Evening Headlines
Bloomberg:
- Teddy Bear Prices Rise for Christmas as China Wages Increase. A Western buyer at the Canton trade fair protested against higher prices by wearing a T-shirt emblazoned with “Too Expensive” in Chinese. That generated little sympathy from toy seller Clara Zhang. “We all laughed so hard,” said Zhang, 26, sales manager for Nanjing Happy Toy Co., maker of teddy bears and stuffed ducks. “Then we said, ‘Sorry, sir, you probably need to pay even more.’” Hundreds of toymakers at the China Import and Export Fair, the country’s largest, are charging more as the world’s second- largest economy battles inflation that soared to an almost three-year high of 5.4 percent in March. Mattel Inc. (MAT), which makes Barbie dolls, and Hasbro Inc. (HAS), owner of the Transformers brand, raised prices earlier this year as Chinese factories pass on higher costs for raw materials and labor. “If you take into account everything Chinese toymakers are dealing with -- labor, material, exchange rate -- a price hike is only a natural consequence,” said Hua Zhongwei, a macroeconomic analyst with Huachuang Securities in Beijing. “There is a big chance for shoppers in the U.S. to face higher prices for Christmas gifts this year.”
- Tornadoes Sweep U.S. States. Violent thunderstorms with hail and deadly tornadoes are sweeping across the U.S., killing at least six people in Oklahoma and Kansas about 48 hours after the deadliest U.S. twister on record leveled homes and businesses in Joplin, Missouri.
- Vietnam Stocks Slump, Enter 'Bear Market,' as Inflation Surges. Vietnam’s stocks slumped for a ninth day to the lowest level since May 2009, dragging the benchmark index into a so-called bear market, on concern inflation will pressure officials to boost interest rates further. The VN Index on the Ho Chi Minh City Stock Exchange sank 3.7 percent to 402.59 at the 11 a.m. local-time close, capping a nine-day, 17 percent plunge, the longest losing streak since February 2009. The gauge has tumbled 23 percent from this year’s high on Feb. 9, exceeding the 20 percent drop that marks a bear market for some investors. Asia’s worst-performing market this year has slumped on concern higher interest rates will slow economic growth. Prices rose 19.78 percent in May from a year earlier, compared with 17.51 percent in April, according to data released by the General Statistics Office in Hanoi after the stock market closed. “Inflation figures were higher than expected and people are afraid that the consumer price index gains may accelerate to more than 20 percent this year,” said Nguyen Duy Phong, a Ho Chi Minh City-based analyst from ACB Securities Inc. Overseas investors withdrew from stocks on the nation’s main bourse in Ho Chi Minh City for a third day, selling a net 107.9 billion dong ($5.2 million) of the shares since May 20, according to data from the exchange’s website. Lending rates as high as 28 percent are hampering business, according to VinaCapital Investment Management Ltd., Vietnam’s largest fund manager. “Rising inflation expectations will keep the pressure on the central bank to tighten further,” Prakriti Sofat, a Singapore-based economist at Barclays Capital, wrote in a note today, predicting that the refinancing rate will rise by a further 100 basis points to 15 percent in “coming weeks.” Inflation will probably reach 22 percent to 23 percent by mid-year before easing “as policy tightening weighs on credit growth,” Sofat wrote.
- Massey Directors Saw Government 'Conspiracy' Against Company, Filing Shows. Massey Energy Co. (MEE)’s management believed government officials, including President Barack Obama, conspired to destroy the coal producer, according to unsealed court records in a case related to a fatal mine accident. Don Blankenship, Massey’s former chief executive officer, and Chairman Bobby Ray Inman, a retired U.S. Navy admiral, made clear in sworn testimony that they “firmly believed the company was being targeted by the government,” lawyers for Massey investors who are suing the company’s directors said in filings unsealed today in state court in Delaware. Inman, a former deputy director of the Central Intelligence Agency, “was unequivocal in his assertions” in pre-trial depositions that mine regulators, union officials, plaintiffs lawyers “and President Obama himself harbored a secret agenda to destroy Massey, and that the large numbers of safety violations Massey received were proof of the conspiracy,” according to the lawyers.
- Brazil Government Said to Privately Support Lagarde as Next IMF Director. Brazil will privately support French Finance Minister Christine Lagarde’s candidacy to run the International Monetary Fund, a Brazilian government official familiar with the negotiations said. The Brazilian government sees no point in backing Mexican central bank Governor Agustin Carstens’s bid for the job given that Lagarde will have enough votes to win, said the official, who requested anonymity because he isn’t authorized to speak publicly about the issue.
- North Korea's Kim Jong Il Arrives in Beijing, May Meet Hu, Yonhap Reports. North Korean leader Kim Jong Il arrived in Beijing today on the sixth day of a trip to China, indicating a possible meeting with Chinese leaders including President Hu Jintao, Yonhap News reported.
- The combined sales targets of China's largest automakers could exceed total demand by as much as 32% by 2015, as the pace of building new plants outstrips growth forecasts in the world's largest market. "The industry may face excessive capacity as early as next year while Geely together with its peers may see their investments on capacity building go to waster unless they adjust their plans now," said George Yin, an analyst with BOCOM International Holdings Co. in Beijing.
- Crude Oil Manipulation Suit May Fuel Debate on Speculation Rules. A U.S. lawsuit against two traders and three firms that allegedly manipulated prices for crude oil derivatives in 2008 may bolster calls for new speculative trading limits required by the Dodd-Frank Act. The Commodity Futures Trading Commission claimed in its suit that the alleged scheme generated $50 million in unlawful profits and pushed crude oil prices higher nationwide.
- Food Inflation May Top U.S. Forecast as Nestle, Whole Foods Boost Prices. U.S. food inflation may top the government’s forecast as higher crop, meat, dairy and energy costs lead companies including Nestle SA, McDonald’s Corp. (MCD) and Whole Foods Market Inc. (WFMI) to boost prices. Retail-food prices will jump more than the U.S. Department of Agriculture’s estimate of 3 percent to 4 percent this year, said Chad E. Hart, an economist at Iowa State University in Ames. Companies will pass along more of their higher costs through year-end, said Bill Lapp, a former ConAgra Foods Inc. chief economist. The USDA will update its forecast today.
- EU Says China More Discriminatory Against Foreign Firms. A growing share of European companies say China's policies toward foreign businesses in the country are becoming more discriminatory, according to a survey from the European Union Chamber of Commerce in China that marks the latest sign of discontent about the business environment in the world's No. 2 economy. In the survey, released Wednesday, 43% of European-based companies with offices in China's mainland said they view the country's regulatory practices as having declined in fairness over the past two years. The government favors domestic businesses, giving them better tax incentives and financing opportunities, they said. In last year's survey, 33% expressed discontent with the regulatory environment.
- Iceland Financial Minutes: Watching Greek Debt Crisis To Assess Euro. Iceland, watching closely the unfolding Greek debt crisis from the debt-laden country's perspective, voiced its disappointment Tuesday at the way the euro zone is dealing with it. "What I'm mainly focusing on is what it's like for a small country that gets into trouble, how it's being dealt with," Finance Minister Steingrimur Sigfusson told Dow Jones in an interview. "There are doubts that the solution has been found yet ... the measures have been aimed at buying time."
- U.S. Weighs International Pressure on Yemen. The U.S. is considering using the United Nations to press embattled Yemeni President Ali Abdullah Saleh to step aside, according to U.S. officials and diplomats.
- Bank Face $17 Billion in Suits Over Foreclosures. State attorneys general told five of the nation's largest banks on Tuesday they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn't reached to address improper foreclosure practices, according to people familiar with the matter. The figure doesn't cover additional billions of dollars in potential claims from federal agencies such as the Department of Housing and Urban Development and the Justice Department.
- Senator Wants Details on SAC. Sen. Charles Grassley has asked the Securities and Exchange Commission to account for how it handled referrals it received of suspicious trading at SAC Capital Advisors LP over the past decade.
CNBC:
- Fed Could Tighten Policy in Later 2011: Bullard.
- SEC Wasting Million on Office Space: Report. At a time when the Securities and Exchange Commission is scrambling for resources, a new report by the agency's internal watchdog says the agency has wasted millions of dollars in a "deeply flawed" system for leasing office space.
- Treasury Sells AIG(AIG) Shares in Sore Reminder of Bailout. The U.S. Treasury is barely breaking even on its investment in beleaguered insurance giant American International Group, according to an early litmus test of market interest in the firm's stock.
- Glencore Makes Lackluster Hong Kong Debut; Demand Tepid.
- Intrade.com Founder John Delaney Dies On Mt. Everest. John Delaney, founder and CEO of Intrade, the prediction market, has died while trying to climb Mt. Everest. He was less than 50 meters from the top, according to the Daily Mail. Even sadder: Delaney never got to hear the news that his wife had just given birth to a baby daughter, Hope. It was Delaney's second attempt to climb Everest, according to the Daily Mail. He was 42.
- Jim Chanos' One Big China Regret. Jim Chanos is a well-known China bear, and he claims to have made money shorting China-related property developers -- a short that's still on. In an interview today with Bloomberg TV, he regreted the inability to short Chinese IPOs in the US, many of which have been dogged by accounting issues and have plunged. "Almost all of them have odd looking financial statements,... We wish we could borrow almost all of them." Here's more notes from his Bloomberg TV interview, provided to us by the network: "Actually, our team just got back from China, my research team." "I don't ever talk to companies or CEOs anyway. I have not for 25 years…I think that what my team found [in China], they actually came back saying we are not bearish enough." "The signs of overcapacity were much even greater than their last visit, which was late last year. Increasingly, the executives that they met with were sounding a little bit more uncomfortable about the current situation." "If you look at the balance sheet of the developers that claim they are pre-selling…If you look at the balance sheets of the developers, you'd be hard-pressed to see how healthy they were because they are all loaded up with land, just as our developers were at the top of our market. So for every yuan that they are earning presale, they are plowing it back and then some into new land development. They are drinking the Kool-Aid, so to speak." "We've maintained our pretty much dramatic overweight in our Chinese shorts, and we will leave it at that." "What we are seeing now is more cracks on the façade and what they observed, almost quite literally. The buildings that were only two to three years old were already beginning to show some signs of wear and tear…The quality of all this fixed asset construction is becoming sort of suspect." "I think this is actually one of the reasons contributing to the bubble in that it is a double edged bet that could turn into a double-edged sword. Investors are counting not only on asset appreciation of fixed assets in China, but they're counting on the yuan being revalued upward. If it ever became apparent that might go the other way, you could see a real scramble to get out of these assets in China." Increasingly, the real estate developers can't get bank loans for their project financing in China. They're now going into the Hong Kong market to raise money in the bond market at very, very high rates, as high as 15%, 20%." "We covered most of our US healthcare shorts after we looked at the healthcare bill, which I think was a bigger lost opportunity for Washington than the financial reform…When it was all said and done, the sausage that came out of the grinder was in fact an enhanced coverage bill that was going to increase costs." On the Europe debt crisis: "Obviously, as market participants, we have to pay attention to it." "I think this is all about trying to protect the valuations by largest European banks have on their sovereign debt holdings, and at some point, the voters in these countries are going to figure out that, in effect, their taxpayer dollars in western Europe are going to support the banking system, much like ours did a few years ago."
- Here's How Reed Hastings and Netflix(NFLX) Won.
- Zynga Close to IPO Filing, Says Report.
- Rhode Island is 'Being Crushed' By Pension Debt, Treasurer Urges Major Overhaul of Retirement System.
- Key Points From Israeli Prime Minister Benjamin Netanyahu's Address to the U.S. Congress.
- IB Blasts Preemptive Margin Hike Warning. In a blast to all exchange members, Interactive Brokers has just warned of imminent margin hikes due to "the recent spike in volatility of various commodity products."
- CFTC Charges Traders Controlled by World's Largest Tanker Company With Oil Price Manipulation.
- Gasoline Demand Dips Even as Cost Falls: MasterCard. Retail gasoline demand fell last week versus a year earlier, as prices dropped for a second straight week but stayed above 2010 levels, a report by MasterCard Advisors' SpendingPulse showed on Tuesday. Average weekly gasoline demand fell 2 percent in the week to May 20 compared with the same period a year ago, the report said. Demand fell 1.4 percent compared with the previous week.
- Applied Materials(AMAT) Warns of Weak Quarter, Stock Down. Applied Materials Inc forecast weak quarterly revenue, saying concerns about a tough economy have led chipmakers to delay spending to expand capacity, pushing down the company's shares.
- Greece Crisis Worsens Amid Political Stalemate. A damaging political stalemate is threatening to plunge Greece deeper into crisis as hopes of cross-party support for further austerity measures were dashed on Tuesday by the main opposition leader.
China Economic Weekly:
- Chinese companies face losses on $18.8 billion of contracts for Libyan projects, citing a spokesman of the Ministry of Commerce. State-owned companies, including China Railway Construction Corp. and China State Construction Engineering Corp., have 50 development projects in Libya.
- China will curb speculative demand for homes and maintain basically stable real estate prices to control the property market, citing Ni Hong, director of housing reform and development department of the Ministry of Housing and Urban-Rural Development.
- A worsening drought in south China may push up rice prices in the country, citing a statistics official at Beijing Xinfadi Agricultural Product Center. Rainfall was small in Hunan and Jiangxi provinces, which produce half of the country's early indica rice. High rice prices may boost inflation expectations and an unidentified analyst estimated May consumer prices may rise to 5.5% from a year earlier, according to the report.
- Unilever raised prices for some products under brands of Hazeline and Lux by as much as about 10% in the southern Chinese city of Guangzhou, citing retailers in the city.
Cowen:
- Rated (ABC) Outperform.
- Rated (MCK) Outperform.
- Rated (CAH) Outperform.
- Asian equity indices are -1.0% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 109.50 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 115.0 -1.0 basis point.
- S&P 500 futures -.59%.
- NASDAQ 100 futures -.70%.
Earnings of Note
Company/Estimate
- (HRL)/.40
- (AEO)/.14
- (TOL)/-.04
- (BWS)/.15
- (ZLC)/-.58
- (RL)/.79
- (NTAP)/.52
- (CSC)/1.16
- (SMTC)/.43
- (NDN)/.27
- (GES)/.44
- (COST)/.77
8:30 am EST
- Durable Goods Orders for April are estimated to fall -2.5% versus a +2.5% gain in March.
- Durables Ex Transports for April are estimated to rise +.5% versus a +1.3% gain in March.
- Cap Goods Orders Non-defense Ex Air for April are estimated to fall -2.1% versus a +3.7% gain in March.
- The House Price Index for March is estimated to fall by -.5% versus a -1.6% decline in February.
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,500,000 barrels versus a -15,000 barrel decline the prior week. Distillate supplies are estimated unch. versus a -1,157,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +450,000 barrels versus a +119,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a +1.5% gain the prior week.
- None of note
- The Fed's Kocherlakota speaking, 5-Year Treasury Note Auction, weekly MBA mortgage applications report, Think Equity Healthcare Conference, Raymond James Infrastructure/Construction Conference, Morgan Stanley Retail Conference, (YHOO) investor day, (ARW) investor day, (TMO) analyst meeting and the (PSSI) investor day could also impact trading today.