Friday, December 16, 2011

Friday Watch

Evening Headlines

  • BofA(BAC), Goldman(GS), Barclays(BCS) Have Fitch Credit Ratings Cut. Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) had their credit grades cut by Fitch Ratings as the impact of financial regulation and market turmoil (VIX) weighed on the industry. The lenders’ long-term issuer default ratings were cut one level to A from A+, Fitch said yesterday in a statement. Barclays Plc (BARC), based in London, Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK) and BNP Paribas SA also had their grades lowered. The moves complete a review of financial firms by the three major rating companies. Moody’s Investors Service cut banks in September, citing a lower probability that the U.S. will support the industry in an emergency. Standard & Poor’s lowered ratings last month. Lenders including Bank of America and Citigroup have said they may have to post billions of dollars in collateral and face higher funding costs in the event of downgrades.
  • CME(CME) Says MF Global Used Customer Money Days Before Failure. MF Global Holdings Ltd. used about $700 million of customer funds to "meet liquidity issues" at its broker-dealer in the days prior to its Oct. 31 bankruptcy filing, according to CME Group Inc. The exchange operator, which had auditing authority over MF Global, detailed its dealings with the failed futures broker in documents released today by the House Financial Services Committee. MF Global officials told Chicago-based CME Group there was a shortfall in accounts with money moved on Oct. 27 and Oct. 28 and possibly as early as Oct. 26, according to a CME Group timeline. Customer funds were also used to make a $175 million loan to the firm's UK subsidiary, the documents show.
  • Oil Heads for Biggest Weekly Drop Since September on Industrial Weakness. Oil headed for the biggest weekly decline since September in New York as investors speculated that fuel demand will falter amid shrinking industrial production from the U.S. to Europe and China. Futures were little changed after falling yesterday as figures from the Federal Reserve showed output at factories, mines and utilities in the U.S. slid 0.2 percent in November, the first decrease since April. Chinese factory production may drop for a second month in December, preliminary results from a Markit Economics survey indicated. Euro area manufacturers face a fifth straight month of contraction, a separate report showed. “The demand situation is starting to weigh on the market,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s oil, may boost crude output by 0.6 percent this month as Libya raises production, according to tanker-tracker Oil Movements.
  • RIM(RIMM) Forecast Misses Analyst Estimates. Research In Motion Ltd. (RIMM) fell as much as 8.3 percent in extended trading after saying a new generation of BlackBerrys designed to fuel a comeback won’t be out until the “latter part” of 2012. The smartphone maker, which originally planned to release the new devices in the first quarter of next year, also gave a sales and profit forecast that missed analysts’ estimates. The delay adds to the challenges at RIM, which has lost market share to Apple Inc. (AAPL)’s iPhone and Android phones. The company also flubbed its entry into the tablet market, with a device that bombed with shoppers. After all that, investors may not trust the new target for the upgraded BlackBerrys, said Alkesh Shah, an analyst at Evercore Partners Inc. “Given the misexecution they’ve had recently, it’s hard to use that as a solid deadline,” said the New York-based analyst, who has an “equalweight” rating on RIM shares. “Let’s say it’s a year from now, my concern is that it may be too late.” RIM fell as low as $13.88 in late trading after the announcement, which accompanied its third-quarter earnings results. The stock had already dropped 74 percent this year.
  • Adobe Forecasts Sales That May Top Estimates On New Programs. Adobe Systems Inc. (ADBE) forecast fiscal first-quarter sales that may top analysts’ estimates amid buoyant demand for a new breed of tools that help customers design Web pages and create online video. Revenue in the quarter that ends March 3 will be $1.03 billion to $1.08 billion, the company said in a statement today. That compared with $1.06 billion, the average estimate in a Bloomberg survey of analysts. Profit excluding certain items will be 54 cents to 59 cents a share, compared with the average 58-cent estimate. Shares gained in late trading.
  • FX Concepts' John Taylor Says Euro May Decline to Parity With U.S. Dollar. The euro will sink to parity against the dollar as the European sovereign-debt crisis shrinks investor appetite for the 17-nation currency, according to John Taylor, founder of the world’s largest currency hedge fund. “It should be a lot lower than it is,” Taylor said in an interview on Bloomberg Television’s “Street Smart” with Lisa Murphy. “It’s a distinct possibility” that the euro could weaken to trade on a one-to-one basis with its U.S. counterpart in the next 18 months, he said. Taylor predicted in January that the euro would fall below parity with the dollar this year. The shared currency has dropped 2.7 percent this year as the region’s leaders bailed out Portugal after providing rescue packages in 2010 for Ireland and Greece and attempted to rein in rising sovereign debt yields. The currency is trading 8 percent higher against the dollar than its average value of $1.2042 since inception in 1999. Taylor, who said he owns more dollars than anything else, cited European investors repatriating foreign assets as the main driver of the euro’s relative strength this year. European portfolio managers brought home 65.9 billion euros ($85.8 billion) in August and 11.6 billion euros in September, higher than the 12-month average of 629 million euros in inflows, according to European Central Bank data compiled by Bloomberg. Repatriation is occurring as banks rush to increase capital to meet a European Banking Authority mandate that lenders increase their Core Tier 1 capital ratios to more than 9 percent by mid-2012, Taylor said.
  • India Profit Forecasts Cut Most Since '09 as Sensex Lags. Indian stocks are ending 2011 with the biggest decline among the world’s largest equity markets, and analysts say the worst is yet to come. Earnings forecasts for BSE India Sensitive Index companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd., the country’s biggest carmaker, and Tata Steel Ltd., the largest producer of the alloy, by at least 29 percent, the data show.
  • Chinese Stocks Head for Biggest Weekly Drop Since 2010. China’s benchmark index headed for its biggest weekly losses in 17 months on concern exports will slump next year and the government won’t ease monetary policy fast enough to stem an economic slowdown. China Cosco Holdings Co., the nation’s largest shipping line, slid 1.1 percent after Commerce Minister Chen Deming said he is “not too optimistic” about exports in 2012. Yanzhou Coal Mining Co. dropped for a sixth day amid speculation the economic slowdown will curb energy demand. New China Life Insurance Co., the third-biggest life insurer, jumped 12 percent in its debut. “Investors are still concerned whether the economic slowdown will be gradual and whether consumer prices will rise,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Any gain will be short term.” The Shanghai Composite has slid 6 percent this week, poised for the biggest drop since the week ending July 2, 2010, after reports showed economic growth is decelerating. Foreign direct investment dropped for the first time since 2009, while manufacturing may contract for a second month. The Conference Board’s leading index for China, which captures prospects over the next six months, fell in October, while lending slowed in November and money supply grew the least in a decade.
  • Mercedes Leads Luxury-Car Discounts in China as Economy Slows. Mercedes-Benz and BMW dealers deepened their discounts on some models in China last month as slowing property and stock markets weighed on premium-car purchases, according to a research firm. Average prices of Daimler AG’s basic 2012 Mercedes-Benz C200 sedan at Chinese dealerships were 16 percent below the manufacturer’s recommended price last month, compared with 14 percent in October and 3.4 percent in July, when the model became available, according to data from China Auto Market. BMW dealers sold the 2012 320i sedan 11 percent below the suggested price, more than triple the initial discount for the 2011 model. Daimler, Bayerische Motoren Werke AG and Volkswagen AG’s Audi are looking to the world’s biggest car market to prop up deliveries as European demand sags on concern over the region’s sovereign debt crisis. A slowdown in China’s property and stock markets will probably undermine discretionary spending, according to Credit Suisse Group AG and BNP Paribas SA. “Competition is getting fierce, especially in the entry- level luxury car segment,” said John Zeng, a Shanghai-based director at researcher LMC Automotive Asia Pacific. “BMW, Mercedes and Audi are expanding their capacity in China and the majority of that capacity is used to make the entry-level models, and that’s increasing the competition.”
  • Einhorn Trades Swaps for Shorts When Betting on Sovereign Debt. David Einhorn, the hedge-fund manager who compared the Greek bailout to a surrealist painting, recast a bet against sovereign debt in a way that reduces risks posed by government regulators and big banks.
Wall Street Journal:
  • Ties That Bound Europe Now Fraying. A common currency drove investors to Europe's outer reaches, then scared them away. The first decade of the euro intertwined the Continent's financial systems as never before. Banks and investment funds in one euro-using country gorged on the bonds of others, freed of worry about devaluation-prone currencies like the drachma, lira, peseta and escudo. But as the devaluation danger waned, another risk grew, almost unseen by investors: the chance that governments, no longer backed by national central banks, could default.
  • Broadcom(BRCM) CEO Sees Closing Cellular Chip Gap With Qualcomm(QCOM).Broadcom Corp. (BRCM) expects to close the gap with Qualcomm Inc. (QCOM) in chips that connect phones to wireless networks in the next couple years, the semiconductor maker's chief executive said. Scott McGregor, speaking in an interview a day after Broadcom's analyst meeting in New York, acknowledged Qualcomm's current lead over the company in so-called cellular baseband chips used in mobile phones, but he said Broadcom's new focus on smartphones and next-generation 4G technology, known as Long-Term Evolution, will help it compete.
  • Beijing Set to 'Strike Hard' at Revolt. A senior local official has vowed to "strike hard" against the leaders of a revolt in the southern Chinese fishing village of Wukan, and urged them to surrender, at the same time as announcing the property project that triggered the unrest is being put on hold. The comments by Wu Zili, the acting mayor of Shanwei prefecture, which includes Wukan, suggested that authorities were taking a cautious, carrot-and-stick approach as they attempt to resolve the situation without embarrassing Beijing by prompting further violence or emboldening other protesters.
  • Solyndra Does Europe. Germany's solar power industry is the latest to flop as subsidies ebb.
  • Congress Blinks on Shutdown. Congressional leaders—fearful of voters' wrath over Washington's bickering and brinkmanship—stepped back Thursday from a possible government shutdown, clearing the way for at least a short-term extension of a payroll tax cut that is set to expire at year's end. The shift marked a dizzying change in tone from the contentious atmosphere that prevailed just a day earlier. Republican and Democratic leaders returned to the bargaining table and struck a deal on a $1 trillion spending bill to keep the government operating after Friday.
  • Gingrich Defends Stances in Debate. Former House Speaker Newt Gingrich used a televised debate Thursday to try to keep momentum going in his front-running presidential campaign.
  • Why Ron Paul Can't Win. The candidate's problem isn't better-funded opponent or media bias—it's his own views on foreign policy.
  • The Keystone Ultimatum. Will Obama veto a tax holiday to stop a job-creating pipeline?
Zero Hedge:
  • Accenture(ACN) Sounds Caution as Economy Sputters. Accenture Plc posted strong quarterly results but the technology outsourcing and consulting company's cautious view of the second quarter amid the worsening global economy sent its shares down after market. For the second quarter, the company forecast revenue of $6.5-$6.8 billion, a wider-than-usual range, to factor in any delays at the end of the calendar year, especially in the Eurozone.
Financial Times:
  • EFSF Weighs Euro Break-Up Warnings for Product Prospectus. The EFSF is weighing including on a product prospectus, among four pages of "risk factors," warnings against the possibility of a country exiting the euro or "the cessation of the euro as a lawful currency," citing the latest draft.
Financial Times Deutschland:
  • Germany's central bank expects any bigger involvement by the IMF in trying to resolve Europe's debt crisis to increase the risk of financial losses for Germany, as its participation would also be enlarged, citing people at the Bundesbank.
Business Line:
  • JSW Steel may slash FY12 capex by half. JSW Steel Ltd proposes to reduce its capital expenditure by over half for the current fiscal and go slow with its capacity expansion. This is because the company is going through tough times with a huge debt burden of over Rs 18,400 crore in the backdrop of sluggish demand for steel.
Business Spectator:
  • Australian Banks Ordered to Conduct Stress Tests: Report. With the European debt crisis in focus, the Australian Prudential Regulation Authority (APRA) has ordered Australian banks to conduct stress tests on their ability to withstand a sharp spike in unemployment, a collapse of property prices and a broader recession, according to a report by the Australian Financial Review.


  • Beijing Requires Microblog Users to Identify Themselves. All new users will be required from today to register themselves with government agencies for a microblog account, citing new Beijing municipal government regulations. All existing users will also be required to register within three months.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 212.0 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 157.75 -.75 basis point.
  • FTSE-100 futures +.29%.
  • S&P 500 futures +.34%.
  • NASDAQ 100 futures +.29%.
Morning Preview Links

Earnings of Note
  • (DRI)/.43
Economic Releases
8:30 am EST
  • The Consumer Price Index for November is estimated to rise +.1% versus a -.1% decline in October.
  • The CPI Ex Food & Energy for November is estimated to rise +.1% versus a +.1% gain in October.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Fed's Fisher speaking, Fed's Evans speaking and the ECB's Draghi speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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