Wednesday, December 21, 2011

Wednesday Watch

Evening Headlines

  • Banks May Flock to 'Free Money' as ECB Awards Three-Year Loans. The European Central Bank is set to flood euro-area banks with cheap cash as they flock to its offer of three-year loans today. Banks will ask the ECB for 293 billion euros ($384 billion) of the 1,134-day funds, according to the median of 14 forecasts in a Bloomberg News survey of economists. Estimates range from 150 billion euros to as much as 600 billion euros. The money will be lent at the average of the ECB’s benchmark rate -- currently 1 percent -- over the period of the loan. Results are due at 11:15 a.m. in Frankfurt and the loans start tomorrow. “This is basically free money,” said Jens-Oliver Niklasch, a strategist at Landesbank Baden-Wuerttemberg in Stuttgart. “The conditions are unbeatable. Everybody who can will try to get a piece of this cake.” Europe’s debt crisis has increased the risk of government and bank defaults, making institutions wary of lending to each other and driving up the cost of credit. The ECB is trying to ensure that banks have access to cheap cash for the medium term so that they can keep lending to companies and households. In addition to the longer-term loans, the ECB has widened the pool of collateral banks can use to secure the funds. Italian and Spanish government bond yields have dropped since the ECB announced the loans on Dec. 8 as banks buy the securities to use them for collateral. French President Nicolas Sarkozy has suggested banks could use the loans to buy even more government debt.
  • Moody's Says Britain Isn't Immune to Debt Turmoil in Euro Area. Moody’s Investors Service said the U.K.’s “strengths” aren’t enough to completely shield its top credit rating from the euro-area debit crisis and the government must stick to its deficit-reduction program. “The U.K. sovereign faces rising challenges, which means that there’s a reduced ability to absorb further macroeconomic or fiscal shocks,” Sarah Carlson, an analyst at Moody’s in London, said in an interview after the company published a report on the U.K. late yesterday. The outlook on the Aaa rating “is stable, but certainly the amount of headroom that existed before has reduced.” Britain’s Office for Budget Responsibility cut its growth forecasts last month, prompting Chancellor of the Exchequer George Osborne in his autumn fiscal update to extend spending cuts by two years to trim the budget deficit. The U.K. recovery has lost traction as officials in Europe, Britain’s biggest trading partner, struggle to contain the region’s debt crisis. “The Autumn statement gave a pretty good indication that the government remains committed to the fiscal consolidation program,” Carlson said. “This commitment is an important contributor to the Aaa rating and that certainly supports the stable outlook.” Carlson also said the outlook on the rating “is going to be sensitive to future developments in the euro area.” While the U.K. “isn’t a member of the monetary union, it is certainly not immune to this crisis,” she said.
  • Hungary May Raise EU’s Highest Rate Again as IMF Pressure Mounts. Hungary may need to raise the European Union’s highest benchmark interest rate next year as talks over a bailout stalled and the government and the central bank spar over monetary-policy independence. The Magyar Nemzeti Bank increased the two-week deposit rate by a half-point for a second month to 7 percent yesterday and said it would raise borrowing costs further if country risk worsens. Policy makers also considered a quarter-point increase. The European Commission and the International Monetary Fund suspended talks on a financial aid package to Hungary last week, citing objections to a draft law on the central bank that they say may undermine policy autonomy. The forint is the worst- performing currency in the world since June 30, data compiled by Bloomberg show. “With the government at loggerheads with the central bank, talks with the IMF seemingly having broken down and fresh signs of strains in the bond market, we think it would be premature to rule out further, more aggressive, tightening over the coming months,” William Jackson, a London-based economist at Capital Economics Ltd., said yesterday in an e-mailed note.
  • Mortgage Bonds Miss Rally as Europe Sales Loom: Credit Markets. U.S. mortgage bonds that lack government backing are trading at about the lowest prices in more than a year, even as riskier assets from high-yield company bonds to stocks rally, with investors bracing for sales of home-loan debt by European banks. A group of prime jumbo-mortgage securities tracked by JPMorgan(JPM) as a benchmark fell to 93.3 cents on the dollar this month, the lowest level since August 201o. A set of subprime bonds tumbled to a two-year low of 28.1 cents.
  • Emerging Stocks to Drop on Commodities 'Downside' Risk: Technical Analysis. Emerging-market stocks, especially Brazil and India, are poised to “significantly underperform” next year as commodity prices fall further, according to Bank of America Corp. (BAC) The Continuous Commodity Futures Price Index (CCI)’s drop below key Fibonacci support “points to additional downside risk,” Mary Ann Bartels, New York-based head of U.S. technical and market analysis at Bank of America, wrote in a Dec. 19 note. Emerging markets may be “negatively impacted by the break in commodities,” she said. The commodities index of 17 raw materials rose 0.4 percent to 549.98 on Dec. 19, paring this year’s slump to 13 percent.
  • BOJ Cuts Economic View for Second Month. Japan’s central bank lowered its assessment for the nation’s economy for a second straight month while refraining from boosting monetary stimulus, citing easy domestic financial conditions.
  • Oracle(ORCL) Misses Estimates as Clients Cut Spending. Oracle Corp. (ORCL), the world’s second- largest software maker, reported quarterly sales and profit that missed analysts’ estimates as customers held off on buying databases, applications software and computer systems. Profit before some costs in the fiscal second quarter, which ended Nov. 30, was 54 cents a share on revenue, excluding certain items, of $8.81 billion, the company said in a statement today. On average, analysts had projected profit of 57 cents on sales of $9.23 billion, according to data compiled by Bloomberg. Oracle’s shares fell as much as 11 percent in late trading. Oracle and other business-software companies are taking longer to close deals as companies gird for slow economic growth in the U.S. and the possibility of a recession in Europe next year, said Rick Sherlund, an analyst at Nomura Holdings Inc. New software licenses, an indicator of future revenue, rose less than Sherlund projected, and sales of hardware acquired through the Sun Microsystems deal fell more than expected. “There’s nothing I can find in here that’s a silver lining,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon, who has an “outperform” rating on Oracle shares. “Every metric in here is below where consensus was. I don’t know how to sugar-coat it.” Although sales of higher-priced hardware are accelerating, Barnicle said margins in the quarter were still below his estimate.
  • Nike(NKE) Profit Tops Analysts' Estimates on North American Sales. Nike Inc., the world’s largest sporting-goods company, reported second-quarter profit that topped analysts’ estimates as sales of footwear and apparel surged in North America. Net income in the quarter ended Nov. 30 rose 2.6 percent to $469 million, or $1 a share, from $457 million, or 94 cents, a year earlier, Beaverton, Oregon-based Nike said today in a statement. Analysts projected 97 cents a share, the average of 18 estimates compiled by Bloomberg. Nike’s profit has surpassed analysts’ projections in 21 of the past 22 quarters. Chief Executive Officer Mark Parker has been trying to maintain profit growth amid higher raw-material and labor costs by increasing sales and raising prices. Total revenue rose 18 percent to $5.73 billion in the quarter. Orders for December to April, excluding currency changes, advanced 13 percent, surpassing analysts’ average projection for a 12.7 percent gain.
  • Wall Street Trading Revenue to Decline as 'Year to Forget' Ends. Some of Wall Street's biggest firms signaled optimism in October after posting their worst trading and investment-banking period since the financial crisis. Now, analysts say the fourth quarter may have been worse. Fixed-income trading revenue at U.S. banks may fall 12 percent from the third quarter, minus accounting adjustments, while equities drop 10 percent and investment-bank revenue will probably be unchanged, David Trone, an analyst at JMP Securities, wrote in a Dec. 16 report. Some analysts had expected a rebound after the third quarter was the worst for trading and investment banking since 2008, when the collapse of real estate markets contributed to a worldwide credit crunch. Now many are looking ahead to 2012 after investors stayed on the sidelines amid concern that the European debt crisis would lead to a global slowdown.
Wall Street Journal:
  • Virgin America Attendants Vote Against Unionization. The National Mediation Board said Tuesday that a majority of the Virgin America flight attendants who cast ballots in an election over whether to be represented by the Transport Workers Union voted against unionization. Of the 547 attendants at the San Francisco-based airline who voted, 324, or 59%, rejected the TWU, compared with 223, or 41%, who cast ballots for the union.
  • MF Global Transfer Draws Scrutiny. Securities Firm Shifted $200 Million to Company Account at J.P. Morgan(JPM); Questions From the Bank. Investigators on the hunt for missing customer money from MF Global Holdings Ltd. are scrutinizing about $200 million moved to a company account at J.P. Morgan Chase & Co. three days before the securities firm filed for bankruptcy protection, according to people familiar with the matter. The transfer has drawn interest from investigators partly because J.P. Morgan asked MF Global in a letter the following day to attest that the Oct. 28 shift of funds didn't violate regulations designed to protect customer money.
  • North Korea Seals Chinese Border.
  • California Suing Fannie and Freddie. California Attorney General Kamala D. Harris filed suit against Fannie Mae and Freddie Mac on Tuesday, seeking to force the firms to answer a detailed list of questions after the firms' federal regulator sought to block an open-ended inquiry by the state. The lawsuits, filed in San Francisco County Superior Court, are the latest salvo by Ms. Harris against the mortgage-finance giants and their regulator, the Federal Housing Finance Agency.
  • China Hackers Hit U.S. Chamber. A group of hackers in China breached the computer defenses of America's top business-lobbying group and gained access to everything stored on its systems, including information about its three million members, according to several people familiar with the matter. The break-in at the U.S. Chamber of Commerce is one of the boldest known infiltrations in what has become a regular confrontation between U.S. companies and Chinese hackers. The complex operation, which involved at least 300 Internet addresses, was discovered and quietly shut down in May 2010.
  • Standoff Sets In as House Rejects Tax Bill.
  • EU Debt Crisis: Six Families Share Their Stories.
  • Doubts Arise in Euro's Birthplace. Netherlands' Support Weakens Amid Concern Over Bailouts. For the 20th anniversary of the treaty that led to the euro, Dutch officials have quashed a proposal to invite the graying architects of the currency back for a commemoration. Until a local university suggested an academic conference this coming February, there was nothing at all planned here for the historic event. Contrast that with five years ago, when the city marked the anniversary with a yearlong series of events called "Maastricht celebrates Europe." This time, "we had our doubts whether a celebration would be justified," says Jean Bruijnzeels, a city accounts manager.
  • Inside Capitol, Investor Access Yields Rich Tips. When Senate Democrats finally brokered a compromise over the proposed health-care law, a group of hedge funds were let in on the deal, learning details hours before a public announcement on Dec. 8, 2009. The news was potentially worth millions of dollars to the investors, though none would publicly divulge how they used the information. They belong to a select group who pay for early, firsthand reports on Capitol Hill.
Business Insider:
Zero Hedge:
  • The Ugly Realities Of Socialized Medicine Are Not Going Away. The worldwide recession has forced countries around the world to curb public spending — or risk defaulting on their debt. The United Kingdom is the latest to tighten its belt. The National Health Service (NHS) — the centralized public agency that runs Britain’s government healthcare system — is being forced to shave $31 billion from its budget by 2015. These cuts are leading to a precipitous drop in the quality of care patients receive. The NHS has been living well beyond its means for quite awhile. And now brutal government-enforced cost controls are exacting a heavy human toll. Thanks to Obamacare, America will soon face the same sort of reckoning.
Boston Globe:
  • National Guard at Border Cut to Fewer Than 300. The Obama administration will keep a reduced contingent of National Guard troops working along the Mexican border for the next year, the Defense Department said Tuesday. Starting in January, the force of 1,200 National Guard troops at the border will be reduced to fewer than 300 at a cost of about $60 million, said Paul Stockton, assistant secretary of defense for homeland defense.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-nine percent (39%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
Financial Times:
  • Weaker Euro Will Help Solve Europe Deficit Woes by Martin Feldstein. The large current account deficits of Italy, Spain and France can be reduced without lowering their incomes or requiring Germany to accept inflationary increases in its domestic demand. The key is to expand the net exports of those trade deficit countries to the world outside the eurozone.
  • Eurozone Crisis Hits US Mortgage Securities. Asset sales by banks under pressure in Europe have hit prices for securitised mortgages in the US, indicating that the effects of the eurozone crisis are widening. Rather than selling distressed assets in their home markets, there are increasing signs that European banks are selling assets outside the region, hitting prices for asset-backed paper.
Sky News:
  • Former Italian Prime Minister Giuliano Amato told Sky News in an interview that expelling Greece from the euro area wouldn't be "a sound solution" to the bloc's crisis and would "give the markets the wrong signal." The euro area could consider instead "a sort of suspension" of member countries that fail to maintain the standards set by the Maastricht protocol after they join the bloc, Amato said to Sky. "Not necessarily the solution is throwing the country out forever but it might be a sort of temporary" condition, Amato said. The idea was proposed by Germany a year ago, and "deserves attention," he said. While the euro-area agreement last week "is not so useful" in stabilizing the markets because the signing and implementation isn't imminent, the European Central Bank's "promise" to pump liquidity into financial institutions is "keeping hopes high and alive," Amato said. Markets are expecting "huge transfers" of money to be passed "from the region's AAA countries to the weaker ones, north-south-bound," Amato said, adding he's "not so convinced this is needed for other countries beyond Greece."
China Daily:
  • Factors that lead to inflation still exist at the moment, Chen Jiagui, a researcher from the Chinese Academy of Social Sciences, writes in a commentary. Some producers of goods and services may adjust prices higher next year after previous price increase plans were halted by the government, Chen said. Imported inflationary pressures remain large, he said.
Economic Information Daily:
  • China should stop giving U.S. low-cost financing, Zhang Monan, a researcher with the State Information Center wrote in a front-page commentary. China should make a fundamental change to investment direction of its reserve assets, a large portion of which was invested in U.S. debts, he said.
Shanghai Securities News:
  • Shanghai and Qingdao will continue to limit home purchases in 2012, joining Guangzhou, Shenzhen and other Chinese cities in doing so to curb the property market, citing local authorities.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are +.25% to +3.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 210.0 -4.5 basis points.
  • Asia Pacific Sovereign CDS Index 158.0 unch.
  • FTSE-100 futures +.49%.
  • S&P 500 futures +.06%.
  • NASDAQ 100 futures +.21%.
Morning Preview Links

Earnings of Note
  • (LNN)/.43
  • (KMX)/.38
  • (WAG)/.67
  • (ATU)/.43
  • (SHAW)/.44
  • (KBH)/.03
  • (BBBY)/.88
  • (FINL)/.11
  • (SCS)/.19
  • (TIBX)/.35
  • (MU)/-.08
Economic Releases
10:00 am EST
  • Existing Home Sales for November are estimated to rise to 5.05M versus 4.97M in October.

10:30 am EST

  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,125,000 barrels versus a -1,932,000 barrel decline the prior week. Distillate supplies are estimated to fall by -750,000 barrels versus a +480,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +1,500,000 barrels versus a +3,824,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.38% versus a -2.6% decline the prior week.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The first 36-month ECB tender, 7-Year Treasury Note Auction and the weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are 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 75% net long heading into the day.

1 comment:

Anonymous said...

Thanks for your reporting. Could you please report and comment on the fall in currency ETFs BZF, ICN,CCX,CEW,and CYB.