Wall Street Fix Seen Ineffectual by Four of Five in U.S.Americans harbor doubts that a financial-regulation bill about to be passed by Congress will do what President Barack Obama says it will: help avoid another crisis and make their finances safer. Almost four out of five Americans surveyed in a Bloomberg National Poll this month say they have just a little or no confidence that the measure being championed by congressional Democrats will prevent or significantly soften a future crisis. More than three-quarters say they don’t have much or any confidence the proposal will make their savings and financial assets more secure. A plurality -- 47 percent -- says the bill will do more to protect the financial industry than consumers; 38 percent say consumers would benefit more. “Banks and the government are making out, not the ordinary person,” says Lenore Critzer, a 70-year-old retiree and poll participant who lives in Nelson, Ohio, about 40 miles from Cleveland. “We’re going to have another crisis and worse.” Skepticism about the financial bill, which may be approved this week, cuts across political party lines. Seven in 10 Democrats have little or no confidence the proposals will avert or significantly lessen the impact of another financial catastrophe; 68 percent doubt it will make their savings more secure. Almost half of those polled say banks will make few if any changes in the way they act in response to the overhaul; another 22 percent expect only minor changes. Democrats have greater optimism that consumers will benefit more than the financial industry from the proposals, with 51 percent saying that will be the result. Just 28 percent of Republicans and 35 percent of independents agree. Most Americans reject any new government rescues of financial institutions, such as arranged for New York-based Citigroup Inc. and insurer American International Group Inc., according to the poll. Almost 60 percent of respondents say the $700 billion plan that Congress passed in late 2008 to help the banks -- the Troubled Asset Relief Program -- was an unnecessary bailout. “The mood of the American public is highly skeptical toward government and its ability to do right by the average person,” says J. Ann Selzer, president of the polling firm.
Bonds In Longest Rally Since March, Sales Soar, Swaps Dive: Credit Markets. Debt investors are signaling renewed confidence in the global economy, snapping up new securities from companies at the fastest pace since March and driving corporate bonds to their longest rally in four months. Relative yields on the more than 8,500 bonds in Bank of America Merrill Lynch’s Global Broad Market Corporate Index fell for the fourth straight day, the longest stretch since the six days ended March 11. “There is optimism over increased stability in Europe, uncertainty over financial regulation is ending and investors are now hoping for a repeat of 2009 with the European stress tests.” The extra yield investors demand to own company bonds instead of government debt fell 2 basis points to 189 basis points, the narrowest spread since May 24, Bank of America Merrill Lynch’s Global Broad Market Corporate Index shows. Worldwide corporate bond issuance rose to $73.3 billion this month from $57.5 billion in the same period of June, according to data compiled by Bloomberg. That’s the most since $148.8 billion of debt was sold in the corresponding period of March.
U.S. Corporate Credit Risk Index Falls to the Lowest Since May. A benchmark indicator of corporate credit risk in the U.S. fell to a six-week low as corporate earnings beat expectations and stocks rallied. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 4.7 basis points to a mid-price of 107.2 basis points as of 5:12 p.m. in New York, according to Markit Group Ltd. Swaps on JPMorgan Chase & Co. and American Express Co. dropped, according to data service provider CMA. The Markit CDX index, which typically falls as investor confidence improves and rises as it deteriorates, has declined eight straight sessions to its lowest since a level of 106.8 basis points on May 31. Swaps on JPMorgan fell 5.3 basis points to 90.7, and American Express declined 4.1 basis points to 90.3, CMA data show. Contracts on American International Group Inc. eased 21.7 basis points to 328, and those on Citigroup Inc., which reports second-quarter earnings on July 16, decreased 6.1 basis points to 159.9, CMA data show. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 0.5 basis point to 116.1, and the Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings dropped 17.2 basis points to 516.3, Markit prices show. “If you look at the different indices across the board, there’s a much, much better tone,” said Anke Richter, a credit strategist with Conduit Capital Markets in London. “People are feeling a little bit more confident about the market. Overall sentiment has improved.”
Default Rate Shows Junk Bonds Cheapest in a Year. High-yield bonds are the cheapest since March 2009 as surging profits drive down the corporate default rate to the lowest in more than two years. The average junk bond yields 697 basis points more than benchmark rates, according to Bank of America Merrill Lynch’s Global High-Yield Index. That’s 271 basis points more than the spread implied by the pace at which companies failed to meet their commitments in the second quarter, according to Martin Fridson, a global credit strategist at BNP Paribas Asset Management. The quarterly default rate of 0.47 percent is the lowest since the last three months of 2007, according to Fridson’s analysis of Moody’s Investors Service data. “On a risk-reward basis, high-yield bonds are priced very attractively,” New York-based Fridson said. “They’re a buy at this point.” The gap between the market-based spread and that implied by defaults climbed to 298 basis points at the end of June, according to Fridson. The gap was inverted as recently as January.
U.S. Chamber Asking Obama to Cut Taxes, Sell Mineral Rights. The U.S. Chamber of Commerce, citing the threat of a double-dip recession, is asking President Barack Obama to curb new regulations and sell some government-owned resources to raise revenue. The Chamber, the biggest lobbying group for U.S. business, plans to release a letter to Obama tomorrow that will also urge him to “make clear” he will extend tax cuts that are set to expire and lower taxes on corporations, said Stan Anderson, a managing director at the Chamber’s Campaign for Free Enterprise. The letter will be discussed at a “jobs summit” the group will hold in Washington. “We are running a reasonable risk of going back into a recession,” Anderson said in an interview. “As you wear off the artificial spending of the stimulus, you are seeing weakening in job growth.” The Chamber, which spent more than $30 million lobbying this year, believes the “overhang” of pending health, financial, environmental and other regulations is stifling business spending and curtailing the economic recovery, Anderson said. Anderson said the Chamber will detail proposals to raise revenue without increasing individual taxes, such as reinstituting a tax holiday on corporations’ overseas income. The Chamber also will urge sales of minerals and timber on government land. The Chamber wants Obama to support continuing the tax cuts enacted under President George W. Bush in 2001 and 2003.
Rio Tinto(RTP) Approves Spending to Increase Australian Iron Ore Output by 50%. Rio Tinto Group, the world’s second- largest iron ore producer, approved $200 million in spending to start expanding its Pilbara iron ore operations in Australia by 50 percent. The money will be used to start dredging work ahead of the development that will take annual capacity to 330 million metric tons by 2016, the London-based company said today in a statement. Rio now has capacity of 220 million tons a year.
Obama AIDS Plan Adds $30 Million to Cut Infections, Expand Access to Drugs. The White House released the first comprehensive U.S. domestic strategy against AIDS today, aiming to reduce the number of cases by 25 percent in five years and expand early access to medicines. The National AIDS Strategy fulfills President Barack Obama’s campaign pledge to unify efforts among federal agencies and state partners. It will be implemented with $30 million from the Patient Protection and Affordable Care Act, said Kathleen Sebelius, secretary of the U.S. Department of Health and Human Services. The policy will increase prevention efforts among gay men and blacks -- groups with the highest rates of new HIV infections -- and get medicines to 85 percent of patients within three months of diagnosis, according to the plan.
Oil Imports Dropping From Record as China Curbs Refining: Energy Markets. Chinese oil imports may decline from this month’s record high as waning energy demand reduces refining profits. Monthly imports may decline at least 19 percent to 18 million metric tons in the second half, from a record 22.3 million tons in June, according to Wang Aochao, a former Exxon Mobil Corp. marketing official who heads China energy research at UOB-Kay Hian Ltd. in Shanghai. Refining profits at state- owned China Petroleum & Chemical Corp., or Sinopec, sank almost 90 percent from May to June, a company official said. Shipments of oil to China, the world’s second-biggest energy consumer after the U.S., are poised to slow as Premier Wen Jiabao damps growth to curb inflation. “Slowing demand from China would put a lot of downward pressure on crude and reinforce concerns among traders,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. “It’s going to raise alarm bells.”Sinopec may cut processing volumes by more than 100,000 tons to 17.5 million tons in July, or 4 million barrels a day, according to a company official, who declined to be identified because of internal rules. The Beijing-based company supplies about 60 percent of China’s fuels. “We see refineries’ utilization rate falling from May’s record as economic expansion drops faster than market expectations,” said UOB-Kay Hian’s Wang. “Right now we don’t see any turning point for the oil-processing rate to pick up.” “There is definitely an oversupply of fuel in the wholesale and retail markets,” said Jay Chi, chief analyst at Guangzhou Twinace Petroleum & Chemical Corp. “Inventories are high and so is the pressure to sell.”
Fed Sees Slower Growth. Officials Debate How to Respond if Recovery Falters; Softer 2nd Half Is Seen. Federal Reserve officials, who are likely to reveal Wednesday a cut in their assessment of the growth outlook, are divided on how aggressively the central bank should act if the economy slows further. Fed officials still expect the U.S. economy to keep growing. But an updated forecast to be released Wednesday afternoon with the minutes of the Fed's late-June policy meeting is likely to show that officials have trimmed their second-half forecasts—as have many private forecasters. One topic under debate is the possibility that today's already-low inflation may turn into a debilitating bout of deflation, a broad drop in prices across the economy.
Employer Groups Criticize Mine-Saftty Bill. Employer groups criticized a mine-safety bill Tuesday that would strengthen civil and criminal penalties for companies, arguing that the bill would lead to higher costs, increased litigation and actually hinder safety improvements at the nation's mines.
Talks for Motorola(MOT) Division Heat Up. Nokia Siemens Networks is in talks to buy the telecom-equipment arm of Motorola Inc., people familiar with the matter said, a deal that would hasten the dismantling of the U.S. technology company.
FedEx(FDX) CEO Takes Stock of Alternative Energy, Obama and China. Frederick W. Smith, chairman and chief executive of FedEx Corp. sat down in late June with Wall Street Journal reporter Jennifer Levitz at the company's headquarters in Memphis, Tenn., to talk about the U.S. economy, his new fuel-efficient planes (please see accompanying article) and other subjects ranging from China to President Barack Obama to whether cargo jets will ever fly without pilots. The following is a condensed transcript of that interview:
Letting the Machines Decide. New Wave of Investment Firms Look to 'Artificial Intelligence' in Trade Decisions. Wall Street is notorious for not learning from its mistakes. Maybe machines can do better. That is the hope of an increasing number of investors who are turning to the science of artificial intelligence to make investment decisions.
Bloomberg Businessweek:
Platinum Faces 'Major Reversal,' Jones Says: Technical Analysis. Platinum prices may face months of declines, possibly losing more than $200 an ounce with a “major reversal” under way, according to a technical analysis from Commerzbank AG that cited trading patterns. Platinum, used in auto catalysts, has fallen about 13 percent since touching a 21-month high of $1,756.25 an ounce on April 27. The metal traded today at $1,533 an ounce after rebounding 2 percent last week, the first weekly climb in three. “Once this minor corrective rebound has run its course, we look for downside pressure to resume,” Karen Jones, a London- based technical analyst, wrote in a report. A fall to $1,442 “would confirm that a major reversal lower has been taking place,” Jones wrote. The 200-week moving average at $1,383 is “then coming to the fore again,” Jones said.
CNBC:
Intel(INTC) Reverses Loss, Delivers Rosy Sales Forecast. Intelshares jumped sharply as its earnings easily outpaced Wall Street's forecasts Tuesday, and the computer chip maker gave a sales forecast for the current quarter that also was higher than expected. The world's biggest maker of computer chips said it benefited from a strengthening computer market and more sophisticated factories. Intel earned 51 cents a share in the second quarter, against a loss of 7 cents a share this time last year. Revenue swelled to $10.8 billion, up from $8.024 billion last year. A group of equity analysts who follow Intel expected on average for the company to report a profit of 43 cents a share, according to Thomson Reuters. Intel's revenue forecast of $11.20 billion to $12 billion for the third quarter is higher than analysts' projections for $10.92 billion. Intel also raised its profit forecast. The company now expects gross profit margin—a key measure of a company's ability to control costs—of 64 percent to 68 percent of revenue. Its previous forecast was for 62 percent to 66 percent. "I'd expect that the enterprise market continues to be strong into the third quarter," Stacy Smith, Intel's chief financial officer, told Reuters. Intel shares leaped about 8 percent in extended trading Tuesday. "They beat on the top line, they beat on the bottom line, the gross margin is through the roof. It couldn't be better. I think Intel is very underpriced. And the key reason everybody missed on it is—as they've been talking about for eight months—cloud infrastructure is just started," said Trip Chowdhry, an analyst at Global Equities Research. "When we speak to our contacts who are IT purchasers and IT suppliers, we are not seeing any slowdown. Because Europe and Asia are investing in technology." Gleacher & Co analyst Doug Freedman said that new products in Intel's data center group, which makes chips for servers used by corporations, provided a big lift to Intel's top line. "Corporate spending for large server farms was much stronger than people expected," said Freedman.
CNBC's Top States for Business 2010 - And the Winner is Texas. Texas reclaims the top spot from last year’s winner, Virginia, which slips to No. 2. Texas was last on top in 2008, and Virginia took the crown in the inaugural year of our study, 2007. That leaves Texas and Virginia dead even in the battle for bragging rights at two wins apiece. Rounding out the top five are No. 3 Colorado, No. 4 North Carolina, and No. 5 Massachusetts, which makes its first appearance among America’s Top States for Business.
Apple(AAPL) Retail Tells Employees Something Big Is On The Way. Apple is drumming up excitement amongst its retail employees, hinting this week that something revolutionary will soon be introduced within its international chain of brick-and-mortar shops. The news was shared with employees via an internal news bulletin, according to people familiar with the matter. However, details were scarce outside of text that teased the unknown product or service would be innovative enough to make a 'big' impact. According to those same people, the internal article text was supplemented by a collection of video clips that featured Apple Retail employees reciting phrases such as "It's coming!," and "It's going to be big!"
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).
Politico:
Reid Warms to July Climate Vote. Senate Democratic leaders are set to roll the dice this month on a comprehensive energy and climate bill, including a cap on greenhouse gases from power plants, even though they don’t yet have the 60 votes needed to move the controversial plan. Senate Majority Leader Harry Reid (D-Nev.) confirmed Tuesday that he would gamble on the high-stakes legislation — much as he undertook health care and Wall Street reform — that for now remains in the rough-draft stage but that will soon be the subject of intense negotiations.
Pelosi Rips Gibb's House Prediction. House Speaker Nancy Pelosi bashed White House Press Secretary Robert Gibbs Tuesday night, even as the president's top spokesman continued to backpedal from his assertion that Democrats could lose control of the House in the November election. The fusillade from Pelosi and other Democrats at a closed-door meeting escalated an already fiery clash between the White House and its own party in Congress. During the tense evening meeting, the speaker grilled the top White House aide in attendance, senior legislative affairs staffer Dan Turton, about the impact of Gibbs' comments.
Bailout Watchdog to Audit Obama Housing Program. The special inspector general for the financial bailout will examine how 10 states were selected for an Obama administration plan to provide $2.1 billion in assistance to areas hit by the housing bust.
Reuters:
Expeditors(EXPD) Sees Strong Q2 Earnings; Shares Rise. Logistics company Expeditors International of Washington Inc (EXPD) said it expects to post better-than-expected second-quarter earnings on volume increase in its airfreight and ocean freight businesses, sending shares up 9 percent. For the second quarter, the company expects earnings of 38 cents to 40 cents a share. Analysts on average were expecting earnings of 30 cents a share, according to Thomson Reuters I/B/E/S.
Wilmington Exec Sees Small Adviser 'Wipe Out'. New regulations, as well as competition from big banks, are putting the squeeze on small money managers. Peter "Tony" Guernsey, chief client officer at Wilmington Trust(WL) and a 39-year veteran in wealth management, told Reuters that smaller financial advisory firms face expensive technology upgrades to keep pace with compliance mandates. "This could wipe them out," said Guernsey, who joined Wilmington 12 years ago and until recently had served as head of national wealth management. Even well-known names such as Brown Brothers Harriman & Co, Rockefeller Financial and Bessemer Trust may forced to seek mergers with larger, more deep-pocketed partners, Guernsey said. Equally daunting: Guernsey said thousands of small firms that serve as outside investment advisers for big banks may see a decline in funds. Instead the big firms are offering more in-house funds that offer some fee advantages and greater control for customers. "There is a move toward proprietary funds," he said. In response to these trends, Guernsey said, more small outside shops may seek acquisitions by larger banks.
Fed's Hoenig: Recovery on Track Despite Stumbles. A top Federal Reserve official said on Tuesday that the U.S. economic recovery is on track despite some setbacks and the central bank should take no additional actions to encourage economic growth. "I have not seen any recoveries that are perfectly straight lined," Kansas City Federal Reserve Bank President Thomas Hoenig told Reuters. "When you look at the long -run trend lines, I think the most likely outcome is for continued growth, and that's what we should act on." Hoenig, one of the Fed's most vigilant anti-inflation hawks, acknowledged that the U.S. economy was proving weaker than he had anticipated earlier this year. He said he has adjusted his forecast for 2010 growth down to the 2.5 percent to 3 percent range from above 3 percent.
New Cap Test to Stem Gulf Oil Flow Delayed. BP Plc(BP) on Tuesday delayed a critical test that will determine if it can close a cap atop its ruptured Macondo well that has leaked oil into the Gulf of Mexico for the last 12 weeks.
Japan Seeks 10% Cut in Spending to Curb Debt - Nikkei. Japan's government is looking to cut policy-related spending by 10 percent in next fiscal year's budget so that it can meet its spending targets, the Nikkei business daily reported. The government has set a cap of around 71 trillion yen ($800 billion) on policy-related spending and payouts to local governments but excluding debt servicing costs, in each of the three years from April 2011.
Yum(YUM) Shares Fall on 2010 View, China Worries. Yum Brands Inc (YUM), parent of the KFC, Taco Bell and Pizza Hut chains, issued a disappointing full-year earnings outlook and said it expects labor costs to rise in its key China market, sending its shares down 3.2 percent. In the second half of 2010, Yum expects labor and commodity inflation in its China division, which contributes 35 percent of company profit. KFC China workers won a pay raise in June amid mounting unrest that is pushing up labor costs in the world's third-largest economy. Closely watched sales at established restaurants in China rose 4 percent during the quarter, in line with analysts' expectations.
Financial Times:
Chicago Traders Launch New Derivatives Exchange. Five Chicago-based trading firms have joined forces with CME Group, the US futures exchange, to launch a new exchange that will offer trading in interest rate swap derivatives closely modelled on current over-the-counter (OTC) rate swaps, people familiar with the matter said. The new venture, called Eris Exchange, is designed to take advantage of the rapidly shifting competitive landscape in trading and clearing of derivatives amid sweeping financial regulatory reform of such markets. It is an attempt by Chicago, which pioneered exchange-traded financial derivatives in the 1970s, to seize the initiative from Wall Street dealers which are set to lose control of OTC derivatives trading under legislation that is being finalised in the US Congress. The legislation forces trading of swathes of OTC derivatives onto exchanges and “swap execution facilities” to boost transparency, and required that as many as possible be processed through clearing houses to reduce counterparty risk. The five firms are Getco, DRW Trading, Infinium Capital Management, Chicago Trading Company and Nico Trading. All are engaged in market-making in either equities and options and bonds. Some are the biggest names in so-called “high-frequency” trading, a form of rapid, computerised trading that has made inroads into derivatives as well as equities.
Bank Teams Rush to Set Up New Funds. The hedge fund industry is seeing a rush of start-ups amid a series of high-profile spin-outs from the in-house trading teams at investment banks. In spite of one of the worst second-quarter performances for the industry on record, the new funds also are attracting strong backing from investors. The launches come as many of Wall Street and the City of London’s star traders look to take their leave before a tough new regulatory environment forces them out in the coming months. For the industry as a whole, the first quarter saw 254 funds launch, the largest quarterly number since the financial crisis began, according to Hedge Fund Research. While most have raised less than $50m, top prop-desk talent is attracting much more interest.
Telegraph:
Spain 'relying on short-term funding' as councils go bust. A third of Spain's city councils are in dire straits and may be forced to suspend payments by the end of the year, replicating the woes in the US, where many states are bearing the brunt of fiscal tightening. More than 400 of the 8,000 councils across the country have stopped paying electricity, water and telephone bills, according to Spanish newspaper El Economista.
Nikkei:
The Bank of Japan's policy board may increase its forecast for real gross domestic product growth in fiscal 2010 to the mid-2% level from 1.8%.
Evening Recommendations Citigroup:
Reiterated Buy on (AAPL), target $330.
Reiterated Buy on (INTC), boosted estimates, raised target to $32.
Reiterated Buy on (LM), target $42.
Oppenheimer:
Rated (MDT) Outperform, target $48.
Rated (LIFE) Outperform, target $60.
Night Trading
Asian equity indices are +.75% to +1.5% on average.
Asia Ex-Japan Investment Grade CDS Index 122.5 -5.5 basis points.
Asia Pacific Sovereign CDS Index 121.0 -4.5 basis points.
The Import Price Index for June is estimated to fall -.4% versus a -.6% decline in May.
Advance Retail Sales for June are estimated to fall -.3% versus a -1.2% decline in May.
Retail Sales Less Autos for June are estimated to fall -.1% versus a -1.1% decline in May.
Retail Sales Ex Auto & Gas for June are estimated unch. versus a -.8% decline in May.
10:00 am EST
Business Inventories for May are estimated to rise +.2% versus a +.4% gain in April.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,500,000 barrels versus a -4,961,000 barrel decline the prior week. Gasoline supplies are expected unch. versus a +1,320,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,000,000 barrels versus a +321,000 barrel increase the prior week. Finally, Refinery Utilization is estimated unch. versus a +1.4% increase the prior week.
2:00 pm EST
FOMC Minutes
Upcoming Splits
None of note
Other Potential Market Movers
The $13 Billion 30-Year Treasury Bond Auction, weekly MBA mortgage applications report, SEMICON West, Piper Jaffray Cancer Summit, (VRGY) analyst meeting, (ARO) analyst day, could also impact trading.
BOTTOM LINE: Asian indices are higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 109.42 bps -2.32%
European Financial Sector CDS Index 119.54 bps -3.58%
Western Europe Sovereign Debt CDS Index 130.66 bps +8.89%
Emerging Market CDS Index 235.09 bps -4.37%
2-Year Swap Spread 29.0 -2 bps
TED Spread 39.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .14% unch.
Yield Curve 245.0 +4 bps
China Import Iron Ore Spot $117.60/Metric Tonne -.42%
Citi US Economic Surprise Index -26.0 -8.8 points
10-Year TIPS Spread 1.88% +4 bps
Overseas Futures:
Nikkei Futures: Indicating +143 open in Japan
DAX Futures: Indicating +9 open in Germany
Portfolio:
Higher: On gains in my Retail, Medical, Biotech and Technology long positions
Disclosed Trades: Added to my (AAPL) long, took profits in another long.
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades substantially higher, up to its 50-day moving average, on improved volume and breadth. On the positive side, Semi, Networking, Homebuilding, Gaming, Airline, Paper, Internet, I-Banking, REIT and Construction stocks are especially strong, rising 2.5%+. Cyclical and small-cap shares are strongly outperforming. (XLF)/(IYR) continue to trade well. The 10-year yield is near session highs, rising +5 bps. The US Muni CDS Index is falling another -3.9% to 226.50 bps, which is also a big positive. The Spain sovereign cds is falling another -4.5% to 210.0 bps and the Greece sovereign cds is dropping another -3.85% to 816.16 bps. Lumber is rising +3.4% today, as well. On the negative side, Road & Rail, Drug, Oil Service and Utility shares are underperforming, rising less than +1.0%. China Import Iron Ore Spot prices continue to decline. As well, the Shanghai Composite Index fell -1.62% last night on real estate worries. The Western Europe Sovereign CDS Index is rebounding further after last week's sharp drop, which is also a mild negative. The market is short-term overbought now and will likely consolidate recent gains before an attempt to push up throw the S&P 500 200-day moving average occurs. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, less hostile political rhetoric and diminishing economic fear.
EU Pledges 'Maximum Transparency' on Stress Tests. European officials pledged “maximum transparency” on bank stress tests when they publish results bank by bank this month. “The results will be published on July 23 on a consolidated basis, that is, at group level, including foreign branches and subsidiaries,” a European Commission spokeswoman in Brussels said by phone today, clarifying earlier comments by Belgian Finance Minister Didier Reynders. Belgium currently holds the rotating European Union presidency. National authorities may publish further data related to cross-border bank subsidiaries about two weeks later, she said. “It is clear we want to go to maximum transparency,” Reynders told a joint news conference with EU Commissioner Olli Rehn, who said there was “strong unanimity” among nations on the need for transparency.
A benchmark indicator of corporate credit risk in the U.S. fell to a three-week low as stocks rallied and European officials pledged "maximum transparency" on bank stress tests being published this month. Credit-default swaps on the Markit CDX North America Investment Grade Index declined 3.3 basis points to a mid-price of 108.6 basis points as of 12:16 pm in NY. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 1.3 basis points to 115.4.
Portugal's Credit Rating Cut Two Notches at Moody's. Portugal had its credit rating cut two levels to A1 at Moody’s Investors Service on prospects for weak economic growth and a growing debt burden after the government allowed its budget deficit to balloon. “The Portuguese government’s financial strength will continue to weaken over the medium term,” Moody’s said in a statement today, adding that the outlook is stable. “The Portuguese economy’s growth prospects are likely to remain relatively weak unless recent structural reforms bear fruit over the medium-to-longer term.” Portuguese bonds extended declines after the rating cuts, with the yield on the benchmark 10-year bond rising 7 basis points to 5.50 percent. That widened the yield premium investors demand to buy the Portuguese bond over comparable German debt by 4 basis points to 284 basis points.
Tyco Electronics(TYC) to Buy ADC(ADCT) for About $1.25 Billion. Tyco Electronics Ltd., the world’s biggest maker of electronic connectors, agreed to buy ADC Telecommunications Inc. for about $1.25 billion to add broadband equipment that helps companies connect to the Internet. Tyco Electronics will pay $12.75 a share, or 44 percent more than Eden Prairie, Minnesota-based ADC’s closing stock price yesterday, according to a statement today. The purchase will bolster Tyco Electronics’ profit by 14 cents a share in the first year, the Schaffhausen, Switzerland-based company said.
Oil Increases Most in a Month as U.S. Equities Advance on Alcoa. Crude oil gained the most in a month in New York as U.S. equities jumped after Alcoa Inc.’s earnings topped analysts’ estimates. Oil rose as much as 3.2 percent amid speculation the report by Alcoa, the first company in the Dow Jones Industrial Average to issue second-quarter results, signaled broader economic growth.
U.S. Appeals Court Strikes Down FCC Indecency Policy. A federal appeals court in New York struck down the U.S. Federal Communications Commission’s indecency policy, saying it violates the First Amendment right to free speech because it’s “unconstitutionally vague.” The court considered the agency’s censure of “fleeting expletives” on live television shows. The U.S. Supreme Court ruled last year in a challenge to the policy by media companies that the “pervasiveness of foul language” and the “coarsening to public entertainment” justified the commission’s more stringent regulation of broadcast programs.
Mortgage-Bond Yield Spreads Approach Lowest Level on Record. Yields on Fannie Mae and Freddie Mac mortgage securities that guide U.S. home-loan rates approached record lows relative to Treasuries as evidence of climbing borrowing costs and homeowners’ refinancing difficulties reduce concern that supply will increase. Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds narrowed 0.04 percentage point to about 0.64 percentage point more than 10-year Treasuries as of 12:15 p.m. in New York, according to data compiled by Bloomberg. The gap reached 0.59 percentage point on March 29, two days before the Federal Reserve ended its buying of $1.25 trillion of home-loan debt.
Imports Point to Pickup in U.S. Spending, Morgan Stanley Says. “With much of the upside surprise in imports in a surge in capital goods, the outlook for domestic investment looks even stronger,” David Greenlaw and Ted Wieseman, Morgan Stanley economists in New York, said in a note to clients. The pickup in business investment meant the world’s largest economy probably grew at a 4.4 percent rate excluding trade and inventories, more than they previously projected and the best performance by that measure since the first quarter of 2006. American companies bought 5.5 percent more capital goods in May, the biggest gain since March 2006, today’s report showed. The increase was led by growing demand for computers, drilling equipment, industrial machines and engines. Greenlaw and Wieseman bumped up their second-quarter forecast for the increase in business spending on equipment and software to 21 percent at an annual rate from 18 percent, which would make it best biggest gain since the first three months of 1998.
June Budget Deficit in U.S. Narrowed to $68.4 Billion. The U.S. government posted a smaller budget deficit in June compared with the same month last year as the economic recovery brought in more tax revenue. The excess of spending over receipts fell to $68.4 billion last month from $94.3 billion in June 2009, according to a Treasury Department report issued today in Washington. It was the 21st consecutive shortfall. For the fiscal year to date, the budget deficit totaled $1 trillion compared with $1.42 trillion during the prior year to date. Even as the economy recovers from the deepest recession since the 1930s, the budget deficit is forecast to reach a record $1.6 trillion this fiscal year as the government funds efforts to revive growth and employment. Corporate tax receipts were up 30 percent for the fiscal year to date to $133 billion from the same period in 2009. Individual income tax collections are down 4.4 percent year to date to $655.4 billion. Spending for the entire government for June increased 3.2 percent from the same month a year earlier to $319.5 billion. Spending by the Defense Department year to date rose to $499.1 billion from $472.8 billion in 2009. Outlays by the Social Security Administration increased to $564.2 billion for the fiscal year to date from $544.7 billion. Spending by the Department of Health and Human Services, which administers the Medicare and Medicaid programs, climbed to $631.4 billion.
Wall Street Journal:
Crash Data Suggest Driver Error in Toyota Accidents. The U.S. Department of Transportation has analyzed dozens of data recorders from Toyota Motor Corp. Vehicles involved in accidents blamed on sudden acceleration and found that at the time of the crashes, throttles were wide open and the brakes were not engaged, people familiar with the findings said.
U.S. Detains 12th Person in Russian Spy Probe. Authorities are detaining a 12th, previously undisclosed person implicated in the federal probe that busted a Cold War-style Russian spy ring, according to a U.S. official familiar with the matter.
CNBC:
General Electric(GE) CEO Jeffrey Immelt said on CNBC the government needs to be focused on creating jobs, and that the country needs to get certain issues, like financial regulation behind it.
Bear-Market Sentiment Is Back: Fund Survey. Investor expectations for economic growth and profit have double-dipped, according to Bank of America-Merrill Lynch's latest fund survey. The survey released Tuesday found that fund managers turned bearish in their outlook on the global economy and corporate earningsfor the first time since February 2009. Investors said they were more concerned about the outlook for US stocks now than at any other point since November 2006.
MarketWatch:
Retailers' Weekly Sales Rise 3.2%: Survey. Chain-store sales for the week ended July 10 rose 3.2% from the year-earlier period, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs.
A Strong Wall of Worry. Market Timers Became More Bearish in Wake of Last Week's Rally. Last week the stock market had its best week in a year. And yet you'd never know it by reviewing investment advisors' outlooks: At the end of the week they were collectively no more bullish than they were at the beginning. Their skepticism in the face of the rally is a bullish omen, according to contrarian analysis.
NY Times:
Small-Business Lending Is Down, but Reasons Still Elude Experts. The chairman of the Federal Reserve urged banks and regulators on Monday to help the nation’s small businesses get the loans they needed to create jobs. He also acknowledged that economists could not agree on why such lending has contracted substantially over the last two years. Small businesses — those having fewer than 500 employees — employ half of all Americans and account for about 60 percent of gross job creation. Federal data indicate that lending to such companies fell to below $670 billion in the first quarter of this year from more than $710 billion in the second quarter of 2008.
Jeffrey Saut: The Call of the Week. In a past life I wrote fundamental research on container board companies. Currently, those companies are raising prices, which only happens when demand warrants. Then too, rail traffic is increasing and diesel fuel consumption is rising, another metric that is inconsistent with a double-dip recession. Moreover, the number of Manhattan apartment rentals doubled in 2Q10 on a YoY basis, while office vacancies in U.S. metro areas fell in 2Q10 vs. 1Q10 for its first drop since 2007. Ladies and gentlemen, these are NOT the metrics of a double-dip recession! Meanwhile, since 2008 there has been almost NO difference between the forward PE of the S&P 500 Growth and Value composite indices. Obviously, this favors growth versus value, which is why I have been emphasizing Technology in these missives.
Washington Post:
Confidence in Obama Reaches New Low, Washington Post - ABC News Poll Finds. Public confidence in President Obama has hit a new low, according to the latest Washington Post-ABC News poll. Four months before midterm elections that will define the second half of his term, nearly six in 10 voters say they lack faith in the president to make the right decisions for the country, and a clear majority once again disapproves of how he is dealing with the economy. Just 26 percent of registered voters say they are inclined to support their representative in the House this fall; 62 percent are inclined to look for someone new. Those most likely to vote in the midterms prefer the GOP over continued Democratic rule by a sizable margin of 56 percent to 41 percent. Economic worries continue to frame the congressional campaigns. Almost all Americans rate the economy negatively. Only about a quarter of all Americans think the economy is improving. Just 43 percent of all Americans now say they approve of the job Obama is doing on the economy, while 54 percent disapprove. Both are the worst, marginally, of his presidency. Even a third of Democrats give him negative marks here. And overall, intensity runs clearly against the president on the issue, with twice as many people rating him strongly negative as strongly positive. On the question of Obama's leadership, 42 percent of registered voters now say they have confidence that he will make the right decisions for the country, with 58 saying they do not. On the issues tested in the poll, Obama's worst ratings come on his handling of the federal budget deficit, where 56 percent disapprove and 40 percent approve. Obama's overall standing puts him at about the same place President Bill Clinton was in the summer of 1994, a few months before Republicans captured the House and Senate in an electoral landslide.
Washington Times:
GOP Poised to Grab Control at State Levels. Democrats in danger of losing legislatures. Democratic leaders already braced for losses in November in congressional and gubernatorial races may be looking at grief on yet another front: A record number of state legislatures could change party control this year, with Democrats at risk of losing their majorities in more than 20 state chambers, according to a comprehensive analysis. Electing state lawmakers will be especially important this year because the party that controls at least one chamber of the legislature typically wins a seat at the table - and a veto - in the once-a-decade redrawing of congressional districts after the 2010 census.
TheStreet.com:
Hedge Funds Take Aim at Apple(AAPL). This Apple(AAPL) action on the heels of the Consumer Reports iPhone4 downgrade is a dream scenario for hedge funds ahead of the July 20 earnings report. There is no better money making opportunity than the Apple slingshot. Apple's pristine balance sheet, exponential growth opportunity, and innovative future product pipeline give hedge fund's confidence that this stock will always bounce back after being beaten down. As a result they use any and all resources to beat it down when they can.
Owners State to Idle Ships as Dry Bulk Deliveries Hit Record. THE dry bulk market crisis deepened today as capesize owners began to idle their ships, rates dipped below breakeven levels on some routes and fresh forecasts emerged of a record deluge of new ships for delivery in 2011.
OnlineMediaDaily:
Study Finds Mobile, iPads Fastest Growing Media Among Ad Execs. Nearly half (46%) of ad executives - both marketers and agency media buyers - currently are utilizing mobile media as part of their advertising plans, and it is expected to grow at a faster rate than any other major medium, according to the most recent findings of an ongoing tracking study of top industry executives. The study, Advertiser Perceptions Inc.'s Advertiser Intelligence Report, found that 62% of respondents plan to increase their ad spending on mobile media over the next year. Based on the responses, AIR projects that 60% of ad industry executives will be utilizing mobile media as part of their base advertising plans within the next 12 months.
USA Today:
New UAW President Plans March for 'Economic Justice'. New United Auto Workers President Bob King, who was expected to bring a more activist flavor to the UAW, delivered on those expectations Monday by announcing a campaign to refocus our national priorities on jobs, justice and peace. King also said the union has begun picketing Toyota dealerships to pressure the automaker to unionize its U.S. plants and to protest the closing of Toyota's plant in Fremont, Calif.
Reuters:
Stress Tests Include 23% Greek Debt Haircut - Source. EU regulators will apply a 23 percent haircut on Greek sovereign debt held in banks' trading books in stress tests conducted across the 27-nation bloc, a banking source said on Tuesday.
German Banks to Pass Stress Test - Bank Sources. Preliminary results show that German banks including the state-controlled landesbanks are on track to pass the European stress test, several people close to the 14 German lenders said.
Fed Says Credit Somewhat Looser in Last 3 Months. Hedge funds and private equity firms had an easier time raising capital in the last three months, but the market for asset-backed securities remains crippled, according to a new Federal Reserve survey. The Fed's first-ever Senior Credit Officer Opinion Survey, released on Tuesday, suggests financial markets are still fragile because banks are reluctant to lend. But it also shows conditions are improving, if slowly.
Applied Materials(AMAT) Sees Positive Demand Trends. Applied Materials Inc (AMAT) said on Tuesday that demand for its products and those of its customers had successfully withstood broader economic woes. The world's largest producer of chip-making gear said unemployment problems in the United States and currency issues in Europe had so far had little impact on its business.
California Pizza(CPKI) Ups Q2 Profit View, Shares Jump. California Pizza Kitchen Inc (CPKI), which is seeking a buyer or a restructuring, raised its second-quarter earnings view on quarterly sales, and its shares jumped nearly 7 percent.
Financial Times:
Greece scrapped plans to refinance 12-month securities today and will auction only six-month treasury bills, citing Petros Christodoulou, who heads the country's debt management agency. It's Greece's first attempt to raise money on the capital markets since agreeing to a $139 billion bailout package with the EU. The change of plan was made because of concern that investors would want exceptionally high rates of return and hurt confidence in Greece's economy and debt markets.
Struggling Illinois Eyes $900 Million Bond Sale. The cash-strapped state of Illinois on Wednesday will set terms for a bond sale as it seeks to borrow nearly $900m in a test of investor appetite for troubled US local issuers. States and municipalities, which raise money in the $2,800bn municipal bond market have come into the global spotlight after several years of budget deficits and worries about global public finances. “The state of Illinois is currently the poster child for all the market concerns about the State budget deficit and inadequate public pension funding in the US,” said Triet Nguyen, a municipal bond trader at Ziegler, a Chicago-based broker dealer. Illinois has nearly $5bn in unpaid bills and its pensions system is funded at about 50 per cent, the worst such ratio of the 50 states. Its inability to tackle these fiscal problems in its latest budget led to credit ratings downgrades and a rise in the cost to insure its debt against default to the highest for any US state.
DigiTimes:
Rumors About OLED iPad Resurface. Apple reportedly plans to launch its second-generation iPad, using 5.6-inch and 7-inch OLED panels, as soon as in the fourth quarter of 2010 with Compal Electronics having a chance to receive the orders, according to sources from component makers. The new 5.6- and 7-inch iPads will mainly target the e-book reader market, separating them from the 9.7-inch model, which mainly targets multimedia entertainment, the sources stated.
