Tuesday, June 21, 2016

Wednesday Watch

Posted by Gary .....at 9:31 PM
Evening Headlines
Bloomberg: 
  • Brexit Referendum Hangs in Balance as Campaign Enters Final Day. The U.K.’s membership of the European Union hung in the balance as politicians went into the final day of campaigning ahead of Thursday’s referendum. With different polls putting each side ahead, the BBC screened a debate Tuesday evening from Wembley Arena in London, where an audience of 6,000 cheered and jeered as advocates of leaving and remaining in the 28-nation bloc confronted each other. The fieriest arguments were within the governing Conservative Party. Former London Mayor Boris Johnson and Energy Minister Andrea Leadsom, arguing for “Leave,” were confronted by the leader of the party in Scotland, Ruth Davidson. “You are being asked to make a decision that is irreversible, we can’t change, we wake up on Friday and we don’t like it and we are being sold it on a lie,” Davidson said. “They lied about the cost of Europe, they lied about Turkey’s entrance to Europe, they lied about the European army,” she told the audience. “You deserve the truth.” Johnson urged the nation to make Thursday “our country’s independence day.” “They say we can’t do it,” he said. “We say we can. They say we have no choice but to bow down to Brussels. We say they are woefully underestimating this country.”
  • The Lonely Aftermath of China's One Child Policy. In her chic Beijing studio, 26-year-old Summer Liu relaxes on a sofa, admiring the pink vase she keeps full of fresh flowers. In the eastern city of Jining, Hu Jiying, 81, sits on an old bed that’s scattered with clothes, towels and half a bag of snacks, worrying about the cost of her medicine. What they have in common is that they live alone, two ends of a rapidly growing demographic that is breaking down China’s traditional family structure and presenting the government with a social and environmental headache. China had 66 million registered one-person homes in 2014, or 15 percent of all households, compared with 6 percent in 1990, according to government data. The actual number may be as many as 83 million -- more than the population of Germany -- and could rise to 132 million by 2050, according to Jean Yeung, director of the center for family and population research at the National University of Singapore.
  • Hong Kong-Singapore Stars Fade With Boom-to-Gloom in Finance. (graph) Asia’s financial-hub twins, Hong Kong and Singapore, are facing increasing brakes on growth even before potential turmoil from a Brexit vote in their ex-colonial master, with China’s slowdown and the continuing shrinkage of the financial industry striking both. Hong Kong’s economy unexpectedly contracted in the first quarter, weighed down by falling retail sales and the weakest property market in 25 years. Singapore eked out only a modest expansion in the same period, hurt by weak exports and a downturn in financial services. 
  • North Korea Fires Two Mid-Range Ballistic Missiles; First Failed. North Korea on Wednesday launched what appeared to be two Musudan ballistic missiles, mid-range projectiles capable of hitting U.S. bases in Japan or Guam. The first of the launches took place at 5:58 a.m. South Korean time near the east-coast town of Wonsan and appeared to have failed, a South Korean Defense Ministry official said by phone, declining to be identified because of internal policy. The second launch was at 8 a.m., the official said, adding that the ministry had yet to determine if the firing had been a success. The official said the projectiles were likely Musudans with an estimated range of 3,000 kilometers (1,800 miles). Successive attempts to launch missiles in April and May ended in failure. A U.S. defense official said the indications were that Wednesday’s first launch failed in flight over the Sea of Japan.
  • Asian Stocks Head for First Drop in Four Days as U.K. Vote Looms. Asian stocks headed for their first decline in four days, led lower by Japanese equities, as campaigning for the U.K. referendum on staying in the European Union enters the final day. The MSCI Asia Pacific Index slipped 0.3 percent to 129.37 as of 9:02 a.m. in Tokyo. Japan’s Topix index lost 0.6 percent. Federal Reserve Chair Janet Yellen told the U.S. Senate that she wants the economy to be on a “favorable path” before the central bank considers hiking interest rates. Betting shops put the probability of a “Leave” vote in the U.K. at about one in four, while most polls are still split on the outcome.
Wall Street Journal:
Fox News:
  • After DNC attack, hacker Guccifer 2.0 claims Hillary Clinton 'dossier' leak. A hacker who goes by the name ‘Guccifer 2.0’ claims to have published a dossier of Hillary Clinton-related documents accessed during the recent attack on the Democratic National Committee’s computers. In a blog post Tuesday, Guccifer 2.0 described the haul as “a big folder of docs devoted to Hillary Clinton that I found on the DNC server.”
Night Trading 
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 141.75 unch. 
  • Asia Pacific Sovereign CDS Index 52.25 +.25 basis points.
  • Bloomberg Emerging Markets Currency Index 72.15 -.06%. 
  • S&P 500 futures -.10%. 
  • NASDAQ 100 futures -.12%.
Morning Preview Links

Earnings of Note
Company/Estimate 
  • (ATU)/.37
  • (WGO)/.45
  • (APOG)/.49
  • (BKS)/-.24
  • (BBBY)/.86
  • (FUL)/.68
  • (MLHR)/.52
  • (RHT)/.50
  • (SCS)/.16
Economic Releases  
9:00 am EST
  • The FHFA House Price Index MoM for April is estimated to rise +.6% versus a +.7% gain in March.
10:00 am EST
  • Existing Home Sales for May are estimated to rise to 5.55M versus 5.45M in April.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,289,0900 barrels versus a -933,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -686,730 barrels versus a -2,625,000 barrel decline the prior week. Distillate inventories are estimated to rise by +500,910 barrels versus a +786,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.54% versus a -.7% decline prior.   
Upcoming Splits 
  • (SSNC) 2-for-1
Other Potential Market Movers
  • The Eurozone Consumer Confidence report, $28B 7Y T-Note auction, weekly MBA mortgage applications report, (SMTC) analyst day and the (IGT) analyst day 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 50% net long heading into the day.
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Stocks Slightly Higher into Final Hour on Diminishing Brexit Fears, Yen Weakness, Technical Buying, Telecom/Energy Sector Strength

Posted by Gary .....at 3:18 PM
Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 17.01 -2.5%
  • Euro/Yen Carry Return Index 123.26 +.31%
  • Emerging Markets Currency Volatility(VXY) 10.50 -.57%
  • S&P 500 Implied Correlation 57.17 +.21%
  • ISE Sentiment Index 163.0 +59.8%
  • Total Put/Call 1.01 +4.12%
  • NYSE Arms .75 -9.14% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 79.0 -1.40%
  • America Energy Sector High-Yield CDS Index 781.0 -1.7%
  • European Financial Sector CDS Index 103.88 +1.56%
  • Western Europe Sovereign Debt CDS Index 28.92 +.82%
  • Asia Pacific Sovereign Debt CDS Index 52.51 +.67%
  • Emerging Market CDS Index 284.89 -1.04%
  • iBoxx Offshore RMB China Corporate High Yield Index 129.67 +.05%
  • 2-Year Swap Spread 13.0 -1.25 basis points
  • TED Spread 37.5 -2.0 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -34.75 +2.0 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 72.23 +.05%
  • 3-Month T-Bill Yield .27% +1.0 basis point
  • Yield Curve 94.0 unch.
  • China Import Iron Ore Spot $50.87/Metric Tonne -.37%
  • Citi US Economic Surprise Index -16.0 +1.2 points
  • Citi Eurozone Economic Surprise Index -1.20 +7.4 points
  • Citi Emerging Markets Economic Surprise Index -5.3 -.4 point
  • 10-Year TIPS Spread 1.47% +1.0 basis point
  • 31.6% chance of Fed rate hike at Sept. 21 meeting, 33.1% chance at Nov. 2 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +146 open in Japan 
  • China A50 Futures: Indicating -43 open in China
  • DAX Futures: Indicating +81 open in Germany
Portfolio: 
  • Lower: On losses in my biotech/retail sector longs and emerging markets shorts
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long
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Today's Headlines

Posted by Gary .....at 2:35 PM
Bloomberg:  
  • Bookies Say It’s Almost All Over as Gamblers See No Brexit. (video) Bookies and gamblers are strengthening in their conviction that the U.K. will opt to remain in the European Union, as polls show a swing away from a so-called Brexit. Ladbrokes Plc said Tuesday that the odds on a “Remain” vote had shortened to a 2/9 chance, indicating an 82 percent probability. Brexit opponents may win with 50 percent to 55 percent of the vote, wagers on the Betfair exchange suggest. “As far as the money’s concerned, it looks like Brexit is beginning to fall at the final hurdle,” Jessica Bridge, a spokeswoman for Ladbrokes, said in an e-mailed statement. The company said late Monday that some 95 percent of all referendum wagers in the previous 24 hours had been placed on voters rejecting Brexit. “Money talks, and it’s one-way traffic from ‘Remain’ punters.” Polls released since the killing of pro-EU campaigner Jo Cox have suggested the “Remain” camp is gaining ground, producing the swing back toward the vote to stay that bookies and gamblers anticipated before her death.
  • Does China's Debt Bomb Mean Exploding Bonds? (video)
  • China Inc. Seeks Rehab for Short-Term Debt Addiction. Time is running out for Chinese companies addicted to short-term debt. About 47 percent of the 4.3 trillion yuan ($654 billion) of local-currency bonds sold by Chinese non-banking companies in 2016 mature in one year or less, data compiled by Bloomberg show. Ten out of the 17 onshore notes that defaulted this year have such short maturities, compared with one out of seven in the whole of 2015. As banks try to keep zombie companies alive, short-term liabilities including loans account for 86 percent of the total versus 40 percent globally, a Natixis analysis of the 3,000 biggest listed companies in China shows.
  • Rajan Urges India to Continue Inflation War as Critics Mount. As central bank Governor Raghuram Rajan prepares to leave, he has one request for India: Don’t stop fighting inflation. In an impassioned defense of his policies on Monday night, Rajan called the battle to stem price gains “revolutionary" and urged his successor to stay the course. Any diversion, he argued, would again impose “the hidden inflation tax" on the poor and middle class. Investors are watching for signs that the inflation-targeting regime spearheaded by Rajan is strong enough to outlast him. Before he surprised India by saying he would return to academia in September, many investors expected him to stay on another few years to oversee a new monetary policy committee that would target specific inflation goals. Now comments from Prime Minister Narendra Modi’s allies are raising fresh questions about India’s commitment to stemming one of Asia’s fastest inflation rates. A senior government official told reporters on Monday that high interest rates were hurting domestic industry, while Subramanian Swamy, a member of Modi’s ruling party who led a campaign to oust Rajan, has called for scrapping the inflation target altogether.
  • Asia's Bank Profits Face a Powerful Storm, McKinsey Says. Asia-Pacific banks face “a powerful storm” which will probably hurt profit growth in an industry that earned half a trillion dollars last year, according to McKinsey & Co. A triple threat of slowing economic growth, technology disruption and weaker balance sheets could come together to “cripple” returns on equity by 2018, the New York-based consultancy said in an analysis of 328 banks in the region. Profit growth may slow to below 4 percent annually between 2016-2021, down from about 10 percent in 2011-2014, said Joydeep Sengupta, one of the report’s authors.
  • Swiss Watch Exports Slump Extends Into Eleventh Month in May. Swiss watch exports dropped in May, bringing the industry’s slump close to a full year as the industry faced plunging demand across Asia and Europe. Shipments fell 9.7 percent to 1.56 million Swiss francs ($1.62 million), the Federation of the Swiss Watch Industry said in a statement Tuesday. Exports have declined for the past 11 months, and had back-to-back monthly double-digit declines in March and April.
  • European Stocks Climb With Banks for 3rd Day Before Brexit Vote. (video) European stocks capped their biggest three-day advance in almost 10 months amid optimism Britons will vote to stay in the European Union in Thursday’s referendum and as the euro fell. The Stoxx Europe 600 Index added 0.7 percent at the close. Stocks have climbed 5.8 percent in three sessions after surveys showed the U.K. campaign to stay in the EU is gaining ground.
  • Corn Prices Are Tumbling in World’s Top Exporters on Supply View. Corn futures in Chicago are heading for the biggest two-day drop since August and prices are slumping in Sao Paulo state as the supply outlook improves in the U.S. and Brazil, the world’s top exporters.
  • Fed Warns of Vulnerabilities Building in Commercial Real Estate. The Federal Reserve warned that prices in the commercial real-estate market may have run up too far too fast. Valuations in commercial real estate “appear increasingly vulnerable to negative shocks, as CRE prices have continued to outpace rental income,” the Fed said in its semiannual Monetary Policy Report to Congress. The Fed noted that prices exceed their pre-crisis peaks by some measures. The Fed included a special section on financial stability risks in the report, which accompanies Chair Janet Yellen’s testimony. The report said that even given “moderate’’ financial vulnerabilities, risks of external shocks, such as the U.K.’s possible exit from the European Union, pose stability risks. The report also highlighted issues related to credit exposures to the energy sector, money-market mutual funds and stock valuations. The central bank said price-to-earnings ratios on a forward-looking basis for stocks have increased to a level “well above” their median for the past 30 years.
  • These CEOs Could Earn Millions From Stock Awards Valued at Zero. As scrutiny of executive compensation intensifies, some companies are using a little-known technique that keeps potential payouts under the radar. Six Flags Entertainment Corp. and Tempur Sealy International Inc. have awarded millions of dollars in stock to top bosses and given the equity a unique value: zero. To use that figure, the companies set performance targets they said were unlikely to be met. Doing so is rare. Few boards set impossible goals and even the loftiest targets typically have some chance of being met. That’s been the case at Six Flags. Two of three improbable goals have been achieved, resulting in windfalls for executives. The third is still outstanding. “It’s very unusual for a compensation committee to grant a performance award that really has no hope of being earned,” said John Roe, a managing director at a unit of proxy adviser Institutional Shareholder Services Inc. Even if the award likely won’t be earned, “that’s not the same as it having a zero value at the date of grant.”
  • Auto-Parts Stocks Slide as BofA Trims Car-Sales Outlook. The shares of U.S. auto-parts makers including American Axle & Manufacturing Holdings Inc. and BorgWarner Inc. fell after Bank of America Corp. trimmed its annual estimates for car sales and cut the ratings of some suppliers. 
Wall Street Journal:
Zero Hedge:
The Telegraph:
  • The doom loop is back: Europe’s banks are still buying more of their own governments’ debts. Europe’s banks are still buying more of their home governments’ bonds, even though the enormous exposures between states and financial institutions risk re-starting the so-called ‘doom loop’ that damaged the Greek economy so badly. Banks have doubled their holdings of their own states' debt since 2008, according to Standard and Poor's, despite plans over the past five years to cut back on the exposures. When banks invest heavily in one government’s debt, the banks become dependent on the government’s good performance, and the governments depend on the banks purchasing the debt. If either one falters, the consequences can be dire for both.
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Bear Radar

Posted by Gary .....at 1:29 PM
Style Underperformer:
  • Small-Cap Growth -1.0%
Sector Underperformers:
  • 1) Biotech -2.2% 2) Steel -2.2% 3) Homebuilders -1.3%
Stocks Falling on Unusual Volume:
  • GBT, LILAK, LILA, WERN, PRTK, IPXL, KMX, PLNT, LEN, KNX, WMB, ADS, IGOV, BMA, UGLD, IESC, SNDX, CELG, HCKT, CP, EDIT, RARE, MPG, PHIIK and KEX
Stocks With Unusual Put Option Activity:
  • 1) HP 2) HON 3) XHB 4) EWU 5) FDX
Stocks With Most Negative News Mentions:
  • 1) WERN 2) KNX 3) WMAR 4) BWA 5) AXL
Charts:
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Bull Radar

Posted by Gary .....at 1:18 PM
Style Outperformer:
  • Large-Cap Value +.2%
Sector Outperformers:
  • 1) Telecom +1.1% 2) Gaming +.9% 3) Software +.8%
Stocks Rising on Unusual Volume:
  • ASEI, OSIS, IMPV, WPG and ETE
Stocks With Unusual Call Option Activity:
  • 1) VIAV 2) LUV 3) OPK 4) RSX 5) MO
Stocks With Most Positive News Mentions:
  • 1) CRUS 2) MRO 3) HP 4) HHS 5) TNXP
Charts:
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