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Daily Scan: Beware stock options expiration day; dark horse candidates pose fund raising challenge to incumbents
Capital Markets
<p>October 16</p> <p>Good morning everyone. Stock options expire today in the U.S. Watch out. For the past eight expirations, markets rallied the day before (ahem) and then tanked on expiration day. But for now, stocks are up a bit, with the Dow, Nasdaq, and S&amp;P 500 all adding 0.1%. Which makes us think of the Presidential primary election. What should we make of the fund-raising data just released? Ben Carson, the retired neurosurgeon gunning for the GOP nod, raised $20 million in the third quarter vs. $12 million for establishment candidate Senator Ted Cruz of Texas.  Favorite Jeb Bush? The former Florida governor took in just $11.4 million (though he raised tons in the summer). And Democratic frontrunner Hillary Clinton barely out-raised rival Bernie Sanders, the Vermont senator: $29.9 million vs $26.2 million.</p> <p>&nbsp;</p> <p>Here’s what else you need to know:</p> <p>U.S. industrial production drops. Industrial production fell in September for the second straight month, dropping 0.2%, as expected. The August decline was revised to a 0.1% fall. CNBC</p> <p>JOLTS report shows job openings down. The quits rate has held steady at 1.9% for the fifth consecutive month. Job openings in August were at 5.6 million, down from the adjusted 5.67 million in July. Business Insider</p> <p>GE surprises with better-than-expected earnings. Boosted by better aviation and transportation earnings, General Electric reported a profit of $2.51 billion, or 25 cents a share, last quarter. Excluding the finance business, which GE is moving to cut, the company had revenue of $27.9 billion, on a profit of 29 cents a share. Wall Street Journal</p> <p>Theranos backs away from much vaunted "nanotainer" tests. After an inspection by the Federal Drug Administration, the hot startup (company valuation $9 billion) is now able to use the assay to test just one condition -- not the 100 originally publicized. Wall Street Journal (exclusive, paywall)</p> <p>Roaring week for Chinese stocks. The Shanghai Composite notched gains fo 6.13% and the Shenzhen 7.66% on the back of  stimulus hopes both in China and in Japan. The Hang Seng hung back a bit, nudging 0.69% higher and the Nikkei 225 rose 3.14%. Hooray for stimulus.</p> <p>Since June, asset classes in synch for first time in 20 years. And that's not good. Robeco Investment Solutions show that gold, real estate, stocks, high yield bonds, stocks are all in the tank. Usually different asset classes hedge one another. MarketWatch</p> <p>Yuan heads to weekly low. With the PBOC fixing the yuan’s midpoint down 0.05% to 6.3436, both onshore (CNY) and offshore (CNH) yuan are heading to their weekly lows. CNY touched 6.3555 against the greenback today, just as the CNH dipped to 6.3583. </p>
People Moves: Credit Suisse strengthens China research team; HSBC to relocate bankers to HK
Capital Markets
<p>Credit Suisse bolsters A-share research team. Li Chen, an Institutional Investor-ranked portfolio strategist, is among the six new hires Credit Suisse made to bolster it’s A-shares research team.</p> <p>Prior to joining Credit Suisse, Li spent five years at UBS, serving various key roles including head of China equity strategy. Before that, he was head of research for one of China’s largest mutual funds, the Harvest Fund. He will report to Vincent Chan, Credit Suisse’s head of China research, and he will continue to be based in Hong Kong. Finance Asia</p> <p>HSBC bankers move to Hong Kong. Agustin Gargallo, a New York-based director for HSBC’s emerging markets debt syndicate, is set to relocate to Hong Kong amid a massive reshuffle within the British firm’s debt syndicate unit. Also set to head to Hong Kong is Alison Chan, a London-based associate within the bank’s EMEA corporate and structured syndicate team.</p> <p>The two of them seem to have spent most of their careers at HSBC, although Gargallo joined the firm following a two-year stint at Goldman Sachs Asset Management. They will both report to Carla Goudge, head of debt syndicate, Asia Pacific. Reuters</p> <p>For Asset Management moves, click here.</p> <p>Photo: Wendy</p>
Gaps, growth and headwinds
Capital Markets
<p>Low rates and oil price fall are responses to output discrepancy</p> <p>Global growth is uninspiring. The global economy plods along with aggregate GDP growth of around 3 per cent to 3.5 per cent and similar levels of inflation. This has been true for the past several years and many expect it to continue for at least the next couple. This is partly because trend growth rates in major economies appear to have slowed from the pre-crisis pace. But slow growth is not just a supply-side condition. A gap between global aggregate demand and supply for goods and services persists, even though global interest rates - nominal and real, short and long maturity - remain at historic lows.</p> <p>Earlier this year, with oil prices falling, the global economy appeared poised to accelerate. While low oil prices represent a transfer of income from oil exporters to importers, conventional macroeconomic models predict they should boost global aggregate demand as long as the propensity to consume and invest by the importers exceeds the corresponding propensities by the exporters. Moreover, by reducing headline inflation, low oil prices provide central banks with room to ease monetary policy.</p> <p>This year, no fewer than 40 central banks have taken that opportunity, while among the major economies only three - Brazil, South Africa and the Philippines - have raised rates. In addition, the European Central Bank has embarked on a major quantitative easing programme, while the Bank of Japan has doubled down and greatly expanded the quantitative and qualitative easing programme it launched in 2013.</p> <p>And yet despite low oil prices, waves of QE and rate reductions by many central banks, world GDP growth in 2015 is expected to come in at a pedestrian 3 per cent, even though one year ago, when little of the stimulus from oil, rates and QE was factored in, the consensus projection for growth was 3.6 per cent. The same is true for the 2016 outlook: a year ago the consensus for 2016 was for 3.8 per cent growth, but now has been marked down to 3.5 per cent. And if history is any guide, it may only be a matter of time before the incoming data for 2016 again disappoint the more optimistic consensus from the prior year.</p> <p>So why isn’t growth accelerating? The simple answer is that falling oil prices, low interest rates and monetary accommodation are not random windfalls, but are instead responses to an excess of global supply relative to global aggregate demand.</p> <p>The decline in expectation for future productivity growth is a major source of the “new mediocre” of sluggish global demand falling short of ample global supply. The connection is as follows. Decisions by households and firms to invest or consume today depend in part on expectations for future income or profit growth, which in turn will be tied to future productivity growth. If workers expect modest or no pay increase in the future and firms scale back their views of future profits, they cut back today on consumption and investment.</p> <p>According to classical economics, the price level, bond yields, stock prices, exchange rates and commodity prices in theory should adjust even in a low productivity growth world to clear global markets at full employment. However, since Keynes, we have understood that the mechanism can break down, and when it does the global economy clears at a level of aggregate demand that falls short of supply. Monetary policy has adjusted to this reality. Monetary accommodation has boosted stock prices despite reduced prospects for productivity growth, while exchange rates reflect divergences - actual and prospective - among these accommodative national monetary policies.</p> <p>Yet while growth in demand has been dis</p>
Daily Scan: Asia caps the week on a high note; Europe continues gains
Capital Markets
<p>Updated throughout the day</p> <p>October 16</p> <p>Good evening everyone. With stimulus hopes at full tilt both in China and in Japan, Asian shares posted one of its best days today with the Hang Seng Index up 0.88%, the Shanghai Composite up 1.60%, and the Nikkei Average up 1.08%. Here’s how the region’s largest bourses did this week:</p> <p>Day<br /> Week</p> <p>Hang Seng Index<br /> +0.88%<br /> +0.69%</p> <p>Hang Seng China Enterprises Index<br /> +0.90%<br /> +2.23%</p> <p>Shanghai Composite<br /> +1.60%<br /> +6.13%</p> <p>Shenzhen Composite<br /> +1.28%<br /> +7.66%</p> <p>Nikkei 225<br /> +1.08%<br /> +3.14%</p> <p>Straits Times Index<br /> +0.42%<br /> +1.56%</p> <p>European indices meanwhile are looking to close on a high note too, though the U.K.’s FTSE 100 still seems to be on track for its first weekly loss in a month. Its currently up 0.76%, Germany’s DAX is up 0.75%, and France’s CAC is up 0.73%. As for Wall Street, S&amp;P minis are signaling a 0.12% pop at the open.</p> <p>Here’s what else you need to know:</p> <p>EU backs Turkey migrant action plan. EU states have backed an action plan with Turkey, which it is hoped will ease the flow of migrants to Europe. Nearly 600,000 migrants have reached the EU by sea so far this year, many of them travelling from Turkey. BBC</p> <p>Fears grow over increased antibiotic resistance.  More than 6,000 deaths a year could be caused by a 30% fall in the effectiveness of antibiotics in the US, a report in The Lancet suggests. It said most of the extra deaths would happen in patients having colorectal surgery, blood cancer chemotherapy and hip replacements. BBC</p> <p>Yuan heads to weekly low. With the PBOC fixing the yuan’s midpoint down 0.05% to 6.3436, both onshore (CNY) and offshore (CNH) yuan are heading to their weekly lows. CNY touched 6.3555 against the greenback today, just as the CNH dipped to 6.3583. SCMP (paywall)</p> <p>China Defence wants good ties with SE Asia, apparently. China's defence minister struck a conciliatory tone with Southeast Asia defence chiefs on Friday, saying that all needed to work hard to maintain peace and stability against threats. China is still pushing its claims in the disputed South China Sea. Channel News Asia</p> <p>Malaysia arrests Islamic State hacker. Authorities have arrested a Malaysia-based hacker who they accuse of stealing personal information of U.S. military members and giving it to ISIS. CNN</p> <p>China warns U.S. against South China Sea challenge. China’s military establishment has reacted angrily to a planned US naval mission to skirt artificial islands Beijing has constructed in the South China Sea, as the US gears up to challenge Chinese claims in the area. </p>
Daily Scan: US stocks jump; Trump threatens to boycott debate
Capital Markets
<p>&nbsp;</p> <p>Updated throughout the day</p> <p>October 15</p> <p>Good evening. Data aren't on the Fed's side.  U.S. stocks moved higher Thursday as a potential rate rise looks further out. The Dow was up 1.3%, the S&amp;P 500 gained 1.5%, and the Nasdaq rose 1.8%. Consumer prices for September fell 0.2%, as expected, down from -0.1% in August. European and Asian stocks rallied Thursday as well, with the Stoxx Europe 600 growing 1.5%. Crude oil dipped 0.6%, finishing just over $46/barrel. Bottomline: A rate hike in the U.S. this month as about as likely as a snowstorm.</p> <p>Here’s what else you need to know:</p> <p>The Donald threatens to boycott GOP debate. Presidential candidate Trump wants things his way or the highway, and right now the Oct. 28 GOP debate is not going his way. Trump's campaign manager told the RNC Thursday that Trump likely won't show if the CNBC debate doesn't include opening or closing statements, or if it is longer than two hours total. The other GOP candidates also expressed distaste at the lack of opening and closing remarks. A Rand Paul aide reportedly told the RNC officials that "CNBC can go f--- themselves" if the candidates weren't given the option for statements. Politico</p> <p>Goldman Sachs 3Q dips on weak bond trading; Citi beats expectations on lower costs. The investment bank posted EPS of $2.90/share on revenue of $6.86 billion. Analysts had expected earnings of $2.91 on revenue of $7.13 billion. Meanwhile, Citi put its legal costs behind it, and net income rose to $1.35/share vs predictions of $1.28. CNBC</p> <p>Blackstone posts first quarterly loss since 2011. The New York-based private equity firm fell 40 cents a share last quarter, down from 41 cents a share during the same time last year. The firm's net income dropped 35 cents a share, compared with a 66 cents a share gain last year.  Wall Street Journal (paywall)</p> <p>Jeb Bush raises $13.4 million. The former Florida governor's presidential campaign added $13.4 million in the third quarter, surpassing Marco Rubio and Ted Cruz. CNN</p> <p>Former House Speaker pleads guilty. Dennis Hastert will plead guilty to charges that he paid $3.5 million to cover up decades-old wrongdoings while Hastert was a high school teacher in Illinois. Politico</p> <p>Suspects identified in Lockerbie bombing. After nearly three decades, Scottish and U.S. investigators have identified two Libyan suspects responsible for the airplane bombing that killed 270 people in 1988. Another Libyan, Abdel Basset al-Megrahi, was the only person convicted for the bombing. He was sentenced to life in prison in 2001 and died in 2012 of cancer. Reuters</p> <p>Myanmar signs cease-fire with rebels. The Asian country agreed to a cease-fire with eight ethnic rebel groups Thursday. While the cease-fire is a huge step for the tumultuous country, seven of the initial 15 rebel groups in negotiations did not join the agreement. National elections in the country formerly known as Burma are just three weeks away. </p>
Emerging market debt: an end to the agony?
Capital Markets
<p> Capitulation by many EMD investors has created opportunities in many of the more resilient countries.<br /> We favor countries moving down the reform path and where there is significant impetus to reign in excessive government spending.<br /> Valuations have reached the extremes that allow a selective approach to EM to now represent a key part of an income-oriented portfolio.</p> <p>Emerging markets (EMs) have endured a miserable year. Slowing Chinese growth, collapsing commodity prices, rising indebtedness and geopolitical turmoil have all taken their toll on fundamentals. The worsening EM story has, in turn, had a negative impact on capital flows, impacting performance both in absolute terms and relative to developed markets.</p> <p>More recently, China’s devaluation has led to fears that deflation could be exported to the rest of the world. The haphazard nature of China’s policy response to the economic downturn has weakened investor resolve that Chinese authorities can engineer a "good" outcome. The problems do not end there. The Federal Reserve is stating a desire to tighten policy, prompting concerns that a continued rise in the U.S. dollar will undermine EM local returns.</p> <p>Unsurprisingly, sentiment toward emerging markets has soured. The above trends are self-reinforcing, prompting many to call for EM to enter a protracted period of weakness. Given all the uncertainties, should investors simply ignore EMD altogether, or might a more selective approach to EMs produce better results?</p> <p>It is far too late in the cycle to “give up” on emerging markets</p> <p>Abandoning EMD altogether is akin to throwing the baby out with the bath water. The adjustment in EM assets is hardly new, and underperformance has been marked since at least 2012. Consider Brazil — a constant source of discouraging news. Brazilian equities, as measured by the Ibovespa, are down by 36% over the five years ending September 30 in local terms. For a U.S. dollar investor, however, depreciation of the Brazilian real has pushed the return to -71.7% over the period. Local rates in Brazil have risen to over 15%. Other markets — in USD terms — have also posted deeply negative returns. Russia, Ukraine, Turkey and Argentina have all endured periods of notable stress in the last 24 months.</p> <p>Prices could, of course, move lower, but valuations suggest that EM challenges are well-recognized in the market. We fully expect a protracted period of emerging market economic weakness, but we are at a stage in the current cycle that demands a focus on dislocations and valuation. Many opportunities appear compelling. EM growth will be positive and will continue to exceed developed market growth (Exhibit 1), notwithstanding the risk of further downward growth revisions that have dominated this cycle (Exhibit 2). This is a recipe for further volatility, despite much-improved valuations.</p> <p>Exhibit 1: IMF GDP growth forecast — advanced economies</p> <p>Sources: Columbia Threadneedle Investments, IMF, 07/15</p> <p>Exhibit 2: IMF GDP growth forecast — emerging economies</p>
Daily Scan: Equities rip higher; Bank of England 'ringfences' banks
Capital Markets
<p>Updated throughout the day</p> <p>October 15</p> <p>Good evening everyone. SOE consolidation hopes, stimulus wishes, and a spooked-out Fed led Asian shares soaring today with the Hang Seng Index up 2%, the Shanghai Composite up 2.32%, and the Nikkei 225 up 1.15%.</p> <p>European indices meanwhile appear to be on the up and up as well. The U.K.’s FTSE 100 has so far climbed 0.8%, Germany’s DAX has jumped 0.9%, and France’s CAC has surged 0.9%. As for Wall Street, it looks like they’ll be joining the party too. S&amp;P 500 futures are pointing to a 0.5% pop at the open while Dow and Nasdaq futures signal a 0.5% and 0.6% climb respectively.</p> <p>Here’s what else you need to know:</p> <p>Bank of England lays out “ringfencing” laws. In an effort to strengthen the U.K. financial system, the Bank of England laid out two proposals today, one on ringfencing and one on operational continuity. Under the former proposal, “ringfenced” banks will need to seek permission from the BOE to pay out dividends to its affiliates, as well as pay market rates for services rendered by its partners. The new rules will come into force in 2019. Wall Street Journal (paywall) / Bank of England</p> <p>PBOC injects liquidity. With 70 billion yuan worth of liquidity set to drain this week, the People's Bank of China topped up the money markets today through an auction of 50 billion yuan worth of seven-day reverse bond repurchase agreements. Reuters</p> <p>Hong Kong continues reign as most expensive place to rent office space. Annual Hong Kong office rent has apparently reached $255.5 per square foot, $5 more than last year’s showing, and easily eclipsing New York’s $153 and Tokyo’s $125. The pace of growth however has appeared to slow, but yeah, tell that to the tenants. SCMP (paywall)</p> <p>Australian jobs surprise to the downside. After registering gains the previous four months, the Australian labor market lost 5,100 jobs in September, a huge contrast to the additional 9,600 jobs expected by analysts. Financial Times (paywall)</p> <p>Bank of Korea keeps rates steady, slashes outlook. As expected, Korea’s central bank kept interest rates steady for the fourth month in a row. It did however, cut its GDP and inflation forecasts, with 2015 growth now expected to be 2.7% instead of 2.8%, while inflation is currently pegged at 0.7% instead of 0.9%. Bank of Korea</p> <p>Sumitomo Mitsui Banking to issue green bonds. In a first for a Japanese megabank, SMBC is set to issue around $500 million worth of green bonds as early as today, with the proceeds meant to bankroll a variety of renewable energy projects. The five-year bonds are expected to carry a coupon of around 2%. Nikkei Asian Review</p> <p>Volkswagen loses designated North American chief. Winfried Vahland was named to run the North America business three weeks ago  after working for the car manufacturer for 25 years. Vahlan</p>
Daily Scan: Stocks fall after Wal-Mart scare; IPOs beware
Capital Markets
<p>Updated throughout the day</p> <p>October 14</p> <p>Good evening everyone.  Economic data in the U.S. Wednesday did little to dispel the fear of deflation: producer prices in September fell 0.5%, the biggest drop in eight months, and retail sales were weak. The Fed’s survey of its districts, the beige book, revealed modest expansion but no wage pressures anywhere. Meanwhile, Wal-Mart shocked investors with a dismal outlook and nosedived, pulling down the Dow Jones Industrials 0.92% to 16,925, marking the first back-to-back drop this month. The S&amp;P 500 trimmed 0.48% to 1,994.  And the U.S. 10-year note did just what you would expect in the face of this dismal economic news: yields fell below 2%, hitting a 5-month low at 1.97%. What was the Fed was saying about a rate hike?</p> <p>Here's what else you need to know:</p> <p>IPOS beware. Albertson’s scotched its $2 billion IPO scheduled for Wednesday but First Data soldiered on with its offering, lowering the price to $16/share, from the $18-$20 originally anticipated. The weather is getting rougher and rougher for IPOs. KKR must have been very anxious to price First Data, the largest processor of e-commerce transactions. Street Insider</p> <p>Square braves the treacherous IPO market. The payment startup, led by Jack Dorsey – CEO at both Square and Twitter -- doesn’t appear to have a weather vane. The company is going where many tech companies have turned away from. Wall Street Journal (paywall)</p> <p>Wal-Mart slammed after earnings outlook. Wal-Mart shocked investors by predicting a huge drop in earnings next year, with per-share profits to fall between 6% and 12% in 2017. Shares for the company plummeted 10% in response, a 3-year low and the worst drop for the company since 1988. The stock is now down almost 30% this year. Wal-Mart says profits are being sucked by the increase in employee wages. CNN</p> <p>Volkswagen loses designated North American chief. Winfried Vahland was named to run the North America business three weeks ago  after working for the car manufacturer for 25 years. Vahland is leaving the company due to differences about the organization in North America, not the current diesel engine scandal, he says. Wall Street Journal</p> <p>First Jamaican writer wins Man Booker prize. Marlon James was awarded the prestigious writing award for his fictional account of the attempted murder of Bob Marley in 1976. The judges were unanimous in their decision to award "A Brief History of Seven Killings" because it "kept surprising the judges." The Guardian</p> <p>Hillary Clinton emerges strong from first Democratic debate. That's the consensus. She even got a boost from rival Bernie Sanders who lambasted the media for spilling so much ink on Clinton's email controversy.</p> <p>Sharp differences on Wall Street. Clinton would tweak while former Maryland Governor Martin O'Malley would re-introduce </p>
FBI to probe Goldman over 1MDB link
Capital Markets
Goldman Sachs just can’t help but court controversy, after Abacus, Greece, and Libya (just to name a few), the venerable Wall Street firm has once again found itself embroiled in yet another scandal, and this time, it’s with Malaysia. According to the Wall Street Journal, the FBI and the U.S. Justice Department are both looking into the Goldman’s role “in
Daily Scan: Stocks tumble as deflationary pressures rock Asia
Capital Markets
<p>Updated throughout the day</p> <p>October 14</p> <p>Good evening everyone. Asian equities extended their declines today as inflation figures from China, Japan, and India all added to worries that deflation is on the horizon. The Hang Seng Index ended the day down 0.71%, while the Shanghai Composite and the Nikkei 225 finished the session down 0.91% and 1.89% respectively. As for the rest, here’s how they fared:</p> <p> Hang Seng China Enterprises Index: -0.99%<br /> Shenzhen Composite: -1.20%<br /> Straits Times Index: -0.37%</p> <p>Over in Europe, things aren’t looking too hot either. The FTSE 100 – at pixel time down 0.65% – seems to be on the way to its third straight decline, while the DAX and CAC – saying goodbye to what was a decent start to the month – are currently down 0.79% and 0.67% respectively.</p> <p>Here’s what else you need to know:</p> <p>U.K. unemployment falls to seven-year low. Guess it wasn’t all bad news in fair Brittania. The U.K.’s Office of National Statistics has just reported that the region’s unemployment rate has fallen to 5.4% – a level unseen since the March quarter of ’08, while the employment rate – the proportion of people aged from 16 to 64 who were in work – climbed to 73.6%, its highest since recording began in 1971. Inflation was pegged at -0.1% yesterday though, take note of that, Janet. Office of National Statistics</p> <p>Japanese producer prices fall to a near six-year low. Japan’s producer price index fell 3.9% from a year ago in September, punching in its sixth-straight month of price deflation and posting its worst decline since November 2009. That 2% inflation rate target set by the BOJ looks even further away now. MarketWatch</p> <p>China CPI misses estimates. The consumer price index in the world’s second largest economy came in at just 1.6% for September, well below August’s 2% reading and less than the 1.8% analysts were expecting. The producer price index meanwhile fell 5.9% from the year before, in-line with estimates. Barron’s</p> <p>Singapore weakens the SGD. Despite seeing its economy – widely expected to contract – narrowly escape recession, the Monetary Authority of Singapore decided to ease its monetary policy today by weakening the dollar “slightly.” While its GDP figures were better than expected – its June quarter data was also revised higher from -4% to -2.5% – on a year-on-year basis, growth has been measly 1.4% – its weakest showing since 2009. Monetary Authority of Singapore / Ministry of Trade and Industry (pdf)</p> <p>PBOC clips yuan’s eight-day winning streak. The yuan lost most of its hard-earned gains today as the People’s Bank of China fixed its mid-point price down 0.3% to 6.3408 to the dollar. Offshore yuan was trading as high as 6.3487 against the greenback. SCMP (paywall)</p> <p>Vehicle sales climb for first time in six</p>