Thursday, July 21, 2016

Today's Headlines

  • Draghi Joins Not-Quite-Sure Club Puzzling Over Brexit Aftermath. Mario Draghi is part of a growing club of central bankers who are just fine with admitting they’re uncertain what’s going on right now -- and that’s no barrier to action. Far from giving fresh insights into how the U.K.’s decision to leave the European Union will affect the euro area’s economy, the European Central Bank president admitted on Thursday that, like everyone else, he has no real visibility. “It’s very difficult to understand how these big macro themes affect the recovery,” he said in Frankfurt after the ECB left its interest rates and quantitative easing unchanged. Yet Draghi still stressed a “readiness, willingness, ability” to act if needed, so joining Bank of England Governor Mark Carney and even Federal Reserve Chair Janet Yellen as front-line risk managers in the midst of political turmoil. The consequence will be an intense focus on the slim roster of incoming data between now and the next ECB policy meeting on Sept. 8 to judge whether another roll of the stimulus dice should, and can, be undertaken.
  • Research Firm Warns of 'Putinisation' Risk to Turkish Stocks. The fallout from Friday night's failed coup attempt in Turkey is casting a shadow over equity investing in the $720 billion economy. Strategists from Ecstrat Ltd., an emerging-markets research consultancy, invite comparisons between President Recep Tayyip Erdogan and his frenemy to the north, Russia's Vladimir Putin, following the former's reprisals against thousands of military, legal and judicial personnel in the wake of the botched coup attempt by a section of his army.
  • The Emerging Markets Debt Time Bomb.
  • China Factory Gauge Suspended, This Time ‘Indefinitely’. Publishers of the China Minxin Manufacturing PMI Index suspended the gauge for a second time, scrapping an early monthly reading on the world’s second-largest economy. Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended “indefinitely,” the academy said Thursday in a statement on its website, without giving a reason. The indicators, which track manufacturing and services, were more volatile than the official PMI from the National Bureau of Statistics. The cancellation is another setback for investors and economists looking for ways to take the pulse of business activity beyond official data from the government. One other early estimate of manufacturing, a flash PMI compiled by Markit Economics and sponsored by Caixin Media, was discontinued Oct. 1
  • What Yuan? Currency Near Low With S&P 500 at High Is a First. An ability to whistle past trouble has marked the progress of U.S. stocks for seven years. But getting to records while staring at a threat that had investors whimpering just four months ago is something new. Whatever became of the falling yuan, celebrated villain of American equity corrections in January and August? Devaluation of the Chinese currency was supposed to foretell the end of liquidity, a world whose main engine of growth was seizing up, tolling the bell for risk-on euphoria.
  • At BOJ, Concerns Are Said to Broaden Over Policy Sustainability. An increasing number of officials at the Bank of Japan are concerned about the sustainability of the current framework for massive monetary stimulus, according to people familiar with the discussions. Some current and former BOJ officials, including dissenting board member Takahide Kiuchi, have for some time publicly said that the central bank’s unprecedented scale of bond purchases and time frame for achieving its 2 percent inflation goal is problematic. Now, there’s a broadening sense among some at the BOJ that the bank has to weigh the costs and benefits of policy measures more carefully, according to the people, who asked not to be named as the discussions are private.
  • Yen Collapse Seen by Kuroda Critic Pitching Perpetual Bond Plan. A Bank of Japan veteran-turned-critic says there’s only one way policy makers can avoid a collapse in the yen and bonds -- sovereign debt with no maturity date and no fixed coupon. Making the repayment of government notes open-ended and with interest rates that float is part of an unconventional plan pitched by Mitsuru Iwamura, a Waseda University professor who worked at the BOJ for over two decades until 1998. Amid growing speculation of additional bond-buying stimulus next week that could include so-called helicopter money, Iwamura says a road map for tapering is needed right away. “When the time comes to exit stimulus, yields will rise no matter what -- so if the BOJ’s bond holdings have fixed coupons, they will suffer a massive valuation loss, risking a collapse in the yen and fiscal trust,” Iwamura, 66, said in an interview Monday. “It’s like the situation in Japan in the summer of 1944. It’s too late to argue over whether it was right to start a war. What’s important now is how to end it.”
  • Brazil Dismantles Supposed Terrorist Cell With Olympic Plot. Brazil’s federal police detained a group of Brazilian nationals who were allegedly plotting terrorist attacks for the Summer Olympics, which are set to kick off early next month in Rio de Janeiro. The group was possibly participating as an Islamic State cell, Justice Minister Alexandre de Moraes said Thursday, adding that 10 suspects are in custody and warrants are out for another two, who are being monitored. Wiretaps revealed messages that supported racial and religious intolerance, as well as the intent to use firearms and guerrilla tactics to achieve their objectives.
  • Trump’s NATO Skepticism Raises Alarm for Allies Near Russia. Republican presidential nominee Donald Trump sent alarm rippling through Eastern Europe after he said the U.S. would only defend NATO states attacked by Russia if those nations “have fulfilled their obligations to us,” his strongest comments to date on the military alliance’s future if he enters the White House. In an interview with the New York Times on Wednesday, the billionaire cast doubt on whether he would automatically extend the security guarantees that give the 28 members of the North Atlantic Treaty Organization the assurance that they have U.S. military support in the event of an attack. He specifically referred to the three small Baltic states which share borders with Russia.
  • Europe Stocks Little Changed on Mixed Earnings as ECB Stays Put. European stocks were little changed amid mixed earnings reports as Mario Draghi said the European Central Bank will consider adding stimulus when it has a clearer picture of the impact of Brexit. The Stoxx Europe 600 Index lost less than 0.1 percent at the close, paring earlier losses of as much as 0.7 percent. While Draghi refrained from loosening policy after last month’s U.K. vote to leave the European Union, he stressed willingness and ability to use all available instruments if required. Economists forecast the ECB will most probably wait until its Sept. 8 meeting to extend quantitative easing.
  • Biggest Nordic Bank Predicts Oil Industry Losses Through 2017. The Norwegian unit of Nordea Bank AB says its clients in the oil industry face several “tough years ahead” as petroleum prices fail to recover to anywhere near pre-crisis levels. “There’s still a fall within exploration and production,” Snorre Storset, the chief executive officer of Nordea Norway, said in an interview in Oslo on Wednesday. “There’s a bigger uncertainty surrounding this. It will take time before it gets stable again within oil and offshore. We think we will have losses in 2016 or in 2017, which we now start to take into account.” Norway, western Europe’s biggest oil exporter, has struggled to adjust to lower energy prices. More than 30,000 industry workers have lost their jobs and there has been a wave of debt defaults for companies that service the oil producers. Though Brent crude has recovered from a January low of about $27 a barrel, its current price of $46 is still some 60 percent below a 2014 peak of $115.
  • Starting to Show Up as Stocks Sit Near All-Time Highs. Flows and sentiment show investors are all bulled up. The S&P 500 and Dow Jones Industrial Average both closed at record highs on Wednesday and a peek at the underbelly of market flows and sentiment suggests that a sense of euphoria has enveloped investors.
Zero Hedge:
ABC News:
  • Nice Attacker Plotted for Months, Had Accomplices, Official Says. (video) The man who killed 84 innocent people by driving a truck through a packed crowd at a fireworks display in Nice, France, may have plotted the attack for at least a year and is believed to have had the help of at least five other people, a French official said today. Paris prosecutor François Molins said authorities found "revealing" online searches and photos on the cellphone and laptop belonging to Nice killer Mohamed Lahouaiej Bouhlel dating back to last year, including photos of the 2015 fireworks display.
  • ECB may review conditions for bond purchases after break, Weidmann says. The European Central Bank may discuss after its summer break reviewing the conditions for the central bank's bond purchases, Bundesbank President Jens Weidmann told Reuters on Thursday when asked if Brexit could further narrow the pool of bond options."In addition to economic considerations, the limits of the mandate for monetary policy and the legal limits will also be considered," Weidmann said. He added it was too early to tell how Britain's vote to leave the European Union will affect the inflation rate in the euro zone and that it would be wrong to use Brexit as a pretext to pursue an active exchange rate policy. "Competitive devaluations to stimulate the economy will not work and all will lose as a consequence," he said. Brexit will be high on the agenda when G20 finance ministers and central bank governors meet in Chengdu, China, on July 23-24.
  • Soros Says Deutsche Bank 'Most Vulnerable' Commercial Bank. "Deutsche Bank is clearly the most vulnerable big commercial bank," citing George Soros as saying in an interview. German savings banks also look weak, he said. "The European banking system is less solid and healthy than in the US or UK. The clean-up efforts there were less extensive and thorough after the last global financial crisis.
  • iPhone Cutback Hurts Japan Component Makers. iPhone production cutback contributed to 1Q order decline of -25% at Nitto Denko and -6% at Kyocera, citing newspaper estimates. Stronger yen hurt others, the report said.

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