- Spain at 5.4% Risks Debt Snowball as Slump Deepens: Euro Credit. Spain's 10-year bond yields at 5.4% are too high for the nation to curtail its debts as a deepening recession thwarts attempts to rein in the euro area's second-largest budget deficit. "There will be a snowball effect of the debt because the rate isn't low enough to avoid deteriorating" in the debt-to-gdp ratio, said Axel Botte, a Paris-based strategist at Natixis Asset Management, which overseas $734 billion. "Spain is probably going to miss its deficit targets. Yields are still a bit high."
- Pimco Sees Spanish Bond Risk Rising on Rajoy Graft Allegations. Prime Minister Mariano Rajoy’s battle to rebut corruption allegations is adding to the risk of holding Spanish government debt, said Andrew Bosomworth, managing director at Pacific Investment Management Co. “There is uncertainty as to the continuation of the government’s policies and its leadership,” said Bosomworth in a phone interview yesterday. “At least some questions remain unanswered. That leads to uncertainty in the market.” The risk premium on Spanish 10-year debt jumped 29 basis points to 382 yesterday, the biggest one-day gain since September, while the country’s benchmark stock index, the Ibex-35, dropped 3.8 percent to the lowest close since Dec. 10.
- U.K. Economy Faces Risk of Prolonged Stagnation: NIESR. Britain’s economy will grow more slowly this year than previously forecast and stagnation may persist, according to the National Institute of Economic and Social Research.
- German Push to Accelerate Bank Bail-Ins Joined by Dutch, Finns. Germany, the Netherlands and Finland want to speed up European Union plans to force losses on senior bondholders of failing banks, three European government officials said. The three AAA rated euro-area states last week called for regulators across the EU to gain so-called bail-in powers as soon as 2015, rather than in 2018 as currently proposed, said the officials, who declined to be identified because the talks are private. The European Central Bank has warned that 2018 is “far too far away” for the new rules, which seek to insulate taxpayers and the euro area’s firewall fund from rescue costs.
- Euro Weakens on Italy, Spain Uncertainty; Aussie Drops After RBA. The euro fell against the yen, following yesterday’s drop which was the biggest since June, amid corruption allegations against Spanish Premier Mariano Rajoy and uncertainty ahead of Italian elections this month. “The risks are to the downside for euro and a correction back towards $1.34 seems very logical, given the speed with which we’ve moved so far,” said Robert Rennie, the chief currency strategist at Westpac Banking Corp. (WBC) in Sydney. Purchasing euro-zone assets becomes difficult “once you start to become concerned about the outlook for European politics.”
- Asian Stocks Fall on Europe Concerns. Asian stocks fell, dragging the regional benchmark equities index down from an 18-month high, amid renewed concern about Europe’s debt crisis. Konica Minolta Holdings Inc. (4902), a Japanese maker of imaging equipment that gets 28 percent of its sales in Europe, dropped 2.2 percent. Macquarie Group Ltd. (MQG) lost 3.2 percent amid concern full-year earnings may trail the Australian lender’s forecast. China Petroleum & Chemical Corp. fell 7 percent in Hong Kong after Asia’s biggest refiner said it plans to sell shares worth HK$24 billion ($3.1 billion) at 9.5 percent below yesterday’s closing price. The MSCI Asia Pacific Index (MXAP) slid 0.7 percent to 132.72 as of 11:38 a.m. in Hong Kong, with almost four stocks falling for each that rose. “It’s a return of worries about Europe,” said Shane Oliver, Sydney-based head of strategy at AMP Capital Investors Ltd., which has about $126 billion under management. “The market got very stretched and was due for a pullback, it was just a question of what the trigger would be. We could still see some further weakness this month.”
- World May Face ‘Perfect Storm’ on Capital Flows, Carstens Says. A “perfect storm” may be forming in the world economy as signs of a recovery spur capital flows to emerging markets and some advanced nations that may lead to asset bubbles, Banco de Mexico Governor Agustin Carstens said. “Risk appetite among investors has returned and the search for yield is in full force,” Carstens said in a speech in Singapore today. “The mood swing has been so strong that some fears have been expressed about financial markets being too optimistic, causing mispricing in some asset classes. Concern of asset-price bubbles fed by credit booms are starting to appear in some economies.”
- Bank of America's(BAC) Hedge-Fund Clients Boost Leverage in Asia. Hedge-fund clients of Bank of America Corp.'s Asian prime brokerage unit have increased their leverage since October as the market outlook improved, according to the second-largest U.S. bank by assets. Gross leverage, which tracks hedge funds' long and short positions as a multiple of the cash they get after selling all securities and repaying borrowings, have increased since late October through Jan. 17, said Ben Williams, Hong Kong-based head of Asia-Pacific financing sales in the bank's Merrill Lynch unit. "This move has been more significant than other years," Williams said in an interview.
- Iron Ore Seen Poised for Bear Market by Smirk on Rising Supply. Iron ore may decline 35 percent by the year-end after advancing to $170 a ton in the first half as mines in China boost production, cutting import demand in the world’s largest buyer, according to Westpac Banking Corp.
- House Leaders Weigh U.S. Spending Bill Below $1 Trillion. Republican leaders in the U.S. House of Representatives are considering a stopgap measure to fund the government for the rest of the fiscal year that could drop spending levels below $1 trillion. The measure, known as a continuing resolution, would fund the government through Sept. 30 at about $974 billion, well below the current level of $1.043 trillion, Representative James Lankford, an Oklahoma Republican, said yesterday. “It’s a serious cut,” Lankford, a member of the House Budget Committee said in an interview. “That’s significant.”
- Rove’s Move Into Republican Primaries Enrages Tea Party. Rove’s group “is created with the sole operating mission of blocking the efforts of fiscally conservative activists across the country,” Kibbe said, according to the FreedomWorks blog.
- Turmoil Returns to Europe Markets. Scandals in Spain and Italy Rock Euro as Well as Stocks, Bonds in Southern Section of Continent. The confluence of a political scandal in Spain and a banking scandal in Italy sparked a flight from bonds and stocks in Europe's south and pummeled the euro—a market move reminiscent of the tough days of the euro crisis that the region's leaders thought were behind them. The Italian stock market fell 4.5%, beaten down by struggling banks. Spanish 10-year bonds slumped to a yield of 5.42%, their weakest level since mid-December. The euro lost more than a penny against the dollar to $1.3514 late Monday. Most worrying, money moved in a wave from weak European countries to strong: Bonds of Spain, Italy, Greece, Ireland and Portugal all weakened. Those of Austria, Germany, Finland and the Netherlands strengthened.
- Chinese Firms Shrug at Rising Debt. Chen Qiang runs a Chinese shipbuilding company that expects to post a net loss for 2012 and whose $4.5 billion in debt is six times what it was three years ago. In the first half of last year it received only two new orders. Mr. Chen is unfazed. The chief executive of China Rongsheng Heavy Industries Group Holdings Ltd. 1101.HK -3.40% plans to maintain staffing levels and even start hiring globally as part of efforts to win orders for ships used in offshore energy drilling—a new business that he says could generate half of the company's new ship orders within three to five years. As for its heavy debt load, Mr. Chen is confident the company's state-run lenders are satisfied with the firm's health. "The government supports us because they see a bright future," he explains.
- EU Targets Money Laundering. Tough rules to combat dirty cash and terrorist money in the European Union, including scrutiny of online gambling and the setting up of trusts, will be set out in a European Commission proposal Tuesday. The draft legislation, seen by the Wall Street Journal, would beef up EU rules targeting money laundering, which date back to 2005. If adopted, first by the European Parliament and then by individual countries in the EU, the proposed legislation would make online-gambling sites keep records about the identities of individuals betting more than €2,000, or about $2,700. Similar rules already apply to casinos.
- Unions Seize on Immigration Debate. Seeing Chance to Boost Ranks, Organized Labor Presses Politicians on Overhaul; the Hispanic Factor.
- Crime That No Longer Pays. The recent surge in cybercrime comes with a silver lining: Bank robberies are plummeting, as criminals seem to wise up to the fact that heists just don't pay like they used to. Bank holdups have been nearly cut in half over the past decade—to 5.1 robberies per 100 U.S. banks in 2011. Though the nationwide crime rate is dropping, the decline in bank robberies far exceeds the decline in other crimes, according to Federal Bureau of Investigation data.
- Tangle of Ties Binds SEC's Top Ranks. Enforcement cases at the Securities and Exchange Commission go nowhere unless approved by a majority of the agency's commissioners. But conflicts for the possible new chairman and other top officials could make it harder to get to "yes."
- Money Funds Beset by Excess CashLook Out Below: Money Funds Are Chasing Riskier Assets. Money-market funds have a high-quality problem: investors are entrusting them with too much cash. The flood of money is prompting the funds, which buy short-term, top-rated debt, to seek higher returns in investments that until recently were seen as too risky, including French bank debt.
- The GOP's ObamaCare Flippers. How the law's perverse incentives—and the health lobby—captured Arizona's Governor.
- Senators demand secret memos on targeted killing. Eleven senators sent a letter to President Obama on Monday demanding access to secret legal memos outlining the administration’s case for the targeted killing of U.S. citizens in counterterrorism operations overseas. The letter from eight Democrats and three Republicans contained the most forceful warning to date that lawmakers were considering blocking Obama’s nominees to run the CIA and Pentagon unless the memos are turned over.
- Texas to California businesses: Move here! Perry has launched a high-profile battle for California companies, running radio ads in California touting the Lone Star State's low taxes and favorable business climate. The ads will be heard in San Francisco, Sacramento, Los Angeles, San Diego and the Inland Empire area east of Los Angeles.
- Obamacare’s Pressure Points. There are at least nine stumbling points in its implementation.
- Yum(YUM) stumbles badly in China, warns on profit. KFC parent Yum Brands Inc warned on Monday that it expects 2013 earnings to shrink rather than grow as it struggles to manage a food safety scare in China, and sees no return to growth in restaurant sales there until the fourth quarter. Yum shares fell 5.6 percent in after-hours trading, as Wall Street analysts and investors digested the disappointing news from the company that is widely seen as a model for how to do business in the complex Chinese market. "This is going to take all the experts they have in public relations to stem the tide. I don't think anyone saw this coming," Edward Jones analyst Jack Russo said. Yum reported a 6 percent drop in fourth-quarter sales at established restaurants in China due to "adverse publicity" regarding chemical residue found in some of its chicken supply. Its China business continued to suffer in January, when same-store sales dropped 37 percent, including a 41 percent fall for KFC and a 15 percent decline for Pizza Hut Casual Dining. Yum expects China's same-store sales to be down 25 percent for the first quarter, which includes only the months of January and February.
- Baidu(BIDU) revenue and profit growth rate slow in fourth quarter. Baidu Inc , China's largest search engine company, reported its slowest profit growth since 2009, as competition in the sector heats up and more users switch to mobile search. Shares of Baidu were down 6.7 percent at $100.01 in after hours trading on Monday. Baidu had previously warned of a soft fourth quarter as China's economy slows. Industry analysts warn that rapidly changing user habits and an increasingly crowded search market could weigh on revenue in the near future.
- New York's post-Sandy home buyouts could cost $400 mln. New York state could spend up to $400 million of its federal recovery money to buy out property owners whose homes were destroyed during Superstorm Sandy, a governor's administration source said on Monday.
- Knight Capital Group(KCG) to cut workforce by 5 pct. Knight Capital Group, which recently agreed to be bought for $1.4 billion by Getco Holding Co, will lay off 5 percent of its global workforce as part of efforts to restructure the automated trading firm, according to a regulatory filing released on Monday.
- Obama to meet with Goldman's Blankfein, other CEOs Tuesday. President Barack Obama will meet with chief executives from 12 companies including Goldman Sachs Group Inc's Lloyd Blankfein and Yahoo Inc's Marissa Mayer on Tuesday to discuss immigration and deficit reduction.
- Brace for a stock market accident. Profits and leverage are locked in a deadly embrace. Leverage is hence the fly in the ointment, begging the obvious question: when does the deleveraging take place? Answering this question is tantamount to timing the next major bear market. It is, of course, futile to predict a date, but as economist Herbert Stein used to say, if something cannot go on for ever, it will stop. It is increasingly obvious that governments will take no active step towards deleveraging unless they are under the gun. But there are institutions and mechanisms that will trigger deleveraging, namely: Basel III, the bond market, default and, rarely, courageous politicians. Inflation can also help delever, except in economies where social entitlements are inflation-indexed. In the short term, it is clear that central banks need to entertain the illusion of viable stock market valuations by pulling rabbits from a hat. But as high-powered money reaches ever higher levels, the probability of accidents looms large.
- Online sales threat to American malls. Credit market investors are falling out of love with US shopping malls as up to 15 per cent of the country’s suburban retail centres are forecast to close over the next five years in the face of online competition.
- ECB told to double its manpower. The European Central Bank will need to more than double its manpower and hire around 2,000 bank supervision staff to put the eurozone's banking union into practice, according to a confidential study for the ECB. The consultancy report, commissioned by Mario Draghi and the ECB executive board and submitted last month, recommends a rapid build-up so Frankfurt has the resources and clout to fulfil properly its supervision role and protect its reputation.
- China detained a woman with multiple names who owned 41 Beijing properties on Feb. 4, citing local police. The woman is suspected of forging official documents and seals, police in Shenmu city in the northern Chinese province of Shaanxi said.
- China Banks Should Control Credit Size in January. China's banks should control credit size in January to "maintain stable lending," according to a commentary on the microblog.
- Rated (ULTA) Outperform, target $120.
- Rated (VSI) Outperform, target $75.
- Asian equity indices are -1.5% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 120.5 +7.5 basis points.
- Asia Pacific Sovereign CDS Index 92.0 +3.75 basis points.
- FTSE-100 futures +.28%.
- S&P 500 futures +.13%.
- NASDAQ 100 futures +.08%.
Earnings of Note
10:00 am EST
- The ISM Non-Manufacturing Composite for January is estimated to fall to 55.0 versus 55.7 in December.
- None of ntoe
- The Eurozone Services PMI data, Eurozone retail sales data, weekly retail sales reports, IBD/TIPP Economic Optimism Index for February, Stifel Nicolaus Tech/Telecom Conference, Canadian Oil Sands Summit and the CSFB Energy Summit could also impact trading today.