Evening Headlines
Bloomberg:
- Asian Currencies Set for Worst Quarter Since 1997 on Fed, China. Asian currencies are headed for their biggest quarterly loss since the Asian financial crisis, having been battered by China’s surprise devaluation of the yuan and the prospect of a U.S. interest-rate increase. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies outside of Japan, has dropped 4.4 percent in its worst performance since 1997. Malaysia’s ringgit led the rout with a 15 percent slide as oil prices retreated and Prime Minister Najib Razak was caught up in a corruption investigation. The yuan fell the most in 1 1/2 years as an economic downturn worsened in China. Federal Reserve Chair Janet Yellen said Thursday the central bank remains likely to boost interest rates this year.
- China Stocks Head for Worst Quarter Since '08 on Growth Slowdown. China’s stocks headed for the biggest quarterly loss since the depths of the global financial crisis in 2008 as unprecedented state intervention and monetary easing failed to bolster equities and the economy. The Shanghai Composite Index has slumped 29 percent in the third quarter, dragged down by technology companies and commodity producers. The benchmark index rose 0.6 percent to 3,056.70 at 9:34 a.m. local time on Wednesday, with trading volumes plunging 59 percent below the 30-day average. China’s markets will be shut from Oct. 1-7 for the National Day holidays.
- Alibaba Slumping a Fourth Month as 12 Analysts Cut Estimates. Alibaba Group Holding Ltd. is heading for the fourth straight monthly decline in its stock price as analysts cut their revenue estimates for the most important quarter of the year. Twelve analysts have cut sales predictions for the Chinese e-commerce company in the past four weeks for both this quarter and the next as the country’s economy cools. Alibaba shares have dropped 13 percent in September, bringing the market value decline since the end of May to about $75 billion.
- Glencore Faces Yet Another Debt Challenge With Credit Due by May. Add another looming problem to the list for Glencore Plc, the commodity group that’s lost almost $45 billion in market value this year. A quarter of the beleaguered firm’s bonds and credit lines are due for refinancing by next May, compared with 9 percent for its peers, according to data compiled by Bloomberg. Glencore may have options for delaying the deadline for part of that $13.8 billion in lifeblood financing, but given that some of its debt is already trading like junk as the stock plummets, any bond refinancings will probably be pricey.
- Japanese Industrial Output Unexpectedly Drops for 2nd Month. Japan’s industrial output unexpectedly fell, raising concern that the economy may have fallen back into its second recession since Prime Minister Shinzo Abe took government. The slump in production is likely to intensify debate on the need for Abe’s administration to increase spending and for the central bank to boost its already unprecedented monetary stimulus. Falling prices, weak consumer spending and a slowdown in key export market China are weighing on Japanese businesses, which are holding back investment and building up inventories in warehouses.
- Asia Stocks Advance to Pare Worst Quarter Since Financial Crisis. Asian stocks rose on the final day of the quarter, tracking a late rally in U.S. shares, as the regional benchmark index headed for its worst three months since the financial crisis. The MSCI Asia Pacific Index gained 0.3 percent to 121.40 as of 9:00 a.m. in Tokyo. The measure has slumped 17 percent since the end of June, on course for the biggest drop since the quarter ended September 2008. It’s down 6.6 percent for the month.
- Copper Poised for Worst Quarter Since 2011 Amid China Slowdown. Copper is set for its biggest quarterly decline in four years as an economic slowdown in China, the world’s biggest metals consumer, spurs concerns over demand and damps the price outlook. The metal used in pipes and wires has lost 14 percent in the past three months and fell 21 percent this year. Prices pared losses on Wednesday, gaining 0.3 percent to $4,983 a metric ton by 9:09 a.m. Shanghai time.
- World's Biggest Iron Ore Exporter Predicts Lower Prices on Glut. Iron ore will probably extend losses next year as global supplies increase and steel production in China shrinks further, according to the Australian government, which predicts prices will recover from 2017. The raw material will average $51.20 a metric ton next year compared with a June estimate of $52.10, the Department of Industry & Science said in a quarterly outlook Wednesday. Iron ore will average $52.90 a ton this year from $54.40 forecast in June, the department said. Prices will recover to $60.40 in 2017 and rise every year through 2020 to $75.30 , it said. Iron ore, the country’s biggest export earner, lost 21 percent this year as BHP Billiton Ltd. and Rio Tinto Group invested billions of dollars to boost production, betting on sustained demand growth from China even as economic expansion in the world’s biggest buyer slowed. New supply from Gina Rinehart’s Roy Hill mine will contribute to a slump below $40 next year, according to Citigroup Inc., which said lower steel output in China would also hurt the raw material. “China’s steel production is forecast to contract further in 2016 while an additional 42 million tons of iron ore is forecast to be delivered to the seaborne market,” the department wrote. “A net increase in the supply of iron ore is expected to keep downward pressure on prices in the seaborne market in the short term.”
- Fed's Caution Over Growth Reins in Treasury Selloff Forecasts. Treasury-market analysts predicting a selloff in the final quarter of the year are being forced to temper estimates after a cautious Federal Reserve and tumbling equities around the world drove 10-year yields to the lowest in a month. Benchmark yields will climb to 2.45 percent by the end of 2015 after closing at 2.05 percent on Tuesday, based on Bloomberg surveys of economists with the most recent forecasts given the heaviest weightings. Analysts have lowered their projections for four straight weeks, down from 2.56 percent at the end of August.
- All Eyes on Crowdfunded Loans Tucked Into Commercial Real Estate Bonds. Morgan Stanley points to crowdfunding in CMBS deals. Morgan Stanley analyst Richard Hill has been digging around in the monthly remittance reports that accompany bonds backed by commercial real estate loans, known as commercial mortgage-backed securities, and he's found something interesting. Three loans worth a collective $71 million, which were made to real estate investment firm Colony Hills Capital and underpin two CMBS deals, have found their way to special servicing. (That's structured-finance-speak for something unusual has happened to them). Commentary from the servicer "indicates that the transfers were due to a pledge of interest to a restricted party," Morgan Stanley said.
Wall Street Journal:
- Arabs Spurn Military Push by Moscow Inside Syria. Saudis’ strong stance highlights Obama’s dilemma, with some allies supporting Russian role and others opposing one. Saudi Arabia and other leading Arab states ruled out any cooperation with an emerging Russian military alliance operating inside Syria and vowed to dial up their support for rebels seeking to overthrow Moscow ally President Bashar al-Assad.
- Taliban Offensive in Afghanistan Tests U.S. Surge by militants adds fuel to arguments that Obama administration should rethink troop withdrawal. Afghan troops backed by U.S. forces struggled to recapture a provincial capital following an alarming Taliban attack that renewed questions about the Obama administration’s plan to withdraw most American military forces next year.
- A Clintonian Misdirection on Drug Prices. The high drug prices she decries are not the result of market forces gone wild, but rather bad regulation. Hillary Clinton’s prescription to soothe the economic hangover consumers have from ObamaCare’s regulatory binge is a single ingredient: more regulation.
Fox News:
- US failing to stop most people trying to join ISIS, report finds. (video) A congressional study released Tuesday said the Obama administration has largely failed to stop more than 250 Americans who have traveled overseas since 2011 to join -- or try to join -- terror groups including the Islamic State, describing the flow of fighters as the largest global convergence of jihadists in history. Republicans and Democrats on the House Homeland Security Committee conducted an extensive six-month review to assess the severity of the threat from those leaving home to join jihadist groups and to identify potential security gaps.
MarketWatch.com:
- Forbes gave Donald Trump’s net worth a $5.5 billion haircut. Presidential GOP front-runner Donald Trump isn’t as rich as he thinks. At least, that is according to Forbes’ magazine’s most recent issue slated to hit newsstands October.
CNBC:
- Chesapeake cuts 15% of workforce on oil slump. Chesapeake Energy said on Tuesday it has cut about 15 percent of its workforce, or 740 jobs, as depressed oil and gas prices force deeper cost cutting at the U.S. No. 2 natural gas producer. The company, which now has about 4,000 workers, has already slashed capital spending this year by about 40 percent and cut operating costs as well as its dividend as crude prices that make drilling unprofitable linger for months.
- Fed-in-a-box: Will there ever be a good time? (video) Reduced expectations for economic growth, corporate earnings and stock market gains hardly seem the ideal climate for raising interest rates, but such is the box in which the Federal Reserve finds itself.
Zero Hedge:
- Peak Japaganda: Advisers Call For More QE (But Admit Failure Of QE); China's Yuan Hits 3-Week High. (graph)
- Low Oil Prices - Why Worry? (graph)
Business Insider:
Reuters:
- Insolvency on Brazil electricity market grows - traders. Insolvency on the Brazilian electric energy market has spread to critical levels, energy traders said on Tuesday, as hydroelectric generators balk at hefty bills for which the local regulator says they are on the hook.
- U.S. biotech bloodbath hits hedge funds but some bargains emerge. A seven-day selloff of U.S. biotechnology stocks has hit sector investors - especially hedge funds - hard. But some managers say it was overdone and are already eyeing bargains such as Gilead Sciences Inc and Amgen Inc. The Nasdaq Biotechnology index has fallen 18.7 percent over the last seven sessions as investors took flight after Hillary Clinton, front-runner to be the Democratic nominee in next year's U.S. presidential election, vowed on Sept. 21 to take steps to curb high drug prices. Since its July 20 high, the index has fallen around 27 percent.
- China ETF options traders braced for more pain. Even with a recent sharp decline in China's equity market, some do not believe the selling is at an end, judging by activity in the options market.
Financial Times:
- Equities on course for worst quarter since 2011. US and global equities are heading for their worst quarterly performance since 2011, with investors rattled by China’s economic slowdown, uncertainty over Federal Reserve policy and growing pessimism about corporate earnings. Adding to investors’ unease, the International Monetary Fund on Tuesday warned that corporate failures were likely to jump in the developing world, after a borrowing binge in the past decade.
- US junk bonds cracking after debt binge. After the debt binge comes the bill, and that is the grim message for investors looking at the present performance of the US corporate bond market. As the third quarter draws to a close, slowing global economic activity threatens the earnings power of many US companies, which have amassed $7.8tn in debt. Years of easy monetary policy that kept borrowing costs low, a wave of mergers and acquisitions and the spectre of shareholder activism have all contributed to an erosion of balance sheet quality.
Economic Information Daily:
- China Shipbuilders' New Orders Fall 68% y/y in Jan.-Aug. New orders in the first 8 months were 15.05m dead-weight tonnage in capacity, citing data from China Association of the National Shipbuilding Industry.
Evening Recommendations
- None of note
Night Trading
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 165.0 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 92.5 +1.0 basis point.
- S&P 500 futures +.40%.
- NASDAQ 100 futures +.50%.
Earnings of Note
Company/Estimate
- (PAYX)/.51
Economic Releases
8:15 am EST
- The ADP Employment Change for September is estimated at 190K versus 190K in August.
- The ISM Milwaukee for September is estimated to rise to 48.5 versus 47.67 in August.
- Chicago Purchasing Manager for September is estimated to fall to 53.0 versus 54.4 in August.
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -100,000 barrels versus a -1,925,00 barrel decline the prior week. Gasoline supplies are estimated to fall by -80,000 barrels versus a +1,369,00 barrel gain the prior
week. Distillate inventories are estimated to fall by -322,220 barrels
versus a -2,088,000 barrel decline the prior week. Finally, Refinery
Utilization is expected to fall by -.34% versus a -2.2% decline the prior week.
- (BTU) 1-for-15
Other Potential Market Movers
- The Fed's Yellen speaking, Fed's Brainard speaking, Fed's Bullard speaking, Fed's Dudley speaking, China PMI data, German Unemployment report, weekly MBA Mortgage Applications report and the (BOX) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and commodity shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.