Bloomberg:
- China’s Debt Surge Pressures Xi-Li to Avert Lost Decade. A Chinese lending spree of the magnitude that tipped Asian nations into crisis in the late 1990s and preceded Japan’s lost decades is putting pressure on top leaders to map out a strategy to tackle the threat. Half of the economists in a Bloomberg News survey say non-performing local-government and corporate debt will probably have a “significant impact” on China’s credit and economic growth. The central government will deal with bad loans at local governments in the next 18 months by expanding the municipal-bond market and letting localities refinance with direct bond sales, respondents said. Avoiding a fate akin to Japan’s growth collapse of the 1990s hinges on Chinese officials’ ability to reduce debt and shift policy, JPMorgan Chase & Co. says. President Xi Jinping and Premier Li Keqiang, developing a reform strategy due at a Communist Party meeting later this year, may get input from a State Council-ordered audit of government borrowings and a World Bank-assisted study on urbanization. “The debt ratio is absolutely dangerous, there is no question,” said Yao Wei, China economist at Societe Generale SA in Hong Kong, ranked by Bloomberg as the most accurate forecaster of the nation’s gross domestic product. “There is a high risk that this debt issue will have significant downside pressure on Chinese growth in the next few years.” Local-government debt may have surged by as much as 50 percent since the end of 2010.
- Fonterra Tainted Items Add to Woes of Consumers in China. Fonterra Cooperative Group Ltd.’s warnings of tainted ingredients in some products of the world’s largest dairy exporter is the latest blow to baby formula sellers amid Chinese consumers’ concerns about food safety.
- China’s Stocks Fall Most in Week as Property, Coal Shares Slump. China’s stocks fell for the first time in six days, led by property developers and coal producers, after the nation’s economic planning agency signaled the government would maintain property curbs and concern grew the slowing economy will reduce demand for energy.
- Asian Stocks Drop on Concern Fed Will Reduce Stimulus. Asian stocks fell for a second day as stronger growth in U.S. service industries fueled speculation the Federal Reserve will soon be able to reduce economic stimulus. HSBC Holdings Plc (5) slumped 4.5 percent in Hong Kong after earnings at Europe’s biggest bank missed analysts’ estimates. Sony Corp. (6758) sank 5.5 percent in Tokyo after its board rejected billionaire Daniel Loeb’s call to sell a portion of its entertainment business, saying 100 percent ownership is crucial to the company’s success. Fonterra Shareholders Fund climbed 2.6 percent in New Zealand, recouping some of yesterday’s record decline after Russia and China halted imports of milk powder amid concern about tainted ingredients in some products from Fonterra Cooperative Group Ltd., the world’s largest dairy exporter. The MSCI Asia Pacific Index sank 0.7 percent to 134.33 as of 11:03 a.m. in Hong Kong, with four stocks falling for each that rose.
- Rubber Futures Drop for Second Day as Stronger Yen Cuts Appeal. Rubber declined for a second day as a strengthening Japanese currency reduced the appeal of yen-based contracts and amid speculation the Federal Reserve will soon be able to cut stimulus. The contract for delivery in January dropped as much as 1 percent to 243.4 yen a kilogram ($2,484 a metric ton) on the Tokyo Commodity Exchange, before trading at 244.4 yen at 11:28 a.m. Futures have fallen 19 percent this year.
- French Cross Rhine for Work to Escape 10% Unemployment. With unemployment in Alsace at about 10 percent and the jobless rate in the German state of Baden-Wuerttemberg where Kehl is located at about 4 percent, an increasing number of French people are crossing the border for work. Their commutes highlight how the euro region has one currency -- and 17 different labor markets.
- Obama Assertion of Vanquished Al-Qaeda Undercut by Terror Threat. The latest attack threat from an al-Qaeda offshoot creates a political challenge for President Barack Obama, as Republicans accuse him of hyping claims to have terrorists on the run and privacy advocates say the warning may be used to justify greater government surveillance. While Obama’s critics applauded the administration’s decision to temporarily shut down 22 U.S. embassies and consulates in predominantly Muslim countries based on threats in intercepted communications, White House press secretary Jay Carney today was forced to defend the president’s past statements that al-Qaeda is “on the ropes.”
- Tanker-Rate Slump Signals Retreat in U.S. Oil Imports: Freight. The biggest slump in tanker rates since January is signaling weaker U.S. oil imports and spurring analysts to predict a 15-year low for shares of Frontline Ltd. (FRO), whose ships haul almost enough crude to meet daily world demand. Rates for the biggest crude carriers tumbled 68 percent in the past two weeks, more than reversing their advance since the end of June, according to Clarkson Plc. Earnings had risen after oil cargoes to the U.S., the second-biggest source of demand for supertankers, expanded for three months. Shares of Hamilton, Bermuda-based Frontline will plunge 43 percent in a year, the average of 13 analyst estimates compiled by Bloomberg showed.
- Coal at Risk as Global Lenders Drop Financing on Climate. The world’s richest nations, moving to combat global warming, are cutting government support for new coal-burning power plants in developing countries, dealing a blow to the world’s dominant source of electricity. First it was President Barack Obama pledging in June that the government would no longer finance overseas coal plants through the U.S. Export-Import Bank. Next it was the World Bank, then the European Investment Bank, dropping support for coal projects. Those banks have pumped more than $10 billion into such initiatives in the past five years.
- IBM(IBM) Furloughs U.S. Hardware Employees to Reduce Costs. International Business Machines Corp. (IBM) said it’s requiring the majority of U.S. employees in its hardware division to take a week off with reduced pay, cutting costs as demand slows for products such as servers. U.S. hardware employees, including those involved in development and procurement, will take a furlough week with one-third pay starting either Aug. 24 or 31, said Jay Cadmus, a spokesman for the Systems and Technology Group. Executives in the division will take no pay during the week.
- Bezos Buys Washington Post(WPO) for $250 Million. Amazon(AMZN) Chief's Deal Doesn't Involve Online Retailer but Shows Media Power Shift. Amazon.com Inc. Chief Executive Jeff Bezos is buying the Washington Post for $250 million in an out-of-the-blue deal that captures the newspaper industry's economic decline and the shift of power from old-media to Silicon Valley.
- FBI Finds Holes in System Protecting Economic Data. FBI finds 'operational vulnerabilities' involving 'black boxes' used to control the release of sensitive economic data. The Federal Bureau of Investigation has discovered vulnerabilities in the government's system for preventing market-moving economic reports from leaking to traders before public release. Law-enforcement officials found "a number of operational vulnerabilities" involving "black boxes" used by several departments to control the release of sensitive economic data such as the monthly unemployment rate, according to a report by the inspector general at the Commerce Department. The report said it was possible to subvert the system, which was designed to prevent media companies from sending economic data to traders early.
- Private-Equity Payout Debt Surges. Private-equity firms are adding debt to companies they own to fund payouts to themselves at a record pace, as fears mount that the window for these deals will close if interest rates rise. So far this year, $47.4 billion of new loans and bonds have been sold by companies to pay dividends to the private-equity firms that own them, according to data provider S&P Capital IQ LCD. That is 62% more than the same period last year, which wound up being the biggest year on record, with $64.2 billion sold to fund private-equity payouts.
- IBM(IBM) Gets Allies to Chip Away at Intel(INTC). Google(GOOG), Others Join Effort to Break Big Blue's Power Designs Out of a Niche.
- Bradley Smith: The IRS Attack on Political Speech. The targeting of conservative groups is part of the long-time assault by campaign-finance scolds on the First Amendment.
- Larry Schweikart and Burton Folsom: Obama's False History of Public Investment. Entrepreneurs built our roads, rails and canals far better than government did.
- "Blue-Sky" Index Is Flashing Red. (graph)
- Another Looming Credit Crunch? (graph)
Reuters:
- Output in emerging market economies contract in July- HSBC. Business activity across emerging economies contracted for the first time in over four years in July, driven mainly by a drop in manufacturing while services activity stagnated, a survey showed on Tuesday. It highlighted the growing divergence between activity in the developed world and emerging economies and cast doubt on prospects for a sustained global economic recovery from the financial crisis. The composite HSBC Emerging Markets index for services and manufacturing fell to 49.4 in July from 50.6 in June and below the 50 mark that separates growth from contraction. It was the first sub-50 reading since April 2009.
- American Eagle(AEO) not happy with quarter, shares sink. American Eagle Outfitters Inc, which makes clothes for teenagers and young adults, said on Monday its second-quarter profit will likely be less than half of what Wall Street was expecting, citing weak sales and lower margins, sending its shares down 15 percent. "We are not at all happy with our second quarter results," Chief Executive Robert Hanson said in a statement, adding that poor sales of women's items and weak traffic were largely to blame. American Eagle's shares fell to $16.95 in after-hours trading. They closed at $19.97 on the New York Stock Exchange on Monday.
Financial Times:
Telegraph:- Regulation pushes banks on to a riskier path. Some bankers are said to be complacent about liquidity buffers. Can regulation make banks less safe? What has happened in the past week certainly seems to suggest so. Three large European banks – Barclays, Deutsche Bank and Société Générale – moved to partly dismantle one of their main bulwarks against another liquidity crisis: their massive cash reserves.
- IMF sees no end to French jobless crisis this decade. France’s economic reforms do not go deep enough to halt long-term decline and may not cut unemployment from double-digit levels by the end of this decade, the International Monetary Fund has warned.
Liquidity crunch a
catalyst for big China slowdown – analysts
The mini liquidity crunch is the early warning sign of a substantial
economic correction long overdue, amid rising leverage and a broken
growth model, say bearish analysts.
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William Blair:
- Cut (DE) to Underperform, target $75.
- Cut (TITN) to Underperform, target $15.
- Asian equity indices are -1.25% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 142.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 109.75 -3.5 basis points.
- FTSE-100 futures -.38%.
- S&P 500 futures -.21%.
- NASDAQ 100 futures -.13%.
Earnings of Note
Company/Estimate
- (TAP)/1.39
- (D)/.65
- (PH)/1.96
- (ZTS)/.36
- (THC)/.71
- (DBD)/.27
- (CVS)/.96
- (ICE)/2.14
- (RDC)/.55
- (ADM)/.44
- (DNR)/.36
- (MGM)/.01
- (EMR)/.98
- (SMG)/2.43
- (REGN)/1.74
- (FOSL)/.93
- (LPX)/.34
- (TDW)/.76
- (CHRW)/.74
- (DIS)/1.01
- (CSC)/.67
- (CAR)/.51
- (FSLR)/.53
- (Z)/-.11
- (MRO)/.71
- (CF)/7.61
- (BID)/1.37
- (WMS)/.31
8:30 am EST
- The Trade Deficit for June is estimated at -$43.5B versus -$45.0B in May.
- The IBD/TIPP Economic Optimism Index for August is estimated to rise to 47.5 versus 47.1 in July.
- JOLTs Job Openings for June are estimated to rise to 3895 versus 3828 in May.
- None of note
- The Fed's Evans speaking, RBA rate decision, 3Y T-Note auction, UK 10Y bond auction, weekly retail sales reports, Needham Software & Services Conference and the (VPRT) investor day could also impact trading today.
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