Thursday, April 18, 2013

Thursday Watch

Evening Headlines 
  • G-20 Draft Affirms Commitment to Avoid Competitive Devaluations. The Group of 20 economies will affirm a commitment to avoid weakening their currencies to gain an advantage for their exports, according to a draft statement prepared for a meeting this week in Washington, Bloomberg BNA reported. The draft statement, seen by a Bloomberg BNA reporter, maintains a pledge made in February in Moscow to “move more rapidly toward more market-determined exchange rate systems and exchange-rate flexibility” and to refrain from competitive devaluations. A first draft communique, prepared for meetings of finance ministers and central bankers starting today, describes the global outlook as “generally somewhat weaker and uneven” with “unbalanced” recoveries between advanced economies and emerging markets. The maintaining of the language on currencies suggests the G-20 members will withhold direct criticism of Japan’s efforts to rally its economy from 15 years of deflation so long as it doesn’t seek to do so at their expense by driving the yen down.
  • China Home Prices Rise in Almost All Cities on Mild Local Curbs. China’s new home prices rose in all but two cities, led by major centers, as local governments announced milder-than-expected property measures and targets. Prices in March climbed in 68 of the 70 cities the government tracks from a year earlier, the National Bureau of Statistics said in a statement today, the most since September 2011. The southern city of Guangzhou posted the biggest gain, rising 11.1 percent from the same period last year. Beijing prices jumped 8.6 percent, while they advanced 6.4 percent in Shanghai, both the most since January 2011 when the government changed its methodology for the data
  • China Bird-Flu Outbreak Seen Adding Risks as Growth Slows. China’s deadly bird-flu outbreak is rippling through industries from restaurants to travel, adding economic headwinds after last quarter’s unexpected slowdown. The disease “may suppress domestic consumption in the near term,” Goldman Sachs Group Inc. said in a report this week. Ding Shuang, a Citigroup Inc. economist in Hong Kong, sees a danger of “short-term volatilities” in growth and inflation and of bigger effects if found to transmit between humans. The outbreak, which has sickened at least 82 people and killed 17 so far, threatens to extend the longest streak of growth below 8 percent in at least 20 years in the world’s second-largest economy. The 2003 global pandemic of severe acute respiratory syndrome showed the risks associated with such incidents, with Credit Suisse Group AG estimating China’s expansion in the second quarter of that year was cut by about 2.4 percentage points after seasonal adjustments. “Consumption is likely to stay weak in the second quarter because of the outbreak,” said Li Wei, a Shanghai-based economist at Standard Chartered Plc. “We don’t know how the bird flu is going to evolve.” The virus is affecting restaurant sales as people eat more meals at home and having an impact on factory production through the food industry, Li said without giving specific estimates. 
  • Moutai Profit Growth Slows Amid Xi Austerity Push. Kweichow Moutai Co. (600519), China’s largest maker of baijiu liquor, said first-quarter profit rose 21 percent, less than half the pace of the year-earlier period as President Xi Jinping pushes to curb extravagant spending by government officials.
  • Asian Stocks Decline, Led by Mining Companies on Growth. Asian stocks fell, led by mining companies after commodity prices slumped on concern a weaker outlook for global economic growth will crimp demand for raw materials. BHP Billiton Ltd. (BHP), the world’s biggest mining company, sank 3.3 percent in Sydney. LG Display Co., which supplies touch screens for Apple Inc.’s iPhone and iPad, dropped 3.4 percent in Seoul after audio-chip maker Cirrus Logic Inc. reported an inventory glut that suggests iPhone sales may fall short of analysts’ expectations. Softbank Corp., Japan’s third-largest wireless carrier, lost 1.7 percent as a rival’s bid for Sprint Nextel Corp. gained shareholder support. The MSCI Asia Pacific Index (MXAP) slipped 0.5 percent to 136.79 as of 11:57 a.m. in Tokyo, with about three shares falling for every two that rose on the gauge.
  • Brazil Raises Rate From Record Low as Inflation Saps Growth. Brazil’s central bank raised its benchmark rate for the first time since July 2011, as policy makers seek to slow inflation levels jeopardizing an economic recovery. The bank’s board, led by President Alexandre Tombini, voted 6-to-2 to increase the Selic rate 25 basis points to 7.50 percent from a record low, matching the median forecast from 58 economists surveyed by Bloomberg. Policy makers said that “the high level of inflation” and “resilience of inflation” required a response, which was tempered by the central bank’s recognition that “external uncertainties” also required “that monetary policy be managed with caution,” according to the board’s statement posted on Banco Central do Brasil’s website. 
  • Copper Below $7,000 for First Time in 18 Months as Metals Slide. Copper in London fell below $7,000 for the first time in almost 18 months as data from Europe to China, the biggest user, raised concern that demand is faltering. Aluminum, nickel, zinc, tin and lead also retreated. Copper for delivery in three months on the London Metal Exchange plunged as much as 4 percent to $6,800 a metric ton, the lowest level since October 2011, and was at $6,840.25 at 9:38 a.m. in Shanghai. Metal for delivery in August was at 50,530 yuan ($8,175) a ton, declining by a daily limit, on the Shanghai Futures Exchange. The July futures contract on the Comex dropped 3.1 percent to $3.1035 per pound. European car sales are sliding to a 20-year low as demand plunged last month in Germany.
  • Rebar Falls to Lowest Level in Four Months on China Economy. Steel reinforcement-bar futures declined to the lowest level in more than four months as slowing economic growth in China, the biggest user, led to a slump in industrial metals. The contract for October delivery on the Shanghai Futures Exchange dropped as much as 2.7 percent to 3,598 yuan ($582) a metric ton, the lowest level for a most-active futures since Dec. 7, before trading at 3,665 yuan at 10:15 a.m. local time. 
  • Rubber Tumbles to Lowest Level in Five Months on Demand Concerns. Rubber slumped for a fifth day to the lowest price in five months as a selloff in commodities from crude oil to metals raised concern that global demand is waning. Rubber for delivery in September lost as much as 3.9 percent to 242.6 yen a kilogram ($2,474 a metric ton) on the Tokyo Commodity Exchange, the lowest level for the most-active contract since Nov. 14. Futures traded at 247.1 yen by 11:34 a.m.
  • Kim Says World Bank Can’t Reject Coal If People Freeze. The World Bank, which has boosted investment in renewable energy, cannot refuse to finance a coal- fired plant in Kosovo if the alternative is having people there “freeze to death,” the lender’s president said. As the Washington-based institution considers providing partial guarantees for a lignite-fired power plant in the Balkan country, World Bank President Jim Yong Kim said today he’s looking for all possibilities to avoid investing in coal. If the lack of energy became “a humanitarian issue” and the bank got involved, it could at least make the project cleaner, he said. “I don’t think it’s fair to tell the people in Kosovo ‘While the rich countries continue to burn coal, you’re going to have to freeze to death because it’s against our political ideology to support you,’” Kim said on a panel discussion in Washington today. “I can’t do that.”
Wall Street Journal: 
  • Video Provides Clues to Bomber. Federal investigators said Wednesday they are working to identify a person in a video who appeared to leave a bag in the spot where one of two bombs later exploded near the finish line of the Boston Marathon. Authorities also are trying to identify at least one other person seen in videos of the crowd, according to people familiar with the matter.
  • Dark Pool Brawl Breaks Out. A behind-the-scenes brawl has broken out between two market powers that represent opposite ends of the stock-trading spectrum. In one corner is NYSE Euronext, which claims to represent the good of the average investor and transparent trading on public exchanges. In the other corner: Credit Suisse Group AG, which runs the nation’s largest dark pool, Crossfinder
  • Rove: Steaming Toward the ObamaCare 'Train Wreck'. The implementation of this unpopular law is a story of missed deadlines and general bungling. In congressional testimony last week, Health and Human Services Secretary Kathleen Sebelius blamed Republican governors for her department's failure to create a "model exchange" where consumers could shop for health-insurance coverage in states that don't set up their own exchange. Nice try, but GOP governors aren't the problem. Team Obama's tendency to blame someone else for its shortcomings is tiresome. The Affordable Care Act requires HHS to operate exchanges in states that won't operate their own. Since the act became law in March 2010, it has been abundantly clear that the agency would have to deploy a model exchange. It is Ms. Sebelius's fault there isn't one.
Fox News:
  • FBI has images of two persons of interest in Boston bombings, source says. A federal law enforcement source told Fox News that investigators are looking for two men that are persons of interest in Monday's Boston Marathon terror attack and have distributed photos for “law enforcement eyes only.” The FBI is not sharing the photos with the public. A Fox News reporter has seen the photos and called them “clear.”  
  • Background check plan defeated in Senate, Obama rips gun bill opponents. The Senate on Wednesday defeated a vital background check amendment seen as the linchpin to Democrats' gun control bill, dealing a major setback to President Obama -- who lashed out at opponents in unusually blunt terms during remarks from the Rose Garden. The vote was 54-46, with supporters falling six votes short of the required 60-vote threshold
Breaking News:
  • Heading off a China-style subprime crisis. Warning of local governments’ high exposure to bad debts, the credit agency Fitch recently downgraded China’s long-term local-currency rating from AA– to A+. Officials should take note: the downgrade underlines how closely international markets are watching developments in the country
  • American Express(AXP) Earnings Beat; Revenue Falls Short. American Express reported first-quarter earnings that beat analysts' expectations on Wednesday but revenue was light as cardmember spending growth remained muted for the fourth time in a row. After the earnings announcement, the company's shares slipped in after-hours trading.
Zero Hedge: 
Business Insider: 
The Blaze:
  • US regulator says banks still a risk for taxpayers. A top U.S. bank regulator said on Wednesday the country must do more to protect taxpayers from having to spend billions on bank bailouts, one of a growing chorus of critics of the current rules. Tom Hoenig, vice chairman of the Federal Deposit Insurance Corp (FDIC), said in New York that the Volcker rule - which would bar banks from betting their own money on financial markets but has not yet been finalized by regulators - would not go far enough. Instead, Hoenig wants to force banks to hive off risky activities such as trading and creating derivatives and to eliminate any taxpayer subsidy for these businesses.
  • Vote on Italy president risks centre-left split. Italy's divided parliament begins voting for a new state president on Thursday, with former Senate Speaker Franco Marini the main candidate in a ballot that will severely strain the unity of the centre-left alliance led by Pier Luigi Bersani. The vote for a successor to President Giorgio Napolitano, whose term ends on May 15, will be a crucial step towards resolving the stalemate since the inconclusive election in February left no party with enough support to form a government. Even by the tangled standards of Italian politics the situation is complicated, but until the new president is elected, the paralysis that has hobbled government more than 50 days after the election will continue.
  • SanDisk(SNDK) sees brighter 2013 with higher NAND prices. SanDisk raised its forecast for revenue this year and said it expects higher prices for its NAND memory chips, which are used in smartphones and tablets. Chief Financial Officer Judy Bruner's comments to analysts on a quarterly conference call on Wednesday helped reverse losses in SanDisk's stock after the company posted quarterly results that disappointed some on Wall Street, despite beating estimates.
  • Investors sound alarm over AAA ratings on subprime auto bonds. While many new subprime auto bonds are getting the highest Triple A ratings, the ratings agencies themselves admit standards are loosening - and some in the market say that needs to change soon. Skeptical investors are increasingly warning that ratings for the white-hot asset class should become more conservative, especially regarding smaller, second-tier lenders with no long-term record in issuing asset-backed securities (ABS). The issue is particularly pressing, as subprime auto bond issuance has skyrocketed over the past year. So far in 2013, nearly US$7.5bn of new subprime auto ABS has been issued, roughly 32% higher than in the same period of 2012, according to Deutsche Bank data. There was only US$18.5bn in issuance for all of 2012, and just US$11.75bn the year before that. As supply expands, however, there is a marked difference in the quality of issuers - even among those getting similar ratings from the agencies.
  • Risk assets slip on growth worries, gold tumbles. Risk assets slipped broadly on Thursday, following the overnight drop in U.S. and European equities on fears for global growth, and gold slid as money continued to flow out of gold-backed exchange-traded funds.
Sueddeutsche Zeitung:
  • Audi's Stadler Warns German Consumer Uncertainty Growing. Audi Chairman Rupert Stadler says increased insecurity driven by debt crisis in southern Europe, citing interview. Says massive concern over reforms needed to cut debt in many European countries behind slump in sales of cars in Europe.
South China Morning Post:
  • China's 'Golden Decade' for Coal Ended in 2011. Cleaner-burning natural gas to develop rapidly in coming decade, citing Liu Xiangdong, deputy director-general of China Electricity Council's dept of planning and statistics. China's market for coal-fired electricity to suffer "structural oversupply". Annual growth of coal fired-power to be less than 5% in coming decade, compared with 11% in previous 10-year period.
Shanghai Securities News:
  • China Investigates Fixed-Income Trades. Chinese regulators are investigating fixed-income transactions in accounts typically used by senior traders at financial institutions. The government has sent teams to inspect trading records at firms in Shanghai, Beijing and Jiangsu province. A bond sold by a local government financing vehicle is the key target of the probe, citing people familiar with the situation.
  • China Economic Growth May Slow in 4Q. China's economic growth may slow in 4Q, Li Zuojun, vice director of resources and environment at the State Council's development research center, wrote in an article. Fading stimulus effects started last May and new policies likely beginning in 2Q-3Q will contribute to slowing 4Q growth.
21st Century Business Herald:
  • China Shenzhen Firms May Have Falsified Trade Data. Some trading houses in the southern Chinese city of Shenzhen may have falsified exports data to bring in "hot money," citing government officials.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.75% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 115.50 +1 basis point.
  • Asia Pacific Sovereign CDS Index 92.0 +1.25 basis points.
  • FTSE-100 futures +.19%.
  • S&P 500 futures +.04%.
  • NASDAQ 100 futures +.13%.
Morning Preview Links

Earnings of Note

  • (PPG)/1.54
  • (KEY)/.19
  • (UNP)/1.96
  • (BTU)/-.14
  • (NUE)/.24
  • (ADS)/2.52
  • (AN)/.64
  • (SHW)/1.09
  • (BX)/.53
  • (BBT)/.68   
  • (UNH)/1.14
  • (DHR)/.76
  • (FITB)/.39
  • (PEP)/.71
  • (BAX)/1.05
  • (PM)/1.34
  • (OMC)/.75
  • (MS)/.56
  • (VZ)/.66
  • (FCX)/.71
  • (CMG)/2.13
  • (COF)/1.62
  • (IBM)/3.05
  • (MSFT)/.68
  • (RH)/.61
  • (GOOG)/10.67
  • (ISRG)/3.96 
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated to rise to 350K versus 346K the prior week.
  • Continuing Claims are estimated to fall to 3075K versus 3079K prior. 
10:00 am EST
  • Philly Fed for April is estimated to rise to 3.0 versus 2.0 in March.
  • Leading Indicators for March are estimated to rise +.1% versus a +.5% gain in February. 
Upcoming Splits
  • (CRM) 4-for-1
Other Potential Market Movers
  • The Fed's Lacker speaking, Fed's Kocherlakota speaking, Fed's Raskin speaking, German/French auctions, 5Y TIPS auction, Bloomberg Economic Expectations Index for April, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report 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 mixed and weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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