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“What Traders are Watching”

HEADFAKE?– China’s producer prices rose for the first time since 2012, indicating further stabilization[straitstimes.com] in the world’s second-largest economy – Producer prices edged up 0.1 per cent from a year earlier, the National Bureau of Statistics said on Friday (Oct 14), compared with the previous month’s fall of 0.8 per cent. It marked the first growth in PPI since January 2012.

China power use growth, a key barometer[shanghaidaily.com] of economic activity, accelerated in September due to more consumption by the service sector, an increasingly significant driver of the Chinese economy, official data showed yesterday.  Electricity consumed by the service sector expanded rapidly in September, with information, computing and software industries surging 17.1 percent year on year – Once again, Was the Chinese Trade Data yesterday skewed due to the Hanjin Bankruptcy?

There was MASSIVE protection buying yesterday on the angst about Chinese Trade – The CBOE US Equity Put Call Ratio Intraday (PCRTEQTY) hit 2.52 – A VERY big BUY Signal for Contrarians

China is planning to merge[straitstimes.com] Sinochem Group and China National Chemical Corp in what would be a combination of two companies with more than US$100 billion (S$138.49 billion) in assets as the government continues its overhaul of state-owned enterprises.  It was also not clear how the the plan would affect China National Chemical, also known as ChemChina, and its proposed acquisition of Syngenta for a record US$43 billion – Banks are on Fire in Europe right now as Chinese Headers abate fears of a massive slowdown

BANKS AND RETAIL– Retail sales, a closely watched indicator of consumer spending and a key driver of overall growth, have sputtered in recent months following a strong start to the year. That should change Friday[wsj.com] when the Commerce Department releases its monthly retail-sales data, which measure everything from traditional stores to restaurants to online retailers.

Predictions for the more representative “control group” also look decent. Items excluding cars, gasoline and building materials, which are often volatile month to month, are expected to have increased 0.3% after falling for two straight months – Evidence is mounting that overall retail sales might have picked back up following a summer lull. U.S. consumers were more active last month than in any September since 2008, according to Gallup – XLY (Discretionary) had a close test of the 200dma before rebounding yesterday.

“Options protecting against a 10 percent drop in the XLF cost 9.5 points more than calls betting on a 10 percent rise on Sept. 30, according to six-month data compiled by Bloomberg. That marked the highest spread since April 2014. The spread was 6.8 points on Wednesday, still 11 percent above the measure’s two-year average.” Sounds crowded – “Sell the Rumor, Buy the News?”  JPM up near YTD highs as They beat along with C and WFC

Investment-banking revenue is set to rise 3% in the third quarter thanks in part to a pickup in bond issuance, according to Nomura analysts[blogs.wsj.com]. But that rise masks some deeper concerns in the business. Revenue in stock underwriting is lower than it has been in 20 years, and the dollar volume of deals completed during the third quarter fell 12% from their level in 2015, according to Dealogic.

FEDSPEAK– Fed may have to hike rates faster than it now forecasts, Rosengren says[marketwatch.com] – “My own view is that if the unemployment rate falls as much as I’m expecting than it is possible that we’ll have to raise rates faster than the summary of economic projections” – At 1:30 PM, Speech by Fed Chair Janet Yellen, at the Federal Reserve Bank of Boston’s Annual Research Conference: The Elusive “Great” Recovery: Causes and Implications for Future Business Cycle Dynamics

Traders have priced in a greater than 60% chance of a rate hike at the Fed’s December meeting, when Fed Chairwoman Janet Yellen is scheduled to hold a press conference.  “To me that seems quite appropriate,” Rosengren said. “We have tended to move around the time the Fed chair has a press conference” – The US 10YY remains upside it’s 200dma.

Early Earnings returns[macro-man.blogspot.com] have not been encouraging, and companies have retreated behind the excuse of the strong dollar to justify their poor performance.   Indeed, of the first 25 s&p 500 companies to report, 60% had a moan about the strong dollar.

Bespoke notes[bespokepremium.com] just over two weeks ago, on 9/23, the sector’s 10-day A/D line rose to its highest level since March.  As if a light switch suddenly went on, though, the next ten trading days saw extremely negative breadth as the 10-day A/D line cratered to its most oversold level since November 2012 and one of the most oversold readings for the sector on record.

SPX cash 2120 support held yesterday, but we have fallen below that 100dma and long-term uptrend.  We need a recovery today

FLOW SHOW(EPFR and Lipper) – Lipper[in.reuters.com] said money-market funds posted $10.6 billion in withdrawals during the week – This came ahead of reforms, taking effect on Friday, that would force some funds to let their share prices float with the market.

Some $1 trillion[bloomberg.com] worth of assets have shifted from prime money market funds into government money market funds that invest in safer assets such as short-term U.S. debt, according to Bloomberg estimates. The exodus has driven up Libor rates as banks and other corporate entities compete to replace the lost funding.

·         European stocks recorded $1.1bn of withdrawals in the week to October 12, the 36th consecutive week of outflows, according to fund flows tracked by EPFR.

·         European bond funds were hit with $2.2bn of outflows – the largest weekly withdrawal since June 2015.

·         Non-U.S. stock funds attracted $561 million and their first week of inflows since late August – Emerging market stock funds took in $764 million, and Japanese equity funds added $106 million in their first week of inflows since July

·         $3.4b outflow from equity funds/ETFs this week. Negative 34 of past 41 weeks.

·         $2.1b outflow from taxable bond funds. Positive 30 of past 41 weeks.

·         U.S. high-grade bond fund outflows fastest since March

·         High-yield junk bond funds had $72 million in withdrawals, and investors pulled $385 million from Treasury funds

INVERSIONS– The Obama administration, in its latest bid[reuters.com] to prevent American companies from minimizing U.S. taxes by rebasing abroad, issued final rules on Thursday to combat a key tax-reduction technique known as earnings stripping – Six months after proposing the regulations, the U.S. Treasury made good on its pledge to move swiftly against corporate tax inversions by rolling out the new final rule, despite opposition from business groups

·         Cross-border M&A activity fell by nearly a fifth in the third quarter of 2016, as political uncertainty stifled dealmaking – There was $373 billion of cross-border activity in the quarter, according to new data from law firm Baker & McKenzie[city.wsj.com].  A -22% Change in volume from Q3 2015.  The report cited three key drivers for the macro-political uncertainty:  Brexit vote, US elections, Tightening of US monetary policy

GOLDEN?Demand for gold in India[kitco.com], the world’s second-largest consumer, picked up as the festive season began and discounts narrowed, while demand across rest of the Asia continued to improve – Gold discounts in India narrowed to the smallest level in nearly nine months as prices fell during a key Hindu festival Dussehra boosted retail demand.

The MacroTourist[themacrotourist.com] nails the Sentiment in Gold as he scans the headers of his inbox and lays out a bullish argument fer the yeller metal

OUTAGE– “U.S. crude’s structure gained support from the extended outage[reuters.com] of a pipeline capable of delivering 450,000 barrels per day of crude into Cushing”  Plains All American’s Basin pipeline is the largest outbound pipeline from the biggest oil shale play in the United States, the Permian Basin, and news[businessinsider.com] of the extended outage caused a narrowing in the spread between the front-month to second-month crude contracts, as traders anticipated a draw of nearly 2 million barrels a week from Cushing due to the outage.

Oil is battling to stay upside $50 into Expiry Monday.

SOME OF THE OTHER HEADLINES

SKITTISH – Only 30 percent of Japanese households have experience investing in stocks and nearly 80 percent say they would not take on risk even for an investment yielding significant returns, a survey showed, underscoring the difficulty of reversing the risk-aversion widely blamed for prolonging Japan’s chronic deflation.  The poll[reuters.com] of 25,000 households conducted from Feb. 29 to March 17, is the first most comprehensive survey in Japan on financial literacy and households’ investment behavior.

BEAST – SoftBank and Saudi Arabia have teamed up to launch[city.wsj.com] a giant tech fund based in the UK.  The Japanese internet and telecommunications conglomerate said Thursday that it expects to invest at least $25 billion over the next five years.  The Public Investment Fund of Saudi Arabia will consider contributing $45 billion over five years to the new fund as a lead partner.  SoftBank added that the fund could eventually reach $100 billion, as other “global investors” come onboard.  The move by SoftBank follows its acquisition of FTSE 100 chip-maker ARM for £24 billion this summer.

HARD EXIT – ‘Hard Brexit’ or no Brexit, Donald Tusk warns UK[ft.com] – Idea that Britain can retain benefits after leaving is ‘pure illusion’, says European Council chief – Comments by European Council President Donald Tusk, who will run the Brussels side of Britain’s negotiations on leaving the EU, that the bloc will not offer London any softer terms than a “hard Brexit” helped keep the pound under pressure. Such a deal would end Britain’s membership of the single market and disrupt access to the country’s main trading partner.

AHEAD OF US THE REST OF THE WEEK

 

Friday 14th

China – CPI, PPI

A$ – RBA Financial Stability Review

JPY – Japan to Sell 5-Year Bonds

EU – Trade Balance

MARKETS – Money Market Reform implemented

FED (8:30) – Fed’s Rosengren Gives Opening Remarks at Boston Fed Conference

ECO (8:30) – PPI; Retail Sales Advance for September

ECO (10) – Business Inventories; U. of Mich. Sentiment

FED (12) – Fed Chair Yellen Speaks at Boston Fed Conference

Energy (1) – Baker Hughes Rig Count

CFTC (3:30) – “Commitment of Traders” data

 

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