Despite Many Curbs, Home Prices Rise Again in China

“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…..”

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“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’….”

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“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…”

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

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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

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“…. “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.”

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“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…”

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“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…”

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“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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“Netflix has struck its largest original content deal ever, investing further in kids’ content with new original series from DreamWorks Animation.

It’s a multi-year deal for exclusive access to over 300 hours of programming, starting in 2014. And the deal is global, covering all Netflix’s territories. This gives the streaming media giant exclusive access to first-run kids content that until now has only been available on the likes of Viacom’s Nickelodeon or the Disney channel.

The two companies aren’t announcing which shows are in the works, just saying the new shows will be “inspired by characters from DreamWorks Animation’s hit franchises and upcoming feature films as well as the vast Classic Media Library, which DreamWorks acquired in 2012.” The deal follows the announcement in February that Netflix and DreamWorks were collaborating on their first Netflix Original Series: Turbo, which premieres, July 17.

The deal also gives Netflix exclusive access to DreamWorks Animation features, starting with ‘The Croods,’ along with ‘Turbo’ and ‘Peabody and Sherman.’…”

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Scumbag moves out of $BAC

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“(Reuters) – Johnson & Johnson said on Monday that it would buy Aragon Pharmaceuticals, a private company that is running a mid-stage clinical trial for a prostate cancer drug, for $650 million in cash upfront and a possible second payment of $350 million if it meets certain milestones.

The deal does not include development of Aragon’s treatment for breast cancer, which will be spun off into a separate company called Seragon Pharmaceuticals ahead of the deal and will be run by Aragon’s chief executive officer.”

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“Author Jordan Mamorsky cites a worldwide “holistic lapse of ethics,” with consumers, ratings agencies and Wall Street’s casino culture coming under fire.

“We are now at the end of ethics because you have seen so many financial swindlers,” Mamorsky told Newsmax TV in an exclusive interview.

“You’ve seen countless financial scandals, and you really need to find out where the root problems of these issues are. It is lapses of business ethics, lapses of corporate culture, which have really worsened the way capitalism has operated.

“It has morphed into this crony capitalism model where you have these large banking institutions that control the way markets work and they manipulate it,” said the co-author of “The End of Ethics and a Way Back: How to Fix a Fundamentally Broken Global Financial System.”

“It’s more exploitation of markets rather than the free market and letting private systems work properly. These too-big-to-fail banking institutions really run the world.”

Mamorsky was asked why more hasn’t been done to reign in credit ratings agencies.

“These rating agencies really were the cause of the financial crisis because they gave these glistening AAA ratings to these junk mortgage bonds that resulted in tremendous financial calamity,” he said. “The investors really lose a lot because the AAA rating isn’t exactly an accurate barometer of the financial product.

“These rating agencies are making more profits than ever before and it’s a major problem that no one’s really addressing. The SEC’s not involved, the administration is not involved, and it’s really a tremendous problem that no one’s really looking at.”

The American consumer didn’t escape blame.

“American consumers feel that they’re not responsible for anything,” he said. “We have this mass consumerist culture where people think that they can rack up all this credit card money when they really can’t. They don’t have enough income coming in.”….”

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“Banks are starting to come clean about their rate risks.

B of A recently said it could lose as much as $11 billion if interest rates continue to rise.

FORTUNE — Banks have mostly been tight-lipped about what rising interest rates would mean for their bottom lines. They will soon have to open up a little more to regulators and investors.

For the first time this year, the Federal Reserve is requiring the nation’s 18 largest banks to submit mid-year stress tests, showing how they would perform if they were hit with a negative economic shock, like a spike in unemployment or interest rates. The results are due to the Fed by July 5th. Unlike the bank stress tests conducted at the beginning of the year, though, the Fed will not run its own test, or publicly critique the results. However, the banks will be required to make the results public at the end of September.

Bankers are meeting with Fed officials behind closed doors next week in Boston to discuss the stress tests. There has been some contention over the process in the past. Bank executives have expressed frustration that the Fed won’t say how it gets its results. At a similar conference last year, Wells Fargo’s treasurer, Paul Ackerman, reportedly drew applause from bankers when he said he still didn’t get how the Fed’s loss estimates could be so different than his bank’s.

MORE: Banks will take a hit on refi bust….”

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The story

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Upgrades –  ECOM, CMCSA, CYS, CENX, EXR, MRVL, PHG, PLD, PSA, TIBX, TSLA, SLCA,

 

Downgrades – AGNC, E, HMA, JMI, NVO, TDC, TWC, TMUS, LULU

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In Play ,

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“MUNICH (Reuters) – German industrial conglomerate Siemens is shutting down the last of its solar energy businesses after it failed to find a buyer, the company said on Monday.

Confirming a report in German newspaper Handelsblatt, a spokesman for Siemens said the group would close Solel by early next year. The Israeli business has accumulated losses of around 1 billion euros ($1.33 billion) since Siemens bought it in 2009, including a write-off of the entire purchase price.

Siemens has spent seven months trying to sell Solel, which makes components used in solar-thermal power stations. Some 280 employees will be affected by the closure, most of them in Israel.

The cost will run into the mid-double digit millions of euros, according to Siemens….”

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“(Reuters) – Orchard Supply Hardware Stores Corp has filed for Chapter 11 bankruptcy protection, court documents showed on Monday, with rival retailer Lowe’s Companies set to buy the majority of its assets for $205 million in cash.

Orchard, which was spun off by Sears Holdings Corp in late-2011, said it was carrying a high debt load and that it may not be in a position to make scheduled payments when the first tranche of its debt matures in December 2013.

“The company’s substantial debt due, in part, to significant recapitalization dividends paid to Sears, made it difficult, if not impossible for the company to right itself. The ever present prospect of violating the company’s leverage ratio covenants hampered many of its operational strategies,” Orchard said in the court filing.

Management and the board determined that a sale of Orchard through a Chapter 11 process was the best possible outcome for the company and its stakeholders after exploring a range of alternatives, the company said.

The company, which generated revenue of $657 million in the 2012 fiscal year, listed total liabilities of $480.1 million and total assets of $441 million, according to a court filing.

Orchard said it has secured commitments for $177 million in debtor-in-possession (DIP) financing, which will help it to continue meeting its financial obligations throughout the Chapter 11 case.

LOWE’S ACTS AS “STALKING HORSE” BIDDER…”

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