Tuesday, April 16, 2013

Tuesday Watch

Evening Headlines 
  • Slovenia Needs Time to Fix Public Finances, Premier Says. Slovenian Prime Minister Alenka Bratusek said the government needs more time to repair public finances as an asset-sale plan failed to quell concern that the euro-area nation will be next to seek a rescue. Bratusek called fiscal-consolidation plans drawn up by the previous government “ridiculous” and said assumptions in this year’s budget were too optimistic. Slovenia’s default risk rose to a six-month high before a planned debt sale tomorrow and bond yields hovered close to records even after the premier announced plans to sell shares in state-owned companies. “The situation in the budget is more serious than I thought” when in opposition, Bratusek said last night in a television interview in Ljubljana. “The situation is not good, but we will take measures to improve it.” 
  • Labour to Demand U.K. Bankers Are Licensed Like Doctors. Britain’s opposition Labour Party is seeking legislation to license bankers so that they are subjected to similar checks as lawyers or doctors. Labour will propose amendments to the Financial Service (Banking Reform) Bill that will be debated in the House of Commons in London later today. It will also press for greater immunity for whistle-blowers who reveal bad behavior in the industry, the creation of a Financial Crime Unit in the Serious Fraud Office, and greater protection for consumers who buy gift vouchers when companies become insolvent. “A proper licensing system would ensure that a higher standard of qualification, training, competence -- and behavior -- could be applied.” Chris Leslie, who speaks for the party on Treasury affairs, said in an e-mailed statement. “It would also ensure that there could be proper sanctions imposed if licenses are breached.”
  • Asia Stocks Fall After China Sparks Global Growth Concern. Asian stocks fell, dragging the regional benchmark equities gauge lower for a second day, led by raw-material producers amid concern slower growth in China will curb the global economic recovery. BHP Billiton Ltd. (BHP), the world’s biggest mining company, dropped 1.6 percent in Sydney. Newcrest Mining Ltd., Australia’s largest gold producer, sank 5.8 percent as the bullion extending losses after yesterday posting its worst slump in three decades. Softbank Corp. slumped 8.9 percent after Dish Network Corp. topped the Japanese wireless carrier’s bid for control of Sprint Nextel Corp. The MSCI Asia Pacific Index lost 0.9 percent to 135.83 as of 11:44 a.m. in Tokyo, with more than three shares falling for each that rose. “The Chinese economy is heading toward slower growth than what we’ve seen in the past decade, which means it’s a lot less investment-intensive with less demand for commodities,” said Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages $126 billion. “We’ve reduced our equity exposure in the short-term as economic data show signs of softening. The market needs to correct at least 10 percent.”  
  • China’s Stocks Drop to Three-Month Low After Commodities Plunge. China’s stocks fell to a three- month low, led by metal producers, as concern that global economic growth is slowing dragged commodities to the lowest level since July. Zijin Mining Group Co., China’s biggest gold producer, slid to the lowest level since December 2008 and Jiangxi Copper Co. (600362) lost 3.2 percent. Dongfeng Automobile Co., which makes light trucks in China with Nissan Motor Co., dropped for a third day after reporting lower sales last month. The Shanghai index has fallen 11 percent from a Feb. 6 high amid concern steps to cool property prices will drag on economic growth.
  • Commodity Open Interest Signals More Losses: Chart of the Day. Investors are holding the largest commodity position on record as prices slump to a nine-month low, signaling increased bets on declines and that losses will continue, according to FuturePath Trading LLCThe number of contracts outstanding for the 24 commodities tracked by the S&P's GSCI Spot Index is at the highest since the data begins in 2006. Open interest is up 11% as of April 4, the latest figures show. Slumping prices are signaling "death bells" for the commodity supercycle, Citigroup Inc. said in a report on April 12. "Rising open interest in a declining market means basically that the funds are adding to their short positions," Paul Kavanaugh, the Chicago-based director of business development at FuturePath Trading, said in a telephone interview.
  • Industrial Metals Extend Drop as Nickel Falls to Eight-Month Low. Industrial metals extended declines after economic data from China and the U.S., the two biggest consumers, raised concern that demand may weaken. Copper for delivery in three months fell as much as 0.9 percent to $7,135.75 a metric ton on the London Metal Exchange, before trading at $7,166 by 9:17 a.m. Shanghai time, putting it on course for the lowest close since October 2011. Zinc lost 0.9 percent and nickel slumped as much as 2.2 percent to $15,350 a ton, the lowest since Aug. 16. The LME Index (LMEX) of six primary base metals fell 1.8 percent yesterday, after retreating 2.6 percent on April 12. “Now it’s difficult to say where copper can find support,” Pang Juan, an analyst at Jinrui Futures Co., said by phone from Shenzhen. “Given slumping precious metals, I think it’s time to re-assess the outlook of metals.” 
  • CME Increases Margins for Gold as Prices Fall Most in 33 Years. CME Group Inc. (CME) increased the margin requirements on gold trading after prices plunged. The minimum cash deposit for gold futures will rise 19 percent to $7,040 per 100-ounce contract at the close of trading tomorrow, Chicago-based CME said in a statement. For silver, the minimum cash deposit was raised to $12,375 from $10,450. The CME’s Comex unit is making it more expensive for speculators to trade after gold fell the most in 33 years today, dropping to the lowest since February 2011, after prices entered a bear market last week. Silver, also in a bear market, slumped 11 percent today and extended the year’s loss to 23 percent. 
  • Rebar Falls to Lowest in Over Four Months as Gold, Metals Sink. Steel reinforcement-bar futures in Shanghai dropped to the lowest in more than four months, pressured by a broad selloff in metals, led by gold’s plunge. The contract for October delivery on the Shanghai Futures Exchange fell as much as 2 percent to 3,665 yuan ($592) a metric ton, the lowest for a most-active future since Dec. 12, before trading at 3,716 at 10:34 a.m. local time. Gold slumped, extending the biggest decline since 1983 and deepening a bear market while copper traded near the lowest level since December 2011 and China’s stocks fell to a three- month low.
  • Rubber Reaches 5-Month Low as Yen Rebounds Amid Demand Concerns. Rubber plunged to a five-month low as the yen rebounded against the dollar and concerns grew that the global recovery may stall, sapping investor appetite for the yen-denominated futures for the commodity used in tires. The contract for delivery in September lost as much as 4.6 percent to 247 yen a kilogram ($2,544 a metric ton), the lowest level for a most-active future since Nov. 15. Futures traded at 252.3 yen on the Tokyo Commodity Exchange at 10:33 a.m., extending this year’s losses to 17 percent
  • Twitter Said to Seek Deals With Viacom, NBC to Feature TV Online. Twitter Inc. is close to reaching partnerships with television networks that would bring more high-quality video content and advertising to the social site, according to people familiar with the matter. The San Francisco-based company has held talks with Viacom Inc. (VIAB) about hosting TV clips on its site and selling ads alongside them, said two of the people, who asked not to be named because the discussions were private. Twitter has also discussed a content partnership with Comcast Corp. (CMCSA)’s NBCUniversal, said two of the people.
Wall Street Journal: 
  • Slower China Growth Signals Days of Miracles Are Waning. Shanghai property developer Sun Ping recalled offering a bloc of villas for sale in 2006, a time when buyers queued overnight and traded spots in line for money. He sold 62 houses in three hours and figures those homeowners quickly saw their investments triple in value. "That was a miraculous time," Mr. Sun said. A recent open house he hosted drew only a handful of shoppers. The days of miracles appear to be over in China, the world's second largest economy. A cleanup is under way, following an economic party of epic proportions that lifted incomes but left behind debt, corruption and a mess of the environment.
  • Blasts Across Iraq Leave Dozens Dead. More than 25 bombings across Iraq left at least 61 people dead on Monday, adding uncertainty and instability ahead of the first elections since U.S. troops left the country in December 2011.
  • Gold Plunges as Fears Over Inflation Fade. Metal's 9.4% Drop on Comex Is Largest in 30 Years. Gold futures for April delivery fell $140.40, or 9.4%, Monday to a two-year low at $1,360.60 an ounce on the Comex division of the New York Mercantile Exchange. That extended their bear-market descent of more than 20% from their 2011 all-time high. Since Thursday, gold prices have declined by more than $203 an ounce, a record skid since the futures began trading in the U.S. in 1974. The reversal comes as investors are grappling with signs the global economic expansion that began in 2009 is slowing.
Fox News: 
  • Death toll at 3 in Boston Marathon bombing seen by White House as terrorism. The deadly bombing at the Boston Marathon that killed at least three and injured more than 130 is believed to be an act of terrorism, senior White House officials told Fox News. Two explosions tore through the finish line of the world-famous race just before 3 p.m., going off simultaneously as throngs of onlookers watched runners complete the 26.2-mile trek. The timing of the blasts immediately sparked suspicions of a deliberate act. “When multiple devices go off, that’s an act of terrorism,” a senior administration official told Fox News, just moments after President Obama delivered a statement to the nation and did not use the word “terror.”
  • Chinese woman reportedly wants to sue Federal Reserve over QE. Perhaps it was only a matter of time. With U.S. quantitative easing seen in China as a blight on the global economy, one woman in the southern city of Kunming has decided to act. According to a South China Morning Post report Tuesday, the woman and her attorney son have filed a lawsuit against the Federal Reserve for driving down the real value of her dollar holdings – totaling $250 – by roughly 30%. And the damages sought? A $1 token fine and a promise from the U.S. central bank to stop abusing its “monopoly” over currency creation, according to the report. The lawyer/son, Li Zhen, contends that the Fed qualifies as a private institution, and therefore is culpable under China’s 2008 Anti-Monopoly Law.
  • EXCLUSIVE-U.S. regulator to fault JPMorgan over Madoff accounts. U.S. regulators plan to fault JPMorgan Chase & Co, which served as Bernie Madoff's main bank for two decades, for failing to conduct adequate due diligence and report suspicious activity, according to a person familiar with the matter. The Office of the Comptroller of the Currency is expected to issue a cease-and-desist order against JPMorgan, which will require the largest U.S. bank to put an end to the alleged failures in its anti-money laundering practices.
Zero Hedge:
Business Insider: 
New York Times:
  • Hedge Fund Billionaires John Paulson And David Einhorn Lost $640M In Gold Market Collapse. The gold bloodbath that hit the market over the past two trading sessions has definitely caused a dent in the portfolio of billionaire hedge fund managers. John Paulson and David Einhorn suffered combined losses of more than $640 million since Friday, according to their latest SEC filings, with the bulk concentrated in the former’s massive position in the SPDR Gold ETF.  Einhorn’s Greenlight took a big hit on its holdings of the gold miners ETF. 
  • Moody's affirms China ratings at Aa3; outlook stable from positive. Moody's Investors Service on Tuesday affirmed China's government's bond rating of Aa3 and changed the outlook to stable from positive. "Progress has been less than anticipated in the process of both reducing latent risks by making local government contingent liabilities more transparent and in reining in rapid credit growth; therefore, some of the upward pressure on the Aa3 rating has eased," it said.
  • Netgear(NTGR) estimates profit below analyst expectations. Network equipment maker Netgear Inc estimated first-quarter revenue and earnings below analysts' expectations, citing lower-than-planned shipments of its new network attached storage product. Shares of Netgear fell as much as 8 percent in trading after the bell.
  • HCA(HCA) issues first-quarter estimates, shares fall. HCA Holdings Inc, the largest U.S. for-profit hospital operator, on Monday announced a preliminary first-quarter revenue estimate that was below Wall Street expectations and its shares fell nearly 5 percent. 
  • Venezuela opposition demands vote recount, protests flare. Hundreds of protesters clashed with police in the Venezuelan capital on Monday after opposition presidential candidate Henrique Capriles called for demonstrations to demand a recount of votes from Sunday's election to replace the late Hugo Chavez.
South China Morning Post:
  • Hong Kong expert warns new bird flu virus could become a pandemic. Hong Kong expert says H7N9 could pose a bigger threat than H5N1 and may adapt to become transmittable between humans. The deadly new bird flu may pose a bigger threat to humans than the H5N1 bird virus that has killed hundreds of people worldwide, a University of Hong Kong microbiologist warned yesterday. Ho Pak-leung became the first expert to publicly express fears it could become a pandemic. The H7N9 strain emerged in humans only last month and is so far contained to the mainland. But it has already infected more people than the H5N1 virus has infected in the past 10 years. Ho said the new virus showed a higher ability to be transmitted rapidly from birds to humans and to spread geographically. And because infected birds appeared healthy, it was also harder to detect. Ho said: "The pathology pattern of H7N9 so far is very special and quite different from H5N1. "But the pattern points to one alarming conclusion - it may be a bigger health threat than H5N1." He said news that a four-year-old Beijing boy was found to have the virus despite not showing any flu symptoms was a "warning sign" for a pandemic.
Financial News:
  • China Has Chosen Not to Chase Faster Growth. China intentionally adjusted its policies and money supply and chose not to chase "super high" growth, according to a commentary by reporter Xu Shaofeng. Large cash injections into a slowing economic slows may add inflationary pressure, the commentary said.
Finance Asia:
  • Soros likens China trusts to subprime. China has a narrow window to prevent its shadow banking system from imploding in a manner similar to US subprime mortgages, says George Soros. George Soros says the immediate threat to financial markets remains the eurozone, but the mid-term challenge is for China to come to grips with its shadow banking system. The statesmanlike investor, speaking at the Boao Forum for Asia, says a hard landing in the Chinese economy would force the People’s Bank of China to raise interest rates, triggering a wave of defaults in wealth-management products. That in turn could lead these products to “break the buck”, if their issuers fail to make up shortfalls to investors. That would lead to a market panic similar to when Reserve Fund Management, the largest money-market fund in the US, saw its value trade below par in the wake of the Lehman Brothers collapse.
Evening Recommendations 
  • Rated (SRCL) Buy, target $127.
Night Trading
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 117.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 93.25 +1.75 basis points.
  • FTSE-100 futures -.41%.
  • S&P 500 futures +.54%.
  • NASDAQ 100 futures +.71%.
Morning Preview Links

Earnings of Note

  • (CMA)/.68
  • (NTRS)/.72
  • (BLK)/3.57
  • (AMTD)/.26
  • (JNJ)/1.39
  • (KO)/.44
  • (WWW)/.55
  • (USB)/.73
  • (GS)/3.87
  • (GWW)/2.75
  • (LLTC)/.43
  • (INTC)/.40
  • (CSX)/.40
  • (URI)/.48
  • (YHOO)/.25 
Economic Releases
8:30 am EST
  • The Consumer Price Index for March is estimated unch. versus a +.7% gain in February.
  • The CPI Ex Food & Energy for March is estimated to rise +.2% versus a +.2% gain in February.
  • Housing Starts for March are estimated to rise to 930K versus 917K in February.
  • Building Permits for March are estimated to fall to 942K versus 946K in February. 
9:15 am EST
  • Industrial Production for March is estimated to rise +.2% versus a +.7% gain in February.
  • Capacity Utilization for March is estimated to fall to 78.4% versus 79.6% in February.
  • Manufacturing Production for March is estimated to rise +.1% versus a +.8% gain in February.
Upcoming Splits
  • (TU) 2-for-1
  • (CRM) 4-for-1
Other Potential Market Movers
  • The Fed's Yellen speaking, Fed's Dudley speaking, Fed's Duke speaking, Fed's Kocherlakota speaking, Eurozone inflation data, Germany Zew Index, weekly retail sales data and the CIBC Energy Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open modestly higher and weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

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