Thursday, May 26, 2016

Today's Headlines

  • Abe Invokes Lehman Crisis Comparisons at G-7 Economic Talks. (video) Japanese Prime Minister Shinzo Abe presented documents to his fellow Group of Seven leaders Thursday that he said indicated a risk of the world economy falling into a crisis on the scale of the 2008 Lehman shock if appropriate policy measures weren’t taken. Abe presented documents showing that commodity prices had fallen by 55 percent between 2014 and January 2016, similar to the margin by which they fell in 2008-2009, among other data. The presentation at the summit in Mie Prefecture in central Japan could play into domestic economic policy, as Abe has frequently said that he would proceed with a planned increase in the sales tax in April 2017 unless there is an event on the scale of the Lehman shock or a major earthquake. Abe told reporters later that the leaders had a "full debate" on economic issues. "We agreed on the perception that we are facing serious risks, that the world economy is facing serious risks,” he said.
  • Companies Go on Worldwide Bond Bender With $230 Billion of Sales. A borrowing binge by companies globally is poised to make May one of the the busiest months ever, thanks to investors who continue to devour the relatively juicy yields on corporate debt in a negative-rate world. Global issuance of non-financial company debt will be in excess of $230 billion by month-end, according to data compiled by Bloomberg, led by computer maker Dell Inc., which sold $20 billion of bonds to back its takeover of EMC Corp. in the year’s second-biggest corporate offering. In Europe, companies sold 48.5 billion euros ($54.2 billion) making it the busiest May on record. U.S. borrowers including Johnson & Johnson and Kraft Heinz Co. both did deals of more than 1 billion euros.
  • In Market That Ensnared Lehman, Risk of Debt Fire Sales Lingers. After four years of efforts, regulators and the financial firms with the most at stake have failed to extinguish systemic risk in a crucial short-term lending market that greases the wheels of trading in U.S. Treasuries. There’s a consensus on how to further safeguard the $1.6 trillion tri-party repurchase-agreement market, which almost collapsed amid the financial crisis. The plan is to move most repo transactions onto central clearinghouses, which would prevent a default by a dealer from pushing counterparties into abruptly dumping repo collateral. Such fire sales, which the Federal Reserve has been highlighting as a threat, helped sink Lehman Brothers Holdings Inc. in 2008 and forced the central bank to step in to keep credit flowing.
  • China’s Top Steel Province Pledges Cuts as G-7 Vows Joint Action. China’s top steel-making province aims to shutter capacity equivalent to about a month of production, amid warnings over a global glut of the metal from world leaders gathered in Japan for an economic summit. Hebei, the northeastern province that makes nearly a quarter of China’s steel, has pledged to close down 14.2 million metric tons of annual capacity this year, according to a report by the official Xinhua news agency. That would account for nearly four weeks of last year’s output of 187.9 million tons. Xinhua cited a letter of commitment signed by the provincial government and companies. They also promised to cut about 17.3 million tons of iron-making capacity.
  • European Stocks Little Changed at 1-Month High; Carmakers Climb. (video) European stocks were little changed, after their biggest two-day rally since February, as advances in carmakers and miners offset a drop in banks. ArcelorMittal jumped 6.9 percent, leading commodity producers higher, on speculation the European Commission may widen an investigation on dumping of steel imports to include more countries. Auto-related shares posted the biggest gains among industry groups, with PSA Peugeot Citroen and Renault SA up more than 2.5 percent. Banco Popular Espanol SA plunged 26 percent after saying it will raise about 2.5 billion euros ($2.79 billion) by selling new shares. The Stoxx Europe 600 Index closed 0.1 percent higher, erasing an earlier slide of as much as 0.3 percent.
  • Fed’s Powell Backs Rate Hike ‘Soon’ If Data Stays on Track. Federal Reserve Governor Jerome Powell added his voice to calls from other central bank officials for an increase in interest rates, provided the U.S. economy continues to improve. “Depending on the incoming data and the evolving risks, another rate increase may be appropriate fairly soon,” Powell said Thursday in Washington, according to his prepared remarks. He added that the pace of hikes “should be gradual.
  • Orders for Capital Goods Remain Weak: U.S. Economic Takeaways. (graph) The Takeaway: There’s no relief in sight for American makers of business equipment, who continue to pull back amid weak global growth, retrenchment in the energy sector and an ongoing reduction in inventories. Orders for capital equipment excluding military hardware and aircraft fell for a third straight month, and shipments of such goods, used to calculate gross domestic product, have dropped an annualized 10.6 percent from February through April. That’s raising doubts about how soon factories will be able to pull out of a slump and stop being a drag on economic growth.
  • U.S. Consumer Comfort Drops on Weaker Views of Personal Finances. Overall comfort index fell to 42 in week ended May 22, matching the second-lowest level this year, from 42.6 in the prior period. Personal finances gauge declined to 55.3, weakest since mid-January, from 56.5. State of the economy measure eased to 31.7, the second-lowest this year, from 32.4.
  • Abercrombie(ANF) Shares Tumble After Sales Miss Analysts’ Estimates. Abercrombie & Fitch Co. plunged as much as 14 percent in early trading after first-quarter sales trailed analysts’ estimates, hurt by dwindling traffic abroad and reduced tourist spending in the U.S. Sales fell 3.4 percent to $685.5 million in the quarter through April 30, the company said Thursday in a statement. Analysts projected $710 million, on average. The loss for the quarter was 59 cents a share. Analysts estimated 51 cents.
  • Biotech's Vicious Secondary Cycle.
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