Monday Watch

Weekend Headlines 
Bloomberg:  

• EU Chiefs Seeking to Stave Off Euro Crisis Turn to Cyprus. European leaders grappling with political deadlock in Italy and spiraling unemployment in France will turn to a financial rescue for Cyprus in an effort to stave off a return of market turmoil over the debt crisis. European Union leaders will meet for a March 14-15 summit in Brussels to discuss terms for Cyprus, including the island nation’s debt sustainability and possibly imposing losses on depositors. That comes as Italy struggles to form a government after an inconclusive Feb. 24-25 election and as concern over the French economy mounts with unemployment at a 13-year high. “We haven’t turned the corner yet, but we’re on a good path,” German Finance Minister Wolfgang Schaeuble told Austria’s Der Standard newspaper in a March 8 interview. “It would be wrong at this point to change course.”

• Merkel’s FDP Partner Says ‘Hands Off ECB’ in Election Vow. German Economy Minister Philipp Roesler said he’ll fight attempts across Europe to weaken the euro, pledging that his Free Democratic Party will stand up for central-bank independence before federal elections on Sept. 22. Roesler, whose FDP is Chancellor Angela Merkel’s junior coalition partner, warned in a speech to a party convention in Berlin of a “new danger” emerging in Europe as governments resist austerity and policies to boost competitiveness and instead discuss artificially devaluing the euro. Such moves risk spurring inflation, hurting those on middle incomes, savers and retirees, he said today. “That’s why we’re fighting so hard for a stable currency,” Roesler said. “That’s why we view attempts to impose political influence on the independence of the European Central Bank as lethal. That’s a threat to stable money. That is why we as Free Democrats say: ‘Hands off our ECB.’” 

• Li Says 'Hard to Say' Whether China Rate Boost Will Be Needed. CPI to be "relatively well' controlled at around 3% this year, Bank of China President Li Lihui said in an interview in Beijing.

• China’s Economic Data Show Weakest Start Since 2009. China’s retail sales and industrial output had their weakest combined start to a year since the global recession in 2009, adding to signs of a moderating rebound in the world’s second-biggest economy. Retail sales increased 12.3 percent in the first two months of 2013 from a year earlier and industrial production rose 9.9 percent, the National Bureau of Statistics said yesterday in Beijing. Both numbers trailed economists’ estimates. February inflation, distorted by a weeklong holiday, accelerated to 3.2 percent. “The time is still way off for an explicit policy change” such as raising interest rates or banks’ reserve requirements, Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a note. The recovery is being led by “fast investment growth” and “could falter once monetary policy becomes tight on concerns of rising risks of inflation” and a property bubble. The gain in retail sales was below the lowest economist projection of 13.8 percent and was the smallest for a January- February period since 2004. The increase in factory output compared with the 10.6 percent median estimate in a Bloomberg survey and was the weakest for the first two months since 2009. 

• China Streamlines Maritime Law Enforcement Amid Island Disputes. China brought the law-enforcement arms of its maritime agencies under one body, a move aimed at protecting the country’s interests as it presses territorial claims in the East and South China Seas. The State Oceanic Administration will oversee the coast guard, fisheries law-enforcement and the smuggling police, which now fall under separate ministries, a report to the National People’s Congress, the country’s legislature, said yesterday. The administration also has a law enforcement arm.

• Rebar Falls to Two-Month Low as China Shows Weaker Start to 2013. Steel reinforcement-bar futures fell to the lowest in more than two months after China’s industrial output had the weakest start to a year since 2009. Rebar for delivery in October on the Shanghai Futures Exchange fell by as much as 1.6 percent to 3,867 yuan ($622) a metric ton, the lowest level for a most-active contract since Dec. 27, and was little changed at 3,928 yuan at 10:40 a.m. local time. The contract declined for a third week last week.

• China Unveils Rail Ministry Breakup to Curb Corruption. China will dismantle its rail ministry as the nation’s new leaders pare bureaucracy and battle graft in a department that has more than 2 million employees and a debt load larger than Denmark’s economy.

• China’s Stocks Drop for Third Day as Data Spurs Economy Concerns. China’s stocks fell, heading for their longest losing streak in three months, as the country’s industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed. Ping An Bank Co. led lenders lower after the nation’s new loans last month trailed analyst estimates. Liquor maker Sichuan Swellfun Co. dropped among consumer companies after the country’s retail sales growth in the first two months was the smallest for that period since 2004. “The economic recovery is weaker than expected,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages $120 million. “Investors are worried that stocks may already have moved ahead of fundamentals.” The Shanghai Composite Index (SHCOMP) dropped 0.8 percent to 2,299.17 at 9:39 a.m. local time.

• Japan Machinery Orders Fall 13% in Sign of Limits on Investment. Japan’s machinery orders plunged 13 percent in January, the biggest decline in eight months, signaling limits on corporate investment as Prime Minister Shinzo Abe tries to drive an economic revival. The decline from the previous month, announced by the Cabinet Office today in Tokyo, compared with the median estimate in a Bloomberg News survey of 26 economists for a 1.7 percent fall. Today’s data are a reminder that business investment will not drive the recovery, said Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong. “Looking ahead, we expect accelerating consumption, residential and public investment,” Devalier said. “But given that exports are trending at still-weak levels, it will take more time before we see the improved business environment spurred by the weak yen and increased manufacturer optimism translate into robust corporate investment.”

• Abe's Quadrillion Yen Debt Risk at Pre-Quake Level: Japan Credit. Two years after a record earthquake devastate Japan's northeast, Prime Minister Shinzo Abe has driven the nation's bond risk to levels from before the disaster with a plan that will add to the world biggest debt burden. The cost to insure Japan's government bonds from non-payment for five years decreased to 61 basis points on March 7, the lowest close since November 2010 and down from as much as 155 in October 2011. Abe's nominee for Bank of Japan Governor, Haruhiko Kuroda, plans to boost buying of longer-term JGBs to stimulate growth, dismissing concerns of his predecessor that doing so risks creating a debt crisis. Outstanding JGBs will swell to 1,014.9 trillion yen($10.7 trillion) in fiscal 2022 from 732.2 trillion yen in the 12 months starting April 1, according to government estimates. Total public debt including borrowings amounted to 997 trillion yen at the end of last year, closing in on the quadrillion level. 

• Fukushima Toxic Waste Swells as Japan Marks Mar. 11. Every morning, 3,000 cleanup workers at the Fukushima disaster site don hooded hazard suits, air-filtered face masks and multiple glove layers. Most of the gear is radioactive waste by day’s end. Multiply those cast-offs by the 730 days since a tsunami wrecked the Dai-Ichi nuclear station two years ago and the trash could fill six Olympic swimming pools. The tens of thousands of waste bags stored in shielded containers illustrate the dilemma of dealing with a nuclear accident: Everything that touches it becomes toxic. 

• North Korea Threatens South’s Defense Minister Nominee. North Korea threatened to target the South Korean defense minister nominee after he vowed to respond to attack by the North by toppling the regime. A retired general and former deputy commander of the U.S.- South Korea Combined Forces, Kim Byung Kwan will be the “first target in the great war for national reunification” should he continue his criticisms, a spokesman for the North Korea-based Committee for the Peaceful Reunification of Korea said in a statement carried by the Korean Central News Agency March 9. 

• Australian Central Bank Hacked by China Malware, AFR Says. The Reserve Bank of Australia was repeatedly and successfully hacked in a series of cyber-attacks with malicious software developed in China, the Australian Financial Review reported. Australia’s central bank has responded by hiring a private security firm to carry out penetration testing, or authorized hacking of its computer networks, to assess its security, the newspaper said.

• Karzai Accuses U.S. of Taliban Collusion as Hagel Visits. Defense Secretary Chuck Hagel was greeted on his first visit to Afghanistan since taking office by suicide bombs, threats and Afghan President Hamid Karzai’s accusation that the U.S. is colluding with the Taliban. As Hagel prepared to leave a U.S. military compound in Kabul on March 9, a Taliban suicide bomber blew himself up outside the Ministry of Defense, and another suicide bomb detonated in Khost province. Yesterday, Karzai said that those attacks, which together killed 19 people, aided U.S. goals.

• Cheapest Treasuries Since ’11 Alluring to Gundlach as PCE Falls. The sudden slowdown in U.S. inflation has left Treasuries at the cheapest levels in almost two years, aiding the Federal Reserve’s efforts to tamp down long-term borrowing costs while the economy improves. 

Wall Street Journal: 

• Job Numbers Are Good, but Some Perils Loom. No jobs report is without its disappointments, and this one was no exception: The drop in the unemployment rate was driven in part by job seekers who gave up their search, and the employment gains were concentrated among part-time workers. What is worse, long-term unemployment, which had been showing signs of improvement, rose in February. The average unemployed American has been out of work for more than eight months, and more than a quarter have been looking for at least a year.

• Silver Spring Networks Looks to Tap 'Smart Grid'. Energy-technology company Silver Spring Networks Inc. plans to bring an initial public offering to market this week, a deal from a once-hot sector that has been largely dormant this year. The IPO market has produced big trading gains from companies in the financial, industrial, health-care, consumer and energy sectors. But flotations in the technology field have been unusually tame. Silver Spring's modest $66.7 million offering will be the sector's second, and largest, this year, according to Ipreo, a market-intelligence firm.

• Commodities Squeeze Banks. Tough Rules, Quiet Markets Reduce Profits From Trading Oil, Metals, Soybeans.

• A New Obama? The Republican response should be don't trust but verify.

• Bjorn Lomborg: Green Cars Have a Dirty Little Secret. Producing and charging electric cars means heavy carbon-dioxide emissions.

Fox News: 

• Park ranger: Supervisors pushed sequester cuts that visitors would see. Another federal employee has come forward to claim the Obama administration resisted efforts to ease the impact of sequester.

• White House suspends public tours, but first family trips in full swing. Visitors to the nation's capital looking for a White House public tour are out of luck starting this weekend, courtesy of what the Secret Service says is its own decision to deal with the sequester cuts. But while the agency said it needed to pull officers off the tours for more pressing assignments, the budget ax didn't swing early or deep enough to curtail a host of recent Secret Service-chaperoned trips like President Obama's much-discussed Florida golf outing with Tiger Woods and first lady Michelle Obama's high-profile multi-city media appearances.

CNBC:

• Is China's Role as 'World's Factory' Ending? (video)

• In China, Checklist for a Home Seller: First, Get a Divorce.

Zero Hedge:

• Meet The New US Petroleum Pipelines. (graph) Still confused why crony capitalist #1, the "rustic" Octogenarian of Omaha, and Obama tax advisor #1, Warren Buffett has been aggressively attempting to corner the railroad market, while the administration relentlessly refuses to allow assorted new, and very much competing petroleum pipelines from America's neighbor to the north to cross through the US (in gratitude for the former's generous "tax advice" and pedigree by association)? Hint: it's not concern about the environment. The answer is the chart below. 

• Watch Out For Falling Objects: US Share Of Total Chinese Exports Plunges To All Time Low. (graph)

• Jim Rogers: We're Wiping Out The Savings Class Globally, To Terrible Consequence.

• China To Japan: Hand Over The Senkakus Or Your Economy Gets It. (graph)

• Fed Injects Record $100 Billion Cash Into Foreign Banks Operating In The US In Past Week. (graphs)

• What "Austerity"? (graph)

• Sequestration And The Death Of Mainstream Journalism.

• The Global End Game. (video)

• China: Beyond The Miracle.

• This Is Why Central Planners Are So Scared of Italy's Beppe Grillo.

Business Insider: 

• DAVID WOO: The Economy In March Will Be 'Decisively Slower' And There's Already One Worrisome Sign.

• There's A Massive Difference In Unemployment Between Those With A College Degree And Those Without. (graph) 

• Here's What Happens In France When Companies Fire People. 

• Betting Site InTrade Is Completely Shutting Down Trading. The full text of the memo is pasted below the dotted line. The memo hints at restoring services eventually, although the wording is very vague.

Wall Street All-Stars:

• Indicator Update: Plenty of Opinion, Little Data.

Reuters:

• Egypt protesters torch buildings, target Suez Canal. Egyptian protesters torched buildings in Cairo and tried unsuccessfully to disrupt international shipping on the Suez Canal, as a court ruling on a deadly soccer riot stoked rage in a country beset by worsening security. The ruling enraged residents of Port Said, at the northern entrance of the Suez Canal, by confirming the death sentences imposed on 21 local soccer fans for their role in the riot last year, when more than 70 people were killed. But the court also angered rival fans in Cairo by acquitting a further 28 defendants whom they wanted punished, including seven members of the police force, reviled across society for its brutality under deposed autocrat Hosni Mubarak.

• Nigerian forces say they have killed 52 Islamists, arrested 70. Nigerian security forces said on Saturday they had killed 52 Islamist militants over 10 days of fighting in the northeasterly Borno state, at a cost of only two of their own men, with no civilian deaths. The announcement came a day after President Goodluck Jonathan paid a visit to the state in which he rejected the idea of an amnesty for the Islamist sect Boko Haram, which has killed hundreds in gun and bomb attacks in the past two years. The Islamists are seen as the main security threat to Africa's top energy producer, although their sphere of influence is far from the crucial oil fields in the south.

Telegraph:

• Germany's anti-euro party is a nasty shock for Angela Merkel. Political revolt against the euro construct has spread to Germany. A new party led by economists, jurists, and Christian Democrat rebels will kick off this week, calling for the break-up of monetary union before it can do any more damage. "An end to this euro," is the first line on the webpage of Alternative für Deutschland (AfD). "The introduction of the euro has proved to be a fatal mistake, that threatens the welfare of us all. The old parties are used up. They stubbornly refuse to admit their mistakes." They propose German withdrawl from EMU and return to the D-Mark, or a breakaway currency with the Dutch, Austrians, Finns, and like-minded nations.

• Greece should still leave the euro. Greece still remains the biggest risk for the euro and would be better off to leave the single currency, a close ally of German chancellor Angela Merkel’s has said. 

Le Temps:

• Patek Philippe SA Chairman Thierry Stern expects 2013 to be a more difficult year for global watchmakers, he says in an interview.

El Economista:

• Spain May Cut 2013 GDP Forecast to 1% Decline. Government may change current forecast for .5% contraction, which analyst don't consider credible. Govt may announce shift around March 25-31 Easter holiday, citing people close to the government.

Korean Central News Agency:

• North Korea Military Holds Rallies in 2 Provinces. Armed forces hold rallies in North Phyongan and South Hwanghae provinces today. It is the "final conclusion and will" of North Korea to "settle accounts with the U.S.," said Ri Man Gon, chief secretary of the North Phyongan Provincial Committee of the Workers' Party of Korea, and Pak Yong Ho, chief secretary of the Southern Hwanghae Provincial Committee of the WPK, in a joint statement.

Xinhua:

• S. Korea's Defense Ministry warns DPRK to "vanish from earth". The government of the Democratic People's Republic of Korea (DPRK) will"vanish from the earth" if it wages a nuclear attack on South Korea, the South Korean Defense Ministry here said Friday. "I am telling you this as a member of the human race: If North Korea (DPRK) attacks South Korea with nuclear weapons, the Kim Jong Un regime will vanish from the earth by the will of the humanity,"ministry spokesman Kim Min-seok told reporters. The remark came shortly after the DPRK saidit would sever a military hotline with South Korea and nullify non-aggression agreements between the two countries, a response to newly expanded sanctions approved by the UN.

China Securities Journal:

• China Economic Recovery May Slow on Property Curbs. China's economic recovery may slow on uncertainties about investment growth, according to a front-page commentary written by reporter Ni Mingya. Recent recovery driven by property investment growth from 4Q last year, the commentary said. Government property market control will limit property investment growth, it said.

Weekend Recommendations

Barron's:

• Bullish commentary on (KSU), (NSC), (UNP), (LYV), (GNW), (DELL), (FFIV), (BBBY) and (CP).

Night Trading

• Asian indices are -.25% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 100.0 -3.0 basis points.

• Asia Pacific Sovereign CDS Index 79.25 -1.25 basis points.

• FTSE-100 futures +.15%.

• S&P 500 futures +.02%.

• NASDAQ 100 futures +.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DKS)/1.06

• (URBN)/.57

• (MCP)/-.30 

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone industrial production data, Italian gdp report, Portugal gdp report, BoJ minutes, India rate decision, CSFB Services Conference and the (TREX) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and consumer shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.