Wednesday, June 15, 2011

Wednesday Watch

Evening Headlines


  • Euro-Area Accord on New Greek Aid May Be Delayed to July. Talks on a second Greek bailout may drag into July, casting doubt on a payment due early next month, as euro-area finance chiefs struggle to break a deadlock over how to enroll private investors in the rescue. The finance ministers failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new Greek aid package with European Central Bank warnings that such a move might constitute a default. With consensus elusive before the target date of a June 23-24 leaders’ summit, finance ministers will convene again on June 19 in Luxembourg, a day earlier than planned. “We have to proceed very cautiously,” Luxembourg Finance Minister Luc Frieden told reporters after an emergency meeting in Brussels today, adding that “very clearly we have to go into that direction” of a delay to next month on a new aid package from the European Union and the International Monetary Fund. “Several options -- from the IMF, as well as from the European Central Bank and from the European Commission -- still have to be studied.”
  • Moody's to Review French Banks. BNP Paribas SA, France’s biggest bank, and local rivals Societe Generale (GLE) SA and Credit Agricole SA (ACA) may have their credit ratings cut by Moody’s Investors Service because of their investments in Greece. Moody’s placed the three banks’ ratings on reviews that will focus on their holdings of Greek public and private debt “and the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels,” the ratings company said in a statement today. The move reflects Europe’s deepening debt crisis, centered on Greece, where bond yields touched a record for the euro area yesterday. The reviews of Credit Agricole and BNP Paribas (BNP) are unlikely to lead to downgrades of more than one notch, Moody’s said. Societe Generale’s debt and deposit ratings may be cut as much as two grades because of the “uplift it receives from systemic support, which is currently higher than average for the French banking system,” it said.
  • Euro Falls on EU Deadlock Over Greece. The euro weakened for the first time in three days against the dollar as European Union officials struggled to break a deadlock on a second Greek rescue plan. Australia’s dollar climbed after the Reserve Bank said interest- rate increases were needed, while oil and copper retreated. Europe’s 17-nation currency fell 0.2 percent to $1.4406 as of 12:38 p.m. in Tokyo. Australia’s dollar climbed 0.1 percent to $1.0692. Yields on 10-year Treasuries sank two basis points and Standard & Poor’s 500 Index futures declined 0.4 percent. The MSCI Asia Pacific Index slipped 0.3 percent and China’s Shanghai Composite Index dropped 0.5 percent. Crude decreased 0.3 percent in New York. Copper fell 0.2 percent in London.
  • SEC Probes Merrill Over Mortgage-Related Security, FT Says. The Securities and Exchange Commission is investigating Merrill Lynch’s sale of a mortgage- related security it created for Magnetar, an Illinois hedge fund, and the collateral manager involved in the deal, the Financial Times reported, citing people familiar with the matter that it didn’t identify. Bank of America Corp. (BAC), which acquired Merrill Lynch, declined to comment, according to the report. Bank of America spokesman Rick Simon didn’t immediately respond to a call by Bloomberg News for comment.
  • China PBOC Tells Bank to Stop Subprime, Faked Mortgage Loans. Banks must strengthen risk management in major areas and prevent declines in credit asset quality, according to a financial stability report posted on the Chinese central bank's website.
  • Inflation will remain a "key headwind" for the Indian economy, Goldman Sachs Group Inc. said in a report following faster-than-estimated wholesale prices data yesterday. The Reserve Bank of India will raise interest rates by 75 basis points by the end of the year, including a 25 basis point increase on June 16, Goldman Sachs analysts Vishal Vaibhaw and Tushar Poddar wrote in a report. The wholesale-price index rose 9.06% in May from a year earlier after an 8.66% jump in April.
  • Senate Rejects Bid to Kill Ethanol Tax Break. The U.S. Senate voted against eliminating a tax break and a tariff that support ethanol production, giving a temporary reprieve to corn farmers and defeating a coalition that included chicken breeders and environmental groups. The 40-59 tally left opponents of federal support for ethanol 20 votes short of the 60 votes needed to advance the measure. The amendment, attached to an economic development bill, wasn’t likely to become law. Advocates on both sides of the vote viewed it as a test that would shape the ethanol industry’s future. Farm state senators opposed the repeal effort and said they would support gradual changes.
  • Philippines to Go Ahead With Oil Rights Sale in Disputed South China Sea. The Philippines says oil blocks it plans to offer to international exploration companies later this month in the South China Sea are “well within” its territory, after tensions escalated over drilling rights in the area. Two of the 15 blocks the nation plans to offer lie within areas also claimed by China, according to a map it presented to the United Nations in 2009. China has repeatedly said it will oppose any attempt to drill for oil in waters where it claims jurisdiction. The Philippines and Vietnam have both protested Chinese harassment of oil survey vessels in the past two months. Disputes over the South China Sea have drawn in the U.S., which has a defense treaty with the Philippines and says that keeping the world’s busiest shipping lane open is of national strategic importance. Recent signs that China’s Southeast Asian neighbors are pushing ahead with attempts to unlock oil and gas reserves beneath the ocean floor have raised the risk of military standoffs in the region.
  • Pandora Raises $234.9 Million in IPO, Above Range. Pandora Media Inc., the online-radio company, raised $234.9 million in its initial public offering, pricing the shares above the marketed range as the appetite for Internet stocks continued following LinkedIn Corp.’s IPO. The Oakland, California-based company sold 14.7 million shares at $16 each, according to data compiled by Bloomberg, after offering them for $10 to $12. The shares will trade on the New York Stock Exchange under the symbol P.
  • Huntsman Money Made in China Challenges Obama Envoy's 2012 Hopes. The company also is fodder for opponents as Huntsman prepares to formally announce his Republican presidential bid next week. Huntsman Corp.’s revenue in China surged 57 percent from 2009 to 2010 during his ambassadorship, almost two decades after its entrance there, data compiled by Bloomberg shows. The company’s expansion in the world’s second-largest economy offers a target for rivals when U.S. unemployment is shaping the 2012 presidential race. “China has become a bigger and bigger issue in recent elections, especially exporting jobs to China,” said John Feehery, a Republican strategist in Washington who isn’t working with any of the presidential campaigns. “If I were an opposition researcher, I would have a field day with this.”
Wall Street Journal:
  • Boeing(BA), NLRB Clash Over Non-Union Plant. Lawyers for Boeing Co. and the National Labor Relations Board clashed Tuesday at a hearing on the board's allegations that the aircraft maker illegally shifted work from union plants in Washington state to a new non-union factory in South Carolina. The hearing, which dealt mostly with procedural issues, marked the start of what could be a lengthy and politically charged legal battle, unless Boeing and the company's machinists union, whose complaint sparked the board's inquiry, settle their differences.
  • Report to FCC Will Find LightSquared Interferes With GPS.
  • Wisconsin Union Law to Take Effect. The Wisconsin Supreme Court cleared the way Tuesday for the state's contentious collective-bargaining law to take effect, ruling 4-3 that a lower-court judge who put the measure on hold improperly interfered with the legislature. The decision limits Wisconsin's public employees to bargaining over their wages. Raises will be limited to the inflation rate unless voters approve larger increases. The law also requires public employees to contribute 5.8% of their salaries to their pensions and pay at least 12.6% of their health-care premiums.
  • The Obama Hiatus. The Administration takes a two-year holiday from its own agenda. President Obama's re-election machine is already running full bore, but has his entire Administration also decamped for the campaign trail? We ask because the towering ambitions of Mr. Obama's first two years have suddenly gone into abeyance in his third, apparently to be deferred until years five through eight. The White House is more or less conceding that it doesn't have a chance of winning a second term unless his major policies go on hiatus.
  • Democrats Choose Not to Punish Weiner.
  • Qantas Cuts $750 Million in Spending, to Cancel Orders. Australia's Qantas Airways will slash spending by A$700 million ($750 million) and plans to cancel aircraft orders as it battles waning demand, soaring fuel costs and investor displeasure with its shares trading near multi-year lows.
Business Insider:
Zero Hedge:
  • Minnesota Prepares for Shutdown. If Gov. Mark Dayton and lawmakers don't agree on a budget by June 30, the state government is expected to shut down. The state moved one step closer to this outcome on Friday by sending layoff notices to much of the state workforce.
NY Times:
  • Pakistan Arrests C.I.A. Informants in Bin Laden Raid. Pakistan’s detention of five C.I.A. informants, including a Pakistani Army major who officials said copied the license plates of cars visiting Bin Laden’s compound in Abbottabad, Pakistan, in the weeks before the raid, is the latest evidence of the fractured relationship between the United States and Pakistan.
Rasmussen Reports:
  • US Panel Proposes 75% Aid for Pakistan Withheld. A US defence bill approved on Tuesday proposes withholding 75 per cent of the $1.1 billion aid to Pakistan for the next fiscal year until the Obama administration reports to Congress on how it would spend the money. The House Appropriations Committee also gave additional power to Congress to review US assistance to Pakistan. This would ensure that Islamabad cooperates with the Americans in the war against terror, as stipulated in the Kerry-Lugar-Berman bill. The committee unanimously approved an amendment to create an independent panel of experts to examine the Afghanistan-Pakistan situation. The review panel would include five Republicans and five Democrats, mirroring the Iraq Study Group. It would work with $1 million and deliver a report to lawmakers in 120 days, according to the amendment. Republican Congressman Frank Wolf, who proposed the amendment, said the panel would provide “fresh eyes” to “make sure we are looking at this as comprehensively as we can”.
USA Today:
  • Cyberattacks Disclosed as Federal Security Law Considered. The recent rash of disclosures about cyberspying comes as the White House is making its third attempt to push through a historic federal cybersecurity law. The timing is no coincidence, some cybersecurity analysts say. After two previous bills went nowhere, the White House needs to garner public support for a new law that could equip America for cyberwarfare. "The best way to do that is to get folks worried that we're under attack from some foreign state like China or North Korea," says Ed Adams, CEO of Security Innovation, which integrates security systems for government agencies. Recent disclosures of cyberattacks against the International Monetary Fund, Google and several defense contractors coincided with an unprecedented pronouncement last week by CIA Director Leon Panetta, who warned a U.S. Senate panel that the U.S. needs to take "defensive measures as well as aggressive measures" to win at cyberwarfare. The bill is gaining bipartisan support in Congress.
  • US Dept of Energy Offers $2 Billion in Loan Aid for 2 Solar Plants. The DOE offered the Mojave Solar Project, sponsored by Abengoa Solar Inc (ABG.MC), $1.2 billion in loan aid and the Genesis Solar Project, sponsored by NextEra Energy Resources, LLC (NEE.N), more than $680 million in loan aid.
  • Ohio Treasurer Asks for Probe on Forex Charges. Ohio on Tuesday became the latest U.S. state to question whether its public pension funds may have been cheated on currency transactions by custody banks. Ohio Treasurer Josh Mandel said that he has asked the state's attorney general, Mike DeWine, to investigate whether pensioners "have been exploited by custodial banks when conducting foreign currency exchanges." "I am concerned that the banks may have manipulated foreign currency trade prices in order to maximize the banks' profit, at the expense of Ohio public servants, businesses and taxpayers," Mandel wrote in a letter dated June 14.
Market News International:
  • S&P Cuts Outlook on China Property Developers. The following is the text of a release from Standard & Poor's issued Wednesday: "Credit conditions in China's real estate development sector have become increasingly challenging, leading Standard & Poor's Ratings Services to revise its industry outlook to negative from stable for that market. "We're likely to see more negative rating actions among Chinese developers in the next six to 12 months because tightened onshore credit conditions and increasingly restrictive government policy have deepened the market downturn," said Standard & Poor's credit analyst Bei Fu. "Any meaningful slippage in sales will significantly weaken the developers' cash flow protection measures amid higher leverage and stiff competition." "Property sales were satisfactory for many rated issuers in the first five months of this year, but we expect the sales momentum to slow as policy tightening starts to bite," said Ms. Fu. "We expect meaningful price adjustments in the second half of 2011. If sales volumes remain sluggish, developers' liquidity will quickly dry up, suggesting sporadic price discounting will likely intensify." Elsewhere in the region, Standard & Poor's believes that the soaring market in Hong Kong may be at risk of a sharp correction.
  • China Short-Term Rates Surge in Wake of Reserve Hike. China's seven-day bond repurchase agreement rate was fixed at 6.19% Wednesday, 200 basis points higher than the previous day's fixing, as a result of Tuesday's announcement of the sixth reserve requirement increase of the year.
Financial Times:
  • German-Backed Plan for Greek Debt May Require EU20 Billion. A German-backed plan to reschedule Greek debt may require euro-area governments to provide up to 20 Billion euros, citing a briefing paper that has been circulated by the European Commission. The extra funds may be needed to recapitalize Greek banks after a proposed extension on the maturities of Greek government bonds, which would be classified by rating agencies as a "selective default," the FT said. More funds may be required for emergency Greek bank liquidity if the European Central Bank refuses to accept downgraded bonds as collateral and ministers have been told all the Greek collateral might have to be replaced.
  • Demand Slowing in China, Says Glencore. Glencore has warned of a slowdown in demand for commodities from China and the US, the two most important consumers of raw materials, in its first public results since its $10bn (€6.9bn) flotation last month. Ivan Glasenberg, chief executive, said high prices and the Chinese government’s moves to curb inflation had damped demand, although he hoped any slowdown would be temporary. “We see a pullback in China and it will continue,” he said. “There are pullbacks in China from time to time when they see inflation is too high.” In the US, he said that there had been a “slight slowing down”, adding that this would “hopefully” be “a temporary pullback”.
  • Bank Chiefs' Pay Rises by 36%. Bank chiefs’ average pay in the US and Europe leapt 36 per cent last year to $9.7m, according to data compiled for the Financial Times, despite variable performance across the sector. Two of the industry’s biggest names – Jamie Dimon, the JPMorgan Chase chief executive, and Goldman Sachs’ Lloyd Blankfein – were paid more than 15 times their 2009 earnings. Mr Dimon received nearly $21m in 2010, topping the FT’s survey of the salary and bonus packages awarded to 15 top bankers. Mr Blankfein earned $14.1m, including a $5.4m cash bonus – up from $863,000 in 2009.
  • The Chinese government is "highly concerned" about inflation in Hong Kong and Macau, citing Wang Guangya, director of the Hong Kong and Macau Affairs Office of the State Council.
National Business Daily:
  • China may raise interest rates in late June or early July to fight inflation, citing Du Zhengzheng, a researcher with the Chinese Academy of Social Sciences. The country's consumer prices may gain about 6% in June, citing Du.
Oriental Morning Post:
  • Shanghai will limit electricity use in some of the city's malls and office buildings this summer as the municipality may have 1.6 million to 2 million kilowatts in power shortage, citing an executive of Shanghai Municipal Electric Power Co. Strict power-use limits will be imposed on industrial companies during peak time and restrictions will also apply to about 3,000 non-industrial companies for the first time. Malls and office buildings will be told to close completely if the temperature rises to more than 37 degrees Celsius.
China Daily:
  • Vietnam and the Philippines cannot justify their claims to the Nansha and Xisha islands in the South China Sea and should acknowledge China's sovereignty over them, Li Jinming, a professor at the Center for Southeast Asia Studies at Xiamen University, wrote in a commentary.
  • China may raise interest rates "in weeks, if not days" to prevent a surge in inflation, following yesterday's decision by the PBOC to increase the reserve requirement ratio at the nation's banks, according to an editorial in today's China Daily.
Evening Recommendations
  • Reiterated Sell on (BBY), target $27.
Night Trading
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 113.50 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 117.0 -3.25 basis points.
  • S&P 500 futures -.35%.
  • NASDAQ 100 futures -.29%.
Morning Preview Links

Earnings of Note
  • (FNSR)/.33
  • (KFY)/.32
Economic Releases
8:30 am EST
  • The Consumer Price Index for May is estimated to rise +.1% versus a +.4% gain in April.
  • The CPI Ex Food & Energy for May is estimated to rise +.2% versus a +.2% gain in April.
  • Empire Manufacturing for June is estimated to rise to 12.0 versus 11.88 in May.
9:00 am EST
  • Net Long-term TIC Flows for April are estimated to rise to $35.0B versus $24.0B in March.
9:15 am EST
  • Industrial Production for May is estimated to rise +.2% versus unch. in April.
  • Capacity Utilization for May is estimated to rise to 77.0% versus 76.9% in April.
10:00 am EST
  • The NAHB Housing Market Index for June is estimated at 16.0 versus 16.0 in May.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,800,000 barrels versus a -4,845,000 barrel decline the prior week. Distillate supplies are estimated to rise by +1,000,000 barrels versus an +810,000 barrel gain the prior week. Gasoline inventories are expected to rise by +1,050,000 barrels versus a +2,209,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.2% versus a +1.2% gain the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The weekly MBA mortgage applications report, (CIEN) analyst day, (MWV) investor day, (NSIT) analyst day and the (MKSI) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial 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: