Tuesday, February 21, 2012

Tuesday Watch

Weekend Headlines

  • Euro Ministers Reach Agreement on Second Greek Bailout. Euro-area finance ministers reached agreement on a second bailout package for Greece that is vital to staving off a default next month. The deal includes a 53.5 percent writedown for investors in Greek bonds, Luxembourg’s Jean-Claude Juncker, who led the meeting, told reporters early this morning. Debt-swap bonds will have a coupon of 2 percent in 2014, rising to 3 percent in 2015- 2020 and to 4.3 percent after that, he said. Finance ministers haggled into the night in Brussels over the terms of new loans to Greece and a possible contribution by central banks, and leaned on investors to accept bigger write- offs in a bond exchange. Ministers were discussing a Greek debt target of 121 percent of gross domestic product by 2020. European Central Bank President Mario Draghi called the deal “a very good agreement.” Italian Prime Minister Mario Monti said private bondholders agreed to take a bigger writeoff on their Greek debt after “intense” negotiations. The euro surged on news of a deal, rising as high as $1.3293 and trading up 0.1 percent at $1.3262 at 5:30 a.m. in Brussels. European governments need to weld together the program to give enough time for the bond exchange -- designed ultimately to write off about 100 billion euros of Greek debt -- to go ahead by a mid-March deadline. The target is for the swap offer to run from Feb. 22 to March 9, so the exchange takes place in time for Greece to escape the full 14.5 billion-euro cost of a March 20 bond redemption, German lawmakers were told last week by government officials.
  • Merkel as Debt Crisis Iron Lady Bucks German Street on Greek Aid. Angela Merkel is having a Margaret Thatcher moment. Having spent six years in office defying comparison with Britain’s first woman prime minister, Merkel is being likened to Thatcher as she steers Europe’s response to the financial crisis with demands for debt reduction and tighter economic controls. Media including the Frankfurter Allgemeine Zeitung, the newspaper of record in Germany’s financial hub, dub her “Europe’s Iron Lady.” Strengthened by record-low joblessness at home, Merkel has rejected calls to either cut Greece loose from the euro area or ease her conditions for aid. By bucking the German street and steering the middle course, she is gambling that policy makers will continue to prevent a euro meltdown, helping her win re- election next year and match Thatcher’s third term. “If Merkel were to go into elections with a collapsed euro zone she’d have a lot of difficulty winning,” Giles Merritt, head of Friends of Europe, a Brussels-based research group that promotes debate on the European Union, said in an interview. “Finally her statesman side is kicking in.”
  • Spain Sinks Deeper Into Periphery on Debt Rise. Spain’s debt load is set to double from where it was when Europe’s sovereign debt crisis began, eroding the economic advantages that distinguished it from the region’s periphery and helped shield it from Greek (1004Z) contagion. Finance chiefs meet in Brussels today in the latest effort to save Greece from default. Spain went into the crisis with public debt of 40 percent of its gross domestic product, compared with an average ratio of 70 percent in the euro region. The European Union forecasts its debt will have almost doubled by next year, as Moody’s Investors Service says Spain is losing one of its “key relative credit strengths.” Investors give Spain a discount of just 30 basis points on borrowing for a decade compared with what they charge Italy, down from 200 basis points at the end of last year. Spain’s 10- year yield is 5.18 percent, up 33 basis points since Feb. 1. “Time is working against Spain and that is why deficits have to be brought down sharply before the critical 100 percent debt-to-GDP mark is breached,” said Georg Grodzki, who helps oversee $515 billion as global head of credit research at Legal & General Investment Management in London.
  • China January Home Prices Worst in a Year. China’s January home prices recorded their worst performance in at least a year, with none of the 70 cities monitored by the government posting gains as Premier Wen Jiabao reiterated his determination to maintain property curbs. Prices in 47 of the cities fell, while home values in the remaining 23 were unchanged from December, the National Statistics Bureau said in a statement on its website on Feb. 18. New home prices in the nation’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou declined for a fourth month. None of the cities posted gains in home prices for the first time since the government began releasing at the start of 2011 prices for 70 cities surveyed instead of a national average. China won’t waver on the real-estate controls and efforts to bring prices down to a reasonable level to ensure fairness and stability, Wen said on Feb. 12. “The data wasn’t a surprise as the government maintained its property policies, and home prices will continue to fall till at least the later half of the year,” said Ting Lu, a Hong Kong-based economist at Bank of America Corp. unit Merrill Lynch.
  • Apple(AAPL) Partner Foxconn Has 'Tons of Issues,' Labor Group Says. The Fair Labor Association, a watchdog monitoring working conditions at makers of Apple Inc. products, has uncovered “tons of issues” that need to be addressed at a Foxconn Technology Group plant in Shenzhen, China, FLA Chief Executive Officer Auret van Heerden said. Van Heerden made the comments in a telephone interview after a multiday inspection of the factory. Apple, the first technology company to join the FLA, said on Feb. 13 that it asked the Washington-based nonprofit organization to inspect plants owned by three of its largest manufacturing partners. “We’re finding tons of issues,” van Heerden said en route to a meeting where FLA inspectors were scheduled to present preliminary findings to Foxconn management. “I believe we’re going to see some very significant announcements in the near future.”
  • Speculators Boost Bullish Wagers to Highest Since September: Commodities. Hedge funds increased commodity bets to the highest in almost five months on signs that a rescue plan for Greece and faster U.S. growth will buoy demand as supplies shrink for everything from soybeans to copper. Money managers boosted net-long position across 18 U.S. futures and options by 2.9 percent to 956,313 contracts in the week ended Feb. 14, the most since Sept. 20, government data show. Soybean wagers jumped 29 percent to a five-month high. Silver holdings rose for a seventh straight week, the longest advance in almost three years.
  • Democrat Conrad Says Economic Crisis Would Be Prod to Lawmakers on Debt. An economic catastrophe like the debt crisis in Europe or a Middle East conflict may be the only way to get congressional action this year on a broad reduction of the U.S. deficit, Senate Budget Committee Chairman Kent Conrad said. “If Europe tanks and begins to drag us down, it may become an acute situation that requires a response,” Conrad said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “Second possibility is Israel attacking Iran. That could create a big run-up in oil prices. That could have dramatic economic effects and also require a fuller long-term response by the United States.” The North Dakota Democrat, who has been in the Senate since 1987, said he blames lawmakers in both political parties -- and the voters who elected them -- for intransigence on tax increases, entitlement cuts and other tough choices that last year quashed an effort to craft a 10-year debt-cutting plan.
  • Egypt to Put 19 U.S. Citizens on Trial on Feb. 26, MENA Reports. Egypt will start the trial of 43 people, including 19 U.S. citizens, on Feb. 26 for breaking rules on foreign financing of NGOs, the official Middle East News Agency reported, citing a court announcement in Cairo.
  • Death Toll Mounts in Syria, Officials Killed. Opponents of Syrian President Bashar al-Assad’s rule stepped up their deadly attacks against government officials as the violence of the past 11 months pushes the country toward civil war. Gunmen killed Syrian Public Prosecutor Nidal Ghazal, Judge Mohammed Ziyadeh and their driver in Idlib, the official Syrian Arab News Agency said. The international community is divided on how to resolve the conflict as the daily death toll mounts. Forces loyal to the president are using tanks and artillery to try to crush a rebellion aimed at toppling Assad’s regime. Syrian government forces killed 27 people across the country yesterday, Al Jazeera reported, citing activists. “I’m worried that Syria is going to slide into a civil war,” U.K. Foreign Secretary William Hague told the BBC’s Andrew Marr show yesterday.
  • Iran Stops Oil Shipments to U.K., French Buyers, Ministry Says. Iran halted crude exports to French and British companies, the oil ministry’s news website Shana reported, citing Alireza Nikzad Rahbar, a ministry spokesman. Iran “will give its crude oil to new customers instead of French and U.K. companies,” Rahbar said. The halt followed a warning by the oil minister that the Persian Gulf country might act preemptively ahead of a European Union ban on purchases of Iranian crude planned to start in July, he said without giving further details, according to the report yesterday.
  • Japan Trade Deficit Widens to Record as Exports Slump: Economy. Japan posted a record trade deficit in January as the yen’s strength and weaker global demand eroded manufacturers’ profits and slowed the nation’s recovery from last year’s earthquake and tsunami. The gap widened to 1.48 trillion yen ($19 billion) and shipments dropped 9.3 percent from a year earlier as energy imports surged, a Ministry of Finance reported in Tokyo today. Shipments to China, Japan’s largest market, fell 20 percent from a year earlier, the biggest decline since Aug. 2009. Exports to European Union slid 7.7 percent and shipments to the U.S. advanced 0.6 percent.
  • Oil Profits Falling Fastest Since Lehman From Exxon(XOM) to Chesapeake(CHK): Energy. Profits for the biggest U.S. energy producers including Exxon Mobil Corp. (XOM) are poised to decline the most since the financial meltdown of 2008-09 as the drilling technique known as fracking collapses natural gas prices. Exxon and Chesapeake Energy Corp. (CHK), which today reports 2011 earnings, will see net income in 2012 slide 7 percent and 10 percent, respectively, according to the mean of analyst estimates compiled by Bloomberg. That would be the biggest drop since 2009 for the companies, the largest U.S. gas producers. While higher global demand for transportation fuels drove up crude prices about 30 percent since 2009, the domestic gas glut is pinching earnings for producers even as it pushes the U.S. toward energy independence. Especially hurt are Chesapeake and ConocoPhillips, which amassed gas assets before the full impact of fracking on supply growth was apparent, said Michael McMahon, a managing director for energy investments at Pine Brook Partners LLC, a private equity firm in New York. “Fracking has opened up vast areas of development on a scale that’s practically overwhelming for the industry,” said William Dutcher, president of Dutcher and Co., an Oklahoma City- based operator of 1,300 oil and gas wells. Oil output from U.S. fields including in shale rock is at a nine-year high and gas production hasn’t been this robust in almost four decades, Energy Department figures show. “Shale has driven the gas price down to where it’s creating economic hardship for producers, especially those that made acquisitions in 2006 and 2007, when gas was so expensive,” Dutcher said.
  • Rio(RIO) Sees 'Volatile' First-Half Ore Prices on China. Rio Tinto Group (RIO), the second-biggest iron ore exporter, expects prices to remain volatile in the first half as demand slows from Chinese steel mills and the European debt crisis crimps the outlook for global growth. “We believe we’ll go through a period of uncertainty probably in the first six months of the year with volatility, then we see some smoother sailing,” Sam Walsh, the company’s iron ore and Australia chief executive officer, told reporters in Perth. “Trying to resolve the issues in Greece and elsewhere creates an amount of uncertainty. People are holding back waiting for things to be resolved, waiting for the comfort that they can see where the economy will be going.”
  • Boomers' Drug Use Pushes Hepatitis Deaths Past HIV, Study Finds. Deaths attributed to hepatitis in the U.S. rose during the past decade to surpass those from HIV, posing a future public health burden as most people aren't aware they are infected. The baby boom generation, those born from 1946 to 1964, are the most at risk to the bloodborne virus, said John Ward, director of the Centers for Disease Control and Prevention's hepatitis division, and an author of the study. “Injection drug use was frequent in this age group, and even one-time exposure to injection drug use carries a high risk,” Ward said in an interview. “Seventy-five percent of the mortality is in this age group, and that mortality is increasing. That's the sobering facts for the baby boom generation.”

Wall Street Journal:
  • Fed Writes Sweeping Rules From Behind Closed Doors. The Federal Reserve has operated almost entirely behind closed doors as it rewrites the rule book governing the U.S. financial system, a stark contrast with its push for transparency in its interest-rate policies and emergency-lending programs. While many Americans may not realize it, the Fed has taken on a much larger regulatory role than at any time in history. Since the Dodd-Frank financial overhaul became law in July 2010, the Fed has held 47 separate votes on financial regulations, and scores more are coming. In the process it is reshaping the U.S. financial industry by directing banks on how much capital they must hold, what kind of trading they can engage in and what kind of fees they can charge retailers on debit-card transactions.
  • UBS Launches New E-Trading Platform For Credit-Default Swaps. STAMFORD, Conn. (Dow Jones)--Seeing that a pending regulatory overhaul of the $708 trillion private derivatives market will bring down the curtain on the lucrative business of dealing in swaps, UBS (UBS, UBSN.VX) is looking for a new way to stay in the game. In a wholesale shift in how credit derivatives have been traded, the Swiss banking giant has launched an electronic market for credit-default swaps, allowing customers to buy or sell the insurance-like instruments directly with other customers on-screen.
  • Ex-Bond Highflier Is Warned by SEC. U.S. securities regulators have warned a former top architect of the structured-finance boom that they are considering civil charges alleging he misled investors in a mortgage-bond deal that imploded, people familiar with the situation said. Alexander Rekeda, who led Japanese bank Mizuho Financial Group Inc.'s charge into the then-red-hot business of U.S. subprime debt in 2006, was warned by the Securities and Exchange Commission in October that he faces the potential charges, according to a regulatory filing.
  • Fed Raises Bar For Bank Deals. U.S. regulators eventually gave the green light to the $9 billion merger of Capital One Financial Corp. and ING Direct in a key test of the financial rules-of-the-road since the Dodd-Frank Act. But the Federal Reserve Board may be less accommodating to more-complex medium and large banks, analysts and experts said.
  • Concerned Scientists Reply on Global Warming. The authors of the Jan. 27 Wall Street Journal op-ed, 'No Need to Panic about Global Warming,' respond to their critics.
Business Insider:
Zero Hedge:


Wall Street All-Stars:

NY Times:
  • For Women Under 30, Most Births Occur Outside Marriage. It used to be called illegitimacy. Now it is the new normal. After steadily rising for five decades, the share of children born to unmarried women has crossed a threshold: more than half of births to American women under 30 occur outside marriage. Once largely limited to poor women and minorities, motherhood without marriage has settled deeply into middle America. The fastest growth in the last two decades has occurred among white women in their 20s who have some college education but no four-year degree, according to Child Trends, a Washington research group that analyzed government data. Among mothers of all ages, a majority — 59 percent in 2009 — are married when they have children. But the surge of births outside marriage among younger women — nearly two-thirds of children in the United States are born to mothers under 30 — is both a symbol of the transforming family and a hint of coming generational change. One group still largely resists the trend: college graduates, who overwhelmingly marry before having children. That is turning family structure into a new class divide, with the economic and social rewards of marriage increasingly reserved for people with the most education.
  • Bonds Backed by Mortgages Regain Allure. Some Wall Street investors made money as the mortgage market boomed; others profited when it fell apart. Having reaped big gains during both of those turns, Greg Lippmann, a former star trader at Deutsche Bank, is now catching the next upswing: buying the same securities built from mortgages that he bet against before the financial crisis erupted. Mr. Lippmann is joined by other big-money investors — mutual funds like Fidelity as well as hedge funds — in riding a wave of interest in the same complex loan pools that nearly washed away the financial system.
Chicago Tribune:
  • Exclusive: SEC Widens Probe of ETFs. U.S. securities regulators have widened their inquiry into the trillion-dollar market for exchange-traded funds, according to a person familiar with the matter. Prompted by a delay in a big trade at a popular ETF, the U.S. Securities and Exchange Commission is taking a closer look at a possible connection between high-frequency traders and hedge funds jumping in and out of ETFs, and instances where ETF trades fail to settle on time, this person said. The SEC's inquiry is part of a wider probe that began last year and focused on complex ETFs that allow investors to magnify returns or bet against stock indexes.
Financial Times:
  • Impact of Insider Crackdown Spreads. As regulators crack down on inside information, particularly in the US, asset managers say increased scrutiny and prosecutions have made it more difficult to talk to companies and affected equity returns.
  • Hedge Funds 'Have to Try Harder'. Hedge funds are on their final warning with investors, according to research from SEI. Although institutional investors have not yet wavered in their commitment to hedge funds, despite disappointing performance in recent years, they are now likely to be more demanding, both in terms of performance and of transparency.
  • Investors Seek Hedge Against Euro Split. Leading investment banks are considering creating currency products that would protect companies and investors in the event of a partial break-up of the euro. Banks report that some clients have asked them to provide a hedging tool that would protect their exposure in countries that reintroduced their national currency. “There’s a lot of interest in this,” said Bernie Sinniah, global head of corporate sales at Citigroup, one of the largest foreign exchange dealers.
  • European Union rules set to be approved by ministers tomorrow would force euro-area countries to seek EU approval of their yearly tax and spending budgets before presenting them to their national parliaments for approval, citing a draft of the regulations.
  • US Corporates Shy To Offer Guidance. US companies are more uncertain about the future than at any point since the financial crisis, with just one in five of the country’s biggest corporations making any predictions as they published fourth-quarter results. “We’re seeing a marked reluctance from companies to be concrete in their forecasts,” said Christine Short at data provider Standard & Poor’s Capital IQ.
The Telegraph:
  • Iran Risks Nuclear Cold War. Iran's pursuit of weapons of mass destruction is threatening to trigger a “new Cold War” that poses an even greater threat of nuclear conflict than the stand-off between the USSR and the West, William Hague warns.
  • Debt Crisis: Live.
  • Iran 'May Boost Nuclear Program', Diplomat Warns. Iran may be poised to expand its nuclear programme at an underground site near the city of Qom, a Vienna-based diplomat has told the BBC. It appears to be ready to install thousands of new-generation centrifuges at the fortified underground plant, the diplomat said. They could speed up the production of enriched uranium - required for both power generation and nuclear weapons.
Welt am Sonntag:
  • The German Economy Minister said Greek reforms are "insufficient," citing an internal working paper from the ministry. "The implementation from the Greek side remains insufficient," citing the document.

El Pais:

  • Around one million people marched in Spain's capital and other main cities to protest against Prime Minister Mariano Rajoy's labor rules overhaul, citing the countries' two main unions, CCOO and UGT. "Spain needs to avoid being the European country that most destroys jobs," Rajoy said early today during a televised speech at a People's Party convention in Sevilla.
Securities Times:
  • Outstanding non-performing loans at publicly traded banks in China may increase 26% this year from a year earlier, citing a China International Capital Corp. report. Non-performing loans may keep rising, according to the report.
Study Times:
  • China plans to push forward property tax reform trials this year, citing finance minister Xie Xuren. The country also plans to prevent redundant construction and limit new projects, Xie said. China will limit local governments' new debts, citing Xie.
Weekend Recommendations
  • Made positive comments on (CIT) and (GLW).
  • Made negative comments on (HPQ).
Night Trading
  • Asian indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 158.50 unch.
  • Asia Pacific Sovereign CDS Index 133.50 -1.5 basis points.
  • FTSE-100 futures unch.
  • S&P 500 futures +.40%.
  • NASDAQ 100 futures +.25%.
Morning Preview Links

Earnings of Note
  • (DTG)/.74
  • (MYL)/.50
  • (MHS)/1.17
  • (GPC)/.83
  • (HD)/.42
  • (WMT)/1.45
  • (BYD)/-.01
  • (CBRL)/1.14
  • (MDT)/.84
  • (SKS)/.14
  • (M)/1.65
  • (BKS)/.92
  • (INTU)/.45
  • (FST)/.26
  • (CAKE)/.52
  • (CHK)/.59
  • (CUZ)/.12
  • (DELL)/.51
  • (KFT)/.57
  • (EXPD)/.47
Economic Releases
8:30 am EST
  • The Chicago Fed Nat Activity Index for January is estimated to rise to .22 versus .17 in December.

Upcoming Splits

  • None of note
Other Potential Market Mover7s
  • The 2Y T-Note Auction, Ecofin Meeting of EU Finance Ministers, (MYL) Investor Day and the Enercom Oil/Gas Services Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

No comments: