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Krishna Aditya Rachman
The USDJPY continues to trend lower on the back of JPY strength. 20 and 50 EMAs well respected. Entered short in anticipation of a breakout using an initial 1:1 R:R but using a trailing stop that will improve the R/R as the price moves in our favour.
· 2
Krishna Aditya Rachman
"Swimming Naked" - Chinese Corporate Bond Market Worst Since 2003
A week ago we highlight the "last bubble standing" was finally bursting, and as China's corporate bond bubble deflates rapidly, it appears investors are catching on to the contagion possibilities this may involve as one analyst warns "the cost has built up in the form of corporate credit risks and bank risks for the whole economy." As Bloomberg reports, local issuers have canceled 61.9 billion yuan ($9.6 billion) of bond sales in April alone, and Standard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003. Simply put, the unprecedented boom in China’s $3 trillion corporate bond market is starting to unravel.
As Bloomberg notes, China’s leaders face a difficult balancing act.
On one hand, allowing troubled companies to default forces money managers to pay more attention to credit risk and accelerates government efforts to curb overcapacity.
The danger, though, is that investor panic leads to tighter credit conditions, dealing a blow to President Xi Jinping’s plan to keep the economy growing by at least 6.5 percent over the next five years.
However, as we pointed out previously, economic figures for March reveal a growing dependence on debt. China’s aggregate financing -- a broad measure of credit that includes corporate bonds - grew by over $1 trillion in Q1...
And yet even that wasn’t enough to save the seven Chinese companies that reneged on bond obligations this year. Three of those were part-owned by China’s government, seen not long ago as a provider of implicit guarantees for bondholders.
The reaction has been swift in China’s 18.8 trillion yuan corporate bond market (a figure that excludes certificates of deposit). The extra yield investors demand to hold seven-year onshore corporate bonds with top ratings over similar-maturity government notes has jumped by 28 basis points from an almost nine-year low in January, to 91 basis points as of Monday.
At least 64 Chinese firms have postponed or scrapped planned note sales this month, six times more than the same period a year earlier.
“As more and more issuers default, lenders and investors will reassess their portfolio and lending, and that will cause yields to rise,” said Christopher Lee, chief ratings officer for Greater China at Standard & Poor’s in Hong Kong. “If the onshore market has any dislocation, that will have a spillover effect in the offshore market.”
Rising defaults are actually healthy for China’s bond market, said Xia Le, the chief economist for Asia at Banco Bilbao Vizcaya Argentaria SA in Hong Kong.
“It shows the government is taking away the implicit guarantee,” Xia said. “Now risk awareness is rising, so we will see which issuers are swimming naked.”
While bond yields in China are still well below historical averages, a sustained increase in borrowing costs could threaten an economy that’s more reliant on cheap credit than ever before. The numbers suggest more pain ahead:
Listed firms’ ability to service their debt has dropped to the lowest since at least 1992, while analysts are cutting profit forecasts for Shanghai Composite Index companies by the most since the global financial crisis.
As Qiu Xinhong, a Shenzhen-based money manager at First State Cinda Fund Management Co. said...
“The spreading of credit risks is only at its early stage in China."
We leave it to Xia Le to conclude,
"The equity rout merely reflects worries about China’s economy, while a bond market crash would mean the worries have become a reality as corporate debts go unpaid," said Xia Le, the chief economist for Asia at Banco Bilbao. "A Chinese credit collapse would also likely spark a more significant selloff in emerging-market assets."
"Global investors are looking for signs of a collapse in China, which itself could increase the chances of a crash... This game can’t go on forever."
A week ago we highlight the "last bubble standing" was finally bursting, and as China's corporate bond bubble deflates rapidly, it appears investors are catching on to the contagion possibilities this may involve as one analyst warns "the cost has built up in the form of corporate credit risks and bank risks for the whole economy." As Bloomberg reports, local issuers have canceled 61.9 billion yuan ($9.6 billion) of bond sales in April alone, and Standard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003. Simply put, the unprecedented boom in China’s $3 trillion corporate bond market is starting to unravel.
As Bloomberg notes, China’s leaders face a difficult balancing act.
On one hand, allowing troubled companies to default forces money managers to pay more attention to credit risk and accelerates government efforts to curb overcapacity.
The danger, though, is that investor panic leads to tighter credit conditions, dealing a blow to President Xi Jinping’s plan to keep the economy growing by at least 6.5 percent over the next five years.
However, as we pointed out previously, economic figures for March reveal a growing dependence on debt. China’s aggregate financing -- a broad measure of credit that includes corporate bonds - grew by over $1 trillion in Q1...
And yet even that wasn’t enough to save the seven Chinese companies that reneged on bond obligations this year. Three of those were part-owned by China’s government, seen not long ago as a provider of implicit guarantees for bondholders.
The reaction has been swift in China’s 18.8 trillion yuan corporate bond market (a figure that excludes certificates of deposit). The extra yield investors demand to hold seven-year onshore corporate bonds with top ratings over similar-maturity government notes has jumped by 28 basis points from an almost nine-year low in January, to 91 basis points as of Monday.
At least 64 Chinese firms have postponed or scrapped planned note sales this month, six times more than the same period a year earlier.
“As more and more issuers default, lenders and investors will reassess their portfolio and lending, and that will cause yields to rise,” said Christopher Lee, chief ratings officer for Greater China at Standard & Poor’s in Hong Kong. “If the onshore market has any dislocation, that will have a spillover effect in the offshore market.”
Rising defaults are actually healthy for China’s bond market, said Xia Le, the chief economist for Asia at Banco Bilbao Vizcaya Argentaria SA in Hong Kong.
“It shows the government is taking away the implicit guarantee,” Xia said. “Now risk awareness is rising, so we will see which issuers are swimming naked.”
While bond yields in China are still well below historical averages, a sustained increase in borrowing costs could threaten an economy that’s more reliant on cheap credit than ever before. The numbers suggest more pain ahead:
Listed firms’ ability to service their debt has dropped to the lowest since at least 1992, while analysts are cutting profit forecasts for Shanghai Composite Index companies by the most since the global financial crisis.
As Qiu Xinhong, a Shenzhen-based money manager at First State Cinda Fund Management Co. said...
“The spreading of credit risks is only at its early stage in China."
We leave it to Xia Le to conclude,
"The equity rout merely reflects worries about China’s economy, while a bond market crash would mean the worries have become a reality as corporate debts go unpaid," said Xia Le, the chief economist for Asia at Banco Bilbao. "A Chinese credit collapse would also likely spark a more significant selloff in emerging-market assets."
"Global investors are looking for signs of a collapse in China, which itself could increase the chances of a crash... This game can’t go on forever."
Krishna Aditya Rachman
Intel literally decimates workforce: 12,000 will be axed, CFO shifts to sales
While banking a $2bn profit in first three months of the year
Intel will axe 12,000 employees globally – more than one in ten of its workforce – as it moves further away from being a PC chip company.
The layoffs are among the biggest into the company's history, and come as PC industry continues to tank harder than Intel expected.
The Santa Clara-based biz sees a lot of growth in the worlds of data centers, memory, and the internet of things – anything that doesn't look like a traditional desktop computer, the sales of which are dwindling. As a result, fewer processors for normal PCs, laptops and tablets are needed, and so Intel is rejigging itself to focus more on these growth areas – which will mean losing some workers.
"We're seen as a PC company. It’s time to make a transition to push the company all the way over to our new strategy," Intel CEO Brian Krzanich told analysts on a conference call on Tuesday.
The processor giant said about 11 per cent of its 107,000 staffers will be shed through "site consolidations worldwide, a combination of voluntary and involuntary departures, and a re-evaluation of programs."
Intel said the decimation will save it $750m this year and deliver "annual run rate savings of $1.4 billion by mid-2017."
The company will cough up a one-time charge of $1.2bn in the second quarter of 2016 as a result of the headcount reduction. Those affected by the cuts will learn of their fate within the next 60 days. Exactly where the axe will fall is not yet known, but at least the teams working on memory and process shrinks will not be affected, we're told.
In an email to staff on Tuesday, Krzanich wrote:
Since I became CEO nearly three years ago, I have been working with our leadership team and all of you to transform our company from a PC company to a company that powers the cloud and billions of smart, connected computing devices. The data center and Internet of Things businesses are now Intel’s primary growth engines, and combined with memory and FPGAs, form and fuel a virtuous cycle of growth.
Together, these businesses delivered $2.2 billion in revenue growth last year, made up 40% of our revenue, and the majority of our operating profit. Our results demonstrate a strategy that’s working and a solid foundation for growth. Our opportunity now is to accelerate our momentum and build on our strengths. But this requires some difficult decisions.
With that context, today we are announcing a restructuring initiative that will allow Intel to intensify our investments in the products and technologies that fuel our growth, and drive more profitable mobile and PC businesses.
Meanwhile, Intel's chief financial officer Stacy Smith will step down from his role and instead lead "sales, manufacturing and operations" within the biz once his replacement is found. A search is now underway for a new CFO as Smith "transitions" to his new position.
Confirmation of the layoffs – which were rumored to be on their way this week – came as Intel announced its financial results for the first quarter [PDF] of 2016.
What with these redundancies, you'd expect to see some trouble. Its sales figures are at the low end of its estimates for the quarter, but it's not exactly struggling. Here's the numbers for the three months to April 2:
Revenue: $13.7bn, up 7 per cent on last year's first quarter, although slightly less than the $13.8bn analysts has expected.
For the Client Computing Group, aka PCs and mobile, chip sales rose 2 per cent to $7.5bn. The average selling price (ASP) increased 19 per cent against a 15 per cent drop in volume – all due to a "weaker than expected PC market," according to Smith. Operating profit for the group rose 34 per cent to $1.89bn. Desktop processor volumes dropped 4 per cent, and the ASP rose 6 per cent. Notebook CPU volumes dropped 2 per cent, and the ASP remained unchanged. Tablet chip volumes plummeted 44 per cent.
For the Data Center Group, sales rose 9 per cent to $4bn, volumes were up 13 per cent, and ASP dropped 3 per cent. Operating profit rose 4 per cent to $1.76bn.
The Programmable Solutions group, aka Altera, brought in $359m in sales, which doesn't include $99m in acquisition-related adjustments. Intel neglected to say what Altera was making before it was bought by Chipzilla in December, but we can say that, this time last year, the FPGA designer had revenues of $435.49m.
The IoT Group's sales rose 22 per cent to $651m with an operating profit of $123m, up from last year's $87m. Flash memory sales fell 6 per cent to $557m and the unit made a $95m operating loss versus a $72m operating profit last year. The Security group's revenue was up 12 per cent to $537m, and made an operating profit of $85m, up from $15m this time last year.
Net income: $2bn, up 2 per cent on the year-ago period
Gross margin: Down 1.2 points from 60.5 per cent to 59.3 per cent. This dip is due to money spent on buying Altera, and the cost to produce 14nm processor parts, among other things.
R&D spending: $5.5bn for the quarter, a little higher than this time last year but still about $100m less than expected. Intel isn't ramping up research in terms of spending.
Earnings per share: 42 cents, up from 41 cents this time last year. This is way lower than analysts' expectations of 47 cents.
So, essentially, even though CPUs for PCs and mobile are making a lot of money, the writing is clear: volumes continue to fall and cannot be relied upon for the future. Meanwhile, Intel is shoveling more and more data center server processors out the door, and chips going into the internet of things are bringing in more and more sales. That's where Intel wants to be: in IoT, data center and memory – even though the Non-Volatile Memory Solutions Group, which churns out flash memory, is looking a little glum at the moment. FPGAs are another wunderkind in Intel's lineup of growth areas: Xeon processors with Altera programmable cores bolted on are coming this year.
When asked about competition from ARM server chips and IBM's Power9 processors, Krzanich told analysts: "Having been raised by Andy Grove, I'm always paranoid about competition. We live and die by the performance of our products.
"We’re trying to provide solutions from top of rack to bottom of rack ... and own that whole rack from top to bottom. Networking and storage and telco are areas in which we’re gaining share. As our customers move to software-defined infrastructure, and virtual infrastructures, it plays right into the Intel architecture and what we do best, which is general-purpose computing."
In other words, Intel can't wait for networking, storage and telecoms gear to start relying on general-purpose x86-64 processors with software running on top that can keep up with or beat specialist incumbent hardware. Intel's Xeon E5 v4 chips, for example, come with useful bits and pieces like posted interrupts and cache monitoring to streamline virtual machines running networking and telco functions.
This, it hopes, will keep ARM and Power chips out of the picture so it can continue to wield its data center processor monopoly.
Intel reckons it will bank $13.5bn, plus or minus $500m, in revenues in the next quarter. For the full year, it expects sales to be up mid-single digits, down from a prior outlook of mid-to-high-single digits. The company's stock price fell to $30.94, down 66 cents, or 2.09 per cent, in after-hours trading.
While banking a $2bn profit in first three months of the year
Intel will axe 12,000 employees globally – more than one in ten of its workforce – as it moves further away from being a PC chip company.
The layoffs are among the biggest into the company's history, and come as PC industry continues to tank harder than Intel expected.
The Santa Clara-based biz sees a lot of growth in the worlds of data centers, memory, and the internet of things – anything that doesn't look like a traditional desktop computer, the sales of which are dwindling. As a result, fewer processors for normal PCs, laptops and tablets are needed, and so Intel is rejigging itself to focus more on these growth areas – which will mean losing some workers.
"We're seen as a PC company. It’s time to make a transition to push the company all the way over to our new strategy," Intel CEO Brian Krzanich told analysts on a conference call on Tuesday.
The processor giant said about 11 per cent of its 107,000 staffers will be shed through "site consolidations worldwide, a combination of voluntary and involuntary departures, and a re-evaluation of programs."
Intel said the decimation will save it $750m this year and deliver "annual run rate savings of $1.4 billion by mid-2017."
The company will cough up a one-time charge of $1.2bn in the second quarter of 2016 as a result of the headcount reduction. Those affected by the cuts will learn of their fate within the next 60 days. Exactly where the axe will fall is not yet known, but at least the teams working on memory and process shrinks will not be affected, we're told.
In an email to staff on Tuesday, Krzanich wrote:
Since I became CEO nearly three years ago, I have been working with our leadership team and all of you to transform our company from a PC company to a company that powers the cloud and billions of smart, connected computing devices. The data center and Internet of Things businesses are now Intel’s primary growth engines, and combined with memory and FPGAs, form and fuel a virtuous cycle of growth.
Together, these businesses delivered $2.2 billion in revenue growth last year, made up 40% of our revenue, and the majority of our operating profit. Our results demonstrate a strategy that’s working and a solid foundation for growth. Our opportunity now is to accelerate our momentum and build on our strengths. But this requires some difficult decisions.
With that context, today we are announcing a restructuring initiative that will allow Intel to intensify our investments in the products and technologies that fuel our growth, and drive more profitable mobile and PC businesses.
Meanwhile, Intel's chief financial officer Stacy Smith will step down from his role and instead lead "sales, manufacturing and operations" within the biz once his replacement is found. A search is now underway for a new CFO as Smith "transitions" to his new position.
Confirmation of the layoffs – which were rumored to be on their way this week – came as Intel announced its financial results for the first quarter [PDF] of 2016.
What with these redundancies, you'd expect to see some trouble. Its sales figures are at the low end of its estimates for the quarter, but it's not exactly struggling. Here's the numbers for the three months to April 2:
Revenue: $13.7bn, up 7 per cent on last year's first quarter, although slightly less than the $13.8bn analysts has expected.
For the Client Computing Group, aka PCs and mobile, chip sales rose 2 per cent to $7.5bn. The average selling price (ASP) increased 19 per cent against a 15 per cent drop in volume – all due to a "weaker than expected PC market," according to Smith. Operating profit for the group rose 34 per cent to $1.89bn. Desktop processor volumes dropped 4 per cent, and the ASP rose 6 per cent. Notebook CPU volumes dropped 2 per cent, and the ASP remained unchanged. Tablet chip volumes plummeted 44 per cent.
For the Data Center Group, sales rose 9 per cent to $4bn, volumes were up 13 per cent, and ASP dropped 3 per cent. Operating profit rose 4 per cent to $1.76bn.
The Programmable Solutions group, aka Altera, brought in $359m in sales, which doesn't include $99m in acquisition-related adjustments. Intel neglected to say what Altera was making before it was bought by Chipzilla in December, but we can say that, this time last year, the FPGA designer had revenues of $435.49m.
The IoT Group's sales rose 22 per cent to $651m with an operating profit of $123m, up from last year's $87m. Flash memory sales fell 6 per cent to $557m and the unit made a $95m operating loss versus a $72m operating profit last year. The Security group's revenue was up 12 per cent to $537m, and made an operating profit of $85m, up from $15m this time last year.
Net income: $2bn, up 2 per cent on the year-ago period
Gross margin: Down 1.2 points from 60.5 per cent to 59.3 per cent. This dip is due to money spent on buying Altera, and the cost to produce 14nm processor parts, among other things.
R&D spending: $5.5bn for the quarter, a little higher than this time last year but still about $100m less than expected. Intel isn't ramping up research in terms of spending.
Earnings per share: 42 cents, up from 41 cents this time last year. This is way lower than analysts' expectations of 47 cents.
So, essentially, even though CPUs for PCs and mobile are making a lot of money, the writing is clear: volumes continue to fall and cannot be relied upon for the future. Meanwhile, Intel is shoveling more and more data center server processors out the door, and chips going into the internet of things are bringing in more and more sales. That's where Intel wants to be: in IoT, data center and memory – even though the Non-Volatile Memory Solutions Group, which churns out flash memory, is looking a little glum at the moment. FPGAs are another wunderkind in Intel's lineup of growth areas: Xeon processors with Altera programmable cores bolted on are coming this year.
When asked about competition from ARM server chips and IBM's Power9 processors, Krzanich told analysts: "Having been raised by Andy Grove, I'm always paranoid about competition. We live and die by the performance of our products.
"We’re trying to provide solutions from top of rack to bottom of rack ... and own that whole rack from top to bottom. Networking and storage and telco are areas in which we’re gaining share. As our customers move to software-defined infrastructure, and virtual infrastructures, it plays right into the Intel architecture and what we do best, which is general-purpose computing."
In other words, Intel can't wait for networking, storage and telecoms gear to start relying on general-purpose x86-64 processors with software running on top that can keep up with or beat specialist incumbent hardware. Intel's Xeon E5 v4 chips, for example, come with useful bits and pieces like posted interrupts and cache monitoring to streamline virtual machines running networking and telco functions.
This, it hopes, will keep ARM and Power chips out of the picture so it can continue to wield its data center processor monopoly.
Intel reckons it will bank $13.5bn, plus or minus $500m, in revenues in the next quarter. For the full year, it expects sales to be up mid-single digits, down from a prior outlook of mid-to-high-single digits. The company's stock price fell to $30.94, down 66 cents, or 2.09 per cent, in after-hours trading.
· 1
Krishna Aditya Rachman
Shareholders of Sete Brasil, top client of Keppel and SembMarine, approve plan to file for bankruptcy
SAO PAULO (BLOOMBERG) - Shareholders of oil-rig supplier Sete Brasil Participacoes agreed to a plan to file for bankruptcy protection after its single client, Brazil state oil giant Petrobras, failed to present a viable book order.
A Sete Brasil official confirmed on Wednesday (April 20) that investors are backing the plan and declined to elaborate. Shareholders had set that day as a deadline for Petroleo Brasileiro or Petrobras to propose a book order that could pay back the capital they had injected into the company, according to sources. Petrobras, which is a shareholder and Sete's only client, didn't vote, they said.
The company may list about 18 billion reais (S$6.86 billion) in liabilities, one of the people said. Law firm Sergio Bermudes Advogados in Rio de Janeiro will work on the bankruptcy plans, according to the people.
SAO PAULO (BLOOMBERG) - Shareholders of oil-rig supplier Sete Brasil Participacoes agreed to a plan to file for bankruptcy protection after its single client, Brazil state oil giant Petrobras, failed to present a viable book order.
A Sete Brasil official confirmed on Wednesday (April 20) that investors are backing the plan and declined to elaborate. Shareholders had set that day as a deadline for Petroleo Brasileiro or Petrobras to propose a book order that could pay back the capital they had injected into the company, according to sources. Petrobras, which is a shareholder and Sete's only client, didn't vote, they said.
The company may list about 18 billion reais (S$6.86 billion) in liabilities, one of the people said. Law firm Sergio Bermudes Advogados in Rio de Janeiro will work on the bankruptcy plans, according to the people.
· 1
Krishna Aditya Rachman
Fuel-cheating scandal wipes US$2.5b off Mitsubishi stock
[TOKYO] Mitsubishi Motors shares nosedived again Thursday as panic selling wiped about US$2.5 billion off the automaker's market value in response to its shock admission that it cheated on fuel-efficiency tests.
The embarrassing revelation is the latest in a string of recent scandals to hit Japanese firms, while German giant Volkswagen struggles to restore its badly dented reputation after a massive emissions scandal.
The news has also raised questions about Mitsubishi's future as it faces the prospect of huge lawsuits and fines.
On Thursday, the embattled stock went into freefall, plunging to 583 yen (S$7.15) in Tokyo, down 20 per cent, after it dived 15 per cent on Wednesday when the news first broke.
[TOKYO] Mitsubishi Motors shares nosedived again Thursday as panic selling wiped about US$2.5 billion off the automaker's market value in response to its shock admission that it cheated on fuel-efficiency tests.
The embarrassing revelation is the latest in a string of recent scandals to hit Japanese firms, while German giant Volkswagen struggles to restore its badly dented reputation after a massive emissions scandal.
The news has also raised questions about Mitsubishi's future as it faces the prospect of huge lawsuits and fines.
On Thursday, the embattled stock went into freefall, plunging to 583 yen (S$7.15) in Tokyo, down 20 per cent, after it dived 15 per cent on Wednesday when the news first broke.