Monday, October 05, 2015

Today's Headlines

  • Fortress Says Bear Market for Emerging Economies to Rival 1997. Fortress Investment Group LLC told investors that the emerging markets are at a beginning of a bear market that could rival the Asian financial crisis of 1997. The sell-off in emerging markets, which began in June, has led to a credit contraction that will last until at least March 2017, according to a letter to investors in Fortress Convex Asia Fund Ltd., signed by Singapore-based Chief Investment Officer David Dredge, and fund co-managers Nicholas Heaney and Andy Wong. Fortress said it used past economic cycles as a guide in evaluating the current market.
  • Emerging Market ETF Outflows Double as Losses Hit $12.4 Billion. Outflows from U.S. exchange-traded funds that invest in emerging markets more than doubled last week, with redemptions exceeding $12 billion in the third quarter. Taiwan led the losses in the five days ended Oct. 2. Withdrawals from emerging-market ETFs that invest across developing nations as well as those that target specific countries totaled $566.1 million compared with outflows of $262.1 million in the previous week, according to data compiled by Bloomberg. Stock funds lost $483.5 million and bond funds declined by $82.5 million.
  • Traders Stung by VW, Glencore See More Pain for European Stocks. Investors don’t need proof that 2015 is a rough year for stocks. In Europe, traders are preparing for it to get worse. Causes of pessimism include doubts about China’s economy, confusion about Federal Reserve policy, weak corporate profits, and, just last week, a shocking miss in U.S. jobs data. The back-breaker for European investors? A German car company scandal of global proportions, combined with unprecedented turmoil in a certain mining firm. It all triggered a record $462 million in weekly outflows from an exchange-traded fund tracking European stocks after months of inflows. In the options market, the volume of contracts hedging against losses last month jumped to its highest level in more than a year relative to bullish wagers.
  • Standard Chartered Most at Risk From Commodities, Bernstein Says. Standard Chartered Plc has the greatest exposure to commodity traders among European banks, according to an analysis by Sanford C. Bernstein, with $1.9 billion of syndicated loans as concern spreads about the industry’s debt load and prices plunge. Analysts led by Chirantan Barua estimate Standard Chartered has more than $1 billion of loans and credit lines to oil trader Trafigura Pte Ltd., whereas Credit Agricole AG has the largest exposure of any bank, $841 million, to Glencore Plc, which has seen its stock plummet 63 percent this year. Societe Generale SA has made $1.8 billion of loans to natural-resource traders, the second-most in Europe, Bernstein estimates. Bernstein said it used the level of syndicated loans to the companies, which is publicly known, to estimate total debt including undisclosed bank loans, based on historical trends. 
  • Google(GOOG) to Apple(AAPL) Could See Tax Loopholes Curbed in OECD Proposal. The world’s top body for economic coordination unveiled its blueprint Monday for cracking down on international tax avoidance, an opening salvo in what promises to be a prolonged battle between countries and companies over who gets taxed and where. 
  • European Stocks Jump Most Since August as Glencore Surges 21%. A rally in commodity producers pushed European stocks for their biggest gains since August. The Stoxx Europe 600 Index advanced 3 percent at the close of trading in London. Glencore Plc jumped 21 percent, the most since its 2011 initial public offering, after soaring as much as 72 percent in Hong Kong trading as analysts said the concerns around the commodities company’s solvency are unjustified. The London shares have regained two-thirds of their value since last week’s record low. Energy producers had their biggest five-day rally since 2009, up 12 percent.
  • The bottom hasn't been hit in commodity prices. It's hard not to notice that commodity prices have been plummeting. It seems the price of everything that is grown in or pulled from the ground -- from oil and gas to sugar and copper -- has declined 46 percent since early 2011, causing bankruptcies and industry consolidation. Prepare for further big declines. Directly or indirectly, developed countries consume most commodities. Yet economic growth and demand for commodity-based products remain weak as North America and Europe continue to unwind their financial excesses. The earlier rapid expansion of debt, which helped fuel robust growth, is being reversed.  
  • JPMorgan Says `Waves of Protectionism' Will Cap China Steel. Steel exports from China will probably peak in 2015 as the doubling of shipments over the past two years spurred a wave of protectionism around the world, according to JPMorgan Chase & Co. Net exports from the top producer will plateau at about 90 million metric tons a year, with gross shipments seen at about 105 million tons, JPMorgan said in a report. China’s shipments of steel ballooned to a record this year as mills confronting shrinking domestic demand and slowing economic growth are seeking increased overseas sales, driving down global prices and spurring trade tensions from the U.S. to India and Africa. Steel demand in China will shrink 4 percent this year and 2 percent in 2016, JPMorgan said. 
  • One Chart That Shows the Federal Reserve Is Losing Credibility. (graph) The markets don't believe a 2015 hike is coming.  
  • Fed Rate-Increase Odds Drop to 10% for October, Futures Show. The bond market shows traders see only a 10 percent chance the Federal Reserve will raise interest rates at its Oct. 27-28 meeting following weaker-than-expected employment growth. Treasury 10-year notes ended five days of gains Monday as stocks advanced. The yield climbed from the lowest level in almost six weeks reached on Oct. 2. Mohamed A. El-Erian said the odds of a Fed liftoff are 50 percent for the following session Dec. 15-16, while analysts at Societe Generale SA said Federal Open Market Committee officials won’t move until March. The odds of a Fed rate increase were about 35 percent at the December meeting, 43 percent at the January session and 57 percent in March, according to futures data compiled by Bloomberg. The odds for a boost by the October meeting were 18 percent on Oct. 1. 
  • A Core Tenet of How Central Bank Stimulus Supports Growth Doesn't Fit the Data, According to Deutsche Bank. Lower rates actually hurt consumers.
  • Homes as ATMs: It's starting again. Cash-out refinances jumped 68 percent in the second quarter from a year ago, according to Black Knight Financial Services. This is the highest volume of this type of refinance in five years.
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