Bloomberg:
- U.S. Says Syria Used Chemical Arms as UN Plans Inspection. The Obama administration has concluded Syrian President Bashar al-Assad’s regime probably used chemical weaponry against civilians, calling an agreement today to let United Nations inspectors review the area not credible. Syria and the UN agreed to the inspection of the Ghouta area outside Damascus starting tomorrow, a UN spokesman said in a statement today. The agreement five days after the purported attack is too late because constant shelling of the area could have corrupted or destroyed evidence, according to a senior U.S. administration official in an e-mailed statement.
- Egypt’s Brotherhood Leaders Go on Trial for July Violence. The trial of the supreme guide of Egypt’s Muslim Brotherhood and two of his deputies on charges of inciting violence started in their absence as the Islamist group faces its toughest crackdown in over three decades. In a separate case, former ruler Hosni Mubarak appeared in the court to answer charges relating to his alleged role in the death of protesters in 2011, when a mass uprising led to his ouster and opened the door for the Brotherhood’s rise to power and subsequent fall with the deposing of President Mohamed Mursi. The start of criminal proceedings against Mohammed Badie, the Brotherhood’s top leader, along with Khairat el-Shater and Rashed Bayoumi, comes days after Mubarak was released from prison under a court order and moved to house arrest. It marked part of the military-backed government’s attempt to quash the Islamist organization and stabilize the country after clashes left nearly 1,000 people dead since Mursi’s July 3 ouster.
- Japan to Decide on Sales-Tax Increase by Early Oct., Amari Says. Japanese Prime Minister Shinzo Abe will make a decision on a sales-tax increase by early October, before a gathering of Asia-Pacific leaders in Indonesia, according to Economy Minister Akira Amari. Abe will decide “at the latest” before a summit of leaders from the Asia-Pacific Economic Cooperation forum, which starts in Indonesia on Oct. 7, Amari said yesterday on NHK television.
- Emerging-Market Currencies Fall to Lowest Since 2010 on Fed. India’s rupee led declines among the currencies of the biggest emerging-market economies as the Federal Reserve signaled a reduction in stimulus is still on track, spurring a wave of cash to flow back into larger nations. The Bloomberg U.S. Dollar Index rose for a second week and touched its highest level since Aug. 2. An equally weighted basket of currencies of Brazil, Russia, India, China and South Africa touched its lowest level versus the dollar since June 2010 on concern a paring of stimulus under the Fed’s quantitative-easing strategy would intensify outflows from the currencies. The Commerce Department may report Aug. 30 that U.S. consumer spending increased 0.3 percent in July.
- Bank Profits to Fall Below 5-Year Low on Rupee: Corporate India. Indian banks’ profitability, already at the lowest since 2009, is poised to decline further after measures to stem the rupee’s record slump drove up borrowing costs and exacerbated rising bad loans and slowing loan growth. Return on equity, which measures profit generated with shareholders’ funds, may fall below 10 percent in the year to March for banks from last year’s 12.8 percent, said Vibha Batra, co-head of financial-sector ratings in New Delhi at a unit of Moody’s Investors Service. Stressed assets are approaching levels last seen in 2002, she said on Aug. 21.
- Freedom on Rates Sparks Worst Bond Drop Since 2010: China Credit. Speculation that China will give banks the freedom to set deposit rates is combining with a cash crunch to spark the worst monthly slump in benchmark sovereign bonds in almost three years. The rate on government notes due 2023 jumped 27 basis points this month to 399% on Aug. 23, the most since November 2010, ChinaBond data show. That has widened their rate advantage to 110 basis points over similar-maturity U.S. treasuries from as low as 78 basis points on July 5.
- China Construction Bank Profit Growth Slows on Rising Bad Loans. China Construction Bank Corp. (939), the nation’s second-largest lender, posted the smallest profit increase in five quarters, weighed down by rising bad-loan charges as the economy slowed. Net income in the second quarter climbed 9.7 percent to 60.1 billion yuan ($9.82 billion) from 54.8 billion yuan a year earlier, based on figures published by the Beijing-based lender yesterday. That compared with the 58.2 billion yuan median estimate of 11 analysts surveyed by Bloomberg. The earnings reflect how Chinese banks are grappling with rising defaults and weak lending demand as the world’s second-largest economy heads for the slowest pace of expansion in 23 years.
- BYD Predicts Smaller Third-Quarter Profit on Weak Sales. BYD Co. (1211), the Chinese automaker that counts Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) as a shareholder, predicted the smallest quarterly profit in a year on weaker vehicle sales and mobile phone orders. Net income for the July-to-September quarter may be 3 million ($490,000) to 50 million yuan, according to Bloomberg calculations subtracting the company’s six-month figures from its nine-month projection. A profit at the low end of the forecast would give the Shenzhen, China-based automaker its smallest three-month profit since a loss in the second quarter last year, according to data compiled by Bloomberg.
- China Growth Can Sink Closer to 6% on Waning Job Needs: Economy. Chinese officials shifting the economy away from exports and investment can allow growth to sink closer to 6 percent within the next five years without triggering a destabilizing jump in unemployment. The pace of expansion needed to absorb new entrants to the labor force will slip to 6.4 percent in 2018 from 7.3 percent this year, according to the median forecast in a Bloomberg News survey of 12 economists last month.
- Asian Stocks Rise as U.S. Housing Data Eases Fed Concerns. Asian stocks rose for a second day after a slump in U.S. home sales eased speculation the Federal Reserve will reduce economic stimulus next month. Belle International Holdings Ltd., a retailer of woman’s footwear, advanced 6.9 percent in Hong Kong after reporting first half-net income. Newcrest Mining Ltd. jumped 6.9 percent, leading a surge in Australian gold producers after the price of the precious metal rose above $1,400 an ounce last week. Tokyo Electric Power Co. slumped 7.7 percent in Tokyo after eight tons of filtered water leaked at its crippled Fukushima Dai-Ichi nuclear power plant. The MSCI Asia Pacific Index advanced 0.3 percent to 131.77 as of 12:26 p.m. in Tokyo, with all of the 10 industry groups on the gauge rising.
- Rebar Near 4-Month High on Speculation China to Cut Steel Output. Steel reinforcement-bar futures in Shanghai extended a fourth weekly gain to trade near the highest level in four months on speculation China’s drive to reduce air pollution will cut steel output. Rebar for January delivery gained as much as 0.8 percent to 3,848 yuan ($629) a metric ton, the same level as the high on Aug. 14 which was the highest since April, and was 3,824 yuan at 10:33 a.m. local time. The contract rose 0.2 percent last week.
- Hedge Fund Gold Bets Reach Six-Month High After Rally. Hedge funds and other speculators raised bets on higher gold prices to the most in six months as signs of slowing U.S. growth drove bullion above $1,400 an ounce for the first time since June. The net-long position increased 29 percent to 73,216 futures and options by Aug. 20, U.S. Commodity Futures Trading Commission data show. Short contracts fell for a second week and to the lowest since Feb. 12. Net-bullish holdings across 18 U.S.-traded commodities jumped 34 percent, the most since July 2010, as wagers on copper and soybeans more than doubled.
- ECB Council Members Split in Jackson Hole Over Room for Rate Cut. European Central Bank Governing Council members split over whether scope remains for further interest-rate cuts as evidence mounts that the euro-area economy is on the mend. Policy makers still can’t rule out lowering the benchmark rate from the record low of 0.5 percent, Bank of Cyprus Governor Panicos Demetriades said in an Aug. 24 interview. By contrast, Bank of Austria Governor Ewald Nowotny said on Aug. 22 that he doesn’t see “many arguments now for a rate cut” after the recent “stream of good news.”
- Merkel Says G20 Needs to Push Harder to Control Hedge Fund Risks. German Chancellor Angela Merkel told voters at an election rally that she’ll push for greater regulation of hedge funds at next month’s Group of Twenty meeting. Addressing a crowd of about 2,000 in the Rhine city of Bonn, Merkel said she hoped European members of the G20 would “speak with one voice” at a meeting in St. Petersburg, amid slow progress on tightening controls on hedge funds. “It’s not enough to regulate just banks but not hedge funds and shadow banks and I’ll fight for that,” she said.
- Germany Must Pay for Euro, Merkel Challenger Steinbrueck Says. Chancellor Angela Merkel’s challenger in next month’s election said Germany will again have to pay the bill to save the euro and that the chancellor has failed to alert voters about a looming third Greek rescue. Social Democrat Peer Steinbrueck said Merkel should have been up front about the cost of rescuing the euro area since 2010, when the first bailout package was set up. Greece will “most likely” need new funds, Finance Minister Wolfgang Schaeuble said, adding that the amount will be “much lower” than previous packages and won’t be determined until next year.
- Demetriades Says Cannot ‘Rule Out’ Another ECB Interest Rate Cut. European Central Bank Governing Council Member Panicos Demetriades said policy makers can’t “rule out” lowering their key interest rate to a new record low even amid signs the euro-area economy is improving. “That option is still on the cards,” Demetriades said of a rate cut in an interview today in Jackson Hole, Wyoming. “We cannot rule out that possibility although one has to take a look at the new data. That data is more encouraging.”
- Multiples Expanding Fastest Since Dot-Com Bubble as Rally Ages. Price gains of stocks in the Standard & Poor’s 500 Index (SPX) are outpacing profits by the fastest rate in 14 years as the bull market extends beyond the average length of rallies since Harry S. Truman was president. The benchmark gauge for U.S. equities has risen 14 percent relative to income over the past 12 months to 16 times earnings, according to data compiled by Bloomberg. Valuations last climbed this fast in the final year of the 1990s technology bubble, just before the index began a 49 percent tumble. The rally that started in March 2009 has now outlasted the average gain since 1946, the data show.
- Leveraged Debt Exceeds $2 Trillion in Repression: Credit Markets. It took three decades for the amount of speculative-grade debt to reach $1 trillion. It took about seven years to reach $2 trillion as investors sought relief from the financial repression brought on by near-zero interest rates. The market for dollar-denominated junk-rated debt has expanded more than 800% since the end of 1997 from $243 billion, according to Morgan Stanley. That compares with a quadrupling of the investment-grade market to $4.2 trillion as tracked by the Bank of America Merrill Lynch U.S. Corporate Index.
- Fed Officials Rebuff Coordination Calls as Stimulus Taper Looms. Federal Reserve officials rebuffed international calls to take the threat of fallout in emerging markets into account when tapering U.S. monetary stimulus. The risk that the Fed’s trimming of bond buying will hurt economies from India to Turkey by sparking an exodus of cash and higher borrowing costs was a dominant theme at the annual meeting of central bankers and economists in Jackson Hole, Wyoming, that ended Aug. 24. An index of emerging-market stocks last week fell 2.7 percent, the steepest in two months, compared with a 0.5 percent gain in the Standard & Poor’s 500 Index.
- Nasdaq Focuses on Pivotal 2 Minutes in Trading Halt. The Period Foretold Just How Severe the Market's Problems Were About to Get. Regulators and exchange officials trying to unravel the cause of last week's Nasdaq Stock Market NDAQ +1.21% failure are focusing on an apparently pivotal two-minute period that foretold just how severe the market's problems were about to get, according to people familiar with the discussions. The period between 10:53 a.m. and 10:55 a.m. in New York on Thursday appears to have been crucial to signaling the coming impact of a connection problem between Nasdaq OMX Group Inc.'s systems and rival electronic market NYSE NYX -0.07% Arca, the people said.
- Pipeline-Capacity Squeeze Reroutes Crude Oil. More U.S. oil is moving via truck, barge and train than at any point since 1981. More crude oil is moving around the U.S. on trucks, barges and trains than at any point since the government began keeping records in 1981, as the energy industry devises ways to get around a pipeline-capacity shortage to take petroleum from new wells to refineries. The improvised approach is creating opportunities for transportation companies even as it strains roads and regulators. And it is a precursor to what may be a larger change: the construction of more than $40 billion in oil pipelines now under way or planned for the next few years, according to energy adviser Wood Mackenzie.
- Stagnant Wages Are Crimping Economic Growth. Employers Seem Wary to Raise Pay. Americans are spending enough to keep the economy rolling, but don't expect them to splurge unless their paychecks start to grow. Four years into the economic recovery, U.S. workers' pay still isn't even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show. Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation's economic growth.
Marketwatch.com:
- High profit margins hint at pain to come. Commentary: A reversion-to-the-mean could mean trouble.
Fox News:
Business Insider:- Cruz presses ahead with defunding ObamaCare, says it will take a 'tsunami' of support. The race to stop ObamaCare before Americans can officially sign up this fall for the government-backed health insurance intensified Sunday with two of the movement’s biggest champions confident they will succeed but acknowledging it will take a “tsunami” of support. Texas Republican Sen. Ted Cruz, a Tea Party-backed lawmaker at the center of the effort to “defund” ObamaCare, said the fight will play out in the weeks before the Oct. 1 signup date and that success will require a grass-roots effort in which Americans across the country must “demand” their elected officials “do the right thing.” “This fight is likely to heat up in the month of September,” Cruz told CNN’s “State of the Union." “That's going to be when the battle is engaged.”
- Muslim Brotherhood's bid to scapegoat Christians failing, say Egyptians. As their nation descends into violent chaos, Egyptians are increasingly blaming the Muslim Brotherhood, despite attempts by the Islamist group to scapegoat Christians and the military, according to several sources who spoke to FoxNews.com from Cairo. “The Muslim Brotherhood has lost all sympathy with their points due to their violence,” said a Long Island, N.Y., Egyptian-American, who is in a Cairo suburb for a family wedding.
Reuters:
Financial Times:- Tropical Storm Fernand forms in Gulf of Mexico, oil ports open. A tropical depression strengthened into tropical storm Fernand on Sunday in the Gulf of Mexico, the U.S. National Hurricane Center said, though the country's main oil exporting ports remained open according to the latest official report. The oil ports of Cayo Arcas, Coatzacoalcos and Dos Bocas were operating normally, officials said on Sunday afternoon. However, Mexican authorities closed the eastern port of Veracruz.
- Insight: Zombie borrowers haunt China's shadow banks. Call
it the new China Syndrome: Although Asia's biggest economy is slowing
down markedly, credit continues to surge. Dead-end projects and dying
industries are sucking up an ever-larger portion of new credit, while
more productive borrowers are starved for funds. Nowhere is this more
evident than in China's shadow banking sector, the non-bank
financiers that have pumped credit into the economy at a spectacular
rate. Trust companies - firms that sell investment products to Chinese
savers and use the proceeds to make loans or buy other types of assets -
have posted the fastest growth. A Reuters examination of proprietary
data shows that as little as half of trust loans issued in 2012 were
used to finance current economic activity, such as a new investment
project or increased production at an existing factory. The other half
may have been used for refinancing old debt that funded past projects
but is no longer contributing to economic growth. The finding offers a
possible explanation for the growing disconnect between lending and
growth in China. Many analysts have expressed concern that the
so-called "credit intensity" of Chinese growth is increasing. Ever more
borrowing is required to produce the same amount of economic output. But
no one is sure why. Rising credit intensity is exacerbating the huge buildup of debt in China's financial system since Beijing launched its credit-fueled 4 trillion yuan ($650billion) stimulus plan in 2008.
Focus:
- Merkel Warns Against Debt Cut for Greece. Angela Merkel says debt cut for Greece could trigger a "domino effect" that would unsettle investors, according to an interview with the German chancellor.
- Weidmann Says It's Wrong to Think Crisis Ending. European Central Bank Governing Council member Jens Weidmann said debate over Greek debt cut shows euro crisis not over, according to an interview. Greece must not have more debt write-offs, he said. Draghi's statement that ECB will do everything to rescue euro helped calm markets, but calm is "deceptive", he said. ECB will soon begin to examine European banks' books, conduct stress tests. Stress tests may show some banks need more capital.
- Germany's Schaeuble Rejects Euro Bonds. Schaeuble rejects introduction of euro bonds or any other form of liability of the European Union, he said in an interview. Joint liability leads to "false incentives" and "weakening of reform efforts," citing him.
- Pimco Sees No Progress on Common Fiscal Policy. Politicians aren't making "real progress" on a banking union or a common fiscal policy, Andrew Balls, head of European portfolio management at Pimco, said in an interview. European politicians don't have "real growth strategy", Balls said. Pimco is "underweight" in Italian, Spanish bonds as growth will remain weak in the next 3-5 years in those countries. The EU crisis isn't over yet, he said. Pimco doesn't expect German government to change its fundamental positions after the elections.
- Greece Must Not Undo Its Achievements, Asmussen Says. Greece leaders must preserve their success in dealing with the country's debt crisis, citing Joerg Asmussen, ECB executive board member. While he understands political situation in Greece, Asmussen says there's no alternative solution to the loan agreement with the so-called troika of the ECB, IMF, European Commission.
- Greece May Need EU10B in Aid, Stournaras. Such aid would be economic support package without need for another loan agreement, Finance Minister Yannis Stournaras is cited as saying in an interview.
- Japan Sales Tax Hike Support Rate Rises to 43% in August. 43% of people surveyed in August said sales tax should be raised as scheduled, 13 points higher than the support rate in July, according to a poll conducted Aug. 24-25. Disapproval rating for the sales tax policy falls 9 points to 49%.
- PBOC Reverse Repos Doesn't Mean Easing. Injections into the money supply by the Chinese central bank with reverse repurchase operations doesn't indicate a monetary policy easing, according to a commentary written by Xu Shaofeng. A cut in banks' reserve requirement ratio wouldn't be good for economic restructuring, the commentary said.
Weekend Recommendations
Barron's:- Bullish commentary on (TTWO), (MSFT) and (BTU).
- Asian indices are +.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 160.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 128.25 -3.25 basis points.
- FTSE-100 futures n/a.
- S&P 500 futures +.27%.
- NASDAQ 100 futures +.27%.
Earnings of Note
Company/Estimate
- None of note
8:30 am EST
- Durable Goods Orders for July are estimated to fall -4.0% versus a +4.2% gain in June.
- Durables Ex Transports for July are estimated to rise +.5% versus unch. in June.
- Cap Goods Orders Non-defense Ex Air for July are estimated to rise +.5% versus a +.7% gain in June.
- Dallas Fed Manufacturing Activity for August is estimated to fall to 3.9 versus 4,4 in July.
- None of note
- The German import/export data and the (VMW) financial analyst day could also impact trading today.
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