Wednesday, May 04, 2011

Wednesday Watch

Posted by Gary .....at 1:24 AM

Evening Headlines
Bloomberg:
  • Hamas, Fatah to Sign Cairo Accord Ending Four Years of Division. Leaders of the Palestinian Authority and the Islamic Hamas movement plan to sign an agreement today to end an almost four-year rift while Israeli Prime Minister Benjamin Netanyahu lobbies against it in Europe. Mahmoud Abbas, the authority’s president and chief of its ruling Fatah faction, is scheduled to meet Khaled Mashaal, head of the Hamas movement, in Cairo to sign an agreement that calls for a united Palestinian government and elections within a year, officials on both sides said. An alliance between the two ruptured in 2007, leaving Fatah in control of the West Bank and Hamas ruling Gaza. The Palestinian reconciliation moves follow rallies in the West Bank and Gaza Strip in which thousands of people, inspired by the wave of popular protests that led to the toppling of Egyptian President Hosni Mubarak and Tunisian President Zine El- Abidine Ben Ali, called for an end to the division. Abbas is asking foreign countries to recognize a Palestinian state and has said a united leadership will help the pursuit toward statehood.
  • UN Says Qaddafi, Rebels Set Unacceptable Cease-Fire Conditions. Libya’s government and rebel leaders battling it have attached unacceptable conditions to declaring a cease-fire, complicating efforts to formulate peace proposals, the United Nations special envoy for the conflict said.
  • China's Investment Curbs Prompt U.S. Frustration, Locke Says. China has failed to deliver on pledges made to the U.S. to guarantee equitable treatment of foreign investors, creating “real frustrations,” Commerce Secretary Gary Locke said. Locke, who is waiting for Senate confirmation to be the next U.S. ambassador in Beijing, said China pledged twice in the past two years to lift restrictions on foreign investments in industries where U.S. companies hold a competitive advantage.
  • Subbarao Tweaks India's Rate-Rise Playbook as Inflation Undermines Bonds. The Reserve Bank of India’s decision to double the magnitude of interest-rate increases signals it is ready to step up the battle against inflation even at the risk of damping the nation’s economic growth. The central bank’s half a percentage point increase in the benchmark repurchase rate to 7.25 percent yesterday was the biggest move since July 2008. Governor Duvvuri Subbarao indicated he would tighten borrowing costs further and predicted inflation will stay at “elevated levels” until September. Bond yields rose to the highest level in more than three months yesterday as Subbarao accelerated monetary tightening after eight quarter-point moves since mid-March 2010. India’s inflation, already the fastest among Asia’s major economies, may quicken as surging oil costs put pressure on Prime Minister Manmohan Singh to allow higher fuel prices this year. “The RBI’s focus on inflation over growth signals a major shift in its policy,” said Samiran Chakraborty, Mumbai-based chief economist at Standard Chartered Plc. “Controlling prices must be the priority now, even if it comes at the cost of sacrificing growth in the short term.” The yield on the 7.80 percent note due April 2021 gained nine basis points to 8.23 percent at the close of trading in Mumbai.
  • Silver Slumps for Third Day as Increased Margins Spur Sales by Investors. Silver futures fell for a third day, set for the worst run since January, as an increase in margin requirements on the Comex drove investors away. Gold may also extend its drop into a third day. Silver for July delivery in New York slumped as much as 5 percent to $40.465 per ounce, after losing 7.6 percent yesterday and 5.2 percent on May 2. The metal was at $41.215 at 8:27 a.m. in Singapore, taking losses over the three days to 15 percent.
  • Kenneth Griffin, founder of hedge fund Citadel LLC, said the U.S. government's reaction to the financial crisis is forcing money managers such as him to look overseas for investments. "It's a different country we're in today," Griffin said during a panel discussion today at the Milken Institute Global Conference in Beverly Hills, California. "It's going to force capital abroad. Citadel, like every other investment firm, will be deploying more into countries abroad with better business conditions."
  • Gasoline May Surpass 2008 Record on Supply Drop: Energy Markets. Gasoline futures in New York may climb above the record price of $3.63 a gallon set three years ago as refinery "outages", a decline in shipments from Europe and a jump in exports to Latin America deplete U.S. supplies. Refinery rates as of April 22 were the lowest even for this time of year even as the U.S. enters the summer driving season, according to the Energy Dept. in Washington. Imports from Europe were down 28% in April from the prior month, according to Clarkson Research Services Ltd., a unit of the world's biggest shipbroker, while exports rose to the highest for any February on record, data show. Gasoline stockpiles have dropped 35.5 million barrels since Feb. 11 as seasonal maintenance and "unplanned shutdowns" cut processing rates, according to the Energy Department. Refiners operated at 82.7% of capacity in the week ended April 22, 6.3 percentage points below a year earlier.
  • Netflix(NFLX) Said to Seek Latin America Rights to Shows From Disney, Paramount. Netflix Inc. (NFLX), looking to expand globally, is in talks with entertainment companies for rights to stream movies and television shows in Latin America. CBS Corp. (CBS) is in “serious talks” with Netflix for Canadian and Latin American rights to its shows, Leslie Moonves, the New York-based broadcaster’s chief executive, said today on a conference call. Walt Disney Co. (DIS), Lions Gate Entertainment Corp. (LGF), and Viacom Inc. (VIA/B)’s Paramount Pictures are also discussing Latin American deals with Netflix, according to people with knowledge of the talks. Latin America would become Netflix’s second market outside the U.S. The company started a streaming-only service in Canada last year, and Chief Executive Officer Reed Hastings has said he’s looking to expand more.
  • Goldman Sachs(GS) said traders should stop betting that U.S. industrial stocks will beat consumer companies selling necessities, citing a lack of reports that may boost investor optimism about economic growth.
  • Bank Stocks Shunned by Money Managers Turned Off by Derivatives. Banks, in the view of some of today’s best-performing money managers, are too fancy -- their businesses and finances too complicated to understand even as regulators have tried to make them more transparent. Investors owning few if any of the stocks in the group include Clyde McGregor, who runs Oakmark Equity and Income Fund, Delafield Fund’s John Delafield and Donald Yacktman of Yacktman Focused Fund. The fund managers said they are frustrated by complex balance sheets stuffed with derivatives that make it hard to evaluate bank assets and how they will fare under different economic scenarios. They are also concerned that profits may be hurt by a slowdown in the economy, litigation over mortgage bonds and foreclosures, and new fee-crimping rules. “We find it hard to believe the banks have cured all their bad asset problems, and they aren’t transparent enough for us to understand the risks,” McGregor, whose $20.5 billion fund beat 99 percent of peers over the past decade, said in a telephone interview from Chicago.
Wall Street Journal:
  • U.S. Is On Alert for Hastened Terror Plots. Zawahiri, bin Laden's Second-in-Command, Struggles to Keep Group Relevant Amid Popular Uprisings. U.S. intelligence agencies believe Osama bin Laden's second-in-command and other al Qaeda leaders may try to accelerate plots in the works to prove the terror network is still potent following its leader's death, officials said. Ayman al-Zawahiri is widely considered even more radical than bin Laden, but he is struggling to keep al Qaeda relevant at a time of popular uprisings inspired by others throughout the Arab world.
  • Steep Drop Tarnishes Big Bets on Silver. Silver prices plunged, suffering their worst one-day drop in dollar terms in three decades, as investors fretted that rising trading costs could cripple a market that has been exhibiting signs of froth. Silver's fall of $3.50, or 7.6%, and a 1% drop in gold prices Tuesday came as some major investors have been selling. George Soros's big hedge fund, a firm operated by high-profile investor John Burbank and some other leading firms have been selling gold and silver, according to people close to the matter, after furiously accumulating precious metals for much of the past two years. Their selling suggested the sharp, nine-month run-up for precious metals could be entering more dangerous territory.
  • Cash Crunch Won't Rush Dodgers' MLB Monitor. The Los Angeles Dodgers may not have enough cash to cover their expenses at the end of this month when a round to paychecks to players are due, according to two people familiar with the team's financial problems. The team also certainly will face insolvency by July, they said.
  • GE(GE) CEO: Expects Clean-Technology Revenue of $21 Billion This Year.
  • At Nasdaq(NDAQ), a Pitch and Woo. Exchange Courts Hedge Funds to Buy NYSE Shares; Private Meeting With Greifeld. Nasdaq OMX Group Inc. has rolled out the red carpet to hedge funds, racing to persuade them to buy up shares of NYSE Euronext to derail the Big Board's planned tie-up with Deutsche Börse AG. Investors have until May 4 to buy NYSE shares if they want to vote on the Deutsche Börse deal on July 7. Nasdaq is trying to boost the chances for its hostile bid by getting the hedge funds, who are interested in quick profits, to buy in.
MarketWatch:
  • Barney Frank Targets Fed Hawks. Wants to Strip Regional Bank Presidents of FOMC Vote.Rep. Barney Frank, the top Democrat of the House Financial Services Committee, is taking aim at the hawks on the Federal Reserve. Frank announced Tuesday he will introduce legislation to strip the 12 regional Fed bank presidents of their votes on the central bank’s interest-rate setting Federal Open Market Committee. At the moment, several of these regional Fed bank presidents are more hawkish than the chairman, Ben Bernanke, and the majority of the voting members of the FOMC. That means they generally want the Fed to concentrate more on preventing inflation than stimulating growth. At the moment, several are urging the Fed to hike rates sooner rather than later.
CNBC:
  • Las Vegas Sands(LVS) Takes Hit in Singapore, Shares Drop. Billionaire Sheldon Adelson's Las Vegas Sands disappointed investors with a lower-than-expected quarterly profit at its Singapore casino-resort, sending shares of the company down 10 percent.
  • Glencore's IPO Price Range May Raise Up to $10 Billion. Switzerland's Glencore International has a set a price range for its initial public offering in London and Hong Kong, enabling the company to raise up to 6 billion pounds ($10 billion), a source with direct knowledge of the plan told Reuters on Wednesday.
Business Insider:
Zero Hedge:
Forbes:
CNN Money:
  • Sources: Panetta to Congress - Pakistan Either Incompetent or Involved. CIA Director Leon Panetta told House members Tuesday that any way you look at it, Pakistan's role in Osama bin Laden's whereabouts was troubling. According to two sources in a closed door briefing, Panetta told lawmakers "either they were involved or incompetent. Neither place is a good place to be." He made clear that he and other administration officials are trying to get to the bottom of which it was -involvement or incompetence. Bipartisan frustration had been boiling over from both parties when it became clear bin Laden's compound was in an urban area less than a mile from a major Pakistani military academy. "It had everything except a neon sign sticking out there," Democratic Sen. Frank Lautenberg of New Jersey, told CNN. Freshman Republican Allen West of Florida, who served in the army in Iraq and was a civilian officer in Afghanistan, told CNN "there is no way that people in the ISI [Pakistan's Intelligence Agency] and military did not know that Osama bin Laden has been living there for quite some time." Lautenberg and West are among several lawmakers who say Congress should cut off funding immediately, to try to force Pakistani officials to answer questions about what they knew about Bin Laden's location. Over the last eight years, the U.S. has given Pakistan nearly $20 billion dollars in foreign aid, mostly to try to convince the tenuous ally to help combat terrorism. The State Department requested $3 billion more for next year. The Defense Department asked for $2.3 billion just for Pakistani counterterrorism efforts.
The Detroit News:
  • UAW Hires Dem Insider to Head Washington Effort. The United Auto Workers announced today it has named a politically connected former Democratic presidential campaign manager, Mary Beth Cahill, as the head of its Washington office and director of its Community Action Program. "We are thrilled to have Mary Beth join the UAW leadership team, especially in light of the difficult challenges ahead for our union," said UAW President Bob King.
Politico:
  • Congress Turns Against Pakistan. Congress expressed fury at Pakistan Tuesday for its role in housing Osama bin Laden for the past several years, as a wide range of powerful lawmakers are raising new questions about the billions in foreign aid the United States has spent propping up what many believe is an unreliable ally.
USA Today:
Reuters:
  • Gaddafi Forces Bombard Rebel-Held Zintan - Rebels. Forces loyal to Libyan leader Muammar Gaddafi bombarded the rebel-held town of Zintan in the Western Mountains with over 40 Grad rockets late on Tuesday, a rebel spokesman said. "They were fired in two salvoes," the spokesman, named Abdulrahman, said by telephone. "The last salvo landed moments ago. We can hear NATO aircraft overhead now." A Libyan ambulance driver from Zintan who crossed into Tunisia on Tuesday told Reuters the town had come under intense shelling by pro-Gaddafi forces.
  • U.S. Agents Grill Chipotle(CMG) Staff as Probe Widens. U.S immigration agents descended on Chipotle Mexican Grill restaurants on Tuesday, interviewing employees in about two dozen restaurants in Los Angeles, Atlanta and other cities. U.S. Immigration and Customs Enforcement (ICE) agents also interviewed workers in Minnesota and Washington, D.C., said Robert Luskin, Chipotle's outside counsel and a partner at Patton Boggs in the capital.
  • Portugal Bailout Agreed, Cross-Party Accord Needed. Portugal reached a deal with the European Union and the IMF on Tuesday on a 78 billion euro 3-year bailout, the third euro zone member to do so after Greece and Ireland, caretaker Prime Minister Jose Socrates said. The deal will need broad cross-party support because the collapse of Socrates' government last month -- pushing up borrowing rates and forcing Lisbon to seek a bailout -- means the winner of a June 5 snap general election will implement it.
  • First Solar(FSLR) Beats Street But Sees Tough 2011. First Solar Inc's first-quarter profits topped Wall Street expectations and the company stuck to its 2011 outlook, but it warned the solar market would face a tough second half of the year, sending its shares down more than 8 percent. The world's most valuable solar company said much of its sales and earnings for the year would be pushed into the second half of 2011 due to delays in closing a U.S. Department of Energy loan guarantee for a large Arizona project and subsidy changes in top European markets that are hammering demand and sending panel prices down rapidly.
  • Green Mountain(GMCR) to Raise Coffee Prices; Shares Up On Strong Results. Green Mountain Coffee Roasters Inc's gross margins got a boost as it effectively passed on higher coffee costs to buyers, and the company said it would raise its prices again to deal with record high coffee costs. Shares of the company, which is the leader in the U.S. single-cup coffee market with its popular Keurig machines, jumped 21 percent after the bell as it reported market-topping quarterly results and raised its outlook for the year.
  • U.S. Senate to Act on Energy Legislation This Month.
Financial Times:
  • 'ET' Stokes Fears About Sweeping Swaps Rules. As regulators in the US work to implement Dodd-Frank financial reforms, and with their European counterparts close behind, the way foreign subsidiaries of US and European banks are treated by the laws is becoming a sensitive issue. For the most part, the hundreds of pages of new rules for the swaps market released in recent months by US regulators such as the Commodity Futures Trading Commission and the Securities and Exchange Commission have not directly addressed how regulations for clearing, trading and reporting swaps would apply to foreign subsidiaries of US banks or foreign banks that register as swap dealers in the US. Last month, though, one rule did address the issue of “extraterritoriality”.
  • Almost a third of Russia's banks are not prepared for a repeat of the global financial crisis and would see their capital requirement dip below the 10% minimum if a similar situation were to recur, citing the results of a stress test by the country's central bank.
Passauer Neue Presse:
  • A budget expert from Germany's governing coalition and his counterpart from the biggest opposition party urged Portugal to consider selling some of its gold reserves to ease its debt problems.

Australian:
  • Most Australian voters oppose Prime Minister Julia Gillard's proposed carbon plan, citing a Newspoll survey carried out last weekend. The survey shows 60% of voters are against her plan to put a price on carbon next year, while 30% are in favor.
NHK:
  • Tokyo Electric Power Co. is developing a sea water decontamination system to install at the Fukushima Dai-Ichi nuclear plant in late May. The new system has a metal container filled with zeolite to filter water and remove radioactive material.
Xinhua:
  • China's State Council sets up an office to manage Internet information, citing a statement from the cabinet. The office will supervise online content management and be responsible for approvals and scrutiny of new reporting on the Internet.
Shanghai Daily:
  • Shanghai Air Pollution Now The Worst on Record. SHANGHAI is experiencing its worst level of pollution to date with yesterday's recorded air quality again at the top of the scale - severe, the same as Monday. The last time pollution topped the five-level scale was on April 2, 2007 but for a shorter duration. A short spell of rain yesterday morning resulted in muddy showers in many parts of the city leaving cars covered in a layer of wet dust washed down by the rain. But the wet weather failed to substantially reduce the pollution, with the Shanghai Environmental Protection Bureau again recording its highest level of air pollutants.
China Securities Journal:
  • China may raise banks' reserve requirement ratios this month as new yuan positions at Chinese banks accumulated from sales of foreign exchange to the central bank may remain high, the China Securities Journal reported on its front page.
Shanghai Securities News:
  • China may expand limits on the purchase of property and on home prices to more cities, citing a person close to the Ministry of Housing and Urban-Rural Development. An unidentified official at the housing ministry has urged policies be taken to limit investment in smaller cities by investment funds that weaken efforts to control the Chinese property market. A total of 36 Chinese cities announced property limits at the start of this year.
  • The China Electricity Council has asked the government to "appropriately" increase power prices to help ease supply shortages.
China Daily:
  • China should impose a resource tax, a business tax and an urban construction tax as the main sources of local government tax income, Jia Kang, head of the Ministry of Finance's research institute, wrote in a commentary. Local governments should also boost tax revenues from collecting property tax.
  • Chinese local governments should fund themselves through property tax collection, Jia Kang, director of the Research Institute for Fiscal Science of the Ministry of Finance, wrote. Inadequate fiscal resources render local governments "incapable of exercising their administrative responsibilities," as the fiscal and taxation system is heavily tilted toward the central government, Jia wrote
Evening Recommendations
Citigroup:
  • Upgraded (NOV) to Buy, target $92 .
Night Trading
  • Asian equity indices are -1.25% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 106.0 +2.5 basis points.
  • Asia Pacific Sovereign CDS Index 112.0 +3.0 basis points.
  • S&P 500 futures -.29%.
  • NASDAQ 100 futures -.26%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (FCN)/.50
  • (HCA)/.75
  • (PWR)/.04
  • (DVN)/1.30
  • (SPW)/.50
  • (MMC)/.56
  • (TWX)/.56
  • (TRW)/1.76
  • (AOL)/.26
  • (KCP)/-.21
  • (ICE)/1.69
  • (K)/1.04
  • (AGN)/.74
  • (PCG)/.80
  • (CVD)/.51
  • (WFMI)/.46
  • (NWSA)/.27
  • (ERTS)/.22
  • (MET)/1.26
  • (JDSU)/.20
  • (BMC)/.77
  • (PRU)/1.47
  • (IPI)/.31
  • (VMC)/-.46
  • (CECO)/.75
  • (CUZ)/.11
  • (ANDE)/.77
  • (JOE)/-.06
  • (SAM)/.45
  • (MUR)/.98
Economic Releases
8:15 am EST
  • ADP Employment Change for April is estimated at 198K versus 201K in March.
10:00 am EST
  • ISM Non-Manufacturing for April is estimated to rise to 57.5 versus 57.3 in March.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +6,156,000 barrel gain the prior week. Distillate supplies are estimated to rise by +500,000 barrels versus a -1,805,000 barrel decline the prior week. Gasoline supplies are expected to fall by -500,000 barrels versus a -2,508,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a +.2% gain the prior week.
Upcoming Splits
  • (MMSI) 5-for-4
Other Potential Market Movers
  • The Fed's Lockhart speaking, Challenger Job Cuts report for April, weekly MBA mortgage applications report, Goldman Cloud Computing Conference, Morgan Stanley IT Services Conference, (IHS) investor day, (IMAX) investor day and the (LO) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology 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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