Financial Market report for August 1, 2011
The failure of the seigniorage of neoliberalism and exhaustion of quantitative easing sent US health care, biotechnology stocks and commodities lower. European stocks tumbled on awareness of lower growth; Peak Credit is likely being achieved as bonds moved higher. Competitive currency devaluation, that is competitive currency deflation, likely recommenced today, as most currencies turned lower. Neoauthoritarianism is a regime characterized where love grows cold. And Ms Lagarde gave the Clarion Call for sovereign leadership of Europe.
1) … Stocks fell lower today.
The failure of the seigniorage of neoliberalism, the exhaustion of Quantitative Easing is seen in US health care stocks turning parabolically lower; the age of profiting from developments in biotechnology and life science is over and done IHF -3.6%, IBB -1.5%, XBI -1.3% and XPH, -1.0%
Bloomberg reports Worst Europe earnings hitting Industrials as Stoxx Europe 600 falls 9%. Profits at European companies are trailing analyst estimates by the most in at least five years, dragged down by manufacturing shares that had been forecast to lead a rally in the second half of the year. About 53 percent of companies in the Stoxx Europe 600 Index that have reported earnings since July 11 missed analysts’ projections. That’s the most in data compiled by Bloomberg since 2006. The benchmark gauge lost 3.1 percent in the period, the largest decline to start an earnings season since April 2010. (Hat Tip to Between The Hedges) EWI -3.6, EWP -3.1, EWG -3.0, EWD -2.5, EUFN -1.4
Tyler Durden reports Italy is undergoing a slow motion crash, with bank after bank getting halted, first Intesa, then Monte Paschi, and most recently, main bank Unicredit. The FTSEMIB is now down a whopping 5.5% from intraday highs, led by the financial sector which may or may not last the week absent another EFSF expansion as we have speculated before. Of course, should that happen, Italy becomes a liability and not a funder, meaning the proportional obligations of Germany and France will surge, just as we explained two weeks ago. And more bad news: the spread between the 10 year Italy - Bund just hit an all time wide of 349, +16 bps on the session, as Italy CDS are now trading 328, +12, and Spain is 9 bps wider to 374. Time for bailout #3, this time to rescue Italy, then Belgium and Spain, then France and the UK, until finally the Fourth Reich, in the darkness, shall bind them.
US, stocks, VTI, and World stocks, ACWI, fell lower as Bloomberg reports U.S. ISM Manufacturing Index drops more than estimated to 50.9 from 55.3. Mike Mish Shedlock relates: “Last month I reported Manufacturing ISM Weaker Than it Looks; Digging Into the Numbers; Inventory Restocking Accounts for Much of the Rise. For all the excitement over the 1.8 point rise, much of it is restocking inventories in the wake of the tsunami. The effect of inventories is 5.4 divide by five, or 1.08 (1.1) of the overall 1.8 rise.The tsunami effect ended last month and if you failed to catch it then, it should be unmistakable now. Inventories are contracting and supplier inventories are slowing to the point of contraction. Employment and production are the two categories that kept the ISM positive. Don't expect that to last with new orders and backlog of new orders in contraction, the latter for the second consecutive month.” REZ -2.7%, FAA -1.8, FLM -1.5, ALUM, -1.5, IGN -1.5, FRI, 1.5, VNQ, 1.5, IYR -1.3, IYR, -1.3, GEX -1.2, WOOD -1.0, FIW -1.0, KME -1.0, CARZ -1.0, EVX -1.0 , IYT, -1.0, The two depressed countries Vietnam, and Ireland, turned lower and Israel fell lower on people wilding over inflated prices and constrained wages. VNM -1.2%, EIRL -3.7%, EIS -3.1%
2) … Base Metals, DBB, and Timber, CUT, both fell 1.5%.
3) … Peak Credit is likely being achieved as bonds, BND, moved 0.05% higher.
TMF +2.7%, ZROZ +1.8%, EDV +1.5%, +TLT 1.0%
4) … Today’s news is courtesy of Between The Hedges.
Bloomberg reports BRIC banks signaling credit risks as loans sour. Banks in the biggest emerging markets are losing the confidence of investors as loans turn sour after a two-year credit binge. Brazil’s financial shares have lost more this year than counterparts in crisis-stricken Europe as consumer defaults hit a 12-month high in June and borrowing costs climbed to 46 percent. Bank stocks in China are trading at lower valuations than global emerging-market indexes for the first time since 2006. The country faces a financial crisis with bad debt that may jump to 30 percent of total loans, Fitch Ratings said. In India, the cost of insuring banks against default has climbed to the highest level in a year. Loan-loss provisions at State Bank of India (SBIN), the nation’s largest lender, rose 77 percent in the first three months of 2011, while net income fell 99 percent. “People are beginning to smell the credit cycle turning,” Michael Shaoul, chairman of Marketfield Asset Management and chief executive officer of New York-based brokerage Oscar Gruss & Son, said in an interview. “Credit cycles have tremendous momentum, and whenever they turn you want to pay attention,” said Shaoul, who recommends selling high-yield bonds in emerging markets and betting on further losses in bank shares. Loans to Brazilian shoppers.
Chinese infrastructure projects and Indian developers have fueled the global economic recovery and turned emerging-market banks into some of the world’s biggest companies by market value. Now increased debt burdens threaten growth as central banks raise interest rates to fight inflation, U.S. hiring stalls and Europe deepens austerity measures. China and Brazil may see expansion cut by at least 50 percent in the next few years, according to economic consulting firms A. Gary Shilling & Co. and Capital Economics Ltd.
Marketwatch reports China Manufacturing Activity Shrinks in July: HSBC. China’s manufacturing activity contracted slightly in July, signaling a deterioration in the operating environment at the nation’s factories, as tighter monetary conditions weighed further on the sector, according to data released Monday by HSBC. The monthly purchasing managers index fell to 49.3, its lowest reading since March 2009, compared with 50.1 in June, HSBC said in its monthly statement. The final outcome was better than the 48.9 print recorded in a preliminary reading that HSBC released a few days earlier. The data, based on the results of a survey compiled by Markit, confirmed a slowing growth momentum in the manufacturing sector “against the backdrop of sustained tightening and lackluster external demand,” Hongbin Qu, HSBC’s chief economist for China, said in a statement accompanying the data. YAO -0.5%, CHII -2.5%, HAO -0.7%
Reuters reports Italy under pressure as questions over tremonti grow. Italy's divided centre-right government faces a testing week with Economy Minister Giulio Tremonti weakened by a graft scandal just as markets have turned on the euro zone's third largest economy. Tremonti, the budget hardliner credited with keeping Italy's huge public debt from sliding out of control, has looked more and more exposed, at odds with Prime Minister Silvio Berlusconi and undermined by a corruption probe against a former aide.
5) … Neoliberalism has fallen to Neoauthoritarianism. In the age of deleveraging, the love of many will grow cold.
Wall Street Journal reports Skilled-Nursing Stocks Plunge On Medicare Rate Change. Nursing-home operators Sun Healthcare Group Inc. (NASDAQ:SUNH), Skilled Healthcare Group Inc. (NYSE:SKH) and Kindred Healthcare Inc. (NYSE:KND) lost more than a quarter of their market value Monday after Medicare said it would reduce reimbursement rates to those facilities by 11.1% over the next fiscal year. The Centers for Medicare & Medicaid Services said the cuts, which take effect in October, are in response to unexpected increases in nursing-home payments this fiscal year after the agency tweaked coverage rates last year. The skilled-nursing industry had lobbied hard since the government released its initial proposal for an 11.3% rate cut in April. The agency's final decision--announced late Friday--will have "a devastating impact" on the companies, according to one analyst, and the industry is now looking to Congress for help. The Alliance for Quality Nursing Home Care, a lobbying group for the industry, said in a statement late Friday that the change in reimbursement rates "will dangerously destabilize the nation's second-largest health facility employer, place patients and their care at deep risk, and put tens of thousands of health jobs in immediate jeopardy." The group's president, Alan Rosenbloom, said the move "crossed the line from over-correction into real Medicare cuts." Investors had expected more modest cuts, perhaps in the range of 5% to 7%, Wells Fargo said; however, given the current budget constraints in Washington, the firm warned that Congress likely won't be rushing in to offer meaningful relief. (Hat Tip to Between The Hedges)
6) … Peak Currencies, that is Peak Currency, was likely achieved July 31, 2011
Competitive currency devaluation, that is competitive currency deflation, likely recommenced today as Small Cap Pure Value, RZV, shares rallied in a likely short squeeze, rising 0.34% and Small Cap Pure Growth Shares, RZG, fell 0.77%. Commodity currencies, CCX, fell 0.25%, world major currencies, DBV, fell 0.4%, emerging market currencies, CEW, rose 0.13%, and the Indian Rupe, ICN, rose 0.07%, the Swiss Franc, FXF, rose 0.4% while all the other currencies fell lower led by the Russian Ruble, XRU, 1.14% while the US Dollar, $USD, rose.
7) … Commentary: It’s Hasta La Vista Baby To Sovereignty In Europe
The Financial Times reports “Lagarde Warns EU To Speak With One Voice” and reports that The Euro, FXE, fell 0.76% lower today to close at 142.0 while Ambrose Evans Pritchard reports Italy in eye of the storm as cash runs low. “Fears of a double-dip downturn on both sides of the Atlantic have set off fresh mayhem in Southern European bond markets, dashing hopes that Europe's summit deal in late July would contain the escalating crisis.”
An inquiring mind asks: Just whose voice will speak for Europe? Ms Lagarde gave the Clarion Call for sovereign leadership of the EU. Out of the current European sovereign debt and banking crisis, a European Chancellor, that is The Sovereign, and a Banker, The Seignior, will rise to speak with one voice to rule and provide seigniorage, that is moneyness, for a Federal Europe, that is a One Euro Government, whose authority will come from regional framework agreements. All the Eurozone will both fear and respect, the word, will and way of the Sovereign and the Seignior.