Evening Headlines
Bloomberg:
- China Stocks Extend Biggest Plunge Since 2007 on Support Doubts. Chinese stocks slumped for a fourth day, extending the steepest rout
since 2007, on concern the government is paring back support for the
market. The Shanghai Composite Index tumbled 3.9 percent to 3,085.49 at 10:21
a.m. local time, heading for the lowest close in eight months. The
gauge plunged 8.5 percent on Monday, following last week’s 12 percent
decline. The Hang Seng China Enterprises Index of Chinese shares in Hong
Kong climbed 2.1 percent from its lowest level since March 2014. Speculation around the government’s intentions has escalated since
Aug. 14, after China’s securities regulator signaled authorities will
pare back the campaign to prop up share prices as volatility falls.
Officials should wind down the stock market support program even if
prices continue to decline, according to a front-page commentary in the
state-run Economic Information Daily on Tuesday. “It’s panic selling and an issue of confidence,” said Wei Wei, an
analyst at Huaxi Securities Co. in Shanghai. “The government won’t step
in to rescue the market again as it’s a global sell-off and it’s
spreading everywhere now. It’s not going to work this time.”
- Bear Grip Tightens on Emerging Stocks as Half of 30 Markets Wilt. One after another, stock markets in the developing world are sinking into bear territory. Fifteen of the 30 largest equity markets among
emerging economies have extended losses from their peaks to 20 percent
or more, fulfilling traders’ definition of a bear market. China and
Russia have led the pack, tumbling more than 30 percent each. The
remainder are either in a correction, or on the brink. Emerging markets are reeling after China’s yuan devaluation Aug. 11
sparked concern the world’s second-largest economy will slow further,
undermining demand for oil, copper and other raw materials from
countries including Brazil, Russia and South Africa. The rout comes as the
Federal Reserve moves closer to raising borrowing costs for the first
time in almost a decade, after central banks worldwide boosted stimulus
measures to patch up economies following the global financial crisis. While
Russia and China have led losses in emerging Europe and Asia, Egypt has
lost the most among markets in the Middle East and Africa. In Latin
America, Peru is hardest hit, down more 43 percent in the past year and
outpacing Brazil which entered a bear market last week. Malaysia,
Thailand and Dubai are on the brink of surpassing the 20 percent
threshold, while 10 countries including India and South Africa have lost
more than 10 percent, thus entering corrections.
- China Strong Enough to Weather End of Stock Support, Paper Says. China should wind down its stock market support program even if
prices continue to fall, according to a commentary in a state-run
official economic daily. The front-page commentary in the Economic Information Daily sought
Tuesday to reassure investors the Chinese economy wasn’t “that bad” and
argued that disasters like the Asian financial crisis or the sub-prime
mortgage debacle wouldn’t repeat. “It’s not good for the recovery of the
economy to bring back the focus of quantitative easing to the stock
market.”
- China Stock ‘Fear’ Dwarfs Greek Panic Amid Unknowns, Nordea Says. What
scares people about China is all the things they don’t know about the
world’s second-biggest economy. That’s according to Mathias Leijon,
chief investment officer for
equities at Nordea Investment Management. He says the market damage
triggered by China’s decision to devalue the yuan earlier this month
will be much bigger than the disturbances caused by the Greek debt
crisis. “Greece wasn’t big enough to actually have an impact,” Leijon said by
phone Monday. “But with China, given we don’t really know what the real
growth numbers are, we don’t know the true underlying leverage numbers
and the shadow banking system.”
- Norway’s Richest Man Says He’s ‘Very Worried’ About China. John Fredriksen, the billionaire who made his fortune investing in
crude tankers, said he’s “very worried” about the turmoil spreading from
China and the potential fallout on global shipping markets. “It seems there are big problems in China,” Fredriksen said in an
interview in Oslo on Monday. “That’s at least not good for the shipping
market.” “For our situation it’s good for our tankers,” he said. “But for our oil rigs it’s negative.” The drilling rig market is facing lower demand from oil producers
after crude prices collapsed last year. The decline in demand comes as
new rigs enter the market, boosting oversupply after a decade of rising
offshore investments. “There will be a mega consolidation in the rig market,” Fredriksen
said. “It must happen, will happen. Within the next year there will be
consolidation.”
- Big-Winner Australia Shudders as China Turmoil Darkens Outlook. Australia, the world’s most China-dependent developed economy, is
looking on in dread at the prospect of weaker demand for its exports
that threatens growth and could undermine the government’s re-election
program. Just three months ago, Treasurer Joe Hockey hailed Australians as
“the big winners” of the China relationship when he released his annual
budget. Hockey predicted export demand would rise further, and noted
each year Australia sent enough iron ore to China to build the
equivalent of Sydney Harbour bridges over the nearly 2,500 miles to
Perth and back.
- Korean Leaders Back Off the Insults, Defusing Tensions. Negotiators
from North Korea and South Korea reached an agreement
involving concessions on both sides to defuse a military standoff that
had taken tensions on the peninsula to their highest level in years.
The regime in Pyongyang agreed to lift its “semi-state of war” and
expressed regret over landmine blasts that maimed two South Korean
soldiers, while the
government in Seoul said it’d stop propaganda broadcasts across the
heavily fortified border.
- China Rout Accelerates in U.S. Trading Amid Record ETF Selloff. The largest U.S.-listed exchange-traded funds tracking yuan-denominated equities fell the most on record as China’s
worst stock selloff since 2007 accelerated in New York trading
amid questions over the government’s ability to support a flagging
economy. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF
tumbled 14 percent to a eight-month low of $30.11 on Monday, while the
Market Vectors ChinaAMC A-Share ETF retreated 15 percent. The declines
exceeded an 8.5 percent drop earlier in the trading day on the Shanghai
Composite where more than 800 stocks fell by the daily 10 percent limit.
The ETF selloff may indicate investors expect further weakness in the
A-share market, according to Ankur Patel of R-Squared Macro Management.
- The Richest Guy in Asia Loses $3.6 Billion in the Market Rout. Asia’s richest person lost $3.6 billion on Monday, the most among
all billionaires worldwide, as China’s stock markets had the biggest
plunge since 2007 and a wave of selling spread across the globe. Wang Jianlin saw $2 billion wiped from his stake in Dalian Wanda
Commercial Properties Co., according to the Bloomberg Billionaires
Index, after the Hong Kong-listed property developer tumbled 17 percent
to its lowest level since it went public in December. Wang also lost
nearly $1 billion from his Shenzhen-traded Wanda Cinema Line Co., which
fell by the exchange-exposed limit of 10 percent on Monday. His fortune
stood at $31.2 billion after the decline.
- Malaysia’s Stock Index Heads for Bear Market Amid Ringgit Slump. Malaysia’s stocks fell, with the benchmark index poised to enter a
bear market, as a global rout deepened and concern grew over the
nation’s economic growth. The FTSE Bursa Malaysia KLCI Index lost as
much as 1.9 percent to
1,503.68 at 9:05 a.m. in Kuala Lumpur. The gauge has fallen more than 20
percent from its 2014 high. The ringgit traded little changed. Foreign
funds have dumped more than $3 billion of the nation’s shares
this year and the currency is at a 17-year low as political uncertainty
clouds the outlook for an economy rocked by plunging oil prices and an
emerging-market selloff. Prime Minister Najib Razak is grappling with
allegations of financial irregularities at a state investment company,
and facing accusations of impropriety after it was disclosed that
political donations ended up in his private accounts in 2013.
- Kiwi's Biggest Dislocation in 30 Years Flags Risk of More Losses. The collapse in the kiwi came just before the U.S. stock market opened
sharply lower amid panic about China’s share selloff and an economic
slowdown that drove commodities to a 16-year low. While the Australian
dollar also fell, its drop wasn’t as severe as the kiwi’s and there
wasn’t a similar widening in the bid-ask spread.
- Asian Stocks Reverse Losses as Banks, Tech Shares Advance. Asian stocks rose, reversing early losses to rebound from the lowest
level in two years, as banks in Japan and Australia rallied and
technology companies advanced. The MSCI Asia Pacific Index gained 0.7 percent to 126.73 as of 10:03
a.m. in Hong Kong. The gauge slumped as much as 2.2 percent on Tuesday
before rallying, and closed Monday at the lowest since 2013 on the cusp
of a bear market.
- BofA Says Collapsing Oil Drags U.S. LNG Exports Down With It. Plummeting crude oil prices have dimmed prospects for soon-to-start
U.S. liquefied natural gas exports, Bank of America Corp. said in a note
to clients Monday. The gap between U.S. and global prices for the fuel has narrowed as
oil’s collapse reduced the cost of crude-linked LNG contracts in Asia
and Europe, Max Denery, an analyst at the bank in New York, said in the
report. Oil in London has tumbled 25 percent this year, falling below
$45 a barrel Monday for the first time since 2009, while U.S. gas has
dropped 8.3 percent.
- Commodities Slump to 16-Year Low on Mining, Oil Stocks. A measure of returns from commodities sank to its lowest since 1999 and
shares in resource companies tumbled by the most since the financial
crisis on concern that a slowing Chinese economy will exacerbate supply
gluts.
- Hedge Fund ‘Hotels’ Sting Managers by Losing Up to 42% in Week. The
cost of staying in “hedge fund hotels” has been soaring. Hedge fund
hotels -- companies in which these firms hold a combined
stake of at least 25 percent -- suffered declines of as much as 42
percent in the recent stock market rout. Below we highlight the five
biggest such losers in the past week among companies with at least $1
billion in market value, a period in which the Standard & Poor’s 500
Index fell 10 percent. One caveat: the firms’ holdings are generally as
of June 30 and may have changed.
- Salesforce’s(CRM) Benioff Sees Danger for ‘Unicorns’ as Market Slumps. (video) Salesforce.com Inc. Chief Executive Officer Marc Benioff said that
startups who prioritize high valuations over building their businesses
may struggle in tougher market conditions. “It’s dangerous for these entrepreneurs that they’re more focused on
their market cap than on their customers,” Benioff said in a Bloomberg
Television interview on Monday. “When I see them get more focused on
being a unicorn than being a company with a high level of customer
satisfaction -- a high level of employee satisfaction and company that’s
giving back to the community -- then I know it’s a problem.”
- Property brokers plunge amid shadow of real estate slowdown. CBRE Group Inc.(CBG) and Jones Lang LaSalle Inc.(JLL), the global titans of
property services, lost 8 percent and 8.7 percent, respectively, this
month through last week, reversing sharp gains compared with real estate
investment trusts and the Standard & Poor’s 500 Index.
Wall Street Journal:
- Historic Profits for High-Frequency Trading Firm Today. ‘Our firm is made for this kind of market,’ Virtu Financial CEO says. Virtu Financial Inc., one of the world’s largest high-frequency
trading firms, was on track to have one of its biggest and most
profitable days in history Monday amid a tumultuous 24 hours for world
markets, according to its chief executive.
- For All Its Heft, China’s Economy Is a Black Box. China’s economy is difficult to assess amid murky politics, unreliable data and opaque decision making.
For sheer clout, China’s economy outweighs every country in the world
save the U.S. But on transparency, it remains distinctly an emerging
market, with murky politics, unreliable data and opaque decision making.
This veil dims the understanding of China’s economy and is an important
reason its recent slowdown has produced so much turmoil.
- The Clinton Plan to Distort Market Signals. Hillary’s attacks on ‘short-termism’ don’t reflect an understanding of what drives investing. Hillary Clinton’s big economic idea—ending corporate “short-termism,” as
she calls it—will do more harm than good. On the campaign trail she
rails against American corporations and the mysterious “tyranny of
today’s earnings report.” Her solution is to raise capital-gains taxes
and lengthen stockholding periods. Imagine anxiously waiting to unload
during this month’s global selloff because of a holding period. Chalk it
up as another misguided effort that will distort the information
investors and companies rely...
Fox News:
- Amid Biden deliberations, WH leaves door open to Obama primary endorsement. (video) The White House left the door open Monday to President Obama
endorsing a candidate in the 2016 Democratic primary, raising the
tantalizing possibility of Obama choosing between two administration
powerhouses as Vice President Biden mulls a run against Hillary
Clinton. The prospect of a Biden-vs.-Clinton rerun already is said to be
dividing current and former Obama administration staffers looking at
whom to support -- and potentially work for -- in 2016. Clinton was the
obvious choice until her personal email scandal and problematic poll
numbers stirred talk about Biden, whose supporters already are pulling
together a team for a possible run.
- Activists say ISIS destroys temple at ancient Palmyra site. (video) Islamic State (ISIS) militants have destroyed a temple at Syria's
ancient ruins of Palmyra, activists said Sunday, realizing the worst
fears archaeologists had for the 2,000-year-old Roman-era city after the
extremists seized it and beheaded a local scholar.
CNBC:
- People 'hooked on heroin of QE': Ex-Fed's Fisher. (video)
Markets may be selling off amid fears of slowing global growth and the
possibility of a September rate hike but the Fed couldn't care less,
according to former Dallas Fed President Richard Fisher. "I don't think
there is a single member of the
FOMC that's going to react to one day's market activity," Fisher told
CNBC's "Closing Bell" in an interview, noting that the economy went
unscathed after stocks entered substantial corrections in 1962 and 1967.
"It does demonstrate that people are hooked on the
heroin of quantitative easing," he said, commenting on the market's
reactions to supposed Fed clues. "Nobody on that committee would like to
see that continue, they'd like to find the right exit point and they'll
see what it is."
- Anatomy of '1,000 flash crashes': What went wrong. (video) Monday's stock market action was bound to be messy, but it was made
even worse by a major technical pile-up just as the session got
underway. Dubbed by one trader "1,000 flash crashes," the
market opened to tumult in which multiple stocks and in particular
exchange-traded funds cascaded lower as orders failed to get filled and
prices went ballistic. In all, 1,278 so-called circuit
breakers—trading
halts imposed when shares fall to various levels—were tripped across the
major exchanges as the Dow Jones industrial average surrendered more
than 1,000 points early on, according to New York
Stock Exchange officials. The number of tripped breakers was believed to
be a record, with ARCA's 999 the most, with the Nasdaq next at 194. A
typical day sees fewer than 10.
Shanghai Securities News:
- China Ratio Cut Won't Add Liquidity to Stocks: PBOC Academic.
Chinese stock market investors should understand that the central bank
won't cut the reserve requirement ratio solely to add liquidity to stock
market, Wang Yong, a professor at the People's Bank of China's
Zhengzhou training school, writes. Impact on China from another
financial crisis would likely be larger than what it experienced in 1997
and 2008, Wang said. Capital markets can't rely on support policies as a
market rescue might be more difficult than ever before, he said.
Securities Daily:
- China Stock Market Rout Hurts Confidence, Threatens Reforms.
Monday stock rout is destroying stock investors' confidence and creating
"severe" problems, a front-page commentary says.
Economic Information Daily:
- China Should Wind Down Govt Bailout of Stock Markets. The Chinese
govt should gradually wind down its bailout of the stock markets even
if the prices fall, a front-page commentary says. Bailout measures are
intended to prevent financial risks rather than lift stock indexes,
according to the commentary written by Xu Gao. Some market declines can
help deleverage and reduce risks, he wrote.
Evening Recommendations
Night Trading
- Asian equity indices are -.5% to +1.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 136.0 -8.75 basis points.
- Asia Pacific Sovereign CDS Index 87.0 +6.75 basis points.
- NASDAQ 100 futures +1.77%.
Earnings of Note
Company/Estimate
Economic Releases
9:00 am EST
- The FHFA House Price Index for June is estimated to rise +.4% versus a +.4% gain in May.
- The 2Q House Price Index is estimated to rise +1.2% versus a +1.3% gain in 1Q.
- The S&P/CS 20 City MoM for June is estimated to rise +.13% versus a -.18% decline in May.
9:45 am EST
- The Preliminary Markit US Services PMI for August is estimated to fall to 55.1 versus 55.7 in July.
10:00 am EST
- New Home Sales for July are estimated to rise to 510K versus 482K in June.
- Consumer Confidence for August is estimated to rise to 93.4 versus 90.9 in July.
- Richmond Fed Manufacturing Index for August is estimated to fall to 10.0 versus 13.0 in July.
Upcoming Splits
Other Potential Market Movers
- The
Eurozone GDP report, Congressional Budget Office update, weekly US
retail sales reports and the $26B 2Y T-Note auction could also impact
trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open higher and to weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.
