Bloomberg:
- China Cash Squeeze Seen Creating Vietnam-Size Credit Hole. China’s money-market cash squeeze is likely to reduce credit growth this year by 750 billion yuan ($122 billion), an amount equivalent to the size of Vietnam’s economy, according to a Bloomberg News survey. The number is the median estimate of 15 analysts, whose projections last week ranged from cuts of 20 billion yuan to 3 trillion yuan. The majority of respondents also said they approve of the government’s handling of the credit crunch and said the episode reinforces their expectations for policy reforms such as loosening controls on interest rates. June credit data due as soon as this week will give investors clues to how much the cash squeeze, which sent interbank borrowing costs soaring to records last month, is affecting the world’s second-biggest economy. Whether a slowdown extends into the second half may hinge on how effectively Premier Li Keqiang can redirect funding after his clampdown on speculation. “The liquidity crunch has increased downside risks,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong, who estimates it will reduce aggregate credit by 1.8 trillion yuan this year.
- China Metal Futures Volumes Slump as Super Cycle Fades. Industrial metals futures trading in China slumped in the first half of this year amid a rout in global commodities as investment banks called an end to the super cycle of gains in raw materials prices. Zinc volume dropped the most among base metals, falling 43 percent in the first six months from a year ago to 7.25 million lots on the Shanghai Futures Exchange, data from the China Futures Association showed. The total number of contracts on the SHFE and futures bourses in Dalian and Zhengzhou climbed with the addition of four new products including coking coal. The LMEX Index of six base metals on the London Metal Exchange, the biggest bourse for metals trading, dropped 13 percent this year on concern that slowing growth in China, the largest user of metals, would damp demand. Raw materials lagged behind equities this year as banks from UBS AG to Deutsche Bank AG forecast the decline of the commodity super cycle, a longer-than-average period of rising prices.
- Rupee Rout Spurs Biggest SBI Risk Jump Since 2008: India Credit. Bond risk for State Bank of India has surged most since 2008's credit crisis as a plunging rupee threatens to hurt company finances and boost loan defaults. The cost to insure debt of the nation's largest lender against non-payment for five years rose 86 basis points in June, the most since October 2008, to 275, according to data provider CMA. Credit-default swaps on Bank of China Ltd. climbed 43 basis points to 157. The average swap price for five Indian lenders jumped 93 basis points to 295 last month, as the rupee slid 4.9 percent and touched a record low of 60.765 per dollar.
- China Stocks Drop Most in Two Weeks as Energy Shares at 2008 Low. Chinese stocks dropped the most in two weeks as indexes tracking energy and industrial companies sank to the lowest levels since November 2008. China Shenhua Energy Co., the nation’s biggest coal producer, slipped 2.6 percent, taking its losses this year to 38 percent. Yunnan Tin Co. plunged 7 percent after saying its chairman is under investigation. Zijin Mining Group Co. (601899), China’s largest gold producer, declined for the first time in six days after saying first-half profit probably decreased. The Shanghai Composite Index (SHCOMP) fell 1.4 percent to 1,978.93 at 11:10 a.m. local time, after climbing 1.4 percent last week. The CSI 300 Index slid 1.3 percent to 2,198.79. The Hang Seng China Enterprises Index (HSCEI) tumbled 2.4 percent in Hong Kong.
- Asia Stocks Drop on Fed Stimulus, China Lending Concern. Asian stocks dropped amid concern a credit squeeze in China will curb growth and after a better-than-forecast monthly U.S. jobs report fueled speculation that the Federal Reserve may begin reducing stimulus this year. BHP Billiton Ltd. (BHP), the world’s biggest mining company, fell 2.3 percent in Sydney as metals prices retreated the most in two months. Asiana Airlines Inc. tumbled 5.7 percent in Seoul after one of its planes crashed at San Francisco International Airport. Zijin Mining Group Co. (2899) dropped 8.9 percent in Hong Kong after China’s biggest gold miner by market value said profit may slump as much as 55 percent. The MSCI Asia Pacific Index slid 0.9 percent to 130.11 as of 11:19 a.m. in Hong Kong, with more than two companies falling for each that rose. All 10 industry groups on the gauge retreated.
- Trichet Says Flexibility Is Implicit in ECB’s Forward Guidance. Former European Central Bank President Jean-Claude Trichet said his successor Mario Draghi’s pledge to keep interest rates low contains implicit flexibility to move if circumstances change. “You cannot exclude to move because you might have to move,” Trichet said in an interview in Aix-en-Provence, France. “In any case, it’s always conditional because nobody can think for one second that you would hesitate to move rates in any direction if there is a case to do that. Implicitly forward guidance remains conditional in the eyes of market participants.”
- Hollande Urged to Put His House in Order, Leave Businesses Alone. French business leaders had a message for President Francois Hollande this weekend: Put your own house in order and leave us alone.
- Salafist Party Asserts Role in Egypt as the Brotherhood Teeters. The dethronement of Egypt’s Muslim Brotherhood party is giving rise to a new political power. The ultra-conservative Nour Party was the only Islamist group to support the military-backed plan to topple Mohamed Mursi and the Muslim Brotherhood organization that fielded him for office. The move has cast them as political power brokers, evidenced by their scuttling, for now, of Mohamed ElBaradei’s appointment as prime minister. “The Nour Party for the time being has a veto power over major decisions because the new order needs at least one major Islamist party on its side,” said Shadi Hamid, director of research at the Brookings Doha Center in the Qatari capital. “It’s never been so influential.”
- Analysts Boosting S&P 500 Target 11% Cut Profit Growth Near Zero. The same equity analysts who lowered second-quarter profit growth predictions to almost nothing in 2013 are raising price forecasts, convinced the economy is growing fast enough to lure more investors and boost valuations. Standard & Poor’s 500 Index earnings rose 1.8 percent last quarter, down from a projection of 8.7 percent six months ago, according to more than 11,000 analyst estimates compiled by Bloomberg. At the same time, share-price targets for companies from GameStop Corp. (GME) to Goldman Sachs (GS) Group Inc. are rising at the fastest rate in two years.
- Hedge Funds Post June Decline as Bernanke Roils Markets. Hedge funds posted their biggest monthly loss in more than a year after signs that the U.S. Federal Reserve may scale back its unprecedented stimulus triggered a selloff across global markets. Hedge funds lost 1.4 percent in June, the most since May 2012, paring the gain in the first six months of 2013 to 1.4 percent, according to data compiled by Bloomberg. Hedge funds that use computer models to decide when to buy and sell securities slumped 6.3 percent last month, extending losses for the year to 7.1 percent, and emerging-market stock funds declined 6.6 percent, leaving them down 9.7 percent in 2013.
- WTI Crude Climbs a Fifth Day on U.S. Jobs Gain, Egyptian Unrest. West Texas Intermediate rose for a fifth day, the longest run of gains since April, as the U.S. added more jobs than forecast in June and protests in Egypt fanned concern about disruptions in Middle East oil supply. Futures advanced as much as 0.9 percent in New York after capping the biggest weekly advance in more than two years on July 5. WTI for August delivery climbed as much as 90 cents to $104.12 a barrel in electronic trading on the New York Mercantile Exchange and was at $103.79 at 9:39 a.m. Sydney time. The contract increased $1.98, or 2 percent, to $103.22 on July 5, the highest settlement since May 2012. Prices rose 6.9 percent last week, the most since February 2011.
- Biofuel Investments at Seven-Year Low as BP(BP) Blames Cost. Europe’s biggest oil companies are scaling back work on the next generation of biofuels, a setback for the effort to create a gasoline substitute that doesn’t drain the food supply. BP Plc (BP/) and Royal Dutch Shell (RDSA) Group Plc have halted funds for four separate ventures because the technology to produce fuel from woody plants and waste won’t be economical until 2020 or beyond, executives at both companies said in interviews.
- Rebar Falls for First Time in 5 Days as China Construction Slows. Steel reinforcement-bar futures in Shanghai fell for the first time in five days amid a seasonal slowing in Chinese construction and after a decline in local stocks and commodities. Rebar for delivery in January on the Shanghai Futures Exchange fell as much as 1.3 percent to 3,575 yuan ($582) a metric ton and was at 3,609 yuan at 11:22 a.m. local time. Futures climbed 2.4 percent last week.
- Losing $317 Billion Makes Treasuries Safer for Mizuho to HSBC. The biggest investors in Asia and Europe are keeping their money in Treasuries even after the steepest two-month loss for the securities erased $317 billion of market value. Mizuho Asset Management Co., which oversees $32 billion, added Treasuries due in 10 years or longer to its holdings in the past month. HSBC Private Bank, with $480 billion in assets, bought U.S. notes when 10-year yields rose to 2.5 percent. Deutsche Asset & Wealth Management, which manages about $1.3 trillion, is holding debt maturing in less than four years, betting American interest rates will remain subdued.
- Secret Court's Redefinition of 'Relevant' Empowered Vast NSA Data-Gathering. The National Security Agency's ability to gather phone data on millions of Americans hinges on a secret court ruling that redefined a single word: "relevant." This change—which specifically enabled the surveillance recently revealed by former NSA contractor Edward Snowden—was made by the secret Foreign Intelligence Surveillance Court, a group of judges responsible for making decisions about government surveillance in national-security cases. In classified orders starting in the mid-2000s, the court accepted that "relevant" could be broadened to permit an entire database of records on millions of people, in contrast to a more conservative interpretation widely applied in criminal cases, in which only some of those records would likely be allowed, according to people familiar with the ruling.
- Trade Talks Could Raise Heat on China. European Union Officials Arrived in Washington to Begin Negotiations Monday. The U.S. is launching broad trade talks with Europe this week and preparing for the next stage of negotiations with select Asia-Pacific nations, part of the Obama administration's effort to find new fuel for economic growth. U.S. trade experts and business leaders say they expect the deals will also put pressure on the only major economy absent from the negotiating tables: China.
- Smartphone Makers Hit By Rising Competition. Samsung gives weaker-than-expected earnings guidance and HTC posts tepid results. Samsung Electronics Co.'s weaker-than-expected earnings guidance for its second quarter and tepid results from HTC Corp. show that high-end smartphone makers are starting to see growth taper amid intense competition and cheaper devices flooding the market.
- Egypt's Opposition Nominates New Premier. Secular and Hard-Line Factions Propose London-Trained Economist, but Support Shows Cracks; Demonstrations Calm. Leaders of Egypt's hard-line Salafist Nour Party and secular party leaders agreed to put forward Ziad Bahaa-Eldin, a London-trained economist, as a candidate for prime minister, officials from Mr. Bahaa-Eldin's Social Democratic Party said. The decision followed lengthy negotiations on Sunday. Mohamed ElBaradei, leader of a grouping of political parties called the National Salvation Front, will be nominated for a vice-president post, the party officials said. Mr. ElBaradei couldn't be reached to comment.
- ObamaCare's 'Liar' Subsidies. The White House says you can sign up 'without further verification.' The White House seems to regard laws as mere suggestions, including the laws it helped to write. On the heels of last week's one-year suspension of the Affordable Care Act's employer mandate to offer insurance to workers, the Administration is now waiving a new batch of its own ObamaCare prescriptions.
Marketwatch.com:
- How exposed is Hong Kong to ‘Likonomics’? Commentary: Territory’s traditional advantages may soon dry up.
Fox News:
Business Insider:- Plane that crash-landed in San Francisco tried to abort landing, was traveling slower than normal, NTSB official says. A National Transportation Safety Board official says a preliminary review of recordings taken from the black boxes of an Asiana Boeing 777 flight that crash-landed into San Francisco International Airport Saturday showed that the plane was traveling “significantly” slower than normal on its descent before the crew called for more acceleration and another chance to land. The crash killed two people and injured at least 182.
- Thousands protest in Egypt after Muslim Brotherhood, opponents call for rallies. Thousands are protesting in Egypt after both the Muslim Brotherhood and their opponents called for new mass rallies Sunday, renewing fears of another round of street violence after the country’s military removed Islamist President Mohammed Morsi from office. The calls for competing rallies come after clashes two days ago between the rival camps left at least 36 dead and more than 1,000 injured nationwide.
- As Competition Wanes, Amazon(AMZN) Cuts Back Discounts. Jim Hollock's first book, a true-crime tale set in Pennsylvania, got strong reviews and decent sales when it appeared in 2011. Now "Born to Lose" is losing momentum—yet Amazon, to the writer's intense frustration, has increased the price by nearly a third.
- Hedge Fund Sues Treasury Over Fannie, Freddie. A large hedge fund that invested in shares of the government-sponsored mortgage companies Fannie Mae and Freddie Mac has sued the U.S. Treasury Secretary and the head of the Federal Housing Finance Agency along with the agencies themselves, arguing that their attempts to wind down the companies violate a Congressional mandate.
- Brazilian Soccer Fans Decapitate Ref After He Stabs, Kills Player. Last Sunday, an amateur soccer match in Brazil came to an unbelievably gruesome end when a referee was murdered by outraged fans. His head was then cut off and placed on a spike. The beheading was retaliation; the ref initially stabbed a player to death.
New York Times:
- A New Anti-American Axis? THE flight of the leaker Edward J. Snowden from Hong Kong to Moscow last month would not have been possible without the cooperation of Russia and China. The two countries’ behavior in the Snowden affair demonstrates their growing assertiveness and their willingness to take action at America’s expense.
Mortgage Professional America:
- Return of the piggyback loan. Piggyback loans, which fell from favor during the housing downturn, are slowly making a comeback as home values start to pick up, several industry leaders have said. Piggyback mortgages – when a borrower takes out a second mortgage in the form of a home equity or line of credit – accounted for 3.8% of the loans originated by surveyed bankers in 2012, compared to 1.7% of the loans for 2010, according to the ABA’s 2013 Real Estate Lending Survey. The loans were commonly used by borrowers who wanted to avoid paying for mortgage insurance but didn’t have enough money for a 20% down payment.
Reuters:
Financial Times: - European regulator preparing database on bankers. The European Union will soon begin sharing information on how bankers fare in 'fitness and probity' tests in member states, making it harder for errant bankers to evade regulatory scrutiny by crossing national borders.
- EU financial transaction tax will hit FX users hard - report. A proposed EU financial transaction tax (FTT) could discourage use of the foreign exchange (FX) market by typically raising costs of doing business by up to 700 percent, a report said on Monday. The report by the Global Financial Markets Association (GFMA) said that due to the double-sided nature of the proposed tax, transaction costs for pension funds would increase by around 1,500 percent. And they could reach as high as 4,700 percent for some FX products such as those that involve short-dated swaps with a very low transaction cost.
- Euro zone to decide on Greece's cash injection, warn Portugal. The euro zone must decide on Monday how to keep Greece on a lifeline but is divided over whether to delay aid payments to Athens in an attempt to force through unpopular reforms ranging from sacking public workers to selling state assets. A split in Greece's governing coalition over how to shrink the country's public sector has cast doubt upon Athens' ability to meet the demands of its bailout programme, although Finance Minister Yannis Stournaras said on Sunday much had been done to reassure international creditors.
- Brazil seeks U.S. response to alleged spying on citizens. Brazil will demand an explanation from the United States over report its citizens' electronic communications have been under surveillance by U.S. spy agencies for at least a decade, foreign minister Antonio Patriota said on Sunday.
- ECB cannot solve euro zone crisis, says Bundesbank chief. The European Central Bank cannot solve the euro zone crisis, Bundesbank chief Jens Weidmann told economists on Sunday, pressing the bloc's governments to get their economies in shape and tighten their fiscal rules.
- Weak professional job growth hurts U.S. office market: Reis. A lack of growth in white-collar jobs hurt the market for U.S. office space in the second quarter, with the vacancy rate stagnant at 17 percent, according to a report released on Monday by real estate research firm Reis Inc.
- 30 killed in school attack in northeast Nigeria. Islamic militants attacked a boarding school before dawn Saturday, dousing a dormitory in fuel and lighting it ablaze as students slept, survivors said. At least 30 people were killed in the deadliest attack yet on schools in Nigeria's embattled northeast. Authorities blamed the violence on Boko Haram, a radical group whose name means "Western education is sacrilege." The militants have been behind a series of recent attacks on schools in the region, including one in which gunmen opened fire on children taking exams in a classroom.
- White House set for Wall Street clash over trade talks. The Obama administration has set itself up for a fight with Wall Street after resisting European demands to include financial services regulation in transatlantic trade talks as the list of sticking points grows before negotiations begin this week. Washington is concerned that including a framework for financial regulatory convergence in the talks could be used by banks to circumvent tough rules stemming from the 2010 Dodd-Frank law, and as a way for Europeans to delay their own reforms.
- Portugal shows that this eurozone crisis is not over. The eurozone crisis may have been briefly absent from the headlines over the past couple of months but as the flare-ups in Portugal and Greece this week have highlighted it certainly never went away - despite the vocal protestations of some French politicians.
- Swatch 1H 'Much More Difficult' Than Year Ago. CEO Nick Hayek said 'we observed partially declining revenue at luxury brands' in China and Swatch had as much as double-digit percentage growth in its low. mid- and high price segments in that market.
- ECB Executive Board member Yves Mersch in an interview with Frankfurter Allgemeine Sonntagszeitung says ECB in its role as bank supervisor must "check whether the banks' balance sheets are in order. This must be done thoroughly to protect against surprises." Mersch said the lenders whose balance sheets are not in order "may not necessarily be the banks in the crisis countries".
- ECB Rate Cut Was Blocked by Seven Council Members. ECB Chief Economist Peter Praet at July 4 council meeting had prepared proposal to cut key interest rate to .25%, apparently supported by ECB chief Mario Draghi. Seven council members, mainly from norther euro member states and including Jens Weidmann, Klaas Knot and Joerg Asmussen, argued against a rate cut.
- KfW Wouldn't Have Lent to Spain Without Guarantee. Members of German state-owned KfW's management board said at a July 4 administrative board meeting that lender wouldn't have made EU800m loan to Spanish state-owned development bank ICO under normal circumstances because the loan is much too risky. Loan was only extended because German government is liable for the full amount.
- EU Needs Treaty Change to Oversee Banks, Buch Says. Claudia Buch, head of IWH economic institute and member of German govt's council of economic advisers, says it would be difficult on current legal basis for the ECB to close down European banks once it takes over supervision duties. Buch says issue is so important that European treaties have to be changed. "Without determined restructuring of the banks, this crisis can become a cliffhanger," Buch says.
- Deutsche Bank CFO Stefan Krause tells Boersen-Zeitung the bank will reduce liquidity, shrink its derivatives business and change its business model to comply with regulatory requirements. Krause says possible introduction of risk-unweighted leverage ratios would hurt Deutsche's business model that's based on hedging risks. Krause says no transfer of its core capital from Germany to the U.S. is necessary to meet separate U.S. capital requirements.
- Poll Shows Spanish Ruling Party's Support Falling. Support for Spain's ruling People's Party fell to 23% this month, from 24.5% in June, citing survey by Metroscopia polling firm. The People's Party scored 44.6% of votes in November 2011 general elections. Support for Socialists rises to 21.6% from 21.5%, compared with 28.7% of votes in November 2011 election.
- China 2Q GDP Growth May Slow to 7.5%. China June exports data may be "relatively weak" or even show a fall from a year ago, citing a personal familiar with the data. New loans in June may be about 800b yuan. China may not release policies to boost economy in short term as the government has greater tolerance for slowing growth and its determination to promote economic transformation.
Weekend Recommendations
Barron's:- Bullish commentary on (UNH), (LRCX) and (DELL).
- Bearish commentary on (NDLS).
- Asian indices are -2.0% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 157.0 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 114.0 -4.75 basis points.
- FTSE-100 futures +.76%.
- S&P 500 futures +.09%.
- NASDAQ 100 futures +.26%.
Earnings of Note
Company/Estimate
- (WDFC)/.54
- (AA)/.06
3:00 pm EST
- Consumer Credit for May is estimated to rise to $12.5B versus $11.06B in April.
- None of note
- The German Trade/Industrial Production data, China CPI, Eurozone Finance Ministers Meeting and the (AMAT) analyst meeting could also impact trading today.
