Sunday, July 03, 2016

Today's Headlines

  • Carney Set to Extend BOE Crisis-Management Mode Using New Tools. As Britain stares at the prospect of another financial crisis, Mark Carney is breaking open an emergency toolkit that was created after the last one. The Bank of England governor has been in full flow since the U.K.’s shock vote to leave the European Union and is set to make his third appearance in 12 days on Tuesday to address the threats facing the financial system. He’ll outline the macroprudential tools available to support the economy, boost business lending and encourage investment -- and may ease capital requirements for lenders. Britain’s decision to split with its biggest trading partner has roiled markets, rattled investors and left a political vacuum that made Carney a beacon of stability. After signaling a willingness to cut interest rates and offering funds to banks, the governor last week pledged to take any further action needed to support financial stability as he warned of high uncertainty and a deteriorating economic outlook.
  • Brexit Has Euro Outsiders Fearing Banking Fallout, Denmark Says. Britain’s decision to leave the European Union will weaken the ability of the remaining non-euro members to shape financial regulation, according to Denmark’s bank watchdog. “We’ve lost a heavyweight in our camp,” said Jesper Berg, director general of the Financial Supervisory Authority in Copenhagen. “They’ve always provided intellectual leadership, and they have close contact with a huge financial market, which helps them provide that leadership. That will be something that we’ll miss.”
  • Germany’s Schaeuble Urges Post-Brexit Push to Curb Brussels. Finance Minister Wolfgang Schaeuble signaled that Germany wants national governments to set the pace for future cooperation within the European Union, saying they should sidestep the European Commission in Brussels if needed. Schaeuble’s comments in Sunday media interviews outline the emerging response by Chancellor Angela Merkel’s government to last month’s U.K. referendum to leave the EU. It signals a looming clash with advocates of EU integration such as European Commission President Jean-Claude Juncker and those governments that view German-led budget rigor in the euro area as holding back growth and jobs.
  • French Claim Euro-Clearing Business as Brexit Spoils Sought. French executives and politicians are circling the U.K. for spoils after last month’s shock referendum result as leaders in the rest of Europe urge caution, saying the vote to leave the bloc should be viewed as a “wake-up call” for the region. French Economy Minister Emmanuel Macron, speaking Sunday in an interview, said he wants to take the euro-clearing business from the U.K. and move it to Paris. Michelin & Cie. Chief Executive Officer Jean-Dominique Senard and Veolia CEO Antoine Frerot, two of the many executives at a weekend conference in Aix-en-Provence, France, said they saw opportunity in the U.K.’s decision. While the ultimate implications of the U.K. vote to quit the European Union will take months, or years, to be understood, business leaders are positioning themselves to profit. It may herald growth for euro zone-based market places and players, stock exchange operator Euronext NV Chief Executive Officer Stephane Boujnah said Saturday.
  • China Bank Bailout Calls Grow Louder as Markets Seen Vulnerable. Predictions of a Chinese banking system bailout are going mainstream. What was once the fringe view of permabears and short sellers is now increasingly being adopted by economists at some of the world’s biggest banks and brokerages. Nine of 15 respondents in a Bloomberg survey at the end of last month, including Standard Chartered Plc and Commonwealth Bank of Australia, predicted a government-funded recapitalization will take place within two years. Among those who provided estimates of the cost, a majority said it will exceed $500 billion. While a bailout of that size would be a far cry from the $10 trillion forecast of U.S. hedge fund manager Kyle Bass in February, the responses reflect widespread concern that Chinese lenders will struggle to cope as bad loans surge. Even as some analysts said a state recapitalization would put the banking system on a stronger footing, 80 percent of respondents predicted news of a rescue would weigh on Chinese markets -- dragging down bank stocks and the yuan while pushing up government borrowing costs and credit risk.
  • Yen's stunning 17% surge in 2016 threatens to wipe out 3 years of stimulus. What was the extreme bullish scenario among yen forecasters at the start of 2016 is now close to the base case - and even that may turn out to be too cautious. The boldest forecasts for gains underestimated the Japanese currency's strength in the first half of 2016 by at least 10 per cent. The yen exceeded all estimates as investors sought it as a haven after events that most considered unlikely came to pass - from Britain's decision to quit the European Union to Donald Trump's emergence as the presumptive US Republican presidential nominee. Strategists are still catching up, with June seeing the biggest monthly boost in year-end predictions since 2008.
  • Aussie Drops as AAA Rating Seen Threatened by Unclear Election. Australia’s dollar fell after a national election Saturday left neither major party with enough seats to form a majority government, potentially increasing risks to the country’s top credit rating. Investors have been left in limbo by the unclear result, with Prime Minister Malcolm Turnbull’s Liberal-National coalition and the opposition Labor party both currently short of the 76 seats needed for a majority in the 150-member House of Representatives. Vote counting resumes Tuesday, and Turnbull said the result may be known by the end of the week.
  • Asian Stocks Retreat After Weekly Gain as Japan Shares Decline. Asian stocks slipped, with the regional benchmark index retreating from its biggest weekly advance in more than two months, as Japanese shares fell amid a stronger yen. The MSCI Asia Pacific Index fell 0.2 percent to 129.36 as of 9:03 a.m. in Tokyo. 
  • Oil Rally Threatened as Gasoline Supply Surge Swamps U.S. Demand. American drivers’ seemingly insatiable thirst for gasoline is running into a flood of supply. Refineries across the nation are operating full-out and imports are pouring into the East Coast, boosting gasoline supplies to a record. At the same time, consumption has turned out to be less robust than thought. That’s weighed on prices, threatening to stem oil’s rebound from a 12-year low. "Earlier this year there was a lot of hope that gasoline would lead crude higher," said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. "That’s not turned out to be the case and gasoline will soon be a weight on the market."
  • Russian Oil Exports Set for Record as Europe Competition Grows. Russian crude exports are on track to set a record this year, which is intensifying competition in Europe as Iran boosts shipments to the region. Exports rose 4.9 percent to 5.55 million barrels a day in the first half of the year from the same period in 2015. Russia’s output in June climbed 1.14 percent from a year earlier to 10.843 million barrels a day, with increases every month since July 2014, according to data from the Energy Ministry. “If production remains steady, then it will likely be a record year for exports,” said Christopher Haines, head of oil and gas at BMI Research. “This should mean competition is strong, especially with Iran sending more oil into southern Europe.”
  • Clouds Hang Over U.S. Auto Outlook. (video)
Wall Street Journal:
  • Death Toll Tops 120 from Blast in Baghdad Shopping District. Islamic State claims responsibility for the car bombing; prime minister heckled at blast site. A massive car bomb exploded overnight in the heart of one of Baghdad’s busiest commercial areas, killing at least 121 people and wounding many others, security officials said. Islamic State claimed responsibility for the bombing, the extremist group’s first major attack on the Iraqi capital since losing the nearby city of Fallujah to Iraqi forces late last month. A series of defeats in Syria and Iraq since last fall has prompted the militants to revert to more guerrilla-style tactics such as suicide attacks on civilians in urban areas.
Zero Hedge:

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