Thursday, June 25, 2015

Thursday Watch

Evening Headlines 
Bloomberg:  
  • Greece Edges Closer to Default. Greece stumbled closer to default as another day of negotiations ended in the early hours without a deal to end the standoff over bailout aid. With the Greek government saying it held firm in the flurry of meetings in Brussels on Wednesday, European Union officials said the talks yielded little progress and no breakthrough was in sight. Prime Minister Alexis Tsipras and the heads of the three creditor institutions agreed to reconvene first thing on Thursday after a few hours’ sleep.
  • Goldman Sees Ukraine in Solvency Crisis, Likely Default in July. Ukraine is facing a solvency and liquidity crisis and will likely miss a bond coupon payment next month and default on its debt, according to Goldman Sachs Group Inc. The government is unlikely to resolve a disagreement with its creditors on its debt repayment plan in the coming weeks and will likely issue a moratorium before skipping a July 24 coupon payment, analyst Andrew Matheny wrote in a research note on Wednesday. Ukraine has asked creditors to take a 40 percent writedown in principal and accept new bonds tied to its future economic performance under its repayment plan.
  • China Moves Closer to ‘Riskiest’ Step by Removing Loans Cap. China took one of its biggest steps in banking reform, moving to end a two-decade-old rule that has capped lending relative to deposits as Premier Li Keqiang seeks to usher in market-based economics. An amendment to the banking law will remove the 75 percent limit, the State Council said on its website Wednesday. The Standing Committee of the National People’s Congress needs to give approval at its meeting in March. While the change has the potential to boost credit growth, a bigger constraint may be limited demand for funds in a faltering economy. Looming now is what the central bank has called one of the “riskiest” parts of financial reform: ditching a ceiling on the interest rates that lenders pay on deposits, a move that may come in the second half of this year.
  • Momo’s No to U.S. Shows China Stock Exodus Gathering Speed. Momo Inc., the maker of a chat app used for casual dating, is taking China’s pullout from the U.S stock market to a new level. Just six months after raising $248 million in an initial public offering, the chief executive officer is buying out shareholders to take the company private. It’s the second-fastest take-private bid for a Chinese company in the U.S. in the past decade, according to data compiled by Bloomberg.  
  • Macau Slump Spreading From Gambling Tables to Property Market. Macau’s six-year lucky streak has come to an end. That’s become evident not just at the baccarat tables but at real estate agencies, too. After more than quintupling over six years, residential prices are heading for their first year of declines since 2008, tracking a gambling revenue slump in the world’s largest casino hub. Home prices may drop 15 percent this year, real estate broker Jones Lang LaSalle Inc. forecasts. 
  • China Tech Stock Boom Falters as Traders Shun Soaring Valuations. A rally in Chinese technology companies is reversing at the fastest pace in at least a year on concern valuations are too high relative to earnings growth. The CSI 300 Information Technology Index has slumped 14 percent from its June 2 record, almost three times the loss by the broader gauge. Even after the declines, the hi-tech measure trades at 78 times earnings, versus 31 times for the Nasdaq Composite Index in the U.S. The Chinese index declined 1 percent at the mid-morning break Thursday.
  • OPEC's Oil Revenues Have Dropped Below $1 Trillion - Here's What That Looks Like. (video) OPEC nations' oil revenues dropped last year below the psychological $1 trillion mark for the first time since 2010, in the clearest sign yet of the economic impact of lower prices for oil-rich nations. The Organisation of the Petroleum Exporting Countries said on Wednesday in its annual statistical report that its 12-members earned $964.6 billion selling their petroleum, down 12.7 per cent from $1.1 trillion in 2013 and the lowest amount since 2010. Oil export revenues hit a nominal record of $1.2 trillion in 2012, according to OPEC data. 
  • Goldman’s Cohn: You’re Wrong If You Think Markets Ready for Fed. Years of discussing when and how the Federal Reserve will raise interest rates probably isn’t going to prevent market participants from being caught off guard, Goldman Sachs Group Inc. President Gary Cohn said. “We’re probably less ready than people think,” Cohn said on a podcast posted Wednesday on the firm’s website. “It won’t at all be surprising to me if there are some interesting market reactions based on official change in rate policy by the Fed.
Wall Street Journal: 
  • Onetime Obama Advisers Warn White House on Iran Nuclear Talks. Foreign-policy strategists say they would oppose agreement if certain tough terms weren’t included. A group of influential U.S. foreign-policy strategists, including five former confidants of President Barack Obama, warned the White House Wednesday they would oppose a nuclear agreement with Iran if tough terms weren’t included in a final agreement.
CNBC: 
Zero Hedge: 
Business Insider: 
Reuters:
  • Cree(CREE) to restructure LED business, cuts revenue forecast. Cree Inc, a light-emitting diode maker, said it would restructure its LED products business, hurt by a decline in selling price and under-utilization of its factory. Cree, which also lowered its revenue forecast for the fourth quarter, said on Wednesday it would buy back $500 million worth of stock for fiscal 2016.
Telegraph: 
Evening Recommendations 
UBS:
  • Cut (CHK) to Sell.
  • Cut (MUR) to Sell.
Night Trading
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 108.75 +2.75 basis points.
  • Asia Pacific Sovereign CDS Index 58.0 +1.0 basis point.
  • S&P 500 futures +.22%.
  • NASDAQ 100 futures +.22%.

Earnings of Note
Company/Estimate
  • (ACN)/1.23
  • (BKS)/-.40
  • (CMC)/.39
  • (LNN)/.81
  • (WGO)/.42
  • (DRC)/.12
  • (MU)/.57
  • (NKE)/.83
Economic Releases
8:30 am EST
  • Personal Income for May is estimated to rise +.5% versus a +.4% gain in April.
  • Personal Spending for May is estimated to rise +.7% versus unch. in April.
  • The PCE Core for May is estimated to rise +.1% versus a +.1% gain in April.
  • Initial Jobless Claims are estimated to rise to 273K versus 267K the prior week. 
  • Continuing Claims are estimated to fall to 2218K versus 2222K prior.
9:45 am EST
  • Preliminary Markit US Services PMI for June is estimated to rise to 56.5 versus 56.2 in May.
11:00 am EST
  • Kansas City Fed Manufacturing Activity for June is estimated to rise to -9 versus -13 in May.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Powell speaking, Fed's Taruillo speaking, Eurozone Leaders Summit, Japan CPI report, $29B 7Y T-Note auction, GFK Consumer Confidence report, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (DYN) analyst meeting and the (GOGO) analyst day 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 modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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