Tuesday, February 02, 2016

Today's Headlines

  • Corporate Distress Deepens as Emerging Bond Spread Widens. (video/graph) Companies in developing nations face more than $7 of bond repayments this year for every $1 their governments must return. That’s making investors nervous. The premium bondholders demand to own developing-nation corporate debt rather than sovereign bonds widened to 168 basis points on Jan. 27, the greatest gap since October 2011. That signals investors are as pessimistic about the financial health of businesses as they were during the global market turmoil caused by the euro-area debt crisis and the U.S. debt-ceiling impasse. “Emerging-market corporates suffer the most in this risk-averse environment because there’s increasing concern that some companies might have more difficulties refinancing,” Nuria Jorba, a credit analyst at Union Bancaire Privee, a wealth manager that oversees about $90 billion, said from Zurich. “Investors still have confidence that sovereigns will be able to issue new debt.” The yield spread with governments is the latest sign of distress from corporate borrowers in emerging markets, buffeted by a commodity-price slump, China’s deepening slowdown and currency depreciation. Average borrowing costs have increased by 63 percent since the middle of 2013, according to data compiled by Bloomberg. The number of Eurobonds trading below 60 cents a dollar quadrupled in the past six months and Fitch Ratings warned defaults could go up this year.
  • Flood of Oil Asset Writedowns Seen Across Asia on Crude Rout. Investors in Asian oil and gas companies should prepare for a wave of writedowns after a collapse in crude prices. CNOOC Ltd., Santos Ltd. and Inpex Corp. are among explorers and producers that may report full-year net losses because of writedowns that may be equal to as much as 10 percent of book value, analysts at Sanford C. Bernstein & Co. in Hong Kong wrote in a report Tuesday. “The future value of oil and gas properties has been significantly reduced,” according to the Bernstein analysts, including Neil Beveridge. “The impairment loss will likely be larger than earnings for the year for some companies, pushing several E&P’s in the region into a loss.”
  • China Has $23 Billion in Debt That Could Be Cut to Junk. Investors need to watch out for so-called fallen angels from China as a slowing economy prompts debt rating companies to cut more investment-grade issuers to junk. Standard & Poor’s has downgraded 13 Chinese companies this year and upgraded one, the worst ratio in Bloomberg data going back to 2006. Some $22.6 billion of offshore bonds from the nation are now rated one step above junk by any of the three major rating agencies, Bloomberg-compiled data show. Hong Kong-based commodity trader Noble Group Ltd.’s 3.625 percent 2018 notes nosedived 18 cents on the dollar since its senior debt was cut to junk by Moody’s Investors Service on Dec. 29. “I won’t be surprised to see more companies downgraded to junk,” said Raymond Chia, head of credit research for Asia ex-Japan in Singapore at Schroder Investment Management Ltd. with assets of about $446.5 billion under management. “Clearly fallen angels have impact on markets, for instance funds with high-grade mandates could be forced to reduce junk holdings. Most importantly, investors have to do a lot more fundamental work for those names."
  • China Said to Warn Bank Chiefs About Jobs If Risks Increase. China has warned the nation’s top banking executives that they could lose their jobs if they fail to keep risks under control, according to people familiar with the situation. Shang Fulin, chairman of the China Banking Regulatory Commission, told an internal meeting last month that banks would be forced to restructure, inject new capital or change their senior management if key risk indicators fall outside "reasonable ranges," the people said, requesting anonymity because the contents of the speech weren’t made public.
  • China Will Probably Tighten Capital Controls, SocGen Says. (video)
  • China Labor Market Faces Headwinds in Factories, Services: Chart.
  • Brazil Industry Drops Most in 12 Years With December Surprise. Brazil’s 2015 industrial output contracted the most in at least 12 years after an unexpected drop in December that signaled an even deeper fourth quarter contraction for Latin America’s largest economy. Production shrank 0.7 percent in December, recording its seventh straight monthly decline after a revised 2.3 percent drop in the previous month, the national statistics agency said Tuesday. That was worse than expected by all 39 economists surveyed by Bloomberg, whose median forecast was for output to remain flat. Industry contracted 8.3 percent throughout last year-- the most since the 2003 start of the agency’s data series.
  • Russia Bonds Drop as Ruble Rout Seen Reducing Rate-Cut Prospects. Russian government bonds retreated for a third day as oil’s renewed drop weakened the ruble the most among emerging-market currencies, spurring speculation the central bank will delay a return to a rate-cutting cycle to avoid stoking inflation. Yields on the government’s five-year securities rose 14 basis points to a week-high of 10.55 percent. The rate has risen 31 basis points since Jan. 29, when the Bank of Russia removed a reference to resuming an easing cycle, saying instead it would consider hoisting borrowing costs if inflationary pressures worsen. The ruble fell 2.2 percent to 79.05 per dollar by 4:15 p.m. in Moscow.
  • Prudential Selloff Erases $4 Billion Amid Fresh China Fears. Prudential Plc was briefly halted in London trading with 2.8 billion pounds ($4 billion) erased from the British insurer’s market value amid concern that China may place restrictions on the buying of overseas insurance. Prudential, which operates in 12 markets across Asia, slumped 8.2 percent, the most since March 2010, following a Bloomberg report that China’s State Administration of Foreign Exchange will cap at $5,000 the use of UnionPay bankcards to buy insurance products overseas, citing people familiar with the situation.
  • Ferrari Slumps to Record Low After Saying Sales Growth Will Slow. Ferrari NVsaid sales growth will probably slow down in its first full year of independence from Fiat Chrysler Automobiles NV, sending the shares to their lowest level since the supercar maker’s Oct. 21 initial public offering in New York. The Italian manufacturer of the 1 million-euro ($1.1 million) LaFerrari said Tuesday it will probably ship 7,900 vehicles this year, about 3 percent more than last year’s figure of 7,664. Shipments grew about 6 percent in 2015, though deliveries in China slumped 22 percent.
  • BP(BP) Profit Tumbles 91% Amid Oil Slump, Falling Short of Estimates. (video) BP Plc reported a 91 percent decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in more than a decade. Its shares fell the most since 2010. Profit adjusted for one-time items and inventory changes totaled $196 million, the London-based company said Tuesday. That missed the $814.7 million average estimate of 10 analysts surveyed by Bloomberg. The net loss for the year was $6.5 billion, the biggest in at least 30 years.
  • Emerging Stocks Drop With Commodities as Growth Concern Lingers. Emerging-market stocks fell the most in a week as oil deepened its decline and concern mounted that the contagion from China’s economic slowdown is spreading. A gauge of developing-nation exchange rates dropped for a second day, led by the Russian ruble. South African equities slid for a second day as the World Bank said the continent’s second-largest economy is flirting with stagnation. The Ibovespa fell the most since October as Brazilian commodity exporters including Vale SA slid with raw-material prices. Polish banks led the benchmark gauge in Warsaw to its biggest drop in two weeks. Malaysia’s ringgit weakened as much as 1.3 percent after Singapore seized bank accounts related to possible money laundering associated with a state investment company. The MSCI Emerging Markets Index fell 1.8 percent to 729.14 as of 11:52 a.m. in New York with all 10 industry groups retreating. The Bloomberg Commodity Index dropped 1.4 percent to a one-week low
  • Europe Stocks Fall 2nd Day on Oil as BP, UBS Drop After Earnings. (video) European stocks declined as oil deepened a drop and investors weighed earnings from companies including BP Plc and UBS Group AG. Energy shares, miners and banks led declines in the Stoxx Europe 600 Index. BP slid 8.7 percent after its quarterly earnings sank 91 percent, missing estimates. UBS lost 6.8 percent after profit slumped at its wealth-management and investment-bank units. “Oil prices are down and earnings in some particular sectors look rough,” said Jasper Lawler, a London-based market analyst at CMC Markets Plc. “This creates some weak sentiment. There was a hope the banks could lead this earnings season and that hasn’t happened.”The Stoxx 600 lost 2.1 percent at the close of trading.
  • The Fed Wants to Test How Banks Would Handle Negative Rates. As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S. In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period. "The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities," the central bank said in announcing the stress tests last week.
  • Trump Loses Nomination Favorite Tag to Rubio, Ladbrokes Says. Billionaire Donald Trump lost the tag of favorite in the race for the Republican presidential nomination, Ladbrokes Plc said, after suffering a surprise loss in Monday’s Iowa caucuses. Trump’s odds widened to 11/4, a 26 percent chance, from 10/11, 52 percent, Ladbokes said in an e-mailed statement on Tuesday in London. Senator Marco Rubio of Florida is the new favorite to win the nomination, Ladbrokes said. “This could be the first sign that the Trump bubble is about to burst,” said Matthew Shaddick, head of political odds at Ladbrokes. “The betting is now firmly pointing toward a Clinton-Rubio showdown in November.”
  • Rubio May Consolidate Support as Alternative to Cruz, Trump. (video) Rubio, the 44-year-old son of Cuban immigrants, could peel away supporters of Jeb Bush, Chris Christie and John Kasich, the three other Republicans whose backing from newspapers, elected officials and financial firms gave them the imprimatur of the establishment. Speaking to a caucus meeting in the Des Moines suburb of Urbandale, Rubio said he was the best candidate to not only not only unite social and economic conservatives in his own party but reach independent voters with a message of upward mobility for working- and middle-class Americans. "If you caucus for me and I win, we will unite this party and grow this movement by taking our message to people who haven’t heard it before," Rubio told about 300 Republicans caucusing in a community center.
  • Einhorn Under Pressure as Greenlight Shrinks by $3.2 Billion. Investors in Greenlight Capital showed the limits of their faith in the prowess of David Einhorn after his hedge fund’s worst underperformance ever. The firm lost $3.2 billion in assets last year as its main fund plunged 20.4 percent, while the stock market rose 1.4 percent including reinvested dividends. Even as Einhorn managed to avoid a large-scale exodus of clients, investors pulled at least $600 million from the firm, or 5 percent of assets, according to calculations based on the latest available data.
Fox News:
  • Literally a toss-up: Coin tosses helped give Clinton edge in tight Iowa race. (video) After tens of millions of dollars poured into the feverish Iowa campaign, it came down to roughly a half-dozen coin tosses: And Hillary Clinton had luck on her side. The former secretary of state declared victory overnight in the contest against Bernie Sanders, and the party – without officially declaring her the winner -- showed Clinton had an insurmountable lead over the Vermont senator. But several reports emerged that in the closest precincts, stray local delegates were decided in a simple coin toss. According to the Des Moines Register, local reports showed unassigned delegates were decided with a coin toss in as many as six precincts – and Clinton won every time.
  • Record turnout recorded at Iowa Republican caucuses. (video) Roughly 182,000 Republican caucus-goers turned out, with nearly all precincts reporting, breaking the record of 122,000 in 2012. About four in 10 Iowans said they were caucusing for the first time.
  • After Iowa, keep your eye on Marco Rubio, not Trump or Cruz. (video) He came into the Iowa caucus with 16 percent of the vote and he managed to pull in a remarkable 23 percent -- just one point shy of Trump. He did this while being the subject of relentless attack ads by Jeb Bush and Ted Cruz supported Super PACs. Nevertheless, Rubio obviously won voters over with his argument that he’s electable. This is something I’ve been arguing for years. Rubio has a compelling vision for the future of this nation. He is strong on national security and the most adept speaker. He’s a fierce debater and has been the most pointed in his criticisms of Hillary Clinton. It obviously paid off.
  • Fed's George sees more rate hikes coming despite market swings. The Federal Reserve should push ahead with interest rate hikes because of the strong fundamentals of the U.S. economy, a Fed policymaker said on Tuesday, downplaying the impact of financial market volatility. "My view is that the committee should continue the gradual adjustment of moving rates higher," Kansas City Fed Bank President Esther George, who has a vote this year on the U.S. central bank's rate-setting committee, said in prepared remarks. George said her view could change if there were a "substantial shift" in the outlook for the U.S. economy and that she was paying attention to financial market volatility as well as the possibility that job losses in the U.S. energy sector could act as a drag on the overall economy.
  • Banks report drop in demand for loans. (video) Investors aren't the only ones running for safety as the market tumbles and the economy wobbles. Businesses, too, are indicating an unwillingness to take on risk as loan demand declined for the first time in about four years, according to the Federal Reserve's Senior Loan Officer Survey released this week. Demand for commercial and industrial loans has plunged in 2016, with declines happening across business sizes. Large- and medium-sized businesses had an 11.1 percent decline, while demand from small businesses fell 12.7 percent.
Zero Hedge: 
Business Insider: 
Daily Caller: 
The Blaze:
  • Krauthammer Argues This Last-Minute ‘Slap in the Face’ By Trump to Iowans ‘Cost Him’ Votes.
  • Hillary Clinton Has The Most Statistically Improbable Coin-Toss Luck Ever. One of the most bizarre details to emerge from Monday’s Iowa caucuses was that in six Democratic counties, the ownership of six delegates was decided by a coin flip. A single delegate remained unassigned at the end of caucusing in two precincts in Des Moines, one precinct in Ames, one in Newton, one in West Branch and one in Davenport, The Des Moines Register reported. In all six instances, the coin toss was won by former Secretary of State Hillary Clinton over Vermont Sen. Bernie Sanders. There may have been more coin tosses, but those are the ones we know about for now. Now, get ready to do some math. In a single coin toss, the probability of calling the toss correctly is 50 percent, or one in two. Heads or tails. But the probably of winning every flip out of six flips is one in 64, or 1.56 percent.
24/7 Wall St.:
  • Citigroup Economist Expects 2.5% Growth in China in 2016. Citigroup's Chief Economist Willem Buiter expects growth in China to slow more drastically than many think and will come close to a recession, citing interview. Though official data show China growth at 6.9% last year, Buiter says was closer to 4%. Further drop would result in rising unemployment, bankruptcies, and need by Chinese govt to bail out banks and borrowers. Slowdown will hit exporting nations Germany, South Korea and Japan.
  • China's 2016 Power Consumption Growth Expected at 1%-2%. Power consumption growth will remain depressed at 1%-2% in 2016, citing a report by China Electricity Council.

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