Bloomberg:
- China 3% Growth Risk Seen by Barclays Signals Likonomics Anxiety. A copper price collapse of more than 60 percent, zinc cut by up to a half and oil down to $70 a barrel. That’s the fate facing world commodity markets should China’s growth dip to 3 percent in the next three years -- a scenario economists at Barclays Plc (BARC) are now examining. They’re not the only ones building models based on a steep decline in growth in the world’s second-biggest economy. Nomura Holdings Inc. (8604) estimates a one-in-three chance of a sharp drop by the end of 2014, and Societe Generale SA sees a “non-negligible risk” of less than 6 percent growth this year and an outside chance of 3 percent average expansion for this half and next. Premier Li Keqiang’s efforts to rein in a record credit boom, avert a property-price bubble and strengthen environmental protections risk deepening China’s slowdown and adding to drags on the global economic recovery. With growth already heading for a 23-year low, a hard landing would batter commodity markets, hurting mineral exporters like Australia, Brazil and South Africa, and miners such as BHP Billiton Ltd. (BHP) and Rio Tinto Group, that have begun to slow expansion. “This is a very delicate thing they’re trying to do because to slow gradually is very difficult, partly because it’s a self-enforcing mechanism and it can become a vicious cycle,” said Andrew Polk, an economist in Beijing with the Conference Board, a New York-based research group, who sees average growth of 5.5 percent over the next five years. “There’s a distinct possibility that the slowdown could get out of control and the risk of a policy misstep cannot be discounted.”
- China’s Industrial Profits Growth Moderates as Economy Cools. Growth in Chinese industrial companies’ profits slowed in June as the economy cooled, costs rose and prices fell on moderating demand and overcapacity. Net income increased 6.3 percent from a year earlier to 502.4 billion yuan ($82 billion), the Beijing-based National Bureau of Statistics said yesterday, down from a 15.5 percent pace in May. Profit from main business operations fell 2.3 percent after an 8.8 percent gain the previous month, it said.
- China to Audit Government Borrowings as Risks to Growth Increase. China will begin a nationwide audit of government borrowings, as the nation’s growth slowdown puts pressure on the new leadership to determine the extent of potential bad debts weighing down the economy. The State Council, under Premier Li Keqiang, requested the National Audit Office to conduct a review, according to a statement from the audit office’s website yesterday, without providing any more details. The first audit of local government debt found liabilities of 10.7 trillion yuan ($1.8 trillion) at the end of 2010, the National Audit Office said in June 2011.
- China Reaches Deal With EU to Curb Solar-Panel Shipments. European Union and Chinese negotiators reached an agreement to curb EU imports of solar panels from China in exchange for exempting the shipments from punitive tariffs. The accord would set a minimum price for imports of the renewable-energy technology from China. In return, Chinese manufacturers would be spared EU levies meant to counter below-cost sales, a practice known as dumping. The EU import taxes target more than 100 Chinese companies including Yingli Green Energy Holding Co., Wuxi Suntech Power Co. and Changzhou Trina Solar Energy Co.
- China Money Rate Climbs Most in a Month as Banks Build Reserves. The seven-day repurchase rate, which measures interbank funding availability, climbed 59 basis points, or 0.59 percentage point, to 5 percent as of 10:25 a.m. in Shanghai, after increasing 65 basis points last week, according to a weighted average compiled by the National Interbank Funding Center. That was the biggest increase since June 20, when the rate reached a record 12.45 percent amid a cash squeeze.
- China’s Stocks Drop to 3-Week Low on Debt Audit, Slowing Profits. Chinese stocks fell to a three-week low after industrial companies reported slower profit growth and China began a nationwide audit of government borrowings amid concern potential bad debts may weigh down the economy. Industrial Bank Co. (601166) and Huaxia Bank Co. slumped at least 3 percent, sending a gauge of financial companies to the biggest loss among industry groups. Anhui Conch Cement Co. (600585) plunged 6.6 percent, dragging down material producers. PetroChina Co., the nation’s biggest energy company, declined 1.9 percent. The Shanghai Composite Index (SHCOMP) fell 1.6 percent to 1,979.38 at the 11:30 a.m. break, heading for the lowest level since July 9. The State Council audit order was “urgent” and the office suspended other projects to work on the review, the People’s Daily said yesterday. Concern that loan losses will increase is extending the two-month drop in financial shares that was sparked by a cash crunch in the interbank market and economist forecasts for the weakest annual economic growth since 1990.
- Asian Stocks Slip Before Kuroda as Metals Fall; Gas Sinks. Asian stocks fell, with the regional benchmark retreating a fourth day, before a speech by Bank of Japan Governor Haruhiko Kuroda and monetary policy reviews from the U.S. to Europe this week. The yen held gains versus the dollar, while most metals and natural gas declined. The MSCI Asia Pacific Index of regional equities sank 0.8 percent by 9:57 a.m. in Tokyo, headed for a 2 1/2-week low. The yen climbed 0.2 percent against the dollar, set for the strongest close since June 26 after posting the biggest jump of 16 major currencies tracked by Bloomberg last week.
- Investors Are Lab Rabbits in Central Bank Experiments. The European Central Bank and Bank of England are emulating Ben S. Bernanke’s experiment in offering monetary-policy guidance to financial markets. Investors could well end up being the guinea pigs. “If this is science, then we’re the little white lab rabbits,” said Vincent Reinhart, chief U.S. economist for Morgan Stanley in New York, who served as the Fed’s chief monetary-policy strategist from 2001 to 2007.
- German Protests Against U.S. Spying Draw Thousands. Thousands of protesters in cities across Germany took part in demonstrations against spying by the U.S. and other countries. An organization called Stop Watching Us, which describes itself as a “conglomeration of concerned citizens,” had called for protests in more than 30 cities across the country, according to its website. Florian Waechter, who organized the demonstrations, said in a telephone interview that his group doesn’t yet know how many people participated.
- Egypt Warns Against Unrest as Brotherhood Presses Protest. Egypt’s interior minister, speaking after dozens of people died in protests, said security forces are determined to bring about stability, a veiled warning to Islamists who want President Mohamed Mursi reinstated. Interior Minister Mohamed Ibrahim’s comments signaled impatience with demonstrations that have roiled the country since the military deposed Mursi on July 3 after mass rallies seeking his ouster. The pro-Mursi protests have led to fatal clashes, undercutting hopes for national reconciliation. “The police are determined to achieve security and stability for the country, and are capable of doing so,” Ibrahim said in a televised speech yesterday at a cadet graduation ceremony. “We will vigorously and decisively confront any attempt to undermine security.” At least 72 people were killed in weekend clashes near a pro-Mursi protest in Cairo, the Health Ministry said, the highest toll in a single incident since his ouster.
- U.S. Gasoline Rises to $3.6746 a Gallon in Lundberg Survey. The average price for regular gasoline at U.S. pumps rose 8.38 cents in the past two weeks to $3.6746 a gallon, according to Lundberg Survey Inc.
- Alwaleed Warns Saudi Oil Minister of Waning Need for Oil. Saudi Prince Alwaleed bin Talal told Oil Minister Ali Al-Naimi in an open letter that the kingdom won’t be able to raise production capacity to 15 million barrels of crude a day as planned, and that he disagrees with him over the impact of U.S. shale gas output. The prince published the letter today on Twitter, saying there’s a “clear and increasing decline” in demand for crude from members of the Organization of Petroleum Exporting Countries, particularly Saudi Arabia. The kingdom is now pumping at less than its production capacity as consumers limit oil imports, Alwaleed said. “We disagree with your excellency on what you said and we see that raising North American shale gas production is an inevitable threat,” the billionaire prince, founder of Kingdom Holding Co. (KINGDOM), said in the letter.
- Copper Falls Most in Three Weeks on China Factory Cuts. Copper futures tumbled the most in three weeks after China ordered companies in 19 industries to cut manufacturing capacity, signaling lower demand for industrial metals. Surplus capacity must be idled by September and eliminated by year-end, the Chinese government said yesterday. A report on July 24 showed July manufacturing weakened more than estimated in the Asian nation, the world’s top consumer of copper. A basket of prices on the London Metal Exchange also dropped the most in three weeks. “Everything we hear out of China now is about a slowdown and how they’re not buying copper, and this announcement just adds to those concerns,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “China is a big buyer of copper, so this is a problem.” Copper futures for delivery in September slid 2.5 percent to $3.1055 a pound at 1:17 p.m. on the Comex in New York, the biggest decline for a most-active contract since July 5. The price has dropped 15 percent this year.
- Rebar Falls to Three-Week Low After Output in China Advances. Steel reinforcement-bar futures in Shanghai fell to the lowest level in almost three weeks after crude steel production in China rose. Rebar for delivery in January on the Shanghai Futures Exchange fell as much as 1.1 percent to 3,627 yuan ($592) a metric ton, the lowest since July 10, and was at 3,645 yuan at 11:14 a.m. local time.
- Rubber Slumps to One-Week Low as Yen’s Rebound Reduces Appeal. Rubber slumped to the lowest level in more than a week as Japan’s currency rebounded to a one-month high, weakening the appeal of the yen-denominated futures. The contract for delivery in January lost as much as 3 percent to 242.7 yen a kilogram ($2,478 a metric ton) on the Tokyo Commodity Exchange, the lowest level since July 18.
- Hedge Funds Raise Gold Bets as Goldman Sees Decline: Commodities. Hedge funds raised wagers on a gold rally as speculation that the Federal Reserve will hold off on curbing stimulus drove prices toward the biggest gain in 18 months. Goldman Sachs Group Inc. expects the rally to reverse. Money managers increased their net-long position by 26 percent to 70,067 futures and options as of July 23, U.S. Commodity Futures Trading Commission data show. The fourth consecutive weekly gain is the longest streak since October. Bullish wagers across 18 U.S.-traded commodities gained 7.4 percent to 615,140. Investors more than doubled bets on lower corn prices to a record net-short holding.
- JPMorgan(JPM) Commodities Exit May Sap Liquidity Until Others Step in. A decision by JPMorgan Chase & Co. (JPM) to exit its physical commodities business would temporarily reduce market liquidity before other companies quickly take its place, according to analysts and traders. New York-based JPMorgan, the largest U.S. bank, said yesterday that it’s “pursuing strategic alternatives,” including the sale or spinoff of its commodities business, after an internal review. The statement came three days after a congressional hearing investigated whether deposit-taking banks should be allowed to trade raw materials such as oil and industrial metals.
- S&P Wants Government Documents About Other Investigations. McGraw Hill Financial Inc. (MHFI)’s Standard & Poor’s, preparing its defense to the fraud lawsuit by the U.S. Justice Department, will ask the government for information about investigations of other credit raters. The Justice Department and S&P yesterday filed a joint report ahead of a hearing July 29 in federal court in Santa Ana, California. The report lays out the kind of evidence each side will seek from the other in preparation for a trial of the government’s claims that S&P lied to investors about its ratings being independent and free of conflicts of interest.
- Fed Only Putting Off Day of Reckoning. Markets could turn volatile as autumn approaches and investors once again begin wringing their hands over the likely timing and consequences of a cutback in Fed stimulus.
- Yield Seekers Get Their Second Wind From Fed. High-yielding corners of the stock market took a hit earlier in the summer, a casualty of worries over the Federal Reserve's commitment to easing. The blow wasn't a fatal one: Heavy demand for new shares of dividend-paying companies shows that money managers are back on the hunt for yield. Key to this renewed appetite are recent signals from Fed officials that interest rates will stay low for years to come.
- Corporate Profits Lose Steam. With Many Cost Cuts Taken, Earnings Are Expected to Slip in Latest Quarter Amid Slow Sales Growth. With global economies sluggish and sales growth at a crawl, big U.S. companies have had one route to push profits higher: Cut costs and squeeze suppliers. That strategy may be running out of steam. Revenue at the companies that make up the Standard & Poor's 500-stock index—excluding banks, whose profits have soared—is expected to creep up by just 1.1% in the second quarter from a year earlier, according to Thomson Reuters, which melds Wall Street analysts' projections with company reports. Earnings, meanwhile, are expected to decline 0.6%. That would be the first profit decline for nonfinancial companies since last autumn and the first time in a year that earnings grew more slowly than revenue, a sign that margin widening is petering out.
- Dell(DELL) Founder Vows to Stay On. Michael Dell Says He Plans to Stay at PC Maker Even if His Buyout Attempt Were to Fail.
- The Affordable Care Act's Rate-Setting Won't Work by Howard Dean. Experience tells me the Independent Payment Advisory Board will fail.
- More Doctors Steer Clear of Medicare. Some Doctors Opt Out of Program, Frustrated With Payment Rates and Mounting Rules.
- Obama's Fed Circus. Democrats put on a spectacle of Wall Street and gender politics.
Fox News:
Business Insider:- White House doubles down on vow Obama won't agree to more spending cuts. The Obama administration dug in Sunday on its vow to reject proposed spending cuts by congressional Republicans in upcoming budget talks but declined to say whether the president would veto their proposals or allow a government shutdown. Treasury Secretary Jack Lew told “Fox News Sunday” that President Obama will neither sign government funding bills that slash domestic spending nor negotiate with Republicans over spending cuts to reduce the federal debt limit. However, he would not say whether the president would veto proposals and put the responsibility on Capitol Hill. “Congress has to do its work," Lew said.
- China slowdown digs a hole for US industrials. Industrial companies from Caterpillar to Norfolk Southern have felt the effects of the China economic slowdown and the knock-on effects it is having on commodities.
- Global ad market abuzz over $35 billion new giant. The global advertising market began their week with news of the creation of the world's biggest firm in the sector, after France's Publicis and U.S.-based Omnicom announced at the weekend they were joining forces to form a group worth $35.1 billion, overtaking global leader WPP.
New York Times:
- Syrian Government Blamed for Ballistic Missile Attack. A missile attack by government forces on the city of Aleppo in northern Syria killed at least 29 people, including 19 children, Syrian monitors said Saturday.
- PC Industry Fights to Adapt as Tablets Muscle In. The death of the personal computer may be an exaggeration. But the industry around personal computers seems to be in limbo.
Reuters:
Telegraph:- Fed's Lacker says exit from bond-buying should be quick. The U.S. central bank must end its bond-buying program quickly and an end to the program was "in sight", a senior Federal Reserve official said in a German magazine on Saturday. "We must make our exit from the bond-buying program quick," Richmond Fed President Jeffrey Lacker, one of the Fed's most fiscally conservative officials and a persistent critic of the latest round of bond buying, said in WirtschaftsWoche. "An end to these bond purchases came into sight at the latest Fed meeting," said Lacker, who is not among the Fed policymakers who will vote on monetary policy this year. Lacker pointed to relatively low inflation and said a faster-than-expected fall in the U.S. jobless rate was sufficient to start winding down the program. "First of all we should end the monthly purchases of mortgage bonds as quickly as possible," Lacker said in the interview. It was not the central bank's role to give any sector preferential support, he said. Lacker said the United States had made hardly any progress in cutting its debt and had instead only come up with temporary solutions for several months at a time. He said he hoped the Fed's planned scaling back of bond purchases this year and rising interest rates would force the U.S. Congress to agree more quickly on reducing debt. "We need a sustainable solution and the sooner the better," he said. Whoever takes the helm at the Fed when Bernanke's term as chairman ends in January 2014 must find a way to exit the bond-buying program without shocking the markets, Lacker said. He said the quantitative easing program had done little to boost the economy, and the U.S. economy would grow by 2 percent this year and by no more than 2.25 percent next year - lower than the 2.8 percent in 2013 and 3 percent in 2014 forecast by other Fed policymakers - as consumers remain cautious. Lacker said more needed to be done on drawing up rules to avoid future government bank rescues and said stress tests done in the United States were a step in the right direction.
- SEC launches new war on Wall Street. The regulator's pursuit of hedge fund manager Steve Cohen shows it has adopted a tougher stance towards alleged cases of corruption.
- BaFin Sees New Risks in German Bank Shipping Loans. German banks with significant shipping loan portfolios may be forced to seek fresh capital ahead of the stress test planned by the ECB when it takes on supervision of the euro area's biggest banks, citing the BaFin bank regulator. BaFin asked banks to assess risks from shipping loans and in "singles cases" was not happy with the results.
- Greece Must Honor All Aid Term Into 2014, Schaeuble Says. Greece's rescue program that runs into 2014 is tied to conditions that must be fulfilled "month for month, step by step," German Finance Minister Wolfgang Schaeuble said in response to a reporter, who asked whether his country's policy may change after the Sept. 22 election. Greece is "far from being over the hill," needs to improve efficiency of administration, tax collection, Schaebule said.
- Schaeuble Rules Out Debt Writedown for Greece. German Finance Minister Wolfgang Schaeuble rules out another debt cut for Greece.
- German Banks May Be Misjudging Loan Risks. Banks in Germany may not be accurately reflecting risks in rates they charge borrowers, citing Raimund Roeseler, head of banking supervision at German regulator Bafin, as saying in an interview. Roeseler cited as saying that he sees "fierce" competition in German lending potentially leading to banks not applying appropriate margins on loans.
- German Wealth Tax Would Threaten Company Ownership. A proposed German tax on wealth would threaten the ownership of companies by German investors, citing Hasso Plattner, billionaire founder of SAP, as saying in an interview. Plattner cited as saying wealth tax would prompt investors to sell stocks and could cause companies to move abroad.
- Brazil's Mantega Asks IMF to Change Gross Debt Calculations. Brazilian Finance Minister Guido Mantega has asked the IMF to change the way it calculates the country's gross debt, Lauro Jardim reported. Mantega requested change in letter sent July 25 to IMF's Christine Lagarde, according to Jardim.
- South Korea to Propose Derivatives Trading Tax. South Korean government will propose a tax to begin next year on derivatives trading such as Kospi 200 futures and options in a bid to increase tax revenue, citing finance ministry official.
- China's Tier 1 City Home Prices Have Room to Rise. Home prices in China's 1st-tier and 2nd-tier cities still have room to rise because of big demand for urban housing, citing Li Tie, director general of China Center for Urban Development under National Development and Reform Commission.
- Some Chinese Cities Tighten Housing Provident Fund Loans. China's Hangzhou and Xuzhou city will use bank loans for housing provident funds lending because of low capital.
Weekend Recommendations
Barron's:- Bullish commentary on (HFC), (ADSK), (F), (OI), (DD) and (DOV).
- Bearish commentary on (RH), (NATH) and (ANGI).
- Asian indices are -1.50% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 140.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 106.50 -3.25 basis points.
- FTSE-100 futures +.22%.
- S&P 500 futures -.22%.
- NASDAQ 100 futures -.15%.
Earnings of Note
Company/Estimate
- (SPG)/2.07
- (WYNN)/1.57
- (L)/.73
- (HTZ)/.44
- (PCL)/.23
- (EMN)/1.63
- (ESRX)/1.10
- (GGP)/.25
- (ADVS)/.31
- (HIG)/.71
- (CYH)/.67
- (PPS)/.73
- (MAS)/.20
- (JEC)/.84
- (VRTX)/-.20
- (MTW)/.35
- (CZR)/-1.69
- (APC)/.90
10:00 am EST
- Pending Home Sales for June are estimated to fall -1.0% versus a +6.7% gain in May.
- Dallas Fed Manufacturing Activity for July is estimated to rise to 7.3 versus 6.5 in June.
- None of note
- The Japan unemployment rate could also impact trading today.
