Tuesday, April 05, 2011

Wednesday Watch

Evening Headlines

  • NATO Gets Blamed as Libyan Rebels Flee Assault by Qaddafi Forces. Libyan rebels retreated under heavy fire from the central oil port of Brega, prompting their top commander to lash out at NATO for not doing enough to stop artillery attacks by Muammar Qaddafi’s forces. The North Atlantic Treaty Organization is slow “in responding to our instructions” on targets and is failing to ‘give us what we need,’’ said Abdel Fattah Younes, head of the rebel army and Qaddafi’s former interior minister. He was particularly critical of the alliance for failing to stop Qaddafi’s weeks-long siege of Misrata, the rebel-held city near Tripoli that has been the scene of the most protracted attacks on civilians. “We’re disappointed in NATO,” said Younes, speaking at a press conference in Benghazi broadcast on al-Jazeera.
  • U.S. Fiscal Crisis in Spitting Distance: Laurence Kotlikoff. The two parties are having a heated debate over the Republican plan to slice $61 billion off Uncle Sam’s projected $3.6 trillion budget. If the Republicans get their way, the deficit will fall from 9.5 percent of gross domestic product to 9.1 percent. If they don’t, they’ll probably shut the government for a couple of days. Then they’ll compromise on, say, a $40 billion budget cut, having proved they gave it their best shot. Arguing over lowering our deficit by just 0.4 percent of GDP when we need to run massive surpluses to deal with the baby boomers’ impending retirement is, pick your metaphor -- rearranging the Titanic’s furniture, Nero’s fiddling, Custer’s Last Stand. Is this malign fiscal neglect, or has Congress somehow missed what its own Congressional Budget Office is indicating? CBO’s baseline budget updates suggest the date for reaching what Carmen Reinhart, Kenneth Rogoff and other prominent economists believe is a critical insolvency threshold -- a 90 percent ratio of federal debt held by the public to gross domestic product -- has moved four years closer, in just nine months! On March 18, when the CBO released a new forecast that incorporated the president’s budget, the 90 percent mark had moved up to 2017. Actually, 2017 is optimistic.
  • Japan May Restrict Power Use as Summer Worsens Shortages. Japan’s government said it may impose legal limits to electric power use as policy makers prepare for shortages that are likely to worsen as the summer approaches. Energy-supply constraints due to the damage to the Fukushima Dai-Ichi nuclear power plant following last month’s earthquake and tsunami mean the step must be considered, Chief Cabinet Secretary Yukio Edano said yesterday. “We want to ask companies to reduce their electricity use, especially during the peak, in a way that won’t affect their business,” Edano told reporters at a press conference in Tokyo. “Before we resort to forcible measures, we must first ask for cooperation that would impose minimal disruption. We will then consider other measures.” “This shortage is extremely damaging to the economy,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “We’ll see a lot of investment once reconstruction gets under way, but we’re not going to get much growth until we solve this electricity problem.”
  • U.S. Homebuilders Default Swaps Jump as KB Home(KBH) Misses Earnings Estimates. The cost to protect the bonds of U.S. homebuilders surged after KB Home (KBH) reported a bigger-than- expected loss as orders plunged. Credit-default swaps protecting the debt of the Los Angeles-based homebuilder, which targets first-time buyers, jumped 21.2 basis points to 436.9 basis points, according to data provider CMA. “This recovery has yet to include significant job growth and has not spilled over into housing,” Chief Executive Officer Jeffrey Mezger said in an earnings call today. “These headwinds will not go away, and a sustained broad-based housing recovery will not occur until we start to experience material job creation and higher consumer confidence levels.” Credit-default swaps on Lennar Corp. jumped 7.5 basis points to 355.9 and those on Pulte Group Inc. climbed 8.8 basis points to 325, CMA data show. Contracts on Ryland Group Inc. added 9.6 basis points to 249.5, the data show.
  • European, U.S. Divide Deepens in Ratings Slump: Credit Markets. European credit quality is deteriorating by the most since 2009 as the continent's sovereign debt crisis stifles growth and underscores a divergence from the U.S. Moody's Investors Service lowered long-term credit ratings on 182 banks, governments and companies in western Europe this year, including Spanish lender Banco de Sabadell SA and Paris-based grocer Carrefour SA, according to data compiles by Bloomberg. It upgraded 39 entities, translating into the smallest ratio since the full year of 2009. In the U.S., upgrades are outpacing downgrades by 25%.
  • Corn Futures Extend Rally to 33-Month High as Demand Outpaces U.S. Supply. Corn prices climbed to the highest since July 2008 on speculation that U.S. inventories will tighten as demand increases for food, livestock feed and fuel. U.S. corn stockpiles on March 1 dropped to the lowest for the date in four years, the Department of Agriculture said last week. The agency may cut its forecast this week for supplies held as of Aug. 31. The U.S. sold 101,600 metric tons to unknown destinations, the USDA said today. High fuel costs are boosting demand for grain-based ethanol, and feed demand is rising as cattle and hog prices climb. “Meat is at all-time highs, so obviously feed usage isn’t likely to be rationed,” said Frank Cholly Sr., a senior strategist at Lind-Waldock, a broker in Chicago. “The ethanol grind isn’t likely to slow down as long as they’re profitable, so corn prices have to go higher.”
  • Oil Falls a Second Day After Signals U.S., China Demand Growth May Falter. Crude oil declined for a second day in New York amid signs that the pace of fuel demand recovery may falter in the U.S. and China, the world’s biggest energy- consuming nations. Oil for May delivery fell as much as 62 cents, or 0.6 percent, to $107.72 a barrel, in electronic trading on the New York Mercantile Exchange. It was at $107.85 at 9:40 a.m. Sydney time. Yesterday, the contract slid 13 cents to $108.34. Futures are 24 percent higher than a year ago.
  • Cephalon(CEPH) Rejects Valeant's(VRX) $5.7 Billion Offer as Too Low.
  • Exchanges Revamp U.S. Curbs to Limit Stock Moves Instead of Halting Trades. Concern that halting stocks to limit price volatility did more harm than good spurred the biggest U.S. exchanges to propose modifying the program.
  • Swaps Signal Further Rate Increases Adding to Yuan Pressure: China Credit. The cost of fixing borrowing costs in China suggests policy makers will raise interest rates at least once more this year as food and fuel costs surge, adding pressure on the yuan to strengthen. The five-year non-deliverable swap rate jumped 26 basis points in the past three weeks to 4.23 percent, after a report showed a higher-than-forecast inflation rate of 4.9 percent in February. The People’s Bank of China’s latest increase was announced yesterday before an April 15 report that will show consumer prices climbed 5.2 percent in March, according to the median estimate in a Bloomberg News survey of nine economists. Brazil, Poland, India, South Korea and Thailand all raised benchmark borrowing costs in the past month, increasing the allure of local currency-denominated assets as interest rates in the U.S. and Europe remain near zero. China’s deposit rate of 3.25 percent compares with benchmarks of 11.75 percent in Brazil, 8 percent in Russia and 6.75 percent for India.
Wall Street Journal:
  • Egypt's Muslim Brotherhood to Rejoin Protests. After two months of working closely with Egypt's new military rulers, the country's most powerful Islamist group said it will join demonstrations this Friday—a move that could reinvigorate a revolutionary movement damped since protesters ousted the country's president in February. Muslim Brotherhood members have said the group will throw its official weight behind demonstrations against the country's provisional military leadership, which many youth protest leaders complain has been too slow to purge and prosecute lingering elements of the former regime. Its participation in Friday's protests calls into question the perceived alliance between the military and Islamist politicians, whose support has formed an essential political ballast in the military's hasty transition to democratic rule. If this Friday's protests succeed in pressuring the military to purge what is left of ex-President Hosni Mubarak's National Democratic Party, they could help the 83-year old Islamist group reclaim its revolutionary bona fides before parliamentary elections scheduled for September.
  • Al Qaeda Makes Afghan Comeback.
  • Budget Talks Head to Brink. Parties Far Apart on 2012 Spending, Long-Term Vision as Friday Deadline Nears.
  • Fed's Bullard to Push for Curtailing QE2 at April Meeting. James Bullard, president of the Federal Reserve Bank of St. Louis, said he would push at the Fed’s upcoming two-day policy meeting (April 26 and April 27) to reduce the central bank’s quantitative easing program by $100 billion, but held out little hope of being successful. “I don’t always get my way on the committee,” he noted in an interview with the Wall Street Journal. Most Fed officials want to carry the program through to its end in June. “Any changes that we’re going to make we’re going to have to make at this meeting,” he added. “We got a stronger economy and we got higher inflation and higher inflation expectations than we expected at the time,” he said. “The logical thing to do is to pull back.” But Mr. Bullard isn’t looking to a quick or aggressive shift to tight monetary policy. He said he wants to reduce the asset purchase program, slowly taper it off and then watch to see how the economy performs before taking further steps. “We’d be pulling back just a little bit from where we said we were going to be based on economic developments. Then we would be on pause for a little while,” he said. He was generally optimistic about the economy — describing it as “fairly robust” and likely to bounce back in the second quarter after subpar growth in the first quarter. Inflation, meanwhile, he said “appears to have bottomed out over the winter and may be headed higher.” “It is tumultuous times for monetary policy and that is why you’re hearing more from the Fed,” he said. “A tightening cycle is the hardest thing for a central bank to do. There is a lot of risk that you might fall behind the curve and wind up with a lot of inflation. On the other hand you hate to choke off a fledgling recovery. And so there is a lot of debate about it.” In the past, the Fed hasn’t explained itself well. “We’re trying to do a better job of communicating.”
  • Our Unaccountable Fed. 'I will maintain to my deathbed that we made every effort to save Lehman, but we were just unable to do so because of a lack of legal authority." So said Federal Reserve Chairman Ben Bernanke in 2009. The statement was striking—not because it was false, but because the Fed lacked explicit legal authority to do so much of what it did during the financial crisis. Drawing the line at Lehman seemed arbitrary, and it proved that the Fed has become an unaccountable power within American government.
Business Insider:
Zero Hedge:
  • Auto Parts Stores Operate in High Gear. Top players O'Reilly Automotive (ORLY) and AutoZone (AZO) have watched both sales and profits climb at double-digit rates the past four quarters. Advance Auto Parts (AAP) has seen such growth the past two quarters.
CNN Money:
  • In Beijing, "Luxury" Becomes a Dirty Word. Starting next week, mum's the word on luxury in Beijing. After April 15, any company that puts up a public advertisement in China's capital city using the adjective -- or a few other flowery phrases like it -- will be fined around $4,500. The municipal government says on its website that such words induce hedonism and spiritual emptiness. The state media cites the growing gap between the rich and the poor.
Rasmussen Reports:
  • 50% Acknowledge Conflict Between Economic Growth and Environmental Protection, Highest Level Yet. The number of voters who believe protecting the environment gets in the way of a growing economy has reached its highest level in just over two years. A new Rasmussen Reports national telephone survey finds that 50% of Likely Voters say there’s a conflict between economic growth and environmental protection. That’s up seven-points from earlier this year and is the highest level measured since January 2009. In the latest survey, 30% do not believe there’s a conflict between those two areas.
  • Nobel Panel: Give War a Chance. When the Norwegian Nobel Committee awarded Barack Obama its 2009 peace prize, its members probably didn’t anticipate that the American president would send the U.S. military to fight in Libya just over a year later. And that has some Obama critics demanding that he return it. “The Nobel Peace Prize is no declaration of sainthood,” Geir Lundestad, the committee’s secretary, told POLITICO in an interview from Norway. “And no American president will ever be a saint.”
  • Reuters Summit - Nasdaq, NYSE Listings The Same - Bankers. Little difference remains between listing shares on the Nasdaq versus on the New York Stock Exchange, capital markets bankers said on Tuesday, undercutting concerns that hang over a proposed merger of the two.
  • Verizon(VZ) Customers Exposed in Massive U.S. Data Breach. Customers of Verizon Communications had their email addresses exposed in a massive online data breach last week, according to an email to customers obtained by Reuters. In what could be one of the biggest such attacks in U.S. history, a computer hacker penetrated the online marketer Epsilon, which controls the customer email databases for a broad swath of companies.
  • Japan Quake to Boost 2011 Global Chip Sales by $5 Billion - iSuppli. Global semiconductor sales are likely to grow by 7 percent to $325 billion this year, as last month's earthquake in Japan boosted prices of computer memory chips, research firm IHS iSuppli said on Wednesday.
Financial Times:
  • The freeze on the Libyan regime's assets has also limited the opposition's access to cash, citing Ahmed el-Sharif, head of the opposition's central bank. Banks in rebel-held areas are short of currency and could run out within weeks if access to Libyan assets abroad continues to be denied, el-Sharif said, noting that there may not be enough money to pay public-sector workers. He said he would recommend that oil exports cease unless the asset freeze is lifted for the opposition.
Times of India:
  • Beer and liquor will cost between 40% and 60% more in Mumbai and the rest of Maharashtra state following an increase in excise duty in the state's budget.
People's Daily:
  • China's inflation pressure may continue to increase this year, Chen Jiagui, a researcher with the Chinese Academy of Social Sciences, wrote. China needs to control its economic growth while increasing the supply of agricultural products and tightening liquidity, the researcher wrote.
Shanghai Securities News:
  • Pressure for yuan appreciation is increasing and the risk of imported inflation in China is rising, the State Information Center, China Development Bank Corp. and the Shanghai Securities News said in a joint report in today's newspaper. The global economic environment is becoming more complicated as a result of the Japanese earthquake and its aftermath and the war in Libya, the report said. Preventing prices from rising too rapidly while maintaining steady economic growth is the main problem facing China's macro-economic controls, according to the report.
China Securities Journal:
  • China should make property prices one of its main monetary policy goals, Yin Zhongli, a researcher from the Chinese Academy of Social Sciences wrote in a commentary. One way could be to peg property prices with the consumer price index and link consumer prices with the interest rate on deposits, Yin wrote.
Evening Recommendations
  • Reiterated Buy on (ANF), raised target to $76.
Piper Jaffray:
  • Raised (URBN) to Overweight, target $36.
  • Raised (ZUMZ) to Overweight, target $33.
  • Raised (WTSLA) to Overweight, target $5.
Night Trading
  • Asian equity indices are -.50% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 104.0 unch.
  • Asia Pacific Sovereign CDS Index 110.0 unch.
  • S&P 500 futures +.12%.
  • NASDAQ 100 futures +.18%.
Morning Preview Links

Earnings of Note
  • (MSM)/.70
  • (MON)/1.84
  • (WDFC)/.68
  • (SMSC)/.22
  • (BBBY)/.97
  • (RT)/.31
  • (BLUD)/.26
Economic Releases
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +2,945,000 barrel gain the prior week. Distillate inventories are expected to remain unch. versus a +710,000 barrel increase the prior week. Gasoline supplies are estimated to fall by -1,900,000 barrels versus a -2,684,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.5% versus unch. the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking, weekly MBA mortgage applications report, BB&T Commercial/Industrial Conference, UBS Clean Energy Conference, (FE) analyst meeting and the (GG) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

No comments: