Tuesday, November 22, 2011

Today's Headlines


Bloomberg:
  • Germany Sees No New Tools in Resolving Debt Crisis as Spanish Yields Surge. Germany rejected calls from allies and investors to do more to counter market turmoil as Spain’s financing costs surged and pressure mounted on Greek political leaders to submit written commitments to austerity measures. Bond yields in France, Spain and Italy climbed as the absence of progress toward enacting a month-old comprehensive crisis-fighting package and a dispute over the central bank’s role rattled investors. Spanish three-month bills were auctioned today at higher yields than in Greece and Portugal. “We don’t have any new bazooka to pull out of the bag,” Michael Meister, finance spokesman for Chancellor Angela Merkel’s Christian Democratic bloc, said in Berlin today. “We see no alternative to the policy we are following,” which sees debt cuts and keeping the European Central Bank from becoming a lender of last resort, he said in an interview. Germany is signaling resistance to stepping up Europe’s response as the debt crisis that began more than two years ago in Greece threatens France, after snaring Ireland, Portugal, Italy and Spain. While the extra yield investors demand to lend to AAA-rated France reached 200 basis points more than Germany on Nov. 17, the highest risk premium since 1990, Meister said current policies will work if given enough time. Merkel, speaking today in Berlin to members of the BDA employers’ association, said the euro region’s debt crisis “can’t be solved in a big bang.” “We have frittered away political trust in the euro,” Merkel said. “That is why I deeply believe that you can’t restore this confidence with purely financial means, but that only a coherent political response can create this confidence.” Merkel said the European Union will have to make swift treaty changes to deal with the situation and noted the EU summit on Dec. 9, which will deal with this issue. The additional yield sought by investors for holding 10- year French bonds instead of benchmark German bunds widened 10 basis points to 164 basis points at 3:20 p.m. in Frankfurt.
  • IMF Revamps Credit Lines to Lure Nations. The International Monetary Fund revamped its credit line program to encourage countries facing outside shocks to turn to the fund with few conditions attached as European leaders fail to end their debt turmoil. The Washington-based IMF today said the new instrument, the Precautionary and Liquidity Line, can be tapped by countries with strong economies currently facing short-term liquidity needs. Countries with potential needs can also apply, as they did in the past under the Precautionary Credit Line that the new instrument replaces. “The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution,” IMF Managing Director Christine Lagarde said in an e-mailed statement. “This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness.” The IMF is co-financing bailouts in Greece, Portugal and Ireland and is preparing to send a team to Italy for an unprecedented audit of the country’s efforts to cut its debt.
  • Sovereign Credit-Default Swaps Index Rises to Record in Europe. The cost of insuring against default on European sovereign debt rose to a record, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed four basis points to 364.5 at 4 p.m. in London. Contracts on Belgium, France and Spain also rose to all- time highs. Swaps on Belgium soared 17 basis points to 353 as coalition talks were suspended and Elio Di Rupo offered to resign from leading the negotiations after the six parties involved failed to agree about how to cut the budget deficit. Contracts on France rose three basis points to 237 on concern it may lose its top AAA credit rating, and Spain increased 11 to 484, according to CMA. Swaps on Norway rose six basis points to 52, the highest since Oct. 4. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed nine basis points to 802.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings was 1.25 at 199.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased four basis points to 319 and the subordinated gauge was eight higher at 563, both records.
  • Spain Pays More to Borrow Than Greece. Spain paid more than Greece and Portugal to sell three-month bills as the newly elected People’s Party called for a European agreement to “save” the nation’s debt, saying the country can’t afford 7 percent interest rates. Spain’s three-month borrowing costs doubled as it sold bills at an average yield of 5.11 percent, more than twice the rate at the previous auction a month ago. The Treasury paid more than the 4.63 percent for 13-week bills sold Nov. 15 by Greece, which received a European Union-led bailout last year. Portugal paid 4.895 percent on three-month bills the following day. Maria Dolores de Cospedal, the deputy leader of Spain’s People’s Party which ousted the ruling Socialists on Nov. 20, yesterday called for a euro-region accord to “save and guarantee the solvency” of Spain’s 650 billion-euro ($881 billion) debt. Spain can’t afford to “continue financing itself at 7 percent,” she said, referring to the yield on 10-year debt that led Greece, Portugal and Ireland to seek EU aid. Prime Minister-elect Mariano Rajoy told German Chancellor Angela Merkel in a phone call yesterday that “countries that meet their obligations and responsibilities must be helped by European institutions,” Cospedal said. The European Commission yesterday said it had no knowledge of any Spanish request for aid or plans to seek it. Germany dismissed calls for Europe to come to Spain’s assistance. “We don’t have any new bazooka to pull out of the bag,” said Michael Meister, finance spokesman in parliament for Merkel’s Christian Democratic bloc.
  • Euro-Region November Consumer Confidence Hits Two-Year Low on Job Concern. European consumer confidence dropped to the lowest in more than two years in November, as the economy edged toward a recession and companies eliminated jobs. An index of household sentiment in the 17-nation euro area fell to minus 20.4 from minus 19.9 in October, the Brussels- based European Commission said in an initial estimate today. That’s the lowest since August 2009. Economists had forecast a drop to minus 21, the median of 28 estimates in a Bloomberg survey showed. Confidence has weakened for five straight months, the longest stretch of declines since 2008.
  • Dodd-Frank Law May Hinder Crisis Response by Policy Makers. Federal Reserve Chairman Ben S. Bernanke and fellow U.S. policy makers may find themselves hampered in restoring financial stability should the European debt crisis spread to America. The Dodd-Frank legislation passed last year prohibits the Fed from engaging in rescues of individual financial firms, such as it did with Bear Stearns Cos. and American International Group Inc. during the 2008 financial crisis. Lawmakers also banned the Treasury Department from again using an emergency reserve program to backstop money market funds. And the Federal Deposit Insurance Corp. now has to get Congressional approval before it can guarantee senior debt issued by banks. Investors “don’t realize the extent to which Congress has tied people’s hands,” said Donald Kohn, who served as vice chairman of the Fed from 2006 to 2010 and is now senior economic strategist for Potomac Research Group in Washington, an independent research firm. “There is less room to maneuver for the authorities.”
  • U.S. Economic Growth in Q3 Revised Lower. The economy in the U.S. expanded less than previously estimated in the third quarter, reflecting a drop in inventories that points to a pickup in growth as 2011 comes to a close. Gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate, revised Commerce Department figures showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg News called for no revision.
  • FOMC Minutes Reveal a 'Few' Members Want Easing. Some Federal Reserve policy makers said the central bank should consider easing policy further, according to minutes of their Nov. 1-2 meeting. “A few members indicated that they believed the economic outlook might warrant additional policy accommodation,” the Fed said in minutes released today in Washington. “However, it was noted that any such accommodation would likely be more effective if it were provided in the context of a future communications initiative, and most of these members agreed that they could support retention of the current policy stance at this meeting.”
  • Oil Gains First Time in Four Days on Iran Sanctions. Oil rose for the first time in four days as new sanctions against Iran and protests in Egypt raised concern that supplies will be disrupted. Crude advanced as much as 1.8 percent after the U.S., the U.K. and Canada expanded measures aimed at thwarting Iran’s nuclear program. In Egypt, protesters gathered in Tahrir Square for a fifth day after deadly clashes between security forces and demonstrators spurred the Cabinet to offer to quit. Crude for January delivery gained 81 cents, or 0.8 percent, to $97.73 a barrel at 12:13 p.m. on the New York Mercantile Exchange.
  • Gold Rebounds From One-Month Low as Sovereign-Debt Concerns Stoke Demand. Gold futures rebounded from the lowest in almost four weeks after mounting debt woes in the U.S. and Europe spurred demand for the metal as a store of value. A U.S. congressional committee failed to reach agreement on reducing the budget deficit. Global equities have tumbled this month as Europe’s credit crisis escalated. Holdings in exchange- traded products backed by gold climbed to a record yesterday.
  • Jefferies(JEF) Should Raise $1 Billion in Equity. Jefferies Group Inc. (JEF) should raise $1 billion in equity and reduce leverage as MF Global Holdings Ltd.’s bankruptcy increases scrutiny of the investment bank’s balance sheet, Egan-Jones Ratings Co. said. Without a “major deleveraging,” New York-based Jefferies may have its credit grade cut, Egan-Jones said today in a note to clients. The ratings firm downgraded the bank to BBB- from BBB earlier this month.
  • Debit Card Fees Under Justice Dept. Review. The U.S. Justice Department is conducting an antitrust review of statements and actions by banks and their trade associations over possible increases in consumer fees for using debit cards. Assistant Attorney General Ronald Weich described the review in a letter released today by Representative Peter Welch, a Democrat from Vermont, who had requested an investigation. “Please be assured that if it finds that individuals, banks or other parties may have violated the antitrust laws, the department will take appropriate action,” Weich wrote in the letter, dated Nov. 16.
  • Groupon(GRPN) Shares Plunge, Trading Close to IPO. Groupon Inc., the largest Internet daily-deal site, plunged as much as 15 percent in Nasdaq Stock Market trading, pushing the shares near their initial public offering price for the first time.
Wall Street Journal:
  • FX Concepts: Equity Market Links Hint At More Euro Weakness. The euro looks set to fall in the weeks ahead as it follows related movements in German and U.S. stock markets, one of the world's biggest currencies fund-management firms said Tuesday.
  • Egypt's Military Vows to Move Up Transfer of Power. The head of Egypt's ruling military council, in a rare public address to countrymen again embroiled in widespread protest, vowed Tuesday to move up the timeline of presidential elections and suggested he was willing to hold a public referendum on the role of the country's military.
  • Big Selloff Hits Europe Bond Markets. Euro-zone bond markets suffered another selloff Tuesday, with investors especially dumping short-term debt after Spain was forced to pay a heavy price to auction its latest brace of Treasury bills. The Spanish Treasury was forced to pay a euro-era record 5.11% yield on three-month Treasury bills at auction, more than double the rate paid at last month's auction. By way of comparison, to access the short-term debt market Spain now must pay more than Greece paid at its last three-month auction a week ago.
MarketWatch:
  • Market Still Working Off Excess Optimism. My hunch is that sentiment was a major culprit: Bullish excitement rose to dangerously high levels in the wake of the October rally, and that euphoria needed to be worked off.
CNBC.com:
  • Demonstrators Plan to Occupy Retailers on Black Friday. Organizers are encouraging consumers to either occupy or boycott retailers that are publicly traded, according to the Stop Black Friday website. The goal of the movement is to impact the profits of major corporations this holiday season.
  • European Banks Relying More On Central Bank for Funding. Euro zone banks' demand for central funding surged to a two-year high on Tuesday, and U.S. funds cut their lending to the bloc's banks, tightening a squeeze that looks unlikely to ease this year. The ECB's weekly, limit-free handout of funding underscored the widespread problems, with 178 banks requesting 247 billion euros, the highest amount since mid-2009.
Business Insider:
Zero Hedge:
Institutional Investor:
  • ETFs Play Big Role at Major Hedge Funds. Exchange traded funds (ETFs) continue to be a favored way for many of the largest, savviest and best-known hedge fund firms to bet on the direction of the overall market or a basket of stocks in an individual industry or market. In fact, in the third quarter ETFs represented the largest holding or largest new purchase by a number of hedge funds. ETFs offer investors an efficient and low-cost way to make a market bet or to hedge a portfolio. They can also skew the movement of the underlying stocks, which can experience a bigger move up or down than they may otherwise experience had they not been included in the basket of stocks. Among the more aggressive users of these instruments is Louis Bacon’s Moore Capital.
The Bond Buyer:
  • Volcker Rule May Adversely Impact Munis. Some market participants are concerned that the current version of the Volcker Rule would hurt the municipal bond market. Named after Paul Volcker, the former Federal Reserve chairman, the rule would restrict federal insured banks’ ability to trade for their own benefit.
Real Clear Markets:
Reuters:
Financial Times:
  • US Banks Warn Reforms Will Hit Eurozone. U.S. banks say the so-called Volcker rules that will ban proprietary trading from July next year will hurt demand for euro area government bonds. The banks point out that trading on their own accounts makes up a large part of the U.S. presence in the $13 trillion eurozone debt market, though precise figures are hard to obtain.
Telegraph:
Sky News:
  • Exclusive: JPMorgan(JPM) Secures £30m LME Stake. JP Morgan, the US banking giant, is on the verge of securing a deal that will see it become the biggest shareholder in the London Metal Exchange (LME), I have learned. The bank is poised to snap up the 4.65% stake in the LME owned by the collapsed broker MF Global for about £30m, I'm told. A deal could be announced by KPMG, MF's administrator, as soon as this afternoon.
NRC Handelsblad:
  • Political crisis in Belgium is worrying and markets may run out of patience, Jean Deboutte, director of strategy of Belgium's debt agency, said.
The Australian:

Bear Radar


Style Underperformer:

  • Small-Cap Value (-.42%)
Sector Underperformers:
  • 1) Oil Tankers -8.60% 2) Networking -2.63% 3) Steel -1.40%
Stocks Falling on Unusual Volume:
  • CPB, NVLS, NFLX, PANL, PDCO, HSIC, TNGO, ANSS, SHLM, SOHU, SWKS, MXIM, RAVN, FIO, PSS and OSG
Stocks With Unusual Put Option Activity:
  • 1) GRPN 2) HPQ 3) EWT 4) KRE 5) CTRP
Stocks With Most Negative News Mentions:
  • 1) WYNN 2) AFL 3) HPQ 4) CVX 5) NVLS
Charts:

Bull Radar


Style Outperformer:

  • Large-Cap Growth (-.62%)
Sector Outperformers:
  • 1) Gold & Silver +.42% 2) Biotech +.41% 3) Restaurants +.40%
Stocks Rising on Unusual Volume:
  • KGC, FMCN, GILD, VAL, BKS, EBIX and MDT
Stocks With Unusual Call Option Activity:
  • 1) KGC 2) FRO 3) CPB 4) CVS 5) GILD
Stocks With Most Positive News Mentions:
  • 1) LMT 2) BDX 3) DLTR 4) RIMM 5) BA
Charts:

Tuesday Watch


Evening Headlines

Bloomb
erg:
  • France's AAA Status in Tatters as Yields Surge: Euro Credit. Investors aren't waiting for Standard & Poor's or Moody's Investors Service to strip France, Europe's second-biggest economy, of its top credit rating. The extra yield demanded to lend to AAA-rated France for 10 years was 154 basis points more than the German rate yesterday. The gap was 200 basis points on Nov. 17, the widest spread since 1990. The French 10-year yield is at 3.4 percent, about midway between top-rated Holland and Belgium, which is graded one level lower at Aa1 by Moody's. French borrowing costs are more than a percentage point above the AAA-rated U.K. "France isn't trading like a AAA," said Bill Blain, a strategist at Newedge Group in London, who recommends buying U.K. government debt. "The market has made its judgment already." The debt crisis that began more than two years ago in Greece and snared Ireland, Portugal, Italy and Spain is close to reaching France. Moody's said in a report published yesterday that any persistent increase in borrowing costs would amplify the French government's challenges as economic growth slows. President Nicolas Sarkozy has unveiled two sets of budget cuts since August to preserve the credit rating and try to calm jittery markets. Two-year yields on French debt have climbed 59 basis points to 1.7 percent since Sept. 1, while the rate on German bunds of similar maturity fell 24 points to 0.4 percent. "The market is concerned about the dissolution of the euro itself, hence only bunds are acting as a safe haven," said Richard McGuire, a fixed-income strategist at Rabo Bank International in London. Germany is the region's largest nation. French 10-year bond yields may climb above 5 percent, analysts at Credit Suisse Group AG said in a note to investors yesterday. Euro leaders must reach "a momentous deal" for fiscal and political union by mid-January to save the 17-nation bloc, Credit Suisse said in the report. Yield spreads have widened for the other AAA-rated euro- zone countries -- Austria, Finland, the Netherlands and Luxembourg -- bringing the crisis from the periphery to the so- called core. France has the biggest debt burden of the top-rated euro nations, at 85 percent of gross domestic product. Its financial institutions also have the largest debt holdings in the five crisis-hit countries, at 681 billion euros ($921 billion) as of June, according to data from the Bank for International Settlements in Basel. "France is not a AAA at all," said Nicola Marinelli, who oversees $150 million at Glendevon King Asset Management in London. "French banks are very exposed to euro-zone periphery. If they were to mark to market these loans at current levels, there would be huge losses."
  • Euro to Drop as Investors Cease Repatriating Funds, Nomura's Nordvig Says. The euro will drop by the end of the year as the region’s sovereign-debt crisis deepens, pressuring investors who have buoyed the currency by repatriating assets to rethink their strategy, according to Nomura Holdings Inc. The 17-nation currency has traded at least 12 percent higher this month than its lifetime average as European investors brought home 65.9 billion euros ($89 billion) in August and 11.6 billion euros in September, higher than the 12-month average of 629 million euros in inflows, according to European Central Bank data compiled by Bloomberg. The inflows may not continue to be so strong as rising bond yields in Italy and Spain increase concern about contagion in the region and damp investor appetite for European assets, said Nomura’s Jens Nordvig, a managing director of currency research in New York. “You have to evaluate the strength and persistency of this repatriation trend,” Nordvig said in a telephone interview. “Given how the crisis is worsening on an almost daily basis, the pressure on the inflow side is going to be very persistent. Eventually that will win out, and we’ll see the euro lower.”
  • Greece's Samaras Told to Stop Playing 'Political Games' to Ensure EU Aid. Antonis Samaras, head of Greece’s New Democracy party, was told by the president of the European Commission to quit playing “political games” and drop his refusal to pledge written support for Greek budget cuts as a condition for the next installment of international aid. “For the European Union and IMF to support, they need to be sure that this is for a sustainable effort,” commission President Jose Barroso said yesterday in a joint press conference with Greek Premier Lucas Papademos. “What we have to do now is to concentrate on implementation -- less politics and more commitment. It’s not just a sprint; it’s a marathon.”
  • Spain Needs Euro Area Pact to Save Nation's Solvency, People's Party Says. Spain needs a euro-region accord to “save and guarantee the solvency” of its debt amid surging bond yields, said Maria Dolores de Cospedal, deputy leader of the People’s Party, which won the Nov. 20 general election. “Spain cannot continue financing itself at 7 percent,” Cospedal told reporters late yesterday after a meeting of the party’s executive committee in Madrid. “So an agreement through a joint euro-zone operational strategy to save and guarantee our sovereign debt has to come from the European institutions.” PP leader Mariano Rajoy, who won’t take office until the second half of next month, spoke to German Chancellor Angela Merkel yesterday. He told her that “those countries that meet their obligations and responsibilities must be helped by European institutions,” said Cospedal, who is also president of the region of Castilla-La Mancha. Spain’s 10-year borrowing costs rose to 6.553 percent yesterday after the PP, which campaigned on pledges to slash spending and overhaul the economy, won the biggest majority in three decades. In his acceptance speech, Rajoy warned Spaniards to brace for hard times, and said he hadn’t promised any “miracles.”
  • U.S. Rating Affirmed by S&P, Moody's as Supercommittee Fails. Standard & Poor’s and Moody’s Investors Service said they won’t lower ratings on the U.S. after the congressional committee charged with finding $1.5 trillion of deficit cuts failed to reach an agreement. S&P, which stripped the U.S. of its top AAA grade on Aug. 5, said yesterday that the supercommittee’s inability to reach agreement didn’t merit another downgrade because the inaction will trigger $1.2 trillion in automatic spending cuts. The deliberations were “not decisive,” Moody’s spokesman Eduardo Barker said in an e-mail after the panel issued a statement. Fitch Ratings reiterated that the talks failure would likely lead to a revision of the U.S. rating outlook to negative.
  • Wall Street Unoccupied With 200,000 Job Cuts. John Brady, co-head of MF Global Inc.’s Chicago office, was having a vodka cocktail at the Ritz- Carlton in Naples, Florida, overlooking the Gulf of Mexico, on the day his company reported its largest-ever quarterly loss. “Wow, the sun just set,” Brady said to his wife and two colleagues attending a conference with him, he recalled in an interview. “I hope it doesn’t set on MF Global.”
  • Oil Trades Near One-Week Low on European Crisis Concern, U.S. Stockpiles. Oil traded near the lowest price in more than a week in New York as investors speculated that fuel demand may falter as economic growth in Europe stalls and supplies rise in the U.S. Futures were little changed after dropping for a third day yesterday. Growth in Germany, Europe’s largest economy, may slow next year, the Bundesbank said. A U.S. Energy Department report tomorrow may show oil and fuel supplies increased last week, according to a Bloomberg News survey. Saudi Arabian Oil Co. Chief Executive Officer Khalid Al-Falih said the world economy is at risk of a double-dip recession. “We think consumption in the U.S. is still very subdued,” said David Lennox, a resource analyst at Fat Prophets in Sydney, who previously forecast oil would trade from $85 to $95 a barrel. “Any economic slowdown in Europe impacts on crude demand. We see $80 being the floor.”
  • Hewlett-Packard(HPQ) Forecast Misses Estimates Amid Slump. Hewlett-Packard Co. forecast first- quarter profit that missed analysts’ estimates, a sign that Chief Executive Officer Meg Whitman may struggle with the slump that led to the ouster of her predecessor, Leo Apotheker. Profit for the quarter ending in January will be 83 cents to 86 cents a share, excluding some items, the company said in a statement today. The average estimate of analysts surveyed by Bloomberg was for $1.11 a share. The profit forecast for 2012 also fell short of predictions.
  • Oil-Tanker Rally Threatened as Ships Seen Accelerating: Freight. The biggest rebound in oil-tanker rates in almost two years is already being threatened by signs the surge may spur ships to speed up, increasing vessel supply and undermining the rally. The largest tankers cut their speed to an average of 10 knots in October, from 10.8 knots a year earlier, after eight months of unprofitable rates, data compiled by Bloomberg show. A one-knot change adjusts the fleet’s capacity by 5.8 percent, Oslo-based Arctic Securities ASA estimates. Shares of Frontline Ltd., the biggest operator of the ships, jumped 19 percent in the past two weeks as tanker earnings approached break even.
Wall Street Journal:
  • Europe Bank Woes Felt Around Globe. Companies in Emerging Markets Feel Pinch as Lenders From Euro-Zone Countries Retreat to Shore Up Their Finances. A pullback in lending by European banks is beginning to be felt by companies in Africa, Australia and Latin America, making borrowing harder and more expensive, and putting pressure on slowing economies. European banks in recent years dramatically boosted lending to emerging markets and were among the biggest cross-border lenders in these countries. Their retreat has tightened credit in industries—from aircraft to media to mining— squeezing economies already feeling the effects of reduced demand from the developed world for their exports.
  • BofA(BAC) Warned to Get Stronger. Bank of America Corp.'s board has been told that the company could face a public enforcement action if regulators aren't satisfied with recent steps taken to strengthen the bank, said people familiar with the situation. The nation's second-largest lender has been operating under a memorandum of understanding since May 2009, following repeated tussles with regulators over the purchase of securities firm Merrill Lynch & Co. and a downgrade of the company's confidential supervisory rating. The memorandum, which isn't public, identified governance, risk and liquidity management as problems that had to be fixed, according to people familiar with the document.
  • Egypt Unrest Raised Heat on Military. Thousands of protesters clashed with Egyptian security forces for a third straight day Monday in an increasingly violent showdown with the country's ruling generals, who face unprecedented and rapidly escalating discontent less than a week before scheduled elections. As night descended on Cairo, scores of unconscious protesters continued to be dragged from smoke and teargas-clogged side streets leading into Tahrir Square, the heart of Egyptians' protests early this year. Fighting between security forces and protesters have left 33 people dead since Saturday morning and injured more than 1,000, say health officials.
  • Senator Schumer Urges Audit Watchdog to Act on China. A prominent senator is expected to urge the U.S. auditing-oversight agency to refuse to allow Chinese accounting firms to audit U.S.-traded companies until American inspectors are allowed to evaluate the firms' work.
  • Why the Super Committee Failed.
Business Insider:
Zero Hedge:
CNBC:
  • China Property Dip Sparks Bank Fears. The number of property transactions in China’s largest cities has fallen to dangerously low levels, according to regulatory documents obtained by the Financial Times. According to the documents, the China Banking Regulatory Commission earlier this year ordered domestic banks to weigh the impact of a 30 per cent decline in housing transactions in “stress tests” aimed at determining the health of the Chinese financial system. While the government has been trying to rein in sky-high property prices, a Chinese real estate slump would have a significant ripple effect on the global economy. Property construction accounted for more than 13 per cent of China’s economy last year. In April the CBRC told banks to test their loan books against a 50 percent fall in prices, and also a 30 per cent fall in transaction volumes. In October, however, property transactions fell 39 percent year-on-year in China’s 15 biggest cities , according to government data. Nationwide, transactions dropped 11.6 percent, accelerating from a 7 percent fall in September.The fall-off in transactions has affected developers’ cash flows and, in some cases, their ability to repay bank loans.
Seeking Alpha:
  • How Big Derivatives Dealers Caused 'Contagion' In The Eurozone. Did the International Swaps & Derivatives Association (ISDA) throw Europe into chaos? Is it responsible for causing Italy and other European nations' woes, for the sudden spike in southern European interest rates? It is an interesting question to explore.
Seattle Weekly:
  • Occupy Oakland Votes to Shut Down Entire West Coast Port System on Dec. 12. Peter McGraw, spokesman for the Port of Seattle, tells Seattle Weekly that he's taking a threat of a "total West Coast port shutdown" by Occupy and labor protestors to "very seriously." The threat was announced via a resolution passed by the Occupy Oakland "general assembly", which cited the ongoing fight between Port of Longview union workers at the port's EGT company as one of the main reasons for demanding the work stoppage. The group released the following call to action, which was picked up by numerous Indy Media sites:
Charles Gasparino:
Reuters:
  • China Automakers See Slower Growth Ahead. Car sales growth in China will remain stagnant next year in the absence of incentives for buyers and China's tight credit control, raising pressure on car makers to cut prices and improve after-sales services, industry executives and analysts said on Monday. China, the world's largest automobile market, is likely to see car demand grow between 3 and 10 percent in 2012, compared with about 5-6 percent expected for this year and down from 33 percent in 2010, industry executives said at an auto show in Guangzhou. Car sales in China climbed just 1.4 percent in October, causing growth for the first 10 months to ease to 5.9 percent as the government removed subsidies on small cars and raised the eligibility for fuel-saving incentives. "Sales are affected by government policies, including banks tightening lending. We can feel that. Dealer credit and car financing are also tightening," Zeng added.
  • China may have a trade deficit in 2012 because of poor overseas demand, citing Xia Bin, a PBOC adviser. The government may face pressure to keep inflation next year at 2% to 3% because of excessive liquidity, Xia said.
  • EPA Delays Carbon Limts On Oil Refineries. The U.S. Environmental Protection Agency, struggling with an ambitious agenda on clean air regulations, said it will delay proposing the country's first-ever greenhouse gas limits on oil refineries.
Financial Times:
Caixin Online:
  • China Provincial Toll Ways Deeply in Debt. Most toll roads fail to make back the money it cost to build them, according to government reports. Most toll ways in 29 provinces across China are badly in debt after failing to earn back the money they cost to build, according to data compiled by Caixin. As of 2010, outstanding loans for toll way construction in 29 provinces totaled almost 2.2 trillion yuan, according to toll way management reports. Of that amount, 1.95 trillion yuan, or 89 percent, was provided by banks, putting financial institutions at risk if local governments fail to pay up. Guangdong had the most toll-related debt of any province, with an outstanding loan of 227 billion yuan. Eight other provinces each had more than 100 billion yuan outstanding. The reports also reveal that the majority of tolls went to repaying debts, leaving little money to cover expenses like road maintenance.
South China Morning Post:
  • Warning on Risk of Property Bubble. Housing prices haven't dropped to "satisfactory" levels, citing Financial Secretary John Tsang's comments to city lawmakers. Tsang said he is still concerned about the formation of another bubble.
Financial News:
  • China's economy's relatively fast growth and initial success in fighting inflation faces uncertainty from internal and external sources such as the European debt crisis, citing Hu Xiaolian, the central bank deputy head. China should continue stable monetary policy with "appropriate" minor adjustments, Hu said. Financial institutions should reduce over-reliance on debt for growth, Hu said.
  • China's 2011 CPI May Rise More Than 5.5%, citing Zhang Shuguang, the chairman of Unirule Institute of Economics's academic board. Unirule is a private think tank in Beijing.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.0% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 222.50 +7.0 basis points.
  • Asia Pacific Sovereign CDS Index 164.50 +4.0 basis points.
  • FTSE-100 futures +.64%.
  • S&P 500 futures +.45%.
  • NASDAQ 100 futures +.41%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (PDCO)/.46
  • (HRL)/.42
  • (GCO)/.94
  • (CHS)/.20
  • (CPB)/.79
  • (DSW)/.80
  • (CBRL)/1.07
  • (MDT)/.82
  • (EV)/.43
  • (NUAN)/.41
  • (FRED)/.22
Economic Releases
8:30 am EST
  • Preliminary 3Q GDP is estimated to rise +2.5% versus a prior estimate of a +2.5% gain.
  • Preliminary 3Q Personal Consumption is estimated to rise +2.4% versus a prior estimate of a +2.4% gain.
  • Preliminary 3Q GDP Price Index is estimated to rise +2.5% versus a prior estimate of a +2.6% gain.
  • Preliminary 3Q Core PCE is estimated to rise +2.1% versus a prior estimate of a +2.1% gain.

2:00 pm EST

  • Minutes of FOMC Meeting.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Fed's Kocherlakota speaking, 5-year Treasury Note Auction, weekly retail sales reports, China Manufacturing PMI and the Richmond Fed Manufacturing Index could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity 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 day.

Monday, November 21, 2011

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Financial Sector Pessimism, US Debt Committee "Failure"


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 33.24 +3.88%
  • ISE Sentiment Index 101.0 +29.49%
  • Total Put/Call 1.09 +23.86%
  • NYSE Arms 2.33 +104.59%
Credit Investor Angst:
  • North American Investment Grade CDS Index 140.06 +3.15%
  • European Financial Sector CDS Index 299.46 +9.10%
  • Western Europe Sovereign Debt CDS Index 357.33 +2.05%
  • Emerging Market CDS Index 335.79 +3.25%
  • 2-Year Swap Spread 54.0 +4 bps
  • TED Spread 49.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 169.0 -3 bps
  • China Import Iron Ore Spot $147.40/Metric Tonne unch.
  • Citi US Economic Surprise Index 48.90 unch.
  • 10-Year TIPS Spread 1.91 -6 bps
Overseas Futures:
  • Nikkei Futures: Indicating -93 open in Japan
  • DAX Futures: Indicating +26 open in Germany
Portfolio:
  • Slightly Lower: On losses in my tech, retail and medical sector longs.
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 breaks convincingly below its 50-day moving average on rising Eurozone debt angst, global growth fears, financial sector pessimism, high energy prices and technical selling. On the positive side, Biotech shares are higher on the day. Oil is falling -1.1%, Gold is falling -2.5% and the UBS-Bloomberg Ag Spot Index is declining -1.25%. On the negative side, Coal, Alt Energy, Oil Service, Oil Tanker, Steel, Internet, Networking, Bank, REIT and Road & Rail shares are under significant pressure, falling more than -3.0%. Small-cap and cyclical shares are underperforming. (XLF) has also traded poorly throughout the day. Copper is falling -2.5% and lumber is falling -1.09%. The 10-year yield is falling -4 bps to 1.97%. Major Asian indices fell 1-2% on average overnight. India's Sensex continues to trade very poorly. It is already testing its Aug/Sept. lows and is now down -22.2% ytd. Major European equity indices fell 3-4% on average today. Italian shares(-28.07% ytd) were Europe's worst-performers today, falling -4.74%, as they broke down from their recent trading range and below their 50-day moving average. The Germany sovereign cds is climbing +2.22% to 97.17 bps, the France sovereign cds is climbing +3.99% to 229.17 bps, the Spain sovereign cds is gaining +2.06% to 465.93 bps, the Japan sovereign cds is gaining +3.2% to 119.27 bps, the Russia sovereign cds is soaring +10.95% to 265.50 bps and the Brazil sovereign cds is gaining +4.3% to 184.0 bps. Moreover, the European Investment Grade CDS Index is jumping +5.2% to 186.43 bps. The France sovereign cds is very near its recent all-time high and the Hungary sovereign cds is very close to its Oct. 24 record high. The TED spread continues to trend higher and is at the highest since June 2010. The 2-Year Swap spread is near the highest since May 2010. The FRA/OIS Spread is near the highest since May 2010. The 2yr Euro Swap Spread is at the highest since Nov. 2008. The 3M Euro Basis Swap is falling -6.85% to -138.90 bps, which is the worst since November 2008. The Libor-OIS spread is near the widest since July 2009, which is also noteworthy considering the recent equity advance off the lows. China Iron Ore Spot has plunged -23.2% since February 16th and -18.6% since Sept. 7th. Part of today's equity weakness is related to the apparent "failure" of the US debt super committee. However, even if an unexpected "successful" compromise materializes that includes massive tax hikes/spending cuts, following the highly contractionary policies of Europe, it would be viewed as a large negative by investors over the intermediate-term, in my opinion. Trading still has a somewhat complacent feel to it as stocks surged off the morning lows, accompanied by below average volume, despite the ongoing significant deterioration in European credit gauges. I still think the risk in equities remains substantial unless a positive catalyst emerges from Europe very soon. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, US debt Super Committee concerns, rising global growth fears, financial sector pessimism, more shorting, high energy prices and technical selling.

Today's Headlines


Bloomberg:
  • Spanish Bonds Decline After Election; Bunds Gain on Safety Bid. Spanish bonds dropped, extending six weeks of losses, after Prime Minister-elect Mariano Rajoy told the nation to brace for difficult times as he starts work on tackling the euro-area’s third-largest deficit. Italy’s two-year notes fell as concern the regional debt crisis is worsening pushed up dollar-funding costs for European banks. German bonds rose as the Finance Ministry said economic growth is slowing and as U.S. lawmakers struggled to agree on deficit cuts, spurring demand for safer assets. The European Central Bank said it boosted sovereign-debt purchases last week. “Even with a majority, it will be a hard life for the Spanish government,” said Alessandro Giansanti, a senior interest-rates strategist at ING Groep NV in Amsterdam. “The market is realizing the situation in Spain is not too rosy compared with Italy.” The Spanish 10-year yield rose 17 basis points to 6.55 percent at 4:08 p.m. London time, after climbing to a euro-era record 6.78 percent on Nov. 17. The 5.5 percent bond due in April 2021 fell 1.14, or 11.40 euros per 1,000-euro ($1,347) face amount, to 92.73. Two-year rates climbed 14 basis points to 5.57 percent. Rajoy, whose People’s Party swept the ruling Socialists from power after eight years, said on Nov. 18 he hoped Spain wouldn’t need a bailout before he can be sworn in as prime minister in a month. He inherits a stalled economy with the euro area’s highest jobless rate and a deficit of more than twice the euro-region limit. The extra yield investors demand to hold 10-year Spanish securities instead of German bunds expanded 24 basis points to 465 basis points, after reaching 503 basis points on Nov. 18.
  • Euro Zone Needs 'Momentous Deal': Credit Suisse. Euro leaders must reach “a momentous deal” toward fiscal and political union by mid- January to save the 17-nation bloc, Credit Suisse said in a note to investors. The analysts, led by Jonathan Wilmot, the bank’s London- based chief global fixed-income strategist, also predicted the European Central Bank will move “more aggressively” to lower its benchmark 1.25 percent rate and provide banks with longer- term funds. “In short, the fate of the euro is about to be decided,” according to the note, which was published today. At the same time, Italian and Spanish 10-year bond yields could jump above 9 percent and French yields could go above 5 percent, Credit Suisse’s note said. Yields on German bunds could also rise. As things stand now, investors “simply cannot be sure what exactly they are holding or buying in the euro zone sovereign bond markets,” said the report. “We suspect this spells the death of ‘muddle-through’ as market pressures effectively force France and Germany to strike a momentous deal on fiscal union much sooner than currently seems possible, or than either would like. Then and only then do we think the ECB will agree to provide the bridge finance needed to prevent systemic collapse.”
  • German Growth May Grind to Halt as Region's Crisis Saps Exports: Economy. Growth in Germany, Europe’s largest economy, may slow to a near standstill next year as the region’s debt crisis saps demand for exports, the Bundesbank said. The Frankfurt-based central bank cut its 2012 growth forecast to between 0.5 percent and 1 percent from a June prediction of 1.8 percent, and said a “pronounced” period of economic weakness can’t be ruled out if the crisis worsens. “The significant weakening in foreign demand coupled with financial market nervousness” means “the German economy faces more difficult terrain in the months ahead,” the Bundesbank said in its monthly bulletin published today. There are “weighty” risks to the outlook, it said.
  • War on Sovereign Ratings May Backfire on Bonds: Euro Credit. Europe's sovereign debt market is ossifying as restrictions on default-swap insurance and the threat of a ban on credit ratings for governments make traders and investors wary of owning bonds. "Primary dealers may pull out and won't overbid at auctions because they can't get rid of the bonds," said Soeren Moerch, head of government-bond trading at Danske Bank A/S in Copenhagen. "Banks don't want to hold government debt if they have to take writedowns on supposedly risk-free assets."
  • Barton Biggs Sees 60% to 70% Odds of Recession. (video) Biggs said the chance of a recession during the first half of 2012 has risen to between 60 percent and 70 percent.
  • Crude Oil Declines to One-Week Low on U.S. Budget Concern, European Debt. Oil dropped for a third day in New York on signs that U.S. lawmakers won’t agree on cutting the budget deficit and on concern that Europe’s debt crisis will send the region’s economy into a recession. Growth in Germany, Europe’s largest economy, may slow next year, the Bundesbank said today. Saudi Arabian Oil Co. Chief Executive Officer Khalid Al-Falih said the world economy is at risk of a double-dip recession. Crude oil for January delivery fell $1.50, or 1.5 percent, to $96.17 a barrel at 1:34 p.m. on the New York Mercantile Exchange. The price ranged from $95.24, the lowest level since Nov. 10, to $97.86. Futures are up 5.3 percent this year. Brent oil for January settlement dropped $1.25, or 1.2 percent, to $106.31 a barrel on the London-based ICE Futures Europe exchange.
  • Tahrir Square Clashes Erupt for Third Day as Egyptians Defy Military Rule. Clashes erupted in Cairo for a third day after fighting between security forces and demonstrators protesting military rule left at least 22 people dead, a week before Egypt’s first parliamentary elections since the ouster of Hosni Mubarak. Protesters were driven back by tear gas in Tahrir Square, the center of the uprising that toppled Mubarak in February, some waving Egyptian flags and others hurling stones at riot police, in scenes televised from the site. Besides those killed, hundreds were injured in the fighting that started on Nov. 19, Health Ministry spokesman Mohammed el-Sherbeeny said today by telephone. The events in the square recalled the clashes between police and demonstrators during the anti-Mubarak uprising and have threatened to disrupt elections scheduled to start on Nov. 28 as tensions rise between activists and the ruling military council. Egypt’s government is trying to secure financing to support an economy still struggling to recover from the revolt. This afternoon, demonstrators staged a march through Tahrir Square, chanting “The people want to topple the field marshal,” referring to Mohammed Hussein Tantawi, the head of the military council that took power from Mubarak. Television footage showed protesters carrying away at least one person who appeared to be wounded or dead.
  • BofA's(BAC) With Fannie Escalates Over Loan Buyback Stance. Bank of America Corp. told Fannie Mae it refuses to cooperate with the U.S. mortgage firm's new stance on loan buybacks, setting the lender up for a potential surge in claims and penalties. The bank is disputing Fannie Mae's demand that lenders repurchase mortgages or cover any losses themselves if an insurer drops coverage, Bank of America said this month in a regulatory filing. The lender, ranked second by assets among U.S. banks, said it “does not intend to repurchase loans” under what it deems to be new rules, and the refusal may trigger penalties or other sanctions.
  • MF Global Shortfall May Exceed $1.2 Billion: Trustee. MF Global Inc.’s shortfall in U.S. segregated customer accounts may exceed $1.2 billion, more than double what was previously expected, said the trustee overseeing a liquidation of the failed brokerage run by former New Jersey Governor Jon Corzine. That would mean customer accounts are missing about 22 percent of their total of $5.4 billion. A shortfall of 11 percent had been previously estimated by a person with knowledge of probes into the firm’s collapse. James Giddens, the trustee, said today that forensic accountants and investigators are working “around the clock,” and the estimate may change.
Wall Street Journal:
  • Brussels Seeks More Control Over Euro-Zone Member Budgets. The European Commission will set out proposals Wednesday that would significantly tighten Brussels' control over the budget policies of euro-zone member states, according to draft documents. The proposals would see struggling governments forced to submit to frequent reviews of their policies and accounts, and could see euro-zone governments effectively forced to seek financial assistance by a vote of their peers.
  • Congress's Deficit 'Bomb': Scary or Not? Now that the committee has apparently failed, lawmakers and others are taking a harder look at the automatic cuts, or “sequester,” which will kick in starting January 2013 unless Congress acts. And they look plenty scary. Here’s what they entail:
  • Gilead(GILD)-Pharmasset(VRUS) Deal: Wall Street Reacts. Gilead announced a roughly $10.4 billion deal to buy Pharmasset, a company that doesn’t yet have meaningful revenue but is developing treatments for hepatitis C. The deal price of $137 a share was about 59% more than Pharmasset’s highest-ever closing stock price. Here is a look at early Wall Street analysts’ reaction to the takeover:
  • The Two Stocks Smacking Hedge Funds. Stockholdings of J.P. Morgan(JPM) and General Motors(GM) seem to be causing bleeding in hedge funds’ portfolios. About 30 funds count either of the two stocks among their top 10 favored stocks as of Sept. 30, with a 5% portfolio weighting, according to a Goldman Sachs report. But J.P. Morgan’s 21% stock decline year-to-date until Nov. 15, and GM’s 37% decline over the same period don’t bode well for those fund managers.
  • US Health Care Costs Rise 4.3% For Insured Workers In 2Q. Health-care costs in U.S. employer-sponsored health-care plans rose 4.3% in the second quarter from a year earlier and edged up 1.3% from the first quarter, according to data from Thomson Reuters.
MarketWatch:
CNBC.com:
Business Insider:
Zero Hedge:
Wall Street All-Stars:
Jefferies:
The Daily Caller:
  • MSNBC's Chris Matthews to Obama: 'Just tell us, commander. Give us our orders'. (video) In a Sunday evening interview on MSNBC, “Hardball” host Chris Matthews spoke candidly not just of his allegiance to the president’s agenda, but also of the frustrations many on the professional left are feeling with the administration’s lack of leadership. “There’s nothing to root for,” Matthews lamented. “What are we trying to do in this administration? Why does he want a second term, would he tell us? What’s he going to do in his second term, more of this? Is this it? Is this as good as it gets? Where are we going? Are we going to do something his second term? He’s yet to tell us.” “He has not said one thing about what he’d do in his second term,” Matthews continued. “He never tells us what he’s going to do with reforming our health care systems, Medicare, Medicaid. How he’s going to reform Social Security? Is he going to deal with long-term debt? How? Is he going to reform the tax system? How?" “Just tell us — why are we in this with him? Just tell us, commander. Give us our orders and tell us where we’re going. Give us the mission.”
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
Financial Times:
  • Le Pen Calls for France to Quit Euro. Marine Le Pen, the leader of France’s far-right National Front, has made abandoning the euro one of the pillars of her presidential election campaign, launching a powerful attack on the ailing single currency as she seeks to bolster her already strong showing in the opinion polls. Presenting her “presidential project”, Ms Le Pen said Europe should give up the euro, which had “asphyxiated our economies, killed our industries and choked our jobs” for years, as well as causing France to accumulate “Himalayan” debts. In any case, she added, the country should prepare a planned exit from the currency union. “We need to anticipate the collapse of the euro rather than suffer from the collapse of the euro,” she said in a television interview on Sunday.
  • CDS' Demise Has Been Greatly Exaggerated. There has been so much criticism of credit default swaps (CDS) of late that you would think no one was using them any longer. Yet today we see net open positions of $2,900bn, up from $2,400bn at this time last year. This simple fact belies the inordinate amount of misperceptions surrounding the CDS market. In spite of all the rhetoric, CDS remain a robust and effective financial tool for hedging risk or taking on exposures.
  • China Property Sale Falls Could Hit Banks. The number of property transactions in China’s largest cities has fallen to dangerously low levels, according to regulatory documents obtained by the Financial Times. According to the documents, the China Banking Regulatory Commission earlier this year ordered domestic banks to weigh the impact of a 30 per cent decline in housing transactions in “stress tests” aimed at determining the health of the Chinese financial system.
Telegraph:
  • France Warned on Outlook for AAA Credit Rating by Moody's. Moody's warned France that a sustained rise in its debt yields coupled with weakening economic growth could harm its ratings outlook, fuelling concern the eurozone's second largest economy might lose its AAA status. Today, the rating agency said that a worsening in the French bond market - amid fears the sovereign debt crisis was spreading to the eurozone's core - posed a threat to its credit outlook, though not at this stage to its actual rating. "Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications," Moody's said. The premium investors charge on French 10-year debt compared to the German equivalent was up around 20 basis points at 163 bps following publication of Moody's report but remained well short of the 202 bps hit last week, a new euro-era high.
  • Self-Serving Myths of Europe's Neo-Calvinists. Eurozone leaders now face a choice between two unpalatable alternatives. Either they accept that the eurozone is institutionally flawed and do what is necessary to turn it into a more stable arrangement. This will require some of them to go beyond what their voters seem prepared to allow, and to accept that a certain amount of ‘rule-breaking’ is necessary in the short term if the eurozone is to survive intact. Or they can stick to the fiction that confidence can be restored by the adoption (and enforcement) of tougher rules. This option will condemn the eurozone to self-defeating policies that hasten defaults, contagion and eventual break-up.
  • Graphic: How Bureaucracy is Slowing Europe's Recovery.
Die Welt:
  • Germany should have a greater say at the ECB given the country holds 30% of the financial responsibility, citing Alexander Dorindt, general-secretary of the Christian Social Union, as saying. ECB President Mario Draghi has gotten off to a "very problematic" start in the job by accelerating the central bank's government bond purchases, Dobrindt said in an interview.
O Estado de Sao Paulo:
  • Brazil's government may reduce its forecast for economic growth this year to 3.5% after cutting its estimate to 3.8% on Nov. 18, citing Deputy Finance Minister Nelson Barbosa.
South China Morning Post:
  • Last Chance for China to Burst Bubble Without Chaos: Andy Xie. The bursting of China's housing bubble may lead to bankruptcies, but laid-off workers should find new jobs quickly as the labor market remains tight, writes independent economist Andy Xie. The biggest mistake China could make is to allow the property bubble to grow, leading to hyperinflation, currency devaluation, and social/economic chaos, Xie said. The bubble may burst even without government curbs, he said. Lobal governments and developers are unlikely to succeed in pressuring Beijing to keep the bubble going, like before, says Xie.