Wednesday, December 16, 2015

Thursday Watch

Evening Headlines
  • This Fed Move Is Different as UBS Sees Pain in Emerging Markets. Historically, interest-rate increases from the Federal Reserve have been buy signals for emerging-market assets. This time looks different, even after a selloff that has pushed currencies to record lows and equities down to levels not seen since 2009. Developing-nation stocks advanced 38 percent on average and currencies jumped 11 percent during the two previous Fed tightening cycles starting in 1999 and 2004. Firms including UBS AG and Citigroup Inc. say more pain is in store after the first U.S. interest rate increase in almost a decade because emerging markets haven’t fallen enough to reflect subdued growth. In the past, developing nations benefited from stronger U.S. growth. Now, stagnating global trade, a slowdown in China and a collapse in global commodity prices continue to take their toll. While stock valuations are similar to 2004, earnings have gone from growing 29 percent to falling 21 percent, and debt levels have reached a record high. Adjusted for inflation, 17 of 21 emerging-market currencies are more expensive than they were 11 years ago on a trade-weighted basis. 
  • Asia Won't Have a Yuan Anchor This Time, Unlike 1990s Crisis. China is casting Asia adrift. At least, when it comes to exchange rates. That’s the view of analysts pointing out the potential implications of China this month moving away from a managed peg to the dollar. Under the previous regime, as the dollar moved, so moved the yuan. China thereby served as a "firewall" when other Asian currencies were collapsing during the region’s 1997-98 crisis, then U.S. Deputy Treasury Secretary Lawrence Summers said at the time.
  • What Went Wrong at Prada and Fashion's Miserable Outlook for 2016. For a while, the market for $3,000 handbags looked immune to cycles in global growth. That's changed. Collapsing demand in China, the strong dollar and the Paris terror attacks made 2015 a year to forget for the likes of Prada, Burberry, and Cartier-owner Richemont. Prada’s shares hit a record low Dec. 16 on slumping Asian sales, which has led the maker of $3,000 handbags to dial back store openings, slash costs and introduce more affordable products. Prada's woes show what ails the entire luxury industry. The outlook for 2016 is better, but not much. The $278 billion market for designer dresses and other expensive stuff will expand by no more than 4 percent, better than 2015’s 1 percent gain yet still half the average annual rate of the past five years. Here are five ways companies are grappling with the slowdown: 
  • Dollar Gains for Sixth Day as Merciful Fed Recharges Bulls. With no harsh surprises out of the Federal Reserve, currency traders are back on 2015’s favorite trade: buy dollars. A gauge of the greenback climbed for a sixth day on Thursday, a day after a unanimous vote by the Federal Open Market Committee to raise its benchmark rate for the first time since 2006 with policy makers leaving unchanged the implication of four quarter-point increases next year. While Chair Janet Yellen emphasized a gradual path to future tightening, she didn’t derail the theme of divergence with other major central banks that’s made the dollar this year’s biggest gainer after the Swiss franc. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, climbed 0.3 percent to 1,233.49 as of 10:16 a.m. in Tokyo Thursday. It has climbed 9 percent this year.
  • Asian Stocks Head for Biggest Two-Day Gain Since October on Fed. Asian stocks rose, with the regional benchmark index heading toward its biggest two-day gain since early October, after the Federal Reserve raised U.S. interest rates for the first time in almost a decade and signaled a gradual pace for future increases. The MSCI Asia Pacific Index climbed 0.9 percent to 130.73 as of 9:09 a.m. in Tokyo, heading for a two day advance of 3.2 percent, as banks and health-care shares led gains.  
  • Goldman(GS) Takes Ax to Iron Outlook as Industry to Hibernate. Goldman Sachs Group Inc. took the ax to its iron ore forecasts, predicting the price will remain under $40 a ton for the next three years as China’s slowdown forces the global industry into a long period of hibernation. Iron ore will average $38 a metric ton next year and $35 in both 2017 and 2018, analysts Christian Lelong and Amber Cai wrote in a report received on Thursday. The new forecasts are 13 percent to 14 percent lower than the bank’s previous outlook.
  • Nickel Producers Hammered in Indonesia as Metal Price Slumps 40%. Almost two years after Indonesia, the largest producer of mined nickel, banned ore exports to nurture its metals industry, fledgling smelters are being pummeled by a plunge of more than 40 percent in prices. The chief executive officer of one of the biggest producers, a Chinese-Indonesian venture called Tsingshan Bintangdelapan Group, says with output costs at $10,000 to $11,000 a metric ton, he’s making a $2,000 loss on every ton he ships. While CEO Alexander Barus thinks prices will recover, he says plans for new smelters will be put on hold if rates stay where they are now.
  • Pier 1(PIR) Laments Decline of the 'Casual Shopper'. Pier 1 Imports Inc. plunged as much as 15 percent in late trading after the furniture chain cut its forecast, citing a decline in “casual” in-store shoppers. The company now expects annual earnings of 42 cents to 46 cents, down from a previous forecast of as much as 64 cents, according to a statement Wednesday. Third-quarter sales and profit also fell short of analysts’ estimates. 
Wall Street Journal: 
  • Emerging Markets Face Rate-Increase Pressures. Tighter monetary policy in U.S. promises to pressure countries around the world. The Federal Reserve’s first rate increase in almost a decade is stirring fears of another wave of turmoil in emerging markets that have already been hit by financial squalls, rising debt levels and anemic demand.
  • As Fed Finally Raises Rates, Pent-Up Risks Emerge. Fed bets that low rates’ job benefits outweigh any financial disruption. The Federal Reserve always knew its unprecedented campaign to boost employment could have unsavory side effects. As that campaign comes to an end, those side effects are making themselves felt.
  • Where the Fed Goes Next on Interest Rates. Another rate increase looks likely in March, but the forecast gets murkier after that. We have liftoff. But what will it take for the Federal Reserve to reach the second stage of rate increases? For starters, forget about talk of the Fed being “one and done.” Beyond that, things get murkier.
  • Gloom on Brazil Finances Deepens. Second downgrade hits bonds, currency
  • Marco Rubio and Ted Cruz Clash, Showing GOP Divide On Security. Presidential candidates are seeking to position themselves as alternatives to current front-runner Donald Trump. A clash between Sen. Marco Rubio and Sen. Ted Cruz over who is most faithful to conservative values is highlighting the divide in the party on how to balance privacy with the push for enhanced security.
  • Clinton Is Already Vowing to Overreach. Remember Hillary’s pledge in 2007 to ‘rein in the presidency’? Neither does she. Written constitutions matter little in Latin American countries run by strutting ex-colonels and widows of populist demagogues. In these banana republics, the caudillo exercises both executive and legislative powers. Laws are not written by legislatures, but emanate from the strongman’s pen.
Fox News: 
  • As lawmakers clash over refugees, Syrian immigration quietly tops 100,000 since 2012. (video) A proposal to admit 10,000 Syrian refugees to the United States has ignited a bitter debate in Washington, but more than 10 times that number of people from the embattled country have quietly come to America since 2012, according to figures obtained by Some 102,313 Syrians were granted admission to the U.S. as legal permanent residents or through programs including work, study and tourist visas from 2012 through August of this year, a period which roughly coincides with the devastating civil war that still engulfs the Middle Eastern country. Experts say any fears that terrorists might infiltrate the proposed wave of refugees from United Nations-run camps should be dwarfed by the potential danger already here.
  • Chattanooga shooting a 'terror attack,' FBI Director James Comey says. (video) The semantic dance of whether or not to call the July mass shooting in Chattanooga a “terrorist” attack appears to be winding down. FBI Director James Comey twice called the deadly Chattanooga shooting that killed four Marines and one sailor a “terror attack” during a press conference with NYPD commissioner Bill Bratton on Wednesday. Bratton and Comey spoke after addressing the NYPD Shield Conference in New York City.
Zero Hedge:
NY Times:
  • At U.N., China Tries to Influence Fight Over Internet Control. Over the last six months, United Nations diplomats have negotiated over the text of a document set to define the policies and frameworks of how the Internet is governed in the future, and who has a role in the process. The final version presented on Wednesday at the General Assembly contains a word that civil society groups, businesses and many Western governments oppose: multilateral.
Evening Recommendations 
  • None of note
Night Trading 
  • Asian equity indices are +.50% to +1.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 137.0 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 72.75 -.25 basis point.
  • Bloomberg Emerging Markets Currency Index 69.25 -.23%.
  • S&P 500 futures -.23%.
  • NASDAQ 100 futures -.18%.
Morning Preview Links 

Earnings of Note 
  • (ACN)/1.32
  • (ATU)/.24
  • (GIS)/.83
  • (NAV)/.63
  • (RAD)/.06
  • (SAFM)/1.34
  • (SCHL)/2.10
  • (WGO)/.37
  • (RHT)/.46
Economic Releases
8:30 am EST
  • The Current Account Deficit for 3Q is estimated at -118.6B versus -$109.7B in 2Q.
  • Philly Fed Business Outlook for December is estimated to fall to 1.0 versus 1.9 in November.  
  • Initial Jobless Claims for last week are estimated to fall to 275K versus 282K prior.
  • Continuing Claims are estimated to fall to 2200K versus 2243K prior.  
10:00 am EST
  • The Leading Index for November is estimated to rise +.1% versus a +.6% gain in October.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The BoJ rate decision, UK retail sales report, Bloomberg Economic Expectations Index for Dec., weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the (DAL) investor day could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted 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 day.

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