- China Banking Stress May Come Faster on Cash Crunch, Fitch Says. China’s worst cash crunch in at least seven years is an indicator of shadow lending gone awry and a banking crisis may appear earlier than expected if liquidity remains tight, according to Fitch Ratings. “We are starting to see some issues emerging” in liquidity, Charlene Chu, Fitch’s head of China financial institutions, said in an interview today with Zeb Eckert on Bloomberg Television in Hong Kong. “It will be very important over the next month or so to see how that plays out. If that doesn’t go away, some of this may be moving ahead faster and earlier than we thought.”
- China Swaps Rise to 2011 High as PBOC Refrains From Adding Cash. One-year interest-rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, up 7 bps at 3.89% in Shanghai, according to Bloomberg data. It touched 3.9%, the highest since September 2011. "The PBOC has continued to surprise with its refusal to inject liquidity through open-market operations despite extremely high money market rates," Dariusz Kowalczy, a Credit Agricole CIB strategist in Hong Kong, wrote in a report today. "The situation is untenable and we expect the central bank to inject liquidity in the near term either via reverse repos or a cut in the require reserve ratio."
- China May Home Prices Rise as Major Cities Post Record Gains. China’s new home prices rose in almost all cities in May, led by major centers, as the government’s latest property measures failed to deter buyers. Prices climbed from a year earlier in 69 of the 70 cities tracked by the government, the National Bureau of Statistics said in a statement today. The southern business city of Guangzhou posted the biggest gain with prices rising 15 percent from a year earlier. Beijing prices climbed 12 percent, while they advanced 10 percent in Shanghai. All three cities had their biggest advance since the government changed its methodology for the data in January 2011.
- China Foreign-Investment Gains Ease as Economic Slowdown Deepens. Foreign direct investment in China rose in May by the least in four months, a sign of concern that growth is slowing in the world’s second-biggest economy. Inbound non-financial investment increased 0.3 percent from a year earlier to $9.26 billion, the Ministry of Commerce said today in a statement in Beijing, after a 0.4 percent gain in April.
- China Oil Contraction Sinks Industry’s Biggest Tankers: Freight. China’s oil imports are contracting for the first time since 2009, reducing the biggest source of demand for crude tankers at a time when U.S. purchases are slowing and owners face the worst capacity glut in three decades. The world’s second-biggest economy bought 2.1 percent less crude in the first five months, compared with an 11 percent expansion in the same period in 2012, customs data show. Tanker owners are already losing money and freight swaps indicate rates won’t be profitable before 2015.
- Directors Refuse to Go Naked for Chinese IPOs. Stephen Markscheid holds one of the riskiest jobs in the world -- or so say insurers. The 59-year-old former banker, a Mandarin-speaking American, sits on the boards of five U.S.-listed Chinese companies, including JinkoSolar Holding Co. (JKS) The group of about 500 Chinese firms came under scrutiny over the past two years as a rash of accounting scandals and irregularities sent shares tumbling, sparked investor lawsuits and halted new stock offerings on U.S. exchanges. The U.S. Securities and Exchange Commission has revoked more than 50 Chinese company registrations since early 2011. “The work that I’m doing now, it’s not for the faint of heart,” said Markscheid, who travels to China for board meetings from his home near Chicago, in Wilmette, Illinois, eight to 10 times a year. “I’ve been sued quite a few times.” As a result, the cost of insurance to cover directors and officers of Chinese companies against lawsuits has skyrocketed, with premiums reaching as high as $100,000 per $1 million of coverage in some cases, up from a range of $10,000 to $15,000 a few years ago.
- Asian Stocks Drop as Chinese Developers Fall; Sony Jumps. Asian stocks dropped, with the regional benchmark index heading for its first decline in three days, as Chinese developers fell on concern gains in home prices will limit scope for monetary easing. China Overseas Land & Investment Ltd., the biggest mainland developer traded in Hong Kong, slipped 1.9 percent. STX Pan Ocean Co., South Korea’s No. 1 bulk-shipping company, slumped 15 percent after a court accepted its application to seek protection. Sony Corp. (6758) climbed 4.5 percent in Tokyo after Third Point LLC, a hedge fund controlled by billionaire Daniel Loeb, increased its stake in the electronics maker. The MSCI Asia Pacific Index fell 0.3 percent to 132.02 as of 12:43 p.m. in Tokyo, reversing earlier gains of as much as 0.3 percent. About six shares dropped for every five that rose on the gauge.
- Sinking Spain Deposit Yields Push Cash Into Funds: Euro Credit. A plunge in Spanish deposit yields is starting to push savings into investment funds, threatening to work against government efforsts to spur banks to lend.
- Obama Says Bernanke Fed Term Lasting ‘Longer Than He Wanted’. President Barack Obama said Federal Reserve Chairman Ben S. Bernanke has stayed in his post “longer than he wanted,” one of the clearest signals the central bank chief will leave when his current term expires next year. “Ben Bernanke’s done an outstanding job,” Obama said in an interview with Charlie Rose that airs tonight, when asked about nominating him for another term subject to Senate approval. “He’s already stayed a lot longer than he wanted or he was supposed to.”
- Copper Drops on Concern U.S. May Cut Stimulus, China Slowdown. Copper declined for a second day on concern that the U.S. Federal Reserve may scale back stimulus measures and that further signs of slowdown in China, the biggest user, will curb demand for the metal. Copper for delivery in three months fell as much as 0.5 percent to $7,047.50 a metric ton on the London Metal Exchange and was at $7,068.25 at 10:48 a.m. in Shanghai. Earlier it gained as much as 0.7 percent.
- Rubber Poised for Record Glut as Shippers End Curbs: Commodities. Rubber is headed for the biggest glut on record, prolonging the bear market that began in April, as supply exceeds demand for a third year and Southeast Asian exporters ended curbs on shipments. The surplus will expand 57 percent to 490,000 metric tons this year, enough to meet U.S. demand for six months, according to RCMA Commodities Asia Group, the Singapore-based company that has traded rubber for nine decades. Futures in Tokyo, a global benchmark, will drop at least another 5.1 percent to 225 yen a kilogram ($2,376 a ton) by the end of December, according to the median of 16 analyst estimates compiled by Bloomberg. Five anticipate 200 yen, a price last seen in 2009.
- Putin and Obama Clash Over Assad's Fate. Syria at Center of G-8 Summit, as Western Leaders Press Russia; 'Terror in Europe's Backyard,' Syrian President Warns. President Barack Obama and Russian counterpart Vladimir Putin clashed openly over Syria as world leaders began a summit here Monday, sharply underscoring deepening differences over the civil war.
- China Wrestles With Banks’ Pleas for Cash. China's big banks are urging the central bank to free up funds to ease an unusual cash squeeze, as Beijing faces a stark choice: add money to the financial system to help lenders, or stay the course to rein in a rapid expansion of credit.
- NSA chief Alexander to testify on classified leaks in rare public hearing. National Security Agency chief Gen. Keith Alexander will address the House intelligence committee on Tuesday in a rare public hearing that could shed new light on the scope of the federal government’s classified phone and Internet surveillance programs. The session involving two of Washington’s most secretive bodies comes as an NSA leaker, former contractor Edward Snowden, threatens to reveal more government secrets from his hiding spot in Hong Kong.
- Lawmakers urge caution on US intervention in Syria. Sending Syria arms and aid and possibly more is a commitment that could haunt the U.S. for years to come, according to some Washington lawmakers. They are cautioning the Obama administration to carefully consider history, a still-fragile U.S. economy and the need to develop a clear end-strategy before agreeing to help fight and fund a civil war 6,000 miles away. “What is the plan? Where are we going in Syria? And what do you want to accomplish?” House Intelligence Committee Chairman Mike Rogers asked Sunday. The voices of caution are emerging after the administration agreed to provide small arms to the rebels, citing evidence that the regime of President Bashar al-Assad had used chemical weapons.
- Second-quarter profit warnings target record. Companies will close their books on the second quarter in two weeks, and so far, the number of S&P 500 companies that have issued earnings guidance below consensus analyst estimates is running higher than normal. As of Friday, Thomson Reuters said it’s counted 96 negative EPS announcements vs. 14 positive announcements, putting the running negative-to-positive ratio at 6.9. That would be the most negative on record, if it persists into the start of earnings season.
- Big Bond Bear Lurks, but Companies Still Love Debt. Despite the doom and gloom surrounding fixed income, debt issuance has been at record levels through the year, with no signs of pullback, particularly from companies looking to cash in on still-cheap money. Globally, corporate bond issuance has hit $853.8 billion so far this year, up 15 percent from the same period in 2012, according to the latest figures from Dealogic. Of particular note is the size of the deals: an average of $780 million in the U.S, a gain of 14 percent from last year. This has come even though bond funds have suffered through consecutive weeks of record outflows. Investors pulled $14.4 billion out of all fixed income funds last week, according to Citigroup, as part of a trend likely to see a record in June for bond exits.
- G-8 Says World Economic Prospects Still Weak. The euro zone came under pressure from other rich economies on Monday to press on with a banking union and Japan was urged to follow up on massive central bank stimulus with structural reforms and measures to tackle its budget deficit.
- Fed Meets as Faith in Its Bond Purchases Wanes. There's a wide divide on Wall Street over whether further bond purchases by the Federal Reserve can help lower interest rates, which have been rising since early May.
- What The Fed Is Looking At. So once again we ask - given all of this 'weakness' or missing of Fed benchmarks- that the Fed is well aware of, why would so many members have been out discussing 'Taper' if it were not due to their concerns of broken markets and bubble conditions.
- Bonds Versus Stocks - Just Ask Japan. (graph)
- JPMorgan(JPM): "Fed Stimulus Inflated Prices Of Financial Assets.... Removal Could Create Tail Event". (graphs)
- It's Hard To Look At These Photos From Indonesia And Brazil And Not Worry About A Much Bigger Emerging Market Blowup.
- China Stimulated Its Economy Like Crazy After The Financial Crisis ... And Now The Nightmare Is Beginning. (graphs)
- Merkel critical of Japan's credit policy in meeting with Abe. German Chancellor Angela Merkel apparently criticized Japan for its credit-easing policy that led to the yen's sharp depreciation against major currencies earlier this year, when she met with Japanese Prime Minister Shinzo Abe on Monday. Merkel raised the issue of foreign exchange in the meeting and indicated current circumstances surrounding foreign exchange rates could harm the global competitiveness of cheap labor countries, a Japanese official told reporters. Abe dismissed the criticism saying that his government was in no position to do anything about currency movements, the official indicated. Merkel also asked Abe to explain how he intended to deal with the country's snowballing fiscal deficit in the meeting on the sidelines of a summit of the Group of Eight major nations in Northern Ireland, Deputy Chief Cabinet Secretary Katsunobu Kato said.
- Asustek Cuts 2Q Laptop, Tablet Shipment Target. Co. sees laptop and tablet shipments in 2Q to be 10% fewer than those in the previous quarter, citing CFO David Chang. Chang said 2Q sales may be NT$90b-95b.
- China Interbank Liquidity May Be Tight to July. China's interbank market liquidity may continue to be tight until the beginning of July, according to a commentary by reporter Wang Hui. The commentary cited a low likelihood of central bank intervention and relatively fewer maturing short-term open market instruments over the next few weeks.
- None of note
- Asian equity indices are -.5% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 131.0 -4.0 basis points.
- Asia Pacific Sovereign CDS Index 105.25 -2.5 basis points.
- FTSE-100 futures -.10%.
- S&P 500 futures +.01%.
- NASDAQ 100 futures +.10%.
Earnings of Note
8:30 am EST
- The Consumer Price Index for May is estimated to rise +.2% versus a -.4% decline in April.
- The CPI Ex Food & Energy for May is estimated to rise +.2% versus a +.1% gain in April.
- Housing Starts for May are estimated to rise to 950K versus 853K in April.
- Building Permits for May are estimated to fall to 975K versus 1017K in April.
- (FLO) 3-for-2
- The Obama/Merkel meeting, German ZEW Index, BoE inflation report, Japan Trade Balance report, weekly retail sales reports, RBC Mining/Materials Conference, Wells Fargo Health Care Conference, Jefferies Consumer Conference, (UTX) analyst meeting, (PRU) investor day and the (BLK) investor day could also impact trading today.