Weekend Headlines
Bloomberg:- ECB Bond-Buying Won’t Solve Spain, Italy Woes, Coene Says. European Central Bank bond purchases won’t solve Spain and Italy’s difficulties maintaining investor confidence, ECB Governing Council member Luc Coene said in an interview with De Tijd and L’Echo. Bond yields have been rising because financial markets don’t trust Spanish and Italian authorities to take the measures necessary to repair their economies, Coene said in the interview, published today in the two Belgian newspapers. As a result, he predicted few benefits from any ECB action. “It makes no sense for the ECB to start financing those countries,” said Coene, who also heads Belgium’s central bank. “It would only lead to the ECB taking on the whole public debt of Spain and Italy onto its balance sheet. That would in turn weaken the ECB and do nothing to resolve the underlying problems,” he was quoted as saying. Coene told the newspapers that the central bank’s experience a year ago demonstrates why the ECB should remain reluctant to step in. “We haven’t forgotten what happened in August of last year: We bought Italian bonds and right after that the Italian government reneged on its pledges,” he was quoted as saying. “The conclusion is clear: When you take away the market pressure, you take away the pressure on politicians to act.” Coene said the ECB is divided on what conditions should be assigned and not on the overall strategy for when to intervene, according to the newspapers. The ECB will preserve its discretion and not introduce a policy with any sort of automatic action, they cited him as saying. “Every board member, including the Spanish and Italian ones, knows that our actions will have a short-lived effect” and that market turmoil “will stop only when there’s no more Spanish and Italian bonds in the market,” Coene was quoted as saying. “We all agree specific conditions must be met before we can intervene. About those conditions, the ECB board members do have different opinions from time to time.” If Greece were to leave the euro, “it would be the worst solution,” Coene was quoted as saying. “It would raise a question about euro membership for everybody, not only for Greece.”
- Merkel Returns to Crisis as Leaders Squabble Over Bond Purchases. German Chancellor Angela Merkel returns to the front line of the European debt crisis this week as the bloc’s leaders squabble over measures including bond purchases to relieve concerns the single currency may fragment. Merkel ends her summer vacation and travels to Canada Aug. 15-16 for talks with Prime Minister Stephen Harper as a spiraling euro crisis threatens to constrain the global economy. With the region’s leaders awaiting a German high court decision on bailout funding next month, they’re struggling to smooth divisions over a European Central Bank plan to buy the bonds of indebted nations. “It makes no sense for the ECB to start financing” Spain and Italy, ECB Governing Council member Luc Coene said in an interview with newspapers De Tijd and L’Echo published on Aug. 11. “It would only lead to the ECB taking on the whole public debt of Spain and Italy onto its balance sheet.”
- King Says Euro-Area’s Debt Crisis Has ‘No Obvious End in Sight’. Bank of England Governor Mervyn King said the U.K. must press on with reforms to the banking industry and repeated his gloomy outlook for the euro-area debt crisis, which is impeding Britain’s economy. “If the rest of the world were growing normally, the rebalancing and recovery of our economy would be much easier,” King wrote in an article in the Mail on Sunday newspaper. “But it isn’t. Even the rapidly expanding emerging-market economies are slowing, and the problems of the euro area continue with no obvious end in sight.”
- Hollande’s First 100 Days Disappoint French, Figaro Poll Shows. President Francois Hollande’s first 100 days in office have left 54 percent of the French surveyed by Ifop unhappy with his performance and 51 percent said they think the country is changing for the worse, Le Figaro said today, citing the pollster. Forty percent think the countries that use the euro can work together to resolve the economic crisis; a third say he can cut France’s debt and public deficit; and 27 percent said he can lower unemployment, the newspaper said, citing the poll.
- Monte Paschi Says Italy Spreads Need to Decline, Repubblica Says. Banca Monte dei Paschi di Siena SpA chief executive officer said Italian government bond spreads need to fall by the end of the year to avert “strong” contagion to the economy, La Repubblica reported.
- Euro Falls Amid Concern Crisis Worsening, Global Growth Slowing. The euro declined versus the dollar for the first time in three weeks as signs of slowing global economic growth added to concern Europe’s sovereign-debt crisis is worsening, damping appetite for riskier assets. The yen rose against the 17-nation currency as investors sought haven after China’s export growth collapsed, while economists forecast data next week will show the euro bloc’s economy contracted for a second straight quarter. European Central Bank President Mario Draghi said last week the ECB plans to buy debt to stem the turmoil. The Canadian dollar gained versus most of its peers as oil climbed for a second week. “Risk-on was a little stronger in the beginning of the week following the previous week’s comments out of Europe,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said yesterday in a telephone interview. “Reality set in that it’s all about the implementation. After the soft China data, people probably put things into neutral and maybe reversed a bit heading into the weekend.”
- China’s Stocks Drop Most in 2 Weeks on Growth, Earnings Concerns. China’s stocks fell, sending the benchmark index down by the most in two weeks, as concerns about slowing profit and economic growth overshadowed government support measures. Anhui Conch Cement Co. (SHCOMP) led declines for construction material stocks after Bank of America Corp. joined Deutsche Bank AG and Barclays Plc in cutting growth forecasts for China. Zijin Mining Group Co. dropped the most in two weeks, after first-half profit declined. China Vanke Co. and Poly Real Estate Group Co. slid more than 2 percent after the Financial News said the central bank is “cautious” in reducing banks’ reserve- requirement ratios to prevent home prices from rising further. “Investors lack confidence in the market,” said Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai. “With bad economic data last week and more bad earnings, the market is set to continue falling. People are disappointed there are no new stimulus measures and the chance of major measures are unlikely.” The Shanghai Composite Index slipped 0.6 percent to 2,155.71 as of 9:44 a.m. local time, poised for the biggest decline since July 30.
- Japan’s Economy Grows Less Than Forecast as Exports Slump. Japan’s economic growth slowed more than analysts forecast in the second quarter as exports and consumer spending weakened, undermining the nation’s recovery from last year’s earthquake. Gross domestic product rose an annualized 1.4 percent in the three months through June, compared with a revised 5.5 percent expansion in the first quarter, the Cabinet Office said in Tokyo today. The median forecast of 24 economists surveyed by Bloomberg News was for 2.3 percent growth. Consumer spending grew at the slowest pace since it slumped in the aftermath of the 2011 disaster, a sign that government incentives that have been supporting demand at home are starting to wane.
- Oil Bulls Boost Bets Most in More Than 17 Months: Energy Markets. Hedge funds raised bullish bets on oil by the most in more than 17 months as prices advanced amid speculation that central bankers will take steps to spur economic growth as well as increased Middle East tensions. Money managers boosted net-long positions, or wagers that crude will climb, by 20% in the seven days ended Aug. 7, according to the Commodity Futures Trading Commission's Commitments of Traders report on Aug. 10. It was the biggest jump since March 1, 2011, when Libyan output plummeted as the civil war intensified.
- Caterpillar(CAT) CEO Oberhelman to Campaign on U.S. Government Debt. Caterpillar Inc. (CAT) Chief Executive Officer Doug Oberhelman said he will campaign later this year for a cut in U.S. government debt because the issue affects customers of the largest maker of construction and mining machinery. “It’s starting to hold us back,” Oberhelman said in an interview yesterday with Bloomberg Television’s “Street Smart” at the company’s demonstration and learning center in Edwards, Illinois. “For the contractor base and customers in this country, it’s worrisome. It has a chill in the air.”
- JPMorgan(JPM), Citi(C) Units Sued by FDIC Over Colonial Sales. JPMorgan Chase & Co. and Citigroup Inc. were among the banks sued by the Federal Deposit Insurance Corp. over $388 million in securities sold to Colonial Bank. The FDIC alleged that the banks misrepresented the quality of the loans underlying residential mortgage-backed securities that Colonial purchased, according to a complaint filed yesterday in federal court in Manhattan.
- Romney Says Obama ‘Robbed Medicare’ for Health Overhaul Cost. President Barack Obama “robbed” Medicare to pay for the health-care legislation he pushed through Congress in 2010, Republican presidential candidate Mitt Romney says in an interview to be broadcast tonight. Romney made the claim when asked on the CBS program “60 Minutes” about the political risk of picking Representative Paul Ryan of Wisconsin as his running mate. Ryan, the chairman of the House Budget Committee, has led efforts to revamp Medicare, the government health-insurance program for the elderly. “There’s only one president that I know of in history that robbed Medicare, $716 billion to pay for a new risky program of his own that we call Obamacare,” Romney responds, according to excerpts of the interview released by CBS. “What Paul Ryan and I have talked about is saving Medicare, is providing people greater choice in Medicare, making sure it’s there for current seniors,” Romney says on “60 Minutes.” “No changes, by the way, for current seniors, or those nearing retirement. But looking for young people down the road and saying, ‘We’re going to give you a bigger choice.’ In America, the nature of this country has been giving people more freedom, more choices.”
- Egypt President Mursi Removes Military Aides in ’Gutsy’ Shake-Up. Egyptian President Mohamed Mursi ordered the retirement of the country’s two top military officers amid a power struggle between the leader and the army. The retirement of Field Marshal Mohamed Hussein Tantawi, Egypt’s defense minister, was part of a reshuffle of the top tier of the armed forces, and effectively sidelined the man who had headed the military council that ruled after the ouster of Hosni Mubarak. Lieutenant General Sami Enan was also ordered from office. Both men were named as advisers to Mursi. In addition to the military shake-up, Mursi canceled constitutional changes issued by the military before his inauguration that had stripped his office of some of its authority.
- China Politics, Oil Needs Risk Conflict in S. China Sea. In asserting its claims to the tiny islands, rocks and reefs in the South China Sea, China points to records of its ancient mariners. Today, those waters are far more important to China than in the age of the sail. That’s because the area may hold oil riches that rival Saudi Arabia’s, a prospect that is stoking tensions in one of the world’s busiest shipping lanes as China undertakes its once- in-a-decade leadership transition.
- Facebook(FB) Plunge Limits Goldman Sachs(GS) Gain as Lockup Ends: Tech. Facebook Inc. (FB)’s stock plunge has robbed Goldman Sachs Group Inc. and Microsoft Corp. (MSFT) of much of the potential gain they could unlock as soon as this week, when a ban on sales of insiders’ shares begins to lift.
Wall Street Journal:- Paul Ryan Selection Sets Off Debate on Government. Amid growing complaints about the pettiness of American politics, the 2012 presidential campaign is turning into a far-reaching, big-picture debate over the size and scope of government. Mitt Romney's choice of Rep. Paul Ryan of Wisconsin, an uncommonly assertive spokesman for free markets and small government, to be his running mate on the Republican ticket has highlighted the differences between them and President Barack Obama—and nowhere is the clash more apparent than on the subject of Medicare. Until now, in a 2012 campaign bristling with negative attacks and accusations about the character of the two candidates, big policy choices have been eclipsed.
- Kimberley A. Strassel: Why Romney Chose Ryan. His running mate offers Romney the opportunity to explain to Americans that they have a choice between national stagnation and renewal.
- New Tactics Boost Bank Profits. A handful of European banks have figured out a way to boost their profit and capital ahead of new regulations: grab back their bonds. With the European crisis knocking down the value of banks' longer-term debt, some are taking advantage by buying back their debt from investors at a discount from the original value. Banks can book the difference in price as an accounting gain, adding to their bottom line—and their ability to withstand losses.
- For Chesapeake(CHK), a Question on How It Counts Reserves.
- Hard Times Spread for Cities. Rising Health, Pension Costs Top the List as Municipalities Struggle to Recover From the Recession. Fiscal woes that have caused high-profile bankruptcies in California are surfacing across the country as municipalities struggle with uneven growth and escalating health and pension costs following the worst recession since the 1930s. Budget crunches already have prompted Michigan lawmakers to authorize emergency fiscal managers, and led the mayor of Scranton, Pa., to temporarily cut the pay of all city workers to the minimum wage.
- As Corporate-Bond Yields Sink, Risks for Investors Rise.
- London Olympics Come to a Close (full coverage)
- Can Syria's Christians Survive? In the land of St. Paul's conversion, ancient Catholic and Orthodox communities are finding themselves on the wrong side of an increasingly sectarian conflict.
- Gold-Winning Display Leaves Platinum Trailing. Platinum, the most expensive of metals for most of the last two decades, is trading around its lowest value relative to gold since 1985, with little visible on the immediate horizon that could flip this trend.
Marketwatch.com:
- Beijing mulls more steps to cool property market. Increased sales, slow affordable house building may prompt action. In the midst of the rebounding real estate market, the central government is considering new curbs for the property market, a source close to top decision-makers says.
CNBC:
- Morici: Ryan a Smart Choice by a Savvy Executive. The U.S. economy isn’t growing and creating enough jobs, because the private sector is despondent—demand is weak and President Obama won’t let America play to its strengths and compete globally—and the public sector is bloated—the federal government has runaway deficits exceeding $1 trillion annually. Mr. Romney promises to open development of U.S. energy resources, without harm to the environment, and level the playing field on trade with mercantilists like China. Slashing oil imports and boosting U.S. exports in Asia would increase GDP by $500 billion, create 5 million jobs and get the economy growing at a 4 to 5 percent annual pace.
- Mumbai on Alert After Weekend Riot. Mumbai was on red alert after weekend protests left two dead and dozens injured, as fears grow that simmering violence in India’s northeast could spill over into major cities in the build-up to India’s independence day this week. Crowds gathered on Saturday to protest about violence against Muslims in Assam, a state in the country’s remote northeast, that has left nearly 80 people dead and 400,000 displaced since early July. In Mumbai, India’s financial capital, two men were killed and about 50 people, mostly police, were injured as officers fired into the air and used teargas and wooden sticks to disperse rioters burning vehicles and pelting police with stones. Media estimates of protester numbers varied widely, from a few hundred to up to 25,000. Witnesses reported that thousands had gathered for the demonstration.
NY Times:- New York Acts Quickly Amid Sharp Rise in Homelessness. The homeless population in New York City has jumped sharply over the last year, causing a record number of people to enter the shelter system. The increase has forced the Bloomberg administration to open nine more shelters in just the last two months — sometimes with only a few weeks’ notice to surrounding neighborhoods.
- Ambiguity in Health Law Could Make Family Coverage Too Costly for Many. The new health care law is known as the Affordable Care Act. But Democrats in Congress and advocates for low-income people say coverage may be unaffordable for millions of Americans because of a cramped reading of the law by the administration and by the Internal Revenue Service in particular. Under rules proposed by the service, some working-class families would be unable to afford family coverage offered by their employers, and yet they would not qualify for subsidies provided by the law. The fight revolves around how to define “affordable” under provisions of the law that are ambiguous. The definition could have huge practical consequences, affecting who gets help from the government in buying health insurance.
- Israeli Official Calls for Declaration That Diplomacy on Iran Has Failed. Amid intensifying Israeli news reports saying that Prime Minister Benjamin Netanyahu is close to ordering a military strike against Iran’s nuclear program, his deputy foreign minister called Sunday for an international declaration that the diplomatic effort to halt Tehran’s enrichment of uranium is dead.
- Libor Case Energizes a Wall Street Watchdog.
- Retailers Eye Return to Discounts - With Some Just For You. With the news this morning that some of the nation's hottest restaurant chains are bringing back discounts and special offers to offset slowing sales, another item on shopper discounts caught our eye.Supermarket chains, which to us always seem to be offering discounts or coupons, are laser-focusing their offers to shoppers. Supermarkets such as Safeway are creating personalized offers, with the capability to adjust prices based on shoppers' habits.
denverpost.com:
- Colorado medical marijuana being diverted to teens, CU study finds. Nearly three-quarters of teens in two metro-area substance-abuse treatment programs said they have used medical marijuana bought or grown for someone else, according to a new study by researchers at the University of Colorado School of Medicine. Only one of the 122 teens in the study who admitted to using medical marijuana was an approved patient. The findings hint that the leaking of medical marijuana from the legal state system to illegal users may be common in Colorado.
Gallop:
Reuters:
- James Hardie flags murky U.S. outlook, shares fall. Australian building materials group James Hardie Industries Ltd beat forecasts for its quarterly profit on Monday on growing U.S. demand, but its shares fell as it pointed to an uncertain U.S. outlook and weaker conditions in Australia. The world's largest maker of fibre cement products forecast full-year 2012/13 earnings before one-off items of $140-$160 million, which it said was lower than analysts' forecasts for $156-$177 million.
- Two earthquakes in Iran kill 250 and injure 2,000.
- Spanish commercial property on the brink. The Spanish and Italian commercial property markets have all but collapsed with the number of transactions in both countries falling more than 90 per cent in the three months to July as investors worry about the future of the eurozone. Only three property transactions were registered in Spain during the second quarter, down from 58 deals in the previous quarter. In Italy the slide was even more pronounced, with just two buildings being traded during the period, down from 56, according to data from Real Capital Analytics.
- EU hedge funds face pay threat. Some fund managers in Europe could be caught by unexpectedly strict pay curbs when the first EU attempt to regulate the hedge fund and private equity industry becomes a reality next year. There is increasing industry alarm that draft guidance on how to implement the law could see restrictions such as bonus deferrals and clawbacks, which are already enforced in the banking sector, imposed on a wider range of big funds than first thought.
Frankfurter Allgemeine Sonntagszeitung:
- Continental CFO Says Southern Europe Sales Weakening. Company says fewer cars are being sold in southern Europe and hybrid cars are entering the market more slowly, citing CFO Wolfgang Schaefer.
Focus:
- 52% of Germans polled said it's wrong for European countries to share debt even if the EU takes control over budgets of individual countries, citing a survey by TNS Emnid. 31% were in favor, citing the poll.
- Greece hasn't implemented reforms to help solve the euro crisis and has hardly taken advantage of any of the offers extended by German companies, German Economy Minister Roesler said in an interview. A Greek euro exit "isn't our goal, but it would be manageable," citing Roesler.
Liberation:
- Silvio Berlusconi, whose party backs the Italian government led by Mario Monti, said an exit by Italy from the euro "would be a disaster," citing an interview with the former prime minister. Berlusconi's political allies are united in support for the euro and have backed Monti to push for more "stimulus measures" since austerity and budgetary disciplines aren't enough, citing him. The exit of any member country from the euro could bring about the disintegration of the common currency, Berlusconi said, advocating greater political unity with the direct election of the European Union president in addition to fiscal and economic harmonization.
O Estado de S. Paulo:
- President Dilma Rousseff's economic team sees inflation above the 4.5% target this year due to the rise in grain prices.
Economic Daily News:
- Apple(AAPL) to Introduce iTV in December. The new product will be on sale around Christmas. iTV will sell for $1,500-$2,000, controllable by iPhone or iPad. The introduction will benefit Taiwan suppliers including Hon Hai, MediaTek, TSMC.
China Securities Journal:
- Chinese corporate profit growth has slowed to .14% in 2Q, from 3.93% in 1Q, based on earnings announcements of 846 Chinese publicly traded companies, citing Wind Info, a local provider of financial data. 31 metal companies' combined 1H profits fell 21% y/y and five steelmakers' combined 1H profit declined 41% y/y. 121 machinery-equipment companies' combined 1H profit dropped 6.5% y/y, according to the report.
Shanghai Securities News:
- China local governments may be made accountable for failing to implement property market curbs, Housing purchases by buyers outside their home cities may be restricted, according to the newspaper.
- China's State Council is taking a "stricter tone" on property market controls after an inspection of local markets, citing a person close to the inspection teams. The central government will take action if home prices rebound.
Haaretz:
Weekend Recommendations- Made positive comments on (BBY), (GME), (RDI), (SHLD) and (IHG).
Night Trading- Asian indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 149.50 +3.0 basis points.
- Asia Pacific Sovereign CDS Index 125.0 unch.
- FTSE-100 futures -.17%.
- S&P 500 futures -.29%.
- NASDAQ 100 futures -.24%.
Morning Preview LinksEarnings of NoteCompany/EstimateEconomic Releases
Upcoming Splits
- (KO) 2-for-1
- (BF/B) 3-for-2
Other Potential Market Movers- The Italian bond auction, China FDI data, BoJ Minutes, Raymond James Telecom Summit, Jefferies Health care Summit and the JPMorgan Automotive Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.
