Thursday, June 09, 2011

Thursday Watch

Evening Headlines


  • Trichet May Play ECB Rate Card as Germany Risks Split on New Greek Rescue. European Central Bank President Jean- Claude Trichet may today play the interest-rate card and signal to European governments that the euro region’s debt crisis is theirs to solve. Two days after German Finance Minister Wolfgang Schaeuble opened a rift with the ECB over how to fix Greece’s debt crisis, Trichet is likely to signal that the ECB is ready to raise interest rates for a second time in three months in July, a Bloomberg News survey showed. The central bank today will keep its benchmark at 1.25 percent, a separate survey showed. The latest phase of the Greek crisis risks exacerbating tensions between the ECB and the German government. “If there’s a hardening of attitudes between Germany and the ECB, the ECB are just going to dig in their heels and insist on their independence,” said James Nixon, chief European economist at Societe Generale SA in London. “They’re going to tell European governments it’s their problem and they can clear up the mess.”
  • Papandreou's Tourism Gains Threatened by Fresh Wave of Strikes. Prime Minister George Papandreou’s attempts to draw tourists to Greece may be undermined by union calls for strikes against new government austerity measures. Unions representing more than 3 million workers are planning walkouts this month as Papandreou completes 78 billion euros ($114 billion) of budget cuts and state asset sales to meet European Union bailout requirements. Members of the PAME labor union took over the Finance Ministry offices in Athens on June 3 and 50,000 people demonstrated two days later. Unions have proposed a general strike for June 15 and transport, communications and power unions plan demonstrations today.
  • Texas Instruments(TXN) Cuts Earnings Forecast on Slower Chip Orders From Nokia. Texas Instruments Inc. (TXN), the largest analog-semiconductor maker, gave a second-quarter sales and profit forecast that fell short of analysts’ estimates, dragged down by sluggish demand for wireless-phone chips. Second-quarter profit will be 51 cents to 55 cents a share on sales of $3.36 billion to $3.5 billion, the Dallas-based company said in a statement today. Analysts on average had projected profit of 57 cents on $3.55 billion in revenue, according to a Bloomberg survey. Texas Instruments’ analog chips go into everything from e- book readers to industrial air conditioners, making its earnings a broad indicator of demand across the electronics industry. A decline in chip orders from Nokia Oyj, its main wireless customer, is eroding revenue, Texas Instruments said. Texas Instruments fell as low as $30.87, a decline of 5.5 percent, in late trading after the announcement.
  • South Korea to Weigh Rate Increase as Household Debt Poses Risk for Growth. The Bank of Korea will weigh an interest-rate increase tomorrow as swelling household debt and weakness in the global economy pose threats to growth. Officials must decide whether protecting the nation’s expansion is more important than taming inflation that’s exceeded a 4 percent target ceiling each month this year.
  • Power Shortages Loom in Japan. The Fukushima nuclear crisis will extend a power shortage beyond Tokyo as local authorities resist starting idle reactors around Japan until safety guidelines are set in the wake of the worst atomic disaster since Chernobyl.
  • Brazil Raises Key Interest Rate to 12.25% After Inflation Exceeded Target. Brazil’s central bank raised its benchmark interest rate for a fourth straight meeting today after consumer prices exceeded the upper limit of its target range for the first time since 2005. Policy makers, led by central bank President Alexandre Tombini, raised the Selic rate by a quarter point to 12.25 percent, as expected by 51 of 52 analysts surveyed by Bloomberg. Annual inflation in the world’s seventh-largest economy rose to 6.51 percent, above the top of the bank’s target range, in April and accelerated to 6.55 percent in May. Policy makers said in April, and repeated today, that a “sufficiently prolonged” series of rate increases will ease prices back to target in 2012.
  • Three-month dollar Libor may fall below the fed funds target rate today for the first time in 16 months, signaling a decline in interbank lending as banks hoard cash, according to Brown Brothers Harriman & Co. "If Libor were to slip below the Fed's target rate, it would signal growing concerns about financial fundamentals," said Lena Komileva, global head of Group of 10 strategy at Brown Brothers in London.
  • Regions Financial(RF) Says Debit-Card Rule May Erase 75% of Swipe-Fee Revenue. Regions Financial Corp. (RF), Alabama’s biggest bank, said a proposed rule that caps debit-card swipe fees may cost the lender 75 percent of its revenue from that business. Regions collected $346 million in such fees last year, Chief Financial Officer David Turner said today at an investor conference in New York. “The 12-cent cap that they put on just isn’t even remotely close to covering our costs,” Turner said, referring to rules proposed by the Federal Reserve. The lender may have to decide whether to “even offer a debit card, or, if we do, have the customer pay for that,” he said.
  • N. Korea Poses 'Growing' U.S. Threat: Panetta. North Korea’s 1 million troops, ballistic missile program and nuclear enrichment activities underscore that it’s a “growing and direct threat” to the U.S., according to CIA Director Leon Panetta, nominated to succeed Defense Secretary Robert Gates.
  • Obama Team Eyes Payroll Tax Break for Employers. President Barack Obama’s advisers have discussed seeking a temporary cut in the payroll taxes businesses pay on wages amid economic reports suggesting the recovery is slowing, according to people familiar with the matter. The idea, in preliminary stages of discussion, is among several being debated in the administration with the aim of boosting hiring, the people said on condition of anonymity to discuss internal deliberations. The unemployment rate in May rose to 9.1 percent, the highest level this year, and the economy is a main focus of the political discussion in Washington.
Wall Street Journal:
  • The Great Property Bubble of China May Be Popping. After years of housing prices gone wild, China's property bubble is starting to deflate. Residential prices are heading downward in some major cities, damping some undesired real-estate speculation but raising the prospect that the Chinese economy may slow more rapidly than anticipated with profound consequences for global growth. World Bank economists warned at a Beijing press briefing on Wednesday that a real-estate bubble was among the biggest economic risks China faces. Already, in nine major cities tracked by Rosealea Yao, an analyst at market-research firm Dragonomics, real-estate prices fell 4.9% in April from a year earlier. Standard Chartered Bank estimates that China's so-called tier-two cities, such as Dalian and Tianjin, may have 20 months of housing inventory by year end, putting "substantial" pressure on prices. Standard Chartered forecasts price cuts of 10% to 20% "in many cities." A number of analysts think official data, which have continued to show a slight rise in prices, understate the slowdown as the government can affect the numbers by pressing developers to withhold or add high-value properties to the market depending on what it wants the data to show. Chinese officials, facing widespread anger from ordinary citizens who can no longer afford to buy a home, have sought to slow the rise in housing prices. The unanswered question is whether the government can manage to reduce prices gradually in a way that won't undermine economic growth. Calculations based on Soufun data show that in the opening months of 2006 an average-price new apartment in China's capital would cost around $100,000—the equivalent of 32 years' disposable income for the average resident. By 2011, the average price had more than doubled to $250,000, but relatively modest increases in income mean it would now take 57 years of saving for the average resident to cover the cost. In Shanghai, apartment sales tumbled 37% in April, to 11,000 units, compared with 17,500 units in January, according to the Shanghai Real Estate Trading Center. According to Dragonomics, sales volume in the nine cities it tracks fell by about half since the start of the year.
  • Case for ObamaCare Repeal Grows Stronger.
  • Big Funds See Red in China. Hedge-fund titan John Paulson is hardly alone in his wager on a Chinese company whose stock lately has swooned. Several other prominent money managers, including mutual-fund giants that invest individuals' money, made similar bets on stocks now struggling. A Wall Street Journal review shows that some big-name investors, from Fidelity Investments to Carlyle Group, in recent years snapped up shares in Chinese companies that trade on Western exchanges.
  • Eyes on Goldman(GS)-Libya Dealings. Regulators Are Examining Whether the Big Bank, and Others, May Have Broken Bribery Laws.
  • FrontPoint's Eisman to Exit Firm. Hedge-fund manager Steve Eisman, known for his big bets against subprime mortgages and for-profit colleges, is leaving his firm, FrontPoint Partners, a person familiar with the matter said.
  • Policy Makers Split Over Size of Bank Capital. U.S. regulators aim to propose higher capital standards for financial firms in late July but remain divided over how much money banks and other firms should hold to protect against potential losses. The Federal Reserve, Treasury Department and many international policy makers agree that large financial institutions that pose risk to the global financial system should have bigger capital cushions. But policy makers are split over just how much capital is necessary.
  • New Cracks in Oil Cartel. An acrimonious OPEC meeting failed to produce an agreement to increase oil production despite tight supplies and rising prices, bringing to the fore long-simmering divisions between key cartel players Saudi Arabia and Iran and calling into question the group's ability to influence oil prices.
  • Rents on the Rise Again. Landlord Concessions Disappear as Vacancy Rate Falls; Bidding Wars Return.
  • Fed On Hold Until Sept., Bullard Says: Report. The Federal Reserve will want to wait until after its meeting in mid-September before deciding on an exit strategy, St. Louis Fed president James Bullard said in a published interview on Wednesday.
  • 'Monstrous Risks' in Emerging Markets: Bernstein. Emerging markets face "monstrous" risks this year, with investors continually ignoring intensifying inflationary pressures and credit bubbles, leading market strategist Richard Bernstein warned on Wednesday. Bernstein, who now runs his own firm after being chief investment strategist for Merrill Lynch & Co, said the love affair with emerging markets is overdone. "I think what people are completely missing is that the risk is not here in the United States," he told the Reuters 2011 Investment Outlook Summit. "The risk is in emerging markets. There are just monstrous risks in emerging markets right now in my opinion." Red flags are mounting. Brazil's and India's government yield curves are inverting, a condition in which short-term rates rise above longer yields. Historically, such an inversion almost invariably precedes a recession, as investors temporarily accept lower long rates in anticipation of the decline in yields that typically accompanies an economic downturn. Bernstein noted that the Standard & Poor's 500 Index is up 1.7 percent this year and that U.S. equities have been the better bet than emerging markets over the last two years. A government yield curve in general would be upward sloping. But the signal that there's increased risk of a bear market is not at the beginning of a tightening cycle, it's when a central bank has tightened too much, he said. The markets almost always take notice. "How do you know when the central bank has tightened too much? It's when the yield curve inverts. Historically that has been a fantastic indicator," Bernstein said. Indian and Brazil's yield curve inverted last week. "If you look at inverted yield curves around the world, the most inverted yield curves are Greece, Ireland and Portugal, and then comes India and Brazil. There is your warning sign that no one is talking about," he said. Bernstein said emerging market investors are putting a blind eye to the warning signals of a deep decline in emerging markets. "The common thing you hear, is 'well, they are overheating,' which is such a positive spin," Bernstein said. "The markets are still priced for very rapid unhindered growth, and I just think the probability of that is getting less and less."
  • The Next-Big Shift in Social Networking: 'Niche' Sites.
Zero Hedge:
  • Time For Chinese Fraudcaps to Exit Stage Left. One of the most unbelievable developments in the past few days has been the rank, unprecedented, totally amateur and outright pathetic backlash against writers of "short China" theses by the management teams of these same companies that have garnered the all too deserved definition of "Fraudcaps." We have shown before that the hit rate of pieces accusing Chinese companies is well north of 80% as exhibited by the fact that virtually all companies currently halted indefinitely on the Nasdaq are of Chinese origin.
NY Times:
  • Citi(C) Confirms Data Breach at Citi Account Online. Citigroup Inc confirmed a computer breach at Citi Account Online, giving hackers access to the data of hundreds of thousands of bank card customers.
  • Chinese Stocks in US Hit as Brokers Wary of Lending. Chinese stocks listed in the United States took a beating on Wednesday as brokers raised red flags about trading risks following a series of accounting scandals that have afflicted the sector. The New York-traded shares of Chinese real estate service provider Syswin Inc (SYSW.N) tumbled 23.1 percent to $4 and online video company Ku6 Media Co Ltd (KUTV.O) lost 9.7 percent to $3.18. Orsus Xelent Technologies Inc (ORS.A), a designer and distributor of cellular phones, dropped 13.5 percent to $1.99. However, well-known bigger companies not on the list, such as Renren Inc (RENN.N), were also hit. Renren lost 13.6 percent to close at $10.51.
  • China to Play Major Role in Cuban Oil Development. China looks ready to play a major role in the development of Cuban oil, including the island's soon-to-be explored fields in the Gulf of Mexico, after the signing of energy-related accords during a visit this week by Vice President Xi Jinping. The text of the agreements has not been disclosed, but they appear aimed at making China a significant oil partner with its fellow communist-run country, which is likely to raise eyebrows in the nearby United States.
  • Urban Outfitters(URBN) Retail Segment Comp Sales Down So Far in Q2. Urban Outfitters Inc said its comparable retail segment net sales are down in the low single-digits so far in the second quarter on top of a 1.1 percent fall in the most recent quarter.
  • U.S.-Focused Equity Fund Outflows Hit Six Weeks - ICI.
  • Bashir Committing New Crimes in Darfur: Prosecutor. Sudan's President Omar al-Bashir is committing new crimes in Darfur and challenging the authority of the UN Security Council, the chief international warcrimes prosecutor said Wednesday. "Crimes against humanity and genocide continue unabated in Darfur," International Criminal Court chief prosecutor Luis Moreno-Ocampo told the Security Council. He said new air attacks on civilians and killings of ethnic minorities had been carried out in the conflict-stricken western region, where the United Nations says at least 300,000 people have died since an uprising started in 2003. "These millions of victims displaced are still subjected today to rapes, terror and conditions of life aimed at the destruction of their communities, constituting genocide," Moreno-Ocampo said.
Financial Times Deutschland:
  • German banks shed about a third of the Greek debt they held in May 2010, perhaps reducing their role in negotiations on a second bailout for Greece. German banks in January and February held more than 10.3 billion euros in Greek bonds, compared with about 16 billion euros in April 2010. The numbers appear to contradict figures from the Bank for International Settlements.
Commercial Times:
  • Taiwan plans to ban some telecommunications equipment imports from China because of national security concerns.
Shanghai Securities News:
  • China's small- and medium-sized companies may face the worst cash shortage since the 2008 financial crisis, citing a report from All-China Federation of Industry & Commerce. Cash, labor and power shortages as well as high costs and taxes are making it difficult for the enterprises to survive.
Evening Recommendations
William Blair:
  • Rated (MMM) Outperform, target $110.
  • Rated (ABB) Outperform, target $31.
  • Rated (TYC) Outperform, target $59.
Night Trading
  • Asian equity indices are -1.0% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 113.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 116.0 +1.0 basis point.
  • S&P 500 futures +.13%.
  • NASDAQ 100 futures +.13%.
Morning Preview Links

Earnings of Note
  • (SJM)/.99
  • (MTN)/2.17
  • (TITN)//.22
  • (BF/B)/.64
  • (NSM)/.27
Economic Releases
8:30 am EST
  • Initial Jobless Claims for last week are estimated to fall to 419K versus 422K the prior week.
  • Continuing Claims are estimated to rise by 3700K versus 3711K prior.
  • The Trade Deficit for April is estimated to widen to -$48.8B versus -$48.2B in March.
10:00 pm EST
  • Wholesale Inventories for April are estimated to rise by +1.0% versus a +1.1% gain in March.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Plosser speaking, Fed's Yellen speaking, ECB Rate Announcement, BoE Rate Announcement, 30-Year Treasury Bond Auction, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory data, Sandler Exchange/Brokerage Conference, (PLXS) investor day, (PRU) investor day, (NVE) investor meeting and the (APD) investor conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

1 comment:

Hal (GT) said...

So pretty much par for the non-recovery course we are on.