Thursday, May 12, 2016

Friday Watch

Posted by Gary .....at 10:38 PM
Evening Headlines
Bloomberg: 
  • China Decides Debt Can Be Dangerous. The Chinese Communist Party is now officially worried about mounting debt. “A tree cannot grow up to the sky—high leverage will definitely lead to high risks,” said a front-page commentary in the People’s Daily on May 9. The author of the commentary was identified as “an authoritative person,” usually code for the top leadership. “Any mishandling will lead to systemic financial risks, negative economic growth, or even have households’ savings evaporate. That’s deadly.” Liberal lending has been a part of the economy for years. The concerns arise now because the expansion of debt is approaching critical levels. In the years since China unleashed billions in loans to weather the global financial crisis of 2008, overall debt has grown from 164 percent of gross domestic product to 247 percent last year, Bloomberg Intelligence estimates. Household and central government debt are still manageable at 41 percent and 22 percent of the economy, respectively, but corporate debt, at 165 percent, is much higher than in most developing countries.
  • China Inc. Misses Best Shot to Repay $430 Billion as Yuan Drops. The best time for China Inc. to repay its dollar debt may be coming to an end. The greenback is rallying after its worst quarter since 2010, threatening to drive up costs for companies seeking to either repay U.S. currency borrowings or hedge exposure. The yuan declined 1 percent since March 31, following a 2 percent rally between February and March. Royal Bank of Canada and Credit Suisse Group AG see more depreciation. “If corporates haven’t taken advantage of this period of yuan gains, they really only have themselves to blame," said Sue Trinh, Hong Kong-based head of Asian foreign-exchange strategy at RBC. "The government won’t hold down the exchange rate forever.”
  • Abe Lurches to Economic Left to Broaden Appeal Before Poll. Japanese Prime Minister Shinzo Abe is shifting his economic policies to the left in a bid to broaden his appeal ahead of a key election this summer. In stark contrast to his opening Abenomics salvo three years ago that weakened the yen and boosted corporate profits and stock prices, the premier is now poised to unveil policies more attractive to poorer voters than big business. He’ll unveil this package, called “a plan to promote dynamic engagement of all citizens,” later this month. Likely to be included is a proposal to mandate wage increases for part-time and temporary workers, scholarships for less wealthy students and improvements to child care and conditions for nursery-school teachers. The policies initially were part of the platform of the main opposition Democratic Party, whose leader Katsuya Okada told reporters Wednesday that Abe opposed these policies until about a year ago.
  • Negative Rates Seen Pushing Japan Bank Profits to Four-Year Low. Japan’s biggest banks may forecast the lowest profit in four years as negative interest rates squeeze lending margins and the commodity slump risks souring energy loans. Combined net income at Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. is expected to fall 6.9 percent to 2.25 trillion yen ($21 billion) in the year ending March from a projected 2.42 trillion yen last year, according to the average estimate of nine analysts surveyed by Bloomberg. 
  • China Stocks Head for Longest Weekly Losing Streak in Two Years. Chinese stocks stocks headed for a fourth week of declines, the longest string of losses in two years, as metal prices dropped and the yuan weakened amid concern the government will hold off from new stimulus even as growth falters. The Shanghai Composite Index slid 0.2 percent, extending a retreat this week to 2.9 percent. Data on new loans and money supply will be released as early as Friday, while reports on industrial production and retail sales are scheduled for Saturday. The Hang Seng China Enterprises Index has fallen for the ninth time in 10 days in Hong Kong. China’s benchmark stock gauge has slumped 21 percent this year, making it the worst performer among 95 global benchmark indexes tracked by Bloomberg. 
  • Asian Stocks Retreat Amid Earnings as Technology Shares Decline. Asian stocks dropped as crude oil retreated and technology shares declined after Apple Inc. sank to the lowest since June 2014. The MSCI Asia Pacific Index slipped 0.2 percent to 127.26 as of 9:06 a.m. in Tokyo.
  • Oil at $45 a Barrel Proving No Savior as Bankruptcies Add Up. Three bankruptcies this week shows that $45 a barrel oil isn’t enough to rescue energy companies on the verge of collapse. Since the start of 2015, 130 North American oil and gas producers and service companies have filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally doesn’t include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for bankruptcy this week owing more than $11 billion combined. At least four more oil and gas companies owing more than $8 billion are nearing default, including Breitburn Energy Partners LP and SandRidge Energy Inc. Bankruptcies have accelerated as cash-starved companies find it almost impossible to raise capital. Energy companies have been virtually shut out of the high-yield bond markets, banks are cutting credit lines and asset sales have slowed.
  • U.S. Steel(X) Sinks as Another Wave of Cheap Imports Predicted. Just when it looked as though U.S. steelmakers had repelled a tide of cheap imports, more attractive prices risk inviting another wave of shipments. The most iconic U.S. producer is bearing the brunt of concern. U.S. Steel Corp. shares fell as much as 10 percent in New York Thursday, the biggest loss among large iron and steel stocks tracked by Bloomberg. That’s as surging U.S. steel prices and falling Chinese prices boost the appeal of targeting the U.S. market even after import tariffs were introduced in recent months for some products. AK Steel Holding Corp., another domestic producer, fell 4.6 percent. Nucor Corp. was little changed.
  • Trump Foreign Policy Spurned by Veteran Republican Baker. While Donald Trump met with Republican lawmakers on Capitol Hill Thursday, a Senate hearing provided a forum for critics in his party to take aim at his foreign policy proposals. At the prompting of Republican Senator Marco Rubio, who dropped out of the presidential race in March, former Secretary of State James Baker said that the world “would be far less stable” if the U.S. left the North Atlantic Treaty Organization or let South Korea and Japan obtain nuclear weapons, proposals floated by Trump during the campaign that made him the presumptive Republican presidential nominee. “We’ve got a lot of problems today, but you’d have a hell of a lot more if that were the case,” Baker, who was secretary of state in President George H.W. Bush’s administration, said without mentioning Trump by name. “NATO has been the foundation of peace and stability in Europe. The more countries that obtain nuclear weapons the more instability there will be in the world.”
  • Facebook(FB) Guidelines Show Trending News Relies on Human Judgment. Facebook Inc.’s methods for determining trending news topics rely heavily on human input and company rules, according to documents released by the social network, contradicting some of its earlier statements that the system is mostly machine-based. Tom Stocky, Facebook’s executive in charge of the team, on Monday said the company doesn’t “insert stories artificially” into the trending topics feature, while the documents say that news topics can be inserted by human editors. Stocky also said the guidelines don’t permit the prioritization of one news outlet over another; the documents show Facebook checks its news against 10 news organizations to measure if a trending topic is legitimate.
Wall Street Journal:
  • Clinton Charity Aided Clinton Friends. A $2 million commitment arranged by the nonprofit Clinton Global Initiative in 2010 went to a for-profit company part-owned by friends of the Clintons. 
  • Hedge Fund Star: We Are ‘Under Assault’. Leon Cooperman of Omega Advisors sums up the mood at the annual SALT conference in Las Vegas. Some of the most famous minds in investing convened here this week for an annual celebration of the hedge-fund industry. But, feeling the weight of years of underperformance and an uptick in client defections, the mood was anything but festive.
  • Vindicating Congress’s Power of the Purse. Obama said ‘so sue me.’ The House did, and Obama just lost.
Fox News:
MarketWatch:
CNBC:
Zero Hedge:
Business Insider:
Reuters:
MNI:
  • China 4 Big Banks' April New Loans More Than Halved M/m. Combined new loans in April by the big 4 state-owned banks were more than halved from March, citing people familiar with the matter. Big 4 banks' new loans were 402b yuan in March.
Night Trading 
  • Asian equity indices are -1.0% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 143.75 unch. 
  • Asia Pacific Sovereign CDS Index 53.0 -.25 basis point.
  • Bloomberg Emerging Markets Currency Index 72.0 -.09%. 
  • S&P 500 futures -.26%. 
  • NASDAQ 100 futures -.29%.
Morning Preview Links

Earnings of Note
Company/Estimate 
  • (JCP)/-.37
  • (HMC)/61.54
  • (BAM)/.43
Economic Releases 
8:30 am EST
  • Retail Sales Advance MoM for April are estimated to rise +.8% versus a -.3% decline in March.
  • Retail Sales Ex Autos MoM for April are estimated to rise +.5% versus a +.2% gain in March.
  • Retail Sales Ex Auto and Gas for April are estimated to rise +.3% versus a +.1% gain in March.
  • PPI Final Demand MoM for April is estimated to rise +.3% versus a -.1% decline in March.       
  • PPI Ex Food & Energy MoM for April is estimated to rise +.1% versus a -.1% decline in March. 
10:00 am EST
  • Business Inventories for March are estimated to rise +.2% versus a -.1% decline in February.
  • Preliminary Univ. of Mich. Consumer Sentiment for May is estimated to rise to 89.5 versus 89.0 in April. 
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Fed's Williams speaking, Eurozone GDP report, OPEC Monthly Update, (NUE) annual meeting, (PGR) annual meeting and the (TEX) annual 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 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 Final Hour on Less Emerging Markets/US High-Yield Debt Angst, Oil Bounce, Yen Decline, Food/REIT Sector Strength

Posted by Gary .....at 3:31 PM
Broad Equity Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 14.1 -4.0%
  • Euro/Yen Carry Return Index 129.67 +.17%
  • Emerging Markets Currency Volatility(VXY) 10.84 -.82%
  • S&P 500 Implied Correlation 53.05 -4.31%
  • ISE Sentiment Index 91.0 +18.18%
  • Total Put/Call 1.25 +32.98%
  • NYSE Arms 1.43 +43.73% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 80.90 -1.43%
  • America Energy Sector High-Yield CDS Index 948.0 -3.30%
  • European Financial Sector CDS Index 97.37 +2.47%
  • Western Europe Sovereign Debt CDS Index 25.87 +.79%
  • Asia Pacific Sovereign Debt CDS Index 53.03 -.30%
  • Emerging Market CDS Index 285.64 -1.26%
  • iBoxx Offshore RMB China Corporate High Yield Index 127.93 +.19%
  • 2-Year Swap Spread 13.0 -.75 basis point
  • TED Spread 37.50 -.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -22.5 -.75 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 72.11 -.13%
  • 3-Month T-Bill Yield .27% +2.0 basis points
  • Yield Curve 100.0 -1.0 basis point
  • China Import Iron Ore Spot $55.05/Metric Tonne -.94%
  • Citi US Economic Surprise Index -38.50 -3.9 points
  • Citi Eurozone Economic Surprise Index -9.9 -1.2 points
  • Citi Emerging Markets Economic Surprise Index 3.60 -4.8 points
  • 10-Year TIPS Spread 1.63% +1.0 basis point
  • 17.4% chance of Fed rate hike at July 27 meeting, 34.0% chance at September 21 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +47 open in Japan 
  • China A50 Futures: Indicating -73 open in China
  • DAX Futures: Indicating +57 open in Germany
Portfolio: 
  • Slightly Lower: On losses in my biotech sector longs 
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 50% Net Long
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Today's Headlines

Posted by Gary .....at 3:05 PM
Bloomberg:      
  • Brazil President Dilma Rousseff Suspended After Losing Impeachment Vote. (video) Brazil’s Senate voted to suspend President Dilma Rousseff from office, ushering in a new government after months of political turmoil in the recession-wracked country. Legislators agreed on Thursday after a marathon session that lasted 21 hours to try the president on allegations she illegally doctored fiscal accounts to mask the size of the budget deficit. The vote was 55 to 22. She will now face an impeachment trial in the Senate. "From the moment she receives the notification, the process of impeachment for the crime of responsibility takes effect," Senate President Renan Calheiros said after voting ended. She is expected to be notified at 10 a.m. and give a press conference around that time.
  • Brazil's Economic Rise and Fall in Charts Underlines Temer's Tough Task. (graph) A timeline of Brazilian economic data shows how much the nation's situation has soured.
  • Carney Warns Brexit Risks Causing Recession. (video) Mark Carney said a vote to leave the European Union could cause a U.K. recession and that any monetary-policy response would take time to work, in his strongest warning yet of the risks in the June 23 referendum. The Bank of England governor said on Thursday that Brexit -- which he called the “elephant in the room” -- means uncertainty over the outlook has risen to the highest since the euro-area debt crisis. The Monetary Policy Committee cut its growth forecasts, said inflation remains subdued and unanimously agreed to maintain their benchmark rate at a record-low 0.5 percent. “A vote to leave the EU could have material effects on the exchange rate, demand and supply potential,” Carney told a press conference in London. The consequences “could possibly include a technical recession.”
  • IPhone Assembler Hon Hai's Profit Slides as Smartphones Wilt. Hon Hai Precision Industry Co.’s quarterly profit fell 9.2 percent, offering more evidence that the global smartphone market’s malaise may be deepening. The main assembler of Apple Inc.’s iPhones reported first-quarter net income declined to NT$27.6 billion ($849 million). That compares with the NT$28.3 billion that analysts had expected on average. Operating margins shrank to 3.69 percent from 3.81 percent a year earlier. Hon Hai becomes the latest smartphone player to report disappointing results as the industry undergoes its worst downturn in history. Its shares have fallen more than 9 percent this year. Affiliate FIH Mobile Ltd., which assembles devices for Xiaomi Corp. and Sony Corp., warned that income for the first half could plummet as much as 92 percent from a year earlier.
  • The Scourge of Negative Rates and Norway's Shrinking Wealth Fund. Norway’s massive wealth fund is projected to get smaller this year for the first time since early last decade. Budget documents on Wednesday showed the government expects the fund to shrink about 4 percent to 7.15 trillion kroner ($881 billion) at the end of 2016 after ending last year at 7.46 trillion kroner. This historic projection comes as the fund is being bludgeoned on nearly all sides. Most pressing is probably that its returns from the 35 percent it must hold in bonds has all but evaporated amid negative yields across Europe. A rebound in the krone could also press down its value domestically as its foreign investments become worth less.
  • European Shares Drop as Earnings Fail to Inspire, Bayer Slides. European shares declined for a second day as the latest batch of earnings releases failed to ease investor concerns over the region’s corporate and economic health, while oil reversed gains. Bayer AG dragged chemical companies lower after it was said to be exploring a bid for Monsanto Co. Aegon NV plummeted 11 percent after the Dutch owner of insurer Transamerica Corp. reported a 50 percent drop in earnings. Assicurazioni Generali SpA lost 4 percent after Italy’s biggest insurer said quarterly profit fell 14 percent. Miners tumbled as metals prices retreated. A gauge of energy producers trimmed its gain to 0.2 percent from 2.3 percent amid signs Canadian oil-sands production is coming back online. The Stoxx 600 slid 0.5 percent to 333.11 at the close of trading, after gaining as much as 0.8 percent and losing 1 percent.
  • Iran Oil Output Rose to Pre-Sanctions Levels in April, IEA Says. Iranian crude production rose to levels last seen before sanctions were imposed more than four years ago, helping to drive OPEC output to the highest in almost eight years, according to the International Energy Agency. Iran pumped 3.56 million barrels a day last month, a rate last reached in November 2011 before trade restrictions were imposed over the country’s nuclear program, the IEA said Thursday. Exports soared more than 40 percent to 2 million barrels a day -- near pre-sanctions levels -- as the nation worked to regain lost market share.
  • Fed's Rosengren Sounds Another Hawkish Note Over Rate Outlook. Federal Reserve Bank of Boston President Eric Rosengren said that recent economic data warrants continued gradual interest-rate increases and policy makers could risk stoking a bubble in the commercial real estate market if they delay action for too long. “If the incoming economic data continue to be consistent with gradual improvement in labor markets and inflation getting closer to target, the Fed should be ready to gradually normalize interest rates,” Rosengren said on Thursday in Concord, New Hampshire, according to the text of his prepared remarks. Rosengren, a voter this year on the policy-setting Federal Open Market Committee, ran through recent economic readings that he said pointed toward continued gradual U.S. growth, including the April employment report, and then renewed a warning he voiced in November that low rates could encourage speculation in commercial real estate. “Prices now exceed the peaks reached prior to the financial crisis, and are well above the levels reached in 2005 as real estate prices were beginning to accelerate before the financial crisis,” he said.
  • Hillary Clinton to support Federal Reserve change sought by liberals. Democratic presidential front-runner Hillary Clinton said she would support changes to the top ranks of the Federal Reserve, an issue recently championed by progressive groups amid debate over how long the central bank should keep supporting the American economy. The Fed is led by a seven-member board of governors based in Washington and a dozen regional bank presidents based across the country, from New York to Kansas City to San Francisco. The governors are nominated by the White House and approved by the Senate, but regional bank presidents are selected by a board of directors with nine seats, whose occupants are chosen by the banking industry and by the Fed governors in Washington. In a statement to The Washington Post, Clinton’s campaign said she supports removing bankers from the boards of directors and increasing diversity within the Fed.
  • U.S. Consumer Comfort Drops to Five-Month Low on Economic Views. Consumer confidence fell last week to a five-month low as Americans became more downbeat about the economy, Bloomberg Consumer Comfort data showed Thursday. Sentiment around personal finances and the buying climate were little changed after declining the previous week.
  • Luxury-Home Sales Fall in London, NYC With Rich Shifting Focus. The world’s wealthiest homebuyers are pulling back from the traditional magnets of New York, Hong Kong and London, making way for cities such as Auckland, New Zealand, and Jackson Hole, Wyoming, to rank among the fastest-growing luxury real estate markets. Sales of luxury homes -- those of at least $1 million -- rose 8 percent worldwide last year, slowing after a 16 percent jump in 2014, according to a Christie’s International Real Estate survey released Thursday. Purchases declined in Manhattan, Hong Kong and central London, while jumping 63 percent in Auckland, 48 percent in the Toronto metropolitan area, 21 percent in Paris and 45 percent in the resort market of Jackson Hole.
  • JPMorgan(JPM) Trading Risk Rose, Rivals Hit Brakes With Markets Amok. Wall Street bank chiefs have vilified the profit-crushing markets that opened 2016 as “challenging” and “exceptionally violent and turbulent.” Trading revenue plunged. Job cuts ensued. More granular figures in banks’ quarterly reports over the past two weeks hint at decisions managers made to weather that storm, and how they played out -- in many cases not well -- across traders’ desks.
  • BMW's New Electric Flagship Car for 2021 Lags Audi, Mercedes. BMW AG’s response to the challenge posed by Tesla Motors Inc.(TSLA) will be ready in 2021, years after Audi and Mercedes-Benz plan to roll out their own long-range electric vehicles. With Tesla planning to enter the mainstream of the luxury-car market with the Model 3 next year, BMW is bringing out the iNext, which will supplant the 7-Series sedan as the brand’s flagship model. The vehicle will come eight years after introducing the squat electric-powered i3 city car in 2013.
  • Fed Faces 2015 Deja Vu as Markets Discount Rate-Increase Chances. Now even that forecast is looking doubtful. First-quarter growth data have again disappointed and markets see very little chance of a hike in June, even as officials insist that the meeting is “live.” Geopolitical risks loom -- including a June 23 referendum on Britain’s inclusion in the European Union, renewed concern of a Greek debt default in July and the U.S. presidential election in November. 
  • GE(GE) Stock Rally Seen at Risk as JPMorgan Makes Lone Sell Call. General Electric Co.’s stock surge over the past year may be running out of steam as the company forges ahead with a dramatic overhaul of its businesses, according to the only analyst who recommends selling the shares. Steve Tusa of JPMorgan Chase & Co. expects GE to decline to $27, the lowest of all analyst targets compiled by Bloomberg and well short of the $33.79 average. Resuming coverage Thursday with an underweight rating, down from neutral, he is the only one of 19 analysts not recommending buying or holding the stock. “While recognizing a bold portfolio transformation, and solid technology potential, we think these positives are more than reflected in GE stock at current levels,” Tusa said in a note. GE’s stated target of $2-a-share profit in 2018 “will remain elusive,” he said.
CNBC:
  • Major victory for GOP challenge to Obamacare funding of out-of-pocket costs. Obamacare was hit with a potentially damaging blow Thursday. A federal judge ruled that the Obama administration is not authorized to spend billions of dollars to reimburse insurers on Obamacare marketplaces for valuable subsidies given enrollees in health plans to pay for their out-of-pocket medical costs.
  • Retailers ringing the recession alarm. (video) Even industry executives can't figure out what's wrong with retail. After posting their steepest quarterly same-store sales declines since the recession, management at both Kohl's and Macy's said they were scratching their heads over the disconnect between the improving economy, and a pullback in traffic and spending at their stores in the first quarter.
  • Apple(AAPL) briefly dips below $90, hits near 2-year low. Apple's stock had another bad day Thursday. The tech giant's shares were briefly down nearly 3 percent, falling below $90 for the first time since June 26, 2014. They were also the biggest drag on the Dow Jones industrial average. Apple's market cap was also knocked off from the No. 1 spot by Google-parent Alphabet. Apple shares were down 2.5 percent in afternoon trading.
  • Retail recession? Why Kohl's(KSS) miss was so huge. (video)
Zero Hedge:
Caixin:
  • China Jan.-April Rail Cargo Volume Drops -9.6% Y/Y. Railway cargo volume 838m tons in first 4 mos. of year, citing data from China Railway Corp.
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Bear Radar

Posted by Gary .....at 1:29 PM
Style Underperformer:
  • Small-Cap Growth -1.4%
Sector Underperformers:
  • 1) Hospitals -3.9% 2) Semis -2.4% 3) Biotech -2.4%
Stocks Falling on Unusual Volume:
  • KSS, DSKY, VNET, YY, SRG, QIHU, CLB, VIRT, BAX, VRX, M, AER, PEN, SHLD, SINA, SPG, AAPL, ENSG, CLLS, CTMX, PANW, JD, SYNA, LBRDK, GPS, ALK and IMPV
Stocks With Unusual Put Option Activity:
  • 1) MON 2) KSS 3) EWY 4) RL 5) DE
Stocks With Most Negative News Mentions:
  • 1) KSS 2) JBLU 3) ODP 4) STAA 5) M
Charts:
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Bull Radar

Posted by Gary .....at 1:13 PM
Style Outperformer: 
  • Large-Cap Value -.3%
Sector Outperformers:
  • 1) Foods +.6% 2) Utilities +.5% 3) Agriculture +.5% 
Stocks Rising on Unusual Volume: 
  • JACK, LXU, MON, BLOX, CA and LNG
Stocks With Unusual Call Option Activity: 
  • 1) ALB 2) ACAS 3) ZNGA 4) NLNK 5) CAG
Stocks With Most Positive News Mentions: 
  • 1) JACK 2) CA 3) CDE 4) RL 5) LXU
Charts:
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Morning Market Internals

Posted by Gary .....at 11:53 AM
NYSE Composite Index:
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