Monday, October 26, 2015

Stocks Slightly Lower into Final Hour on Global Growth Fears, Earnings Outlook Concerns, Oil Decline, Commodity/Bank Sector Weakness

Posted by Gary .....at 3:32 PM
Broad Equity Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 15.19 +5.05%
  • Euro/Yen Carry Return Index 139.71 -.07%
  • Emerging Markets Currency Volatility(VXY) 10.93 +.55%
  • S&P 500 Implied Correlation 58.81 -1.94%
  • ISE Sentiment Index 141.0 +29.36%
  • Total Put/Call .99 +28.57%
  • NYSE Arms 1.34 +38.05% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 77.86 +.66%
  • America Energy Sector High-Yield CDS Index 1,067.0 -.67%
  • European Financial Sector CDS Index 69.0 +1.94%
  • Western Europe Sovereign Debt CDS Index 18.81 -.08%
  • Asia Pacific Sovereign Debt CDS Index 72.22 +1.38%
  • Emerging Market CDS Index 321.11 -1.05%
  • iBoxx Offshore RMB China Corporates High Yield Index 122.28 +.23%
  • 2-Year Swap Spread 11.25 -1.25 basis points
  • TED Spread 31.75 -.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -29.5 -.5 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 72.12 -.01%
  • 3-Month T-Bill Yield .01% +1.0 basis point
  • Yield Curve 142.0 -2.0 basis points
  • China Import Iron Ore Spot $51.03/Metric Tonne -1.14%
  • Citi US Economic Surprise Index -7.70 -7.6 points
  • Citi Eurozone Economic Surprise Index 20.3 -1.9 points
  • Citi Emerging Markets Economic Surprise Index -13.30 +.1 point
  • 10-Year TIPS Spread 1.49 -3.0 basis points
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.45 -1.23
Overseas Futures:
  • Nikkei 225 Futures: Indicating +133 open in Japan 
  • China A50 Futures: Indicating -2 open in China
  • DAX Futures: Indicating +5 open in Germany
Portfolio: 
  • Higher: On gains in my biotech/retail sector longs and emerging markets shorts
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, added to my emerging markets shorts
  • Market Exposure: 50% Net Long
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Today's Headlines

Posted by Gary .....at 3:03 PM
Bloomberg: 
  • Refugee Influx ‘Absolutely Unbearable,’ Slovenia Says. The influx of refugees into Slovenia is “absolutely unbearable,” Prime Minister Miro Cerar said, warning that the surge in migrants risked tearing apart the European Union. Slovenia “has received more than 60,000 migrants in the last 10 days, 13,000 in one day,” Cerar said at a meeting on Sunday in Brussels to seek ways to deal with the increasing flow of refugees through the Western Balkans. The government last week called on the army to help control the situation at its border. “If we do not deliver some immediate and concrete actions on the ground in the next few days and weeks, I do believe that the European Union and Europe as a whole will start falling apart,” Cerar said. 
  • German Business Confidence Falls as Global Risks Take Toll. German business confidence fell for the first time in four months in October, signaling that a slowdown in global demand is taking its toll on Europe’s largest economy. The Ifo institute’s business climate index declined to 108.2 from 108.5 in September. The median estimate was for a drop to 107.8, according to a Bloomberg survey of economists.
  • Korean Shipyards -- Afloat, But Taking On Water. Things had been looking more hopeful for Korea's three largest shipbuilders, until today. After seven consecutive quarters of losses, analysts reckoned that earnings before interest and tax at the world's biggest shipyard -- Hyundai Heavy -- were going to turn positive in the three months to Sept. 30. Um, that didn't happen.
  • MidEast’s ‘Grossly Mispriced’ Bonds Warn of Shifting Sentiment. Corporate bonds aren't reflecting the effect of low oil prices on regional budget deficits. Middle East corporate bonds are mispricing the effects plunging oil prices are having on the region’s finances, leaving borrowers vulnerable to a deterioration in market sentiment. The average premium investors require to hold bonds from the Middle East and North Africa was 159 basis points on Friday, two points lower than this year’s high in June, JPMorgan Chase & Co. indexes show. That compares with 165 basis points on US investment-grade debt, according to the Bloomberg US Corporate Bond Index. 
  • Real Drops With Brazil's Woes Offsetting Emerging-Markets Rally. Brazil’s real declined as concern that the nation’s fiscal picture is worsening outweighed investors’ optimism over emerging markets. Brazil’s government, which previously targeted a so-called primary surplus, may announce by Tuesday a budget deficit excluding interest payments of as much as 50 billion reais ($13 billion) this year, O Globo newspaper reported, without saying where it got the information. That would be the widest on record. The pessimism overwhelmed optimism on global growth generated by China’s move to cut interest rates and signals from the European Central Bank that it could act to stoke the economy. The currency dropped 0.2 percent to 3.8820 per dollar at 2:37 p.m. in Sao Paulo after gaining as much as 1.3 percent.
  • Aussie Weakness Signals Diminishing Returns of Chinese Stimulus. If the Australian dollar’s performance is any guide, Chinese monetary stimulus faces an uphill battle to reverse the economic slump that’s driven down the prices of commodities and the currencies of nations that export them. The Aussie, used by some to express their outlook for the world’s second-largest economy, weakened immediately after the People’s Bank of China on Friday reduced its benchmark lending rate and had failed to recoup those losses by late afternoon on Monday in Sydney. It has dropped 16 percent since the PBOC began its current easing cycle in November 2014, compared with a 3.6 percent advance during the previous stretch of rate cuts.
  • The Dollar Ate Our Profit Is Lament of Delta(DAL), Mattel(MAT), Whirlpool(WHR). U.S. companies that blamed billions of dollars of lost revenue in the first half of the year on the greenback’s meteoric rise are signaling that the trend isn’t getting any better. Delta Air Lines Inc. said this month that losses on revenue denominated in yen cost the company $55 million. Toymaker Mattel Inc. said foreign-exchange headwinds were the primary cause of its weak third-quarter earnings. And Whirlpool Corp. said Oct. 23 that the stronger dollar will reduce 2015 revenue by more than $2.5 billion. Two out of three companies in the Standard & Poor’s 500 Index that reported earnings through Oct. 22 mentioned the strong dollar or currency-related woes in conference calls with analysts and investors. 
  • European Stocks Take a Breather, Falling From a Two-Month High. (video) European stocks halted their rally as investors assessed the implications of central-bank stimulus. The Stoxx Europe 600 Index lost 0.4 percent to 375.89 at the close in London, sliding after a three-week jump, its longest stretch since March.
  • Oil Speculators Make `Easy' Bearish Call at 85-Year Supply High. Hedge funds placed the most bets on falling oil prices since July as rising piles of crude dashed hopes of a near-term recovery. Money managers’ short position in West Texas Intermediate crude jumped by 18 percent in the week ended Oct. 20, the largest surge since July 21, according to data from the Commodity Futures Trading Commission. That pulled their net-long position down by more than 16,000 contracts of futures and options. 
  • Hurt by Energy, Einhorn's Greenlight Re Hedges Oil, Natural Gas. David Einhorn is revisiting page one of the hedge fund playbook: he’s hedging. In the midst of his worst year since the financial crisis, the money manager added derivatives positions that would protect against a further decline in natural gas and an increase in the price of oil. The contracts were disclosed in a filing on Oct. 23 by Greenlight Capital Re Ltd., after the reinsurer said its third-quarter net loss quadrupled from a year earlier.
Wall Street Journal:
  • Sam Zell Edges Out of Apartments. Equity Residential(EQR) agrees to sell some apartments for $5.4 billion to Starwood Capital. The transaction, announced Monday, represents about a quarter of the units in Equity Residential’s portfolio of apartments and would be one of the largest since the recession.
Zero Hedge:
NY Times:
  • Russian Ships Near Data Cables Are Too Close for U.S. Comfort. Russian submarines and spy ships are aggressively operating near the vital undersea cables that carry almost all global Internet communications, raising concerns among some American military and intelligence officials that the Russians might be planning to attack those lines in times of tension or conflict.
Seeking Alpha:
The Economist:
  • Debt in China. Deleveraging delayed. Credit growth is still outstripping economic growth. Bank loans increased by 15.4% in the third quarter compared with the same period in 2014. Having released a torrent of credit to buoy the economy during the financial crisis, China was supposed to have started deleveraging by now. Instead, banks are continuing to pump debt into the economy, while the authorities, apparently worried about the damage a contraction in credit might do, coax them on.
Reuters:
  • Bridgestone to buy U.S. auto parts retailer Pep Boys(PBY). Japanese tire maker Bridgestone Corp (5108.T) said it would buy auto parts retailer Pep Boys-Manny, Moe & Jack (PBY.N) for $835 million to expand its retail presence in the United States. The deal will boost Bridgestone's retail network by more than a third in the United States, the company said.
Telegraph:
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Bear Radar

Posted by Gary .....at 1:54 PM
Style Underperformer:
  • Small-Cap Value -.62%
Sector Underperformers:
  • 1) Coal -3.78% 2) Oil Service -2.54% 3) Computer Hardware -2.36%
Stocks Falling on Unusual Volume:
  • PGTI, KODK, NNBR, ATHN, GIL, NTGR, MD, SAVE, FLOW, SYF, SPLK, OPB, BKD, GLRE, GIII, DSW, CRUS, SWNC, BRCM, NHTC, CRR, SFM, GIMO, ORI, KMI, CALM, ATHN, CRUS and PGTI
Stocks With Unusual Put Option Activity:
  • 1) VFC 2) JWN 3) BRCM 4) HIG 5) UNG
Stocks With Most Negative News Mentions:
  • 1) AKS 2) WFM 3) TSN 4) C 5) AXP
Charts:
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Bull Radar

Posted by Gary .....at 1:38 PM
Style Outperformer:
  • Large-Cap Growth +.12%
Sector Outperformers:
  • 1) Biotech +1.33% 2) Hospitals +1.28% 3) Restaurants +1.16%
Stocks Rising on Unusual Volume:
  • PBY, PNY, QUNR, CTRP, GGAL, TREE, NTI, MMSI, EROS, VFC, WUBA, RLYP, YPF, P and YELP
Stocks With Unusual Call Option Activity:
  • 1) MW 2) EMR 3) DYN 4) GRUB 5) ACI
Stocks With Most Positive News Mentions:
  • 1) P 2) WHR 3) BMY 4) LMT 5) TWTR
Charts:
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Morning Market Internals

Posted by Gary .....at 11:07 AM
NYSE Composite Index:
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Monday Watch

Posted by Gary .....at 1:03 AM
Today's Headlines 
Bloomberg:  
  • Barclays to BlackRock Say the China Rebound Rally Won't Last. The rebound in Chinese equities spurred by the government’s efforts to boost growth will probably fade as the measures underscore fundamental weakness in the world’s second-largest economy, according to Barclays Plc, Blackfriars Asset Management Ltd. and BlackRock Inc. A $582 million exchange-traded fund tracking mainland stocks jumped to a two-month high in the U.S. on Friday as the People’s Bank of China, after the close of local trading, announced its sixth interest-rate cut since November. The gain pushed the advance from this year’s low in August to 23 percent. The rebound has been driven in large part by speculation that the government will move more aggressively to bolster an economy projected to expand in 2015 at the slowest pace in a quarter century. “I don’t think this is the start of a new move in Chinese equities higher,” Ajay Rajadhyaksha, head of macro research at Barclays, said by phone from New York on Friday. The country needs economic “growth numbers to improve sharply, and that does not seem to be happening,” he said. 
  • China's Bid to Prop Up Property Investment Challenged Amid Glut. China’s moves to ease mortgage restrictions and cut interest rates are bearing fruit in the nation’s smaller cities, where home prices have staged a recovery. Now comes the bigger challenge: Clearing a supply glut to spur investment by developers. Lower borrowing costs are helping a residential market recovery spread from the economic hubs such as Shanghai and Shenzhen to smaller and less-prosperous cities. New-home prices rose in September from August in more than half of the 70 major cities monitored by the government for the first time in 17 months. Yet, a construction boom over the past two years has led to 424.7 million square meters of unsold homes languishing nationwide as of Sept. 30.
  • Nomura Bond Trader Says China Rate Shift Raises Odds of Fed Move. China’s interest-rate cut will lead the Federal Reserve to raise borrowing costs in the U.S., said John Gorman, the head of dollar debt trading for Asia and the Pacific at Nomura Holdings Inc. China’s policy shift last week will help curb volatility in its markets, removing an obstacle that kept the Fed from acting at its last meeting in September, Gorman said. The U.S. central bank’s next policy session is Oct. 27-28. Asian stocks rose Monday after China cut both interest rates and lenders’ reserve requirements on Friday. “It reduces the chance of volatility out of China, which is one of the reasons the Fed didn’t go in September,” Gorman said. “I think they’re going in December.” Nomura is one of the 22 primary dealers that trade directly with the U.S. central bank.
  • India Is Spending Billions to Populate a Remote Area Claimed by China. India plans to invest billions of dollars to populate a remote northeastern state it has neglected since fighting a war with neighboring China more than five decades ago. Prime Minister Narendra Modi’s government is finalizing blueprints for a $6 billion highway in Arunachal Pradesh, which is also claimed by China. Construction on the 2,000-kilometer (1,243-mile) road will start as early as 2018, Kiren Rijiju, minister of state for home affairs, said in an interview. 
  • India to Squeeze State-Run Companies as Deficit Worries Grow. With funds running short to sustain an infrastructure spending spree that’s underpinning India’s economic growth, Finance Minister Arun Jaitley will step up pressure on state-run companies to pick up the slack. Jaitley plans to meet public-sector companies in November -- two months earlier than usual -- to urge them to pay higher dividends if they don’t invest more, according to two people familiar with the discussions. The dividends will go to the government, which is the majority shareholder in companies like Coal India Ltd., the world’s largest producer of the fuel.
  • Israel Debt Risk Gains Most in 14 Months as Violence Rises. The deteriorating security situation in Israel and the impact it may have on economic growth has led to the second-biggest surge in credit risk this month among developed nations. Israel’s credit-default swaps, contracts insuring the nation’s debt against default for five years, have advanced four basis points so far this month, the second-biggest gain after the U.S. among 23 developed countries, to 73 basis points, CMA prices show. The swaps increased five basis points last week, the most since August 2014. Meanwhile, the shekel depreciated the most in two months during the same period. 
  • Ringgit Retreats as China Easing Deepens Growth Outlook Concern. The ringgit fell the most in almost a week as China’s interest-rate cut heightened concern that growth in Asia’s biggest economy and a top Malaysian export market is slowing. The People’s Bank of China also reduced the amount of cash banks must set aside as reserves on Friday to bolster growth, which is set for the slowest annual expansion in a quarter of a century. Malaysia’s 2016 budget last week included tax increases for high-income earners and a pledge to further lower the fiscal deficit. The macro economic outlook hasn’t changed though amid lower energy prices and weak domestic demand, according to a Morgan Stanley report on Monday. 
  • Korean Won Leads Declines in Asia After China Cuts Interest Rate. South Korea’s won led a decline in Asian currencies amid concern China’s interest-rate cut will lead to more weakness in the yuan and other regional exchange rates. The won fell the most in a month after the People’s Bank of China lowered its policy rate for a sixth time since November late on Friday. That followed data last week that showed gross domestic product in China, South Korea’s biggest export market, increased at the slowest pace in more than six years in the third quarter. The devaluation of the yuan on Aug. 11 sparked declines in Asian exchange rates and raised fears of a currency war.
  • Asian Stocks Extend Two-Month High as China Cuts Interest Rates. Asian stocks rose after China’s central bank cut its benchmark lending rate, stepping up efforts to cushion a deepening economic slowdown. The MSCI Asia Pacific Index gained 0.3 percent to 136.15 as of 9 a.m. in Tokyo after closing Friday at the highest since Aug. 19. The gauge climbed 9.7 percent this month through the end of last week as investors pushed back expectations for the first U.S. interest-rate increase and central banks signaled further measures will be enacted to stave off weak economic growth. 
  • Oil Swings Near 4-Week Low as Investors Weigh Rigs Against China. Oil swung between gains and losses near the lowest closing price in almost four weeks as investors weighed a slowing pace of U.S. drilling-rig reductions against an interest rate cut in China. Futures in New York rose as much as 0.5 percent and fell as much as 0.4 percent. The number of active machines targeting oil dropped by 1 through Oct. 23 after declining by 45 over the prior three weeks, according to Baker Hughes Inc. China, the world’s second-biggest crude consumer, stepped up monetary easing with its sixth interest-rate cut in a year on Friday to combat deflationary pressures and a slowing economy.
Wall Street Journal:
  • Cash Crunch Clouds Future for Oil Firms. Spending on new projects, share buybacks and dividends outstrips cash flow. The world’s biggest oil companies are struggling to generate enough cash to cover their spending and dividends, despite efforts to slash billions of dollars from their budgets in the face of tumbling oil prices.
Telegraph:
Night Trading
  • Asian indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 131.75 -3.5 basis points.
  • Asia Pacific Sovereign CDS Index 71.25 -3.0 basis points.
  • Bloomberg Emerging Markets Currency Index 72.17 +.05%.  
  • S&P 500 futures -.21%.
  • NASDAQ 100 futures -.19%.

Earnings of Note
Company/Estimate 
  • (LH)/2.07
  • (SOHU)/-.58
  • (AVB)/1.93
  • (BRCM)/.73
  • (CAKE)/.56
  • (IACI)/.78
  • (MSTR)/2.16
  • (PCL)/.51
  • (RCII)/.45
Economic Releases 
10:00 am EST
  • New Home Sales for September are estimated to fall to 550K versus 552K in August.
10:30 am EST
  • Dallas Fed Manufacturing Activity for October is estimated to rise to -6.5 versus -9.5 in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China Economic Meeting and German IFO Business Climate Index could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and consumer 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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