Today China’s onshore corporate bond market was hit with its first default—ever. Shanghai Chaori Solar Energy Science & Technology was unable to pay an 89.8 million yuan coupon due today on a bond issue.
It’s hard to make a case that the default of the Shenzhen-listed company rattled China’s financial markets. The Shanghai-Shenzhen 300 index closed a scant 0.24% lower today.
I think the default is a big deal–in the long-term. It inches China’s financial markets closer to pricing risk into stocks, bonds, investment trusts and other financial products. With a very few exceptions, China’s markets behave as if the government will bail out any company that gets in trouble and will make investors whole. An event like today’s default suggests that might not always be the case. And the default will blaze new pathways as China continues to develop legal processes for dealing with default and bankruptcy.
So if this default is important in the long run, why didn’t it have more effect on financial markets today? I think I understand the lack of a reaction. I also think it’s worth considering the possibility that markets are wrong. And that we’ll find test that conclusin later in 2014
There are three reasons, I think, for the lack of a market reaction today. Read more
There was enough good news in this morning’s February jobs numbers to keep alive hopes that the recent sluggishness in the U.S. economy is “only cold weather.”
But with the Standard & Poor’s 500 at new all-time highs this week, I’ve got to wonder how long the “I’ll gladly give you job growth tomorrow for another 1% advance in the stock market today” scenario can run.
At some point the economy needs to deliver something other than mediocre job growth.
In February net nonfarm payrolls added 175,000 jobs. That was above the consensus among economists surveyed by Briefing.com of 163,000 net new jobs for the month. The Labor Department also revised its estimate of job additions in January to 129,000 from the prior 113,000. The unemployment rate inched upwards to 6.7% from 6.6% as more workers searched for jobs.
The worst part of the monthly report was that the stronger than expected jobs number didn’t add more to wages in the month. Read more
Fourth quarter earnings and guidance for 2014 announced on January 22 make it clear that Abbott Laboratories (ABT) is a second half story for 2014. (Abbott Laboratories is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )
For the quarter Abbott reported earnings of 58 cents a share, matching Wall Street estimates. Revenue climbed just 0.4% year over year to $5.66 billion, less than the $5.72 billion analysts had projected. A stronger dollar worked against Abbott in the quarter but even taking out currency effects worldwide sales still grew by just 3.3%.
For 2014 the company told Wall Street to expect $2.21 to $2.26 a share. That’s slightly ahead of the $2.21 consensus projection by analysts.
But that earnings guidance isn’t spread evenly over 2014. Read more
Everyone knows that capital spending budgets at the world’s oil companies are falling.
But it just doesn’t seem to matter for Schlumberger (SLB.) Schlumberger is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/
On January 17 the oil services and technology company reported fourth quarter earnings of $1.35 a share, beating Wall Street estimates by two cents a share. Earnings grew by 29.8% year over year.
Revenue climbed 7.4% year over year to $11.91 billion. That was slightly below the $11.98 projected by Wall Street.
I think you can tell what is going on at Schlumberger simply by taking a glance at those earnings and revenue growth rates. Revenue growth is indeed sluggish in the oil field. But Schlumberger’s margins are climbing thanks to efficiencies at the company and, especially, thanks to its years of investment in oil field technologies
For example, while oilfield services revenue climbed just 7.4% year over year in the fourth quarter, pretax operating income grew by 23% year over year.
Efficiency measures at Schlumberger have included faster maintenance, better transportation set ups, and increases in asset turns. The company reduced days sales outstanding—a measure of how long it takes to get paid after a sale—to 91 in the quarter from 96 in the first quarter of 2013. Days sales of inventory—a measure of how much inventory a company carries to support its sales activities—fell to 55 days from 57 days. That helped produce operating cash flow of $10 billion for Schlumberger in 2013, a record for the company
At the same time Schlumberger has increased the speed with which it rolls out new technology products. Read more
Gold and energy commodities are up today. So are safe haven currencies such as the yen.
The Russian ruble is down. So is the euro and emerging market currencies and markets are taking a licking.
Pretty much what you’d expect when the crisis in the Ukraine has escalated to include a threat of armed conflict between Russian and Ukrainian soldiers
The biggest move has been in the share prices of energy companies that might benefit if natural gas prices soar due to a cut-off in gas exports from Russia across the Ukraine and into Western Europe.
For example, shares of Norwegian oil and gas producer Statoil (STO) are up 2.35% today as of 2 p.m. New York time.
Shares of energy companies without any near-term way to take advantage of any stoppage were off with Chesapeake Energy (CHK) down 1.2% and France’s Total (TOT) off 2.31%.
The oil benchmark price of the West Texas Intermediate climbed 1.77%. The Brent benchmark rose 1.6%.
Most of the moves I’m seeing today aren’t specific to the crisis but are instead the standard response of traders to heightened risk. For example, the safe haven yen rose to 101.4 to the U.S. dollar. The euro is off 0.43% against the dollar. Gold is up 2.15%. The iShares MSCI Emerging Markets ETF (EEM) is down 1.89%.
The ruble is the big crisis specific loser, down 1.4% today against a basket of currencies—despite an increase in benchmark interest rates from the Russian central bank. That continues the Russian currency’s slide in 2014. The ruble is now down more than 10% for 2014
The slow response of U.S. and EuroZone diplomats to the crisis with lots of talking and not much action (not necessarily a bad thing if the alternative is shoot first and talk later) suggests that this crisis will drag on for a while. An “emergency” meeting of EuroZone leaders isn’t scheduled to take place until Thursday, March 6.