Thursday, December 26, 2013

Today's Headlines

  • Xi Reply to Abe Shrine Visit Looms as Test for China-Japan Ties. Chinese President Xi Jinping’s reaction to Japanese Prime Minister Shinzo Abe’s visit to a shrine that honors wartime leaders will determine whether Asia’s top two economies come closer to a hostile incident. Xi’s options after Abe’s appearance yesterday at Yasukuni shrine -- the first by a sitting prime minister since 2006 -- range from sticking with verbal condemnation to unleashing public anti-Japanese protests to stepping up naval or air challenges against Japan’s forces in the East China Sea.
  • Japan's carmakers brace for China backlash from shrine visit. Japanese automakers are bracing for a potential consumer backlash should tensions with China escalate after Prime Minister Shinzo Abe visited a shrine memorializing those killed by war on Chairman Mao Zedong's birthday. Nissan Motor Co. said it was "closely monitoring" developments in Japan-China ties after Abe's visit. The appearance at Tokyo's Yasukuni Shrine, which honors the war dead including 14 World War II leaders convicted as Class A war criminals, drew a condemnation from China.
  • Emerging Stocks Drop as China and Turkey Slump; Baht Weakens. Turkey’s gauge extended a rout after Prime Minister Recep Tayyip Erdogan overhauled his cabinet amid a corruption scandal. The Thai baht weakened for an eighth day. Foreign-currency denominated shares of Chongqing Changan Automobile Co. (200625), the Chinese partner of Mazda Motor Corp. (7261), lost 3.2 percent in Shenzhen. Kasikornbank Pcl (KBANK) decreased 3.6 percent in Bangkok. The Borsa Istanbul National 100 Index slipped 0.6 percent, set for the lowest close since August, after Erdogan replaced 10 ministers in his cabinet. The baht depreciated to the weakest level since March 2010. The Shanghai Composite Index (SHCOMP) dropped 1.6 percent, falling to the lowest level since Aug. 23. Chongqing Changan Automobile fell the most in almost two weeks. Automakers are bracing for a potential consumer backlash should tensions with China escalate after Japan’s Prime Minister Shinzo Abe visited a shrine memorializing war-dead on Chairman Mao Zedong’s birthday. 
  • Rebar Drops in Shanghai as Suppliers Cut Prices on Weaker Demand. Steel reinforcement-bar futures fell to the lowest level in more than a month as inventory climbed amid weakening demand while the nation’s second cash crunch this year reduced investment in the commodity. Rebar for May delivery on the Shanghai Futures Exchange lost as much as 0.6 percent to 3,583 yuan ($590) a metric ton, the lowest since Nov. 18. It traded little changed at 3,605 yuan at 10:46 a.m. local time. 
  • Gasoline Futures Jump to Three-Month High on Refinery Shutdowns. Gasoline for January delivery rose 2.98 cents, or 1.1 percent, to $2.844 a gallon at 12:54 p.m. on the New York Mercantile Exchange after reaching $2.8463, the highest intraday price since Sept. 9. Trading volume was 47 percent below the 100-day average. The futures have climbed 6 percent this month and 1 percent this year.
  • U.S. bond downgrades escalate as leverage climbs. Credit quality for U.S. companies is showing signs of weakening as issuers from Verizon Communications Inc. to Apple Inc. borrow unprecedented amounts of money to expand and reward shareholders. A total of 223 companies had their bond ratings cut by Moody’s Investors Service in the six months ended November, compared with 172 increases, the highest proportion of downgrades since April. Issuers took advantage of borrowing costs that averaged a record-low 3.83% this year to sell an unprecedented amount of bonds, with 15% of offerings funding shareholder payouts, the most in five years. Companies in the U.S. sold US$1.5-trillion of bonds through Dec. 24, with the highest percentage of proceeds used to fund shareholder-friendly transactions since at least 2008, according to data compiled by Moody’s and Bloomberg. About 4% of bond offerings in 2008 were used to reward shareholders, Moody’s data show. Potential downgrades exceeded those of upgrades by Standard & Poor’s on Nov. 29 by 222 to 188, according to a report by S&P analysts led by Diane Vazza, the New York-based head of global fixed-income research.
  • Amazon(AMZN) Refunds Shipping After UPS Can’t Deliver by Christmas. Inc., the largest online retailer, offered customers $20 gift cards and refunds on shipping charges after an avalanche of orders caused United Parcel Service Inc. to miss delivery of some packages by Christmas. Amazon cited failures in UPS’s transportation network in messages to customers, saying its own fulfillment centers processed customers’ orders in time for holiday delivery.
Wall Street Journal: 
  • Abe Visit to Controversial Japanese Shrine Draws Rare U.S. Criticism. Visit to Yasukuni Raises Concern Premier Shifting Focus From Economy to Nationalistic Goals. Japanese Prime Minister Shinzo Abe's surprise visit to a shrine linked to the country's militarist past threatens to damage ties with the U.S. and has raised concerns that after a year in office, he may be shifting his focus to a nationalist agenda at the expense of his program to revitalize the economy.
  • Foreign Investors Face Hurdles in China's Bond Market. High Yields Lure Overseas Investors, but Obstacles Stand in the Way. China's cash crunch is leading to a selloff in onshore bonds, but the resultant high yields in the nation's $4 trillion bond market are drawing in foreign investors in droves. The problem for foreign investors: At a time when Chinese banks, the main buyers of onshore bonds, are selling, their capacity to pile in and buy is limited by government quotas.
  • What to Do When ObamaCare Unravels. Health insurance should be individual, portable across jobs, states and providers, and lifelong and renewable. The unraveling of the Affordable Care Act presents a historic opportunity for change. Its proponents call it "settled law," but as Prohibition taught us, not even a constitutional amendment is settled law—if it is dysfunctional enough, and if Americans can see a clear alternative.
  • Twitter’s(TWTR) Ballooning Market Cap. The stock has surged 75% this month and is up 180% since the company priced its $26 initial public offering in November. Twitter now sports a $38.1 billion market capitalization, according to FactSet. If Twitter were in the S&P 500, it would be among the top 20% of biggest companies based on market value. By comparison, retail giant Target Corp. has a $39 billion market cap, Yahoo Inc. has a $41.1 billion market value and Time Warner Cable has a market cap of $37.6 billion. The rally has confounded investors and analysts alike, who question whether the unprofitable company warrants such a high valuation.
  • Big tax surprise looming for high earners. (video) According to Joe Perry, a partner overseeing tax and business services at Marcum, about 1,200 of his clients earning more than $400,000 will see their 2013 tax bills grow by an average of 7 percent compared to 2012. The changes amounted to a total of $250 million more in taxes this year, he told CNBC on Thursday.
  • Depreciation hits electric cars hard. Plug-in electric cars may be cutting-edge technology, but an analysis suggests that most will depreciate more dramatically over five years than their conventional counterparts.
  • What Could Go Wrong Here? (graph) US investors have turned the euphoria dial to 11 this week as the percent bullish is the highest since the peak in Fall 2007 and bears are at their lowest percentage since Spring 1987. Thus, the Bull-bear spread (based on AAII's survey) has never been wider.
Business Insider:
Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.

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  • China's Ambassador Calls Abe Shrine Visit Major Obstacle. Japanese Prime Minister Shinzo Abe's visit to the Yasukuni war shrine creates a "major obstacle" in relations with China, citing Ambassador Cheng Yonghua. Japan must take responsibility for fallout, Cheng said.

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