Monday, October 31, 2016

Tuesday Watch

Evening Headlines
  • China Shows a Cheap Currency Doesn’t Pack the Same Punch Anymore. Chalk up China as another example where a cheapening exchange rate is failing to lift exports. As already seen in Japan in recent years, what textbooks say should happen when a country’s currency falls -- its exports gain -- isn’t. Bathroom accessories maker Dongguan City XinChen Gift Co., in the southern Chinese province of Guangdong, is among those seeing one step forward, two steps back when it comes to the exchange rate. "The support from a weaker yuan is negligible compared to the pressure we face from rising labor and materials costs," said owner Sandy Chang. "Foreign demand is already down. When growth is slow in our major markets, people just don’t buy."
  • Subsidy Crunch Cuts Funding for Clean Energy in Biggest Markets. The green-energy industry is starting to feel the impact of an efficiency drive sweeping Asia, where governments from China to Japan are scaling back subsidies to constrain a boom in installations. Investment in clean-power technologies in Asia slumped 41 percent to $70.1 billion in the first nine months of the year, according to Bloomberg New Energy Finance, which hosts a conference on the issue in Shanghai starting Tuesday. It’s the first decline in the modern history of an industry that’s barely a decade old. The ability of those plants to produce electricity is on track to surge 13 percent, the research group said.
  • Panasonic Falls After Cutting Profit Target on Yen, Solar Panels. Panasonic Corp. fell in Tokyo trading after reducing its full-year operating profit forecast by 21 percent as profitability in its solar panel and electronic components businesses declined and a stronger yen reduced income earned abroad. The shares declined as much as 7.9 percent as of 9:06 a.m. on Tuesday, the biggest intraday slump in three months.
  • Asian Stocks Fall After Plunge in Oil; Yen Steady Ahead of BOJ. Asian stocks fell following a plunge in oil prices ahead of manufacturing data for the region’s biggest economies and central bank policy reviews in Australia and Japan. Energy shares led declines on the MSCI Asia Pacific Index for a second day after crude prices dropped on Monday by the most in a month amid disappointment that OPEC-led talks among major oil producers failed to yield details on a planned deal to cut output. The MSCI Asia Pacific Index lost 0.2 percent as of 9:24 a.m. Tokyo time, with a measure of energy stocks sinking as much as 0.5 percent.
  • Three of Fed’s Own Primary Dealers Warn Hikes on Hold Until 2017. Three of the Federal Reserve’s own primary dealers are warning bond traders that a growing consensus the central bank will raise interest rates by year-end is misguided. While none of the 23 banks that trade with the Fed expect a hike at the conclusion of Wednesday’s meeting, HSBC Holdings Plc, Royal Bank of Canada and Royal Bank of Scotland Group Plc remain steadfast that policy makers will choose to hold off on raising rates at the Fed’s Dec. 14 meeting as well.
Wall Street Journal:
Zero Hedge:
Business Insider:
Night Trading 
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 113.25 unch. 
  • Asia Pacific Sovereign CDS Index 35.5 +1.5 basis points.
  • Bloomberg Emerging Markets Currency Index 72.28 +.01%
  • S&P 500 futures +.34%
  • NASDAQ 100 futures +.35%.
Morning Preview Links

Earnings of Note

  • (ADM)/.46
  • (BP)/.04
  • (COH)/.45
  • (CMI)/1.96
  • (DISCA)/.44
  • (EMR)/.89
  • (FSS)/.16
  • (HCP)/.71
  • (IDXX)/.60
  • (ICE)/3.22
  • (K)/.87
  • (LYB)/2.32
  • (MLM)/2.58
  • (TAP)/1.01
  • (MOS)/.09
  • (PFE)/.62
  • (PBI)/.46
  • (RDC)/.-03
  • (SNE)/13.89
  • (CERN)/.60
  • (DVN)/.06
  • (EA)/.43
  • (GILD)/2.84
  • (HLF)/1.09
  • (ILMN)/.87
  • (PZZA)/.50
  • (X)/.84
  • (ZG)/.13
  • (WBMD)/.40
Economic Releases
9:45 am EST
  • The Final US Markit Manufacturing PMI for October is estimated at 53.2 versus a prior estimate of 53.2.
10:00 am EST
  • Construction Spending MoM for September is estimated to rise +.5% versus a -.7% decline in August.
  • ISM Manufacturing for October is estimated to rise to 51.7 versus 51.5 in September.
  • ISM Prices Paid for October is estimated to rise to 54.3 versus 53.0 in September.
  • The IBD/TIPP Economic Optimism Index for November is estimated to fall to 48.5 versus 51.3 in October.   
  • Total Vehicle Sales for October are estimated to fall to 17.6M versus 17.65M in September.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The BoJ rate decision, weekly US retail sales reports, (F) sales conference call and the (LB) investor update meeting could also impact trading today.
BOTTOM LINE:  Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

Stocks Slightly Higher into Final Hour on Earnings Optimism, Yen Weakness, Technical Buying, REIT/Metals & Mining Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Slightly Lower
  • Sector Performance: Mixed
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 17.6 +8.8%
  • Euro/Yen Carry Return Index 120.17 unch.
  • Emerging Markets Currency Volatility(VXY) 9.8 +.1%
  • S&P 500 Implied Correlation 58.75 +10.58%
  • ISE Sentiment Index 55.o0 unch.
  • Total Put/Call 1.04 -5.45%
  • NYSE Arms .97 -1.12
Credit Investor Angst:
  • North American Investment Grade CDS Index 78.57 +2.37%
  • America Energy Sector High-Yield CDS Index 607.0 +1.69%
  • European Financial Sector CDS Index 96.96 +.99%
  • Western Europe Sovereign Debt CDS Index 19.01 +2.20%
  • Asia Pacific Sovereign Debt CDS Index 35.57 +4.69%
  • Emerging Market CDS Index 241.50 +1.57%
  • iBoxx Offshore RMB China Corporate High Yield Index 132.55 +.01%
  • 2-Year Swap Spread 23.35 +.5 basis point
  • TED Spread 60.75 -.25 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -48.25 -2.75 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 72.25 +.15%
  • 3-Month T-Bill Yield .30% +2.0 basis points
  • Yield Curve 98.0 -1.0 basis point
  • China Import Iron Ore Spot $64.38/Metric Tonne +.66%
  • Citi US Economic Surprise Index -8.1 +1.0 point
  • Citi Eurozone Economic Surprise Index 40.8 -2.7 points
  • Citi Emerging Markets Economic Surprise Index -13.90 -.2 point
  • 10-Year TIPS Spread 1.74% +1.0 basis point
  • 71.4% chance of Fed rate hike at Dec. 14 meeting, 72.6% chance at Feb. 1 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating -15 open in Japan 
  • China A50 Futures: Indicating +3 open in China
  • DAX Futures: Indicating +3 open in Germany
  • Lower: On losses in my medical/biotech sector longs and emerging markets shorts
  • Disclosed Trades: None
  • Market Exposure: 25% Net Long

Today's Headlines

  • DNC’s Brazile Said to Have Leaked Debate Question to Clinton. Donna Brazile, a top official with the Democratic National Committee who also was a CNN analyst, allegedly notified Hillary Clinton’s presidential campaign in March about a question to be asked at a “town hall” debate during the primaries, according to documents posted by WikiLeaks. It marks the second purported e-mail indicating Brazile had tipped off the Clinton campaign to questions that were supposed to be kept secret during the Democratic primaries, when the DNC was ostensibly neutral. The alleged e-mail posted Monday said Clinton would be questioned by a woman from Flint, Michigan, about the town’s tainted water. An alleged memo released earlier told the campaign Clinton would be asked about the death penalty at another event that month. 
  • China Developers Face Threat of Funding Cost Jump Amid Curbs. China’s developers face higher financing costs after regulators stepped up efforts to rein in the borrowing that has fueled a red-hot property market. The Shanghai Stock Exchange raised the threshold for property firms to sell the bonds that it regulates, people familiar with the matter said Friday. Along with curbs on home sales and mortgages, the rules will likely strain access to cash and prompt more builders to seek money overseas, pushing up dollar note yields, according to Australia & New Zealand Banking Group Ltd. and Bank of China Hong Kong Ltd.
  • Italy’s Bonds Slump as Polls Show Nation Rejecting Renzi Vote. Italy’s bonds were the worst performers among their euro-area peers in the past month as polls increasingly signaled a constitutional referendum may be rejected by voters, threatening to destabilize the government. Italian 10-year debt yields climbed earlier to the highest level since June as a survey showed that a majority of respondents would vote against constitutional reforms led by Prime Minister Matteo Renzi. In the referendum scheduled Dec. 4, 39 percent of Italian voters would likely vote “No” and 35 percent would support it, according to a Demos & Pi poll for la Repubblica, published Oct. 30.
  • Pound Is October’s Worst Performer as Brexit Angst Haunts Market. (video) The pound is the world’s worst-performing currency this month, trailing behind about 150 peers, as the first signs of how Brexit will look emerged in October. Sterling posted its biggest monthly decline versus the dollar since the U.K. voted in June to leave the European Union amid speculation that the government is headed for a so-called hard Brexit, where unfettered access to Europe’s single market is sacrificed for immigration controls. The pound dropped after political headlines and comments from lawmakers and central-bank officials underlined its vulnerability as concern about Britain’s exit from the world’s largest trading bloc intensified.
  • Declines in Energy Shares Cap Month of Worry for European Stocks. (video) As October drew to a close, a slump in oil added to the list of woes that have held back gains for European stocks. BP Plc and Royal Dutch Shell Plc fell at least 1.4 percent after an unresolved OPEC accord following weekend talks raised questions on whether the world’s biggest oil producers can implement supply cuts at an official gathering in November. The Stoxx Europe 600 Index fell 0.5 percent, the worst drop in two weeks.
  • One Measure of Risk Just Hit Its Highest Level in Four Months. (video) As the presidential election race narrows after Friday’s surprise FBI announcement, stock investors are finally showing some jitters. Hedges against a market decline surged immediately following reports that the Federal Bureau of Investigation is reviewing files that may be related to an investigation of Hillary Clinton’s e-mail practices when she was secretary of state. The ratio of bearish versus bullish options changing hands on the Chicago Board Options Exchange jumped the most since June to match a four-month high. 
  • Apple's(AAPL) Margins Lose Their Shine.
Wall Street Journal:
Zero Hedge: