Monday, June 13, 2016

Today's Headlines

  • Brexit Polls by ICM Show ‘Leave’ Widening Lead Over ‘Remain’. Two new polls by ICM suggested the U.K. is on course to quit the European Union, with both phone and online surveys showing the “Leave” side opening up a 5 percentage-point lead over “Remain.”
  • Corporate Bond Risk Surges in Europe as Brexit Concerns Increase. Credit risk surged in Europe as concern grew that the U.K. will vote to leave the European Union. The Markit iTraxx Europe Senior Financial Index of credit-default swaps on 30 banks and insurers rose six basis points to 106 basis points, the highest since Feb. 29, according to data compiled by Bloomberg. The cost of insuring high-yield bonds jumped to the highest since March and the region’s investment-grade benchmark climbed to a more than two-month high. 
  • German Government Bonds in ‘Bubble Territory,’ Allianz Says. (video)
  • Smoldering Bonfire’ Shows Where Kyle Bass May Be Right on China. Kyle Bass, the U.S. investor known for betting against subprime mortgages, is among famous money managers who expect turmoil in a Chinese banking industry struggling with bad loans. It’s in the least-known corners of the financial system that their predictions could start to come true. Dotted across the country from Harbin in the north to the tropical island of Hainan in the south, China’s 134 city commercial banks have multiplied their risks by piling into opaque investment products just as bad loans are rising. Warning signs are flashing at lenders such as China Resources Bank of Zhuhai Co., which posted a 90 percent slump in profit in 2015 after almost tripling loan-loss provisions. “It’s a smoldering bonfire,” said Keith Pogson, a senior partner for Asia-Pacific financial services at Ernst & Young LLP. “If the wind changes and inflames it rapidly it could burst into flames quite easily.” City commercial banks are the legacy of a 1990s clean-up of thousands of struggling credit unions, and many of them are vulnerable in part because their fortunes are closely tied to areas suffering the most from China’s economic slowdown. While analysts say it’s unlikely that the collapse of a small lender would spark a financial panic, the repercussions could be substantial -- from a loss of confidence to disruptions in the interbank funding market. For a heat map of risks across China’s provinces, click here.
  • Hong Kong Reign as China's Wall Street Has Never Been So Fragile. (video) The future of capitalism’s Asian citadel is far from certain as Shanghai and Shenzhen exchanges gain ground.
  • China’s Crude Steel Output Rises in Teeth of Trade Tensions. Output rose to 70.5 million metric tons, up 1.8 percent from a year earlier and 1.6 percent higher than April, the National Bureau of Statistics said Monday. The figure is just below March’s record 70.65 million tons and brings the total for the first five months to 330 million tons, down 1.4 percent on year. China accounts for about half of global supply for the metal used in everything from cars to skyscrapers.
  • Record Junk-Debt Mountain Hangs Over Corporate Canada. Corporate Canada is nursing a monumental junk-debt hangover that’s unlikely to let up until the end of the year. Driven by energy and mining industries that leveraged up during the commodity boom, Canadian companies have racked up a record of at least $69.6 billion of high-yield debt, including $61.3 billion of U.S. dollar-denominated bonds, according to Bank of America Merrill Lynch data. That’s a 133 percent increase from five years ago, according to Bloomberg calculations.
  • China’s Stocks Sink Most Since February on Eve of MSCI Decision. China’s stocks tumbled the most in three months as concern grew about the nation’s economic outlook and investors awaited MSCI Inc.’s decision on whether to include mainland shares in its global indexes. The Shanghai Composite Index dropped 3.2 percent as mainland markets traded for the first time since Wednesday. The ChiNext index of smaller companies sank 6 percent to its lowest level in almost a month, as Leshi Internet Information & Technology Corp. plunged by the 10 percent daily limit. China’s fixed-asset investment in the first five months of 2016 trailed all 38 economists’ forecasts, reports showed Monday, while yuan approached a five-year low.
  • Emerging-Market Assets Drop as Brexit Concern Damps Risk Demand. The MSCI Emerging Markets Index fell 1.8 percent to 808.81 at 11:41 a.m. in New York, pushing the three-day decline to 4 percent. All 10 industry groups dropped.
  • Europe Stocks Slide for Fourth Day as Brexit Concerns Intensify. (video) European stocks slid to their lowest in almost four months as investor anxiety that the U.K. will leave the European Union deepened. The Stoxx Europe 600 Index fell 1.8 percent to 326.8 at the close of trading. Shares Friday slumped the most since the nadir of the February selloff as risky assets were shunned before a slew of monetary-policy and political events. The equity gauge has traded in a range of less than 25 points since March, struggling to hold on to gains after surging 16 percent from its February low to an April 20 high. A measure of stock volatility jumped 14 percent today, for its biggest four-day increase since August.
Wall Street Journal:
Zero Hedge:
  • BMW Sees U.S. Stagnate 2016 'At Best'. "The US market will stagnate in 2016 at best", BMW's Sales Chief Ian Robertson says in an interview. Will probably even "shrink a little", he said. BMW US Jan-May sales fell -7.9%.
  • Apple's iPhone Sales Said to Fall for First Time in 2016. iPhone annual shipments to fall for first time since 2007 this year due to lukewarm demand for a new model, citing people familiar with the data. Overall, iPhone shipments will total 210m-220m this year, falling as much as 8.6% from 2015, citing a person at a major supplier. Hon Hai Precision Industry Chairman Terry Gou has told his staff that demand for iPhones will remain feeble until at least early next year, citing unidentified source.
  • Most Polled Say Abenomics Won't Improve Japan's Economy. 62% of those polled by Kyodo say they don't think the economy will improve under the Abenomics program of Japanese Prime Minister Shinzo Abe, vs. 28% of respondents who said it would improve.

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