Bloomberg:
- Japan Institutions Cut Shares to New Low in Snub to Abe. Japan’s biggest quarterly rally in 25 years did little to entice institutional investors, whose stock holdings fell to the lowest proportion of overall holdings ever in March. The country’s insurers, lenders and trust banks pared their Japanese shares to 28 percent of total market value, the lowest ever, as of March 31, according to Japan Exchange Group Inc. (8697) Holdings have fallen from a peak of 44.1 percent in 1988. Fukoku Mutual Life Insurance Co. and Sompo Japan Nipponkoa Asset Management Co. are betting Prime Minister Shinzo Abe’s policies will fail to defeat deflation or restore sustainable growth.
- China's 'Likonomics' May Cause Temporary Hard-Landing: Barclays. Li Keqiang-led govt's key economic policy framework, or "Likonomics", consists of three pillars, no stimulus, deleveraging and structural reform, economists at Barclays led by Yiping Huang wrote in a note. During the past 3 mos, new govt has resisted repeated calls for new stimulus because it believes state-led investment is no longer sustainable. Unless economy and markets face imminent risk of collapse, Barclays doesn't expect policymakers to adopt aggressive fiscal and monetary expansion. Implementation of Likonomics could point to further downside risks for both economic growth and asset prices, including exchange rate. In increasingly likely downside scenario, China could experience temporary "hard landing" (quarterly growth dropping to 3%) in next 3 years, although economy would bounce back rapidly afterwards.
- Hong Kong Stocks Show Property Collapse to BNP: Chart of the Day. Hong Kong real estate has become more unhinged from the city's stock market than ever before as shares of developers tumble while property prices stay near record highs. Housing prices in Hong Kong, the world's most expensive property market, have remained elevated even after the government imposed an extra 15% tax in October on purchases by companies and non-residents, and pledged to boost land supply to make homes more affordable. The retreat in developer shares suggests property prices will eventually tumble, said Arthur Kwong, head of Asia Pacific equities at BNP Paribas Investment Partners, which manages about $658 billion. "I would believe the stock market," Kwong said in a June 19 interview in Hong Kong. "That leads to the conclusion that this time the property market may collapse quite badly."
- Rudd Beats Gillard in Ballot for Australia Labor Leadership. Kevin Rudd was sworn in as Australian prime minister for his second stint in the post, tasked with reviving the ruling Labor party’s prospects in the next election as it lags behind the opposition in opinion polls. Rudd was sworn in by Governor-General Quentin Bryce in Canberra today, along with his new deputy Anthony Albanese and Chris Bowen as treasurer.
- Asian Stocks Gain as Slow U.S. Growth Lifts Stimulus Bets. Asian stocks rose for a second day after slower-than-estimated growth in the U.S. economy stoked speculation the Federal Reserve may hold back from reducing stimulus. Samsung Electronics Co. (005930), the world’s largest maker of smartphones, climbed 5.9 percent in Seoul. Industrial & Commercial Bank of China Ltd. gained 3.2 percent in Hong Kong after a report showed profit growth at Chinese industrial companies accelerated in May. Newcrest Mining Ltd., Australia’s biggest gold producer, jumped 6.8 percent as the bullion headed for its first advance in four days. The MSCI Asia Pacific Index increased 1.4 percent to 127.94 as of 11:04 a.m. in Tokyo, with about six shares rising for each that fell. The gauge dropped 13 percent through yesterday from this year’s high on May 20.
- Draghi Points to Letta as Italian Drop Risks Spiral: Euro Credit. Investors in Italian and Spanish bonds, which recorded more than twice the losses incurred by German debt in the past week, shouldn't count on European Central Bank President Mario Draghi for help just yet. After declining 3 percent in the past week, Italian bonds are set to underperform their German peers in June for the first time in three months. Italy's borrowing costs almost doubled when the nation sold 186-day bills yesterday, while 10-year yields approached 5 percent, a rate breached by Spanish debt this week for the first time since April. Spain is due to auction bonds on July 4. "There's a risk we return to this negative spiral where bond yields creep up and at some point the market starts to worry about sustainability," said Elwin de Groot, senior market economist at Rabobank Nederland in Utrecht, in the Netherlands. "There countries will not be able to cope with such levels in the long term."
- EU Finance Chiefs Said to Reach Deal on Failing Banks. European Union finance chiefs struck an agreement on how to handle failing banks, a step they said would bolster investor confidence and help overcome the euro-area financial crisis. In seven hours of emergency negotiations in Brussels that wrapped up at about 1:30 a.m. today, ministers settled on guidelines for assigning losses to private creditors and regulating public assistance. They also spelled out when governments can step in and established a role for the European Stability Mechanism, the euro area’s 500 billion-euro ($651 billion) firewall fund. “It took a long time and it was arduous and it was intense,” German Finance Minister Wolfgang Schaeuble told reporters after the meeting. He said the deal is an “important step” toward making clear “that shareholders and creditors are liable first and foremost.”
- Industrial Metals Pare Quarterly Declines on Fed Stimulus Bets. Industrial metals pared quarterly losses after slower-than-estimated growth in the U.S. economy stoked speculation the Federal Reserve may hold back from reducing monetary stimulus. Copper for delivery in three months on the London Metal Exchange rose as much as 0.8 percent to $6,788 a metric ton and was at $6,785 by 11:37 a.m. in Tokyo. The price is still down 7.2 percent this month, the most since May 2012, and 10 percent lower this quarter. Metal for delivery in July on the Comex advanced 1 percent at $3.07 a pound. The LME Index of six primary metals that includes copper and aluminum has declined 10 percent this quarter, the most since the period ended Sept. 30, 2011. The index touched 2,911 on June 24, the lowest level since June 2010, as the Fed said it may pare bond purchases and investors speculated rising Chinese funding costs will curb demand.
- Rubber Pares Worst Quarter in Year on Hopes of U.S. Stimulus. Rubber recovered from a nine-month low, paring the biggest quarterly decline in a year, amid optimism the U.S. Federal Reserve will maintain stimulus after slower-than-estimated growth in the U.S. economy. The contract for delivery in December rose as much as 1.9 percent to 231.5 yen a kilogram ($2,358 a metric ton) on the Tokyo Commodity Exchange and was at 230.3 yen at 11:02 a.m. Futures have lost 16 percent this quarter, the most since the three months ended June 2012.
- Ratings Ratio Worst Since 2009 as Profits Slow. Ratio of upgrades to downgrades for corporate credit ratings is 0.89 at Moody's and 0.83 at S&P. Corporate creditworthiness in the U.S. is deteriorating at the fastest pace since 2009, with earnings growth slowing as yields rise from record lows. The ratio of upgrades to downgrades fell to 0.89 in the first five months of the year after reaching a post-crisis high of 1.55 in 2010, according to data from Moody’s Capital Markets Group. At Standard & Poor’s, the proportion has declined to 0.83 as of last week from a year earlier.
- FDIC’s Hoenig Says Another Crisis May Resurrect Bailout Specter. Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., said that while his agency can handle the wind-down of one big failing bank at a time, a larger crisis could lead to talk of bailouts. Hoenig said the authority given to U.S. banking regulators in the Dodd-Frank Act to dismantle a large bank may be effective only in an “idiosyncratic” situation and not a wider breakdown. In the latter case, lawmakers may be pressured to weigh a bailout like the Troubled Asset Relief Program of the 2008 credit crisis, he said at a House Financial Services Committee hearing today.
- China Cash Crunch Spreads. Businesses Turn to Alternatives Such as Bankers' Acceptances to Pay Their Bills. Even as Chinese officials indicate a softening of their tight grip on cash, some businesses are reporting liquidity is increasingly hard to find in some places and that customers are turning to alternatives. It isn't clear how deep the liquidity issues have trickled down from the financial sector, which has been gripped this month by a cash crunch widely believed to be aimed at deflating ballooning credit in the Chinese economy. But it suggests the pain could spread to other areas if cash borrowing rates for banks remain stubbornly high. Over the past couple of weeks companies have increasingly used bankers' acceptances—a type of short-term guarantee issued by banks to finance trade—to pay their bills instead of cash, according to people in a range of industries around the country.
- Business Feels Pinch of Swift Rate Rise. Sharp increases in long-term interest rates, triggered by Federal Reserve statements last week, threaten sales of homes, cars and other big-ticket items that have helped drive the U.S. economic recovery. Rate increases on interest-sensitive sectors likely aren't severe enough to derail the recovery, say economists. But they arrived just as the economy's lagging growth had showed welcome signs of improvement, raising worries among consumers and company executives. "It causes me to be a bit more cautious," said Ron DeFeo, the chief executive of Terex Corp. TEX -0.30% The Westport, Conn.-based company makes cranes, paving equipment and other heavy building machines, a business sensitive to interest rate changes. "I am hesitant because I really don't believe the U.S. economy is in a strong growth mode."
- Erdogan Tightens Grip on Turkey, Putting Nation at Crossroads. As mayor of Istanbul in the late 1990s, Recep Tayyip Erdogan publicly read a poem that included the lines: "The mosques are our barracks, the domes our helmets, the minarets our bayonets and the faithful our soldiers." The Islamist message earned him a few months in jail from Turkey's military-backed secular government.
- Historic Win for Gay Marriage. High Court Rulings Lift Bans on Federal Same-Sex Benefits, Weddings in California. The Supreme Court dramatically advanced gay rights Wednesday in rulings that direct the federal government to provide equal treatment to same-sex spouses and allow the resumption of gay marriages in California. In a pair of 5-4 rulings on the final day of the court's term, the justices struck down the 1996 Defense of Marriage Act, which denied federal benefits to gay couples married under state law, and let stand a ruling that found Proposition 8, a 2008 voter initiative that ended same-sex marriage in California, unconstitutional.
- U.S. to Arm Syrian Rebels Within Month, Officials Say. Plan Includes Training and Vetting for Rebels, and Possibly Saudi Training in Anti-Aircraft Missiles.
- Exit Signs Blurry for Private Equity. It all was going so well. For the first 5½ months of the year, private-equity firms took advantage of soaring markets and eager investors to raise about $35 billion by selling stakes in their companies, not to mention billions of dollars more through initial public offerings.
- Big Coal to Fight Obama Plan. Mining Firms Fear Impact of President's Proposals to Combat Global Warming. The beleaguered domestic coal industry, bracing for the possibility that no more coal-burning power plants will ever be built on U.S. soil, is teaming up with other business groups to blunt the impact of President Obama's climate-change agenda, while also shifting its business focus to exports. Following the president's announcement Tuesday of a sweeping plan to cut greenhouse-gas emissions, including at existing coal-fired power plants, some company officials said Wednesday there is also greater urgency to develop clean-coal technology, including a cost-effective way to capture and store carbon dioxide.
- Paychex(PAYX) Slips: FYQ4 Misses, FY14 View Light. Shares of payroll processing services firm Paycheck (PAYX) are down $1.06, or 2.8%, at $36.93, in late trading after the company this afternoon reported fiscal Q4 revenue and profit per share that missed analysts’ expectations, and projected this year’s revenue slightly below consensus.
- Massive Protests to Test Egypt Again. Egypt is bracing for massive demonstrations on Sunday, in the most serious threat to the nation's tenuous stability since the ousting of its former president, over two years ago.
Business Insider:
Reuters:
- China credit crunch pushes up loan pricing. Reduced bank liquidity in China's onshore loan market is pushing up loan pricing as the country's banks try to curb lending after last week's credit crunch in the interbank market and stock market slump, loan bankers said on Wednesday. Some Chinese state-owned and commercial banks have already asked borrowers to increase the interest margins of existing loans or renegotiate the margins on deals in the pipeline after the People's Bank of China (PBOC) said that the onus was on lenders to better manage their balance sheets. "We will temporarily increase pricing of loans that haven't been drawn or fully drawn yet. It applies to all clients," a Beijing-based banker at a Chinese commercial bank said.
- GM(GM) to invest $691 mln in Mexican operations. General Motors Co outlined plans on Wednesday for investing $691 million to expand its Mexican operations, including the previously unannounced expansion of its Toluca engine plant.
- Costs eat into Bed Bath's(BBBY) profit. U.S. home goods chain Bed Bath & Beyond Inc missed Wall Street's profit estimates in the first quarter as higher costs offset better-than-expected sales.
- Turning Market Hits 'Trend-Following' Quant Funds. On the HFRI Macro/CTA Index which charts the performance of hedge funds, those that used trend-following strategies fell 2.2 percent in May, according to data from industry tracker Hedge Fund Research.
- Fresh protests in Brazil despite government concessions. Tens of thousands of Brazilians took to the streets on Wednesday in new demonstrations calling for a crackdown on corruption and better public services, just a day after Congress ceded to some of the key demands galvanizing protests across the country. In Belo Horizonte, authorities said 40,000 people gathered to demand improved education and healthcare as Brazil's third-largest city hosted a Confederations Cup semi-final soccer game between Brazil and Uruguay in a warm-up for the 2014 World Cup. Hooded youths threw stones at police who used teargas to stop marchers 1-1/2 miles from the stadium. A banner hung from a bridge read "FIFA go home" in reference to the world soccer body. FIFA's president, Sepp Blatter, attended the game, which was not disrupted by the protests.
- French New Car Registrations Drop 4% in June. Registrations of new cars fell 4% in France in the first three weeks of June, citing official statistics. General Motors Opel brand French registrations down 36%, Chevrolet down 16%.
- Liquidity Crunch a Catalyst for Big China Slowdown - Analysts. The mini liquidity crunch is the early warning sign of a substantial economic correction long overdue, amid rising leverage and a broken growth model, say bearish analysts.
Liquidity crunch a
catalyst for big China slowdown – analysts
The mini liquidity crunch is the early warning sign of a substantial
economic correction long overdue, amid rising leverage and a broken
growth model, say bearish analysts.
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- CBRC Asks Trust Companies to Report Payment Sources. Chinese trust cos. must report their funding sources for payments on products due June 25-Dec. 31, citing a notice from China Banking Regulatory Commission's Shanghai branch. Cos. must also identify which bank, brokerage or financial institution holds each trust product, the report said.
- Avoiding Bank Risk More Important Amid Slowdown. Goal of China's recent liquidity management is to safeguard financial stability, People's Daily says in a commentary by Gao Yuncai. Banks' financial innovations "must" be under strict management and ensure risks are controllable, the commentary says.
- Some Small Property Cos. May Lose Financing Ability. Some small property cos. may lose financing ability because of the recent liquidity shortage of banks, citing an analyst. Property cos. may also cut prices due to financing problems. The government should strengthen supervision over property cos. to prevent some cos. from absconding with payments from property buyers.
- China Tax Revenue This Year May Be 'Very Severe'. China's tax revenue this year may be "very severe," citing Song Lan, deputy head at the State Administration of Taxation. The nation's tax administration has started survey to investigate the local tax revenue situation since mid of this month, the report says.
- China Should More Effectively Regulate Banks. China should have more effective measures to regulate how banks make profit, says front page commentary written by reporter Ren Xiao. China should accelerate interest rate liberalization so as to reduce incentive for banks to take on too much leverage.
- Riot kills 27 in Xinjiang. A riot in a town in Northwest China's Xinjiang Uyghur Autonomous Region killed 27 people, including 10 rioters on Wednesday, several days ahead of the anniversary of deadly riots in the region's capital in 2009. An official in Xinjiang, who asked to remain anonymous, told the Global Times that at around 6 am Wednesday, dozens of thugs armed with knifes and incendiary devices attacked the township governmental building, a police station, a station of auxiliary police and a construction site. The attackers stabbed police officers and auxiliary police officers, government employees and civilians, set fire to the four buildings, and confronted police officers who rushed to the scene, said the official. According to him, after being caught off-guard, nine police officers and auxiliary police officers were killed, along with another eight government employees and civilians.
- None of note
- Asian equity indices are +.75% to +2.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 150.0 -9.5 basis points.
- Asia Pacific Sovereign CDS Index 117.25 -13.25 basis points.
- FTSE-100 futures +.31%.
- S&P 500 futures +.08%.
- NASDAQ 100 futures +.06%.
Earnings of Note
Company/Estimate
- (WOR)/.63
- (KBH)/-.06
- (CMC)/.18
- (MKC)/.61
- (SCHN)/.12
- (WGO)/.26
- (CAG)/.59
- (NKE)/.74
8:30 am EST
- Personal Income for May is estimated to rise +.2% versus unch. in April.
- Personal Spending for May is estimated to rise +.3% versus a -.2% decline in April.
- The PCE Core for May is estimated to rise +.1% versus unch. in April.
- Initial Jobless Claims are estimated to fall to 345K versus 354K the prior week.
- Continuing Claims are estimated to rise to 2953K versus 2951K prior.
- Pending Home Sales for May are estimated to rise +1.0% versus a +.3% gain in April.
- The Kansas City Fed Manf. Activity Index for June is estimated to rise to 3.0 versus 2.0 in May.
- None of note
- The Fed's Lockhart speaking, Fed's Powell speaking, 7Y T-Note auction, EU Leaders Summit, German Retail Sales/Unemployment data, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, (LO) Investor Day and the (SONC) Investor Day could also impact trading today.