Thursday, December 11, 2014

Today's Headlines

  • Ukraine Truce Shudders as PM Warns of Possible ‘Default’. Pro-Russian rebels killed three Ukrainian soldiers, jolting a two-day-old truce in the nation’s east as Prime Minister Arseniy Yatsenyuk called for an international donor conference to avoid a possible “default.” The casualties follow Ukraine’s Dec. 9 decision to halt hostilities in an attempt to start new talks with insurgents its it’s fighting in the Donetsk and Luhansk regions. Ukraine needs to expand a $17 billion international bailout program that’s keeping its economy afloat after bonds fell to a record, Economy Minister Aivaras Abromavicius said yesterday, adding it’s too early to say how much more aid Ukraine requires.
  • Ruble Touches Record Low as Interest-Rate Rise Seen Inadequate. The ruble touched a record low and government debt rallied as the central bank steered clear of an aggressive rate increase to avoid driving the economy into recession. The Russian currency lost as much as 1.4 percent to 55.5955 per dollar before trading 1.3 percent weaker at 5:13 p.m. in Moscow. The Micex Index (INDEXCF) of equities slid 2.2 percent, while the dollar-denominated RTS Index dropped 3.5 percent. Yields on 10-year government bonds, known as OFZs, dropped 29 basis points to 12.42 percent.
  • Greek Stock Rout Means ASE Index Is 2014 Worst After Russia. Anxiety that voters will kick out leaders committed to Greece’s bailout wreaked havoc on markets for a third day, extending losses in stocks to 20 percent and making them this year’s worst performers behind Russia. The ASE Index (ASE) dropped 7.4 percent to 827.98 today, its lowest level since July 2013. That’s brought its loss for the year to 29 percent. Only Russia’s RTS Index did worse, with a 43 percent slump. The rout also spread to Greek bonds, with rates on three- and five-year notes jumping to the highest level since the nation restructured its debt in 2012. 
  • Blankfein Says ‘I Don’t Know’ If China Manipulates Economic Data. Lloyd Blankfein said he isn’t sure he can trust China’s official economic data. “I don’t know; how do I know?” the Goldman Sachs Group Inc. chief executive officer said today when asked at a DealBook conference in New York if he thinks China manipulates government statistics. “I’m not taking it that they are.” 
  • Gulf Shares Plunge After OPEC as Dubai Declines Most Since 2008. Dubai stocks dropped the most since October 2008 and equity markets across the oil-producing Gulf Cooperation Council tumbled after OPEC reduced its estimate for crude demand in 2015. The DFM General Index (DFMGI) slumped 7.4 percent to the weakest since Jan. 15 at the close. In neighboring Abu Dhabi, home to almost 6 percent of the world’s proven oil reserves, the ADX General Index fell 4.7 percent, the most since November 2009. Oman’s MSM 30 Index lost 4.2 percent, becoming the third GCC gauge to enter a bear market in two weeks. Qatar’s QE Index slid 4.3 percent and Saudi Arabia’s Tadawul All Share Index retreated 0.2 percent.
  • European Stocks Are Little Changed as Greece’s ASE Index Slides. European stocks were little changed, after swinging between gains and losses, as U.S. data showed the world’s biggest economy is strengthening. Greek shares slid a third day, sending the ASE Index down 20 percent this week. The Stoxx Europe 600 Index lost less than 0.1 percent to 339.31 at the close of trading, having fallen as much as 0.8 percent and gained as much as 0.3 percent.
  • WTI Oil Drops Below $60 After Saudis Question Need to Cut. WTI for January delivery dropped as much as $1.09 to $59.85 a barrel at 2:19 p.m. on the New York Mercantile Exchange. Total volume was 14 percent above the 100-day average for the time of day. The U.S. benchmark is down 38 percent this year.
  • Fed Bubble Bursts in $550 Billion of Energy Debt: Credit Markets. The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt. Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year. “Anything that becomes a mania -- it ends badly,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management. “And this is a mania.” 
  • Stock Traders Ignoring the Message From Junk Bond Traders. Perhaps 2014 will go down in history as the year that junk bonds sent a warning signal as oil plummeted and stocks just kept rallying. Prices on high-yield bonds have declined 2.4 percent this month and 5.7 percent since the end of August, even as U.S. equities have climbed to new highs. The dollar-denominated debt is now yielding the most relative to a comparable measure on the Standard & Poor’s 500 index since 2011. The divergence may signal junk-bond traders are picking up on a fundamental problem of overvalued energy companies in frothy markets fueled by six years of record Federal Reserve stimulus -- and that stock investors should pay attention. While falling oil prices mean consumers have extra cash to deploy elsewhere, boosting the economy, the price plunge may also crimp the capital spending by energy companies that has been a driver of growth in recent years.
  • Managing House Price Booms in Emerging Markets. Is this steady increase in housing prices a cause of worry? History teaches us to be wary when house price surges are accompanied by booms in the availability of credit. Such ‘twin booms’ in house prices and credit are more likely to end in busts, and the recovery from those busts is slower and more costly in terms of lost income.

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