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Daily Scan: Chinese stocks off lows after Caixin PMI reading shows economy slowed a little less
Capital Markets
<p>Asia launches into November on a remarkably strong note. Many markets in the region saw the best monthly performance in October in six years on the back of promised stimulus from European and Asian officials. Investors will be reading the economic tea leaves to determine whether the markets will go from strength to strength. In any event, China watchers were euphoric last week after the government announced an end the one-child policy for everyone with some commentators expecting a big gain for real estate and consumer goods relating to child rearing. But there was also a hint of caution: Some think that Beijing has missed the boat to deal with its generational imbalance. Asking parents to raise more than one child may be an economic impossibility. The markets in Asia will also be keeping a close eye on the likelihood of an interest rate hike in the U.S. A bevy of Federal Reserve officials are speaking this week plus the U.S. will be reporting on the state of the job market in October on Friday -- the first official data point from last month.</p> <p>Here's what else you need to know:</p> <p>China trims losses after private manufacturing report shows growth slowed at more moderate pace. This is a silver lining story. The Caixin PMI for private businesses in China printed at 48.3 for October, better than the expected 47.5. A number below 50 signals contraction. The news offset the official report on state-run businesses were contracting for the eighth straight month with a reading of 49.8. Of course, the FT immediately cast doubt on the Caixin data. The Shanghai Composite was off 0.65% and the Hang Seng slumped 1.04%. The Nikkei tumbled 1.73%, led by weakness in its steel makers. CNBC/fastFT (paywall)</p> <p>Exports in South Korea drop even more than expected to lowest in six years. Exports plummeted 15.8% in October vs expectations of 14.5% as trade with China, the U.S., and Europe weakened. Low oil prices also hurt. South China Morning Post (paywall)</p> <p>China conducted more military exercises in the disputed South China Sea regions. Beijing sent warplanes and naval ships into the area last week where U.S. warships had recently passed, using live fire. The U.S. Pentagon has said it expects to conduct military exercises twice a quarter in the region. Wall Street Journal (paywall)</p> <p>China promises to open financial, telecom markets to South Korea. At a meeting on Saturday, Premier Li Keqiang told a delegation of South Korean executives he expected to forge a low-tariff market worth $1.2 trillion for the two countries. China also said that it would raise by 50% South Korea's renminbi qualified foreign institutional quota to buy A Shares to 120 billion yuan, or $19 billion.  South China Morning Post (paywall)</p> <p>A Russian operated plane crashed over the desert in Egypt. All 224 aboard perished in the accident, which occurred about 20 minutes after takeoff from Sharm el-sheikh. ISIS has claimed responsibility, but the Russian government rejects the assertion. One official claims the plane broke up in midair. The black boxes for the Airbus A321 plane have been recovered. </p>
China's manufacturing activity slides further
Capital Markets
<p>Manufacturing activity in China shrank for the third consecutive month in October, as the country's economic slowdown shows no sign of reversing.</p> <p>The official manufacturing purchasing managers’ index recorded 49.8 in October, according to data released on Sunday -- a number below 5o indicates a contraction in industrial activity. China's policy makers have cut interest rates six times during the past year and introduced other monetary and fiscal measures to stimulate the economy, but to little avail.</p> <p>"[The economy] has been struggling because of slack domestic demand and overcapacity, contributing to falling international commodity prices and fears about the prospects for the global economy," writes the Financial Times (paywall).<br /> "China’s Communist leadership says it wants to restructure the economy to be less reliant on investment in heavy industry and other capital-intensive sectors and more driven by innovation and consumption."<br /> "But the scale of the economic slowdown and worries about job losses and bankruptcies have pushed the government to focus on the short-term challenges."<br /> Photo: AK Rockefeller<br /> &nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p>
Weekend Scan: Russian plane crashed in Sinai; corporate bonds on track for 4th record year
Capital Markets
<p>Market players are looking ahead to the next week of earnings reports and the first key economic indicator of the month -- the jobs report for October. The U.S. Federal Reserve seems to be on a path to raise rates at its December meeting. A strong jobs report will give the policy makers strength to make the first move higher since 2006. Fitbit, Tesla, Zillow, and the ever-controversial Herbalife are slated to report quarterly earnings this week. Also on board: United States Steel, Walt Disney, and Berkshire Hathaway. Full calendar here.</p> <p>A Russian operated plane crashed over the desert in Egypt. All 224 aboard perished in the accident, which occurred about 20 minutes after takeoff from Sharm el-sheikh. ISIS has claimed responsibility, but the Russian government rejects the assertion. One official claims the plane broke up in midair. The black boxes for the Airbus A321 plane have been recovered. Reuters</p> <p>China, South Korea, Japan meet for first time in three years. At the end of the Sunday meeting, they agreed to meet again -- which is a very good thing.  Yahoo News </p> <p>Investment grade corporate bonds on track for fourth record year of issuance. Total sales for October hit $103 billion, a record for the month. Corporate treasurers are racing to lock in low rates ahead of an anticipated rate hike by the U.S. central bank. Bond issuance slowed briefly in the summer, so underwriters are seeing big demand now. Wall Street Journal (paywall)</p> <p>Hotel occupancy rates on track for record year. Hotels are running at 67.7% year-to-date -- the best ever. Lodging stocks are up 39% from last year. Calculated Risk</p> <p>Turkey's ruling party wins election with 49.4% of vote -- better than expected. The Justice and Development Party bested rival CHP, which garnered 25.4% of the vote. The pro-Kurdish party won the more than 10% needed to claim a role in the Turkish parliament. BBC</p> <p>Kenyans sweep the New York Marathon. Kenya's Stanley Biwott and Mary Keitany took first place in the most famous foot race in the world. for Keitany this is her second consecutive win. ESPN</p> <p>Died: Fred Thompson, age 73. From lymphoma. The former U.S. Senator from Tennessee was also an actor. CNN<br /> You won't believe this:<br /> Vet spends $100,000 to clone dog. Dr. Phillip Dupont says both he and his beloved pooch Melvin were getting older. He wanted to be sure Melvin -- or some version of the 10-year-old Doberman -- would be with him to the end. New York Post<br /> Photo: </p>
Not all inventory corrections happen in recessions
Capital Markets
<p>As we had suspected in our latest quarterly conference call, economic growth in the 3Q was feeling worse than it was due to a reduction in inventories. Final sales of domestic product remained pretty strong as it contributed 3% to real GDP. Change in private inventories pulled down real GDP by -1.4%. Inventories dragged down real GDP by the most since in any quarter since 4Q2012.</p> <p>Overall, change in real private inventories declined from $133 billion SAAR in the 2Q to $56.8 billion in the 3Q. While recessions always have an inventory correction component, an reduction in inventories alone doesn’t mean a recession is imminent. As the chart below shows, it is when the change in private inventories breaks below zero that it becomes likely a recession is upon the US economy.</p> <p>© GaveKal Capital</p> <p>This column originally appeared on Advisor Perspectives.</p>
The Week Ahead: Central bankers speak to the markets, data show level of consumer demand
Capital Markets
<p>(Note: all times HKT)</p> <p>The new month starts with a week of speeches. The most important is U.S. Fed chair Janet Yellen's, who appears before the House Financial Services Committee on Wednesday, though Vice Chair Stanley Fisher, Atlanta President Dennis Lockhart, St. Louis President James Bullard and Board member Lael Brainard will all have their say later. ECB boss Mario Draghi speaks earlier on Wednesday, the following day Bank of England head Mark Carney will explain his decision on U.K. interest rates and Bank of Japan governor Haruhiko Kuroda will deliver his state of the nation speech on Friday.</p> <p>Important economic data in the world's leading economies will indicate the level of production taking place, the number of jobs being created and the strength of consumer demand. In a quiet week for China releases, the markets are likely to focus on the U.S. employment numbers on Thursday and Friday as well as the European Producer Price Index on Wednesday and retail sales on Thursday.</p> <p>Here is a list of the most important official data releases this week:</p> <p>Monday, Nov 1</p> <p>09:45  China Caixin Manufacturing PMI (Sep) -- Forecast: 47.5; Previous: 47.2</p> <p>15:30  Australia RBA Commodity Index SDR (Oct, YoY) -- Previous: - 21.3%</p> <p>17:00  Europe Markit Manufacturing PMI (Oct) -- Forecast: 52; Previous: 52</p> <p>21:30  US ISM Manufacturing PMI (Oct) -- Forecast: 50; Previous: 52</p> <p>Tuesday, Nov 2</p> <p>24h      Japan Culture Day -- markets closed</p> <p>11:30   Australia RBA Interest Rate decision -- Forecast: 2% (unchanged)</p> <p>23:00  US Factory Orders (Sep, MoM) -- Forecast: -0.8%; Previous: -1.7%</p> <p>Wednesday, Nov 3 </p> <p>03:00  ECB President Draghi's Speech</p> <p>09:45  China Caixin Services PMI (Oct) -- Previous: 50.5</p> <p>17:00   European Markit PMI Composite (Oct) -- Forecast: 54; Previous: 54</p> <p>11:30   European Producer Price Index (Sep, YoY) -- Forecast: -3.3%; Previous: -2.6%</p> <p>21:30   US Trade Balance (Sep)  -- Forecast: -43.2bn; Previous: 48.33bn</p> <p>22:45  US Markit PMI Composite (Oct) -- Previous: 54.5</p> <p>23:00  US Fed's Yellen Speech</p> <p>Thursday, Nov 4</p> <p>06:00  US Fed's Fisher Speech</p> <p>17:30  UK Bank of England Quarterly Inflation Report</p> <p>18:00  European Retail Sales (Sep, YoY) -- Forecast: 0.2%; Previous: 0.0%</p> <p>19:00  UK Bank of England Interest Rate Decision -- Forecast: unchanged (0.5%)</p> <p>20:45  Bank of England Governor Carney Speech</p> <p>21:30  US Initial Jobless Claims -- Forecast: 264k; Previous: 260k</p> <p>21:30  US Nonfarm Productivity -- Forecast: 0.1%; Previous: 3.3%</p> <p>Friday, Nov 5</p> <p>01:30  US Fed's Lockhart Speech</p> <p>11:00  Bank of Japan Governor Kurodo Speech</p> <p>15:45  European Trade Balance (Sep) -- Forecast: -€3.1bn; Previous: -€2.98bn</p> <p>15:45  European Budget (Sep) -- Previous: -€89.65bn</p> <p>17:30  UK Manufacturing Production (Sep, YoY) -- Forecast: -0.9%; Previous: -0.8%</p> <p>17:30  UK Trade Balance (Sep) -- Previous: -£3.268bn</p> <p>21:00 US Fed's Bullard Speech</p> <p>21:30  US Nonfarm Payrolls (Oct) -- Forecast: 180k; Previous: 142k</p> <p>21:30  US Unemployment Rate (Oct) -- Forecast: 5.1%; Previous: 5.1%</p> <p>Sat, Nov 6</p> <p>04:15  US Fed's Brainard Speech</p> <p>07:30  Australia RBA Monetary Policy Statement<br /> Photo: Day Donaldson</p>
Barron's Roundup: Computer chip companies forced to innovate
Capital Markets
<p>The computer chip industry is facing a crisis, Barron's writes in this week's cover story. Intel and other companies have been forced to add extra manufacturing steps to make their chips more efficient. But the result has increased costs for the companies. At the same time, massive Internet companies like Facebook are changing the computing as the chip companies know it. The result is an opportunity for innovation.</p> <p>China is causing problems for emerging markets, but there are still opportunities for investments, Barron's writes. Emerging markets aren't over, but investors will have to shift how they think about emerging markets. They won't be the same as they have been for the 12 years or so. On the plus side, valuations have improved. And Internet companies are holding strong.<br /> Photo: Henry Mühlpfordt </p>
Weekend Scan: Stock markets roar in October despite recession fears
Capital Markets
<p>October 31</p> <p>It was a great month for global stock markets. Major bourses surged to near record highs in October as investors rushed back into equities, encouraged by central bank reassurances.</p> <p>The S&amp;P 500 and the Eurofirst 300 both rose more than 8% and are now up for the year, and the FTSE World Index jumped 7.8%, its biggest monthly rise in four years.</p> <p>Policy makers rallied round and gave investors a cuddle. The US Federal Reserve has put an interest rate hike on hold, the European Central Bank indicated another bout of quantitative easing and the People’s Bank of China joined the support group by cutting its key interest rates for the sixth time in 12 months.</p> <p>Otherwise, the macroeconomic environment looks pretty bleak. Commodity prices, including oil and copper, are stagnant and US corporate earnings are falling which indicate muted demand and raise the specter of deflation.</p> <p>Meanwhile, experts ranging from the IMF and Ben Bernanke to the credit rating agencies warn about the systemic risk to the financial system of vast amounts of emerging market dollar debt</p> <p>No worries, mate! It’s a massive night in Asia Pacific. No, not that stateside festival when people do strange things with inflated pumpkins, adults dress up like pantomime witches and kids beg for chocolate. Instead, at midnight in Hong Kong Aussie and Kiwi expats will invade the Wan Chai bars, neck gallons of amber nectar and watch the All Blacks crush the Wallabies in the Rugby World Cup final.</p> <p>Here's what else you need to know:</p> <p>South China Sea tensions rise. A court in The Hague took jurisdiction over seven out of 15 submissions by the Philippines against China over territorial disputes in the South China Sea, which is likely to encourage other Asian countries to challenge Beijing's claims. Earlier, China's navy chief warned his US counterpart that encounters between their forces could spiral into conflict, two days after a US destroyer sailed close to Beijing's artificial South China Sea islands. SCMP (paywall)</p> <p>24 hours of calamity. A Russian airliner carrying more than 200 passengers is missing on flight over Egypt's Sinai peninsula; a Bucharest nightclub fire killed 27 people and injured 155; fifteen traders including four children died in a fire at a public market in Zamboanga, Philippines. BBC</p> <p>Accusations of vote-buying in Myanmar elections. Opposition parties allege that the army-backed government is splashing out economic incentives to woo voters ahead of the November 8 election. Nevertheless, political analysts expect a coalition of groups led by Nobel Prize laureate Aung San Suu Kyi to do well. The Wall Street Journal (paywall)</p> <p>Sharing the costs of failure. Six of the biggest US banks would have to make up a $120 billion shortfall in their long-term debt to prevent another “too-big-to-fail” systemic meltdown under a Federal Reserve proposal unveiled on Friday. The Fed estimates that compliance would increase each bank’s annual funding costs by between $680 million and $1.5 billion. Financial Times (paywall)</p> <p>Another suspected suicide in Macau. Police discovered the body of Lai Man Wa in a public toilet in Ocean Gardens on Taipa Island on Friday. Lai, who was appointed director-general of Macau Customs in December, was due to attend a security meeting in Zhuhai later that day. Initial investigations suggested she had committed suicide. Two weeks </p>
More bad news expected at Deutsche Bank
Capital Markets
<p>After posting a €6 billion loss for the third quarter and scrapping its dividend for the next two years, Deutsche Bank announced plans to leave 10 countries and cut its workforce by 35,000.</p> <p>The decisions follow a writedown at its investment bank and the firing of three of the bank's eight board members.</p> <p>It was bold shake-up by the bank’s new boss John Cryan. But his problems are far from over.</p> <p>“A sanctions settlement may also be in the making. As early as next week, Deutsche is expected to pay at least $200 million to resolve investigations into its dealings with countries like Iran and Syria,” notes Wall Street Breakfast.<br /> Photo: ConstiAB</p>
EU probes Hutchison deal
Capital Markets
<p>Hong Kong’s domestic economy is notoriously dominated by a coterie of tycoons. But, it is harder for them to carve up key business sectors in other parts of the world.</p> <p>On Friday, European Union trust busters launched a full investigation  into Hutchison Whampoa’s HK$123.06 billion ($15.9 billion) bid for British mobile phone operator O2, reports SCMP. (paywall)</p> <p>Hutchison’s planned acquisition of Telefonica’s O2 would make it the top mobile operator in Britain.</p> <p>The company, which is controlled by “Superman” Li Ka-shing, already has a UK mobile business, so the deal would reduce the number of network operators from four to three, a number that raises regulatory alarm bells.</p> <p>"The Commission has concerns that the transaction would remove an important competitive force and that the merged entity would have limited incentives to exercise significant competitive pressure on the remaining competitors," said the European Commission.<br /> Photo: akika8</p>
People Moves: Barclays names CEO; Ex-Goldman exec becomes co-CEO of TPG
Capital Markets
<p>Barclays names JP Morgan banker as CEO. James Stately is the new CEO of Barclays, beginning Dec. 1. Stately will be responsible for overhauling the U.K. bank as it faces pressure from regulators to be "less capital intensive." Stately worked at JP Morgan for decades, leading the asset management unit until 2009. He then joined BlueMountain Capital Management hedge fund. Wall Street Journal</p> <p>Former Goldman exec joins TPG. Jon Winkelried is coming out of retirement to join TPG as co-CEO. Winkelried left Goldman Sachs in 2009. TPG has long had a co-leader structure. Founder David Bonderman left his co-CEO role last year to become chairman. Founder James Coulter continues to serve as the other co-CEO. New York Times</p> <p>Credit Suisse poaches Barclays bankers. Credit Suisse has hired five new bankers for its Americas Healthcare group. Punit Mehta and Jordan Bliss join as managing directors, and Thomas Burkly, Connie Chiang, and Naeem Merchant join as directors, all beginning in early 2016. This year Mehta and Bliss advised the Israeli Teva on its $40.5 billion acquisition of Allergan's generics unit. Business Insider</p> <p>Ex-Wells Fargo exec moves to Stearns Lending. Thomas Neary has joined Stearns Lending as CIO, responsible for capital markets, secondary marketing, portfolio investment and valuation, and product strategies. Neary comes to the firm from the Homeowners Mortgage Enterprises, where he was president and CEO. He has previously worked for Wells Fargo as executive v.p. for mortgage capital markets.</p> <p>&nbsp;<br /> Photo: ©iStock.com/ooyoo<br /> &nbsp;</p>