Thursday, February 11, 2016

Today's Headlines

  • Kyle Bass Warns of Huge Losses for Chinese Banks (video)
  • Pernod Falls on Outlook for Shrinking Chinese Spirits Market. Pernod Ricard SA fell the most in almost six months after the world’s second-largest distiller said it expects the Chinese market for spirits to shrink, contrasting with signs of a rebound seen by Remy Cointreau SA and LVMH. Pernod Ricard expects China’s market for spirits to decline by between 5 percent and 10 percent in its fiscal year, which runs through June, the company said in a presentation to investors. The stock dropped as much as 7.2 percent in Paris, the most since Aug. 24. Last month, Remy Cointreau reported third-quarter sales that beat estimates as appetite for cognac rebounded in China. Luxury-goods maker LVMH, which makes Hennessy cognac, reported a 4 percent increase at its drinks unit in the fourth quarter, also helped by a turnaround in the world’s most populous country. Pernod Chief Financial Officer Gilles Bogaert said the company can’t raise prices in China at the moment.
  • Rexel Shares Plunge Most in Seven Years on Downbeat Guidance. Rexel SA shares dropped the most in almost seven years after the French electrical-equipment company said volatile economic conditions in North America and China and persistent low commodity prices could cause sales to fall this year. "Taking into account low copper and oil prices, the slowdown of the Chinese economy and the uncertainty around the North American industrial market, the start of 2016 leads us to be cautious in our guidance for the year, even if Europe could experience a slight gradual recovery," Chief Executive Officer Rudy Provoost said in a statement on Thursday.
  • Tata Motors Shares Fall as Profit Drops on JLR China Sales. Tata Motors Ltd.’s profit declined as earnings tumbled at its Jaguar Land Rover unit on weaker deliveries in China. The Indian automaker’s shares fell to their lowest level since August 2013. Net income in the quarter through December dropped 2 percent to 35.1 billion rupees ($515 million), the Mumbai-based carmaker said on Thursday. Profit at the Jaguar Land Rover luxury unit, which offsets losses at Tata’s domestic car and truck operations, declined 26 percent to 440 million pounds ($636 million). Jaguar Land Rover retail sales fell 10 percent in China, where luxury-car sales stagnated as economic growth slowed. Tata Motors’ luxury unit is looking to overcome that with the introduction of new affordable models such as the Jaguar XE and the Discovery Sport in the world’s biggest auto market. “JLR cut prices in many markets, had higher new launch expenses and discounts in China may have eroded margins,” Basudeb Banerjee, an analyst at Antique Stock Broking in Mumbai, said before Tata Motors released its results. Tata Motors fell 5.2 percent to 276.35 rupees in Mumbai.
  • Slowing Global Growth Puts Crimp in Luxury Items Sales. (video)
  • Japan's Economic Roller Coaster Is Headed for Another Dip. (video) After three years of Abenomics and record monetary stimulus from the central bank, Japan’s economy still can’t escape a roller-coaster cycle of expansion and contraction. The next round will commence on Feb. 15, when gross domestic product data for the fourth quarter are released. The forecast is pessimistic: that Japan’s economy shrank 0.7 percent on an annualized basis in the last three months of 2015, according to the median estimate of 34 economists who responded to a Bloomberg survey as of Wednesday. Revised data showed the GDP rose 1 percent in the third quarter. “The GDP report will show Japan’s economy is in a very dire situation,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “There is no driving force for the economy and that’s unlikely to stop this quarter.” 
  • Global Credit Risk Rises as Yellen Comments Fan Growth Concerns. Credit risk rose around the world after comments by Federal Reserve Chair Janet Yellen renewed concerns about global growth stalling. The cost to protect against company defaults in the U.S. climbed to near four-year highs, after Yellen said declines in equities and other markets may weigh on the outlook for the U.S. economy. Gauges of credit-default swaps in Europe also jumped to the highest since 2013 following Deutsche Bank AG’s comments about potential charges on a consumer unit and lower-than-expected earnings at Societe Generale SA. The Markit CDX North America Investment Grade Index climbed as much as six basis points to 128 basis points, according to data compiled by Bloomberg. The gauge for speculative-grade debt jumped 20 basis points to 596 basis points, the highest since 2012. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies rose five basis points to 122 basis points, the highest since June 2013, according to data compiled by Bloomberg. An index of default swaps on junk-rated debt climbed 23 basis points to 476 basis points.
  • European Banks Take a Beating. (video)
  • Germany's Slumping DAX Needs More Than a Deutsche Bank Rebound. (video) The DAX Index has tumbled 16 percent this year through Wednesday, posting a loss that exceeds declines in France, the U.K. and Switzerland by as much as seven percentage points. It plunged another 3.1 percent at 9:40 a.m. in Frankfurt. Investors are taking money out of an exchange-traded fund tracking German shares at the fastest pace since August. Fears about Deutsche Bank AG’s creditworthiness this week added to growing worries over a slowing global economy. Because of Germany’s close ties to China, its biggest trade partner outside of Europe, the nation stands to lose more than others in the region. Carmakers such as BMW AG, Volkswagen AG and Daimler AG have already tumbled more than 23 percent this year on weakening demand there. “Oil and China are still on fire and a cause for concern, but we’ve got other, more broad-based fires to be watching now, and Deutsche Bank is just one of them,” said Alex Neil, EFG Bank’s head of equity and derivatives trading in Geneva. “Whichever way you look at the global economy in the next few months, there are more attractive markets than Germany.”
  • Brazil Real, Stocks Join Rout as Petrobras Sinks to 16-Year Low. The real erased this year’s advance while the Ibovespa extended a three-day slide, and a plunge in crude sent oil producer Petroleo Brasileiro SA to the lowest level since 1999. Lender Itau Unibanco Holding SA contributed the most to the stock gauge’s decline, and miner Vale SA slumped with iron ore. Emerging markets joined a global rout even as Federal Reserve Chair Janet Yellen suggested that additional interest-rate increases might be delayed and after central banks from Europe to Japan signaled that additional stimulus is at the ready. The lack of confidence from global investors added to an already fragile economic scenario in Brazil, which is in the midst of its deepest recession in a century. “The last thing Brazil needs, given all its problems, is for investors to lose faith in the policies of the world’s leading central banks,” said Nicholas Spiro, a partner at London-based Lauressa Advisory Ltd. “Yet this is precisely what’s happening.” The Ibovespa fell 2.5 percent to 39,386.04 at 2:31 p.m. in Sao Paulo, as all but five of its 61 stocks retreated.
  • Yen Surges to 15-Month High as Intervention Speculation Deepens. The yen rose to its highest since October 2014, intensifying speculation the Bank of Japan may intervene to arrest gains that threaten to undermine almost three years of monetary stimulus.The Japanese currency rose versus 15 of its 16 major peers as a drop in global stocks and oil boosted demand for havens. The yen added 1.3 percent to 111.92 per dollar as of 10:53 a.m. in New York, after touching 110.99, the strongest level since Oct. 31, 2014 -- the day of the BOJ’s stimulus boost. The yen was at 109.21 the day before officials acted. Japanese markets were shut for a public holiday Thursday.
  • Indian Stocks Enter Bear Market as Foreigners Sell Amid Rout. Indian equities tumbled to 21-month lows, sending the benchmark stock index into a bear market, as disappointing earnings added to concern about increasing outflows and the global economic outlook. The S&P BSE Sensex slumped 3.4 percent to 22,951.83, the lowest close since May 2014. The gauge has fallen 23 percent from its January 2015 record, meeting the common definition of a bear market, to join stock benchmarks from Tokyo and Shanghai to London and Frankfurt. About $365 billion has been erased from stocks’ value from last year’s record level.
  • Global Stocks Near Bear Market, Bonds Surge as Risk Rout Deepens. (video) Global equities tumbled toward a bear market, with the Dow Jones Industrial Average plunging almost 400 points, as financial markets signaled that investors have lost faith in central banks’ ability to support the worldwide economy. U.S. stocks joined the rout that took Europe’s benchmark gauge to the lowest level since 2013. Investors ignored a second day of testimony from Janet Yellen, whose signal that the Federal Reserve won’t rush to raise rates in the face of market turmoil failed to stem a selloff in risk assets from bank shares to crude oil and emerging-market currencies. The yen leaped to its highest in more than a year. Major sovereign bond markets rallied, pushing 10-year Treasury yields below 1.6 percent. Gold rose beyond $1,200 an ounce. The MSCI All-Country World Index fell 1.5 percent at 12:04 p.m. in New York, extending its slide from an all-time high in May past 20 percent. A close at that level would meet the common definition of a bear market in the biggest retreat from risk since the sovereign debt crisis in 2011.
  • Europe Stocks Deepen Rout as Societe Generale Leads Bank Selloff. (video)
    The relief rally that swept through Europe’s stock markets Wednesday came to an abrupt halt, as shares slid for the eighth time in nine days and hit their lowest levels since September 2013.
    The Stoxx Europe 600 Index lost 3.7 percent, the most since August, with more than 570 of its shares slumping. Financial results that fell below projections at Societe Generale SA, Rio Tinto Group and Zurich Insurance Group AG added to growing concern that central banks are powerless to stem a slowdown in the global economy. European shares have dropped 17 percent this year and reached their lowest levels since October 2013 on Feb. 9, before rebounding on Wednesday 1.9 percent. This week alone, the Stoxx 600 has lost 6.9 percent, heading for its biggest plunge since 2011.
  • Investors Flock to Treasuries as Yields Drop to Lowest Since '12. Treasuries surged, pushing yields to the lowest in more than three years, as a persistent rout in global financial markets pushed investors into the safest assets. Benchmark 10-year notes rallied for the sixth day as commodities tumbled and investors dumped equities worldwide. Concern that central banks have lost the power to shield a global economy from slowing growth and anemic inflation has lifted Treasuries to a 4.3 percent gain in 2016.
  • Iran Makes Oil Market Statement With First Pricing for Europeans. Iran just revealed its oil prices to European buyers for the first time since sanctions were lifted against the Middle East country. The most competitive pricing compared with Saudi Arabian supply in 21 months underscores its intention to win back market share. Iran Heavy, one of the country’s main export grades, will cost $1.25 a barrel less than Saudi Arabia’s most similar crude in March, notices from both nations’ state oil companies show. The Persian Gulf country supplied Turkey during the sanctions and continued to publish prices for Europe throughout the measures. Its most recent discount will be the deepest against the Saudi grade since June 2014. In Asia, having tracked Saudi prices since at least 2006, Iran is also giving deeper discounts for the grade. The fifth-largest producer in the Organization of Petroleum Exporting Countries has said it will boost production and exports by 1 million barrels a day this year and is preparing to introduce a new heavy grade as it adds output.
  • Worst Still Ahead for Mining Industry After Losing $1.4 Trillion. (video) This year looks even worse for an industry decimated by the commodities slump. When you find yourself in a hole, the saying goes, stop digging. A simple lesson that arguably has bypassed a mining industry that’s wiped out more than $1.4 trillion of shareholder value by digging too many holes around the globe. The industry's 73 percent plunge from a 2011 peak is far beyond the oil industry's 49 percent loss during the same time. Just how long it will take for the world to erode bulging stockpiles of metals, coal and iron ore was the central debate at the mining industry’s biggest investment conference in Cape Town this week, which attracted more than 6,000 top executives, bankers, brokers, analysts, miners and reporters. Here's what they concluded. 
  • Yellen Says Fed Evaluating Possibility of Negative Rates in U.S. Federal Reserve Chair Janet Yellen said the Fed was taking another look at negative interest rates as a potential policy tool if the U.S. economy faltered, after central banks in Europe were able to drive borrowing costs below zero. “We had previously considered them and decided that they would not work well to foster accommodation back in 2010,” Yellen said Thursday, answering questions during a second day of testimony before Congress. “In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.”
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