Tuesday, April 12, 2011

Tuesday Watch


Evening Headlines

Bloomberg:
  • Japan Lifts Atomic Alert to Highest Level, Matching Chernobyl. Japan raised the severity rating of its nuclear crisis to the highest, matching the 1986 Chernobyl disaster, after increasing radiation prompted the government to widen the evacuation zone and aftershocks rocked the country. Japan’s Nuclear and Industrial Safety Agency today raised the rating to 7. The accident at the Fukushima Dai-Ichi station was previously rated 5 on the global scale, the same as the 1979 partial reactor meltdown at Three Mile Island in Pennsylvania. The stricken nuclear plant, located about 220 kilometers (135 miles) north of Tokyo, is leaking radiation in Japan’s worst civilian nuclear disaster after a magnitude-9 quake and tsunami on March 11. Tokyo Electric Power Co. said its plant, which has withstood hundreds of aftershocks, may spew more radiation than Chernobyl before the crisis is contained. “The radiation leaks haven’t stopped,” Junichi Matsumoto, general manager of the utility’s nuclear power and plant fitting division, said in Tokyo today. “If the leaks continue, the total radiation from the reactors may exceed” that from Chernobyl.
  • Libya Rebels Spurn African Union Cease-Fire Unless Qaddafi Gives Up Power. Libya’s rebels turned down an African Union cease-fire proposal that would leave Muammar Qaddafi in power, as the regime’s continued shelling and sniper fire in Misrata claimed civilian lives, including a three-year- old girl. “Qaddafi must leave immediately if he wants to survive,” the head of Libya’s rebel council, Mustafa Abdel Jalil, said at a televised news conference yesterday in Benghazi. In Misrata, Libya’s third largest city, the situation was “very bad” with shelling coming within a few hundred yards of a hospital, according to James Elder, a UNICEF spokesman in Cairo. “All day, casualties have poured in, including families killed,” he said in an e-mail yesterday after talking by Skype with a doctor at the hospital. He said the doctor described a three-year-old girl killed by a sniper’s bullet in the head.
  • Junk Spreads Diverging Fastest in Year on Oil: Credit Markets. The difference in relative yields between the highest-rated junk bonds is expanding at the fastest pace in a year, signaling growing concern that rising oil prices will slow the global economy. U.S. notes ranked B yield 458 basis points more than government debt on average, according to Bank of America Merrill Lynch data. That compares with a spread of 331 for bonds rated a tier higher at BB. The difference, which stands at 127 basis points, grew 20 basis points in March, the most since Greece became the first euro member to take a bailout in May.
  • Moussa Koussa Tells BBC Libya Must Avoid Falling Into Civil War. Libya’s former Foreign Minister Moussa Koussa, who defected to the U.K. last month, called tonight for all parties involved in the conflict in Libya to “work to avoid taking Libya into a civil war.” Libyans themselves must find a solution for Libya, Koussa said to the BBC. “We refuse dividing Libya. The unity of Libya is essential to any solution, any settlement in Libya,” Koussa said to the broadcaster.
  • Oil Falls for a Second Day After IMF Cuts Growth Forecasts for U.S., Japan. Oil declined for a second day after the International Monetary Fund cut its growth forecasts for the U.S. and Japan, saying high crude prices pose a risk to global economic expansion. Futures tumbled from a 30-month high yesterday as the IMF said in its World Economic Outlook that the U.S. economy will expand at a slower pace than in 2010 amid an unemployment rate above 8 percent and a drop in consumer confidence. Oil for May delivery slid as much as $1.21, or 1.1 percent, to $108.71, in electronic trading on the New York Mercantile Exchange, and was at $109.06 at 9:27 a.m. Sydney time. The threat of further oil-price increases has become a “key downside risk” for global growth, according to the IMF report. Oil will rise 36 percent in 2011 to $107.16 a barrel, based on the average prices of U.K. Brent, Dubai and West Texas Intermediate crudes, the IMF said. The January forecast was for oil at $89.50 a barrel this year.
  • Alcoa(AA) Shares Drop After Aluminum Producer's Quarterly Sales Miss Estimates. Alcoa Inc. (AA), the largest U.S. aluminum producer, fell in New York trading after reporting first-quarter sales that missed analysts’ estimates as the dollar weakened. Alcoa declined 62 cents, or 3.5 percent, to $17.15 at 7:19 p.m. after the close of regular New York Stock Exchange trading. The company’s sales increased 22 percent to $5.96 billion from $4.89 billion a year earlier, Alcoa said today in a statement. That trailed the $6.06 billion average estimate of eight analysts in a Bloomberg survey. Alcoa, traditionally the first company in the Dow Jones Industrial Average to report quarterly results, said its earnings were curbed by a weaker U.S. dollar, and higher energy and raw-material costs. Some costs for materials, such as caustic soda used in the processing of bauxite, are increasing following the earthquake and tsunami in Japan, Chief Financial Officer Chuck McLane said on a conference call to discuss the earnings. “We are seeing increasing tightness in the Asian caustic market,” McLane said. “Due to this disruption as well as the continuing unrest in the Middle East, we expect to see higher input costs for fuel oil.” Crude-oil prices on the New York Mercantile Exchange averaged 20 percent more in the first quarter than a year earlier.
  • Toyota(TM) Tells U.S. Dealers to Brace for Reduced Car Supplies. Toyota Motor Corp. (7203) told U.S. dealers that assembly disruptions triggered by last month’s record earthquake and tsunami in Japan may thin supplies of vehicles into the third quarter. The world’s largest automaker will build vehicles at “significantly reduced levels,” Bob Carter, group vice president of U.S. sales, said in a memorandum to dealers.
  • Silver Options Trader Bets $1 Million on Price Drop by July. A trader’s almost $1 million bet that an exchange-traded fund tracking silver will decline by July was today’s biggest single options trade on U.S. exchanges as futures on the metal reached a 31-year high. The 100,000 puts, or options to sell 100 shares each of the iShares Silver Trust (SLV) at $25 by July, changed hands at the ask price of about 10 cents and exceeded the open interest of 6,054 outstanding contracts before today, indicating that a buyer of a new bearish position initiated the transaction. The ETF rose to $40.33, the highest intraday level since trading began five years ago, before falling 1.6 percent to $39.21 at 4 p.m. New York time. It hasn’t closed below $25 since November. “It’s definitely a massive downside bet on silver,” said Henry Schwartz, president of Trade Alert LLC, a New York-based provider of options-market data and analytics.
  • Marvell(MRVL) Founders Accuse Goldman Sachs(GS) of Fraud in Suit Over Margin Calls. Two co-founders of Marvell Technology Group Ltd. (MRVL) sued Goldman Sachs Group Inc. (GS) alleging the investment bank tricked them into selling company shares by claiming the sale was needed to cover a margin loan, according to a complaint filed today in state court in San Francisco. Sehat Sutardja, Marvell’s chief executive officer, and Weili Dai, the company’s former chief operating officer, said they were duped into selling shares in 2008 that are now worth $141.5 million. Goldman Sachs pressured them by claiming a regulatory rule, which didn’t exist, required them to sell their stock, according to the complaint. Goldman Sachs held millions of shares of Marvell stock in 2008, they said.
  • Taylor Rule Gives 'Early Warning' at the Fed: Chart of the Day. The Federal Reserve should increase borrowing costs for the first time in two years, according to the Taylor Rule, a measure of where interest rates should be set given inflation and growth projections. The Taylor Rule, based on the consumer price index and the jobless rate, indicates the Fed's target for overnight loans between banks should be .35%. "Inflation expectations have shot up in the past three to four months," said Andy Cossor, Hong Kong-based chief Asia market strategist at DZ Bank AG, Germany's fifth-largest lender. "Some early warning lights may be starting to flash at the Fed. It has had its foot hard on the accelerator. The Taylor Rule and other yardsticks are sending a signal that it's time to start reconsidering that." The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, widened to 2.67 percentage points yesterday, the most in three years.
  • JPMorgan(JPM), Bank of America(BAC) Earnings May Show Weaker Revenue as Loans Stall. U.S. banks such as JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) may report weak revenue for the first quarter after lending by the industry dropped in almost every category. Bank loans and leases fell $87.4 billion to $6.97 trillion from the end of 2010 through March 30, or 1.3 percent, according to Federal Reserve data. Deposits at U.S. banks rose the same percentage to $7.97 trillion, showing households and businesses are still hoarding cash instead of borrowing, analysts said. “While loan growth tends to be seasonally weak in the first quarter, this quarter is tracking worse than seasonality would suggest,” Barclays Capital Inc. analysts led by Jason Goldberg wrote in an April 8 report. “We fear companies have been disappointed.”
Wall Street Journal:
  • Pakistan Tells U.S. to Halt Drones. Pakistan has privately demanded the Central Intelligence Agency suspend drone strikes against militants on its territory, one of the U.S.'s most effective weapons against al Qaeda and Taliban leaders, officials said.
  • President Open to Deal on Debt Cap. White House officials have opened the door to a deal with Republicans that would allow the U.S. to increase its ability to borrow, potentially easing worries in financial markets that the country might default on its debt.
  • This Takeover Pits Bureaucrat vs. Bureaucrat. Just when deal-making has snapped back to life, the nation's two main antitrust cops are locked in a series of increasingly tense feuds over which agency should take the lead in big cases. The latest standoff between the Justice Department and Federal Trade Commission centers on a key piece of the Obama administration's health-care overhaul. That battle has worsened already poor relations between the two agencies, sparking concern that billions in freshly minted business deals could be delayed as they squabble for control. At times, officials have resorted to coin flips and turn-taking games to settle which agency will get jurisdiction.
  • Exchange Gives Peek Into China's Secret Copper Stocks. The Shanghai Futures Exchange is conducting a little-known test program that would allow copper futures to be backed by stockpiles from two bonded warehouses, giving traders and analysts their first glimpse into how much metal actually lies behind the warehouses' doors. Copper inventories held at SHFE warehouses jumped 12% in the program's first week thanks to an added 30,104 metric tons of copper at the two locations. While overall SHFE inventory levels have fluctuated since then, the amount of bonded copper remained the same. China is the world's biggest consumer of copper, and metal traders and analysts have long thought that the country harbors vast private stores that aren't reflected in exchange or government reports. Much of it is in Shanghai, sitting in bonded warehouses. "We've got no idea how big those stocks are," said Robin Bhar, senior metals analyst at Crédit Agricole Corporate & Investment Bank. "People can make guesses about how big they are and where they were at the beginning of the year, but they're really guessing." This glimpse into the shadowy part of China's market is already sparking a debate about the state of global supplies of copper, which is used in goods ranging from electronics to appliances to houses. China's refined-copper imports fell 28% in February from a year earlier, to just 158,185 metric tons. March copper imports were down 33% on the year to 304,299 metric tons, but off February lows. Some of the copper imported into China in recent years was bought by speculative investors there for resale. Now, that copper's records are behind it, those investors are selling aggressively, traders and analysts say.
  • Germany Rebuffs U.S. Calls to Shut Iran Bank. Germany is resisting international pressure to freeze the activities of an Iranian-owned bank based in Hamburg that U.S. officials say provides the financial lifeblood for some of Iran's blacklisted companies. U.S. and European Union officials in recent months have stepped up pressure on Germany to close down the European-Iranian Trade Bank AG—including a Feb. 2 letter from 11 U.S. senators to German Foreign Minister Guido Westerwelle that urged immediate action. The U.S. says the German-licensed bank, known as EIH Bank for its German initials, has become a major financial conduit for Iranian companies involved in weapons proliferation. Last September, it added EIH to its own blacklist of entities banned from the U.S. financial system. Germany has rebuffed such appeals, arguing that it has no proof of illegal activity.
  • Details Emerge in Berkshire(BRK/A) Deal That Led to Resignation. David Sokol, the Berkshire Hathaway Inc. executive who resigned last month, had more conversations with bankers for Lubrizol Corp. than previously disclosed, according to a regulatory filing that adds more detail about the chemical maker's interest in a potential deal.
MarketWatch:
  • Obama Regrets 2006 Debt-Ceiling Vote. Five years ago, a new U.S. senator from Illinois voted against raising the limit on how much debt the federal government could issue. He said it would be a big mistake.“Increasing America’s debt weakens us domestically and internationally,” the senator said at the time. “Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”
  • Trump: The Next Ross Perot? (video) Donald Trump says he will 'probably' run as an independent candidate for U.S. president if he does not receive the Republican nomination.
CNBC:
Business Insider:
Zero Hedge:
New York Times:
  • Gas Prices Rise, and Economists Seek Tipping Point. The question, economists agreed, is what happens if prices continue to go up and remain high. Prices for a gallon of regular unleaded gas are topping $4 at more service stations nationwide, revisiting the bleak territory of three years ago, when the average price for a gallon of regular gas reached a peak of $4.11 on July 17, 2008, according to the Oil Price Information Service.
CNN Money:
Rasmussen Reports:
AP:
  • Ford(F) Says Asian Operations May Face Parts Shortages Later This Month Due to Japan Quake. Ford Motor Co. says that its Asia-Pacific operations may have to slow or stop production later this month because of parts shortages from Japan. Ford has had to temporarily halt operations in the U.S. and Europe because of shortages, but this was the first word of possible production cuts in Asia. Ford has 13 plants in its Asia-Pacific region, including eight assembly plants in Australia, Thailand, Taiwan, Vietnam, India, the Philippines and China. Ford doesn't have any production facilities in Japan but, like other automakers, does source parts from suppliers that were hurt by the March 11 earthquake and tsunami. Ford said in a regulatory filing Monday that it expects its operations will be affected beginning the last week of April and into May. It didn't say which factories or for how long, but said it doesn't expect any production disruption to have a big impact on the company's overall financial results. It is pursuing other sources for some of its supply. However, if the supply of a key material or part from Japan is disrupted and it can't find an alternate, Ford said it may have to reduce or temporarily halt vehicle production. That could hurt both the company's results and Ford Motor Credit Co.'s financial condition, it added.
Reuters:
  • Falcone-Backed Telecom Tests IPO Water. Billionaire hedge fund investor Philip Falcone may have found a way out of his risky wireless telecom bet through a possible initial public offering, three sources said.
  • Short Bets in US Stocks Rise in Late March. Short interest on both the New York Stock Exchange and Nasdaq rose through the second half of March, the exchanges said on Monday, suggesting investors added to their short positions on expectations of further losses as the market slid. The Standard & Poor's 500 index .SPX hit its 2011 low on March 16 as Japan's natural and nuclear crisis, as well as unrest in Libya and the Middle East, hurt investor sentiment. Short interest on the NYSE rose 0.85 percent to 12.64 billion shares through March 31, from 12.54 billion shares as of March 15. Short interest on the Nasdaq rose 1.6 percent in the second half of March to 6.67 billion shares, from 6.56 billion shares as of March 15.
  • Transocean(RIG) Drills in Record Water Depth Off India. A rig owned by Transocean Ltd (RIGN.VX)(RIG.N) has drilled in the deepest-ever water depth off India, eclipsing a record set eight years before in the Gulf of Mexico, the company said on Monday.
Financial Times:
  • Arab Spring Sends Chill Through Israelis. Israelis may talk of the Arab spring, yet most have come to regard the eruption of popular protests across the Middle East with a distinct sense of wintry gloom. According to one opinion poll, 56 per cent of Israelis believe current events in the Arab world will be “bad for Israel” – almost double the proportion who say the country will benefit.
The Guardian:
Business Spectator:
  • This Housing Bubble Will Break Our Banks. In last week's post I showed that there is a debt-financed, government-sponsored bubble in Australian house prices. Now let’s look at what this might mean for the Australian banks who have sated on this housing hot air if, or rather when, the bubble is pricked.
Economic Times:
  • India's environment ministry may soon give its final forest clearance to 50 coal blocks to be developed by companies including Reliance Power Ltd., Jindal Steel & Power Ltd., Steel Authority of India Ltd. and Hindalco Industries Ltd.
Korea Economic Daily:
  • Apple Inc.(AAPL) and Google Inc.(GOOG) may face complaints from South Korean Internet portal site operators for unfair trade practices, citing industry officials.
Economic Observer:
  • China's land ministry may raise the minimum price it will sell land for some industrial projects to help curb investment growth.
Beijing News:
  • Beijing's average new home prices fell 10.9% in March from a year ago to 19,679 yuan per square meter, the first year-on-year decline since September 2009, citing the city's housing and urban-rural development commission.
China Securities Journal:
  • China's Ministry of Finance is considering a reduction of export rebates for some aluminum and stainless steel products. Export rebates for some aluminum products may be reduced to 9% from 13%. The entire 5% export rebate for stainless steel products may be removed.
China National Cotton Reserves Corp.:
  • China's imports of cotton for March dropped 15% on a year earlier to 276,400 tons.
Evening Recommendations
Barclays Capital:
  • Rated (PLCE) Overweight, target $63.
  • Rated (ANF) Overweight, target $81.
  • Rated (BEBE) Overweight, target $8.
  • Rated (ARO) Overweight, target $31.
  • Rated (ANN) Overweight, target $36.
  • Rated (URBN) Overweight, target $37.
  • Rated (GPS) Overweight, target $28.
  • Rated (EXPR) Overweight, target $25.
  • Rated (LULU) Underweight, target $90.
  • Rated (TLB) Underweight, target $6.
  • Rated (ZUMZ) Underweight, target $26.
  • Rated (LTD) Underweight, target $34.
Night Trading
  • Asian equity indices are -1.75% to -.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 105.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 112.0 +3.0 basis points.
  • S&P 500 futures -.48%.
  • NASDAQ 100 futures -.40%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (FAST)/.52
Economic Releases
7:30 am EST
  • The NFIB Small Business Optimism Index for March is estimated to rise to 95.0 versus a reading of 94.5 in February.
8:30 am EST
  • The Import Price Index for March is estimated to rise +2.1% versus a +1.4% gain in February.
  • The Trade Deficit for February is estimated at -$44.0 Billion versus -$46.3 Billion in January.
2:00 am EST
  • The Monthly Budget Deficit for March is estimated at -$189.0 Billion versus -$222.5 Billion in February.
Upcoming Splits
  • (NDSN) 2-for-1
Other Potential Market Movers
  • The Fed's Dudley speaking, Fed's Hoenig speaking, Fed's Tarullo speaking, Fed's Fisher speaking, $32 Billion 3-Year Treasury Notes Auction, weekly retail sales reports, IBD/TIPP Economic Optimism Index for April, (SUPG) analyst day and the (QDEL) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

No comments: