Tuesday, June 21, 2016

Today's Headlines

  • Bookies Say It’s Almost All Over as Gamblers See No Brexit. (video) Bookies and gamblers are strengthening in their conviction that the U.K. will opt to remain in the European Union, as polls show a swing away from a so-called Brexit. Ladbrokes Plc said Tuesday that the odds on a “Remain” vote had shortened to a 2/9 chance, indicating an 82 percent probability. Brexit opponents may win with 50 percent to 55 percent of the vote, wagers on the Betfair exchange suggest. “As far as the money’s concerned, it looks like Brexit is beginning to fall at the final hurdle,” Jessica Bridge, a spokeswoman for Ladbrokes, said in an e-mailed statement. The company said late Monday that some 95 percent of all referendum wagers in the previous 24 hours had been placed on voters rejecting Brexit. “Money talks, and it’s one-way traffic from ‘Remain’ punters.” Polls released since the killing of pro-EU campaigner Jo Cox have suggested the “Remain” camp is gaining ground, producing the swing back toward the vote to stay that bookies and gamblers anticipated before her death.
  • Does China's Debt Bomb Mean Exploding Bonds? (video)
  • China Inc. Seeks Rehab for Short-Term Debt Addiction. Time is running out for Chinese companies addicted to short-term debt. About 47 percent of the 4.3 trillion yuan ($654 billion) of local-currency bonds sold by Chinese non-banking companies in 2016 mature in one year or less, data compiled by Bloomberg show. Ten out of the 17 onshore notes that defaulted this year have such short maturities, compared with one out of seven in the whole of 2015. As banks try to keep zombie companies alive, short-term liabilities including loans account for 86 percent of the total versus 40 percent globally, a Natixis analysis of the 3,000 biggest listed companies in China shows.
  • Rajan Urges India to Continue Inflation War as Critics Mount. As central bank Governor Raghuram Rajan prepares to leave, he has one request for India: Don’t stop fighting inflation. In an impassioned defense of his policies on Monday night, Rajan called the battle to stem price gains “revolutionary" and urged his successor to stay the course. Any diversion, he argued, would again impose “the hidden inflation tax" on the poor and middle class. Investors are watching for signs that the inflation-targeting regime spearheaded by Rajan is strong enough to outlast him. Before he surprised India by saying he would return to academia in September, many investors expected him to stay on another few years to oversee a new monetary policy committee that would target specific inflation goals. Now comments from Prime Minister Narendra Modi’s allies are raising fresh questions about India’s commitment to stemming one of Asia’s fastest inflation rates. A senior government official told reporters on Monday that high interest rates were hurting domestic industry, while Subramanian Swamy, a member of Modi’s ruling party who led a campaign to oust Rajan, has called for scrapping the inflation target altogether.
  • Asia's Bank Profits Face a Powerful Storm, McKinsey Says. Asia-Pacific banks face “a powerful storm” which will probably hurt profit growth in an industry that earned half a trillion dollars last year, according to McKinsey & Co. A triple threat of slowing economic growth, technology disruption and weaker balance sheets could come together to “cripple” returns on equity by 2018, the New York-based consultancy said in an analysis of 328 banks in the region. Profit growth may slow to below 4 percent annually between 2016-2021, down from about 10 percent in 2011-2014, said Joydeep Sengupta, one of the report’s authors.
  • Swiss Watch Exports Slump Extends Into Eleventh Month in May. Swiss watch exports dropped in May, bringing the industry’s slump close to a full year as the industry faced plunging demand across Asia and Europe. Shipments fell 9.7 percent to 1.56 million Swiss francs ($1.62 million), the Federation of the Swiss Watch Industry said in a statement Tuesday. Exports have declined for the past 11 months, and had back-to-back monthly double-digit declines in March and April.
  • European Stocks Climb With Banks for 3rd Day Before Brexit Vote. (video) European stocks capped their biggest three-day advance in almost 10 months amid optimism Britons will vote to stay in the European Union in Thursday’s referendum and as the euro fell. The Stoxx Europe 600 Index added 0.7 percent at the close. Stocks have climbed 5.8 percent in three sessions after surveys showed the U.K. campaign to stay in the EU is gaining ground.
  • Corn Prices Are Tumbling in World’s Top Exporters on Supply View. Corn futures in Chicago are heading for the biggest two-day drop since August and prices are slumping in Sao Paulo state as the supply outlook improves in the U.S. and Brazil, the world’s top exporters.
  • Fed Warns of Vulnerabilities Building in Commercial Real Estate. The Federal Reserve warned that prices in the commercial real-estate market may have run up too far too fast. Valuations in commercial real estate “appear increasingly vulnerable to negative shocks, as CRE prices have continued to outpace rental income,” the Fed said in its semiannual Monetary Policy Report to Congress. The Fed noted that prices exceed their pre-crisis peaks by some measures. The Fed included a special section on financial stability risks in the report, which accompanies Chair Janet Yellen’s testimony. The report said that even given “moderate’’ financial vulnerabilities, risks of external shocks, such as the U.K.’s possible exit from the European Union, pose stability risks. The report also highlighted issues related to credit exposures to the energy sector, money-market mutual funds and stock valuations. The central bank said price-to-earnings ratios on a forward-looking basis for stocks have increased to a level “well above” their median for the past 30 years.
  • These CEOs Could Earn Millions From Stock Awards Valued at Zero. As scrutiny of executive compensation intensifies, some companies are using a little-known technique that keeps potential payouts under the radar. Six Flags Entertainment Corp. and Tempur Sealy International Inc. have awarded millions of dollars in stock to top bosses and given the equity a unique value: zero. To use that figure, the companies set performance targets they said were unlikely to be met. Doing so is rare. Few boards set impossible goals and even the loftiest targets typically have some chance of being met. That’s been the case at Six Flags. Two of three improbable goals have been achieved, resulting in windfalls for executives. The third is still outstanding. “It’s very unusual for a compensation committee to grant a performance award that really has no hope of being earned,” said John Roe, a managing director at a unit of proxy adviser Institutional Shareholder Services Inc. Even if the award likely won’t be earned, “that’s not the same as it having a zero value at the date of grant.”
  • Auto-Parts Stocks Slide as BofA Trims Car-Sales Outlook. The shares of U.S. auto-parts makers including American Axle & Manufacturing Holdings Inc. and BorgWarner Inc. fell after Bank of America Corp. trimmed its annual estimates for car sales and cut the ratings of some suppliers
Wall Street Journal:
Zero Hedge:
The Telegraph:
  • The doom loop is back: Europe’s banks are still buying more of their own governments’ debts. Europe’s banks are still buying more of their home governments’ bonds, even though the enormous exposures between states and financial institutions risk re-starting the so-called ‘doom loop’ that damaged the Greek economy so badly. Banks have doubled their holdings of their own states' debt since 2008, according to Standard and Poor's, despite plans over the past five years to cut back on the exposures. When banks invest heavily in one government’s debt, the banks become dependent on the government’s good performance, and the governments depend on the banks purchasing the debt. If either one falters, the consequences can be dire for both.

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