Evening Headlines
Bloomberg:
- Emerging-Market Credit Downgrades Soar to Overtake 2014 Tally. Investors be warned. There have been more credit-rating downgrades in
developing nations in the first nine months of this year than in the
whole of 2014 and the outlook keeps getting gloomier, according to
Standard & Poor’s. An economic slowdown and lower commodity
prices are to blame, said Diane Vazza, head of S&P’s Global Fixed
Income Research Group, in a report Wednesday. S&P cut the ratings
for 88 bonds sold by developing countries and companies in the third
quarter, including Brazil, Zambia and Ecuador, while raising the grades
for 22 securities. That brings the total number of downgrades to 224
this year, compared with the 206 cuts in 2014. The ratings cuts
will continue to overwhelm emerging markets in the coming months. As of
Sept. 30, about 28 percent of companies in developing nations have a
negative outlook or are on the watch list for potential downgrades,
compared with 24 percent in the second quarter, the report showed. S&P
is not alone in sounding the alarm. UBS Group AG’s Bhanu Baweja,
the
strategist who correctly called this year’s rout in developing nations,
is also concerned. The one-month long rebound in emerging-market
currencies and stocks is poised to reverse, he said.
- Mr. Yen Sees Currency Strengthening as Global Growth Fizzles. The yen will probably appreciate as slowing global economic growth
drives investors to seek safe assets, according to Eisuke
Sakakibara, who was nicknamed “Mr. Yen” when he served as Japan’s vice
minister of finance from 1997 to 1999. "Given the condition of the
world economy, the Japanese yen will probably go into the range of 115
and 120" against the dollar, said Sakakibara, who’s a professor at
Aoyama Gakuin University. He didn’t provide a time frame. "When
the world economy is in bad condition, the yen tends to appreciate --
yen is considered to be a safe currency," he said in a speech in New
York. Sakakibara’s prediction for a stronger yen contrasts with bearish
median forecasts for 123 per dollar by the end of the year and 125 in
the first quarter, according to analysts surveyed by Bloomberg.
- NXP Semiconductors Revenue Trails Estimates on Stagnating Orders. NXP Semiconductors NV reported third-quarter revenue that fell short
of analysts’ estimates as customers pulled back on orders in a slowing
global economy and higher inventories of unsold chips. Revenue was little changed at $1.52 billion, the Eindhoven,
Netherlands-based company said in a statement Thursday. That missed the
average analyst estimate of $1.55 billion, according to data compiled by
Bloomberg. For the fourth quarter, NXP forecast a decline in sales at a
percentage in the “low to upper-teens,” while analysts are predicting
an increase. An economic slowdown in China has forced other chip companies to warn
of weaker-than-anticipated demand. NXP is seeing the biggest negative
impact in chips designed for security and power management, the company
said. “Our guidance for the fourth quarter reflects a much more cautious
view of near-term sales,” NXP Chief Executive Officer Rick Clemmer said
in the statement. “As we entered the third quarter, we noted a weakening
of demand as our customers began to communicate concerns with an
uncertain economic environment.”
- Won Leads Drop in Asian Currencies on Renewed Fed Liftoff Bets. South Korea’s won led declines in Asia on speculation the Federal Reserve will increase borrowing costs by December. The
currency fell the most in more than a month after the Federal Open
Market Committee dropped a reference to global risks and referred to its
“next meeting” on Dec. 15-16 as it discussed liftoff timing in a
statement released Wednesday in Washington, preparing investors for the
first interest-rate rise since 2006. Futures contracts show a 46 percent
chance the Fed will tighten policy in December compared with 35 percent
a day earlier.
- Dollar Near Two-Month High as Fed Calls Market's Bluff on Rates. The dollar remained near a two-month high after the Federal Reserve
signaled it may still raise interest rates this year when announcing a
decision to hold off at Wednesday’s meeting. The U.S. currency
advanced against most major peers since the end of trading Tuesday as
the odds of a December Fed move rose toward 50 percent. The Australian
dollar was among the worst performers after the price of iron ore, the
nation’s chief export, sank below $50 for the first time since July and
as traders’ bets indicated they expect the nation’s central bank will
lower its benchmark rate next week. The yen gained after a report showed
Japan’s industrial production unexpectedly increased. “The Fed
language on tightening in December was a stronger indication than we’ve
had from them in a long time about going soon,” said Imre Speizer, a
senior market strategist at Westpac Banking Corp. in Auckland. “Right
now, the U.S. dollar is looking pretty strong.”
- Most Asian Stocks Rise as Fed Points to Rate Increase This Year. Most Asian stocks rose, with the benchmark gauge resuming its October
rally, after the Federal Reserve signaled it’s prepared to raise
interest rates as soon as December. More than two shares climbed for each that retreated on the MSCI Asia
Pacific Index, which gained less than 0.1 percent to 135.33 as of 9:04
a.m. in Tokyo.
- Iron Ore May Struggle to Push Back Above $50 as China Stumbles. Iron ore ’s tumble back below $50 a metric ton may last for some time
as the twin factors that put it there, rising low-cost production from
the majors and signs of faltering demand in China, will probably
persist. “We do think the price will stay below $50,” Caroline
Bain, senior commodities economist at Capital Economics Ltd. in London,
said by e-mail. “The combination of the ongoing ramp up in supply from
Australia and Brazil and the downturn in China’s steel demand will weigh
on prices.”
- Baoshan Swings to Net Loss as China's Steel Demand Evaporates. Baoshan Iron & Steel Co., China’s second
largest mill by output, swung to a net loss in the third quarter and
warned that its full-year profit could be wiped out, amid an
unprecedented glut of steel in the world’s largest producer. In
the three months to September, Baosteel saw a net loss of 920.5 million
yuan ($145 million), from a profit of 1.86 billion yuan a year ago,
according to a statement late Wednesday. Sales slumped 10 percent to
41.5 billion yuan and the Shanghai-based company said its full-year net
profit could fall by between 50 and 100 percent. In 2014, it made 5.79
billion yuan, according to data compiled by Bloomberg.
- Fed Pivots Toward December Rate Rise Amid Moderate U.S. Growth. Federal
Reserve officials pivoted toward a December interest-rate
increase, betting that further job gains will lead to higher inflation
over time and allow them to close an unprecedented era of near-zero
borrowing costs. The Federal Open Market Committee dropped a
reference to global risks and referred to its “next meeting” on Dec.
15-16 as it discussed liftoff timing in a statement released Wednesday
in Washington, preparing investors for the first rate rise since 2006. “The
case for a December liftoff continues to build,” said Ward McCarthy,
chief financial economist at Jefferies LLC in New York. “Even with the
weaker data of late, it is hard to make the case that the economy is
still in an emergency” that requires rates near zero.
- FDA Shows Up, a Man Runs, and Questions Emerge on China's Drugs. When FDA inspectors showed up at a Chinese company that supplies key
ingredients to two of the U.S.’s biggest drug companies, a curious thing
happened. After lunch, they walked into a quality control lab on
the second floor, where they saw a worker pull what looked like a memory
stick from a computer and put it in the pocket of his lab coat. The
inspectors asked to see what he’d taken. And then the man turned and ran.
- Ackman’s Pershing Square Holdings Loses 15.9% on Valeant(VRX).
Pershing Square Holdings, the
publicly traded security of Bill Ackman’s activist hedge fund, extended
losses over the past week amid attacks on Valeant Pharmaceuticals
International Inc., bringing its decline this year to 15.9 percent. The
latest returns, reported weekly, are as of Oct. 27. The year-to-date
decline as of Oct. 20 was 11.2 percent, according to Pershing Square
Holdings’ website.
Wall Street Journal:
- Fed Keeps December Rate Hike in Play by Jon Hilsenrath. Officials remove explicit mention of concern at overseas tumult, delivering warning to markets. Federal Reserve officials explicitly said they might raise short-term
interest rates in December, pushing back against investors who have bet
that the central bank wouldn’t move this year.
- Pfizer(PFE), Allergan(AGN) Considering Combining. A deal for Allergan would be the biggest announced takeover in an already busy year. Drug makers Pfizer Inc. and Allergan PLC are considering combining, in
what would be a blockbuster merger capping off a torrid stretch for
health care and other takeovers.
Barron's:
Fox News:
- GOP candidates tangle over tax plans at 3rd debate. The Republican presidential candidates sparred sharply over their tax
plans at the opening of the third primary debate Wednesday night. Ohio Gov. John Kasich leveled the most pointed criticism, after Ben
Carson defended his plan for a 10 percent flat tax. Kasich called it
“fantasy.” “These plans would put us trillions and trillions of dollars in
debt,” Kasich said. “Why don’t we just give a chicken in every pot.”
Twitchy:
CNBC:
- Cruz: This is why the American people don't trust the media. (video) A question on the debt ceiling heated up on stage at Wednesday's
Republican debate, when Sen. Ted Cruz said questions on the issue
"illustrate why the American people don't trust the media." "This is not a cage match," Cruz said.
"The questions that are being asked shouldn't be getting people to tear
into each other. It should be, 'What are your substantive solutions?'"
Evening Recommendations
Night Trading
- Asian equity indices are -1.0% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 129.75 -1.25 basis points.
- Asia Pacific Sovereign CDS Index 72.5 -1.25 basis points.
- Bloomberg Emerging Markets Currency Index 71.68 -.13%.
- NASDAQ 100 futures -.35%.
Earnings of Note
Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to rise to 265K versus 259K the prior week.
- Continuing Claims are estimated to fall to 2160K versus 2170K prior.
- Advance 3Q GDP is estimated to rise +1.6% versus a +3.9% gain in 2Q.
- Advance 3Q Personal Consumption is estimated to rise +3.3% versus a +3.6% gain in 2Q.
- Advance 3Q GDP Price Index is estimated to rise +1.4% versus a +2.1% gain in 2Q
- Advance 3Q Core PCE is estimated to rise +1.4% versus a +1.9% gain in 2Q.
10:00 am EST
- Pending Home Sales for September are estimated to rise +1.0% versus a -1.4% decline in August.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Lockhart speaking, Eurozone Consumer Confidence report, $29B 7Y
T-Note auction, weekly Bloomberg Consumer Comfort Index, weekly EIA
natural gas inventory report and the (ORCL) financial analyst meeting
could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology
shares in the region. I expect US stocks to open mixed and to
weaken into the afternoon, finishing modestly lower. The Portfolio is
50% net long heading into the day.
