Tuesday, January 26, 2016

Today's Headlines

  • China Stocks Plunge to 13-Month Low Amid Capital Outflow Concern. (video) China’s stocks tumbled to the lowest levels in 13 months amid concern capital outflows will accelerate as the economy slows and support for the yuan eats into the nation’s foreign reserves. The Shanghai Composite Index plunged 6.4 percent to 2,749.79 at the close. All industry groups slumped, ranging from commodity shares to new-economy sectors such as technology. Besides data showing outflows hitting an estimated $1 trillion last year, investors were concerned about a possible liquidity squeeze even as the central bank flooded the financial system with cash before the upcoming Chinese new year holiday. Some of the nation’s most accurate forecasters said the stock index may not bottom until it falls to the 2,500 level.
  • Wider China-Hong Kong Discrepancy Revives Fake Trade Doubts. The gap between China’s reported exports to Hong Kong and the shipments registered by the territory widened in December, suggesting currency-market swings may have spurred a fresh round of fake trade invoicing. China recorded $1.94 of exports to Hong Kong last month for every $1 in imports Hong Kong registered from the mainland, leading to a $22.3 billion difference between the two data sets, according to Bloomberg calculations. That’s the highest gap in both dollar terms and by ratio since March 2013.
  • Hyundai Posts Lowest Profit in Five Years on China Slowdown. Hyundai Motor Co. posted its lowest annual profit in five years after a slump in China deliveries overshadowed gains in the U.S., Europe and South Korea. Net income declined 13 percent to 6.42 trillion won ($5.3 billion) in 2015, the Seoul-based automaker said Tuesday. That compares with the 6.35 trillion won average of 27 analysts’ estimates compiled by Bloomberg. Sales rose 3 percent to 92 trillion won. Hyundai’s profit fell for a third straight year and the automaker missed its annual sales target for the first time since 2008 after deliveries in China slumped and unfavorable exchange rates cut earnings in Russia and Brazil. The company has forecast sales growth this year will be the weakest since 2006 as it expects the economic slowdown to continue in China, its largest market by volume.
  • Here's Why Investors Are Worried Over Emerging Markets. (video)
  • Christie's Sales Fall 5% as `Froth' Comes off Global Art Market. Christie’s International, the world’s leading auction house by revenue, reported a 5 percent decline in annual sales following five straight years of growth, a sign that the art market may be slowing amid stock price volatility and greater selectivity by wealthy buyers. Sales of art and collectibles fell to 4.8 billion pounds in 2015, or $7.4 billion using a sales weighted currency exchange rate, Christie’s said in a statement, from about 5.1 billion pounds in 2014. Sales of postwar and contemporary art, Old Masters, 19th century and Russian art declined.
  • Petrobras(PBR) Near $1, Stocks at Decade Low: Brazil's Rout in Charts.
  • Goldman's Daly Says China Fears Negative for Euro-Area Inflation. Market turmoil fueled by China and falling oil prices is having a negative effect on inflation expectations in the euro area, Goldman Sachs Group Inc. senior economist Kevin Daly said. In comments that underline the task facing the European Central Bank as it looks to cement its credibility for delivering price stability, Daly played down the effect of the recent global rout on ECB President Mario Draghi’s euro-area growth outlook. Daly pointed instead to the risk of inflation expectations becoming unmoored as a result of falling oil prices and market jitters coupled with a stronger euro and broader price pressure on commodities
  • Miners Lead Europe Stock Gains While Siemens Surges on Earnings. A rebound in commodity and energy producers led the advance in European equities, while earnings at Siemens AG and Royal Philips NV further boosted sentiment. The Stoxx Europe 600 Index climbed 0.9 percent at the close of trading in London. It erased a decline of as much as 2 percent as crude rose above $30 a barrel after Iraq’s oil minister said Saudi Arabia and Russia are now more flexible about cooperating to cut output.
  • China Energy Giant Signals Nation's Fuel Oversupply Is Worsening. China’s biggest energy company predicted the nation’s refineries will increase output in 2016, exacerbating a fuel glut and boosting exports of the surplus to regional markets. Net export of oil products -- which strips out imports -- will rise by 31 percent this year to 25 million metric tons, China National Petroleum Corp. said in its annual research report. The country’s refineries will increase oil processing by 5.3 percent while net crude imports will rise 7.3 percent to 357 million tons. “China is set to ship record oil products overseas amid its slowing domestic demand,” Jean Zuo, an analyst at ICIS China, said by phone from Guangzhou. 
  • Credit Suisse Says We Haven't Seen the Bottom in Oil Yet, Slashes Price Forecasts. Demand could come into focus. Credit Suisse took a hatchet to its oil price forecasts as persistently low levels of crude force more optimistic analysts to revisit their assumptions. Global Energy Economist Jan Stuart reduced his call for Brent and West Texas Intermediate in the first quarter of 2016 to $29.25 and $30 from $51.25 and $47.50, respectively, saying "the bottom is not yet in." Those first-quarter forecasts are even lower than what the futures market is pricing in and are 20 percent or more below the consensus estimates, according to forecasts compiled by Bloomberg.
  • Distress in the Shale Oil Patch Spurs New Type of Joint Venture. Joint ventures between oil and gas explorers in the U.S. and their foreign counterparts helped fuel the shale boom. They’re coming back in a new iteration for the bust. The difference this time: Shale explorers are partnering with Wall Street financiers to raise money for drilling, instead of overseas rivals. Typically, private equity firms invest in energy by buying entire companies or providing capital to startups. Last year, U.S. oil and gas companies struck a half-dozen joint venture deals with private equity firms totaling at least $1.4 billion. In December, an affiliate of Fortress Investment Group agreed to provide National Fuel Gas Co. with as much as $380 million to fund wells in Pennsylvania, while Blackstone Group LP’s credit arm closed a similar deal in July with Linn Energy LLC.
  • Dregs of the Junk Market Swell to Six-Year High, Moody's Says. The number of companies on the lowest rungs of the junk-bond market hit a six-year high in 2015, according to Moody’s Investors Service. The ratings company reported Tuesday that there were 248 companies on its Negative and Lower Corporate Ratings List, up by more than a third from a year ago and just 43 shy of the all-time high reached during the credit crisis. The increased weakness comes as a rout in junk has seen the average yield on the debt climb to 9.5 percent, the highest level since the global financial crisis.
  • Which Apple(AAPL) Suppliers Track Its Stock? Not the Obvious Ones. As Apple Inc. prepares to report financial results, it’s not just investors who will be watching how the world’s most valuable company fares. Hundreds of suppliers around the world will pay close attention for clues about whether their fortunes are poised to rise or fall.Which companies are most closely correlated with Apple? It’s not necessarily the highest-profile or best-known suppliers. It’s lesser known companies, including Alps Electric Co. and TDK Corp., whose shares have been most closely correlated among Asia suppliers over the last three months, according to data compiled by Bloomberg.
  • Paulson Pledges Personal Holdings to Back Firm After Assets Fall. (video) John Paulson, the hedge fund manager struggling with uneven returns since his windfall wager against U.S. housing in 2007, is turning to his own fortune to help backstop his firm. The billionaire pledged his personal investments in four of his firm’s hedge funds as additional collateral for a credit line Paulson & Co. has had with HSBC Bank USA for at least five years, according to a filing last month with the state of New York. The holdings will also serve as guarantee for a new personal line of credit for Paulson. 
  • AIG(AIG) to Cut Hedge Fund Bets After ‘Greatly Disappointing’ Results. American International Group Inc. Chief Executive Officer Peter Hancock is scaling back hedge fund bets as he seeks to improve returns and free up more cash to return to shareholders. “It’s not an efficient use of our capital, so we’ll be diminishing our allocation to hedge funds,” Hancock told Bloomberg’s Betty Liu in a televised interview on Tuesday after a presentation in which he announced plans to generate $25 billion over the next two years that can be used for stock buybacks or dividends. “About $2 billion of that return to shareholders is by de-risking the asset side of our balance sheet.”
  • The Surge in U.S. Mansion Prices Is Now Over. (video)
  • Does Trump believe Medicare should negotiate prices? This would be a big deal. Our current system forbids Medicare from negotiating drug prices. Clinton's focus on the issue in September, in the form of a tweet about price gouging, took 5 percent off biotech stocks in one morning. And though Republican candidates, like Sen. Marco Rubio, have focused on drug prices before, they haven't called for that provision. "I think the market will pay careful attention to the [Republican] response, maybe more so than Hillary," Robert W. Baird analyst Brian Skorney wrote in an email. "If the Republicans start favoring price control, it will be a big problem for the sector."
Zero Hedge:
  • 5 Things You Need to Know About Zika. A relatively new mosquito-borne virus is prompting worldwide concern because of an alarming connection to a neurological birth disorder and the rapid spread of the virus across the globe.

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