Thursday, August 20, 2015

Today's Headlines

Posted by Gary .....at 2:56 PM
Bloomberg: 
  • Chinese Stocks Resume Rout on Economy, Capital Outflow Concerns. China’s stocks slumped to a two-week low as concern a slowing economy and weaker currency will spur capital outflows outweighed prospects for more state support. The Shanghai Composite Index dropped 3.4 percent to 3,664.29 at the close, the lowest level since Aug. 6. About 17 percent of mainland-listed shares remain halted. The Hang Seng China Enterprises Index sank 2.3 percent to a 10-month low, while the Hang Seng Index closed within three points of entering a bear market. “The market will trade between 3,500 to 3,900 in the short term as market sentiment is still weak,” said Zhang Yanbing, a Shanghai-based analyst at Zheshang Securities Co. “Whether China’s stock market stabilizes will depend on future economic data and further easing policies.” 
  • Greek PM Tsipras to Propose Elections for Sept. 20, Official Says. Greek Prime Minister Alexis Tsipras is set to propose snap elections for next month in a bid to strengthen his authority after a party mutiny over his agreement to a third bailout. Greek stocks and bonds dropped on Thursday as Tsipras met with members of his cabinet in Athens to discuss his next moves after the approval of a bailout of 86 billion euros ($96 billion) from the European Stability Mechanism rescue fund. He’ll ask for elections to be held Sept. 20, according to a Greek government official. An announcement is due this evening, a second official said. Both asked not to be named as the information is not yet public. 
  • Greek Bonds Fall With Italy’s as Tsipras Said to Plan Elections. (video) Greek bonds declined as a government official said Prime Minister Alexis Tsipras was set to propose snap elections. Italian bonds also fell. Tsipras, who was elected in January on an anti-austerity platform, approved sweeping economic reforms attached to an international bailout at the cost of seeing his own party split. He’ll ask for elections to be held Sept. 20, according to a Greek government official who asked not to be named because there’s been no announcement.
  • Merkel Dubbed Cowardly on Greece by Biggest German Daily. (video)
  • The Asian Century Hits a Speed Bump. With trade slowing, currencies weakening and growth waning, this is turning out to be a very bumpy year. Trade slowing, currencies weakening, stocks falling, economic growth waning and political wobbles emerging. 2015 is proving a bumpy year in what's meant to be the Asian century. The confluence of stresses -- from China's slowdown, the fallout from the yuan's devaluation, doubts over Abenomics, disappointment with Modi and Jokowi, and deepening vulnerabilities among smaller economies -- comes as the Federal Reserve contemplates raising interest rates for the first time in almost a decade. The following charts illustrate the malaise:
  • China’s Wind and Solar Developers Hit by Subsidies Short of Plan. China’s wind and solar developers are getting much less than they anticipated in handouts from the government because of a quirk in subsidy policies, threatening to stymie growth in the world’s biggest market for clean energy. The issue relates to the support China pays power suppliers as enticement to develop clean energy projects. Surcharges slapped onto electricity bills to fund the subsidies are too low, leaving a gap between what was promised and what’s being paid out, said Meng Xiangan, vice chairman of the China Renewable Energy Society, an industry group. Left to continue, the trend may foreshadow a reckoning for what has become the engine of growth in the global renewables industry. 
  • North, South Korea Trade Fire Along Border as Tensions Worsen. North and South Korea exchanged fire across the demilitarized zone between the two countries in one of the worst incidents since 2010, sparking fears that hostilities will worsen. The incident started when North Korea fired a rocket at a South Korean border area, prompting Seoul’s forces to reply with an artillery barrage. It was unclear whether there were any casualties. 
  • Russia, China Start Joint Naval Drills of ‘Unprecedented’ Scale. Russian and Chinese warships gathered for the start of joint naval exercises, seeking to extend their military sway in a region torn by territorial disputes between Asian countries. Seven Chinese vessels including the Shenyang destroyer arrived at Vladivostok in Russia’s Far East, the state-run Tass news service reported Thursday, citing Vice Admiral Alexander Fedotenkov, deputy commander of the Russian Navy. The “scope of the exercise is unprecedented,” with 22 Russian and Chinese combat ships, 20 aircraft, 40 armored vehicles and 500 troops taking part, Fedotenkov said. The drills, conducted in the waters off Russia’s Pacific coast, will conclude Aug. 28 and feature simulated anti-aircraft and anti-submarine warfare.
  • Li & Fung Profit Falls 20% Amid Weak Demand in U.S., Europe. Li & Fung Ltd., the world’s largest supplier of clothes and toys to retailers, reported first-half core operating profit slumped 20 percent amid weak demand from its customers in the U.S. and Europe. Core operating profit fell to $182 million for the six months ended June from $227 million a year earlier, the company led by billionaire Chairman William Fung said in a statement Thursday. That compared with the $200 million average estimate of two analysts surveyed by Bloomberg. “While we expect the macroeconomic environment to remain challenging for the rest of the year, our order book remains solid and in line with our expectations,” said Chief Executive Officer Spencer Fung in the statement. Li & Fung gets about 60 percent of its revenue from the U.S., where consumer confidence fell in July as a stock market slump amid weakness in China may have damped Americans’ views of the domestic economy. The rapid decline in the euro due to political uncertainty around Greece, and the slowing Chinese economy also affected the company’s business, it said Thursday. The Hong Kong-based company, whose customers include Wal-Mart Stores Inc.(WMT) and Target Corp.(TGT), reported net income rose 33 percent to $149 million, while sales climbed 1 percent to $8.63 billion.
  • Swiss Watch Exports Decline Most Since 2009 as Asia Plunges. Swiss watch exports slid the most in more than five years in July amid plunging shipments to Asia as Chinese tourists stayed away from Hong Kong and avoided South Korea following the outbreak of a deadly virus. Exports fell 9.3 percent to 1.9 billion Swiss francs ($2 billion), the steepest monthly decline since November 2009, according to figures released Thursday by the Federation of the Swiss Watch Industry. Sales to China tumbled 40 percent, compared with a 49 percent increase in July 2014. Shipments were down 20 percent to South Korea and 29 percent to Hong Kong, offset partly by higher exports to Europe.  
  • Credit Traders Gird for the Worst as Fed Loses Its Grip on Debt. What happens when the Federal Reserve loses its stranglehold over debt markets? Investors are finding out. The selloff in corporate bonds is deepening and investors are seeking safety in the longest-dated government debt, which does best when the economy does worst. Defaults are rising as oil tumbles and investors are looking for the best ways to hedge against credit losses. All this comes as the Fed does, well, nothing much. Instead, it’s China that’s taken the lead with new rounds of financial stimulus in the face of slowing growth. But some days it’s a free for all, with even Kazakhstan wielding its influence. “Financial markets are desperate for the Fed to drive trading themes, but the ‘world’s central bank’ has fallen to the second rank this summer,” or sometimes third, Jim Vogel, an interest-rate strategist at FTN Financial in Memphis, Tennessee, wrote in a note Thursday.
  • 10 Currencies That May Follow Tenge in Tumble Triggered by China. On most days, Kazakhstan finds itself in the backwaters of financial markets. Yet, it’s this central Asian nation that has delivered the latest shock to global currency trading. Thursday’s 23 percent plunge in the tenge after Kazakhstan abandoned control of its exchange rate revealed a sense of urgency among policy makers: they had tried a managed depreciation just a day earlier. The escalation signaled to investors that it has become too costly for developing nations to defend their currencies. Vietnam also devalued the dong, while freely traded currencies such the South African rand and Turkey’s lira extended losses. The trigger for the wave of depreciations was China’s decision to weaken the yuan on Aug. 11, leaving countries competing with the world’s second-largest economy in export markets and those selling goods to it at a disadvantage.
  • Kazakhstan Tenge Slides 23% as Emerging-Market Rout Strains Pegs. Kazakhstan relinquished control of its exchange rate in the latest sign emerging nations will stop defending their currencies after China roiled global markets by devaluing the yuan. The central Asian nation, which counts Russia and China as its top trading partners, said it was switching to a free float, triggering a 23 percent slide in the tenge to a record 257.21 per dollar. Since the shock yuan devaluation last week, a gauge of 20 developing-nation exchange rates capped its longest slump since 2000, Vietnam devalued the dong and currencies from Russia to Turkey and Malaysia slid at least 4.6 percent. 
  • Brazil Traders Unnerved by Prospect of Impeachment and Aftermath. As talk of impeaching President Dilma Rousseff has ratcheted up this month, investors have made one thing clear: they’d rather see her stay in office. The nation’s benchmark Ibovespa stock index has tumbled 8.4 percent in August on concern her ouster would only exacerbate what analysts now forecast will be Brazil’s longest recession since 1931. “The actual process of how Dilma could be replaced -- if she were to be impeached or resigned -- would be politically messy and divisive for the country,” Geoffrey Dennis, the head of global emerging-market strategy at UBS Securities, said by phone from Boston. “Even if you have a straightforward transition, there is no guarantee it would make things better.”
  • Emerging Stocks Head for Six-Year Low as Currency Rout Deepens. (video) The rout in emerging-market assets deepened as stocks sank to the lowest level since 2009 and Kazakhstan abandoned its currency peg. The tenge plunged by a record and the South African rand breached 13 per dollar for the first time since December 2001 before rebounding. Russia’s ruble was poised for its longest losing streak since December. The Shanghai Composite Index fell to a two-week low as PetroChina Co. led energy companies lower. Exchange-traded funds tracking stocks from China to Indonesia declined in U.S. trading. The MSCI Emerging Markets Index lost 1.2 percent to 830.55 at 1:15 p.m. in New York, set for the lowest close since August 2009.
  • U.K.'s FTSE 100 Stock Index Falls 10% From Record, Entering Correction. (video) Falling health stocks sent U.K. stocks down for an eighth day amid global growth concerns that have been rattling markets. The FTSE 100 Index has now dropped more than 10 percent from its high in April -- typically known as a correction.
  • European Stock Selloff Intensifies Amid Global Growth Concern. (video) Mounting concern that global growth is weakening and uncertainty about the timing of a U.S. rate increase fueled a second day of losses for European stocks. A respite for the region’s equities at the start of the week was short lived, as a rout in emerging markets spread. Kazakhstan was the latest to devalue its currency, following a similar move by China last week. The U.K.’s FTSE 100 Index fell for an eighth day, dragging it 10 percent below its April peak, a level known as a correction. “It’s a combination of factors that are taking down stocks: Chinese growth slowing down, China’s market crash, the oil selloff and fears of all this spreading to the U.S. and Europe,” said Ion-Marc Valahu, co-founder and fund manager at Clairinvest in Geneva. The Stoxx Europe 600 Index lost 2.1 percent to 373.44 at the close of trading, taking its decline since China’s currency move to 6.6 percent.
  • BHP(BHP), PetroChina Slip as Commodity Rout Deepens on China Concern. BHP Billiton Ltd. and Glencore Plc drove declines among global mining and energy companies as commodity prices plunged on raised concern of a sharp slowdown in China. BHP, the world’s biggest miner, closed near a seven-year-low in Sydney, while Glencore slumped to a record low and PetroChina Co. dropped to a six-year low in Hong Kong. Gold producers bucked the trend, notching gains on strength in the price of the metal. Copper and oil prices hit six-year lows amid concern over the weakest growth for 25 years in China, the biggest consumer of metals to energy. Glencore Chief Executive Officer Ivan Glasenberg said Wednesday the world’s leading commodity trader was wrong-footed by the sharp slowdown in China. “Everyone knows about oversupply, the biggest thing that’s hitting right now is the concern about China.” IG Ltd. market analyst Angus Nicholson said by phone from Melbourne. The copper price decline is another driver, he said.
  • A Funny Thing Happened on the Way to $80 Oil by A. Gary Shilling. In February, I predicted that crude oil prices would drop to $10 to $20 a barrel. At the time, the price of West Texas Intermediate was $54, down from $74 in November, when OPEC decided not to cut production in order to forestall further price erosion. And that was way down from the June 2014 price of $107. I'm sticking with my forecast of $10 to $20 a barrel. The logic behind that February projection still seems valid.
  • September or December Is Near-Irrelevant for Fragile Currencies. Whether the Federal Reserve raises interest rates in September or December is turning out to be almost irrelevant for emerging-market currencies and those from nations that export minerals to China. Rather than being dominated by prospects for U.S. policy, they’re falling as commodity prices tumble for a seventh week. South Africa’s rand dropped to a 13 1/2-year low against the dollar, even after minutes of the Fed’s July meeting prompted traders to pare bets on a rate increase next month. Kazakhstan’s tenge plunged a record 23 percent after the country relinquished control of its exchange rate. 
  • Fed Must be Mindful of Risks It's Creating, Roach Says. (video)
  • Goldman(GS) Sees Hedge Funds Playing Defense in Stock Market. The collective wisdom of the hedge-fund industry, if you believe in such a thing, is flashing a troubling sign for the global economy. The funds' top stock picks are leaning toward defensive rather than cyclical industries for the first time since 2011, according to Goldman Sachs Group Inc.'s latest assessment of holdings. Funds added to positions in the health-care, utility, consumer-staples and telephone industries, the type of companies considered less at risk to an economic slowdown, while trimming positions in energy, technology, financial, consumer-discretionary and commodity companies.
  • Netflix(NFLX) Joins Media Stock Retreat With Biggest Drop in 10 Months. Netflix Inc., the best performer in the Standard & Poor’s 500 Index this year, joined a decline in media stocks, falling the most since October after bucking the selloff that hit Walt Disney Co., CBS Corp. and others.
Zero Hedge:
Telegraph:

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