Evening Headlines
Bloomberg:
- If You Thought China's Equity Bubble Was Scary, Check Out Bonds. As a rout in Chinese stocks this year erased $5 trillion of value,
investors fled for safety in the nation’s red-hot corporate bond market.
They may have just moved from one bubble to another. So says
Commerzbank AG, which puts the chance of a crash by year-end at 20
percent, up from almost zero in June. Industrial Securities Co. and
Huachuang Securities Co. are warning of an unsustainable rally after
bond prices climbed to six-year highs and issuance jumped to a record.
The boom contrasts with caution elsewhere. A selloff in global corporate
notes has pushed yields to a 21-month high, and credit-derivatives
traders are demanding near the most in two years to insure against
losses on Chinese government securities. While an imminent
collapse isn’t yet the base-case scenario for most forecasters, China’s
42.1 trillion yuan ($6.6 trillion) bond market is flashing the same
danger signs that triggered a tumble in stocks four months ago:
stretched valuations, a surge in investor leverage and shrinking
corporate profits. A reversal would add to challenges facing China’s
ruling Communist Party, which has struggled to contain volatility in
financial markets amid the deepest economic slowdown since 1990. “The Chinese government is caught between a rock and hard place," said
Zhou Hao, a senior economist in Singapore at Commerzbank, Germany’s
second-largest lender. "If it doesn’t intervene, the bond market will
actually become a bubble. And if it does, the market could crash the way
the equity market did due to fast de-leveraging.”
- Is a Bubble Forming in China's Bond Market? (video)
- No Room for Mistakes as World Economic Waters Turn Choppy. For years, the global economy surfed a flood of easy money from
central banks and a surge in Chinese demand for commodities. Now, policy
makers are trying to anticipate what’s exposed when the tide goes out. “This
is a pretty unforgiving environment,” and “not a type of economy in
which one can make mistakes,” Bank of England Governor Mark Carney said
Thursday at annual meetings of the International Monetary Fund and World
Bank in Lima. “Everybody needs to recognize there isn’t going to be a
big surge of demand from abroad.”
- Fast Retailing Misses Estimates on U.S. Losses. (video) Fast Retailing has fallen the most in nearly 18 months after earnings
and forecasts missed analysts estimates due to losses at its Uniqlo and J
Brand businesses in the U.S. Bloomberg's Peter Elstrom reports on
"Trending Business."
- PC Shipments Fall 7.7% as Strong Dollar Boosts Prices. Global
personal-computer shipments fell 7.7 percent in the third
quarter on slower desktop sales and higher dollar-based prices, market
researcher Gartner Inc. said. PC manufacturers shipped 73.7 million
units, compared with 79.8 million a year earlier, Gartner said in a
statement Thursday. The introduction of
Microsoft Corp.’s new Windows 10 operating system had a “minimal impact”
as many upgrades went on existing PCs instead of new ones, the company
said. Researcher IDC reported a similar drop in shipments. The
decline, following a 9.5 percent drop in the prior quarter, underscores
the persistent challenges facing PC makers as more shoppers opt for
smartphones and tablets. The stronger dollar is making computers more
pricey abroad even as companies try to lure buyers with new types of
devices.
- Asia Stocks Set for Best Week Since 2011 as Fed, Oil Buoy Shares. Asian stocks rose, with the regional benchmark index heading for its
biggest weekly advance since December 2011, as U.S. shares rallied after
minutes from the Federal Reserve’s latest meeting indicated the central
bank won’t rush to raise interest rates. Energy companies led gains as
oil headed for its steepest weekly increase since August. The MSCI Asia Pacific Index climbed 0.7 percent to 132.13 as of 9:00 a.m. in Tokyo, poised for a 4.6 percent rally this week.
- 85 Gas Projects Dying on the Vine as LNG's Promise Falls Short. Five years ago, energy companies hungry for the next big thing began
planning as many as 90 terminals to send natural gas around the globe. Now, it seems the world only needs five more. Consulting firm
IHS Inc. says only one in every 20 projects planned are actually
necessary by 2025 as weakening Asia economies, cheap coal, the return of
nuclear power in Japan and the ever-expanding glut of shale supply in
North America temper demand for the power-plant fuel, putting tens of
billions of dollars worth of export projects at risk.
Wall Street Journal:
- Assad Seen Trying to Force the West to Choose Between his Regime, Islamic State. Russia’s intervention aims at opposition rebels.
Syrian President Bashar al-Assad and his inner circle are engaged in a
high-stakes gamble for the future of their fractured nation, betting
Russian attacks on rebel positions will shift momentum in the conflict
and shore up support from their core constituency. Russia’s intervention
is lending credence to what is widely believed to be Mr. Assad’s...
- Fed’s Rate Delay Spurred by Worry Over Low Inflation, Minutes Show. Inflation has been below the Fed’s 2% target for more than three years. Federal Reserve officials held off on raising short-term interest
rates at their September policy meeting because of worries that
inflation could remain stuck at exceptionally low levels, according to
minutes released Thursday. The Fed has twin goals of a robust
labor market and low, stable inflation. Policy makers concluded at the
meeting they were near their goal of “full employment,” but they...
Fox News:
- EXCLUSIVE: U.S. officials conclude Iran deal violates federal law. (video) Some senior U.S. officials involved in the implementation of the Iran
nuclear deal have privately concluded that a key sanctions relief
provision – a concession to Iran that will open the doors to tens of
billions of dollars in U.S.-backed commerce with the Islamic regime –
conflicts with existing federal statutes and cannot be implemented
without violating those laws, Fox News has learned.
Reuters:
- Goldman(GS) lowers 2016 price forecasts for nickel, zinc, lead. Goldman
Sachs on Thursday slashed its 2016 price forecasts for nickel, zinc,
and lead by more than 20 percent, primarily citing challenges to Chinese
metals and mining demand. "China's
metals and mining commodity demand is likely to continue to be
challenged by a substantial debt and property inventory overhang and
further dollar strength," the influential U.S. investment bank said in a note. Goldman
cut its 2016 outlook by 29 percent each for nickel and zinc to $14,500
per tonne and $2,383 per tonne, respectively, while lowering its
outlook for lead by 21 percent to $2,083 per tonne. Low
Chinese demand, increasing competition from nickel pig iron output in
the country along with a depreciating Chinese currency, are among the
factors that could provide a downside risk to nickel prices, Goldman
said. Goldman
said it expected copper and aluminum prices to decline from current
levels over the coming year but left its 2016 outlook for both the
metals unchanged. The bank, however, cut its copper forecast for this
year to $5,582 from $5,670 per tonne.
The Standard:
- HK growth pace to slow. The
Hong Kong Institute of Economics and Business Strategy expects local
economic growth to ease to 1.9 percent in the fourth quarter from a
year earlier the slowest gain in the same period since 2012.
Evening Recommendations
Night Trading
- Asian equity indices are +.75% to +1.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 142.5 -6.75 basis points.
- Asia Pacific Sovereign CDS Index 81.5 +.25 basis point.
- NASDAQ 100 futures +.17%.
Earnings of Note
Economic Releases
8:30 am EST
- The Import Price Index for September is estimated to fall -.5% versus a -1.8% decline in August.
10:00 am EST
- Wholesale Inventories for August are estimated unch. versus a -.1% decline in July.
- Wholesale Sales for August are estimated to fall -.4% versus a -.3% decline in July.
Upcoming Splits
Other Potential Market Movers
- The Fed's Lockhart speaking, Fed's Evans speaking, IMF World Bank Meetings, UK Trade Balance and the WASDE Crop report could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and industrial 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.
