Monday, May 07, 2012

Monday Watch

Posted by Gary .....at 12:35 AM

Weekend Headlines
Bloomberg:
  • End of Merkozy Leaves Franco-German Gulf as Greek Voters Rebel. Voters in Greece and France challenged austerity as Europe’s sole prescription for the financial crisis, adding pressure on German Chancellor Angela Merkel to broaden her focus from debt reduction to save the 17-nation bloc. Greek elections left the two biggest parties short of the clear majority to keep bailout efforts there on track. In France, Socialist Francois Hollande defeated President Nicolas Sarkozy, Merkel’s preferred partner for enforcing fiscal rigor. Germany and France, whose leadership in fighting the crisis that began in Greece in 2009 gave rise to the partnership known as “Merkozy,” don’t have much time to patch up rifts between Merkel and Hollande. “To get anything done in Europe, Germany and France have to agree,” said Holger Schmieding, chief economist at Berenberg Bank in London. The euro fell to a three-week low in Asian trading after the elections, declining to $1.3026 at 6:50 a.m. in Tokyo. “What worries me is the initial negative reaction in the Asian market,” said David Kotok, chief investment officer, Cumberland Advisors. “Political turmoil raises the uncertainty premium.”
  • Greek Election Gridlock Risk for Bailout, Euro Future. Greek Election Gridlock Raises Risk for Bailout, Euro Future. Greece's political leaders struggled to find the support needed to form a coalition government after voters flocked to anti-bailout parties, calling into question the country's ability to impose the measures needed to guarantee its future in the euro. New Democracy won 20 percent of the total vote with more than 50 percent of the ballots from yesterday's elections counted at 12:30 a.m., according to the Interior Ministry website. Socialist Pasok, which partnered with New Democracy in securing a second rescue package for the country, trailed in third place with 42 seats. Official projections predicted the two would fall one short of the 151 seats needed to win a majority. Syriza, a coalition of left parties which has vowed to cancel the bailout terms, got 16.1 percent and has 49 seats as the second-biggest party, boosting its showing from the 2009 election nearly four-fold. The new Greek parliament will have three new anti-bailout parties represented. "The chance of a pro-EU bailout coalition of New Democracy and Pasok is on a knife-edge," Sarah Hewin, senior economist at Standard Chartered Plc, said in an e-mail. "The scale of opposition is such that even if a pro-bailout coalition can be formed it will be tough for the new government to push ahead with further austerity, risking a halt to EU bailout finance. This test could come within weeks."
  • Merkel's CDU Sees Worst Result in Schleswig-Holstein Since 1950. Chancellor Angela Merkel’s party had its worst result in more than half a century in the northern German state of Schleswig-Holstein after an election that put the Social Democrats within reach of forming a coalition. The result, in which the weakness of Merkel’s federal coalition partner once more hobbled her party’s ability to form a government, sets the tone for a bigger contest on May 13 in North Rhine-Westphalia. While polls suggest the SPD, the main opposition party nationally, will retain Germany’s most populous state, Merkel won’t be swayed by the party’s success at regional level to heed its national calls to spend more to end Europe’s debt crisis, said Manfred Guellner of pollster Forsa.
  • Spain's Kindest Month April as Credit Squeeze Looms: Euro Credit. Spain will find it harder to borrow in the coming months as interest payments and redemptions that bondholders had available to reinvest in April dry up, and $1.3 trillion of ECB funding runs out. The nation needs to borrow 11 billion euros in May and June, according to estimates by Citigroup Inc. There are no scheduled payments in those months to investors who own existing debt, compared with the 16 billion euros available for reinvestment in April. Italy faces a similar squeeze, with its bond sales set to exceed interest and principal payments by 31 billion euros in the next two months.
  • Germany’s Kauder Sees Hollande Aggravating Relations, Welt Says. Volker Kauder, the parliamentary leader of Chancellor Angela Merkel’s Christian Democratic bloc, said German-French relations may be hampered if Francois Hollande is elected president tomorrow, Welt am Sonntag said. Ties between the two countries form the basis for unity in Europe and leadership changes won’t alter this, the newspaper said in an excerpt of an interview to be published tomorrow. Still, the relationship may be impeded if Hollande wins the vote and stands by comments he has made in his pursuit of the office, Die Welt cited Kauder as saying.
  • France's Carmignac Fears Hollande, Bets on Merkel, Die Welt Says. Edouard Carmignac, the founder of French fund Carmignac Gestion, said a victory by presidential challenger Francois Hollande tomorrow may hamper the reform efforts that are necessary to spur France’s economy, Welt am Sonntag reported. Carmignac, who oversees funds including the 21 billion-euro ($27.5 billion) Patrimoine A fund, said Chancellor Angela Merkel should make clear that Germany won’t write the checks for Hollande’s political plans should he win the election against Nicolas Sarkozy, the Berlin-based newspaper cited him as saying in an excerpt of an interview that will be published tomorrow. Carmignac is relying on Merkel to do all in her power to “bring Hollande back to earth,” the fund manager is cited as saying. He foresees the euro-area shrinking to a group of core countries that maintain ties to a collection of satellite states through trade or currency agreements over the next 10 years, according to the newspaper.
  • Rich French Consider London Move on Hollande Tax Fears, FT Says. More wealthy French people are considering moving to the U.K. if Socialist candidate Francois Hollande wins the presidency and fulfills a pledge to raise taxes on incomes of 1 million euros ($1.3 million) or more to 75 percent, the Financial Times said. London-based wealth manager Vestra Wealth said inquiries from French clients has climbed about 40 percent, the newspaper said. London’s prominence as a financial center combined with concerns about Hollande’s plan to tax the wealthy is spurring French professionals to consider moving, the FT said.
  • Sweden’s Bildt Says Hollande May ‘Wake Up’ to EU Pact, Welt Says. Swedish Foreign Minister Carl Bildt urged French presidential candidate Francois Hollande to recognize the economic challenges Europe faces in his bid to oust incumbent Nicolas Sarkozy, Die Welt reported, citing an interview. French politicians will eventually “wake up” to the crisis, though when they do, it may be such a “brutal awakening” that it will have repercussions for the rest of the continent, the former Swedish prime minister is cited as saying in the German newspaper.
  • Ackermann Calls for European Bank Rescue Fund, Spiegel Reports. Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said he supports the creation of a European bank rescue fund, Der Spiegel reported, citing an interview. Such a vehicle is needed now more than ever to stabilize banking systems, restructure international lenders if necessary and avoid the distortion of competition, the Hamburg-based magazine cited the CEO as saying. Ackermann said the “re-nationalization” of European banking markets is a matter of concern, Spiegel reported in an e-mailed summary of an article.
  • Paulson Hedge Fund Said to Extend Slump With April Loss. John Paulson, the billionaire hedge- fund manager seeking to reverse record losses in 2011, lost 6.7 percent last month in one of his largest funds as gold-mining stocks dropped, said two people briefed on the returns. The decline leaves Advantage Plus, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, down 8.8 percent this year, said the people, who asked not to be identified because the information is private. Since inception in 2005, it has gained 15 percent annually on average.
  • Hedge Funds Bet Wrong on Commodities Before Biggest Slump since October. Hedge funds raised bets on higher commodity prices for the first time in six weeks, just before the biggest three-day slump since October as U.S. jobs data fell short of expectations and European manufacturing contracted. Money managers increased net-long positions across 18 U.S. futures and options by 6.9 percent to 895,240 contracts in the week ended May 1, the biggest gain since Feb. 28, Commodity Futures Trading Commission data show. Bullish copper wagers surged sevenfold before prices fell for three days, and soybean bets reached the highest since at least June 2006 as the oilseed capped the biggest weekly loss since mid-January.
  • Dubai Shares Drop in Longest Losing Streak Since 2006. Dubai shares fell for an eighth day, the longest losing streak since 2006, after U.S. job data fueled concern the global economy is weakening and on speculation political instability in Iran may intensify. Emaar Properties PJSC (EMAAR), developer of the world’s tallest skyscraper, decreased 1.9 percent. Dubai Investments PJSC (DIC), whose portfolio includes more than 40 companies, fell to the lowest level in more than two months. The DFM General Index (DFMGI) retreated 1.4 percent to 1,560.28, the lowest since Feb. 16, at the 2 p.m. close in Dubai. The gauge has declined 6.6 percent in the past eight days.
  • VIX Lowest to CDS Since '09 as Stock Hedges Trail Bonds: Options. Risk perceptions among U.S. equity and credit investors are diverging the most since 2009 as signs of an economic slowdown spur bigger increases in prices to protect against losses in bonds than stocks. The VIX closed last week at .032 times the level of the Markit CDX North America High Yield Index, which increases when confidence in debt issuers deteriorates. That's near the 2 1/2-year low of .027 times reached in March.
  • Rules for Bank Capital Still Broken After Four Years. It has been four years since the global financial crisis first struck, and the system that helped cause the deepest economic slump since the 1930s is still broken. Sure, laws have been passed and financial rules tweaked; the U.S., for instance, in 2010 approved the wide-ranging Dodd- Frank law. But a critical component of a stronger financial system -- an internationally coordinated increase in bank capital -- is missing.
  • Shanghai-, Chongqing-Exposed Developers Most Pressured: Religare. Near-term sentiment driver for property sector may be gone after ICBC's suspension of 1st-home mortgage discount spreads nationwide and across the banking sector, Religare Capital Markets analyst Karen Kwan writes in a note. Developers with high land-bank exposure to Chongqing and Shanghai most vulnerable in the short-term.

Wall Street Journal:
  • EU, IMF Officials Warn Greece Must Stick With Austerity Program. Officials from the European Union and the International Monetary Fund said Sunday that Greece must adhere strictly to its austerity program--that includes taking new measures in June--signaling that there was little room for a new Greek government to renegotiate the country's bailout terms.
  • Computer Trading Is Eyed. Debate Turns to Absence of Circuit Breakers, Market Makers as Mystery Plunge Is Probed.
  • Customer Divide at MF Global. In the fight to get their missing money back, not all customers at MF Global Holdings Ltd. were created equal.
  • Unions Confront Rising Tide. Walkouts Decline Nationally, but Some Caterpillar Workers Are Willing to Gamble. The most obvious question for workers striking at a Caterpillar Inc. plant here is: Are you crazy? The giant maker of construction and mining equipment is known for crushing union opposition. In February, after workers at Caterpillar's locomotive plant in London, Ontario, refused a pay cut, the company closed the factory and eliminated their jobs. In the 1990s, Caterpillar used white-collar staff and temporary workers to operate plants during strikes by the United Auto Workers, who eventually capitulated.
  • Currency Volatility Poses Risk For Brazilian Companies - Moody's. A number of Brazilian companies remain vulnerable to shocks, particularly from currency markets, according to a report to be released Monday by Moody's Investors Service. Currency volatility, along with the possibility of a credit-market disruption or further global economic turmoil, could weaken companies in the coming 12 to 18 months, Moody's said in the report.
  • Carriers Chip Away at Phone Subsidies. Wireless carriers are taking their first steps to change the terms of smartphone deals that have mostly benefited phone makers like Apple Inc.(AAPL), in a push that could leave consumers paying more for devices like the iPhone. Carriers in the U.S. have been raising monthly rates and charging higher fees when customers upgrade to new phones. In Europe, embattled carriers are taking more aggressive measures: Spain's two leading wireless companies are refusing to subsidize devices for new customers.
  • Thousands Protest Putin Inauguration. Anti-Kremlin protests ended in scuffles with riot police and hundreds of detentions Sunday amid a massive police presence and hacker attacks on independent websites, one day before Vladimir Putin formally returns to the presidency in a gala Kremlin inauguration ceremony.
Business Insider:
 Zero Hedge:

CNBC:

  • El-Erian: European Elections Complicate Outlook. Sunday’s elections in Europe occurred in three countries with diverse economic circumstances (France, Germany, and Greece); and they were for different parts of government (presidential, regional, and parliamentary respectively). Yet the common message from the electorate is undeniable, reminiscent of a famous line in the 1976 movie Network: “I'm as mad as hell, and I'm not going to take this anymore!”
  • 'Avengers' Muscles to Record $200 Million in Debut.

Wall Street All-Stars:

IBD:
NY Times:
NY Post:
  • Trading Isn't NYSE. Big Board is anything but as revenue plunges. The New York Stock Exchange is on life support as profits get creamed by plummeting trading volume — exactly two years after the electronic Flash Crash sent the storied mart into a near-death spiral. Trading executives fear the clock is finally ticking for the city’s most famous financial landmark — the workplace for 1,200 floor traders who’ve weathered a brutal decade-long decimation in their ranks. “I’m 100 percent glad I am no longer on the floor,” retired NYSE broker Paul Olsen told The Post. “I don’t know what’s going to happen next. I think the floor’s time is really limited.” “It is amazing, just amazing,” added Olsen, recalling his recent nostalgic return visit to the floor. “All these brokers for the big firms are still running around like crazy before the opening, and then they sit down all day — they don’t do anything.” And it’s only getting worse.

Seattle Times:

Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows Mitt Romney earning 47% of the vote and President Obama attracting 46% support. Three percent (3%) would vote for a third party candidate, while four percent (4%) are undecided.
Reuters:
Financial Times:
The Telegraph:
Xinhua:
  • ICBC Scraps 15% Mortgage Discount on 1st Homebuyers Nationwide. Industrial & Commercial Bank of China suspended a 15% discount on mortgages for first-time home buyers nationwide. Suspension was made to address liquidity tightness and deposit instability, according to Sophie Jiang, banking analyst at Religare Capital Markets. Religare said in a report that China Construction Bank, Agricultural Bank and Bank of China may follow ICBC.
Weekend Recommendations
Barron's:
  • Made positive comments on (UAL), (LUV) and (UNM).
Night Trading
  • Asian indices are -2.50% to -1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 171.0 +4.5 basis points.
  • Asia Pacific Sovereign CDS Index 136.75 +2.25 basis points.
  • FTSE-100 futures n/a.
  • S&P 500 futures -.98%.
  • NASDAQ 100 futures -.93%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (LPX)/-.15
  • (TSN)/.39
  • (DISH)/.70
  • (CTSH)/.79
  • (EA)/.16
  • (PPS)/.53
  • (VNO)/1.77
  • (PBI)/.50
  • (WYNN)/1.41
Economic Releases
3:00 pm EST
  • Consumer Credit for March is estimated to rise to $9.65B versus $8.735B in February.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking, Jefferies Tech/Internet/Media/Telecom Conference, Deutsche Bank Healthcare Conference and the Susquehanna Energy/Resources Conference could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and technology shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.

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