Evening Headlines
Bloomberg:
- China’s Searching for Stock Market Scapegoats. “They don’t quite get how to work with these markets, don’t know what they’re doing”. Xi’s government is struggling to balance a pledge to loosen its grip on
the economy with the desire to ensure stability and maintain confidence
in the ruling Communist Party. The battle between the invisible hand of
the market and the iron fist of the government creates confusion and
chaos, making China the biggest threat to the global economy and
financial markets. “They don’t quite get how to work with these markets,
don’t know what they’re doing—that view is already out there,” says
Nicholas Field, emerging-markets strategist at money manager Schroders
in London. “It’s one of the reasons why global markets have sold off.”
- Australian Retail Sales Unexpectedly Fall as Economy Slows. Australian retail sales unexpectedly fell in July, the first drop
since May 2014, as highly-indebted consumers put away their pocketbooks. Sales
fell 0.1 percent from a month earlier, when they rose a revised 0.6
percent -- lower than first reported, government data showed Thursday.
The result compares with the median estimate in a Bloomberg survey of 26
economists for a 0.4 percent gain. The data corresponds with a
rise in the household savings rate and suggests little improvement in
the economy at the start of the third quarter after growth slowed to an
anemic 0.2 percent in the second quarter. The weaker than expected sales
could add to the case for the central bank to lower interest rates
further from a record-low 2 percent.
- Mood Darkens in Tokyo as Traders Boost Bearish Stock Bets. If Japan’s options market is any guide, investors see little respite from the stock slump that’s gripping Tokyo. One-month
puts that pay out if the Nikkei 225 Stock Average drops 10 percent cost
19 points more than ones betting on a rally, the widest gap since 2011,
and traders have amassed the most bearish contracts relative to calls
in five years. Bearish sentiment is just as visible in the stock market
itself, where short-selling accounted for a record 41 percent of trades
on Tokyo’s exchange Tuesday.
- Korea Reserves Fall for Second Month in Sign of Won Intervention. South Korea’s foreign-exchange reserves dropped for a second month in
August, a sign the central bank likely intervened to stem a slide in
the won. The reserves fell $2.88 billion to $367.94 billion, after
a July drop of $3.93 billion that marked the biggest decline in three
years, central bank data showed Thursday. The won sank last month to its
weakest level since October 2011 as China’s surprise devaluation of the
yuan dimmed the outlook for exports, weakening emerging-market
currencies across Asia, and a military standoff between North and South
Korea heightened tensions on the peninsula.
- Ringgit Falls on Concern Data to Show Further Reserve Depletion. The ringgit extended the week’s losses on concern the erosion of
Malaysia’s foreign-exchange reserves will further hurt investor
sentiment in an economy reeling from falling oil prices and a political
scandal. The reserve holdings have fallen 19 percent this year to
$94.5 billion and data on Friday for the last two weeks of August may
show the extent of central bank ringgit purchases to prop up Asia’s
worst-performing currency this year. Australia & New Zealand Banking
Group Ltd. sees a figure of around $92 billion. Growth in exports may
also have slowed in July following June’s rebound from two-months of
contraction, according to a Bloomberg survey before tomorrow’s report.
- Brazil Central Bank Holds Steady After Recession Hits. Brazil kept its benchmark interest rate unchanged as policy makers
signal they have done enough to bring inflation to target by the end of
2016 in a recession-hobbled economy. The bank’s board, led by President
Alexandre Tombini, kept the so-called Selic rate at 14.25 percent, after
seven straight increases totaling 3.25 percentage points. Wednesday’s
move was forecast by 51 of 56 economists surveyed by Bloomberg. The
other five analysts predicted a quarter-point increase. The decision was
unanimous and policy makers left the language in the communique
virtually unchanged from the July 28-29 meeting.
- Asia Stocks Rise Amid China Holiday Calm; Aussie Drops on Retail. Asian stocks rose for the first time this week as a two-day holiday in China gave investors
respite from the market that’s been at the center of recent global
volatility. Australia’s dollar weakened toward a six-year low after
retail sales unexpectedly fell. Japanese shares advanced from a
one-week low, aided by weakness in the yen. Standard & Poor’s 500
Index futures were little changed after U.S. and European stocks
rallied. The Aussie dropped with the nation’s equities as the
contraction in retail overshadowed an increase in exports. Oil retreated
after President Barack Obama secured congressional support for a deal
with Iran that may add to a global glut. “A major source of market
disruption is sidelined as markets in China are now closed for the
week,”
Michael McCarthy, chief market strategist in Sydney at CMC Markets, said
in an e-mail. “Asia-Pacific investors are anticipating relief today.”
With
the spotlight off China until next week, attention shifts back to the
outlook for U.S. interest rates. The Bloomberg Dollar Spot Index held
gains Thursday before a European Central Bank policy meeting that may
underscore the diverging outlook for borrowing costs. The MSCI Asia Pacific Index added 0.5 percent by 10:49 a.m. in Tokyo as Japan’s Topix index jumped 1.4 percent.
Wall Street Journal:
- Democrats and the Ayatollahs. Obama’s party is now accountable for Iranian behavior. Maryland’s Barbara Mikulski on Wednesday became the 34th Senate Democrat
to announce her support for President Obama’s nuclear deal with Iran,
enough to sustain a veto on a resolution of disapproval. So the deal
will proceed, and Democrats had better hope it succeeds because they are
taking responsibility for Iran’s compliance and imperial ambitions.
Politically speaking, they now own the Ayatollahs.
- Hillary Parties Like It’s 1938. Clinton’s capital-gains tax proposal has been tried before—by FDR, with disastrous results. Hillary Clinton’s most memorable economic proposal, debuted this summer,
is her plan to impose a punishing 43.4% top tax rate on capital gains
that are cashed in within a two-year holding period. The rate would
drift down to 23.8%, but only for investors that sat on investments for
six years.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 138.75 unch.
- Asia Pacific Sovereign CDS Index 83.0 -1.75 basis points.
- NASDAQ 100 futures +.01%.
Earnings of Note
Company/Estimate
Economic Releases
7:30 am EST
- Challenger Job Cuts for August.
8:30 am EST
- Initial Jobless Claims are estimated to rise to rise to 275K versus 271K the prior week.
- Continuing Claims are estimated to fall to 2255K versus 2269K prior.
- The Trade Deficit for July is estimated at -$42.2B versus -$43.84B in June.
9:45 am:
- Final Markit US Composite PMI for August.
10:00 am EST
- The ISM Non-Manufacturing Composite for August is estimated to fall to 58.2 versus 60.3 in July.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Kocherlakota speaking, ECB rate decision, ECB's Draghi speaking,
Eurozone Services PMI, weekly Bloomberg Consumer Confidence Index,
(FAST) August sales update, (TWTR) board meeting and the (LSTR)
mid-quarter conference call 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 modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
