Evening Headlines
Bloomberg:
- The Pain Trade: How Slumping Commerce Threatens Global Growth. The world’s biggest economies are finding it increasingly hard to trade their way out of trouble. Once
the grease of global growth, international commerce failed to rebound
completely from the 2009 recession and now is slowing anew. Chinese
exports tumbled 5.5 percent in August from a year earlier, while those
of the U.S. fell 3.5 percent. South Korea and Singapore witnessed double
digit declines. Reflecting such weakness, the World Trade
Organization this week cut its forecast for trade this year to 2.8
percent from 3.3 percent. It acknowledged its new prediction may be
“over optimistic.”
- Distressed Bonds at 59 Cents Threaten Emerging Market Gains. Investors may struggle to profit from bonds of distressed companies
in developing nations this year after a plunge last quarter, teamed with
an increasingly uncertain outlook, looks set to erase 2015’s gains. The securities tumbled
13.4 percent in the three months to Sept. 30, paring annual returns to
0.95 percent, a Bank of America Merrill Lynch index shows. The market
value of the gauge’s 156 notes has dropped by almost 30 percent since
Dec. 31 to $54 billion, or about 58.8 cents on the dollar. Global
high-yield bonds fell 4.51 percent in the third quarter, bringing
year-to-date losses to 1.4 percent. They’re on track for their first
negative return since 2008. “A broad recovery will be elusive,”
David Tawil, a co-founder of New York-based Maglan Capital LP, said.
“There will be increasing dislocation, mostly driven by companies with
considerable leverage. That may lead to significant restructuring and
defaults.”
- China Slowdown Spurs Record Sales of Notes Tied to Nation's Debt. (video) Sales of structured notes tied to the sovereign debt of China are on
track for a record year, as the climbing cost of insuring against a
default by the country sweetens coupons on the securities. Banks
sold $230 million of the notes in September, the busiest month ever,
according to data compiled by Bloomberg, taking this year’s issuance to
$642 million. That’s more than triple the $189 million banks sold during
all of 2014. Concern that growth in China is slowing pushed
credit-default swaps on the nation to their highest this week since
2013, according to Bloomberg data. As the cost of insuring against a
Chinese default rose, so did coupons on the notes backed by the swaps
contracts. The credit-linked notes, all denominated in U.S. dollars,
yield 3.49 percent on average and mature in about seven years, the data
show.
- Global Giants Listed in Hong Kong Crumble as Ties to China Backfire. International companies that listed shares in Hong Kong to highlight
their ties with China are finding what once was a bragging right is now a
burden. The city’s 20 biggest firms domiciled outside Hong Kong
and the mainland have dropped an average 27 percent this year, versus a
12 percent decline in the Hang Seng Index. Macau casino operators and
Prada SpA, an Italian handbag maker, have tumbled as China’s economy
slowed and the government discouraged extravagant spending. Glencore
Plc, the Swiss commodities group run by Ivan Glasenberg, is down 72 percent even after a record rally on Wednesday.
- Used-Car Values Become Chief Concern for Volkswagen Auto Bonds. A reduction in car values on Volkswagen AG models after its emissions
scandal is the biggest risk to its bonds tied to auto loans, leases and
dealerships worldwide, credit-rating companies said this week. The revelation of faked pollution controls is
credit negative for the company’s asset-backed securities, Moody’s
Investors Service said in a report Wednesday. A chief concern would be
linked to declines in the automaker’s used-car values. “The full impact on car prices remains uncertain,” Fitch Ratings analyst Andreas Wilgen said in an announcement Tuesday.
- Ringgit Leads Drop in Asia as Budget Woes Add to China Concern. The
ringgit fell, leading losses among Asian currencies, amid concern
Malaysia may miss its target of balancing the budget by 2020. The
fiscal shortfall may be “in the region” of 1 percent of gross domestic
product at the end of the decade, compared with a current deficit of 3.2
percent, the New Straits Times reported Thursday, citing comments by
Prime Minister Najib Razak to fund managers and investors in New York.
Malaysia remains committed to achieving a balanced budget by 2020, he
was quoted as saying. The oil-exporting country’s finances have been
sapped by a 49 percent drop in Brent crude over the past 12 months and
allegations of corruption against Najib have shaken investor confidence
and spurred outflows. The ringgit fell 0.9 percent, the biggest
decline in more than a week, to 4.4395 a dollar as of 9:18 a.m. in Kuala
Lumpur, according to prices from local banks compiled by Bloomberg.
It’s dropped 1.2 percent this week and 21 percent so far in 2015, the
worst performance in Asia, amid global headwinds including a
worse-than-expected slowdown in China and the prospect of higher U.S.
interest rates.
- Half of World's Coal Output Is Unprofitable, Moody's Says. The global metallurgical coal benchmark has fallen to the lowest level in a decade, settling last month at $89 a metric ton.“Further
production cuts are necessary to bring the market back into balance,”
Moody’s analysts including Anna Zubets-Anderson wrote in a report on
Thursday.
- Williams Says Uncertainty Alone Shouldn't Stop Fed Rate Increase. Federal Reserve Bank of San Francisco President John Williams said
risks to the economy from developments abroad haven’t worsened and that
domestic conditions remain positive, while repeating his call to raise
interest rates this year. "On the global side, I’m not seeing any
obvious signs that those risks that were on my mind and the minds of
others, I don’t see signs that those have gotten worse,” Williams, a
voting member on the Fed’s policy committee this year, said in Salt Lake
City on Thursday. He was answering questions from the audience after
delivering a speech. “There’s always going to be risks, there’s
always going to be uncertainties,” he said. Even so, “we’re going to
have to take actions that we think are the appropriate ones given our
goals.”
- Indecisive Fed has Investors Bouncing Off Walls, Principal Says. The Federal Reserve has sent mixed signals to investors, who need to
be careful until they have more clarity about companies’ earnings
prospects and the risk of losses tied to energy, according to Principal
Global Equities. The central bank has investors “bouncing off the
walls, shifting back and forth between dovish economic and inflationary
views and hawkish statements” at the same time that some strategists are
asking if the Fed will announce another program to expand its balance
sheet, according to a blog post Thursday from Mustafa Sagun, chief
investment officer at the firm, which is part of insurer Principal
Financial Group Inc.
- Ackman, Einhorn Lead Hedge Funds on Track to Rival 2008 Losses. There’s no big bank failure on the horizon. The housing market is
booming, not melting. Yet for a handful of well-known hedge fund
managers, 2015 is looking a lot like 2008, when their industry suffered
record losses and investor withdrawals. David Einhorn and Michael
Novogratz have slumped about 17 percent so far this year, and Bill
Ackman declined almost 13 percent in a publicly traded fund. Sean Fahey
and
Michael Platt have seen billions of dollars flee their firms and are now
managing less than a third of what they oversaw at their peaks. Every
struggling hedge fund has struggled in its own way, yet September did a
lot damage for many managers, including Ackman, who slumped as much as
in all of 2008. Six of the stocks that were most popular with the hedge
fund set fell more than 20 percent that month, according to a report by
Novus Partners Inc.
Wall Street Journal:
- Russian Airstrikes Defend Strategic Assad Regime Stronghold on Coast. Raids appear to hew closely to an arc running on the fringes of Syria’s Alawite heartland. Russia’s first airstrikes in Syria showed a meticulously planned effort
to eliminate any rebel threat to the coastal stronghold of Moscow ally
President Bashar al-Assad and his Shiite-linked Alawite minority,
officials and analysts said.
- Netanyahu Rebukes U.N. Over Iran Accord. Despite losing political
ground to Obama, Israeli prime minister condemns nuclear deal, says
Tehran’s threats have been met by ‘utter silence’ at global body. Israeli Prime Minister Benjamin Netanyahu on Thursday delivered a fiery
address here condemning the Iranian nuclear deal, largely unbowed in
his opposition despite losing steep political ground to President Barack Obama over the issue this year.
- FBI Chief ‘Very Concerned’ About Apparent Rise in Crime. Many police departments reporting jumps in shootings this year. The head of the Federal Bureau of Investigation said Thursday he is
“very concerned” about apparent sharp rises in violent crime and murder
in cities across the country, saying he doesn’t know why it is happening
but wants to find the answer.
- A Clinton Email Scandal Checklist. It’s a challenge to keep track of all the dodges and untruths. Hillary Clinton hopes you are busy. Hillary Clinton hopes you are
confused. Hillary Clinton hopes the endless stories about her private
email server—and her endless, fabulist explanations—will make your head
hurt, make your eyes cross, make you give up trying to figure it out.
- What U.S. Retreat Looks Like. Syria
reveals the chaos of a world without American leadership. A friend of
ours quipped amid the Iraq debate of 2003 that the only
thing Europeans dislike more than U.S. leadership is a world without it.
Well, we are now living in such a world, and the result is the disorder
and rising tide of war in the Middle East that even the Obama
Administration can no longer dismiss. How do you like it?
Fox News:
- Israeli intel thwarts first known ISIS plot inside Jewish state. An ISIS cell that trained in the forests near Galilee while plotting to
attack Israeli police and military facilities -- as well as liquor
stores -- was shattered by the intelligence agents in what experts say
is the first known case of the black-clad terrorist army operating
within the Jewish state, sources told FoxNews.com Thursday.
CNBC:
- Is this the mother of all warnings on EMs? (video) The
last time emerging markets had it nearly this bad, Ronald Reagan was
the U.S. President, KKR purchased RJR Nabisco, and a future popstar
named Rihanna was born. Net capital flows for global emerging
markets will be negative in 2015, the first time that has happened since
1988, the Institute of International Finance (IIF) said in its latest
report. Net outflows for the year are projected at $541 billion, driven
by a sustained slowdown in EM growth and uncertainty about China, it
added. In other words, investors will pull out more money out of emerging markets than they will pump in.
Zero Hedge:
Reuters:
-
Chicago businesses brace for potential doubling of property taxes. Chicago Mayor Rahm Emanuel has
disclosed that his record property tax hike plan entails
significant cuts for nearly 300,000 homeowners, leaving Chicago
businesses predicting they will face hikes of up to 50 percent. The second-term mayor last week proposed a $544 million
property tax increase, the city's biggest ever, to help fix one
of the worst-funded city pension systems in America and vowed
"struggling" homeowners, whose residences are worth $250,000 or
less, would not see an increase.
- Chipmaker Micron's profit, revenue beat estimates. Memory chipmaker Micron Technology Inc
reported a lower-than-expected fall in quarterly revenue,
welcome relief for an industry that has been battered by a drop
in demand and prices. The company's shares rose as much 8.3 percent at $15.99 in
after-hours trading.
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 159.75 -.75 basis point.
- Asia Pacific Sovereign CDS Index 90.0 -2.5 basis points.
- NASDAQ 100 futures +.26%.
Earnings of Note
Economic Releases
8:30 am EST
- The Change in Non-Farm Payrolls for September is estimated at 201K versus 173K in August.
- The Unemployment Rate for September is estimated to remain at 5.1%.
- Average Hourly Earnings for September are estimated to rise +.2% versus a +.3% gain in August.
9:45 am EST
- ISM New York for September.
10:00 am EST
- Factor Orders for August are estimated to fall -1.2% versus a +.4% gain in July.
Upcoming Splits
Other Potential Market Movers
- The Fed's
Fischer speaking, Fed's Rosengren speaking, Fed's Kocherlakota
speaking, Fed's Mester speaking and the Fed's Bullard speaking could
also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
