Evening Headlines
Bloomberg:
- Europe Local Authorities Have 1.5 Trillion-Euro Debt,Figaro Says. Local governments in 12 European countries will have 1.5 trillion euros ($1.83 trillion) in debt by the end of the year, Le Figaro reported, citing an estimate by Standard & Poor’s. Local authorities financing needs will rise 27 percent this year to 268 billion euros, including 71 billion euros in Spain’s autonomous regions, the newspaper said, citing S&P. Local authorities in Italy need to borrow 6.5 billion euros and in the U.K. 25 billion euros, Figaro said.
- Spain to Urge More Regional Budget Cuts as Deficit Deepens. Budget Minister Cristobal Montoro will urge Spain’s regions today to deepen budget cuts as support to prevent their defaulting has worsened the central government’s finances. Representatives of Spain’s 17 semi-autonomous regional governments are scheduled to convene in Madrid at 4:30 p.m. for a budget checkup. Montoro yesterday said the central government’s budget deficit widened in the first half to about 4 percent from 3.41 percent in January through May. Prime Minister Mariano Rajoy has asked the regions to implement most of Spain’s planned budget-deficit reduction this year after they overshot last year’s target by more than 100 percent. That left Spain’s budget gap, the euro area’s third-largest, almost unchanged from 2010 at 8.9 percent. This year’s target, which includes all levels of government, is 6.3 percent.
- IMF Predicts Euro Crisis Resolution Will Be Prolonged. The International Monetary Fund said today that the euro-area debt crisis has exacerbated global financial instability and an orderly adjustment process is likely to be prolonged and costly. The Washington-based IMF’s assessment came today in a pilot report intended to make external monitoring more effective. The IMF announced changes to its surveillance of members’ economies to better account for the effects of their domestic and financial policies on other countries. “Unsustainably large intra-euro area imbalances were part of the global boom-bust cycle, and the failure to resolve the euro-area crisis is causing heightened stresses that are spilling over to other countries,” the IMF said.
- Used Lamborghinis Linger on Hong Kong Lots Amid China Slowdown. Waiting lists for ultra-luxury cars in Hong Kong are getting shorter and used-car lots are cutting prices on Lamborghinis, Ferraris and Bentleys in the latest sign of China’s slowdown. Dealers of such second-hand cars say job cuts and the worsening global economic outlook are creating uncertainty among the finance-industry and expatriate professionals who make up the bulk of their buyers. Morgan Stanley (MS), Citigroup Inc. (C) and Deutsche Bank AG are among firms with Asian headquarters in Hong Kong that are cutting jobs worldwide. “The more expensive the car, the more dry the business,” said Tommy Siu at the Causeway Bay showroom of Vin’s Motors Co., the used-car dealership he founded two decades ago. Sales of ultra-luxury cars have halved in the past two or three months, he said. “A lot of bankers don’t want to spend too much money for a car now. At this moment, they don’t know if they’ll have a big bonus.”
- Chinese Deals Meet Growing Scrutiny as Suntech(STP) Sparks Questions. Suntech Power Holdings Co. (STP)’s admission that it may have failed to verify the existence of German bonds it accepted as loan collateral adds to growing concerns about Chinese business practices that are sparking a wave of lawsuits and regulatory probes. It’s the third time in a week that internal controls at Chinese companies have been found lacking. The U.S. Securities and Exchange Commission froze assets of traders it accused of insider trading ahead of Cnooc Ltd. (883)’s $15.1 billion deal to acquire Nexen Inc. (NXY) And fund manager Peter Siris and his Guerrilla Capital Management agreed yesterday to pay more than $1.1 million to settle SEC allegations of “wide-ranging misconduct” related to a Chinese reverse-merger firm.
- Most Chinese Stocks Decline on Growth Concern; B Shares Tumble. Most Chinese stocks declined amid concern the slowing economy will hurt earnings growth. Foreign- currency denominated B shares tumbled for a fifth day. Kama Co. led declines by B shares on concern companies trading close to their face value may be delisted. The Shanghai Composite Index (SHCOMP) added 0.2 percent to 2,112.78 as of 10:20 a.m. local time, with more than three stocks falling for each one that rose. The gauge has fallen 14 percent from this year’s high on March 2. “If 2,100 gives way, which looks likely, it warns that the 1,665 low seen in late 2008 will not only be tested but should be broken,” Thomas Schroeder, a Bangkok-based managing director at Chart Partners, wrote in an e-mailed response to questions. “I have targets at 1,700 and then near the 1,500 region upon a breach of the 2008 low.” The Shanghai B-Share Stock Price Index plunged 3.4 percent to 198.51, poised for the lowest close since Sept. 30, 2009.
- Korea Output Unexpectedly Falls as Europe Caps Demand. South Korea’s industrial production fell for the first time in three months in June as Europe’s debt crisis and China’s slowing economy curtailed export demand. Output fell 0.4 percent last month from May when it climbed a revised 1.3 percent, Statistics Korea said today. The median estimate of 12 economists in a Bloomberg News survey was for a 0.1 percent gain. Production rose 1.6 percent from a year earlier.
- Taiwan Economy Unexpectedly Shrinks as Europe Hurts Exports. Taiwan’s economy unexpectedly contracted in the second quarter amid a faltering global recovery, prompting the government to cut its growth forecast. Gross domestic product fell 0.16 percent in the three months through June from a year earlier after expanding 0.39 percent in the previous quarter, according to preliminary data released by the statistics bureau in Taipei today. The median estimate in a Bloomberg News survey of 13 economists was for growth of 0.5 percent. The economy last contracted in 2009.
- Central Banks’ Unorthodox Actions Are Cutting Lending. The unintended consequences of financial policy intervention are providing fresh evidence for chaos theory’s idea that the flap of a butterfly’s wings can spark a tornado on the other side of the world. Five years into the age of deleveraging, financial markets have become addicted to central bank intervention, from the U.S. Federal Reserve to the European Central Bank and beyond, aimed at stimulating growth. Markets anticipate further action, with the Fed, ECB and Bank of England committees meeting on monetary policy this week. But no flap of a central banker’s wings goes quite as expected. Take China’s heroic 2008-2009 stimulus program, which helped fight back a global recession. It also led to huge overinvestment and bad debt, and the policy is now viewed by many economists as an error. Similarly, the ECB’s long-term multibillion-euro refinancing operation, announced in December 2011, saved Europe’s banking system from a funding crisis. But it created a dangerous web of links between an overleveraged banking sector and already indebted sovereigns. Official lending rates are close to zero, and their manipulation, the traditional mainstay of monetary policy, is effectively impotent. The new go-to tool for central bankers, quantitative easing, is suffering from declining marginal returns.
- Bank of America(BAC), Barclays(BCS), Credit Suisse(CS) Sued Over Libor. Bank of America Corp., Barclays Plc and Credit Suisse Group AG were among the banks sued by an investor over alleged manipulation of the Libor benchmark interest rate. The investor, 33-35 Green Pond Road Associates LLC, bought an interest rate swap with a floating rate tied to the U.S.- dollar Libor, it said in a complaint filed today in federal court in Manhattan. Green Pond Road seeks to represent a class of investors that bought U.S. dollar Libor-based derivatives beginning on Aug. 1, 2007.
- U.S. Drought May Limit China Rate-Cut Space: Chart of the Day. China's central bank may have less room to cut interest rates as inflation is imported from the U.S. in the form of soybeans and corn to feed the nation's pigs. "Pork-induced inflation may rear its ugly head again if global agricultural commodities prices, especially soybean and corn, continue to be drive up by the worst drought in the U.S. in more than five decades," said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc. "That may limit China's space for monetary easing." Corn futures prices jumped about 61% as of yesterday from mid-June, while soybean futures costs climbed about 24% in the U.S. China's inflation may rebound starting in the fourth quarter, with the central bank likely to raise interest rates next year, according to Zhang, who previously worked for the IMF. The boost to the inflation rate from higher global grain prices could reach 1 percentage point, Societe Generale SA economists including Yao Wei in Hong Kong wrote in a July 26 report. Almost 90% of the variation in China's domestic pork prices can be explained by global prices of corn, with a lag of about three months, and soybeans, with a half-year lag, the economists said.
- Grain Cargoes Seen Slowing Most in 19 Years on Drought: Freight. The worst U.S. drought in more than a half century and dry weather from Europe to Australia will mean the biggest contraction in grain cargoes for 19 years and unprofitable rates for owners of Supramax commodity carriers. Global trade in grains will drop 4.9% in the 2012-13 marketing year, according to the U.S. Dept. of Agriculture. Forward freight agreements, handled by brokers and used to bet on future costs, anticipate a fourth-quarter rate of $9,117 a day, 17% less than now, Baltic Exchange data show.
- Gun-Control Views Unchanged After Shooting, Says Pew Poll. The July 26-29 survey found that 47 percent of Americans say controlling guns is the priority, while 46 percent say it’s more important to protect the right to own guns. That is little changed from an April poll, when 45 percent placed the most importance on gun control and 49 percent on gun rights.
- Apple(AAPL) Said to Prepare IPhone Redesign for Sept. 12 Introduction. Apple Inc. (AAPL) is preparing to introduce the next version of the iPhone on Sept. 12 in what will be a design overhaul of its top-selling product, according to two people with knowledge of the company’s plans.
- Rubber Demand in China Set to Contract 5% as Truck Sales Tumble. Natural-rubber demand in China, the world's largest user, may drop this year as slumping truck sales and slowing economic growth cut sales of heavy-duty tires, according to the country's biggest maker.
Wall Street Journal:
- Stephen Moore: The Man Who Saved Capitalism. Milton Friedman, who would have turned 100 on Tuesday, helped to make free markets popular again in the 20th century. His ideas are even more important today.
Barron's:
- Seagate Technology(STX) Off 7%: FYQ4 Misses, Q1 View Weak. Disk drive and storage products maker Seagate Technology (STX) this afternoon reported fiscal Q4 revenue and profit per share that missed analysts’ expectations and was in keeping with a warning provided back on July 5th.
- Cities In California Are Declaring Bankruptcy To Avoid Governor Brown's Tax Increases.
- Glenn Beck's 'Restoring' Love Rally Proves The Tea Party Isn't Dead.
- Don't Believe In The Central Banking Theater Of The Absurd.
- Eight Countries Where It's Scary To Be A Christian.
- 3 Million Of America's Most Vulnerable Homeowners Are On The Brink Of Foreclosure.
Zero Hedge:
- Treasury Admits It Underestimated Debt Needs, Predicts Ceiling Breach In 2012; $600 Billion More Debt In Second Half.
- Mapping The Real Chinese Economy From The Bottom-Up.
- The Reality Of The Rest Of Draghi's 'Believe-Me' Speech.
CNBC:
NY Times:
- Doctor Shortage Likely to Worsen With ObamaCare. The Association of American Medical Colleges estimates that in 2015 the country will have 62,900 fewer doctors than needed. And that number will more than double by 2025, as the expansion of insurance coverage and the aging of baby boomers drive up demand for care.
- Some at Fed Are Urging Pre-Emptive Stimulus. Central bankers generally set policy based on their judgment about the most likely path for the nation’s economy. But Mr. Greenspan argued that the Fed sometimes should do more than its forecast suggested, buttressing the economy against large, potential risks. He described such moves as “taking out insurance.” On the eve of the Fed’s policy-making committee meeting on Tuesday and Wednesday, members who favor additional action argued that the likely path of the economy was itself sufficient reason for action. The committee predicted in June that without new measures unemployment would fall slightly, if at all, in the second half of the year. But officials, including the Fed’s vice chairwoman, Janet L. Yellen, have sought to reinforce the case for action by arguing that the Fed also should seek to offset the looming risk that a European meltdown will set off a global financial crisis, or that a failure to dismantle the potential year-end fiscal cliff of government spending cuts and tax increases will tip the economy back into recession.
- Tiger Management Helps Next-Generation Funds.
- Congressional Leaders Near Budget Deal to Keep Government Running. House and Senate leaders are nearing a temporary spending deal that would keep the federal government running for the first half of the next fiscal year, which will begin in October, aides in both parties said Monday, an effort to avoid the specter of a messy government shutdown fight on the eve of the November election.
- As ‘fiscal cliff’ looms, debate over pre-Election Day layoff notices heats up. The deep federal spending cuts scheduled to take effect at the start of next year may trigger dismissal notices for tens of thousands of employees of government contractors, companies and analysts say, and the warnings may start going out at a particularly sensitive time: Days before the presidential election.
AP:
- Dems move to formally back gay marriage. The Democratic Party is moving to include support for gay marriage in the official party platform for the first time, a Democratic official said Monday, marking a key milestone for advocates of same-sex unions. The party's platform drafting committee voted to include language backing gay marriage during a weekend meeting in Minneapolis, the official said. Democratic delegates will formally approve the platform during the party convention in Charlotte, N.C., in early September.
- Dendreon(DNDN) to close New Jersey plant, cut 600 jobs. Money-losing biotech Dendreon Corp said it would close one of its three manufacturing plants and cut more than 600 full-time and contractor jobs over the next 12 months, with the aim of reducing annual costs by about $150 million a year. Dendreon had about 1,475 employees as of February 23, 2012, according to a regulatory filing.
- Humana(HUM) Shares Down 9% As Q2 Results Miss Estimates, Weak Outlook. Shares of Humana, Inc. dropped nearly 9 percent in extended trade on Monday after the health insurer reported results for the second quarter that missed analysts' expectations. The company also provided earnings guidance for the third quarter, well below Street view, and lowered its earnings guidance for the full-year 2012, while maintaining annual revenue forecast.
- Temptations of a Peseta default in Spain. Defying charges of heresy, Spanish economist Lorenzo Bernaldo de Quiros has penned a piece in El Mundo that more or less calls for Spanish withdrawal from the euro – unless Mario Draghi conjurs up real magic at the ECB. My rough summary/translation:
Today Online:
- Singapore's GIC Says Outlook Remains Challenging. The Government of Singapore Investment Corporation (GIC) said yesterday that the investment outlook remained challenging, with the global economy struggling to return to sustainable growth, as it reported an unchanged annualised 20-year real rate of return of 3.9 per cent for the fiscal year ended March 31. "The developed economies will continue to be weighed down by an extended period of debt-deleveraging. In Europe, the debt crisis has spread beyond the periphery to the larger Spanish and Italian economies," GIC Group Chief Investment Officer Ng Kok Song said in its latest annual report released yesterday. "In the United States, the fragile economic recovery could be aborted by automatic spending cuts and tax increases if political gridlock continues beyond the 2012 elections with no compromise on a long-term plan for reducing the public deficit. Growth in the emerging economies, particularly China, is also slowing," he added.
- China's economic growth is still "appropriate," citing a commentary by Zhu Jianhong.
- The Ministry of Industry and Information Technology is considering giving a 17% value-added tax rebate to domestic steelmakers that supply steel for export products, citing a person close to the ministry.
- The China Banking Regulatory Commission's Shanghai branch plans to conduct stress tests again for banks in the city in 2H, citing people familiar with the matter. Stress tests will involve property lending and liquidity risks. The regulator will also examine the classification of bank loans.
- None of note
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 159.0 -4.5 basis points.
- Asia Pacific Sovereign CDS Index 130.0 -6.5 basis points.
- FTSE-100 futures -.03%.
- S&P 500 futures +.27%.
- NASDAQ 100 futures +.34%.
Earnings of Note
Company/Estimate
- (VLO)/1.43
- (X)/.49
- (GT)/.45
- (MLM)/1.00
- (REV)/.32
- (PFE)/.54
- (AET)/1.25
- (ADM)/.58
- (TRW)/1.55
- (DISCA)/.69
- (COH)/.85
- (CMI)/2.28
- (CBG)/.26
- (WBMD)/-.12
- (ALL)/.52
- (BMC)/.74
- (CECO)/.00
- (JLL)/1.24
- (EA)/-.42
- (AMG)/1.64
8:30 am EST
- Personal Income for June is estimated to rise +.4% versus a +.2% gain in May.
- Personal Spending for June is estimated to rise +.1% versus unch. in May.
- The PCE Core for June is estimated to rise +.2% versus a +.1% gain in May.
- The 2Q Employment Cost Index is estimated to rise +.5% versus a +.4% gain in 1Q.
9:00 am EST
- The S&P/CaseShiller Home Price Composite(YoY) for May is estimated to fall -1.4% versus a -1.9% decline in April.
9:45 am EST
- Chicago Purchasing Manager for July is estimated to fall to 52.5 versus 52.9 in June.
10:00 am EST
- Consumer Confidence for July is estimated to fall to 61.5 versus 62.0 in June.
Upcoming Splits
- (AZZ) 2-for-1
Other Potential Market Movers
- The Eurozone unemployment data, China PMI Manufacturing Data, weekly retail sales reports, NAPM-Milwaukee for July, Keefe/Bruyette/Woods Community Bank Conference and the (PII) investor meeting could also impact trading today.
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