Thursday, April 28, 2011

Thursday Watch

Evening Headlines

  • Russell 2000 Climbs to Record as U.S. Small Caps Trump S&P 500. The Russell 2000 Index climbed to a record as a technology rally helped smaller stocks erase losses from the 2008 crisis faster than the rest of the U.S. market. The measure, which beat the Standard & Poor’s 500 Index from 2008 to 2010, has climbed 9.5 percent this year, exceeding the 7.8 percent advance by the benchmark gauge for U.S. stocks.
  • Oil Rises a Second Day After U.S. Fuel Stockpiles Fall More Than Forecast. Oil climbed for a second day in New York on speculation fuel demand will increase after the Federal Reserve renewed its pledge to stimulate growth and U.S. gasoline stockpiles fell to the lowest since August 2009. Futures rose to a 31-month intraday high today after Federal Reserve Chairman Ben S. Bernanke signaled the Fed will maintain its record monetary stimulus. The Fed “said it would complete its latest $600 billion bond-buying program in June as scheduled and it would keep interest rates low for an extended period, which was positive for commodities,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in an e-mailed note today. Crude oil for June delivery gained as much as 94 cents, or 0.8 percent, to $113.70 a barrel in electronic trading on the New York Mercantile Exchange, the highest since Sept. 22, 2008. The contract was at $113.54 at 9:29 a.m. Singapore time. Brent oil for June settlement increased 66 cents, or 0.5 percent, to $125.79 a barrel on the London-based ICE Futures Europe exchange.
  • Gold Climbs to Record as Bernanke Maintains Stimulus, Dollar Extends Drop. Gold advanced to a record after the Federal Reserve pledged to keep interest rates near zero to bolster the recovery, weakening the dollar and boosting demand for precious metals as a store of value. Immediate-delivery gold gained as much as 0.2 percent to $1,530.22 an ounce, and traded at $1,528.32 at 10:06 a.m. in Singapore. “What’s behind gold’s rally is investors’ fear over the dollar’s decline,” said Hwang Il Doo, a Seoul-based senior trader at KEB Futures Co. “As long as the U.S. keeps interest rates low, it’s perceived by the market to buy more gold.”
  • Exelon(EXC) Said to Be Near $7.7 Billion Deal for Constellation(CEG). Exelon Corp. (EXC), the largest operator of U.S. nuclear power plants, is near agreement to buy Constellation Energy Group Inc. (CEG) for about $7.7 billion, adding stakes in five reactors in Maryland and New York, according to a person with knowledge of the matter. In the transaction under discussion, Constellation shareholders would get 0.93 Exelon share for each of their shares, said the person, who declined to be identified because the talks are private. Based on Exelon’s closing stock price of $41.49 today, that would value Constellation at $38.59 a share, a 12.5 percent premium to its closing price.
  • Palestinian Factions Seek Unit Government, Plan Elections. The rival Palestinian Hamas and Fatah groups have reached a preliminary agreement to end their almost four-year divide and form a unity government. The agreement also calls for legislative and presidential elections in a year, Fatah official Azzam al-Ahmad said in an interview yesterday after a joint press conference with Hamas negotiators. Egypt, which acted as mediator during the secret talks, will host a meeting of Palestinian factions next week for a formal signing ceremony, al-Ahmad said. “Today, we open a new page of unity and agreement, of closing ranks and struggling together,” Hamas official Musa Abu Marzouk said. The formation of a unity government of technocrats will begin next week after the accord is signed, he said. Israel said the deal would kill any chance for peace talks and the U.S. said Hamas can’t play a “constructive role” as long as it is unwilling to accept Israel’s right to exist. Hamas -- considered a terrorist organization by the U.S., the European Union and Israel -- rejects the peace negotiations and refuses to recognize the Jewish state. The Palestinian move follows protests in March in which thousands of Palestinians, inspired by the popular uprisings in Egypt, Tunisia and Libya, rallied in support of reconciliation between Hamas, which controls the Gaza Strip, and the Fatah-led Palestinian Authority, which rules the West Bank.
  • NYSE(NYX) Board Is Failing Owners by Rebuffing Nasdaq(NDAQ), Legg Mason's Miller Says. Bill Miller of Legg Mason Inc. (LM), the fifth-biggest shareholder of NYSE Euronext, said the failure of the exchange operator’s board to meet with Nasdaq OMX Group Inc. (NDAQ) is inconsistent with its obligations to owners. “We think it is in the shareholder’s interest that the board work to maximize value for owners,” Miller wrote in an e- mail to Bloomberg News today. “We don’t see how being unwilling to meet with Nasdaq furthers that goal.” Twice this month, NYSE Euronext rejected a joint bid from Nasdaq OMX and IntercontinentalExchange Inc. (ICE) that was worth 12 percent more as of 4 p.m. New York time than Deutsche Boerse AG’s Feb. 15 agreement to purchase the company. Legg Mason, based in Baltimore, owned 7.48 million shares of NYSE Euronext as of Dec. 31. That makes it the fifth-biggest owner, according to ISS Proxy Advisory Services, the shareholder advisory unit of New York-based MSCI Inc. Miller is the chairman and chief investment officer of Legg Mason Capital Management Inc. T. Rowe Price held 19.1 million NYSE Euronext shares, making it the biggest owner.
  • Yields Surge as Local Spending Boosts Inflation: India Credit. Spending by local governments before elections is stoking India's inflation, which has driven yields on the nation's benchmark bonds to their biggest monthly surge in more than a year. Gross state borrowings rose 39% in the year ended March, reversing an 8% drop in the previous 12 months. India's central bank warned last month that lax fiscal discipline threatens efforts to contain inflation. "Policy makers' efforts in fighting inflation are being offset by populist measures," S.C. Kalia, executive director of Union Bank of India in Mumbai, which buys regional government bonds, said in a phone interview on April 26. "States have to exercise fiscal discipline" to avoid a situation where "the panic button on inflation has to be pressed," he said.
  • Japan Economy Took Bigger Hit in March Than Analysts Estimated. Japan’s economy had a bigger hit from last month’s disaster than anticipated, with factory output falling the most since at least the end of the U.S. occupation, underscoring calls for the central bank to add stimulus. Factory output dropped a record 15.3 percent from February and household spending plunged 8.5 percent from a year earlier, government reports showed today. Retail sales fell the most in 13 years, according to data released yesterday. The economy’s deterioration makes harder Prime Minister Naoto Kan’s task of sustaining confidence in Japan’s government debt after Standard & Poor’s yesterday downgraded its outlook for the nation’s rating. The Bank of Japan will today detail an emergency lending program for banks in devastated northeastern areas as a group of lawmakers and former Cabinet ministers presses for more purchases of government bonds.
  • China Property Slowdown Poses Growth Risks, World Bank Says. China’s real-estate market is a “particular source of risk” to growth given the importance of property construction to the world’s second-biggest economy, the World Bank said today. “Shocks to the property sector that would slow down construction significantly could have a large impact on the economy and on bank balance sheets,” the Washington-based lender said in its China Quarterly Update released in Beijing. “A property downturn could affect the finances of local governments, which do a lot of the infrastructure investment.” Regulators told China’s banks last week to conduct more stress tests on their real-estate lending as the government steps up efforts to curb surging housing prices. A potential rise in bad debts on property loans and credit to local government financing vehicles risks triggering another state- funded bailout, Fitch Ratings said this month. “With tension between the underlying upward housing price pressure and the policy objective to contain price rises, interaction between the market and policy measures could lead to a more abrupt than planned downturn in the real-estate market,” the World Bank said in its report. High property prices should be controlled through “macroeconomic levers” rather than administrative measures, the bank said.
  • China's B Shares Tumble to Five-Month Low on Capital Gains Tax Speculation. China’s B shares sank for a fifth day, driving the benchmark index to a five-month low, amid speculation the government will impose a capital gains tax on trading of the equities. The Shanghai SE B Share Index, comprising 53 companies whose shares are traded in U.S. dollars, slumped 4.1 percent to 290.7 at the 11:30 a.m. local-time break, extending a four-day, 7.8 percent plunge that included a 5.3 percent retreat yesterday.
Wall Street Journal:
  • Deadly Storms Hit South. Dozens Killed Across Four States; In Flooded Midwest, a Battle Over Levee Plan. At least 72 people were killed Wednesday in storms across the South, including 58 in Alabama, where a tornado unleashed some of the heaviest damage on a university town. Meanwhile, in the Midwest, officials approved plans to blow up a levee, flooding farms but saving towns, should waters continue to rise at the confluence of the Mississippi and Ohio rivers. Powerful storms raged through the South, uprooting trees, knocking over houses and ripping down power lines. Swaths of Tuscaloosa, Ala., home to the University of Alabama, were reduced to rubble by a tornado reported to be a mile wide, the Associated Press reported. Fifteen people died there.
  • The Stakes Are Real in the Yukon as a Modern Gold Rush Is On. Prospectors Must Claim Their Turf on Foot And Keep an Eye Peeled for Grizzlies.
  • Chrysler Financing to Pave Way for New DOE Grant. Chrysler Group LLC is expected to disclose Thursday it has hired a group of banks to refinance its government loans, setting the stage for it to apply for additional funding from the Department of Energy, people familiar with the matter said. Chrysler will secure money from a bank group led by Goldman Sachs Group(GS), to repay the $5.8 billion it borrowed from the U.S. and the $1.7 billion it took from the Canadian government during its 2009 bankruptcy, according to these people. In addition to Goldman, the banking group includes Citigroup Inc., Morgan Stanley, and Bank of America Corp., these people said. The repayment of the government debt, coupled with Fiat SpA's intention to increase its current 30% stake in Chrysler to 46% once the loans are paid off, is expected to ease the DOE's concerns about Chrysler and allow the agency to grant the company as much as $3.5 billion in low-interest loans. The money would be used to re-tool its plants to build more fuel-efficient vehicles. The DOE has been reluctant to provide Chrysler the financing amid concerns about the auto maker's long-term financial health.
  • High Court Clears Rule on Disclosing Creditor Data. The Supreme Court approved a new federal rule requiring distressed-debt investors and others to disclose details of their trades when banding together to influence bankruptcy proceedings. The new rule, drafted by a panel of bankruptcy judges and other restructuring experts, is poised to take effect in December, unless Congress blocks it, which isn't expected. The rule will require investors to reveal their "economic interest" in a company operating under Chapter 11 bankruptcy protection, including debt, stocks and bearish bets such as credit-default swaps.
  • EBay(EBAY) Tops Street View, Raises Full-Year Outlook. The internet commerce company reported a first-quarter profit of 47 cents, compared with 42 cents a share during the same period a year ago. Sales for the most recent quarter came in at $2.55 billion, versus $2.196 billion last year.
  • China Census Shows Population, Older and More Urban. China's population grew to 1.34 billion by 2010, according to census figures released on Thursday, up 5.9 percent from the 1.27 billion counted in the last census in 2000, and lower than the 1.4 billion population some demographers had projected for the latest tally. Between 1990 and 2000, the total population increased by 11.7 percent. The proportion of mainland Chinese people aged 14 or younger was 16.60 percent, down by 6.29 percentage points from the number in the 2000 census. The number aged 60 or older grew to 13.26 percent, up 2.93 percentage points.
Business Insider:
Zero Hedge:
NY Post:
Rasmussen Reports:
  • 21% Say U.S. Heading in Right Direction, A New Low. Twenty-one percent (21%) of Likely U.S. Voters say the country is heading in the right direction, according to a new Rasmussen Reports national telephone survey taken the week ending Sunday, April 24. It's the fourth week in a row that the measurement has gone down, with confidence in the nation's course now reaching the lowest point of the Obama presidency. Seventy-one percent (71%) of voters now say the country is heading down the wrong track.
USA Today:
  • Thefts Rise as Price of Gas Goes Up. As gas prices approach record highs, gas-related thievery is on the rise. Regular gasoline averages $3.88 a gallon, up $1.02 from a year ago and likely to climb higher. Increasingly, consumers are pumping gas and driving off without paying, stealing from other motorists and ripping off large quantities from municipalities and businesses.
  • Unemployment Rates Down in 317 Cities, Most Since '09. The rate rose in 44 cities and was unchanged in 11. Nationwide, the unemployment rate dipped to a two-year low of 8.8% in March and has dropped a full percentage point since November. Businesses added a net total of more than 200,000 jobs in March and February, the fastest two-month hiring spree in five years.
  • Norfolk Southern(NSC) Profit Jumps, Shares Rise. U.S. railroad Norfolk Southern Corp reported a quarterly profit that beat Wall Street estimates as shipments of goods from coal to autos picked up, even as higher fuel prices raised costs. Fuel costs and truck capacity shortages have driven more traffic to railroads and intermodal businesses, where transportation costs have risen less. "Looking ahead, we feel confident that the economic recovery is well under way and, barring some extraneous event, it will continue well on into 2012," Chief Executive Wick Moorman told analysts on a conference call. The company said there is a "pervasive interest" and "ongoing building momentum" in shifting from highway transport to more fuel-efficient intermodal for supply chain support.
  • Equinix(EQIX) Sees Strong Q2, to Open More Data Centers. Equinix Inc forecast second-quarter sales above Wall Street estimates on higher demand for its data-center services and easing pricing pressures, and said it would build new data centers, sending its shares up 3 percent.
  • Akamai(AKAM) Outlook Disappoints as Shares Plunge. Online content delivery company Akamai Technologies Inc issued a quarterly profit forecast that disappointed investors, sending its shares down 10 percent as it disclosed that spending will rise.
  • Bank of Portugal Governor Carlos Costa said that the levels of public debt at present are a barrier to the country's economic growth. "We fell in the debt trap," Costa said. "The deterioration of public accounts reflects increases in spending that are disproportionate in relation to the capacity to generate revenue through taxation," RTP said.

  • China's consumer price index may increase from 5.5% to 5.6% on a year earlier in May and June, citing an unidentified Ministry of Finance official.
National Business Daily:
  • China may raise fuel prices in the second week of May, citing researcher C1 Energy.
Evening Recommendations
  • Reiterated Buy on (OC), boosted target to $49.
  • Reiterated Buy on (PH), boosted target to $112.
  • Reiterated Buy on (BA), boosted target to $90.
Night Trading
  • Asian equity indices are unch. to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 104.50 unch.
  • Asia Pacific Sovereign CDS Index 112.0 +.5 basis point.
  • S&P 500 futures +.29%.
  • NASDAQ 100 futures +.16%.
Morning Preview Links

Earnings of Note
  • (NYX)/.60
  • (CME)/4.19
  • (ABC)/.69
  • (PHM)/-.14
  • (MHS)/.88
  • (UTHR)/.65
  • (CAH)/.69
  • (IP)/.59
  • (HOT)/.25
  • (STRA)/2.67
  • (TWC)/.99
  • (AET)/.98
  • (PTEN)/.44
  • (DOW)/.67
  • (PG)/.97
  • (ZMH)/1.12
  • (PEP)/.73
  • (RTN)/1.09
  • (DISCA)/.47
  • (APA)/2.57
  • (BG)/1.31
  • (ACOM)/.15
  • (MCRS)/.44
  • (VRSN)/.33
  • (MSFT)/.56
  • (CLF)/2.27
  • (CERN)/.77
  • (MWW)/.02
  • (TRLG)/.26
  • (CSTR)/.22
  • (D)/.91
  • (OMX)/.26
  • (NBL)/1.13
  • (BMY)/.53
  • (VIA/B)/.62
  • (CAM)/.56
  • (EXPE)/.26
  • (XOM)/2.07
  • (RCL)/.14
  • (CL)/1.16
  • (BEC)/.82
  • (OXY)/1.79
  • (SWY)/.27
  • (DECK)/.47
  • (BWA)/.97
  • (AM)/.54
Economic Releases
8:30 am EST
  • The Chicago Fed National Activity Index for March is estimated at .5 versus -.04 in February.
  • Advance 1Q GDP is estimated at 2.0% versus a +3.1% gain in 4Q.
  • Advance 1Q Personal Consumption is estimated to rise +2.0% versus a +4.0% gain in 4Q.
  • Advance 1Q GDP Price Index is estimated to rise +2.3% versus a +.4% gain in 4Q.
  • Advance 1Q Core PCE is estimated to rise +1.4% versus a +.4% gain in 4Q.
  • Initial Jobless Claims for last week are estimated to fall to 395K versus 403K the prior week.
  • Continuing Claims are estimated to fall to 3680K versus 3695K prior.
10:00 am EST
  • Pending Home Sales for March are estimated to rise +1.5% versus a +2.1% gain in February.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking, weekly EIA energy inventory data, weekly Bloomberg Consumer Comfort Index and the (LIZ) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

No comments: