Thursday, June 20, 2013

Today's Headlines

  • Equity Volatility Surges Globally Amid Record Futures. Stock volatility jumped around the world, with the U.S. benchmark gauge surging the most in two months, after speculation the Federal Reserve will cut stimulus sent futures trading to an all-time high. The Chicago Board Options Exchange Volatility Index, which tracks options on the Standard & Poor’s 500 Index, climbed 9.1 percent to 18.15 at 12:38 p.m. in New York today. Europe’s VStoxx Index, a gauge of Euro Stoxx 50 Index derivatives, gained 16 percent to 23.61, and Hong Kong’s HSI Volatility Index, based on Hang Seng Index contracts, rose 7.7 percent to 22.72, near a one-year high. About 218,000 futures tracking the U.S. VIX changed hands each day on average in June, 49 percent more than the previous month, data compiled by Bloomberg show.
  • Corporate Credit-Default Swap Indexes Rise in Europe. Markit iTraxx Europe index rises 11 bps to 118, highest since April 4 and biggest jump since Nov. 1, 2011. • Markit iTraxx Crossover index rises 44 bps to 487 bps, highest since March 27 • Markit iTraxx Senior Financial index rises 17 bps to 170 bps • Markit iTraxx Sub Financial index rises 24 bps to 250 bps.
  • Dollar Debt in Asia at Risk of More Falls After Fed, Nomura Says. Dollar-denominated bonds in Asia have room to drop further, Nomura Holdings Inc. said, after Federal Reserve Chairman Ben S. Bernanke discussed the prospect of phasing out unprecedented stimulus. The cost of protecting Asian debt against default rose to a 10-month high. Increasing losses in emerging markets combined with a worsening economic outlook for the region may prompt institutional investors to pull money out, spurring an additional widening of credit spreads for U.S. currency debt in Asia, said Nomura analyst Pradeep Mohinani. "It's certainly not a buying opportunity at the moment," said Mohinani, who heads Nomura's corporate credit analysis for Asia excluding Japan. 
  • Rupee Plunge Prompts RBI Intervention; Bonds, Stocks Tumble. India’s rupee tumbled to a record, prompting the central bank to intervene to support the currency, after the U.S. signaled it will phase out a stimulus program. Stocks and bonds plunged the most in at least a year. “There will be pain due to the current-account deficit and as leveraged investors are pulling money from Indian debt,” said N. Srinivasan Venkatesh, Mumbai-based head of treasury at IDBI Bank Ltd. “Policy makers will now have to put their heads together to think about more structural, long-term fixes.” The rupee weakened 1.4 percent to 59.5750 per dollar at the 5 p.m. close in Mumbai, after earlier dropping to an all-time low of 59.9800, data compiled by Bloomberg show. The currency has plunged 8.9 percent this quarter, Asia’s worst performance. The S&P BSE Sensex (SENSEX) plunged 2.7 percent to 18,719.29, the most since Sept. 22, 2011. Volume was 49 percent more than the 30-day average.
  • Turkish Stocks Enter Bear Market as Lira Sinks to Record on Fed. Turkey’s main stock index sank more than 20 percent from its May peak into a so-called bear market while the lira tumbled to a record against the dollar after the U.S. Federal Reserve signaled it may scale back monetary stimulus. Turkish bonds fell the most in emerging markets. The Borsa Istanbul National 100 index slumped 6.8 percent to 73,461.89 at the close in Istanbul, down 21 percent from the May 22 high. The lira depreciated for a fourth day, falling as much as 1.8 percent to 1.9363 a dollar as the central bank held six currency auctions to support it. The currency was at 1.9334 a dollar at 5:44 p.m. in Istanbul, taking this month’s drop to 2.9 percent
  • Egypt Violence Builds After Mursi Names Islamist Governors. Employees of an Egyptian tourism trade group threatened to resign in protest amid renewed clashes in parts of the country today over President Mohamed Mursi's latest appointment of Islamists to key positions. Discontent with Mursi, who marks a year in power at the end of the month, is building up as critics plan protests on June 30 to call for early elections. They accuse him of failing to revive the economy while putting the interests of his Muslim Brotherhood allies ahead of the nation’s good. Mursi’s appointment of eight Islamists as provincial governors touched off a wave of protests, with violence erupting earlier this week in some provinces. Tourism Minister Hisham Zaazou resigned because one of the new governors belongs to a group linked to a deadly attack on a main tourist site
  • Emerging Markets Era of Outperformance Is Ending, Goldman Says. The decade-long outperformance of developing-nation assets has ended, according to the Goldman Sachs Group Inc. economist who predicted the rise of the biggest emerging markets in 2003. The five trends that spurred outsized gains during the past 10 years -- surging growth in the so-called BRIC nations, higher commodities, improved government finances, slower inflation and lower U.S. bond yields -- are halting and in some cases reversing, Dominic Wilson, the chief markets economist at New York-based Goldman Sachs, wrote in a report dated yesterday. 
  • Emerging Markets Crack as $3.9 Trillion Funds Unwind: Currencies. Investors are pulling money from emerging markets at the fastest pace in two years as slowing economic growth and the prospect of less global stimulus sink stocks, bonds and currencies from India to Brazil. More than $19 billion left funds investing in developing-nation assets in the three weeks to June 12, the most since 2011, according to EPFR Global. Foreign investors dumped an unprecedented $5.6 billion of Brazilian stocks and $3.2 billion of Indian bonds this month, exchange data show. JPMorgan Chase & Co.’s emerging-currency index is down 1.4 percent this quarter, while the rupee and Turkish lira hit record lows and the real reached its weakest level since 2009.
  • Emerging-Market Stocks Fall Most Since 2011 as Currencies Tumble. Emerging-market stocks dropped the most in almost 21 months, currencies weakened and government borrowing costs rose after China’s cash crunch worsened and the Federal Reserve said it may reduce monetary stimulus this year. The MSCI Emerging Markets Index slid 4 percent to 909.04 at 10:04 a.m. in New York, set for the biggest drop since September 2011. Turkey’s (XU100) benchmark stock index lost 5.6 percent, the most among major developing nations, as the lira and India’s rupee hit record lows. BYD Co. (1211) slumped 9.3 percent in Hong Kong, while Brazil’s Ibovespa extended the worst decline among major emerging-market stock benchmarks this year. Yields on South Africa’s benchmark bonds jumped to the highest level in a year.
  • Europe Stocks Sink Most in 18 Months on Stimulus Outlook. European stocks sank the most in more than 18 months after Federal Reserve Chairman Ben S. Bernanke said the central bank may end bond purchases next year if the economy strengthens in line with forecasts. Rio Tinto Group and Renault SA led mining and automobile companies lower as a gauge of Chinese manufacturing fell. Swatch Group AG slid the most in almost 21 months after Swiss watch exports declined. Eurotunnel Group SA tumbled 12 percent after Les Echos reported the European Commission will demand a reduction in tolls to use the Channel Tunnel. The Stoxx Europe 600 Index (SXXP) plunged 3 percent to 283.68 at the close of trading, the biggest retreat since Nov. 21, 2011. The benchmark measure has declined 8.7 percent since May 22, when Bernanke indicated the central bank could pare stimulus measures as the economy grows.
  • Fed Seen Tapering QE to $65 Billion at September Meeting. Federal Reserve Chairman Ben S. Bernanke will cut the Fed’s $85 billion in monthly bond purchases by $20 billion at the Sept. 17-18 policy meeting, according to 44 percent of economists in a Bloomberg survey. The survey of 54 economists followed Bernanke’s press conference yesterday, in which he mapped out a timetable for an end to one of the most aggressive easing strategies in Fed history. His remarks prompted economists to predict a faster reduction in purchases: in a June 4-5 survey, only 27 percent of economists forecast tapering would start in September.
  • U.S. Credit Swaps Surge by Most in Year on Fed Paring Statement. Investor confidence in U.S. corporate credit is plunging the most in more than a year as investors speculate the Federal Reserve is preparing to slow down the pace of its bond purchases. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 5.7 basis points to a mid-price of 91.4 basis points at 11:02 a.m. in New York, after yesterday climbing 3.9 basis points, according to prices compiled by Bloomberg. That’s the biggest two-day jump on a closing basis since the measure rose 8.8 in the period ended May 14, 2012, excluding rolls into new series of the benchmark.
  • Commodities From Gold to Oil Slump on Fed Outlook, China Crunch. Commodities tumbled by the most in six weeks as everything from gold to crude oil and copper dropped on concern that the Federal Reserve may phase out stimulus and as China’s cash crunch worsened. The Standard & Poor’s GSCI Index of 24 raw materials lost as much as 2 percent to 622.91, the biggest intraday loss since May 10, before reaching 625.31 as of 1:41 p.m. in London. Gold for immediate delivery fell below $1,300 an ounce to the lowest in more than 2 1/2 years and silver plunged 7.8 percent. West Texas Intermediate crude dropped 2.3 percent to $96 a barrel.
  • Copper MACD, RSI Measures Signal 9% Drop: Technical Analysis. Copper on the London Metal Exchange will probably fall as much as 9 percent in the next two months, according to technical analysis from TransGraph Consulting Pvt. Metal for delivery in three months may decline to as low as $6,200 a metric ton, analyst Saumendra Satapathy said in an e-mail today. Copper, which entered a bear market in April, has slumped 14 percent to $6,827.75 a ton this year.
Wall Street Journal:
  • Signs of China Weakness Mount. Mounting evidence of weakness in China's economy and increasing stress in its financial system are testing the government's determination to ride out a slowdown without resorting to stimulus measures.
Zero Hedge: 
Business Insider: 
  • Brevan Howard EM Fund Slides 5 Percent In June. The sell off in emerging markets has taken its toll on the Brevan Howard Emerging Market Fund. The world’s largest EM focused fund was not having a great year anyway, and the added volatility in June beat what was left of the $2.6 billion fund. In Tommy Wikes’ report for Reuters, the BH Emerging Markets Strategies Master Fund declined 4.8 percent for this month, taking the year to date performance to an abysmal -11.6 percent, as of June 14.
  • Factories struggle in June, hiring slows: Markit. Manufacturing activity growth slowed slightly in June as the pace of hiring and overseas demand weakened, making the second quarter the weakest for the sector in the last four, a survey showed on Thursday. Financial data firm Markit said its "flash," or preliminary, U.S. Manufacturing Purchasing Managers Index fell to 52.2 in June from 52.3. A reading above 50 indicates expansion. June's 52.2 reading was also the average for the second quarter, behind the 54.9 average in the first three months of the year and the worst showing since the third quarter of 2012. Markit's output index rose to 53.9, a three-month high, from 52.7 in May while the gauge of new orders also rose to its highest level since March, offering some hope. But the pace of hiring slowed to 50.4 from 52.6, reflecting the weakest rate of job creation since January 2010. New export orders contracted for a second straight month, with overall demand from customers abroad at its weakest since October 2012.
The Economist:
Financial Times: 
  • Echoes of Mao in China cash crunch. As China’s credit crunch takes a turn for the worse, the question of why the central bank has permitted market conditions to deteriorate so suddenly and so sharply looms ever larger. Short-term money market rates surged to more than 10 per cent on Thursday, a record high and nearly triple their level just two weeks ago, after the central bank refused to inject extra funds into the strained financial system.
China Daily: 
  • Moody's warns on China's local govt debtLocal government debt poses a key risk for Chinese banks, Moody's said Wednesday, the latest warning amid growing jitters of financial risks in the world's second largest economy. The rating agency said in a report that many local government financing vehicles (LGFVs) have seen their cash flow stagnate or decline, while their debt levels have risen. Among 388 city construction companies Moody's surveyed, only 53 percent of them have sufficient cash to cover estimated debt and interest payments in 2013 without resorting to borrowing more. Meanwhile, the National Audit Office said on June 10 that the debt of 36 local governments had risen 12.9 percent to 3.85 trillion yuan ($627.93 billion) in the two years to the end of 2012. "The direct exposures of Chinese banks to LGFVs remain significant despite the central government's recent efforts to limit the growth of LGFV borrowing," the report said, adding that LGFV exposures accounted for 14 percent of total Chinese bank loans at the end of 2012.

No comments: