Bloomberg:
- Li’s Cash Squeeze Risks 1st China GDP-Goal Miss Since ’98. China’s biggest squeeze on credit in at least a decade is increasing the chance that Li Keqiang will be the first premier to miss an annual growth target since the Asian financial crisis in 1998. Goldman Sachs Group Inc. and China International Capital Corp. yesterday joined banks from Barclays Plc to HSBC Holdings Plc in paring their growth projections this year to 7.4 percent, below the government’s 7.5 percent goal. The cuts followed a tightening in central bank liquidity that yesterday left the overnight repurchase rate more than double the year’s average. “The current leadership is trying to build its reputation in a different way than the previous administration, which felt that its target was holy and had to be met regardless of the circumstances,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong, who previously worked for the World Bank. The danger is that putting the growth goal aside undermines public confidence in China’s economic policy making that’s already been shaken by limited communication on the government’s objectives behind the cash squeeze. The central bank yesterday contributed to the biggest drop in Chinese stocks in almost four years by releasing a week-old statement saying liquidity was “reasonable.”
- PBOC Opaque Stress Test Catches Funds in Crossfire. China’s lack of transparency during a stress test on the nation’s banks became a cause of worldwide concern as it rocked bond and commodity markets and helped wipe out $4.5 trillion in global equity value.
- China Beige Book Shows Fewer Firms Borrowing as Rates Rise. Chinese bankers are reporting increased lending while fewer companies are taking out loans, an incongruity that helps explain the recent increase in borrowing costs, a private survey showed. The number of companies reporting loan applications in the second quarter fell 13 percentage points from the previous period to 38 percent, the survey from New York-based China Beige Book International said yesterday. The proportion of banks showing higher lending to businesses rose 10 percentage points to 45 percent, indicating that “credit appears to be concentrated on a few borrowers,” according to the report.
- Morgan Stanley(MS) Cuts Base Metals Outlook as China’s Growth Slows. Morgan Stanley reduced its forecasts for industrial metals on concerns slowing growth in China, the world’s biggest consumer, and the nation’s worst cash squeeze in at least a decade will curb demand. The bank cut its 2013 copper estimate by 3 percent to $3.42 a pound and lowered its nickel prediction by 7 percent to $7.23 a pound, according to analysts Peter Richardson and Joel Crane in a report e-mailed today. Copper for September delivery traded at $3.0285 on the Comex in New York. “The headwinds to commodity price performance have been intensified by growing signs of deterioration in the quality of this lower growth,” the report said. “Strong credit growth in total social financing in China has raised some increasingly serious market concerns about the direction, composition and risks embedded in this development.”
- U.S. Said to Explore Possible China Role in Snowden Leaks. U.S. intelligence agencies are investigating whether Edward Snowden’s leaks may be a Chinese intelligence operation or whether China might have used his concerns about U.S. surveillance practices to exploit him, according to four American officials. The officials emphasized there’s no hard evidence yet that Snowden was a Chinese agent or that China helped plan his flights to Hong Kong and then to Moscow, directly or through a witting or unwitting intermediary. Rather, they are duty-bound to probe such a worst-case scenario for the U.S., said the officials, who are familiar with the case and asked not to be identified to discuss classified intelligence.
- Cisco(CSCO) China Sales Vulnerable as Media Urge Domestic Shift. Cisco Systems Inc. (CSCO) faces a backlash in China, where it generates about $2 billion in annual sales, after state-run media said the company poses a security threat and urged a shift toward domestic suppliers. While Cisco has said it didn’t participate in U.S. surveillance programs revealed earlier this month by former government contractor Edward Snowden, state-owned Chinese media outlets are calling for the company to face restrictions there.
- Philippine Stocks Enter Bear Market as Foreign Outflows Surge. Philippine stocks entered a bear market as the nation’s benchmark equity index slumped for a fifth day amid the biggest monthly foreign sell-off on record. The Philippine Stock Exchange Index (PCOMP) fell 2 percent to 5,854.13 at 10:48 a.m. in Manila. The gauge has lost 21 percent since closing at a record 7,392.20 on May 15. Overseas funds sold a net $344 million of Philippines stocks this month through yesterday, heading for the biggest monthly selloff since Bloomberg began compiling the data in 1999.
- Chinese Stocks Plunge as Australian Dollar Falls, Copper Drops. Chinese stocks tumbled deeper into a bear market, dragging the Asian benchmark share-index lower, amid concern a cash squeeze will hurt growth. The Australian dollar weakened and copper declined. The CSI 300 Index (SHSZ300) of the biggest companies in Shanghai and Shenzhen slumped 4.8 percent at 12:40 p.m. in Tokyo, extending yesterday’s 6.3 percent retreat. The MSCI Asia Pacific Index slipped 0.8 percent. Standard & Poor’s 500 Index futures fell 0.3 percent, erasing earlier gains. Currencies in Australia and New Zealand lost at least 0.4 percent versus the greenback, while the yen climbed 0.4 percent to 97.39 per dollar. Copper slid to its lowest level since July 2010.
- Rebar Falls for 2nd Day as China Credit Squeeze Damps Sentiment. Steel reinforcement-bar futures fell for a second day as China’s biggest squeeze on credit in at least a decade increased concern that demand for the construction material will falter. Rebar for delivery in October on the Shanghai Futures Exchange fell as much as 0.8 percent to 3,423 yuan ($557) a metric ton and was at 3,434 yuan at 10:36 a.m. local time.
- Rubber Futures Swing Amid China Demand Concerns, Weaker Yen. Rubber swung between gains and losses as investors weighed a weaker Japanese currency against China’s biggest squeeze on credit in a decade. The contract for delivery in November on the Tokyo Commodity Exchange gained as much as 1.3 percent and fell as much as 1.1 percent before trading at 230.9 yen a kilogram ($2,364 a metric ton) at 11:57 a.m. Futures touched a nine-month low of 228 yen on June 21.
- Berlusconi’s Sex Conviction Raises Tension in Letta’s Government. Italian Prime Minister Enrico Letta is facing discord among parliamentary supporters after his coalition partner, Silvio Berlusconi, was convicted of paying a minor for sex and sentenced to seven years in prison. The verdict, announced yesterday by Judge Giulia Turri in Milan, was criticized by Deputy Prime Minister Angelino Alfano and Renato Brunetta, chief whip of the second-biggest party in the lower house of parliament. Letta’s own Democratic Party said it would respect the judge’s decision. Berlusconi, a 76-year-old billionaire and former premier, has said he is innocent and remains free as he prepares his appeal.
- Wall Street’s $8 Billion CMBS in Limbo as Bulls Retreat. Wall Street firms spent the past six months increasing commercial mortgage origination as investors bought the most debt in six years. That’s now backfiring as banks prepare to market $7.5 billion of loans earmarked to be sold as bonds before credit markets took a dive this month. Investors demanded 1.03 percentage point more than the benchmark swap rate to buy new commercial mortgage backed securities tied to shopping malls, skyscrapers, hotels and apartment buildings on June 14, according to data compiled by Bloomberg. That’s up from 72 basis points in February, the narrowest spread since sales revived in 2009, the data show. Lenders’ profits are eroded when values of the securities fall. The CMBS market is poised for its worst month in almost two years after the Federal Reserve signaled it may curb stimulus efforts as the economy shows sign of improvement. That’s complicating efforts by banks to sell new deals and making it more expensive for landlords to refinance loans backed by everything from Manhattan office space to suburban grocery stores.
- Homebuilders Approach Bear Market on Rising Mortgage Rates. U.S. homebuilders fell for a fourth day, approaching a bear market, as concern mounted that rising mortgage rates could restrain a revival in the housing market. The 11-member Standard & Poor’s Supercomposite Homebuilding Index slid 1 percent today to the lowest level since the end of 2012. It has fallen 19.6 percent from a May 14 peak, close to the 20 percent threshold considered to be a bear market.
- China's 'Shadow Banks' Fan Debt-Bubble Fears. In a 52-story office tower overlooking the leafy streets of this city's embassy district, some 400 deal makers at Citic Trust Co. arrange financing for property developers, steel mills and other businesses starved for cash and shunned by China's traditional banks. The lenders at Citic and other institutions that make up China's "shadow banks" have created the closest thing China has to the culture of Wall Street. They take risks that traditional banks won't, going so far as to create investment funds for assets like top-shelf liquor and mahogany furniture. Their top executives drive luxury cars and frequent expensive clubs. Now, China's shadow banks—a mélange of trust companies, insurance firms, leasing companies, pawnbrokers and other informal lenders subject to limited oversight—are at the center of mounting concerns over whether the country's slowing economy could trigger a debt crisis.
- Explosions, Gunfire Rock Central Kabul. Gunfire and explosions rocked central Kabul, a week after the Taliban opened a negotiating office in the Gulf emirate of Qatar. A plume of dark smoke was visible close to embassies and government buildings, and an alarm warning coalition and diplomatic personnel to take cover was audible in the city's diplomatic quarter.
- Underwater Drones Are Multiplying Fast. Robots Are Invading the Sea for All Kinds of Inspections—With an Eye on Prey. The next army of unmanned drones are scurrying beneath the ocean's surface. Hundreds of small camera-equipped robots developed by a range of companies are sending video and other data to laptop and tablet screens above.
- Army Plans Cuts to Combat Forces. The Army will announce Tuesday it will cut more than 10 brigade combat teams, a significant reduction in the size of its fighting forces and combat power, according to defense officials. The Army has previously announced it will reduce the size of its force from its current level of 541,000 to 480,000 by 2017 under the $487 billion of spending reductions mandated by the 2011 Budget Control Act, but hasn't detailed precisely which parts of its active-duty force it will cut.
- Texas' Next Big Oil Rush. New Pipelines Ferrying Landlocked Crude Expected to Boost Gulf Coast Refiners. New pipelines are beginning to carry a glut of domestic crude from the middle of the country to Texas' Gulf Coast, boosting the fortunes of the area's big refineries and further fueling a decline in oil imports.
- Stephens: The Age of American Impotence. As the Edward Snowden saga illustrates, the Obama administration is running out of foreign influence.
- Senate advances immigration bill in key test vote. An immigration overhaul that would legalize millions of undocumented immigrants while boosting border security passed a major test in the Senate on Monday, as lawmakers voted to advance a compromise measure despite resistance from some Republicans. The Senate voted 67-27 to advance an amendment that was only submitted late last week. Critics complained that the Senate was voting on the 119-page proposal before having a chance to analyze it.
- The Dark Side Of Soaring Rates: A Housing Market That Lost 16% Of Its Value In Under Two Months. (graph)
Washington Post:
- The Insiders: The president plans to raise your power bill. If you accept the science of global warming, then you accept the fact that the president’s unilateral action on climate change will have absolutely no effect in terms of adjusting the global thermostat to a temperature Obama finds desirable. The rest of the developing world, anchored by India and China, are building carbon-burning factories, power plants and even whole new cities that will overwhelm any new rules the president may impose on Americans and our struggling economy.
- Exit From the Bond Market Is Turning Into a Stampede. Wall Street never thought it would be this bad. Over the last two months, and particularly over the last two weeks, investors have been exiting their bond investments with unexpected ferocity, moves that continued through Monday.
- Credit Warnings Give World a Peek Into China’s Secretive Banks. China’s hidden banking system is coming out of the shadows as the government seeks to rein in the excessive lending that it fears could spin out of control. The People’s Bank of China, the central bank, let the world know on Monday that it was putting the nation’s banks on notice: the loose money and the speculation it fed had to stop. It said banks had to step up risk controls and improve cash management. And they had to do it, the bank said, by avoiding a “stampede” mentality. The banks had quietly received that very message a week earlier, which set off, if not a rush for the exits, certainly widespread worry in China and financial centers around the world.
- Six more U.S. municipal bond sales postponed. With yields on the U.S. municipal bond market rising, local issuers on Monday postponed another six bond sales, totaling $331 million, that were originally scheduled to price later this week.
- Asia driving "explosion" in global arms trade-study. Asian powers are outpacing the United States to become the biggest spenders on defence by 2021 and are fuelling an "explosion" in the global arms trade, a study showed. The global arms trade jumped by 30 percent to $73.5 billion between 2008-2012 in spite of the economic downturn, driven by surging exports from China and demand from countries like India, and is set to more than double by 2020, defence and security consultancy IHS Jane's said on Tuesday.
- Italy could need EU rescue within six months, warns Mediobanca. Italy is likely to need an EU rescue within six months as the country slides into deeper economic crisis and a credit crunch spreads to large companies, a top Italian bank has warned privately. Mediobanca, Italy’s second biggest bank, said its “index of solvency risk” for Italy was already flashing warning signs as the worldwide bond rout continued into a second week, pushing up borrowing costs. “Time is running out fast,” said Mediobanca’s top analyst, Antonio Guglielmi, in a confidential client note. “The Italian macro situation has not improved over the last quarter, rather the contrary. Some 160 large corporates in Italy are now in special crisis administration.” The report warned that Italy will “inevitably end up in an EU bail-out request” over the next six months, unless it can count on low borrowing costs and a broader recovery. Emphasising the gravity of the situation, it compared the crisis with when the country was blown out of the Exchange Rate Mechanism in 1992 despite drastic austerity measures.
- Weidmann Calls for Strict Balance-Sheet Tests for Banks, Sueddeutsche Zeitung. Bundesbank President Jens Weidmann says balance sheets of European banks need to be cleaned up, citing an interview. Says "thorough and rigorous review essential to avoid further unpleasant surprises". Says failure to implement might damage credibility of banking union. European Central Bank plans "quality" test for 130-150 banks that will be under the bank's supervision in future. Says need to maintain option to shut banks down. Says if there's common supervision, there should also be joint restructuring and settlement. Says private investors should be the first to provide financing and only when that isn't possible should governments decide if public funding will be used. Says only when banks are adequately capitalized and have sustainable business models will they be able to carry risk and provide credit.
- China Prepared for Pain to Ensure Reform: Editorial. Drop in benchmark Shanghai Composite Index yesterday shows authorities are preparing to continue painful and necessary reforms to keep the economy growing in a more sustainable manner, the editorial said. Exposing problems for "early treatment" is better than "tinkering" that delays a crisis. The direction of reform cannot be clearer, the editorial said.
- China Should Target EU Trade, Investment in Solar Dispute. China should launch retaliatory trade investigations to "hit back" at the EU after the region imposed tariffs on Chinese solar panels, Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation affiliated to the Ministry of Commerce, writes in a commentary. The government could also curb investments and trade orders to the EU as the region is trapped in a a debt crisis and depends on Chinese investment and trade, Mei wrote. China could also take action specifically against France, Italy, Lithuania and Portugal, which supported the tariffs, he said.
- China Shouldn't Ease Liquidity to Rescue Market. China's stock market would be hurt if central bank eased liquidity or regulators continue a suspension of IPOs., according to a commentary published by Gao Yuncai.
- Hedge fund manager expects market crash. FORMER chess grandmaster-turned hedge fund manager Patrick Wolff is betting on a stock market crash in China, where he says bad debts have spiraled to dangerous levels. Speaking to reporters on the sidelines of the GAIM conference in Monaco last week, Wolff said investors were too focused on trying to work out when easy money policies will taper off in the United States and ignoring a looming correction in China. “People are talking way too much about the Federal Reserve and not enough about China,” he said. “We’ve been saying that the United States is the safest place to invest, while China is a crash waiting to happen.” He is short on Chinese stocks and generally long on U.S. equities.
- None of note
- Asian equity indices are -3.0% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 167.50 +7.5 basis points.
- Asia Pacific Sovereign CDS Index 140.75 +14.5 basis points.
- FTSE-100 futures -.22%.
- S&P 500 futures -.31%.
- NASDAQ 100 futures -.28%.
Earnings of Note
Company/Estimate
- (BKS)/-.99
- (CCL)/.07
- (LEN)/.34
- (WAG)/.90
- (AVAV)/-.07
- (APOG)/.14
- (APOL)/.85
- (SWHC)/.43
8:30 am EST
- Durable Goods Orders for May are estimated to rise +3.0% verus a +3.3% gain in April.
- Durables Ex Transports for May are estimated unch. versus a +1.3% gain in April.
- Cap Goods Orders Non-defense Ex Air for May are estimated to rise +.5% versus a +1.2% gain in April.
- S&P/CS 20 City MoM% SA for April is estimated to rise +1.2% versus a +1.12% gain in March.
- The House Price Index for April is estimated to rise +1.1% versus a +1.3% gain in March.
- The Richmond Fed Manufacturing Index for June is estimated to rise to 2.0 versus -2.0 in May.
- Consumer Confidence for June is estimated to fall to 75.1 versus 76.2 in May.
- New Home Sales for May are estimated to rise to 460K versus 454K in April.
- (SIX) 2-for-1
- (CRVL) 2-for-1
- The Italian 10Y auction, Italian Retail Sales reports, 2Y T-Note auction, weekly retail sales reports, (CSCO) Investor Day and the Global Hunter Energy Conference could also impact trading today.
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