Late-Night Headlines
Bloomberg:
- China’s consumer prices fell for the first time since 2002 after commodity costs declined, stoking concern that deflation will undermine efforts to revive the world’s third-biggest economy. Consumer prices dropped 1.6 percent in February from a year earlier, the statistics bureau said today, after gaining 1 percent in January. The median estimate in a Bloomberg News survey of 10 economists was for a 1 percent decline. Producer prices fell 4.5 percent, the most in a decade, after a 3.3 percent decline. The drop in prices raises the risk that deflation will become entrenched, squeezing company margins, prompting wage cuts and eroding consumer demand.
- China should let the yuan rise 3 percent against the dollar in 2009 to deter capital outflows and help the country make overseas acquisitions, said Wang Jian, a researcher affiliated with the nation’s top planning agency. People’s Bank of China Governor Zhou Xiaochuan pledged last week to maintain yuan stability as investors pull money out of emerging- market assets because of slowing global economic growth. “A weaker currency will prompt massive amounts of foreign capital to flee the country,” said Wang, secretary general of the China Society of Macroeconomics, a Beijing-based research institute under the National Development and Reform Commission that advises the government. “It won’t help exports. Foreign consumers still won’t have enough money to buy.”
- Texas Instruments Inc.(TXN), the second- largest U.S. chipmaker, predicted first-quarter sales that met analysts’ estimates after demand improved for wireless-equipment chips in China.
- International Business Machines Corp.(IBM) expects to prosper through the economic crisis by developing money-saving computer services and expanding deeper into the developing world, Chief Executive Officer Sam Palmisano said.
- Mexico’s peso, the worst performer among the world’s most-traded currencies in the past six months, will weaken another 14 percent by year-end as the nation’s twin deficits swell, said Rogelio Ramirez de la O, the economist who predicted the 1994 devaluation. The peso will slide to 18.2 per dollar from 15.5667 today, said Ramirez, the partner at Mexico City-based economic research firm Ecanal and former chief economic adviser to 2006 presidential candidate Andres Manuel Lopez Obrador. The peso tumbled 32 percent in the past six months as the recession in the U.S., the buyer of 80 percent of Mexican exports, deepened.
- South Korea The brokerage had earlier forecast gross domestic product to shrink 1% in 2009, according to a report today.
- The cost of protecting investors in Asia-Pacific bonds from default rose on concern financial services companies will be hit by more losses after the World Bank predicted a global economic contraction. The Markit iTraxx Japan index of credit-default swaps jumped 22.5 basis points to 552.5 at 10 :21 am in Tokyo The benchmark reached a record 554 basis points on Feb. 17, CMA DataVision prices show. The Markit iTraxx Australia index rose 7.5 basis points to a record 450 at 12:05 pm in Sydney, according to Citigroup Inc. Contracts on the subordinated debt of Macquarie Group Ltd., Australia’s largest investment bank, jumped 50 basis points to 1,200 while swaps on the subordinated debt of Suncorp Metway Ltd., Australia’s third-largest general insurer, rose 25 basis points to 700, Citigroup prices show.
- China ’s slowing appetite for iron ore threatens plans to develop more than $6.4 billion of low-grade iron ore projects in Australia
- Posco, Asia’s third-biggest steelmaker, has settled the first pulverized coal contracts for 2009 at $90 a metric ton with several Australian producers, Macquarie Group Ltd. said, citing a Platts report. That is a 63 percent cut from fiscal 2008 prices which were between $240 a ton and $245 a ton, Macquarie analysts including Jim Lennon and Adam Rowley wrote in an investor note yesterday, citing Platts.
Wall Street Journal:
- Key Senate Democrats are wavering in their support of legislation that would give more power to labor unions, dealing a setback to labor's top priority as businesses warn of the damage the bill would cause. The battle over the "Employee Free Choice Act" -- expected to be introduced Tuesday -- is seen as a power struggle among labor unions and businesses, as well as a test of whether moderate Democrats and Republicans will push back on Democratic congressional leaders and the Obama administration. At least six Senators who have voted to move forward with the so-called card-check proposal, including one Republican, now say they are opposed or not sure -- an indication that Senate Democratic leaders are short of the 60 votes they need for approval.
- Some hedge funds are using a trading strategy called “latency arbitrage” to take advantage of differences in the speed of price quotations at U.S. exchanges and dark pools — a practice that reminds some investors of past abuses such as mutual-fund market timing. “High frequency” quantitative hedge funds at firms such as Citadel Group, D.E. Shaw Group and Renaissance Technologies have direct feeds to U.S. exchanges. These feeds cut the delay on quotes down to milliseconds. During the last two years, many funds have paid for “proximity hosting,” the installation of their servers in the same data centers as the exchanges, to shave more “microseconds,” or millionths of a second, off that latency. Latency, in electronic trading, is the amount of time a quote or an order spends in the ether, and it’s where many funds are eyeing an edge. “The fastest one wins,” said a technology officer at a major hedge fund who was sounding out exchanges with an eye to setting up a latency-arbitrage strategy. He said the first step is to maximize the speed of market-data software and exchange connections, and the second is to find the “golden egg” - a venue or counterparty whose information is slower. The only risk, he said, was that “everybody’s getting faster.”
- About 35% of US companies in China expect sales in the country to drop this year, more than double the year earlier figure, citing an American Chamber of Commerce in China survey. Of the respondents, 37% are delaying China
- Sports junkies or die-hard fans who have lost the battle for the remote control can see more games live over the Internet than ever -- though often for a premium. Television networks, including ESPN, CBS and the Tennis Channel, are airing more live games on their Web sites and adding features like extended interviews with players. The National Hockey League and Major League Baseball are teaming up to offer "bundled" subscriptions, where fans can see hockey and baseball games for $139.95. They're also giving fans different camera angles and the ability to view multiple games simultaneously. And so far, at least, sports fans appear happy with the growing menu of events available.
- Pilloried for missing credit problems in the nation's mortgage markets, credit-ratings firm Moody's Investors Service is trying to get ahead of corporate bankruptcies. The firm on Tuesday is publishing a list called the Bottom Rung, detailing the companies that Moody's says are most likely to default on their debts. With 283 companies, the list holds nearly every sector of the economy. The dominant industries on this at-risk list include much of the U.S. auto industry, the casino sector, and many retail chains, newspapers and broadcast-TV and radio-station networks. Energy firms, airlines and restaurant chains appear often.
- Apple Inc. (AAPL) is planning to launch a netbook computer with a touch screen monitor as early as the second half of this year, two people close to the situation told Dow Jones Newswires Tuesday.
- Chips called flash memory that have transformed many consumer products are beginning to shake up corporate computer rooms, with Sun Microsystems Inc. emerging as a surprise innovator. The computer maker, though it lags rivals in data-storage hardware, has been pushing a redesign of servers and storage systems to take advantage of flash-memory chips. In its latest gambit, Sun is trying to popularize a tiny circuit board that can squeeze more flash chips, saving money, space and electricity.
CNBC.com: Roche is in talks to buy the shares of Genentech(DNA) it does not already own for about $95 each, a source familiar with the situation said Monday.
Houston Chronicle:
- Help wanted: pharmacists, engineers and nurses. Believe it or not, even some banks are hiring, at least for their technology teams. While the recession has claimed 4.4 million jobs, the economy has created others, many of them for highly trained and specialized professionals. More than 2 million jobs openings now exist across a range of industries, according to government data.
Reuters:
- Cisco Systems Inc(CSCO) said it will unveil next week a new strategy to help customers build more efficient data centers, amid expectations for the network equipment maker to announce it will start selling servers.
- Google (GOOG) and Cisco (CSCO) are viewed as top contenders to enter the Dow Jones industrial average (.DJI) now that two constituents are trading below $2, making their status as blue chips tenuous. The Internet companies are among a variety of companies eyed as potential Dow replacements, a diverse list that also includes former investment bank Goldman Sachs (GS) and former Dow star US Steel (X).
Financial Times:
Credit market indicators – barometers of stress since the financial crisis began 18 months ago – are once more flashing red. Heightened concern over the fate of US carmakers and worries about escalating losses at banks and financial institutions and at General Electric , the largest debt issuer in capital markets, are creating a grim mood. “We are in another round of the credit crunch where the intensity is spreading,” Mary Miller, director of fixed income at T. Rowe Price, says.
- Egypt’s real estate market loses its fizz.
- China will reduce export taxes to zero and give more financial support to exporters as it tries to increase its share of global trade in the current crisis, the country’s commerce minister said on Monday. The collapse in global trade in recent months led to a 17.5 per cent drop in Chinese exports in January and domestic media reports indicate the decline was even larger in February. The ruling Communist party wants to reduce the economy’s reliance on external demand for cheap Chinese exports, but such a rebalancing will take years. “Global trade and demand [are] collapsing and so are the currencies of many of China’s competitors and customers,” said Isaac Meng, economist with BNP Paribas. “This is putting huge pressure on China’s export industries and the government to push all the buttons to boost the economy.”
- European ministers said on Monday they had no plans to add to recent fiscal stimulus packages despite calls from the US for radical expansions in government action to boost ailing economies. Meeting in Brussels, finance ministers from the countries in the eurozone said they wanted first to see the effect of stimulus packages that had been passed. Peer Steinbrück, the German finance minister, said: “We are not debating any additional measures.” Jean-Claude Juncker, chair of the “eurogroup” of ministers, said: “The 16 finance ministers agreed that recent American appeals insisting Europeans make an added budgetary effort were not to our liking.” European ministers are concerned that building up more government debt would threaten the stability of the eurozone and say that they want to assess the effects of spending boosts that have already been passed before considering more. The US Treasury declined to comment on their remarks on Monday. The G20 finance ministers meet near London this weekend amid deepening gloom over the world economy. A new European Union policy paper, due to be approved by finance ministers today, calls the prospects of a return to economic growth next year “highly uncertain”.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (TXN), target $16.
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10:00 am EST
- Wholesale Inventories for January are estimated to fall 1.0% versus a 1.4% decline in December.
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BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and automaker stocks in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
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