Evening Headlines
Bloomberg:
Wall Street Journal:Bloomberg:
- Chinese Stocks Head for Longest Losing Streak in Three Weeks. Chinese stocks fell for a third day, sending the benchmark index toward the longest stretch of losses in three weeks. Material and industrial companies led declines. The Shanghai Composite Index dropped 0.2 percent to 2,730.25 as of 10:10 a.m. Stocks have declined this week on concern weakening economic growth will hurt earnings and spur capital outflows. The central bank on Thursday injected the most cash into the financial system in three years to avert a cash squeeze before the start of Chinese new year holidays early next month.
- UBS Has a Warning for Those Seeing China Stock Respite. For Chinese investors betting the Shanghai Composite Index will bottom at 2,500, UBS Group AG has a warning: watch out for an onslaught of forced sales. With thousands of companies pledging their own shares to get loans as stocks soared through mid-2015, the equity rout is forcing more of them to either provide extra collateral or sell holdings to pay back debts, Gao Ting, the head of China strategy at UBS in Shanghai, wrote in an e-mail on Wednesday. Firms at risk of having to dump shares in the market following Tuesday’s selloff comprise about 8 percent of Chinese market capitalization, rising to almost 13 percent if equities decline by a further 10 percent, he estimated. "If China’s stock market continues to fall, equity pledging-related selling pressure could increase significantly, putting further pressure on the stock market," said Gao, who moved over from the Swiss bank’s asset-management unit last year. He was an analyst at China International Capital Corp. in 2010, when it was the top-ranked brokerage for China research, according to Asiamoney magazine.
- China Property Assets Are Still Expensive, Philippine Scion Says. Philippine billionaire Henry Sy’s SM Prime Holdings Inc. said it’s received invitations to bid on Chinese property companies and assets, though the developer is holding off because asking prices are too high. “The opportunity is not yet quite there,” President Hans Sy, one of the patriarch’s sons, said in an interview in Makati City this week. “Give it a year or two, the right opportunity will come out. I’d rather eventually look into individual projects. That way I have better chances of knowing what we are getting into.” With China just seeing its slowest economic growth in a quarter century, Sy is the latest tycoon to signal the country has yet to hit bottom. Dalian Wanda Group Co., the conglomerate headed by China’s richest man, earlier this month forecast its commercial property business will see a 32 percent sales drop this year.
- China's Money-Market Operations Inject Most Cash in Three Years. China’s central bank used this week’s two money-market operations to add the most funds to the financial system in three years, helping to prevent a cash crunch before the week-long Lunar New Year holiday. The People’s Bank of China said it auctioned 340 billion yuan ($51.7 billion) of reverse-repurchase agreements on Thursday, after offering 440 billion yuan two days earlier. The week’s net injection of 590 billion yuan was the biggest since February 2013, data compiled by Bloomberg show.
- First Word Asia: Why China's Super Forecasters Predict Further Drops in Stocks. (video)
- Japan's Retail Sales Unexpectedly Fall a Day Before BOJ Decision. Japan’s retail sales unexpectedly declined in December, indicating weakness in consumer spending as the central bank begins a two-day meeting Thursday to decide whether to boost monetary stimulus. The drop adds to concerns that price gains in Japan will remain insufficient to spur economic growth, with data due Friday that’s forecast to show inflation barely above zero. Turmoil in global financial markets and the yen’s recent strength add to pressure on the Bank of Japan to consider a policy adjustment to spur price increases.
- Samsung Joins Apple in Warning of a Gloomy 2016 for Technology. (video) Samsung Electronics Co. warned of slowing demand and economic turbulence after its quarterly earnings missed analysts’ estimates, joining Apple Inc. in foretelling a downbeat 2016 for the technology sector. The Korean conglomerate, whose quarterly profit fell short of expectations by almost 40 percent, said the deteriorating global economy was eroding demand for computers and smartphones and depressing component prices. Samsung will invest in new screen and semiconductor technologies such as foldable displays to try and boost profit, executives said on a conference call.
- Apple(AAPL) Suppliers Plunge Led by Alps on Smartphone Demand Concern. Alps Electric Co. led declines among smartphone component suppliers after Apple Inc. and Samsung Electronics Co. reported financial results that show slowing demand for the devices. Alps, which makes actuators and switches, slumped as much as 16 percent, the most intraday since March 2011, as of 10:10 a.m. in Tokyo trading. The company cut its annual profit forecast on weak smartphone demand from a major customer, it said in a statement Wednesday after the market closed.
- Some $29 Trillion Later, the Corporate Debt Boom Looks Exhausted. There’s been endless speculation in recent weeks about whether the U.S., and the whole world for that matter, are about to sink into recession. Underpinning much of the angst is an unprecedented $29 trillion corporate bond binge that has left many companies more indebted than ever. Whether this debt overhang proves to be a catalyst for recession or not, one thing is clear in talking to credit-market observers: It’s a problem that won’t go away any time soon. Strains are emerging in just about every corner of the global credit market. Credit-rating downgrades account for the biggest chunk of ratings actions since 2009; corporate leverage is at a 12-year high; and perhaps most worrisome, growing numbers of companies -- one third globally -- are failing to generate high enough returns on investments to cover their cost of funding. Pooled together into a single snapshot, the data points show how the seven-year-old global growth model based on cheap credit from central banks is running out of steam. “We’ve never been in a cycle quite like this,” said Bonnie Baha, a money manager at DoubleLine Capital in Los Angeles, which oversees $80 billion. “It’s setting up for an unhappy turn.”
- U.S. to Halt Blood Donation by Travelers to Areas With Zika. People who have traveled to regions affected by the Zika virus will be temporarily stopped from donating blood in the U.S., the latest precaution against an infection tied to birth defect risks in pregnant womenthat has been rapidly spreading in part of Latin America. The Food and Drug Administration is working with other government agencies and with blood collection establishments “to rapidly implement appropriate donor deferral measures for travelers who have visited affected regions in order to protect the blood supply in the United States,” Tara Goodin, a spokeswoman for the agency, said in an e-mail Wednesday.
- Goldman Sachs(GS) Calls Brazil a ‘Mess’ After Warning on Depression. Goldman Sachs Group Inc. said the crisis in Brazil will get worse before it gets better after the bank last year warned that Latin America’s largest economy was being dragged into a depression. “Brazil is a mess,” Alberto Ramos, the chief Latin America economist at Goldman Sachs, said at an event organized by the Brazilian-American Chamber of Commerce in New York on Wednesday. “Number 10 used to mean Pele. Now it’s inflation rate, unemployment rate and the popularity rate of the president."
- Asian Stocks Rise After Fed With Nasdaq Futures; Crude Oil Falls. Asian stocks advanced after the Federal Reserve indicated it will be gradual in raising interest rates amid global market turmoil. Oil led a retreat in commodities, while South Korea’s won dropped. The Asian equity benchmark rose 0.3 percent as Japanese shares reversed initial declines and Chinese stocks in Hong Kong rallied.
- China to Buy More Than 200 Tons of Gold This Year, Barclays Says.
- Wary Fed Keeps Its Options Open. Central bank signals concerns about global turbulence, but March hike still in play. Federal Reserve officials expressed renewed worry about financial-market turbulence and slow economic growth abroad, leaving doubts about whether the central bank will raise interest rates as early as March.
- The Leap of Trump. As the GOP nominee or President, he would be a political ‘black swan.’ History teaches that Presidents try to do what they say they will during a campaign, and Mr. Trump is threatening a trade war with China, Mexico and Japan, among others. He sometimes says he merely wants to start a negotiation with China that will end happily when it bows to his wishes. China may have other ideas. A bad sign is that Mr. Trump has hired as his campaign policy adviser Stephen Miller, who worked for Jeff Sessions (R., Ala.), the most antitrade, anti-immigration Senator. Foreign policy would also be a leap in the dark. Mr. Trump has said he respects former U.S. Ambassador to the U.N. John Bolton, and so do we. But Mr. Trump also admires Vladimir Putin—enough so that even after a British judge found last week that Mr. Putin had “probably” ordered the murder in London of a Russian defector, Mr. Trump defended Mr. Putin because he wasn’t found “guilty.”
- Trump Ducks an Iowa Opportunity. The Donald’s refusal to debate could blow his lead. How can he take on Hillary? A Jan. 24 Quinnipiac poll shows Mr. Trump at 31% and Mr. Cruz at 29%. More than a third of likely caucusgoers—39%—said they might change their mind before Monday’s vote. Mr. Trump may have recognized that debates are not his forte. Perhaps he simply did not want to put his Iowa lead at risk by stepping onto a stage when every other candidate would be gunning for him. Megyn Kelly was maybe only a ready excuse. In any case, his action shows disrespect for Iowans.
Fox News:
- Hundreds of DHS badges, guns, cell phones lost or stolen since 2012. Hundreds of badges, credentials, cell phones and guns belonging to Department of Homeland Security employees have been lost or stolen in recent years -- raising serious security concerns about the potential damage these missing items could do in the wrong hands. Inventory reports, obtained by the news site Complete Colorado and shared with FoxNews.com, show that over 1,300 badges, 165 firearms and 589 cell phones were lost or stolen over the span of 31 months between 2012 and 2015.
- Activists in Planned Parenthood videos hurt by 'runaway grand jury,' lawyer says. (video) An attorney for two anti-abortion activists facing charges after making undercover videos about Planned Parenthood say the activists were indicted by a "runaway grand jury."
- Islamic State, al Qaeda growing stronger in Libya. Libya is emerging as a new destination of choice for extremists, as both Islamic State and al Qaeda have used the chaos since the overthrow of Moammar Gadhafi to seize territory and parts of the economy, a report by a security consulting firm said. Wednesday’s report warned that Libya could become a dangerous new base for terrorist groups because of the country’s ungoverned hinterlands, long, porous borders and huge oil reserves.
- Here’s one top investor’s odds of a stock market meltdown. Basically, low interest rates have allowed companies to service their larger debt loads more easily. In an email to MarketWatch, Bonnie Baha, director of global developed credit at bond-fund manager DoubleLine Capital, confirmed our interpretation of the data that “leverage has increased, but so has debt coverage.” Baha isn’t necessarily thrilled with this situation. As she puts it: Quantitative easing and subsequent low interest rates generated a refinancing boom over the past several years. Companies did not, in fact, de-lever as was commonly believed. However. . . . companies have been borrowing not to invest in plant and equipment to make products, [and] generate cash flow to pay off the debt.” She adds: “[Instead] a material amount of borrowing has gone towards share repurchases and special dividend payments. . . Ultimately, this is very deflationary because at some point it [will] stop and the cash flow that remains [will be] used to repay debt as opposed to investment in capex.”
- Hillary Clinton: Obama on the Supreme Court would be a ‘great idea'.
Zero Hedge:
- China Injects Another $50 Billion Liquidity As Mysterious Panic Buyer Reappears In Offshore Yuan. (graph)
- A Whole New Level Of Moral Hazard: China Will Use Public Funds To Cover Venture Capital Losses.
- Brazil's Easy-Money Problem.
- China Says Soros "Hasn't Done His Homework," May Be "Partially Blind".
- Is China About To Drop A Devaluation Bomb?
- Alberta Loses Most Jobs In 34 Years As Oil Crunch Cripples Labor Market.
- Mainstream Media, Economists Mock "Cash Hoarding" Canadian 'Savers'. (graph)
- "Let Them Eat CaQE": Yellen Abandons Markets; Stocks Plunge. (graph)
Business Insider:
- Fascinating variable shows how Donald Trump's lead over Ted Cruz could melt away in Iowa.
- FOX NEWS: Hey, remember when Donald Trump told Megyn Kelly about debate 'courage' 4 years ago? (video)
- Facebook(FB) explodes on Q4 earnings beat. The stock exploded more than 13% after Facebook beat estimates on the top and bottom line, as well as on the company's solid user growth. Here are the most important numbers:
- Iran's supreme leader released a Holocaust-denial video on Holocaust Remembrance Day.
- Houston's office market is melting down.
Reuters:
- EBay(EBAY) gives disappointing forecast, shares fall. EBay Inc forecast lower-than-expected revenue and profit for the current quarter and full year, as the e-commerce company struggles against a strong dollar and stiff competition from Amazon.com Inc. The company which is also being hit as brick-and-mortar retailers such as Wal-Mart Stores Inc boost their online presence, reported that its revenue was flat in the crucial holiday quarter. EBay's shares fell about 11 percent to $23.51 in extended trading on Wednesday.
- Ackman's Pershing Square Holdings down 11.2 pct so far in 2016.
Telegraph:
- Rush for the exits: why China's capital flight carnage will continue. High levels of capital outflows from emerging markets are expected to continue throughout this year.
Night Trading
- Asian equity indices are unch. to +.5% on average.
- Asia Ex-Japan Investment Grade CDS Index 152.75 -1.75 basis points.
- Asia Pacific Sovereign CDS Index 74.0 unch.
- Bloomberg Emerging Markets Currency Index 67.33 +.02%.
- S&P 500 futures +.43%.
- NASDAQ 100 futures +.90%.
Earnings of Note
Company/Estimate
- (ABT)/.61
- (ARG)/1.17
- (BABA)/.90
- (MO)/.68
- (AN)/1.04
- (BHI)/-.10
- (BMY)/.28
- (BC)/.45
- (CAT)/.69
- (CELG)/1.21
- (CY)/.12
- (LLY)/.78
- (F)/.51
- (HOG)/.21
- (HCA)/1.39
- (HSY)/1.05
- (JBLU)/.51
- (JCI)/.82
- (LLL)/1.85
- (LEA)/2.88
- (MJN)/.73
- (NOC)/2.01
- (NUE)/.21
- (OSK)/.06
- (POT)/.31
- (PHM)/.49
- (DGX)/1.19
- (RTN)/1.82
- (SHW)/1.87
- (SWK)/1.77
- (TWC)/1.78
- (UA)/.46
- (VLO)/1.45
- (ZBH)/2.04
- (AMZN)/1.58
- (AMGN)/2.29
- (EA)/1.81
- (KLAC)/.86
- (MSFT)/.71
- (SWKS)/1.58
- (V)/.68
- (WERN)/.46
- (WDC)/1.54
Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 281K versus 293K the prior week.
- Continuing Claims are estimated to rise to 2218K versus 2208K prior.
- Preliminary Durable Goods Orders for December are estimated to fall -.7% versus unch. in November.
- Preliminary Durables Ex Transports for December are estimated to fall -.1% versus unch. in November.
- Preliminary Cap Goods Orders Non-Defense Ex Air for December are estimated to fall -.2% versus a -.3% decline in November.
10:00 am EST
- Pending Home Sales MoM for December are estimated to rise +.9% versus a -.9% decline in November.
- Kansas City Fed Manufacturing Activity for January is estimated to fall to -10.0 versus -9.0 in December.
- None of note
Other Potential Market Movers
- The BoJ rate decision, Japan Unemployment/Inflation data, UK GDP report, $29B 7Y T-Note auction, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and consumer 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.