Monday, December 30, 2013

Monday Watch

Weekend Headlines 
  • China’s Media Condemns Abe as Boycott Calls Grow on Weibo. Japanese Prime Minister Shinzo Abe’s visit to a war shrine drew condemnation from China’s state media as Chinese consumers took to social media to call for a boycott of Japan’s goods. “Japan has no future if it continues on its revisionist path,” the People’s Daily, the Communist Party mouthpiece, said in an editorial yesterday. The Global Times called for Abe and senior Japanese government officials who visited the Yasukuni Shrine in Tokyo to be barred from China. The China Daily said the pilgrimage was an “intolerable insult” and called for the country to reconsider the relationship with Japan in terms of security, diplomacy and the economy. An Internet survey on the Sina Weibo microblog service had respondents voting about three-to-one in support of a boycott of Japanese products. User comments include people urging a tougher stance against Japan to owners of Japanese-brand cars musing about the need to put up patriotic slogans to avoid vandalism.
  • Record Money Rate Set to Last on $18 Trillion Debt: China Credit. China's benchmark money-market rate will probably stay near a record in the coming quarter as policy makers seek to cut overall debt that a state-run researcher estimates has topped $18 trillion. The seven-day repurchase rate will average 4.5%, according to the median estimate of 11 analysts and traders in a Bloomberg survey. That's near the unprecedented 4.65% in the three months that started Oct. 1, and up from 3.2% in the first quarter. The average LIBOR for borrowing dollars for a week was .13% on Dec. 24. China needs to deleverage because total liabilities in the world's second-largest economy reached 111.6 trillion yuan($18.4 trillion) in 2012 and accounted for 215% of GDP, Li Yang, vice president of the Chinese Academy of Social Sciences government think tank, wrote in an article published in Shanghai Securities News last week.
  • China Warns Officials on Terror Attacks as Xi Shows Frugality. Chinese officials and police have been told to step up safety precautions in “key regions” and be on alert for terrorist attacks during the New Year and Spring Festival holidays amid ethnic tensions in Xinjiang. The order was given in a circular issued by the Communist Party Central Committee and the State Council, the Xinhua News Agency reported on Dec. 27. The document also reminded officials to avoid extravagance and reiterated a ban on the use of public funds for gift giving and entertainment
  • China Cash-for-Votes Scandal Shows Xi’s Graft Challenge. A cash-for-votes scandal in China’s southern city of Hengyang that snared more than 500 lawmakers underscores the challenges facing Xi Jinping as he enters his second year in charge of the world’s second-biggest economy. The unprecedented electoral fraud, which led to the resignations of almost the entire city People’s Congress, was disclosed on Dec. 28, less than a week after the ruling Communist Party issued a new plan to fight corruption and described the situation as “critical and complicated.” 
  • Abe Ends Year on Flagging Support, Needs Unified Cabinet. Japanese Prime Minister Shinzo Abe this month completed a year in office with public support falling to the lowest yet. Abe’s fortunes next year will ride in part on the ability of his top spokesman to keep the cabinet unified as the government pushes economic and military reform.
  • Asian Stocks Rise on Japan; Aussie Slips While Gas Gains. Asian stocks climbed, with Japan’s Nikkei 225 Stock Average poised for its biggest annual gain since 1972, as the yen touched a five-year low versus the dollar. Australia’s currency dropped, while natural gas rose. The MSCI Asia Pacific Index added 0.2 percent by 12:01 p.m. in Tokyo, gaining for a 10th day, as the Nikkei 225 rose 0.4 percent.
  • Rubber Falls, Extending Annual Decline as China Inventory Rises. Rubber futures fell in Tokyo, heading for a yearly loss, as growing stockpiles in China increased concern that demand may slow in the biggest buyer of the commodity used in tires. The contract for delivery in June on the Tokyo Commodity Exchange lost as much as 1 percent to 274.5 yen a kilogram ($2,605 a metric ton) before trading at 275.7 yen at 11:51 a.m. local time. Futures gained 2 percent this month while dropping 8.9 percent during volatile trading in 2013 that saw the material slump into a bear market in April and bounce back into a bull market in August
  • Rebar Climbs as Ore Prices Gain on Australian Supply Concern. Steel reinforcement-bar futures rose for a third day in Shanghai as prices of raw-material iron ore advanced on concern that Australian supplies will be disrupted. Rebar for May delivery on the Shanghai Futures Exchange gained as much as 0.4 percent to 3,628 yuan ($598) a metric ton and traded at 3,616 yuan at 10:03 a.m. local time.
  • Turkey’s Economic Vulnerability Exposed as Graft Divides. Turkey’s Prime Minister Recep Tayyip Erdogan enters the last week of 2013 reeling from a corruption probe that has splintered his party and highlighted economic vulnerabilities as investors unload the nation’s risk. Erdogan took his defense of his administration to the road over the weekend, addressing supporters at six election rallies and lashing out at prosecutors heading the graft investigation, which his Finance Minister Mehmet Simsek called a “soft coup.” Flyers for the ruling Justice and Development, or AK Party, say it’s in a “struggle for liberation” as it seeks a fourth term in power amid ambitions to lead the country to 2023.
  • Draghi Sees No ‘Immediate’ Need for More Rate Cuts, Spiegel Says. European Central Bank President Mario Draghi sees no need for further cuts to the institution’s benchmark rate amid “encouraging signs” that the euro crisis may be resolved, Der Spiegel reported, citing an interview. “At the moment we see no immediate need to act” on the main refinancing rate, the magazine cited Draghi as saying. “The crisis isn’t over, but there are many encouraging signs.” 
  • Volcker Rule Treatment of TruPS-Backed CDOs Getting U.S. Review. U.S. regulators said they are reviewing whether it would be “appropriate and consistent” with the Volcker Rule to allow exemption of some collateralized debt obligations backed by trust-preferred securities. The Federal Reserve, Federal Deposit Insurance Corp., Securities and Exchange Commission and Office of the Comptroller of the Currency will address the matter by Jan. 15, the agencies said in a statement yesterday.
Wall Street Journal:
  • Google(GOOG), Apple(AAPL) Forge Auto Ties. Consumer Electronics Show to Spotlight In-Car Digital Race. Technology giants Google Inc. and Apple Inc. are about to expand their battle for digital supremacy to a new front: the automobile. Next week at the Consumer Electronics Show in Las Vegas, Google and German auto maker Audi AG NSU.XE 0.00% plan to announcethat they are working together to develop in-car entertainment and information systems that are based on Google's Android software, people familiar with the matter said.
  • Reimbursement for Breast-Cancer Risk Test to Be Cut. The rate cut goes into effect on Jan. 1, 2014, with consequences for genetic-testing companies, particularly Myriad Genetics Inc.(MYGN), the dominant supplier of screenings for mutations in the genes known as BRCA1 and BRCA2. Medicare will pay a maximum of $1,440 for the BRCA test, a 48.5% decline from the rate of $2,795 it paid in 2013, according to a notice published Friday afternoon on the website of the Centers for Medicare and Medicaid Services.
  • Saudis Pledge $3 Billion to Support Lebanon's Army. Grant Seeks to Bolster Armed Forces Against Iranian-Backed Hezbollah. Saudi Arabia pledged $3 billion to bolster Lebanon's armed forces, in a challenge to the Iranian-allied Hezbollah militia's decadeslong status as Lebanon's main power broker and security force. Lebanese President Michel Sleiman revealed the Saudi gift on Lebanese national television Sunday, calling it the largest aid package ever to the country's defense bodies. The Saudi pledge compares with Lebanon's 2012 defense budget, which the Stockholm International Peace Research Institute put at $1.7 billion.
  • Patients Cram In Tests Before Health-Law Start. Some Top Hospitals and Experts Are Left Out of 2014 Plans Under Health Law. Thousands of people are cramming in tests, elective procedures and specialist visits before year's end, seeking out top research hospitals and physician groups that will be left out of some 2014 insurance plans under the new health law, health-care providers say. Many insurers offering plans under the law are slimming down their networks of doctors and hospitals in a bid to lower the cost of policies, which begin coverage Wednesday. Health insurers are especially focused on paring academic teaching and research hospitals from their networks because they generally charge more than community hospitals for similar services.
  • A Large New Tax on Small Business. The latest ObamaCare levy takes effect Jan. 1ObamaCare includes so many taxes that it's hard to keep track, but one of the worst takes effect on Jan. 1. This beaut is a levy on health insurance premiums that targets the small business and individual markets. At $8 billion in 2014 and $101 billion over the next decade, the insurance tax is larger than ObamaCare's taxes on medical devices and prescription drugs combined. The Internal Revenue Service classifies the tax as a "fee" but it functions like an excise tax on premiums. The IRS collects an annual flat amount specified by the Affordable Care Act to be allocated among the insurers according to market share. 
Fox News:
  • 'Completely false': Sources on ground in Benghazi challenge NYT report. Fifteen months after the Sept. 11 attack in Benghazi which killed Ambassador Chris Stevens and three other Americans, the narrative of the attack continues to be shaped, and reshaped, by politicians and the press. But a New York Times report published over the weekend has angered sources who were on the ground that night. Those sources, who continue to face threats of losing their jobs, sharply challenged the Times’ findings that there was no involvement from Al Qaeda or any other international terror group and that an anti-Islam film played a role in inciting the initial wave of attacks. “It was a coordinated attack. It is completely false to say anything else. … It is completely a lie,” one witness to the attack told Fox News. The controversial Times report has stirred a community that normally remains out of sight and wrestles with how to reveal the truth, without revealing classified information.
Zero Hedge:
Business Insider:
New York Times:
  • Markets on Edge as China Moves to Curb Risky Lending. China’s financial system is in danger of becoming too big to bail out. Official bank lending has more than doubled since the global financial crisis, growing nearly twice as fast as the overall economy. The even bigger problem, however, appears to come from the rise of a shadow banking system that has allowed a number of companies and individuals, often with political connections, to borrow from state-controlled banks at low interest rates and relend the money at much higher rates to private businesses desperate for credit at almost any price. 
Weekly Standard:
  • Times Ignores Evidence of Al Qaeda Link to Benghazi. Contradicts previous reporting from the New York TImes. While much of Kirkpatrick’s reporting is admirable and while these details add to our knowledge of certain aspects of the attack, they do not tell the whole story. And that’s where the piece ultimately fails.
The Blaze: 
  • Ex-CIA Analyst Absolutely Rips NYT Benghazi Report. A former analyst for the CIA skewered the New York Times’ bombshell report on Benghazi Saturday, contending that it was a “politicized article” aimed at harming the GOP. “I thought it was a politicized article,” Fred Fleitz told Fox News. “It tries to say that Anwar al-Sharia — that the Republican attempts to tie that to terrorism is a stretch, when even CNN says they’re at least sympathetic to Al Qaeda.”
  • Eurozone 'sleepwalking into a decades-long deflation trap’. World's largest bond fund Pimco says falling prices are the biggest risk to the currency bloc in the new year. The eurozone is “sleepwalking” its way towards a Japanese-style deflationary trap that could last decades, the world’s largest bond fund has warned.
Welt am Sonntag:
  • Merkel Adviser Says Germany May Revert Back to 'Sick Man'. Germany took steps this yr to become "sick man of Europe" again and many European countries are already more attractive for investment, citing Christoph Schmidt, head of Chancellor Angela Merkel's council of economic advisers. Germany pursuing switch to renewable energies by itself threatens competitiveness of its cos, citing Schmidt. Germany pursuing switch to renewable energies by itself threatens competitiveness of its companies, he said. Schmidt rejects CDU/SPD coalition plans to introduce minimum wage, expand welfare spending without freeing funds elsewhere. Germany stalling on own reforms will harm its credibility and negotiating position in combating euro crisis.
  • Bundesbank's Weidmann Says Euro Crisis May Return. While euro area is currently "in rehab," calm in financial markets may be deceiving, citing Bundesbank President Jens Weidmann. Euro countries need to stay on reform course; framework for solid state finances must be strengthened; financial markets/banks must be better regulated/supervised, citing Weidmann. Prolonged periods of low interest rates can lead to governments delaying necessary reforms, or to banks/companies without sustainable business models being kept alive artificially, Weidmann said. Periods of low interest rates can also lead to speculation about bubbles, for example in real-estate, citing Weidmann.
El Pais:
  • Spain Govt Needs to Carry Out More Reforms, Trichet Says. Spain needs to carry out more reforms as it still has problems to fix, former ECB President Jean-Claude Trichet says in an interview. Reforms carried out in Spain aren't enough, he said. The global crisis isn't over and the epicenter remains in Europe, Trichet said.
Weekend Recommendations
  • Bullish commentary on (KO), (WEN), (LORL) and (CKEC).
  • Bearish commentary on (EA).
Night Trading
  • Asian indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 127.50 +2.5 basis points.
  • Asia Pacific Sovereign CDS Index 103.25 +.5 basis point.
  • FTSE-100 futures -.03%.
  • S&P 500 futures -.04%.
  • NASDAQ 100 futures +.05%.
Morning Preview Links

Earnings of Note

  • (CALM)/1.30
Economic Releases 
10:00 am EST 
  • Pending Home Sales for November are estimated to rise +1.0% versus a -.6% decline in October.
10:30 am EST
  • Dallas Fed Manufacturing Activity for Dec. is estimated to rise to 2.0 versus 1.9 in November.
Upcoming Splits
  • (PZZA) 2-for-1
Other Potential Market Movers
  • The German retail sales report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

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