Sunday, April 22, 2012

Monday Watch

Posted by Gary .....at 11:57 PM

Weekend Headlines
Bloomberg:
  • Sarkozy, Hollande to Square Off as Le Pen Has Record Vote. Socialist Francois Hollande and President Nicolas Sarkozy progressed to the final round of France’s election, with the incumbent’s hopes of victory resting on winning supporters from Marine Le Pen’s anti-euro National Front. Hollande won 28.5 percent of the vote against 27.1 percent for Sarkozy, the interior ministry said in Paris. The anti- immigrant Le Pen got 18.1 percent, a record for the party that surpassed the predictions of all pollsters. The second round takes place on May 6. The presidential race was thrown open by Le Pen’s performance, which highlighted voters’ angst in the face of unemployment at a 12-year high, immigration and a worsening euro region debt crisis. While Hollande’s first-round lead was narrower than polls predicted, Sarkozy must now appeal to National Front supporters without alienating more moderate voters. “He’s going to have to hunt right-wing voters,” Antonio Barroso, a political analyst at Eurasia Group in London. “That’s a bad dynamic for the second round when you normally want to capture the center and unite the country.” Hollande would beat Sarkozy by 56 percent to 44 percent in the final round, said the CSA polling company, citing a survey it conducted after the results. The euro traded at $1.3199 in early Asian trade compared with $1.3219 on April 20.
  • Coene Says Further ECB Action for Spain Now Risks Credibility. European Central Bank Governing Council member Luc Coene said immediate further measures to quell financial turmoil in Spain risk stretching the credibility of the bank’s monetary policy. “We have done what we can do so far within our mandate and within the possibilities we have,” Coene told Bloomberg News in an interview yesterday in Washington. “The only thing we could do is overstretch ourselves and then we would even lose the credibility we have at that moment.” The Frankfurt-based ECB hasn’t bought any government bonds for five straight weeks even as Spain’s borrowing costs have risen amid market uncertainty over its budget-cutting plans. Executive Board member Joerg Asmussen said on April 20 that while the ECB will “monitor closely” Spain’s market situation, the problem can’t be solved by a more active central bank.
  • Draghi's ECB Rejects Geithner-IMF Push for Measures. European Central Bank officials led by President Mario Draghi resisted calls from the International Monetary Fund and U.S. Treasury to do more to stem the debt crisis roiling the euro-area economy. As talks of global finance chiefs ended yesterday in Washington, euro-area central bankers from Draghi to Bundesbank President Jens Weidmann argued they have done enough by cutting interest rates and issuing more long-term bank loans. “None of the advice that the IMF is offering has been discussed by the Governing Council, in recent times at least,” Draghi said on April 20 while attending IMF meetings in Washington. Weidmann said in an interview that “the problems in Europe can’t be solved by monetary policy measures.” Officials in Europe and around the world are bickering about additional crisis-calming steps, as turmoil returns to the continent’s bond market amid concern that Spain may need a bailout. While Draghi says Spain and Italy need to agree further action, Prime Minister Mariano Rajoy’s government wants the ECB to reactivate its bond-buying program.
  • Weidmann Says ECB Liquidity Must Not Delay Reforms, FAS Reports. Bundesbank President Jens Weidmann said “the generous supply” of liquidity from the European Central Bank must not result in banks and governments postponing necessary reforms, Frankfurter Allgemeine Sonntagszeitung reported. European banks need to “thoroughly adjust” balance sheets and strengthen capital levels while governments have to quickly implement structural reforms and credibly consolidate budgets, the newspaper cited Weidmann as saying in a preview of a story that will run tomorrow. If countries need bridging help during that process, providing such aid is the task of European rescue programs and not of central banks, Weidmann said. Central banks’ monetary measures must “not replace, nor delay, adjustments,” Weidmann told the German newspaper.
  • IMF's Lagarde Enjoys Funds Victory, Rift Exposed. Three months after waving her purse in front of global finance chiefs, Christine Lagarde filled it up with more than $430 billion in pledges for the International Monetary Fund. She may not enjoy her victory for long. The lender’s spring meetings ended yesterday in Washington with the doubling of its war chest and a number of sores exposed among its 188 members. Managing Director Lagarde fell short of her original $600 billion goal as the U.S. refused to chip in, while Canada proposed making it harder for Europe to tap aid. Big emerging markets demanded more power at the IMF before writing checks. The tensions leave Lagarde pushing her home continent to justify the show of solidarity with greater crisis-fighting just as Spain’s interest rates soar and Dutch austerity talks flop. If Europe resists, she could find it harder to rally support for sending it more money or face criticism for bailing out undeserving governments. “Any further lending to euro zone economies is likely to be under even greater scrutiny from the IMF’s other members,” said Eswar Prasad, a former IMF official now at the Brookings Institution in Washington. “Lagarde faces a difficult balancing act.”
  • Balls Says IMF Not Substitute for ECB, Daily Telegraph Reports. Ed Balls, finance spokesman for the U.K.’s opposition Labour Party, said the International Monetary Fund shouldn’t become a substitute for the European Central Bank during the euro-region crisis, the Daily Telegraph reported. Chancellor of the Exchequer George Osborne, a Conservative who offered 10 billion pounds ($16.1 billion) to the IMF in Washington, shouldn’t give it “a single extra penny,” Balls told the paper. Austerity in Southern Europe isn’t working and deficits can’t go down without growth, he told the newspaper. While the ECB and the euro region doesn’t have “the capacity” to deal with Italy’s and Spain’s issues “it would be wrong to ask the global taxpayer to put up” the money, the Telegraph cited him as saying.
  • Nagel Rules Out Direct EFSF Aid to Banks, Handelsblatt Reports. Bundesbank board member Joachim Nagel rejected proposals to allow European banks in crisis to get direct help from the European Union’s rescue funds, Handelsblatt newspaper reported in a preview of an article that will be published tomorrow, citing an interview with Nagel. Spain is responsible for Spanish banks in need of aid and for recapitalizing, restructuring or closing them, Nagel said, according to Handelsblatt. Nagel says he rules out direct financial aid from the European Financial Stability Facility as that would pass on the risks of a bank bailout to all European taxpayers, the newspaper reported.
  • Italy May Cut Spending by 20 Billion Euros, Corriero Says. The Italian government aims to cut state spending by 20 billion euros ($26.4 billion) to 25 billion euros, the newspaper Corriere della Sera reported, without saying how it got the information. The spending review, which will be presented in a few days, has a “fundamental role” in Prime Minister Mario Monti’s plan to reduce debt, Corriere reported. Measures being considered include slashing rent costs by relocating to vacant public buildings and bringing together agencies, Corriere said. The plan may also increase the role of Consip, the government agency that runs public tenders, to centralize purchases, and a review of the tech platforms of ministries and local administrations, the daily said. Some ministers including the Interior and Defense are opposing possible cuts to their departments, Corriere said.
  • IMF’s Chopra Says Risks for Ireland ‘High,’ Irish Times Reports. Ajai Chopra, the International Monetary Fund’s mission head to Ireland, said that “risks” for the country remain “high” as household debt and economic uncertainty continue to weigh on demand, the Irish Times reported. If domestic demand doesn’t improve, and constrained export growth keeps Irish growth “stuck at about 0.5 percent,” Ireland’s debt will continue to rise, Chopra was reported as saying. The IMF has been pushing for “additional European support” for Ireland beyond existing arrangements, Chopra said, according to the report.
  • Spain Rules Out More Health Austerity Measures, Mato Tells ABC. Spain is ruling out the need for a second wave of austerity measures to reduce the country’s public health care costs, Health Minister Ana Mato said in an interview with the ABC newspaper. The Spanish health system’s “sustainability is guaranteed” after the latest measures approved by the Cabinet on April 20, Mato was quoted as saying, according to the paper.
  • EFSF's Bond-Protection Certificates Primed to Fail: Euro Credit. Insurance contracts designed to ensure Europe's most indebted nations can raise funds in times of stress are unlikely to underpin demand for government debt or restrain borrowing costs, according to investors. The plan is "not something that appears immediately hugely attractive," said John Stopford, co-head of fixed income and currency in London at Investec Asset Management, which manages about $90 billion. "Either investors will buy peripheral bonds outright, because they're attractive enough, or they won't buy them at all, and financial engineering I'm not sure is necessarily going to change that dynamic."
  • Netanyahu Warns of Islamist, Nuclear ‘Marriage,’ Welt Reports. Israeli Prime Minister Benjamin Netanyahu said the greatest threat to world peace is “the marriage of a militant Islamist regime with nuclear weapons,” including Iran developing the bomb or the Taliban seizing power in Pakistan, Welt am Sonntag reported. The world would “change harshly” if Iran developed nuclear weapons, with “terrorism on a much greater scale than before,” Netanyahu said, according to the German newspaper. Terrorists would believe that their “backward and apocalyptic creed” had a chance of materializing and Iran would have the ability to attack Israel, which is “their propensity to do,” Welt cited him as saying.
  • Syria Violence Kills 17 After UN Approves Observers. At least 17 people were killed in violence in Syria, a day after the United Nations Security Council unanimously backed sending observers to monitor a cease- fire agreement between President Bashar al-Assad’s forces and rebel groups fighting to oust him. Resolution 2043, sponsored by Russia and China, nations that objected to tougher U.S.-backed measures against Syria, will allow 300 unarmed monitors to be deployed for an initial period of 90 days.
  • Yellen Revealing Twists With No Turns as Fed Assesses Expansion. Vice Chairman Janet Yellen says the end of the Federal Reserve’s so-called Operation Twist won’t amount to a tightening of monetary policy. Whether investors agree may help determine the central bank’s next steps. The Fed’s program to swap $400 billion of short-term securities in its portfolio for longer-term debt is scheduled to be completed in June, and Yellen, 65, doesn’t see the need for additional stimulus purely to blunt the impact. That’s because the measure eases policy by expanding the Fed’s balance sheet, not through the flow of purchases, she said April 11.

Wall Street Journal:
  • Spanish Government Has No Plans To Create Vehicle For Banks' Impaired Assets -De Guindos. The Spanish government has no plans to create a vehicle to help the country's ailing banks unload impaired assets, Finance Minister Luis de Guindos said Saturday. Spanish central bank officials have said in recent days they are urging local banks to remove impaired assets from their balance sheets, reviving speculation that Spanish authorities could set up a vehicle that would take over the management of these assets. Some media have reported the Spanish government could set up a so-called bad bank, a state-financed vehicle that would purchase the assets from the banks. "The government is not going to create anything, not a bad bank or a good bank," de Guindos said. Spain's finance chief reiterated the Spanish government's strategy for cleaning up a banking system reeling from the collapse of a decade-long housing boom is based around forcing banks to raise provisions to cover losses from impaired assets. The government believes creating these cushions to absorb losses will encourage the banks to unload the assets on their own.
  • Online Video Turns Up Heat. Though television may be losing viewers to online video, it has been holding on to advertisers. But with online-video outlets this week making their most organized push yet for ad dollars, that may be starting to change.
  • Behind a Chinese City's Growth, Heavy Debt. Borrowing Fueled Chongqing's Infrastructure Projects, Highlighting National Problem of Reliance on Government Spending.
  • E.F. Hutton Breaks Silence. A group of former officials from the old brokerage firm E.F. Hutton & Co. plan to start a new boutique financial-advisory firm under the same name. The group, led by former E.F. Hutton and Smith Barney manager Frank Campanale, plans to announce Monday that it will launch the firm in coming weeks with the hiring of financial advisers and others, according to Mr. Campanale.
  • MF Global Customers Press JPMorgan(JPM). Customers of MF Global Holdings Ltd. are pushing regulators to get tougher on J.P. Morgan Chase & Co. about money that went missing from accounts just before the firm's collapse. The move comes as a bankruptcy trustee representing brokerage customers of MF Global has said he is conducting an investigation of J.P. Morgan and had entered "substantive discussions regarding the resolution of claims" against the Wall Street firm.
Business Insider:
 Zero Hedge:

CNBC:

  • China Factory Activity Contracts Slightly. The HSBC Flash Purchasing Managers Index, the earliest indicator of China's industrial activity, recovered slightly to 49.1 in April from a final reading of 48.3 in March, but still remained below the level that signifies contracting economic activity for the sixth month running.
  • Global Crisis Not Over, China Reforms to Go On: Wen. The global financial crisis is not over and technical innovation and investment will be key to sustaining what remains a "tortuous" recovery, Chinese Premier Wen Jiabao said on Sunday during a visit to Germany.
  • After $14 Trillion Bailout, Global Recovery Still Uncertain. The amount of money thrown at rescuing the world economy since the Great Recession began is truly staggering, probably more than $14 trillion, and the financial spigots are still open.

Wall Street All-Stars:

IBD:
NY Times:
NY Post:
  • It's a Marvel-ous Idea. Marvel Comics is implementing a first-of-its-kind digital feature that will allow readers access to new, single issues of their favorite superheroes’ adventures the same day they hit store shelves. By providing a download code inside the comic book for various tablet formats — an industry first — Marvel is giving consumers a reward for visiting the dusty old comic-book retailers while opening the eyes of the publishing world.

Washington Post:

  • After Ouster of Bo Xilai, Questions Surround China's Security Chief. With Chinese politics roiled by the purge of Bo Xilai, a former provincial Communist Party chief, there are growing questions about whether the corruption and murder scandal that felled him might reach into the Party’s highest echelon to undercut an official considered Bo’s staunchest ally and defender. Zhou Yongkang, China’s top official in charge of the country’s internal security apparatus, is considered close to Bo, and was the most prominent backer of some of Bo’s most controversial measures in Chongqing. Those included Bo’s ferocious clampdown on organized crime, his social welfare policies and a campaign to revive “red” culture that many saw as a worrying throwback to China’s violent Cultural Revolution.

courier-journal.com:

  • House Shoppers Find FHA Loans Cost More. Mortgages insured by the Federal Housing Administration — often called “FHA loans” — have long been an option for home buyers who don’t have a lot of cash for a down payment or whose credit is less than optimal. For that reason, FHA loans became vastly more popular after the implosion of the subprime mortgage market. But now these loans are getting more expensive, meaning buyers who get FHA-insured mortgages have less purchasing power when they go house shopping, according to local mortgage professionals.“It’s been a real challenge for some customers,” said Louisville loan officer Adam Hall, president of the Mortgage Bankers Association of Kentucky.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
USA Today:
  • 50% of New College Graduates Are Jobless or Underemployed. The U.S. college class of 2012 is in for a rude welcome to the world of work. A weak labor market already has left half of young college graduates either jobless or underemployed in positions that don't fully use their skills and knowledge.
Reuters:
AP:
  • Bahrain Opens Probe into Death in Protest Area. Bahraini opposition groups claimed Saturday that a man was killed during clashes with security forces, threatening to sharply escalate the Gulf nation's unrest as officials struggle under the world spotlight as hosts of the Formula One Grand Prix. Authorities opened an investigation in a bid to defuse tensions. At least 50 people have died in the unrest since February 2011 in the longest-running street battles of the Arab Spring. Bahrain's Shiite majority seeks to break the near monopoly on power by the ruling Sunni dynasty, which has close ties to the West.
Financial Times:
  • US Hedge Funds Rules Relaxed by Accident. Earlier this month, President Obama signed into law the Jobs Act, short for Jumpstart Our Business Startups. This Act won bipartisan support because it purports to create jobs by making it easier for small businesses to raise capital. However, the Jobs Act will also significantly loosen the regulatory requirements on hedge funds – whether or not this was the intent of Congress.
  • US Regulators Look to Ease Swaps Rules. US regulators are exploring ways to give large foreign banks and overseas subsidiaries of US lenders a reprieve from stringent new derivatives rules, potentially alleviating one of the biggest concerns facing global financial institutions.
The Telegraph:
  • IMF Encourages Europe's Economic Suicide. China, Japan, America, the oil powers, and the rising economies of Latin America had a chance to pull Europe back from suicide through IMF pressure, but the world dropped the ball.
  • Dutch Crisis Puts Eurozone Debt Rescue Plans at Risk. The Dutch prime minister will on Monday launch a bid to salvage his austerity budget amid political chaos that could cost the country its AAA credit rating and plunge Europe’s debt rescue plans into disarray.
WirtschaftsWoche:
  • Ulrich Kater, chief economist at DekaBank Deutsche Girozentrale, said Germany faces inflation of as much as 4% in coming years, driven by domestic demand for services and higher rents, citing Kater.
The Citizen:
  • Euro Banks Could Spark Crisis. According to the IMF’s latest Global Financial Stability Report (GFSR), one of the most pressing threats facing the global economy and the international financial system is the possibility of massive, synchronised deleveraging at European banks.
ynet:
Weekend Recommendations
Barron's:
  • Made positive comments on (DVN), (SPLS) and (LSI).
  • Made negative comments on (FRAN).
Night Trading
  • Asian indices are -.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 167.50 unch.
  • Asia Pacific Sovereign CDS Index 134.75 +1.5 basis points.
  • FTSE-100 futures -.31%.
  • S&P 500 futures -.18%.
  • NASDAQ 100 futures -.15%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (BEAV)/.62
  • (WWW)/.55
  • (STI)/.33
  • (HAS)/.07
  • (ETN)/.90
  • (DHI)/.03
  • (COP)/2.08
  • (NFLX)/-.27
  • (TXN)/.17
  • (BXS)/.17
  • (HMA)/.22
  • (ILMN)/.32
  • (EAT)/.56
Economic Releases
  • None of note

Upcoming Splits

  • (HEI) 5-for-4
Other Potential Market Movers
  • The (NEM) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.

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