Thursday, February 10, 2011

Thursday Watch

Evening Headlines


  • U.S. Joins Egyptian Protesters in Criticizing Suleiman's Offers. Egyptian Vice President Omar Suleiman said negotiations he has opened with opposition movements are the only alternative to the “chaos” of regime change, as the government’s limited concessions drew criticism from protesters and the Obama administration. “There will be no overthrow of the regime because this will lead to chaos, which will take the country into the unknown,” Suleiman told local media chiefs yesterday, the official Middle East News Agency reported. The talks that began this week, involving the Muslim Brotherhood and other groups, “are the first way to achieve stability in the country and to get out of the current crisis peacefully.” In Washington, the Obama administration echoed the criticism of the protesters that Suleiman isn’t responding quickly enough. The Egyptian government has yet to reach the “minimum threshold” of accomodating demands of the country’s citizens, White House press secretary Robert Gibbs said. Egyptian authorities must make “immediate and irreversible progress” toward a transition of power and expand the scope of negotiations, Gibbs said at today’s briefing.
  • Weber's Withdrawal Throws Open ECB Race as Debt Crisis Persists. The campaign for the top job at the European Central Bank was thrown open as the sudden and unexplained withdrawal of German front-runner Axel Weber cleared the way for a slew of candidates to replace Jean-Claude Trichet. Central bankers Mario Draghi of Italy, Luxembourg’s Yves Mersch and Erkki Liikanen of Finland saw their chances of winning Europe’s top economic post rise as did Germany’s Klaus Regling, who runs the region’s bailout fund. Trichet’s non- renewable eight-year term expires in October.
  • PetroChina Buys Encana's Cutbank Stake for $5.4 Billion. PetroChina Co., the nation’s biggest energy producer, agreed to buy a 50 percent stake in Encana Corp.’s Cutbank Ridge assets for C$5.4 billion ($5.4 billion), giving the Chinese company its first gas asset in North America. The acquisition would give PetroChina daily production of 255 million cubic feet of natural gas from 635,000 acres in the Canadian provinces of Alberta and British Columbia, Encana said in a statement yesterday. The companies will also form an equal venture to increase output, the Beijing-based producer said in a statement today. The deal would bring the total value of energy acquisitions by Chinese companies since last year to about $46 billion.
  • Billionaire Ambani's Wealth Eroded as 'Panic' Starts Rout. Billionaire Anil Ambani blamed “vicious and illegal” trading for a one-day stock rout that wiped out $2.6 billion in the market value of his six publicly traded companies. The plunge, led by a 19 percent drop in Reliance Infrastructure Ltd., dragged the benchmark Sensitive Index to a seven-month low yesterday. The group said “unscrupulous corporate rivals” spread rumors that led to “panicked” sales, according to an e-mailed statement. It’s a familiar refrain for investors. Three weeks ago, Ambani criticized media reports based on unidentified sources and rumors in a press conference where he said he had agreed not to trade in shares for a year after an investigation by the stock market regulator. Since then, the combined value of his listed companies has plunged by 29 percent to $16.8 billion, according to data compiled by Bloomberg.
  • North Korea Says 'No Need' for More Talks With South. North Korea said it won’t continue talks with South Korea after their first meeting in four months collapsed yesterday without an agreement on holding higher-level discussions to defuse tensions. “We no longer feel the need to deal with the traitor group, which has no interest in improving relations,” North Korea’s delegation to this week’s military talks said today in a statement carried by the official Korean Central News Agency. “It is our tradition to respond to dialogue with dialogue and confrontation with confrontation.”
  • Wells Fargo's(WFC) Former CFO Atkins to Receive $22 Million After Stepping Down. Wells Fargo & Co.’s former finance chief Howard Atkins may be eligible to receive more than $22 million in compensation and benefits upon his official retirement in August. Atkins will be paid about $9.25 million in deferred compensation and pension benefits, according to the company’s most recent proxy filing and an analysis conducted by Equilar Inc., a Redwood City, California-based executive-pay researcher. He may get another $13.2 million in restricted stock and options that will vest over the next few years, Oscar Suris, a Wells Fargo spokesman, said today in a telephone interview. Atkins, the chief financial officer at Wells Fargo since 2001, resigned yesterday, and will take an unpaid leave of absence until his retirement becomes effective Aug. 6.
  • China's Stock Market Slump to Persist, JPMorgan(JPM) Says. Chinese stock market losses will persist until the government restricts lending, according to Adrian Mowat, JPMorgan Chase & Co.’s chief Asian and emerging- market strategist. “It will last until we see evidence that loan growth is beginning to slow and we haven’t seen that,” Mowat said in an interview with Bloomberg Television today, when asked how long China’s stock market slump will continue. on concern accelerating inflation will prompt tighter monetary policies. in the China Daily. “I think it’s with us, certainly for the foreseeable future.” The Shanghai Composite Index has tumbled 12 percent from a Nov. 8 highChina should focus on higher inflation and slow economic growth or rising prices may “ruin the country’s economic and social prospects,” Ma Jun, Deutsche Bank AG’s chief economist for Greater China, wrote in a commentary“What I’d like to see in China is them pulling back on fixed-asset investment and really the best way to tell that is if loan growth is slowing down,” Mowat said. “For now, I see emerging markets going lower,” Mowat said. JPMorgan, which is “bearish” on emerging markets versus developed markets, will recommend buying developing nations’ stocks again when the MSCI Emerging Markets Index drops to between 935 to 990, he said. The gauge fell 1.1 percent to 1,098.13 in recent trading, a sixth day of declines. “What we are looking for to change that view is for the markets to price in higher interest rates broadly in emerging markets,” said Mowat, 44.
Wall Street Journal:
  • Germans in Talks to Buy Big Board. NYSE(NYX), Deutsche Börse Near $25 Billion Tie-Up; Deal Would Symbolize a Diminished Role for New York in Finance. After 219 years as the citadel of American capitalism, the New York Stock Exchange was near an agreement to be acquired by Deutsche Börse AG in a deal that would create the world's largest financial exchange. For New York, the move is symbolic of the city's fading dominance on the world stage as other countries are drawing investors directly to their markets. Antitrust experts cautioned that the proposed deal could face tough regulatory scrutiny in Europe, as the new behemoth would dominate share and derivatives trading in the European Union—and in Washington, where tempers may rise over a crown jewel of the economy falling into foreign hands. The exchanges, which are presenting the deal as a merger of equals, said the combination would leave 60% of the company in the hands of Deutsche Börse shareholders, with NYSE Euronext shareholders holding the remaining 40%. The combined company, with a putative market capitalization of some $25 billion as of Wednesday, would be incorporated in the Netherlands and split its headquarters between Frankfurt and New York. Deutsche Börse Chief Executive Reto Francioni would become chairman, and NYSE Euronext chief Duncan Niederauer would be the new company's CEO under a board drawn equally from both companies. The plan drew a cautious, low-key response from American politicians and regulators faced with control of an iconic U.S. institution. The Justice Department, the Securities and Exchange Commission and the U.S. Committee on Foreign Investment all would have a role in signing off on any deal. For those who remember the glory days, when the New York Stock Exchange was the unchallenged center of world finance, there was trouble containing the dismay.
  • Democrats Can't Filibuster ObamaCare Repeal. Senate Majority Whip Dick Durbin likes to taunt his Republican colleagues, arguing that ObamaCare can't be repealed because 60 votes are required to end debate in the Senate on any measure. Though Republicans will likely win control of the Senate in 2012, Mr. Durbin is right that they probably won't get to 60 senators. That would require the GOP to win back more than half the Democratic seats up next year. Rep. Jim Moran (D., Va.) recently called GOP promises of repeal "a political scam on their base. . . . It can't happen." Not so fast. Keith Hennessey, a former White House colleague of mine, says Democrats are wrong. He argues that Republicans can repeal health-care reform with a simple Senate majority.
  • Former Sun CEO Worries About Region's Prospects. Even as Silicon Valley's unemployment rate eases and many local technology companies post positive financial results, Scott McNealy is pessimistic. Santa Clara County's jobless rate fell to 10.4% in December from 11.3% a year earlier. But Mr. McNealy, the co-founder and former chief executive of computer maker Sun Microsystems Inc., doesn't think Silicon Valley's emerging sectors such as social networking and "green" technology are going to make up for jobs lost as sectors such as software and computers consolidate. He recently discussed Silicon Valley's jobs picture:
  • Israel Braces for a New Egypt. Israelis are bracing for a more adversarial regime in Egypt, one they expect could lead their country to expand its army, fortify the two countries' desert frontier and possibly re-invade the Palestinian-ruled Gaza Strip. Three decades after Israel settled into a "cold peace" with Egypt—breaking its encirclement by hostile Arab states but failing to win much popular sympathy from Egyptians—Israeli officials are reviewing the ways the U.S.-backed transition in Cairo could affect the Jewish state.
  • Twitter as Tech Bubble Barometer. As Internet valuations climb and bankers and would-be buyers circle Silicon Valley in an increasingly frothy tech market, many eyes are on one particularly desirable, if still enigmatic, target: Twitter. Executives at both Facebook Inc. and Google Inc.(GOOG), among other companies, have held low-level talks with those at Twitter Inc. in recent months to explore the prospect of an acquisition of the messaging service, according to people familiar with the matter. The talks have so far gone nowhere, these people say.
  • Oil Firms Hit by Hackers From China, Report Says. Hackers who appear to be based in China have conducted a "coordinated, covert and targeted" campaign of cyber espionage against major Western energy firms, according to a report expected to be issued Thursday by cybersecurity firm McAfee Inc. Law-enforcement agencies said they are investigating the incidents, which McAfee said have been going on at least since late 2009 but may have started as early as 2007. The company said the attacks, which they dubbed "Night Dragon," were still occurring.
  • Suspicion of Forex Gouging Spreads. Some of the nation's largest investment firms have been overcharged by banks for currency trades, bank insiders and others claim, broadening the scope of alleged abuses in pockets of the $4 trillion foreign-exchange market. BlackRock Inc., the world's largest fund manager, became concerned at the rates it and its clients were charged for some currency trades by custody banks including Bank of New York Mellon Corp. according to an internal BlackRock investigation about a year ago and people familiar with the firm.
  • Market Pro: Is Exchange Merger Un-American? In a live interview on CNBC’s Fast Money, Joe Saluzzi Of Themis Trading tells us “I think they’re going to have major issues.” And not just run of the mill regulatory issues; he thinks there are serious patriotic issues. “This is an American institution where companies come to raise capital.... this is an infrastructure of a country. You just can't give that away. What's good for a public corporation is not necessarily good (for the public.)" On top of that, he thinks the deal could raise issues of national safety. “Their facility in Mahwah, NJ is considered critical infrastructure by homeland security. Who’s going to run that?”
  • New Drilling Method Opens Vast Oil Fields in US. A new drilling technique is opening up vast fields of previously out-of-reach oil in the western United States, helping reverse a two-decade decline in domestic production of crude. Companies are investing billions of dollars to get at oil deposits scattered across North Dakota, Colorado, Texas and California. By 2015, oil executives and analysts say, the new fields could yield as much as 2 million barrels of oil a day—more than the entire Gulf of Mexico produces now. This new drilling is expected to raise U.S. production by at least 20 percent over the next five years. And within 10 years, it could help reduce oil imports by more than half, advancing a goal that has long eluded policymakers."That's a significant contribution to energy security," says Ed Morse, head of commodities research at Credit Suisse.
NY Post:
  • 24-Hour 3D Channel Set to Launch Sunday. Sony, Discovery and IMAX are launching the first 24-hour 3D channel this Sunday, according to two separate sources. The channel just struck its first carriage agreement with DirecTV and is set to officially announce the venture today. The service, called 3net, will air shows about the 3D experience along with spectacles from space such as "Hubble 3D," narrated by Leonardo DiCaprio, and "Wildebeest Migrations."
Business Insider:
New York Times:
  • As Investors Become Savvy, An Intermediary Loses Favor. After the financial crisis, the Alberta Teachers’ Retirement Fund decided to reassess its strategy. At the time, the Canadian pension had roughly $150 million, or 3 percent of its assets, devoted to private equity, with the bulk in so-called funds of funds that invest across several different portfolios. Alberta Teachers’ quickly found the approach too expensive and pulled its money from such intermediaries.
  • Ex-WikiLeaker Claims Defectors Took Control Of Leaks From Assange. When former WikiLeaks spokesperson Daniel Domscheit-Berg walked away from WikiLeaks in September of last year, he may have taken more than just a few engineers with him: He now claims that WikiLeaks’ defectors also took the keys to Julian Assange’s kingdom.
  • Cisco(CSCO) Spooks Street Again With Weak Outlook, Margins. Network equipment maker Cisco Systems Inc's CEO John Chambers spooked investors for the third time in as many quarters, warning of dwindling public spending and weaker margins from tough competition. Cisco shares fell 10 percent after hours on Wednesday.
  • Fed's Lockhart Says QE3 May Not Be Needed. The U.S. economy may not need further help from the Federal Reserve when its $600 billion stimulus plan runs out in June, but that decision will hinge on the path of the economy, a top Fed official said on Wednesday. Atlanta Fed President Dennis Lockhart sounded skeptical about recent improvements in the economy, saying housing still posed a significant downside risk to growth and urging policymakers to stamp out even the smallest risk of deflation. But asked about whether the Fed would have to extend its bond purchases or quantitative easing into a third round, a prospect referred to on Wall Street as QE3, Lockhart told reporters it might not have to.
  • Whole Foods(WFMI) Sales Jump As Well-Heeled Spend More. Whole Foods Market Inc raised its 2011 profit outlook after a sharp acceleration in sales, quashing fears of a growth slowdown and underscoring how better-off U.S. shoppers are spending more freely. The upscale grocer's results, which sent its shares climbing 9 percent, contrast sharply with retailers who serve a greater proportion of less-affluent customers.
  • Akamai(AKAM) Cuts Prices to Ink Long-Term Media Deals. Internet delivery company Akamai Technologies Inc. forecast first-quarter results below Wall Street's expectations after it lowered prices to sign major media clients into long-term deals. Shares in Akamai slid over 11 percent in after-hours trade after the company, which helps Apple Inc and Netflix Inc deliver online content by avoiding congestion on the Web, forecast weaker first-quarter revenue than investors had expected.
Financial Times:
  • SEC Probes ETF Use in Insider Trading. The Securities and Exchange Commission is investigating whether Wall Street traders are using exchange-traded funds as a means of disguising insider trading. ETFs have emerged as a possible mechanism for maximising gains in one stock while potentially masking trading patterns, people familiar with the matter say.
Economic Daily News:
  • The dynamic random-access memory chip industry may face shortages in May, citing Japan's Elpida Memory Inc. President Yukio Sakamoto.
  • Iran has paid North Korea a total of $2 billion for enriched uranium over the past three years, citing a person familiar with the matter. North Korea said in November that it has a uranium-enrichment facility to provide fuel for a light-water reactor.
China Daily:
  • The Chinese provinces of Henan, Shandong, Jiangsu and Anhui seeded clouds with silver iodide in an effort to induce precipitation, citing local government officials. Henan shot silver iodide into clouds while planes were used in Shangdong to seed clouds with the compound. Anhui fired 67 rockets into the sky on Feb. 7 and Feb. 8 to seed clouds, according to the report.
  • China should focus on higher inflation and slow economic growth or rising prices may "ruin the country's economic and social prospects," Ma Jun, Deutsche Bank AG's chief economist for Greater China, wrote in a commentary.
  • Food Prices May Increase China CPI in January to New High. ECONOMISTS forecast that the inflation figure for January, to be announced by the National Bureau of Statistics next Tuesday, may rebound to a new high fueled by food prices, despite the frequent tightening measures implemented. "For the January data, market attention will center on the headline CPI and new loans to judge the inflation pressure,'' said Wang Qing, an economist at Morgan Stanley. Wang expected the CPI, the main gauge of inflation, to climb 5.2 percent year on year in January to notch a new high. The Ministry of Commerce said prices of 18 vegetables it tracked reported an annual growth of 12.6 percent during the week from January 17 to 23, up 6.5 percentage points from the previous week. Wang forecast the government may raise rates three more times in the first half of this year together with multiple hikes in banks' reserve requirement ratio. Lou Zhengwei, Industrial Bank Co's economist, said the PBOC will order banks to put aside more money as reserves five times in the first six months of this year, and he echoed Wang's view that rates will be raised three more times.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -2.0% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 107.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 117.0 +2.5 basis points.
  • S&P 500 futures -.07%.
  • NASDAQ 100 futures -.48%.
Morning Preview Links

Earnings of Note
  • (CBOE)/.29
  • (GT)/-.07
  • (ALXN)/.50
  • (BWA)/.82
  • (LH)/1.31
  • (BG)/1.60
  • (ATHR)/.50
  • (CMG)/1.30
  • (KFT)/.46
  • (CEPH)/1.92
  • (PNRA)/1.18
  • (EXPE)/.36
  • (WYNN)/.70
  • (CPKI)/.09
  • (DVA)/1.12
  • (CAKE)/.35
  • (BEC)/1.24
  • (PM)/.96
Economic Releases
8:30 am EST
  • Initial Jobless Claims for last week are estimated to fall to 410K versus 415K the prior week.
  • Continuing Claims are estimated to fall to 3900K versus 3925K prior.
10:00 am EST
  • Wholesale Inventories for December are estimated to rise +.7% versus a -.2% decline in November.
2:00 pm EST
  • The Monthly Budget Deficit for January is estimated to widen to -40.5B versus -$38.3B in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking, $16 Billion 30-Year Treasury Bond Auction, weekly EIA natural gas inventory data, (EBAY) investor day and the (STT) analyst forum could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down 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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