Monday, July 31, 2017

Tuesday Watch

Night Trading 
  • Asian equity indices are unch. to +.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 82.25 -.5 basis point
  • Asia Pacific Sovereign CDS Index 19.0 -1.0 basis point.
  • Bloomberg Emerging Markets Currency Index 74.02 +.02%.
  • S&P 500 futures +.07%.
  • NASDAQ 100 futures +.11%.
Morning Preview Links

Earnings of Note
  • (APD)/1.59
  • (ADM)/.52
  • (BZH)/.18
  • (BP)/.05
  • (CME)/1.21
  • (CMI)/2.56
  • (HCP)/.47
  • (HMC)/88.87
  • (IGT)/.32
  • (IDXX)/.85
  • (LPX)/.58
  • (LL)/-.08
  • (MLM)/2.35
  • (MDC)/.61
  • (MOS)/.23
  • (BTU)/1.09
  • (PFE)/.66
  • (PSX)/1.01
  • (RCL)/1.67
  • (SMG)/2.51
  • (SPG)/2.44
  • (SNE)/56.17
  • (S)/-.05
  • (UAA)/-.06
  • (ALL)/.92
  • (AAPL)/1.57
  • (COHR)/3.45
  • (ILMN)/.69
  • (PZZA)/.64
  • (TRUP)/-.02
Economic Releases  
8:30 am EST
  • Personal Income for June is estimated to rise +.4% versus a +.4% gain in May.
  • Personal Spending for June is estimated to rise +.1% versus a +.1% gain in May.
  • The PCE Core MoM for June is estimated to rise +.1% versus a +.1% gain in May.
10:00 am EST
  • ISM Manufacturing for July is estimated to fall to 56.5 versus 57.8 in June. 
  • ISM Prices Paid for July is estimated to rise to 55.6 versus 55.0 in June.
  • Construction Spending MoM for June is estimated to rise +.4% versus unch. in May.
  • Wards Total Vehicle Sales for July are estimated to rise to 16.8M versus 16.41M in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone GDP report, Eurozone Manufacturing PMI report, weekly US retail sales reports, Keefe Bruyette Woods Community Bank Conference, (F) July sales conference call and (SQM) Non-deal Roadshow could also impact trading today.
BOTTOM LINE:  Asian indices are modestly 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 75% net long heading into the day.

Stocks Slightly Higher into Final Hour on Oil Gain, Deregulation Hopes, Economic Optimism, Financial/Energy Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 10.56 +2.62%
  • Euro/Yen Carry Return Index 136.07 +.26%
  • Emerging Markets Currency Volatility(VXY) 7.53 +.4%
  • S&P 500 Implied Correlation 30.0 +5.86%
  • ISE Sentiment Index 76.0 unch.
  • Total Put/Call .89 +8.54%
  • NYSE Arms .91 -35.77%
Credit Investor Angst:
  • North American Investment Grade CDS Index 57.37 -.35%
  • America Energy Sector High-Yield CDS Index 436.0 +.61%
  • European Financial Sector CDS Index 50.33 +.39%
  • Western Europe Sovereign Debt CDS Index 4.90 +8.53%
  • Asia Pacific Sovereign Debt CDS Index 19.04 -4.61%
  • Emerging Market CDS Index 190.80 -.15%
  • iBoxx Offshore RMB China Corporate High Yield Index 140.55 +.04%
  • 2-Year Swap Spread 24.75 +.25 basis point
  • TED Spread 23.75 +.25 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -27.50 +1.0 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 74.02 +.16%
  • 3-Month T-Bill Yield 1.07% -1.0 basis point
  • Yield Curve 94.0 unch.
  • China Import Iron Ore Spot $73.70/Metric Tonne +7.23%
  • Citi US Economic Surprise Index -43.10 +1.4 points
  • Citi Eurozone Economic Surprise Index 19.10 +3.0 basis points
  • Citi Emerging Markets Economic Surprise Index 16.30 +.5 basis point
  • 10-Year TIPS Spread 1.82 unch.
  • 19.5% chance of Fed rate hike at Nov. 1 meeting, 48.4% chance at Dec. 13 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +10 open in Japan 
  • China A50 Futures: Indicating +46 open in China
  • DAX Futures: Indicating -25 open in Germany
  • Slightly Lower: On losses in my tech/biotech/retail sector longs 
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 50% Net Long

Today's Headlines

  • Smaller Companies Feel the Chill of China's Great Deleveraging. As China’s great deleveraging kicks in, smaller companies appear to be already feeling the squeeze, judging by the latest factory gauge. The manufacturing purchasing managers index pulled back slightly to 51.4 in July, propped up by improved sentiment among large firms. That masked a marked deterioration among small companies, with a sub gauge for them slumping to 48.9 from 50.1 in June, and a drop in mid-sized firms back below 50. Numbers under 50 indicate conditions are deteriorating.
  • Potential U.S. Oil Sanctions Increase Risk of Venezuelan Default. (video) The specter of tighter U.S. sanctions is pushing up the perception that Venezuela is getting closer to defaulting on its bonds. Venezuela is awaiting possible further restrictions from the U.S., its largest trading partner, after President Nicolas Maduro held elections Sunday for a new assembly that will rewrite the constitution. The implied probability of Venezuela missing a payment over the next 12 months rose to 62 percent Monday, according to credit-default swaps data compiled by Bloomberg. That’s the highest level since March 2016. The odds of a credit event over the next five years increased to 95 percent.
  • Investors Are Ditching Tech Stocks at the Fastest Pace Since November 2007. (video) Pigs get fat, hogs get slaughtered. Such a risk-averse adage appears to be front of mind for investors, who fled high-flying technology names at the fastest pace in nearly a decade last week. Outflows from PowerShares QQQ Trust Series 1, which tracks the Nasdaq 100 Index topped $3.7 billion for the five sessions ending July 28, the most since early November 2007.
Wall Street Journal:

Bear Radar

Style Underperformer:
  • Small-Cap Growth -.4%
Sector Underperformers:
  • 1) Internet -1.3% 2) Airlines -1.2% 3) Disk Drives -.9%
Stocks Falling on Unusual Volume: 
Stocks With Unusual Put Option Activity:
  • 1) SAVE 2) CF 3) OXY 4) GT 5) MO
Stocks With Most Negative News Mentions:
  • 1) HTZ 2) SGYP 3) HP 4) MO 5) SNAP

Bull Radar

Style Outperformer:
  • Large-Cap Value +.3%
Sector Outperformers:
  • 1) Steel +1.9% 2) Banks +1.3% 3) Gaming +.7%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) SGMS 2) XME 3) HLT 4) HYG 5) CY
Stocks With Most Positive News Mentions:
  • 1) GVA 2) EXP 3) CVA 4) BIDU 5) VALE

Morning Market Internals

NYSE Composite Index:

Sunday, July 30, 2017

Monday Watch

Today's Headlines
  • Europe's Eastern Rebels Expose Next Fault Line for EU Leaders. European leaders are declaring the continent’s financial crisis to be over, but now a political one is fermenting. A battle between European Union regulators and the Polish government over its plans to weaken the judiciary’s independence is splitting eastern and western Europe in a way that the euro region erupted along a north-south fault line. As Greece returned to the bond market last week, Poland faced the threat of unprecedented EU penalties from the first-ever probe of a member’s respect for the rule of law.
  • Australian Airport Security Tightened After Plot to Down Plane. Security checks at all major Australian airports have been ramped up following a counter-terrorism operation that foiled an alleged plot to bring down a plane. Four men were arrested in counter-terrorism raids on homes in the Sydney suburbs of Surry Hills, Punchbowl, Wiley Park and Lakemba on Saturday after authorities discovered plans for an attack to “bring down” an aircraft, Prime Minister Malcolm Turnbull said in a televised press conference on Sunday. Air passengers should expect delays caused by additional security measures at screening points. “Some of the measures will be obvious to the public, some will not be,” Turnbull said.
  • China Bond Buyers Quiz Taxi Drivers to See If Credit Good. In China, taxi rides aren’t just a form of transportation any more. They’ve also become useful for bond buyers doing due diligence. Dining out at restaurants is also helpful. It’s all part of a boom in field trips by market participants coming to grips with a new reality in China: the potential for bond defaults. After decades when authorities effectively provided blanket assistance to keep troubled companies from going under, the Communist leadership’s focus on shuttering unproductive assets has upended the market. A total of 45 onshore corporate bonds have defaulted since the start of last year, a surge from the eight recorded in 2014 and 2015 -- which themselves were the first since the market was established in the 1980s. While China has the world’s third-largest bond market, corporate financial transparency can be limited, forcing investors to get creative.
  • China Factory Gauge Suggests Economic Momentum Faded in July. The manufacturing purchasing managers index fell to 51.4 in July, compared to the 51.5 median forecast in a Bloomberg survey of economists, and the 51.7 reading in June. The non-manufacturing PMI stood at 54.5 compared to 54.9 a month earlier.
  • Japan Industrial Output Rebounds in Sign of Further Recovery. A pick-up in global demand and a weak yen have helped Japanese exporters, lifting the nation’s economy to the longest run of expansion in a decade. Reports last week showed that household spending rose in June for the first time in more than a year, while retail sales gained for an eighth month, signaling that both output and consumption were reasonably healthy in the second quarter. Still, stronger gains in wages and inflation are needed to put the economic recovery onto a firmer footing.
  • Asia Stocks Open Little Changed; Oil Nudges $50. Asian stocks were little changed at the start of the trading week as raw-material producers advanced after a surge in commodity prices bolstered optimism the global economy can gather momentum. Oil extended last week’s strongest rally this year. Equity gauges in Japan and South Korea were little changed, while Australia’s benchmark advanced. A bout of volatility last week sent the Nasdaq 100 Index lower and S&P 500 Index lower. Oil added to gains from Friday, which came as inventories for crude and gasoline shrank. Copper’s rally has further to go, Citigroup Inc. said last week after the metal reached a two-year high while top producer Chile raised its price forecasts. Japan’s Topix index swung between gains and losses and Australia’s S&P/ASX 200 Index rose 0.3 percent. South Korea’s Kospi index lost 0.1 percent. Contracts on the FTSE China A50 Index advanced 0.3 percent, while futures on Hong Kong’s Hang Seng Index were 0.1 percent higher.
Wall Street Journal: 
Zero Hedge:
Night Trading
  • Asian indices are -.25% to +.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 82.75 +1.25 basis points.
  • Asia Pacific Sovereign CDS Index 20.0 unch.
  • Bloomberg Emerging Markets Currency Index 73.92 +.04%.
  • S&P 500 futures -.08%.
  • NASDAQ 100 futures -.10%.

Earnings of Note
  • (AMG)/3.24
  • (DO)/.24
  • (ICPT)/-3.60
  • (L)/.71
  • (SOHU)/-1.29
  • (CGNX)/.54
  • (OI)/.67
  • (P)/-.24
  • (VNO)/1.26
Economic Releases 
9:45 am EST
  • The Chicago Purchasing Manager Index for July is estimated to fall to 60.0 versus 65.7 in June.
10:00 am EST
  • Pending Home Sales MoM for June are estimated to rise +1.0% versus a -.8% decline in May.
10:30 am EST
  • Dallas Fed Manufacturing Activity for July is estimated to fall to 13.0 versus 15.0 in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone CPI report and the Australia Private Sector Credit report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.