Evening Headlines
Bloomberg:
- Obama Seeks Support for Syria Strikes as Timeline Grows. A
week after he surprised his
national security advisers by deciding to seek authorization
from Congress, President Barack Obama’s path to military strikes against
Syria isn’t getting any smoother. The outrage that Obama and Secretary
of State John Kerry expressed over an Aug. 21 nerve gas attack they
blamed on the Syrian regime, an action that crossed the president’s “red
line,” hasn’t brought a groundswell of support from lawmakers and the
U.S. public. Few international allies have said they’re ready to join in
air strikes, and Russia and China say they are
unswayed by the U.S. assertions blaming Syrian President Bashar al-Assad
for the attack that killed more than 1,400 people, many
of them women and children, near Damascus.
- India’s Middle Class Hit Hard as Rupee Pushes Up Prices.
Mumbai taxi driver Saiyad Ahmed Ali has cut back on fruit and fish,
from about twice weekly to once a month these days as prices surge.
He’ll tell you the culprit: India’s weakening currency. “The rupee’s value has been falling, gas is getting more
expensive and fewer people want to take cabs,” said Ali, who
has seen his daily income fall by about a third, to less than
400 rupees ($6.05) after the costs of running his taxi. “Life
here in the big city has become more difficult.” A 17 percent plunge in the rupee this year has driven up
the cost of imports such as petroleum and chemicals used in
packaging. As a result, companies have raised prices for
consumer staples like cooking oil and soap to compensate for
imported raw-material and transport costs.
- Singh Fails to
Convince S&P as Default Risk Surges: India Credit. India's default
risk is rising the most among emerging markets as Prime Minister
Manmohan Singh's government bucks a regional trend of budget tightening,
raising the prospect of a junk debt rating as the rupee plunges. The
cost to insure debt of State Bank of India, considered a proxy for the
sovereign, surged 157 basis points in three months, according to CMA
Credit-default swaps protecting government bonds climbed 108 basis
points for Indonesia and 80 for Turkey.
- China to Finish Local Government Debt Audit Ahead of Key Meeting.
China will this month complete an audit of local-government debt to
assess risks to its financial system, ahead of a Communist Party meeting
in November to set economic policy, a government official said. China’s
finance ministry will wrap up its first full audit in more than two
years in September and release the results to in October, Vice Finance Minister Zhu Guangyao said yesterday at a briefing during the Group of 20 Summit in St. Petersburg, Russia.
- Asian Stocks Snap Six-Day Rise Ahead of U.S. Jobs Report.
Asian stocks dropped, snapping a six-day advance and paring the
regional benchmark index’s biggest weekly gain since July, as investors
await the monthly American jobs report. Sumitomo Realty &
Development Co. sank 2 percent as Japanese developers retreated ahead of
a decision this weekend on whether Tokyo will host the 2020 Olympics.
SoftBank Corp. (9984) fell 2.2 percent after competitor NTT DoCoMo Inc.,
Japan’s largest mobile-phone carrier, was said to be near an agreement
to offer Apple Inc.’s iPhone. BBMG Corp., a cement company, rose 3.2
percent in Hong Kong after announcing a share sale. The MSCI Asia Pacific Index fell 0.1 percent to 133.08 as
of 11:41 a.m. in Hong Kong, on course to rise 2.3 percent this
week for the biggest advance since the week through July 12.
- Rebar Declines to One-Month Low on Iron Ore Price, Mill Output. Steel reinforcement-bar futures in
Shanghai fell to the lowest in a month as a drop in iron ore prices and rising output from mills encouraged selling. Rebar for January delivery on the Shanghai Futures Exchange
fell as much as 0.6 percent to 3,711 yuan ($606) a metric ton,
the lowest level for a most-active contract since Aug. 7.
Futures traded at 3,722 yuan at 10:46 a.m. local time and have
declined 0.8 percent this week.
- Rubber Drops, Paring Weekly Rally, as Yen Rebound Reduces Appeal.
Rubber futures declined in Tokyo as the Japanese currency rebounded
against the dollar, reducing the appeal of yen-based contracts, and as
concern grew that the Syrian conflict may harm the global economic
recovery. Rubber for delivery in February lost as much as 1 percent
to 280.8 yen a kilogram ($2,814 a metric ton) before trading at
282.1 yen on the Tokyo Commodity Exchange.
- Haunted Greeks Sell Real Estate EBay-Style to Evict Debt Specter. A legend that has swirled around the dilapidated mansion on Smolenski
Street in Athens is that the ghost of the previous owner deters
prospective buyers by moaning: “The house is mine.” The Greek government refuses to be spooked. The protected two-story mansion
and tower, replete with palm trees in the overgrown gardens, will be
sold on Sept. 17 to the highest bidder in an EBay-style Internet
auction. Greece
is trying to dispel criticism it’s not doing enough to sell real estate
pledged as part of its 240 billion-euro ($315 billion) rescue. “It’s
literally haunting the Greek budget,” Andreas Taprantzis, executive
director for real estate at the Hellenic Republic Asset Development
Fund, said in an interview. It “generates zero income, not even taxes,”
he said.
- Obama Seen Delaying Fed Nomination Until Syria Issue Resolved. President Barack Obama will likely
wait to announce his nominee to lead the U.S. Federal Reserve
until after Congress votes on military action in Syria and
probably until the immediate outcome of a strike is clear,
according to several people close to the White House. “Syria right now has kind of paralyzed the town,” said
David Plouffe, a former senior Obama adviser. “They’ll wait
until the dust clears.”
- Apple(AAPL) Said to Near Deal With Japan’s DoCoMo to Sell IPhone. Apple
Inc. (AAPL), the world’s most-valuable company, is near a final
agreement to offer its iPhone through the largest mobile carrier in
Japan, NTT DoCoMo Inc. (9437), according to people familiar with the situation.
DoCoMo may begin offering the iPhone later this year, said the people,
who asked not to be identified because the information is private. Apple
will debut new iPhones at a Sept. 10 event at its headquarters in
Cupertino, California, a person
familiar with the matter has said.
Wall Street Journal:
- Iran Plots Revenge, U.S. Says. Officials Say Intercepted Message to Militants Orders Reprisals in Iraq if Syria Hit. The U.S. has intercepted an order from Iran to militants in Iraq to
attack the U.S. Embassy and other American interests in Baghdad in the
event of a strike on Syria, officials said, amid an expanding array of
reprisal threats across the region.
Military officials have been trying to
predict the range of possible responses from Syria, Iran and their
allies. U.S. officials said they are on alert for Iran's fleet of small,
fast boats in the Persian Gulf, where American warships are positioned.
U.S. officials also fear Hezbollah could attack the U.S. Embassy in
Beirut. While the U.S. has moved military resources in the region for a
possible strike, it has other assets in the area that would be ready to
respond to any reprisals by Syria, Iran or its allies.
- EU Struggles to Save Iran Sanctions. Britain, France and Germany are struggling to craft measures to stop
successful legal challenges to sanctions against Iran from undermining
the West's efforts to combat Tehran's nuclear program. On Friday, a European Union court will issue decisions on a raft of
cases brought by Iranian banks and other firms that say they were
unfairly placed on the 28-nation bloc's sanctions list. Legal experts
say at least some of the challenges are likely to succeed. The U.S. is pressing for a clear resolution soon—as are some European
firms that, diplomats say, fear they could fall foul of U.S. law and
face penalties if they conduct business with delisted Iranian firms.
- Financial Crisis Anniversary: For Corporations and Investors, Debt Makes a Comeback. Five
years after excessive debt propelled a housing-market collapse into a
financial crisis and recession, similar bets are being placed across the
U.S. The crisis ignited on Sept. 15, 2008, when investment bank
Lehman Brothers collapsed under a mountain of highly leveraged mortgage
debt. Despite a government bailout of financial firms that totaled
hundreds of billions of dollars, 8.8 million jobs and $19.2 trillion in
household wealth were lost. The conventional wisdom has been that
Americans learned an important lesson—that you shouldn't take a loan just because one is available. Banks, companies and consumers aggressively dialed back borrowing in what was dubbed "the great deleveraging." But some
experts say the deleveraging is over and releveraging is well under
way, with corporate borrowers taking new loans hand over fist from
investors hungry for higher returns.
- Apple(AAPL) Tests iPhone Screens as Large as Six Inches. As Apple Inc. prepares to unveil both a new high-end iPhone and a cheaper version for the first time next week, it is already working
on something bigger. The electronics giant has begun evaluating a plan to offer iPhones with screens
ranging from 4.8 inches to as high as 6 inches, people familiar with the matter
say. That would be a sizable leap from the 4-inch screen of the iPhone 5
released last year, and, at the upper end, would be one of the largest on the
market.
- Navigating ObamaCare Outrage. How dare anyone ask anything about the law's implementation. With ObamaCare scheduled to launch on October 1, Democrats seem more
than a little anxious about their ability to execute. That's the only
fathomable explanation for their nervous breakdown over a routine House
inquiry. The Affordable Care Act is paying for "navigators," or non-government
groups that received federal dollars in August to help people figure
out and enroll for subsidies. That such a program even exists explains a
lot about the complexity of the new entitlement.
Fox News:
- Tale of Two St. Petes: As Obama visits Russia, US voters dubious on Syria strike. While President Obama was in St. Petersburg, Russia, on Thursday,
trying to sway skittish allies to back a military strike on Syria,
thousands of miles away in St. Petersburg, Fla., residents were leaving
little doubt that Obama has a lot of work to do if he's to gain their
support for military action. Lawmakers in and around the coastal city say their constituents are
almost uniformly opposed, or at least cautious, on a strike. Rep. Kathy
Castor, D-Fla., who represents the city, wrote to Obama saying her
neighbors are "extremely wary of military action." Republican Rep. Rich Nugent, who represents a nearby district, told
FoxNews.com his office has gotten 1,800 calls and emails opposing action
in Syria, and only 17 in favor. "You usually don't see any kind of split like that," Nugent said. The
overriding concern, he said, is that America could get drawn deeper
into the fight.
CNBC:
Zero Hedge:
Business Insider:
New York Times:
- Pentagon Is Ordered to Expand Potential Targets in Syria With a Focus on Forces. President
Obama has directed the Pentagon to develop an expanded list of
potential targets in Syria in response to intelligence suggesting that
the government of President Bashar al-Assad has been moving troops and
equipment used to employ chemical weapons
while Congress debates whether to authorize military action.
Washington Post:
- Turnover at Federal Reserve adds uncertainty to interest rate and QE3 promises. The Federal Reserve is facing significant turnover among top
officials at a time when it is trying to craft a long-term strategy for winding down its support for the nation’s economy.
The looming departure of Fed Chairman Ben S. Bernanke when his term
ends in January has garnered the most attention on Wall Street and in
Washington. But as much as half of the central bank’s
powerful policy-setting committee could also leave next year — making it
the biggest transition at the Fed since before the recession.
Reuters:
Financial Times:
- Europe urges China to cede business control. European
business representatives have accused Chinese regulators of unfairly
targeting foreign companies in a series of recent corruption and
monopoly investigations. Davide Cucino, president of the 1,700-member EU
Chamber of Commerce in China, on Thursday called for “a vast ceding of
political control over the
business environment” in China, saying that market forces would only be
strengthened if the government stepped back from its “over-dominant
role”.
Evening Recommendations
CSFB:
- Upgraded (KEY) to Outperform, target $14.
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 155.0 + basis point.
- Asia Pacific Sovereign CDS Index 125.75 -3.0 basis points.
- NASDAQ 100 futures -.03%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Change in Non-Farm Payrolls for August is estimated to rise to 180K versus 162K in July.
- The Unemployment Rate for August is estimated at 7.4% versus 7.4% in July.
- Average Hourly Earnings for August are estimated to rise +.2% versus a -.1% decline in July.
Upcoming Splits
Other Potential Market Movers
- The
Fed's George speaking, Fed's Evans speaking and the German Industrial/Trade data could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 15.65 -1.45%
- Euro/Yen Carry Return Index 136.99 -.26%
- Emerging Markets Currency Volatility(VXY) 11.87 +.68%
- S&P 500 Implied Correlation 50.39 -2.38%
- ISE Sentiment Index 120.0 +4.35%
- Total Put/Call .83 +3.75%
Credit Investor Angst:
- North American Investment Grade CDS Index 83.20 +.59%
- European Financial Sector CDS Index 147.0 +1.73%
- Western Europe Sovereign Debt CDS Index 91.0 +1.11%
- Emerging Market CDS Index 340.94 -.99%
- 2-Year Swap Spread 15.25 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -10.50 unch.
Economic Gauges:
- 3-Month T-Bill Yield .02% unch.
- China Import Iron Ore Spot $137.10/Metric Tonne -.65%
- Citi US Economic Surprise Index 53.40 +17.4 points
- Citi Emerging Markets Economic Surprise Index -15.80 +.2 point
- 10-Year TIPS Spread 2.08 unch.
Overseas Futures:
- Nikkei Futures: Indicating +35 open in Japan
- DAX Futures: Indicating -7 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech/biotech/retail/medical sector longs
- Disclosed Trades: None
- Market Exposure: 50% Net Long
Bloomberg:
- China Joins Europe in Syria Economic Risk Warning at G-20 Summit. China
and Europe at a Group of 20 summit hosted by Russia warned that
U.S.-led strikes on Syria would risk harming the global economy,
bolstering efforts to rally opposition to the proposed attack. “Such a
military action will definitely have a negative impact on the world
economy, especially on the oil price,” Chinese Vice Finance Minister Zhu Guangyao told reporters in St. Petersburg today. “We hope that this issue could be solved at
the United Nations and through diplomatic channels.”
- Turkey Reinforces Syria Border as Erdogan Backs U.S. Attack. Turkey deployed tanks and anti-aircraft guns to reinforce its military units on the Syrian
border, as the U.S. considers strikes against Syria. Convoys
carrying tanks and rocket-launchers headed to border areas in Hatay,
Gaziantep and Sanliurfa provinces today and yesterday, according to
Hurriyet newspaper and Anatolia news agency. Tanks, missile launchers
and anti-aircraft guns on
hilltops near the border town of Kilis were aimed Syria, state-run TRT
television said. F-16s, tanker and cargo planes as well
as at least one drone landed at southern Incirlik Air Base,
Anatolia said. Turkish Prime Minister Recep Tayyip Erdogan, who has
expressed a willingness to join any international coalition
against Syria, yesterday vowed to respond to any attack from its
southern neighbor.
- Draghi Says ECB Ready to Act as Market Rates Advance. Mario Draghi said the European Central Bank is “ready to act” as rising money-market rates threaten his drive to reassure investors that borrowing costs will stay low. Bond yields extended their gains. “We will remain particularly attentive to the implications that these developments may have to the stance of monetary policy,” the ECB president said at his monthly press conference in Frankfurt today after the bank left its benchmark rate at a record low of 0.5 percent. “I’m very, very cautious about the
recovery. I can’t share enthusiasm, it’s just the beginning. The
shoots are still very, very green.”
- Spain’s Deficit Struggle Shows Threat to ECB Rally: Euro Credit. Spain’s bid to meet its budget-deficit target for the first time in five years is running into
trouble, fueling concerns that increased financial stability is
masking deeper economic problems. The shortfall for the central government in the first seven
months of the year was 4.38 percent of Spanish output, compared
with a 3.8 percent goal for the year, government data show.
Economists at the savings banks’ foundation Funcas, Mizuho
International and Bank of America Merrill Lynch said Spain may
miss the European Union’s overall goal for this year of 6.5
percent as benefit spending climbs and tax income falters.
- German Factory Orders Drop as Boost From Air Show Fades: Economy. German factory orders (GRIORTMM) fell in July after demand was boosted by the Paris Air Show a month earlier. Orders,
adjusted for seasonal swings and inflation, dropped 2.7 percent from
June, when they rose a revised 5 percent that was larger than originally
estimated, the Economy Ministry in Berlin said today. Economists
forecast a July drop of 1 percent, according to the median of 39
estimates in a Bloomberg News survey.
- France Sells 10-Year Bonds With Highest Yield Since Election. The treasury sold 4.24 billion euros ($5.59 billion) of
2023 debt at an average yield of 2.57 percent, the highest at
any auction since May 2012. It also sold 2.49 billion euros in
2021 securities at an average yield of 2.17 percent -- more than
1.42 percent on May 2 -- and 1.66 billion euros 2045 debt at 3.6
percent.
- European Stocks Rise as ECB Holds Benchmark Rate at Low.
European stocks climbed as European Central Bank President Mario Draghi
reiterated that interest rates will stay low for an extended period,
while the Federal Reserve said it saw a modest to moderate U.S. economic
recovery. PSA Peugeot (UG) Citroen added 5.4 percent as its chief
executive officer predicted a market-share increase in an interview with
Le Parisien. Telecom Italia SpA rose 8.4 percent after a report that
Egyptian billionaire Naguib Sawiris may buy a stake in Italy’s biggest
phone company. TeliaSonera AB slid 1.9 percent as Finland cut its
holding in the network operator. The Stoxx Europe 600 Index added 0.7 percent to 304.55 at the close of trading.
- WTI Crude Rises as Cushing Supply Drops to 17-Month Low. “Inventory levels continue to come down, which is
supportive of the market,” said Adam Wise, who helps manage a
$6 billion oil and gas bond portfolio as a managing director at
Manulife Asset Management in Boston. “The market’s really holding its breath waiting for the full impact of the Syria situation to play itself out.”
WTI crude for October delivery increased 82 cents, or 0.8
percent, to $108.05 a barrel at 1:08 p.m. on the New York
Mercantile Exchange.
- Euro Slides to Six-Week Low on Draghi Comments; Krona Weakens. “Draghi is still not very confident about the economic
recovery, and that’s contributing to the weakness in the euro,”
Douglas Borthwick, head of foreign exchange at Chapdelaine & Co.
in New York, said in a telephone interview. “The market knows
very well that the ECB is going to be on hold with a bias
towards lower rates for the foreseeable future.”
- Gold Drops as U.S. Economic Data Stokes Concern About Tapering. Futures for December delivery fell 0.7 percent to $1,380.40
an ounce at 10:15 a.m. on the Comex in New York. Prices rose as
much as 0.7 percent earlier as the Senate Foreign Relations Committee
voted yesterday to authorize President Barack Obama to conduct a limited
military operation in Syria.
- Consumer Comfort in U.S. Declines for a Fourth Straight Week. (graph) Consumer confidence fell for a fourth consecutive week to its lowest level since early April as Americans’ views on the economy and buying climate deteriorated. The Bloomberg Consumer Comfort Index eased to minus 32.3
for the period ended Sept. 1, its weakest reading since April 7,
from minus 31.7. The gauge has dropped 8.8 points after reaching
a more than five-year high in the week ended Aug. 4. The series
of declines is the longest since January.
- Sluggish August Retail Sales Seen Boding Ill for Holiday Season. L Brands Inc. (LTD), which owns Victoria’s Secret and has powered through a choppy economy, reported August
same-store sales that narrowly missed estimates, the latest
evidence of weakness among U.S. apparel chains. Sales at L Brands stores open at least 12 months rose 2
percent, compared with a predicted gain of 2.1 percent.
- Money Fund Lehman Moment Lurks as New Protections Stall. A year ago, when opposition from the asset-management industry killed
her plan to make money-market mutual funds safer, U.S. Securities and
Exchange Commission Chairman Mary Schapiro looked to Timothy Geithner,
then the Treasury Secretary, to tackle “one of the pieces of unfinished
business from the financial crisis.” It remains unfinished.
Wall Street Journal:
Fox News:
- Putin warns Russia could come to Syria's aid over US strike.
As he touched down in St. Petersburg on Thursday morning, President
Obama greeted his host Vladimir Putin with a handshake and a smile. But
the cordial greeting belies the tinderbox the two leaders are
sitting on, as they posture and deliberate over a potential U.S. strike
on Syria -- one of Russia's closest Mideast allies.
Putin escalated concerns about the fallout from any strike when he
indicated in an interview published Wednesday that his country could
send Syria and its neighbors in the region the components of a missile
shield if the U.S. attacks.
MarketWatch:
CNBC:
- US planned layoffs jump in August: Challenger. Employers announced 50,462 layoffs last month, up 33.8 percent from
37,701 in July, according to the report from consultants Challenger,
Gray & Christmas. The August job cuts were up 57 percent from the same time a year ago.
For 2013 so far, employers have announced 347,095 job losses, close to
the 352,185 that were seen in the first eight months of last year.
Zero Hedge:
Business Insider:
MacRumors:
Reuters:
- India's inverted yield curve fails rupee and slams economy. Viewed in one light,
India's steeply inverted yield curve is the result of a deliberate and
classic policy strategy to defend a weak currency. From another
perspective, it is pointing at deep economic problems to come, possibly
even recession. The central bank measures though are also
taking a toll on the banking sector, which is heavily reliant on
short-term money markets for capital. Since longer-term yields are lower
- they have risen but not to the extent of short-term rates - bank
lending has suffered and the value of the bonds on their books has
fallen. "There is a concern here
that we have a recession in India, which could trigger further
outflows," said Claudio Piron, a strategist with BofA Merrill Lynch in
Singapore. The problem was that the Reserve Bank of India lacked
credibility, he said. "That's when
the market thinks that you are undermining growth. And if you undermine
growth, the fiscal numbers, be they corporate or government
balance-sheets, will look worse and you will get more currency weakness
and more outflow."
- Italy finances slipping as political crisis brews. Italy, which three months ago got off the European Union's blacklist of countries with excessive fiscal deficits, may be put straight back on it next year unless
it can reverse a worrying trend in its public finances.
BBC:
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
Folha de S.Paulo:
- Brazil May Punish U.S. Firms if Obama Doesn't Apologize. Brazil's
govt may send law to Congress that would punish cos. involved in spying
if U.S. President Barack Obama doesn't make formal apology to President
Dilma Rousseff over spying allegations. Such a law could affect
Google(GOOG) and Microsoft(MSFT).
Style Underperformer:
Sector Underperformers:
- 1) Gold & Silver -2.41% 2) REITs -1.02% 3) Homebuilders -.85%
Stocks Falling on Unusual Volume:
- CONN, MIND, UEPS, CHD, SMLP, ADES, TLK, NVO, SAP, PRA, GEF, UMBF, CPB, CVV, CEVA, SDRL, XONE, UHAL, MSG, LTD, FMS, HEP, NTG, FOSL and DLR
Stocks With Unusual Put Option Activity:
- 1) LPX 2) S 3) NFX 4) FXE 5) SHLD
Stocks With Most Negative News Mentions:
- 1) WPZ 2) KORS 3) MS 4) WMT 5) OPEN
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Oil Service +1.47% 2) Airlines +.99% 3) HMOs +.97%
Stocks Rising on Unusual Volume:
- IBN, HDB, OAS, PBR, PZE, POZN, SPPI, ACHN, KDN, LPX, FAST, GRPN, CMC and NQ
Stocks With Unusual Call Option Activity:
- 1) ASTX 2) KSS 3) RSX 4) TSN 5) GIS
Stocks With Most Positive News Mentions:
- 1) YHOO 2) WCG 3) COST 4) UNG 5) STZ
Charts:
Evening Headlines
Bloomberg:
- Obama-Putin Rift Over Syria Strike Widens on Eve of G-20 Summit. The
diplomatic dialogue between Barack Obama and Vladimir Putin has
featured the U.S. president comparing Putin to a bored schoolboy and the
Russian leader forcing an irritated Obama to wait a half-hour for a
meeting. And that was before warships from the two nations drew near in
the Eastern Mediterranean amid a widening rift over Obama’s threat of a
military strike against Syria after what he says is the regime’s use
of chemical weapons in an area near Damascus. With Obama in St.
Petersburg today for a summit of global leaders, Putin yesterday
denounced a potential U.S. attack on Syria as a violation of
international law, while Obama told reporters the two countries’
relations have “hit a wall.” “This is basically as bad as it gets,” said
James Goldgeier, dean of the School of International Service at
American University and the Russia director for the National Security
Council under former President Bill Clinton. “You typically don’t have leaders who so openly criticize each other, who openly disdain each other.”
- IMF Sees Acute Market Pressure for Some Emerging Economies. Developed economies are turning into
global growth engines as some of their emerging-market
counterparts decelerate amid “acute” market pressures, the International Monetary Fund said. “Global
growth remains subdued but its underlying dynamics are changing,” the
IMF said today in a report for leaders of the Group of 20 nations
meeting this week in St. Petersburg, Russia. “Momentum is projected to
come mainly from advanced economies, where output is expected to
accelerate.” Emerging markets, which helped pull the world out of a
recession after the global financial crisis, now face an exodus of cash
and sliding currencies in anticipation of the Federal Reserve’s eventual
tapering of its $85 billion in monthly bond
purchases. Expansion in those countries is 2.5 percentage points
below 2010 levels, with Brazil, China and India accounting for
the slowdown, according to the IMF.
- China Must Give Market Bigger Role as Growth Slows, Chamber Says.
China’s government must reduce its role in the economy and allow
market-driven change to ensure sustainable growth, according to a report
by the European Union Chamber of Commerce in China. “China could previously make a choice between economic
restructuring and maintaining growth,” Davide Cucino, president
of the chamber, said at a briefing on its annual position paper
in Beijing yesterday. Now “the only way to get sustainable
growth is to carry out structural reform.”
- China Sells Residential Land at Record Price Amid Property Curbs. China
sold a residential land parcel in Beijing at a record price amid rising
competition among developers for land in major cities even as the
government maintains its property curbs. The 28,100 square-meter
(302,356 square-foot) National Agriculture Exhibition Center plot,
northeast of the city center, was sold for 2.1 billion yuan ($343
million) to Sunac China Holdings Ltd. (1918) yesterday. Sunac’s bid
included a commitment to build a 278,000 square-meter hospital at
another site, taking the total bid cost to 4.3 billion yuan, according
to a statement on the local land reserve center’s website. The price
paid
implies a cost per square meter of buildable space of 73,000
yuan, the most expensive in China, according to Centaline
Property Agency Ltd., China’s biggest real-estate brokerage.
“The high price happened even as property curbs were in
place,” said Qu Anxin, a Shanghai-based researcher at
Centaline, who estimated that homes built on the site will sell
for as much as 200,000 yuan per square meter.
- BOJ Leaves Policy Unchanged as Economy Makes Moderate Recovery. The
Bank of Japan maintained its unprecedented monetary easing, as signs of
strength in the economy and price gains point to progress in its effort
to end 15 years of deflation. The central bank will expand the monetary
base at an annual pace of 60 trillion yen ($602 billion) to 70 trillion
yen, it said in a statement in Tokyo today. All 32 economists in a
Bloomberg
News survey forecast the outcome. The BOJ raised its assessment of the
economy, saying a moderate recovery is underway.
- Samsung $299 Galaxy Gear Tests Demand for Smart Watches.
Samsung Electronics Co. (005930) set the price of its Galaxy Gear at
$299 as the biggest maker of smartphones beats Apple Inc. (AAPL) in
unveiling a wristwatch device that can make phone calls, surf the Web
and take photos.
- China Stocks Fall Most in 2 Weeks, Halts Longest Rally in Month.
China’s stocks fell the most in two
weeks, led by material producers and port operators. Shanghai
International Port (Group) Co. dropped 2.6 percent
after gaining 95 percent since the State Council approved the
city’s free-trade zone plan on Aug. 22. Aluminum Corp. of China
Ltd. slumped the most in a month. China Merchants Bank Co. advanced 2.3
percent after raising 27.5 billion yuan ($4.5 billion) in a rights
offer. The Shanghai Composite Index (SHCOMP) fell 0.5 percent to 2,117.21
at 10:04 a.m. local time, poised for the biggest loss since Aug.
20.
- Won to Kospi Jump as Metals Gain; Aussie Index, Kiwi Fall. Asian stocks rose for a sixth day
and emerging-market currencies strengthened as central banks
from Japan to Europe review monetary policy. Aluminum gained. The MSCI Asia Pacific Index of shares added 0.2 percent to
133.39 as of 11:55 a.m. in Tokyo, heading for its longest rally
since December.
- Rubber Extends Loss as Selling in Shanghai Spurs Demand Concern. Rubber futures declined for a second
day as a drop in the Chinese market increased concern demand may
weaken in the world’s largest consumer. The February contract fell as much as 0.8 percent to 279.3
yen a kilogram ($2,800 a metric ton) on the Tokyo Commodity
Exchange and traded at 280.9 yen at 11:53 a.m. local time.
- Rebar Futures Drop to Lowest in a Month as Premium Lures Sellers.
Steel reinforcement-bar futures in Shanghai fell for the third day to
the lowest level in almost a month as the premium to spot market prices
attracted selling. Rebar for January delivery on the Shanghai Futures Exchange lost as much as 0.4 percent to 3,723 yuan ($608) a metric ton,
the lowest since Aug. 9, before trading at 3,730 yuan at 10:31
a.m. local time.
- Draghi Seen Fighting Enthusiasm as Market Rates Increase. Draghi’s dilemma is that the strength of the rebound has
helped boost interest-rate expectations to levels he described
last month as “unwarranted.” That’s a signal some investors
are questioning his commitment made in July to keep rates low
for an extended period. Higher borrowing costs risk undermining
what has so far proved to be a jobless recovery. “At a time when
this recovery is in its early stages, it is important for the ECB
president to limit any abrupt upward reaction in yields,” said Alan
Clarke, an economist at Scotiabank in London.
- Shiller Warns
of Housing Bubble After 225% Surge: Brazil Credit. Robert Shiller, who
predicted the collapse of the U.S. housing market, is warning that a
bubble is emerging in Brazil at a time when a sluggish economy and
persistent inflation are eroding investor confidence. Since January
2008, home prices in Sao Paulo have soared 181% and jumped 225% in Rio
de Janeiro, according to the FIPE Zap index. That's as much as twice the
increase in rent prices, signaling that the housing market has become
overheated, according to Shiller.
- About 35,000 Global Bank Employees May Face EU’s Bonus Curbs. About 35,000 employees at banks
around the world may be caught by European Union bonus caps,
more than 20 times the current number of people affected by the
pay rules, the British Bankers’ Association said. The workers facing the EU rules, which would cap bonuses at
twice annual pay, include 23,450 bankers in the U.K., 2,835 in
other EU countries and 8,777 around the world, the industry
group said in a report posted on the European Banking
Authority’s website. The BBA asked the regulator to delay the
introduction of tougher bonus rules for one year.
Wall Street Journal:
- Senate Panel Backs Use of Force Against Syria. Measure Says Goal Should Be to 'Change the Momentum on the Battlefield'; Pentagon Plans More Firepower.
A key Senate panel on Wednesday backed President Barack Obama's request
to strike Syria, while the Pentagon prepared to employ greater
firepower to reach a shifting array of military targets. The revised
options under development, which reflect Pentagon
concerns that Syrian President Bashar al-Assad has dispersed his
military equipment, include the use of Air Force bombers to supplement
the four Navy destroyers armed with missiles that are deployed in the
eastern Mediterranean. Initially, Pentagon planners said they didn't
intend to use aircraft in the proposed strikes.
- Capital Unease Again Bites Deutsche Bank(DB). German Lender Maintains It Is Adequately Capitalized.
A mere four months after co-Chief Executive Anshu Jain declared the end
of Deutsche Bank AG's DB +0.77% "hunger march" following a €3 billion
($3.95 billion) capital increase, the bank is again on the defensive,
trying to persuade investors and regulators that it is sufficiently
capitalized. To its critics, the bank's claims—to be "one of the best
capitalized banks in the world"—appear to have fallen on deaf ears as
its earnings outlook has clouded. Deutsche Bank's shares have dropped
7.3% since late July, closing Wednesday in Frankfurt at €33.50.
Zero Hedge:
Washington Post:
- Obama seeks an accomplice for Syria action by George Will. Obama’s
sanctimony about his moral superiority to a Congress he
considers insignificant has matched his hypocrisy regarding his
diametrically opposed senatorial and presidential understandings of the
proper modalities regarding uses of military force. Now he asks from the
Congress he disdains an authorization he considers superfluous. By
asking, however reluctantly, he begins the urgent task of lancing the
boil of executive presumption. Surely he understands the perils of being
denied an authorization he has sought, and then treating the denial as
irrelevant.
New York Times:
- Falling Economic Tide in India Is Exposing Its Chronic Troubles. Its economy now stands in disarray, with the prospect of worse to come in the next few months. Vinod Vanigota, a Mumbai wholesaler of imported computer hard drives,
said sales dropped by a quarter in the last two weeks. The rupee,
India’s currency, has been so volatile in recent days that he began
revising his price lists every half-hour. Business activity at Chip Com Traders, where he is the managing director
and co-owner, has slowed so sharply that trucking companies plead for
business. “One of the companies called today and said, ‘Don’t you have a
parcel of any sort for us to deliver today?’ ” Mr. Vanigota said.
Reuters:
- EADS sees flat to lower defense revenue. EADS
is opting out
of bidding on some U.S. weapons programs as it adjusts to cuts in U.S.
defense spending, and it expects flat to lower revenue in defense
business in coming years as the cuts deepen, a senior executive said
on Wednesday. "There's no doubt that the government sector is flat to
declining and we're forecasting the same," Sean O'Keefe, chief executive
of EADS North America, told the Reuters Aerospace and Defense Summit.
Financial Times:
- Lloyd’s chairman warns on ‘systemic risk’ of capital rush. The
chairman of Lloyd’s of London has warned of the danger that a rush of
capital into the insurance industry will cause “systemic problems” akin
to those of the banking sector during the financial crisis. John Nelson,
head of the historic insurance market, spoke
out about the risks of adverse consequences from non-traditional funding
of insurance, which he said was occurring “on a scale not seen before”.
Telegraph:
Shanghai Securities News:
- China Economy 'Held Hostage' by Property Investment. China's
economy has been "largely taken hostage" by property investment, which
accounts for a high proportion of GDP, former People's Bank of China
adviser Yu Yongding writes in a commentary. Developing countries like
China should not make real estate a "pillar" industry for economic
development, Yu wrote. A "serious" property tax policy will "squeeze"
out many homes, according to Yu. Non-performing loan ratio may rise
substantially in futures periods, he said. Local government debt is the
biggest risk to China's financial system, Yu said.
Evening Recommendations
Wedbush:
- Rated (SBUX) Outperform, target $80.
Morgan Stanley:
- Rated (DE) Underweight, target $72.
Night Trading
- Asian equity indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 155.0 +1.0 basis point.
- Asia Pacific Sovereign CDS Index 128.75 +.5 basis point.
- NASDAQ 100 futures +.06%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:15 am EST
- The ADP Employment Change for August is estimated at 182K versus 200K in July.
8:30 am EST
- Initial Jobless Claims are estimated to fall to 330K versus 331K the prior week.
- Continuing Claims are estimated to fall to 2985K versus 2989K prior.
- Final 2Q Non-Farm Productivity is estimated to rise +1.6% versus a prior estimate of a +.9% gain.
- Final Unit Labor Costs are estimated to rise +.8% versus a prior estimate of a +1.4% gain.
10:00 am EST
- Factory Orders for July are estimated to fall -3.4% versus a +1.5% gain in June.
- ISM Non-Manufacturing for August is estimated to fall to 55.0 versus 56.0 in July.
11:00 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a +2,986,000 barrel increase the prior week. Gasoline supplies are estimated to fall by -700,000 barrels versus a -587,000 barrel decline the prior week. Distillate inventories are expected to rise by +600,000 barrels versus a -316,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.5% versus a +.2% gain the prior week.
Upcoming Splits
Other Potential Market Movers
- The
Fed's Kocherlakota speaking, BoE rate decision, ECB rate decision,
Draghi press conference, Spanish/French bond auctions, G-20 meetings,
Challenger Job Cuts report for August, RBC Consumer Outlook Index for
September, weekly EIA natural gas inventory report and the (SYK) analyst meeting 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 mixed. The Portfolio is 50% net long heading into the day.
