Wednesday, February 17, 2016

Today's Headlines

  • China Debt Binge Spurs S&P Warning as Magnus Sees `Big Problems'. China’s unprecedented jump in new loans at the start of 2016 is fueling concern that excessive credit growth is piling up risks in the nation’s financial system. The increase in China’s debt relative to gross domestic product could pressure the country’s credit rating, Standard & Poor’s said on Tuesday, less than a week after the cost to insure Chinese bonds against default rose to a four-year high. Credit growth is storing up “big problems” in the economy that will weigh on the yuan and stocks, said George Magnus, an economic adviser to UBS Group AG. Mizuho Bank Ltd. warned that the threat of bad loans is rising and Marketfield Asset Management said China’s central bank may be losing its regulatory grip on credit growth. The jump in credit growth “may help to sustain the pace of economic momentum in the short term, but it’s storing up big problems,” said Magnus, a senior independent economic adviser to UBS who correctly predicted in July that the rout in Chinese stocks would deepen. “I’m not anticipating an imminent meltdown, but we’ve got a lot of warnings going on that should make us cautious about how we see the situation developing for the course of this year.” China’s ratio of corporate and household borrowing versus gross domestic product rose to 209 percent at the end of 2015, the highest level since Bloomberg Intelligence began compiling the data in 2003. Nonperforming loans increased 7 percent in the fourth quarter to 1.27 trillion yuan, data from the China Banking Regulatory Commission showed Monday.
  • China's Missile Move Sparks New Questions Over South China. China sparked new questions about its intentions in the South China Sea after it deployed surface-to-air missiles to a contested island, a move that came just months after President Xi Jinping promised not to militarize the disputed atolls. Satellite images showed two batteries of eight HQ-9 surface-to-air missile launchers and a radar system were deployed on Woody Island sometime after Feb. 3, Fox News reported. That’s just days after the U.S. rebuffed China’s efforts to control one of the world’s busiest shipping lanes by sending a warship into the area. The positioning of the missiles casts further doubt on Xi’s pledge at a summit with U.S. President Barack Obama in Washington in late September not to militarize the islands and suggests China is prepared to escalate tensions in order defend its claims, particularly with a ruling expected this year on an arbitration case brought by the Philippines to an international tribunal.
  • Hong Kong Retailers Suffer From Slump in Chinese New Year Sales. Hong Kong retailers Chow Tai Fook Jewellery Group Ltd. and Sa Sa International Holdings Ltd. reported slumping sales over Chinese New Year as the number of mainland tourist visitors tumbled. Same-store sales over Jan. 25-Feb. 14 was 28 percent lower than the new-year period in 2015, Chow Tai Fook said in a Hong Kong exchange statement on Wednesday, as it warned of a worse performance in the current quarter compared with the previous one. Sa Sa reported a 19 percent decline in sales as the number of transactions by Chinese tourists sank 18 percent, according to a separate statement.
  • Portugal Shows QE Limit as Neighbors' Bonds Leave It Behind. (graph) Portugal just can’t shake off its bears. The nation’s notes are underperforming their counterparts across the euro area even as a recovery in stocks and oil prices boosted demand for higher-yielding assets. The extra yield, or spread, that investors get for holding Portuguese two-year debt instead of similar-maturity notes of Germany climbed for a second day. The country’s yields are more than 1 percentage point higher than those in neighboring Spain, whose leaders have been unable to form a government after inconclusive elections in December. 
  • Prada Revenue Growth Evaporates as Luxury-Goods Maker Struggles. The luxury-goods maker had to contend with “extreme volatility” in currency markets, and “a deteriorating geopolitical situation in many world regions,” Chief Executive Officer Patrizio Bertelli said in a statement. “These two factors have made prices fluctuate wildly and diverted tourist traffic in sudden and unpredictable ways.”Collapsing demand in China, the strong dollar and the Paris terror attacks made 2015 a year to forget for the luxury-goods industry and for Prada more than most.
  • Brazil's Credit Rating Cut Further Into Junk Territory by S&P. Brazil’s debt rating was cut deeper into junk territory by Standard & Poor’s, which cited fiscal and political challenges for Latin America’s largest economy. The long-term foreign currency rating was reduced one level to BB with a negative outlook, S&P said in a statement Wednesday. The new level, two steps below investment grade, puts Brazil on par with countries including Bolivia, Paraguay and Guatemala.
  • Attack on Military Bus in Turkey Capital Kills at Least 18. A bomb targeting a Turkish military bus killed at least 18 people and injured dozens in the capital, Ankara, further roiling the country as it fights a Kurdish insurgency and faces a mounting threat from Islamic State. There was no immediate claim of responsibility for an attack that government spokesman Omer Celik called an act of terrorism. Prime Minister Ahmet Davutoglu, who was to leave for Brussels on Wednesday night, postponed his trip, according to TGRT television.
  • Worst Earnings Letdown Since Crisis Add to Europe Stock Woes. (video) Europe’s earnings season is only half-way through, but so far even stable profit generators are showing signs of capitulation. Banks, industrial companies and even health-care companies are surprising the market with the widest earnings misses since even before the financial crisis. Analysts are dialing back their 2015 outlooks -- they see zero income growth for Stoxx Europe 600 Index members on average, down from an estimate of more than 4 percent three months ago. This echoes what has been the frustration of stock investors for most of the past five years: unlike in the U.S., Europe’s profits just aren’t growing. Analyst downgrades have outnumbered upgrades almost every week since 2011, according to a Citigroup Inc. index tracking such changes. And traders are losing faith in the global economic recovery, dumping growth-dependent shares for defensive stocks deemed more immune.
  • Miners Surge Into a Bull Market to Lead Europe's Stock Advance. A rally that pushed miners to a bull market sent European stocks to a two-week high. Commodity producers erased this year’s losses, up 28 percent from last month’s low, to lead the rebound in the Stoxx Europe 600 Index, which gained 2.6 percent at the close of trading. Glencore Plc rallied 17 percent after saying it signed new loan commitments.
  • Iran Backs Oil Producer Freeze Without Pledging Supply Curbs. Iran supported an accord by Saudi Arabia and Russia to steady global oil markets by capping their supply, without saying whether it would curb its own production. Iran backs any measures to stabilize markets including the output freeze agreed by the world’s two largest crude producers Tuesday, Oil Minister Bijan Namdar Zanganeh said after talks with fellow OPEC members Qatar, Iraq and Venezuela Wednesday, according to a report from Oil Ministry news service Shana. While Russia and Saudi Arabia said the deal hinges on cooperation from other major producers, Zanganeh didn’t comment on whether he would deviate from plans to boost production after international sanctions were removed last month.
  • Goldman's(GS) Head of Commodity Research Says the Saudi-Russia Oil Deal Won't Make A Difference. Would freezing production have an impact?
  • There's One Place Where OPEC Can't Broker an Oil Deal: Texas. Saudi Arabia and Russia have taken the first step to stem the slide in oil prices. There’s just one problem: If they are successful -- and that’s a big if -- the wildcatters of Texas, Oklahoma and North Dakota are waiting to pounce. With 4,000 wells drilled and just waiting for better prices to be brought on stream, the so-called fracklog could act as a cap to any oil rally, industry executives, traders and OPEC officials said. Worse, a price recovery could effectively bail out dozens of shale companies now struggling with $30-a-barrel oil, allowing them to return to the capital market. “If you think about making a production cut as OPEC, prices rise and these producers can get oil online in 80 days,” Jeff Currie, Goldman Sachs Head of Commodities Research, said on Bloomberg TV. “It makes any type of price rally self-defeating.”
  • Fed Frets Corporate Credit Crunch Will Crimp Economic Growth. Federal Reserve policy makers are beginning to worry that a corporate-credit squeeze will constrict the economic expansion. With banks tightening standards on business loans and investors demanding higher yields on some corporate debt, companies may find it harder and more expensive to raise the money they need to grow. The concern is that could prompt them to cut back on spending and hiring, hurting the U.S. economy in the process. 
  • AmEx Plans to Reduce Jobs in $1 Billion Cost-Cutting Effort. American Express Co. said it will eliminate jobs and reduce layers of management as the credit-card issuer seeks to cut $1 billion in costs over the next two years. “At this time, we do not know what the magnitude of those reductions will be, as decisions on specific positions affected are yet to be made,” Chief Executive Officer Ken Chenault said Wednesday in a statement.
Fox News:
  • Missing radioactive material in Iraq prompts nationwide search, ISIS fears. (video) A desperate hunt for “highly dangerous” radioactive material is on in Iraq, where officials fear it could be used to make a "dirty bomb" if in the hands of ISIS, according to a government official in Baghdad. The material, stored in a case the size of a laptop, disappeared from a storage facility near the southern city of Basra in November, Reuters reported. It was in the possession of Houston-based oil industry contractor Weatherford, according to a document obtained by the news agency. The document describes "the theft of a highly dangerous radioactive source of Ir-192 with highly radioactive activity belonging to SGS from a depot belonging to Weatherford in the Rafidhia area of Basra province."
Zero Hedge:
Washington Times:
  • Gov. Haley to endorse Rubio in South Carolina GOP primary: Report. South Carolina Gov. Nikki Haley will endorse Sen. Marco Rubio in the GOP presidential battle, a state newspaper reported Wednesday, weighing in just as the primary has turned nasty. Ms. Haley is expected to endorse Mr. Rubio at a 6 p.m. event in Chapin, near the state capital, the Post and Courier reported.

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