Monday, October 12, 2015

Today's Headlines

  • Putin's Bombing of Syria's Moderates Must Stop Now, EU Says. European Union governments demanded Russia stop targeting moderate groups opposed to Syrian President Bashar al-Assad after days of aerial bombardment and cruise-missile attacks. Scrambling to come up with a unified response to Vladimir Putin’s intervention in the crisis, foreign ministers of the EU’s 28 nations demanded Russia bomb only Islamic State extremists and other recognized terrorists or risk extending a civil war that’s already in its fifth year. “The recent Russian military attacks that go beyond” Islamic State and target the moderate Syrian opposition “are of deep concern and must cease immediately,” the foreign ministers said in a statement from their meeting in Luxembourg. “This military escalation risks prolonging the conflict, undermining a political process, aggravating the humanitarian situation and increasing radicalization.” Putin is building up his military presence in Assad’s stronghold on the eastern Mediterranean Sea, has fired cruise missiles from the Caspian Sea and violated Turkish airspace during bombing raids. The air campaign came as a surprise to the U.S. and EU countries, which have been conducting their own bombardments of IS targets.  
  • China Sausage Maker Says May Miss Bond Payment as Defaults Mount. A Chinese sausage maker said it’s not sure if it can repay a bond after its director was put under house arrest, the latest case in China mixing corporate governance and debt problems. Based in the eastern province of Jiangsu, Nanjing Yurun Foods Co. is suffering cash shortages and great risks in its finances and operations, it said in a statement posted on the Chinamoney website. The company, which sold 1.3 billion yuan ($206 million) of bonds at a yield of 5.49 percent in 2012, must repay 1.37 billion yuan in principal and interest due Oct. 18, according to the statement. As that’s a Sunday, the effective due date is the following day, it says. Investors are growing alarmed as slowing economic growth and a fight against corruption compound strains in China’s 42.2 trillion yuan bond market. There have been four defaults this year, including one by China National Erzhong Group Co., according to China International Capital Corp. Kaisa Group Holdings Ltd. became the first Chinese developer to renege on a debt obligation in the offshore bond market in April after founder Kwok Ying Shing resigned amid a corruption probe.
  • Jim Chanos Hints at Glencore Short, Questions Company's Strategy. (video) Glencore Plc bought assets at the top of the market and is now selling at the bottom, said Kynikos Associates LP founder Jim Chanos, hinting that he is short the stock. “We are not going to comment on our position in Glencore, but what I will say is we know the company pretty well,” Chanos said in an interview with Bloomberg Television in New York. “I’m a potential purchaser,” he added. “To close out a short position you have to buy stock.”
  • One Way Emerging Markets Are Shooting Themselves in the Foot. The founder of research firm Ecstrat highlights a structural reason for the underperformance of the asset class. Emerging-market stocks and currencies have taken a beating in 2015, but underperformance in these assets is hardly novel. The MSCI Emerging Market index hit its post-recession peak in 2011 and has been trounced by its developed-market counterpart since 2010. Emerging markets are now abandoning the liberalization of corporate governance regimes in the wake of the financial crisis, he concludes, with several large countries instead regressing and moving to more authoritarian or hierarchical systems that are not friendly to minority shareholders. These backsliders have entered a "vicious cycle," according to Smith, in which poor corporate governance will foster rounds of weakness in both EM economies and currencies.  
  • Pimco's Bear Case Only Gets Stronger as Emerging Currencies Jump. Pacific Investment Management Co. is sticking with its pessimistic outlook on emerging-market currencies, saying the biggest rally in 17 years has only bolstered the case for making bearish wagers. “These currencies look more interesting to be underweight from here than they were a week ago,” Luke Spajic, an emerging markets money manager at Pimco, whose developing-nation currency fund has outperformed 97 percent of peers during the past five years, said in a phone interview on Monday. Pimco, which oversees $1.52 trillion, said in an Oct. 1 report that it had short positions in currencies such as Malaysia’s ringgit, the Thai baht and the South Korean won.
  • Car Industry Sounds Alarm as EU Weighs Tougher Pollution Tests. The European Union auto industry sounded a warning in the push to toughen pollution tests after Volkswagen AG’s diesel-engine deception, saying future EU checks need to be “realistic” so they don’t drive up car prices, weaken sales and cause job losses. The salvo by the European Automobile Manufacturers’ Association comes as EU governments prepare their verdict on the details of an inspection regime penciled in for September 2017 that will gauge emissions of smog-causing nitrogen oxides under real driving conditions as well as in laboratories. The EU, where most cars are powered by diesel, wants new models to be tested on the road because of evidence that real-driving emissions are 400 percent to 500 percent higher than in labs.
  • European Stocks Decline, Ending Best Winning Streak Since July. European stocks fell for the first time in seven days as commodity producers reversed early gains and ended their longest rally since 2000. Glencore Plc slipped 6.2 percent, erasing an advance of 5.2 percent. Kynikos Associates LP founder Jim Chanos hinted that he is short the stock. Rolls-Royce Holdings Plc and Safran SA lost 3.9 percent or more after a report that European regulators have started a probe into whether airlines are being forced to enter anti-competitive service contracts. The Stoxx Europe 600 Index lost 0.3 percent to 361.79 at the close of trading, erasing an intraday gain of as much as 0.3 percent.
  • Iron Ore Seen Weaker as BHP, Rio `Squeeze Out' High-Cost Miners. Iron ore will extend declines in 2016 on rising low-cost supplies from the world’s largest miners, weak demand growth in China and a stronger dollar, according to BMI Research, while Goldman Sachs Group Inc. repeated a forecast for lower prices. Prices will trade between $50 and $60 a metric ton over the remainder of this year, then drop to a range of $45 and $55 in 2016, BMI said in a report e-mailed Monday. Ore with 62 percent content delivered to Qingdao rose 1.1 percent on Monday to $56.61 a dry ton, according to Metal Bulletin Ltd. Iron ore has dropped 21 percent this year as Rio Tinto Group and BHP Billiton Ltd. in Australia and Brazil’s Vale SA boosted low-cost supplies to increase market share even as demand growth stalled in China. Steel consumption in China was seen shrinking by an average of 1.3 percent annually between this year and 2019, BMI said. “Global iron ore majors will continue to ramp up production to squeeze out higher-cost competitors,” BMI said. “BHP Billiton, Rio Tinto and Vale all reported record output in 2014 and will increase output further in the quarters ahead.”
  • Lockhart Says Improving U.S. Job Market Supports Liftoff in 2015. (video) Federal Reserve Bank of Atlanta President Dennis Lockhart said an improving U.S. job market warrants an interest-rate increase this year, reinforcing the message from other officials in recent days that they remain on track for liftoff in 2015. “We are getting much closer to the finish line from the point of view of whatever you would consider full employment,” Lockhart told reporters Monday after a speech in Orlando, Florida. “I would expect to continue to make progress. So the beginning of normalization of interest rates I think is quite justifiable in the context of continuing progress of multiple measures of employment.
  • Lilly(LLY) Halts Cholesterol Drug, Losing a Potential Blockbuster. (video) Eli Lilly & Co. said it will stop development of evacetrapib, an experimental cholesterol drug with blockbuster potential, because it failed to benefit patients with heart disease. Lilly shares fell 7.1 percent to $80.05 at 9:52 a.m. in New York. The drug’s failure builds on a series of disappointments for medications that inhibit a molecule known as CETP, which results in higher levels of HDL. Also called good cholesterol, HDL is known to ferry fatty lipids out of the arteries. Merck & Co., which is still developing a CETP inhibitor, slid 1.6 percent to $50.11.
Wall Street Journal
Business Insider:
  • Saudis tell Russia its actions in Syria will have 'dangerous consequences'. Moscow's military intervention in Syria will have "dangerous consequences", escalating sectarian war there and inspiring militants from around the world to join in, senior Saudi Arabian officials told Russia's leaders on Sunday, a Saudi source said. The message, twinned with a pledge of support for moderate foes of Syrian President Bashar al-Assad, Russia's ally, signals Saudi suspicions about Moscow's motives in entering a 4-1/2 year war in which some 250,000 people have been killed and some 11 million, or half the population, driven from their homes."The Russian intervention in Syria will engage them in a sectarian war," the source said on Monday, adding that the kingdom "warns of the dangerous consequences of the Russian intervention". "The Saudis will continue strengthening and supporting the moderate opposition in Syria," he added.

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