Wednesday, March 21, 2012

Wednesday Watch


Evening Headlin
es
Bloomb
erg:
  • Gilt Sales to Climb Next Year as Osbourne Fiscal Targets at Risk. Britain will probably sell the second-largest amount of gilts on record in the next fiscal year as the economy stagnates and borrowing costs rise from all-time lows, threatening to derail the government’s debt-cutting plans. The Treasury will sell 180 billion pounds ($286 billion) of bonds, according to the median forecast of 19 of 21 primary dealers that trade directly with the nation’s debt office. That compares with 178.9 billion pounds planned for the fiscal year ending March 31.
  • SEC Urges U.S. Congress to Amend Dodd-Frank's Swap-Data Rules. Congress should amend the Dodd- Frank Act to remove barriers to global regulators sharing data about the $708 trillion swaps market, the U.S. Securities and Exchange Commission’s head of international affairs said.
  • Oil Rebounds From Biggest Drop in Three Months. Oil rebounded from the biggest decline in three months after a report showed crude stockpiles falling in the U.S. Prices dropped yesterday as Saudi Arabia said it may boost supplies. Futures gained as much as 0.5 percent after sliding 2.3 percent yesterday. U.S. crude supplies shrank by 1.4 million barrels last week, according to the American Petroleum Institute. Oil for May delivery rose as much as 57 cents to $106.64 a barrel in electronic trading on the New York Mercantile Exchange and was at $106.62 at 12:18 p.m. Sydney time. It dropped $2.49 percent yesterday to $106.07, the lowest close since March 15. The April contract, which expired at the end of floor trading, fell $2.48 to $105.61. Front-month prices are 7.9 percent higher this year. Brent oil for May settlement was at $124.40 a barrel, up 28 cents, on the London-based ICE Futures Europe exchange.
  • Iron Ore to Drop as China Growth Slows, Biggest Shipper Says. Iron ore may decline 8.5% this year as global output increases and growth in Asian steel production slows, according to a government forecaster in Australia, the world's biggest exporters. Prices may average about $140 a metric ton in 2012 from $153 last year, the Bureau of Resources and Energy Economics said in a quarterly report today.
  • Wind Industry Should Mull Tax Credit Phase-Out, Baucus Says. The wind energy industry should think “very seriously” about backing a proposal to phase out a tax credit for building more energy-generating turbines, U.S. Senate Finance Committee Chairman Max Baucus said today. The Montana Democrat said in an interview that phasing out the tax credit might be the most realistic way to keep it from expiring altogether at the end of the year. Companies that invest in wind energy include General Electric Co. (GE), based in Fairfield, Connecticut, and Denmark’s Vestas Wind Systems A/S (VWS).
  • Unemployment Rises for Post-9/11 Vets. The unemployment rate for U.S. veterans who’ve served during the wars in Iraq and Afghanistan increased last year, while the rate for non-veterans declined, the Labor Department reported today. The jobless rate for veterans who were in service following the Sept. 11, 2001, attacks was 12.1 percent last year, up from 11.5 percent in 2010, the department’s data show.
  • Chinese Developers Set Up Funds as Cash Is Squeezed Amid Curbs. Chinese developers are setting up property funds to diversify their sources of revenue as government real-estate curbs have led to a cash shortage. Fosun International Ltd. (656), a Shanghai-based company with interests in property, retail, mining and pharmaceuticals, is raising money for the second phase of a property fund after getting 3.7 billion yuan ($585 million) for the first, Co- President Fan Wei said at a conference in Beijing yesterday. Sino-Ocean Land Ltd. (3377), a state-owned developer, plans to start a 1 billion yuan fund this year for mergers and acquisitions, Deputy General Manger Li Zhenyu said in an interview. Chinese developers are seeking alternative off-the-balance sheet businesses as credit drained after the government’s two- year efforts to curb speculation in the real-estate market, including higher down payments and mortgage rates, and home purchase restrictions in 40 cities. Relaxing the curbs could cause “chaos” in the market, Premier Wen Jiabao said last week. “Raising money from the private sector opens up options for developers, but it’s a choice out of no choices,” said Albert Lau, Shanghai-based China head and managing director at Savills Plc, citing difficulties developers face to get bank loans and issue bonds. “Funds can join developers as joint venture partners so that to some extent also resolves the money problem.” Chinese developers’ cash ratio dropped to the lowest since 2008 for the third quarter last year, according to data on 139 companies compiled by Bloomberg. The companies face a record amount of debt from non-bank lenders maturing this year and in 2013, according to China International Capital Corp., the country’s biggest investment bank.
  • Profits at Chinese Banks Marred by Bad Loans. China’s biggest banks, set to post record profits for a fifth year, may report 2011 results marred by an increase in bad loans as an economic slowdown and faltering property market trigger defaults by borrowers. Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four biggest local rivals may post a 15 percent increase in combined fourth-quarter net income when they report this month, according to analyst estimates compiled by Bloomberg. Their non-performing loans rose for the first time since the third quarter of 2008, the banking regulator said last month.
  • Instinet, JPMorgan(JPM) Agree to Link Asia-Pacific Dark Pools. Instinet Inc., a New York-based alternative trading-venue operator, and JPMorgan Chase & Co. (JPM), have agreed to link their Asia-Pacific (MXAP) dark pools, giving clients access to each other’s platforms in Hong Kong, Japan and Australia. Instinet clients can access 22 dark pools, private trading venues that don’t publicly display prices, from 13 brokers, Glenn Lesko, chief executive officer in Asia for Instinet told Bloomberg News in a telephone interview March 20. JPMorgan spokeswoman Marie Cheung confirmed the contents of an Instinet press release announcing the agreement.
Wall Street Journal:
  • Romney Handily Wins Illinois Primary. Mitt Romney racked up a decisive victory Tuesday in the Illinois primary, shoring up his claim that he will inevitably take the Republican presidential nomination and dealing another blow to Rick Santorum's bid to block him. With 94% of precincts reporting, Mr. Romney led with 47% to Mr. Santorum's 35%. Rep. Ron Paul of Texas had 9%, and Newt Gingrich trailed with 8%. That gave Mr. Romney, the former Massachusetts governor, fresh momentum heading into a month in which the race moves largely to Northeast and mid-Atlantic states that are friendly terrain for him. While the nominating contest has remained competitive longer than he expected, Mr. Romney has won in every region of the country but the Deep South, including in Ohio, Florida and Virginia—large states that will be battlegrounds when the Republican winner faces Democratic President Barack Obama this fall. The Illinois victory gives him a trifecta in the industrial Midwest, following much narrower wins in Michigan and Ohio.
  • A 'Corzine Rule' for Funds. Exchange operators and a futures-industry regulator are working on new rules that would restrict what brokerage firms can do with customer money in the wake of MF Global Holdings Ltd.'s bankruptcy last year. One proposal, which some regulators have dubbed the "Corzine rule" after former MF Global Chairman and Chief Executive Jon S. Corzine, is gaining momentum as more drastic ideas, such as setting up a new customer-insurance program, have run into resistance.
  • Banks Seek Delay On 'Volcker Rule'. For Wall Street banks worried about the controversial "Volcker rule," help may be on the way. Senators from both parties are working to give regulators more time to write the rule, potentially easing banks' concerns that their activities will run afoul of the law as a July deadline passes.
  • China Growth Woes Weigh on Asian Stocks. Asian stock markets were modestly lower Wednesday as concerns about slowing economic growth in China weighed on market sentiment, with sharp losses in the mining and steel sectors leading declines regional bourses.
  • China Warns on North Korea. China again expressed its "concerns and worries" over rocket-launch plans announced by North Korea ahead of an international nuclear summit in Seoul, as Beijing seeks to portray itself as a peacemaker amid rising pressure on Pyongyang from the U.S. and its allies. But North Korea's chief nuclear negotiator warned during a visit to Beijing against any attempt to interfere with the launch, a day after Japan's defense minister said he would consider shooting down a North Korean missile if it poses a danger to that country.
  • ObamaCare's Costs Are Soaring by Ron Johnson. We already know the rosy budget estimates used to sell the law were wrong. One year after the passage of ObamaCare, this paper published an op-ed I wrote ("ObamaCare and Carey's Heart") about how America's health-care system saved my daughter's life, and describing how implementing this law will limit innovation, lead to rationing, and lower the quality of care. Now, two years out, I would like to focus on the budgetary disaster. As a candidate, Barack Obama repeatedly claimed that his health-care plan would lower annual family health-insurance premiums by $2,500 before the end of his first term as president. But the Kaiser Family Foundation recently reported that the average family premium has increased $2,200 since the start of this administration. Then there is the higher cost to taxpayers. The CBO's initial estimate in March 2010 of ObamaCare's budget impact showed it saving money, reducing the federal deficit by $143 billion in the first 10 years. But that positive estimate was largely the product of gimmicks inserted into the bill by Democratic leaders to hide the law's true cost.
Zero Hedge:
CNBC:
  • US Exempts 11 States From Iran Sanctions; China, India Exposed. The United States on Tuesday exempted Japan and 10 EU nations from financial sanctions because they have significantly cut purchases of Iranian crude oil, but left Iran's top customers China and India exposed to the possibility of such steps. The decision is a victory for the 11 countries, whose banks have been given a six-month reprieve from the threat of being cut off from the U.S. financial system under new sanctions designed to pressure Iran over its nuclear program. The list did not, however, include China and India, Iran's top two crude oil importers, nor U.S. allies South Korea and Turkey, which are among the top-10 consumers of Iranian oil.
  • Oracle(ORCL) Earnings Beat Street, Sending Shares Higher. Oracle reported quarterly earnings that beat analysts' expectations on sales of new software, sending its shares higher in after-hours trading on Tuesday.

LA Times:

  • 100 Million TVs Will Be Internet-Connected by 2016. Soon, the living room TV will become as hyper-connected as the people watching it. A new report from researcher NPD In-Stat predicts that 100 million homes in North America and Western Europe will own television sets that blend traditional programs with Internet content by 2016. These new hybrid devices, capable of displaying interactive content related to TV shows, are a bid to hold the viewer's attention in a device-cluttered world. "The TV people figured out nobody's just watching TV anymore," said Gerry Kaufhold, NPD In-Stat's digital entertainment research director. "They're watching TV with a tablet or a smartphone or a laptop in their hands. They've completely lost control."
CBS News:
USA Today:
Reuters:
  • Spansion(CODE), Nuance(NUAN) Offer New Speech Package for Cars. Spansion Inc and Nuance Communications Inc are offering car makers an improved speech-recognition technology based on their software and semiconductors, the head of Spansion told Reuters.
  • Italy's Monti Says Labour Reform Ready, Union Vows Protests. Italian Prime Minister Mario Monti set a collision course with the country's biggest trade union after talks on a historic reform to employment protection law failed to produce a deal. The left-wing CGIL union, which has six million members, will meet on Wednesday to decide how to protest against a reform which its leader called an attack on workers and an attempt to solve Italy's labour problems by "easy firing".
  • Electric Car Revolution Faces Increasing Headwinds.
  • CBOE Regulation Head Exits Amid SEC Probe. The head of the Chicago Board Options Exchange's market-regulation department has left the company, the second compliance official to leave the exchange amid a regulatory investigation, the Wall Street Journal reported.
  • Fed May Need to Raise Rates This Year - Kocherlakota. The U.S. Federal Reserve may need to start moving away from its near-zero interest rate policy as soon as this year, if unemployment continues to drop and inflation threatens to rise, a top Fed official said on Tuesday. "I would see an argument for initiating that exit in 2012 or 2013," Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank, told reporters after a speech at Washington University in St. Louis.

The Guardian:
  • Up to 40% of High Street Shops Could Close Over Next 5 Years. Four out of 10 shops will have to shut in the next five years as consumers turn their backs on traditional stores in favour of online shopping, according to a report which casts more doubt on the future of the beleaguered British high street.

Evening Recommendations
Jefferies:
  • Rated (EQIX) Buy, target $165.
  • Rated (RAX) Buy, target $64.
  • Rated (INXN) Buy, target $21.50.
Night Trading
  • Asian equity indices are -.75% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 150.0 +3.5 basis points.
  • Asia Pacific Sovereign CDS Index 114.0 +3.5 basis points.
  • FTSE-100 futures +.18%.
  • S&P 500 futures +.21%.
  • NASDAQ 100 futures +.16%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (GIS)/.55
  • (ATU)/.37
  • (DFS)/.94
  • (FRED)/.24
Economic Releases
8:30 am EST
  • Existing Home Sales for February are estimated to rise to 4.61M versus 4.57M in January.

10:30 am EST

  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,200,000 barrels versus a +1,750,000 barrel gain the prior week. Distillate supplies are estimated to fall by -1,500,000 barrels versus a -4,682,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -2,000,000 barrels versus a -1,410,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a -1.2% decline the prior week.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The Portugal Bond Auction, China HSBC Manufacturing PMI and the weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity 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 100% net long heading into the day.

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