Tuesday, August 11, 2015

Today's Headlines

Posted by Gary .....at 3:05 PM
Bloomberg:
  • It’s End of Era for Yuan Appreciation, Says Ex-PBOC Adviser Yu. The era of yuan appreciation has come to an end with China’s move to lower the daily reference rate by 1.9 percent, said Yu Yongding, a member of China’s monetary policy committee when the currency was revalued in July 2005. The yuan exchange rate will enter “a period of stabilization or even depreciation,” said Yu, now a researcher with the Chinese Academy of Social Sciences. The People’s Bank of China’s reduction to the daily fixing was a “symbol” for the change, although signs of yuan depreciation were evident before Tuesday’s move, he said. 
  • China Resorts to Old Growth Drivers as New Engines Struggle. China has stepped up efforts to boost old growth drivers as new ones fail to offset slowing investment and trade with the steepest yuan devaluation in two decades. A record 1.9 percent cut in the People’s Bank of China’s daily yuan reference rate Tuesday followed an 8.3 percent fall in July’s exports. To bolster sluggish investment, China had this year already expanded a debt swap program to ease financing pressure on local governments and injected funds into policy banks so they can channel more credit to the real economy.
  • Yuan Devaluation Points to Growing China Risk for LVMH, BMW. For companies from LVMH Moet Hennessy Louis Vuitton SE to BMW AG to Kone Oyj, China is delivering a one-two punch. Years of surging economic growth that spurred sales of Louis Vuitton handbags, BMW 5-Series cars and Kone elevators already had given way to the deepest slowdown since 1990. Chinese policy makers on Tuesday added to the pain for international companies by devaluing the yuan by the most in two decades, sending shares of European automakers, luxury manufacturers and industrial companies slumping. The devaluation of the currency in the short term reduces the value of their sales in the country and makes Chinese producers more competitive. While in the longer term it will help revive growth in China, for now it signals just how concerned the authorities are about the slowdown, and that there may be further pain ahead for companies operating there.
  • China Auto Sales Fall to 17-Month Low Despite Price Cuts. Chinese consumers bought the fewest passenger vehicles in 17 months in July, extending a slump in the world’s largest auto market as deeper discounts failed to revive demand. Retail deliveries fell 2.5 percent to 1.3 million units, the lowest level since February 2014, according to the China Passenger Car Association. A separate set of figures from the China Association of Automobile Manufacturers showed passenger-vehicle sales declined 6.6 percent, also to a 17-month low. The Stoxx 600 Automobiles & Parts Index of European manufacturers dropped the most in six weeks. Foreign automakers are facing slumping demand in China because of a slowing economy and resurgent competition from lower-priced local offerings. The move on Tuesday to devalue its currency by the most in two decades adds to the challenges by reducing the value of repatriated profits for multinational carmakers. “International automakers’ cash flow will be impacted, no doubt about it,” said Janet Lewis, an auto analyst at Macquarie Group Ltd. “The U.S. automakers would stand to lose the most, because they’re the strong currency.” Daimler AG, the German parent of luxury-car maker Mercedes-Benz, was the biggest decliner in the European car- and component-makers’ index, dropping 4.3 percent to 80.66 euros at 12:14 p.m. in Frankfurt.   
  • China's Yuan Devaluation Is Great News for U.S. Dollar. The move cast doubt on the health of the world’s second-largest economy, weighing on the currencies of its trading partners and competitors. The dollar was already supported by speculation the Federal Reserve will increase interest-rates as early as next month. “The dollar story continues to look in almost splendid isolation compared to pretty much everywhere else,” said Jeremy Stretch, a foreign-exchange strategist at Canadian Imperial Bank of Commerce in London. “It just adds to the impetus” for a currency that’s rising because “the growth story is allied to the prospect of Fed tightening upcoming.”
  • Roach Sees Currency Wars Just Getting Worse After Yuan Decision. China’s shock move to devalue the yuan risks opening a new front in a currency war that stretches from the euro zone to Japan as nations look to energize their economies. It triggered the steepest selloff among Asian currencies in almost seven years, led by slides in South Korea’s won and the Taiwan and Singapore dollars. The euro and the yen tumbled 18 percent against the greenback in the past 12 months as monetary policies diverged in the U.S., Europe and Japan. “In a weak global economy, it will take a lot more than a 1.9 percent devaluation to jump-start Chinese exports,” said Stephen Roach, a senior fellow at Yale University and former Morgan Stanley non-executive chairman in Asia. “That raises the distinct possibility of a new and increasingly destabilizing skirmish in the ever-widening global currency war. The race to the bottom just became a good deal more treacherous.” 
  • German Investor Confidence Unexpectedly Drops Amid Risks. German investor confidence unexpectedly fell, signaling concern that a global slowdown could weigh on Europe’s powerhouse economy. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, slid to 25 in August from 29.7 in July. The reading is the lowest since November and compares with a median estimate of 31.9 in a Bloomberg survey of economists.  
  • Ukraine Returns Artillery to Front Line as OSCE Warns on Unrest. Ukraine returned heavy artillery to the front line of its more-than-yearlong conflict with pro-Russian rebels after reporting shelling at levels not seen in weeks. Weapons, pulled out as part of a February truce, were sent back to a village in the Donetsk region on Monday after separatists stormed it, the military said Tuesday from the eastern combat zone. While the rebels denied attacking, the Organization for Security and Cooperation in Europe said it had seen a significant increase in cease-fire violations.
  • Which Puerto Rico Bond Defaults Next? 46% Yields Provide a Clue. Puerto Rico defaulted for the first time on Aug. 3, when a little-known agency, the Public Finance Corp., paid investors just $628,000 of the $58 million they were owed. The Finance Corp. is only one of the 17 arms of the U.S. territory that have sold tax-exempt bonds, according to the Government Development Bank. Unlike debt typically issued by countries, the securities carry varying degrees of risk because they’re backed by different sources of funds and legal safeguards. 
  • Ruble Leads Currency Slide as Yuan Risks Denting Russian Exports. The ruble slid the most in emerging markets as the biggest drop in China’s yuan in two decades drove down oil prices and sparked concern Russia’s exports to its largest trading partner will be curtailed. The currency weakened 2.1 percent to 64.1810 by 4:26 p.m. in Moscow, its sharpest decline on a closing basis since Aug. 3.
  • Brazil’s Real Leads Global Declines as Stocks Retreat on China. Brazil’s real led world losses and the Ibovespa slid as China’s currency devaluation fueled concern that demand from the nation’s top trading partner will falter. The real dropped 1.9 percent, the most among 16 major currencies, on speculation that trade inflows from the Asian nation will slump and as Goldman Sachs Group Inc. said it may weaken to 4 per dollar in the next 12 months. Vale SA, which gets a third of its revenue from China, extended this year’s plunge to 24 percent. Commodity companies in the MSCI Brazil fell at least 4.1 percent, the most among 10 industries.
  • Europe Stocks Fall Most in Two Weeks as Exporters Slide on China. Carmakers, miners and luxury-goods shares led a drop in European stocks after China devalued its currency by the most in two decades. BMW AG and Daimler AG slid 4.3 percent or more, while LVMH Moet Hennessy Louis Vuitton SE and Swatch Group AG slipped at least 5.1 percent amid concern the yuan’s drop will hurt sales from China. Pernod Ricard SA and Remy Cointreau SA led losses in food-and-beverage shares. BHP Billiton Ltd. and Rio Tinto Group, the world’s biggest miners, fell more than 3 percent. The Stoxx Europe 600 Index slid 1.6 percent to 393.61 at the close of trading, taking its decline since an Aug. 5 peak to 2.6 percent.
  • Yuan Cut Blunts Commodity Rebound as China Faces Pricier Imports. Commodity investors betting on a sustained recovery in prices probably didn’t count on China devaluing its currency by the most in two decades. The world’s biggest user of energy, metals and grains surprised markets by cutting the daily reference rate for the yuan on Tuesday by a record in an attempt to bolster its economy. Prices of oil and industrial metals fell amid speculation the weaker currency will make dollar-denominated imports more expensive and slow demand. 
  • Mining Stocks Are Taking a Beating. The devaluation raises the risk that exports from China will increase, adding more metal to markets that are already oversupplied. A weaker yuan may also make imports for Chinese businesses more expensive and cut demand for raw materials in the world’s biggest consumer of commodities.
  • OPEC Supply Reaches 3-Year High as Iran Pumps Most Since ’12. OPEC pumped the most crude last month in more than three years as Iran restored output to the highest level since international sanctions were strengthened in 2012. The Organization of Petroleum Exporting Countries, responsible for 40 percent of world oil supplies, raised output by 100,700 barrels a day to 31.5 million last month, the group said in its monthly market report, citing external sources. This increase came even as Saudi Arabia, which often curbs output toward the end of peak summer demand, told OPEC it cut production by the most in almost a year.
  • Fed Weighing Liftoff May See Yuan Devaluation as Minor Headwind. Federal Reserve officials won’t delay raising interest rates because of the surprise devaluation of China’s currency, economists said, even though the move could prove a headwind for U.S. growth if it drives up the dollar. “I wouldn’t see this as a big game-changer on the medium-term outlook” for the U.S. economy, said Roger Aliaga-Diaz, a senior economist at Vanguard Group Inc. in Valley Forge, Pennsylvania, noting the People’s Bank of China had described it as a one-time realignment.
  • U.S. Identifies Insider Trading Ring With Ukraine Hackers. (video) Exposing a new front in cybercrime, U.S. authorities broke up an alleged insider trading ring that relied on computer hackers to pilfer corporate press announcements and then profited by trading on the sensitive information before it became public. In morning raids in Georgia and Pennsylvania, federal agents arrested five of nine men accused in the insider trading plot. Four others were indicted on hacking and securities fraud charges but remain at large.
  • Here's One Sign of Trouble in the Subprime Auto Lending Market
    Hitting a speed bump. Subprime auto lending has attracted a lot of attention in recent years. New data out this month may show why regulators and investors remain concerned. Losses on car loans taken out by bad-credit borrowers are continuing to climb, thanks in part to the flood of rookie auto finance companies that have entered the market in recent years. You can see the rise in subprime borrowers struggling to make car payments in monthly data on bond deals sold on Wall Street. So-called subprime auto asset-backed securities (ABS) bundle together car loans and then sell them to big investors. July reports show that annualized net losses on such bonds—a measure of the cost of bad debt—rose 1.45 percentage points over the past year to reach 6.6 percent last month, according to Nomura analysts.
Zero Hedge: 
Telegraph: 
RIA:
  • Yuan Devaluation Puts Pressure on RUB, Other EM Currencies. Russian Economy Ministry sees no domestic factors for ruble devaluation. Crude prices to stay under pressure in 2015; short-term oil supply to remain excessive, he said.

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