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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>
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>