Friday, October 14, 2011

Friday Watch

Evening Headlines

  • Spain Credit Rating Cut by S&P on Weak Outlook. Spain’s credit rating was cut for the third time in three years by Standard & Poor’s as slowing growth and rising defaults threaten banks and undermine efforts to contain Europe’s sovereign-debt crisis. The ranking was reduced by one level to AA-, S&P’s fourth- highest investment grade, with the outlook remaining negative, the rating company said in a statement yesterday. Fitch Ratings downgraded Spain to the same level on Oct. 7, when the company also cut its rating on Italy. “Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects,” S&P said. “The financial profile of the Spanish banking system will, in our opinion, weaken further, with the stock of problematic assets rising further.”
  • Greece's Bondholders Brace for Bigger Losses to Solve Crisis: Euro Credit. Greek bondholders are preparing to lose as much as 60 percent of their investments as European leaders try to impose a solution that reduces the nation’s debt burden by enough to end the debt crisis. “Everyone is coming to the conclusion that a much deeper restructuring is needed to make Greece in any way sustainable,” said Emiel van den Heiligenberg, chief investment officer of global balanced solutions at BNP Investment Partners in London, which oversees about $742 billion. “If the stock of debt doesn’t diminish then the problems are going to be bigger and bigger and Greece will require rescue package after rescue package.” Greek 10-year bonds yielded 23.97 percent at 5 p.m. yesterday, with the price on the securities at 37.41 percent of face amount. The rate was 2,186 basis points, or 21.86 percentage points, more than benchmark German bunds and compares with a yield of 11.59 percent for similar-maturity Portuguese debt and 5.82 percent for Italian bonds.
  • Portugal Plans Deeper Cuts in Moment of 'National Emergency,' Coelho Says. Portugal plans to make deeper budget cuts next year as it faces a moment of “national emergency,” Prime Minister Pedro Passos Coelho said. “Next year the adjustment will have to be much deeper,” Passos Coelho said last night in a speech broadcast by television station RTP following a cabinet meeting to discuss the 2012 budget proposal. To meet its budget goals, Portugal has to do more than it initially planned, he said.
  • China Inflation Rises 6.1%. China’s inflation exceeded 6 percent for a fourth month as officials across Asia struggle to cool prices even as growth slows. Consumer prices increased 6.1 percent in September from a year earlier, the National Bureau of Statistics said today. That matched the median forecast in a Bloomberg News survey of 22 economists and followed a 6.2 percent gain in August. Elevated inflation is limiting Premier Wen Jiabao’s room for easing monetary policy as Europe’s debt crisis cuts demand for exports and small businesses in China report a credit squeeze. Food costs drove price gains, with pork jumping 44 percent from a year earlier, while non-food and producer prices increased at a slower pace than in the previous month. “It is too early to call a victory over inflation,” said Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd., who previously worked for the World Bank. Producer prices rose 6.5 percent in September from a year earlier, a separate report showed. That was less than the 6.9 percent median estimate in a Bloomberg survey of economists and also the smallest gain this year. In August, the increase was 7.3 percent.
  • Mitsubishi UFJ Financial Group, Nomura Holdings and seven other Japanese financial institutions hold a total of about $13 billion in government debt of Greece, Portugal, Ireland, Spain and Italy, citing the banks' responses to a survey.
  • Singapore Cuts Growth Forecast, Eases Monetary Policy. Singapore cut its growth forecast and said it will slow currency gains, the first easing in monetary policy since 2009, as a faltering global economy undermines demand for electronics exports and financial services. Gross domestic product may increase 5 percent this year, compared with an earlier forecast range of 5 percent to 6 percent, the trade ministry said in a statement today. The central bank, which uses the island’s dollar as its main tool to manage inflation, said it will reduce the pace at which the currency strengthens and continue with a modest and gradual appreciation.
Wall Street Journal:
  • Johnson Controls(JCI) to Pare Inventories. Auto parts supplier Johnson Controls Inc. said it overestimated demand for its automotive batteries and will spend much of the next year working down its inventories. Chief Financial Officer Bruce McDonald admitted that the Milwaukee, Wis., company "took [its] eye off the ball" concerning its inventories, which ballooned by nearly 50% between mid-2010 and June 30.
  • Troubles of West Take Toll on Emerging Economies. The travails of the developed world are starting to hit fast-growing countries like China, Brazil and Indonesia, which are girding themselves to offset any economic and financial damage. From shrinking retail sales in Brazil to lower orders for manufacturers in South Africa to efforts by the Chinese government to boost the shares of its big banks, it is becoming clear that developing economies are feeling pressure from the slowdown in the West, putting global growth high on the Group of 20 agenda when financial officials meet this weekend in Paris.
  • What's Occupying Wall Street? The protestors have a point, if not the right target.
Zero Hedge:
  • Google(GOOG) Earnings Blow Past Expectations; Shares Surge. Google earnings and revenue blew past expectations, sending its shares sharply higher in after-hours trading. Google shares finished the day at $558.99 and jumped more than 5 percent after-hours. (Click here for the latest after-hours quote.) "Christmas came early for Google shareholders," said Colin Gillis, an analyst at BGC Partners. "It was a great beat on the bottom line. It's not necessarily because they are controlling expenses. It's because they are driving more revenue," he said.
Denver Post:
  • GE(GE) Set to Build $300 Million Solar Panel Plant in Colorado. General Electric Co. is set to announce plans to build one of the country's largest thin-film solar panel plants in Aurora creating an estimated 350 jobs, according to sources. The $300 million plant will be located in a 200,000-square-foot former L'Oreal Worldwide warehouse in the Majestic Commercenter northeast of I-70 and Tower Road. PrimeStar Solar, owned by GE, plans to begin retrofitting the warehouse next month and to double its size within the next two years, a source familiar with the deal said. When GE announced in April plans to build the plant — using technology developed by Colorado start-up PrimeStar — it set-off a pitched battle among 10 states. One source said this morning that the plant will go to Aurora and the city will provide about $20 million in incentives with the state providing roughly $2 million. In February 2007, PrimeStar and NREL signed a $780,000 cooperative agreement to move thin-film technology developed at NREL to commercial production. Four months later the company received a $3 million grant from the U.S. Department of Energy to help with development. In September 2007, GE took an undisclosed minority share in PrimeStar and eight months later turned that into a majority share.
Financial Times:
  • Policymakers Say Greek Deal Must Avoid Default. Senior European policymakers insist that any deal to persuade Greek bondholders to take a bigger hit in a new bail-out for Athens must avoid a full-scale default, a condition that could limit the size of investors’ losses.
  • Erste Faces Questions Over CDS Accounting Change. Erste Group, the Austrian bank that issued a profit warning this week which reignited concerns about the quality of European bank financial statements, is facing questions over an abrupt change in its accounting for credit derivatives.
China Daily:
  • The U.S. has "skillfully" shifted the cost of its domestic financial crisis to other countries y first nationalizing private debt and then using the dollar's positions as the global reserve currency to internationalize that debt, Zhang Monan, a researcher at China's State Information Center, writes in a commentary.
  • A survey of 1,207 Chinese businesses by the China Oriental Culture Broadcast Institute found that 51.3% of respondents said they had put money into the underground banking system in the hopes of earnings a profit.
China Securities Journal:
  • Conditions are not yet ripe for China to relax its tightening policies on the proprietary market and some of the measures may be maintained as home sales in the first half of the year were will "sound," Wang Yulin, deputy head of the policy research center at the Ministry of Housing and Urban-Rural Development said in an interview.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.25% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 214.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 155.50 -4.5 basis points..
  • FTSE-100 futures +.53%.
  • S&P 500 futures -.06%.
  • NASDAQ 100 futures +.25%.
Morning Preview Links

Earnings of Note
  • (MAT)/.86
Economic Releases
8:30 am EST
  • The Import Price Index for September is estimated to fall -.4% versus a -.4% decline in August.
  • Advance Retail Sales for September are estimated to rise +.7% versus unch. in August.
  • Retail Sales Less Autos for September are estimated to rise +.3% versus a +.1% gain in August.
  • Retail Sales Ex Auto & Gas for September are estimated to rise +.4% versus a +.1% gain in August.
9:55 am EST
  • Preliminary Univ. of Mich. Consumer Confidence for October is estimated to rise to 60.2 versus 59.4 in September.
10:00 am EST
  • Business Inventories for August are estimated to rise +.4% versus a +.4% gain in July.
2:00 pm EST
  • The Monthly Budget deficit for September is estimated to widen to -$64.9B versus -$34.6B in August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The G-20 Finance Ministers Meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

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