Evening Headlines
Bloomberg:
- The Pain Trade: How Slumping Commerce Threatens Global Growth. The world’s biggest economies are finding it increasingly hard to trade their way out of trouble. Once the grease of global growth, international commerce failed to rebound completely from the 2009 recession and now is slowing anew. Chinese exports tumbled 5.5 percent in August from a year earlier, while those of the U.S. fell 3.5 percent. South Korea and Singapore witnessed double digit declines. Reflecting such weakness, the World Trade Organization this week cut its forecast for trade this year to 2.8 percent from 3.3 percent. It acknowledged its new prediction may be “over optimistic.”
- Distressed Bonds at 59 Cents Threaten Emerging Market Gains. Investors may struggle to profit from bonds of distressed companies in developing nations this year after a plunge last quarter, teamed with an increasingly uncertain outlook, looks set to erase 2015’s gains. The securities tumbled 13.4 percent in the three months to Sept. 30, paring annual returns to 0.95 percent, a Bank of America Merrill Lynch index shows. The market value of the gauge’s 156 notes has dropped by almost 30 percent since Dec. 31 to $54 billion, or about 58.8 cents on the dollar. Global high-yield bonds fell 4.51 percent in the third quarter, bringing year-to-date losses to 1.4 percent. They’re on track for their first negative return since 2008. “A broad recovery will be elusive,” David Tawil, a co-founder of New York-based Maglan Capital LP, said. “There will be increasing dislocation, mostly driven by companies with considerable leverage. That may lead to significant restructuring and defaults.”
- China Slowdown Spurs Record Sales of Notes Tied to Nation's Debt. (video) Sales of structured notes tied to the sovereign debt of China are on track for a record year, as the climbing cost of insuring against a default by the country sweetens coupons on the securities. Banks sold $230 million of the notes in September, the busiest month ever, according to data compiled by Bloomberg, taking this year’s issuance to $642 million. That’s more than triple the $189 million banks sold during all of 2014. Concern that growth in China is slowing pushed credit-default swaps on the nation to their highest this week since 2013, according to Bloomberg data. As the cost of insuring against a Chinese default rose, so did coupons on the notes backed by the swaps contracts. The credit-linked notes, all denominated in U.S. dollars, yield 3.49 percent on average and mature in about seven years, the data show.
- Global Giants Listed in Hong Kong Crumble as Ties to China Backfire. International companies that listed shares in Hong Kong to highlight their ties with China are finding what once was a bragging right is now a burden. The city’s 20 biggest firms domiciled outside Hong Kong and the mainland have dropped an average 27 percent this year, versus a 12 percent decline in the Hang Seng Index. Macau casino operators and Prada SpA, an Italian handbag maker, have tumbled as China’s economy slowed and the government discouraged extravagant spending. Glencore Plc, the Swiss commodities group run by Ivan Glasenberg, is down 72 percent even after a record rally on Wednesday.
- Used-Car Values Become Chief Concern for Volkswagen Auto Bonds. A reduction in car values on Volkswagen AG models after its emissions scandal is the biggest risk to its bonds tied to auto loans, leases and dealerships worldwide, credit-rating companies said this week. The revelation of faked pollution controls is credit negative for the company’s asset-backed securities, Moody’s Investors Service said in a report Wednesday. A chief concern would be linked to declines in the automaker’s used-car values. “The full impact on car prices remains uncertain,” Fitch Ratings analyst Andreas Wilgen said in an announcement Tuesday.
- Ringgit Leads Drop in Asia as Budget Woes Add to China Concern. The ringgit fell, leading losses among Asian currencies, amid concern Malaysia may miss its target of balancing the budget by 2020. The fiscal shortfall may be “in the region” of 1 percent of gross domestic product at the end of the decade, compared with a current deficit of 3.2 percent, the New Straits Times reported Thursday, citing comments by Prime Minister Najib Razak to fund managers and investors in New York. Malaysia remains committed to achieving a balanced budget by 2020, he was quoted as saying. The oil-exporting country’s finances have been sapped by a 49 percent drop in Brent crude over the past 12 months and allegations of corruption against Najib have shaken investor confidence and spurred outflows. The ringgit fell 0.9 percent, the biggest decline in more than a week, to 4.4395 a dollar as of 9:18 a.m. in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It’s dropped 1.2 percent this week and 21 percent so far in 2015, the worst performance in Asia, amid global headwinds including a worse-than-expected slowdown in China and the prospect of higher U.S. interest rates.
- Asian Stocks Retreat as Investors Await U.S. Employment Report. Asian stocks fell as investors awaited a monthly government report on U.S. jobs to gauge the strength of the world’s largest economy. The MSCI Asia Pacific Index dropped 0.5 percent to 125.22 as of 9:16 a.m. in Tokyo.
- Half of World's Coal Output Is Unprofitable, Moody's Says. The global metallurgical coal benchmark has fallen to the lowest level in a decade, settling last month at $89 a metric ton.“Further production cuts are necessary to bring the market back into balance,” Moody’s analysts including Anna Zubets-Anderson wrote in a report on Thursday.
- Williams Says Uncertainty Alone Shouldn't Stop Fed Rate Increase. Federal Reserve Bank of San Francisco President John Williams said risks to the economy from developments abroad haven’t worsened and that domestic conditions remain positive, while repeating his call to raise interest rates this year. "On the global side, I’m not seeing any obvious signs that those risks that were on my mind and the minds of others, I don’t see signs that those have gotten worse,” Williams, a voting member on the Fed’s policy committee this year, said in Salt Lake City on Thursday. He was answering questions from the audience after delivering a speech. “There’s always going to be risks, there’s always going to be uncertainties,” he said. Even so, “we’re going to have to take actions that we think are the appropriate ones given our goals.”
- Indecisive Fed has Investors Bouncing Off Walls, Principal Says. The Federal Reserve has sent mixed signals to investors, who need to be careful until they have more clarity about companies’ earnings prospects and the risk of losses tied to energy, according to Principal Global Equities. The central bank has investors “bouncing off the walls, shifting back and forth between dovish economic and inflationary views and hawkish statements” at the same time that some strategists are asking if the Fed will announce another program to expand its balance sheet, according to a blog post Thursday from Mustafa Sagun, chief investment officer at the firm, which is part of insurer Principal Financial Group Inc.
- Ackman, Einhorn Lead Hedge Funds on Track to Rival 2008 Losses. There’s no big bank failure on the horizon. The housing market is booming, not melting. Yet for a handful of well-known hedge fund managers, 2015 is looking a lot like 2008, when their industry suffered record losses and investor withdrawals. David Einhorn and Michael Novogratz have slumped about 17 percent so far this year, and Bill Ackman declined almost 13 percent in a publicly traded fund. Sean Fahey and Michael Platt have seen billions of dollars flee their firms and are now managing less than a third of what they oversaw at their peaks. Every struggling hedge fund has struggled in its own way, yet September did a lot damage for many managers, including Ackman, who slumped as much as in all of 2008. Six of the stocks that were most popular with the hedge fund set fell more than 20 percent that month, according to a report by Novus Partners Inc.
Wall Street Journal:
- Russian Airstrikes Defend Strategic Assad Regime Stronghold on Coast. Raids appear to hew closely to an arc running on the fringes of Syria’s Alawite heartland. Russia’s first airstrikes in Syria showed a meticulously planned effort to eliminate any rebel threat to the coastal stronghold of Moscow ally President Bashar al-Assad and his Shiite-linked Alawite minority, officials and analysts said.
- Netanyahu Rebukes U.N. Over Iran Accord. Despite losing political ground to Obama, Israeli prime minister condemns nuclear deal, says Tehran’s threats have been met by ‘utter silence’ at global body. Israeli Prime Minister Benjamin Netanyahu on Thursday delivered a fiery address here condemning the Iranian nuclear deal, largely unbowed in his opposition despite losing steep political ground to President Barack Obama over the issue this year.
- FBI Chief ‘Very Concerned’ About Apparent Rise in Crime. Many police departments reporting jumps in shootings this year. The head of the Federal Bureau of Investigation said Thursday he is “very concerned” about apparent sharp rises in violent crime and murder in cities across the country, saying he doesn’t know why it is happening but wants to find the answer.
- A Clinton Email Scandal Checklist. It’s a challenge to keep track of all the dodges and untruths. Hillary Clinton hopes you are busy. Hillary Clinton hopes you are confused. Hillary Clinton hopes the endless stories about her private email server—and her endless, fabulist explanations—will make your head hurt, make your eyes cross, make you give up trying to figure it out.
- What U.S. Retreat Looks Like. Syria reveals the chaos of a world without American leadership. A friend of ours quipped amid the Iraq debate of 2003 that the only thing Europeans dislike more than U.S. leadership is a world without it. Well, we are now living in such a world, and the result is the disorder and rising tide of war in the Middle East that even the Obama Administration can no longer dismiss. How do you like it?
Fox News:
- Israeli intel thwarts first known ISIS plot inside Jewish state. An ISIS cell that trained in the forests near Galilee while plotting to attack Israeli police and military facilities -- as well as liquor stores -- was shattered by the intelligence agents in what experts say is the first known case of the black-clad terrorist army operating within the Jewish state, sources told FoxNews.com Thursday.
- Ten confirmed dead, seven injured in shooting at Oregon college. (video) Ten people are confirmed dead and seven injured in a shooting at Umpqua Community College in Roseburg, Ore, Sheriff John Hanlin announced Thursday night.
MarketWatch.com:
CNBC:
- Is this the mother of all warnings on EMs? (video) The last time emerging markets had it nearly this bad, Ronald Reagan was the U.S. President, KKR purchased RJR Nabisco, and a future popstar named Rihanna was born. Net capital flows for global emerging markets will be negative in 2015, the first time that has happened since 1988, the Institute of International Finance (IIF) said in its latest report. Net outflows for the year are projected at $541 billion, driven by a sustained slowdown in EM growth and uncertainty about China, it added. In other words, investors will pull out more money out of emerging markets than they will pump in.
- Government to hit debt limit in November: Lew. The federal government will hit a legal debt limit and be unable to borrow more money around Nov. 5, U.S. Treasury Secretary Jack Lew said on Thursday.
Zero Hedge:
- The Looming Medicaid Time-Bomb. (graph)
- If You Work Here, Quit Before You Are Fired: The 20 Largest US Layoff Announcements Of 2015. (graph)
Business Insider:
Reuters:
- Chicago businesses brace for potential doubling of property taxes. Chicago Mayor Rahm Emanuel has disclosed that his record property tax hike plan entails significant cuts for nearly 300,000 homeowners, leaving Chicago businesses predicting they will face hikes of up to 50 percent. The second-term mayor last week proposed a $544 million property tax increase, the city's biggest ever, to help fix one of the worst-funded city pension systems in America and vowed "struggling" homeowners, whose residences are worth $250,000 or less, would not see an increase.
- Chipmaker Micron's profit, revenue beat estimates. Memory chipmaker Micron Technology Inc reported a lower-than-expected fall in quarterly revenue, welcome relief for an industry that has been battered by a drop in demand and prices. The company's shares rose as much 8.3 percent at $15.99 in after-hours trading.
Evening Recommendations
- None of note
Night Trading
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 159.75 -.75 basis point.
- Asia Pacific Sovereign CDS Index 90.0 -2.5 basis points.
- S&P 500 futures +.12%.
- NASDAQ 100 futures +.26%.
Earnings of Note
Company/Estimate
- None of note
Economic Releases
8:30 am EST
- The Change in Non-Farm Payrolls for September is estimated at 201K versus 173K in August.
- The Unemployment Rate for September is estimated to remain at 5.1%.
- Average Hourly Earnings for September are estimated to rise +.2% versus a +.3% gain in August.
- ISM New York for September.
- Factor Orders for August are estimated to fall -1.2% versus a +.4% gain in July.
- None of note
Other Potential Market Movers
- The Fed's Fischer speaking, Fed's Rosengren speaking, Fed's Kocherlakota speaking, Fed's Mester speaking and the Fed's Bullard speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.