Monday, December 16, 2013

Monday Watch

Weekend Headlines 
  • Japan Tankan Signals Limited Spending as Headwind for Abe. Large Japanese businesses pared their projections for capital spending this fiscal year, signaling headwinds for Abenomics as a sales-tax increase looms in April. Big companies plan to boost spending by 4.6 percent in the year ending March 2014, a quarterly Bank of Japan report showed today. That compared with a 5.1 percent projection three months earlier.
  • China Manufacturing Index Unexpectedly Drops. A Chinese manufacturing index unexpectedly fell to a three-month low as output gains eased and employment weakened, suggesting the world’s second-largest economy is vulnerable to a slowdown. The preliminary reading of 50.5 for a Purchasing Managers’ Index (EC11CHPM) released today by HSBC Holdings Plc and Markit Economics compares with a final figure of 50.8 in November and the 50.9 median estimate in a Bloomberg News survey of 11 analysts
  • Baidu(BIDU) Forced to Add Warnings as Regulators Focus on China Stocks. U.S. and Hong Kong stock market regulators are demanding that Chinese companies provide investors more warnings about the risks of a legal structure commonly used to list those shares overseas. The scrutiny follows some little noticed legal developments in China over the past 18 months that show the contracts behind the foreign listings may not hold up in court. It also casts a spotlight on the risks inherent in some of the world’s most sought-after investments just as Alibaba Group Holding Ltd. prepares for what could be the biggest foreign listing of a Chinese Internet company. The U.S. Securities and Exchange Commission has pressed Beijing-based Baidu Inc. (BIDU), China’s No. 1 search engine, to make additional disclosures about its corporate structure, citing the potential for foreign owners to lose control.
  • Asian Stocks Decline Fourth Day Before Fed Policy Meeting. Asian stocks fell for a fourth day, poised for a three-month low, after a gauge of Chinese manufacturing fell and as investors awaited a Federal Reserve meeting starting tomorrow to gauge the timing of stimulus cuts. Toyota Motor Corp., Asia’s largest carmaker, slid 1.6 percent, leading losses among consumer-discretionary firms as the yen advanced against the dollar. Senex Energy Ltd. sank 7.8 percent after its A$752 million ($674 million) initial takeover proposal for AWE Ltd. was rejected by the oil and gas explorer. AWE shares surged 7.2 percent. Tokyo Electric Power Co. gained 1.4 percent on a report the government plans to double interest-free loans to the utility. The MSCI Asia Pacific Index lost 0.6 percent to 137.13 as of 11:40 a.m. in Hong Kong, heading for its lowest close since Sept. 9.
  • Aussie Falls Before RBA’s Stevens Speaks, Fed Meets This Week. Australia’s dollar fell ahead of Dec. 18 testimony from its central bank chief and a decision by the U.S. Federal Reserve on trimming stimulus. The Aussie dropped last week after Reserve Bank of Australia Governor Glenn Stevens marked out 85 U.S. cents as a level he’d prefer for the currency. Minutes of the RBA’s last policy meeting are due tomorrow and Stevens testifies at a parliamentary economics committee the following day. New Zealand’s currency gained versus Australia’s as a gauge of consumer confidence in the smaller nation rose to the highest level since 2009. 
  • Yen Gains From 5-Year Low Before Fed Starts Meeting; Euro Climbs. “We suspect that the best of the gains in dollar-yen from sub-80 up to above-100 are probably behind us,” Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney, said in an interview with Bloomberg Television.
  • Copper Drops From 6-Week High on China Data Before Fed Meeting. Copper fell for the first time in seven days as manufacturing data for China missed estimates and before a two-day Federal Reserve meeting starting tomorrow amid speculation that the U.S. central bank will cut stimulus. Metal for delivery in three months on the London Metal Exchange declined as much as 0.3 percent to $7,232.25 a metric ton and traded at $7,234.75 at 10:51 a.m. in Tokyo. The price touched $7,265.25 on Dec. 13, the highest intra-day level since Nov. 1
  • Rebar Rises First Time in Three Days as Steel Mills Cut Output. Steel reinforcement-bar futures in Shanghai advanced for the first time in three days as mills in China, the world’s biggest producer, reduced output. Rebar for May delivery on the Shanghai Futures Exchange rose as much as 0.5 percent to 3,694 yuan ($608) a metric ton, before trading at 3,693 yuan at 10:54 a.m. local time. The contract lost 0.7 percent last week.
  • Speculators Most Bullish Since October Before Drop: Commodities. Speculators got the most bullish on commodities since October, buying more gold, cotton and soybeans, before prices fell the most in six weeks on signs of surplus supply. The net-long position across 18 U.S.-traded commodities rose 8.9 percent to 677,505 futures and options in the week ended Dec. 10, the highest since Oct. 29, U.S. Commodity Futures Trading Commission data show. Gold wagers rose for the first time in six weeks. The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 1.3 percent last week, the most since Nov. 1.
  • White House Slowed Rules in Election Year, Advisory Body Says. The Obama administration last year took longer than normal to clear rules ranging from environment protection to food safety, a shift that an advisory body says may have been politically motivated. The Office of Information and Regulatory Affairs, which reviews significant federal rules before they are enacted, took an average 79 days to complete assessments in 2012 and 140 days in the first half of 2013, according to a report by the Administrative Conference of the United States, an independent federal agency dedicated to improving government operations. That compares with an average review period of 50 days for the 1994-2011 period, the agency said. “Several of the senior agency employees indicated that OIRA reviews took longer in 2011 and 2012 because of concerns about the agencies issuing costly or controversial rules prior to the November 2012 election,” according to the report, which cited interviews of 14 people at 11 cabinet departments and agencies that have experienced review delays.
Wall Street Journal: 
  • Investors Are Hungry for U.S. Corporate Bonds. Small Interest-Rate Spreads Compared With Treasurys Shows Confidence in Economy. Bond investors are showing the most confidence in corporate America since the financial crisis, underscoring expectations that the U.S. economy will keep rolling as the Federal Reserve prepares to trim monetary stimulus. Purchasers of corporate debt are demanding the smallest interest-rate premium to comparable government bonds since 2007. Demand has also put sales of new junk-rated corporate bonds in the U.S. on pace to surpass last year's record. Sales of investment-grade bonds in the U.S. this year are already at the highest ever, according to data provider Dealogic.
  • Saudi Royal Blasts U.S.'s Mideast Policy. A leading Saudi prince demanded a place for his country at talks with Iran, assailing the Obama administration for working behind Riyadh's back and panning other recent U.S. steps in the Middle East. Prince Turki al-Faisal, an Arab royal and a brother of Foreign Minister Saud al-Faisal, said Saudi Arabia and other Gulf states were stunned by the secret American-Iranian diplomacy that led to the breakthrough deal between Iran and other world powers last month. His comments in an interview with The Wall Street Journal, rare in their bluntness, came on the sidelines of a security conference here at which he publicly blistered the U.S. for its role in Syria and in the region. The Arab royal said the failure by Washington and the United Nations to take decisive steps to end the violence in Syria—which has claimed over 130,000 lives—bordered on "criminal negligence." 
  • Profit Warnings Send a Message. Ratio of Negative Guidance to Positive Is Highest Since 2006. Never accuse Wall Street analysts of being negative Nellies. From buy recommendations to earnings forecasts, they routinely set the bar too high when predicting outcomes far in the future. With the passage of time, though, it usually is lowered enough to keep the good cheer flowing after the fact, too. Three times as many companies produce positive earnings "surprises" as negative ones.
  • ObamaCare's Troubles Are Only Beginning. Be prepared for eligibility, payment and information protection debacles—and longer waits for care.  The White House is claiming that the website is mostly fixed, that the millions of Americans whose health plans were canceled thanks to government rules may be able to keep them for another year, and that in any event these people will get better plans through ObamaCare exchanges. Whatever the truth of these assertions, those who expect better days ahead for the Affordable Care Act are in for a rude awakening. The shocks—economic and political—will get much worse next year and beyond. Here's why:
  • China bubble fears return. Commentary: Watch for rise in shadow-bank lending. Last month’s Communist Party Plenum promised that Beijing was ready to introduce market forces. This might already be having an impact, albeit an unintended one. A combination of a rebound in shadow-bank lending, as well as renewed hot-money inflows, suggest capital is now responding to China’s market reforms.
Fox News:
  • Kerry comments add to mystery about rogue CIA agent missing in Iran. The intrigue over the rogue CIA agent last seen six years ago in Iran intensified Sunday with an accusation about a cover-up, Secretary of State John Kerry rejecting allegations the United States has abandoned the search and Iran distancing itself from the mystery.
  • Why Fed could rock market no matter what it does. No matter what the Federal Reserve does, traders expect a volatile week ahead. At its meeting Tuesday and Wednesday, the Fed is expected to discuss removing some of the extreme stimulus it has provided because the economy is improving and its continuous asset purchases may no longer be helping.
  • Ukrainians mass for new rally as EU halts trade deal. Thousands massed on Sunday for a rally against President Viktor Yanukovich just days before he heads for a meeting at the Kremlin which the opposition fears will slam the door on integration with the European mainstream.
Business Insider:
Consumer Reports: 

  • Europe faces moment of truth on banks, with flawed defences. Europe's banks face a moment of truth next year when health checks will spell out the repairs they need. The trouble is that fixing them could require cash-strapped governments to borrow more, often from the very banks that need their help. The European Union's efforts to break this "doom loop", in which frail banks and penurious states recycle the same money to prop each other up, are falling short.
  • Agriculture the most promising market for drones. Idaho farmer Robert Blair isn't waiting around for federal aviation officials to work out rules for drones. He and a friend built their own, outfitting it with cameras and using it to monitor his 1,500 acres. Under 10 pounds and 5 feet long nose to tail, the aircraft is the size of a turkey and Blair uses it to get a birds-eye view of his cows and fields of wheat, peas, barley and alfalfa.
Journal du Dimanche:
  • France Must Pursue Structural Reforms, ECB's Draghi Says. French competitiveness remains weak, recovery of public finances can no longer rely on tax increases, ECB President Mario Draghi says in an interview. France needs to regain fiscal stability for businesses to start investing again.
  • Spanish Opposition Leader Rejects Catalonia Vote. Alfredo Perez Rubalcaba, leader of Spain's main opposition Socialists, said his party will oppose the Catalan government's decision to hold a referendum on independence next year. "There is no right to self-determination, which is exactly what is being proposed with this vote," citing Rubalcaba.
Yonhap News:
  • South Korea Monitors Financial Markets Amid North Korea Risks. South Korean authorities will take steps to stabilize financial markets if sudden changes in North Korea's situation hurt domestic markets, citing a financial authority.
  • China Official Says Local Govt Property Push Is Worrying. China local governments' push for property market expansion is worrying, citing Li Tie, head of National Development and Reform Commission's China Center for Urban Development. Local governments placing their hopes on "cashing out" on property may lead to bubbles in third and fourth tier cities, Li said.
Weekend Recommendations
  • Bullish commentary on (EBAY).
  • Bearish commentary on (HLT).
Night Trading
  • Asian indices are -1.25% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 129.0 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 102.0 +.5 basis point.
  • FTSE-100 futures -.48%.
  • S&P 500 futures -.49%.
  • NASDAQ 100 futures -.45%.
Morning Preview Links

Earnings of Note

  • None of note
Economic Releases 
8:30 am EST 
  • Empire Manufacturing for December is estimated to rise to 5.0 versus -2.21 in November.
  • Final 3Q Non-Farm Productivity is estimated to rise +2.8% versus a +1.9% gain in 2Q.
  • Final 3Q Unit Labor Costs are estimated to fall -1.4% versus a -.6% decline in 2Q.
8:58 am EST
  • Preliminary Markit US PMI for December is estimated to rise to 55.0 versus a reading of 54.3 in November.
9:00 am EST
  • Net Long-Term TIC Flows for October are estimated to rise to $40.0B versus $25.5B in September.
  9:15 am EST

  • Industrial Production for November is estimated to rise +.6% versus a -.1% decline in October.
  • Capacity Utilization for November is estimated to rise to 78.4% versus 78.1% in October.
  • Manufacturing Production for November is estimated to rise +.4% versus a +.3% gain in October.
Upcoming Splits
  • (MDSO) 2-for-1
  • (BWA) 2-for-1
  • (FISV) 2-for-1
Other Potential Market Movers
  • The Eurozone Manufacturing PMI could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the week.

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