Monday, November 30, 2015

Tuesday Watch

Evening Headlines
Bloomberg:
  • Europe's `Ticking Time Bombs' Are Set for Shorting, Block Says. Carson Block, the short-seller whose bet against Asia’s Noble Group Ltd. helped sink its shares earlier this year, is targeting the "ticking time bombs" of western Europe. Block, who runs research firm Muddy Waters, said European companies are ripe for shorting because of their indebtedness and a lack of scrutiny by investors. In a Real Vision interview to be aired Friday, he said that investors in Europe follow a code that makes it impolite to ask hard questions. “We think Europe has a number of companies that are really problematic, heavily financially-engineered, indebted and where investors just haven’t done the work,” he said in the Nov. 24 interview on the financial video-on-demand channel. “Given what’s happened with interest rates in Europe and this environment that’s conducive to bad companies borrowing, I think it’s really created a lot of ticking time bombs.” 
  • China November Manufacturing PMI Below Expectations. (video) 
  • China Bears Who Foresaw the Crash Are Back With Record ETF Short. U.S. short sellers are piling on bets against Chinese equities at the fastest pace since the height of the nation’s stock-market bubble five months ago. Short interest in the largest U.S. exchange-traded fund tracking domestic Chinese stocks more than doubled in two weeks to a record 28 percent of shares outstanding on Nov. 27, according to data compiled by Markit and Bloomberg. When such wagers last climbed this fast in June, short sellers proved prescient as China’s equity-market boom turned into a $5 trillion rout.
  • Economic Takeaways From South Korea's Trade, Inflation Data. Exports fell 4.7 percent in November from a year earlier (-9 percent forecast). Exports for the year to date are down 7.4 percent compared with the same period last year.
  • Sydney Home Prices Drop Most in Five Years as Regulation Bites. Sydney home prices fell the most in five years in November as a regulatory crackdown forces banks to tighten lending and increase mortgage rates. Dwelling values in Australia’s largest city dropped 1.4 percent from a month earlier, data from property researcher CoreLogic Inc. showed on Tuesday. That was the biggest drop since December 2010 and the first decline since May. Prices across the nation’s capital cities dropped 1.5 percent, with Melbourne leading with a 3.5 percent decrease.
  • Morgan Stanley Calls 2016 the Year of the Yen With BOJ on Hold. The yen will outshine the dollar as next year’s star performer in the $5.3 trillion-a-day global currency market, according to Morgan Stanley. In what it calls an "out-of-consensus" prediction, the bank said it expects Japan’s currency to strengthen to 115 against the greenback at the end of 2016. That contrasts with a median forecast for the yen to weaken 126 per dollar, according to analysts surveyed by Bloomberg. Morgan Stanley’s top trading recommendations for next year include buying the yen against the British pound, Swiss franc, South Korean won and offshore Chinese yuan, according to a Nov. 29 report.
  • China's Stocks Fall to One-Month Low After Manufacturing Data. China’s benchmark stock index fell to the lowest level in a month after data showed manufacturing conditions are deteriorating, overshadowing the International Monetary Fund’s decision to add the yuan to its basket of reserve currencies. The Shanghai Composite Index slipped 0.3 percent to 3,435.46 at 9:35 a.m. local time, led by financial companies.
  • Asian Stocks Rise Before China Factory Data as Lenders Advance. Asian stocks rose after Monday’s selloff as investors awaited Chinese factory data and financial shares climbed. The MSCI Asia Pacific Index added 0.3 percent to 132.19 as of 9:00 a.m. in Tokyo after dropping 1 percent on Monday to cap a 2 percent decline for November. 
  • Copper Drops With Metals After Chinese Factory Activity Slows. Copper declined with other metals after an official gauge of factory activity in China deteriorated, underscoring a weak outlook for demand in the world’s biggest metals consumer. China’s official manufacturing purchasing managers index slipped to 49.6 last month, lower than in a survey of economists and below 50 indicating deterioration. The official PMI figure has been in contraction territory for four months. Copper for three-month delivery on the London Metal Exchange dropped 0.5 percent to $4,561.50 a ton by 9:29 a.m. in Shanghai. Nickel slid 0.2 percent and zinc fell 0.8 percent.
  • Copper Bears See More Pain as Prices Trade at Lowest Since 2009. Hedge funds are betting there’s more pain in store for copper, even with prices trading at the lowest in six years.Money managers are holding the biggest net-short position in the metal since August. Futures are trading near the lowest since 2009 as economic growth slows to the weakest pace in more than two decades in China, the world’s top consumer. Declining industrial profits in the Asian country added to concern that the government still hasn’t done enough to spur a rebound.
Wall Street Journal:
  • Companies Shy Away From Spending. Growth in investments limited by uneven consumer demand, global turmoil. Business investment across the U.S. is fizzling out. Companies appear reluctant to step up spending on the basic building blocks of the economy, such as machines, computers and new buildings. The broadest measure of U.S. business investment advanced 2.2% from a year earlier in the third quarter, the Commerce Department said last week, marking one of the worse performances of the six-year-old economic expansion.
  • World Leaders in Paris Vow to Overcome Divisions on Climate Change. President Barack Obama calls on countries to ‘rise to this moment’. World leaders on Monday vowed to finish a deal to curb greenhouse gases and overcome a thorny divide on financing, as they kicked off international climate talks against a backdrop of heavy security.
  • Obama’s Appalachian Tragedy. The president’s anti-coal policies have devastated West Virginia. Since 2009, 332 mines have closed. ‘The traveler comes to the Appalachians in the lovely season. He sees the hills, the streams, the foliage—but not the poor.” That passage comes from “The Other America,” Michael Harrington’s 1962 book that opened the eyes of liberal policy makers to America’s invisible poverty. The classic work helped provide the intellectual ammunition for President Lyndon Johnson’s “unconditional war on poverty,” announced in his State of the Union address two years later.
Fox News:
  • Nearly 1,000 Clinton emails had classified info. (video) The State Department’s latest release of Hillary Clinton documents brings the total number of Clinton emails known to contain classified material to nearly 1,000. The department on Monday released its largest batch of emails yet, posting 7,800 pages of the former secretary of state’s communications. The latest batch contains 328 emails deemed to have classified information. According to the State Department, that brings the total number with classified information to 999.
MarketWatch.com:
CNBC:
Zero Hedge:
Reuters:
Telegraph:
Evening Recommendations 
  • None of note
Night Trading 
  • Asian equity indices are +.50% to +1.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 130.25 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 68.25 -.75 basis points.
  • Bloomberg Emerging Markets Currency Index 70.25 +.13%.
  • S&P 500 futures +.60%.
  • NASDAQ 100 futures +.57%.
Morning Preview Links 

Earnings of Note 
Company/Estimate
  • (BNS)/1.44
  • (BOBE)/.39
  • (POWL)/.47
Economic Releases
9:45 am EST
  • Final Markit US Manufacturing PMI for November is estimated at 52.6 versus a prior estimate of 52.6.
10:00 am EST
  • Construction Spending for October is estimated to rise +.6% versus a +.6% gain in September.
  • ISM Manufacturing for November is estimated to rise to 50.5 versus 50.1 in October.
  • ISM Prices Paid for November is estimated to rise to 40.0 versus 39.0 in October.
Afternoon:
  • Total Vehicle Sales for November are estimated to rise to 14.25M versus 14.14M in October.
Upcoming Splits
  • (CTRP) 2-for-1
Other Potential Market Movers
  • The Fed's Evans speaking, Eurozone PMI, Eurozone Unemployment rate, weekly US retail sales reports, Cowen Energy conference, Citi Basic Materials conference, Goldman Metals/Mining conference, Piper Healthcare conference and the (JCI) anaylst meeting could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by industrial and financial 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 Reversing Lower into Final Hour on Global Growth Fears, Emering Markets Currency/Debt Worries, Oil Decline, Retail/Biotech Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Lower
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 16.29 +7.67%
  • Euro/Yen Carry Return Index 135.99 +.04%
  • Emerging Markets Currency Volatility(VXY) 10.81 +1.69%
  • S&P 500 Implied Correlation 57.73 +1.58%
  • ISE Sentiment Index 101.0 -24.63
  • Total Put/Call 1.23 +9.82%
  • NYSE Arms 1.08 -42.62
Credit Investor Angst:
  • North American Investment Grade CDS Index 84.14 -.30%
  • America Energy Sector High-Yield CDS Index 1,309.0 -.38%
  • European Financial Sector CDS Index 68.09 -.69%
  • Western Europe Sovereign Debt CDS Index 17.85 +.65%
  • Asia Pacific Sovereign Debt CDS Index 68.20 -1.23%
  • Emerging Market CDS Index 327.67 +2.62%
  • iBoxx Offshore RMB China Corporate High Yield Index 124.14 -.01%
  • 2-Year Swap Spread 6.25 +1.0 basis point
  • TED Spread 25.25 +3.0 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -55.25 -2.0 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 70.15 -.16%
  • 3-Month T-Bill Yield .17% +1.0 basis point
  • Yield Curve 128.0 -2.0 basis points
  • China Import Iron Ore Spot $42.97/Metric Tonne -3.44%
  • Citi US Economic Surprise Index -14.4 +1.1 points
  • Citi Eurozone Economic Surprise Index 23.10 -5.1 points
  • Citi Emerging Markets Economic Surprise Index 9.3 +3.9 points
  • 10-Year TIPS Spread 1.62 -1.0 basis point
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 1.78 -.07
Overseas Futures:
  • Nikkei 225 Futures: Indicating +13 open in Japan 
  • China A50 Futures: Indicating -141 open in China
  • DAX Futures: Indicating -25 open in Germany
Portfolio: 
  • Lower: On losses in my biotech/medical/retail sector longs 
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:
  • Citi: The Growth Model of Emerging Markets Is ‘Broken’. (video) Chinese growth and strong global trade created uniquely favorable conditions that aren't likely to repeat themselves anytime soon. Strategists at Goldman Sachs and Bank of America have been calling the bottom in emerging markets. But Citigroup feels differently. In a year-ahead note, Chief Economist Willem Buiter says it's impossible to declare "EM is 'out of the woods'" just yet thanks to two major risks. The first is an interest rate hike from the Federal Reserve, which is now widely expected to occur next month. Such a move seems likely to knock back some of investment that has been flowing into emerging markets in recent years. "Higher U.S. rates do still threaten capital flows to EM, largely because some of the ‘excess’ inflow to EM in the past five years will have had cyclical characteristics, and could therefore be vulnerable as U.S. rates rise," Buiter writes in the note.
  • Macau's Third-Quarter Economy Sinks 24% Compared to a Year Ago. Macau’s economy contracted a fifth straight quarter as the world’s largest center of gambling was pummeled by an economic slowdown in China and the government’s attack on corruption which scared off high-rollers. The Chinese city, which relies on gamblers for about two-thirds of economic output, saw GDP tumble 24.2 percent in the three months through September, easing from the 26.4 percent drop in the second quarter, government data released Monday showed. 
  • Aberdeen's Emerging-Market Pain. As the market turmoil that started in China washes up in Scotland's granite city, 2016 is shaping up to be a crunch year for Aberdeen Asset Management. Aberdeen spelled out in gory detail on Monday how its Asian and emerging markets-focused funds are hemorrhaging cash. Net outflows accelerated to almost 13 billion pounds ($19.5 billion) in the three months through September, bringing the total for the fiscal year to almost 34 billion pounds. Aberdeen said the industry is experiencing "the worst quarter for outflows from this asset class since the global financial crisis.''
  • Euro heads for biggest monthly loss since March on ECB outlook. The euro headed for its biggest monthly decline since March as economists unanimously forecast the European Central Bank will unveil additional stimulus this week. The 19-nation currency approached the lowest in seven months versus the dollar as investors are pricing in a 100 percent chance of a 10-basis-point cut in the ECB’s deposit rate on Dec. 3. A gauge of the dollar climbed to the highest since March as futures predict the Federal Reserve will increase interest rates in December, expanding the divergence between the two central banks.  
  • Europe Stocks Climb to Three-Month High on Stimulus Anticipation. European stocks pulled off a second monthly advance on bets the region’s central bank will increase stimulus at this week’s meeting. The Stoxx Europe 600 Index rallied to a three-month high, taking its November gain to 2.7 percent.
  • The Economic Loss From the Global Commodities Slump. (video)
  • Oil Pares Monthly Decline Before OPEC Ministers Gather This Week. (video) Futures gained as much as 2.2 percent in New York, reducing November’s drop to about 8 percent. Iran expects no major decisions that would change OPEC’s output target when the group gathers Dec. 4 in Vienna, Oil Minister Bijan Namdar Zanganeh said Saturday at a conference in Tehran. Speculators increased their bullish position on Brent to a two-week high through Nov. 24. Oil is set to average below $50 for a fourth month, the longest stretch since the global financial crisis, as a record supply glut showed no signs of ending amid a producers’ fight for market share. Iran has said it will announce plans during the Vienna meeting to expand output, a year after Saudi Arabia led an OPEC decision to keep pumping and drive out higher-cost shale rivals. "As the ministers arrive in Vienna the rhetoric will start to fly," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "The market is going to be headline driven and very volatile this week. The bulls are especially desperate and will try to bid up the market on any sign of a cutback."  
  • This Recovery Has Fallen Behind The Recovery After The Great Depression. The not-so-great expansion. In April 2009 Economists Barry Eichengreen and Kevin O'Rourke first compared the collapse in industrial output following the start of the 2008 "Great Recession" to the one that followed the Great Depression beginning in 1929.At the time, the declines were running at a similar pace, sparking warnings that the world was headed into another great depression.
  • Distressed Debt Ratio Highest Since 2009 on Crude Crash, S&P. (graph) Plummeting oil and gas prices pushed the percentage of junk bonds trading at distressed levels to the highest since the markets were recovering from the financial crisis, according to Standard & Poor’s. The ratings firm’s so-called distress ratio increased to 20.1 percent in November, up from 19.1 percent in October and the most since September 2009, when it hit 23.5 percent. The ratio is calculated by dividing the number of distressed securities by the total amount of speculative-grade debt outstanding. “The oil and gas sector accounted for 113 of the 361 issues in the distress ratio, because drops in oil prices affected profitability for oil and gas companies, where spreads have widened considerably, and had a spillover effect to the broader speculative-grade spectrum,” Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group, said in a report. The distress ratio, along with other economic, financial and credit conditions, indicates “growing pressure” that the number of defaults might rise, according to the report.
  • Banks Supplant Energy in Destroying S&P 500 Growth Outlook. The two-quarter retreat in Standard & Poor’s 500 Index earnings is about to become a three-quarter swoon, and this time it isn’t just because of plunging energy prices. Bank profit estimates are falling at the fastest pace in four years, bringing the overall forecast for S&P 500 earnings in the fourth quarter to a decline of 5.6 percent, compared with a gain of 1.4 percent as recently as August. Financial institutions are exerting an ever-increasing drag on analyst projections: what had been expected to be a 16 percent surge in their October-to-December income has narrowed to less than 1 percent.
  • Fed Poised to Relinquish Crisis Tools It Used to Bail Out AIG. The Federal Reserve plans to vote Monday on giving up the lending tools it used to rescue American International Group Inc. and Bear Stearns Cos. during the financial crisis after U.S. lawmakers restricted the central bank’s power to prop up failing firms. Under the Fed’s revised authority, it would only be able to save firms in a broad-based scenario, meaning it must rescue at least five entities at the same time, according to a statement released by the central bank. The change is meant to prevent the Fed from bailing out a single company. The Fed is required to write rules that eliminate some of its sweeping emergency lending authority under the 2010 Dodd-Frank law.
Zero Hedge: 
Business Insider: 
CNN:

Bear Radar

Style Underperformer: 
  • Small-Cap Growth -.92%
Sector Underperformers: 
  • 1) Biotech -2.47% 2) Retail -2.22% 3) Hospitals -1.95%
Stocks Falling on Unusual Volume:
  • EFUT, QURE, SOHU, SPTN, LULU, CPSI, UGP, CBM, TEVA, SCVL, ALGT, ULTA, OLED, CACC, MED, NTES, LMT, CBD, FUN, GLOB, UA, DECK, BC, COLM, PBH and CSC
Stocks With Unusual Put Option Activity: 
  • 1) EWJ 2) XLE 3) COH 4) KSS 5) HCA
Stocks With Most Negative News Mentions: 
  • 1) LULU 2) BYD 3) HOT 4) ALGT 5) PBH
Charts:

Bull Radar

Style Outperformer:
  • Mid-Cap Value -.05%
Sector Outperformers: 
  • 1) Gold & Silver +2.31% 2) Oil Service +1.62% 3) Alt Energy +.76%
Stocks Rising on Unusual Volume: 
  • KANG, CSC, ITC and AMBA
Stocks With Unusual Call Option Activity: 
  • 1) ASNA 2) GERN 3) ADT 4) UNH 5) NRF
Stocks With Most Positive News Mentions: 
  • 1) FIT 2) CSRA 3) DE 4) EBAY 5) AAPL
Charts: 

Morning Market Internals

NYSE Composite Index: