Wednesday, April 27, 2011

Wednesday Watch

Evening Headlines

  • Japan Debt Outlook Cut to 'Negative' by S&P on Reconstruction. Japan’s sovereign-rating outlook was cut to “negative” by Standard & Poor’s as the nation’s reconstruction needs following last month’s earthquake will likely add to what’s already the world’s biggest debt load. The outlook on Japan’s local-currency debt rating, at AA-, the fourth-highest grade, was lowered from “stable,” S&P said in a statement today. The company had reduced the rating by one step in January in the first cut since 2002. Moody’s Investors Service said last month the disaster may bring forward the “tipping point” for the country’s bond market. Today’s decision adds to pressure on Prime Minister Naoto Kan, who has yet to detail how the rebuilding will be paid for and how he plans to rein in longer-term fiscal deficits. As public spending increases, revenue will likely decline because of the economic hit from the disaster, with a report today showing retail sales tumbled the most in 13 years last month. “Japan has repeatedly suffered under poor leadership, but this disaster has made that point even clearer,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “The government needs to decide how it’s going to fund its next reconstruction package.”
  • China's Slumping Small-Caps Haven't Hit Bottom on Earnings, GF Fund Says. Chinese small-company stocks will extend the steepest two-day drop in three months as more companies miss profit estimates amid government tightening, said GF Fund Management Co., China’s sixth-biggest asset manager. The CSI Smallcap 500 Index (SH000905) slumped 1.7 percent to 4,970.57 yesterday, capping a two-day, 3.8 percent retreat that’s the most since Jan. 18. The CSI 300 Index of larger companies slid 2.1 percent during the same two-day period. The ChiNext index of start-up companies dropped to the lowest since October. Earnings per-share at the 320 companies that have released first-quarter earnings in the 500-member small-cap index trailed analysts’ estimates by 14 percent, according to data compiled by Bloomberg. “Earnings expectations for small caps were too high and many of them failed to meet expectations,” said Chen Shide, a Guangzhou-based manager of small-cap stocks at GF Fund, which oversees about $15.9 billion. “Small caps definitely haven’t reached a bottom yet. Investors are now beginning to pay for ramping up share prices over the past two years.”
  • LivingSocial Buyers Richer, Smarter Than Groupon's, Study Says. People who buy online coupons from LivingSocial are richer, younger and smarter than customers of market leader Groupon Inc., according to a study by Nielsen Co. LivingSocial users are 49 percent more likely than the average American online to make at least $150,000 a year, compared with 30 percent for Groupon, according to the survey released today. They are also more likely to be younger than 35 and to have college or graduate degrees.
  • 3M(MMM) to Move Most Capital Spending Outside U.S. 3M Co. (MMM)’s 2011 capital spending will be mostly outside the U.S. for the first time in its 109-year history.
  • Comcast(CMCSA) in Talks to Offer On-Demand Movies 6 to 8 Weeks After Theaters.
  • Regeneron(REGN), Sanofi Therapy Extends Lives of Colorectal Cancer Patients. Regeneron Pharmaceuticals Inc. (REGN) and Sanofi-Aventis SA (SAN) said an experimental drug used in combination with chemotherapy extended the lives of patients with advanced colorectal cancer in a study. Shares rose as much as 12 percent in extended trading.
  • Australian Consumer Prices Advance 1.6%, Most Since 2006. Australian consumer prices gained the most in five years in the first quarter as natural disasters boosted food costs and Middle East tensions drove fuel bills higher. The consumer price index rose 1.6 percent from the previous three months, the biggest jump since 2006, the Bureau of Statistics said in Sydney today. That was more than the 1.2 percent median estimate in a Bloomberg News survey of 26 economists. Prices were 3.3 percent higher than a year earlier.
  • Threatened Florida Everglades Need U.S. EPA to Police Cleanup, Judge Rules. The U.S. Environmental Protection Agency should step in to protect the Florida Everglades because state authorities haven’t done enough, a federal judge in Miami ruled. The state of Florida and the South Florida Water Management District “have not been true stewards of protecting the Everglades in recent years,” U.S. District Judge Alan S. Gold wrote in today’s ruling. “It is now, and has been for a while, time to take concrete and substantial progress toward preserving the Everglades before this national treasure is permanently destroyed to the extent of irreparable destruction,” Gold said. The Miccosukee Tribe of Indians of Florida, whose members are the only residents of the Everglades, sued the U.S. and the EPA in June 2004. The tribe is seeking to force the government to review and disapprove an amended version of the Everglades Forever Act, a law passed by the Florida Legislature in 1994 to resolve litigation over a plan to clean up the wetlands, according to Gold’s ruling.
  • Fed's 'Extended Period' Pledge May End in 2011, Economists Say. Federal Reserve officials will probably prepare to pull back from record stimulus by dropping a pledge this year to hold the main interest rate near zero for an “extended period,” according to a Bloomberg News survey. Thirty-three of 44 economists surveyed said the central bank will remove the two-word phrase from its post-meeting statement in 2011, with 18 betting it will move by September. The Fed may wait until 2012 to announce sales of mortgage or Treasury securities it bought to reduce borrowing costs, with 26 respondents expecting a plan next year, according to the survey, conducted from April 20 to April 25.
Wall Street Journal:
  • Karzai Told to Dump U.S. Pakistan Urges Afghanistan to Ally With Islamabad, Beijing. Pakistan is lobbying Afghanistan's president against building a long-term strategic partnership with the U.S., urging him instead to look to Pakistan—and its Chinese ally—for help in striking a peace deal with the Taliban and rebuilding the economy, Afghan officials say. The pitch was made at an April 16 meeting in Kabul by Pakistani Prime Minister Yousuf Raza Gilani, who bluntly told Afghan President Hamid Karzai that the Americans had failed them both, according to Afghans familiar with the meeting.
  • Silver Rush Spreads to Stock Market. The mania for silver has spread to the stock market as day traders pile into the buying. Trading got so heated during the past two days that shares traded in the iShares Silver Trust, the biggest exchange-traded fund tracking the price of silver, topped that of the SPDR S&P 500 ETF, usually one of the most actively traded securities in the world. Day traders "are going crazy," says Joseph Saluzzi, co-head of trading at brokerage firm Themis Trading. "It's typical of the bubbly speculation that's been going on in silver."
  • Libyan Rebels Jolted by Counterattack. Col. Moammar Gadhafi's forces launched a surprise ground and artillery attack Tuesday against this city's port, threatening Misrata's sole lifeline to the world just two days after rebels drove the last government forces out of the city.
  • Silicon Valley Office Market Booms. Technology firms, from tiny start-ups to giants like Google Inc., are again racing to expand, sparking a turnaround in the Silicon Valley office market that seemed far off just a few months ago. The amount of occupied office space in the area is on pace to increase by three million square feet this year, which would be the biggest one-year jump since 1999, according to Jones Lang LaSalle Inc. Rents for the best space in the most highly desired market, downtown Palo Alto, are up 25% from a year ago, while the vacancy rate has fallen to about 7%, the brokerage firm says.
  • Barclays(BCS) to Sell Some U.S. Properties, Loans. In one of the largest commercial real-estate offerings by a bank in recent months, Barclays Capital is looking to sell commercial real-estate loans and properties on which it has foreclosed.
  • Medicare As We've Known It Isn't An Option. Paul Ryan's premium support plan is preferable to Obama's rationing panel.
  • US Truck Tonnage Up in March Despite Fuel Prices. The index that tracks tonnage hauled by American trucks rose in March despite rising fuel prices, on the back of the ongoing economic recovery. The American Trucking Associations' advance seasonally adjusted For-Hire Truck Tonnage Index rose 1.7 percent in March, after falling a revised 2.7 percent in February. "While I still think the industry will continue to grow and recover from the weak freight environment we've seen in recent years, the rapid spike in fuel prices will slow that growth," said ATA chief economist Bob Costello in a note. Higher fuel prices might cut into consumer spending, which will hurt the trucking industry as the tonnage of goods transported drops. Year-on-year, tonnage hauled climbed a seasonally adjusted 6.3 percent.
  • Buyers Beware: Silver Crashed 11% in 24 Hours.
Business Insider:
New York Times:
  • Shippers May Raise Fuel Fees. These should be good times for railroads and trucking companies. After all, an improving economy means that more goods and commodities need to be delivered to the nation’s ports and department stores. But rising fuel prices have taken a toll on their business.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
USA Today:
  • Traditional Incandescent Bulbs on Their Way Out Starting Jan. 1. The United States is on the verge of a lighting revolution that will oust the traditional incandescent in favor of more energy efficient (and less polluting) alternatives. Are you ready? On Jan. 1, nationwide, a new federal law means the 100-watt incandescent will start disappearing from store shelves. Instead, an expanding line of alternative bulbs will be sold bearing new nutrition-like labels on their boxes. The labels will tout a bulb's lumens, a measure of brightness, rather than its wattage, a measure of energy use. They will also estimate its yearly energy cost.
  • BofA(BAC) to Introduce Credit Card Penalty Rates in June. Bank of America Corp, one of the largest U.S. credit card issuers, plans to start charging penalty interest rates for credit card customers who miss payments. Beginning on June 25, the bank will begin charging a penalty rate of as much as 29.99 percent to customers who make late payments on their credit card balances, a company spokeswoman confirmed on Tuesday. Unlike a wholesale interest rate increase, borrowers would be charged the penalty rate only on new purchases after the rate is changed, and a customer will receive 45 days advance notice of any penalty rate being placed on their account.
  • Deadlock in Libya Exposes International Rifts. Military deadlock in Libya has exposed growing international rifts, with critics of NATO bombing calling it another case of the West trying to overthrow a regime by stretching the terms of a U.N. resolution. "Is there a lack of such crooked regimes in the world?" Russian Prime Minister Vladimir Putin asked on Tuesday. "Are we going to bomb everywhere and conduct missile strikes?" And a senior African Union official accused Western nations of undermining an AU peace plan that would not require the departure from power of Muammar Gaddafi. British and U.S. officials met on Tuesday to discuss how to step up military pressure on Gaddafi, as the Libyan leader's army fought fierce clashes with rebels in besieged Misrata. More than a month of British and French-led NATO air strikes have failed to dislodge Gaddafi or bring major gains for anti-government rebels who hold much of east Libya.
  • Sony Playstation Suffers Massive Data Breach. Sony Corp suffered a massive breach in its video game online network that led to the theft of names, addresses and possibly credit card data belonging to 77 million user accounts in what is one of the largest-ever Internet security break-ins.
  • Amazon(AMZN), Spending Aggressively, Expects Rosy Revenue. gave a confident revenue forecast that suggested its aggressive expansion into new businesses is paying off, soothing concerns about its slimmed-down profit margin. Shares were down 1.2 percent after Amazon reported a 32.8 percent decline in first-quarter profits. But that was a far cry from the big sell-off when the company last reported quarterly results and shares lost 9 percent.
  • Broadcom(BRCM) Revenue Forecast Disappoints, Shares Fall. Chipmaker Broadcom Corp forecast current-quarter revenue below Wall Street estimates, pushing its shares down 8 percent as some investors worried the shortfall might last beyond the quarter. Blaming weak demand on key cellphone customers, Broadcom forecast a second-quarter revenue range with a midpoint of $1.8 billion, compared with average Wall Street expectations of $1.9 billion, according to Thomson Reuters I/B/E/S. The warning is likely the result of a bleak outlook from Nokia Corp and some weakness at Samsung Electronics, according to analysts.
  • FACTBOX - Venezuela's State Takeovers Under Chavez.
  • Panera(PNRA) Raises 2011 Earnings Forecast. Panera Bread Co (PNRA.O) raised its full-year earnings forecast above Wall Street's target after its first-quarter profit topped expectations, sending its shares up 1.7 percent.
Financial Times:
  • The U.S. government may review its system of expediting visas for Chinese officials and their families after China's government canceled several bilateral academic and cultural programs, citing a U.S. official.
Financial Times Deutschland:
  • Germany exiting nuclear power would not result in a burden to the environment as additional carbon dioxide emissions from coal-fired plants would be offset elsewhere, citing comments by Jochen Flasbarth, president of the country's Federal Environment Agency.
  • Tokyo Electric Power Co. said the spent-fuel cooling pool of the No. 4 reactor at its Fukushima Dai-Ichi nuclear plant may be leaking water. Tepco thinks an explosion last month may have caused the leak and will investigate further.
China News Service:
  • China is studying rules to control developers' profits to keep home prices at a reasonable level, citing Xu Kunlin, head of the National Development and Reform Commission's pricing supervision department.
Economic Observer:
  • China's top economic planning agency has arranged to meet with several large domestic coal producers this morning at which the government will ask the companies to "appropriately" control price increases, citing a person familiar with the situation.
China Securities Journal:
  • China may increase tightening of the property market, citing people from the real estate industry. The nation may require down payments of 50% for first-home purchases if property prices continue to rise, citing a loan official at a domestic bank. China's land ministry will also issue policies to control the price of land. The banking regulator may also tighten regulation of loans trust companies extend to developers.
  • China should reduce dollar holdings in its foreign-exchange reserves as dollar assets have falling yields and rising risks, the China Securities Journal said in a front-page editorial.
Evening Recommendations
  • Upgraded (IACI) to Buy, target raised to $42.
  • Upgraded (LO) to Buy, target raised to $122.
  • Reiterated Buy on (HSY), boosted target to $64.
  • Reiterated Buy on (AMG), target $128.
BMO Capital Markets:
  • Rated (MSTR) Outperform, target $180.
Night Trading
  • Asian equity indices are +.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 104.50 unch.
  • Asia Pacific Sovereign CDS Index 111.50 unch.
  • S&P 500 futures +.10%.
  • NASDAQ 100 futures +.29%.
Morning Preview Links

Earnings of Note
  • (BHI)/.78
  • (DPS)/.46
  • (TUP)/.86
  • (PX)/1.26
  • (EAT)/.45
  • (DBD)/.37
  • (GLW)/.44
  • (OC)/.35
  • (NOV)/1.00
  • (MCO)/.54
  • (MSO)/-.10
  • (PFCB)/.52
  • (WHR)/1.64
  • (WLP)/1.90
  • (TMO)/.88
  • (BA)/.69
  • (COP)/1.93
  • (AVY)/.47
  • (ITRI)/.94
  • (ALL)/.68
  • (TER)/.37
  • (EQR)/.56
  • (NSC)/.90
  • (SBUX)/.34
  • (SLG)/1.02
  • (VAR)/.85
  • (CCI)/.08
  • (RYL)/-.32
  • (LIZ)/-.30
  • (AVB)/1.05
  • (FLS)/1.62
  • (OI)/.45
  • (NOC)/1.56
  • (EBAY)/.46
  • (EXC)/1.05
  • (NVLS)/1.03
  • (JNY)/.30
  • (AFL)/1.52
  • (XLNX)/.52
  • (AKAM)/.36
  • (SRCL)/.65
  • (SEE)/.38
  • (GD)/1.61
  • (HES)/1.84
Economic Releases
8:30 am EST
  • Durable Goods Orders for March are estimated to rise +2.3% versus a -.9% decline in February.
  • Durables Ex Transports for March are estimated to rise +2.0% versus a -.6% decline in February.
  • Cap Goods Orders Nondef Ex Air for March are estimated to rise +3.8% versus a -1.3% decline in February.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,700,000 barrels versus a -2,322,000 barrel decline the prior week. Distillate inventories are expected to rise by +250,000 barrels versus a -2,504,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,000,000 barrels versus a -1,583,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.88% versus a +1.1% gain the prior week.
12:30 pm EST
  • The FOMC is expected to leave the benchmark fed funds rate at .25%.
2:15 pm EST
  • Bernanke speaks at Fed Press Conference.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The weekly MBA mortgage applications report and the 5-Year Treasury Notes Auction could also impact trading today.
BOTTOM LINE: Asian indices are 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 mixed. The Portfolio is 100% net long heading into the day.

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