Tuesday, January 12, 2016

Today's Headlines

  • Yuan Borrowing Rate Surges in Hong Kong: What You Need to Know. (video) Hong Kong Interbank Offered Rates for yuan loans jumped by records to all-time highs across all tenors Tuesday as intervention by China to support its exchange rate tightened the currency’s supply in the offshore market. Here’s what you need to know about the surge:
  • Chinese Options Signal Stocks Not Yet Out of the Woods: AnalysisChina equity option term structures have aggressively inverted over the past week and implied volatilities are edging closer to peaks seen during August rout, as yuan devaluation roils global markets, Bloomberg strategist Tanvir Sandhu writes.
  • Hong Kong Developer `Price War' May Speed Property Correction. Hong Kong property prices could fall 3 percent per month during the first quarter, driven by a “price war” between developers as they offer discounts to move a rising supply of homes, CLSA Ltd. said in a report. CLSA expects a correction of 8 percent in the first quarter, accelerating from a previous estimate of a 2 percent decline. CLSA said the price declines will mostly come in the first part of the year and left unchanged its forecast of a 10 percent decline for all of 2016. The home price drops may prompt a response from Hong Kong policymakers, according to the report.
  • Yen Bearing Brunt of Yuan Drop Seen Hurting Japan Tourism: Chart. (graph) The yen’s climb against the yuan as China weakens its currency to spur growth hurts Japan’s tourism industry, says SMBC Nikko Securities Inc. “The yen is getting the biggest brunt because it’s been the weakest among other currencies against the yuan,” said Junichi Makino, chief economist at SMBC Nikko in Tokyo. “When the yen strengthens, Chinese visitors will spend less even if their number remains the same. Inbound consumption will definitely decline.” The yen has surged 12 percent against the yuan since August when China surprised the global markets by devaluing its currency, more than twice as much the U.S. dollar’s appreciation.
  • Saudi Debt Risk on Par With Junk-Rated Portugal as Oil Slides. Investors wanting to take out insurance on Saudi Arabia’s debt have to pay as much as they would for Portugal, a nation still saddled with a junk credit-rating five years after an international bailout. The cost of insuring the kingdom’s debt more than doubled in the past 12 months to a 190 basis points, or $190,000 annually to insure $10 million of the country’s debt for five years, as of 4:14 p.m. in Riyadh, the highest since April 2009, according to CMA prices compiled by Bloomberg. That’s almost identical to contracts linked to debt from Portugal, whose rating is seven levels below Saudi Arabia’s Aa3 investment grade at Moody’s Investors Service.
  • U.K. Industrial Output Plunges Most in Almost Three Years. U.K. industrial production fell the most in almost three years in November as warmer-than-usual weather reduced energy demand. Output dropped 0.7 percent from the previous month, with electricity, gas and steam dropping 2.1 percent, the Office for National Statistics said in London on Tuesday. Economists had forecast no growth on the month.
  • Frontier Status Suddenly Looms for Latin America's Best Economy. For more than a decade, Peru has been a rising star of emerging economies, with fast growth, declining public debt and healthy expansion of its international reserves. It has been widely viewed as one of the  most credit worthy states in Latin America. When the commodities bust hit, Peru, like its neighbors, took it on the chin. Government budgets were sliced, unemployment rose, exports suffered. But something else was happening and no one reacted: the number of companies big enough to keep Lima’s stock market in the "emerging" category was falling dangerously. Four years ago, there were close to a dozen; now there are barely three.
  • India Stocks Drop to 19-Month Low as Global Funds Sell. Indian stocks extended losses from a 19-month low, tracking declines in Asian equities, as lenders retreated after IndusInd Bank Ltd. and Federal Bank Ltd. reported increases in bad loans. IndusInd tumbled to a two-month low and Federal Bank slid to its lowest price since May 2014. State Bank of India fell for a seventh day, the longest run of losses since February, while Axis Bank Ltd. was the worst performer on the S&P BSE Sensex. Tata Consultancy Services Ltd., India’s top software exporter, decreased to five-week low before it kicks off the quarterly earnings season. The Sensex slid 0.6 percent to the lowest close since May 2014.
  • European Shares Rebound From Four-Day Rout as Carmakers Rally. (video) A rally in carmakers pushed European stocks to their best performance of the year as investors assessed valuations following a four-day losing streak. Auto-related companies rose the most on the Stoxx Europe 600 Index after an industry association forecast an acceleration in Chinese sales in 2016. Energy stocks reversed gains, falling after oil retreated toward a 12-year low. Declines of more than 2.6 percent each in Rio Tinto Group and BHP Billiton dragged a gauge of miners to its lowest level since July 2003 as commodity prices slipped. The Stoxx 600 rose 0.9 percent to 343.22 at the close of trading, paring an earlier advance of as much as 1.9 percent
  • Crude Falls Below $30 a Barrel for First Time in 12 Years. Oil dropped below $30 a barrel in New York for the first time in 12 years on concern that turmoil in China’s markets will curb fuel demand. West Texas Intermediate crude tumbled to the lowest since December 2003. Concerns that China’s economic growth may slow has soured investors on the prospects for a quick recovery, turning hedge funds the least bullish in five years. A rapid appreciation of the U.S. dollar may send Brent oil to as low as $20 a barrel, Morgan Stanley said.
  • Copper Sags to Six-Year Low as Barclays Cuts Forecasts on China. Copper fell to the lowest since 2009 as Barclays Plc cut its price forecast and said recent data makes a recovery in the first half less likely in China, the world’s biggest user. Metals have been hammered in 2016 as concerns intensify that China’s economic growth is faltering. The nation’s stock selloff and depreciation of the yuan has roiled global financial markets, and data released Saturday showed inflation in December was about half the government’s 2015 target. Mining companies are suffering as prices slump, with shares of Freeport-McMoRan Inc. on Tuesday reaching the lowest since 2000. Copper futures for March delivery slid 0.4 percent to $1.9645 a pound at 10:49 a.m. on the Comex in New York, after falling to $1.9525 a pound, the lowest since 2009. On the London Metal Exchange, copper, aluminum, zinc and tin fell, while nickel touched the lowest since 2003. Lead gained in London.
  • The Crop Surplus Is Bad News for America’s Farms. The American farm boom is all but over. Farmland values are down from all-time highs. Global surpluses left corn and soybean prices below the cost of production. And the amount of agricultural debt relative to income ballooned to the highest in three decades, just as the Federal Reserve has begun raising interest rates for the first time since 2006.
  • Palladium Drops to 5-Year Low an China Demand Concerns. Palladium slumped to a five-year low as Chinese car sales increased at the slowest pace in three years, adding to concerns about weaker demand in one of the world’s biggest buyers of the metal. Gold also fell. With a faltering economy and turmoil in the stock market hurting consumer confidence, China’s vehicle sales rose 4.7 percent last year, the smallest gain since 2012, China Association of Automobile Manufacturers data show. Palladium futures fell as much as 4.8 percent, while platinum, which is also mainly used in catalytic converters that cut harmful emissions, traded near a seven-year low.
  • Commodity Crash Redux as 2016 Starts Out Worse Than Last Year. Sure, 2015 was bad for commodities. So far, 2016 is even worse. The Bloomberg Commodity Index, a measure of returns for 22 raw materials, has tumbled more than 5 percent in 2016. That’s the worst start to a year since the comparable data begins in 1992. Hedge funds are positioning for more losses, holding the biggest net-short bet across raw materials since at least 2006.
  • SunEdison(SUNE) Falls After Axiom Analyst Raises Concern About DebtSunEdison Inc., the worst-performing clean energy company, fell the most in five days after analyst Gordon Johnson at Axiom Capital Management raised concern about the company’s costly debt restructuring. SunEdison fell 23 percent to $2.58 at 12:36 p.m. in New York, the biggest intraday decline since Jan. 7. The shares have declined 87 percent in the past year, the most on the WilderHill New Energy Global Innovation index of 104 companies.
  • Morgan Stanley(MS) Lowers U.S. 2016 Growth Forecast. (video)
  • Junk Bonds Signal 44% Chance of Recession in 2016, Fridson Says. The junk-bond market is indicating a 44 percent chance of a recession in the U.S. within one year, according to Martin Fridson, a money manager at Lehmann, Livian, Fridson Advisors LLC. “I am not an economic forecaster -- this is what the market is saying," said Fridson, who started his career as a corporate-debt trader in 1976. "There are lots and lots of caveats, but if you accept all of the assumptions, it’s a pretty startling comment."
  • Corporate-Credit Outlook at Worst Since Crisis, S&P Says. The outlook for corporate borrowers worldwide is the worst since the global financial crisis, according to Standard & Poor’s. Potential downgrades at the ratings company exceed possible upgrades by the most since 2009, in percentage terms, according to a Jan. 11 report. The difference widened the most since the financial crisis in the past six months, S&P said. The corporate-debt outlook has darkened, particularly in Latin America, because of slower growth in China and a commodity rout that’s cut prices to the lowest since at least 1991. Company defaults have already risen to the highest since 2009 and investors are demanding the biggest yield in four years to hold junk bonds. There may be “significantly” more ratings downgrades than upgrades in 2016, S&P analysts led by Melbourne-based Terry Chan wrote in the report. S&P is considering cutting ratings at 17 percent of the companies it covers, as of December, the report said. That compares with possible upgrades for 6 percent of issuers. The 11 percentage-point gap is more than double the difference in June 2014, the report said.
  • All That Commercial Lending by Banks Suddenly Isn't Looking so Hot. Commercial and industrial lending, the engine of banks' loan book growth in recent years, is showing signs of cracking, thanks to the dramatic fall in the price of oil and weakness in non-consumer-related things. On Tuesday, Deutsche Bank analysts cautioned that losses on C&I portfolios could end up as high as 90 basis points in 2016, more than the 20bps loss-rate currently expected by the Wall Street bank, and far more than the 15bps loss rate reported for last year. "Credit concerns are rising given continued pressure on oil prices (and commodities more broadly) as well as mixed U.S. economic data. If credit does weaken more than expected, many think it will show up in C&I given strong growth (+57 percent at large banks since 2010 vs. total loans +30 percent), loosening of underwriting standards and the  risk liquidity declines for certain borrowers," Deutsche Bank analysts led by Matt O'Connor said in a note published on Tuesday.
  • Fed to Lift Rates in 2016 More Than Markets Price In, Posen Says. The Federal Reserve will raise interest rates more this year than investors currently are pricing in, according to Peterson Institute for International Economics President Adam Posen, a former Bank of England policy maker. “You should trust the Fed, not the markets,” Posen told Tom Keene and Francine Lacqua on Bloomberg Television on Tuesday. “I think the market is under-pricing the likelihood of both a March rise and the number of rises in the year to come.”
  • Gundlach Called Oil and Junk in 2015. What Will He Predict for 2016?
Fox News:
  • Hillary Clinton comes out against deportation raids in break with Obama. Democratic presidential front-runner Hillary Clinton joined her rivals Monday in opposing the Obama administration's deportation raids targeting Central American immigrants who entered the U.S. illegally and ignored deportation orders. Speaking at a forum aimed at young and minority voters in Iowa, Clinton said the raids had "sown fear and division in immigrant communities across the country. People are afraid to go to work. They are afraid to send their kids to school. They are afraid to go to the hospital, or even the grocery store."
Zero Hedge:
Business Insider:
  • Ex-politician John Edwards among lawyers vying for lead role in Volkswagen suit. Among the more than 140 plaintiffs' lawyers competing to lead private litigation against Volkswagen over its emissions cheating scandal is former U.S. Senator and Democratic Vice-Presidential candidate John Edwards. Edwards, who was a trial lawyer in North Carolina before his political career was felled by a sex scandal, sent a letter to U.S. District Judge Charles Breyer of San Francisco last Friday, asking to be appointed to the powerful plaintiffs' steering committee.

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