Daily Agenda: Chinese Leaders Consider Loosening Capital Controls

Expectations rise for Beijing to press pace of financial liberalization; Valeant shares plunge on accounting questions; PayPal-less eBay beats third-quarter forecasts.


Speculation over economic policies likely to arise from next week’s fifth plenary session of China’s Communist Party has become a focus for investors as sentiment on battered emerging-markets assets depend in large part on the pace of liberalization adopted by Beijing. A target for the removal of capital controls in the coming five-year plan cycle is widely anticipated as party leaders push for the yuan to take a central place among global reserve and trade currencies. While China’s currency policy remains a critical factor for global-growth expectations, a sharp rebound in Chinese equity markets today failed to lift other emerging markets indexes as near-term demand signals remain weak.

Valeant tumbles on short seller’s claims. Shares of Quebec-headquartered Valeant Pharmaceuticals International fell by as much 40 percent intra-day in volatile trading Wednesday after a Wednesday report by Citron Research was released. Citron, which is short the company’s stock, claims that Valeant’s accounting of related specialty pharmacies artificially inflated sales and compared the firm’s bookkeeping practices to that of Enron. Hedge fund manager and shareholder activist Pershing Square Capital Management reportedly has suffered a decline of over $2.5 billion in its Valeant positions.

Ebay beats analysts’ estimates. In its first public filing since spinning off PayPal as a separately listed company in July, San Jose, California-based Internet auction giant eBay reported third-quarter results Wednesday after stock markets closed that surpassed consensus analysts’ estimates. The company achieved adjusted earnings per share of $0.43 with revenues of $2.10 billion over the quarter and raised full-year forecasts. Separately, the filing noted that the company bought back almost $600 million in shares during the three months as part of a previously announced repurchase program.

Moody’s doubts BOJ will hit targets. In advance of next week’s Bank of Japan monetary policy meeting, New York credit rating agency Moody’s Investors Service on Thursday issued a report questioning the central bank’s likelihood of achieving targeted inflation levels through aggressive quantitative easing. Currently BOJ Governor Haruhiko Kuroda and his colleagues have identified a goal of 2 percent annualized price growth by year-end 2016. The report indicated no likely change to the A1 credit rating by Moody’s for Japan’s sovereign debt in the foreseeable future.

American Express results disappoint. New York-based American Express released a downbeat report for the third quarter on Wednesday, including a 14 percent decline in net income year-over-year with profits below consensus estimates. The company’s stock price has fallen by nearly 20 percent year-to-date as management has grappled with the end of a lucrative co-branding partnership with big-box retailer Costco Wholesale and rising expense ratios.

China mulls airline merger. Media outlets today reported high-level discussions over a proposed merger of Air China, China Southern Airlines and China Eastern Airlines Corp. to create a superregional carrier capable of competing internationally with a fleet of more than 1,000 aircraft. In September Chinese Premier Li Keqiang called for greater efficiencies of scale through mergers among state-owned enterprises during a speech to regulators.


EU rules Bitcoin exchange tax free. A ruling by the European Union Court of Justice in Luxembourg Thursday in a case brought by Sweden clarified that the exchange of virtual for traditional currencies is not subject to value-added tax in the EU. The court’s decision puts Bitcoin and other digital monetary units on an equal tax footing with nationally issued currencies within the EU’s jurisdiction.