Thursday, July 09, 2015

Today's Headlines

Posted by Gary .....at 3:01 PM
Bloomberg:     
  • How China's Market Meltdown Threatens Top Banker's Reform Agenda. Zhou finds himself caught in a stock market rescue that smacks of meddling, not free-market financial reform. A nearly four-week rout that wiped out $3.5 trillion in share market value has forced the central bank to extend funds to a broker lending facility and threatens to undermine support for his market liberalization agenda. “For better or worse this will strengthen the forces who want to slow governor Zhou’s march to a more open capital account,” said David Loevinger, former China specialist for the U.S. Department of the Treasury and now an analyst at fund manager TCW in Los Angeles. “Always worried about losing control, this could give Chinese leaders cold feet about moving to a more capital markets-centered financial sector.” 
  • Irrational Exuberance Triggers Chaos as China Watchdog Sidelined. It wasn’t exactly the same as U.S.-style “irrational exuberance,” but the run-up to China’s great crash of 2015 is leading to similar questions as to why the regulator didn’t do more. China Securities Regulatory Commission officials had tweaked rules for brokerages’ lending for stock purchases. And, similar to former U.S. Federal Reserve Chairman Alan Greenspan, CSRC Chairman Xiao Gang had warned investors against following the stampede into the market “blindly, like sheep.” It wasn’t enough. “Regulators could have been more aggressive in managing margin trading and collateral rules,” said Andrew Wood, a Singapore-based China analyst for BMI Research, a unit of Fitch Ratings. “It was already clear that the market was quite frothy by the beginning of this year.” Instead, the CSRC was left as a bystander as state-run media mostly talked up a market that the Chinese government is determined to use as a tool for wealth creation -- even if that means periods of excess followed by sharp corrections. “When the government policy has been to use a stock-market bubble to boost a household wealth effect, the CSRC could only do so much to regulate the stock market,” said Chen Zhiwu, a finance professor at Yale University, and a former adviser to China’s cabinet.
  • Schaeuble Says Leeway for Greek Debt Reprofiling Is Very Small. German Finance Minister Wolfgang Schaeuble said he’s less optimistic than his French counterpart, Michel Sapin, about the role reprofiling can play in restoring the sustainability of Greece’s debt. Speaking in Frankfurt at a conference organized by the Bundesbank, Germany’s central bank, Schaeuble said debt forgiveness among euro-region countries is banned by the European Union’s treaties. The reprofiling of Greece’s debt in 2012 went beyond what the International Monetary Fund was willing to accept then, he said.
  • Tsipras Stuck Between a German Rock and a Greek Left Hard Place. (video) Greece’s Prime Minister Alexis Tsipras is faced with the ultimate dilemma: accept German-advocated austerity measures opposed by hardliners in his own party or take his country out of the euro. While Sunday’s referendum delivered a strong rebuke from Greek voters to the austerity demands, it also put pressure on Tsipras to strike a deal after many people cast their vote as a desire to stay in the euro on better terms. For some hardline members of his Coalition of the Radical Left or Syriza party, however, the vote was a firm sign of rejection of euro membership at all costs. “Tsipras will probably face significant party unrest from the left bloc, which is already calling for him to insist on the path indicated in their view by the ‘no’ vote in the referendum,” Nomura analysts including Lefteris Farmakis and Nick Matthews wrote in a note to clients Wednesday.
  • Italian Bonds Reveal Speculation on Greek Deal Creditors Doubt. Take a look at government bonds and you’d be hard pressed to detect the pessimism Europe’s leaders are expressing about the chances of a deal that can save Greece’s place in the euro zone. Investors are cutting the yield premium they demand to hold the bonds of Europe’s more-indebted nations instead of benchmark German securities amid speculation a deal can be reached. Greece must deliver a detailed economic package to creditors on Thursday to win a new funding deal. Chancellor Angela Merkel is willing to let Greece go if Germany doesn’t consider its plans credible, said two officials familiar with her strategy. “Markets appear more optimistic than most of the Greek creditors themselves,” Benjamin Schroeder, a Frankfurt-based interest-rate strategist at Commerzbank AG, wrote in a note to clients. The yield spread between 10-year Italian and German bonds tightened 11 basis points, or 0.11 percentage point, to 144 basis points as of 4:32 p.m. London time. The difference widened to as much as 199 basis points on June 29, the first trading day after Greece called a referendum on austerity. In 2011, the spread reached 575 basis points. The spread between Spanish 10-year debt and German bunds narrowed 12 basis points to 143 basis points on Thursday.
  • IMF Cuts World Growth Outlook. (video) The IMF cut its forecast for global growth this year, citing a weaker first quarter in the U.S. and warning that financial-market turbulence from China to Greece clouds the outlook. The world economy will grow 3.3 percent in 2015, less than the 3.5 percent pace projected in April and slower than the 3.4 percent expansion last year, the International Monetary Fund said in revisions to its World Economic Outlook released Thursday in Washington. The fund left its forecast for growth next year unchanged at 3.8 percent.
  • Sweet Spot in Emerging Currencies Eludes Morgan Stanley in Rout. From the crisis in Greece to the biggest selloff in Chinese stocks in two decades, emerging-market currencies can’t catch a break. An index of developing-nation exchange rates has fallen more than 5 percent since mid-May to within 0.9 percent of a record set in March. The losses look set to continue, with strategists surveyed by Bloomberg predicting that all but six of the 24 leading emerging-market currencies will weaken through the middle of next year. While the declines have helped cut the trade deficits of countries such as Turkey and South Africa, they’re stoking inflation from Brazil to Russia, which could weigh on growth. That’s redoubling the pressure on currencies already undermined by the prospect of higher interest rates in the U.S., which is luring away investment, and plunging prices for oil and metals. “Emerging-market currencies are under heavy selling pressure again these days, facing a perfect storm of slowing growth in China, the Greece turmoil, the anticipation of Fed rate-hike fears and commodities dropping,” said Bernd Berg, a strategist at Societe Generale SA in London. “Growth momentum in emerging markets is just continuing to collapse.”
  • Market Turbulence Worries BRICS as Volatility Stalks Oil, China. The BRICS group of developing nations, meeting in Russia to bolster ties, said they’re disturbed by the turbulence that’s roiled global markets from energy to stocks. “We’re concerned about instability in the markets, the high level of volatility in the prices of energy and raw materials, and the accumulation of sovereign debt of a number of major countries,” Russian President Vladimir Putin said in the city of Ufa, 800 miles east of Moscow. “All these structural imbalances directly affect growth.” The summit of leaders from Brazil, Russia, India, China and South Africa also discussed creating their own credit-ratings company and nurture direct investments between each other. Finance officials from the five nations earlier finalized a $100 billion reserves pool to ease liquidity issues during market stress and are forming a development bank.  
  • European Stocks Advance as Greece Concern Fades, China Rebounds. European stocks rose as investors shrugged off concern about Greece’s debt crisis and Chinese shares rebounded. The Stoxx Europe 600 Index added 2.2 percent to 381.06 at the close of trading, after flirting with a correction during the past two days.
  • Iron Ore Ending Drop No Cause for Joy as More Losses Seen. (video) Iron ore snapped a 10-day slump that culminated in the biggest one-day drop in at least six years as a selloff in Chinese equities paused and most industrial metals prices climbed, easing selling pressure. Ore with 62 percent content delivered to Qingdao rose 9.9 percent, the most since at least 2009, to $48.99 a dry metric ton on Thursday. It plunged 10 percent to $44.59 a day earlier, the lowest in data going back to May 2009, according to data from Metal Bulletin Ltd. Compared with annual benchmarks that iron ore was traded through until the past several years, that would be the lowest since 2005, according to Clarkson Plc. 
  • The Cost of Insuring Against a Commodities Crash Is Rocketing. More fallout from Chinese stocks. China's stock slump has played havoc with the commodities market as traders fret that the economy driving global demand for raw materials is about to tank. The Bloomberg Commodity Index, which includes 22 commodities, everything from live cattle to natural gas, traded near a 13-year low this week as industrial metals and oil tumbled. Nickel plunged 9 percent in a single day. Here's what prices have done over the past five days:
  • Not Even a Greek Exit Will Stop the Fed From Raising Rates. Most economists surveyed by Bloomberg see no Greek-related delay in the Fed's plans.  The Greek crisis is no big deal as far as the U.S. economy and the Federal Reserve are concerned. That's the conclusion of a majority of economists polled by Bloomberg this month. They said the crisis won’t hurt the U.S. economy nor deter the Fed from raising interest rates later this year. 
CNBC: 
Dow Jones:
  • Ford(F) to Move Small Car Production Outside U.S. Ford now builds Focus, C-MAX, EVs at plant in Wayne, Michigan.
ZeroHedge: 
Reuters:
  • China stems stocks rout, but market faces lengthy hangover. (video) China's malfunctioning stock markets remained semi-frozen, with the shares of around 1,500 listed companies worth around $2.8 trillion - roughly half the market - suspended, and many of those still trading propped up by state-directed buying. "The authorities are capable of slowing the selling and extending market support," said Mark Konyn, chief executive officer at Cathay Conning Asset Management Ltd in Hong Kong. "However, this high level of intervention comes at a significant cost. Such intervention locks up ownership of shares, reduces liquidity and creates an overhang that could plague the market for years."
Telegraph: 

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