Monday, May 09, 2016

Today's Headlines

  • Even China's Party Mouthpiece Is Warning About Debt. (video) China’s leading Communist Party mouthpiece acknowledged the risks of a build-up of debt that is worrying the world and said the nation needed to face up to its nonperforming loans. High leverage is the “original sin” that leads to risks in the foreign-exchange market, stocks, bonds, real estate and bank credit, the People’s Daily said in a full-page interview with an unnamed “authoritative person” starting on page one and filling the second page on Monday. China should put deleveraging ahead of short-term growth and drop the “fantasy” of stimulating the economy through monetary easing, the person was cited as saying. The nation needs to be proactive in dealing with rising bad loans, rather than delaying or hiding them, the report said. “Overall, the report suggests to us that future policy easing may be more cautious and that the government may try to hasten the pace of reform,” said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. Similar commentaries have had a “large impact” in the past, the analyst said in a note. 
  • Chinese Imports From Hong Kong Raise Red Flag Amid Yuan Worries. (video) China’s problem with fake trade invoices appears to be getting worse. Imports from Hong Kong surged a record 204 percent last month, data on Sunday showed, intensifying the spotlight on a channel used to get capital out of the country. While the value at $2.1 billion is relatively small, the suspected use of phantom goods to secure hard currency shows concern persisting among Chinese savers and companies that the yuan will weaken. “As long as there is an expectation of yuan depreciation against the dollar, there will be a massive outflow of funds,” said Iris Pang, Hong Kong-based senior economist for greater China at Natixis Asia Ltd. “As long as channels under the capital account are still semi-closed, trade will remain a shadow channel for fund outflows.”
  • Yuan Declines Amid Bets Depreciation Concern Spurring Outflows. The yuan fell the most in two weeks amid speculation depreciation concerns are prompting investors to shift money overseas and as the dollar headed for its biggest five-day gain since November. A record surge in imports from Hong Kong last month indicates that people are moving money out because they expect the dollar to strengthen as the Federal Reserve prepares to increase interest rates, said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. China’s imports from Hong Kong jumped 204 percent in April to $2.1 billion, according to official data released Saturday. “As long as there is an expectation of yuan depreciation against the dollar, there will be a massive outflow of funds,” said Iris Pang, Hong Kong-based senior economist for greater China with Natixis Asia Ltd. “As long as channels under the capital account are still semi-closed, trade will remain a shadow channel for funds outflows.”
  • Falls After Sales Volume Slows With China Growth Concerns. Inc., China’s second-biggest online retailer, plunged after it reported flagging sales growth on its marketplaces and management expressed concern about the country’s economic slowdown. The American depositary receipts dropped 9.6 percent as of 11:20 a.m. in New York, after falling as much as 10 percent, the most since its initial public offering in 2014. Trading volume of 25.3 million shares was more than double the daily average of the past three months. It was the second-worst performer on the Bloomberg China-U.S. Equity Index, which slid 3.1 percent. At $22.78,’s shares are at their lowest since December 2014.
  • Brazil Markets Thrown Into Disarray as Impeachment Vote Annulled. (video) Brazilian markets were thrown into turmoil after the effort to impeach President Dilma Rousseff appeared to hit a roadblock, spurring concern that some of the world’s biggest stock and currency rallies would be undone. The Ibovespa stock benchmark plummeted as much as 3.5 percent and the real weakened as much as 4.6 percent, the most since September 2011, before paring some of those losses. The selloff was sparked after the interim chief of Brazil’s lower house called for a new vote on the impeachment, accepting an argument by the attorney general that the ballot last month had procedural irregularities.
  • European Stocks Pare Rebound as Oil Hurts Central Bank Optimism. (video) European stocks pared a rebound from their worst week since February as sliding oil prices subdued investor optimism over continued central bank support. Vestas Wind Systems A/S climbed 3 percent after Barclays Plc said new U.S. tax plans would fuel a surge in orders. Anglo American Plc and ArcelorMittal tumbled more than 12 percent, dragging mining stocks to the worst performance of the 19 industry groups on the Stoxx Europe 600 Index, as base-metal prices slid after disappointing Chinese trade data. Tullow Oil Plc lost 5.4 percent, leading energy companies lower, as crude fell amid waning concern over output disruptions from wildfires in Canada. The Stoxx 600 advanced 0.5 percent to 333.22 at the close of trading, trimming earlier gains of as much as 1.4 percent.
  • Iron Ore in Free Fall as Port Holdings Expand, Trade Frenzy Ebbs. (video) Iron ore’s in free fall. Prices plummeted as port stockpiles in China expanded to the highest level in more than a year following moves by local authorities to quell frenzied speculation in raw-material futures. Ore with 62 percent content delivered to Qingdao tumbled 5.7 percent to $54.99 a dry metric ton, according to Metal Bulletin Ltd. Prices have slumped 22 percent since peaking at more than $70 on April 21, and Monday’s drop follows a 12 percent loss last week. Miners’ shares fell, with Rio Tinto Group losing as much as much 8 percent in London, Rio de Janeiro-based Vale SA retreating 7.8 percent and Cliffs Natural Resources Inc. tumbling as much as 18 percent.
  • Miami Suddenly Has a Glut of Plush Hotel Suites. Hotels in sun-drenched Miami are getting burned by a pullback in Brazilian travel and a building boom that has added thousands of rooms to the market. Nightly room costs are dropping. Greater Miami’s revenue per available room -- a key measure of rates and occupancies known as revpar -- has fallen each month this year, and in April was the worst of the top 25 U.S. markets, according to STR, a data provider for the lodging industry. Marriott International Inc., set to become the world’s largest hotel operator, said on its first-quarter earnings call that Miami is among its weakest U.S. areas.
  • Trump Backtracks on Proposal to Renegotiate U.S. Debt. Presumptive Republican presidential nominee Donald Trump backtracked on a statement last week that he would renegotiate U.S. debt if the economy sours. Trump said on CNN on Monday that he intended only to signal he would use advantageous market conditions to save money by repurchasing debt on favorable terms, and refinancing with longer-term bonds. “I said if we can buy back government debt at a discount -- in other words if interest rates go up and we can buy bonds back at a discount -- if we are liquid enough as a country, we should do that,” he said. He called "ridiculous" suggestions that he would favor a default or forced restructuring that would require creditors to take a loss. “You never have to default because you print the money,” he added. “I could see renegotiations where we borrow at long term at very low rates,” he said on CNBC on May 5.
  • Clinton’s Bid for Democratic Unity a Tough Sell Among Some Sanders Supporters. Careful courting of ideological, demographic, and geographic subgroups is key to swinging voters to her side.
Wall Street Journal:
Fox News:
  • Ryan opens door to stepping down as convention chair, if Trump asks. (video) House Speaker Paul Ryan opened the door Monday to stepping down as Republican convention chairman if asked by presumptive presidential nominee Donald Trump, whom Ryan has declined to endorse. Ryan first made the comments during a meeting with Milwaukee Journal Sentinel reporters.
Zero Hedge:

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