Evening Headlines
Bloomberg:
- Italy, Spain Offer $21.5 Billion of Debt in First Auctions of the New Year. Italy and Spain will seek to sell as much as 17 billion euros ($21.5 billion) in debt today as Prime Minister Mario Monti urges investors to reward Italian austerity efforts. In their first auctions of 2012, Spain will sell as much as 5 billion euros of bonds, including a new three-year benchmark security. Italy, which needs to repay more than 50 billion euros in bonds in the first quarter, will sell as much as 12 billion euros of bills today and 4.75 billion euros of bonds tomorrow. “Spain is going to place plenty of paper and the Italians will have a more modest result, but good enough to keep liquidity going,” Luca Jellinek, head of European interest-rate strategy at Credit Agricole Corporate & Investment Bank in London, said in a phone interview. “This has been the trend and I have no reason to think this is going to change.” Monti and Spanish Prime Minister Mariano Rajoy are both struggling to convince investors they can put their nations’ finances in order and tame surging borrowing costs amid Europe’s sovereign debt crisis. Yesterday, Spain’s Parliament approved Rajoy’s 15 billion-euro austerity package, while Monti called on investors to recognize his efforts to cut Italy’s 1.9 trillion- euro debt following a meeting with Germany’s Angela Merkel.
- French AAA Ratings Focus Shifts to Size of Cut: Euro Credit. After weeks of handwringing about a possible loss of France’s top credit rating, President Nicolas Sarkozy now gives a Gallic shrug. Investors are interpreting the insouciance -- with Sarkozy saying that losing the AAA rating isn’t “insurmountable” -- to mean that France has accepted the inevitable. The question now is whether Standard & Poor’s will follow through with a threat of a two-level cut. Sarkozy’s shift, intended to ready voters for the blow ahead of April’s presidential elections, contributed to the increase in the premium France pays over Germany to borrow for 10 years. Since Dec. 5, when S&P said that it may downgrade 15 euro nations amid a deepening regional debt crisis, the spread has widened by more than 40 percent to 133 basis points. “They’re preparing the ground for something they see as inevitable,” said Nicola Marinelli, who manages $150 million at Glendevon King Asset Management in London. “The market is expecting France to be a strong AA; expecting it to be AA+. If any rating change goes lower than that the spread with Germany can widen further.” France, Europe’s second-largest economy and the No. 2 backer of the region’s rescue fund after Germany, was singled out among the six euro-region holders of the top AAA rating by S&P as the one that risked a two-level lowering of its credit rating. The country’s downgrade would affect the rating of the European Financial Stability Fund, making the bailout of the region’s troubled economies more expensive.
- Loan Sales in Europe to Fall 48% as Margins Soar: Credit Market. Sales of new leveraged loans in Europe are poised to decline by almost half this year as the region's debt crisis stymies buyout activity and drives up borrowing costs amid new capital regulations for banks. Credit strategists at Deutsche Bank AG and Barclays Capital forecast 25 billion euros to 30 billion euros of new leveraged loans in 2012, a drop of as much as 48% from the 48 billion euros last year, according to data compiled by Bloomberg. Interest margins may expand by as much as a third, Intermediate Capital Group Plc estimates, as lenders pass on higher funding costs to borrowers.
- China Regulator Halts Commercial Bill Trusts, Securities Says. China’s banking regulator told domestic trust companies to halt the sale of products that invest in commercial bills, the Shanghai Securities News reported today, citing a person it didn’t identify. The China Banking Regulatory Commission (CBRZ) notified trust companies about the suspension by phone yesterday and hasn’t issued a formal notice, the Chinese-language newspaper reported on its website. The practice may be a way of skirting the government’s lending curbs, the report said. Chinese banks, constrained by the government’s loan quotas, have been helping their clients to raise funds by arranging trust plans that buy commercial bills from them, according to the report.
- Pakistan Army Warns Clash With Gilani Government May See 'Grievous' End. Pakistan’s government fired its defense secretary as the army warned of “grievous consequences” from the sharpest civilian-military power struggle since army rule ended in 2008.
- Illinois Bond Spread Triples After Cut to Lowest-Rated State. Illinois's cost to borrow relative to top-rated issuers tripled from 2009 when it sold $800 million of bonds today, after its credit rating was cut by Moody's Investors Service to the lowest among U.S. states. The $525 million tax-exempt part of today's sale included 10-year general-obligation bonds priced to yield 3.1 percent, according to data compiled by Bloomberg. That's 110 basis points more than the 2 percent yield of top-rated 10-year debt.
- Brevan Howard Proves Master of Hedge Funds With Four in Top 100.
- Goldman(GS) Trading Chiefs Join Partner Exodus as Profit Sags. Goldman Sachs Group Inc. said two leaders of its biggest division are leaving the company a week before it reports what some analysts predict will be the lowest annual profit since the firm went public.
- S&P: China Bank Loss Deferal Hurts Confidence. China's authorities are likely to allow local banks to postpone their recognition of losses on some local-government loans, but such a move would be damaging to the sector's reputation and could result in greater losses ultimately, Standard & Poor's Ratings Services said on Thursday. In a report, S&P credit analyst Ryan Tsang said that regulatory forbearance could lower local banks' credit losses by as much as 80 billion yuan (US$12.7 billion) to 100 billion yuan per year for the next three years, assuming that loans worth as much as 3 trillion yuan are eligible for such treatment. But he cautioned that doing so would be a "backward step" for the country's banking sector. S&P estimates that around 30% of loans made to Chinese local-government financing platforms could go bad over the next three years in the absence of public support. "In the short term, extending the debt maturities to facilitate payments would...reduce investment volatility and avoid a surge in nonperforming loans," Mr. Tsang said. "But it is also likely to undermine investors' confidence for some time to come, underscore the developing nature of the regulatory framework, and highlight the [China Banking Regulatory Commission's] lack of independence from the government."
- Cordray Agrees to Testify at House Hearing. Consumer Financial Protection Bureau Director Richard Cordray has accepted an invitation to testify before a U.S. House oversight panel later this month, where he is likely to face tough questions about the president’s decision last week to bypass the Senate and install him as director. Rep. Patrick McHenry (R., N.C.), along with other congressional Republicans, were infuriated by the president’s Jan. 4 move. Mr. McHenry said the “unprecedented appointment of Mr. Cordray runs counter to the constitutional requirements for a recess appointment and Obama’s own campaign pledge to run ‘the most transparent administration in history.’”
- Buffett's Berkshire Unit Finds It Broke Canada Trade Laws Over Prison Labor. Shaw Industries Group Inc., a carpet and wood-flooring maker owned by Warren Buffett's Berkshire Hathaway Inc., has quietly acknowledged that it broke Canadian trade laws by exporting hardwood flooring to Canada that was partly made by prison inmates.
- Bolton to Back Romney. Former U.N Ambassador John Bolton is set to endorse Mitt Romney and will join his top team of foreign-policy advisers, according to people close to the campaign.
- Industry Challenges Texas Pipeline Ruling. Pipeline companies are asking the Texas Supreme Court to overturn a ruling they say jeopardizes new projects, escalating the battle over the costs of transporting oil and natural gas produced by the energy boom in South Texas.
- RBS Set to Reveal Job Cuts. Royal Bank of Scotland Group PLC, the government-controlled U.K. bank, is preparing to unveil a restructuring Thursday that is expected to shed thousands of jobs and reshape the bank as a largely retail-focused operation.
- Glut Hits Natural-Gas Prices. U.S. energy companies are pumping so much natural gas out of the ground that prices are plummeting, and the cheap gas isn't likely to evaporate anytime soon. Natural-gas prices fell 5.7% Wednesday to their lowest level in over two years—good news for people who use gas to heat homes and for companies that use it to power factories. For U.S. energy companies, however, the domestic natural-gas market is looking increasingly out of whack. Despite a 32% drop in prices last year, onshore production rose 10%, and it is expected to rise another 4% this year, according to Barclays Capital.
Business Insider:
- Here Are The 17 Hottest, Craziest Cars We Saw At CES In Las Vegas.
- Presenting: The Skyscraper Index. The hot new indicator for predicting collapse.
- China Enters The Danger Zone, SocGen Presents The Four Critical Themes. (graphs) As both anecdotal, local and hard evidence of China's slowing (and potential hard landing) arrive day after day, it is clear that China's two main pillars of strength (drivers of growth), construction and exports, are weakening. As Societe Generale's Cross Asset Research group points out, China is entering the danger zone and warns that given China's local government debt burden and large ongoing deficits, a large-scale stimulus plan similar to 2008 is very unlikely, especially given a belief that Beijing has lost some control of monetary policy to the shadow banking system. In a comprehensive presentation, the French bank identifies four critical themes which provide significant stress (and opportunity): China's economic rebalancing efforts, a rapidly aging population and healthcare costs, wage inflation and concomitant automation, and pollution and energy efficiency. Their trade preferences bias to the benefits and costs of these themes being short infrastructure/mining names and long automation/energy efficiency names. They detail their concerns about the Chinese economic outlook (weakening exports, housing bubble about to burst, local government's debt burden, and large shadow banking system), and show that China has no choice but to transition to a more consumption-driven economy leading to waning growth for infrastructure-related capital goods and greater demand for consumer-related manufacturing. Overall they see a hard-landing becoming more likely.
- China December Inflation at 4.1%. The December figures was the closest that inflation came in 2011 to hitting the official target of 4 percent for the year, leaving the average rate above 5 percent. That's still too hot for China's conservative policymakers, who are reluctant to shift policy settings too quickly towards all-out growth mode and argue that fine-tuning is all that is required to keep the economy on a stable expansion path. But evidence of slower economic growth is mounting, even while inflation is still not yet as tame as Beijing might like.
- PC Shipments Declined 1.4% in Fourth Quarter: Gartner. Global PC shipments declined 1.4 percent in the last quarter of 2011 mainly due to weak demand in Western Europe and the United States, according to research firm Gartner.
- New Rules on Swaps Will Protect Big Traders. Wall Street investors will receive significant new protections under a plan adopted by federal regulators on Wednesday, an overhaul that comes in the wake of the collapse of MF Global.
- U.S. Bank and Broker Default Risk. (graphs)
- Broadcom(BRCM) on Track to Launch High-End Phone Chips. Wireless chipmaker Broadcom is gearing up to launch new application processors for the lucrative and growing higher-end smartphone segment by the end of the year, co-founder and Chief Technology Officer Henry Samueli said on Wednesday.
- Exclusive: Republicans Move to Control Keystone Approval. Congressional Republicans, who are urging President Barack Obama to back the Canada-to-Texas Keystone XL oil pipeline, are now working on plans to take the reins of approval from the hands of the president should the White House say no. North Dakota Senator John Hoeven, whose state is counting on the pipeline to help move its newfound bounty of shale oil, is drafting legislation that would see Congress give the green light to the project by using its constitutional powers to regulate commerce with foreign nations, an aide told Reuters. After delaying the project past the November 2012 election, Obama was compelled by Congress to decide by February 21 on whether to approve the pipeline that would sharply boost the flow of oil from Canada's oil sands. Should Obama reject the project, Senate Republicans would look at a bill that would force the go-ahead so work could begin on the $7 billion pipeline, save for a portion going through Nebraska, where the state government continues work on an alternate route, said Ryan Bernstein, an energy adviser to Hoeven. He said Hoeven is working on the new approach with other key Republican senators, including Senate Minority Leader Mitch McConnell, Richard Lugar, David Vitter, Lisa Murkowski and Mike Johanns. TransCanada Corp's oil sands pipeline has put Obama in a political bind at the start of what is expected to be a difficult re-election campaign, and has become a useful tool for Republicans seeking to portray Obama as dithering on a project that they say would create 20,000 jobs. Environmental groups, an important part of Obama's political base, have made defeating the line a top priority.
- IMF funds for Greece not assured; EU, bondholders under pressure. IMF chief Christine Lagarde is warning Europe that Greece's economic prospects are deteriorating and the European Union will either have to pony up more money to rescue Athens or debt holders will have to stomach steeper losses. Unless the private sector or the EU contribute more to Greece's rescue, the International Monetary Fund will view the nation's debt load as unsustainable and may be unwilling to deliver more funds, IMF sources told Reuters as Lagarde met with Germany's and France's leaders in Europe. Although the prospect of EU paymaster Germany coming up with more money seems remote, analysts believe European politicians and international lenders will eventually find a way to avoid a messy Greek default that would destabilize the continent and potentially undermine the global recovery. But crafting a solution is growing increasingly difficult because IMF members, and in particular the United States and emerging countries, are reluctant to throw more money at Greece unless it is firmly back-stopped by fellow euro-zone members. The sense of urgency has grown in recent weeks. Sources said the IMF now believes the economic slowdown under way in Greece and the euro zone as a whole is proving deeper than it expected when the latest bailout was approved in principle in October. The projected cost then was already a hefty 130 billion euros. IMF officials acknowledge privately that Greece is already stretched to the limit by austerity programs, making further belt-tightening untenable and pressuring official lenders or bondholders to bear a greater burden. Talks aimed at getting private-sector creditors to shoulder a bigger part of a new Greek bailout are going badly, senior European bankers said on Wednesday, raising the prospect that euro-zone governments will have to increase their contribution. Another senior IMF board member told Reuters time is running out. "The longer everyone delays tough decision, the more difficult it is becoming to pull Greece from the brink. We need to know that its debt is sustainable," the board member said. Officials have made clear that if the deal with private bondholders does not help reduce Greece's debt-to-GDP-ratio, Europeans would have to make up the financing gap. If bondholders refuse to take larger losses and the EU does not agree to provide more aid, it is unlikely the IMF would come in to save the day, a senior diplomatic source said. "If both the banks and the EU partners will not do it, then there is a problem," the diplomat said. Ben May, an analyst at London-based Capital Economics, said the risk of a disorderly default when the 14.5 billion euros in bonds come due was "small but not insignificant." "It is a risk," May said. "Concerns will arise when we get nearer to the March bond redemption if something does not seem to be falling into place. "There is a whole stack of things that could go wrong, perhaps because Greece won't agree to things that are demanded of it," he added.
- Raymond James(RJF) to Buy Brokerage Morgan Keegan. Raymond James Financial Inc (RJF.N) said on Wednesday it agreed to acquire Southeast investment bank and brokerage Morgan Keegan from Regions Financial Corp (RF.N) for $930 million in stock, concluding a drawn-out auction for the unit.
- Chevron's(CVX) Q4 Profit Squeezed by Repairs. Chevron Corp. (CVX), the second-largest U.S. energy company, said fourth-quarter profit was “significantly below” third-quarter results after maintenance work at a California refinery and the sale of a U.K. plant curbed fuel output. The shares fell more than 2 percent.
- Infosys Cuts Fiscal 2012 Growth Forecast on Europe. Infosys Ltd cut its full-year revenue outlook because of the debt crisis in Europe, sending down the shares of the No.2 Indian software services exporter by as much as 7.7 percent to their lowest in more than a month.
- Tractor Supply(TSCO) Q4 Revenue Beats Street. Tractor Supply Co reported fourth-quarter revenue that beat market estimates, helped by the company's consumables and service revenue, prompting the U.S. farm products retailer to raise its full-year earnings outlook.
- PVH(PVH) 2012 Profit Outlook Disappoints, Shares Slip. Clothing maker PVH Corp forecast a 2012 profit mostly below analysts' expectations, due to a weak euro and higher pension expenses, sending its shares down 6 percent in after-hours trading. The company, which owns the Calvin Klein and Tommy Hilfiger brands, also said its gross margins would be pressured by high product costs in the first half of the next fiscal year.
- Asia to Europe Container Traffic Down 5%. Container shipping lines that are already incurring big losses due to ship oversupply could suffer further from falling demand, after the latest figures for volumes on the most important trade route showed a sharp fall. Figures published on Wednesday by Container Trades Statistics, the body that compiles data on container trades into and out of Europe, showed that traffic from Asia to Europe fell 5.33 per cent between November 2011 and the previous year to 1.04m twenty-foot equivalent units (TEUs). European container imports from all sources fell 3.75 per cent compared with November 2010.
- Swiss Bank Offers Trades for Eurozone Shorting. Credit Suisse is offering its hedge fund clients off-the-shelf products that allow traders to replicate hypothetical gains made by betting against European stock indices that include equities covered by eurozone short selling bans. The bank has made five shortable baskets “optimised” to track leading European indices as closely as possible, based on replacing restricted stocks – mostly banks and other financial companies – with correlated assets.
- Eurozone Waters Down Its Tough Fiscal Rules Plan. European countries will be allowed to ignore new fiscal rules in difficult economic times, according to a draft of the region's new treaty which appears to water down plans for a tough pact. A leaked draft shows that members will have to commit to keeping their deficits below 0.5pc of GDP or face the European Court of Justice (ECJ). But they will also be allowed to "temporarily deviate" from the rules "in case of an usual event" or in "periods of severe economic downturn." The role of the ECJ has also been weakened in the draft. Rather than having the power to judge if countries are breaking the rules, the ECJ will be restricted to receiving complaints from other member states and imposing deadlines for nations to get their budgets back in line. Open Europe argued that Germany had evidently "caved in" on its original demands, which could rattle markets. The London-based think tank said: "From the eurozone's point of view, the draft may actually be worse news than the previous version, as the markets could judge the watering down of the enforcement mechanisms through the EU institutions as a weakness similar to those haunting the original Stability & Growth Pact."
- The large number of new requirements on banks could lead to a credit crunch, Michael Meister, vice chairman of Chancellor Angela Merkel's Christian Democratic Union-led caucus in parliament, is cited as saying in an interview. New rules such as capital requirements under Basel III and stricter liquidity requirements could increase the cost of loans for small and mid-sized borrowers, Meister said in the interview.
- Europe's interbank market is frozen and the continent's banks are only lending to each other through the ECB due to a lack of confidence within the financial industry, World Bank President Robert Zoellick was quoted as saying. If European banks don't lend to each other, how can others in the U.S. or in China be expected to do it, Zoellick said.
- China Advisor: Geithner Said No Tools Left For QE3. U.S. Treasury Secretary Timothy Geithner told Li Yang, vice director of the Chinese Academy of Social Sciences, that the Federal Reserve doesn't have tools left for another round of quantitative easing, citing Li. Li said Geithner told him that recent coordinated action by global central banks amounted to a form of quantitative easing.
China Daily:
- China won't stop purchasing Iranian oil, Mei Xinyu, a researcher with the Ministry of Commerce, wrote in a commentary on the front page. China has no reason to join with the U.S. on sanctions against Iran, Mei said.
- Chinese investors opened 10.8m accounts in 2011, the fewest since 2007, citing its own calculations.
Citigroup Global Markets:
- Reiterated Buy on (TER), target $20.
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 207.5 +.5 basis point.
- Asia Pacific Sovereign CDS Index 159.0 -1.0 basis point.
- FTSE-100 futures +.45%.
- S&P 500 futures -.10%.
- NASDAQ 100 futures -.08%.
Earnings of Note
Company/Estimate
- (SJR)/.47
- (ZZ)/.02
8:30 am EST
- Advance Retail Sales for December are estimated to rise +.3% versus a +.2% gain in November.
- Retail Sales Less Autos for December are estimated to rise +.3% versus a +.2% gain in November.
- Retail Sales Ex Auto & Gas for December are estimated to rise +.4% versus a +.2% gain in November.
- Initial Jobless Claims are estimated to rise to 375K versus 372K the prior week.
- Continuing Claims are estimated at 3595K versus 3595K prior.
- Business Inventories for November are estimated to rise +.4% versus a +.8% gain in October.
2:00 pm EST
- The Monthly Budget Deficit for December is estimated to widen to -$83.7B versus -$78.1B.
Upcoming Splits
- None of note
- The ECB Rate Decision, BoE Rate Decision, Italian EUR6B Bond Auction, 30-Year T-Bond Auction, USDA Crop Report, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index and the (SIMG) Analyst Meeting could also impact trading today.
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