Wednesday, December 16, 2015

Today's Headlines

  • Fed Ends Zero-Rate Era; Signals 4 Quarter-Point 2016 Hikes. (video) The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be “gradual” and in line with previous projections. The Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent. Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, the same as September, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.
  • French Business Grinds to Halt as Services Hit by Terror Attacks. French business unexpectedly slowed in December as services suffered from last month’s terrorist attacks in Paris. A Purchasing Managers’ Index for manufacturing and services fell to 50.3 from 51 in November, London-based Markit Economics said on Wednesday. That’s the lowest since August and just above the 50 mark that divides expansion from contraction. Economists predicted the gauge would remain unchanged at 51. The Nov. 13 attacks have already left their mark on an economy that had been showing the first signs of sustained growth since 2012. The Bank of France cuts its forecast for fourth-quarter growth in the euro region’s second-largest economy to 0.3 percent last week after business sentiment fell. “French private-sector output growth nearly ground to a halt at the end of 2015 amid faltering new business intakes,” said Jack Kennedy, senior economist at Markit. While new business in services was damped by the attacks, the manufacturing sector picked up momentum, he said. A gauge for French services activity slipped to 50 from 51, the lowest level since January, while a measure for manufacturing unexpectedly rose to 51.6 from 50.6, according to the report. A composite index for Germany fell to 55 in December from 55.2, according to a separate Bloomberg survey. 
  • Merkel Allies Betray Growing Alarm `Brexit' Prospect Is Real. German Chancellor Angela Merkel’s party colleagues expressed growing dismay at the prospect of a British exit from the European Union, with one lawmaker portraying Prime Minister David Cameron’s planned referendum as an “existential risk” for Europe. As European leaders prepare to discuss Britain’s call for EU reform in four main areas at a summit in Brussels Thursday, Cameron’s approach is raising concern in the Chancellery in Berlin that his demands go too far, according to a German government official. Another worry is that any agreement Cameron might extract from the rest of the 28-nation EU still wouldn’t be enough to sway EU-skeptical British voters, said the official, who asked not to be identified discussing private deliberations.
  • Brazil Gets Second Junk Rating as Fitch Cites Economic Slump. (video) Brazil’s credit rating was cut to junk by Fitch Ratings, which became the second major ratings company to strip the country of its investment grade as Latin America’s largest economy heads to its longest recession since the Great Depression amid political turmoil. The outlook for the rating is negative, meaning more downgrades may be coming, Fitch said in a statement Wednesday as it lowered the grade one step to BB+. Brazil’s real extended declines, the country’s overseas bonds tumbled and interest-rate swaps soared on expectations for higher borrowing costs. 
  • Brazil's Real Plunges Ahead of New Fiscal Target Announcement. (video) Brazil’s real posted the biggest decline among major currencies and stocks fluctuated after Fitch Ratings handed Latin America’s largest economy its second junk credit grade, a move that may compel some institutional investors to dump the nation’s assets. The real lost 1.6 percent to 3.9332 per dollar at 3:45 p.m. in Sao Paulo, the most among 31 major currencies tracked by Bloomberg. The Ibovespa advanced 0.2 percent to 44,953.88, after earlier dropping as much as 1.7 percent. 
  • $100 Billion Evaporates as World's Worst Oil Major Plunges 90%. Colombia is nursing paper losses of more than $100 billion after its oil boom fell short of expectations, wiping out 90 percent of the value of what was once Latin America’s biggest company. From being the world’s fifth-most valuable oil producer at its zenith in 2012, worth more than BP Plc, state-controlled Ecopetrol SA now ranks 38th. Its market capitalization has fallen to $14.5 billion, down from its peak of $136.7 billion.
  • Xi Defends China's Great Firewall in Push for `Cybersovereignty'. President Xi Jinping defended China’s strict control of websites, saying it was necessary to keep public order, and urged nations to respect each other’s sovereignty over the Internet. Countries must not interfere in the internal affairs of others, Xi told a technology gathering Wednesday in Wuzhen, adapting a concept that has long been part of the Chinese Communist Party’s foreign policy. Cyberspace must not become a “battlefield” between states, Xi said, and he called for greater cooperation on punishing cyber-attacks and fighting terrorism. “We should respect every country’s own choice of their Internet development path and management model, their Internet public policy and the right to participate in managing international cyberspace,” Xi said. “There should be no cyber-hegemony, no interfering in others’ internal affairs, no engaging, supporting or inciting cyber-activities that would harm the national security of other countries.” 
  • European Stocks Rise, Paring Gains in Countdown to Fed Decision. Investors pushed European stocks higher for a second day before the Federal Reserve’s much-awaited interest-rate decision, though equities pared gains in the last hour of trading. The Stoxx Europe 600 Index climbed 0.2 percent at the close of trading in London, trimming an advance of as much as 1 percent.
  • ConocoPhillips(COP), Anadarko(APC) Among Oil Explorers Reviewed by Moody's. ConocoPhillips and Anadarko Petroleum Corp. are among 29 U.S. oil and gas exploration and production companies whose ratings Moody’s Investors Service is reviewing for downgrade. "Industry conditions have weakened further with oil and natural gas prices at multi-year lows," said Pete Speer, Moody’s Senior Vice President. "E&P companies will be stressed for a longer period with much lower cash flows, difficulty selling assets and limited capital markets access."
  • This Junk Bond Derivative Index Is Saying Something Scary About Defaults. Markit's CDX index is pricing in a 2008-like selloff. Citigroup analysts led by Anindya Basu point out that spreads on the CDX HY, as the index is known, are currently pricing in an expected loss of 21.2 percent, which translates into something like 22 defaults over the next five years if one assumes zero recovery for investors. That is a pretty big number once you consider that a total of 41 CDX HY constituents have defaulted since the index really began trading in 2005, equating to about 3.72 defaults per year. A big chunk of those defaults (17) occurred in 2009 in the aftermath of the financial crisis. What to make of it all?
  • Junk Rout Trips Up Longest-Serving Manager. (video) Ernest Monrad has run Northeast Investors Trust since 1960, focusing on high-yield debt before “junk bonds” were a term. Monrad, who is 85 and the longest-serving U.S. mutual fund manager according to Morningstar Inc., outlasted 1970s inflation, the Drexel Burnham Lambert collapse and the 2008 credit crunch. He’s also the biggest loser in an energy-driven high-yield bond rout that prompted comparisons to earlier crises after Third Avenue Management closed a $788.5 million mutual fund and froze client redemptions last week. The $358 million Northeast fund dropped 8.8 percent in the month through Dec. 14, more than any U.S.-based high-yield credit fund with at least $100 million, according to data compiled by Bloomberg. Other big decliners include such established names as the $5 billion Frankin High Income Fund, which was started in 1969 and lost 5.8 percent in the past four weeks. “The funds that got it wrong bet on rising oil prices,” Sumit Desai, an analyst at Morningstar, said in a telephone interview. “Pretty consistently across all the funds we cover, that was the separation between the funds that did well and the funds that didn’t do well.”  
  • Billionaire Sam Zell Says Recession Likely in Next 12 Months. (video) Billionaire investor Sam Zell said the U.S. economy could go into a recession in the next year and that an expected Federal Reserve interest-rate increase is coming at least six months too late. The central bank has been too cautious and the economy would already be adjusting if it raised rates six to nine months ago, giving Chair Janet Yellen “more room if a recession is on the way,” Zell said Wednesday in an interview on Bloomberg Television. Multinational companies are laying off workers, global trade is slowing and there’s a possibility China’s economy will falter, he said.
  • Wall Street's Short Sellers Are Turning On Their Own. The shorts are targeting one of Wall Street’s best known short sellers. Bearish investors have piled on bets against a reinsurer started by hedge fund manager David Einhorn as the company’s losses climbed. Short interest on Greenlight Capital Re Ltd., or bets that the stock will drop, climbed to the highest since 2009, at 5.4 percent of shares outstanding, according to Dec. 15 data compiled by Bloomberg and Markit Ltd. Short sellers are also targeting Dan Loeb’s Third Point Reinsurance Ltd., holding 3 percent of shares outstanding, compared with an average of 0.6 percent since the start of 2014.
Zero Hedge:
Business Insider:
  • OPEC producers bearish on oil in 2016 as oversupply persists. OPEC producers see little chance of significantly higher oil prices in 2016 as extra Iranian production could add to surplus supplies and the prospect of voluntary output restraint remains remote. OPEC delegates, including those from Gulf OPEC members, say higher oil prices are not around the corner yet, despite further growth in global demand and as a rise in non-OPEC supply is tempered by prices that have more than halved in 18 months.

No comments: