Wednesday, August 10, 2016

Thursday Watch

Evening Headlines
Bloomberg:
  • French Voters’ Fear of Terror Puts Hollande in a Political Bind. As the terrorist threat moves to center stage in France’s presidential election campaign, Francois Hollande finds himself paralyzed. He’s stuck between an opposition-stoked desire for tougher, even authoritarian, measures to provide security, and a historic reluctance by his own Socialist Party to impinge on basic democratic freedoms in the name of law and order. It’s a dilemma that’s already contributed to one major election defeat for the Socialists. A shift in the security-versus freedom debate has become palpable since July, when two very different attacks brought the civilian death toll from terrorism on Hollande’s watch to 236. Suddenly polls show security, not jobs, as the main preoccupation of voters, and the president himself acknowledges this is tricky political terrain for a Socialist candidate just eight months from the next election.
  • Pitfalls of Global Hunt for Yield Highlighted in Mongolia Crisis. Investors who piled into some of the world’s riskiest bonds to escape near-zero interest rates got a reality check on Wednesday when Mongolia sent its debt plunging by sounding the alarm on its economic crisis. The government’s $1 billion of notes due in six years tumbled the most on record after the finance minister went on television to say his critical goal was to avoid default as growth slows and the debt burden soars. Barclays Plc removed its overweight recommendation on the nation’s bonds, which have offered some of the highest returns in a rally fueled by accommodative policies in the developed world. After cash poured into debt funds tracking emerging nations at the fastest pace on record last month, the shock to Mongolia’s bond market highlights the dangers of plowing into junk-rated credits. Money managers have turned to more exotic issuers like Mongolia to take advantage of yields more than 400 basis points above the average rate for sovereigns in developing countries. “Central bank policy has given investors a license to move down the risk spectrum,” Gregory Saichin, who helps manage $2.4 billion, including Mongolian bonds, as chief investment officer for developing-world fixed-income at Allianz Global Investors. “The risks are there. People shouldn’t come into a story like this and say they didn’t know about it.”
  • Singapore Cuts Top End of 2016 GDP Forecast on Weak Outlook. Singapore cut the top end of its 2016 growth forecast after the economy expanded less than previously estimated in the second quarter. Gross domestic product expanded an annualized 0.3 percent from the first quarter, the Ministry of Trade and Industry said Thursday. That compares with last month’s advance estimate of 0.8 percent, which was also the median forecast in a Bloomberg survey of nine economists. The economy grew a revised 0.1 percent in the first quarter. The new 2016 forecast of 1 percent to 2 percent expansion is "in line with weaker global growth outlook, and barring the full materialization of downside risks," the ministry said. The previous forecast was for as much as 3 percent.
  • Crude Slump Sinks Asian Shares Amid Weaker Dollar; Kiwi Surges. Oil’s selloff deepened in Asian trading, weighing on energy stocks amid resurgent concern over global supplies of the commodity. New Zealand’s dollar touched a one-year high as the greenback held losses. U.S. crude fell for a third day, trading below $42 a barrel after a surprise gain in American stockpiles inflamed concerns about oversupply. While markets in Japan were closed for a holiday, equities in Australia and South Korea tracked Wednesday’s pullback in the S&P 500 Index. As the Bloomberg Dollar Spot Index fell for a third day, the kiwi jumped more than 1 percent after the country’s central bankcut rates to a fresh record low but signaled a more gradual easing path than some investors had anticipated. Australian bonds extended gains. Nickel snapped a four-day climb, while silver jumped. The MSCI Asia Pacific excluding Japan Index fell 0.2 percent as of 9:26 a.m. Tokyo time, halting a five-day advance. Australia’s S&P/ASX 200 Index dropped 0.6 percent, amid a drop of similar magnitude in the country’s energy shares, while the Kospi index in Seoul lost 0.2 percent.
  • Steel’s Big Comeback Might Be Running Out of Steam Already. After eight years of misery, 2016 has been something of a boon for the steel industry. The big question is can they keep the winning run going? While many steelmakers surprised analysts with better profits and the stocks enjoyed the best rally in years, the industry’s biggest problem hasn’t been solved. China still exports at a record rate and there are hundreds of millions of tons of surplus capacity around the world still undercutting prices. “We don’t think at this point that the recovery is sustainable,” said Alon Olsha, an analyst at Macquarie Group Ltd. in London. “There remains a huge amount of overcapacity in steel and latent capacity that can easily be turned back on.”
Wall Street Journal:
Fox News:
  • ObamaCare problems deepen as insurers scramble to stem losses. (video) Six years after ObamaCare was signed into law – and countless assurances later that the law is “working” – America’s major insurance companies are facing mounting losses and threatening to pull out of the exchanges, leaving customers facing higher costs and fewer options. In the most recent example, Tennessee regulators are bowing to pressure to let insurers refile their 2017 rate requests, which could lead to steep hikes for customers.
CNBC:
Zero Hedge:
Business Insider:
recode:
Night Trading 
  • Asian equity indices are -.75% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 114.75 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 44.0 -.75 basis point.
  • Bloomberg Emerging Markets Currency Index 73.52 -.09%
  • S&P 500 futures -.%. 
  • NASDAQ 100 futures -.%.
Morning Preview Links

Earnings of Note
Company/Estimate 

  • (CSIQ)/.41
  • (HAIN)/.60
  • (JKS)/1.75
  • (PERY)/.01
  • (SHLD)/-3.48
  • (SSI)/.05
  • (WMT)/1.01
  • (CRMT)/.46
  • (AMAT)/.48
  • (DV)/.60
  • (GPS)/.59
  • (ROST)/.67 
Economic Releases 
8:30 am EST
  • The Import Price Index MoM for July is estimated to fall -.4% versus a +.2% gain in June.
  • Initial Jobless Claims for last week are estimated to fall to 265K versus 269K the prior week.
  • Continuing Claims are estimated to fall to 2133K versus 2138K prior.   
10:00 am EST
  • 2Q Mortgage Delinquencies/Foreclosures.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The China Production/Retail Sales reports, $15B 30Y T-Bond auction, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the (HWAY) investor day could also impact trading today.
BOTTOM LINE:  Asian indices are 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.

Stocks Falling into Final Hour on Earnings Outlook Concerns, Oil Decline, Yen Strength, Biotech/Energy Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 12.43 +6.6%
  • Euro/Yen Carry Return Index 118.21 -.11%
  • Emerging Markets Currency Volatility(VXY) 10.02 +.10%
  • S&P 500 Implied Correlation 46.03 +5.94%
  • ISE Sentiment Index 52.0 -45.26%
  • Total Put/Call .84 -7.69%
  • NYSE Arms 1.20 +19.18
Credit Investor Angst:
  • North American Investment Grade CDS Index 72.11 +1.26%
  • America Energy Sector High-Yield CDS Index 718.0 -2.08%
  • European Financial Sector CDS Index 88.12 +3.02%
  • Western Europe Sovereign Debt CDS Index 24.87 -.04%
  • Asia Pacific Sovereign Debt CDS Index 44.21 -1.37%
  • Emerging Market CDS Index 242.73 -.42%
  • iBoxx Offshore RMB China Corporate High Yield Index 131.80 +.14%
  • 2-Year Swap Spread 27.75 -.75 basis point
  • TED Spread 52.75 +1.5 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -43.0 -.25 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 73.59 +.46%
  • 3-Month T-Bill Yield .28% unch.
  • Yield Curve 83.0 unch.
  • China Import Iron Ore Spot $60.58/Metric Tonne -1.59%
  • Citi US Economic Surprise Index 17.40 -1.6 points
  • Citi Eurozone Economic Surprise Index 27.9 -1.0 point
  • Citi Emerging Markets Economic Surprise Index 3.70 +.8 point
  • 10-Year TIPS Spread 1.46% -3.0 basis points
  • 20.0% chance of Fed rate hike at Nov. 2 meeting, 40.8% chance at Dec. 14 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating -55 open in Japan 
  • China A50 Futures: Indicating +20 open in China
  • DAX Futures: Indicating -11 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my retail sector longs and emerging market shorts
  • Disclosed Trades: None
  • Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:
  • Putin Warns Ukraine Russia Will Respond to ‘Terror’ in Crimea. President Vladimir Putin accused Ukraine of using “terror” tactics after his security services said Kiev’s special forces sought to breach the border to the disputed Crimea peninsula, killing two Russians in separate incidents. The events make it “pointless” to hold peace talks on the sidelines of a Group of 20 meeting in China next month, which Russia had previously backed, Putin told reporters in Moscow. Russian forces detained armed Ukrainian intelligence officers planning subversive acts in Crimea, the Federal Security Service, or FSB, said Wednesday. “There were losses on the Russian side, with two servicemen killed. We certainly won’t let such things pass by,” Putin said. “We will adopt additional security measures, and they will be very serious additional measures.”
  • Merkel’s Government to Tighten Security After Attacks in Germany. German Chancellor Angela Merkel’s government will introduce measures to bolster security after a spate of attacks last month, two of which were linked with Islamic State, raised anxieties over terrorism. “We’re living in difficult times -- the threat of terror is high,” Interior Minister Thomas de Maiziere told reporters on Wednesday during a visit to a police headquarters in the city of Bremen in northwestern Germany. He said he’ll unveil his plans on Thursday in Berlin. The proposals include expedited deportation processes for asylum seekers accused of criminal activity and loosening doctor-patient privacy privileges in cases where medical officials are able to tip off authorities to a possible attack, Bild newspaper reported.
  • China's Love Affair with U.S. Real Estate Fades. (video)
  • Europe Stocks Slip From 7-Week High as EON Falls After Earnings. (video) European shares halted a five-day rally, retreating from their highest prices in almost seven weeks, on disappointing earnings at companies including EON SE and Novozymes A/S. EON sank 6.9 percent, the most since June, as it reported a first-half loss, triggering a slide in the industry. Danish biotech company Novozymes sank 12 percent, pushing pharmaceutical companies to the biggest drop among sectors, as it reported profit that missed estimates and cut its sales outlook. Royal Dutch Shell Plc and Tullow Oil Plc dragged down energy companies as oil declined, while steelmakers including ArcelorMittal and Voestalpine AG fell more than 2 percent. The Stoxx Europe 600 Index slipped 0.2 percent at the close, trimming a decline of as much as 0.4 percent.
  • Saudi Arabia Reports Record Oil Output on Summer Demand. (video) Saudi Arabia told OPEC that it pumped a record 10.67 million barrels of oil a day in July to meet a summer surge in domestic demand, an increase that will do nothing to endear the group’s leading exporter to other members seeking output limits to shore up prices.
  • OPEC Says Weak Oil Demand Is Here to Stay. (video) Weakness in global oil markets, which has dragged prices to a three-month low, may persist as demand slows seasonally and fuel inventories remain abundant, OPEC predicted. There are “lingering concerns” that U.S. and European refiners may reduce processing rates as profits fade amid a continuing “overhang” of crude and refined fuels, the Organization of Petroleum Exporting Countries said in its monthly report. Gasoline consumption will taper off in the U.S. with the end of the summer-vacation driving season, it said.
  • Iran Expects $25 Billion Oil Contracts Signed Within Two Years. (video)
  • Luxury Sellers Issue Gloomy Forecasts as Mall Traffic Wanes. Luxury-goods sellers are keeping the champagne on ice. Dwindling mall traffic and sluggish tourism are taking a toll on U.S. department stores, a key channel for companies like Ralph Lauren Corp. and Michael Kors Holdings Ltd. The two fashion houses and handbag maker Coach Inc. offered gloomy forecasts this week, saying excessive discounting may be hurting their brands. “The amount of promotional activity from many of the people who carry our line was at its all-time high, and we had to compete to be able to move our inventories during that period of time,” Michael Kors Chief Executive Officer John Idol said Wednesday on a conference call. “That’s the whole cycle we are going to get ourselves out of.”
  • There Are All Kinds of Signs of a High-End Real Estate Slowdown. Tough times for the high end market. According to real-estate website StreetEasy, 12 of the condos in Manhattan currently listed at over $20 million have had their prices cut by 5 percent or more in recent months, while only 2 of them have seen any increase in their listing price. Among the cuts is a condo at 1 Central Park South. It's been on the market for more than 250 days, and is now on sale at $45.5 million, $6.45 million less than its price a few weeks ago. That's just one of the indications that the market may be slowing down. Here are some others:
  • Mortimer-Lee: Soft policy keeps ’zombie companies’ in business.
Wall Street Journal: 
Fox News:
  • Emails raise new questions on ties between Clinton Foundation, State Department. (video) A new batch of emails released Tuesday is raising fresh questions about whether Clinton Foundation donors got preferential treatment from the State Department during Hillary Clinton's tenure at the top. Conservative watchdog Judicial Watch released 44 new email exchanges which it says were not in the original 30,000 handed over to the State Department, despite the Democratic presidential nominee's claims she turned over all work-related emails amid the now-closed probe into her private server use. The documents, produced as a result of the group's FOIA lawsuit, appear to challenge Clinton's insistence that there is "no connection" between her family foundation and her work at the department. In one email exchange released by Judicial Watch, Doug Band, an executive at the Clinton Foundation, tried to put billionaire donor Gilbert Chagoury -- a convicted money launderer -- in touch with the U.S. ambassador to Lebanon because of the donor’s interests there.
  • Assange implies murdered DNC staffer was WikiLeaks' source. (video) WikiLeaks founder Julian Assange implied in an interview that a murdered Democratic National Committee staffer was the source of a trove of damaging emails the rogue website posted just days before the party's convention. Speaking to Dutch television program Nieuswsuur Tuesday after earlier announcing a $20,000 reward for information leading to the arrest of Seth Rich's killer, Assange said the July 10 murder of Rich in Northwest Washington was an example of the risk leakers undertake.
CNBC:
Zero Hedge:

Bear Radar

Style Underperformer:
  • Small-Cap Growth -.8%
Sector Underperformers:
  • 1) Alt Energy -3.1% 2) Biotech -1.8% 3) Oil Service -1.5%
Stocks Falling on Unusual Volume: 
  • OA, MYGN, SEDG, KLAC, FSLR, W, PRGO, GPRE, APEI, AMAG, AJRD, LMT, IPXL, CAFD, VWR, EDIT, CSIQ, FLO, ZBH, ACAD, CYBR, LITE, VEC, LRCX, DPLO, X, GDOT, AHS, PMC, MPAA and SPWR
Stocks With Unusual Put Option Activity:
  • 1) LOW 2) THC 3) DIS 4) HD 5) BK
Stocks With Most Negative News Mentions:
  • 1) FSLR 2) PRGO 3) RIG 4) MYL 5) KLAC
Charts:

Bull Radar

Style Outperformer:
  • Mid-Cap Growth -.2%
Sector Outperformers:
  • 1) Gold & Silver +1.6% 2) Retail +.3% 3) Restaurants unch.
Stocks Rising on Unusual Volume:
  • DXPE, HRTX, VRNS, XONE, YELP, HWAY, APSP, YRD, REN, RL, PEN and KRA
Stocks With Unusual Call Option Activity:
  • 1) BAX 2) YELP 3) ALB 4) GD 5) HRTX
Stocks With Most Positive News Mentions:
  • 1) KSS 2) HBI 3) WAG 4) GD 5) M
Charts: