Tuesday, July 05, 2016

Today's Headlines

  • A Prime Minister, a Referendum and Italy’s Turn to Get Worried. It’s now a familiar refrain: A European prime minister calls a referendum, his job could be on the line and markets are getting worried. This time it’s not Britain’s David Cameron but Italy’s Matteo Renzi, who has called a vote on an ambitious overhaul of the political system aimed at ending the country’s unstable governments. If he loses, Renzi has promised to quit, an outcome that Citigroup Inc. called probably the biggest risk in European politics this year outside the U.K. The vote is expected in October, though it is already spooking investors and Italian bonds are once more under-performing their Spanish peers. The yield on 10-year Italian securities overtook those on similar-maturity Spanish debt for the first time in almost a year on June 27, a day after Spain’s Acting Prime Minister Mariano Rajoy defied opinion polls to consolidate his position in a general election. A public opinion poll by Euromedia Research said that 34 percent of Italians would vote against Renzi’s plan, with 28.9 percent in favor, 19.4 percent undecided on which way to vote and 17.7 percent undecided on whether to vote. The poll based on 1,000 interviews was conducted on July 1. No exact date for the referendum has been set.
  • Italy’s Bonds Fall With Its Banking Crisis Back in the Spotlight. Italy’s bonds fell for a second day as the crisis in the nation’s banking sector deepened, with regulators pressing lenders to raise capital and clean up their balance sheets. Yields on the nation’s 10-year government securities rose, having reached their lowest in more than a year last week. Italy is considering injecting fresh capital into Banca Monte dei Paschi di Siena SpA to boost the finances of its third-biggest lender before stress-test results, a person with knowledge of the plan said.
  • Italian Bank Risk Surges as Capital Needs Fuel Bail-In Concerns. Measures of debt risk for Italian banks surged amid concern that government plans to shore up capital ahead of regulatory stress tests may require losses for junior creditors. The cost of insuring Italy’s biggest lenders soared and bonds fell. Credit-default swaps on subordinated bonds of Banca Monte dei Paschi di Siena SpA surged to a record and now signal a 63 percent probability of default within five years.
  • Pound Tumbles to 31-Year Low as Brexit Starts to Inflict Damage. The pound fell to its weakest level in three decades against the dollar, surpassing lows reached in the aftermath of Britain’s vote to leave the European Union. Sterling touched $1.30 and sank to its lowest since 2013 against the euro as evidence piled up that the Brexit vote is hurting confidence in the U.K. economy. M&G Investments suspended a 4.4 billion-pound ($5.7 billion) real-estate fund on Tuesday, following on the heels of Aviva Investors and Standard Life Investments after a flurry of redemption requests.
  • Euro-Area Economy Lacking Momentum Adds to Brexit Concerns. The euro-area economy continued growing at a lackluster pace in June, ahead of the U.K.’s referendum on its European Union membership. A Purchasing Managers Index for manufacturing and service activity was unchanged at 53.1 in June from a month earlier, London-based Markit Economics said on Tuesday. That compares with a preliminary reading of 52.8. Almost all the responses were collected before the British referendum, when it opted to quit the EU. The PMI data point to an expansion in gross domestic product of 0.3 percent in the second quarter, according to Markit chief economist Chris Williamson -- half the pace of the three months through March. The lack of momentum is likely to be a particular concern for officials who are now bracing for the impact of Brexit on the region’s fragile recovery.
  • China’s Looming $8 Billion IPO Has Risks Tied to Shadow Banking. Postal Savings Bank of China Co., the company preparing for an initial public offering that may raise $8 billion, has plunged into shadow-banking arrangements that could make investors question its reputation as sleepy and safe. The Beijing-based lender, ubiquitous in small-town China, disclosed 953 billion yuan ($143 billion) of interbank investments in “special purpose vehicles” in a prelisting document filed to Hong Kong’s stock exchange on Monday. Those holdings of wealth management products, trust investment plans, asset management plans and securities investment funds have almost doubled since 2014 and are up more than 500 percent since 2013. The lender didn’t immediately respond to an e-mail seeking comment.
  • European Stocks Slide for 2nd Day as Growth Worry Adds to Brexit. (video) European shares extended declines into a second day, after a rally that lifted them by the most since February, amid indications the region’s economic growth lacks momentum. The Stoxx Europe 600 Index dropped 1.7 percent at the close of trading. All 19 industry groups retreated, with U.K. insurers sliding on signs of turmoil from the Brexit vote and miners tracking commodities lower. Purchasing managers’ indexes on manufacturing and services signaled lackluster growth in the euro area in June, with indicators pointing to France as the weakest performer.
  • Energy-Dependent States Reeling From Two-Year Commodity Crunch. Energy-dependent U.S. states stepped over the threshold of fiscal 2017 only to face revenue shortfalls precipitated by the two-year-old oil and gas industry rout. Some aren’t sure how they will pay for schools, health care, infrastructure and universities. Lawmakers in Alaska, Oklahoma, Louisiana and North Dakota already pared budgets by billions, raising taxes and cutting programs to the bone to fill deficits. These states, as well as Wyoming, are in the throes of recession even as the U.S. enters the seventh year of an economic expansion. "We have a cash flow problem," said Democratic Louisiana Governor John Bel Edwards on June 24, after his legislature ended the longest session in its 204-year history. "There is every possibility we are going to have to take out a loan to pay regular, ordinary bills."
  • World’s Top Oil Trader Says Prices Won’t Rise Much Further. (videoOil prices won’t rise much further over the next year and a half as demand growth slows and refiners comfortably meet gasoline consumption, according to the world’s largest independent oil-trading house. “I cannot see the market really roaring ahead,” Vitol Group Chief Executive Officer Ian Taylor told Bloomberg Television in an interview. “We have a lot of oil in the system and it will take us considerable time to work that off.” Since rallying from a 12-year low of $27.10 a barrel in January, Brent crude has been hovering around $50 a barrel for the last month. The international benchmark will probably end the year “not too far away from where we are today” and rise to about $60 by the end of 2017, Taylor said.
  • Corn Heads Back to Bear Market as U.S. Rains Spark Reversal. Corn futures are heading back to a bear market less than a month after entering bull territory as U.S. rains ease crop concerns and boost yield potential. November soybeans had the biggest-ever drop for the contract.
  • Nickel Falls Most in Eight Weeks on Philippines Supply OutlookNickel fell the most in eight weeks on concern that the government may take longer than expected to close mines that don’t meet environmental rules in the Philippines, the biggest supplier of ore to China.
  • Treasuries Rally to Record as Global Negative-Yield Pool Deepens. Treasuries rallied, with yields resuming a descent to record lows, as the growing pool of negative-yielding debt worldwide boosted the appeal of U.S. securities. Benchmark 10- and 30-year yields fell to unprecedented levels, extending gains in Treasuries for a third trading session, as signs of slowing growth in Europe ended a five-day rally in global stocks. A U.S. jobs report July 8 may offer clues to the direction of the Federal Reserve’s next interest-rate move.
  • Delta Leads Airline Drop After Passenger Revenue Gauge Weakens. Delta Air Lines Inc. led a decline among U.S. carriers after saying a closely watched financial measure weakened more than expected. Passenger revenue for each seat flown a mile, a benchmark gauge for airlines, fell 5 percent in the second quarter, Delta said in a statement Tuesday. The carrier had previously forecast a decline of as much as 4.5 percent.
  • Punch-Drunk U.S. Stocks Keep Dodging as Strategists See Peak. They don’t go up. Neither do they stay down. That’s the story of U.S. stocks, which three months after a 10 percent correction and mired in the longest decline of the seven-year bull market just shook off another global shock and rallied back to even. The 5.3 percent selloff of June 24 and 27 is now a blip on a chart after $1 trillion in market value was erased and restored over eight days. The volatility never swayed Wall Street equity strategists, who let stand forecasts for shares to reach records in 2016. While U.K. secession joins a lengthening list of ills for investors that include falling profits, soaring valuations and the presidential race, events of the last two weeks show just how hard it is to land a blow on equities when economic growth is too fast to signal a recession, and too slow to steel the Federal Reserve.
  • Why Warren Buffett's Favorite Indicator Isn't Giving an Accurate Read of the U.S. Economy.
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