Wednesday, February 03, 2016

Stocks Reversing Losses into Final Hour on Central Bank Hopes, Emerging Market Currency Gains, Oil Bounce, Commodity/Telecom Sector Strength

Posted by Gary .....at 3:20 PM
Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Lower
  • Sector Performance: Mixed
  • Volume: Above Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 21.61 -1.68%
  • Euro/Yen Carry Return Index 136.39 -.33%
  • Emerging Markets Currency Volatility(VXY) 12.57 +1.52%
  • S&P 500 Implied Correlation 60.16 -2.58%
  • ISE Sentiment Index 123.0 +101.64%
  • Total Put/Call .86 -13.13%
  • NYSE Arms .88 -60.74% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 108.42 -.18%
  • America Energy Sector High-Yield CDS Index 2,030.0 +2.73%
  • European Financial Sector CDS Index 103.66 +5.42%
  • Western Europe Sovereign Debt CDS Index 25.06 +9.96%
  • Asia Pacific Sovereign Debt CDS Index 81.81 +.06%
  • Emerging Market CDS Index 378.76 -2.38%
  • iBoxx Offshore RMB China Corporate High Yield Index 122.36 -.07%
  • 2-Year Swap Spread 6.25 -.25 basis point
  • TED Spread 28.25 +1.75 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -20.25 +1.0 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 68.32 +1.1%
  • 3-Month T-Bill Yield .33% unch.
  • Yield Curve 116.0 +4.0 basis points
  • China Import Iron Ore Spot $44.63/Metric Tonne +1.80%
  • Citi US Economic Surprise Index -54.2 -3.7 points
  • Citi Eurozone Economic Surprise Index -18.60 +.8 point
  • Citi Emerging Markets Economic Surprise Index -8.40 +.4 point
  • 10-Year TIPS Spread 1.38% +2.0 basis points
  • 15.5% chance of Fed rate hike at April 27 meeting, 25.7% chance at June 15 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating -241 open in Japan 
  • China A50 Futures: Indicating -81 open in China
  • DAX Futures: Indicating +85 open in Germany
Portfolio: 
  • Slightly Lower: On losses in my index hedges and emerging markets shorts
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 50% Net Long
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Today's Headlines

Posted by Gary .....at 2:58 PM
Bloomberg:
  • China Seen Risking Credit Market Crunch With Leverage Crackdown. Six months after a debt-fueled rally in Chinese equity turned into a $5 trillion rout, authorities are stepping up efforts to make sure the same thing doesn’t happen in the bond market. Analysts and investors are concerned the crackdown itself could be a risky move. The People’s Bank of China moved to exert more control over wealth management products, which often invest in debt and are popular among investors seeking yields higher than on deposits. It told lenders Monday it will limit funds raised through the so-called WMPs that they can outsource to other financial institutions to manage, according to people familiar with the matter. The PBOC will also tighten control of leverage that banks take on when buying notes, the people said. External managers often borrow more aggressively for debt purchases, China Merchants Bank Co. said. “There is risk to deleveraging when economic growth is slowing,” Haitong Securities Co. analysts led by Jiang Chao wrote in a report Tuesday. “If there is a limit on how much funds banks can give to third parties to manage, it means a lack of momentum for further leveraging. Based on the history of China’s stock market, there is risk of stampede.”
  • Yuan Gap Widens Again as Depreciation Bets Swamp PBOC Fightback. The gap between the Chinese yuan’s exchange rates at home and abroad expanded to the biggest in three weeks, a sign that international traders are reviving bets against the currency after getting burned by the central bank earlier this year. The yuan traded in Hong Kong fell as much as 0.4 percent, taking its discount to the currency in Shanghai to 1.1 percent. That’s the most since Jan. 11, when the People’s Bank of China launched a two-pronged attack on short-sellers by mopping up the currency overseas and choking supply of yuan from the mainland. The assault pushed the offshore rate to a premium that week, before it swung the other way again. “Bears are not giving up on shorting the yuan simply because of the PBOC’s attacks, and they are preparing to return to the game," said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. "There will be a very intense confrontation between short-sellers and the PBOC in the near term. While the market strongly believes there’s room for further declines, the central bank will try its best to keep the yuan stable." The offshore yuan fell 0.25 percent to 6.6444 a dollar as of 6:20 p.m. in Hong Kong on Wednesday, data compiled by Bloomberg show.
  • Cash Pouring Out of China Amid Talk of Allowing Even More: Chart. (graph/video)
  • ABB Profit Margin Widens as Cost Cuts Help Offset Slowdown. ABB Ltd. fourth-quarter profit margin widened as the Swiss maker of industrial robots cut costs to offset a slowdown in China and the oil and gas industry. A cost-reduction program lifted the operating margin for earnings before interest, taxes and amortization 60 basis points to 11.7 percent in the three months through December, the Oerlikon, Switzerland-based company said in a statement on Wednesday. Net income fell 70 percent to $204 million, although that included $496 million of reorganization charges. “ABB is weathering tough end market conditions with strong cost control,” Goldman Sachs analysts wrote in a note to clients. “While we are positively surprised by these results, we continue to expect deterioration of earnings ahead as base orders slowdown continues to accelerate.” Orders in China declined in the fourth quarter, contributing to the overall fall. While process industries are expected to slow in the world’s second-largest economy this year, ABB plans to seek out areas of growth by moving into western Chinese cities where there is demand for new power plant connections, Spiesshofer said.
  • Lenovo Tumbles as Sputtering PC, Phone Demand Hammers Sales. Lenovo Group Ltd. plunged in Hong Kong trading after quarterly revenue declined for the first time in more than six years on stalling demand for phones and computers. Shares fell 10 percent in their biggest decline in two years. The world’s largest PC maker said revenue dropped 8 percent in the three months ended December, even as broadening cost cuts delivered a surprise rise in net income. Lenovo is relying on cutting $1.35 billion from annual costs and eliminating 3,200 jobs to shield its earnings from intensifying smartphone competition and a shrinking market for PCs. While it’s expanding into other businesses, the company still gets more than half of revenue from a market that Intel Corp. last month warned was off to a “soft” start in 2016 amid tepid economic growth.
  • LG Default Risk Jumps as Moody's Turns Negative. Credit-default swaps insuring LG Electronics Inc.'s debt against nonpayment jumped 27 basis points to 136 on Tuesday, the biggest increase since September 2011, according to data provider CMA. Moody's Investor Service cut the outlook on the firm's lowest investment-grade debt score to negative from stable. 
  • German Note Yield Drops Below Minus 0.5% as Rally Gathers Pace. German government bonds jumped as disappointing U.S. data and expectations of more easing from the European Central Bank created a demand for the securities that pushed two-year yields below minus 0.5 percent for the first time. The move spread to bonds of all maturities, with 30-year bund yields dropping below 1 percent for the first time since May, and eight-year yields turning negative for the first time since April. The rally in bonds has pushed the amount of government debt yielding below zero percent in the Bloomberg Eurozone Sovereign Bond Index to $2.4 trillion.
  • European Investment-Grade Corporate Risk Climbs to Two-Year High. The cost of insuring European investment-grade corporate debt rose to the highest since October 2013 as low commodity prices spur concerns about borrowings at energy, metals and mining companies. The Markit iTraxx Europe Index of credit-default swaps on 125 highly rated companies rose for a third day and surpassed 100 basis points for the first time in more than two years, according to data compiled by Bloomberg. The four basis-points climb extended this year’s increase to 24 basis points. “The continued decline in energy and commodity prices, which is connected to China’s slowdown, is putting pressure on companies,” said Craig Veysey, head of fixed income for the private wealth arm of Sanlam Group, which manages about 40 billion pounds ($58 billion) of assets. “It’s not just those in that sector, but banks as well.” Low bond liquidity is also driving more investors to buy credit-default swaps to hedge risk from debt they are unable to sell, London-based Veysey said. The Markit iTraxx Europe Crossover Index of default swaps on non-investment grade companies surpassed 400 basis points for the first time in more than a year. A gauge of credit-default swaps on investment-grade financial companies rose six basis points to 103 basis points, the highest in about two years.
  • More Losses for Europe Stocks as Banks Fall, Earnings Disappoint. Declines in banks dragged European stocks lower for a third day, while investors weighed financial results amid concern over global growth. Novo Nordisk A/S slid 7.6 percent and Royal KPN NV lost 1.2 percent after they reported worse-than-estimated earnings. A gauge of lenders posted the worst performance in the Stoxx Europe 600 Index, extending its lowest level since 2012. The regional benchmark deepened a drop after U.S. services data missed estimates, stoking concern about a recovery in the world’s biggest economy. The Stoxx 600 fell 1.5 percent at the close of trading, capping its longest losing streak in two weeks. Italian lenders led declines among European peers, with Banco Popolare SC and Banca Popolare di Milano Scarl tumbling more than 5.7 percent amid concern over their piles of bad debt.
  • U.S. Gasoline Glut Keeps Pump Prices on the Road to $1.50: Chart. U.S. gasoline inventories last week jumped to the highest in weekly government data going back to 1990. 
  • Bank Selloffs Replacing Oil Rout as Stock Market Pressure Point. Breakdowns in financial stocks are becoming a little too routine for comfort of late. Dragged lower by falling interest rates and credit concern, the KBW Bank Index extended its three-day decline to as much as 7.5 percent earlier Wednesday -- the fifth time this year a loss has exceeded 5 percent over such a stretch, data compiled by Bloomberg show. At times this week, losses from Bank of America Corp. to Citigroup Inc. have exceeded 10 percent.
  • Bond Market Is Closer to No Fed Rate Increases Than One for 2016. The Federal Reserve won’t even get close to raising interest rates this year, if bond traders are right. The fixed-income market’s balance tipped toward zero rate hikes this year after a report showed U.S. service industries grew in January at the slowest pace since April 2014. Treasuries drew support from the data as well, briefly pushing the benchmark 10-year yield to a one-year low. The bond world’s skepticism about the Fed’s projected pace of four rate increases this year grew in January as sliding energy prices and stocks raised concern about policy makers’ ability to stoke economic growth. Traders see a 41 percent chance the Fed will raise rates at or before its Dec. 14 meeting, down from a 93 percent probability assigned at the end of last year. “The fall in the value of asset markets is a tightening of financial conditions,” Laurence Mutkin, head of G-10 rates strategy for BNP Paribas SA, said in an interview in New York. “It should affect central-bank policy, since it is tightening.”
  • Wall Street's 1% Show Breadth of Market Malaise in Selloff. Twenty-four out of 1,941 stock funds: That’s how many managed to avoid this year’s carnage. After a far-from-stellar 2015 for equities, almost no one was prepared for such a rough start to 2016. As shares worldwide have plunged 7.7 percent, the only funds in positive territory were those lucky enough to focus on utilities and other industries deemed defensive -- those seen as more immune to an economic slowdown. Less than a repudiation of investing skill one month into the new year, the data show the pervasiveness of losses in global markets where $6.5 trillion has been erased. Almost nothing has worked in 2016 as last year’s winners health-care and consumer stocks joined in the meltdown since Dec. 31. “The vast majority of people were caught off guard,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “Utilities, telecoms are the kind of sectors you would jump into -- companies that do relatively well in downturns because they offer products that people won’t stop using. We’re starting to see a rotation into those sectors, and it’s an expression of people preparing for a lower-growth world.”
  • Money Managers Bleed Cash After Investors Pull Billions. Money managers are having trouble hanging on to money. Franklin Resources Inc. said Wednesday that investors withdrew $20.6 billion in the fourth quarter, the latest asset manager to highlight the issue of redemptions. Affiliated Mangers Group Inc. said on Tuesday that it had outflows of $6.8 billion, while Waddell & Reed saw $5 billion in withdrawals, contributing to the biggest drop in its stock since the financial crisis of 2008.
  • Food Stamps Still Feed One in Seven Americans Despite "Recovery". Wendee Crofoot lost her job as a fundraiser for a non-profit in 2011. After exhausting her savings and giving up her Mountain View, California, apartment she ended up working part-time as a restaurant cashier. The low pay qualified her for food stamps, so she signed up. “It wasn’t something I imagined would ever happen,” said Crofoot, 46. “There just weren’t any jobs.” During the 2007-2009 recession, state and federal governments actively encouraged people like Crofoot to take advantage of the aid. Millions did, and many are still claiming benefits. Enrollment in the Supplemental Nutrition Assistance Program, the formal name for food stamps, remains near record levels, even as the unemployment rate has fallen by half. “When unemployment was rising people said enrollment would fall sharply when things got better," said Parke Wilde, an associate professor of nutrition policy at Tufts University in Boston. "That hasn’t happened.” Another economic downturn could send costs to new heights. 
  • YouTube Schedules Original Shows, Movies for New Paid Service. Google’s YouTube will release the first batch of shows from a new original programming drive on Feb. 10, offering three movies and an adventure series designed to lure customers to its $9.99-a-month subscription service.
Fox News: 
  • Baltimore mosque set for Obama visit has controversial ties. (video) Barack Obama is making his first presidential visit to a U.S. mosque on Wednesday, but the historic occasion is being overshadowed by criticism that the Baltimore-area center he chose has extremist ties. The controversy centers around the Islamic Society of Baltimore's former imam, who has ties not only to the Muslim Brotherhood but the Northern Virginia mosque where the radical Anwar al-Awlaki used to preach. “As a Muslim American I’m just insulted, this is disgraceful that this is one of the mosques -- or the mosque -- that he’s chosen to visit,” Zuhdi Jasser, of the American Islamic Forum for Democracy, told Fox News on Sunday. “This mosque is very concerning.”
CNBC:
Zero Hedge: 
Business Insider:
The Daily Caller: 
  • Sore Loser Trump: ‘Cruz Didn’t Win Iowa, He Stole It’. I couldn’t have been more wrong about Trump’s post-Iowa strategy. Whew! After he gave that gracious concession speech, I figured he was playing rope-a-dope. But no. He’s not covering up and letting Cruz exhaust himself attacking. Probably because Trump realized the frontrunner doesn’t need to attack the loser who’s in second place. Winners don’t punch down. So now we can look forward to this sort of thing from Trump until New Hampshire:
PredictIt:
Telegraph:
sky NEWS: 
Le Figaro:
  • Radicalized Islamists in France Doubled in Year to 8,250. The number of people in France who have turned toward radical Islam more than doubled to 8,250 from 4,015 in March last year, citing exclusive information gathered by the authorities as of Jan. 28. The number of adolescents and women turning radical is on the rise, according to the report. The Paris region and southeast France saw the biggest jump in numbers.
Interfax:
  • Russian Envoy Says Meeting With OPEC Soon Seen as Unlikely. OPEC meeting with countries that aren't part of the organization unlikely in near future, citing Vladimir Voronkov, Russian envoy to intl organizations in Vienna.
O Estado de S. Paulo:
  • Brazil Government Members Said to Expect Downgrade by Moody's. Some govt officials see sovereign credit downgrade by Moody's as inevitable. 
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Bear Radar

Posted by Gary .....at 1:17 PM
Style Underperformer:
  • Small-Cap Growth -1.1%
Sector Underperformers:
  • 1) Internet -2.8% 2) Hospitals -2.5% 3) Biotech -2.0%
Stocks Falling on Unusual Volume:
  • SNCR, MRD, BWLD, DXB, IAC, SCI, NOV, DKT, MTCH, DB, MPLX, JLL, POL, AXE, CMG, YHOO, NAP, NVO, RDWR, SLAB, LOW, CIT, IESC, POWL, IXYS, GM, TMHC, BDX, CMG, UNM, GOOG, AMZN, AXDX, WDR, WFC, BAC, IDTI, POL, THR, TSLA, JEC, ILMN, RHI, MTW, LNKD, CHUY, XLRN, MDLZ, SUN, VLO, MYGN, NOV, MPC, OLN, RARE, ARCB, MRD and MPLX
Stocks With Unusual Put Option Activity:
  • 1) PSX 2) NOV 3) EWJ 4) TXN 5) DKS
Stocks With Most Negative News Mentions:
  • 1) LYB 2) CIT 3) WFC 4) AMZN 5) BWLD
Charts:
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Bull Radar

Posted by Gary .....at 1:03 PM
Style Outperformer: 
  • Mid-Cap Value +.1% 
Sector Outperformers:
  • 1) Gold & Silver +6.4% 2) Steel +3.2% 3) Utilities +1.1% 
Stocks Rising on Unusual Volume: 
  • ULTI, RACE, ADT, EPC, KLIC, ENR, AVY, ADSK, VNTV, NEM, EW, BEAV, TGI and TDS
Stocks With Unusual Call Option Activity: 
  • 1) LOW 2) DNKN 3) GALE 4) MPC 5) AKRX
Stocks With Most Positive News Mentions: 
  • 1) DOW 2) IR 3) GILD 4) T 5) ADSK
Charts:
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Morning Market Internals

Posted by Gary .....at 10:48 AM
NYSE Composite Index:
0 comments

Tuesday, February 02, 2016

Wednesday Watch

Posted by Gary .....at 10:49 PM
Evening Headlines
Bloomberg:
  • Chinese Stocks Extend Monthly Rout as Energy Producers Decline. Chinese stocks dropped, extending last month’s rout, as traders unwound bullish bets and plunging oil prices weighed on energy producers. The Shanghai Composite Index fell 1.2 percent to 2,717.03 at 10:33 a.m., extending its slide this year to 23 percent. PetroChina Co. slid to a one week-low, leading energy companies lower. Developers eked out gains after the central bank lowered mortgage down payments for first-home buyers. The Hang Seng China Enterprises Index tumbled 3 percent, heading for its lowest close since March 2009.
  • China survey shows consumers pessimistic for first time. China's eternally optimistic consumers have turned pessimistic, joining bankers and entrepreneurs. An index of "future income confidence" based on a quarterly survey of consumers by the central bank fell below the mid-point of 50 for the first time ever in December. A separate sentiment gauge for entrepreneurs by the the People's Bank of China fell into pessimistic territory for the first time since 2009, and now is at a record low, while a survey of bankers shows they've been getting more pessimistic for five straight quarters. 
  • Yuan Options Most Bearish in Asia as Traders Ready to Fight PBOC. (video) Traders are paying more to bet on a yuan decline with options than they do for any other Asian currency, suggesting bears are regrouping after being thwarted by the central bank last month. The extra cost for three-month options to sell the yuan against the dollar in the Hong Kong market over contracts to buy jumped in January by the most since 2011, approaching the record seen after its Aug. 11 devaluation. The value of contracts carrying the right to sell the yuan at or beyond 7 per dollar -- 5.5 percent weaker than the current spot rate -- surged more than 50 percent last month.
  • Aussie Woes as China Slows Seen in Record Trade Deficit: Chart. As China switches gears away from heavy investment and toward consumption, the reverberations are being felt Down Under. Prices for Australia’s biggest export, iron ore, have slumped and the country’s trade position has steadily deteriorated, culminating in a record A$32.7 billion ($22.9 billion) deficit in 2015, according to data dating back to 1971.
  • Hong Kong Property Stock Gloom Seen Deepening in Options Market. (graph) As Hong Kong property prices slump with real estate stocks, investors are looking to the options market for protection. Traders paid the most in four years in January to hedge against losses on Sun Hung Kai Properties Ltd. versus the cost of bullish bets, according to data compiled by Bloomberg. A similar pattern emerged in options on Wharf Holdings Ltd. A measure of the city’s property stocks is down 33 percent in the past year, with losses accelerating in January as the Hong Kong dollar weakened and real-estate sales fell to the lowest in at least 25 years. “Pressure on share prices in the sector will persist," said Alfred Lau, analyst at Bocom International Holdings Co. “Investors’ concern is deepening on faster-than-expected Hong Kong capital outflow."
  • Hong Kong's Last Property Slump Saw Prices Fall by 70%: Chart.
  • Won Declines to Two-Week Low With Stocks as Bonds Extend Rally. South Korea’swon fell to a two-week low and stocks joined a rout in Asian equities as an overnight drop in oil prices deterred risk-taking. Downside risks for South Korea’s exports may increase as China’s economy and oil prices are unlikely to recover in the short term, Trade Minister Joo Hyung Hwan said in a statement Wednesday. Crude retreated below $30 a barrel in New York and is down about 20 percent this year as increasing U.S. stockpiles exacerbate a global glut. Sovereign bonds rallied, pushing the yields to fresh lows, as investors sought the relative safety of government debt. North Korea said it will launch a long-range rocket between Feb. 8 and Feb. 25 to put a satellite in orbit, following its fourth nuclear test on Jan. 6. The won dropped 0.5 percent to 1,212.80 a dollar as of 10:12 a.m. in Seoul, data compiled by Bloomberg show.
  • Yen Loses Half Post-BOJ Slide as Japan Yield Drops to G-7 Record. Negative Japanese policy rates have pushed the yield on the nation’s benchmark bond to the lowest among Group-of-Seven economies, but it’s not working its magic on the yen or domestic stocks, which are reversing course as a renewed selloff in crude oil makes investors risk-averse.
  • Stock Rout Deepens in Asia as Oil Slumps Below $30; Yen Climbs. Asian stocks tumbled for a second day as Nomura Holdings Inc. reported disappointing earnings and oil’s slump below $30 a barrel eroded investor confidence in global economic growth. Demand for the safest assets boosted the yen and government bonds.Japan’s Topix index sank the most in two weeks as Nomura plunged 12 percent, the biggest decline since 2011. The MSCI Asia Pacific Index retreated 2.3 percent as of 10:36 a.m. Hong Kong time, with more than 17 stocks falling for each one that rose. Nomura, which reported a 49 percent drop in third-quarter profit, was among the biggest drags on the regional index and helped send the Topix to a 3.3 percent slump. The Hang Seng China Enterprises Index of mainland companies in Hong Kong sank 3 percent, despite a move by the central bank late Tuesday to prop up the Chinese real estate sector.
  • Oil Extends Slide Below $30 as U.S. Supplies Seen Expanding Glut. Oil extended its decline below $30 a barrel after the biggest two-day drop in almost seven years as U.S. industry data showed crude stockpiles increased, exacerbating a global surplus. Futures decreased as much as 0.7 percent in New York after falling 11 percent the previous two sessions, the most since March 2009. Inventories expanded by 3.8 million barrels last week, the American Petroleum Institute was said to report Tuesday. A government report Wednesday is forecast to show supplies climbed by 4 million barrels, according to a Bloomberg survey. Exxon Mobil Corp. is cutting its drilling budget to a 10-year low amid the price slump.
  • Oil Industry's Plan to Keep Investors Happy: Borrow More Money. The world’s largest oil companies have a plan to weather the worst market in over a decade: borrow more money. Major oil companies faced with the lowest crude prices since 2003, capital spending budgets with little left to cut and strong commitments to their dividends will have to take on billions in debt this year as they await a market rebound. Take BP Plc, whose net debt rose by almost $5 billion in 2015. After reporting a record annual loss on Tuesday, Chief Executive Officer Bob Dudley said he would borrow billions more if it was needed to sustain investor dividends.
  • If You're Wondering How Low U.S. Gas Can Go, Check the Rig Count. (graph) U.S. natural gas just fell below $2 per million British thermal units for the third time in three months and futures are at the lowest level for this time of year since 1999. For an idea of how long this rout will last, consider the 121 rigs left drilling for the fuel in the U.S. That’s the lowest count since 1987, down from a peak of 1,606. And yet, the U.S. government’s latest monthly data show production continues to rise.
  • Exxon(XOM) Faces First Downgrade Since Depression as Oil Rout Worsens. Exxon Mobil Corp., one of three U.S. companies with Standard & Poor’s highest rating, is facing its first downgrade in 86 years as the worst crude-market collapse in a generation strangles oil producers of cash. For Exxon, that would be a historic event: the global explorer that traces its roots to the 19th century and John D. Rockefeller’s Standard Oil Trust has been rated AAA by S&P since 1930. The oil giant was placed on credit watch with negative implications because its credit measures probably will remain weak through 2018, S&P said Tuesday. “We get value from our AAA credit rating in our business,” Exxon’s Vice President of Investor Relations Jeffrey Woodbury said during a conference call with analysts before the credit review was announced. “Whether it be access to financial markets or access to resources, there is a benefit that we get from it, and we see it as being important.” The world’s five largest oil explorers had their credit ratings cut or threatened with downgrade as the market crash undermines their ability to pay debts, dividends and rig leases. For most of the oil industry, slashing drilling budgets and other cost-cutting “are insufficient to stem the meaningful deterioration expected in credit measures over the next few years,” S&P said. 
  • Credit Market Fear Gauge Jumps as Oil Plunge Renews Global Rout. Credit markets were ensnared in the global equities selloff Tuesday, with measures of corporate default risk in the U.S. jumping to a two-week high. The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, jumped 26 basis points to 536 basis points at 4:32 p.m. in New York. A similar index for investment-grade debt jumped 4.6 basis points to 108.652, also a two-week high. Yields on benchmark 10-year Treasuries dropped to the lowest in almost 10 months Tuesday, as declines in stocks and oil again darkened outlook for global growth. Amid the worst commodities rout in a generation, Standard & Poor’s downgraded some of the biggest U.S. explorers, including Chevron Corp., Hess Corp., Continental Resources Inc. and Devon Energy Corp. “Growth concerns are still wreaking havoc, fundamentals have deteriorated, default rates are increasing and there is a huge influx of fallen angels which has everyone running for the hills,” said Michael Collins, a portfolio manager at Prudential Investment Management Inc. 
  • Goldman(GS) Says Iron Ore Faces Extra Pressure From China Steel Cuts. Iron ore prices that have been battered by global oversupply may face additional pressure as China’s central government steps up efforts to cut back steel capacity in the world’s top producer, according to Goldman Sachs Group Inc. The State Council’s plan to reduce the industry’s capacity by 100 million to 150 million metric tons may result in actual steel output dropping by 55 million to 95 million tons, the bank said in an e-mailed report. That lost output represents 90 million to 150 million tons of iron ore, or as much as 15 percent of the seaborne market, the bank estimated.
  • Rio Tinto(RTP) Drops to Lowest Since March '09 as Mining Rout Deepens. BHP Billiton Ltd.(BHP) slumped and Rio Tinto Group slid to the lowest in almost seven years as fears about a slowdown in China’s demand and the threat of credit downgrades added to pressure on the mining sector. BHP fell as much as 5 percent to A$14.17 in Sydney, while Rio dropped as much as 2.7 percent to the lowest since March 2009. Miners are being hammered after Standard & Poor’s this week downgraded BHP amid a global slide in equities and continued concern that a weakening Chinese economy was hurting demand for commodities. Copper in London slipped 0.5 percent, while zinc lost 1.1 percent.
  • Bank Bear Market Gets Worse as Goldman(GS), Citi(C) Sell Off Again. (graph) The 2016 financial stock rout worsened Tuesday as the country’s biggest investment banks plunged almost 5 percent amid a gathering storm of economic and financial threats. Goldman Sachs Group Inc. sank the most since November 2012 to lead the Dow Jones Industrial Average to a 295-point loss, while Citigroup Inc., Bank of America Corp. and Morgan Stanley slid 4.7 percent or more. The KBW Bank Index declined 3.2 percent to extend its bear-market plunge since July to 23 percent.
Wall Street Journal:
  • New Risks for Trump After Iowa Loss. Ted Cruz has more financial firepower than recent Iowa GOP winners; Marco Rubio also on upswing. Beaten in Iowa but unbowed, Republican Donald Trump returned Tuesday to the state that has served as his campaign home base facing a new set of challenges in what is likely to be a must-win primary.
  • Rubio’s Rise Amid Trump’s Slump. The Donald’s loss was more significant than Ted Cruz’s win as the GOP’s political world finally starts to make sense. So, it turns out that you can’t call Iowa voters “stupid,” skip a debate in Des Moines because you don’t like the moderators and still expect to prevail in the state’s caucuses. Who knew? 
  • Behind Hillary’s Iowa Scare. The state’s Democrats are significantly more liberal than they were when she ran in 2008. Hillary Clinton’s third-place finish in the 2008 Iowa caucuses upended her candidacy. By contrast, she scored a narrow victory Monday night. Beyond her having a much-improved campaign organization, what changed over those eight years, and what does it teach us about the current state of the Democratic Party?
MarketWatch:
CNBC:
Zero Hedge:
Business Insider:
Reuters:
  • Gilead(GILD) hepatitis C drug sales beat estimates, but growth stalls. Gilead Sciences Inc's hepatitis C drug sales edged past Wall Street estimates in the fourth quarter, helped by strong sales in Japan, but U.S. results were weaker than expected. The company, which faces growing competition in the lucrative hepatitis C market, projected total 2016 product sales of $30 billion to $31 billion, in line with the average Wall Street estimate of $30.68 billion as compiled by ISI Evercore. Gilead said it will continue to seek growth through partnerships and acquisitions. The company also increased its dividend by 10 percent, and said it would buy back an additional $12 billion of its stock. 
  • 3M(MMM) to buy back up to $10 bln shares, raises dividend. 3M Co, the maker of Scotch tape and Post-it notes, said it would buy back up to $10 billion worth of shares and also raised its quarterly dividend. The company raised its quarterly dividend to $1.11 per share from $1.025 per share. At Tuesday's close of 147.87, the company would be able to buy back about 67.6 million, or 11 percent, of its total outstanding shares.
Bild:
  • Poroshenko Sees Growing Danger of Open War With Russia. Ukrainian President Petro Poroshenko tells Bild in interview that Russia hasn't implemented a single one of the agreed on points in Minsk accord. 8,000 Russian soldiers in Ukraine under Russian commanders, new military bases on the border, permanent militia training. Calls for more support for Ukraine, more weapons to defend the country.
Night Trading 
  • Asian equity indices are -2.25% to -1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 154.0 +2.75 basis points.
  • Asia Pacific Sovereign CDS Index 81.75 +3.25 basis points.
  • Bloomberg Emerging Markets Currency Index 67.42 -.23%.
  • S&P 500 futures -.47%.
  • NASDAQ 100 futures -.68%.

Earnings of Note 
Company/Estimate
  • (ABB)/.32
  • (ALXN)/1.10
  • (ADP)/.72
  • (BDX)/1.84
  • (CNG)/.79
  • (CBOE)/.55
  • (CMCSA)/.82
  • (ETN)/1.10
  • (GM)/1.20
  • (IP)/.82
  • (JEC)/.69
  • (JLL)/4.78
  • (KLIC)/-.10
  • (MAN)/1.52
  •  (MRK)/.91
  • (MDLZ)/.48
  • (ALL)/1.34
  • (AVB)/1.98
  • (BWLD)/1.48
  • (GPRO)/.03
  • (MET)/1.36
  • (MCHP)/.62
  • (RGLD)/.24
  • (WFT)/-.19
  • (WYNN)/.78
  • (YUM)/.66 
Economic Releases
8:15 am EST
  • ADP Employment Change for January is estimated at 193K versus 257K in December.
9:45 am EST
  • Final Markit US Services PMI for March is estimated at 53.7 versus a 53.7 prior estimate.
10:00 am EST:
  • ISM Non-Manufacturing Composite for January is estimated to fall to 55.1 versus 55.3 in December.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory gain of +3,745,910 barrels versus a +8,383,000 barrel increase the prior week. Gasoline supplies are estimated to rise by +2,022,730 barrels versus a +3,464,000 barrel gain prior. Distillate inventories are estimated to fall by -1,036,360 barrels versus a -4,057,000 barrel decline prior. Finally, Refinery Utilization is estimated to fall by -.78% versus a -3.2% decline prior.
Upcoming Splits
  • (AFSI) 2-for-1
  • (FRO) 1-for-5
Other Potential Market Movers
  • The Eurozone Services PMI, Eurozone retail sales report, weekly MBA mortgage applications report and the Cowen Aerospace/Defense Conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.
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