Evening Headlines
Bloomberg:
- Monti Rushes to the Exit as Bersani Seeks ‘Insane’ Person’s Job.
Italian Prime Minister Mario Monti can’t wait to quit his job. Pier
Luigi Bersani, who has first shot at replacing Monti, said only a
lunatic would want to. “Believe me, only an insane person would want to
govern at
this moment,” Bersani said yesterday in a meeting with rival
lawmakers as he sought to persuade them to support his bid to
form a government. The contradiction is characteristic of Italian
politics at
a time when the economy is stuck in recession. Parliament was
deadlocked by inconclusive elections last month, and Bersani,
after nearly a week of talks, has given no signal that he can
break the impasse. He will report to President Giorgio Napolitano today
with the results of his negotiations. The incumbent has indicated his
desire for a breakthrough. “This government, and I’ll say it in the most respectful
way possible, can’t wait to have its mandate rescinded,” Monti
said yesterday in a speech to parliament. Italian 10-year bond yields jumped 21 basis points to 4.78
percent yesterday, widening the difference in yield with
similar-maturity German bunds 28 basis points to 3.5 percentage
points, the biggest gap since Dec. 10.
- Slovenian Austerity After Cyprus Fails to Stem Yield Gain. Slovenia’s pledge to continue
austerity measures failed to stem a rise in bond yields to
record highs as investors worry the Alpine nation will follow
Cyprus as the next euro-region member requiring a bailout. Prime Minister Alenka Bratusek, in her first major policy
speech since taking office, told Parliament yesterday that her
week-old government would rebuild ailing banks and improve state
finances that are in “bad shape” so the country won’t become
the sixth euro member to need aid.
- Cyprus Fig Leaf Masks
Hollande Economic Growth Woes: Euro Credit. French President Francois
Hollande is basking in borrowing costs are near record lows, helped most
recently by investors seeking shelter from problems in Cyprus. The
yield on France's benchmark 10-year bond fell 6 basis points to 2.0%
during the 10 days as European authorities roiled markets by imposing a
tax on depositors in Cypriot banks. The French rate is just short of the
all-time low of 1.92% reached in December. "I don't see any value in
French bonds" at current levels, said Robin Marshall, director of
fixed-income at Smith & Williamson Investment Management in London.
"The reforms in France have stalled and the economy is contracting. The
problem is the peripheral space helped to divert attention of the market
from these problems.
- EU to Start Debate on Energy, Climate Rules Amid Crisis. The European Union’s executive
started a debate today on EU climate and energy rules as the
crisis-ridden bloc seeks a long-term plan to cut greenhouse
gases and promote clean power technologies. While the 27-nation bloc is making “good progress” toward
its 2020 goals to boost the share of renewable energy and cut
greenhouse gases, a framework for the subsequent decade is
needed to give investors legal certainty, spur innovation and
prepare for a global climate deal, the European Commission said
in a consultation paper published in Brussels. The commission invited member states, the European
Parliament, industry groups and non-governmental organizations
to submit until July 2 their views on EU objectives for 2030.
- China Stocks Fall Most in Three Weeks as Financial Shares Slump. China
stocks fell, dragging the CSI 300 Index (SHSZ300) down the most in
three weeks, as banks tumbled on concern new wealth-management product
rules will hurt earnings
and as the government signaled more flexible interest rates. Industrial
Bank Co. lost 9.2 percent, while China Minsheng Banking Corp. declined
7.6 percent, leading a gauge of financial companies to an 11-week low.
A directive from the banking regulator for lenders to limit the
investment of client funds in debt that isn’t publicly traded will hurt
revenue for some banks by 2 percent, according to a Citic Securities Co.
report today. “The regulation will hurt banks’ profits,” Zhou Lin, an
analyst at Huatai Securities Co., said by phone from Nanjing. That will
drag on stocks because “banks have a big weighting” on benchmark
indexes, he said. The Shanghai Composite Index (SHCOMP) sank 2.4
percent to 2,245.57 at 10:27 a.m. local time. The CSI 300 Index, which
tracks stocks in Shanghai and Shenzhen, tumbled 2.9 percent, the most
since March 4, to 2,508.96. Hong Kong’s Hang Seng China Enterprises
Index dropped 1.7 percent. The CSI 300 Financials Index slumped 4.7
percent, the most since March 4 and the biggest drop among the CSI 300’s 10 industry groups. The rule to cap investment by Chinese banks’ wealth management products in non-exchange traded products will
reduce growth of total social financing, leading to pessimistic
expectations about economic recovery, analysts led by Mao
Changqing at Citic Securities wrote in a report today.
- Rebar Falls in Shanghai on Concerns Over China’s Property Market. Steel reinforcement-bar futures
declined with China’s stocks on concerns that further tightening measures in the property sector may damp demand. Futures for delivery in October dropped as much as 1.2 percent to 3,841 yuan ($618) a metric ton on the Shanghai
Futures Exchange, before trading at 3,847 yuan at 11:08 a.m.
Shanghai time. The most-active contract has lost 11 percent
after climbing to a 10-month high of 4,297 yuan on Feb. 8.
- Kia Says Weakening Yen Becoming ‘Weapon’ for Japanese Carmakers. The weakening yen is becoming a
“weapon” for Japanese automakers by making them more
competitive, said a senior executive at South Korea’s second- largest carmaker.
“The weakening yen reinforces the Japanese competitors,” Kia Motors
Corp. (000270) Vice President Lee Soon Nam told reporters today at the
Seoul Motor Show. “The weakening yen will become
the Japanese automaker’s weapon, they now have reinforcements.” The Japanese currency has weakened 17 percent against the
South Korean won in the past six months, making the country’s
exports cheaper versus its Asian neighbor.
- Japan
Sees Population Shrinking 16% by 2040, More Elderly. Japanese
population may drop 16% from 2010 level to 107.3m in 2040, according to
estimates released by National Institute of Population and Social
Security Research yesterday. People who are 65 years old and above will
likely account for 36% of total population in 2040, compared with 23% in
2010 and 30% in 2025.
- Rubber Drops as Debt Crisis, Weak U.S. Data Raise Demand Concern. Rubber declined the most in a week
on concern that demand for the commodity will weaken as Europe’s debt crisis is deepening and pending U.S. home sales fell. The
contract for delivery in September fell as much as 2.2 percent, the
most since March 22, to 276.4 yen a kilogram ($2,936 a metric ton) on
the Tokyo Commodity Exchange and was at
276.7 yen at 10:49 a.m. Futures have lost 8.5 percent this year.
- Lead
Prices Drop to Four-Month Low on European Debt Concerns. Lead prices
fell to a four-month low in London as a bailout for Cyprus and political
deadlock in Italy stoked concern that the euro-area debt crisis will
curb metal demand. Tin and copper also dropped. The Cyprus rescue
"tarnished" the region's appeal, Swiss bank Pictet & Cie. said,
while the euro fell to a four-month low against the dollar. An index of
six industrial metals headed for the first two-month slide in more than a
year. "The Cyprus situation is dragging everything lower, and the
markets look pretty bleak," Grant Barratt, a trader at Jefferies Bache
LLc in New York, said in an interview. "The euro isn't helping things."
- Red Hat(RHT) Falls as Fourth-Quarter Sales Miss Estimates. Red
Hat Inc. (RHT), the largest seller of Linux operating-system software,
reported fiscal fourth-quarter sales that missed estimates as some
customers -- concerned about sluggish economic growth -- put off
purchases. Profit excluding some items was 36 cents a share on sales
of $347.9 million, the Raleigh, North Carolina-based company said today
in a statement. That compares with analysts’ average prediction of
earnings of 30 cents on revenue of $349.3 million, according to data
compiled by Bloomberg. Sales and profit forecasts for the current period
also missed projections. Tax increases in the U.S. and a worsening recession in Europe are causing businesses to delay upgrading to Red Hat’s Linux software from older Unix systems, according to Richard Williams, an analyst at Cross Research. “The channel checks showed that activity just stopped after the first week of December,”
said Williams, who has a hold rating on the stock, with $51 price
target. The shares decreased as much as 14 percent in extended
trading.
- PVH(PVH) says Warnaco deal will cut profit in 2013. PVH Corp. says its Warnaco acquisition will require more
investments than it initially anticipated and weigh on its earnings for
the year. The clothing company also declared that 2013 will be a
transitional year as it invests in its brands, and its shares sank in
after-hours trading Wednesday.
Wall Street Journal:
- Use of Food Stamps Swells Even as Economy Improves. The financial crisis is over and the recession ended in 2009. But one
of the federal government's biggest social welfare programs, which
expanded when the economy convulsed, isn't shrinking back alongside the
recovery.
Enrollment in the Supplemental
Nutrition Assistance Program, as the modern-day food-stamp benefit is
known, has soared 70% since 2008 to a record 47.8 million as of December
2012. The biggest factor behind the upward march of food stamps is a
sluggish job market and a rising poverty rate. At the same time, many
states have pushed to get more people to apply for SNAP, a program where
the federal government picks up the tab.
But there is another driver, which has
its origins in President Bill Clinton's 1996 welfare overhaul. In recent
years, the law has enabled states to ease asset and income tests for
would-be participants, with the encouragement of the Obama administration, allowing into the program people with relatively higher
incomes as well as savings. By expanding the pool of potential applicants, they are
redrawing the landscape of government assistance. It is one reason why
SNAP appears to have evolved from a program that rose and fell with the
unemployment rate to a more permanent feature of the landscape.
- China Tightens Regulations on Wealth Management. China moved to rein in wildly popular but opaque investment products that form a
key plank of the nation's shadow-banking system, after the high-profile failure
of one product offered a glimpse of the risk they pose to the financial
system. The rules issued Wednesday by China's banking regulator came as China's four
biggest state-run banks said they had more than 3 trillion yuan ($467 billion)
worth of such products outstanding at the end of last year, their fullest
disclosure yet of their exposure to the products and a move signaling their own
caution toward their proliferation.
- Bank Havens Seek Distance From Crisis. The risks posed by hosting a large financial industry became a flash point on
Wednesday as the Cyprus bailout trained the spotlight on other small euro
nations that depend on the sector for jobs and economic growth. The issue has become a sore spot mainly for Luxembourg and Malta after the
debate over Cyprus prompted European ministers and politicians to question the
viability of housing a large financial center in a small country. Cyprus's
bailout requires the country to shrink its large financial-services industry to
the euro-zone average, setting an unwelcome precedent for nations whose economic
models are based on financial services.
- Funds Reshape Investment Mold. Hedge funds that specialize in bonds are bulking up on stocks, in the
latest sign of investor concern over the health of the long bull market
in debt prices. Fund managers that have made winning bets in corporate loans,
mortgage bonds and distressed debt are altering course after a flood of
cash has pushed up the prices of all sorts of debt investments, raising
risks and depressing expected returns.
- Facebook's(FB) Mark Zuckerberg Starting Political Group. The
28-year-old Facebook Inc. chief executive is in the process of
co-organizing a political advocacy group made up of top technology
leaders that would push federal
legislative reform on issues ranging from immigration to education, said
people familiar with the development.
- Laffer and Moore: The Red-State Path to Prosperity. Blue
states with high taxes are struggling to compete for businesses and
workers. You can tell a lot about prosperity in America by observing the
places people are moving to and where they are packing up and moving
from. New Census Bureau data on metropolitan areas indicate that the
South and the Sunbelt regions continue to grow, while the Northeast and
Midwest continue to shrink.
Among the 10 fastest-growing metro
areas last year were Raleigh, Austin, Las Vegas, Orlando, Charlotte,
Phoenix, Houston, San Antonio and Dallas. All of these are in low-tax,
business-friendly red states. Blue-state areas such as Cleveland,
Detroit, Buffalo, Providence and Rochester were among the biggest
population losers.
Fox News:
- What to Cut: Red tape stalls firing of ineffective federal workers. Working for the federal government used to mean a trade-off -- lower
salaries, in exchange for higher job security. Today, that trade-off is
gone as federal workers often make good money with little risk of being
fired. Though numbers are hard to come by in the mammoth 2.4
million-employee federal workforce, an analysis by USA Today found the
federal government fired only one half of one percent of its workers in
fiscal year 2011. That's about five times smaller than in the private
sector.
MarketWatch.com:
- Five Below(FIVE) fourth-quarter profit rises 55%. Five Below Inc.'s
fiscal fourth-quarter profit rose 55% as the discount retailer's same-store sales improved, though margins edged down.
Shares sank 6.4% after hours to $36.65 after the company forecast weak
full-year results.
CNBC:
- Surging Student-Loan Debt Is Crushing the System. Student-loan defaults surged in the first three months of 2013, while
efforts to collect bad loans are faltering, according to credit analysts
and government audits. It is the latest twist in a college debt crisis
that is hanging over recent graduates and dragging on the broader
economy.
- G4S Readies Guards as Cypriot Banks Prepare to Open. Cyprus reopens its banks on Thursday while limiting withdrawals, banning
cheques and curbing the use of Cypriot credit cards abroad, among
measures imposed to avert a bank run after it agreed a tough rescue deal
with international lenders.
Zero Hedge:
Business Insider:
Reuters:
- Fisker puts U.S. workforce on furlough this week. Fisker Automotive, which has
not made a vehicle since July, placed its U.S. workforce on
furlough this week as part of its effort to keep costs low while
it continues to search for a strategic partner, the U.S.
automaker said on Wednesday.
- Oil industry to sidestep brunt of new U.S. swaps rules. Oil companies are largely
escaping the close scrutiny of derivatives trading they once
warned would harm their business and are seeking further delays
from U.S. regulators. Beginning in January this year, the top U.S. derivatives
regulator has required that companies register as dealers if
they trade more than $8 billion in swaps a year, unless they do
so to hedge price swings in their day-to-day business. But no large energy companies have yet joined the ranks of
the 70 or so investment banks that have registered as swap
dealers and are subject to the toughest level of oversight, two
people briefed on the matter said.
- JPMorgan(JPM) risk disclosures fell short for regulators -documents. For months after JPMorgan
Chase & Co executives first admitted that they had
wrongly brushed off questions about the "London Whale"
derivatives losses, officials at the U.S. Securities and
Exchange Commission pressed the company to disclose more to
investors about risks it was taking.
Telegraph:
-
Cyprus has finally killed myth that EMU is benign.
The punishment regime imposed on Cyprus is a trick against everybody
involved
in this squalid saga, against the Cypriot people and the German
people,
against savers and creditors. All are being deceived. The Cyprus
debacle has taught us yet again that EMU has gone off the rails, is
a danger to stability, and should be dismantled before it destroys
Europe’s
post-War order. Whether it marks a watershed moment in the crisis is
another matter. Italy,
Spain, France and Portugal have their own crises, moving to their own
rhythm. The denouement will arrive when the democracies of southern Europe conclude
that recovery is a false promise and that the only way to end mass
unemployment is to break free of EMU’s contractionary regime. It will be decided by Italy, not Cyprus.
- Fasten your seat belts – a balance of payments crisis looms. Whatever happened to the holy grail of a more balanced UK economy?
Britain has been living substantially beyond its means for more than
thirty years now. Spending more than we earn long pre-dated the Labour
years. And it's getting worse, not better.
Maeil Business Newspaper:
- The South Korean government will cut its 2013 GDP forecast to mid-2% from 3% today, citing unnamed government officials.
People's Daily:
- Apple's(AAPL) after-sale service policy may violate Chinese law,
citing the General Administration of Quality Supervision, Inspection and
Quarantine. The report cites customer complaints about being charged
for keypad repairs. Apple must provide free maintenance service within
certain period, AQSIQ is cited as saying. Apple should provide free
spare phones to customers if products can't be repaired in 7 days,
citing AQSIQ. The government will "seriously deal with" Apple if it
doesn't rectify problems "if proven true," the report says.
Shanghai Securities News:
- Yao Jingyuan, researcher at the Counselors' Office of the State
Council, said China faces relatively large downward economic pressure in
the middle of this year. Yao is also former chief economist at the
National Bureau of Statistics. Yao cites growth rate for newly started
projects in first two months being nearly 20 percentage points slower
than a year earlier.
China Securities Journal:
- Cities in the central and western Chinese provinces may issue
detailed property curb policies in early- or mid-April, citing people
familiar with the situation. Tier-2 and tier-3 Chinese cities may impose
different property market controls than the nation's major cities, the
report said.
21st Century Business Herald:
-
China's southern city of Shenzhen will likely raise in April the down payment for second home purchases to 70%, from 60% currently, citing people familiar with the situation.
Evening Recommendations
Night Trading
- Asian equity indices are -1.50% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 121.50 +3.0 basis points.
- Asia Pacific Sovereign CDS Index 95.25 +1.0 basis point.
- NASDAQ 100 futures -.29%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Final 4Q GDP is estimated to rise +.5% versus a prior estimate of a +.1% gain.
- Final 4Q Personal Consumption is estimated to rise +2.1% versus a prior estimate of a +2.1% increase.
- Final 4Q GDP Price Index is estimated to rise +.9% versus a prior estimate of a +.9% gain.
- Final 4Q Core PCE is estimated to rise +.9% versus a prior estimate of a +.9% gain.
- Initial Jobless Claims are estimated to rise to 340K versus 336K the prior week.
- Continuing Claims are estimated to fall to 3041K versus 3053K prior.
9:45 am EST
- The Chicago Purchasing Manager report for March is estimated to fall to 56.5 from 56.8 in February.
Upcoming Splits
Other Potential Market Movers
- The German
jobs report, Japan Manufacturing PMI, Canada GDP report, Japan
unemployment rate, 7Y T-Note auction, Kansas City Fed Manufacturing
Activity for March, NAPM-Milwaukee for March, weekly EIA natural gas
inventory report, weekly Bloomberg Consumer Comfort Index, CIBC
Retail/Consumer Conference and the (EBAY) analyst day could also impact
trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly lower and maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.
Today's Market Take:
Broad Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- ISE Sentiment Index 110.0 +17.02%
- Total Put/Call .93 +19.23%
Credit Investor Angst:
- North American Investment Grade CDS Index 92.48 +2.15%
- European Financial Sector CDS Index 199.75 +5.25%
- Western Europe Sovereign Debt CDS Index 103.82 +3.30%
- Emerging Market CDS Index 267.55 +2.76%
- 2-Year Swap Spread 17.75 -.5 bp
- TED Spread 20.25 -1.5 bps
- 3-Month EUR/USD Cross-Currency Basis Swap -20.75 -.75 bp
Economic Gauges:
- 3-Month T-Bill Yield .08% +1 bp
- China Import Iron Ore Spot $137.40/Metric Tonne +.22%
- Citi US Economic Surprise Index 25.10 unch.
- 10-Year TIPS Spread 2.52 -2 bps
Overseas Futures:
- Nikkei Futures: Indicating +57 open in Japan
- DAX Futures: Indicating +25 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech, biotech and medical sector longs
- Disclosed Trades: None
- Market Exposure: 50% Net Long
Bloomberg:
- Italian Bonds Slide on Bersani Comments, Lower Demand at Auction. Italian bonds slumped, with five-
year yields rising the most in a month, as Democratic Party
leader Pier Luigi Bersani said there was no chance of a broad coalition to end the deadlock caused by elections last month.
Italy’s 10-year yields extended their first quarterly increase since
June as demand fell when the Treasury sold 6.91 billion euros ($8.84
billion) of debt at an auction today.
Spanish and Greek bonds also slid as investors shunned the
securities of so-called peripheral nations. German bunds gained,
with 10-year yields falling to a three-month low, even as
European governments vowed the tax on bank accounts to finance
Cyprus’s aid package won’t be a precedent for future rescues. Italy’s five-year yield jumped 18 basis points, or 0.18 percentage point, to 3.52 percent at 3:26 p.m. London time after
rising as much as 22 basis points, the biggest increase since
Feb. 26.
- Spain Says 2012 Deficit Is Bigger Than First Estimated: Economy.
The Spanish government said its 2012 budget deficit will be bigger than
first estimated after the European Union requested changes in how tax
claims are computed. The budget shortfall excluding aid to the
banking sector was 6.98 percent of gross domestic product last year,
more than the 6.74 percent predicted on Feb. 28, Deputy Budget Minister Marta Fernandez Curras told reporters in Madrid today. That compares with 8.96 percent in 2011.
- France’s Towns Demand Rescue From ‘Time Bomb’ of Dexia Loans.
French towns from Asnieres to Sainte-Etienne are calling on President
Francois Hollande’s government to save them from about 10 billion euros
($13 billion) in Dexia loans whose risks they say weren’t made clear.
Sitting on debt pegged to foreign interest rates or currencies, many
troubled municipalities are struggling to service their loans and
clamoring for help from the state. “This is a time bomb for a certain
number of local governments,” Sebastien Pietrasanta, the mayor of
Asnieres, a Paris suburb, told reporters yesterday.
- European Stocks Drop as Italian Yilds Surge; TDC Retreats. European
stocks fell to a three- week low, led by a selloff in banks, as the
leader of Italy’s Democratic Party ruled out the possibility that rival
politicians will agree on a broad coalition government. Banca Monte
dei Paschi di Siena SpA and Banco Popolare SC slid more than 1 percent
as Italian bond yields surged. TDC (TDC) A/S dropped 1.6 percent as its
private-equity owner sold another 6.8 percent stake in the Danish phone
company. Safran (SAF) SA slipped 1.5
percent as the French government sold 13 million shares in the
maker of aircraft engines.
- Euro Weakens Below $1.28 on Deadlocked Italy, Cyprus Concern. The euro fell to less than $1.28
for the first time in more than four months as a bailout for
Cyprus and a political deadlock in Italy undermined demand for the region’s assets.
Europe’s shared currency weakened against all 16 of its major peers as
demand fell at a sale of Italy’s bonds and the nation’s political
parties remained at an impasse after last
month’s elections.
- VIX Contracts Reach Six-Year High Versus
S&P 500 Bets: Options. While U.S. stock volatility is stuck
close to a six-year low, options used to wager on its resurgence are
jumping. The VVIX Index, tracking contracts whose value is tied to
swings in the CBOE Volatility Index, has gained 21% since reaching the
lowest level of the year on Feb. 19. Over that period, the VIX climbed
3.7%, pushing the ratio between them to the widest in six years on March
15, according to Bloomberg. Divergence between the gauges shows
increasing speculation that the VIX is poised for a rebound after losing
45% since the end of 2011. Traders that are buying options on
volatility rather than stocks are betting that when losses hit the
S&P's 500 Index, they will be rapid, according to Philippe
Trouve, a director for equity derivatives at Bank of America in NY.
- Cliffs(CLF) Declines After Morgan Stanley Downgrade. Cliffs Natural Resources
Inc. (CLF), the largest U.S. iron-ore miner, tumbled the most in six
weeks after analysts at Morgan Stanley said new supply in North America
may reduce the commodity’s price. Cliffs fell 12 percent to $18.94
at 9:41 a.m. in New York, after earlier dropping 15 percent, the most
intraday since Feb. 13. The shares (CLF) have declined 51 percent this
year, making it the
year’s worst performer on the Standard & Poor’s 500 Index.
- N. Korea Cuts Hotline to South After Attack Threats. North
Korea cut off a military hotline with South Korea a day after putting
its artillery forces on high alert and threatening to attack the U.S.,
in the
latest escalation of tensions on the peninsula. “Under the situation where a war may break out any moment,
there is no need to keep north-south military communications,”
the official Korean Central News Agency said, adding that South
Korea was informed at 11:20 a.m. today. The regime cut off a
separate Red Cross hotline on March 8.
- Oil-Demand Plateau Seen as Natural Gas Favored: Chart of the Day.
Wall Street Journal:
- Apple(AAPL) Ire Spreads to China’s SOEs. Want to know who are China’s most hated companies? All you have to do is hit out at one of its most beloved. For the third consecutive day, the Chinese Communist Party’s official
mouthpiece, the People’s Daily, has run articles criticizing Apple for
its warranty policy in China and calling Apple’s defense of its
customer-service practices arrogant. Apple has declined to comment on
the coverage.
It’s still difficult to know whether the unkind official media
attention will dull or polish Apple’s shine if it has an effect at all.
CNBC:
Zero Hedge:
Business Insider:
Time:
- Why Derivatives May Be the Biggest Risk for the Global Economy. The very fact that reliable figures are hard to come by is itself part of the
problem. The $638 trillion currently reported by the BIS is only a floor.
Estimates for the total capital employed in derivatives trading is somewhere
between $10 and $20 trillion, roughly comparable to the capitalization of the
NYSE. That means that each actual dollar in the derivatives market is supporting
between $35 and $70 of nominal value. Losses of only a few percent of face value
therefore would be enough to wipe out even the best-capitalized derivatives
traders.
Reuters:
- Cyprus bailout not expected to be euro zone's last -Reuters poll.
Cyprus probably won't be the
last euro zone country to ask for an international bailout, according to
a Reuters poll of economists, who cited Spain and Slovenia as the
likeliest candidates. The survey also showed no agreement over whether
the latest bailout, which hinges on shutting one of Cyprus's biggest
banks at a cost to richer depositors, would be better or worse for the
financial stability of the euro zone. There were 16 responses naming Spain, and 16 for Slovenia,
whose outsized banking industry has drawn comparisons with
Cyprus, making it the latest country to fall under the spotlight
of the euro zone's debt crisis. "The Cyprus deal has brought the European banking crisis to
a new level," said Lena Komileva, director of G+ Economics, a
research consultancy in London.
- METALS-Copper falls on strong dollar, euro zone worries.
AP:
- China Holds Landing Exercises in Disputed Seas. China's increasingly powerful navy paid a symbolic visit to the
country's southernmost territorial claim deep in the South China Sea
this week as part of military drills in the disputed Spratly Islands
involving amphibious landings and aircraft. The visit to James Shoal, reported by state media, followed several days
of drills starting Saturday and marked a high-profile show of China's
determination to stake its claim to territory disputed by Vietnam, the
Philippines, Taiwan, Malaysia and Brunei amid rising tensions in the
region.
Telegraph:
-
Cypriot 'solution' threatens further economic carnage among the other PIGS. There is no mess quite so bad that eurocrat intervention won't make even worse. Ever since the Dutch finance minister Jeroen Dijsselbloem declared
that Cyprus would act as a template for other struggling eurozone
lenders, the sound of screeching brakes and gear sticks being wrenched
rapidly into reverse has been deafening. This is what he told Reuters:
- Cyprus bail-out: live. Cypriots face a suspension of credit card payments for overseas goods and a
ban on cashing cheques under draft capital controls designed to avert a run
on the banks.
- UK economy contracts by 0.3pc - reaction. Britain's economy contracted by 0.3pc in the fourth quarter of 2012, official
data confirmed on Wednesday, as industrial production posted its biggest
quarterly fall in almost four years. Here experts give their view.
Die Welt:
- One Third of Germans Want Deutsche Mark Back. One in three
Germans has lost faith in the euro, citing a Forsa poll commissioned by
Royal Bank of Scotland's German unit. Only the strongest countries in
the euro area should keep the common currency, 43% of respondents said.
50% of those asked said they're concerned they may lose money in a
banking crisis.
Ruhr Nachrichten:
- German Chamber of Commerce Warns of High Labor Costs. A further
increase in labor costs in Germany would be hardly bearable, citing
Martin Wansleben head of the German Chamber of Commerce. Says more than
every third company sees a business risk for the coming months.
Europa:
Style Underperformer:
Sector Underperformers:
- 1) Gaming -1.07% 2) Banks -1.04% 3) Homebuilders -.78%
Stocks Falling on Unusual Volume:
- RBS, TI, DLLR, LPI, WAL, E, PVTB, TOT, LOGM, AEG, ACMP, CLF, LNN, FRAN, AGU, FGP, ASH, TG, WCC, USG, TUMI, MLU, DB, ASML, VHC, NVS, SBS, FUL, EQM, QLYS, SYT and KOP
Stocks With Unusual Put Option Activity:
- 1) XLNX 2) M 3) WYNN 4) XLV 5) ALTR
Stocks With Most Negative News Mentions:
- 1) WMT 2) APOL 3) CMCSA 4) CLF 5) C
Charts:
Style Outperformer:
Sector Outperformers:
- 1) HMOs +.78% 2) Tobacco +.39% 3) Gold & Silver +.38%
Stocks Rising on Unusual Volume:
- SAI, DSX, MFRM, WAC, AOL, FBR and TPX
Stocks With Unusual Call Option Activity:
- 1) NWS 2) INFA 3) ALXA 4) APOL 5) TIVO
Stocks With Most Positive News Mentions:
- 1) FTI 2) SPW 3) PBI 4) BWLD 5) AOL
Charts:
Evening Headlines
Bloomberg:
- Cyprus Capital Controls First in EU Could Last Years. Cyprus
is on the verge of an
unprecedented financial experiment: imposing controls on money transfers
in an economy that doesn’t have its own currency. Countries from
Argentina to Iceland have used similar measures in the past to defend
against devaluation. Being part of the euro zone may make it harder for
the Mediterranean island to enforce restrictions, as any money that
leaves the banking
system can be taken out of Cyprus without losing value.
That also may make it more difficult to meet the goal set
yesterday by Finance Minister Michael Sarris to lift any
controls in “a matter of weeks.”
- Europe’s Deep Freeze Takes the Wind Out of Store Sales. As most Europeans shiver in the
grip of the coldest March in living memory, the region’s
retailers are feeling every bit as uncomfortable. Spring fashions, potted plants and garden furniture --
which normally contribute to sales at this time of year -- are
gathering dust as freezing winter temperatures show no sign of
dissipating. Kingfisher Plc, (KGF) the region’s largest
home-improvement retailer, has had a slow start this spring, the company
said yesterday. Hennes & Mauritz AB, (HMB) Europe’s second-biggest
clothing
retailer, reported last week that cold weather was among the
reasons for a 10 percent drop in first-quarter profit.
- Deutsche Bank(DB) May Have Rating Cut by S&P as Legal Costs Rise. Deutsche Bank AG (DBK), Germany’s biggest
bank, may have its credit rating cut by Standard & Poor’s after
the lender reduced its reported profit for 2012 amid rising
legal costs. Deutsche Bank’s A+ long-term rating was placed on
CreditWatch negative, S&P said today in a statement. The
Frankfurt-based firm said last week it had set aside additional
money to cover costs linked to U.S. mortgage lawsuits and other
regulatory probes, lowering 2012 profit by about 400 million
euros ($514 million) to 291 million euros.
- China Shadow Banking Hard to Squelch in City Plagued by Suicides. Zhou Xiang is playing with his
mobile phone in a room just big enough for a desk and chairs at
the year-old Wenzhou Private Lending Registration Center. Not a
single prospective customer has shown up for hours. As a government-sanctioned loan broker seeking to match
cash-strapped business owners with private investors, Zhou is
one of the few people who can even be found inside the two-story
building in a high-end residential district of Wenzhou, a city
of 9 million people in China’s southeastern Zhejiang province.
Rows of airport-like seats are empty. “Only those who are really out of options would come here
for loans,” says Zhou, a manager at Sudaibang, one of five
independent brokers operating out of the center. “Most of the
time, you would find these firms so weak financially that they
can be literally crushed by a straw. The volume of lending is so
low that we ourselves won’t be here long without expanding into
some other businesses.” One year after China’s leaders picked Wenzhou to start a
pilot program designed to curb and regulate the city’s informal
shadow-lending networks, it’s clear, based on a recent trip to
the country’s epicenter of private lending, that the plan isn’t
working.
- N. Korea Calls Combat Alert as U.S. Spurns ‘Bellicose Rhetoric’. U.S.
officials denounced North Korea’s threats after Kim Jong Un’s regime
put artillery forces on their highest combat alert and warned again it
may attack South Korea and America. “North Korea’s bellicose
rhetoric and the threats that they engage in follow a pattern designed
to raise tensions and intimidate others,” White House press secretary
Jay Carney said yesterday in Washington. It’s the highest-level combat
posture North Korea has issued, Defense Ministry spokesman Kim Min Seok
said in Seoul. The South Korean military put a border region on its highest alert
level early this morning and then retracted the order hours later,
Yonhap reported.
- Rio(RIO) CDS rises most as Rinehart joins iron glut. Rio Tinto Group’s bond risk is rising the most in Australia on
concern iron ore prices will decline as supply climbs from new mines
including billionaire Gina Rinehart’s Roy Hill project. The cost to insure Rio bonds against non-payment rose 26 basis points
this year to 111 yesterday, the biggest jump among contracts in
Australia’s benchmark index, CMA prices show. The average for 46 metals
and mining companies worldwide fell to 226 basis points from 232. Yields
on Rio’s US$1 billion (RM3 billion) of 2022 securities rose to the
highest since November relative to similar-dated U.S. Treasuries.
- Corn Supply Slumps Most Since ’75 on Ethanol Profit: Commodities. Corn supplies in the U.S., the
biggest grower, are shrinking at the fastest pace in almost four
decades as improving demand from ethanol refiners drains
reserves already diminished by drought. Stockpiles probably fell 38 percent in three months to
4.995 billion bushels (126.9 million metric tons) by March 1, the biggest drop since 1975,
according to the average of 31 analyst estimates compiled by Bloomberg.
AgResource Co. in Chicago and Northstar Commodity Investments Inc. in
Minneapolis expect prices to jump 13 percent to $8.25 a bushel before
supply rebounds with a record harvest in September.
Wall Street Journal:
- BlackRock(BLK) Cuts Spain, Italy Sovereign-Bond Holdings. BlackRock Inc.,the world's largest money manager, has cut holdings of Italy and Spain government bonds over the past three months. The
firm may shed more if the euro-zone's growth outlook deteriorates. "We have been less enthusiastic about euro-zone sovereign debt compared to
three to six months ago," said Rick Rieder, chief investment officer of
fundamental fixed income and co-head of Americas fixed income at BlackRock. "If
growth continues to deteriorate in the euro zone, due in large measure to weak
private-sector lending from a deleveraging banking sector, we would further
reduce our positions in the euro zone, such as in Italy and Spain."
- European Regulators to Charge Banks Over Derivatives. European antitrust authorities are moving soon to bring a case
against some of the world's largest banks alleging collusion in the $27
trillion dollar market for credit derivatives, people familiar with
the
investigation said. The probe by the European Commission involves 16
financial groups. It
focuses on whether they sought to stifle competition from exchanges in
the market for credit-default swaps, which pay out when a country or a
company defaults on its debts. If the European regulators press ahead
with their administrative case and win, some or all of the banks could
face fines.
- Euro's Bears Go Back On Prowl. Investors are turning against the euro—again. Some say the common currency is due for a correction in light of the
latest round of flare-ups in the euro zone, including Sunday's
last-minute deal to save Cyprus' banking sector and Italy's political
stalemate following elections last month.
These euro bears predict the currency will head to $1.20 or lower if a
fresh crisis causes investors to dump European assets. The European
Central Bank also could buy sovereign bonds to calm markets, which would
weaken the euro because it would involve printing money.
- Big Players Cash Out of Hong Kong Property.
With the government growing confident that it has halted the meteoric
rise in property prices, some of this city's biggest real-estate
investors are getting out. Several of Hong Kong's wealthiest families are planning initial
public offerings of hotels, offices and other real-estate assets in
coming months, while others are lowering prices on luxury apartments to
entice buyers.
- Sebelius: Some Could See Insurance Premiums Rise. Some people purchasing new insurance policies for themselves this
fall could see premiums rise because of requirements in the health-care
law, Health and Human Services Secretary Kathleen Sebelius told reporters Tuesday.
Ms. Sebelius’s remarks come weeks before insurers are expected to
begin releasing rates for plans that start on Jan. 1, 2014, when key
provisions of the health law kick in.
Fox News:
- What to Cut: Excess federal property costing taxpayers billions. The federal government owns or leases between 55,000 and 77,000
vacant properties. But it's impossible to tell exactly how many. No
precise inventory has been kept. Selling them off, though, could save taxpayers between $3 billion and
$8 billion a year, according to various analysts. That's nothing to
scoff at as the government grapples with a mounting debt and
sequester-tied spending cuts.
- GOP leaders voice 'grave misgivings' to Obama over key terror trial in civilian court.
The Republican chairmen of four congressional committees, with
oversight for intelligence, the armed services, the judiciary and
foreign affairs, have told President Obama they have "grave misgivings"
about his administration's decision to send Usama bin Laden's
brother-in-law to a federal court for criminal prosecution. The
lawmakers voiced their concerns to Obama in a letter obtained by Fox
News.
CNBC:
- Fed Study Says China's Growth Could Slow Sharply by 2030. Economic growth in China faces mounting headwinds and could fade
dramatically in the years ahead due to declining productivity and an
aging population, according to a U.S. Federal Reserve study.
Trend growth could slow gradually to around 6.5 percent by 2030, or it
could break much more sharply to a pace under 1 percent if forces
undermining economic activity combine in a "worst-case scenario,"
according to the study, which was published online on Monday.
- Cyprus Readies Capital Controls to Avert Bank Run. Cyprus is expected to complete capital control measures on Wednesday to prevent a run on the banks by depositors anxious about their savings after the country agreed a painful rescue package with international lenders. With banks due to reopen on Thursday, Finance Minister Michael Sarris said he expected the control measures to be ready by noon (1000 GMT) on Wednesday: "I think they will be within the realms of reason," he said, without going into details.
Zero Hedge:
Business Insider:
USA Today:
- Study: Health overhaul to raise claims cost 32%. Medical claims costs — the biggest driver of health insurance premiums —
will jump an average 32% for Americans' individual policies under the
Affordable Care Act health care law, according to a study out Tuesday by
the nation's leading group of financial risk analysts.
Reuters:
- UK banks braced for details of capital shortfall. Britain's
banks discover on Wednesday how much extra capital they need to keep
regulators happy when the outcome of an inquiry into their financial
health
is revealed. The Bank of England will release the capital requirements on
Wednesday morning.
The Economist:
- The Debt Run. INFLATE, stagnate, default. That has been the choice facing highly
indebted economies ever since the crisis broke in 2007-2008. It would be
nice if growth could lift us out of this mess, but that looks unlikely;
see how sluggish growth has become (the 2000 decade ended in 2009,
before the Greek crisis hit, so this is not just an issue of austerity).
Why is this? There has been too much focus on government debt; the
problem is total debt in an economy, including the financial sector,
corporates and consumers. Government debt usually rises sharply when
another sector is badly hit; Cypriot government debt, for example,
was only 61% of GDP in 2010. Think of debt as a claim on wealth. If a
bank extends you a loan, you now have wealth in the form of money that
you can spend on goods and services or use to buy an asset, such as a
house; the bank also has an asset in the form of its loan, which it
records on its balance sheet. Debt can thus increase rapidly relative to
GDP and can help increase
output, as the debtors spend their wealth. All is well as long as the creditor is confident that the debtor can repay the debt. We are nearly six years into this crisis and we have made precious
little progress in running down debts and thus are vulnerable to further
crises; Cyprus is just the latest example. Nor have we decided whether
default or inflation is the preferred option. Either way, savers should
beware.
Financial Times:
- Global pool of triple A status shrinks 60%. The
expulsion of the US, the UK and France from the “nine-As” club has led
to the contraction in the stock of government bonds deemed the safest
by Fitch, Moody’s and Standard & Poor’s, from almost $11tn at the
start of 2007 to just $4tn now, according to Financial Times analysis.
South China Morning Post:
- Guangzhou to Levy 20% Tax on 2nd-Hand Home Sales. City plans to impose 5 measures to control housing prices with "perseverance", citing Deputy Mayor Chen Rugui. A 20% capital-gains tax on homes "will have a tremendous impact" on speculative buying, Chen said.
- China's southern city of Guangzhou plans to limit home price increases under the level of this year's local GDP and income growth, citing Deputy Mayor Chen Rugui.
Evening Recommendations
RBC:
- Rated (WDC) Outperform, target $55.
Night Trading
- Asian equity indices are +.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 118.50 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 94.25 +3.0 basis points.
- NASDAQ 100 futures +.06%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:00 am EST
- Pending Home Sales for February are estimated to fall -.3% versus a +4.5% gain in January.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,325,000 barrels versus a -1,314,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,000,0000 barrels versus a -1,476,000 barrel decline the prior week. Distillate supplies are estimated to fall by -850,000 barrels versus a -672,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.45% versus a +2.5% gain the prior week.
Upcoming Splits
Other Potential Market Movers
- The Fed's Kocherlakota speaking, Fed's Rosengren speaking, Fed's Evans speaking, Fed's Pianalto speaking, Eurozone Industrial Production data, France/UK GDP reports, Italy 10Y Bond auction, Eurozone Trade Data/Consumer Confidence, 5Y T-Note auction, weekly MBA mortgage applications report and the (Z) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
