Tuesday, March 26, 2013

Tuesday Watch

Posted by Gary .....at 12:27 AM
Evening Headlines 
Bloomberg: 
  • Dijsselbloem Says Euro Troubled Lenders Must Fend for Themselves. Dutch Finance Minister Jeroen Dijsselbloem, who committed taxpayer funds to take over SNS Reaal NV (SR) last month, said troubled lenders in the euro area must now fend for themselves as part of future regional rescues. Dijsselbloem, who leads the group of 17 euro finance ministers, said imposing losses on depositors and bondholders can be part of the bailout toolkit after such measures were taken to avoid default in Cyprus. “We are looking for a way to place risks where they are taken,” Dijsselbloem said on Dutch television program “Pauw & Witteman” late yesterday. “Banks should strengthen their balances -- they have to ensure they can be unwound when they get in trouble. Next, it should be possible to make shareholders and bond holders contribute to a rescue. That’s how we move along. And then eventually you may get to a government contribution. That order was reversed in the last years.” Dijsselbloem said earlier yesterday that if ailing banks can’t raise funds, “then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders.” Those comments, to Reuters and the Financial Times, were confirmed yesterday by Dijsselbloem’s spokeswoman, Simone Boitelle. 
  • Bersani Meets Berlusconi Deputy to Staunch Years of Conflict. Pier Luigi Bersani will meet Silvio Berlusconi’s deputies today, seeking to ease years of conflict in his bid to assume the Italian premiership. Bersani, 61, has two days to overcome a shortfall of support in parliament and may need help from Berlusconi, a billionaire and three-time prime minister, to get there. The appointment, set for 4:15 p.m. in Rome, is between Bersani and a delegation led by Angelino Alfano, head of Berlusconi’s People of Liberty party. Bersani and Berlusconi have room for common ground since both want to maintain influence after losing voters to the upstart Five Star Movement of ex-comic Beppe Grillo. Still, years of bad blood make a partnership hard to come by. Berlusconi relishes mocking Bersani for his previous adherence to communism, while the ex-premier has been criticized for his criminal trials. “Even if it starts, it will not last long,” Nicola Marinelli, who oversees $180 million at Glendevon King Asset Management in London, said of the chances for an alliance. “They’ve been fighting for so long and the people behind them really hate each other.”
  • Monte Paschi Bailout Won’t Spur Recovery as Loan Losses Surge. Banca Monte dei Paschi di Siena’s 4.07 billion-euro ($5.2 billion) state rescue won’t resolve the troubles of Italy’s third-largest bank, which is poised to report a second straight loss on soaring bad-loan provisions. The world’s oldest bank may post a 2012 net loss of 2.33 billion euros ($3.03 billion) when it publishes results on Thursday, based on the mean estimate of 10 analysts surveyed by Bloomberg. The Siena-based lender had a 4.69 billion-euro loss in 2011, and will probably be unprofitable in 2013 as well, analysts’ estimates show. Italy’s economy remains mired in its longest recession in two decades and a month-old political impasse threatens to increase sovereign-debt yields and bank funding costs. The bank’s outlook is further complicated by probes into the actions of former managers after derivatives were used to hide losses. While the bailout will replenish capital, “concerns on low profitability, poor credit quality and high exposure to the country’s sovereign debt remain,” said Wolfram Mrowetz, the chairman of Alisei Sim, a Milan-based brokerage. “There are too many structural issues still to address.”
  • Kuroda Wants to Achieve BOJ’s 2% Price Target in Two Years. Haruhiko Kuroda said he wants 2 percent inflation in two years and pledged to buy more government bonds, underscoring the new Bank of Japan (8301) chief’s efforts to accelerate an end to falling prices. “Achieving the 2 percent inflation target in two years is something that I have in my mind,” Kuroda said today in Parliament. He said the BOJ may scrap a rule limiting the scale of asset buying and consider purchasing more bonds with longer maturities. 
  • Ford(F) CEO Mulally Says He’s Concerned About Japanese Yen. Ford Motor Co. (F) Chief Executive Officer Alan Mulally said he’s concerned about the depreciation of the yen that’s bolstering the competitiveness of Japanese carmakers. “The most important thing that most countries around the world believe in is letting the markets determine the currency,” Mulally said today from Bangkok in reference to the Japanese currency, during an interview on Bloomberg TV’s First Up with Susan Li. “That’s just so important to all of us in the international trading system.”
  • China’s Stocks Fall Most in a Week as Brokerages, Miners Drop. Chinese stocks fell for a second day, as declines by brokerages and material producers dragged the Shanghai Composite Index (SHCOMP) down the most in a week. Haitong Securities Co. sank 3.8 percent, the second-biggest decline in the CSI 300 Index. (SHSZ300) Jiangxi Copper Co. (600362) dropped 1.8 percent before reporting profit. Dongfeng Automobile Co. and Cosco Shipping Co. fell at least 0.7 percent after 2012 net income fell from a year earlier. The Shanghai Composite Index lost 1.6 percent to 2,288.49 as of 10:19 a.m. local time. The CSI 300 Index retreated 1.9 percent to 2,563.73.
  • China Money Rate Snaps 3-Day Drop on Possible Property Measures. China’s money-market rate rose, snapping a three-day decline, on speculation the central bank will take measures to rein in home-price increases. Many lenders have started to control the scale of loans for real estate development, the China Securities Journal reported today, without saying where it got the information. The China Banking Regulatory Commission is drafting guidelines on property lending including mortgages, the newspaper cited an unidentified person close to the regulator. “In China, a media report on banks preparing to tighten mortgage-lending practices are likely to weigh on sentiment,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong, wrote in a research report today. “We expect the People’s Bank of China to drain liquidity.” The seven-day repurchase rate, which measures funding availability in the interbank market, climbed eight basis points to 3 percent at 9:18 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.
  • BRICS Nations Plan New Bank to Bypass World Bank, IMF. The biggest emerging markets are uniting to tackle under-development and currency volatility with plans to set up institutions that encroach on the roles of the World Bank and International Monetary Fund. The leaders of the so-called BRICS nations -- Brazil, Russia, India, China and South Africa -- are set to approve the establishment of a new development bank during an annual summit that starts today in the eastern South African city of Durban, officials from all five nations say. They will also discuss pooling foreign-currency reserves to ward off balance of payments or currency crises.
  • RBNZ Wants Banks to Hold More Capital Against Risky Home Loans. New Zealand’s central bank plans to require banks to hold more capital to strengthen their balance sheets against the risk from high loan-to-value ratio lending. “The aim of the current review is to ensure that banks’ baseline capital requirements for housing loans properly reflect risk in the housing sector,” Deputy Governor Grant Spencer said in an e-mailed statement. “The bank is proposing higher capital requirements for high LVR loans.” Raising the capital adequacy requirements could prompt banks to seek more capital, which may push up interest rates and slow New Zealand’s housing market, in which prices last month rose at the fastest pace since early 2008.
  • Rebar Falls in Shanghai as Chinese Banks Begin Property Curbs. Steel reinforcement-bar futures fell for the second time in three days in China as banks began implementing measures to prevent a housing bubble, which may cut demand for the material used in construction. The contract for October delivery fell as much as 1.1 percent to 3,868 yuan ($623) a metric ton on the Shanghai Futures Exchange and was at 3,879 yuan at 10:07 a.m. local time.
  • Rubber Declines as Yen’s Rebound Cuts Appeal Amid Cyprus Concern. Rubber fell as Japan’s currency gained, cutting the appeal of yen-denominated contracts, amid concern Cyprus’s bank-restructuring plan will be a template for other European nations, imperiling bondholders and depositors. The contract for delivery in August lost as much as 1.4 percent to 275.6 yen a kilogram ($2,920 a metric ton) and was at 277.7 yen on the Tokyo Commodity Exchange at 10:17 a.m. Futures extended this year’s retreat to 8.3 percent. “The market retreated as concerns grew that the Cyprus bailout agreement would impact on other European nations,” Hideshi Matsunaga, an analyst at broker ACE Koeki Co. in Tokyo, said today by phone.
  • Copper Futures Fall in New York as China Adds to Growth Concerns. Copper fell the most in four sessions in New York, on speculation that metals demand will slow as China’s government will take steps to tame inflation and global growth weakens. China’s swap market is signaling interest-rate increases for the first time since 2011, after inflation accelerated to a 10-month high and the government measures failed to slow the rise in housing prices. “China’s growth story remains intact, but there are serious concerns about the short-term outlook given the property bubble and the ratcheting up of the government response,” Edward Meir, an analyst at INTL FCStone in New York, said in a report. “The global outlook remains patchy at best.” Supplies that are outstripping demand are also weighing on prices, Meir said. Stockpiles of copper in warehouses monitored by the London Metal Exchange expanded 0.5 percent to 565,350 metric tons, the highest since October 2003, LME data today showed. Inventories have jumped 77 percent this year. 
  • Oil Supplies Jump to Nine-Month High in Survey: Energy Markets. U.S. oil inventories probably rose to a nine-month high last week as domestic production stayed near the most in 21 years and imports rebounded, a Bloomberg survey showed. Stockpiles grew by 1.4 million barrels, or .4%, to 384.1 million in the seven days ended March 22, the highest level since June 22, according to the median of seven analyst estimates before an EIA report tomorrow.
  • Intel(INTC) Said to Make Progress in Talks With Networks for TV Rights. Intel Corp. is making progress in talks with Time Warner Inc., NBC Universal and Viacom Inc. to obtain TV show and films for a first-of-its kind online multichannel pay-TV service, according to people with knowledge of the situation. Intel, the world’s largest chipmaker, is negotiating financial terms with the companies, according to the people, who sought anonymity because the talks are private. The media companies have signed off on the broad outlines of the proposed service, said the people, with some aspects still to be settled. Other network owners aren’t as far along, they said.
Wall Street Journal: 
  • Bailout Strains European Ties. Cyprus Deal Preserves Euro but Sows Mistrust Between Continent's Haves, Have-Nots. A deal reached Monday in Brussels may have saved Cyprus from becoming the first country to crash out of the euro, but it came at the cost of widening the political mistrust between the strong economies of Europe's north and the weaklings of the south. Several officials familiar with talks in Nicosia and Brussels over the €10 billion ($13 billion) rescue for the island described more than a week of chaotic negotiations. European officials cited Cypriot foot-dragging, reversals and dropped communications, a situation one European Union official called "terrifying." Cypriot officials described their European opposites as demanding and inflexible. The fresh bitterness over the Cyprus mess—which appears deeper than at similar points during Greece's extended financial turmoil—could hamper future attempts to fix the bloc's flaws. Germany, the euro zone's biggest economy, prevailed as it typically has in the negotiations, but at the price of growing resentment over what some Europeans saw as its bullying of a tiny nation.
  • U.S. Cracks Down on 'Forced' Insurance. A U.S. housing regulator is cracking down on a little-known practice that has hit millions of struggling borrowers with high-price homeowners' insurance policies arranged by banks that benefit from the costly coverage. The Federal Housing Finance Agency, which regulates mortgage giants Fannie Mae and Freddie Mac, plans to file a notice Tuesday to ban lucrative fees and commissions paid by insurers to banks on so-called force-placed insurance. Such "forced" policies are imposed on homeowners whose standard property coverage lapses, typically because the borrower stops making payments. Critics say the fee system has given banks a financial incentive to arrange more expensive homeowners' policies than necessary.
  • Chinese College Graduates Play It Safe and Lose Out. Although Mr. Xie's parents are entrepreneurs who have built companies that make glasses, shoes and now water pumps, he has no interest in working at a private startup. Chinese students "have been told since we were children to focus on stability instead of risk," the 24-year-old engineering student says.
  • Mortimer Zuckerman: The Great Recession Has Been Followed by the Grand Illusion. Don't be fooled by the latest jobs numbers. The unemployment situation in the U.S. is still dire. The Great Recession is an apt name for America's current stagnation, but the present phase might also be called the Grand Illusion—because the happy talk and statistics that go with it, especially regarding jobs, give a rosier picture than the facts justify. The country isn't really advancing. By comparison with earlier recessions, it is going backward. Despite the most stimulative fiscal policy in American history and a trillion-dollar expansion to the money supply, the economy over the last three years has been declining. After 2.4% annual growth rates in gross domestic product in 2010 and 2011, the economy slowed to 1.5% growth in 2012. Cumulative growth for the past 12 quarters was just 6.3%, the slowest of all 11 recessions since World War II. And last year's anemic growth looks likely to continue.
Fox News:
  • What to Cut: As Congress treats crises with new programs, government grows. "The government is far larger than it ever has been. The debt is growing at record rates," Thomas Schatz, president of  Citizens Against Government Waste, said. Adjusted for inflation, federal spending has gone up from an average of $882 billion every year in the 1980s to $1.48 trillion a year in the '90s to $2.44 trillion a year in the first decade of the 21st century. It's estimated that the government will have spent as much in the first four years of the new decade as it did in all of the 1990s.
CNBC: 
  • Farmland Prices: Is the Bubble About to Burst? Record-high prices for corn, soybeans, wheat and other commodities have left growers flush with cash to purchase more land. And what the farmers don't pay for out of their own pockets, historically low interest rates provide them with easy and cheap access to money to close the deal. The favorable mix of both cash and credit has provided fuel to drive up land values across the Midwest, stoking fears of a bubble ready to burst.
  • Cyprus Orders All Banks to Remain Closed Until Thursday. Cyprus has extended the closure of its banks for two more days — until Thursday — a sudden postponement that comes after the country's leaders spent days struggling to come up with a plan to raise the money needed to secure an international bailout.
Zero Hedge: 
Business Insider:
eFinancialCareers:
  • Healthy Executive Pay Made Citi(C) Profitable, Say Citi Executives. With a shareholder vote on 2012 executive pay for Citigroup’s top brass approaching, the bank is putting on the forward press, rationalizing the gaudy pay packages that investors have condemned over the last few years. The plan, which began paying out this year, will disperse nearly $580 million to top execs like Corbat. The money goes on top of previously announced annual salaries and bonuses, and is designed to retain “key” employees.
Reuters: 
  • CBS(CBS) apologizes to U.S. veterans for 'Amazing Race' episode. U.S. TV network CBS has apologized after its Emmy-winning reality series "The Amazing Race" angered veterans with an episode featuring Vietnamese communist propaganda. The show's host, Phil Keoghan, apologized before the start of Sunday's show for the March 17 episode in which participants in Hanoi were required to memorize a pro-communist song and use a downed U.S. B-52 bomber aircraft in the city as a prop. 
Financial Times:
  • Darling fears subprime ‘housing bubble’. Alistair Darling, former Labour chancellor, has warned that the package of mortgage guarantees announced last week could create “a housing bubble” and risked repeating mistakes of the US subprime crisis. Speaking in a Commons debate on the Budget, Mr Darling claimed that George Osborne had largely “given up on doing anything” and that his housing package could – if anything – create more problems. He claimed a chronic housing shortage meant that extra state support for mortgages could pump up prices.
  • Cyprus bailout leaves investors queasy. Fears that the Cyprus rescue, which includes a “haircut” for large depositors, would set a precedent for similar action in other troubled eurozone countries had been one of investors’ main concerns. Little wonder, then, that markets retreated when Jeroen Dijsselbloem, head of the eurogroup of finance ministers, said the Cypriot rescue marked a watershed in how the region deals with failing banks. Investors are worried, too, that capital controls in Cyprus will taint the banking system in other struggling eurozone countries. “Capital controls are a major step backwards for Europe,” says Andrew Milligan, head of global strategy at Standard Life Investments. “It is very difficult for markets to understand the processes and procedures when a country needs assistance, which adds to the level of uncertainty and risk – even if it is manageable for now.” Bob Savage at currency hedge fund FX Concepts says: “If deposits over €100,000 are not guaranteed in any eurozone nation, and if you’re in Spain or Italy, this is not a great outcome.”
  • Role of Cyprus in a German Europe. The eurozone crisis is far from being over and it is not clear what new EU structures will emerge at the end of it – or whether they would dilute or strengthen German power. That leaves Germany holding the ring: writing the cheques, enforcing the rules and increasingly making them up, as well. That is a dangerous situation for Europe – and ultimately for Germany itself.
Telegraph:
  • Eurozone’s bully boys will come to regret penalising tiny Cyprus. Europe’s monetary union was meant to be about solidarity among the many and prosperity for all. It was not excessive Russian deposits which finished off the Cypriot banking system but last year’s eurozone-imposed haircut of Greek sovereign debt. As big holders of Greek bonds, Cypriot banks have suffered losses approaching €5bn. Thus does each successive botched crisis lead directly to the next one. Narrow political self-interest has been put above that of the common good. No monetary union can expect long to survive this sort of self-inflicted political battering. If Europe can make such a horlicks out of tiny Cyprus, just think what might happen when the crisis once again laps at the doors of larger economies such as Italy, Spain and Portugal. 
ZDF:
  • Schaeuble Says 'Germans Are Not the Bad Guys'. The German government's policies are "sensible and responsible", Finance Minister Wolfgang Schaeuble said in an interview. Cyprus is in a difficult situation from which there is no easy way out. People in Cyprus will have a hard time ahead.
Yonhap News Agency:
  • U.S. seeks more missile defense drills with S. Korea, Japan. The United States is pushing to hold trilateral missile defense exercises with South Korea and Japan on a regular basis, an informed source said Monday. The move is part of the Pentagon's efforts to hone regional capabilities to counter North Korea's evolving missile threats. "The U.S. considers boosting trilateral cooperation with the regional allies as an option," the source said, requesting anonymity.
Xinhua:
  • China found more than 1,000 dead ducks in the Nanhe River in the southern province of Sichuan, citing Liang Weidong, a local government publicity office official.
China Securities Journal:
  • May banks in China have started to control the scale of loans for real estate development to coordinate with new property curbs. China Banking Regulatory Commission is drafting guidelines on property loans including development loans and mortgages, citing a person close to the regulator. The regulator also asked rural financial institutions to lower the proportion of property development loans from the previous year.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -1.0% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 120.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 91.25 -1.25 basis points.
  • FTSE-100 futures -.01%.
  • S&P 500 futures +.16%.
  • NASDAQ 100 futures +.15%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (PLCE)/1.04
  • (MFRM)/.32
Economic Releases
8:30 am EST
  • Durables Goods Orders for February are estimated to rise +3.9% versus a -5.2% decline in January.
  • Durables Ex Transports for February are estimated to rise +.6% versus a +1.9 gain in January.
  • Cap Goods Orders Non-defense Ex Air for February are estimated to fall -1.1% versus a +6.3% gain in January.
9:00 am EST
  •  The S&P/Case Shiller 20 City Home Price Index MoM% SA for January is estimated to rise +.8% versus a +.88% gain in December.
10:00 am EST
  • The Richmond Fed Manufacturing Index for March is estimated at 6.0 versus 6.0 in February.
  • Consumer Confidence for March is estimated to fall to 67.5 versus 69.6 in February.
  • New Home Sales for February are estimated to fall to 420K versus 437K in January.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The 2Y T-Note auction, weekly retail sales reports and the (BGC) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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