News & Views: Friday, September 26
What you need to know for today's trading day.
Russia Is Ready to Rein In the Ratings Agencies (Businessweek)
Putin's Sell-Treasuries-for-BRICS Bonds Plan Has Limits (Bloomberg)
Dollar heads for 11th weekly gain but tensions grow (Reuters)
Intel Invests $1.5 Billion for Stake in Chinese Chip Maker (WSJ)
BlackRock Buys Korea Stocks as Valuations Lure Foreigners (Bloomberg)
Firstly, the USDRUB FX cross is showing the largest positive risk-adjusted return across currencies and all assets in the overnight session (ie Ruble weakness). Early this morning it was reported that the Russian central bank was looking at ways to diversify away from the three major credit rating companies - Fitch, S&P, and Moody's - because they do not come under the purview of its supervisory agencies. Instead, you can use some of the local ratings agencies, where a AAA rating can be purchased for a token fee of $10,000. Additionally, one of Russia's oligarchy, Vladimir Evtushenkov, was placed under house arrest today following a new lawsuit by Russian prosecutors saying that laundered money through his stake in investment company AFK Sistema. Apparently he has fallen out of favor.
The high yield bleeding continued yesterday in the late hours with spreads finishing 14bps wider. For the BofAML Master II index, a new wide for this year was reached at 435bps, however some other indices are still a few basis points away. Barclay's YTW spread is now at its widest piont since last October at 352bps.
The USDJPY is showing the second largest risk-adjusted gain overnight following the report of August consumer prices. Since the report, USDJPY has rallied 60pips. Three forecasters overnight pushed back their call for new BoJ easing into 2015, but because of the jump in forward-looking Tokyo prices for September, the reaction was negative for the Yen. The main reason for the weakness is further news from Japan's newly appointed Health Minister Shiozaki - who was appointed to reform the nation's GPIF pension fund - that he will not wait until the new law goes into effect that will allow him to change the fund's allocations to reform the fund. Shiozaki is expected to reduce its 60% allocation to domestic bonds to 40% in favor of domestic and foreign equities, and foreign bonds.
The Australian ASX index is showing the largest negative risk-adjusted return in equities and conversely the USDCNY cross is showing the largest negative return for currencies, and all assets. The main reason for the strength in the Yuan is comments from PBoC deputy governor Hu that the central bank will gradually ease interest rate control (liberalizing interest rates) and improve the flexibility of monetary policy. Allowing interest rates to more freely float is positive for the currency as it draws additional capital investment.
Two articles, posted overnight in China Daily, discuss the hidden risks in the Chinese banking system with things such as capital shortfalls. Following the planned ousting of the current PBoC Governor, this has raised concerns that there are more deeply rooted capital problems at the banks that will require more direct government support. Another article noted that the Chinese government has approved the restructuring of its top agriculture bank - and provider of a large majority of loans - Agricultural Development Bank of China. This is another move to free up access to credit to smaller organizations and farms that will presumably allow more production for both. The amount of positive catalysts created by the government continues to mount.
By far the best explanation I heard for yesterday's selloff was that either the ECB or SNB was selling US stocks to take advantage of the favorable differential between the USD and EUR exchange rate. In other news, Mario Draghi was on with his sales coverage at GS, and rather than route the order through them, just decided to place the orders in Sigma X himself.
- Japan national CPI YoY (Aug) up 3.3% vs 3.3% expected, prior 3.4%
- Japan Tokyo CPI YoY (Sep) up 2.9% vs 2.7% exp, prior 2.8%
- German GfK consumer confidence (Oct) down to 8.3 vs 8.5 exp, prior 8.6
US Economics (Time Zone: EST)
08:30 GDP Annualized QoQ (2Q final estimate) - expected 4.6%, prior 4.2%
08:30 Personal Consumption - exp 3.0%, prior 2.5%
08:30 GDP Price Index - exp 2.1%, prior 2.1%
08:30 Core PCE QoQ - exp 2.0%, prior 2.0%
09:55 University of Michigan Consumer Confidence (Sep final) - exp 85.0, prior 84.6
Finish Line (FINL)
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