Sunday, July 31, 2016

Monday Watch

Today's Headlines
  • Global Earnings Tumble as Companies Dig Deeper for Cost Savings. Corporate earnings are heading for a fifth straight quarter of declines, dragged down mostly by energy companies’ struggles with low oil prices and a tepid global economy that threatens to throttle sales growth in many industries. U.S. companies as varied as hamburger chain McDonald’s Corp. and Honeywell International Inc., a maker of gas-processing equipment and cockpit controls, have slashed costs and bought back shares to help earnings. Amid a worldwide sales slog, European pay-TV operator Sky Plc and South Korea’s Hyundai Heavy Industries Co. are crimping expenses to boost profit. John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., calls it earnings engineering, and he’s seen it before. Companies have grappled with a lackluster economy for several years as the U.S. manufacturing recovery sputtered, the world economy slowed and oil prices fell to $50 a barrel from more than $100 in 2014. “There hasn’t been a lot of what you might call real, honest earnings growth through sales and business improvement and expansion of operations,” said Carey, whose firm oversees about $240 billion of equities and fixed income worldwide. “They just keep digging deeper into the hat and finding hidden rabbits and new ways to generate earnings.”
  • Europe in Crisis: The Elections to Watch for Political Risk. Voters across Europe will determine the destiny of a content in turmoil. Brexit. The largest influx of refugees since World War II. A spate of terrorist attacks. A populist insurgency. Another banking meltdown. The crises buffeting the European Union show no signs of letting up. The U.S., Europe’s strongest ally, is embroiled in the most tumultuous election in living memory, Turkey is in turmoil and Russian President Vladimir Putin is watching from the sidelines. Europe’s response to its multiple challenges will be shaped by a rash of elections over the coming year. Countries accounting for about 40 percent of the EU economy are going to the polls in 2017, when Chancellor Angela Merkel could be running for a fourth term in Germany. Here is a list of the votes that could have the most impact.
  • Abe’s Fiscal Plan Follows a Long Road of Packages That Failed. Prime Minister Shinzo Abe’s "bold" plan to revive the economy with a $273 billion package leaves him traveling down a well-trod path: it marks the 26th dose of fiscal stimulus since the country’s epic markets crash in 1990, in a warning for its effectiveness. The nation has had extra budgets every year since at least 1993, and even with that extra spending, it has still had six recessions, an entrenched period of deflation, soaring debt and a rapidly aging population that has left the world’s third-largest economy still struggling to get off the floor.
  • Kuroda Tweaks Leave Japan Markets Vulnerable Before Abe Stimulus. (video) Investors who had hoped for helicopters are getting Prime Minister Shinzo Abe instead. The Bank of Japan boosted its annual exchange-traded fund budget to 6 trillion yen ($58 billion) from 3.3 trillion yen while leaving the size of bond buying and the level of its negative deposit rate unchanged. Japanese government bonds suffered the biggest slump since 2013 and the yen rallied the most since the U.K. voted to leave the European Union. “The decision indicates that there are limited options left for the central bank,” said Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management in Tokyo. “The BOJ’s announcement was at the minimum end of what investors were expecting. Effectively, this is a sort of non-action action.”
  • Chinese Investors Balk at Company Bonds From Riskiest Province. Investors are balking at bonds sold by companies in China’s province most vulnerable to financial risks, amid concerns the government is cutting support for troubled firms. Right Way Real Estate Development Co., a developer based in the city of Dalian in the northeastern province of Liaoning, sold five-year AA rated notes at a yield of 7 percent on July 26. That was 289 basis points higher than the average on similar-maturity securities nationwide. Xinmin City Luxin Municipal Engineering Co., a local government financing vehicle also based in Liaoning, issued seven-year AA rated debentures at 6.41 percent in the same month, 206 basis points higher than the market yield. Premier Li Keqiang, who served as party secretary of Liaoning from 2004 to 2007, is seeking to weed out zombie state-owned firms as China’s economy grew at the slowest pace in a quarter century. Chinese investors, who had been used to government bailouts, have seen a total of 17 onshore bond defaults nationwide this year, compared with seven in 2015, as authorities allow market forces to play a bigger role.
  • After Two Bailouts, Monte Paschi Faces a Challenge Wooing Investors. Banca Monte dei Paschi di Siena SpA’s plan to turn to private investors to help bolster its balance sheet ended speculation that Italy would bail out the world’s oldest lender for a third time to help stave off another banking crisis. Success depends in part on winning backing for a new fund that will buy the bank’s bad loans at prices that, according to at least one analyst, are higher than buyers have been willing to pay. Then Monte Paschi needs to find investors willing to provide 5 billion euros ($5.6 billion) of new equity to a lender worth less than 1 billion euros.
  • Japan Shares Retreat Following Yen Surge as Crude Resumes Losses. Japan drove declines in Asian shares following Friday’s surge in the yen, while emerging-market currencies played catch-up as reduced bets on U.S. interest-rate increases weighed on the dollar. Oil swung to losses. Exporters led the Topix index down for for the second time in three days as the yen, while pulling back somewhat, remained beyond 103 per dollar following last session’s 3.1 percent surge. The MSCI Asia Pacific Index lost 0.2 percent by 9:47 a.m. Tokyo time, as roughly double the number of rising stocks fell.
  • Saudis Lower Oil Price to Asia Most in 10 Months in Sign of Glut. Saudi Aramco, the world’s largest oil exporter, lowered the pricing terms for Arab Light sold to Asia by the most in 10 months as refineries grapple with falling margins and oversupply. State-owned Saudi Arabian Oil Co. said Sunday it will sell cargoes of Arab Light in September at $1.10 a barrel below Asia’s regional benchmark. That is a pricing cut of $1.30 from August, the biggest drop since November, according to data compiled by Bloomberg. The company was expected to lower the pricing by $1 a barrel, according to the median estimate in a Bloomberg survey of eight refiners and traders.
  • Oil Falls After U.S. Drillers Bring Back Rigs for a Fifth Week. Oil fell in New York after U.S. producers increased the number of rigs drilling for crude for a fifth consecutive week, adding to concern a global glut will persist. Futures dropped as much as 0.9 percent, adding to a 14 percent drop in July. Rigs targeting crude in the U.S. rose by 3 to 374, Baker Hughes Inc. said on its website Friday. Libya has reopened the ports of Ras Lanuf, Zuwetina, Es Sidra, Brega, for crude exports, according to statement from the Petroleum Facilities Guard. Oil has slipped 19 percent from an early June high, ending a recovery that saw prices almost double from a 12-year low in February.
Wall Street Journal:
  • Tensions Rise in Germany Over Immigration in Wake of Attacks. German leaders pay respects at memorial for victims of July 22 mass shooting.
  • India’s Go-Slow Reform Efforts Hamstring Economic Transformation. Cautious liberalization that began in 1991 encumbers modern changes.
  • The Clinton Foundation, State and Kremlin Connections. Why did Hillary’s State Department urge U.S. investors to fund Russian research for military uses? Hillary Clinton touts her tenure as secretary of state as a time of hardheaded realism and “commercial diplomacy” that advanced American national and commercial interests. But her handling of a major technology transfer initiative at the heart of Washington’s effort to “reset” relations with Russia raises serious questions about her record. Far from enhancing American national interests, Mrs. Clinton’s efforts in this area may have substantially undermined U.S. national security.
  • Top-end real estate is at a tipping point from seller’s market to buyer’s market.
  • South Korea's exports worse than forecast in July. South Korea's exports shrank for a 19th straight month in July, with the pace of decline picking up again after moderating for two months, according to the Ministry of Trade, Industries and Energy. The worse-than-expected July data damped market hopes that the export-led economy may be on track for recovery, reaffirming it still faces strong headwinds amid sluggish global trade. Exports contracted 10.2% from a year earlier to $41.05 billion in July, following the previous month's 2.7% drop, preliminary data released Monday by the ministry showed. The pace of decline had slowed in May and June. The July reading missed the median market forecast for a 7% contraction. Imports dropped 14.0% from a year earlier to $33.25 billion in July, following a revised 7.7% decline in the prior month. The market had forecast a 9.5% fall for July.
Zero Hedge: 
Business Insider:
Financial Times:
  • US $18bn credit card debt spree sparks fears. US banks have ramped up lending to consumers through credit cards and overdrafts at the fastest pace since 2007, triggering concerns that they are taking on too much risk in a slowing economy. The industry has piled on about $18bn of card loans and other types of revolving credit within just three months, as consumers borrow more and banks battle for customers with air miles, cashback deals and other offers.
Financial News:
  • China Faces Tougher Task in Preventing Financial Risk. China faces a tougher task in preventing financial risks as uncertainties in global economy increase and domestic conflicts rise, according to a commentary by Zhao Yang.
Night Trading
  • Asian indices are . to +.% on average.
  • Asia Ex-Japan Investment Grade CDS Index 119.25 -.75 basis point.
  • Asia Pacific Sovereign CDS Index 47.25 -1.5 basis points.
  • Bloomberg Emerging Markets Currency Index 72.52 +.07%.
  • S&P 500 futures +.20%.
  • NASDAQ 100 futures +.13%.

Earnings of Note
  • (DO)/.02
  • (L)/.57
  • (SOHU)/-1.34
  • (VMC)/1.00
  • (RAIL)/.43
  • (IDTI)/.36
  • (OLN)/.11
  • (PPS)/.79
  • (THC)/.52
  • (TEX)/.54
  • (VNO)/1.27
  • (WMB)/.20
Economic Releases
9:45 am EST
  •  Final Markit US Manufacturing PMI for July is estimated at 52.9 versus a prior estimate of 52.9.
10:00 am EST
  • Construction Spending MoM for June is estimated to rise +.5% versus a -.8% decline in May.
  • ISM Manufacturing for July is estimated to fall to 53.0 versus 53.2 in June.
  • ISM Prices Paid for July is estimated to rise to 61.0 versus 60.5 in June.  
Upcoming Splits
  • (GENC) 3-for-2
  • (VSEC) 2-for-1
Other Potential Market Movers
  • The Fed's Dudley speaking, Fed's Kaplan speaking and Australia Trade Balance report 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 modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

Weekly Outlook

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising European/Emerging Markets/US High-Yield debt angst, commodity weakness, diminishing central bank hopes, technical selling, terrorism fears, earnings outlook concerns and profit-taking. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.

Saturday, July 30, 2016

Today's Headlines

  • S&P 500 Caps Fifth Monthly Gain as Rally Shows Signs of Fatigue. Bulls keep squeezing gains out of the U.S. equity market, sending the S&P 500 Index to its longest streak of monthly gains since 2014 just two weeks after reaching a record. How much more juice is left in a rally that showed signs of lethargy as the month wore on is another question. Powered by better-than-forecast earnings and weakening odds of a Federal Reserve interest rate increase, the S&P 500 jumped 3.6 percent in July, the biggest advance since March. Technology stocks led the way, climbing more than 7.8 percent thanks to strength in Alphabet Inc., EBay Inc. and Microsoft Corp.
  • Monte Paschi Capital Wiped Out in European Bank Stress Test. (video) Banca Monte dei Paschi di Siena SpA was the worst performer in European regulators’ stress tests, the only lender of 51 to have its capital wiped out in the exam, as the region struggles to contain an Italian banking crisis that the nation said won’t require state funds. Monte Paschi’s fully loaded common equity tier 1 capital ratio, a measure of its resilience, dropped to a negative 2.4 percent in the adverse economic scenario, according to the test results released Friday, which put lenders through a simulation of a severe recession over three years. UniCredit SpA’s ratio fell to 7.1 percent, as measured under fully-loaded capital rules, the second-worst result of the five Italian lenders being examined. 
  • Pro-Erdogan Rally in Germany Seen Drawing 30,000 Amid Tensions. As many as 30,000 people are expected to take to the streets in Cologne, Germany, on Sunday in support of Turkish President Recep Tayyip Erdogan, with local police concerned that a counter-demonstration may spark violence. “We assume the atmosphere will be emotionally charged,” police chief Juergen Mathies told Die Welt newspaper. “We are prepared for particular forms of violence.” About 2,300 policemen will be deployed at the rally, which is organized by the Union of European-Turkish Democrats. Erdogan’s government will be represented by Youth Minister Akif Cagatay Kilic, according to the Bild newspaper.
  • Wheat Slides to Decade Low as Global Glut Seen Getting Bigger. U.S. wheat prices dropped to the lowest in almost a decade as a global glut of the grain looks set to increase. Futures for September delivery in Chicago declined as much as 1.6 percent to the lowest since September 2006. The most-active contract slid 8.7 percent in July for the biggest monthly drop in a year. 
  • Oil Giants Find There’s Nowhere to Hide From Doomsday Market. Exxon Mobil Corp. and Royal Dutch Shell Plc this week reported their lowest quarterly profits since 1999 and 2005, respectively. Chevron Corp.’s third straight loss marked the longest slump in 27 years, and BP Plc lodged its lowest refining margins in six years. Welcome to year two of a supply overhang so persistent it’s upsetting industry expectations that the market would return to a state of balance between production and demand. It’s left analysts befuddled and investors running to the doorways as the crude market threatened to tip into yet another bear market, dashing hopes that a slump that began in mid 2014 would show signs of abating. Exxon missed analyst estimates by 23 cents a share and fell as much as 4.5 percent on Friday before recouping some of that decline. Chevron posted a surprise $1.47 billion loss after booking $2.8 billion in writedowns. The company’s per-share loss of 78 cents was in stark contrast to the 19- to 41-cent gains expected by analysts. BP and Shell registered similarly gloomy outcomes.
  • Bond World Sees ‘Live’ September for Fed, But It’s September ’17. Forget September, or even December. Bond traders are betting the Federal Reserve won’t be able to pull off another interest-rate increase until September next year. Earlier this week, the bond market was signaling an almost 50 percent chance that the Fed would raise rates by year-end. That optimism for the world’s biggest economy crumbled Friday, when the first reading of second-quarter economic growth showed a 1.2 percent annual pace of expansion, less than half the median forecast in a Bloomberg survey.
  • Two Fed Officials Say Weak GDP Doesn’t Rule Out 2016 Rate Move. (video) Federal Reserve Bank of San Francisco President John Williams played down a “low” reading on second-quarter U.S. growth and said the economy could still warrant as many as two interest-rate increases this year -- or none. “There’s definitely a data stream that could come through in the next couple of months that I think would be supportive of two rate increases,” Williams told reporters Friday after speaking in Cambridge, Massachusetts. “There’s data that we could get that wouldn’t be supportive of that -- it could be one, maybe, or none. Time will tell.” The U.S. Commerce Department reported earlier Friday that the economy expanded at a 1.2 percent annualized pace, less than half the advance projected by economists in a Bloomberg survey.
  • Apple’s(AAPL) Embrace by Bond Market Prompts Calls for Sanity Check. Debt investors’ irrepressible appetite for Apple Inc. turned the company into the biggest corporate-bond issuer in the world as it raised more than $80 billion in just four years. Now, some analysts are asking whether that’s too much, too fast.
Wall Street Journal:
  • Had bullish commentary on (AAPL), (GD), (HAR) and (YHOO).
  • Had bearish commentary on (WFC).
Fox News:
  • Trump criticized for comments on Muslim mother of fallen US soldier. (video) Donald Trump is taking issue with a speech at this week's Democratic National Convention by Muslim lawyer Khizr Khan, whose Army captain son was killed in action, and who said on stage that Trump has “sacrificed nothing and no one" for America. "I've made a lot of sacrifices,” Trump said in an interview with ABC's “This Week” to be aired Sunday. “I work very, very hard. I've created thousands and thousands of jobs, tens of thousands of jobs, built great structures." Khan made the comment during his tribute to his son, Humayun, who posthumously received a Bronze Star and a Purple Heart after being killed by a suicide bomber in Iraq in 2004.
  • 16 feared dead after hot air balloon crashes in Texas. (video) Sixteen people were feared dead Saturday after a hot air balloon caught on fire and crashed in Central Texas, officials said. Erik Grosof with the National Transportation Safety Board arrived at the scene and confirmed there were “a number of fatalities.” Caldwell County Sheriff Daniel Law said earlier that his office received a 911 call at 7:44 a.m. local time reporting a possible vehicle accident at a spot near Lockhart, Texas.
Zero Hedge:

Friday, July 29, 2016

Market Week in Review

  • S&P 500 2,173.42 -.12%*
 photo nyu_zpsjbauvj7g.png
The Weekly Wrap by

*5-Day Change

Weekly Scoreboard*

  • S&P 500 2,173.42 -.12%
  • DJIA 18,420.15 -.74%
  • NASDAQ 5,160.16 +1.23%
  • Russell 2000 1,219.65 +.55%
  • S&P 500 High Beta 31.10 +.19%
  • Goldman 50 Most Shorted 114.58 +3.60
  • Wilshire 5000 22,460.0 +.08%
  • Russell 1000 Growth 1,051.45 +.32%
  • Russell 1000 Value 1,038.74 -.40%
  • S&P 500 Consumer Staples 559.88 -1.48%
  • Solactive US Cyclical 140.50 +1.13%
  • Morgan Stanley Technology 1,143.32 +.93%
  • Transports 7,586.03 -1.34%
  • Utilities 711.77 -1.17%
  • Bloomberg European Bank/Financial Services 71.75 -.2%
  • MSCI Emerging Markets 35.92 +.57%
  • HFRX Equity Hedge 1,129.83 +.12%
  • HFRX Equity Market Neutral 997.85 +.45%
  • NYSE Cumulative A/D Line 266,062 +.28%
  • Bloomberg New Highs-Lows Index 274 +117
  • Bloomberg Crude Oil % Bulls 20.0 -22.51%
  • CFTC Oil Net Speculative Position 289,581 -1.77%
  • CFTC Oil Total Open Interest 1,685,116 -2.52%
  • Total Put/Call 1.31 +50.62%
  • OEX Put/Call 4.38 +87.35%
  • ISE Sentiment 58.0 -3.09%
  • NYSE Arms 1.03 +18.08%
  • Volatility(VIX) 12.16 +2.66%
  • S&P 500 Implied Correlation 47.88 -2.73%
  • G7 Currency Volatility (VXY) 9.53 -10.9%
  • Emerging Markets Currency Volatility (EM-VXY) 9.43 -5.03%
  • Smart Money Flow Index 19,568.12 -.12%
  • ICI Money Mkt Mutual Fund Assets $2.715 Trillion unch.
  • ICI US Equity Weekly Net New Cash Flow -$10.349 Billion
  • AAII % Bulls 31.3 -11.8%
  • AAII % Bears 28.4 +6.3%
Futures Spot Prices
  • CRB Index 180.69 -1.28%
  • Crude Oil 41.49 -6.48%
  • Reformulated Gasoline 131.52 -3.84%
  • Natural Gas 2.88 +4.03%
  • Heating Oil 128.05 -6.11%
  • Gold 1,349.0 +1.77%
  • Bloomberg Base Metals Index 151.1 -.98%
  • Copper 222.40 -.60%
  • US No. 1 Heavy Melt Scrap Steel 206.0 USD/Ton unch.
  • China Iron Ore Spot 59.37 USD/Ton +6.26%
  • Lumber 319.70 -3.0%
  • UBS-Bloomberg Agriculture 1,142.81 -.41%
  • Atlanta Fed GDPNow Forecast +1.8% -60.0 basis points
  • ECRI Weekly Leading Economic Index Growth Rate +8.0% +50.0 basis points
  • Philly Fed ADS Real-Time Business Conditions Index .1542 -9.4%
  • S&P 500 Blended Forward 12 Months Mean EPS Estimate 126.54 +.53%
  • Citi US Economic Surprise Index 16.30 -20.4 points
  • Citi Eurozone Economic Surprise Index 28.3 +20.3 points
  • Citi Emerging Markets Economic Surprise Index -6.40 +4.6 points
  • Fed Fund Futures imply 80.0% chance of no change, 20.0% chance of 25 basis point hike on 9/21
  • US Dollar Index 95.69 -1.72%
  • MSCI Emerging Markets Currency Index 1,525.54 +.16%
  • Euro/Yen Carry Return Index 119.08 -1.92%
  • Yield Curve 80.0 -6.0 basis points
  • 10-Year US Treasury Yield 1.47% -9.0 basis points
  • Federal Reserve's Balance Sheet $4.425 Trillion -.38%
  • U.S. Sovereign Debt Credit Default Swap 18.44 +1.18%
  • Illinois Municipal Debt Credit Default Swap 356.0 +.04%
  • Western Europe Sovereign Debt Credit Default Swap Index 25.30 -2.5%
  • Asia Pacific Sovereign Debt Credit Default Swap Index 47.30 -.39%
  • Emerging Markets Sovereign Debt CDS Index 123.40 -4.46%
  • Israel Sovereign Debt Credit Default Swap 75.50 +.74%
  • Iraq Sovereign Debt Credit Default Swap 882.83 +6.22%
  • Russia Sovereign Debt Credit Default Swap 238.99 +4.5%
  • iBoxx Offshore RMB China Corporate High Yield Index 131.33 +.23%
  • 10-Year TIPS Spread 1.52% +1.0 basis point
  • TED Spread 52.0 +11.5 basis points
  • 2-Year Swap Spread 21.75 -4.0 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -46.75 +3.0 basis points
  • N. America Investment Grade Credit Default Swap Index 74.08 +3.63%
  • America Energy Sector High-Yield Credit Default Swap Index 795.0 +9.0%
  • European Financial Sector Credit Default Swap Index 92.29 +1.25%
  • Emerging Markets Credit Default Swap Index 261.99 +4.03%
  • CMBS AAA Super Senior 10-Year Treasury Spread to Swaps 147.50 unch.
  • M1 Money Supply $3.238 Trillion -1.02%
  • Commercial Paper Outstanding 1,026.30 +.1%
  • 4-Week Moving Average of Jobless Claims 256,500 -1,250
  • Continuing Claims Unemployment Rate 1.6% +10.0 basis points
  • Average 30-Year Mortgage Rate 3.48% +3.0 basis points
  • Weekly Mortgage Applications 545.80 -11.15%
  • Bloomberg Consumer Comfort 42.9 unch.
  • Weekly Retail Sales +.6% unch.
  • Nationwide Gas $2.14/gallon -.04/gallon
  • Baltic Dry Index 665.0 -7.38%
  • China (Export) Containerized Freight Index 704.65 +1.06%
  • Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 25.0 unch.
  • Rail Freight Carloads 266,322 +3.22%
Best Performing Style
  • Small-Cap Growth +.7%
Worst Performing Style
  • Large-Cap Value -.5%
Leading Sectors
  • Gold & Silver +6.2%
  • Gaming +5.2%
  • Steel +4.7%
  • Hospitals +3.7%
  • Semis +3.1%
Lagging Sectors
  • Oil Service -2.4% 
  • Homebuilders -2.7%
  • Restaurants -3.4%
  • HMOs -5.7%
  • Oil Tankers -8.8%
Weekly High-Volume Stock Gainers (26)
Weekly High-Volume Stock Losers (28)
Weekly Charts
*5-Day Change