Thursday, March 17, 2016

Today's Headlines

  • Yuan Falls to 15-Month Low Versus Basket as Fixing Lags Dollar. The yuan fell to a 15-month low versus a basket of currencies as a smaller-than-estimated increase in the central bank’s fixing spurred speculation that China is trying to limit gains against the dollar. The monetary authority raised its daily reference rate by 0.32 percent, compared with a 1.1 percent drop in a gauge of the greenback’s strength. The difference prompted economists to question the importance of market forces in the fixing, with Oversea-Chinese Banking Corp. saying it appears that the rate continues to be a tool to guide investor expectations. A Bloomberg replica of the CFETS RMB Index, which China uses to measure the yuan’s performance against 13 currencies, fell to 98.3, the lowest since December 2014.
  • China Mobile 2015 Profit Misses Estimates, Shares Decline. China Mobile Ltd.’s annual profit fell, missing analyst estimates, as cheaper plans damped revenue growth at the world’s largest phone carrier. The shares fell after the announcement. Net income dropped 0.6 percent to 108.5 billion yuan ($16.7 billion) in 2015, the company said Thursday. That compares with the 112.8 billion yuan average of analyst estimates. Sales rose 2.6 percent to 668.3 billion yuan. Dividend for the year is HK$2.721 per share, down from HK$2.92 a year earlier, represents payout ratio of 43 percent as planned.
  • Toshiba Shares Plunge as U.S. Unit Faces Accounting Probe. Toshiba Corp. is under investigation by the U.S. over allegations that it hid $1.3 billion in losses at its nuclear power operations, according to two people familiar with the matter. Shares plunged in Tokyo. The Justice Department and the Securities and Exchange Commission are looking into whether fraud was committed, said the two, who asked not to be named because the investigations aren’t public. The probes, they said, follow one by Japan’s securities regulator, which found that Toshiba falsified financial statements and documents involving its issuance of corporate bonds. U.S. authorities are scrutinizing allegations made in an internal review published last year by the Tokyo-based company, the two people said. The report, a 334-page version of which was published in English on Toshiba’s website in December, said management was complicit in padding profits for almost seven years. It led to the resignations of top officials, including Hisao Tanaka, Toshiba’ president and chief executive officer. 
  • Europe Stocks Close Little Changed as Oil Jump Offsets Bank Drop. (video) European stocks closed little changed, almost erasing intraday losses, as a surge in oil countered a decline in banks and exporters. Miners and energy shares tracked gains in crude, with Anglo American Plc and Glencore Plc up more than 9 percent. Banks were among the worst performers on the Stoxx Europe 600 Index, while BMW AG and Continental AG led carmakers lower. Europe’s benchmark lost less than 0.1 percent at the close. It reversed an early advance of 0.4 percent to tumble as much as 1.8 percent, before paring losses.
  • Diamondbacks Owner Says Stopping Trump Tops Selling Tickets. Arizona’s Randy Kendrick, a major Republican donor, says she’s now backing Ted CruzRandy Kendrick, whose husband, Ken, owns the Arizona Diamondbacks baseball team, knows that her very public opposition to Donald Trump might alienate some fans. Ken told her he's OK with that. “He said, ‘Randy, if we stand up for what we know to be moral and correct—if 100,000 people decide they will not go to a Diamondbacks game, we've stood up for the right thing,’” Kendrick said by phone from her home in a Phoenix suburb Wednesday. “I hope he keeps feeling that way!” Kendrick is part of a group of conservative donors across the country who have poured tens of millions of dollars into a last-ditch advertising campaign to halt Trump’s march to the Republican presidential nomination. The primary battle moves to Kendrick’s home state this week, with Trump planning a major rally there Saturday, three days before the primary. A major donor in her own right who gave at least $350,000 to back Marco Rubio’s unsuccessful campaign for the nomination, Kendrick is also a fundraiser with a network of contacts across the country. She’s now urging her friends to help stop Trump. “My husband and I have moral objections to some of the things he’s said, and not said,” Kendrick said. In particular, Kendrick said it bothered her that Trump failed to immediately disavow support from a former Ku Klux Klan leader. She also disliked his remark that the Chinese government’s crackdown on protesters in Tiananmen Square showed “strength,” and his suggestion that he might not follow the Geneva Conventions as commander-in-chief. (He later said he wouldn’t order military officers to disobey the law.) 
  • Caterpillar Sees First-Quarter Sales, Profit Below Estimates. Caterpillar Inc., the biggest maker of construction and mining machinery, said first-quarter sales and profit will trail analysts’ estimates as miners and energy companies cut billions from their investment budgets to weather a commodity rout. Sales will be $9.3 billion to $9.4 billion and adjusted earnings per share will be 65 cents to 70 cents, the company said in a regulatory filing Thursday. That’s below the averages of $10.2 billion and 95 cents, respectively, among analyst estimates compiled by Bloomberg. Shares rose as the company said it “remained comfortable” with its full-year guidance, and as commodities gained on the outlook for U.S. interest rates.
  • Americans Are Popping the Most Champagne Since 2007: Chart. Americans are quaffing the most French bubbly in eight years, according to data from Champagne Bureau USA released Wednesday. Shipments bringing 20.5 million bottles reached the U.S. in 2015, an increase of 6.6 percent from a year earlier. The U.S. is the second-largest export market for Champagne, trailing the U.K.
  • Wall Street's Awful Quarter Is Hitting Goldman Sachs, Too. (video) As Wall Street leaders warn publicly about this quarter’s plunging revenue from trading and deals, Goldman Sachs Group Inc., the bank most reliant on those operations, has provided no guidance. The mystery isn’t whether it is getting hit too -- it’s how hard. Goldman Sachs’s income from investment banking -- advising takeovers and underwriting securities -- is projected to tumble 32 percent this quarter from a year earlier, Credit Suisse Group AG analysts wrote in a note on Tuesday. Internally, some senior executives are anticipating a drop of roughly 25 percent in that business, according to two people with knowledge of the matter, though the estimate may not be formal. Revenue from the bank’s larger trading business will probably fall 17 percent, the Credit Suisse analysts said. Firms including JPMorgan Chase & Co. and Citigroup Inc. have been warning that turbulent markets are battering their earnings, as stock swings, a slump in commodity prices and low interest rates prompt companies to delay share offerings and customers to pull back from trading. The first quarter is usually Wall Street’s strongest, as corporations and investors adjust strategies at the start of the year
  • More Hedge Funds Shuttered Than Opened During 2015 Turmoil. Hedge-fund shutdowns outnumbered startups last year for the first time since 2009, according to data firm Hedge Fund Research, as the global industry contracted amid market volatility. In the last quarter, 305 funds closed compared with 257 a year earlier, taking the total for the year to 979. Startups totaled 968, the Chicago-based company said in a report on Thursday. In 2009, hedge-fund closures totaled 1,023 and 784 opened. “The market environment was tough for investors in 2015 and hedge funds are no exception,” said Philippe Ferreira, a strategist at Paris-based Lyxor Asset Management, which allocates money to hedge funds. There was “elevated dispersion” of returns by money managers, with some up by 20 percent and others down by the same amount, he said.
  • Bond Hedge Funds See `Worst Quarter in History,' Loomis Says. It is going to be a really, really bad quarter for some U.S. hedge funds that invest in fixed-income securities, and waning market liquidity has a lot to do with it, according to Dan Fuss, vice chairman of Loomis Sayles & Co. “It is probably going to be the worst quarter in history for a number of the fixed income-oriented hedge funds,” Fuss said at an event in Tokyo on Thursday. “A few are already known but there are some that were wiped out and just wound down.” Hedge funds that bet on bonds prices falling were caught off guard as individual investors poured money back into junk debt funds in February, according to Fuss. The funds that used borrowed money to short the debt found they couldn’t cover those wagers as institutional holders were unwilling to sell and there were fewer dealers at investment banks to act as market makers, he said. 
  • Banks' Credit Card Fees Threatened as Durbin Supports Retailers. As one of the most antagonistic lobbying battles in Washington escalates -- where financial institutions like JPMorgan Chase & Co. and Visa Inc. are sparring with companies such as Wal-Mart Stores Inc. over credit card swipe fees -- a powerful ally is again sticking up for the retailers. U.S. Senator Dick Durbin wants to know whether a group owned by the world’s biggest payment networks is using credit card technology and security standards to hinder competition, according to a copy of a letter obtained by Bloomberg News. The questioning rekindles scrutiny of Visa, American Express Co. and MasterCard Inc. by the Illinois Democrat, who inserted a controversial amendment in the 2010 Dodd-Frank Act that significantly cut the fees the companies charge on debit card purchases.
  • Strategist: Clinton/Trump race wouldn't even be close. (video) Donald Trump would lose handily to Hillary Clinton in a general election for one key reason, former Bush 43 aide Tony Fratto said Thursday
  • Fed delay may put it in U.S. election firestorm. The Federal Reserve could be entering the U.S. presidential firestorm. A decision on Wednesday by its Federal Open Market Committee to keep interest rates steady means its next potential move will come just as the election intensifies. Congressional Republicans already are calling for more oversight of the Fed. Waiting to move on rates unnecessarily invites more political risk.
Zero Hedge:
Business Insider:
USA Today:
  • Kerry: Islamic State committing genocide against religious minorities. (video) The Islamic State is committing genocide against Christians and other religious minorities in Syria and Iraq, Secretary of State John Kerry said Thursday in an announcement likely to have little impact on the U.S. military effort against the Sunni militant group. The designation, however, could be a first step toward war crimes trials, supporters said. The U.S. House passed a resolution similar to Kerry's declaration in a unanimous vote Monday. Religious groups in the U.S. have been pressuring Washington for such a statement — and a commitment to stop the carnage. "In my judgment, Da'esh is responsible for genocide against groups in areas under its control, including Yazidis, Christians and Shia Muslims," Kerry said at a news conference in Washington. "Daesh is genocidal by self-proclamation, by ideology, and by actions."
  • Dividend alert: Investors have bid up income stocks to risky levels. Spooked by the early 2016 stock market selloff and sick of low interest rates, income investors have been bidding up dividend stocks at a feverish pace - so much so that these shares now are priced at levels high enough to worry some money managers. An index of utility stocks .DJU - the poster children of high dividend companies - closed at a record high on Wednesday after the Fed held off on raising rates. A broader group of high-dividend paying stocks, the Dow Jones U.S. Select Dividend Index .DJDVP, is up almost 14 percent after hitting a 14-month bottom in mid-January. Investors are now paying about $42 for each dollar of dividend they are buying in the Standard & Poor's 500 stock index, while the average since 1935 is roughly $29, according to S&P Dow Jones Indices. The dividend yield for the Standard & Poor's 500 stock index sits at 2.4 percent - roughly 31 percent below its long-term average. "People are paying a lot" to get the dividend, said Richard Bernstein, chief executive and chief investment officer of New York-based Richard Bernstein Advisors, which manages $3 billion in assets. "To think it's safe is naive," he said.
The Telegraph:
  • The Yellen Fed risks Faustian pact with inflation. Interest rates in the United States have fallen to minus 2pc in real terms and are dropping into deeper negative territory with each passing month. This is a remarkable state of affairs. It is clear that the US Federal Reserve is now trapped. The FOMC dares not tighten despite core inflation reaching 2.3pc because it is so worried about tantrums in financial markets and about that other Sword of Damocles - some $11 trillion of offshore debt denominated in dollars, up from $2 trillion in 2000. The Fed has been forced by circumstances to act as the world's central bank, nursing a fragile and treacherous financial system struggling with unprecedented leverage. Average debt ratios are 36 percentage points of GDP higher than they were at the top of the pre-Lehman bubble in 2008, and this time emerging markets have been drawn into the quagmire as well by the spill-over effects of quantitative easing. Like it or not, the Fed is stuck with the task of cleaning up a global mess that is arguably of its own making.

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