Sunday, December 13, 2015

Monday Watch

Today's Headlines
  • Asian Bond Risk Surges to Two-Month High on Contagion Concerns. Asian bond risk surged to a two-month high after Third Avenue Management’s decision to freeze redemptions at a high-yield credit fund underscored concern about reduced market liquidity and a potential exodus of investors. The cost of protecting debt against non-payment has risen across the Asia-Pacific region amid anxiety that recent losses in U.S. junk bonds have further to run and could spread to other regions. The Markit iTraxx Asia index of credit-default swaps rose 5 basis points to 147 basis points as of 9:33 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. That’s on track for its highest close since Oct. 8, according to data provider CMA. “Spreads widened on both investment-grade and junk bonds in Asia today because of a combination of factors, including the equity selloff in the U.S. on Friday, the upcoming potential Fed rate hike, the news on frozen redemption in some U.S. funds and the crude price dive,” said Ross Lee, a credit analyst at Bank of China Hong Kong Ltd.
  • Hong Kong Property Foreclosures Seen Doubling in 2016 on Economy. Property foreclosures in Hong Kong will double from current levels by the end of next year as a slowing economy hurts borrowers’ ability to service their mortgages, according to an auctioneer with 23 years of industry experience. The average number of foreclosures has risen to 80 a month from about 50 to 60 in the first half of 2015, Tsang Kit-chun, Managing Director of AA Property Auctioneers Ltd., said in a phone interview on Friday. That’s still way slower than the the 6,000-a-month pace in 2003, following a six-year property bear market, he said.  
  • Korean Won Drops to Two-Month Low After China Unveils Yuan Index. South Korea’s won fell to the lowest in more than two months on speculation China will allow the yuan to weaken after policy makers unveiled a measure that valued it against a broad range of currencies. The yuan fell to a four-year low in Shanghai after China Foreign Exchange Trade System on Friday published an index composed of 13 currencies. The CFETS, which is run by the central bank to facilitate interbank trading, said the gauge will “help bring about a shift in how the public and the market observe” exchange-rate moves. Global investors sold more South Korean stocks than they bought for a ninth day as a plunge in oil prices and the prospect of the Federal Reserve raising interest rates this week damped demand for riskier assets. The won weakened 0.7 percent to 1,187.84 a dollar as of 10:13 a.m. in Seoul, data compiled by Bloomberg show.
  • Qatar Leads Mideast Stock Retreat After Oil Sinks to 2008 Low. Qatari stocks led a retreat in Middle Eastern markets as oil’s decline to a seven-year low, scant evidence of a pick-up in Chinese growth and the prospect of a U.S. interest-rate increase next week unsettled investors across the region. The QE Index sank 3.7 percent to close below 10,000, a key support level, for the first time since November 2013 and Saudi Arabia’s Tadawul All Share Index slumped to the lowest since 2012. The DFM General Index chalked up the longest losing streak in a year on investor concern that companies in Dubai, the Middle East’s commercial hub, may suffer if Gulf Arab governments reduce spending next year. The ADX General Index in Abu Dhabi, home to about 6 percent of the world’s proven oil reserves, lost 2.1 percent.  
  • Emerging Stocks Slump to Six-Year Low Before Fed as Yuan Weakens. Emerging-market stocks headed for their lowest close in six years as investors exited riskier assets before this week’s Federal Reserve meeting and crude extended a rout. The yuan extended six weeks of declines. The MSCI Emerging Markets Index dropped for a ninth day, its longest losing streak since June. Equity gauges in Hong Kong, Taiwan and South Korea slumped more than 1 percent. Fosun International Ltd. plunged after saying Chairman Guo Guangchang was assisting with a probe. Asia’s developing-nation currencies weakened after China’s central bank said its exchange-rate moves shouldn’t be measured against the dollar alone, fueling speculation the yuan will extend declines. The rand surged the most in seven years after President Jacob Zuma backtracked on his choice of finance minister. The MSCI Emerging Markets Index fell 0.6 percent to 768.63 at 10:06 a.m. local time. The Hang Seng China Enterprises Index dropped 1.5 percent.
  • Asian Stocks Join Global Selloff as Commodity Producers Retreat. Asian stocks joined a global selloff as concern about turmoil in the credit and commodities markets ahead of this week’s Federal Reserve meeting overshadowed a batch of better-than-expected Chinese economic data. The MSCI Asia Pacific Index dropped 1.4 percent to 127.69 as of 9:05 a.m. in Tokyo, falling for a fifth day in its longest stretch of declines since the measure’s August slump. The Standard & Poor’s 500 Index sank 1.9 percent on Friday as crude traded below $36 a barrel and asset managers were routed after a high-yield mutual fund suspended redemptions. Traders see a 74 percent chance the Fed will increase rates on Dec. 16, futures show.
  • Oil Trades Near Lowest Since 2009 as Iran Pledges More Supply. Oil traded near the lowest price since February 2009 as Iran pledged to boost crude exports, bolstering speculation OPEC members will exacerbate the global oversupply. Futures were little changed in New York after losing almost 11 percent last week, the most in a year. There’s “absolutely no chance” Iran will delay its plan to increase shipments even as prices decline, said Amir Hossein Zamaninia, the deputy oil minister for international and commerce affairs. Hedge funds and other large speculators raised bearish bets to an all-time high, U.S. Commodity Futures Trading Commission data showed.
  • Miners Shoveling Furiously Prop Up Aussie GDP as Iron Melts. The price of Australia’s top export has been almost slashed in half this year. That makes it all the more surprising economists increasingly see iron ore propping up growth as they assemble their 2016 forecasts. The reason: Australian producers are making up for the price destruction by doubling down on volume, in the process worsening a global supply glut. There’s even a new entrant to the market -- Gina Rinehart, Australia’s richest person, last week oversaw her company’s first shipment of iron ore to South Korea. The surging exports are also papering over a massive drag on the economy from collapsing mining investment and could account for most of next year’s growth, according to Citigroup Inc. and Goldman Sachs Group Inc. Still, the fall in commodity prices will hurt fiscal revenue, making it more difficult for the government to pare back a deficit and reach its goal for a surplus by the end of the decade. 
  • Cotton Is Piling Up at Warehouses Around the World. (graph) There’s enough cotton sitting in global warehouses to make more than 127 billion T-shirts, or 17 for each person on the planet. That’s bad news for investors betting prices will rise. World inventories at the end of this season will be the second-largest ever, just slightly less than last year’s record, according to a U.S Department of Agriculture forecast last week. That’s a signal that supplies will remain ample even after the agency cut its outlook for production. Hedge funds raised their bullish cotton bets to the highest in more than a year, only to face the first weekly price drop since early November. 
  • Investors See More Carnage Amid Third Avenue Contagion Risk. Top bond investors are predicting more carnage for high-yield funds amid a market rout that forced a Third Avenue Management mutual fund last week to freeze redemptions. Scott Minerd, global chief investment officer at Guggenheim Partners, predicts 10 percent to 15 percent of junk bond funds may face high withdrawals as more investors worry about getting their money back. He joins money managers Jeffrey Gundlach, Carl Icahn, Bill Gross and Wilbur Ross in warning of more high-yield trouble ahead. “The risk is that this is going to cascade into something bigger,” Minerd, whose firm oversees $240 billion, said in an interview at his oceanfront office in Santa Monica, California. “If we’re going to see contagion, the most vulnerable funds are going to be the ones that are down significantly.”
  • Like Obamacare, Climate Gives President Huge Win on Shaky Ground. For Barack Obama, the landmark climate-change deal in Paris should leave a familiar -- and familiarly fragile -- sense of victory. As with Obamacare, the president’s signature health care reform, the victory rests on shaky ground. Even supporters say the new deal won’t go far enough on its own to stop global warming. Republicans in Congress, meanwhile, many of whom question whether human activity is affecting the global climate, are vowing to kill Obama’s domestic regulations, which they paint as a job killer, an economic disaster, and a “war on coal.” The Paris accord also rests on scores of nations following through on voluntary pollution pledges and technological innovations in energy production that may take years to emerge.
Wall Street Journal:
  • Climate Agreement’s Success Hinges on Countries Making Painful Decisions. Supporters hope the deal will unleash an avalanche of investment in renewable energy, new technologies. The landmark climate agreement that more than 190 countries struck over the weekend ushers in a broad, new international effort to wind down the fossil-fuel era.
  • Obama Faces Political Fight at Home Over Climate Deal. Republican candidates vow to unravel efforts aimed at curbing global warming. President Barack Obama notched a victory on the world stage with the completion of a global climate accord, but the White House still faces resistance at home as Republicans and some U.S. industries push back against the policies underpinning the deal.
  • Junk Bonds Stagger as Funds Flee. After junk-bond prices posted their largest drop since 2011 on Friday, investors are bracing for a difficult week. Traders and regulators have fretted for more than a year that mayhem might ensue if U.S. mutual funds sought to sell rarely traded bond investments. After junk-bond prices posted their largest drop since 2011 on Friday, investors say they are bracing for another difficult week, likely featuring hectic trading and large splits between buy and sell orders. 
  • Brazilians Stage Protests to Pressure Lawmakers on Rousseff Impeachment. Proceedings to impeach president began earlier in December. Thousands of Brazilians took to the streets throughout the country to pressure lawmakers to follow through with efforts to impeach President Dilma Rousseff. Polling company Datafolha estimated 40,300 people attended the protest in Sao Paulo, Brazil’s biggest city, less than the 135,000 people it said went to an antigovernment protest in August. A protest in March, 2015, attracted 210,000 people to Sao Paulo’s
  • Third Avenue CEO Barse Departs. Firm is barring investor withdrawals as it liquidates high-yield bond fund. Third Avenue Management LLC has parted ways with Chief Executive David Barse, said people familiar with the matter, a move that comes just days after the firm rattled financial markets and the mutual-fund industry by barring withdrawals from its junk-bond fund.
  • Sen. Bob Corker Failed to Properly Disclose Millions of Dollars in Income. Tennessee Republican files amendments to reports going back to 2007; ‘I am extremely disappointed in the filing errors’. Sen. Bob Corker failed to properly disclose millions of dollars in income from real estate, hedge funds and other investments since entering the Senate in 2007, according to new financial reports filed by the Tennessee Republican.
  • Paris Climate of Conformity. It pays to be skeptical of politicians who claim to be saving the planet. The moment to be wariest of political enthusiasms is precisely when elite opinion is all lined up on one side. So it is with the weekend agreement out of Paris on climate policy, which President Obama declared with his familiar modesty “can be a turning point for the world” and is “the best chance we have to save the one planet that we’ve got.”
Fox News:  
  • Kerry touts climate deal as jobs creator, defends criticism about no sanctions, penalties. (video) Secretary of State John Kerry on Sunday defended the global carbon-emissions deal reached this weekend amid criticism that it lacks enforcement and touted the pact as a jobs creator. Kerry, who helped negotiate the deal with China and 185 other countries, told “Fox News Sunday” that enforcement mechanisms and sanctions were not possible because Congress and other nations would not have agreed to them. “If there had been a penalty, we wouldn’t have gotten an agreement,” Kerry said from Paris, where the international deal was announced Saturday. “So it has to be voluntary. We got the best deal we could.” 
  • Fox News Poll: Cruz, Trump ahead in Iowa, Clinton holds caucus lead. (video)
  • Visa Screening Missed an Attacker's Zealotry on Social Media. Tashfeen Malik, who with her husband carried out the massacre in San Bernardino, Calif., passed three background checks by American immigration officials as she moved to the United States from Pakistan. None uncovered what Ms. Malik had made little effort to hide— that she talked openly on social media about her views on violent jihad. She said she supported it. And she said she wanted to be a part of it.
Zero Hedge:
Business Insider: 
  • France's Sarkozy says strong FN vote a 'warning' to all politicians. The far-right National Front's high score in regional elections should be a warning to all mainstream politicians, former French President Nicolas Sarkozy said on Sunday after exit polls showed the FN had failed to win any regions. "This mobilization in favor of our candidates should in no way let us forget the warning sent to all politicians, ourselves included, in the first round," he said. "We now have to take the time for in-depth debates about what worries the French, who expect strong and precise answers," he said, citing Europe, unemployment, security and identity issues.
Night Trading
  • Asian indices are -2.0% to -1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 142.0 +4.75 basis points.
  • Asia Pacific Sovereign CDS Index 78.25 +5.25 basis points.
  • Bloomberg Emerging Markets Currency Index 69.21 -.09%.  
  • S&P 500 futures +.25%.
  • NASDAQ 100 futures +.19%.
Morning Preview Links 

Earnings of Note
  • (NX)/.26
  • (FCEL)/-.28
  • (PAY)/.48
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The RBA minutes could also impact trading today.
BOTTOM LINE: Asian indices are 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 week.

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