Tuesday, September 18, 2012

Tuesday Watch

Evening Headlin
  • Europe Banks Fail to Cut as Draghi Loans Defer Deleverage. European banks pledged last year to cut more than $1.2 trillion of assets to help them weather the sovereign-debt crisis. Since then they’ve grown only fatter. Lenders in the euro area increased assets by 7 percent to 34.4 trillion euros ($45 trillion) in the year ended July 31, according to data compiled by the European Central Bank. BNP Paribas SA (BNP), Banco Santander (SAN) SA, and UniCredit (UCG) SpA, the biggest banks in France, Spain and Italy, all expanded their balance sheets in the 12 months through the end of June. They have Mario Draghi to thank. The ECB president’s decision nine months ago to provide more than 1 trillion euros of three-year loans to banks eased the pressure to sell assets at depressed prices. The infusion, designed to encourage firms to lend, succeeded in averting a short-term credit crunch by reducing their reliance on markets for funding. It also may be making European lenders dependent on more central-bank aid. “Deleveraging isn’t taking place, especially in Spain and Italy,” said Simon Maughan, a bank analyst at Olivetree Securities Ltd. in London. “The fact that we haven’t got on with it, or very slowly, suggests that when the time comes we’ll need another ECB injection to roll over the first one, just to keep the balance sheets of Italian banks in business.
  • ECB’s Coene Says Widening Spreads May Force Spain to Ask for Aid. European Central Bank Governing Council member Luc Coene said rising bond yields may force Spain into asking for aid and submitting to the ECB’s conditions for granting it. If “markets see that Spain will not” ask for assistance, “then it will not last long before spreads will rise again, and then Spain will be somewhat forced to come back on its decision and submit to the conditionality program,” Coene said at a panel discussion in London yesterday. Coene stressed that if Spain does not ask for assistance, then “we will not buy its bonds.” The ECB would stop buying immediately if countries reneged on their agreements with the bank, he said. Coene said many officials in the ECB were reluctant to engage in bond purchases at all because “it enables profligate governments” to keep up spending.
  • China’s Stocks Retreat to Two-Week Low; Automakers Decline. Chinese stocks fell to the lowest level in almost two weeks after the central bank said it’s placing more emphasis on price stability, boosting concern it will delay easing monetary policy even as the economy slows. Guangzhou Automobile Group Co., which has ventures with Japanese automakers including Toyota Motor Corp., slid for a second day as a Chinese industry association said some dealerships that sell Japanese cars have shut after some outlets were attacked amid a territorial dispute. Zhongjin Gold Corp. and Zijin Mining Group Co. fell at least 2.1 percent, tracking declines in the price of the precious metal, on concern that U.S. stimulus may not be enough to jumpstart the economy. “With no new stimulus from the central bank, investors are negative and stocks keep going down,” Zhang Gang, a strategist at Central China Securities Holdings Co., said by phone in Shanghai today. “Historically, whenever there’s unrest nearby, stocks will decline because of the uncertainty.” The Shanghai Composite Index (SHCOMP) slid 0.7 percent to 2,063.14 as of 9:40 a.m. local time, on course for the lowest close since Sept. 6, while the CSI 300 Index (SHSZ300) declined 0.7 percent to 2,242.31.
  • China Home Prices Rise in Fewer Cities. Prices climbed in 35 of the 70 cities the government tracks from a month earlier, according to data released by the statistics bureau today. That compared with 49 cities in July, the most in 14 months. The eastern city of Wuxi and the central city of Zunyi led the month-on-month gains, while among major cities prices advanced in Beijing.

Wall Street Journal:

  • Libyans Struggle to Rein In Militants. The investigation into last week's killing of four American diplomats in eastern Libya is raising pressure on a shaky new Libyan government to quash pockets of violent Islamists emerging after the country's revolution and now threatening its struggle for stability. Late Monday, one of the country's top security officials met with two leaders of the militant Islamist group Ansar al Sharia. Ansar has become a primary target in the search for those responsible for last Tuesday's deadly attack on the U.S. Consulate here.
  • Anti-U.S. Protests Flare Again. Demonstrations related to an anti-Islam video showed no signs of ebbing Monday with protesters doing battle with police in Indonesia and Afghanistan nearly a week after angry crowds swarmed the U.S. Embassy in Cairo and killed the U.S. ambassador to Libya. Indonesian police fired water cannon to disperse a crowd of more than 500 protesters outside the U.S. Embassy in Jakarta, in the most violent protests to hit Indonesia since the emergence of the video, made in the U.S., which mocks the Prophet Muhammad.
  • Sizing Up Manager David Einhorn's Sway. A Wall Street Journal analysis shows just how much influence hedge-fund manager David Einhorn's words have on investors.
  • China Tensions on the Rise. Obama Seeks Trade Sanctions While Beijing Faces Off With Japan Over Islands. Political pressures in both the U.S. and China are straining ties between the two superpowers. President Barack Obama, under attack by Republican nominee Mitt Romney for being soft on China, said Monday he is asking the World Trade Organization to rule that Beijing is illegally subsidizing autos and auto parts. Mr. Romney, who has been running ads in Ohio criticizing the president on trade policies toward China, called the move "too little, too late."
  • Syrian Jets Fire Into Lebanese Territory. Syrian warplanes fired missiles into Lebanese territory on Monday, heightening the potential for Syria's neighbors to be pulled into its 18-month-old conflict. Such spillover has rocked the delicate political balance in Lebanon, where rival sectarian political forces have thrown their support behind opposing sides in Syria's civil war. "As conditions deteriorate, we see dangerous implications for Syria's neighbors," Robert Serry, the United Nations special coordinator for the Middle East peace process, told the U.N. Security Council on Monday.
  • Dorothy Rabinowitz: The Fourth Estate, Still Thrilling to the Spirit of '08. The spectacle of reporters over the past week hounding Mitt Romney for speaking his mind does not come as a surprise. After an astounding week of ardent media focus on Mitt Romney's criticism of the initial U.S. response to mob assaults on American diplomatic outposts, the furor is dying down—but it's not over by any means. Nor was the message that the furor sent a negligible one. Condemnations of Mr. Romney had come thick and fast. He had been "crass and tone deaf," in the view of MSNBC's Chuck Todd. He had committed a "slander" against the president, according to Jeffrey Goldberg of The Atlantic. Journalists in pursuit of this story—to the exclusion of virtually all else going on—were quick to point out that denunciations of Mr. Romney were by no means limited to Democrats, that criticism came from Republican commentators too. This fact was hardly surprising—the sanctimony of the virtuous knows no political bounds. The spectacle of those hordes of journalists in single-minded pursuit of the Romney story day after day—days that saw the killing of four Americans, embassies burned and trashed, mobs of the faithful running amok—shouldn't have been surprising either. It's the most dramatic indicator yet that in this election the pack journalism of four years ago is alive, and well, and in full cry again.


Business Insider:

Zero Hedge:


  • Japanese hunker down in China as protesters regather. Hundreds of Japanese businesses and the country's embassy suspended services in China on Tuesday, as anti-Japan protests threatened to reignite and drag a territorial dispute between Asia's two biggest economies deeper into crisis. Two people thought to be Japanese nationals landed on one of the islands at the centre of the dispute, police in Okinawa said, raising fears the move could lead to direct clashes.
  • AMD(AMD) loses respected CFO, shares plunge. Advanced Micro Devices Inc said Chief Financial Officer Thomas Seifert was leaving the struggling personal computer chipmaker to pursue other opportunities, sending its shares down almost 12 percent. After filling in as AMD's temporary CEO through August last year, Seifert now wants to find a permanent CEO position, a source close to the company said. Seifert's departure is concerning because - even though he had only been CFO for three years - he had more experience at AMD than other top executives, said Evercore Partners analyst Patrick Wang.
  • Toyota to halt some China plants as demonstrations spread -Kyodo.
  • Putin watches war games, tells soldiers to boost Russian defence. President Vladimir Putin oversaw Russian military exercises on Monday and warned soldiers that more conflicts around the world meant they had to "keep their powder dry" and improve Russia's defences. Speaking to soldiers at manoeuvres in the Caucasus Mountain region on the country's southern border, near where Russian troops invaded neighbouring Georgia in a five-day 2008 war, Putin said the use of military force was rising worldwide. "You are all educated people, you see what is happening in the world. You see unfortunately that the use of force is increasing in international affairs," said Putin, wearing a beige jacket, flanked by Defence Minister Anatoly Serdyukov and the Chief of General Staff Nikolai Makarov. "That all speaks to the fact that we should keep our powder dry and that Russia's defences must improve," he said from a wooden podium, his eyes fixed on soldiers in uniform.
  • Sony to close 2 of 7 China plants on Tues amid protests.
  • Australia downgrades iron ore revenue as China cools. Australia, the world's biggest exporter of iron ore, cut its revenue forecasts for the key steel making ingredient by a fifth on Tuesday, a fresh sign the country's mining industry is losing steam as a slowdown in top customer China drives down prices.
Financial Times:
  • US inflation fears rise after QE3. Market expectations for US inflation over the next 10 years rose as high as 2.73 per cent on Monday, based on the difference or the so-called “break-even rate” between nominal and inflation-protected Treasury debt. That represents the highest intraday break-even rate since May 2006 and near the all-time closing peak of 2.78 per cent from March 2005.
NHK World:
  • Chinese planning more anti-Japan rallies. Anti-Japan demonstrations are expected across China on Tuesday to coincide with the 81st anniversary of an incident that led to Japan's 1931 invasion of Manchuria. Messages have appeared online calling for rallies in at least 58 cities. Japanese-affiliated companies and Japanese schools plan to close for the day. On Monday, around 200 people gathered in front of the Japanese Embassy in Beijing. It was the 7th straight day of protest since Japan brought 3 of the Senkaku Islands in the East China Sea under state control. Police in Beijing posted a statement online saying that destroying property is not patriotic. They called on protestors to uphold law and order. In Qingdao and Guangzhou, police detained suspects accused of attacking a Japanese-affiliated supermarket and destroying Japanese cars.
Financial Review:
  • Shell Spells Out China Growth Fears. The Chinese economy could be in worse shape than official figures suggest, threatening demand for Australia’s resources at the same time as increasing international competition and rising costs spell trouble for this nation’s fledgling gas boom, says one of Royal Dutch Shell’s top global ­executives. Shell global downstream director Mark Williams said the energy giant was experiencing the equivalent of recession-level demand for key products such as diesel at the same time as China, one of the single largest markets, was posting official reports of strong growth. “The global economy seems weaker to me than the numbers indicate,” said Mr Williams, who sits on Shell’s global executive board. “I still expected more suction out of China than we’re getting. I’m just a bit uneasy with what we’re seeing in terms of fuel demand and chemical demand.” China’s power consumption growth slowed last month as its manufacturing sector, which accounts for more than half total electricity demand, experienced a significant slump in new orders. Bernstein’s Hong Kong-based energy analyst Neil Beveridge said China’s oil demand in August was down 0.4 per cent year on year, the third month of negative growth this year, while crude imports were the lowest in the last 22 months, and were down 12.5 per cent from a year earlier. “China’s economic and energy indicators in August continue to show little improvement from July, highlighting sustained weakness in the Chinese economy,” he said. “Following the weakest GDP growth since early 2009 – 7.6 per cent in the second quarter – some energy indicators in August showed a significant deceleration from a year ago.” The Chinese economy officially grew at 7.6 per cent in the year to the end of June but Shell’s Mr Williams said the accuracy of Chinese economic data was a cause for concern.


  • China is preparing economic sanctions against Japan and may ban exports of rare earths, if the Japanese government doesn't reverse its purchase of the Diaoyu Islands, citing a "well-informed mainland source." If Japanese Prime Minister Yoshihiko Noda speaks about the issue at the United Nations, it would be "the last straw," the person said.
  • Difficulties facing China's economy may continue for "a period of time" on European sovereign debt crisis and weak U.S. economy, according to a commentary written by Qi Zhongxi and Fan Xi. The economic problems are caused by sluggish external demand, domestic controls on real estate, increasing labor costs and long term overcapacity in industries.
Shanghai Daily:
  • China concerned over trade outlook in eurozone crisis. CHINA believes the eurozone can manage its debt crisis but is concerned about the outlook for bilateral trade in the rest of this year, senior officials said yesterday ahead of Premier Wen Jiabao's visit to Europe tomorrow. "Europe's economic situation may not show a substantial improvement and we can't be optimistic about the bilateral trade outlook," Vice Commerce Minister Zhong Shan told a news briefing in Beijing. Vice Finance Minister Zhu Guangyao said China is confident the European Union can address the debt crisis and China appreciates efforts taken to ease the problem. China's exports to Europe fell 12.7 percent from a year earlier in August, a third straight month of decline, while overall exports grew 2.7 percent.
Evening Recommendations
  • Rated (SPLK) Positive, target $48.

Night Trading

  • Asian equity indices are -.50% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 116.50 +4.0 basis points.
  • Asia Pacific Sovereign CDS Index 94.50 -1.0 basis point.
  • FTSE-100 futures -.27%.
  • S&P 500 futures +.09%.
  • NASDAQ 100 futures +.13%.
Morning Preview Links

Earnings of Note
  • (FDX)/1.40
  • (CBRL)/1.30
  • (CUB)/.75
  • (EP)/.24
Economic Releases
8:30 am EST
  • The 2Q Current Account Deficit is estimated at -$125.0B versus -$137.3B in 1Q.

9:00 am EST

  • Net Long-term TIC Flows for July are estimated to rise to $27.5 billion versus $9.3 billion in June.

10:00 am EST

  • The NAHB Housing Market Index for September is estimated to rise to 38.0 versus 37.0 in August.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The Fed's Lacker speaking, Fed's Dudley speaking, Fed's Evans speaking, weekly retail sales reports, BoJ rate decision, UK inflation data, German ZEW Economic Sentiment Index, (TYC) investor day and the (INTU) investor day 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 25% net long heading into the day.

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