Wednesday Watch

Evening Headlines
Bloomberg:

• Greek Bondholders Are Said Set to Get GDP-Revival Sweetener in Debt Swap. Bondholders negotiating a debt swap with Greece may get a sweetener tied to a revival in economic growth that would ease the impact of accepting a lower interest rate on the new bonds, people with knowledge of the talks said. In discussions late last week in Athens, creditors lowered their demands for an average coupon on the new 30-year securities they would receive to as little as 3.6 percent from 4.25 percent after European officials demanded they take steeper losses, people familiar with the matter said at the time. While the lower coupon would lead to an estimated loss of 70 percent or more for investors, adding a so-called gross domestic product warrant -- which would pay bondholders more if the Greek economy rebounds -- would trim the loss in net present value terms by an estimated 0.5 to 3 percentage points, said two people, who declined to be identified because the talks are confidential. Greece and private creditors are near a tentative accord that would in principle include the warrants, the people said. As an additional inducement for creditors, the debt would probably be governed under U.K. rather than Greek law, providing more bondholder protection, people familiar with the situation said. These matters are still subject to change, and questions over whether Greece can fulfill conditions for a second aid package from the European Union and International Monetary Fund have put the accord on hold for the moment, they said.
• Euro Holds Decline as Greek Debt Talks Continue, Before Portugal Bond Sale. The euro maintained a two-day decline as Greece struggles to conclude debt-swap talks with creditors by the end of this week. The 17-nation currency touched a one-week low versus the yen before Portugal sells bills today amid concern the nation will follow Greece in needing more aid to avoid default. Australia’s dollar pared declines after a report showed China’s manufacturing industry unexpectedly expanded last month. “There are some concerns that talks may continue to drag on,” Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore, said about the Greek debt negotiations. “The longer it drags on, the more likely the crisis will continue to worsen. It’s a sell on rallies market” for the euro. Portugal will sell 105-day and 168-day bills today. Standard & Poor’s increased the number of Portuguese banks on “creditwatch negative” after it cut the sovereign rating of the country. Yields (GSPT2YR) on Portugal’s two-year notes soared to a record 21.82 percent yesterday. “There are concerns that Portugal may also need a second bailout,” said Forecast’s Lee, who expects the euro may fall below the Jan. 13 low of $1.2624, the weakest since August 2010. “If the economy slows even more, banks would come under more pressure,” he said.
• Steel Slows With Europe Setting Back ArcelorMittal: Commodities. Steel demand worldwide is growing slower than forecast, eroding profit at producers including ArcelorMittal and Tata Steel Ltd. and forcing investors to revise their 2012 outlook for the $430 billion industry. Global use of the alloy will rise 4.5 percent this year, less than the 5.4 percent forecast in October by the World Steel Association, according to the median estimate of 14 steelmakers, analysts and traders surveyed by Bloomberg. Growth may be as low as 1.2 percent, according to Bloomberg Industries analysts. The gain, the lowest in three years, is tempered by cooling economies in China and Europe, where orders for steel products for houses, cars and machinery are stagnating and will keep the alloy's prices and overseas shipments muted, analysts said. “I'm bearish on Europe's demand outlook in view of the negative impact from budget deficits and the debt crisis,” said Helen Lau, an analyst with Hong Kong-based brokerage UOB Kay Hian. “China is maintaining its tightening stance on the private property market and developers are still suffering from tight bank credit and high inventory” of homes.
• California Faces Cash Crisis by March, Controller Estimates. California's cash may be exhausted by March as tax collections trail budgeted amounts, Controller John Chiang said in a letter to lawmakers. The nation's most-populous state needs $3.3 billion for March and the first two weeks of April, Chiang said in the letter to state Senator Mark Leno and Assemblyman Bob Blumenfield, who lead the Joint Legislative Budget Committee. The Assembly Budget Committee is holding a hearing today in Sacramento on the state's spending plan. Unlike 2009, when he was forced to issue IOUs to creditors, the controller said the current cash shortfall can be managed through payment delays, as well as external and internal borrowing. He urged legislators to pursue that course.
• China-Based Hackers Target Law Firms to Get Secret Deal Data. China-based hackers looking to derail the $40 billion acquisition of the world’s largest potash producer by an Australian mining giant zeroed in on offices on Toronto’s Bay Street, home of the Canadian law firms handling the deal. Over a few months beginning in September 2010, the hackers rifled one secure computer network after the next, eventually hitting seven different law firms as well as Canada’s Finance Ministry and the Treasury Board, according to Daniel Tobok, president of Toronto-based Digital Wyzdom.
• Broadcom(BRCM) Forecasts First-Quarter Sales That May Beat Analysts' Estimates. Broadcom Corp. (BRCM), a maker of chips that help mobile devices connect to the Internet, forecast first-quarter sales that may exceed analysts’ estimates amid stronger demand for parts for Apple Inc. (AAPL)’s iPhone. First-quarter revenue will be $1.7 billion to $1.8 billion, the Irvine, California-based company said in a statement today. Analysts on average had estimated sales of $1.73 billion, according to data compiled by Bloomberg. Broadcom shares climbed 2.5 percent to $35.20 in extended trading after the report.
• Fed Bank Presidents' Holdings Range From Ranchland to Equities. Federal Reserve regional bank presidents provided unprecedented disclosure of their wealth, revealing assets ranging from a Missouri farm and Texas ranchland to stocks and Treasury Inflation Protected Securities. The officials, who oversee Fed operations ranging from bank supervision to emergency lending, disclosed the documents today in response to requests from Bloomberg News under the Freedom of Information Act. The regional banks said they weren’t subject to the terms of the act, even as they responded to the request.
• Goldman(GS) Said to Be in Talks to Hire Ex-Geithner Aide Siewert. Goldman Sachs Group Inc. is in talks to hire Richard “Jake” Siewert Jr., a former counselor to U.S. Treasury Secretary Timothy F. Geithner, to manage the bank’s communications department, said three people familiar with the situation.
• Fracking Boom Could Finally Cap Myth of Peak Oil. The U.S. oil market could be on the verge of its own fracking revolution, similar to what the natural-gas market is already experiencing. As a result, domestic production is now projected to rise significantly over the coming decades, reducing the relative share of imports in U.S. oil consumption.
• Why Europe Really Must Pursue 'Structural Reform': Clive Crook.
• Hong Kong Homes Face 25% Drop in Year of the Dragon. The Year of the Dragon, representing wealth and power in China, is shaping up to be the opposite for the world’s costliest housing market, Hong Kong. Mortgages (HKMGLEND) that need to be insured by the government because of risk experienced the steepest plunge in six years in 2011, a sign the biggest home price decline since the global credit crisis is accelerating. Property prices that have slid 6 percent since June may fall as much as 25 percent by 2013, estimates Andrew Lawrence of Barclays Capital, who predicted the initial slide in April.
• South Korea's Exports Decline, Inflation Moderates on Europe. South Korea’s exports unexpectedly fell for the first time in more than two years and inflation moderated to the slowest pace in 12 months as Europe’s debt crisis dimmed the outlook for demand, giving the nation’s policy makers scope to hold interest rates. Overseas shipments dropped 6.6 percent in January from a year earlier after a revised 10.8 percent rise in December as Europe and the Lunar New Year holiday disrupted shipments, the Ministry of Knowledge Economy said in a statement today. Consumer prices rose 3.4 percent from a year earlier, the slowest since January 2011 when they gained at the same speed, a separate report today showed.
• China Home Prices Post Longest Stretch of Declines on Curbs, SouFun Says. China’s home prices fell for a fifth month in January as the government continued to control the property market, the longest losing streak since SouFun Holdings Ltd. (SFUN) started tracking the data. Home prices dropped 0.18 percent last month from December, according to SouFun, the nation’s biggest real-estate website owner that began compiling the figures in July 2010. Residential prices slid in 60 of 100 cities tracked by the company, same as in December, it said in an e-mailed statement today. Premier Wen Jiabao yesterday reiterated that the government will maintain curbs on the property market to bring prices down to a reasonable level. “Home prices are really falling and will drop further as the government curbs remain in place,” Nicole Wong, a Hong Kong-based property analyst at CLSA Asia-Pacific Markets, said in a phone interview today. “The stance of the policies has softened, but we can’t see a firm timeframe for the government to relax the current policies.” Average home prices nationwide climbed 1.7 percent in January from the same time in 2011 to 8,793 yuan ($1,394) a square meter (10.76 square feet), the slowest pace of growth since August, SouFun said.
• Russia Warns Arab Leaders Against Crossing 'Red Line' on Syrian Leadership. Russia warned Arab leaders against crossing a “red line” in trying to oust Syrian President Bashar al-Assad and said it wasn’t the United Nation’s job to dictate who stays in power and who goes.
• Apple(AAPL) Invades $3.8T Workplace Market With iPad. Apple Inc., without much effort on its part, is making rapid headway in selling to corporations. After years of being the also-ran to Microsoft Corp.(MSFT) in the workplace, Apple has seen its iPad become a standard business tool. According to an IDG Connect survey, 51 percent of managers with iPads say they “always” use the device at work, and another 40 percent sometimes do. Seventy-nine percent of the respondents use the iPad for business when outside the office.
• Oil Trades Near One-Week Low on Rising Stockpiles, U.S. Outlook. Oil traded near the lowest price in more than a week on signs that consumer confidence and demand for fuel are slipping in the U.S., the biggest crude consumer. “In the U.S., we have seen long-term demand destruction on gasoline that may never come back, even if the economy improves,” Phil Flynn, vice president of research at PFGBest in Chicago, said in an e-mailed response to questions. U.S. drivers bought 8.51 million barrels a day of gasoline in the week ended Jan. 27, according to MasterCard Inc.’s SpendingPulse report on Jan. 31. While that was up from 8.48 million the prior week, fuel demand fell below year-earlier levels for the 22nd consecutive time last week, declining 5.5 percent from 2011, the report said.

Wall Street Journal:

• Romney Wins Big in Florida. Mitt Romney handily won Florida's Republican primary Tuesday, riding a new, combative campaign style to a victory that returns him to his role as the favorite to win his party's presidential nomination.
  
• Senators: Get Rid of Dollar Bills. Some U.S. lawmakers want the coin to be the dollar of the realm. Sens. Tom Harkin (D., Iowa), John McCain (R., Ariz.) and two colleagues Tuesday are introducing legislation that would kill off the dollar bill in favor of dollar coins, touting the move as a way to cut costs over the long run.
  
• New Risks for Nuclear Plants. Nuclear reactors in the central and eastern U.S. face previously unrecognized threats from big earthquakes, the Nuclear Regulatory Commission said Tuesday. Experts said upgrading the plants to withstand more substantial earth movements would be costly and could force some to close.
• US Plans Charges on Bond Fraud. Federal prosecutors are preparing to file criminal charges against former Wall Street traders alleging they misstated the value of mortgage bonds, an issue central to the 2008 financial crisis, according to people familiar with the matter. The Manhattan U.S. Attorney's office is planning to allege in a criminal complaint that several former traders at Credit Suisse Group AG, a major global investment bank, misled the bank's investors by booking inflated prices of mortgage bonds to boost their bonuses, despite knowing the values of those securities had dropped, according to the people familiar with the matter.
• Repealing an entitlement that even the White House says won't work. The House votes today on repealing one of the Affordable Care Act's major new subsidy programs, and the referendum deserves more attention than it will probably get.
  

MarketWatch:

• China's Commodities Bubble Is Set To Pop.

Business Insider:

• Facebook Shrinks Its IPO, Plans To File Tomorrow Morning.
• MasterCard(MA) Is Planning To Usher In The Digital Age Of Consumer Spending.

Zero Hedge:

• NYSE January Volume. (graph) Last January (2011) the average number of stocks traded on the NYSE per day was 891mm shares vs 661mm for this January (a 26% drop YoY!) and this is down an incredible 59% from January 2008.

CNBC:

• China Factories Improve. China's official purchasing managers' index (PMI), inched up to 50.5 in January from 50.3 in December. A level of 50 demarcates expansion from contraction. The sub-index for new orders rose to 50.4 in January from 49.8 in December, while the sub-index for new export orders fell to 46.9 from December's 48.6. The official PMI, which is weighted more towards big state firms, generally paints a rosier picture of Chinese factories than a PMI produced by HSBC, which includes small private firms that have been hit harder by credit curbs and weaker demand. The official survey was rosier than the HSBC flash PMI, the earliest indicator of China's industrial activity, which found the manufacturing sector likely shrank for a third successive month in January.

CNN:

• Fed Official Owned Shares of Bailed Out Firms. As he helped orchestrate the Wall Street bailouts, William Dudley -- now president of the New York Fed -- owned more than $100,000 stock in AIG and General Electric, two firms that received government assistance.

Reuters:

• Analysis: Oil Reports May Offer Obama An Out On Iran. President Barack Obama will soon get regular, albeit incomplete, reports on how oil markets are coping ahead of broader sanctions on Iran that could help him justify easing off sanctions to prevent a politically damaging jump in crude prices. The White House is bracing for a barrage of criticism if gasoline prices begin to rise with the onset of the summer driving season, according to one source close to the White House. If gasoline prices march towards $5 a gallon from more than $3.40 now, Republicans will attack just as Obama gears up for the November elections. But Obama could use the EIA reports, which look at production and prices in countries besides Iran, to ease up on sanctions if they suggest energy security was at stake. "If the president decides he doesn't want to impose the sanctions he's got a fig leaf," said Phil Verleger an economist and consultant with PKVerleger LLC. "He can hide behind the report." The EIA report could act as a political shield if Obama decided to temper the sanctions. Mark Dubowitz, a advocate for tougher Iran sanctions and head of the Foundation for Defense of Democracies, said it will be "difficult for Congress and for others to hold the administration's feet to the fire" if Obama used the EIA report as a reason to ease up. George Lopez, an expert on international sanctions at University of Notre Dame, said Obama would have to tread carefully and not appear as being soft on Iran. But ultimately the president has much wiggle room.
• Amazon(AMZN) Spending Threatens 1st-Quarter Profit. Amazon.com Inc warned of a possible operating loss in the first quarter following a sharp drop in fourth-quarter profit, a sign that the online retailer will keep spending heavily on expansion at the expense of short-term returns. Shares of the company fell more than 8 percent.
• MF Global risk chief called euro bets "acceptable". The former chief risk officer for bankrupt MF Global raised concerns about the firm's aggressive bets on European sovereign debt about three months before the company filed for bankruptcy. Those concerns will be detailed on Thursday when Michael Stockman, the former chief risk officer, testifies before a House panel investigating the downfall of MF Global.
• Seagate Technology(STX) Q2 Beats Street on Margins. Hard drive maker Seagate Technology's posted better-than-expected quarterly earnings on strong margins, and followed rival Western Digital Corp in signalling a recovery from the floods in Thailand.

Financial Times:

• Misdiagnosis has made IMF cavalier with taxpayer money.
• Bruising Year for Commodities Hedge Funds. The commodities hedge fund industry has suffered its worst year in more than a decade as the sector’s top managers recorded heavy losses amid volatile markets. The average commodity hedge fund fell 1.7 per cent in 2011, according to a closely watched index compiled by Newedge, the first loss since the index was created in 2000 and down from a rise of 10.7 per cent in 2010.

Telegraph:

• German Jobs Miracle as Latin Unemployment Soars. Germany is enjoying the greatest jobs boom in 20 years even as unemployment rises to post-EMU highs across southern Europe, stretching the euro's North-South divide ever closer to breaking point. Spain's jobless rate has reached 22.9pc – or 48.7pc for youths – with Greece fast catching it at 19.2pc. Italy, at 8.8pc, is climbing steadily but this is likely to accelerate as austerity bites and recession deepens.

Kathimerini:

• Greece's international creditors will need guarantees from the three political party leaders supporting Prime Minister Lucas Papademos that they will stick to the economic program agreed to in return for a second rescue package, citing an interview with the main IMF representative to Greece.

Yonhap News Agency:

• North Korea's New Leadership to Continue WMD Exports: U.S Spy Chief. The U.S. intelligence chief warned Tuesday that North Korea will continue its exports of weapons of massive destruction despite its leadership change. "North Korea's export of ballistic missiles and associated materials to several countries, including Iran and Syria, illustrate the reach of the North's proliferation activities," James Clapper, director of national intelligence, told a congressional hearing.
  

Sydney Morning Herald:

• Record Slump in Australian House Prices in 2011. Australian house prices plunged by the most on record in 2011 as global economic uncertainty and concerns about its impact at home kept a lid on demand. An index measuring the weighted average of prices for established houses in eight major cities slid 4.8 per cent from a year earlier, according to the Australian Bureau of Statistics, the biggest calendar-year drop since the data began in March 2002. They fell 1 per cent in the three months to December from the previous quarter, when they retreated a revised 1.9 per cent. Economists had predicted a 0.6 per cent quarterly fall.

21st Century Business Herald:

• The China Banking Regulatory Commission has asked the nation's five biggest banks to run stress tests on loans to local government financing vehicles, citing a personal familiar with the matter. Lenders are told to report the test results and risk prevention measures to the regulator by this quarter.

Evening Recommendations
Citigroup Global Markets:

• Reiterated Buy on (X), target $35.

Night Trading

• Asian equity indices are -.75% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 182.50 -4.5 basis points.
  
• Asia Pacific Sovereign CDS Index 147.25 -1.75 basis points.
• FTSE-100 futures +.05%.
  
• S&P 500 futures -.16%.
  
• NASDAQ 100 futures -.33%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (COCO)/.01
• (TMO)/1.15
• (IACI)/.54
• (ENR)/1.93
• (MAN)/.87
• (AET)/.97
• (ALL)/.96
• (CMG)/1.83
• (LVS)/.57
• (QCOM)/.90
• (NDAQ)/.61
• (TSCO)/.93
• (BYI)/.51
• (EQR)/.65
• (TSO)/-.66
• (AVB)/1.22
• (EA)/.93
• (JDSU)/.10
• (MRO)/.83
• (BMC)/.82
• (AOL)/.31
• (HSY)/.70
• (DOX)/.64
• (NOC)/1.67

Economic Releases
8:15 am EST

• The ADP Employment Change for January is estimated at 182K versus 325K in December.
  

10:00 am EST

• Construction Spending for December is estimated to rise +.5% versus a +1.2% gain in November.
• ISM Manufacturing for January is estimated to rise to 54.5 versus 53.9 in December.
• ISM Prices Paid for January is estimated to rise to 50.00 versus 47.5 in December.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,600,000 barrels versus a +3,558,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,375,000 barrels versus a -2,456,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +500,000 barrels versus a -390,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a -1.5% decline the prior week.
  

Afternoon

• Total Vehicle Sales for January is estimated to fall to 13.5M versus 13.52M in December.
  

Upcoming Splits

• (CMN) 3-for-2
• (TJX) 2-for-1

Other Potential Market Movers

• The Fed's Plosser speaking, NAPM-Milwaukee report for January, weekly MBA mortgage applications report, (VPRT) Investor Day, (FLS) Analyst Meeting and the (NAV) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity 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.