- Corporate earnings are heading for a fifth straight quarter of declines, dragged down mostly by energy companies’ struggles with low oil prices and a tepid global economy that threatens to throttle sales growth in many industries. U.S. companies as varied as hamburger chain McDonald’s Corp. and Honeywell International Inc., a maker of gas-processing equipment and cockpit controls, have slashed costs and bought back shares to help earnings. Amid a worldwide sales slog, European pay-TV operator Sky Plc and South Korea’s Hyundai Heavy Industries Co. are crimping expenses to boost profit. John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., calls it earnings engineering, and he’s seen it before. Companies have grappled with a lackluster economy for several years as the U.S. manufacturing recovery sputtered, the world economy slowed and oil prices fell to $50 a barrel from more than $100 in 2014. “There hasn’t been a lot of what you might call real, honest earnings growth through sales and business improvement and expansion of operations,” said Carey, whose firm oversees about $240 billion of equities and fixed income worldwide. “They just keep digging deeper into the hat and finding hidden rabbits and new ways to generate earnings.”
- Europe in Crisis: The Elections to Watch for Political Risk. Voters across Europe will determine the destiny of a content in turmoil. Brexit. The largest influx of refugees since World War II. A spate of terrorist attacks. A populist insurgency. Another banking meltdown. The crises buffeting the European Union show no signs of letting up. The U.S., Europe’s strongest ally, is embroiled in the most tumultuous election in living memory, Turkey is in turmoil and Russian President Vladimir Putin is watching from the sidelines. Europe’s response to its multiple challenges will be shaped by a rash of elections over the coming year. Countries accounting for about 40 percent of the EU economy are going to the polls in 2017, when Chancellor Angela Merkel could be running for a fourth term in Germany. Here is a list of the votes that could have the most impact.
- Prime Minister Shinzo Abe’s "bold" plan to revive the economy with a $273 billion package leaves him traveling down a well-trod path: it marks the 26th dose of fiscal stimulus since the country’s epic markets crash in 1990, in a warning for its effectiveness. The nation has had extra budgets every year since at least 1993, and even with that extra spending, it has still had six recessions, an entrenched period of deflation, soaring debt and a rapidly aging population that has left the world’s third-largest economy still struggling to get off the floor.
- Investors who had hoped for helicopters are getting Prime Minister Shinzo Abe instead. The Bank of Japan boosted its annual exchange-traded fund budget to 6 trillion yen ($58 billion) from 3.3 trillion yen while leaving the size of bond buying and the level of its negative deposit rate unchanged. Japanese government bonds suffered the biggest slump since 2013 and the yen rallied the most since the U.K. voted to leave the European Union. “The decision indicates that there are limited options left for the central bank,” said Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management in Tokyo. “The BOJ’s announcement was at the minimum end of what investors were expecting. Effectively, this is a sort of non-action action.”
- Investors are balking at bonds sold by companies in China’s province most vulnerable to financial risks, amid concerns the government is cutting support for troubled firms. Right Way Real Estate Development Co., a developer based in the city of Dalian in the northeastern province of Liaoning, sold five-year AA rated notes at a yield of 7 percent on July 26. That was 289 basis points higher than the average on similar-maturity securities nationwide. Xinmin City Luxin Municipal Engineering Co., a local government financing vehicle also based in Liaoning, issued seven-year AA rated debentures at 6.41 percent in the same month, 206 basis points higher than the market yield. Premier Li Keqiang, who served as party secretary of Liaoning from 2004 to 2007, is seeking to weed out zombie state-owned firms as China’s economy grew at the slowest pace in a quarter century. Chinese investors, who had been used to government bailouts, have seen a total of 17 onshore bond defaults nationwide this year, compared with seven in 2015, as authorities allow market forces to play a bigger role.
- Banca Monte dei Paschi di Siena SpA’s plan to turn to private investors to help bolster its balance sheet ended speculation that Italy would bail out the world’s oldest lender for a third time to help stave off another banking crisis. Success depends in part on winning backing for a new fund that will buy the bank’s bad loans at prices that, according to at least one analyst, are higher than buyers have been willing to pay. Then Monte Paschi needs to find investors willing to provide 5 billion euros ($5.6 billion) of new equity to a lender worth less than 1 billion euros.
- Japan Shares Retreat Following Yen Surge as Crude Resumes Losses. Japan drove declines in Asian shares following Friday’s surge in the yen, while emerging-market currencies played catch-up as reduced bets on U.S. interest-rate increases weighed on the dollar. Oil swung to losses. Exporters led the Topix index down for for the second time in three days as the yen, while pulling back somewhat, remained beyond 103 per dollar following last session’s 3.1 percent surge. The MSCI Asia Pacific Index lost 0.2 percent by 9:47 a.m. Tokyo time, as roughly double the number of rising stocks fell.
- Saudi Aramco, the world’s largest oil exporter, lowered the pricing terms for Arab Light sold to Asia by the most in 10 months as refineries grapple with falling margins and oversupply. State-owned Saudi Arabian Oil Co. said Sunday it will sell cargoes of Arab Light in September at $1.10 a barrel below Asia’s regional benchmark. That is a pricing cut of $1.30 from August, the biggest drop since November, according to data compiled by Bloomberg. The company was expected to lower the pricing by $1 a barrel, according to the median estimate in a Bloomberg survey of eight refiners and traders.
- Oil fell in New York after U.S. producers increased the number of rigs drilling for crude for a fifth consecutive week, adding to concern a global glut will persist. Futures dropped as much as 0.9 percent, adding to a 14 percent drop in July. Rigs targeting crude in the U.S. rose by 3 to 374, Baker Hughes Inc. said on its website Friday. Libya has reopened the ports of Ras Lanuf, Zuwetina, Es Sidra, Brega, for crude exports, according to statement from the Petroleum Facilities Guard. Oil has slipped 19 percent from an early June high, ending a recovery that saw prices almost double from a 12-year low in February.
Wall Street Journal:
- Tensions Rise in Germany Over Immigration in Wake of Attacks. German leaders pay respects at memorial for victims of July 22 mass shooting.
- India’s Go-Slow Reform Efforts Hamstring Economic Transformation. Cautious liberalization that began in 1991 encumbers modern changes.
- The Clinton Foundation, State and Kremlin Connections. Why did Hillary’s State Department urge U.S. investors to fund Russian research for military uses? Hillary Clinton touts her tenure as secretary of state as a time of hardheaded realism and “commercial diplomacy” that advanced American national and commercial interests. But her handling of a major technology transfer initiative at the heart of Washington’s effort to “reset” relations with Russia raises serious questions about her record. Far from enhancing American national interests, Mrs. Clinton’s efforts in this area may have substantially undermined U.S. national security.
- Top-end real estate is at a tipping point from seller’s market to buyer’s market.
- South Korea's exports worse than forecast in July. South Korea's exports shrank for a 19th straight month in July, with the pace of decline picking up again after moderating for two months, according to the Ministry of Trade, Industries and Energy. The worse-than-expected July data damped market hopes that the export-led economy may be on track for recovery, reaffirming it still faces strong headwinds amid sluggish global trade. Exports contracted 10.2% from a year earlier to $41.05 billion in July, following the previous month's 2.7% drop, preliminary data released Monday by the ministry showed. The pace of decline had slowed in May and June. The July reading missed the median market forecast for a 7% contraction. Imports dropped 14.0% from a year earlier to $33.25 billion in July, following a revised 7.7% decline in the prior month. The market had forecast a 9.5% fall for July.
- Thousands Of Germans Demand Merkel's Resignation; Protest "Open Door" Immigration Policy. (pic)
- Goldman(GS) Turns Outright Bearish: Says To "Sell" Stocks Over Next 3 Months. (graph)
- Explosion Rocks Rio's Main Olympic Stadium After "Controlled Blast".
- 500 Years Of Stock Panics, Bubbles, Manias, & Meltdowns (In 1 Simple Chart).
- Central Banks Are In A Lose-Lose Situation: Low-Rate-Policy "Has Rendered The System Profoundly Fragile".
- "Time's Up - The Pain Must Begin Now". (graph)
- Putting The BOJ's Purchases In Context: Equivalent To The Fed Buying $580 Billion In ETFs In 2 Years. (graph)
- Jihadist Al-Nusra Forces Launch Offensive To Keep Assad Out Of Syria's Aleppo.
- Why The IRS Is Probing The Clinton Foundation.
- The Real Reason Behind The Surge In Populist Anger: Central Banks.
- If You Disagree With This Harvard Economist You May Be Stupid And A Racist.
- From Reflation To Redistribution: The "War On Inequality" Looms.
- "We're Here To Help?" Feds Go Door-To-Door In Florida Demanding Urine Samples Amid Zika Outbreak.
- Seven Places Where WW3 Could Start At Any Time.
- Rahm Emanuel Says Chicago Pension Crisis "Improving", Facts Show He Is Lying.
- Turkey Surrounds, Blocks Access To NATO's Incirlik Airbase Amid Speculation Of Second Coup.
- The problem with relying on Russia to fight terrorism in Syria.
- Turkey says they'll let the migrants flow into Europe if denied visa-free travel.
- This chart shows how bad the US recovery is compared to past cycles.
- George Stephanopoulos awkwardly corrects Donald Trump when he says Putin 'is not going into Ukraine'. "He's not going into Ukraine, just so you understand. He's not going to go to Ukraine," Trump said. "Well, he's already there, isn't he?" Stephanopoulos replied. Trump responded by simultaneously criticizing the US's decision not to intervene to stop the annexation of Crimea, a former Ukrainian territory seized by Russia in 2014, and noting that many citizens of Crimea were allegedly supportive of Russia's decision to invade.
- Here's the latest sign we're about to see a bear market in stocks. (graph)
- It's time to get worried about the US economy — according to the people who know best.
- EXCLUSIVE – NSA Whistleblower: Agency Has All of Clinton’s Deleted Emails. The National Security Agency (NSA) has “all” of Hillary Clinton’s deleted emails and the FBI could gain access to them if they so desired, William Binney, a former highly placed NSA official, declared in a radio interview broadcast on Sunday.
- US $18bn credit card debt spree sparks fears. US banks have ramped up lending to consumers through credit cards and overdrafts at the fastest pace since 2007, triggering concerns that they are taking on too much risk in a slowing economy. The industry has piled on about $18bn of card loans and other types of revolving credit within just three months, as consumers borrow more and banks battle for customers with air miles, cashback deals and other offers.
- Texas shale oil has fought Saudi Arabia to a standstill. Opec's worst fears are coming true. Twenty months after Saudi Arabia took the fateful decision to flood world markets with oil, it has still failed to break the back of the US shale industry.
- China Faces Tougher Task in Preventing Financial Risk. China faces a tougher task in preventing financial risks as uncertainties in global economy increase and domestic conflicts rise, according to a commentary by Zhao Yang.
- Asian indices are . to +.% on average.
- Asia Ex-Japan Investment Grade CDS Index 119.25 -.75 basis point.
- Asia Pacific Sovereign CDS Index 47.25 -1.5 basis points.
- Bloomberg Emerging Markets Currency Index 72.52 +.07%.
- S&P 500 futures +.20%.
- NASDAQ 100 futures +.13%.
Earnings of Note
9:45 am EST
- Final Markit US Manufacturing PMI for July is estimated at 52.9 versus a prior estimate of 52.9.
- Construction Spending MoM for June is estimated to rise +.5% versus a -.8% decline in May.
- ISM Manufacturing for July is estimated to fall to 53.0 versus 53.2 in June.
- ISM Prices Paid for July is estimated to rise to 61.0 versus 60.5 in June.
- (GENC) 3-for-2
- (VSEC) 2-for-1
- The Fed's Dudley speaking, Fed's Kaplan speaking and Australia Trade Balance report could also impact trading today.