Evening Headlines
Bloomberg:
- China's Stocks Tumble Before Holiday on State Support Concern. China’s stocks slumped on their last trading day this week amid concern that government steps to prop up equities will fail as the economic slowdown deepens. The Shanghai Composite Index dropped 2.9 percent to 3,074.20 at 10:01 a.m. local time, adding to a two-day, 2 percent retreat. About 18 stocks fell for each that rose on the gauge. China’s financial markets will be closed for the rest of the week for holidays commemorating the end of World War II, which will be marked by a large-scale military parade in Beijing. The benchmark stock measure is extending its biggest two-month loss since 2008 after traders reduced holdings of shares purchased with borrowed money for an 11th day and an official factory gauge fell to the lowest reading in three years. Large-company shares rebounded in last trade over the past five days from session lows amid speculated purchases by state-backed funds. “The government seems to have been buying blue-chips these days to support the market but investors have lost confidence amid the ongoing deleveraging,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co. “The correction isn’t over yet." The CSI 300 Index slid 3 percent, led by technology and energy shares. Hong Kong’s Hang Seng China Enterprises Index retreated 1.6 percent to its lowest level since March 2014, while the Hang Seng Index slipped 1.1 percent.
- Putin's Got a New Problem With China. Economic data tell a different story. Trade between the two nations fell 29 percent in the first half of this year to $30.6 billion. Russian government officials now say that there’s virtually no chance they will hit their target of $100 billion in trade turnover this year, a goal Putin publicly embraced as recently as October.
- After 39% Rout, China Stocks Still Cost Double Hong Kong Prices. For all the losses in Chinese stocks since the nation’s record bull market ended in June, shares on mainland exchanges are still more than twice as expensive as their identical counterparts in Hong Kong. Dual-listed companies traded at a 115 percent premium in China at the end of last month, within three percentage points of a four-year high in July, according to monthly data compiled by Bloomberg. The price differences have persisted even as a $4.6 trillion selloff dragged the Shanghai Composite down 39 percent from this year’s high.
- China Rout Spells More Troubles for Battered Macau Casinos. China’s recent stock market rout is causing more troubles for Macau’s hard-luck casinos. As the city’s casino downturn entered a 15th month in August, Chinese stocks losing $5 trillion of their value hasn’t helped. For Macau junket operator Iao Kun Group Holding Co., that market turmoil is one of the key reasons why gamblers are holding back.
- China Hedge Funds Face Worst Month in 16 Years After Carnage. China-focused hedge funds probably had their worst month in almost 16 years in August, with firms including Orchid Asia Group Management and APS Asset Management Pte suffering losses from the nation’s stock market collapse. Greater China hedge funds plunged an estimated 10 percent in August, putting them on track for their biggest decline since at least January 2000, according to preliminary estimates from Eurekahedge Pte. The Orchid China Master Fund, a $304 million strategy managed by Hong Kong-based Orchid, fell an estimated 7.3 percent, according to a month-end investor update obtained by Bloomberg News. APS’s Greater China Long/Short Fund declined 7.2 percent in the month through Aug. 28 as the firm’s China A Share Fund fell 5.5 percent as of Aug. 21, according to a month-end update.
- Australia’s Economy Grows at Half Pace of Forecast on China Woes. Australia’s economy expanded at a slower pace than economists forecast in the three months through June -- only propped up by government and household spending -- as a slowdown in key trading partner China weighed on growth. The currency slumped. Gross domestic product advanced 0.2 percent from the first three months of the year, when it rose 0.9 percent, government data showed Wednesday. That compared with the median of 27 estimates for a 0.4 percent gain.
- Won Weakens as South Korea Surplus Shrinks, Stock Outflows Mount. South Korea’s won retreated from a three-week high as the current-account surplus narrowed and a selloff in global equities deterred risk-taking. The excess in the broadest measure of trade was $10.1 billion in July, down from June’s record, the Bank of Korea reported Wednesday. The figures come after data Tuesday showed exports tumbled last month by the most since 2009. The Kospi index of shares dropped after overseas investors cut their holdings on each of the last 19 trading days, pulling some $3.7 billion in the longest run of net sales in seven years.
- Aussie Sinks Below 70 U.S. Cents as China Threatens Growth. The Australian dollar dropped below 70 U.S. cents for the first time in six years before a report forecast to show slowing domestic economic growth amid signs of a slump in China. The currency fell to as low as 69.98 cents Wednesday. It has dropped 4 percent over the past month, the biggest loss among Group-of-10 currencies after the New Zealand dollar, as stocks slid.
- Asia Stocks Follow U.S. Shares Lower Amid Global Growth Concern. Asian stocks fell, following a decline in U.S. shares, as weak American manufacturing data added to concern about a slowdown in global economic growth. The MSCI Asia Pacific Index dropped 0.7 percent to 125.97 as of 9:02 a.m. in Tokyo. Anemic demand from emerging markets including China translated into leaner factory order books in the U.S., data showed Tuesday.
- Steel CEO Who Called China Slowdown Bewildered by Cheery Miners. Producers of the steelmaking raw material including Rio Tinto Group, Vale SA and BHP Billiton Ltd. are expanding output in anticipation of China raising steel production to as high as 1 billion metric tons in the coming decades. “I do not have a clue how they drew up these figures or what the background for this optimism is,” said Wolfgang Eder, chief executive officer of Austria’s Voestalpine AG and chairman of the World Steel Association.Steel demand in China, consumer of half the world’s supplies, is expected to fall this year for the first time since 1995.
- Wind-Power Producers Find Profits as Elusive as a Summer Breeze. Power producers who invested billions in turbines are finding that making money off the wind can be as unpredictable as the energy source itself. NextEra Energy Inc., NRG Yield Inc. and Duke Energy Corp. all said a lack of sufficiently windy days cut into second-quarter sales. And neither power generators nor forecasters seem to know exactly why.
- Morgan Stanley: Central Banks Are Playing a Game of Chess That Results in an Endless Cycle of Easing. The struggle for inflation is real and strategic.
Wall Street Journal:
- China Boosts Efforts to Keep Money at Home. Efforts include cracking down on underground banks, money-transfer agents. China is imposing fresh controls to prevent too much money from leaving its shores, escalating its battle against a deepening slump in the world’s No. 2 economy. The country’s central bank said Tuesday that it will make it more expensive for investors to pressure the yuan to weaken against the U.S. dollar. A weaker currency generally prompts investors to look elsewhere to put their cash and would complicate the...
- China’s Economic Woes Echo Across Asia. South Korean trade sinks, manufacturing softens in Malaysia and Vietnam, while Australia is expected to report a rare quarterly contraction. A startling plunge in South Korean exports sharpened the picture on Tuesday of how China’s economic slowdown is rippling across Asia. The 14.7% decline in August from a year earlier, driven in part by slack demand from South Korea’s largest trading partner, China, amounts to the first statistical evidence of regional trade’s decline since Beijing’s Aug. 11 currency devaluation. That move sparked...
- For Stock Markets, the Moment When Humans Matter. Stock-pricing problems lead to questions about ‘Rule 48’. A string of messy stock-market openings in recent weeks has reinvigorated a debate about the relative effectiveness of humans versus machines in handling moments of extreme volatility and market uncertainty. On one side is NYSE Group, the Intercontinental Exchange Inc. unit that on Tuesday...
- The EPA’s Next Big Economic Chokehold. Lowering ozone—from cars, trucks, factories and power plants—in the name of an imaginary health benefit. This fall the Environmental Protection Agency plans to take its next grand regulatory step, following the announcement of the EPA’s Clean Power Plan over the summer. The agency is likely to introduce stringent new standards for ground-level ozone, arguing that a lower allowable level of ozone—an important component of smog—will reduce asthma in the U.S., among other claimed health benefits. Yet the EPA ignores decades of data and studies, some under the agency’s auspices, that reveal no detectable causal relation between past reductions in ozone and better public health, including reductions in asthma cases.
- The No-Growth Campaign. Clinton and Trump are offering nothing to improve the economy. Stocks took another tumble on Tuesday on a weak manufacturing report out of China, and investor shivers about Japan, the oil patch and the U.S. are increasing. The shaky markets and underlying economy seem relevant to the presidential debate—yet the front-runners of both parties have next to no pro-growth ideas to contribute.
- Hillary and the Hackers. The former secretary of state’s private server hid her emails from the U.S. government, but not from China, Russia and other adversaries.
MarketWatch.com:
- Morgan Stanley(MS) cuts S&P 500 price target. Lower growth, higher inflation and multiple Fed rate hikes cited as reasons for drop.
CNBC:
Business Insider:
- The New York Stock Exchange is under attack for the way it handled the most volatile market in years.
Telegraph:
- IMF poised to cut growth forecasts as emerging markets face triple threat. Christine Lagarde says emerging market economies face being caught on the "wrong side" of slower growth in China, weaker commodity prices and the prospect of higher US interest rates.
Shanghai Securities News:
- China Exports May Rise 2% in 2015; Imports Seen Down 10%. Chinese exports may rise about 2% y/y in 2015 while imports slide about 10%, according to a State Information Center and China Development Bank report.
Evening Recommendations
- None of note
Night Trading
- Asian equity indices are -1.75% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 138.75 +3.5 basis points.
- Asia Pacific Sovereign CDS Index 84.75 +4.0 basis points.
- S&P 500 futures +.70%.
- NASDAQ 100 futures +.84%.
Earnings of Note
Company/Estimate
- (GIII)/.20
- (NAV)/.31
- (VRA)/.11
- (ABM)/.49
- (FIVE)/.13
- (HGR)/.45
- (OXM)/1.23
Economic Releases
8:15 am EST
- The ADP Employment Change for August is estimated to rise to 200K versus 185K in July.
- Final Non-Farm Productivity for 2Q is estimated to rise +2.9% versus a prior estimate of a +1.3% gain.
- Final Unit Labor Costs for 2Q are estimated to fall -1.2% versus a prior estimate of a +.5% gain.
- The ISM New York for August.
- Factory Orders for July are estimated to rise +.9% versus a +1.8% gain in June.
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +444,440 barrels versus a -5,452,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,600,000 barrels versus a +1,660,000 barrel gain the prior week. Distillate supplies are estimated to rise by +944,440 barrels versus a +1,436,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.45% versus a -.6% decline the prior week.
- Fed's Beige Book report.
- None of note
Other Potential Market Movers
- The Brazil rate decision, weekly MBA mortgage applications report, Australia trade balance, Sidoti Emerging Growth Conference, (EXPD) investor day, (SPW) investor event and the (STX) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.
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