Wednesday, October 10, 2012

Wednesday Watch

Evening Headlines
Bloomberg:
  • IMF Says European Banks May Sell $4.5 Trillion in Assets. The International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18 percent from its April estimate. Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks from UniCredit SpA (UCG) to Deutsche Bank AG (DBK) to shrink assets, the IMF said. That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery. “Intensification of the crisis has manifested itself in capital outflows from the periphery to the core at a pace typically associated with currency crises or sudden stops,” the IMF wrote in its Global Financial Stability Report released today. “Restoring confidence among private investors is paramount for the stabilization of the euro area.”
  • Titanic’ Defaults Loom on Restructured India Bank Debt.
  • Apple(AAPL) Choice of IPhone Aluminum Said to Slow Down Output. Apple Inc. (AAPL)’s iPhone 5 supply shortfall is being exacerbated by a quality-control crackdown at Foxconn Technology Group that’s designed to cut the number of devices shipped with nicks and scratches, according to a person familiar with the matter.
  • Ambassador Died in Smoke While Agents Searched for Him. On the last day of his life, U.S. Ambassador Chris Stevens retired to his room in the American diplomatic compound in Benghazi, Libya at about 9 p.m. after a quiet day. Forty minutes later, security agents heard gunfire and explosions near the front gate of the compound, which recently had been reinforced with nine-foot walls and concrete Jersey barriers, two State Department officials told reporters yesterday. Their narrative of what happened on the night of Sept. 11 is the first detailed account of how Stevens died, and it contradicts the Obama administration’s initial contention that the attack began as a spontaneous protest over an anti-Islamic video clip. The officials also offered the first detailed description of the compound’s and Stevens’ security, which are the focus of a hearing today by the House Oversight and Government Reform Committee.  
  • Facebook(FB) Fought SEC to Keep Mobile Risks Hidden Before IPO.
Wall Street Journal:
  • Jack Welch: I Was Right About That Strange Jobs Report. The economy would need to be growing at breakneck speed for unemployment to drop to 7.8% from 8.3% in the course of two months. Imagine a country where challenging the ruling authorities—questioning, say, a piece of data released by central headquarters—would result in mobs of administration sympathizers claiming you should feel "embarrassed" and labeling you a fool, or worse. Soviet Russia perhaps? Communist China? Nope, that would be the United States right now, when a person (like me, for instance) suggests that a certain government datum (like the September unemployment rate of 7.8%) doesn't make sense. Unfortunately for those who would like me to pipe down, the 7.8% unemployment figure released by the Bureau of Labor Statistics (BLS) last week is downright implausible. And that's why I made a stink about it.  
  • U.S., Japan Face Risks As Havens, IMF Warns. The world's two largest advanced economies, the U.S. and Japan, face growing long-term risks from investors fleeing trouble spots around the world, the International Monetary Fund warned Wednesday. Safe-haven flows into the U.S. and Japan are pushing interest rates down and lulling investors and policy makers into complacency, the fund said in a report on financial-stability risks released ahead of its fall meeting here. The IMF's warning is part of its broader global effort to sound the alarm about government deficits and debt across advanced economies, hoping to spur governments to take action before those economies potentially plunge into crisis.  
  • U.S. Sues Wells Fargo(WFC) for Faulty Mortgages.
  • New York Ranked Last on Taxes. New York imposes a more onerous tax burden on businesses than any other state, according to a new study. The Tax Foundation, a nonpartisan research group in Washington, D.C., ranked New York last among the 50 states in its annual "business climate" analysis of local tax regimes. The group reviewed individual and corporate income-tax structures, as well as sales, property and unemployment insurance taxes on the state and local levels.
  • Jeans Maker for Sale. True Religion(TRLG) Seeks Buyer as Denim Brand's Cachet Fades.
Fox News: 
  • Romney makes gains in battleground, national polls. In a national Gallup poll released Tuesday, Romney was leading 49-47 percent among likely voters. A Reuters-Ipsos national poll showed the candidates tied. The RealClearPolitics average of polling now shows Romney leading by less than 1 percentage point in Florida, and Obama leading by the same airtight margin in Ohio. Obama was well ahead in those states just days ago. Further, Romney's post-debate surge appears to have all but wiped out Obama's once double-digit lead among women voters. A Pew Research Center survey released Monday depicted a remarkable swing in the numbers, with Romney pulling even among women in polling late last week. In September, the same polling outfit showed Obama leading by 18 points among women. Among all likely voters surveyed, Romney climbed from an 8-point deficit last month to a 4-point lead
Barron's:  
MarketWatch.com: 
  • HSBC emerging-market growth index falls in Q3. Emerging-market economies continued to expand in the third quarter, but the pace of that expansion is looking "feebler by the day," according to an HSBC report released Tuesday. During the quarter, a moderate expansion in the services sectors of these economies came as there was a decline in manufacturing, according to HSBC's data. Despite the service sector's expansion, the longer-term outlook for services fell to its lowest level since the survey began in 2005. The HSBC Emerging Markets Index fell to 52.1 in the third quarter of 2012, from a revised 53.2 in the second quarter of the year. "The end result is disappointment in the emerging world, in particular China, which continues to surprise to the downside," said Murat Ulgen, HSBC's chief economist for Central and Eastern Europe and sub-Saharan Africa, in the firm's report. In China, output rose only marginally, and in Brazil, private-sector manufacturing stagnated. The weakness in manufacturing is also spilling into other sectors of the economy. Poor manufacturing weighs on incomes and profits, thereby reducing broader consumption and investment. Until recently, the services sector had seemed immune from slowing global growth. But in the third quarter, services output expanded at its slowest pace this year. In Brazil, services output stagnated--its worst performance since the global crisis.
  • A costly ticket to ride for China subway projects. Despite Beijing’s approvals, local governments need means to pay.
  • Spain could opt out instead of getting a bailout. Commentary: Leaving the euro isn’t so far-fetched.
CNBC: 
Zero Hedge: 
Business Insider:
Forbes: 
  • China Economy Remained Weak In Third Quarter. China’s economy likely remained weak in the third quarter ending in September, the state owned Industrial Bank said on Wednesday. “It is hard to say when China’s economic recovery will be in sight,” Lu Zhengwei, chief economist at the Industrial Bank told China Daily in the Wednesday edition of the paper. “We expected the economy to stabilize in the third quarter, but the weak performance in the past few months has dashed our expectations.
Rasmussen Reports:
Reuters:
  • Cummins(CMI) lowers sales forecast, to cut up to 1500 jobs. U.S. engine maker Cummins Inc lowered its 2012 forecast for the second time this year, citing delays in customer spending due to a weakening global economy, and said it would cut up to 1500 jobs. Cummins now expects full-year sales of $17 billion, down $1 billion from its prior view. "Investors expected a guidance cut from Cummins this quarter but this does look to be a bit more than expected," William Blair & Company analyst Lawrence De Maria said. Chief Executive Tom Linebarger said Cummins had lowered its full-year revenue forecast for several markets, with the most significant changes made in the North America heavy duty truck and the international power generation markets. "Demand in China has weakened in most end markets and we have also lowered our forecast for global mining revenues," Linebarger said. Cummins shares were trading down 4 percent at $87.10 in extended trade, after closing at $90.84 on the New York Stock Exchange.  
  • FSA eases bank rules to support lending - FT. Britain's Financial Services Authority has relaxed capital and liquidity rules on banks in an effort to stimulate lending and use bank regulation to moderate the economic cycle, the Financial Times reported on Wednesday.  
  • Philippine August Exports Drop -9.0%, Steepest Drop in 8 Months
  • China to send deputy finance minister to IMF Tokyo meet amid island spat. China's delegation to the annual meetings of the IMF and the World Bank in Tokyo will not be led by its most senior finance officials, a report from state news agency Xinhua said on Tuesday, in what looked like a deliberate snub of Japan. According to Chinese protocol, only the most senior officials usually lead such trips, but the report said China's deputy central bank governor and vice finance minister would be leading the central bank's delegation later this week instead. 
  • ECB's Visco: talk of euro breakup reflects doubts on crisis efforts.
  • Euro slips near 200-day average as risk sentiment hurt. The euro dropped to its lowest since the start of month against the d ollar and the yen on Wednesday, as investors shied away from risk on concerns about weak earnings in the United States due to a slowdown in global growth. Asian shares followed a drop on Wall Street overnight, when technology stocks fell on brokerage downgrades of Intel and other major companies, as worries mounted about third-quarter U.S. earnings, which firms began reporting on Tuesday. The euro slipped 0.3 percent to $1.2840, its lowest since Oct 1 and coming close to an important technical support of its 200-day average at $1.2822. Some traders say the market is likely to test that level to trigger more stop-loss orders. "If the 200-day average is broken, there will be selling from model players. I feel the market is likely to test that level," said Takahiro Suzuki, vice president of forex at Nomura Securities.
  • Moody's warns of downgrades to California cities. Moody's Investors Service said on Tuesday it placed under review for downgrade lease-backed obligation and general obligation ratings of several California cities and downgraded the pension obligation bonds of eight cities and one pooled financing in state. The moves affect $14.3 billion of debt and come amid concerns among some credit rating analysts about California's economy and the willingness of financially distressed cities in the most populous U.S. state to pay their debts.
Financial Times:   
  • Hedge funds reap gains from MBS. Hedge funds are reaping some of their biggest profits from the securitised mortgage market since 2007, when mispricings in complex debt securities led to huge windfalls for savvy traders such as John Paulson and the near-collapse of the global banking system. While the average hedge fund has made just 4.6 per cent so far this year, funds dabbling in US mortgage-backed bond markets have reaped far bigger gains, in some cases running into the hundreds of millions of dollars, investors say.
The Standard:
  • Record Home Prices Raise Bubble Specter. Home prices and rents rose to a record high in August, the latest Hong Kong government data showed yesterday, raising the specter of a worsening of 1997 housing bubble. The primary index for measuring private property prices rose for the seventh consecutive month to 210.6 in August, up 2.2 percent from July. It now stands at 21.8 percent higher than the 1997 peak of 172.90, the Rating and Valuation Department said. The rental index also gained, rising 1.24 percent from July to a record high of 145.50 - compared to 139.20 in 1997. Andy Kwan Cheuk-chiu, a member of the Long Term Housing Strategy Steering Committee, said he sees risks building in the market that are similar to 1997, when Hongkongers engaged in panic-buying amid soaring prices.
Evening Recommendations  
Piper Jaffray:
  • Raised (RL) to Overweight, target $182.
  • Raised (ANF) to Overweight, target $40.
Night Trading
  • Asian equity indices are -1.75% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 134.0 +3.75 basis points.
  • Asia Pacific Sovereign CDS Index 111.0 +1.75 basis points.
  • FTSE-100 futures -.30%.
  • S&P 500 futures -.01%.
  • NASDAQ 100 futures +.07%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (COST)/1.31
  • (PGR)/.26
  • (HST)/.20
  • (RT)/.07
Economic Releases
10:00 am EST
  • Wholesale Inventories for August are estimated to rise +.4% versus a +.7% gain in July.
2:00 pm EST
  • Fed's Beige Book.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Fisher speaking, Fed's Tarullo speaking, Fed's Kocherlakota speaking, Italian auction/industrial production data, 10Y T-Note auction, weekly MBA mortgage applications report, JOLTs Job Openings for August, Australian unemployment rate and the US Commerce Dept. decision on China solar dumping could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and automaker 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.

1 comment:

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