Tuesday, December 08, 2015

Today's Headlines

  • Nobel Laureate Sees ‘Much Worse’ EU Economy From Refugee Crisis. Europe’s economic prospects are worsening as the region struggles to absorb the wave of asylum seekers coming from the Middle East, according to Angus Deaton, the winner of this year’s Nobel economics prize. With the refugee crisis following so soon after Europe’s debt crisis, the development “could certainly make the economic situation very much worse,” Deaton said in an interview on Monday in Stockholm, where he’s officially being awarded his Nobel this week. “There is obviously a very severe danger” that the European Union will buckle under the pressure, he said. Though Europe’s debt and migrant crises are similar in scope, the demographic challenges posed by the sudden influx of people is potentially worse because “no one really has any idea how to solve” the situation, Deaton said. At least with the debt crisis, “people knew how to solve it,” they just “couldn’t agree with each other,” he said.
  • Bank of France Sees Weaker Fourth-Quarter Growth After Attacks. The Bank of France cuts its forecast for fourth-quarter growth in the euro region’s second-largest economy, confirming business has been affected by the Nov. 13 terrorist attacks that killed 130 in Paris. France’s gross domestic product will grow 0.3 percent in the final three months of the year, the Paris-based central bank said in a release on Tuesday. While that’s the same pace as in the third quarter, it falls short of the bank’s original estimate of 0.4 percent growth for the following period. Sentiment among manufacturers unexpectedly fell to 98 in November from 99 in October, while a service industry index dropped to 96 from 97.
  • China Pollution Alert Curtails Steel Plants, Closes Schools. (video) The severe smog blanketing Beijing has prompted the nearby Tangshan government to shut down all steel rolling plants during the daytime as air quality in the capital continued to deteriorate to hazardous levels. The Tangshan Municipal Government issued a level-3 emergency response, effective from 3 p.m. local time on Tuesday, while the Hebei provincial government released an orange alert for smog within its jurisdiction, requesting frequent checks on emissions from all coal-fired furnaces and key industrial sites, according to Mysteel Research, an independent steel industry watcher. Two calls today to the Tangshan government weren’t immediately answered.
  • Chinese Stocks Slump After Data as Yuan Falls to Four-Year Low. (video) Chinese stocks fell the most in a week after trade data signaled a deepening slowdown in the nation’s economy and sinking crude prices dragged on oil companies. The yuan closed at its weakest level in four years. The Shanghai Composite Index dropped 1.9 percent to 3,470.07 at the close. Energy and material producers were the worst-performing industry groups after oil plunged to the lowest level in more than six years. PICC Property & Casualty Co. tumbled the most since July in Hong Kong after American International Group Inc. sold a stake in the insurer. The Hang Seng China Enterprises Index slid for a fourth day, while the yuan dropped after the central bank cut its reference rate to the lowest since Aug. 27.
  • U.S. Republicans Pushed by CEOs in Paris to Shift Climate Stance. As the leaders of 195 countries gather in Paris to hammer out a global climate deal, much of the attention is on the U.S. -- where business leaders and scientists say they’re trying to persuade Republicans to accept emissions curbs. A key question among those attending the two-week summit is whether the U.S. will keep to the ambitious pledges laid out by President Barack Obama at the start of the event. Republicans including Senators Roy Blunt of Missouri and James Inhofe of Oklahoma have sought to undermine Obama’s authority to strike a deal, arguing that any agreement needs to be ratified by the Senate, which their party controls. To overcome Republican opposition, "it takes the business leaders ultimately to speak up and show that this is good for job creation and for economic development," Paul Polman, chief executive officer of consumer-goods giant Unilever, said in Paris on Sunday. Comparing the effort to the campaign including Goldman Sachs Group Inc. and Starbucks Corp. that called for same-sex marriage to be legalized in the U.S., "that same momentum is undoubtedly coming in this area," Polman added.   
  • When Abu Dhabi Resembles Frontier Market You Know Oil Hurts. (video) You would have to go back to the 2008 financial crisis to find the last time markets in the Gulf took a hit like this. Oil’s plunge to almost $40 a barrel is roiling the six-nation Gulf Cooperation Council, throwing government spending plans into disarray, sapping stock trading and valuations, driving up bank borrowing costs and stoking speculation some nations will eventually scrap long-established currency pegs. The GCC, which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, is home to about 29 percent of the world’s oil reserves. Equities in all those markets tumbled on Tuesday as Brent crude dropped to the lowest since February 2009. Here’s a look at some of the pressure points:
  • Brazil Real Drops on China Trade Data as Political Tension Rises. Brazil’s real declined the most in a week after economic data from China, the country’s biggest trading partner, sparked a slump in currencies of commodity-producing nations. The real lost 1.1 percent to 3.8107 per dollar as of 4:12 p.m. in Sao Paulo, after rising as much as 0.6 percent earlier. A gauge of 20 developing-nation currencies declined for the third straight day, sinking to a record low. China’s imports slumped for a record 13th straight month, albeit at a slower-than-estimated pace. The drop is a drag on other economies as the Asian nation’s flagging industrial plants need less raw materials.
  • Europe Shares Fall as Miners Tumble on Disappointing China Data. (video) Tumbling resource-related companies led European stocks to their lowest level in almost seven weeks after worse-than-expected Chinese data cast further doubt on the health of the world’s second-biggest economy. A gauge of miners posted the worst performance of the 19 industry groups on the Stoxx Europe 600 Index, falling to its lowest level since 2009, as commodity prices slid. Anglo American Plc plummeted 12 percent after suspending dividends for the second half of 2015 and next year. BHP Billiton Ltd. retreated 5.5 percent and Rio Tinto Group lost 8.4 percent. Seadrill Ltd. dropped 9.5 percent, leading energy-related stocks lower, after Canaccord Genuity slashed its price target by 97 percent. The Stoxx 600 fell 1.8 percent to 365.75 at the close of trading.
  • When It Rains It Pours as China Unleashes Commodity Torrent. (video) There’s no let-up in the onslaught of commodities from China. While the country’s total exports are slowing in dollar terms, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs. That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas. The flood is compounding a worldwide surplus of commodities that’s driven returns from raw materials to the lowest since 1999, threatening producers from India to Pennsylvania and aggravating trade disputes. While companies such as India’s JSW Steel Ltd. decry cheap exports as unfair, China says the overcapacity is a global problem.
  • Komatsu Warns of Tough 2016 as Commodity Bust Cools Spending. Komatsu Ltd., the world’s second-biggest maker of mining and construction equipment, said it faces another tough year ahead as falling commodity prices cool customers’ investment plans. “Demand will probably be lower than the current year’s level,” Chief Executive Officer Tetsuji Ohashi told reporters Tuesday at the company’s Tokyo headquarters. “We anticipate there will be fewer markets showing growth.”
  • OPEC Takes Down Oil Majors as Lower-for-Even-Longer Kicks In. (video) For months, many executives at the world’s largest oil producers have been talking about prices staying lower for longer. After OPEC’s decision to keep pumping full pelt that could become lower for even longer. Even before Friday, the prolonged slump in crude had forced analysts to cut their earnings-per-share estimates for the world’s 10 largest integrated oil companies in recent weeks. With oil dropping to the lowest in more than six years after the Organization of Petroleum Exporting Countries meeting on Friday, further downgrades are probably on the way. “A potential OPEC cut was the last source of hope for the bulls near term,” Aneek Haq, a London-based analyst with Exane BNP Paribas said Dec. 4. “The oil majors have already started to underperform the market over the past few weeks, but this now coupled with earnings downgrades and valuations that imply $70 a barrel should put further pressure on share prices.” The mean adjusted 2016 EPS estimate for Exxon Mobil Corp. has been cut by more than 9 cents a share and for Royal Dutch Shell Plc by 8.4 cents over the past month, according to data compiled by Bloomberg. EPS projections for Total SA, Europe’s second-biggest oil company, and Repsol SA are lower for 2016 than those for this year.
  • Year of Distress for Debt-Burdened Oil Firms Just Got Even Worse. (video) Just when it seemed things couldn’t get worse for debt-laden energy companies, a renewed rout in oil prices is deepening their distress. As crude plunged to the lowest in more than six years, the average yield on the debt of speculative-grade oil and gas borrowers climbed to 13.4 percent, the highest since the waning days of the global financial crisis in 2009 and the widest divergence ever relative to the broader U.S. junk bond market, Bank of America Merrill Lynch index data show. That’s likely to push more companies to ask their bondholders to restructure debt to avoid bankruptcy, according to corporate-turnaround adviser Stroock & Stroock & Lavan LLP. Bonds of Chesapeake Energy Corp. led the declines on Monday with the biggest drop, with Oasis Petroleum Inc. also sliding. 
  • Vale Tumbles as Iron-Ore Glut Threatens Cash-Generation Plans. Vale SA shares fell the most in two months and its bond yields soared as iron ore’s tumble into the $30s jeopardizes the world’s biggest producer’s ability to generate cash and pay dividends. The Brazilian company’s share price slumped 6.3 percent, the most since Oct. 13, to 9.22 reais at 1:26 p.m. in Sao Paulo. The yield on its 2022 bonds jumped to a record 9.1 percent, or more than 5.2 percentage points above similar notes sold by Rio Tinto Group and BHP Billiton Ltd., its main competitors.
  • Steel Exports by China Top 100 Million Tons for First Time. Steel exports by China exceeded 100 million metric tons for the first time as iron ore imports increased amid a shuttering of high-cost domestic supply. The steel sales through November rival output by Japan, the world’s second-biggest producer. Shipments of steel products climbed 22 percent to 101.7 million tons in the first 11 months, according to customs data. Inbound cargoes of iron ore increased 22 percent to 82.13 million tons in November from a year earlier.
  • Year of Trump Vs. Clinton May Crimp Economy, Calstrs CIO Says. (video) A presidential matchup between Republican Donald Trump and Democrat Hillary Clinton could sap a full percentage point from anticipated growth in the gross domestic product, the chief investment officer of the second-largest U.S. pension fund said. “Can you imagine a whole year of Trump and Hillary going at each other?” Christopher Ailman, who manages the California State Teachers’ Retirement System’s $184 billion portfolio, said Tuesday on Bloomberg Television. “It’s going to be a drag on the economy.” Ailman said 70 percent of the U.S. economy is based on consumer sales, and a divisive presidential campaign is likely to depress consumer confidence.
  • Toll Brothers(TOL) Plans to Boost NYC Sales With Pricing, Incentives. Toll Brothers Inc. plans to use competitive pricing and offer buyers incentives to speed up sales at some of its New York City condominium projects. “There are certain units in certain locations within a building that are hot, and then there are other units that may be in a dark, cold corner that you have to incentivize a bit more,” Chief Executive Officer Douglas Yearley said on the company’s earnings conference call Tuesday. While Toll “will not fire-sale it to move” units, “we will price to the market.” 
  • Whole Foods(WFM) Supplier Plunges After Cutting Its Annual Forecast. United Natural Foods Inc., a distributor of organic food to Whole Foods Market and other grocery chains, suffered its worst stock decline in more than seven years after cutting its annual profit and sales forecast. The company now expects earnings of $2.79 to $2.89 a share this year, excluding some items, according to a statement Monday. United Natural Foods had previously projected as much as $2.98 for the period, which ends next July.
Wall Street Journal:
Down Jones:
  • Andrew Halls's Astenbeck Oil Hedge Fund Lost 9.7% in November. Astenbeck down -26% this year, citing letter to investors.
  • The real danger of the oil collapse. (video) The collapse of the housing bubble sent the world spiraling into recession. The collapse of the energy and commodity bubble threatens to be just as damaging. That few are willing to even use the term "bubble" with regard to the boom and bust in the price of oil, copper, iron ore, and other materials tells how early we still are in the painful unwind phase.
Zero Hedge:
Business Insider:
  • U.S. probing California shooters' financial transfers: sources. The FBI is examining roughly $28,000 in financial transfers by the couple that shot dead 14 people in California last week, but investigators do not believe any of the money came from overseas, law enforcement sources said on Tuesday. Two sources said U.S. investigators instead believe that Syed Rizwan Farook, 28, and his spouse Tashfeen Malik, 29, emptied their own bank accounts and maxed out their credit lines ahead of the attack in San Bernardino. The sources said investigators are still looking into the financial transactions the couple conducted in the weeks before the attack, with one confirming a Fox News report that about $28,000 in money transfers were being examined.
Financial Times:
  • Disney(DIS) Said to Double Stake in Vice Media to $400M. Disney stake in Vice Media rises to ~10%, citing people familiar with the matter. Values Vice at >$4B.

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