Thursday, August 02, 2012

Thursday Watch


Evening Headlin
es
Bloomb
erg:
  • Draghi Risks Market Wrath as ECB Intervention Pressure Grows. Whatever Mario Draghi does today, economists say doing nothing is not an option. Investors are looking for the European Central Bank President to make good on his promise to do whatever is needed to protect the euro, interpreted by most as a signal that the ECB will intervene in bond markets. Should Draghi fail to overcome the objections of Germany’s Bundesbank to such action, the disappointment could spark a selloff. He holds a press conference at 2:30 p.m. in Frankfurt. “If Draghi just comes out with a do-nothing, markets are going to react extremely badly and the ECB will have a full- blown crisis on their hands,” said James Nixon, chief European economist at Societe Generale SA in London. “I can’t see what form of words Draghi can come up with that would replace concrete intervention.” Investors and politicians are clamoring for ECB action to quell Europe’s sovereign debt crisis, which is threatening to cripple Spain and Italy and tear the 17-nation euro area apart. While Draghi’s commitment in London last week to do what’s needed fueled a global market rally, some economists cast doubt on his ability to build the consensus needed to deliver a game changer.
  • Spain Bond Pressure as $2 Trillion Sees ECB Failing: Euro Credit. Money managers with $2 trillion say the ECB won't be able to sustain the reduction in Spain's borrowing costs. Spain auctions as much as 3 billion euros of debt today as its 10-year bonds yield 536 bps more than Germany's. Draghi's comments last week prompted a rally in Spanish and Italian bonds, even as German policy makers and politicians continue to urge the central bank to stick to the rules that prevent it from saving struggling governments. "We'd expect anything less than a marked expansion of the ECB balance sheet to be disappointing for the markets," said Stephanie Kretz, a strategist at Lombard Odier Darier Hentsch, which manages $175 billion. "Even if the ECB meets investor expectations, as long as the underlying solvency and structural debt issues aren't tackled, it will be short-lived and difficult to time, and it's not the kind of rally we like to play."
  • Germany Retains Stable AAA Outlook at S&P After Moody’s Cut. Germany retained a stable outlook for its top credit rating at Standard & Poor’s just over a week after Moody’s Investors Service warned that the nation’s Aaa grade was at risk. The long-term debt sovereign rating for Europe’s largest economy was maintained at AAA, S&P said in a statement today.
  • Fiat Suspends New Investments in Italy Because of Europe Crisis. Fiat SpA (F) Chief Executive Officer Sergio Marchionne temporarily stopped new investments in Italy as Europe’s debt crisis causes sales in the region to plunge. “For the time being, the economic crisis and current difficulties in the European auto market prevent the company from being able to give any indications concerning future investments,” the Italian carmaker said today in an e-mailed statement, adding that Fiat will give its new plan for Italian factories at the end of October, when it will releases third- quarter results. Marchionne, who has been spearheading an industrywide effort to cut excess assembly lines in Europe, has vowed to close a second Italian factory, after shuttering one last year, unless he finds a way to export cars to the U.S.
  • China Slowdown Forcing Discounting at Gome to McDonald’s(MCD). For years, China’s increasing affluence fueled surging sales for consumer companies. That boom is waning as slower spending translates into inventory overloads, discounting and losses for some brands. To lure increasingly price-sensitive shoppers, companies from electronics retailers to footwear makers are being forced to offer discounts that are hurting margins and driving down earnings. Even McDonald’s Corp. (MCD), the world’s largest restaurant chain, has introduced a value dinner starting from 15 yuan ($2.40) and reported slower same-store sales growth. China’s second-largest electronics retailer, Gome Electrical Appliances Holding Ltd. (493), in July forecast a first- half loss even as its website offered discounts of as much as 50 percent. I.T Ltd. (999), a department store that sells brands including Levi’s and Puma in Greater China, cited discounting for narrower gross profit margins in the year ended February. Slower sales have left Nike Inc. (NKE) with too much inventory in China, its second-largest market after the U.S. The discounting and weaker sales reflect the escalating pressure on local and global brands in China, where two years of economic growth of more than 9 percent encouraged companies to expand. International brands have relied on Asia to offset a spending slump in the U.S. and Europe. “Maybe previously, a PRC consumer didn’t even need to ask the price and just bought the product,” said Eugene Mak, an analyst at Core Pacific-Yamaichi International Hong Kong Ltd. “Now they’re more price sensitive.”
  • Factory Slowdown Means China Silver Need Drops: Chart of the Day. Silver purchases by China, the top user of the metal in electronics, may continue to drops as a global slowdown crimps demand for television sets and mobile phones, Standard Bank Plc said. Imports by China decreases for three months through June, the longest stretch since October 2010, as the nation's exports of electronics products slumped. Global industrial demand, mostly from makers of electronics, accounts for 55% of silver consumption, said Marc Ground, a commodities strategist at Standard Bank in Johannesburg said. "Demand remains lackluster and there is little evidence of this picking up," Ground said. "Since China has amassed stockpiles, it needs to destock first.
  • Most Chinese Stocks Drop on Economic Growth Concern as ECB Meets. A gauge tracking property developers slid 1.4 percent, led by Poly Real Estate Group Co. China Railway Construction Corp. fell 1.2 percent after agreeing to buy a 15 percent stake in Inter Milan, an Italian soccer club, according to people familiar with the talks. The Shanghai Composite has fallen 14 percent from this year’s high on March 2 amid concern the economic slowdown is deepening and Europe’s debt crisis is worsening. Europe is China’s largest export market, making up 18 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.
  • India Blackout Underscores Grid Vulnerabilities, Regulators Say. A series of failures and excessive demand on the national grid knocked out power for 640 million people in northern and central India on July 31, a day after a separate blackout left 360 million in seven states without lights. A three-member committee appointed by India’s government is investigating.
  • Your 119 Billion Google(GOOG) Searches Now a Central Bank Tool.

Wall Street Journal:

  • Electronic Trading Glitches Hit Market. An electronic-trading glitch roiled trading in nearly 150 stocks early Wednesday, sparking confusion among traders and investors and further undermining confidence in the basic machinery of financial markets. As U.S. markets opened for the day, many stocks began to show unusual price moves and trading volume surged. Most of the affected companies were tiny, but insurance giant Berkshire Hathaway Inc. saw more trading in the opening hour than it does in a typical day. Bank of America Corp. and General Electric Co. also gyrated.
  • Fracking Opponents Put Pressure on NY Governor. Opponents of shale gas drilling using high-volume hydraulic fracturing, or "fracking," are asking Gov. Andrew Cuomo's top campaign contributors to pressure the governor to ban the practice everywhere in New York.
  • S&P Lowers Cyprus Rating. Standard & Poor's Ratings Services lowered its rating on Cyprus one notch further into junk territory and placed the island nation's rating on watch for further possible downgrade, noting its government will remain in a weak fiscal position because the country's banking system has been unable to cope without government support as a result of its exposure to Greek customers. S&P downgraded Cyprus's rating to double-B, two levels into junk territory, from double-B-plus. The firm last cut Cyprus rating in January and had cut its rating three times in 2011.
  • Executions Reported as Syria Civilian Crisis Looms. The Syrian government and opposition fighters alike have conducted summary executions, witnesses said Wednesday, as continuing fighting in Aleppo compounded the humanitarian crisis in Syria's most-populous city. Neighborhoods of Aleppo, which has been consumed by 12 days of fighting between Syrian and opposition forces, were under fire from government helicopters and shells, residents said. International observers also saw warplanes targeting rebels in the city, the spokesman for the U.N. mission in Syria said.
  • U.S. Oil Reserves Jumped in 2010. U.S. energy officials estimate that oil and natural-gas reserves jumped in 2010 by the highest margin in at least three decades, lending weight to the idea that the U.S. can meet more of its own energy demand. The Energy Information Administration said in its annual report that proven reserves of crude oil jumped by 13%, with the highest increases seen in Texas, North Dakota and the Gulf of Mexico. Proven reserves of natural gas rose by 12%.
  • Small Firms See Pain in Health Law. Retail and Restaurant Franchisees Brace for Higher Costs; 'I Don't Have the Profit Margin,' Says One. Randall Tabor, who owns two Quiznos sandwich restaurants in Virginia Beach, Va., once aspired to triple the number of outlets he owns. But after the federal health-care overhaul passed in 2010, Mr. Tabor says, he shelved those plans. The law requires that employers with 50 or more full-time workers provide health insurance to employees by 2014 or pay a penalty. Mr. Tabor, who employs 36 people at his two Quiznos shops and another restaurant, wants to stay small so he doesn't trigger the requirement.

Barron's:

MarketWatch:

Business Insider:

Zero Hedge:

CNBC:

IBD:

Sacramento Bee:
  • California Fiscal Analyst: 'Hundreds of millions' at risk from Facebook(FB) Slide. The state's Legislative Analyst's Office said Wednesday that "hundreds of millions" of dollars in assumed tax revenues may never materialize due to the continued slide in Facebook's stock price. Menlo Park-based Facebook closed Wednesday trading at $20.88 per share, a new low 45 percent below the initial price. The state Department of Finance assumed the social media giant would trade at $35 by November, while the Analyst's Office believed it would trade at $42 at that time. The November marker is significant because another wave of insiders becomes eligible to sell shares at that point.

Read more here: http://blogs.sacbee.com/capitolalertlatest/2012/08/fiscal-analyst-hundreds-of-millions-at-risk-from-facebook-slide.html#storylink=cpy
Washington Post:
  • White House Analyst Warned Saving Solyndra Could Cost More Than Letting It Fail. As the Obama administration moved last year to bail out Solyndra, the embattled flagship of the president’s initiative to promote alternative energy, a White House budget analyst calculated that millions of taxpayer dollars might be saved by cutting the government’s losses, shuttering the company immediately and selling its assets, according to a congressional investigation. Even so, senior officials in the White House’s Office of Management and Budget did not discourage the Energy Department from proceeding with its plan to restructure a federal loan to Solyndra — a move that put private investors ahead of taxpayers for repayment if the company closed, the investigation by Republicans on the House Energy and Commerce Committee found.
Forbes:
Chicago Tribune:
  • 136 U.S. Reps Seek to Halt Use of Ethanol in Gas. Nearly one-third of U.S. representatives want the government to reduce the requirement to use corn-based ethanol in gasoline in light of tight corn supplies and rising prices in the face of the worst drought in more than half a century. Lawmakers will hold a news conference Thursday to criticize the so-called Renewable Fuels Standard, or RFS, which they blame for driving up corn prices. One hundred thirty-six of the 435 House members signed the letter, said a staff worker. The letter, without being specific, calls for a "meaningful nationwide adjustment" in the mandate. This year gasoline refiners will use some 13.2 billion gallons of ethanol, which will consume some 40 percent of the corn crop. "We urge you to adjust the RFS mandate for 2012 to account for the anticipated severe shortage in corn," says the letter.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows Mitt Romney attracting 47% of the vote, while President Obama earns support from 44%. Four percent (4%) prefer some other candidate, and five percent (5%) are undecided.
Reuters:
  • Abercrombie(ANF) sees profit below forecasts, shares drop. Teen clothing retailer Abercrombie & Fitch Co estimated quarterly profit at about half what analysts expected after sales in stores open at least a year fell 10 percent. Abercrombie shares fell almost 15 percent to $29 in after-hours trading on Wednesday.
  • Coal, iron ore, steel prices ominous indicators. Many shipping firms and bulk commodities traders have a piece of advice for anyone who thinks the world economy may be headed for an upturn soon, led by Chinese industry. Take a sober look at the slide in iron ore, steel and coal prices. For markets reeling from the euro zone crisis, sluggish economic prospects in the United States and worries over China's growth, trends in dry bulk commodities trade look ominous. Iron ore and steel are leading indicators as they detail the expected pattern of industrial demand in vital sectors such as construction and carmaking, while coal highlights power usage, especially in factories. "It is troubling for the market that demand for the two main commodities - coal and iron ore - is sliding now and has done so for some time now," said Peter Sand, chief shipping analyst with trade association BIMCO. "The key importer, China has seen declining steel prices drop more sharply in the past one and half months. This is bad for steel demand and thus also for iron ore and coking coal imports, which are not expected to rebound any time soon."
  • GM(GM) wants to double car output in Venezuela - Chavez. U.S. automaker General Motors Co wants to more than double its production of cars and auto parts in Venezuela, President Hugo Chavez said on Wednesday. Hailing it as one of the first examples of benefits from Venezuela joining the Mercosur regional trade bloc on Tuesday, Chavez said he was presented with a plan by senior GM executives while he was in Brazil for the ceremony.
  • Monsanto(MON) awarded $1 bln in patent infringement case against DuPont(DD).
Telegraph:

The Economic Times
The Australian:
  • BHP(BHP) to Postpone its $19Bn Port Plan. THE head of BHP Billiton's iron ore division has told thousands of his staff that the mining giant is reviewing its growth plans in the Pilbara amid mounting speculation it has decided to delay a $US20 billion ($19bn) expansion of its Port Hedland harbour for at least two years.
Financial News:
  • China Economic Fundamentals Are 'Good'. China should increase flexibility of monetary policies under the circumstances that its "prudent" stance doesn't change, a front page commentary said. Some factors that induced inflation haven't been eliminated and product prices that were "suppressed" earlier may rise, the commentary said.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 158.0 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 130.0 unch.
  • FTSE-100 futures +.15%.
  • S&P 500 futures +.20%.
  • NASDAQ 100 futures +.18%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (STE)/.45
  • (MWW)/.06
  • (BDX)/1.53
  • (RDC)/.49
  • (GM)/.75
  • (CI)/1.41
  • (LEA)/1.29
  • (CAH)/.72
  • (DTV)/1.14
  • (SEE)/.35
  • (K)/.84
  • (APA)/2.53
  • (CLX)/1.26
  • (FLR)/.92
  • (PBI)/.49
  • (MHK)/1.13
  • (AIG)/.60
  • (LNKD)/.16
  • (ATVI)/.12
  • (OPEN)/.37
  • (MCHP)/.48
  • (JOE)/-.02
  • (PSA)/1.51
Economic Releases
8:30 am EST

  • Initial Jobless Claims are estimated to rise to 370K versus 353K the prior week.
  • Continuing Claims are estimated to rise to 3288K versus 3287K prior.

10:00 am EST

  • Factory Orders for June are estimated to rise +.5% versus a +.7% gain in May.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The ECB rate decision, ECB's Draghi speaking, BoE rate decision, China Services PMI, ICSC Chain Store Sales for July, Challenger Job Cuts report for July, ISM New York for July, RBC Consumer Outlook Index for August, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory data could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate 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.

Wednesday, August 01, 2012

Stocks Falling Slightly into Final Hour on Rising Global Growth Fears, Eurozone Debt Angst, Fed Commentary, More Trading "Glitches"


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Around Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 18.22 -3.75%
  • ISE Sentiment Index 121.0 -19.87%
  • Total Put/Call 1.0 +23.46%
  • NYSE Arms 1.14 +17.92%
Credit Investor Angst:
  • North American Investment Grade CDS Index 104.86 bps -2.46%
  • European Financial Sector CDS Index 247.24 bps -4.38%
  • Western Europe Sovereign Debt CDS Index 257.13 +.58%
  • Emerging Market CDS Index 247.47 -1.07%
  • 2-Year Swap Spread 20.0 -.25 basis point
  • TED Spread 35.0 +1.0 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -43.75 -1.75 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .09% -1 basis point
  • Yield Curve 129.0 +3 basis points
  • China Import Iron Ore Spot $117.40/Metric Tonne +.34%
  • Citi US Economic Surprise Index -40.60 +1.3 points
  • 10-Year TIPS Spread 2.13 +2 basis points
Overseas Futures:
  • Nikkei Futures: Indicating +23 open in Japan
  • DAX Futures: Indicating -3 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Biotech and Retail sector longs
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long

Today's Headlines


Bloomberg:
  • Monti Says Rescue Fund Will Win Bank License to Tap ECB. Italy’s Prime Minister Mario Monti said the permanent rescue fund should have access to European Central Bank liquidity via a bank license, challenging German policy makers to back more actions to tame the euro-area crisis. “I think this would help, I think this will in due course occur,” Monti said today in Helsinki at a news conference with Finnish Prime Minister Jyrki Katainen. Monti’s assertion was a rebuff to Chancellor Angela Merkel’s Cabinet after ministers meeting in Berlin earlier today hardened their opposition to granting the planned bailout fund access to the ECB’s resources. Monti is prodding colleagues across Europe to back his fight to lower the borrowing costs that investors are imposing on Italy and Spain. In travels from Paris to Helsinki and on to Madrid tomorrow, where he’ll meet with Spanish Prime Minister Mariano Rajoy, Monti is seeking to bridge a north-south divide on crisis fighting and capitalize on a pledge by ECB President Mario Draghi to do whatever it takes to defend the euro. Monti and Katainen both declined to say what they wanted to hear from Draghi after a meeting of ECB policy makers tomorrow. The Italian premier instead urged central bankers to show equal respect for ECB independence, after Bundesbank President Jens Weidmann said the ECB shouldn’t exceed its inflation-fighting mandate and stressed Germany’s importance in setting common strategy in the 17-nation euro area, according to an interview conducted in June and posted on the Bundesbank’s website today.
  • U.K. Manufacturing Slump Deepens as Export Orders Fall: Economy. U.K. manufacturing shrank the most in more than three years in July as export orders slumped, indicating the economy’s recession continued to deepen at the start of the third quarter. A factory-output gauge fell to 45.4 from a revised 48.4 in June, London-based Markit Economics said today. The reading was weaker than any of the 30 forecasts in a Bloomberg News survey. The decline was led by weaker demand in the euro area, where a separate index showed manufacturing shrank for a 12th month.
  • SocGen Profit Misses Estimates With 42% Slide on Writedowns. Societe Generale SA (GLE), France’s second- largest bank, posted a bigger-than-expected 42 percent drop in second-quarter profit after taking writedowns on its Russian unit and U.S. asset manager TCW Group.
  • Fed Signals More Steps to Spur Economy Amid Slower Growth. The Federal Reserve said the economy has slowed and foreshadowed new steps to boost the weakening expansion. “Economic activity decelerated somewhat over the first half of this year,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington. “The committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
  • Knight(KCG) Market-Making Unit Says It Had 'Technical Issue'. Knight Capital Group Inc. (KCG) told some clients of its market-making unit that a “technical issue” was affecting its systems and advised them to route orders elsewhere as dozens of U.S. stocks swung more than 10 percent today. Knight, which helps execute billions of dollars in equity transactions every day, said the issue was confined to market making and other operations were unaffected. Its stock plunged as much as 26 percent as investors speculated on its role in the incident, which spurred concern that computers had distorted trading for the second time in two weeks. The incident, occurring after three Dow Jones Industrial Average stocks fluctuated in regular hourly patterns for a full trading day on July 19, may embolden critics of American market structure who say the computers that dominate trading have become too complex to control.
  • U.S. Manufacturing Unexpectedly Shrinks for Second Month. American manufacturing unexpectedly contracted in July for a second month, reflecting a drop in orders that threatens to undercut a mainstay of the recovery. The Institute for Supply Management’s factory index was 49.8 last month, little changed from a three-year low of 49.7 reached in June, the Tempe, Arizona-based group said today. Economists surveyed by Bloomberg News projected a reading of 50.2, according to the median estimate, just above the 50 mark that separates expansions and contractions. The report showed bookings dropped for a second month, indicating Europe’s debt crisis and the looming U.S. government spending cuts and tax increases that constitute the so-called fiscal cliff are taking a toll on customers globally. Federal Reserve policy makers are meeting today to determine if the world’s largest economy needs another dose of stimulus as companies such as Cummins Inc. (CMI) lower sales forecasts. “We’ve seen slower growth in emerging markets, the recession in Europe -- all of that is still ever-present,” said Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Firms are holding pat right now.” Another report showed companies added more workers than projected in July. Payrolls climbed by 163,000 workers after a 172,000 gain the prior month, Roseland, New Jersey-based ADP Employer Services said. The median estimate of 38 economists surveyed by Bloomberg News called for an advance of 120,000.
  • China’s Xi Warns Communists Not to Fall Into Abyss of Corruption. Chinese Vice President Xi Jinping, in line to take over leadership of the 82 million-member Communist Party later this year, warned in a speech that personal extravagances and corruption by cadres could undermine the party’s hold on power. “The ancients said that if history is any guide, for any country or household, austerity breeds success while luxury leads to failure,” Xi said in a June 28 speech published today in the party magazine Qiushi. “We Communists should heed this warning.”
  • Metro Atlanta Voters Defeat Transportation Tax. Voters have rejected a penny sales tax referendum to pay for transportation projects in nine of 12 regions in Georgia, including in metro Atlanta, unofficial returns show. With 94 percent of precincts reporting, 63 percent of metro Atlanta voters rejected the tax, compared to 37 percent in favor. The penny sales tax to pay for billions in transportation projects over the next decade was a draw for many voters in Tuesday's primary election. The issue was on the primary ballot in 12 districts around the state, with voters in each region deciding whether to levy the tax to pay for road and transit projects in their communities. Statewide approval was not required. The Atlanta region stood the most to gain. Critics derided the proposal as an unfair tax on the poor that wouldn't deal with the problems of sprawl. Tuesday's vote "shows the power of the people," said Debbie Dooley, Georgia Tea Party Patriots state coordinator and an outspoken opponent of the measure. "They ran a top-down, PR campaign, whereas we ran a bottom-up, true grassroots political campaign," Dooley said Tuesday. "The people are sending a message, and elected officials would do well to take heed: You aren't getting any more of our tax dollars until you can show you're responsible and can be trusted with the money you have now."
  • Police Chief's $204,000 Pension Shows How Cities Crashed. Stockton, California, Police Chief Tom Morris was supposed to bring stability to law enforcement when he was appointed to the job four years ago. He lasted eight months and left the now-bankrupt city at age 52 with an annual pension that pays more than $204,000 -- the third of four chiefs who stayed in the position for less than three years and retired with an average of 92 percent of their final salaries.
  • Facebook(FB) Plunge Continues as Growth Concerns Persist. Facebook Inc. (FB) dropped as much as 3.9 percent to a record low, the fourth straight day of declines after the world’s largest social-networking service reported second-quarter results that showed slowing growth.
Wall Street Journal:
  • Genetically Modified Tires. High yielding, genetically modified crops have transformed the economics of U.S. farming. But they also pack an unexpected punch: Their tougher stalks are puncturing tires and stranding farm equipment in the field.
MarketWatch:
CNBC.com:

Business Insider:

Zero Hedge:

Reuters:

Financial Times:

  • Insurers Group Warns Against 'Too Big To Fail' Plan. International regulators' plans to treat global insurers as "too big to fail" might destabilize the financial system, according to the Geneva Association, a policy review group funded by the insurance business. Proposed rules might persuade insurers to cut their holdings of government bonds and bank-issued securities, to manage their "systemic risk" ranking; that would make it more difficult for banks and governments to refinance, citing the association.
  • Bundesbank urges ECB to keep within remit. The head of Germany’s Bundesbank has warned the European Central Bank against straying beyond its remit and reminded the bloc’s monetary guardians of the importance of keeping Germany’s central bank onside.

Telegraph:

ORF Radio:
  • Former ECB Chief Economist Juergen Stark said granting the European Stability Mechanism a banking license would violate European law, according to an interview. "This is a clear violation of European law because it means unlimited and indirect state funding by the European Central Bank," Stark said. "This has to be prevented."

Bundesbank Magazine:

  • Weidmann Says ECB Mustn't Overstep Its Mandate. Interview with Jens Weidmann, President of the Deutsche Bundesbank, and Helmut Schlesinger, former Bundesbank President, published in the staff magazine of the Bundesbank on 27 July 2012.

Bild-Zeitung:

  • Sixty-one percent of respondents in a survey commissioned by Bild-Zeitung agree with Economy Minister Philipp Roesler that a Greek exit from the euro area has "lost its terror." A majority also favor opposition parties.

La Tribune:

  • Renault SA French new car registrations fell 16% in July, while those at PSA Peugeot Citroen slid 14.5%, citing official figures. French new car registrations as a whole fell 12% in July.

Bear Radar


Style Underperformer:

  • Small-Cap Growth -.92%
Sector Underperformers:
  • 1) Oil Tankers -3.10% 2) Airlines -2.60% 3) I-Banks -2.02%
Stocks Falling on Unusual Volume:
  • KCG, TTMI, CNW, ABFS, NICE, JCP, HMC, GEOY, IVN, CLMT, TIVO, DRIV, FARO, TRLG, MGRC, CHEF, FIRE, ASCA, BBRG, SAVE, MAPP, BBOX, ININ, VRSK, DWA, TUDO, BMC, CRAY, SSYS, DTG, DVN, HOG, QEP, WXS, NRP, BRKR, DNB, DGI, BECN, ENR, KRA and PPO
Stocks With Unusual Put Option Activity:
  • 1) GRMN 2) NYX 3) ALL 4) BBBY 5) HOG
Stocks With Most Negative News Mentions:
  • 1) ALGT 2) BMC 3) SKYW 4) BA 5) AVP
Charts:

Bull Radar


Style Outperformer:
  • Large-Cap Value +.18%
Sector Outperformers:
  • 1) Telecom +1.17% 2) REITs +.84% 3) Tobacco +.59%
Stocks Rising on Unusual Volume:
  • SBGI, HSP, AGN, CMCSA, CBG, SHPG, WWWW, CTRX, RATE, CODE, ALL, HBI, PXD, NCR, TROX and LH
Stocks With Unusual Call Option Activity:
  • 1) RSH 2) HOG 3) AGN 4) NEON 5) HLF
Stocks With Most Positive News Mentions:
  • 1) LPX 2) ALL 3) COP 4) COST 5) MCD
Charts:

Wednesday Watch


Evening Headlin
es
Bloomb
erg:
  • Spain Introduces Regional Debt Ceilings to Achieve Budget Goals. Spain’s 17 semi-autonomous regions will have to comply with debt ceilings starting this year as Prime Minister Mariano Rajoy seeks to convince investors the nation can avoid a second bailout amid surging borrowing costs. “We are all going to comply with deficit targets,” Budget Minister Cristobal Montoro said late yesterday during a news conference following a meeting with regional finance chiefs in Madrid. Several regional representatives told reporters the new rules will force them to deepen budget cuts. Rajoy is trying to avoid a broader bailout after securing 100 billion euros ($123 billion) in European loans for Spain’s banks. The yield on its 10-year debt rose to a euro-era high of 7.75 percent on July 25 even as Rajoy announced his fourth austerity package since Dec. 30. It then fell after European Central Bank President Mario Draghi said last week he would do whatever is needed to protect the single currency, regaining 14 basis points yesterday to close at 6.75 percent.
  • Draghi Reshapes ECB Crisis Pragmatism as Trichet’s Dogma Fades. Mario Draghi defied his own staff at his first meeting as European Central Bank president and voted to cut interest rates. As the crisis rages on nine months later, he is shaping the institution more and more in his own image. Last week Draghi signaled he is willing to take the ECB further than his predecessor, Jean-Claude Trichet, in building a firewall around Spain and Italy. Earlier last month, he jettisoned Trichet’s mantra that senior bondholders at crippled banks shouldn’t suffer losses. “The ECB has become more pragmatic under Draghi, many taboos have been shed and precedents set,” said Christian Schulz, a former ECB economist now working for Berenberg in London. “There are a number of reasons for that: the crisis has escalated to the level that the tools devised under Trichet are just not sufficient anymore, and a less dogmatic board also helps.
  • Europe Puts at 19-Month Low on Bets Draghi Will Deliver: Options. Bearish options on European stocks fell to the cheapest levels compared with bullish ones in 19 months as traders bet that European Central Bank President Mario Draghi will deliver on his promise to save the euro. Puts with an exercise price 10% below the iShares MSCI EAFE Index Fund cost 10.39 points more than calls betting on a 10% rally, according to data on one-month options complied by Bloomberg. That was the lowest level for the price relationship known as skew since December 2010.
  • French Buck Giving Powers to EU Like Germany Lost in 1945 Defeat. To policy makers in Berlin, who have been the target of global pressure to do more to douse Europe’s financial crisis, France poses the bigger obstacle. French President Francois Hollande is resisting Germany’s call to give up more sovereignty in steps toward the political union that German leaders, including Chancellor Angela Merkel and Bundesbank President Jens Weidmann, say is key to putting the 17-nation currency bloc on sound footing.
  • Protecting Bank Debt Would Cost EU Taxpayers, Report Says. Protecting senior unsecured bank debt may cost “more than EU taxpayers can bear” and investors should be liable for their decisions, a committee of advisers to the European Systemic Risk Board said in a report today. “The examples of Ireland and Spain suggest, already at the national level, that the full protection of all senior creditors may exceed the government’s fiscal capacity,” the Advisory Scientific Committee said in the report on its website. The committee also is “concerned” about the recapitalization of Spanish banks without determining the actual losses of the banks first. “Adding capital without knowing what the assets are actually worth and how much capital is really needed entails a serious risk that the funds may simply be lost as the necessary resolution of the banks is delayed further,” according to the report. The committee supported the creation of a European bank supervisor and a European Resolution Authority to deal with failing lenders. The authority should be financed primarily by a levy on banks, the committee said.
  • Corn Extends Biggest Monthly Gain in 24 Years on U.S. Drought. Corn gained, extending the biggest monthly rally in more than two decades as the worst U.S. drought in half a century persists, threatening global supply. December-delivery corn gained as much as 1% to $8.13 a bushel on the Chicago Board of Trade after jumping to a record $8.205 yesterday. Futures, which surged 27% last month, the biggest monthly gain since 1988, traded at $8.115 at 8:11 am Singapore time.
  • Netanyahu Says Israel Still Considering Attack on Iran. Israeli Prime Minister Benjamin Netanyahu said he’s still debating with government advisers whether to strike Iranian nuclear facilities. The premier spoke in an interview with Channel 2 television broadcast as U.S. Secretary of Defense Leon Panetta arrived in Israel from Cairo to meet him, Defense Minister Ehud Barak and other officials tomorrow. “I haven’t decided yet whether to attack,” Netanyahu said. “However, I see the commitment of this regime of ayatollahs to develop nuclear bombs that are meant to destroy us, and I won’t let that happen.”
  • Komatsu Falls on Report Profit Declined on China. Komatsu Ltd. (6301), the world’s second- biggest maker of construction equipment, fell after a Nikkei newspaper report said the company’s first-quarter operating profit declined for the first time in 10 quarters. The stock fell as much as 3.8 percent to 1,696 yen and traded 3.2 percent lower at 9:33 a.m. in Tokyo trading, extending its loss this year to 5.2 percent. Komatsu’s operating profit probably fell about 20 percent to 56 billion yen ($714 million) in the April-to-June quarter after sales of construction equipment in China halved due to lower public works spending.
  • Singh Answers Sought as Worst Power Crisis May Hurt Growth. Keeping the lights on has emerged as Indian Prime Minister Manmohan Singh’s most immediate challenge. The economy growing at its slowest pace in nearly a decade, the prospect of a drought, and having his government battered by 18 months of policy reversals and corruption allegations were bad enough. Two power-grid collapses in 36 hours have left 600 million people sweating through a failing monsoon, heaping more pressure on a prime minister whose legacy as an economic manager is coming under increasing scrutiny. “This looks even worse than it would normally because there’s an impression that India’s economy is falling apart right now,” said Surjit Singh Bhalla, chairman of New Delhi- based Oxus Fund Management, of this week’s power network failures.
  • Sands China Says Macau Government Probes Data Transfer. Sands China Ltd. (1928), the Asian unit of Sheldon Adelson’s Las Vegas company, said its Venetian Macau Ltd. subsidiary is being investigated by the Macau government in connection with the transfer of some data to the U.S. The probe is related to the case of Steve Jacobs, the former Sands China chief executive officer who is suing the company, said company spokeswoman Melina Leong. The Macau government’s Office for Personal Data Protection notified the company of the probe, Sands China said in a statement to Hong Kong’s stock exchange today.
  • China Home Prices Rise in Market ‘Turning Point,’ SouFun Says. China’s new home prices posted the biggest gain in more than a year, signaling a turning point for the nation’s property market, according to SouFun Holdings Ltd., the country’s biggest real estate website owner. Home prices rose 0.3 percent from June to 8,717 yuan ($1,369) per square meter (10.76 square feet), SouFun said in a statement today, based on its survey of 100 cities. That was the second monthly gain and the biggest rise since June 2011. China’s Premier Wen Jiabao said China will “unswervingly” implement property controls and prevent home prices from rebounding, the official Xinhua News Agency reported yesterday, citing a government meeting held on July 26. Home prices had been declining after the government placed restrictions on the number of properties people could buy in about 40 cities and raised down-payment requirements. “It is very clear that China’s property market is coming back,” said Vincent Mo, Chairman of SouFun, told Bloomberg Television today. The back-to-back monthly gain “showed the turning-point of China’s property prices,” he said. “It’s very difficult to expect the government’s policies to ease while home prices keep rising,” said Jack Gong, a Hong Kong-based property analyst at Jefferies Group Inc. “The policies in general are still tight, but there’s a lot of uncertainty in the fourth quarter.”

Wall Street Journal:

  • Showdown Looms for ECB, Germans. The European Central Bank is primed for a debate this week over whether to use its printing press to save the euro, with Germany's conservative central bank positioned to determine the course of Europe's escalating debt crisis. The showdown pits ECB President Mario Draghi, a veteran Italian central banker who has headed the ECB since November, against Jens Weidmann, the 44-year-old Bundesbank president. Last week, Mr. Draghi said the ECB would "do whatever it takes to preserve the euro." The comments were viewed by investors as a signal that the central bank was poised to prop up government debt markets
  • Group Gets U.S. License to Fund Syria Rebels. The U.S. has given a Washington-based group clearance to provide direct financial assistance to the Free Syrian Army, a new bid by the Obama administration to support Syria's opposition. The Treasury Department's Office of Foreign Assets Control approved a license last week allowing the Syrian Support Group "to engage in otherwise prohibited financial activities with the Free Syrian Army," Treasury spokesman John Sullivan said Tuesday. The license doesn't permit the group to ship military equipment or hardware, but it does authorize it to send financial aid.
  • Jim DeMint: No Internet Taxation Without Representation. Subjecting online retailers to 10,000 local tax jurisdictions is a terrible idea.
  • Payroll Tax Cut on Track to Quietly Expire. White House Isn't Pushing for an Extension and Both Parties Suggest They Would Go Along as Part of Bigger Tax Deal.
  • Tehran Builds on Outreach to Taliban. Iran has allowed the Taliban to open an office in eastern Iran and discussed providing them with surface-to-air missiles, ramping up the potential for cooperation with the insurgents, according to senior Afghan and Western officials. Iran's shift came after the U.S. and Afghanistan sealed a long-term partnership agreement in May, and in an effort to expand its options for retaliation should its nuclear facilities be attacked, the officials said.

Business Insider:

Zero Hedge:

IBD:

  • The Subprime President. Obama also nationalized student loans, a subprime category of its own, given that all student buyers are untested. This move drove private lenders who relied on market standards out of the business and gave government a monopoly over subprime students. Educational financing since then has evolved into a bubble, and universities have read that as an incentive to raise tuition rates. As a result, education is no longer about balancing risk with potential reward but, like housing, about "giving everyone a college education" regardless if everyone would benefit. All this undercuts a market of customers who have saved money, built wealth and acquired the means to repay. It flips the meaning of "success" and creates an upside-down economy built not on value, but on dictated results that in the end are unsustainable.
  • Thoratec's(THOR) Pump Keeps Hearts Beating Longer.
Forbes:
MSN Money:
  • US housing mess: It's not the worst. You've heard that all real estate is local, but the bubble has been global -- though certainly not uniform. Take a look at how other countries have fared.
AP:
  • US judge strikes down EPA water rules for mines. The Environmental Protection Agency overstepped its powers by setting up water-quality criteria for coal mining operations in Appalachia, a federal judge ruled Tuesday. U.S. District Judge Reggie B. Walton in Washington ruled that the EPA infringed on the authority given to state regulators by federal clean- water and surface-mining laws. A coal mining industry coalition sued the EPA and Administrator Lisa Jackson, and the lawsuit was joined by West Virginia and Kentucky. The ruling represents the latest setback to the Obama administration's attempts to crack down on mountaintop removal coal mining.
Reuters:
  • Oakland leaders urge broad battle with Goldman Sachs(GS). Oakland leaders took their financial troubles to the doorstep of Goldman Sachs on Tuesday, urging other cities to join them in fighting a bank that has become a lightning rod for criticism of the U.S. financial system. Oakland is trying to get out of a Goldman-brokered interest rate swap that is costing the cash-starved city some $4 million a year. The swap, entered into 15 years ago as part of a bond sale to hedge against rising interest rates, has turned sour for Oakland now that interest rates are near zero.
  • LabCorp(LH) target of massive private equity buyout -report. A private equity consortium is aiming to scoop-up lab-testing company, Laboratory Corporation of America Holdings in a huge leveraged buyout and take it private, Mergermarket reported, quoting sources familiar with the situation.
  • US office building sales rebound hits a speed bump. The rebound in U.S. office building sales hit a speed bump in the second quarter as weak demand for office space made it more difficult for prospective buyers to predict the income from their investments.
  • BMC Software(BMC) misses estimates on lower bookings. BMC Software Inc posted quarterly results below analysts' expectations as a strong dollar and economic headwinds dragged down enterprise business software bookings, sending its shares down more than 3 percent in extended trade.
Financial Times:
  • Fears grow for rise in food prices. The increase in grain prices is already being felt around the world. In Indonesia, the tofu industry has threatened to strike over rising soyabean prices; in Mexico, the cost of corn tortillas is on the rise; and Iran last week witnessed a rare protest over the cost of chicken. But the economic effects of the sharp rise in agricultural commodities have barely begun. A jump of 30-50 per cent in benchmark corn, wheat and soyabean prices has revived memories of the world’s last food crisis in 2007-08, and large consumers from Egypt and Morocco to South Korea and Taiwan are bracing for a renewed bout of food inflation.
Telegraph:
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.0% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 160.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 128.25 -1.75 basis points.
  • FTSE-100 futures -.41%.
  • S&P 500 futures -.07%.
  • NASDAQ 100 futures +.04%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (TWX)/.58
  • (MRO)/.59
  • (AVP)/.22
  • (OC)/.64
  • (HOG)/1.05
  • (BKW)/.13
  • (ENR)/1.31
  • (DTG)/1.24
  • (ADP)/.53
  • (CMCSA)/.47
  • (H)/.22
  • (OSG)/-1.34
  • (AMT)/.77
  • (CAR)/.70
  • (FSLR)/.93
  • (IPI)/.25
  • (RGR)/.80
  • (GGP)/.21
  • (MET)/1.24
  • (WMB)/.25
  • (TSO)/2.29
  • (GMCR)/.49
  • (PRU)/1.54
  • (D)/.60
  • (SPW)/.74
  • (ICE)/1.93
  • (MA)/5.58
Economic Releases
8:15 am EST

  • The ADP Employment Change for July is estimated to fall to 120K versus 176K in June.

10:00 am EST

  • ISM Manufacturing for July is estimated to rise to 50.2 versus 49.7 in June.
  • ISM Prices Paid for July is estimated to rise to 40.0
  • Construction Spending for June is estimated to rise +.4% versus a +.9% gain in May.

10:30 am EST

  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,000,000 barrels versus a +2,717,000 barrel gain the prior week. Distillate supplies are estimated to rise by +1,100,000 barrels versus a +1,708,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +800,000 barrels versus a +4,134,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.5% versus a +1.0% gain the prior week.

2:15 am EST

  • The FOMC is expected to keep the benchmark fed funds rate at .25%.

Afternoon

  • Total Vehicle Sales for July are estimated to fall to 14.0M versus 14.05M in June.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The Eurozone Manufacturing PMI data, Final Markit US PMI for July and the weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial 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.