Friday, January 06, 2012

Friday Watch

Evening Headlines

  • Euro Trades Near 15-Month Low Versus Dollar Before Confidence, Sales Data. The euro traded 0.2 percent from a 15-month low versus the dollar on speculation declining consumer confidence and spending will make it harder for European leaders to contain the region’s sovereign debt crisis. The 17-nation currency was 0.1 percent from its weakest level in 11 years against the yen as Spain and Italy prepare to sell debt next week after France’s borrowing costs rose at an auction yesterday. The dollar is set for a weekly gain versus the yen and euro before a U.S. report forecast to show employers added the most jobs in three months in December. The Dollar Index (DXY), which tracks the greenback against the currencies of six major U.S. trading partners, reached a one-year high yesterday. “There’s not a huge amount of reasons to be wanting to own the euro at the moment,” said Chris Weston, an institutional trader at IG Markets in Melbourne. “The fundamentals point to a weaker euro.”
  • Soros Says Euro-Area's Failure Would Have a 'Catastrophic' Global Impact. Billionaire investor George Soros said a fracturing of the euro area would have “catastrophic” consequences and that markets have started pricing in the possibility of the region breaking up. The disintegration of the 17-nation currency bloc would affect Europe and the “entire global financial system,” Soros said in the southern Indian city of Hyderabad today in response to questions. Leaders in the euro region have struggled to solve a sovereign-debt crisis that’s hampered the global recovery and is now in its third year. Greece, Ireland and Portugal have already been forced into bailouts and the European Central Bank has provided unprecedented cash injections, easing borrowing costs for Italy, Spain and Belgium. Soros said it isn’t currently clear whether the crisis will be contained, adding many people “feel” it’s “over the brink” and “insolvable.”
  • China's Equities Head for Longest Weekly Losing Streak Since June 2004. China’s stocks (IFB1) headed for their longest weekly losing streak since 2004 on concern small companies are struggling to borrow money because of a cash crunch and an export slowdown will drag down the economy. Ufida Software Co. slid 3.9 percent, adding to a 12 percent plunge this week. Tianjin Tasly Pharmaceutical Co. dropped to the lowest since April, pacing declines for drugmakers. PetroChina Co., the nation’s biggest energy producer and most valuable company, gained 1.4 percent after the government raised the threshold of a windfall tax on crude. The Shanghai Composite Index (SHCOMP), which tracks the bigger of China’s stock exchanges, added 0.5 percent to 2,159.10 as of 9:56 a.m. local time, even as twice as many stocks fell than those that rose. The measure has lost 1.8 percent this holiday- shortened week, poised for the longest weekly losing streak since the week ended June 25, 2004. The CSI 300 Index slumped 0.3 percent to 2,284.12 today. “Liquidity is still weak and there are no signs of the reserve ratio being cut,” said Cao Xuefeng, an analyst at Huaxi Securities Co. in Chengdu. Small-company stocks have plunged this week because of investors disappointment that lenders’ reserve-requirement ratios haven’t been cut amid signs of a cash crunch as households prepare for Lunar New Year celebrations that start on Jan. 23. The Shenzhen Composite Index lost 0.3 percent today, adding to a 6.4 percent slump this week. The ChiNext index of start-up companies fell 0.7 percent today and was down 9.2 percent this week.
  • BofA(BAC) Surges on Speculation of U.S. Mortgage Refinance Plan. Bank of America Corp., the second- biggest U.S. lender, surged the most in two months of trading amid speculation that the U.S. may introduce a new mortgage refinancing program. The bank rose 50 cents, or 8.6 percent, to $6.31 at 4:15 p.m. in New York, then forfeited some of the gain in late trading after an Obama administration official who asked for anonymity denied speculation that the White House is considering a trillion-dollar plan to refinance home loans. “There's a lot of speculation about the big refinance wave coming from Washington,” said Todd Hagerman, an analyst in New York with Sterne Agee Group Inc., in a telephone interview. “That being said, there are a lot of existing roadblocks to the refinance boom occurring in the near future.” For now, even if there is a change in public policy, “you're not going to see any impact whatsoever on the banks,” he said.
  • Mortgage-Bond Market Roiled as Bernanke Report Fuels Speculation. Fannie Mae and Freddie Mac mortgage bonds that guide home-loan rates gained while those backed by high-cost debt declined on speculation the U.S. government may boost efforts to aid the housing market. Yields on Fannie Mae’s current-coupon 30-year fixed-rate mortgage securities, or those trading closest to face value, declined about 4 basis points to 84 basis points more than 10- year U.S. government debt as of 3:30 p.m. in New York, the tightest spread since May 19, according to data compiled by Bloomberg. The company’s 6.5 percent securities, whose underlying loan rates average about 7 percent, fell almost 0.2 cent on the dollar to about 111 cents, Bloomberg data show.
  • Oil Declines a Second Day as U.S. Stockpiles, Europe Counter Iran Threat. Oil fell for a second day, trimming a weekly gain, as investors speculated that increasing U.S. crude stockpiles and signs that Europe’s sovereign debt crisis will worsen indicate fuel demand may falter. Futures slid as much as 0.5 percent in New York after Energy Department data showed crude supplies climbed 2.2 million barrels (DOESCRUD) last week, compared with a forecast for a 1 million barrel decline in a Bloomberg News survey.
  • Gold Traders Most Bullish in Month After Bear Market Averted: Commodities. Gold traders are the most bullish in a month as Europe’s deepening debt crisis and increasing tensions over Iran drove the metal to its longest winning streak since October.
  • Hong Kong Home Prices at Record Gap to Loans: Chart of the Day. The gap between Hong Kong home prices and new mortgages is the widest in at least 13 years as higher borrowing costs and property taxes deter buyers. "Buyers are turning more cautious while homeowners aren't under pressure to sell," said Buggle Lau, chief analyst at Midland Holdings Ltd., Hong Kong's biggest publicly traded realtor. "If you bought during the last couple of years you'd think twice before buying a new home and committing to a more expensive mortgage plan."
  • Alcoa Says It Will Reduce Global Smelting Capacity by 12%. Alcoa Inc. (AA) said it plans to close or curtail about 12 percent of its global smelting capacity to cut costs after aluminum prices dropped 27 percent from last year’s peak. To cut 7 percent of capacity, the company plans to permanently close its smelter in Alcoa, Tennessee, and two of six idled potlines at its Rockdale, Texas smelter. A further 5 percent capacity reduction will be from curtailments to be announced in the future.
  • Japan Likely Relapsed Into Contraction. Japan’s rebound from the aftermath of a record earthquake was probably cut short in the fourth quarter as the impact of Europe’s crisis outweighed the support from reconstruction spending. Gross domestic product (JGDPAGDP) probably shrank in October and November, pointing to a 0.1 percent contraction for the quarter, according to calculations by the Japan Center for Economic Research, an independent analysis group in Tokyo. JPMorgan Chase & Co. is among banks cutting projections for GDP in the period. “It was a very tough quarter for the Japanese economy,” said Yuki Masujima, a senior economist at JCER who used to compile economic forecasts at the Bank of Japan. (8301) “The biggest risk this year is the double-hit from the European crisis -- first from the strong yen that will make it harder for exporters to sell their products, then from the drop in real demand.”
Wall Street Journal:
  • Military Faces Historic Shift. Obama Plan Would Slash Army, Limit Ability to Endure Long-Term Conflicts.
  • As Iraq Ignites, Cleric Seeks Gains. Amid Renewed Conflict, ex-Militant Sadr, Shiite Leader and Ally of Iran, Aims to Climb to Top of Fray as Peacemaker. With the end of the U.S. military's mission in Iraq last month, one of its fiercest longtime opponents is repositioning himself as a national leader. Shiite cleric Moqtada al-Sadr, who waged a bloody insurgency against Americans here over a period of more than eight years, now presides over one of the country's most organized and influential political groups—a cause of significant concern for the Americans.
  • Obama Recess Pick Riles GOP, Business. President Barack Obama's appointment of a new federal financial watchdog without Senate confirmation stirred Republican complaints that his action conflicted with longstanding Justice Department legal guidance on recess appointments, and created uncertainty among some businesses facing new supervision. Richard Cordray, the new director of the Consumer Financial Protection Bureau, used his first day on the job Thursday to say the legal questions surrounding his appointment would not constrain him or the agency. He said the bureau has a number of investigations under way, some of which may "require enforcement actions to stop illegal behavior."
  • Warner Brothers Will Make Netflix, Redbox, Blockbuster Wait Longer for New Movies. Want to watch a new movie just out on DVD from Warner Brothers? You’re going to have to buy it, or wait even longer to get it from Netflix or other disc renters. A new deal between Time Warner’s movie studio and Netflix, Redbox and Blockbuster will double the “window” for new releases. That means the services will now have to wait 56 days after the discs first go on sale to offer them to their customers, instead of 28 days.
  • Bank of America's(BAC) Newest Risk: UniCredit Sale. Much is at stake in UniCredit SpA's €7.5 billion ($9.7 billion) rights issue—not least for another beleaguered lender, Bank of America Corp., which as a lead underwriter could be stuck with a hefty bill should the share sale fall flat. Rights issues are a common means for European companies to raise funds. Existing shareholders are given the right to subscribe to new stock at a discount and thereby avoid dilution of their stake. In this case, UniCredit, Italy's largest bank by assets, is staging the rights issue to meet new European capital requirements.
  • Iran Mounts New Web Crackdown. Rule Calls for Surveillance Cameras in Internet Cafes; Launch of National Internet Is Seen Nearing.
  • Citi's(C) Talks to Sell Unit End. In a setback to Citigroup Inc.'s efforts to divest itself of noncore businesses, talks to sell the bank's OneMain consumer-lending unit to private-equity buyers have ended without a deal in place, according to people familiar with the matter. The failure to reach a sale agreement, which could have included the involvement of Warren Buffett's Berkshire Hathaway Inc., reflects gyrations in the credit markets amid the European sovereign-debt crisis and rising fears of a global economic slowdown.
  • MF Global Trustee Tussles With Regulators. Louis Freeh, the former Federal Bureau of Investigation director who was appointed bankruptcy trustee of MF Global Holdings Ltd., has declined to turn over some documents to investigators trying to determine what happened to an estimated $1.2 billion in missing customer funds.
  • DE Shaw Flagship Oculus Fund Up 18% In 2011 - Investor. D.E. Shaw Group, one of the world's largest hedge fund firms with $23 billion in assets, posted a 18% gain for its flagship Oculus fund, an investor said Thursday.
  • Hong Kong Finds Lethal Strain of Bird Flu. The Hong Kong government said Friday that two dead birds found in the New Territories earlier this week have tested positive for a lethal strain of bird flu, the latest development in the global resurgence of the deadly virus.
  • China's Property Slowdown Spreads to Other Sectors. (video)
  • China Faces Social Unrest From Housing Woes. Irate Chinese homeowners are among the top policy concerns for Beijing this year, according to analysts who say weakening house prices are stoking serious tensions. Financial author and CSLA Singapore managing director Fraser Howie calls it the “real unknown” of 2012, as there’s no track record of how this newly emerged class of homeowners would react if the current softening in residential housing prices turns into a prolonged decline. “It’s too difficult to analyze what’s going to happen,” he said, citing the difficulty in sourcing accurate statistics on the property market and the short history of property ownership in China.
  • 7 Apparel Stores Hedge Funds Like.
Business Insider:
Zero Hedge:
LA Times:
The Blaze:
  • Failed Georgia-Based Ethanol Plant Sold - Taxpayers Lose Millions. “The failed Range Fuels wood-to-ethanol factory in southeastern Georgia that sucked up $65 million in federal and state tax dollars was sold Tuesday for pennies on the dollar to another bio-fuel maker with equally grand plans to transform the alternative energy world,” writes Dan Chapman of The Atlanta Journal-Constitution.
The Hill:
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-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
USA Today:
  • Apartment Rents Heading Higher for 3rd Year in a Row. The firm, which surveys 20,000 properties a month, expects apartment rents to jump 5.5% in 2012. MPF Research sees a 4.5% increase, while researcher Reis expects a 3% increase, although that forecast may change, says senior economist Ryan Severino. Reis estimates rents rose 2.3% last year. Axiometrics says 4.4%, and MPF says 4.7%.
  • 5 Dead, Others Wounded in Nigeria Church Attack. Gunmen attacked a church in northeast Nigeria during a prayer service Thursday night, killing at least five people and wounding others in an assault that occurred amid an increasingly violent campaign by a radical Muslim sect. Pastor Johnson Jauro said the gunfire sprayed the Deeper Life Church in Gombe, the capital of Gombe state, injuring several worshippers and killing his wife and two others. He spoke at a local hospital, where a joint team of soldiers and police officers stood guard. Two other people later died at the hospital from their wounds and an Associated Press reporter saw their bodies.
  • RF Micro(RFMD) Q3 Revenue Falls on Low Chinese Demand. RF Micro Devices Inc posted a 19 percent fall in quarterly revenue, hurt by lower mobile wireless chip demand in China, sending the chipmaker's shares down about 13 percent in extended trade. The Greensboro, North Carolina-based company said in a statement it expects gross margin for the quarter to fall by 9 points sequentially on lower revenue, lower factory utilization, and inventory reserves. "Sales of 2G components to China-based customers for entry-level handsets were below expectations," RF Micro Devices said.
  • Ruby Tuesday cuts profit forecast for the year. Ruby Tuesday Inc cut its earnings outlook for the year as it expects weak same-restaurant sales and higher advertising costs, sending the company's stock down 5 percent in trading after the bell. The casual dining chain now expects same-restaurant sales for company-owned restaurants to fall 2 percent to 4 percent for the year, compared with its previous outlook of flat to a fall of 2 percent.
Financial Times:
  • Catalonia Rejects Spanish Govt Budget Control Plans. Catalonia will resist with all of its political, legal resources plans to impose strict budget controls, citing Catalan Finance Minister Andreu Mas-Colell. Canaries also said it won't accept "recentralizing". The Spanish Economy Minister Luis de Guindos said on Wednesday regional ministers would have to get prior approval for budgets.
  • Confidence in London Property Market Plunges, Study Finds. Confidence in London's commercial property market has fallen to the lowest level in two years, citing industry survey by Lloyds Banking Group. Net balance of respondents expected the market to improve in the next six months fell to 2.8%, compared with 32.2% at the end of August, citing the survey.
Les Echos:
  • The French government has been considering nationalizing the remains of Franco-Belgian Dexia Bank for several weeks following the deterioration of the countries' financial situations, citing several sources.
China Securities Journal:
  • China 2012 CPI Growth May Be at Least 5%. China consumer prices in 4Q may increase more than 6%, Wang Jian, a China Society of Macroeconomics official wrote in a commentary today. China may see imported inflation after 2Q this year, Wang said. China 2012 4Q economic growth will likely fall below 8%, Wang wrote.
Shanghai Securities News:
  • The Chinese cities of Guangzhou and Nanjing may follow Shanghai and Chongqing in starting property taxes, citing Jia Kang, head of the finance ministry's researach institute for fiscal science. Some second- and third-tier cities in the nation's central and western regions may also impose property taxes, citing Jia.
Evening Recommendations
Citigroup Global Markets:
  • Reiterated Buy on (MON), target raised to $89.
RBC Capital:
  • Rated (CLF) Outperform, target $87.
Night Trading
  • Asian equity indices are -1.75% to -.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 204.50 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 157.25 +2.75 basis points.
  • FTSE-100 futures -.30%.
  • S&P 500 futures -.41%.
  • NASDAQ 100 futures -.24%.
Morning Preview Links

Earnings of Note
  • (AZZ)/.79
  • (CMC)/.35
  • (GBX)/.36
  • (IHS)/.92
  • (PSMT)/.58
  • (RBN)/.68
Economic Releases
8:30 am EST
  • The Change in Non-Farm Payrolls for December is estimated at 155K versus 120K in November.
  • The Unemployment Rate for December is estimated to rise to 8.7% versus 8.6% in November.
  • Average Hourly Earnings for December is estimated to rise +.2% versus a -.1% decline in November.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Fed's Dudley speaking, Fed's Rosengren speaking, Fed's Duke speaking, Fed's Sarah Bloom Raskin speaking and the (PRX) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial 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.

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