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Daily Agenda: Beijing Acts as Shares Sink Again

Falling commodity prices hammer BHP Billiton profits; early election called in Singapore.

The Shanghai Composite index sold off sharply again on Tuesday, sliding by 7.6 percent to close below 3,000 for the first time since December 2014. The decline of more than 15 percent in two trading sessions has met by the People’s Bank of China’s fifth cut to the benchmark one-year lending rate. The initial response by both European stocks and U.S. equity index futures was a bullish surge, as traders wager that policymakers in Beijing will continue to intervene to combat the sell-off in Chinese equity market. A host of bank strategists yesterday argued that the global financial market chaos will lead the Federal Reserve to wait longer before an interest rate hike, with forecasts for tightening to begin anywhere ranging from December 2015 to March 2016, depending on the severity of the setback.

BHP profits fall further than expected. London– and Melbourne–based mining company BHP Billiton today posted full fiscal-year profits that were more than 86 percent lower than the prior year, as slackening Chinese demand continues to wreak havoc in the metals markets. Excluding exceptional items, attributable profit registered a 47 percent decline, though BHP Billiton reported increased dividends as the company seeks to continue cost-cutting measures and asset sales.

German business confidence rises. Business sentiment data released today by the Ifo Institute for Economic Research in Munich indicated that the corporate mood improved in Germany during August by a higher-than-forecast margin. The headline business climate index registered at 108.3 versus a prior 108.

Singapore election announced. Singapore Prime Minister Lee Hsien Loong has dissolved the Southeast Asian nation’s parliament to clear the way for an national election to take place September 11, nearly one year ahead of schedule. The election will be a key test for the ruling People’s Action Party in the wake of the passing of its revered leader — and the current prime minister’s father — Lee Kuan Yew.

Dollar rebounds.The U.S. dollar rose versus the euro and Japanese yen today after a sharp decline yesterday on speculation that the Federal Reserve might delay a rate hike due to weak global demand signals. The rebound comes as a relief for Japanese policymakers. In media comments following a cabinet meeting today, Japanese Finance Minister Taro Aso expressed concerns over the yen’s rise.

Portfolio Perspective: Surveying the Wreckage

“Barring a Fed policy error’ that tips the U.S. economy into recession, we believe that U.S. corporate fundamentals remain solid given generally deleveraged corporate balance sheets, high cash balances, and near-record profit margins. Valuation ratios are consistent with their long-term averages, supported by continued robust M&A activity.”

Michael Reilly, TCW

“We’ve been looking for a panicky, high-volume, intraday blowoff type of low, that would be strong enough for the Wall Street trading desks to reignite the buybacks that they have been entrusted to execute. We may have gotten it [Monday].”

Brian Reynolds, New Albion Partners

“In light of the turmoil in financial markets, we pushed our call for the first Fed hike from September this year to March 2016.”

Michael Gapen, Barclays

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