Tuesday, July 12, 2011

Tuesday Watch

Posted by Gary .....at 1:07 AM

Evening Headlines

Bloomberg:
  • Euro Falls to 4-Month Low Versus Yen on Concern Debt Crisis to Reach Italy. The euro fell to an almost four- month low versus the yen after the International Monetary Fund head said “nothing should be taken for granted” on Greece, stoking concern its debt crisis will spread to larger economies. The 17-nation currency fell to a record low versus the Swiss franc before the Italian Treasury sells one-year bills today and as much as 5 billion euros ($7 billion) of bonds on July 14 amid surging yields on the nation’s debt. The yen and dollar rose against most of their major counterparts as Asian stocks extended a worldwide slump, spurring demand for refuge assets. Australia’s dollar weakened after an industry report showed business confidence declined to a six-month low.
  • Italy Becoming Spain Makes Crisis 'Systemic'. Investors are treating Italy increasingly like Spain as contagion pushes bond yields in two of Europe's biggest economies towards levels that forced Greece, Ireland and Portugal to request external help. The gap between Italy's benchmark 10-year yield and that of Spain narrowed to 35 basis points yesterday, the least since November, even as Spanish debt yielded more than 6% for the first time. The Italian yield jumped 71 basis points in the last five day to a nine-year high of 5.71%, on concern that the euro-region's largest debt load is becoming unsustainable. Greece, Ireland and Portugal asked for bailouts after their 10-year yields breached 7%. "This changes everything," said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. "We are dealing with systemic countries now. These kinds of spreads require the immediate attention of the EU." At 28% of euro-region GDP, the Spanish and Italian economies account for almost five times the 6% of Greece, Portugal and Ireland combined.
  • Portugal Slump to Deepen as Austerity Bites, Central Bank Says. Portugal’s economy will shrink more than forecast this year and contract in 2012 as the austerity measures that were required for an international bailout take hold, the country’s central bank said. Gross domestic product will shrink 2 percent this year and 1.8 percent in 2012 after expanding 1.3 percent in 2010, the Bank of Portugal said in its summer economic bulletin today. In March, before Portugal sought a rescue, the estimates were a 1.4 percent contraction this year and 0.3 percent growth in 2012.
  • China's Stocks Slump on Europe Debt Crisis, Property Curbs. China’s stocks fell, driving down the benchmark index by the most in almost two weeks, on concerns Greece’s debt crisis may spread to bigger economies in Europe and the Chinese government is intensifying property curbs. “Inflation is still a big problem in China now and the government won’t ease tightening until inflationary pressure really recedes,” said Wu. Shanghai will start a trial to cap prices of newly built residential properties in planned urban areas in Pudong New District in the second half of this year, Xinhua reported yesterday, citing the city’s Mayor Han Zheng. Poly Real Estate, China’s second-largest developer by market value, dropped 2.6 percent to 10.95 yuan. China Vanke Co., the nation’s biggest listed property developer, slid 1.8 percent to 8.60 yuan.
  • China Money Supply Growth, Lending Rebounds. China’s new loans rose more than estimated in June and money supply growth rebounded even after the central bank raised interest rates and reserve requirements to cool credit growth that’s fueling inflation. New loans were 633.9 billion yuan ($98 billion), compared with the 622.5 billion yuan median estimate in a Bloomberg News survey and 551.6 billion yuan in May. M2, the broadest measure of money supply, rose 15.9 percent, the People’s Bank of China said on its website. Foreign-exchange reserves, the world’s largest, rose to $3.2 trillion at the end of June from $3.04 trillion at the end of March. “Monetary policy is not in a position to loosen yet given elevated inflationary pressures and still stable domestic demand,” Chang Jian, a Hong Kong-based economist at Barclays Capital said before the data. “Credit controls should remain in place and special support needs to be given to smaller companies and vulnerable sectors that have been disproportionately affected by the credit tightening.” Barclays Capital’s Chang estimates the PBOC will raise interest rates again in the third quarter, the sixth increase since it started in mid-October. Economists at Nomura Holdings Inc. also forecast a move in the third quarter along with another 100 basis-point increase in banks’ reserve requirements, taking the total for the biggest banks to 22.5 percent. Nomura last week raised its 2011 inflation forecast to 5.2 percent from 4.9 percent to reflect the recent surge in pork prices while UOB Kay Hian Holdings Ltd. revised its estimate to 5.4 percent from 4.8 percent in a report yesterday.
  • Crude Oil Falls for a Third Day on European Debt Concern, U.S. Stockpiles. Oil fell for a third in New York as concern that the European debt crisis will spread stoked speculation that fuel demand may falter. Futures dropped as much as 0.5 percent, extending yesterday’s 1.1 percent decline, as soaring yields on Italian bonds heightened concern Europe’s third-largest economy won’t be able to finance its debt. Crude also dropped before an Energy Department report tomorrow that may show U.S. gasoline supplies increased for the first time in four weeks. “The market is now more concerned about debt problems in core European countries, namely Italy,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in an e-mailed note today. “Commodity markets are expected to remain under pressure, with a rising U.S. dollar, weaker equities and greater risk-aversion weighing on demand expectations.” Crude for August delivery fell as much as 55 cents to $94.60 a barrel in electronic trading on the New York Mercantile Exchange, and was at $94.67 at 11:42 a.m. Sydney time.
  • Gold Tops $1,550 on Concern Europe's Sovereign-Debt Crisis Will Escalate. “Inflation will continue to be a big problem globally and this will keep gold prices supported,” said Chi Duofeng, an analyst at Bohai Futures Co. in Changchun, China. “We remain bullish on gold for at least the rest of the year as the global macro-economic picture isn’t encouraging.”
  • Janus Capital(JNS) Leads Fund Manager Declines on Withdrawals, EU Debt Crisis. Janus Capital Group Inc. (JNS), owners of the Janus, Perkins and Intech fund families, led asset-manager declines, after investors continued to exit its funds in June. The Denver-based firm fell 6.8 percent today in New York Stock Exchange composite trading, losing the most among Standard & Poor’s 18-company index for asset managers and custody banks. The index fell 3.9 percent over concern that Europe’s debt crisis may threaten Italy. “It was a terrible month for the industry, but given they are mostly in equities and the relative poor performance of their funds, Janus will look worse than the others,” Jason Weyeneth, an analyst in New York with Sterne, Agee & Leach Inc., said in a telephone interview. Janus’s 20 largest stock and bond mutual funds, representing about 55 percent of assets under management, lost an estimated $954 million to client withdrawals in June, according to data compiled by Bloomberg. Investors pulled a net $18.5 billion in the past seven quarters and more than $2 billion from mutual funds in the three months ended June 30.
  • NCR(NCR) Buys Radiant Systems(RADS) for $1.2 Billion. NCR Corp. (NCR) agreed to acquire Radiant Systems Inc. (RADS), a maker of customer-service sales equipment and software, for $1.2 billion. The $28-a-share purchase has been approved by both companies’ boards, according to a statement NCR released today. The price represents a 31 percent premium to Alpharetta, Georgia-based Radiant’s closing price today of $21.45.
  • Boeing(BA) May Lose $400 Million More on Tanker, Air Force Says. Boeing Co. (BA) may be required to absorb more than $700 million and the Air Force another $600 million in overruns if projections of cost increases on the KC-46 tanker program materialize, according to newly released U.S. Air Force figures. Boeing’s $700 million cost is a combination of a previously reported $300 million and another $432 million the Air Force disclosed today, putting Boeing’s profit from the tanker contract in jeopardy if the contract exceeds its $4.9 billion ceiling.
  • Spanish Spending Vote Looms as Zapatero Seeks to Stave Off Election Risk. Spanish Prime Minister Jose Luis Rodriguez Zapatero will seek lawmaker backing today for a spending plan for next year as his Socialist government prepares a budget that may determine whether he can finish his mandate.
Wall Street Journal:
  • Itlay Fears Jolt Markets. Italy, long a bystander to the euro-zone's debt woes, was thrust into the maelstrom Monday, as investors fled the country's bonds and Europe's leaders struggled to keep the crisis from infecting the Continent's third-largest economy. Fears over Italy's solvency and political stability were compounded by market frustration that Europe's leaders haven't yet come up with a solution to Greece's deepening debt problems: The gap between the yields on Italy's 10-year sovereign bonds and safer German Bunds jumped by more than 100 basis points, or a whole percentage point, to a record high of 285.6, compared to a week ago.
  • Challenges Auditing Chinese Firms. A series of alleged frauds at Chinese companies listed in the West has spotlighted the role of some of the world's biggest auditors in a fast-growing market where they have expanded quickly and competed aggressively in recent years. Since February, the so-called Big Four accounting firms have resigned or been dismissed from at least seven Chinese companies listed in the U.S., according to SEC filings. In most of those cases, the auditors said they had concerns about the accuracy of information provided by their clients, and in three instances, auditors quit the accounts before completing the auditing of any financial reports. Dozens of mostly smaller Chinese companies listed outside that country have come under fire in recent months from regulators and investors, as a wave of fraud alleged by short sellers has erased billions of dollars in the Chinese firms' market value and triggered lawsuits and U.S. regulatory probes.
  • Hedge-Fund Investors Scout Out Web Firms. Spurred by their appetite for technology companies and seeking higher returns, a growing number of hedge-fund managers have started to invest more in private Internet companies. When daily-coupon website LivingSocial Inc. said it raised $400 million in April, the firms putting up cash included hedge-funds Tiger Global Management, Lone Pine Capital and Brookside Capital, people familiar with the matter say. Tiger's name popped up again in late June, when the New York firm grabbed a piece of the $100 million financing round for Square Inc., a mobile-payments start-up led by Twitter co-founder Jack Dorsey. A handful of hedge funds already had a history of such investments, but the activity has increased recently as investors try to cash in on the surging valuations of Facebook Inc., LinkedIn Corp., Zynga Inc., Groupon Inc. and a smattering of smaller companies. The inflows are giving young companies access to big pools of capital and the Rolodexes of some sophisticated investors. But they're also pushing the already frothy valuations of some companies even higher and rattling the clubby venture-capital scene. Hedge funds have typically invested in ventures that they can sell at a moment's notice, while venture-capital firms are known for advising start-ups and taking a longer-term view. "Hedgies investing in start-ups directly is scary," says Jeff Clavier, founder of SoftTech VC, a small but influential seed-stage venture firm based in Palo Alto, Calif. "They are the antichrist of patient, supportive early-stage investing."
  • Musharraf, Eyeing Return to Power, Says Less US Aid to Pakistan 'Disastrous'.
  • Novellus(NVLS), Microchip(MCHP) Set Negative Tone to Chip Earnings. Novellus Systems Inc. (NVLS) and Microchip Technology Inc. (MCHP) provided weak guidance Monday, warning that customers are feeling more cautious and raising concerns about the semiconductor industry's second half of 2011. The comments come early in the earnings season, with larger companies--such as Intel Corp. (INTC), Texas Instruments Inc. (TXN) and Qualcomm Inc. (QCOM)--expected to post results in the coming weeks. Nonetheless, the comments build on the weakness seen over the past several weeks in the semiconductor industry, which experienced booming growth following the recession. Consumer spending on PCs has remained soft, some large handset makers have been struggling and macroeconomic worries have hurt demand. As a result, analysts have been lowering growth forecasts, particularly for PC sales, and chip stocks have taken a hit. Novellus, which makes tools used in semiconductor manufacturing, on Monday warned for the second quarter in a row that its customers, the companies that actually manufacture processors, are pushing out orders, worried about macroeconomic conditions despite end-market demand "that doesn't seem that bad." "Clearly there is a burgeoning worldwide feeling of caution on economic expansion," Novellus Chairman and Chief Executive Richard Hill said during a conference call. "I see executives' moods on investments deteriorating instead of getting more confident...There are things going on around us tending to make more and more of us pessimistic rather than optimistic, and that's not a good sign." As a result, he forecast third-quarter earnings below analysts' expectations, sending shares down 5.7% to $33.75 after hours. Meanwhile, Microchip--which provides microcontrollers and analog semiconductors that change sound and light into digital signals--cut its view for first-quarter results. It said it saw "broad-based weakness" in the June quarter because of lower automotive production activities, as well as consumer softness amid poorer economic conditions. Gleacher analyst Doug Freedman, who called Microchip "very broad-based," said he expects to hear similar commentary from the rest of the semiconductor industry. Microchip's shares tumbled 7.3% to $34.75 after hours. Other chip companies with automotive and analog exposure also declined, including Texas Instruments, down 1.7% at $31.90, and Analog Devices Inc. (ADI), down 2.7% at $37.52.
  • Conrad Wants $2 Trillion. President Obama demanded again yesterday that Republicans raise taxes in return for giving him the debt-limit increase he's also demanding. Nice of him to be so accommodating. He has in mind, oh, something in the neighborhood of $1 trillion. But it turns out he's a piker compared to Senate Democrats, whose budget leader has announced that his tax target is $2 trillion. Mr. Obama said yesterday it's time to "eat our peas," and $2 trillion is a lot of peas.
CNBC:
 Business Insider:
 Zero Hedge:
IBD:
NY Times:

Forbes:
  • Oil Drilling vs. President Obama's Climate Crusade. What hampers the oil industry slows the U.S. economy. Energy exploration and production should be a top priority right now. Instead, this engine of economic recovery faces both direct and stealthy threats from the Obama administration's anti-drilling regulators.
Rasmussen Reports:
Reuters:
  • Alcoa(AA) Q2 Profit Jumps on Metal, Alumina Prices. Alcoa Inc, America's biggest aluminum producer, posted a big jump in second-quarter profit on Monday, matching Wall Street estimates, partly due to soaring prices for the metal and alumina, its raw material. But some analysts said a recent softening of aluminum prices might affect the company's third-quarter results and Alcoa's stock slipped 7 cents to $15.84 in after-hours trade on the New York Stock Exchange.
Financial Times:
  • European Banks Tell EU to Commit to Greek Debt Buyback, FT Says. European banks have demanded that the European Union commit itself to a buyback of Greek debt and for the euro area and IMF to take urgent action "to avoid market developments spinning out of control and risk contagion accelerating." The FT cited a proposal by the Institute of International Finance, representing the banks, in a paper presented to euro area finance ministers today.
  • Banks Act to Woo Hedge Funds. Banks are offering easier credit terms to hedge funds in an increasingly fierce competition for their business, according to new Federal Reserve survey data. The Fed’s poll of 20 of the largest securities dealers, launched last year in an attempt to fill in information black holes that stoked the crisis, also found a rebound in their clients’ leverage.
Telegraph:
  • German 'Nein' Leaves Italy and Spain in Turmoil. Chancellor Angela Merkel called for more "frugality" in Italy, sticking to her script that Rome can solve its woes with an austerity budget. Her finance minister Wolfgang Schäuble said any boost to the EU's €500bn (£440bn) bail-out machinery was "out of the question". Mr Schäuble denied reports that Berlin was ready to empower the fund to purchase Spanish and Italian bonds pre-emptively on the open market, a move seen by experts as vital to halt dangerous contagion to the larger economies. The market's verdict on EU foot-dragging was instant and brutal. EU leaders seem unable to keep pace with the fast-moving events. Eurogroup finance ministers focused yesterday on details of "burden-sharing" for banks that lent to Greece, no longer the most urgent matter. A summit of top EU officials ended with no hint of how the crisis could be contained. "We've painted ourselves into a corner. At this point, either someone – Germany, the European Central Bank – has to fundamentally shift position, or everything blows up," an EU official told Reuters. Berlin has resisted any move to buy or guarantee the bonds of distressed debtors, viewing it as a slippery slope towards a fiscal union and a breach of Germany's Basic Law. The ECB in turn has refused to buy Spanish and Italian bonds, saying it is the task of EU governments.
Guardian:
  • Greece Set to Default On Massive Debt Burden, European Leaders Concede. European leaders bowed to the inevitable and conceded that Greece is likely to default on its massive debt burden, which would be a first among the 17 countries using the euro. They also abruptly shifted tack in the eurozone debt crisis by raising the possibility of using the eurozone's bailout fund to buy back Greek debt on the markets, meaning sizeable losses for Greece's private investors and reduced debt levels for Athens. Following 12 hours of fraught negotiations in Brussels haunted by the risks of contagion in the eurozone spreading to Italy, now being targeted by the financial markets for the first time in the 18-month crisis, the 17 governments of the eurozone pointedly failed to rule out a sovereign debt default by Greece.
Passauer Neue Presse:
  • Wolfgang Gerke, president of the Bavarian Center of Finance in Munich, said any potential plan by the ECB to double the European Union rescue fund to $2.1 billion would be "irresponsible," citing an interview with Gerke. Such "slogans" create scares and unsettle the financial markets, Gerke said.

HKET:
  • Chinese inflation is being driven by property price increases, which will be key to controlling consumer prices, Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, wrote in a commentary. Moves to create a more market-based economy are "pivotal" in cooling overpriced real estate, Yi wrote.
The Australian:
  • Labor Support Collapses to 27% in Latest Newspoll. LABOR'S support has slumped to a record low, with the Coalition sitting at all-time highs as Tony Abbott extends his lead as preferred prime minister over Julia Gillard. In the two-week lead-up to Sunday's announcement of the carbon tax details, Labor's primary vote fell three percentage points to a record low of 27 per cent, while the Coalition's support rose three points to 49 per cent for its highest primary vote since the Howard government in October 2001.
Securities Times:
  • Land sales in the city of Beijing declined 52% in the first half from a year earlier to $4.7 billion, citing SouFun Holdings Ltd., operator of China's biggest real-estate website. Shanghai's land sales in the first half declined 27% from a year earlier to 49.4 billion yuan. Combined land sales in 130 Chinese cities dropped 5.5% in the first half from a year earlier to 752.4 billion yuan.
South China Morning Post:
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -2.0% to -.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 121.50 +6.5 basis points.
  • Asia Pacific Sovereign CDS Index 125.0 +8.5 basis points.
  • S&P 500 futures -.68%.
  • NASDAQ 100 futures -.65%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (WWW)/.46
  • (FAST)/.30
  • (TXI)/-.28
  • (XCO)/.18
Economic Releases
7:30 am EST
  • NFIB Small Business Optimism for June is estimated to rise to 91.2 versus a reading of 90.9 in May.
8:30 am EST
  • The Trade Balance for May is estimated to widen to -$44.1B versus -$43.7B in April.
2:00 pm EST
  • FOMC Minutes from June 21-22 Meeting.
Upcoming Splits
  • (OKS) 2-for-1
  • (TGI) 2-for-1
Other Potential Market Movers
  • The JOLTs Job Openings report for May, IBD/TIPP Economic Optimism Index for July, 3-Yr Treasury Note Auction, weekly retail sales reports, ThinkEquity Internet/Gaming Symposium, SEMICON West 2011, (RIMM) Shareholder Meeting and the (LRCX) Analyst/Investor Meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.

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