Wednesday, December 11, 2013

Wednesday Watch

Evening Headlines 
  • China Drugmakers Face U.S. Scrutiny on Investigator Bump. U.S. regulators are more than tripling to 27 the number of workers they’ll have in China to inspect pharmaceutical plants and products, a move that may spur a wave of enforcement similar to what’s happening in India.
  • Riot Exposes Dark Side of Singapore's Boom. From all appearances, Singapore seems to have dealt with the nation’s first riot since 1969 with its usual efficiency. The streets of Little India -- where an Indian migrant worker was killed by a bus on Sunday night, sparking two hours of mayhem -- have been cleared of debris. The government has called for a commission to investigate the incident, and has charged 24 Indian nationals with rioting. Officials have banned the sale of alcohol in the area this weekend. Citizens have been instructed to remain calm.
  • HSBC Sells 8% Stake in Bank of Shanghai to Spain’s Santander. (graph) HSBC Holdings Plc (HSBA), Europe’s largest bank, agreed to sell its 8 percent stake in Bank of Shanghai Co. to Banco Santander SA (SAN) as it exits minority investments to boost profitability. HSBC didn’t disclose a price for the shareholding valued at about $468 million on its balance sheet, according to a statement from the London-based bank yesterday. The lender paid about $63 million in 2001 for the stake. 
  • China’s Stocks Drop Most in Month as Coal Shares Pace Declines. China’s stocks fell, sending the benchmark index towards its biggest loss in a month, as investors assess the outcome of a high-level government meeting that will decide economic policies for next year. China Shenhua Energy Co. (601088) and China Coal Energy Co., the biggest coal producers, dropped 1.5 percent after the nation’s economic planner announced measures to curb consumption of the fuel next year because of worsening air pollution. Citic Securities Co. (600030), China’s biggest listed brokerage, slid 3.4 percent. Shanghai Waigaoqiao Free Trade Zone Development Co. plunged 4.1 percent, paring this year’s rally to 273 percent. All 10 industry groups in the CSI 300 Index declined. The Shanghai Composite Index (SHCOMP) dropped 1.1 percent to 2,211.88 at 11:30 a.m. local time, heading for the biggest loss since Nov. 13.
  • Asian Stocks Slide With Metals as Yen Extends Advance. Asian stocks fell for the first time in three days and precious metals declined as investors weighed the outlook for a paring of Federal Reserve stimulus after American lawmakers unveiled a budget deal. The yen gained versus major peers. The MSCI Asia Pacific Index slid 0.8 percent as of 12:55 p.m. in Tokyo, with Japan’s Topix (TPX) index retreating 1 percent as the yen rose against the euro and the dollar.
  • Rebar Falls for Second Day as Weaker China Data Spurs Selling. Steel reinforcement-bar futures declined from the highest level in almost two months as weaker-than-estimated factory output in China spurred selling. Rebar for May delivery, the most-active contract on the Shanghai Futures Exchange, dropped as much as 0.7 percent to 3,691 yuan ($608) a metric ton and traded at 3,697 yuan at 10:05 a.m. local time.
  • EU Finance Chiefs Lay Down Red Line on Creditor-Writedown Rules. European Union finance ministers said they won’t accept any weakening of planned rules for creditor writedowns at failing banks, potentially hampering compromise talks with the European Parliament. German Finance Minister Wolfgang Schaeuble and his Dutch counterpart, Jeroen Dijsselbloem, were among those to urge a tough line on a bill called the Bank Recovery and Resolution Directive, or BRRD, ahead of negotiations tomorrow in Strasbourg, France. Lithuania, which holds the rotating presidency of the EU, is seeking to strike a deal with EU lawmakers on the legislation as a foundation for further measures to centralize decision taking for stricken banks.
  • Volcker Rule Seen as Boon for $1,000-an-Hour Wall Street Lawyers. For Wall Street law firms including Debevoise, whose senior partners have billed clients more than $1,000 an hour in the past, as well as Sullivan & Cromwell LLP and Davis Polk & Wardwell LLP, the final Volcker rule offers an opportunity for new business and additional fees. Hundreds of lawyers will be needed to interpret the rule, establish models for compliance and find new strategies for securities firms with $44 billion at stake from market-making activities.
  • Volcker Rule Shift Lets Banks Continue Muni Bond Speculation. U.S. financial regulations that curb banks’ ability to speculate with their own money included an exemption for the $3.7 trillion municipal bond market after issuers complained the rules could increase borrowing costs. The Volcker Rule, issued today by regulators, allows banks to invest in securities issued by states, localities and government agencies. The change is a victory for borrowers and municipal securities dealers that pressed regulators to broaden the exemption. Without it, agencies that sell bonds for public works projects said they might have faced higher borrowing costs by eliminating banks as investors.
  • Keystone Foe Podesta Joins Obama Inner Circle as Top Aide. John Podesta’s return to the White House, aimed at bolstering President Barack Obama, places an opponent of the Keystone XL pipeline within his circle just as the administration weighs whether to approve the project. The Democratic veteran, who previously served as President Bill Clinton’s chief of staff, joins the administration as Obama’s approval ratings have fallen to all-time lows after the fumbled rollout of the Patient Protection and Affordable Care Act. White House spokesman Jay Carney said Podesta, 64, will advise on a range of issues, “with a particular focus on issues of energy and climate change.” 
  • IBM(IBM) Says Economy Remains Discouraging. International Business Machines Corp. (IBM), the world’s largest provider of computing services, continues to face economic challenges as it tries to reignite declining sales, Senior Vice President Erich Clementi said. Demand for technology services, IBM’s biggest source of revenue, “depends on what the economic climate is, and that has not been very encouraging,” Clementi said at a Bank of Montreal conference in New York yesterday. “Europe has shown signs of recovery. North America has been a little more uncertain.
Wall Street Journal: 
  • Deal Brings Stability to U.S. Budget. Congressional Negotiators Avert January Shutdown and Soften Sequester Cuts; Airline Fees to Climb. House and Senate negotiators, in a rare bipartisan act, announced a budget agreement Tuesday designed to avert another economy-rattling government shutdown and to bring a dose of stability to Congress's fiscal policy-making over the next two years. Sen. Patty Murray (D., Wash.) and Rep. Paul Ryan (R., Wis.), who struck the deal after weeks of private talks, said it would allow more spending for domestic and defense programs in the near term, while adopting deficit-reduction measures over a decade to offset the costs.
  • Crackdown in Kiev Follows Bid at Compromise. Security forces stormed an encampment of protesters gathered in the Ukrainian capital's central square early Wednesday, hours after top western diplomats had met President Viktor Yanukovych to call for a nonviolent resolution to the country's worst political crisis in nearly a decade. Riot police wearing black helmets and carrying shields took up positions around the square about 1 a.m. local time and gradually began pushing through makeshift barricades. The hundreds of protesters then on the square, some wearing orange hard hats hastily gathered for their defense, shouted "shame" as the sounds of police chain saws cutting their wooden barriers rose in the freezing weather
  • FDIC Details Bailout Plans Without Taxpayer Funds. Regulator to Maximize Use of Funding From Private Debt Markets. Federal regulators provided the strongest indication yet about how they plan to dismantle large financial firms on the verge of collapse without a taxpayer bailout. On Tuesday, the Federal Deposit Insurance Corp.'s board unanimously approved a draft plan of how it would keep parts of a failing institution open, prioritize payments to creditors and recapitalize the firm. The agency, which asked for public comment on the plan, is authorized by the 2010 Dodd-Frank financial-overhaul law to take over a failing firm and help prevent its collapse from rippling through the financial system.
Fox News: 
  • Lawmakers unveil tentative budget deal, call for rolling back sequester. Congressional negotiators on Tuesday announced a tentative budget deal that would avoid a partial government shutdown, but also begin to unravel hard-fought spending cuts. The lead negotiators -- Senate Budget Committee Chairwoman Patty Murray, D-Wash., and House Budget Committee chairman Paul Ryan, R-Wis. -- detailed the specifics of the proposal at an evening press conference.
  • Good luck buying big city real estate next year. The lower cap on FHA mortgages will hit city dwellers hardest. The Department of Housing and Urban Development announced on Friday that it will lower the loan limits for its Federal Housing Administration mortgage — a loan used by many first-time and lower-income home buyers — from $729,750 to $625,500. The FHA insures mortgages that banks give to borrowers who make small down payments. Congress raised FHA mortgage caps six years ago in the wake of the downturn. 
  • MasterCard(MA) raises dividend by 83%; shares rise. MasterCard, the world's No.2 credit and debit card company, raised its quarterly dividend by 83 percent and announced a new $3.5 billion share buyback program, sending its shares up 3 percent in extended trading. The company, which also announced a 1-for-10 stock split, raised its quarterly dividend by 50 cents to $1.10 per share.
Zero Hedge: 
Business Insider: 
Washington Examiner:
  • Odd-lot trades add 3 pct volume to consolidated tape. Transactions in trades of less than 100 shares boosted reported volume by 3 percent on the first day that "odd lots" were included in the public dissemination of stock quotes and sale prices, trading data showed on Tuesday. Almost one out of every six trades, or 17.5 percent, that were reported on Monday to the "consolidated tape" were odd lots, according to the Consolidated Tape Association, a group that includes all the U.S. stock exchanges, among others.
South China Morning Post:
  • City commercial lenders 'in danger of bankruptcy'. Many urban commercial banks on the mainland are in "danger of bankruptcy" as they become the biggest victims of a mounting local government debt problem, with local authorities struggling to repay debts estimated to total 20 trillion yuan (HK$25.5 trillion), Haitong International Securities chief economist Hu Yifan said. Hu told a Foreign Correspondents' Club lunch yesterday that these banks, controlled by governments, were "the most dangerous part" of the mainland's banking system because they were most at risk in the event of local government debt defaults. There were 144 such banks on the mainland last year. "Those banks usually have a high incentive to lend to the property market," she said. "On the management level, they are not as good as the Big Five. In the coming two to three years, mergers and acquisitions of such banks will be a big trend." Local government debt, borrowed from the banks and poured in large part into thin-margin infrastructure projects, accounts for up to 40 per cent of the mainland's gross domestic product, Hu estimates. "China now has about 50 cities constructing railways and 18 airports under construction," Hu said, adding that the money borrowed to build them was "highly unlikely to be collected". Meanwhile, a property tax would be a "golden bullet" to help the deleveraging process, Hu said. The central government could allow the Guangzhou, Shenzhen and Hangzhou city governments to introduce trial property taxes early next year and then expand the programme to more cities to boost local government revenue, she said.
China Securities Journal:
  • China Should Drop Proactive Fiscal Policy. China should phase out its proactive fiscal policy and stick to the principle of keeping fiscal revenue and expenditures in basic equilibrium in long term to gradually reduce the country's fiscal deficit, says a front-page commentary written by reporter Zhang Chaohui.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.25% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 132.0 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 104.25 -1.75 basis points. 
  • FTSE-100 futures -.19%.
  • S&P 500 futures +.02%.
  • NASDAQ 100 futures -.04%.
Morning Preview Links

Earnings of Note

  • (JOY)/1.12
  • (COST)/1.02
  • (MW)/.86
  • (CWTR)/-.87
  • (VRA)/.33
Economic Releases
 10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,719,000 barrels versus a -5,585,000 barrel decline the prior week. Gasoline supplies are expected to rise by +1,862,000 barrels versus a +1,828,000 barrel gain the prior week. Distillate supplies are estimated to rise by +986,000 barrels versus a +2,649,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.48% versus a +3.0% gain the prior week.
2:00 pm EST
  • The Monthly Budget Deficit for November is estimated at -$140.0B.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The 10Y $21B Treasury auction, Australian Unemployment, Jack Lew testimony regarding IMF, weekly MBA mortgage applications report, Morgan Stanley REIT summit, (MRO) analyst day, (HRB) investor day, (HD) investor conference, (DAL) investor day and the (CBI) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by real estate and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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