BETWEEN THE HEDGES

Tuesday, July 26, 2016

Wednesday Watch

Posted by Gary .....at 9:51 PM

Evening Headlines
Bloomberg:

Turkey-Risk Model Shows Nation’s Markets Going From Bad to Worse. Turkey’s failed coup and President Recep Tayyip Erdogan’s crackdown could hardly have come at a worse time for investors worried about the riskiness of the country’s bonds. Now they may get even dicier. Even before rogue generals tried to seize control on July 15, the country had a relatively high default probability. It was greater than about 80 percent of nations, according to Bloomberg’s sovereign risk model, which uses debt, currency reserves and political instability metrics to calculate such odds. “There’s nothing in these factors that will not get worse,” said Salman Ahmed, the London-based chief strategist at Lombard Odier Asset Management, which uses similar gauges to assess government bonds and is staying underweight on Turkey’s debt. “Political risk is going to go up, growth will go down and external debt will go up as a percent of GDP.”
Yen Traders Signal Risk Kuroda Falls Short as Volatility Jumps. (video) Bank of Japan Governor Haruhiko Kuroda has never been one to be swayed by market expectation. But this week, investors are leaving him very little room for maneuver. Four in five economists predict additional stimulus Friday -- the most since Kuroda presided over his first policy meeting in April 2013 -- with an increase in purchases of exchange-traded funds the most likely option, followed by a deeper cut in the negative deposit rate. After inaction at the previous two policy meetings sparked yen rallies, Citigroup Inc. warns the currency could surge about 5 percent toward the 2 1/2-year high of 99.02 per dollar it hit after the U.K. voted to leave the European Union.
End of an Era as China’s Love Affair With U.S. Real Estate Fades. (video) For David Wong, the business of selling homes isn’t as good this year as it was in 2015, and he’s blaming that on a decline in customers from China. “The residential-property market here, especially for those priced between $2.5 million to $3 million, has been affected by China’s measures to control capital flight,” said the New York City-based Keller Williams Realty Landmark broker. “You need to cut the price, or it may take a real long time.” Wong is not the only one who has felt the cooling in the U.S. real estate market for foreign buyers. Total sales to Chinese buyers in the 12 months through March fell for the first time since 2011, to $27.3 billion from $28.6 billion a year earlier, according to an annual research report released by the National Association of Realtors. The number of properties purchased by Chinese also declined to 29,195 units from 34,327 units.
Asia Stocks Rise Amid Japan Rebound as Yen Pulls Back; Oil Sinks. Shares in Tokyo snapped a three-day slide, driving gains in Asia as the yen retreated amid speculation over the outlook for Japanese stimulus. Gold fell ahead of the Federal Reserve’s interest-rate review, while crude oil extended its slump. The MSCI Asia Pacific Index added 0.2 percent as of 10:01 a.m. Tokyo time, headed for its highest close since Nov. 5 as the Topix gained 0.7 percent.
Oil Majors Lost One Engine; Now the Second One Is Sputtering. If Big Oil was a two-engine airplane, you could say it’s been flying on a single engine since energy prices crashed in 2014. Now, the second motor is sputtering. The major integrated oil companies, including Exxon Mobil Corp., Total SA and BP Plc, have relied on their so-called downstream businesses, which include refining crude into gasoline, oil trading and gas stations, to cushion the losses on their upstream units, which pump crude and natural gas.

Wall Street Journal:

At Democratic Convention, Economic Messages Reveal Tensions. As Hillary Clinton trumpets gains and policy proposals, progressives emphasize shortcomings.
Akamai(AKAM) Stumbles as Silicon Valley Giants Wean Themselves Off Network. Company still counts on traditional media outlets to shore up its video business.
Treasury Yield Curve Near Flattest Since 2007. Traders and investors await the Fed’s message following this week’s policy meeting. The yield premium investors charged to hold the benchmark 10-year Treasury note relative to the two-year note fell to near a nine-year low ahead of the latest interest-rate decision by the Federal Reserve.
Apple’s(AAPL) Earnings in Five Charts. (graph)
Europe’s Terror Storm. François Hollande declares war on Islamic State. Does he mean it? Two terrorists entered a village church in Normandy at morning Mass on Tuesday, slit the throat of an elderly priest and critically wounded another person before police shot the pair dead. Islamic State claimed credit, adding to a list of recent atrocities that includes a suicide bombing and knife attack in Germany and the Bastille Day murder of 84 people in Nice. President François Hollande says France is at “war” with Islamic State, and we’d like to believe he means it.

Fox News:

DNC Convention: Live Blog.

MarketWatch:

The villain of both conventions: Goldman Sachs(GS).

CNBC:

This chart spells trouble for stocks: Technical analyst. (video)
Oil market disaster: This is a glut without end in sight, expert says. (video) The oil industry is still "a disaster," with an oversupply issue that doesn't appear to be balancing out anytime soon, John Kidluff, partner at Again Capital, said Tuesday. Kilduff, who has been bearish on crude, pointed out that refiners are soon going to go into their seasonal maintenance.

Zero Hedge:

Business Insider:

Financial Times:

Apple(AAPL) passes ‘low point’ on iPhone sales. Sales for device fall 15% in second quarter as Chinese revenues hit hard. Apple assured investors that demand for the iPhone was getting stronger and the worst of the decline in sales of its flagship device was behind it, as it reported third-quarter results just ahead of Wall Street expectations.

Night Trading

Asian equity indices are unch. to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 120.75 +.75 basis point.
Asia Pacific Sovereign CDS Index 48.75 unch.
Bloomberg Emerging Markets Currency Index 71.80 +.03%.
S&P 500 futures +.12%.
NASDAQ 100 futures +.62%.

Morning Preview Links

Earnings of Note
Company/Estimate

(MO)/.80
(ANTM)/3.23
(ARMH)/.08
(BA)/2.27
(KO)/.58
(CMCSA)/.81
(GLW)/.32
(FCAU)/.47
(GD)/2.31
(GT)/1.02
(HES)/-1.24
(HLT)/.26
(IR)/1.30
(MDLZ)/.40
(NDAQ)/.88
(NSC)/1.35
(NOC)/2.53
(OC)/.85
(R)/1.53
(STRA)/1.06
(WYN)/1.37
(AMGN)/2.74
(ABX)/.15
(CAKE)/.71
(ESV)/.51
(FB)/.82
(GPRO)/-.58
(iac)/.51
(LRCX)/1.64
(MAR)/.98
(MCK)/3.34
(MUR)/-.39
(ORLY)/2.67
(OI)/.63
(WFM)/.37
(XLNX)/.56

Economic Releases
8:30 am EST

Preliminary Durable Goods Orders for June are estimated to fall -1.4% versus a -2.3% decline in May.
Preliminary Durables Ex Transports for June are estimated to rise +.3% versus a -.3% decline in May.
Preliminary Cap Goods Orders Non-Defense Ex Air for June are estimated to rise +.2% versus a -.4% decline in May.

10:00 am EST

Pending Home Sales MoM for June are estimated to rise +1.2% versus a -3.7% decline in May.

10:30 am EST

Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,077,780 barrels versus a -2,342,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +5,560 barrels versus a +911,000 barrel gain the prior week. Distillate supplies are estimated to rise by +677,780 barrels versus a -214,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.23% versus a +.9% gain prior.

2:00 pm EST

The FOMC is expected to leave the benchmark Fed Funds rate at .25%-.5%.

Upcoming Splits

(EBIX) 3-for-1

Other Potential Market Movers

The German GFK Consumer Confidence report, $28B 7Y T-Note auction and the weekly MBA mortgage applications report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Slightly Lower into Final Hour on Rising European/Emerging Markets/US High-Yield Debt Angst, Yen Strength, Earnings Outlook Worries, Restaurant/Biotech Sector Weakness

Posted by Gary .....at 3:38 PM

Broad Equity Market Tone:

Advance/Decline Line: Higher

Sector Performance: Mixed

Volume: Below Average

Market Leading Stocks: Outperforming

Equity Investor Angst:

Volatility(VIX) 13.08 +1.63%

Euro/Yen Carry Return Index 120.07 -1.19%

Emerging Markets Currency Volatility(VXY) 10.06 +.5%

S&P 500 Implied Correlation 49.93 -1.27%

ISE Sentiment Index 81.0 +8.0%

Total Put/Call .94 +3.30%

NYSE Arms .75 -34.56%

Credit Investor Angst:

North American Investment Grade CDS Index 74.46 +1.48%

America Energy Sector High-Yield CDS Index 753.0 +2.36%

European Financial Sector CDS Index 96.35 +3.70%

Western Europe Sovereign Debt CDS Index 25.65 -.89%

Asia Pacific Sovereign Debt CDS Index 49.0 +.71%

Emerging Market CDS Index 260.53 +1.74%

iBoxx Offshore RMB China Corporate High Yield Index 131.26 +.11%

2-Year Swap Spread 21.5 -3.75 basis points

TED Spread 43.75 +3.0 basis points

3-Month EUR/USD Cross-Currency Basis Swap -53.5 -3.25 basis points

Economic Gauges:

Bloomberg Emerging Markets Currency Index 71.79 -.15%
3-Month T-Bill Yield .30% unch.

Yield Curve 80.50 -3.5 basis points

China Import Iron Ore Spot $58.08/Metric Tonne +2.15%

Citi US Economic Surprise Index 43.10 +4.5 points

Citi Eurozone Economic Surprise Index 10.4 -.4 point

Citi Emerging Markets Economic Surprise Index -8.50 +1.6 points

10-Year TIPS Spread 1.50% unch.
28.0% chance of Fed rate hike at Sept. 21 meeting, 29.5% chance at Nov. 2 meeting

Overseas Futures:

Nikkei 225 Futures: Indicating +67 open in Japan
China A50 Futures: Indicating +10 open in China

DAX Futures: Indicating +3 open in Germany

Portfolio:

Slightly Higher: On gains in my retail/tech/medical sector longs

Disclosed Trades: None

Market Exposure: 50% Net Long

Today's Headlines

Posted by Gary .....at 2:58 PM

Bloomberg:

Islamic State Claims Attack After Priest Murder in French Church. French police killed two attackers who seized hostages and murdered a priest during a siege at a church in Normandy in the latest attack claimed by Islamic State amid a wave of terror attacks across Europe. The police said they killed the assailants as they ended the standoff in north-western France on Tuesday morning. Le Figaro reported that the attackers cut the priest’s throat, citing police sources. The Paris prosecutor’s anti-terrorism unit has been tasked with looking into the assault.
Putin, Erdogan Mend Ties as Post-Coup Turkey Turns to Russia. Turkey and Russia will seek to speed up the repair of frayed relations when Recep Tayyip Erdogan meets Vladimir Putin for talks in St. Petersburg next month in the wake of the failed military coup against the Turkish president. Russia “isn’t just our close and friendly neighbor, but also a strategic partner,” Turkish Deputy Prime Minister Mehmet Simsek, who announced the Aug. 9 visit, said at talks in Moscow with his Russian counterpart Arkady Dvorkovich on Tuesday. “Today, we are here to normalize the situation and our relations as soon as possible and at an accelerated pace since they were disrupted on November 24,” he said, referring to the downing of a Russian warplane by Turkish fighter jets near the Syrian border.
China Steel Oversupply Still ‘Big Worry’ for Industry, JSW Says. Steel supply from China, the world’s biggest producer, remains a “big worry” for the global industry, which continues to be under pressure despite an improvement in prices, JSW Steel Ltd. Chairman Sajjan Jindal said. There is “‘huge overcapacity” in China and the industry is worried about how the Asian nation will address the issue, Jindal, who runs India’s second-biggest steelmaker, said in an interview after the company’s annual general meeting in Mumbai. “Our biggest concern is how China plays out and what they do as most of their businesses are run because of the highly subsidized policies of the government.”
Europe Stocks Little Changed Amid Faurecia, Commerzbank Results. (video) Automobile-parts maker Faurecia SA added 4.3 percent after raising its 2016 targets. AMS AG rallied 12 percent after the semiconductor company posted better-than-estimated profit and forecast an increase in sales. Commerzbank AG lost 4.5 percent after saying a key measure of its capital strength fell in the second quarter, leading lenders lower before Friday’s bank stress-test results. BP Plc fell 1.3 percent after its profit plunged. The Stoxx Europe 600 Index added 0.1 percent at the close, after rising as much as 0.4 percent and sliding 0.6 percent.
No-Win Oil Market Saps Profits for Refiners and Producers: Chart. (video)
El-Erian Says Fed Risks ‘Collateral Damage’ by Keeping Rates Low. (video) Allianz SE’s Mohamed El-Erian said Federal Reserve policymakers must be aware of the diminishing returns of keeping interest rates so low and need to be aware of the possibility of “unintended consequences” from their approach. “If the Fed continues with interest rates being too low, it risks causing collateral damage,” El-Erian, Allianz’s chief economic adviser, said Tuesday in a Bloomberg Television interview. “The more the structural headwinds, the less effective central banks’ stimulus is. It’s ironic, but this is a recognition that is now spreading within the Fed.”
Analyst Warns of a Restaurant Downturn and Sees Harbinger of U.S. Recession. And it doesn't bode well for the U.S. economy. According to one analyst, not even the Pokemon Go craze can save the restaurant industry. During much of the recovery from the financial crisis, restaurant spending has been a retail highlight as other areas, like department stores, have struggled. According to Stifel Financial Corp. analyst Paul Westra, however, recent surveys point to the start of a serious decline.
Analog Devices(ADI) Said in Advanced Talks to Buy Linear Technology(LLTC). Analog Devices Inc. is in advanced talks to acquire Linear Technology Corp., according to people familiar with the matter. A deal for Linear, which has a market valuation of about $12 billion, could be announced as soon as today, the people said, asking not to be identified as the matter is private. No final agreement has been reached and the deal may still fall apart, they said.