Evening Headlines
Bloomberg:
- Goldman Sachs(GS) Says Says 'Don't Be Afraid' of Prices Above Par: Credit Markets. The highest corporate bond prices in more than six years show investors reconsidering an aversion to buying debt trading above face value as the Federal Reserve is compelled to take more steps to boost a slowing recovery.
- China Said to Order Banks to Reclaim Loans From Trust Companies. China’s banking regulator ordered banks to transfer off-balance-sheet loans onto their books and make provisions for those that may default, three people with knowledge of the situation said. The assets linked to wealth management products provided by trust companies must be shifted onto banks’ balance sheets by the end of 2011, the people said, declining to be identified as the matter isn’t public. Lenders should prepare provisions equal to 150 percent of potential losses, they said. The move may increase pressure for capital-raising at Chinese banks, which Fitch Ratings last month said had more than 2.3 trillion yuan ($339 billion) of off-balance sheet assets. It also underscores concerns about the health of the banking industry after a person with knowledge of the matter said regulators last month ordered lenders to conduct stress tests to gauge the impact of a 60 percent decline in home prices. The regulator’s order “will plug the loophole that more and more banks now employ to get around government lending curbs,” said Liao Qiang, a Beijing-based analyst at Standard & Poor’s.
- China Industrial Output Growth Weakens on Curbs; Inflation Rises to 3.3%. China’s industrial output grew the least in 11 months in July as the government cracked down on real-estate speculation, curbed credit and closed factories to meet energy-efficiency targets. Production rose 13.4 percent from a year earlier, the statistics bureau said in Beijing today. Inflation quickened to 3.3 percent, the fastest in 21 months, boosted by a low year- earlier base for comparison and rising food costs. Weaker demand from a Chinese slowdown forecast to deepen each quarter this year may ripple across Asia, limiting growth in the nations with the closest economic ties.
- Oil Trades Near Seven-Day Low as Productivity Drop Casts Doubt on Recovery. Crude oil declined for a second day after the Labor Department reported that the productivity of U.S. workers fell in the second quarter, a sign the economic recovery is faltering. Crude oil for September delivery dropped as much as 45 cents, or 0.6 percent, to $79.80 a barrel in electronic trading on the New York Mercantile Exchange, and was at $79.84 at 9:38 a.m. Singapore time.
- Gold Rises on Speculation Federal Reserve Debt Purchase to Spur Inflation. Gold prices rallied in New York, erasing an earlier drop, after the Federal Reserve said it would buy more U.S. government debt. The central bank said it would reinvest principal payments on its mortgage holdings into long-term Treasury securities in a bid to bolster growth. Gold prices have gained 27 percent in the past 12 months, reaching a record $1,266.50 an ounce on June 21, on speculation that record-low borrowing costs and government stimulus programs would spur inflation. “If the Fed keeps printing money to buy more debt, it’s going to be positive for gold,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “Gold is going to keep going higher. It’s an excellent investment.”
- Toyota Brakes Not Used in 35 of 58 Accidents Probed, U.S. Says. Drivers of Toyota Motor Corp. vehicles failed to apply the brakes in 35 of 58 crashes tied to unintended acceleration, U.S. regulators said in a report bolstering the automaker. The National Highway Traffic Safety Administration also saw no evidence of electronics-related causes for the accidents in reviewing the vehicle recorders, known as black boxes, the agency said yesterday in the interim report to lawmakers.
- Europe to Asia Naphtha Halts on Weaker Demand: Energy Markets. Asian petrochemical companies may import little or no naphtha from Europe for a second month in August amid ample supplies and weak demand in Japan. There may be no shipments of the oil product, used to make petrochemicals and gasoline, in August according to the median estimate in a Bloomberg survey of four Europe-based traders, who declined to be identified as they aren’t authorized to speak about transactions. The dearth of cargoes compares with 300,000 metric tons in June and 500,000 tons in May. “Asian demand growth is slowing considerably,” David Wech, head of research at Vienna-based consultants JBC Energy, said by phone Aug. 4. “New refining capacity in China and ethane-based petrochemical capacity in the Middle East are also denting naphtha requirements,” he said.
- Pimco Says Fed Policies 'Good for Risk Assets,' Won't Reduce Unemployment. The Federal Reserve’s decision to buy Treasuries and keep interest rates low will support “risk assets” without bringing down unemployment, said Anthony Crescenzi at Pacific Investment Management Co. “Low volatility tends to be good for the interest-rate climate,” said Crescenzi, who is based in Newport Beach, California at Pimco, manager of the world’s biggest bond fund. “It does push investors out the risk spectrum generally. That tends to be good for risk assets.”
- U.S. Relies on Military at War to Deliver Aid for Pakistani Flood Victims. The U.S. is relying on the military to funnel meals, prefabricated bridges and medical supplies to Pakistan’s flood victims, even as American troops fight a war in neighboring Afghanistan. U.S. State Department officials said yesterday that flood aid to Pakistan would increase by $20 million, to a total $55 million, to help the estimated 14 million people uprooted by country’s worst natural disaster in 80 years. The Obama administration sees Pakistan’s cooperation as vital to defeating the Taliban and al-Qaeda and wants to counter Pakistani suspicions about the U.S. commitment to the region. In a poll released last month by the Pew Research Center in Washington, almost 60 percent of Pakistanis said they consider the U.S. to be an enemy.
- House Vote Deals Another Blow to Renewable Energy Companies. House lawmakers voted Tuesday to slash federal renewable-energy subsidies, to help finance instead a $26 billion emergency aid package for state and local governments. The U.S. House of Representatives voted to transfer $1.5 billion from the renewable-energy and transmission loan-guarantee program, dealing yet another blow to solar, wind and ethanol companies. It was the second reduction in a year and left the program's size at about $25 billion, less than half the amount originally envisioned when the Democratic-led Congress used an economic stimulus package to steer money into alternative energy projects.
- Exchanges Joust As SEC Works to Finalize Flash Order Ban. Nasdaq OMX Group (NDAQ) and NYSE Euronext (NYX) support the U.S. Securities and Exchange Commission's proposal to ban flash orders in all trading, while the Chicago Board Options Exchange opposes it for the options market, according to comments to the SEC that were made public Tuesday.
- Fed Sees Recovery Slowing. Central Bank, Worried About Economic Vigor, Won't Shrink Securities Portfolio.
- Gains in Bioscience Cause Terror Fears. Rapid advances in bioscience are raising alarms among terrorism experts that amateur scientists will soon be able to gin up deadly pathogens for nefarious uses. Fears of bioterror have been on the rise since the Sept. 11, 2001, attacks, stoking tens of billions of dollars of government spending on defenses, and the White House and Congress continue to push for new measures. But the fear of a mass-casualty terrorist attack using bioweapons has always been tempered by a single fact: Of the scores of plots uncovered during the past decade, none have featured biological weapons. Indeed, many experts doubt terrorists even have the technical capability to acquire and weaponize deadly bugs. The new fear, though, is that scientific advances that enable amateur scientists to carry out once-exotic experiments, such as DNA cloning, could be put to criminal use. Many well-known figures are sounding the alarm over the revolution in biological science, which amounts to a proliferation of know-how—if not the actual pathogens.
- Stimulus Pushers. The latest bailout for public unions and spendthrift states. Witness yesterday's 247-161 largely party-line House vote to approve a Senate bill shovelling another $26.1 billion out to state education and Medicaid programs. The White House has promoted the bill as emergency assistance for strained state budgets. But this unique brand of therapy drives states to spend more, not less. The "assistance" is so expensive that several governors were begging for relief even before Mr. Obama signed it into law.
NY Times:
Zero Hedge:
PIMCO:
- Turning Japanese: The Risk of U.S. Deflation. The risk is rising that the U.S. will enter a prolonged period of stagnant growth combined with a risk of outright deflation – similar to the environment that Japan entered in the 1990s.
- GOP Tries for Health Reform Repeal. Republicans are continuing to telegraph their opposition to health care reform by filing another petition that would force the House to vote on repealing the legislation. Rep. Wally Herger (R-Calif.) filed a discharge petition Tuesday that would get rid of the Democrats’ health care reform and replace it with a Republican alternative.
- Liberals Still Steamed at Gibbs. At first they were just angry. Now liberal critics are steaming mad. The Obama administration’s attempts to blunt press secretary Robert Gibbs’s frustrations about the “professional left” in a newspaper interview published Tuesday haven’t changed much. Gibbs’s backtracking — he said he spoke “inartfully” to The Hill — and deputy press secretary Bill Burton’s assertion that his boss “answered honestly” when he derided liberal critics, seemed only to make matters worse.
- Bennet Survives; Deal, Handel Deadlocked. Colorado Sen. Michael Bennet beat back a tough Democratic primary challenge from former state House Speaker Andrew Romanoff Tuesday, holding off the electoral wave that has already claimed two incumbent senators and threatened to drown Bennet’s short political career.
- Disney(DIS) Profit Beats Expectations, Shares Rise. Hit movies like "Toy Story 3" and higher advertising sales lifted Walt Disney Co's (DIS) quarterly profit above Wall Street's expectations, despite dwindling theme park attendance in the United States.
- Bearish Bets in U.S. Stocks Ease in Late July. Bearish bets eased in late July, stock exchanges said on Tuesday, suggesting investors retreated to the sidelines as U.S. equities closed out their best month in a year. Short interest on NYSE dipped 0.5 percent in late July compared to the middle of the month, while short bets decreased by 1.1 percent on the Nasdaq.
- Cree(CREE) Quarterly Profit up Sharply, Shares Fall. Cree Inc (CREE), which makes LED lighting, on Tuesday reported a more than fivefold increase in quarterly profit on Tuesday, but its revenue outlook for the current quarter fell short of Wall Street estimates. Shares of Cree dropped 8 percent in post-market trading.
- US Pushing for Significant Bank Capital Boost - Barr. The United States is pushing hard in international negotiations for a "significant increase" in capital held by financial firms as a buffer against catastrophic failures that could threaten the global economy, a senior U.S. Treasury official said on Tuesday.
- Buy-Out Groups Eye Stakes in Morgan Stanley(MS) Fund. US private equity firms have approached Morgan Stanley about buying a stake in its troubled real estate funds management business, according to people familiar with the matter. KKR and TPG, both private equity firms that lack a substantial property operation, have expressed tentative interest in Morgan Stanley Real Estate Fund, or MSREF.
- China will face "intense" trade friction over the next two to five years with trade barriers a regular issue, Zhang Monan, a researcher with the State Information Center wrote. A new wave of yuan appreciation pressure will likely emerge at the same time, Zhang wrote.
- Chinese wages along the country's eastern seaboard have risen 20 to 25% since the beginning of the year, citing Huang Libin, an official from China's Ministry of Industry and Information Technology.
Citigroup:
- Reiterated Buy on (DISH), target $24.
- Asian equity indices are -1.75% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 119.0 +5.0 basis points.
- Asia Pacific Sovereign CDS Index 113.75 +3.25 basis points.
- S&P 500 futures -.62%.
- NASDAQ 100 futures -.58%.
Earnings of Note
Company/Estimate
- (M)/.28
- (CSC)/.89
- (CSCO)/.42
- (AAP)/1.03
8:30 am EST
- The Trade Deficit for June is expected to come in at -$42.1 Billion versus -$42.3 Billion in May.
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a -2,784,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +250,000 barrels versus a +729,000 barrel gain the prior week. Distillate inventories are expected to rise by +1,750,000 barrels versus a +2,173,000 increase the prior week. Finally, Refinery Utilization is expected to fall by -.5% versus a +.6% gain the prior week.
- The Monthly Budget Deficit for July is estimated to come in at -$169.0 Billion versus -$180.7 Billion in June.
- None of note
- The $24 Billion 10-Year T-Note Auction, weekly MBA Mortgage Applications Report, Jefferies Industrial Conference, CSFB Industrial Conference, Oppenheimer Telecom/Media/Tech Conference and the Morgan Keegan Defense Conference could also impact trading today.
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