Monday, November 03, 2014

Today's Headlines

  • Russia Threatened With More Sanctions After Backing Vote. Russia backed yesterday’s rebel-held votes in eastern Ukraine, prompting officials from Germany to warn the government in Moscow of stronger sanctions. The Russian Foreign Ministry said today it “respected” the ballot, which provided a “mandate to the elected representatives to solve practical tasks and restore normal life in the regions.” Germany denounced the vote and the Ukrainian authorities in Kiev said it poses a threat to the peace process. Russia is on a collision course with the U.S. and its allies over the one-day ballot held by separatists in the regions of Donetsk and Luhansk a week after they boycotted national parliamentary elections.
  • Ruble Weakens as Ukraine Rebel Elections Spur Sanctions Concern. The ruble weakened in thin holiday trading as elections organized by pro-Russian rebels in eastern Ukraine threatened to undermine a fragile peace in the region. The currency slid 0.8 percent to 48.3501 versus the central bank’s dollar-euro basket by 6:00 p.m. in Moscow, when the central bank stops market operations, after dropping 7.7 percent last month. Volume in dollar-ruble trade via the Moscow Exchange dropped 96 percent from Oct. 31 as Russia has public holidays today and tomorrow. 
  • U.S. Crude Oil Futures Decline to Lowest Since June 2012. U.S. crude oil futures dropped as much as 1.7 percent in New York trading, while Brent retreated 0.8 percent. West Texas Intermediate slid as much as $1.40 to $79.13, the lowest intraday price since June 2012, as of 2:26 p.m. in New York. Brent crude futures fell 71 cents to $85.15. Earlier, Saudi Arabian Oil Co., the world’s largest crude exporter, increased the cost of oil sales to Asia and Europe and reduced them for the U.S.
  • Italian Bonds Drop Before ECB Meet; Cannata Doubts QE Usefulness. Italian government bonds dropped for the first time in five days amid speculation the European Central Bank will refrain from adding to its stimulus program at a policy meeting this week. Spanish securities also declined, with the 10-year yield rising the most since Oct. 20. The ECB, which last month implemented a new round of stimulus to ward off deflation by buying covered bonds, is scheduled to meet on Nov. 6. The benefits of the central bank extending its purchases to sovereign bonds is unclear, Italian debt chief Maria Cannata said in Brussels today.
  • Vicious Circle of Bad Loans Ensnaring Italian Companies. Italian borrowers are becoming trapped in a vicious circle. As bank loans turn sour at the rate of about 2 billion euros ($2.5 billion) a month, corporate lending is dwindling to the least in more than a decade. Lenders are sitting on a total 174 billion euros of non-performing loans, an increase of 62 percent from three years ago, according to the latest data from Bank of Italy. New corporate lending dropped in August to 21 billion euros, the lowest since at least 2003, the data show.
  • Euro Manufacturing Remains Near Stagnation as Italy Contracts. European manufacturing barely grew last month as factory output in France and Italy shrank. A final reading of a Purchasing Managers’ Index for the industry stood at 50.6 in October, London-based Markit Economics said today. While that’s up from a 14-month low of 50.3 in September, it’s below a 50.7 estimate released on Oct. 23 and barely above the mark of 50 signaling expansion.
  • European Stocks Drop as Holcim, PostNL Fall on Earnings. European stocks fell, after this year’s biggest weekly rally, as investors weighed disappointing earnings from PostNL NV and Holcim Ltd. The Stoxx Europe 600 Index slid 0.8 percent to 334.25 at the close of trading as Italian utilities declined.
  • Record Short VIX Notes Is Sounding Alarm to Deutsche Bank. Securities that usually gain value as the U.S. stock market gets calmer have never been more popular with investors. That concerns strategists at Deutsche Bank AG. A combination of investor inflows and declining equity volatility has pushed the market value of the VelocityShares Daily Inverse VIX Short-Term ETN to about $1.2 billion and sent the ProShares Short VIX Short-Term Futures ETF (SVXY) to $564 million, data compiled by Bloomberg show. Both reached records last week. 
  • Those V-Shaped Stock Charts Are Still Being Dissected. The jagged V-shaped chart of the Standard & Poor’s 500 Index and many individual stocks in the past six weeks caused Carter Worth to search for the right word to describe the whiplash. In Worth’s opinion, the initial selling “was the thoughtful, wise act,” and the rebound was the impetuous part. The recent volatility “is a harbinger of things to come,” he warned. “Sharp breaks in trend followed by sharp rebounds is not healthy,” he wrote. “Large and important institutional players were and continue to act impetuously. This is not the kind of behavior indicative of conviction and confidence and staying power. We are sellers of the market here on this rebound right back to the scene of the crime.
  • New Junk-Bond Derivatives Are Hot as Traders Get Creative. When it gets tough to maneuver in the junk-bond market, traders can either give up or get creative. Plenty of them seem to be opting for creativity this time around. There’s been a surge in demand for a relatively new index of derivatives that aims to replicate the risk and return of high-yield bonds. As volatility soars to the most in more than a year, trading in a total-return swaps index reached a record $4 billion in September from almost nothing in May, according to data compiled by Morgan Stanley. 
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