Tuesday, January 19, 2016

Today's Headlines

  • IMF Cuts Global Growth Forecast to 3.4% in Year of ‘Great Challenges’. (video) The six-year-old global recovery is showing some rust. The International Monetary Fund cut its world growth outlook, as the commodities slump and political gridlock push Brazil deeper into recession, plunging oil prices hobble Mideast crude producers, and the rising dollar curbs U.S. prospects. The global economy will expand 3.4 percent this year, down from a projected 3.6 percent in October, the IMF said Tuesday in a quarterly update to its World Economic Outlook. The Washington-based fund also cut its forecast for growth in 2017 to 3.6 percent, down from 3.8 percent three months ago. The fund’s forecast offers little solace amid a gloomy start to 2016 for financial markets. The Standard & Poor’s 500 Index of stocks is off to its worst start to a year on record, as the plunge in oil prices and tightening U.S. monetary policy drive flight from riskier assets around the world. “This coming year is going to be a year of great challenges and policy makers should be thinking about short-term resilience and the ways they can bolster it, but also about the longer-term growth prospects,” IMF chief economist Maurice Obstfeld said in a fund article accompanying the forecast. The IMF estimates the global economy grew 3.1 percent last year, the weakest pace since the 2009 recession. Growth in emerging markets and developing nations slowed for the fifth straight year.
  • CEOs Downbeat on Global Growth With Just 27% Seeing Acceleration. Chief executive officers have turned pessimistic on global economic growth, according to a new survey by PricewaterhouseCoopers LLC. Released on the eve of the World Economic Forum’s annual meeting in Davos, Switzerland, the poll of 1,409 CEOs from 83 nations found 27 percent expect the economic outlook to improve this year, a fall from 37 percent last year. Twenty-three percent said it will worsen, up from 17 percent in 2015. The survey underscores the gloom surrounding the Davos forum amid a Chinese economic slowdown, sliding commodity prices and a surge in geopolitical concerns from the Middle East to the Korean peninsula. The conference swings into action on Wednesday, with Goldman Sachs Group Inc. CEO Lloyd Blankfein and Mary Barra of General Motors Co. among the 2,500 delegates. “There’s no question that business leaders’ confidence in both the global economy and their own company growth prospects has taken a knock,” Dennis Nally, PwC’s global chairman, said in the report.
  • Sovereign Wealth Funds Are Driving Asset Slump, Jefferies Says. Sovereign wealth funds from energy-producing countries are exacerbating a global market rout by selling off assets to meet their financial commitments amid slumping oil prices, according to Jefferies LLC. The sales mark a new phase for the countries, after they tried boosting oil production and printing currency to make their payments, David Zervos, chief market strategist at New York-based Jefferies, wrote Monday in a note to clients. “We have now entered the phase where the excess savings glut is being replaced with an excess selling glut,” he wrote. As oil prices slid to $30 a barrel, “the asset sales became more aggressive as the true depth of the insolvency issue began to sink in.”
  • Hedge Fund That Called Subprime Crisis Says Yuan Should Fall 50%. Mark Hart, the hedge fund manager whose bets against U.S. subprime mortgages and European sovereign debt proved prescient, said China should weaken its currency by more than 50 percent this year. A one-off devaluation would allow policy makers to “draw a line in the sand” at a more appropriate level for the yuan, easing pressure on China’s foreign-exchange reserves and removing an incentive for capital outflows, according to Hart, who’s been betting against the currency since at least 2011. China should devalue before its $3.3 trillion hoard of reserves shrinks much further, he said, because the country can still convince markets it’s acting from a position of strength.
  • Europe's Refugee Dilemma Eclipses Greek Crisis, Austria Says. The European Union’s refugee emergency is a bigger threat than Greece, Austria’s finance minister said, calling for the bloc’s members to confront the issue with the same tenacity they showed when tackling the economic crisis. “This problem is a bigger problem than Greece, and it’s a problem that will take much longer to solve,” Austrian Finance Minister Hans Joerg Schelling said Tuesday at a conference sponsored by Euromoney in Vienna. “For example on Greece, we  had 21 meetings in one year to solve the problems. I would be happy if the interior ministers would have 21 meetings on the European level to solve the problem of the refugees.”
  • Italy Banks Extend Slump Amid Rising Credit Quality Concerns. Italian banks led by Banca Monte dei Paschi di Siena SpA extended their losing streak to four days on concerns about the lenders’ credit quality as the European Central Bank toughens scrutiny of bad loans. Monte dei Paschi, bailed out twice since 2009, slumped 14.4 percent to a fresh record low in Milan trading, bringing losses this year to 44 percent. Banco Popolare SC fell 6.3 percent, while Banca Popolare dell’Emilia Romagna SC declined 0.4 percent. Europe’s 46-member Stoxx 600 Banks Index increased 0.6 percent after dropping the past three trading sessions. 
  • German Investor Sentiment Falls as China Roils Asset Markets. German investor confidence fell for the first time in three months after a global equity selloff and slumping oil prices prompted concern that a Chinese economic slowdown is dragging on the rest of the world. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, fell to 10.2 in January from 16.1 in December. Economists predicted a decline to 8, according to a Bloomberg survey.
  • Energy Joins Miners as Europe's Riskiest Surpassing Banks: ChartEurope’s biggest oil producers have joined mining companies as the continent’s riskiest investments as the slump in commodities sees them eclipse financial firms, credit default swaps show. Five-year credit default swaps -- the cost of insuring debt against default -- of Europe’s biggest oil companies have surged this year, led by Madrid-based Repsol SA and BP Plc. Among investment-grade companies, oil majors surpassed financial firms as the riskiest in Europe after  mining houses on Jan. 14 as crude dropped 21 percent this year. Anglo American Plc’s credit default swaps lead the materials sector as a rout in the mining industry drives up the risk of debt defaults.
  • Emerging Market ETFs Suffer $2.1 Bln Outflows, Most Since August. Investors pulled more than $2.1 billion out of U.S. exchange traded funds that invest in emerging markets last week, the most since August. China and Hong Kong led the losses. Redemptions from ETFs that invest across developing nations as well as those that target specific countries totaled $2.12 billion in the week ended Jan. 15, compared with $566.7 million of losses in the previous week, according to data compiled by Bloomberg. So far in January, investors have withdrawn $2.69 billion. Stock funds lost $1.89 billion and bond funds declined by $234 million. The MSCI Emerging Markets Index declined 4.2 percent last week. The biggest change was in China and Hong Kong, where funds shrank by $469.7 million, compared with $22.6 million of redemptions the previous week. Investors withdrew $465.7 million from stock funds and $4 million from bonds.
  • Bond Pain in Emerging Markets Nowhere Worse Than in Africa. Emerging-markets bonds may be experiencing the worst start to a year on record but nowhere is the pain greater than in sub-Saharan Africa. The world’s poorest continent accounts for half of the 20 worst-performing dollar bonds issued by developing nations in 2016. It’s also the only region in the world where not one country’s debt has produced a positive return, with African securities falling 5.4 percent this year, compared with the average 1.3 percent loss in emerging markets, the worst first two weeks of a year since Bloomberg began compiling data in 2010.
  • European Stocks Rebound From One-Year Low on China Stimulus Bets. (video) European stocks rose the most in three weeks amid optimism China will act to support its weakening economy. The Stoxx Europe 600 Index climbed 1.3 percent at the close of trading. It rose as much as 2.4 percent earlier after a report showed China’s economy grew at an annual pace that was just shy of a government target, while leaving open the possibility of further stimulus. Europe’s benchmark pared its advance as oil-and-gas producers gave up some gains amid a drop in crude. Concern over a slowdown in the world’s second-biggest economy and deepening oil losses have weighed on investor sentiment this year, dragging the Stoxx 600 down as much as 10 percent to its lowest level since December 2014.
  • IEA Sees Risk of World Drowning in Oil. (video) Global oil markets could “drown in oversupply,” sending prices even lower as demand growth slows and Iran revives exports with the end of sanctions, according to the International Energy Agency. The IEA trimmed 2016 estimates for global oil demand as China’s economic expansion weakens and raised forecasts for supplies outside the Organization of Petroleum Exporting Countries. While non-OPEC supply is set to drop 600,000 barrels a day in 2016, Iran’s comeback could fill that gap by the middle of the year. As a result, world markets may be left with a surplus of 1.5 million barrels a day in the first half. “While the pace of stock-building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in oversupply,” said the Paris-based adviser to industrialized economies. Prices “could go lower.”
  • Iran's Low-Cost Barrels Lure Oil Titans as Crude Slump Deepens. Iran’s return to international markets will spur investment in the Persian Gulf nation’s neglected oil fields as companies from Royal Dutch Shell Plc to Total SA hunt for profitable barrels with crude near a 12-year low. Shell is in “pole position” to rekindle its historically close relationship with Iran, ABN Amro said in a note on Monday. Europe’s biggest oil company remains interested in developing Iran’s “energy potential,” a spokesman for Shell said in an e-mailed statement. Shell is also monitoring developments with regard to repaying outstanding debt to National Iranian Oil Co., which Iran estimates at $2.3 billion.
  • Steelmaking Giant Brought Down to Size by China Export Flood. ArcelorMittal may still be the world’s biggest steelmaker but for investors it’s a shadow of its former self. After losing about $100 billion of market value, the supplier of steel for New York’s One World Trade Center and London’s Wembley stadium is worth the same as the operator of Legoland theme parks that make replicas of the iconic buildings. For that, blame China. Demand from the biggest steel consumer is set to fall this year and beyond as the government shifts the economy away from manufacturing. That’s led local mills to export excess steel cheaply, collapsing world prices and industry profit margins.
  • Bailout Cup for S&P 500 Cracks as Dividends Outpace Profits. In the bull market for U.S. stocks that is nearing its seventh anniversary, investors could count on corporate largess to help them through the rough patches. That’s now in jeopardy. With equities buckling amid a hiatus in buybacks, the amount of money available to cover shareholder distributions is starting to get stretched. Take dividends, where total cash outlays among Standard & Poor’s 500 Index companies have climbed to 41 percent of earnings, the most since 2009.
  • Ramsey Sees Bear Call Affirmed With S&P Selling Halfway Done. Doug Ramsey picked the top for stocks in 2015 and now he says the Standard & Poor’s 500 Index has another 10 percent to drop before the selloff that has been rattling investors since New Year’s is over. Pessimism is proving prescient for the chief investment officer at Leuthold Weeden Capital Management LLC, who stuck by bearish predictions in October even as U.S. equities had the steepest monthly gain since 2011. That’s a memory now. More than $2 trillion has been erased in the worst start to a year on record and Ramsey says it’s likely to get worse, if history is any guide.
  • Tiffany(TIF) Cuts Earnings Forecast After Holiday Sales Decline. Tiffany & Co., dragged down by sluggish tourist spending and a strong dollar, cut its full-year profit forecast after reporting a drop in holiday sales. Net earnings will decline about 10 percent in the fiscal year that ends this month, the New York-based jeweler said in a statement Tuesday. It previously predicted a drop of 5 percent to 10 percent.
Fox News:
  • Inspector General: Clinton emails had intel from most secretive, classified programs. (video) EXCLUSIVE: Hillary Clinton's emails on her unsecured, homebrew server contained intelligence from the U.S. government's most secretive and highly classified programs, according to an unclassified letter from a top inspector general to senior lawmakers. Fox News exclusively obtained the unclassified letter, sent Jan. 14 from Intelligence Community Inspector General I. Charles McCullough III. It laid out the findings of a recent comprehensive review by intelligence agencies that identified "several dozen" additional classified emails -- including specific intelligence known as "special access programs" (SAP).  
  • Americans missing in Baghdad kidnapped by Iran-backed militia - U.S., Iraqi sources. Three U.S. citizens who disappeared last week in Baghdad were kidnapped and are being held by an Iranian-backed Shi'ite militia, two Iraqi intelligence and two U.S. government sources said on Tuesday. The U.S. sources said Washington had no reason to believe Tehran was involved in the kidnapping and does not believe the trio are being held in Iran, which borders Iraq.
Zero Hedge:

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