News > Capital Markets

Daily Scan: Weak China trade data hit global markets
Capital Markets
<p>Updated throughout the day</p> <p>October 13</p> <p>Good evening everyone. Weak trade data from China have hit global markets, putting a full stop to the rallies that had lifted bourses for more than a week. In Asia, the Nikkei fell 1.11%; the Hang Seng slipped 0.57%. In Europe, most exchanges were racking up losses in excess of 1% as investors feared the cold China has caught would give everyone else the flu. Commodity and luxury good companies got hit the hardest. The mainland China indexes managed to close higher after spending most of the day in the basement, thanks to the invisible hand of Sino-capitalism.</p> <p>Here’s what else you need to know:</p> <p>Exports fall 3.7% and imports collapse in China trade data. China’s trade surplus widened to $60.34 billion in September from $60.24 billion in August, a massive jump from the $46.79 billion narrowing expected by analysts. The surplus was largely fueled by a 17.7% dive in imports, indicating that China’s shift to a consumer economy isn’t going as planned. And exports slowed Business Insider</p> <p>EM currencies slammed. The post China import bloodbath seemed claimed the Malaysian ringgit and the Indonesian rupiah; both tanked at least 1% against the dollar, while the Philippine peso and the Indian rupee lost at least 0.5%. The aussie meanwhile, right after clocking in a 9-day recovery, plunged nearly 0.9% to AU$0.7296 versus the greenback.</p> <p>Yuan punches in 8-day winning streak. The PBOC fixed the yuan 0.28% higher today, helping the currency snap up another day in the verde (or red, depending where you are). Interestingly, this seems at odds with their recent “quantitative easing” measures, which should’ve sent the renminbi down, down, down. Semantics, I guess, since it was Chinese media who kept calling it that. Financial Times (paywall)</p> <p>Chinese asset manager stabbed by investor. Global Wealth Investment CEO Wang Jie was rushed to a hospital Sunday after a disgruntled investor stabbed him in the shoulder during a meeting. The incident was apparently connected to the collapse of one of China’s largest state-backed guarantors, the Hebei Financing Investment Guarantee Group. Financial Times (paywall)</p> <p>U.K. falls into deflation. While core inflation remained unchanged, headline inflation in the United Kingdom fell to a 55-year low of -0.1% in September, worse than analyst estimates of an unchanged reading. “A smaller than usual rise in clothing prices and falling motor fuel prices” were to blame. Office of National Statistics</p> <p>Apple blocking news app in mainland China. Even users who bought their iPhones in the U.S. can’t access Apple News. Quartz</p> <p>Ford to invest $1.8 billion in China R&amp;D. Despite a slump in car sales in the region, U.S. carmaker Ford plans to invest $1.8 billion to build up its research and development capabilities in China to better tailor its offerings to its customers, as its president, Mark Fields said in a statement: “With this investment in research and development, the next generation of Ford vehicles will be completely designed around our customers.” </p>
Daily Scan: Oil slumps more than 4%; earnings take center stage as stocks rally 7th session
Capital Markets
<p>Updated throughout the day</p> <p>October 12</p> <p>Enough already about this Federal Reserve dithering. Time to worry about earnings. Last week, Alcoa launched the earnings reporting season with dismal news. Expectations are low for the season -- which could prove positive for stocks. Tighten your seatbelt Tuesday for some biggies: Intel, JPMorgan, Johnson &amp; Johnson, and CSX Corp. Later in the week we will get more heavyweights, including Goldman Sachs, Netflix, Bank of America, Wells Fargo, and Delta Air. Did we mention BlackRock, Schwab, or Citigroup? Busy, busy, busy. U.S. stocks closed higher in dull action but still notched a seventh consecutive day of gains. Banks and bond trading were closed for Columbus Day.</p> <p>Here’s what else you need to know:</p> <p>Fortress Investments to shutter lead fund after major losses. Head trader Michael Novogratz is reportedly on his way out. The fund has posted losses of 17.5% through September. The fund now has $1.6 billion in assets, down from $8 billion in 2007. Wall Street Journal (paywall)</p> <p>Oil hit by OPEC production. Sweet crude futures for November fell 4.41% while Brent tumbled nearly 4.5%. It was the biggest one-day drop since Sep 1. OPEC output rose 109,000 barrels/day in September to 31.57 million. That news overshadowed an earlier forecast that U.S. production would drop in 2016. MarketWatch</p> <p>AB Inbev hikes bid for SABMiller to $103 billion. They say the fourth time is the charm. AB Inbev has been wooing the No. 2 brewer for weeks. Apparently, when it announced its bid last week of  $99.2 billion, the jilted suitor thought board members representing SABMiller family stakeholders were in favor of the deal. Wrong! Wall Street Journal (paywall)</p> <p>Dennis Lockhart whistling the same tune. The Atlanta Fed president continues to say that the U.S. is ready for an interest rate hike this year. Lockhart is considered a good gauge on central bank thinking. WBP Online</p> <p>European stocks lower, breaking winning streak. The Stoxx Europe 600 was marginally lower. The FTSE was off 0.77%, breaking a nine-session series of up sessions. Rolls Royce Holdings fell more than 4% after the Financial Times reported that regulators were investigating some of its contracts. MarketWatch</p> <p>Dell to buy EMC in $67 billion deal, a tech record. The PC maker has gone through a total makeover, going private two years ago and now taking on a mountain of debt to acquire the storage giant. An announcement is expected Monday. New York Times (paywall)</p> <p>GE said to be in talks with Wells Fargo to sell $30 billion loan portfolio. GE has been on a tear to return to its industrial roots. Reuters</p> <p>Enough already, move! Central bankers at the annual meeting of the International Monetary Fund in Lima, Peru, told the Federal Reserve to raise rates, already. “'Delaying the increase would not solve the situation,' said Sukhdave Sin</p>
Earnings crunch begins: Big banks in the spotlight
Capital Markets
<p> The third-quarter earnings crunch begins this week.<br /> Many big banks are scheduled to report, but expectations are muted for them overall.<br /> Well Street expectations are low for others as well, including Dow components GE and Intel, as well as Netflix.</p> <p>The quarterly reporting crunch begins in earnest this week, and many of the big banks will be taking their turns in the earnings spotlight, including Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE: C), JPMorgan Chase &amp; Co. (NYSE: JPM) and Wells Fargo &amp; Co(NYSE: WFC).</p> <p>The consensus forecasts of Wall Street analysts for these are rather muted, with small declines in revenue anticipated from three of them, and modest earnings growth from two, relative to the year-ago period.</p> <p>Below is a quick look at what is expected from these and a few of the week's other most prominent reports.</p> <p>See also: JC Parets: Stay Away From Banking Stocks<br /> Bank of America<br /> This leading money center bank will post earnings of $0.37 per share for its third quarter, if Estimize's consensus forecast is accurate. That would compare to a net loss $0.04 per share in the same period of last year. Note that Estimize overestimated Bank of America earnings in ...</p> <p>Full story available on Benzinga.com<br /> Photo: Wally Gobetz</p>
Weekend Scan: Goldman sees unemployment falling below 4.5% in 2018 even as growth slows
Capital Markets
<p>October 12</p> <p>Good evening everyone. Federal Reserve officials have been saying for some time that they believe the unemployment rate can fall more than they expected before inflation kicks in. Now Goldman Sachs has issued a report saying the jobless rate is likely to fall below 4.5% in the next couple of years, even without stellar growth. The Calculated Risk blog reports that the ageing population is behind the new normal for economic equilibrium. As baby boomers retire, the participation rate in the job force declines. Goldman expects the particpation rate to slip 0.25% annually to 61.8% by 2018 from the current 62.4%.</p> <p>Here’s what else you need to know:</p> <p>Enough already, move! Central bankers at the annual meeting of the International Monetary Fund in Lima, Peru, told the Federal Reserve to raise rates, already. “'Delaying the increase would not solve the situation,' said Sukhdave Singh, deputy governor of Bank Negara Malaysia." They probably didn't read that Goldman Sachs report.  Wall Street Journal (paywall)</p> <p>Deflation, the elephant in the room. Barron's contributing editor Jim McTague writes on his blog that deflation is the thing no one wants to talk about at the Fed: "Deflation is evident in many places in our  economy. The buyout of older, high-paid employees by companies is an effort to reduce payrolls so that they can compete with startups and foreign competitors enjoying  lower human capital outlays.  Home prices in may sections of the country have not recovered from the Great Recession, owing to slack demand caused by weaker incomes.  The National Federation of Retailers this week said that their members this holiday season will have to grapple with deflation.  They will have to offer prices in 2015 lower than in 2014 to loosen consumer dollars." LinkedIn</p> <p>Turkey blaming Islamic state for bomb that killed up to 128. A pair of suicide bombers disrupted a pro-Kurdish demonstration in Ankara. The Turkish government said the attack would not delay elections slated for November. Reuters</p> <p>Iran tests new long-range missle. The surface-to-surface weapon called Emad can reach Israel and has "precise control." The test could throw a wrench into the nuclear agreement recently reached with six nations. Iran's parliament approved the general structure of the deal on Sunday. Wall Street Journal (paywall)</p> <p>Hillary Clinton to claim center stage in first Democratic debate.  A total of five candidates will be squaring off. Can anyone out there name all five candidates? CNN</p> <p>Asia stock markets looking rosy. CSI 300 futures point to a 2.01% climb, Hang Seng Index contracts signal a 0.75% pop, while Straits Times Index futures hint at a 1.73% jump. Japan is close for Health and Sports day.</p> <p>China to release new yuan loans. Watch for the number at 10 a.m., local time.  Also on the docket: Malaysia’s industrial production figures at 1 p.m., and India’s industrial, manufacturing, and inflation numbers at 9 p.m.</p> <p>North Korea is “ready for war.” Celebrating the 70th anniversary of the ruling Workers' Pa</p>
Daily Scan: Shanghai up over 3%; Yuan reaches two-month high on dovish pose at US Fed
Capital Markets
<p>Updated throughout the day</p> <p>October 12</p> <p>Good evening everyone. Chinese shares ended the session higher today amid speculation that Beijing will ramp up stimulus measures as the PBOC announced it would expand its relending pilot program. The Shanghai Composite surged 3.28%, while the Shenzhen Composite climbed 4.18%. Japan was closed but Singapore and Hong Kong were able to join the party:</p> <p> Hang Seng Index: +1.21%<br /> Hang Seng China Enterprises Index: +1.26%<br /> Straits Times Index: +1.04%</p> <p>Over in currencies, the yuan surged 0.42% today to hit a two-month high of 6.3187 a dollar. Emerging market currencies rallied over the past week in response to the Federal Reserve policy minutes, which revealed a very dovish attitude at the central bank. Oil prices continued their blitz  after the U.S. rig count fell for the fifth straight week. WTI gained 0.5% and Brent crude climbed 0.8%. Here’s what else you need to know:</p> <p>HK secondary market home sales hit 21-month low. The Hong Kong property market is feeling the heat again as home sales in the secondary market fell to a 21-month low of zero over the weekend. Sellers are reportedly willing to slash prices by as much as 5% at the moment, though buyers are still holding out for double-digit drops. SCMP (paywall)</p> <p>The prancing horse launches its IPO. After delaying its vaunted subsidiary’s offering earlier this year, Fiat Chrysler Automobiles announced that Ferrari has just launched its long-awaited IPO. The offering will see 17,175,000 of the prancing horse’s shares sold to the public, each valued between $48 and $52 per share. Fiat Chrysler Automobiles</p> <p>Kuroda: “Inflation dynamics is as we anticipated.” Bank of Japan Governor Haruhiko Kuroda dashed all hopes for an uptick in QE Monday. Kuroda told CNBC the bank can turn up monetary policy whenever necessary but “at this moment the inflation dynamics is as we anticipated.” The central banker also said  “unless oil prices decline further, the negative impact from oil will eventually dissipate, fade out, disappear and then 1 percent inflation is quite likely to come.” CNBC</p> <p>PBOC: market “correction” almost over. PBOC deputy governor Yi Gang, speaking at the IMF and World Bank meeting in Peru, was quoted saying that after several rounds of “corrections,” the Chinese stock market rout is “almost over.” Foreign and local investors, scrambling to take their capital elsewhere, missed the memo. Reuters</p> <p>Glencore to sell Chilean, Australian copper mines. The shares had halted trading in Hong Kong ahead of the announcement. Glencore is down 55% for the year; the mining and commodities giant is struggling to reduce $30 billio in debt. Last week, Glencore announced plans to dramatically reduce its zinc production. BBC</p> <p>China detains two more Japanese “spies.” In a move likely to strain its already troubled ties with Japan, China has detained two more Japanese nationals on susp</p>
Bubbles or stagnation: Pick your poison (or how Summers and Trump are brothers)
Capital Markets
<p>     </p> <p>While writing a column on how and why financial bubbles are created, I was interrupted by Professor Lawrence Summers’ typically bombastic article in the FT. “Secular stagnation”, “hysteresis” and being stuck at the zero bound require that governments borrow a lot more to provide fiscal stimulus, Summers argued. Only by that means can the world free itself from the torpid pull of deflation and slow or negative growth. (Please do not worry if secular stagnation and hysteresis are not terms you understand. You will get the picture anyway.)</p> <p>As I wrote last week, China most likely will do as Summers now recommends. China will do so because it must continue to grow, and it is only by continuing massive construction projects that it can do so. The fact that China has built too much in the last 10 years and has a bubble in real estate will not deter the Chinese. They will add to their bubble until some outside event intervenes. But as I said, bubbles cannot inflate forever.</p> <p>Summers seems to be recommending that the rest of the world emulate China: No bubble is too dangerous to be avoided. Despite the high prices of financial assets and real estate, the world’s governments, presumably led by the U.S. government, should borrow in order to inflate those bubbles still further. Why, according to Summers logic? Because the spending will be counted as GDP, assuring growth.</p> <p>This is the perfect time for such borrowing and spending because interest rates are low and the world is seeking additional safe assets, Summers asserts. I assume he means that governments should borrow long, but he does not specify.</p> <p>The choice, Summers seems to be saying, is between super-bubbles and relative stagnation. He chooses super-bubbles.</p> <p>I disagree with Summers. First, as I wrote here, I think the global supply of investable funds is about to shrink. Therefore governments that borrow heavily may find their paper in less demand. Second, bubbles do not pop conveniently. They pop when the world is least prepared for them. And, even worse, the world cannot prepare for them to pop because the natural process of popping is self-reinforcing.</p> <p>Summers and some other macroeconomists think they have the answers to how to deflate a bubble gently. They are arrogant beyond words. No one has managed to achieve such a thing. The U.S. did as well as anyone ever has in 2008-2009. Summers says the U.S. was late in dealing with the bubble and it could have done much better. That is true only if one assumes that politics is capable of doing something early and perfectly. That assumption would be contrary to human nature.</p> <p>Professor Summers strikes me as an angry man. He is not happy with the world as it exists, and he is willing to run large risks to change it. In that regard, he is in company with many Americans of all political stripes. Everyone seems angry about something. And therefore many people are willing to adopt radical policies in order to change what they do not like. Thus Trump and Summers are speaking the same language, though either might be horrified to discover that was true.</p> <p>I will be writing more about the theory of financial bubbles over the next few weeks. It remains an important subject because bubbles affect the entire financial system, as well as the economy, for years after they have popped. I will leave you with one thought about bubbles for today: Historically, the dangerous financial bubbles all have been created by </p>
What we're reading: The global hangover and the Valley's Simon and Garfunkel
Capital Markets
<p>From a flipside view on the global economic slowdown, to an intimate peek at Silicon Valley's most legendary duo, here are some great reads we saw this week.</p> <p>World’s economic slowdown is a hangover not a coma. The popular diagnosis is that the global economy is doomed to decades of secular stagnation. But what if this is wrong? Could the world economy instead be in the later stages of a debt “super cycle”? Financial Times (paywall)<br /> China's monetary-policy choice. The popular line  of thinking is that China growth continues to slow due to long-term structural factors, such as demographic transition. But, so far, few studies have indicated that structural factors are adequate to explain the extent of the decline. Does a more convincing answer lie in China  monetary-policy stance? Nikkei<br /> Speaking to Steve Wozniak was like ‘taking to Garfunkel about Paul Simon,’ Aaron Sorkin says. Sorkin, screen writer of the cinema biopic  “Steve Jobs,”reveals how his conversations with Apple co-founder  Steve Wozniak offered intriguing insight in Silicon Valley's legendary odd couple. Business Insider<br /> From Fifth Avenue penthouse to Hong Kong jail. A remarkable story of how an American socialite became an unwitting drug mule for crystal meth. US philanthropist Elizabeth Kummerfeld had long been falling for online African cash scams, but the one she walked into in 2014 would land her in a Hong Kong prison cell. South China Morning Post (paywall)<br /> An odd way to make friends. At first glance, Russia's invasion of Syria is a sure fire way to lose friends and alienate people - but that's not the intent. To the contrary, the invervention was intended to build relations. It's not working. The Economist (paywall)</p> <p>Photo: YouTube</p>
The Week Ahead: Fed speeches; BoJ releases minutes
Capital Markets
<p>(Note: all times HKT)<br /> Good afternoon. The week starts off with speeches from both the U.S. Federal Reserve and  big releases from the Bank of Japan. The market rebounded last week on the hope that the Fed will further postpone its decision to hike interest rates, while the possibility the Bank of Japan could expand stimulus helped keep Tokyo markets in positive territory. </p> <p>Investors will be listening closely on Monday then when we hear speeches from three Fed officials: Atlanta’s Dennis Lockhart; Chicago's Charles Evans, and board member Lael Brainard. On Tuesday the BoJ releases its monetary policy meeting minutes and monthly report. BoJ’s Kuroda will speak on Friday. We can also expect a slew of important macro data from Australia, Japan, the U.S. and, most importantly, China.  Here’s what else you should look out for:</p> <p>Monday </p> <p>1pm – Malaysia August industrial production – Forecast: 4% from 6.1%</p> <p>9pm – India August industrial production –  Forecast: 4.8% from 4.2%</p> <p>9pm – India August manufacturing production</p> <p>9pm – India September inflation rate </p> <p>9.10pm –  Fed’s Lockhart speech</p> <p>10.30m – Russia August balance of trade – Forecast $10.7b from $10.3b</p> <p>11.3opm – Fed’s Evans speech</p> <p>Tuesday</p> <p>5.30am - Fed’s Brainard speech</p> <p>6am – Korea September import and export prices</p> <p>8.50am – Japan September bank lending</p> <p>8.50am - Bank of Japan (BoJ) monetary policy meeting minutes</p> <p>09.30am - National Bank of Australia September business confidence </p> <p>11am – China September balance of trade – Forecast: $48.21b from $60.2b</p> <p>11am – China September exports  – Forecast: -6.0% from 5.5%</p> <p>11am – China September  imports – Forecast: -13.8% from 15%</p> <p>2pm – BoJ monthly report </p> <p>2pm – Japan September consumer confidence </p> <p>3pm – Germany September final inflation rate </p> <p>5pm UK September inflation rate</p> <p>Wednesday</p> <p> 08.30am –  Australia October Westpac consumer confidence index</p> <p>9am - Singapore Q3 YoY GDP growth rate – Forecast: -1.3% from 1.8%</p> <p>10.30am –  China September YoY inflation rate – Forecast: -1.8% from 1.3%</p> <p>10.30am – China September YoY PPI – Forecast: unchanged</p> <p>8.30pm – India September balance of trade</p> <p>9.30pm – U.S. September retail sales</p> <p>Thursday </p> <p>9.30am –  Australia September unemployment rate – Forcast: 6.3% from 6.2%</p> <p>10am – South Korea interest rate decision </p> <p>1.30pm – Japan August YoY industrial production  final – Forecast: 0.2% from 0%</p>
The hidden debt burden of emerging markets
Capital Markets
<p>LIMA – As central bankers and finance ministers from around the globe gather for the International Monetary Fund’s annual meetings here in Peru, the emerging world is rife with symptoms of increasing economic vulnerability. Gone are the days when IMF meetings were monopolized by the problems of the advanced economies struggling to recover from the 2008 financial crisis. Now, the discussion has shifted back toward emerging economies, which face the risk of financial crises of their own.</p> <p>While no two financial crises are identical, all tend to share some telltale symptoms: a significant slowdown in economic growth and exports, the unwinding of asset-price booms, growing current-account and fiscal deficits, rising leverage, and a reduction or outright reversal in capital inflows. To varying degrees, emerging economies are now exhibiting all of them.</p> <p>The turning point came in 2013, when the expectation of rising interest rates in the United States and falling global commodity prices brought an end to a multi-year capital-inflow bonanza that had been supporting emerging economies’ growth. China’s recent slowdown, by fueling turbulence in global capital markets and weakening commodity prices further, has exacerbated the downturn throughout the emerging world.</p> <p>Click here to read more</p> <p>© Project Syndicate</p> <p>This story originally appeared in Advisor Perspectives.<br /> Photo: Wiki</p>
Weekend Scan: Emerging markets currencies rise; US markets top off strong week
Capital Markets
<p>October 10</p> <p>Good morning. US markets topped off a strong week for global markets yesterday with the S&amp;P 500 US equity index up 3.3% over the five-day period following a 0.1% gain on Friday. The upbeat mood is thanks to a better outlook for commodity prices and hopes that central banks will be more accommodating in the short term. Added bullishness has also given a lift to emerging market currencies. The Indonesian rupiah stood out with a 3.3% rise against the U.S. dollar, a gain of 8.5% since the start of the month.</p> <p>Here is what else you need to know:</p> <p>Global tax deal targets multinationals. The world’s leading finance ministers agreed on Friday to change the rules on taxing profits, and warned multinational companies they could no longer use their size and international presence to dodge taxes. Under the rules, companies such as Starbucks, Amazon, and Google will find it harder to concentrate their profits in low-tax countries and tax havens — a shift that promises to raise up to $250 billion a year in extra tax revenues, according to the OECD. Financial Times (paywall)<br /> North Korea to hold huge parades for 70th anniversary. The hermit state is holding what is expected to be one of its biggest celebrations ever, to mark the 70th anniversary of the ruling Workers' Party. A cavalcade of armoured vehicles and ballistic missiles is expected to rumble through the capital Pyongyang accompanied by marching troops. BBC<br /> Malaysia’s prime minister fights for his political life. Najib Razak, Malaysia’s embattled prime minister, is fighting for his political life after open warfare broke out within the country’s state institutions over a corruption scandal that has engulfed him. Financial Times (paywall)</p> <p>India rages after Saudi employer hacks off maid's arm. India's foreign ministry has complained to the Saudi Arabian authorities following an alleged "brutal" attack on a 58-year-old Indian woman in Riyadh. Kasturi Munirathinam's right arm was chopped off, allegedly by her employer, when she tried to escape from their house last week, reports say. BBC</p> <p>Oil crosses $50, dollar slips on dovish FOMC meeting notes. The Fed's policy-making body showed concerns about weak global growth and low inflation. Gold posted its highest settlement in seven weeks. Forecaster PIRA Energy sees oil headed to $70/barrel by the end of 2016. WBP Online</p> <p>Alcoa earnings disappoint; outlook for China car production slashed. The aluminum giant posted third quarter earnings after the close of trading on Thursday of 7 cents/share -- well below the estimates of 13 cents. Sales dropped 11% as Alcoa battled softer prices. Alcoa sees China car production dropping to 1%-2% from earlier expectations for growth of 5% to 8%. CNBC, </p>