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Analyst Upgrades/Downgrades

The IMF Cuts Global Growth Targets for a Fifth Time This Year

“WASHINGTON: The International Monetary Fund trimmed its global growth forecast on Tuesday for the fifth time since early last year due to a slowdown in emerging economies and the woes in recession-struck Europe.

In its mid-year health check of the world economy, the Washington-based lender also warned global growth could slow further if the pull-back from massive monetary stimulus in the United States triggers reversals in capital flows and crimps growth in developing countries.

The IMF shaved its 2013 forecast for global growth to 3.1%, as fast as the economy expanded last year and below the Fund’s 3.3% projection in April. It also lowered its forecast for 2014 to 3.8% after earlier predicting a 4% expansion….”

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S&P Boosts Price Growth by 11% Going Into Earnings Season

“The same equity analysts who lowered second-quarter profit growth predictions to almost nothing in 2013 are raising price forecasts, convinced the economy is growing fast enough to lure more investors and boost valuations.

Standard & Poor’s 500 Index earnings rose 1.8 percent last quarter, down from a projection of 8.7 percent six months ago, according to more than 11,000 analyst estimates compiled by Bloomberg. At the same time, share-price targets for companies from GameStop Corp. (GME)to Goldman Sachs Group Inc. are rising at the fastest rate in two years. The U.S. equity gauge will increase 8.9 percent to a record 1,777.91 should the forecasts prove accurate….”

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S&P Cuts Softbank to Junk Status

SoftBank Corp. (9984), led by billionaire Masayoshi Son, had its credit rating cut to junk by Standard & Poor’s after winning approval from the Federal Communications Commission for its $21.6 billion bid to buy Sprint Nextel Corp. (S)

The rating was cut to BB+, the highest non-investment grade, from BBB, with a stable outlook, S&P said in a statement today. The FCC announced July 5 that the deal is in the public’s interest, giving Son a position in the U.S. market…..”

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The IMF Lowers Growth Estimates for Russia, Advises Caution on Stimulus

“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’….”

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Fitch: China’s “Credit-Driven Growth Model is Clearly Falling Apart”

“China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.

The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.

“The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation,” said Charlene Chu, the agency’s senior director in Beijing.

“There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signaling,” she told The Daily Telegraph.

While the non-performing loan rate of the banks may look benign at just 1pc, this has become irrelevant as trusts, wealth-management funds, offshore vehicles and other forms of irregular lending make up over half of all new credit. “It means nothing if you can off-load any bad asset you want. A lot of the banking exposure to property is not booked as property,” she said.

Concerns are rising after a string of upsets in Quingdao, Ordos, Jilin and elsewhere, in so-called trust products, a $1.4 trillion (£0.9 trillion) segment of the shadow banking system…..”

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Fitch Returns India to a Stable Outlook

“MUMBAI (Reuters) – Fitch Ratings returned India’s sovereign outlook back to “stable” from “negative” a year after its initial downgrade, surprising markets with a validation of the government’s efforts to contain the fiscal deficit and revive economic growth.

The upgrade is likely to be a welcome relief to the government, coming during a period when the rupee had slumped to a record low, and be seen as a reward after months of efforts to cut spending, passing fiscal reforms, and wooing foreign investors.

Analysts, however, were sceptical about the upgrade, reflecting their pessimism about economic growth prospects at a time when inflation, although easing, remains high while the current account deficit remains a thorn to policy makers.

Prime Minister Manmohan Singh’s minority coalition also faces important state votes due before a national election next year, putting into doubt whether it can keep fiscal discipline and pass additional reforms in a gridlocked parliament.

“Challenges remain on the macro economy front, with the weakening rupee and the uncontrollable current account deficit,” said Jagannadham Thunuguntla, equity head at SMC Global Securities in New Delhi.

“There is still a long way to go for a rating upgrade.”

The rupee extended gains on the news, ending up at 57.79/80, well above its Tuesday close of 58.39/40 and its record low of 58.98, also on Tuesday.

The benchmark 10-year bond yield recovered from earlier falls, ending down 1 basis point at 7.29 percent. Stock markets were closed when Fitch made its statement….”

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$JPM Expects EM Sell-Off to Hurt Bank Earnings

“The emerging market selloff sparked by speculation the Federal Reserve will reduce stimulus may cut revenue for investment banks including Standard Chartered Plc and HSBC (HSBA)Holdings Plc, JPMorgan Chase & Co. (JPM)’s Cazenove said.

Emerging markets are going through the most disruptive period since the collapse of Lehman Brothers Holdings Inc. in 2008 based on the rise in equity, currency and rates volatility, according to the JPMorgan unit’s report titled “Fed Tapering: Who is Afraid of EM Selloff? We Are!”

The swings may cause a “material slowdown” in emerging market fixed-income revenues with volumes “drying up,” Cazenove analysts includingKian Abouhosseinin London wrote.

Cazenove said it’s more concerned about fixed-income revenue for Standard Chartered and HSBC than previously because of higher revenues related to emerging markets. It’s in “wait-and-see” mode for European banks with lending or earnings in Brazil, South Africa and Mexico, including Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), according to the report.

Standard Chartered spokesman Jon Tracey declined to comment as did Paul Tobin, a Madrid-based spokesman for BBVA, and HSBC spokeswoman Archana Achuthan. A spokesman for Santander wasn’t immediately available to comment.

Emerging market government bonds in dollars slumped 3.5 percent in May, the most in at least three years, according to the Bloomberg USD Emerging Market Sovereign Bond Index. (BEMS) Brazilian government local-currency bonds lost the most since October 2008 last month, according to JPMorgan’s GBI-EM Broad Brazil LOC Unhedged Index. South Africa’s rand has plunged 15 percent against the dollar this year.

BlackRock Trims…”

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The S&P Cuts Brazil’s Outlook on Sluggish Growth

“Brazil’s credit rating outlook was cut to negative by Standard & Poor’s, which said sluggish economic growth and an expansionary fiscal policy could lead to an increase in the government’s debt levels.

S&P said in a statement yesterday that it lowered the outlook on Brazil’s BBB rating, which is two levels above junk and in line with Mexico and Russia, from stable. The rating company also cut the outlooks for state-controlled oil company Petroleo Brasileiro SA and government-run utility Centrais Eletricas Brasileiras SA.

The move, which threatens to end a decade-long stretch of rating upgrades for Latin America’s biggest country, was triggered by forecasts for a third year of “modest” economic growth, “weaker” fiscal policy and a deterioration in the government’s credibility, S&P said. Yields onBrazil’s dollar bonds have surged an average 0.81 percentage point in the past month to 4.49 percent. The outlook revision may prompt Brazilian debt to underperform, according to Siobhan Morden, a fixed-income strategist at Jefferies Group LLC.

“It has to do with policy inconsistency, the low-growth high-inflation trade off, and the loss of credibility of the central bank,” Morden said in a phone interview from New York.

Brazil’s economy expanded 0.9 percent last year and is forecast to grow just 2.77 percent in 2013, according to a central bank survey published June 3. Quickening inflation has prompted policy makers to boost interest rates by 0.75 percentage point this year after they lowered borrowing costs by 5.25 percentage points in cuts that began in August 2011.

‘Not Expansionary’…”

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Bundesbank Cuts Outlook for Growth Despite Ongoing Recovery

Germany’s Bundesbank cut its forecasts for growth in Europe’s largest economy for this year and next, while signaling confidence that the worst of the recession in the euro area is over.

The Frankfurt-based central bank cut its 2013 growth projection to 0.3 from the 0.4 percent predicted in December, and said the economy would grow by 1.5 percent in 2014, down from the previously-estimated 1.9 percent.

“Much will depend on whether the economic situation stabilizes in the euro-area crisis countries and whether expansionary forces will gradually gain the upper hand there,” Bundesbank President Jens Weidmann said in a statement. “A sustained upturn in the world economy is just as important as a precondition for the growth path we have assumed.”

While the German economy grew just 0.1 percent in the first three months of this year, business confidence rose in May…”

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The ECB Lowers 2013 Growth Estimates

“…In his opening statement, Draghi reiterates previous comments about how he sees a gradual economic recovery in the eurozone later this year, and that the ECB will keep policy accommodative as long as needed.

Draghi says the ECB has downgraded its 2013 euro area GDP growth forecast to -0.6%, but upgrades its 2014 forecast to 1.0%. Risks to growth remain on the downside.

On the inflation front, the ECB’s 2013 forecast has been downgraded to 1.4%, while the 2014 inflation forecast is unchanged at 1.3%. Upside and downside risks to inflation remain broadly balanced….”

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Despite Expected Expanding Global Economy, $GS Sees an End to Commodity Bull Run

“Commodities are trailing equities for the longest stretch in almost 15 years as Goldman Sachs Group Inc. and Citigroup Inc. predict the end of the decade-long bull market even as the global economy expands.

The Standard & Poor’s GSCI Spot Index of 24 commodities lagged behind the MSCI All-Country World Index for six months, the longest stretch since 1998. Hedge funds cut combined bullishbets across 18 U.S. raw-material futures by 51 percent from a 16-month high in September and are bearish on six of them. Commodities will return 1.6 percent in a year as losses in agriculture and precious metals diminish gains from energy and industrial metals, Goldman said last month.

Investors pulled a record $23.3 billion from commodity funds this year as global equities attracted $182 billion, according to EPFR Global, which tracks money flows. Prices that more than doubled in 10 years spurred expansions at mines, farms and oil fields. Gluts are emerging as the International Monetary Fund predicts global growth of 3.3 percent this year, from 3.2 percent in 2012. The group cut last week its estimates for China, the top consumer of metals, grains and energy.

“There are times when you probably should be avoiding commodities, and I think this is one of them,” said John Stephenson, who helps oversee about C$2.7 billion ($2.61 billion) at First Asset Investment Management Inc. in Toronto. “Anytime you have a whole lot of inventory and visible supply, prices are going to be under pressure. The real issue for commodities is the source of demand, China, is weak.”

Natural Gas…”

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