Thursday, October 29, 2015

Today's Headlines

  • Luxury Market Seen Heading for Weakest Year Since Lehman Crash. The global market for personal luxury goods is heading for its weakest year since 2009 as a combination of stock market turmoil, a strong dollar and a commodity-price rout curb demand. Sales of items such as designer dresses and shoes will rise as little as 1 percent to 253 billion euros ($280 billion) in 2015, according to Bain & Co., which in May forecast growth of 2 percent to 4 percent. The projection, on a basis that excludes currency swings, would be the weakest gain since sales fell 11 percent in the year after Lehman Brothers’ collapse.
  • Bank of China's Profit Slips for First Time Since '09 Crisis. Bank of China Ltd.’s profit fell in the third quarter for the first time since the global financial crisis as the Chinese economy faltered and the lender set aside record provisions for bad loans. Net income slipped 1.5 percent from a year earlier to 40.8 billion yuan ($6.4 billion), the company told Hong Kong’s stock exchange on Thursday. That was less than the 42 billion yuan average estimate of three analysts. China Construction Bank Corp., the nation’s second-largest lender, reported net income of 59.7 billion yuan, compared with analysts’ forecast of 60.3 billion yuan. Weakness in the Chinese economy is capping demand for credit and leading to more soured loans.  
  • PetroChina Profit Plunges to Record Low on Oil Price Rout. PetroChina Co., the country’s biggest oil and gas producer, posted its worst quarterly profit as a plunge in crude prices punished revenue. The company, faced with a “complicated and grim operating environment,” posted net income of 5.2 billion yuan ($818 million), or 0.03 yuan a share, compared with 27.9 billion yuan, or 0.15 yuan, a year earlier, it said in a statement to the Hong Kong stock exchange on Thursday. That compared with the 10.9 billion yuan average of four analyst estimates compiled by Bloomberg and the lowest earnings since 2007, when Bloomberg started compiling quarterly data on the company.
  • The Quantitative Easing Experiment Is Failing. Friday's eurozone inflation figures are expected to show that consumer prices were unchanged in October. Inflation hasn't been at the European Central Bank's 2 percent target since the start of 2013; it's been half that or less for the past two years. So I sympathize when ECB President Mario Draghi says he'll expand the use of non-conventional measures to avert the threat of deflation; but I worry that with no evidence that the patient is responding to treatment, increasing the dosage is pointless.
  • STMicro to Cut Chip Manufacturing After Missing Estimates. STMicroelectronics NV plans to to scale back chip manufacturing as demand weakens in China, putting pressure on Chief Executive Officer Carlo Bozotti to consider a strategic change at Europe’s biggest semiconductor supplier. The shares dropped as much as 8.4 percent in Paris.  
  • Goldman(GS) Says Dollar May Rise to Parity With Euro by Year End. Goldman Sachs Group Inc. sees its long-standing call for the dollar to reach parity with the euro coming true as soon as December as the Federal Reserve and European Central Bank move toward divergent monetary-policy actions. The U.S. central bank emphasized on Wednesday it’ll consider raising interest rates on Dec. 16, a week after the ECB hinted additional stimulus may arrive as soon as its Dec. 3 policy meeting. That’s bringing euro-dollar parity back into focus after the dollar’s ascent stalled at a 12-year high in March.
  • Ruble Falls as Fed Signal Seen Limiting Bank of Russia Rate Cuts. The ruble fell for the third time this week as the U.S. Federal Reserve signaled it may raise interest rates as soon as December, stoking speculation the Bank of Russia will choose to protect its currency by limiting the scale of its own policy easing. Russia’s currency, on course for its worst week since early September, retreated 0.7 percent to 64.385 per dollar by 2:56 p.m. in Moscow. Royal Bank of Scotland Group Plc recommended investors favor the dollar over the ruble before Russian policy makers meet tomorrow to decide on interest rates. Half of the 38 analysts surveyed by Bloomberg, including RBS, are projecting a reduction to the 11 percent benchmark rate. The rest see no change.
  • China Stocks Extend Biggest Retreat in a Month in Hong Kong. Chinese stocks posted their biggest three-day loss in a month in Hong Kong as earnings at some of the nation’s largest companies missed estimates and traders increased bets for a December interest-rate increase in the U.S. The Hang Seng China Enterprises Index dropped 1.1 percent to 10,439.38 at the close, capping a three-day, 2.9 percent retreat. China Life Insurance Co. sank 5.4 percent after reporting lower net income. The Shanghai Composite Index rose 0.4 percent at the close. Around 67 percent of Shanghai-listed companies that have reported third-quarter results so far have trailed analysts’ forecasts, versus 52 percent for the MSCI Emerging Markets Index.
  • Emerging-Market Stocks Drop as Fed Remarks Boost Risk-Off Wagers. Emerging-market stocks fell the most this month and currencies weakened as the odds of the Federal Reserve raising U.S. interest rates before year-end increased and Chinese corporate earnings disappointed investors. The MSCI Emerging Markets Index fell 1.6 percent to 846.28 at 2:12 p.m. in New York.
  • European Stocks Are Little Changed Amid Earnings as Miners Slide. (video) European stocks fluctuated before closing little changed as investors parsed mixed earnings reports, with miners sliding as the increased possibility of a Federal Reserve interest rate rise in December weighed on commodity prices. Deutsche Bank AG and Barclays Plc fell more than 6 percent as earnings disappointed. A gauge tracking resource-related stocks including BHP Billiton Ltd. and Rio Tinto Group slipped the most on the Stoxx Europe 600 Index as Liberum Capital downgraded the two companies to sell, and commodities declined as the Fed’s comments boosted the dollar. Danone, one of the world’s biggest producers of baby formula, climbed 1.5 percent after China said it would abandon its one-child policy. The Stoxx 600 retreated less than 0.1 percent to 375.7 at the close of trading, after earlier falling as much as 0.6 percent and rising 0.4 percent.
  • Russia Oil Production Poised for Record as Industry Defies Slump. Russian oil output is poised to break a post-Soviet record for the fourth time this year as the nation’s producers once again prove themselves resilient to a slump in crude prices. Production of crude and a light oil called condensate is on track to reach 10.77 million barrels a day in October, topping the previous month’s revised figure and setting a record for the second month running, according to Bloomberg estimates based on Energy Ministry data.
  • How A Lone Oil Rig Embodies the Brazil Boom That Never Was. Oil majors had big plans for Brazil, but you can’t tell by looking at the country’s offshore drilling these days. After crude was first struck in the pre-salt formation in the seas off Rio de Janeiro, producers including BP Plc and Total SA were ready to flock to Brazil with billions of dollars in investments. For the country, it appeared to augur an unprecedented era of oil bounty. Nine years later, the promise remains unrealized: Spain’s Repsol SA and China Petrochemical Corp. are the only foreigners operating an offshore drilling rig. So what happened? While the crude-price collapse and an ongoing graft probe are part of the story, Brazilian officials who failed to auction enough exploration licenses and slowed approvals with miles of red tape were also major contributors to the boom that never came to be, according to Joao Carlos de Luca, a member of the IBP lobby representing foreign and domestic producers in Brazil. “Below ground Brazil has spectacular riches, but above ground it wasn’t able to create the adequate rules,” de Luca, said by phone from Rio. “There’s no action in the industry.”
  • Marathon’s Rise Shows Oil Investors Shrug Off Some Dividend Cuts. Investors today are making one thing very clear: they don’t care much about the dividends of shale companies. Marathon Oil Corp., one of the biggest drillers in Texas’s prolific Eagle Ford formation, rose 1.3 percent today after slashing its quarterly dividend by 76 percent to 5 cents a share. It’s the first major producer in shale oil to do so.
  • Japan's Top Steel Mills Slash Profit Forecasts on China Glut. Nippon Steel & Sumitomo Metal Corp. and JFE Holdings Inc. cut their profit forecasts for the year as Japan’s top two steel producers respond to a global supply glut spurred by unprecedented Chinese exports. Japan’s steel companies are battling against falling prices on export markets, as China, which accounts for about half of global output, ships its excess overseas. The chairman of Japan’s Iron and Steel Federation said last week that China’s inability to soak up all the metal it produces due to slowing growth constitutes the biggest risk facing the steel industry. About 40 percent of Nippon Steel’s revenues came from exports last year. 
  • Your Health Plan Will Now Self-Destruct. Ten Obamacare health insurance co-ops have canceled their 2016 plans. When state health insurance marketplaces were created under the Affordable Care Act (ACA), the Obama administration was worried there wouldn’t be enough competition to keep premiums low. So it loaned $2.4 billion to establish 23 nonprofit health insurers known as consumer operated and oriented plans, or co-ops. Although the co-ops struggled in their first two years, most were still expected to offer plans for 2016 when the marketplaces open for enrollment on Nov. 1. Turns out, many won’t. Ten co-ops have folded this year after state regulators stopped them from offering plans, because of weak balance sheets. Seven have closed just since the end of September, the most recent on Oct. 27. That’s left more than 500,000 people to find new coverage, some in rural areas that now have only a single ACA provider. Co-ops in New York, Oregon, Colorado, and elsewhere are also at risk of defaulting on their federal loans.
  • Fed's Disaster Plan Is Bitter Pill for Debt-Averse Wells Fargo(WFC). Wells Fargo & Co. Chief Executive Officer John Stumpf is about to get what he doesn’t want. The Federal Reserve plans to propose a rule Friday that would force the largest U.S. banks to hold enough long-term debt that could be converted into stock in case of disaster. Most of them have little cause to worry because they’ve been building up piles of debt for years. But Wells Fargo is bracing to take the biggest hit since it has funded itself mainly through deposits. Stumpf, whose bank withstood the 2008 financial crisis better than its Wall Street rivals, says "the last thing I need is debt."
Wall Street Journal:
  • Oil Will Struggle to Break Past $60 a Barrel in 2016. Continued supply glut will continue to suppress prices, investment banks say. Oil prices will struggle to break past $60 a barrel next year as they extend a year-long slump on continued worries over a global crude glut, major investment banks say. While U.S. shale oil production, a driving factor in that glut, has started to fall, heavyweight producers like Saudi Arabia and Russia are still pumping at near-record...
Fox News:
  • Ryan succeeds Boehner as speaker, seeks to fix 'broken' House. (video) Republican Rep. Paul Ryan succeeded retiring John Boehner as House speaker on Thursday, appealing for unity and "understanding" as he embarks on the tough task of trying to heal deep divisions in the party and the chamber itself. As he took the gavel after easily winning election on the floor, the Wisconsin congressman declared "the House is broken" and called for a fresh start. "We're not solving problems, we're adding to them," Ryan said, declaring that going forward: "We are not settling scores. We are wiping the slate clean."
  • This index signaled the 2000 and 2007 crashes—and it's falling again. (video) Stocks with big buyback programs are struggling this year, and according to one technician, a similar lag has previously preceded two market crashes. Out of the nine S&P 500 companies with the biggest buyback programs, four are down in stock price over the last year. Exxon Mobil, IBM, 21st Century Fox and Merck are all negative for the year, and Oracle and Intel are fighting to hold onto incremental gains.
  • Joe Scarborough Rips Sister Network CNBC’s ‘Horrible Debate,’ John Harwood’s ‘Embarrassing’ Question. Joe Scarborough didn’t mince words on Thursday about sister network CNBC’s “horrible” GOP debate, and named names when it came to moderators who fell short. “The first question was just absolutely embarrassing,” Scarborough said about CNBC’s co-moderator John Harwood asking Donald Trump if he was running a “comic book” campaign. Scarborough railed at the treatment Republicans continue to receive from debate moderators. The Morning Joe host concluded, “It was just a terrible debate, one of the worst.”
Zero Hedge
  • Eventually The Weight Becomes Too Much To Bear. (graph) The “equal-weight” S&P 500 has dropped to near 3-year lows versus the cap-weighted version. Previous such events under similar conditions occurred at inauspicious times.
  • Rubio Slams CNBC Debate Moderators for Trying to ‘Embarrass’ GOP. (video) During an appearance on Fox & Friends Thursday morning, Senator Marco Rubio slammed CNBC’s Republican presidential debate, specifically the moderators who “can't wait for their chance to show off in front of their buddies by asking some question they think is going to embarrass, especially Republicans.” Everyone was ready to talk about trade policy and the debt and tax policies, and we were ready for that. Everybody was. And then you get questions like the ones everybody got. Which were clearly designed to either get us to fight against each other, or to say something embarrassing about each other -- about us, and then ask us to react.
ABC News:
  • CNBC Debate Moderators Face Backlash After 3rd GOP Presidential Debate. New Jersey Gov. Chris Christie also pounced after former Florida Gov. Jeb Bush was asked about fantasy sports and gambling. “Are we really talking about getting government involved in fantasy football?” Christie asked. “Wait a second, we have $19 trillion in debt, people out of work, we have ISIS and Al Qaeda attacking us and we're talking about fantasy football? Can we stop?
Financial Times:
  • Schneider Electric lowers FY revenue forecast. Slowing growth in China is making life difficult for Schneider Electric while the euro's recent appreciation against a number of currencies (before the European Central Bank's dovish comments last week pushed it lower) is doing nothing to help the French heavyweight, which is often considered a bellwether of European industry.
Passauer Neue Presse:
  • Decline in German exports to China follows 11% rise last year, DIHK chief Eric Schweitzer said. Germany especially hard hit by slowing investment in China and spill-over effect on other Asian markets.

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