Tuesday, August 04, 2015

Today's Headlines

Bloomberg:
  • Lenders at Record Low Drag Greek Equities Down for Second Day. Greek lenders fell to their lowest levels since at least 1995, sending the nation’s stocks lower for a second day. Piraeus Bank SA slumped 30 percent, the daily maximum allowed by the Athens Stock Exchange. Eurobank Ergasias SA and Alpha Bank AE also tumbled that much, while National Bank of Greece SA fell 28 percent. The benchmark ASE Index lost 1.2 percent to 659.94 at the close of trading in Athens, paring a retreat of as much as 4.9 percent.
  • Puerto Rico Debt-Crisis Grows as Payments Halt, Bond Prices Fall. Puerto Rico’s debt crisis escalated as it suspended deposits into a fund that pays its general-obligation bonds and one of its agencies defaulted for the first time, jeopardizing the cash-strapped government’s ability to raise money. The price of the commonwealth’s newest general-obligation bonds fell near a record low, with the island pushed to the brink from years of borrowing to cover budget deficits. Governor Alejandro Garcia Padilla is seeking to restructure Puerto Rico’s $72 billion of debt, saying bondholders need to share in the commonwealth’s sacrifices.
  • BMW Says Chinese Slowdown May Force It to Revise Forecast. (video) BMW AG said slowing sales in China may force it to revise this year’s profitability goals, challenging new Chief Executive Officer Harald Krueger as he seeks to defend his lead in the global luxury-car industry. Earnings before interest and taxes from automaking are still expected at 8 percent to 10 percent of sales, though “if conditions on the Chinese market become more challenging, we cannot rule out a possible effect” on the forecast, the Munich-based manufacturer said Tuesday.
  • The Devastation in Global Commodity Currencies Is Far From Over. Canada, Australia, New Zealand currencies set to plunge, OppenheimerFunds says. A bounce in crude oil and other commodity prices Tuesday halted a plunge in currencies of countries linked to natural-resource exports. The respite will be short-lived, according to OppenheimerFunds Inc. The Canadian, Australian and New Zealand dollars are off to the worst start to a year since the financial crisis. The nations are grappling with a 29 percent drop in raw-material prices amid swelling supplies and slowing demand in China. Next up, they'll have to contend with the Federal Reserve's plan to raise interest rates this year, which is forecast to boost the U.S. dollar.
  • Bank Shares Lead European Stock Drop as Greece Falls for 2nd Day. European stocks snapped a five-day winning streak as declines in banks outweighed a surge in miners. Greek shares slid for a second day. Credit Agricole SA dragged lenders to the worst performance on the Stoxx Europe 600 Index, tumbling 10 percent after signaling it failed to win backing from regulators for a reorganization that may free up capital to repay investors. Total SA and Eni SpA pulled oil-and-gas companies down, as crude traded in a bear market. BHP Billiton Ltd and Rio Tinto Group rose at least 1.6 percent, pushing commodity producers to the biggest gain on the equity gauge as some metal prices rebounded. The Stoxx 600 retreated 0.2 percent to 398.75 at the close of trading, after earlier losing as much as 0.6 percent. Italy’s FTSE MIB Index and Spain’s IBEX 35 Index dropped 1 percent.
  • Oil’s Below $50 and About to Get Worse. (video) The slump may have further to go. U.S. refineries, which turned a record amount of crude into gasoline during July, typically slow down from August through October for maintenance.  
  • The Oil Crash Has Caused a $1.3 Trillion Wipeout. It’s the oil crash few saw coming, and few have been spared as it erased $1.3 trillion, the equivalent of Mexico’s annual GDP, in little more than a year. Take billionaire Carl Icahn. When crude was at its peak in June 2014, the activist investor’s stake in Chesapeake Energy Corp. was worth almost $2 billion. Today, oil has lost more than half its value, Chesapeake is the worst performer in the Standard & Poor’s 500 Index and Icahn has a paper loss of $1.3 billion. 
  • Milk Powder Prices Plunge to New Low at Auction. Whole milk powder plunged to the lowest in at least seven years at an international auction, the latest indication yet of chronic oversupply in the global daily industry. The average price in the auction fell 14 percent, GlobalDairyTrade, the organizer, said Tuesday on its website.
  • The Painful Lesson of Selling Risky, Esoteric Debt in a Downturn. There’s a big difference between investors who have the luxury of keeping their money in risky debt for the long haul versus those who are forced to sell. An example: the first-loss piece of collateralized loan obligations, which bundle junk-rated loans and slice them into pieces of varying risk and return. These were popular with credit hedge funds in the past few years as one of the few debt investments offering potential returns above 10 percent in an era of historically low yields. That changed in the first six months of this year as oil plunged.
  • BofA(BAC) Governance Worst Since Pre-Crisis Citigroup, Mayo Says. Bank of America Corp., which overruled a shareholder vote mandating an independent chairman, has the worst corporate governance of any big bank since Citigroup Inc. before the financial crisis, CLSA Ltd. analyst Mike Mayo said. Bank of America shareholders as of Aug. 10 will be allowed to vote on last year’s change that enabled Chief Executive Officer Brian Moynihan to add the chairman title, the Charlotte, North Carolina-based lender said last week in a regulatory filing.
 Zero Hedge:
Telegraph:

Bear Radar

Style Underperformer:
  • Small-Cap Value -.42%
Sector Underperformers:
  • 1) Coal -10.08% 2) Homebuilders -2.04% 3) Semis -1.65%
Stocks Falling on Unusual Volume:
  • TNET, STON, ELGX, ONDK, CRTO, BKD, CGNX, CPF, SHPG, LXRX, HYH, TRS, PH, TMH, VECO, MDAS, ALL, WOOF, NLS, TXRH, DWRE, RSP, FSTR, SGMS, ABY, FNB, SGNT, SSYS, HZO, SCOR, AIG, ITG, NCLH, SERV, BOX, LC, RSPP, SWKS, BKD, WOOF, EIGI, NRG, ANIP, UIHC, NYLD, WSTC and AAC
Stocks With Unusual Put Option Activity:
  • 1) ESI 2) GPS 3) IWO 4) COP 5) CVS
Stocks With Most Negative News Mentions:
  • 1) CNX 2) ALL 3) CGNX 4) V 5) EMR
Charts:

Bull Radar

Style Outperformer:
  • Mid-Cap Growth -.03%
Sector Outperformers:
  • 1) Gaming +1.78% 2) Hospitals +1.57% 3) Biotech +.67%
Stocks Rising on Unusual Volume:
  • IPCM, LMNX, TREE, ABMD,  VA, QLYS, AF, RRD, TSN, TSRA, MGM, WWE, ALR, EXP, CTRP, TAST, VMC, WWE, QEP., AF, IDTI, TSN, REGN, ETFC, ALJ and SABR
Stocks With Unusual Call Option Activity:
  • 1) ETFC 2) CCE 3) LC 4) AWAY 5) WWAV
Stocks With Most Positive News Mentions:
  • 1) RTEC 2) LMNX 3) COH 4) REGN 5) MOS
Charts:

Morning Market Internals

NYSE Composite Index:

Tuesday Watch

Evening Headlines 
Bloomberg:
  • Sex Slaves Sold by Islamic State, the Younger the Better. A senior United Nations official says Islamic State is circulating a slave price list for captured women and children, and that the group’s ongoing appeal and barbarity pose an unprecedented challenge. The official, Zainab Bangura, said that on a trip to Iraq in April she was given a copy of an Islamic State pamphlet, which included the list, showing that captured children as young as one fetch the highest price. The bidders include both the group’s own fighters and wealthy Middle Easterners. 
  • In Cash-Starved Greece, Plastic Casts Light Into Shadow Economy. Greece’s banking crisis is having at least one positive outcome, and it’s made of plastic. In a country where cash is king and undeclared transactions still make up about a quarter of the economy, about 1 million debit cards have been issued by banks since the government closed lenders for three weeks and imposed controls on euro bills. Emergency measures that some officials warned might spur the black market are showing signs of doing the opposite. 
  • Gold Declines as Copper Nears Bear Market; China Stocks Swing. Gold fell and copper neared a bear market amid concern over slackening demand for commodities and as the U.S. interest-rate outlook buoyed the dollar. China’s stocks fluctuated after authorities stepped up efforts to halt a rout. Bullion lost 0.3 percent as of 11:08 a.m. in Tokyo, while palladium slid to its lowest since 2012. Copper extended losses and Brent crude traded below $50 a barrel. A gauge of the greenback’s strength climbed to the highest level since March, while Australia’s dollar traded near a six-year low before a monetary policy review. The MSCI Asia Pacific Index of shares fell 0.1 percent and the Shanghai Composite was down 0.4 percent, after climbing as much as 1.1 percent.
  • Rubber Set for Bear Market as China Slowdown Worsens Oversupply. Rubber is poised to enter a bear market as a slowdown in China, the world’s largest consumer, is worsening a global glut amid rising shipments from producers. Futures have dropped 20 percent from a 16-month high reached June 1. The contract for January delivery fell 1.2 percent to 195 yen a kilogram ($1,572 a metric ton) on the Tokyo Commodity Exchange by 11:07 a.m. in Tokyo. A drop of 20 percent or more from this year’s closing peak will meet the common definition of a bear market.
  • Gas Is Just Another Fossil-Fuel Loser in Obama’s Power Plan. Natural gas, once seen as a clear winner in President Barack Obama’s push for cleaner power, wasn’t looking like much of a champ on Monday. That so-called bridge that gas was supposed to be, leading America away from dirtier fossil fuels such as coal and toward renewable power, just got a lot shorter under the final Clean Power Plan released by the U.S. Environmental Protection Agency. The agency will reward early investments in wind and solar power to get the nation generating 28 percent of its power using renewables by 2030, up from an initial proposal of 22 percent.
  • Bull market losing biggest supporter as Apple(AAPL) caps 10 percent retreat. The bull market's base just lost another brick. Amid a collapse in breadth and the threat of falling earnings, add a correction in Apple shares to the concerns facing investors. The iPhone maker slipped 2.4 percent to $118.44 Monday, extending its decline since February to 11 percent and dropping below another chart threshold, its 200-day moving average, for the first time since 2013.
Wall Street Journal:
  • Impact of EPA’s Emissions Rule on Industry to Vary. Federal regulation will boost outlook for some regions and companies while biting others. A sweeping federal rule intended to slash carbon-dioxide emissions from power plants will have an uneven impact on the energy industry, boosting the outlook for some regions and companies while biting others.
  • Climate-Change Putsch. States should refuse to comply with Obama’s lawless power rule. Rarely do American Presidents display the raw willfulness that President Obama did Monday in rolling out his plan to reorganize the economy in the name of climate change. Without a vote in Congress or even much public debate, Mr. Obama is using his last 18 months to dictate U.S. energy choices for the next 20 or 30 years. This abuse of power is regulation without representation.
MarketWatch.com: 
CNBC:
  • Oil craters, set to retest lows. (video) Oil prices have now broken below many Wall Street targets and look set to test the year's lows and beyond, before finding a bottom. Led by international bench mark Brent crude, futures were slammed Monday on concerns about new supply coming on the market and worries about contracting demand from China.
Zero Hedge:
Reuters:
  • Brazil auto sales tumble 23 pct in July from year ago. New auto sales in Brazil remained weak in July as rising interest rates and unemployment eroded consumer confidence, contributing to a deepening crisis in the industry responsible for a fifth of the country's industrial output. Sales of cars, trucks and buses fell 23 percent from a year earlier to 227,621 vehicles last month, national dealership association Fenabrave said on Monday. An extra two working days lifted sales from June by 7 percent, but the daily pace of sales slipped below 10,000 vehicles, making it the slowest July since 2007. Brazil is one of the world's five biggest auto markets, with major operations for Fiat Chrysler Automobiles NV, Volkswagen AG, General Motors Co and Ford Motor Co, whose earnings have suffered in the slump. Sales are unlikely to pick up in the months ahead, Fenabrave President Alarico Assumpção Júnior said in a statement accompanying the monthly data, affirming the group's forecast of a roughly 20 percent drop in sales this year. 
  • Commodity currencies under pressure, USD marks time. The Canadian dollar languished at 11 year lows early on Tuesday after slipping along with other commodity currencies following a selloff in oil prices, stealing the focus from a subdued U.S. dollar that heald steady against the euro and yen. The loonie last traded at C$1.3154 per USD, not far from a low of C$1.3175 set overnight - a level not seen since August 2004. Trading was light with Canadian markets shut for a public holiday on Monday.
Telegraph:
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.75% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 113.25 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 64.75 +1.75 basis points.
  • S&P 500 futures -.07%.
  • NASDAQ 100 futures -.10%.

Earnings of Note
Company/Estimate
  • (AET/1.82
  • (ADM)/.67
  • (BZH)/.41
  • (COH)/.29
  • (CVS)/1.20
  • (EXPD)/.54
  • (HCP)/.76
  • (H)/45
  • (K)/.92
  • (ML)/160
  • (MDC)/.38
  • (GM/.10
  • (MOS)/.90
  • (ODP)/06
  • (PH)/1.88
  • (REGN)/2.78
  • (VSH)/.23
  • (VMC)/.61
  • (ZTS)/.38
  • (ATVI)/.08
  • (MDRX)/.10
  • (CERN)/.52
  • (DVN)/.43
  • (FSLR)/.08
  • (NBR)/-.09
  • (PZZA)/.49
  • (DIS)/1.42
  • (Z)/-.26
Economic Releases
9:45 am EST
  • The ISM New York for July. 
10:00 am EST
  • Factory Orders for June are estimated to rise +1.8% versus a -1.0% decline in May.
  • The IBD/TIPP Economic Optimism Index for August is estimated to fall to 47.8 versus 48.1 in July.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The RBA rate decision, weekly US retail sales reports, Needham Interconnect Conference, (NTCT) investor day and the (NATI) investor conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

Monday, August 03, 2015

Stocks Reversing Lower into Afternoon on Global Growth Concerns, China Bubble-Bursting Fears, Emerging Markets/US High-Yield Debt Angst, Commodity/Technology Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 12.62 +4.13%
  • Euro/Yen Carry Return Index 141.72 -.3%
  • Emerging Markets Currency Volatility(VXY) 9.42 +.64%
  • S&P 500 Implied Correlation 57.93 unch.
  • ISE Sentiment Index 88.0 +25.71%
  • Total Put/Call .90 -17.43%
  • NYSE Arms 1.52 -15.86% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 71.48 +1.82%
  • America Energy Sector High-Yield CDS Index 1,582.0 unch.
  • European Financial Sector CDS Index 73.31 -.46%
  • Western Europe Sovereign Debt CDS Index 22.66 +1.23%
  • Asia Pacific Sovereign Debt CDS Index 63.84 +1.43%
  • Emerging Market CDS Index 324.15 +1.87%
  • iBoxx Offshore RMB China Corporates High Yield Index 121.10 +.01%
  • 2-Year Swap Spread 23.75 +.5 basis point
  • TED Spread 24.75 +.75 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -19.75 -.25 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .06% unch.
  • Yield Curve 150.0 -3.0 basis points
  • China Import Iron Ore Spot $55.16/Metric Tonne +4.16%
  • Citi US Economic Surprise Index -14.0 +1.4 points
  • Citi Eurozone Economic Surprise Index 5.6 -1.5 points
  • Citi Emerging Markets Economic Surprise Index -10.3 +1.1 points
  • 10-Year TIPS Spread 1.70 -5.0 basis points
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.37 +.61
Overseas Futures:
  • Nikkei 225 Futures: Indicating -60 open in Japan 
  • China A50 Futures: Indicating -448 open in China
  • DAX Futures: Indicating -27 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my index hedges and emerging markets shorts
  • Disclosed Trades: None
  • Market Exposure: 25% Net Long