Tuesday, January 27, 2015

Today's Headlines

  • EU Renews Push for Russian Sanctions; Putin Blames Ukraine. European Union leaders threatened to tighten sanctions on Russia as soon as Thursday over its support for pro-Kremlin rebels in eastern Ukraine, who are engaged in the worst clashes with government troops since a September truce. The leaders condemned the killing of dozens of civilians in “indiscriminate shelling” of the Ukrainian port city of Mariupol and said EU foreign ministers meeting on Jan. 29 will “consider any appropriate action, in particular on further restrictive measures,” EU President Donald Tusk said in an e-mailed statement in Brussels. 
  • Putin Needles Ukraine as He Shuns Wartime Allies at Auschwitz. As European leaders and U.S. representatives gathered in Poland to mark the 70th anniversary of the liberation of the Auschwitz concentration camp by the Soviet Red Army, Russian President Vladimir Putin skipped the ceremony to visit the Jewish Museum in Moscow. “The Russian people bore the main burden of the fight against Nazism on their shoulders,” Putin said Tuesday in a speech at the Jewish Museum and Center of Tolerance in Moscow that included an historical dig at Ukraine. 
  • Russian Corporate Bonds Fall After S&P Cuts Nation to Junk. Russian companies led declines in European corporate bonds after Standard & Poor’s cut the nation’s credit rating to junk for the first time in a decade. Bonds sold by OAO Russian Railways and OAO Gazprom were the worst performing among 1,925 investment-grade securities in Bank of America Merrill Lynch’s Euro Corporate Index. The state-owned rail operator’s 1 billion euros ($1.1 billion) of 3.3744 percent bonds due May 2021 fell 2.1 cents to 70.8 cents while the natural gas provider’s 1 billion euros of 3.389 percent bonds due March 2020 dropped 1.7 cents to 84.2 cents.
  • Tsipras Names Cabinet Heading for Clash Over Bailout and Russia. Greek Prime Minister Alexis Tsipras unveiled a cabinet that threatens to maximize friction with other European Union governments on issues ranging from the country’s bailout agreement to sanctions on Russia. Yanis Varoufakis, a 53-year-old economics professor, will handle negotiations with the euro region and International Monetary Fund over the country’s 240 billion-euro ($273 billion) bailout, after being appointed finance minister. He has called it a “trap” that was destructive for Greece. Foreign Minister Nikos Kotzias is due in Brussels on Thursday to discuss possible additional sanctions on Russia over the conflict in Ukraine. Before the cabinet even meets for the first time tomorrow, the Greek government said that it disagreed with an EU statement in which President Donald Tusk raised the prospect of “further restrictive measures” on Russia.
  • China Private Bond Faces Stress as LGFV Says No Pledge. China’s private bond market is facing increased scrutiny after a local-government financing vehicle in the eastern province of Jiangsu said it has no obligation to guarantee notes sold by a manufacturer. Dongfei Mazuoli Textile Machinery Co., based in the city of Dongtai, can’t pay principal and interest on the securities as of Jan. 25, according to a report today on Tencent Holdings Ltd.’s QQ.com. The LGFV had signed a contract with the manufacturer in 2012 to guarantee its bond credit ratings, but doesn’t guarantee the note payments themselves, according to a statement from the financing unit dated Jan. 26. 
  • What Clampdown? China Margin Traders Boost Debt to Record. It didn’t take long for the flood of borrowed money to come pouring back into Chinese stocks. After a two-day decline spurred by regulatory efforts to curb margin lending on Jan. 16, the value of shares purchased with borrowed cash has rebounded to an all-time high. The outstanding balance of margin debt on the Shanghai Stock Exchange climbed to a record 771.4 billion yuan ($123 billion) yesterday, up from about 751 billion yuan on Jan. 20. China’s suspension of new margin accounts at three of the nation’s biggest brokerages and notice to ban loans to traders with less than 500,000 yuan has done little to damp the enthusiasm of leveraged investors.
  • Greek Bonds, Stocks Drop as Leaders to Spar on Writedown. Greece’s bonds and stocks plunged for a second day as the nation’s newly named cabinet looked set to clash with euro-area finance ministers over its funding needs. While finance chiefs from the 19-nation euro area on Monday signaled their willingness to do a deal with Greek Prime Minister Alexis Tsipras, it’s on the condition he drops his demand for a debt writedown. Representing the Greek side in negotiations with their international creditors will be finance minister Yanis Varoufakis, who has argued that Greece should default while staying a member of the euro area. Greek three-year yields rose 198 basis points, or 1.98 percentage point, to 14.03 percent at 5 p.m. London time, after jumping 197 basis points the previous day. The 3.375 percent notes due in July 2017 fell 3.38, or 33.80 euros per 1,000-euro ($1,132) face amount, to 78.975. The nation’s 10-year yield increased 38 basis points to 9.48 percent
  • Boko Haram Attacks Leave at Least 30 Dead in Nigeria’s Northeast. Boko Haram Islamists in Nigeria attacked two northeastern towns leaving at least 30 people dead and many injured, a lawmaker said. “They attacked our people in Madagali, Michika and surrounding villages” yesterday, Adamu Kamale, a member of the Adamawa state legislature representing the area, said by phone today from Yola, the state capital. “They destroyed houses and shops and killed a lot of people.” 
  • Islamic State to Kill Hostages If Jordan Prisoner Not Freed. A Japanese war journalist held by Islamic State said in a video released Tuesday that he and a Jordanian hostage will be executed if Jordan doesn’t release a convicted jihadist within 24 hours, according to SITE Intelligence Group
  • Why Fink Says Swiss Avoiding Recession May Be Bad News for Euro. Larry Fink says he’s worried about a recession in Switzerland. That there won’t be one. If the export-dependent Swiss avoid a slump after a surge in the franc it would make the idea of surviving an overvalued currency -- and leaving the euro -- a little more conceivable in Germany, according to Fink, the co-founder and chief executive officer of BlackRock Inc. Think Gerexit.
  • European Stocks Fall as Siemens Disappoints, Greek Banks Slide. European stocks declined from a seven-year high, snapping their longest winning streak since April, as Siemens AG and Royal Philips NV posted disappointing earnings, and Greek stocks tumbled. Siemens slid 3 percent, contributing the most to a drop in a gauge of industrial companies, after Europe’s largest engineering firm reported a decline in first-quarter profit. Philips lost 5.9 percent after saying it is behind on its 2016 financial targets. Greek banks dragged a gauge of lenders down. The Stoxx Europe 600 Index slipped 1 percent to 368.7 at the close of trading, after earlier falling as much as 1.4 percent.
  • Stronger Dollar Punishes U.S. Earnings From P&G(PG) to DuPont(DD). The dollar’s surge is reducing earnings at American companies from Procter & Gamble Co. (PG) to Pfizer Inc. (PFE) and DuPont Co. that make a large portion of their revenue abroad. P&G, the world’s biggest consumer-products maker, today reported profit that missed analysts’ estimates in the quarter ended Dec. 31 after what Chief Executive Officer A.G. Lafley called “unprecedented” foreign-exchange rate fluctuations reduced sales by 5 percentage points. DuPont and drugmakers Pfizer and Bristol-Myers Squibb Co. (BMY) all posted annual forecasts that trailed predictions, in part because of the dollar.
  • Caterpillar(CAT) Forecast Disappoints as Oil Hits Orders. Caterpillar Inc. (CAT), the world’s largest mining and construction equipment maker, forecast 2015 sales and earnings that trailed analysts’ estimates as plunging oil prices signal lower demand from energy companies
  • Oil Drop Hits Private Equity as Carlyle Seen Leading Decline. Private equity firms, which made record profits in the past two years, are preparing to share the cost of their forays into the U.S. oil business. Combined earnings per share at the four largest firms, which start reporting fourth-quarter results this week, probably fell 58 percent from a year ago, according to 13 analysts surveyed by Bloomberg. Carlyle Group LP (CG) is expected to lead the decline with a 73 percent drop, driven by its energy holdings, and Apollo Global Management LLC (APO) is expected to report a 63 percent drop in earnings. Blackstone Group LP (BX), the most diversified of the buyout firms, should be least affected, with an estimated 32 percent slide. 
  • Copper Falls Near 5-Year Low as China Seen Slowing Down. Copper futures approached a five-year low as industrial profit last year posted the smallest gain in data that started in 2000 in China (CNPRTTLY), the world’s largest metal consumer. Earnings in 2014 increased 3.3 percent, Chinese government data showed. In December, profit contracted 8 percent, falling for the third straight month. Copper prices declined as orders for business equipment dropped for the fourth consecutive month in the U.S., the second-biggest user. On the Comex in New York, copper futures for March delivery fell 3.2 percent to settle at $2.4625 a pound at 1:13 p.m. Earlier, the price touched $2.446. On Monday, the metal dropped to $2.419, the lowest for a most-active contract since 2009. Copper is piling up in London Metal Exchange warehouses with inventories climbing for 11 straight sessions, the longest run since April 2013. They have increased to 238,225 metric tons, the highest since April.
David Stockman's Contra Corner:
  • Exclusive - Apple(AAPL) supplier Foxconn to shrink workforce as sales growth stalls. Taiwan's Foxconn Technology Group, the world's largest contract electronics manufacturer, will cut its massive workforce, the company told Reuters, as the Apple Inc supplier faces declining revenue growth and rising wages in China. Under its flagship unit Hon Hai Precision Industry Co Ltd, the group currently employs about 1.3 million people during peak production times, making it one of the largest private employers in the world. Special assistant to the chairman and group spokesman Louis Woo did not specify a timeframe or target for the reduction, but noted that labour costs had more than doubled since 2010, when the company faced intense media scrutiny following a spate of worker suicides. Revenue growth at the conglomerate tumbled to 1.3 percent in 2013 and only partially recovered to 6.5 percent last year after a long string of double-digit increases from 2003 to 2012. That decade saw the firm ride an explosion of popularity in PCs, smartphones and tablets, largely driven by its main client Apple, but now it is feeling the effects of falling growth and prices in the gadget markets it supplies, a trend that is expected to continue. Growth in smartphone sales will halve this year from 26 percent in 2014, according to researcher IDC, while PC sales will contract by 3 percent. Similarly, the average smartphone will sell for 19 percent less in 2018 than last year's $297. "Even if technology is improving, the price will still come down," Woo said. "We've come to accept that, our customers have come to accept that." Automation will be key to keeping labour costs under control in the long-term, Woo said, as the company pushes to have robotic arms complete mundane tasks currently done by workers.
  • Sadly for all our futures, cheap money is here to stay. Just get used to it. Central banks have been struggling to normalise interest rate policy. Increasingly, there is reason to doubt they ever will be able to. In the meantime debtors are accommodated at the detriment of creditors, borrowers are favoured at the expense of savers, and the holders of assets are further boosted to the growing exclusion of those who have none. It’s ever harder to believe in a happy ending.
la Repubblica:
  • IMF Lagarde Rules Out Greek Debt Cancellation. IMF will restart dialogue with Greece to implement planned structural reforms, IMF Managing Director Christine Lagarde says in an interview. Europe has internal rules that must be respected.

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