- World's Central Banks Lose Bond-Market Credibility as Woes Mount. More and more, bond traders are drawing the same conclusion: central bankers globally are coming up short in their attempts to combat the world’s economic woes. Even after hundreds of interest-rate cuts and trillions of dollars in quantitative easing, the bond market’s outlook for inflation worldwide is approaching lows last seen during the financial crisis. In the U.S., Europe, U.K., and Japan, those expectations are now weaker than they were before their respective central banks began their last rounds of bond buying.
- China Weighs on Developing East Asia as World Bank Cuts Outlooks. Developing East Asian economies are feeling the weight of China’s growth slowdown, with the World Bank cutting the region’s growth forecasts through 2017. China’s growth will cool to 6.9 percent in 2015, slower than the 7.1 percent rate predicted in April, the World Bank said in its East Asia and Pacific Economic Update released Monday. Expansion will ease to 6.7 percent next year and 6.5 percent in 2017, it said. Developing East Asia will expand 6.5 percent this year, slower than the 6.7 percent predicted in April. Slower-than-expected growth in China will put pressure on commodity exporters, as well as trade, foreign direct investment and tourism in the region, the World Bank said. The region’s worsening economic outlook comes at a time when the scope to ease monetary policy is constrained by the need to safeguard financial stability, while room for fiscal expansion is limited, it said. “Monetary loosening could prove counterproductive if it led to capital outflows, the likelihood of which will grow once U.S. policy rates increase and interest rate differentials with the U.S. narrow,” the World Bank said. “The scope for more public spending to boost short-term growth is limited.”
- International Container Cuts Spending as Global Growth Slows. International Container Terminal Services Inc. expects to spend only half of the $530 million it budgeted for this year as the Philippine port operator limits its expansion amid slowing global growth, Chairman and President Enrique Razon said. “The growth picture of the global economy is not looking too great,” Razon, 55, said in an interview Oct. 2 in Manila. Profit at the company has mainly been driven by acquiring new terminals rather than by organic growth, he said. The company, known as ICTSI, has built a portfolio of sea ports from Manila to Oregon to Ecuador as global trade boomed over the past decade, driven by China’s rapid growth. The trade picture has since dimmed, with the World Trade Organization recently cutting its forecast for global trade to 2.8 percent growth this year, from 3.3 percent previously.
- From Volkswagen to China: Risks That Might Derail German Growth. Europe’s economic powerhouse is facing a test of might. Germany’s trademark industrial prowess has been called into question by Volkswagen AG’s emission scandal, the slowdown in China and other emerging markets is threatening exports, and the influx of migrants is set to put a strain on the nation’s finances. This week, a smattering of economic data will give a hint on whether the largest economy in the euro area can sail through the headwinds that have accumulated in recent weeks or is at risk of running aground.
- VW Chief Warns Cheating Scandal May Threaten Company's Existence. Volkswagen AG’s designated Chairman Hans Dieter Poetsch warned managers that the diesel-emissions scandal could pose “an existence-threatening crisis for the company,” as it pleaded for public trust with full-page ads in national newspapers. The German carmaker faces a Wednesday deadline to present a plan to fix some 2.8 million vehicles in its home market. Poetsch told managers last week he was certain the Wolfsburg, Germany-based carmaker will overcome the crisis with enough effort, according to Welt am Sonntag newspaper.
- Cameron Says He’d Back Britain’s Exit From EU If Reforms Not Won. Prime Minister David Cameron reiterated his promise to support Britain’s exit from the European Union if he doesn’t get the reforms he is seeking. “I’ve always said if I don’t get what I want I will rule nothing out,” Cameron told BBC Television’s “Andrew Marr Show” on Sunday, as his Conservative Party’s annual conference opened in Manchester, northwest England. “But I’m confident we will get what we want.” While gaining an unexpected majority in May’s election has strengthened Cameron’s hand, he still faces opposition from within Tory ranks on Britain’s membership in the EU, an issue that’s divided the party for decades. Cameron -- who’s seeking to keep Britain in the bloc in a referendum he’s promised by the end of 2017 -- is now facing calls from euro-skeptic backbenchers to spell out exactly which reforms he is seeking to secure in negotiations with fellow EU leaders.
- Norway's PM Warns Currency Instability Is a Threat to Economy. As the currency of one of the world’s richest nations becomes increasingly difficult to trade, the government is starting to worry about the economic fallout. Prime Minister Erna Solberg says the rapid weakening of Norway’s krone will only provide short-term relief to western Europe’s biggest oil producer. In the longer term, the loss of liquidity and increased volatility pose a threat to businesses struggling to plan investments. “It helps some of those industries that have been suffering a bit on competitiveness,” Solberg told Bloomberg on Saturday while attending a Nordic Council meeting outside Copenhagen. “But it’s not good for a country in the long run to have an unstable currency because you also need to be able to long-term plan when you are doing investments.”
- Asian Stocks Gain as Weak U.S. Payrolls Bolster Case for Dovish Fed. Asian shares rose, with the regional benchmark index heading for its longest winning streak in almost three months, after a weaker-than-expected U.S. jobs report reduced the case for the Federal Reserve to raise interest rates. The MSCI Asia Pacific Index climbed 0.4 percent to 126.92 as of 9:01 a.m. in Tokyo, advancing for a fourth day.
- Saudi Aramco Cuts Crude Pricing to Asia, U.S. Amid Weak Demand. Saudi Arabia cut pricing for November oil sales to Asia and the U.S. as the world’s largest crude exporter seeks to keep its barrels competitive with rival suppliers amid sluggish demand. Saudi Arabian Oil Co. reduced its official selling price for Medium grade crude to Asia next month to a discount of $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales, the company said Sunday in an e-mailed statement. The discount for the Medium grade to Asia, the main market for Saudi crude, widened by the most since the state-owned company made a $2 a barrel cut in February 2012, according to data compiled by Bloomberg.
- Gas Bears Bathing in Shale Glut Raise Net Short Bets to Record. Hedge funds raised bearish bets on U.S. natural gas to a record as warm weather threatened to crimp demand for the heating fuel this winter. Money managers boosted net-short positions in four U.S. gas contracts by 26 percent in the week ended Sept. 29, the most in U.S. Commodity Futures Trading Commission data going back to 2010. Bullish speculators cut their long-only holdings to a record low.
- Investors Are Asking Tough Questions About 'Yieldcos'. Concerns raised following years of capital influxes into energy. The website of SunEdison, the renewable energy company, is a virtual smorgasbord of sunshine and light. "Solar perfected," reads one slogan splashed across the page. "Welcome to the dawn of a new era in solar energy," reads another banner over a pink-hued sunset. While SunEdison's marketing materials are firmly in the clouds, its share price has sunk to earth. The company is one of a batch of energy firms that have spun off their completed projects to public equity investors through vehicles known as "yieldcos," only to see the share prices of those vehicles subsequently tank.
- America's Beaten-Down Factory Worker Is Getting Squeezed Again. The great recovery in U.S. manufacturing jobs -- a surprising five-year surge that blossomed in the aftermath of the financial crisis and added almost 900,000 people to payrolls across the country -- appears to be dead. Or at the very least, on hold. Factory employment fell by 27,000 in August and September, the worst back-to-back months since late 2009. To understand what’s behind those numbers, go right to the center of America’s heartland and take a look at a company nestled along the Illinois-Missouri border named Titan International Inc. It makes huge tires for tractors, backhoes and dump trucks, the kind of equipment that was in hot demand as the U.S. shale industry boomed and grain farmers flush with cash from soaring prices invested in new machinery.But with commodities now collapsing, the demand for earth-moving equipment -- and the tires they roll on -- is drying up.
Wall Street Journal:
- Glencore Oil Deals Could Bite Banks. Slide in crude prices adds risk for lenders who financed ‘jumbo’ transactions with producers. A deal struck last year between Glencore PLC and the government of Chad sent $1.4 billion to the African country as an up-front payment for four years of oil shipments. Now, uncertainties over the transaction, which was financed by bank lending, and troubles with other similar deals are shedding light on how Glencore’s energy business has taken some banks into risky areas that are causing jitters as commodity prices fall.
- New Emerging-Market Woes. Companies’ U.S.-dollar debt could be hurt as commodities and currencies fall. One of the last havens in emerging markets is showing signs of strain. Companies in emerging markets issued trillions of dollars of foreign-currency bonds during the decadelong commodity boom, and took advantage of low interest rates in the developed world following the 2008 financial crisis. Now, many investors fear the commodity bust will lead to a rise in defaults that could deepen economic slumps in many of these nations. China’s Middle-Class Dreams in Peril. Smaller cities on the cusp of China’s transformation toward consumer-driven growth struggle to overcome ill effects previous economic model.
- At least 5 dead as torrential rain, floods pound East Coast. Saying the deadly flood waters in her state were at "a thousand-year level" -- and acknowledging that there was still 24 hours of rain to come -- Gov. Nikki Haley urged the residents of South Carolina to stay safe and strong during a Sunday afternoon press conference. Haley gave an accounting of just how devastating the storm has been: 30,000-plus sandbags used, 754 calls for assistance in a 12-hour period, 323 collisions, three fatalities. Nearly 600 National Guard troops had been activated, she said, with 1,300 more either on call or on standby. Rescue crews had 11 aircrafts, eight swiftwater rescue teams and 106 highwater vehicles at their disposal. More swiftwater teams were on their way from Tennessee, Haley said.
- Assad says Russia campaign must succeed in Syria. Syria's President Bashar Assad said in comments Sunday that the air campaign by Russia against "terrorists" in his country must succeed or the whole region will be destroyed, stressing that the fight against terrorism must precede a political process.
- U.S. system designed to prevent financial crisis ‘likely to fail,’ say experts. The current U.S.regulatory structure designed to prevent another financial crisis is “Balkanized,” a “mess” and likely to fail when needed, experts said. “The current U.S. institutional set-up is likely to fail in a crisis, and will be doing less to prevent a crisis than it should be,” said Adam Posen, president of the Peterson Institute for International Economics, at a two-day conference on financial stability sponsored by the Boston Federal Reserve.
- Emerging market turmoil flashes warning lights for global economy. Emerging economies risk "leading the world economy into a slump", with lower growth and a rout in financial markets, according to the latest Brookings Institution-Financial Times tracking index. Released ahead of the annual meetings of the International Monetary Fund and World Bank in Lima, Peru, the index paints a much more pessimistic outlook than the fund is likely to predict later this week.
- Junk bond market like a 'slow-moving train wreck': Strategist. (video) Billionaire investor Carl Icahn has long warned about the dangers of the high-yield market. Now, those sentiments are being echoed by a top strategist at a major bank who called the market for riskier bonds a "slow-moving train wreck." In an interview on CNBC's "Fast Money," Michael Contopoulos, head of high-yield strategy at Bank of America, called high yield credit a "big, big problem," and laid out the reasons why a turn in the credit cycle is currently underway.
- Is there an earnings recession looming? Why one measure says yes. (video) With stocks already in a rough patch and Friday's jobs report creating new question about economic growth, a new concern is approaching for the market: third-quarter earnings season.
- The American 'Recovery' In 1 Chart. (graph)
- A Worrying Set Of Signals. (graph)
- There's a new, emerging threat to Obamacare — and it's coming from Hillary Clinton and Bernie Sanders.
- Market history is calling, and it's saying stock performance will be crappy for another ~10 years. (graph)
- PotashCorp(POT) Says Withdraws K+S Proposal. Potash Corporation of Saskatchewan Inc. (POT, POT.TO) said Sunday that it has withdrawn its proposal to negotiate a transaction with K+S Aktiengesellschaft.
- U.S. hedge funds brace for worst year since financial crisis. U.S. hedge funds are bracing for their worst year since the 2008 financial crisis after a dramatic sell-off in healthcare and biotechnology stocks triggered double-digit losses for some prominent players last month. September's sucker punch in the biotech sector, on top of a grim August when global markets tumbled due to fears about slowing growth in China, have pushed many hedge fund managers deep into the red. "These are some of the worst numbers we have seen since the crisis," said Sam Abbas, whose Symmetric IO tracks hedge fund managers' returns. The average hedge fund lost 19 percent in 2008 when the credit crunch hit.
- What are we to make of the commodity price meltdown? The ramifications of the turmoil in commodity markets are difficult to determine, says Roger Bootle.
- European Central Bank sued by 200 investors over Greek debt deal. Central bank accused of violating its creditor status in case which opens door to host of legal action.
- Asian indices are +.75% to +1.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 156.5 -3.25 basis points.
- Asia Pacific Sovereign CDS Index 90.25 +.25 basis point.
- S&P 500 futures -.21%.
- NASDAQ 100 futures -.08%.
Earnings of Note
9:45 am EST
9:45 am EST
- Final Markit US Services PMI for September is estimated at 55.6 versus 55.6 in August.
10:00 am EST
- ISM Non-Manufacturing for September is estimated to fall to 57.5 versus 59.0 in August.
- The Labor Market Conditions Index for September is estimated to fall to 1.4 versus 2.1 in August.
- None of note
Other Potential Market Movers
- The Eurozone PMI report and the Australia Trade Balance could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and industrial shares in the region. I expect US stocks to open modestly lower and to strengthen into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.