Wednesday, January 08, 2014

Thursday Watch

Evening Headlines 
Bloomberg:
  • China Tells Banks to Improve Disclosures in Shadow-Lending Fight. China’s banking regulator told lenders to publish data including off-balance-sheet assets and interbank liabilities as the government steps up scrutiny of the shadow-finance industry. Lenders with total assets of 1.6 trillion yuan ($264 billion) or more must publish 12 indicators within four months of the end of each financial year, the China Banking Regulatory Commission said in a statement yesterday. The requirement is in line with rules published by the Basel Committee on international banking regulation in July, the CBRC said. 
  • China’s Producer Prices Slide in Sign of Weakness in Economy. China’s producer prices, a measure of the cost of goods as they leave the factory, extended the longest slide since the 1990s in December, adding to evidence that the world’s second-largest economy weakened last month. The producer-price index (SHCOMP) fell 1.4 percent from a year before, the 22nd straight drop, and consumer prices rose 2.5 percent -- less than the 2.7 percent median forecast in a Bloomberg News survey, a government report showed in Beijing. Today’s releases followed declines in gauges of manufacturing and services based on surveys of purchasing managers.
  • Shadow Banking. The scale of it is almost unfathomable: over $70 trillion worldwide. The Financial Stability Board says it poses “systemic risks” to the global financial system. It’s growing at phenomenal rates in China and India and booming in Western banking capitals as well. The catchall phrase “shadow banking” encompasses risky investment products, private lending between individuals, pawnshop and loan-shark operations in emerging markets, as well as more respectable activities like derivatives, money-market funds, securities lending and repurchase agreements at financial institutions in Europe and the U.S. The common denominator is that these activities flourish outside the regular banking system and often beyond the control of regulators and monetary policy. Together they show how hard it is to restrict risky lending without causing harm.  
  • Bank of Korea Holds Rate Even as Yen Clouds Export Outlook. The Bank of Korea kept its benchmark interest rate unchanged for an eighth straight month, even as a weak yen clouds the outlook for exporters competing with Japanese companies. Governor Kim Choong Soo and his board held the seven-day repurchase rate at 2.5 percent after a cut in May, the central bank said in a statement in Seoul today. Eighteen of 19 economists surveyed by Bloomberg News predicted the outcome, with Goldman Sachs Group Inc. foreseeing a cut.
  • Asian Stocks Fall as China Producer Prices Extend Decline. Asian stocks fell as China’s factory-gate prices extended the longest streak of declines since the Asian financial crisis and Federal Reserve minutes showed officials saw diminishing benefits from bond buying. Canon Inc. lost 1.8 percent in Tokyo on a report operating profit at the world’s biggest camera maker probably missed its own forecast. Belle International Holdings Ltd., China’s No. 1 seller of footwear, fell 2.3 percent after surging 13 percent yesterday. Daiei Inc. slumped 7.3 percent in Tokyo as the supermarket operator cut full-year forecasts. The MSCI Asia Pacific Index lost 0.5 percent to 139.16 as of 11:26 a.m. in Tokyo, with about five stocks falling for every three that rose.
  • Rebar Rises for a Second Day as China Steel Output Declines. Steel reinforcement-bar futures in Shanghai climbed for a second day, extending a recovery from an almost seven-month low, as China’s crude steel output fell. Rebar for May delivery on the Shanghai Futures Exchange gained as much as 0.6 percent to 3,488 yuan ($576) a metric ton before trading at 3,478 yuan at 10:05 a.m. local time. The most-active contract closed at 3,465 yuan on Jan. 7, the lowest close since its inception in May. 
  • Corn Falls to 40-Month Low, Wheat Drops on Global Supply Outlook. Corn futures tumbled to a 40-month low and wheat fell to the cheapest since 2011 on speculation that a U.S. government report this week will show ample world supplies. Oilseeds also slumped. Inventories of corn in the season ending Oct. 1 probably will rise to 163.08 million metric tons, the highest since 2001, and U.S. winter-wheat planting climbed to a six-year high, according to Bloomberg surveys before the Department of Agriculture’s report on Jan. 10. Canadian Canola futures extended a slump to the lowest since August 2010, and soybeans in Chicago dropped.
  • Iraq Is New Schism for Saudis in Strained Alliance With West. Few goods transit the desert border between the Middle East’s two biggest oil producers, and Saudi authorities have built a fence to help ensure that political instability in Iraq doesn’t cross over either. Dysfunctional ties between the countries have come into focus as a wave of violence sweeps Iraq, turning it into another arena where Saudi interests are diverging from those of the U.S. Fighting is centered in Anbar province, bordering Saudi Arabia, where Sunni fighters with ties to al-Qaeda are rebelling against the Shiite-led government of Nouri al-Maliki, which is supported by Iran. 
  • Bed Bath & Beyond(BBBY) Falls After Profit Trails Analysts’ Estimates. Bed Bath & Beyond Inc. (BBBY) fell in extended trading after it reported quarterly net income and forecast fourth quarter profit that trailed analysts’ estimates. The shares declined 8.4 percent to $72.99 at 4:50 p.m. after gaining less than 1 percent to $79.68 at the close in New York.
Wall Street Journal: 
  • Fed Eyes Bubble Risks, Minutes Show. Federal Reserve officials in December turned their attention to the risk of dangerous financial bubbles emerging as they scanned a brightening economic outlook and formulated a plan to gradually wind down their bond-buying program this year. While officials agreed that threats to financial stability were modest, the issue was at the center of wide-ranging discussions about emerging threats to the economy, according to minutes of the central bank's Dec. 17-18 policy meeting, which were released Wednesday with the traditional three-week lag. Watching for bubble threats could become one of the first big issues on the plate of Fed Vice Chairwoman Janet Yellen, who takes the reins as chairwoman on Feb. 1 after Ben Bernanke's term as the Fed's leader ends.
  • Borrowers Hit Social-Media Hurdles. Regulators Have Concerns About Lenders' Use of Facebook(FB), Other Sites. More lending companies are mining Facebook, Twitter and other social-media data to help determine a borrower's creditworthiness or identity, a trend that is raising concerns among consumer groups and regulators. Lending companies—some of which are backed with venture funding from Google Ventures, the venture-capital arm of Google Inc., and Accel Partners, an early Facebook Inc. investor—are looking at potential problems such as whether applicants put the same job information on their loan application as they posted on LinkedIn, or if they shared on Facebook that they had been let go by an employer. A small business that draws negative reviews on eBay also could undermine its chances of getting more credit, lending companies say.  
  • Bridge-Spat Emails Pose Questions For Christie. Emails suggesting that close aides to New Jersey Gov. Chris Christie engineered traffic jams as political retribution against a Democratic mayor are turning into a major test for the national ambitions of a popular Republican considered a leading 2016 presidential contender.
  • Gates on Obama. The former Pentagon chief's memoir explains what the world knows. The open secret of Washington memoirs is that they typically confirm what we already know or suspect. In the case of the excerpts from the forthcoming book by Robert Gates, who was Defense Secretary for two years under George W. Bush and two and a half under President Obama, this isn't reassuring.
Fox News:
MarketWatch.com:
CNBC:
Zero Hedge: 
Business Insider: 
Reuters:
  • Novartis sued by U.S. states over alleged kickbacks to pharmacy firm. U.S. states have sued Novartis over accusations the Swiss drugmaker paid kickbacks to a New York pharmacy company to promote its Exjade drug to treat excessive iron in the blood, the New York Attorney General said. The complaint, unsealed on Wednesday, says Novartis paid New York-based specialty pharmacy company BioScrip to keep patients on Exjade at a time when the Swiss company feared patients were discontinuing its use because of harmful side effects. 
  • Russia again blocks U.N. Security Council from condemning Syria attacks. Russia blocked a U.N. Security Council statement on Wednesday that would have expressed outrage at deadly airstrikes by Syrian President Bashar al-Assad's forces and condemned the use of missiles and "barrel bombs" in towns, U.N. diplomats said. Russia, a staunch Assad ally, opposed a similar statement on December 19 that would have condemned attacks by Syrian government troops on civilians. Russia, joined by China, has also vetoed three Security Council resolutions that would have condemned Assad's government and threatened it with sanctions. 
  • Qualcomm(QCOM) CEO says still in the dark on China antitrust probe. Qualcomm's CEO Paul Jacobs said on Wednesday that the U.S. mobile chipmaker still has not been notified about why it has come under antitrust scrutiny in China since late last year. In November, Qualcomm announced that China's National Development and Reform Commission had launched an antitrust probe into the company. The chipmaker said it was unaware of any possible violations.
  • U.S. Senate panel to mull regulation of banks, physical commodities. A subcommittee of the powerful Senate Banking Committee has scheduled a hearing for Jan. 15 to discuss regulating Wall Street's role in physical commodity markets. Among the witnesses scheduled to speak at the panel are top oversight officials with the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission, and an official from the Federal Reserve's banking supervision arm. The hearing comes as the Fed reconsiders exemptions given to banks since the early 2000s that allow them to engage in the previously prohibited trading of physical commodities.
Financial Times:
  • France Should Impose Tax on Smartphones, Film Report Says. Govt-commissioned film industry report revives proposal to introduce 1% tax on sale of devices such as smartphones, tablets.
Telegraph: 
21st Century Business Herald:
  • China to Cut 2014 Railway Fixed-Asset Investment. China's 2014 railway fixed-asset investment will be lower than the 660b yuan spent in 2013, citing a person who will attend a railway work conference organized by China Railway Corp. today. China Railway Corp. is cutting investment to pay more attention to investment returns, the report says.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 138.50 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 108.0 -1.5 basis points. 
  • FTSE-100 futures +.09%.
  • S&P 500 futures -.02%.
  • NASDAQ 100 futures -.02%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (AYI)/.85
  • (FDO)/.69
  • (SVU)/.13
  • (PRGS)/.41
  • (AA)/.06
  • (PSMT)/.73
  • (CUDA)/.00 
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated to fall to 335K versus 339K prior.
  • Continuing Claims are estimated to rise to 2850K versus 2833K prior.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Kocherlakota speaking, Fed's George speaking, ECB rate decision, BoE rate decision, China Industrial Production/Consumer Confidence, China CPI, $13B 30Y T-Bond auction, Challenger Job Cuts report for December, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the RBC Consumer Outlook for January could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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