Monday, February 22, 2016

Today's Headlines

  • Europe’s Economy Strains as Global Slowdown Takes its Toll. (video) The euro area is showing signs of strain from the global slowdown. Weaker growth and deeper price cuts by companies, as captured in a monthly report by Markit Economics published Monday, will raise concerns about the health of the economy. They may also increase pressure on European Central Bank policy makers to add to stimulus at their next meeting in March. Markit said that its composite Purchasing Managers Index for the euro zone fell to 52.7, the lowest in more than a year, from 53.6. “Not only did the survey indicate the weakest pace of economic growth for just over a year, but deflationary forces intensified,” said Chris Williamson, chief economist at Markit in London. The data “greatly increase the odds of more aggressive stimulus from the ECB.
  • German Economy Takes a Blow From Weakening Global Demand. The German economy took a hit this month from weak global demand, with a manufacturing gauge dropping to a 15-month low. Markit Economics said its factory Purchasing Managers Index fell to 50.2, barely above the key 50 level, from 52.3 in January. A services gauge improved slightly, but a composite measure declined to the lowest since July. “The German economy appears to be in the midst of a slowdown,” said Oliver Kolodseike, an economist at Markit. Manufacturing is “near stagnation,” he said. While Germany weathered global headwinds through 2015, maintaining its pace of expansion in the fourth quarter, business confidence has weakened recently. China’s slowdown is weighing on exports while the equity selloff this year threatens a fragile recovery in the euro area, the country’s largest trading partner.
  • Earliest Chinese Data Signal Slowdown Hasn't Bottomed Out Yet. The first indicators for China’s economy this month signal its slowdown hasn’t bottomed out yet, highlighting the case for continued stimulus as the nation prepares to host finance chiefs and central bankers from the Group of 20 later this week. Private gauges of manufacturing and services fell to new lows, a reading of business confidence slipped, and interest in small and medium sized businesses deteriorated, the readings show. If confirmed in official data for February that starts to roll out from March 1, such weakness would suggest a slowdown in the nation’s old growth drivers may be deepening.
  • One Sign Australia's Housing Market Is Due for a 2008 Moment. (video) That's not a housing bubble, this is a housing bubble. Insane. That's how Jonathan Tepper, chief executive officer at research firm Variant Perception, described Australia's housing sector in a word, painting the picture of a market that's strikingly similar to that of the U.S. prior to the financial crisis. A local 60 Minutes segment that aired on Sunday titled "Home Groans" chronicled some of the eye-popping events in the nation's real estate market, with amateurs owning (and under water on) multiple homes with no tenants, interest-only loans increasing in prominence, price-to-income ratios at elevated levels, and home auctions attended by the community and captured for the small screen.
  • HSBC Feels Asia Slowdown in Loan Drop, Delayed Hiring Plans. (video) Eight months after HSBC Holdings Plc unveiled a $100 billion bet on Asia, crashing commodity prices and a slowing Chinese economy are checking Stuart Gulliver’s ambitions. The chief executive officer oversaw his first pretax loss as profit from Asia fell 14 percent to $2.82 billion in the fourth quarter and loans in that region dropped to the lowest in almost two years. The bank also disclosed that its hiring practices in Asia Pacific, like those of other lenders, are being probed the U.S. Securities and Exchange Commission. The results mark a setback to Gulliver’s efforts to bolster profitability and reverse a share slump by betting on the Chinese economy. Slower growth in the world’s second-largest economy may hamper the strategy, unveiled in June, to redeploy $100 billion of risk-weighted assets in Asia, and the bank said on Monday it will add staff for a China venture at a slower pace. “We will redeploy a little slower, we will hire a little bit slower,” Gulliver, 56, said on a call with journalists Monday. “We’re certainly not going to compromise our credit standards” for more loan growth, he said, adding that the change in pace doesn’t mean the bank will alter its strategy.
  • Sovereign Wealth Funds May Sell $404 Billion of Equities. Sovereign wealth funds may withdraw $404.3 billion from global stock markets this year if crude prices stay between $30 to $40 per barrel as oil-rich nations seek to shore up their finances, according to the Sovereign Wealth Fund Institute. The value of listed equities held by the world’s largest wealth funds will probably drop to $2.64 trillion this year, from about $3.04 trillion at the end of 2015, the Las Vegas-based SWFI said in an e-mailed report sent Monday. Withdrawals are set to approximately double from last year, when sovereign funds sold about $213.4 billion of equities, it said. "The era of petrodollar-filled wheelbarrows being dumped into giant vats seems to be numbered," according to the Institute. "Commodity wealth funds have to be concerned about the state of their country’s finances, since many were created to either be stabilization funds, intergenerational savings vehicles or a combination thereof."
  • Miners Surge Sends Europe Stocks to 3-Week High; FTSE 100 Gains. (video) Commodity producers jumped to their highest levels since the start of December, pushing European stocks to a three-week peak. The Stoxx Europe 600 Index advanced 1.7 percent, with Glencore Plc, BHP Billiton Ltd. and Rio Tinto Group up more than 8 percent. In the U.K., where the debate over whether to leave or stay in the European Union is in full steam, the FTSE 100 Index climbed 1.5 percent. In addition to the rebound in miners, the gauge is benefiting from a tumble in the pound after the mayor of London said he’ll campaign for an exit.
  • Oil Glut Will Persist Into 2017 as IEA Sees Prices Capped. The global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated, according to the International Energy Agency. While U.S. shale oil production will retreat this year and next as the price slump hits drilling, its subsequent recovery will ensure America remains the biggest source of new supply to 2021. The Organization of Petroleum Exporting Countries will expand its market share slightly this decade, with Iran, newly released from international sanctions, displacing Iraq as the organization’s biggest contributor to supply growth. “Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices,” the Paris-based adviser to 29 countries said in its medium-term report Monday. “It is hard to see oil prices recovering significantly in the short term from the low levels prevailing.”
  • Goldman Sachs(GS) Says 40% of Lending to Oil and Gas Firms Is Junk. Goldman Sachs Group Inc. said about 40 percent of its loans and lending commitments to oil and gas companies are to junk-rated firms. The figure, which counts both loans made and future promises to lend, accounted for $4.2 billion of a total $10.6 billion as of the end of December, the New York-based bank said Monday in its annual regulatory filing. Goldman Sachs has $1.5 billion in loans to energy companies rated below investment grade and $2.7 billion in unfunded commitments. The total exposure jumps $1.9 billion counting derivatives and other receivables, which were "primarily" to investment-grade firms, Goldman Sachs said.
  • CIBC, Scotiabank Worst Hit in Severe Oil Slump, Moody's Says. Canadian Imperial Bank of Commerce and Bank of Nova Scotia would be the nation’s hardest hit lenders if the oil slump became sharply worse, while Toronto-Dominion Bank would best be able weather a deterioration, Moody’s Investors Service said. A prolonged decline “in oil prices will increase the financial stress on oil producers and the drillers and service companies that support them, as well as on consumers in oil-producing provinces," the New York-based ratings company said in a report released Monday. “The Canadian banks’ losses in related corporate and consumer portfolios will increase, and their capital markets income is likely to decline."
  • Oil Freeze: Locking In High Supplies, Low Prices. (video)
  • IMF’s Lagarde Says Oil May Stay Low for Longer Than Expected. Crude prices will probably stay low for longer than expected, International Monetary Fund Managing Director Christine Lagarde said, urging Gulf Arab oil-producing countries to cut spending and boost revenue through new taxes. A value-added tax that’s the same across the six-nation Gulf Cooperation Council should be adopted, Lagarde said in a speech in Abu Dhabi. The measure along with corporate income and property taxes would help raise government income, she said. “Not only have oil prices fallen by around two-thirds from their most recent peak, but supply- and demand-side factors suggest that they are likely to stay low for an extended period,” Lagarde said. That makes it necessary for oil producers to lower reliance on crude for government income, she said.
  • Google(GOOG) Ad Business Under Scrutiny as EU Said to Revive Probe. The European Union is reviving a probe into Google’s advertising practices with an inquiry that adds to active EU antitrust investigations into the company’s mobile operating system and shopping search services. The EU has been quizzing companies involved in online advertising in recent weeks about Google’s behavior, according to three people with knowledge of the investigation who asked not to be named because the process is confidential. Officials are seeking data that may be used to build a so-called statement of objections listing areas where they suspect Google breaches antitrust rules, they said.
  • Credit Fears Mount on Poor Performances. (video)
  • The U.S. States Where Recession Is Already a Reality. Dale Oxley doesn’t need to hear about rising odds of a U.S. recession to dread the future. For the West Virginia homebuilder, the downturn has already arrived. “Everyone is going to have to tighten their belts,” said Oxley, the 48-year-old owner of a Charleston-area construction company. “The next couple of years are going to be difficult.” As economists size up the chances of the first nationwide slump since 2009, pockets of the country are already contracting. Four states -- Alaska, North Dakota, West Virginia and Wyoming -- are in a recession, and three others are at risk of prolonged declines, according to indexes of state economic performance tracked by Moody’s Analytics. The regions suffering the most are in the flop stage of the energy industry’s boom-to-bust cycle, and manufacturing-dependent areas hurt by a rising dollar are at risk of receding. Whether the weak links break the entire U.S. economy will hinge largely on a group that’s benefited from the energy price collapse: American consumers.
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