Evening Headlines
Bloomberg:
- China Capital Outflows Hit Record in August on Yuan Weakness. Money is leaving China faster than ever, according to a Bloomberg gauge tracking capital flows. An estimated $141.66 billion left China in August, exceeding the previous record of $124.62 billion in July, data compiled by Bloomberg show. The gauge of so-called “hot money” is an estimate of the sum of foreign exchange purchases by banks and the change in foreign exchanges deposits to measure flows into the country. The monthly trade and direct investment balances are netted out for an estimate of portfolio flows. An exporter choosing to keep foreign earnings offshore would show as a capital outflow. "My worry is that, given the relatively large economic downward pressure, as China is opening up the capital account, it means more money will leave China," Huang Yiping, a PBOC adviser and Peking University economics professor, said on a World Economic Forum panel discussion this month in Dalian, China. "If there’s an overall capital outflow in the future, it will bring depreciation pressure."
- Kone CEO Says Focus Shifts to Services as China Growth Slows. Finnish elevator maker Kone Oyj will shift its focus to services in coming years, as it believes the days of rapid growth in the market for new elevators and escalators in China are over. “We’ve had a situation where the Chinese market has grown at about 20 percent per annum in the last 10 years,” Chief Executive Officer Henrik Ehrnrooth said at Kone’s Capital Markets Day in Shanghai. “It’s evident to all of us that we won’t see that going forward.”
- Australia Pays the Price for Depending on China. The newly elected prime minister has to preserve growth. Throughout Australia’s industrial heartland, factories are closing. About an eight-minute car ride from the center of Melbourne, a General Motors plant that in 1948 produced the first automobile wholly made in the country is scheduled to shut for good in 2017, victim of a rising Australian dollar that caused labor costs to nearly double from 2001 to 2011. Toyota and Ford factories are set to close within two years, leaving Australia without any domestic auto production. Down the road from the GM plant is a facility operated by Boeing. In 2010 it sold the plant’s equipment for making metal aircraft parts to Mahindra & Mahindra, an Indian company that’s shipping the machinery to Bengaluru. Last year, Alcoa closed a nearby aluminum smelter.
- Less Than Zero: Japan's CPI Falls as Oil Rout Trumps Kuroda. After hovering near zero for months, the Bank of Japan’s main inflation gauge dropped into negative territory as weak domestic demand and plunging oil prices wiped out the impact of Governor Haruhiko Kuroda’s unprecedented monetary stimulus. Consumer prices excluding fresh food fell 0.1 percent in August from a year earlier, the first decline since April 2013, the same month Kuroda embarked on a campaign of record asset purchases to rid Japan of its "deflationary mindset." Economists had expected prices to slide 0.1 percent.
- Sharp Drops to Record Low After Saying It Will Miss Profit Goal. Sharp Corp. fell to a record low in Tokyo trading after the struggling electronics maker said it will miss its operating profit forecast for the first half. The shares slumped as much as 10 percent to 139 yen, the lowest since listing in 1974, as of 9:41 a.m. in Tokyo. The supplier of displays to Apple Inc. expects to fall short of its outlook for 10 billion yen ($83 million) in operating income when it reports earnings for the six months ending Sept. 30, it said in a statement.
- Park Warns North Korea Would Pay Price for Fourth Nuclear Test. North Korea will pay a price if it defies the United Nations and follows through on recent threats to conduct a fourth nuclear test or launch a long-range rocket, South Korean President Park Geun Hye said. “Should the North go ahead with provocative actions that violate the UN Security Council resolutions, there will certainly be a price to be paid,” Park, 63, said in written answers to Bloomberg News before leaving Seoul on Friday to attend the UN General Assembly. “The Korean government is making every diplomatic effort to prevent the North from further belligerence, by working closely together with the international community including the U.S.”
- Catalan Election Concern Sends Spanish Stocks Into Bear Market. Spain’s economy is forecast to grow faster than almost all other euro-area countries. That’s not helping its companies. Concern that Sunday’s Catalonia election may lead to the region breaking apart from the rest of the country has helped drag the benchmark IBEX 35 Index down 9.4 percent this month, the most among all western-European markets. The gauge closed on Thursday 22 percent below the five-year high reached in April. Investors who bought Spanish stocks hoping to reap the benefits of a recovering domestic economy are now faced with the most volatile market since 2012. If pro-independence parties succeed, the nation will lose its biggest regional economy, putting growth estimates at risk.
- Won Heads for Biggest Weekly Drop Since 2011 on Stock Outflows. South Korea’s won headed for its biggest weekly drop in four years as foreign funds pulled money from local stocks amid concern China’s slowdown is worsening and the U.S. will raise borrowing costs this year. Overseas investors sold a net $687 million of shares this week, taking outflows this quarter to $6.8 billion, as a Chinese manufacturing index missed estimates with the worst reading since 2009. A gauge of dollar strength rose to near a six-month high after Federal Reserve Chair Janet Yellen said on Thursday that raising interest rates later this year “will likely be appropriate.” The won fell 2.7 percent from Sept. 18 and 0.2 percent on Friday to 1,194.80 a dollar as of 10:13 a.m. in Seoul, data compiled by Bloomberg show. That’s the biggest weekly drop since September 2011. The currency is down 6.7 percent this quarter. South Korean markets are shut Monday and Tuesday for public holidays.
- Ringgit's Weekly Slide Worst Since 1998 as U.S. Probes 1MDB. Malaysia’s ringgit headed for its biggest weekly decline since a dollar peg was imposed in 1998 as investigations into a state investment company spread to the U.S., exacerbating losses driven by a slowdown in China and tumbling commodity prices. The currency weakened beyond 4.38 against the greenback on Friday for the first time since the Asian financial crisis prompted Malaysia’s central bank to implement capital controls. 1Malaysia Development Bhd. is being probed by the U.S. Federal Bureau of Investigation over money laundering, while the U.S. Justice Department is looking into property purchases associated with a family member of Prime Minister Najib Razak.
- Asian Stocks Advance After Yellen Points to 2015 Rate Increase. Asian stocks rose after Federal Reserve Chair Janet Yellen said the central bank is on track to raise interest rates this year. “Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter,” Yellen said during a speech Thursday in Massachusetts. “But if the economy surprises us, our judgments about appropriate monetary policy will change.”The MSCI Asia Pacific Index added 0.2 percent to 125.11 as of 9:11 a.m. in Tokyo.
- Caterpillar(CAT) `Bites the Bullet' as Oil Rout Compounds Mining Pain. (video) The last time Caterpillar Inc. cut thousands of jobs, a mining slowdown was to blame. Now the main culprit is oil, as slumping prices batter drillers. On Thursday, the world’s most valuable machinery producer announced a plan to cut as many as 10,000 jobs, or 9 percent of its workforce, through 2018 as the effects of crude’s collapse ripple through the industry. The measures -- including the second reduction in sales guidance in two months -- represent the biggest round of cuts since 2013, when the company reduced its headcount by 13,000 as sales to metal producers declined along with prices.
- Yellen Says She Still Expects Rate Increase This Year. Federal Reserve Chair Janet Yellen said the U.S. central bank is on track to raise interest rates this year, even as she acknowledged that economic “surprises” could lead them to change that plan. “Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter,” Yellen said during a speech Thursday in Amherst, Massachusetts. “But if the economy surprises us, our judgments about appropriate monetary policy will change.”
- Apple's(AAPL) New IPhone Hits Stores as Cook Faces Growth Questions. How many iPhones can Apple Inc. sell? With the company hitting new sales records with each annual release, that’s a question facing Chief Executive Officer Tim Cook as the latest batch of handsets hits stores Friday around the world. The latest models, following last year’s hugely popular design overhaul that added bigger screens, may not match the success of previous releases, according to analysts.
Wall Street Journal:
- The New Bond Market: Big Buyers of Corporate Debt Are Other Corporations. More than half of corporate cash is invested in investment-grade corporate bonds. Companies reaching for better returns on their cash have found a new favorite investment—other companies’ bonds—and they are loading up. Cash-rich companies like Apple Inc., Oracle Corp. and Johnson & Johnson are snapping up corporate bonds sold by highly rated companies such as Verizon Communications Inc. and Gilead Sciences Inc.
- Brazil Braces for More Pain Ahead. Country’s battered currency touches new low as unemployment surges and central bank forecasts far deeper recession. Brazil’s battered currency on Thursday touched a new low, unemployment surged, and the central bank forecast a far deeper recession—a litany of woes suggesting a major crisis ahead for this once high-flying economy with a long history of booms and busts.
- Hillary Clinton vs. FOIA. The State Department email summaries point to big trouble ahead. If Hillary Clinton loses this election, it won’t be because of Bernie Sanders. It won’t be because of Marco Rubio or Jeb Bush or Carly Fiorina. It will be because of a 1966 statute. The Clintons are street fighters, and over their scandal-plagued years they have mastered outwitting the press, Congress, the Justice Department, even special prosecutors.
Fox News:
- Russians, Syrians and Iranians setting up military coordination cell in Baghdad. (video) Russian, Syrian and Iranian military commanders have set up a coordination cell in Baghdad in recent days to try to begin working with Iranian-backed Shia militias fighting the Islamic State, Fox News has learned. Western intelligence sources say the coordination cell includes low-level Russian generals. U.S. officials say it is not clear whether the Iraqi government is involved at the moment. Describing the arrival of Russian military personnel in Baghdad, one senior U.S. official said, "They are popping up everywhere."
- Fox News Poll: Proud to have 2016 front-runners as president? Not really. (video) A new Fox News poll finds that 36 percent of voters are extremely (20 percent) or very proud (16 percent) to have Obama as president. Forty-one percent felt that way in 2011. That’s markedly higher than the 28 percent who would feel proud if Democratic front-runner Hillary Clinton were president (including 15 percent who say extremely proud). Only one in five (20 percent) would be proud of a President Bernie Sanders or a President Donald Trump.
Business Insider:
- The previous commercial-real-estate bubble was 'much smaller' than today's monster. (graph) "There is nothing inherently dangerous about a real estate cycle," ratings agency Fitch explained in its latest report. "It only becomes dangerous when market participants forget there is one." Fitch rates Commercial Mortgage Backed Securities, so it warned: "CMBS cannot afford a repeat of the 2008-2009 experience."
Telegraph:
- VW emissions crisis spreads to Europe as EU orders spot checks on cars. Crisis at Volkswagen crosses the Atlantic as German transport minister says company used 'defeat devices' in Europe and Britain orders new checks on pollution.
Evening Recommendations
Barclays:
- Rated (PCAR) Underweight, target $48.
- Rated (URI) Overweight, target $77.
- Rated (CNHI) Underweight, target $6.
- Rated (CMI) Underweight, target $99.
- Rated (DE) Underweight, target $68.
Night Trading
- Asian equity indices are -.50% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 151.75 +3.25 basis points.
- Asia Pacific Sovereign CDS Index 85.75 +3.25 basis points.
- S&P 500 futures +.21%.
- NASDAQ 100 futures +.17%.
Earnings of Note
Company/Estimate
- (BBRY)/-.09
- (FINL)/.57
Economic Releases
8:30 am EST
- 2Q GDP is estimated to rise +3.7% versus a prior estimate of a +3.7% gain.
- 2Q Personal Consumption is estimated to rise +3.2% versus a prior estimate of a +3.1% gain.
- 2Q GDP Price Index is estimated to rise +2.1% versus a prior estimate of a +2.1% gain.
- 2Q Core PCE is estimated to rise +1.8% versus a prior estimate of a +1.8% gain.
- Preliminary Markit US Services PMI for September is estimated to fall to 55.6 versus 56.1 in August.
- Final Univ. of Mich. Consumer Sentiment for September is estimated to rise to 86.5 versus 85.7 in August.
- None of note
Other Potential Market Movers
- The Fed's Bullard speaking, Fed's George speaking, Eurozone Money Supply data, (AAPL) iPhone 6S Release, (CAG) general meeting and the (CA) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
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