Month: August 2014

Fearful of any impact to the Portuguese/European dream, EU commission leaders folded and bailed out Banco Espirito Santo. Bond and CDS traders are scrambling this morning to come to grips with the consequences of BES bail-out/bail-in. The $6.6 billion bailout's burden-sharing has wiped out shareholders and crushed subordinated debt holders (traded down to 16c on the dollar this morning) where "the likelihood of recovery for junior bondholders is minimal,” according to one trader; but leaves senior bond holders (+10pts to 100) and depositors unaffected. However, it is those 'smart' investors who bought insurance in the CDS market that are struggling this morning as the plan to transfer BES assets to a new company, Novo Banco, may constitute a so-called 'succession event' whereby all the contracts associated with CDS move to the new company (and this do not trigger the CDS to pay). CDS spreads ripped 350bps tighter.

 

As Bloomberg reports,

The Bank of Portugal will take control of Banco Espirito Santo’s assets and deposit-taking operations by transferring them to a new company, Novo Banco, into which it will inject money from its Resolution Fund, the regulator said in a statement late yesterday. The fund will finance the rescue with a Treasury loan to be repaid by Novo Banco’s eventual sale.

 

“I was very surprised that they went down the route of a state bailout so quickly,” said Lutz Roehmeyer, who helps manage 10 billion euros including senior bonds of Banco Espirito Santo at Landesbank Berlin Investment. “That suggests that the bank’s situation was much worse than described.”

 

While senior bondholders and depositors were left unscathed…

 

 

subordinated bondholders face losses as European regulators try to avoid leaving taxpayers on the hook for losses caused by failed lenders.

 

 

Shareholders and owners of the bank’s junior debt will be left with Banco Espirito Santo’s most “problematic” assets, including loans to other parts of the Espirito Santo Group and the lender’s stake in its Angolan unit, according to the Bank of Portugal.

 

“Who knows what the recovery will be on the subordinated bonds?” said John Raymond, an analyst at CreditSights Inc. in London.

 

“The likelihood of recovery for junior bondholders is minimal,” said Nuria Alvarez, an analyst at Renta 4 Banco SA, a Madrid-based financial services and brokerage firm. “They’re probably going to lose everything they invested. Banco Espirito Santo is going to become the bad bank in comparison with the new good bank. It will be left with all the toxic assets.”

But, traders and fixed income managers are scrambling to come to terms with what this means…

 

as CDS spreads collapse due to the possibility of "succession-event" that means the CDS-related contracts move to the new company and do not trigger payments

BES senior and subordinated CDS upgraded to overweight-70% from underweight-30%, Richard Thomas, analyst at BofAML, writes in client note, citing expectation that the swap contracts will succeed.

 

Prima facie, events announced yday constitute a “CDS succession event” meaning all the senior and sub CDS contracts move to the new bank

 

Caveats remarks on CDS saying a number of technical definitions are currently uncertain

 

All senior debt has been transferred to the new bank with only subordinated left behind in the bad bank

 

Estimates that subordinated debt outstanding is less than 10% of the bank’s total indebtedness, which is well inside the 25% threshold that would split the CDS

 

Possible triggers under bankruptcy event or a non-payment event (BESPL 7.125% T2s coupon due in Nov.) may not matter if CDS has already succeeded

ISDA asked to rule if Banco Espirito Santo in Succession Event

Primer on Succession Events (via Credit Suisse)

 

Summarizing Succession Events

 

Every CDS contract relates to a specified Reference Entity, be it a corporate or a sovereign issuer. Broadly speaking, a CDS Succession Event occurs if, when undertaking some form of corporate reorganization (like a merger or a spin-off), one entity becomes liable for the obligations of another, potentially requiring a change in the CDS contract’s Reference Entity and allocation of Relevant Obligations. For example, if a Reference Entity splits into two, the associated CDS contract may also split to reflect this if sufficient debt is inherited by the newly separated entity.

 

What constitutes a Succession Event?

 

A Succession Event for a non-sovereign is an event (e.g., merger, consolidation, amalgamation, transfer of assets or liabilities, demerger, spin-off or similar) in which an entity succeeds to the obligations of another entity. Succession Events exclude events in which holders of the obligations of the Reference Entity exchange the obligations for those of another entity, unless this occurs in connection with the events listed above.

 

What are the Successors?

 

The rules for determining the Successors in a non-sovereign Succession Event are included in Exhibit 1.

 

 

It would seem BES slots into the 1st or 2nd rows.

*  *  *
Put simply, you owned a home (sub-bond), bought insurance on it (CDS), the home burned down (bail-in), but due to some technicality in the language of your insuance document (succession), you do not get paid on your insurance…

via Zero Hedge http://ift.tt/1smzSxO Tyler Durden

Unlike last week’s economic report deluge, this week has virtually no A-grade updates of note, with the key events being Factory Orders (exp. 0.6%), ISM non-mfg (exp. 56.5), Trade balance (Exp. -$44.9 bn), Unit Labor Costs (1.2%) and Wholesale Inventories (0.7%).

The full event breakdown from Goldman:

Monday, August 4

• Events: EU’s Juncker meets Greece’s Samaras.
• United Kingdom | Markit/CIPS UK Construction PMI (Jul): Previous 62.6
• Australia | [MAP 3] Retail Sales MoM (Jun): GS 0.40%, consensus 0.40%, previous -0.50% (4.60% yoy)
• Singapore | [MAP 2] Purchasing Managers Index (Jul): Previous 50.5
• Indonesia | CPI NSA MoM (Jul): Consensus 0.88% (4.48% yoy), previous 0.43% (6.70% yoy)
• Turkey | CPI YoY (Jul): GS 8.60%, consensus 8.90%, previous 9.16% (0.31% mom)
• Also interesting: [DM] US ISM New York; Euro area PPI; Switzerland PMI; Japan Monetary Base; Australia ANZ Job Advertisements; New Zealand ANZ Commodity Price [EM] Indonesia Exports and Imports; PPI in Romania and Turkey; Romania Retail Sales; Brazil Trade Balance; Colombia PPI and Exports.

Tuesday, August 5

• Events: US primary elections in various States.
• United States | ISM Non-Manf. Composite (Jul): GS 56.5, consensus 56.5, previous 56
• United States | Factory Orders (Jun): GS 0.50%, consensus 0.60%, previous -0.50%
• Australia | MP Decision: We expect the Cash Rate Target will remain unchanged at 2.50% (in line with the unanimous view of local economists). With the quarterly Statement on Monetary policy scheduled for later in the week, we caution that it is quite possible that the RBA will defer communicating any major shifts to that far lengthier and more detailed publication.
• Australia | TD Securities Inflation MoM (Jul): Previous 0.00% (3.00% yoy)
• DM | Composite PMI (Jul): US (previous 60.9), Euro area (previous 54), France (F: GS 49.4, previous 49.4), Germany (F: GS 55.9, previous 55.9), Italy (previous 54.2), Spain (previous 55.2); UK (previous 58); Japan (previous 50)
• DM | Services PMI (Jul): US (previous 61), Euro area (F: GS 54.4, previous 54.4), France (F: GS 50.4, previous 50.4), Germany (F: GS 56.6, previous 56.6), Italy (previous 53.9), Spain (previous 54.8), Sweden (previous 54.6), United Kingdom (previous 57.7); Japan (previous 49)
• EM | Composite PMI (Jul): China (previous 52.4), Hong Kong (previous 50.1), India (previous 53.8), Russia (previous 50.1), South Africa (previous 49.5), Brazil (previous 51.4)
• EM | Services PMI (Jul): China (previous 53.1), India (previous 54.4), Russia (consensus 49.5, previous 49.8), Brazil (49.9)
• India | MP Decision: We do not expect any rate change, in line with consensus (RBI Repurchase Rate at 8.00%, with Reverse Repo Rate at 7.00% and Cash Reserve Ratio at 4.00%), but will watch closely the statement’s tone. After the Governor’s dovish tone in the previous June meeting, markets traded with a dovish bias, and are now pricing in 50 bps of rate cuts over the next 12 months. We think that near-term rate cut expectations are overdone at this stage, as the fight against inflation has not yet been won. We think that the RBI will err on the side of caution, and is more likely to hike rates in the last quarter of 2014 in response to a flare-up in inflation, rather than cut rates. We think that the RBI statement at the upcoming meeting is likely to be more hawkish than the last policy statement.
• Philippines | CPI NSA MoM (Jul): Consensus (4.50% yoy), previous 0.40% (4.40% yoy)
• Taiwan | CPI YoY (Jul): Consensus 1.90%, previous 1.64%
• Chile | [MAP 5] Economic Activity YoY (Jun): GS 2.50%, consensus 2.20%, previous 2.30% (0.60%)
• Colombia | CPI MoM (Jul): GS 0.10% (2.80% yoy), consensus 0.13% (2.85% yoy), previous 0.09% (2.79% yoy)
• Also interesting: [DM] Euro area Retail Sales; Australia Trade Balance [EM] Indonesia GDP; Retail Sales in Czech Republic and Hungary; Argentina Vehicle Domestic Sales; Mexico Consumer Confidence.

Wednesday, August 6

• United States | [MAP 2] Trade Balance (Jun): GS -$46.5B, consensus -$45.0B, previous -$44.4B
• Italy | Industrial Production MoM (Jun): Previous -1.20% (-4.90% yoy)
• Italy | GDP WDA QoQ (2Q P): GS 0.30% (0.10%), previous -0.10% (-0.50%)
• Switzerland | CPI YoY (Jul): Previous 0.00% (-0.10% mom)
• United Kingdom | [MAP 3] Manufacturing Production YoY (Jun): GS 2.90% (1.40% mom), previous 3.70% (-1.30% mom)
• Thailand | MP Decision: We expect rates on hold (Benchmark Interest Rate at 2.00%), in line with consensus. With the expected pick-up in sequential growth, upside risks to inflation, and supportive effects of previous monetary easing, we do not think the central bank will cut rates further in 2014. Thus, we expect rates to remain on hold for the rest of the year.
• Czech Republic | [MAP 4] Industrial Output YoY (Jun): GS 6.00%, consensus 8.00%, previous 2.50%
• Hungary | [MAP 4] Industrial Production WDA YoY (Jun P): GS 7.00%, previous 9.60% (-1.00% mom)
• Hungary | Minutes from MP Decision
• Ukraine | CPI MoM (Jul): Previous 1.00% (12.00% yoy)
• Also interesting: [DM] Canada Int’l Merchandise Trade; Retail PMIs in Euro area, France, Germany, Italy; Germany Construction PMI and Factory Orders; UK IP and New Car Registrations; Japan Coincident and Leading Index; New Zealand Wage Inflation and Unemployment [EM] Malaysia Trade Balance; Czech Republic Trade Balance; Romania Wage Statistics; Brazil Commodity Price Index and Vehicle Production and Sales; Mexico Leading Indicators.

Thursday, August 7

• Euro area | MP Decision: We expect no change in policy (Main Refinancing Rate at 0.15%, Deposit Facility Rate at -0.10%).
• Germany | Industrial Production SA MoM (Jun): Previous -1.80% (1.30% yoy)
• Norway | Industrial Production MoM (Jun): Previous -5.90%
• Spain | Industrial Output SA YoY (Jun): Previous 2.50% (-0.70% mom)
• United Kingdom | MP Decision: We expect no change in policy (Bank Rate at 0.50% and Asset Purchase Target at 375B).
• South Africa | [MAP 4] Manufacturing Prod NSA YoY (Jun): Previous -3.70% (-3.30% mom)
• Mexico | CPI MoM (Jul): GS 0.26% (4.05%), previous 0.17% (3.75%)
• Peru | MP Decision: We assess better-than-even odds of a 25bp cut in the Reference Rate to 3.50%. In our view, central bank directors are likely to derive comfort from the recent signs of fading inflationary pressures and could take the opportunity to provide some extra monetary stimulus to the faltering economy.
• Also interesting: [DM] US Jobless Claims and Consumer Credit; Canada Building Permits; Trade Balance in Finland and France; Japan Foreign Buying Stocks/Bonds; Australia Employment Change; New Zealand House Prices [EM] Taiwan Trade Balance; Hungary Trade Balance; Russia Reserve Assets; South Africa Business Confidence; Chile Trade Balance.

Friday, August 8

• United States | Nonfarm Productivity (2Q P): GS 1.60%, consensus 1.40%, previous -3.20%
• United States | Unit Labor Costs (2Q P): GS 0.80%, consensus 1.20%, previous 5.70%
• France | Industrial Production MoM (Jun): Previous -1.70% (-3.70% yoy)
• Japan | MP Decision: We expect the BOJ to keep monetary policy unchanged (Monetary Base Target at ¥270T). We believe the BOJ will remain comparatively bullish, maintaining its assessment that the economy continues to perform broadly in line with its expectations, while possibly adding some wording about downside risks. If economic data for July turns out to be weak, however, we think it will increase the likelihood of the BOJ revising down its economic assessment at the September MPM.
• Australia | Statement on MP (August): Recent communications have signaled a heightened degree of uncertainty about whether financial conditions are easy enough to mitigate headwinds from declining mining capex and restrictive fiscal policy. In our view, this doubt, against the backdrop of a still elevated AUD and risk of a very weak 2Q2014 GDP print, keeps open the prospect of further easing over 2H2014. A key feature will be how the recent repeal of the carbon tax flows through to the RBA’s official inflation forecasts. We expect material downgrades in FY15 at both the headline (-70bp) and underlying levels (-25bp). Markets should also focus on how promptly inflation is expected to approach the top of the target band towards end-2015. On the growth front, we are not expecting large revisions.
• China | [MAP 3] Exports YoY (Jul): GS 6.70%, consensus 6.50%, previous 7.20%
• China | [MAP 3] Imports YoY (Jul): GS -1.00%, consensus 0.00%, previous 5.50%
• Thailand | CPI NSA MoM (Jul): Consensus 0.12% (2.40% yoy), previous -0.10% (2.35% yoy)
• Turkey | Industrial Production MoM (Jun): Previous -1.00% (3.30% mom)
• Brazil | IBGE Inflation IPCA MoM (Jul): GS 0.08% (6.58% yoy), previous 0.40% (6.52% yoy)
• Chile | CPI MoM (Jul): GS 0.10% (4.30% yoy), consensus 0.20%, previous 0.10% (4.30% yoy)
• Mexico | [MAP 4] Gross Fixed Investment (May): GS 1.10%, previous -3.50%
• Also interesting: [DM] US Wholesale Inventories; Canada Unemployment; France Manufacturing Production, Budget Balance; Germany Current Account; Denmark IP; Sweden IP, Services Output and Unemployment; Switzerland Unemployment; UK Construction Output and Trade Balance; Japan CA and Bank Lending; Australia Investment Lending and Home Loans; [EM] China Trade Balance; Peru Trade Balance

via Zero Hedge http://ift.tt/1ueTl2N Tyler Durden

Here are the latest news on the worst Ebola epidemic in history.

• Ebola death toll rises to 826 as outbreak spins out of control
• Second American with Ebola to return Tuesday
• Doctor in Nigeria’s largest city of Lagos tests positive for Ebola after treating country’s first case
• Ebola threatens to erase Liberia’s progress since civil war
• U.K. is holding regular meetings on Ebola
• WHO sees “extremely small” Ebola risk outside West Africa
• U.S. Ebola patient improving amid calls for help in Africa
• Ebola test carried out after U.K. air passenger death
• Official response hampered by worries in Liberia capital
• Ebola crisis alters agenda for African summit in Washington
• Guinea villagers keep eating fruit bats

The latest infographic:

via Zero Hedge http://ift.tt/1tNhpMM Tyler Durden

Here are the latest news on the worst Ebola epidemic in history.

• Ebola death toll rises to 826 as outbreak spins out of control
• Second American with Ebola to return Tuesday
• Doctor in Nigeria’s largest city of Lagos tests positive for Ebola after treating country’s first case
• Ebola threatens to erase Liberia’s progress since civil war
• U.K. is holding regular meetings on Ebola
• WHO sees “extremely small” Ebola risk outside West Africa
• U.S. Ebola patient improving amid calls for help in Africa
• Ebola test carried out after U.K. air passenger death
• Official response hampered by worries in Liberia capital
• Ebola crisis alters agenda for African summit in Washington
• Guinea villagers keep eating fruit bats

The latest infographic:

via Zero Hedge http://ift.tt/1tNhpMM Tyler Durden

• New War Risk on Russia Fringes Amid Armenia-Azeri Clashes (BBG)
• Palestinians accuse Israel of breaking seven-hour Gaza truce (Reuters)
• Argentine Default Sours Outlook for Peso as Talks Ordered (BBG)
• Espírito Santo Saga Entangles Swiss Company (WSJ)
• Booming African Lion Economies Gear Up to Emulate Asians (BBG)
• Why Recalled Cars Stay on the Road (WSJ)
• CME Profit Falls as Trading Volume Declines (WSJ)
• London Renters Win in Billionaire Backyard as Prices Soar (BBG)
• Junk-Debt Liquidity Concerns Bring Sales (WSJ)
• Rescuers race to find survivors after 400 die in China quake (AFP)
• Putin Cabbage Ban No Match in Poland for Fed Rate Concern (BBG)
• Kiev says it recaptures rail hub in east Ukraine, five soldiers killed (Reuters)
• Buffett Waits on Fat Pitch as Cash Hoard Tops $50 Billion (BBG)
• Half-Trillion-Dollar Exodus Magnifying U.S. Bill Shortage (BBG)
• GE warns that closing ExIm Bank would hit US-Africa trade (FT)

 

Overnight Media Digest

WSJ

* Israel announced another temporary truce in Gaza, but the prospects for a more lasting cease-fire remain murky. (http://on.wsj.com/1s3bfYn)

* At least 381 people were killed and more than 1,800 injured when an magnitude 6.1 earthquake struck a remote part of China’s southwestern Yunnan province. (http://on.wsj.com/1mdRpCz)

* While guns are off the welcome list at chains including Chipotle Mexican Grill Inc, Starbucks Corp, and Sonic Corp, a small but growing number of independent restaurateurs around the country are rolling out the red carpet. (http://on.wsj.com/UVGRjS)

* Portugal’s central bank unveiled a plan to rescue the country’s second-largest lender Banco Espirito Santo SA by breaking up the bank and pumping in billions of euros of state money. (http://on.wsj.com/1uZpL5E)

* A shakeout in junk bonds is drawing only cautious interest from bargain hunters, underscoring fears that many once hot securities could prove hard to sell in an increasingly difficult trading environment. (http://on.wsj.com/1skRp9x)

* Adding the latest in-vogue deal maneuver to their playbook, activist investors are pressing for overseas mergers that can slice tax bills. In the latest example, Marcato Capital Management LP hired an investment bank to try to drum up interest from U.S. hotel companies that could possibly cut down on their tax bills by buying U.K.-based InterContinental Hotels Group, according to people familiar with the matter. (http://on.wsj.com/1p3EN5P)

* The euro zone’s central bank has been shrinking its holdings of securities and loans-the opposite course taken by the central banks of the United States, Britain and Japan. Those nations now see faster growth and closer to target inflation than the European Central Bank countries. (http://on.wsj.com/1pyBRgs)

* Chinese stocks extended recent gains, bucking the regional trend as other Asian markets were rattled by news from elsewhere in the world. (http://on.wsj.com/1ANVkQ6)

* The U.S. government is moving closer to formal rules barring airlines from offering in-flight cellphone calls, though carriers are pressing for the final decision to be left to them. (http://on.wsj.com/1ANVp6r)

* Despite intense interest from consumers, HBO in the United States so far has no plans to offer an online version of its service to people who are not pay-television subscribers. But overseas, HBO is taking a different tack. The Time Warner Inc unit is now exploring other countries where it could expand its Web-TV service model. (http://on.wsj.com/1s3sRmP)

* Sales at Michael Kors Holdings Ltd have outpaced competitors for years and its profits have soared. But some on Wall Street worry that the company has expanded too fast and that discounts are rising at department stores. (http://on.wsj.com/WVmbKI)

 

FT

France has gathered support of other European nations to challenge U.S. regulators on their right to levy heavy fines on foreign banks at a G20 meeting later this year, following the record fine imposed on BNP Paribas last month.

Private equity firms, including KKR and Warburg Pincus, are mulling over a $10 billion plan to buy and merge older drug brands of Britain’s GlaxoSmithKline and France’s Sanofi.

Troubled lender Banco Espirito Santo is to be split into ‘good’ and ‘bad’ banks, under a 4.9 billion euro ($6.6 billion) rescue plan that will leave its shareholders and junior bondholders with toxic assets.

A report commissioned by London Mayor Boris Johnson is to show that the city could lose close to 1.2 million jobs and lose out on tens of billions of pounds of gross domestic product if UK decides to quit the European Union.

Britain’s banks are actively opposed to the creation of an EU financial services chief as they believe the move could fracture the single market and tilt regulations in favour of the eurozone.

IT outsourcing and consultancy services provider Quindell Plc and UK road assistance firm RAC’s joint venture contract to install telematics devices in vehicles has run into problems, with talks of restructuring the tie-up having stalled, according to people familiar with the project.

 

NYT

* After spending years in the shadow of bankruptcy proceedings, management turmoil and its more prominent broadcasting stations, the Tribune Media Co’s publishing division, is striking out on its own. The print properties are being spun off into a new company – Tribune Publishing, which starts trading on the New York Stock Exchange on Tuesday. (http://nyti.ms/UVwe0o)

* The troubled lender Banco Espirito Santo SA will be shut down, and its healthy businesses will be transferred to a new bank, as part of 4.9 billion euro ($6.58 billion) rescue plan financed primarily by the Portuguese government. While the Portuguese government will provide most of the money for the rescue in the form of a loan, the heaviest losses will be absorbed by Banco Espirito Santo shareholders and some creditors. (http://nyti.ms/1kgCdt1)

* Botox maker Allergan Inc is suing Valeant Pharmaceuticals International Inc and hedge fund manager William Ackman, accusing them of insider trading as part of their hostile effort to take it over. (http://nyti.ms/1qJGinw)

* Treasury Wine Estates, the Australian vintner that owns Penfolds and Beringer Vineyards, said it would consider a sweetened takeover offer led by the private equity giant Kohlberg Kravis Roberts after rejecting an earlier bid. (http://nyti.ms/1tLYLF0)

* The former global head of Barclays Plc’s mergers and acquisitions business, Paul Parker, is set to join one of his former rivals, Goldman Sachs Group Inc. Parker has been hired as a co-chairman of Goldman’s mergers unit. (http://nyti.ms/1uZuuUT)

* Evercore Partners Inc said on Sunday that it planned to buy Institutional Strategy & Investment, a move intended to bolster its research and trading arm. (http://nyti.ms/1ol35mC)

* Brazilian firm Patria Investments has closed a new $1.8 billion private equity fund, its largest ever, in yet another sign that investors still find Brazil attractive despite the nation’s many macroeconomic challenges. The Sao Paulo-based firm, owned 40 percent by the Blackstone Group, exceeded its $1.5 billion target. (http://nyti.ms/1skUxCu)

* The International Swaps and Derivatives Association said Argentina’s failure to make a payment on its bonds earlier this week would activate credit default swaps on the country’s debt. In the coming days, investors who used the swaps to insure against the default will collect money from investors on the other side of the trade. (http://nyti.ms/1zMcjkx)

* For years, New York City has been dutifully pumping more and more money into its giant pension system for retired city workers. But instead of getting smaller, the city’s pension hole just keeps getting bigger, forcing progressively more significant cutbacks in municipal programs and services every year. (http://nyti.ms/1xVo4Cj)

* Nickelodeon created its first original animated series “Welcome to The Wayne” exclusively for the web and mobile. The program is part of an overhaul at Viacom Inc’s 36-year-old children’s network to discover, develop and disseminate shows for a new generation who barely distinguish among a television set, a laptop, a tablet and a mobile phone. (http://nyti.ms/1njaIK2)

 

Canada

THE GLOBE AND MAIL

* Ontario’s new Liberal government has brokered its first deal with a major union, a bellwether for difficult labor negotiations in the months ahead. Negotiators announced on Sunday they had resolved a six-month standoff between the province and its white-collar workers in AMAPCEO – Ontario’s second-largest civil servants’ union. (http://bit.ly/1uei1s9)

* The hunt for Toronto’s next police chief promises to be the most extensive the city has ever conducted and holds the possibility of placing an outsider at the helm. Toronto police services board chairman Alok Mukherjee and Mayor Rob Ford say they want someone who can keep the force’s budget in line. (http://bit.ly/1AOnY3H)

Reports in the business section:

* A powerful group of U.S. members of Congress say the White House should cut Canada out of a major global trade deal unless it opens up its protected dairy and poultry markets. The Democratic and Republican members of Congress argued in a letter sent to President Barack Obama that, without more concessions on agriculture, Canada should be booted out of the 12-country Trans-Pacific partnership talks. (http://bit.ly/WVroSP)

NATIONAL POST

* A commission set up by Quebec’s liberal government to review government programs and cut back on spending will cost taxpayers at least $3.8 million in its first year of operation. Salaries account for much of the projected cost. (http://bit.ly/1njSIiM)

* Canadian Senate is considering the installation of video cameras in its chamber. However, the two-month pilot project would only see the footage directed to an internal feed. It remains unclear what, exactly, the Senators do not want to reveal. (http://bit.ly/1qTYuzA)

FINANCIAL POST

* The Canadian government launched a process to create a long-awaited bail-in regime for Canadian banks that will keep taxpayers off the hook in the event any of the banks fail. (http://bit.ly/1kxkii0)

* The Canadian government said it will require the country’s two big railways, Canadian National Railway Co and Canadian Pacific Railway Ltd, to ship more than the current minimum of 1 million tonnes of crops a week through the autumn harvest, as it tries to prevent a repeat of last season’s backlog. The regulations announced on Friday in the world’s third-biggest wheat exporter would require both the railways to each move 536,250 tonnes of crops each week starting Sunday and lasting through Nov. 29. (http://bit.ly/1njTUCT)

 

Hong Kong

SOUTH CHINA MORNING POST

— More foreign carmakers are expected to cut prices under pressure from anti-monopoly investigations by mainland regulators, with market forces expected to play a bigger role in pricing as competition intensifies. (http://bit.ly/WVgkFg)

— Seven patients who underwent medical procedures in Hong Kong in the first quarter of the year had surgical objects left inside their bodies, the most since 2010, according to new figures revealed by the Hospital Authority. The items included a 12 cm drainage tube left in a patient’s abdomen and a 4.5 cm catheter tip left in a kidney. (http://bit.ly/1tIsQFw)

— The stock through train has already helped boost turnover and profitability at Hong Kong Exchanges and Clearing, according to brokers. HKEx, which will report its results on Wednesday, is expected to chalk up profit growth of 5 to 10 percent for the first half of this year. (http://bit.ly/1sjchNA)

THE STANDARD

— A 1 percent cut in government spending is not intended to “turn off the water taps” but just slow the rapid rise in spending to ward off a projected fiscal cliff, the financial secretary said. John Tsang Chun-wah confirmed that the Financial Services and the Treasury Bureau issued letters to all government departments to announce the 1 percent cut across all departments from 2016 to 2018. (http://bit.ly/1udhXcc)

— More young Hongkongers will be going to Germany this year for a working holiday as the quota has been doubled, according to Labour Department. (http://bit.ly/1uZ9ayJ)

— McDonald’s Hong Kong is putting the original Big Mac back on the menu with the familiar patty, lettuce and onion for just HK$10. The fast food giant is banking on Hongkongers’ short memories to start “lovin” Big Mac and three other big-sellers from Monday, two weeks after being embroiled in the Shanghai contaminated food scandal. (http://bit.ly/1s2kIf5)

HONG KONG ECONOMIC JOURNAL

— China Unicom (Hong Kong) Ltd, which is due to release interim earnings on Thursday, is expected to post a profit of between 6.71 billion and 7.07 billion yuan ($1.14 billion), up 26.1 percent to 32.9 percent from the first half in the previous year. Second-quarter profit is seen ranging from 3.41 billion to 3.77 billion yuan.

HONG KONG ECONOMIC TIMES

— China Merchants Land Ltd said it would buy from its controlling parent a 49 percent stake in real estate firm Merchants Property Development (Guangzhou) Ltd for 1.21 billion yuan ($195.81 million) cash.

 

Britain

The Times

EX-M&S BOSS POISED FOR PEERAGE

The former boss of Marks and Spencer is being lined up for a peerage. Stuart Rose, who chairs the online supermarket Ocado and the clothing brand Fat Face <IPO-FFFL.L>, is expected to be ennobled by the Conservative party within days.

MPC REBELS SET TO BREAK BANK CONSENSUS ON INTEREST RATES

The Bank of England’s longest consensus on interest rates could end this week when a minority of monetary policy committee members are expected to vote for a rate rise.

The Guardian

INEOS SIGNALS MOVE INTO FRACKING

Ineos, the company at the centre of a dispute with unions at the Grangemouth plant in Scotland last year, is giving the strongest signal yet of its intention to move into the controversial area of fracking.

The Telegraph

RUSSIA SANCTIONS RISK BRITISH JOBS, WARNS JCB BOSS

One of the UK’s most influential businessmen has hit out at European Union and US sanctions against Russia, claiming that they are ill-conceived and may result in the loss of British jobs.

Sky News

HSBC URGES RING-FENCING DELAY AMID CMA PROBE

One of Britain’s biggest banks is urging the Government to delay a deadline for separating lenders’ retail and investment banking operations amid fears that billions of pounds could be wasted on the project.

 

 

Fly On The Wall 7:00 Pre-Market Buzz

ECONOMIC REPORTS

No significant domestic economic reports scheduled for today.

ANALYST RESEARCH

Upgrades

Air Lease (AL) upgraded to Top Pick from Outperform at RBC Capital
Alcatel-Lucent (ALU) upgraded to Overweight from Equal Weight at Morgan Stanley
Armstrong World (AWI) upgraded to Neutral from Underweight at JPMorgan
Bally Technologies (BYI) upgraded to Neutral from Sell at Goldman
Build-A-Bear (BBW) upgraded to Outperform from Market Perform at BMO Capital
Clear Channel Outdoor (CCO) upgraded to Equal-Weight from Underweight at Evercore
Mellanox (MLNX) upgraded to Equal Weight from Underweight at Barclays
Occidental Petroleum (OXY) upgraded to Overweight from Equal Weight at Morgan Stanley
Oil States (OIS) upgraded to Outperform from Neutral at Credit Suisse
Solar Capital (SLRC) upgraded to Overweight from Neutral at JPMorgan
Synergy Resources (SYRG) upgraded to Buy from Hold at Stifel
T-Mobile (TMUS) upgraded to Overweight from Equal-Weight at Evercore
Targa Resources (TRGP) upgraded to Outperform from Neutral at RW Baird
U.S. Steel (X) upgraded to Buy from Hold at Deutsche Bank

Downgrades

American Electric (AEP) downgraded to Equal Weight from Overweight at Morgan Stanley
Bally Technologies (BYI) downgraded to Neutral from Buy at Citigroup
Biota Pharmaceuticals (bota) downgraded to Neutral from Buy at Guggenheim
Chevron (CVX) downgraded to Equal Weight from Overweight at Morgan Stanley
Diamond Offshore (DO) downgraded to Sell from Hold at Deutsche Bank
Douglas Emmett (DEI) downgraded to Sell from Hold at Stifel
Emulex (ELX) downgraded to Underweight from Equal Weight at Barclays
Ensco (ESV) downgraded to Sell from Hold at Deutsche Bank
Halcon Resources (HK) downgraded to Equal Weight from Overweight at Morgan Stanley
Hornbeck Offshore (HOS) downgraded to Underweight from Equal Weight at Morgan Stanley
Kodiak Oil & Gas (KOG) downgraded to Sector Perform from Outperform at RBC Capital
Noble Corp. (NE) downgraded to Hold from Buy at Deutsche Bank
QLogic (QLGC) downgraded to Equal Weight from Overweight at Barclays
RPX Corp. (RPXC) downgraded to Equal Weight from Overweight at Barclays
Transocean (RIG) downgraded to Sell from Hold at Deutsche Bank

Initiations

Ares Capital (ARCC) resumed with an Overweight at JPMorgan
Diamond Resorts (DRII) initiated with an Outperform at Imperial Capital
La Jolla (LJPC) initiated with a Buy at Jefferies

COMPANY NEWS
FCC proposed rules that may limit joint bidding in spectrum auctions (S, TMUS, T, DTV, DISH)
Evercore (EVR) confirmed ISI Group acquisition in an all-stock transaction
Microsoft (MSFT) filed legal action against Samsung (SSNLF) for breach of contract
GE (GE) said it would invest $2B in Africa by 2018
Berkshire (BRK.A) raised its passive stake in VeriSign (VRSN) to 10.4% from 8.0%

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Orbotech (ORBK), CNA Financial (CNA), Loews (L), Boardwalk Pipeline (BWP), , Top Image Systems (TISA)

Companies that missed consensus earnings expectations include:
Hawaiian Telcom (HCOM), Anworth Mortgage (ANH)

Companies that matched consensus earnings expectations include:
Berkshire Hathaway (BRK.A)

NEWSPAPERS/WEBSITES

HBO (TWX) is exploring countries to expand Web-TV service, WSJ reports
Marcato looks to interest hotel companies in Intercontinental (IHG) bid, WSJ reports
Goldman Sachs (GS) hires former Barclays (BCS) executive Paul Parker, FT reports
PE firms (KKR) mull combining older GSK (GSK), Sanofi (SNY) drug brands, FT says
China excludes Symantec (SYMC), Kaspersky Lab as approved vendors, Reuters reports
KKR (KKR) raises bid for Treasury Wine Estates to $3.2B, Bloomberg reports
Twitter (TWTR) doesn’t look profitable, Barron’s says
United Stationers (USTR) shares could rise 20%, Barron’s says
EMC (EMC) shares could hit $38, Barron’s says
Herbalife (HLF) results could have been worse, Barron’s says

SYNDICATE

Actavis (ACT) files to sell 843,085 ordinary shares
Jones Energy (JONE) files to sell 36.18M shares of Class A common stock for holders
Medley Capital (MCC) enters $100M common stock distribution agreement
Tonix Pharmaceuticals (TNXP) files $150M mixed securities shelf
xG Technology (XGTI) files $30M mixed securities shelf

via Zero Hedge http://ift.tt/1slgkJc Tyler Durden

Following a ghastly week for stocks, the momentum algos were desperate for something, anything to ignite some upward momentum and stop the collapse which last week pushed the DJIA into the red for the year: they got it overnight with the previously reported bailout of Portugal’s Banco Espirito Santo, where the foreplay finally ended and after the Portuguese Central Bank finally realized that the bank is insolvent and that no more private investors will “recapitalize” it further, finally bailed it out, sticking the stock and the subs into a bad bank runoff entity, while preserving the senior bonds. So much for Europe’s much vaunted bail in regime and spreading of pain across asset classes. At least the depositors did not get Cyprused, for now. 

Aside from the main overnight news of the BES bailout, stocks traded mixed in Europe, with the German DAX index underperforming where Adidas (-1.6%) remained under pressure as investors continued to fret over the Russian sanctions, while analysts at Berenberg downgraded the company to sell from buy. In terms of other notable stock movers, HSBC (+2.8%) shares briefly slumped after the bank reported pretax down 12% vs. Exp. down 10%. Focus in the US will be on earnings by AIG, Marathon Oil, Cardinal Health and Pioneer Natural Resources. Bunds recovered from a lower open and moved into positive territory, as the somewhat cautious sentiment amid concerns over the implication of Russian sanctions on profitability of EU majors, together with risks associated with the looming risk events weighed on sentiment. Nevertheless, PO/GE 10y spread tightened aggressively this morning after it was announced that Banco Espirito Santo is to be split into ‘good’ and ‘bad’ banks in a EUR 4.9bln rescue package that wipes out equity and subordinated debt holders, but protects taxpayers and senior creditors.

There is far less macro and economic news on this week’s calendar which means the usual geopolitical tensions points: Russia, Gaza, ISIS, as well as the spread of the Ebola epidemic, and of course, speculation on what the Fed may or may not do, will drive risk in the coming days.

The earnings calendar winds down in the US although we still have 73 S&P 500 companies lined up this week. AIG, Walt Disney and News Corp are some of the notable ones. In Europe we have 69 companies reporting with some of the major financial services group (HSBC, Unicredit, Standard Chartered, ING) expected to report. In the US about 360 S&P 500 companies have reported so far with the EPS beat:miss ratio standing solid at 77%:23% although sales performance has been bit more subdued at 65%:35%. European earnings are still coming through but so far EPS beat:miss are running at a more balanced 55%:45% whilst sales revenue are less impressive at 45%:54%. Our usual earnings season tracker updated in the PDF.

 

Bulletin Headline Summary from RanSquawk and Bloomberg:

• Bund futures remain bid into the North American cross over, despite initially gapping lower, as the DAX continues to be sold as participant confidence ebbs
• Treasuries little changed, 10Y notes holding just below 2.50% level; Bank of Portugal said it will take control of Banco Espirito Santo’s assets and deposit-taking operations by transferring them to a new company.
• While Banco Espirito senior bondholders and depositors were left unscathed, sub debt holders face losses as regulators try to avoid leaving taxpayers on the hook for losses caused by failed lenders
• Investors may be underestimating the pace at which the Fed will raise interest rates over the next two years, said Richmond Fed president Jeffrey Lacker
• A Chinese central bank loan that’s almost the size of the U.S. bailout of AIG has spurred speculation that policy makers have adopted a new form of monetary easing to shore up growth
• China’s non-manufacturing PMI fell to 54.2 in July from a previously reported 55.0 in June
• The spread of Ebola in Liberia threatens to erase the economic progress the West African nation has made since the end of the civil war in 2003, Vice President Joseph Boakai said
• The outbreak has killed more than 800 in Sierra Leone, Liberia and Guinea, threatens to spiral out of control
• Militants from Islamic State took control of two oil fields and some predominantly Kurdish towns in northern Iraq following clashes, according to the Northern Oil Co.
• Israel held its fire in parts of the Gaza Strip to allow for humanitarian relief as violence defied diplomatic efforts to end four weeks of conflict
• Sovereign yields mostly lower. Euro Stoxx Banks gains 1.2% after sliding 3.4% last week. Asian and European equities mixed, U.S. stock futures rise. WTI crude, gold and copper little changed
• Chinese equities shrug off a six-month low in non-manufacturing PMI as hopes for reform of state-owned enterprises send the Shanghai Composite and the Hang Seng Index higher
• Today’s calendar is relatively quiet ahead of a slew of central bank decisions (BoE, ECB, RBA, BoJ) all due later this week

US Event Calendar

• 9:45am: ISM New York, July (prior 60.5) Supply
• 11:00am POMO: Fed to purchase $950m-$1.15b notes in 2036-2044 sector
• 11:00am: U.S. announces plans for auction of 4W bills
• 11:30am: U.S. to sell $28b 3M bills, $25b 6M bills

FIXED INCOME

Bunds recovered from a lower open and moved into positive territory, as the somewhat cautious sentiment amid concerns over the implication of Russian sanctions on profitability of EU majors, together with risks associated with the looming risk events weighed on sentiment. Nevertheless, PO/GE 10y spread tightened aggressively this morning after it was announced that Banco Espirito Santo is to be split into ‘good’ and ‘bad’ banks in a EUR 4.9bln rescue package that wipes out equity and subordinated debt holders, but protects taxpayers and senior creditors.

EQUITIES

Stocks traded mixed in Europe, with the German DAX index underperforming where Adidas (-1.6%) remained under pressure as investors continued to fret over the Russian sanctions, while analysts at Berenberg downgraded the company to sell from buy. In terms of other notable stock movers, HSBC (+2.8%) shares briefly slumped after the bank reported pretax down 12% vs. Exp. down 10%. Focus in the US will be on earnings by AIG, Marathon Oil, Cardinal Health and Pioneer Natural Resources.

FX

There was little in terms of tier-1 macroeconomic releases in morning, with only the latest UK Construction PMI data for market participants to digest, which came in broadly in line with exp. The report noted that British house building accelerated last month at the fastest rate since November 2003 and construction activity grew for the 15th successive month. Nevertheless, both EUR/USD and GBP/USD remained range-bound, given the lack of fundamental news flow to drive the price action and as market participants remained on the side-lines ahead of a slew of risk events

COMMODITIES

Gold has traded sideways overnight and through the European session, though off last week’s NFP-inspired highs, yet remaining above the USD 1290 level as the tensions in the Eastern European and the Middle East keep prices elevated. The energy complex trades rangbeound yet off its lows, as markets factor out effect of Coffeeville, which saw the complex sell off last week.

* * *

DB’s Jim Reid concludes the overnight recap:

Clearly the sell-off also partly has its roots in Geopolitics and the Argentinian default but while we were in QE infinity mode these events would have been easier to shrug off. However as the market runs out of the extreme liquidity and attention now shifts towards when the Fed will lift rates we might have entered a new period of higher volatility. Our view is that the Fed will have to err on the side of caution when lifting rates but that the market will now likely be more sensitive to data and Fed speak and we’ll have regular tension between the hawks and the doves with the doves eventually winning out but not without turbulence and a fight.

As we’ve published a few times we thought what we’re now seeing in markets might happen in the autumn but now it’s happened earlier we don’t think its worth chasing it wider at these weaker levels. Our feeling is that markets will be stronger by the end of August even if we still might not start the month well.

One of the recent reactions for markets has been the BES story, and according to the FT, late on Sunday a EUR4.9bn bailout plan was announced by Portugal’s central bank. This will see the bank restructured into a ‘good’ and ‘bad’ bank. The move would see a small Portuguese bank rescue fund acquire BES’s healthy assets and the fund will be bolstered by EU and IMF loans left over from Portugal’s international bailout. The WSJ noted that depositors and senior bondholders will be spared from any losses while the bank’s subordinated creditors and current shareholders will be in line for losses. In the world of credit all eyes will be on how iTraxx Financial Senior, Sub and Main respond to the news. Senior holders across markets should be relieved as again policy makers have been reluctant to impose losses on them.

For now the developments appear to be well absorbed by markets overnight. Indeed most risk indicators are firmer in Asia with the S&P 500 Futures (+0.3%), the Shanghai Composite (+1.1%), Indonesia CDS (-7bps), and the AUD (+0.1%) all higher as we type.

Recapping the data flow on Friday, payrolls (209k v 230k consensus) were modestly weaker-than-expected. Likewise Private payrolls (+198k v 227k consensus) were also softer. Joe LaVorgna thinks this means Yellen will keep a dovish script when she keynotes the Jackson Hole conference later this month. The latest data also allows monetary policymakers more breathing room with respect to the timing of the first Fed funds rate hike, as market participants in recent days had been bringing rate hikes forward. Away from jobs the manufacturing data was firm though with a better-than-expected July ISM manufacturing index (57.1 v 56.0 expected) on Friday. Whilst the S&P 500 (-0.29%) closed a touch lower on Friday, Treasury bulls were probably encouraged by the softness in payrolls. The 10yr rallied 7bp rally to 2.49% with the curve also bull steepening led by outperformance at the front end.

Following a roller coaster data week in the US last week we have the usual post-payrolls lull in the coming days. The focus this week will probably turn to Europe with the ECB’s and BoE’s policy meetings on Thursday being the key highlights. In terms of the ECB, Mark Wall and Gilles Moec believe the current growth and inflation picture leaves the ECB room to pause and reflect. Nevertheless an outlook of prolonged low inflation means the ECB will maintain its conditional dovish stance. We expect the ECB to repeat the message that should the June 5th announcements (in particular the TLTRO) not have the desired effect of stimulating growth, lending and inflation, the ECB is prepared to implement an ABS purchasing scheme. However, Mark and Gilles do not see ECB making a call on this call till H1 2015. Turning to the BOE, consensus expects rates to be left unchanged although George Buckley now expects the first rate hike to be delivered in Nov this year (vs previous view of May 2015) following the recent comments by Carney.

In terms of the data flow, the main focus in Europe will likely be the services PMI and retail sales tomorrow followed by Italy’s Q2 flash GDP on Wednesday. Those aside we will also get German factory orders (Wed), UK and Italian Industrial Production (Wed), German and UK trade data (Fri), and French IP (Fri). On the other side of the pond, we will get the ISM services and factory orders tomorrow, US trade data on Wednesday, the usual jobless claims on Thursday, and wholesale inventories on Friday. Away from the West, we will get the final HSBC China Services PMI for July tomorrow and Chinese Trade data on Friday. The BoJ will begin its two day meeting on Thursday.

The earnings calendar winds down in the US although we still have 73 S&P 500 companies lined up this week. AIG, Walt Disney and News Corp are some of the notable ones. In Europe we have 69 companies reporting with some of the major financial services group (HSBC, Unicredit, Standard Chartered, ING) expected to report. In the US about 360 S&P 500 companies have reported so far with the EPS beat:miss ratio standing solid at 77%:23% although sales performance has been bit more subdued at 65%:35%. European earnings are still coming through but so far EPS beat:miss are running at a more balanced 55%:45% whilst sales revenue are less impressive at 45%:54%. Our usual earnings season tracker updated in the PDF.

via Zero Hedge http://ift.tt/1v11coG Tyler Durden