Wednesday, December 02, 2015

Today's Headlines

Posted by Gary .....at 3:14 PM
Bloomberg:
  • Fitch Warns Emerging Markets of Brazil-Like Mess on Debt. As if political turmoil, commodity-price meltdown and growth hiccups aren’t enough, emerging markets face a threat to their creditworthiness from an entirely different area -- the burgeoning debt of households and companies. Private-sector borrowing as a proportion of gross domestic product will reach 77 percent by the end of this year in seven large developing nations, Fitch Ratings said in a report Wednesday. Such liabilities have exceeded government debt levels, exposing their economies and financial systems to “downside risks,” London-based analysts Ed Parker and James McCormack said. The countries -- Brazil, Russia, India, Indonesia, South Africa, Turkey and Mexico -- are seeing an increase in their private-debt burden in 2015 because of currency depreciation, according to the report. That may weigh on their governments’ credit ratings through weaker GDP growth, worsening budget deficits, pressure on foreign-currency reserves or further exchange-rate fluctuations, Fitch said. “Private-sector debt has often migrated to sovereign balance sheets in past financial crises,” the analysts wrote. “A stress situation could feed through to pressure on sovereign creditworthiness.”
  • China Said to Peg Local Debt Swap Program at 15 Trillion Yuan. China plans to expand the size of its program for addressing high-cost local government debt to about 15 trillion yuan, Finance Minister Lou Jiwei told a closed-door meeting last month, according to a person who attended the gathering. The initiative to swap high-yielding local debt into cheaper municipal bonds is set to run through the end of 2017, Lou said, according to the person, who asked not to be identified because the remarks weren’t public. Officials were previously reported to have approved about 4 trillion yuan for this year. Expanding the effort would help buttress the finances of local governments that are key to implementing infrastructure projects needed to fulfill the leadership’s goals for economic growth. The total cited through 2017 would cover more than half of the 24 trillion yuan of debt local authorities had accumulated as of the end of 2014, according to state news agency Xinhua. "This is another effort to stabilize economic expansion," said Zheng Lingyi, a Beijing-based bond analyst at China Securities Co. The plan would indicate that local government finances are "under heavy pressure," Zheng also said.
  • The Biggest Mexico Bond Default in 20 Years Looms. As far as bond traders are concerned, Empresas ICA SAB’s missed interest payment this week is just a prelude to what’s likely to be the biggest default in Mexico in at least two decades. On Monday, the builder said it will use a 30-day grace period to make a $31 million interest payment on $700 million of its notes. The announcement triggered a tumble in the $1.35 billion of overseas bonds issued by Mexico’s largest construction company, leaving the securities down 73 percent this year.
  • VTech Falls to Lowest Since 2012 After Millions of Kids Hacked. VTech Holdings Ltd. fell to a three-year low after the Hong Kong-based company said hackers who infiltrated its online services gained access to the profiles of more than 6 million children. Almost half of the 4.9 million parent accounts that were accessed belonged to users in the U.S., the maker of children’s electronic toys, smartwatches and computer tablets said in an online post. No credit card information was stolen, the company said. About 6.4 million children’s profiles were accessed, with almost half containing information -- names, gender and birth dates -- from kids in the U.S. “Regretfully our database was not as secure as it should have been,” VTech said in the updated post. “We have appointed data security legal specialists who are in the process of liaising with local authorities.”  
  • World's Top Oil Traders Don't Expect Recovery Any Time Soon. The world’s largest independent oil traders said supplies will overwhelm demand into next year and prices may not rally until 2017, painting a gloomy outlook for energy-rich nations as OPEC gathers to discuss output policy. Their market view indicates that the 12-member group -- and the oil industry as a whole -- will have to endure a much longer slump than the downturn that followed the 2008 financial crisis, when prices recovered within a year. "The stock-build will continue to weigh on the market, with prices unlikely to move beyond the current range until well into 2017," said Chris Bake, a senior executive at Vitol Group, the biggest independent oil trader. Benchmark Brent crude has traded between $43 and $65 a barrel over the past six months. That outlook is echoed by rival trading houses including Trafigura Pte Ltd. and Gunvor Group Ltd. as Saudi Arabia, Iraq, Russia and others pump full-throttle to defend market share. 
  • Is Big Oil the New Big Tobacco? A cartoon circulating on Twitter carries a warning for the oil industry. There’s Joe Camel, retired tobacco spokes-animal, suave as ever in a tuxedo, cigarette dangling from his smiling snout. In his hand, a pack of smokes with a twist -- an Exxon Mobil Corp. logo on the wrapper. “Big Oil: The New Big Tobacco,” reads the caption. Activists have been urging investors for years to pull money out of the fossil-fuel producers blamed for much of the world’s warming. Joe Camel’s new role shows the movement has an even broader target: not just the industry’s money, but its reputation. With envoys gathered in Paris this week for a United Nations summit on climate change, there are signs -- from coal-plant closures to the death of the Keystone XL pipeline -- that the effort is bearing fruit. “That pariah status is growing,” Bill McKibben, a founder of climate advocacy group 350.org, said in an interview. “The fossil-fuel industry remains incredibly strong -- they are super-rich -- but they are not so invincible as they thought they were.”
  • Fed's Lockhart Says Interest-Rate Liftoff Case Is `Compelling'. (video) Federal Reserve Bank of Atlanta President Dennis Lockhart said he favors raising interest rates this month, adding to signs that the central bank will proceed with its first increase since 2006. “Absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling,” Lockhart said Wednesday in Fort Lauderdale, Florida.
  • Credit Suisse Is Now the Most Cautious It's Been on Equities Since 2008. (video) A stock bull turns bear(ish). It's been just a few weeks since Credit Suisse released its 2016 forecast for the S&P 500, and already the bank is downgrading it. "We reduce our weighting in equities to a small overweight, our most bearish strategic stance on the asset class in seven years," Credit Suisse analysts, led by Andrew Garthwaite, said in their 2016 global equity strategy outlook published today. It's a change of stance for Garthwaite, who has long been bullish on stocks, predicting in mid-2013 that the S&P 500 would rise 15 percent to hit 1,900 in 2014 (it did). In fact, and as noted above, it's a tweak to Credit Suisse's most recent call for the index, too. In mid-November, the bank reiterated its previous call for the S&P 500 to reach 2,200 by the middle of next year. But the analysts seem to have since changed their minds and now expect the index to trade at 2,150 both at midyear and at the end of 2016, which would equate to a rise of just over 2 percent from the S&P's current levels. Why the change? The firm sees a few reasons, which it addressed in previous notes but has apparently become more worried about in recent days and weeks. Here are some of the key concerns:
  • Few Takers for Junk Bond Plunge. Sinkholes are popping up in the credit market. Specific junk bonds are simply plummeting in value on little trading. For example, nothing all that obvious triggered a plunge in Syniverse Holdings, whose bonds fell to 39 cents on the dollar Monday, from 84.25 cents less than a month earlier. Debt of Intelsat, United States Steel, SandRidge Energy and Ultra Petroleum all lost about 30 percent last month. Yet looking broadly, there isn’t a financial crisis in developed markets. U.S. stocks are still eking out gains. Companies are still issuing bonds. So why the precipitous drops without warning?
  • Hedge Funds Brace for Redemptions. (video) When BlueCrest Capital Management told investors Tuesday it would no longer oversee money for outsiders, one thing founder Michael Platt didn’t mention was that clients had already pulled billions of dollars this year. Platt, who cited client demands and pressure on fees as a reason for his decision, isn’t alone in feeling the heat from investors. Firms including Och-Ziff Capital Management Group LLC and Mason Capital Management have seen cash flee this year, and others such as Fortress Investment Group LLC’s macro funds business shut down after redemptions and losses.
  • Online Doctor Visits Help Hospital Chain See Patients at Home. Community Health Systems Inc. figures its patients don’t always want to go to one of its almost 200 hospitals when they’re feeling ill. The hospital system has struck a deal with American Well Corp. to offer online doctor visits for patients with colds or other minor ailments. The agreement is the latest piece of Community Health’s strategy to add more ways for its customers to see a physician, in addition to urgent-care clinics and doctors’ offices. “We’ve been seeing that shift, as everyone has, from inpatient care to other points of care,” said Lynn Simon, Community Health’s president of clinical services and chief quality officer. “People are really moving towards convenience and easy access.” Initially, the companies are offering the Web visits in Oklahoma and Washington. They plan to expand them to parts of Arizona and Pennsylvania by the end of March, and to other areas later on.
 Wall Street Journal:
  • Fed’s Yellen Expresses Confidence in U.S. Economy Ahead of December Meeting by Jon Hilsenrath. Fed chief says gains in labor market bolster her confidence that inflation will return to 2%. Federal Reserve Chairwoman Janet Yellen expressed confidence that the U.S. economy is likely to register continued modest growth, falling unemployment and a small pickup in inflation toward the central bank’s 2% target, a sign she is ready to raise short-term interest rates later this month barring a surprise in markets or the economy.
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