Tuesday, February 14, 2012

Tuesday Watch

Evening Headlin
  • Italy, Spain Cut by Moody's; U.K. May Be Next. Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and said it may strip France and the U.K. of their top Aaa ratings, citing Europe’s debt crisis. Spain was downgraded to A3 from A1 yesterday, Italy to A3 from A2 and Portugal to Ba3 from Ba2, all with negative outlooks. Slovakia, Slovenia and Malta also had their ratings lowered. “Policy makers have made steps forward but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London. “What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture.” “The uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework,” and the resources that will be made available to deal with the crisis, are among the main drivers of Moody’s action, the ratings company said. Recent rating cuts have done little to deter investors, who poured money into the government bonds of nations such as France and Austria even after the countries lost their AAA ratings at Standard & Poor’s last month. U.S. Treasuries returned three times as much as AAA corporate bonds since the world’s biggest economy was cut by one rank in August. Moody’s yesterday also lowered its outlook on Austria’s Aaa rating to negative. Malta’s rating was downgraded to A3 from A2, and Slovakia and Slovenia were both downgraded to A2 from A1. All three were given negative outlooks. Moody’s said Europe’s “increasingly weak macroeconomic prospects” threaten the “implementation of domestic austerity programs and the structural reforms that are needed to promote competitiveness.” It said market confidence “is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.”
  • Immigrants Lose in Imploding Spanish Housing Market: Mortgages. Lamin Numke, a 34-year-old man from the Republic of Mali, is one of the millions of immigrants who settled in Spain during the real-estate boom, attracted by plentiful jobs and cheap mortgages, only to default on his loan. Today, borrowers like Numke are the most likely to fall behind on mortgage payments and lose their property, according to a Moody’s Investors Service study of 890,000 mortgages from 2006 through 2008. The average default rate for foreign residents is “strikingly high compared with mortgage loans to Spanish residents,” Moody’s wrote in the report last month. Faced with mounting losses, Spanish banks have reduced new lending, which the National Statistics Institute in Madrid said fell 35.8 percent from a year earlier in November, the 19th straight decline. The bad loans to immigrants are also complicating a push for Spanish banks to recognize greater losses on real estate they accumulated during the crash and driving buyers from the 182 billion euro ($240 billion) Spanish residential mortgage-backed securities market. “Deals with a significant portion of foreign residents, whether immigrants or vacationers, are double no deals for me,” said Alexander Fagenzer of Union Investment GmbH in Frankfurt, which oversees 120 billion euros. “Incentives for those borrowers to keep paying are significantly lower than for Spanish residents,” and that’s “key in a country facing high levels of unemployment and declining housing prices.”
  • Zinc Glut Rising to Two-Decade High. The largest glut of zinc in almost two decades is threatening to curtail a rally in prices as record production expands inventories to the highest since at least 1984. Supply will outpace demand by 539,000 metric tons, the most since 1993, according to Standard Bank Plc. Stockpiles of the metal used in brass and steel will reach 2.2 million tons, Barclays Capital estimates. Prices will drop 13 percent to $1,832 a ton this year, the median of 15 analyst and trader estimates compiled by Bloomberg shows.
  • State Department Budget Bolsters Middle East Aid, Trims Europe. President Barack Obama’s budget seeks $8.2 billion in “extraordinary and temporary” funding for State Department responsibilities in Iraq, Afghanistan and Pakistan. The request comes on top of the $43.4 billion proposed for the “core” budget for the State Department and the U.S. Agency for International Development, which manages foreign aid. The budget includes funding for Egypt, despite the current dispute over U.S. staff of nonprofit groups being threatened with felony and misdemeanor charges for not registering or for engaging in political activity. The budget calls for $1.3 billion in assistance to the military, $1.8 million in military education and another $250 million in economic assistance. U.S. lawmakers have threatened to cut off funding until Egypt lifts the charges and lets the Americans return home.
  • BOJ Adds to Monetary Easing After Contraction. The Bank of Japan added to monetary easing after exports tumbled and the economy contracted by more than forecast in the fourth quarter. Governor Masaaki Shirakawa’s board unexpectedly expanded an asset-purchase program to 65 trillion yen ($835 billion) from 55 trillion yen. The central bank maintained the overnight lending rate at between zero and 0.1 percent.
Wall Street Journal:
  • Canada Examine How Benchmark Rates Get Set. Canada's top antitrust watchdog said it is investigating allegations of collusion in the setting of key benchmark interest rates, joining law-enforcement authorities across the globe in a probe of how the rates are set.
  • Chinese Hackers Suspected In Long-Term Nortel Breach. For nearly a decade, hackers enjoyed widespread access to the corporate computer network of Nortel Networks Ltd., a once-giant telecommunications firm now fallen on hard times. Using seven passwords stolen from top Nortel executives, including the chief executive, the hackers—who appeared to be working in China—penetrated Nortel's computers at least as far back as 2000 and over the years downloaded technical papers, research-and-development reports, business plans, employee emails and other documents, according to Brian Shields, a former 19-year Nortel veteran who led an internal investigation.
  • Europe Struggles Over Greek Details. European Union negotiators have yet to settle key elements of a complex bailout and debt-restructuring package for Greece—including how euro-zone governments will contribute to a desired cut in the country's debt burden—ahead of a pivotal meeting this week. The Greek Parliament's backing for a deeply unpopular package of spending, wage and pension cuts, which sent European stocks and the euro higher on Monday, has shifted the focus of negotiations back to Brussels, ahead of a meeting of finance ministers due to start here Wednesday afternoon.
  • The Amazing Obama Budget. Federal budgets are by definition political documents, but even by that standard yesterday's White House proposal for fiscal year 2013 is a brilliant bit of misdirection. With the abracadabra of a tax increase on the wealthy and defense spending cuts that will never materialize, the White House asserts that in President Obama's second term revenues will soar, outlays will fall, and $1.3 trillion annual deficits will be cut in half like the lady in the box on stage. All voters need to do is suspend disbelief for another nine months. And ignore the first four years.
  • BHP(BHP), Rio(RIO) invest more than $4 bln in copper output. BHP Billiton Ltd. BHP -0.17% and Rio Tinto PLC RIO +0.41% , two of the world's biggest mining companies, Tuesday laid out plans to invest more than US$4 billion beefing up their copper output. Most of the money will be invested in the Escondida mining operation southeast of the city of Antofagasta in Chile, and BHP also plans to resume operations at its idled Pinto Valley mine in Arizona by the end of the year.
Zero Hedge:
  • President Obama's Green Jobs Mirage. In recent weeks, President Obama has cranked up his commitment to federal subsidies for “green” energy in the face of accumulating defaults by the politically connected companies. “I will not walk away from the promise of clean energy,” as he declared at his State of the Union. “I will not cede the wind or solar or battery industry to China or Germany.” The President can make as many grand pronouncements as he likes, but the actual results of his green energy efforts have been paltry in terms of jobs and industry growth—and fiscal irresponsibility.
  • Dumping China for American Job Shops. U.S. small businesses that initially rushed to Chinese factories to get their products made are now dumping them for American manufacturers. And the shift is gaining traction, said industry experts who match U.S. small companies with domestic firms. Mitch Free, the founder and CEO of Atlanta-based MFG.com, said his company has seen a 15% uptick in inquiries since 2009 from U.S. firms looking for American factories to replace their Chinese suppliers. MFG.com is one of the largest online directories used by businesses to find domestic manufacturers. One reason behind the trend is that "Chinese manufacturing has become expensive," Free explained.
LA Times:
Rasmussen Reports:
  • Asia Banker Pay Down As Much As 40% As Slowdown Hits. Global investment banks have cut pay in Asia by between 30 and 40 percent for last year , with many bankers receiving no bonus at all and pay for star performers flat at best as a global sector slowdown bites, industry recruiters and sources within banks said.
  • Greece Must Meet All Terms To Stay In Euro. Failure by Greece to meet all the conditions laid down by Europe and the International Monetary Fund for new bailout funds would lead to its exit from the euro zone, Luxembourg's finance minister said on Monday. Markets have adjusted and sufficient firewalls have been erected in Europe to limit the financial damage should Greece decide to default and leave the monetary union, Luc Frieden said. "I still think that we should do our best to keep the euro zone with all its members. But again, the key lies with Greece today," Frieden told the Atlantic Council after meeting with the U.S. Treasury. "And therefore if the Greek people or the Greek political elite do not apply all of these conditions -- and I do know that is very difficult for the Greek people and I do not underestimate the problems that it creates for Greece -- if they don't do this, I think they exclude themselves from the euro zone and the impact on other countries now will be less important than a year ago."
Financial Times:
  • France To Push On With Trading Tax. France is determined to press ahead with a financial transaction tax inspired by the UK’s stamp duty and supported by at least eight other eurozone countries, the country’s finance minister has said.
  • Bull Run On Subprime Debt Divides Investors. Investors have regained their taste for “toxic” mortgage debt. Securities related to subprime and other risky home loans that were at the heart of the 2008-09 financial crisis have embarked on an unexpected bull run. This stellar performance has divided analysts. Some argue that an improving US economy and the steep fall in the price of these securities last year leaves plenty of room for further gains.
  • Derivatives Reform: We Are None The Wiser.

South China Morning Post:
  • Europe Must Wake Up To China's Role In Debt Crisis. Forget misguided talk about China bailing out euro zone's debt-stricken economies, as East's economic emergence was one of drama's main triggers. In short, European governments and their voters failed to recognize what Indian essayist Pankaj Mishra describes as "the extent to which welfare state liberalism depended on ... the continuing somnolence of the 'East'." Today Europe needs urgently to wake up to the fact that China and other East Asian economies are no longer asleep. In a world in which Europe's economic competitors provide minimal social safety nets for their populations, many European countries can no longer afford their own lavish state welfare provisions, especially if they are funded by debt. This is a deeply unpopular message. But if Europe's southern periphery is ever to escape the debt trap it has fallen into, it cannot look to China for assistance. Instead, it must recognize that China's economic emergence is one of the main reasons the region is in its current hole, and act quickly to restore its lost competitiveness.
Shanghai Securities News:
  • China won't increase loans or debt issues to overcome economic difficulties, citing former Chinese central bank deputy governor Wu Xiaoling. The government will be "cautious" about lending and issuing debt this year.
  • China's outstanding loans to local government financing vehicles were 9.1t yuean as of Sept. 30, citing data. Of that total, almost 3t yuan is being managed as ordinary corporate loans. About 65% of the outstanding loan was backed by collateral.
Evening Recommendations
  • Rated (GOOG) Buy, target $750.
  • Rated (DMD) Buy, target $11.
  • Rated (TRIP) Buy, target $22.
Night Trading
  • Asian equity indices are -.75% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 164.0 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 134.0 -4.5 basis points.
  • FTSE-100 futures -.11%.
  • S&P 500 futures -.29%.
  • NASDAQ 100 futures -.16%.
Morning Preview Links

Earnings of Note
  • (CPLA)/.91
  • (MMC)/.45
  • (FOSL)/1.77
  • (GT)/.21
  • (HST)/.30
  • (OMC)/.95
  • (AVP)/.51
  • (BWA)/1.17
  • (VMI)/1.67
  • (MET)/1.24
  • (ZNGA)/.03
Economic Releases
7:30 am EST
  • The NFIB Small Business Optimism Index for January is estimated to rise to 95.0 versus 93.8 in December.

8:30 am EST

  • The Import Price Index for January is estimated to rise +.3% versus a -.1% decline in December.
  • Advance Retail Sales for January are estimated to rise +.8% versus a +.1% gain in December.
  • Retail Sales Less Autos for January are estimated to rise +.5% versus a -.2% decline in December.
  • Retail Sales Ex Auto & Gas for January are estimated to rise +.5% versus unch. in December.

10:00 am EST

  • Business Inventories for December are estimated to rise +.5% versus a +.3% gain in November.

Upcoming Splits

  • (MNST) 2-for-1

Other Potential Market Movers

  • The Fed's Lockhart speaking, Fed's Plosser speaking, Greece Bill Auction, Italy Bond Auction, Spain Bond Auction, weekly retail sales reports, Pac Crest Emerging Tech Summit, Stifel Nicolaus Transports Conference, Deutsche Bank Small/Mid-Cap Conference, Goldman Tech/Internet Conference and the (SMG) Analyst Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

1 comment:

Mark D. Cook said...

The quite an extensive overview for one trading day!