Monday, September 10, 2012

Monday Watch

Posted by Gary .....at 12:29 AM

Weekend Headlines
Bloomberg:
  • German Court Decision on Bailout Funding Looms Over Euro Crisis. Germany’s high court decides the fate of Europe’s bailout this week when it judges the viability of the single currency’s emergency fund, after the European Central Bank pledged unlimited funding to overcome the crisis. The Federal Constitutional Court in Karlsruhe will issue a decision on whether to suspend the 500 billion-euro ($641 billion) European Stability Mechanism on Sept. 12, nine weeks after hearing arguments challenging the fund. The ESM would work in tandem with the ECB in buying bonds to lower yields for indebted states, including Spain and Italy.
  • Greek Coalition Partner Says No Decision Taken on Spending Cuts. Democratic Left leader Fotis Kouvelis, who supports the coalition government of Prime Minister Antonis Samaras, said no decision had been taken on 11.5 billion euros of spending cuts needed to release international funds. Kouvelis said he aimed to protect lower-income earners from the cuts and that another meeting would be held on Sept. 12. “Our European partners need to know that Greeks can’t take anymore,” Kouvelis said after meeting with Samaras and Pasok leader Evangelos Venizelos in Athens today.
  • ECB Sees Bond Costs of Up to 100 Billion Euros, Spiegel Reports. The European Central Bank may spend between 70 and 100 billion euros ($90 to $128 billion) on bond purchases this year if interest rates on Spanish and Italian debt rise again “sharply”, Der Spiegel reported, citing internal information used at the central bank. The figures are based on a scenario under which the ECB buys 10 to 14 percent of bonds eligible under the new plan, Der Spiegel said. The European Commission sees a Spanish request for ESM aid as “probable”, the German magazine said, citing a member of the Commission it did not name.
  • Monti Says Public Sentiment Undermining Leaders’ Crisis Fighting. Italian Prime Minister Mario Monti said euro-skepticism among voters is undermining the progress leaders have made fighting the sovereign debt crisis. “It’s paradoxical and sad,” Monti said today in Cernobbio, Italy, in a statement to reporters. “One can’t help note a growing and dangerous sentiment of antagonism in member states.” The three-year crisis has taken its toll on voters from Greece to Paris and produced a surge in popularity for politicians who oppose European integration. In Italy, Monti’s parliamentary coalition has lost ground in opinion polls to euro-skeptic comedian Beppe Grillo, even as the prime minister’s policies helped lower the country’s borrowing costs. “Just when we hoped to complete the integration both at a psychological level and in the public opinion -- so eventually at the political level -- we are rather witnessing the opposite trend,” said Monti as he stood next to European Union President Herman Van Rompuy. Monti cited, “a number of conflicts aiming at disintegration in almost all member states.”
  • Hollande’s Approval Rating Drops to 40 Percent, Le Parisien Says. President Francois Hollande’s popularity dropped as a majority of French people now disapprove of his work, a BVA poll published in Le Parisien newspaper showed. Hollande’s approval rating dropped 22 percentage points to 40 percent from the previous BVA poll released May 31, according to the newspaper. Dissatisfaction with Hollande’s presidency rose to 59 percent, the survey showed.
  • Hollande May Cut 2013 French Growth Forecast to 1%, JDD Says. French President Francois Hollande may lower the country’s 2013 economic growth forecast to 1 percent, Le Journal du Dimanche reported, without citing anyone. Hollande may unveil the cut from the initial 1.2 percent forecast during his television interview later today. He may also announce the first elements of the 2013 budget, which is due to be unveiled at the end of the month, the weekly newspaper said today. Hollande last week pledged to stick to his 3 percent budget deficit target and may today announce taxes increases of as much as 20 billion euros ($25.6 billion), JDD said.
  • Ireland Is ‘Pushed’ by Troika on Tax and Welfare, Post Reports. Ireland’s government is being “pushed” to make faster progress on a property tax and a reform of social welfare by the troika of the International Monetary Fund, the European Union and the European Central Bank, the Sunday Business Post reported, without citing anyone. The IMF’s quarterly report on the country will be published tomorrow and will say that aspects of Ireland’s social welfare system are “unsustainable” while a property tax should be implemented quickly, the Dublin-based newspaper reported.
  • Hu Says China’s Growth Is Facing ‘Notable Downward Pressure’. Chinese President Hu Jintao said a slowdown in exports is putting downward pressure on the world’s second-biggest economy, and he pledged to boost domestic demand and promote more balanced growth. “Economic growth is facing notable downward pressure, some small and medium enterprises are facing a hard time and exporters are facing more difficulties,” Hu said yesterday at the Asia-Pacific Economic Cooperation CEO Summit in Vladivostok, Russia. “We have an arduous task of creating jobs for new entrants to the labor force.”
  • Fed Stuck at Zero Into 2015 Seen in Swaps, QE Odds Reach 99%. Just six months ago, money market traders expected the Federal Reserve to raise interest rates by the end of 2013. Now, they see borrowing costs staying at record lows for about three more years as the economic outlook worsens. Bond market measures from overnight index swaps, which indicate no rise in the federal funds rate until mid-2015, to a 62 percent decline in a measure of volatility in government bonds signal that rates will stay near zero for longer. The gap between two- and five-year Treasury yields, which decreases when traders expect benchmark rates to remain subdued, is more than 50 percent narrower than its average since 2008.
  • U.S. Fiscal Cliff Endangers World Economy, Lagarde Tells APEC. U.S. tax increases and spending cuts set to take effect by the beginning of next year pose one of the biggest risks to the global economy, International Monetary Fund Managing Director Christine Lagarde said today. While Lagarde has warned about the U.S. fiscal situation before, this time she took her case directly to leaders attending the Asia-Pacific Economic Cooperation Summit in Vladivostok, Russia. She said the fiscal cliff was one of “three key risks” -- the other two being the euro crisis and medium-term public financing. “We discussed over lunch with the leaders of APEC, the global economic situation, with the three key risks that we see on the horizon,” Lagarde told reporters today. She said there are a “combination of factors that could also increase the vulnerabilities of emerging economies.”
  • Hedge Funds Lift Bets to 16-Month High Before Rally: Commodities. Hedge funds raised bullish commodity bets to the highest in 16 months before speculation that policy makers in the U.S., China and Europe will revive global growth pushed prices higher for a sixth week. Money managers increased their net-long positions across 18 U.S. futures and options by 2.3 percent to 1.33 million contracts in the week ended Sept. 4, the highest since May 3, 2011, U.S. Commodity Futures Trading Commission data show. Wagers on a silver rally climbed for a sixth week and to the highest since Feb. 28, while those for cocoa jumped 57 percent to the most since May 2010.
  • Scrap-Steel Futures Debut on CME as Global Demand Increases. CME Group Inc. (CME), the owner of the world’s biggest futures exchange, is betting that a surge in demand for recycled steel and price swings will drive trading in its scrap futures that start today. The contract will be the first ferrous-scrap futures available to the U.S. steel industry, according to Chicago-based CME. It will complement hot-rolled coil steel derivatives that the exchange already offers, said Youngjin Chang, the director of metals research and product development at CME Group.
  • BP Is Said to Near $6 Billion Sale of Gulf Assets to Plains. BP Plc is in advanced talks to sell a group of oilfields in the Gulf of Mexico to Plains Exploration & Production Co. (PXP), said two people with knowledge of the matter.

Wall Street Journal:
  • Banks Rethinking Executive Pay. Directors at J.P. Morgan Chase & Co. and Citigroup Inc. are wrestling with new approaches to executive compensation, in a bid to respond to a series of management miscues this year, said people close to the institutions. At J.P. Morgan, the biggest U.S. bank by assets, directors are considering lower 2012 bonuses for Chief Executive James Dimon and other top executives in the wake of a multibillion-dollar trading disaster, said people close to the discussions. But they also are grappling with the question of how to do that without drastically reducing the executives' take-home pay, the people said.
  • Toys 'R' Us Rolls Out Its Own Tablet. In a bid to battle the "showrooming" phenomenon that is hurting big-box retailers, Toys "R" Us Inc. is expected to disclose Monday that it plans to sell a proprietary tablet designed for children.
  • U.S. Plans $18 Billion Sale of AIG(AIG) Stock. The Treasury Department said it would sell $18 billion of American International Group Inc. stock in a public offering, slashing its stake by more than half and making the government a minority shareholder for the first time since the financial crisis was roaring in September 2008.
  • Inspectors Reject Some Cuts By Greece.
  • Gold Jumps in Bet on Fed Action.
  • Charles G. Koch: Corporate Cronyism Harms America. When businesses feed at the federal trough, they threaten public support for business and free markets.
Marketwatch.com:
Business Insider:
Zero Hedge:

CNBC:

  • Italy Has No Plans to Access ECB Bond-Buying Plan: Monti. Italian Prime Minister Mario Monti said he is not expecting Italy to access the European Central Bank's new bond-buying program anytime soon in an exclusive interview with me for CNBC's "Closing Bell."
  • China's Factories Run at Lowest Rate in 39 Months. Industrial output growth slowed to 8.9 percent year on year, the weakest since May 2009 and below market forecasts of a 9.1 percent rise, data from China's National Bureau of Statistics (NBS) showed on Sunday. Fixed asset investment, which accounted for half of China's net economic growth in the first-half of 2012, grew 20.2 percent between January and August compared to the year earlier period, a touch below expectations for a 20.4 percent expansion.
  • China August Imports Shrink 2.6%; Exports Grow. China's imports fell by 2.6 percent on year in August, while exports grew by a less-than-expected 2.7 percent, the customs administration said on Monday. The country logged a trade surplus of $26.7 billion, topping forecast of $19.8 billion, from July's $25.1 billion. China's trade outlook for 2012 is worsening, darkened especially by growing problems in Europe, the Commerce Ministry said last month.
  • Downturn in China Spreads to Key Sectors.

New York Times;

  • Construction and Real Estate Hinder China’s Growth. With more than 100 tall cranes on the skyline, this metropolis in western China looks vibrant at first glance despite the country’s sharp economic slowdown. But only a few cranes — those building national government projects like a high-speed rail line — are floodlit and busy far into the night. The more numerous cranes looming above the skeletons of future high-rises move much less often, even by day, and are dark and deserted by night. The pattern among Chengdu’s construction cranes is evident across the country. As summer fades into autumn, Beijing is stepping up investment in a bid to rescue the economy, but consumers, businesses and debt-burdened local governments in China are showing little interest in spending money again.

The Daily Caller:

Reuters:

  • Germany should back growth or leave euro-Soros. Germany should leave the euro zone if it is not prepared to take a more decisive lead in helping the euro zone's weaker nations escape a spiral of increasing indebtedness and economic decline, veteran financier George Soros said on Saturday. Soros said Europe faced a prolonged depression and an acrimonious end to the European unification project if steps were not taken to help its southern nations grow their way out of the debt crisis by collectively assuming some of their debt and relaxing its German-led insistence on austerity. "Germany should either lead in developing a growth policy, political union and burden-sharing, accept the cost of leadership, or leave through an amicable arrangement," Soros said in an interview with Reuters television in Vienna.
  • Spaniards see European rescue as inevitable: poll. The vast majority of Spaniards believe it is inevitable the country will be rescued by the European Union as their confidence in the government continues to slide, according to a poll published on Sunday. Seventy-two percent of those questioned by polling agency Metroscopia thought Spain would be rescued by the EU, up from 62 percent who believed the same a month ago. The poll showed a fall in support for Prime Minister Mariano Rajoy with 73 percent saying they did not think he was doing a good job. It showed that 84 percent of people had little confidence in Rajoy, with even 59 percent of voters of his People' Party (PP) saying the same.
  • Iraq blasts kill 100 as fugitive VP gets death sentence. Car bombs tore through mainly Shi'ite Baghdad districts on Sunday after Iraq's fugitive Vice President Tareq al-Hashemi was sentenced to death, as more than 100 people were killed across the country in one of the bloodiest days this year. Hashemi's sentencing in absentia and the violence threatened to further stoke sectarian tensions in Iraq where a Shi'ite-led government is battling political deadlock and a Sunni Islamist insurgency nine months after U.S. troops left. A senior Sunni politician, Hashemi fled Iraq after the authorities issued a warrant for his arrest in December, a move that threatened to collapse a fragile power-sharing deal among Shi'ite, Sunni and Kurdish blocs. After Sunday's court ruling, bombs tore through six mainly Shi'ite neighborhoods around Baghdad, one going off outside a restaurant and another in a busy commercial district, following earlier bombs that had hit other cities nationwide. "I heard women screaming, I saw people running in all directions, chairs scattered in the street. My windows were blown out, my mother and two kids were injured too," said Alla Majid, still shaking after a blast in Baghdad's Sadr City.
  • EU banks face ring-fence on trading assets-FT. Europe's big banks could be forced to protect trading assets as the consensus recommendation of an European Union-wide review is due to be completed next month, the Financial Times reported on Monday. The Liikanen review was set up in November by Michel Barnier, the EU commissioner in charge of regulation, to review of the structure of Europe's banks. The newspaper cited people close to the project as saying a clear majority was in favour of a combination of a ban on so-called proprietary trading and a ring-fence on retail banking activities. Two people cited by the FT said the 11-member Liikanen committee had made particularly good headway towards a unanimous view at a meeting in Brussels last week. At least seven are thought to support a trading ring-fence.
  • France's Hollande says 75 pct tax to last around 2 years.
  • U.S. gasoline rises 8 cents a gallon. The national average price of a gallon of regular gas was $ 3.838 o n Sept. 7, u p f rom $3.759 on Aug. 24, said Trilby Lundberg, editor of the Lundberg Survey, which covers some 2,500 gas stations nationwide.
  • German MP makes new court complaint against euro plans. A lawmaker from Angela Merkel's conservatives has lodged a new complaint with Germany's top court over euro zone bailouts, but legal experts and MPs say this is unlikely to prevent the court from making a key ruling on the bloc's rescue fund this week.

Financial Times:

  • US companies gloomy about earnings growth. During the latest reporting season S&P 500 groups were three times more likely to say they would miss analysts’ expectations of third-quarter earnings than beat them. That was the worst guidance ratio since the final quarter of 2008, immediately after the collapse of Lehman Brothers.

Telegraph:

Bild am Sonntag:

  • German Finance Minister Wolfgang Schaeuble says governments must not reduce reform efforts following the ECB's announcement that it plans to buy euro-area bonds. Markets are not confident the euro will survive, he said. Euro area members must cut deficits, improve competitiveness, he said. The ECB should not be used for government financing, Schaeuble said.
El Economista:
  • Spanish Prime Minister Mariano Rajoy is planning to delay a bailout request until after Galicia region holds elections, citing people familiar with the situation. Galicia holds elections Oct. 21. Spain will hold 6 bond sales from now to Oct. 21.
Financial News:
  • China 2013 consumer prices may rise around 3%-4%, citing Ba Shusong, a researcher at the State Council's development research center.
China Securities Journal:
  • China Interest Rate Cut Much More Unlikely. The likelihood of the Chinese central bank cutting interest rates again this year has greatly dropped as inflation rebounds, according to a front-page commentary published today. Using interest rates as a monetary policy tool may "fade out" in the short term and may enter an "observation period," according to the commentary written by Ren Xiao.
Weekend Recommendations
Barron's:
  • Made positive comments on (TSO), (BZH), (LEN), (HD) and (DHI).
Night Trading
  • Asian indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 133.50 -8.0 basis points.
  • Asia Pacific Sovereign CDS Index 114.50 -6.5 basis points.
  • FTSE-100 futures -.17%.
  • S&P 500 futures -.31%.
  • NASDAQ 100 futures -.22%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (JW/A)/.73
  • (CASY)/.95
  • (PANW)/.00
  • (TITN)/.43
Economic Releases
3:00 pm EST
  • Consumer Credit for July is estimated to rise to $9.55B versus $6.46B in June.

Upcoming Splits

  • (ODFL) 3-for-2
Other Potential Market Movers
  • The Italian GDP report, Greece Industrial Production report, Morgan Stanley Healthcare Conference, Barclays Financial Services Conference, KeyBanc Basic Materials/Packaging Conference and the (CSC) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

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