Monday, April 22, 2013

Monday Watch

Posted by Gary .....at 12:54 AM
Weekend Headlines 
Bloomberg: 
  • G-20 Eyes Stimulus Fallout Even as Japan Bond Buying Praised. Group of 20 finance chiefs pledged to stay alert to any fallout from easy monetary policies even as they backed the Bank of Japan (8301)’s plan to buy more than 7 trillion yen ($70 billion) a month of bonds. In a nod to concerns that stimulus in one economy often creates challenges elsewhere and could fuel asset bubbles, the G-20 officials meeting in Washington heightened their commitment to being “mindful of unintended negative side effects stemming from extended periods of monetary easing.” While a sliding yen drew fresh complaints from South Korea, its 20 percent decline against the dollar in the past six months wasn’t enough to stop G-20 officials from backing new BOJ measures aimed at delivering 2 percent inflation in two years. Bank of Japan Governor Haruhiko Kuroda emerged from the talks saying he was emboldened to press ahead with his campaign to defeat 15 years of deflation. 
  • Germany Says ‘Liability Cascade’ Must Prevail in Bank Rescues. Plans in the euro area to allow the direct recapitalization of failing banks must stick to a hierarchy of responsibility that starts with the banks’ shareholders, the German Finance Ministry said. In its report for April, the ministry said a “liability cascade” must prevail in any attempt to save a bank, allowing the European Stability Mechanism to allocate resources on its main job of averting state insolvencies. “From the German government’s point of view, it’s important to limit the volume for direct recapitalization to allow the ESM to focus on its core task,” the ministry in Berlin said today. “It’s also important that the liability hierarchy is followed,” it said, echoing comments made by Finance Minister Wolfgang Schaeuble in Brussels this month.
  • Dijsselbloem: EU Bank Resolution Agency May Need Treaty. The European Union may need to enact treaty changes to create a new institution to shut down failing banks, Dutch Finance Minister Jeroen Dijsselbloem said. The EU can pursue most of its banking-union strategy under existing treaties, Dijsselbloem, who chairs the so-called Eurogroup of euro-area finance ministers, told reporters in Washington today. “I know that we can push forward at least 80, 90 percent of the project, and the final decision on having a singular resolution authority may need to make a treaty change,” Dijsselbloem said.
  • French people are increasingly gloomy about their country's future, a poll showed, with the number of pessimists rising from last month. 70% said they are pessimistic about the future of French society, an increase of 2 percentage points from March. People questioned cited rising unemployment and decreasing purchasing power as biggest concerns, according to the poll. 
  • European Central Bank Executive Board member Joerg Asmussen speaking in Washington. "We cannot repair unsound budgets. We cannot clean up struggling banks. We cannot solve deep-rooted problems in the structure of Europe's economies," he said. "Once-and-for-all solutions" are an "illusion," Asmussen said.
  • Bundesbank President Jens Weidmann said at a press briefing in Washington it may take "a decade rather than a year" before the euro region will have overcome the consequences of its crisis. De-leveraging will lead to "low growth rates," Weidmann said.
  • PBOC's Zhou Says Slower Growth Needed as China Restructures. China's central bank governor says first quarter gdp growth "normal". Zhou said growth must be sacrificed to make structural adjustments. China will continue to implement prudent monetary and proactive fiscal policies to promote economic growth and keep prices stable, he said.
  • Bearish ETF Bets Soar to 6-Year High on China Economy. Bets on declines in the largest Chinese etf are surging to the highest level since 2007 on concern a slowdown in the world's second-largest economy will stifle company earnings. Short interest on the iShares FTSE China 25 Index Fund climbed to 48.6 million shares, or 3.2% of the total outstanding at the end of March, the most since June 2007, data compiled by Bloomberg show.
  • BMW's Rolls Royce Sees Slowing Sales Growth in China, CEO Says. "Business isn't any longer as explosive as it was the years before, but we're still optimistic here with the market," Rolls-Royce Motor Cars CEO Torsten Mueller-Oetvoes said in an interview. The comments come as new Communist Party Chief Xi Jinping pushes for a campaign to rein in lavish spending.
  • China’s Stocks Drop as Insurers Retreat After Sichuan Earthquake. China’s stocks declined, led by insurers, after an April 20 quake in Sichuan province that killed at least 186 people. China Life Insurance Co. slumped 3.1 percent, heading for its biggest drop since March 3. A gauge tracking drugmakers climbed 0.7 percent, led by Harbin Pharmaceutical Group Co. The State Council urged citizens to donate funds for reconstruction after the country’s strongest earthquake in three years left 1.5 million people needing aid. Inner Mongolia Baotou Steel Rare- Earth Hi-Tech Co. retreated 1.3 percent after profit fell.
  • Asian Stocks Rise as Japanese Exporters Rally on Weak Yen. Asian stocks rose for a second day, led by Japanese exporters as the yen slid to a four-year low against the U.S. dollar after the Bank of Japan’s stimulus policies were unopposed at a Group of 20 meeting. The MSCI Asia Pacific Index gained 0.6 percent to 137.07 as of 10:17 a.m. in Tokyo, with about four shares rising for each that fell.
  • Hedge Fund Gold Wagers Defy Worst Slump in 33 Years: Commodities. Hedge funds increased bets on gold rallying after prices plunged the most in 33 years, underscoring billionaire John Paulson’s view that bullion will rebound. Fund managers and other speculators increased net-long positions in gold by 9.8 percent to 61,579 futures and options in the week ended April 16, U.S. Commodity Futures Trading Commission data show. Investors turned bullish on silver for the first time in three weeks. Wagers on higher prices across 18 U.S.-traded raw materials climbed 5.1 percent to 453,467 contracts, the first gain in three weeks. 
  • Copper Drops for Second Day as China Quake Raises Demand Concern. Copper declined for a second day in London amid speculation that an earthquake in China’s Sichuan province will hurt demand for the metal in the near-term before it boosts consumption in the reconstruction. Metal for delivery in three months fell as much as 1.5 percent to $6,888.75 a metric ton on the London Metal Exchange, before trading at $6,935.50 at 9:44 a.m. Shanghai time, headed for the lowest close since October 2011. Copper declined for a fifth consecutive week and dropped into a bear market. The August futures contract on the Shanghai Futures Exchange dropped 1.1 percent to 50,110 yuan ($8,107) a ton. 
  • China Rebar Falls as Iron Ore Price Decline, Steel Supply Rises. Steel reinforcement-bar futures fell, extending the biggest weekly decline in two months, amid rising output from domestic mills and a decline in the price of iron ore. The contract for October delivery on the Shanghai Futures Exchange fell as much as 0.6 percent to 3,665 yuan ($593) before trading at 3,678 at 10:12 a.m. local time. Futures lost 4 percent last week, the biggest weekly decline since Feb. 22. Spot iron ore at Tianjin port fell for the fifth day to $138 a dry ton on April 19, the Steel Index Ltd. data show. China’s daily crude steel output nationwide in early April was estimated to have risen 2.5 percent from late-March, Custeel.com analyst Hu Yanping said on April 18. “Supply still exceeds demand in the rebar market,” Jiang Yuying, an analyst at Chengdu Brilliant Futures Co., said by phone from Shanghai today. 
  • Corn Slumps to One-Week Low on Demand Concerns for U.S. Grain. Corn slumped to its lowest level in almost a week as a bird flu outbreak in China added to concern that demand for the U.S. grain for poultry and livestock feeds may wane. Soybeans and wheat also declined. Corn for delivery in July slumped as much as 1.4 percent to $6.24 a bushel on the Chicago Board of Trade, the cheapest level for the most-active contract since April 16.
  • Chicago-Area Man Arrested on Charge of Supporting Intl Terrorism. A 18-year-old Chicago-area man was arrested by the Federal Bureau of Investigation late yesterday at O’Hare International Airport on a charge of supporting terrorism overseas. Abdella Ahmad Tounisi, of Aurora, Illinois, was taken into custody without incident as he was getting on a flight for Istanbul, the FBI said in a statement. The bureau said he appeared in U.S. District Court today and was charged with one count of attempting to provide material support to a foreign terrorist organization, which is a felony. The statement said he was traveling to Syria to join a jihadist militant group operating inside Syria.
Wall Street Journal:
  • Turn to Religion Split Bomb Suspects' Home. After last week's Boston Marathon bombings, Zubeidat Tsarnaeva phoned her son Tamerlan in Massachusetts to make sure he was safe. "Mama, why are you worrying?" Tamerlan replied from Boston, laughing.  Days later, it was the son who phoned his mother. The two, in recent years, had shared a powerful transformation to a more intense brand of Islam. "The police, they have started shooting at us, they are chasing us," Mrs. Tsarnaeva says Tamerlan told her. "Mama, I love you." Then the phone went silent. 
  • U.S. Eyes Pushback On China Hacking. The Obama administration is considering a raft of options to more aggressively confront China over cyberspying, officials say, a potentially rapid escalation of a conflict the White House has only recently acknowledged. Options include trade sanctions, diplomatic pressure, indictments of Chinese nationals in U.S. courts and cyber countermeasures—both attack and defense, officials said.
  • Consumer Loans Surge Across Asia. Banks From Around the World Target Middle Class With Financing for Autos, Home Appliances. Lenders from around the world are fueling a boom in short-term loans across Asia, helping push debt to record levels as a burgeoning middle class strives for a better lifestyle and banks look to diversify away from the slow-growing West. Companies ranging from Citigroup Inc.  to Japan's big banks to a Dutch consumer-finance provider that built its business in Central and Eastern Europe are issuing credit cards or stepping up lending for cars, motorcycles and home appliances from India to Indonesia. Nonmortgage consumer credit in Asia outside of Japan rose 67% in the past five years to $1.66 trillion by the end of 2012, according to data provider Euromonitor International. In the U.S. the rise was only 10% during the same period as consumers cut back on debt following the financial crisis.
  • Economic Woes Abroad Bode Ill for the U.S. Troubles overseas are threatening the U.S. recovery for the fourth year in a row. This time it's weakening economies abroad, rather than tumbling financial markets, signaling turbulence ahead. U.S. exports of goods to the European Union are declining outright. Growth in overall U.S. exports has been sputtering for months, after a three-year postrecession surge. And major U.S. companies are reporting increasingly dour overseas outlooks tied to the recession-plagued euro zone and slowing growth in other leading economies such as China. The renewed fears of a global slowdown come after months of hope that a stronger recovery was finally taking shape.
  • North Korea Reaffirms Commitment to Nuclear Program. North Korea said it would be willing to hold disarmament talks with the U.S. but not over its nuclear-weapons program, its latest gambit in a weekslong run of threatening behavior that has in recent days been supplemented by extreme conditions for potential dialogue. An official in Seoul said the North has moved two more launchers to its east coast for a possible test firing of short-range Scud missiles, South Korea's Yonhap news agency reported on Sunday. The defense ministry declined to comment on the report. Scud missiles have a range of a few hundred kilometers and would pose no threat to South Korea or other countries if fired into the sea. A bigger concern are the one or two midrange missiles that North Korea is believed to have positioned on its eastern seaboard. North Korea celebrates the anniversary of the founding of its military on April 25, which has led to speculation that it may test-launch missiles on that day.
  • Enemy Combatants in Boston. Was there a FISA order issued for Tamerlan Tsarnaev? A row has broken out over whether the Obama Administration is violating the legal due process of Boston terror suspect Dzhokhar Tsarnaev by not reading him his Miranda rights before questioning. The more relevant question for the safety of the U.S. homeland is why the Administration has declined to designate him as a terrorist enemy combatant.
Fox News:
  • IMF Chief Lagarde: Worries About Currency Valuations on the Rise. IMF Managing Director Christine Lagarde has said in recent weeks that fears of a global series of currency devaluations, or currency war, are overblown. But that's not to say the IMF doesn't recognize that easy money policies in the U.S., Japan and Europe aren't putting pressure on other countries' exchange rates. Fearing that those actions might be efforts to devalue their currencies to gain a competitive trading advantage has tempted some governments to consider retaliating--by cutting the value of their own exchange rate. "Worries over currency valuations and competitive depreciation are on the rise," Ms. Lagarde said in her formal policy agenda presented to the IMF's steering committee.
CNBC: 
  • Softness in Indian Market a Concern: Ford Motor(F). The decline in the Indian auto industry is a concern for one of the world's largest automakers Ford Motor Company, the firm told CNBC at the Auto Shanghai Summit 2013. "The softness in the Indian market right now is a little bit of a concern," said president of Asia Pacific operations David Schoch on the sidelines of the auto show. 
  • China Housing Bubble? Watch These 2 Cities: Vanke. Controlling home price increases in China's capital Beijing and financial hub Shanghai is critical for cooling the country's broader property market, according to Wang Shi, chairman of Vanke, the mainland's largest real estate developer. "My concern is that if the price increases in those two cities can't be controlled, it will result in price increases in other cities as well and that won't be a good thing," Wang told CNBC on the sidelines of the China Entrepreneur Club's Annual Summit of Green Companies in Kunming, which is located in the country's southwestern Yunnan province.
Business Insider:
New York Times: 
  • Report Shows More New Yorkers Are Near Poverty. The rise in New York City’s poverty rate as a result of the recession has apparently eased, but not before pushing nearly half of the city’s population into the ranks of the poor or near-poor in 2011, according to an analysis by the Bloomberg administration. That year, according to the city’s measure, about 46 percent of New Yorkers were making less than 150 percent of the poverty threshold, a benchmark used to describe people who are not officially poor but who still struggle to get by. That represents a rise of more than three percentage points since 2009, when the nation’s recession officially ended.
LA Times:
  • Bird flu outbreak is spreading fear in China. A new strain of avian flu called H7N9, which has caused 18 deaths, is causing deepening concern. People are avoiding zoos, passing up chicken dinners, and farmers are killing their flocks.
CNN: 
  • China earthquake shears off mountainsides, kills 186 people. A strong earthquake that struck the southwestern Chinese province of Sichuan this weekend has killed 186 people, sent nearly 8,200 to hospitals and created a dire dearth of drinking water, Chinese state-run Xinhua reported Sunday. Earlier reports had said as many as 11,200 people were injured.
Reuters:
  • GM(GM) to add four more plants in China by 2015: executive. General Motors Co will add four new plants in the next three years in China to bring its production capacity to 5 million vehicles a year, the head of GM China said on Saturday at the Shanghai auto show. Bob Socia, head of GM China, said that the company and its joint venture partners will invest $11 billion in China by 2016, but did not break out the cost of the new plants.
  • ArcelorMittal(MT) CEO says high labour, energy costs hurt France. ArcelorMittal CEO Lakshmi Mittal said on Saturday he regretted that the steel giant was having to permanently close two French blast furnaces but high labour and energy costs kept France at a competitive disadvantage. Mittal, who has drawn fury in France over the closure of the decades-old furnaces, said ArcelorMittal (ISPA.AS) had every intention of remaining in the country for the long term, but its export potential was limited by constraints on competitiveness. "To increase the productivity of our sites in France, we need energy costs to come down, like in the United States and Germany," Mittal said in an interview with the weekly Journal du Dimanche. "In France, labour costs are 20 percent higher than in Spain and labour laws are still too rigid." A long battle by trade unions to save the furnaces, which employed 629 people, has turned Florange, the last survivor in a once vibrant steel region in northeast France, into a symbol of industrial decline.
AP:
  • Police: Bombing Suspects Planned More Attacks. As churches paused to mourn the dead and console the survivors of the Boston Marathon bombing Sunday, the city's police commissioner said the two suspects had such a large cache of weapons that they were probably planning other attacks. The surviving suspect remained hospitalized and unable to speak with a gunshot wound to the throat. After the two brothers engaged in a gun battle with police early Friday, authorities found many unexploded homemade bombs at the scene, along with more than 250 rounds of ammunition. Police Commissioner Ed Davis said the stockpile was "as dangerous as it gets in urban policing." "We have reason to believe, based upon the evidence that was found at that scene — the explosions, the explosive ordnance that was unexploded and the firepower that they had — that they were going to attack other individuals. That's my belief at this point."
Financial Times: 
  • Kames quits European periphery. Kames Capital’s Phil Milburn is selling down the remainder of his peripheral European holdings in his £1.4bn High Yield Bond fund on concerns that the market has not fully priced in risks in continental Europe. Mr Milburn, who co-manages the fund with Melanie Mitchell, says he was surprised how little reaction there had been to the election in Italy and the Cyprus bank levy. The fund has been defensively positioned since the second half of 2012, but the managers have been taking even more money out of Italy in recent weeks and selling the lower quality parts of their only Irish holding, Ardagh. Mr Milburn says: “We have looked at our peripheral Europe holdings and in the past couple of weeks we have been reducing our exposure to Italy.
Telegraph:
Mirror:
WirtschaftsWoche:
  • German Finance Minister Wolfgang Schaeuble said the Cyrpus rescue should be used as a template for any further euro-bloc bailouts and that it's necessary for bank deposit holders to make a contribution when banks have to be saved. If banks have to be saved in the future, their owners, creditors and savers would have to make a contribution, Schaeuble said. This is needed to get the moral hazard problem under control, he said. Schaeuble defended Eurogroup president Jeroen Dijsselbloem who made similar comments, saying criticism of Dijsselbloem was not justtified and didn't come from "me".
Le Journal du Dimanche:
  • French President Francois Hollande's approval rating fell six points to 25% in April, an Ifop institute poll showed.
Shana:
  • Oil prices have been weakened by oversupply of 1.5 million barrels a day, citing Mohammad Ali Khatibi, Iran's governor to OPEC.
Mehr:
  • North Korea has proposed importing oil from Iran, citing Iranian Oil Minister Rostam Qasemi.
Weekend Recommendations
Barron's:
  • Bullish commentary on (CQB) and (GDX).
  • Bearish commentary on (KO).
Night Trading
  • Asian indices are -.25% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 114.50 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 90.25 -1.5 basis points.
  • FTSE-100 futures +.95%.
  • S&P 500 futures +.54%.
  • NASDAQ 100 futures +.57%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (BEAV)/.81
  • (HAL)/.57
  • (HAS)/.04
  • (CAT)/1.38
  • (NFLX)/.20
  • (TXN)/.30
  • (ILMN)/.38 
Economic Releases
8:30 am EST
  • The Chicago Fed National Activity Index for March is estimated to fall to .35 versus .44 in February.
10:00 am EST
  • Existing Home Sales for March are estimated to rise to 5.0M versus 4.98M in February.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Dudley speaking, China HSBC PMI and the Eurozone Consumer Confidence report 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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