Thursday, September 20, 2012

Thursday Watch

Evening Headlines
  •  Euro Remains Lower Before Region’s PMI Data. The euro remained lower against the yen before data today forecast to show European services and manufacturing contracted, adding to evidence that the region’s debt crisis is sapping growth. “We think at these levels, euro is a sell” because of the state of the European economy, said Joseph Capurso, a strategist at Commonwealth Bank of Australia (CBA) in Sydney. “The lessons of the last decade have shown that the Bank of Japan’s asset purchases are simply not enough to change the trajectory of the Japanese economy or the currency.” “The economy is going to get worse before it gets better in Europe,” Commonwealth Bank’s Capurso said.
  • Japan’s Exports Slide a Third Month on Weakness in Global Demand. Japan’s exports fell 5.8 percent in August from a year earlier, the third straight decline, as a territorial dispute with China and weak global demand cloud the outlook for shipments. Imports slid 5.4 percent, leaving a trade deficit of 754.1 billion yen ($9.6 billion), the Finance Ministry said in Tokyo today. Median forecasts in Bloomberg News surveys of analysts were for a 7.5 percent export decline and an 829.3 billion yen trade gap. Tensions over islands in the East China Sea are a risk for bilateral trade in goods from rice to tractors that has tripled in the past decade to more than $340 billion. Strength in the yen will weigh on exports even after the Bank of Japan (8301)’s surprise decision yesterday to expand monetary easing, with the currency up about 7 percent against the dollar since mid-March. “We have to price in further developments in territorial issues, which could damp export numbers,” Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official, said before the report.
  • Sword-Bearing Islamist Signals Peril for Arab Spring Democracies. Days after publishing an article on Salafi Muslims displacing moderate clerics from hundreds of Tunisia’s mosques, Walid Mejri found a sword against his neck. Stopped on the street by religious extremists in Ghardimaou, 180 kilometers (112 miles) north of Tunis, he was accused of “apostasy and atheism, fighting against Islam and sowing discord among them,” Mejri, a writer and journalist recalled in an interview. “One of them lifted a sword to my face, intending to kill me,” said Mejri, who’d recently written the “Battle of the Mosques” in the Assarih newspaper, in which he chronicled the installation by militants of favored clerics. “A soldier stepped in and saved me.” The incident is part of a simmering battle between ultraconservative Islamists and moderate new governments in Tunisia, Libya and Egypt.
  • Turkey Rocked by Wave of Attacks as Syria Fallout Emboldens PKK. Turkey’s war with Kurdish militants has entered its bloodiest phase in more than a decade, with attacks on soldiers and police almost every day and a breakdown in ties with neighbors that had helped to contain the threat. On Sept. 18, a convoy of conscripts in the largely Kurdish southeast was ambushed with rocket launchers, leaving 10 dead. Two days earlier, eight police were killed when a mine blew up their minibus, and the day before four soldiers died in a similar blast. The army has killed 500 members of the Kurdistan Workers’ Party or PKK since February, Prime Minister Recep Tayyip Erdogan said this week. Turkey’s fraying ties with Syria, Iran and Iraq, neighbors with their own Kurdish minorities that have collaborated against the PKK, offers new openings for the group. Erdogan, who had vowed to end the Kurdish conflict, now risks presiding over an escalation that could undermine the $800 billion economy and encourage a backlash by Turkish nationalists.
  • China Expresses ‘Regret’ for Attack on U.S. Ambassador’s Car. China expressed “regret” over an incident in which demonstrators in Beijing caused minor damage to the official vehicle of U.S. Ambassador Gary Locke on Sept. 18, a State Department spokeswoman said. Locke was unharmed and Chinese police stationed outside of the embassy cleared the demonstrators from the scene after they surrounded the vehicle, State Department spokeswoman Victoria Nuland said at a press briefing in Washington yesterday.
  • Bush-Era Tax Cuts May Expire as Step to Budget Deal, Tyson Says. Bush-era tax cuts may be allowed to expire at the end of the year as a prelude to an agreement on the budget, according to Laura Tyson, an economics professor who advises President Barack Obama on the labor market. An expiration “is the major scenario right now,” Tyson, a professor at the University of California-Berkeley and a member of Obama’s jobs advisory board, said in an interview today with Bloomberg News editors and reporters in Washington. Tyson played down the impact of such a step on the economy, saying the tax cuts could be reinstated later and made retroactive to the start of 2013. The expiration though might help “force” through a deal on the budget, she said.
  • Fed Stimulus Fading as Forecasters Say Best Is Over: Commodities. The biggest advances in commodities this year may be over because of mounting concern that policy makers aren’t doing enough to bolster economic growth at a time when producers are expanding supply. Commodity assets under management reached $406 billion at the end of July, from $399 billion at the start of the year, based on Barclays’ estimates of money tied to exchange-traded products, medium-term notes and indexes. Assets reached a record $451 billion in April 2011. Open interest, or contracts outstanding, across the members of the S&P GSCI rose 16 percent this year, data compiled by Bloomberg show. Morgan Stanley is forecasting supply surpluses in aluminum, nickel, zinc and thermal coal in 2013 and Barclays expects a glut in lead for at least a third consecutive year. The rally in aluminum and zinc makes production cuts in China less likely, prolonging excessive production, Macquarie Group Ltd. said in a report Sept. 17.
  • Adobe(ADBE) Forecast Misses Amid Move to Subscriptions. Adobe Systems Inc. forecast fiscal fourth-quarter sales and profit that missed analysts’ estimates as the company offered a lower-priced subscription version of its flagship Creative Suite software.
Wall Street Journal:
  • Fed's Fisher: Fed Blundered in Opting for New Bond Buying. A veteran central banker attacked Wednesday the Federal Reserve's decision to provide new monetary policy stimulus, while blasting Congress for its own set of failures. In a speech in New York, Federal Reserve Bank of Dallas President Richard Fisher argued, as he has in a series of media interviews over recent days, that the Fed's decision to launch opened-ended mortgage bond buying, in a bid to speed up growth, was a mistake. Mr. Fisher doesn't have a voting role on the monetary policy setting Federal Open Market Committee. He has for some time been a very vocal and persistent opponent of giving the economy additional stimulus, believing the Fed has already done enough. "Why would the Fed provision to shovel billions in additional liquidity into the economy's boiler when so much is presently lying fallow?" Fisher asked in a speech delivered before an audience at the Harvard Club. "I did not argue in favor of additional monetary accommodation during our meetings last week," the official said, adding "I have repeatedly made it clear" the Fed is venturing into unknown territory with its bond buying and other stimulus efforts.
  • Bank of America(BAC) Ramps Up Job Cuts.
  • Incomes Fell or Stagnated in Most States Last Year. 
  • Derivatives Rule Changes in Europe to Roil Bourses. Stock exchanges are facing a shake-up in Europe over the next few years, as continental lawmakers establish new rules to boost competition in the profitable derivatives-trading sector. Currently, European derivatives trading is led by Deutsche Börse AG and NYSE Euronext. The sector contributes more than 36% of Deutsche Börse's revenue and about 25% of NYSE Euronext's, but their dominance could be threatened by proposed European Union legislation.
  • Bed Bath & Beyond(BBBY) Net Falls 2.2% in Takeover-Jumbled Quarter. Bed Bath & Beyond Inc.'s (BBBY) fiscal second-quarter income fell 2.2% in results muddled by its first acquisitions in nearly half a decade, which hoisted sales but sank the bottom line. Shares dropped 4.4% to $65.80 after hours as the company posted its first decline in quarterly profit in more than three years.
  • Regulators Try to Beat Clock in LIBOR Probe.
  • High-Speed Trading in the Spotlight. Former Trader to Testify on Hill About Techniques He Says Put Ordinary Investors at a Disadvantage.
  • Debt Investors Aren't Just Waiting For the Next Downgrades in Europe.
  • Cartoons Prompt French Closures. France said it would close its embassies as well as French schools in 20 countries on Friday, amid fears of backlash after a magazine published a series of caricatures of the Prophet Muhammad.
  • Welfare Reform as We Knew It. Inside the Obama work waiver: It's worse than Romney says. 
  Fox News:
  • Al Qaeda, ex-Gitmo detainee involved in consulate attack, intelligence sources say. Intelligence sources tell Fox News they are convinced the deadly attack on the U.S. Consulate in Benghazi, Libya, was directly tied to Al Qaeda -- with a former Guantanamo detainee involved. That revelation comes on the same day a top Obama administration official called last week's deadly assault a "terrorist attack" -- the first time the attack has been described that way by the administration after claims it had been a "spontaneous" act. "Yes, they were killed in the course of a terrorist attack on our embassy," Matt Olsen, director of the National Counterterrorism Center, said during a Senate hearing Wednesday. Olsen echoed administration colleagues in saying U.S. officials have no specific intelligence about "significant advanced planning or coordination" for the attack. However, his statement goes beyond White House Press Secretary Jay Carney and Susan Rice, the U.S. ambassador to the United Nations, saying the Sept. 11 attack on the consulate was spontaneous. He is the first top administration official to call the strike an act of terrorism.
  • Railroads Decline on Norfolk Southern(NSC) Warning. Railroad stocks fell after hours following an announcement by Norfolk Southern (NSC) that it is lowering its earnings outlook because of weak coal and merchandise shipments and lower revenue from fuel surcharges. NSC reduced its expectations for Q3 EPS to $1.18-$1.25, well below analysts’ expectations for $1.64. “Decreased coal and merchandise shipments, offset in part by growth in intermodal volumes, are together expected to reduce revenues by approximately $120 million compared with third quarter 2011.” Earlier on Wednesday, UBS analyst Kevin Crissey cut his ratings on railroad companies on continuing weak macro factors, particularly in coal. “Rails have some good commodity trends but were hit by a massive drop in coal volumes as natural gas prices plunged and now face a weak harvest and soft met coal trends.” He cut Union Pacific (UNP), CSX (CSX) and NSC to Neutral and Kansas City Southern (KSU) to Sell. NSC was off 5.4% in after-hours trading.
  • Bernanke, lawmakers talk fiscal cliff scenarios. Federal Reserve Board Chairman Ben Bernanke warned members of the Senate Finance Committee that the so-called fiscal cliff could damage the U.S. economy, Senators who attended the closed-door meeting said Wednesday. Higher taxes and deep cuts in federal spending are slated to take effect Jan. 1 unless Democrats and Republicans agree to change the current law. Bernanke said the fiscal cliff "would be a severe, negative shock to the economy," said Sen. Chuck Grassley, a Republican from Iowa, in a statement.
Zero Hedge:
Business Insider:
Washington Post:
  • HUD paid over $1B in false claims. The U.S. government may have paid hundreds of millions of dollars in mortgage aid to struggling homeowners who did not qualify for that help, a new report found.
The Blaze:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows Mitt Romney attracting support from 47% of voters nationwide, while President Obama earns 46% of the vote. Three percent (3%) prefer some other candidate, and four percent (4%) are undecided.
  • Japan manuf sentiment cools as China slows -Reuters Tankan. Japanese manufacturers' sentiment hit its lowest since February and is expected to stay negative in the coming months, a Reuters poll showed, with the global slowdown and friction with China clouding the outlook for the export-reliant economy.
  • Nike(NKE) approves $8 bln share repurchase program.
  • Google(GOOG) seen taking Facebook's(FB) crown in U.S. display ads. Google Inc is set to become the biggest earner in U.S. display ads this year, taking the No. 1 rank away from Facebook Inc and cementing its dominant presence in online advertising.
  • New picture emerging of 'terrorist attack' in Benghazi. The U.S. Consulate in Benghazi apparently was not troubled at first by a smattering of protesters on the anniversary of the Sept. 11 attacks last week, but that changed abruptly at 9:35 p.m. when it sent a message that the building was under heavy assault, U.S. government sources said. New information emerging a week after attackers launched rocket-propelled grenades and mortars and killed four Americans, including U.S. Ambassador to Libya Christopher Stevens, suggests that the protests at the outset were so small and unthreatening as to attract little notice. While many questions remain, the latest accounts differ from the initial information provided by the Obama administration, which had suggested that protests in front of the consulate over an anti-Islamic film had played a major role in precipitating the subsequent violent attack. A senior U.S. counterterrorism official on Wednesday branded the assault in which the four Americans died a "terrorist attack."
  • Ads criticizing "Jihad" bound for New York City subway stations. As Muslim countries reverberate with fierce protests over a film mocking the Prophet Mohammad, an ad equating Islamic jihad with savagery is due to appear next week in 10 New York City subway stations despite transit officials' efforts to block it. The city's Metropolitan Transportation Authority had refused the ads, citing a policy against demeaning language. The American Freedom Defense Initiative, which is behind the ad campaign, then sued and won a favorable ruling from a U.S. judge in Manhattan. According to court documents, the ad reads: "In any war between the civilized man and the savage, support the civilized man. Support Israel/Defeat Jihad."
China Daily:
  • China Should Be Prepared for Conflict, Naval Researcher Writes. China should make all possible preparations in regard to its territorial dispute with Japan over islands in the East China Sea, including for military conflict and "even war," Wang Xiaoxuan, director of the Naval Research Institute of the People's Liberation Army, writes in the China Daily. The Japanese government's stance on the islands has come amid "renewed militarism" in Japan, Wang said. China is a "peace-loving" nation and the Chinese people are opposed to the use of war to resolve disputes, Wang wrote. However, that doesn't mean they lack "the courage to stand up for ourselves," Wang said. Japan should not mistake China's "patience and tolerance" as an opportunity to press for more "concessions," Wang wrote. The U.S. is "large responsible" for the island dispute as it has favored Japan and allowed Japanese officials to claim the security treaty between the nations is applicable to the islands, Wang said. China will not back down "an inch" on issues related to its sovereignty, Wang wrote.
  • U.S. Failed in Role to Reform Japan. The U.S. failed in its role to reform Japan into a "normal" country, citing Zhong Sheng. The U.S. needs to be "wise" on issues concerning China's core interests in order to establish a new kind of relationship with China, the commentary said.
China Securities Journal:
  • Dual-Listed China Companies Have Internal Control Flaw. 49, or 73.1% of, Chinese dual-listed cos. have internal control problems, citing a report from the Ministry of Finance and China Securities Regulatory Commission.
Evening Recommendations 
  •  None of note
Night Trading
  • Asian equity indices are -1.50% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 131.0 new series.
  • Asia Pacific Sovereign CDS Index 112.5 new series.
  • FTSE-100 futures -.55%.
  • S&P 500 futures -.28%.
  • NASDAQ 100 futures -.17%.
Morning Preview Links

Earnings of Note
  • (IHS)/1.00
  • (CAG)/.35
  • (KMX)/.51
  • (JEF)/.26
  • (ORCL)/.53
  • (TIBX)/.27
  • (CTAS)/.58
Economic Releases
8:30 am EST

  • Initial Jobless Claims are estimated to fall to 375K versus 382K the prior week.
  • Continuing Claims are estimated to rise to 3300K versus 3283K prior.
8:58 am EST
  • Preliminary Markit US PMI for September is estimated at 51.5.
10:00 am EST
  • Philly Fed for September is estimated to rise to -4.5 versus -7.1 in August.
  • Leading Indicators for August are estimated to fall -.1% versus a +.4% gain in July.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Bullard speaking, Fed's Pianalto speaking, Fed's Kocherlakota speaking, Fed's Lockhart speaking, Fed's Rosengren speaking, Eurozone PMI data, Eurozone Consumer Confidence, Spain's 10Y bond auction, ECB's Draghi speaking, Rajoy/Monti meeting, weekly Bloomberg Consumer Comfort Index, Bloomberg Economic Expectations Index for September, CSFB Smid-Cap Conference and the (MA) investment community meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and financial 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 day.

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