Bloomberg:
- Saving Cyprus Means Nobody Safe as Europe Breaks More Taboos. The devil lies in the detail of Cyprus’s salvation. The
island nation’s rescue sets precedents for the euro zone that may stick
in the memory of depositors and bondholders alike as investors debate
who will next fall victim to the debt crisis. Under the terms of the
agreement struck early this morning in Brussels, senior Cypriot bank
bond holders will take losses and uninsured depositors will be largely
wiped out. The message that stakeholders of all stripes can be coerced
into helping a cash-strapped nation may make investors more skittish
they’ll be targeted should Slovenia, Italy, Spain or even Greece again
be next in line to need help. The risk is that bank runs and bond
market selloffs become more likely the moment a country applies for a
new rescue, said economists and academics from Nicosia to New York.
“We now have a new type of rule and everyone within the euro zone has to
sit down and see what that implies for their own finances,” Nobel
laureate Christopher Pissarides, an adviser to the Cypriot government,
told “The Pulse” on Bloomberg Television. The Stoxx Europe 600 Index
(SXXP) erased an earlier gain of as much as 1 percent after Jeroen
Dijsselbloem, who chaired last night’s meeting of euro region finance
ministers, indicated the model used for recapitalizing Cypriot banks
could be replicated elsewhere.
- Cyprus Bailout Fueling Bank Funding Concern on Bond Losses.
The European Union’s decision to recapitalize Cypriot banks by
inflicting losses on depositors and senior bondholders is triggering
investor concern that bank funding across the region will be hurt.
Cyprus qualified for its 10 billion-euro ($13 billion) bailout by
agreeing to close Cyprus Popular Bank Pcl, also known as Laiki Bank, the
island’s second largest lender, the EU said in a statement. Uninsured
depositors and senior bondholders will be “bailed in,” staying in a
so-called bad bank. “This has implications for any weaker banks that
get into trouble,” said Chris Bowie, the London-based head of credit
portfolio management at Ignis Asset Management Ltd., which oversees
about $110 billion. “We’d expect to see some
deposit flight and a shift in funding towards a combination of covered
bonds, real equity and quasi-equity.”
- Cyprus Shows Trust in ECB Is Misplaced.
Ever since European Central Bank
President Mario Draghi said last July that the bank will do whatever it
takes to preserve the euro, complacency has pervaded Europe’s
single-currency area. Markets have weathered potential crises in
Italy and Spain with surprising calm, secure in the knowledge that the
ECB will save the day if needed. This was always a false assumption, as
events in Cyprus have made clear. There are significant limitations to the
support the ECB is willing or able to offer, even to such a tiny
island economy whose needs are easily affordable.
- Mundell Says ECB Tolerating Euro Gains Worsened Debt Crisis. The European Central Bank worsened
the crisis in the region’s most indebted nations by tolerating
the euro’s appreciation against the dollar, according to Nobel-
prize winning economist Robert Mundell. Europe’s policy makers “missed a big opportunity” to do a
deal with the Federal Reserve that would have enabled them to
stop the currency from strengthening as the U.S. central bank
bought debt to boost the economy, Mundell said in a Bloomberg
Television interview with Sara Eisen. The euro’s advance was a
“devastating thing to happen” for the region’s weaker
economies and Europe should consider its own form of asset
purchases, which tend to weaken the exchange rate, he said.
- Euro Weakens to 4-Month Low on Cypriot Fallout; Yen Rises. The euro fell to a four-month low
versus the dollar after a European leader said the Cyprus
bailout may be a precedent, spurring doubts about the safety of
other bond holdings and deposits. The 17-nation currency fell against all 16 of its most- traded peers as Dutch Finance Minister Jeroen Dijsselbloem said Europe is “going down the bail-in track.”
- Debt Flagged by Fed Bought by Funds Copying 2007: Credit Markets. Money managers from Ares Management
LLC to Onex Corp. (OCX) are borrowing at the fastest pace in six years
to buy the type of speculative-grade loans that federal bank
regulators warned last week is becoming riskier. Ares, which oversees $59 billion, and Onex’s credit unit
are among firms that have raised $22.9 billion of
collateralized-loan obligations this quarter, approaching the
all-time high of $26.4 billion in the three months ended June
30, 2007, according to Royal Bank of Scotland Group Plc.
Leveraged-loan mutual funds have received their two biggest
weekly inflows since January. At the same time the Federal Reserve’s zero interest-rate
policy is encouraging investors to seek ever-riskier debt assets
to generate returns, some members of the central bank are also
saying the market may be overheating.
Wall Street Journal:
MarketWatch:
Fox News:
- Eurogroup's Dijsselbloem: forcing losses on bank owners, large depositors new rescue template. A top European official says the move in Cyprus to inflict losses on
banks' shareholders, bondholders and even owners of large deposits
should become the bloc's default approach for dealing with ailing
lenders. Jeroen Dijsselbloem, who chairs the
Eurogroup gatherings of the 17 eurozone finance ministers, said in an
interview Monday banks' owners and investors must be held responsible
"before looking at public money or any other instrument coming from the
public side."
Zero Hedge:
Business Insider:
Washington Post:
- Why the new Cyprus deal sows the seeds of the next European crisis. If you are a depositor in a European bank, you now have every incentive
in the world to move your money somewhere safer, or even to keep it in
cash, the minute you detect any hint that your nation could end up in
the same place Cyprus did. The next time there is a banking panic in
Europe, it will move much faster, and be much harder to control, than
those of the recent past, as depositors try to get ahead of future
losses and capital controls. And that’s a scary proposition indeed.
Reuters:
Financial Times:
- Dudley gives first hints of slowing QE3. One
of the Federal Reserve’s biggest backers of easy monetary policy said
he supported the slow down of the central bank’s asset purchases once
the US economy had enough momentum.
Telegraph:
- Cyprus: they make a desert and call it peace. By punishing those who put their faith in the solidity of the euro as a
single currency, the eurozone has crossed a line and in the process
poisoned Europe beyond redemption. Not since the second world war has
anti-Germany feeling been so acute. Where’s the solidarity in a bailout
which imposes such “solutions” on its member states?
- Cyprus bail-out leaves 'bitter taste' for residents. Cypriots are outraged by the consequences of the last ditch bail-out deal
hammered out between their government and its EU-IMF troika of lenders early
Monday morning.
Repubblica:
- OECD's Padoan Says Underrating Cyprus Biggest Risk. OECD Chief
Economist Pier Carlo Padoan comments in interview. Padoan says European
solution to Cyprus crisis must be adequate, unlike first Greek rescue.
Padoan says bank-sovereign debt ties too tight in many euro-area
countries.
Style Underperformer:
Sector Underperformers:
- 1) Airlines -2.10% 2) Software -1.53% 3) Steel -1.34%
Stocks Falling on Unusual Volume:
- BCS, RNF, DB, VHS, UTHR, VHC, SNY, RHT, MGLN, USG, PTR, ASH, VRTU, , EE, TIBX, CHKP, ARIA, SLCA, ORCL, EBAY, AGU, SIAL, CYNO, EXP and BUD
Stocks With Unusual Put Option Activity:
- 1) EMR 2) WHR 3) AEO 4) OXY 5) EBAY
Stocks With Most Negative News Mentions:
- 1) WFM 2) CHKP 3) FINL 4) RHT 5) EXP
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Hospitals +.74% 2) Gaming +.66% 3) Tobacco +.24%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
- 1) APOL 2) SYY 3) DG 4) HTZ 5) MDLZ
Stocks With Most Positive News Mentions:
- 1) RBCN 2) VECO 3) MHP 4) CMG 5) GG
Charts:
Weekend Headlines
Bloomberg:
- Cyprus Said to Reach Tentative Deal to Avert Default. (video) Cyprus agreed to the outlines of an international bailout, paving the
way for 10 billion euros ($13 billion) of emergency loans and
eliminating the threat of default. The accord between Cyprus and the “troika” representing international
lenders was reached in overnight talks in Brussels and ratified by
finance ministers from the 17-nation euro area. “It’s in best interest of the Cyprus people and the European Union,” Cyprus President Nicos Anastasiades told reporters.
- Bank of Italy Says Recovery Threatened by Political Uncertainty. Moderate recovery in country expected for end of year threatened by unpredictability in domestic politics, Bank of Italy Deputy Director General Fabio Panetta said today.
- Spain’s Swelling Debt Seen Impeding Rajoy Deficit Battle. Prime Minister Mariano Rajoy’s
progress in curbing a deficit worsened by the cost of servicing
Spain’s swelling debt load will be revealed this week with the
release of data on the country’s finances. The Budget Ministry will
tomorrow publish figures for February showing the central government’s
budget shortfall, which accounted for more than half of the nation’s
deficit in 2012. Data in the following days on mortgage loans, inflation
and retail sales will also highlight the plight of the taxpayers
financing those outlays. “The increase in government debt is causing
the interest rate burden to take a bigger toll on tax revenues,” said
Ricardo Santos, an economist at BNP Paribas in London. “Spain needs to
do more in terms of structural tightening, not only
this year, but also in 2014 and this will imply a significant
drag on growth.”
- Most Chinese Stocks Fall as ZTE Slumps.
Most Chinese stocks fell as declines by phone stocks overshadowed
higher-than-estimated profit from China Construction Bank Corp. (601939)
ZTE Corp. (000063) led telecommunications stocks lower for a second
day on concern a rally in the stock was overdone.
- South Korea Escalates Concern With Japan Policies on Yen.
South Korea’s newly appointed finance minister, Hyun Oh Seok, revived
his nation’s concerns over weakness in the yen and said that the Group
of 20 nations should revisit the issue. “Japan’s expansionary policies
are having various ripple
effects on many countries,” Hyun, 62, told reporters on March
23 in Bundang, on his second day as finance chief. “The yen is
depreciating while the won is gaining and this is flashing a red
light for Korea’s exports.”
- Risk Unrewarded as Emerging Stocks Lose in Worst Start Since ’08.
The link between risk and reward in
stocks is breaking down as emerging markets post the worst first quarter
since 2008 and lag behind shares of developed economies by the most in
15 years. The MSCI Emerging Markets Index (MXEF)’s 3.8 percent drop
this year trimmed its rebound from an October 2011 low to 22 percent.
That compares with a 33 percent advance for the MSCI World (MXWO) Index
and marks the first time since 1998 that developing-country shares have
underperformed during a global rally. When adjusted for price swings, emerging market returns are 37 percent smaller
than in advanced nations, data compiled by Bloomberg show.
- Hedge Funds Most Bearish Ever on Copper, Favor Gold: Commodities.
Hedge funds are making the biggest bet against copper on record as
global inventories expand to a nine-year high, while concern that
Europe’s debt crisis will spread spurred the biggest gain in gold bets
since 2008. Speculators raised net-short positions in U.S. copper futures and options by 53 percent to 25,719 contracts in the
week ended March 19, according to Commodity Futures Trading
Commission data that begins in 2006. A jump in bullish bets on
corn, gold and natural gas boosted overall holdings across 18
raw materials for a second consecutive week.
- Corn, Soybeans Decline as Feed Use Slows, Farmers Boost Sowing. Corn
and soybeans dropped for a
second session on speculation that domestic feed use may slow
just as U.S. farmers prepare to boost plantings. Corn for delivery in
May lost as much as 0.5 percent to $7.23 a bushel on the Chicago Board
of Trade, after decreasing 0.9 percent on March 22. Futures were at
$7.2525 by 9:56 a.m.
Singapore time. Soybeans for delivery in the same month fell 0.2
percent to $14.38 a bushel on a volume that was 46 percent below
the 100-day average for that time of day.
- Chemical Weapons Probably Used in Syria, Rogers Says. U.S. Representative Mike Rogers
said it is “probable” that the regime of Syria’s Bashar al- Assad has used chemical weapons in that country’s civil war.
“When you look at the whole body of information” that “over the last
two years there is mounting evidence that it is probable that the Assad
regime has used at least a small
quantity of chemical weapons,” Rogers, a Michigan Republican
and chairman of the House Intelligence Committee, said today on
CBS’s “Face the Nation” program.
- Debt Flagged by Fed Bought by Funds Copying 2007: Credit Markets.
Money managers from Ares Management LLC to Onex Corp. are borrowing at
the fastest pace in six years to buy the type of speculative-grade loans
that federal bank regulators warned last week is becoming riskier. Ares, which oversees $59 billion, and Onex's credit unit are among
firms that have raised $22.9 billion of collaterialized-loan
obligations this quarter, approaching the all-time high of $26.4 billion
in the three months ended June 30, 2007, according to Royal Bank of
Scotland Group Plc. Leveraged-loan mutual funds have received their two
biggest weekly inflows since January. At the same time the Federal
Reserve' zero interest-rate policy is encouraging investors to seek
ever-riskier debt assets to generate returns, some members of the
central bank are also saying the market my be overheating.
Wall Street Journal:
- Cyprus's Bank Crisis Feeds Recession Risk. Cyprus's race to avert a collapse of its banking system has put another
issue on the back burner for now: The country faces a recession so deep
that it may soon need even more money to survive inside the euro.
- Spain Brings the Pain to Bank Investors. Government to Impose Heavy Losses on Shareholders and Bondholders, Hire Advisers to Help Manage Lenders' Assets. The Spanish government will impose heavy losses on investors at
nationalized banks and hire external advisers to help it manage these
banks' assets, its latest efforts to overhaul a financial sector
battered by the collapse of a decadelong housing boom.
- Mortgage Securitizers Didn’t Know Housing Was Going Bust. A popular explanation for why the housing bubble happened says that
unbalanced incentives within the financial system were to blame.
Financial-sector workers reaped huge bonuses for gambling on home prices
continuing to climb, but knew that they bore little personal risk if things went
awry.
- Government Payrolls Are Facing New Pressures. Governments bled hundreds of thousands of jobs after the U.S.
economic recovery started. Now they're preparing to pass the knife
around again as the federal budget comes under pressure.
The cuts in the public-sector
workforce—at the federal, state and local levels—marked the deepest
retrenchment in government employment of civilians since just after
World War II. About 21.8 million civilians were directly employed by a
government in the U.S. in February, accounting for roughly one out of
every six nonfarm payroll jobs, according to the Labor Department.
- Trading Clamps Spur Lobby Effort. High-speed trading firms and exchanges are being forced into the
lobbying game by taxes on trades in Europe, proposals for similar levies
in the U.S. and beefed-up regulatory scrutiny. While still far less conspicuous than big banks and their legions of
arm-twisters, executives and lobbyists for trading firms and exchanges
have stepped up their behind-the-scenes efforts to avert specific rules
and legislation, say staff members in Congress and agencies.
Marketwatch.com:
- The last chance of survival in China: Andy Xie. China facing array of problems, including a looming banking crisis. The 20% capital gains tax is the latest
half-measure in the government’s attempt to stabilize, rather than
burst, the property bubble. If the measure deflates the bubble, new
measures may appear to revive speculation, as occurred in 2008 and 2012.
Managing rather than rooting out speculation is a dangerous game. The
prolonged bubble will eventually bring a bill large enough to sink the
banking system.
Fox News:
- Israeli military in Golan Heights responds to fire from Syria. Israel's army said it fired a guided
missile into Syria on Sunday, destroying a military post after gunfire
flew across the border and struck an Israeli vehicle. The shooting along the frontier in the Israeli-occupied Golan Heights
was one of the most serious incidents between the countries since
Syria's civil war erupted two years ago.
CNBC:
- JPMorgan(JPM) 'Whale' Traders Probe Advances.
(video) The U.S. Department of Justice is in the advanced stages of an
investigation into whether former traders in JPMorgan Chase's chief
investment office in London engaged in criminal misconduct in the
marking of credit positions last year, according to someone familiar
with the matter. The Justice
Department probe centers on whether a handful of individual traders
deliberately mis marked certain complex credit positions in an effort to
mask the growing losses in a key CIO portfolio during the spring of
2012, according to this person.
- No Matter Outcome, Cyprus Crisis Is Blow to Business. It is not just about rich Russians and Cypriot retirees. Also vitally at stake in this island country's banking crisis is
Cyprus's credibility as a place for international companies to continue
doing business.
Business Insider:
IBD:
Reuters:
- Delaying savings will only make problem worse - ECB's Praet. Savings required to bring
euro zone budgets under control cannot be put off for long, European
Central Bank Executive Board member Peter Praet said in an interview in
two Belgian newspapers. "You can have a little delay. But you
will not solve the problem that way. Quite the contrary, a delay will
only make your debt mountain bigger. And it needs to stay manageable,"
Praet said. "I hear far too much policymakers saying: wait a little,
give me more time. That can affect the credibility of a country. The
debts will not miraculously disappear," he said. Praet said he expected
the euro zone to have contracted in the first quarter of 2013. The
recession overall was not deep, although the difference between
countries was sharp. Praet also said he was pre-occupied with two
chief concerns. Consumers were concerned that their income over the long
term would fall and were cutting spending, which was making the problem
worse. His second concern was that banks were receiving cheap
money, such as from the European Central Bank, but were not
passing this on as credit to companies.
- Dell's(DELL) board evaluates rival bids: source. A
special committee of Dell Inc's board is evaluating separate takeover
proposals from Blackstone Group and billionaire investor Carl Icahn to
decide whether either or both are likely to trump an existing $24.4
billion take-private deal, a source familiar with the discussions said
on Sunday. Icahn and Blackstone put in
preliminary bids late last week, potentially upsetting the plans of the
No. 3 PC maker's founder, Michael Dell, and private equity firm Silver
Lake to take Dell private.
- Last-minute Cyprus deal to close bank, force losses. Cyprus clinched a last-ditch
deal with international lenders to shut down its second largest
bank and inflict heavy losses on uninsured depositors, including
wealthy Russians, in return for a 10 billion euro ($13 billion)
bailout. The agreement came hours before a deadline to avert a
collapse of the banking system in fraught negotiations between
President Nicos Anastasiades and heads of the European Union,
the European Central Bank and the International Monetary Fund.
- Europe may not solve debt woes in 10 years-China FinMin.
China's new finance minister said on Sunday it was unclear whether the
Euro zone would solve its debt problems over the next decade and
suggested further turmoil would complicate efforts to reduce Beijing's
fiscal deficits. Lou Jiwei said external difficulties might oblige
China to run deficits for longer than anticipated as government
expenditure was rising quickly and revenue growing only at a
single-digit pace. "I am really very worried about Europe. I am worried about
whether it can get out of trouble in the next 10 years," Lou
said in an address to an economic forum. "Our fiscal expenditure is growing very quickly while I
estimate fiscal revenue will only post single-digit growth rates
in future ... we are facing substantive domestic pressures."
- IMF draft cuts 2013 U.S. growth forecast - report. The International Monetary Fund
(IMF) is planning to cut its U.S. growth forecast for this year
due to higher taxes and spending cuts, Italian news agency ANSA
said, citing a draft of the IMF's next World Economic Outlook
report. The U.S. economy, the world's biggest, will expand 1.7 percent this year, down from the 2.0 percent predicted in
January, ANSA reported late on Saturday. The next round of IMF
forecasts is scheduled to be published in mid-April.
Financial Times:
- Cyprus Ex-Central Bankers Sees 'European Project' Failing. "The European project is crashing to earth," Athanasios Orphanides, head of Cyprus central bank 2007-2012, said in an interview. "We have seen a cavalier attitude towards the expropriation of property and the bullying of a people," Orphanides said. "This is a fundamental change in the dynamics of Europe towards disintegration, and I don't see how this can be reversed," he said. "Shattering of trust" caused by Cyrpus hasn't been fully seen, will increase funding costs in "perisphery" nations, Orphanides said.
Telegraph:
Der Spiegel:
- Depart store chain Karstadt sales for February at EU133m were 12% below target and 15% below level from a year earlier, citing internal documents.
Eleftherotipia:
- Four in 10 Greeks say Europe's problems best solved by a break-up of EU, up from 26% in January, according to a Metron Analysis poll. 38% says Europe needs further integration, down from 46% in a January poll. 45% say they are now against the euro. 72% say Greece's economic situation is worse than a year ago. 96% say Germany more motivated by national interest than European solidarity. If Greek elections were held now, main opposition Syriza party would get 25.8%, PM Antonis Samaras's New Democracy party 25.2%. The nationalist Golden Dawn party would be third with 11.7%.
La Vanguardia:
- Economic Minister Luis de Guindos discusses proposal with EU to increase 2013 budget deficit to as much as 5.8% of GDP instead of agreed 4.5%. Spain seeks to extend deadline for deficit target of 3% by 2 yrs to 2016, citing people familiar with the situation. Proposed deficit target of 5.8% this yr would mean EU12b fewer spending cuts.
Xinhua:
- China's
GDP growth will moderate to a rate of 6% to 7%, after growing at above
10% for mush of the past 30 years, citing Liu Shijin, deputy director of the Development Research Center of the State Council.
China Securities Journal:
- China Banking Regulatory Commission asked big banks recently to pay special attention to risks in the real estate, steel, construction machinery, wind power equipment and solar equipment industries, citing a person familiar with the situation. Loans to property sector, industries with overcapacity and company clusters may be a high as 40 trillion yuan, the person said.
China National Radio:
- A property tax on the ownership of three or more homes is a policy tool "most worthy of consideration," citing Hu Cunzhi, vice minister at the Ministry of Land and Resources.
Weekend Recommendations
Barron's:
- Bullish commentary on (DRI), (KSS), (CKH), (GOOG), (INTC), (EMC), (GILD), (FRX) and (SRPT).
- Bearish commentary on (BHP), (RIO), (VALE) and (CLF).
Night Trading
- Asian indices are unch. to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 118.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 92.5 +1.75 basis points.
- NASDAQ 100 futures +.52%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 am EST
- Dallas Fed Manufacturing Activity for March is estimated to rise to 3.7 versus 2.2 in February.
Upcoming Splits
Other Potential Market Movers
- The Fed's Dudley speaking, German Consumer Confidence/Retail Sales/Import&Export data, Chicago Fed Nat activity Index and the Morgan Stanley Tech/Media/Telecom Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixsed. The Portfolio is 50% net long heading into the week.
U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.
BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, Mideast unrest, Asia tensions, rising Eurozone
debt angst, profit-taking, technical selling and more shorting. My
intermediate-term trading indicators are giving neutral signals and the
Portfolio is 50% net long heading into the week.
