Thursday, May 05, 2011

Thursday Watch


Evening Headlines

Bloomberg:
  • Trichet's 'Close Call' Decision May Signal How Fast ECB Will Raise Rates. European Central Bank President Jean- Claude Trichet today may indicate just how fast he’s prepared to raise interest rates over the coming months. While policy makers meeting in Helsinki will keep the benchmark rate at 1.25 percent, according to all 48 economists in a Bloomberg News survey, any pledge by Trichet for “strong vigilance” would signal an increase as soon as June.
  • Oil Falls for Fourth Day on 'Bearish' Stockpiles, U.S. Economic Slowdown. Oil declined for a fourth day in New York, the longest losing streak in almost eight weeks, as rising U.S. supplies and slowing economic growth stoked speculation fuel demand may weaken in the world’s biggest crude consumer. Crude for June delivery lost as much as 63 cents to $108.61 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $108.69 at 9:13 a.m. Sydney time. Stockpiles at Cushing, Oklahoma, the delivery point for the New York-traded West Texas Intermediate grade, gained 102,000 barrels, the biggest increase in a month. Demand for gasoline declined 2.2 percent to a four-week low of 8.94 million barrels a day, the Energy Department said.
  • Silver Has Biggest Three-Day Drop Since 1983. Silver had its biggest three-day drop since March 1983, crude oil tumbled to a two-week low and gold, copper and grains fell after money managers made near-record bets on high commodity prices in April. Silver plummeted 19 percent since April 29 as increases in Comex margin requirements drove investors away, and oil declined after a U.S. report showed supplies surged.
  • China May Levy Resource Tax of 10% on Oil, Gas, Securities News Says. China’s planned resource tax on the sale of oil and gas may be as high as 10 percent, Shanghai Securities News reported, citing a government document it obtained. The government may levy a tax of 5 percent to 10 percent of sales value, according to an amendment to temporary regulations on the matter, the newspaper reported, without giving details on a timeframe or geographical regions for implementation. China has proposed a nationwide resource tax to raise funds to develop the poorer western regions, which are rich in oil, gas and coal reserves.
  • Berkshire's(BRK/A) Board Treats Buffett to Whitewash: Jonathan Weil. Berkshire’s audit committee had the opportunity to provide a full accounting of what went wrong. Instead its members lent their names to a whitewash that ignored the most important question: Whether Buffett or anyone else on Berkshire’s board may have violated the company’s ethical standards. Maybe that’s because they didn’t like the answer.
  • Canadian Solar(CSIQ) Aims to Increase Market Share Amid Supply Glut. Canadian Solar Inc. (CSIQ), the Chinese solar-panel maker that’s expanding factories more than 60 percent this year, aims to increase its market share as global overcapacity among manufacturers squeezes out smaller rivals. Chief Executive Officer Shawn Qu said the Suzhou-based company’s reputation for quality will persuade customers to choose its photovoltaic devices over those of competitors as output potential outstrips demand to 2012, pushing prices down. “During an oversupply situation everybody’s margins get pressure, but it’s actually the tier-one companies that gain market share,” Qu said in a telephone interview.
  • Hong Kong Home Sales Fall to 2-Year Low on Curbs, Rates. Hong Kong home sales fell to the lowest volume in more than two years in April as government curbs and rising mortgage rates sapped demand after a price surge since 2009. The number of units that changed hands last month declined 37.6 percent from a year earlier to 7,635, according to a statement on the Land Registry website yesterday. That’s the lowest since March 2009, according to data compiled by Bloomberg. The value of transactions slid 26.8 percent from a year earlier to HK$39 billion ($5 billion), the biggest yearly drop since June 2010, according to the release. Housing prices in the city, ranked the world’s most expensive place to buy a home by Savills Plc (SVS), have gained more than 55 percent in the past two years on record-low mortgage rates and an influx of buyers from China.
Wall Street Journal:
  • Signs Point to Pakistan Link. U.S. and European intelligence officials increasingly believe active or retired Pakistani military or intelligence officials provided some measure of aid to al Qaeda leader Osama bin Laden, allowing him to stay hidden in a large compound just a mile from an elite military academy. The suspicions cast light on where the U.S. is expected to focus as it investigates who might have helped bin Laden hide in plain sight in Abbottabad, a town about 40 miles from the capital Islamabad. Two senior U.S. officials and a high-level European military-intelligence official who have direct working knowledge of Pakistan's military intelligence agency, the Inter-Services Intelligence Directorate, say similar elements linked to the ISI have aided other Pakistan-based terror groups, the Haqqani militant network and Lashkar-e-Taiba. "There's no doubt he was protected by some in the ISI," the European official said of bin Laden. The officials say they believe these ISI elements include some current and former intelligence and military operatives with long-standing ties to al Qaeda and other militant groups.
  • GOP, White House Talk Deal on Debt. GOP leaders and the White House are discussing a deal that would enact strict deficit targets and some spending cuts to win Republican votes for lifting the ceiling on how much the federal government can borrow. The deal would defer contentious decisions about Medicare, Medicaid and taxes until after the 2012 elections. If such an agreement were reached, it would allow both sides to assure financial markets and the public of their commitment to reducing the deficit and then use next year's campaign to lay out their competing visions for the future of major government programs.
  • Greek Debt Woes Spur Euro-Zone Divide. Divisions in the euro zone are deepening over how to handle Greece's suffocating debt burden, with German officials open to a voluntary restructuring of Greek bonds but a majority of euro-zone policy makers fearful of the consequences. Europe's line has been that Greece will slash its outlays and repay all of its debts. But investors and, in private, some European governments increasingly doubt the country can. In that case, Greece will need more aid and, many believe, will have to restructure its debts. The debate in the euro zone is about whether and how to restructure. German officials believe Greece should be encouraged to sit down with its bondholders this year to discuss extending the maturity dates on its bonds, a step known as a debt rescheduling, said people familiar with the matter. Such a step would reduce Greece's new borrowing needs in coming years, while sparing investors the pain of a "haircut," or reduction in what they are owed. "We are cautiously open to voluntary measures that avoid imposing haircuts," said a senior German official, adding: "But our ideas are not being well received in Europe." Other key players including France, the European Central Bank, and the European Commission are opposed to discussing even a gentle form of Greek debt restructuring, arguing that financial markets would conclude that other crisis-hit countries such as Ireland and Portugal also won't repay their debts.
  • Avon(AVP) Bribe Probe Widens. Avon Products Inc.'s internal investigation into possible bribery of foreign officials has uncovered more potential wrongdoing, with evidence of improper payments to government officials found in several countries beyond the probe's original focus of China, according to a person familiar with the matter.
  • Traders Exit High-Speed Lane. Firms Reduce Use of Computer-Driven Strategies as Volatility and Volume Wane.
  • Glencore Bosses' Haul: $23 Billion. Glencore International AG, the private Swiss commodities trader, pulled back its veil further Wednesday as it prepares to enter the public markets, giving investors a clearer indication of the company's value—and the $23 billion combined stake that will be owned by its top five executives, including Chief Executive Ivan Glasenberg.
  • Syria Protests Spread Amid Widespread Detentions. Syria's widespread and deadly crackdown on anti-regime protesters has emboldened a new set of voices, including students in Syria's two largest cities who are protesting the crackdown itself. Scores from Aleppo University were detained by security forces Tuesday and Wednesday after more than 1,000 students marched through streets around the northern city's university. Activists said the protesters were demanding Syria's military lift its ten-day siege on the southern city of Deraa, where Syria's protests started seven weeks ago, that has left its residents cut off from electricity, food and water.
  • Eric Holder's Bin Laden Moment. The moment has come for Mr. Holder to end his investigation of the CIA's interrogators of terrorist detainees. As the whole of America takes a bin Laden victory lap, let us pause to remember some of this celebrated event's most forgotten men: the Central Intelligence Agency officers who sit under the cloud of a criminal investigation begun in 2009 by Attorney General Eric Holder into their interrogations of captured terrorists. That's right, the Americans whose interrogation of al Qaeda operatives may have put in motion the death of this mass murderer may themselves face prosecution by the country they were trying to protect.
CNBC:
  • Facebook, Google(GOOG) Mull Skype Deal. Facebook and Google are separately considering a tie-up with Skype after the web video conferencing service delayed its initial public offering, two sources with direct knowledge of the discussions told Reuters.
Business Insider:
Zero Hedge:
IBD:
NY Times:
  • Markets Losing Faith in Portugal. One day after agreeing to a $115.5 billion rescue package, Portugal was forced to offer higher interest rates on its debt, spurring fears that, as in Greece and Ireland after their aid deals, financing costs in the country will continue to escalate. While all three countries will benefit in the short term from the loans coming from the European Union and the International Monetary Fund, their ability to continue to raise affordable short-term funds from international investors is considered crucial. Interest costs have soared for Greece and Ireland as many investors expect the tough austerity measures included in their rescue packages will actually deepen the countries’ economic slumps and make it even harder for them to balance their budgets and repay their debts. Portugal’s ability to secure more relaxed deficit targets from the I.M.F. — 5.9 percent of gross domestic product this year as opposed to an earlier promise from Lisbon of 4.6 percent, and 4.5 percent in 2012 compared with an earlier pledge of 3 percent — suggests that concerns are building in Washington and Brussels that too much austerity could have a detrimental effect.
Politico:
  • Kay Granger Questions Hillary Clinton on Pakistan Aid. The Republican in charge of doling out foreign aid wrote to Secretary of State Hillary Clinton expressing “grave concern” over cash payments to Pakistan and asked they stop. Rep. Kay Granger of Texas, who chairs a subcommittee of the Appropriations Committee responsible for foreign aid, is singling out $190 million in “assistance for flood victims through the Pakistan Citizens’ Damages Compensation Fund (CDCF).
Reuters:
  • California Unions, Governor Split on Budget Tactic. California's powerful public-sector unions back Governor Jerry Brown's call to extend tax hikes to close the state's $15 billion budget gap, but they are breaking with his plan to put the issue in front of voters. The unions prefer lawmakers extend tax increases expiring this summer because that would eliminate the risk of a defeat at the ballot box which could also jeopardize the pension benefits of their members. The unions' position could open a rift between Brown and fellow Democrats who control the legislature and who are close allies of public-sector unions. The difference between the governor and one of his key support groups compounds the mess in California's budget politics.
  • U.S. Plans to Blow Third Hole In Missouri Levee. The government plans to blow up a third section of a Mississippi River levee on Wednesday night to allow flood water back into the river, as river levels upstream continue to drop.
  • Siemens' Brazil Chief Warns on Strong Real - FT. Brazil needs to impose stricter capital controls to avoid the risk of "deindustrialisation," the chief executive of Siemens (SIEGn.DE) was quoted as saying on Thursday. In an interview with the Financial Times, Adilson Antonio Primo said Brazil's strong currency was crushing Siemens' export business in the country. "We need wider measures, harsher measures," Primo told the newspaper, adding that the government should introduce a quarantine on foreign investment.
  • Whole Foods(WFMI) Ups 2011 View On Profit Beat. Whole Foods Market Inc reported a quarterly profit that topped Wall Street's view and raised its full-year profit forecast, sending its shares up 5.4 percent.
  • JDS Uniphase(JDSU) Sees Q4 Growth Driven by High Bandwidth Demand. JDS Uniphase Corp sees strong demand for its laser and fiber optic products as soaring demand for bandwidth and an explosion in volume of data traffic through mobile phones and the internet, drives sales. Shares of the company rose 10 percent in after-market trade, after the company reported market beating first quarter results and forecast fourth-quarter adjusted revenue of $455-$475 million.
  • BMC Software(BMC) Q4 Beats Wall Street, Sees Strong FY12. Business software maker BMC Software Inc reported fourth-quarter results above Wall Street expectations and said it expected a strong fiscal 2012 boosted by solid bookings at its segment that focuses on servers and networks. "We are seeing a surge in demand because companies are looking to develop and manage flexible IT infrastructure, whether its cloud, or SaaS (software-as-a-service) or virtualization," CEO Bob Beauchamp told Reuters. Shares of the Houston, Texas-based company were up 5.3 percent at $51.65 in trading after the bell.
Financial Times:
  • High Petrol Prices Fuel Jump in US Online Shopping. Online shopping grew by its fastest rate in nearly four years in the US last month as rising fuel prices prompted Americans to cut trips to malls and buy on the internet instead, according to MasterCard Advisors. US consumers spent $13.8bn online last month, a 19.2 per cent jump from April last year, according to the SpendingPulse survey, which is based on spending on MasterCard credit cards and estimates of other forms of payment.
China Business News:
  • The southwestern Chinese province of Chongqing raised taxi fares by 50% to 1.8 yuan a kilometer from today, citing Yuan Lu, head of the local price bureau.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (AGN), raised estimates, boosted target to $94.
  • Reiterated Buy on (CSX), target $85.
Night Trading
  • Asian equity indices are -1.0% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 106.50 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 114.0 +2.0 basis points.
  • S&P 500 futures +.27%.
  • NASDAQ 100 futures +.23%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (CBOE)/.34
  • (DTG)/.38
  • (EL)/.57
  • (RGLD)/.38
  • (TBL)/.59
  • (DNR)/.27
  • (CVS)/.55
  • (ATK)/1.93
  • (CI)/1.09
  • (KFT)/.47
  • (WBMD)/.15
  • (V)/1.20
  • (CPKI)/.06
  • (QLGC)/.34
  • (RBCN)/.66
  • (MDRX)/.20
  • (CF)/3.10
  • (WRC)/1.27
  • (FLR)/.76
  • (SLE)/.25
  • (CEC)/1.63
  • (AIG)/.12
  • (TIE)/.14
  • (GM)/.91
  • (MHK)/.42
  • (CVC)/.42
  • (PSA)/1.32
  • (PCLN)/2.46
  • (FO)/.51
  • (EP)/.28
  • (DTV)/.71
  • (FTO)/.85
  • (ED)/1.00
  • (MCHP)/.57
  • (DPZ)/.34
Economic Releases
8:30 am EST
  • Preliminary 1Q Non-farm Productivity is estimated to rise +1.1% versus a +2.6% increase in 4Q.
  • Preliminary 1Q Unit Labor Costs are estimated to rise +.8% versus a -.6% decline in 4Q.
  • Initial Jobless Claims for last week are estimated to fall to 410K versus 429K the prior week.
  • Continuing Claims are estimated to rise to 3649K versus 3641K prior.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Kocherlakota speaking, ECB Rate Announcement, BoE Rate Announcement, ICSC Chain Store Sales for April, weekly Bloomberg Consumer Comfort Index, RBC Consumer Outlook Index for May, weekly EIA natural gas inventory report, (JBL) analyst meeting, UBS Industrials Conference and the RBC Capital Markets Financial Institutions Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and real estate shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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