Thursday, October 11, 2012

Thursday Watch

Evening Headlines
  • Spain Downgraded to One Level Above Junk by S&P on Risks. Spain’s debt rating was cut to one level above junk by Standard & Poor’s, which cited mounting economic and political risks as the government considers a second bailout. The country was lowered two levels to BBB- from BBB+, New York-based S&P said in a statement yesterday. S&P assigned a negative outlook to the nation’s long-term rating and lowered the short-term sovereign level to A-3 from A-2. “The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance, and the lack of a clear direction in euro-zone policy,” S&P said. “The deepening economic recession is limiting the Spanish government’s policy options.
  • Euro Falls Against Most Peers After S&P Downrades Spain. The euro weakened against most of its major counterparts after Standard & Poor’s cut Spain’s debt rating to one level above junk. The Dollar Index (DXY) climbed to a one-month high before Italy sells bonds today amid concern Europe’s debt crisis is deepening, boosting demand for the greenback as a haven.“I can see further weakness to the euro from here,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “If the fiscal outlook is much worse in Spain, it could fall to junk status.”
  • EADS-BAE Failure Shows Road to Integrated EU Runs Through Berlin. In effectively scuttling the planned merger between European Aeronautic, Defence & Space Co. and BAE Systems Plc (BA/), Germany demonstrated the road to European integration runs through Berlin. As Chancellor Angela Merkel’s government has shown in almost three years of managing the euro-area financial crisis, the interests of German taxpayers trump strategic designs --even in defense, where German spending is about half of Britain’s as a share of its economy. 
  • Japan Machinery Orders Slide 3.3% as Economy Risks Shrinking. Japan’s machinery orders fell more than expected in August, a sign that companies will cut back spending as global demand slows. Orders, an indicator of capital spending in three to six months, declined 3.3 percent after rising 4.6 percent in July, the Cabinet Office said today in Tokyo. The median of 26 estimates in a Bloomberg News survey was for a 2.3 percent drop. Today’s data follow government reports last month showing declines in industrial output and exports, underscoring the risk of a contraction in gross domestic product. In an interview in Tokyo, Japanese Prime Minister Yoshihiko Noda yesterday called for talks to contain economic damage from a dispute with China over East China Sea islands. “There’s a growing number of people who are pessimistic about the economic outlook,” Jun Kawakami, an economist at Mizuho Securities Co. in Tokyo, said before the report. “It’s really hard to see any signs that companies will increase capital spending.”
  • Disputed Islands With 45 Years of Oil Split China, Japan. China and Japan sat down for talks and agreed to jointly develop a natural gas field under the East China Sea, defusing a dispute between Asia’s biggest economies over who owns the reserves. That was in 2008. The accord, hailed as a model for cooperation at the time, has yet to be carried out and the countries now face a new territorial dispute, also in the East China Sea. The quarrel over who owns the uninhabited islands called Diaoyu by China and Senkaku by Japan is again linked to a prize beneath the ocean that may hold enough oil to keep China running for 45 years. 
  • Japan Electronics Emulates Detroit Autos Before Bankruptcy: Tech. 
  • Bank of Korea Cuts Interest Rates as the Economy Slows. The Bank of Korea cut borrowing costs for a second time this year, adding to government efforts to avoid a deeper slowdown amid Europe’s debt crisis and a cooling global economy. Governor Kim Choong Soo and his board lowered the benchmark seven-day repurchase rate to 2.75 percent from 3 percent after a surprise reduction in July, the central bank said in a statement in Seoul today. The decision was predicted by 13 of 16 economists surveyed by Bloomberg News, with the rest projecting no change. “Korea’s export-oriented economy has struggled due to weakness in Europe, the U.S. and China, all of which are important markets for its exporters,” Sukhy Ubhi, an economist at Capital Economics Ltd. in London, said before the release. “Global growth is likely to remain weak not just for the remainder of this year but in 2013 too. The BOK will loosen policy both this year and next.” 
  • China Stocks Fall on Economic Concerns. China’s stocks fell after auto sales unexpectedly dropped and the 21st Century Business Herald reported new bank loan growth slowed last month. SAIC Motor Corp. (600104) led declines for automakers after Chinese vehicle sales shrank for the first time in eight months. Jiangxi Copper Co. (600362) and Aluminum Corp. of China Ltd. retreated more than 1 percent as Goldman Sachs Group Inc. said copper and aluminum demand in the country is set to plunge by 2014. Industrial & Commercial Bank of China Ltd. paced losses for lenders on a 21st Century report that new bank loans for the four biggest banks in September were less than the previous month. The Shanghai Composite Index (SHCOMP) slid 0.5 percent to 2,108.84 at 9:54 a.m. local time.
  • U.S. Sets Anti-Dumping Duties on China Solar Imports. The U.S. Commerce Department set anti-dumping duties ranging from 18.32 percent to 249.96 percent on solar-energy cells imported from China, reducing preliminary penalties imposed on Trina Solar Ltd. (TSL) and raising them slightly on Suntech Power Holdings Co. The duties, the result of a complaint brought by the American unit of Bonn-based SolarWorld AG (SWV), may worsen trade relations between the U.S. and China, the world’s largest economies. The countries have sparred over government support for clean energy as President Barack Obama and Republican challenger Mitt Romney each pledge tough action on China ahead of next month’s U.S. election.
Wall Street Journal: 
  • Botched in Benghazi. New evidence on the Libya debacle and false White House spin. At Wednesday's House oversight hearings into the attack on the U.S. diplomatic mission in Libya, Democrats protested loudly about a GOP political witch hunt. If only such alleged partisanship were always so educational. The Congressional investigation has in a few hours brought greater clarity about what happened before, during and after the events of 9/11/12 than the Obama Administration has provided in a month. Among the revelations:
  • PC Sales Go Into a Tailspin. The personal-computer business has entered a tailspin. Reports from research firms Wednesday provided new details about the industry's worsening condition, triggered by factors that include cannibalization by tablet computers, sluggish economic conditions and slowing PC sales in emerging countries. The grim signs come as Microsoft Corp. and its allies are hoping to generate excitement in late October with a new version of Windows and new devices designed to run the software. Researchers IDC and Gartner Inc. said PC shipments in the third quarter fell more than 8% from a year earlier, the steepest drop since at least 2001.
  • Fed Governor: Put Cap On Big Financial Firms. 
  • Obama and the L-Word. 'Liar' is potent and ugly—with a sleazy political pedigree. The election campaign of the 44th U.S. president is now calling another candidate for the American presidency a "liar." This is a new low. It is amazing and depressing to hear this term being used as a formal strategy by people at the highest level of American politics. "Liar" is a potent and ugly word with a sleazy political pedigree. But "liar" is not being deployed only by party attack dogs or the Daily Kos comment queue. Mitt Romney is being called a "liar" by officials at the top of the Obama re-election campaign.
Fox News: 
  • Downplaying Libya Attack Proves Fateful for Obama. Team Obama’s decision to downplay the attack on the U.S. consulate in Benghazi, Libya has turned out to be a fateful one. President Obama’s single best advantage going into the heat of the 2012 campaign was on terrorism and national security. 
  • Bank of Korea Sharply Cuts Economy's Growth Forecasts. South Korea's central bank sharply cut its economic growth forecasts for this year and next after trimming interest rates for the second time this year to shore up Asia's fourth-largest economy on Thursday, its governor said. The Bank of Korea cut this year's economic growth forecast to 2.4 percent from 3.0 percent set in July and that for next year to 3.2 percent from 3.8 percent, Governor Kim Choong-soo told reporters
  • Earnings Season Stinging Stocks.
Zero Hedge:
Business Insider: 
  • Yuan hits record high as PBOC signals tolerance of appreciation.
  • BoE's Weale casts doubts on QE, warns on triple dip - paper. Another round of quantitative easing may not be "compatible" with the Bank of England's inflation target, and does not provide a definite answer to boost Britain's economy, Martin Weale, a top BoE policymaker, said in comments published on Thursday. "It is certainly not self-evident to me in the light of the apparent stickiness of inflation that substantial extra support for the economy would be compatible with the inflation target. I am concerned about the stickiness of inflation," Weale is quoted as saying in the Daily Mail newspaper. Weale also warned that Britain could suffer a 'triple-dip' recession, meaning the economy slides back into negative growth later this year after the briefest of revivals. 
  • Democrats fret about Big Bird's star turn in Obama campaign. In 2008, singer provided Barack Obama's presidential campaign with music for its signature anthem, "Yes We Can." On Tuesday, at a rally for Obama in Columbus, Ohio, the performer chose to play something new: the theme song for "Sesame Street." For Obama's supporters, already dismayed by the president's halting performance in last week's debate with Republican Mitt Romney, that change in tune is a new source for concern as they fret that a children's TV show has become a new backdrop for their candidate's campaign. In a moment of tightening polls and climbing anxiety for Obama's supporters, the president's decision to grant Big Bird a starring role in his campaign this week has presented another reason to reach for the Alka-Seltzer. Since the debate, Obama has been piling on, joking about Romney's designs for the TV show at every campaign stop. Conservatives have been crowing that the silly turn in the campaign diminishes the president. "President Obama tried to give the bird to Mitt Romney-but wound up laying an egg," the New York Post wrote Wednesday.
  • California misses September revenue target by $162.5 mln. California's September revenue came in $162.5 million, or 2.2 percent, below projection in the state budget as revenue from sales and corporate taxes fell below expectation, State Controller John Chiang's office said on Wednesday.
  • Why the IMF has got it so hopelessly wrong on the euro crisis. David Cameron and George Osborne are not for turning, but the International Monetary Fund is plainly made of flimsier stuff. The latest flurry of economic analysis from the IMF – to coincide with the annual meeting in Tokyo – has revealed a not so subtle change of heart over fiscal austerity.
  • IMF fears 'credit shock' in Spain if Rajoy blocks rescue. The International Monetary Fund has issued a veiled warning that Spanish bond spreads could surge to a record 7.5pc and push the country into a deeper crisis if premier Mariano Rajoy continues to drag his feet on a bail-out request. The Franco-Spanish tete-a-tete comes two days before leaders of a newly-dubbed “Mediterranean Front” gather in Malta to thrash out a Latin strategy and plot ways to break the German lockhold on policy.
Apple Daily:
  • Luk Fook Same-Store Sales Fall More Than 30% in Golden Week. That compares with 65% growth in same period last year, citing financial controller Law Tim Fuk. Visitors this year reduced their purchases. Law expects yearly growth of jewelry sector to slow to single digits in the future.
21st Century Business Herald:
  • China Big 4 Banks Sept. New Loans 166B Yuan. New loans were 50B yuan less than in August, citing people familiar with the matter. Bank of China and the Agricultural Bank of China new loans "declined significantly" on the month.
Evening Recommendations  
Piper Jaffray:
  • Rated (GRA) Overweight, target $70.
  • Rated (ECL) Overweight, target $76.
  • Rated (FUL) Overweight, target 37.
Night Trading
  • Asian equity indices are -1.25% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 134.0 unch.
  • Asia Pacific Sovereign CDS Index 111.0 unch.
  • FTSE-100 futures -.27%.
  • S&P 500 futures +.01%.
  • NASDAQ 100 futures +.11%.
Morning Preview Links 

Earnings of Note
  • (FAST)/.37
  • (SWY)/.43
  • (JBHT)/.66 
Economic Releases
8:30 am EST
  • The Import Price Index for September is estimated to rise +.7% versus a +.7% gain in August.
  • The Trade Deficit for August is estimated to widen to -$44.0B versus -$42.0B in July.
  • Initial Jobless Claims are estimated to rise to 370K versus 367K the prior week.
  • Continuing Claims are estimated to fall to 3275K versus 3281K prior.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Bullard speaking, Fed's Plosser speaking, Fed's Stein speaking, Italy bond auction, eurozone inflation data, China new loan data, G7 Finance Ministers Meeting, USDA crop report, 30Y T-Bond auction, weekly EIA energy inventory reports, weekly Bloomberg Consumer Comfort Index, Bloomberg US Economic Survey for October, (IRM) investor day and the (ACN) analyst conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial 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 day.

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