Monday, November 30, 2015

Stocks Reversing Lower into Final Hour on Global Growth Fears, Emering Markets Currency/Debt Worries, Oil Decline, Retail/Biotech Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Lower
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 16.29 +7.67%
  • Euro/Yen Carry Return Index 135.99 +.04%
  • Emerging Markets Currency Volatility(VXY) 10.81 +1.69%
  • S&P 500 Implied Correlation 57.73 +1.58%
  • ISE Sentiment Index 101.0 -24.63
  • Total Put/Call 1.23 +9.82%
  • NYSE Arms 1.08 -42.62
Credit Investor Angst:
  • North American Investment Grade CDS Index 84.14 -.30%
  • America Energy Sector High-Yield CDS Index 1,309.0 -.38%
  • European Financial Sector CDS Index 68.09 -.69%
  • Western Europe Sovereign Debt CDS Index 17.85 +.65%
  • Asia Pacific Sovereign Debt CDS Index 68.20 -1.23%
  • Emerging Market CDS Index 327.67 +2.62%
  • iBoxx Offshore RMB China Corporate High Yield Index 124.14 -.01%
  • 2-Year Swap Spread 6.25 +1.0 basis point
  • TED Spread 25.25 +3.0 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -55.25 -2.0 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 70.15 -.16%
  • 3-Month T-Bill Yield .17% +1.0 basis point
  • Yield Curve 128.0 -2.0 basis points
  • China Import Iron Ore Spot $42.97/Metric Tonne -3.44%
  • Citi US Economic Surprise Index -14.4 +1.1 points
  • Citi Eurozone Economic Surprise Index 23.10 -5.1 points
  • Citi Emerging Markets Economic Surprise Index 9.3 +3.9 points
  • 10-Year TIPS Spread 1.62 -1.0 basis point
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 1.78 -.07
Overseas Futures:
  • Nikkei 225 Futures: Indicating +13 open in Japan 
  • China A50 Futures: Indicating -141 open in China
  • DAX Futures: Indicating -25 open in Germany
  • Lower: On losses in my biotech/medical/retail sector longs 
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 25% Net Long

Today's Headlines

  • Citi: The Growth Model of Emerging Markets Is ‘Broken’. (video) Chinese growth and strong global trade created uniquely favorable conditions that aren't likely to repeat themselves anytime soon. Strategists at Goldman Sachs and Bank of America have been calling the bottom in emerging markets. But Citigroup feels differently. In a year-ahead note, Chief Economist Willem Buiter says it's impossible to declare "EM is 'out of the woods'" just yet thanks to two major risks. The first is an interest rate hike from the Federal Reserve, which is now widely expected to occur next month. Such a move seems likely to knock back some of investment that has been flowing into emerging markets in recent years. "Higher U.S. rates do still threaten capital flows to EM, largely because some of the ‘excess’ inflow to EM in the past five years will have had cyclical characteristics, and could therefore be vulnerable as U.S. rates rise," Buiter writes in the note.
  • Macau's Third-Quarter Economy Sinks 24% Compared to a Year Ago. Macau’s economy contracted a fifth straight quarter as the world’s largest center of gambling was pummeled by an economic slowdown in China and the government’s attack on corruption which scared off high-rollers. The Chinese city, which relies on gamblers for about two-thirds of economic output, saw GDP tumble 24.2 percent in the three months through September, easing from the 26.4 percent drop in the second quarter, government data released Monday showed. 
  • Aberdeen's Emerging-Market Pain. As the market turmoil that started in China washes up in Scotland's granite city, 2016 is shaping up to be a crunch year for Aberdeen Asset Management. Aberdeen spelled out in gory detail on Monday how its Asian and emerging markets-focused funds are hemorrhaging cash. Net outflows accelerated to almost 13 billion pounds ($19.5 billion) in the three months through September, bringing the total for the fiscal year to almost 34 billion pounds. Aberdeen said the industry is experiencing "the worst quarter for outflows from this asset class since the global financial crisis.''
  • Euro heads for biggest monthly loss since March on ECB outlook. The euro headed for its biggest monthly decline since March as economists unanimously forecast the European Central Bank will unveil additional stimulus this week. The 19-nation currency approached the lowest in seven months versus the dollar as investors are pricing in a 100 percent chance of a 10-basis-point cut in the ECB’s deposit rate on Dec. 3. A gauge of the dollar climbed to the highest since March as futures predict the Federal Reserve will increase interest rates in December, expanding the divergence between the two central banks.  
  • Europe Stocks Climb to Three-Month High on Stimulus Anticipation. European stocks pulled off a second monthly advance on bets the region’s central bank will increase stimulus at this week’s meeting. The Stoxx Europe 600 Index rallied to a three-month high, taking its November gain to 2.7 percent.
  • The Economic Loss From the Global Commodities Slump. (video)
  • Oil Pares Monthly Decline Before OPEC Ministers Gather This Week. (video) Futures gained as much as 2.2 percent in New York, reducing November’s drop to about 8 percent. Iran expects no major decisions that would change OPEC’s output target when the group gathers Dec. 4 in Vienna, Oil Minister Bijan Namdar Zanganeh said Saturday at a conference in Tehran. Speculators increased their bullish position on Brent to a two-week high through Nov. 24. Oil is set to average below $50 for a fourth month, the longest stretch since the global financial crisis, as a record supply glut showed no signs of ending amid a producers’ fight for market share. Iran has said it will announce plans during the Vienna meeting to expand output, a year after Saudi Arabia led an OPEC decision to keep pumping and drive out higher-cost shale rivals. "As the ministers arrive in Vienna the rhetoric will start to fly," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "The market is going to be headline driven and very volatile this week. The bulls are especially desperate and will try to bid up the market on any sign of a cutback."  
  • This Recovery Has Fallen Behind The Recovery After The Great Depression. The not-so-great expansion. In April 2009 Economists Barry Eichengreen and Kevin O'Rourke first compared the collapse in industrial output following the start of the 2008 "Great Recession" to the one that followed the Great Depression beginning in 1929.At the time, the declines were running at a similar pace, sparking warnings that the world was headed into another great depression.
  • Distressed Debt Ratio Highest Since 2009 on Crude Crash, S&P. (graph) Plummeting oil and gas prices pushed the percentage of junk bonds trading at distressed levels to the highest since the markets were recovering from the financial crisis, according to Standard & Poor’s. The ratings firm’s so-called distress ratio increased to 20.1 percent in November, up from 19.1 percent in October and the most since September 2009, when it hit 23.5 percent. The ratio is calculated by dividing the number of distressed securities by the total amount of speculative-grade debt outstanding. “The oil and gas sector accounted for 113 of the 361 issues in the distress ratio, because drops in oil prices affected profitability for oil and gas companies, where spreads have widened considerably, and had a spillover effect to the broader speculative-grade spectrum,” Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group, said in a report. The distress ratio, along with other economic, financial and credit conditions, indicates “growing pressure” that the number of defaults might rise, according to the report.
  • Banks Supplant Energy in Destroying S&P 500 Growth Outlook. The two-quarter retreat in Standard & Poor’s 500 Index earnings is about to become a three-quarter swoon, and this time it isn’t just because of plunging energy prices. Bank profit estimates are falling at the fastest pace in four years, bringing the overall forecast for S&P 500 earnings in the fourth quarter to a decline of 5.6 percent, compared with a gain of 1.4 percent as recently as August. Financial institutions are exerting an ever-increasing drag on analyst projections: what had been expected to be a 16 percent surge in their October-to-December income has narrowed to less than 1 percent.
  • Fed Poised to Relinquish Crisis Tools It Used to Bail Out AIG. The Federal Reserve plans to vote Monday on giving up the lending tools it used to rescue American International Group Inc. and Bear Stearns Cos. during the financial crisis after U.S. lawmakers restricted the central bank’s power to prop up failing firms. Under the Fed’s revised authority, it would only be able to save firms in a broad-based scenario, meaning it must rescue at least five entities at the same time, according to a statement released by the central bank. The change is meant to prevent the Fed from bailing out a single company. The Fed is required to write rules that eliminate some of its sweeping emergency lending authority under the 2010 Dodd-Frank law.
Zero Hedge: 
Business Insider: 

Bear Radar

Style Underperformer: 
  • Small-Cap Growth -.92%
Sector Underperformers: 
  • 1) Biotech -2.47% 2) Retail -2.22% 3) Hospitals -1.95%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity: 
  • 1) EWJ 2) XLE 3) COH 4) KSS 5) HCA
Stocks With Most Negative News Mentions: 
  • 1) LULU 2) BYD 3) HOT 4) ALGT 5) PBH

Bull Radar

Style Outperformer:
  • Mid-Cap Value -.05%
Sector Outperformers: 
  • 1) Gold & Silver +2.31% 2) Oil Service +1.62% 3) Alt Energy +.76%
Stocks Rising on Unusual Volume: 
Stocks With Unusual Call Option Activity: 
  • 1) ASNA 2) GERN 3) ADT 4) UNH 5) NRF
Stocks With Most Positive News Mentions: 
  • 1) FIT 2) CSRA 3) DE 4) EBAY 5) AAPL

Morning Market Internals

NYSE Composite Index:

Sunday, November 29, 2015

Monday Watch

Today's Headlines
  • Islamic State Could ‘Easily’ Target a U.K. City, Fallon Says. British Defence Secretary Michael Fallon told the Sunday Telegraph that “what happened in Paris and Brussels could easily happen in London.” Speaking in an interview, Fallon said the threat from Islamic State “is as potent here as it was real in Paris and Brussels.” Fallon said the security services have prevented at least half a dozen viable terror plots in recent months. “I can’t go into detail of the individual plots that have been foiled,” he said. “The threat from ISIL is as potent here as it was real in Paris and Brussels. It could be London, it could be Manchester, it could be Glasgow.” He said Islamic State are not making demands and so can’t be negotiated with. “You can only deal with them by force.” 
  • Turkey's Prime Minister Criticizes Putin's Sanctions. Prime Minister Ahmet Davutoglu criticized Russian economic sanctions on Turkey after the downing of a Russian fighter jet over the Syrian border last week, saying his priority was to defuse the tension and prevent similar incidents. Russian President Vladimir Putin on Saturday announced measures against Turkey including the suspension of visa-free travel, halting tours to Turkey and a ban on the hiring of Turkish nationals. In Turkey, Deputy Prime Minister Mehmet Simsek chaired a meeting with other members of the nation’s economic administration to discuss the potential impact, according to a government official, who asked not to be named in line with official policy. 
  • The World's Largest Elevator Market Is Falling and May Never Recover. The world’s biggest elevator maker said China’s best days may be behind it. After peaking at 600,000 units last year, sales in China may drop to about 500,000 next year amid a surplus of apartments and slowdown of people moving to big cities, Otis Elevator Co. President Philippe Delpech, who heads the world’s largest maker of elevators, said in an interview in Tokyo this month.
  • Christie's Hong Kong Art Auction Feels China's Economic Chill. China’s economic slowdown, government anti-corruption measures and fleeing speculators are causing a chill in the Hong Kong art auction market, Christie’s Nov. 28 International Hong Kong evening sale showed. The London-based auction house sold HK$507.9 million ($65.5 million) worth of art at its Asian 20th Century and Contemporary auction, compared with HK$636 million at a similar event a year ago, and HK$935 million in November 2013. Saturday’s sale is the marquee event of Christie’s six-day Hong Kong autumn auction marathon."It’s softer this season for sure," said Hong Kong-based adviser Jehan Chu, who runs Vermillion Art Collections. "There is uncertainty, especially over the economic and political outlook in China, that has made people skittish."
  • Citic, Haitong, Guosen Probed on Alleged Margin-Trading Breaches. China’s securities regulator is investigating Citic Securities Co., Haitong Securities Co. and Guosen Securities Co. over alleged breaches of rules on margin and short-selling contracts. The China Securities Regulatory Commission probes involve contracts the three brokerages signed with clients on margin finances and short-selling, according to exchange filings by the companies Sunday. The firms said their operations will remain normal and they will cooperate with the regulator. 
  • Five China Bond Deadlines to Watch.
  • Won Drops With Korean Stocks as China Selloff Deters Risk-Taking. The won declined for a third day as a selloff in China’s stock market deterred risk taking and after growth in South Korea’s industrial production missed estimates. The Kospi index of shares fell the most in two weeks after a regulatory probe into some of China’s largest brokerages sparked the steepest slump in Shanghai shares in three months on Friday. South Korea’s factory output rose 1.5 percent in October from a year earlier, official figures showed on Monday, compared with the median estimate for a 2.2 percent increase in a Bloomberg survey. The report comes a day before data forecast to show exports likely fell 7.9 percent in November, shrinking for the 11th straight month. The won weakened 0.5 percent to 1,159 a dollar as of 9:53 a.m. in Seoul, according to data compiled by Bloomberg. The currency’s decline is the biggest in two weeks and it’s dropped 1.6 percent this month.
  • Asian Stocks Slide After Chinese Selloff as Material Shares Drop. Asian stocks fell after Chinese shares posted the biggest one-day selloff in three months. Material and consumer-staple shares led losses on the benchmark index at the start of a pivotal week for the region’s markets. The MSCI Asia Pacific Index lost 0.3 percent to 132.82 as of 9:02 a.m. in Tokyo, headed for a monthly loss of 1.2 percent, its sixth such decline in seven months.
  • Iron Ore Breaches $40 in Singapore as China Port Holdings Expand. Most-active iron ore futures in Singapore sank below $40 a metric ton for the first time on concern that the economic slowdown in China will cut demand as supplies from the largest miners climb.The SGX AsiaClear contract for January fell 3.1 percent to $39.51 a ton as of 10:33 a.m. in Singapore, heading for the lowest close since trading started in April 2013. On the Dalian Commodity Exchange, futures for May delivery sank as much as 3.1 percent to 293 yuan ($45.81) a ton, a record low.
  • The $30 Oil Cliff Threatening Russia's Economy. For Russia, $30 is the number to watch.Crude prices at that level will push the economy to depths that would threaten the nation’s financial system, according to 63 percent of respondents in a Bloomberg survey. Lower prices for the fuel are next year’s biggest risk for Russia, which is unprepared to ride out another shock on the oil market, most economists said. Other dangers for 2016 include geopolitics, strains in the banking industry and the ruble, according to the poll of 27 analysts. “If oil prices fall lower and stay at that low level for longer, risks of fiscal and financial destabilization increase significantly,” Sergey Narkevich, an analyst at PAO Promsvyazbank in Moscow, said by e-mail.
  • Kuwait Oil Minister Leaves Post Days Before OPEC Meeting. Kuwait named Deputy Prime Minister Anas Al-Saleh as acting oil minister to replace Ali al-Omair, who became minister of public affairs and retained his role as state minister for parliamentary affairs, according to an official decree. The change comes days before al-Omair was due to represent Kuwait at the meeting of the Organization of Petroleum Exporting Countries on Dec. 4 to discuss the group’s production level amid a slump in prices due to a global glut. Earlier this month, al-Omair swapped the chief executive officers of state companies Kuwait Oil Co. and Kuwait Foreign Petroleum Exploration Co. “The current Kuwait oil policy in OPEC will definitely not change as this new minister is only there temporarily until a new one is appointed,” said Abdulsamad al-Awadhi, who was Kuwait’s OPEC governor from 1980 to 2001.
Wall Street Journal: 
Zero Hedge:
Business Insider:
New York Post:
Washington Post:
  • White House eyes better pay for top civil servants. The Obama administration is preparing an executive order designed to bolster the government’s Senior Executive Service (SES) with increased compensation, a streamlined hiring process and greater diversity in assignments. Its 7,000-plus members are top level civil servants whose leadership is critical to federal agencies. But that status has not stopped problems stemming from sluggish pay raises and congressional attacks.
  • China's shadow banking risk shifts to booming bond market. A year after China's financial regulators squared up to the systemic perils of "shadow banking", the threat is shifting to a booming corporate bond market, and risky borrowers' debt is finding its way into products aimed at retail investors. An opaque network of trust companies and non-bank lenders had grown their annual market to a hefty 2.9 trillion yuan ($450 billion) in loans before regulators stepped in, spooked by rising defaults on wealth-management products (WMPs) backed by such high-interest shadow lending.
  • S&P Visit to Brazil Heightens Downgrade Concern. S&P is visiting Brazil starting Dec. 1 to analyze country's political, economic situation. Trips increases speculation nation might be downgraded again, amid worsening of Brazil's political crisis after recent arrests.
Night Trading
  • Asian indices are -1.25% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 129.75 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 69.0 +.5 basis point.
  • Bloomberg Emerging Markets Currency Index 70.23 -.05%.  
  • S&P 500 futures -.18%.
  • NASDAQ 100 futures -.15%.
Morning Preview Links 

Earnings of Note
  • (BLOX)/.06
  • (SCVL)/.48
  • (THO)/.83 
Economic Releases
9:00 am EST
  • The ISM Milwaukee for November is estimated to rise to 48.0 versus 46.66 in October.
9:45 am EST
  • The Chicago Purchasing Manager for November is estimated to fall to 54.0 versus 56.2 in October.
10:00 am EST
  • Pending Home Sales for October are estimated to rise +1.0% versus a -2.3% decline in September. 
10:30 am EST
  • The Dallas Fed Manufacturing Activity Index for November is estimated to rise to -10.0 versus -12.7 in October.
Upcoming Splits
  • (CTRP) 2-for-1
Other Potential Market Movers
  • The Reserve Bank of Australia decision, German CPI report, China Manufacturing PMI, CSFB Industrials conference and the CSFB Tech/Media/Telecom conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial 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.