Evening Headlines
Bloomberg:
- China’s Manufacturing Weakens Further as Slowdown Deepens.
China’s manufacturing weakened further in July, signaling the worst of
the nation’s slowdown has yet to be reached, according to a preliminary
survey of purchasing managers. The reading of 47.7 for an index released today by HSBC Holdings Plc and Markit Economics, was less than
estimated and if confirmed in the final report Aug. 1, would be the
lowest in 11 months. “The key thing now is confidence,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said on Bloomberg Television.
“The confidence now is pretty weak both in the financial market and the
corporate sector.” The median estimate of 19 economists surveyed by
Bloomberg News for the preliminary, or Flash Purchasing Managers’ Index,
was for 48.2, the same level as in June.
- China Coal-Fired Economy Dying of Thirst as Mines Lack Water. Daliuta in Shaanxi province sits on top of the world’s
biggest underground coal mine, which requires millions of liters
of water a day for extracting, washing and processing the fuel.
The town is the epicenter of a looming collision between China’s
increasingly scarce supplies of water and its plan to power
economic growth with coal.
- BlackRock(BLK) Sees Aussie at 80 Cents After Short. BlackRock Inc. (BLK), the world’s biggest fund manager, said Australia’s dollar may drop as low as 80 U.S.
cents in the coming nine months after bets against the currency
helped give one of its bond funds the nation’s best returns.
- China’s Stocks Fall After Unexpected Drop in Manufacturing Gauge. China’s
stocks fell for the first time in three days, led by financial and
commodity companies, as an unexpected decline in a preliminary
manufacturing index boosted concern the economic slowdown is deepening. Jiangxi Copper Co., the nation’s biggest producer of the metal, declined 2 percent, while China Petroleum and Chemical
Corp., Asia’s largest refiner, dropped the most in a week. China
Merchants Bank Co. led losses for lenders, sliding to a one-month low after its rights offering was approved. The Shanghai Composite Index (SHCOMP) fell 1.1 percent to 2,021.66 at 10:24 a.m. local time.
- Asian Stocks Decline as Preliminary China PMI Contracts.
Asian stocks fell, with the regional benchmark index retreating from a
two-month high, after a private survey showed China’s manufacturing
contracting at a faster-than-estimated pace. Jiangxi Copper Co. (358),
China’s biggest producer of the metal, slipped 2.1 percent in Hong Kong.
Kao Corp., a maker of household and chemical products, fell 4.5 percent
in Tokyo after giving an update on a product recall. Murata
Manufacturing Co., a Japanese supplier to Apple Inc., gained 4 percent
after Apple’s profit topped estimates. The MSCI Asia Pacific Index fell 0.1 percent to 137.08 as
of 11:59 a.m. in Tokyo, erasing gains of as much as 0.2 percent.
- Rubber Futures Decline After China Flash PMI Misses Estimate.
Rubber snapped a five-day winning
run after a private survey showedthat China’s manufacturing contracting
at a faster-than-estimated pace this month, increasing concern that
demand may slow in the largest user. Rubber for delivery in December
dropped as much as 0.7 percent to 254.4 yen a kilogram ($2,553 a metric
ton) on the Tokyo Commodity Exchange and traded at 255 yen at 11:05 a.m.
local time. Earlier, the price rose to 259.3 yen, the highest
intraday price since July 19.
- Spanish Pension Raids Spell
Bad News for Bond Sales: Euro Credit. Spain's Treasury may find one of
its best customers less eager to buy its bonds as budget woes lead Prime
Minister Mariano Rajoy to raid a government piggy-bank for a second
year. "The fund isn't in a position to accumulate assets anymore, it may
even have to sell," said Jose Antonio Herce, a partner at consultancy
firm Analistas Financieros Internacionales in Madrid. "There are more
and more pensions to pay and less and less money coming into the Social
Security, the fund will melt quickly no that we've started taking money
out of it."
- European Banks Face Capital Gap With Focus on Leverage. Europe’s biggest banks, which more
than doubled their highest-quality capital to $1 trillion since
2007 to meet tougher rules, may have further to go as regulators
scrutinize how lenders judge the riskiness of their assets. Deutsche
Bank AG (DBK), Barclays (BARC) Plc and Societe Generale SA (GLE) are
among European banks that issued stock, sold units or hoarded earnings
to bring capital, as a proportion of assets weighted by risk, into line
with new global rules. Now some regulators are questioning the
weightings, typically set by the banks’ own models, and embracing a
broader measure of equity to total assets known as the leverage ratio
that ignores risk. “Europe’s banks are far from done on efforts to raise capital,” Lutz Roehmeyer, who helps manage more than 11 billion
euros ($14.5 billion) at Landesbank Berlin Investment, said in
an interview. “We have to take out the arbitrary method by
which banks assign the risk of their assets.”
- IRS Executives Spent More Days on D.C. Travel Than at Home. A handful of Internal Revenue
Service executives who live outside the Washington region
commuted to the capital on most work days at taxpayer expense,
an inspector general said in a report raising management issues. In fiscal 2011 and 2012, five IRS executives traveled for
more than half the year to a single location, mostly Washington
and in one case Atlanta, according to a report released today by
the Treasury Inspector General for Tax Administration.
- CLO
Boom Takes Break as Sales Tumble on Bernanke: Credit Markets. Money
managers are creating fewer collateralized loan obligations in the U.S.
than any time since last July as concern the Federal Reserve may scale
back its stimulus efforts pushes yields to a six-month high. About $2.3
billion of CLOs have been sold this month, plummeting from $7.2 billion
in June, according to Royal Bank of Scotland Group Plc. Spreads on the
top-rated portion of the funds have risen to 130 basis points more than
lending benchmarks, from 113 basis points in May, the month Fed Chairman
Ben S. Bernanke told Congress the central bank may start curtailing its
bond buying this year. The slowdown may be a sign that banks are
pulling back from buying CLOs, making it harder for money managers who
create the funds to sell them after issuance quadrupled to $55 billion
last year.
- Fed Draws Fire for Oversight of Bank-Owned Commodity Operations. The Federal Reserve faces new
pressure to explain why it lets banks trade raw materials and
control supplies after congressional witnesses said regulators
can’t really grasp what lenders are doing in industrial
businesses. Officials from the Fed and Commodity Futures Trading
Commission may testify at hearings in September, U.S. Senator
Sherrod Brown said in an interview yesterday after witnesses
told his Senate subcommittee that commodities operations owned
by lenders are hurting customers and endangering the financial
system. He’ll also seek testimony from bankers.
Wall Street Journal:
- Prosecutors Preparing to Charge SAC. Federal prosecutors are preparing to announce criminal charges as early as this week against SAC Capital Advisors LP.
Federal prosecutors are preparing to announce criminal charges as
early as this week against SAC Capital Advisors LP, the hedge-fund
company that has been the target of a multiyear investigation into
alleged insider trading, according to people familiar with the matter.
The planned charges against SAC would mark the culmination of a
yearslong probe into suspected securities fraud at one of the biggest,
most successful hedge-fund firms in the country. The action is
anticipated barring any last-minute pact with SAC or
other reversal of government strategy, according to people familiar with
the matter.
- Easing of Mortgage Curb Weighed. Regulators are concerned that tougher mortgage rules for banks could hamper the housing recovery. Concerned that tougher mortgage rules could hamper the housing
recovery, regulators are preparing to relax a key plank of the rules
proposed after the financial crisis. The watchdogs, which include the Federal Reserve and Federal Deposit
Insurance Corp., want to loosen a proposed requirement that banks retain
a portion of the mortgage securities they sell to investors, according
to people familiar with the situation. The plan, which hasn't been finalized and could still change, would
be a major U-turn for the regulators charged with fleshing out the
Dodd-Frank financial-overhaul law passed three years ago.
- Egypt's Gaza Crackdown Hammers Economy. An aggressive crackdown by Egypt's interim government on smuggling
tunnels between Egypt and the Gaza Strip is crushing the Palestinian
enclave's economy, sparking concerns it could fuel a militant backlash.
- At Center of Oil Boom, Electricity Costs Soar. Heavy Energy Use From Drilling in West Texas Strains Power Grid, Leading to Surcharges. An oil-production boom is delivering prosperity to pockets of the U.S.,
but in West Texas, the epicenter of activity, it is also bringing
trouble in the form of surging electricity prices.
Fox News:
- US shipment of F-16s to post-Morsi Egypt hits delay. Four F-16 fighter jets were scheduled to fly to Egypt on Tuesday
morning as part of a U.S. military aid package worth more than $1
billion a year -- but the shipment has run into delays over apparent
"political" issues. If the Obama administration is able to send the planes, it will mark
the first known military aid to Egypt since millions of Egyptians
protested the rule of Mohammed Morsi, leading the Egyptian military to
remove him from power earlier this month. Supporters say that such aid is critical because it gives the U.S.
influence over the Egyptian military. But critics say it is a waste of
money, or worse -- a gift of weapons that could later be turned against
American interests.
- Anthony Weiner admits to sending more lewd images, texts but vows to stay in mayor's race. With his wife by his side, Anthony Weiner said Tuesday he's not
dropping out of the New York City mayoral race despite new revelations
that he sent additional lewd photos and text messages after he left
Congress in disgrace for his prior online chats. Weiner, who resigned his House seat in June 2011 after acknowledging
having sexual conversations with at least a half-dozen women, told a
hastily called news conference he would stay in the race despite the new
onslaught of negative publicity. “I’m sure many of my opponents would like me to drop out of the race
but I’m not going to do it,” he said, adding, he hoped the people of New
York were "willing to still continue to give me a second chance."
MarketWatch.com:
- Japan posts 12th trade deficit in a row for June. Japan on Wednesday reported a trade deficit of Y180.8
billion ($1.8 billion) for June, extending its streak of monthly
shortfalls to 12 straight months--the longest spell in over three
decades--as a weaker yen increased the import bill more than it lifted
exports. The result undershot a Y155.7 billion deficit expected by economists
polled by the Nikkei and Dow Jones Newswires. Japan recorded a trade
surplus of Y56 billion in the same month of the previous year.
Zero Hedge:
Business Insider:
Washington Post:
- Moderate Democrats are quitting on Obamacare. The
landmark health-reform law passed in 2010 has never been very popular
and always highly partisan, but a new Washington Post-ABC News poll
finds that a group of once loyal Democrats has been steadily turning
against Obamacare: Democrats who are ideologically moderate or
conservative.
Sober Look:
Reuters:
- Apple's(AAPL) margins, China sales take shine off quarterly results.
Investors
breathed more easily after Apple Inc turned in a quarterly report card
with a pleasant iPhone sales surprise. But the resultant share-price
rally may prove short-lived as Wall Street frets about sliding margins
and puzzles over a dramatic revenue drop-off in its No. 2 market of
China. Without releasing a new product, Apple sold 31.2 million units of
the iPhone - its most important device in the fiscal
third quarter - or about 20 percent more than analysts had
envisioned. The company's shares climbed 5 percent in after-hours trade,
partly on Apple saying it will buy back stock at a faster pace. But revenue from all Apple products in greater China
plummeted 43 percent from the previous quarter and 14 percent
from a year earlier - worrying for a region where smartphone
penetration is still low. Growing
competition in a maturing global smartphone market, coupled with the
rising number of lower-priced devices in Apple's line-up, such as iPad
minis and older-model phones, pushed third-quarter profit margins to
below 37 percent from more than 42 percent just a year earlier. Analysts and executives struggled to explain the slowdown in
greater China, which includes Hong Kong and Taiwan and accounts
for 13 percent of Apple's fiscal third-quarter revenue. Tuesday's stock rally may quickly lose steam, as Apple is
dogged by issues such as lower selling prices and an uncertain
product pipeline, said Colin Gillis, an analyst with BGC.
- US opens probe into steel pipe imports from 9 countries. The
U.S. Commerce Department on Tuesday
launched one of its biggest trade investigations in years into charges
that manufacturers in South Korea, India and seven other countries are
selling steel pipe used by oil and natural gas producers at unfairly low
prices in the United States. Imports of oil country tubular goods
(OCTG) from the nine countries totaled nearly $1.8 billion in 2012, more
than double their total in 2010, as rising U.S. oil and natural gas
production have increased demand for the pipe.
- Norfolk Southern(NSC) profit falls 11 pct as coal use drops. Norfolk
Southern Corp on Tuesday reported a 11 percent drop in quarterly
profit, as demand to ship coal fell, to send shares down 1 percent after
the bell. For the second quarter Norfolk, the country's
third-largest railroad, earned $465 million, or $1.46 a share, on
revenue of $2.8 billion. A year ago, Norfolk Southern reported $524
million net income, or $1.60 per share, on revenue of $2.87 billion.
Analysts, on average, expected $1.49, according to Thomson Reuters
I/B/E/S. Revenue from coal shipments was $626 million, down 17
percent from a year earlier.
- Broadcom's(BRCM) 3rd-quarter outlook adds to smartphone jitters. Broadcom
Corp forecast third-quarter revenue below expectations, underscoring
concerns on Wall Street that smartphone growth might be waning, and
sending the chipmaker's shares lower. Investors have become increasingly concerned in the past
month that the explosive growth of smartphones of recent years
might be coming to an end. Such a slowdown would hurt not only handset makers such as
Samsung Electronics and Apple, but their component suppliers as
well, such as Broadcom and Qualcomm Inc, which posts
its quarterly results on Wednesday.
- Panera(PNRA) cuts 2013 view after restaurant sales miss target. Panera
Bread Co reported quarterly profit that missed analysts' views and cut
its full-year forecast after sales growth at company-owned
bakery-cafes fell short of expectations, sending shares tumbling
more than 5 percent in after-hours trade. Panera is one of the restaurant industry's top-performing
names and when it delivers results that miss or just match Wall
Street's targets, investors punish its stock.
Financial Times:
- Regulator turf war on access to EU bank books. US
regulators are demanding the right to probe books, records and emails
at the headquarters of Europe’s biggest financial groups, prompting deep
EU unease over Washington intruding on its patch to collect highly
sensitive data. The behind-the-scenes dispute over
investigative powers to police complex markets has taken on new
significance in the wake US spying revelations, which have amplified
European fears about US over-reach.
China Securities Journal:
- China's 4Q Economic Growth May Be Less Than 7%. China's economic
growth in 4Q may be less than 7% because "big" structural changes that
were expected to help growth weren't realized, external demand remains
weak and domestic overproduction can't be absorbed by internal demand,
Wang Jian, a researcher at the National Development and Reform
Commission's China Society of Macroeconomic wrote. Economic growth could
be less than 6% in a "certain quarter" next year, he said. The Chinese
government may be forced to intervene if growth is less than 6%, Wang
said.
Securities Times:
- China's Lower Limit for Growth Misunderstood. China's economic
lower limit points to the pace of growth below which China may see
systemic and regional financial risk, citing Li Zuojun, a researcher at
State Council's Development Research Center. To say that the lower limit
is the 7% economic growth target for the five years through 2015 is
"inaccurate," the report cites Li as saying.
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 129.50 +3.0 basis points.
- Asia Pacific Sovereign CDS Index 99.5 +1.25 basis points.
- NASDAQ 100 futures +.45%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:58 am EST
- Preliminary Markit US PMI for July is estimated at 52.6.
10:00 am EST
- New Home Sales for June are estimated to rise to 484K versus 476K in May.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,800,000 barrels versus a -6,902,000
barrel decline the prior week. Gasoline supplies are estimated to rise
by +1,650,000 barrels versus a +3,055,000 barrel increase the prior
week. Distillate inventories are estimated to rise by +1,850,000 barrels
versus a +3,870,000 barrel gain the prior week. Finally, Refinery
Utilization is estimated to fall by -.3% versus a +.4% gain the prior
week.
Upcoming Splits
Other Potential Market Movers
- The Eurozone PMI report, 5Y T-Note auction, weekly MBA mortgage applications report, (CPB) analyst meeting and the (DELL) shareholder meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and real estate 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.
Click Here for Today's Market Take.
Broad Equity Market Tone:
- Advance/Decline Line: Slightly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 12.60 +2.52%
- Euro/Yen Carry Return Index 137.12 +.07%
- Emerging Markets Currency Volatility(VXY) 8.77 -2.66%
- S&P 500 Implied Correlation 50.83 +1.72%
- ISE Sentiment Index 75.0 -27.88%
- Total Put/Call .91 -3.19%
Credit Investor Angst:
- North American Investment Grade CDS Index 74.45 +2.61%
- European Financial Sector CDS Index 146.75 +4.1%
- Western Europe Sovereign Debt CDS Index 91.49 -1.62%
- Emerging Market CDS Index 277.54 +2.18%
- 2-Year Swap Spread 17.50 -.5 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -9.5 -.25 bp
Economic Gauges:
- 3-Month T-Bill Yield .02% +1 bp
- China Import Iron Ore Spot $131.90/Metric Tonne +.30%
- Citi US Economic Surprise Index -8.90 +.2 point
- Citi Emerging Markets Economic Surprise Index -29.90 -.6 point
- 10-Year TIPS Spread 2.18 -2 bps
Overseas Futures:
- Nikkei Futures: Indicating +22 open in Japan
- DAX Futures: Indicating +18 open in Germany
Portfolio:
- Slightly Lower: On losses in my biotech sector longs and emerging markets shorts
- Disclosed Trades: None
- Market Exposure: 50% Net Long
Bloomberg:
- Chinese Economy Facing Instability as Growth Cools, DRC Says. China’s
economy may be facing a period of instability and imbalance as it
transitions from high-speed growth (CNGDPYOY), a state researcher said.
“Growth inertia should not be underestimated, as new growth engines and
patterns have not been formed,” researcher Yu Bin said in a report by
China’s Development Research Center
released today in London. “Market expectations are unstable,
downward pressure has increased, and existing and new structural
mismatches exist. The economy has become unstable and uncertain
like never before.”
- India 10-Year Bond Yield Reaches 2013 High on Tightening Concern.
India’s 10-year bonds fell, pushing the yield to the highest level this
year, on speculation the central bank will tighten monetary policy
further to arrest a slide in the rupee. The Reserve Bank of India
increased the marginal standing facility and the bank rate to 10.25
percent from 8.25 percent last week, while keeping the key repurchase
rate unchanged after cutting it in May. The rupee fell by the most in
two weeks yesterday and lost 7.7 percent in 2013. A weaker currency
makes imports costlier and threatens to spur gains in consumer prices,
which have stayed close to 10 percent for more than a year. “There are fears the central bank may reverse its policy
stance as the rupee doesn’t seem to be behaving in the desired
manner even after the recent measures,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in
Mumbai. “The bond markets are pretty jittery.”
- European Stocks Retreat After U.S. Manufacturing Report.
European stocks declined from a seven-week high as a measure of U.S.
manufacturing unexpectedly slumped, outweighing gains by companies from
Royal KPN NV
to Vivendi SA on plans to sell assets. The Stoxx Europe 600 Index dropped 0.3 percent to 299.44 at the close of
trading, erasing an earlier gain of as much as 0.5 percent.
- Congress Must Rein in Bank Commodities Units, Rosner Says. The U.S. Congress should rein in
banks’ ability to own and trade raw materials or risk another
financial collapse, Joshua Rosner of Graham Fisher & Co. said at a Senate subcommittee hearing today. “Historically Congress has acted when a few large firms exploited their advantage and sought to control too much,” said
Rosner, a bank analyst whose New York-based firm advises clients
on investments and regulation in the financial industry. If no
action is taken, “we’re destined to view 2008 as the first
financial crisis and not the worst.”
- Boehner Signals Clash With White House on U.S. Debt Limit. House Speaker John Boehner signaled
a clash with the White House and the Democratic-led Senate over
raising the U.S. borrowing authority later this year. “We’re not going to raise the debt ceiling without real
cuts in spending,” Boehner, an Ohio Republican, told reporters
in Washington today.
Wall Street Journal:
- More Americans Living in Others' Homes. The number of Americans living in someone else's home for economic
reasons rose in the past year despite an improving labor market, posing a
challenge for the housing market and the broader recovery. The number of so-called missing households—representing adults who
would be owning or renting their own home if household formation had
stayed at normal rates since the recession—has increased 4% over the
past year, according to an analysis for The Wall Street Journal.
Fox News:
MarketWatch:
CNBC:
Zero Hedge:
Business Insider:
- Richmond Fed Index Shows Mammoth Fall In Retail Sales. From the report: Retail sales contracted this month,
leaving the index at −22, twenty-three points below last month's
reading. Sales of big-ticket items declined slightly, while shopper
traffic dwindled. The index for big-ticket sales slipped to −5, a point
lower than the June reading, while the index for shopper traffic tumbled
twenty-two points to −16. Inventories declined more slowly than last
month, with that index settling at −12 compared to −22. Retailers were
doubtful about sales in the next six months; the expectations index
dropped to −29 from June's reading of 11. Retailers reduced their number of employees this month. The index fell twelve points lower to end at −14.
New York Times:
- Prices Fuel Outrage in Brazil, Home of the $30 Cheese Pizza. Shoppers here with a notion of what items cost abroad need to brace
themselves when buying a Samsung Galaxy S4 phone: the same model that
costs $615 in the United States is nearly double that in Brazil. An even
bigger shock awaits parents needing a crib: the cheapest one at Tok
& Stok costs over $440, more than six times the price of a similarly
made item at Ikea in the United States. For Brazilians seething with resentment over wasteful spending by the
country’s political elite, the high prices they must pay for just about
everything — a large cheese pizza can cost almost $30 — only fuel their
ire.
CNN:
- Investor pushes TheStreet(TST) for a sale. Private equity firm Spear Point, which holds a 2% stake in the company, wants TheStreet to
hire an outside financial adviser to weigh a number of options. Spear
Point, based in New Orleans, also said it will make a bid for the
company, though it declined to say how much it would be willing to pay.
Reuters:
- Flat steel sales in Brazil slump 6 pct in June -Inda.
Sales of flat steel products at distribution companies in Brazil
declined sharply in June from the prior month, according to the National
Institute of Steel Distributors, known as Inda. Sales fell 6 percent from May to 347,800 tonnes, and 0.3 percent from the same month a
year earlier, Inda added.
Unwanted inventory, which reached 1.1 million tonnes in
June, is now equivalent to about 3.2 months of monthly sales,
Inda added. In the first six months, sales fell 1.7 percent to
2.144 million tonnes, the institute said.
- Bullish on aerospace, United Tech(UTX) lifts 2013 forecast.
United Technologies Corp, the world's largest maker of elevators and
air conditioners, raised the bottom end of its 2013 earnings forecast on
Tuesday, citing its growing confidence after a jump in aerospace orders
and cost cuts.
However, the conglomerate, which also makes Pratt & Whitney jet engines and
Black Hawk helicopters, said revenue would be at the lower end of its forecast
of $64 billion to $65 billion for this year.
- Indian central bank takes more steps to tighten liquidity, support rupee. The Reserve Bank of India on
Tuesday announced further measures to tighten banking system
liquidity and to stabilise the falling rupee.
The RBI set the overall limit for borrowing under the daily
liquidity adjustment facility (LAF) for each bank at 0.5 percent
of deposits, outstanding as of the last Friday of the reporting
cycle two weeks prior to the current one. The central bank also said banks need to maintain 99 percent
of their daily cash reserve ratio requirements with the RBI, as
against 70 percent now.
Real Clear World:
Telegraph:
- China capitulates.
Once again, China has concluded that it is too dangerous to let the
Ponzi Scheme collapse. First we had an article in Xinhua saying that
growth below 7pc would “not be tolerated”.
Now we have a clear statement from Premier Li Keqiang that growth
must not fall below the government’s “lower limit” of 7.5pc for 2013,
and 7pc thereafter. Already we hear talk of more investment on railway projects, social
housing, infrastructure, green energy, sewage, broadband and G4, the
tried and tested levers of fiscal stimulus. So there we are, the on-again off-again credit boom may soon be on
once more, even though each extra yuan of credit now generates less than
0.2 yuan of growth compared to 0.85 before the Great Recession. It all feels like last summer when the authorities responded to the sharp slowdown (hard landing?) by cranking up stimulus. Now it looks as if Beijing has blinked yet again at the first sign of
real trouble. It may take a great deal of stimulus to keep growth at Mr
Li’s floor level, given China’s broken model, if it can be done at all.
That will store up yet more trouble for the future, and sooner of later
the future arrives.
Echoing fears that
European policymakers remain in a state of cognitive dissonance –
recognizing the need for root-and-branch overhaul of peripheral banks,
but backtracking on joint liability plans – Christopher Flowers, the
legendary FIG investor who now runs the £2.3 billion ($3.5 billion)
private equity group JC Flowers, sounded the alarm over the negative
sovereign-bank feedback loop.
In a shot across the bows of market bulls, who cite the return of
capital flows to weaker eurozone states, Flowers issued a stark warning:
"There is a scenario where we have a Lehman-type event: we wake up some
Thursday and a big country is in trouble.
"And the ECB will have to decide to support banks x, y, z. And then the
ECB will, in fact, decide to own bank x, y, z.
While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true
Naftemporiki:
- Greeks Paid More 2012 Income Tax As Salaries Fell. Greeks earning
salaries and pensions paid 52% more income tax on average in 2012
compared with year earlier, citing Finance Ministry data. Salaries and
pensions shrank 18% on average during that period.
NHK:
- Fukushima Decontamination to Cost 5 Trillion Yen. Radiation
decontamination efforts in Fukushima prefecture may cost 5.13 trillion
yen, citing estimates by a group of experts at the National Institute of
Advanced Industrial Science and Technology. The estimated cost is more
than four times the budget the government has allocated.
Kyodo:
- Support for Japan PM Abe Falls 12 Points to 56% in July. Support
for Japanese Prime Minister Shinzo Abe's cabinet drops to 56.2% from 68%
in June, according to a poll conducted by Kyodo July 22 and 23.
Xinhua:
- China Bans New Government Building for 5 Years.
China bans Party and government agencies from building new buildings
for 5 years, citing a notice jointly issued by the Communist Party
Central Committee and the State Council. Projects that have already won
approval will be suspended.
Style Underperformer:
Sector Underperformers:
- 1) Tobacco -1.90% 2) Biotech -1.15% 3) Restaurants -.91%
Stocks Falling on Unusual Volume:
- LO, AMPE, WRB, TRV, MO, WNC, NWBI, IOC, PTNR, BPFH, WIN, WIBC, USU, CTG, PENN, USNA, HNP, SILC, WERN, BRCM, WAT, IDXX, ALGT, NFLX, KNX, SPTN, BNNY, EDU, GLF, CMRE, AXE, VLTR, PNK, RMBS, DPZ and TA
Stocks With Unusual Put Option Activity:
- 1) LO 2) BRCM 3) JCP 4) HCA 5) TXN
Stocks With Most Negative News Mentions:
- 1) JDSU 2) LUV 3) ITW 4) TRV 5) BNNY
Charts:
Style Outperformer:
Sector Outperformers:
- Coal +2.98% 2) Gold & Silver +1.78% 3) Steel +1.46%
Stocks Rising on Unusual Volume:
- TI, PACW, BSBR, NBS, ARRY, MTG, FIRE, CSE, LXK, SANM, IRWD, FSL, BTU, WLT, FTNT and PII
Stocks With Unusual Call Option Activity:
- 1) MTW 2) DFS 3) WLP 4) BRCM 5) AEGR
Stocks With Most Positive News Mentions:
- 1) TXN 2) HAS 3) PII 4) BTU 5) LMT
Charts:
Evening Headlines
Bloomberg:
- BRIC Bust Seen in Emerging Market Discontent With Growth. Stretched budgets and sluggish
growth are putting emerging-market governments on a collision
course with rising pressures from recently empowered middle
classes for more spending and better services. From Jakarta to Brasilia, policy makers face the end to an
era of abundant global liquidity that helped fuel the fastest
expansion in three decades. In the eight weeks through July 17,
investors pulled $40.3 billion from emerging-market bond and
equity funds amid signs the Federal Reserve may begin reducing stimulus later this year.
In 2012, $111 billion poured into
these asset classes, according to EPFR Global in Cambridge,
Massachusetts, which tracks money flows. The Fed’s plans didn’t trigger
the slump -- after a decade
of prosperity, the BRIC economies of Brazil, Russia, India and China
(SHSZ300) have been slowing since 2010. Developing nations are punished
more during downturns than their European counterparts because they
depend on growth to mitigate social tensions, said Angel Gurria,
secretary-general of the Organization for Economic Cooperation and
Development. “The needs are much more elementary and brutal,” said
Gurria, a former Mexican finance secretary, in a July 19
interview in Moscow. Families live with “vermin because they
don’t have cement on the floor, and when there’s a big wind it
blows off the roof. This isn’t the problem the middle class in
the Netherlands face.”
- Asian Stocks Extend Two-Month High on China Growth, Fed Stimulus.
Asian stocks rose, extending a two-month high, after Premier Li Keqiang
said China’s economy won’t grow any slower than 7 percent and as U.S.
housing data damped concerns the Federal Reserve will reduce stimulus
measures. Nippon Steel & Sumitomo Metal Corp. (5401) climbed 3
percent in Tokyo after the Nikkei newspaper reported the world’s biggest
steelmaker agreed to a 10 percent price increase with Toyota Motor
Corp. Yanzhou Coal Mining Co., China’s fourth-largest producer of the
fuel, added 3.8 percent in Hong Kong after saying its chairman and vice
chairman resigned. ZTE Corp., China’s No. 2 makerof equipment for phone
networks, jumped 17
percent after reporting higher first-half earnings. The MSCI Asia Pacific Index climbed 0.9 percent to 137.24
as of 12:18 p.m. in Tokyo, with almost four stocks rising for
each that fell.
- Swaption Drop Signals Treasury Market Prepared for Fed Tapering.
Options are signaling that the Federal Reserve can reduce its
bond-purchase program without causing a spike in price swings in the
Treasury market. Three-month implied volatility on 10-year interest-rate
swaps dropped to a one-month low of 89.4 basis points from 122.6 basis
points on July 5, which was the highest since November 2011, according
to data compiled by Bloomberg. The gauge is a measure of projected yield
fluctuations over the next 90 days. Half of the economists surveyed by
Bloomberg say the Fed will begin trimming its $85 billion in monthly
bond purchases in September.
- Fed Seen Tapering QE in September by Half of Economists Surveyed. A growing number of economists surveyed by Bloomberg News say the
Federal Reserve will begin trimming its $85 billion in monthly bond
purchases in September. That was the view of half of those who
participated in the July 18-22 survey, up from 44 percent in last
month’s poll. Even as expectations of a September taper rose, 10-year
Treasury yields continued to fall last week from an almost two-year high
after Fed Chairman Ben S. Bernanke said reducing bond-buying wouldn’t
constitute policy-tightening.
- MillerCoors Sees Metal-Warehouse Delay Costing Buyers $3 Billion. Global
aluminum costs were inflated
by $3 billion in the past year through unfair rules that allow Goldman
Sachs (GS) Group Inc. and other warehouse owners to slow deliveries,
said a risk executive at brewer MillerCoors LLC. The practices of
warehouse owners authorized to hold aluminum by the London Metal
Exchange created artificial limits on available supply, leaving prices
“inflated relative to the massive oversupply and record production,” Tim
Weiner, a global risk manager at Chicago-based MillerCoors, said in
written testimony before his appearance today at a U.S. Senate
subcommittee hearing in Washington.
- Southwest(LUV) Jet’s Gear Collapses, Snarls LaGuardia Traffic.
A Southwest Airlines Co. (LUV) jet’s nose gear collapsed on landing at
New York’s LaGuardia airport, snarling traffic in the nation’s busiest
air-travel market as flights were sent to other airports in the region. Eight of the 150 people on board the Boeing Co. (BA) 737-700 from Nashville, Tennessee, were injured today, Michelle Agnew, a
spokeswoman for Dallas-based Southwest, said in a telephone
interview. CNN video showed the plane sitting with its front end
on the runway and the emergency evacuation slides extended.
Wall Street Journal:
- Housing Recovery Increasingly Prices Out First-Time Buyers. Financial Factors Keeping Lid on Initial Purchases. First-time home buyers, long a key underpinning of the housing
market, are increasingly getting left behind in the real-estate
recovery.
Such buyers, typically couples in
their late 20s or early 30s, have accounted for about 30% of home sales
over the past year. They represented 40% of sales, on average, over the
past 30 years, and accounted for more than 50% in 2009, when
recession-era tax credits fueled the first-time market, according to
data from the National Association of Realtors.
- Economic Casualties: 'Missing Households'. The number of Americans living in someone else's home for economic
reasons rose in the past year despite an improving labor market, posing a
challenge for the housing market and the broader recovery. The number of so-called missing households—representing adults who
would be owning or renting their own home if household formation had
stayed at normal rates since the recession—has increased 4% over the
past year, according to an analysis for The Wall Street Journal.
- As Banks Retreat, Hedge Funds Smell Profit. Private investment funds, facing diminished returns in some other areas,
have piled into the business of lending to struggling companies, part
of a so-called shadow-lending system that operates under different rules
than commercial banks. Hedge funds D.E. Shaw Group and Oaktree Capital
Management, for example, recently set up funds to lend to small and
midsize businesses, including distressed ones.
- Portugal's Bond-Market Recovery Veers Off Track. If Portugal Can't Win Back Investors' Confidence, Another Bailout Could be Near. Only a few months ago, investors were betting on Portugal as Europe's
next bond-market recovery story. Now, despite the apparent resolution of
a political row that sparked this summer's debt selloff, the future
looks more complicated.
- A Global Revenue Grab. The G-20 unveils a plan to limit international tax competition. After five years of failing to spur a robust economic recovery
through spending and tax hikes, the world's richest countries have hit
upon a new idea that looks a lot like the old: International
coordination to raise taxes on business. The Organization for Economic
Cooperation and Development on Friday presented its action plan to
combat what it calls "base erosion and profit shifting," or BEPS. This
is bureaucratese for not paying as much tax as government wishes you
did. The plan bemoans the danger of "double non-taxation," whatever that
is, and even raises the specter of "global tax chaos" if this bogeyman
called BEPS isn't tamed.
Don't be fooled, because this is an attempt to limit corporate global
tax competition and take more cash out of the private economy.
Fox News:
- Will IRS scandal lead all the way to Obama? It took a mere two months and eight days for the Obama administration’s
spin on the growing scandal of the IRS targeting Tea Party and
conservative groups to completely collapse.
- Detroit bankruptcy raises concerns about other US cites under huge retiree debt. The recent bankruptcy filing in Detroit is raising red flags about
other major U.S. cities also dealing with billions in under-funded
retiree benefits, prompting the question -- who might be next? Just
last week, Chicago’s credit rating was downgraded as a result of its $19
billion in under-funded pension liabilities. Moody's Investors Service
called the liabilities “very large and
growing" and warned that Chicago, the country’s third-largest city,
faces a “tremendous strain’’ in trying to meet future funding
requirements and public safety demands.
CNBC:
- Japan PM Abe's mandate is much smaller than it looks. Japanese Prime Minister Shinzo Abe's landslide election victory at
the weekend was anything but a ringing endorsement from voters. The vast
majority never voted for his coalition. Abe's mandate is much
smaller than his ruling bloc's win in the upper house poll suggests:
only about one in four voters gave their support. Three-quarters of the
electorate either did not vote at all or backed opposition parties.
Zero Hedge:
Business Insider:
Reuters:
- Spain taps social security reserve fund to pay pensions. Spain tapped its social security reserve fund for the second time in a
month on Monday, the Labour Ministry said, to help with extra summer
pension payments as unemployment and retirement costs deplete government
funds. The government turned to the fund for 3.5 billion euros ($4.6
billion) on July 1 then for a further 1 billion euros on Monday. Spanish
pensioners receive two cheques in summer and two over the Christmas
holidays.
- Brazil tries to lift fiscal credibility, markets don't buy it. Brazil
announced on Monday it will freeze an additional 10 billion reais ($4.4
billion) in budgeted spending, in an effort that is unlikely to dispel
investors' mistrust in the government's commitment to fiscal
austerity. The new freeze, which was originally expected to reach up to
20 billion reais, is aimed at helping the central bank battle
inflation, which hit a 20-month high in June. Brazil's planning
ministry on Monday raised its projection for 2013 inflation to
5.7 percent from 5.2 percent previously -- closer to market
expectations.
- Italy says to press ahead with divisive tax decisions. Italy's fragile coalition
government said on Monday it would press on with plans to reform
a hated housing levy and resolve differences over sales tax,
despite earlier reports it might have to postpone decisions on
the divisive issues. Disagreements over tax policy have tested the left-right
coalition, which has seen its public support tick down steadily
since it was formed in April.
- Texas Instruments(TXN) upbeat about revenue, chip demand. Texas Instruments Inc
gave a third-quarter revenue forecast that was stronger
than some analysts expected and said customers seem more
confident about placing orders for chips. Orders picked up in the first half of 2013 and Chief
Financial Officer Kevin March told Reuters on Monday that
business continues to improve, following weak demand last year
due to concerns about the global economy. Texas Instruments' book to bill ratio, a measure of orders
filled, was 1.03 in the second quarter, unchanged from the prior
quarter.
- Brazil firms boost hedges as currency swings, debt soars. Brazilian companies, seeking
to buffer their growing foreign debt from the impact of a
surging U.S. dollar, are stepping up demand for hedges known as
non-deliverable forward contracts, data by Cetip SA Mercados
Organizados showed on Monday.
Berliner Zeitung:
- IWH
Forecasts Eastern German Economy Will Stagnate This Year. IWH Halle
institute expects the German economy to grow .7% this year, citing IWH
projections. Cos. in eastern Germany less protected from recession in
neighboring countries. Unfavorable demographic trend one of the reasons
for stagnation in eastern Germany; more than 500,000 people emigrated
from the region from 2000-2011. Economic slowdown has cut chances
eastern German regions will reduce financial arrears owed to western
German states.
Beijing News:
- China
Premier Says GDP Growth Bottom Line is 7%. China Premier Li Keqiang
said China's "bottom line" for GDP growth is 7% and the nation can't let
growth go below that, citing comments at a recent meeting with
economists and businesspeople. China's economy is at a "reasonable"
level as a whole, Li said. China's policy makers don't simply loosen
fiscal and monetary policies or adopt short-term stimulus when downward
economic pressure increases, citing Chen Yulu, a central bank adviser.
Evening Recommendations
RBC:
- Rated (LRCX) Outperform, target $61.
Night Trading
- Asian equity indices are +.50% to +1.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 126.50 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 98.25 -3.75 basis points.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
9:00 am EST
- The House Price Index for May is estimated to rise +.8% versus a +.7% gain in April.
10:00 am EST
- The Richmond Fed Manufacturing Index for July is estimated to rise to 9.0 versus 8.0 in June.
Upcoming Splits
Other Potential Market Movers
- The
Japanese Cabinet Office Monthly Economic report, Eurozone Consumer
Confidence report, 2Y T-Note auction, HSBC Manufacturing PMI report,
Australian inflation data and the weekly retail sales reports could also
impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and real estate shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.
