Thursday, December 05, 2013

Friday Watch

Evening Headlines 
  • Kuroda $235,000 Salary Highlights Goldman Concern. The central bank chief’s pay is about 24 million yen ($235,000) for the year ending March 31, down from an inflation-adjusted 39 million yen in fiscal 1998, based on a BOJ statement on Nov. 29. Swaps signal an average inflation rate of 1.2 percent over the coming five years, compared with 2.03 percent in the U.S. and 1.38 percent in the euro zone. Japan’s cost of living rose in October by the most in five years even as salaries extended declines from June 2012, threatening to derail Prime Minister Shinzo Abe’s efforts to sustain a recovery in the world’s third-largest economy.
  • Japan Economy Chief Amari Faces Surgery With Reforms Undone. Japan’s economy chief will undergo surgery for cancer as soon as next week, casting a cloud over the future of a politician charged with crafting plans to revamp industrial regulation and liberalize trade rules. Akira Amari, 64, told reporters in Tokyo yesterday that he has been diagnosed with an early stage of tongue cancer, and submitted his resignation only to see Prime Minister Shinzo Abe reject it. Amari has served as Abe’s point man for the growth-strategy pillar of the government’s campaign to end two decades of economic stagnation. 
  • China Reforms Seen Adding Less Than Half Point to Growth. China’s broadest economic reforms since the 1990s will add less than half a percentage point to annual growth this decade, a survey showed, underscoring the likelihood of a cut in the nation’s expansion target. Fourteen of 19 economists see policies from a Communist Party summit last month boosting gross domestic product either by a negligible amount or less than 0.5 percent a year compared with their previous outlook, according to the Bloomberg News survey.
  • China Swap Rate Rises Most This Week Since June as Cash Drained. China’s interest-rate swaps rose the most since June this week as the central bank drained funds from the banking system, and on speculation the government will speed up the process of relaxing controls on borrowing costs. The People’s Bank of China withdrew a net 47 billion yuan ($7.7 billion) this week, after injecting 17 billion yuan last week. It suspended sales of 14-day reverse-repurchase agreements yesterday after conducting the operation for two weeks. The PBOC said in a Dec. 2 statement that financial institutions in a free trade zone in Shanghai will get priority in issuing large-denomination negotiable certificates of deposit. The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repo rate, climbed 26 basis points, or 0.26 percentage point, this week to 4.78 percent as of 10:36 a.m. in Shanghai, data compiled by Bloomberg show. That’s the biggest increase since June 21. It advanced one basis point today. The cost of the five-year swap rose to a record 4.94 percent.
  • China’s Stocks Fall Most in Three Weeks as Coal Shares Decline. China’s stocks fell the most in three weeks, led by coal and financial shares, as money-market rates climbed before trade data. Environmental-protection stocks rose as record-high levels of pollution in Shanghai forced health warnings and cancelled flights. China Shenhua Energy Co., the biggest coal producer, slid the most in six weeks. Citic Securities Co. and Haitong Securities Co., the two largest brokerages, sank more than 3 percent after rallying earlier this week on regulators’ plan to resume initial public offerings. Fujian Longking Co., which makes pollution control equipment, rallied 2.1 percent. The Shanghai Composite Index (SHCOMP) slipped 0.6 percent to 2,233.30 at the 11:30 a.m. break, heading for the biggest loss since Nov. 13 and paring this week’s gain to 0.6 percent.
  • Asian Stock Swing From Gains to Losses on Fed Stimulus. Asian stocks swung between gains and losses, with the regional benchmark index set for its biggest weekly drop since August, as improving U.S. economic data fueled speculation the Federal Reserve may bring forward stimulus cuts. Qantas Airways Ltd. dropped 1.2 percent, adding to yesterday’s 11 percent drop, after Standard & Poor’s cut its credit rating on Australia’s largest carrier to junk status. Nufarm Ltd. slid 1.1 percent in Sydney after Credit Suisse Group AG cut its rating on the supplier of farm chemicals. Advantest Corp. jumped 6.3 percent on a newspaper report that cost cuts by the Japanese maker of semiconductor equipment helped reduce its break-even point. The MSCI Asia Pacific Index added 0.1 percent to 139.69 as of 11 a.m. in Tokyo, after falling 0.1 percent.
  • Rubber Pares Weekly Gain as Strong Yen, Tapering Bets Cut Appeal. Rubber pared a second weekly advance on speculation that improving U.S. economic data may bring forward stimulus cuts while a strengthening Japanese currency reduced the appeal of yen-based contracts. Futures for delivery in May on the Tokyo Commodity Exchange lost as much as 1.4 percent to 270.5 yen a kilogram ($2,656 a metric ton) before trading at 273.4 yen at 11:20 a.m. local time
  • China Rebar Heads for Third Weekly Gain as Iron Ore Cost Rises. Steel reinforcement-bar futures in Shanghai headed for a third weekly advance after iron ore prices rallied to the highest in almost four months. Rebar for May delivery, the most-active contract on the Shanghai Futures Exchange, traded little changed at 3,691 yuan ($606) a metric ton at 10:41 a.m. local time.
  • German Wage Accord Seen Risking Job Cuts That Foil Aims. Germany’s nationwide minimum wage to be introduced by Chancellor Angela Merkel’s third-term coalition risks killing jobs while failing to narrow income inequality, German economists say. The 8.50 euro ($11.55) per hour wage floor set in her governing pact with the Social Democrats “would not even out inequalities in the disposable incomes of private households or significantly reduce poverty,” according to the Berlin-based DIW economic institute. A potential increase in unemployment will depend on exceptions to the general rule, it said.
  • Two Regional Fed Presidents Call for Timetable for Tapering QE. Two Federal Reserve regional bank presidents who have disagreed on the need for additional easing said any decision to taper bond buying should be accompanied by a limit on the size of the program or a timetable for ending it. “If and when the FOMC arrives at a decision to wind down asset purchases, it’s my view that it will be helpful to the transition process to provide as much certainty as possible about how this will be done,” said Atlanta Fed President Dennis Lockhart, referring to the Federal Open Market Committee, in a speech in Fort Lauderdale, Florida. He has backed record stimulus and won’t vote on policy until 2015. 
  • Citi(C), Wells Fargo(WFC) Sued by L.A. for Discriminatory Lending. Citigroup Inc. and Wells Fargo & Co. were accused of discriminatory mortgage lending by the city of Los Angeles, which seeks damages for reduced property tax revenue and the costs of maintaining foreclosed properties. The city filed complaints against both banks today in federal court in Los Angeles. Citigroup and Wells Fargo have been engaged in discriminatory lending to minority borrowers since at least 2004, which placed the borrowers in loans they couldn’t afford and caused a high number of foreclosures in minority neighborhoods, Los Angeles said.
Wall Street Journal: 
  • Nelson Mandela Dies at 95. Nelson Mandela, who rose from militant antiapartheid activist to become the unifying president of a democratic South Africa and a global symbol of racial reconciliation, died at his Johannesburg home following a lengthy stay at a Pretoria hospital, the government said Thursday. He was 95. In a state television address, President Jacob Zuma said Mr. Mandela had died that evening after a long illness. "Our nation has lost its greatest son. Our people have lost a father," said Mr. Zuma, dressed in a dark jacket and reading his statement in deep somber tones. "Although we knew that this day would come, nothing can diminish our sense of a profound and enduring loss."
  • Volcker Rule to Require CEOs Guarantee Compliance. Decision Marks Latest Setback for Wall Street Firms. The Volcker rule will require bank executives to guarantee their firms are in compliance with the regulation, said people familiar with the rule, another setback for Wall Street firms that lobbied against such a requirement. The inclusion of so-called CEO attestation is intended to help increase accountability at firms by ensuring that top executives know what types of trades are occurring at their firms, these people said.
Zero Hedge: 
Passauer Neue Presse:
  • Schaeuble Says Interest Rates Too Low for Germany. Interest rates are too low for Germany over the long term, citing German Finance Minister Wolfgang Schaeuble as saying in an interview. Sees too much liquidity in global markets.
Yonhap News:
  • N. Korea seen expanding activity in Yongbyon nuclear site. North Korea seems to be notably expanding activities at its main nuclear complex in Yongbyon, a U.S. think tank said Thursday, based on analysis of new satellite imagery. The revelation adds to worries that the communist nation may be turning back to a provocation cycle after months of unanswered peace overtures towards Washington.
  • Japan DPJ Considers No-Confidence Motion Against Cabinet. The opposition Democratic Party of Japan is considering submitting a no-confidence motion against Prime Minister Shinzo Abe's Cabinet to the lower house of parliament.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 137.0 +2.5 basis points.
  • Asia Pacific Sovereign CDS Index 110.0 -1.0 basis point. 
  • FTSE-100 futures +.16%.
  • S&P 500 futures +.21%.
  • NASDAQ 100 futures +.14%.
Morning Preview Links

Earnings of Note

  • (AEO)/.18
  • (GCO)/1.38
Economic Releases
8:30 am EST
  • The Change in Non-Farm Payrolls for November is estimated to drop to 185K versus 204K in October.
  • The Unemployment Rate for November is estimated at 7.2% versus 7.3% in October.
  • Average Hourly Earnings for November is estimated to rise +.2% versus a +.1% gain in October.
  • Personal Income for October is estimated to rise +.3% versus a +.5% gain in September.
  • Personal Spending for October is estimated to rise +.2% versus a +/2% gain in September.
  • The PCE Core for October is estimated to rise +.1% versus a +.1% gain in September.
  9:55 am EST
  • Preliminary Univ. of Mich. Consumer Confidence for December is estimated to rise to 76.0 versus 75.1 in November.
3:00 pm EST
  • Consumer Credit for October is estimated at $14.55B versus $13.737B in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Evans speaking, Fed's Plosser speaking, German Factory Orders report, (ITW) annual meeting and the (ADT) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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