Wednesday, May 15, 2013

Wednesday Watch

Evening Headlines 
Bloomberg: 
  • Bank of France Touts Securitization Plan as Template for ECB. The Bank of France wants to help banks package loans to businesses into tradable securities with the creation of a special-purpose vehicles, in what could become a template for the euro area. As the European Central Bank looks for ways to improve the flow of credit to small and medium-sized enterprises, or SMEs, the project started by the French central bank in July last year could provide one possible solution, the head of its markets division, Alexandre Gautier, said in a telephone interview.
  • Save Europe: Split the Euro. On the eve of the American Civil War, Abraham Lincoln famously said that “a house divided cannot stand.” Today, the European Union -- committed for decades to the quest for “ever closer union” -- must confront an agonizing truth. Lincoln’s maxim must be inverted. For the EU to survive, the euro must divide. 
  • Li Signals Reluctance on Stimulus to Boost China Growth. Chinese Premier Li Keqiang signaled policy makers are reluctant to use stimulus to counter a slowdown in the world’s second-largest economy because the risks outweigh the benefits. “To achieve this year’s targets, the room to rely on stimulus policies or government direct investment is not big -- we must rely on market mechanisms,” Li said in a May 13 speech broadcast to officials around the country, according to a transcript published last night on the central government’s website. Relying on government-led investment for growth “is not only difficult to sustain but also creates new problems and risks,” he said. The comments indicate China may be unlikely to boost government spending or follow central banks across Asia in cutting interest rates as Li tries to pare the state’s role in the economy.
  • Hong Kong Home Prices at Record Gap to Sales. (graph) The gap between Hong Kong home prices and sales is the widest on record as new taxes, rising supply and the prospect of higher mortgage costs deter buyers in the world’s most expensive housing market. 
  • Asian Stocks Advances as Nikkei 225 Surges Above 15,000. Asian stocks rose as Japan’s Nikkei 225 Stock Average climbed above 15,000 for the first time since January 2008 after the yen touched a 4 1/2-year low against the dollar, boosting the earnings outlook for exporters. Sony Corp. surged 12 percent as billionaire Danie Loeb pushed for the initial public offering of the Japanese electronics maker’s entertainment business. Toyota Motor Corp. (7203), the world’s biggest carmaker, climbed 2.6 percent in Tokyo. Neptune Orient Lines Ltd. rose 1.8 percent in Singapore after Southeast Asia’s largest container-shipping company returned to profit in the first quarter. The MSCI Asia Pacific Index gained 0.8 percent to 143.16 as of 12:22 p.m. in Tokyo, with almost two shares rising for each that fell.
  • Rebar Falls With Iron Ore Prices Amid Concern China to Slow. Steel reinforcement-bar futures declined a second day on concern that China’s growth is slowing and as iron-ore prices dropped. Rebar for delivery in October on the Shanghai Futures Exchange fell as much as 0.7 percent to 3,607 yuan ($587) a metric tonand was at 3,617 at 10:15 a.m. local time. The most-active contract has retreated 9.3 percent this year
  • Rubber Falls as Oil Drop Lowers Costs for Synthetic Alternative. Rubber fell a second day after oil dropped to the lowest level in almost two weeks, increasing speculation that prices may weaken for synthetic products. Rubber for delivery in October lost as much as 1.6 percent to 283 yen a kilogram ($2,768 a metric ton) and was at 285.9 yen on the Tokyo Commodity Exchange at 10:44 a.m. Futures have lost 5.5 percent this year.
  • Death Cross on Lumber Chart Signals Decline: Technical Analysis. (video) Lumber prices, down 13 percent this year, may extend the slump to the lowest since October after moving averages formed a “death cross,” according to technical analysis by Paul Kavanaugh at FuturePath Trading LLC. The attached chart shows that on May 9, lumber’s 50-day moving average fell below the 100-day measure, often considered a bearish indicator to traders who follow price patterns. Yesterday, lumber futures for July delivery on the Chicago Mercantile Exchange tumbled 2.9 percent, the most in eight months. The price settled at $327.70 per 1,000 board feet, below the $329.10 close on Nov. 27, a key support, Kavanaugh said. “Lumber may be below $300 by the end of the month,” Kavanaugh, the director of business development at FuturePath in Chicago, said in a telephone interview. “The cross of the 50-and 100-day moving averages is validating the trend lower.” 
  • CFTC Said to Review Wall Street Banks for Off-Exchange Trades. The top U.S. derivatives regulator is seeking documents from Wall Street banks about trades that combine features of swaps and futures since the Dodd-Frank Act became law, according to two people briefed on the matter. The Commodity Futures Trading Commission made the request in a so-called special call for data on energy and metals trades since July 2010, when President Barack Obama enacted the rules overhaul including new derivatives measures, according to the people, who asked not to be named because the review isn’t public. The Financial Times, which reported on the CFTC’s probe earlier, said banks that received requests included JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) Spokespeople for all three banks declined to comment.
  • Iran-Based Hackers Traced to Cyber Attack on U.S. Company. A previously unknown hacking group believed to be based in Iran has started cyber attacks inside the U.S., according to Mandiant Corp., a security company that’s linked China’s army to similar activity. The Iranian group emerged within the last six months and has infiltrated the networks of at least one U.S. corporation, Richard Bejtlich, Mandiant’s chief security officer, said in an interview in Washington today. “You’re starting to see the Iranians get more active,” Bejtlich said. “We’ve got at least one case where we think it’s Iran, and we think what they are doing is trying to gain some experience on a live network.”
Wall Street Journal:
  • FBI Launches Probe of IRS. Treatment of Tea-Party Groups Eyed; Internal Review Blames Higher-Ups. Attorney General Eric Holder said Tuesday the Justice Department has opened a criminal probe of the Internal Revenue Service's treatment of tea-party groups, while an investigative report blamed the agency's managers for allowing the practices to continue for more than 18 months.
  • SEC Eyes Charles Schwab Exec For Top Post. Securities and Exchange Commission Chairman Mary Jo White is eyeing a Charles Schwab Corp. executive for a top post overseeing trading firms and stock exchanges, according to a person familiar with the talks. Ms. White is considering tapping Jeff Brown, who runs Schwab's Washington office, to potentially head the agency's trading and markets division, this person said. The two met privately to discuss the position last week. Mr. Brown declined to comment and an SEC spokesman declined to comment. The SEC unit has broad responsibilities, including overseeing the operations of stock exchanges, which are at the center of a debate over whether the speed and complexity of stock trading poses risks to markets more broadly
  • Your Next IRS Political Audit. The tax agency is getting vast new power in health care. Even as the politicized tax enforcement scandal expands, the Internal Revenue Service continues to expand its political powers thanks to the Affordable Care Act. A larger government always creates more openings for abuse, as Americans will learn when the IRS starts auditing their health care in addition to their 1040 next year.
Fox News:
  • Lawmakers say IRS targeted dozens more conservative groups than initially believed. The IRS targeting of conservative groups is far broader than first reported, with nearly 500 organizations singled out for additional scrutiny, according to two lawmakers briefed by the agency. IRS officials claimed on Friday that roughly 300 groups received additional scrutiny. Reps. Darrell Issa, R-Calif., and Jim Jordan, R-Ohio, said Tuesday that the number has actually risen to 471. Further, they said it is "unclear" whether Tea Party and other conservative groups are being targeted to this day. The lawmakers disclosed the additional information in a letter Tuesday to Lois Lerner, the IRS official who first disclosed the inappropriate practice. They sent the letter as a highly anticipated watchdog report was released, finding "inappropriate" action at the IRS. The Republican congressmen also revealed that the IRS itself determined their effort was biased against conservatives more than a year ago.
MarketWatch.com: 
CNBC: 
  • Nikkei Getting 'Bubbly,' Correction Coming: Mr Yen. (video) Japanese equities have risen a "bit too fast" and appear to be somewhat "bubbly," according to the former vice finance minister of Japan, Eisuke Sakakibara, as the Nikkei crossed the key 15,000 level for the first time since 2008 on Wednesday. "The movement of equity prices seems to be somewhat bubbly - there will be some corrections in the equity market in the months to come probably by the summer," Sakakibara told CNBC Asia's "Squawk Box" when asked about the negative consequences of "Abenomics" - Prime Minister Shinzo Abe's aggressive policies to reflate the economy. 
  • China’s Corporate Debt Market Set to Challenge US. China is forecast to surpass the U.S. as the world's largest corporate debt market for non-financial companies in the next two years, according to a report from Standard & Poor's. The rating agency expects the debt needs of companies in China to reach upwards of $18 trillion by the end of 2017, accounting for a third of the forecast $53 trillion in new debt and refinancing needs of global companies in the next five years. Debt includes bank loans and bonds and is drawn from public information collated by S&P.
  • Australia the Next Euro Zone? Maybe. A higher than expected deficit figure revealed in Australia's budget on Tuesday has raised concerns that the country could follow in the same path as the highly indebted euro zone, said one expert. According to John Daley, CEO of the Australian think tank the Grattan Institute, Australia's economy is facing a "very real danger" of following down the same path as Europe and words like austerity have come into the vocabulary of economic commentators.
Zero Hedge: 
Business Insider: 
The Blaze:
USA Today: 
  • IRS approved liberal groups while Tea Party in limbo. In February 2010, the Champaign Tea Party in Illinois received approval of its tax-exempt status from the IRS in 90 days, no questions asked. That was the month before the Internal Revenue Service started singling out Tea Party groups for special treatment. There wouldn't be another Tea Party application approved for 27 months. In that time, the IRS approved perhaps dozens of applications from similar liberal and progressive groups, a USA TODAY review of IRS data shows.
Reuters:
  • Japan PM Abe: Closely watching JGB market movements. Japanese Prime Minister Shinzo Abe said on Wednesday that the government was closely watching movements in the bond market to ensure that it could digest Japanese government bonds in a stable manner. 
Financial Times:
  • JPMorgan(JPM) investors take heat off Dimon. Some of JPMorgan Chase’s largest shareholders are sparing Jamie Dimon but voting against other directors in a contentious ballot on the board of the largest US bank, according to people familiar with the matter.
DAF-German Investor Television:
  • Ex-ECB's Issing Says German Euro Exit 'No Alternative'. Former ECB Chief Economist Otmar Issing said Germans need to be convinced that everything needs to be done to remain in the euro, citing an interview.
Economic Information Daily:
  • China 1H Power Use May Rise 5.5%-6.5% Y/Y. China's economy currently faces "relatively large" downward pressure, citing Ouyang Changyu, deputy secretary-general at the China Electricity Council.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 102.0 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 82.25 +.25 basis point.
  • FTSE-100 futures +.38%.
  • S&P 500 futures -.06%.
  • NASDAQ 100 futures +.01%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (M)/.53
  • (DE)/2.72
  • (CSC)/1.00
  • (CSCO)/.49
  • (JACK)/.31
  • (DDS)/2.09 
Economic Releases
8:30 am EST
  • Empire Manufacturing for May is estimated to rise to 4.0 versus 3.05 in April.
  • The Producer Price Index for April is estimated to decline -.6% versus a -.6% decline in March.
  • The PPI Ex Food & Energy for April is estimated to rise +.1% versus a +.2% gain in March.
9:00 am EST
  • Net Long-Term TIC Flows for March are estimated at $35.0B versus -$17.8B in February.
9:15 am EST
  • Industrial Production for April is estimated to fall by -.2% versus a +.4% gain in March.
  • Capacity Utilization for April is estimated to fall to 78.3% versus 78.5% in March.   
  • Manufacturing Production for April is estimated to rise +.1% versus a -.1% decline in March.
10:00 am EST
  • The NAHB Housing Market Index for May is estimated to rise to 43.0 versus 42.0 in April.  
 10:30 am EST
  •  Bloomberg consensus estimates call for a weekly crude oil inventory build of +450,000 barrels versus a +230,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,100,000 barrels versus a -910,000 barrel decline the prior week. Distillate inventories are estimated to rise by +475.000 barrels versus a +1,812,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a +2.6% gain the prior week.
Upcoming Splits
  • (CL) 2-for-1
  • (AOS) 2-for-1
Other Potential Market Movers
  • The Eurozone GDP report, BoE inflation report, IAEA/Iran meeting, Japan GDP report, weekly MBA mortgage applications report and the BofA Merrill Transport Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly higher and weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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