Friday, January 24, 2014

Today's Headlines

Bloomberg:
  • Contagion Spreads in Emerging Markets as Crises Grow. The worst selloff in emerging-market currencies in five years is beginning to reveal the extent of the fallout from the Federal Reserve’s tapering of monetary stimulus, compounded by political and financial instability. The Turkish lira plunged to a record and South Africa’s rand fell yesterday to a level weaker than 11 per dollar for the first time since 2008. Argentine policy makers devalued the peso by reducing support in the foreign-exchange market, allowing the currency to drop the most in 12 years to an unprecedented low. Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability. “The current environment is potentially very toxic for emerging markets,” Eamon Aghdasi, a strategist at Societe Generale SA in New York, said in a phone interview yesterday. “You have two very troubling things: uncertainty about the Fed policy, combined with concerns about growth, particularly in China. It’s difficult to justify that it’s time to go out and buy emerging markets at the moment.” 
  • UBS Says Market Wants Default as Risks to Pile Up: China Credit. UBS AG’s China securities unit, the leading foreign underwriter of debt sales in the country, says the market wants policy makers to allow the first onshore bond default to reduce long-term hazards to the financial system. “Systematic risk will pile up without any default happening,” Bi Xuewen, head of China debt capital markets at UBS Securities Co., said in an interview in Shanghai. “Market participants would like to see a default in China’s bonds. Only after defaults can the overall risk pricing system be normalized.”
  • Jiang Tells CNBC That ICBC Won’t Compensate Trust Investors. Industrial & Commercial Bank of China Ltd. Chairman Jiang Jianqing said the lender won’t compensate investors for losses tied to a troubled trust product distributed by the bank, CNBC reported on its website. The incident will be a lesson for investors on moral hazard and risks associated with such investments, Jiang told CNBC from the World Economic Forum in Davos, Switzerland. The Beijing-based lender won’t take “rigid responsibility” for the losses and will review all its partnerships in entities with which it does business, Jiang said, according to CNBC.
  • China Trust Products Gone Awry Evoke Soros ’08 Crisis Echoes. The story of how a 3 billion-yuan ($496 million) Chinese trust investment wound up on the brink of default shows what billionaire investor George Soros has called the “eerie resemblances” between the 2008 global financial crisis and the nation’s debt market. China’s $4.8 trillion in shadow-banking debt, arranged by trusts and fund managers with less transparency than commercial-bank loans, was equivalent to as much as 55 percent of the nation’s 2012 economic output at the end of that year, according to Moody’s latest estimate. Investors argued their case in a meeting at an ICBC Shanghai branch yesterday, an echo of savers’ appeals to Hong Kong lenders after Lehman Brothers Holdings Inc.’s failure undermined securities called minibonds. “This case reminds people of Lehman minibonds because complicated credit-linked products were sold to individual investors via bank channels,” said Christine Kuo, senior credit officer at Moody’s in Hong Kong. “It’s not clear whether misselling was involved due to lack of transparency. It’s also not clear who will share the loss. Regardless, both the product packager and distributor have seen their reputation suffer.”
  • China Warns U.S. of Consequences After SEC Bans Accounting Firms. China warned the U.S. of “consequences” after the Securities & Exchange Commission barred the four largest accounting firms from conducting audits of U.S.-listed Chinese companies. The decision to ban the Chinese affiliates of the accounting firms for six months “ignored” China’s efforts and progress made on cross-border regulatory cooperation, the China Securities Regulatory Commission said. “We hope the SEC will take into consideration the big picture of China-U.S. regulatory cooperation, make the right judgement to resolve the situation properly,” the CSRC, the nation’s securities body, said on its microblog. “The SEC should bear all responsibility to possible consequences arising from the decision.”  
  • China Bank Regulator Said to Issue Alert on Coal Loans. China’s banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, said two people with knowledge of the matter, signaling government concern about possible defaults. The China Banking Regulatory Commission also told its local branches to closely monitor risks from trust and wealth-management products, said the people, who asked not to be identified as the matter isn’t public. The commission issues such alerts for matters that it judges may pose significant risks to banks, the people said.
  • Aussie Drops Below 87 U.S. Cents on China Concerns, RBA Comments. The Australian dollar dropped below 87 U.S. cents for the first time since July 2010 after China’s bank regulator ordered regional offices to increase scrutiny of credit risks in the coal-mining industry, according to people with knowledge of the matter. The Aussie slid versus all 16 major peers after the Wall Street Journal cited central bank board member Heather Ridout as saying around 80 cents would be a fair deal for everybody.
  • Ukraine Unrest Spreads From Kiev as EU Warns of Civil War. Anti-government unrest spread from Ukraine’s capital as the European Union warned the protests, which turned deadly this week, could spiral into a civil war. Activists have taken over the headquarters of governors picked by President Viktor Yanukovych in five cities, marking a widening of the two-month protest movement. EU justice chief Viviane Reding told CNBC today that Ukraine must get its “house in order” as it heads in the “direction of a civil war.” 
  • Cross-Currency Swap Premium Rises Seventh Day as Banks Pull Back. The premium that European lenders pay to obtain dollar-denominated cash flows increased for a seventh day as global central banks said they’ll wind down emergency funding programs. The rate on a three-month cross-currency basis swap between euros and dollars was negative four basis points, after reaching positive 4.8 basis points Jan. 16. A negative swap rate signals traders are paying a premium to trade euro-based cash flows for comparable flows denominated in U.S. dollars. Investor demand for safety increased amid a deepening selloff in emerging-market currencies. “The realization is settling in that there are still a lot of potential surprises out there, including those in the liquidity mechanisms and with respect to spillover effects from market to market,” Jeffrey Caughron, who advises community banks on investments exceeding $40 billion as an associate partner at Baker Group LP in Oklahoma City, said in a telephone interview.
  • Bond Risk Heads for Biggest Weekly Jump Since June in Europe. The cost of insuring corporate bonds against losses in Europe is heading for the biggest weekly rise in seven months on concern a slowdown in emerging-market economies will curb global growth. The Markit iTraxx Europe index of credit-default swaps on 125 companies with investment-grade ratings rose 9 basis points this week to 80 basis points at 10:25 a.m. in London, the biggest jump since the week ending June 21. The Markit iTraxx Crossover Index of 50 companies with mostly speculative-grade ratings climbed 23 basis points to 302 basis points, also the biggest increase since June. Borrowing costs for investment-grade companies in the region fell two basis points this week to 1.97 percent, the lowest since June. 5, while the average yield on speculative- grade notes fell three basis points to a record 4.73 percent on Jan. 21, Bank of America Merrill Lynch index data show.
  • European Stocks Drop as Emerging-Market Currencies Fall. European stocks fell the most since June, extending the Stoxx Europe 600 Index’s weekly drop, as investors assessed a tumble in emerging-market currencies amid concern Federal Reserve tapering is hurting growth. Banco Bilbao Vizcaya Argentaria SA dropped 5.1 percent on investor concern that its exposure to Turkey and Argentina will hurt earnings. Novartis (NOVN) AG lost 3 percent after failing to win backing from a European advisory panel for its Serelaxin treatment for acute heart failure. Aberdeen Asset Management Plc slumped 5.7 percent as Morgan Stanley recommended selling the stock. Celesio AG gained 3.7 percent as McKesson Corp. agreed to buy majority-owner Franz Haniel & Cie.’s holding in the company. The Stoxx 600 slid 2.4 percent to 324.75 at the close of trading, for a weekly loss of 3.3 percent.
  • Colder Weather Forecast for U.S. as Freeze Brings Texas Ice. Parts of southern Texas may get a rare coating of ice as temperatures plunging across the U.S. portend an even sharper cold snap to come. Temperatures across the eastern U.S. and parts of Ontario and Quebec will be at least 8 degrees below normal through Jan. 27, said Matt Rogers, president of the Commodity Weather Group LLC in Bethesda, Maryland. Next week will be colder, he said.
  • Starbucks(SBUX) Profit Tops Estimates as U.S. Sales Improve. Starbucks Corp. (SBUX), the world’s largest coffee-shop chain, advanced the most in almost six months after posting earnings that topped analysts’ projections as pumpkin-spice lattes and other seasonal drinks helped boost U.S. sales. The shares rose as much as 3.8 percent.
Wall Street Journal: 
  • Dow Transports Get Shellacked. Transportation stocks–one pocket of the market that avoided much of this week’s malaise–are now feeling the pain. The Dow Jones Transportation Average, a 20-member index of airlines, railroads and trucking companies, slumped more than 3% at session lows Friday. The decline comes after the index set a record high on Thursday, bucking the broader trend of declining stocks, currencies and emerging markets. The divergence raised some eyebrows. 
Fox News:
CNBC:
  • Why Puerto Rico needs to borrow money—and soon. (video) The island, a territory of the United States, is in the midst of a debt crisis. With only 3.7 million people, it owes an eye-watering $70 billion in public debt, behind only New York and California. And much of that debt is widely held by American investors in municipal bond funds. 
  • Emerging-market currency 'contagion' spreads. Emerging-market currencies continued to take a beating on Friday amid growing worries about political upheaval, slowing growth and U.S. monetary policy, prompting central bankers and policymakers to scramble for a response. Turkey's lira hit a new record low against the dollar, and Argentina's peso was down almost 20 percent on the week against the dollar.
ZeroHedge:
Business Insider: 
  • Every American With A Bank Account Should Understand What Jamie Dimon's Pay Raise Says About Wall Street. To review: Let a trader blow a $6.2 billion hole in the bank's balance sheet with the bank's money — pay cut. Pay out $20 billion in lawsuits for various transgressions that took place at the bank under your watch — pay raise. You're just $3 million shy of what you got when JP Morgan was America's golden bank, and you were America's golden boy. Mess with the bank's money, you're toast. Mess with the bank's customers — handle it well, and everything will be fine.
Trucking News:
  • Trucking Conditions Soften: FTR. The November reading of 7.01 was 20% lower than the month before, but still reflects a positive environment for truckers. The regulatory drag from hours-of-service changes is reducing capacity, FTR noted, adding the upside economics have yet to translate into real market tightness, mitigating a rise in the index.
Reuters:
  • Exclusive:Japan government forecasts show Abe missing budget-balance promise. Japanese government calculations indicate that Prime Minister Shinzo Abe cannot meet his budget-balancing promise in coming years on the current course, suggesting he may come under greater pressure from fiscal hawks for future tax increases. Forecasts by the Finance Ministry, reviewed by Reuters on Friday, show that even in the rosiest of four scenarios, the government will run a primary budget deficit - which excludes debt service and income from debt sales - for the fiscal year to March 2021. Private economists have long considered the government's fiscal-reform goals to be ambitious, but the new forecasts represent the first time that official figures have essentially confirmed that view. "Abe will either have to get serious about spending cuts or raise taxes more than originally planned," Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting Co, said of the new ministry forecasts.
  • METALS-Copper hits month low on signs of slowing China growth. Copper fell to its lowest in a month on Friday and struck its biggest weekly fall since mid-November as slowing growth in China's factories fueled worries about demand in the world's top metals consumer. The metal is down 2 percent for the week. 
  • Yen and franc soar on emerging market rout. The yen surged and the Swiss franc hit its highest in a month against the euro on Friday as investors sought safe places to stash the stacks of money being pulled out of stocks and several big emerging markets. Both the dollar and euro fell as much as 1 percent against the yen in a move centred on more worrying signs of a slowdown in China and broad expectations of a tightening of monetary conditions this year by some of the world's biggest central banks.
Telegraph:
Deutschlandradio Kultur:
  • Greece Needs Generous Debt Cut, Droutsas. Former Greek Foreign Minister Dimitris Droutsas says only generous debt forgiveness will allow Greece to implement the "radical structural reforms" the country needs for a fresh start.
The Economic Times:
  • Gloomy Outlook: India's GDP May Sink Below 5% to an 11-Year Low. India's statistics office is likely to say in two weeks that growth this year will slump further to an 11-year low, undermining the government's optimism that it would at least be flat at 5% on the back of a recovery in the second half. The advanced estimate for FY14 is set to come in below that level, said an official who didn't want to be named.
India's statistics office is likely to say in two weeks that growth this year will slump further to an 11-year low, undermining the government's optimism that it would at least be flat at 5% on the back of a recovery in the second half.

The advanced estimate for FY14 is set to come in below that level, said an official who didn't want to be named.

The economy expanded 4.6% in the first half and would need to rise 5.4% in the second for growth to come in at 5%, which doesn't lo ..


China.org.cn:
  • Dagong lowers Philippines rating outlook. China's domestic rating agency Dagong on Friday downgraded the rating outlook of the Republic of the Philippines from stable to negative. Ratings for the country's domestic currency and foreign currency sovereign credit were both maintained at BB-, the agency said in a statement on its website. "Under the background of the forthcoming tightening of global monetary policy, the Philippines' economic growth mode characterized by substantial capital inflows and fast credit expansion is facing severe challenges," the statement said. The economy of the Philippines will face more downward pressure as interest rates rise in both domestic and overseas markets, Dagong said, forecasting its growth rate at 4.5 percent in 2014 and 3 percent in 2015.
CRIEnglish:
  • China Reports 10 New H7N9 Human Cases. Ten human H7N9 bird flu cases were newly reported in China on Friday, including one in Beijing, one in Guangdong Province, one in Fujian Province and seven in Zhejiang Province, forcing cities in Zhejiang to close their live poultry markets. In the first case reported in the city this year, a man in Beijing was confirmed to have contracted H7N9 on Thursday night, according to the Chinese capital's disease control and prevention center.

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