Thursday, March 31, 2016

Friday Watch

Evening Headlines

  • `Trade of a Decade'? It Doesn't Bode Well for Emerging Markets. Behind the best gains for emerging markets since 2009, there are some ominous signs that the rally is about to hit a wall. The 13 percent surge in stocks last month was accompanied by the lowest trading volume for five years in the markets with the biggest advances and the weakest company profits for six. In the foreign-exchange market, currencies are mirroring moves in oil prices by the most since 2012, suggesting vulnerability to any renewed weakness in commodities. It all underscores the fragility of a rebound driven by $37 billion of inflows from investors in March, more than in any month since June 2014. Bears including Barclays Plc. and UBS AG say it’s at odds with falling exports and contracting manufacturing in developing economies, while the forces behind the rally -- a dovish Federal Reserve, stability in China’s economy and rises in oil prices -- are unlikely to persist. “The macro picture for emerging markets hasn’t really changed much since January,” said Yerlan Syzdykov, a London-based emerging-market bond manager at Pioneer Investment Management Ltd., whose fund beat 98 percent of its peers over the past three years. “The economic slowdown in emerging markets will continue until 2018.”
  • Singapore Home Prices Have Longest Slide in Almost Two Decades. Singapore home prices dropped for a tenth quarter, posting the longest losing streak in almost two decades, as tighter mortgage curbs cooled demand in Asia’s second-most expensive housing market. An index tracking private residential prices fell 0.7 percent in the three months ended March 31 from the previous quarter, matching the longest losing run since 1998, according to preliminary data from the Urban Redevelopment Authority on Friday. The government has signaled it is reluctant to lift property cooling measures it began introducing in 2009, for fear it will lead to overheating in the market once again. The residential curbs have included a cap on debt repayment costs at 60 percent of a borrower’s monthly income and higher stamp duties on home purchases, after low interest rates and demand from foreign buyers raised concerns prices had risen too far too fast.
  • Corporate Sentiment in Japan Slumps to Near Three-Year Low. Sentiment among Japan’s large manufacturers deteriorated to the lowest level since mid-2013 as a stronger yen posed risks to company profits, undermining efforts to spur recovery in the world’s third-largest economy. The Tankan index of confidence among large manufacturers stood at 6 in March, the Bank of Japan said Friday, declining from 12 three months ago. A positive number means there are more optimists than pessimists among manufacturers. Economists had forecast 8 in a Bloomberg survey. The drop in sentiment from large employers suggests business investment and wage growth will remain tepid, underscoring the challenges faced by BOJ Governor Haruhiko Kuroda and Prime Minister Shinzo. Abe is front-loading budget spending while Kuroda has added a negative rate to his monetary policy arsenal
  • Asian Stocks Sink With Oil as Aussie, Copper Rally on China Data. Asian stocks slid as the fresh quarter got under way, with Japanese equities leading losses amid a slump in corporate sentiment. Commodity currencies and copper rose after a gauge of Chinese manufacturing expanded for the first time since July. After recording their best month since October, Asian shares retreated Friday amid losses of more than 1 percent for stock gauges in Japan and Australia. The yen resumed gains as the greenback extended declines after its worst monthly performance since 2010. The Australian and New Zealand currencies strengthened, while the Malaysian ringgit rose for a fifth day. Crude fell back toward $38 a barrel on glut concerns. The MSCI Asia Pacific Index lost 1.3 percent as of 10:35 a.m. Tokyo time, falling for the first time in three days. The gauge added 8.2 percent in March, paring back its quarterly loss to 2.3 percent.
Wall Street Journal:
  • U.S. Moves to Give Iran Limited Access to Dollars. Proposal on sanctions relief comes amid rising criticism from Tehran. The Obama administration is preparing to give Iran limited access to U.S. dollars as part of looser sanctions on Tehran, according to congressional staff members and a former American official briefed on the plans.
  • Trump’s Mess Has Become His Message. His supporters are getting embarrassed by his sheer dumb grossness.
Fox News:
  • Fox Business Network Poll: Cruz leads in Wisconsin. (video) Ted Cruz leads Donald Trump in the Republican nomination contest in Wisconsin, according to a Fox Business Network Poll released Thursday. Cruz garners 42 percent among Wisconsin likely GOP primary voters, while Trump receives 32 percent.  John Kasich comes in third with 19 percent. Among just those who say they will “definitely” vote, Cruz’s lead over Trump widens to 46-33 percent, and Kasich gets 16 percent. There is a big gender gap.  Women back Cruz over Trump by a 19-point margin (46-27 percent).  The two candidates are much closer among men:  Cruz gets 40 percent to Trump’s 35 percent. Cruz’s advantage over the real estate mogul also comes from self-described “very” conservative voters, who give him a 36-point lead (61 percent Cruz vs. 25 percent Trump)
  • 'One shot at the queen': FBI, AG intensify focus on Clinton email probe. (video) As the FBI enters the final phases of its investigation into Hillary Clinton’s use of an unauthorized email server for government business, Attorney General Loretta Lynch and FBI Director James Comey are meeting frequently to discuss the progress and handling of the highly sensitive case, a source told Fox News. Among the issues discussed in the meetings, which have been taking place several times per week, are who will be interviewed and in what order, according to an intelligence source close to the ongoing case. Emails released by the State Department have already shown Clinton and several key aides used the personal, unsecured network to send more than 1,000 messages which have been deemed classified. 
Zero Hedge:
Business Insider:
21st Century Business Herald:
  • Beijing Resumes Lands Sale Requirement to Curb Home Prices. Beijing imposed land sale requirements on a new sale of plots, citing bidding documnets posted on Beijing Municipal Bureau of Land and Resource's website.
Night Trading 
  • Asian equity indices are -1.75% to -.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 144.25 -2.75 basis points. 
  • Asia Pacific Sovereign CDS Index 58.5 +3.25 basis points
  • Bloomberg Emerging Markets Currency Index 72.62 -.06%. 
  • S&P 500 futures -.13%. 
  • NASDAQ 100 futures -.24%.
Morning Preview Links

Earnings of Note

  • (BBRY)/-.10
Economic Releases  
8:30 am EST
  • The Change in Non-Farm Payrolls for March is estimated to fall to 205K versus 242K in February.
  • The Unemployment Rate for March is estimated at 4.9% versus 4.9% in February.
  • Average Hourly Earnings for March is estimated to rise by +.2% versus a -.1% decline in February.       
10:00 am EST
  • ISM Manufacturing for March is estimated to rise to 50.9 versus 49.5 in February.
  • ISM Prices Paid for March is estimated to rise to 44.0 versus 38.5 in February.
  • Construction Spending for February is estimated to rise +.1% versus a +1.5% gain in January.
  • Final Univ. of Mich. Consumer Confidence for March is estimated to rise to 90.5 versus 90.0 in February.    
  • Wards Total Vehicle Sales for March is estimated to rise to 17.5M versus 17.43M in February.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Fed's Mester speaking, UK Manufacturing PMI report and the (F) March sales conference call 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Reversing Lower into Afternoon on Emerging Markets Debt Angst, Earnings Outlook Worries, Technical Selling, Road & Rail/Agriculture Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Slightly Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.97 +3.02%
  • Euro/Yen Carry Return Index 133.87 +.49%
  • Emerging Markets Currency Volatility(VXY) 11.49 +.44%
  • S&P 500 Implied Correlation 54.93 +.68%
  • ISE Sentiment Index 88.0 -2.22%
  • Total Put/Call .88 -21.43%
  • NYSE Arms 1.26 +57.34% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 79.17 +1.15%
  • America Energy Sector High-Yield CDS Index 1,451.0 -1.67%
  • European Financial Sector CDS Index 89.41 -.67%
  • Western Europe Sovereign Debt CDS Index 25.72 +1.30%
  • Asia Pacific Sovereign Debt CDS Index 58.59 +6.19%
  • Emerging Market CDS Index 288.05 +1.62%
  • iBoxx Offshore RMB China Corporate High Yield Index 126.79 +.16%
  • 2-Year Swap Spread 12.0 +1.75 basis points
  • TED Spread 44.25 +3.75 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -25.0 -1.75 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 72.67 +.64%
  • 3-Month T-Bill Yield .20% +1.0 basis point
  • Yield Curve 107.0 unch.
  • China Import Iron Ore Spot $53.75/Metric Tonne -.79%
  • Citi US Economic Surprise Index -5.20 -1.8 points
  • Citi Eurozone Economic Surprise Index -22.30 +11.3 points
  • Citi Emerging Markets Economic Surprise Index -10.60 +1.8 points
  • 10-Year TIPS Spread 1.63% -2.0 basis points
  • 20.0% chance of Fed rate hike at June 15 meeting, 32.8% chance at July 27 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +56 open in Japan 
  • China A50 Futures: Indicating +21 open in China
  • DAX Futures: Indicating +18 open in Germany
  • Slightly Higher: On gains in my biotech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 25% Net Long

Today's Headlines

  • China Rating Outlook Cut to Negative From Stable by S&P. Standard & Poor’s has cut the outlook for China’s credit rating to negative from stable, saying the nation’s economic rebalancing is likely to proceed more slowly than the ratings firm had expected. The nation’s credit rating is AA- with a negative outlook, S&P said in a statement, which also affirmed the long-term and A-1+ short-term sovereign credit ratings. “We revised the outlook to reflect our expectation that the economic and financial risks to the Chinese government’s creditworthiness are gradually increasing,” S&P said in the statement. “This follows from our belief that, over the next five years, China will show modest progress in economic rebalancing and credit growth deceleration.” China’s economic expansion will remain at or above 6 percent a year in the next three years, S&P forecast. The investment rate may be “well above” what S&P says are sustainable levels of 30-35 percent of GDP. “In our opinion, these expected trends could weaken the Chinese economy’s resilience to shocks, limit the government’s policy options, and increase the likelihood of a sharper decline in trend growth rate,” it said. A downgrade could follow if S&P sees a higher likelihood that China seeks to stabilize growth at or above 6.5 percent by increasing credit at a “significantly faster rate” than nominal GDP growth. Ratings could stabilize if credit growth is moderated to levels in line with economic expansion, S&P said.
  • Hong Kong Retail Sales Plunge the Most in 17 Years. Hong Kong’s retail sales in February have plunged the most since 1999 as fewer Chinese tourists visited the city during the Lunar New Year holiday. Retail sales dropped 21 percent in February to HK$37 billion ($4.8 billion) year on year, according to a statement from Hong Kong’s statistics department. Combining January and February, sales fell 14 percent. The monthly decline is the worst since January 1999 when sales were also down 21 percent. “Apart from the severe drag from the protracted slowdown in inbound tourism, the asset market consolidation might also have weighed on local consumption sentiment,” a government said in a statement on Thursday. “The near-term outlook for retail sales will still be constrained by the weak inbound tourism performance and uncertain economic prospects.” The government will monitor closely its repercussions on the wider economy and job market, it said.
  • Singapore Banks' Outlook Lowered by Moody's as Pressures Mount. DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. had their credit rating outlooks lowered to negative by Moody’s Investors Service, which said it expected a further weakening of conditions for the three largest Singaporean lenders as economic growth slows. “A more challenging operating environment for banks in Singapore in 2016, and possibly beyond, will pressure the banks’ asset quality and profitability,” Moody’s said in a statement, citing a slowdown in economic and trade growth both domestically and in the wider region. Singapore’s economy, among the most vulnerable in Asia to swings in global demand, is facing pressure amid a slowdown in China and a weaker environment for energy and commodities.
  • Europe Stocks Lose Lead Over U.S. in Worst Quarter Since '03. The tables have turned on Europe’s stocks. After beating U.S. equities last year by the most in a decade, now they’re trailing by the most since 2003. While the Standard & Poor’s 500 Index has managed to erase its annual drop in a little more than a month, the rebound in the Stoxx Europe 600 Index has done far less. The gauge, down on Thursday, is on track for a quarterly loss of 7.5 percent, with all but one of its industry groups in the red. The European rebound has hit a wall in the past two weeks after the Stoxx 600 recouped about half its 2016 losses. Despite increased European Central Bank stimulus, confidence in the region’s economy is at a 13-month low, and analysts, who projected corporate profit growth at the start of the year, are now calling for declines. “I frankly didn’t understand the preference for Europe,” said Kully Samra, a London-based client manager at Charles Schwab Corp., which has $2.4 trillion in client assets. “The rally was being driven by central-bank action, but you’re not getting fundamental growth. This quarter clearly showed that you can’t just rely on monetary policy. I would expect Europe’s underperformance to continue. 
  • Dollar Falls to Nine-Month Low on Fed's Global Headwinds Concern. A gauge of the dollar fell to a nine-month low after comments from Federal Reserve Chair Janet Yellen reflected concern that global headwinds may restrain the U.S. economy, dimming the prospects for higher interest rates. The U.S. currency was poised for its biggest monthly loss since September 2010 after the Fed chief said Tuesday that the central bank should “proceed cautiously” in raising rates, damping the allure of dollar-denominated assets. The greenback extended losses after a report showed an increase in weekly jobless claims before the government issues its March employment report Friday. 
  • Chinese Stock-Index Futures Drop After S&P Cuts Rating Outlook. (video) Chinese stock-index futures fell after Standard & Poor’s cut the outlook for the nation’s credit rating to negative. The FTSE China A50 April futures dropped 0.7 percent at 5:22 p.m. in Singapore, compared with a gain of 0.2 percent before the S&P move. Hang Seng Index futures slipped 0.1 percent. China’s money and equity markets were shut before the announcement, which follows a similar move by Moody’s Investors Service earlier this month.
  • Banks Lead Europe Stocks Lower in Worst Start to Year Since 2009. (video) European stocks extended their third quarterly drop in four to wrap up what has been the worst start to a year since the financial crisis. Lenders helped drag the Stoxx Europe 600 Index down 1.1 percent at the close of trading, trimming its monthly gain to 1.1 percent. After rebounding 14 percent in five weeks through March 14, the gauge’s advance has stalled, putting its quarterly drop at 7.7 percent. That’s the worst first-quarter performance since 2009, with all but one of 19 industry groups falling.
  • Copper Heads for Worst Run Since January After China Rating Cut. Copper dropped for a fifth day, the longest slump since January, as a cut to the outlook for China’s credit rating added to concerns on global demand. Standard & Poor’s said increasing economic and financial risks prompted it to reduce the outlook for China’s credit rating to negative from stable. Earlier in March, Moody’s Investors Service made a similar revision. In the U.S., the largest user of the metal after China, consumer comfort declined to a three-month low, as Americans’ attitudes about the economy and their financial prospects deteriorated. “Some of the figures that we’re seeing today were not as bullish as expected,” George Gero, a managing director at RBC Wealth Management in New York, said in a telephone interview. “Disappointment leads to some profit-taking.”
  • Even Biggest Mine in Cheapest Region Is Victim of Coal Collapse. It’s the country’s biggest coal mine, producing one of every eight tons in the U.S. last year. The coal is dug from seams as high as six-story buildings, buried beneath the rolling Wyoming plains of yellow grass and sagebrush. Now, Peabody Energy Corp. is cutting 235 jobs, or 15 percent of its staff, at its North Antelope Rochelle Mine -- evidence that coal’s collapse has spread beyond Appalachia’s hills to the biggest open pit in America’s cheapest coal-producing region, the Powder River Basin.
  • Trump and Clinton See Signs of Trouble in Wisconsin. (video) The respective front-runners both trail in a new poll of Badger State voters. Trump was trailing in the poll, taken March 24-28, to Senator Ted Cruz of Texas, 40 percent to 30 percent. Ohio Governor John Kasich was third, with 21 percent. On the Democratic side, Clinton fell behind Senator Bernie Sanders of Vermont, 49 percent to 45 percent.
  • Poll: GOP voters skeptical Trump can unify party. Less than four-in-10 registered Republican voters say Donald Trump will be able to solidly unify their party in the general election, according to the results of a Pew Research Center study released Thursday that also largely showed a country divided over prevailing issues and values. Just 38 percent of Republicans said Trump would be able to get the party to "unite solidly" behind him if he becomes the GOP nominee. At the same point in the 2012 cycle, 65 percent said Mitt Romney would be able to bring together a coalition, while 64 percent said the same for John McCain in 2008. Both men, of course, lost to Barack Obama in the general election in November. Supporters of both Ted Cruz and John Kasich have a decidedly grim view of Trump's aptitude. Fifty percent of Cruz backers saying the Manhattan real-estate mogul would be a poor or terrible president and 28 percent saying he would be terrible, while 55 percent of those preferring Kasich said Trump would be poor or terrible and 36 percent calling him terrible. On the other hand, 64 percent of Democratic voters said they believed their party would unify behind Hillary Clinton if she is the nominee, comparable to the 66 percent who in March 2008 said the same about Obama. Only a little more than one-in-four Sanders supporters (28 percent) said they believed Clinton would make a terrible or poor commander in chief.
  • Atlanta Fed's Lockhart Sees Scope for 3 Rate Rises This Year. Report quotes Atlanta Fed's Dennis Lockhart as saying there is scope for 3 rises this year.

Bear Radar

Style Underperformer:
  • Large-Cap Value unch.
Sector Underperformers:
  • 1) Road & Rail -1.4% 2) Agriculture -1.3% 3) Steel -1.3%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) BHI 2) HP 3) DE 4) TGT 5) MU
Stocks With Most Negative News Mentions:
  • 1) TGT 2) ENDP 3) MU 4) BA 5) VRX

Bull Radar

Style Outperformer: 
  • Small-Cap Growth +.4%
Sector Outperformers:
  • 1) Biotech +2.5% 2) Computer Services +1.7% 3) Hospitals +.7% 
Stocks Rising on Unusual Volume: 
Stocks With Unusual Call Option Activity: 
  • 1) CCL 2) XRX 3) RAD 4) MDVN 5) CAG
Stocks With Most Positive News Mentions: 
  • 1) FIT 2) MCD 3) PAYX 4) GM 5) PH