Wednesday, July 20, 2016

Today's Headlines

  • Erdogan Gathers His Top Turkey Security Chiefs as Purges Spread. (video) Turkey’s President Recep Tayyip Erdogan met with top security officials for the first time since Friday night’s thwarted coup amid a widening purge of state institutions, and has vowed to make an “important” announcement afterward. Following a National Security Council meeting in Ankara that began at about 1 p.m., Erdogan will also gather with ruling AK Party government ministers as well as the full cabinet in a series of meetings that could last several hours. Deputy Prime Minister Nurettin Canikli told BloombergHT television in an interview Tuesday that measures to be announced will include a “new framework in line with the constitution” for the prosecution of the coup plotters. Erdogan’s chief adviser Cemil Ertem told Anadolu news agency there’s no plan to impose capital controls, and Deputy Prime Minister Mehmet Simsek said on Twitter that policy steps taken will be “market friendly.” The government’s crackdown in reprisal for the coup attempt has been swift and severe. Turkey has detained, suspended, fired or stripped the professional accreditation of around 60,000 people, according to Bloomberg calculations.  
  • Turkish Government to Consider State of Emergency After Coup. (video) A leading member of President Recep Tayyip Erdogan’s ruling AK Party said Turkey could consider imposing “extraordinary measures” as top security officials met for the first time since Friday night’s thwarted coup. The lira fell to a record low after S&P Global Ratings downgraded the country’s debt. The National Security Council, which consists of Erdogan and top generals as well as some members of government, “may take some steps” if it decides that a state of emergency is necessary, AK Party Deputy Chairman Cevdet Yilmaz told Haberturk television. The council meeting ended just before 6 p.m. in Ankara, after which Erdogan was to gather the cabinet for talks that could last hours.
  • ECB Precision Stimulus Can’t Duck Doubt on How Economy Works. Mario Draghi’s quantitative easing may look like a precise business; the underlying economics are anything but. Two recent observations by the European Central Bank on output and employment highlight how monetary policy is far from an exact science, underlining the challenge that the institution’s president and his colleagues will face in their two-day meeting starting Wednesday. In evaluating their targeted strategies to boost the euro area’s feeble inflation rate, they have to measure the economy -- and that’s the trouble. It starts with a paper published on July 1 by researchers Marek Jarocinski and Michele Lenza on the size of the 19-nation currency bloc’s “output gap” -- or the spare capacity in the economy. The conclusion that the gap could be as much as minus 6 percent of potential gross domestic product, compared with typical estimates closer to 2 percent, suggests that even the 80 billion euros ($88 billion) a month the ECB spends on stimulus isn’t nearly enough.
  • European Banks May Need $517 Billion of Loss-Absorbing Funds. European banks need to sell hundreds of billions of euros in loss-absorbing liabilities over the next few years to meet European Union rules designed to protect taxpayers from the cost of bank failures. The European Banking Authority estimates as much as 470 billion euros ($517 billion) of financing is needed under the most conservative assumptions for what qualifies as “loss-absorbing.” Excluding senior unsecured debt could bring the amount to 790 billion euros, the regulator said in its first quantitative impact study on the EU’s minimum requirement for eligible liabilities and own funds, or MREL.
  • World’s Silence on Weaker Yuan to Be Tested at G-20 Gathering. China has managed to weaken its currency in recent months without so much as a peep from trading rivals, despite the competitive advantage garnered amid sluggish global growth. That quiescence -- thanks to a shift in policy from sharp moves at the start of 2016 that triggered global market turmoil to more of a steady, modest decline -- will be tested as Group of 20 finance chiefs gather on Chinese soil July 23-24. The yuan, once an anchor for Asia during troubled times, has so far this year marked the biggest drop against the dollar among the region’s currencies.
  • European Stocks Climb to Four-Week High as SAP, Volkswagen Jump. Technology and auto companies led European equities to a four-week high amid encouraging earnings announcements. Software maker SAP SE climbed 5.7 percent after reporting second-quarter results that beat analyst projections. ASML Holding NV advanced 3 percent after Europe’s largest semiconductor-equipment maker said sales increased. Volkswagen AG jumped 6 percent after saying first-half earnings exceeded estimates. Anglo American Plc helped drag miners lower, falling 4.8 percent, after cutting its copper production target. The Stoxx Europe 600 Index added 1 percent at the close of trading in London, with the volume of shares changing hands 34 percent lower than the 30-day average.
  • Bull Who Saw Treasury Rally Forecasts Yields Will Fall to 0.9%. Komal S. Sri-Kumar, the economist who predicted the 2016 Treasury market rally when the consensus was for a selloff, says benchmark yields may fall to a record 0.9 percent by the end of the year. His forecast goes further than that of Matthew Hornbach, the head of global interest-rate strategy for Morgan Stanley in New York, who this week predicted the benchmark would fall to 1 percent in the first quarter of 2017.
  • Wall Street Whacks Pay Hardest in Four Years to Preserve Profits. Three of Wall Street’s largest investment banks slashed their first-half compensation pools for employees by the most in at least four years. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley collectively reduced the amount of money they set aside for employee pay in the first and second quarters by 17 percent to $19 billion to shore up profits, according to data compiled by Bloomberg from regulatory filings. That’s a steep drop from last year, when the three firms’ investment-banking divisions increased first-half compensation 4 percent to $22.9 billion.
  • S&P 500 Sends Mixed Technical Signals as Rally Nears 10%: Chart.
Wall Street Journal:
  • Corporate debt seen ballooning to $75 trillion: S&P. (video) Corporate debt is projected to swell over the next several years, thanks to cheap money from global central banks, according to a report Wednesday that warns of a potential crisis from all that new, borrowed cash floating around. By 2020, business debt likely will climb to $75 trillion from its current $51 trillion level, according to S&P Global Ratings. "A worst-case scenario would be a series of major negative surprises sparking a crisis of confidence around the globe," S&P said in the report. "These unforeseen events could quickly destabilize the market, pushing investors and lenders to exit riskier positions ('Crexit' scenario). If mishandled, this could result in credit growth collapsing as it did during the global financial crisis." In fact, S&P considers a correction in the credit markets to be "inevitable." The only question is degree.
Zero Hedge:
Washington Free Beacon:

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