Evening Headlines
Bloomberg:
- Brazil Credit Rating Cut to Junk by S&P Amid Budget Strain. Brazil’s sovereign rating was cut to junk by Standard & Poor’s, eliminating the investment grade the country enjoyed for seven years, as President Dilma Rousseff’s struggles to shore up fiscal accounts amid a faltering economy. The country’s rating was reduced one step to BB+, with a negative outlook, S&P said in a statement. The ratings company first increased Brazil’s classification to investment grade in April 2008. The downgrade puts pressure on the economic team led by Finance Minister Joaquim Levy to win passage of measures that would shore up the country’s fiscal situation by cutting spending or raising taxes. Rousseff has struggled to win support for her initiatives amid an investigation into corruption at the state-controlled oil company that allegedly occurred while she was its chairman, sending her popularity to a record low and generating calls for her impeachment.
- Rio de Janeiro's Bursting Real-Estate Bubble. While real-estate markets are faltering all across this recession-plagued country, nowhere is the toll from a sweeping national corruption scandal and commodities collapse more apparent than in Rio. To make matters worse, a flood of new units that were planned during the boom years of the past decade are now hitting the market, pushing Rio’s vacancies to the highest in Latin America. Rents that were once on par with New York and Paris are tumbling. “Rio is going through a very delicate moment,” said Ricardo Raoul, a managing director at Paladin Realty Partners LLC, a property fund with about 12 billion reais ($3.2 billion) in projects in Brazil. “There’s an increase of inventories together with a lack of demand.”
- Aluminum Tycoon Deripaska Warns of Debt Crisis Risk. (video) Oleg Deripaska, United Co. Rusal's president, discusses aluminum prices and production and the risk of a debt crisis with Bloomberg's Stephen Engle at the World Economic Forum in Dalian.
- What Japan's Next Stimulus May Look Like as Abe Runs on Fumes. Japan’s anemic economy is prompting calls for another fiscal boost. If history -- and the government’s strained finances -- are any guide, any package is likely to redirect cash already on the books. With 1.6 trillion yen ($13 billion) leftover from last year and rising tax revenue bolstering the public coffers, the Ministry of Finance has leeway to fund stimulus without adding to the world’s heaviest debt load. As much as 3.5 trillion yen is needed to jump start growth, an adviser to Prime Minister Shinzo Abe said after data showed the world’s third-biggest economy contracted last quarter.
- Kiwi Drops More Than 2% After RBNZ Signals Further Rate Cuts. New Zealand’s dollar declined more than 2 percent against the U.S. currency after the central bank signaled more interest rate cuts may be needed to boost inflation as economic growth slows. The kiwi tumbled against all its major peers, approaching a six-year low reached last month versus the greenback, after Reserve Bank of New Zealand Governor Graeme Wheeler cut the official cash rate a quarter percentage point to 2.75 percent Thursday and said “further easing in the OCR seems likely.” All 17 economists surveyed by Bloomberg correctly predicted the decision and swaps indicated a more than 90 percent chance of a reduction.
- Ringgit Declines to New 1998 Low on Heightened Risk Aversion. Malaysia’s ringgit led losses early in Asia as a renewed decline in stocks and a downgrade in Brazil’s credit rating reignited concerns capital will flow out of emerging markets as the U.S. prepares to raise interest rates. The currency fell 1.1 percent to 4.3770 a dollar as of 8:13 a.m. in Kuala Lumpur, the lowest level since January 1998, according to prices from local banks compiled by Bloomberg.
- China's Stocks Decline as Producer Prices Sink Most Since 2009. China’s stocks dropped for the first time in three days after producers prices tumbled the most in six years. The Shanghai Composite Index slid 1.1 percent to 3,206.16 at 9:35 a.m. local time, snapping a 5.3 percent, two-day advance. About 10 stocks fell for each that rose. The producer-price index declined 5.9 percent in August, extending declines to 42 straight months, while consumer prices increased 2 percent, the fastest pace in a year.Factory deflation is pushing up real borrowing costs for the industrial sector, compounding challenges as the growth outlook dims. The Hang Seng Index slumped 2.3 percent in Hong Kong, with the Hang Seng China Enterprises Index retreated 2.7 percent. The CSI 300 Index fell 1.1 percent, led by technology and industrial companies.
- Asian Stocks Follow U.S. Lower as Jobs Data Fuel Rate-Rise Bets. Asian stocks dropped, after the regional benchmark index surged by the most in six years on Wednesday, as data on American job openings bolstered the case for higher U.S. interest rates. The MSCI Asia Pacific Index sank 1.2 percent to 127.87 as of 9:05 a.m. in Tokyo after jumping 4.2 percent on Wednesday. Japan’s Topix index lost 2.7 percent as the yen halted three days of declines.
- Seven Reasons the Fed Won't Raise Rates Next Week: Deutsche Bank. Joseph LaVorgna, Deutsche Bank AG’s chief U.S. economist, has had a change of heart about the Federal Reserve. In a report Wednesday, he pushed out his forecast for the Fed’s first interest-rate increase in nearly a decade until October. That’s a change from two weeks ago, when he and his team predicted that steady growth in the economy would lead the Fed to raise rates this month. International market turmoil and persistently low inflation have led bond futures traders and strategists to trim bets on a September rate rise. "I’m totally convinced they don’t need to move" this month, he said in a phone interview. "October seems to work really well." Here are the seven reasons LaVorgna gives for changing his view:
Wall Street Journal:
- EU Presents Plan to Distribute Refugees Across Europe. German Chancellor Angela Merkel calls proposal a good first step, but says it doesn’t go far enough. Faced with the largest migration of displaced people since the end of World War II, the European Union proposed to redistribute 160,000 refugees across the bloc, in a move bound to challenge countries with scant experience of accommodating newcomers.
- GOP Lawmakers Are Divided on Iran Vote. The jockeying reflects their struggle with how to stop a deal that looks almost certain to be implemented. Republicans united in their opposition to President Barack Obama’s nuclear accord with Iran fractured Wednesday about how to cast their votes.
- Fed Wavers on September Rate Rise. While some officials are ready to move, China slowdown, market turbulence make others pause. Federal Reserve officials aren’t near an agreement to begin raising short-term interest rates heading into a crucial week of private discussions before their Sept. 16-17 policy meeting, according to their recent comments.
- The Rewards of the Obama Doctrine. Offering a helping hand to America’s enemies in Iran, Russia and Cuba will ruin lives and many more will die. A quick glance at the latest headlines suggests a jarring disconnect from the stream of foreign-policy successes touted by the Obama White House and its allies. President Obama has been hailed by many as a peacemaker for eschewing the use of military force and for signing accords with several of America’s worst enemies. The idea that things will work out better if the U.S. declines to act in the world also obeys Mr. Obama’s keen
- Hillary’s Email Defense Demands Proof. She says a private server was ‘allowed’—but by whom? Produce the lawyers who signed off. On Tuesday Hillary Clinton finally admitted to ABC World News Tonight anchor David Muir that using a private server for her emails as secretary of state “was a mistake.” The rest of us have known that since the story broke in March.
Fox News:
- Russian military build-up in Syria ‘unprecedented,’ officials say. U.S. officials are expressing growing concern about Russia's military build-up in Assad-controlled Syria, calling it "unprecedented" -- with one telling Fox News it compares in scope to Vladimir Putin's incursion into Crimea. "It's beginning to look like Crimyria," the official told Fox News. Two U.S. officials who have reviewed the latest intelligence told Fox News that satellite imagery reveals more flights of massive Russian An-124 "condor" military cargo planes landing in Syria. They are offloading troops, including just under 50 Russian marines, and armored vehicles. U.S. officials said the Russian activity in Syria is unlike any they've seen since the start of the Syrian civil war four years ago. "This is definitely a build-up straight out of Russia's military doctrine," said one official.
- Exclusive photos appear to show grisly effect of ISIS’ mustard gas attacks on Kurds. (video) Kurdish forces battling ISIS in Iraq are suffering severe health effects and pleading with the international community for help after being attacked with chemical weapons including mustard gas, according to a western military expert embedded with them who provided gruesome photos backing the charges.
MarketWatch.com:
- Yet another measure of risk in junk-bond market flashing red. Yet another measure of risk in the U.S. junk-bond market is flashing an alarming signal. Moody’s Investors Service said its Covenant Quality Index deteriorated to its worst level on record in August from July, blowing past the previous record low set in November 2014. The index measures the degree of protection afforded to holders of junk, or high-yield, bonds sold by North American issuers. The index rose to 4.53 in August from 4.37 in July and 4.42 in November 2014. It is now a full 116 basis points weaker than its best-ever score of 3.37 set in April 2011. “Single-month record weak scores in June and July drove the CQI to 4.53 in August for its worst score to date,” Moody’s analysts wrote in a report.
CNBC:
- Al-Qaeda calls for assassination of US business figures. Al-Qaeda called for lone wolf-style attacks on several prominent U.S. business and economic figures on Wednesday. The terror group did so in the latest issue of Inspire, its in-house, English-language magazine, the same magazine that reportedly inspired Dzhokhar Tsarnaev and his brother, Tamerlan, to conduct the deadly attack at the 2013 Boston Marathon.
- Another death cross forms, and it's a doozy. The Shanghai Composite, the epicenter of the plunge in global markets over the last month, flashed a death cross Wednesday when its shorter-term moving average fell below its longer-term moving average.
Business Insider:
- House Republicans just won a major, unexpected victory in a battle with Obama. Republicans in the US House of Representatives have standing to proceed with a lawsuit against US President Barack Obama's administration over his signature healthcare law, a federal judge said Wednesday, handing them a significant and somewhat unexpected victory in the ongoing legal battle.
- Siri is always listening. Are you OK with that? The virtual assistant will always have an ear open, listening for users to summon it, ever ready to answer questions or to assist with certain tasks. This always-on, passive-listening technology has also raised alarms among privacy watchdogs.
Telegraph:
- Europe faces political war on two fronts as backlash builds. The EU's Eastern states shocked to lose their sovereignty over borders, just as southern Europe lost economic sovereignty by joining the euro.
- Juncker: EU will not keep Greece in the euro at all costs. European Commission president urges new Greek government to stick to its bail-out terms as 'the bell tolls' for crisis-hit continent.
Financial News:
- China Doesn't Need Massive Economic Stimulus. China should cut lending costs instead amid low economic growth, Li Daokui, former PBOC adviser, said at the World Economic Forum in Dalian yesterday.
Evening Recommendations
- None of note
Night Trading
- Asian equity indices are -2.25% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 137.75 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 83.5 -1.0 basis point.
- S&P 500 futures -.13%.
- NASDAQ 100 futures -.19%.
Earnings of Note
Company/Estimate
- (CBK)/-.04
- (LULU)/.33
- (FNSR)/.26
- (RH)/.84
- (ZUMZ)/.12
Economic Releases
8:30 am EST
- Import Price Index for August is estimated to fall -1.6% versus a -.9% decline in July.
- Initial Jobless Claims are estimated to fall to 275K versus 282K the prior week.
- Continuing Claims are estimated to fall to 2253K versus 2257K prior.
- Wholesale Inventories for July are estimated to rise +.3% versus a +.9% gain in June.
- Wholesale Trade Sales for July are estimated to rise +.1% versus a +.1% gain in June.
- Bloomberg
consensus estimates call for a weekly crude oil inventory build of
+872,730 barrels versus a +4,667,000 barrel increase the prior week.
Gasoline supplies are estimated to fall by -259,270 barrels versus a
-271,000 barrel decline the prior week. Distillate inventories are
estimated to rise by +881,910 barrels versus a +115,000 barrel gain
prior. Finally, Refinery Utilization is estimated to fall by -.34%
versus a -1.7% decline prior.
- None of note
Other Potential Market Movers
- The BoE rate, $21B 30Y T-Note auction, weekly Bloomberg Consumer Comfort index, weekly EIA natural gas inventory report, BMO Education conference, DA Davidson Construction conference, CL King Best Ideas conference and the (CLI) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.
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