Monday, March 18, 2013

Monday Watch

Posted by Gary .....at 12:26 AM

Weekend Headlines 
Bloomberg: 
  • Europe Risks Debt-Crisis Contagion as Cypriots Resist Bank Tax. Europe braced for renewed turmoil as outrage in Cyprus over an unprecedented levy on bank deposits threatened to derail the nation’s bailout. The euro tumbled. Cypriot President Nicos Anastasiades, who bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.6 billion) by taking a piece of every bank account in Cyprus, appealed to lawmakers in Nicosia the ratify the levy today. The vote was delayed from yesterday over the opposition of the European Central Bank amid talks to restructure the levy. While Cyprus accounts for less than half a percent of the 17-nation euro economy, the raid on bank accounts risks triggering new convulsions in the financial crisis that began in 2009 in Greece. The tax is “a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future,” Joachim Fels, chief economist at Morgan Stanley in London, wrote in a client note. Scenes of Cypriots lining up at cash machines raised the specter of capital flight elsewhere and threatened to disrupt a market calm since the ECB’s pledge in September to backstop troubled nations’ debt. With no government in Italy, Spain in the throes of a political scandal and Greece struggling to meet the terms of its own bailout, more turmoil could hamper efforts to end the crisis. 
  • Cyprus Bailout Is 'Disaster' for EU Single Market, Bowles Says. Levy on deposits agreed under Cyprus bailout deal means circumventing EU deposit guarantee laws, Sharon Bowles, head of the European Parliament's Economic and Monetary Affairs Committee, said. "It robs smaller investors of the protection they were promised," Bowles said today. "The lesson here is that the EU's single market rules will be flouted when the Eurozne, ECB and IMF say so," she said. 
  • Cypriot Bank Levy Is ‘Ominous’ for Bondholders, Barclays Says. The decision to impose losses on Cypriot depositors is the latest erosion of bondholder protection at European banks and an “ominous” sign of how bailouts are being handled, Barclays Plc (BARC) said. Investors need to be better aware of national resolution frameworks, with Switzerland, Britain, the Netherlands and Germany being the riskiest for bondholders, Barclays, Britain’s second-largest bank by assets, said in a report. “The imposition of a levy on depositors in Cyprus is a material development that furthers the erosion of bondholder protection at European banks,” London-based Barclays said in the report. “We believe the expropriation of SNS Reaal subordinated bonds, the imposition of losses on Anglo Irish senior bonds and the haircuts of depositors in Cyprus form an ominous trend.”
  • Euro Drops Versus Yen, Dollar as Cyprus Turmoil Roils Markets. The euro dropped to its lowest level this year against the dollar after an unprecedented levy on bank deposits in Cyprus threatened to derail the nation’s bailout and spark a new round in Europe’s debt crisis. “The concern is that this bailout plan was forced upon deposit holders, taxing them and therefore an involuntary support for the bailout,” said Imre Speizer, a strategist at Westpac Banking Corp. (WBC) in Auckland. “If this is a template for future bailouts then that’s worrying for any of the larger countries if they have to go down this route. It isn’t affecting only the euro, it’s affecting risk appetite in general.” The euro slid to as low as $1.2889, the least since Dec. 10, before trading at $1.2905 as of 11:33 a.m. in Tokyo, down 1.3 percent from the end of last week.
  • Banks Raise Cross-Border Lending by Least in 13 Years, BIS Says. Global banks’ cross-border lending increased at the slowest rate in 13 years in the third quarter, restrained by a contraction in loans to financial firms in the euro-area, the Bank for International Settlements said. Foreign banks are reducing their lending to European banks on concern that the region’s sovereign debt crisis could be exacerbated by political uncertainty in Italy, the area’s third- largest economy. Banks are also reducing lending as they try to meet the stricter capital requirements set by the Basel Committee on Banking Supervision. 
  • China’s Stocks Fall to Two-Month Low as JPMorgan Lowers Rating. China’s stocks retreated, dragging the benchmark index to a two-month low, as brokerages and automakers slumped and JPMorgan & Chase Co. reduced its recommendation on the nation’s shares to underweight. Citic Securities Co. and Haitong Securities Co. dropped at least 2.7 percent. Former Bank of China Ltd. Chairman Xiao Gang will replace Guo Shuqing as head of the securities regulator, according to a person with direct knowledge of the matter. SAIC Motor Corp. (600104), China’s largest carmaker, tumbled 5.3 percent after the nation’s quality watchdog ordered joint-venture partner Volkswagen AG to recall some vehicles. “The departure of Guo is perceived as negative for the market as he’s reform-minded and pushed forward innovative measures for the brokerage sector and the stock market,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Investors remain concerned about the possibility of slowing growth and monetary tightening.” The Shanghai Composite Index (SHCOMP) declined 1 percent to 2,255.42 at 10:42 a.m. local time, poised for the lowest closesince Jan. 11.
  • Moody's Sees Defaults as PBOC Warns on Local Risks: China Credit. Moody's Investor Services said China's local-government financing vehicles face greater risk of default, as regulators warn 20% of their loans are risky. A rally in LGFV bonds may reverse, particularly should delinquencies emerge, Christine Kuo, a Moody's analyst wrote.
  • Nomura: China Will Tighten Policies to Cut Crisis Risk. China will probably tighten policies this year to contain the growing risks of a “systemic” financial crisis, according to Nomura Holdings Inc. China is displaying the same three symptoms that Japan, the U.S. and parts of Europe showed before their respective financial crises, economists Zhang Zhiwei and Wendy Chen wrote in a note dated yesterday. These signs are a rapid build-up of leverage, elevated property prices and a decline in potential economic growth, they said. “Our base case is that the government will tighten policies,” Zhang, Hong Kong-based chief China economist, and Chen wrote. “If a loose policy stance is maintained and these risks are not brought under control, strong growth of above 8 percent in 2013 is possible, but that would heighten the risks of high inflation and a financial crisis in 2014.”   
  • Li Rejects U.S. Hacking Allegations Against China as Groundless. Premier Li Keqiang said the U.S. should stop making “groundless accusations” against China regarding cybersecurity and focus on taking “practical” action over the issue. Hacking is a “worldwide problem and in fact China itself is a main victim of such attacks,” Li said at his first press briefing since his appointment by the National People’s Congress March 15. “China does not support -- in fact it is opposed to - - hacking attacks,” he said.
  • Australia Faces ‘Massive Hit’ to Government Revenue, Swan Says. “One of the big challenges we face is a massive hit to government revenues,” Swan said in a weekly economic note yesterday. Revenue downgrades “will inevitably continue to impact beyond the current year.” Labor Prime Minister Julia Gillard’s bid to overcome the opposition Liberal-National coalition’s lead in opinion polls is being damaged by weaker growth, lower prices for Australia’s resources, and a strong local currency that’s curbing tax receipts. Gillard, the nation’s first female leader, was forced in December to abandon a pledge to return the budget to a surplus this year. 
  • Tepco Faces Suit by U.S. Troops Over Radiation. Tokyo Electric Power Co.’s bill for its Fukushima nuclear disaster may swell as more U.S. military personnel charge the utility lied about radiation levels they faced while assisting in relief efforts after Japan’s 2011 earthquake and tsunami disaster. 
  • Latin America Faces Slowing Growth as Commodities Fall, IDB Says. Latin America and the Caribbean face weaker economic growth over the next five years as commodity prices fall and governments struggle with fiscal deficits, the Inter-American Development Bank said. Annual growth for Latin America and the Caribbean is forecast to be 3.9 percent through 2017, down from 4.8 percent during the five years before the 2007 global recession, the Washington-based lender said in a report today. Out of 21 major economies in the region that were reviewed for the study, only Colombia, Trinidad & Tobago and Belize were in better fiscal shape than before the financial crisis. “Weaker fiscal balances are a cause for concern under current circumstances,” according to the report. “The space for monetary policy action has shrunk and sustained lower growth expectations place a limit on what monetary policy can achieve.” 
  • Bullish Bets Jump Most Since July as Gold Rebounds: Commodities. Hedge funds and other large speculators raised net-long positions across 18 U.S. futures and options in the week ended March 12 by 30 percent to 528,680 contracts, the biggest gain since July and up from a four-year low the previous week, U.S. Commodity Futures Trading Commission data show. Money managers raised bullish bets on corn by 39 percent, cotton holdings were the highest since 2010, and gold wagers increased 9 percent. 
  • Rebar Trades Near Lowest Level in Three Months on Supply Concern. Steel reinforcement-bar futures traded near the lowest level in three months as Chinese inventory is piling up while mills continue to increase output. Rebar for delivery in October on the Shanghai Futures Exchange fell as much as 2 percent to 3,784 yuan ($609) a metric ton and was at 3,849 at 10:15 a.m. local time.
  • Industrial Metals Fall on Cyprus; Copper Touches 4-Month Low. Copper declined for a second day to a four-month low as an unprecedented levy on bank deposits in Cyprus threatens to plunge Europe back into crisis, curbing demand for metals. Aluminum, nickel, tin, lead and zinc dropped. Copper for delivery in three months slumped as much as 2.7 percent to $7,545.75 a metric ton, the lowest level since Nov. 9, on the London Metal Exchange and traded at $7,617 by 10:39 a.m. in Tokyo.
  • Rubber Slumps on Turmoil in Europe, High China Stockpiles. Rubber declined amid high stockpiles in China and as Europe braced for renewed turmoil over bank deposits in Cyprus, which strengthened the Japanese currency and reduced investor appetite for yen-based contracts. The contract for delivery in August on the Tokyo Commodity Exchange retreated as much as 3.5 percent to 272.9 yen a kilogram ($2,879 a metric ton), before trading at 273.9 at 10:47 a.m. Futures fell 5.1 percent last week and lost 9.5 percent this year.
  • Obama Meetings Didn’t Ease Budget Standoff, Boehner Says. The fight between Democrats and Republicans over how to address the nation’s fiscal health continues even after a week of meetings between President Barack Obama and Republicans on Capitol Hill, House Speaker John Boehner said. “It’s always a good thing to engage in more conversation,” Boehner, an Ohio Republican, said in an interview broadcast today on ABC’s “This Week” program. “But when you get down to the bottom line, the president believes that we have to have more taxes from the American people, we’re not going to get very far.”
  • Fed’s Fisher Says Too-Big-to-Fail Banks Should Be Shrunk. Federal Reserve Bank of Dallas President Richard Fisher said the government should break up the biggest U.S. banks rather than allow them to hold a “too-big- to-fail” advantage over smaller firms. The 12 largest financial institutions hold almost 70 percent of the assets in the nation’s banking system and profit from an unfair implicit guarantee that the government would bail them out, Fisher said today in a speech at the Conservative Political Action Conference in National Harbor, Maryland. The biggest banks enjoy a “significant” subsidy, enabling them “to grow larger and riskier,” he said. “These institutions operate under a privileged status,” Fisher said. “They represent not only a threat to financial stability, but to fair and open competition.” Fisher said in a phone interview with Bloomberg News that his proposal “will not lead to the denial of credit for U.S. corporations.” The cost from big banks “far exceeds the benefits,” and the U.S. doesn’t need “to have the largest banks in the world to compete,” Fisher said after his speech. “The point is to have healthy banks,” he said. “The point is that the taxpayer is not subjected again to the kind of losses or economic disruptions that they face from having concentrated institutions.” All banks should be subject to a bankruptcy process, Fisher said in his speech. Customers and creditors of non-bank affiliates should sign disclosures accepting “that there is no government guarantee -- ever -- backstopping their investment,” he said. “Addressing institutional size is vital to maintaining a credible threat of failure,” Fisher said. “Without fear of failure, these banks and their counterparties can take excessive risks.”
  • Iraq to Invest $130 Billion in Upstream Oil Sector Over 5 Years. Iraq plans to spend $130 billion on the country’s upstream sector over the next five years to help raise production capacity to 9 million barrels a day, Oil Minister Abdul Kareem al-Luaibi said. The country will allocate $18 billion to raise natural gas output and $25 billion to expand refinery capacity, al-Luaibi said at a conference in Basrah today. Iraq forecasts $600 billion in revenue from the oil expansion, he said.
  • McCarthy Says House Should Subpoena Documents on Drones. The U.S. House should subpoena the Obama administration if it fails to provide the rules and justifications for its secretive drone program, according to Representative Kevin McCarthy, the chamber’s No. 3 Republican. “This is a transparency issue,” McCarthy, of California, said in an interview with Bloomberg’s Television’s “Political Capital with Al Hunt” airing this weekend. So far, President Barack Obama’s administration has provided Congress with only part of its rationale for using drones to target and kill U.S. citizens identified as terrorists. 
Wall Street Journal: 
  • Anti-Euro Party Mobilizes in Germany. Merkel's Ruling Coalition Faces Test as Economists, Business Leaders Offer Conservative Voters an 'Alternative'. A prominent group of anti-euro German economists and business leaders has formed a political party to challenge Germany's support for euro-zone bailouts, a move that could test the ruling center-right coalition's hold on conservative votes in the fall general election. With just six months until the election, the new party, which calls itself Alternative for Germany, is unlikely to gain enough traction to win seats in Parliament, analysts say. Yet even if the party comes in below the 5% threshold needed to win representation, it could still attract enough conservative votes to prevent a return of the current coalition government, a combination of Angela Merkel's Christian Democrats, their Bavarian sister party, and the pro-business Free Democrats.
  • 'Wash Trades' Scrutinized. Issue Is Whether High-Speed Firms Illegally Buy, Sell Futures in Same Deals. U.S. regulators are investigating whether high-frequency traders are routinely distorting stock and futures markets by illegally acting as buyer and seller in the same transactions, according to people familiar with the probes. Such transactions, known as wash trades, are banned by U.S. law because they can feed false information into the market and be used to manipulate prices. Intentionally taking both sides of a trade can minimize financial risk for the trading firm while potentially creating a false impression of higher volume in the market.
  • Treasury Scrutinizes a Shortage of Notes. The U.S. Treasury Department is probing whether traders in the $11 trillion Treasury market hoarded securities to drive up the price of 10-year notes, one of the world's most-used benchmarks. Regulators are concerned that the market function smoothly and without abnormal price activity, said people familiar with the inquiry. Anyone holding $2 billion or more of 10-year notes that mature February 15, 2023 was asked by the Treasury Friday to contact the Federal Reserve Bank of New York by March 21 to address their large positions, according to a statement. Holding large positions in Treasury bonds isn't illegal.
  • Inside a Warier Fed, Watch the New Guy. Wall Street is watching Jeremy Stein. Still not a year into his tenure on the Federal Reserve's board of governors, the 52-year-old has grabbed the attention of investors, traders and his own Fed colleagues by publicly airing concerns about overheating in some sectors of the credit markets. Fed Chairman Ben Bernanke and Vice Chairwoman Janet Yellen have referred to Mr. Stein in recent speeches, acknowledging his concerns but playing down the immediate risks.
  • My Unrecognizable Democratic Party by Ted Van Dyk. The stakes are too high, please get serious about governing before it's too late. As a lifelong Democrat, I have a mental picture these days of my president, smiling broadly, at the wheel of a speeding convertible. His passengers are Democratic elected officials and candidates. Ahead of them, concealed by a bend in the road, is a concrete barrier. They didn't have to take that route.
CNBC: 
  • Cyprus Bailout 'Disaster' Risks New Euro Crisis. Even as Cyprus's President Nicos Anastasiades addressed the nation on Sunday night, saying savers would be compensated by shares in banks guaranteed by future natural gas revenues, he was said to be working to renegotiate terms of the highly criticized bailout deal. Over the weekend, analysts warned the decision by the euro zone to force bank depositors in Cyprus to contribute towards a bailout—a first in the euro zone debt crisis—could hurt other peripheral nations, the euro and the global stock market rally.
  • Ethanol Surplus May Lift Gas Prices. A glut of ethanol in the gasoline supply is threatening to push up prices at the pump and may have exacerbated the growing cost gap between regular gasoline and premium, some oil experts say.
Business Insider:
  • ZERVOS: 'This Is A Nuclear War On Savings And Wealth'. To tax the bank deposits of savers sends an ominous message to the entire global investment community. All of us should really take a moment to consider what the governments of Europe have done. To be clear, they initiated a surprise assault on the precautionary savings of their own people. Such a move should send shock waves across the entire population of the developed world. This was not a Bernanke style slow moving financial repression against risk free savings that is meant to stir up animal spirits and force risk taking. This is a nuclear war on savings and wealth - something that will likely crush animal spirits.
Chicago Tribune:
Reuters:
  • ECB's Weidmann says Italy cannot count on aid. Italy cannot count on the European Central Bank (ECB) buying up its bonds if its borrowing costs rise as a result of its politicians discussing rowing back on reforms, ECB Bank policymaker Jens Weidmann warned in a German magazine. The anti-establishment politician Beppe Grillo has said he wants a referendum on Italy's use of the euro, while former Prime Minister Silvio Berlusconi has criticised what he sees as German economic "diktat" in the currency bloc. "If important political actors in Italy discuss turning back on reforms or Italy leaving the currency union, and as a result yields for Italian sovereign bonds rise, this cannot and must not be a reason for the central bank to intervene," Weidmann told Focus magazine in an interview. He said in the magazine interview the euro zone crisis was not over yet, and would only be once structural problems such as lack of competitiveness and high indebtedness had been resolved. "The impression everything is back to usual just because the situation on the financial markets has eased is deceptive and problematic," he said. Weidmann added that the idea of reducing the debt loads of countries through higher inflation was very dangerous. "If you allow inflation once, then you can no longer tame it," he said. Weidmann said he saw the independence of central banks endangered by increasing pressure from politicians. "This trend of more political influence is not restricted only to the euro area, it is a worldwide phenomenon."
  • Cyprus discussing changes in bank tax levy-source. Cyprus was in talks with international lenders on Sunday to possibly change the size of proposed levys on bank deposits demanded as a condition for a bailout, a source close to the consultations said. Cyprus was discussing with lenders the possibility of changing the levy to 3.0 percent for deposits below 100,000 euros, and to 12.5 percent for those above that, the source said on condition of anonymity. Euro zone leaders and Cyprus agreed on Saturday that depositors should be taxed up to 10 percent - 6.7 percent on amounts below 100,000 euros and 9.9 percent on figures above that - to raise 5.8 billion euros and be eligible for an international bailout.
  • JPMorgan's(JPM) Highbridge raises $5 billion credit fund. Highbridge Capital Management LLC, a hedge fund manager owned by JPMorgan Chase & Co, has raised a $5 billion mezzanine debt fund, a spokesman said on Sunday, the latest alternative asset firm seeking to seize on corporate credit opportunities. 
  • BIS concerned markets getting hooked on stimulus. The Bank for International Settlements raised concern that buoyant financial markets are getting too dependent on monetary and fiscal stimulus, discouraging governments from pushing through reforms. Central banks in the United States, Europe and Japan have calmed financial markets with lower interest rates and asset purchase programmes, buying governments time to implement reforms that make their economies more competitive. And while stock markets rallied, volatility diminished and corporate bond spreads tightened over the past six months, the outlook of the real economy had not improved, mainly because of monetary and fiscal accommodative policies, the BIS said.  
  • IMF says talks constructive on possible Egypt aid deal. The International Monetary Fund said on Sunday it would continue talks with Egypt aimed at agreeing possible financial aid after meeting with government officials seeking a $4.8 billion loan to relieve a currency and budget crisis. 
  • Malls must move beyond shopping to survive in Internet era. As growing numbers of shoppers move online, European mall owners are looking to pull in customers by including services that can't be replicated on the Web like hospital care and government offices. Malls must become more like full-service community centres to survive in the face of a growing list of failed retailers like HMV and Blockbuster, property experts at the annual MIPIM trade fair in Cannes, France, told Reuters.
Der Spiegel: 
  • European banking union probably lacks legal basis in EU contracts, according to German parliamentary lawyers, citing an internal document.
WirtschaftsWoche:
  • Ireland Hopes for ESM Help If Banks Need More Capital. Ireland's government plans to ask for funds from the European Stability Mechanism should its banks need additional funding, citing people within the government. A stress test in 2H may show Irish banks need more capital because of a rising no. of bad mortgages, citing central bankers.
SkyTG24:
  • Democratic Party leader Pier Luigi Bersani said he won't seek an alliance with Silvio Berlusconi's People of Liberty party, or PDL, according to an interview.
WantChinaTimes:
  • China to tighten screws on local government financing platforms. The China Banking Regulatory Commission, the country's banking regulator, will prohibit local government financing platforms from increasing their loan volumes and exceeding the amount of their outstanding loans above 2011 levels, reports Want Daily, our Chinese-language sister newspaper.
Tehran Times:
  • Iranian commanders authorized to give immediate response to hostile actions. Brigadier General Massoud Jazayeri of the Islamic Revolution Guards Corps said on Saturday that Iranian commanders had been given the authority to give immediate response to any hostile action by the enemy. Jazayeri made the remarks in response to threats of military action against Iran over its nuclear program issued by a number of Israeli officials, according to Sepahnews. “The era of threat, intimidation, and the childish game of carrot and stick has come to an end, and if avaricious regimes and the hegemonic powers do not have a proper understanding of the current situation in the world and region, they will be faced with numerous and unforeseeable problems,” he said. Elsewhere in his remarks, Jazayeri said, “Mr. Obama, do not make a mistake. All our options are also on the table. Return to your country before getting more bogged down in the region’s quagmire.”
Weekend Recommendations
Barron's:
  • Bullish commentary on (PTRY), (PAY), (GG) and (NEM).
  • Bearish commentary on (GSM).
Night Trading
  • Asian indices are -1.75% to -.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 107.0 +5.5 basis points.
  • Asia Pacific Sovereign CDS Index 80.5 +.25 basis point.
  • FTSE-100 futures -1.80%.
  • S&P 500 futures -1.29%.
  • NASDAQ 100 futures -1.20%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • None of note
Economic Releases
10:00 am EST
  • The NAHB Housing Market Index for March is estimated to rise to 47 versus 46 in February.
Upcoming Splits
  • (JAH) 3-for-2
  • (FELE) 2-for-1
Other Potential Market Movers
  • The Eurozone Trade Balance data, RBA minutes, Sidoti Emerging Growth Conference and the (GB) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by financial and technology shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.

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