Monday, November 29, 2010

Monday Watch

Weekend Headlines

  • Ireland Wins $113 Billion Aid; Germany Drops Threat on Bonds. European governments sought to quell the market turmoil menacing the euro, handing debt-strapped Ireland an 85 billion-euro ($113 billion) aid package and diluting proposals to force bondholders to cover a share of future bailouts. European finance chiefs ended crisis talks in Brussels yesterday by endorsing a Franco-German compromise on post-2013 rescues that means investors won’t automatically take losses to share the cost with taxpayers as German Chancellor Angela Merkel initially proposed to the consternation of bond traders. The first test of the twin decisions come today with markets resuming trading after speculation intensified last week that Portugal and perhaps even Spain will require external support. In a third move, Greece was told it could have an extra four-and-a-half years to repay emergency loans totaling 110 billion euros to match the seven-year term under Ireland’s deal. “People are now going to focus on Portugal and it’s probably also going to need some help,” said Axel Merk, president and chief investment officer of Merk Investments LLC in Palo Alto, California. “We’ll maybe see some relief in markets, but governments need to show they’re getting their economies in shape.”
  • Dollar Advances Versus Euro as Noyer Says Low Rates May Cause Imbalances. The dollar rose to a two-month high against the euro after European Central Bank council member Christian Noyer said monetary easing creates the potential for global imbalances, boosting demand for safer assets. The euro weakened against 15 of its 16 major counterparts on lingering concern that Portugal and Spain will ask for aid after Ireland received a bailout. “Noyer’s remarks on low rates and worldwide imbalances seem to be causing some selling of the euro and buying of the dollar,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Worries over contagion in Europe from Ireland’s woes also remain.”
  • Thanksgiving Weekend Sales Rise as Shoppers Scoop Up Deals. The average shopper spent 6.4 percent more than last year over the holiday weekend, the National Retail Federation said today. U.S. retail sales during Thanksgiving weekend totaled $45 billion as more shoppers picked up jewelry and toys, the Washington-based NRF said in a statement, citing a survey conducted by BIGresearch. More people are scouring for deals earlier, with the number of customers shopping on Thanksgiving Day more than doubling over the past five years.
  • Black Friday Sales Rise .3% as Shoppers Wait for Retailers to Cut Prices. Even as stores across the U.S. reported increased traffic on Black Friday, the busiest shopping day of the year, sales rose just 0.3 percent to $10.7 billion, ShopperTrak, the Chicago-based consulting firm, said yesterday. Still, there were signs of consumer strength. Shoppers took advantage of earlier-than-usual promotions in the first two weeks of November, pushing up sales 6.1 percent and 6.2 percent respectively, according to ShopperTrak. That helps explain why Black Friday sales weren’t more robust, the firm said.
  • Shadow Chancellor Johnson Says 'Concerned About Contagion' in the Eurozone. Alan Johnson, Treasury spokesman for the U.K. opposition Labour Party, supports the coalition government’s decision to lend money to Ireland and said he was worried about the future of the eurozone. “I am concerned about contagion, about what’s happening in Spain and Portugal,” Johnson told the BBC’s “Andrew Marr Show.” “We should be worried about the eurozone. This is happening at the same time we’re still feeling the effects of the global economic crisis.”
  • Lee Vows to Make North Korea Pay for Attack as China Urges Talks. South Korean President Lee Myung Bak vowed to make Kim Jong Il’s regime pay for military attacks as China sought talks to defuse tension on the Korean peninsula. "It’s become clear that more patience and tolerance only leads to bigger provocations," Lee said today in a national address from Seoul. "North Korea will be made to pay for any further provocation no matter what."
  • Dublin Protesters Decry Ireland's Budget Cuts as Bailout Agreement Looms. About 50,000 people marched in Dublin to protest the Irish government’s 15 billion-euro ($20 billion) austerity measures aimed at cutting the budget deficit. Today’s march was organized by the Irish Congress of Trade Unions, an umbrella organization for labor groups. The ICTU general secretary, David Begg, said the crowd exceeded 100,000 people, compared with 50,000 estimated by police.
  • Bond Buyers Demand Less Collateral as Yield Spreads Widen: Credit Markets. Unsecured bonds are grabbing a bigger slice of global debt sales as central banks’ efforts to boost growth spur investors to take on more risk and demand less collateral, leaving them with less protection in a default. Companies around the world have sold $246.9 billion of unsecured high-yield debt this year, making up 72.6 percent of all speculative-grade issuance, according to data compiled by Bloomberg. That compares with $112.1 billion during the same period in 2009, or 61.5 percent of junk bond offerings. The diminished security comes amid concern Europe’s debt crisis may spread, slowing the global economy as nations enact austerity programs. “There’s so much cash chasing investment opportunities out there that buyers are willing to sacrifice covenants and security,” said Guy LeBas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. “We’re trying to dodge these covenant-light and low-security deals right now, even though they’re popular.”
  • Arab Leaders Urged U.S. to Stop Iran, WikiLeaks Shows. Saudi Arabia and other Arab governments sided with Israel in urging the U.S. to stop Iran from developing a nuclear bomb, according to a New York Times account of 250,000 classified U.S. embassy cables released by WikiLeaks, the non-profit website.
  • Talk of $100 Oil Returns as Options Jump Most in 3 Months: Energy Markets. Oil’s return to $100 has become the biggest bet in the crude options market. The price of options to buy December 2011 futures at $100 a barrel jumped 14 percent on Nov. 24, the largest one-day gain in three months, according to data compiled by Bloomberg. So-called open interest for the contract has risen 51 percent this year to 45,424 lots, the highest for any crude option on the New York Mercantile Exchange. The increase in trading of $100 options shows some investors anticipate oil will rise at least 19 percent to levels last reached in 2008.
  • Iran's Atomic Chief Says First Nuclear Plant to Come on Stream by January. Iran finished loading fuel into the country’s first nuclear power reactor and aims to start up the plant in the southern city of Bushehr by late January, the head of Iran’s Atomic Energy Organization said. The water inside the reactor’s core needs to warm gradually, and a series of tests has to be carried out, Ali Akbar Salehi said yesterday, according to state-run news channel Press TV. “We hope the Bushehr power plant will hook up with the national grid in one or two months,” Salehi said in a report published on Press TV’s website.
  • FBI Charges Man in Alleged Plot to Bomb Tree-Lighting in Portland, Oregon. A Somali-born teenager was arrested in an undercover operation on charges that he tried to detonate a van that he thought was filled with explosives at a Portland, Oregon, Christmas tree-lighting ceremony. Mohamed Osman Mohamud, 19, obtained what he believed to be the bomb from undercover FBI employees, according to court papers filed with his arrest yesterday. The public was never in danger, a Justice Department statement said. “I want whoever is attending that event to leave, to leave either dead or injured,” Mohamud allegedly told undercover FBI agents, according to an affidavit filed in support of the arrest. At another point, he allegedly said, “It’s gonna be a fireworks show” and “a spectacular show.”
  • U.S. State Department Says Planned WikiLeaks Release Will Endanger Lives. The U.S. State Department warned WikiLeaks founder Julian Assange that the planned release of government documents will endanger the lives of “countless individuals” and threaten cooperation with allied countries.
  • McCain Says China Not Behaving Responsibly on Restraining Ally North Korea. U.S. Senator John McCain said China’s response to North Korea’s deadly shelling last week shows that the Beijing government isn’t taking on the responsibilities of a world power. China is not doing enough to restrain its ally North Korea following the Nov. 23 artillery attack on the island of Yeonpyeong that killed four South Koreans, McCain, a member of the Senate Armed Services Committee, said today on CNN’s State of the Union. China is North Korea’s biggest trading partner. “We have to understand that China is not behaving in a responsible fashion as a world power,” McCain said. “We have to make adjustments to our policies regarding China.”
  • Wall Street Shrinks From Default Swaps as Dodd-Frank Rules Hit Speculators. Trading in credit-default swaps, Wall Street’s fastest-growing business before the credit crisis, has tumbled 40 to 60 percent from three years ago as banks prepare for new regulation of derivatives. The declines estimated by executives at four of the biggest dealers of swaps means lower profits at firms that used to get as much as two-thirds of credit-market trading revenue from the derivatives. Moody’s Investors Service says pending rules may translate into job cuts of as much as 50 percent in groups that trade the contracts.
  • China's Defense of North Korean Ally Risks Alienating Top Trading Partners. China’s reluctance to restrain North Korea comes with a price, putting it at odds with its three biggest trading partners and threatening to drive South Korea and Japan into a closer alliance with the U.S.
Wall Street Journal:
  • Irish Bank Dumps New York Assets. Anglo Irish Bank Corp., the troubled bank at the heart of Ireland's controversial bailout, is raising cash by dumping New York real estate assets. Its latest move: putting up for sale a $147 million construction loan that financed the Setai Wall Street condominium and spa in the financial district.
  • For Cyber Shoppers, Gadgets Look Hot. The holiday shopping season, which starts online Cyber Monday, promises to be very good for Apple Inc(AAPL). The Cupertino, Calif.-based consumer electronics giant will likely take advantage of the gift-giving season to flex its muscles, grabbing market share for its popular iPod, iPhone and iPad products.
  • Investing in Fear is Big Business. Call it a bull market in fear. The popularity of the VIX index, which has become a widely watched barometer of investor fear since the financial crisis, is generating a host of spinoffs, copycats and derivatives. It is adding up to big business for VIX's owner, the Chicago Board Options Exchange, as well as partners and competitors that have developed products pegged to, or inspired by, the VIX.
  • Emerging Wild Card: Inflation. Price pressures in emerging markets could force central banks to tighten aggressively, roiling assets and currencies.
  • Democrats Gird for Tax-Relief Battle. Congressional Democrats, under pressure from their liberal wing, are preparing to put up a fight over tax relief for wealthier Americans before they agree to any compromise with Republicans that could extend the Bush-era breaks.
  • Next Debt Crisis May Start in Washington: Bair. The US needs to take urgent action to cut its debt in order to prevent the next financial crisis, which may start in Washington, Sheila Bair, chair of the Federal Deposits Insurance Corp. (FDIC) wrote in an editorial in the Washington Post. The federal debt has doubled over the past seven years, to almost $14 trillion, and the growth is a result of both the financial crisis and the government's "unwillingness over many years to make the hard choices necessary to rein in our long-term structural deficit," Bair wrote. Retiring baby boomers will impact government spending heavily and this year, combined spending on Social Security, Medicare and Medicaid are expected to make up 45 percent of primary federal spending, compared with 27 percent in 1975, she explained."Defense spending is similarly unsustainable, and our tax code is riddled with special-interest provisions that have little to do with our broader economic prosperity," Bair wrote.
  • Portugal, Spain in Crosshairs as Ireland Bailed Out. The European Union's bailout of Ireland is unlikely to halt expectations that the euro zone debt crisis will spread to Portugal, or provide reassurance that a firewall can be built around Spain.
NY Times:
  • War Machines: Recruiting Robots for Combat. While smart machines are already very much a part of modern warfare, the Army and its contractors are eager to add more. New robots — none of them particularly human-looking — are being designed to handle a broader range of tasks, from picking off snipers to serving as indefatigable night sentries.
Business Insider:
Zero Hedge:
  • Comverse Technology Inc.(CMVT) is in advanced talks to be acquired by Oracle Corp.(ORCL) and Platinum Equity at between $9.50 to $10 a share.
  • United Nations Climate Talks in Limbo. Cap-and-trade legislation Obama promised two years ago on the campaign trail is dead and buried, and his administration is attempting to regulate carbon dioxide emissions and cover billions of dollars in pledges without majority support in Congress. Internationally, heading into the United Nations-led climate talks in Cancun, Mexico, next week, prospects for a multitrillion-dollar transoceanic carbon market are in tatters and a new binding treaty to succeed the Kyoto Protocol remains years away. Obama won't be going to Mexico for the conference that starts Nov. 29, and neither will Secretary of State Hillary Clinton, House Speaker Nancy Pelosi or many of the other members of Congress who went to ice-cold Copenhagen for last year's U.N. climate negotiations.
  • Presidential Historian Curses, Calls Americans 'Lazy and Obese'. Presidential biographer Edmund Morris delivered one of the more, well, colorful lines on this week's Sunday morning shows. On CBS's "Face the Nation," host Bob Schieffer, anchoring an authors roundtable discussion with the likes of Bob Woodward and Arianna Huffington, kept engaging the panelists in discussion about how America’s Founding Fathers would have felt about today’s political climate. Morris went on to criticize the American people, who he said “are insensitive to foreign sensibilities, who are lazy, obese, complacent and increasingly perplexed as to why we are losing our place in the world to people who are more dynamic than us and more disciplined.”
USA Today:
Financial Times:
  • George Osborne, the U.K.'s Chancellor of the Exchequer, will today call for changes to make the country "the most competitive corporate tax system in the G20," citing Treasury officials.
  • Jim O'Neill Says the Euro Faces 'Black Swan' Moment. Jim O'Neill, one of Goldman Sachs' most senior partners, has said that the eurozone must embark on a significant round of fiscal and political harmonisation if the euro is to survive. In an interview with The Sunday Telegraph, Mr O'Neill also revealed that the euro should carry a "risk premium" and that it was over-valued by at least 10pc. He said that the only reason it was not weaker was because many of the eurozone's problems were being masked by events in America and worries about weaknesses in the US economy.
  • 'Investors Drawn to China Like Moths to a Flame'. NeilWoodford, Invesco Perpetual's star fund manager, has voiced concern that China's growth story is heading for a crossroads. Woodford said world markets seemed to be drawn like moths to a flame by China's GDP growth numbers. "I do not deny that in the long term an economy like China will grow much more rapidly than the West. But I think one has to be very careful about correlating growth necessarily with economic opportunity, and opportunity to make money," said Mr Woodford. "China has got some massive challenges. Ultimately, the main one will be this 180 degree shift from export-led growth to domestic consumption-led growth. Mr Woodford's concerns coincide with figures showing that food prices in China were 10.1pc higher in October than in the same month last year – a level of inflation not seen since mid-2007. This is deepening concern that China's economy is now starting to overheat.
Sunday Independent:
  • A majority of Irish people favor defaulting on debts to bondholders at the country's "stricken" banks, citing a poll commissioned by the newspaper. The poll found 57% of respondents favor a default on bank debt, against 43% who oppose such a move. About two-thirds of respondents also opposed austerity measures in the government's four-year budget plan released on Nov. 24, the poll showed.
  • Adenauer and Friends Seek to Block Ireland's 85 Billion Euro Bailout. Lawyer and playwright among those against bailout as fears grow that Spain could be next to fall. A German coalition comprising a controversial playwright, the grandson of the first Chancellor of the post-war federal republic and a campaigning constitutional lawyer will challenge Ireland's 85bn Euro bailout this week.
TSF Radio:
  • The European Union is not working on any aid package for Portugal, citing Portuguese Defense Minister Augusto Santos Silva.
NRC Handelsblad:
  • H&M's CEO Karl-Johan Persson expects higher cotton prices to depress profit margins, he said in an interview. An increase in cotton rates will be "tough" for the fashion industry and may force some companies to raise prices, citing Persson.
Der Spiegel:
  • Marco Buti, the European Commission's head of economics, is calling for a doubling of the European bailout fund.
Nikkei English News:
  • A Japanese government panel is considering a cut in the corporate tax rate for next fiscal year, to make domestic companies more competitive in global markets.
  • China will continue a "relatively proactive" fiscal policy in the next few years, citing central bank adviser Li Daokui. The country will shift from the "extremely loose" monetary policy from the past two years, Li said.
Weekend Recommendations
  • Made positive comments on (AMP) and (SHOO).
  • Made negative comments on (CMG).
Night Trading
  • Asian indices are -.75% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 110.50 +3.5 basis points.
  • Asia Pacific Sovereign CDS Index 111.75 +5.75 basis points.
  • S&P 500 futures +.58%.
  • NASDAQ 100 futures +.40%.
Morning Preview Links

Earnings of Note
  • None of note
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Bernanke speaking, Fed's Bullard speaking, Dallas Fed Manufacturing Activity for Nov. and the (ZIOP) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

No comments: