Thursday, August 18, 2016

Today's Headlines

  • China’s Secret Lists of Zombie Borrowers Leave Banks in the Dark. There’s a list Ni Baixiang, head of Industrial & Commercial Bank of China Ltd.’s Jiangxi branch, would love to get his hands on. Commonly referred to as the “zombie list,” it’s compiled by Jiangxi regional authorities and holds the names of the most deadbeat of borrowers: state-owned companies deemed too weak to survive and destined to be wound down. In short, the kind of enterprises banks already weighed down by rising bad loans want to steer well clear of. Only, neither Ni nor his competitors in Jiangxi are allowed to know who they are. “They won’t tell us because if we know, we’ll lose confidence,” Ni, whose bank is China’s largest, told reporters after a press briefing in Beijing earlier this month.
  • The Land of Genghis Khan Is Having an Epic Economic Meltdown. Back in 2008, Mongolia honored its revered national hero Genghis Khan with an enormous, stainless steel statue on the bank of the Tuul River about a half-hour’s drive outside of the capital of Ulaanbaatar. The 13th century conqueror’s name graces the capital’s international airport and his image is also plastered on the tugrik, the local currency. Right now, Khans aren’t getting much respect. Mongolia, a mineral-rich and landlocked $12 billion economy bordering Russia and China, is staring at a full-blown balance of payments crisis. It’s caused barely a ripple in global financial markets, but the nation’s economic meltdown offers instructive lessons to far bigger resource-reliant economies like Brazil, Venezuela, Russia and Saudi Arabia.
  • China Bailout Fund Said to Sell Bank Stocks as Rally Extends. Chinese state-backed funds sold bank shares as the nation’s benchmark equity index jumped to a seven-month high earlier this week, according to people with knowledge of the matter. A gauge of financial shares declined. China Securities Finance Corp. and other government-linked funds sold shares including Bank of Ningbo Co. on Tuesday, according to the people, who asked not to be identified because the information isn’t public. Bank of Ningbo, which had rallied 29 percent over the previous 12 months, dropped 6.8 percent that day. While the people said state funds were net sellers of stocks on Tuesday, it’s unclear how unusual the selling was or whether it continued.
  • Dollar Slides to Near 3-Month Low as Fed Rate Move Seen on Hold.
  • European Stocks Rise First Time in Five Days on Policy Optimism. (video) European stocks climbed for the first time in five days, rebounding from a two-week low, on confidence that accommodative central-bank policies will help support the economy. Miners led the increase in the Stoxx Europe 600 Index as commodities advanced amid a weaker dollar. Minutes from the Federal Reserve’s last meeting showed on Wednesday policy makers were divided over the timing of rate increases, but they agreed to wait for more economic data before a move. In the European Central Bank’s account of its last policy gathering, released on Thursday, officials acknowledged risks related to the U.K.’s secession from the European Union, while they remained reasonably positive about the economic outlook.
  • Oil Futures for 2017 Sink as Mexico Hedges Output: Chart. Oil for delivery in December 2017 fell by more than $7 a barrel in June and July just as Mexico was implementing most of its annual oil hedge, which in the past has roiled markets. In previous years, Mexico has bought put options worth about 200 million barrels from banks, which in turn often sell futures for the following year, in this case 2017, to cover themselves. Mexico’s Finance Minister Luis Videgaray said Tuesday the country started hedging in mid-June, confirming an earlier Bloomberg story.
  • Three-decade iron ore veteran says 2017 to bring challenges. Iron ore strayed well off-script in 2016 as a rally surprised bears. Michael Zhu, former global sales director at Vale, says the commodity will probably face a tough year in 2017 as supply keeps on expanding while China’s steelmakers struggle to sustain output at current levels. “I’m not optimistic that the iron ore price will keep going up,” Zhu, president of Hong Kong-based trader Millennia Resources, said in an interview, predicting that prices will probably trade between $50 and $60 a metric ton for the rest of 2016. Next year will be challenging even if Chinese  steel production holds at current levels because iron ore supply will increase, he said.
  • Brokers Smell Trouble Ahead of Attempt to Spur Smallcap Volume. Several Wall Street executives expect some turbulence when U.S. markets flip the switch on a program aimed at spurring more volume in small stocks. Starting Oct. 3, about 1,200 small-cap stocks will have a wider “tick size” -- in other words, their prices will be quoted in five-cent increments instead of one cent. The hope is that this two-year test will boost profits for market makers, stimulating volume by luring more middlemen who facilitate trades. There are signs the industry isn’t ready to comply. Although exchanges have spent years getting ready, tweaking their trading software to accommodate the shift, some investors have been caught off guard, according to an executive from Instinet LLC. That’s a problem because if a money manager’s orders don’t comply with the new rules, they will be immediately rejected.
  • It’s Revenge of Weak Balance Sheets in S&P 500 as Stocks Hover. Add companies with shoddier finances to the list of U.S. stocks that have led the advance since February -- a potentially bullish sign for investors waiting for the S&P 500 Index to snap out of its paralysis. Shares of firms with weaker balance sheets are up 24 percent since markets bottomed in Feb. 11, outpacing their sturdier brethren by 7 percentage points, according to data compiled by Goldman Sachs Group Inc. and Bloomberg. That’s the widest spread in two years for a period of that length.
Wall Street Journal:
  • Russia Builds Up Army Near Ukraine Border. Heightened military presence on frontier comes amid new tensions over contested Crimea. Russia is bolstering its military presence on its western border, sending tens of thousands of soldiers to newly built installations within easy striking distance of Ukraine.
Fox News:
  • Ryan Lochte lied about robbery, Brazilian police official says. (video) American Olympic swimmer Ryan Lochte fabricated a story about being robbed at gunpoint in Rio de Janeiro, a Brazilian police official told The Associated Press on Thursday. The official, who has direct knowledge of the investigation, spoke on the condition of anonymity because he was not authorized to speak about an ongoing probe.
Zero Hedge:
  • Steel Glut Could Take 'A Generation' to Fix, Eder Says. World Steel Association Chairman Wolfgang Eder says up to 35% of global capacity is superfluous, citing an interview. Says politics will hamper resolution, opposes state intervention. Says need to examine whether consolidation is spurring real change.
21st Century Business Herald:
  • China Mulls Curbs on Asset-Management Product Investments. China may ban structured asset-management products from investing in non-standard products, citing people familiar with the matter. Structured asset-management products investing in non-standardized products may accumulate credit risks, citing industry participants.

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