Monday, April 25, 2016

Today's Headlines

Posted by Gary .....at 2:56 PM
Bloomberg:    
  • RBS Sees China `Black Swan' Risk From Loans for Non-Bank Finance. Chinese banks’ surging lending to non-bank financial institutions such as fund managers may pose a “black swan” risk for the nation’s financial system, according to Royal Bank of Scotland Group Plc. Lending to such firms had become “the biggest driver of overall credit growth,” Harrison Hu, the firm’s chief Greater China economist, wrote in a note Monday. Non-bank financial institutions include companies, such as brokerages and fund managers, that aren’t allowed to accept deposits, Hu said. The surge in lending brought with it the risk of an “abrupt reversal” that could trigger an event like China’s cash squeeze of mid-2013 if it wasn’t properly handled, Hu wrote. “Chinese banks’ lending to the NFIs has been skyrocketing,” Hu said. While it would be normal for such increases to take place over five or 10 years, it was “quite a different thing if banks pile up substantial credit and leverage within only one year,” he said.
  • Over 90% of China Bond Funds Dropped Last Week Amid Default Woe. More than 90 percent of Chinese bond funds’ net asset value dropped last week as spreading corporate note defaults fueled investor concerns. A market value of assets held by 718 bond funds dropped in the five days through April 22, accounting for 95.6 percent of all the fixed-income funds tracked by Shanghai-based research firm Howbuy. The average decline for the week was 1.03 percent, the biggest since the week ended Jan. 8, according to Howbuy. “The sentiment in the corporate bond market is quite weak,” said Ni Xinchen, a researcher at Howbuy. “Investors are concerned corporate defaults will spread.”
  • China's Rate Swaps Rise to One-Year High as Stimulus Bets Fade. China’s interest-rate swaps rose to a 12-month high on bets a pick-up in economic growth and signs of speculative trading in commodities and property will prevent the central bank from adding to stimulus. The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, increased six basis points to 2.62 percent at 4:30 p.m. in Shanghai, the highest since April 2015. The People’s Bank of China will keep benchmark interest rates on hold until the fourth quarter, according to economists in an April 15-20 survey.
  • Danger Signs in the World's Top Housing Market. At first glance, the world’s best-performing housing market bears few of the usual hallmarks of a bubble about to pop.Reliance on mortgages is low, and Turkish homeowners reliably repay their loans, helped by house prices that rose faster than in any other country last year. The risk, at a time when construction has grown to make up a bigger share of the country’s investments than in China, is with the builders rather than the buyers. The share of Turkey’s borrowing represented by developers is higher than at any time in the last decade, and represents almost a fifth of all corporate loans, according to the nation’s banking association. An increasing portion of those debts is going bad, with the industry’s portion of non-performing loans nearly doubling in the past five years. “Mortgages are not the problem,” said Ercan Uysal, a banking analyst at Istanbul-based research firm Integras. “Developer leverage is.”
  • Warnings Flash for China's Red-Hot Steel Market on 47% Surge. Warnings are stacking up fast after China’s eye-popping steel rally. Fitch Ratings Inc. said prices lifted in part by heightened speculation are destined to slump, while a bank in Singapore flagged the risk of a boom-bust cycle reminiscent of China’s equity market. The rapid advance isn’t sustainable as mills are expected to bring back idled capacity, raising supply, Fitch said in a report on Monday. Price gains have been driven by a seasonal recovery in activity that’s been exacerbated by increased speculation in the futures market, according to analyst Laura Zhai.
  • Morgan Stanley(MS) Says China Commodity Jump Stuns World Markets. (video) The recent spike in speculative trading in commodities in China has stunned global markets, according to Morgan Stanley, which cited a jump in local activity for steel, iron ore and cotton as well as eggs and garlic. “Now China’s speculators engage commodities,” analysts including Tom Price and Joel Crane said in an e-mailed note on Monday. “China’s latest speculative spike has stunned global markets.” Trading in China of commodity derivatives including steel rebar surged last week after data showing a rise in credit in the world’s top commodity user spurred speculation that prices may extend gains as demand improved. The increase prompted exchange authorities in Asia’s top economy to tighten rules on the trading of some contracts, including rebar. “The move to cap the trade suggests that China’s enhanced credit liquidity may soon be curtailed,” Morgan Stanley said in the note. “This, together with China’s upcoming Labor Day holiday, should see a short-term pullback in trade activity and commodities prices,” it said, referring to the May 1 break.  
  • German Business Confidence Unexpectedly Weakened in April. German business confidence unexpectedly deteriorated in the latest sign that Europe’s largest economy is losing some of its pace. The Munich-based Ifo institute’s business climate index fell to 106.6 in April from 106.7 the previous month. The median estimate in a Bloomberg survey of economists was for an increase to 107.1. 
  • Morgan Stanley(MS) Sees More Downgrades to European Profits: Chart. Morgan Stanley equity strategists see further downside to European earnings estimates. The bank projects that profits at Stoxx Europe 600 Index companies will slide 5 percent this year because of weak global growth, headwinds from the commodity and financial sectors and evaporating currency tailwinds. That’s more bearish than the average analyst forecast of 2.2 percent, which has already been cut from 8.2 percent six months ago.
  • Emerging-Market Stocks, Currencies Decline on Oil as Fed Looms. Emerging market stocks and currencies fell as a retreat in oil and concern the Federal Reserve may turn more hawkish at its meeting this week damped demand for riskier assets in developing nations. Chinese stocks extended last week’s losses after commodity exchanges moved to cool trading in raw materials and data showed stronger demand for workers, suggesting the central bank won’t offer additional measures to boost growth. Petroleo Brasileiro SA, the Brazilian state-controlled oil producer, lead a gauge of developing-nation energy stocks lower as Brent crude fell as much as 1.9 percent. Saudi shares rose the most in seven weeks after approval of a plan for a post-oil era. The MSCI Emerging Markets Index fell 0.7 percent to 839.10 at 11:25 a.m. in New York, heading for the lowest close in two weeks. All 10 industry groups declined, led by raw-material stocks.
  • European Stocks Retreat as Miners Slide, German Data Disappoint. (video) European shares declined for a third day as energy and commodity producers slid, while investors assessed growth prospects following worse-than-expected German business-confidence data. Anglo American Plc and BHP Billiton Ltd. fell at least 5.8 percent, leading miners to the biggest decline of the 19 industry groups on the Stoxx Europe 600 Index, as base metals retreated. Royal Dutch Shell Plc lost 2.2 percent, dragging oil companies lower as crude slid. Royal Philips NV dropped 4.3 percent after saying it is considering an initial public offering of its lighting business. The Stoxx 600 slipped 0.5 percent to 346.68 at the close of trading, paring earlier declines of as much as 0.9 percent.
  • Hedge-Fund Investor Aurora to Return $5.4 Billion to Clients. Hedge-fund investor Aurora Investment Management will return the $5.4 billion it oversees to clients over the coming months after a takeover of the firm collapsed, according to a letter to investors seen by Bloomberg News. The move follows the termination of a deal last week under which the Chicago-based firm was to be sold to 50 South Capital Advisors by its parent company, Natixis Global Asset Management. Aurora was started more than 28 years ago by Roxanne Martino and invests in a selection of hedge funds. “After considering a variety of strategic alternatives, we have decided that it is in the best interests of our investors to return the capital in our funds in a manner that will treat all investors fairly and equitably,” Aurora told clients in the letter sent April 22. Ted Meyer, a spokesman for Natixis, confirmed the contents of the letter.
  • Debt Market's Perilous Oil Proxy.
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