- Asian Dollar Bond Yields Rise Most in 6 Weeks as Funds Exit Debt. Yields on U.S. dollar-denominated bonds sold by Asian issuers rose the most in six weeks yesterday as investors pull cash from the region in favor of more developed economies. Bond risk climbed. Average rates rose 13 basis points, the most since July 8, to 5.57 percent yesterday, according to JPMorgan Chase & Co. indexes. The cost of insuring the region’s corporate and sovereign bonds against non-payment meanwhile increased to the highest level in almost six weeks, according to traders of credit-default swaps.
- India May Delay Capital Infusion Into Banks as Stocks Slump. India may delay injecting capital into state-run banks due to slumping stock prices, said Rajiv Takru, the Finance Ministry’s banking secretary. The government, which usually infuses capital into lenders by buying their shares, doesn’t want to lose money as prices slide, Takru said in an interview yesterday in New Delhi. He had said on July 9 the government will inject as much as 140 billion rupees ($2.2 billion) by the end of September to strengthen banks’ risk buffers and bolster credit growth. The S&P BSE Bankex Index, which tracks 13 banks, has lost 31 percent from a record on May 17 as central bank steps to support the rupee caused interbank rates to surge.
- UBS Sees Rupee at 70 as Rajan Lacking Magic Wand: India Credit. Pictet Asset Management SA sees no immediate policy fix as demand collapses for Indian rupee bonds, prompting UBS AG to predict a further 10.5 percent slump in the nation’s currency. Yields on 10-year government securities surged 130 basis points in the past month to a five-year high of 9.24 percent as global funds cut holdings of local debt to a 19-month low of $28.7 billion on Aug. 13. The rate on similar Chinese notes rose 24 basis points to 3.93 percent. The rupee has tumbled almost 14 percent since March and touched an all-time low of 63.23 per dollar yesterday after the Reserve Bank of India slashed the amount companies and individuals can invest abroad. “We are not anticipating that India will take strategic steps that bring sustainable flows in the immediate term,” Philippe Petit, a Singapore-based senior investment manager at Pictet, which manages $30 billion of emerging-market debt, said in an interview on Aug. 16. “The aim should be to accelerate inflows rather than curb outflows. The measures won’t significantly ease the current account situation.”
- Rupee Drops to Record. India’s rupee plummeted past 64 per dollar for the first time on concern foreign outflows will accelerate as the Federal Reserve prepares to trim stimulus. Overseas funds have pulled about $12 billion from local debt and equities since May 22 when Fed Chairman Ben S. Bernanke first signaled the central bank may pare its $85 billion monthly bond-buying program. The rupee, which sank as much as 1.5 percent to touch an unprecedented 64.12 a dollar, pared most of the losses on speculation the Reserve Bank of India intervened to arrest the slide, said two traders with knowledge of the matter, asking not to be named as the information isn’t public. It ended the day at 63.23.
- Indonesia Stocks Drop for Fourth Day as Outflows Weaken Rupiah. Indonesian stocks tumbled, capping the biggest four-day plunge since 2011, amid growing concern that capital outflows will accelerate. The rupiah dropped to the weakest level in four years. The Jakarta Composite Index (JCI) fell 3.2 percent to 4,174.98, extending its four-day slide to 11 percent. The gauge has dropped 19.9 percent from its record close on May 20. The rupiah fell 1.8 percent to 10,685 per dollar after reaching 10,728 earlier, the weakest level since April 2009, prices from local banks show. The cost to insure Indonesian debt against default rose to an almost two-year high yesterday, according to CMA. Five-year credit-default swaps insuring the Southeast Asian nation’s debt against default rose 43 basis points to 283 yesterday, according to CMA.
- Thousands of Syrians Surge Into Iraq to Escape Collapse at Home. An economic collapse fueled by bombings is pushing tens of thousands of Syrians to cross into neighboring Iraq in the largest exodus since Syria’s civil war erupted more than two years ago, the United Nations refugee agency said. A group of 2,000 to 3,000 people is expected to cross into northern Iraq today, following about 30,000 others who have made the same trip since Aug. 15, Dan McNorton, a spokesman for the UN High Commissioner for Refugees, told reporters today in Geneva, according to an agency e-mail summarizing his comments.
- Bond Risk Climbs to Five-Week High in Europe on Tapering Concern. The cost of insuring corporate bonds against losses rose for a second day in Europe on investor concern the Federal Reserve will start curbing asset purchases as soon as next month. The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings gained 1.2 basis points to 104 basis points at 9:11 a.m in London, the highest level since July 17. The average yield on the debt climbed 4 basis points to a six-week high of 2.1 percent, according to Bloomberg bond index data.
- European Stocks Decline. BHP Billiton Ltd. lost 1.7 percent after posting full-year net income that missed analyst forecasts. Glencore Xstrata (GLEN) Plc slid 1.6 percent after writing down $7.7 billion of assets, even as it posted first-half adjusted net income that beat analyst predictions. Lindt (LISN) & Spruengli AG rose to its highest price since November 2007 as the world’s largest maker of premium chocolate reported earnings before interest and taxes that exceeded estimates. The Stoxx Europe 600 Index lost 0.8 percent to 302.25 at the close of trading, its lowest level since July 31.
- Crude Drops for Second Day on Fed Tapering Speculation. West Texas Intermediate crude fell for a second day amid speculation that the Federal Reserve will reduce stimulus measures next month, curbing investors’ appetite for commodities. WTI for September delivery dropped 77 cents, or 0.7 percent, to $106.33 a barrel at 1:12 p.m. on the New York Mercantile Exchange. It slipped 0.3 percent yesterday, snapping a six-day rally that was the longest since April 25.
- Bubbles Bloom Anew in Desert as Buyers Wager on Las Vegas. A five-bedroom house in Las Vegas sold in mid-July for $499,000, double the price it went for three months ago. In Phoenix, a similar house sold this month for $600,000, gaining $273,000 since March. Bubbles are inflating in Nevada and Arizona even as housing in the rest of the country recovers at a more sustainable pace. Gains in the two desert cities are the biggest since the height of the real estate boom, just before their plunge to the bottom of the national housing collapse. This year, Las Vegas and Phoenix have topped the nation in price increases, according to the S&P/Case-Shiller property-value index. “They’re clearly in bubbles,” said Karl Case, one of the creators of the index. “What can go up can go down -- real quick.” In May, Phoenix prices jumped 21 percent and in Las Vegas, they rose 23 percent from a year earlier. Nationally, home prices were up 12 percent from a year ago, the most since the beginning of 2006, according to the S&P/Case-Shiller index of 20 cities.
- BHP(BHP) Second-Half Profit Drops After Prices Slump, Slowing Growth. BHP Billiton Ltd. (BHP), the world’s biggest mining company, had a 6.9 percent drop in second-half profit after growth in emerging economies slowed and metal prices fell. Profit, excluding one-time items, was $6.7 billion in the six months to June 30, from $7.2 billion a year ago, according to Bloomberg calculations. That missed a median forecast of $6.8 billion of seven analysts surveyed by Bloomberg.
- Home Depot(HD) Profit Tops Analysts’ Estimates on Housing. Net income in the quarter ended Aug. 4 advanced 17 percent to $1.8 billion, or $1.24 a share, from $1.53 billion, or $1.01, a year earlier, the Atlanta-based company said today in a statement. Analysts projected $1.21, the average of 25 estimates in a Bloomberg survey.
- TransUnion: U.S. Auto Loan Delinquency Rate Slightly Higher in 2nd Quarter. The U.S. auto-loan delinquency rate rose slightly in the second quarter from the same period a year ago, with delinquencies for subprime buyers remaining somewhat flat, according to TransUnion. The credit-information company said the percentage of auto-loan accounts at least 60 days past due moved up to 0.8% in the second quarter from 0.79% a year ago, and was down from 0.88% in the first quarter. Average auto-loan account balances jumped 4% to $13,435 from $12,875 a year earlier, with every state other than Michigan experiencing an increase in average balances during the period. Even as subprime debt increased more than 7% in the past year, delinquencies for subprime borrowers edged up to 5.02% from 4.94% last year. Delinquencies also dropped from 5.5% from the first quarter.
- Houston Hits Housing Hurdle. Builders Are Doing Brisk Business, but Land Ready for Construction Is Limited.
MarketWatch:
- National activity index less negative in July. The national activity index produced by the Chicago Fed rose to a negative 0.15 reading in July from negative 0.23 in June, and the three-month average did virtually the same, rising to negative 0.15 from negative 0.24 in June, the regional central bank said Tuesday. The three-month average has been below zero for five straight months.
- Banks are falling short in planning for the worst, Fed says. Most large banks appear to have been sailing through the annual "health checkups" they have had to undergo since the financial crisis. But on Monday, the Federal Reserve described some significant shortcomings in the banks' responses to the so-called stress tests.
- Europe set to lose 1.9 million jobs, as business moves offshore: report. Large firms in Europe are losing over 130,000 jobs each year in IT, finance and other areas, as jobs are increasingly offshored to cheaper locations, meaning that by 2017, some 1.9 million European jobs will have disappeared, according to new report.
- Meanwhile, Europe Is Collapsing. (graphs)
New York Times:
- New Chinese Agency to Increase Financial Coordination. The Chinese authorities said Tuesday that they would set up a group to coordinate financial regulation, in an apparent attempt to reduce risk and wean the economy off of easy credit and steer it toward slower, more sustainable expansion.
- S&P maintains negative outlook on India's rating. Standard & Poor's maintains its negative outlook on India's BBB- sovereign credit rating, the rating agency said in an emailed response to Reuters on Tuesday. Recent measures taken to restrict capital outflows have increased uncertainty among foreign and domestic investors, said Kim Eng Tan, senior director, sovereign and international public finance, Asia Pacific at S&P. "If the uncertainty continues, business financing conditions could deteriorate further and investment growth could slow further," Tan said. "India's long term growth prospects could weaken on a sustained basis, with negative implications for the sovereign credit fundamentals," he said. "It is, however, too early now to tell if this scenario will come to pass. This will be largely dependent on policymakers' reactions to these latest developments," Tan said. India has the lowest investment grade rating and S&P is the only agency which has a negative outlook while Moody's and Fitch have a stable outlook on India.
- Tight cost controls boost Best Buy's(BBY) profit. Best Buy Co Inc (BBY.N) reported its first quarterly profit in a year after keeping a tight lid on costs, further confirming that Chief Executive Officer Hubert Joly's turnaround plan for the world's largest consumer electronics chain is working.
- Global steel output up in July on US, Chinese increases. Global crude steel production rose in July as a recent price upturn helped boost output in top producer China and in the United States, while suffering European steelmakers continued to curb volumes. World production rose 2.7 percent to 132 million tonnes in July from the same month a year ago, figures from industry body the World Steel Association showed on Tuesday.
- FINNEWS LATAM-Latin America corporate defaults hit four-year high, Moody's says. The default rate for speculative-grade Latin American companies rose to 4.2 percent in the 12 months through July 2013, the highest level for the indicator since June 2010, when it stood at 4.4 percent, Moody's Investors Service said on Tuesday.
- Asia’s debt conundrum reawakens ghosts of 1990s crisis. When China unleashed the largest stimulus package in its history in response to the 2008 crisis and slowing export markets in the west, it came at a price. Today China is grappling with a bill that some economists say has driven total debt to gross domestic product past 200 per cent. While China offers the most extreme example of using debt to fund growth, it is a pattern that has been repeated across Asia. Without exports, central banks turned on the taps, leading to a jump in household and corporate borrowing.
- Greece needs third bail-out, admits German finance minister. Wolfgang Schaeuble, Germany's finance minister, has made an unexpected admission that Greece will need a third bail-out, just weeks before German national elections.
Echoing fears that
European policymakers remain in a state of cognitive dissonance –
recognizing the need for root-and-branch overhaul of peripheral banks,
but backtracking on joint liability plans – Christopher Flowers, the
legendary FIG investor who now runs the £2.3 billion ($3.5 billion)
private equity group JC Flowers, sounded the alarm over the negative
sovereign-bank feedback loop.
In a shot across the bows of market bulls, who cite the return of
capital flows to weaker eurozone states, Flowers issued a stark warning:
"There is a scenario where we have a Lehman-type event: we wake up some
Thursday and a big country is in trouble.
"And the ECB will have to decide to support banks x, y, z. And then the
ECB will, in fact, decide to own bank x, y, z.
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- Brazil Concerned About Losing Control of Currency. Govt's economic team is more concerned about possibility of BRL falling to 2.5/dollar or 2.70/dollar than potential pass-through of FX depreciation to inflation, columnist Claudia Safatle reports. Govt expects effect of FX depreciation on domestic prices to be partly neutralized by economic slowdown, which makes it harder for cos. to adjust prices.
- Brazil's Figueiredo Says Swap Rates May Cause Recession.