Monday, August 20, 2012

Monday Watch

Posted by Gary .....at 12:53 AM

Weekend Headlines
Bloomberg:
  • EU Leaders Plan Shuttle Talks to Bolster Greece, Sovereign Bonds. Europe’s leaders plan a week of intensive shuttle diplomacy to help defuse the continent’s debt crisis, amid dissension on the European Central Bank’s role and how to help Greece. With the single currency’s continuing crisis threatening the global economy, Jean-Claude Juncker, the Luxembourg premier who heads the group of euro-area finance ministers, is expected in Athens on Aug. 22 to discuss Greek Prime Minister Antonis Samaras’ request of a two-year extension for the country’s fiscal adjustment program. Samaras travels to Berlin and Paris on Aug. 24 and 25 after French President Francois Hollande and German Chancellor Angela Merkel meet in the German capital on Aug. 23.
  • Schaeuble Rules Out New Aid Plan for Greece, Cites ‘Limits’. German Finance Minister Wolfgang Schaeuble ruled out another aid program for Greece even though the country is in a “very difficult situation” with a shrinking economy. “It can’t be helped -- we can’t make yet another new program,” Schaeuble told visitors today at his ministry’s open day in Berlin. “There are limits.” Gross domestic product has declined by more than 20 percent in four to five years in Greece, which also has high unemployment, he said. Two bailouts totaling 240 billion euros ($296 billion) have been implemented for the nation since the European debt crisis began, and the country is now contending with austerity measures needed to qualify for more aid. Greece faces a financing gap of 14 billion euros in each of the next two years, a delegation from the so-called troika of the European Commission, European Central Bank and International Monetary Fund has found, according to Spiegel magazine today. That compares with a previous estimate of 11.5 billion euros a year, Spiegel said, without saying where it got the information. The sovereign-debt crisis mustn’t become a “bottomless pit” for Germany, even though Europe’s biggest economy would pay the highest price in a breakup of the euro region, Schaeuble said. Greek Prime Minister Antonis Samaras wants the country’s fiscal adjustment program to be extended by two years to the end of 2016.
  • De Guindos Says Bailout Fund to Manage Spain Bank Restructuring. Spain will put its bank rescue fund in charge of the bad assets separated out from the nation’s struggling lenders that are receiving a European bailout. The FROB fund will be the main shareholder in a so-called bad bank, according to a proposal that will be approved by the Cabinet on Aug. 24, Economy Minister Luis de Guindos told the Efe news agency in an interview today. All the banks receiving loans from European rescue funds will have to transfer their non-performing assets to the bad bank, he said. The comments were confirmed by a Spanish official, who asked not be identified, citing government policy.
  • China New-Home Prices Rebound After Interest-Rate Cuts. China’s new-home prices rose in the largest number of cities in 14 months in July after interest- rate cuts and incentives for first-time buyers, complicating efforts to stimulate economic growth while curbing speculation. Prices climbed from a month earlier in 49 of the 70 cities tracked by the government, the National Bureau of Statistics said on its website on Aug. 18. That was the most since May last year and compared with 25 cities in June. Prices fell in nine cities and were unchanged in 12. Buyers, buoyed by two interest-rate cuts since June, have returned to the market even as the government pledges to maintain real estate curbs to make housing more affordable. The risk of a rebound in the property market may hamper the People’s Bank of China from reducing rates further or cut banks’ reserve requirement ratios to boost funds in the financial system and support lending after new credit slumped in July. “Rising property prices are constraining aggressive policy action from the central bank,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “The government will introduce more policies to contain a property bubble,” including the extension of a property tax to more cities, he said.
  • China’s Stocks Drop to March 2009 Low on Property Curbs Concern. China’s stocks fell, dragging the benchmark index down to the lowest level since March 2009, on concern the government will tighten property curbs after real- estate prices rose in the largest number of cities in 14 months. China Vanke Co. (000002) and Poly Real Estate Group Co., the nation’s bigest property developers, slid more than 3 percent. The Financial News, run by the People’s Bank of China, said in a commentary the central bank has no plan to cut lenders’ reserve- requirement ratios in the short term. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. fell to the lowest this month after profit declined and the China Securities Journal reported the government is studying a resource tax on rare earths. “A rebound in property prices is bad for the economy as the government will refrain from conducting further policy easing,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Investor sentiment is bad and the market will test new lows.” The Shanghai Composite Index (SHCOMP) fell 0.8 percent to 2,097.95 as of 9:44 a.m. local time.
  • Bo Xilai’s Wife Gets Suspended Death Sentence, Lawyer Says. Gu Kailai, the wife of ousted Politburo member Bo Xilai, received a suspended death sentence for the murder of British businessman Neil Heywood, the lawyer for Heywood’s family told reporters. Heywood’s family will respect the court’s decision, He Zhengsheng said outside a court in the Chinese city of Hefei, where Gu was tried Aug. 9 for killing Heywood. Gu received a death sentence with a two-year reprieve, He said.
  • Hong Kong Fear Index 41% Above VIX on Slowdown. Options traders are charging the biggest premium since March to protect against losses in Chinese companies on signs that a slowdown in the world’s second-largest economy is worse than economists estimated. The AlphaShares Chinese Volatility Index, derived from options on companies listed in Hong Kong, traded at a premium of as much as 41 percent over the Chicago Board Options Exchange Volatility Index last week, the biggest gap since March 29. The spread compares with a 10 percent discount a year ago.
  • Junk Bond Premium Jumps as Wen Action Falls Short: China Credit. China's junk bond yield premium is climbing at the fastest pace this year on concern an extended slump in the world's second-biggest economy will cause a default. The extra yield investors demand to hold five-year notes rated AA over similar-maturity sovereign debt widened 15 basis points this month to 244 as of Aug. 16, poised for the biggest monthly increase of 2012, according to Chinabond data.
  • Indian Rate Cut Will Depend on Inflation Easing, Gokarn Says. India can only consider cutting interest rates when inflation starts to show “very sustainable signs of moving down,” Reserve Bank of India Deputy Governor Subir Gokarn said. “Our position on that is very clear,” Gokarn said in Goa yesterday. “It’s always balancing between inflation risks and growth risks” and price gains are currently the “dominant” threat, he said.
  • Speculators Hold Wagers at 11-Month High Amid Rally: Commodities. Money managers’ net-long position across 18 U.S. raw materials was little changed at 1.2 million futures and options in the week ended Aug. 14, U.S. Commodity Futures Trading Commission data show. Investors increased bets on costlier corn, soybeans and cattle amid the worst U.S. drought in 56 years, reduced wagers on a rally in crude oil and became more bearish on the outlook for copper.
  • Rubber Seen Dropping as Chinese Inventories Set to Equal Record. Rubber is poised to drop as sustained supplies from Southeast Asia and falling demand from China's tiremakers push stockpiles to match their record at Qingdao port, the main shipment hub, an industry executive said. Inventories in the bonded zone, where traders store deliveries before paying duties, will probably climb to 250,000 metric tons by end-August from 240,000 tons last week, Li Xiangou, chairman at the Qingdao International Rubber Exchange Market, said in an Aug. 17 interview. China accounts for 33% of global demand and tires represent 70% of natural-rubber consumption in the country.
  • Toyota Faces 20% Drop in Industry Sales as Aid Ends. Toyota Motor Corp. (7203) and Honda Motor Co. (7267) can thank government aid for helping auto industry sales grow faster in Japan than any major market this year. As state subsidies are about to run out, so may the euphoria. Japan vehicle sales, after surging 53 percent in the first seven months, will drop as much as 20 percent next quarter as the payouts expire, analysts at BNP Paribas SA and IHS Automotive said. About 88 percent of the 300 billion yen ($3.8 billion) budgeted for subsidies has been consumed as buyers snapped up cars, underpinning an economic recovery that economists now forecast will fade. The end of state aid of as much as 100,000 yen per vehicle will be compounded by the government’s plan to double the national consumption tax, prompting additional calls from carmakers for stimulus measures.
  • Dollar Gains as Speculation Wanes Fed Will Add Further Stimulus.
  • Facebook(FB) Falls to Half-Price From IPO After Lock-Up Ends. Facebook Inc. (FB) fell to a record low, losing almost half its value since an initial public offering in May, after the lifting of restrictions on share sales by its biggest investors. Shares in the world’s largest social-networking service fell 4.1 percent to $19.05 at the close in New York yesterday. Facebook had dropped to as low as $19, after the number of shares available for trading increased 60 percent two days ago.
  • Apple(AAPL) Climbs to Record Close Topping $600 Billion Market Value.
  • Deutsche Bank(DB) Among 4 Said to Be in U.S. Iran Probe. Deutsche Bank AG (DBK) is among four European banks being investigated by U.S. authorities for alleged violations involving oil trading and Iran, according to an attorney with knowledge of the matter. Regulators including the U.S. Treasury’s Office of Foreign Assets Control, the Federal Reserve, the Justice Department and the Manhattan district attorney’s office are all involved in the probe of Deutsche Bank and three other European banks, said the attorney, who asked not to be identified because the investigations are confidential.

Wall Street Journal:
  • Belize to Skip Payment If Lenders Don't Relent.
  • Aetna(AET) Set to Acquire Coventry Health Care(CVH). Health-care giant Aetna Inc. AET -0.34% has struck a deal to buy Coventry Health Care Inc. CVH +0.66% for $5.7 billion in cash and stock, a move that will make Aetna one of the largest providers of government-financed health care, people familiar with the matter said. Aetna, based in Hartford, Conn., is paying $42.08 a share for Coventry, which is a 20.4% premium to Coventry's shares as of Friday's close, according to the people. The mix is 65% cash and 35% stock, the people said.
  • Asia's Shopping Passion Cools. Asian consumers have kept their countries' economies humming while exports to Europe and the U.S., long key sources of growth, have been a drag. Now there are signs consumer spending also is ticking down, which is bad news for one of the global economy's few bright spots. Koreans are buying fewer cars. Chinese consumers are cutting back on new clothes. There aren't as many shoppers lining up outside Louis Vuitton boutiques in Hong Kong. Bets at the baccarat tables in casinos in Macau and Singapore—a proxy for Chinese tourism and consumer spending—have grown more slowly.
  • The $6,400 Myth. Breaking down a false Obama Medicare claim. One of President Obama's regular attacks on Paul Ryan's Medicare reform is that it would force seniors to pay $6,400 a year more for health care. But merely because he keeps repeating this doesn't mean it's in the same area code of accurate.
Business Insider:
Zero Hedge:

Wall Street All-Stars:

NY Times:

USA Today:

  • Obama OKs old earmarks for highway projects. The Obama administration will free up $473 million in unspent "idle earmarks" to allow states to spend the money on highway projects immediately, Transportation Secretary Ray LaHood said Friday. The unspent money comes from congressional pet projects that were written into four spending bills from 2003 to 2006. But the money was never spent — either because of an error in writing the bill, because the project could be completed without it, or because the earmark wasn't big enough.

Kansas City Star:

  • Why 'Mediscare' May Not Work This Time. Historically, politicians proposing entitlement reform lose in the face of hysterical attacks from the programs’ defenders. Two things are different this year. The Obama administration, not Romney, approved cuts in Medicare’s growth for today’s seniors. That means the usual “Mediscare” campaign will have diminished credibility. And a long-running movie has been playing in Europe, showing what happens when countries refuse to get their fiscal houses in order. There’s a good chance Americans don’t want to be in that movie.
Read more here: http://www.kansascity.com/2012/08/18/3767615/why-mediscare-may-not-work-this.html#storylink=cpy

Gallop:

Reuters:
  • Greece needs 2.5 billion extra spending cuts over two years: paper. Greece will likely need to cut an additional 2.5 billion euros in spending over the next two years to meet demands made by its international lenders in return for financial aid, Germany's Der Spiegel magazine reported on Saturday. Citing an interim report by the troika of European Commission, European Central Bank and International Monetary Fund, Der Spiegel said Greece would likely need 14 billion euros over the next two years to get its deficit below 3 percent by the end of 2014, up from a previously expected 11.5 billion. The country's budget deficit stood at 9.3 percent in 2011. The increased financing gap was due to setbacks to privatization plans and as the economy, in its fifth year of recession, was faring worse than expected, the magazine said.
  • US health panel likely to make HIV tests routine. A U.S. health panel may soon make HIV testing as standard a practice as checking cholesterol levels, a move that would fundamentally change how the virus is detected and treated. The U.S. Preventive Services Task force, a government-backed group of clinicians and scientists, is expected to make a new recommendation on HIV screening available for public comment before the end of the year. Health officials close to the panel, speaking on condition of anonymity, see it making a positive recommendation for routine screening, updating their current position, issued in 2005, which leaves the decision up to doctors. Under President Barack Obama's healthcare law, passed in 2010, insurers are required to cover preventive services that are recommended by the task force.
AP:
  • Egypt president to visit Iran, a first in decades. Egypt's President Mohammed Morsi will attend a summit in Iran later this month, a presidential official said on Saturday, the first such trip for an Egyptian leader since relations with Tehran deteriorated decades ago. The visit could mark a thaw between the two countries after years of enmity, especially since Egypt signed its 1979 peace treaty with Israel and Iran underwent its Islamic revolution. Under Morsi's predecessor Hosni Mubarak, Egypt, predominantly Sunni Muslim, sided with Saudi Arabia and other Sunni-dominated Arab states in trying to isolate Shiite-led Iran.
IBT:
  • As Dodd-Frank looms, Asian banks look to cut U.S. trading ties. Asian banks are reviewing relationships with their U.S. counterparts to avoid being caught by tough new American rules on derivatives trading that are about to come into force. From the start of next year, non-U.S. banks that annually deal in at least $8 billion worth of products such as interest rate swaps with American counterparties are expected to be subject to new derivatives rules in the Dodd-Frank Act.
Financial Times:
  • Caterpillar's(CAT) CEO warns of economic uncertainty: FT. The global economic outlook is more uncertain now than at the start of the financial crisis in late 2008, chief executive of Caterpillar (CAT.N), Doug Oberhelman, said on Monday. The CEO of the world's largest maker of construction equipment also predicted that it could take another five years before Europe's economy begins to see growth again. "There's never been a more unpredictable set of tea leaves than right now. Even in 2008 and 2009, U.S. housing was already dying and had been for two years. We saw that," Oberhelman is quoted as saying in the Financial Times. "I don't think the situation is as grave as it was in 2008, but the uncertainty, the storm clouds are around things that none of us know about - like what will happen with the political situation in Europe," he said.
The Telegraph:
Here In The City:
  • Eurozone Ignoring Parallels With Latin American Debit Crisis of the 1980s. The default marked the start of what became known as the third world debt crisis. Three decades later that crisis is now the first world debt crisis. For Mexico read Greece. For American, British and Japanese banks recycling the 1970s windfall profits of oil producers to sub-prime Latin American governments read US and European banks pumping out cheap credit to sub-prime mortgage holders. For the syndicated loans that allowed banks to lend recklessly without the necessary prudential checks read the securitisation of loans that allowed banks to bundle up the good mortgages with the bad and sell them. The policy response to the crisis has also been identical.
Frankfurter Allgemeine Sonntagszeitung:
  • Euro Confidence Would Vanish If Greece Left, Oettinger Says. No-one would trust the euro zone to solve bigger problems if Greece left the currency, European Energy Commissioner Guenther Oettinger said in an interview.
FAZ:
  • Shipping Magnate Offen Says Sea Freight 'Catastrophic'. Claus-Peter Offen estimates his shipping company has lost EU2.5B since Lehman Brothers insolvency, citing an interview.

Euro am Sonntag:

  • German Taxpayer Association Head Criticizes ESM. Rainer Holznagel, head of Germany's taxpayer association, says payment of Spanish bank debt would require a 3% VAT increase in Germany, citing an interview. The ESM reduces the rights of the German parliament and the independence of nation states, Holznagel said.

WirtschaftsWoche:

  • Germany Indutry Group Head Sees Greek Euro Exit Viable. If Greece doesn't meet IMF and EU requirements, it must leave the euro, Hans-Peter Keitel, president of Germany's BDI industry federation, said in an interview. Keitel previously said Greece must stay in the euro at all costs.
  • Bundesbank Vice-Head Opposes Schaeuble's Banking Proposal. German Finance Minister Wolfgang Schaeuble's proposal to split the country's banking system in two isn't possible, Bundesbank Vice-President Sabine Lautenschlaeger said. Both types of banks would still be dependent on market confidence, he said. Lautenschlaeger favors an investigation into the relationship between banks and those banks which trade in unregulated financial products.
  • German GDP to Shrink -.1% in Third Quarter, IWH Forecasts. IWH economic institute see 0% growth in the fourth quarter.

Tagesspiegel am Sonntag:

  • Relaxation of the agreed on terms for Greek assistance would be misunderstood by countries such as Spain, German Foreign Minister and FDP member Guido Westerwelle said in an interview. The Spanish prime minister would have difficulty passing reforms in parliament if terms were eased for Greece, Westerwelle said. Greek Prime Minister Antonis Samaras will visit Berlin on Friday.

Real News:

  • Greece must meet the terms of an agreement with the so-called troika of international lenders to receive the support spelled out in the deal, Michael Fuchs, deputy parliamentary leader of German Chancellor Angela Merkel's Christian Democratic Union party.

To Vima:

  • Germany's parliament would not support a third aid package for Greece, citing Norbert Barthle, budget spokesman in the parliament for Angela Merkel's Christian Democratic Union party.

ABC:

  • The Spanish region of Murcia may request up to $863 million in loans from the central government this year to fund its deficit and redeem bonds, citing local government officials.
Confidencial:
  • A new tax of 4 euro cents per cubic meter of natural gas will lead to a 9.7% increase of the price paid by Spanish consumers in coming months.Including an announced value-added tax rise, the total increase will be 12.7%.
Expansion:
  • The Spanish government will maintain subsides for renewable energy, citing Industry Minister Jose Manuel Soria.

AFR:

  • Iron ore alert as China cuts steel output. Chinese steel mills have begun cutting production as record stockpiles continue to build, signalling further weakness for iron ore prices and a slowing growth in the world’s second biggest economy. A sluggish construction market and a lack of additional stimulus measures from Beijing has China on track to record its first annual decline in steel production in 31 years, analysts said. The managing partner of research firm J Capital in Beijing, Tim Murray, said that while official data indicated steel production was flat, he estimated it fell by as much as 10 per cent over the first 15 days of August. “This is the first indication of ­significant cuts,” he said. “There are some seasonal factors at play, but the volume coming off is unusual.” The weak Chinese steel market will put pressure on miners BHP Billiton and Fortescue Metals Group (which report this week) and Rio Tinto. All are expecting demand for iron ore to rally in the second half of this year. Softening Chinese demand will also lower federal government revenue, making it harder for the Gillard government to achieve a budget ­surplus. The iron ore price has fallen from $US140 a tonne in early July to trade around $US113 a tonne on Friday. “I think $100 might be the new price equilibrium,” Mr Murray said.
Financial News:
  • The PBOC has no intention of cutting banks' reserve requirements in the short term, as suggested by a cash injection last week, according to a commentary. Reverse-repurchase operations have become the central bank's "very important and favored" monetary-adjustment instrument, according to reporter Xu Shaofeng. Using that tool instead of lowering the reserve-requirement ratio can meet funding demands without pushing up property prices, it said.
CCTV:
  • China Asks Cities to Reverse Relaxing Housing Curbs. China's central government asked local governments which have relaxed housing curbs to revise their actions, citing the inspection teams from the country's State Council. China faces "bigger pressures" to cool the property market after home prices rose in some cities, the report said.
Haaretz:
Weekend Recommendations
Barron's:
  • Made positive comments on (DE) and (ISBC).
  • Made negative comments on (WM).
Night Trading
  • Asian indices are -.75% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 147.50 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 125.0 -1.0 basis point.
  • FTSE-100 futures +.05%.
  • S&P 500 futures -.02%.
  • NASDAQ 100 futures unch.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (COCO)/.11
  • (LOW)/.70
  • (URBN)/.33
  • (NDSN)/.99
  • (EP)/.24
Economic Releases
  • None of note

Upcoming Splits

  • (SWM) 2-for-1
Other Potential Market Movers
  • The Chicago Fed National Activity Survey could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate 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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