Sunday, December 11, 2016

Monday Watch

Today's Headlines
  • Why 2017 Could Be Do-or-Die for China's Bond-Fueled Builders. For China’s highly leveraged real estate developers, 2017 could be the year that the borrowing binge finally catches up with them. Regulators have choked off a key source of funding, with the Shanghai Stock Exchange raising the threshold for property firms to sell bonds on their platform in October. Since then, builders haven’t sold any notes in a market that played host to about 40 percent of their onshore debentures over the past two years, Bloomberg-compiled data show. The curbs couldn’t have come at a worse time, with a record $17.3 billion of developer bonds due next year, and another $27.9 billion in 2018.
  • ECB Delivering a Dovish Taper Reinforces Bets on Euro Parity. The European Central Bank’s latest policy decision is reinforcing calls for the euro to drop to parity against the dollar. The odds of the euro weakening to $1 in the next six months have risen to about 44 percent, from 31 percent on Dec. 7, the day before the ECB decision, options prices show. The euro dropped to $1.0506 on Dec. 5, the lowest since March 2015. It was last below $1 in December 2002.
  • Oil Soars as OPEC Deal With Rivals Buoys Stocks While Bonds Sink. Oil in New York and London jumped more than 5 percent after Saudi Arabia signaled it will cut output by more than was previously agreed amid a weekend deal to tackle oversupply with competitors such as Russia. While the dollar extended gains versus haven currencies ahead of an anticipated interest-rate hike from the Federal Reserve, it succumbed to the Canadian dollar and Mexican peso. Asian energy stocks jumped as U.S. index futures rallied with copper. Government bonds from Australia to America retreated with gold. A .7 percent advance in energy stocks drove the MSCI Asia Pacific Index up .3 percent as Australia's S&P/ASX 200 Index increased .4% in a fifth straight day of gains.
  • Oil Surges as Saudis Eye Deeper Cuts While Non-OPEC Joins Deal. Oil jumped to the highest since July 2015 after Saudi Arabia signaled it’s ready to cut output more than earlier agreed while non-OPEC countries including Russia pledged to pump less next year, strengthening the coordinated commitment by the world’s largest producers to tighten supply. Futures rose as much as 5.8 percent in New York and 6.6 percent in London. Saudi Energy Minister Khalid Al-Falih said Saturday the biggest exporter will “cut substantially” below the target agreed to last month with members of the Organization of Petroleum Exporting Countries. Al-Falih’s comments followed a deal by non-OPEC countries to join forces with the group and reduce production by 558,000 barrels a day next year, the first pact between the rivals in 15 years.
  • OPEC Doomed to Repeat History.
  • Senators Balk at Tillerson Over Putin Before He’s Nominated. Senators signaled that President-elect Donald Trump’s leading choice for secretary of state, Exxon Mobil Corp. chief Rex Tillerson, could have trouble winning confirmation because of his ties to Russian President Vladimir Putin. “Being a ‘friend of Vladimir’ is not an attribute I am hoping for from a #SecretaryOfState,” Florida Republican Marco Rubio, who serves on the Foreign Relations Committee that would consider Tillerson’s nomination, said Sunday in a Twitter post signed with his initials. Criticism from Republicans such as Rubio and Senator John McCain as well as key Democrats suggest that nominating the Exxon chairman and chief executive officer could become a messy distraction for the new president. It also would become a proxy fight over Trump’s position that Putin is an effective leader with whom he can reach agreements, a stance widely unpopular among lawmakers in both parties.
  • Is the U.S. Economy Ready for a Fed Rate Hike? (video)
Wall Street Journal:
Zero Hedge:
People's Daily:
  • China Home Sales, Prices to Decline, Vanke's Yu Says. Chinese home transactions may decline "significantly" in the coming year with property prices drops in cities where prices have risen "overly fast," citing China Vanke President Yu Liang as saying in an interview.
Night Trading
  • Asian indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 118.0 +3.75 basis points.
  • Asia Pacific Sovereign CDS Index 36.0 -.25 basis point.
  • Bloomberg Emerging Markets Currency Index 69.85 +.02%.
  • S&P 500 futures +.08%.
  • NASDAQ 100 futures +.02%.

Earnings of Note
  • (PAY)/.29
Economic Releases
2:00 pm EST
  • The Monthly Budget Statement for November is estimated to widen to -$115.0B versus -$44.2B in October.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China Retail Sales report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and energy 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 week.

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