Wednesday, January 18, 2012

Thursday Watch

Evening Headlines

  • Weidmann Says ECB Should Resist Pressure to Use 'Nuclear Option' in Crisis. European Central Bank Governing Council member Jens Weidmann said policy makers should resist pressure to increase government bond purchases in response to the euro region’s debt crisis. Some are demanding that the ECB turn to the “bazooka” or “nuclear option” of “engaging in unlimited government bond purchases and limiting yields,” Weidmann, who heads Germany’s Bundesbank, said in a speech in Ludwigsburg late yesterday. “There are a number of legal, economic and political reasons why we shouldn’t do this,” he said. Such an approach would violate European Union law, take away the incentive for governments to implement fiscal reforms and redistribute losses within the currency union, Weidmann said. While the ECB has bought 217 billion euros ($279 billion) of bonds from distressed member countries since May 2010, President Mario Draghi says the program is temporary, limited and aimed solely at improving the transmission of interest rates on financial markets. It’s wrong to compare the ECB with the U.S. Federal Reserve, Weidmann said. “The Fed is the central bank of a nation state and not of a monetary union, in which the financing of governments through the printing press is forbidden,” he said. In addition, Fed- style quantitative easing aims to reduce long-term interest rates in a capital market-based financial system and not at cutting refinancing costs for individual states, Weidmann said.
  • China Developers Ease Home Sales in Face of Worst Year Since '08. China’s biggest developers slowed home sales toward the end of 2011, bracing for the worst property market in three years as the government vows to keep real-estate curbs. Contract sales, or sales booked before apartments are completed, dropped 30 percent last month at China Vanke Co., as the country’s biggest developer by market value offered fewer homes from November. Evergrande Real Estate Group Ltd., the second-biggest Chinese developer by revenue, said sales in November and December were the lowest for the year.
  • U.S. Mutual Funds Attract Most Deposits in Almost Two Years. U.S. mutual funds attracted the most money in almost two years last week as investors poured cash into bond funds and some returned to stock funds. Funds had net deposits of $11.3 billion in the week ended Jan. 11, the Investment Company Institute said today in an e- mailed statement. The last time mutual funds took in that much money was the week ended April 21, 2010, when they gathered $12.6 billion in deposits, according to the Washington-based trade group.
  • House Casts Symbolic Vote Opposing in U.S. Debt Limit Rise. The U.S. House approved a symbolic measure opposing an increase in the nation’s debt limit in what will probably be the first in a series of election-year votes aimed primarily at wooing those headed for the polls in November. Lawmakers voted 239-176 for a resolution rejecting President Barack Obama’s request to raise the legal cap on borrowing by $1.2 trillion.
  • Egypt Revolt Loses Legitimacy as Brotherhood Ignores Women Abuse. A group of men gathered around Amira El Bakry in Tahrir Square as she brandished a newspaper photo that shocked many Egyptians. It showed troops dragging a female protester along the street, her robe ripped open to reveal a blue bra and bare midriff. “Is this OK by you?” the 25-year-old El Bakry, her voice shaking with anger, asked the men, as they squinted at the picture and one suggested the protester was trying to cause a scene. Later, El Bakry marched through Tahrir with thousands of women to condemn the brutality and demand that Egypt’s military rulers step down. Some at the Dec. 20 rally wore tight jeans tucked in boots, others were in flowing robes and full-face veils. “The women of Egypt are a red line,” they chanted.
  • America's Dirty War Against Manufacturing(Part 2): Carl Pope.
  • Australian Job Losses Cap Worst Year Since 1992. Australian employers unexpectedly cut jobs in December, capping the labor market’s worst year in almost two decades, as investors raised bets on interest-rate reductions. The local currency declined. The number of people employed fell by 29,300 last month after a revised 7,500 drop in November, the statistics bureau said in Sydney today. The median estimate in a Bloomberg News survey of 23 economists was for a 10,000 increase. The year ended with a revised 5.2 percent jobless rate and little change in payrolls from December 2010, their worst annual performance since 1992.
  • EBay(EBAY) Beats Fourth-Quarter Estimates on Holiday Sales, PayPal Unit’s Growth. EBay Inc. (EBAY), the largest Internet marketplace, reported fourth-quarter sales and profit that beat estimates, as more consumers used the PayPal online-payments service and holiday shoppers flocked to its e-commerce site.
Wall Street Journal:
  • New Chief of S&P Defends Its Moves.
  • Interview: Eurozone Needs Federalist - Type System - Cantor CEO. The 17 members of the European Union will inevitably move towards a federalist system that will enable it to impose a pan-European tax to bolster its bailout fund.
  • FBI Sweep Targets Big Funds. Federal prosecutors alleged that a "criminal club" in the hedge-fund world made tens of millions of dollars trafficking inside information, following up on a string of early morning arrests that involved employees of SAC Capital Advisors LP and other prominent financial firms. In an expansion of a high-profile investigation into alleged insider trading, the Federal Bureau of Investigation arrested four people in New York, Boston and California, and the government unsealed charges against three others. All were charged criminally with securities fraud and conspiracy to commit securities fraud.
  • Obama Rejects the Keystone XL Pipeline and Blames Congress.
Business Insider:
NY Times:
  • Hedge Funds May Sue Greece If It Tries To Force Loss. The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.
  • Illinois Backlog of Unpaid Bills Nears $8.5 Billion. The Illinois comptroller's office is sitting on nearly $4.3 billion in overdue bills and other departments are behind on their bills because the state doesn't have the money to make good on its debts, Comptroller Judy Baar Topinka said Wednesday. The total backlog of Illinois' unpaid obligations comes to about $8.5 billion, according to the latest report from Topinka's office.


  • Spain, France Brace For Euro Long-Term Debt Test. The euro zone should pass the biggest test of demand this year for its longer term debt on Thursday when Spain and France offer a combined 14 billion euros of bonds, with the backstop of ECB support and relatively high yields likely to encourage buyers. Other sovereign debtors have leapfrogged Spain to become more prominent market targets but Madrid's first 10-year bond offering since mid-December will grab the most attention among the nine debt issues that will go on sale there and in Paris.
  • Doubt Over IMF"s Eurozone Lifeline. Traders were unconvinced by a radical proposal by the International Monetary Fund (IMF) to deploy $1 trillion (£648bn) to stem the European debt crisis and its impact on the global economy.
  • Commerzbank Shortfall 'Bigger Than First Thought'. Commerzbank, Germany's second-largest bank, needs even more capital than previously believed, according to reports. The bank may be forced to take emergency steps to tackle the six-billion-euro shortfall. Meanwhile, ratings agency Moody's may downgrade Commerzbank's creditworthiness. The capital shortage at Commerzbank is apparently much larger than previously believed. The major German lender needs around €6 billion ($7.7 billion), daily Die Welt reported on Wednesday. Until now, the European Banking Authority (EBA) regulatory body had estimated the shortfall at €5.3 billion. But that isn't the only bad news for Commerzbank -- ratings agency Moody's has said it may downgrade the bank's creditworthiness because of its exposure to troubled real estate lender Eurohypo. According to Die Welt, the need for the extra funds is due to the ongoing negotiations for a debt 'haircut' for Greece. Germany's second-largest bank held Greek bonds worth €1.4 billion at the end of the third quarter last year, even though it had written off 50 percent of them in 2011. That writedown may no longer be enough, however, as an even higher debt cut has reportedly been proposed in the negotiations between Greece and private creditors. Such a debt write-off is apparently close to becoming a reality for Commerzbank, which is already working hard to find a solution to its huge capital gap.
  • Deutsche Bank AG management-board member Juergen Fitschen said the amount of cash deposited by lenders at the ECB constituted a "fear indicator" that exceeded the level of 2008. Fitschen, who along with investment-banking chief Anshu Jain will succeed CEO Josef Ackermann at the bank, also said that Greece could leave the euro-zone before undergoing the "catastrophe" of a collapsing economy. The price of a debt restructuring could be an economic contraction of as much as 8%, Fitschen said in an interview.
Evening Recommendations
  • Rated (PAYX) Outperform, target $36
  • Rated (GPN) Outperform, target $55.
  • Rated (CATM) Outperform, target $31.
Night Trading
  • Asian equity indices are +.50% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 197.50 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 157.25 +.75 basis point.
  • FTSE-100 futures +.43%.
  • S&P 500 futures +.03%.
  • NASDAQ 100 futures +.13%.
Morning Preview Links

Earnings of Note
  • (LUV)/.08
  • (PGR)/.35
  • (FCS)/.16
  • (BBT)/.53
  • (UNH)/1.04
  • (BLK)/2.98
  • (BAC)/.13
  • (JCI)/.62
  • (MS)/-.57
  • (COL)/.84
  • (UNP)/1.82
  • (FCX)/.61
  • (PPG)/1.27
  • (IBKR)/.24
  • (COF)/1.54
  • (ISRG)/3.34
  • (IBM)/4.62
  • (GOOG)/10.49
  • (AXP)/.99
  • (INTC)/.61
  • (MSFT)/.76
Economic Releases
8:30 am EST
  • The Consumer Price Index for December is estimated to rise +.1% versus unch. in November.
  • The CPI Ex Food & Energy for December is estimated to rise +1% versus a +.2% gain in November.
  • Housing Starts for December are estimated to fall to 680K versus 685K in November.
  • Building Permits for December are estimated to fall to 679K versus 681K in November.
  • Initial Jobless Claims are estimated to fall to 384K versus 399K the prior week.
  • Continuing Claims are estimated to fall to 3590K versus 3628K prior.

10:00 am EST

  • Philly Fed for January is estimated at 10.3 versus 10.3 in December.

10:30 am EST

  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,000,000 barrels versus a +4,958,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,375,000 barrels versus a +3,985,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +2,350,000 barrels versus a +3,610,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.5% versus a +.6% gain the prior week.

Upcoming Splits

  • (EL) 2-for-1
Other Potential Market Movers
  • The 10-Year TIPS Auction, Bank of America Merrill Lynch Gaming Conference, weekly Bloomberg Consumer Comfort Index, Bloomberg Economic Expectations Index for January and the (FUN) Investor Meeting could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology 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.

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