Month: July 2015

More of Wall Street sees a later rate hike: Survey

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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These are the times that try the souls of those forecasting a September rate hike.

The latest monthly CNBC Fed Survey still shows a majority on Wall Street forecasting that first rate hike in nine years to come in September, but it’s a dwindling majority rife with defections to the later months of October and December.

“The market seems to be saying ‘no’ even as the Fed is saying ‘yes’ to a near-term rate hike,” Kevin Giddis of Raymond James/Morgan Keegan wrote in response to the survey.

“While the Fed ultimately has the stick, they really need the market to come along so we don’t find ourselves in a highly volatile limited liquidity aftershock of the Fed’s action.”

Read More: Why the Fed may still hike in September: Economist

Just over half of the survey’s 35 respondents of economists, fund managers and analysts, say the rate hike will come in September, down from 63 percent in the prior survey.

And the forecast for the year-end Fed funds rate continues to decline, with the average now just 0.47 percent. Last July, Wall Street looked for a year-end funds rate just above 1 percent, showing how much tightening has been baked out of the market this year.

To be sure, 82 percent say the Fed will hike this year, but that’s down from 92 percent in the prior survey. If the Fed doesn’t hike, the main reason will be because of weak inflation, followed by weak US growth and weakness overseas.

Growth forecasts continue to be nudged down, with year-over-year GDP seen in 2016 at 2.7 percent, the fourth straight decline in the survey. For 2015, growth is seen at 2.4 percent, up from 2.25 percent in the prior survey but well below the 3 percent predicted as recently as December.

Read More: Wall Street sees Fed rate hike in 3Q: CNBC Fed survey

Behind the more pessimistic outlook is concern about global economic weakness, which tops the list for the fifth straight survey as the biggest threat to the US recovery. Concern seems to be growing, with 29 percent of respondents worried about global growth, up from 22 percent in the previous month’s survey.

And it comes with greater concern about a US recession: The probability of recession in the next 12 months rose to 17.4 percent, up from 15.1 percent in the previous survey. It’s still low by historical standards, but the highest it’s been since December 2013.

“There are two important issues that need to be resolved before the Fed will be comfortable … moving toward restraint. The first is inflation,” said Hugh Johnson of Hugh Johnson Advisors. “The second issue is China.”

Respondents to the CNBC survey nudged down their forecasts for the S&P for this year and next, but still see modest gains of 3 percent and 9 percent, respectively.

There’s trouble ahead: Only half of respondents think the stock market has discounted a rate hike, down from 60 percent in the prior survey. Several respondents expressed concern about earnings.

Read More: CNBC Fed Survey: Smaller rate hike seen, and later

“Cautiousness in forward guidance among some of the large multinational companies outside of F/X impacts have caused us to become even more defensive in our recommendations for client positioning in the equity market,” wrote John Roberts, director of research at Hilliard Lyons.

“The length of the current bull market only adds to this caution and the potential for at least a modest pullback.”

The survey was conducted July 23-24.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

McDonald’s is losing fierce fast-food fight

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In the fast food fight for customer spending, one restaurant giant is struggling while rivals scoop up diners’ dollars.

Last week, McDonald’s reported its global comparable sales fell again, dropping 0.7 percent in the second quarter. Meanwhile, comps at Burger King rose 6.7 percent in constant currency while Arby’s comps rose 7.6 percent during the second quarter. Several other large restaurants are also showing positive growth.

“It seems like the only big player doing negative numbers, period. They’re in a healthy market but they’re not participating in that market,” said David Palmer, analyst at RBC Capital Markets, in a phone interview.

This comes after several blockbuster years at the chain where it delivered a string of mid-single digit comp increases in the 2000s after a successful previous turnaround plan called “Plan to Win.”

In its domestic unit, McDonald’s comps have lagged its fast-food sandwich peers (a group that includes Arby’s, Burger King, Carl’s Jr., Jack in the Box, Wendy’s, Sonic and Subway) each month since October 2013, according to data that its investor-relations team provides to analysts using data from The NPD Group.

McDonald’s declined to comment for this article.

“Our leadership addressed our performance on the last earnings call, and you can use that as the best source of information for what you’re looking for,” spokeswoman Becca Hary wrote in an email.

McDonald’s has acknowledged that results “remain disappointing,” although the chain is seeing early signs of momentum. It forecast global comps would turn positive as China continues to recover following a supplier issue that dented sales beginning in 2014. The international lead markets group, including France, Germany, the U.K., Canada and Australia, is also gathering momentum, said CEO Steve Easterbrook on the recent call.

At the center of this underperformance has been McDonald’s value perception in the U.S.

Following McDonald’s decision to move away from the dollar menu and emphasize other value platforms like the “dollar menu & more” menu, which includes items costing more than a dollar, and “extra value meals,” it has struggled with its pitch to customers.

“The bottom line is McDonald’s has increasingly been losing share over the last three years. The biggest reason is they walked away from one of their core-brand equities: value,” Palmer said.

The problem is one that McDonald’s is acutely aware of, and the company is enacting a wide-ranging turnaround plan to regain momentum in its business. On its last conference call, “getting back to value” was a key element of its strategy for turning around its US. business.
Read More The next Chipotle? One firm thinks it could happen

Palmer says the chain has not had as much breakthrough marketing and innovation as some of its peers.

McDonald’s status as the largest restaurant chain by sales amplifies the boost its underperformance gives to other small chains.

For example, McDonald’s generated USD 27.4 billion in revenue in fiscal 2014 while competitor Sonic saw revenue of just USD 552 million. Even just a small slice of McDonald’s sales could be a big boost for Sonic numbers.

“With McDonald’s having that many more stores than their peers, when they lose a little bit of share, it goes a long way in helping their peers,” said Will Slabaugh, managing director at Stephens, in a phone interview.

Read MoreMcDonald’s all-day breakfast may debut nationwide by October

Slabaugh sees Burger King as the biggest beneficiary of McDonald’s shrinking sales.

Burger King, like many of its peers, has grown increasingly competitive, with deals like 10 chicken nuggets for USD 1.49 or a two-for-USD 5, mix-and-match sandwich deal.

“I think it’s not all McDonald’s self-inflicted wounds,” said Matt DiFrisco, senior restaurant analyst at Guggenheim. “I really do credit the overall competitive environment as getting better.”

While McDonald’s has warned investors that its turnaround could be bumpy, Easterbrook expects global comps to turn positive in the current quarter.

“We could see them stabilizing their share losses by the end of the year,” Palmer said.

Broadly, though, Wall Street is advising a wait-and-see approach with roughly two-thirds of analysts placing a “hold” rating on the stock, according to FactSet data.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China stocks lead gains in Asia; Shanghai opens up 0.8%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Chinese stocks rebounded on Wednesday, leading a broader recovery in Asian markets that was encouraged by a positive finish on Wall Street overnight and stabilization in commodity prices.

US stocks broke a five-day losing streak on Tuesday; the S&P 500 led gains with a 1.2 percent bounce, while the blue-chip Dow and the Nasdaq Composite closed up 1.1 and 1 percent, respectively.

Spot gold edged up slightly at USD 1,095.5 in early Asian trade, but remained near Friday’s five-and-a-half-year low of USD 1,077.

Meanwhile, oil moved away from near six-month lows on Tuesday, as bets for a drop in US crude stockpiles offset worries about a global supply glut and an equity market meltdown in China. US crude reversed earlier losses to settle up 59 cents at USD 47.98 a barrel.

However, the Federal Reserve’s two-day policy meeting – at which policymakers are expected to provide further clues on the timing of a US rate increase – and volatility in Chinese stocks, could dampen risk appetite.

Mainland markets up

China’s Shanghai Composite index opened up 0.8 percent before swiftly rising to as high as 1.5 percent on hopes that Beijing could stem the rout in its markets.

The China Securities Regulatory Commission said late Monday that the local government will increase purchases of stocks in an effort to support the equity market, while the central bank injected cash into money markets and hinted at further monetary easing. On late Tuesday, the country’s securities regulator says it is investigating share dumping incidents that occurred on Monday.

“Call it what you will; the aptly named ‘rescue squad’ have made their intentions clear and will continue to support the Chinese markets at any cost. The strength is seen in the 200-day moving average and further investigations into Monday’s price plunge will limit major downswings for the next few weeks,” IG’s market strategist Evan Lucas wrote in a note early Monday.

Among China’s other indexes, the CSI300 index and the smaller Shenzhen Composite made gains of 1 and 1.7 percent, respectively. In Hong Kong, the Hang Seng index added 0.4 percent.

Nikkei slips 0.5 percent

Japan’s benchmark Nikkei 225 turned negative an hour into trade on the back of a slump in market heavyweight Fanuc. Earlier in the session, the bourse touched an intra-day high of 20,425 with a rise of 0.47 percent on the back of better-than-expected retail sales.

Retail sales rose an annual 0.9 percent in June, topping expectations for a 0.50 percent gain, but still slowing sharply from a 3 percent spike in the previous month.

Shares of Fanuc slumped 12 percent after the industrial robot maker lowered its full-year profit forecast on Tuesday. The company’s ADRs slumped 8.3 percent in New York, while its German traded shares fell 11 percent, posting their biggest intra-day drop since April 2011.

Meanwhile, carmaker Nissan and consumer electronics giant Nintendo are due to release their quarterly report cards after the market close. Shares of both companies trimmed gains to 0.4 and 0.1 percent, respectively.

ASX rises 1.1 percent

Australia’s S&P ASX 200 index touched a one-week high, as the recovery in commodity prices overnight provided a boost to struggling resource heavyweights.

Market bellwether BHP Billiton surged 2.1 percent from the get-go, while Rio Tinto and Fortescue Metals bounced up 0.9 and 5.4 percent, respectively. Energy counters such as Santos and Woodside Petroleum gained 0.8 and 1.1 percent, respectively.

Strong gains in the banking sector also propped up the bourse; National Australia Bank and Commonwealth Bank of Australia charged ahead more than 1 percent each.

Kospi gains 0.5 percent

South Korea’s Kospi index headed north at the start of trade, with specific stocks in focus.

Lotte Shopping outperformed fellow retailers to surge 7 percent, following news that the general chairman of Japan’s Lotte Holdings, Shin Kyuk-ho, was removed from his post in an emergency shareholder meeting on Tuesday. The 93-year-old Shin who founded the retail-focused conglomerate in 1948 was named honorary chairman of Lotte Holdings, in a move that was seen marking the completion of power transfer from the founder to his sons.

Drugmaker Hanmi Pharmaceutical rallied 9.9 percent after announcing on Tuesday it has signed an 850 billion won (USD 728.8 billion) license agreement with German pharmaceutical giant Boehringer Ingelheim to jointly develop a lung cancer treatment.

In Singapore, traders will await results from bourse operator Singapore Exchange (SGX), national carrier Singapore Airlines and marine and offshore engineering group Sembcorp Marine.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China stock exodus: When will it end?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Chinese equities remained volatile Tuesday following an initial stampede out of the market, with analysts cautioning that there is no clear end in sight to the drama.

“China is probably one of the most, if not the most, margin financed markets of all time – so comforting yourself that the unwind is done – because we’ve seen a lot of that unwind in the past couple of weeks – is probably somewhat premature,” Chris Konstantinos, director of international portfolio management at Riverfront Investment Group, told CNBC.

“[Also], I still don’t think you’re at a position where you’ve really got a lot of valuation support,” he added.

The benchmark Shanghai Composite opened down over 4 percent on Tuesday, swinging between losses and gains over the course of the morning session, as investor sentiment remained shaky despite a fresh commitment by Beijing to put a floor under the market. The index traded down as much as 5.1 percent.

“The market sentiment is extremely fragile so when investors see selling pressure, they compete to sell their stocks,” Dickie Wong, executive director at Kingston Securities, told CNBC.

Read More: Why this Chinese stock plunge could be different

A day earlier, Shanghai stocks nose-dived 8.5 percent, their biggest one-day decline since 2007, on heavy margin selling amid concerns that authorities were starting to scale back on measures to prop up stocks.

The monstrous fall that caught many investors off guard, however, prompted regulators to once again vow their support for the beleaguered market.

Following the market close on Monday, the country’s securities regulator said it was prepared to purchase shares to calm the market and stave off systemic risks, Reuters reported. It also said authorities would deal severely with anyone engaged in the “malicious shorting of stocks.”

On Tuesday morning, the central bank used reverse-repurchase agreements to pump 50 billion yuan into the banking system – the largest amount of funds through open market operations since July 7 – and said it would use various monetary tools to maintain appropriate levels of liquidity, according to Reuters.

So far, policy intervention aimed at shoring up investor confidence has had only a short-lived effect.

Since the end of June, the government has stepped in with a muddled medley of measures – from monetary policy easing to a freeze on initial public offerings (IPOs) – to rescue the market from its swoon.
While its “kitchen sinking” approach helped initially, Monday’s plunge erased almost half the gains the market has posted over the past two weeks.

“To me it’s just another painful lesson that what goes straight up is not sustainable – [there are] lots of margin accounts [with] individuals holding them – that’s not a recipe that ends well,” Mark Eibel, director of client investment strategies for Russell Investment, told CNBC.

So, where do investors go from here?

For those with a strong stomach for volatility and a longer investment horizon, strategists recommend gaining exposure to H-shares, or Hong Kong-listed mainland stocks.

Read More: A flexible yuan: The last thing China needs?

“If you don’t mind trying to catch a falling knife, the H-share market valuations are starting to get down in the range where there’s long-term valuation support. That market is trading as sub-10 times [price-to-earnings],” Konstantinos said.
“For the really risk-tolerant, watching the H-share market may be interesting,” he said.

But, investors should keep in mind that trading in the Shanghai market tends to influences the performance of the Hong Kong-listed stocks.

“A lot of Chinese investors do hold Hong Kong stocks,” Andrew Sullivan, managing director for sales trading at Haitong International Securities, told CNBC. “Once the stocks hit 10 percent down in China, you can’t sell them. So if you can’t sell in Shanghai then you have to look in other markets where you can sell. That’s why Hong Kong got some of the flak.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

What’s fueling the frenzy in China stocks?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China’s benchmark stock market slid 8.5 percent on Monday, suffering its biggest daily loss since 2007, indicating that there is seemingly no reprieve to the violent selling rocking the country’s equities.

A sharp fall in commodity prices, weak Chinese economic data and concerns that Beijing may be reluctant to dole out further measures to support beaten-up shares all contributed to the sell-off, analysts said.

Data released earlier on Monday showed China’s industrial profits declined 0.3 percent year-on-year in June, compared with a 0.6 percent rise in May.

Read More: Watch out, volatility is set to spike: Trader

And the stock-market slide in China, the world’s second biggest economy, had ripple effects across the globe. Major stock markets in Europe shed 2 percent and US slid in early trade.

“What’s going on in China is a bit self-feeding, commodity prices are falling which is negative for China as an exporter and that’s impinging on other investors’ views on fundamental demand as China is also a big importer so the market grinds lower,” Matthew Beesley, head of global equities at Henderson Global Investors, told CNBC’s Worldwide Exchange on Monday.

“We’ve seen frenzy on the way up and frenzy on the way down and external investors don’t quite know how to position themselves and really what the government is going to do in terms of support,” he added.

Chinese stock markets have had a wild ride this year– with the benchmark Shanghai Composite stock index rising a hefty 60 percent in the first half of the year only to slide 30 percent since a June peak above 5,000 points.

Beijing meanwhile has stepped in with a number of measures in recent weeks to arrest the slide and, up until Monday’s tumble, those steps appeared to help put a floor under the selling. Earlier this month, for instance, the Chinese Securities Regulator banned shareholders from selling large stakes in listed firms.

Following Monday’s rout, the regulator said the Chinese government would increase its stock purchases in a bid to prop up the market and that the possibility of “malicious” shorting of stocks was being investigated, according to Dow Jones.

“I think the most interesting thing about today is that there was talk about China pulling back from supporting stocks,” Peter Boockvar, chief market analyst at the Lindsey Group, told CNBC’s “Squawk Box.”

“The stock market is its own animal, just like the rally didn’t reflect anything nor does the decline,” he added.

Other analysts said the bearish sentiment towards Chinese shares was likely to linger for now.

“We do think that in the short-term, sentiment is quite negative and there is concern about what policymakers intend to do next,” Medha Samant, investment director, Asia Equities at Fidelity Investments told CNBC earlier on Monday.
Talking about the longer-term outlook, Samant added: “When we look at Chinese equities today and we look at the selloff we’ve seen, from a bottom up perspective we do see value in some of the large cap names based on the consumption theme.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China shares extend losses, taking regional bourses lower

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Share markets in China took another tumble early Tuesday, leading losses in the region as the 8.5 percent plunge in the benchmark Shanghai Composite index in the previous session and a persistent decline in commodities ignited risk-off sentiment.

Gold prices eased 0.3 percent at USD 1,093.20 an ounce, edging closer to last week’s five-and-a-half-year low, as expectations for a rate hike in the US kept momentum firmly with the bears. Crude oil futures hit four-month lows; Brent crude settled down USD 1.15 at USD 53.47 a barrel, and US crude closed down 75 cents at USD 47.39.

Wall Street sank overnight, with the Nasdaq Composite shaving off 1 percent. The Dow Jones Industrial Average lost 0.7 percent to end at a five-month low, while the S&P 500 closed down 0.6 percent to chalk up a five-session losing streak for the first time since January.

Mainland markets in free fall

China’s benchmark Shanghai Composite index opened down more than 4 percent, touching its lowest level in more than two weeks, before swiftly narrowing losses to 1.8 percent.

Equities in the world’s second-largest economy posted their biggest one-day drop in eight years on Monday, as fresh data served up more concerns about growth. Data released on Monday showed industrial profits down 0.3 percent year-on-year in June, while Friday’s preliminary China Caixin purchasing managers index (PMI) surprised markets by dropping to a 15-month low in July.

“Margin calls, and some stock trading halts, damage already brittle sentiment at a time when Chinese growth is under a cloud. Growth sentiment has not been helped by more ‘earthy’ Chinese indicators such as last Friday’s Caixin PMI data and yesterday’s industrial profits, continuing stalling industrial earnings since last August-September,” analysts from National Australia Bank wrote in a note.

Concerns that Beijing may be reluctant to dole out further measures and the slump below the key psychological level of 4,000 points also contributed to the sell-off, analysts said.

“4,000 was a key level for a lot of people. Once it started falling below that, locking in gains or minimizing one’s downside becomes a priority,” Andrew Sullivan, managing director for sales trading at Haitong International Securities, told CNBC Asia’s “Squawk Box.”

Following the tumble, the China Securities Regulatory Commission said late Monday that the local government will increase purchases of stocks in an effort to support the equity market.

Among China’s other indexes, the CSI300 index opened down 1.5 percent, while the smaller Shenzhen Composite erased 3.1 percent from the get-go.

In Hong Kong, the Hang Seng index slipped just 0.1 percent, hovering near a two-and-a-half-week low.

Nikkei skids 1.1 percent

Japan’s Nikkei 225 hit a fresh two-week low on the back of negative global cues.

Counters with a heavy China exposure were among the biggest losers; Komatsu and Hitachi Construction Machinery slumped 2 percent each.

A stronger yen also dampened appetite for major exporters, with Nissan plunging 3.4 percent, while Sony and Panasonic retreated more than 2 percent each.

Suntory Beverage & Food dropped 0.6 percent after denying a report by the Nikkei business daily that its parent Suntory Holdings is considering an initial public offering of its own.

Defying the downtrend, Canon bounced up nearly 1 percent after the company’s second-quarter net profit beat market expectations, despite a 16 percent fall year-on-year. The world’s largest camera maker said on Monday its second-quarter net profit fell to 68 billion yen ($552 million) compared with 81 billion yen a year earlier. Analysts polled by Reuters had expected 65 billion yen.

ASX falls 0.7 percent

Australia’s S&P ASX 200 index reversed Monday’s gains as worries over cooling growth on the mainland – Australia’s biggest export market – take a toll on trading sentiment.

Commodity plays nosedived in early trade; BHP Billiton tanked 1.5 percent, while Newcrest Mining plunged 4.8 percent. Woodside Petroleum and Santos notched down 0.5 and 2 percent, respectively, as energy prices languished at multi-month lows.

A lower open among financials provided further downside for the bourse; Westpac receded 0.9 percent, while Australia and New Zealand Banking and Commonwealth Bank of Australia eased 0.4 percent each.

The Australian dollar hovered near its lowest levels since May 2009 against the greenback. The local currency last traded at $0.7282.

Kospi drops 0.9 percent

South Korea’s Kospi index sagged to a two-and-a-half-week low as the country’s Prime Minister declared the deadly outbreak of Middle East Respiratory Syndrome (MERS) over, Yonhap news agency reported.

Decliners were led by pharmaceuticals, energy producers and airlines; Hyundai Pharmaceutical skidded 7 percent, while Korean Air Lines and Asiana Airlines slumped 2.1 and 3.4 percent, respectively.

Fortunately, a rebound in market heavyweights provided some support; the heaviest-weighted stock Samsung Electronics bounced up 0.7 percent, while Hyundai Motor and Kia Motors rebounded more than 1 percent each.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Currencies to watch in the latest resources rout

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Commodities have been a crushing long trade, with the latest rout taking oil below USD 50 a barrel, gold on its longest losing streak in almost 20 years and the commodity currencies – the Canadian, Aussie and Kiwi dollars — to six-year lows.

They are not the only victims: Copper, iron ore, mining stocks and soft commodities have also fallen victim to a rollover that some brokers have called a “second wave meltdown”.

The blame game is on with Chinese regulators searching for a bear raider manipulating gold markets, while others point the finger at the US Federal Reserve for triggering a repeat of the taper tantrum as interest rates are poised to rise.

Meanwhile emerging markets are regularly named as culprits, in particular China with its slowing growth.

The falls are so extreme that market watchers are forced to reach for long-term charts to provide context. The Australian dollar last traded below 74 US cents in 2009 and before that in 2006. Is this now a very low entry point or a value trap?

If the Aussie can ever reclaim 110 US cents notched up in 2011, then it would appear to be a tremendous buying opportunity, on the other hand if the low point of 60 US cents tested post crisis in 2008 is again possible or even worse the Aussie revisits levels below that witnessed in 2003, the currency could remain a soul-destroying trade. This is the conundrum facing those who might be tempted by a get rich quick trade on commodity plays.

The bears are piling in long and thick on commodities as supply continues to outstrip demand. Mining giants have fought aggressively for market share by keeping production high while extracting cost efficiencies. Few believe prices have floored, as the miners simply have not slashed capacity enough.

“We’ve been in a multi-year bear market with China’s structural rebalancing still happening, we haven’t seen a meaningful turnaround in commodity prices,” said Michael Widmer of BofA Merrill Lynch Global Research.

“I’m not sure we are at the bottom,” said Mark Cutifani, CEO of Anglo American about commodity prices.

Read More: Will the Fed lift commodity currencies?

Rival commodity giant Lonmin provided shock value on Friday with its decision to cut production by 100,000 platinum ounces over the next two years. A decisive move that Widmer believes other miners will have to mimic to restore balance in commodity markets.

Widmer also predicts further interest rate cuts by the Chinese central bank the PBOC will have little impact on demand. Rate cuts elsewhere could also reward those short commodity currencies.

Nomura sees the Reserve Bank of Australia (RBA) reducing interest rates from a record low of 2 percent to 1.75 percent, despite 10 interest rate cuts already since 2010 and Charles St-Arnaud from the bank’s global foreign exchange strategy team predicts the Aussie will fall to 70 US cents by year end.

St-Arnaud is not alone on the short Aussie call. Caroline Simmons, UK Deputy Chief Investment Officer at UBS believes the Australian dollar can fall another 5 percent to the pound over the next year.

Are central bankers merely using the tried-and-tested method of verbal intervention, jawboning currencies lower with the prospect of lower interest rates without actually moving the lever again? And is it a bluff the markets should test?

Both the Reserve Bank of New Zealand and RBA have significant credibility on rate maneuvers so investors are willing to take them at their word. In reality how much more of a dip can rates take without triggering a bubble in housing markets?

Read More: Commodity currencies: Who’s the ugliest of them all?

At current levels, lower currencies are already lifting inflation as imported goods become more expensive. In the case of Australia, core inflation is now in the RBA’s target zone of 2 to 3 percent, which should remove the incentive to lower rates further. Jeremy Stretch, Head of FX Strategy at CIBC believes the market will shore up its views on another rate cut if Australian capital expenditure is weak next month.

“The AUD (Australian dollar) could easily fall below 70 US cents” said Stretch. He explained that the prospect of higher US interest rates also favours going short Aussie, but added an opportunity to buy could emerge later this year.

“Once you get through the first Fed rate hike, it might be the time to accumulate some cheap Aussie,” said Stretch.

Others are not perturbed by the current volatility in commodities. Ian Plenderleith, former Bank of England rate-setter and current chairman at BH Macro, sees commodities as an important part of a diversification mix in an investment portfolio and has exposure.

But commodities remain a contrarian trade and worryingly for the risk takers there may be little short-term reward.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fed, US GDP to keep Asia on edge this week

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Events in the world’s biggest economy will likely take center stage in Asia’s financial markets this week, with the Federal Reserve’s monetary policy decision and the US second-quarter growth report card on tap.

“The key event is without dispute the FOMC [Federal Open Market Committee] decision on Wednesday. While almost no one is expecting the Fed to raise interest rates in its July meeting, everyone is watching for their comments, particularly on the economic and inflation outlook,” IG’s market strategist Bernard Aw wrote in a note released on Friday.

Aw believes that the world’s most influential central bank is poised to raise rates from near zero this year, as US jobs data improve and global risk events, namely Greece and China, subside. However, caution may be warranted with inflation remaining stubbornly lower than the central bank’s targeted 2 percent rate.

“There are some concerns that the strengthening dollar is dampening inflationary pressure, which would cloud the Fed’s judgement on when to raise rates. Nonetheless, Fed chair Yellen remains adamant that the central bank will start normalizing interest rates this year, although increases will be gradual,” the Singapore-based strategist added.

The release of US second-quarter gross domestic product (GDP) on Thursday will also be a key swing factor for risk appetite. According to economists polled by Reuters, the world’s top economy likely grew 2.50 percent in the April-June period, regaining strength after expanding a meager 0.2 percent in the first three months of 2015 on the back of bad weather and softer energy prices.

In Asia, a slew of economic data from the region’s second-biggest economy will likely top the watch-list of investors, especially after the International Monetary Fund called on Japan to speed up structural reforms and prepare for further monetary easing.

Scheduled for release on Friday, the closely-monitored consumer price index (CPI) – which excludes volatile food prices – will likely be flat in June from a year ago, according to estimates from Moody’s Analytics. This compares to a muted rise of 0.1 percent in the prior month and a 0.3 percent advance in April.

“Japan’s inflation rate has weakened markedly as the effects of the April 2014 tax hike fade… The Bank of Japan (BOJ) may need to ease monetary policy further to reach its 2 percent inflation goal by mid-2016,” Moody’s analysts wrote in a note.

Also due on Friday, the jobless rate likely rose to 3.4 percent in June, Moody’s estimated, a tick-up from 3.3 percent in the prior two months, as “labor demand wasn’t strong enough to absorb new entrants” into the workforce.

Meanwhile, household spending – a key indicator of consumer sentiment – is expected to have risen 1.70 percent on-year last month, a Reuters poll said, down from 4.8 percent in May, which marked the first on-year increase in the data since the country increased its consumption tax last year.

Other Japanese data lined up for the week include June retail sales and industrial production due for release on Wednesday and Thursday, respectively.

Read More: Japan’s economic transformation: Are we there yet?

Elsewhere in the region, Australia releases its second-quarter trade report while South Korea will announce industrial production and retail sales figures for June.

Taiwan will be on GDP-watch, with second-quarter growth expected to soften. The economy likely expanded 2 percent year-on-year, according to estimates from Moody’s Analytics, down from 3.4 percent in the March quarter as the persistent slowdown in China weigh on manufacturing sentiment and exports orders.

Meanwhile, Singapore braces for a barrage of corporate results this week, with the quarterly report cards from the city-state’s three biggest banks – DBS, Overseas-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) –, bourse operator Singapore Exchange(SGX), national carrier Singapore Airlines, real estate developer Yoma Strategic Holdings, shipbuilder Sembcorp Marine and Neptune Orient Lines (NOL) on tap.

Japanese firms like Canon, Sony, Honda and Nissan Motor as well asSamsung Electronics, the crown jewel of South Korea’s biggest conglomerate, are also due to release quarterly earnings in the week ahead.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asian mkts fall on weak global cues, soft commodity prices

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian stocks were off to a dismal start to the week on the back of offshore declines and as the fall in commodity prices continues to sap risk appetite.

West Texas Intermediate (WTI) oil futures shed 0.2 percent to $48.04 a barrel in early Asian trade, while Brent crude opened flat at USD 54.59 a barrel. Meanwhile, spot gold dipped 0.3 percent, touching USD 1,095.50 an ounce early Monday. For the past five sessions, the precious metal tumbled over 3 percent, hurt by expectations that the Federal Reserve is on track to raise interest rates for the first time in nearly a decade.

Wall Street handed over a negative lead, with the US indexes finishing about 1 percent lower each on Friday, as signs of slower global growth weighed on sentiment.

Mainland indices fall

China’s benchmark Shanghai Composite index slumped more than 2 percent from the get-go, as the country’s industrial profits declined 0.3 percent year-on-year in June, according to data released by the statistics bureau at the open.

In Hong Kong, the Hang Seng Index tracked its mainland peers to move 1.6 percent lower.

GOME Electrical Appliances Holding fell nearly 7 percent after the Chinese home appliance retailer agreed to buy retail assets from its controlling shareholder in deal to be settled partly by issue of new shares. GOME said it would buy retail assets from its controlling shareholder for HK USD 11.27 billion (USD 1.45 billion), in a deal to be settled by the issue of 6.2 billion new shares and warrants which are exercisable within two years into 2.5 billion new shares.

Nikkei drops 0.5 percent

Japan’s benchmark Nikkei 225 index halved gains to move away from a near two-week low attained earlier at the open.

Bucking the broad-based selloff, Mitsubishi Motors elevated 1.6 percent after saying on Friday it will end production at its lone light-vehicle assembly plant in the US ahead of the release of quarterly earnings, shares of Canon and financial services firm Monex Group pulled back 0.7 and 0.9 percent, respectively.

ASX flat

Australia’s S&P ASX 200 index pulled back from its lowest level since July 14 attained earlier in the session, as the resources sector cut losses.

BHP Billiton and Rio Tinto rebounded 0.8 and 0.5 percent, respectively, while Atlas Iron tumbled 70 percent to A$0.038 upon resuming trade on Monday. The troubled Pilbara iron ore miner requested the suspension of trade in its securities to be lifted on Friday, following its capital raising of more than USD 87 million.

Ten Network announced a management shake-up prior to the market open, saying that executive chairman and CEO Hamish McLennan will step down from both roles. Shares of the commercial broadcasting network eased 1.2 percent.

Kospi slips 0.2 percent

South Korea’s Kospi index dropped to a two-week low as the won weakened 0.2 percent to 1,172.1 against the greenback – a fresh low since June 2012.

Brokerage houses and pharmaceutical names led the retreat; Hyundai Securities and Samsung Securities plunged more than 3 percent each, while Hanmi Pharmaceutical and Hyundai Pharmaceutical tanked 5.1 and 3.4 percent, respectively.

STI falls 0.4 percent

Singapore shares track weakness in the region to edge down at the start of trade.

DBS Group shed 0.3 percent despite announcing a better-than-expected second-quarter net profit of 1.117 billion Singapore dollars (USD 814 million), up 15 percent on-year and topping a Reuters’ estimate of 1.06 billion. The city-state’s biggest lender attributed the upbeat results to an eight-basis-point jump in interest rate margin and healthy loan growth.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Battle coming for blockbuster cholesterol drugs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

And you thought the fight over prices of cancer and hepatitis drugs was hot.

Emerging federal approval of new cholesterol drugs is setting the stage for a battle over the high prices of those specialty medications and the possibility that millions of people will end up using them each year.

The injectable drugs, known as PCSK9 inhibitors, could cost an estimated USD 7,000 to USD 12,000 per year for each person using the drug.

That price tag is generating worry that the costs will add to the increasing burden of drug costs borne by government health programs such as Medicare, as well as private insurance plans. Also of concern is the potential out-of-pocket costs to patients from the new drugs.

But a leading trade group for the pharmaceutical industry dismissed fears of non-sustainable costs from PCSK9 inhibitor drugs as overblown, arguing that their use will be less widespread than critics’ fears, and that their health benefits will more than justify their big price tag.

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The Food and Drug Administration on Friday approved the PCSK9 inhibitor known as Praluent, which was developed by Regeneron and Sanofi on Friday. Amgen’s version, known as Repatha, is expected to win FDA approval next month.

The FDA limited its approval for the use of Praluent to those with a hereditary form of high cholesterol and to people with heart disease, which could control overall spending on the drug in the short term if doctors adhere to those limitations. Praluent a wholesale price of USD 14,600 per year, but discounts could lower that for insurers.

The arrival of the drugs and their high prices, have drawn close attention for pharmacy benefit managers, including CVS/caremark, a division of CVS Health, which has 65 million drug plan members.

In an article in February in the Health Affairs Blog, a group of CVS Health executives wrote that while PCSK9 inhibitors in reported tests have had “striking” effects and proven “highly effective in reducing” a type of cholesterol known as LDL-C, “those improvements will be costly.”

“Given the number of people potentially eligible for treatment with the PCSK9 will number in the millions, the potential overall expenditures by payers are huge,” the CVS executives wrote in the article, headlined, “In the Debate About Cost and Efficacy, PCSK9 Inhibitors May Be the Biggest Challenge Yet.”

Their article notes that while there are about 620,000 people with a condition known as familial hypercholesterolemia who would be the first group likely prescribed the drug, an additional group of nearly 3 million people who could end up qualified for new PCSK9 therapy because of their intolerance of statin medication, or their high levels of LDL that are unlikely to be addressed by a statin.

That means that on the high end the drugs could add USD 150 billion annually in costs to the US health system or, more conservatively, USD 50 billion to USD 100 billion in extra costs if a more limited patient population is eligible for the PCSK9 inhibitors, the authors wrote.

They pointed out that even if just the 620,000 people were eligible, that would mean USD 16 billion in annual extra drug costs, “dwarfing” the initial costs of Sovaldi, the Hepatitis-C medication from Gilead Sciences.

Sovaldi—priced at USD 1,000 per pill or USD 84,000 for a 12-week treatment when it was introduced in 2013—sparked a vigorous debate over its costs. While up to 3 million people have Hepatitis-C in the US, Sovaldi can cure their disease, so the USD 150 billion maximum price tag for treating them could be spread out over a decade, not absorbed in just one year, the CVS execs wrote.

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow