Monday, November 02, 2015

Today's Headlines

  • China Financial Crackdown Intensifies as Funds, Banks Targeted. China’s crackdown on its financial industry is intensifying as authorities investigate strategies blamed for exacerbating a $5 trillion stock-market rout. Shanghai police raided hedge fund Zexi Investment on Sunday, taking away computers and other materials, according to a person familiar with the matter. General manager Xu Xiang was detained, the official Xinhua news agency reported. Executives at Yishidun International Trading and Huaxin Futures were arrested, Xinhua said in a separate report.
  • Agricultural Bank President Said Taken Away to Assist With Probe. Agricultural Bank of China Ltd. President Zhang Yun was taken away to assist authorities with an investigation, people familiar with the matter said. The people, who asked not to be identified, didn’t give details on who is conducting the probe or what it’s related to. Assisting with an investigation doesn’t mean Zhang is accused of wrongdoing. The Communist Party’s Central Commission for Discipline Inspection is carrying out its first broad checks on the finance industry since President Xi Jinping became the party’s head in November 2012. The summer’s stock-market rout in China has triggered investigations that have snared executives from the country’s biggest securities firm as well as a star fund manager and a top regulatory official.
  • Can We Trust China's Economic Data? (video)
  • China Tells Eager Parents to Hold Off on the Baby-Making for Now. China ordered local family planning agencies to keep enforcing the country’s one-child policy, undercutting one province’s plans to start letting parents expand their families now, state media said. The policy, which the ruling Communist Party abandoned Thursday after 36 years, would remain the law until legislators amend it this spring, the Beijing News reported Sunday, citing a statement by the National Health and Family Planning Commission. Until then, local authorities shouldn’t "willfully" enact their own versions of the new two-child limit prescribed by party leaders, the health ministry said.
  • Emerging-Market ETF Flows Break Longest Winning Streak Since May. Investors pulled money out of U.S. exchange-traded funds that invest in emerging markets last week for the first time since early October, ending the longest winning streak for the ETFs since May. Redemptions from emerging-market ETFs that invest across developing nations as well as those that target specific countries totaled $91.3 million compared with inflows of $1.1 billion in the previous week and $2.58 billion in the past three periods, according to data compiled by Bloomberg. Almost all the losses came from bond funds, with stock ETFs declining by less than $1 million. The MSCI Emerging Markets Index fell 2.4 percent in the week. The biggest change was in Mexico, where funds shrank by $87.7 million, compared with $37.3 million of inflows the previous week. Investors withdrew $82.1 million from stock funds and $5.7 million from bonds.
  • Money Flooding Out of Canada at Fastest Pace in Developed World. Money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver. Canada’s basic balance -- a measure of national accounts that spans everything from trade to financial-market flows -- swung from a surplus of 4.2 percent of gross domestic product to a deficit of 7.9 percent in the 12 months ending in June, according to analysis from Kamal Sharma, a foreign-exchange strategist at Bank of America Merrill Lynch. That’s the fastest one-year deterioration among 10 major developed nations.
  • China Stocks Fall for Second Day on Manufacturing Data, Probes. China’s stocks fell for a second day after official data showed manufacturing contracted for a third month and authorities detained a top-performing hedge-fund manager in widening probes into market manipulation and insider trading. The Shanghai Composite Index dropped 1.7 percent to 3,325.08 at the close, while the Hang Seng China Enterprises Index slid 1.5 percent in a fifth day of losses, the longest losing streak in almost two months. PetroChina Co. and Aluminum Corp. of China Ltd. led declines for commodity shares, sliding at least 2.5 percent. Police raided hedge fund Zexi Investment on Sunday, according to a person familiar with the matter. The 26 companies that Zexi disclosed as a shareholder in the past 12 months fell by an average of 4.5 percent on Monday.
  • European Stocks Rise as Euro-Area Manufacturing Beats Estimates. (video) European stocks advanced as better-than-expected manufacturing in the region outweighed disappointing Chinese output data. Commerzbank AG rose 6.6 percent after the German lender said quarterly earnings increased by 25 percent, while Chief Executive Officer Martin Blessing prepares to leave the company. HSBC Holdings Plc fell 0.8 percent as RBC Capital said that the bank’s decline in income will lead analysts to downgrade their estimates. Rio Tinto Group and BHP Billiton Ltd. lost at least 1.4 percent, dragging a gauge of miners to among the worst performers of the 19 industry groups on the Stoxx Europe 600 Index as commodity prices slid. The Stoxx 600 climbed 0.3 percent to 376.75 at the close of trading, reversing a loss of as much as 0.7 percent.
  • No Credit? No Problem as Auto Lender Taps Subprime Bond Appetite. Skopos Financial, a deep-subprime auto finance company based in Irving, Texas, is packaging $154 million of loans made to borrowers with weak credit -- and some without a credit score -- into bonds rated investment grade. More than three-quarters of the loans backing the deal are to borrowers with credit scores under 600 and another 14 percent have no credit score at all, according to a pre-sale report by Kroll Bond Rating Agency. That would place the bulk of the obligations well below what’s typically considered good credit. The offering is the latest prepared by privately backed auto lenders that offload their risk into securities bought by institutional investors. Skopos, which is backed by Lee Equity Partners LLC, the New York-based private equity firm started by Thomas H. Lee, has only been in business since 2012. Small and thinly capitalized lenders with short track records and little history of surviving difficult credit cycles have gained the most attention in recent years, as regulators flag booming loan volumes and looser underwriting standards. Low interest rates spurring an increasing amount of debt have inflated the market for the bonds. Overall outstanding auto debt now exceeds $1 trillion, Federal Reserve Bank of New York data show. 
  • Paul Singer Says Aug. 24 Shows Stock, Bond Markets Are 'Unsound'. Paul Singer, the billionaire founder of $27 billion hedge fund firm Elliott Management, said stock and bond markets are structurally “unsound” as evidenced in recent market volatility. In a wide-ranging letter that warned of the effects from low interest rates, unrest in the Middle East, and leverage in the financial system, Singer, 71, said steep declines and rapid recoveries in financial markets, such as the Aug. 24 stock market slump, and recent flash crashes in bond markets, probably foreshadow the future. “All of the innovations and complexity in the modern world of finance combine in different ingredients at different times with different catalysts to create fragility, not stability,” he wrote in a note to clients dated Oct. 27. “We wonder if the overall impact of financial innovation, including derivatives, structured products, high frequency trading and communication advances, is net negative, albeit with a possibly long delay before the drawbacks become visible.” Singer said Elliott is finding opportunities in activist equity and looking at "potentially interesting" wagers on stressed credit. "We are determined to keep our powder dry for opportunities to come," he wrote. Elliott’s two main funds gained 2.4 percent and 2.8 percent respectively in 2015, after rising 0.2 percent and 0.1 percent in the third quarter, according to the note.
Financial Times:
  • ECB officials met bankers before key decisions. Some of the European Central Bank’s top decision-makers met banks and asset managers days before major policy decisions, and on one occasion just hours before, copies of their diaries reveal. The diaries, which cover meetings of the six members of the ECB’s executive board between August 2014 and August 2015, were given to the Financial Times under Freedom of Information rules and reveal engagements with the private sector, officials and the media.
El Pais:
  • Germany, Spain Clash Over Sovereign Debt Risk. Germany's Bundesbank wants banks to accept that sovereign debt has some risks and introduce a limit to amount banks can hold. Current regulation gives preference to sovereign debt, giving incentives to banks to hold on it for too long, citing Andreas Dombret, member of the Bundesbank management board.

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