Tuesday, January 26, 2016

Wednesday Watch

Posted by Gary .....at 10:32 PM
Evening Headlines
Bloomberg:
  • China Stocks Extend Rout as Slumping Profits Add to Outflow Risk. China’s stocks resumed a rout after a report showed industrial companies’ profits slumped, adding to concern a deepening economic slowdown will spur capital outflows. The Shanghai Composite Index dropped 0.6 percent to 2,733.88 as of 9:54 a.m., extending bear-market losses to 25 percent since December. Technology and industrial companies led declines. Industrial profits slid 4.7 percent in December from year-earlier levels. The benchmark gauge tumbled 6.4 percent to a 13-month low on Tuesday after data showed outflows hitting an estimated $1 trillion last year and some of the nation’s most accurate forecasters said the index may not bottom until it falls to the 2,500 level. 
  • China's Industrial Profits Drop a Seventh Month as Sales Weaken. Profits at industrial companies in China fell for a seventh month, extending a record streak of declines, as demand and sales weakened amid the economic slowdown. Total profits of China’s industrial enterprises fell 4.7 percent in December from a year earlier, the National Bureau of Statistics said Wednesday in Beijing. That compared with a 1.4 percent drop in November and was the third-biggest drop in more than three years, based on previously reported NBS data since 2011. A main reason for the drop was "weak demand, which led to significant deceleration in production and sales," NBS said in a statement with the data. "Significantly lower prices of industrial products exacerbated the drop."
  • Why China Stocks May Fall 10% More, Technically Speaking. Market strategists are looking to the psychologically important support level of 2,500 for the Shanghai Composite Index, which closed Tuesday just shy of 2,750. Metrics used by technical analysts point to the vicinity of that same round number.
  • China May No Longer Be Apple’s(AAPL) Great Firewall. (video) The iPhone maker is feeling the effects of an economic slowdown in its most important market. China has been one of Apple's most reliable strongholds during its historic stretch of technology dominance. Even when sales began to level out in the U.S., Europe, and Japan, China was a buffer, promising a massive market of newly middle-class customers looking for a high-end, brand-name smartphone. Sales in Greater China grew 84 percent to $58.7 billion in 2015, making it the company's second-biggest market after the U.S. Apple Chief Executive Officer Tim Cook showered the region with praise at the time for its importance to the company's future.
  • China Slowdown Hits Consumer Brands as P&G(PG), J&J(JNJ) See Weak Results. Consumer product giants Procter & Gamble Co. and Johnson & Johnson reported slowing sales for some brands in China last quarter, as weakness in the world’s second-largest economy starts to hurt multinationals that have spent years building up their businesses there. P&G Chief Financial Officer Jon Moeller said Tuesday on a conference call that certain brand categories in China are growing 5 percent to 8 percent annually, “somewhat slower than they were two and three years ago.” Likewise, J&J said international sales from businesses such as its baby care and skin lines were hurt by the Chinese slump.
  • Consumer Sentiment Slides in Korea to Match Dark Days of MERS. Consumer sentiment in South Korea has dropped back to where it was last year when an outbreak of a deadly respiratory disease scared away foreign tourists and kept local shoppers at home. A key measure of economic confidence from the central bank indicates a rising number of pessimists among Korean consumers as temporary tax cuts and retail sales promotions end while downbeat news about financial markets continues to grab headlines.
  • Credit market turmoil crimps bond sales in worst start since 2005. Bond sales by companies worldwide slowed to an 11-year low in January as investors shunned risk amid a meltdown in capital and commodities markets. About $US329 billion ($472 billion) of debt has been issued so far this month, the least for a January since 2005, when $US299 billion of securities were sold, according to data compiled by Bloomberg. That's despite the biggest day ever for bond sales in the US on January 13 when Anheuser-Busch InBev sold $US46 billion of bonds to fund its takeover of SABMiller. The transaction was the second-largest dollar-denominated debt deal on record.
  • Hedge Fund Starts in Asia Drop to 14-Year Low in Turbulent Year. Hedge fund launches in Asia dropped to the lowest in 14 years last year as investors’ preference for big funds and rising regulatory costs converged with a turbulent market. The number of hedge funds that opened in Asia dropped to 76 in 2015, according to Singapore-based data provider Eurekahedge Pte, down from 117 in the prior year and the fewest since 2001. The number was less than half of the peak in 2010, when 188 new hedge funds set up operations.
  • Asia Stocks Rise While Oil Slips With U.S. Futures; Aussie Gains. Asian stocks rallied, putting a measure of regional equities on course to erase Tuesday’s drop, and high-yielding currencies strengthened. U.S. index futures slipped as oil resumed declines and Apple Inc. forecast its first drop in sales since 2003. Gains by Japan’s carmakers and banks drove the MSCI Asia Pacific Index’s 1.4 percent advance, while Chinese shares slid after a report showed industrial profits dropped last month.
  • World Bank Cuts Iron Ore Predictions Through 2020 as Glut Builds. Iron ore prices are likely to post the biggest loss among metals this year as low-cost supply continues to outstrip consumption, according to the World Bank, which cut its forecasts through 2020. Iron ore demand is nearing its peak and prices will average $42 a metric ton in 2016, a drop of 25 percent from $55.80 last year, the Washington-based lender said in its quarterly outlook Tuesday. In comparison, nickel is due to fall by 16 percent and copper by 9 percent, it said. In October, the bank had forecast 2016 iron ore prices at $59.50. It cut its 2017 estimate for iron ore by 28 percent to $44.10 a ton, and predicted that prices will remain below $50 through 2019 before rising to $51 at the end of the decade.
  • Bets on Negative U.S. Rates by End-2017 Jump Above 10% Chance. Federal Reserve officials are expecting to raise interest rates this year and next. Options markets show some investors are taking out protection in case rates instead go negative. The implied probability of U.S. interest rates sinking below zero next year has risen above 10 percent, data compiled by Bloomberg show. The move has been driven by a surge in purchases of contracts that pay out if rates are cut below zero by the end of 2017 and may be linked to investors finding a cheaper way to hedge the opposite bet -- that rates will actually rise as the Federal Reserve expects. The negative-rates trades -- created through the use of call options on futures contracts linked to the U.S. dollar London interbank offered rate -- have been placed as bonds have rallied, said Todd Colvin, a senior vice president at Ambrosino Brothers in Chicago.
Wall Street Journal:
  •  Dollar’s Rise Poses Risk for Fed Plans. Rising currency can have same impact as rate increase. As Federal Reserve officials prepare to release interest-rate guidance Wednesday, investors are bracing for the dollar to renew its rise against America’s major trading partners and intensify unrest throughout the world’s financial markets. Unlike stocks and bonds, the dollar has had a relatively muted start to 2016, and investors worry that any resumption of its gains could weigh further on global growth.
Barron's: 
Business Insider:
Reuters:
  • Travel industry faces growing concern over Zika virus. Airlines, hotels and cruise operators serving Latin America and the Caribbean are facing growing concern among travelers spooked by the mosquito-borne Zika virus. 
  • Bearish views abound at elite hedge fund conference. Professional money managers gathered at an elite Morgan Stanley investment conference in Palm Beach, Florida this week expressed a range of pessimistic market views, including so-called bearish takes on the energy sector, China, and stocks such as Valeant Pharmaceuticals(VRX) and SolarCity(SCTY).
Night Trading 
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 154.50 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 74.0 -3.5 basis points.
  • Bloomberg Emerging Markets Currency Index 67.32 +.01%.
  • S&P 500 futures -.62%.
  • NASDAQ 100 futures -.77%.

Earnings of Note 
Company/Estimate
  • (ANTM)/1.17
  • (BIIB)/4.08
  • (BA)/1.25
  • (CLF)/-.31
  • (EMC)/.65
  • (FCAU)/.33
  • (GD)/2.38
  • (HES)/-1.45
  • (ITW)/1.21
  • (NSC)/1.26
  • (PGR)/.46
  • (ROK)/1.33
  • (STJ)/1.01
  • (STT)/1.18
  • (UTX)/1.52
  • (CRUS)/.81
  • (CCI)/1.11
  • (EBAY)/.50
  • (FB)/.68
  • (JNPR)/.59
  • (KNX)/.32
  • (LRCX)/1.42
  • (LVS)/.65
  • (MCK)/3.13
  • (MSTR)/2.40
  • (QCOM)/.91
  • (SLG)/1.61
  • (TXN)/.75
  • (TSCO)/.83  
  • (URI)/2.33
  • (VAR)/.92
  • (VRTX)/.16  
Economic Releases
10:00 am EST
  • New Home Sales for December are estimated to rise to 500K versus 490K in November.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +4,377,780 barrels versus a +3,979,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +631,110 barrels versus a +4,563,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,922,220 barrels versus a -1,025,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.74% versus a -.6% decline prior.
2:00 pm EST
  • The FOMC is expected to leave the benchmark Fed Funds rate at .25-.5%.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German Consumer Confidence data, New Zealand rate decision, weekly MBA mortgage applications report, $35B 5Y T-Note auction, (KMI) analyst day, (VALE) analyst meeting and the (PGR) Dec. release could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and consumer shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.
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Stocks Higher into Final Hour on Central Bank Hopes, Oil Bounce, Short-Covering, Commodity/Telecom Sector Strength

Posted by Gary .....at 3:23 PM
Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Around Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • Volatility(VIX) 22.66 -6.25%
  • Euro/Yen Carry Return Index 134.34 +.16%
  • Emerging Markets Currency Volatility(VXY) 11.78 -.42%
  • S&P 500 Implied Correlation 65.06 +.96%
  • ISE Sentiment Index 178.0 +109.4%
  • Total Put/Call .89 -13.59%
  • NYSE Arms .43 -71.58% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 104.35 -2.15%
  • America Energy Sector High-Yield CDS Index 1,808.0 +3.74%
  • European Financial Sector CDS Index 88.86 -1.16%
  • Western Europe Sovereign Debt CDS Index 20.15 -1.51%
  • Asia Pacific Sovereign Debt CDS Index 76.0 -1.88%
  • Emerging Market CDS Index 379.95 -1.80%
  • iBoxx Offshore RMB China Corporate High Yield Index 122.09 +.05%
  • 2-Year Swap Spread 6.5 +.75 basis point
  • TED Spread 32.0 -.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -22.75 +.5 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 67.33 +.5%
  • 3-Month T-Bill Yield .31% +3.0 basis points
  • Yield Curve 116.0 +1.0 basis point
  • China Import Iron Ore Spot $41.08/Metric Tonne -1.18%
  • Citi US Economic Surprise Index -39.4 +1.3 points
  • Citi Eurozone Economic Surprise Index -15.60 -1.6 points
  • Citi Emerging Markets Economic Surprise Index -6.9 +2.2 points
  • 10-Year TIPS Spread 1.36% +2.0 basis points
  • 21.6% chance of Fed rate hike at March 16 meeting, 27.7% chance at April 27 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +320 open in Japan 
  • China A50 Futures: Indicating +131 open in China
  • DAX Futures: Indicating -5 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my tech/medical/retail sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 50% Net Long
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Today's Headlines

Posted by Gary .....at 3:00 PM
Bloomberg:
  • China Stocks Plunge to 13-Month Low Amid Capital Outflow Concern. (video) China’s stocks tumbled to the lowest levels in 13 months amid concern capital outflows will accelerate as the economy slows and support for the yuan eats into the nation’s foreign reserves. The Shanghai Composite Index plunged 6.4 percent to 2,749.79 at the close. All industry groups slumped, ranging from commodity shares to new-economy sectors such as technology. Besides data showing outflows hitting an estimated $1 trillion last year, investors were concerned about a possible liquidity squeeze even as the central bank flooded the financial system with cash before the upcoming Chinese new year holiday. Some of the nation’s most accurate forecasters said the stock index may not bottom until it falls to the 2,500 level.
  • Wider China-Hong Kong Discrepancy Revives Fake Trade Doubts. The gap between China’s reported exports to Hong Kong and the shipments registered by the territory widened in December, suggesting currency-market swings may have spurred a fresh round of fake trade invoicing. China recorded $1.94 of exports to Hong Kong last month for every $1 in imports Hong Kong registered from the mainland, leading to a $22.3 billion difference between the two data sets, according to Bloomberg calculations. That’s the highest gap in both dollar terms and by ratio since March 2013.
  • Hyundai Posts Lowest Profit in Five Years on China Slowdown. Hyundai Motor Co. posted its lowest annual profit in five years after a slump in China deliveries overshadowed gains in the U.S., Europe and South Korea. Net income declined 13 percent to 6.42 trillion won ($5.3 billion) in 2015, the Seoul-based automaker said Tuesday. That compares with the 6.35 trillion won average of 27 analysts’ estimates compiled by Bloomberg. Sales rose 3 percent to 92 trillion won. Hyundai’s profit fell for a third straight year and the automaker missed its annual sales target for the first time since 2008 after deliveries in China slumped and unfavorable exchange rates cut earnings in Russia and Brazil. The company has forecast sales growth this year will be the weakest since 2006 as it expects the economic slowdown to continue in China, its largest market by volume.
  • Here's Why Investors Are Worried Over Emerging Markets. (video)
  • Christie's Sales Fall 5% as `Froth' Comes off Global Art Market. Christie’s International, the world’s leading auction house by revenue, reported a 5 percent decline in annual sales following five straight years of growth, a sign that the art market may be slowing amid stock price volatility and greater selectivity by wealthy buyers. Sales of art and collectibles fell to 4.8 billion pounds in 2015, or $7.4 billion using a sales weighted currency exchange rate, Christie’s said in a statement, from about 5.1 billion pounds in 2014. Sales of postwar and contemporary art, Old Masters, 19th century and Russian art declined.
  • Petrobras(PBR) Near $1, Stocks at Decade Low: Brazil's Rout in Charts.
  • Goldman's Daly Says China Fears Negative for Euro-Area Inflation. Market turmoil fueled by China and falling oil prices is having a negative effect on inflation expectations in the euro area, Goldman Sachs Group Inc. senior economist Kevin Daly said. In comments that underline the task facing the European Central Bank as it looks to cement its credibility for delivering price stability, Daly played down the effect of the recent global rout on ECB President Mario Draghi’s euro-area growth outlook. Daly pointed instead to the risk of inflation expectations becoming unmoored as a result of falling oil prices and market jitters coupled with a stronger euro and broader price pressure on commodities. 
  • Miners Lead Europe Stock Gains While Siemens Surges on Earnings. A rebound in commodity and energy producers led the advance in European equities, while earnings at Siemens AG and Royal Philips NV further boosted sentiment. The Stoxx Europe 600 Index climbed 0.9 percent at the close of trading in London. It erased a decline of as much as 2 percent as crude rose above $30 a barrel after Iraq’s oil minister said Saudi Arabia and Russia are now more flexible about cooperating to cut output.
  • China Energy Giant Signals Nation's Fuel Oversupply Is Worsening. China’s biggest energy company predicted the nation’s refineries will increase output in 2016, exacerbating a fuel glut and boosting exports of the surplus to regional markets. Net export of oil products -- which strips out imports -- will rise by 31 percent this year to 25 million metric tons, China National Petroleum Corp. said in its annual research report. The country’s refineries will increase oil processing by 5.3 percent while net crude imports will rise 7.3 percent to 357 million tons. “China is set to ship record oil products overseas amid its slowing domestic demand,” Jean Zuo, an analyst at ICIS China, said by phone from Guangzhou. 
  • Credit Suisse Says We Haven't Seen the Bottom in Oil Yet, Slashes Price Forecasts. Demand could come into focus. Credit Suisse took a hatchet to its oil price forecasts as persistently low levels of crude force more optimistic analysts to revisit their assumptions. Global Energy Economist Jan Stuart reduced his call for Brent and West Texas Intermediate in the first quarter of 2016 to $29.25 and $30 from $51.25 and $47.50, respectively, saying "the bottom is not yet in." Those first-quarter forecasts are even lower than what the futures market is pricing in and are 20 percent or more below the consensus estimates, according to forecasts compiled by Bloomberg.
  • Distress in the Shale Oil Patch Spurs New Type of Joint Venture. Joint ventures between oil and gas explorers in the U.S. and their foreign counterparts helped fuel the shale boom. They’re coming back in a new iteration for the bust. The difference this time: Shale explorers are partnering with Wall Street financiers to raise money for drilling, instead of overseas rivals. Typically, private equity firms invest in energy by buying entire companies or providing capital to startups. Last year, U.S. oil and gas companies struck a half-dozen joint venture deals with private equity firms totaling at least $1.4 billion. In December, an affiliate of Fortress Investment Group agreed to provide National Fuel Gas Co. with as much as $380 million to fund wells in Pennsylvania, while Blackstone Group LP’s credit arm closed a similar deal in July with Linn Energy LLC.
  • Dregs of the Junk Market Swell to Six-Year High, Moody's Says. The number of companies on the lowest rungs of the junk-bond market hit a six-year high in 2015, according to Moody’s Investors Service. The ratings company reported Tuesday that there were 248 companies on its Negative and Lower Corporate Ratings List, up by more than a third from a year ago and just 43 shy of the all-time high reached during the credit crisis. The increased weakness comes as a rout in junk has seen the average yield on the debt climb to 9.5 percent, the highest level since the global financial crisis.
  • Which Apple(AAPL) Suppliers Track Its Stock? Not the Obvious Ones. As Apple Inc. prepares to report financial results, it’s not just investors who will be watching how the world’s most valuable company fares. Hundreds of suppliers around the world will pay close attention for clues about whether their fortunes are poised to rise or fall.Which companies are most closely correlated with Apple? It’s not necessarily the highest-profile or best-known suppliers. It’s lesser known companies, including Alps Electric Co. and TDK Corp., whose shares have been most closely correlated among Asia suppliers over the last three months, according to data compiled by Bloomberg.
  • Paulson Pledges Personal Holdings to Back Firm After Assets Fall. (video) John Paulson, the hedge fund manager struggling with uneven returns since his windfall wager against U.S. housing in 2007, is turning to his own fortune to help backstop his firm. The billionaire pledged his personal investments in four of his firm’s hedge funds as additional collateral for a credit line Paulson & Co. has had with HSBC Bank USA for at least five years, according to a filing last month with the state of New York. The holdings will also serve as guarantee for a new personal line of credit for Paulson. 
  • AIG(AIG) to Cut Hedge Fund Bets After ‘Greatly Disappointing’ Results. American International Group Inc. Chief Executive Officer Peter Hancock is scaling back hedge fund bets as he seeks to improve returns and free up more cash to return to shareholders. “It’s not an efficient use of our capital, so we’ll be diminishing our allocation to hedge funds,” Hancock told Bloomberg’s Betty Liu in a televised interview on Tuesday after a presentation in which he announced plans to generate $25 billion over the next two years that can be used for stock buybacks or dividends. “About $2 billion of that return to shareholders is by de-risking the asset side of our balance sheet.”
  • The Surge in U.S. Mansion Prices Is Now Over. (video)
CNBC:
  • Does Trump believe Medicare should negotiate prices? This would be a big deal. Our current system forbids Medicare from negotiating drug prices. Clinton's focus on the issue in September, in the form of a tweet about price gouging, took 5 percent off biotech stocks in one morning. And though Republican candidates, like Sen. Marco Rubio, have focused on drug prices before, they haven't called for that provision. "I think the market will pay careful attention to the [Republican] response, maybe more so than Hillary," Robert W. Baird analyst Brian Skorney wrote in an email. "If the Republicans start favoring price control, it will be a big problem for the sector."
Zero Hedge:
CNN:
  • 5 Things You Need to Know About Zika. A relatively new mosquito-borne virus is prompting worldwide concern because of an alarming connection to a neurological birth disorder and the rapid spread of the virus across the globe.
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Bear Radar

Posted by Gary .....at 1:56 PM
Style Underperformer:
  • Large-Cap Growth +1.0%
Sector Underperformers:
  • 1) HMOs -.5% 2) Biotech unch. 3) Medical Equipment +.6%
Stocks Falling on Unusual Volume:
  • PII, MUSA, LDOS, N, WAT, PCTY, SSYS, LMT, GRA, MKTO, ACAT, CVRR, HOG, ANAC, ELS, FBC, MINI, PRTA, UBNT, BSTC, MYCC, MSGN, MDVN, EGRX, CRTO and LDOS
Stocks With Unusual Put Option Activity:
  • 1) KBH 2) HYG 3) COH 4) JOY 5) FL
Stocks With Most Negative News Mentions:
  • 1) N 2) SSYS 3) PII 4) UDF 5) OSIR
Charts:
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Bull Radar

Posted by Gary .....at 1:30 PM
Style Outperformer: 
  • Small-Cap Value +2.3% 
Sector Outperformers:
  • 1) Gold & Silver +5.6% 2) Hospitals +4.6% 3) Telecom +3.6% 
Stocks Rising on Unusual Volume: 
  • FMER, RMBS, GGG, SWFT, TEX, COH, RLYP, PHG, MTW, IIVI, AMBC, SANM, WDC, CR, PCH, VSH, DOV, AOS, STLD, SUN, CTB, DRII, ZION and MMM
Stocks With Unusual Call Option Activity: 
  • 1) HST 2) COH 3) GLD 4) INVN 5) KHC
Stocks With Most Positive News Mentions: 
  • 1) STWD 2) BA 3) MCD 4) COH 5) GLW
Charts:
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Morning Market Internals

Posted by Gary .....at 11:02 AM
NYSE Composite Index:
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