North American Investment Grade CDS Index 103.23 bps -.41%
European Financial Sector CDS Index 99.23 bps -6.43%
Western Europe Sovereign Debt CDS Index 112.67 bps -5.20%
Emerging Market CDS Index 213.59 bps -4.21%
2-Year Swap Spread 21.0 -2 bps
TED Spread 34.0 unch.
Economic Gauges:
3-Month T-Bill Yield .14% -1 bp
Yield Curve 241.0 +1 bp
China Import Iron Ore Spot $136.30/Metric Tonne +2.17%
Citi US Economic Surprise Index -37.9 -.8 point
10-Year TIPS Spread 1.80% +2 bps
Overseas Futures:
Nikkei Futures: Indicating +149 open in Japan
DAX Futures: Indicating +8 open in Germany
Portfolio:
Slightly Higher: On gains in my Technology long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades hugs the flat line, despite more disappointing US economic data, recent stock gains and weakness in commodities. On the positive side, Computer, Utility, Telecom and Bank stocks are especially strong, rising .75%+. (XLF) has outperformed throughout the day. The European Investment Grade CDS Index is dropping another -2.33% to 98.58 bps. The UK sovereign cds is falling another -6.53% to 58.61 bps. Moreover, the Spain sovereign cds is falling -8.41% to 177.84 bps, the Greece sovereign cds is declining -4.55% to 714.34 bps and the Portugal sovereign cds is dropping -8.54% to 228.98 bps. The US Municipal CDS Index is dropping -4.76% to 200.0 bps. China Import Iron Ore spot continues its recent move higher after sharp declines and Shanghai copper inventories are falling another -3.96% today. Gold continues to trade poorly. Weekly retail sales rose +2.8% this week versus a +2.9% increase the prior week. It is also a positive to see the 10-year yield moving back above 3%. On the negative side, Steel, Gold, Oil Tanker, Coal and Airline shares are under pressure, falling more than -1.75%. Cyclicals are underperforming. 3-Month Euro Libor is rising slightly again today. Lumber is falling -3.37%. Market leader (AAPL) is trading very well today and looks poised to test its all-time high over the coming weeks. Today's overall action is a healthy consolidation of recent gains. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing sovereign debt angst, mostly positive earnings reports, buyout speculation and technical buying.
European Banks Gain Most Since May on Capital Rules. European banks led by UBS AG and Societe Generale SA had their biggest gains since May as regulators eased proposed rules on capital and two of the region’s biggest lenders posted profit that beat estimates. UBS, Switzerland’s biggest bank, surged 11 percent to 17.46 Swiss francs in Zurich trading, while Societe Generale, France’s No. 2 lender, also gained 11 percent to 44.23 euros in Paris. The Basel Committee, which represents central banks and regulators in 27 nations and sets capital standards for banks worldwide, buoyed investors’ confidence after saying lenders can count deferred tax assets and minority stakes in financial firms as capital.
UBS, Deutsche Bank Spur Drop in Financial Risk to 3-Month Low. and The cost of insuring against losses on financial bonds fell to the lowest in three months after UBS AGDeutsche Bank AG posted earnings that beat analyst estimates and regulators softened proposed capital rules. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 European banks and insurers fell as much as 9 basis points to 108.5 and was trading at 110 at 3:30 p.m., the lowest since April 21, according to JPMorgan Chase & Co. The gauge has rallied 23 basis points since bank stress tests were released July 23. Default swaps on UBS fell 7.5 basis points to 95 and Deutsche Bank declined 13 to 91.5, according to data provider CMA. Contracts on Allied Irish Banks Plc dropped 84.5 basis points to 373, Banco Comercial Portugues SA decreased 35.5 to 294.5 and Commerzbank AG fell 10.5 to 85. The difference between Markit’s financial gauge and the broader European corporate benchmark also shrank to the narrowest since March. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 2 basis points to 102.75, JPMorgan prices show. Contracts on the Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings decreased 3 basis points to 474, the lowest level since May 13. Swaps insuring BP Plc debt for five years fell 15.5 basis points to 321.5, CMA prices show. The cost of insuring against losses on sovereign debt also declined. Swaps on Greek government debt dropped 48.5 basis points to 690, contracts on Spain declined 15.5 to 174, Italy dropped 19.5 to 129.5, Portugal fell 30.5 to 221, and Ireland fell 27.5 to 204.
Gold Futures Fall to 11-Week Low as Global Equities Advance. Gold fell to the lowest price in 11 weeks as a rally in global equities erodes demand for the precious metal as an alternative investment. Gold futures for December delivery fell $20.10, or 1.7 percent, to $1,166.90 an ounce at 9:52 a.m. on the Comex in New York. Earlier, the price dropped to $1,163.60, the lowest level since May 5. Losses accelerated after the price fell below the 100-day moving average around $1,181, a key area of resistance. “Gold is finally succumbing to its wounds,” Zeman said. “I have gold positions that I’m looking to exit. There are a lot of sell stops clustered around the $1,180 area.” Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, dropped to 1,301.74 metric tons yesterday. Assets under management have fallen 1.4 percent this month, heading for the first decline since February. “With the disappearance of technical support for the gold market, it appears likely that traders may move to the sidelines and liquidate, rather than hold on to, lingering expectations of the need for safe haven,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago.
German Growth Not Yet Sustainable, Trade Lobby Head Tells Bild. Germany’s export-driven economic expansion will slow in 2011 as foreign sales cool and government support programs expire, Anton Boerner, head of the BGA wholesale and export federation, told Bild newspaper. The German economy isn’t yet in a self-sustaining economic upswing, Boerner said. Germany’s “debt crisis” poses a risk to growth and governments merely “bought time” by saving Greece from default, he said.
The financial regulation bill may add more systemic risk than it relieves, said Joel Telpner, a partner with the law firm Jones Day in New York. The U.S. financial overhaul that President Barack Obama signed into law last week mandates that swaps between backs and major users like hedge funds and asset managers also be backed by clearinghouses, creating new demand for clearing services. Clearinghouses are well capitalized by their members, who share the risk if any of them defaults, lessening the impact. The bill may sequester too much risk in clearinghouses, Telpner said. "Clearing may simply concentrate the risk because the number of players that go through the clearinghouse become concentrated and owners of the clearinghouses are going to be the large financial institutions. "Instead of improving systemic risk, maybe we are exacerbating it. Maybe we are creating new entities that are too big to fail and setting up a scenario in the future where we're going to be arguing and anguishing about bailing out the clearinghouses." "The clearing process is going to create a number of very complicated questions. We have yet to begin to understand the potential new set of problems we are creating as a result of clearing." "Associates with three years experience, how are they going to come up with writing these complex rules? If we're hiring a lot of young people to write rules, we may spend the next 10 years having to fix the rules and making them work in the real world."
India Raises Key Rate More Than Forecast to Anchor Inflation. India’s central bank increased a key interest rate more than economists forecast, battling to contain a surge in inflation that’s led to strikes and street rallies. The central bank raised the reverse repurchase rate a half point to 4.5 percent, and the repurchase rate to 5.75 percent from 5.5 percent, it said in Mumbai. Today was the first time officials boosted one of the main rates by more than a quarter point since the last series of increases in 2008; the median forecasts in Bloomberg News surveys were for quarter-point moves. “Inflation has become the dominant political and economic issue in India,” said Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. “The RBI needs to continue to be aggressive with rate hikes to slow inflation.”
New York City Borrowing Costs Fall 30% With Year's Biggest Bond. New York City cut its borrowing cost 30 percent on an $800 million bond sale, the municipality’s biggest tax-exempt offer of 2010, as a shortage of new issues drove down the extra interest investors demanded over top-rated debt to buy the securities. The 10-year general obligations, rated third-highest by the three major rating companies, were priced to yield 3.05 percent during sales to individual investors, according to a person familiar with the bonds. The premium was 19 basis points above top-rated comparable debt yesterday, down from 27 basis points in June, according to Municipal Market Advisors data. A basis point is 0.01 percentage point.
Home Vacancies Rise as Ownership Reaches 10-Year Low. About 18.9 million homes in the U.S. stood empty during the second quarter as surging foreclosures helped push ownership to the lowest level in a decade. The number of vacant properties, including foreclosures, residences for sale and vacation homes, rose from 18.6 million in the year-earlier quarter, the U.S. Census Bureau said in a report today. The ownership rate, meaning households that own their own residence, was 66.9 percent, the lowest since 1999. Lenders are accelerating foreclosures as borrowers fall behind in mortgage payments after the worst housing crash since the Great Depression. A record 269,962 U.S. homes were seized in the second quarter, according to RealtyTrac Inc. Foreclosures probably will top 1 million this year, the Irvine, California- based data company said in a July 15 report. “There are a lot of people losing their homes and either moving in with family or renting places to live,” said Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts. “Foreclosures are still going up.”
U.S. Economy: Consumer Confidence Slips to Five-Month Low. American consumers lost confidence in July, shaken by mounting concern over jobs and wages that threatens to constrain the economic recovery. The Conference Board’s sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months, figures from the New York-based private research group showed today. The proportion of Americans who expected their incomes to rise over the next six months fell to 10 percent, the lowest since April 2009. “Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves,” Lynn Franco, director of the Conference Board’s consumer research center, said in a statement.
Wall Street Journal:
UK Debt Wears Stress Well. As investors and analysts continue to pore over the nitty-gritty details of Europe’s bank stress test results, one unexpected beneficiary appears to be Britain’s government. The cost of insuring against a British government debt default is the cheapest it has been this year. According to data provider Markit, it now costs $61,000 a year to insure $10 million of British government bonds against default compared with $67,000 at the end of the day on Friday – a hefty drop. This cost stood at $100,000 in early February when some investors were speculating, ahead of Britain’s spring election, that the country might have a Greece-style financial crisis. It’s not just Britain. Credit-insurance costs for Greece, Portugal, Ireland, Italy and Spain, which use the euro, are also noticeably lower today, with most of these levels returning to levels last seen two months ago. Basically, derivatives traders like what they see so far in the bank stress test results, though they’re not overjoyed. There are still tensions in Europe’s financial system. For one thing, the cost for banks to borrow euros from each other in the so-called “interbank” market – the belly of the financial system – continues to edge worryingly higher. This rising “Euribor” rate suggests banks are still worried about lending to each other. But it’s reassuring that the credit-default swaps market, where investors buy insurance against bond defaults, is pointing to an easing of fears about European banks and their debt-laden government overseers.
The Do-It-Yourself House Call. Insurer-Endorsed Remote-Monitoring Technology Leads Heart Patients to Take Their Readings at Home. Technology that aims to keep congestive heart failure patients out of the hospital is gaining traction. The idea is for heart patients to take readings like their weight, blood pressure and other key metrics using wireless and other technologies; the data are then transmitted to a case manager or medical care giver. That way health care givers can catch, and address, warning signs before the patient lands in the ER with shortness of breath or a heart attack.
Tax-Cut Debate Grows Louder. More signs that the tax-cut debate is heating up: As Congress begins wrestling with the soon-to-expire Bush tax cuts, a new survey by Rasmussen Reports shows the number of U.S. voters viewing the tax issue as very important has reached a new high. In the survey, conducted in mid-July and released last weekend, 68% of voters said they view the issue of taxes as very important. That’s 10 points above the last reading in May, Rasmussen says. A Gallup survey in April also suggested voters are becoming more conscious of the issue of looming tax increases. That survey showed that 63% of voters expected their taxes to go up next year, the highest level since 1977.
Surprise: Russia Declares North Korea Innocent in Cheonan Sinking. Russia is the FIRST country to find North Korea innocent in the Cheonan sinking. Even Communist China hasn't completed its investigation into the March shipwreck -- though a not-guilty ruling seems likely now.
More on China's Trillions in Unrepayable Project Loans. Last Friday we reported that the most important (and most underreported) story of the week was Bloomberg's disclosure that Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local government infrastructure projects, and that only 27 percent of the loans to the financing vehicles can be repaid in full by cash generated by the projects they funded.
The Sacramento Bee:
Democratic Donor Gives $5 Million to Prop. 23 Foes. Thomas Steyer, a San Francisco hedge fund manager and a big backer of Democratic candidates, will donate $5 million to a group opposing the ballot measure to roll back California's landmark climate change law. California's greenhouse gas reduction law, or AB 32, aims to cut emissions to 1990 levels statewide by 2020. Backed by Valero Energy Corp. and Tesoro Corp. of Texas,Proposition 23 seeks to suspend AB 32 until the statewide unemployment rate drops to 5.5 percent for four consecutive quarters.
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
Politico:
Rendell: Obama Shouldn't Do 'View'. Pennsylvania Democratic Gov. Ed Rendell advised President Barack Obama against appearing later this week on “The View,” encouraging the president to only do “serious shows.” “I think the president should be accessible, should answer questions that aren't pre-screened, but I think there should be a little bit of dignity to the presidency,” Rendell said during an appearance on MSNBC’s “Morning Joe.” Rendell said the talk show did not have the required stature to host the president, comparing “The View” to “The Jerry Springer Show,” which frequently devolves into onstage brawls. “I wouldn't put him on Jerry Springer either,” Rendell said. “It is different a little bit. But I think the president of the United States has to go on serious shows.
Real Clear Politics:
The Growing Battle Over Berwick. Even with last week's Elaine Sherrod -NAACP media uproar, the Obama administration's recess appointment of Dr. Donald Berwick as Medicare czar continued stirring controversy, with Senate Republicans "spoiling for a fight" and "escalating the conflict" according to the Washington Examiner's Byron York.
Institutional Investor:
Finance Regulation Bill Changes Accredited Investor Rules. Congress changed the rule that determines who can invest in hedge funds and other similar funds. One of the many overlooked features of the Financial Regulation (FinReg) bill signed last Wednesday by President Obama includes a change to the definition of “accredited investor.” The accredited investor net worth threshold for natural persons is $1 million. However, going forward, this no longer includes the value of the investor’s primary residence. Until now, this feature enabled many otherwise middle-class people to qualify for hedge funds in recent years due to the soaring rise in home values. The bill does not change the annual income test, however.
Genzyme(GENZ) Weighs Sanofi Approach: Source. Biotechnology company Genzyme Corp (GENZ) is weighing an informal takeover approach from France's Sanofi-Aventis (SASY) but is not looking to sell the company, a source familiar with the situation said on Monday.
BP(BP) Says DOJ, SEC Probe Trading Around Oil Spill. BP Plc (BP) said U.S. markets regulator the Securities and Exchange Commission and the Department of Justice had launched a probe into market trading connected to the oil giant's Gulf of Mexico oil spill. "The Securities and Exchange Commission and DoJ are conducting informal enquiries into securities matters arising in relation to the incident," the company said in a statement on Tuesday.
Goldman(GS) Launches Derivatives Clearing Service. Goldman Sachs (GS) on Tuesday said it is launching a service to facilitate central clearing for clients in all listed and privately traded derivatives asset classes."The move to central clearing for over-the-counter derivatives is a significant turning point in the marketplace," Jack McCabe, managing director and co-head of futures and the and derivatives clearing service business at Goldman said in a release.
Apple(AAPL) Refreshes Mac Desktops. Apple Inc (AAPL) updated its line of desktop computers on Tuesday with the latest-generation chips, as the company continues to gain share in the PC market. Apple sold 1 million desktop Mac units in its most recent quarter, up 18 percent from last year, generating $1.3 billion in revenue.According to industry tracker IDC, Apple ranks as the No. 4 computer vendor in the United States, with an 8.8 percent market share.
Handelsblatt:
Germany's Finance Ministry wants the European Union to ease its rules on bad banks, citing government sources. The Finance Ministry wants to encourage German banks to offset their outstanding toxic debts via a bad bank, yet is concerned that applicants to the Soffin bank-rescue fund might be put off by strict EU conditions.
High-Yield Debt's Best Rally Since March Entices Borrowers: Credit Markets. High-yield, high-risk bonds are rallying the most in four months on speculation defaults among the neediest borrowers will diminish as profits exceed forecasts. Returns of 2.99 percent this month are prompting a surge in U.S. speculative-grade offerings with Advanced Micro Devices Inc., the second-largest maker of microprocessors, and Vantage Drilling Co. leading $12.5 billion of July issuance, according to data compiled by Bloomberg. Junk bonds returned 1.3 percent last month after losing 3.52 percent in May, Bank of America Merrill Lynch index data show. The U.S. speculative-grade default rate will decline to 2.7 percent by the end of the year, from 6.3 percent at the end of the second quarter, according to Moody’s Investors Service. Credit-default swaps on 14 of the world’s biggest banks, including JPMorgan Chase & Co. and Deutsche Bank AG, fell to a 12-week low, according to an index of swaps compiled by Credit Derivatives Research LLC. Credit Derivatives Research’s Counterparty Risk Index of the largest banks fell 7 basis points to 126, the lowest since 124 on May 3. The benchmark has dropped 16.5 basis points the past week. The cost of protecting corporate bonds from default in the U.S. and Europe fell to the lowest in more than 10 weeks, with the Markit CDX North America Investment Grade Index of credit- default swaps, which investors use to hedge against losses on corporate debt or speculate on creditworthiness, falling 3.42 basis points to 103 basis points, according to Markit Group Ltd. In London, the Markit iTraxx Europe Index of swaps on 125 companies with investment-grade ratings, dropped 5.61 to 106.69. Spreads on emerging-market bonds tightened 6 basis points to 279 basis points, according to JPMorgan index data, after ranging from as low as 229 on April 15 to as high as 359 on May 25.
Nose Sniff Technology Enables Paralyzed to Navigate Wheelchairs, Write. A device operated by nose sniffs allows disabled people, quadriplegics and those “locked in” by complete paralysis to use computers or operate wheelchairs, an Israeli study showed. Quadriplegic patients were able to navigate wheelchairs as well as healthy people who used the device created by the researchers, according to the study published today in the Proceedings of the National Academy of Sciences. Two people in the study who were completely paralyzed with intact mental function used the technology to communicate by choosing letters on a computer screen to write. The device may be among the tools to help paralyzed people communicate and get around, said study author Noam Sobel. It may be cheaper than products on the market for the severely disabled such as eye-tracking devices that cost as much as $20,000, he said.
Credit Ratings Don't Reflect China's Local Government Risks, Dagong Says. Credit ratings assigned to yuan- denominated bonds issued on behalf of local governments in China are misleading and don’t reflect risks investors face, Dagong Global Credit Rating Co.’s chairman said. Local government-backed borrowers shopped around for the best rankings from Chinese ratings companies, Dagong Chairman Guan Jianzhong said yesterday during a Bloomberg Television interview in Beijing. “Whoever gives them a better rating gets the business,” he said. “Local governments are very powerful. The current system doesn’t reflect all the risks.” Local governments in China set up financing vehicles to fund projects such as highways and airports with bonds and loans, due to limits on their ability to directly borrow money. There are concerns Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local infrastructure projects, according to a person with knowledge of data collected by regulator the China Banking Regulatory Commission. “This is very dangerous,” Guan said. “If you look at the financial crisis, it was caused by an accumulation of credit risks. When it gets to a certain point, then a crisis breaks out.”
Afghan, Pakistan Leaders Warned by U.S. in Advance of Leaked War Documents. Afghan, Pakistani and Indian officials received advance notice from the U.S. that media in the U.S. and Europe were about to publish leaked American military documents about the war in Afghanistan, State Department Spokesman Philip J. Crowley said. Afghan President Hamid Karzai and Pakistani President Asif Ali Zardari were briefed by the U.S. ambassadors in their countries, and senior Pakistani officials met two nights ago with Admiral Michael Mullen, the top U.S. military commander, Crowley told reporters today in Washington. “We wanted to make sure they understood the context under which these documents would be released, that this was the result of a leak of classified documents, not sanctioned, authorized by the United States government,” Crowley said. “The briefing was, in fact, to help them understand that this represents a crime and that we are investigating it.”
Basel Committee Softens Bank Capital Rules, Sets Leverage Cap. The Basel Committee on Banking Supervision softened some of its proposed capital and liquidity rules while introducing new restrictions on how much lenders can borrow in order to rein in their risk-taking. The panel agreed yesterday to allow certain assets, including minority stakes in other financial firms, to count as capital, according to a statement. The committee set a leverage ratio to apply to banks globally for the first time, which could become binding by 2018, pending further adjustments to the method of calculating banks’ assets. “Even after all the compromises, the banks aren’t off the hook from tighter capital and liquidity rules,” said Frederick Cannon, chief equity strategist at New York-based Keefe, Bruyette & Woods. France and Germany have led efforts to weaken rules proposed by the committee in December, concerned that their banks and economies won’t be able to bear the burden of tougher capital requirements until a recovery takes hold, according to bankers, regulators and lobbyists involved in the talks. The U.S., Switzerland and the U.K. have resisted those efforts.
California Mayor Regrets 'Indefensible' Salaries as Records Are Subpoenaed. The mayor of Bell, California, whose municipal pay records have been subpoenaed by Attorney General Jerry Brown, apologized for what he called the city’s “indefensible administrative salaries.” Oscar Hernandez, paid almost $100,000 as part-time mayor of the 38,000-population town about 10 miles (16 kilometers) south of Los Angeles, said he’ll serve the remainder of his term, ending in March, without pay, according to a statement today. Brown said he’s subpoenaed hundreds of employment, salary and contract records from the city of Bell, whose manager had an annual salary of almost $800,000 and resigned last week.
Filmmaker Stone Apologizes for Remark on Holocaust, Jewish Media Influence. Filmmaker Oliver Stone apologized for remarks about the Holocaust and Jewish media influence that were criticized as being anti-Semitic. The apology followed comments Stone made to the Sunday Times of London. In an interview promoting a new documentary, Stone also discussed a project in the works, “Secret History of America.” He told the Times “Hitler was a Frankenstein, but there was also a Dr. Frankenstein. German Industrialists, the Americans and the British. He had a lot of support. Hitler did far more damage to the Russians than the Jewish people.” Stone also discussed in the article what he called “Jewish domination of the media,” and said Israel “f***** up United States foreign policy for years.”
BP(BP) Asset Sales Win 58% Premium, Show Potential for More Deals. Robert Dudley, poised to be appointed as BP Plc chief executive officer today, may speed asset sales after the company got a 58 percent premium for the $7 billion disposal of oil fields to Apache Corp.
Plosser Says Weaker Data Don't Yet Justify More Fed Stimulus. Federal Reserve Bank of Philadelphia President Charles Plosser said it’s too soon for the Fed to bolster record U.S. monetary stimulus in response to slower- than-forecast gains in economic growth and employment. “Talk of new efforts to stimulate the economy are premature right now,” Plosser said today in an interview with Bloomberg News in Washington. “I don’t think the data have been sufficiently compelling one way or another.”
Wall Street Journal:
Course of Economy Hinges on Fight Over Stimulus. Eighteen months after President Barack Obama administered a massive dose of spending increases and tax cuts to a weak economy, a brawl has broken out among economists and politicians about whether fiscal-stimulus medicine is curing the illness or making it worse.
Reports Bolster Suspicion of Iranian Ties to Extremists. Cooperation among Iran, al Qaeda and other Sunni extremist groups is more extensive than previously known to the public, according to details buried in the tens of thousands of military intelligence documents released by an independent group Sunday.
China Fuels Trade Tension With Policies, Report Says. China's drive to support domestic technologies—which has already resulted in high-profile complaints by foreign businesses over government purchasing policies—is likely to continue to cause trade disputes and political tensions with the U.S., says a new report from the U.S. Chamber of Commerce.
Supply of Homes Set to Grow. Sales of new homes are near 47-year lows, yet the supply of new and existing homes is expected to grow in the months ahead as construction ramps up and a wave of foreclosed homes hits the market.
Dow Erasing '10 Loss as S&P 500 Tops Moving Average Fuels Bulls. The rally that erased the Dow Jones Industrial Average’s 2010 loss yesterday and carried the Standard & Poor’s 500 Index above its 200-day average spurred optimism among chart analysts and investors who track earnings. The Dow advanced 1 percent to wipe out an annual slump that reached 7.1 percent on July 2 after U.S. companies beat analysts’ profit estimates at twice the rate they trailed them in the second quarter. The S&P 500 rose above its mean price in the past 200 days for the first time in more than a month, after surging 8.2 percent since June 30. Bullish signals are increasing in equities after the S&P 500 lost 13 percent in May and June, its biggest retreat since the bull market began in March 2009. Projections for the fastest S&P 500 income growth since 1988 are helping investors overcome concern that the economy will sink into its second recession in three years.
US Senate Democrats Battling for Viable Energy Bill. Senate Majority Leader Harry Reid hopes to unveil his pared-back U.S. energy bill on Tuesday that focuses on reforming offshore oil drilling but Republicans were quick to dismiss its chances of passing.
Senator Evan Bayh(D-IN): How Financial Reform Could Impede Growth. There's still a lot of unfinished business, he says. And the law's mark in history will largely depend on how financial regulators apply the new rules. Fortune caught up with Bayh to get his thoughts on the new law as the government's focus shifts to the monumental task of implementing it. Here's an edited transcript.
Forbes:
Talk On High-Speed Trading Hacks Pulled From Security Conference. Just as important as what's revealed each summer at the Black Hat hacker confab in Las Vegas may be what isn't. Among the talks conspicuously absent from this year's schedule: a presentation exposing security vulnerabilities in banks' high-speed trading systems.
cnet:
Is Yahoo Japan Poised to Switch to Google(GOOG) Search? In what would be a stunning blow to the massive search alliance between Microsoft and Yahoo, Google is apparently zeroing in on a deal to grab the algorithmic search business for Yahoo Japan, said several sources.
Boortz:
Decentralizing Healthcare ... In the UK? The passage of ObamaCare fulfilled - or came close to fulfilling - two liberal dreams: It was a big step toward the liberal dream of a government-run healthcare system and it expanded the role of government in hopes of creating a "centrally-planned economy." While we're heading hell bent for leather toward a health care system run by our wonderful federal government, Great Britain is headed in entirely the opposite direction. There is a reason for this - government-run healthcare leads to increased cost, less quality care and ... ta da! ... RATIONING! Coupled with a budget/deficit crisis, the infrastructure of its national health system had become so cumbersome and abysmal that the UK is now ready to dismantle it.
Rasmussen Reports:
Generic Congressional Ballot: Republicans 46%, Democrats 36%. Republican candidates now hold a 10-point lead over Democrats on the Generic Congressional Ballot for the week ending Sunday, July 25, the widest gap between the two parties in several weeks. A new Rasmussen Reports national telephone survey finds that 46% of Likely Voters would vote for their district's Republican congressional candidate, while 36% would opt for his or her Democratic opponent. Eighty-six percent (86%) of Republicans back their party's candidate, while 74% of Democrats support the candidate of their party. Voters not affiliated with either party prefer the Republican candidate by a 44% to 23% margin.
Politico:
Rangel Stands His Ground. Facing an ethics trial that may end his 40-year congressional career, Rep. Charles Rangel grew emotional Monday, saying the investigation has “been a very traumatic experience for me and for my family and my constituents.” But it may only get worse for Rangel in the coming days. The House ethics committee will release the detailed results of its Rangel probe Thursday, and a special investigative subcommittee has already concluded there is “substantial reason to believe” that he broke House ethics rules.
Reuters:
NYSE Short Bets Eased in Mid-July as Market Rose. Bearish bets against stocks on the New York Stock Exchange decreased in mid-July, the exchange said on Monday, suggesting short investors took money off the table as the stock market rallied. Short interest fell 1.2 percent to about 13.76 billion shares as of July 15, compared to a revised 13.93 billion shares as of June 30. The June figure was initially reported as 14.08 billion shares. The short interest on NYSE is equal to 3.6 percent of the total shares outstanding, the exchange said. On the Nasdaq, short interest edged up, suggesting investors remain slightly bearish on companies on the tech-heavy index. Short bets rose 0.4 percent to about 7.42 billion shares, compared to 7.39 billion shares at the end of June. This is 2.99 days' average daily volume, compared with an average of 3.70 days for the previous reporting period, the exchange said.
Veeco(VECO) Q2 Profit Outpaces Street; Sees Strong Q3. Chip equipment maker Veeco Instruments Inc (VECO) posted a second-quarter profit that surpassed Wall Street expectations, helped by strong light emitting diode (LED) and solar orders, and forecast a strong third quarter. The company, which makes equipment used to produce LEDs, solar cells and data storage, expects third-quarter earnings of $1.23 to $1.43 per share, excluding items, on revenue of $290 million to $315 million. Analysts were looking for third-quarter earnings of $1.05 a share, excluding items, on revenue of $282.6 million, according to Thomson Reuters I/B/E/S.
Advent Software(ADVS) Q2 Beats Consensus; Ups 2010 Revenue View. Advent Software Inc (ADVS) posted a better-than-expected quarterly profit on strong bookings and revenue from its license, maintenance and other recurring revenue, and raised its full-year revenue outlook. The company, which makes software to automate data and work flows, now expects full-year revenue of $277 million to $281 million, compared with its previous forecast of $272 million to $280 million.
Financial Times:
Deutsche Bank Yields Over Sovereign Holdings. Deutsche Bank AG will today disclose details of its sovereign debt holdings after European regulators criticized it and other German banks for failing to reveal the information for European stress tests.
Telegraph:
BP's(BP) Russian Partners Back Bob Dudley to Replace Tony Hayward as Chief. BP's billionaire partners in Russia indicated they are willing to back their old adversary Bob Dudley as its new chief executive, as the oil giant's board met on Monday night to finalise a radical shake-up. The endorsement will be a boost to BP, as it attempts to draw a line under its Gulf of Mexico oil spill by on Tuesday announcing the departure of chief executive Tony Hayward and revealing hefty impairment charges of up to $25bn (£16bn). The board is expected to say that Mr Hayward will leave on October 1 to be replaced by the American managing director now in charge of BP's spill response unit.
Spain Shines on Stress Test, Germany Flunks. Europe's stress tests for banks have greatly reduced pressure on Spanish lenders but have so far done little to ease broader strains in the interbank credit markets. Three-month Euribor rates have crept up to a one-year high of 0.889pc. The "Libor-OIS spread", watched as a key gauge of stress in the system, also nudged up to 26 basis points. The refusal of some Landesbanken and German lenders to reveal exposure to EMU sovereign debt has raised suspicions that they have something to hide. Credit default swaps measuring bond risk jumped from 140 to 150 points for HSH Nordbank, with smaller rises for LB Berlin (154), West LB (127), Norddeutssche LB (125) and Deutsche Postbank (121). If the original purpose of the tests was to unlock interbank lending and head off an incipient credit crunch, the jury is still out. A report last week by the International Monetary Fund said eurozone lending had "nosedived" during the global crisis and "has yet to recover". The IMF said this was asphyxiating small business, which generates most job growth. As analysts sift through the wealth of new detail from the tests, they are baffled by the chaotic criteria. "We have a ludicrous worst-case scenario that Greek house prices fall by 2pc in 2011: when you first read it you think their must be a typo," said David Owen from Jefferies Fixed Income. Austria's worst-case is a 2.7pc rise in house prices, or zero for Poland, and -2pc for Italy. Mr Owen said these assumptions would be demolished by a serious recession. Yet the tests assume that all eurozone states would contract at the same rate in a downturn. In reality, Club Med states and Ireland would almost certainly fare worse since they are already coping with the triple effects of debt-deleveraging, lost competitiveness, and fiscal tightening. Spain was rewarded by the markets for the high quality of its tests, which cover 95 of its banks and include a 28pc fall from peak-to-trough for finished houses, and 61pc for development land. Yields on 10-year Spanish bonds dropped 11 basis points to 4.24pc on Monday, outperforming the eurozone. The cost of bond insurance fell for Spanish Cajas. Alastair Whitfield from RBC said a large number of lenders would have failed if the Tier 1 capital ratio had been raised from 6 to a more credible 7, including Deutsche Post Bank, Monte dei Paschi, Espirito Santo, Piraeus, and Allied Irish. Credit Suisse said the entire Greek banking system and a string other lenders would have failed if "core" Tier 1 had been used, disallowing hybrid capital. At least the results provide analysts with a wealth of data on Europe's banks, which is a key step to restoring trust. "We can all conduct our own stress tests now," said Mr Owen.
Yonhap News:
LG Display Co. plans to invest $844 million by 2012 to increase liquid-crystal-display production in South Korea, citing the company.
Economic Information Daily:
China's 77 largest steelmakers' profit fell 38% in June on a month earlier because of lower prices, citing an unidentified China Iron & Steel Association official.
Evening Recommendations Citigroup:
Reiterated Buy on (FTI), target raised to $72.
Reiterated Buy on (ACL), target raised to $181.
Night Trading
Asian equity indices are -.25% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 113.0 -5.0 basis points.
Asia Pacific Sovereign CDS Index 113.75 -1.25 basis points.
The S&P/CaseShiller 20 City Home Price Index for May is estimated to rise +.2% versus a +.44% gain in April.
10:00 am EST
Consumer Confidence for July is estimated to fall to 51.0 versus a reading of 52.9 in June.
Upcoming Splits
None of note
Other Potential Market Movers
The Richmond Fed Manufacturing Index, $38 Billion 2-Year T-Note Auction, weekly retail sales reports, ABC consumer confidence reading, Keefe Bruyette Woods Community Bank Investor Conference, (BEC) Analyst Event and the (IVZ) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by shipping and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 103.65 bps -3.50%
European Financial Sector CDS Index 103.92 bps -14.31%
Western Europe Sovereign Debt CDS Index 118.33 bps -7.38%
Emerging Market CDS Index 223.19 bps -3.46%
2-Year Swap Spread 23.0 -1 bp
TED Spread 34.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 240.0 -1 bp
China Import Iron Ore Spot $133.40/Metric Tonne +5.04%
Citi US Economic Surprise Index -37.1 -.1 point
10-Year TIPS Spread 1.78% +2 bps
Overseas Futures:
Nikkei Futures: Indicating +17 open in Japan
DAX Futures: Indicating +2 open in Germany
Portfolio:
Higher: On gains in my Medical, Retail, Biotech and Technology long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs, despite lingering worries over the usefulness of the European bank stress test results and mixed US economic data. On the positive side, Airline, Road&Rail, Gaming, REIT, Hospital, Biotech, Bank, Networking, Disk Drive and Alt Energy stocks are especially strong, rising 2.0%+. Small-cap and cyclical shares are outperforming again and the Transports continue to surge, rising another +2.31%. Copper is rising another +1.37%. The European Investment Grade CDS Index is plunging another -9.9% to 99.91 bps. The UK sovereign cds is falling another -9.1% to 63.66 bps, which is the lowest level since Nov. 16th, 2009. Moreover, the Japan sovereign cds is falling -4.95% to 72.72 bps and the Portugal sovereign cds is dropping -6.2% to 251.93 bps. The US Municipal CDS Index is dropping -3.9% to 210.0 bps. China Import Iron Ore spot continues its recent move higher after sharp declines and Shanghai copper inventories are falling -8.3% today. On the negative side, Education, Coal and Gold shares are lower on the day. 3-Month Euro Libor is rising slightly today to 82.0 bps. Despite ongoing concerns about the structure of eurozone bank stress tests, the huge declines in key eurozone cds indices and further euro currency strength are big psychological positives for investors. It is also a positive to see some key gauges of equity investor angst rising meaningfully today, despite another stock market advance. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, diminishing sovereign debt angst, mostly positive earnings reports, buyout speculation and technical buying.
