Today's Headlines
Bloomberg:
- Xi's Military Parade Fans Unease in Region Already Wary of China. As Xi Jinping presides over thousands of goose-stepping troops
marching down Beijing’s Changan Avenue -- or “Eternal Peace Street” --
on Thursday, the Chinese president will also proclaim his commitment to
the world’s peaceful development. It’s a message China’s neighbors
may find hard to swallow as it flexes its military muscle from the East
China Sea to the Indian Ocean. The parade marking the 70th anniversary
of World War II’s end -- or “Victory of the Chinese People’s Resistance
Against Japanese Aggression and the World Anti-Fascist War" -- will put
on display much of what has frayed nerves throughout the region. The
first-of-its-kind victory celebration will show the world the military
might Xi has put at the center of his Chinese Dream for national
rejuvenation. The pageant will feature 12,000 soldiers, almost 200 of
China’s latest aircraft and mobile ballistic missile launchers capable
of delivering nuclear warheads to the continental U.S. “There is a
fairly crude signal to the international community that China is a
modern power not to be trifled with,” said
Rory Medcalf, head of the National Security College at the Australian
National University in Canberra. “But this doesn’t sit well with the
anxiety that already exists in the region.”
- If the Options Market Is Right, China's Stock Rescue Is Doomed. Options
traders have never been so pessimistic on China’s stock market, betting
the government’s renewed effort to prop up share prices is doomed to
fail. The cost of
bearish contracts on the China 50 exchange-traded fund surged to the
highest level versus bullish ones since they started trading in Shanghai
six months ago. The so-called skew also
climbed to a record for a similar ETF in the U.S., even as government
buying drove China’s benchmark index to a 10 percent rally in the final
two days of last week. While policy makers are trying to bolster the
market before President Xi Jinping takes the stage in a World War II
victory parade this week, bears argue that
valuations are too high for the rally to last. Chinese investors have
about 5 trillion yuan ($783 billion) of borrowed money riding on stocks,
and many of them are looking for a chance to exit, according to Bank of
America Corp. “More and more people are not convinced about A shares,” said
Tony Chu, a Hong Kong-based money manager at RS Investment Management
Co., which oversees about $20 billion. “Ultimately, the government needs
to reduce intervention and let more de-leveraging happen.”
- China Construction Bank Posts Zero Profit Growth on Weak Economy. China Construction Bank Corp., the nation’s second-largest lender,
joined the club of big Chinese banks reporting zero profit growth and
rising bad loans as the government struggles to prop up the economy. Net income for the three months through June 30 was 64.9 billion yuan
($10 billion), unchanged from a year earlier, based on an exchange
filing on Sunday. That compared with the 65.3 billion yuan median of 10
analysts’ estimates compiled by Bloomberg. Construction Bank was the last of the big Chinese lenders to report
earnings for the second quarter. Industrial & Commercial Bank of
China Ltd. also posted a profit that was little changed, while
Agricultural Bank of China Ltd. had an 0.8 percent decline in earnings. Industrial overcapacity, a build-up of corporate debt and a $5
trillion stock-market slump are making it harder for Premier Li Keqiang
to prevent a deeper economic slowdown. The combined earnings of China’s
five biggest banks are projected to rise 2 percent this year, the least
since at least 2004, according to analysts’ estimates compiled by
Bloomberg. Construction Bank’s nonperforming loans jumped 28 percent in six
months to 144.4 billion yuan as of June 30, Sunday’s release showed.
- Merkley Is 31st Senator to Say Favors Iran Nuclear Deal. Democratic Senator Jeff Merkley
of Oregon said he will vote to support the Iran nuclear deal, a pledge
that puts President Barack Obama within three votes of protecting the pact in Congress. His support brings to 31 the number of senators publicly favoring the
deal, three short of the number Obama needs to sustain a likely veto of
legislation aimed at killing the pact. The Iran deal would ease economic sanctions in return for "restrictions" on the country’s nuclear program.
- Islamic State Flips Gold Coins to Break Fed `Enslavement'. Forget the printing press. In readying for the rollout of Islamic
State’s new money, goldsmiths and silver smelters have been toiling
away. The jihadist group on Saturday touted “the return of the
gold dinar” in an hour-long video issued by its media wing, al Hayat.
Islamic State’s policy-making Shura Council last year tasked its Beit al
Mal, or treasury, with minting the coins, which come in several
denominations made of gold, silver and copper.
- Three Strikes on Inflation Spur Calls for Overhaul of Abenomics. The third time inflation has fallen to zero in Japan this year
persuaded some market watchers that Abenomics needs to be taken back for
an overhaul. The government will be forced to delay an increase in the sales tax scheduled for April 2017 and the
Bank of Japan won’t be able to taper its unprecedented bond buying as
envisaged, according to Sumitomo Mitsui Banking Corp. Only one economist
in a survey by Bloomberg from July 27 to Aug. 3 said inflation would
reach the BOJ’s goal in its target six-month period through September
2016. A majority of the 37 respondents see the BOJ boosting monetary
stimulus.
- Japan’s Industrial Production Unexpectedly Declines in July. Japan’s industrial production unexpectedly fell in July, sapping a rebound in the economy from a slump last quarter.
Output fell 0.6 percent from June, when it increased 1.1 percent, the
trade ministry said on Monday, compared with the median forecast for a
0.1 percent gain in Bloomberg survey.
- China’s Stocks Fall on Concern About State Support, Economy. China’s stocks fell for the first time in three days amid concern
about the economy and the level of government support for the equities
market. The Shanghai Composite Index slid 1.6 percent to 3,180.37 at
9:36
a.m. local time, halting a two day, 8.2 percent rally. Citic Securities
Co. dropped 7.3 percent after the official Xinhua News Agency reported
that company executives were detained on suspicion of insider trading.
China’s financial markets will be shut on Thursday and Friday for a
national holiday celebrating the 70th anniversary of the World War II
victory over Japan.
- Asian Stocks Drop, Extending Biggest Monthly Retreat Since 2012. Asian stocks fell, extending the biggest monthly drop since May 2012,
as investors weighed comments from a weekend meeting of monetary policy
makers. The MSCI Asia Pacific Index declined 0.6 percent to
130.26 as of 9:06 a.m. in Tokyo, on course to slide 8.3 percent in
August. Futures on the Standard & Poor’s 500 Index retreated 1.1
percent.
- Iron Ore Price Seen Back Below $50 as Australia Expands Supply. Iron ore is holding above $50. Just don’t bet on it lasting. Ever-expanding
supplies from the world’s largest producers mean prices will fall
through the end of the year, according to Capital Economics Ltd. The
London-based research firm joins banks including Goldman Sachs Group
Inc. and UBS Group AG in predicting lower prices. The steel-making ingredient will drop to $50 a metric ton at the end of September and $45 by the end of the year, said
Caroline Bain, a senior commodities economist at Capital Economics.
Wall Street Journal:
- Crises Put First Dents in Xi Jinping’s Power. Chinese president is looking more vulnerable than at any time since taking office in 2012, insiders say. Shortly before President Xi Jinping boarded a plane last month to
attend a summit in Russia, his office issued an executive order: China’s
stock markets must go back up. The massive state-backed
share-buying that ensued propped up the markets briefly in mid-July,
allowing Mr. Xi to showcase China’s economic might at the summit with
emerging-market leaders. In recent weeks, though, share prices have
plunged again, taking...
- China Slowdown’s Next Victim: Asian Parts Suppliers. Chip and screen makers may take a hit from a slowdown in smartphone sales. The combined effects of China’s economic slowdown, a maturing smartphone
industry and market volatility are sending jitters through Asian
electronic-parts suppliers, which have relied on Chinese consumer demand
and manufacturing muscle to power their growth in recent years.
- China’s Next Problem: Paying for Its Stock-Market Bailout. Beijing will need to look for ways to deal with this problem, lest it further weighs on an economy that already has been slowing. China’s epic stock-market drops over the past week give the impression
that Beijing may have given up on trying to prop up the market or is at
least retreating to defend a lower level. The question is, what will the
government do with all that stock that it already has bought?
- Suppliers Feel Pain as Coal Miners Struggle. Thousands of firms scramble for new customers; ‘it’s been catastrophic’. Workers in a rural warehouse here are restoring four machines: a
locomotive for coal miner Consol Energy Inc., and three 1947 San
Francisco streetcars. By this time next year, the coal-mining
equipment could be gone, and the workers at Brookville Equipment Corp.
left repairing just streetcars.
- Big Solar’s Subsidy Bubble. Companies cash in on tax credits and ‘net-metering’ schemes. The Department of Energy’s Inspector General revealed last week that the
legendary solar-panel manufacturer Solyndra—a poster baby of the Obama
stimulus—lied to the feds to get a $535 million loan guarantee before
going bust in 2011. Solyndra is a cautionary tale, but the Obama
Administration is still throwing caution to the sun.
Fox News:
- Obama to rename Mt. McKinley to 'Denali' during Alaska trip that focuses on climate change. (video) President Obama is restoring the name of the tallest North American
mountain peak -- Mt. McKinley in Alaska -- to the native Alaskan name of
“Denali,” the White House said Sunday. The official renaming is expected to come during Obama’s trip this
week to Alaska where he will try to garner support for ways to slow
climate change. However, the state economy is heavily dependent on the
oil industry. In 1896, a prospector in the mountains of central Alaska named the
range after William McKinley upon learning that he had been nominated as
a candidate for U.S. president.
McKinley became the country’s 25th president and was assassinated six months into his second term.
- Democrats end summer meeting with no resolution to support Obama's Iran deal. (video)
The Democratic National Committee reportedly failed this weekend to
pass a resolution supporting President Obama’s Iran nuclear deal, with
Congress set to vote on the issue as early as next week. Florida Rep. Debbie Wasserman Schultz, the committee chairwoman,
prevented the resolution from being considered at the group’s summer
meeting this weekend in Minneapolis, sources told The Washington Post,
which first reported the story.
MarketWatch.com:
New York Times:
- Texas Deputy Killed ‘Because He Wore a Uniform,’ Sheriff Says. “We have not been able to extract any details regarding a motive at this
point,” Sheriff Hickman said. “As far as we know, Deputy Goforth had no
previous contact with the suspect. It appears at the outset to be
completely unprovoked.” Deputy Goforth “was a target because he wore a uniform,” the sheriff said.
Politico:
- MoveOn to target Chuck Schumer for opposing Obama's Iran deal. MoveOn
wants to get New Yorkers moving against Sen. Chuck Schumer, their
senior senator and the highest-ranking Democrat to oppose the
controversial nuclear agreement. According to details shared first with
POLITICO, the liberal advocacy organization’s political action arm will
next week launch a member-backed mobile billboard, dubbed the
“SchumerMobile,” that will drive around New York City for five days in
an attempt to publicly admonish Schumer and other Democrats who are
pondering how they will vote next month on the resolution.
Financial Times:
- Beijing abandons large-scale share purchases. China’s
government has decided to abandon attempts to boost the stock market
through large-scale share purchases, and will instead intensify efforts
to find and punish those suspected of “destabilising the market”,
according to senior officials. For two months, a “national team” of
state-owned investment funds and institutions has collectively spent
about $200bn trying to prop up a market that is still down 37 per cent
since its mid-June peak.
21st Century Business Herald:
- China 2015 Industrial Output Growth May Slow to 8%. Industrial
production faces heavy pressure as uncertainties in China and overseas
increased this year compared with last year, citing CASS researcher
Huang Qunhui as saying. Property market and local govt debt pose risks
to industrial economy, Huang said.
Night Trading
- Asian indices are -1.25% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 132.25 +4.5 basis points.
- Asia Pacific Sovereign CDS Index 80.0 +1.5 basis points.
- NASDAQ 100 futures -.72%.
Earnings of Note
Company/Estimate
Economic Releases
9:00 am EST
- The ISM Milwaukee for August is estimated to rise to 50.0 versus 47.12 in July.
9:45 am EST
- Chicago Purchasing Manager for August is estimated to fall to 54.5 versus 54.7 in July.
10:30 am EST
- Dallas Fed Manufacturing Activity for August is estimated to rise to -3.8 versus -4.6 in July.
Upcoming Splits
Other Potential Market Movers
- The China Manufacturing PMI, (VMW) analyst day could
also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the week.
