Friday, January 13, 2012

Friday Watch

Evening Headlines

  • Greek Euro Exit Weighed by German Lawmakers as Process Seen as Manageable. Lawmakers from Chancellor Angela Merkel’s party are stepping up pressure on Greece as it struggles to meet the terms of its second bailout, saying that a Greek exit from the euro region would be manageable. The comments by senior members of Merkel’s Christian Democratic Union, made before a meeting of the CDU leadership that begins today, keep the focus on the Greek government as it strives to reach a debt-swap deal with private creditors that Merkel has said must be struck to win more aid. They are also a challenge to the chancellor’s public stance as she steers European efforts to keep the 17-member single euro area intact. Such “threats” should be taken seriously, said Moritz Schularick, an economy professor at the John F Kennedy Institute of Berlin’s Free University. “The costs of rescuing the euro are so outrageous it’s no surprise that Merkel’s lawmakers are beating the drum on what’s at stake,” he said by phone. “At some point, a euro exit may become a real option. That wasn’t the case before.” Michael Meister and Michael Fuchs, both Christian Democratic Union deputy parliamentary caucus leaders, called into question Greece’s future in the euro zone in separate interviews, saying that crisis-fighting bulwarks introduced since Greece tapped aid in 2010 have made contagion “significantly” less likely.
  • China Stocks Drop Most in a Month as Monetary Easing Hopes Wane. China’s stocks fell, dragging the benchmark index to its biggest loss in four weeks, as speculation the government would loosen monetary policies waned. Gemdale Corp. paced losses by developers after the China Daily said Beijing will restrict home purchases. CSR Corp. and China CNR Corp., the nation’s biggest train makers, declined more than 2 percent as the China Business News said the railway ministry may spend less on new locomotives. Changjiang Securities Co. and Huatai Securities Co. fell after net income slumped last year. “An immediate reserve-ratio cut probably won’t come soon given policy makers’ concern about a possible rebound in inflation,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “The tight liquidity condition won’t change soon. Earnings risks have yet to be fully exposed with the reporting season kicking off.” The Shanghai Composite Index dropped 40.20 points, or 1.8 percent, to 2,234.81 at the 11:30 a.m. local-time break. The CSI 300 Index declined 2 percent to 2,387.30. The ChiNext index of Shenzhen-listed start-up companies tumbled 5.6 percent. A gauge tracking property stocks on the Shanghai Composite lost 2.2 percent. Gemdale slipped 3.5 percent to 5.02 yuan. Poly Real Estate Group Co., China’s second-largest developer by market value, fell 2 percent to 10.18 yuan.
  • Obama Sends Notices to Raise Debt Ceiling. President Barack Obama formally notified Congress today that that the government needs another $1.2 trillion in borrowing authority. The written certification to raise the debt ceiling to $16.394 trillion, part of an August agreement between the White House and Congress to raise the limit in three steps, starts a 15-day clock for lawmakers to consider and vote on a joint resolution disapproving of the increase. Obama has veto power over any disapproval resolution that clears both chambers. The U.S. House is expected to vote on a resolution of disapproval on Jan. 18, said Laena Fallon, a spokeswoman for Majority Leader Eric Cantor, a Virginia Republican. The Senate is scheduled to return the following week. The law calls for Obama to notify Congress when the debt came within $100 billion of the current $15.194 trillion limit. While the threshold was reached Dec. 30, when the president was in Hawaii and Congress was on holiday break, Obama agreed to a request from congressional leaders to delay the notification request, ensuring the deadline for congressional action didn’t lapse before lawmakers returned to Washington. A spokesman for House Speaker John Boehner used the request to criticize Obama on the budget and the deficit. “This request is another reminder that the president has consistently punted on the tough choices needed to rein in the deficit and protect important programs for American seniors from going bankrupt,” Brendan Buck said in an e-mail. The deficit in fiscal 2011 was $1.3 trillion and the White House budget office in September forecast it will be $956 billion in the current fiscal year.
  • Oil Set for Biggest Weekly Drop in a Month on Iran Embargo Delay. Oil headed for the biggest weekly decline in four in New York after a proposed European Union embargo of Iranian crude imports against the nation’s nuclear program was said to be facing a delay of six months. Futures were little changed after sliding the most in two weeks yesterday to the lowest settlement this year. The embargo postponement will allow countries such as Greece, Italy and Spain to find alternative supplies, according to an EU official with knowledge of the talks. Oil also fell after a report showed U.S. retail sales rose less than forecast in December, signaling an economic slowdown in the world’s biggest crude consumer. “Oil is probably moving downward to $95 to $90 in the short-term” after news of the delay, said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. An embargo will be hard to put in place “as it is quite difficult for countries to shift and find alternatives even from other Middle Eastern countries,” he said. Crude shipments from OPEC will reach the highest level in almost a year amid rising exports from Libya, according to tanker-tracker Oil Movements. The Organization of Petroleum Exporting Countries will export 23.66 million barrels a day in the four weeks to Jan. 28, the most since Feb. 12, 2011, the Halifax, England-based researcher said yesterday in an e-mailed report.
  • China's Forex Reserves Drop for First Quarter Since 1998. China’s foreign-exchange reserves posted the first quarterly decline in more than a decade, as foreign investment moderated, the trade surplus narrowed and investors withdrew capital amid the global financial crisis. The holdings, the world’s biggest, fell to $3.18 trillion at the end of December from $3.2 trillion at the end of September, according to People’s Bank of China data released in Beijing today. That was the first quarterly contraction since the second quarter of 1998, according to data compiled by Bloomberg.
Wall Street Journal:
  • Iran to Let In U.N. Atomic Inspectors. Iran agreed to host a high-level team of United Nation's nuclear inspectors later this month, Western diplomats said, a surprise development that could help to curb building tensions with the West. The diplomats on Thursday said Iran had tentatively agreed to receive a delegation from the United Nation's International Atomic Energy Agency headed by the agency's chief weapons inspector, Herman Nackaerts. The diplomats, who are based in Vienna, said the visit was tentatively set for Jan. 28.
  • You Might Just Get Another Chance to Buy Some of Those AIG Mortgage Bonds. The Federal Reserve Bank of New York is likely to resume selling the risky mortgage bonds taken on from American International Group at the height of the financial crisis as early as next week, according to investors who have been briefed by dealers.
  • Video Poker Giant Bets $500 Million on Facebook Game Maker Double Down. Seattle-based Double Down Interactive (DDI) has been acquired by video poker giant International Game Technology(IGT) for $500 million.
  • U.S. Opens Diamond Foods(DMND) Inquiry. Federal prosecutors have opened an inquiry into whether financial practices at Diamond Foods Inc. involved criminal fraud, people familiar with the matter said, a development that raises the stakes for the snack maker and could jeopardize its acquisition of Pringles from Procter & Gamble Co.
  • Economists Split Over Additional Fed Action. Economists are split on whether the Federal Reserve will take further action this year, as they forecast slow but steady improvement in economic growth and employment through 2012. In the latest Wall Street Journal survey, 30 of the 54 participating economists, not all of whom answer every question, say the central bank will refrain from another round of large-scale bond buying in 2012. "The economy is on firmer ground," says Allen Sinai of Decision Economics."The unemployment rate declining suggests the Fed will just stay on hold."
  • Is Tennis Getting Too Soft? Tennis has a new ball and it's making a lot of kids, parents and coaches angry. The ball is the same size as a regular tennis ball, but it's half yellow, half green and softer, and doesn't bounce as high. It's tough to hit winners with it or put spin on it. At a 10-and-under tournament in Lakewood, Calif., last weekend, it made kids swing, swing and swing some more until their arms were sore and they wanted to throw their rackets and scream. Another thing about the green ball: It's part of an international plan to save tennis, which has struggled to compete with sports like soccer, football and basketball. As of Jan. 1, the green ball is required for all 9-and 10-year-old tournaments throughout the world, as legislated by the International Tennis Federation in Appendix VI of the rules of tennis. The ITF also recommends, but does not require, that children eight and under use an even softer ball that is orange, as well as smaller rackets and smaller courts. There's a large red foam ball for 6-year-olds.
  • Corporate Pensions Are in Trouble Too. Accounting analyst David Zion at Credit Suisse, in his latest report, points to yet another kind of havoc wrought by low interest rates: Corporate pension plans have hit their lowest year-end funding levels on record. When interest rates are low, companies—like all other savers—have to set more money aside in order to meet their future spending needs. At year-end 2008, reports Zion, pension plans for companies in the Standard & Poor’s 500-stock index were only 79% funded, meaning they were $279 billion short of what they needed to cover the liabilities of paying future pensions to their workers. With rates having dropped even lower thanks to the Federal Reserve’s policy of “quantitative easing,” the shortfall has hit $458 billion; the pension liabilities of companies in the S&P 500 are only 74% funded, Zion estimates.
  • Bank of America(BAC) Ponders Retreat. Bank of America Corp. has told U.S. regulators that it is willing to retreat from some parts of the country if its financial problems deepen, according to people familiar with the situation. Executives at the Charlotte, N.C., financial giant put the potential move on a list of emergency scenarios submitted to the Federal Reserve last year, these people said. While people close to Bank of America insist that no retreat is imminent, even the possibility of selling branches and losing customers it spent huge sums to lure underscores the depth of its problems.
  • Bank Cuts Reflect New, Leaner Era. The investment-banking industry, notoriously prone to cyclical hiring and firing during booms and busts, is in the midst of a retrenchment that may be more far-reaching. Thursday's announcement that Royal Bank of Scotland Group PLC will eliminate thousands of jobs and exit a handful of business lines in its investment bank highlights the significant reversal under way at some banks in Europe that, until recently, aspired to compete on the same level as traditional heavyweights like Goldman Sachs Group Inc.
  • Bloomberg Aims at Teacher Union. Mayor Proposes Salary Increases for Educators Who Meet Standards, Prompting Immediate Resistance From the UFT. New York City Mayor Michael Bloomberg aimed squarely at the teachers union on Thursday in an address that proposed rewarding the best educators with a $20,000 salary boost and bypassing labor in a continuing battle over how to measure teacher performance.


  • JDA Software(JDAS) Drops 12%: U.S. Retailers Cutting Back On Spending. Shares of JDA Software Group (JDAS) are down $3.76, or almost 12%, at $29.04 in late trading after the company this afternoon warned that its expects Q4 revenue to come in below analysts’ expectations. The company now sees revenue in the three months that ended in December of about $173 million, below the consensus $181.6 million.


  • Dire Straits in China's Pearl River Delta. Lack of financing has some small Guangdong factories in death grip. More than three years since the onset of the global financial crisis, small and medium-sized enterprises in the Pearl River Delta are finding themselves in tough times. With a new model for the “world’s factory” yet to materialize, many are struggling to survive and others have gone out of business. Pessimists say the economic model that served the region in South China’s Guangdong Province so well for the past three decades is at death’s door.
  • China State-Run Firms: Stifling Nation's Vitality. In recent years, the enormous profits of state-owned enterprises (SOEs), once widely considered a good thing, have come under public scrutiny. The core of the problem is monopoly. SOE bigwigs are rapidly expanding their monopolies, relying on growing scale and rising prices to extract huge profits. But these companies bring little technical or organizational innovation to the table.
Business Insider:
Zero Hedge:
  • SEC Tightens Leash on Exchanges Post 'Flash Crash'.
  • India to Buy Iran Oil Despite US Sanctions: Minister. India will keep doing business with Tehran and sees no reason to seek a waiver from the United States that would protect buyers of Iranian oil from a fresh round of sanctions, a senior Indian cabinet minister said on Thursday. "Why should we seek waiver from the U.S.? We have done business with Iran earlier and will continue to do business," the minister, who has knowledge of the matter but did not want to be named as the issue is confidential, told Reuters.
LA Times:
  • Another ATF Weapons Operation Comes Under Scrutiny. Members of Congress want to see whether White Gun, like Fast and Furious, lost track of firearms that ended up with Mexican criminals. "Apparently guns got away again," said one source close to the investigation, led by Rep. Darrell Issa (R-Vista) and Sen. Charles E. Grassley (R-Iowa). "How many got into Mexico, who knows?"
Washington Post:
Rasmussen Reports:
  • U.S. Slaps Sanctions On China State Oil Trader Over Iran. The United States on Thursday imposed sanctions on China's state-run Zhuhai Zhenrong Corp, which it said was Iran's largest supplier of refined petroleum products, as it sought to impress on Beijing and Tehran its resolve to increase economic pressure over Iran's nuclear program.
  • Apple(AAPL) to Halt Sales of Latest iPhone in China Retail Stores. Apple Inc said on Friday it will stop selling its latest iPhone in its retail stores in Beijing and Shanghai to ensure the safety of its customers and employees. The iPhone 4S, which went on sale early Friday, caused a near-riot in one of Apple's Beijing retail stores. "The demand for iPhone 4S has been incredible and our stores in China have already sold out," an Apple spokeswoman said. "Unfortunately, we were unable to open our store at Sanlitun due to the large crowd. And to ensure the safety of our customers and our employees, iPhones will not be available in our retails stores in Beijing and Shanghai for the time being," she said. Customers will still be able to order the smartphone online or purchase it through Apple's partner in China, China Unicom .
  • Italian Bond Sale to Test Shift in Market Mood. Troubled borrower Italy tests investor appetite for its longer-term debt for the first time this year on Friday, seeking to sell up to 4.75 billion euros of bonds and match the success of Thursday's Spanish bond sale. Domestic demand fuelled by cheap European Central Bank funds, which helped Spain sell twice the planned amount of bonds on Thursday at lower rates, is expected to drive Italian three-year costs down at the sale. "All eyes will be on the BTP auction to see if the strong demand evident at the Spanish auction can be repeated," Citi analysts said in a note. Citi said the market would digest the sale relatively easily but that demand was unlikely to be as strong as for Spain.
Passauer Neue Presse:
  • Economic developments in the euro region will be "very unfavorable" this year, citing an interview with Peter Bofinger, a member of Chancellor Angela Merkel's council of economic advisers. Greece needs further financial help to avoid a "disorderly" insolvency and a chain reaction, Bofinger is cited as saying.
  • Indonesian Automobile Market to Grow 5% in 2012. The Indonesian automobile market is estimated to grow by three to five percent in 2012 after a 17 percent increase in 2011, Astra Daihatsu Motor President Director Sudirman MR, said here Thursday. The estimate was made after considering two factors, namely the European crisis that had an impact on liquidity, and gasoline restriction and conversion in April 2012. "We have several considerations, especially the effect of gasoline restriction and conversion which is still unclear and we will feel the impact after the policy has been applied," Sudirman said.
  • Nomura Puts $500M India Infrastructure Fund On Hold. The uncertain macroeconomic environment has triggered the decision, said the two officials, who spoke on condition of anonymity. The firm had planned to go on roadshows in October, but it is yet to start talks with potential investors, said one of the officials.
China Daily:
  • Beijing Mayor Guo Jinlong pledged to restrict property purchases and build more government subsidized housing this year to cool the real estate market.
  • China's Communist Party is facing a more complicated international and domestic environment, the People's Daily said in a front-page commentary today. Societal views are "profoundly" changing, the commentary said. Party officials must keep a "pure mind," according to the commentary.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 203.0 -4.5 basis points.
  • Asia Pacific Sovereign CDS Index 159.50 +.5 basis point.
  • FTSE-100 futures +.58%.
  • S&P 500 futures +.11%.
  • NASDAQ 100 futures +.19%.
Morning Preview Links

Earnings of Note
  • (JPM)/.91
Economic Releases
8:30 am EST
  • The Import Price Index for December is estimated to fall -.1% versus a +.7% gain in November.
  • The Trade Deficit for November is estimated to widen to -$45.0B versus -$43.5B in October.
9:55 am EST
  • The Preliminary Univ. of Mich. Consumer Confidence reading for January is estimated to rise to 71.5 versus 69.9 in December.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking, Fed's Evans speaking and the Fed's Bullard speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

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