With Shanghai having limited retail exposure to high-yield bonds, and the Chinese corporate bond market has overtaken the United States as the world's biggest and is set to soak up a third of global company debt needs over the next five years, it is no wonder that, as Bloomberg reports, analysts fear "a prelude to a storm." Privately issued notes totaling 6.2 billion yuan ($1 billion) come due next quarter, the most since authorities first allowed such offerings from small- to medium-sized borrowers in 2012. This week a 4th issuer has faced a "payment crisis" and while officials are trying to expand financing for small companies (which account for 70% of China's economy, with debt-to-equity ratios exceeding 200%, this is nothing but more ponzi. As Goldman warns, it appears China's Minsky Moment is drawing near (as the hangover from Q1's credit impulse kicks in).
U.S. soft drink companies are increasingly shifting to "mini-cans" in an apparent strategy to help the poor obese people of the world manage caloric intake better. Mini-can sales are up 3% as the rest of the industry is in demise. All sounds great... However, as Reuters notes, the reality of the shift toward smaller cans "is almost the industry admitting that volume is not going to be growing very much." Simply put, it is one way that companies can drive higher prices and larger margins: Consumers may feel as though they’re buying a cheaper, smaller soda, but they are often paying more per fluid ounce. But do not fear, inflation is contained.
“If I scare you this morning, and as a result you take action, then I will have accomplished my goal," is how Casey Research's Jeff Clark began a recent conference speech. But the reality is that he didn’t need to try to scare anyone. Sadly, the evidence is overwhelming and has already alarmed most investors; our greatest risk is not a bad investment but our political exposure. And yet most of these same investors do not see any need to stash bullion outside their home countries. They view international diversification as an extreme move. Many don’t even care if capital controls are instituted. We're convinced that this is the most common - and important - strategic investment error made today...
The fundamentalist retro-gang that has conquered Northern Iraq has decided it needs to go Taliban on cultural monuments it disapproves of. In short, the group is not only killing people that don't conform to its harsh version of Islam, it is also trying to erase all traces of their history and culture - "The demolition of structures erected above graves is a matter of great religious clarity." It is quite ironic that Saudi Arabia, allegedly one of the main financial backers of ISIS, is finally getting worried a bit in light of all these events. Luckily, there is absolutely nothing to worry about. Not only do the Saudis believe that “ISIS will run out of steam” just before it gets to Mecca (see above), but more importantly, “the US State Department also issued a statement that it was “actively monitoring” the Iraqi situation” (apparently it neglected to “actively monitor” the Lebanese situation though). What could possibly go wrong?
- So that's what Obama meant by "costs" - Italy Recession, German Orders Signal Euro-Area Struggle (BBG)
- Russia worries, weak German data weigh on Europe (Reuters)
- Hedge Funds Betting Against Banco Espírito Santo in Line for Big Gains (WSJ)
- Bankers Called Up for Ukraine War as Rolls-Royce for Sale (BBG)
- Double Punch for 'Inversion' Deals (WSJ)
- Statist Strongmen Putin-Xi See History’s Capitalism Clash (BBG)
- China bans beards, veils from Xinjiang city's buses (Reuters)
- BATS to Settle High-Speed Trading Case (WSJ)
- Second Ebola patient wheeled into Atlanta hospital for treatment (Reuters)
With everyone focused on China as the source of next systemic risk, most forgot or simply chose to ignore Europe, which through Draghi's verbal magic was said to be "fixed." Or at least everyone hoped that the rigged European bond market would preserve the "recovery" illusion a little longer giving the world some more time to reform pretend it is doing something to fix it. Turns out that was a mistake, confirmed earlier not only by the plunge in German Factory Orders which cratered -4.3%, down from 7.7% and below the 1.1% revised, and UK Industrial production which missed expectations of a 0.6% boost, rising only 0.3%, but most importantly Italy's Q2 GDP shocker, which as we reported earlier, dropped for the second consecutive quarter sending the country officially into recession. As a result, European stock markets, Stoxx600, has joined the DJIA in the red for the year while Germany's 2 Year Bund just went negative on aggressive risk aversion, the first time since 2012.
Troops Deployed In West Africa Ebola Clinics As 2 More Nigeria Cases Revealed; Saudi Blocks TravelersSubmitted by Tyler Durden on 08/05/2014 18:17 -0400
Hundreds of troops are being deployed across West Africa in an effort to maintain peace and quarantine. As Liberian health officials warned, "The situation will probably get worse before it gets better." Following Monday's announcement that it will not issue pilgrimage visas to pilgrims from Sierra Leone, Guinea and Liberia due to concerns regarding the spread of the Ebola virus, Saudi Arabian officials have admitted they are testing samples from a man who had returned recently from a business trip to Sierra Leone for suspected Ebola infection. But it gets worse. As The Nigerian Tribune reports, Nigerian officials has revealed that two people have Ebola-like symptoms after contact with the dead Liberian Ebola victim, Patrick Sawyer. The CDC Director is "deeply concerned" about spread of Ebola in Lagos (4th most populous city in the world).
Greek 10Y yields, up 6 days in a row, have surged in the last few days to 2-month highs (bond price lows). The significant shift in sentiment appears related to two main factors. First, The Independent reports that Europe is considering pulling Troika (its economic oversight committee) - which has been likened to German Nazi occupation - out of Greece, forcing local politicians to come up with their own reforms by the start of 2015 (which clearly the market is not believing). Perhaps even more concerning is Goldman Sachs shift to neutral on European peripheral bonds, warning that "at current spread levels we think there is not enough of a buffer for investors to take credit risk in intermediate and long-dated peripheral sovereign bonds." Time for some more 'whatever it takes' we think.
Russia has been quiet, too quiet, since the EU and US unleashed their latest set of sanctions. However, as military drills and troop build-ups occur on Ukraine's borders, Reuters reports that Russian Prime Minister Medvedev is considering a significant retaliation, "any unfriendly measures by the EU, including those in the area of air transportation, we’ll be studied and won’t remain without a response." Russian business daily Vedomosti quoted unnamed sources as saying the foreign and transport ministries were discussing possible action which might force EU airlines into long and costly detours and put them at a disadvantage to Asian rivals by restricting or banning European airlines from flying over Siberia on busy Asian routes. Costs? Over $1.3bn for every months for Lufthansa, BA, and Air France...
- Second Ebola patient to arrive in U.S. on Tuesday (Reuters)
- Ebola Drug Made From Tobacco Plant Saves U.S. Aid Workers (BBG)
- Egypt plans to dig new Suez Canal costing $4 billion (Reuters)
- Apple Buybacks Pay Most Ever as CEOs Spend $211 Billion (BBG)
- DeMark Says Sell China Stocks Now After World’s Best Gain (BBG)
- Investors Stung by Losses After Exiting Struggling Property Fund in China (WSJ)
- B.A. in BTFD: MIT May Consider Granting Degrees in Less Than Four Years (BBG)
- Too late, money's already been spent: GPIF Needs Overhaul Before Asset Changes, Shiozaki Says (BBG)
- Oh look, another "truce": Israel withdraws troops, 72-hour Gaza truce begins (Reuters)
It is unclear how much of this morning's momentum-busting weakness in futures is the result of China's horrendous Service PMI, which as we reported last night dropped to the lowest print on record at the contraction borderline, but whatever low volume levitation was launched by the market after Europe's close yesterday may have fizzled out if only until Europe close (there is no POMO today). Still, futures may have been helped by yet another batch of worse than expected European data, namely the final Eurozone PMI prints, which in turn sent the EURUSD to day lows and the offsetting carry favorite USDJPY to highs, helping offset futures weakness. Because in the New Normal there is nothing like a little bad macro data to goose the BTFATH algos...
The Commodities Futures Trading Commission (CFTC) has been long viewed as one of the most corrupt of American institutions – and that’s saying a lot... when a retiring judge accuses the other remaining judge of being a total bought and paid for Wall Street crony, you know something is wrong. And sure enough, today we learn the CFTC will impose a meager $650,000 fine on JP Morgan, despite years of warnings about fraudulent data reports. You gotta love American justice. In the same week that an NYPD officer’s illegal and fatal chokehold was ruled a homicide (incredibly the man who shot the video has now been arrested), JP Morgan gets off with another slap on the wrist. As Glenn Greenwald noted, it’s Liberty and Justice for Some.
Having spied on RIMPAC for a week or two, it appears the Chinese imperialist rhetoric is rising once again. China can build whatever it wants on its islands in the South China Sea, Reuters reports a senior Chinese official said on Monday, rejecting proposals ahead of a key regional meeting to freeze any activity that may raise tensions in disputed waters there: "what China does or doesn't do is up to the Chinese government. Nobody can change the government's position." Of course, after showing what is at stake here, it should hardly be surprising that China is pushing back again. But don't worry, China's Ocean Affairs minister added "trust in us Asian people to use Asian means and wisdom to resolve our own problems."
The Lagos doctor who treated American Patrick Sawyer (who died from Ebola in late July) has been confirmed as infected by the deadly virus by Nigerian authorities. This is Nigeria's second confirmed case of Ebola but what is most concerning is the fact that the doctor's infection suggests contagion is less well-contained that authorities have claimed - especially in light of the fact that they did not quarantine Sawyer's fellow passengers. Nigeria is now the fourth nation to report Ebola cases, as Sierra Leone and Liberia are deploying hundreds of troops under an emergency plan to "contain" the worst outbreak of Ebola virus in history.