Thursday, June 30, 2016

Friday Watch

Evening Headlines

  • What Europe Wants Out of the Brexit Talks. (video)
  • Japan’s Prices Keep Falling in Challenge to Abe, Kuroda. With a little more than a week until Japan goes to the polls for an upper-house election, a batch of economic data released Friday underscores the challenge Prime Minister Shinzo Abe faces in convincing voters that his policies are working. Consumer prices excluding fresh food fell for a third straight month and household spending declined, undermining efforts to revitalize the world’s third-largest economy. While corporate confidence and unemployment were unchanged, there is still little pressure for higher wages.
  • China's Yuan Heads for Worst Quarter on Record. (video)
  • Asian Stocks Head for Best Week Since April on Stimulus Optimism. Asian stocks climbed, with the regional benchmark index heading for its biggest weekly advance since April, as policy makers signaled looser monetary policies to buffer the impact of Britain’s decision to leave the European Union. The MSCI Asia Pacific Index rose 0.3 percent to 129.23 as of 9:07 a.m. in Tokyo, heading for a 3.2 percent gain over the past five days as the region’s equities rebounded from losses caused by the U.K.’s shock decision on Europe.
  • Gold Gains for Fifth Week as Central Banks Poised for Easing. Gold headed for a fifth weekly gain as investors speculate central banks will have to continue supporting the global economy in the wake of Britain’s vote to quit the European Union. Bullion for immediate delivery was flat at $1,322.07 an ounce at 8.11 a.m. in Singapore, according to Bloomberg generic pricing. The metal is on course to end the week 0.5 percent higher and is on its longest weekly winning streak in two years.
Wall Street Journal:
Fox News:
  • Trump trouble in the burbs? (video) America’s suburbs: They’re sprawling, replete with shopping centers and bike paths – and they’re often where presidential elections are won or lost. But in a potential problem for the presumptive Republican nominee, Donald Trump has not fared so well in the ‘burbs so far this cycle.
Zero Hedge:
Business Insider:
Night Trading 
  • Asian equity indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 139.5 -1.75 basis points.
  • Asia Pacific Sovereign CDS Index 53.25 +2.5 basis points.
  • Bloomberg Emerging Markets Currency Index 72.60 +.07%
  • S&P 500 futures -.12%. 
  • NASDAQ 100 futures -.15%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases  
10:00 am EST
  • The ISM Manufacturing for June is estimated at 51.3 versus 51.3 in May.   
  • The ISM Prices Paid for June is estimated at 63.5 versus 63.5 in May.
  • Construction Spending MoM for May is estimated to rise +.6% versus a -1.8% decline in April.
  • Total Vehicle Sales for June are estimated to fall to 17.29M versus 17.37M in May.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Fed's Mester speaking, Eurozone Manufacturing PMI, UK Manufacturing PMI and the (F) sales conference call could also impact trading today.
BOTTOM LINE:  Asian indices are mostly higher, boosted by commodity 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 50% net long heading into the day.

Stocks Surging into Afternoon on Central Bank Hopes, Less European/Emerging Markets/US High-Yield Debt Angst, Yen Weakness, Food/Metal & Mining Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 16.12 -3.13%
  • Euro/Yen Carry Return Index 119.04 +.36%
  • Emerging Markets Currency Volatility(VXY) 10.40 +1.07%
  • S&P 500 Implied Correlation 56.79 +2.52%
  • ISE Sentiment Index 62.0 unch.
  • Total Put/Call 1.21 +5.14%
  • NYSE Arms 1.12 +87.82
Credit Investor Angst:
  • North American Investment Grade CDS Index 78.66 -2.99%
  • America Energy Sector High-Yield CDS Index 797.0 -1.25%
  • European Financial Sector CDS Index 112.65 -3.31%
  • Western Europe Sovereign Debt CDS Index 32.10 -.11%
  • Asia Pacific Sovereign Debt CDS Index 53.34 +4.94%
  • Emerging Market CDS Index 268.26 -1.29%
  • iBoxx Offshore RMB China Corporate High Yield Index 130.18 +.12%
  • 2-Year Swap Spread 15.0 -2.25 basis points
  • TED Spread 37.25 +.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -40.75 -.5 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 72.38 -.11%
  • 3-Month T-Bill Yield .26% +1.0 basis point
  • Yield Curve 90.0 +5.0 basis points
  • China Import Iron Ore Spot $55.66/Metric Tonne +3.28%
  • Citi US Economic Surprise Index -19.8 +.3 point
  • Citi Eurozone Economic Surprise Index 5.0 +4.5 points
  • Citi Emerging Markets Economic Surprise Index -7.20 +2.8 points
  • 10-Year TIPS Spread 1.44% +2.0 basis points
  • 0.0% chance of Fed rate hike at Sept. 21 meeting, 2.0% chance at Nov. 2 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +235 open in Japan 
  • China A50 Futures: Indicating -45 open in China
  • DAX Futures: Indicating +75 open in Germany
  • Higher: On gains in my retail/tech/medical sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 75% Net Long

Today's Headlines

  • Carney Says BOE Summer Action Likely as Brexit Infects U.K. (video) Mark Carney said the Bank of England will probably have to loosen policy within months to deal with the fallout of the Brexit vote as he warned that there’s only so much he can do to protect the economy. In his second televised address since the country voted to leave the European Union, the governor said the central bank won’t hesitate to act when it comes to safeguarding the economy or the resilience of the financial system. The BOE will also continue its liquidity auctions for banks on a weekly, rather than monthly, basis and consider a “host of other measures.” “It now seems plausible that uncertainty could remain elevated for some time,” Carney said. “The economic outlook has deteriorated and some monetary policy easing will likely be needed over the summer.” The pound dropped 1.2 percent as Carney spoke, weakening to $1.3262 at 4:38 p.m. London time. U.K. gilts advanced, with the 10-year yield touching a record-low 0.878 percent.
  • Principal Dials Back Risk as Brexit Seen as First Domino to FallPrincipal Financial Group Inc.’s asset manager is scaling back from risks in the bond market on the prospect that the U.K. vote to leave the European Union signals more turmoil ahead. “The Brexit vote is only the first domino to fall in a chain of events that could take days, weeks, months, and even years to unfold,” Byron Carson, portfolio manager at Principal Global Fixed Income, said in a blog post dated Wednesday.
  • Stanford's Admati: Italian Banking 'Incredibly Sick'. (video)
  • World’s Riskiest AAA Currency Exposed as Brexit Divides Markets. Norway. A currency that became a safe haven in 2012 is now being traded almost as an emerging market. That’s despite boasting three AAA ratings, the world’s biggest sovereign wealth fund and a sizable current account surplus. When the U.K. shocked the world by voting to exit the European Union, investors piled into markets they deemed safe, like the yen, the franc and Denmark’s krone, and promptly dumped assets they thought were risky, like the pound, the zloty and Norway’s krone.
  • Soros Says Brexit Has ‘Unleashed’ a Financial-Markets Crisis. (video) Britain’s decision to leave the European Union has “unleashed” a crisis in financial markets similar to the global financial crisis of 2007 and 2008, George Soros told the European Parliament in Brussels. “This has been unfolding in slow motion, but Brexit will accelerate it. It is likely to reinforce the deflationary trends that were already prevalent,” the billionaire investor said on Thursday. Continental Europe’s banking system hasn’t recovered from the financial crisis and will now be “severely tested,” Soros said. “We know what needs to be done. Unfortunately, political and ideological disagreements within the euro zone have stood in the way” of using the European Stability Mechanism as a backstop, he said.
  • Rents Are Falling for Luxury Homes in Financial Capitals: Chart. 
  • Europe Stocks Rise as Carney Flags Stimulus, Brexit Angst Eases. (video) European shares advanced for a third day as investor concerns over the long-term impact of Britain’s decision to leave the European Union faded, and Governor Mark Carney said the Bank of England could loosen policy within months. The Stoxx Europe 600 Index gained 1 percent to 329.88 at the close. The equity gauge fell as much as 0.9 percent in early trading, before recovering to spend most of the session little changed, and then strengthening as Carney spoke.
  • Oil Bulls Beware Because China’s Almost Done Amassing Crude. One of the pillars of oil’s recovery from the lowest price in 12 years may be on the verge of crumbling. China is likely close to filling its strategic petroleum reserves after doubling purchases for it this year as prices plunged, JPMorgan Chase & Co. analysts including Ying Wang wrote in a June 29 research note. Stopping shipments for the reserve would wipe out about 15 percent of the country’s imports, according to the bank. Chinese crude imports have risen 16 percent this year, and the country is rivaling the U.S. as the world’s biggest oil purchaser. That demand, along with supply disruptions from Canada to Nigeria, has helped boost oil prices about 80 percent since January. “China has taken the opportunity of lower oil prices since early-2015 to accelerate the strategic petroleum reserve builds,” Wang said in the report. “This volume might be close to the capacity limit, in our view, and together with potential teapot utilization pullback and slower-than-expected demand from China could increase near-term risks to global oil prices.”  
  • Fed’s Kaplan Sees Spillovers as Most Significant Brexit Fallout. Federal Reserve Bank of Dallas President Robert Kaplan said Britain’s vote to exit the European Union could slow growth and the most significant question raised by the decision lies in potential spillover effects as other countries ponder their own place in Europe. “Is there contagion? What does Ireland do? What does Scotland do? What do other EU countries do?” Kaplan told Bloomberg in an interview Thursday in Washington. “In this case, political and economic are intersecting. And it will take a significant amount of time to see how all that unfolds.”
Zero Hedge:

Bear Radar

Style Underperformer:
  • Small-Cap Value +.7%
Sector Underperformers:
  • 1) Oil Tankers -3.2% 2) Hospitals -1.0% 3) Gaming -.8%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) FLR 2) LVS 3) MA 4) XLI 5) XLP
Stocks With Most Negative News Mentions:
  • 1) CMRE 2) PIR 3) TSCO 4) MA 5) V

Bull Radar

Style Outperformer:
  • Mid-Cap Growth +.7%
Sector Outperformers:
  • 1) Foods +2.4% 2) Steel +2.1% 3) Tobacco +1.4%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) LGF 2) ZIOP 3) GIS 4) MDLZ 5) HSY
Stocks With Most Positive News Mentions:
  • 1) GIS 2) MKC 3) NOC 4) MU 5) PCLN