Monday, September 24, 2012

Monday Watch

Weekend Headlines

  • European Leaders Struggle to Overcome Fresh Crisis Stalemate. European leaders are struggling to overcome a crisis-fighting stalemate as they face discord over a banking union, Greece’s ongoing debate on how to meet bailout commitments and foot-dragging by Spain and Italy on financial aid requests. Chancellor Angela Merkel and President Francois Hollande underlined Franco-German disagreement over the weekend as they clashed on a timetable to introduce joint oversight of the region’s banking sector, with Merkel rebuffing Hollande’s appeal to activate it “the earlier, the better.” “Complacency seems to have affected European policy- makers,” Joachim Fels, chief economist at Morgan Stanley in London, wrote yesterday. “One case in point is the disagreement between governments about the nuts and bolts of a banking union, which remains crucial to break the negative feedback loop between banks and weak sovereigns.
  • Merkel, Hollande EU Unity Pledge Fails to Stretch to Bank Union. Chancellor Angela Merkel and President Francois Hollande’s appeal for German-French unity to tackle Europe’s ills lasted all of three hours as they disagreed over closer integration of the region’s banking system. The two leaders, marking Franco-German reconciliation after World War II, delivered back-to-back speeches in which they hailed their mutual ties, tried out each other’s language and pledged to work together for a more unified Europe to defeat the financial crisis. The bonhomie broke down at a subsequent press conference when they failed to mask their differences on a planned “banking union” meant to achieve that end. “The earlier, the better,” Hollande told reporters in the German town of Asperg yesterday, saying that banking union is “an important step in our targets” with a goal of implementation by year’s end. Merkel, standing alongside, declined to set a target date, saying there’s no point doing something fast if it then doesn’t work.
  • Aussie Debacle Signaling China Hard Landing as Iron Market Melts. From the end of 2008 through July, no major currency appreciated as much as Australia’s dollar, thanks to booming shipments of iron ore and other commodities to China. Since then, it’s the worst performer as the engine of world growth slows. The so-called Aussie depreciated 2.5 percent in the past month, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Traders are betting Australia’s central bank will cut interest rates to boost growth, dragging down the currency even though the Standard & Poor’s GSCI Index of commodities has risen almost 20 percent from its low this year in June. This reversal shows the dangers for an economy tied too closely to another. China, which buys 28 percent of Australia’s exports, said industrial output grew at the slowest pace in three years last month as Europe’s debt crisis cut sales of Chinese goods. Polls show Prime Minister Julia Gillard’s governing Labor Party is under pressure before elections due next year. “The Australian dollar is very expensive from whichever metrics you look at,” Dagmar Dvorak, a director of fixed-income and currencies in London at Baring Asset Management, which manages $50 billion, said in an interview on Sept. 20. “When a currency overvaluation is that extreme, you have to question what could be a trigger that stops it. For the Aussie, it’s the economic slowdown in China and falling commodity prices. The currency looks vulnerable.
  • China ‘Strongly’ Opposes Japan Landing on Disputed Islands. China “strongly” opposes the landing of Japanese citizens on disputed islands, the Foreign Ministry said. Japan’s move “constitutes a severe violation of China’s territorial sovereignty” and Japan “must immediately stop all activities that infringe upon China’s sovereignty,” spokesman Hong Lei said in a brief statement late yesterday on the ministry’s website. Japanese nationals visited the islands Sept. 21 with the excuse of preventing a landing by Taiwanese activists, he said. China Central Television described the Japanese group as security personnel. 
  • China Beige Book Shows Optimism Drops as Job Cuts Rise. China’s manufacturers and retailers are less optimistic about sales than they were three months ago and more companies are cutting jobs, according to a survey modeled on the U.S. Federal Reserve’s Beige Book. The China Beige Book, through interviews of more than 2,000 company executives and bankers from Aug. 9 to Sept. 3, found limits to monetary easing after interest-rate cuts in June and July, with banks loosening credit while fewer companies are borrowing, according to a summary from CBB International LLC, the New York-based researcher that conducted the survey. “The dramatic and unexpected worsening of the European crisis and slowing of America’s economy brought China’s export order growth to a near-standstill,” said Craig Charney, research director for the China Beige Book.
  • China Stocks Drop to 2009 Low on Concern Slowdown Will Persist. China’s stocks fell, dragging down the benchmark index to the lowest level since January 2009, after a central bank adviser said the economic slowdown may extend into next year. The economic slowdown may persist into 2013 amid a lack of funding for approved infrastructure projects, according to Song Guoqing, an academic adviser to the People’s Bank of China, while a survey showed China’s manufacturers and retailers are less optimistic about sales than they were three months ago. Anhui Conch Cement Co. (600585) and Sany Heavy Industry Co. led declines among construction-related stocks. Foshan Electrical and Lighting Co. dropped to the lowest in almost a month after saying a manager was fined for insider trading. “There was no positive news such as government stimulus over the weekend so investors anticipate the current slowdown in the economy hasn’t stopped,” said Wu Kan, Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “There’s still some room for the market to drop.” The Shanghai Composite Index (SHCOMP) slid 0.7 percent to 2,012.36 as of 10:13 a.m. local time. It plunged 4.6 percent last week after a report on manufacturing signaled a contraction and escalating tensions with Japan threatened trade. The Shanghai index has fallen 8.5 percent this year on concern the government isn’t loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy.
  • Rebels Move Command to Syria as Activists Say Military Kills 180. The Free Syrian Army moved its command center from neighboring Turkey into a part of Syria that the rebel fighters described as “liberated,” while human- rights activists said President Bashar al-Assad’s forces killed 180 people yesterday in intensified shelling and airstrikes. Troops clashed with rebels near the town of Nasib along the border with Jordan, the Associated Press reported. Jordan’s border guards arrested militants yesterday after an exchange of gunfire, the state-run Jordanian news agency Petra reported. More than 26,000 people have died since the conflict between Assad’s opponents and the military began in March 2011, the U.K.-based Syrian Observatory for Human Rights said. 
  • Hedge Funds Cut Bets as Prices Drop Most Since June: Commodities. Hedge funds cut bullish commodity bets for the first time this month as weaker manufacturing from China and Europe eclipsed central banks’ efforts to boost growth, driving down prices the most since June. Money managers decreased their net-long positions across 18 U.S. futures and options by 1.7 percent to 1.307 million contracts in the week ended Sept. 18, halting two weeks of gains that had sent holdings to a 16-month high, U.S. Commodity Futures Trading Commission data show. The Standard & Poor’s GSCI Spot Index (MXWO) of 24 raw materials dropped 4.4 percent last week, the first retreat since the end of July.
  • Senate Moves to Bar U.S. Airlines From EU Carbon Curbs. The U.S. Senate passed a measure that would effectively shield U.S. airlines from a European Union program designed to curtail aviation emissions. The bill, supported by the airlines, was approved early today before lawmakers adjourned to campaign for the Nov. 6 election. Under the measure, which must be reconciled with similar legislation passed by the House last year, U.S carriers would be barred from participating in the EU emissions-trading system for carbon credits. The 27-nation EU decided in 2008 to include flights to and from Europe within its greenhouse-gas-reduction system from 2012 after airline emissions in the region doubled over two decades. The expansion of the cap-and-trade program triggered opposition from countries including the U.S., China and Russia.
  • Redbox-Verizon Streaming to Challenge Netflix(NFLX) by Year-End. Coinstar Inc. (CSTR)’s Redbox and Verizon Communications Inc. (VZ), providing details of their challenge to Netflix Inc. (NFLX), will offer subscription streaming, movie sales and rentals by Christmas, along with DVDs from the local kiosk
Wall Street Journal:
  • Japan Leader Warns China on Islands Dispute. Japan's prime minister warned China that its inflammatory reaction to a territorial dispute—from violent protests to apparent informal trade sanctions—could further weaken China's already-fragile economy by scaring away foreign investors. The comments showed the risks that the diplomatic standoff could broaden into a damaging commercial tit-for-tat between the world's second- and third-largest economies. "China should be developing through the various foreign investments it receives," Yoshihiko Noda told The Wall Street Journal following a tense week filled with news of Japanese factories torched and cars overturned, and Chinese patrol boats hovering in and around territorial waters controlled by Japan.
  • Pension Crisis Looms Despite Cuts. Almost Every State Trims Public-Employee Benefits but $900 Billion Retirement Funding Gap Remains. 
  • Fed's Tarullo Stays in Touch With Bankers. Bankers have been spending a lot of time bending Daniel Tarullo's ear. The top banking regulator at the Federal Reserve met in person or talked on the phone more than 60 times during one recent year with top U.S. bank executives. That is five times more often than bankers spoke with Fed Chairman Ben Bernanke. Even U.S. Treasury Secretary Timothy Geithner met face to face with top bank executives less frequently during his tumultuous first year in office, when the financial crisis was raging.
Business Insider: 
Zero Hedge:
  • Stocks Tumble Whopping 20% If Lawmakers Flub 'Fiscal Cliff'. According to new research from Citi, if lawmakers can’t stop their squabbling over the "fiscal cliff" and get their acts together – the sell-off in the stock market could be horrendous. 
  • France's Hollande hits new low in popularity poll. French President Francois Hollande's approval ratings have tumbled to their lowest level since he first took office in May, a new poll showed on Sunday, as France's grinding economic stagnation and record unemployment show little sign of easing. According to the Ifop poll for Sunday newspaper JDD, Hollande now has a 43 percent positive rating, down from 54 percent in August - one of the sharpest drops in over a decade. 
  • China Will Not Ease Grip on Property Market. China plans to stick to its tight property sector policies and a nationwide rebound in home prices remains unlikely, a senior official at the housing ministry said in remarks published by state media on Sunday.   
  • China's Corruption Crackdown Takes Shine Off Luxury Boom. Luxury brands banking on a China rebound to boost sales may be in for an unpleasant surprise: weak demand in the world's second largest luxury market may last longer than the economic slowdown as Beijing cracks down on conspicuous consumption.
New York Times:
  • Medicare Bills Rise as Records Turn Electronic. When the federal government began providing billions of dollars in incentives to push hospitals and physicians to use electronic medical and billing records, the goal was not only to improve efficiency and patient safety, but also to reduce health care costs.
  • Iran Says Nuclear Equipment Was Sabotaged. Iran on Saturday accused the German technology company Siemens of planting tiny explosives inside equipment Iran bought for its disputed nuclear program, a charge Siemens denied.

  • Facebook(FB) raises fears with ad tracking. Facebook is working with a controversial data company called Datalogix that can track whether people who see ads on the social networking site end up buying those products in stores. Amid growing pressure for the social networking site to prove the value of its advertising, Facebook is gradually wading into new techniques for tracking and using data about users that raise concerns among privacy advocates.
Atlanta Journal Constitution:
Rasmussen Reports:

  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows President Obama and Mitt Romney each attracting support from 46% of voters nationwide. Three percent (3%) prefer some other candidate, and five percent (5%) are undecided.
  • From Nigeria to Athens, Muslim protests rumble on. Muslims protested in Nigeria, Iran, Greece and Turkey on Sunday to show anti-Western anger against a film and cartoons insulting Islam had not dissipated. As delegates from around the world gathered in New York for a U.N. General Assembly where the clash between free speech and blasphemy is bound to be raised, U.S. flags were once again burning in parts of the Muslim world. Iranian students chanted "Death to America" and "Death to Israel" outside the French embassy in Tehran in protest at the decision by satirical magazine Charlie Hebdo to publish cartoons of the Prophet Mohammad, days after widespread protests - some deadly - against a film made in the United States. Shi'ite Muslims in the Nigerian town of Katsina burned U.S., French and Israeli flags and a religious leader called for protests to continue until the makers of the film and cartoons are punished. In Pakistan, where fifteen people were killed in protests on Friday, a government minister has offered $100,000 to anyone who kills the maker of the short, amateurish video "The Innocence of Muslims". Calls have increased for a U.N. measure outlawing insults to Islam and blasphemy in general. In Athens, some protesters hurled bottles of water, stones and shoes at police who responded with teargas. Calm returned when demonstrators interrupted the protest to pray. Hours later, dozens of Muslim inmates in Athens' main prison set mattresses and bed sheets on fire in protest. Firemen with four engines battled the flames in some cells but police and government officials said late at night the situation was under control. 
  • France needs 37 bln euros in savings by 2013 - finmin. France needs a total of 37 billion euros in budget savings to reach its deficit target of 3 percent of GDP next year, including some 7 billion euros of taxes passed this year, Finance Minister Pierre Moscovici said on Sunday.
International Monetary Fund: 
Financial Times:
  • Hedge funds play long game for profits. Profit-starved hedge fund managers, best known as masters of the financial universe, are turning to an unlikely place for their next windfall: the unglamorous world of long-only asset ­management. Amid volatile markets, constraints on the capacity of their main trading strategies and an ever more conservative investor base, some of the industry’s biggest names are focusing on raising money for pared-back versions of their main portfolios, eschewing leverage and short selling in pursuit of assets and stability.
  •  ECB in 'panic', say former chief economist Juergen Stark. The European Central Bank is in "panic" over the eurozone crisis and acting outside its mandate with its new bond-buying plans, the bank's former chief economist said in comments published Saturday. Mr Stark said the ECB's new plan to buy up unlimited amounts of eurozone states' bonds, announced on September 6, on the secondary market to bring down their borrowing rates was misguided. "Together with other central banks, the ECB is flooding the market, posing the question not only about how the ECB will get its money back, but also how the excess liquidity created can be absorbed globally," Mr Stark said. 
  • World on track for record food prices 'within a year'. Brace yourself for some painful "agflation". That is the shorthand for agricultural commodity inflation, otherwise known as rising food prices.
  • New Greek Haircut Would Cost German Taxpayers at Least 8 Billion Euros. The calculation is based on another potential 50% debt reduction for Greece, citing Carsten Schneider, the budget spokesman for the Social Democratic Party, the biggest opposition group in the German parliament.
Der Spiegel:
  • Germany's ex-Finance Minister Peer Steinbrueck, who might challenge Chancellor Angela Merkel in the next federal election, said banks should create a rescue fund financed by their own money. The fund could help to cushion the impact for taxpayers if a bank is insolvent.
    The fund could amount to 200 billion euros. Steinbrueck plans to separate investment banking from credit and saving banking as risk and liability don't go together.
  • European authorities want to halt planned mergers among Spanish lenders to prevent weakening stronger banks set to be buyers in the transactions.
El Mundo:
  • The European Commission and ECB are asking Spain to stop linking pensions to inflation, citing people in the government.
Yonhap News Agency:
  • Trade Between North Korea, Russia Soars 50% in First Half. According to the report from Seoul's state-run Korea Trade-Investment Promotion Agency (KOTRA), the amount of bilateral trade between the two countries in the January-June period came to US$38.8 million, up 49 percent from the same period last year.
Australian Financial Review:
  • BRIC Man Urges Caution on $A, China. Jim O’Neill, the man famous for ­coining the term BRIC, believes the Australian dollar is overvalued at above parity with the US dollar and warns investors to adjust their thinking on China’s contribution to the global economy in the next ­decade. The London-based chairman of Goldman Sachs Asset Management, who earlier this month downgraded his 2012 forecasts for growth in China and India, arrives in Australia on Tuesday for the first time in two years and is bracing for a big change in the attitude of local investors. “Back then there was a sort of mood that not only were you guys the lucky country, but you were the lucky country to the power of 10 and nothing could go wrong. I suspect I am coming this time where a rapidly shifting mood is taking place,’’ he told The Australian Financial Review. Mr O’Neill, who coined the acronym that stands for the four rapidly developing nations of Brazil, Russia, India and China, is urging clients to get their heads around a “new” China. He believes growth rates of about 7 per cent, as outlined in Beijing’s five-year plan, will be the norm, as opposed to the halcyon days of “old” China when growth was regularly more than 10 per cent.
China Business News: 
  • Home Prices in Major Chinese Cities May Rebound. Avg. inventory-sales ratio for 10 major Chinese cities including Beijing and Shanghai fell to 9 in August, indicating greater odds of a rebound in home prices.
  • China to Use Drones to Monitor Disputed Islands.. China will use unmanned aerial vehicles to strengthen surveillance of the disputed islands, citing Yu Qingsong, an official at the State Oceanic Administration.
  • Pakistani Federal Minister for Railways Ghulam Ahmed Bilour has offered a bounty of $100,000 to anyone who kills the maker of an anti-Islam film produced in the U.S., citing the minister.
Weekend Recommendations
  • Made positive comments on (BGFV) and (INTU).
  • Made negative comments on (FB).
Night Trading
  • Asian indices are -.75% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 133.50 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 111.0 +1.0 basis point.
  • FTSE-100 futures -1.0%.
  • S&P 500 futures -.09%.
  • NASDAQ 100 futures +.02%.
Morning Preview Links

Earnings of Note
  • (LEN)/.27
  • (PAYX)/.41
  • (RHT)/.29
Economic Releases
10:30 am EST

  • The Dallas Fed Manufacturing Activity Index for September is estimated to rise to -1.4 versus -1.6 in August.
Upcoming Splits
  • (MDVN) 2-for-1
Other Potential Market Movers
  • The Fed's Williams speaking, Chicago Fed National Activity Index for August, European Parliament LIBOR hearing and the Germany Business Expectations Index could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity 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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