Thursday, July 25, 2013

Thursday Watch

Evening Headlines 
Bloomberg:
  • China Wrings Price Cuts in Public Campaign on Graft-to-Collusion. Behind China’s expanding anti-corruption probe of international drugmakers is a populist campaign to drive down drug prices as China, like the U.S., seeks to expand health care to the poor and uninsured. The pressure on multinationals comes as the country faces a slowing economy that threatens its promise to deliver rising living standards and as President Xi Jinping has made affordable health care a key part of the Communist Party’s agenda.
  • Beijing Sells Residential Land at Record on Luxury Home Demand. Beijing sold a high-end residential land parcel for a record price as developers sought to tap rising demand for luxury homes even as the government maintains its property curbs. The number of apartments sold for more than 10 million yuan in the Chinese capital jumped 81 percent to 1,388 in the first half from a year earlier, as wealthy buyers favored bigger properties under the government’s purchase restrictions, Bacic & 5i5j said. China’s new home prices rose in all but one city in June, official data showed this month, underscoring Premier Li Keqiang’s struggle to make housing affordable even as the economy cools
  • Japan Seen Needing $50 Billion to Cushion Sales-Tax Rise. Japanese Prime Minister Shinzo Abe, now sitting on the biggest parliamentary majority in six years, faces the threat of political dissent within months as a planned sales-tax rise threatens to arrest an economic rebound. The world’s third-largest economy has 30 percent odds of tipping into the fourth recession since 2008 should Abe bump the consumption levy to 8 percent in April from 5 percent, according to the median of 23 estimates in a Bloomberg News survey.
  • China Stocks Fall as Technology, Small Companies Drop; CSR Gains. Chinese stocks fell as technology and small-company shares slumped after a three-day rally, overshadowing gains for industrial companies. BOE Technology Group Co. slid 4.6 percent, sending a measure of technology shares to the biggest loss among the 10 industries in the CSI 300 Index. CSR Corp., the nation’s biggest trainmaker, and China Railway Construction Corp. jumped more than 5 percent. The government yesterday announced measures to accelerate railway construction, cut taxes for small companies and support exporters by reducing administrative fees. The Shanghai Composite Index (SHCOMP) fell 0.1 percent to 2,031.75 at 10:49 a.m. local time.
  • Asian Stocks to Won Slip on Stimulus Bets; Kiwi Gains. Asian stocks fell the most in more than two weeks and emerging-market currencies weakened as investors weighed the withdrawal of Federal Reserve stimulus. Metals and oil retreated, while New Zealand’s dollar rallied. The MSCI Asia Pacific Index lost 0.7 percent to 135.99 as of 12:15 p.m. in Tokyo, the most since July 8. South Korea’s won and Thai baht weakened at least 0.4 percent, while New Zealand’s dollar gained 0.6 percent.
  • Spanish Train Crash Kills 77, Biggest Toll Since Madrid Bombing. A train derailment near the northwestern Spanish city of Santiago de Compostela killed at least 77 people, the highest death toll in a rail incident since the 2004 Madrid bombing. The number of fatalities may increase because parts of the wreckage are difficult to access, said a spokeswoman for the high court of the region of Galicia. She requested anonymity citing the policy of the court, which is involved in the legal procedures surrounding the crash. 
Wall Street Journal:
  • Stalled Project Shows Why China's Economy Is Wobbling. The $91 Billion Caofeidian Industrial Zone Is Mired in Debt and Unfulfilled Promise. A $91 billion industrial project here, mired in debt and unfulfilled promise, suggests part of the reason why China's economy is wobbling – and why it will be hard to turn around. The steel mill at the heart of Caofeidian, which is outside the city of Tangshan, about 225 kilometers (140 miles) southeast of Beijing, is losing money. Nearby, an office park planned to be finished in 2010 is a mass of steel frames and unfinished buildings. Work on a residential complex was halted last Christmas, after workers completed the concrete frames. There is even a Bridge to Nowhere: a six-lane span abandoned after 10 support pylons were erected. "You only need to look around to see how things are going," said Zhao Jianjun, a worker at a plant that hasn't produced its steel-reinforced plastic pipes for months. "Look north, west, east," he said, gesturing to empty buildings. Chen Gong, chairman of Beijing Anbound Information, a Chinese think tank, says Caofeidian shows the flaws of the Chinese economic-growth model, in which the government plans investment and companies are expected to follow suit, regardless of market conditions. Chinese local governments are "driven by the blind pursuit of GDP," said Mr. Chen.
  • Bond Investors Turn to Cash. Investors are cashing out of bonds but remain hesitant to plunge into stocks. Investors are cashing out of bonds but remain hesitant to plunge into stocks, preferring instead to buy money-market mutual funds despite their low returns. The surprise move highlights persistent investor anxiety with equities even as stock indexes reach new highs.
CNBC:
  • Facebook(FB) earnings beat; shares jump 20%. Facebook reported second-quarter earnings and revenue that beat Wall Street forecasts on a growing mobile ad business, sending shares surging in late trading. The social media giant reported revenue of $1.81 billion, up 53 percent from $1.18 billion a year earlier. 
  • 'Neighbor vs. neighbor' in US cities, Whitney says. Meredith Whitney painted a dire picture in a CNBC interview Wednesday of cities slashing services and communities battling for mere survival. The financial advisor and analyst said the financial woes facing bankrupt Detroit will become common around the country as local governments do whatever they can to escape onerous debt burdens
  • Overseas wealthy slow purchases of US real estate. Foreign purchases of real estate in the U.S. dropped 17 percent in the 12 months ended in March compared with the same period a year ago, according to the National Association of Realtors. The high end of the market felt the brunt of it. Sales of homes priced at $1 million or more to overseas buyers dropped to about 6.5 percent of sales from 10 percent—the sharpest drop in any price category.
Zero Hedge:
Business Insider:
LA Times:
  • Kaiser's rising premiums spark employer backlash. State bill would force HMO to reveal details on rates, spending. Some of Kaiser's biggest customers are complaining that the company is no longer a bargain and, even worse, standing in the way of controlling healthcare costs. Critics say the company is so entrenched in the workplace that it refuses to negotiate rates or to fully explain why its premiums keep rising.
CBS News:
  • CBS News poll finds more Americans than ever want Obamacare repealed. According to the poll, 36 percent of Americans want Congress to expand or keep the health care law while 39 percent want Congress to repeal it - the highest percentage seen in CBS News polls. The poll also found a majority of Americans - 54 percent - disapprove of the health care law, 36 percent of Americans approve of it and 10 percent said they don't know about it.
Market News International:
  • Time for China RRR Cut 'Isn't Here Yet:' MNI Cites PBOC Source. Any move to cut banks' reserve requirement ratio is way off, citing a source close to the People's Bank of China. China's foreign exchange position is likely to deteriorate in coming months as the beginning of the Federal Reserve's tapering of its quantitative easing program nears, the report citing people close the the State Administration of Foreign Exchange as saying.
Reuters:
  • Is China's debt nightmare a province called Jiangsu? The nightmare scenario for China's leaders as they try to wean the country off a diet of easy credit and breakneck expansion is a local government buckling under the weight of its own debt. Few provinces fit that bill quite like Jiangsu, home to China's most indebted local government. Hefty borrowings through banks, investment trusts and the bond market by Jiangsu's provincial, city and county governments have saddled the province north of Shanghai with debt far higher than its peers, public records show. Many of the province's mainstay industries, including shipbuilding and the manufacturer of solar panels, are drowning in overcapacity. Profits are dwindling, and the government's tax growth is braking hard. That leaves Jiangsu vulnerable as President Xi Jinping and Premier Li Keqiang slow the country's giant economy to push through reforms aimed at reducing its reliance on the massive investment that made the country the factory to the world in favour of more services- and consumption-led growth. As part of that, Beijing has ordered a clamp down on provincial government borrowing and land sales, the mainstay income for many local administrations. But equally, Beijing expects local governments to absorb much of the cost of downsizing many industries, leaving provinces like Jiangsu caught between a rock and a hard place.
  • DOJ probes fracking market over antitrust -Baker Hughes(BHI). The Department of Justice is examining potential antitrust issues in the market for pressure pumping services, which are used in hydraulic fracturing, according to Baker Hughes Inc , owner of the third-largest pressure pumping fleet. The market for pressure pumping equipment has been oversupplied for more than a year because a prolonged slump in natural gas prices led to a slowdown in gas-directed drilling. But in 2011, there was an industry-wide push to add capacity in response to a ramp-up in fracking around the country.
  • Japan finmin Aso: Need to take steps for fiscal consolidation. Japanese Finance Minister Taro Aso said on Thursday that it is important to take steps to pare down government debt and ensure that the country's public finances are improving. "We need to take steady steps toward fiscal consolidation. We must maintain market confidence in Japan's fiscal sustainability," Aso said at a seminar in Tokyo. Japan's public debt burden is the worst among major countries at more than twice the size of its $5 trillion economy. The government must decide by this autumn whether to raise its sales tax, which is an important first step toward improving public finances. 
  • U.S. IRS pursuing 'stateless income' tax enforcement -official. The U.S. Internal Revenue Service is pursuing tax enforcement cases against companies over the issue of "stateless income," a senior agency official said on Wednesday in a reference to corporate profits that are not taxed by any country. Erik Corwin, an IRS deputy chief counsel, said there were international tax disputes with companies, "most involving consequences of complex restructurings designed either to create stateless income or to affect a tax efficient repatriation."
  • Louisiana agency sues big oil firms for hurting wetlands. A Louisiana agency sued 97 oil companies - including BP Plc, Exxon Mobil Corp , Chevron Corp and Royal Dutch Shell Plc - in state court on Wednesday for allegedly damaging hundreds of miles of sensitive wetlands by cutting through them with pipelines and transportation canals. Governor Bobby Jindal quickly accused the agency of overreach and said the filing should be withdrawn.
  • Visa(V) raises outlook as card spending accelerates. Visa Inc's quarterly profit beat estimates as people spent more using its cards, and the largest credit and debit card network raised its full-year outlook for revenue and earnings. Visa also authorized a $1.5 billion share buyback program, sending its shares up about 3 percent in after-hours trading.
China Securities Journal:
  • China Won't Ease Deposit Rate Limit in 2013, 2014. China won't loosen the deposit rate cap through next year, citing Wu Xiaoling, a former vice governor of the People's Bank of China.
Shanghai Securities News:
  • China Steel, Ship Overcapacity Curb Plan Submitted. China's plan to resolve overcapacity in the steel, cement, aluminum and shipping industry has been submitted to the State Council and won't take long for its official release, citing person close to National Development and Reform Commission. China Petroleum and Chemical Industry Federation will be holding meetings to study overcapacity in the petrochemical industry, citing an unidentified researcher from the federation.
The Economic Observer:
  • SMEs' Chronic Credit Crunch. With China’s economic slowdown, small- and medium-sized enterprises are facing huge strains in finding the capital they need to stay afloat. Banks are aggressively calling in loans and refusing to issue new loans to these enterprises, leaving them with few places to turn.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.75% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 141.0 +11.5 basis points.
  • Asia Pacific Sovereign CDS Index 104.25 +4.75 basis points.
  • FTSE-100 futures +.11%.
  • S&P 500 futures -.07%.
  • NASDAQ 100 futures +.11%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (DOW)/.62
  • (IP)/.56
  • (ASH)/1.83
  • (DO)/1.24
  • (CRI)/.44
  • (BIIB)/1.93
  • (PHM)/.30
  • (BG)/1.28
  • (HSY)/.71
  • (LLL)/1.93
  • (HOG)/1.17
  • (BSX)/.09
  • (ESI)/.88
  • (CELG)/1.44
  • (RCL)/.08
  • (STRA)/1.38
  • (GM)/.76
  • (PCP)/2.90
  • (HOT)/.73
  • (DHI)/.34
  • (CNX)/.16
  • (RTN)/1.30
  • (ZMH)/1.44
  • (CL)/.70
  • (UA)/.14
  • (ALXN)/.68
  • (LUV)/.37
  • (MMM)/1.70
  • (BMY)/.44
  • (CAM)/.78
  • (CBG)/.34
  • (MCK)/1.71
  • (KLAC)/.78
  • (CLF)/.59
  • (AMZN)/.06
  • (CERN)/.34
  • (DECK)/-1.06
  • (CB)/1.38
  • (SBUX)/.53
  • (EXPE)/.81
  • (NEM)/.42
  • (SPF)/.08 
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated to rise to 340K versus 334K the prior week.
  • Continuing Claims are estimated to fall to 3025K versus 3114K prior.
  • Durable Goods Orders for June are estimated to rise +1.4% versus a +3.6% gain in May.
  • Durables Ex Transports for June are estimated to rise +.5% versus a +.7% gain in May.
  • Cap Goods Orders Non-defense Ex Air for June are estimated to rise +.6% versus a +1.1% gain in May.
11:00 am EST
  • Kansas City Fed Manf. Activity for July is estimated to rise to 0.0 versus -5.0 in June.
Upcoming Splits
  • (BEN) 3-for-1
Other Potential Market Movers
  • The UK gdp report, 7Y T-Note auction and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and commodity 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 day.

1 comment:

theyenguy said...

The WSJ reports Bond investors turn to cash. Investors are cashing out of bonds but remain hesitant to plunge into stocks.

An inquiring mind asks, will this show up in inflating M2 Money?