Monday, May 17, 2010

Monday Watch

Weekend Headlines

  • 'Lack of Trust' Pummels Bank Lending in Europe: Credit Markets. Money markets are showing rising levels of mistrust between Europe’s banks on concern an almost $1 trillion bailout package won’t prevent a sovereign debt default that might trigger a breakup of the euro. Royal Bank of Scotland Group Plc and Barclays Plc led financial firms punished by rising borrowing costs, British Bankers’ Association data show. The cost to hedge against losses on European bank bonds is 63 percent higher than a month earlier. Investment-grade corporate debt sales in the region plummeted 88 percent last week to $1.2 billion from the prior period, according to data compiled by Bloomberg. The rate banks say they charge each other for three-month loans in dollars is the highest in nine months, even after a government-led rescue designed to prevent Greece from defaulting on its debt and a new financial crisis. The euro is trading at its weakest level versus the dollar since the aftermath of Lehman Brothers Holdings Inc.’s collapse, and stocks tumbled. Bank lending “conveys a lack of trust in the system,” said Robert Baur, chief global economist at Des Moines, Iowa- based Principal Global Investors, which manages $222 billion. “Banks are a little reluctant to lend overnight as they don’t know the full extent of what is on the bank balance sheets.”
  • Euro Falls to Lowest Since April 2006 on European Debt Crisis. The euro declined to the lowest level in more than four years against the dollar on concern European measures to reduce fiscal deficits will undermine the 16-nation region’s recovery. The shared currency slid for a third day versus the yen after European Central Bank President Jean-Claude Trichet called for a “quantum leap” in the way euro-area nations set their budgets. Futures traders last week increased bets to a record that the euro will fall following a 750 billion-euro ($927 billion) bailout to contain a sovereign-debt crisis. The pound weakened to its lowest in 13 months after a U.K. report showed London house prices recorded their first drop this year. “Short-term there is no obvious reason to think the euro is going to stop declining here,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “Growth is going to be extremely weak for a long time. Positioning clearly isn’t holding the euro back.”
  • Democrats Unlikely to Pass Spending Plan in Face of Deficits. Democrats in Congress will likely skip this year the annual task of crafting a budget for the U.S. government amid lawmakers’ unwillingness to approve a measure sure to include huge deficits. With the midterm elections looming and primary results showing voters in a sour mood, Congress will probably forgo passing a tax-and-spending plan for the fifth time in the last 12 years. “It’s still on the outer range of possible” that a budget will be produced, “but increasingly less plausible,” said Representative Earl Blumenauer, an Oregon Democrat on the House Budget Committee. “With each passing day it gets a little less likely.” House Speaker Nancy Pelosi, a California Democrat, and House Majority Leader Steny Hoyer, a Maryland Democrat, signaled on May 13 that they are prepared to write separate spending measures rather than lay out a five-year fiscal blueprint. Republicans said Democrats are shirking a basic congressional responsibility. Representative Paul Ryan, the top Republican on the House Budget Committee, said the Democrats are refusing to make the “hard choices American families and small businesses must make every day.” He called that “alarming as spending, deficits and debt continue to spiral out of control.”
  • Greece Considering Legal Action Against U.S. Banks for Crisis. Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said. “I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” Papandreou said the decision on whether to go after U.S. banks will be made after a Greek parliamentary investigation into the cause of the crisis. “Greece will look into the past and see how things went,” Papandreou said. “There are similar investigations going on in other countries and in the United States. This is where I think, yes, the financial sector, I hear the words fraud and lack of transparency. So yes, yes, there is great responsibility here.”
  • East Europe Growth Faces Risk From West, EBRD Says. The Greek debt crisis that’s threatening to break up the euro zone may spill over to Eastern Europe and spoil the region’s fragile recovery, the European Bank for Reconstruction and Development said. It warned that the struggle to contain a debt crisis in western Europe may stall the region’s growth, especially in the Balkan peninsula. “We have the Greek crisis and it poses a risk in particular to southeastern Europe,” said EBRD Chief Economist Erik Berglof today in Zagreb, where the bank’s shareholders are holding their annual meeting. “But there is a broader risk for the region. Clearly this is something we are very concerned about.”
  • Hedge Fund Rules Opposed by U.S., U.K. Are Set for Votes in EU. A European Parliament committee may approve a proposal tonight to force hedge funds outside the EU to agree to transparency standards in exchange for a so-called passport to market to investors in the 27-nation bloc. EU finance ministers are scheduled to vote tomorrow in Brussels on a version of the rules that would require funds to register separately in each country. Both proposals have been opposed by the United States and the United Kingdom.
  • China Adds Guards, Seeks 'Grassroots' Answers to School Attacks. Chinese police today guarded a village kindergarten where seven pupils and two teachers were hacked to death May 12, the latest of five school attacks that have killed at least 15 children and adults. Wu Huanming, 48, allegedly went on a rampage with a kitchen cleaver in Linchang in Shaanxi province, only two weeks after China had executed the killer of eight students in the second- deadliest of the attacks in the past seven weeks. The assailants were all jobless men seeking revenge on society and to expose social problems such as unemployment and unfair distribution of wealth, the China Daily reported yesterday, citing law professor Li Yunlong. Police have restricted access to Linchang, setting up three checkpoints along the road into the village, and roping off the kindergarten. China today sentenced to death Xu Yuyuan for slashing 29 children and three adults in a kindergarten classroom in the eastern province of Jiangsu on April 29, state-run Xinhua News Agency said. Zheng Minsheng, 42, was executed April 28 for slaying eight children outside a primary school in Fujian province on March 23. In Beijing, an additional 800 security guards equipped with helmets, batons, armored vests and tear gas have been deployed at schools. The city already had almost 2,000 security guards at schools, state-run said on May 13, citing Ma Xuguang, director of the general office at Beijing Security Service General Company.
  • Trichet Wants More EU Budget Control, Sanctions, Spiegel Says. European Central Bank President Jean- Claude Trichet called for more effective sanctions against countries violating the region’s Stability and Growth Pact and said the ECB acted independently when it bought government bonds, Spiegel magazine reported, citing an interview. Europe is witnessing “truly dramatic times” and the situation may be the most difficult since World War I, Trichet was cited as saying. Recent market turmoil was similar to the collapse of Lehman Brothers Holdings Inc. in September 2008 and such turbulences can be contagious, sometimes within hours, he told the magazine. Trichet called for a “quantum leap” of mutual control among governments, Spiegel magazine reported.
  • Thai Baht Falls, Bond Risk Rises as Political Clash Worsens. Thailand’s bond risk climbed the most in two months and the baht weakened after at least 35 people were killed in fighting between the military and anti-government protesters. The cost of insuring Thai government debt from default jumped 20 basis points to 175 basis points as of 9:15 a.m. in Singapore, according to Royal Bank of Scotland Group Plc prices.
  • Crude Oil Falls Below $70 on European Risk to Global Growth. Crude oil fell below $70 a barrel in New York for the first time in three months on concern Europe’s sovereign-debt crisis may derail the global economic recovery and reduce fuel consumption. Oil dropped for a fifth day, the longest losing streak in five weeks, as the euro extended losses against the dollar, damping the investment appeal of commodities. Oil’s 17 percent tumble this month is being driven by Europe’s debt crisis and is beyond the influence of the Organization of Petroleum Exporting Countries, Qatar’s Energy Minister Abdullah al-Attiyah said. “There are concerns that the European debt crisis will have a negative impact on the global growth outlook and in turn, global fuel demand,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney.
  • Copper Extends Drop on concern Europe Debt Crisis to Cut Demand. Copper dropped in Asia, extending a five-week slump, on concern that demand for raw materials may slow as European nations slash budgets to curb deficits. Three-month delivery copper on the London Metal Exchange fell as much as 1.4 percent to $6,830 a metric ton and traded at $6,835.25 at 9:36 a.m. in Shanghai. “Metals prices may continue to push lower if the European situation deteriorates,” Jia Zheng, an analyst at Southwest Futures Co., said from Shanghai.
  • Universal Health(UHS) Said to Agree to Buy Psychiatric Solutions(PSYS). Universal Health Services Inc. agreed to buy Psychiatric Solutions Inc. for $33.75 a share, said two people with knowledge of the matter.
  • Astellas Raises Offer for OSI Pharma(OSIP) to $4 Billion. Astellas Pharma Inc. agreed to buy OSI Pharmaceuticals Inc. for $4 billion in cash, raising its original offer to gain its first marketed cancer drug and a sales force in the U.S.
  • Greece's Bailout Heroes Arrive in Leaking Boats: Kevin Hassett. The $1 trillion coordinated bailout to stave off a Greek debt default is fatally flawed and may well lead to another, deeper global recession. While optimists hope the bailout will signal an end to the government debt crisis, the history of debt crises suggests it is just the end of the first act in what will be a long and drawn-out tragedy.
  • London Airports Close This Morning on 'High Density Ash Cloud'. Heathrow, Gatwick and London City airports closed from 1 a.m. until 7 a.m. today, National Air Traffic Services Ltd. said, citing a “high density ash cloud” that continues to move further south.
Wall Street Journal:
  • Spill Fight Shows Progress. BP PLC(BP) had its first breakthrough in the effort to stem the oil spill in the Gulf of Mexico, using robots to insert one end of a mile-long tube into a shattered oil pipe on the ocean floor. The goal is to siphon up some, if not most, of the crude gushing into the Gulf of Mexico. In an early sign of success, BP said it had begun burning off natural gas emerging from the apparatus at the ocean's surface. At BP's crisis center—where some 500 people are working round-the-clock—a bunker mentality eased a bit. "Everyone's encouraged now," said Richard Lynch, who is leading BP's subsea containment effort. There's no assurance the risky maneuver will pan out. Company executives said it was still too early to say what percentage of the oil and gas is being captured.
  • Napolitano Under Fire Again. Homeland Security Secretary Janet Napolitano and her agency are under fire again after the oil spill in the Gulf of Mexico and the attempted bombing in Manhattan's Times Square. While no one is calling for Ms. Napolitano's resignation, as happened after the failed Christmas Day bombing, her performance and that of the Department of Homeland Security are a key part of the political battleground over how to fight terrorism.
  • The Revenue Limits of Tax and Spend. Whether rates are high or low, evidence shows our tax system won't collect more than 20% of GDP. The Greeks have always been trendsetters for the West. Washington has repudiated two centuries of U.S. fiscal prudence as prescribed by the Founding Fathers in favor of the modern Greek model of debt, dependency, devaluation and default. Prospects for restraining runaway U.S. debt are even poorer than they appear.
  • The Fed's Monetary Dissident. 'I really don't think we should be guaranteeing Wall Street a margin by guaranteeeing them a zero or a near zero interest rate.' In the aftermath of the 2008 financial panic centered on Wall Street, it's easy to forget that this part of America has its own bitter history of wild speculation that ended in disaster. But Kansas City Federal Reserve Bank President Thomas Hoenig remembers the 1970s all too well. It was a lesson that still shapes his thinking about the role of the Fed's monetary policy in creating asset bubbles. Mr. Hoenig is more than just one of the 12 regional bank presidents of the Federal Reserve. Right now he's also a voting member of the Fed's Open Market Committee, which sets U.S. monetary policy. In recent months he's been the committee's sole dissident on the Fed's promise to keep interest rates "at exceptionally low levels" for "an extended period of time." At April's FOMC meeting, Mr. Hoenig objected to that language for the third meeting in a row, warning that those words are inviting a kind of trouble we've seen before.
  • Tightening the Credit Screws. Community Banks are Still Offering Loans. But Businesses Have to Jump Through a Lot More Hoops to Get Them. In the depths of the credit crunch, community lenders became a popular financing source for Main Street. But small-business owners may need to work harder to get support from local banks these days.
  • Union's Giveback Isn't Yet Helping GM. Three years after General Motors Co. won wage and benefit concessions from its union, the company has yet to realize savings from a key provision that cuts pay by more than half for new U.S. hires. GM's deal with the United Auto Workers cuts the combined wage-and-benefit cost for a newly hired factory worker to $25.65 an hour, compared with about $60 an hour for current workers. By comparison, the nonunion workers at Toyota Motor Corp.'s U.S. plants cost the company approximately $48 an hour in wages and benefits, Toyota says. But GM can't add new workers at the lower wage yet. It still has 5,000 laid-off workers who, under their contract terms, have first crack at any union jobs that the company adds, and most would return to work at the higher pay level. "That's probably one of the reasons the UAW agreed to [the lower wages]. They knew right off the bat there wouldn't be a lot of leeway for the companies to hire new workers," said David Whiston, an auto analyst at Morningstar Inc. "There will always be this fundamental difference—that the Detroit companies have union shops" and the U.S. plants of foreign makers don't.
  • Just Don't Call It a Climate Bill. John Kerry Rearranges Cap and Tax - and Hopes No One Notices. Despite the most creative rhetoric this side of ObamaCare, voters have figured out that "cap and trade" involves artificial carbon rationing and vast new energy taxes. So the main goal of John Kerry and Joe Lieberman has been attempting to disguise these truths in the climate bill they released to much fanfare last week. The bill was nine months in gestation once it became clear that the version the House passed last summer—which one of five Democrats opposed—was doomed in the Senate. Yet no one should mistake Kerry-Lieberman for a new approach.
Bloomberg Businessweek:
  • Flood of Cash to Congress Is Unabated as Banks Seek Influence. As the U.S. Senate prepares to vote as early as this week on legislation rewriting the rules for Wall Street, the financial industry is holding fundraisers for lawmakers at a rate of almost one every business day this month. Some members of Congress have criticized Wall Street one month only to ask the industry for money the next. U.S. Representative John Adler, a New Jersey Democrat, demanded accountability from Wall Street in an April 29 statement. This week, he’s holding what is billed as a “financial services dinner” in Washington with a minimum contribution of $1000. At least 20 House and Senate lawmakers have scheduled fundraisers in May targeting the industry or hosted by lobbyists for banks such as Goldman Sachs Group Inc.(GS) and Citigroup Inc.(C), according to Democratic and Republican party committee schedules sent to prospective donors. The events allow lobbyists to mingle with lawmakers as the Senate debates sweeping new regulations for the industry.
  • Foreign Companies Chafe at China's Restrictions. Foreign companies doing business in China are increasingly feeling as if the deck is stacked against them. China has filed more than a dozen trade cases to limit imports, imposed a series of “buy Chinese” measures and limited exports of some minerals to force multinationals to move factories to China. Foreign executives in China find themselves increasingly at odds with Chinese officials over these measures, which Westerners view as protectionist and intended to give an edge to Chinese companies. Surveys by Western chambers of commerce of executives show growing disenchantment over the past year and a sense that doing business in China, never easy, is growing harder.
NY Times:
  • Is Ben Bernanke Having fun Yet? NINE days ago, Ben S. Bernanke, the Federal Reserve chairman, caught a Friday-night flight from here so he could address 1,100 graduates at the University of South Carolina the next morning about “The Economics of Happiness.” After the speech, he took a call in his hotel room from Jean-Claude Trichet, head of the European Central Bank, and the next day pledged billions of dollars to help Europe stave off a financial crisis — a flashback to the huge lending programs the Fed put together in 2008 to forestall economic collapse at home.
  • Europe's Bailout Loses Some Luster. That didn’t last long. A week after European lawmakers and central banks averted financial Armageddon with a 750 billion euro ($1 trillion) bailout followed by a government bond-buying spree, the euphoria has evaporated. Interbank rates and credit default spreads are rising, while equities are falling around the world. A return to the prebailout trauma isn’t imminent, but high deficits and the need for austerity will keep markets choppy.
  • Cass Sunstein Wants to Nudge Us. The professors in Hyde Park believe in something called the University of Chicago mind. It runs cold and analytical when the rest of the culture runs hot. Chicago scholars tend to be social scientists at heart, contrarian but empirical, following evidence to logical extremes. They are centrally interested not in what it is like to be an individual within society but in how society washes over individuals, making and remaking them. During the campaign, when his former Chicago colleagues were asked to detail Barack Obama’s intellectual evolution, many of them described him in these terms. But they knew Obama, at best, only partly exhibited this tradition. His friend Cass Sunstein, who is certainly the most productive and probably the most influential liberal legal scholar of his generation, inherited it in full. “Cass has,” says Saul Levmore, a former dean of the law school, “the quintessential University of Chicago habit of mind.”
Business Insider:
Zero Hedge:
  • Cyber Crooks Target Web Applications. Cyber crooks are increasingly targeting the growing array of Web applications — everything from interactive maps to stock tickers — potentially giving them access to the credit card and Social Security numbers of people using those sites.
Huffington Post:
  • Major Loophole in Senate Financial Reform Bill, Derivatives Reform May Be Illusory. The pending financial reform bill in the Senate may not accomplish President Barack Obama's goal of reforming the unregulated derivatives market, potentially wasting the nation's best opportunity to fix a broken financial system and tarnishing the legacy of those claiming to clean up the markets. A section of the bill dealing with derivatives, financial instruments that transfer risk, contains a major loophole, according to an email from a consumer-advocacy organization to the Senate Banking Committee obtained by the Huffington Post. The loophole is wide enough to undermine the whole effort to reform a part of the financial market -- those derivatives traded between financial firms, like AIG, outside of any government oversight -- that's largely blamed for worsening the financial crisis.
Rasmussen Reports:
  • 58% in Pennsylvania Favor Immigration Law Like Arizona's. Fifty-eight percent (58%) of Likely Pennsylvania Voters favor a law like the one recently adopted in Arizona that authorizes local police to check the immigration status of individuals they stop, according to a recent Rasmussen Reports telephone survey. Thirty-two percent (32%) oppose such a law. These numbers are roughly in line with the national average.
  • 51% Say United States Is Last Best Hope of Mankind. A new Rasmussen Reports national telephone survey finds that 51% of voters nationwide believe the United States is the last best hope of mankind. Twenty-six percent (26%) disagree.
  • Japan's sovereign debt may rise to 250% of gross domestic product by 2015 from 227.1% this year, according to a forecast from the International Monetary Fund. It said doubling the consumption tax to 10% would increase Japan's government revenue by 2.6%.
  • China Web 'Firewall' Should be WTO Issue - EU Kroes. China's Internet "firewall" is a trade barrier and needs to be tackled within the framework of the World Trade Organisation, Neelie Kroes, vice president of the European Commission, told reporters in Shanghai on Monday.
Financial Times:
  • U.K. banks may be facing breakups, controls on lending and limits on bonuses, citing Business Secretary Vince Cable. Banks "are just not performing" and the new government will seek to force them to increase lending to businesses and secure the country's economic recovery, he said.
  • Hedge Funds Hit by May Volatility. Some of the world’s biggest hedge funds have suffered significant losses this month after high levels of volatility across markets and the shortlived stock market plunge in New York combined to wipe billions from portfolios. Losses in the first week of May alone erased all gains made so far this year for some managers, according to investors who spoke to the Financial Times. London’s BlueTrend – the $10bn computer-driven fund run by BlueCrest Capital, one of the most successful managers to emerge from the financial crisis – dropped 7.57 per cent during the first week of May. Rival AHL, the $20bn monolith run by the Man Group, fell 3.3 per cent. In the US, the Renaissance Institutional Equities Fund, another quantitative trader run by Long-Island-based Renaissance Technologies, fell 3.6 per cent. Sharp losses were also taken by many large long-short equity managers, which both invest in stocks and look to take advantage of price falls by selling them short. The $15bn Lansdowne Partners saw its European equities fund drop 6.02 per cent and its Global Financial fund fall 5.53 per cent. The $2.2bn Odey European fund, another prominent London-based manager, fell 8.68 per cent. In the US, the $12bn Viking Global Investors saw its Global Equities fund lose 3.77 per cent, and in Asia the Templeton Emerging Markets fund – run by the eminent investor Mark Mobius – lost 6.42 per cent.
  • Democrats Open to Talks on Derivatives. Two key Democratic senators offered a narrow path for compromise over the weekend after banks pleaded with regulators and clients to help overturn provisions of a financial regulation bill they say will rock markets. Chris Dodd, Senate banking committee chairman, and Blanche Lincoln, chairman of the agriculture committee, told the Financial Times there was room to negotiate on a proposal that would force banks to spin off their swaps desks. As financial regulation reform enters its final week in the senate, there is a frantic lobbying effort to change parts of the bill before Barack Obama, US president, signs it into law. Moderate Democrats are trying to cut a deal in private that would change the provision on swaps desks, which the industry and regulators warn is unworkable. Other congressional Democrats are pushing for a $90bn bank levy and increased taxes on private equity executives to fill a funding hole created by the regulation bill.
  • Google(GOOG) Boss: 50% of Ads Will Go Online. The amount of global advertising revenue spent online will increase by up to 50pc in the next five years, according to Nikesh Arora, Google's president of global sales and one of the most influential executives at the technology company. In a bullish interview ahead of the US company's annual Zeitgeist conference at The Grove, Hertfordshire, starting this evening, Mr Arora said the move online by consumers was the "major trend" that all companies had to understand. He also warned that many businesses were being left behind by the speed of change and that the $450bn (£309bn) advertising industry did not "fully understand" how to use the technological changes to their advantage. "People are shifting their spending dollars more and more to the online world – whether it be direct marketing, or advertising, or branding. And that follows industrial marketing logic which is that you have to go where the eyeballs are, where the customers are. "The next big wave will be consumers consuming more and more video on the web, and you will see more and more brand advertising and display advertising move to the web. "I personally expect in the next five to eight years 30pc to 50pc of advertising will be digital.
  • Lord Myners Calls for 'One Last Push' at EU Hedge Fund Talks. Former City Minister Lord Myners has called on George Osborne, the new Chancellor, to make "one last push" to get a final concession from fellow European finance ministers on a new directive for the private equity and hedge fund industry.
  • Opposition to a potential Norwegian membership of the European Union has reached a record, according to a poll by Sentio, Nationen and Klassekampen. About 59.9% of the people surveyed were against Norway entering the EU, while 30.3% were in favor of a EU membership.
Sueddeutsche Zeitung:
  • Europe may face a so-called double-dip recession as a consequence of the Greek crisis, Robert Skidelsky said in an interview. Skidelsky, an economics professor who sits in the U.K.'s House of Lords, told the German newspaper the world economy is currently on unstable footing.
  • German Chancellor Angela Merkel said stabilizing the euro is about stabilizing "the European idea" as a failure of the currency may lead to a worse situation, citing an interview. European countries need to consolidate their budgets and impose stricter rules with regards to short-selling and credit-default swaps.
  • 47% of Germans want their former currency, the Deutsche Mark, back, citing an Allensbach poll.
  • Frank Schaeffler, a lawmaker with Chancellor Angela Merkel's Free Democrat coalition partners, said European Central Bank President Jean-Claude Trichet should step down. Bundesbank President Axel Weber should succeed Trichet immediately because the head of the ECB plunged the central bank into a "crisis of trust" after he oversaw the purchase of government bonds, Schaeffler said.
Der Spiegel:
Yonhap News:
  • S. Korea Moves to Stop Funding Exchanges With N. Korea. South Korea is moving to stop funding government-level exchanges with North Korea, citing strained relations with the communist neighbor and tension over the sinking of a South Korean warship near their border, a Seoul official said Monday. The Unification Ministry official said his ministry formally requested 10 other ministries last week to suspend budgets related to exchanges with North Korea. "We find it difficult to continue to fund exchanges with North Korea in the midst of tension over recent developments," the official said, declining to be identified.
JoongAng Daily:
  • Two North Patrol Boats Violate NLL. In an apparent attempt to highlight the disputed border in the peninsula’s western waters, North Korean patrol boats crossed the inter-Korean maritime border twice Saturday night and retracted after warning shots from a Southern ship. The border violations took place at a time of escalated tensions between the two Koreas. South Korea is scheduled to announce the results of its investigation into the sinking of the warship Cheonan near the western inter-Korean sea border on Thursday, and speculation has grown that the incident that killed 46 sailors was caused by a torpedo attack by the North. According to a military source, North Korean patrol boats crossed the Northern Limit Line about 20 times in 2009, but Saturday’s violations were the first since the Cheonan’s sinking. “Since the incident was the first since the Cheonan’s sinking and also took place on Saturday night, which is considered the most vulnerable time for the military, we are looking closely into the North’s motive,” the official said. A South Korean government source also told the JoongAng Ilbo that the North Korean military had recently issued an order to open fire on all South Korean vessels that cross the Northern Limit Line. “The order was given to all North Korean units that are in charge of the western border, including the Navy’s fleet command and the IV Army Corps,” he said. Since the North has made a renewed attempt to defy the Northern Limit Line, military officials here are concerned that Pyongyang would stage further provocations depending on the international responses to Seoul’s announcement of the outcome of the probe into the Cheonan’s sinking. A senior government official told Yonhap News Agency yesterday that a team of international investigators has concluded that a North Korean torpedo attack had sank the Cheonan.
  • China's Taixing Intermediate Court started the trial of a man charged with knife attacks against 29 kindergarten kids and three adults. Xu Yuyuan was charged with hacking the children and teachers at a kindergarten classroom in the eastern Jiangsu Province's Taixing city on April 29.
  • One More Employee from Foxconn Falls Off Building and Dies. A young man died after falling from the top of a 7-floor dormitory building of the Foxconn Technology Group in south China's boom town of Shenzhen Friday night, the company said Saturday. It is the ninth fall by Foxconn employees in five months. A blood-stained dagger was found with Liang and his body sustained several knife cuts. Police are investigating whether it was a suicide.
Shanghai Securities News:
  • Second-hand home transactions in Beijing fell 81.7% in the first half of this month as compared with the same period of April, citing property brokers. Prices in some areas of the Chinese capital have fallen by 25%.
China Business News:
  • China's local governments won't likely face a debt crisis, citing Xu Lin, head of the National Development and Reform Commission's financial division. Total borrowings by financing arms of local governments were $1.1 trillion as of the end of December, an increase of 70.4% from a year earlier.
Beijing Business Today:
  • China's international pricing power has almost "totally collapsed," citing Yao Jian, a spokesman for the Ministry of Commerce. This may hurt China's further opening to the global economy, Yao said. Chinese companies should band together to increase negotiating power, he said.
  • China's National Development and Reform Commission is currently drafting "more stringent" rules for the property market. The strengthened rules will involve "many aspects" of the market, the report said.
Weekend Recommendations
  • Made positive comments on (KFT), (WDC), (PCS), (AGN) and (STX).
  • Made negative comments on (GHL).
  • Upgraded (PPL) to Buy target $30.50.
Night Trading
  • Asian indices are -2.75% to -1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 129.0 +15.0 basis points.
  • S&P 500 futures -1.12%.
  • NASDAQ 100 futures -1.06%.
Morning Preview Links

Earnings of Note
  • (LOW)/.31
  • (A)/.41
Economic Releases
8:30 am EST
  • Empire Manufacturing for May is estimated to fall to 30.0 versus a reading of 31.86 in April.
9:00 am EST
  • Net Long-term TIC Flows for March are estimated to rise to $50.0B versus $47.1B in February.
1:00 pm EST
  • The NAHB Housing Market Index for May is estimated to rise to 20.0 versus a reading of a 19.0 in April.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The JPMorgan Tech/Media/Telecom Conference, (PAET) Investor Day, (UNCA) Analyst Day and the (TSS) Analyst Meeting could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and financial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the week.

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