Wednesday, February 29, 2012

Thursday Watch

Evening Headlin
  • Greece Parliament Approves Pension, Health Cuts in Race for Second Bailout. Greece’s parliament approved cuts in pensions and health care a day after ratifying a 3.2 billion euro ($4.3 billion) package of spending reductions to move closer to a rescue package to avert financial collapse. Lawmakers voted 213-58 in favor of the law, Acting Parliament Speaker Grigoris Niotis said early today in remarks on state-run Vouli TV. Approval in parliament allows Prime Minister Lucas Papademos to meet with euro-area partners this week having met most of the conditions demanded by the European Union and International Monetary Fund for Greece to get a lifeline of 130 billion euros. Finance ministers from the region will discuss the second Greek rescue program in Brussels today. “This government will do its utmost to implement fully and effectively both the program and the complementary actions,” Papademos said in the Belgian capital yesterday. There is an “urgent need” for the reforms to be twinned with concrete measures, he said.
  • Papademos Rejects Call for Special EU Official to Oversee Greece's Economy. Greek Prime MinisterLucas Papademos rejected a call to appoint a special European Union official to oversee Greece’s economy, hours before euro-area finance chiefs are due to discuss the nation’s rescue package. Luxembourg’s Jean-Claude Juncker, who leads the group of finance ministers from the 17-nation region, called yesterday for an EU commissioner to take charge of rebuilding the Greek economy. The priority is the success of the second bailout for the indebted nation, he told the European Parliament in Brussels. “We welcome the support of the European Commission,” Papademos said at a Brussels press briefing with the president of the commission, Jose Barroso. “This is sufficient -- our own work with the coordination of the commission -- to ensure the effective and full implementation of the program.” Barroso said that the Greek crisis is a “priority for the commission; not only for one commissioner.” The “crucial part” of implementing reforms is in the hands of the Greek authorities, he said. “It is an illusion to think that someone outside Greece is going to solve the problems of Greece,” Barroso said. Euro-area finance ministers will discuss the second Greek rescue program at a gathering led by Juncker today in Brussels. That meeting, which will precede a summit of the 27 EU leaders, probably will finalize the 130 billion-euro ($174 billion) package, a European official said yesterday on condition of anonymity. Greece committed to 3.2 billion euros of extra austerity measures and negotiated terms for the biggest debt restructuring in history to secure the new financing. Papademos said the program for Greece “would be implemented by the Greek government and the Greek authorities.”
  • MF Global Collapse Prompts Clash Over Collateral. CME Group Inc. (CME) sparred with the Vanguard Group Inc. and other derivatives buyers over whether U.S. regulators should extend collateral-protection rules designed for the swaps market to the futures industry following the collapse of MF Global Holdings Ltd. Speaking today at the opening of a two-day roundtable organized by the U.S. Commodity Futures Trading Commission, derivatives buyers including Tudor Investment Corp. and Fidelity Investments urged the commission to add the new collateral- segregation standards to the futures market. “We know it’s going to cost more. We know it might increase margining. There are a bunch of buy-side participants who are willing to pay more,” said John Torell, Tudor’s chief financial officer. Tim Doar, managing director at CME, the world largest futures exchange, said the agency shouldn’t “rush to judgment” with regulatory changes.
  • BOE's Weale Says There May Not Be Case For Further U.K. Stimulus This May. Bank of England policy maker Martin Weale said that U.K. inflation may prove more persistent than expected, making it unlikely the economy will require further stimulus once the current round of bond purchases ends. Higher oil prices and potential wage pressures as the economy recovers “suggest a risk that there may be more persistence to inflation than one might expect at a time of rising unemployment and weak demand,” Weale said in a speech in London late yesterday. “I do not think there is likely to be a further case once our current program is complete” in early May for more bond purchases.
  • Goldman(GS), JPMorgan(JPM) Post Identical Swap Exposure to Europe Nations. JPMorgan Chase & Co. and Goldman Sachs Group Inc., two of the largest derivatives dealers, posted identical gross notional amounts of credit-default swaps bought and sold on five troubled European nations. JPMorgan purchased single-name contracts protecting $147.3 billion of debt and sold $142.4 billion related to the so-called GIIPS nations of Greece, Ireland, Italy, Portugal and Spain, the bank said in its annual filing today. Goldman Sachs disclosed the exact same figures in a filing yesterday. In both cases, the numbers were as of Dec. 31.
  • Dan Zwirn's Hedge-Fund Fall Is a Horror Story of Doing Right.
  • China's Holding of Treasuries Dropped in '11. China, the largest foreign U.S. creditor, reduced its holdings of U.S. government securities last year for the first time since the Treasury Department began compiling the data in 2001. The world’s second-largest economy held $1.15 trillion Treasuries as of Dec. 31, down from $1.16 trillion at the end of 2010, according to Treasury data released yesterday. The U.S. revised the figures to show that China held about $51 billion more than reported earlier last month. The revision shows nation’s holdings peaked at $1.3149 trillion in July.
  • Rising Crude Prices Tap Into a Barrel of Nonsense: Caroline Baum. In some circles, including the current administration, higher oil prices are a goal -- except not in an election year and not when prices are high to begin with. Before he became President Barack Obama’s energy secretary, Steven Chu was an advocate of higher oil prices as a means of curbing the public’s consumption of fossil fuels and increasing the viability of alternative energy. In a September 2008 interview, Chu told the Wall Street Journal, “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” I suspect Chu will refrain from advocating European-style gas prices -- two or three times U.S. prices, courtesy of a hefty value-added tax -- until he returns to academia.
  • Gold Falls as Bernanke Damps Stimulus Bets. Gold futures fell as much as $100 to below $1,700 an ounce on signs that that the Federal Reserve will refrain from offering more monetary stimulus to bolster the U.S. economy. In testimony before Congress today, Fed Chairman Ben S. Bernanke gave no signal that the central bank will take new steps to boost liquidity. The dollar rose as much as 0.8 percent against a basket of major currencies, eroding the appeal of the precious metal as an alternative investment. Yesterday, gold reached $1,792.70, a three-month high, even as coin sales by the U.S. mint slumped in February .
  • China's February Home Prices Fall Most in 19 Months on Curbs, SouFun Says. China’s February home prices posted the biggest decline in 19 months as the government pledged to maintain curbs on property, according to SouFun Holdings Ltd. (SFUN), the nation’s biggest real-estate website owner. Home prices dropped 0.3 percent last month from January, according to SouFun, which began compiling the figures in July 2010 when housing values fell 1.3 percent. Residential prices slid in 72 of 100 cities tracked by the company last month, 12 more than in January, it said in an e-mailed statement today.
Wall Street Journal:
  • Hushed Up: Secret Panel Holds Fate of Greek CDS. A secretive panel of representatives from 15 large banks, hedge funds and investment houses holds the key to potential multibillion-dollar payouts to investors as a Greek default looms. The group meets Thursday morning to rule whether Greece's debt restructuring should trigger payments on insurance-like contracts known as credit-default swaps, or CDS. The impact of their decision will reverberate beyond the narrow confines of the Greek debt market and could affect investors across other European bond markets and the holders of $2.9 trillion in CDS on government debt around the world.
  • Relieved Republicans Seek to Keep Focus on Economy. Mitt Romney's twin victories in Michigan and Arizona Tuesday sent a wave of relief through the ranks of his supporters and anxious members of the party establishment, but still left him facing a multistate battleground to the Republican presidential nomination that includes some difficult territory.
  • China Manufacturing Survey Rise But Still Weak. Rival Chinese manufacturing surveys released Thursday indicated mild improvement in February, though underling data showed surging input prices and deteriorating new orders, suggesting further weakening in the nation’s economy. The closely watched manufacturing Purchasing Managers’ Index (PMI) for February rose to 51.0 on the 100-point scale, up from 50.5 in January, according to the government-backed China Federation of Logistics & Purchasing. The result, just above the 50 mark that separates expansion from contraction, matched the median of economist forecasts polled by Dow Jones Newswires. However, HSBC’s own China manufacturing PMI sat below the key 50 level, even though it also showed improvement, with a rise to 49.6 from the 48.8 recorded in the prior month.
Zero Hedge:
CNBC: Washington Post:
  • For Greece, A Critical Conference Call Between London And New York. After months of riots, high-level summits and geopolitical drama, a part of Greece’s fate will be settled Thursday in an arena far from the public eye: a transAtlantic videoconference. On the call, 15 bankers and hedge fund investors will convene to determine whether Greece has triggered a “credit event” — in essence, a violation of the bonds it has sold to investors.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 25% 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 -15 (see trends).
Financial Times:
  • Portuguese Bond Yields Climb On Default Fears. Portugal’s cost of borrowing leapt on Wednesday because of growing worries that the country will follow Greece and head towards a possible default on its debt. Portuguese 10-year bond yields jumped to 13.75 per cent, a rise of 73 basis points, after a report from the troika of the European Union, European Central Bank and the International Monetary Fund unsettled the markets.
  • Bundesbank at Odds With ECB Over Loans. The head of Germany’s Bundesbank has launched a powerful attack on Mario Draghi, president of the European Central Bank, in a sign of mounting concern in Europe’s biggest economy at measures being taken to try to contain the eurozone financial crisis. Jens Weidmann’s warning of increasing risk stemming from some ECB policies highlights fears of potential costs for Germany from its role as the eurozone’s biggest creditor nation and may spark fresh doubts about the eurozone’s ability to deal with the long-running banking and sovereign debt crisis.

Sky News:
  • Diageo shareholders expect the company to be making contingency plans in the event of a default or withdrawal of any country from the euro, CEO Paul Walsh said in an interview.
  • Marc Faber said the European Central Bank's latest loans to European banks will only calm markets short-term, lead to inflation in the long-term and push banks' funding problems into the future, citing the fund manager.
21st Century Business Herald:
  • The central government has asked the finance ministry and the national tax bureau to as soon as possible give a timetable for expanding a property tax trial nationwide. Shanghai and Chongqing are the only two cities to have started property tax trials so far.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.0% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 160.5 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 129.0 -2.5 basis points.
  • FTSE-100 futures -.02%.
  • S&P 500 futures -.17%.
  • NASDAQ 100 futures -.02%.
Morning Preview Links

Earnings of Note
  • (DIN)/.87
  • (KR)/.49
  • (FL)/.51
  • (ESL)/.75
  • (KCP)/.37
Economic Releases
8:30 am EST
  • Personal Income for January is estimated to rise +.4% versus a +.5% gain in December.
  • Personal Spending for January is estimated to rise +.4% versus unch. in December.
  • PCE Core for January is estimated to rise +.2% versus a +.2% gain in December.
  • Initial Jobless Claims are estimated to rise to 355K versus 351K the prior week.
  • Continuing Claims are estimated to rise to 3418K versus 3382K prior.

10:00 am EST

  • Construction Spending for January is estimated to rise +1.0% versus a +1.5% gain in December.
  • ISM Manufacturing for February is estimated to rise to 54.5 versus 54.1 in January.
  • ISM Prices Paid for February is estimated to rise to 58.0 versus 55.5 in January.


  • Total Vehicle Sales for February are estimated to fall to 14.0M versus 14.13M in January.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The Fed's Bernanke speaking, Fed's Pianalto speaking, Fed's Sarah Bloom Raskin speaking, Fed's Lockhart speaking, Fed's Kocherlakota speaking, Fed's Williams speaking, ICSC Chain Store Sales for February, RBC Consumer Outlook Index for March, weekly EIA natural gas inventory report, RBC Restaurant/Leisure Conference, (ANSS) Investor Day and the (LSTR) Mid-Quarter Update could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity 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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