Monday, March 12, 2012

Monday Watch

Posted by Gary .....at 12:46 AM

Weekend Headlines
Bloomberg:
  • Greece Deal Triggers $3B in Default Swaps: ISDA. A committee of credit-default swaps traders will expedite an auction to settle about $3 billion of contracts tied to Greece after the nation took steps to force investors to participate in the biggest sovereign-debt restructuring in history. Traders will hold the auction March 19 to “maximize” the number of bonds that can be used to set payout amounts, the New York-based International Swaps and Derivatives Association said on the committee’s website yesterday.
  • Monti Targets Italy Labor Law Revamp as Jobless Youth Join Trapped Fireman. Young Italians are the have-nots of a two-tier job market that Prime Minister Mario Monti is seeking to overhaul to boost employment and growth in the euro area’s second most-indebted economy. While mostly older workers enjoy open-ended contracts with strict limits on firing, young laborers often make do with short-term deals that leave them as the first to go when employers cut costs amid Italy’s fourth recession since 2001.
  • Portugal Yield at 13% Says Greek Deal Not Unique: Euro Credit. The good news is Greece won't default on March 20, and 10-year borrowing costs for Spain and Italy have dropped below 5 percent. The bad news is similar-maturity Portuguese bonds still yield more than 13%.
  • German CDU's Kauder Warns Over European Central Bank Cash Policy. A top official in Chancellor Angela Merkel’s party told Wirtschaftswoche he has “mixed feelings” about the European Central Bank handing financial institutions more than 1 trillion euros ($1.3 trillion) in cash. “I hope the ECB recognizes its limits and later collects the money back swiftly,” Volker Kauder, the parliamentary chief of Merkel’s Christian Democratic Union and its Bavarian Christian Social Union sister party, told the Dusseldorf-based weekly magazine in an interview. “Once the European Stability Mechanism is working, many ECB measures won’t be necessary anymore.”
  • Germany's Schlesinger Tells Welt Tenders Make ECB 'Inflexible'. Helmut Schlesinger, former president of Germany’s Bundesbank, criticized the European Central Bank’s policy of injecting fresh money into the market in an interview with Welt am Sonntag. The ECB’s most recent tenders in December and February, in which banks were awarded more than 1 trillion euros ($1.3 trillion), made the institution “completely inflexible,” Schlesinger was quoted as saying in an interview to be published by the Berlin-based newspaper tomorrow. “It can really control only 5 percent of the money it has spent.” Schlesinger also said he’s concerned over “giant” imbalances in the bank’s Target 2 securities settlement service, the newspaper said.
  • Financial-Transaction Tax for Europe Urged by Schaeuble, Monti in Letter. German Finance Minister Wolfgang Schaeuble is among European leaders calling for a Europe-wide tax on financial transactions, Der Spiegel reported, citing a joint letter to the EU leadership. “We’re convinced that a financial transaction tax should be introduced at the European level,” nine officials including Italian Prime Minister Mario Monti and French Finance Minister Francois Baroin said in the letter to Margrethe Vestager, finance minister of Denmark, which holds the rotating EU presidency. “We would welcome it if the presidency speeds up the negotiation process,” the Hamburg-based magazine cited the letter as saying. Germany’s finance ministry is drafting a proposal for a financial transaction tax affecting revenues from stock and bond sales, currency transactions and derivatives, Der Spiegel said.
  • Fed Said to Balk at Bank Payouts Over Loan-Loss Estimates. The Federal Reserve is pushing back against some banks’ proposals to pay dividends and repurchase shares, after concluding that the lenders are underestimating the potential for losses on consumer debt in a severe economic slump, according to two people with knowledge of the situation. Executives and Fed examiners have been wrangling in recent weeks over the central bank’s stress-test process as the March 15 deadline for results approaches. The Fed hasn’t yet given banks a ruling on their proposed payouts or told firms how much higher its estimates are for losses on mortgage loans and credit cards, the people said. Examiners are still fine-tuning calculations, which may change. “If the Fed fights back and disagrees and is more aggressive in their stance on cards and mortgages, it would mean banks wouldn’t be able to pay out as much,” missing investors’ expectations, said Glenn Schorr, a senior bank analyst for Nomura Securities in New York. Investors expect banks will pay out 50 percent to 60 percent of earnings this year, he said.
  • Oil Drops From Highest Price in a Week on Concern Economic Growth to Slow. Oil fell from the highest price in more than a week in New York on speculation fuel demand will falter after Chinese export data signaled an economic slowdown. Futures slid as much as 0.5 percent. China had its biggest trade deficit in at least 22 years last month, a March 10 report by the customs bureau showed. Overseas shipments rose 18.4 percent, compared with a median estimate of 31.1 percent in a Bloomberg News survey. “The data from China is a downside pressure on the oil market, said Ken Hasegawa, a commodity-derivative sales manager at Newedge Group in Tokyo. ‘‘The trade deficit is much bigger than expected.’’ Crude for April delivery fell as much as 55 cents to $106.85 a barrel in electronic trading on the New York Mercantile Exchange and was at $106.87 at 10:17 a.m. Tokyo time.
  • BRICs Fastest Inflation Accelerating Puts Subbarao on Hold: India Credit. Indian inflation, the fastest among the biggest emerging markets, is poised to accelerate as oil costs rise for a nation that depends on imports for 80 percent of its energy requirements, interest-rate swaps show. The cost of locking in rates for five years rose to 7.49 percent in Mumbai on March 9, the highest in almost five months, according to data compiled by Bloomberg. Wholesale prices rose 6.69 percent last month after increasing 6.55 percent in January, according to the median forecast of economists in a Bloomberg survey before data due on March 14.
  • Dow Theory Converging With Bonds as Transports Signal Slowdown. Transportation and industrial shares are diverging in the U.S., a signal that equity investors are starting to agree with what the bond market already knows: this economic recovery will remain sluggish for months to come.
  • Unopened China High-Speed Rail Section Collapses After Rains, Xinhua Says. A 300-meter section of an unopened high-speed railway collapsed in central China’s Hubei province following heavy rains, Xinhua News said, citing local authorities. Hundreds of workers have been sent to make repairs following the March 9 failure in Qianjiang city, the report said. The collapsed section is part of the 291 kilometer (181 miles) long Hanyi High-Speed Railway, linking the provincial capital Wuhan and Yichang city, which is due to open in May. China Railway Group Ltd. (390) and China Railway Construction Corp., the nation’s biggest railway-builders, plunged in Hong Kong trading on concerns the collapse may further deter rail construction. The government last year slowed new lines after 40 people were killed in a high-speed crash near Wenzhou in July. China Railway Group dropped as much as 7.4 percent and China Railway Construction fell as much as 7.5 percent. Those were the biggest drops for both companies this year. Trainmaker CSR Corp. fell as much as 6.4 percent, the most since Feb. 10.

Wall Street Journal:
  • MF Global Case Rattles World of Futures. The closely knit futures industry has confronted scandals before, but the collapse of MF Global Holdings Ltd. still has seasoned brokers and exchange officials on edge. Confusion over what went wrong at MF Global and how it could have been prevented have prompted some of the world's biggest agricultural trading firms to consider dumping brokerage middlemen and bringing their business in-house, to avoid being caught up in another such debacle.
  • ChevronCVX) Plays Catch-Up in Shale Gas. Energy Giant Races to Expand Drilling in Marcellus as Foreign Markets Beckon.
  • New Rules Target Offshore Funds. Regulations are prompting some financial advisers to urge their clients to bring money back to the U.S. Owning a portfolio of offshore holdings is about to get much riskier, thanks to new U.S. tax-reporting rules, financial advisers say. As a result, some advisers are urging clients to shift money back to the U.S. The Foreign Account Tax Compliance Act, known as Fatca, will require both U.S. citizens and foreigners living in the U.S. to make extensive disclosures about overseas holdings on their tax returns or risk harsh penalties. Foreign financial institutions also will be required to report more detailed information on income earned by their U.S. account holders, or face possible U.S. tax penalties. The rules start to take effect this year, with additional requirements set to be phased in over the next several years.
  • Deal Shows China's Sway in Rare-Earth Minerals. Molycorp Inc.'s(MCP) $1.3 billion deal to acquire a key processor of rare-earth minerals has sparked a warning from industry officials that it could reinforce China as the main source for specialized magnets used in consumer electronics and sophisticated weapons. Molycorp said Thursday it plans to buy Toronto-listed Neo Material Technologies Inc., one of the world's leading experts in chemistry needed to transform rare earths—minerals used in applications that range from car batteries to advanced weaponry—into specialized magnets. Molycorp said the deal creates the most diversified rare-earth company outside of China, which dominates the industry.
  • Bond Swap Doesn't End Greek Crisis. Most of Greece's bondholders have bowed to the inevitable. Asked to take part in the biggest sovereign-debt restructuring ever, covering €206 billion ($273.46 billion) of debt, holders of €172 billion of bonds agreed. Collective-action clauses will boost the participation to €197 billion, 96% of the total, triggering credit default swaps. Greece should get its second bailout, and the threat it has posed to global markets should recede. But there are still some loose ends.
  • Guangzhou Foreign Land Deals Curbed. Officials in China's southern city of Guangzhou are cracking down on purchases of commercial real estate by foreign buyers, shining a light on another heady corner of the Chinese property market. The crackdown constitutes tougher enforcement of existing laws that forbid foreign individuals from buying retail real estate, a city spokesman and property market experts said. It comes as prices for malls, storefronts and other retail properties have surged in the fast-growing city.
  • Shootings Fray Afghan Ties. A U.S. soldier walked off his base in Afghanistan and opened fire on local villagers Sunday, Afghan and U.S. officials said, killing 16 people in a shooting spree that further complicates American efforts to end its longest foreign war.
  • As Rivals Divide, Romney Gains. The split among conservatives over which Republican to back for president is bolstering the one candidate many of them don't want: Mitt Romney.
  • School Standards Wade Into Climate Debate. After many years in which evolution was the most contentious issue in science education, climate change is now the battle du jour in school districts across the country. The fight could heat up further in April, when several national bodies are set to release a draft of new science standards that include detailed instruction on climate change. The groups preparing the standards include the National Research Council, which is part of the congressionally chartered National Academies. They are working from a document they drew up last year that says climate change is caused in part by manmade events.
  • Syria Talks Stall Amid New Strife. A joint United Nations-Arab League mission to broker a cease-fire in Syria faced a deadlock as both President Bashar al-Assad and the opposition rejected immediate negotiations, while the military pounded Syria's restive north and fighting between government and rebel forces roiled much of the country.
Marketwatch.com:
  • iPad Preorders Sell Out. Preordering the newest version of the iPad now means that you’ll get the device later than those who wait for in line to buy it in the store beginning Friday.
Business Insider:
Zero Hedge:

CNBC:

Wall Street All-Stars:

Washington Times:

  • Egypt Parliament to Consider Cutting Off U.S. Aid. Egypt's parliament has called for a vote on stopping U.S. aid. Sunday’s move by the People's Assembly was sparked by the March 1 departure of six American defendants in a case of 43 employees of nonprofit groups accused of using illegal foreign funds to foment unrest in Egypt. The U.S. threatened to cut off aid to Egypt over the issue. Now the parliament is moving to take the initiative, by voting to reject further American aid. The exit of the Americans kicked off a storm in Egypt, prompting many to accuse the ruling generals of bowing to U.S. pressure and intervening in the work of the judiciary. In Sunday’s session, lawmakers complained the U.S. is disregarding Egypt’s sovereignty. They also called a vote on a no-confidence motion in the government.
Chicago Tribune:
  • Ken Griffin Interview: Billionaire Talks Politics and Money. Billionaire investor Kenneth Griffin, founder and chief executive of Chicago-based hedge fund Citadel, arguably is this city's only Wall Street titan. Griffin, 43, who is also an active political donor, doesn't crave the limelight. But we've known a lot more about his financial dealings than his politics. Until now.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).
Pittsburgh Post-Gazette:
Reuters:
  • Investors Back Hedge Funds as Performance Rebounds. Investors ploughed more money into hedge funds over the past month, data from hedge fund administrator GlobeOp shows, as hopes of a resolution to the euro zone debt crisis and a rebound in markets boosted confidence after last year's losses. Net inflows into hedge funds, as measured by the GlobeOp Capital Movement Index, which tracks monthly net subscriptions to and redemptions from hedge funds managing around $174 billion, were 2.1 percent of total assets over the month to March 1. While this was slightly down on last month's 2.22 percent, it is nevertheless the second-highest inflow over the past six months and above the 1.12 percent recorded last March.
  • Tens of Thousands of Spaniards Protest Labor Reform. Tens of thousands of Spaniards protested on Sunday against a new labor law which hands more power to employers by making it cheaper to fire workers and easier to restrict wage hikes. The demonstrations were the first since unions called a general strike for March 29 and add to a growing number of street protests against government reforms and spending cuts aimed at putting Spain's finances back on track. Union organizers said as many as half a million people attended the peaceful marches in 60 cities, where protesters beat drums and waved red union flags, although police gave no official estimate. Spain has the highest unemployment rate in the European Union at 23 percent and the government predicts this will hit a record high of 24.3 percent this year.
Financial Times:
  • SEC Probes Operators' Use of Multiple Markets. The US market regulator has launched a broad investigation into whether exchanges favour large trading companies at the expense of smaller customers. The enforcement inquiries emerged from examinations by the Securities and Exchange Commission of how exchange operators, some of which also regulate their customers, manage conflicts of interest with hedge funds, high-frequency trading groups, banks and asset managers.
The Telegraph:
  • Global liquidity peak spells trouble for late 2012. The global liquidity cycle has already rolled over. Assuming that no fresh action is taken, world economic growth will peak within a couple of months and then fade in the second half of the year - with grim implications for Europe’s Latin bloc.
Der Spiegel:
  • The German government missed its budget-savings targets for 2011 by more than half, citing calculations by the Cologne-based economic institute IW.
Weekend Recommendations
Barron's:
  • Made positive comments on (HAR) and (ANN).
  • Made negative comments on (MCD).
Night Trading
  • Asian indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 159.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 127.0 +.25 basis point.
  • FTSE-100 futures -.35%.
  • S&P 500 futures -.26%.
  • NASDAQ 100 futures -.27%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (URBN)/.29
  • (GEOY)/.58
Economic Releases
2:00 pm EST
  • The Monthly Budget Deficit is estimated to widen to -$229.0B versus -$222.5B in January.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Eurogroup meeting of finance ministers, 3Y Treasury Note Auction, (BEAV) Investor Day, Barclays Capital Healthcare Conference, Barclays Capital Internet Conference and the JPMorgan(JPM) Aviation/Transportation Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology 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 week.

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