- Court Orders Mubarak Freed as Gunmen Kill 26 Police in Sinai. A Cairo court ordered ousted President Hosni Mubarak freed from prison, a move that could complicate Egypt’s increasingly violent political transition, while militants in Sinai killed 26 policemen. The Cairo criminal court’s order to free Mubarak threatens to inject new tensions in a nation convulsed by political unrest that has killed almost 1,000 in the past six days. His potential release may spur arguments by the Muslim Brotherhood and others locked in a deadly standoff with the government that Egypt’s new military-installed leaders are trying to re-establish the kind of police state Mubarak led.
- Sensex Falls 10% From High as Banks Extend Drop. Indian (SENSEX) stocks declined, taking the benchmark index’s drop from its 2013 high to almost 10 percent, amid concern that policy makers will sacrifice economic growth as they seek to stem a record slide in the rupee. State Bank of India lost 2.6 percent and ICICI Bank Ltd. (ICICIBC) slumped 5 percent. The 13-member S&P BSE Bankex tumbled 3.4 percent, taking its two-day loss to 8.8 percent, the most since February 2009. Tractor maker Mahindra & Mahindra Ltd. (MM) dropped to the lowest level since September. Ranbaxy Laboratories Ltd. rose for the first time in three days amid speculation a weak currency will boost the value of its repatriated earnings. The rupee weakened to an unprecedented 63.23 per dollar today. The S&P BSE Sensex slid 1.6 percent to 18,307.52 at the close, poised for a so-called correction after retreating 9.8 percent from this year’s high on July 23. Indian equities have posted four weeks of losses on concern that government efforts to support the rupee will weigh on the nation’s economy, which grew at the slowest pace in a decade in the year ended March.
- Clouds Gather Over Asian Economies as Capital Flows Back to U.S. Asia’s role as the world’s growth engine is waning as economies across the region weaken and investors pull out billions of dollars. “The eye of the storm is directly above emerging markets now, two years after it hovered over Europe and four years after it hit the U.S.,” said Stephen Jen, co-founder of hedge fund SLJ Macro Partners LLP in London and former head of foreign-exchange strategy at Morgan Stanley. “This could be serious for Asia.”
- Brazil Bond Risk Relative to Mexico at Highest Since Oct. 2006. The difference in price for credit-default swaps insuring Brazil's bonds vs. contracts on Mexican debt widened to 77.2 bps at 12:03 am in Sao Paulo, the highest since Oct. 3 2006, according to Bloomberg data. The premium paid for Brazil's CDS over Mexico's has increased 6-fold since start of year. Brazil's cds is up +7.5% today to 211 bps(vs 3-mo avg of 177 bps).
- Brazil Economists Forecast Weaker Currency and Higher Key Rate. Brazil economists forecast a weaker real than predicted last week, in a move that will fuel inflation and force the central bank to further raise interest rates. The real will weaken to 2.35 per U.S. dollar by the end of 2014 from 2.30 in December 2013, according to the Aug. 16 central bank survey of about 100 analysts published today. They previously saw the real at 2.28 in December and 2.30 a year later. Economists also raised their 2014 key rate forecast to 9.50 percent from 9.25 percent.
- Junk Bond Risk Rises to 4-Week High in Europe as Spreads Widen. The cost of insuring high-yield corporate bonds against losses rose to the highest in more than a month in Europe as the average spread on the debt jumped from a three-month low. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly speculative-grade credit ratings climbed 7.4 basis points to 417 at 9:21 a.m. in London, the highest since July 17. The premium investors demand to hold junk-rated bonds instead of benchmark government debt widened 10 basis points to 392.85 basis points, the biggest jump since July 3, according to Bloomberg bond index data.
- European Stocks Retreat as Glencore Falls. European stocks fell, following three weeks of gains for the Stoxx Europe 600 Index, as this week’s release of minutes from the Federal Reserve’s last meeting fueled speculation policy makers will trim bond buying. Glencore Xstrata Plc dropped 2.5 percent, following mining companies lower. Holcim (HOLN) Ltd. sank the most in 21 months after UBS AG downgraded its rating on the world’s biggest cement maker. Spanish and Italian banks led losses in European lenders as UniCredit SpA and Banco Santander SA slid more than 3 percent. Kentz Corp. rallied 24 percent as the Irish oilfield-services provider rejected two takeover approaches. The Stoxx 600 decreased 0.5 percent to 304.7 at 4:30 p.m. in London as the Federal Open Market Committee prepared to publish minutes of its July meeting on Wednesday. A gauge of lenders contributed the most to the Stoxx 600’s decline. Santander, Spain’s largest bank, retreated 3.1 percent to 5.64 euros as the spread on 10-year Spanish bonds over German securities widened four basis points to 252 basis points. Bankinter SA slid 5.7 percent to 3.64 euros. UniCredit fell 5.5 percent to 4.52 euros and Banco Popolare SC lost 4 percent to 1.12 euros. The spread on benchmark 10-year Italian debt over bunds with the same maturity widened eight basis points to 238 basis points.
- Gold Drops From Two-Month High on Concern Fed May Slow Stimulus. Gold futures for December delivery slid 0.4 percent to settle at $1,365.70 an ounce at 1:50 p.m. on the Comex in New York. Earlier, prices reached $1,384.10, the highest for a most-active contract since June 18.
- U.S. 10-Year Yields to Rise Above 3%, BlackRock’s(BLK) Rieder Says. Yields on 10-year Treasury notes will rise above 3 percent as the Federal Reserve scales back its debt purchases, according to Rick Rieder, chief investment officer for fundamental fixed-income at BlackRock Inc. The Fed’s quantitative easing “is too big,” Rieder said in an interview with Tom Keene and Sara Eisen on Bloomberg Television. “You have got to taper down QE. It has created this tremendous distortion in interest rates. We think fair value on the 10-year is close to 3-to-3.25 percent. You are getting very close to there.” Yields on the benchmark security rose today as high as 2.87 percent, the most since July 2011, which is also when they last last reached 3 percent.
- Fed Finds 18 Large Banks Weak in at Least One Capital Area. The 18 largest banks subject to a Federal Reserve stress test this year fell short in at least one of five areas the Fed says are critical to risk management and capital planning. While many banking companies have improved capital planning techniques and raised capital levels, “there is still considerable room for advancement across a number of dimensions,” Fed supervisors said in a 41-page paper released today in Washington outlining weaknesses and successes in recent stress tests. The Fed staff study shows that, after four such tests, some of the largest banks still lack comprehensive systems and policies to model, test, report and plan for economic calamities. While highlighting both strengths and weaknesses, the central bank said all of the bank holding companies “faced challenges across one or more” of five areas, and called for analysis tailored to each bank’s business and risk.
- Obama Focuses on Risk of New Bubble Undermining Broad Recovery. President Barack Obama, who took office amid the collapse of the last financial bubble, wants to make sure his economic recovery doesn’t generate the next one. Obama this month spoke four times in five days of the need to avoid what he called “artificial bubbles,” even in an economy that’s growing at just a 1.7 percent rate and where employment and factory usage remain below pre-recession highs.
- Repo Market Decline Raises Alarm as Regulation Strains Debt. Regulations aimed at reducing the risk of another financial crisis are starting to upend a key part of the bond market that expedites trading in everything from Treasuries to junk bonds. The U.S. repurchase, or repo, market where banks and investors borrow and lend Treasuries and other fixed-income securities shrunk to $4.6 trillion daily outstanding last month, down 35 percent from a peak of $7.02 trillion in the first quarter of 2008, based on Federal Reserve data compiled from its 21 primary dealers. From fewer repos to lower inventories of bonds, financial institutions are responding to more stringent capital standards imposed by regulators around the world. Already, the group of dealers and investors that advise the U.S. Treasury say that they see declines in liquidity in times of market stress, including wider gaps between bid and offer prices and the speed of completing trades. The potential consequences are higher borrowing costs for governments, companies and consumers.
- Asian Emerging Markets Plunge. Investors Worry About Increasing Fragility as Easy-Money Period Wraps Up. Major emerging markets in Asia plunged Monday on growing concerns among foreign investors that many of the region's largest economies look increasingly fragile as a period of global easy money appears to be coming to an end.
- Banks Work Around China's Lending Limits. Latest Tactic in Cat-and-Mouse Game With Regulators Hides Risks, Analysts Say. Chinese regulators have tried for months to rein in lending by the country's banks, most recently by instigating a cash squeeze that left some scrambling for funds. But the banks have stayed one step ahead, keeping the lending spigots open largely through increasingly complicated transactions. The banks' latest effort in their cat-and-mouse game with regulators involves making corporate loans appear on their balance sheets as less risky loans to banks. This allows banks to skirt limits on lending to customers but hides risks that they will be hit by big losses. Analysts estimate as much as 2 trillion yuan ($326 billion) could have been loaned under these transactions, which are often categorized as so-called trust beneficiary rights transfers because the income and risk from a loan is transferred between banks. The transactions are done mostly by small and midsized lenders, which were the target of the Chinese central bank's credit squeeze in June. "What worries me is the way banks are getting around regulations is becoming more and more convoluted," Fitch China banking analyst Charlene Chu said. "If these exposures encounter a problem, it will be really hard to sort out."
- Muslim Brotherhood wages war on Christians. scores of their most sacred buildings and monuments being systematically destroyed by members of the Muslim Brotherhood in what one Coptic leader called an attempt at ethnic cleansing. The group, which is clashing with the military throughout the North African nation, has zeroed in on Christians since the Muslim Brotherhood-backed administration of Mohamed Morsi was ousted on July 3. The military removed him from power after he imposed several sweeping constitutional changes that appeared to put the nation of 90 million on a path toward Islamist rule. “The Muslim Brotherhood continues its attacks on churches to implement their scheme, which includes ethnic cleansing and the forced displacement of Copts,” Abul Ezz el-Hariri, a Christian and former presidential candidate from Alexandria, told MidEast Christian News. “Egyptian churches are part of a blueprint by the MB to lure other Islamist groups.”
- Fed’s Lacker: More asset purchases just won’t help economy. Richmond Federal Reserve Bank President Jeffrey Lacker made a case Sunday for ending QE3: the costs of asset purchases are rising and any future benefits are likely to be small.
- Retail rodeo: Investors could be in for a wild ride. (video) Saks(SKS) is the latest retailer to disappoint investors with weaker-than-expected earnings and lackluster sales, fanning fears about about how the sector will fare heading into a heavy week of earnings.
- India Sliding From Bad To Worse. (graphs)
New York Times:
- Missteps in Big Asset Sales Plague Greece as Privatization Chief Resigns. One of the ways Greece plans to dig itself out of debt is through the sale of state-owned assets. But that effort has been beset by missteps, and on Monday the government’s privatization agency was looking for a new chairman for the second time in six months.
LiveMint.com:
- Indonesia rupiah, stocks plunge on record current-account deficit. The current account remains in deficit for seven quarters and overseas sales decreased for a 15th month in June.
Jakarta: Indonesia’s rupiah fell to 10,500 per dollar for the first time since 2009, stocks dropped by the most in 22 months and the government bonds plunged after the current-account deficit widened to a record last quarter. The Jakarta Composite Index of shares has fallen 8% in two days, and is now the world’s worst performer this quarter. The yield on 10-year notes surged to the highest since March 2011 after Bank Indonesia said on 16 August the current-account deficit was $9.8 billion, the largest in data compiled by Bloomberg going back to 1989. Inflation quickened to a four-year high and economic growth slowed to the least since 2010, figures showed last week. “Indonesia has seen a gradual but persistent bout of bad news, with slowing growth, quickening inflation and then the current-account deficit,” said Leo Rinaldy, a Jakarta-based economist at PT Mandiri Sekuritas, a unit of the nation’s largest lender by assets. “The implication going forward is that demand for dollars will increase.” The rupiah slid 1% to 10,490 per dollar as of 4 pm in Jakarta, the biggest drop since 23 July, according to prices from local banks. It touched 10,500 earlier and has declined 5.4% this quarter, the worst performance among Asia’s 11 most-traded currencies. The Jakarta Composite Index fell 5.6% to 4,313.52, the biggest drop since 3 October 2011, on volumes 32% higher than the 30-day average. The gauge lost more than 10% this quarter, the most among 94 global indexes tracked by Bloomberg, and has now erased all of its gains this year.
- PBOC Says China to Keep Prudent Monetary Policy in 2H. Overall liquidity in China is ample, PBOC Governor Zhou Xiaochuan said in an interview.
