Monday, December 03, 2012

Monday Watch

Posted by Gary .....at 12:45 AM

Weekend Headlines 
Bloomberg: 
  • Geithner Joins Boehner to Trade Blame on Fiscal Cliff Talks. U.S. Treasury Secretary Timothy F. Geithner and House Speaker John Boehner hardened their positions over the fiscal cliff, each blaming the other for a standoff that could lead to more than $600 billion in tax increases and spending cuts in January. “There’s not going to be an agreement without rates going up,” Geithner said in a taped interview that aired today on CNN’s “State of the Union.” Republican Boehner said the White House is wasting time. “I would say we’re nowhere, period,” Boehner said on the “Fox News Sunday” program. “We’ve put a serious offer on the table by putting revenues up there to try to get this question resolved. But the White House has responded with virtually nothing.”
  • U.S. Credit-Default  Swaps Advance Versus Bunds on Fiscal Cliff. The cost to insure Treasuries rose to a 16-month high relative to German bunds on concern U.S. officials are putting their nation's debt rating at risk as they struggle to avoid the fiscal cliff. Credit-default swaps covering Treasuries changed hands at 36.57 basis points, or about six basis points more than swaps on German government securities. The difference was 8 bps on Nov. 28, the most since July 2011, according to data provider CMA. "The rating companies, as well as investors, are focused on whether the U.S. can resolve its budget issues," said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan's third-largest publicly traded bank by assets. "Investors fear there will be a downgrade." 
  • Obama Plans for Climate Deal as Fiscal Cliff Negotiations Rage. As leaders in Washington obsess about the fiscal cliff, President Barack Obama is putting in place the building blocks for a climate treaty requiring the first fossil- fuel emissions cuts from both the U.S. and China. State Department envoy Todd Stern is in Doha this week working to clear the path for an international agreement by 2015. While Obama failed to deliver on his promise to start a cap-and-trade program in his first term, he’s working on policies that may help cut greenhouse gases 17 percent in 2020 in the U.S., historically the world’s biggest polluter. Obama has moved forward with greenhouse-gas rules for vehicles and new power plants, appliance standards and investment in low-emitting energy sources. He’s also called for 80 percent of U.S. electricity to come from clean energy sources, including nuclear and natural gas, by 2035. “The president is laying the foundations for real action on climate change,” Jake Schmidt, who follows international climate policy for the Washington-based Natural Resources Defense Council, said in an interview in Doha. “Whether or not he decides to jump feet first into the international arena, we’ll see.”
  • Climate Gridlock Frustrating Envoys at UN Talks in Doha. International efforts to curb global warming are moving so slowly that that delegates from both rich nations and poorer ones are expressing frustration with the process. “I don’t see as much public interest for governments to take on more ambitious and more courageous decisions,” Christiana Figueres, the diplomat organizing two weeks of United Nations climate-change talks in Doha, said at a briefing yesterday. “Each one of us needs to assume responsibility. It’s not just about national governments. It’s about individuals. It’s about civil society.” 
  • EFSF, European Stability Mechanism Ratings Cut by Moody’s. The European Stability Mechanism and European Financial Stability Facility were downgraded by Moody’s Investors Service, which cited a high correlation in credit risk present among the entities’ largest financial supporters. The ESM was cut to Aa1 from Aaa, while the EFSF provisional rating was lowered to (P)Aa1 from (P)Aaa. Moody’s said in a statement that it would maintain a negative outlook on each. The EFSF has about 161.8 billion euros ($210.1 billion) of bonds outstanding according to data compiled by Bloomberg. The move follows downgrades of the EFSF’s second-biggest contributor after France lost its top grade at Moody’s and Standard and Poor’s this year. Investors often ignore such ratings actions, evidenced by the drop in France’s 10-year bond yields since last week’s Moody’s downgrade and a rally in Treasuries after the U.S. lost its AAA at S&P in 2011. The EFSF’s “rating is at the mercy of the creditworthiness of its biggest backers,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said before the actions. “Another downgrade of the EFSF would show how the creditworthiness of the euro zone’s rescue fund itself is being affected by the worsening economic conditions in the core.”
  • French Socialists Defend Mittal ‘Arm Twist’ With Nationalization. French Socialists defended Industry Minister Arnaud Montebourg’s threat to nationalize an ArcelorMittal (MT) steel plant, saying the tactic spurred the company to maintain jobs and invest. “Without the action of Montebourg, the issue wouldn’t have attained such a high profile,” Claude Bartolone, the Socialist president of the National Assembly said late today on France Inter radio. Montebourg helped “twist Mittal’s arm.” Environment Minister Delphine Batho on Europe 1 radio said Montebourg played a “decisive” role in preserving jobs and showed that the government will hold Mittal to his promises.
  • Fed’s Stein Sees Diminishing Returns From Treasury Buying. Federal Reserve Governor Jeremy Stein said there may be “diminishing returns” from additional purchases of Treasury securities because companies may respond to lower borrowing costs by refinancing debt or returning money to shareholders instead of making business investments. If “corporate investment reacts only weakly to further changes in term premiums, there may be more ‘kick’ to be had by focusing efforts on a sector that is more responsive,” Stein said today in a speech at the Federal Reserve Bank of Boston. “Mortgage purchases may confer more macroeconomic stimulus dollar-for-dollar than Treasury purchases.” 
  • Egypt Opposition to Take Constitution Fight to Mursi. Egyptian President Mohamed Mursi’s opponents vowed to take their fight over a new constitution to his doorstep. The highest court suspended operations before it could hear a challenge to the panel that drafted the charter. Egypt’s judges won’t supervise a Dec. 15 constitutional referendum and will boycott the vote, according to Egypt’s state-run Middle East News Agency, which cited Judge Ahmed El Zind, head of the nation’s judge’s association.
  • Senate Votes to Add Iran Sanctions as White House Objects. The U.S. Senate approved new economic sanctions on Iran, overriding objections from the White House that the legislation could undercut existing efforts to rein in Iran’s nuclear ambitions. The Senate voted 94-0 yesterday to impose additional U.S. financial penalties on foreign businesses and banks involved in Iran’s energy, ports, shipping and shipbuilding sectors, and impose sanctions on metals trade with Iran.
  • Hedge Funds Increase Bullish Bets Most Since August: Commodities. Hedge funds increased bullish bets on commodities by the most since August as evidence that China is accelerating outweighed concern that U.S. lawmakers have yet to resolve an impasse over automatic spending cuts and tax rises. Speculators and money manager increased net-long positions across 18 U.S. futures and options by 9.8 percent to 929,588 contracts in the week ended Nov. 27, the biggest gain since Aug. 21, U.S. Commodity Futures Trading Commission data show. Gold holdings reached a six-week high, and wagers on a wheat rally jumped the most since June. Cattle bets more than doubled.
  • North Korea Defies Sanctions, Plans Rocket Launch This Month. North Korea said it will test a long- range rocket this month in defiance of international sanctions and as South Koreans hold an election for a new president. The launch will take place between Dec. 10 and Dec. 22, the state-run Korean Central News Agency said on Dec. 1. South Korea “sternly” warned its neighbor against the plan, saying the firing would bring a “forceful response” from the world. North Korea is trying to interfere in South Korea’s Dec. 19 election, President Lee Myung Bak told South Korea’s Yonhap news agency yesterday.
Wall Street Journal: 
Marketwatch.com:
  • Asia stocks mostly higher, China stuggles. Hong Kong’s Hang Seng Index HK:HSI +0.07% traded flat after rising 0.6% in early moves to near its highest level for the year, while the Shanghai Composite Index CN:000001 -0.33% saw brief post-data gains evaporate to trade 0.3% lower.
  • Shanghai’s disturbing stock slump. The benchmark Shanghai Composite Index ended last week near four-year lows, having lost a total of 67% since its October 2007 record high.
Business Insider: 
Reuters:
  • Greece set to unveil terms of crucial bond buy-back. Greece will unveil details of a bond buy-back crucial to efforts by foreign lenders to trim the country's ballooning debt, hoping the terms will draw enough investors and unblock vital aid. Since plans for the buy-back were announced on Tuesday, questions have swirled about whether it will tempt enough bondholders to cut Greek debt by a net 20 billion euros.
  • Syrian forces pound Damascus suburbs, flights to resume. Syrian forces pounded rebel-held suburbs around Damascus with fighter jets and rockets on Sunday, opposition activists said, killing and wounding dozens in an offensive to push rebels away from the airport and stop them closing in on the capital. 
  • UK lawmakers call for tax crackdown on multinationals.
  • RPT-Toyota China sales tumble again in Nov, though pace eases - exec. The pace of the last month's decline - roughly 25 percent from a year earlier - eased from the previous two months but was still "far off from our more normalised and targeted sales pace," said the Toyota executive who declined to be named because the information had not yet been made public. Toyota's numbers indicate that sales in China by other Japanese carmakers are also likely to be down.
Financial Times: 
  • Quant fund launches at record high. Trend-following quantitative “black-box” hedge funds are accounting for their highest-ever proportion of hedge fund start-ups, despite weak returns since the financial crisis. A record 187 quant, or algorithmic funds, launched last year and account for 12 per cent of all hedge fund start-ups, another record, according to Preqin, a data provider whose figures go back to 2000.
  • UK’s Euro Trade Supremacy Under Attack. The City of London should be deposed as the euro's main financial center so the single currency club can "control" most financial business in the euro zone, France's central bank governor has said. Christian Noyer of the Banque de France said there was "no rationale" for allowing the euro area's financial hub to be "offshore", in a blunt assessment that will fan UK concerns over EU rules being rigged against it. "Most of the euro business should be done inside the euro area. It's linked to the capacity of the central bank to provide liquidity and ensure oversight of its own currency," Mr Noyer told the Financial Times while touring Asia to promote Paris as a renminbi trading center. "We're not against some business being done in London, but the bulk of the business should be under our control. That's the consequence of the choice by the UK to remain outside the euro area."
  • Rules will ‘stifle alternative lending’. A plethora of new regulation will hamper the ability of investment funds, insurers and asset managers to provide the world economy with alternative sources of credit as banks in the US and Europe shrink, a study by Allen & Overy has warned.
Wirtschafts Woche:
  • Portugal Demands Easier Conditions for EFSF Funds. Euro-area finance ministers will speak about Portuguese request as soon as Monday in Brussels. Easier conditions for Greece prompted Portugal's demand. 
The Chosunilbo:
  • Senate Reaffirms U.S. Support for Japan in Land Dispute with China. The U.S. Senate has unanimously approved an amendment that reaffirms Washington's commitment to Japan in its territorial dispute with China over islands in the East China Sea. The measure was attached Thursday to the National Defense Authorization Bill for Fiscal Year 2012, which is still being debated in the Senate -- the upper body of Congress. The amendment says that the U.S. acknowledges Japan's administration over the Senkaku Islands, but does not take a position on the ultimate sovereignty of the territory. It also notes U.S. opposition to any efforts to coerce, threaten or use force to resolve the territorial dispute. 
Financial News: 
  • People's Bank of China's recent open market operations have resulted in a net draining of liquidity, suggesting the central bank won't further ease monetary policy, according to a commentary by reporter Xu Shaofeng.
Weekend Recommendations
Barron's:
  • Made positive comments on (JPM), (HTBI), (RIG), (LMCA) and (INTC).
Night Trading
  • Asian indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 111.05 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 82.75 unch.
  • FTSE-100 futures +.23%.
  • S&P 500 futures +.21%.
  • NASDAQ 100 futures +.37%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (CONN)/.27
Economic Releases
8:58 am EST
  • Markit US PMI Final for November is estimated at 51.7 versus a prior estimate of 52.4.
10:00 am EST
  • ISM Manufacturing for November is estimated to fall to 51.5 versus 51.7 in October. 
  • ISM Prices Paid for November is estimated to fall to 53.5 versus 55.0 in October. 
  • Construction Spending for October is estimated to rise +.5% versus a +.6% gain in October. 
Afternoon:
  • Total Vehicle Sales for November is estimated to rise to 14.8M versus 14.22M in October. 
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Bullard speaking, Fed's Rosengren speaking, Eurozone Manufacturing PMI, EuroGroup Meeting, RBA rate decision, HSBC India PMI, UBS Media/Communications Conference, Barclays Precious Metals Conference, (SLG) investor day and the (EW) investor conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted 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 week.

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