Tuesday, August 04, 2015

Tuesday Watch

Evening Headlines 
  • Sex Slaves Sold by Islamic State, the Younger the Better. A senior United Nations official says Islamic State is circulating a slave price list for captured women and children, and that the group’s ongoing appeal and barbarity pose an unprecedented challenge. The official, Zainab Bangura, said that on a trip to Iraq in April she was given a copy of an Islamic State pamphlet, which included the list, showing that captured children as young as one fetch the highest price. The bidders include both the group’s own fighters and wealthy Middle Easterners. 
  • In Cash-Starved Greece, Plastic Casts Light Into Shadow Economy. Greece’s banking crisis is having at least one positive outcome, and it’s made of plastic. In a country where cash is king and undeclared transactions still make up about a quarter of the economy, about 1 million debit cards have been issued by banks since the government closed lenders for three weeks and imposed controls on euro bills. Emergency measures that some officials warned might spur the black market are showing signs of doing the opposite. 
  • Gold Declines as Copper Nears Bear Market; China Stocks Swing. Gold fell and copper neared a bear market amid concern over slackening demand for commodities and as the U.S. interest-rate outlook buoyed the dollar. China’s stocks fluctuated after authorities stepped up efforts to halt a rout. Bullion lost 0.3 percent as of 11:08 a.m. in Tokyo, while palladium slid to its lowest since 2012. Copper extended losses and Brent crude traded below $50 a barrel. A gauge of the greenback’s strength climbed to the highest level since March, while Australia’s dollar traded near a six-year low before a monetary policy review. The MSCI Asia Pacific Index of shares fell 0.1 percent and the Shanghai Composite was down 0.4 percent, after climbing as much as 1.1 percent.
  • Rubber Set for Bear Market as China Slowdown Worsens Oversupply. Rubber is poised to enter a bear market as a slowdown in China, the world’s largest consumer, is worsening a global glut amid rising shipments from producers. Futures have dropped 20 percent from a 16-month high reached June 1. The contract for January delivery fell 1.2 percent to 195 yen a kilogram ($1,572 a metric ton) on the Tokyo Commodity Exchange by 11:07 a.m. in Tokyo. A drop of 20 percent or more from this year’s closing peak will meet the common definition of a bear market.
  • Gas Is Just Another Fossil-Fuel Loser in Obama’s Power Plan. Natural gas, once seen as a clear winner in President Barack Obama’s push for cleaner power, wasn’t looking like much of a champ on Monday. That so-called bridge that gas was supposed to be, leading America away from dirtier fossil fuels such as coal and toward renewable power, just got a lot shorter under the final Clean Power Plan released by the U.S. Environmental Protection Agency. The agency will reward early investments in wind and solar power to get the nation generating 28 percent of its power using renewables by 2030, up from an initial proposal of 22 percent.
  • Bull market losing biggest supporter as Apple(AAPL) caps 10 percent retreat. The bull market's base just lost another brick. Amid a collapse in breadth and the threat of falling earnings, add a correction in Apple shares to the concerns facing investors. The iPhone maker slipped 2.4 percent to $118.44 Monday, extending its decline since February to 11 percent and dropping below another chart threshold, its 200-day moving average, for the first time since 2013.
Wall Street Journal:
  • Impact of EPA’s Emissions Rule on Industry to Vary. Federal regulation will boost outlook for some regions and companies while biting others. A sweeping federal rule intended to slash carbon-dioxide emissions from power plants will have an uneven impact on the energy industry, boosting the outlook for some regions and companies while biting others.
  • Climate-Change Putsch. States should refuse to comply with Obama’s lawless power rule. Rarely do American Presidents display the raw willfulness that President Obama did Monday in rolling out his plan to reorganize the economy in the name of climate change. Without a vote in Congress or even much public debate, Mr. Obama is using his last 18 months to dictate U.S. energy choices for the next 20 or 30 years. This abuse of power is regulation without representation.
  • Oil craters, set to retest lows. (video) Oil prices have now broken below many Wall Street targets and look set to test the year's lows and beyond, before finding a bottom. Led by international bench mark Brent crude, futures were slammed Monday on concerns about new supply coming on the market and worries about contracting demand from China.
Zero Hedge:
  • Brazil auto sales tumble 23 pct in July from year ago. New auto sales in Brazil remained weak in July as rising interest rates and unemployment eroded consumer confidence, contributing to a deepening crisis in the industry responsible for a fifth of the country's industrial output. Sales of cars, trucks and buses fell 23 percent from a year earlier to 227,621 vehicles last month, national dealership association Fenabrave said on Monday. An extra two working days lifted sales from June by 7 percent, but the daily pace of sales slipped below 10,000 vehicles, making it the slowest July since 2007. Brazil is one of the world's five biggest auto markets, with major operations for Fiat Chrysler Automobiles NV, Volkswagen AG, General Motors Co and Ford Motor Co, whose earnings have suffered in the slump. Sales are unlikely to pick up in the months ahead, Fenabrave President Alarico Assumpção Júnior said in a statement accompanying the monthly data, affirming the group's forecast of a roughly 20 percent drop in sales this year. 
  • Commodity currencies under pressure, USD marks time. The Canadian dollar languished at 11 year lows early on Tuesday after slipping along with other commodity currencies following a selloff in oil prices, stealing the focus from a subdued U.S. dollar that heald steady against the euro and yen. The loonie last traded at C$1.3154 per USD, not far from a low of C$1.3175 set overnight - a level not seen since August 2004. Trading was light with Canadian markets shut for a public holiday on Monday.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.75% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 113.25 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 64.75 +1.75 basis points.
  • S&P 500 futures -.07%.
  • NASDAQ 100 futures -.10%.

Earnings of Note
  • (AET/1.82
  • (ADM)/.67
  • (BZH)/.41
  • (COH)/.29
  • (CVS)/1.20
  • (EXPD)/.54
  • (HCP)/.76
  • (H)/45
  • (K)/.92
  • (ML)/160
  • (MDC)/.38
  • (GM/.10
  • (MOS)/.90
  • (ODP)/06
  • (PH)/1.88
  • (REGN)/2.78
  • (VSH)/.23
  • (VMC)/.61
  • (ZTS)/.38
  • (ATVI)/.08
  • (MDRX)/.10
  • (CERN)/.52
  • (DVN)/.43
  • (FSLR)/.08
  • (NBR)/-.09
  • (PZZA)/.49
  • (DIS)/1.42
  • (Z)/-.26
Economic Releases
9:45 am EST
  • The ISM New York for July. 
10:00 am EST
  • Factory Orders for June are estimated to rise +1.8% versus a -1.0% decline in May.
  • The IBD/TIPP Economic Optimism Index for August is estimated to fall to 47.8 versus 48.1 in July.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The RBA rate decision, weekly US retail sales reports, Needham Interconnect Conference, (NTCT) investor day and the (NATI) investor conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

Monday, August 03, 2015

Stocks Reversing Lower into Afternoon on Global Growth Concerns, China Bubble-Bursting Fears, Emerging Markets/US High-Yield Debt Angst, Commodity/Technology Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 12.62 +4.13%
  • Euro/Yen Carry Return Index 141.72 -.3%
  • Emerging Markets Currency Volatility(VXY) 9.42 +.64%
  • S&P 500 Implied Correlation 57.93 unch.
  • ISE Sentiment Index 88.0 +25.71%
  • Total Put/Call .90 -17.43%
  • NYSE Arms 1.52 -15.86% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 71.48 +1.82%
  • America Energy Sector High-Yield CDS Index 1,582.0 unch.
  • European Financial Sector CDS Index 73.31 -.46%
  • Western Europe Sovereign Debt CDS Index 22.66 +1.23%
  • Asia Pacific Sovereign Debt CDS Index 63.84 +1.43%
  • Emerging Market CDS Index 324.15 +1.87%
  • iBoxx Offshore RMB China Corporates High Yield Index 121.10 +.01%
  • 2-Year Swap Spread 23.75 +.5 basis point
  • TED Spread 24.75 +.75 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -19.75 -.25 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .06% unch.
  • Yield Curve 150.0 -3.0 basis points
  • China Import Iron Ore Spot $55.16/Metric Tonne +4.16%
  • Citi US Economic Surprise Index -14.0 +1.4 points
  • Citi Eurozone Economic Surprise Index 5.6 -1.5 points
  • Citi Emerging Markets Economic Surprise Index -10.3 +1.1 points
  • 10-Year TIPS Spread 1.70 -5.0 basis points
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.37 +.61
Overseas Futures:
  • Nikkei 225 Futures: Indicating -60 open in Japan 
  • China A50 Futures: Indicating -448 open in China
  • DAX Futures: Indicating -27 open in Germany
  • Slightly Higher: On gains in my index hedges and emerging markets shorts
  • Disclosed Trades: None
  • Market Exposure: 25% Net Long

Bear Radar

Style Underperformer:
  • Small-Cap Value -.40%
Sector Underperformers:
  • 1) Coal -4.40% 2) Computer Services -1.36% 3) Disk Drives -1.31%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) BEN 2) OIL 3) ADSK 4) DIS 5) FOSL
Stocks With Most Negative News Mentions:
  • 1) COH 2) IMGN 3) CVX 4) TSN 5) KORS

Bull Radar

Style Outperformer:
  • Large-Cap Growth -.22%
Sector Outperformers:
  • 1) Airlines +1.45% 2) Hospitals +.89% 3) Utilities +.51%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) ED 2) IDTI 3) WM 4) CERN 5) SGMS
Stocks With Most Positive News Mentions:
  • 1) FCAU 2) LXRX 3) CLX 4) CERN 5) CCE

Morning Market Internals

NYSE Composite Index:

Sunday, August 02, 2015

Monday Watch

Today's Headlines 
  • Meet China’s Stock Rescue Chief: He Never Saw the Crisis Coming. After China’s stocks crashed in June, the government put more than $400 billion at the disposal of a little-known state agency, the China Securities Finance Corp., headed by an academic and bureaucrat named Nie Qingping. It was told to save the market. The agency’s unique mandate is to intervene in the market to buy stocks, with money borrowed from the central bank and other sources, in order to help prop up share prices. With the recent volatility evidenced by another crash on July 27, its success so far isn’t readily apparent. Nie, the 53-year-old chairman, hasn’t given interviews on his emergency role, and the government hasn’t spelled out exactly what discretion Nie and his agency have when executing orders from above. Four weeks into the new role, the picture emerging from Nie’s published books and commentaries, as well as interviews with fellow academics, is of a professor with 25 years of experience watching stock manias -- who still got blindsided by China’s latest crisis.
  • China Car Sales Drop Flashes Yellow Light for Its Economy. When China’s economy was booming, motorists became a symbol of the nation’s new spending power. Now, falling car sales may be more a symbol of China’s steady deceleration. Voracious demand saw China overtake the U.S. as the world’s biggest car market in 2009, spurring auto giants including Ford Motor Co. and Volkswagen AG to supercharge their production in the country. By contrast, Ford now sees a potential decline in auto sales in China for the first time in 17 years. Volkswagen suffered its first sales drop in a decade during the first half of the year. Because car demand is often a timely indicator of consumer and business confidence, it can capture economic trends before official data. With the auto sector second only to real estate as having the largest impact on suppliers, according to Banco Bilbao Vizcaya Argentaria SA, weakness in the industry threatens to worsen a downturn in manufacturing. A purchasing manager index for China’s factories slid in July to a five-month low. “Declining car sales are definitely a warning sign for the Chinese economy,” said Paul Gao, McKinsey & Co.’s Shanghai-based head of automotive practice in Asia. “It’s a reflection of consumer confidence.”
  • Bears Pounce on China Solar Makers as Consumption Growth Slows. U.S. investors are keying in on Chinese solar manufacturers as a way to profit from the slowdown in the world’s second-largest economy. Traders have sold short 22 percent of JinkoSolar Holding Co.’s American depositary receipts, the second-most among U.S.-listed Chinese stocks, according to data compiled by Markit and Bloomberg. Trina Solar Ltd. has the third-most bearish bets, amounting to 12 percent of outstanding shares. JA Solar Holdings Co. is fourth at 11 percent.
  • Greek Financial Markets to Open as Talks With Creditors Continue. Greek financial markets reopen on Monday after a five-week suspension as talks continue with creditors on austerity measures and reforms required for a third bailout. Local traders will be able to buy stocks, bonds, derivatives and warrants under certain conditions, according to the Finance Ministry. International investors won’t face any restrictions, as long as they were active in the markets before they were shuttered in June. The resumption of trading comes as Prime Minister Alexis Tsipras negotiates conditions that will be attached to an 86 billion-euro ($94.5 billion) lifeline to see the country through the next three years. An agreement is needed before a payment comes due on bonds held by the European Central Bank on Aug. 20.
  • Commodity Rout Spurs Worst Resource Currency Meltdown in 7 Years. (graph) There’s been no respite in the commodity rout that’s seen prices tumble to a thirteen-year low -- and that’s meant the same for resource currencies. Canada’s dollar sank to its weakest since 2004 as plunging oil prices shrank the economy and prompted Prime Minister Stephen Harper to call an early election. The Australian and New Zealand dollars were within one cent of six-year lows on Monday amid signs of a slowdown in China, the world’s biggest consumer of raw materials. All three currencies have fallen more than 10 percent against their U.S. peer this year.
  • Saudi Stocks Slip Most in 4 Months as Oil Drop Hits Gulf Markets. Saudi Arabia’s stocks fell the most since March, leading declines across equity markets in the six-nation Gulf Cooperation Council, after crude slid to a six-month low. The Tadawul All Share Index slipped 3.2 percent, its biggest retreat since March 25, to 8,807.24 at the close in Riyadh. Saudi Basic Industries Corp. tumbled 4.1 percent to the lowest level in more than three months. The QE Index in Qatar, home to the world’s third-largest natural-gas reserves, dropped 1.1 percent.   
  • China’s Stocks Fall to Three-Week Low on Economic Growth Concern. China’s stocks fell, extending the benchmark index’s biggest monthly loss in six years, as a drop in an official manufacturing gauge re-ignited concern the economic slowdown is deepening. The Shanghai Composite Index slid 2.2 percent to 3,581.17 at 9:42 a.m., the biggest loss since July 8, as technology and energy companies slumped. The CSI 300 Index retreated 1.7 percent on Monday. Hong Kong’s Hang Seng China Enterprises Index fell 2 percent, while the Hang Seng Index lost 1.4 percent.
  • Asian Stocks Fall on China Factory Data as Energy Shares Retreat. Asian stocks fell for the first time in four days as data showed a Chinese factory gauge slipped to a five-month low and energy shares retreated amid a drop in oil. The MSCI Asia-Pacific Index slipped 0.3 percent to 141.67 as of 9:07 a.m. in Tokyo. The measure 
  • Copper Extends Worst Monthly Drop Since January on Chinese Data. “We’re still not seeing demand pick up,” said Jonathan Barratt of Ayers Alliance Securities by phone from Sydney. “A lot of people didn’t anticipate things were going to be as weak as they are. But we’ve had in the back of our minds, if stimulus is working then why is it not helping primary input prices?” Copper fell as much as 0.7 percent to $5,195 a metric ton after slumping 9.3 percent in July and is trading near the lowest level since 2009.
  • Debt Traders Flee Junkyard’s Dogs as Oil Rout Extends Yield Gap. Debt investors are abandoning the bottom rungs of the speculative-grade market as commodity prices at their lowest level in more than a decade pummel borrowers in the energy and mining industries. The yield gap between higher- and lower-rated junk bonds expanded to the widest in more than three years, with the large number of energy and mining companies ranked CCC and lower -- the riskiest bets -- driving the dichotomy, said Martin Fridson, a money manager at Lehmann Livian Fridson Advisors LLC. When removing those companies, the yield on CCC bonds barely changed in July, creating “an industry effect in disguise,” he said. The yield gap between BB-rated bonds -- the top of the junk pile -- and those ranked CCC and lower expanded to 7.91 percentage points, the most since December 2011, according to Bank of America Merrill Lynch index data. The yield premium for energy companies rated junk versus all high-yielders expanded to 3.61 percentage points after touching the highest ever last week. The plight of these high-yield energy companies may next be seen in default rates, which could reach 25 percent in the next year in the B and CCC categories, assuming current commodity prices, according to a UBS Group AG research report Thursday. “Spreads got insanely tight because of that reach for yield a lot of people were going for regardless of ratings,” said Zach Jonson, a money manager at Icon Advisers Inc. in Greenwood Village, Colorado.
Wall Street Journal: 
  • U.S. to Defend New Syria Force From Assad Regime. Military officials play down chances of direct confrontation with the Assad regime. President Barack Obama has authorized using air power to defend a new U.S.-backed fighting force in Syria if it is attacked by Syrian government forces or other groups, raising the risk of the American military coming into direct conflict with the regime of President Bashar al-Assad. 
  • Global Banks May Lose Their Asia Stock-Trading Lift. Lenders got second-quarter revenue boost from Asian boom in trading volumes, but it may be hard to replicate. Global investment banks from Goldman Sachs Group Inc. to Credit Suisse Group AG got a second-quarter revenue boost from Asia when China’s stock market was surging. Now, with Asian stock trading damped by volatility in Chinese shares and declines in some other regional markets, those revenue gains may be hard to replicate.
  • Obama’s New Climate-Change Regulations to Alter, Challenge Industry. The first-ever federal limits on power-plant carbon emissions aim to change the way Americans make and consume electricity and ease climate change. A new rule mandating the first-ever federal limits on power-plant carbon emissions aims to change the way Americans make and consume electricity, accelerating a shift already under way toward cleaner fuels, renewable energy and consumer-generated power.
  • Release the Secret Iran Deals. The Iran Nuclear Agreement Review Act requires that Congress get all the documents, including those involving Iran and any other parties. For those of us who are elected officials, few votes will be more consequential than whether to approve or disapprove the nuclear agreement President Obama has reached with Iran. Yet the president expects Congress to cast this vote without the administration’s fully disclosing the contents of the deal to the American people. This is unacceptable and plainly violates the Iran Nuclear Agreement Review Act—a law the...
  • Iran’s President Says Nuclear Deal Will Help Revive Domestic Economy. Hassan Rouhani says deal will also help ease political tensions in the region. Iran’s landmark nuclear deal will revive a domestic economy that has struggled under a decade of sanctions and help ease political tensions in a volatile region, Iranian President Hassan Rouhani said in a nationally televised speech Sunday. “We must create jobs and seek economic improvement” on the back of the deal...
Fox News:
  • Biden supporters exploring vice president mounting challenge to Clinton. (video) Vice President Joe Biden's associates have resumed discussions about a 2016 presidential run after largely shelving such deliberations while his son was sick and dying earlier this year. But Biden has yet to tell his staff whether he will run or personally ask them to do any planning for a potential campaign, according to several people close to the vice president.
Zero Hedge:
  • China c.bank official sees downward pressure on economy persisting - paper. Downward pressure on China's economy will persist in the second half of the year as growth in infrastructure spending and exports is unlikely to pick up, a senior central bank official was quoted as saying. Chinese companies are not optimistic about business prospects according to the central bank's second-quarter survey, Sheng Songcheng, the director of the statistics division of the People's Bank of China (PBOC), was quoted as saying by the National Business Daily on Saturday. 
  • Automakers buckle up for more China woe after stock crash saps sales. Automakers in China may be forced to come up with more drastic mitigation measures when July sales results released from this week likely reveal a fourth month of contraction after a stock market crash sapped consumer sentiment. Many Chinese who put money in the mainland bull market in the first half of 2015 had to delay big-ticket purchases like cars, analysts said. But a crash from mid-June erased as much as $4 trillion in share value in under a month. What is left of their money is now locked in stocks as many try to avoid losses. Sales in the world's biggest auto market have been hit by declining sentiment as the economy grows at its slowest in 25 years, prompting cost-cutting and discounts. But the crash likely left July sales falling more than June's 2.3 percent, analysts said. "Car manufacturers are biting their nails as they wait to see July sales and the full impact the stock market crash really had," said a Shanghai-based executive at a major U.S. carmaker.
Financial Times:
  • Commodity prices fall hits capital expenditure. A fall in commodity prices is shrinking global corporate spending, with capital expenditure predicted to fall this year and next, research to be published on Monday shows. The energy, chemicals and mining sector accounted for well over a third of global capital expenditure last year but rating agency Standard & Poor’s predicts that spending will fall more than 10 per cent this year and decline further in 2016.
El Pais:
  • Greece's Varoufakis Says Debt Plan Designed to Fail. Third rescue package is "farce," won't fix problem, former Greek Finance Minister Varoufakis says in interview. Greece going through "fiscal torture," being suffocated by liquidity restrictions, he said.
Commercial Times:
  • Samsung Cuts PC DRAM Output Amid Oversupply. Co. is reducing production of PC DRAMs by at least 30% to help bolster earnings of its memory business.
  • PBOC Official Warns of Local Debt, Banking Risks. Future downward economic pressure "not small," citing Sheng Songcheng, head of PBOC's statistic department. Local govts tended to not report all their debts when audited in June 2013, thus the 2t yuan debt swap plan arranged this year may not cover all debts due, Sheng said. Outstanding bad loans and NPL ratio at banks rose in 1H; banks' profit growth slowed, Sheng said.
Night Trading
  • Asian indices are -1.5% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 111.25 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 63.0 +.5 basis point.
  • S&P 500 futures -.08%.
  • NASDAQ 100 futures -.16%.

Earnings of Note
  • (CDW)/.70
  • (CLX)/1.37
  • (CNA)/.79
  • (DO)/.47
  • (L)/.75
  • (NBL)/.06
  • (TSN)/.92
  • (ALL)/1.02
  • (AIG)/1.23
  • (CAR)/.68
  • (CYH)/.89
  • (CTRP)/.16
  • (MIC)/.30
  • (MCHP)/.71
  • (PPS)/.72
  • (THC)/.45
  • (VNO)/1.23
Economic Releases
8:30 am EST
  • Personal Income for June is estimated to rise +.3% versus a +.5% gain in May.
  • Personal Spending for June is estimated to rise +.2% versus a +.9% gain in May.
  • The PCE Core for June is estimated to rise +.1% versus a +.1% gain in May.
9:45 am EST
  • Final Markit US Manufacturing PMI for July is estimated at 53.8 versus 53.8 in June.
10:00 am EST
  • Construction Spending for June is estimated to rise +.6% versus a +.8% gain in May.
  • ISM Manufacturing for July is estimated at 53.5 versus 53.5 in May.
  • ISM Prices Paid for July is estimated to fall to 49.3 versus 49.5 in May.
  • Total Vehicle Sales for July are estimated to rise to 17.2M versus 17.11M in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone Manufacturing PMI, Australia Trade Balance and the EU decision on (FDX)/TNT Express deal could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finished modestly lower. The Portfolio is 25% net long heading into the week.