Wednesday, November 23, 2011

Wednesday Watch

Posted by Gary .....at 12:30 AM

Evening Headlines

Bloomberg:
  • Euro Weakens Amid Signs Debt Crisis Is Weighing on Growth; Aussie Declines. The euro declined for the sixth time in eight days against the dollar before data that may add to signs that Europe’s debt crisis is damping economic growth. The 17-nation euro dropped versus the yen ahead of reports forecast to show that manufacturing in Germany and France, Europe’s two biggest economies, fell this month. The pound was 0.2 percent from a month low against the dollar before the Bank of England releases its November meeting minutes. The U.S. currency advanced against 15 of its 16 major peers as Asian stocks dropped. Australia’s dollar slid after a preliminary reading of a Chinese industrial output gauge declined. “The bias for the euro is that it falls,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “Overall the euro-zone economy is looking weak and trending weaker, and we’re expecting they’re going to recession sometime maybe next year.”
  • Hungary May Have to Blow to IMF Conditions to Access Financial Assistance. Hungary’s government may have to reverse its position on ruling out International Monetary Fund conditions in exchange for financial aid, according to Barclays Plc, Goldman Sachs Group Inc. and Capital Economics. Prime Minister Viktor Orban last week abandoned his policy of shunning the Washington-based lender, seeking help after a Standard & Poor’s threat to downgrade Hungary’s debt to junk sent the forint to a record low. He may have to do another reversal and scrap emergency taxes on some industries and ease the burden of a mortgage-repayment plan on banks, said Neil Shearing, an emerging-markets analyst at Capital Economics Ltd. The government has scrapped two debt sales and reduced the size of another eight auctions in the last three months as the euro region’s debt crisis deepened. The threat of market turmoil may force Orban to back down from insisting on an IMF agreement that won’t infringe on the country’s “economic sovereignty,” Barclays Capital economist Christian Keller said.
  • Mall Owner Sonae Sees Tough 2012 for Retail in Southern Europe. Sonae Sierra SGPS SA, the Portuguese mall owner that offered lower rents and other incentives to keep its southern European tenants this year, expects 2012 to be even tougher as the sovereign debt crisis roils economies using the euro. The European Commission cut its 2012 euro-region growth estimate by more than half this month and said the risk of recession is increasing. Retail sales at Sonae Sierra’s 21 Portuguese centers fell 8.4 percent in the first nine months from a year earlier and by 1.9 percent at its nine Spanish malls, less than the national averages in both countries, the CEO said last week at the MAPIC trade fair in Cannes, France.
  • Australia's Lower House Passes Gillard's Mining Tax as Greens Support Bill. Australia’s lower house of parliament passed legislation for a 30 percent tax on coal and iron-ore profits as independent lawmakers and the Greens Party backed Prime Minister Julia Gillard’s plan. The Minerals Resource Rent Tax Bill faces a vote next year in the upper-house Senate, where the Greens hold the balance of power, to become law. BHP Billiton Ltd. (BHP), Rio Tinto Group and other iron-ore and coal producers face paying about A$11 billion ($10.8 billion) in extra charges in the first three years of the tax. Australia’s iron ore shipments surged to a record A$6.3 billion in September as demand from China and India for raw materials helps power the Australian economy.
  • China Shunning Ships Shows $2.3 Billion Vale Mistake: Freight. The Vale Brasil, the biggest commodity ship ever built, was designed to carry iron ore to China from South America. After six months in operation, it hasn’t done that once. China’s refusal to accept the Brasil has derailed Vale SA’s push to control shipments to its biggest customer by building up a fleet of 35 ships, each almost as large as the Bank of America Tower in New York. Rio de Janeiro-based Vale, the world’s biggest iron ore miner, ships about 45 percent of sales to China, the largest consumer of the steelmaking ingredient. Vale’s plan, which includes buying 19 vessels for $2.3 billion, has spurred opposition from Chinese shipowners who say it will worsen overcapacity, slumping cargo rates and industrywide losses.
  • Bank Confidence Wanes After MF Global Failure: Credit Markets. Credit traders are punishing U.S. banks and brokers after wagers on European sovereign debt felled MF Global Holdings Ltd., as lender reliance on capital markets for funding is exposed by the region's crisis. The cost of protecting bonds from Morgan Stanley rose 47 percent this month and Goldman Sachs Group Inc. has climbed by 39 percent. Both are approaching levels reached in the first week of October that were the highest since the failure of Lehman Brothers Holdings Inc., according to data compiled by CMA and Bloomberg. Debt of New York-based Jefferies Group Inc. reached distressed levels last week. Credit-default swaps and bond yields are soaring even as banks seek to reassure investors that they're able to manage their sovereign-debt holdings. A gauge of banks' reluctance to lend to each other, the so-called Libor-OIS spread, is at the highest level since June 2009 as Italian and Spanish yields climb and the U.S. economy grew at a slower-than-estimated 2 percent annual rate in the third quarter. "On the heels of MF Global, the market has remained concerned about financials and the potential for a surprise," said David Brown, a money manager who helps oversee $82 billion of fixed-income assets at Neuberger Berman LLC in Chicago. The extra yield investors demand to hold the debt of banks has jumped 77 basis points this month to 391 basis points, or 3.91 percentage points, according to Bank of America Merrill Lynch index data. That compares with the 39 basis points increase to 261 for investment-grade debt overall.
  • Corzine Called to Testify at House Hearing. Jon S. Corzine, the former U.S. senator and New Jersey governor who ran MF Global Holdings Ltd. (MF) until the firm filed bankruptcy last month, has been called to testify at a House hearing on the failure next month. Corzine, who was chairman and chief executive officer of the New York-based firm, will face questions “on the decisions and events leading to the collapse of MF Global” at a Dec. 15 hearing before the House Financial Services Oversight and Investigations panel, according to a statement released today. Corzine, who was co-chief executive officer of Goldman Sachs Group Inc. (GS) before seeking public office as a Democrat, resigned from MF Global on Nov. 4 after the firm filed the eighth-largest bankruptcy in U.S. history after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations.
  • Oil Drops After Gasoline Stockpiles Rise, Growth Trails Estimate in U.S. Oil dropped from a three-day high in New York after rising gasoline stockpiles and slower-than- estimated economic growth raised concern about U.S. demand. Futures slipped as much as 0.5 percent after the American Petroleum Institute said fuel supplies climbed 5.42 million barrels last week.
  • Big Fish Sells Subscriptions to Its Games on the iPad. Apple Inc. (AAPL) is letting a video-game company offer its titles by subscription on the iPad, expanding the role of a feature typically used by magazine and newspaper publishers. Big Fish Games, a Seattle-based game publisher, won approval from Apple to become the first to offer users access to dozens of titles for $6.99 a month. Until now, games have only been available one at a time, requiring users to download individual applications.
  • Retail Groups Sue Fed Over Debit Card Rules. The Federal Reserve was sued by retailer groups over new regulations governing so-called swipe fees, claiming the Fed disregarded the law when deciding how much banks can charge merchants for debit-card transactions. The groups, in a lawsuit filed today in U.S. District Court in Washington, said retail merchants will be “substantially harmed” by the fees the Fed set under the Durbin Amendment, a provision of the Dodd-Frank legislation passed last year. The rule went into effect on Oct. 1. “The Board’s final rule permits banks to recover significantly more costs than permitted by the plain language of the Durbin Amendment and deprives plaintiffs of the benefits of the statute’s anti-exclusivity provisions,” the retailers argued in their complaint.
  • Chavez Activates Price Law to End Capitalist Speculation. President Hugo Chavez stepped up his control of the Venezuelan economy today as a new price regulation law came into effect that allows his government to set price caps on as many as 15,000 goods. The cost of 18 products will immediately be frozen, including soap, toothpaste and diapers, Vice President Elias Jaua said. Transnational corporations such as Colgate-Palmolive Co. (CL), the world’s largest toothpaste maker, Johnson & Johnson (JNJ), HJ Heinz Co (HNZ) and Unilever Plc, will have to report their production costs to enable the government to set prices, Jaua said.
  • Ending Charity Tax Break Will Hurt Poor Most: Stephen L. Carter. Thanksgiving week marks the traditional start of the holiday season, when our thoughts should turn to those less fortunate than ourselves. Most charities aimed at helping others report their heaviest donations during the holidays, and not only because of the urgent reminders besieging us on every side. As the end of the year approaches, families measure out their remaining disposable income in order to decide how much to contribute during the great year-end giving binge. And one of the things most people take into account is the tax deductibility of their donations.
  • India's Rupee Slide Spurs Fastest BRIC Inflation. The Indian rupee’s slump to its weakest level since the era of floating exchange rates began four decades ago risks boosting the fastest inflation among BRIC nations and adds pressure to raise interest rates. The rupee slid to close at 52.32 per dollar in Mumbai yesterday, bringing its decline in the past four months to 15 percent, the biggest drop among 10 Asian currencies tracked by Bloomberg. The decline will have an “immediate impact” on inflation, Reserve Bank of India Deputy Governor Subir Gokarn said in Mumbai yesterday. A weaker exchange rate raises the cost of imported energy and other commodities, adding to price pressures in a nation already beset by transportation bottlenecks and power shortages. A sustained slide in the rupee may buck the RBI’s plan to keep borrowing costs unchanged in coming months, limiting its scope to respond to growth threats posed by Europe’s debt crisis. “The more the rupee drops, the more difficult it would be for the central bank to stay pat on rates,” said Arun Singh, Mumbai-based senior economist at Dun & Bradstreet Information Services India Pvt. “There will be pressure on the RBI to abandon its stance and do another hike.” India’s benchmark wholesale-price inflation was 9.73 percent in October. By comparison, consumer prices rose 7 percent in Brazil, 5.5 percent in China and 7.2 percent in Russia in the same month.
  • Citigroup(C), BofA(BAC) May Have to Pare Dividend Ambition on Fed Tests. Citigroup Inc. and Bank of America Corp. are among lenders that may have to temper plans to raise dividends and buy back stock next year as the Federal Reserve toughens capital tests for the biggest U.S. banks. The Fed imposed a tougher capital test on the 31 largest U.S. banks yesterday, releasing the criteria for measuring their wherewithal if the U.S. economy sours and major trading partners default on their debt. Lenders need to prove they have the capital to withstand a “severe” U.S. recession with 13 percent unemployment and an 8 percent decline in gross domestic product before they can increase dividends or repurchase shares. The more pessimistic scenario will damp banks' ambitions to return more capital to shareholders, whose holdings have been decimated. The KBW Bank Index of 24 U.S. lenders has plunged 31 percent this year and is down 70 percent from its all-time high in February 2007. “It's going to be very difficult for any of these companies to do any major buybacks into next year,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst at FBR Capital Markets Corp. in Arlington, Virginia. Bank of America and Citigroup's “chances of upping a dividend or buying back any stock next year are almost zilch.”
Wall Street Journal:
  • Disaster Planning: Banks Ponder Euro-Zone Split. A key part of the world's foreign-exchange trading infrastructure is bracing itself for the possibility of a breakup of the euro zone, the latest sign investor concerns about the Continent's debt crisis are on the rise. CLS Bank International, which operates a platform in which banks settle most of their currency trades, is running "stress tests" to prepare for the possible dissolution of the euro, according to people familiar with the situation. Some of the 63 banks that co-own CLS are making similar plans.
  • Pressure on Merkel Amplifies. German Chancellor Angela Merkel faces growing calls to soften her resistance to a potentially powerful weapon in Europe's debt crisis: euro-zone bonds that would raise appeal for investors but make each euro member liable for the debts of the others in the currency club. Adding to the pressure is a market rout as investors flee nearly all euro-zone bonds other than German bunds. Spain on Tuesday was forced to pay a euro-era record 5.11% yield on three-month bills at an auction of treasury bills—more than double the rate it paid at an auction last month. In a further sign of strain, banks' borrowing from the European Central Bank soared to the highest level since 2009, the central bank said Tuesday. The ECB said it allotted €247.2 billion ($333.5 billion) in seven-day financing to banks. French bond yields also shot up in a sign that the debt crisis was continuing to spread to large, top-rated countries. Ms. Merkel on Tuesday stressed that joint debt issuance isn't the right response now. "The discussion of euro bonds in the midst of the crisis is inappropriate," she said. Germany has never categorically ruled out the joint issuance of bonds by the euro's 17 national governments, known as euro bonds. But Berlin insists that before euro members collectively raise financing on the open market, they must create rules that force each country to exercise fiscal discipline—or pay a heavy price. Many lawmakers in Ms. Merkel's ruling center-right coalition are deeply skeptical about joint euro-zone liability for debts, which they fear would reduce pressure for southern European countries to rein in government spending. "The moment we let up the pressure, those countries that have such problems will become complacent," German Finance Minister Wolfgang Schäuble said Tuesday. In addition to being a hard sell to Germany's lawmakers and voters, euro bonds may require amending the country's constitution, requiring a broad consensus among political parties in the euro zone's biggest member.
  • Trust Says 'Old' GM(GM) Owes It Millions. An environmental trust created to oversee the cleanup of hazardous waste left behind at dozens of former General Motors sites says the "old" GM has failed to pay millions of dollars it promised as part of its bankruptcy case. The U.S. government orchestrated GM's 2009 restructuring, which transferred the company's most valuable assets to a newly created entity called General Motors Co. Left behind in Chapter 11 were the unwanted remnants of the auto maker's old business, including 89 former sites and plants.
  • Muddy Waters Web Site Hacked. Investors wanting to access the website of Muddy Waters, the short-seller that has garerned a lot of attention for bearish calls on companies operating in China, including Toronto-listed timber operator Sino-Forest and most recently Focus Media Holding(FMCN), might have to wait a while.
  • Egypt Heads for Showdown. Egypt's military leadership was on a collision course with newly energized protesters Tuesday, as its promise to hand over power to an elected president earlier than expected and other concessions fell flat with a growing crowd of demonstrators who have renewed their hold over the capital's Tahrir Square.
  • EU Banks Struggle to Lure Deposits. An intensifying battle for deposits among European banks is putting pressure on the Continent's banking system, threatening to deprive lenders of a key source of funding as the cost of attracting customers rises. Individuals and businesses have pulled billions of euros of deposits out of banks in financially shaky countries such as Spain and Italy in recent months, according to bank disclosures and analyst research. Several large Italian and Spanish banks recently reported double-digit percentage declines in deposits from corporate and other institutional clients, although their overall deposit levels fell more modestly.
  • Euro Zone Risks Doing Too Little Too Late. Germany's greatest fear is moral hazard. How can it be sure countries will stick with reforms once market pressure is relaxed? Replacing elected politicians with unelected technocrats can be only a short-term remedy. Both EC President José Manuel Barroso and European Council President Herman van Rompuy are preparing proposals to improve economic governance. But most ideas under discussion amount to tinkering with scrutiny of national budgets, not the full-blown fiscal and political union needed to credibly underpin euro bonds. Perhaps the intensity of the crisis will force dramatic political change in Brussels, as it has in member states. Perhaps governments will embrace radical transfers of sovereignty to avoid the cataclysm of a euro collapse. But the risk is that, as so often in the crisis, when politicians finally act, it may be too little, too late.
MarketWatch:
  • China Bank Report Warns of Bad Loans in 2012. CICC says banks should expect defaults in year-end credit crunch. China International Capital Corp. warned in a recent report that banks are likely to see an increasing number of loans go bad during the first half of 2012, due in part to the scarcity of credit available to small and medium enterprises. Based on a survey conducted by CICC in the cities of Hangzhou and Shaoxing in Zhejiang province, home to many SMEs, the report said that even though banks have loosened credit controls on SMEs, many SMEs may still suffer a credit crunch in the first quarter of next year.
  • U.S. Gasoline Demand Continues Slump Into Holidays. U.S. gasoline demand continues to sink heading into the year-end holidays as consumers still struggle with a stagnant economy and pump prices higher than they were last year. Retail fuel sales fell 4.5% year over year to finish the week ended Nov. 18 at 60.9 million barrels a day, according to MasterCard Spending Pulse's survey of retail gas stations.
Business Insider:
 Zero Hedge:
 IBD:
NY Times:
  • Despite a Rough Year, Hedge Funds Maintain Their Mystique. Hedge funds, the golden children of finance, are having a very rough year. For one, they are not making money the way they used to. Returns for a number of funds, including those of star managers like John A. Paulson, have fallen by as much as half this year. And that poor performance comes just as these investment partnerships are coming under increased regulatory scrutiny. Yet the money keeps pouring in, even for Mr. Paulson.
  • Financial Finger-Pointing Turns to Regulators. A new defense has been mounted by a bank executive: my regulator told me to do it.
  • Fate of Euro May Hinge on Italian Savers. Even though Europe’s debt crisis has turned Rome into financial ground zero, Italy has been able to lean on at least one solid support: the relatively large amount of government debt held by Italians themselves. Nearly 57 percent of Italian debt is held by Italian banks, insurance companies and individuals. Those holdings have helped slow the flight of capital from Italy, even as foreign investors have been withdrawing their money from the country to park in safe havens like German, Swiss, American or Japanese government bonds. But financial officials have become jittery about the possibility that Italians may stop buying this debt, and instead become more like Greeks and send their hard-earned savings abroad.
LA Times:
  • Occupy San Diego Has Cost Police Department $2.4 Million. The Occupy San Diego protest has cost the Police Department $2.4 million in overtime and regular salaries for police officers redeployed from their regular beats, the department announced Tuesday. Included in the figure is $143,918 in overtime expenditures. The remaining amount was the cost of redeploying on-duty personnel to provide protection and maintain order at the protest site behind and adjacent to City Hall, officials said.
Wall Street All-Stars:
US News:
  • Federal Housing Administration Could be the Next Housing Bailout. First it was the big banks with their failed "credit-default swap" schemes and subprime mortgage meltdown. Then it was federally-backed mortgage giants Fannie Mae and Freddie Mac who sagged under the weight of risky home loans. Now the government agency responsible for insuring more than $1 trillion in mortgages could be in financial trouble, with most of its cash reserves depleted and claims on defaulting mortgages mounting.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).
Reuters:
 Telegraph:
  • Uh oh, global warming loons: here comes Climategate II! Breaking news: two years after the Climategate, a further batch of emails has been leaked onto the internet by a person – or persons – unknown. And as before, they show the "scientists" at the heart of the Man-Made Global Warming industry in a most unflattering light. Michael Mann, Phil Jones, Ben Santer, Tom Wigley, Kevin Trenberth, Keith Briffa – all your favourite Climategate characters are here, once again caught red-handed in a series of emails exaggerating the extent of Anthropogenic Global Warming, while privately admitting to one another that the evidence is nowhere near as a strong as they'd like it to be. In other words, what these emails confirm is that the great man-made global warming scare is not about science but about political activism.
  • Spain in Race Against Time to Avert Bail-Out. Markets have dashed any lingering hopes of an investor honeymoon for Spain's incoming leader Mariano Rajoy, sending the IBEX index in Madrid crashing through the 8,000 level and pushing borrowing costs to toxic levels. Yields on three-month Spanish notes jumped to 5.11pc at a sale on Tuesday, higher than rates paid by Greece last week. Mr Rajoy's team is scrambling to find ways to shorten the paralysing hiatus until mid-December when the new government is finally able to take charge under Spanish law. "We have to go beyond strictly legal requirements because the markets are not going to wait," said Miguel Arias Canete head of the Partido Popular's top body. Close advisers to Mr Rajoy said the party will have to flesh out exactly how it plans to pull the country out of its downward spiral, and perhaps reach an accord with the outgoing socialist to start implementing emergency measures. The country may need €30bn (£26bn) in fresh cuts to reach its 4.4pc deficit target next year. HSBC said the country is in a race against time to avoid becoming the fourth EMU country to need a bail-out.

China Daily:
  • The European debt crisis will "severely" challenge the upgrade of China's industry, Su Bo, vice minister of the Ministry of Industry and Information Technology said in a commentary.
Commercial Times:
  • China Steel Corp. may cut January and February prices for domestic customers. The steelmaker will lower hot-rolled prices by $50 to $60 a metric ton when it announces prices tomorrow.
China Business News:
  • China's economy won't experience a "hard landing," citing Pan Jiancheng, deputy director-general of the China Economic Monitoring and Analysis Center of the National Bureau of Statistics. The country's macroeconomic policy won't change direction, Pan said. Company financing is a major concern for the economy, Penn said. Domestic consumption isn't increasing "fast enough," which is also a concern, he said.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -2.50% to -1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 227.0 +7.0 basis points.
  • Asia Pacific Sovereign CDS Index 165.50 +1.0 basis point.
  • FTSE-100 futures -1.51%.
  • S&P 500 futures -1.21%.
  • NASDAQ 100 futures -1.02%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (DE)/1.44
Economic Releases
8:30 am EST
  • Durable Goods Orders for October are estimated to fall -1.2% versus a -.8% decline in September.
  • Durables Ex Transports for October are estimated unch. versus a +1.7% gain in September.
  • Cap Goods Orders Non-defense Ex Air for October are estimated to fall -1.0% versus a +2.4% gain in September.
  • Personal Income for October is estimated to rise +.3% versus a +.1% gain in September.
  • Personal Spending for October is estimated to rise +.3% versus a +.6% gain in September.
  • The PCE Core for October is estimated to rise +.1% versus unch. in September.
  • Initial Jobless Claims are estimated to rise to 390K versus 388K the prior week.
  • Continuing Claims are estimated to rise to 3621K versus 3608K prior.

9:55 am EST

  • Final Univ. of Mich. Consumer Confidence for November is estimated at 64.5 versus a prior estimate of 64.2.

10:30 am EST

  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +500,000 barrels versus a -1,056,000 barrel decline the prior week. Distillate supplies are estimated to fall by -1,250,000 barrels versus a -2,136,000 barrel decline the prior week. Gasoline inventories are estimated to rise by 1,000,000 barrels versus a +992,000 barrel gain the prior week. Finally, Refinery Utilization is expected to rise by +.5% versus a +2.2% gain the prior week.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Kansans City Fed Manufacturing Activity Index for November, weekly Bloomberg Consumer Comfort Index, 7-Year Treasury Note Auction and the weekly MBA mortgage applications report 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 lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.

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