Tuesday, October 01, 2013

Tuesday Watch

Evening Headlines 
Bloomberg: 
  • Government Shutdown Begins As Deadlocked Congress Flails. The U.S. government began a partial shutdown at midnight for the first time in 17 years, putting as many as 800,000 federal employees out of work today, closing national parks and halting some government services after Congress failed to break a partisan deadlock. No further negotiations were immediately planned, raising concerns among some lawmakers that the shutdown could bleed into a fight economists consider even more consequential: how to raise the nation’s debt limit to avoid a first-ever default after Oct. 17
  • Asian Stocks Pare Gains as U.S. Budget Deadline Passes. Asian stocks pared gains as a deadline to avert a shutdown of the U.S. government passed and a report showed confidence among large Japanese manufacturers increased before Prime Minister Shinzo Abe unveils plans for an economic-support package. The MSCI Asia Pacific Index rose 0.1 percent to 138.77 as of 1:01 p.m. in Tokyo, paring a gain of as much as 0.4 percent.
  • Rubber Swings Near 1-Month Low on U.S. Budget Woes, Japan Survey. Rubber swung between gains and losses, trading near a one-month low, as investors weighed a potential shutdown of the U.S. government against better-than estimated manufacturer confidence in Japan. The contract for March delivery on the Tokyo Commodity Exchange was little changed at 265.6 yen a kilogram ($2,695 a metric ton) at 11:34 a.m. local time after trading between 267.1 and 264.4. Futures settled at 265.7 yen yesterday, the lowest close since Aug. 21.
  • Biggest Raw-Materials Rally of Year Seen Stalling: Commodities. The biggest rally in commodities in a year may stall in the fourth quarter as supply of everything from copper to corn expands, tensions in the Middle East ease and the Federal Reserve refrains from tapering stimulus as it seeks more evidence of sustained growth. Six of 15 commodities will drop by the end of 2013, seven will gain and two will move less than 1 percent, according to the median of estimates from 144 analysts surveyed by Bloomberg News.
  • Italy in Disarray as Draghi Pledge Keeps Nation From Brink. Italy’s government is on the verge of collapse and two of its most senior executives have lost the confidence of shareholders. Thanks to Mario Draghi’s promises, bond investors see the turmoil as more of a blip than a crisis. Yields barely budged yesterday even after Prime Minister Enrico Letta spent the weekend fighting Silvio Berlusconi’s efforts to topple his government. Intesa Sanpaolo SpA (ISP), Italy’s second biggest bank, replaced its chief executive officer and Telecom Italia SpA (TIT) CEO Franco Bernabe is preparing to resign.
  • McCain Pressures Justice to Hold JPMorgan(JPM) Executives Accountable. U.S. Senator John McCain pressured the Justice Department to hold JPMorgan Chase & Co. executives individually accountable while they work to settle claims that the bank packaged and sold bad mortgage bonds to investors. “Will you seek to hold any top officer, director or key employees within JPMorgan personally accountable for the wrongdoing?” McCain, of Arizona, wrote in a letter today to Attorney General Eric Holder. McCain, the ranking Republican on a Senate subcommittee that probed JPMorgan’s record trading loss last year, criticized Holder’s Sept. 26 meeting with Chief Executive Officer Jamie Dimon, calling it “highly unusual.”
Wall Street Journal:
  • White House: Agencies, Start Your Shutdowns. The White House directed federal agencies late Monday evening to implement their plans to partially shut down operations, after lengthy political maneuvers on Capitol Hill failed to produce an agreement to fund government services.
  • Stock Investors See Slimmer Pickings. Stocks at Loftiest Levels in Years Compared With Profits. Some investors warn that the air is getting thinner for U.S. stocks, which head into the fourth quarter up 18% for the year and at their loftiest levels in years compared with corporate profits. The Dow Jones Industrial Average advanced 1.5% during the third quarter even as economic growth remained uneven. The resiliency of the stock market's rally prompted several Wall Street strategists to throw in the towel on negative forecasts.
Fox News:
  • Senate kills latest ObamaCare counteroffer, bill kicked back to House. The Senate voted for the second time Monday to kill a Republican counteroffer that would rein in ObamaCare while funding the government, kicking the bill back to the House with less than an hour left on the clock before the government begins to shut down. Lawmakers are facing a midnight deadline to reach an agreement on a government spending bill. Senate Democrats vow they will not accept any proposal that targets ObamaCare. The rhetoric was getting more heated as the deadline neared.
Zero Hedge:
Business Insider:
NY Times:
  • Financial Watchdog With Bite to Depart His Agency. David Meister is waging legal battles against some of the biggest names in finance. There’s JPMorgan Chase, the nation’s largest bank. The CME Group, one of the world’s largest futures exchanges. And Jon S. Corzine, the former governor of New Jersey. But now, Mr. Meister is poised to step down from his role as head of the Commodity Futures Trading Commission’s enforcement unit, a move that may put the future of those cases in question.
Reuters:
  • U.S. Postal Service defaults on $5.6 bln for future health benefits. The U.S. Postal Service on Monday defaulted yet again on a prepayment for the healthcare of its future retirees as its finances remain in the red and legislative reform remains elusive. The agency has blamed the payments, more than $5 billion a year as mandated by Congress to prefund the Postal Service's future retirees' healthcare, for contributing to annual losses of billions of dollars.
  • Exclusive: JPMorgan settlement complicated by Washington Mutual - sources. JPMorgan Chase & Co's possible $11 billion settlement of government mortgage probes has been complicated by a dispute with the Federal Deposit Insurance Corp over responsibility for losses at the former Washington Mutual Inc, said people familiar with the matter. The dispute, between the largest U.S. bank and the FDIC, could leave the federal agency on the hook for billions the bank is expected to pay as part of the settlement and substantially reduce the amount of the penalty JPMorgan actually pays to the government, some analysts said.
  • China manufacturing tepid in Sept, small firms struggle. China's manufacturing growth edged up only slightly in September, official data showed on Tuesday, with small firms struggling in the face of overcapacity and weak demand, adding to concerns a nascent economic recovery may be foundering. The official Purchasing Managers' Index (PMI) stood at 51.1 last month from August's 51.0, below expectations in a Reuters poll for a rise to 51.5, which would have been the highest in 17 months. Chinese factories have sent mixed signals on the extent of their latest rebound. A separate manufacturing PMI issued by HSBC on Monday showed manufacturing grew less than expected last month on soft domestic demand. "Although overall manufacturing is stable, development is not balanced," said Zhao Qinghe, senior statistician at the NBS in a comment accompanying the PMI.
  • U.S. study says asset managers could pose systemic market risk. Some activities of asset managers could pose risks to the broader marketplace, according to a study released by the Treasury Department on Monday that boosted the likelihood the largest such firms would face tougher federal scrutiny. The report does not draw any conclusions about particular asset managers or whether any firms should be designated as potentially risky to the broader market.
Evening Recommendations 
BMO Capital Markets:
  • Rated (JBHT) Outperform, target $86. 
Night Trading
  • Asian equity indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 156.50 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 123.0 +3.75 basis points. 
  • FTSE-100 futures +.15%.
  • S&P 500 futures +.32%.
  • NASDAQ 100 futures +.36%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (ATU)/.50
  • (AYI)/1.02
  • (WAG)/.73
  • (RECN)/.11
  • (GPN)/.95
  • (TISI)/.36 
Economic Releases 
8:58 am EST
  • Final Markit US PMI for September is estimated at 53.1.
 10:00 am EST
  • Construction Spending for August is estimated to rise +.4% versus a +.6% gain in July.
  • ISM Manufacturing for September is estimated to fall to 55.0 versus 55.7 in August.
  • ISM Prices Paid for September is estimated to rise to 55.0 versus 54.0 in August.
Afternoon:
  • Total Vehicle Sales for September are estimated to fall to 15.6M versus 16.02M in August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The German retail sales report, Eurozone Unemployment Rate/PMI data, weekly retail sales reports, (PCL) investor meeting and the BofA Merrill could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and automaker shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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