Wednesday, June 19, 2013

Wednesday Watch

Posted by Gary .....at 12:45 AM
Evening Headlines 
Bloomberg:  
  • China Swaps Climb for Record 13th Day as Cash Shortage Deepens. China’s one-year interest-rate swap climbed for a record 13th day as the central bank refrained from adding funds to the financial system to compensate for slowing capital inflows. A sale of 10-year government debt attracted the fewest orders since August 2012. The People’s Bank of China asked lenders to submit orders for 14-day reverse-repurchase contracts, which are used to add funds, and 28-day repurchase contracts this morning, according to a trader at a primary dealer required to bid at the auctions. The PBOC has refrained from using reverse repos since Feb. 7. Regulators are forcing trust funds and wealth managers to shift assets into publicly traded securities as part of its crackdown on so-called shadow banking. “The market is disappointed by the lack of reverse repos from the PBOC,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “The liquidity squeeze stems from less inflows and policy makers’ own policy to crack down on shadow banking, so the PBOC may be reluctant to use short-term tools to help.” The one-year swap, the fixed cost needed to receive the floating seven-day repo rate, jumped 20 basis points to 4.18 percent as of 10:47 a.m. in Shanghai, according to data compiled by Bloomberg. That was the highest level since September 2011 and the longest run of gains in data compiled by Bloomberg going back to 2006.
  • GM(GM) Says China Luxury Vehicle Demand Slower Than Expected. General Motors Co. (GM), which broke ground on a new Cadillac assembly plant in China today, forecast demand for luxury autos will grow at a slower pace than the total vehicle market this year. Sales of premium cars in China will probably increase about 4 percent this year, or about half the pace that the automaker had expected at the start of the year, Bob Socia, GM’s China head, said in a briefing in Shanghai today. The automaker has said it expects total industry sales to increase about 7 percent to 8 percent this year. “Even taking into consideration the crackdown on corruption, calls for frugality and slower economic growth, luxury car demand should hold at around 10 percent growth,” said Han Weiqi, an auto analyst with CSC International Holdings Ltd. in Shanghai. “GM’s estimate for 4 percent growth means they expect the segment will be pretty sluggish.”
  • China’s Military Buildup Worrisome, Japan’s U.S. Ambassador Says. China’s “spectacularly active” naval posture and “massive” military buildup in Asia are part of a pattern of belligerent behavior toward Japan and other neighbors over maritime disputes, according to Japan’s ambassador to the U.S. Speaking at a Bloomberg Government breakfast in Washington yesterday, Japanese Ambassador to the U.S. Kenichiro Sasae described China’s increasingly frequent forays to lodge territorial claims in the resource-rich East and South China Seas as “harassing” and “provocative.” Japan is urging the Chinese government to “restrain yourself,” said Sasae, who served as deputy foreign minister until last year. 
  • Aussie Risk Premium Increases to Most in Year: Australia Credit. The cost to insure corporate debt in Australia exceeds the global average by the most in almost a year on concern the economy is losing the advantages that allowed it to survive two decades without recession. The Markit iTraxx Australia gauge climbed to 124 basis points on June 13, or 22 basis points higher than the average of four other credit-default swaps indexes from around the world, the widest gap since July, CMA prices show. Swaps on Rio Tinto Group, whose borrowing costs increased in a bond sale last week, jumped 40 basis points to 125, the steepest climb this year among the Australian index's 25 members, the data show. 
  • China Stocks Fall to a Six-Month Low Amid IPO, Property Concern. China’s stocks fell to a six-month low amid speculation the government may introduce more property curbs to contain rising prices and regulators are considering resuming approvals of initial public offerings. China Vanke Co. slid to the lowest level in six months as the China Securities Journal reported the country may expand property tax trials to more cities “soon.” Jiangxi Copper Co. and Yanzhou Coal Mining Co. led declines for metal and energy companies before a manufacturing report tomorrow. China will allow IPOs only after new rules aimed at boosting protection for investors go into effect, a China Securities Regulatory Commission official with knowledge of the matter said. The Shanghai Composite Index (SHCOMP) fell 1 percent to 2,137.48 at 9:51 a.m. local time, poised for the lowest close since Dec. 13, while the CSI 300 Index lost 1.3 percent to 2,388.07 and the Hang Seng China Enterprises Index (HSCEI) dropped 1.3 percent.
  • Asian Stocks Gain as Japanese Exporters Rise on Weak Yen. Asian stocks rose as Japanese exporters rallied after the nation’s shipments increased and the yen weakened ahead of the conclusion of a Federal Reserve policy meeting. Honda Motor Co. (7267), a Japanese carmaker that gets about 83 percent of sales from overseas, added 1.3 percent. Mitsui O.S.K. Lines Ltd., the largest operator of merchant shipping fleets, rose 1.3 percent in Tokyo after a gauge that tracks the cost of shipping commodities increased for a ninth day. Rio Tinto (RIO) Group gained 1.7 percent after a report the world’s No. 2 mining company will cut jobs at its Australian iron-ore operations. The MSCI Asia Pacific Index rose 0.4 percent to 132.24 as of noon in Tokyo, paring gains of as much as 1 percent.
  • Brazilian Protests Resume as 50,000 Mass in Sao Paulo. Brazilian protesters angry about a range of political and economic issues took to the streets for the sixth night in less than two weeks with some attempting to storm city hall in Sao Paulo, South America’s largest city. About 50,000 people massed throughout Sao Paulo and thousands marched on city hall, according to Datafolha, the Grupo Folha research institute. A smaller group backed police in full riot gear against a wall and attempted to break into the building before they were stymied by other demonstrators forming a human chain to stop them. Protestors then marched down all eight lanes of Avenida Paulista, the city’s main boulevard. 
  • Copper Near Six-Week Low Ahead of FOMC Meeting Outcome. Copper traded near the lowest level in six weeks as investors waited for the outcome of Federal Reserve’s meeting tonight. Metal for delivery in three months was little changed at $7,011 a metric ton on the London Metal Exchange as of 9:39 a.m. Shanghai time after falling to $6,965 yesterday, the lowest since May 3.
  • Copper Slump Longest Since 2001 on Supply Gain: Chart of the Day. Copper traded in London is heading for a third straight quarterly decline, the longest slump in more than a decade, reflecting concern that slowing economic growth will curb demand for already ample supply. Prices are down 7.1% since the end of March, following a 4.9% slide in the first quarter and a 3.3% drop in the 2012 fourth quarter. The last stretch of losses that long ended in September 2001. Copper for delivery in three months on the LME is down 12% this year.
  • Sudden Stock Crashes Usually Caused by Human Error, SEC Says. Concern that American stock markets have become more susceptible to split-second crashes due to computerization isn’t supported by the data, a Securities and Exchange Commission official said. Most “mini-flash crashes,” a term sometimes applied when an individual U.S. stock briefly surges or plunges for no obvious reason, are the result of human errors, not broken software, said Gregg Berman, head of the SEC’s Office of Analytics and Research.
  • BofA(BAC) Should Face Foreclosure Probe by TARP Watchdog, Waters Says. Bank of America Corp. (BAC), the second-biggest U.S. lender, should be investigated for its treatment of distressed homeowners, said Representative Maxine Waters, the top Democrat on the House Financial Services Committee. Employees say the lender told them to delay applications to the Home Affordable Modification Program, or HAMP, to increase fees and send customers into foreclosure, Waters wrote today in a letter to the watchdog for the U.S. government’s bailout program. She cited a June 14 Bloomberg article based on court documents in making the request.
Wall Street Journal:
  • U.S. to Propose New Phase In Nuclear-Arms Cuts. President Barack Obama, in a major foreign-policy speech in Berlin on Wednesday, is set to make the case for a new phase in nuclear-weapons reductions, said senior U.S. officials briefed on the plans. Despite mounting tensions with Cold War adversary Russia over the Syrian civil war and missile defense, Mr. Obama is expected in the speech to say the U.S. and Russia can reduce their arsenals of deployed nuclear weapons by as much as another one-third, beyond the cuts mandated under the 2010 New START, or Strategic Arms Reduction Treaty, without undercutting deterrence or capabilities, the officials said. 
  • Traders Try to Game Platts Oil-Price Benchmarks. The European Union says it is searching for evidence that oil traders manipulate prices. If oil trader Halis Bektas is correct, it shouldn't be hard to find. Mr. Bektas describes one strategy he has used himself: Offer to sell a small amount at a loss to drive down published oil prices, then snap up shiploads at the lower price.
  • Middle-Class Brazil Finds Its Voice in Protests. Demonstrations Showcase Electorate's Rising Demands; Leader Shows Empathy. A day after the biggest demonstrations in decades gripped Brazil, this South American nation awoke to a shifting political landscape, with protest leaders seeking to turn Monday's venting of national frustration into a long-term movement, and a wary political class searching for footing in a country that has voiced a powerful call for change.
Fox News:
  • Did senior State Department security officials commit perjury? Two top officials at the State Department's Diplomatic Security Service (DS) -- the federal law enforcement agency that protects American diplomats and investigates allegations of criminal misconduct by State Department employees -- gave sworn testimony earlier this year that appears to be evasive at best, and untrue at worst, according to evidence obtained by Fox News.
CNBC:
  • Emerging Market Allocations Lowest Since 2008. Investor confidence in emerging markets is continuing to plummet, with a recent fund managers' survey showing that equity investment in the group of countries has fallen to its lowest level since December 2008. The BofA Merrill Lynch Fund Manager Survey for June showed that about 9 percent of asset allocators were underweight emerging market equities - the first underweight reading since 2009 and down from a 3 percent overweight position in May.
Zero Hedge:
Business Insider:
New York Times:
  • Islamists Press Blasphemy Cases in a New Egypt. Egypt’s prosecutors have been flooded with blasphemy complaints since 2011 as Islamists exercising their new societal clout have pushed for prosecutions and courts have handed down steep fines and prison terms for insulting religion. This month alone, a Christian teacher in Luxor was fined $14,000 for insulting the Prophet Muhammad in class, a writer was given five years in prison for promoting atheism and a Christian lawyer was sentenced to one year for insulting Islam — in a private conversation. Blasphemy cases were once rare in Egypt, and their frequency has increased sharply since the revolution. More than two dozen cases have gone to trial, and nearly all defendants have been found guilty. At least 13 have received prison sentences.  
FXStreet.com:
  • Flash: Taper is a smoke-screen it's all about China now - RBS. According to Gibbs, "the big risk factor for global markets now is China and how it deals with its financial bubble, with all the evidence is that the new government is now working on this problem." For the Strategist, the real question now is "can they let the air out without too much damage?" Gibbs wonders, responding that "it's really a matter of how much damage." That realisation, in view og Gibbs, is probably the main reason for the sustained weakness in commodity and Asian emerging currencies this year: "It is a reason for their significant further decline than risk assets in the US and Europe" Gibbs said. As a final note, Gibbs notes that we are entering a phase in which the market no longer ignores the Chinese shadow banking system, saying that "while the Taper and Abenomics smokescreens have distracted the market from developments in China somewhat, China has certainly entered the main-stream market analysis." We are seeing warning signals about the 'shadow banking' in China on a much more regular basis now.
Breitbart.com:
  • ObamaCare Rule: HHS, IRS Can Share Private Health Information. Though millions of Americans sign forms in their doctors’ offices which claim their personal health information is protected under the Health Insurance Portability and Accountability Act (HIPAA), a new ObamaCare rule requires federal and local agencies and health insurers to trade the personal health data of any person interested in signing up for the new state exchanges.
Reuters:
  • Adobe(ADBE) profit beats as Creative Cloud subscriptions soar. Adobe Systems Inc, which makes the Photoshop and Acrobat software, reported a higher-than-expected adjusted quarterly profit as demand rose for Creative Cloud, the subscription-based version of its flagship software package. Shares of the company rose 4.4 percent in after-market trading.
Financial Times:
Telegraph:
The Australian: 
  • Unions' polling confirms 'disaster' for Labor. (video) CONFIDENTIAL political polling conducted for the ACTU has confirmed Labor is facing huge swings in a raft of ALP seats, results described by leading union officials as "diabolical" and "disastrous" for Julia Gillard. But the ACTU leadership is standing behind the Prime Minister and opposing any moves to replace her with Kevin Rudd despite the polling.
Ming Pao:
  • Hong Kong Cargo Throughput Little Change January-May. Cargo throughput grew just .2% in the first five months of the year, citing Li Jianhong, China Merchants Holdings International vice chairman.
China Securities Journal:
  • China May Expand Property Tax Trials 'Soon'. China may expand property tax trials to more cities "soon," citing people. The Chinese cities of Beijing, Shenzhen, Nanjing, Hangzhou and Qingdao have drafted property tax trial plans.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -1.0% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 136.0 +5.0 basis points.
  • Asia Pacific Sovereign CDS Index 106.25 +1.0 basis point.
  • FTSE-100 futures -.03%.
  • S&P 500 futures -.14%.
  • NASDAQ 100 futures unch.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (ATU)/.58
  • (FDX)/1.95
  • (FNSR)/.17
  • (MU)/.03
  • (RHT)/.31
  • (SCS)/.13
  • (JBL)/.54
Economic Releases
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -500,000 barrels versus a +2,523,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +750,000 barrels versus a +2,748,000 barrel gain the prior week. Distillate inventories are estimated to rise by +925,000 barrels versus a -1,163,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a -.9% decline the prior week.
2:00 pm EST
  •  The FOMC is expected to leave the benchmark fed funds rate at .25%.
Upcoming Splits
  • (FLO) 3-for-2
Other Potential Market Movers
  • The Fed's Bernanke speaking, German 10Y Bond auction, HSBC China Manufacturing PMI, weekly MBA mortgage applications report and the (GE) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and technology 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 day.

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