Money Market Rates Remain High in China as the Cash Crunch Continues

“SHANGHAI—China’s money-market rates remained stubbornly high Tuesday, suggesting a standoff between the country’s central bank and lenders that is causing stress to the financial system is set to continue.

An interbank benchmark for funding costs called the seven-day repo rate was at 6.82% Tuesday, close to the 6.89% rate at Monday’s close and a record 6.90% on Friday. It had averaged around 3.30% this year before the liquidity crunch began at the end of last month.

In a sign that China’s central bank isn’t going to relax the pressure soon, the People’s Bank of China refrained from adding cash to the financial system Tuesday. It normally conducts so-called open market operations on Tuesdays and Thursdays by adjusting short-term loans to commercial lenders, which controls the supply of credit.

Since they first soared on May 31, interbank lending rates have taken a toll on other financial markets and vexed investors. The benchmark Shanghai Composite Index has fallen 7.1%, while short-dated bond yields have risen more than 40 basis points. The yuan has been flat during the same period as global investors have pulled out money and lowered expectations for further gains.

The tight conditions suggest China’s financial markets will remain under pressure even though some big banks are calling for the central bank to inject more cash into the market by lowering the share of deposits that banks are required to set aside against financial trouble.

Analysts say Beijing may even be taking advantage of the market turmoil to test banks’ capacity for risks. The higher funding costs stress the ability of banks to raise cash and may reveal which lenders have taken on too much risk should they get into trouble…..”

Full article

Comments »

“Do you have a computer? Good. Now you can be a quant trader.

For years, complex algorithmic trading has been a major profit generator for Wall Street banks and hedge funds.

It has also been a source of employment for programming prodigies — and a source of stress for regulators.

But thanks to the new Manhattan-based startup EquaMetrics, average Joes can now quant trade from the comfort of their own homes.

CNN Money reports…”

Full article

Comments »

“There’s a Warren Buffett quote that’s something akin to: When the tide goes out, you can see who’s been swimming naked.

That’s the theme of a note this morning from SocGen analyst Kit Juckes, who says that as rates are rising, and tapering talk picks up, it’s beginning to be clear where the unsustainable bubbles have been built up.

No surprise: He says the bubbles were found in emergingg markets, which have been crumbling lately.

Each of the three significant financial bubbles of the last 30 years has been fuelled by the Fed keeping policy rates below the nominal growth rate of the economy for far too long. The chart below highlights two conflicting issues. It highlights two conflicting issues, one supporting my core view, the other challenging it. The first is that current policy is creating market and economic distortions just as past periods did. The reaction to taper talk in EM, commodities and volatility shows where bubbles have been inflated. This is the most powerful argument in favour of the Fed taking the first baby-steps on the path away from super-easy policy. The second issue is that nominal GDP growth is slowing – 3.4% y/y in Q1 2013 after a post-crisis peak at 4.5% a year ago. SG economic forecasts look for a re-acceleration from here. The Fed may not need evidence of a return to ‘old normal’ growth or signs of a re-acceleration in CPI or wage inflation to justify tapering. But nominal growth does need to turn a bit higher….”

Full article

Comments »

The U.S. used to be the leader of many lists. Unfortunately, over the past 30+ years we have declined on most of those lists. Now we find the U.S. is seriously lagging the world in the creating entrepreneurs…

Full article 

Comments »

“Ben Bernanke is likely to signal that the U.S. Federal Reserve is close to tapering down its $85 billion-a-month in asset purchases when he holds a press conference on Wednesday, but balance that by saying subsequent moves depend on what happens to the economy.

The Fed chairman has a double communications problem. Markets seem reluctant to acknowledge the improvement that is leading the Fed towards a taper of QE3. But they also appear to be assuming, incorrectly, that any taper means the Fed has become less willing to support the economy’s recovery.

Mr Bernanke is likely to push against both misperceptions, combining an upbeat message on how the strength of the economy will soon justify a taper, with a signal that further tapering depends on further improvement in the economy and in no way brings forward an interest rate rise….”

Full article

Comments »

“U.S. housing starts rose less than expected in May, likely reflecting labor and material constraints, but the overall trend remained consistent with strength in the housing market.

Meanwhile, U.S. consumer prices rose in May and a gauge of underlying price pressures showed signs of stabilizing after a long decline, a potential comfort to Federal Reserve policymakers who would like to see stronger inflation.

Though permits for future home construction fell, that followed a surge in April, which hoisted them above the 1 million-unit mark. The pullback last month reflected a drop in the volatile multi-family sector, but permits for single-family construction touched their highest level in five years.

The Commerce Department said on Tuesday housing starts rose 6.8 percent to a seasonally adjusted annual rate of 914,000 units. April’s starts were revised up to show a 856,000-unit pace instead of the previously reported 853,000 units.

Economists polled by Reuters had expected groundbreaking to rise to a 950,000-unit rate last month.

Builders, who are ramping up construction to meet demand for housing against the backdrop very low inventory, have been complaining about labor shortages and increased material costs.

Sentiment among single-family home builders hit a seven-year high in June, a report showed on Monday, amid optimism over current and future home sales.

Lean inventories are pushing up home prices, which are in turn boosting consumer confidence and spurring consumption, helping soften the blow on the economy from tighter fiscal policy and slowing global demand….”

Full article

Comments »

“WASHINGTON (Reuters) – President Barack Obama hinted in an interview aired on Monday that he may be looking for a new chief of the U.S. Federal Reserve Bank, saying Ben Bernanke has stayed a lot longer than the current chairman had originally planned.

Obama, speaking to Charlie Rose, host of a PBS interview program, compared Bernanke to longtime FBI Director Robert Mueller, who agreed to stay two years longer than he had planned and is to leave in the coming months.

“Well, I think Ben Bernanke’s done an outstanding job. Ben Bernanke’s a little bit like Bob Mueller, the head of the FBI – where he’s already stayed a lot longer than he wanted or he was supposed to,” Obama said.

Asked whether he would reappoint Bernanke if he wanted to keep the job, Obama did not answer directly.

“He has been an outstanding partner, along with the White House, in helping us recover much stronger than, for example, our European partners, from what could have been an economic crisis of epic proportions,” Obama said.

Bernanke, who has tried to nurse along the ailing U.S. economy through the 2008 financial crisis, is widely expected to step down when his second term as chairman expires at the end of January.

Expanding on Obama’s remarks, a White House official said Obama’s remarks were reflecting his admiration for the length and depth of Bernanke’s commitment to serve as Fed chair in a difficult period and at a significant personal sacrifice….”

Full article

Comments »

“WASHINGTON (AP) — U.S. consumer prices rose slightly in May as higher energy costs were partly offset by cheaper food. The small increase comes after two straight declines, underscoring that American consumers are benefiting from mild inflation.

The consumer price index ticked up a seasonally adjusted 0.1 percent last month, only the second increase in seven months, the Labor Department said Tuesday. Consumer prices fell 0.4 percent in April, the largest decline in four years. In the past 12 months, prices have increased just 1.4 percent. That’s up from a 1.1 percent annual pace in April, which was the smallest in 2 ½ years.

Slow economic growth and high unemployment have kept wages from rising quickly. That’s made it harder for retailers and other firms to raise prices.

Still, tame inflation has helped consumers increase spending this year, despite slow income growth and higher Social Security taxes. It also makes it easier for the Federal Reserve to continue its extraordinary efforts to boost the economy.

And while inflation is low, economists say it isn’t low enough to alarm Fed policymakers. Tuesday’s report “won’t prevent the Fed from beginning to reduce its monthly asset purchases, probably beginning in September,” said Paul Ashworth, an economist at Capital Economics….”

Full report

Comments »

“DUBLIN (Reuters) – U.S.-based Royalty Pharma has dropped a hostile bid worth up to $8 billion forElan , leaving the Irish drug maker free to seek other suitors having put itself up for sale last week.

Royalty on Tuesday withdrew its appeal against a ruling by Ireland’s regulator on takeovers, meaning the offer automatically lapses and bringing an end to a bitter, four-month battle that involved court hearings, injunctions and a war of words between the two sides.

The end of that saga heralds a new takeover battle for Elan, which has invited bids and has interest from “more than one interested party,” according to a source familiar with the situation.

Under Irish Takeover Panel rules, Royalty is not permitted to submit another hostile bid for Elan for 12 months once its current offer lapses. Elan has said Royalty can take part in the sale process. Royalty did not say if it intended to do so and a spokesman for the company had no further comment.

The New York-based investment firm had made its offer contingent on Elan shareholders rejecting all resolutions put to a vote at a meeting on Monday, but the owners narrowly backed one of the proposals, for a share buyback.

Royalty had said its bid should be contingent on only two of the resolutions relating to acquisitions – both of which were rejected – but the Irish Takeover Panel had said it could not modify the terms at that stage of the takeover contest.

ORIGINAL PLAN…”

Full article

Comments »

“Sprint Nextel Corp. (S) said it sued Dish Network Corp. seeking to block a buyout of Clearwire Corp. (CLWR), saying Dish’s bid violates rights of investors in the wireless network provider.

Sprint, Clearwire’s largest shareholder, said it sued Dish in state court in Wilmington, Delaware, yesterday to try to halt Dish’s $4.40-a-share bid for Clearwire. Sprint and Dish are both vying to acquire the Bellevue, Washington-based firm.

Dish’s offer is designed to coerce Clearwire shareholders into handing over their shares “or else be left holding stock in a corporation that will be handicapped by unlawful corporate governance restrictions, onerous debt provisions and subject to massive monetary damages claims,” according to a copy of a complaint provided by Sprint’s lawyers. The filing couldn’t be confirmed in Delaware Chancery Court after regular business hours yesterday…..”

Full article

Comments »

“European car sales fell to a 20-year low in May as record joblessness caused by a recession in the euro area reduced demand at PSA Peugeot Citroen (UG), Renault SA (RNO), Fiat SpA (F)and General Motors Co. (GM)

Registrations dropped 5.9 percent to 1.08 million vehicles from 1.15 million a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today. The figure was the lowest for the month since 1993, said Quynh-Nhu Huynh, the group’s economics director. The ACEA compiles data for the 27-nation EU plus Switzerland, Norway and Iceland….”

Full article

Comments »

“The International Monetary Fund cut its economic growth forecast for Russia, cautioning against the danger of stoking inflation with fiscal stimulus and urging policy makers to improve the business climate.

Gross domestic production will expand 2.5 percent this year and 3.25 percent in 2014, the Washington-based lender said in a statement today, compared with April predictions of 3.4 percent for 2013 and 3.8 percent next year. The Economy Ministry projects 2.4 percent growth this year and 3.7 percent in 2014.

“Fiscal stimulus at this time would likely be ineffective and merely intensify inflationary pressures, given that the economy is operating at full capacity,” IMF Mission Chief Antonio Spilimbergo said in the statement after completing the Article IV consultation of Russia’s economy. “Monetary policy should remain geared toward achieving inflation objectives.”

The IMF is inserting itself into a debate over a mix of policy tools needed to revive an economy growing at the weakest pace since a contraction in 2009. The government sees room to bolster the economy through a weaker ruble after rejecting calls to make the central bank partially responsible for growth, Finance Minister Anton Siluanov said in an interview last week.

The ruble weakened 0.5 percent against the dollar to 31.8950 as of 10:32 a.m. in Moscow. TheMicex Index (INDEXCF) of 50 stocks fell 0.3 percent percent to 1,321.62.

‘Investment, Diversification’….”

Full article

Comments »

“Chinese property prices rose at the fastest pace in more than two years in major cities, defying tougher government curbs and constraining the ability of policy makers to ease credit in response to weakening economic growth.

New home prices in Beijing, Shanghai and Guangzhou posted the biggest gains in May since at least January 2011, and 69 of the 70 cities tracked by the government showed increases, the most since August 2011, National Bureau of Statistics data showed today in Beijing. Inbound non-financial investment rose 0.3 percent in May from a year earlier, the weakest in four months, according to the Ministry of Commerce.

The property gains limit the ability of Premier Li Keqiang to counter an economic slowdown that showed signs of deepening in May. The central bank today refrained from adding cash to the financial system and money-market rates reached the highest level in seven years this month, a liquidity squeeze that Fitch Ratings says may accelerate a banking crisis.

“The government is in a dilemma right now,” said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc., who previously worked at the International Monetary Fund…..”

Full article

Comments »

“The yen weakened for a second day against the dollar before the Federal Reserve starts a two-day meeting today that may provide more information about when the central bank will start to reduce bond purchases.

Japan’s currency declined versus all except one of its 16 major counterparts after the central bank estimated the current-account balance increased to a record amid unprecedented monetary stimulus. The euro climbed to a four-month high against the dollar as German economic sentiment improved more than economists forecast. Australia’s dollar weakened for a third day after the Reserve Bank indicated the currency may fall further.

“We’re looking for the dollar to resume its uptrend versus the yen,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “The market can take advantage of any suggestions by the Fed that they are close to reducing bond purchases. The yen should remain under pressure across the board.”

The yen declined 0.9 percent to 95.33 per dollar at 7:07 a.m. in New York after depreciating 0.2 percent yesterday. Japan’s currency weakened 0.9 percent to 127.48 per euro. The euro gained 0.1 percent to $1.3374 after rising to $1.3399, the highest level since Feb. 20.

The JPMorgan Global FX Volatility Index increased to 10.35 percent from 10.25 percent yesterday after climbing to a one-year high of 11.43 percent on June 13. The average in the past 12 months is 8.65 percent.

‘Remain Vague’….”

Full article

Comments »

“Emerging-market currencies weakened, led by India’s rupee and Russia’s ruble, as investors awaited the outcome of a Federal Reserve meeting. Most developing-nation stocks rose as Philippine and Indonesian equities rallied.

The rupee headed for a record-low close against the dollar and the ruble slid 1 percent. TheBloomberg-JPMorgan Asia Dollar Index (ADXY), which tracks the region’s 10 most-traded currencies, slid to the lowest level since Sept. 12. The Federal Open Market Committee starts a two-day policy meeting today, a month after Chairman Ben S. Bernanke said stimulus efforts could be scaled back if the employment outlook shows sustainable improvement.

“The market is not sure what exactly the FOMC will say but is adjusting to the risk of an announcement of early tapering of quantitative easing,” Gaelle Blanchard, senior emerging-market strategist at Societe Generale SA in London, said by e-mail.

About three stocks advanced for every two that fell in the MSCI Emerging Markets Index, which lost 0.4 percent to 953.76 at 12:45 p.m. in London. SM Investments Corp. (SM) drove the Philippine benchmark gauge to the largest three-day gain since September 2011. Indonesian equities rallied after the nation’s parliament approved a revised budget.

The rupee sank 1.5 percent versus the dollar and the Malaysian ringgit slid 0.7 percent. The Bloomberg-JPMorgan Asia Dollar Index lost 0.3 percent. Hungary’s forint weakened 1 percent versus the euro. South Africa’s rand dropped 0.7 percent, extending declines in the past month to 6.3 percent.

Turkey Raids…”

Full article

Comments »

World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Japan, Italy, Spain, France,  and Germany …

Comments »

U.S. equities got off to a strong start. Hope is running high as the Fed meets this week.

By 2 p.m. a Financial Times article said the markets may not be ready for more tapering talk. The market abruptly went down to pare 75% of its rally. Then the journalist made a tweet about an hour later which turned the market around to bounce from up 50 to up 109 by the close.

Such b.s. shows how on edge the markets are in a low volume environment.

Today technology, cyclicals, and home builders led the rally.

 

Market stats

[youtube://http://www.youtube.com/watch?v=PHRIvssIfHo 450 300]

Comments »

“…. “We have a very robust fix and a next-battery-generation system that I think is going to serve this airplane well for the future,” said McNerney. Boeing shares were up more than 1% in trading.”

Full article

Comments »

“Markets are hoping for answers from the Fed on its easing program this week —  mainly, when and how it’s going to start paring back. They want soothing words, and, from the looks of stock futures on Monday, they fully expect to get them.

There have been some worrying signs surrounding stocks lately: a sharp selloff inemerging markets, soaring bond yields and volatile markets overall.

But no signs of panic at either J.P. Morgan Cazenove or Credit Suisse, where strategists are staying overweight on equities.

Mislav Matejka and other strategists at J.P. Morgan Cazenove in a note on Monday list their reasons for optimism:

1. The rise in U.S. bond yields is being driven by a positive growth-inflation trade-off. Worried that the backup in real yields is too fast and could be a problem for recovery and a fall in inflation that could trigger deflation? “We think these fears will morph into: real rates are just catching up with where private economy, ex. fiscal drag, already is,”  says  J.P. Morgan’s Matejka.
2. Investor sentiment has turned more bearish, and that’s healthy. Case in point, Japan equitiesJP:NIK +2.68%, which have moved out of pricier territory on price/book metric, says Matejka.
3. Emerging markets are selling off, but they’re not headed for a full-blown crisis because current-account balances and debt positions are better now than they were then, says Matejka.

Putting its money where its mouth is, J.P. Morgan is lifting cyclicals to neutral from underweight — saying the sector is still underperforming even after May’s rebound, but it doesn’t advise an outright long. The analysts don’t see yields backing up much further in the near term. Mining names are being added — closing out a longstanding bearish stance on miners and steel in particular — and energy is being lifted to neutral from overweight, given “extreme cheapness” price/earnings, price/book. On the downside, telecom stocks are being cut to underweight from neutral…”

Full article

Comments »

“For the first time in seven years, most U.S. homebuilders are optimistic about home sales, a sign that construction could help drive stronger economic growth in coming months.

The National Association of Home Builders/Wells Fargo builder sentiment index released Monday leaped to 52 this month from 44 in May. It was the largest monthly increase since 2002.

A reading above 50 indicates more builders view sales conditions as good, rather than poor. The index hasn’t been that high since April 2006, just before the housing market collapsed…”

Full article

Comments »