Evening Headlines
Bloomberg:
- JPMorgan(JPM) Cuts China, H.K. Stocks to 'Underweight'. China and Hong Kong stocks were cut to “underweight” from “neutral” at JPMorgan Chase & Co., which said speculation that Chinese policymakers are ending their tightening efforts is “premature.” Asia’s largest economy is likely to increase banks’ reserve requirements by 50 basis points in the second half, analysts led by Adrian Mowat said in a report today. “The problem for the market is that investors are positioned for an end of the tightening cycle,” the analysts said. “We think it is premature to call an end to the tightening cycle.” JPMorgan had upgraded Chinese shares to “neutral” on April 6, saying the government will “engineer a soft landing” for the economy. The MSCI China Index has since declined 4.9 percent. The brokerage cut its rating on Hong Kong, saying that property prices are “excessive relative to income” and that the city’s real-estate market, along with those in China and Singapore, has “peaked.”
- SodaStream's(SODA) Kitchen Appliance Fizzes Up Shares Amid U.S. Push. Buzz about the $80-$200 appliances, which can turn tap water into over 100 flavors of soda in refillable bottles, has helped drive up SodaStream’s share price almost 200 percent since its initial public offering in November.
- Elizabeth Warren's Dream Becomes a Real Agency She May Never Get to Lead. Warren, 62, is a Harvard professor and perhaps the country’s top expert on bankruptcy law. Over the past four years she has managed to stoke a fervent debate over the government’s role in protecting American consumers from what she sees as the predatory practices of financial institutions, and she has positioned herself as the person to oversee a new federal agency to rewrite the rules of lending, Bloomberg Businessweek reports in its July 11 issue.
- Sights Set on Grand Debt Deal. President Barack Obama and congressional leaders agreed Thursday to strive for a blockbuster deficit-reduction deal and will spend the weekend determining whether political support is possible for a sweeping plan to curb entitlements and make major tax-code changes.
- Canada Has Plenty of Oil, But Does the U.S. Want It? In a 21st-century oil boom, this sparsely populated Canadian province has become one of the world's newest petroleum powerhouses. Foreign investors are piling in, and Alberta plans to double production over the next decade. The problem is that the U.S.—the biggest consumer of Alberta petroleum—may not want the additional oil.
- Failed Talks Signal Struggles for UAW. Failed labor talks that contributed to the closing of a Detroit auto-parts plant have implications for negotiations between the Detroit Three and the United Auto Workers union, which has signaled it hopes to recover wage givebacks now that U.S. auto makers are profitable. American Axle & Manufacturing Holdings Inc. may close a New York gear-making plant, where talks on a new union contract have sputtered, after saying it would close a Detroit axle-making facility once the current contract expires on Feb. 26.
- Chavez Is Believed to Have Colon Cancer.
- Mullen Accuses Tehran of Arming Iraq Militias. The top U.S. military officer accused Iran on Thursday of shipping new supplies of deadly weapons to its militia allies in Iraq, in what he described as Tehran's bid to take credit for forcing American troops to go home.
- Sorting the Real From the Phony Spending Cut Options. A balanced budget amendment will be hard, but block-granting Medicaid and food stamps to states would be a good start on reform.
- Emerging-Market Growth Slows to Two-Year Low. Weakness in second-quarter manufacturing production largely contributed to the slowest rate of growth in emerging markets in two years, but the platform for a “soft landing” is being built by battles waged against inflationary pressures, according to a study released Thursday. The HSBC Emerging Market Index came in at 54.2 for the second quarter, down from 55.0 in the first quarter, HSBC said in its quarterly assessment of purchasing-managers indexes in 16 countries. The current reading is below the long-run series average of 54.8.
- New Way High-Speed Traders Get Edge on Investors. A new report from a market research and data firm suggests that high frequency traders are pushing the limits of the ticker tape to the tune of one million orders per second or more. While the buy and sell orders are typically cancelled microseconds later—so-called quote stuffing—the practice is an attempt to slow down the prices seen by regular investors on their financial systems or websites, and profit off the nearly real-time prices the high-frequency firms receive from direct feeds set up through exchange-server farms, the report and other market experts suggest.
- The CIA Put A Ton Of Cash Into A Software Firm That Monitors Your Online Activity. American intelligence communities are interested in your YouTube video, flickr uploads, tweets -- even your online book purchases -- and for over a year they've been laying down some serious cash to get a better look at all of them.
- No, It's Not The Nat Gas "Fractal" Algo: Nanex Discloses The Very Ominous Implications of Today's Berserk Crude Algo.
- China's Ticking Debt Bomb. Once local government debts, costs of re-capitalizing state-owned banks, bonds issued by state-owned banks, and railway bonds are included, China’s total debt amounts to 70 to 80 percent of GDP, roughly the level of public debt in the United States and the United Kingdom. Since most of China’s debt has been borrowed in the last decade, China is on an unsustainable trajectory at the current rate of debt accumulation, particularly when economic growth slows down, as it’s expected to do in the coming decade."
- Retirement Fund Plunder Update: $206 Billion So Far, $62 Billion Left.
- In Rough Year, Renaissance Notches 21% Gain. Begun in 2005, REIF is one of the few funds open to public investors at the roughly $19 billion Renaissance and has returned 6 percent on average since then. The Standard and Poor’s 500-stock index has returned an average of 3.3 percent per year over the same period.This year’s gains is a welcome turnaround for REIF’s investors, who sustained losses in 2007, 2008 and 2009.
- U.S. Admiral Ties Pakistan to Killing of Journalist. Adm. , chairman of the Joint Chiefs of Staff, said Thursday that he believed that the government of had “sanctioned” the killing of a Pakistani journalist who had written scathing reports about the infiltration of Islamic militants into the country’s security services.
- Behind the Gentler Approach to Banks by U.S. As the financial storm brewed in the summer of 2008 and institutions feared for their survival, a bit of good news bubbled through large banks and the law firms that defend them. Federal prosecutors officially adopted new guidelines about charging corporations with crimes — a softer approach that, longtime white-collar lawyers and former federal prosecutors say, helps explain the dearth of criminal cases despite a raft of inquiries into the financial crisis. Though little noticed outside legal circles, the guidelines were welcomed by firms representing banks. The Justice Department’s directive, involving a process known as deferred prosecutions, signaled “an important step away from the more aggressive prosecutorial practices seen in some cases under their predecessors,” Sullivan & Cromwell, a prominent Wall Street law firm, told clients in a memo that September.
- Warren Buffett To Exercise $5B Goldman Sachs(GS) Warrants in 2013. Buffett will continue to benefit from his $5 billion investment in Goldman Sachs during the financial crisis.
- Obama Warns He Will Veto Any Short-Term Debt Deal. Two sources close to discussions tell CNN that at the top of the meeting with congressional leaders today the president said unequivocally he will veto any short term deal that does not extend the debt limit through 2012.
- Obamacare Tragedy Primed To Further Explode the Deficit. President Obama bludgeoned Obamacare through Congress on the claim, backed by CBO, that it would not add to the deficit, even though it adopts or wildly expands three entitlement programs. As I discuss in my new book, America’s Ticking Bankruptcy Bomb, close analysis of the CBO score and additional new data indicates that, quite to the contrary, Obamacare will likely add $4 to $6 trillion to the deficit over its first 20 years, and possibly more. Of course, the deficit is not the biggest problem. Even bigger is that regardless of the deficit, Obamacare involves trillions of increased government spending and taxes. Worst of all is that it involves a loss of control over, and the quality of, our own health care. All of this is ultimately a tragedy because as my book also explains, the uninsured could all easily be covered without any individual or employer mandate for just a small fraction of the cost of Obamacare, as discussed below.
- 23% Confident Policymakers Know What They're Doing About The Economy. Seventy-five percent (75%) are not confident in the country’s policymakers. These figures include two percent (2%) who are Very Confident and 39% who are Not At All Confident.
- Exclusive: Top Commodities Funds Take Fresh Beating in June. Two of the biggest commodity hedge funds suffered a second month of painful losses in June, falling victim to a rout across raw goods markets, a hedge fund investor told Reuters on Thursday. Clive Capital, a top commodities fund with more than $4 billion under management, and energy-focused BlueGold, with around $2 billion, hit a rough patch in May and June due in part to a series of sharp drops in oil prices, said the investor, who is familiar with the funds' returns. The 19-commodity Reuters-Jefferies CRB index fell nearly 9 percent over May and June, the largest two-month loss since the 2008 financial crisis. London-based Clive, led by star trader Chris Levett, lost around 8 percent last month and brought its year-to-date drop to near 10 percent, the investor said, requesting anonymity. London's BlueGold, led by French oil trader Pierre Andurand, dropped 5 percent in June and brought its year-to-date losses to near 12 percent, the investor said. Paul Touradji's New York-based commodities-focused Touradji fund, which managed around $2.5 billion as of January, fell around 3 percent in June, bringing year-to-date losses to near 13 percent, a separate fund industry source said. Unless they recover in the second half, BlueGold and Clive may face their first annual losses, hedge fund industry sources said. The two funds suffered large losses on May 5, when oil plunged more than $10 a barrel in one of the steepest one-day drops ever, the sources said.
- Big Pickups Clog US Dealer Lots, Concern Analysts. Big pickup trucks are clogging many U.S. dealer lots, causing headaches for General Motors Co (GM) and other automakers, and raising concerns about price wars and lower profits later in the year.
- US House Defeats Move to Stop Funds for Libyan War. A move to stop funding for President Barack Obama's military intervention in Libya was narrowly defeated in the U.S. House of Representatives on Thursday, underscoring Congress' unhappiness with the undeclared war. Both political parties split on the measure, highlighting how tensions over U.S. involvement -- in conjunction with NATO -- in Libya's civil war have crossed party lines and created unusual alliances.
- Texas Fight With EPA Grows With Power-Plant Rule. Texas Governor Rick Perry and two top state regulators on Thursday blasted the U.S. environmental agency for including Texas in a rule to slash sulfur dioxide emissions from power plants, warning that the last-minute action could threaten the state's electric supply. "Today's EPA announcement is another example of heavy-handed and misguided action from Washington, D.C., that threatens Texas jobs and families and puts at risk the reliable and affordable electricity our state needs to succeed," said Perry, a potential Republican presidential contender, in a statement.
- Equity and Debt Funds Pull in Fresh Cash - Lipper.
- U.S. Fed Balance Sheet Grows to Another Record Size. The U.S. Federal Reserve's balance sheet expanded to a record size in the week ended July 6 as the central bank bought more bonds in an effort to support the economy, Fed data released on Thursday showed.
- European Companies' Debt Costs Rise After Downgrade. Borrowing costs for some of Europe’s biggest companies have risen sharply this week as the region’s sovereign debt crisis has intensified. The multi-notch debt downgrade of Portugal to “junk” by Moody’s led to a deterioration in sentiment in sectors including financials and telecoms. Portuguese bank Banco Espirito and Portugal Telecom were two companies whose corporate debt yields, which move inversely to prices, rose as confidence crumbled. Outside Portugal, Telecom Italia and Santander, Spain’s biggest bank, have also seen their bond yields rise this week. In the US, investors have backed away from US commercial paper issued by foreign banks, according to the latest weekly data released on Thursday by the Federal Reserve.
- Central Banks Pull Most Gold in a Decade From BIS. Central banks have pulled 635 tonnes of gold from the Bank for International Settlements in the past year, the largest withdrawal in more than a decade. The move, disclosed in the BIS’s annual report, marks a sharp reversal from the previous year when central banks added to deposits of gold at the so-called “bank for central banks” rather than lending it directly to the private sector amid growing concerns over counterparty risk.
- ECB Tightens Noose on Southern Europe. The European Central Bank has raised interest rates a quarter point to 1.5pc to curb inflation and signalled more to come, despite faltering growth in southern Europe and acute stress in peripheral bond markets. Jean-Claude Trichet, the ECB's president, brushed aside warnings that tightening at this delicate juncture might push Spain and Italy into the danger zone, insisting that every eurozone country stands to lose if the ECB fails to anchor price stability. "The debt problems are contained in Spain and Italy for now but the eurozone is dealing with finer and finer margins," said Simon Derrick, currency chief at the BNY Mellon. "The situation is magnitudes worse than where we were a few months ago and the global outlook is following the pattern of mid-2008 before the Lehman crisis, so people are getting nervous," he said. Hans Redeker, currency chief at Morgan Stanley, said the danger for the eurozone is that long-term investment inflows have dried up. They have been replaced by a growing reliance on hot money funds, attracted by Europe's higher rates. "This money is fickle. It will move out on the slightest sign of trouble. Europe's capital flows are sounding alarms," he said. By raising rates, the ECB may have made matters worse. The ECB's monetary tightening has asymmetric effects, with greater impact on heavily-indebted and rate-sensitive economies in Spain and Ireland than on core Europe. Over 90pc of Spanish mortgages are priced off the floating 1-year Euribor rate, which has risen 66 basis points to 2.19pc this year. Only 20pc of German loans are on floating rates. Rate rises are ratcheting up the pressure as each month a fresh cohort of Spanish households sees a sharp upward adjustment in their mortgage payments. There is a hangover of 680,000 unsold properties on the market, according to government figures. "There is no sign of recovery," said Raj Badiani from IHS Global Insight. "House sales are falling again at double-digit rates and if this spills over into 2012, the pressure on the Spanish banking system could become unbearable," he said.
- Go Slow on Loans to Commercial Real Estate Projects: RBI to Banks. The Reserve Bank of India (RBI) has asked banks to go slow on lending to the commercial real estate sector. The regulator fears an asset price bubble. The RBI advisory comes in the backdrop of a sharp increase in lending to commercial real estate projects in the last one year and non-performing asset (NPA) growth in the sector staying higher than the growth in overall loan delinquencies. In the last two weeks, RBI has engaged with the top management of several banks. During these meetings, it also sought opinion on performance of the commercial real estate sector. “The central bank officials indicated that we should go slow on loans to commercial real estate due to an increase in NPAs amid slackening demand for such properties,” said the chairman and managing director of a public sector bank. According to RBI data, bank lending to commercial real estate registered 20 per cent growth in the year ended May 30 as compared to 1.2 per cent in the previous year. Bankers said RBI’s concerns stemmed from the fact that in case of a fall in real estate prices, banks would face asset quality pressures.
- China wo0n't reverse its prudent monetary policy in the short term, citing officials and researchers. The government will watch existing controlling measures and take action in the second half if necessary, citing the officials and researchers. Sheng Songcheng, head of the central bank's statistics department, and Yan Qingmin, assistant chairman of the China Banking Regulatory Commission, were among officials and researchers cited.
- China shouldn't halt monetary tightening in the second half, citing Yu Xuejun, director of the China Banking Regulatory Commission's branch in Jiangsu province. Inflation in China is likely to remain high until the first half of next year, fueled by the nation's fast rising industrial product prices, citing Yu.
Citigroup:
- Reiterated Buy on (MJN), boosted estimates, target $77.
- Rated (PFCB) Buy, target $46.50.
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 111.50 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 116.50 -2.0 basis points.
- S&P 500 futures -.08%.
- NASDAQ 100 futures +03%.
Earnings of Note
Company/Estimate
- (GBX)/.21
8:30 am EST
- The Change in Non-farm Payrolls for June is estimated at +105K versus +54K in May.
- The Change in Private Payrolls for June is estimated to rise to +132K versus +83K in May.
- The Unemployment Rate for June is estimated at 9.1% versus 9.1% in May.
- Average Hourly Earnings for June are estimated to rise +.2% versus a +.3% gain in May.
- Wholesale Inventories for May are estimated to rise +.6% versus a +.8% gain in April.
- Consumer Credit for May is estimated at $4.0 Billion versus $6.25 Billion in April.
- None of note
- None of note
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