Monday, January 12, 2009

Tuesday Watch

Late-Night Headlines
Bloomberg:

- Yields on bonds backed by credit- card payments and auto loans, relative to benchmark interest rates, are falling from record highs as investors anticipate the start of the U.S. government’s program to bolster investment in consumer-finance assets. Demand for debt backed by consumer payments is picking up as details crystallize on the Federal Reserve’s plan to finance the purchase of as much as $200 billion in consumer asset-backed securities. The Treasury will commit as much as $20 billion in credit protection for soured loans under its Term Asset-Backed Securities Loan Facility, or TALF. “TALF is gaining interest among investors,” JPMorgan Chase & Co. analysts led by Christopher Flanagan in New York said in a Jan. 9 report. “Investors are homing in on the potential opportunities under the program.” The gap, or spread, on top-rated credit card-backed debt maturing in three years fell 75 basis points to 475 basis points more than the one-month London interbank offered rate, or Libor, during the week ended Jan. 8, according to JPMorgan Chase data. The spread on similar bonds backed by auto loans fell 25 basis points to 575 basis points more than Libor, the data show. One- month dollar Libor is 0.34 percent.

- JPMorgan Chase(JPM) announced it will be ready to issue fourth-quarter 2008 earnings on Thursday, January 15, 2009 at 6:30 a.m. (Eastern), rather than on Wednesday, January 21, the previously scheduled date.

- Barack Obama will direct his Treasury Department to restrict executive compensation and dividends for financial institutions that get “exceptional assistance” from the financial bailout fund, Larry Summers, a top economic adviser to the president-elect, told Congress. Summers sent a letter to congressional leaders today outlining the conditions that Obama supports in tapping the second half of the $700 billion Troubled Asset Relief Program.

- The Dalai Lama, Tibet’s exiled spiritual leader, blamed a lack of spirituality among people today for the global financial crisis. The Buddhist monk, speaking during a weeklong religious seminar in the Indian holy city of Varanasi, told followers that “rampant corruption in the world” is due to a decline in culture and spirituality. “People have become selfish and materialistic, which has led to the economic slowdown,” the 73-year-old Nobel Peace Prize winner said in an address at the Central Institute of Higher Tibetan Studies yesterday, Indian state-run broadcaster Doordarshan reported.

- Toyota Motor Corp., the largest seller of gasoline-electric autos, wants to sell batteries for plug-in cars to competitors to generate the biggest return from its investment. Along with making packs for a plug-in version of the Prius hybrid, Toyota wants additional revenue from supplying packs to rivals, Executive Vice President Masatami Takimoto said in an interview yesterday at the North American International Auto Show in Detroit.

- The euro traded near a one-month low versus the US dollar as traders raised bets the European Central Bank will reduce interest rates, decreasing the appeal of the region’s assets to overseas investors. “There is more than enough room for the euro to fall further,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. Ltd. in Tokyo, a unit of Japan’s largest brokerage. “The focus of the currency market is how far rates will fall in Europe, because the ECB is behind the curve compared to other central banks.” A Credit Suisse Group AG gauge of probability based on an overnight index-swap index indicated the ECB will cut its 2.5 percent main refinancing rate by as much as 0.75 percentage point this week. “The latest German stimulus package probably won’t be enough to turn back the tide of euro selling,” said Kengo Suzuki currency strategist at Shinko Securities Co. in Tokyo. “It will take time for these measures to kick in, and other European countries will need to join Germany and announce similar policies. During this time, the ECB is sure to lower rates.”

- FedEx Corp.(FDX), the second-largest U.S. package-shipping company, agreed to buy 15 more Boeing Co.(BA) 777 Freighter aircraft and took an option for another 15 as it expands overseas deliveries.

- Futures trading will fall as much as 20% this year in financial and energy contracts, while exchange stocks are now valued at attractive levels, according to Morgan Stanley(MS). The analyst raised his exchange-industry rating to “in- line” from “cautious.” The companies covered are CME Group, Intercontinental Exchange, NYSE Euronext and Nasdaq OMX Group Inc. He favors Intercontinental Exchange, also known as ICE, out of that group, giving it the only “overweight” designation. He rates Nasdaq and CME Group as “equal weight” and NYSE as “underweight.”

- Greg Salvaggio, vice president of capital markets at Tempus Consulting Inc. sees the euro falling on lagging ECB rate cuts. (video)

- Gilead Sciences Inc.(GILD) expects to begin the first trial to test the effectiveness of its experimental four-in-one AIDS-drug pill early in the second half of this year, President John Milligan said in an interview.

- Federal Reserve Bank of Atlanta President Dennis Lockhart says the Fed has more tools, sees recovery this year. (video)

- Wheat, corn and soybeans plunged the most allowed by the Chicago Board of Trade after the U.S. Department of Agriculture projected bigger supplies than forecast in December. World wheat inventories may rise to 148.4 million metric tons by the end of the marketing year on May 31, up 0.7 percent from a December estimate, the USDA said today in a report. Global corn supplies will jump to 136 million tons, up 9.9 percent from a December forecast, the USDA said. U.S. soybean stockpiles before the next harvest may increase 9.7 percent to 6.12 million tons. “We’ve got more inventory to work our way through, and we didn’t need that,” said Larry Glenn, an analyst at Prime Ag in Quinter, Kansas.

- Crude oil fell for a sixth day in New York, extending yesterday’s 7.9 percent slump on speculation oil inventories last week increased as demand declined. An Energy Department report tomorrow will probably show U.S. crude stockpiles increased 2.25 million barrels in the week ended Jan. 9, according to a Bloomberg survey. Goldman Sachs Group Inc. said in a Jan. 9 report that “weak underlying economic fundamentals” will dominate the oil market. The bank maintained a forecast that oil will fall to $30 a barrel this quarter. Oil inventories in Organization for Economic Cooperation and Development nations will probably rise to a 10-year high in the next two months, Goldman analysts Giovanni Serio and Jeffrey Currie said in the report.

- Erich Hunziker, chief financial officer of Roche Holding AG, said talks with Genentech Inc. are “on track,” and a takeover by the Swiss drugmaker wouldn’t cause the company to cut its dividend. Hunziker made the remarks in a speech at the J.P. Morgan Healthcare Conference in San Francisco. He declined to comment on a Financial Times report last week that said Basel, Switzerland-based Roche planned to raise the bid to $95.

- ZymoGenetics Inc.(ZGEN) jumped 35 percent in extended trading after Bristol-Myers Squibb Co. said it would pay as much as $1.1 billion for PEG-interferon lambda, an experimental treatment for the hepatitis C liver virus.

- Taiwan’s dollar may fall against the U.S. currency in the first six months of the year as the island’s economy slumps, Barclays Capital said. Falling interest rates around the world will also support the U.S. dollar, said David Woo, global head of foreign-exchange strategy at Barclays Capital, the third-biggest currency trader.

- China’s exports fell the most in almost a decade in December as the deepening global recession cut demand for the nation’s toys, clothes and electronics. Shipments dropped 2.8 percent, the customs bureau said on its Web site today. That compares with a 21.7 percent gain a year earlier. Waning export demand has led to protests by fired factory employees, an exodus of 600,000 migrant workers from the manufacturing hub of Guangdong, and an estimated urban unemployment rate of more than 9 percent. Shipments may fall 10 percent in 2009, Nomura’s Sun estimated, dragging down economic growth by 2.5 percent points.

- International Business Machines Corp.(IBM) and Accenture Ltd.(ACN) are in a stronger position to win new contracts after the fraud at Satyam Computer Services Ltd. tarnished the credibility of India’s outsourcing industry. Companies seeking to outsource some of their operations -- such as handling customer calls or testing software -- may turn to U.S. firms in the short term as they grow wary of the risks of working with smaller companies abroad, said Moshe Katri, an analyst at Cowen and Co. IBM and Accenture are the two largest U.S. computer-services providers.


Wall Street Journal:

- DTV, Broadband Access Top Agenda for New House Chairman.

- The head of the United Auto Workers union said Monday that he would like the government to appoint a "car czar" who "knows something about the auto industry" to oversee the restructuring of the Big Three.

- He boasts his own self-declared army and the support of 13 governors, 53 congressmen and 180 mayors, along with the Sierra Club and the American Lung Association. He has plugged his cause on countless news shows and spent $60 million of his own money on a massive ad spree. Now T. Boone Pickens is about to find out which has more oomph: all of the above, or a $100 drop in the price of oil. The flinty Dallas billionaire is going all out to sell lawmakers and the next administration on his plan to wean the U.S. off Middle East oil by ramping up the use of wind power and natural gas.

- Senate leaders and Roland Burris reached a deal for him to become the 58th senator to caucus with Democrats in the 111th Congress, following a two-week standoff between the Senate and impeached Illinois Gov. Rod Blagojevich. The deal to seat Mr. Burris was struck Monday afternoon, when the secretary of the Senate accepted Mr. Burris's paperwork, which had been in question since Illinois Secretary of State Jesse White refused to certify the appointment by the embattled governor.

- President-elect Barack Obama intends to nominate his technology adviser, Julius Genachowski, to head the Federal Communications Commission, a Democratic source close to the Obama transition team said. Mr. Genachowski, 46 years old, is a former Harvard Law School classmate of Mr. Obama. He previously worked at the FCC during the Clinton administration. More recently, he co-founded LaunchBox Digital, a Washington, D.C.-based venture capital firm. He worked at Barry Diller's IAC/InterActive Corp. in various executive positions for eight years after leaving the FCC.


Barron’s:

- Google’s (GOOG) share of the U.S. search market increased to 72.07% in December, from 71.97% in November and 65.98% a year ago, according to research firm Hitwise.com. For all of 2008, Google accounted for 69.48% of all U.S. searches, up 8 percentage points from 2007.


MarketWatch.com:
- Alcoa kicked off the earnings season Monday after the close, reporting a loss of $1.2 billion last quarter, versus a gain of $632 million in the year-earlier period.

Wall Street appears to be betting that this upcoming earnings season -- covering the last quarter of 2008 -- will contain more of the same. Fear of worse-than-expected earnings was widely credited for the Dow Jones Industrial Average declining by 125 points on Monday. But a review of the historical patterns suggests that Wall Street may be overreacting. Because corporate earnings were already falling sharply a year ago, the benchmark is low for analyzing the current earnings season. So even an otherwise-mediocre earnings season might nevertheless look pretty good, relatively speaking.


Lloyd’s List:

- Shipowners face the prospect of placing vehicle carrier newbuildings directly into lay-up as new car sales slump, with those that ordered tonnage on a speculative basis during the recent boom staring at a miserable future unless they can wriggle out of contractual obligations.

- Car imports through the Baltic and into Russia have plummeted over the last three months. Not only has the global economic downturn affected sales, but also the collapse of the Russian rouble and a hike in import duty on new cars has knocked volumes into western Russian cities.

Reuters:

- General Motors Corp(GM) is planning to re-enter the vehicle lease business early this year and could see that form of financing amount to about 5 percent of its U.S. vehicle sales, a senior executive said on Monday.

Financial Times:
- Costs in the oil and gas industry have begun to fall for the first time this decade, bolstering the profits of companies hit by the steep drop in the price of crude. The shift could add to pressure on oil prices, which had been supported by soaring production costs. Analysts have argued that those costs put a floor under the oil price, because if the price fell below production cost, projects would be cancelled and oil supply would be cut. The leading survey of the industry’s capital spending costs, produced by Cambridge Energy Research Associates, a consultancy, is set to show a decline for the fourth quarter of last year, the Financial Times has learnt. Candida Scott of CERA said: “They are going to go down in 2009. Oil and gas, which are used as inputs, concrete, steel... they have all been falling in price.” Lower steel prices – they have fallen by more than 50 per cent since last summer – are particularly significant: steel typically accounts for 20-25 per cent of an oil project’s costs. Ms Scott said labor costs were generally hard to cut, but there were already signs that staff shortages were starting to ease.

South China Morning Post:

- Shanghai, Shenzhen ports see record throughput falls. Conditions expected to worsen as manufacturing contracts.


Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (AAPL), lowered estimates, target $132..


Night Trading
Asian Indices are -1.50% to +1.0% on average.
S&P 500 futures +.58%.
NASDAQ 100 futures +.60%.


Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling


Earnings of Note
Company/EPS Estimate
- (LLTC)/.34


Economic Releases

8:30 am EST

- The Trade Deficit for November is estimated to shrink to -$51.0B from -$57.2B in October.

2:00 pm EST

- The Monthly Budget Statement for December is estimated at -$83.0B versus $48.3B in November.


Upcoming Splits
- None of note


Other Potential Market Movers
- The weekly retail sales, IBD/TIPP Economic Optimism Index, Fed’s Bernanke speaking, Fed’s Lacker speaking, (HRB) Investment Conference, (MOS) Analyst Meeting, (MGAM) Analyst Meeting, JPMorgan Healthcare Conference, CSFB Homebuilding Conference, Deutsche Bank Auto Analysts Conference, Cowen Consumer Conference and BMO Capital Unconventional Gas Conference could also impact trading today.


BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and commodity stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

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