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No rate cut down under
Capital Markets
<p>The RBA minutes painted a pretty picture of Australia’s economy today, citing controlled inflation, a “rebalancing” away from the mining sector, and a surge in exports. More importantly, it telegraphed that the RBA currently is in no rush slash rates again. Still, the members seem to be pretty worried about “the key domestic sources of risk to financial stability,” the nation's local property markets:<br /> “Members further observed that the risks in commercial property and the property development sector were rising. Building approvals for new apartments remained very strong over 2015, even though rental markets appeared soft in some areas. The divergence between commercial property valuations and rents had widened further, with strong domestic and foreign investor interest for new and existing office buildings in particular, even though vacancy rates were quite high…The key domestic sources of risk to financial stability, and stability of the Australian economy more broadly, revolved around developments in local property markets. Members noted that growth in lending for housing had been steady over recent months and that there were some signs of an easing in the strong rate of increase in dwelling prices in Sydney, in particular, although trends had been more varied in a number of other cities.”<br /> AUD/USD climbed as high as $0.7276 following the release, however, swaps – still spooked by China – are still pricing in a 58% chance of a November rate cut.<br /> Photo: Michael McDonough</p>
Daily Scan: Chinese shares rebound; Canada elects new PM
Capital Markets
<p>Updated throughout the day</p> <p>October 20</p> <p>Good evening everyone. A weird combo of stimulus bets, services sector growth, and margin lending increases helped Chinese shares out of their rut Tuesday with the Shanghai and Shenzhen Composites ending the session up 1.4% and 1.97%, respectively. Hong Kong however was a lot more subdued with both the Hang Seng and the Hang Seng China Enterprises Index tanking 0.37%. As for the rest:</p> <p> Nikkei 225: +0.42%<br /> Straits Times Index: +0.09%<br /> Kospi: +0.45%</p> <p>The European markets meanwhile seem to have taken a hit largely thanks to the China-fueled commodity rout. The FTSE 100 is currently down 0.1%, the DAX down 0.2%, and the CAC down 0.3%.</p> <p>Here’s what else you need to know:</p> <p>Canadian liberals make shock election win. Canada's Liberal leader Justin Trudeau rode a late surge to a stunning majority election victory on Monday, toppling Prime Minister Stephen Harper's Conservatives with a promise of change and returning a touch of glamor, youth, and charisma to Ottawa. Reuters</p> <p>Moody’s: Gulf states to run deficits in 2015-2016. They may be late for the “low oil is bad for the Gulf” train, but ratings agency Moody’s sure makes up for it with a little bit of shock and awe. The agency says that Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE – which all ran surpluses from 2010 to 2014 – are set to run a near 10% deficit in 2015 and 2016. Financial Times (paywall)</p> <p>Divided families reunite in North Korea. Hundreds of South Koreans have begun meeting family members in the North in a rare reunion event for families separated by the Korean War. The reunion, comprising a series of meetings over a week, is being held at a Mount Kumgang resort, at the border. BBC</p> <p>Chinese new home sales disappoint. Expecting a “golden September,” developers and investors were instead met with a broad drop in home prices in China’s tier-1 cities. Compared to August, primary home prices in Shanghai fell 0.9% in September, while Shenzhen and Guangzhou did far worse by tanking 3.5% and 5.6%, respectively. Beijing home prices continued to post gains, climbing 7.1% in September from the month before. SCMP (paywall)</p> <p>China to invest billions on British nuclear plant. In a landmark deal set to be announced on Wednesday, China is to take on a 33.5% share in the proposed $37 billion, French-led Hinkley Point nuclear power station in Somerset. The deal, which took months of negotiations with France’s EDF, is set to be Chinese Premier Xi Jinping’s “commercial centerpiece” during his visit this week. Financial Times (paywall)</p> <p>U.S. Treasury: Chinese capital outflows surged nearly 1000%. In its latest report to congress, the U.S. Treasury Department said that capital outflows from mainland China surged to $250 billion in the first half of the year, a massive jump from the $26 billion posted in the same period in 2014, adding that in July alone outflows may have reached $80 billion, and may have spiked as high as $200 billion in August. U.S. Treasury</p> <p>Deutsche accidentally paid hedge fund $6 billion.</p>
Asia lens on global ESG
Capital Markets
<p>There are many ways in which a firm can construct the illusion of shareholder value creation (as they often do), while actually hurting it over the long term. Take, for example, a manufacturing business that might cut costs, boosting short-term profits by releasing untreated sewage into a river. Doing so will seemingly lift its short-term cash flows but will also substantially increase the variability of its long-term cash flows because the potential threat of regulatory actions, that may thwart business, is never far off. Similarly, a firm can cut back on research and development expenses to boost short-term profits. But that can often damage its long-term prospects.</p> <p>Therefore, a focus on solely short-term profit generation may allow observers to draw misleading conclusions about a firm’s long-term prospects. In accurately assessing a firm’s long-term prospects, it pays to understand the environmental and social impacts of its business practices on all stakeholdersinvolved, which could lead to better outcomes for shareholders in the long run. By stakeholders, we mean employees, a firm’s neighboring community, supply chain, customers and regulators in addition to shareholders. This is what the incorporation of Environmental, Social and Governance (ESG) factors in investment analysis purports to achieve. Businesses that meet ESG standards are generally businesses that make human or business activity less destructive to the environment, as well as promote positive social and economic developments. Therefore ESG focus is part of a focus on long-term shareholder value creation as companies that fit this bill may be better able to spot and execute on long-term growth opportunities. Equally importantly, such companies may be also better able to identify and manage risks effectively, potentially resulting in improved risk-adjusted outcomes for company shareholders.<br /> Asia: Act Locally, Impact Globally<br /> For investors looking to make investment decisions based upon ESG factors, Asia represents one of the best opportunities to gain exposure to companies that can make a long-term difference to the region and the world. There are a range of global ESG issues that cannot be addressed effectively and solved globally unless they are addressed and solved in Asia first. For instance, with respect to climate change, Asia today is the largest regional emitter of carbon. It emits approximately 2.5x the carbon that North America emits, and four times that of Europe.</p> <p>&nbsp;</p> <p>On the back of impressive growth over the last several decades, the Asia Pacific region accounts for 28% of global GDP and 31% of stock market capitalization. Asia’s growth has lifted hundreds of millions of people out of poverty and created a large and vibrant middle class. But an economic model that prioritized growth without regard to externalities has led to rapid deterioration of the environment.</p> <p>Read more at Advisor Perspectives<br /> Photo: NASA Goddard Space Flight Center</p>
Daily Scan: Weight Watchers stock soars; IBM disappoints; the $6B 'oops'
Capital Markets
<p>Updated throughout the day</p> <p>October 19</p> <p>Good evening. We're off to a shaky start for the week, with Morgan Stanley in a big miss for its 3Q earnings -- $0.42/share  (adjusted) vs $0.66 estimates. U.S. markets start the week in a holding pattern following a strong close last week. The Dow fell 0.1% by midday, but was able to scrape up a 0.1% gain by close. The S&amp;P 500 added 0.03% after being low all day as well. The Nasdaq gained 0.4%, after an initial fall. Soft growth in China has hit energy shares giving a negative tone to the early morning trade. Investors will be likely be divining the strength of the economy this week through earnings reports. Bucking the trend: Weight Watcher's stocks more than doubled Monday after Oprah announced she is taking a 10% stake in the company and joining the board. The National Association of Home Builders' numbers are in, and we're doing a little happy dance. Sentiment is up 3 points to 64, compared with 54 points last October. Analysts had been ready for the index to be unchanged at 62 this month.</p> <p>Here’s what else you need to know:</p> <p>IBM's revenue disappoints. IBM reported Monday that its revenue fell for the fifth quarter in a row, and 2015 operating profit forecasts were dropped to $14.75-$15.75 per share from $15.75-$16.50. Shares were down 4.5% in after-market trading. Reuters</p> <p>Deutsche accidentally paid hedge fund $6 billion. A junior foreign-exchange trader accidentally transferred $6 billion to a U.S. hedge fund client's custody account in June, after he misunderstood directions. The trader paid out a gross amount -- not net -- as was intended. The error was corrected within 24 hours, but highlights some of the technology issues the bank has struggled with. Wall Street Journal</p> <p>CIA director's email possibly hacked. The FBI and Secret Service are looking into reports that CIA Director John Brennan and Department of Homeland Security Secretary Jeh Johnson's personal email accounts were hacked. The alleged hacker is a high school student who says he is critical of U.S. foreign policy and a supporter of Palestine. CNN</p> <p>"Star Wars" tickets go on sale Monday night. The latest chapter in the Star Wars saga is due out in December, but tickets go on sale after Monday Night Football October 19. The "Star Wars: The Force Awakens" trailer will also debut during the game between the New York Giants and the Philadelphia Eagles. CNN</p> <p>Polls open in Canada, and it's going to be a tight race. Incumbent Conservative Prime Minister Stephen Harper is vying for a fourth term, but it appears that Liberal leader Justin Trudeau, whose father was prime minister, is leading the polls. Left wing New Democratic Party's Tom Mulcair is also pulling strong support, but will likely fall behind the others. BBC</p> <p>Amazon attacks fake reviews. King Amazon is suing more than 1,000 people for posting fake product reviews on the site and "misleading" customers. In April, Amazon sued a number of websites for selling fake reviews as well.</p>
Video: Gen. Petraeus talks US energy revolution
Capital Markets
<p>The U.S. is leading the energy revolution, says former CIA director Gen. David Petraeus on this week's Wall Street Week. Be bullish on America, because its  innovation is paving the way, he says.</p>
NY Fed president William Dudley said to say that it's too early to raise rates
Capital Markets
<p>From Reuters:<br /> It is too early to consider an interest rate rise in the United States due to concerns about global economic growth, New York Federal Reserve Bank President William Dudley was quoted as saying by an Italian newspaper on Monday.</p> <p>"The situation changed over the last few months," Dudley told CorrierEconomia last Thursday on the sidelines of a conference at the Brookings Institutions in Washington.<br /> Last week, Dudley said in a speech at the Brookings Institute that a rate hike was not off the table for 2015 if the economy continued to expand as expected.<br /> Photo: Michael Dadino</p>
Morgan Stanley slumps after earnings miss
Capital Markets
<p> <br /> Morgan Stanley released its third quarter earnings report before opening bell this morning, posting a wide miss of 34 cents per share in adjusted earnings and adjusted revenue of $7.33 billion. Analysts had been expecting earnings of 63 cents per share and revenue of $8.54 billion. In last year’s third quarter, the firm reported earnings of 64 cents per share.</p> <p>Reported earnings were 48 cents per share, compared to last year’s 83 cents per share. Including accounting adjustments, Morgan Stanley (NYSE:MS)’s revenue was $7.77 billion, compared to last year’s $8.91 billion.</p> <p>The firm’s Institutional Securities business saw net revenues excluding DVA fall from $4.3 billion to $3.5 billion this year. Management said they continued to see strength in Equity sales and trading. Advisory revenues rose from $392 million to $557 million, while Equity sales and trading net revenues were flat at $1.8 billion.</p> <p>The Wealth Management business saw net revenues fall from $3.8 billion to $3.6 billion. Asset management fee revenue ticked upward from $2.1 billion last year to $2.2 billion this year. Transactional revenues fell from $912 million to $652 million.</p> <p>Read more at ValueWalk.<br /> Photo: Insider Monkey</p>
Google stands out amid low earnings expectations
Capital Markets
<p>&nbsp;</p> <p> Overall, Wall Street expectations are muted for this week's earnings reports.</p> <p> Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) will buck that trend with strong results, if forecasts are accurate.<br /> Expectations are also high for earnings from American Airlines Group Inc (NASDAQ:AAL), Eli Lilly and Co (NYSE: LLY), General Motors Company (NYSE: GM) and Verizon Communications Inc. (NYSE: VZ).</p> <p>&nbsp;</p> <p>The heart of the third-quarter earnings reporting season has arrived, and results will come fast and furious this week. But overall, expectations are fairly muted.</p> <p>Consensus forecasts from Wall Street analysts call for declining earnings from many of the most prominent companies reporting this week. However, expectations are high for the results from Alphabet Inc, still more commonly known as Google.</p> <p>Strong earnings growth is also predicted for Eli Lilly and Verizon, accompanied by at least some growth in revenues.</p> <p>Some of the strongest year-over-year growth on the bottom line is anticipated this week from General Motors Company and American Airlines. Yet, in both cases, the top line is expected to have shrunk marginally.</p> <p>Below is a quick look at what is expected from these and a peek at some of the week's other most prominent reports.<br /> Alphabet<br /> The company formerly known as Google will post earnings of $7.34 per share for its third quarter, if Estimize's consensus forecast is accurate. That would be up ...</p> <p>Full story available on Benzinga.com<br /> Photo: Carlos Luna </p>
Why ‘Abenomics’ keeps missing the mark
Capital Markets
Japan Continues to Struggle under ‘Abenomics’. Standard &amp; Poor’s recently cut its long-term credit rating of Japan one level, down to A+, and markets do not seem to have reacted much, if at all. A key reason is that many Japanese bonds are owned by Japanese banks and other Japanese institutions, “which are not going to sell in large numbers,”
The 'age' age
Capital Markets
<p>As I mentioned in last week’s letter, I traveled to San Francisco last Monday with my friend Patrick Cox, who writes our Transformational Technology Alert newsletter. We had dinner with Dr. Mike West of Biotime and then spent the next morning at the Buck Institute for Research on Aging. Pat and I decided we would jointly report on what we learned. He has already written his part, which was published last week. I am going to reproduce portions of that letter, which highlight the conversation with Brian Kennedy and his team at the Buck Institute, and then add my own thoughts about our conversation with Mike West the previous night.</p> <p>(Note that I am excerpting Patrick’s paid letter, which includes comments on companies in his portfolio, rather than his free weekly Transformational Technologies Tech Digest service. We agreed that it was important to do so in this one case, given the huge significance of the research involved and the Buck Institute’s relationship to it.)</p> <p>Essentially, we looked at two aspects of aging. The Buck Institute is focused on how to slow down the aging process and reduce the symptoms (such as chronic diseases) that come with aging. Dr. Mike West and his colleagues, as well as a few other firms and researchers, are focused on using our own pluripotent stem cells in ways that would allow us to repair organs in our bodies, thus giving us the opportunity to “grow younger” again. (It’s not quite that simple, as I’ll try to explain later.)</p> <p>The very good news is that progress is being made. The bad news is that the regulatory environment is impeding progress, as the regulators don’t quite know what to do about the advances that are coming; but even there things may be changing. I recognize this letter will be a little far afield from my usual scribblings on economics and finance, but aging and health are things that concern us all. And if there are a few things you can do to increase your healthspan (not just your lifespan), then the attention you pay to optimizing your health will make all the work you do on your investments even more important and useful. So let’s turn to Pat’s letter, and because I can’t resist, I will insert personal comments in brackets until we get to the end of his letter.</p> <p>Read more at Advisor Perspectives</p> <p>&nbsp;</p> <p>&nbsp;</p>