Tuesday, February 07, 2012

Tuesday Watch


Evening Headlin
es
Bloomb
erg:
  • Papademos to Meet Greek Party Chiefs as ‘Great Sacrifices’ Loom. Greek Prime Minister Lucas Papademos plans today to discuss with the nation’s political leaders the implementation of additional fiscal measures needed to secure a second European Union-led bailout. While Papademos and the party chiefs already agreed to make further cuts this year equal to 1.5 percent of gross domestic product, they have yet to close gaps over measures demanded by creditors. European leaders raised pressure on meeting the conditions of the 130 billion-euro ($171 billion) rescue, with German Chancellor Angela Merkel saying “time is running out.” “There are fears that the Greek government will note the country has reached the limits on austerity,” UBS AG currency analysts including Chris Walker in London wrote in a note to clients yesterday. “The week ahead will be extremely significant for event risk and headlines could become a dominant driver for the euro.” At stake is whether Greece can win the bailout, secure a deal with private creditors and remain in the euro region. Finance Minister Evangelos Venizelos told reporters late yesterday that “failure of these talks, failure of the plan, the country’s bankruptcy, means even greater sacrifice.”
  • Irish Urge Children to Leave as Export Recovery Masks Lost Jobs. Anthony Roche is urging his unemployed son to emigrate to Australia from Ireland to escape joblessness stemming from the country’s economic collapse. “I’ve seen the good times and the bad and these are the worst,” Roche, 45, who works a day or two a week after closing his business laying floors for bars and restaurants 18 months ago, said outside a welfare office in Dublin. “There are plenty of people there to work, but there isn’t any work out there. That’s why people are leaving these shores again.” While signs are emerging that Ireland is beginning to recover 15 months after an international bailout, the government says the economy is in the midst of the worst crisis since World War II. The nation’s unemployment rate, at 14.2 percent in January, is close to the highest level since the 1980s when the country last endured similar austerity measures.
  • German Workers Demand 6.5% Raise as Siemens Predicts Recession. Two years of minimal wage increases have left Christoph Schoenau, a metallographer for auto and aircraft component maker GKN Plc at a factory near Frankfurt, feeling left out of Germany’s economic rebound. Schoenau, 39, is one of 3.6 million workers in the metal and electrical industries clamoring for as much as 6.5 percent more in their paychecks when unions lock horns with employers next month.
  • China's Stocks Decline Most in Eight Weeks on Concern Slowdown Will Worsen. China’s stocks fell, driving the benchmark index to its biggest loss in eight weeks, on concern a slowdown in the economy is hurting earnings as Europe’s debt crisis curbs exports to the nation’s biggest market. Jiangxi Copper Co. retreated 2.4 percent, leading declines for commodity stocks, as metal prices dropped and the Ministry of Industry and Information Technology said industrial production is likely to slow. SAIC Motor Corp., the biggest Chinese automaker, slid 1.4 percent after sales declined last month. GF Securities Co. and Haitong Securities Co. lost at least 3.3 percent after the brokerages posted lower profits. “China is seeking steady growth this year, not high growth,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Europe is still mired in resolving its debt crisis and the process may be prolonged. Globally speaking, it’s a year of slowdown.” The Shanghai Composite Index fell 45 points, or 1.9 percent, to 2,286.17 at the 11:30 a.m. break, set for the biggest loss since Dec. 15. The CSI 300 Index declined 2.2 percent to 2,448.98.
  • Australia's Central Bank Unexpectedly Holds Rate at 4.25%. Australia’s central bank unexpectedly kept its benchmark interest rate unchanged as domestic growth withstands Europe’s debt crisis, sending the nation’s currency soaring to a six-month high. “Much remains to be done to put European sovereigns and banks on a sound footing, but some progress has been made,” Governor Glenn Stevens said in a statement announcing the official cash rate target will stay at 4.25 percent. “Financial market sentiment, though remaining skittish, has generally improved since early December.”
  • MF Global’s $310 Million Margin Call Exceeded Its Market Value. MF Global Holdings Ltd., the futures broker that filed the eighth-largest bankruptcy in October, faced a $310 million margin call on its final day that exceeded its market value. Calls for payments tied to bets MF Global made on European sovereign debt increased Oct. 24 and continued through Oct. 31, the day the futures broker formerly run by Jon Corzine filed for bankruptcy protection, according to a report yesterday from James Giddens, a trustee overseeing the brokerage’s liquidation. MF Global had a market value of $198 million on Oct. 28 as it held $6.3 billion in European sovereign-debt trades. After tracing 840 transactions of $327 billion in the company’s final days, Giddens is still analyzing where some of the $1.2 billion in missing customer money “ended up,” he said in the report. Corzine’s firm failed after credit-rating downgrades, a record quarterly loss and revelations about its $6.3 billion European debt trade unnerved investors. The missing money has sparked Congressional hearings and former customers have said it undermined confidence in the futures industry.
  • CFTC May Adopt Fund-Registration Rule as Soon as Tomorrow. The U.S. Commodity Futures Trading Commission may complete rules as soon as tomorrow requiring registration by mutual funds when they have investments in commodities, according to a person briefed on the matter. The agency circulated the rule in a private voting process among the CFTC’s five commissioners, according to the person who declined to be identified because the process isn’t public. The rule would rescind exemptions from CFTC registration for mutual funds that use derivatives tied to commodities. The National Futures Association, a Chicago-based nonprofit regulator financed by the industry, sought the change to improve protection of retail investors.
  • Farmers Plan Biggest Crops Since 1984, Led by Corn: Commodities. U.S. farmers will plant the most acres in a generation this year, led by the biggest corn crop since World War II, taking advantage of the highest agricultural prices in at least four decades. They will sow corn, soybeans and wheat on 226.9 million acres, the most since 1984, a Bloomberg survey of 36 farmers, bankers and analysts showed. The 2.5 percent gain means an expansion the size of New Jersey, as growers target fields left fallow last year and land freed up from conservation programs. Crop prices, some of which reached the highest averages ever in 2011, bolstered the economies of Midwest growing states, sent net farm income up 28 percent to $100.9 billion and pushed the value of farmland to a record $2,350 an acre, the U.S. Department of Agriculture estimates. Global food costs are down 11 percent from a peak a year ago as grain output rises from China to Canada, United Nations data show. “There is unlikely to be any ground that won’t be planted this year,” said Todd Wachtel, a 40 year-old who farms about 5,700 acres in Altamont, Illinois, and plans to expand his corn fields by 21 percent when seeding begins in early April. “Farmers know that they have to plant more when prices are high because they may not last.”
  • Obama Health Rule an Affront to Religious Groups: Ramesh Ponnuru. The liberal Catholics who backed the law and now oppose this regulation have an additional reason for bitterness: It’s not as though the administration has been insisting on a rigid application of the law in all other cases. It has been notorious for handing out waivers freely -- just not to religious groups. The administration’s actions illustrate an underappreciated flaw in the law. Congress, even the liberal Congress of 2009-10, would never have enacted a law forcing religious charities to violate their consciences this way. The law earned the backing of the Sister Keehans of the world by being vague. Much of the health-care statute amounts to a grant of power to the bureaucracy to resolve the key issues. A waiver today, a sweeping regulation tomorrow: It’s not a democratically accountable way of making law -- or rather, it’s not a way of making “law,” as in “the rule of law,” at all.
  • Crude Trades Near Two-Day Low of Bets of Weakening Demand in U.S., Europe. Oil traded near a two-day low in New York on speculation that fuel demand may falter as Europe struggles with its debt crisis and stockpiles increase in the U.S., the biggest crude consumer. “The pattern of increased crude inventories and lower gasoline demand has impacted the outlook in the U.S.,” said Ric Spooner, a chief analyst at CMC Markets in Sydney. “Markets are also watching for a resolution in Europe.”
Wall Street Journal:
  • Fitch's Colquhoun: China Hard Landing Potentially Biggest Risk For Global Economy In 2012. Fitch Ratings said Tuesday a hard landing for the Chinese economy was potentially the biggest risk for the global economy in 2012.
  • Derivatives Entrepreneur to Launch Swaps Exchange. A pioneer in the multitrillion-dollar credit-derivatives market is seeking approval for what could be the first exchange catering to privately traded derivatives, or "swaps," instruments that currently trade off-exchange. Sunil Hirani, who in 1999 co-founded Creditex Group, an electronic execution platform for credit-default swaps, has asked the Commodity Futures Trading Commission to approve the new venture, trueEX, as an exchange or "designated contract market" for swaps, according to documents made public on the CFTC website Jan. 31. Mr. Hirani and other staffers at trueEX also met with CFTC member Scott O'Malia on Feb. 1, CFTC records show.
  • Disney's(DIS) ABC, Univision Mull News-Channel Launch. Walt Disney Co. and Univision Communications Inc. are in talks to create a new 24-hour cable-news channel that will broadcast in English, in an effort to keep pace with changing demographics among U.S. Hispanics and reach a new audience of English speakers, people familiar with the negotiations said. The new channel would plunge Disney's ABC News more directly into the fractious cable-news wars, competing alongside Time Warner Inc's CNN, News Corp.'s Fox News and Comcast Corp.'s MSNBC.
  • For Sale: AIG's Subprime Bonds. Five Wall Street banks have been invited to bid this week for another multibillion-dollar bundle of risky mortgage bonds held by the Federal Reserve Bank of New York as a result of its 2008 rescue of American International Group Inc. The invited firms are the U.S. securities arms of Barclays PLC, Credit Suisse Group AG, Goldman Sachs Group Inc., Morgan Stanley and Royal Bank of Scotland PLC, according to people familiar with the matter. They said the New York Fed is seeking bids by midweek for residential mortgage-backed securities with an unpaid principal balance of $6 billion, or about half the remaining bonds in a vehicle called Maiden Lane II.U.
  • U.S. Sets Money-Market Plan. SEC Aims to Stabilize $2.7 Trillion Industry; Critics Say Rules Would Cut Returns. Regulators are completing a controversial proposal to shore up the $2.7 trillion money-market fund industry, more than three years after the collapse of Lehman Brothers Holdings Inc. sparked a panic that threatened the savings of millions of investors and forced the federal government to intervene.
  • Rate Probe Keys On Traders. Investigators Suspect Employees at Some Banks Tried to Manipulate Rates.
  • Budget Plan Has Familiar Ring. President Barack Obama will release his budget plan next week, calling for $3 trillion in deficit reductions over 10 years, including $1.5 trillion in tax increases to fall mostly on the wealthiest Americans. If that sounds familiar, it's because the president essentially laid out his budget plan in September, following a failed bipartisan deficit-reduction deal. Mr. Obama's plan for fiscal year 2013, which starts Oct. 1, will mirror the September proposal, senior administration officials said.
  • A Fairness Quiz for the President. Is it fair that some of Mr. Obama's largest campaign contributors received federal loan guarantees? President Obama has frequently justified his policies—and judged their outcomes—in terms of equity, justice and fairness. That raises an obvious question: How does our existing system—and his own policy record—stack up according to those criteria?
Business Insider:
Zero Hedge:
CNBC:
Washington Post:
ABC News:
  • Another Green Energy Company Stumbles: Fisker Announces Layoffs. Fisker Automotive, the maker of an exotic electric sports car that is being built with help from a $529 million federal government loan guarantee, has announced layoffs at its Delaware plant as it tries to persuade the Department of Energy to send it more public funds.
Financial Times:
  • Corporate Defaults Set to Jump in Europe. European corporate defaults are widely expected to climb sharply this year despite the recent improvement in credit market sentiment as bank lending cuts and a deteriorating economic backdrop put many smaller or indebted companies under pressure.
Telegraph:
  • Shanghai Shipping Slump as IMF Warns China on Euro Slump. Shanghai shipping volumes contracted sharply in January as Europe's debt crisis curbed demand for Asian goods, stoking fresh doubts about the strength of the Chinese economy. The shipping specialist Lloyd's List said container traffic through the Port of Shanghai - the world's largest - fell by 100,000 boxes in January from a year earlier, or 4pc. Volumes fell by over one million tonnes. The figures may have been distorted by China's Lunar Year but there has been a relentless slide in the Shanghai transport data for months. "China's shipping markets face grievous challenges," said the Shanghai International Shipping Institute. It acknowledged that the industry in the grip of downturn and likely to face a "worsening situation" in early 2012.
  • Stalemate in Talks on Greek Austerity Measures. Greek politicians refused to yield to the austerity demands of their "troika" paymasters despite a stark warning from German chancellor Angela Merkel that the stand-off threatened the "entire eurozone".

South China Morning Post:
  • Glorious Properties to Cut Construction by 25%. Shanghai-based Glorious Property Holdings says it will cut back on its construction work by 25% to 1.5 million square meters this year after it failed to meet its sales target last year because of sluggish market conditions. "Maintaining a strong cash flow is important amid the credit tightening. The decision was made also because of flagging buying interest," he said. "We have not set a sales target for this year because the outlook for the residential market is still highly uncertain." Cheng said the firm would be cautious in land acquisitions this year even though land prices were falling. Chief financial officer Michael Jiang said he believed the mainland property market would finally emerge from a "chilly winter to become warmer" in 2014. He predicted that home prices would tumble 20% before reaching a "reasonable level". "If home prices plunge 50%, it would severely affect the economy and job stability," he said.
Evening Recommendations
Sterne Agee:
  • Rated (IBM) Buy, target $230.
Night Trading
  • Asian equity indices are -1.75% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 164.0 +2.5 basis points.
  • Asia Pacific Sovereign CDS Index 136.0 -1.75 basis points.
  • FTSE-100 futures +.09%.
  • S&P 500 futures -.04%.
  • NASDAQ 100 futures -.03%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (STE)/.61
  • (LPX)/-.20
  • (KO)/.77
  • (EMR)/.50
  • (SMG)/-1.21
  • (VSH)/.18
  • (SWI)/.25
  • (AGCO)/1.33
  • (CBG)/.43
  • (DIS)/.71
  • (CERN)/.53
  • (OPEN)/.29
  • (PNRA)/1.41
  • (HIG)/.60
  • (BWLD)/.67
  • (BDX)/1.17
Economic Releases
10:00 am EST
  • JOLTs Job Openings for December are estimated to rise to 3250 versus 3161 in November.

3:00 pm EST

  • Consumer Credit for December is estimated to fall to $7.0B versus $20.374B in November.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The Fed's Bernanke speaking, 3Y T-Note Auction, weekly retail sales reports, IBD/TIPP Economic Optmism Index for February, (PMTC) Analyst Meeting, (SB) Analyst Day, Stifel Nicolaus Tech/Telecom Conference, CSFB Energy Summit, Cowen Aerospace/Defense Conference and the UBS Healthcare Services Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and real estate shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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