Today's Headlines
Bloomberg:
- China's Slowdown Hits Nearby Economies Hardest. Hong Kong and Mongolia alike are feeling the pinch. Those
nearest to China are among the hardest hit as growth in the world's
second-largest economy grinds to the slowest pace in a quarter century.
Hong Kong, Macau, and Taiwan all saw their economies shrink in the first
quarter, while Mongolia's commodities-fueled boom has faltered. And the
bad news doesn't stop there. "The ripples are likely to spread
further out," said Frederic Neumann, co-head of Asian economic research
at HSBC Holdings Plc in Hong Kong. "As China's economy continues to
cool, it will provide an ongoing drag on global output, curtailing
inflation pressures in the process and anchoring interest rates in the
process. The economic malaise currently experienced by China's immediate
neighbors, therefore, is only a portend of a milder version to afflict
economies elsewhere as China comes off the boil." That's already the reality facing Hong Kong.
- The Big Short Is Back in Chinese Stocks. Chinese equities are once again in the cross hairs of short sellers. Short
interest in one of the largest Hong Kong exchange-traded funds tracking
domestic Chinese stocks has surged fivefold this month to its highest
level in a year, according to data compiled by Markit and Bloomberg. The
last time bearish bets were so elevated, such pessimism proved
well-founded as China’s bull market turned into a $5 trillion rout.
- Factory Output in South Korea Drops Further Amid Weak Exports. South Korea’s industrial production fell more than economists
expected as weak exports and corporate restructuring of shipbuilders
continue to hurt demand and business sentiment. Factory output
dropped 2.8 percent from a year earlier in April, Statistics Korea said
Tuesday, compared with a 1.3 percent decline estimated by economists in a
Bloomberg survey. Production fell 1.3 percent from a month earlier. "The
negative factory output data trend shows that the foundations of growth
are weak," said Suh Dae Il, an economist at Mirae Asset Daewoo Co. "The
government’s push to restructure shipbuilders and shipping companies
will further hurt domestic demand."
- European Stocks Little Changed as Investors Mull U.S. Rate Hike. European stocks were little changed in thin trading as investors
considered the implications of a possible increase in U.S. interest
rates after Federal Reserve Chair Janet Yellen said a hike is likely in
the coming months. The Stoxx Europe 600 Index added 0.1 percent to
350.14 at the close of trading, after briefly rising as much as 0.2
percent, with automakers rising the most.
- Asian Stocks Little Changed as Investors Weigh Data, Rate Hike. Asian stocks were little changed, poised for the biggest monthly drop
since January, as investors assessed economic data and the prospects
for higher U.S. interest rates. The MSCI Asia Pacific Index rose
less than 0.1 percent to 128.28 as of 9:16 a.m. in Tokyo. The gauge is
down 2.2 percent this month, the worst showing since an 8 percent plunge
in January, amid investors’ anxiety over the U.S. central bank’s plan
to raise interest rates.
- Fed Outlook Hits Bonds to Emerging-Market Currencies; Oil Climbs. Anxiety over the prospect of a U.S. interest-rate hike as soon as
June dominated global trading, battering government debt and most
developing-nation currencies. Emerging-market currencies extended
losses from Friday, on track for their worst month since August against
the dollar after Federal Reserve Chair Janet Yellen signaled Friday that
a rate increase is likely some time in the coming months. Gold fell for
a ninth day in its longest slump in a year, while Mexican bonds sank
with German bunds amid a tumble in 10-year treasury futures. A gauge of
global stocks held near a four-week high with trading volumes in the
Americas and Europe more than 50 percent below their daily average amid
market closures in the U.S. and the U.K. The yen slumped a second day.
Wall Street Journal:
- Iraqi Forces Begin Ground Assault on Fallujah. The city is one of Islamic State’s most significant remaining strongholds in Iraq. Iraqi special forces advanced to the edge of Fallujah on Monday but
struggled to enter the city, where Iraqi and U.S. officials said Islamic
State extremists were amassing civilians to serve as human shields.
- Business Makes Senate Push. U.S. Chamber of Commerce hopes to keep the GOP from losing control of the Senate in November. The country’s biggest business lobby will launch an initiative Tuesday
to deploy influential Republicans to raise funds for tight Senate races,
hoping to keep the GOP from losing control of the chamber in November.
Fox News:
- Former State Dept. watchdog debunks central Clinton email claim. (video) The State Department’s former top watchdog, in an interview with Fox
News, rejected Hillary Clinton’s repeated claims that her personal email
use was in line with her predecessors’ – while saying he would have
immediately opened an investigation if he caught wind of a secretary of
state using such an account.
Financial Times:
- Iata warns of slowdown in air travel. Global demand for air travel may be “shifting down a gear”, according to
Iata, the aviation industry’s main trade body, sounding a warning that
will send jitters through the sector.
Night Trading
- Asian indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 140.5 -.5 basis point.
- Asia Pacific Sovereign CDS Index 52.75 -.25 basis point.
- Bloomberg Emerging Markets Currency Index 70.73 -.1%.
- S&P 500 futures +.26%.
- NASDAQ 100 futures +.37%.
Earnings of Note
Company/Estimate
- (MDT)/1.26
- (SCOR)/.26
- (ITRI)/.34
- (NX)/.09
- (WDAY)/.02
- (ZOES)/.04
Economic Releases
8:30 am EST
- Personal Income for April is estimated to rise +.4% versus a +.4% gain in March.
- Personal Spending for April is estimated to rise +.7% versus a +.1% gain in March.
- PCE Core MoM for April is estimated to rise +.2% versus a +.1% gain in March.
9:00 am EST
- The S&P/CS 20 City MoM SA for March is estimated to rise +.7% versus a +.66% gain in February.
9:45 am EST
- Chicago Purchasing Manager for May is estimated to rise to 51.0 versus 50.4 in April.
10:00 am EST
- Consumer Confidence for May is estimated to rise to 96.0 versus 94.2 in April.
10:30 am EST
- Dallas Fed Manufacturing Activity for May is estimated to rise to -8.0 versus -13.9 in April.
Upcoming Splits
Other Potential Market Movers
- The China PMI report, German retail sales report, Australia GDP report, weekly US retail sales reports and the Deutsche Bank Financial Services could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and real estate 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 week.
BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising European/Emerging Markets/US High-Yield debt angst, global growth concerns, commodity weakness, yen strength, Fed rate-hike fears and technical selling. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.
Bloomberg:
- China Default Chain Reaction Threatens Products Worth 35% of GDP. The
risk of a default chain reaction is looming over the $3.6 trillion
market for wealth management products in China. WMPs, which
traditionally funneled money from Chinese individuals into assets from
corporate bonds to stocks and derivatives, are now increasingly
investing in each other. Such holdings may have swelled to as much as
2.6 trillion yuan ($396 billion) last year, based on estimates from
Autonomous Research this month. The
trend has China watchers worried. For starters, it means that bad
investments by one WMP could infect others, causing a loss of confidence
in products that play an important role in bank funding. It also
suggests WMPs are struggling to find enough good assets to meet their
return targets. In the event of widespread losses, cross-ownership will
create more uncertainty over who’s vulnerable -- a key source of panic
in 2008 when soured U.S. mortgage securities triggered a global
financial crisis.
- Goldman Sees End of Yuan ‘Sweet Spot’ Spurring Capital Outflows. The end of a temporary sweet spot that China enjoyed with its
exchange rate -- strength versus the dollar and weakness against trading
partners -- will spur renewed capital outflows, Goldman Sachs/Gao Hua
Securities Co. said. With the U.S. poised to raise interest rates
and pressure building on China to ease monetary policy, cash outflows
will accelerate, said Song Yu, China economist for Goldman Sachs/Gao
Hua. The yuan is down 1.3 percent this month against the greenback, with
policy makers last week setting the currency’s daily fixing at the
weakest level in five years, and is little changed against a basket of
peers.
- Yen’s Yellen Slump Fuels Japan Stock Gains as Gold Extends Slide. Japanese shares drove gains in Asia as the yen extended its slump
against the dollar, amid confidence the global economy can withstand an
interest-rate hike that the Federal Reserve chief said could be
warranted in the next few months. Gold and bonds retreated. The
dollar climbed to a one-month high against the yen and rallied versus
emerging-market currencies in Asia after Fed Chair Janet Yellen said
late Friday that the improving economy meant another rate hike would
probably be in order “in the coming months.” Australian government debt
paced last session’s decline in Treasuries, with American and U.K.
markets closed for a holiday. Gold fell a ninth day, set for its longest
slump in more than a year as the U.S. rate outlook damped its appeal
versus interest-bearing assets. While the dollar-denominated MSCI Asia Pacific Index lost 0.4 percent as
of 9:35 a.m. Tokyo time, about 300 stocks climbed as around 180
declined.
Wall Street Journal:
- Suncor Starts to Bring Canadian Oil Sands Back Online. The oil producer expects initial output by the end of the week.
- Robots for Trump (and Clinton). The robotic revolution will upend society even more than the information revolution. No matter what happens in November, one big winner has already emerged
from the ruins of America’s 2016 election: the robot. Both major
candidates have embraced policies that will ensure the accelerating
replacement of low-wage workers with no-wage workers.
Zero Hedge:
Business Insider:
Financial Times:
- Big oil groups raise net debt by a third to cope with low prices. The
net debts of the largest Western oil companies have surged by a third
over the past year, increasing their vulnerability to another fall in
oil prices. The aggregate net debt of the 15 largest North American and European
oil groups rose to $383bn at the end of March, up $97bn from 12 months
ago, according to company reports compiled by Bloomberg.
Bloomberg:
- Currency Tranquility Is Calm Before Storm as Risks Taunt Traders. It’s all quiet in currency markets, a little too quiet for some
traders who warn that an uptick in volatility is just around the corner. Price
swings in global exchange rates slid to the lowest since January this
week, according to a JPMorgan Chase & Co. index. A three-month
measure of dollar volatility versus the euro tumbled to the least since
December 2014 while a gauge against the yen fell to a two-month low. That tranquility, which comes before holiday weekends in the U.S. and
U.K., isn’t likely to persist. Event risk stemming from Britain’s vote
on EU membership to Federal Reserve meetings to the U.S. presidential
election threaten to roil currencies around the world. Increasing
correlation between gauges of risk has meant that when one measure
falls, others also tend to do so too, according to Kit Juckes, a
London-based strategist at Societe Generale SA. “There’s
a very fine line for this calm period in markets that you see with low
volatility, a slightly softer dollar and everything’s OK,” Juckes said
in an interview on Bloomberg Television. “A bumpy summer seems to me to
be quite a high risk still.”
- Bond Traders Say Don’t Count Out June Hike After Yellen Remarks. Treasuries traders who delayed holiday getaway plans on Friday took
away a clear message from Federal Reserve Chair Janet Yellen -- a
mid-year interest-rate hike may be on the way. Yellen’s remark
that the Fed will raise rates "probably in the coming months" drove
benchmark two-year note yields higher for a third consecutive week. The
comments at an afternoon appearance at Harvard University followed those
from other Fed officials who signaled that the Federal Open Market
Committee’s June 14-15 meeting is "live.” The market-implied probability of a rate increase next month has
risen to 30 percent, from 12 percent at the end of April. For the
following meeting, in July, the chances exceed 50 percent. The shift in
sentiment shows traders may be giving more credence to the Fed’s
projection of two more rate boosts this year, after policy makers lifted
their overnight benchmark from near zero in December. “June
is certainly still live,” said Aaron Kohli, a fixed-income strategist
in New York at BMO Capital Markets, one of 23 primary dealers that trade
with the Fed. "She’s joining the rest of the FOMC -- ready to go in the
coming months. Yields really do need to reprice higher materially."
- Sanders in California Says Clinton E-Mail Situation Has Changed. The Senator demands Barney Frank, Dannel Malloy be removed from key Democratic committee roles.
Wall Street Journal:
- The Senate GOP’s Trump Survival Plan. The challenge:
Distancing themselves from Trump without alienating voters who like or
despise him. One offsetting advantage: the Hillary effect.
Barron's:
- Had bullish commentary on (CAG), (JLL) and (AMGN).
- Had bearish commentary on (BF/B).
The Telegraph:
Daily Mail:
