
  • European Stocks Accelerate Gains as Draghi Rides to the Rescue. The Stoxx Europe 600 Index climbed as much as 2.9 percent, before closing 2.4 percent higher. The gauge halted a rout yesterday, after posting the worst monthly performance in four years and tumbling further earlier this week amid concern over a slowdown in China.
  • Aramco Cuts October Crudes to U.S. as Refinery Demand Falls. Saudi Arabia, the world’s largest crude exporter, cut pricing for all October oil sales to the U.S., widening the discount on its Medium grade for the first time in eight months, with refining demand plunging after the end of the summer driving season. State-owned Saudi Arabian Oil Co. cut its official selling price for October. Arab Medium sales to U.S. buyers by 50 cents a barrel, to 55 cents less than the regional benchmark, the company said in an e-mailed statement Thursday. Light crude will sell at a premium of 95 cents a barrel to the regional benchmark, 60 cents below the differential in September. Crude demand at U.S. plants fell below 2014 levels last week for the first time since March. Oil inventories rose by the most in four months as wells are still producing near the highest level in 40 years. The profit margin for making gasoline and diesel along the Gulf Coast, home to more than half of U.S. refining capacity, slid below $10 a barrel for the first time since April as fuel demand wanes. “Refining margins are coming down,” Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland, said by telephone. “They’ve gone from very strong to just strong.” 
  • Crash Could Cost U.S.-Canadian Cities $170 Billion, Lloyd’s Says. A stock-market crash could erase as much as $170.3 billion from major cities’ gross domestic product in the U.S. and Canada and is the biggest threat to their economies, Lloyd’s of London said. The losses, which represent about 2 percent of combined GDP for the 35 cities studied, surpassed estimates for the impact of natural disasters such as floods and earthquakes as well as terrorist attacks, the London-based insurance market said Thursday in a report.
  • Consumer Comfort in U.S. Eases as Attitudes on Economy Falter. Consumer confidence in the U.S. eased last week, with Americans becoming more pessimistic about the state of the economy as global financial markets turned south. The Bloomberg Consumer Comfort index fell to 41.4 in the week ended Aug. 30 from 42 the previous period. About half of the survey interviews were collected during the recent stock-market sell-off, said Gary Langer, president of Langer Research Associates, which compiles the data for Bloomberg. The measure of Americans’ views of the economy fell to 32.7 from 34.6, the biggest drop since late February. The index tracking the buying climate, which indicates whether consumers think now is a good time to purchase goods and services, declined to 36.9 from 37.2. The personal finances gauge was little changed at 54.6 from 54.3.
  • Almost Half of Homes in New York and D.C. Are Now Losing Value. A new home-price index is a warning sign for some property markets. Almost half of single-family houses in the New York and Washington metropolitan areas are losing value, a sign that buyers' tolerance for high prices in many large U.S. cities may be reaching a limit.The values of 45 percent of houses in both the Washington and New York areas slumped by at least 2 percent in June from a year earlier, according to a new index created by Allan Weiss, co-founder of the Case-Shiller home price indexes. 
  • Joy Global(JOY) Plummets After Cutting 2015 Forecasts on Miner Demand.
    Joy Global Inc., the world’s biggest manufacturer of underground mining equipment, fell the most in six years after cutting its forecast for 2015 earnings and revenue amid a global commodity downturn. Joy tumbled 16 percent to $18.64 at 10:23 a.m., after earlier dropping as much as 20 percent, the most intraday since November 2008. It was the biggest decline today in the Standard & Poor’s 500 Index. Joy’s shares have plunged 60 percent this year as struggling miners buy less machinery.

Wall Street Journal: 
CNBC: 
  • Stop blaming China—the problem is bigger than that. Everyone is blaming China for the recent stock-market rout, but this blame is misguided. China was the beneficiary of global expansion of money supply at the hands of activist central banks. In fact, my view is that Chinese leadership had little to do with the growth "miracle" it experienced over the last decade.
Zero Hedge:
Financial Times: 
  • US trade contraction adds to global fears. The US economy’s trade with the rest of the world contracted in the first seven months of this year, according to figures that will add to concerns over a slowdown in global trade. The numbers released on Thursday also show how trade between some of the world’s biggest trading blocs — the US, EU and China — have been affected by the slowdown. They also illustrate how even the relatively robust growth in the US has its limitations as an engine of global growth.
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Bear Radar

Posted by Gary .....at 1:20 PM
Style Underperformer:
  • Small-Cap Growth -.03%
Sector Underperformers:
  • 1) Biotech -1.72% 2) Education -.72% 3) Restaurants -.41%
Stocks Falling on Unusual Volume:
  • FIVE, JOY, VRNT, KB, CVGW, TRVN, ABM, OXM, BOBE, SAGE, OAK, NICE, CTLT, TVIX, BKE, CAT, OXFD, RSO, BCR, RLYP, PBH, MDCO, CRS, MDT, ITCI and BKE
Stocks With Unusual Put Option Activity:
  • 1) JOY 2) DOW 3) EWA 4) CIEN 5) XHB
Stocks With Most Negative News Mentions:
  • 1) AMBA 2) AAL 3) GOOG 4) BKE 5) WRLD
Charts:
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Bull Radar

Posted by Gary .....at 1:06 PM
Style Outperformer:
  • Large-Cap Value +.69%
Sector Outperformers:
  • 1) Gaming +2.52% 2) Oil Service +1.48% 3) Homebuilders +1.46%
Stocks Rising on Unusual Volume:
  • PSEM, BGS, MEI, LCI, NCS, VRA, GEF, ACAD, SCOR, FRAN and SUNE
Stocks With Unusual Call Option Activity:
  • 1) STLD 2) JOY 3) RAI 4) MSI 5) FTR
Stocks With Most Positive News Mentions:
  • 1) RAD 2) LCI 3) VZ 4) CPB 5) MDT
Charts:
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Morning Market Internals

Posted by Gary .....at 10:49 AM
NYSE Composite Index:
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