Bloomberg:
- Best-Ranked Bank OCBC Cautions on China Crunch: Southeast Asia. Oversea-Chinese Banking Corp. (OCBC), Southeast Asia’s second-largest lender, says banks doing business in China will have to be more prudent with liquidity to weather any future crises. The credit crunch that started in mid-June is temporary and caught some lenders by surprise, OCBC Chief Executive Officer Samuel N. Tsien, 58, said in a Bloomberg Television interview with Haslinda Amin in Singapore yesterday. A money-market liquidity squeeze in China will probably cut the country’s credit growth by about 750 billion yuan ($122 billion) as its central bank continues to crack down on excessive lending, a Bloomberg survey shows. Tsien has focused on expansion in China, Taiwan and Hong Kong to offset waning profitability in the lender’s home market of Singapore. In China, “liquidity is something that cannot be counted on for certain,” said Tsien, who heads Asia’s strongest bank, according to rankings compiled by Bloomberg Markets in May. “You have to be prepared to have adequate liquidity to fund your assets.”
- Morgan Stanley Favors Credit-Default Swaps to Hedge China Slump. Investors concerned about a sudden slowdown in China should buy sovereign credit-default swaps and currency options, according to Morgan Stanley. The U.S. investment bank prefers default swaps and puts, particularly on the yuan and Taiwanese dollar, to protect against a scenario in which growth in the world's second-biggest economy slumps to 5.5% as the central bank tightens lending to local governments and property developers, it said in a research note dated yesterday. Markets are pricing in a 10% chance of this happening in the next 12 months, the lender wrote. The cost of insuring China's debt from non-payment soared 56.2 basis points this year to 122.5 yesterday, the second-biggest gain in a CMA gauge of 40 investment-grade issuers in Asia outside Japan, as policy makers instigated the worst cash crunch in a decade in an attempt to control lending.
- Japan Says China Trying to Change Status Quo in Region by Force. China is trying to change the regional status quo by force, based on claims that contradict international law, Japan said in the first defense white paper to be published under Prime Minister Shinzo Abe’s government. “In cases where China’s interests conflict with those of neighboring countries, including Japan, it has taken measures that have been called high-handed, including trying to change the status quo by force,” the Defense Ministry said in its annual report released today on Japan’s security situation.
- Rupee Plunge Spurs State Bank to Increase Rates: Corporate India. State Bank of India, the nation’s largest lender, will raise interest rates for overseas credit to protect its profit as the rupee’s plunge to a record raises the risk of borrowers defaulting on their loans. The state-owned bank will increase lending rates to cover the probability of rising bad loans from unhedged currency exposure and higher foreign-currency yields, said Managing Director Hemant Contractor, who heads the lender’s international operations. Overseas loans accounted for more than 16 percent of State Bank’s 10.8 trillion-rupee ($177 billion) loan book as of March 31, exchange filings show.
- Tanker Demolitions Slumping as Rupee Reaches Record Low: Freight. The Indian rupee’s slump to a record low is curbing tanker demolitions, prolonging a capacity glut and the most unprofitable freight rates in at least 16 years.
- China Stocks Swing Between Gains and Losses After Inflation Data. China’s stocks swung between gains and losses after the release of June inflation data. Property and consumer-staples companies fell, while cement companies advanced. Poly Real Estate Group Co., the nation’s second-biggest developer, slumped for the first time in four days. Kweichow Moutai Co., China’s biggest liquor maker by market value, slid 0.9 percent after Credit Suisse Group AG cut its rating on the nation’s consumer-staples producers. Jiangxi Wannianqing Cement Co. jumped the most this year after estimating first-half profit probably more than doubled from a year earlier. The Shanghai Composite Index slipped 0.2 percent to 1,954.03 at 10:48 a.m. local time, after plunging 2.4 percent yesterday.
- Asian Stocks Advance on Earnings Outlook as Gas Declines. Asian stocks rebounded from the biggest slump in the regional benchmark in two weeks, and regional credit risk declined after Alcoa Inc. started the U.S. earnings season with results that beat analysts’ estimates. The Dollar Index rose with gold, while industrial metals fell. The MSCI Asia Pacific Index climbed 1.1 percent by 11:05 a.m. in Tokyo. Standard & Poor’s 500 Index futures increased 0.3 percent.
- What’s Good for U.S.-China-Japan Leaves Emerging Markets Losers. What’s good for the global economy’s superpowers risks creating losers in other parts of the world. Signs that the Federal Reserve is preparing to curtail its stimulus are boosting interest rates abroad as well as in the U.S. The strictest credit squeeze in China in at least a decade threatens to erode a pillar of international growth. Japan’s reflation push is lifting the exchange rates of trade rivals and luring capital. While the transitions could mean slower growth in the U.S. and China, they ultimately prime the three biggest economies for less volatile and longer-lasting expansions. Losers for now include the emerging markets and commodity producers previously buoyed by easy U.S. monetary policy and Chinese demand. Economies that still need cheap cash or weaker currencies, including the euro area, also could suffer.
- Pimco Shuns Korea to Turkey Covered Debt on Liquidity. Bankers attempting to sell covered bonds around the world are hitting a roadblock as investors including Pacific Investment Management Co. say difficulty trading debt from fledgling markets is driving them away.
- Rubber Recovers From One-Week Low as Weak Yen Boosts Appeal. Rubber rebounded from the lowest level in a week as Japan’s currency weakened below 101 per dollar, raising the appeal of yen-denominated futures. Rubber for delivery in December added as much as 0.4 percent to 241 yen a kilogram ($2,383 a metric ton) and was at 240.3 yen on the Tokyo Commodity Exchange at 12:11 p.m. Futures slid to 237 yen earlier, the lowest level for a most-active contract since July 1.
- Citigroup(C) to BTG at Risk of Losses on Batista, Moody’s Says. Citigroup Inc.’s Brazil unit and Grupo BTG Pactual (BBTG11) are among banks that may face “sizable” losses if companies controlled by Brazilian billionaire Eike Batista default, Moody’s Investors Service said. Citigroup’s loans and other risks linked to Batista’s faltering commodities companies total 206 million reais ($91 million), or 42 percent of the profit generated by the New York-based bank’s Brazil unit for last year, Moody’s said today in a report. At Sao Paulo-based BTG, the exposure is 649 million reais, or 32 percent of profit.
- U.S. Said to Mull Two Separate Leverage Ratios for Banking Firms. U.S. regulators may set two separate capital standards for the largest banks, one for parent companies and another for their government-backed lending units, said a person with knowledge of the matter. One leverage ratio would set capital at 6 percent of assets and the other would be 5 percent under the joint proposal scheduled to be published tomorrow by the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, the person said.
- Central Bankers Hone Tools to Pop Bubbles. Central bankers around the world are searching for ways to halt borrowing binges before they morph into bubbles, and to push lenders to shore up their defenses before the next crisis arrives. In Seoul’s upscale Gangnam neighborhood, made famous by pop star Psy’s viral music video, government curbs on real-estate lending froze a market in which home prices had been rising as fast as 25% a year. In Toronto, housing prices reversed their rapid rise and fell for five months after the government changed rules to effectively increase monthly payments on new loans. But in Tel Aviv, home prices kept right on climbing—up 11% over the past year for a three-bedroom apartment—even after the central bank boosted minimum down payments and made mortgage lending less attractive to banks. Central bankers everywhere else are watching these experiments closely, among them Ben Bernanke, chairman of the U.S. Federal Reserve.
- Peeks Are Still Available for Some Key Economic Data. One provider has ended early looks at some market-moving figures, but other opportunities remain.
- Michael McConnell: Obama Suspends the Law. Like King James II, the president decides not to enforce laws he doesn't like. That's an abuse of power. President Obama's decision last week to suspend the employer mandate of the Affordable Care Act may be welcome relief to businesses affected by this provision, but it raises grave concerns about his understanding of the role of the executive in our system of government.
- The cost of subsidies for those seeking government aid through ObamaCare has increased dramatically, critics say. The cost of subsidies for those seeking government aid through ObamaCare has increased dramatically, critics say – even before a single dollar has been collected. Republican Sen. Orrin Hatch of Utah wrote a letter to the administration asking why the president is already requesting 107 percent more than three years ago to pay for subsidies. "They low-balled everything, and they knew they were not asking for enough money to actually do this," John Goodman of the National Center for Policy Analysis said. "And so now they are coming along saying: 'Oh, we've just discovered we don't have enough money'. They should’ve known that from day one." "I don’t think most of America will be shocked that a government project is coming in over budget," Jim Capretta of the American Enterprise Institute said. "It’s the typical story and so yeah it's probably happening in this case as well."
Zero Hedge:
Business Insider:
New York Times:
- U.S. Considers Faster Pullout In Afghanistan. Increasingly frustrated by his dealings with President Hamid Karzai, President Obama is giving serious consideration to speeding up the withdrawal of United States forces from Afghanistan and to a “zero option” that would leave no American troops there after next year, according to American and European officials.
- China inflation picks up, limits room for policy easing. China's annual consumer inflation accelerated more than expected in June as food costs soared, data showed on Tuesday, limiting room for the People's Bank of China to loosen policy to underpin the slowing economy. The central bank is seen keeping policy largely neutral in the near term to balance the need to keep the world's second-largest economy on an even keel while warding off consumer inflation as well as possible property bubbles, analysts say. "The price pressure for food items came back a little bit. It will be more difficult for them to ease policy, especially to cut interest rates," said Kevin Lai, an economist at Daiwa in Hong Kong. "It reduces the likelihood of interest rate cuts this year and that is not a good policy background to have. But I think inflation will ease by the end of the year as demand won't be strong."
- Intuitive Surgical(ISRG) sees Q2 revenue below views, shares dive 12 pct. Intuitive Surgical Inc, maker of the da Vinci surgical robot, said on Monday it expects second-quarter revenue below analysts' expectations, and its shares fell 12 percent in after-hours trading. The company said it expects revenue for the quarter of about $575 million, up 7 percent from a year ago but well below the average analyst forecast of $629.6 million reported by Thomson Reuters I/B/E/S.
- Alcoa(AA) posts quarterly profit; sees aluminum demand growth. Alcoa Inc remains optimistic that global demand for aluminum will grow 7 percent this year, driven largely by demand from the aerospace and commercial transportation sectors, the largest aluminum producer in the United States said on Monday.
- U.S. hospitals speed transition to digital records -study. U.S. hospitals are making major strides in switching to electronic health records from paper, driven by an infusion of federal funding for the nationwide effort, according to a report by the Robert Wood Johnson Foundation. The number of hospitals with a basic electronic health records system in place jumped to 44 percent in 2012, up 17 percentage points from 2011. Hospitals that have gone digital have tripled since 2010, when healthcare providers began receiving federal funds to finance the change, the report found.
- Hedge funds in June post first decline of the year. Hedge funds recorded their first monthly loss in eight months in June, as they battled volatile stock and bond markets, according to data published on Monday by industry tracker Hedge Fund Research. On average, hedge funds lost 1.3 percent last month, while the broader S&P 500 stock index fell about 1.7 percent. The decline came after seven months of gains, which had been the longest run of positive performance since 2011 for the $2.25 trillion hedge fund industry. Hedge funds have gained 3.6 percent for the year, trailing the Standard & Poor's 500, which rose 12.6 percent during the first half of 2013.
The Standard:
- Beijing seen ready to bear debt. Beijing is likely to shoulder local government debt if there is any default, according to an official at one of China's most influential think-tanks. Gao Peiyong, a senior official at the Chinese Academy of Social Science, was speaking to a forum in Beijing on Sunday. Gao estimated local government debt is likely to have exceeded 10 trillion yuan (HK$12.6 trillion). The International Monetary Fund has warned China's local government debt has doubled from 2010 and may now reach 20 trillion yuan - which is more than 50 percent of its gross domestic product.
- China to Use Financial Policies to Curb Overcapacity. China will implement "strict" financial policies to curb overcapacity. People's Bank of China and China Banking Regulatory Commission will "strictly" check applications for financing by companies that are high energy consumers or heavy polluters, citing a person from PBOC's monetary policy dept. as saying. National Development and Reform Commission and the Ministry of Industry and Information Technology will also coordinate to speed up the process of phasing out outdated capacity.
Piper Jaffray:
- Rated (WDC) Overweight, target $77.
- Asian equity indices are +.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 158.0 +1.0 basis point.
- Asia Pacific Sovereign CDS Index 117.25 +3.25 basis points.
- FTSE-100 futures +.39%.
- S&P 500 futures +.36%.
- NASDAQ 100 futures +.32%.
Earnings of Note
Company/Estimate
- (WWW)/.34
7:30 am EST
- The NFIB Small Business Optimism Index for June is estimated to rise to 94.9 versus 94.4 in May.
- JOLTs Job Opening for May are estimated to rise to 3800 versus 3757 in April.
- None of note
- The BoJ Minutes, Germany PPI data, UK gdp report, Greece T-Bill auction, 3Y T-Note auction, weekly retail sales reports, Semicon West Conference, (BBRY) shareholder meeting, (GIS) Investor Day, (DHR) analyst meeting, (KLAC) analyst briefing and the (LRCX) analyst briefing could also impact trading today.
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