Evening Headlines
Bloomberg:
- US Dollar Trades Near Week High Before U.S. Data on Jobs, Services. The euro fell for a third day against the dollar on concern that Europe’s debt crisis will persist, making it difficult for governments to raise funds. The region’s currency declined for a second day versus the yen before Portugal sells six-month bills and Poland sells two- year and five-year bonds today. Declines in asking prices for Irish homes accelerated in the fourth quarter of 2010, property website Daft.ie reported today. The dollar traded near a one- week high against the yen before a U.S. report that may show services industries grew at the fastest pace in 4 1/2 years, providing more evidence the world’s largest economy is improving.
- Portugal First to Test 2011 Demand With Bill Sale: Euro Credit. Portugal will sell six-month bills today, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. “People will be looking to see if yields are higher, and they might well be,” said Phyllis Reed, head of bond research at Kleinwort Benson Private Bank in London. “The big question in the market for Portugal is, is it next in terms of a bailout? It may be that, sooner or later, that is what is going to happen.” The government debt agency, known as IGCP, plans to auction 500 million euros ($665 million) of bills repayable in July. Portugal sold six-month bills on Sept. 1 at an average yield of 2.045 percent, with investors bidding for 2.4 times the amount of securities offered. A year ago, the country paid just 0.592 percent to borrow for six months.
- Europe Crisis Drives Banks to Sell Bonds Before Sovereigns: Credit Markets. Deutsche Bank AG, Rabobank Nederland and two other European banks rushed to tap the U.S. corporate bond market today in a race against countries beset by a sovereign debt crisis that need to raise $1.1 trillion this year. Deutsche Bank, Germany’s biggest bank, issued $1 billion of five-year notes in the Frankfurt-based lender’s first dollar- denominated sale since March, data compiled by Bloomberg show. General Electric Co.’s finance arm sold $6 billion of bonds as issuance reached $21.2 billion, the most since September 2009. Competition will be “tough” between European governments and the region’s banks as deficit-plagued countries refinance maturing debt, said John Stopford, the head of fixed-income at Investec Asset Management Ltd. in London. For financial companies, relative yields on dollar-denominated debt are at the tightest since May, while spreads on bonds in euros are about the widest since July, Bank of America Merrill Lynch index data show. “It will be a challenge to raise funds at least in an early part of this year,” said Stopford, who helps oversee about $65 billion. As redemptions come due in the first half of the year for Portugal and Spain, “more clarification on how and in what form support might be necessary would be a constructive thing,” he said.
- Coal Prices May Reach $300 a Ton on Queensland Floods, Post Says. Solid Energy New Zealand Ltd., New Zealand’s government-owned miner, expects contract coal prices to rise to about $300 a ton in the three months to June because of floods in Australia’s Queensland state, the Dominion Post reported, citing Chief Executive Officer Don Elder. The floods will have a greater impact than those in Queensland in 2008, which caused spot coking coal prices to jump to more than $300 a ton from $125 a ton, Elder said, according to the Wellington-based newspaper. Queensland exports about half of the world’s coking coal for Asian steel mills, the Post said.
- Australian Floods May Take Significant Economic Toll. The worst flooding in half a century in Australia’s northern state of Queensland may have a “significant impact” on the nation’s economy as exports are interrupted, said central bank board member Donald McGauchie. “On what can be seen at the moment, there’s very substantial damage to infrastructure,” McGauchie, who is also chairman of Nufarm Ltd., Australia’s largest supplier of farm chemicals, said in a telephone interview today. “The consequences to export income could be quite substantial.”
- China Stocks' Best Forecaster Predicts Slump in 2011. China’s stocks may slump for a second year as the central bank raises interest rates to tame inflation, according to Zhang Kun, the strategist at Guotai Junan Securities Co. who correctly predicted last year’s drop. “There will be no gains again,” Zhang, whose Shanghai- based firm Guotai Junan is the nation’s second-largest brokerage by revenue, said in an interview. “Inflation is the biggest risk. The government will keep tightening.” The Shanghai Composite fell 14 percent in 2010 to 2808.08, making it the worst performer among benchmark indexes in the world’s 10 biggest markets, according to data compiled by Bloomberg. Premier Wen Jiabao’s government ordered banks to set aside more reserves six times and boosted rates twice since October to tame inflation and curb asset bubbles after record gains in lending and property prices. The central bank will keep increasing borrowing costs to cap inflation at around 4 percent this year after it reached a 28-month high of 5.1 percent in November, Zhang said. China is lagging behind counterparts across Asia that took steps earlier to raise borrowing costs from global recession lows. India has lifted its benchmark rate six times since March, while Malaysia increased it three times, also starting in March. Taiwan began increasing rates in June and South Korea in July. “Inflation isn’t an issue that’s going to be easily tackled,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which oversees the equivalent of $2.21 billion. “We’ll see tighter monetary policies with new loan growth to be cut more than the market anticipates,” Guotai Junan’s Zhang said, predicting the government will boost rates twice more and cut the quota for new bank loans from 2010’s 7.5 trillion yuan. “Liquidity will be a problem for the market.”
- China May Alter Reserve Ratios Monthly, Newspaper Says. China’s central bank will examine lending and capital levels at domestic banks each month to determine reserve requirements for individual lenders, the China Securities Journal reported. Banks may face higher requirements if their capital adequacy ratios fall below mandated levels, the newspaper said, citing an unidentified person close to the People’s Bank of China. “This will enable the central bank to target abnormal lending and absorb liquidity more effectively,” said Deng Ting, a Beijing-based analyst at Guodu Securities Co. “The PBOC found itself incapable of doing much after new loans exceeded last year’s quota. They hope to change that.” Any capital adequacy shortfall would be multiplied by a so- called stability factor to calculate differentiated reserve requirements, the report said. Affected banks would be required to adjust lending immediately, the Securities Journal reported.
- Cut The Deficits - Now by Yves Mersch. Even John Maynard Keynes knew that prolonged stabilization measures might themselves turn into a source of instability. Although it is common in medicine to provide strong, inebriating drugs to ease the pain in the case of an emergency, no serious health professional would extend such measures for longer than necessary, given the risks of addiction and long-term damage to vital organs. In economics, for whatever reason, this seems to be different. The global economy has gone through three years of bold macroeconomic stabilization. But the current attempts to reduce deficit spending and stop governmental ad hoc measures are rather timid. It would be misleading, however, to think we can go on like this for ever. Sooner rather than later, we have to return to a path of stability.
- Panel Deals Shell Setback in the Arctic. Royal Dutch Shell was dealt a new setback in its plans to drill offshore in the arctic, after environmentalists successfully challenged a decision to grant the company air-quality permits. Shell has invested $3.5 billion in an exploration program in Alaska's Beaufort and Chukchi seas, but has yet to drill. The company's plans have been dogged by legal challenges and regulatory obstacles.
- Cisco(CSCO) Joins Race to Combine TV, Web Video. Networking Giant Will Unveil Initiative That Includes a Hybrid Set-Top Box. Cisco Systems Inc. is entering the race to combine Internet video and conventional television, people familiar with the matter said, aiming to help cable operators fend off emerging rivals like Apple Inc. and Google Inc.
- Microsoft(MSFT) Alliance With Intel(INTC) Shows Age. The technology industry's most lucrative partnership—the long-running alliance between Microsoft Corp. and Intel Corp.—is coming to a day of reckoning. Sales of tablets, smartphones and televisions using rival technologies are taking off, pushing the two technology giants to go their separate ways. The clearest sign that their interests are diverging: Microsoft on Wednesday is expected to unveil a future version of the company's flagship Windows operating system that runs on microprocessors designed by Intel rival ARM Holdings PLC(ARMH), according to people familiar with its plans. Microsoft still plans to make versions of Windows that also run on Intel chips, but the company's ARM plans amount to a huge bet on a chip technology that has become the de facto standard for smartphones, tablets and other mobile products.
- US Bank Regulator Seeks to Recover $2.5 Billion in Lawsuits. The Federal Deposit Insurance Corp. said Tuesday it is seeking to recover $2.5 billion by suing former executives of failed U.S. banks. The agency said it has authorized professional liability lawsuits against 109 such officials, who weren't named by the FDIC.
- CFTC's Chilton Proposes Position Tracking, but Not Hard Limit on Commodities. The regulator of U.S. commodities markets would establish a "points" system to track trading positions in goods like oil and metals, but would hold off on strict position limits under a proposal put forward Tuesday.
- Why Did We Nationalize AIG(AIG)? by Hank Greenberg There's still no good answer why AIG got such different treatment than Goldman Sachs(GS). It's not too late to undo some of the damage. The recently released list of businesses bailed out by the Federal Reserve was not as surprising to me as it was to many members of the general public. What is clear from the list is that the notion of equal protection ensconced in the Constitution was missing in September 2008. Rather than trying to spread both the burden and benefit of the bailout evenly among members of the U.S. financial services industry, key decision makers at the Fed and Treasury arbitrarily determined which companies should become wards of the federal government (AIG) and which should be permitted to live on.
- The States Versus ObamaCare. As new state attorneys general take office in the coming weeks, I expect an increase in the number of states challenging the law in court. This week begins the inauguration and swearing-in ceremonies for newly elected officials all over the country. One thing many of us have in common is that the voters rewarded us for our outspoken opposition to ObamaCare. The electorate's decisive rejection of the Obama administration's policies reveals a pervasive concern over the federal government's disregard of fundamental aspects of our nation's Constitution. No legislation in our history alters the balance of power between Washington and the states so much as ObamaCare does. The tactics used to pass the health-care bill gave all Americans ample warning of the constitutional wrongdoing that was about to occur.
- Euro-Zone Inflation Threatens Two-Speed Economy. Euro-zone inflation jumped past the European Central Bank's target for the first time in more than two years, threatening the ECB's coveted anti-inflation credibility as it continues to take aggressive measures to stem the region's fiscal crisis. Annual inflation across the currency bloc was 2.2% in December, according to the European Union's statistics office, Eurostat, up from 1.9% in November and the highest since October 2008.
- At Banks, New Fees Replacing Old Levies. Banks, in an attempt to wring more revenue out of customer accounts, are conjuring up new ways to raise fees on basic products like debit cards, cash machines and checking accounts. As regulation curtailing financial institutions from levying certain charges on consumers has mounted over the past year, banks have had to dream up new fees to replace those now trimmed by laws. Credit-card users have experienced new inactivity fees and foreign-exchange charges, while checking accounts have gotten hit with new monthly maintenance fees. Banks are considering additional fees on credit cards and checking accounts. But they also are looking at new ways to make money on cash machines and especially debit cards as regulators pinch the cards' conventional revenue streams.
- A Chinese Stealth Challenge? The first clear pictures of what appears to be a Chinese stealth fighter prototype have been published online, highlighting China's military buildup just days before U.S. Defense Secretary Robert Gates heads to Bejiing to try to repair defense ties.
- Facebook Deal Spurs Inquiry. SEC Launches Review of 1960s-Era Disclosure Regulations for Private Firms. The Securities and Exchange Commission has begun examining whether disclosure rules for privately held firms need to be rewritten as a result of recent deals allowing investors to buy shares in Internet companies such as Facebook Inc. and Twitter Inc., according to people familiar with the situation.
- Australia Dalrymple Port Rebuilds Coal Stocks; Macarthur Warns. The major Australian coal port of Dalrymple Bay has more than tripled its coal inventory to around 700,000 tons as floodwaters recede and rail transport resumes in Queensland state's coal mining areas, a port spokesman said. But the port is concerned coal stocks will drop again if mines do not quickly resume production and inventories run out. "Seventy-five per cent of Queensland's mines are currently not operating because of flooding," Queensland state premier Anna Bligh told local television.
- Fed Borrows White House Method to Judge QE2. Central bank makes its own program, and yardstick. When it comes to evaluating the impact from its plan to purchase $600 billion worth of government bonds, the Federal Reserve seems to be borrowing a trick from the White House. The Fed is buying bonds, and yet the price of bonds has dropped. The yield on the 10-year, one of the maturities the central bank is buying, was at 3.32% Tuesday afternoon, compared to 2.59% ahead of the official announcement of the program and 2.48% before Federal Reserve Chairman Ben Bernanke’s speech outlining the likelihood of such a move in Jackson Hole, Wyo.
- Photos: India Street Markets Are Tense As Commodity Prices Rise. Food price inflation in India peaked at 14.44% yoy in December. The surge is causing tensions, especially because no one can explain its severity.
- Maxine Waters Denounces Bank of America(BAC) - GSE Putback Deal As Taxpayer "Giveaway". While we frequently make fun at Maxine Waters, and often for good reason, in this case the Congressional Democrat is spot on: the member of the House Financial Services Committee has denounced the BofA-GSE settlement as nothing more than a "backdoor bailout" funded by taxpayers, precisely as disclosed yesterday in the exhaustive Forbes piece that is a must read.
- After Hibernation, the Office Market Is Waking Up. After a two-year hiatus, the investment market for office buildings has sprung back to life, with some properties commanding prices reminiscent of the boom years. Bidding for well-occupied, high-quality buildings in major cities like New York and Washington has been so fierce that some buyers have been priced out of the market.
- Taking DNA Sequencing to the Masses.
- No Accountability: Goldman Sachs(GS) Wants You To Invest In Facebook. Facebook wants the public’s money – and their trust – with none of the disclosure and none of the regulatory scrutiny of a public company. Goldman Sachs strategy to raise $1.5 billion for Facebook from “sophisticated investors” and invest another $450 million of their own money is an example of wanton disregard for accountability to the securities markets.
LA Times:
- CES: AT&T(T) Offers Internet Connection for Your Pill Bottle. AT&T and Vitality Inc. announced Tuesday at CES that they have teamed up on a new technology that helps patients take their medications regularly by sending reminder calls, weekly e-mail reports and monthly updates to patients and caregivers.
- States Grapple With Health Care. As House Republicans revive debates of the past with the planned repeal vote on health care reform, their state-level counterparts are quietly pushing into health reform’s future. All states — including those led by Republican governors who campaigned against reform — have implemented at least some of the new law’s provisions. And every state has now received federal funding from the Patient Protection and Affordable Care Act. The action in the states is a sharp contrast to the scene on the Hill Tuesday, where familiar foes rehashed old rhetoric.
- Unemployment Rates Rise in Two-Thirds of Metro Areas. Unemployment rates rose in more than two-thirds of the nation's largest metro areas in November, a sharp reversal from the previous month and the most since June. The Labor Department said Tuesday that unemployment rates rose in 258 of the 372 largest cities, fell in 88 and remained the same in 26. That's worse than the previous month, when rates fell in 200 areas and rose in 108.
Reuters:
- Goldman's(GS) "Friends" Get Week to Mull Facebook Bet. Goldman Sachs is not giving its multimillionaire clients a lot of time or information to think about investing in a $1.5 billion Facebook private offering. According to a customer who received a letter from Goldman, clients were given just until the end of this week to decide whether they want a piece of the social networking giant.
- Mosaic(MOS) Profit, Sales Widely Beat Street. Strong demand for fertilizer driven by high U.S. crop prices helped Mosaic Co's (MOS) quarterly profit and revenue beat Wall Street's expectations, boosting shares in extended trading. With prices for corn and soybeans near multiyear highs, farmers have strong incentive to plant as much as possible, a process requiring more phosphate and potash fertilizer. In a bullish sign for Mosaic, plantings of corn and wheat are expected to rise in 2011, according to a Farm Futures magazine survey released on Tuesday.
- Atheros(ATHR) Stock Leaps on Qualcomm(QCOM) Deal Talk. Atheros Communications Inc (ATHR) stock rose 19 percent after a report that Qualcomm Inc (QCOM) is near a deal to buy the company, which would bolster its share of semiconductors in smartphones and tablets. Qualcomm could soon buy Atheros, whose chips are used in PCs, handsets and routers, for around $45 a share, or $3.5 billion, the New York Times reported on Tuesday.
- Oil Price 'Threat to Recovery'. Fatih Birol, chief economist at the International Energy Agency, said oil prices are "entering a dangerous zone" and oil import bills are becoming "a threat to the economic recovery," citing comments by Birol. Import costs for the 34 countries that comprise the OECD increased by $200 billion to $790 billion at the end of 2010, according to the IEA.
- Chinese Premier Li Keqiang reiterated that China may buy more Spanish government bonds to help the country deal with market concerns about its solvency. China has increased its buying activities in Spanish public debt amid European debt concerns, citing Li as saying during his meeting with the country's Second Deputy Prime Minister and Minister of Economy and Finance Elena Salgado.
- Mongolia's Building Boom Brought to Halt by Debt Pile. High-rise projects still unfinished years after work began.
- China may raise benchmark interest rates, increase the reserve requirements for banks, and let the yuan appreciate in the first quarter of this year to ease inflation pressure, Ba Shusong, a researcher at the State Council's Development Research Center, wrote.
Citigroup:
- Reiterated Buy on (BRO), raised estimates, boosted target to $28.
- Reiterated Buy on (ACOM), target $40.
- Rated (AAPL) Outperform, target $405.
- Rated (SFSF) Buy, target $35.
- Rated (DHR) Outperform, target $56.
- Rated (FLR) Outperform, target $84.
- Asian equity indices are -.75% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 98.50 -.5 basis point.
- Asia Pacific Sovereign CDS Index 99.5 unch.
- S&P 500 futures -.24%
- NASDAQ 100 futures -.22%.
Earnings of Note
Company/Estimate
- (FDO)/.61
- (WOR)/.25
- (RECN)/.07
- (RT)/.05
8:150 am EST
- The ADP Employment Change for December is estimated to rise to 100K versus 93K in November.
- The ISM Non-Manufacturing Index for December is estimated to rise to 55.7 versus 55.0 in November.
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a -1,258,000 barrel decline the prior week. Distillate supplies are estimated to rise by +750,000 barrels versus a +243,000 barrel gain the prior week. Gasoline inventories are expected to rise by +500,000 barrels versus a -2,316,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a +.1% gain the prior week.
- None of note
- The Fed's Hoenig speaking, weekly MBA mortgage applications report, Challenger Job Cuts report for Dec., CES and the Citi Entertainment/Media/Telecom Conference could also impact trading today.
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