Sunday, May 17, 2015

Monday Watch

Today's Headlines 
Bloomberg: 
  • Greece Remains Defiant as It Seeks Creditor Deal This Week. Greece’s government said it won’t back down on election pledges to end austerity even while seeking to agree on a deal with creditors as soon as this week to unblock financing and avert a default. “We’re striving for a mutually beneficial agreement by Friday,” Nikos Filis, spokesman for the parliamentary group of Prime Minister Alexis Tsipras’s Syriza party, said Sunday in comments broadcast on Mega TV. “Our mandate from the Greek people is to reach an agreement where we stay in the euro area without harsh austerity measures,” he said, adding that “tough negotiations” will take place before a summit meeting of European Union leaders in Riga, Latvia, on May 21-22.
  • China Calls On Banks to Support State Projects as Economy Slows. China urged banks to continue funding local government projects under construction and refrain from calling in loans as the country works through an economic downturn. Banks shouldn’t refuse funds to projects approved before the end of 2014 even if borrowing agencies are unable to meet payments, the State Council said Friday in joint announcement with Finance Ministry, central bank and regulator. The council, China’s Cabinet, also urged local governments to use fiscal support as short-term working capital for ongoing projects to prevent or reduce risk. The message raises contradictory signals from a government that’s sought to trim local debt to more manageable levels by recapitalizing banks, overhauling local finances and removing implicit guarantees for corporate borrowing that once helped struggling companies. 
  • Iranian Aid Ship Nears Yemen, Raising Risk of Saudi Showdown. An Iranian aid ship is approaching Yemen’s coastline, raising the risk of a showdown with the Saudi-led military coalition blockading Yemeni ports as it battles the country’s Shiite Houthi rebels. The ship carrying food and medicine entered the Gulf of Aden on Sunday, according to Iranian media. Iran’s navy has vowed to protect the vessel, and the government said it won’t allow any country that’s part of Yemen’s war to inspect the cargo. The vessel will arrive at Yemen’s Red Sea port of Hodeidah on May 21, according to a state TV reporter on board.  
  • Euro Wreaks Havoc on Carry Trades in Rally Almost No One Foresaw. It was supposed to be so easy. Borrow in euros as the European Central Bank kept interest rates near zero and use the proceeds to invest in the economies where rates are higher, pocketing the difference and generating huge profits. For a while it worked -- that was, until about a month ago when global markets began to go haywire and the euro, instead of falling as most every strategist surveyed by Bloomberg predicted, began to rally. Investors who embraced the carry strategy have seen losses of 3.5 percent since March, according to a UBS Group AG index.
  • China Home Prices Fall in 69 Cities on Year. (video)
  • China’s Stocks Retreat for Second Day as IPOs Suck Up Liquidity. China’s stocks fell for a second day, led by commodity and financial companies, amid concern a flood of new share sales will lure funds from existing equities. Aluminum Corp. of China Ltd. retreated 4.9 percent after surging 23 percent last week. China Merchants Securities Co. headed for its biggest loss in four months as brokerages slid. The ChiNext index of smaller companies rallied 2.7 percent in Shenzhen. The Shanghai Composite Index dropped 0.6 percent to 4,283.29 at 9:37 a.m., adding to Friday’s 1.6 percent decline.
  • Dollar Gains After Loss Streak as China Stocks Fall With Nickel. The dollar climbed against most peers, snapping a four day losing streak. Asian stocks outside Japan slipped with U.S. equity-index futures, and nickel fell. The yen slid 0.4 percent versus the greenback by 11:04 a.m. and New Zealand’s dollar slumped 0.8 percent. The MSCI Asia Pacific Index was little changed with gains in Japan offsetting losses in Hong Kong and China. BHP Billiton Ltd., the world’s biggest miner, tumbled the most in six years before the company’s metals’ spinoff started trading. Standard & Poor’s 500 Index futures fell 0.2 percent. Asian bonds climbed, tracking gains in the U.S. and Europe. Nickel lost 1 percent.
  • Hedge Funds Lose Faith in Oil Rally as OPEC Seen Boosting Supply. Speculators are losing faith in the oil rally, judging that OPEC will keep increasing supply from the highest level since 2012. Their net-long position in West Texas Intermediate crude dropped 2.1 percent, as long wagers fell the most in two months and short bets declined to the lowest since August, U.S. Commodity Futures Trading Commission data show.
Wall Street Journal:
  • Islamic State Seizes Control of Iraqi City of Ramadi. Takeover is a crushing setback to U.S.-backed efforts to halt the spread of the extremist group. Islamic State seized control of the capital of Iraq’s largest province, killing hundreds of government forces and dealing a crushing setback to U.S.-backed efforts to halt the spread of the extremist group. The fall of the western city of Ramadi, once home to nearly half a million people, represents Islamic State’s biggest military victory this year, gaining it another major Iraqi city among the territory it controls in Iraq...
  • Human Stock Pickers Gain Against Indexes. So far this year, actively managed U.S. stock mutual funds have outperformed funds trying to clone the market’s overall performance.'
  • Oil Investors Take a Closer Look at Production. A spotlight has landed on a previously overlooked metric as oil traders drill deeper for clues on price movement
  • Greece’s Debt Battle Exposes Deeper Eurozone Flaws — Horizons. Blame lies with the monetary union’s flawed political structure, where a highly integrated financial system coexists with fragmented and unpredictable governance. That structure means it’s dangerous to assume that bigger eurozone economies such as Spain or Italy won’t also see a revival of investor concerns about their own debt levels when the European Central Bank ends its monetary support for the region’s bond markets.
  • Much More Is Needed to Stop Iran From Getting the Bomb. Obama will reluctantly sign a bill giving Congress more say over a final deal. Here’s what we should be looking for.
CNBC:
Zero Hedge:
New York Times:
  • Hedge Funds Close Doors, Facing Low Returns and Investor Scrutiny. For decades, nearly everything that the billionaire Julian Robertson touched turned to gold. Mr. Robertson, founder of the hedge fund Tiger Management, seeded a network of hugely successful “Tiger Cubs” — companies that in turn seeded more talent. It became the closest thing the hedge fund industry had to a dynasty. Since the start of this year, however, the managers of three firms spun out of that gilded empire have called it quits after volatile performances and sometimes steep losses. They will return money to investors and focus on managing their own wealth.
AFR:
  • ASIC Warns Property Prices May Be Near Bubble Territory. ASIC Chairman Greg Medcraft says he's worried about Sydney and Melbourne property markets, in interview. "History shows that people don't know when they are in a bubble until it's over," Medcraft says.
Weekend Recommendations
  • None of note
Night Trading
  • Asian indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 104.0 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 59.5 +.25 basis point.
  • S&P 500 futures -.07%.
  • NASDAQ 100 futures -.07%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (JASO)/.07
  • (A)/.39
  • (URBN)/.30
  • (TTWO)/.28
  • (LF)/-.17
Economic Releases
10:00 am EST
  • The NAHB Housing Market Index for May is estimated to rise to 57.0 versus 56.0 in April.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Evans speaking, RBA rate decision, UBS Oil & Gas Conference, UBS Healthcare Conference, JPMorgan Tech/Media/Telecom Conference and the (BAX) investor conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.

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