Thursday, March 08, 2012

Thursday Watch


Evening Headlin
es
Bloomb
erg:
  • Investors With 60% of Greek Bonds Agree to Swap. Investors with about 60 percent of the Greek bonds eligible for the nation’s debt swap have so far indicated they’ll participate, putting the country on the verge of the biggest sovereign restructuring in history. Greece’s largest banks, most of the country’s pension funds, and more than 30 European banks and insurers including BNP Paribas (BNP) SA, Commerzbank AG (CBK) and Assicurazioni Generali SpA (G) have agreed to the offer. That brings the total to about 124 billion euros ($163 billion), based on data compiled by Bloomberg from company reports and government statements. The goal of the exchange is to reduce the 206 billion euros of privately held Greek debt by 53.5 percent and turn the tide against the debt crisis that has roiled Europe for more than two years. While Greece would prefer a voluntary deal, the government has said it will use collective action clauses to force holders of Greek-law bonds into the swap if the so-called private sector involvement falls short and it gets sufficient approval from investors to change the bonds’ terms. “Adding up the commitments to participate in the Greek PSI, it is now clear that the CAC hurdles will very likely be cleared,” Commerzbank’s head of fixed-income strategy, Christoph Rieger, said in a note yesterday. Under the rules of the exchange, investors holding at least 50 percent of the eligible bonds must vote on the swap, and 66 percent of those must agree to amend the bonds to enable the government to impose the collective action clauses, Rieger said. The offer ends at 10 p.m. Athens time today.
  • ECB's Inflation Radar May Limit Scope to Lower Rates as Recession Looms. Inflation is back on the European Central Bank’s radar, complicating efforts to bolster growth as the sovereign debt crisis pushes the economy toward recession. The ECB will lift its 2012 inflation forecast above the 2 percent price-stability threshold today, limiting its ability to cut interest rates further even as it lowers the outlook for growth, economists said. Policy makers in Frankfurt will keep the benchmark rate at a record low of 1 percent, 55 of 58 economists in a Bloomberg News survey predict. The decision is due at 1:45 p.m. and ECB President Mario Draghi will unveil the bank’s new economic projections at a 2:30 p.m. press conference. “Draghi’s message won’t be a particularly pleasant one,” said Klaus Baader, chief euro-area economist at Societe Generale SA in London. “The ECB will breach its inflation limit for another year and the economic outlook hasn’t brightened significantly. That’s tying their hands on rates for now.”
  • Emerging-Market Stocks in Deepest Losing Streak of Year on Greek Debt Swap. Emerging-market stocks fell, completing the worst three-day slump since November, as concern Greece’s debt swap won’t get enough investor support and prospects Chinese exports are dropping damped appetite for riskier assets. The MSCI Emerging Markets Index (MXEF) retreated for a third day, losing 0.3 percent at the close in New York to 1,037.71, the lowest since Feb. 1. The three-day loss is the steepest since Nov. 23.
  • Oil Trades Near Two-Day High as Iran Tension Counters Rising U.S. Supplies. Oil traded near the highest price in two days as speculation that sanctions on Iran are cutting supplies countered signs of weakening fuel demand in the U.S., the world’s biggest crude consumer. Futures were little changed after gaining 1.4 percent yesterday. U.S. lawmakers proposed new sanctions against Iran’s nuclear program, while Barclays Capital said shipments from the Persian Gulf nation have dropped by 300,000 to 400,000 barrels a day. London-traded Brent’s premium to New York crude was near the widest in almost a month. Crude supplies at Cushing, Oklahoma, climbed to the highest level since July. “We’ve seen that differential between Brent and West Texas blow out again and that’s further evidence to suggest that there are supply concerns” because of Iran, said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “The demand picture is certainly looking weaker.” Oil for April delivery was at $106.12 a barrel, down 4 cents, in electronic trading on the New York Mercantile Exchange at 2 p.m. Sydney time. The contract yesterday increased $1.46 to $106.16 a barrel, the highest close since March 5. Prices are 7.4 percent higher this year. Brent oil for April settlement was at $124.05, down 7 cents, on the London-based ICE Futures Europe exchange.
  • Fed Debt-Purchase Approach May Hurt Rather Than Help, RBC's Cloherty Says. A plan reported to be under discussion by the Federal Reserve to spur the economy while keeping a lid on inflation would drive up short-term interest rates, according to Royal Bank of Canada’s Michael Cloherty. Fed officials are considering a program in which the central bank would buy long-term mortgage or Treasury bonds and effectively tie up the money by borrowing it back for short periods at low rates, the Wall Street Journal reported without citing sources. The approach would keep excess money out of the system and head off inflation, damping criticism by opponents of earlier Fed efforts to support the economy, the newspaper said. Such a plan would be “one of the more perplexing policy steps in this crisis” because it would encourage banks to invest their reserve balances in the Treasury repurchase- agreement market, said Cloherty, head of U.S. interest rate strategist at RBC Capital Markets in New York, one of 21 firms that trade with the Fed. This would offset much of the benefit of the low interest rates the Fed has maintained. “Executing this policy would have a sizable distortions and open a number of questions that the Fed doesn’t want opened,” Cloherty said in an interview. The plan “would do dramatically more harm than good.”
  • Drones Move Closer to Flying in Civilian Airspace. Drone aircraft moved closer to taking flight in U.S. civilian airspace as regulators issued a call for advice on establishing test sites. The Federal Aviation Administration said today it wants drone makers and the public to comment on where to locate proving grounds and their management, according to a filing in the U.S. Federal Register’s Public Inspection Desk. “Unmanned aircraft can help us meet a number of challenges, from spotting wildfires to assessing natural disasters,” Transportation Secretary Ray LaHood said in a statement. “These test sites will help us ensure that our high safety standards are maintained as the use of these aircraft becomes more widespread.”
  • China Puts Jump to Three-Year High as Dominance Shrinks: Options. China's shrinking dominance over global economic growth is driving trading in the options market, which the cost to protect against losses in the nation's biggest companies is the highest compared with the U.S. since 2008. Options on the Hang Seng China Enterprises Index of 40 companies from PetroChina Co. to China Construction Bank Crop. cost the most since the collapse of Lehman Brothers Holdings Inc. when compared with contracts on U.S. stocks. The difference, or skew, shows investors are increasingly bearish on the index of Hong Kong-traded China shares.
  • Asia Faces Headwinds With Greece Debt Deal. Australian employers unexpectedly cut jobs, South Korea’s central bank warned of “downside” risks to growth and Japan reported an increasing reliance on energy imports that threatens to damp its economic rebound. Today’s indicators highlighted headwinds for the Asia- Pacific region’s expansion as policy makers evaluate whether to add to stimulus implemented in recent months. With inflation pressures remaining, South Korean and New Zealand officials kept benchmark interest rates unchanged and Indonesia was forecast to do the same. “Global trade has slowed so Asian countries heavily reliant on exports are certainly suffering,” said Annette Beacher, the Singapore-based head of Asia-Pacific research at TD Securities Inc., a unit of Canada’s second-largest bank.
Wall Street Journal:
  • Iran Steps Up Rights Abuses, U.N. Says. Iran has dramatically increased executions over the past decade and abused the rights of students, women, journalists and religious minorities, according to a new United Nations report that spotlights Tehran's crackdown on domestic dissent as the country faces an international clampdown over its nuclear ambitions.
  • Greek Debt Restructuring Expected to Put CDS Market to Test. It isn't yet known if Greece's debt restructuring will trigger payouts on insurance-like contracts called credit-default swaps covering the government's debt. But if it does, it will touch off the biggest-ever CDS auction for sovereign bonds and determine how much banks and others will have to pay to settle the swaps.
  • U.S. Warns Apple(AAPL). The Justice Department has warned Apple Inc. and five of the biggest U.S. publishers that it plans to sue them for allegedly colluding to raise the price of electronic books, according to people familiar with the matter.
  • Emerging-Market Engines Falter. Fresh signs of economic weakness in Brazil are adding to a growing worry for the global economy: that the emerging markets that have boosted growth in recent years are slowing. That is a big concern amid the drag of the European debt crisis and a sluggish U.S. recovery. Brazil, China, Russia, India and South Africa are among the dynamic economies that helped the world bounce back from the 2008 financial crisis. This time around, they seem less likely to provide the same boost as they deal with problems such as strong currencies, inflation, deficits and real-estate bubbles.
  • Facebook(FB) Beefs Up Its IPO Roster. Facebook Inc.'s march toward its highly anticipated initial public offering is now coming with a lot more help. On Wednesday, the social network said in a new disclosure document that it added 25 underwriters to an original group of six for its IPO, as the company also boosted its financial muscles with a new credit line and bridge loan. In addition, it offered more information on where it derives its revenue.
  • General Motors(GM) Recalls Vehicles in China. General Motors Co. will recall 18,204 imported vehicles in China because of problems with the cars' anti-lock braking systems, China's quality control agency said in a statement dated Wednesday.
MarketWatch:
  • Tough Climate, Dilemmas for China's Small Business. The problems have indeed been mounting in recent months among the nation’s small businesses, the most vulnerable of China’s private sector players. Labor supplies are strained, driving up wages. Credit access is tight, as banks prefer big and state-owned companies. Production and raw materials costs are rising. Customers are in arrears. And brutal competition for clients at home as well as abroad is making for razor thin profits, if any.
Business Insider:
Zero Hedge:
CNBC:
  • Consumer Credit Surges 8.6%, Mostly on Student Debt. The American consumer is levering-up again, as consumers borrowed more for everything from student loans to cars. Consumer credit jumped 8.6 percent, or $17.7 billion, in January to $2.54 trillion, the Federal Reserve reported. It was the fifth straight month that borrowing increased and the largest gain since 2004.
  • US Eyes Summers and Rice for World Bank: Sources. Former White House adviser Lawrence Summers, diplomat Susan Rice and PepsiCo CEO Indra Nooyi are on a "short list" of possible U.S. candidates to head the World Bank, a person with knowledge of the Obama administration's thinking said on Wednesday.

NY Times:

  • Auto Overcapacity Gives Leaders Another Issue to Ponder. While Europe has been preoccupied with the euro crisis, another storm has been gathering that could also take a grievous toll on jobs and growth. Just as Europe has too much debt, it also has more automobile factories than the economy can support. The overcapacity is not exactly a secret, but judging from the talk at the Geneva auto show this week, a long-postponed reckoning is nigh.
  • Cost of Gene Sequencing Falls, Raising Hopes for Medical Advances. In Silicon Valley, the line between computing and biology has begun to blur in a way that could have enormous consequences for human longevity.
Washington Post:
CNN:
Reuters:
  • Japan GDP Contraction Eases, Current Account in Red. Japan's economy shrank less than initially estimated in the fourth quarter as companies ramped up capital expenditure, but the current account swung to a record deficit in January as a shift away from nuclear power pushes up fossil fuel imports. The revision to GDP showed a 0.2 percent contraction, bang in line with the median market forecast as companies look to an increase in demand due to reconstruction of the country's tsunami-battered northeast coast.
  • Proview Shenzhen Asks China Distributors to Halt iPad Sales. Proview Technology, which is battling Apple over the iPad trademark in China, has asked Chinese distributors to stop selling the popular tablet PC after the U.S. technology giant launched the latest version of its iPad. The move is the latest twist in a long-running lawsuit between the world's most valuable technology company and the Chinese firm, a unit of near-bankrupt Proview International Holdings Ltd, but was expected to have little impact on the case.
  • US Senate Democrat Proposes Ban on Keystone Pipeline Fuel Exports. A Democratic U.S. senator proposed on Wednesday to ban exports of oil from the proposed Keystone XL crude pipeline from Canada and require U.S. iron and steel be used to build it, part of an effort to derail a Republican plan that would fast-track the project.
  • Korn Ferry(KFY) 3Q Misses Estimates; Outlook Weak. Korn/Ferry International Inc posted lower-than-expected quarterly results, hurt by higher expenses, and the U.S. executive search company forecast fourth-quarter earnings below Wall Street expectations. Korn/Ferry, which competes with Heidrick & Struggles International Inc, expects fourth-quarter earnings of 24 cents to 30 cents a share, excluding items. Analysts, on average, were expecting earnings of 31 cents a share, according to Thomson Reuters I/B/E/S. Shares of the Los Angeles-based company were down nearly 3 percent in trading after the bell.
Telegraph:

South China Morning Post:
  • Port of Shanghai Sees A Slowdown. In a sign of slowing global trade, the throughput of Shanghai, the world's busiest port, turned out to be weaker than expected in the first two months of this year. Shanghai's container throughput rose 3.6 per cent to 4.8 million twenty foot equivalent units (teus) in January and February, while cargo throughput grew 7 per cent to 76.16 million tonnes, according to the website of Shanghai International Port Group, the port operator. Given that Shanghai's container throughput enjoyed 7 per cent to 9 per cent year-on-year growth in the second, third and fourth quarters last year, a growth of 3.6 per cent falls short of expectations, said Nomura analyst Jim Wong. Combining the data of January and February and eliminating the distorting effects of the Lunar New Year, Wong said: "This year people are more cautious. They are delaying things all over the world. Factories in China stayed closed for a longer period." Willy Lin Sun-mo, chairman of the Hong Kong Shippers' Council, said: "At this moment, the forecast is it's going to be a very difficult season in the first six months of this year." He added: "The overall sentiment is still weak. People still don't have much confidence in the market. "The global economy is not very dynamic, and the Chinese government just lowered its GDP forecast to 7.5 per cent this year.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are +.50% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 164.50 -5.5 basis points.
  • Asia Pacific Sovereign CDS Index 133.50 -1.75 basis points.
  • FTSE-100 futures +.17%.
  • S&P 500 futures +.13%.
  • NASDAQ 100 futures +.10%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (SFD)/.65
  • (HITK)/.83
  • (WSM)/1.13
  • (NAV)/-.27
  • (BKE)/1.15
  • (JW/A)/.94
  • (ZUMZ)/.59
  • (COO)/1.04
  • (ZQK)/-.10
  • (ULTA)/.67
  • (ARO)/.38
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated at 351K versus 351K the prior week.
  • Continuing Claims are estimated to fall to 3400K versus 3402K prior.

Upcoming Splits

  • (RES) 3-for-2

Other Potential Market Movers

  • The Challenger Job Cuts report for February, Greek Bond Swap Deadline, BoE rate decision, ECB rate decision, weekly Bloomberg Consumer Comfort Index, RBC Consumer Outlook Index for March, weekly EIA natural gas inventory report, (HUN) investor day, (XOM) analyst meeting, China CPI/Fix Asset Investment/Industrial Production/PPI/Retail Sales, UBS Tech Conference, (ALTR) Mid-Quarter Update and the (TXN) Mid-Quarter Update could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and financial 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 day.

No comments: