Thursday, December 17, 2015

Friday Watch

Evening Headlines
  • China Beige Book Shows ‘Disturbing’ Deterioration on All Fronts. China’s economic conditions deteriorated across the board in the fourth quarter, raising doubts over whether it’s successfully transitioning from manufacturing to services-led growth, according to a private survey from a New York-based research group. National sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure were all weaker than the prior three months, according to the fourth-quarter China Beige Book, published by CBB International and modeled on the survey compiled by the Federal Reserve on the U.S. economy. The profit reading is "particularly disturbing," with the share of firms reporting profit gains slipping to the lowest level recorded, CBB President Leland Miller wrote in the report. While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening. The survey shows "pervasive weakness," Miller wrote in the report. "The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true." 
  • Mystery of Missing Broker Shows China Risks Coming to Hong Kong. One month after the head of a Hong Kong brokerage vanished, his whereabouts remain a mystery. Those who suspect Yim Fung, the missing chairman and chief executive officer of Guotai Junan International Holdings Ltd., was pulled in to assist authorities with an investigation in mainland China include Christopher Cheung, a Hong Kong lawmaker who represents the finance industry -- and who’d been due to attend a dinner with Yim on the day he was reported missing. But no one knows for sure.
  • Asia Outlook: Currency Weakness Expected in 2016. (video)
  • Won Heads for Third Weekly Drop on Weakening Yuan, Fed Liftoff. South Korea’s won headed for a third weekly drop after the Federal Reserve raised interest rates and as the falling yuan damped the nation’s export outlook. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, jumped the most in six weeks on Thursday after the Fed increased benchmark borrowing costs for the first time in almost a decade. The People’s Bank of China cut the yuan’s reference rate for a 10th day on Friday and the currency has weakened 1.3 percent this month. A quarter of South Korean exports are shipped to China, according to Australia & New Zealand Banking Group Ltd. “For Asian currencies and the won in particular the continued decline in the yuan is having an impact,” said Khoon Goh, a senior strategist at ANZ in Singapore. “That’s putting pressure on Asian currencies particularly those with close export ties to China." The won dropped 0.4 percent this week and on Friday to 1,184.65 a dollar as of 10:53 a.m. in Seoul, data compiled by Bloomberg show. That took its slide this month to 2.3 percent, the most in Asia. Overseas investors were net sellers of Korean stocks on Friday and have pulled $2.4 billion from them in December, exchange data show.
  • Asian Shares Retreat as Oil Drops; Australia, Taiwan Bonds Gain. Asian stocks resumed losses as the bout of optimism that followed the first U.S. interest-rate hike since 2006 faded, replaced with anxiety over commodities and the widening divergence in global monetary policy. Oil slumped, while the dollar held recent gains. The Asian equity benchmark snapped a two-day advance, led by a slide in raw-materials producers after a gauge of commodities prices sank to a 16-year low. U.S. crude fell for a third day, extending its drop below $35 a barrel. A gauge of dollar strength was headed for its biggest weekly increase since the start of November. Australian and New Zealand bonds rallied after gains in U.S. Treasuries on Thursday, while Taiwan’s debt rose after the island’s central bank cut interest rates. The MSCI Asia Pacific Index lost 0.5 percent as of 10:53 a.m. Tokyo time, paring its weekly advance to 0.3 percent. Japan’s Topix index fell 0.5 percent and Hong Kong’s Hang Seng Index lost 0.4 percent.
  • One of the Last Metal Hedge Funds Says China to Bring More Pain. The biggest rout in industrial metals since the financial crisis is set to deepen as mining companies fail to cut production enough to make up for slowing demand, according to Citrine Capital Management LLC. “We could make fresh multi-year lows across metals in the next six months,” Paul Crone, founder of Citrine, said in an interview this week. New York-based Citrine is one of the few surviving hedge funds investing exclusively in metals, alongside Red Kite Group. Galena Metals Fund, the flagship fund owned by trading house Trafigura Pte., closed last month due to “difficult conditions prevailing on commodities markets.” 
  • IEA Cuts Coal Demand Outlook as China’s `Golden Age' Seen Over. The International Energy Agency cut its five-year coal demand forecast for a third year as it said the “golden age of coal in China” seemed over amid a slowdown in the world’s second-biggest economy. Coal use will rise by 0.8 percent a year through 2020 to 5.8 billion metric tons of coal equivalent, less than the 2.1 percent predicted last year for the following five years, the Paris-based agency said Friday in its Medium-Term Coal Market Report. Half of the increase will come from India and a quarter from Southeast Asia, offsetting declining consumption in the U.S. and Europe, the group said. The fuel’s role in total electricity generation is poised to fall for the first time in two decades to 37 percent in 2020 from 41 percent now, the IEA said. Last week’s global climate deal in Paris will likely spur increased use of renewables, while an abundance of shale gas means the fuel’s decline is inevitable in the U.S., it said.
  • Junk-Bond Funds Lose $3.8 Billion in Year's Biggest Outflow. Investors pulled $3.81 billion from U.S. high-yield bond funds in the past week, the biggest withdrawal since August 2014, according to Lipper. The outflows jumped from $3.46 billion last week and came after Third Avenue Management’s decision to freeze redemptions in a credit fund triggered concerns of a bigger meltdown in debt markets. The average yield on junk bonds jumped to more than 9 percent on Dec. 14 for the first time since 2011, according to Bank of America Merrill Lynch indexes. 
Wall Street Journal:
Fox News:
  • 'They don't speak for me': New Muslim groups reject CAIR representation. (video) Within hours of a terror attack that left 14 dead in Southern California, the nation’s best-known Islamic advocacy group held a press conference with the killers’ family – and Muslims around the country cringed. In the days following the Dec. 2 attack in San Bernardino, Council for American-Islamic Relations representatives partially blamed U.S. policy for terrorist attacks, accused gunman Syed Rizwan Farook’s co-workers of making fun of his beard and sought to downplay comments by Farook’s father linking him to ISIS. Like Muslims throughout the U.S., CAIR officials condemned the attack, but too often with what sounded to critics like subtle caveats. 
Zero Hedge:
Business Insider:
Financial Times:
Evening Recommendations 
  • None of note
Night Trading 
  • Asian equity indices are -.75% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 138.75 +1.75 basis points.
  • Asia Pacific Sovereign CDS Index 73.5 +.75 basis point.
  • Bloomberg Emerging Markets Currency Index 69.25 -.02%.
  • S&P 500 futures -.07%.
  • NASDAQ 100 futures -.05%.
Morning Preview Links 

Earnings of Note 
  • (BBRY)/-.15
  • (KMX)/.68
  • (CCL)/.41
  • (DRI)/.42
  • (LEN)/1.12
Economic Releases
9:45 am EST
  • Preliminary US Markit Services PMI for December is estimated to fall to 55.9 versus 56.1 in November.  
11:00 am EST
  • The Kansas City Fed Manufacturing Activity Index for December is estimated to rise to 2.0 versus 1.0 in November.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Locker speaking, Canadian inflation report, (CNC) investor event and the (WSO) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology 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 25% net long heading into the day.

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