Friday, October 16, 2015

Today's Headlines

  • Nestle, Burberry Show How Era of Easy Growth in China Is Over. (video) Whether they sell tea or trenchcoats, consumer-goods companies can no longer count on easy business in China, where success now requires a more nimble approach. Sluggish Chinese sales hurt Nestle SA, Hugo Boss AG and Burberry Group Plc, which all reported disappointing quarterly revenue this week. With China set to disclose its slowest economic growth since 2009 next week, European companies are searching for demand via new avenues. Nestle and France’s Danone now cater to Chinese mothers who forgo locally produced baby formula and order it from abroad via Internet sites. Chinese luxury aficionados are traveling to Japan to buy TAG Heuer timepieces and Louis Vuitton handbags at better exchange rates. German retailer Metro AG has struck a deal with a local partner, picking Alibaba Group Holding Ltd. to let Chinese consumers snap up German brands of coffee and cookies over the Web. Consumer companies “need to be flexible to meet where the market is going,” said James Roy, associate principal at China Market Research Group. “The era of everybody buying the same big-name, signature items is going away.”
  • Will China See Its 'Minsky Moment?' (video)
  • China Liquidity Trap Deters Funds as Debt Trade Fraction of U.S. China’s efforts to open its $5.9 trillion onshore bond market are being hampered by secondary trading that’s less than a quarter of levels seen in the U.S., making global funds wary of being trapped in riskier bonds. While the market is the world’s third-largest, annual trading as a ratio of total outstanding debt is 1.1, compared with 4.7 in the U.S., Bloomberg calculations based on official data show. Overseas investors currently hold just 2 percent of onshore notes, with 82 percent of their money limited to sovereign and policy bank securities, according to China Central Depository & Clearing Co. Overseas investors are focusing mainly on issuers that are likely to be bailed out in the event of a crisis, and show little confidence in the ability of domestic rating companies to warn them of defaults ahead of time. Baoding Tianwei Group Co., the first state-owned company to renege on a domestic bond in April, was rated investment grade by China Lianhe Credit Rating Co. less than five months before the failure. The number of upgrades handed out by three of the largest rankers was four times that of downgrades this year, even as the economy grows at the slowest pace since 1990.  
  • PBOC Data Suggest Capital Outflows Stayed Strong in September. Chinese financial institutions including the central bank sold a record amount of foreign exchange in September, a sign capital outflows were more severe last month than was previously thought. The offshore yuan fell to a two-week low. A gauge of their foreign-currency assets declined by the equivalent of 761.3 billion yuan ($120 billion), exceeding an August drop of 723.8 billion yuan, People’s Bank of China data showed Friday. China devalued its currency on Aug. 11 and concerns about further depreciation and slowing economic growth, coupled with the prospect of a U.S. interest-rate increase, are spurring outflows of funds.
  • Chinese Firms Seen Dodging Defaults in Coming Days in Turnaround. A Chinese sausage maker is set to avoid a default in a turnaround, and the authorities were said to have stepped in to help a state-owned steel trader facing a bond deadline next week. The National Development and Reform Commission will hold a meeting with investors in government-controlled Sinosteel Co.’s 2 billion yuan ($315 million) of 2017 securities who have an option to sell them back on Oct. 20., people familiar with the matter said. The NDRC will ask them not to do so, according to one of the people. Parent Sinosteel Corp. sent a letter to noteholders pleading with them to not sell the bonds back as Sinosteel would be unable to repay, the people said. “Investors may not be able to see the real credit risks in the bond market because of the aversions of defaults,” said Ji Weijie, a bond analyst at China Securities Co. in Beijing. “The NDRC’s intervention means Sinosteel may really avoid such a default. It’s reasonable for regulators to step in because the fall of a state-owned company would have an impact on employment."
  • Nestle Reduces Sales Outlook Amid Weakness in Chinese Market. Nestle SA said it will fall short of its long-term growth target for a third consecutive year amid weakness in China, highlighting the volatile conditions in emerging markets that continue to weigh on European consumer-product companies and retailers alike. Sales will probably rise about 4.5 percent on an organic basis in 2015, the Vevey, Switzerland-based maker of Nespresso coffee said Friday, abandoning a previous forecast of about 5 percent. Nine-month revenue advanced 4.2 percent, missing analysts’ estimates, as a recall of Maggi noodles also eroded sales in Asia. The stock made its steepest intraday decline in almost two months.  
  • Emerging Nations Trimming $5 Trillion Debt Stokes Currency Risk. Borrowers in emerging markets have started to address a $5 trillion mountain of dollar-denominated bonds and loans, reducing their obligations for the first time in seven years in a move that threatens to cut short a budding rally in currencies from Brazil to Malaysia. Companies in developing nations paid back $38 billion of dollar debt last quarter, $3 billion more than they borrowed in the period and marking the first reduction in net issuance since 2008, according to data compiled by Bloomberg. Demand for greenbacks among borrowers needing the currency to repay debt is contributing to the largest capital outflows in almost three decades. The borrowing binge, which took off in the wake of the global financial crisis as interest rates tumbled, may now be reversing as economic growth slows, commodity prices fall and lenders demand higher yields. While developing-nation currencies are rebounding from their record lows, analysts surveyed by Bloomberg expect the depreciation trend to resume as dollar debt repayments accelerate. “This is a massive event,” said Stephen Jen, the co-founder of London-based hedge fund SLJ Macro Partners LLP and a former economist at the International Monetary Fund whose bearish call on emerging markets since 2012 has proven prescient. “They want to pay down their dollar loans. We are early in the game, there’s pretty intense pressure on emerging markets.” 
  • Lira, Ruble Traders Get Reminder of How Fast Sentiment Can Sour. In the space of a few minutes, investors in the Turkish lira and Russian ruble got a reminder about how quickly bullish sentiment can sour. As Turkey’s military said it shot down an unidentified aircraft on the Syrian border on Friday, the lira slid to a session low of 2.9106 per dollar, down 1.1 percent. Traders worried it may have been a Russian jet helped send the ruble down as much as 1.2 percent.
  • European Stocks Advance for Second Day, Erasing Weekly Decline. Positive sentiment in Europe’s equity market dominated for a second day on confidence that central-bank stimulus will continue to support the global economy. The Stoxx Europe 600 Index rose 0.6 percent at the close of trading in London and rallied as much as 1 percent. Health-care, insurer and bank shares climbed the most. The gauge ended the week up 0.1 percent.
  • Moody's Sounds Alarm on Russian Fiscal Woes Draining Buffers. The pillar of Russian creditworthiness is looking more rickety by the day to Moody’s Investors Service. “What once has been the country’s strongest asset, which was the government’s very strong financial position, is now under significant pressure,” Kristin Lindow, senior vice president at the credit-ratings company, said Wednesday in an interview in Moscow. “It doesn’t have a lot of debt, but it also is actively depleting its saving buffers, with very littleprospect in the medium term of rebuilding them.”
  • Unnerved Investors Pull Shutters as Capital-Market Cracks Spread. Investors around the world are running away from almost anything smacking of risk in capital markets. Sales in the U.S. junk-bond market have stalled, Chinese lenders are bracing for a new bout of defaults, and initial public offerings -- from First Data Corp. to Albertsons Cos. -- have been marred by investors uneasy about opening up their wallets. Blaming adverse conditions, Petroleo Brasileiro SA, the world’s biggest junk-rated borrower, canceled plans for its first local-currency bond sale in 15 years. The cautiousness among investors stems from worries over global growth, spurred by a slowdown in China’s economy. 
  • Brazil Stocks Lead Weekly Losses as Goldman Sachs Sees Headwinds. Brazil’s stocks led world losses this week, missing out on a rally in emerging markets, as Goldman Sachs Group Inc. predicted Latin America’s largest economy will face more challenges. The shares swung between gains and losses on Friday after the New York-based bank said Brazil will continue to face strong headwinds from high borrowing costs, political turmoil and a drop in consumer and corporate confidence. The economy contracted more than forecast in August as policy makers keep interest rates at a nine-year high to combat above-target inflation. The benchmark equity gauge has plunged 19 percent from this year’s peak in May as President Dilma Rousseff struggles to revive an economy poised for the longest recession since the 1930s amid a widening corruption scandal.
  • Hillary Clinton Is Winning the Race for Wall Street’s White House Cash. Hillary Clinton has said she’d prefer to find other ways to regulate the banks besides breaking them up. Wall Street donors are showing their appreciation. The Democrat’s campaign is collecting more cash from employees of the six biggest U.S. banks than any other presidential candidate, adding more than $155,000 last quarter to more than $300,000 from earlier this year. She beat Republican rival Jeb Bush, who got at least $390,000 from the bankers over the last two quarters, even though he worked among them last decade. Clinton offers at least one major reason for Wall Street to get behind her, proposing tweaks to the financial system while other Democrats call for breaking up the biggest firms.
Wall Street Journal:
  • Murky Data Add to China’s Housing Headache. Glut in China’s property market is worse than official data show, creating a drag on economic growth. Lacking only façade work, wiring and paint, the red-brick duplexes lining a remote street in the Chinese port city of Qingdao could, if required, hit the market in a matter of days. That presents a problem for China and the world.
Zero Hedge:
NY Times:
  • 14 Years After U.S. Invasion, the Taliban Are Back in Control of Large Parts of Afghanistan. The Taliban have a significant footprint in Afghanistan, according to Bill Roggio, the editor of The Long War Journal, an online publication that is tracking Taliban control. Mr. Roggio has confirmed that about one-fifth of the country is controlled or contested by the Taliban, but based on his understanding of how the Taliban operate, he said, “they probably either control or heavily influence about a half of the country.

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