Tuesday, September 03, 2013

Tuesday Watch

Posted by Gary .....at 1:08 AM
Weekend Headlines 
Bloomberg:
  • Syrian Rebels Armed From Abroad Count Down to U.S. Missile Fire. Syria’s main rebel fighting force is counting down to U.S. intervention before it’s even approved. “Zero hour for us begins with the first U.S. cruise missile,” Colonel Qassem Saadeddine, a member of the Free Syrian Army’s high command, said by telephone yesterday from his post just across from the Turkish border. Syrian President Bashar al-Assad’s opponents are depending on the U.S. to end a stalemate in the 2 ½-year conflict as President Barack Obama seeks congressional approval to strike Syria for what his administration says was a sarin gas attack last month by the government in Damascus. Members of the Free Syrian Army, or FSA, have been posted close to targets and received a consignment of rockets, machine guns and anti-tank weapons from “sisterly countries” in the past week that are enough to do the job, said Saadeddine.
  • Egypt Military Bolsters Suez Security After Failed Attack. Egyptian authorities said they tightened security along the Suez Canal after foiling an attack on a passing ship, even as they pressed their crackdown on the Muslim Brotherhood by arresting another top leader. The failed attack on the Panama-registered Cosco Asia as it crossed the waterway didn’t damage the ship or its cargo, the state-run Middle East News Agency reported, citing Suez Canal Authority head Mohab Mamish. The military dealt “decisively” with the attempt, he said, without giving details. Canal traffic is normal and 55 ships are expected to cross today, Mamish said, according to the news agency. 
  • Asian Bonds Tumble Below Par in Capital Flight: Credit Markets. Asia dollar-denominated bonds have dropped below par for the first time since 2011 as investors pull money out of the region amid concerns that growth is slowing and as currencies from the rupee to rupiah plunge. Average prices of company debentures in the region fell to 98.61 cents on the dollar on Aug. 22, the least since October 2011, Bank of America Merrill Lynch indexes show. Dollar bonds globally have held above 100 cents since September 2009. Both investment- and non-investment-grade debt in Asia were below par on Aug. 22. The last time that happened was in September 2008, when Lehman Brothers Holdings Inc. collapsed. Investor sentiment toward Asia is shifting as economic growth in China slows and currencies in India and Indonesia -- the two countries with the biggest external funding needs in the region -- plunge. About $44 billion has been pulled from emerging-market stock and bond funds globally since the end of May, data provider EPFR Global said on Aug. 23. “You risk being swept away by fund outflows even if you buy bonds from the best companies in Asia,” said Ben Bennett, a global credit strategist in London at Legal & General Investment Management, which manages $670 billion. “You’d need to be very brave to add credit risk before currencies show signs of stabilization.” 
  • Japan Salaries Extend Longest Fall Since ’10 in Threat to Abe. Japan salaries extended the longest slide since 2010 in July, raising the stakes for Prime Minister Shinzo Abe’s decision on whether to increase a sales tax. Regular wages excluding overtime and bonuses dropped 0.4 percent from a year earlier, marking a 14th straight month of decline, according to data released today by the Ministry of Health, Labour and Welfare.
  • Abenomics Litmus Test Looms as Pressure Mounts on Tax Policy. Prime Minister Shinzo Abe faces rising pressure to expand tax relief for Japan’s companies after the longest slump in business investment since 2009, setting up a potential battle with the Finance Ministry. Officials will unveil tax breaks for capital spending in coming months, according to 15 of 16 economists surveyed by Bloomberg News -- a step Finance Minister Taro Aso has backed. Aso opposes a broader cut in corporate tax rates, even after a slide in investment since the start of 2012, and his ministry has a history of shielding revenue.
  • India Slowdown Adds Urgency to Fix Lowest BRIC Reserves: Economy. India’s weakest economic growth since 2009 escalates pressure on the government to increase the smallest foreign-exchange reserves among BRIC nations, as policy makers struggle to contain a sliding rupee. The reserves have dropped 13 percent to $278 billion since a peak in 2011 and are equivalent to less than seven months of imports. Bank of America Merrill Lynch estimates India needs as much as 10 months of import cover for currency stability, a figure still about half the average in Brazil, Russia and China. 
  • Politicians Talk, the Rupee Drops, India’s Economy Tanks. India’s economy has stalled. Growth in the second quarter fell to 4.4 percent at an annual rate, down from 8 percent two years ago. The rupee has slumped. Consumer-price inflation is about 10 percent and rising. The country faces what could be a full-scale financial crisis.
  • Rupee to Real Rout Extending 20% to Jen in Fed Taper: Currencies. Emerging-market currencies, already headed toward their biggest annual decline since 2008, will tumble another 20% as outflows from India to Brazil accelerate, according to Stephen Jen, who predicted the current rout back in April. The co-founder of SLJ Macro Partners LLP and former global head of foreign-exchange at Morgan Stanley warned of a "sudden stop" of capital to developing nations a month before a retreat that sent the rupee to record lows and the real to its weakest level since 2008. Now, Jen says, the worst is yet to come because $3.9 trillion of funds invested in emerging markets in the past four years will leave as the U.S. Federal Reserve withdraws stimulus.
  • RBA Running Out of Room to Cut Rates, Australia’s Robb Says. Australia’s central bank is running out of room to implement emergency stimulus measures should they be needed with interest rates now at historical lows, Shadow Finance Minister Andrew Robb said. The central bank doesn’t have “a lot of room left if there was some other unforeseen event in the world economy to make a difference,” Robb, whose Liberal-National coalition is on track to win government at the Sept. 7 election, said in an interview with Bloomberg Television today. “The Reserve Bank has been relied upon, or pressured, to do the heavy lifting in the economy for the last few years.”
  • Asian Stocks to Copper Jump as Yen Weakens; Aussie Climbs. Asian stocks climbed the most in a month, led by Japan, and the yen weakened on evidence of a pickup in global manufacturing. South Korea’s won strengthened, while U.S. Treasuries declined. The MSCI Asia Pacific Index rose 1.4 percent at 12:25 p.m. in Tokyo.
  • Rebar Futures Decline for First Time in Three Days in Shanghai. Steel reinforcement-bar futures in China fell for the first time in three days on concern that gains in the price of futures have outpaced growth in actual demand. Rebar for January delivery fell as much as 0.6 percent to 3,765 yuan ($616) a metric ton on Shanghai Futures Exchange, and traded 3,772 yuan at 10:52 a.m. local time. Futures have fallen 5.4 percent this year. 
  • Brent Crude Fluctuates as Lawmakers Urge Syrian Military Action. Brent crude swung between gains and losses after rising for the first time in three days as U.S. lawmakers urged backing for military action against Syria, fanning concern that possible strikes may disrupt Middle East oil exports. Futures were little changed in London after advancing 0.3 percent yesterday.
  • Gold Little Changed Above 1-Week Low as Investors Assess Economy. Gold traded little changed after dropping for three days to a one-week low as investors assessed prospects for reduced stimulus in the U.S. as the world’s largest economy recovers. Spot gold traded at $1,392.78 an ounce at 9:31 a.m. in Singapore after touching $1,373.38 yesterday, the lowest since Aug. 23.
  • Copper Rally Reversing as Glut Expands to ’01 High: Commodities. The biggest rally in copper in three months is reversing as analysts predict that the largest glut in 13 years will overwhelm consumption from an accelerating Chinese economy, which uses two in every five tons. Production will exceed demand by 408,000 metric tons next year, the most since 2001, compared with 167,000 tons in 2013, the average of 15 analyst estimates compiled by Bloomberg shows. Prices will drop 6.1 percent to $6,800 a ton by the end of December, the median of 13 analyst and trader predictions shows.
  • Tankers Worst Since 1997 as Africa Oil to China Slows: Freight. China’s smallest oil imports from West Africa in at least two years are curbing demand for tankers on the second-longest trade route, prolonging the worst rates in more than a decade for Frontline Ltd. and other owners. Chinese refiners will buy 28 percent less West African crude this month than a year earlier, the least in data starting in August 2011, according to loading plans and a Bloomberg News survey of eight traders. Shares of Frontline, which operates 32 very large crude carriers, will drop 35 percent in 12 months, the average of 13 analyst estimates compiled by Bloomberg shows. Those of Euronav SA, with 13 supertankers in its fleet, will retreat 24 percent, the forecasts show.
  • Global Watchdog to Set Creditor-Loss Rules for Failing Banks. Global regulators said they would seek to protect taxpayers from having to bail out failing banks by drawing up international rules on creditor losses. The Financial Stability Board will propose rules next year to ensure that big banks and other too-big-to-fail financial institutions hold subordinated debt and other liabilities that can be written down in an emergency. The group will also address provisions in derivatives contracts that can deepen crises.
  • Banks Must Boost Collateral on Swaps Trades Under Basel Plan. Banks must back trades in the $633 trillion market for swaps and other over-the-counter derivatives with additional collateral as global regulators seek to choke off opportunities for excessive risk taking. The plans jointly issued by two groups of international standard-setters target swaps traded outside of clearinghouses and would ensure lenders have safeguards in place when a trading partner defaults. The regulators said they scaled back some of the proposals to address bank concerns that the rules would restrict lending.
  • Italy Coalition Reels as Berlusconi Threatens to Sink Letta. Italian Prime Minister Enrico Letta’s ruling coalition came under renewed strain as Silvio Berlusconi threatened to bring down the government if Letta’s party votes to expel the three-time ex-premier from the Senate. “We’re not available to keep the government going if the left decides to prevent the head of People of Liberty from remaining in politics,” Berlusconi told a rally organized by the Army of Silvio supporters’ association on Aug. 30. He softened his rhetoric a day later, saying he “didn’t issue an ultimatum” and wants the government to continue to govern.
  • Small-Business Optimism Drops From U.S. to Germany, Insurer Says. Optimism has declined among owners of small businesses as entrepreneurs in the U.S. and Europe find it harder to increase revenue and secure financing for new ventures, insurer Hiscox Ltd. (HSX) said. Thirty-eight percent of small-business owners said they were optimistic about the year ahead, compared to 48 percent a year earlier, according to a Hiscox survey of 3,000 people in the U.S., Germany, the U.K., France, Spain and the Netherlands. Optimism declined in all six countries, with the highest level in the U.S., at 50 percent, followed by Germany. The lowest level of optimism -- 22 percent -- was recorded in France. Just 37 percent of respondents said that revenue increased in the last year, with the U.S. topping the survey at 48 percent, and France and Spain relegated to the bottom, with 31 percent and 26 percent, respectively. Small businesses are “anticipating tough trading conditions rather than expecting any early return to the boom years of the last decade,” Hiscox Chief Executive Officer Bronek Masojada said in a statement. The insurance firm, based in Bermuda with its primary stock listing in London, has conducted the survey for five years. Rather than hiring, small companies are introducing new products and investing in training, Masojada said.
  • Verizon(VZ) Doubles Down on U.S. as AT&T Seeks a Hedge in Europe. Verizon Communications Inc. (VZ:US)’s decision to buy out its wireless partner for $130 billion is a bet that the U.S. mobile-phone market still has room to expand even as competition intensifies and smartphone demand slows. While owning all of Verizon Wireless -- the 14-year-old venture with Vodafone Group Plc (VOD) -- will give Verizon a full share of earnings, the acquisition won’t result in reduced costs or bring new products or services. That means Chief Executive Officer Lowell McAdam will have to persuade investors and bondholders that the profit growth he’s getting will more than justify the heavy price tag in the deal announced today.
  • Microsoft(MSFT) to Buy Nokia’s Devices Business for 5.44 Billion Euros. Microsoft Corp. (MSFT) agreed to pay 5.44 billion euros ($7.2 billion) for Nokia Oyj (NOK1V)’s devices business and license patents as the Finnish company, once the biggest maker of mobile phones, struggles to maintain market share. The deal includes paying 3.79 billion euros for the devices unit and 1.65 billion euros for patents, the companies said in a statement today. Nokia Chief Executive Officer Stephen Elop will step aside to return to Microsoft, they said.
Wall Street Journal:
  • Obama Presses Syria Gamble. Reversing Course, White House Races to Get Congressional Backing for Strikes. The White House raced on Monday to persuade Congress to authorize military action in Syria, after President Barack Obama, in one of the biggest gambles of his presidency, handed the volatile issue to lawmakers who have given him few recent legislative victories. The president's surprise reversal put on hold a military mobilization that had appeared on the verge of launching missiles and sparked urgent lobbying for a Congressional resolution authorizing force. The president must win over those Republicans calling for a broad U.S. mission against Syria, as well as lawmakers in both parties who are wary of even limited strikes.
  • Citigroup Is Dialing Back Its 'Alternative' Holdings. Citigroup Has Shed More Than $6 Billion in Private-Equity and Hedge-Fund Assets. Citigroup Inc. C -0.29% has shed more than $6 billion in private-equity and hedge-fund assets in the past month, according to people familiar with the transactions, in order to comply with new regulations limiting banks' holdings of "alternative" investments. The nation's third-largest bank by assets last week sold a $4.3 billion private-equity fund called Citi Venture Capital International for an undisclosed price to Rohatyn Group, a private-equity fund run by Nick Rohatyn, son of financier Felix Rohatyn, said people familiar with the matter.
  • The Politics of the Obama Delay on Syria. Betting that the focus on a GOP rift will divert attention from how many Democrats won't support the president. The most telling line in President Obama's Saturday Syria address came near the end, when he (once again) lectured Congress about its duty to rise above "partisan differences or the politics of the moment." Having put America's global credibility at risk, Mr. Obama defaulted to the same political cynicism that has defined his presidency. The commander in chief is in a box. His desperation to avoid military entanglement in Syria last year—in the run-up to the presidential election—inspired Mr. Obama to fumble out his "red line" warning to Bashar Assad on chemical-weapons use. The statement was a green light to the dictator to commit every atrocity up to that line and—when he received no pushback—to cross it. Now trapped by his own declaration, Mr. Obama is reverting to the same strategy he has used in countless domestic brawls—that is, to lay responsibility for any action, or failure of action, on Congress. The decision was made easier by the fact that Congress itself was demanding a say.
Fox News:
  • Obama courts McCain, Graham on Syria ahead of major hearing. President Obama appeared to try and enlist two powerful Republican senators to help in his effort to win congressional support for a strike on Syria, ahead of a major hearing on Tuesday where top members of his national security team will make their case to Congress and the public for military action. The Senate Foreign Relations Committee will conduct the first hearing on the proposed Syria strike on Tuesday afternoon. Secretary of State John Kerry, Defense Secretary Chuck Hagel and Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, are scheduled to testify. Ahead of the hearing, Obama met Sunday with Sen. John McCain, R-Ariz., who has been an ally in recent debates over immigration and other issues, and Lindsey Graham, R-S.C.  
  • Union dumps AFL-CIO for its positions on ObamaCare, immigration reform. The International Longshore and Warehouse Union has cut ties with the AFL-CIO, citing in part the private-sector union’s support for ObamaCare and immigration reform. In an August 29 letter to AFL-CIO President Richard Trumka, leaders of the 40,000-member union said they have become “increasingly frustrated” with the federation’s policy positions on such matters as immigration and health care reform. “We feel the federation has done a great disservice to the labor movement and all working people,” wrote Robert McEllrath, president of the San Francisco-based ILWU.
CNBC:
  • Labor outlook: 'It's just a very tough job market'. Millions of Americans are off from work this Labor Day. But millions of others are off nearly every day because they have no job—or have given up looking for one. "It's just a very tough job market now. There's no other way of putting it," said Daniel Opler, professor of history and a labor expert at the College of Mount St.Vincent. "And the least skilled are in the toughest spot. It's a daunting task to find a job these days," he said.
Zero Hedge:
ValueWalk:
Business Insider:
Reuters:
  • Japan to tell G20 it will raise sales tax as planned-finmin. Japan will tell G20 nations at a summit this week that it plans to go ahead with a two-stage sales tax hike from next year, Finance Minister Taro Aso said on Tuesday. If the government were to raise the sales tax as planned, it will consider compiling an extra budget and submit relevant bills to parliament early next year for fiscal spending to cushion any impact on the economy, Aso told a news conference. 
  • Beatings, evictions reveal ugly side of China's local debt pile. When Xu Haifeng's home was razed three years ago, she went to China's capital Beijing to complain about the city and county governments that ordered the demolition. Since then, she says family members have been kidnapped at least 18 times, typically having black bags thrust over their heads before being taken to a hotel-turned-illegal jail in the eastern city of Wuxi and locked for weeks in a tiny, windowless room. 
  • Spain new car sales fall 18.3 pct in August year on year. Spanish car sales dropped 18.3 percent year-on-year in August after rising by almost 15 percent in July, car manufacturers' association Anfac said on Monday. August's figures were impacted by a jump in car sales in the same month last year ahead of a 3-percentage-point rise in value-added tax in September and due to calendar effects, Anfac said. Some 38,872 cars were sold in August and the association said a government subsidy scheme for the purchase of new vehicles would mean a probable rise in September.
  • Germany warns against "unrealistic" timeframe for EU banking union. Europe must not race ahead with proposals for a banking union, a German official cautioned on Monday ahead of a gathering of the Group of 20 leading economies whose agenda will include banking reform. "We don't want to destabilise markets with unrealistic proposals so the time plan (for the planned European banking union) has to be realistic," the official said, adding that EU leaders had agreed that 2014 was a more realistic target date.
Financial Times:
  • European ABS issuance slips to four-year low. The market in new ‘sliced and diced’ loans in Europe has fallen to its lowest level for four years as the continent’s financial institutions trim their funding needs. Issuance of asset-backed securities has fallen by 29 per cent to $40.2bn for the year to date compared with the same period last year – the lowest level since 2009, according to figures from Dealogic.
Telegraph:
21st Century Business Herald:
  • China Infrastructure Trust Sales Drop 40% m/m. China sold 20 infrastructure trust products in August, a decline of 40% m/m, citing data from Wind Information. An audit of local government debt started on Aug. 1 may reduce the number of infrastructure trust product sales, according to the report, citing a person from the industry.
China Daily:
  • China Should Curb Building New Cities 'Blindly'. Local governments must be cautious and plan scientifically on construction of new cities or areas, according to a front-page commentary. Blindly building new cities is not in line with reality, and is in disregard of the people's will, according to the commentary.
Night Trading
  • Asian indices are -.25% to +1.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 158.50 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 131.75 +3.75 basis points.
  • FTSE-100 futures +.22%.
  • S&P 500 futures +.96%.
  • NASDAQ 100 futures +1.14%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (ABM)/.39
  • (HRB)/-.36
Economic Releases
8:58 am EST
  • The Final Markit US PMI for August is estimated at 54.0.
10:00 am EST
  • Construction Spending for July is estimated to rise +.3% versus a -.6% decline in June.
  • ISM Manufacturing for August is estimated to fall to 54.0 versus 55.4 in July.
  • ISM Prices Paid for August is estimated to rise to 51.2 versus 49.0 in July.
  • IBD/TIPP Economic Optimism for September is estimated to rise to 46.0 versus 45.1 in August.
Upcoming Splits
  • (WTR) 5-for-4
  • (AWR) 2-for-1
Other Potential Market Movers
  • The Eurozone PMI report, Japan 10Y auction, China Non-Manufacturing PMI report, Australia gdp report, RBA rate statement, Barclays Back-to-School Consumer Conference, Citi Tech Conference and the Citi Biotech Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and industrial shares in the region. I expect US stocks to open higher and to weaken into the afternoon, finishing modestly higher. The Portfolio is 25% net long heading into the week.

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