Tuesday, October 08, 2013

Tuesday Watch

Evening Headlines 
  • Asia’s Crisis of Leadership. The day Asian leaders have long dreaded is here: The era of rapid growth is over. It has taken five years, but the fallout from what Asians call the “Lehman shock” is finally hitting gross domestic product and living standards. These risks are the talk of Bali, where Asia-Pacific Economic Cooperation nations are mulling what to do about a world where “risks remain tilted to the downside.”
  • Japan Current-Account Surplus Plunges to Record August Low. Japan’s current-account surplus unexpectedly shrank to a record low for an August, underscoring drags on the economy as Prime Minister Shinzo Abe tries to drive an exit from 15 years of deflation. The surplus fell 64 percent from a year earlier to 161.5 billion yen ($1.7 billion), as overseas income dropped for the first time in nine months and imports exceeded exports, a Ministry of Finance report showed in Tokyo. The median forecast in a Bloomberg News survey of 27 economists was for a 520 billion yen surplus. 
  • Asian Stocks Swing on Utilities, Telecom Services. Asian stocks swung between gains and losses, with the regional benchmark index trading near a three-week low, as telecommunication shares dropped while utilities advanced. Tokyo Electric Power Co. (9501), the owner of the crippled Fukushima Dai-Ichi nuclear power plant, rebounded 5.9 percent after declining 20 percent over the past five days. Cokal Ltd., a coal mine developer, slumped 22 percent in Sydney after saying takeover talks with Blumont Group Ltd. were affected by a record plunge in the buyer’s stock. Blumont soared 62 percent today in Singapore after sinking 85 percent yesterday. Rakuten Inc., which operates a Japanese online mall, fell 12 percent after Yahoo Japan Corp. said it would eliminate vendor fees for its shopping and auction sites. The MSCI Asia Pacific Index climbed 0.3 percent to 138.25 as of 12:48 p.m. in Tokyo after falling as much as 0.3 percent.
  • Rebar Drops to Lowest in Three Months on China Demand Concern. Steel reinforcement-bar futures fell to a three-month low on concern Chinese demand may recede during winter without more government-funded infrastructure projects. Rebar for delivery in January on the Shanghai Futures Exchange fell as much as 1 percent to 3,550 yuan ($580) a metric ton, the lowest since July 2, and traded at 3,555 yuan at 9:51 a.m. local time.
  • Vale(VALE) Sees Iron-Ore Market Oversupplied From 2015 on New Capacity. Vale SA, the world’s largest iron-ore producer, said supply of the steelmaking raw material is expected to grow faster than demand, reducing support for future increases in price. Iron-ore producers may have between 5 percent and 6 percent more capacity than demand by as early as 2018 as China steel consumption slows and companies boost output, Vale’s head of Ferrous & Strategy Jose Carlos Martins told reporters in Sao Paulo yesterday. 
Wall Street Journal: 
  • Tense Negotiations Inside the Fed Produced Muddled Signals to Markets. The Federal Reserve's decision to continue one of the most audacious experiments in monetary history—an $85 billion-a-month bond-buying program designed to boost growth—followed six months of tense negotiations inside the central bank, and a stumbling effort to let the public know what was going on. A small group of Fed officials has been privately pushing Fed Chairman Ben Bernanke to plan an exit from his signature program, said several people familiar with the closed-door deliberations. But glimmers of a weakening economy prompted the Fed in September to keep the program going—surprising markets primed by months of central-bank suggestions that a wind-down was nearing.
  • Past Rifts Over Greece Cloud Talks on Rescue. Confidential Documents Reveal Deep Divisions at IMF Over 2010 Greek Bailout. The International Monetary Fund proceeded with its record 2010 bailout of Greece despite deep internal divisions over whether it would work, according to confidential documents that contradict the fund's public statements.
Fox News: 
  • Reid, Boehner escalate feud as Senate Dems quietly craft proposal to raise debt limit. Senate Majority Leader Harry Reid and House Speaker John Boehner escalated their feud over the budget impasse on Monday, as Senate Democrats quietly crafted no-strings-attached legislation to raise the nation's debt limit. The move by Democrats comes amid Republican insistence that any increase must include concessions on such fiscal matters as entitlement reform or other spending cuts. The Senate proposal attempts to eliminate such fights until after the 2014 elections.
Zero Hedge: 
  • Buffett's Bailout Bonanza. The following chart shows just how well one can do with a few billion in your pocket and an ear for what the Government will do.
  • Elite U.S. team questions seized al Qaeda leader on Navy ship. An elite American interrogation team is questioning the senior al Qaeda figure who was seized by special operations forces in Libya and then whisked onto a Navy ship in the Mediterranean Sea, U.S. officials said on Monday. Nazih al-Ragye, better known by the cover name Abu Anas al-Liby, is being held aboard the USS San Antonio, an amphibious transport dock ship, the officials said. He is being questioned by the U.S. High Value Detainee Interrogation Group, an inter-agency unit created in 2009 and housed in the FBI's National Security Branch. The group specializes in garnering information from terrorism suspects to prevent planned attacks.
  • Norilsk says will take years to deplete nickel stocks, boost prices. Nickel prices are unlikely to recover for another two years as producers struggle with "unprecedented" low prices and a 100,000-tonne surplus, an executive at Russia's Norilsk Nickel (GMKN.MM) said on Monday. One-third of global output, about 600,000 tonnes, is unprofitable at current prices, which have been hammered by weak demand and big inventories, particularly in China, head of strategic marketing Anton Berlin said in a telephone interview.
  • Abe Cabinet Support Rate Drops 6.6 Points to 58.6%. Support rate for Japanese Prime Minister Shinzo Abe's cabinet falls 6.6 points m/m to 58.6%, according to a poll conducted by Sankei. Disapproval rate rises to 25.7% from 21.1% in Sept. 62.9% of interviewees oppose raising the sales tax to 10% in Oct. 2015; 28.6% supports.
China Securities Journal:
  • Beijing, Shanghai Home Sales Rise During Holiday. Beijing new home sales from Oct. 1-6 almost doubled from a year earlier, citing the municipality's commission of housing and urban-rural development.
Evening Recommendations 
Wells Fargo:
  • Raised (PG) to Outperform.  
  • Raised (AVP) to Outperform.
Night Trading
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 149.0 unch.
  • Asia Pacific Sovereign CDS Index 117.25 +1.75 basis points. 
  • FTSE-100 futures -.12%.
  • S&P 500 futures -.08%.
  • NASDAQ 100 futures +.02%.
Morning Preview Links

Earnings of Note

  • (WWW)/1.03
  • (AA)/.05
  • (YUM)/.92
Economic Releases
7:30 am EST
  • The NFIB Small Business Optimism Index for September is estimated to rise to 94.3 versus 94.0 in August.
10:00 am EST
  • The IBD/TIPP Economic Optimism Index for October is estimated to fall to 44.0 versus 46.0 in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Plosser speaking, Fed's Pianalto speaking, German Factory Orders, BoJ Meeting Minutes, 3Y T-Note auction, weekly retail sales reports, (LUX) investors day, (AGU) investor day, (SFE) investor day, (ACN) analyst conference, (HAIN) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and real estate 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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