- Shadow Banking Risks Exposed by Local Debt Audit: China Credit. China’s audit of local governments exposed an increased reliance on shadow banking, swelling the risk of default on 17.9 trillion yuan ($3 trillion) of debt. Bank lending dropped to 57 percent of direct and contingent liabilities as of June 30 from 79 percent at the end of 2010, while bonds rose to 10 percent from 7 percent, National Audit Office data show. Trust financing surged to 8 percent from zero, while other channels that sidestep loan curbs accounted for the remaining 25 percent. The yield on five-year AA notes, the most common rating for local government financing vehicles, jumped by a record 158 basis points last year to 7.6 percent. That exceeds the 5 percent on emerging-market corporate notes, Bank of America Merrill Lynch indexes show.
- China Wages Seen Jumping in 2014. China’s wages are set to increase by 10 percent or more in 2014, driving more low-cost manufacturers out of the country and boosting consumption, according to analysts at firms including Bank of America Corp.
- Iraq Forces, Tribes May Soon Start Attack to Recapture Fallujah. Iraqi security forces, militias or tribesmen may soon start an attack to retake Fallujah from al-Qaeda-linked militants after about 9,000 families fled the city, a government official said. “I believe that a final combat will take place soon,” Faleh al-Issawi, deputy head of the provincial council of Anbar, said by phone from Ramadi. “Fallujah city is totally controlled by militias and this extends to Garma,” a town about 15 kilometers (9 miles) away.
- Merkel Fractures Pelvis in Ski Accident; Doctors Say to Rest. German Chancellor Angela Merkel suffered a pelvic fracture after falling during a cross-country skiing trip, forcing her to cancel appointments during the next three weeks.
- European Stocks Drop After U.S. Services, Orders Reports. European stocks fell after a U.S. report that showed weakness in the services industry, while factory orders rose faster than forecast. Remy Cointreau SA and Edenred SA each fell at least 2.1 percent after Natixis SA cut its stock recommendations. Ziggo NV rallied 3.6 percent after people familiar with the matter said Liberty Global Plc is preparing an acquisition of the Dutch broadband provider. RSA Insurance Group Plc jumped 6.2 percent after a report said the insurer’s Irish unit won’t require further capital injections. Banca Monte dei Paschi di Siena SpA and Commerzbank AG helped send European lenders higher. The Stoxx Europe 600 Index lost 0.2 percent to 326.98 at the close of trading in London.
- Emerging Shares Fall; Treasuries Gain, S&P 500 Fluctuates. The MSCI Emerging Markets Index lost 0.7 percent at 2:50 p.m. in New York.
- WTI Oil Falls to Five-Week Low on Slower Service Growth. WTI for February delivery slid 53 cents, or 0.6 percent, to $93.43 a barrel on the New York Mercantile Exchange, the lowest settlement since Nov. 29. The five-day losing streak is the longest since September. The grade declined 6.3 percent last week, the most since June 2012. The volume of all futures traded was 19 percent below the 100-day average at 2:57 p.m.
- Dollar Snaps Four-Day Advance on Services Report. The dollar fell 0.3 percent to 1.3635 per euro after rising to $1.3572, the highest level since Dec. 5. The greenback slid 0.6 percent to 104.27 yen, while the Japanese currency advanced 0.2 percent to 142.17 per euro.
- China Five-Year Government-Bond Yield Hits 16-Year High. China's first auction of government bonds this year resulted in a 16-year-high yield of 4.47% for the five-year debt. The yield could have been even higher if the government had issued more than the 10 billion yuan ($1.65 billion) of bonds that the Ministry of Finance put up for sale Monday. "If the finance ministry had doubled the bond offering, we may have seen the auction yield rising to above 4.5%," said a Zhejiang-based bond trader, who declined to be named. The five-year government-bond yield was quoted at 4.52% in the secondary market Monday, up from 3.0906% in late May. The last time the yield for five-year government debt was higher was in 1998, according to data provider WIND Info.
- White House resets focus to ‘income inequality,’ amid ObamaCare problems. The Obama administration has set the stage for a push that could rekindle cries of class warfare -- calling for renewed long-term unemployment benefits, a minimum wage increase and a campaign against what Democrats call "income inequality."
CNBC:
- Art Cashin warns: 'Pronounced divergence building'. (video) Cashin, UBS' director of floor operations at the NYSE, told CNBC's Bob Pisani around midday that "the Dow has been stronger than the other averages... The Nasdaq and the S&P kind of pulled the Dow down behind them today... We see this in the Russell also. The small caps are having a difficult 2014."
Business Insider:
NY Times:
- The Bubble Is Back. IN November, housing starts were up 23 percent, and there was cheering all around. But the crowd would quiet down if it realized that another housing bubble had begun to grow. The Obama administration’s remedy of choice was the Dodd-Frank Act. It is the most restrictive financial regulation since the Great Depression — but it won’t prevent another housing bubble.
- Spain’s Solar Pullback Threatens Pocketbooks. “It seemed so safe,” he said recently. “It was a government guarantee.” But the Spanish government has changed its mind. It plans to pay less, a lot less. Under legislation that goes into effect this year, it will drop its per-kilowatt-hour payment system altogether and effectively impose retroactive cuts in payments. It also plans to make solar power producers pay a charge on electricity they generate and use themselves, a measure that angry protesters have named the “sun tax.”
- China makes fresh bid to curb shadow banking, contain debt risk. China's cabinet has published guidelines strengthening regulation of risky off-balance-sheet lending in a new effort to address growing financial risks from an explosion in debt. The State Council's guidelines call for tighter regulation of banks' off-balance-sheet lending and say that trust companies - the biggest non-bank players in what's called "shadow banking" - should return to their original purpose as asset managers and not engage in "credit-type" business.
- Moody's could cut Brazil rating outlook if economy disappoints. Moody's Investors Service could cut Brazil's rating outlook later this year if economic growth disappoints in the first half of 2014, the firm's senior credit analyst, Mauro Leos, told Reuters on Monday. If the Brazilian economy performs as expected, however, Moody's will wait for the policies of an incoming government that will be elected later this year to decide on the future of the country's rating, which at "Baa2" stands only two notches into investment grade. Moody's base scenario for Brazil in 2014 includes gross domestic product growth of 2 percent and a primary budget surplus of 2 percent as well.
- U.S. boosting military sales to Iraq to help fight al Qaeda-White House. The White House said on Monday that the United States is accelerating its military sales and deliveries to Iraq to help the country fight al Qaeda-linked militants, part of a strategy to isolate the insurgent groups. The United States is looking to provide additional shipments of Hellfire missiles as early as this spring, White House spokesman Jay Carney told reporters in a briefing. Carney said the United States will provide 10 ScanEagle surveillance unmanned aerial vehicles (UAVs) to Iraq in upcoming weeks and 48 Raven surveillance UAVs later this year to help Iraq track al Qaeda-affiliated groups.
- New regulator Watt signals shift in U.S. housing policy. Mel Watt, who was sworn in on Monday to head the agency that regulates mortgage finance firms Fannie Mae and Freddie Mac, has signaled a new approach to U.S. housing policy that will put more of an emphasis on ensuring access to credit. Watt, a 68-year-old North Carolina Democrat who spent more than two decades in Congress, is the first permanent director of the Federal Housing Finance Agency in four years.
- METALS-Copper steadies near two-week lows as China worries drag. Copper steadied on Monday as the dollar fell but the metal remained near a two-week low on concerns about economic recovery in China, which accounts for about 40 percent of global copper demand. Three-month copper on the London Metal Exchange fell to its lowest since Dec. 24 at $7,278.75 a tonne on Monday, before closing at $7,325 from $7,315 on Friday.
- France 'sliding back into recession' as Spain picks up. France was the only one of the eurozone's four major economies to see its private sector shrink in December.
- China Warns Some Risks in Shadow Banking. China warns of risks from non-compliant wealth management products, reckless trustee business, financing guarantee and microfinance in shadow banking, citing a China Banking Regulatory Commission meeting today.
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