Tuesday, May 14, 2013

Tuesday Watch

Evening Headlines 
  • Secret U.S. Trawl of AP Calls Decried by Press Groups. Media groups and government watchdogs said the U.S. Justice Department interfered with press freedom when it secretly collected telephone records from Associated Press reporters and editors over a two-month period last year. The AP disclosed the government’s action in a letter yesterday to Attorney General Eric Holder from Gary Pruitt, the president and chief executive officer of the news service. Pruitt called the collection of phone records at four locations used by reporters a “massive and unprecedented intrusion” of AP’s right to gather news under the U.S. Constitution. The Justice Department’s seizure of the Associated Press’s phone records is “Nixonian,” said Danielle Brian, executive director of the Project on Government Oversight. Holder “has trampled a line meant to protect our free and independent press.”
  • IRS Focus on Tea Parties Stirs Dissent on Health Care Law. A handful of Cincinnati-based Internal Revenue Service employees have accomplished what no bipartisan White House dinner ever could: uniting the U.S. Congress. Capitol Hill lawmakers are now on a mission to dissect how the tax agency wound up targeting Republican-friendly groups for extra scrutiny. Republican Senate Leader Mitch McConnell called it a “travesty” and the chamber’s majority leader, Democrat Harry Reid, termed the matter “very troubling.” While the top tax collectors at the IRS face grillings in Congress, the ramifications of the outrage are likely to ripple far beyond them. Even as President Barack Obama yesterday labeled the IRS action “outrageous,” the issue will complicate his ability to press other initiatives, including implementing the health-care law, in which the IRS plays an enforcement role, political scientists and strategists from both parties said yesterday. “This was dirty, no question, and it will do nothing to improve the tense relationship between the Obama administration and Republican leaders,” said Kenneth Warren, a political science professor at Saint Louis University in Missouri. 
  • Cameron Gives Way to Tory Rebels in Backing EU-Referendum Bill. British Prime Minister David Cameron ceded to the rebellion in his own Conservative Party, offering to support a bill authorizing a referendum by 2017 on the U.K.’s continued membership in the European Union. The prime minister’s visit to the U.S., where he has been talking about the conflict in Syria and his agenda for next month’s Group of Eight summit, has been overshadowed by a growing number of Conservative lawmakers saying they planned a Parliamentary vote against his legislative program to protest his failure to deliver such a bill. 
  • Tata Steel Flags $1.6 Billion Writedown on Weak Europe Demand. Tata Steel Ltd. (TATA), India’s biggest producer, said it expects a $1.6 billion writedown in asset values because of a drop in steel demand in Europe. Demand in Europe has fallen by almost 8 percent in the year ended March 31, Mumbai-based Tata said yesterday in a statement. Weaker economic and market conditions in Europe are expected to continue in the near and medium-term, leading to a cut in expected cash flows and the valuation of the company’s European business, Tata said. 
  • China Stocks Fall Most in 3 Weeks on Economic, Property Concerns. China’s stocks fell the most in three weeks on concern an economic slowdown is deepening and the government is introducing more restrictions on the property market to limit gains in housing prices. China Vanke Co., the largest developer, dropped the most in three weeks after the 21st Century Business Herald reported Beijing tightened rules for the pre-sale of homes. China Eastern Airlines Corp. slid to a one-month low after Credit Suisse Group AG said Chinese airline traffic growth slowed last month. ZTE Corp. slumped 4.4 percent after the Wall Street Journal reported the European Union will seek to start a probe into alleged unfair trade practices by the telecom company. The Shanghai Composite Index (SHCOMP) fell 1.6 percent to 2,206.52 at the 11:30 a.m. break, the most since April 23. The CSI 300 Index slid 2 percent to 2,480.
  • Asian Shares Rise for Second Day as Yen Rebounds; Gold Advances. Asian shares rose for a second day, led by Japanese utilities, as gold climbed after a three-day decline lured buyers. Japan’s yen rallied from the lowest level in more than four years, while the Malaysian ringgit advanced. The MSCI Asia Pacific Index added 0.4 percent at 11:09 a.m. in Tokyo, while South Korea’s Kospi Index increased 0.8 percent.
  • Rubber Snaps Five-Day Rally as Rebound in Yen Reduces Appeal. Rubber fell from a two-month high, snapping a five-day winning streak, as a rebound in Japan’s currency against the dollar cut the appeal of yen-based futures. Rubber for delivery in October lost as much as 2 percent to 288 yen a kilogram ($2,837 a metric ton) on the Tokyo Commodity Exchange and was at 289.8 yen at 10:18 a.m.
Wall Street Journal: 
  • EU Closer to China Telecom Probe. The European Union's trade chief will ask for backing this week from senior members of the bloc's executive arm to start investigations into alleged unfair trade practices by Chinese network-equipment suppliers Huawei Technologies Co. and ZTE Corp., an EU official said, amid concern from European companies that such a probe could prompt a backlash against their interests in China.
  • Bank Bailout Blues Stall U.K. Recovery. Five years after rescuing one of the world's biggest banks, the British government still hasn't figured out what to do with it—a sign of the country's struggle to put its banking woes behind it.
  • The IRS Wants You. The scandal over politicized tax enforcement is growing. There is a pattern here. Oppose the Obama Administration or liberal priorities, and you too can become an IRS target.
Fox News: 
  • Justice Department secretly obtained AP phone records. The Justice Department secretly obtained two months of telephone records of reporters and editors for The Associated Press in what the news cooperative's top executive called a "massive and unprecedented intrusion" into how news organizations gather the news. The records obtained by the Justice Department listed outgoing calls for the work and personal phone numbers of individual reporters, for general AP office numbers in New York, Washington and Hartford, Conn., and for the main number for the AP in the House of Representatives press gallery, according to attorneys for the AP. It was not clear if the records also included incoming calls or the duration of the calls. In all, the government seized the records for more than 20 separate telephone lines assigned to AP and its journalists in April and May of 2012. The exact number of journalists who used the phone lines during that period is unknown, but more than 100 journalists work in the offices where phone records were targeted, on a wide array of stories about government and other matters.
  • Republicans want new Clinton testimony on Benghazi, float possibility of subpoena. Calls are growing for former Secretary of State Hillary Clinton to return to Capitol Hill -- under subpoena, if necessary -- to answer new questions that have surfaced about her role in the response to the Benghazi terror attack. “I believe she was disconnected and dispassionate about what was happening,” House Oversight and Government Reform Committee Chairman Darrell Issa told Fox News on Monday. During the interview, Issa kept the option of forcing Clinton to testify on the table.
  • CTFC Probes Over 1 Million US Swap Contracts. A top U.S. financial regulator has launched a broad inquiry into the legitimacy of more than 1 million energy and metals transactions by the biggest traders in commodities markets over the past two years. The Commodity Futures Trading Commission has issued a "special call" asking Wall Street banks and other traders to provide documents that would prove recent derivatives transactions known as "exchanges of futures for swaps" were legal. Lawyers at the CFTC enforcement division are also scrutinizing the trades for possible violations. "They are looking at a huge amount of trading," an industry lawyer said
  • Corn Crop Planting At Third Slowest Pace in Three Decades. Less than a third of the corn crop in key planting states is in the ground, the third lowest level for this time of year since 1980. The U.S. Department of Agriculture Monday reported that 28 percent of the expected corn crop has been planted, and in key farm belt states, like Iowa and Illinois, the levels are even lower.
Zero Hedge: 
Business Insider: 
New York Times:
  • Grind of Euro Crisis Wears Down Support for Union, Poll Finds. Europeans have never been wild about the European Union. With the region sapped by the euro crisis, confidence in the institution and the benefits it was supposed to provide is flagging faster and further than ever before, according to an influential opinion survey released Monday. The results of an annual survey by the Pew Research Center, a nonpartisan organization based in Washington, show a deepening disillusionment with the union in major member countries. The results of the survey suggest that more citizens than ever could end up opposing the transfer of more power to European Union institutions that may be vital for transforming the euro into a viable currency over the long term.
  • U.S. banks push back on change in loan loss accounting. More than a dozen of the biggest U.S. banks have questioned a proposed accounting change meant to boost reserves for risky loans, saying the results would be vastly different from those of a similar rule being developed by global standard-setters. A key reform arising out of the 2007-08 global financial crisis, the proposal would require banks to look ahead and reserve for expected losses on the day a loan is made. Currently, banks do not have to reserve for risky loans until there are signs of a loss.
  • SolarCity(SCTY) quarterly loss bigger than expected, shares drop. SolarCity Corp on Monday reported a larger-than-expected quarterly loss, reversing a year-ago profit, due to higher costs related to its business that installs solar panels on rooftops. The company's shares slid 4.5 percent in after-hours trade following the announcement.
  • EU bank proposals 'risk domino sequence of failures’. Proposed European Union rules governing how losses are imposed on creditors in a failed bank pose the risk of a “domino effect” threatening financial stability in Britain, George Osborne will warn on Tuesday
The Standard:
  • Lee & Man tips price declines. Lee & Man Paper Manufacturing (2314), the second largest containerboard manufacturer by output in the mainland, expects prices to weaken in the near term as costs for raw materials fall. Paper products in the mainland now retail at 3,300 yuan (HK$4,165) to 3,400 yuan per tonne, said executive director Edmond Lee Man-bun yesterday after the company's annual general meeting.
China Securities Journal: 
  • State Economist Says China Can't Cut Rates. China can't cut interest rates due to abundant global liquidity, citing Zhu Baoliang, head of the State Information Center's economic forecast department
21st Century Business Herald:
  • Beijing has tightened rules of pre-sales of homes, mandating approval from the mayor's office in addition to regular housing bureau approval. Pre-sales prices won't be allowed to be higher than current housing prices in the same area. Beijing new housing inventory is 60,995 units, near a historical low, citing data from Netease.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 102.5 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 82.0 -.25 basis point.
  • FTSE-100 futures +.36%.
  • S&P 500 futures +.06%.
  • NASDAQ 100 futures +.09%.
Morning Preview Links

Earnings of Note

  • (A)/.67 
Economic Releases
7:30 am EST
  • The NFIB Small Business Optimism Index for April is estimated to rise to 90.3 versus 89.5 in March.
8:30 am EST
  •  The Import Price Index for April is estimated to fall -.5% versus a -.5% decline in March.
Upcoming Splits
  • (CL) 2-for-1
  • (AOS) 2-for-1
Other Potential Market Movers
  • The Fed's Plosser speaking, German ZEW Index, German inflation data, weekly retail sales data, BofA Merrill Metals/Mining/Steel Conference, JPMorgan Tech/Media/Telecom Conference, UBS Financial Services Conference and the Citi Power/Energy/Utilities Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and consumer shares in the region. I expect US stocks to open modestly higher and weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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