Wednesday, November 30, 2016

Thursday Watch

Evening Headlines
  • China Slaps 10% Tax on Ferrari, Bentley Cars to Curb Luxury. China is slapping a 10 percent tax on cars like the Ferrari GTC4Lusso, Bentley Bentayga and Aston Martin DB9 in a bid to combat conspicuous consumption and promote more fuel-efficient vehicles. Buyers of autos costing 1.3 million yuan ($189,000) or more will be hit with the tax starting Thursday, according to the Ministry of Finance. The levy on “super luxury” vehicles is meant to “guide reasonable consumption,” lower emissions and save energy, the ministry said in a statement on its website.
  • China Risks Stagnation, Ex-Goldman Dealmaker Says. China risks economic stagnation unless it quickly removes barriers hampering entrepreneurs seeking to enter industries from health care to education to financial services. That’s according to Fred Hu, a former Greater China chairman for Goldman Sachs Group Inc. who has advised the central government on financial, pension and state-enterprise reforms. "Economic reforms have been slow-paced, way short of expectations," said Hu, founder and chairman of Beijing-based investment firm Primavera Capital Group. "China should discard outdated regulations and policies that have hampered new business formation. Unfortunately doing so means taking power away from over-extending government agencies and bureaucrats. Right now, the bureaucracy just has no appetite to undertake such reforms."
  • China Factory Gauge Matches Post-2012 High as Large Firms Lead. China’s official factory gauge matched a post-2012 high as a credit-fueled recovery of smokestack industries gained momentum and signaled a pickup in inflation expectations.
  • Is the Emerging-Market Bond Selloff Out of Control? (video)
  • Asian Stocks Rise on Oil Deal, Dollar Gains as Bond Rout Deepens. Asian equities rallied as a deal to cut global oil output fueled gains in energy shares, while evidence of strength in the U.S. economy sank bonds and supported the dollar. The MSCI Asia Pacific Index added .8% as of 10:57 am Tokyo time, ending a two-day decline as a sub-gauge of energy stocks jumped 4.3%. 
  • Texas Shale Is Big Winner as OPEC Deal Brightens Oil Outlook. (video) Hangover Awaits as OPEC Celebrates Its Biggest Accord in Years. Let OPEC celebrate. For now. The oil club is dizzy with its own success after a harmonious meeting in Vienna, where it surprised the world by agreeing to its first production cut in eight years. Oil prices up 10 percent? Check. Saudi Arabia and Iran in agreement? Check. OPEC and Russia working together? Check. After being left for dead, OPEC pulled it off once again.
  • From IndyMac to OneWest: Steven Mnuchin's Big Score. (March 2012) Wall Street veteran Steven Mnuchin rode into Pasadena and bought what was left of IndyMac. Now he’s making a killing. 
Wall Street Journal:
  • Steven Mnuchin’s Defining Moment: Seizing Opportunity From the Financial Crisis. Donald Trump’s nominee for Treasury secretary made millions buying failed IndyMac and has résumé at odds with president-elect’s campaign rhetoric.
  • Schumer Deflects Blame To IndyMac, Regulator. (July 2008) Sen. Charles Schumer, hit with criticism from a federal regulator that he contributed to the failure of IndyMac Bank, said he may have caused some depositors to withdraw their money but said he wasn't responsible for the bank's downfall. The saga started in late June, when Sen. Schumer's letters to the FHFB, OTS and the Federal Deposit Insurance Corp. rang alarms that IndyMac "could face failure if prescriptive measures are not taken quickly." He noted the thrift's falling stock price, climbing delinquency rate and recent downgrading by analysts. Sen. Schumer's office publicized the letter June 27, providing it to The Wall Street Journal and other publications. A June 28 story in IndyMac's hometown newspaper, the Pasadena Star-News, had a "very inflammatory headline," Sen. Schumer said. It read: "IndyMac appears close to collapse." The story in the California newspaper mentioned Sen. Schumer's letters, as well as a shareholder lawsuit and other signs of trouble at IndyMac. The newspaper didn't immediately respond to a request for comment. IndyMac on July 1, a Tuesday, said Mr. Schumer's statements caused "elevated customer inquiries and withdrawals" on June 27 and June 28, and that about $100 million had been withdrawn.
  • U.S. to Forgive at Least $108 Billion in Student Debt in Coming Years. GAO report offers first full cost estimate of debt-relief programs, berates Education Department over accounting methods.
  • Damascus Presses Offensive Against Aleppo Rebels. Syrian regime shelling killed at least 40 civilians in east Aleppo, opposition officials and activists said.
Zero Hedge
Night Trading 
  • Asian equity indices are +.5% to +1.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 125.0 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 41.5 -2.0 basis points.
  • Bloomberg Emerging Markets Currency Index 69.37 +.03%
  • S&P 500 futures +.08%
  • NASDAQ 100 futures +.18%.
Morning Preview Links

Earnings of Note

  • (CBK)/-.14
  • (DG)/.93
  • (DCI)/.35
  • (KR)/.41
  • (TD)/1.22
  • (LE)/-.06
  • (ISLE)/.19
  • (AMBA)/.94
  • (CENT)/.05
  • (GIII)/1.54
  • (SWHC)/.58
  • (ULTA)/1.37
  • (WDAY)/-.05
  • (ZUMZ)/.36
Economic Releases 
7:30 am EST
  • Challenger Job Cuts YoY for November.
8:30 am EST
  • Initial Jobless Claims for last week are estimated to rise to 253K versus 251K the prior week.
  • Continuing Claims are estimated to fall to 2033K versus 2043K prior.
9:45 am EST
  • Final Markit US Manufacturing PMI for November is estimated at 53.9 versus a prior estimate of 53.9.
10:00 am EST
  • Construction Spending MoM for October is estimated to rise +.6% versus a -.4% decline in September.
  • ISM Manufacturing for November is estimated to rise to 52.4 versus 51.9 in October.
  • ISM Prices Paid for November is estimated at 54.5 versus 54.5 in October. 
  • Total Vehicle Sales for November is estimated to fall to 17.7M versus 17.9M in October.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Fed's Mester speaking, Eurozone Unemployment Rate, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (CBG) Business Outlook Day, (F) November sales call, (SKX) Analyst Meeting, (URI) Analyst Day, (JEC) Analyst Day and the (LB) November sales report could also impact trading today.
BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial and financial 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 day.

Stocks Reversing Lower into Final Hour on Rising Long-Term Rates, Technical Selling, Profit-Taking, Biotech/Homebuilding Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 13.36 +3.57%
  • Euro/Yen Carry Return Index 126.42 +1.11%
  • Emerging Markets Currency Volatility(VXY) 10.76 -.92%
  • S&P 500 Implied Correlation 53.79 -4.31%
  • ISE Sentiment Index 85.0 +7.89%
  • Total Put/Call .90 -5.26%
  • NYSE Arms .42 -65.81%
Credit Investor Angst:
  • North American Investment Grade CDS Index 72.76 -1.07%
  • America Energy Sector High-Yield CDS Index 562.0 -4.04%
  • European Financial Sector CDS Index 107.50 -.94%
  • Western Europe Sovereign Debt CDS Index 23.48 +.54%
  • Asia Pacific Sovereign Debt CDS Index 41.44 -4.81%
  • Emerging Market CDS Index 265.31 -1.51%
  • iBoxx Offshore RMB China Corporate High Yield Index 132.98 +.01%
  • 2-Year Swap Spread 20.75 +1.0 basis point
  • TED Spread 44.75 -1.0 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -59.0 -2.75 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 69.36 +.05%
  • 3-Month T-Bill Yield .48% +1.0 basis point
  • Yield Curve 125.0 +4.0 basis points
  • China Import Iron Ore Spot $72.08/Metric Tonne -6.75%
  • Citi US Economic Surprise Index 17.80 +1.0 point
  • Citi Eurozone Economic Surprise Index 58.90 -4.7 points
  • Citi Emerging Markets Economic Surprise Index -4.4 +.3 point
  • 10-Year TIPS Spread 1.97% +7.0 basis points
  • 100.0% chance of Fed rate hike at Feb. 1 meeting, 100.0% chance at March 15 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +297 open in Japan 
  • China A50 Futures: Indicating +30 open in China
  • DAX Futures: Indicating -29 open in Germany
  • Lower: On losses in my medical/biotech/tech/retail sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 25% Net Long

Morning Market Internals

NYSE Composite Index:

Tuesday, November 29, 2016

Wednesday Watch

Evening Headlines
  • Japan’s Industrial Production Rises Slightly in October. Japan’s industrial production was slightly stronger than economists forecast in October, as exports compensated for continued weak domestic spending. 
  • Crude Near Two-Week Low as OPEC Deal Founders; Asian Stocks Rise. Oil remained below $46 a barrel ahead of the make-or-break OPEC meeting on stabilizing the crude market, as gains in Asian property shares outweighed losses among commodity producers. The dollar trimmed its steepest monthly advance since May. Crude bounced off a two-week low reached Tuesday, when 10 hours of technical talks failed to resolve differences between oil-producing nations ahead of Wednesday’s formal meeting in Vienna. While miners and energy shares drove Australian stocks lower, Japan’s Topix index rose with equities in South Korea. The New Zealand dollar led currency gains in Asia along with the Korean won, as the Bloomberg Dollar Spot Index maintained declines. Gold rose amid the pre-OPEC talks jitters, while copper futures extended losses. The MSCI Asia Pacific Index added .3% as the Topix rose .2%, while the Kospi jumped .3%.
  • Treasuries Having Worst Month Since 2009 on Trump Ripple Effect. Treasuries are having their worst month since 2009 after investors pulled money from the U.S. bond market on speculation Donald Trump’s victory in the presidential election will pave the way for increased fiscal stimulus. A Bloomberg Barclays index that tracks the Treasuries market has lost 2.5 percent this month through Nov. 28. Meanwhile, benchmark 10-year yields have soared the most in back-to-back months since the 2013 taper tantrum as investors shifted into assets such as stocks, which they expect to benefit should Trump succeed in pushing through his proposals.
  • Carrier Reaches Deal With Trump on Indiana Jobs, CNBC Says. Carrier agreed to keep about 1,000 factory jobs at its furnace plant in Indiana, CNBC reported, handing President-elect Donald Trump a victory on an issue that had become a rallying cry in his campaign. A deal between Trump and Carrier, a division of United Technologies Corp., includes new inducements from the state, CNBC reporter David Faber said on Twitter. Vice President-elect and Indiana Governor Mike Pence spearheaded the negotiating effort and Trump will travel to the factory on Thursday to announce the agreement, Faber said.
Wall Street Journal:
Fox News:
  • Trump to nominate Steven Mnuchin for Treasury Secretary, sources say. (video) President-elect Donald Trump will nominate former Goldman Sachs banker Steven Mnuchin to be his Treasury Secretary, two sources close to the transition told Fox News late Tuesday.  One source told Fox that a formal announcement of Mnuchin's nomination could come as early as Wednesday. Mnuchin had long been considered a favorite for the Treasury position. Two weeks ago, businessman and close Trump associate Carl Icahn tweeted that Trump was considering Mnuchin for the post. Mnuchin, 53, was appointed Trump's campaign finance chair this past May. He previously worked at Goldman Sachs for 17 years, eventually rising to run the firm's technology division. According to the Wall Street Journal, Mnuchin left Goldman in 2002 and was later hired to run a credit fund set up by liberal billionaire George Soros.
Zero Hedge
Business Insider:
China Securities Journal:
  • More Chinese Cities May Introduce Property Curbs. More cities will likely introduce curbs following Shenzhen, Hangzhou, Shanghai and Tianjin, according to a front-page commentary. Curbs aim to prevent asset bubbles and risks in mid-to-long term rather than a short-term remedy to control property prices, the commentary said.
Night Trading 
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 126.0 -1.5 basis points 
  • Asia Pacific Sovereign CDS Index 43.5 -.75 basis point.
  • Bloomberg Emerging Markets Currency Index 69.33 unch
  • S&P 500 futures +.02%
  • NASDAQ 100 futures +.05%.
Morning Preview Links

Earnings of Note

  • (AEO)/.41
  • (TITN)/.06
  • (GES)/.14
  • (LZB)/.38
  • (PVH)/2.40
  • (SMTC)/.36
  • (SNPS)/.77
Economic Releases 
8:15 am EST
  • The ADP Employment Change for November is estimated to rise to 170K versus 147K in October. 
8:30 am EST
  • Personal Income for October is estimated to rise +.4% versus a +.3% gain in September.
  • Personal Spending for October is estimated to rise +.5% versus a +.5% gain in September. 
  • The PCE Core MoM for October is estimated to rise +.1% versus a +.1% gain in September. 
9:45 am EST
  • The Chicago Purchasing Manager Index for November is estimated to rise to 52.5 versus 50.6 in October.
10:00 am EST
  • Pending Home Sales MoM for October are estimated to rise +.1% versus a +1.5% gain in September.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +677,780 barrels versus a -1,255,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +1,194,890 barrels versus a +2,317,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,454,220 barrels versus a +327,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.51% versus a +1.6% gain prior.
2:00 pm EST
  • US Fed Beige Book release.
Upcoming Splits 
  • None of note
Other Potential Market Movers
  • The Fed's Powell speaking, Fed's Kaplan speaking, Fed's Mester speaking, OPEC meeting, weekly MBA Mortgage Applications report, China Manufacturing PMI report, Eurozone CPI report and German Unemployment Rate could also impact trading today.
BOTTOM LINE:  Asian indices are mostly higher, boosted 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 50% net long heading into the day.