Tuesday, December 01, 2015

Today's Headlines

Posted by Gary .....at 3:06 PM
Bloomberg:
  • Goldman Warns of Brazil Depression After GDP Plunges Again. Latin America’s largest economy shrank more than analysts forecast, as rising unemployment and higher inflation sapped domestic demand, pulling the nation deeper into what Goldman Sachs now calls "an outright depression." Gross domestic product in Brazil contracted 1.7 percent in the three months ended in September, after a revised 2.1 percent drop the previous quarter, the national statistics institute said in Rio de Janeiro. That’s worse than all but three estimates from 44 economists surveyed by Bloomberg, whose median forecast was for a 1.2 percent decline. It also marks the first three-quarter contraction since the institute’s series began in 1996, and a seasonally adjusted annual drop of 6.7 percent. “What started as a recession driven by the adjustment needs of an economy that accumulated large macro imbalances is now mutating into an outright economic depression given the deep contraction of domestic demand,” Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., wrote in a report Tuesday. 
  • How Fed Liftoff Could Sink the Last Bastion of Canadian Growth. Beware financial spillovers to the Great White North.  
  • Scotiabank's Soured Oil-and-Gas Loans Jump 72% in Fourth Quarter. Bank of Nova Scotia’s impaired oil-and-gas loans jumped 72 percent over a three-month period as the Toronto-based firm increased lending to the energy industry amid slumping oil prices. Soured loans for oil and gas climbed to C$165 million ($123 million) as of Oct. 31, up from C$96 million at the end of July and C$44 million a year ago, according to financial disclosures released Tuesday. Two Canadian companies previously on Scotiabank’s “watch list” were classified as impaired in the fiscal fourth quarter, adding C$24 million to loan losses for the oil-and-gas category, Chief Financial Officer Sean McGuckin said Tuesday in an interview.
  • Euro to Bear Brunt of Yuan's Inclusion in Reserve-Currency Club. (video) The euro’s worst year in a decade is looking even grimmer after the Chinese yuan’s inclusion in the International Monetary Fund’s basket of reserve currencies. The 19-nation currency’s weighting in the IMF’s Special Drawing Rights basket will drop to 30.93 percent, from 37.4 percent, the organization said Monday. The yuan will join the dollar, euro, pound and yen in the SDR allocation from Oct. 1, 2016, at a 10.92 percent weighting. 
  • Linde Plunges as Lower U.S. Health Pricing Clips Profit Goal. Linde AG dropped the most in almost 17 years after U.S. health-care budget cuts and a fall in industrial demand forced the German gases supplier to reduce earnings targets for the third time in just over a year. Operating profit will be between 4.2 billion euros ($4.4 billion) and 4.5 billion euros in 2017, the Munich-based company said in a statement late Monday. That’s 300 million euros less than the range previously forecast by the supplier of oxygen and nitrogen to metalworkers and hospitals. “This warning comes as a big surprise,” Frankfurt-based Kepler Cheuvreux analyst Martin Roediger wrote in a note to clients Tuesday as he cut his recommendation on the shares to reduce from buy. “The main reasons for the adjustments are substantially changed overall conditions compared to October 2014, when the targets were defined.” The stock dropped as much as 14 percent, the steepest intraday decline since Jan. 4, 1999, and was trading down 13.9 percent to 142.35 euros at 10:46 a.m. in Frankfurt. Rival Air Liquide SA shares fell 3.8 percent in Paris.  
  • Anticipating China’s Slowdown in 2016. (video)
  • Brazil's Real Falls on Worse-Than-Expected Economic Contraction. (video) Brazil’s real followed a rally in emerging markets as prospects for stimulus measures in China, the nation’s top trading partner, overshadowed disappointing data from Latin America’s largest economy.
  • Currency Calm Frays as Fed Threatens Another Storm of Volatility. As the Federal Reserve prepares to raise interest rates that have been near zero for almost seven years, a sense that the currency market is becoming trickier to navigate is spreading. Traders are more wary of a jump in price swings than at any point in the past two years, measures of foreign-exchange volatility show. And demand for the dollar is so strong that the cost of converting euro, sterling and yen payments into the world’s reserve currency via funding markets is close to the highest since at least 2012. 
  • European Shares Fall From 3-Month High After U.S. Manufacturing. (video) European equities closed lower, dropping from a three-month high, after U.S. factory data raised concern that the world’s largest economy may not be strong enough to withstand higher borrowing costs. The Stoxx Europe 600 Index reversed an earlier gain to end the day down 0.3 percent.
  • Vale Reduces Iron Forecast as Spill Adds to Low-Margin Cuts. Vale SA cut its iron-ore output forecast for next year as efforts to limit low-margin operations and a dam spill at a joint venture threaten to close the gap between the Brazilian giant and producers in Australia. The world’s biggest miner of the steel-making ingredient expects to produce 340 million to 350 million metric tons in 2016, it said in a filing Tuesday. That compares with guidance of 376 million tons given a year ago. Vale was expected to forecast 344 million tons, according to the average of three analyst estimates compiled by Bloomberg. 
  • How the Fed Has Backed Themselves Into a Corner. (video)
  • How Fed Skeptics May Cause the Tightening Cycle to Go Faster Than the Market Expects. Warped expectations. If all the Federal Reserve's hopes and dreams for the American economy come true, the tightening cycle won't look anything like what futures markets are pricing in. That's the assertion of Steven Englander, global head of G10 foreign exchange strategy at Citigroup. Market pricing of the central bank's glide path has been warped by a relatively small group of people who think that the Fed is never going to escape the zero lower bound, observes Englander.
  • Under the Hood of Construction Spending Is More Federal Projects. Here’s one key takeaway from the Commerce Department’s report Tuesday on construction spending. The 1 percent gain in October, which exceeded the 0.6 percent median forecast, was broad-based and included the biggest surge in federal outlays since October 2006. U.S. government construction jumped 19.2 percent, the most since October 2006. At $27.6 billion, the value of federal government construction projects was the highest since May 2012. 
  • Gilead(GILD) Plan Kept Up Hepatitis C Drug Prices, Senators Say. Gilead Sciences Inc., whose hepatitis C drugs Harvoni and Sovaldi have sold $13.3 billion in the U.S. during the last year, priced the drugs in order to maintain high list prices instead of to make the treatments widely available, or based on how much it cost to develop them, two U.S. senators said in a report Tuesday. 
  • UnitedHealth(UNH) Says It Should Have Avoided Obamacare Longer. UnitedHealth Group Inc. should have stayed out of Obamacare’s new individual markets longer, the chief executive officer of the biggest U.S. health insurer said Tuesday, after announcing last month that it will take hundreds of millions of dollars in losses related to the business. “It was for us a bad decision,” Hemsley said. “I take accountability for sitting out the exchange market in year one so we could in theory observe, learn and see how the market experience would develop. This was a prudent going-in position. In retrospect, we should have stayed out longer.” 
  • Volkswagen of America November Vehicle Sales Down 24.7%. Volkswagen AG’s namesake brand reported November U.S. sales that fell 25 percent after surprising analysts with a small gain in October. Europe’s largest automaker has been offering generous discounts on gasoline-burning VW models since it stopped selling several diesel-powered vehicles after it was revealed on Sept. 18 that the company used software to evade emission tests.
Zero Hedge:
Business Insider:
StreetInsider.com:
  • Asia Supply Chain Confirms Continued Apple (AAPL) Weakness - Credit Suisse. In an intra-day note on Apple, Credit Suisse analyst Kulbinder Garcha said Asia supply chain confirms continued weakness. "The CS Asia Technology Team has confirmed in their most recent November survey (see note: Asia Feedback: stagnation continues) that the iPhone supply chain orders will be weaker than originally forecast. In our view, the continued weak supply chain news could weigh on Apple shares for the next few weeks/quarters. We continue to believe that with high retention rates, continued installed base growth, and the optionality of a smaller 4-inch iPhone, Apple remains an OP." The firm's Asia team confirmed that Apple has lowered its component orders in November and are now expecting builds of 70-75mn in December and 45-50mn in March (note the March estimate includes as much as 4mn iPhone 6c). The cuts seem to be driven by weak demand for the new iPhone 6s.
Reuters:

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