Wednesday, April 17, 2013

Wednesday Watch

Evening Headlines 
  • Europe’s Future Central Bankers Confront Draghi’s Policy Dilemma. Europe’s central bankers of tomorrow already know how hard Mario Draghi’s job is. High school students from across the euro area spent the past six months analyzing the state of the 17-nation economy and preparing proposals on how Draghi’s European Central Bank should respond to the region’s debt crisis. The winners of the second annual “Generation Euro Students’ Award” will attend an awards ceremony hosted by Draghi in Frankfurt today. “There is no clear solution,” Alejandro Goffa Martinez, a winning student at IES Josep Sureda i Blanes school in Palma de Mallorca, Spain, said in an interview. “The lack of credit is decisive because credit is the mechanism that is essential for growth. Lowering interest rates even more wouldn’t really help.” 
  • Cleaning ‘Toxic’ Assets Slovenia’s Primary Concern, Moody’s Says. Quickly cleaning up Slovenian banks and transferring “toxic” assets to a new institution designed to deal with them should be the government’s main goal, Moody’s Investors Service said. Slovenia, the euro-area’s fourth-smallest economy, is trying to avoid becoming the currency-region’s sixth member to seek a bailout after international lenders agreed to help Cyprus. The Cabinet is offering 500 million euros ($657 million) in 18-month Treasury bills today as it tries to raise confidence that it can recapitalize banks without seeking outside aid. While Slovenia’s situation isn’t as bad as Cyprus, the “trends are certainly negative,” Jaime Reusche, a sovereign- debt analyst at the ratings company, said in an April 15 interview in Prague.
  • Monte Paschi Prosecutors Seek Seizure of $2.4 Billion. Prosecutors in Italy are seeking to seize 1.8 billion euros ($2.4 billion) of assets from Nomura Holdings Inc. (8604) as part of an investigation into Banca Monte dei Paschi di Siena SpA’s use of derivatives to hide losses. Sadeq Sayeed, Nomura’s former European head, and Raffaele Ricci, a managing director in fixed-income sales, are also being probed for colluding to obstruct regulators and making false statements, prosecutors in Siena, where the bank is based, said in a statement yesterday. They are also sequestering 14.4 million euros of assets from three former Monte Paschi managers already under investigation, including Chairman Giuseppe Mussari, General Manager Antonio Vigni and finance chief Gianluca Baldassarri.
  • China Set to Deepen N. Korea Ties as Yalu River Bridge Rises. Across the Yalu River dividing China and North Korea, towers that will support a sleek suspension bridge rise south of one that U.S. bombers targeted during the Korean War to prevent China from supplying its ally. The bridge into the northeastern Chinese city of Dandong, set to open next year, is a bet that trade will swell even as the U.S. pressures Communist Party leaders to exert economic leverage on the North to abandon its nuclear program. Secretary of State John Kerry said last week China needs to “put some teeth” into restraining Kim Jong Un’s regime
  • Bird Flu Fears Mount in China as Herbal Remedies Run Out. A popular herb called ban lan gen, or blue root, has been flying off pharmacy shelves across China as local governments encourage people to consider traditional remedies to ward off the latest bird flu virus. With scientists so far unable to pinpoint the H7N9 influenza virus’ animal host, locals are preparing for a possible pandemic by stocking up on popular plant remedies as well as face masks and hand sanitizers and other over-the- counter remedies.
  • China’s Stocks Drop, Led by Banks; Moutai Rises Before Earnings. Chinese stocks fell, led by banks, on speculation new lending will slump this month. China Minsheng Banking Corp. (600016), the nation’s first privately owned bank, slid 2.6 percent after the China Securities Journal said new lending may slide to 800 billion yuan ($129.4 billion) this month. “China’s banks will suffer from falling demand for loans as the old growth model of relying on investment cannot be sustained,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages $120 million.
  • Asia Stocks Gain First Day in Three. Asian stocks advanced for the first time in three days as new-home construction in the U.S. jumped more than forecast, the International Monetary Fund raised its forecast for Japanese growth and the yen weakened.
  • Hog Glut Gains as U.S. Exports Drop Most in Decade: Commodities. U.S. hog farmers are poised to produce a record amount of pork at a time when exports are slumping the most in more than a decade, prolonging a global glut into a fifth consecutive year. The 10.66 million metric tons produced will be the most since at least 1970, the U.S. Department of Agriculture estimates. Exports fell 14 percent in the first two months, the most for the period in government data since 2000. Futures may drop 19 percent to 72 cents a pound by the end of the year on the Chicago Mercantile Exchange, based on the median of nine trader and analyst estimates compiled by Bloomberg. 
  • Rebar Near Lowest in Four Months as Iron Ore Price Declines. Steel reinforcement-bar futures fell to near the lowest level in more than four months as the price of iron ore, used to make the building material, fell. The contract for delivery in October on the Shanghai Futures Exchange dropped as much as 0.8 percent to 3,722 yuan ($603) a metric ton and traded at 3,727 yuan at 10:40 a.m. local time. 
  • Rubber Heads for Five-Month Low as China Demand Seen Faltering. Rubber declined for a fourth day, heading for a five-month low reached yesterday, on concerns that a slowing economy and rising inventories in China, the biggest buyer, will reduce demand for the commodity used in tires. The contract for delivery in September lost as much as 1.2 percent to 254.5 yen a kilogram ($2,590 a metric ton) on the Tokyo Commodity Exchange, before trading at 255.7 yen by 11:28 a.m. local time. Futures, which lost 7 percent in the past three days, plunged to 247 yen yesterday, the lowest since Nov. 15.
  • Reid: Letter to U.S. Senator Containing Ricin Found. Postal officials intercepted a letter sent to a U.S. senator from Mississippi that contained poisonous ricin, with lawmakers learning of the incident as they were being briefed on yesterday’s bombings at the Boston Marathon. Investigators have identified a suspect in the mailing, a person who “writes to a lot of members,” Senator Claire McCaskill, a Missouri Democrat, told reporters. The letter was postmarked from Memphis, Tennessee, and tested positive for ricin, Senate Sergeant-at-Arms Terrance Gainer said in an e- mail. Authorities have “no indication” of any other suspicious letters, he said. Still, the timing of the letter’s discovery following the Boston bombings evoked memories at the Capitol of anthrax mailings that targeted lawmakers in 2001
Wall Street Journal: 
  • Boston Bomb Clues Surface. Lethal Devices Believed Built From Pressure Cookers; Hotels, Rentals Canvassed. Authorities investigating the Boston Marathon blasts that killed three and injured more than 175 believe the two bombs were assembled from household pressure cookers, a crude but effective explosive that has been thwarted before in U.S. terror plots. Investigators are exploring whether the bombs were assembled not far from the scene of Monday's horrific explosions since transporting such improvised devices over any significant distance could trigger a premature detonation, according to a law-enforcement official with knowledge of the matter.
  • Firms Pinch Payments to Suppliers. Procter & Gamble Co.(PG) is planning to add weeks to the amount of time it takes to pay its suppliers, a shift that could free up as much as $2 billion in cash for the consumer products giant, people familiar with the matter said. P&G could use that cash to fund investments in new factories overseas or to help pay for stock buybacks. That added flexibility, however, will come at the expense of the companies that supply P&G with materials or services. The suppliers will have to tie up more of their own cash in receivables or eat the interest costs charged by banks to bridge the gap until P&G pays its bills.
  • Reinhart-Rogoff Response to Critique. A new paper by Thomas Herndon, Michael Ash and Robert Pollin calls into question research on public debt and its effects on growth by Harvard University economists Carmen Reinhart and Kenneth Rogoff. This is their response:
Fox News:
  • FBI, Boston police say range of suspects, motives remains 'wide open'. The FBI and state and local police are intensifying their probe into Monday's bombing at the finish line of the Boston Marathon, vowing a "worldwide investigation" and appealing to the public for tips and cellphone pictures that might yield clues about who was behind the horrific attack. "At this time there are no claims of responsibility," FBI officials said in a press conference Tuesday. "The range of suspects and motives remains wide open." 
  • China Local Authority Debt 'Out of Control'. A senior Chinese auditor has warned that local government debt is "out of control" and could spark a bigger financial crisis than the U.S. housing market crash. Zhang Ke said his accounting firm, ShineWing, had all but stopped signing off on bond sales by local governments as a result of his concerns. "We audited some local government bond issues and found them very dangerous, so we pulled out," said Mr. Zhang, who is also vice-chairman of China's accounting association. "Most don't have strong debt servicing abilities. Things could become very serious." The International Monetary Fund, rating agencies and investment banks have all raised concerns about Chinese government debt. But it is rare for a figure as established in the Chinese financial industry as Mr. Zhang to issue such a stark warning
Zero Hedge: 
Business Insider: 
USA Today: 
  • Bond guru Gundlach calls for investors to get defensive. Jeffrey Gundlach is warning investors against joining the stampede of euphoria overwhelming the stock market, making him a startling contrast to the bulls pushing stocks markets higher. During a meeting with money managers in the Los Angeles, the head of money management firm DoubleLine Capital cautioned many bets investors are making based on aggressive actions by central banks around the world may backfire. Chasing stocks and avoiding relatively safe government bonds, an increasingly popular trade, will likely not result in a happy ending.
  • EU trade chief seeks backing to investigate China's Huawei, ZTE - diplomats. The European Union's trade chief will seek the backing of EU states to investigate Chinese telecoms equipment makers Huawei and ZTE, even without a complaint from European manufacturers, EU diplomats said on Tuesday. The European Commission, the EU's executive body, has been collecting evidence to prepare a possible case against Huawei and ZTE over state subsidies it says allows the companies to undercut European firms.
  • U.S. Republicans press Fed on when regulators can break up a bank. U.S. Republican lawmakers on Tuesday pressed a Federal Reserve official on how to tell if any banks pose a "grave threat" to the financial system, a finding that would allow regulators to take drastic steps such as forcing a bank to sell assets. The 2010 Dodd-Frank financial oversight law gives the Federal Reserve authority to impose tough restrictions on individual firms it feels could shatter the financial system. But this authority could create uncertainty in financial markets if regulators do not explain what types of threats could trigger the tougher oversight, Republican members of a U.S. House of Representatives subcommittee said on Tuesday.
  • Rate spike may lead to US muni 'Armageddon'-SEC member. Investors in the $3.7 trillion U.S. municipal bond market could soon face an "Armageddon" if interest rates spike, a member of the Securities and Exchange Commission said on Tuesday. Commissioner Dan Gallagher told a roundtable of market participants hosted by the SEC that recent bankruptcies in California pose the threat of losses to bondholders. "You tack that on to rising interest rates and we've got a real Armageddon on our hands here," he said.
  • CSX(CSX) profit rises despite coal struggles. CSX Corp, the No. 2 U.S. railroad, said on Tuesday that quarterly profit rose as it cut expenses and saw shipment volumes of some merchandise rise, helping the company fight a still-weak coal business.
  • China Should Be Vigilant About Financial Overheating. Main challenge for the Chinese economy is how to convert to sustainable and consumption-driven growth, citing Jorg Decressin, the deputy director of the IMF's research department, as saying. Emerging economies should prevent capital inflow risks, he said.
China Securities Journal:
  • Foreign investors may continue to short Chinese banks, citing an unidentified person from PE industry in city of Chenzhen.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 114.50 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 90.75 -2.5 basis points.
  • FTSE-100 futures +.05%.
  • S&P 500 futures -.33%.
  • NASDAQ 100 futures -.28%.
Morning Preview Links

Earnings of Note

  • (PNC)/1.56
  • (DGX)/1.03
  • (ABT)/.41
  • (MAT)/.08
  • (BK)/.52
  • (TXT)/.45
  • (BAC)/.23
  • (DOV)/1.08
  • (STJ)/.91
  • (PJC)/.51
  • (SNDK)/.79
  • (AXP)/1.12
  • (KMI)/.32
  • (EBAY)/.62
  • (STLD)/.21 
Economic Releases
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,200,000 barrels versus a +250,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -800,000 barrels versus a +1,699,000 barrel build the prior week. Distillate inventories are estimated to fall by -350,000 barrels versus a -169,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a +.5% gain the prior week.
2:00 pm EST
  • The Fed's Beige Book.
Upcoming Splits
  • (TU) 2-for-1
  • (CRM) 4-for-1
Other Potential Market Movers
  • The Fed's Stein speaking, Fed's Bullard speaking, Fed's Rosengren speaking, China property price data, Bank of Canada rate decision, weekly MBA mortgage applications report and the BoE minutes could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and automaker shares in the region. I expect US stocks to open mixed and weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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