Bloomberg:
- Merkel, Hollande Step up Pressure in Ukraine Dispute. German Chancellor Angela Merkel and French President Francois Hollande, in a telephone call lasting more than two hours, stepped up pressure on Russia and Ukraine to resolve their territorial dispute. Ukraine accused pro-Russian rebels of breaking a cease-fire that is due to end today, the same day Russian President Vladimir Putin faces the threat of deeper European Union sanctions. Merkel and Hollande, in yesterday’s call with Putin and Ukrainian President Petro Poroshenko, stressed the importance of “the extension of the cease-fire and the implementation of the peace plan presented by the Ukraine authorities,” according a statement from the French president’s office.
- Slowing China Economy Dims Profit Outlook to 2012 Low. The most-actively traded Chinese companies in the U.S. are on pace to report the smallest profits in two years as growth in the world’s second-largest economy decelerates to the slowest since 1990. Analysts covering stocks listed on the Bloomberg China-US Equity Index (HSCEI) estimate that on average they will post earnings of $5.64 per share this year, which would be the lowest profits reported since 2012, data compiled by Bloomberg show. They’ve cut revenue forecasts by 7.9 percent in the past 11 weeks.
- Kuroda Optimism Questioned as Price Outlook Drops. Bank of Japan Governor Haruhiko Kuroda says inflation will get back on track toward his target after a slowdown in the summer. Bond traders are skeptical. The market for inflation-linked debt shows expectations for annual consumer-price increases of 1.25 percent over 10 years, the lowest outlook since April 1 and compared with the BOJ’s goal of 2 percent, according to the so-called break-even rate. The gauge has retreated from as high as 1.39 percent on June 3 as data showed slumping household spending, falling wages and slowing exports. The equivalent U.S. rate was 2.25 percent.
- BIS Damps $2 Trillion Emerging Market Company Debt Spree. More than $2 trillion of foreign borrowing by emerging-market companies since 2008 is leaving them vulnerable to a sudden drop in funding at the first sign of trouble, according to the Bank for International Settlements. Bond investors willing to lend generously when conditions are good can pull out in a crisis or when central banks tighten monetary policy, analysts led by Claudio Borio, head of the monetary and economic department, wrote in the BIS annual report. Emerging-market companies that lose access to external debt markets may then be forced to withdraw bank deposits, depriving domestic lenders of funding as well, they said.
- ECB Rates Allow Zombie Loans to Stymie Credit, BIS Says. Loose monetary policy makes it easy for euro-area banks to keep bad debt on their books, potentially delaying the flushing out of sour loans, the Bank for International Settlements said in its annual report. The European Central Bank’s record low interest rates and ample liquidity have boosted banks’ lending margins, allowing them to gloss over losses in their business, the Basel, Switzerland-based BIS said in the report, released today. That’s what makes it so crucial to find other means to fix banks’ balance sheets, such as the ECB’s asset-quality review, it said.
- Central Bankers Who Bemoan Low Volatility Share Blame, BIS Says. Central bank policy makers have expressed concern this year that low market volatility is masking future risks. In fact, they’re helping cause the issue they bemoan, the Bank for International Settlements said. Record-low interest rates and unconventional monetary easing by the Federal Reserve, European Central Bank and the Bank of Japan reduced price swings across markets, the BIS wrote in its annual report published today. That’s prompted investors to take greater risks to maintain returns, even amid an uncertain global recovery, according to the BIS, which that acts as a central bank for the world’s monetary authorities.
- Home-Bias Risk Identified by BIS in Bond Regulations. National supervisors may be encouraging domestic banks to buy their own governments’ bonds because the regulators are able to specify how risky the assets are, the Bank for International Settlements said. Financial institutions in Ireland, Portugal and Spain may be benefiting from a home bias that lowers the amount of capital they need to put aside to compensate for risks tied to the assets they hold, the BIS said in its annual report today. The trend is less evident in Austria, Britain and France, it said.
- Central Banks Face Bumpy Road to Normalization, BIS Says. Central banks shouldn’t procrastinate and must be ready for a rough ride as they exit emergency policy measures, the Bank for International Settlements said. “It will be difficult to ensure a smooth normalization,” the BIS said in its annual report released today. “The prospects for a bumpy exit together with other factors suggest that the predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly.”
- Emerging Stocks Add to Quarter’s Gain With Won; Oil Falls. Emerging-market stocks rose, with a benchmark gauge heading to its biggest quarterly advance since September 2012, while the yen gained and South Korea’s won hit an almost six-year high. Oil fell on speculation violence in Iraq won’t curb output from OPEC’s second-biggest producer. The MSCI Emerging Markets Index added 0.4 percent by 12:13 p.m. in Tokyo, heading for a 5.6 percent gain since the end of March.
- Fear Thaws Out for Investors as Online Brokers Defy Funk. With U.S. stocks stuck in the sleepiest funk since the dawn of the Internet, one group is waking up: online and discount brokers.
- Militants Leverage Iraq Gains in Syria. Flush with Iraqi Successes, ISIS Fights Other Islamists in Syria.
- In Ukraine, Frustration Grows With Kiev's Peace Efforts. Separatists Continue Attacks on Government Troops As European Leaders Urge Cease-Fire Extension.
- A Recovery Stymied by Redistribution. Public policy intended to make layoffs less painful actually made layoffs cheaper and more common.
- Hong Kong’s China debt trap. Opinion: Are the city’s banks getting too cozy with mainland Chinese finance.
Fox News:
- Gunmen torch churches, kill dozens in Nigeria. Suspected Islamic extremists sprayed gunfire at worshippers and torched four churches Sunday in a village just miles from the town where more than 200 schoolgirls were kidnapped, witnesses said. At least 30 bodies have been recovered but more are turning up in the bushes, where people tried to escape from Kwada village, said a member of a vigilante group that has had some successes in repelling attacks.
Zero Hedge:
NY Times:
Reuters:
- Q2 Economic "Hope" Misses The Point. (graph)
- North Korea Has Detained Two US Citizens And Wants To Put Them On Trial For Crimes Against The State.
NY Times:
Reuters:
- U.S. government to unveil record fine for France's BNP -sources. The U.S. Justice Department is expected to announce on Monday a settlement with BNP Paribas involving a record fine of nearly $9 billion over alleged U.S. sanctions violations by France's biggest bank, sources familiar with the matter said.
Financial Times:
Telegraph:- Hedge fund correlation risk alarms investors. The industry’s correlation with equity markets rose sharply in the two years leading up to the financial crisis.
- Standard of living costs for families rise five times more than earnings since before recession, figures show. A couple with two children would now need just under £40,600 between them to afford a decent lifestyle, study finds.
Weekend Recommendations
Barron's:- Bullish commentary on (NXST), (ADBE), (NTAP), (BAC), (IP), (CHS), (VLO) and (SBGI).
- Bearish commentary on (RMD).
- Asian indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 104.0 +2.75 basis points.
- Asia Pacific Sovereign CDS Index 73.25 -.5 basis point.
- FTSE-100 futures +.10%.
- S&P 500 futures +.05%.
- NASDAQ 100 futures +.08%.
Earnings of Note
Company/Estimate
- None of note
9:00 am EST
- The ISM Milwaukee for June is estimated to fall to 60.0 versus 63.49 in May.
- The Chicago Purchasing Manager for June is estimated to fall to 63.0 versus 65.5 in May.
- Pending Home Sales for May are estimated to rise +1.2% versus a +.4% gain in April.
- The Dallas Fed Manufacturing Activity Index for June is estimated to rise to 10.0 versus 8.0 in May.
- (TMK) 3-for-2
- The Fed's Williams speaking, China HSBC China Manufacturing PMI, Eurozone CPI and the Argentina coupon payment could also impact trading today.
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