Tuesday, January 24, 2012

Tuesday Watch

Evening Headlines

  • EU Calls for More Bondholder Concessions as Greece Seen Going ‘Off Track’. European finance ministers balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief in order to point the way out of the two-year-old debt crisis. Euro governments stood by an October offer of 130 billion euros ($170 billion) for a second Greek aid package. Officials want to fill a deeper-than-expected hole in the nation’s finances by saddling investors with a lower interest rate on exchanged bonds. Brinkmanship over Greece clouded progress toward new fiscal rules and a beefed-up rescue fund, denting newfound confidence in the anti-crisis strategy and threatening to overshadow next week’s summit of European leaders. “It’s obvious that the Greek program is off track,” Luxembourg Prime Minister Jean-Claude Juncker told reporters early today after chairing a meeting of European finance ministers in Brussels. He called on creditors to drop demands that new bonds carry coupons averaging 4 percent. The stalemate is reminiscent of October’s bargaining over bond losses and risks disrupting the Jan. 30 summit. An accord with bondholders is key to a second financing package for the cash-strapped country, which faces a 14.5 billion-euro bond payment on March 20.
  • Societe Generale, Credit Agricole Cut by S&P in Wake of France's Downgrade. Societe Generale SA (GLE) and Credit Agricole SA (ACA) were among French banks to have their credit grades cut by Standard & Poor’s after France was stripped of its top rating earlier this month. Societe Generale, France’s second-largest lender, and No. 3 Credit Agricole had their ratings downgraded to A from A+, with a stable outlook, S&P said yesterday in statements. Caisse des Depots et Consignations also was cut to AA+ from AAA. European nations are grappling with a debt crisis now in its third year as they seek to restore budget order. France’s AAA rating was reduced to AA+ on Jan. 13 amid downgrades that left Germany the sole nation in the euro area with a stable AAA rating. The ratings for Societe Generale and Credit Agricole incorporate one level of government support rather than two levels that a AAA-rated sovereign would provide, S&P said. “The downgrade of some of these banks follows the downgrade of France,” S&P wrote in a statement.
  • Euro Retreats From Three-Week High as EU Officials Discuss Greek Debt Swap. The euro slid from an almost three week high after European finance ministers called on Greek bondholders to provide greater relief in a debt-swap agreement to help end the region’s sovereign crisis. Losses in the 17-nation currency were limited before reports forecast to show a slower contraction in European services and manufacturing output. Demand for the dollar may be curtailed before the Federal Reserve begins a two-day policy meeting today, after which it will provide forecasts for its benchmark interest rate for the first time. The yen was little changed after the Bank of Japan cut its economic growth forecast for next year as it held its key rate near zero. “It’s unlikely we’ll see continued buying of the euro,” said Kumiko Gervaise, an analyst in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company. It’s no guarantee that Greece can return to markets for funding “even with the debt-swap deal.”
  • Chemicals Used During Medical Imaging Tests May Damage Thyroid. Chemicals used to enhance pictures obtained from medical imaging tests may lead to overactive or underactive thyroid glands, a study showed. Patients injected with contrast material were about twice as likely as those who didn't get the chemical to develop hyperthyroidism, when the gland produces too much thyroid hormone and can cause rapid or irregular heart rates, according to a study today in the Archives of Internal Medicine. Results also showed an increased risk for hypothyroidism.
  • Crude Trades Below $100 as U.S. Inventory Outlook Counters Iran Embargo. Oil fluctuated below $100 a barrel in New York as speculation U.S. stockpiles gained last week countered concern Iran will respond to an European embargo on its crude exports by shutting the Strait of Hormuz.
  • NYSE-Deutsche Boerse Said to Lack Support to Overturn EU’s Takeover Veto. NYSE Euronext (NRX) and Deutsche Boerse (DB1) AG are unlikely to garner enough support from European Union commissioners to overturn a looming veto over their plan to create the world’s largest exchange, according to four people familiar with the situation. The EU’s antitrust chief, Joaquin Almunia, won’t face significant opposition from other EU commissioners to his proposal to block the deal at a Feb. 1 meeting, said the people who can’t be identified because the discussions aren’t public.
  • Japan May Miss Debt Goal Despite Tax Hikes. Japan will probably miss its goal of balancing the budget by fiscal 2020 even if it doubles the nation’s sales tax, government estimates show, underscoring the difficulty of containing the world’s largest public debt. Japan will have a primary deficit of 3.1 percent of gross domestic product in the year, the Cabinet Office said in a release in Tokyo today. The projections are based on the assumption the world’s third-largest economy grows about 1 percent annually. The government had wanted a primary balance, achieved when revenue matches spending after the exclusion of debt-servicing costs, by the year ending March 2021.
  • VMware(VMW) Profit Tops Estimates as Clients Add Server Software. VMware Inc. (VMW), the biggest maker of software that lets computers run multiple operating systems, reported sales and profit that topped estimates as corporations bought more programs to make servers more efficient.
Wall Street Journal:
  • Romney on the Attack. Mitt Romney sought to regain traction in the Republican presidential race by linking his surging rival, Newt Gingrich, to Florida's ongoing housing crisis and trying to paint the former House speaker as too "erratic" for the party to gamble on as its 2012 nominee.
  • Obama Speech May Set Natural-Gas Production Goal. President Barack Obama will use his State of the Union speech Tuesday to call for an increase in domestic energy production and may set a production target for natural gas, according to people familiar with the White House's plans. Mr. Obama is expected to tout the economic and energy security benefits of increased U.S. oil and gas production, a message that's unlikely to sit well with some of the president's environmental supporters but could blunt industry and Republican criticism of his policies.
  • Australia's Swan Says Forecasts Assume Europe Recession. Australia's Treasurer Wayne Swan said Tuesday the country's mid-year economic forecasts factor in a recession in Europe and a substantial slowdown in global growth.
  • Fears Mount That Portugal Will Need a Second Bailout. Investors, economists and politicians are increasingly concerned that Portugal will need a second bailout as fears mount that it won't be able to return to markets for financing next year. While the Portuguese government's finances are covered this year as long as it abides by its bailout agreement, Portugal must regain full access to capital markets next year to help repay €9 billion ($11.64 billion) in debt coming due in September 2013.
  • At BofA(BAC), Moynihan Grapples With Past. Bank of America Corp. CEO Brian Moynihan is being dragged back to the past once again. The 52-year-old chief executive is expected to be deposed in coming months in as many as three civil lawsuits over the bank's handling of its takeover of securities firm Merrill Lynch & Co. on Jan. 1, 2009.
  • Japan's Central Bank Cuts Economic Forecast. The Bank of Japan Tuesday cut its economic growth forecasts through fiscal 2012, while keeping its interest-rate target unchanged. After predicting last October that gross domestic product would grow 0.2% to 0.4% in the current fiscal year ending in March, the central bank said Tuesday that the period would instead show a contraction of between 0.3% and 0.4%.
Business Insider:
Zero Hedge:
  • More Tech CEOs on Hot Seat After Ousters at RIM(RIMM), Yahoo(YHOO).
  • Regulator: Fannie, Freddie Writedowns To Cost Taxpayers Billions. The regulator for Fannie Mae and Freddie Mac told lawmakers that forcing the two mortgage firms to write down loan principal would require more than $100 billion in fresh taxpayer funds. In a letter sent Friday to the Republican and Democratic leaders of a U.S. House of Representatives government oversight panel, the Federal Housing Finance Agency explained why it has long opposed principal reductions for borrowers who owe more than their homes are worth. It said it had determined that such reductions would be more costly for the two firms than allowing those troubled borrowers to default. The regulator has been under pressure from Democrats to permit the write-down of principal by the two government-controlled mortgage finance providers as a way to help some of the millions of U.S. homeowners who are "underwater."
  • Texas Instruments Earnings Beat; Outlook Falls Short.
NY Times:
  • InterDigital(IDCC) Calls Off Patent Sale. The decision by InterDigital followed months of talks with several prospective buyers, following a surge of interest by tech companies in buying up patents. But InterDigital was unable to fetch an offer for the entire portfolio of 20,000 patents, one of these people said.
  • Europe Weighs Tough Law on Online Privacy. Europe is considering a sweeping new law that would force Internet companies like Amazon.com and Facebook to obtain explicit consent from consumers about the use of their personal data, delete that data forever at the consumer’s request and face fines for failing to comply.
  • World Needs 600 Million New Jobs In Next Decade - ILO. The International Labour Organization sounded the alarm on the global jobs situation in its annual report on Monday and called for more coordination of fiscal policies, repair and regulation of the financial sector and support for the real economy. "What has changed with respect to last year is that our forecast has become much more pessimistic," said Ekkehard Ernst, one of the report's authors. "We had expected a gradual stagnation or coming down of unemployment numbers. That's not something we foresee this year any more. Even in our baseline the unemployment numbers are increasing. With a possibility of a serious deterioration of global growth these numbers actually increase very much." Even under fairly benign conditions such as a quick resolution of the euro debt crisis, the ILO expects global unemployment to be stuck at about 6 percent until at least 2016.
  • Germany Denies Its Ready To Up Euro Zone Rescue Volume. Germany denied a report on Monday that it was ready to boost the combined firepower of the euro zone's rescue funds to 750 billion euros ($978 billion). "It is not true. There is no such decision," German Chancellor Angela Merkel's spokesman Steffen Seibert told Reuters, referring to a Financial Times newspaper report earlier that Germany would accept an increase of the rescue schemes in return for its euro zone peers accepting tough budget rules in a new fiscal compact.
  • Obama taps Deutsche economist to head EIA. President Barack Obama has nominated Deutsche Bank energy economist Adam Sieminski to head the Energy Department's independent statistics arm, the White House said on Monday.
  • Western Digital(WDC) Beats On Fast Recovery From Thai Floods. Hard drive maker Western Digital Corp posted better-than-expected quarterly results and forecast a strong current quarter, signaling a faster-than-anticipated return to production capacity at key facilities damaged by the Thailand floods last year.
  • Iraq Targets 2012 500,000 bpd Oil Output Increase. Iraq is targeting an increase in oil production and exports of 500,000 barrels per day for 2012 and even more of a gain in 2013, its top oil official said on Monday, signalling substantial growth under its ambitious expansion plan.
  • Elpida is in talks with Micron Technology(MU) and Nanya for a three-way merger.
Japan Times:
Evening Recommendations
Wells Fargo:
  • Rated (BLL) Outperform.
William Blair:
  • Rated (FIO) Outperform.
Night Trading
  • Asian equity indices are -.75% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 189.0 -3.25 basis points.
  • Asia Pacific Sovereign CDS Index 149.0 - 4.0 basis points.
  • FTSE-100 futures -.20%.
  • S&P 500 futures -.34%.
  • NASDAQ 100 futures -.27%.
Morning Preview Links

Earnings of Note
  • (HOG)/.22
  • (KEY)/.20
  • (BHI)/1.32
  • (AKS)/-.39
  • (DGX)/1.06
  • (BTU)/1.31
  • (IGT)/.22
  • (TRV)/1.52
  • (APD)/1.36
  • (DD)/.33
  • (WAT)/1.50
  • (COH)/1.15
  • (EMC)/.46
  • (VZ)/.52
  • (KMB)/1.30
  • (EAT)/.45
  • (JNJ)/1.09
  • (MCD)/1.30
  • (SYK)/1.02
  • (ALTR)/.42
  • (CA)/.54
  • (STLD)/.11
  • (YHOO)/.24
  • (AAPL)/10.12
  • (NSC)/1.40
  • (AMD)/.16
  • (ETH)/.28
Economic Releases
  • None of note

Upcoming Splits

  • (COG) 2-for-1
Other Potential Market Movers
  • The Spain debt auction, Richmond Fed Manufacturing Index for January, BoJ Rate Decision, 2-Year Treasury Note Auction, ECB's Mersch speaking, weekly retail sales reports, (WPI) Investor Meeting and the (BBG) Investor Event could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology 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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