Monday, September 28, 2015

Today's Headlines

Posted by Gary .....at 3:05 PM
Bloomberg: 
  • Emerging Stocks Drop on China Concern as Real, Ringgit Slump. Emerging-market stocks slid to a three-week low and currencies weakened amid signs that China’s economic slowdown is deepening, hurting profit outlooks for mining companies and other exporters. The Bloomberg Commodity Index slumped 1.3 percent, ending a two-day gain after a report showed profits for China’s industrial companies fell the most in at least four years. Equities in Brazil, which sends about 20 percent of its exports to China, fell to the lowest since 2009 as the real weakened for a second day. The ringgit tumbled to a 17-year low amid allegations against a Malaysian state investment company. Zambia’s kwacha slid to the lowest on record after Moody’s Investors Service downgraded the country’s credit rating.
  • Ibovespa Posts Longest Losing Streak Since 2012 as China Weighs. The Ibovespa headed toward its longest losing streak since 2012 as analysts turned more pessimistic on Brazil’s economy amid signs of a slump in China, its biggest trading partner. Brazil’s benchmark equity gauge slumped for an eighth straight day, reaching the lowest since 2009, after economists covering Brazil forecast that the country’s gross domestic product will shrink 2.8 percent this year. That’s a more gloomy view than in the previous weekly poll by the central bank, which projected a decline of 2.7 percent. The Ibovespa has plunged 42 percent this year in dollar terms, among the worst performances in the world, as Brazil heads toward its longest recession since the 1930s amid above-target inflation and a political stalemate that has frustrated the government’s efforts at shoring up the budget. Sentiment worsened Monday after data showed industrial profits in China declined the most since 2011, dimming the outlook for Brazil’s raw-materials exporters. "Everywhere you look, there’s reason for concern," Alvaro Bandeira, an economist at Banco Modal, said from Rio de Janeiro. "And no hope of an improvement any time soon." 
  • Kobe Steel Cuts Profit Target by 58% on China Excavator Sales. Kobe Steel Ltd. more than halved its full-year profit target after China’s slowing economy hurt sales at its construction machinery unit and a power outage at its Kakogawa steelworks pushed up costs. The steelmaker now forecasts net income at 25 billion yen ($207 million) for the year to March 2016, 58 percent lower than its July forecast of 60 billion yen, the Kobe-based company said Monday in a statement to the Tokyo Stock Exchange. Kobe Steel had a profit of 86.5 billion yen in the year to March 2015.
  • Glencore Roils Credit Markets as Traders Treat Company Like Junk. Credit traders are treating Glencore Plc as if it’s already junk, sending the cost of insuring the commodities giant’s debt to the highest level since the global financial crisis. Derivatives traders started demanding upfront payments to protect against a default by the company, the first time that’s happened since 2009, according to data provider CMA. The cost of five-year credit-default swaps jumped so high that they effectively were pricing in 54 percent odds that the company defaults, CMA data show.
  • Fed's Dudley Says U.S. on Track for 2015 Interest-Rate Increase. (video) The Federal Reserve will probably raise interest rates later this year and tighten policy gradually thereafter, New York Fed President William C. Dudley said, echoing the sentiment of Chair Janet Yellen that an uncertain global outlook won’t postpone liftoff into 2016. “The economy is doing pretty well,” Dudley said Monday at an event hosted by the Wall Street Journal in New York. “My expectation is that we probably will raise interest rates later this year.” Dudley said he expected growth in the second half will be a little bit weaker than in the first half, when the U.S. grew around 2.25 percent on an annualized basis.
  • Treasuries Advance as a Junk-Bond Rout Pushes Yields Beyond 8%. Treasuries gained, extending this month’s advance, as stocks declined with European commodity producers heading for their lowest level since 2009. Damped demand for energy companies spurred a rout in junk bonds pushing the yield on an index of U.S. high-yield corporate debt to more than 8 percent. U.S. government securities rose Monday as Glencore Plc, the miner and commodity trader, plunged to a record and oil prices fell for the first time in three days. The yield of 8.01 percent reached on Sept. 25 on the junk-bond index was only surpassed once previously, in August, during the past four years, based on Bloomberg World Bond Indexes. A gauge tracking the debt has fallen 1.4 percent in September, while Treasuries returned 0.4 percent.
  • European Stocks Drop Amid China Data as Glencore Tumbles 29%. The optimism that sent European stocks rallying on Friday was short-lived. The Stoxx Europe 600 Index lost 2.2 percent today as growth concerns resurfaced after Chinese industrial companies reported profits fell the most in at least four years. Commodity producers slumped to their lowest levels since 2009, with a record plunge by Glencore Plc. Automakers, which had their worst week since 2011, fell a further 3.6 percent.
  • Morgan Stanley(MS) Has Given Up on Energy Stocks. Towards the beginning of 2015, with crude oil prices in free-fall, Morgan Stanley's equity strategy team made a bold call, upgrading the energy sector to overweight. But there's been no reprieve for those stocks this year, with the S&P 500 energy sector index losing nearly one quarter of its value year-to-date:
  • Iron Ore Seen Below $40 by Citi as Roy Hill `Whale' Starts. New supply from Gina Rinehart’s Roy Hill iron ore mine will contribute to a slump below $40 a metric ton next year, according to Citigroup Inc., which said lower steel output in China would also hurt the commodity. The project in Australia’s ore-rich Pilbara is poised to start shipments in October, and its expansion toward annual output of 55 million tons will probably have a large impact on prices, analysts including Ivan Szpakowski said in a report. Surging production will combine with steel-output cuts in China to push prices below $40 in the first half, Citigroup said.
  • Valeant(VRX) Plummets After Democrats Seek Subpoena on Drug Price Hikes. Valeant Pharmaceuticals International Inc. shares fell as much as 20 percent after Democrats in the U.S. House asked to subpoena the company for documents relating to drug price increases, the latest move by politicians seeking to curb price hikes on acquired drugs. “We believe it is critical to hold drug companies to account" when they buy old drugs and raise their prices, 18 Democratic representatives wrote in a letter to Jason Chaffetz, the chairman of the House’s committee on oversight and government reform. They highlighted Valeant’s heart drugs Nitropress and Isuprel, whose prices increased by 212 percent and 525 percent the day that Valeant acquired the rights to sell them.
  • S&P 500 Shows Pattern Similar to Start of Last Two Bear Markets. A pattern that accompanied the start of the last two bear markets is showing up in U.S. stocks. Driven by a retreat since mid-August, the Standard & Poor’s 500 Index has seen its average price over 12 months fall for two straight months, data compiled by Bloomberg and MKM Partners LLC show. In the past two decades, declines in the average measure lasting two months or longer had only occurred twice, in the dot-com crash and the 2007-2009 bear market. 
Wall Street Journal:
MarketWatch.com:
CNBC:
  • Whatever happened to the bond market bubble? The $1.2 trillion high-yield debt market could face a double whammy as spreads tighten and investors use the corporate earnings season starting in the second week of October as an excuse to take even more profits. "I think there's a huge story in high yield that's been brewing for some time. Even in the non-commodities sectors of high yield," said Michael Contopoulos, head of high-yield strategy at Bank of America Merrill Lynch. "Spreads are too tight. Yields are too rich, and the market is beginning to wake up to the fact that you need to be compensated by more than 500 basis points. That's about 200 basis points lower than where it was in 2011." The BofA Merrill Lynch high-yield index is trading at roughly 600 basis points versus government bonds, but if energy, metals and mining is excluded, it's about 80 basis points less in terms of spread. The spread has ranged from a low of 427 to a current high of 614 over the past year. The yield of the overall U.S. high-yield market is about 7.5 percent. The yield excluding commodities is about 6.7 percent. Recent signals from Washington, D.C., also point to more selling pressure in the high-yield sector.
  • Emerging market ETFs bleed $19 billion so far this year. Fears about deteriorating economic conditions in China, Brazil and Russia have led to a massive retreat from emerging market exchange traded funds. So far this year investors have pulled $19 billion from emerging market ETFs but experts suggest these vehicles are vulnerable to much more selling pressure. 
Zero Hedge:
Reuters:
  • Kuwait Oil Minister Says Global Crude Oil Oversuppy 1.8m Bpd. Kuwait. Kuwait Oil Minister Ali al-Omair says global  crude oversupply now at 1.8m bpd. Doesn't expect oil summit before OPEC's next meeting on Dec. 4. Says non-OPEC producers not committed to price stability.

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