Wednesday, December 12, 2012

Wednesday Watch

Evening Headlines 
  • North Korea Launches Rocket in Defiance of Sanctions. North Korea today launched a rocket that deployed a device into orbit, defying international sanctions and indicating the totalitarian regime is making progress in its ballistic missile technology. The North America Aerospace Defense Command said in a statement that it detected the launch at 9:49 a.m. Korea time, after which the first stage fell into the Yellow Sea and second stage dropped into the Philippine Sea. The U.S. agency said the missile deployed an object that appeared to achieve orbit, after North Korea’s official news agency said its Unha-3 rocket had successfully put a satellite into space. 
  • Hong Kong at Risk of Property Price Correction, IMF Says. (video) Hong Kong is at risk of an abrupt decline in property prices after gains fueled by low interest rates and a limited supply of new housing, the International Monetary Fund said. “The property sector is the main source of domestic economic risk,” the IMF said in a report on the city released today. The odds of a slump that has major economic and financial consequences is “fairly low in the near term,” the fund said. The city should mantain its currency peg, it said. 
  • Peugeot to Cut Added 1,500 Jobs as European Sales Plunge. PSA Peugeot Citroen (UG), Europe’s second-largest carmaker, will eliminate an additional 1,500 jobs by 2014, deepening its workforce reduction as auto sales in the region plunge to a 17-year low. The cuts, which come on top of 8,000 announced in July, will be made by not replacing people who leave, Jonathan Goodman, a spokesman for the Paris-based company, said in a telephone interview. Peugeot is also closing a factory on the outskirts of Paris, selling assets and negotiating a strategic alliance with General Motors Co. (GM) to reduce spending. Europe’s auto market is on track to drop this year to the lowest sales volume since 1995, according to the ACEA trade group.
  • Egypt Turmoil Puts IMF Cash at Risk as Mursi Halts Tax Rises. Mohamed Mursi’s focus on defusing a resurgent protest movement in Egypt is starting to derail his plans for help rescue the economy with a $4.8 billion International Monetary Fund loan. Mursi’s decision to hold a Dec. 15 referendum on a new constitution has polarized the country and sparked rival demonstrations, most recently last night, that have sometimes turned violent. Egypt’s government said yesterday it asked the IMF to delay next week’s meeting to approve the loan, probably until January. As protests escalated, Mursi suspended a raft of tax increases aimed at meeting IMF concerns about the region’s biggest budget deficit. 
  • U.S. Probe of SAC Trading Said to Be Linked to 2010 Case. A U.S. investigation of possible insider trading at SAC Capital Advisors LP, the $14 billion hedge fund run by Steven A. Cohen, is linked to a 2010 regulatory lawsuit over allegedly illegal trades in InterMune Inc. (ITMN), a person familiar with the matter said.
Wall Street Journal:
  • Corporate Taxes on Table in Cliff Talks. The White House has told Republicans it would include an overhaul of the corporate-tax code as part of any deal to reduce the deficit, people familiar with the talks said, a move to court business groups as budget negotiations intensify. Corporate taxes hadn't until now been part of budget talks aimed at averting spending cuts and tax increases set for January. Much of the focus has instead been on the expiring individual income-tax rates.
  • Inside the Risky Bets of Central Banks. Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine. The dinner discussions on money and economics are more than academic. At the table are the chiefs of the world's biggest central banks, representing countries that annually produce more than $51 trillion of gross domestic product, three-quarters of the world's economic output.
  • Fed Puts Deal Freeze on Big Banks. The Federal Reserve is pushing large U.S. banks to forget about all but the smallest acquisitions for a while amid a raging debate over the risk big lenders pose to the financial system. The Fed this year told Capital One Financial Corp. not to pursue more major deals in the near term after its $9 billion purchase of ING Groep NV's U.S. online-banking business, said people familiar with the conversations. The deal made Capital One, McLean, Va., the nation's fifth-largest bank by deposits, according to Federal Deposit Insurance Corp. data.
  • Hedge Funds Stride the Stage of World Affairs. With the right idea at the right time, and with the requisite financial firepower, hedge fund investors can exert significant political and economic influence. That may even prompt political scientists and economists to consider analyzing hedge funds the way they do trade unions and political parties.
  • Obama Says U.S. Will Recognize Syrian Rebels. President Obama said Tuesday that the United States would formally recognize a coalition of Syrian opposition groups as that country’s legitimate representative, intensifying the pressure on President Bashar al-Assad to give up his bloody struggle to stay in power.
Zero Hedge:
Business Insider:
  • U.S. oil prices could sink to $50. U.S. oil prices could sink to $50 a barrel at some point over the next two years, according to analysts at Bank of America Merrill Lynch.
  • The real debt problem: What will eat the tax dollars. Often missing from the hyper-politicized debate over spending cuts and tax increases is a central point: Why the federal budget is on an unsustainable course. Today, the United States spends about 71 cents of every federal tax dollar it collects on the Big 4: Medicare, Medicaid, Social Security and interest on the debt.
  • Cliff chaos: Hundreds of billions apart. The bellowing on Capitol Hill about which side has offered more “specifics” to resolve the fiscal cliff showdown masks a larger problem for Washington: The two sides are still hundreds of billions of dollars apart on revenue and entitlement cuts. Not to mention, Republicans and Democrats are also light-years apart on policy details that back up those budget targets. That’s why there’s increasing skepticism in Washington that a deal actually can be reached before Jan. 1, and the country will go over the fiscal cliff.
  • DuPont(DD) boosts forecast; to buy back $1 billion in shares. DuPont boosted its 2012 forecast and announced a $1 billion stock buy back on Tuesday. The chemical company now expects profit this year to be at the high end of its forecast to earn $3.25 to $3.30 per share. Analysts expect earnings of $3.29 per share, according to Thomson Reuters I/B/E/S. Shares of DuPont rose 2.2 percent to $44.65 in after-hours trading.
  • Compromise emerges in global talks on Internet oversight. Hopes rose on Tuesday for a compromise agreement that would keep intrusive government regulation of the Internet from being enshrined in a global treaty. As a 12-day conference of the International Telecommunication Union drew near its Friday closing, the chairman of the gathering in Dubai circulated a draft that sidelined proposals from Russia, China and other countries that have been seeking the right to know where each piece of Internet traffic comes from. "The United States believes it is the basis for any further progress toward reaching an agreement at this conference," said U.S. Ambassador Terry Kramer, who had led Western opposition to the earlier proposals.
Evening Recommendations 
  • Rated (DECK) Buy, target $50.
  • Rated (TRIP) Buy, target $49.
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 111.0 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 85.75 -.5 basis point.
  • FTSE-100 futures +.03%.
  • S&P 500 futures -.10%.
  • NASDAQ 100 futures -.05%.
Morning Preview Links

Earnings of Note

  • (JOY)/1.91
  • (COST)/.93
  • (RH)/.03
  • (NX)/.21
Economic Releases
 8:30 am EST
  • The Import Price Index for November is estimated to fall -.5% versus a +.5% gain in October.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,500,000 barrels versus a -2,357,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +2,000,000 barrels versus a +7,860,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,100,000 barrels versus a +3,027,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a +2.0% gain the prior week.
12:30 pm EST
  • The FOMC is expected to leave the benchmark fed funds rate at .25%.
2:00 pm EST
  • The Monthly Budget Deficit for November is estimated to widen to -$170.0B versus -$137.3B in October.
Upcoming Splits
  • (MTX) 2-for-1
Other Potential Market Movers
  • The Fed's Bernanke speaking, Spanish 10Y bond auction, Eurozone inflation data, UK jobless rate, Eurozone Financial Minsters meeting, OPEC meeting, weekly MBA mortgage applications report, 10Y T-Note auction, Oppenheimer Healthcare Conference, (AKAM) analyst meeting, (TSO) analyst presentation, (ENR) investor conference, (AET) investor conference, (HI) investor day, (ABC) investor day, (EMN) investor day and the (BF/A) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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