Sunday, January 12, 2014

Monday Watch

Weekend Headlines 
Bloomberg:
  • China Peer-to-Peer Loan Sites Fail as Fraud Climbs, Xinhua Says. Some Chinese peer-to-peer lending websites collapsed last year and others may need restructuring in 2014 to curb fraud in an industry that has grown rapidly with little regulatory oversight, Xinhua News Agency said. About 800 such online operations emerged in China just last year with outstanding loans of 26.8 billion yuan ($4.4 billion), Xinhua reported, citing industry data from Wangdaizhijia.com, China’s biggest peer-to-peer lending site. Meanwhile, 74 websites were either shut down or their users were unable to withdraw cash, according to the report. 
  • Fed-Fueled Inflation May Cost India’s Congress, Ex-Minister Says. Indian Prime Minister Manmohan Singh’s ruling party would lose a national election if it were held today because of voter anger over the highest inflation in Asia, a former member of his cabinet said. “On inflation I have no defense to offer -- none,” Aiyar, a lawmaker and senior party member, said in a Jan. 9 interview at his New Delhi home. “If there were an election today, we would do very badly.”
  • Zegna Sees Luxury Revenue Growth Under Pressure Until Mid-2014. Ermenegildo Zegna said he expects revenue growth at the namesake luxury goods maker will remain under pressure for at least another six months as demand moderates in China and the yen’s weakness persists. “October and November were not good months overall,” the chief executive officer of the Italian company said yesterday in an interview in Milan. “The first half of 2014 will still see this lower pace, which I hope will come back in the second half,” he said, forecasting growth of less than 10 percent for the full year. 
  • Yen Touches Strongest in 3 Weeks as Traders Trim Bearish Wagers. The yen touched the strongest in three weeks after bearish bets slid to a six-week low and as investors weigh the outlook for a reduction in Federal Reserve monetary stimulus before policy makers speak this week. The yen climbed 0.7 percent to 103.46 per dollar as of 11:43 a.m. in Singapore after earlier touching 103.26, the strongest since Dec. 18. It gained 0.6 percent to 141.52 per euro. The shared currency added 0.1 percent to $1.3680 following a 0.6 percent gain last week. The Australian dollar rose 0.4 percent to 90.28 U.S. cents after advancing to 90.35, the highest since Dec. 12.
  • Asia Stocks Rise as Dollar Falls; Metals Rally on Ore Ban. Asian stocks rose for a second day and the dollar weakened after U.S. payrolls increased at the slowest pace since January 2011. Nickel led gains by metals and the rupiah climbed after Indonesia banned mineral ore exports. The MSCI Asia Pacific excluding Japan Index increased 0.5 percent at 11:34 a.m. in Hong Kong
  • Rebar Falls as Steelmaker Cuts Prices on Weaker Demand. Steel reinforcement-bar futures fell in Shanghai after Jiangsu Shagang Co., China’s biggest maker of the commodity, was reported to have lowered prices amid weakening demand. Rebar for May delivery on the Shanghai Futures Exchange declined as much as 0.8 percent to 3,463 yuan ($573) a metric ton, and traded 3,469 yuan at 10:53 a.m. local time. The most-active contract dropped for a fifth week in the five days through Jan. 10.
  • Bullish Bets Fell Most in Seven Weeks Before Slump: Commodities. Hedge funds cut their bullish commodity wagers by the most in seven weeks before prices dropped to an eight-month low on signs of surplus supply and slowing economic growth in China. The net-long position across 18 U.S.-traded commodities fell by 11 percent to 678,885 futures and options in the week ended Jan. 7, U.S. Commodity Future Trading Commission data show. Investors are the most bearish on wheat ever and anticipate lower prices for corn, coffee, sugar and soybean oil. Bullish gold wagers rose to the highest since mid-November.
  • Bond Rally Gives Italy Free Pass Skirting Reforms: Euro Credit. Europe’s periphery-nation bond rally is giving Italy a free pass, raising concern that the pressure for reforms will dissipate. The drop in borrowing costs, spurred by gains in euro-area manufacturing and retail sales, threatens to halt a two-year push to restore growth that has made scant progress in eight months under Prime Minister Enrico Letta. “Italy lacks the self-discipline to truly overhaul its economy, unless placed under extreme market pressure,” said Raj Badiani, an economist at IHS Global Insight in London. “The fall in Italian bond yields has decoupled from the grim realities facing the country.”
  • Crisis Hangover Traps Best-Rated Euro Nation as Jobs Disappear. As the euro area surfaces from its worst crisis on record, the bloc’s best-rated member and a key proponent of austerity is losing jobs and gaining debt. The challenges facing Finland -- a stable AAA rated economy -- are “historic,” Finance Minister Jutta Urpilainen said Jan. 10 in Helsinki. “I would like to promise that the euro crisis will end this year, that Finnish structural change in industry will stop and government-debt growth will halt. Unfortunately, I can’t.”  
  • Basel Regulators Ease Leverage-Ratio Rule for Banks. Global regulators diluted a planned debt limit for banks amid warnings that the measure would penalize low-risk financial activities and curtail lending. The measure, known as a leverage ratio, was adjusted after “thoroughly analyzing bank data,” the Basel Committee on Banking Supervision said in a statement following a meeting of regulators in Basel, Switzerland, yesterday. The group also modified a liquidity rule to make it easier to count a certain type of central bank loan against regulatory standards.
  • Fed Seen Sticking to Gradual Tapering Plan After Payrolls Miss. The Federal Reserve will stick to its plan for a gradual reduction in bond purchases, economists said after a government report showed that U.S. employment rose at the slowest pace in three years in December. The Fed will reduce purchases by $10 billion at each of the next six meetings this year before ending the program in October, according to the median forecasts of 42 economists in a Bloomberg survey. 
  • Bonds Captivate $16 Trillion of Pensions Seen Unloading Equities. Bond buyers stung by the first losses in more than a decade can look to pension funds from companies such as Ford Motor Co. (F) for a measure of redemption. “Companies are now getting on the bandwagon,” Ford Treasurer Neil Schloss said in a Jan. 9 telephone interview from the company’s headquarters in Dearborn, Michigan. U.S. pensions, which control $16 trillion, shifted out of equities and into bonds in the third quarter at the fastest rate since 2008, latest data compiled by the Federal Reserve show.
  • Neiman Marcus to Target Data Breaches Imperil U.S. Retailers. Neiman Marcus Group Ltd. said yesterday that some unauthorized purchases may have been made with customer cards, the second retailer after Target Corp. (TGT) to be struck by hackers during the important holiday season. Credit-card processors alerted Neiman Marcus to the breach in mid-December and the Dallas-based luxury chain is working with federal authorities and investigating the matter, Ginger Reeder, vice president of corporate communications, said yesterday in an e-mail statement. Reeder declined today to elaborate. The Wall Street Journal, citing unidentified people familiar with the incident, said fewer than 1 million cards were compromised.
Wall Street Journal:  
  • Gates Defends Criticism of Obama. Former Defense Secretary Robert  Gates, in his first interview broadcast since details of his new book were made public, defended his decision to write a candid memoir and restated his criticism of President Barack Obama’s handing of the Afghanistan war.
Fox News:
  • Former Israeli Prime Minister Ariel Sharon dies at 85. Former Israeli prime minister and storied general Ariel Sharon, who was at the height of his power when he suffered a stroke in 2006 and fell into an irreversible coma, died Saturday at the age of 85. Sharon died at Tel Hashomer hospital just outside Tel Aviv, where his family had gathered at his bedside over the past several days as his vital organs reportedly deteriorated. His death was first reported by Israeli Army radio.
CNBC: 
  • Volatility could come back big-time—here's why. (video) "There's definitely a different tone in the market this year as compared to last year," Peter Boockvar, chief market analyst at the Lindsey Group, said Friday. "We got a disappointing jobs number, but people still think the Fed is going to taper, despite an uneven recovery."
Zero Hedge:
ValueWalk:
Business Insider:
New York Times: 
  • The Next Data Privacy Battle May Be Waged Inside Your Car. Cars are becoming smarter than ever, with global positioning systems, Internet connections, data recorders and high-definition cameras. Drivers can barely make a left turn, put on their seatbelts or push 80 miles an hour without their actions somehow, somewhere being tracked or recorded.
The Blaze:
Reuters:
  • Exclusive: U.S. investigating Honeywell(HON) over export, import controls. The U.S. Justice Department is investigating export and import procedures at Honeywell International Inc after the firm included Chinese parts in equipment it built for the F-35 fighter jet, three sources familiar with the matter said. Reuters last week reported that the Pentagon twice waived laws banning Chinese-built components in U.S. weapons in 2012 and 2013 for parts supplied by Honeywell for the $392 billion Lockheed Martin Corp F-35 program. 
  • Exclusive: Iran to get first $550 million of blocked $4.2 billion on February 1. Iran would receive the first $550 million installment of a total of $4.2 billion in previously blocked overseas funds on or about February 1, a senior U.S. official said on Sunday. Under a November 24 nuclear agreement, six major powers agreed to give Iran access to $4.2 billion in revenues blocked overseas if it carries out the deal, which offers sanctions relief in exchange for steps to curb the Iranian nuclear program. 
  • Indonesia bans mineral ore exports, all eyes on nickel impact. Indonesia, among the world's biggest suppliers of natural resources, halted all mineral ore exports on Sunday to try to promote domestic processing, but threatening the country's nickel and bauxite industries worth more than $2 billion in annual shipments. Halting exports of nickel ore could spark the biggest shake-up in the global nickel industry in more than five years, with Chinese stainless steel factories that make everything from kitchenware to cars and buildings set to hurt the most.
Financial Times:
  • US subprime car loans return with a bangSales of risky pools of securities backed by car loans are accelerating at the start of 2014 as investors snatch up the higher-yielding bonds that were popular in the build-up to the financial crisis. This week alone, about $2bn in deals that bundle car loans made to subprime borrowers have hit the US debt capital markets, following a 20 per cent jump last year to $21.5bn. Demand for the securities is forecast to increase further in 2014, helping push sales to the $25bn mark, according to Deutsche Bank estimates.
Jiji:
  • Tepco Detects Record Radiation at Fukushima Dai-Ichi Plant. Co. detects beta radiation levels of 2.2 million becquerels per liter in water sample from monitoring well at Fukushima Dai-Ichi plant, citing co. Previous record was 2.1 million becquerels per liter detected in December last year.
Asahi:
  • Japan May Draft Collective Self-Defense View in April. The administration of Japan's Prime Minister Shinzo Abe may compile a draft in April of a new government interpretation of the constitution to allow the notion of the right to collective self-defense.
Focus Taiwan:
  • Japan curriculum move over Diaoyutais does not change facts: MOFA. Taiwan has announced its "serious concern" over a reported decision by Japan to list the Diaoyutai (Senkaku) Islands in junior and senior high school books as integral Japanese territories, saying the move does not change historical facts. The Ministry of Foreign Affairs (MOFA) said the unilateral move by Japan "does not contribute" to regional stability.
China Daily:
  • Beijing Tourists Drop on Global Economy, Pollution. Tourists visiting the Chinese capital dropped "sharply" because of a weak global economy, strong yuan and the city's pollution problems, citing a Beijing Tourism Development Commission report. Jan.-Nov. visitors declined -10.3% y/y to 4.2m, the newspaper said.
China Securities Journal:
  • China A-Share Market to Likely Stay Weak. China's A-share market will very likely stay weak in 1H because of tight liquidity and economic growth of 7%-7.5% for 2014, according to a front-page commentary by reporter Long Yue.
Hexun:
  • CIC's Xie Says China Local Govts Won't Default. China's local governments won't default and central government won't allow them to go insolvent either, CIC's deputy general manager Xie Ping said at an event Jan. 11. China should have a ceiling for total amount of local government debt before allowing local authorities to issue bonds directly, Xie said.
Weekend Recommendations
Barron's:
  • Bullish commentary on (CSCO), (TWI), (F), (SLB), (JPM), (BAC), (AWI), (HD), (DKS), (LOW), (M), (TGT), (TJX) and (WSM).
  • Bearish commentary on (SHLD).
Night Trading
  • Asian indices are -.25% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 137.50 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 108.5 +1.0 basis point.
  • FTSE-100 futures +.09%.
  • S&P 500 futures -.22%.
  • NASDAQ 100 futures -.22%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • None of note
Economic Releases 
2:00 pm EST 
  • The Monthly Budget Statement for December is estimated at $44.0B versus -$135.2B in November.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking, Germany Wholesale Price data, JPMorgan Healthcare Conference and the (YUM) Brands China Dec. SSS could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

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