Monday, December 07, 2015

Tuesday Watch

Evening Headlines
  • China Exports Fall for Fifth Month, Import Slump Continues. China’s exports fell for a fifth month and a slump in imports extended to a record 13 months as trade slows along with the world’s second-largest economy. Overseas shipments dropped 3.7 percent in November in yuan terms from a year earlier, the customs administration said Tuesday. That compared to the 3.6 percent fall in October. Imports declined 5.6 percent in yuan terms, leaving a trade surplus of 343.1 billion yuan ($53.5 billion). The import slowdown is also a drag on other nations as China’s flagging industrial plants need less raw materials while robust consumer demand hasn’t picked up fast enough to offset those declines. "Global demand is staying around the bottom, just like China’s domestic economy," said Hu Yuexiao, an economist at Shanghai Securities Co. "We will still see tepid trade next year with a big trade surplus."   
  • Singapore Builders Overleveraged, Underachieving as Debt Matures. Singapore’s builders are entering 2016 with another wall of debt coming due, falling confidence and declining earnings. After a record S$9.6 billion ($6.8 billion) of bonds were repaid this year, the industry faces S$6.4 billion of maturities next year, S$2.3 billion in 2017 and S$7.4 billion in 2018, according to Bloomberg-compiled data. Contractors Ley Choon Group Holdings Ltd. and Swee Hong Ltd. are restructuring their debt with lenders, while Tat Hong Holdings Ltd. is asking bondholders to ease financial covenants in its July 2018 notes, according to stock exchange filings. Five Singapore home builders classified by Bloomberg have an average debt-to-equity ratio of 48 times.
  • Won Weakens to Two-Month Low as Plunge in Oil Deters Risk-Taking. The won fell to a two-month low as an overnight plunge in oil prices deterred risk-taking and raised the prospect of more outflows from South Korean shares. Saudi Arabia, the world’s top producer of the commodity, was the biggest seller of South Korean stocks in September and October, according to Financial Supervisory Service data. Foreign funds net sold the equities on Tuesday and have pulled $2.3 billion from them this quarter.
  • Ringgit Slides With Oil as Najib Flags $7 Billion Shortfall. Malaysia’s ringgit halted a three-day gain as Brent crude fell to a six-year low, damping the outlook for the nation’s finances just as Prime Minister Najib Razak flagged a 30 billion ringgit ($7 billion) revenue shortfall in 2016 due to oil. The currency dropped 0.9 percent to 4.2517 a dollar as of 10:04 a.m. in Kuala Lumpur, after climbing 0.4 percent in the previous three days, according to data from local banks compiled by Bloomberg.
  • China Stocks Extend Losses After Trade Data as Oil Shares Slide. Chinese stocks dropped after trade data signaled a deepening slowdown in the nation’s economy and sinking oil prices dragged on energy producers. The Shanghai Composite Index dropped 1.5 percent to 3,483.16 at 10:07 a.m. local time, with eight stocks falling for every one gaining.
  • Asian Stocks Fall Before China Trade Data as Energy Shares Drop. Asian stocks fell ahead of China trade data after oil tumbled to a six-year low, weighing on energy producers and sending BHP Billiton Ltd. to its lowest in 10 years. The MSCI Asia Pacific Index lost 0.3 percent to 131.79 as of 9:01 a.m. in Tokyo, with energy and material companies leading declines among the measure’s 10 industry groups. The gauge is on course to drop 4.4 percent this year, its first back-to-back annual losses since 2002, as a 24 percent collapse in the Bloomberg Commodity Index in 2015 weighs on resource producers and Chinese economic growth decelerates. American crude sank past $38 a barrel to its lowest level since 2009 after OPEC abandoned its strategy of limiting production.
  • Iron Ore in the $30s Seen Near Tipping Point for Largest Miners. Iron ore’s tumble into the $30s threatens the world’s biggest miners as prices approach break-even costs, according to Capital Economics Ltd. Shares of BHP Billiton Ltd. fell to the lowest in 10 years. The most expensive operations at the four largest suppliers are on the verge of making losses at rates below $40 a metric ton, said John Kovacs, senior commodities economist at Capital Economics in London, who estimates their break-even levels at $28 to $39, taking into account freight and other costs. While these producers will keep output strong, they’ll be constrained by low prices, he said by e-mail on Monday.
Wall Street Journal:
  • Both San Bernardino Shooters Were ‘Radicalized,’ FBI Says. Officials also pointed to evidence of planning in the attack. The shooters in last week’s massacre here had been radicalized for “some time” and methodically prepared for the attack, the Federal Bureau of Investigation said Monday, adding that it is still sifting clues to determine whether the couple received assistance from Islamist extremist groups or acted alone.
  • Tashfeen Malik Attended Strict Religious School in Pakistan. (video) Tashfeen Malik​​​, one of two suspected shooters in last week's San Bernardino killings, was educated in a women-only madrassa in Pakistan, as well as a Pakistani university.
  • Despite Clampdown on Foreign Fighters, Extremists Ranks Swelling, Study Finds. Number of fighters from North America steady but number from Western Europe more than doubled since 2014, report says
  • Donald Trump Calls for Ban on Muslim Entry Into U.S. Announcement comes hours after poll of Iowa Republicans shows Trump trailing Sen. Ted Cruz. Donald Trump evoked outrage from across the political spectrum Monday by calling for a “total and complete shutdown” of Muslims entering the U.S., a proposal that taps into voter anxiety about the recent spate of terrorist attacks yet likely runs afoul of religious freedoms enshrined in the Constitution.
  • Chinese Companies Are Trapped in IPO Logjam. Government’s tight grip and stock-market crash leave about 675 companies waiting to sell $63 billion in stock; suitcases stuffed with documents.
  • Energy Sector Rout Intensifies on Mild Weather, OPEC. Some of the heaviest declines are in shares of companies with heavy debt loads. Oil prices fell to their lowest point in seven years Monday, hammering energy industry stocks as many investors bet that heavily indebted producers, having weathered months of low commodity prices, are now at greater risk of going out of business.
  • The Liberal Theology of Gun Control. Guns are what you talk about to avoid having to talk about Islamist terrorism. How does a man who entered the White House vowing to restore science to its proper place tell us that gun control is the answer to terrorism? After all, California already has strict gun control, as does France, which just had its second terrorist massacre this year. Not to mention that the one time when terrorists with assault rifles and body armor were foiled, it was because an off-duty traffic cop in Garland, Texas, was carrying...
  • Fighting Terror by Self-Reproach. How did we become a country more afraid of causing offense than playing defense? Nobody who watched Barack Obama’s speech Sunday night outlining his strategy to defeat Islamic State could have come away disappointed by the performance. Disappointment presupposes hope for something better. That ship sailed, and sank, a long time ago.
Fox News:
  • Terror couple's bombs were set to kill first responders. (video) Bombs left at a Southern California social services facility by the gun-wielding radical Muslim couple who killed 14 and wounded 21 were set to go off when first responders arrived, Fox News learned on Monday, in a vicious strategy often seen in the Middle East. None of the pipe bombs left at the Inland Regional Center in San Bernardino by Syed Farook and Tashfeen Malik in Wednesday's attack detonated, but the technique has investigators very concerned, sources told Fox News.
  • Iran tests another mid-range ballistic missile in breach of UN resolutions. (video) Iran has carried out a new medium range ballistic missile test in breach of two United Nations Security Council resolutions, a senior U.S. official told Fox News on Monday. Western intelligence says the test was held Nov. 21 near Chabahar, a port city in southeast Iran’s Sistan and Baluchestan Province near the border with Pakistan.  The launch took place from a known missile test site along the Gulf of Oman.
  • Deteriorating junk bonds flash warning signs for stocks. Credit spreads widen, defaults in 2015 rise twofold from 2014. As the number of defaults and downgrades rise to levels last seen in 2009, a deteriorating credit market will pose a threat to U.S. stocks, according to equity-strategy analysts at J.P. Morgan.
Zero Hedge: 
Evening Recommendations 
  • None of note
Night Trading 
  • Asian equity indices are -1.50% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 132.5 +1.75 basis points.
  • Asia Pacific Sovereign CDS Index 70.0 +1.5 basis points.
  • Bloomberg Emerging Markets Currency Index 70.71 -.04%.
  • S&P 500 futures -.50%.
  • NASDAQ 100 futures -.53%.
Morning Preview Links 

Earnings of Note 
  • (AZO)/8.24
  • (CBK)/-.01
  • (HDS)/.65
  • (JW/A)/.81
  • (PLCE)/1.92
  • (TOL)/.84
  • (AVAV)/-.10
  • (ALOG)/.55
  • (COST)/1.17
  • (PLAY)/.03
  • (KKD)/.20
  • (OXM)/-.09
  • (SWHC)/.20  
Economic Releases
6:00 am EST
  • The NFIB Small Business Optimism Index for November is estimated to rise to 96.4 versus 96.1 in October. 
10:00 am EST
  • JOLTS Job Openings for October are estimated to fall to 5500 versus 5526 in September.
  • The IBD/TIPP Economic Optimism Index for December is estimated to fall to 45.1 versus 45.5 in November.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China inflation data, UK industrial production report, $24B 3Y T-Note auction, US weekly retail sales reports, Goldman Sachs Financial Services conference, Oppenheimer Healthcare conference, Wells Fargo Energy Symposium, Barclays Tech/Media/Telecom conference, (EW) investor conference, (LLL) investor conference and the (HD) analyst conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.

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