Wednesday, December 09, 2015

Today's Headlines

  • The $1 Trillion Liability Stalking Some European Bond Investors. Another year, another thing for investors in Europe to worry about. The Bank Recovery and Resolution Directive, part of the regulatory changes since the 2008 financial crisis, comes fully into force on Jan. 1. Insolvent banks will need to be “resolved” rather than liquidated like failed companies, and the cost is supposed to be borne by investors and not taxpayers. Among the new tools is the ability to write down the value of senior bonds or convert them into equity to help bring a failed lender back to life. The directive is focusing attention on the toxic assets of banks. There were about 1 trillion euros ($1.09 trillion) of non-performing loans at banks in European Union countries as of the end of 2014, equivalent to more than 9 percent of the bloc’s gross domestic product, according to a study by the International Monetary Fund. “The longer bad loans stay on the balance sheet, the higher the probability that investors have to pay for them,” said Daniel Sarp, a London-based fixed-income manager and a member of the bail-in working group of the International Capital Market Association. “The scenario can get quite scary.”
  • China's Banks That Need Over $600 Billion in New Debt Go Abroad. Chinese banks, already the largest issuers of bonds to build capital buffers, are looking beyond the savings of the nation’s 1.4 billion people for more funds as they grapple with mounting bad loans. The nation’s banks may account for about half of at least $100 billion in dollar notes sold by Asian lenders to meet new capital rules over three to five years, according to Barclays Plc. China’s lenders need to sell as much as $222 billion of notes in any currency that comply with Basel III rules and $379 billion of securities that meet rules unveiled by the Financial Stability Board last month, Commerzbank AG estimates. The Asian issuance "would be too large a size for domestic markets to absorb," said Avinash Thakur, managing director of debt capital markets for Barclays in Hong Kong. "That’s why these banks in the next phase will start coming to look internationally.” 
  • China's Illicit Outflows Estimated at $1.4 Trillion Over Decade. China’s illicit financial outflows were estimated at almost $1.4 trillion over a decade, the largest amount for any developing nation, as money exited the country through channels including fake documentation on trade deals. The estimate for the 10 years through 2013 was published Wednesday by Global Financial Integrity, a Washington-based group researching cross-border money transfers. The study is based on data reported to the International Monetary Fund and covers money which GFI believes to be illegally earned, transferred or utilized. Money flowing out of China this year has helped to pump up property markets from Sydney to Vancouver, while prospects for a weaker yuan may drive more cash abroad. On Wednesday, China cut the currency’s reference rate to the weakest since 2011.  
  • Yuan Bears' Appetite Whetted as PBOC Support for Currency Fades. (video)
  • Europe Company Default Rate to Rise on Asia Slowdown, S&P Says. Europe’s corporate-default rate will increase next year as slower growth in Asia hits commodity-related companies, according to Standard & Poor’s. The ratings provider expects 2.4 percent of sub-investment grade issuers in Europe to default next year, up from a 1.5 percent rate currently, it said in a 2016 forecast. Technological and regulatory changes may also dent credit quality in industries including hospitality and utilities, it said.
  • Impeachment Means Brazil's Bankers to Wage Inflation Fight Alone. The difficult task of taming inflation in Brazil is about to fall squarely on the central bank. That’s the conclusion economists have come to after a lawmaker initiated impeachment proceedings against President Dilma Rousseff last week, a move that’s threatening to stall austerity measures aimed in part at helping quell the biggest surge in consumer prices in 12 years. Policy makers will keep Brazil’s key interest rate at a nine-year high of 14.25 percent until 2017, a central bank survey of analysts released Monday showed. Just a week ago, they predicted the bank would cut borrowing costs starting in October.  
  • European Stocks Temper Losses on Second Day as Miners Rebound. (video) European stocks moderated a decline after yesterday’s selloff as commodity producers rebounded from their lowest level in six years. Gains exceeding 3.8 percent in Glencore Plc and Rio Tinto Group pushed a gauge of mining shares higher for the first time in seven days. That helped the Stoxx Europe 600 Index pare a drop of as much as 0.9 percent. The Stoxx 600 lost 0.4 percent at the close of trading, after rising as much as 0.4 percent earlier.
  • Miners Cut Costs, Not Production in Commodity Crush. (video
  • Dividends Could Be the Next Victim of the Commodity Crunch. As commodity prices tumble to the lowest since the global financial crisis, the dividends paid by the world’s largest oil producers and miners look increasingly hard to justify. Take the world’s largest 500 companies by sales. Of the 20 expected to pay the highest dividend yields over the next 12 months, 17 are natural resources companies, according to data compiled by Bloomberg.
    They include BHP Billiton Ltd., the world’s largest miner, with a yield -- or dividend divided by share price -- of more than 10 percent on its London shares. Plains All American Pipeline LP tops the list with a yield of 13.7 percent. Ecopetrol, Colombia’s largest oil producer, has a payout of 11.6 percent. That compares with an average among all 500 companies of 3.5 percent. “Investors are suggesting that dividend rates announced as recently as half-year results are generally not sustainable,” said Jeremy Sussman, a New York-based analyst at Clarksons Platou Securities Inc. “The current environment is among the toughest we have seen across the resource space, putting increased pressure on management teams to deliver cost savings.”
  • Nobel Laureate Says Fed Shouldn't Raise Interest Rates Next Week.
  • JPMorgan: The Fed Could Trigger a 'Massive Stop Loss Order' in the S&P 500 if Liftoff Goes Awry. Options expiry could amplify any selling pressure. 
  • U.S. Pledges $400 Million for Climate to Close Rift With India. U.S. Secretary of State John Kerry pledged to double funding to countries struggling to adapt to climate change to more than $800 million, part of an effort to close differences with nations such as India over who must act to halt global warming.
  • Hedge Funds Leave U.S. Pensions With Little to Show for the Fees. Here’s what U.S. state and city pension funds are getting this year for the hundreds of millions of dollars in fees they’re forking over to hedge funds: almost nothing. The investment pools gained 0.4 percent through November, putting them on pace for the worst year since 2011, according to data compiled by Bloomberg. The industry’s struggle was underscored over the past two months as BlackRock Inc., Fortress Investment Group and Bain Capital closed hedge funds after running up losses. The low returns are dealing a setback to governments that boosted exposure to hedge funds, seeking windfalls to help close a $1.4 trillion shortfall that’s facing public-employee retirement systems nationwide. The investment funds have underperformed stocks since 2008 as share prices rallied and volatility whipsawed global financial markets.
  • Einhorn Slump Wipes Out Greenlight Reinsurer Gains From 2007 IPO. Greenlight Capital Re Ltd., the reinsurer whose chairman is hedge-fund manager David Einhorn, erased gains from its 2007 initial public offering price after losses from investments and underwriting. Greenlight Re declined 2.6 percent to $19 at 11:59 a.m. in New York, extending its loss to 42 percent this year. The Cayman Islands-based reinsurer, which counts on Einhorn to oversee its portfolio, sold shares for $19 apiece in its IPO. Einhorn’s main hedge fund is poised for its second losing year in almost two decades after dropping 21 percent through November, according to an e-mail sent to clients that was obtained by Bloomberg.
Zero Hedge:
Business Insider:
Financial Times:
  • Brazilian inflation soars into double figures. Economists had expected the latest release of Brazilian inflation data to be bad, but not quite this bad. The annual rate of inflation struck 10.48 per cent in November, the stats office said, the highest since 2003. Economists polled by Bloomberg had expected a somewhat milder 10.42 per cent, from 9.93 per cent in October. On the month, the rate was 1.01 per cent, against expectations for 0.95 per cent.
  • Mapped: How the world became awash with oil. (map) With Opec blasted as "irrelevant" in the new Hobbesian oil market, the world's supply glut is reaching record levels. Click on the countries to find out where production is heading.

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