Wednesday, November 03, 2010

Thursday Watch


Evening Headlines

Bloomberg:

  • Obama Says He'll Negotiate With Republicans on Bush Tax Cuts. President Barack Obama said he is “absolutely” ready to negotiate this month with congressional Republicans, who have hardened their stance that soon-to-expire Bush-era tax cuts should be extended for high-income taxpayers. Obama, a Democrat, said today that he hopes to avoid “brinkmanship” in the lame-duck session of Congress when he confronts Republicans over how to prevent expiration of lower taxes on wages, investments and multimillion-dollar estates that were enacted in 2001 and 2003. Unless Congress acts, those tax policies expire Dec. 31.
  • Bernanke Breathes New Life Into Junk Bond Rally With QE2: Credit Markets. The Federal Reserve sent the cost of protecting high-yield, high-risk debt from default to the lowest in almost six months by bolstering demand for the investments with its program to buy $600 billion more of Treasuries. The benchmark credit-default swaps index for junk bonds that rises as investor confidence improves jumped to the highest since April 15, according to data provider CMA. The extra yield investors demand to own the bonds rather than Treasuries fell 2 basis points to 592 basis points, or 5.92 percentage points, Bank of America Merrill Lynch index data show. While longer-dated government bonds tumbled, the Fed’s move breathed new life into the five-month junk rally that stalled in the past two weeks.
  • Fed Stimulus Expansion Worsens Hong Kong 'Bubble' Risk, HKMA's Chan Says. The U.S. Federal Reserve’s expansion of stimulus will add to the risk of a housing bubble in Hong Kong and may force extra measures to cool prices, said Norman Chan, the head of the city’s central bank. The Hong Kong Monetary Authority will “take measures that are specific to the housing market if necessary,” Chan said at a press briefing in the city today. “The risk of an asset bubble in Hong Kong’s property market is rising.”
  • U.S. Carbon Contracts Fall as Obama Cools to Cap-And-Trade. Futures contracts in the U.S. Northeast’s carbon market fell to their lowest level in six weeks after President Barack Obama backed away from the national cap-and-trade program he once sought. “Cap-and-trade was just one way of skinning the cat,” Obama said at a White House news conference today, one day after the Democratic Party lost control of the House of Representatives to Republicans. The Democratic president said a cap-and-trade program, in which companies buy and sell carbon dioxide allowances, is “not the only way” to cut greenhouse gases. “I’m going to be looking for other means to address this problem,” Obama said.
  • Oil Rises a Fourth Day After Fed Move Weakens Dollar. Oil rose for a fourth day to more than $85 a barrel as the dollar traded near a nine-month low against the euro after the Federal Reserve’s move to buy an additional $600 billion of Treasuries to spur the economy. “The next barrier could come at $87, and if that is broken there is not much resistance beyond that,” Mike Sander, of Sander Capital Advisors in Seattle, said in an e-mailed note. “The Federal Reserve is basically devaluing the dollar even further, thus a rise in oil is not surprising.” Crude oil for December delivery gained as much as 43 cents, or 0.5 percent, to $85.12 a barrel on the New York Mercantile Exchange and was at $85.08 at 10:32 a.m. in Sydney. Crude may return to $100 a barrel next year for the first time since 2008 as central banks pump cash into their economies, JPMorgan Chase & Co. and Bank of America Merrill Lynch said. Distillate supplies, which include heating oil and diesel, fell 3.57 million barrels to 164.9 million. It was the biggest drop in distillate fuel supplies since the week ended Sept. 19, 2008. Inventories were 19 percent above the five-year average. Inventories of crude oil rose 1.95 million barrels to 368.2 million, the department said. Supplies were forecast to climb by 1.5 million barrels. They were 14 percent above the five-year average.
  • BHP(BHP) Shares Gain After Canada Blocks Potash Corp.(POT) Bid. BHP Billiton Ltd., the world’s largest mining company, rose to the highest in almost six months in Sydney trading after Canada blocked its $40 billion hostile takeover bid for Potash Corp. of Saskatchewan Inc. Shares in the Melbourne-based company rose 3.2 percent to A$43.98 at 10:25 a.m. local time on the Australian stock exchange. That’s the highest since April 14. Prime Minister Stephen Harper’s government said yesterday a sale of the world’s largest fertilizer company wouldn’t provide a “net benefit” to the nation. BHP is disappointed and will review its options, the company said in a statement. “BHP Billiton will continue to cooperate with the minister and the Investment Review Division of Industry Canada and will review its options,” the company said in the statement. The cost of protecting BHP’s bonds from default dropped the most in more than four months. Credit-default swaps on BHP fell 15 basis points to 82 basis points as of 9:05 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. prices.
  • Paraguay Titanium Find May Be World's Largest, Discoverer Says. The American explorer who discovered the world’s biggest copper deposit in Chile has staked a claim in Paraguay to what he says may be the largest titanium find. David Lowell, 82, the president of closely held CIC Resources Inc., controls mineral rights to at least 185,000 hectares (457,000 acres), according to Paraguay’s sub-ministry of mining and energy. That is an area the size of London. “Our deposit could control the world titanium market, a big enough piece of production that whoever operates it would dictate what the price is going to be,” Lowell said in an interview. “And the price, presumably, would be reduced by having higher-grade ore and large tonnage.”
  • Royce to Seek House Financial Services Chairmanship. House Republicans returning to power after an Election Day sweep in which they gained at least 60 seats will have to choose between two members of their own party as they select a leader for the panel that oversees Wall Street. U.S. Representative Ed Royce of California, elected to his 10th two-year term yesterday, said he will seek the chairmanship of the House Financial Services Committee, challenging Alabama Representative Spencer Bachus, the panel’s ranking Republican.

Wall Street Journal:
  • Food Sellers Grit Teeth, Raise Prices. Packagers and Supermarkets Pressured to Pass Along Rising Costs, Even as Consumers Pinch Pennies.
  • Executives Await Friendlier Climate. Business executives said Wednesday they are counting on the electoral shock delivered to Democrats Tuesday to bring a slowdown in federal regulation, tax cuts and a more business-friendly stance in Washington.
  • Qualcomm 4Q Profit Up 7.7% on Record Shipments. Qualcomm Inc. (QCOM) Wednesday reported better-than-expected fourth-quarter results and forward-looking guidance as the chip maker continues to benefit from soaring demand for mobile devices. In addition, Qualcomm said it will exit its struggling mobile video device business, called FLO TV, and will record some restructuring charges in fiscal 2011. While many semiconductor makers recently have warned of weakening consumer demand, Qualcomm and rival Broadcom Corp. (BRCM) have benefited from their high exposure to the sweet spot for consumers--smartphones and other mobile devices. Qualcomm helped popularize a technology used in many 3G cell phones, and it also is providing chips for the next-generation mobile broadband network known as Long-Term Evolution, or 4G. Chairman and Chief Executive Paul Jacobs said Wednesday that Qualcomm expects continued strong growth in shipments of code division multiple access-based devices, including smartphones and other data-centric devices, in the new year, "driven by the global adoption of 3G and accelerating consumer demand for wireless data." The strong demand led Qualcomm to forecast fiscal first-quarter adjusted earnings of 70 cents to 74 cents a share, above Wall Street expectations of 64 cents, and revenue of $3.05 billion to $3.35 billion. Analysts polled by Thomson Reuters projected revenue of $2.99 billion. And for the new year, it predicted per-share earnings of $2.63 to $2.77 on revenue of $12.4 billion to $13 billion, while analysts were looking for $2.59 a share and $12.1 billion, respectively. Qualcomm shares, down 1.2% this year, jumped 6.4% to $48.70 in after-hours trading Wednesday.
  • Morgan Stanley(MS) May Wait on Smith Barney. Morgan Stanley could use some wiggle room to help meet looming capital requirements. One option: delaying parts of the Morgan Stanley Smith Barney takeover from co-owner Citigroup Inc., which would leave billions of dollars in the securities firm's pocket.
  • Yemen Terror Response Shows Flaws. The unexploded device found on a plane in the U.K. on Friday has triggered criticism over the speed of Britain's response to the incident and a lack of communication between key allies. U.K. Prime Minister David Cameron was angered that it took almost 10 hours for him to be told about a potential terrorist bomb intercepted at Britain's East Midlands Airport early Friday, people familiar with the situation said. German investigators have said a British intelligence official failed to take timely action to prevent the air-freight shipment of the bomb. The criticisms come amid heightened concern in the U.K. over al Qaeda in the Arabian Peninsula, the Yemen-based group suspected of being behind last week's thwarted package bombing plot.
  • Google(GOOG) CEO Says China Internet Censorship Efforts Will Fall Short. Google Inc. (GOOG) Chief Executive Eric Schmidt said China's efforts to police the Internet will ultimately be unable to keep pace with the vast number of Chinese people flocking to the Web.
  • News Corp.'s(NWSA) 1Q Earnings Rise 36% on Ad Rebound. News Corp.'s (NWSA, NWS) earnings climbed 36% in its fiscal first quarter as a rebound in advertising markets powered its television networks and publishing segment, offsetting weakness at its film studio, satellite business and its digital media unit. For the quarter, News Corp. posted net income of $775 million, or 30 cents a share, up from year-ago results of $571 million, or 22 cents a share. Excluding a tax benefit of $90 million, the company earned 27 cents a share; the average analyst estimate on Thomson Reuters was 24 cents a share. Shares of News Corp.'s class A shares, up 8.4% this year, rose 38 cents, or 2.6%, to $15.22 in after-hours trading.
  • GOP: Unlock the American Economy. A genuine pro-growth economic agenda requires more than spending restraint.
CNBC:
Business Insider:
Zero Hedge:
Boston Globe:
WalletPop:
Forbes:
PIMCO:
Rasmussen Reports:
  • Voters Strongly Anticipate Health Care Repeal in the House. Voters overwhelmingly believe the new Republican-controlled House of Representatives is likely to vote to repeal the unpopular national health care law. A new Rasmussen Reports national telephone survey finds that 83% of Likely U.S. Voters think it is at least somewhat likely that Republicans will vote to repeal the health care measure passed by Democrats in March. That includes 52% who say a repeal vote is Very Likely.
Politico:
  • Democrats Find Common Ground: It's the White House's Fault. The bodies aren’t even cold yet in the House, but the Democratic Party has already opened up a bitter debate over who’s to blame. The party’s bloodied moderates Wednesday released two years of pent-up anger at a party leadership they viewed as blind to their needs and deaf to the messages of voters who never asked for President Barack Obama’s ambitious first-term agenda. Liberals pushed back hard: The problem, they say, was those undisciplined moderates, who won delays, unsightly compromises and a muddled message from a too-accommodating administration. Yet a third group of Democratic politicians and operatives blamed not policy but a failed sales job for the party’s woes. One thing all sides agree on: The White House blew it.
  • Dem Strategists: Move Toward Center. After bruising Democratic midterm losses, top Democratic strategists are urging President Barack Obama to shift toward the center ahead of 2012. Just as former President Bill Clinton did in 1995-96 after Republicans swept into congressional power, Obama should forgo a more liberal agenda in the latter half of his term, the strategists argued. If not, they warned, the country’s electoral map could be tinted red indefinitely.
Reuters:
  • Whole Foods'(WFMI) Sales Stay Strong, Shares Jump. Whole Foods Market Inc shares soared 8 percent after strong sales at established markets quelled concerns the momentum that has driven a 50 percent gain in its shares was slowing. The upscale grocer, which posted quarterly profit that topped Wall Street's view, also raised its earnings forecast for fiscal 2011.
  • Zumiez(ZUMZ) Tops Oct. Comp Sales View, Hot Topic(HOTT) Falls Short. Zumiez Inc's unique brands helped the teen apparel retailer's October same-store sales trounce market estimates, while Hot Topic Inc's comparable sales missed Wall Street's view as its merchandise failed to lure shoppers. Zumiez, which has been beating monthly same-store sales estimates since May, also raised its third-quarter profit view on strong sales and product margins, sending its shares up 10 percent to $27.78 in extended trade.
  • MasTec(MTZ) Q3 Results Beat, Raises FY View. MasTec Inc ( MTZ.N) posted better-than-expected quarterly results, helped by an acquisition, and the utility contractor raised its full-year outlook, sending its shares up 9 percent in extended trade.
  • ValueClick(VCLK) Q3 Tops Street View; Sees Q4 Above Estimates. Online marketer ValueClick Inc posted a quarterly profit that topped market estimates convincingly on higher margins and tax benefit, and forecast fourth-quarter results above Wall Street view, sending its shares up 8 percent.
  • U.S. Dollar Printing is Huge Risk - China Central Bank Adviser. Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing. China must set up a firewall via currency policy and capital controls to cushion itself from external shocks, Xia Bin said in a commentary piece in the Financial News, a Chinese-language newspaper managed by the central bank. "As long as the world exercises no restraint in issuing global currencies such as the dollar -- and this is not easy -- then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament," he said.
Telegraph:
  • Ireland is Running Out of Time. Ireland has been desperately unlucky. The bond crisis is snowballing out of control before the country has had enough time to let its medical, pharma, IT, and financial services industries (don’t laugh, some of it is doing well) come to the rescue. Yields on 10-year Irish bonds surged this morning to a post-EMU high of 7.41pc.
Nikkei English News:
  • Elpida Memory Inc. plans to cut DRAM production for the first time in two years because of falling prices of memory chips. The Japanese chipmaker may also delay construction of a new facility in Taiwan.
China Information News:
  • China should act with other countries against excessive depreciation of the U.S. dollar after suffering currency losses, citing former statistics chief Li Deshui. Limiting depreciation will stabilize global economic growth, Li Deshui, who is also a vice director of the Chinese People's Political Consultative Conference's economic commission, said.
Business Standard:
Evening Recommendations
Citigroup:
  • Reiterated Buy on (TWX), target $37.
  • Reiterated Buy on (H), target $50.
  • Reiterated Buy on (POT), target $176.
  • Reiterated Buy on (AON), target $44.
  • Reiterated Buy on (WBMD), boosted target to $63.
  • Reiterated Buy on (CVS), lowered target to $41
CSFB:
  • Reiterated Outperform on (AGU), target $93.
Night Trading
  • Asian equity indices are +.25% to +1.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 101.0 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 96.0 -1.25 basis points.
  • S&P 500 futures +.03%
  • NASDAQ 100 futures +.03%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (AES)/.25
  • (CBOE)/.22
  • (SMG)/-.34
  • (LIZ)/-.04
  • (DNR)/.13
  • (ATK)/2.79
  • (WCG)/.67
  • (APA)/2.21
  • (KFT)/.46
  • (IRF)/.36
  • (RBCN)/.31
  • (SBUX)/.32
  • (TSO)/.45
  • (CF)/1.61
  • (ATML)/.12
  • (FLR)/.57
  • (MCHP)/.58
  • (DLB)/.56
  • (CEC)/.61
  • (N)/.03
  • (ATVI)/.09
  • (MHK)/.75
  • (PCG)/.95
  • (KCP)/.10
  • (SXCI)/.26
  • (CVC)/.40
  • (DTV)/.54
  • (PSA)/1.43
Economic Releases
8:30 am EST
  • Preliminary 3Q Non-farm Productivity is estimated to rise +1.0% versus a -1.8% decline in 2Q.
  • Preliminary 3Q Unit Labor Costs are estimated to rise +.6% versus a +1.1% gain in 2Q.
  • Initial Jobless Claims for last week are estimated to rise to 442K versus 434K the prior week.
  • Continuing Claims are estimated to rise to 4378K versus 4356K prior.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The ICSC Chain Store Sales report for October, $10 Bln 10-year TIPS auction, weekly EIA natural gas inventory report, Goldman Sachs Industrials Conference, (UNP) analyst meeting and the (WAG) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

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