Thursday, July 21, 2016

Friday Watch

Posted by Gary .....at 10:04 PM
Evening Headlines
Bloomberg:
  • Hollande Tells May to Choose EU Market or Migrant Curbs for U.K. French President Francois Hollande told U.K. Prime Minister Theresa May that Britain faces a choice: Accept unlimited immigration from the European Union or lose access to its single market. “There can be no free movement of goods, free movement of capital, free movement of services if there is no free movement of people,” Hollande said at a joint press conference in Paris Thursday. “It will be for the U.K. to chose: Stay in the single market and allow freedom of movement or have another status.” May’s first venture abroad as prime minister, a week after taking the job, has been marked by personal warmth from the leaders of Germany and France but little in the way of concessions. Instead, she is beginning to get a picture of how tough the coming Brexit negotiations will be.
  • From Paschi to German Lenders, Investors Brace for Stress Tests. Italian banks, whose woes have prompted a debate over state aid, may not be the only ones in the spotlight next Friday when regulators publish their latest health check on Europe’s largest lenders. Though Italy’s Banca Monte dei Paschi di Siena SpA will probably attract the most scrutiny with its mountains of soured debt, German, Austrian and Nordic banks also may be shown in an unpleasant light when the London-based European Banking Authority sets out its findings. “If you do get a surprise, it will probably be a negative one, said Paul Fenner-Leitao, a credit analyst at Societe Generale SA. “People might just shrug it off, but it could remind investors that all still isn’t well in Europe years after the crisis.”
  • Turkey Enters Emergency-Rule Era as Erdogan Hints at Extension. Turkey entered its second day under a state of emergency as President Recep Tayyip Erdogan signaled that the three-month period approved by parliament may not be enough to complete a purge of those responsible for last week’s failed coup. Erdogan told Reuters that there’s no obstacle to extending emergency rule, which took effect at 1 a.m. on Thursday and was later endorsed by parliament. It allows the government to issue decrees with the force of law, and detain suspects for longer periods without trial.
  • Chinese Companies are Turning Japanese. Chinese companies are swimming in cheap cash. Problem is, they're not spending it. A reluctance to invest is frustrating policy makers after they unleashed a wave of cheap credit in an effort to stoke growth. Rather than build new plants or hire additional staff, corporates are opting to park money at the bank - or send it overseas through buying foreign assets. Known as the so called "liquidity trap," it's a problem not unlike the experience in Japan where weak business confidence and a reluctance to invest is also holding back the economy. "Cash-rich Chinese companies are searching for offshore investment, just as the Japanese did in the late 1980s due partly to the strength of the yen in the aftermath of the ‘Plaza Accord’," Australia & New Zealand Banking Group Ltd.  economists led by Raymond Yeung wrote in a note.
  • Asian Stocks Drop as Kuroda’s Comments Weigh on Japanese Shares. Asian stocks fell after Bank of Japan chief Haruhiko Kuroda dashed hopes for so-called helicopter money, triggering the yen’s steepest rally in a month and weakening the outlook for exporters in Tokyo. The MSCI Asia Pacific Index declined 0.2 percent to 134.45 as of 9:10 a.m. in Tokyo, retreating from its highest level since November. The gauge is up 0.6 percent for the week. The Topix index slipped 0.8 percent, trimming its gain for the week to 0.9 percent. Investors focused on the comments from Kuroda, even after a Nikkei newspaper report said Japan’s stimulus package could be as large as 30 trillion yen ($283 billion).
  • Saudi Arabia Overtakes Russia as China’s Top Oil Supplier: Chart.
  • Fracklog in the Biggest U.S. Oil Field May All But Disappear. The number of dormant crude and natural gas wells in the U.S. stopped growing in the first quarter -- and may all but disappear in the nation’s biggest oil field should prices hold steady. As of April 1, there were 4,230 wells left idle after being drilled, a figure little changed from January, according to an analysis by Bloomberg Intelligence. While some explorers have continued to grow their fracklog of drilled but not yet hydraulically fractured wells, others began tapping them in February as oil prices rose, the report showed. Crude in the $40- to $50-a-barrel range may wipe out most of the fracklog in Texas’s Permian Basin and as much as 70 percent of the inventory in its Eagle Ford play by the end of 2017, according to Bloomberg Intelligence analyst Andrew Cosgrove. While bringing them online is the cheapest way of taking advantage of higher prices, the wave of new supply also threatens to kill the fragile recovery that oil and gas markets have seen so far this year.
  • Obama Offers $4.5 Billion to Add Electric-Car Charge Stations. The Obama administration will invest as much as $4.5 billion to build electric-car charging stations, creating a network stretching coast-to-coast to reduce “range anxiety” and potentially improve consumer acceptance of the lower-polluting vehicles.
Wall Street Journal:
Fox News:
Zero Hedge:
Business Insider:
Night Trading 
  • Asian equity indices are -.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 119.25 -.25 basis point.
  • Asia Pacific Sovereign CDS Index 48.0 +.5 basis point.
  • Bloomberg Emerging Markets Currency Index 72.31 -.01%. 
  • S&P 500 futures +.02%. 
  • NASDAQ 100 futures +.01%.
Morning Preview Links

Earnings of Note
Company/Estimate 
  • (AAL)/1.68
  • (ALV)/1.70
  • (GE)/.46
  • (GNTX)/.29
  • (HON)/1.64
  • (MCO)/1.26
  • (SWK)/1.71
  • (STI)/.88
  • (TXT)/.64
  • (VFC)/.34
  • (WHR)/3.40 
Economic Releases 
9:45 am EST
  • The Preliminary Markit US Manufacturing PMI for July is estimated to rise to 51.5 versus 51.3 in June.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Eurozone Manufacturing PMI and the (SCHW) business update could also impact trading today.
BOTTOM LINE:  Asian indices are mostly lower, weighed down by technology and commodity 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 Reversing Lower into Final Hour on Earnings Worries, Yen Strength, Oil Decline, Energy/Transport Sector Weakness

Posted by Gary .....at 3:39 PM
Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 12.95 +10.0%
  • Euro/Yen Carry Return Index 121.74 -1.06%
  • Emerging Markets Currency Volatility(VXY) 10.17 +.69%
  • S&P 500 Implied Correlation 51.05 +5.48%
  • ISE Sentiment Index 96.0 -3.03%
  • Total Put/Call .92 +17.95%
  • NYSE Arms 1.03 -12.24% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 70.95 +1.38%
  • America Energy Sector High-Yield CDS Index 718.0 -1.68%
  • European Financial Sector CDS Index 88.38 -5.42%
  • Western Europe Sovereign Debt CDS Index 25.80 -2.60%
  • Asia Pacific Sovereign Debt CDS Index 47.59 +.34%
  • Emerging Market CDS Index 255.29 +.69%
  • iBoxx Offshore RMB China Corporate High Yield Index 130.95 +.03%
  • 2-Year Swap Spread 26.75 +4.25 basis points
  • TED Spread 37.75 -.25 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -49.25 -1.0 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 72.27 +.01%
  • 3-Month T-Bill Yield .31% -1.0 basis point
  • Yield Curve 88.0 +1.0 basis point
  • China Import Iron Ore Spot $57.17/Metric Tonne +2.55%
  • Citi US Economic Surprise Index 32.80 +4.2 points
  • Citi Eurozone Economic Surprise Index -2.0 +.1 point
  • Citi Emerging Markets Economic Surprise Index -10.60 +.1 point
  • 10-Year TIPS Spread 1.47% -2.0 basis points
  • 26.4% chance of Fed rate hike at Sept. 21 meeting, 26.4% chance at Nov. 2 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating -240 open in Japan 
  • China A50 Futures: Indicating -30 open in China
  • DAX Futures: Indicating -52 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my biotech sector longs, index hedges and emerging markets shorts
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  • Market Exposure: Moved to 25% Net Long
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Today's Headlines

Posted by Gary .....at 2:57 PM
Bloomberg: 
  • Draghi Joins Not-Quite-Sure Club Puzzling Over Brexit Aftermath. Mario Draghi is part of a growing club of central bankers who are just fine with admitting they’re uncertain what’s going on right now -- and that’s no barrier to action. Far from giving fresh insights into how the U.K.’s decision to leave the European Union will affect the euro area’s economy, the European Central Bank president admitted on Thursday that, like everyone else, he has no real visibility. “It’s very difficult to understand how these big macro themes affect the recovery,” he said in Frankfurt after the ECB left its interest rates and quantitative easing unchanged. Yet Draghi still stressed a “readiness, willingness, ability” to act if needed, so joining Bank of England Governor Mark Carney and even Federal Reserve Chair Janet Yellen as front-line risk managers in the midst of political turmoil. The consequence will be an intense focus on the slim roster of incoming data between now and the next ECB policy meeting on Sept. 8 to judge whether another roll of the stimulus dice should, and can, be undertaken.
  • Research Firm Warns of 'Putinisation' Risk to Turkish Stocks. The fallout from Friday night's failed coup attempt in Turkey is casting a shadow over equity investing in the $720 billion economy. Strategists from Ecstrat Ltd., an emerging-markets research consultancy, invite comparisons between President Recep Tayyip Erdogan and his frenemy to the north, Russia's Vladimir Putin, following the former's reprisals against thousands of military, legal and judicial personnel in the wake of the botched coup attempt by a section of his army.
  • The Emerging Markets Debt Time Bomb.
  • China Factory Gauge Suspended, This Time ‘Indefinitely’. Publishers of the China Minxin Manufacturing PMI Index suspended the gauge for a second time, scrapping an early monthly reading on the world’s second-largest economy. Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended “indefinitely,” the academy said Thursday in a statement on its website, without giving a reason. The indicators, which track manufacturing and services, were more volatile than the official PMI from the National Bureau of Statistics. The cancellation is another setback for investors and economists looking for ways to take the pulse of business activity beyond official data from the government. One other early estimate of manufacturing, a flash PMI compiled by Markit Economics and sponsored by Caixin Media, was discontinued Oct. 1. 
  • What Yuan? Currency Near Low With S&P 500 at High Is a First. An ability to whistle past trouble has marked the progress of U.S. stocks for seven years. But getting to records while staring at a threat that had investors whimpering just four months ago is something new. Whatever became of the falling yuan, celebrated villain of American equity corrections in January and August? Devaluation of the Chinese currency was supposed to foretell the end of liquidity, a world whose main engine of growth was seizing up, tolling the bell for risk-on euphoria.
  • At BOJ, Concerns Are Said to Broaden Over Policy Sustainability. An increasing number of officials at the Bank of Japan are concerned about the sustainability of the current framework for massive monetary stimulus, according to people familiar with the discussions. Some current and former BOJ officials, including dissenting board member Takahide Kiuchi, have for some time publicly said that the central bank’s unprecedented scale of bond purchases and time frame for achieving its 2 percent inflation goal is problematic. Now, there’s a broadening sense among some at the BOJ that the bank has to weigh the costs and benefits of policy measures more carefully, according to the people, who asked not to be named as the discussions are private.
  • Yen Collapse Seen by Kuroda Critic Pitching Perpetual Bond Plan. A Bank of Japan veteran-turned-critic says there’s only one way policy makers can avoid a collapse in the yen and bonds -- sovereign debt with no maturity date and no fixed coupon. Making the repayment of government notes open-ended and with interest rates that float is part of an unconventional plan pitched by Mitsuru Iwamura, a Waseda University professor who worked at the BOJ for over two decades until 1998. Amid growing speculation of additional bond-buying stimulus next week that could include so-called helicopter money, Iwamura says a road map for tapering is needed right away. “When the time comes to exit stimulus, yields will rise no matter what -- so if the BOJ’s bond holdings have fixed coupons, they will suffer a massive valuation loss, risking a collapse in the yen and fiscal trust,” Iwamura, 66, said in an interview Monday. “It’s like the situation in Japan in the summer of 1944. It’s too late to argue over whether it was right to start a war. What’s important now is how to end it.”
  • Brazil Dismantles Supposed Terrorist Cell With Olympic Plot. Brazil’s federal police detained a group of Brazilian nationals who were allegedly plotting terrorist attacks for the Summer Olympics, which are set to kick off early next month in Rio de Janeiro. The group was possibly participating as an Islamic State cell, Justice Minister Alexandre de Moraes said Thursday, adding that 10 suspects are in custody and warrants are out for another two, who are being monitored. Wiretaps revealed messages that supported racial and religious intolerance, as well as the intent to use firearms and guerrilla tactics to achieve their objectives.
  • Trump’s NATO Skepticism Raises Alarm for Allies Near Russia. Republican presidential nominee Donald Trump sent alarm rippling through Eastern Europe after he said the U.S. would only defend NATO states attacked by Russia if those nations “have fulfilled their obligations to us,” his strongest comments to date on the military alliance’s future if he enters the White House. In an interview with the New York Times on Wednesday, the billionaire cast doubt on whether he would automatically extend the security guarantees that give the 28 members of the North Atlantic Treaty Organization the assurance that they have U.S. military support in the event of an attack. He specifically referred to the three small Baltic states which share borders with Russia.
  • Europe Stocks Little Changed on Mixed Earnings as ECB Stays Put. European stocks were little changed amid mixed earnings reports as Mario Draghi said the European Central Bank will consider adding stimulus when it has a clearer picture of the impact of Brexit. The Stoxx Europe 600 Index lost less than 0.1 percent at the close, paring earlier losses of as much as 0.7 percent. While Draghi refrained from loosening policy after last month’s U.K. vote to leave the European Union, he stressed willingness and ability to use all available instruments if required. Economists forecast the ECB will most probably wait until its Sept. 8 meeting to extend quantitative easing.
  • Biggest Nordic Bank Predicts Oil Industry Losses Through 2017. The Norwegian unit of Nordea Bank AB says its clients in the oil industry face several “tough years ahead” as petroleum prices fail to recover to anywhere near pre-crisis levels. “There’s still a fall within exploration and production,” Snorre Storset, the chief executive officer of Nordea Norway, said in an interview in Oslo on Wednesday. “There’s a bigger uncertainty surrounding this. It will take time before it gets stable again within oil and offshore. We think we will have losses in 2016 or in 2017, which we now start to take into account.” Norway, western Europe’s biggest oil exporter, has struggled to adjust to lower energy prices. More than 30,000 industry workers have lost their jobs and there has been a wave of debt defaults for companies that service the oil producers. Though Brent crude has recovered from a January low of about $27 a barrel, its current price of $46 is still some 60 percent below a 2014 peak of $115.
  • Starting to Show Up as Stocks Sit Near All-Time Highs. Flows and sentiment show investors are all bulled up. The S&P 500 and Dow Jones Industrial Average both closed at record highs on Wednesday and a peek at the underbelly of market flows and sentiment suggests that a sense of euphoria has enveloped investors.
Zero Hedge:
ABC News:
  • Nice Attacker Plotted for Months, Had Accomplices, Official Says. (video) The man who killed 84 innocent people by driving a truck through a packed crowd at a fireworks display in Nice, France, may have plotted the attack for at least a year and is believed to have had the help of at least five other people, a French official said today. Paris prosecutor François Molins said authorities found "revealing" online searches and photos on the cellphone and laptop belonging to Nice killer Mohamed Lahouaiej Bouhlel dating back to last year, including photos of the 2015 fireworks display.
Reuters:
  • ECB may review conditions for bond purchases after break, Weidmann says. The European Central Bank may discuss after its summer break reviewing the conditions for the central bank's bond purchases, Bundesbank President Jens Weidmann told Reuters on Thursday when asked if Brexit could further narrow the pool of bond options."In addition to economic considerations, the limits of the mandate for monetary policy and the legal limits will also be considered," Weidmann said. He added it was too early to tell how Britain's vote to leave the European Union will affect the inflation rate in the euro zone and that it would be wrong to use Brexit as a pretext to pursue an active exchange rate policy. "Competitive devaluations to stimulate the economy will not work and all will lose as a consequence," he said. Brexit will be high on the agenda when G20 finance ministers and central bank governors meet in Chengdu, China, on July 23-24.
WirtschaftsWoche:
  • Soros Says Deutsche Bank 'Most Vulnerable' Commercial Bank. "Deutsche Bank is clearly the most vulnerable big commercial bank," citing George Soros as saying in an interview. German savings banks also look weak, he said. "The European banking system is less solid and healthy than in the US or UK. The clean-up efforts there were less extensive and thorough after the last global financial crisis.
Nikkei:
  • iPhone Cutback Hurts Japan Component Makers. iPhone production cutback contributed to 1Q order decline of -25% at Nitto Denko and -6% at Kyocera, citing newspaper estimates. Stronger yen hurt others, the report said.
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Bear Radar

Posted by Gary .....at 1:09 PM
Style Underperformer:
  • Small-Cap Growth -.5%
Sector Underperformers:
  • 1) Road & Rail -1.9% 2) Oil Service -1.5% 3) Airlines -1.3%
Stocks Falling on Unusual Volume:
  • UBA, YDKN, BDC, ESND, FNB, TYPE, MLNX, GGG, ADPT, LUV, OPTT, DSLV, IPG, SHW, SCSS, UFPI, TSCO, DNKN, GATX, ALGT, INTC, OZRK, KALU, MDSO, ASML, UMPQ, KMI and RS
Stocks With Unusual Put Option Activity:
  • 1) XHB 2) HOG 3) AXP 4) APC 5) VFC
Stocks With Most Negative News Mentions:
  • 1) GHL 2) TER 3) XOXO 4) ISRG 5) IPG
Charts:
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Bull Radar

Posted by Gary .....at 12:35 PM
Style Outperformer:
  • Mid-Cap Value -.1%
Sector Outperformers:
  • 1) Gold & Silver +3.7% 2) HMOs +2.2% 3) Hospitals +1.9%
Stocks Rising on Unusual Volume:
  • RLYP, JOY, IMAX, URI, HUM, TACO, TBI, EBAY, QCOM, LGIH, DAN, VAC, DPZ, HXL, HBHC, BIIB and HRI
Stocks With Unusual Call Option Activity:
  • 1) MAT 2) PII 3) JOY 4) GD 5) GSAT
Stocks With Most Positive News Mentions:
  • 1) QCOM 2) EBAY 3) JOYG 4) URI 5) HUM
Charts:
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Morning Market Internals

Posted by Gary .....at 10:51 AM
NYSE Composite Index:
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