Monday, February 25, 2013

Monday Watch

Posted by Gary .....at 12:30 AM
Weekend Headlines 
Bloomberg:
  • U.K. Stripped of AAA Rating by Moody’s Amid Outlook Weakness. Britain lost its top credit rating by Moody’s Investors Service, which cited weakness in the nation’s growth outlook and challenges to the government’s fiscal consolidation program. The rating on the U.K. was lowered one level to Aa1 from Aaa and the outlook on the nation’s debt changed to stable from negative, Moody’s said in a statement yesterday. With the U.K.’s high and rising debt burden, deterioration in the government’s balance sheet is unlikely to be reversed before 2016, Moody’s said in the statement. “We don’t expect much market impact from the downgrade, it was widely expected,” David Tinsley, an economist at BNP Paribas SA in London, said today in an e-mail. “The bottom line is that the U.K. needs to find some growth to raise tax revenues.” 
  • Correlation at Four-Year Low Leaves Europe Stocks Missing Rally. Euro-region stocks are missing this year’s global rally as four years of lockstep moves in markets break down amid diverging outlooks for economic growth. Correlation between the Euro Stoxx 50 Index and the MSCI All-Country World Index of 45 developed and emerging markets has fallen to 77 percent, the lowest level since the collapse of Lehman Brothers Holdings Inc. in 2008, according to data compiled by Bloomberg. The European gauge has dropped 0.2 percent in 2013.
  • H.K. Weekend Property Sales Fall on Doubled Stamp Duty. Residential property sales in Hong Kong fell after the government doubled a sales tax, saying bubble risks are spreading in the world’s most expensive place to buy an apartment. Secondary sales for the 15 most popular housing estates fell 15 percent at the weekend from the previous weekend, according to Buggle Lau, chief analyst at Midland Holdings Ltd., the city’s biggest publicly traded realtor. The stamp duty on all properties above HK$2 million ($258,000) was raised to as much as 8.5 percent of the purchase price.
  • China to Expand Short-Selling Program as Part of Reform. China will expand its short-selling program on Feb. 28 by allowing selected brokerages to borrow shares from institutional investors, the Shanghai Securities News reported. Eleven brokerages will be able to borrow shares in a pre- approved pool of 90 publicly traded companies, according to the report, which cited China Securities Finance Corp. The state- owned agency was set up to provide securities firms with funds and stock for short-selling and margin trading. The expansion of short-selling -- in which investors sell borrowed shares in the expectation of profiting when they fall - - will increase the efficiency of China’s equity market, help manage risks and boost brokers’ revenue, the report said. 
  • KFC Growth Seen Slowing as Indonesia Limits Franchisees. Yum! Brands Inc. (YUM), owner of the KFC and Pizza Hut dining chains, and other fast-food companies may be forced to slow store growth in Indonesia, the world’s fourth- most populous nation, because of government rules to protect small businesses. 
  • Fed’s Tarullo Sees Remaining Contagion Risk in Bank Liabilities. Federal Reserve Governor Daniel Tarullo said large banks are vulnerable to runs from non-deposit liabilities, and regulators need to do more to curb such risk. “These vulnerabilities involve both large, prudentially regulated institutions, and thus too-big-to-fail concerns, and the broader financial system,” Tarullo said today in the text of remarks to the Cornell International Law Journal Symposium in New York. “The liability side of the balance sheets of financial firms has been barely addressed in the reform agenda.” Fed bank supervision and monetary policy is increasingly focusing on stemming threats to financial market stability. Tarullo, the Fed governor in charge of financial regulation and bank oversight, has worked with Chairman Ben S. Bernanke on the overhaul of the central bank’s risk surveillance and bank oversight. 
  • Rebar Trades Near One-Month Low on Property Curb Expectation. Steel reinforcement-bar futures traded near a one-month low in Shanghai as investors cut their exposure to the building material amid signs of tighter control on property investment. Rebar for October delivery dropped by as much as 0.9 percent to 3,998 yuan ($641) a metric ton on the Shanghai Futures Exchange, the lowest since Jan. 22, before trading at 4,028 yuan at 10:32 a.m. local time. The contract lost 5.6 percent last week.
  • Commodities May Drop on Moving-Average Sign: Technical Analysis. Commodity prices, heading for the biggest weekly drop since early December, may fall an additional 7.2% in the next two months, according to technical analysis by Futurepath Trading LLC. The S&P's GSCI Spot Index of 24 raw materials may fall to 610 by April 30 from yesterday's settlement of 657.31 after the gauge dropped below the 50-day moving average for the first time since December, said Paul Kavanaugh, the Chicago-based director of business development. "Market action is suggesting that we may see some declines," said Kavanaugh, who correctly predicted in January that gold would drop below $1,600 an ounce by March. "The tone of the market has changed."
  • Gold Bets Cut by Most Since ’07 as Sugar Bears Grow: Commodities. Hedge funds cut bets on a rally in gold by the most since 2007 and became the most bearish ever on sugar and coffee as concern that the Federal Reserve will slow U.S. stimulus programs drove prices for raw materials to the biggest loss this year. Money managers and other large speculators reduced their net-long position in gold futures and options by 40 percent in the week ended Feb. 19 to 42,318, the biggest drop since July 31, 2007, U.S. Commodity Futures Trading Commission data show. Wagers across 18 U.S. raw materials tumbled to the lowest since December 2011 as investors’ net-short positions for sugar and coffee hit record highs. Bullish corn wagers fell the most since June 2010.
  • BHP(BHP) Says Cost Cutting Needed to Meet Falling Demand for Minerals. BHP Billiton Ltd. (BHP), the world’s biggest mining company, said a slowdown in demand for minerals over the next five years makes cutting costs and boosting productivity a priority. “I’m committed to drive an agenda of productivity and that will almost certainly” be a “top theme,” Andrew Mackenzie, the Melbourne-based company’s newly appointed chief executive officer, said in an interview with the Australian Broadcasting Corp. today, according to a transcript. 
  • McCain Says Hagel Not Qualified for Defense, Sees Full Vote. U.S. Senator John McCain said Chuck Hagel isn’t qualified to be secretary of defense while predicting that the former lawmaker will receive a Senate vote, barring any further disclosures about his past statements. “I do not believe that Chuck Hagel, who is a friend of mine, is qualified to be secretary of defense,” Republican McCain said on CNN’s “State of the Union” program today.
  • Iran Says Uranium Reserves Almost Tripled as 16 Plants Planned. Iran said recent discoveries of uranium resources have almost tripled the country’s reserves of the radioactive fuel and that it plans to build reactors at 16 new locations, Iranian news agencies reported. Finding domestic supplies of uranium to fuel Iran’s civilian power program is the country’s top priority, Atomic Energy Organization of Iran head Fereidoon Abbasi told reporters yesterday at an annual industry meeting in Tehran, Fars News Agency said. Iran now has about 4,400 tons of raw uranium, up from 1,527 tons, the Islamic Republic News Agency said, citing Abbasi. 
Wall Street Journal:  
  • Fresh Front in Budget Battle. Congressional Leaders Discuss Deal to Avert Shutdown at Cost of Extending Cuts. Already looking past the current budget impasse gripping the capital, congressional leaders are quietly considering a deal to avert a government shutdown next month—but at the cost of prolonging across-the-board spending cuts. Attention is beginning to shift from Friday, when the broad cuts known as the sequester kick in, to the next budget deadline: Congress must pass a so-called continuing resolution by the end of March to keep funding government operations.
  • Brazil Bank Prioritizes Inflation Fight. The Brazilian central bank's priority is fighting inflation, and not spurring growth, its president said in an interview before policy makers meet to set interest rates, even as Latin American's biggest economy struggles to escape a long stretch of slow growth. Brazil's economy expanded around 1% in 2012, down from 7.5% as recently as 2010. At the same time, annualized inflation hit 6.2% in mid-February, close to the maximum the government has said it would tolerate. Analysts say the perception of dueling policies aimed at stimulating the economy and tamping down inflation have created confusion in the market, causing the Brazilian real to gyrate from multi-month lows to highs in the space of a few months. "Our goal is inflation, so we have to adjust and calibrate our policies to meet our goals," Central Bank President Alexandre Tombini told The Wall Street Journal. "Growth is not a goal for the central bank." 
  • 'Lost Generation' Feels Italy's Fiscal Squeeze. Forty-Somethings Pay Price of Austerity in Higher Taxes, but Will Reap Lower Pension Benefits. Forty-something Italians are facing austerity for the rest of their working lives—just as they have since becoming adults. "We are the lost generation," says Andrea Bolla, the 46-year-old chief executive of energy provider Vivigas and the Valdo Prosecco winery near the northern city of Verona. He says he pays more taxes and receives fewer services while navigating more red tape than his father did while running the family businesses.
Marketwatch.com:
Fox News: 
  • Lawmakers, officials list problems cuts would bring, but appear no closer to compromise. Lawmakers from the White House to Capitol Hill to the Western Plains agree that the fast-approaching, $85 billion in cuts to the federal budget jeopardize everything from combat readiness to pre-K programs. But they also express little optimism about a deal to avert the reductions before they kick in Friday. All of them made their case over the weekend for President Obama along with congressional Democrats and Republicans to reach a budget deal to avert the cuts -- known as sequester. However, both parties accused each other of extending the stalemate. “It will kick in,” Oklahoma Republican Sen. Tom Coburn told “Fox News Sunday.”  "The reason there is no agreement is because there's no leadership from the president on actually recognizing what the problem is." 
CNBC: 
  • Bernanke's Challenge: Prime Markets for End of QE. Federal Reserve Chairman Ben Bernanke is preparing for a most sensitive task: telling jittery investors who have grown accustomed to the U.S. central bank's ultra-easy monetary policies that things will eventually have to change.
Business Insider:  
Wall Street All-Stars:
Examiner.com:
  • Industry experts worry GM(GM) subprime spree could trigger auto loan bubble. General Motors has the highest auto loan delinquency rate in the industry due to its increasing reliance on subprime customers, a fact some experts fear could lead to a bubble like the one that wrecked the housing market in 2007 and produced the Great Recession of 2008. "High production costs and falling profit-per-car have led auto manufacturers to turn to financing to earn higher profits. Automakers have capitalized on lending by not only loaning money to customers but also packaging and selling those loans to investors in a manner similar to the sale of mortgage-backed securities that created the housing bubble," according to the Washington Free Beacon's Bill McMorris. "The dramatic increase in securitization has coincided with GM's acquisition of AmeriCredit, one of the nation's largest subprime auto lenders, which it renamed GM Financial (GMF)," McMorris said. John Berlau of the Competitive Enterprise Institute, a Washington think tank, and Ed Niedermeyer, a veteran automotive industry analyst, told McMorris they see multiple worrisome signs on the horizon.
New York Post:
  • Amazon(AMZN) Original Series Plans Heat Up. Just about everyone in Tinseltown has been bowled over by Netflix’s first big original series, “House of Cards.” Now it’s Amazon’s turn to prove it can pick a hit show for its rival streaming service, although it’s taking a decidedly different tack.
Reuters:
  • Tens of thousands in Spain protest economic policy, corruption. Tens of thousands of Spaniards marched through cities across the country on Saturday to protest deep austerity, the privatization of public services and political corruption. Gathering under the banner of the "Citizen Tide", students, doctors, unionists, young families and pensioners staged rowdy but non-violent demonstrations as a near five-year economic slump shows no sign of recovery and mass unemployment rises.
  • Hedge funds grow nervous after credit rally. Hedge fund managers who profited from a huge rally in credit since last summer are seeking ways to protect themselves against a sharp market sell-off if investor confidence evaporates. Managers have been selling some bonds, increasing short positions or moving away from areas of the market more sensitive to a swing in sentiment, following a 38 percent drop since June in the iTraxx index, which measures the credit risk premium for a basket of high quality European bonds.
  • Gloomy Italians vote in election crucial for euro zone. Italy voted on Sunday in one of the most unpredictable elections in years, with many voters expressing rage against a discredited elite and doubt that a government will emerge strong enough to combat a severe economic crisis. "I am pessimistic. Nothing will change," said Luciana Li Mandri, 37, as she cast a ballot in the Sicilian capital Palermo on the first of two days of voting that continues on Monday. "The usual thieves will be in government."
The Economist:  
  • New European economic forecasts. The ever-receding recovery. A WEEK after official figures showed a steep fall in euro-zone output in late 2012 the European Commission (EC) has added to the gloom by unveiling some gloomy forecasts for 2013. Three months ago the EC envisaged a modest recovery getting under way in the first half of this year. Now that is not expected until the second half of 2013.
Telegraph:
Stuttgarter Zeitung:
  • Schaeuble Says Won't Be Pressured on Cyprus Aid. Proof that Cyprus is systemically relevant for the stability of the euro region is a precondition for German parliamentary approval of any aid to the country Finance Minister Wolfgang Schaeuble. France will adhere to its European obligations in lowering its budget deficit, he also said. It is in Italy's interest to continue policies carried out by Prime Minister Mario Monti after the elections, Schaeuble said.
Prensa Latina:
  • Russia's Medvedev Warns U.S. on Europe Missle Shield Plans. He said Russia still believes U.S. anti-missile defense plans for Europe directed against Russian nuclear capability. Implementation of the plan would have "extremely unpleasant" consequences for international relations as Russia would be forced to respond. Russia also opposes U.S. sanctions on Cuba, he said.
Want China Times: 
  • Crisis looms as local government debt to mature this year. China's local government debt crisis has been getting worse as national statistics show that 53% of local government debt will be due by the end of 2013, when local governments enter a peak period for repaying loans. Financial reports recently issued by various local governments have all issued warnings, including information that they have been under heavy pressure to repay debts and deal with local financial risks that could not be ignored. China's National Audit Office says 42% of the debt was due by the end of 2012. This year the local government debt crisis is greater than in the past few years due to increasing debts and mounting pressure to repay amid an economic slowdown and declining financial revenue, warned Zhao Quanhou, director of the Research Office of Finance under the Ministry of Finance's Research Institute for Fiscal Science.
Xinhua:
  • China's Military to Implement Rules to Manage Spending. China's military will give priority to ensuring combat readiness as it seeks to control non-urgent infrastructure investments, citing a rule approved by Xi Jinping, chairman of the Communist Party of China Central Military Commission.
China Securities Journal:
  • China May Release Detailed Rules on Property Control. Some Chinese ministries and local governments may announce detailed rules to control property market "soon," citing a person familiar with the matter. Some of the measures will likely be announced before the National People's Congress and the Chinese People's Political Consultative Conference, according to the report. The CPPCC annual meeting will start on March 3 and the NPC will begin on March 5.
Weekend Recommendations
Barron's:
  • Bullish commentary on (TWI), (SU), (DKS), (ADT), (COH), (GLPW) and (CNQ).
Night Trading
  • Asian indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 108.50 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 83.0 -1.0 basis point.
  • FTSE-100 futures +.19%.
  • S&P 500 futures -.04%.
  • NASDAQ 100 futures -.05%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (DDD)/.38
  • (HTZ)/.31
  • (LOW)/.23
  • (DCI)/.38
  • (CTB)/.85
  • (ADSK)/.49
  • (TWI)/.47
Economic Releases
10:30 am EST
  • Dallas Fed Manufacturing Activity for February is estimated to fall to 3.0 versus 5.5 in January.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking, Chicago Fed National Activity Index for January, 2Y T-Note auction, Mobile World Congress, Morgan Stanley Tech/Media/Telecom Conference, Citi Healthcare Conference and the (DRI) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and automaker 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 week.

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