Bloomberg:
- China Move to Free Lending Rates Puts Focus on Low Saver Returns. The biggest step yet by China’s new leaders to move the nation’s financial system toward market-set lending rates heightens focus on what the central bank says is an even tougher reform: lifting restrictions on savers’ returns. The People’s Bank of China ended a floor on borrowing costs previously set at 30 percent below the benchmark, it said July 19. The limit on mortgage rates will stay to curb property speculation, the PBOC said. Also unchanged was a 10 percent limit on what banks can offer over PBOC-set deposit rates. Forcing banks to compete for funds would offer consumers more spending power, while undermining the model of state-directed, subsidized credit bequeathed to Premier Li Keqiang, who took office in March. At stake is phasing in reform without exacerbating a slowdown in the world’s second-largest economy. “Reducing controls on deposit rates would have a far bigger impact, boosting household income but also raising costs for large borrowers that have become addicted to cheap credit,” said David Loevinger, former U.S. Treasury Department senior coordinator for China affairs and now an emerging-markets analyst at TCW Group Inc. in Los Angeles.
- China Shipyards Squeezed by Low Down Payments Amid Credit Crunch. During the 2007 shipping boom, China’s shipyards charged down payments of as much as 60 percent of a vessel’s value. Now, shipbuilders are cutting those payments to as little as 2 percent, giving an advantage to state-owned companies that can tap the government’s cash. With flagging demand pushing shipyards to compete by cutting down payments and China taking measures to rein in lending, the nation’s privately owned yards are getting squeezed by state-owned rivals that enjoy greater access to financing. China Rongsheng Heavy Industries Group Holdings Ltd. (1101), the largest shipbuilder outside state control by order book, said this month it’s seeking government support after failing to win any new vessel orders this year.
- Beijing Airport Bomber Highlights Threat to Social Stability. The man who detonated a bomb at Beijing Capital International Airport, the world’s second busiest by passengers, highlights the growing threat to social stability in China from frustration at perceived injustice. The wheelchair-bound man, identified as Ji Zhongxing, 34, exploded the home-made device outside the exit to an arrival hall on July 20 to draw attention to his grievances, according to the official Xinhua News Agency. Ji, who sustained injuries to his arm, was the only one hurt in the blast, it said.
- Tycoons Usurped by SOEs in China IPOs as Returns Tumble. In December, China Machinery Engineering Corp., a builder of power stations, went public in Hong Kong thanks to five Chinese government-owned companies that bought almost a third of the $575 million offering. The stock has since fallen 24 percent. China Machinery is among a growing number of state-owned enterprises forced to rely on so-called cornerstone investments by other state firms to get initial public offerings done, as wealthy individuals like Li Ka-shing stopped investing. The results haven’t been stellar.
- Abe Victory Sets Up Next Battle as Japan Reform Fight Looms. Japanese Prime Minister Shinzo Abe’s winning of the first bicameral majority for the ruling coalition in six years sets up an internal government battle as he seeks to revamp economic to defense policies. Abe’s Liberal Democratic Party and its New Komeito ally will have at least 133 of the 242 seats in the upper house, according to estimates by state broadcaster NHK. The former ruling Democratic Party of Japan slid further into the margins of politics after its collapse in lower house elections in December, with the worst showing since its formation in 1998. With the Diet avenues now cleared for the government’s bills, the fight for Abe, 58, turns inward -- to convince his enlarged party, and a public that turned out in fewer numbers yesterday, that his program of change is worth enacting. Vested interests are lined up against him on everything from making it easier to fire workers to entering a U.S.-led free-trade zone.
- Australia’s Waning Boom Saps Mining Area Housing Demand. After slashing the price of three planned townhouses by a third in the coal-mining town of Moranbah in remote northeastern Australia, agent Ricardo Baggio still can’t find buyers. “No one’s got confidence,” said Baggio from broker Ray White Group’s Townsville franchise, about 550 kilometers (341 miles) north of Moranbah in Queensland state. “There are a few mines around the town but they’re not hiring or they’re downsizing.”
- China’s Stocks Fall, Led by Financial Companies. Chinese stocks fell for a fourth day as banks slumped on concern lending margins will shrink, while investors speculated looser interest-rate controls will benefit smaller companies. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. led declines for lenders after the People’s Bank of China ended a floor on borrowing costs while keeping a cap on deposit rates. The Shanghai Composite Index (SHCOMP) lost 0.4 percent to 1,984.76 at 11:13 a.m. local time. The CSI 300 Index dropped 0.5 percent to 2,180.38.
- Asia Stocks Gain on Abe as Yen to Gold Jump Amid Earnings. Asian stocks advanced, with the regional benchmark snapping a three-day drop, after Japanese Prime Minister Shinzo Abe cemented control of the government in elections. The yen rose against its major peers and gold gained. The MSCI Asia Pacific Index added 0.7 percent at 10:45 a.m. in Tokyo.
- Lew Says U.S. Recovery ‘Inextricably Linked’ to European Economy. U.S. Treasury Secretary Jacob J. Lew said a U.S. recovery is “inextricably linked” to Europe’s ability to generate growth, after global finance officials urged euro-area policy makers to ease off austerity measures.
- Spanish Sunshine Season Overshadowed by Growth Doubts: Economy. In Almeria’s Cabo de Gata natural park, one of the only unspoilt stretches left of Spain’s southern coast, Hotel Tio Kiko is close to full. Its owner, Jose Venzal Alonso, isn’t optimistic though. “I can’t say I see an economic recovery,” the 51-year-old hotel manager says in a telephone interview, speaking with a heavy southern Spanish accent. “All our clients are saying so, that they can’t afford to stay more than three days when they would happily come for six before the crisis. We used to have a full house much earlier in the season.” “Jobless numbers adjusted for the seasonal boost due to tourism show unemployment is still climbing,” said James Howat, an economist at Capital Economics Ltd. in London. “Fast enough economic growth to generate net increases in employment remains a distant prospect.”
- Sabic Looks at U.S. Investments as Europe Slowdown Hurts Sales. Saudi Basic Industries Corp. (SABIC), the world’s biggest petrochemicals maker by market value, is studying investment opportunities in the U.S. as the economic slowdown in Europe and China hurt its second-quarter sales. “It is very important that Sabic is not left out from investments in the U.S. as it is a huge market in terms of the presence of shale gas and also proximity to other markets,” Chief Executive Officer Mohamed Al-Mady told reporters in Riyadh yesterday. “We are studying opportunities in the U.S. to expand Sabic’s presence in the chemical and polymer businesses.”
- Yen Surges After Abe Election Win; Dollar Drops on Fed Outlook. The yen rose against most major peers after Japan’s ruling party failed to win an independent majority in upper-house elections and as traders speculated on Prime Minister Shinzo Abe’s ability to push through reforms. The yen strengthened 0.7 percent to 99.98 yen as of 1:10 p.m. in Tokyo after earlier surging as much as 1 percent. It rose 0.6 percent to 131.53 per euro.
- WTI Crude Gains a Fourth Day as Hedge Funds Boost Bullish Bets. WTI for August delivery, which expires today, rose as much as 44 cents to $108.49 a barrel in electronic trading on the New York Mercantile Exchange and was at $108.37 at 2 p.m. Sydney time.
- Gold Bulls Bet Right as Prices Rally Most Since ’11: Commodities. Hedge funds raised bets on a gold rally before prices capped the biggest two-week gain in 20 months as Federal Reserve Chairman Ben S. Bernanke damped speculation that a cut in stimulus is imminent. Speculators increased their net-long position by 56 percent to 55,535 futures and options by July 16, the highest since June 4, U.S. Commodity Futures Trading Commission data show. Short contracts fell the most since November after reaching a record the previous week. Net-bullish wagers across 18 U.S.-traded commodities jumped 28 percent, the biggest gain since March.
- Netflix(NFLX) Rules as S&P 500 Index’s Top Stock Spurring Bubble Talk. Netflix Inc. (NFLX:US) has become the best performing U.S. stock in the Standard & Poor’s 500 Index in 2013 and the second most expensive, and therein lies a tale of disagreement. Investors who dig into company filings can find negative free cash flow, a surge in liabilities for new movie and TV-show content and a long-term increase in unpaid subscribers. Moreover, perceived limits on customer numbers and the high price of shares have led 26 of the 37 Bloomberg-listed analysts (NFLX:US) covering the stock to advise investors to sell or hold stakes. Most shareholders aren’t listening to talk about a bubble or other bad news. They love Netflix.
- Beijing Lending Shift May Force Banks to Raise Capital. Removal of Floor on Loan Rates Is Seen Hitting Smaller Lenders Hardest. China's banks will need up to $100 billion in new funding over the next two years following Beijing's move to shake up lending, according to an analysis by a research firm, and that could spur banks to tap investors for capital even amid growing worries over the strength of their balance sheets. China's central bank on Saturday removed a government floor on the interest rates banks can charge their clients for credit, allowing financial institutions to price loans at whatever level they want. Authorities hope the action will foster competition among banks and result in easier access to loans for businesses and individual borrowers, especially small and private manufacturers long shunned by big state-owned lenders.
- U.S. Growth Outlook Stuck in Neutral. GDP Expectations Dialed Back as Retailer, Restaurant Sales Falter. The long-anticipated acceleration in the U.S. economy has been put on hold once again. Disappointing economic and corporate-earnings reports in recent weeks have dashed hopes that the U.S. was at last entering a phase of solid, self-sustaining growth. Instead, while economists expect a modest second-half pickup in growth, few are predicting the kind of substantial rebound needed to quickly bring down unemployment, raise wages and insulate the U.S. from economic threats abroad. There also are signs that consumers—whose spending has helped prop up the economy for much of the past year—are beginning to tighten their belts.
- Chemical in Indian School Deaths Was Five Times Regular Strength, Experts Say. Even Smelling the Fumes of Such a Compound Could Be Fatal, Says Police Chief. Forensic experts investigating poisoned food that killed 23 children at an Indian school found traces of a chemical compound five times stronger than its level used in commercial pesticide, the chief of police in Bihar state said Saturday. Abhayanand, who uses only one name, said investigators had discovered the compound, monocrotophos, in a plastic container that stored mustard oil for cooking at the school, as well as on eating utensils and leftover vegetables from Tuesday's meal.
- Earnings Calls Take On Whiff of Show Biz. Yahoo Puts Top Executives on Camera; Netflix Plans Live Webcast With Outside Moderators.
- Detroit's Bust Stings European Banks. UBS and Others Are Hurt by Motor City Deals Dating Back to 2005. Detroit's broken finances are intersecting with the troubled European banking industry, causing further distress for both the Motor City and its European lenders. The situation demonstrates the ways in which European banks are still paying the price for flawed decisions made in the run-up to the global financial crisis. The trouble dates back to 2005, when Detroit was trying to find a way to replenish its depleted pension funds for municipal workers and its police and fire departments. The city turned to a giant Swiss bank, UBS AG, UBSN.VX +1.32% for help.
- Companies Square Off in Tax-Rewrite Battle. Some Firms That Park Profits Abroad Fight to Keep Practice.
- A CEO's-Eye View of ObamaCare. No wonder the employer mandate was delayed. It's hard to see how it will work.
Fox News:
Business Insider:- Snyder shoulders Detroit bankruptcy decision, won't ask for federal help. Michigan Gov. Rick Snyder and the bankruptcy specialist he appointed to fix Detroit’s unprecedented financial problems put the blame Sunday squarely on the city and defended their decision to file for Chapter 9. The Republican governor said Detroit created the problems and stood steadfast behind his decision to file Thursday for bankruptcy, with the city roughly $19 billion in debt. “This is a tragic, difficult decision, but a right one,” he told CBS' "Face the Nation." “It’s not about just more money, it’s about accountable government.”
New York Times:
- A Black Box for Car Crashes. When Timothy P. Murray crashed his government-issued Ford Crown Victoria in 2011, he was fortunate, as car accidents go. Mr. Murray, then the lieutenant governor of Massachusetts, was not seriously hurt, and he told the police he was wearing a seat belt and was not speeding. But a different story soon emerged. Mr. Murray was driving over 100 miles an hour and was not wearing a seat belt, according to the computer in his car that tracks certain actions. He was given a $555 ticket; he later said he had fallen asleep.
Real Clear Politics:
Reuters:
Financial Times:Reuters:
- Deutsche Bank(DB) set to trim balance sheet by 20 percent: FT. Germany's biggest lender, Deutsche Bank (DBKGn.DE), is expected to announce during its second-quarter results its plans to reach a minimum 3 percent overall equity to loans ratio in the next two and a half years, the Financial Times reported on Sunday, citing people briefed on the plans. The bank is set to cut its balance sheet by 20 percent to 1 trillion euros ($1.31 trillion) by the end of 2015 to comply with tougher rules that are expected to require banks to use more equity capital to fund their business, to make them more robust in the aftermath of the 2007-09 credit meltdown, the newspaper said.
- Syrian forces kill at least 49 rebels near Damascus: monitors. Syrian President Bashar al-Assad's forces ambushed rebels in a strategic suburb near the capital Damascus on Sunday, killing at least 49 people, a pro-opposition monitoring group said. The Syrian Observatory for Human Rights said the opposition fighters had been killed near Adra, a town that rebels have been fighting to recapture from Assad's forces. It lies on a route that the rebels had been using to smuggle weapons into Damascus until the army captured it a few months ago.
- Minor miners face major headache from iron ore giants. From Africa to Australia, opportunities to develop small iron mines are fast disappearing, as cash dries up and miners are unable to compete with the crushingly low production costs of the sector's heavyweights. In Australia alone, a half a dozen or more projects pegged by prospectors in better times sit stranded in the outback with no timetable for development. Most are running short on money and have stripped payrolls and equipment spending to a bare minimum, awaiting a turnaround that forecasters predict is a long way off at best.
- Cost of weeding out criminals and tax cheats hits private banks. Private banks managing the financial affairs of the world's wealthy face spending millions of dollars every year on vetting new clients, as regulators get tough on banks that harbor tax cheats and money launderers. While the world's rich are getting wealthier and putting more money into private banks, a growing proportion of the cash is from geo-political troublespots in the Middle East and Asia.
- Court renews NSA telephone surveillance program. The secret Foreign Intelligence Surveillance Court renewed the government's authority Friday to continue the collection of millions of Americans' telephone records, one of the classified counter-terrorism programs disclosed by former National Security Agency contractor Edward Snowden. In an unusual public statement, the Office of the Director of National Intelligence acknowledged that the court renewed the authority that was set to expire Friday.
- House prices in euro area hit seven-year low. House prices in the euro area have fallen to a seven-year low, with some of the steepest declines felt in countries worst hit by the financial crisis, where a large share of household wealth is stored in property. European Central Bank figures also highlight gaping disparities between eurozone countries – partly echoing their divergent economic fates.
- Portugal President Anibal Cavaco Silva backs coalition government and rejects snap poll. Portuguese President Anibal Cavaco Silva has backed the country's centre-right coalition government and rejected calls for snap elections to resolve a political crisis shaking the bailed-out nation.
- China risks deflation trap as true GDP crumbles. China is sliding towards a deflation trap and may be in outright recession already if data are measured accurately, with serious knock-on risks for the global economy. “It is too late to avoid a hard-landing,” said Patrick Chovanec from Silvercrest Asset Management and a former professor at Beijing’s Tsinghua University. “To keep growth going they have to push extremely high levels of investment to even more extreme levels, and that is becoming very hard to do and very hard to finance.” “The economic return on credit is rapidly declining. They increased loans by $1 trillion in the first quarter, but growth slid anyway and is now below levels seen in early 2009 after the Lehman crisis. It is no longer out of the question that GDP will actually fall,” he said.
- Dexia Could Lose About EU100m on Detroit's Bankruptcy. Dexia could lose EU100m on top of provisions already made for losses on taxable certificates of participation the city of Detroit issued in 2006 to finance public employee pension funds.
- Talk of Greek Writedown Must Stop, Schaeuble Says. Such talk doesn't help country, citing German Finance Minister Wolfgang Schaeuble. A writedown on public loans to Greece would mean euro area wouldn't get back money it afforded as help, he said. Such a move would increase insecurity and wouldn't be possible for Germany given legal reasons, Schaeuble said.
- Tombini Sees Confidence Drop Hurting Brazil Economy. Newspaper reports on interview with Brazil central bank President Alexandre Tombini. Fight against inflation helps to restore confidence, which is necessary for economy to continue process of gradual recuperation, Tombini said. Central bank doesn't have data for June and July, appears that economy isn't good in that period. Bank's mission is to bring inflation to target and that's what it's doing. Government must define fiscal adjustment, and must define it clearly, describing in detail how it will be carried out.
- China Needs Long-Term Mechanism for Property Sector: Lou. China's State Council needs to continue researching a long-term mechanism for the development of the property sector, Finance Minister Lou Jiwei says in an interview. The G-20 didn't discuss a hard landing in China. Some finance chiefs expressed hopes that China will grow faster to support global growth, but Lou says he told them "don't even think about it, you have your own homework to do," Xinhua said.
- Xi Says Strong China Needs 'Real Economy'. China President Xi Jinping said a strong China needs development of the "real economy," and not asset bubbles.
- Abe Govt May Lead to Regional Instability. Japan's Liberal Democratic Party coalition's victory is based on a disguise of Shinzo Abe's historical views and militarization agenda under Abenomics, according to a Xinhua commentary. Abe governing for the long term may lead to Japan becoming a source of instability for the region and the world, the commentary said.
- China has great determination on curbing overcapacity of high energy consumers or heavy polluters, especially those in steel, cement and aluminum industries, citing Minister of environmental protection Zhou Shengxian.
- China Data Underestimates Aggregate Financing. People's Bank of China Deputy Governor Pan Gongsheng says China's current reported aggregate financing underestimates actual total financing by financial institutions to the real economy. Pan made the comments at a conference in Shanghai. Changes in the mode of transaction in the financial markets lowered the detectability of monetary supply and weakened the impact of the central bank's liquidity adjustments, according to the report.
Weekend Recommendations
Barron's:- Bullish commentary on (FTNT), (SAI), (CHKP), (IPG), (GLD) and (GCA).
- Asian indices are -.50% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 128.0 unch.
- Asia Pacific Sovereign CDS Index 102.0 +1.25 basis points.
- FTSE-100 futures +.11%.
- S&P 500 futures +.10%.
- NASDAQ 100 futures +.24%.
Earnings of Note
Company/Estimate
- (KMB)/1.39
- (HAS)/.34
- (HAL)/.72
- (MCD)/1.40
- (NFLX)/.40
- (TXN)/.41
8:30 am EST
- The Chicago Fed Nat Activity Index for June is estimated to rise to 0.0 versus -.3 in May.
- Existing Home Sales for June are estimated to rise to 5.25M versus 5.18M in May.
- None of note
- The BoJ's Sato speaking could also impact trading today.
