Trichet Reiterates ECB Will Do What Is Needed to Keep Inflation In Check. European Central Bank President Jean-Claude Trichet reiterated policy makers will do what is needed to keep inflation in check and stressed that the ECB’s credibility on price stability remains intact. “We will do what is necessary,” Trichet told Francine Lacqua in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland, yesterday. “It is not by chance that we have delivered price stability. Our credibility it based on that doctrine.”
China Will Face Crisis Within 5 Years, 45% of Investors Say. Global investors are bracing for the end of China’s relentless economic growth, with 45 percent saying they expect a financial crisis there within five years. An additional 40 percent anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7 percent are confident China will indefinitely escape turmoil. “There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained,” says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted Jan. 21-24. Panis likens the expected fallout to the aftermath of the U.S. subprime-mortgage meltdown. Fifty-three percent of poll respondents say they believe China is a bubble, while 42 percent disagree. China’s neighbors are the most concerned: 60 percent of Asia-based respondents identified a bubble in the world’s second-largest economy. Worries center on the danger that investment, which surged almost 24 percent in 2010, may be producing empty apartment blocks and unneeded factories. Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco, says he is “exceptionally worried” that the Chinese would eventually face “major dislocations within their banking system.” Haroon Shaikh, an investment manager with GAM London Ltd., cited “rapid wage inflation” and soaring property prices as the financial markets’ chief concern. Li Daokui, an adviser to China’s central bank, said rising real estate prices are the “biggest danger” to the Chinese economy, in an interview with Bloomberg News in Davos, Switzerland. The People’s Bank of China should “gradually increase rates in the first and second quarter,” Li said. Since peaking on Nov. 8 at 3159.51, the Shanghai Composite Index has slid about 14 percent. “The market is right to be nervous,” Michael Pettis, a finance professor at Peking University’s Guanghua School of Management, wrote in his Jan. 26 financial newsletter. Asked to identify the worst market for investment over the next year, 20 percent of poll respondents say China versus just 11 percent in the last poll in November. Almost half of those polled -- 48 percent -- say a significant slowing of growth was very or fairly likely within the next two years.
Subprime Bets Made by 50 Hedge Funds, Greg Lippmann Told FCIC. Greg Lippmann, who gained fame for his bets against subprime mortgage securities, brokered wagers against the bonds to at least 50 hedge funds during 2006 and 2007, the former Deutsche Bank AG trader told the Financial Crisis Inquiry Commission. The trades, made through credit-default swaps on low-rated securities that would pay off if the debt defaulted, may have been placed by as many as 100 funds, the panel wrote in a 545- page book outlining its conclusions set for release today. Most of the opposite “long” bets were sold to UBS AG, Merrill Lynch & Co. and Citigroup Inc. “because they were the most aggressive underwriters” of collateralized debt obligations, Lippmann said in a May 2010 interview with the commission, according to the book. The banks retained much of the risk, the panel wrote.
Bear Stearns Used 'Window Dressing' to Lower Reported Leverage, FCIC Finds. Bear Stearns Cos. temporarily moved assets off its books through transactions marked as sales, a form of “window dressing” that disguised the firm’s condition before losses forced its sale to JPMorgan Chase & Co., a former executive told the Financial Crisis Inquiry Commission. Robert Upton, who was treasurer of Bear Stearns when the Federal Reserve brokered its takeover in March 2008, told the FCIC that the Wall Street firm had lowered its leverage ratio in 2007 by selling assets at the end of each quarter and buying them back later, the panel wrote in a 545-page book outlining its conclusions. “Upton called the move ‘window dressing’ and said it ensured that creditors and ratings agencies were happy,” commissioners wrote, citing an April 2010 interview with him. Bloomberg News obtained a copy of the book, which is scheduled for release tomorrow.
Goldman's(GS) Mortgage Trading, Commodities Relied on Derivatives. Goldman Sachs Group Inc., pressed by a congressionally appointed panel to describe its use of derivatives during the financial crisis, said it relied on the instruments for most mortgage trades and for revenue from commodities, interest rates and currencies. Derivatives accounted for 70 percent to 75 percent of revenue in the firm’s commodities business from 2006 to 2009, and “half or more” of revenue from interest rates and currencies, the firm estimated, according to a report by the Financial Crisis Inquiry Commission. From May 2007 to November 2008, about 86 percent of $155 billion in trades made by the firm’s mortgage business involved derivatives, the FCIC said. The commission examined derivatives as part of an investigation of the credit crisis, which sparked the worst recession since the 1930s and the loss of more than 8 million U.S. jobs.
Egypt Riskier Than Iraq in Swaps as Tunisia-Sparked Unrest Targets Mubarak. Egypt is riskier than Iraq in the market for credit default swaps for the first time in at least a year as thousands protest to denounce President Hosni Mubarak. The cost of protecting Egyptian debt against default for five years with the contracts jumped 41 basis points, or 0.41 percentage point, this week to 345 yesterday, compared with 328 for Iraq, according to prices from CMA, a data provider in London. Just last week, Iraqi swaps cost 19 basis points more than Egypt’s, and in June, an average 240 basis points more. The unrest, inspired by the revolt that toppled Tunisia’s leader, “does raise political risks,” said Eric Fine, a portfolio manager in New York who helps Van Eck Associates Corp. oversee $3 billion in emerging-market assets. “If this is a revolution the price of risk for Egypt could go much higher, and if it’s a failed one” the cost will drop to 300 basis points and probably 250, Fine said in a phone interview.
Gold May Advance as Federal Reserve Maintains Economic Stimulus. Gold, trading little changed, may gain after the Federal Reserve said that the U.S. still needs stimulus to cut unemployment, signaling that the bank’s policies that helped to boosted prices last year remain intact.
Wheat Poised for Longest Winning Streak Since 2007 on Imports. Wheat futures advanced for an eighth day, the longest winning streak in more than three years, on concern that record food prices may fan social unrest and fuel inflation, prompting governments to boost grain imports. March-delivery wheat gained as much as 0.8 percent to $8.635 a bushel on the Chicago Board of Trade, the highest price for the most-active contract since Aug. 6. A gain for an eighth day will be the longest rally for a most-active contract since Oct. 2007.
Bangladesh Rice Imports to Double on 'Panic-Buying,' Hasan Says. Bangladesh, South Asia’s biggest rice buyer, doubled its import target for this year to cool domestic prices that surged to a record in December as consumers and farmers hoarded supplies, a government official said. The import target was raised to 1.2 million metric tons for the year ending June 30, from 600,000 tons set in November, said Badrul Hasan, director for procurement at the nation’s Directorate General of Food. That’s triple the U.S. Department of Agriculture’s estimate of 400,000 tons. “The reason for the increase is panic-buying,” Hasan said in a phone interview from Dhaka yesterday. “There’s a sense of insecurity among the public. People who usually need 10 kilos buy more than 20 kilos. When farmers need to sell, they withhold their stocks” expecting a windfall as prices advance, he said.
Social Security Program to Run Deficits for Foreseeable Future, CBO Says. The U.S. Social Security program will run a deficit this year and will continue spending more on benefits than it receives in revenue for the foreseeable future, according to the Congressional Budget Office. The nonpartisan agency said today the program will run a $45 billion deficit this year and see a total shortfall of $547 billion over the subsequent 10 years.
Applied Materials(AMAT) to Benefit From Chipmakers' $42 Billion Spree. Applied Materials Inc. and other semiconductor-equipment makers stand to get a boost as Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. unveil spending plans aimed at increasing chip production. The two Asian companies will follow Intel Corp. and Globalfoundries Inc. in releasing their 2011 budgets. They may echo Intel and smaller chipmakers by investing more in manufacturing capacity to prepare for a jump in output amid rising demand for tablet computers, smartphones and the servers that supply them with information. “It’s going to be a very positive year, much more positive than folks had anticipated,” said Dean Freeman, an analyst at Gartner Inc. The research firm now predicts spending on equipment will rise 10 percent this year to at least $42.2 billion, from an estimated $38.4 billion spent in 2010, said Klaus Rinnen, another Gartner analyst. Gartner previously had projected a 1 percent decline for 2011.
China Boosts Loan Down Payments, Seeks Property Price Targets. China increased the minimum down payment for second-home purchases and asked local governments to boost land supply to limit the risk of a property bubble in the world’s fastest-growing major economy. The minimum down payment for second-home purchases rises to 60 percent from 50 percent, the State Council said in a statement on its website yesterday. Local governments should set pricing control targets for newly built houses based on regional economic growth and disposable incomes and publicize them in the first quarter, the statement said. Shares of developers tumbled. “This set of measures are stronger than the measures in the past 12 months, and reflect the strong determination of the government to stabilize property prices in China,” Deutsche Bank AG analysts led by Tony Tsang said in a report late yesterday. “We expect to see continued credit tightening and further interest rate and reserve-ratio requirement hikes.” “Of all the new measures, we believe the most negative is asking each city to set a 2011 property price target within the first quarter,” Credit Suisse Group AG analysts led by Jinsong Du said in a report today. “This means that either high-end projects will slash their prices or the local governments will ban their sales to bring down the average selling price.” Credit Suisse maintained its “underweight” rating for China’s property industry and said the tightening of loans for developers and homebuyers will drive transactions lower in 2011.
China Should Boost Interest Rates Amid Property 'Danger,' Adviser Li Says. China needs to extend interest-rate increases and allow the yuan to gain by about 5 percent annually to combat inflation and avoid fuelling asset bubbles, said Li Daokui, a central bank monetary policy committee member. “We should gradually increase rates in the first and second quarter,” Li said in an interview at the World Economic Forum in Davos yesterday. Rising real-estate prices are the “biggest danger,” he said.
Japan's Export Growth Accelerated for Second Month. Japan’s export growth accelerated for a second month in December, signaling the nation’s recovery will gain traction as global demand picks up. Overseas shipments rose 13.0 percent in December from a year earlier, from November’s 9.1 percent gain, the Finance Ministry said in Tokyo today. The median estimate of 21 economists surveyed by Bloomberg News was for a 9.3 percent gain.
Wall Street Journal:
Rising Price Pressures Spur Concerns. With the risks of a double-dip recession apparently receding in most parts of the world, another economic challenge is emerging: inflation. Rising prices for food, energy and other commodities are reducing the disposable incomes of poor people across the planet, providing a trigger for street protests in North Africa and posing a deep conundrum for policy makers world-wide.
Banks Get Tough With Municipalities. As municipal borrowers look to renegotiate bond deals, banks are drawing a tough line in the refinancing talks. Some banks that helped borrowers get cash are less willing to or able to do so now. Stronger banks that still can provide backstops, called letters of credit, will do them only with strings attached. Costs for the letters have risen. "The terrain has changed quite dramatically," says Lee White, executive vice president at investment-banking firm George K. Baum & Co. in Denver. The change in banks' stance and its effect on municipal borrowers' finances shows interrelationships in the credit market that are often out of view.
Warehouse Giant AMB(AMB) Near Merger With Rival ProLogis(PLD). Warehouse giant AMB Property Corp. is close to an agreement to merge with larger rival ProLogis, people familiar with the matter said, in what would be the biggest deal since the recession involving publicly traded real-estate companies. Financial terms of the proposed deal couldn't be learned. The two companies have a combined market capitalization of $13.9 billion.
Tax Redo Seeks 'Level Playing Field'. On Wednesday, Treasury Secretary Timothy Geithner talked to The Wall Street Journal's David Wessel about the initiative. Mr. Geithner emphasized the administration's insistence on offsetting the corporate rate, now 35%, by eliminating deductions, credits and incentives. Raising more revenue from businesses in light of global competition "isn't realistic," he said. But, given the deficit, "We can't raise taxes on individuals to lower business taxes." He wouldn't say if the administration wants to move from taxing multinational corporations' global profits and instead tax only domestic profits, as most other countries do and as U.S. business wants. But he said a "level playing field" is a major goal.
Influential Proposal to Outline Fannie, Freddie Fixes. A new report from a liberal think tank with close ties to the Obama administration provides one of the most detailed road maps yet for the creation of a housing-finance structure to succeed mortgage giants Fannie Mae and Freddie Mac. The proposal, to be unveiled Thursday by the Center for American Progress, crystallizes the approach that leading liberal policy makers favor for dividing up the myriad functions that have been filled by Fannie and Freddie.
Teradyne(TER) 4Q Profit Triples; 1Q Targets Above Expectations. Teradyne Inc.'s (TER) fourth-quarter earnings more than tripled to beat expectations. The maker of semiconductor-testing equipment also predicted results for the current quarter above Wall Street's forecasts. Shares jumped 11% to $16.25 in after-hours trading.
After You, Mr. Ryan. The President says the deficit is the GOP's problem now.
New Jersey to Cut Corporate Taxes Further: Governor Christie. New Jersey Gov. Chris Christie will propose a further cut in the state's corporate tax rate during his budget address in February, the governor told CNBC Wednesday. “New Jersey isn't the perfect place to do business now,” said Christie, “but we're on the upswing.” New Jersey-based corporations pay a 9.4 percent tax rate, one of the highest in the country. The nonpartisan Tax Foundation recently ranked New Jersey 48th, up from 50th, in having a favorable business climate. “We cut the corporate tax rate last year. We're going to put together in my budget address of Fed. 22 more tax cuts that we're going to do in the context of a balanced fiscal year '12 budget,” said Christie.
'Too Big to Fail' a Recipe for Disaster, Watchdog Says. Big banks operate in ‘gross distortion’ of normal market: report. The continued existence of financial institutions that are “too big to fail” is a recipe for disaster, a key government overseer group said Tuesday in a critical report.
iPad Zips Apple(AAPL) Past Dell(DELL), Lenovo. The iPad may be just a one-and-a-half pound sliver of a machine, but it’s got enough weight to tip an entire industry in Apple’s favor. Count the iPad and Apple is now the third-biggest PC vendor in the world, tech market tracker Canalysis said Wednesday. Apple’s fourth-quarter PC sales surged 241% over the year-ago period, Canalysis reckons. That’s enough to grab 10.8% of the computer market, or 11.5 million units, up from just 3.8%, or 3.4 million units, during the year-ago period. Overall, the PC industry grew 19% in the fourth quarter of 2010, according to Canalysis. Of course, that figure includes tablet computers, too.
Massachusetts Budget Cuts: Biggest in 20 Years. Massachusetts is bracing for the biggest budget cuts in 20 years...even as its tax revenues are on the rise. Gov. Deval Patrick Wednesday unveiled a fiscal 2012 spending plan that would slash $570 million, or 1.8%, from last year's budget, hitting social services, health care and aid to municipalities in particular. Among the cuts:
LA Times:
L.A. City Council Agrees to Allocate $52 Million in Redevelopment Funds, Preventing a State Grab. Just as debate has heated up over the future of redevelopment agencies, the Los Angeles City Council voted Wednesday to allocate up to $52 million in redevelopment funds for public works projects around the museum planned by billionaire Eli Broad. The council agreed unanimously to spend the money on the same day that Mayor Antonio Villaraigosa and other California mayors met with Gov. Jerry Brown to discuss his plan to eliminate redevelopment agencies. That vote ties up the money, preventing it from being used by officials in Sacramento to close a $25.4-billion budget gap. The $52 million would go toward the construction of a parking garage, a pedestrian plaza and new sidewalks south of Walt Disney Concert Hall.
Paul Introduces a Bill to Audit the Fed. Rep. Ron Paul (R-Tex.) introduced a bill to audit the Federal Reserve Wednesday, a move he’s made for decades. But this year he's got more momentum. He chairs the Financial Services subcommittee that oversees the central bank, a perch that will help him drum up support for his measure. So far he has 56 co-sponsors. “I was very pleased that so many of my colleagues were willing to stand up for transparency and accountability in government by cosponsoring HR 1207 in the last Congress,” Paul said in a statement Wednesday. “I am optimistic about our prospects for a full and complete audit in the 112th Congress.”
Reuters:
Potash Corp.(POT) to Split Stock, Raise Cash Dividend. Potash Corp, the world's largest fertilizer producer, said on Wednesday its board approved a three-for-one split of its common shares in a move to improve trading liquidity following a recent jump in the stock price. Potash Corp, the target of a failed $39 billion takeover bid last year, will also raise its quarterly cash dividend from 10 cents to 21 cents a share on a pre-split basis. On a post-split basis the payout will equal 7 cents a share.
Starbucks(SBUX) Sees Higher 2011 Coffee Costs. Starbucks Corp, the world's largest coffee chain, expects rising coffee prices to hit profits more than it previously thought but stressed that it would not raise prices to cover the extra expense. That news sent its shares down almost 3 percent, even as the company reported profits and U.S. sales that handily topped Wall Street's targets.
Qualcomm(QCOM) Raises Outlook as Mobile Chip Sales Jump. Qualcomm Inc raised its forecasts for second-quarter and 2011 revenue as sales of its chips for wireless devices accelerate in China and India, and its shares rose 6 percent. The company, whose chips are used by mobile device makers including Apple and HTC, raised its forecast for fiscal 2011 revenue by $1.2 billion, far surpassing Wall Street's estimate.
Netflix(NFLX) Profit Jumps as It Adds Customers; Shares Soar. Netflix Inc. reported blockbuster profit and signed up another 3 million subscribers in the fourth quarter, making clear why the movie rental company worries competitors and delights investors. Shares of Netflix rose more than 10 percent after its better-than-expected results, marking yet another big jump for a company whose stock has nearly quadrupled in the past year as it shakes up Hollywood's business model.
Tractor Supply(TSCO) Q4 Tops Street, Sees Strong FY11 Earns. Tractor Supply Co posted strong quarterly results as the farm and ranch supplies retailer's products proved to be popular with customers who spent more at its stores, and the company forecast 2011 earnings ahead of expectations. Shares of the Brentwood, Tennessee-based company were trading up 6 percent at $51.50 in trading after the bell.
South China Morning Post:
Home Depot(HD) Beats a Retreat From Beijing. Foreign house improvement stores seem to find the mainland too big a challenge. Home Depot Inc. shut its outlet on Beijing's West Fourth Ring Road on Jan. 21, its fifth closure in China in two years, citing the company. In China, Home Depot now has four stores in Tianjin, two in Xi'an, and one in Zhengzhou. The company closed its other shop in Beijing eight months ago.
Macau Daily Times:
Inflationary Pressures 'Like to Intensify'': AMCM. Prices started to climb towards the end of the year, while Macau’s consumer price index (CPI) – a key gauge of inflation – rose by 3.92 percent year-on-year last month. And it seems it won’t stop soon. “Inflationary pressures are likely to intensify in 2011,” warned the local monetary authority in its latest Monetary and Financial Stability Review, published this month. Speaking to Macau Daily Times last week, local economist Albano Martins said last year’s inflation has been well above 3 percent since September. “[The average] is only 2.8 percent because there were some slow increase periods in the first few months of 2010,” he said. “But the price index tends to be a cumulative process,” he warned, alerting to the fact that inflation may skyrocket this year. “I made a small simulation and, if all the economic situation remains as it was last year, the average inflation for 2011 will skyrocket to 8.27 percent,” he told MDTimes.
Evening Recommendations Citigroup:
Upgraded (MDP) to Buy, target $44.
Reiterated Buy on (CBE), target $70.
Reiterated Buy on (PX), target $112.
Reiterated Buy on (SBUX), target $40.
Night Trading
Asian equity indices are unch. to +1.25% on average.
Asia Ex-Japan Investment Grade CDS Index 107.0 -1.0 basis point.
Asia Pacific Sovereign CDS Index 118.25 -1.75 basis points.
The Chicago Fed National Activity Index for December is estimated to rise to .11 versus a reading of -.46 in November.
Durable Goods Orders for December are estimated to rise +1.5% versus a -1.3% decline in November.
Durables Ex Transports for December are estimated to rise +.9% versus a +2.4% gain in November.
Cap Goods Orders Non-defense Ex Air for December are estimated to rise +1.3% versus a +2.6% gain in November.
Initial Jobless Claims for last week are estimated to rise to 405K versus 404K the prior week.
Continuing Claims are estimated to rise to 3873K versus 3861K prior.
10:00 am EST
Pending Home Sales for December are estimated to rise +1.0% versus a +3.5% gain in November.
Upcoming Splits
None of note
Other Potential Market Movers
The $29 Billion 7-Year Treasury Notes Auction, weekly EIA natural gas inventory report, (FLS) analyst day and the (WEN) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 82.18 -1.20%
European Financial Sector CDS Index 139.67 bps +3.46%
Western Europe Sovereign Debt CDS Index 179.83 bps +1.12%
Emerging Market CDS Index 203.09 +.07%
2-Year Swap Spread 19.0 -3 bps
TED Spread 15.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 279.0 +5 bps
China Import Iron Ore Spot $185.60/Metric Tonne +.11%
Citi US Economic Surprise Index +42.80 +.6 point
10-Year TIPS Spread 2.27% +4 bps
Overseas Futures:
Nikkei Futures: Indicating +63 open in Japan
DAX Futures: Indicating +25 open in Germany
Portfolio:
Higher: On gains in my Retail, Ag, Tech, Biotech and Medical long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs, despite recent equity gains, rising long-term rates, worries over emerging markets inflation and financial sector relative weakness. On the positive side, Education, Airline, Construction, HMO, Disk Drive, Networking, Steel, Ag, Oil Service, Energy and Coal shares are especially strong, rising more than 2.0% today. Small-cap and Cyclical shares are substantially outperforming. Copper is rising +1.44%. The US Muni CDS Index is dropping -3.69% to 196.0 bps. The Citi US Economic Surprise Index is now at the highest level since April 12th of last year. On the negative side, Utility, Bank, Restaurant and Food shares are under mild pressure, falling more than .5%. (XLF) has underperformed again throughout the day. The UBS-Bloomberg Spot Ag Index is rising another +1.87% to a new record high and rough rice futures are jumping +3.02%. The 10-year yield is surging +9 bps to 3.42%. The Emerging Markets Sovereign CDS Index is rising +3.05% to 191.36 bps. The DJIA appears to be consolidating recent gains around 12,000, which is a positive. The Russell 2000 is bouncing strongly off its 50-day moving-average, which is also a positive. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, more economic optimism, strong earnings and technical buying.
Sales of New Homes in U.S. Rose More Than Forecast. Purchases of new houses in the U.S. rose more than forecast in December as the industry struggled to stabilize following its worst year on record. Sales climbed 18 percent to a 329,000 annual pace, figures from the Commerce Department showed today in Washington. The median estimate of economists in a Bloomberg News survey called for a rise to 300,000. The percentage jump was the biggest since 1992, and was led by a record 72 percent surge in the West. For all of 2010, sales fell 14 percent from the prior year to 321,000, the lowest level in data going back to 1963. Purchases climbed in three of four U.S. regions last month. The Northeast showed a 5 percent decrease last month. Sales in California, responsible for part of the surge in the West, may have been boosted ahead of the end of a statewide home buyer tax credit, Daniel Silver, an economist at JPMorgan Chase & Co. in New York, said in an e-mail to clients. Contracts for new-home purchases had to be signed before 2011 to qualify for the incentive, which likely led to a run-up in sales, he said. The median sales price increased 8.5 percent in December from the same month in 2009, to $241,500, today’s report showed. The increase in values probably reflects the change in the mix of sales toward the West where prices are generally higher. The supply of homes at the current sales rate fell to 6.9 month’s worth, the lowest since April, from 8.4 months in November. There were 190,000 new houses on the market at the end of December, the fewest since January 1968.
EFSF Debut Bond Rises on 1st Day Amid 'Blowout' Investor Demand. The European Financial Stability Facility’s debut 5 billion-euro ($6.9 billion) bond to help pay for Ireland’s bailout rose in the first day of trading after investors bid for nine times the securities on offer. The 2.75 percent notes due July 2016 climbed 0.24 cent on the euro to 99.54 cents as of 1:15 p.m. in London, according to National Australia Bank Ltd. bid prices on Bloomberg. The yield fell to the midswap rate, from 6 basis points over the benchmark when the notes were issued yesterday. The top-ranked securities, backed by euro-region government guarantees, attracted 44.5 billion euros of orders, with investors from Asia buying about 38 percent of the deal. The EFSF issue followed a bond for the same amount by another European Union fund three weeks earlier, which has also rallied in secondary market trading. “The EFSF bond was a blowout,” said Bill Blain, co-head of the special situations group at broker Newedge Group in London. “We understand allocations were cut back close to the square root of zero for most investors,” with China accounting for a “very significant” slice, he said.
Fed Pushes On With $600 Billion Stimulus. Federal Reserve policy makers maintained plans to buy $600 billion of Treasuries through June, indicating that signs of an accelerating recovery don’t warrant paring back efforts to reduce high unemployment. The expansion is “continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions,” the Federal Open Market Committee said today in its statement after a two-day meeting in Washington. Officials were unanimous for the first time since December 2009.
Obama Deficit Cuts Dismissed at Davos as Not Deep Enough to Calm Investors. President Barack Obama’s State of the Union address failed to convince executives and economists at the World Economic Forum’s annual meeting that he’s serious about taming the U.S. budget deficit. Hours after Obama used the speech to propose a partial freeze on government spending, delegates at the conference in Davos, Switzerland, said the U.S. is lagging foreign counterparts in cutting a budget deficit of more than $1.2 trillion. “There is an unwillingness to deal with the real gorilla in the room,” said Martin Sorrell, chief executive officer of advertiser WPP Plc. James Turley, CEO of Ernst & Young LLP, said, “we need a heck of a lot more action on it” and that Obama’s speech “lacked details.”
SAP(SAP) Predicts Profit to Surge as Much as 16% on Demand. SAP AG, the world’s largest maker of business-management software, forecast operating profit will surge as much as 16 percent this year on rising technology spending in the U.S. and emerging markets. “Companies are investing in information technology,” Theo Kitz, an analyst at Merck Finck in Munich, said in an interview. “And there could be more growth in it for SAP when the mobile products in the pipeline finally get to market, it should provide them with an extra push in the spring.”
Grain, Soybeans Rise as Food Riots Spur Demand for U.S. Exports. Wheat rose, heading for the longest rally since November 2009, while corn and soybeans climbed as countries increase shipments from the U.S., the world’s biggest exporter, to cut food inflation and quell civil unrest. Food-exporting countries are “strongly advised” not to restrict shipments to prevent “more uncertainty and disruption” in world markets, the United Nations said. Governments in Egypt, Algeria, Morocco and Yemen have faced protests amid rising costs and high unemployment, and a revolt toppled Tunisia’s leader. “Sovereign nations are beginning to stockpile food to prevent unrest, and that will help to boost demand for U.S. grains,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “You artificially stimulate much higher demand when nations start to increase stockpiles.” Wheat futures for March delivery rose 20.25 cents, or 2.4 percent, to $8.585 a bushel at 11:23 a.m. on the Chicago Board of Trade, heading for a seventh straight advance. Earlier, the price reached $8.595, the highest level for a most-active contract since Aug. 6. Before today, the grain jumped 68 percent in the past 12 months. Corn futures for March delivery climbed 13.25 cents, or 2.1 percent, to $6.5725 a bushel. Before today, the price surged 75 percent in the past 12 months. Soybean futures for March delivery advanced 13,25 cents, or 1 percent, to $13.8775 a bushel. Before today, the oilseed gained 46 percent in the past year.
Hogs Rally to 14-Year High as Pork Demand May Rise; Cattle Gain. Hogs climbed to the highest price in more than 14 years on improving prospects for U.S. pork exports to Asia. Cattle also advanced. Hog futures for April settlement rose 1.75 cents, or 2 percent, to 88.875 cents a pound at 10:01 a.m. on the Chicago Mercantile Exchange. Earlier, prices reached 88.925 cents, the highest for a most-active contract since May 1996.
CFTC Proposes Fund-Adviser Reporting Requirements. The Commodity Futures Trading Commission proposed requiring U.S. commodity funds and trading advisers with at least $1 billion in assets to report quarterly on use of leverage, counterparty risk and trading positions to give regulators information on financial-system threats. CFTC commissioners voted 5-0 today to seek comment on the measure drafted jointly with the Securities and Exchange Commission, which released a proposal yesterday. The measure, part of the agencies’ rulemaking under the Dodd-Frank Act, applies to hedge-fund advisers, commodity pool operators and commodity trading advisers registered with both agencies.
Deep-Water Oil Drilling Stalemate Pits Explorers Against U.S. Regulators. The U.S. Interior Department is refusing to issue deep- water exploration permits because energy companies haven’t shown they have “access to and can deploy containment resources” to deal with out-of-control wells on the sea floor, Melissa Schwartz, an agency spokeswoman, said yesterday. No exploration well has been drilled in U.S. waters deeper than 500 feet (152 meters) since BP’s Macondo well erupted in April.
German Import-Price Inflation Accelerates to Fastest in More Than 29 Years. German import prices rose at the fastest annual pace in more than 29 years in December, driven by soaring costs for commodities such as energy and metal. Import-price inflation accelerated to 12 percent, the highest rate since October 1981, from 10 percent in November, the Federal Statistics Office in Wiesbaden said in an e-mailed statement today. Economists predicted the rate would rise to 10.8 percent, according to the median of 12 estimates in a Bloomberg News survey. In the month, prices increased 2.3 percent, almost double the 1.2 percent forecast by economists.
Soros, Volcker to Invest in Post-Crisis Economic Research Group. Billionaire investor George Soros said he and former Federal Reserve Chairman Paul Volcker are investing in a new research effort aimed at developing economic ideas following the financial crisis. The plan is for the Centre for International Governance Innovation and Institute for New Economic Thinking to unite, Soros told reporters at the World Economic Forum’s annual meeting in Davos, Switzerland.
U.S. Households Poised to Increase Stock Holdings: Chart of the Day. Individual investors are just beginning to move into stocks after being burned in the bond market, according to Bankim Chadha, Deutsche Bank AG’s chief U.S. equity strategist. This shift has the potential to become “an important positive for equities,” Chadha wrote yesterday in an e-mail. Households are likely to end up with a greater percentage of their investments in stocks, in his view.
Russia Plans Sovereign Fund to Lure Foreign Cash. President Dmitry Medvedev said Russia plans to create a “special sovereign fund” to attract foreign capital as he tries to shift investors’ attention from a deadly terrorist attack on Moscow’s busiest airport this week. “It may make sense now to think about creating a special sovereign fund that comprises state property and money to attract an array of private investments from abroad and within the country,” Medvedev said in an interview with Bloomberg Television today at the World Economic Forum in Davos, Switzerland.
Shoppers Buy Quality at Lululemon(LULU), Victoria's Secret. Product is king again. After using discounts and promotions to deliver the best holiday sales performance in six years, U.S. retailers will need unique merchandise to keep the momentum going. “It’s got to be all about the product,” said Christine Chen, a Needham & Co. analyst based in San Francisco. Discounts alone are not enough to keep consumers shopping, she said. Abercrombie & Fitch Co.(ANF),Lululemon Athletica Inc. and Urban Outfitters Inc.(URBN) are already winning shoppers with quality, fashion and merchandise that can’t be found elsewhere, Chen said.
Egypt Bans Protests After Tunisia-Inspired Rallies. Egyptian authorities banned protests and tightened security after thousands of people took to the streets of Cairo and major cities yesterday to denounce President Hosni Mubarak, inspired by the revolt that toppled Tunisia’s leader. Truckloads of riot police were deployed today in central Cairo to prevent a repeat of the demonstrations, in which at least three people were killed, sending Egypt’s benchmark EGX30 index tumbling the most since May.
Trichet Signals EU's Bailout Fund Could Buy Bonds to Ease Pressure on ECB. European Central Bank President Jean-Claude Trichet said governments could empower the region’s bailout fund to buy bonds, a step that would take pressure off the ECB’s efforts to fight the sovereign-debt crisis. “There are a number of tools they can use and I would certainly not exclude that one, which I would consider useful in certain circumstances,” Trichet said in an interview with Bloomberg Television in Davos, Switzerland today.
Wall Street Journal:
Lenovo Chaiman Sees More Chinese Investment in U.S. The chairman of China's Lenovo GroupLtd. predicted increased investment in the U.S. from China's companies and its sovereign wealth fund as they seek opportunities in the world's largest economy despite its recent troubles. The prospects for additional Chinese investment were discussed at a meeting last week between Chinese business leaders and President Barack Obama during Chinese President Hu Jintao's visit to the U.S., said Liu Chuanzhi, in an interview at the World Economic Forum at Davos. In particular, he says that Mr. Obama and the head of China's Investment Corp., the country's $300 billion sovereign wealth fund, talked about the Chinese investing in infrastructure projects in the U.S.
China Banking Regulator: "Very Concerned" About Inflation. China's top banking regulator said Wednesday the country's authorities are "very concerned" about inflation and are determined to refrain from seeking overly fast economic growth in the future. Attending the annual World Economic Forum, Liu Mingkang, chairman of the China Banking Regulatory Commission, also expressed a surprisingly blunt and critical view of the recent launch of the country's first credit derivatives, by an association backed by the Chinese central bank. He urged banks not to rush into rolling out such risky products. For new emerging markets, we are all facing inflationary pressure partly due to capital inflows," said Liu, when speaking at the forum. Liu said inflation is becoming a "worldwide" phenomenon, expressing concerns that "while inflation is coming up in Europe and the U.S., QE II is also coming up," referring to the Federal Reserve's quantitative easing program to pump liquidity into the financial system to boost economic growth. He added that China is making efforts to push forward structural reforms to make its economy "lighter and greener." "This year we'll say goodbye to double-digit GDP growth," he said.
Exclusive: 'Skins' 'In Danger of Being Canceled,' Source Says. MTV’s controversial drama “Skins” is losing advertisers faster than some of its characters lose their clothes. As FOX411 reported, Taco Bell was the first sponsor to withdraw advertising from "Skins," quickly followed by Wrigley, Subway, Foot Locker, L’Oreal and Shick. General Motors and H&R Block both issued statements explaining that their ads were aired during the premiere by mistake and would have no further association with the show. Lacking a stable of advertisers to sponsor the show, “Skins” could reportedly lose MTV up to $2 million per episode. With the swift decampment of sponsors, FOX411 has learned that the show may soon be off the air—for good.
Demand Media, Nielsen Shares Jump in IPOs. Demand Media Inc. and Nielsen Holdings on Wednesday kicked off the IPO season with big share gains, after each priced above their initial targets. Demand Media(DMD23.26, +6.26, +36.82%) shares jumped nearly 40% to $23.47 as the company began trading on the New York Stock Exchange. Meanwhile, shares of Nielsen Holdings(NLSN25.60, +2.60, +11.30%) rose more than 9% to $25.10 as the company began trading on the New York Stock Exchange.
New York Times:
A Region's Unrest Scrambles U.S. Foreign Policy. As the Obama administration confronts the spectacle of angry protesters and baton-wielding riot police officers from Tunisia to Egypt to Lebanon, it is groping for a plan to deal with an always-vexing region that is now suddenly spinning in dangerous directions.
Forbes:
Davos: George Soros Answers Questions. SOROS ON WHETHER HE’S DECLARING A WAR ON CAPITALISM: I have my thoughts but those are not INET’s thoughts. I have been target of character assassination of right wing, I disapprove of the methods but I understand as am opposed exactly to their methods so I am in that controversial position.”
Reuters:
U.S. Airline Results Buoyed by Recovery. US Airways Group (LCC.N) and United Continental Holdings (UAL.N) topped Wall Street earnings estimates on Wednesday and said current revenue trends were solid, sending their shares higher and signaling that the airline industry recovery is on track.
beaumontenterprise.com:
Accused Fort Hood Shooter Ruled Sane; Faces Capital Trial. An Army psychiatrist charged with killing 13 people and wounding dozens more in a Fort Hood shooting spree has been ruled sane by a panel charged with deciding his fitness to face trial. The action by the Army's “sanity board,” as the panel is called, is a key step in prosecutors' efforts to try Maj. Nidal Malik Hasan on capital murder charges here. It clears the way for military authorities to call a trial.
Germany would be endangered by an expansion of the European bailout fund, Hans-Werner Sinn, the president of the Munich-based Ifo institute, told Sueddeutsche Zeitung.
Good Friends:
Rice prices in North Korea's capital Pyongyuang and other major cities rose more than 50% from early this month because some supplies were taken by military and it weak local currency made imports expensive, Good Friends, a Seoul-based rights group that says it has sources in the communist country, reported on its website.
China National Radio:
China's State Council set the minimum down payment for second home purchases at 60%, citing a meeting of the government body.
China's State Council set interest rates for second home mortgages at no less than 110% of benchmark rates, citing a meeting of the top government body. Sellers of homes within five years of purchase will be responsible for paying full transaction taxes.
