Today's Headlines

Bloomberg:    

• China's Banks Getting Less Strict on Bad Loans, Moody's Says. China’s banks are getting less strict in recognizing bad loans, failing to include some debts that have been overdue for at least 90 days, according to Moody’s Investors Service. The ratings company cited its analysis of the first-half results of 11 listed banks including Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., in a statement in Hong Kong on Monday. Moody’s argues that the pace of the increase in loans overdue for at least 90 days isn’t being reflected in increases in overall bad-loan numbers in a struggling Chinese economy. The Moody’s assessment highlights investors’ concerns that Chinese lenders’ bad debts may be understated, a factor dragging on their shares. While the industry’s nonperforming loan ratio stood at 1.5 percent as of June 30, Guotai Junan Securities Co. calculated in May that 16 listed lenders’ shares were priced as if their soured credit stood at an average of more than 11 percent.

• Bearish China ETF Assets Swell as Investors Bet on More Declines. As the chaos in China’s stock market rattles global investors, the asset growth in two new exchange-traded funds that seek to profit from either daily gains or losses in mainland equities show U.S. traders are decidedly bearish. A Direxion Investments ETF structured to make money when stocks fall has boosted its assets more than 60 times to $253 million as of Sept. 3 since it began trading in June. That’s one of the fastest growth rates among almost 200 exchange-traded funds launched in the U.S. this year, according to data compiled by Bloomberg. Direxion’s leveraged bullish fund has expanded assets by a factor of less than three to $55.8 million since it was created in April.  

• Veteran Investors Forecast China Markets to Fall. (video)

• Mobius to Beijing: Quit Fighting the Market and Let Stocks Fall. (graph) How do you get a bottom-up stock picker, a chart watcher and an economist to agree? Try asking them about Chinese equities. Mark Mobius, Tom DeMark and George Magnus -- world-renowned forecasters who view markets through three very different lenses -- are all finding common ground with their predictions that Chinese shares have further to drop. They say government efforts to prop up the $5.1 trillion market are futile, a view that’s gaining traction among analysts after an unprecedented two-month rescue effort failed to spark a sustained rally.

• Hong Kong Home Prices May Start to Slump in 2016, JPMorgan Says. Hong Kong’s property prices may correct next year despite gains in the second half of 2015, as an economic slowdown in China and Hong Kong starts to weigh on real estate, according to JPMorgan Chase & Co. Residential prices may start to fall by 5 percent to 10 percent annually starting in 2016, Cusson Leung, head of Hong Kong research, conglomerates and property for JPMorgan, said in a briefing on Friday.  

• Indonesia Is More Exposed to Capital Flight Than Malaysia, Says S&P. Rocked by a political scandal and falling oil prices, Malaysia has been dominating headlines in recent months as the ringgit leads a drop in Asian currencies. That’s taken the spotlight off the economy of neighboring Indonesia, which Standard & Poor’s says is more exposed to capital flight. “The thing about Malaysia is that the capital market is deeper there, so there’s less reliance on foreign capital among corporates or banks to fund their growth,” said Kyran Curry, S&P’s director of sovereign ratings in Singapore. “Indonesia is much more vulnerable to shifts in outflows and inflows. We’re worried about Indonesia’s foreign-exchange reserves.”  

• Ringgit Falls to New 1998 Low as Asia Selloff Sends KLCI Lower. Malaysia’s ringgit dropped to a new 1998 low and stocks fell as sentiment continues to sour for emerging-market assets amid slowing Chinese growth and prospects for a U.S. interest-rate increase. The ringgit came under renewed pressure on Monday from a decline in Brent crude and the narrowing in the oil-exporter’s trade surplus. Data on Friday showed a mixed picture of the U.S. jobs market, which is key for determining when the Federal Reserve will tighten policy. While the unemployment rate fell to a seven-year low, non-farm payrolls numbers missed estimates. Higher U.S. borrowing costs may spur more capital outflows from developing nations, just as China’s slowing economy curbs risk appetite.

• Aussie Shanghaied With Chinese Stocks Flagging Slump to Six-Year Low. For currency dealers, trading in Australia’s dollar and the Shanghai Composite Index are fast becoming the same thing. The Aussie is moving almost in lockstep with China’s tumbling equity gauge, helping it slide to a six-year low last week. Their correlation underlines Australia’s dependence on the Asian nation, which buys more than 30 percent of its exports and whose economic slowdown is infecting markets worldwide. The Australian dollar rebounded Monday from a six-year low and extended gains as Chinese markets opened in positive territory after being closed during last week’s World War II victory parade.

• Saudi Central Banker Sees No Threat to Currency's Dollar Peg. Central bank Governor Fahad Al-Mubarak said Saudi Arabia will stick with its currency peg as long as oil underpins the economy, dismissing speculation that the country’s currency system is coming under pressure. Investors have increased bets that Saudi Arabia and others in the region will be next to drop their pegs after China devalued the yuan and Kazakhstan allowed its currency to float. One-year forward contracts for the Saudi riyal, an indicator of where investors expect it to trade, are near the highest since 2003. 

• Draghi's QE Dispenses Unwanted Results to European Stock Buyers. Mario Draghi’s stimulus program hasn’t quite succeeded at unleashing the desired animal spirits across Europe. Here’s the evidence: six months in, and 96 percent of companies in the Euro Stoxx 50 Index have actually gotten cheaper relative to earnings. The European Central Bank’s plan to flood the financial system with cash by purchasing bonds was supposed to ignite the same celebration of risk-taking it did in the U.S. six years ago. In fact, the opposite has happened, culminating in as much as $526 billion of share values being wiped out last month.

• Dubai Stocks Drop With Mideast Markets on Fed Rate-Increase Bets. Dubai stocks declined with most Middle Eastern equities after the U.S. jobless rate dropped to a level the Federal Reserve considers to be full employment, bolstering the case for an interest-rate increase and depressing demand for riskier assets. Saudi equities rose. The DFM General Index retreated 0.8 percent to close at 3,542.14, following six weeks of losses, the longest streak in almost four years.   

• Asian Stocks Swing With Chinese Shares After Holiday; Yen Drops. Asian stocks fluctuated as early gains by Chinese shares evaporated after national holidays. U.S. equity-index futures advanced, while the yen declined.The Shanghai Composite Index fluctuated after rising as much as 1.8 percent after the open, while a gauge Chinese companies in Hong Kong pared gains after closing at a two-year low Friday. Japanese shares swung between gains and losses as the yen slipped. The MSCI Asia Pacific Index slid 0.6 percent by 11:34 a.m. in Tokyo after the early gains in China had seen it erase a drop of as much as 1 percent. The Hang Seng China Enterprises Index added 0.5 percent. The measure that tracks Chinese companies listed in Hong Kong has risen one day out of the previous 15 and registered its lowest close since July 2013 on Friday.

• Oil Drops a Second Day as Venezuela Seeks OPEC Summit Amid Glut. Oil declined for a second day as Venezuela proposed an OPEC summit to stabilize prices amid a global glut. Futures slid as much as 2 percent in New York. Producers from outside of the Organization of Petroleum Exporting Countries including Russia will be invited to the meeting, Venezuelan President Nicolas Maduro told state-owned broadcaster Telesur. Cutting output for a short-term price gain isn’t the cure for the “sickness” affecting global markets, Russian Energy Minister Alexander Novak said Friday. Brent for October settlement lost as much as 83 cents, or 1.7 percent, to $48.78 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $3.56 to WTI.

• Copper Drops Most in 8 Weeks on German Factory Data: LME Preview. Copper fell the most in eight weeks on Friday after German factory orders declined more than expected in July, adding to concerns that a slowing global economy will dent metals demand.

 Wall Street Journal:

• Poll: Bernie Sanders Leads Hillary Clinton in New Hampshire. 

• Emotional Debbie Wasserman Schultz Backs Iran Nuclear Deal. Florida Rep. Debbie Wasserman Schultz, the chairwoman of the Democratic National Committee, said Sunday she would vote to support the Iran nuclear deal. Although she said she still has some concerns, Ms. Wasserman Schultz told CNN’s “State of the Union” that the deal’s opponents had provided no evidence that an alternative plan, such as applying economic pressure to force Iran back to the negotiating table, would work.

• The West’s Refugee Crisis. What happens in the Middle East doesn’t stay in the Middle East. The photograph of 3-year-old Aylan Kurdi, who drowned trying to flee to Greece with his brother and mother, has focused the world on Europe’s Middle Eastern refugee crisis. Demands for compassion are easy, but it’s also important to understand how Europe—and the U.S.—got here. This is what the world looks like when the West abandons its responsibility to maintain world order.

Fox News: 

• Closing doors: Austria to phase out emergency measures after thousands of refugees reach Germany. (video) Austria's leader said late Sunday that the country would begin phasing out emergency measures that helped thousands of refugees make their way to Germany over the weekend. Austrian Chancellor Werner Faymann told reporters he had made the decision following what he called " intensive talks" with German Chancellor Angela Merkel and Hungarian Prime Minister Viktor Orban.

• 'Who needs this?' Police recruits abandon dream amid anti-cop climate. (video) Police departments face a recruiting shortage amid a growing anti-cop mood that some fear has taken the pride out of peacekeeping and put targets on the backs of the men and women in blue. Open calls for the killing of police have been followed by assassinations, including last week's murder in Texas of a Harris County sheriff's deputy. Instead of dialing back the incendiary rhetoric, groups including "Black Lives Matter" have instead doubled down at demonstrations with chants of "Pigs in a blanket, fry em like bacon." Public safety officials fear the net effect has been to demonize police, and diminish the job. 

CNBC:

• China trade, inflation and retail sales data to hit this week.

Zero Hedge:

• China's "S&P" Limit Up 10%, Banks Plunge 5% As Xinhua Confirms "Stock Market Stabilized". (graph)

• China Stocks "Death Cross", Default Risk Hits 2-Year High As Regulators Promise G-20 'Whatever It Takes' To Stabilize Market. (graph)

• Why The New Car Bubble's Days Are Numbered. (graph)

• The Emerging Market Heat Map Is Flashing Red; Here's Who's In Trouble.

• "We Made It Wider!" Hank Paulson Bursts Out Laughing When Asked About Wealth Inequality. (video)

• ESPN: Cutting The Cord Or Political Turn Off?

• This Is What A Short Squeeze Looks Like. (graph)

• Presenting Five Channels Of Contagion From China's Hard Landing.

• The Best And Worst Performing Hedge Funds Of 2015.

• Probably The Most Interesting Chart In The World. (graph)

• When "Virtuous Debt" Turns Ferociously Vicious: The Mother Of All Corporate Margin Calls On Deck. (graph)

• The "Great Unwind" Has Arrived.

Business Insider:

• There's a new political risk looming in Europe.

• Make no mistake — the market might still be crashing.

• Gulf Arab states are being criticized for their 'shameful' response to the refugee crisis.

• The refugee crisis is causing huge political problems for Angela Merkel.

• There are 2 different Europes right now — Germany and France.

• Robots could take trillions of dollars of assets from the Wall Street establishment.

• Xi Jinping is going after his hometown power base.

• Why China's slowdown is a nightmare for commodities, in one chart.

Reuters: 

• Investors buckle up for expected drop in China's forex reserves. Global investors are bracing for data this week that could show a big drop in China's foreign exchange reserves as the central bank steps up its intervention to stabilise the yuan currency after its shock devaluation last month.

Contra Corner:

• Peak Bond Demand——Now Comes The $8 Trillion EM Forex Unwind. 

Financial Times:

• US shale oil industry hit by $30bn outflows. US shale producers reported a cash outflow of more than $30bn in the first half of the year, in a sign of the challenges facing the US’s once-booming industry as the slump in oil prices begins to take effect. The shortfall points to a rise in bankruptcies and restructurings in the US shale oil industry, which has expanded rapidly in the past seven years but has never covered its capital expenditure from its cash flow. Capital spending by listed US independent oil and gas companies exceeded their cash from operations by about $32bn in the six months to June, approaching the deficit of $37.7bn reported for the whole of 2014, according to data from Factset, an information service.

• Capital flight now the big concern for slowing China. In the four quarters to the end of June, such outflows, (which do not include debt repayment) have totalled more than $500bn according to data from Citigroup. China’s mountain of foreign reserves, once around $4tn, are now down to less than $3.7tn and are expected to drop further to $3.3tn by the end of the year, Citi calculates.

Economic Daily News:

• TSMC's Factory Utilization Falls as Demand Slows. TSMC won't utilize 100% of its 8-inch wafer fab capacity in 4Q as demand from non-Apple(AAPL) clients misses expectations, citing people in the semiconductor industry. Utilization of 12-inch wafer plants also declines; with smaller competitors, such as Globalfoundries, starting price cut to grab orders. MediaTek also cuts 3G chip prices to help boost demand.