Today's Headlines
Bloomberg:
- Morgan Stanley's Fragile Five Swells to Troubled 10 in Selloff. Forget the “Fragile Five.” These days, strategists at Morgan Stanley are worried about what could be called the “Troubled Ten.” That’s how many nations they say are particularly at risk since China devalued the yuan. While the analysts haven’t used the term themselves, it’s as good a description as any for the currencies -- from the Brazilian real to Peru’s sol and South Korea’s won -- which have trading ties making them susceptible to a slowdown in the world’s second-biggest economy. “It’s all about vulnerability,” said Hans Redeker, the London-based global head of foreign-exchange strategy at Morgan Stanley. “Major victims of the policy change this time are currencies of countries with high export exposure and export competitiveness with China.”
- China GDP Slower Than Official Data Helps Explain Stimulus Moves. China’s economy is growing more slowly than official data suggests and below potential, a Bloomberg survey indicates, helping explain why policy makers have stepped up stimulus and the move to boost exports with a weaker yuan. The economy expanded 6.3 percent in the first half, compared to the officially reported 7 percent, according to the median estimate of 11 economists surveyed last week. For the full year, a 6.6 percent pace was the median forecast of respondents, who were asked to nominate real growth rates, not what they expect the official data to show.
- Japan’s Economy Contracts as Consumption, Investment Decline. Japan’s economy contracted last quarter as consumers and businesses cut spending and exports tumbled, putting pressure on the prime minister to return his focus to Abenomics. Gross domestic product fell an annualized 1.6 percent from January-March, ending two quarters of growth, the Cabinet Office said on Monday. The median estimate in a Bloomberg survey was for a 1.8 percent drop.
- Won Drops as Foreigners Sell Korean Equities Amid China Concern. The won fell as global funds pulled money from South Korean equities on concern China’s economic slowdown and currency devaluation will affect its trade partners. Foreigners were set to sell more local shares than they will buy for the eighth day, a run that’s resulted net outflows of more than $750 million this month. The Bank of Korea is due to hold a meeting Monday to discuss recent developments in China. South Korea will strengthen monitoring of capital flows and of China’s economy, the nation’s biggest export market, the Finance Ministry said in statement Thursday. The won declined 0.7 percent from Aug. 13 to 1,182.22 a dollar as of 10:31 a.m. in Seoul, prices from local banks compiled by Bloomberg show.
- Soros-Like Attack on Malaysian Ringgit Revives Memories of ’98. The ringgit’s steepest slide since 1998 is evoking memories of the clash between then-Prime Minister Mahathir Mohamad and hedge-fund manager George Soros. The currency slid 3.8 percent against the dollar last week as central bank Governor Zeti Akhtar Aziz said Thursday foreign-exchange reserves will need to be rebuilt after they fell below $100 billion for the first time since 2010. She ruled out introducing a currency peg or capital controls, the solutions Malaysia turned to 17 years ago when faced with a tumbling exchange rate. Mahathir blamed foreign investors for the demise of the ringgit and labeled Soros a “moron” for his part in it. “The fallout is reviving memories of hedge-fund attacks in the 1997/98 crisis,” Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore, said Friday in an interview. “We don’t think capital controls are likely, but cannot rule out the risk given the rapid depletion of foreign reserves.”
- Euro-Area Outlook Dims for Economists as QE Impact Falls Short. Mario Draghi’s trillion-euro boost for the euro area isn’t proving sufficient to lift economists’ confidence in the region’s recovery. Barely a quarter of the respondents in a Bloomberg survey see the currency bloc’s outlook improving in the short term. That’s the lowest level since the European Central Bank started its stimulus program to buy 60 billion euros ($67 billion) a month of debt through September next year. The ECB has brought record-low borrowing costs, a flood of cash and an export-boosting currency drop to the euro area, yet economic growth unexpectedly slowed last quarter. Central bank policy makers have already expressed disappointment over the pace of the recovery and pledged to do more if needed, leaving some economists debating whether they’ll act.
- Egypt Stocks Top Mideast Slump on Brotherhood Probe, Oil Drop. Egypt’s stocks led declines in Arab markets after the government froze assets of a company chairman with alleged ties to the Muslim Brotherhood and oil remained below $50 a barrel. Saudi equities also declined. Egypt’s EGX 30 Index declined 3.2 percent, the most in six weeks, to 7,625.76 at the close in Cairo. Juhayna Food Industries tumbled 7.5 percent and Talaat Moustafa Group Holding lost 5.2 percent. In Saudi Arabia, the Tadawul All Share Index decreased 2.5 percent, led by Jabal Omar Development Co.
- Asian Stocks Follow U.S Shares Higher as Japan Climbs After GDP. Asian stocks rose, tracking an advance in U.S. equities, as Japanese shares gained after data showed the economy contracted less than expected. The MSCI Asia-Pacific Index climbed 0.1 percent to 138.43 as of 9:01 a.m. in Tokyo after the measure sank 2 percent last week for a fourth weekly decline.
- Iron Ore Rally Seen Overdone by ANZ as China’s Steel Demand Sags. The recent rally in iron ore is unlikely to be sustained, according to Australia & New Zealand Banking Group Ltd., which highlighted the risk of losses after prices capped the longest run of weekly gains in a year. While shipments to China were disrupted last week after explosions at Tianjin’s port, weak steel demand suggests price gains are overdone, the bank said in a report on Monday. Ore with 62 percent delivered to Qingdao rose 0.6 percent to $56.74 a dry metric ton last week to post a fifth straight climb, Metal Bulletin Ltd. data showed. The price hit $57.02 on Thursday, the highest since July 1, after the blasts late on Wednesday.
- Hedge Funds Resume Flight From Oil as Prices Sink to 6-Year Lows. After showing some short-lived optimism, hedge funds resumed their retreat from the U.S. oil market, cutting bullish positions for the seventh time in eight weeks as prices dropped to the lowest since 2009. Money managers’ net-long position in West Texas Intermediate crude declined 11 percent in the week ended Aug. 11, U.S. Commodity Futures Trading Commission data show. Short positions climbed to the highest level since March, a signal speculators see prices continuing to fall.
- Yuan Drop Leads India to Mull Steel Anti-Dumping Duties. India said it’s being forced to consider steel safeguard duties and more anti-dumping curbs as the yuan’s devaluation threatens to stoke surging Chinese shipments. A steel import-tax increase earlier this month may not be enough of a deterrence, Financial Services Secretary Hasmukh Adhia said. Adhia has seen the steel industry contribute to elevated bad debt in India, in part as producers struggle to compete with imports from nations such as China and Russia.
Wall Street Journal:
- China’s Woes Echo in U.S. Earnings. In quarterly conference calls, U.S. executives recited a litany of pain resulting from a slowdown in China’s economy.
- A Global Recession May Be Brewing in China. Beijing’s desperate attempts to hit its arbitrary 7% growth target are having world-wide repercussions. As the global economy enters the seventh year of a sluggish recovery, it’s time to start asking when the world will face its next downturn—and what will drive it. Over the past 50 years there has been a global recession once every eight years, on average, so the next one may be brewing. When exactly it will come is hard to call. But the policy panic in Beijing over its currency and the fall of its stock market suggest that the next global recession likely will be “made in China.” This would represent a major break from...
- Bad Loans Impede India’s Economic Growth. Loans in default at India banks stand at 4.3%. Mounting bad-loan ratios at Indian banks are a sign the country’s economy isn’t doing nearly as well as recent rosy output-growth figures suggest.
- Trump’s Defective Economics. The candidate is promoting currency devaluation—he should ask Argentina and Brazil how that worked out.
- Obama Targets Financial Advisers. Labor’s new fiduciary rule will limit advice for middle-class savers.
Barron's:
- China’s Yuan Could Fall 10% or More. Up & Down Wall Street: History suggests that China’s currency devaluation won’t be a one-time move. More trouble ahead for multinational consumer stocks.
Fox News:
- Gowdy: Clinton to testify in October before Benghazi panel, all questions ‘asked’ and ‘answered’. (video) South Carolina Rep. Trey Gowdy said Sunday that Hillary Clinton will indeed testify Oct. 22 about her activities as secretary of state at the time of the Benghazi attacks but suggested that her demand for a one-time appearance will result in a long, hard day.
MarketWatch.com:
CNBC:
- Rents rise to ‘crazy’ levels: Zillow. It's not your imagination. Rent really is too high. The cost of renting a home in the U.S. has risen to its least affordable levels ever, taking up a record proportion of income in most major cities, according to a study from property website Zillow.
Zero Hedge:
- American Malls In Meltdown. (graph)
- Goldman Weighs In On America's Pension Ponzi: Contributions Must Rise $100 Billion Per Year. (graph)
Business Insider:
- The investigation into Hillary Clinton's private email is being run out of FBI headquarters — and that's unusual. The FBI is seeking to determine who at the State Department passed highly classified information to Clinton's account in 2009 and 2011. Given the FBI involvement, the Clinton campaign is getting nervous as the investigation intensifies. “They’re worried about it,” a longtime Clinton adviser and confidant told The Washington Post. “They don’t know where it goes. That’s the problem.”
Financial Times:
- Problems for China’s economy extend far beyond currency. The sudden fall in China’s currency last week spurred a lively debate about whether the move was a victory for market reform or a competitive devaluation designed to shore up flagging exports. But even those who believe the 3 per cent drop was aimed at exporters acknowledge that a weaker renminbi by itself is radically insufficient to cope with the challenges facing China’s economy.
- Anxiety over US student debt heightens. This traditionally staid corner of the bond universe has long attracted investors with a low tolerance for risk. Despite minimal expectation of losses due to the underlying loans being backed by the US government, sharp downgrades could spur an exit from the sector by investors banned from buying low-rated debt. The US student loan market has expanded significantly in recent years, driven by rising tuition costs and a clamour for a university education by millennials in the wake of the financial crisis.
- TD Bank warns of impact of oil’s fall on Canadian economy. The head of Toronto-Dominion Bank has warned of the chilling effects of lower oil prices on the Canadian economy, which could check the lender’s ambitions in the US, its most important growth market. The Toronto-based bank, the country’s joint largest lender by assets alongside Royal Bank of Canada, has expanded more quickly in the US than any other big foreign bank since the crisis. But in an interview with the Financial Times, president and chief executive Bharat Masrani said the latest drop in the oil price could hurt consumption in certain parts of Canada that are highly reliant on energy exports — and by extension, affect the bank’s earnings power.
Telegraph:
- Eurozone ministers: Greek debt relief won't be discussed until October. Michel Sapin, France's finance minister, says debt relief would provide 'oxygen' for growth but Germany insists International Monetary Fund participation in a debt package remains a dealbreaker.
China Digital Times:
- He Xiaoxin: How Far Can I Go? And How Much Can I Do? (pics) When I first set eyes on it, it startled me. This, this must be a movie! A Hollywood sci-fi wouldn’t be this shocking. This is like hell on earth. I could only think of one word—Chernobyl!
Night Trading
- Asian indices are -1.0% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 117.25 +.75 basis point.
- Asia Pacific Sovereign CDS Index 70.25 unch.
- S&P 500 futures -.09%.
- NASDAQ 100 futures -.02%.
Earnings of Note
Company/Estimate
- (EL)/.34
- (A)/.41
- (MTZ)/.11
- (URBN)/.49
Economic Releases
8:30 am EST
- Empire Manufacturing for August is estimated to rise to 4.5 versus 3.86 in July.
- The NAHB Housing Market Index for August is estimated to rise to 61.0 versus 60.0 in July.
- Net Long-Term TIC Flows for June.
- None of note
Other Potential Market Movers
- The China Property Price reports and the Eurozone Trade Balance report could also impact trading today.
BOTTOM LINE: Asian
indices are mostly lower, weighed down by technology and
industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finished modestly lower. The Portfolio is 50% net long heading into the week.
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