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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>
People Moves: Credit Suisse makes two senior IB hires, Mizuho loses Asia ex-Japan origination chief
Capital Markets
<p>Credit Suisse bags two senior bankers in HK. Richard Kao, a former director within Credit Suisse’s investment banking department, is set to return to the Swiss firm as a senior member of its Greater China corporate finance team. Kao was previously head of solutions for Standard Chartered’s Greater China operations, and was an executive director within Goldman Sachs’ corporate finance team prior to that.</p> <p>Meanwhile, Alain Lam, another investment banking heavy, will be joining the firm as its new head of technology for Asia. He was managing director for Morgan Stanley’s global capital markets group prior to his move. Finance Asia</p> <p>Mizuho’s Asia ex-Japan origination chief departs. Rupert Manduke-Curtis, Mizuho’s head of origination for non-Japan Asia, has reportedly left the Japanese firm. His replacement has yet to be announced.</p> <p>Hong Kong-based Manduke-Curtis spent a good chunk of his career at Mizuho, joining the Japanese lender back in 2005 after a one year stint at ING in London. He was with CIBC World Markets for three years prior to that. Global Capital </p> <p>For Asset Management moves, click here.<br /> Photo: Wendy</p>
Daily Scan: US stocks post best weekly returns since Feb; House approves oil exports
Capital Markets
<p>Updated throughout the day.</p> <p>October 9</p> <p>U.S. stocks ended modestly higher Friday, posting the biggest weekly gains since February. European markets also notched their longest string of gains since July, with the Stoxx Europe 600 gaining 4.3% higher for the week after rallying for six straight sessions. Risk traders are counting on lower rates to power stocks higher. The S&amp;P 500 looks headed to close about 3.5% higher this week after finally closing above its 50-day moving average on Thursday. The Hang Seng gained 4.54% and the Shanghai Composite rallied 4.3%. The Nikkei 225 rose 3.87%. European markets, however, were hanging on to gains of about 1% as the dovish Fed outlook launched a commodities rally. On the calendar Friday:  Chicago's Charles Evans.</p> <p>Here’s what else you need to know:</p> <p>House okays bill to export oil but White House veto possible. The measure passed 261 to 159 on largely partisan lines. Obama had threatened to quash the bill, saying the U.S. should focus on clean energy. Reuters</p> <p>Atlanta Fed President Dennis Lockhart sees rate liftoff soon. In a speech to the Society of American Business Editors and Writers, Lockhart said: "I see a liftoff decision later this year at the October or December FOMC meetings." He also said consumer data hold the key to giving the Fed confidence to move forward with higher rates. Atlanta Fed</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>Sharpen your crochet needles. Amazon is launching a competitor to Etsy. Handmade at Amazon launched with 80,000 crafted item from 5,000 sellers in 60 countries. New York Times (paywall)</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 expectation sof 5% to 8%. The stock is set to open 4% lower. CNBC, MarketWatch</p> <p>Glencore slices zinc production. The company said in a statement that it would reduce output by one-third -- 4% of the total world output. Zinc prices, at a five-year low, promptly rallied 6%. Glencore is struggling to prove that it can handle its hefty $30 billion debt load. It's shares are up 11% in response to the latest move. BBC</p> <p>Dell would need $40 billion in debt to complete EMC merger. The $50 billion+ merger with the storage company would be the biggest tech deal ever and create a co</p>
The FOMC minutes highlight reel: The pros and cons for raising rates
Capital Markets
<p>Reading the Fed's FOMC minutes can be a beast sometimes, so in case you missed it, here's a chopped, highlighted, yet expertly curated version for the man – or woman – on the go.</p> <p>Pros for raising rates:</p> <p> Household spending, business investments figures are looking good.<br /> Labor market is improving, job gains are solid, and unemployment fell “to a level close to most participants' estimates of its longer-run normal rate.” Plus, labor resources are apparently better utilized than they were earlier in the year.<br /> Real GDP growth was stronger than expected.<br /> Inflation will pick up as labor continues to improve.<br /> Housing looks robust, and looks like it’ll stay that way for some time.<br /> “The conditions for policy firming had been met or would likely be met by the end of the year.”</p> <p>Cons for raising rates:</p> <p> Global economic developments may have added downside risks to the U.S. economy.<br /> Inflation is still below their 2% target.<br /> World developments may put more downward pressure on inflation in the near term.<br /> More of the FOMC members are spooked about inflation than before.<br /> Progress, “still possible” in the labor market, and a number would like that to happen so inflation could reach 2%.<br /> Recent core price inflation readings where underwhelming.<br /> China, emerging markets are sending the dollar higher and thus, holding core price inflation lower.<br /> Premature tightening might hurt the FOMC’s inflation objective.</p> <p>Guess that’s it then. With mean CPI trending lower, there's no way the Fed's lifting rates anytime soon. And then there was that nasty September labor report, which printed after the Fed's policy making committee met.<br /> Photo: Day Donaldson</p>
Can central banks help push stocks higher?
Capital Markets
<p>Investors may be feeling a bit of “déjà vu all over again,” to quote the recently departed Yogi Berra. As the fourth quarter kicks off, amid scarce evidence of global growth, equity investors are once again looking to central banks for largesse and monetary stimulus to help push stocks higher.</p> <p>While stocks ended the third quarter with their worst performance since 2011, according to Bloomberg data, a renewed reliance on central banks was evident in last Friday’s sudden stock market turnaround. As I write in my new weekly commentary, “As Growth Slows, Markets Seek Comfort in Old Friends,” the Dow Jones Industrial Average swung from a 250-point loss to a 200-point gain on Friday after U.S. investors treated a weak jobs report as a sign the Federal Reserve (Fed) will hold off on raising interest rates, according to Bloomberg.</p> <p>Investors in other countries are also following suit, similarly exhibiting this shift in the investment regime. European equities stand to benefit from a recent weak inflation point, which may promptfurther quantitative easing by the European Central Bank. A similar pattern is evident in emerging markets such as India, where last week stocks benefited from an unexpected rate cut from its central bank.</p> <p>Growing concerns over the health of the global economy are manifesting in several ways, as data accessible via Bloomberg show. A broad measure of financial stress, the Global Financial Stress Index, recently hit its highest level since the summer of 2012. In addition, with investor risk aversion climbing, so-called high-beta, momentum names that are more volatile continue to suffer. For example, at the lows last week, the Nasdaq Biotech Index was down nearly 30% from its July high, according to data accessible via Bloomberg.</p> <p>How a global slowdown may impact the U.S. economy</p> <p>Though I don’t believe a U.S. recession is on the horizon, it’s becoming clear that the U.S. isn’t immune to the global slowdown. Not only was the September jobs gain number roughly 50,000 below expectations, but the August payroll numbers were revised lower as well. In addition, hourly earnings were flat and the labor participation rate fell to its worst level since 1977.</p> <p>Meanwhile evidence continues to suggest that the U.S. manufacturing sector is struggling under the weight of a strong dollar and feeble overseas demand. As a result, second-half growth is likely to be considerably slower than the nearly 4% we witnessed in the second quarter, and a more pessimistic outlook for the U.S. economy is pushing back expectations for a Fed hike and driving down short-term yields.</p> <p>So what does this mean for investors going forward? As we have seen in recent years, in a world where the Fed keeps rates anchored at zero, stocks benefit, if only because they compare favorably to cash and negligible bond yields. Finally, in such an environment, some old themes, such as a preference for income-producing equities, come back into vogue as investors gir</p>
China and the Fed
Capital Markets
<p>Markets<br /> The third quarter of 2015 was marked by significant losses in capital values and an increase in volatility. The S&amp;P 500 lost 7.55% in the quarter and 6.71% year-to-date; NASDAQ dropped 7.77% quarterly and 2.26% for the year; Dow Jones Industrial average declined 8.15% in the quarter and 8.68% year-to-date. The VIX fear measure closed the quarter at 24.50, an increase of 42.6% since the beginning of the quarter and 37.7% since the beginning of the year. The Russell 2000 small cap index lost 11.82% for the quarter and 8.18% for the year. Short term treasury yields remain at near-zero levels while 10 year treasury yields declined 15.4% to its current value of 2.03%. NYMEX-traded oil declined by 21.31% while the U.S. dollar lost 1.92% to the euro and 2.81% to the Japanese yen.</p> <p>Global markets, particularly Chinese, experienced serious declines in the third quarter. SSE Composite Index declined by 21.98% for the quarter, and is down 8.89% for the year. China also devalued the yuan with its base rate being cut by 1.9%. MSCI Emerging Markets Investable Market Index lost 17.88% in this quarter and is down 15.48% for the year. Japanese Nikkei 225 declined by 15.27% in the quarter but is flat for the year. EURO STOXX 50 lost 10.47% in the quarter but is up 2.56% for the year. Some bright spots for New Frontier investors included long treasuries (up 3.20%) and domestic REITs (up 3.03%). In spite of a very challenging quarter, our portfolios remain ahead of global benchmarks year-to-date.</p> <p>Perspectives<br /> The global economy was very close to collapse in late 2008. Nearly universal fear of default resulted in a near shutdown of commerce. Banks simply did not trust that borrowed funds would be paid back, and business activity stops when short-term lending stops. The Bush-Obama stimulus of 2008-2009 and the full support of the Federal Reserve resurrected lending confidence, and American banks began to return to profitability in March 2009. The Fed was in the forefront of applying modern monetary macroeconomic principles developed largely by a small number of Nobel Prize winning American economists with lessons learned from the Great Depression.</p> <p>Since then the American economy has been the main driver of global economic growth. U.S. equity markets have outperformed all others with the S&amp;P gaining nearly 200% since March 2009 and well exceeding prior 2007 highs. In contrast, EAFE has grown less than 100% and remains well below its prior highs. Markets reflected a recovering economy with 3.9% GDP growth in the last quarter and annual growth twice that of Europe and four times that of Japan. Consumer spending is up, household net worth is up, household debt ratio is down, and unemployment is at essentially a full employment rate of 5.1%. While the deficit is the lowest since 2007, China’s debt has ballooned dramatically. The dollar has strengthened relative to major currencies with enhanced purchasing power for U.S. consumers. Low interest rates are a positive driver of growth while the dollar remains the reserve currency safe haven of choice for global investors.</p> <p>Serious uncertainties remain for U.S. investors. Economic policies and capital markets are often out of synch. The Fed’s decision this month not to raise interest rates was accompanied with the explanation: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” In other words, global economic and political risks raised concerns about whether American economic growth was sustainable without continuing Fed support. The Fed’s comments spooked the market.</p> <p>The U.S. can’t be the only source of growth if growth is to be sustainable. While the Fed’s</p>
Daily Scan: Asian shares cap the week higher
Capital Markets
<p>Updated throughout the day.</p> <p>October 9</p> <p>Good evening everyone. After heading for the stratosphere earlier in the day, Asian equities trimmed some of their gains in the afternoon – though not enough to knock them off orbit. Hong Kong’s Hang Seng China Enterprises Index finished the day up 1.6% - its best showing since August – while Japan’s Nikkei 225 ended the session up 1.64% - a whisker away from it’s a month-long high. Thanks Janet! Here’s how the rest are doing:</p> <p>Day<br /> Week</p> <p>Hang Seng Index<br /> +0.46%<br /> +4.54%</p> <p>Hang Seng China Enterprises<br /> +1.6%<br /> +7.66%</p> <p>Nikkei 225<br /> +1.64%<br /> +3.87%</p> <p>Topix<br /> +2.28%<br /> +4.9%</p> <p>Shanghai Composite<br /> +1.3%<br /> +4.3%</p> <p>Shenzhen Composite<br /> +1.47%<br /> +5.47%</p> <p>Europe isn’t doing too shabby itself. The FTSE 100 is currently up 0.5%, the DAX up 0.9%, while the CAC is up 0.8%. U.S. stock index futures however are pointing to a more subdued open in the region, with S&amp;P minis down 0.09%, Dow minis down 0.07%, and Nasdaq minis down 0.15%.</p> <p>Here’s what else you need to know:</p> <p>North Korea's leaders are going broke.  China’s economic slowdown and a plunge in coal prices are depriving North Korea of critical foreign currency, threatening to stir discontent among the small, elite class that the nation’s mercurial dictator relies on for support. The drain on income comes as North Korea continues to plow its limited resources into its armed forces. Wall Street Journal</p> <p>Lagarde: China isn’t all “gloom and doom.” Speaking to the BBC, IMF chief Christine Lagarde said China’s economy should reverse its current deceleration and regain its momentum sometime next year. BBC</p> <p>VW to recall 100,000 vehicles from down under. With its image crumbling in the wake of the emissions scandal, Volkswagen Australia plans to appease its customers by announcing a voluntary recall. “I want to assure customers that the affected cars are technically safe and the necessary measures will be undertaken at no cost to them.” Financial Times (paywall)</p> <p>Bank of England keeps rates steady. As expected, the Bank of England’s monetary policy committee kept rates on hold Thursday, citing continued issues with inflation as well as a way to “ensure that growth is sufficient to absorb any remaining underutilised resources.” The region’s quantitative easing program also stood pat £375 billion. Bank of England</p> <p>Mexico snares El Chapo’s pilot. Speaking to the nation’s Senate, Mexico Attorney General Arely Gómez said that not only have they bagged 23 officials in connection to El Chapo’s escape, but also the pilot “who transported this person” as well. Financial Times (paywall)</p> <p>Alibaba shares climb. Jack Ma made his shareholders happy today after his recent let</p>
Daily Scan: Stocks climb; McCarthy drops from House speaker race
Capital Markets
<p>&nbsp;</p> <p>Updated throughout the day</p> <p>October 8</p> <p>Good evening, US stocks rose modestly Thursday after the Fed's meeting minutes showed how badly the central bank wants inflation to rise. The Dow gained 0.8%, the S&amp;P 500 rose 0.9%, and the Nasdaq added 0.4%. Earnings season kicked off with a report from Alcoa Thursday. The aluminum company lost 3.8% in after-hours trading after its earnings and revenue fell short of expectations. Oil broke $50/barrel for the first time since July.</p> <p>Here's what else you need to know:</p> <p>Kevin McCarthy drops out of speaker race. House Majority Leader McCarthy was expected to succeed House Speaker John Boehner when he resigns at the end of October. McCarthy expressed skepticism that he would win the Speaker race outright, and didn't want to divide his Republican party further. The vote for speaker has now been delayed. CNN</p> <p>Russian missiles fall in Iran. Four Russian missiles meant for Syrian antiregime forces fell short of the country and landed in Iran. Russia and Iran are allies in their support of Bashar al-Assad as leader of Syria. Wall Street Journal</p> <p>Save the drama for your mama, Bill Gross. Gross is suing Pimco for $200 million. The Bond King says a "cabal" of executives drove him from the firm he founded so they could claim his bonus for themselves. Pimco's directors were "driven by a lust for power, greed, and a desire to imporve their own financial position and reputation." Gross left the firm in September 2014. The year before, his pay topped $300 million. Reuters</p> <p>Chrysler Fiat averts strike. Again. The four-year contract affects 40,000 workers in the U.S. Last month workers rejected a deal. This new agreement also requires UAW member ratification. Reuters</p> <p>Svetlana Alexievich wins Nobel Prize for literature. The chair of the Swedish academy called the work by the Belarussian author a “monument to suffering and courage in our time.” The Guardian</p> <p>Dell reported in talks to buy storage company EMC. No price yet on the deal, but it is likely to exceed the $37 billion offer Avago Technologies made for Broadcom. Dell is valued at $50 billion. Reuters</p> <p>Uber China is toast. Didi Kuaidi, Uber’s Beijing-based rival, scored a massive win against its San Francisco-based nemesis after it secured a license to operate private cars in Shanghai. This is a huge blow to Uber, not only because Shanghai is a major market, but also because other Chinese cities typically follow suit. Wall Street Journal (paywall)</p> <p>Sony to sell stake in world’s largest music publisher. Sony, the embattled Japanese electronics giant, is selling its stake in Sony/ATV Music Publishing – which it co-owns with the estate of Michael Jackson. Sony/ATV owns the copyrights to songs from the Beatles, Marvin Gaye, and Taylor Swift, and i</p>
Vietnam, Malaysia may be the TPP’s biggest beneficiaries: Credit Suisse
Capital Markets
<p>Who is the biggest winner of the TPP deal? If you guessed the US middle class... you were wrong</p> <p>The biggest beneficiaries from the Trans Pacific Partnership struck on Oct. 5, are expected to be Vietnam and Malaysia, while the impact on non-TPP Asian countries is likely to be slightly negative, believes Credit Suisse Group AG (ADR) (NYSE:CS) analyst Michael Wan. He said in his Oct. 7 research report on “Asia Economics” that he thinks the manufacturing sector will be the biggest beneficiary from the TPP.<br /> Vietnam could witness a 10% boost to GDP by 2025<br /> Wan terms the TPP a historic agreement, as after almost seven years of negotiations, the U.S., Japan and 10 Pacific Rim countries finally came to an agreement. The analyst points out that if the trade agreement is ratified through the various countries’ parliaments and implemented, it will cover 40% of global output and aim to eliminate over 18,000 tariffs.</p> <p>In another report from CS published jointly by Dan Fineman and Chate Benechavitvilai, the analysts say that most likely, Vietnam is the top winner in Asia from the TPP. Though details on the agreement are currently lacking, the analysts anticipate that the biggest gains for textiles, garments and footwear exports to the U.S. could lead to shifts in production from China and Thailand. Citing estimates from the Peterson Institute, the analysts point out that the TPP could boost Vietnam’s GDP by 10% by 2025-- twice as much as is estimated for any other Asian market.</p> <p>Fineman and colleague point out that the key problem for investors is the lack of large and /or liquid stock that directly benefits from the TPP. However, the analysts point out that given the overall positive impact on the economy, the agreement could also have a spill-over effect on some sectors, including banks, consumer and property. Within their Vietnam coverage, the Credit Suisse analysts maintain their Outperform rating on Vinamilk (consumer) and Vingroup (property).</p> <p>Malaysia’s GDP could see 5% boost</p> <p>Tan Ting Min of Credit Suisse believes the TPP is generally positive for Malaysia as the country is very dependent on trade, and the TPPA will open up four new markets to Malaysia: the U.S., Canada, Mexico and Peru. Min believes the TPPA is positive for Malaysia in the long term, though the analyst doesn’t envisage benefits until 2018, assuming the Cabinet approves it. The CS analyst also thinks export industries in Malaysia such as plantations, electronics, textile, automotive parts and</p>
Equity outlook fourth quarter 2015
Capital Markets
<p>The Committee upgraded our view on U.S. large cap equities following the recent correction, and maintained a slightly overweight view on European equities. Our view on MLPs has also improved following a challenging year.</p> <p>U.S. Large Cap Equities<br /> We upgraded our view of U.S. large cap equities to slightly overweight for the next twelve months. The S&amp;P 500 registered its first correction since 2011, declining more than 10% from its high in May. The key question for investors today is whether the pullback represents a momentary pause in the current economic cycle, as in 2011, or anticipates something more serious, such as a global recession. In our view, the latter prospect is unlikely, given the resiliency of the U.S. economy and, importantly, broad policy commitment to cushion economic shocks. The Federal Reserve, in particular, is likely to be cautious in light of recent events and the absence of inflationary pressures as it assesses the timing and pace of any rate hikes.</p> <p>Still, it bears noting that the past seven years have seen extraordinary gains in U.S. equities with a near absence of major (10%-15%) corrections. The recent swoon may be overdue, and actually healthy, as it creates more attractive valuations.<br /> U.S. Equities: Corrections of 10% or More<br /> Shading Indicates Bear Markets of 20% or More</p> <p>Source: FactSet, Goldman Sachs. As of August 31, 2015.<br /> Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.</p> <p>Developed Market Non-U.S. Equities<br /> Europe: The Committee as a whole remained at a slight overweight for Europe. Although growth and inflation forecasts for the region are subdued, the European Central Bank (ECB) stands ready to increase and/or lengthen its quantitative easing program as needed in support of its objectives. We anticipate that ECB stimulus will support European equities and maintain that there is more catch-up potential for the region from an economic recovery and earnings perspective.</p> <p>Japan: Our view on Japanese equities moderated slightly from the third quarter. Japanese stocks are benefiting from a weak yen and reallocation of pension fund assets, but are threatened by a slowing Chinese economy. While we continue to believe that Japanese equities have upside potential, a contraction in second quarter GDP gives us concern about growth and the efficacy of Abenomics.<br /> Emerging Markets Equities<br /> China volatility, commodity weakness and dollar strength persist, creating headwinds for emerging markets equities, while corporate profitability remains under pressure. Against this backdrop we are maintaining our neutral view of emerging markets equities and believe selectivity from a regional/country and sector/company perspective remains paramount in today’s environment.</p> <p>Brazil: With the country mired in recession, we have downgraded our view on Brazilian equities and further believe that the country may encounter meaningful risks with respect to its debt.</p> <p>Russia: Russia has held up reasonably well in recent months compared to other emerging markets but Committee members remain cautious on the long-term outlook for the country’s equities due to a weak growth forecast, sizeable exposure to energy prices and the potential for ongoing geopolitical risk.</p> <p>India: Thanks to some respectable policymaking and a solid fiscal position, India is hanging on to its position as a relative bright spot within our emergi</p>