Early Headlines: Asia Stocks Sell Off, India Slashes Rates, A Commodity Lehman?, US Treasury Market Rigged?, US Poverty Increasing And More

Written by John Lounsbury

Early Bird Headlines 29 September 2015

Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.

Global

• Asian shares hurt by sell-off in commodity stocks (CNBC) Tokyo is leading everybody in Asia/Pacific lower in Tuesday trading. The Nikkei 225 Index is now at 8-month lows.

• Swiss Regulator Names Seven Banks in Precious Metals Probe (Bloomberg) Switzerland’s competition regulator identified seven banks that are being investigated as part of a probe into whether companies in Europe, the U.S. and Japan colluded to manipulate the prices of gold, silver and other precious metals. UBS Group AG, Deutsche Bank AG, HSBC Holdings Plc, Barclays Plc, Morgan Stanley, Julius Baer Group Ltd. and a unit of Tokyo-based trading company Mitsui & Co. Ltd. are part of the probe, which was opened in February, the Competition Commission said in a statement Monday.

• Should you fear a ‘Glencore’ moment? (CNBC) One of the largest global resources company is considered at increasing risk of bankruptcy due to it high debt load and falling commodity prices. Glencore PLC in 2015 is being compared to Lehman Bros in 2008 because of the very complex nature of its investments in derivatives. The following two graphs for credit default swaps (CDS) are from Glencore Default Risk Surges Above 50% (Zero Hedge) followed by a video from CNBC.

U.S.

• Investor lawsuits pile up claiming US Treasury market is rigged (Financial Times) Investors have filed a flurry of court cases claiming banks and brokers have been rigging the Treasury bond market and increasing the cost of selling debt for the US government. Twenty-three related cases have been filed, alleging the primary dealers that underwrite the US government’s debt colluded to manipulate the price of US Treasuries to their benefit. US Treasury securities are sold through an auction process in which banks and brokers listed as “primary dealers” place bids for the number of bonds they wish to buy and at what price. Investors can use primary dealers to buy at the auction or purchase them directly.

• What Recovery? 9.4 Million More Americans Below Poverty Line Than Pre-Crisis (Zero Hedge) Income for most is declining but not for the top 10%. And the number in poverty keeps on increasing.

Iran

• Iranian President Rouhani calls Iran deal victory over war (Xinhuanet News) The Iran deal is a victory over war, Iranian President Hassan Rouhani told the United Nations General Assembly here Monday. Rouhani said:

“The nuclear deal — (is a) victory over war. (It) has managed to disperse the clouds of hostility and perhaps even the specter of another war and extensive tensions from the Middle East.”

India

• Rajan Unexpectedly Cuts India Rate More Than Economists Expected (Bloomberg) Governor Raghuram Rajan cut the benchmark repurchase rate to 6.75%t from 7.25%, the Reserve Bank of India (RBI) said in a statement in Mumbai on Tuesday. The move was predicted by only one of 52 economists in a Bloomberg survey. Forty two expected a quarter-point cut and nine saw no change. The government of Prime Minister Narendra Modi had been pressing for a more aggressive monetary easing from the RBI to stimulate the economy. Rajan indicated he was reacting to global weakness and seeking more domestic investment:

“The weakening of global activity since our last review suggests that commodity prices will remain contained for awhile. Investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is slow.”

Japan

• Residents of Russian-held isles disputed by Japan await diplomatic resolution (Reuters) Japan seeks return of the islands, known in Russia as the Southern Kuriles, which lie just 9 miles off the Japanese large northern island of Hokaido. Russia seized the islands in the final days of World War II and expelled the 28,000 Japanese who lived there at the time.

China

• China Industrial Profits Fall Most Since 2011 as Growth Ebbs (Bloomberg) Chinese industrial companies reported profits fell the most in at least four years as the pillars of China’s infrastructure-led growth model suffered from a devalued yuan, a tumbling stock market and weak demand. Industrial profits tumbled 8.8% in August from a year earlier, with the biggest drops concentrated in producers of coal, oil and metals. Econintersect: There is actually nothing new here – industrial profits are related to things already reported: Industrial Production and Manufacturing PMI (Purchasing Managers’ Index) have been weakening for months. But some think things in China are stabilizing and will improve:

• China’s industrial restructuring cuts power use, freight volume (Xinhuanet News) China’s industrial restructuring has helped cut electricity consumption and freight transportation, while the economy has maintained a medium-to-high growth rate in the first six months, said Zhang Xiaoqiang, executive deputy director of China Center for International Economic Exchanges. China’s shift to higher consumption growth and rapidly growing services is offsetting the lower industrial output so that GDP growth continues, according to this piece from an official government news source.

Taiwan

• Rate cut to hit financial sector’s bottom line (Tapei Times) After its quarterly policymaking meeting last Thursday, the central bank said it would lower its key interest rates by 0.125%, the first cut in four years. A narrowing interest spread following this latest rate cut is expected to affect the financial sector’s bottom line, analysts said.

Brazil

• One Company Is Making a Killing on Brazil’s Sinking Real (Bloomberg) The risk-management team of JBS SA’s sprawling meatpacking empire has been mounting one of the largest currency-hedging positions for any non-financial company in the country. And with the real down 35% against the dollar this year, Credit Suisse estimates JBS’s profit from derivatives will swell to 15 billion reais ($3.65 billion) for the full year. The strategy, while paying off now, isn’t without risk. Had the meatpacker been caught on the wrong side of the trade, the losses could have wiped out most of its cash holdings, financial documents show.