- Record Chinese downgrades foreshadow first default. China’s rating firms cut the most bond issuer rankings on record in June. China’s rating firms cut the most bond issuer rankings on record in June and brokerages said they are preparing for the onshore market’s first default as the world’s second-biggest economy slows. A total of 38 issuers were downgraded last month, according to Guotai Junan Securities Co., the most since the nation’s third-biggest brokerage started compiling the data in 2005. Some 86 firms were upgraded, down from 88 a year earlier. China Chengxin Securities Rating Co. lowered Zhuhai Zhongfu Enterprise Co.’s debt rating to AA- from AA on 28 June, causing the yield on the beverage package maker’s May 2015 bonds to almost triple to 15.01%. “The government can’t save everyone,” said Xu Hanfei, a bond analyst in Shanghai at Guotai Junan. “In the future, downgrades may spread to high-grade bonds, especially those which rely heavily on support from the central or local governments.”
- China Removes Floor on Lending Rates as Economy Slows. China eliminated the lower limit on lending rates offered by the nation’s financial institutions as economic growth slows and authorities expand the role of markets in the world’s second-biggest economy.
- LVMH China Watch Sales Decline Offset by Overseas Buying. “Sales to Chinese continue to be good, although it’s true things are changing a bit,” he said in Kuala Lumpur. “Sales are down but they are more than compensated by sales to Chinese outside” the country, he said, without specifying the period for the decline. Swiss watch exports to China fell 19 percent in May, according to the Federation of the Swiss Watch Industry. Sales have declined as economic growth has weakened and as the Chinese government’s austerity campaign has curbed demand for high-end products popular for business gifts. “The watch sector overall has been declining in China this year due to the economic slowdown and also off the back of the anti-corruption measures,” Aaron Fischer, an analyst at CLSA Ltd. in Hong Kong, said by phone today.
- Japan Sales-Tax Debate Looming for Abe After Election. Abe needs to shore up the finances of a nation bearing a debt load more than twice the size of gross domestic product without choking off the recovery by damping consumption. Justice Minister Sadakazu Tanigaki, a former leader of Abe’s Liberal Democratic Party, said July 16 that talk of delaying the sales-tax increase was dangerous because Abenomics was built on the assumption that the levy would rise.
- Merkel Rules Out Second Writedown in Greece as Too Risky. German Chancellor Angela Merkel rejected a second Greek debt writedown as officials weigh additional measures to prop up the bailed-out nation. “I’ve said repeatedly that I don’t see a debt cut for Greece,” Merkel told reporters in Berlin today at a press conference. “All this talk about it sometimes worries me.”
- Italy Rivalries Threaten to Undo Letta Coalition. Italian Prime Minister Enrico Letta won his first parliamentary showdown today by appeasing adversaries and calling for loyalty from his long-time allies.
- Copper Surplus Seen by Study Group at 50,000 Tons in April. Copper production exceeded demand by 50,000 metric tons in April, the International Copper Study Group said. The surplus expanded to 266,000 tons for January to April compared with a shortage of 429,000 tons for the same period last year, the study group said.
- WTI Little Changed Near 16-Month High and Closer to Brent. WTI for August delivery, which expires on July 22, fell 25 cents to $107.79 a barrel at 12:53 p.m. on the New York Mercantile Exchange. It climbed to $109.32, the highest intraday level since March 1, 2012. The volume of all futures traded was 33 percent above the 100-day average. The futures have increased 1.7 percent this week, extending July’s gain to 12 percent. The more active September contract slid 51 cents to $107.30.
- Egypt Camps Plan Dueling Rallies Amid Call for Unity. Supporters of toppled Egyptian President Mohamed Mursi held rallies in Cairo and other cities while the opposing camp gathered to defend his ouster. Mursi’s Muslim Brotherhood urged Egyptians to protest what it sees as a military coup against an elected president. Islamists clashed with opponents after Friday prayers today in Cairo’s Al-Azhar mosque, resulting in some injuries, the state-run Middle East News Agency said.
- Detroit Emptied on Path From Industrial Giant to Bankruptcy. Detroit, the cradle of the automobile assembly line and a symbol of industrial might, filed the biggest U.S. municipal bankruptcy after decades of decline left it too poor to pay billions of dollars owed bondholders, retired cops and current city workers. “I know many will see this as a low point in the city’s history,” Michigan Governor Rick Snyder, a Republican, said in a letter yesterday authorizing the filing in U.S. Bankruptcy Court in Detroit. “Without this decision, the city’s condition would only worsen.” Michigan’s largest city joins Jefferson County, Alabama, and the California cities of San Bernardino and Stockton in bankruptcy. The filing shattered the presumption of many bondholders that local governments, eager to continue borrowing at reasonable rates, would do whatever it took, including raise taxes, to come up with the money to meet bond obligations. Kevyn Orr, the city’s emergency manager, said the debt is $18 billion.
- SEC Accuses SAC’s Cohen of Failing to Prevent Insider Trading. Steven A. Cohen, the billionaire founder of hedge fund SAC Capital Advisors LP, was accused by U.S. regulators of failing to supervise two employees facing criminal charges that they illegally traded stocks based on confidential information. Cohen received highly suspicious information that should have caused any reasonable hedge-fund manager to investigate the basis for trades made by Mathew Martoma and Michael Steinberg, the SEC said in an administrative proceeding filed today. Cohen ignored red flags and allowed illegal trades that earned profits and avoided losses of more than $275 million, the SEC said.
- Gorilla Flipping Homes as Rebound Revives Rapid Trades. With prices rising at the fastest pace since the real estate peak in 2006, buying and selling houses within six months, or flipping, is back in vogue. Those types of deals are on track to hit a record this year after increasing 19 percent in the first half of 2013 from a year ago, and are up 74 percent from 2011, according to data from RealtyTrac.
- Investors Sow Seeds for Hedge Funds. Big investors are clamoring to get into hedge funds—as owners, not clients. In the return of a practice that was popular before the financial crisis, investment groups are raising billions of dollars to buy minority stakes in hedge-fund firms. The goal: to share not only in strong investment performance from proven managers but also in the hefty fees those firms can charge. The latest suitor is Foundation Capital Partners, a Greenwich, Conn., private-equity firm that has raised more than $2 billion—including $1 billion from a sovereign-wealth fund—to potentially buy pieces of some of the biggest firms in the industry, according to people familiar with Foundation's efforts.
- Funds Stick With Bets Against Chinese Banks. Wagers that midsize lenders' share prices will fall remain at high levels. Short-sellers are sticking to heavy bets against China's banks a month after a cash crunch gripped the country's banking system, reflecting their belief that there is more stress to come even as banking shares rebound. The wagers by hedge funds and other alternative funds started building in Hong Kong in June as a sudden shortage of cash among mainland lenders spooked investors. Banks scrambled to raise money to meet a wide range of funding demands, dumping short-term bonds, pushing interbank rates up to as high as 30% and sending the Shanghai benchmark stock index to a four-year low.
- SEC Rejects Proposed Settlement With Falcone and Harbinger. Hedge-Fund Firm Says Regulator Voted Not to Approve Plan; No Reason Given.
- ObamaCare's Eroding Support. One of six Democrats deserts the White House on the mandate vote.
- Republicans question Obama appointee's role in IRS scandal. Republican lawmakers have set their sights on a President Obama appointee as they try to determine whether he links the White House to the IRS scandal over the targeting of conservative groups. Congressional testimony on Thursday from a retired IRS tax law specialist claimed that the Office of Chief Counsel, led by William Wilkins, was involved in the screening of Tea Party groups seeking tax-exempt status. Wilkins -- a former tax lobbyist-turned-attorney -- happens to be a Democratic donor and the only IRS official at the time of the scandal to have been appointed by Obama.Republicans are running with the testimony.
- China’s lending-rate reform is mostly symbolic but related currencies still surge. The People’s Bank of China said it would stop imposing a floor on lending rates for banks. The floor is currently set at 70% of the benchmark lending rate. Several market watchers viewed the move by the PBoC as symbolic rather than a game changer.
- Detroit bankruptcy could hit millions of retirees. With its bankruptcy filing, the city of Detroit has entered uncharted territory. It's a dark place that no major U.S. city has ever gone—but that could change.
- Record junk bond refinancing wave looms. Sub investment grade companies face a record $101 billion refinancing wave next year, raising fears of a shake out among debt-burdened companies. The amount of debt owed by companies in Europe, the Middle East and Africa rated as below investment grade, or 'junk', that is due in 2014 has risen to $101 billion, up from $84 billion this year, according to Moody's, the ratings agency. Nearly half of that debt carries a negative outlook compared to 34 percent a year earlier.
Business Insider:
New York Times:
LA Times:
Detroit Free Press:
- Morsi supporters in Egypt 'upset with America'. More than two weeks after Egypt's military unseated the country's first freely elected president, Washington refused to call the power grab a military coup, sparking criticism from supporters of Mohammed Morsi who believe they were robbed of their democratic right after voting for the now-ousted leader. "All people here are upset with America," said Abdel Rahman, a computer engineer, at a pro-Morsi sit-in in the capital. "Where is democracy?"
- Is Detroit’s Bankruptcy Foreshadowing a Looming Crisis? While Detroit’s bankruptcy is worrisome enough on its own, the situation also calls into focus the massive levels of public debt held by city and state governments across the country.
- Municipal bond industry sounds alarms over Detroit debt. The largest municipal bankruptcy filing in U.S. history by Detroit poses threats to both investors, who could have to take big losses, and cities throughout the state of Michigan, who will likely have difficulties borrowing, a major industry group said on Friday.
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Market turbulence "could continue and deepen" - IMF. Current turbulence on global financial markets "could continue and deepen", the International Monetary Fund said in a briefing document prepared for Group of 20 finance ministers and central bankers meeting in Moscow. "Growth could be lower than projected due to a protracted period of stagnation in the euro area, and risks of a longer slowdown in emerging markets have increased," the 13-page note, obtained by Reuters on Friday, said. "Additionally, financial stability risks are a growing concern in both advanced and emerging economies," it said in its executive summary. "The eventual exit from low rates and unconventional monetary policy in advanced economies could pose challenges for emerging economies, especially if it proceeds too fast or is not well communicated."
- Study finds fracking chemicals didn't pollute water: AP. A landmark federal study on hydraulic fracturing, or fracking, shows no evidence that chemicals from the natural gas drilling process moved up to contaminate drinking water aquifers at a western Pennsylvania drilling site, the Department of Energy told The Associated Press.
- China to allow more banks to issue ABS - sources. Chinese regulators will allow more banks to issue asset-backed securities (ABS) in a bid to activate credit to support the slowing economy, industry sources said. Big banks will be allowed to issue ABS and a quota on such issuance will be scrapped, said the sources, citing new rules being formulated by the China Banking Regulatory Commission (CBRC) and the China Securities Regulatory Commission (CSRC). But the government will control the pace of the securitisation programme to ward off possible risks, the sources said.
- Investors pour huge sums into US equity funds. Investors have poured more money into US equity funds this week than at any time since the 2008 financial crisis, with the value of the benchmark S&P 500 index soaring to a record $15tn. The $17.5bn flowing into US equity funds was the most since June 2008. Around $6.5bn of this went into State Street Global Advisors’ popular “Spider” ETF, which tracks the S&P 500 index.
- OECD unveils plan to end 'golden era' of tax avoidance. The "golden era" of aggressive tax avoidance by big business “is over”, the world’s leading economic think-tank declared as it unveiled a 15-point action plan to stamp out sophisticated tax dodging strategies.
- Germany refuses fresh relief for Greeks as debt ratio spirals out of control. German finance minister Wolfgang Schauble has warned Greek leaders on a heavily guarded trip to Athens not to play with fire by pressing for fresh debt-relief, and brushed aside claims that Greece’s rescue package is falling apart. Mr Schauble admitted that Greece may ultimately need a second bail-out package as public debt spirals to 176pc of GDP this year, higher than when Greece first defaulted. The privatisation plan intended to chip away at the debt has stalled. Russia’s Gazprom has pulled out of a deal to buy Depa, the Greek gas utility.
- German FDP to Oppose Higher Taxes and Debt. Newspaper cites interview with Rainer Bruederle, party's lead candidate in Germany's Sept. 22 election. FDP would seek to moderate Merkel's election-year spending pledges in rerun of current governing coalition, Bruederle said. Says FDP has "crystal-clear" opposition to higher taxes and debt.
Restructuring: Flowers slams Europe over inaction
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- Spain to Penalize Excessive Bank Property Risk. Bank of Spain prepares to set new limits on concentration of banks' lending by sectors. Regulator will impose growing capital requirements when certain levels exceeded. Step is required under terms of banking bailout.
Echoing fears that
European policymakers remain in a state of cognitive dissonance –
recognizing the need for root-and-branch overhaul of peripheral banks,
but backtracking on joint liability plans – Christopher Flowers, the
legendary FIG investor who now runs the £2.3 billion ($3.5 billion)
private equity group JC Flowers, sounded the alarm over the negative
sovereign-bank feedback loop.
In a shot across the bows of market bulls, who cite the return of
capital flows to weaker eurozone states, Flowers issued a stark warning:
"There is a scenario where we have a Lehman-type event: we wake up some
Thursday and a big country is in trouble.
"And the ECB will have to decide to support banks x, y, z. And then the
ECB will, in fact, decide to own bank x, y, z.
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- China Vice Premier Says Nation's Trade Situation "Grim". China's Vice Premier Wang Yang said China's export and import situation is "grim" due to adverse external environment.
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