Tuesday, April 04, 2017

Wednesday Watch

Evening Headlines
Bloomberg:
  • North Korea Fires Ballistic Missile Before Xi-Trump Meeting. North Korea conducted another ballistic missile test, the latest provocation from Kim Jong Un’s regime as he seeks to build a nuclear arsenal. The projectile was fired into the East Sea early Wednesday and flew about 60 kilometers (37 miles), South Korea’s joint chiefs of staff said in a text message. It follows ballistic missile tests in February and March, as the isolated country defies United Nations sanctions and works on a missile that could deliver a miniaturized nuclear weapon to the continental U.S. Kim has launched a series of projectiles and conducted three nuclear tests since he came to power more than five years ago. He claimed in January to be in the final stage of preparations to test-fire an intercontinental ballistic missile.
  • Zombie Nation: In Japan, Zero Public Companies Went Bust in 2016. Corporate Japan achieved a rare feat in the fiscal year that ended last week. Not one of its almost 4,000 publicly-traded firms filed for bankruptcy protection. Yet that’s no reason to celebrate, according to analysts who see Japan’s easy credit conditions standing in the way of a much-needed, corporate restructuring to flush out failing companies and make room for new businesses.
  • Asian Stocks Nudge Higher Before China Reopens. Stocks in Japan and Australia advanced, after the S&P 500 Index swung from losses to gains during the Tuesday session and closed marginally higher. The yen weakened for the first time in four days against the dollar, and South Africa’s rand steadied after a pronounced slump. The Aussie clung to declines after the central bank warned regulators are prepared to consider further measures to tame runaway house-price growth. The yen fell 0.1 percent to 110.84 per dollar as of 9:15 a.m. in Tokyo, following three days of gains. The Topix index climbed 0.5 percent and Australia’s S&P/ASX 200 Index added 0.3 percent. South Korea’s Kospi index was little changed.
  • Tarullo Suggests Phasing Out Key Part of Bank Stress Tests. It may be time to phase out one of Wall Street’s most feared aspects of the annual stress tests conducted by the Federal Reserve, Governor Daniel Tarullo said Tuesday on the eve of his last day on the board. The Fed official who has wielded unprecedented influence over the regulation of big banks said the part of the exams that measures lenders’ ability to weather a major crisis -- known as the qualitative test -- may not be needed much longer.
  • H-1B Visa Overhaul Could Actually Benefit Big Tech Companies. The new way foreign worker visas are doled out in the U.S. is poised to benefit some of the biggest technology companies, like Alphabet Inc., Microsoft Corp. and Facebook Inc., while punishing outsourcing firms that developed a disproportionate dependence on the program. The administration is increasing scrutiny on H-1B visa applications for low-level computer programmers, focusing enforcement on the heaviest users of the program, and warning applicants not to discriminate against American workers. The size and scope of the program remains unchanged for now
Wall Street Journal:
Night Trading 
  • Asian equity indices are unch. to +.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 94.25 -.25 basis point. 
  • Asia Pacific Sovereign CDS Index 21.0 -.25 basis point.
  • Bloomberg Emerging Markets Currency Index 71.98 unch.
  • S&P 500 futures +.04%. 
  • NASDAQ 100 futures +.03%.
Morning Preview Links

Earnings of Note
Company/Estimate

  • (GBX)/.86
  • (MON)/2.79
  • (WBA)/1.36
  • (BBBY)/1.78
  • (RECN)/.14
  • (YUMC)/.38
Economic Releases
8:15 am EST 
  • The ADP Employment Change for March is estimated to fall to 190K versus 298K in February. 
9:45 am EST
  • Final Markit US Services PMI for March is estimated to rise to 53.1 versus a prior estimate of 52.9.  
10:00 am EST
  • ISM Non-Manufacturing Composite for March is estimated to fall to 57.0 versus 57.6 in February.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -70,000 barrels versus a +867,000 barrel increase the prior week. Gasoline supplies are estimated to fall by -1,535,000 barrels versus a -3,747,000 barrel decline the prior week. Distillate inventories are estimated to fall by -795,000 barrels versus a -2,483,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.54% versus a +1.9% gain prior.
2:00 pm EST
  • The FOMC March 15 Meeting Minutes.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone Services PMI report, weekly MBA Mortgage Applications report, (COST) Monthly Sales report, (NTAP) analyst day, (CCL) annual meeting and the (LYB) investor day could also impact trading today.
BOTTOM LINE:  Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 75% net long heading into the day.

Stocks Slightly Higher into Final Hour on Economic Optimism, Oil Gain, Technical Buying, Energy/Metals & Mining Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 11.97 -3.31%
  • Euro/Yen Carry Return Index 123.26 -.22%
  • Emerging Markets Currency Volatility(VXY) 9.05 +1.0%
  • S&P 500 Implied Correlation 42.89 -3.12%
  • ISE Sentiment Index 77.0 -5.0%
  • Total Put/Call 1.22 +24.5%
  • NYSE Arms .81 -51.0%
Credit Investor Angst:
  • North American Investment Grade CDS Index 66.25 -.77%
  • America Energy Sector High-Yield CDS Index 361.0 -.64%
  • European Financial Sector CDS Index 92.31 +.27%
  • Western Europe Sovereign Debt CDS Index 12.46 -3.82%
  • Asia Pacific Sovereign Debt CDS Index 21.01 -1.27%
  • Emerging Market CDS Index 212.19 -.62%
  • iBoxx Offshore RMB China Corporate High Yield Index 136.58 +.02%
  • 2-Year Swap Spread 36.75 +2.5 basis points
  • TED Spread 36.75 -2.0 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -24.25 +.75 basis point
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 71.95 -.14%
  • 3-Month T-Bill Yield .78% +2.0 basis point
  • Yield Curve 111.0 -1.0 basis point
  • China Import Iron Ore Spot $79.45/Metric Tonne +.1%
  • Citi US Economic Surprise Index 43.70 -.8 point
  • Citi Eurozone Economic Surprise Index 47.0 -.7 point
  • Citi Emerging Markets Economic Surprise Index 27.90 -3.4 points
  • 10-Year TIPS Spread 1.96 -1.0 basis point
  • 56.7% chance of Fed rate hike at June 14 meeting, 62.2% chance at July 26 meeting
Overseas Futures:
  • Nikkei 225 Futures: Indicating +150 open in Japan 
  • China A50 Futures: Indicating +93 open in China
  • DAX Futures: Indicating +33 open in Germany
Portfolio: 
  • Slightly Lower: On losses in my retail/medical sector longs
  • Disclosed Trades: None
  • Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:
Wall Street Journal:
Barron's:
Zero Hedge:

Bear Radar

Style Underperformer:
  • Mid-Cap Growth -.5%
Sector Underperformers:
  • 1) Hospitals -1.8% 2) Retail -1.0% 3) Airlines -.8%
Stocks Falling on Unusual Volume: 
  • NLNK, FLT, AYI, KATE, NTNX, URBN, HTZ, LB, NVDA and BWA
Stocks With Unusual Put Option Activity:
  • 1) RCII 2) SPLS 3) LB 4) KATE 5) CBS
Stocks With Most Negative News Mentions:
  • 1) KATE 2) NVDA 3) LB 4) FLT 5) PIR
Charts: