Friday, December 30, 2011

Friday Watch

Evening Headlines

  • Euro Set for First Back-to-Back Annual Drop Since 2001 on European Crisis. The euro is set for its first back- to-back annual drop versus the dollar since 2001 on concern Europe’s debt crisis will weigh on the region’s economic growth. The 17-nation euro traded 0.3 percent from a decade low against the yen before data next week forecast to confirm European manufacturing contracted for a fifth month.
  • Credit Agricole Squeezed With BNP by Slide in French Corporate Bond Sales. Credit Agricole SA (ACA) and BNP Paribas SA, the top arrangers of French corporate debt sales this year, are girding for a slowdown in 2012 after companies raised the least amount in the second half since 2007. Bond sales by French companies have fallen 22 percent since July 1 compared with the year-earlier period to 62.6 billion euros ($81 billion), according to data compiled by Bloomberg. The market may shrink more as Standard & Poor’s considers whether to strip France of its AAA credit rating and Europe’s second-biggest economy enters a recession.
  • China's Manufacturing Contracts for Second Month, PMI Shows. China’s manufacturing contracted for a second month in December as global growth faltered and Premier Wen Jiabao prolonged a crackdown on speculation in the housing market. The index was 48.7 in December, HSBC Holdings Plc and Markit Economics said today. That compared with a preliminary result of 49 reported on Dec. 15 and a final reading of 47.7 for November. “Weakening external demand is starting to bite,” said Qu Hongbin, a Hong Kong-based economist for HSBC. Developer China Vanke Co.’s contract sales dropped 36 percent last month from a year earlier, while new home prices in Shanghai, Beijing, Shenzhen and Guangzhou slid from the previous month. In a sign that construction projects are slowing, Hitachi Construction Machinery Co., Japan’s second-largest heavy- equipment maker, said this month that Chinese demand for excavators will decline in the first half of next year.
  • Australia Home Prices Drop 3.7%. Home prices in Australia’s eight capital cities slid 3.7 percent in the first 11 months of 2011, extending the biggest drop in at least 12 years on concerns Europe’s debt crisis may damp the nation’s economic growth. Brisbane led the decline, slumping 7 percent in the January-November period, followed by Melbourne, which posted a 5.7 percent retreat, according to figures from RP Data, a real estate researcher. “The downside risk would come from global weakness affecting the Australian economy,” said David Cannington, a Melbourne-based economist at Australia & New Zealand Banking Group Ltd. (ANZ), with A$161 billion ($164 billion) of mortgages as of November. “The housing market will, broadly speaking, reflect the relative strength or weakness of the Australian economy.” Economists at the nation’s four-biggest banks, which hold 87 percent of mortgages, said the central bank’s interest rate cuts won’t be enough to offset concerns about Europe’s crisis or spur a rebound in the housing market. Home loans rose 5.7 percent in the 12 months through November, matching the weakest annual pace since 1977, central bank data showed today.
  • Fed Says Dealers Tighten Terms on Hedge-Fund Security Trades. Wall Street dealers made it tougher for hedge funds to finance trading of securities and derivatives in the three months through November, a Federal Reserve survey showed today. Responses “indicated a broad but moderate tightening of credit terms applicable to important classes of counterparties,” especially hedge-fund clients, trading real estate investment trusts and nonfinancial corporations, according to the quarterly survey of senior credit officers at 20 dealers covering the period of September to November.
  • North Korea Threatens South, Tells World To Expect No Change From Kim Jong Un. North Korea told “the world’s foolish politicians” to expect no change from the new regime headed by Kim Jong Un and threatened a “sea of fire” for South Korean President Lee Myung Bak’s administration. “The world will witness how millions of North Korean people, who transformed sadness to courage and tears to strength under the pillar of the great leader Kim Jong Un, will achieve final victory,” the commission said in the statement.
  • Slowing Chinese Growth Means Ore-Vessel Rates at Lowest in Decade: Freight. The weakest growth in demand in at least a decade for shipments of iron ore, the second-biggest commodity cargo after crude oil, means rates for the largest vessels will plunge to the lowest level since 2002. Capesizes, each hauling about 160,000 metric tons of ore, will earn an average of $15,000 a day next year, about 4 percent less than in 2011, the median estimate in a Bloomberg survey of 10 analysts shows. While that implies losses for ship owners and investors in their companies, speculators can profit because forward freight agreements, handled by brokers and used to bet on transport costs, are anticipating an average of $16,367, according to data from the London-based Baltic Exchange. Owners are contending with the biggest fleet in history as vessels ordered when rates reached $233,988 in 2008 continue to leave ship yards. The glut may widen because trade in iron ore will expand 2.5 percent next year as the number of capesizes rises 9.8 percent, according to Clarkson Plc, the world’s biggest shipbroker. Economic growth in China, whose steel mills consume 65 percent of all seaborne ore, will slow to the weakest since 2001, economist estimates compiled by Bloomberg show. “The question for ship owners now is how are you going to hang on, how long are you going to hang on, and when is the light at the end of the tunnel?” said Andreas Vergottis, the Hong Kong-based research director at Tufton Oceanic Ltd., whose $1.45 billion shipping hedge fund is the world’s largest. “There is definitely no light in the 2012 tunnel.”
  • CMBS Holders Allege 'Brazen Scheme' to Steal $60 Million. A group of commercial-mortgage backed securities investors including Angelo Gordon & Co. and Winthrop Realty Trust sued a junior lender and other parties, alleging a “brazen scheme,” to steal more than $60 million from bondholders, according to a New York court filing. The investors, three collateralized debt obligations and TCG Holdings I LLC, hold pieces of a $1.26 billion deal sold by Credit Suisse Group AG in 2007, Royal Bank of Scotland Group Plc analysts led by Richard Hill wrote in a report today. They are seeking to block Galante Holdings Inc. from purchasing a $150 million loan on the J.W. Marriott Summerlin Hotel, Resort, Spa and Casino in Las Vegas for less than $85 million, according to the court filing.
  • JPMorgan(JPM), Ally Sued by HSH Nordbank Over Mortgage Securities. JPMorgan Chase & Co., the biggest U.S. bank by assets, and Ally Financial Inc. were among the financial institutions sued by the German lender HSH Nordbank AG over losses on about $293 million in mortgage bonds.
  • Commodities Poised for First Annual Decline Since 2008 on Europe. Commodities headed for the first annual drop since 2008, paced by declines in cotton, copper and cocoa, on concern that the European sovereign-debt crisis and a cooling Chinese economy will sap demand for raw materials. Cocoa in New York plunged 31 percent in 2011 on signs of expanding supplies from Ivory Coast, the biggest producer. Cotton is down 37 percent this year amid increasing output and dwindling demand. Copper, often seen as an indicator of economic activity as it is used in construction and automobiles, set for the first losses since 2008. China is the biggest consumer of copper.
  • Japan to Double Sales Tax to Reduce Debt. Japan’s ruling party agreed on a plan to double the sales tax by 2015 after weeks of internal debate and a member revolt as Prime Minister Yoshihiko Noda fights to head off another credit-rating downgrade. The proposal decided on late yesterday would raise the sales tax from 5 percent to 8 percent in April 2014 and to 10 percent in October 2015.
Wall Street Journal:
  • Deepening Crisis Over Euro Pits Leader Against Leader. On a chilly October evening in her austere chancellery, Angela Merkel placed a confidential call to Rome to help save the euro. Two years after the European debt crisis erupted in little Greece, the unthinkable had happened: Investors were fleeing the government debt of Italy—one of the world's biggest economies. If the selloff couldn't be stopped, Italy would go down, taking with it Europe's shared currency. Her phone call that night to the 16th-century Quirinale Palace, once a residence of popes, now home to Italy's octogenarian head of state, President Giorgio Napolitano, trod on delicate ground for a German chancellor.
  • Banks Face Off For Facebook IPO. Goldman Sachs, Morgan Stanley Are Considered Front-Runners for Top Job in Handling 2012's Trophy IPO.
  • IMF Warned Greece On Debt Levels With Worsening Outlook - Sources. The International Monetary Fund recently told the Greek government that a worsening economic outlook suggests the beleaguered nation may be unable to reduce its debt to sustainable levels even with a planned 50% write down in privately-held Greek government bonds, according to two officials familiar with the conversations.
  • Libya's Largest Oil Port On Cusp Of Resuming Exports - NOC Head.
  • A Margin for Error in Hedge-Fund Filings. Are some of the smart-money crowd playing investors for suckers? For years, finance experts have put together statistical analyses that suggest something fishy is going on with some of the reported returns in a large universe of hedge funds. New analysis conducted by Gjergji Cici of the College of William and Mary, and Alexander Kempf and Alexander Puetz of the University of Cologne adds to the questions. Their research shows the valuations hedge funds report for their stocks in quarterly filings with the Securities and Exchange Commission are sometimes at odds with actual stock prices.
  • Tensions Rising Over Drone Secrecy. Tensions are quietly increasing between the White House and some congressional leaders over access to sensitive information about the government's use of drones in Pakistan and Yemen, officials said. The White House has brushed aside requests for information from lawmakers, who argue that the strikes, carried out secretly by the Central Intelligence Agency and the military's Joint Special Operations Command, have broad implications for U.S. policy but don't receive adequate oversight.
  • Verizon(VZ) Outages, New $2 Fee Irk Customers. Verizon Wireless has built its reputation on the quality of its cellular network, touting its reliability over rival AT&T Inc., but a series of outages this month threatens the largest U.S. wireless carrier's image. On Thursday, Verizon Wireless said its engineers had fixed the third outage in December for its new high-speed data network. Some customers had complained they were getting slower connections or no signal at all. Verizon Wireless further frustrated customers Thursday by disclosing it would impose a $2 fee on those paying their bills by phone or on Verizon's website starting Jan. 15. The company said it was necessary to help provide "single-bill payment options."
  • Bright Ideas: Innovation in 2011. The Year's Inventions: From IBM's 'Jeopardy'-Playing Watson to a Replacement Heart Valve.
  • Egyptian Raids on U.S. Groups Draw Ire. Egyptian security forces seized computers, printers and documents from offices of at least 17 nongovernmental organizations Thursday, including three American groups, further straining the fraying ties between Egypt's interim military leadership and its allies in Washington. The U.S. said it was "deeply concerned" about the raids. It raised the specter of clamping down on funding to Egypt's powerful military, one of Washington's closest military allies in the Middle East.
  • Hong Kong Exports in Danger Amid Global Slump. Hong Kong’s export growth decelerated sharply in November, reflecting the impact of cooling economic conditions in Europe and setting the stage for a grim year ahead, according to government data reported Thursday. Exports for the month were up 2% from a year earlier, easing from an 11.5% rate of expansion in October.
Business Insider:
Zero Hedge:
  • Treasury to Start Charging Banks for Risk Monitoring. The U.S. Treasury Department plans to start charging large banks a fee to cover the costs of the financial risk council it leads and a research office tasked with measuring threats to financial markets. The Financial Stability Oversight Council and the Office of Financial Research were created by the 2010 Dodd-Frank financial oversight law, which instructs the government to bill banks for their operations. On Thursday the Treasury Dept. released a proposed rule that would apply to banks with more than $50 billion in total assets, starting in the middle of next year. The department is proposing charging these banks a flat rate that would be applied to an institution's total consolidated assets, and would be collected twice a year. The department has yet to announce the specific fee banks will be charged because the budget for the council and research office will not be known until President Barack Obama releases his fiscal 2013 budget proposal early next year.
  • Farmer Anger Adds to India's Economic Worries. Usually around this time of the year, Jalgaon city in western India is abuzz with trucks ferrying mountains of fluffy white cotton to its markets. But this year, farmers have been blocking roads with burning tyres and refusing to sell their produce in a bid to force the government to prop up crop prices which they say barely cover costs. "Look at input costs. You are raising the price of fertilizers, electricity, seeds and not raising the price of cotton," farmer Yuvraj Vaman Patil, who has been holding on to most of his 1.9 tonne harvest, said at a recent rally. Patil is not alone. In recent weeks, thousands in farm belts from the state of Maharashtra in the west to Andhra Pradesh in the south have been out on the streets, demanding the government hike support prices of farm commodities to match rising costs.
Chicago Tribune:
  • Movie Ticket Sales Hit 16-Year Low In 2011. The curtain is falling on the worst year for Hollywood in recent memory. The movie industry sold 1.28 billion tickets in North America in 2011, according to, the lowest since 1995.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday 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).
  • U.S. Mulls Transfer of Taliban Prisoner in Perilous Peace Bid. The Obama administration is considering transferring to Afghan custody a senior Taliban official suspected of major human rights abuses as part of a long-shot bid to improve the prospects of a peace deal in Afghanistan, Reuters has learned. The potential hand-over of Mohammed Fazl, a 'high-risk detainee' held at the Guantanamo Bay military prison since early 2002, has set off alarms on Capitol Hill and among some U.S. intelligence officials. As a senior commander of the Taliban army, Fazl is alleged to be responsible for the killing of thousands of Afghanistan's minority Shi'ite Muslims between 1998 and 2001.
  • Major Dubai Companies 'May Need Bail-Outs'. Some of Dubai’s biggest companies will need state-funded bail-outs in 2012 if large-scale defaults are to be avoided, Standard & Poor’s (S&P) has warned.
  • Spain's Economy Worsening, Says Central Bank. The Bank of Spain has warned that the economy has worsened, rattling investor confidence in Europe's fourth biggest economy just as recently installed prime minister Mariano Rajoy prepares to unveil his immediate budget plans.
21st Century Business Herald:
  • Steel demand growth may ease through 2015 and expectations of growth similar to the previous five years are "unrealistic," citing Zhang Changfu, vice chairman and secretary general of the China Iron and Steel Association.
Shanghai Daily:
  • Shanghai's land sales by value fell for the first time in three years in 2011, citing SouFun Holdings Ltd.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 204.50 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 164.0 +2.0 basis points.
  • FTSE-100 futures +44%.
  • S&P 500 futures -.22%.
  • NASDAQ 100 futures -.09%.
Morning Preview Links

Earnings of Note
  • None of note
Economic Releases
  • None of note

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The NAPM-Milwaukee for December could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and real estate shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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