- Junk Debt’s Escalating Risk Enticing Money Managers: Euro Credit. Europe’s high-yield bond market will get riskier next year, with some of the world’s biggest money managers predicting the lowest-rated and most-indebted companies will escalate sales to take advantage of cheap borrowing. Investors earned an average 9.5 percent buying a record 71 billion euros ($98 billion) of junk bonds this year, according to data compiled by Bank of America Corp. and Bloomberg. The average yield investors demand to hold speculative-grade debt dropped 69 basis points in the period to 5 percent, approaching a record low, the data show. “Credit quality is weakening,” said Michael Phelps, London-based head of European credit investments at BlackRock Inc. (BLK), the world’s biggest money manager with $4.1 trillion in assets, including $31 billion in high-yield. “A lot of supply is coming from first-time issuers and that’s creating attractive opportunities.” Money managers are taking on more risk because corporate default rates are approaching historic lows and the European Central Bank has pledged to suppress interest rates for an “extended period of time.”
- Era of Lucrative Debt Team Fades as Credit Suisse Sees Exits. Thirteen years after Credit Suisse Group AG crowned itself Wall Street’s new junk-bond king by buying Donaldson Lufkin & Jenrette Inc., the last vestiges of its reign in the most lucrative credit business are being squeezed out by post-crisis banking regulations.
- Libor Traders Said to Face U.K. Fines as Soon as Next Month. U.K. regulators may issue the first penalties against individuals in their probe of Libor manipulation as soon as next month, three people with knowledge of the case said.
- European Stocks Fall as Investors Consider U.S. Budget. European stocks fell for a second day as investors weighed an accord between U.S. lawmakers to limit automatic spending reductions and avoid another government shutdown, as well as a possible cut in Federal Reserve stimulus. Royal Bank of Scotland Group Plc lost 2.9 percent as Nathan Bostock said he will quit as chief financial officer. Mediolanum (MED) SpA slipped 6.9 percent as its largest investor sold a stake. European Aeronautic, Defence & Space Co. surged the most in a year after reiterating plans to increase dividend payments. BAE Systems Plc added 2.6 percent as the U.S. budget deal provided $31.5 billion of relief from forced military spending cuts. The Stoxx Europe 600 Index fell 0.5 percent to 313.3 at the close of trading.
- Treasuries Fall for First Time in Four Days Amid Bets on Taper. Treasuries ended a three-day advance amid speculation a U.S. budget agreement will support the economy and make it easier for the Federal Reserve to start reducing bond purchases. U.S. 10-year notes headed for the worst annual performance in four years as the government sold $21 billion of them to lower-than-average demand in its last auction of the securities for 2013. Budget negotiators unveiled an agreement yesterday to ease automatic spending cuts by about $63 billion over two years and cut the deficit by $23 billion, ending a three-year cycle of fiscal standoffs. The Fed meets Dec. 17-18.
- Yen Strengthens From 6-Month Low as Stock Decline Fuels Demand. “There are a lot of risk-off plays that are causing the yen to appreciate,” Ravi Bharadwaj, a Boston-based senior market analyst at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “The empty Japanese economic calendar today has also added to the effect of the stock market on the yen.” The yen rose 0.3 percent to 102.56 per dollar at 1:35 p.m. New York time.
- Crude Falls From Six-Week High as U.S. Fuel Supply Rises. WTI for January delivery slipped $1.21, or 1.2 percent, to $97.30 a barrel at 2:07 p.m. on the New York Mercantile Exchange. It traded at $97.82 before the report and rebounded to $98.34 immediately after. The contract settled at $98.51 yesterday, the highest close since Oct. 28. The volume of all futures traded was 15 percent above the 100-day average.
- Japan Seeks to Strengthen Arms Industry Amid China Tensions. Japan will seek to make its arms industry competitive globally and beef up defense of disputed islands that have fueled tensions with China, according to drafts of a new defense plan and its first National Security Strategy.
- One-Hundred-Year Bond Plummet Shows Taper Concern: Mexico Credit. Mexico’s 100-year bonds are on the verge of losing all their gains over the past two years as speculation the Federal Reserve will curb stimulus overshadows the nation’s biggest economic reforms in almost two decades. The $2.7 billion of dollar-denominated debt due in 2110 has tumbled 29.1 cents to 91.24 cents on the dollar this year, after climbing 32.3 cents from 2010 to 2012, according to data compiled by Bloomberg. The notes have lost 19.4 percent in 2013, exceeding the 12.7 percent average drop for emerging-market sovereign bonds due in 10 years or more, according to data compiled by Bloomberg.
- Fracking Boom Pushes U.S. Oil Output to 25-Year High. U.S. crude production rose to the highest level in a quarter-century as a shale drilling boom in states such as Texas and North Dakota cut the need for foreign oil and pushed the country closer to energy independence. The U.S. pumped 8.075 million barrels a day in the week ended Dec. 6, a gain of 0.8 percent, or 64,000 barrels a day, the Energy Information Administration said today. It’s the most since October 1988.
- Tobin's Q Sends Caution Signal on U.S. Stocks: Chart of the Day. Share prices may be running out of room to rise in the U.S. because the market value of companies is greater than the replacement cost of their assets, according to Pavilion Global Markets Ltd. Tobin's Q ended the third quarter at .98, according to data compiled by the Fed and released 2 days ago. The ratio is based on market and asset values for non-financial companies. Readings of more than 1 show stocks are overvalued. The fourth-quarter performance of the S&P 500 points to a ratio of 1.06, Pierre Lapointe, head of global strategy and research at Pavilion, and two colleagues wrote. The ratio has been above 1.0 during only one other period since the 1930s, which was during the 1990's tech stock bubble.
- Joy(JOY) Profit Forecast Misses Estimates Amid Mining Slump. Joy Global Inc. (JOY), the world’s largest maker of underground mining equipment, forecast lower-than-expected earnings for fiscal 2014 as customers continue to restrict spending after a decline in commodity prices. Profit excluding one-time items will be $3 to $3.50 a share in the coming year through October, the Milwaukee-based company said today in a statement. The average of 22 analysts’ estimates compiled by Bloomberg is for $3.67. Joy fell 4.4 percent to $53.75 at 8:07 a.m. before the start of regular trading in New York.
- Gender Pay Gap Is Narrowest on Record for New Workers, Pew Says. American women starting their careers today can expect to be paid almost as much as their male peers, though they fall behind as they have children, according to a Pew Research Center study. Women between the ages of 25 and 34 were paid 93 percent as much as men in 2012, up from 67 percent in 1980 and the narrowest gap on record, according to the research group. “Today’s young women are the first in modern history to start their work lives at near parity with men,” according to the report released today.
- J.P. Morgan's(JPM) Dimon Says Bank to Spend Double on Controls Next Year. Bank Will Spend Up to $2 Billion in 2014 as It Operates Under Heightened Regulator Scrutiny. J.P. Morgan Chase JPM -0.97% & Co. Chief Executive and Chairman James Dimon expects to double the amount the largest U.S. bank spends on controls in 2014 as it operates under heightened scrutiny from regulators.
- U.S. Suspends Some Aid to Syrian Rebels After Islamists Gain Ground. Free Syrian Army Rebels Cede Warehouses to New Islamic Front Coalition. The U.S. and Britain suspended nonlethal aid to moderate rebels in northern Syria after Islamist fighters took over their warehouses, the latest sign that the Western-backed opposition is weakening while religious opponents of the regime gain strength. The new Islamic Front alliance took over the aid warehouses in the town of Atmeh near the Bab al-Hawa border crossing with Turkey on Saturday, U.S. officials, Syrians who coordinate aid deliveries and activists in the area said.
- Ultra-bear Albert Edwards has a question for everyone slamming his recession call. If the economy is accelerating, “how come Thomson Reuters has just reported the fastest pace of U.S. earnings downgrades on record?”
- S&P downgrades US growth forecast. "We've lowered our forecast for U.S. GDP growth in light of the additional sequester spending cuts in 2014 as well as the potential for another political standoff in Washington after the October government shutdown," S&P said on Monday, ahead of the bipartisan budget deal struck in Washington.
- The rich do not pay the most taxes, they pay ALL the taxes. Buried inside a Congressional Budget Office report this week was this nugget: when it comes to individual income taxes, the top 40 percent of wage earners in America pay 106 percent of the taxes. The bottom 40 percent...pay negative 9 percent.
- Peak "Greater Fools"? (graph)
efinancialcareers:
- Five things every trader needs to know about the new Volcker Rule. If you work as a trader in banking, this is what you need to know.
- Google's(GOOG)) Moto G Represents The Most Evident Example Of Induced Margin Compression Yet! Bernstein analysts estimate that Google is selling the phone at an operating profit margin of less than 5%. That compares with margins of 20% or more for Samsung and above 30% for Apple(AAPL). Read the full story here.
Reuters:
- S&P Sees India Rating Under Pressure on Hung Parliament. India's sovereign rating may come under pressure if general electionsl ead to a hung parliament or with a govt unable to push through reforms, citing S&P's credit analyst Terry Chan.
- U.S. mutual funds hit investors with big capital gains. Capital gains pain has arrived for U.S. mutual fund investors. U.S. mutual funds are disclosing some whopper capital gains distributions, anywhere from 6 percent to 60 percent of net asset value, underscoring stock market success and a potential year-end tax headache for investors. The year-end distributions are among the largest seen since the start of the financial crisis in 2008, according to U.S. regulatory filings.
- ECB's Asmussen Says EU Banking Compromise Doesn't Go Far Enough. ECB Executive Board member Joerg Asmussen says in an interview with Handelsblatt that he hopes to see a breakthrough next week. Asmussen says compromise is too complex.
- China Local-Govt Debt 18t Yuan as of End-June. Audit results show China government debt was about 30t yuan as of the end of 1H, 12t yuan of which was central govt debt, citing an official from the fiscal system. The country's local government debt rose 68% in 2 1/2 years if compared with 10.7t yuan debt found at the end of 2010, according to the report.
- Israeli officials: U.S. admits Iran will get $20b from sanctions relief. U.S. officials admit to Israeli colleagues that they greatly underestimated the economic benefits Tehran would reap from Geneva accord.
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