Monday, October 28, 2013

Monday Watch

Weekend Headlines 
  • Abe Warns China on Island Spat as Japan Dispatches Fighter Jets. Prime Minister Shinzo Abe warned he wouldn’t permit China to use force to resolve territorial spats, as the renewed presence of Chinese aircraft near disputed islands prompted the dispatch of fighter jets from Japan. Japan sent up fighter jets for a third day yesterday after Chinese aircraft flew between its southern islands without entering Japanese airspace, the Self-Defense Forces said on their website. Abe said yesterday the country would not allow any shift in the status quo regarding islands both governments claim in the East China Sea. Abe made similar comments in an interview with the Wall Street Journal on Oct. 25.
  • China Seen Losing Sheen for IBM(IBM) to Nike(NKE) as Hurdles Mount. Companies from IBM to Starbucks are struggling with new obstacles in China as Communist Party officials tussle over the direction and depth of economic reforms. China’s state-controlled media last week accused Starbucks Corp. with charging too much for coffee and said Samsung Electronics Co.’s smartphones don’t work properly. International Business Machines Corp. IBM’s China revenue slipped 22 percent in the third quarter, contributing to the first-ever sales decline in the company’s growth-markets division, as state-owned companies started delaying orders, including mainframes and servers. 
  • Hong Kong Home Prices to Drop 30% by 2015-End, Barclays Says. Hong Kong home prices will drop 30 percent by the end of 2015 as growth in household income and rents slow while housing supply increases, according to Barclays Plc. The bank is assigning a “negative” rating on the Hong Kong property sector, analysts Paul Louie and Zita Qin wrote in a report today. They also forecast office prices to fall 20 percent and retail property prices to remain unchanged over the period, according to the report.
  • Asian Stocks Post Weekly Decline on China Bank Rates, Earnings. Asian stocks posted the biggest weekly decline since August after forecasts from Canon Inc. to Japan Exchange Group Inc. disappointed investors and money-market rates in China surged. Japan Exchange sank 5.8 percent in Tokyo this week after the main bourse operator in the world’s second-largest equity market failed to boost full-year profit guidance as analysts had expected.
  • Asia Stocks Rise on Fed Bets. Asian stocks rose, with the regional equities gauge rebounding from last week’s decline, after weaker than forecast U.S. consumer confidence spurred bets the Federal Reserve will maintain stimulus. CSL Ltd. (CSL), a maker of blood-derived therapies that gets more than a third of its sales in the U.S., advanced 2.9 percent in Sydney. Toyota Motor Corp. gained 1 percent in Tokyo as the yen weakened against the dollar, boosting the earnings outlook for Asia’s largest carmaker. Kingsgate Consolidated Ltd. fell 4.7 percent in Sydney as the gold miner reported an 18 percent drop in quarterly output. The MSCI Asia Pacific Index gained 0.7 percent to 142.36 as of 10:49 a.m. in Tokyo, with all 10 industry groups on the gauge rising
  • Rebar Swings as Investors Weigh China Inventory, Winter Demand. Steel reinforcement-bar futures in Shanghai swung between gains and losses today as investors weighed a decline in inventory against weaker winter demand. Rebar for delivery in May, the most-active contract by volume on the Shanghai Futures Exchange, was little changed at 3,584 yuan ($589) a metric ton at 10:15 a.m. local time, after gaining 0.3 percent and losing 0.2 percent.
  • Copper Declines Before U.S. Output Data as China Credit Tightens. Copper dropped before industrial output data from the U.S. and on concern that credit is tightening in China. Lead and zinc fell for the first time in three days. The contract for copper delivery in three months on the London Metal Exchange dropped 0.2 percent to $7,171.25 a metric ton at 11:47 a.m. in Tokyo. Futures lost 0.8 percent last week and are down 1.8 percent this month. Lead fell 0.5 percent to $2,193.50 a ton and zinc slid 0.3 percent to $1,948.75 a ton.
  • Euro Jobless Fault Line Festers as Italy Scars Recovery. Euro-area jobless numbers this week may lay bare a fault line scarring the region’s recovery as evidence of Germany’s employment muscle contrasts with the scourge of political quagmire destroying work in Italy. While the currency bloc’s longest-ever recession has ended, unemployment held at 12 percent in September, according to the median of 36 forecasts in a Bloomberg survey of economists. Within that data lies a rift between two of its largest economies, with Italy’s rate seen by economists to have reached 12.3 percent, the highest since records began in 1977 -- and more than double Germany’s comparable level. Italy will “critically determine the fate of the euro area” and the region won’t prosper if that country can’t restore economic growth, European Central Bank Executive Board member Joerg Asmussen said last week. Italian officials predict joblessness in the euro zone’s third-biggest economy will keep rising, against a backdrop of a fragmented coalition jeopardized by the legal woes of former premier Silvio Berlusconi. “We are still in a very discouraging situation for most of the euro area,” said Anatoli Annenkov, an economist at Societe Generale SA in London. “That’s particularly true for Italy, where politics has come to a rest and necessary structural reforms are not kicking in at all.”
  • Fed Loan Warning May Hurt Riskiest Borrowers, Trade Group Says. Recommendations by top banking regulators that lenders strengthen underwriting standards for leveraged loans may decrease funding to the neediest borrowers, according to Loan Syndications and Trading Association. The Federal Reserve and the Office of the Comptroller of the Currency sent letters to some of the biggest U.S. banks asking them to avoid arranging debt that may be classified by regulators as having some deficiency that may result in a loss, according to nine people with knowledge of the communication.  
Wall Street Journal:
  • Big Banks Are Padding Profits With 'Reserve' Cash. As Revenue Slows, Some Banks Increasingly Use Loan-Loss Reserves to Boost Income. Federal regulators have warned banks to be careful about padding their profits with money set aside to cover bad loans. But some of the nation's biggest banks did more of it in the third quarter than earlier this year. J.P. Morgan Chase JPM +0.55% & Co., Wells Fargo WFC +0.40% & Co., Bank of America Corp. BAC +0.64% and Citigroup Inc., C -0.18% the nation's largest banks by assets, tapped a total of $4.9 billion in loan-loss reserves in the third quarter, up by about a third from both the second quarter and the year-ago quarter after adjustments. All the banks except Citigroup showed significant increases compared with the second quarter.
Fox News:
  • 'Grand Day of Death to America' rally planned in Iran. Militant factions in Iran are reportedly planning a sweeping rally titled, “Grand Day of Death to America,” to coincide with the 24th anniversary of the storming of the U.S. Embassy there. According to The National, Brigadier General Masoud Jazayeri is saying the planned Nov. 4 convocation outside the long-shuttered and now-graffiti-covered diplomatic institution in the capitol city of Tehran will be organized by a newly created bureaucratic body called the “Death to the U.S. Committee.”
  • Hilsenrath to Wall Street: You don’t know Fed. Investors may be right to anticipate that no bombshells will emerge from the Federal Reserve meeting this week—but as they look into next year, it will be very difficult to predict when the Fed will begin to taper its quantitative easing program, Jon Hilsenrath told "Futures Now."
Business Insider:
American Thinker: 
Washington Post:
  • Wave of attacks hits Baghdad and northern Iraq, killing at least 66 in series of assaults. A series of attacks including car bombings in Baghdad, an explosion at a market and a suicide assault in a northern city killed at least 66 people Sunday across Iraq, officials said, the latest in a wave of violence washing over the country. Coordinated bombings hit Iraq multiple times each month, feeding a spike in bloodshed that has killed more than 5,000 people since April. The local branch of al-Qaida often takes responsibility for the assaults, although there was no immediate claim for Sunday’s blasts.
The  Blaze:
USA Today:
  • Israel issues warning on report on Iran bomb. A new report that says Iran may need as little as a month to produce enough uranium for a nuclear bomb is further evidence for why Israel will take military action before that happens, an Israeli defense official said Friday. "We have made it crystal clear – in all possible forums, that Israel will not stand by and watch Iran develop weaponry that will put us, the entire Middle East and eventually the world, under an Iranian umbrella of terror," Danny Danon, Israel's deputy defense minister told USA TODAY. Iran is developing and installing new and advanced centrifuges that enable Iran to enrich even low-enriched uranium to weapons grade uranium needed for nuclear weapons within weeks, Danon said. "This speedy enrichment capability will make timely detection and effective response to an Iranian nuclear breakout increasingly difficult," he said. "Breakout" refers to the time needed to convert low-enriched uranium to weapons-grade uranium. On Thursday, the Institute for Science and International Security issued a report stating that Iran could reach that breakout in as little as one month based in part on Iran's own revelations about its nuclear program. "If they use all their centrifuges ... and their stockpiles of low- and medium-enriched uranium, that would take one to 1.6 months," said David Albright, president of the institute and a former inspector for the U.N. International Atomic Energy Agency.
  • Schaeuble Says Debt, Taxes Can't Rise With New Government. No additional debt, no increase in taxes core to financial policy of Chancellor Angela Merkel's bloc, German Finance Minister Wolfgang Schaeuble said in an interview.
Weekend Recommendations
  • Bullish commentary on (FRM), (WAG) and (KSS).
  • Bearish commentary on (STP) and (MCD).
Night Trading
  • Asian indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 133.0 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 100.25 -.5 basis point.
  • FTSE-100 futures +.26%.
  • S&P 500 futures +.33%.
  • NASDAQ 100 futures +.36%.
Morning Preview Links

Earnings of Note

  • (BIIB)/2.09
  • (L)/.77
  • (MRK)/.87
  • (AAPL)/7.92
  • (PCL)/.42
  • (JLL)/1.27
  • (RVBD)/.23
  • (ADVS)/.27
  • (PPS)/.71
  • (BKW)/.21
Economic Releases
9:15 am EST
  • Industrial Production for September is estimated to rise +.4% versus a +.4% gain in August.
  • Capacity Utilization for September is estimated to rise to 78.0% versus 77.8% in August.
  • Manufacturing Production for September is estimated to rise +.3% versus a +.7% gain in August.
10:00 am EST
  • Pending Home Sales for September are estimated unch. versus a -1.6% decline in August.
10:30 am EST
  • Dallas Fed Manufacturing Activity for October is estimated to fall to 9.0 versus 12.8 in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China Leading Indicators report and the 2Y T-Note auction 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 modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

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