Evening Headlines
Bloomberg:
- China's Bond Market Is `Overheating' After Stocks, Survey Says. The bursting of China’s stock-market bubble has scattered money into corporate bonds, causing them to overheat, financial companies surveyed by Bloomberg say. Nineteen of 21 respondents said the credit market is “overheating,” according to the survey sent to onshore analysts, traders and fund managers. Some 60 percent forecast corporate bond yield premiums will widen in the fourth quarter. That would mark a shift after the difference between five-year AAA company securities and government notes dropped to a six-year low of 83.6 basis points on Sept. 7. “The stock rout has driven a lot of capital into the bond market,” said Shi Lei, the head of fixed income research in Beijing at Ping An Securities Co., a unit of China’s second-biggest insurance company. “Even though there’s no such sign at the moment, I’m concerned what will happen if there is a shift in central bank monetary policy or a rebound in stocks.
- China Stocks Head for Worst Quarter Since '08 on Economy Concern. China’s stocks fell, sending the benchmark index toward its steepest quarterly loss since 2008, as concern about the nation’s economy deepened ahead of the start of a week-long holiday this week. The Shanghai Composite Index slid 1.6 percent to 3,052.56 at 9:31 a.m. local time, extending losses in the last three months to 28 percent. Material companies led declines, with Jiangxi Copper Co. slumping 2.2 percent. Trading volumes in Shanghai plunged 46 percent before the National Day holiday that starts on Oct. 1. The Shanghai gauge has fallen 41 percent since the June peak as leveraged investors fled the stock market amid concerns valuations weren’t justified amid a weakening economy.
- Hong Kong's Property Boom at Risk With Stocks Flashing Warning Signs. Hong Kong home prices are the highest relative to shares of the city’s publicly-traded developers in almost two decades. For Bocom International Holdings Co. analyst Alfred Lau, that’s a sign that the property market’s about to drop as much as 20 percent. The Hang Seng Properties Index slumped 15 percent this quarter, even as a gauge of Hong Kong housing prices compiled by Centaline Property Agency Ltd. rose to a record. The stock gauge is at the lowest compared with the real estate measure since 1998, when the city’s last property bubble was bursting. “We’re just at the beginning of the correction cycle for physical property prices,” Bocom’s Lau said. “We expect a 10 to 20 percent decline in prices. Shares are already pricing in a 10 to 15 percent decline."
- Glencore Slump Continues in Hong Kong After Record London Slide. Glencore Plc slumped by the most ever in Hong Kong pre-market trading following a record collapse in its London shares, as the company is roiled by sliding commodities prices amid China’s economic slowdown. Shares in the Zug, Switzerland-based company fell 26.7 percent to HK$9 on the Hong Kong Stock Exchange on Tuesday. That followed an almost 30 percent drop in the commodity trader’s London-listed stock on Monday.
- Glencore Fear Trade Grips Debt Market Amid Commodity Pain. Glencore Plc just gave credit traders another reason to reach for the antacid. Fears the commodities house won’t be able to get a grip on its $30 billion debt load triggered a global selloff Monday, sending junk-bond yields over 8 percent for the first time in three years, a Bank of America Merrill Lynch index shows. The concern is tied to the reduced demand for metals and minerals from China amid the country’s economic slowdown.
- Glencore's Trading `Black Box' Leaves Analysts Split on Future. Glencore Plc, the commodity trader that lost about a third of its value Monday, is worth either $98 billion or $26 billion, depending on which analyst you ask. At Sanford C. Bernstein, price targets published by Paul Gait suggest the Baar, Switzerland-based resource company can rally sevenfold to 450 pence, the top end of predictions tracked by Bloomberg. At the bottom, Nomura Holdings Inc.’s 120-pence forecast implies a market value that is $72 billion lower. The dispersion shows the difficulty in valuing a company caught between China’s slowing economy and mounting concerns about its debt load. In addition to diverging views on copper prices, questions about how to evaluate Glencore’s trading business, unique among big mining companies, are muddling the equation, according to Clarksons Platou Securities’ Jeremy Sussman.
- With Glencore, Commodity Rout Beginning to Look Like a Crisis. The 15-month commodities free-fall is starting to resemble a full-blown crisis. Investors are reacting to diminished demand from China and an end to the cheap-money era provided by the Federal Reserve. A Bloomberg index of commodity futures has fallen 50 percent since a 2011 high, and eight of the 10 worst performers in the Standard & Poor’s 500 Index this year are commodities-related businesses. Now it all seems to be coming apart at once.
- Glencore Gloom Spreads to Australia as Biggest Miners Tumble. Shares in the biggest mining companies in Australia tumbled as the collapse in Glencore Plc’s stock highlighted the threat of sliding commodities prices amid China’s economic slowdown. BHP Billiton Ltd. fell as much as 6.4 percent in Sydney while Rio Tinto Group lost 5.8 percent and Fortescue Metals Group Ltd. dropped 5.3 percent.
- Asia Stocks Head for Lowest Since 2012 as Material Shares Slump. Asian stocks fell, with the benchmark index heading for the lowest close since November 2012, as a selloff in U.S. and European markets spread to the region and material shares led losses. The MSCI Asia Pacific Index retreated 1.4 percent to 122.96 as of 9:10 a.m. in Tokyo, on course to slide 16 percent this quarter.
- Copper Extends Losses as Metals Trade Near Lowest in Six Years. Copper extended a decline as metals traded near their lowest level in six years. Glencore Plc, the Swiss commodities trader and miner, lost almost a third of its value on Monday and the rout in mining shares continued in Asia. The metal used in pipes and wires declined for a sixth day, falling as much as 0.3 percent to $4,950 a metric ton. Prices slid to $4,925 on Monday, the lowest intraday level in more than a month. The London Metal Exchange index of six metals is trading near its lowest since 2009.
- Clinton Proposes Drugmakers Fund Their Own Generic Competition. Drugmakers would fund their generic competitors under a proposal by Democratic presidential candidate Hillary Clinton designed to curb consumers’ medication costs by redistributing profits from high-priced drugs. Under the plan, the government would gather money from drug companies that don’t hit a minimum threshold on research spending. The resulting public fund would then provide grants to generics makers to make low-cost versions when none are available on the market, a campaign spokesman, Jesse Ferguson, said in an e-mail. “A new idea to chew on - let’s explore using some of these new research funds to invest directly in producing generic competitors where none exists," Clinton wrote on Facebook in a question-and-answer session. The presidential candidate caused biotech shares to slide last week.
- Fed Officials See Interest-Rate Increase on Track for 2015. (video) The Federal Reserve will probably raise interest rates later this year and tighten policy gradually thereafter, New York Fed President William C. Dudley said, echoing the sentiment of Chair Janet Yellen that an uncertain global outlook won’t postpone liftoff into 2016. “The economy is doing pretty well,” Dudley said Monday at an event hosted by the Wall Street Journal in New York. “My expectation is that we probably will raise interest rates later this year.” Dudley said he expected growth in the second half will be a little bit weaker than in the first half, when the U.S. grew around 2.25 percent on an annualized basis.
Wall Street Journal:
- Investors Fall Out of Love With Deals. The stocks of a number of acquirers have suffered big losses following the announcement of a takeover. Corporate executives earlier this year were feeling the love from investors when they announced acquisitions. Now, they are getting the cold shoulder.
- WSJ Poll Shows Risks for GOP; Clinton Support Wanes. Democrats head into the 2016 election in the precarious position of backing a presidential front-runner who is losing steam with the broader electorate, a new Wall Street Journal/NBC News poll finds.
- Lid on Oil Prices Refuses to Budge. Muted price reaction to declining U.S. oil output underscores how the market’s focus has shifted to production gains elsewhere.
- Glencore Shares Plunge as Debt Fears Rattle Investors. Shares are down nearly 90% since their listing in 2011. An accelerating collapse in the shares of Glencore PLC is casting a long shadow on the unique corporate structure engineered by its chief executive, Ivan Glasenberg: a heady mix of fast-moving traders and old-economy mining assets.
- Debt-Market Tumult Hits Corporate-Bond Sales. Three companies reduced or put off planned bond sales in response to soft investor demand. Bond-market turmoil mounted Monday, as three companies reduced or put off planned bond sales in response to soft investor demand, damped by concerns that a global economic slowdown is taking shape.
- Lawmakers Seek Answers on Valeant’s(VRX) Price Increases. Drug maker’s stock price falls 17% after Democrats request subpoena. Democrats on the House oversight committee are trying to force Valeant Pharmaceuticals International Inc. to provide documents explaining hefty price increases for two heart drugs. Valeant shares fell 16.5% to $166.50 Monday following news of the request for a subpoena. The stock had fallen more than 12% over the previous several days amid increasing criticism from law makers about drug-price increases.
Fox News:
- Obama, Putin discuss possible Russian involvement in fight against ISIS. (video) President Obama and Russia’s Vladmir Putin wrapped up their first face-to-face meeting in nearly a year late Monday following dueling speeches on the crisis in Syria at the United Nations summit. Putin said the meeting, which lasted a little over 90 minutes, was “very constructive, business-like and frank” and the two world leaders discussed Russia’s involvement in a military campaign against Islamic State militants in Syria.
- Saudi VIP$ use wealth, diplomatic immunity to run amok in the US. The Saudi Arabian prince arrested last week for allegedly sexually assaulting a woman at the Beverly Hills mansion he was renting is just the latest rich and well-connected Kingdom VIP accused of running amok in America – and around the world.
CNBC:
- Fed's Williams calls for rate hike this year. (video) A top U.S. central banker on Monday renewed his call for an interest rate hike "sometime later this year," citing near-full employment and rapidly rising house prices that may be a sign of excessive economic optimism. "I don't think we are at a tipping point yet — but I am looking at the path we're on and looking out for potential potholes," John Williams, president of the San Francisco Federal Reserve Bank, said in remarks prepared for delivery to the UCLA Anderson School of Management. "I am starting to see signs of imbalances emerge in the form of high asset prices, especially in real estate, and that trips the alert system."
Zero Hedge:
Business Insider:
NASDAQ:
- Takata Air-Bag Recalls Could Expand to Seven More Companies. Seven more companies including electric-car maker Tesla Motors Inc.(TSLA) could be facing recalls because they use air-bag inflaters made by Takata Corp., according to letters they received last week from U.S. safety regulators.
Reuters:
- Yen firms on heightened risk aversion, commodity currencies sag. The yen was broadly firmer early on Tuesday, underpinned by safety flows stemming from a selloff in global equities, a risk-off mood that took a heavy toll on commodity currencies. Worries about the health of the Chinese economy grew after industrial firms suffered their biggest profit drop in four years, while mixed messages from Federal Reserve officials about the likely timing of a hike in interest rate didn't help. The dollar was back below 120.00 yen, having slid from Monday's high of 120.60. The euro had a quick look under 134.00 yen, but has since drifted back to 134.63. Against the greenback, the common currency climbed above $1.1200, pulling further away from a recent trough of $1.1116. As a result, the dollar index was struggling to hold 96.000, nursing a 0.4 percent fall on Monday.
- Brazil's Vale cuts dividend in face of iron ore rout. Brazil's Vale SA said on Monday it plans to cut its dividend for the year by $500 million in order to help shore up the miner's balance sheet in the face of weaker commodity prices, especially iron ore.
- Some big hedge funds' top 10 lists look a lot alike -data. Hedge funds often promise unusual portfolios that beat the market, but new data shows that some of the industry's biggest firms' top 10 stock picks bear striking resemblances to each other. The same four holdings appear on the top 10 lists of John Paulson's Paulson & Co and Nehal Chopra's Ratan Capital, according to a report Symmetric IO released on Monday. The data also showed Coatue Management had five of the same top 10 picks as Whale Rock Capital Management, and four listings in the top 10 list of Stephen Mandel's Lone Pine were also on Chase Coleman's Tiger Global chart.
Yahoo:
- EXCLUSIVE: Here are the ideas Icahn sent to Trump and others. Yahoo Finance has obtained a policy paper written by Carl Icahn on income inequality that the billionaire financier recently sent to Donald Trump and others on Wall Street and in Washington. In the paper, Icahn warns of “dangerous systemic problems that will affect each and every American in the coming years.” In the paper, Icahn takes a decidedly egalitarian tone, writing: “The average worker makes approximately $50,000 per year. The average annual compensation of the thirty highest paid CEOs is approximately $47 million per year.
Financial Times:
- Cargill to wind down $7bn hedge fund arm. Cargill plans to part ways with most of its hedge fund business as it grapples with tough conditions in markets and flagging investor interest. The world’s biggest agricultural trading house said on Monday that it would spin off to employees three fund businesses in its Black River Asset Management division, while two remaining funds that trade agriculture and energy will be folded into Cargill. Black River had $7.4bn under management as of June.
Evening Recommendations
- None of note
Night Trading
- Asian equity indices are -2.75% to -1.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 163.5 +12.25 basis points.
- Asia Pacific Sovereign CDS Index 91.5 +5.25 basis points.
- S&P 500 futures +.06%.
- NASDAQ 100 futures +.01%.
Earnings of Note
Company/Estimate
- (AZZ)/.69
- (IHS)/1.47
- (CUDA)/.09
- (COST)/1.66
- (DMND)/.21
Economic Releases
9:00 am EST
- The S&P/CS 20 City MoM for July is estimated to rise +.1% versus a -.12% decline in June.
- Consumer Confidence for September is estimated to fall to 97.0 versus 101.5 in August.
- (BTU) 1-for-15
Other Potential Market Movers
- The German CPI report, weekly US retail sales reports, BofA Merrill Banking/Insurance Conference, Ladenburg Thalmann Health Care Conference, (TSLA) Model X launch, (CMI) analyst day, (WDAY) analyst day, (ADSK) investor day, (KMX) analyst day, (NVAX) investor meeting and the (DISCA) investor day could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.