Wednesday, February 08, 2012

Wednesday Watch

Evening Headlin
  • Greek Haggling Drags on as Meeting to Seal Terms of Second Bailout Delayed. Greek Prime Minister Lucas Papademos is set to negotiate with leaders of the political parties supporting his caretaker government after Athens missed another deadline to secure a second aid package. Papademos will see the chiefs in Athens today after delaying the meeting for a second time in as many days while Greek officials and international creditors haggle over the terms. Late last night, he held an unscheduled meeting with the so-called troika, comprising the European Commission, the European Central Bank and the International Monetary Fund, to put the final touches on terms required for a 130 billion-euro ($172 billion) rescue package. Yesterday’s delay was yet another hitch in completing a package that’s been on the table since July. The government is struggling to arrange financing to avert a collapse of the economy, risking a new round of contagion in the euro area. With the country facing a 14.5 billion-euro bond payment on March 20, German Chancellor Angela Merkel warned this week that “time is running out” to reach an accord. The tussling in Athens threatens to hold up a critical element of the second financing package, that of a debt swap that will slice 100 billion euros off more than 200 billion euros of privately-held debt. The rescue blueprint includes a loss of more than 70 percent for bondholders in the voluntary debt exchange as well as loans that will probably exceed the 130 billion euros now on the table.
  • Bond-Buying Japan Banks Snub Downgrade Threat: Chart of the Day. Japanese banks are ignoring the threat of more cuts to the nation's debt rating by boosting holdings of government bonds to a record, helping to prevent any jump in the country's borrowing costs. The value of Japanese debt held by domestic financial institutions, including commercial banks and insurance companies, reached $7.5 trillion at the end of September, according to the Bank of Japan.
  • Iran Anxiety No Match for Central Banker Cash. Iran’s nuclear ambitions, Syria’s bloody crackdown and Greece’s potential default are leaving markets unfazed as central bankers take unprecedented steps to prevent the global economy from crumbling. The balance sheets of central banks in the U.S., Switzerland, U.K., European Union, Japan and China have swelled from a collective $4.99 trillion in May 2006 and $10.1 trillion in December 2008, two months after the collapse of Lehman Brothers Holdings Inc. spurred the worst financial crisis since the Great Depression, according to Bianco Research. China’s central bank holds about $4.5 trillion of securities, the most of any such institution in the world, Bianco Research’s data show. The ECB has about 2.7 trillion euros ($3.6 trillion) while the Fed holds $2.9 trillion, up from $898 billion in 2008.
  • BHP Billiton(BHP) First-Half Profit Drops 5.5%. BHP Billiton Ltd., the world’s biggest mining company, reported a 5.5 percent drop in first- half profit, the first decline since 2009, as rising costs and lower output and prices halved base metals earnings. Net income was $9.9 billion in the six months ended Dec. 31, from $10.5 billion, a year earlier, the Melbourne-based company said today in a statement. That compares with the $10 billion average estimate of seven analysts surveyed by Bloomberg. Metal prices in London declined 20 percent in the half on reduced demand in Europe and slowing industrial production in China, the world’s largest metals buyer. BHP, which is spending $80 billion over the next five years to boost output of iron ore, copper and coal, remains “cautious” on the market outlook Chief Executive Officer Marius Kloppers told a conference call.
  • Caesars(CZR) Fetches $1.13 Billion Market Value After Pricing IPO. Caesars Entertainment Corp., the casino chain saddled with more than $22 billion in debt, completed an initial public offering that gives the company a market value of $1.13 billion. Las Vegas-based Caesars, taken private in a $30.7 billion buyout by Apollo Global Management LLC and TPG Capital in 2008, raised $16.3 million selling 1.81 million shares at $9 each, the company said in a statement. The stock, which was offered for $8 to $10 apiece, will start trading on the Nasdaq Stock Market tomorrow under the symbol CZR.
  • China's Copper Demand Growth May Slow to 4%, Wanxiang Forecasts. Copper demand growth in China, the world's biggest user, may decline by half this year as the economy slows and subsidy programs end, according to the metals trader that's owned by the country's biggest auto-parts maker. Refined-metal consumption may expand 4% to 5%, said Shen Xiaoqiang, a researcher at Wanxiang Resources Co., a unit of closely-held Wanxiang Group. That compares with 8% to 10% in 2011, and more than 10% in 2010, said Shen, who's studied the market for more than a decade.
  • Illumina Board Rejects Roche’s $5.7 Billion Hostile Bid for Gene Mapper.
Wall Street Journal:
  • Concession Smooths Way Toward a Greek Debt Deal. The European Central Bank has made key concessions over its holdings of Greek government bonds, which will contribute to a reduction of the country's debt burden and smooth the path toward a new bailout for the country, said people briefed on Greece's debt-restructuring negotiations.
  • Santorum Wins in Missouri, Minnesota. Rick Santorum jolted the Republican presidential race Tuesday by winning nominating contests in Missouri and Minnesota, puncturing Mitt Romney's claim to be the unstoppable front-runner. Mr. Santorum was also leading in early returns from Colorado, a state Mr. Romney won by a wide margin in 2008, when he also won in Minnesota.
  • U.S. Market Shines Brighter. U.S. companies, facing slowing markets and rising costs around the world, are taking a new look at their home market. With growth slowing in China and a slump gripping much of Europe, companies are adding capacity in the U.S., replacing aging equipment and even moving overseas production back from low-cost labor markets, a sign that corporate America could be poised to take a bigger role in the economic recovery.
  • Goldman(GS), Morgan Stanley(MS) Clarify Clawback Policies. Goldman Sachs Group Inc. and Morgan Stanley will clarify their compensation-clawback policies in response to demands from a group of shareholders led by the New York City Comptroller's office. The banks will say that their policies apply not only to those employees who engage in excessive risk taking or improper conduct but also to those who supervise and manage them.
  • GM(GM) Prepares for 'horrendous' Losses at Opel Unit. General Motors Co. is preparing to disclose "horrendous" fourth quarter losses out of its European Opel/Vauxhall unit and is demanding deep cuts from labor unions there, a GM official said on Tuesday. The official said the auto maker's patience with the money-losing operation is running out. "There is increasing frustration with Opel and a feeling that the cuts two years ago did not go nearly deep enough," the official said. "If Opel is going to get fixed, it is going to get fixed now and cuts are going to be deep."
  • ObamaCare's Great Awakening. The political furor over President Obama's birth-control mandate continues to grow, even among those for whom contraception poses no moral qualms, and one needn't be a theologian to understand why. The country is being exposed to the raw political control that is the core of the Obama health-care plan, and Americans are seeing clearly for the first time how this will violate pluralism and liberty.
  • Asia Real-Estate Bull Turns Bearish. Asia’s gradually cooling property markets aren’t the great buys they once were, according to one expert in the region, who says better bargains can be found in the depressed markets in the West. Tim Murphy, the Hong Kong-based chief executive officer of property advisory group IP Global, says he’s telling his clients to look more towards New York and San Francisco for deals, although London also ranks well in terms of rental yield in some projects.
Business Insider:
  • Chinese Electricity Consumption Fell Massively In January, And The Chinese New Year Doesn't Explain It. Ultra-brief note here from Nomura's Zhiwei Zhang : According to the China Securities Journal, China's electricity consumption in January fell by 7.5%. We estimate this may be the first decline since 2002 (excluding the financial crisis period in 2008-09), indicating industrial production may have slowed sharply in January. They don't have any more answers here at the moment, except they say that if you're thinking it has something to do with the New Year, then you are incorrect.
  • PRESENTING: The High-End Obama Fashion Line That Has Republicans In An Uproar. New York's most glamorous liberals rallied around President Barack Obama today for the launch of "Runway to Win," his campaign's new collection of designer campaign gear. Unsurprisingly, the GOP having a field day with the high-fashion fundraising gimmick, which features expensive election-themed merchandise from big-name designers like Marc Jacobs, Vera Wang and Beyonce. Seizing on a fresh opportunity to bash the coastal elite, the Republican National Committee has released a video that slams the President as an out-of-touch celebrity who is cavorting with fashion moguls while campaigning against income inequality.
Zero Hedge:
Financial Times:
  • Backlog Sees Canadian Crude Price Tumble. Crude oil from Canada is being offered for half of international prices as increasing output from the world’s sixth biggest producer threatens to overwhelm regional pipelines and refineries. Western Canada Select, blended from heavy tar sands crudes, this week sold for $62.42 a barrel, according to data from Platts, the energy information service. Brent crude, the global benchmark, on Tuesday topped $117 for the first time since August. This also represents the deepest discount to US crude in more than four years, reflecting Canadian producers’ few options for delivering their oil and problems at refineries in the region. It comes weeks after Barack Obama, US president, blocked plans to build the Keystone XL pipeline, which would carry more than 1m barrels a day from Alberta to refineries in Texas.
  • US Banks Snap Up Bundled Mortgage Products. Banks have been responding to low interest rates by snapping up billions of dollars of bundled mortgage products that resemble the sliced-and-diced debt some blame for the financial crisis. The products, known as “collateralised mortgage obligations,” or CMOs, group together securities backed by mortgage loans. These securities are then sliced into various tranches, with each portion being paid out to investors at a different time.
  • Greek Trump Card Fails as Stronger Europe Shrugs Off Break-Up Threat. Europe’s dominant powers and institutions are for the first time willing to risk a Greek default and ejection from the euro if Athens refuses to comply with austerity demands, calculating that the eurozone system is now strong enough to withstand a contagion shock. The European Central Bank’s flood of cheap credit for three years has removed the immediate threat of a banking crisis and proved a powerful tonic for confidence, transforming the character of the crisis. Bond yields have plummeted in both Italy and Spain since November, largely decoupling from the ups and down of daily events in Athens. The effect has been to nullify Greece’s trump card: the implicit threat to bring down the whole edifice if treated too harshly. "It’s not the end of the world if someone leaves the eurozone," said Nellie Kroes, the European Commission vice-president, uttering in public a view already prevalent in Berlin and other northern capitals as Greek rescue costs rise by a further €15bn to €145bn. "It’s always said, if you let one nation go, or ask one to leave, the entire structure will collapse. But that is just not true," she told De Volksrant.

Die Welt:
  • German taxpayers may face at least $33 billion in losses on Greek sovereign bonds, citing its own calculations and those made by the IfW economic think tank. A waiver of part of the aid granted to Greece, which is being discussed, could further increase the amount.

Borneo Post:
  • China Fines Parents of Hong Kong-Born Second Child. Mainland Chinese who have a second child in Hong Kong will be fined for breaching China’s one-child policy, Chinese media quoted a family planning official as saying, as mainland Chinese women flock to the former British colony to give birth. Hong Kong’s maternity wards are booked until September, pressured by the growing number of mainland Chinese seeking to circumvent the one-child policy and gain residency rights in one of the country’s wealthiest cities.
Evening Recommendations
Keefe, Bruyette & Woods:
  • Downgraded (CBOE) to Unerperform, target $21.
Night Trading
  • Asian equity indices are +.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 165.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 137.0 +1.0 basis point.
  • FTSE-100 futures +.09%.
  • S&P 500 futures +.01%.
  • NASDAQ 100 futures +.09%.
Morning Preview Links

Earnings of Note
  • (CVH)/.64
  • (CTSH)/.77
  • (WYN)/.44
  • (TWX)/.87
  • (MCO)/.49
  • (CVS)/.89
  • (S)/-.38
  • (ICE)/1.69
  • (RL)/1.68
  • (CSC)/.57
  • (NWSA)/.34
  • (AKAM)/.40
  • (CSCO)/.43
  • (PRU)/1.76
  • (V)/1.45
  • (WFM)/.60
  • (GGP)/.27
  • (JNY)/.00
  • (TIN)/.23
  • (GRPN)/.03
Economic Releases
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,500,000 barrels versus a +4,175,000 barrel gain the prior week. Distillate inventories are estimated to fall by -875,000 barrels versus a -135,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +875,000 barrels versus a +3,017,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.4% versus a -.4% decline the prior week.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The Fed's Williams speaking, 10Y T-Notes Auction, Germany bond sale, weekly MBA Mortgage Applications report, (AUO) Investor Conference and the CSFB Financial Services Forum could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and automaker shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

No comments: