Bloomberg:
- Equity Volatility Surges Globally Amid Record Futures. Stock volatility jumped around the
world, with the U.S. benchmark gauge surging the most in two
months, after speculation the Federal Reserve will cut stimulus
sent futures trading to an all-time high. The Chicago Board Options
Exchange Volatility Index, which tracks options on the Standard
& Poor’s 500 Index, climbed 9.1 percent to 18.15 at 12:38 p.m.
in New York today. Europe’s VStoxx Index, a gauge of Euro Stoxx 50 Index
derivatives, gained 16 percent to 23.61, and Hong Kong’s HSI Volatility
Index, based on Hang Seng Index contracts, rose 7.7 percent to 22.72,
near a
one-year high. About 218,000 futures tracking the U.S. VIX
changed hands each day on average in June, 49 percent more than
the previous month, data compiled by Bloomberg show.
- Corporate Credit-Default Swap Indexes Rise in Europe. Markit
iTraxx Europe index rises 11 bps to 118, highest since April 4 and
biggest jump since Nov. 1, 2011. • Markit iTraxx Crossover index rises
44 bps to 487 bps, highest since March 27 • Markit iTraxx Senior
Financial index rises 17 bps to 170 bps • Markit iTraxx Sub Financial
index rises 24 bps to 250 bps.
- Dollar Debt in Asia at Risk of More Falls After Fed, Nomura Says.
Dollar-denominated bonds in Asia have room to drop further, Nomura
Holdings Inc. said, after Federal Reserve Chairman Ben S. Bernanke
discussed the prospect of phasing out unprecedented stimulus. The cost
of protecting Asian debt against default rose to a 10-month high.
Increasing losses in emerging markets combined with a worsening economic
outlook for the region may prompt institutional investors to pull money
out, spurring an additional widening of credit spreads for U.S.
currency debt in Asia, said Nomura analyst Pradeep Mohinani. "It's
certainly not a buying opportunity at the moment," said Mohinani, who
heads Nomura's corporate credit analysis for Asia excluding Japan.
- Rupee Plunge Prompts RBI Intervention; Bonds, Stocks Tumble.
India’s rupee tumbled to a record, prompting the central bank to
intervene to support the currency, after the U.S. signaled it will phase
out a stimulus program. Stocks and bonds plunged the most in at least a
year. “There will be pain due to the current-account deficit and
as leveraged investors are pulling money from Indian debt,”
said N. Srinivasan Venkatesh, Mumbai-based head of treasury at
IDBI Bank Ltd. “Policy makers will now have to put their heads
together to think about more structural, long-term fixes.” The rupee
weakened 1.4 percent to 59.5750 per dollar at the
5 p.m. close in Mumbai, after earlier dropping to an all-time
low of 59.9800, data compiled by Bloomberg show. The currency
has plunged 8.9 percent this quarter, Asia’s worst performance. The
S&P BSE Sensex (SENSEX) plunged 2.7 percent to 18,719.29, the
most since Sept. 22, 2011. Volume was 49 percent more than the
30-day average.
- Turkish Stocks Enter Bear Market as Lira Sinks to Record on Fed.
Turkey’s main stock index sank more than 20 percent from its May peak
into a so-called bear market while the lira tumbled to a record against
the dollar after the U.S. Federal Reserve signaled it may scale back
monetary
stimulus. Turkish bonds fell the most in emerging markets. The Borsa Istanbul National 100 index slumped 6.8 percent
to 73,461.89 at the close in Istanbul, down 21 percent from the
May 22 high. The lira depreciated for a fourth day, falling as
much as 1.8 percent to 1.9363 a dollar as the central bank held
six currency auctions to support it. The currency was at 1.9334
a dollar at 5:44 p.m. in Istanbul, taking this month’s drop to
2.9 percent.
- Egypt Violence Builds After Mursi Names Islamist Governors. Employees of an Egyptian tourism trade
group threatened to resign in protest amid renewed clashes in parts
of the country today over President Mohamed Mursi's latest
appointment of Islamists to key positions. Discontent with Mursi, who marks a year in power at the end
of the month, is building up as critics plan protests on June 30
to call for early elections. They accuse him of failing to
revive the economy while putting the interests of his Muslim
Brotherhood allies ahead of the nation’s good. Mursi’s appointment of eight Islamists as provincial
governors touched off a wave of protests, with violence erupting
earlier this week in some provinces. Tourism Minister Hisham Zaazou resigned because one of the new governors belongs to a
group linked to a deadly attack on a main tourist site.
- Emerging Markets Era of Outperformance Is Ending, Goldman Says. The decade-long outperformance of
developing-nation assets has ended, according to the Goldman
Sachs Group Inc. economist who predicted the rise of the biggest
emerging markets in 2003. The five trends that spurred outsized gains during the past
10 years -- surging growth in the so-called BRIC nations, higher
commodities, improved government finances, slower inflation and
lower U.S. bond yields -- are halting and in some cases
reversing, Dominic Wilson, the chief markets economist at New
York-based Goldman Sachs, wrote in a report dated yesterday.
- Emerging Markets Crack as $3.9 Trillion Funds Unwind: Currencies.
Investors are pulling money from emerging markets at the fastest pace
in two years as slowing economic growth and the prospect of less global
stimulus sink stocks, bonds and currencies from India to Brazil. More
than $19 billion left funds investing in developing-nation assets in
the three weeks to June 12, the most since 2011, according to EPFR
Global. Foreign investors dumped an unprecedented $5.6 billion of
Brazilian stocks and $3.2 billion of Indian bonds this month, exchange data show. JPMorgan Chase & Co.’s emerging-currency index is down 1.4 percent this quarter,
while the rupee and Turkish lira hit record lows and the real
reached its weakest level since 2009.
- Emerging-Market Stocks Fall Most Since 2011 as Currencies Tumble. Emerging-market stocks dropped the
most in almost 21 months, currencies weakened and government
borrowing costs rose after China’s cash crunch worsened and the
Federal Reserve said it may reduce monetary stimulus this year. The MSCI Emerging Markets Index slid 4 percent to 909.04 at
10:04 a.m. in New York, set for the biggest drop since September
2011. Turkey’s (XU100) benchmark stock index lost 5.6 percent, the most
among major developing nations, as the lira and India’s rupee
hit record lows. BYD Co. (1211) slumped 9.3 percent in Hong Kong, while
Brazil’s Ibovespa extended the worst decline among major
emerging-market stock benchmarks this year. Yields on South
Africa’s benchmark bonds jumped to the highest level in a year.
- Europe Stocks Sink Most in 18 Months on Stimulus Outlook.
European stocks sank the most in more than 18 months after Federal
Reserve Chairman Ben S. Bernanke said the central bank may end bond
purchases next year if the economy strengthens in line with forecasts.
Rio Tinto Group and Renault SA led mining and automobile companies lower
as a gauge of Chinese manufacturing fell. Swatch Group AG slid the most
in almost 21 months after Swiss watch exports declined. Eurotunnel
Group SA tumbled 12 percent after Les Echos reported the European
Commission will demand a reduction in tolls to use the Channel Tunnel. The
Stoxx Europe 600 Index (SXXP) plunged 3 percent to 283.68 at the close
of trading, the biggest retreat since Nov. 21, 2011. The benchmark
measure has declined 8.7
percent since May 22, when Bernanke indicated the central bank could
pare stimulus measures as the economy grows.
- Fed Seen Tapering QE to $65 Billion at September Meeting. Federal Reserve Chairman Ben S. Bernanke will cut the Fed’s $85
billion in monthly bond purchases by $20 billion at the Sept. 17-18
policy meeting, according to 44 percent of economists in a Bloomberg
survey. The survey of 54 economists followed Bernanke’s press
conference yesterday, in which he mapped out a timetable for an end to
one of the most aggressive easing strategies in Fed history. His remarks
prompted economists to predict a faster reduction in purchases: in a
June 4-5 survey, only 27 percent of economists forecast tapering would
start in September.
- U.S. Credit Swaps Surge by Most in Year on Fed Paring Statement. Investor confidence in U.S.
corporate credit is plunging the most in more than a year as
investors speculate the Federal Reserve is preparing to slow
down the pace of its bond purchases. The Markit CDX North American Investment Grade Index, a
credit-default swaps benchmark that investors use to hedge
against losses or to speculate on creditworthiness, increased
5.7 basis points to a mid-price of 91.4 basis points at 11:02
a.m. in New York, after yesterday climbing 3.9 basis points, according to prices compiled by Bloomberg. That’s the biggest two-day jump on a closing basis since the measure rose 8.8 in
the period ended May 14, 2012, excluding rolls into new series
of the benchmark.
- Commodities From Gold to Oil Slump on Fed Outlook, China Crunch. Commodities
tumbled by the most in
six weeks as everything from gold to crude oil and copper dropped on
concern that the Federal Reserve may phase out stimulus and as China’s
cash crunch worsened. The Standard & Poor’s GSCI Index of 24
raw materials lost as much as 2 percent to 622.91, the biggest intraday
loss since May 10, before reaching 625.31 as of 1:41 p.m. in London.
Gold
for immediate delivery fell below $1,300 an ounce to the lowest
in more than 2 1/2 years and silver plunged 7.8 percent. West
Texas Intermediate crude dropped 2.3 percent to $96 a barrel.
- Copper MACD, RSI Measures Signal 9% Drop: Technical Analysis.
Copper on the London Metal Exchange
will probably fall as much as 9 percent in the next two months,
according to technical analysis from TransGraph Consulting Pvt. Metal
for delivery in three months may decline to as low as $6,200 a metric
ton, analyst Saumendra Satapathy said in an e-mail today. Copper, which
entered a bear market in April, has slumped 14 percent to $6,827.75 a
ton this year.
Wall Street Journal:
- Signs of China Weakness Mount.
Mounting evidence of weakness in China's economy and increasing stress
in its financial system are testing the government's determination to
ride out a slowdown without resorting to stimulus measures.
MarketWatch:
CNBC:
Zero Hedge:
Business Insider:
ValueWalk:
- Brevan Howard EM Fund Slides 5 Percent In June. The sell off in emerging markets has taken its toll on the Brevan Howard Emerging Market Fund. The
world’s largest EM focused fund was not having a great year anyway, and
the added volatility in June beat what was left of the $2.6 billion
fund. In Tommy Wikes’ report for Reuters, the BH Emerging Markets
Strategies Master Fund declined 4.8 percent for
this month, taking the year to date performance to an abysmal -11.6
percent, as of June 14.
Reuters:
- Factories struggle in June, hiring slows: Markit. Manufacturing activity growth slowed slightly in June as the pace of
hiring and overseas demand weakened, making the second quarter the
weakest for the sector in the last four, a survey showed on Thursday. Financial data firm Markit said its "flash," or
preliminary, U.S. Manufacturing Purchasing Managers Index fell to 52.2
in June from 52.3. A reading above 50 indicates expansion. June's 52.2 reading was also the
average for the second quarter, behind the 54.9 average in the first
three months of the year and the worst showing since the third quarter
of 2012. Markit's output index rose to 53.9, a three-month high, from 52.7 in May
while the gauge of new orders also rose to its highest level since
March, offering some hope. But the pace of hiring slowed to 50.4 from
52.6, reflecting the weakest rate of job creation since January 2010. New export orders contracted for a second straight month, with overall
demand from customers abroad at its weakest since October 2012.
The Economist:
Financial Times:
- Echoes of Mao in China cash crunch. As
China’s credit crunch takes a turn for the worse, the question of why
the central bank has permitted market conditions to deteriorate so
suddenly and so sharply looms ever larger. Short-term money market
rates surged to more than 10 per cent on Thursday, a record high and
nearly triple their level just two weeks ago, after the central bank
refused to inject extra funds into the strained financial system.
China Daily:
- Moody's warns on China's local govt debt. Local government debt poses a key risk for Chinese banks, Moody's said Wednesday, the latest warning amid growing jitters of financial risks in the world's second largest economy. The rating agency said in a report that many local government financing vehicles (LGFVs) have seen their cash flow stagnate or decline, while their debt levels have risen. Among 388 city construction companies Moody's surveyed, only 53 percent of them
have sufficient cash to cover estimated debt and interest payments in
2013 without resorting to borrowing more. Meanwhile, the National
Audit Office said on June 10 that the debt of 36 local governments had
risen 12.9 percent to 3.85 trillion yuan ($627.93 billion) in the two
years to the end of 2012. "The direct exposures of Chinese banks to
LGFVs remain significant despite the central government's recent efforts
to limit the growth of LGFV borrowing," the report said, adding that
LGFV exposures accounted for 14 percent of total Chinese bank loans at
the end of 2012.
Style Underperformer:
Sector Underperformers:
- 1) Homebuilders -7.32% 2) Gold & Silver -6.32% 3) Gaming -3.35%
Stocks Falling on Unusual Volume:
- ANW, NGD, VIV, EVC, BSBR, IBN, STO, TOT, BCO, EBIX, MUE, CLFD, UNS, SLMBP, BGG, HYGS, GTU, RBA, NAV, BLK, BUD, IHS, LEN, EDD, PHM, FUN, AEH, ASA, DWRE, ESD, PNW, ACWI, VIPS, DHI, RYL, RGLD, WETF, LL, CTB, AB, TOL, UNS, ITB, KR, SBRA, CQP, BGG, AHT, SCS, AMT, CNK, PTY, AGNC, XHB, PIR, KMI, GGN, PAA, TRGP, EWZ, EPP, EDD, WYNN, BEN, LM, MU and TILE
Stocks With Unusual Put Option Activity:
- 1) XLB 2) LL 3) FXA 4) PHM 5) EWY
Stocks With Most Negative News Mentions:
- 1) DIS 2) AXP 3) CAT 4) PHM 5) FDX
Charts:
Style Outperformer:
Sector Outperformers:
- Insurance -.86% 2) Networking-.92% 3) HMOs -1.05%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
- 1) EQIX 2) FNSR 3) FIO 4) SPXS 5) ODP
Stocks With Most Positive News Mentions:
- 1) HPQ 2) WY 3) WMT 4) KR 5) ETR
Charts:
Evening Headlines
Bloomberg:
- China Manufacturing Contraction Deepens Amid Cash Pinch: Economy. China’s
manufacturing is shrinking at a faster pace this month, adding to
stresses in the economy and financial system after interbank borrowing
costs surged to the highest in seven years. The preliminary reading of
48.3 for a Purchasing Managers’ Index (EC11FLAS) released today by HSBC
Holdings Plc and Markit Economics compares with the 49.1 median estimate
in a Bloomberg News survey of 15 economists. May’s final reading of
49.2 was the first below 50 since October, indicating contraction.
Manufacturing weakness, along with the money-market cash crunch, will
further test how far Premier Li Keqiang is willing to go in sacrificing
short-term expansion for more-sustainable long-term growth. After record
credit in the first four
months of the year failed to stoke growth, China’s State Council, led
by Li, said last night that the financial system needs to do a better
job of supporting the economy. “If market rates remain at such
high levels, the only scenario for the Chinese economy is a hard
landing,” said Xu Gao, chief economist with Everbright Securities Co. in
Beijing. “That possibility is growing now -- it seems the leadership is
deliberately taking a wait-and-see stance to see how low China growth
can be.”
- China Money Rate Jumps to Record as PBOC Holds Off on Cash Boost. China’s
benchmark money-market rate climbed to a record as the central bank
refrained from using reverse-repurchase agreements to ease a cash crunch
in the world’s second-biggest economy. The financing system must
“support economic transformation and upgrading in a more forceful way,
serve real economy development in a better way, promote domestic demand
in a more targeted way and prevent financial risks in a more concrete
way,” the central government said yesterday in a statement after a
meeting led by Premier Li Keqiang. The central bank did not conduct
open-market operations to add or drain funds, though 40 billion yuan
($6.5 billion) was injected via an auction of six-month deposits from
the Finance Ministry. The seven-day repurchase rate, which measures
interbank funding availability, rose 124 basis points, or 1.24
percentage points, to 9.51 percent as of 9:44 a.m. in Shanghai, a
weighted
average compiled by the National Interbank Funding Center shows.
It touched 12 percent, the highest in data going back to May
2006.
- Worst
JGB Loss in Decade Shows Risk of Kuroda Plan: Japan Credit. Japan's
government bonds are set for the worst quarterly performance in a decade
as the central bank's unprecedented buying of the debt crowds out
investors and increases volatility. JGBs maturing in more than a year
have lost 1.7%, set for the biggest slump since the quarter ended
September 2003. Bank of Japan Governor Haruhiko Kuroda is seeking to
push down yields by buying bonds, while convincing financial
institutions to purchase assets other than JGBs in so-called portfolio
rebalancing. Instead, 10-year yields have swung from a record low of
.315 percent to as high as 1 percent this quarter, spurring concern that
fluctuating borrowing costs will undermine Prime Minister Shinzo Abe's
effort to jump-start growth in the world's third-largest economy.
- Ford(F) CEO Says Japan Is Currency Manipulator, Most Closed Market. Ford Motor Co. Chief Executive
Officer Alan Mulally said Japan is manipulating the yen and its
market is more closed than China. “It’s just the most closed market in the world,” Mulally
said in a Bloomberg TV interview today, in reference to Japan.
“With the currency manipulation, we just have to get back to
the place where the currencies are set by the markets and the
free trade agreements really are free trade agreements.” Mulally said the cheapening Japanese currency is hurting
U.S. companies, reiterating past complaints.
- Japan Inc. Holds Italy-Sized Cash Pile as Abe Urges Spending. Japan’s
companies stockpile of cash reached a record in the first quarter as
they poured investment abroad, underscoring Prime Minister Shinzo Abe’s
challenge to boost the nation’s investment and wages. Private
companies’ cash and deposits rose 5.8 percent from a year before, to 225
trillion yen ($2.4 trillion) -- an amount in excess of the size of
Italy’s economy or the liquid assets held by American firms, Bank of
Japan data showed in Tokyo. Businesses held 55 trillion yen in direct
investment abroad. The report underscores the appetite for manufacturers
to ramp up operations in faster-growing economies as they await
evidence for Abe’s growth agenda opening new opportunities at home. Without a revamp of corporate
governance practices that forces Japan Inc. to deploy its cash pile, it
will be tough for Abe to transform the economy, economist Masaaki Kanno
said. “This is a very big problem in Japan’s economic system,”
said Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo
and a former BOJ official.
- U.S. Human-Trafficking Report Criticizes China, Russia. The
Obama administration has
downgraded the ratings of China, Russia and Uzbekistan in an annual
report on global efforts to combat modern slavery. The three-tier
ranking puts Russia and China on a list of the world’s worst offenders,
such as North Korea and Saudi Arabia, and below second-tier countries
such as Rwanda, described in the report as a destination for “women and
children subjected to forced labor and sex trafficking.”
- Singapore Smog Reaches ‘Hazardous’ All-Time High on Fires. Singapore’s smog level reached an all-time high yesterday
evening, prompting the government to unveil plans to use satellite
imagery to identify companies involved in forest burning on the
Indonesian island of Sumatra. Singapore’s pollution index jumped
to 321 at 10 p.m. yesterday, the National Environment Agency, or NEA,
said on its website. That’s a record, according to Channel NewsAsia. A
reading above 300 is deemed “hazardous.” The reading had dropped to an
“unhealthy” level of 137 by 6 a.m.
- Asian Stocks Drop on Fed Statement, China Flash PMI. Asian
stocks slumped the most in a month amid concerns a credit crunch in
China is worsening and after Federal Reserve Chairman Ben S. Bernanke
said the central bank may reduce bond purchases later this year should
the U.S. economy strengthen. Industrial & Commercial Bank of China
Ltd. dropped 2.5 percent in Hong Kong, pacing declines among Chinese
lenders as interbank interest rates climbed and a preliminary survey
showed China’s manufacturing is shrinking. Samsung Electronics Co.
(005930), the world’s largest smartphone maker, slipped 2.2 percent in
Seoul. Inpex Corp., Japan’s No. 1 energy explorer, dropped 3.6 percent
as crude oil futures headed for a second day of decline. The MSCI Asia Pacific Index dropped 2.6 percent to 129.62 as of 11:30 a.m. in Tokyo, heading for its biggest loss since
May 23 as almost eight shares fell for each that rose.
- Sao Paulo, Rio Revoke Bus Fare Increases After Protests. Brazil’s
two largest cities bowed to popular demands and revoked increases in
bus fares that sparked the nation’s biggest street protests in almost
two decades. Authorities in Sao Paulo and Rio de Janeiro said they were
scrapping increases for public transportation even as they
struggle under strained budgets to pay for the reductions.
- Metals Fall on Fed Comments as Copper at Seven-Week Low.
Copper declined to a seven-week low
as industrial metals dropped after Federal Reserve Chairman Ben S.
Bernanke said bond purchases may be reduced and as China’s manufacturing
is slowing. Nickel fell to the lowest since 2009. Copper for
delivery in three months fell as much as 1 percent to $6,888.25 a metric
ton on the London Metal Exchange, the lowest since May 3, and was at
$6,902 at 10 a.m. in Shanghai. Metal for delivery in September on the
Comex in New York dropped 0.9 percent to $3.1225 per pound.
- Rubber Drops as China Manufacturing Contracts at Faster Pace. Rubber declined as data showed
China’s manufacturing shrank at a faster pace this month,
raising concern that demand from the largest consumer may weaken. The
contract for delivery in November on the Tokyo Commodity Exchange fell
as much as 0.8 percent to 235.3 yen a kilogram ($2,434 a metric ton) and
was at 235.8 yen at 11:40
a.m. Futures extended losses for this year to 22 percent.
- U.S. Company Credit Swaps Rise Most in Year After Fed Statement. A gauge of U.S. corporate credit
risk rose the most in more than a year after the Federal Reserve
concluded a two-day policy meeting, spurring speculation the
central bank will reduce stimulus that’s bolstered the market. The Markit CDX North American Investment Grade Index, used
to hedge against losses or to speculate on creditworthiness,
increased 5.9 basis points to a mid-price of 87.7 basis points
at 4:57 p.m. in New York, according to prices compiled by
Bloomberg. That’s the biggest jump since the measure added 6.2
basis points on May 14, 2012, excluding rolls into new series of
the benchmark. The risk premium on the Markit CDX North American High
Yield Index rose 37.2 basis points to 438.7 basis points, the
largest increase since March 27, Bloomberg prices show.
- BlackRock(BLK) Corporate Bond ETF Plunges Most in Almost Two Years. A
$21 billion BlackRock Inc. (BLK) exchange-traded fund that owns
investment-grade corporate bonds plunged the most in almost two years
after the Federal Reserve signaled it may slow unprecedented stimulus
supporting the market. The iShares iBoxx Investment Grade Corporate
Bond ETF (LQD) dropped 1.4 percent to $114.72, the biggest decline since
August 2011. Investors have redeemed about $3.4 billion of the fund’s
shares this year, data compiled by Bloomberg show.
- Wall Street REIT Success Gives Investors Hangover Part II. Investors
in companies buying mortgage bonds are discovering that coming late to
the party can still leave them with the biggest hangover. Mortgage
real-estate investment trusts raised $7.4 billion in the first quarter
by selling new shares, the most in two years, just before a plunge in
the value of the firms. American Capital Agency Corp. (AGNC) has
declined 20 percent since offering $2 billion in February and Armour
Residential REIT Inc. (ARR) has slumped 26 percent after raising $444
million that month. “It was the absolute wrong time to raise money,”
said Julian Mann, who helps oversee $6 billion in bonds as a vice
president at Los
Angeles-based First Pacific Advisors LLC. “Rather than turn money away,
these asset gatherers chose to double-down.”
Wall Street Journal:
- Federal Reserve Eyes End of Bond Buying, Spooking Markets. Federal Reserve Chairman Ben Bernanke said the central bank could
start winding down its $85 billion-a-month bond-buying program later
this year and end it altogether by mid-2014, setting up a high-stakes
test to see if the economy and financial markets can begin to stand on
their own.
Financial markets—which have been
enlivened by the fuel of the Fed's easy-money policies—didn't take the
news happily. The Dow Jones Industrial Average finished the day down
206.04, or 1.35%, at 15112.19. Yields on 10-year Treasury notes jumped
0.126 percentage point to 2.308%, the highest level since March 2012.
The dollar strengthened. Asian markets moved lower in early trading
Thursday.
- U.S. Icons Now Made of Chinese Steel. Imports Surge While U.S. Mills Idle; Lacking Bridge Expertise
at Home. The Verrazano-Narrows Bridge was a feat of American engineering when it was
built across New York's harbor in the 1960s. Now, it's being repaired with steel
made in China. Chinese steel imports have surged so far this year, even as U.S. producers
are awash with excess domestic capacity. Chinese steel was also recently used in
the San Francisco-Oakland Bay Bridge. The reason is partly because Chinese-made steel is cheaper. In fact, U.S.
steel companies argue its price is unfairly subsidized, and want the U.S.
government to restrict imports as much as possible. China claims it is simply a
more efficient producer.
- Obama's Nuclear Proffer Gets Russian Rebuff. In Berlin Speech, President Says U.S. Could Cut Deployed Arsenal by One-Third; a Call for 'Peace With Justice'.
Standing before a towering emblem of the Cold War, President Barack
Obama called for steep reductions in nuclear weapons through
negotiations with the Russians, as a step toward what he conceded was
the "distant"
goal of eliminating global arsenals.
- David Rivkin and Elizabeth Foley: An ObamaCare Board Answerable to No One. The 'death panel' is a new beast, with god-like powers. Congress should repeal it or test its constitutionality. Signs of ObamaCare's failings mount daily, including soaring insurance
costs, looming provider shortages and inadequate insurance exchanges.
Yet the law's most disturbing feature may be the Independent Payment
Advisory Board. The IPAB, sometimes called a "death panel," threatens
both the Medicare program and the Constitution's separation of powers.
At a time when many Americans have been unsettled by abuses at the
Internal Revenue Service and Justice Department, the introduction of a
powerful and largely unaccountable board into health care merits special
scrutiny.
Fox News:
- Lawmakers question Obama's pledge to scale back US nuclear arsenal. President Obama’s pledge to cut the United States' nuclear arsenal by
one-third is sending the wrong message to the global community, some
Washington lawmakers said Wednesday. “Now is not the time to pursue further strategic nuclear force
reductions,” Sen. Jim Inhofe, R-Okla., said following Obama’s speech in
Berlin, Germany. Inhofe was among several lawmakers who warned that cutting the
country’s strategic nuclear arsenal by one-third would put America at a
disadvantage against countries like Russia, North Korea and Iran. Inhofe
said the president’s plan wrongly assumes that reducing the role of
nuclear weapons would make the world safer. “Instead, our experience has been that nuclear arsenals -- other than
ours -- are on the rise, Russia defies us at almost every turn, efforts
to curb the nuclear ambitions of North Korea and Iran are failing, and
our allies grow increasingly uneasy about the reliability of U.S.
nuclear guarantees,” Inhofe, the ranking member of the Senate Armed
Services Committee, said.
Zero Hedge:
Business Insider:
FXStreet.com:
- Flash: The biggest risk factor is China's financial bubble - RBS. The
big risk factor for global markets is risk of air being let out of a
financial bubble in China, reiterates Greg Gibbs, FX Strategist at RBS,
after sharing his view on the Chinese cash crunch yesterday too.
Expanding on yesterday's take, Gibbs notes that the real risk is that
"banks are being squeezed because investors in off balance sheet
products are not rushing to roll over their investments or throw more of
their savings
into new ones that may be required to keep the same old borrowers afloat
on their existing assets." Gibbs also notices a further squeeze by a
reversal of capital inflow from foreigners closing carry trades in CNY. Gibbs
emphasizes the need to continue keeping an eye on China very closely,
noting that "We must not be easily calmed if and when the PBoC inject
liquidity, we must watch where term lending rates settle; if the yield
curve steepens rapidly from one week out it will be a sign of banking
sector distress." The end result on this ongoing cash crunch in
China, according to Gibbs, is more cautiousness by the banks, "in which
case growth in China is likely to slow further" Gibbs said.
Reuters:
- Jabil(JBL) to cut jobs, forecasts core earnings below estimates.
Contract electronics maker Jabil Circuit Inc forecast current-quarter
core earnings below analysts' estimates and said it planned to cut an
unspecified number of jobs as part of a restructuring plan. Jabil said
it expected to book about $188 million in
restructuring charges over the next three years, of which $60
million to $70 million will be in the current
quarter. The company counts Apple Inc, Cisco Systems , General Electric Co, Hewlett-Packard, IBM Corp, NetApp Inc and BlackBerry
among its top customers. Jabil forecast core earnings of 50-58 cents per share for
the current quarter, below the average analyst estimate of 59
cents.
- Brazil real dives 2 pct as Fed signals end to stimulus. Brazil's currency
slumped nearly 2 percent on Wednesday to close at a more than
four-year low after U.S. Federal Reserve Chairman Ben Bernanke
suggested the bank's stimulus program, which has supported
investors' appetite for emerging market assets, could end within
the next 12 months.
- Budget cuts hit security checks for U.S. defense contractors. A budget shortfall has
forced a Pentagon security unit to sharply cut back on regular
investigations used to update security clearances for defense
contractor employees. In a little-noticed announcement posted on its website on
June 7, the Defense Security Service said that "due to a funding
shortfall," it has been obliged to suspend "most" routine
re-investigations of defense contractor employers cleared at the
"Top Secret" level, at least through the end of September.
Telegraph:
BBC:
- Brazil fares move fails to quell protests. Brazilian authorities
have failed to halt nationwide protests, despite reversing the
public-transport fare increases that sparked the unrest. Crowds blocked main roads in Sao Paulo and Brasilia, and
protesters confronted police in Rio de Janeiro state shortly after the
U-turn was announced. Earlier, there were clashes before Brazil's football team played Mexico in Fortaleza in the Confederations Cup.
LiveMint:
- Indian rupee nears 60, Sensex dives 400 points on Fed concerns.
The Indian rupee on Wednesday fell to an all-time low of 59.93 per
dollar in the opening trade after the US Federal Reserve chairman Ben
Bernanke said the central bank would start reducing its stimulus
measures later this year if the economy is strong enough. The BSE
benchmark Sensex fell as much as 423 points to 18,822.65 in early trade
on Thursday. Market were also hit by data
showing China’s factory activity weakened to a nine-month low in June. Bond yields jumped, with the benchmark 7.16% 2023 bond yield rising 10
basis points to 7.36% from its previous close. Meanwhile, the Reserve
Bank of India has halted trading in bonds following the sell-off.
Shanghai Securities News:
- China
Asks Banks to Add External Risks to Management. China asked banks to
include external risks prevention into their overall risk management,
citing a notice from the nation's banking regulator. Major sources of
external risks that banks should be wary of are from small loan cos.,
pawnshops, guarantee institutions, private financing and illegal fund
gathering, the report cites the notice.
China Securities Journal:
- China
Short-Term Pressures Shouldn't Sway Policy. Chinese policymakers
shouldn't be swayed by short-term downward economic pressures, according
to a front-page commentary written by reporter Zhang Zhaohui.
Evening Recommendations
Night Trading
- Asian equity indices are -2.50% to -1.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 159.0 +23.0 basis points.
- Asia Pacific Sovereign CDS Index 115.25 +9.0 basis points.
- NASDAQ 100 futures -.47%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to rise to 340K versus 334K the prior week.
- Continuing Claims are estimated to fall to 2958K versus 2973K prior.
8:58 am EST
- The Preliminary Markit US PMI for June is estimated to rise to 52.7 versus 52.3 in May.
10:00 am EST
- Philly Fed for June is estimated to rise to -2.0 versus -5.2 in May.
- Existing Home Sales for May are estimated to rise to 5.0M versus 4.97M in April.
- Leading Indicators for May are estimated to rise +.2% versus a +.6% gain in April.
Upcoming Splits
Other Potential Market Movers
- The
Eurozone Manufacturing PMI report, EuroGroup meetings, Spain 10Y Bond
auction, China Business Sentiment Indicator, 30Y TIPS auction, Eurozone
Consumer Confidence report, SNB rate decision, (FB) event, Bloomberg
Economic Expectations Index for June and the weekly Bloomberg Consumer
Comfort Index could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and technology shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 16.17 -2.65%
- Euro/Yen Carry Return Index 134.02 +.64%
- Emerging Markets Currency Volatility(VXY) 10.55 +4.15%
- S&P 500 Implied Correlation 54.49 -3.8%
- ISE Sentiment Index 94.0 -2.08%
- Total Put/Call 1.08 +25.58%
Credit Investor Angst:
- North American Investment Grade CDS Index 86.28 +5.51%
- European Financial Sector CDS Index 153.45 -1.68%
- Western Europe Sovereign Debt CDS Index 90.0 +3.45%
- Emerging Market CDS Index 351.23 +8.61%
- 2-Year Swap Spread 16.0 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -12.0 -.5 bp
Economic Gauges:
- 3-Month T-Bill Yield .04% unch.
- Yield Curve 203.0 +10 bps
- China Import Iron Ore Spot $120.0/Metric Tonne +1.95%
- Citi US Economic Surprise Index -14.10 +.7 point
- Citi Emerging Markets Economic Surprise Index -45.40 +.8 point
- 10-Year TIPS Spread 2.04 -4 bps
Overseas Futures:
- Nikkei Futures: Indicating +115 open in Japan
- DAX Futures: Indicating -42 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech/biotech/retail/medical sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- China Money Market Rates Will Stay Elevated for a While: UBS.
PBOC seems to have intentionally withheld liquidity in past two weeks to
curb loan growth, while regulators may be preparing to clean up
interbank activities, UBS economists including Hong Kong-based Wang Tao
wrote in a note. Money-market rates seen staying elevated for a while,
credit growth to slow in coming months. UBS sees increased risk of
unintended liquidity crunch as some of banks' off-balance sheet
activities unwind. China may maintain macro, property policies, with no
additional easing such as rate or RRR cuts nor significant tightening of
credit, real estate rules.
- China Swaps Gain Most in Five Years on Prolonged Cash Squeeze. China’s one-year interest-rate swap
rose by the most in five years as the central bank refrained
from adding funds to the financial system to ease a cash squeeze, causing demand to fall at a government debt auction.
The finance ministry’s sale of 30 billion yuan ($4.9 billion) of
10-year bonds today drew bids for 1.43 times the amount on offer, the
least since August 2012. The People’s Bank of China asked lenders to
submit orders for 14-day reverse-repurchase agreements and 28-day
repurchase contracts this morning, according to a trader at a primary
dealer required to bid at the auctions. The PBOC has refrained from
using reverse repos, which inject funds, since Feb. 7. “The cash
shortage may get even worse before the quarter-end because banks will
have to hoard cash to meet loan-to-deposit ratio requirements,” said
Chen Qi, a strategist at UBS Securities Co. in Shanghai. “The central
bank probably won’t
come out to intervene unless there is a sharp decline in
economic growth and large capital outflows.”
- Emerging-Market Stocks Drop Before Fed as Chinese Shares Tumble. Emerging-market stocks fell a second
day as investors awaited a Federal Reserve statement to gauge
the outlook for economic stimulus. The Shanghai Composite Index
tumbled to a six-month low as financial shares slumped. China Citic Bank Corp. and China Minsheng Banking Corp. led
declines for lenders as the repurchase rate, a measure of
interbank funding availability, jumped to the highest level
since June 2011. OAO Gazprom snapped a two-day rally in Moscow,
while KGHM Polska Miedz SA tumbled in Warsow amid a decision to
pay higher dividends than proposed by management. Brazil’s
Ibovespa fell for the third time in four days, led by Vale SA. The MSCI Emerging Markets Index lost 0.4 percent to 949.77
at 11:10 a.m. in New York. The gauge has retreated 9.4 percent
since May 22.
- Spain Banks Risk Loan-Book Losses Amid Recession, IMF Says. The IMF said Spain's recession is weakening lenders and called on the government to do more to lower a 27% jobless rate.
The International Monetary Fund said Spain’s recession is putting the
country’s lenders at risk of a further deterioration on their loans. “The macro downsides could trigger a negative feedback loop between credit and the economy, with deteriorating loan
books and pressure on profits,” the IMF said in a report today.
Banks should continue to “reinforce the quality and quantity of
capital, including by being very prudent on cash dividends.” Spanish
banks’ bad loans rose in April to 10.9 percent of
their total lending from 10.5 percent a month earlier as companies and
individuals are buffeted by a contraction that pushed unemployment to 27
percent. Economy Minister Luis de Guindos said yesterday lenders will need 2 billion euros ($2.7
billion) of capital to offset losses related to new rules that
demand higher provisions for refinancing and restructured loans.
- Commerzbank Agrees to Cut 5,200 Jobs to Increase Profit.
- Most European Stocks Decline Before Fed as Nordea Slides. Most
European stocks slipped as investors awaited the conclusion of the
Federal Reserve’s policy meeting for indications on the duration of
stimulus measures. Nordea Bank AB sank the most in a year after the
Swedish government sold a $3 billion stake in the country’s biggest
lender. Konecranes (KCR1V) Oyj slid 6.7 percent after the Finnish
engineering company lowered its profit forecast. Alcatel-Lucent (ALU) SA
rallied to a 14-month high after announcing plans to sell at least 1
billion euros ($1.3 billion) of assets.
- Bernanke Says Fed May ‘Moderate’ Purchases in 2013, End in 2014.
The Federal Reserve may “moderate” its pace of bond purchases later
this year and may end them around mid-2014, Chairman Ben S. Bernanke
said. “If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be
appropriate to moderate the pace of purchases later this year,”
Bernanke said at a press conference in Washington. “And if the
subsequent data remain broadly aligned with our current
expectations for the economy, we will continue to reduce the
pace of purchases in measured steps through the first half of
next year, ending purchases around mid-year.”
- Fed Keeps $85 Billion Pace of Bond Buying, Sees Risks Waning. “The
committee sees the downside risks to the outlook for the economy
and the labor market as having diminished since the fall,” the Federal
Open Market Committee (TREFQE2) said today at the conclusion of a
two-day meeting in Washington. It repeated that it’s prepared to
increase or reduce the pace of purchases depending on the outlook for
the job market and inflation. Chairman Ben S. Bernanke is expanding the Fed’s balance sheet toward $4 trillion as he seeks to
reduce a jobless rate that stands at 7.6 percent after four years of
economic growth. Concern that the Fed is closer to reducing the pace of
asset purchases pushed 10-year Treasury yields to a 14-month high.
- Aluminum Contango Widest in Four Years as Stockpiles Swell.
Aluminum's discount to the contract for delivery in three months rose to
the highest in more than four years amid a surplus and record-high
inventories. The metal for immediate delivery traded $46.25 a metric ton
lower than the contract for delivery in three months by 1 p.m. on the
LME, the widest contango since December 2008, LME data show. Aluminum
inventories monitored by the LME climbed to a record for a third day,
bourse data showed today.
- Hog Futures Soar to Two-Year High on Pork Demand; Cattle Advance. Wholesale pork rallied 39 percent since the end of March, reaching a 22-month high yesterday of $1.0743 a pound,
government data show.
- World Fish Prices Climb to Record on Demand for Salmon and Tuna. Global fish prices rose to a record
in May on rising demand for salmon and falling supplies of tuna,
according to the UN’s Food & Agriculture Organization. An index of fish prices tracked by the Rome-based United
Nations agency rose to 168 points in May, advancing 6.3 percent
from April and up 16 percent from a year ago, data published in the FAO’s biannual Food Outlook report last week show.
- Grassley Criticizes Potential $70 Million in IRS Bonuses. The
Internal Revenue Service may be nearing an agreement to pay unionized
employees $70 million in bonuses that aren’t legally required, said
Republican Senator Charles Grassley. A government-wide directive
says such bonuses shouldn’t be paid while automatic federal spending
cuts are in effect, Grassley of Iowa wrote in a letter to Daniel Werfel,
the interim chief of the IRS. “While the IRS may claim that these
bonuses are legally required under the original bargaining unit
agreement, that claim would allegedly be inaccurate,” Grassley wrote in a
letter dated yesterday. “In fact, the original agreement allows
for the re-appropriation of such award funding in the event of
budgetary shortfall.”
- FBI Uses Drones in Domestic Sureillance, Mueller Says. The
FBI uses drones in domestic surveillance operations in a “very, very
minimal way,” Director Robert Mueller said. Mueller, in Senate testimony
today, acknowledged for the first time that the Federal Bureau of
Investigation uses “very
few” drones in a limited capacity during its investigations.
Wall Street Journal:
- Parsing the Fed: How the Statement Changed.
- Squeezed China Banks Warn of Lending Hit. A
cash squeeze gripping China's financial markets is beginning to trickle
into the broader economy, as bank executives warn of higher interest
rates and more-cautious lending. A cash squeeze gripping China’s financial markets is beginning to
trickle into the broader economy, as bank executives warn of higher
interest rates and more-cautious lending and scramble to raise funds by
offering higher returns to investors. The impact will depend on the length of the squeeze, which began two
weeks ago with a surge in the rates at which banks lend money to each
other. So far the impact appears moderate, and Beijing retains
significant financial firepower to intervene if a major threat to the
financial system arises. But on Wednesday, a benchmark interbank lending rate rose to its
highest level in nearly two years, as the cash crunch showed no signs of
letting up.
- Brazil Protesters Block Highways.
A week of demonstrations in Brazilian cities continued into daylight
hours for the first time Wednesday as officials at all levels of
government prepared to negotiate on at least some of the protesters'
demands over issues related to government and quality of life.
Demonstrators slung rows of burning tires and garbage across three
major highways leading into São Paulo, Brazil's manufacturing and
financial hub, blocking access for motorists. "This is a protest about transportation and the needs of the working
class for decent transportation," said Maria das Dores, one of the
organizers of Wednesday's protest. She said organizers decided to block
main arteries into São Paulo in order to dramatize the transport
problems of Brazilian workers.
Fox News:
CNBC:
- FedEx(FDX) Shares Dip on Growth Concerns. FedEx
said on Wednesday it was cutting its capacity between the United States
and Asia, sending its shares lower on concerns about future growth,
even as the world's biggest air-freight company posted a
stronger-than-expected profit. The company, considered an
economic bellwether because of the massive volume of goods it moves
around the world, is still trying to adjust to increasing demand for
cheaper ground transport rather than pricier but faster air shipping.
- Tesla(TSLA) Recalls Some Model S Cars Due to Seat-Mount Defect.
- Will Obamacare Hurt Jobs? It's Already Happening, Poll Finds. Small business owners' fear of the effect of the new health-care
reform law on their bottom line is prompting many to hold off on hiring
and even to shed jobs in some cases, a recent poll found. "We
were startled because we know that employers were concerned about the
Affordable Care Act and the effects it would have on their business, but
we didn't realize the extent they were concerned, or that the
businesses were being proactive to make sure the effects of the ACA
actually were minimized," said attorney Steven Friedman of Littler
Mendelson. His firm, which specializes in employment law, commissioned
the Gallup poll.
Zero Hedge:
Business Insider:
Reuters:
- German finmin: ECB's bond buys would trigger independence debate. Activating
so far unused plans of the European Central Bank to buy bonds of
stricken euro zone states right now would trigger a debate about the
independence of its monetary policy, German Finance Minister Wolfgang
Schaeuble said on Wednesday. Schaeuble also said Germany defended
the independence of the central bank's monetary policy like no other.
The legality of the ECB's plans, so-called Outright Monetary
Transactions (OMT), were subject of a hearing by Germany's top court
last week.
- METALS-Copper slips to 6-week low ahead of Fed statement. Copper slid on Wednesday to its
lowest in over six weeks, the third straight day of losses, as
investors worried about the potential for less stimulus from the
U.S. Federal Reserve ahead of the conclusion of its two-day
policy meeting.
Mish's Global Economic Analysis:
Telegraph:
Xinhua:
- China Economy May Stabilize at Current Level, Citing Ba. China's
economy won't likely deteriorate "by another notch," citing Ba Shusong, a
researcher at the State Council Development Research Center. China may
continue a "slightly tight" macro policy until year-end, Ba said.
Companies shouldn't expect a large-scale government stimulus plan, he
said.
