Monday, October 15, 2012

Monday Watch

Weekend Headlines

  • EU Girds for Summit as Nobel’s Glow Fades on Crisis Response. European leaders, basking in praise for their rediscovered crisis-fighting skills and the award of a Nobel Peace Prize, meet this week as Greece seeks to justify renewed aid and Spain holds out on tapping a bailout. The European Union’s leaders convene for an Oct. 18-19 summit in Brussels after a weekend in which international finance chiefs expressed some optimism that a firewall is in place to contain the euro’s turmoil and urged further action to quell the main threat to global growth. With German Finance Minister Wolfgang Schaeuble yesterday ruling out a Greek exit, the 17-nation euro area faces the challenge of harnessing positive sentiment by resolving differences on aid for Greece and Spain before investors pounce again. Also contentious is how to knit euro nations more closely together amid spats over the timing and depth of a banking union. “The summit will highlight how much remains to be done,” said Alex White, an economist at JPMorgan Chase & Co. in London. “Our concern is that the removal of acute financial market stimuli may reduce the political incentive to deliver.” 
  • Greece May Be Forced to Leave Euro Area Within 6 Months. Sweden's Finance Minister Anders Borg told reporters on a conference call. A Greek debt write-down is not a good way forward, he said. Spain needs to recapitalize its banks, Borg said.  
  • German Finance Minister Wolfgang Schaeuble says "it's impossible for Germany to pay everybody's bills" in the euro region and "every member state has to fight the problems" it faces. "We would be destroyed" if Germany were to overstretch its resources, Schaeuble said in Singapore.  
  • RBS May Seek More Time to Sell Branches as Santander Walks Away. Banco Santander (SAN) SA’s decision to abandon its 1.7 billion-pound ($2.7 billion) purchase of 316 Royal Bank of Scotland Group Plc branches may prompt the U.K. lender to keep them or seek more time to find a new buyer. RBS, Britain’s biggest government-owned bank, had been required to sell the outlets by 2014 to comply with a European Union state-aid rules after receiving the biggest banking bailout in the world in 2008. 
  • German Saving Banks Chief Rejects Core Reasons for Banking Union. Georg Fahrenschon, president of the German DSGV savings banks group, said he doesn't want to give Europe the "keys to the safe" for deport protection funds, according to a speech he gave at the IMF conference in Tokyo. The money that German savings banks hold ready to protect the deposits of clients shouldn't be used to insure big banks and investment banks, he said.
  • Global Economy Distress 3.0 Looms as Emerging Markets Falter. The global economy is facing its third major brake on expansion in five years as emerging markets slow from China to Brazil, provoking debate about how much policy makers should respond. Three years after industrializing nations led the world out of the U.S. mortgage meltdown-induced recession, the reliability of the power source is waning as Europe’s debt crisis persists. The International Monetary Fund sees them growing an average 5.8 percent in the half-decade through 2016, almost two percentage points less than the five years before the 2009 slump. Finance chiefs at the IMF and World Bank annual meetings left Tokyo this weekend at odds over how to address the issue, with South Korea’s central bank chief urging Asia to add stimulus as Russia and Brazil called on rich nations to fix their own challenges.
  • Fischer Says World Is 'Awfully Close' to Recession. Fischer’s take on global growth added to concern raised at annual meetings of the International Monetary Fund, with the IMF cutting its forecasts on Oct. 9 and warning of more weakness unless the U.S. and Europe address threats to their economies. As the euro crisis drags on, fiscal tightening and muted demand in wealthy nations hurts emerging countries from China to Brazil. “We’re awfully close” to a global recession, said Fischer, 69, who served as the IMF’s No. 2 official from 1994 to 2001 and was thesis adviser to Fed Chairman Ben S. Bernanke at the Massachusetts Institute of Technology. “It’s pretty slow right now. Europe is technically in a recession, the U.S. is predicting less than 2 percent growth for the next few months.”
  • IMF Board Sees Biggest Power Shift Reshuffle in Two Decades. The International Monetary Fund’s executive board is undergoing the biggest reshuffle in two decades in a shift emerging markets including Brazil say remains insufficient to reflect their rising economic power. Starting next month, some western European countries are realigning to give nations such as Turkey and Hungary more say under a 2010 pledge to give up two seats on the 24-seat board. Changes are also taking place among emerging markets, with Colombia leaving Brazil’s group to join Mexico’s. The overhaul reflects “significant economic realignments at the global as well as regional levels,” said Eswar Prasad, a Cornell University professor and a former IMF official. “Small countries are jockeying for position to make sure their voices are heard while some of the larger but less dynamic economies are trying hard to preserve their clout despite their diminishing economic significance.”
  • China’s Stocks Fall on Slump in Producer Prices, Profit Concerns. China’s stocks fell to the lowest level in a week after producer prices declined the most since 2009 and companies from ZTE (000063) Corp. and Yunnan Copper Industry Co. estimated third-quarter losses. ZTE, China’s second-biggest phone-equipment maker, plunged 10 percent and Yunnan Copper, the nation’s fourth-biggest producer of the metal, retreated 2.5 percent. A report showed producer prices dropped 3.6 percent last month, compared with a 3.5 percent decline in the previous month. Concerns about deflation and lending overshadowed reports showing China’s exports and money supply rose more than estimated in September. “Forthcoming third-quarter earnings will be a major factor weighing on the market and the numbers aren’t great,” said Wu Kan, a fund manager at Dazhong Insurance Co. in Shanghai, which oversees $285 million. “The weak PPI number casts a question mark over the economic recovery. There’s no rationale for aggressive buying.” The Shanghai Composite Index (SHCOMP) fell 0.4 percent to 2,096.21 as of 10:28 a.m. local time.
  • IMF Tokyo Meetings Show World Leadership Gap, Korea’s Bahk Says. Financial chiefs failed to agree on how to address global economic challenges at International Monetary Fund meetings in Tokyo, showing the world lacks leadership, South Korea’s finance minister said. “Ministers discussed a short-term response for the global economy, but their opinions weren’t harmonized in one direction,” Bahk Jae Wan said in remarks to reporters yesterday embargoed for today, the last day of the IMF gathering. “The world has a leadership problem.” Participants in the IMF meetings discussed major risks to the global economy posed by Europe, the looming U.S. fiscal cliff and China’s slowing economy, Bahk said. “The gap remains between the euro zone and other regions over solutions for Europe’s crisis and on how quickly they need to be addressed,” Bahk said. “The euro zone itself is far from a full agreement and the outcome from this IMF meeting is unlikely to help boost market confidence significantly.”
  • China Tells IMF of Concern at Effects of Unconventional Easing. China is concerned at possible effects such as volatile capital flows, erratic exchange-rate and asset-price movements, commodity price surges, central bank Deputy Governor Yi Gang said in a statement in Tokyo. Unconventional monetary measures by major advanced economies appear to have had diminishing returns, Yi said. Monetary policy should not be a substitute for fiscal consolidation and structural reforms, Yi said.
Wall Street Journal: 
  • UBS(UBS) may cut thousands of IT jobs, says report. UBS AG UBS +0.24% is planning further cost cutting measures which could threaten thousands of jobs worldwide, particularly in its information technology operation, the TagesAnzeiger reported Saturday.
Business Insider: 
Zero Hedge: 
  • German Bundestag president calls for temporary stop to EU expansion. The European Union cannot take on new member states for the time being as existing members still have a lot of work to do on consolidation, the president of Germany's Bundestag lower house of parliament was quoted as saying on Saturday. His comments are likely to disappoint countries like Croatia, which is hoping to join the EU in 2013, and others in the Balkans seeking membership 
  • Portugal faces suffocating 2013 budget. Portugal's centre-right government presents its 2013 budget on Monday, which will outline the harshest measures yet under Lisbon's 78-billion-euro bailout and is likely to mark the end of the country's so far reluctant acceptance of austerity. The budget will face immediate opposition from angry Portuguese, who plan to march on parliament to demand the resignation of the government and an end to austerity, which has sent Portugal into its worst recession since the 1970s. The 2013 budget is set to introduce sharp income tax hikes, which could amount to up to two or three months' wages for middle income workers, to ensure the country meets its budget goals under the bailout. Finance Minister Vitor Gaspar has described the planned tax increases as "enormous." Economists fear that the tough measures, which will also include pension cuts, a financial transaction tax and higher property taxes, could push Portugal into a recessive spiral like Greece, further undermining Europe's German-inspired austerity drive for the euro's highly-indebted countries.  
  • U.S. home owners file class action suit vs banks over Libor -FT. U.S. home owners have filed a class action suit in New York against 12 of the world's major banks, claiming that Libor manipulation made mortgage repayments more expensive than they should have been, the Financial Times reported on Monday.  
  • US meningitis outbreak rises to 205 cases - CDC. Seven more people have been diagnosed with fungal meningitis linked to possibly tainted vials of a steroid medication, the U.S. Centers for Disease Control and Prevention said on Sunday, bringing the total number of cases to 205 in 14 states.  
  • Republicans hammer Obama over Libya attacks. Republicans on Sunday kept the heat on President Barack Obama over the Sept. 11 killing of four Americans in Libya, with a senior senator saying the attack supported the Romney campaign's claim that Obama's foreign policy is "unraveling." Questions about what happened at the Benghazi mission surfaced in Thursday's vice presidential debate, where Romney's running mate Paul Ryan decried the "unraveling of the Obama foreign policy." They look set to intensify at the next presidential debate, on Tuesday in New York. "Either they are misleading the American people, or they are incredibly incompetent," Lindsey Graham, a senior Republican on the Senate Armed Services Committee, told CBS' "Face the Nation." The White House initially said the violence was an impromptu reaction by Muslims upset at a video made in California that insulted the Prophet Mohammed. Days later, the administration publicly called it a terrorist attack on the 11th anniversary of the Sept. 11, 2001, attacks. Graham said the Obama administration's early statements on the attack, in which U.S. Ambassador Christopher Stevens and three other Americans were killed, were aimed at hiding inconvenient facts in order to uphold a rosy "narrative" of success in Libya and in the wider fight against al Qaeda. "To admit that the embassy was attacked by al Qaeda operatives, and Libya - leading from behind - didn't work I think undercuts that narrative," he said. "Bin Laden may be dead. Al Qaeda is alive and they're counter-attacking throughout the entire region," said Graham. "And the truth is the foreign policy choices of President Obama is allowing the region to become unraveled."
  • China IMF boycott 'sign of things to come': analysts. China's top level boycott of global financial meetings in Japan this week is a sign of things to come, analysts say, as an economically emboldened Beijing shows struggling Western nations it doesn't need to play by their rules. With global growth slowing, many in the developed world are looking to Beijing to pick up the slack, and the annual meetings of the International Monetary Fund and World Bank seemed a good place to press the point. But while Tokyo was graced with global financial luminaries such as Timothy Geithner from the US and Wolfgang Schaeuble from Germany, China's finance minister and central bank chief both stayed at home.
  • Euroland's debt strategy is an economic and moral disgrace. The International Monetary Fund has demolished the intellectual foundations of Europe's debt crisis strategy. Drastic fiscal tightening in a string of interlinked countries does two to three times more damage than assumed, especially if there is no offsetting monetary stimulus. Pushed beyond the therapeutic dose, it is self-defeating. At a certain point it becomes pain for pain's sake. The error has long been obvious in Greece.
  • Monetary easing policy causes rift at IMF meeting. A clash over the knock-on effects of monetary easing policies in the US, Britain and other European countries led to sharp exchanges in Tokyo among bankers and finance ministers.
Der Sonntag:
  • Swiss-Greek Chamber of Commerce sees increase in enquiries from Greek companies interested in moving headquarters to Switzerland, chamber's president Nikolaos Aggelidakis said in an interview.
Frankfurter Allgemeine Zeitung:
  • Merkel Government Rejects Greek Bond Buyback Proposal. German Chancellor Angel Merkel's government rejects a proposal for Greece to use loans to buy back its own sovereign debt at a discount to help it reach its target of reducing debt to 120% of gdp by 2020, citing officials. The German government plans no new instruments for the bailout funds EFSF and ESM.
El Mundo:
  • Spain's Economy Minister Luis de Guindos is in talks with European authorities to extend the deadline to meet the deficit target. The government has started to acknowledge that the goal of cutting the deficit to 6.3% of GDP this year and to 4.5% next year is becoming more difficult.
  • The negative economic spiral in Southern Europe is getting worse, Norges Bank Governor Oeystein Olsen was cited as saying in an interview conducted in Tokyo.
South China Morning Post:
  • Housing Chief Says Risk of Hong Kong Property Bubble Rises. Anthony Cheung Bing-Leung, secretary for transport and housing, says it's unusual for property prices to keep rising while the economy is not booming and warned that the risk of a bubble was increasing, citing an RTHK interview with Cheung. The market is "strange and worrying," he said. Cheung warned against rushing to buy property.
Economic Daily News:
  • iPhone 5 Suppliers May Raise Component Prices. iPhone 5 suppliers including Hon Hai Precision Industry, Cheng Uei Precision Industry, Largan Precision and Genius Electronic Optical may attempt to raise prices they charge Apple(AAPL) by 5 to 10%.
Weekend Recommendations
  • Made positive comments on (BLK), (LAYN) and (KMX).
  • Made negative comments on (RLGY).
Night Trading
  • Asian indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 128.0 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 106.5 -3.0 basis points.
  • FTSE-100 futures -.27%.
  • S&P 500 futures unch.
  • NASDAQ 100 futures +.11%.
Morning Preview Links

Earnings of Note

  • (SCHW)/.17
  • (GCI)/.53
  • (C)/.97
  • (BRO)/.35
  • (PKG)/.56
  • (VMI)/2.05
Economic Releases
8:30 am EST
  • Empire Manufacturing for October is estimated to rise to -4.0 versus -10.41 in September. 
  • Advance Retail Sales for September are estimated to rise +.8% versus a +.9% gain in August.
  • Retail Sales Less Autos for September are estimated to rise +.6% versus a +.8% gain in August.
  • Retail Sales Ex Auto & Gas for September are estimated to rise +.4% versus a +.1% gain in August.
10:00 am EST
  • Business Inventories for August are estimated to rise +.5% versus a +.8% gain in July.
Upcoming Splits
  • (MMP) 2-for-1
  • (SHG) 2-for-1
Other Potential Market Movers
  • The Fed's Dudley speaking, Fed's Lacker speaking, Fed's Bullard speaking and the Fed's Williams speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the week.

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