Evening Headlines
Bloomberg:
- China Will Respond Too Late to Avoid Recession, Citigroup Says. China is sliding into recession and the leadership will not act
quickly enough to avoid a major slowdown by implementing large-scale
fiscal policies to stimulate demand, Citigroup Inc.’s top economist Willem Buiter said. The
only thing to stop a Chinese recession, which the former external
member of the Bank of England defines as 4 percent growth on “the
mendacious official data” for a year, is a consumption-oriented fiscal
stimulus program funded by central government and monetized by the
People’s Bank of China, Buiter said. “Despite the economy crying
out for it, the Chinese leadership is not ready for this,” Buiter, chief
economist at Citigroup, said in a media call hosted Thursday by the
Council on Foreign Relations in New York. “It’s an economy that’s
sliding into recession.” The true rate of expansion “is probably something closer to 4.5 percent or less,” Buiter said. “They will respond but they will respond too late to avoid a recession,
which is likely to drag the global economy with it down to a global
growth rate below 2 percent -- which is in my definition a global
recession,” said Buiter, a former external member of the Bank of England. The boom and bust in the Shanghai Composite Index, which more than
doubled in about a year before a selloff erased $5 trillion in market
value in two months, is raising questions about “the competence of the
Chinese authorities as managers of the macro economy,” Buiter said.
- Dollar Heads for Weekly Gain as Traders Boost Bets on Rate Rise. The dollar headed for its first weekly advance since the start of
this month as a rally in stocks and accelerating growth fueled
speculation the U.S. economy will be resilient to a slowdown in China.
The greenback has gained against all its Group-of-10 peers except the
yen this week as traders increased to 54 percent the odds the Federal
Reserve will raise interest rates this year, from as low as 46 percent
on Tuesday. The currency of New Zealand, which has China as its biggest
trading partner, led declines among major counterparts this week.
- Jefferies Distressed-Debt Loss Said to Near $100 Million in 2015. A team of distressed-debt traders at Jefferies Group lost almost $100
million this year as the rout in oil prices battered the value of bonds
and loans of energy companies, according to people with knowledge of
the performance. The trading group incurred most of its losses
from energy companies including Samson Resources, the driller that said
Aug. 14 it was planning to file for bankruptcy protection, the people
said Thursday. About half of the losses came during the firm’s fiscal
third quarter, which began in June, one of the people said. The bank
said it made $153.4 million trading across all fixed-income markets
during the previous quarter.
- The Scary Number Hiding Behind Today’s GDP Party. To judge by gross domestic income, the U.S. economy appears much shakier. The
federal government today released two very different estimates of the
U.S. economy’s growth rate in the second quarter. The one that got all
the attention was the robust 3.7 percent annual rate of increase in
gross domestic product. Not many people noticed that gross domestic income increased at an annual rate of just 0.6 percent. That’s a big discrepancy for
two numbers that should theoretically be the same, since they’re two
ways of measuring the same thing: the size of the economy. If you
believe the GDP number, you’re happy. If you believe the GDI number,
you’re thinking the U.S. is skating close to a recession.
Wall Street Journal:
- China’s Turbulence Exposes Risks to Europe’s Growth. Eurozone’s heavy reliance on exports leaves region vulnerable as emerging markets stumble. Turbulence in China and other emerging markets is exposing the risks
in Europe’s strategy of relying heavily on global exports for growth. With
Europe’s own demand choked by high public and private debt and often
inflexible business regulation, eurozone governments have widely viewed
exports as the answer to the Continent’s internal problems. That
approach could leave Europe vulnerable now, as...
- How Do You Short China? Some traders pile into insurance-like credit-default swaps. Suddenly everyone wants to bet against China. But with limited
access to the country’s hard-hit stock markets and thin trading in
overseas markets for its currency, it can take a little creativity.
As
such, traders are scouring stock, bond and currency markets around the
globe for ways to make money on the malaise afflicting the world’s
second-largest economy. Some are piling into insurance-like contracts that would pay out if...
Fox News:
- Inside Vester Lee Flanagan's life. (video) Vester Lee Flanagan, the crazed gunman who executed on live morning TV
two local journalists who worked at his former station, was told before
being fired by the station to seek help for possible mental health
issues -- then lingered in Roanoke, Va., for more than two years, living
in a squalor amid publicity photos of himself, porn and sex toys.
MarketWatch.com:
- China’s economy may be in worse shape than people think. China may be in worse shape than authorities in Beijing are willing to admit. An
analyst at Evercore ISI crunched the numbers and estimated that the
Chinese economy actually shrank in July, suggesting that China’s
forecast for 2015 is overly optimistic, if not unrealistic. “Our
proprietary Synthetic Growth Index (SGI) fell 1.1% month-on-month in
July, and was also down 1.1% year-on-year,” said analyst David
Straszheim at Evercore ISI. “Even if we adjust our SGI upward (for too-little
representation of services—lack of data), we believe actual economic
growth in China is far below the official 7.0% year-on-year. And it is
not improving.” The SGI is a weighted average of seven components including railway freight, airline passengers, and electricity consumption. The
analyst used independent sources for his research, claiming that data
released by official Chinese channels are too opaque due to an absence
of consistent real or nominal deflators to work with.
- China worries trigger largest outflow from emerging markets in over 7 years.
Worries about China drove more than $10 billion in funds from emerging
markets this week, the biggest outflow in over seven years. Investors
withdrew more than $4.5 billion from both Asia ex-Japan and the
diversified Global Emerging Markets Equity Funds in the week ended Aug.
26, according to EPFR Global Thursday.
CNBC:
- China's 'QT' is the real global economic threat. (video) "The (People's Bank of China's) actions are equivalent to an unwind
of QE, or in other words quantitative tightening," he said. Saravelos said the world's biggest worry is "that QT has much more to go."
Reuters:
- CAD software maker Autodesk's(ADSK) forecast disappoints. Autodesk Inc, the maker of
computer-aided design (CAD) software, cut its full-year profit
and revenue forecast for the second time this year, sending its
shares down 7 percent. Autodesk also reported lower-than-expected quarterly revenue
as its licensing revenue declined because of the company's shift
to a cloud-based subscription model.
- China official blames Fed for global market rout, not yuan. The global stock
market rout of the past week was sparked by concerns over a possible
interest rate rise by the U.S. Federal Reserve and not by the
devaluation of China's yuan currency, a senior Chinese central bank official told Reuters on Thursday. Yao
Yudong, head of the bank's Research Institute of Finance and Banking,
said the U.S. central bank should delay any rate hike to give fragile
emerging market economies time to prepare. He
said Beijing's decision to let the yuan fall in value against the
dollar should not make it a scapegoat for the sell-off. "China's
exchange rate reform had nothing to do with the global stock market
volatility, it was mainly due to the upcoming U.S. Federal Reserve
monetary policy move," Yao said. "We were wronged."
Zacks:
Financial Times:
- Oil price fall hits Canada’s big banks. Canada’s
biggest banks have warned of more troubles to come from the fall in the
oil price, as they reported surges in bad loans and chilling effects on
consumer demand in the world’s 11th-largest economy.
Evening Recommendations
Night Trading
- Asian equity indices are +.75% to +1.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 127.75 -6.0 basis points.
- Asia Pacific Sovereign CDS Index 78.5 -1.25 basis points.
- NASDAQ 100 futures +.05%.
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Personal Income for July is estimated to rise +.4% versus a +.4% gain in June.
- Personal Spending for July is estimated to rise +.4% versus a +.2% gain in June.
- The PCE Core for July is estimated to rise +.1% versus a +.1% gain in June.
10:00 am EST
- Final Univ. of Mich. Consumer Sentiment for August is estimated to rise to 93.0 versus a 92.9 prior estimate.
Upcoming Splits
Other Potential Market Movers
- The Jackson Hole Fed Meeting Day 2, Eurozone CPI report and the UK GDP report could also impact trading today.
BOTTOM LINE: Asian
indices are higher, boosted by industrial and technology shares in
the region. I expect US stocks to open modestly higher and to weaken
into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
