Wednesday, February 13, 2013

Wednesday Watch

Evening Headlines 
Bloomberg:
  • EU Sees ‘Increasing Signs’ Carbon to Drop More Without Glut Fix. The European Union warned member states that carbon prices are likely to decline further without action to curb oversupply in the world’s biggest emissions market, according to an EU document obtained by Bloomberg News. At stake is the fate of the 54 billion-euro ($72.5 billion) EU cap-and-trade system after an excess of allowances caused by an economic crisis drove prices to a record low of 2.81 euros a metric ton, down as much as 91 percent from a record in April 2006. The Parliament’s environment committee is due to vote on Feb. 19 on the first element of the commission’s proposal: a change to the emissions law to enable postponing auctions of some permits
  • Obama Calls for Accord to Expand Trade With 27 Nations of EU. President Barack Obama vowed to begin talks on a trade agreement with the European Union, expanding the world’s largest economic relationship, while at the same time finishing discussions for a Pacific-region accord. “Trade that is free and fair across the Atlantic supports millions of good-paying jobs,” Obama said in prepared remarks for his State of the Union speech tonight. It was his strongest commitment to trade negotiations with the EU.
  • Bond Yields Deny Draghi Claim of Confidence Return: Euro Credit. If Dutch bonds are anything to go by, investors still need convincing the debt crisis is ending 
  • North Korean Blast Complicates Obama’s Nuclear-Cut Plans. North Korean dictator Kim Jong Un’s latest test of a nuclear device is complicating U.S. President Barack Obama’s plan to reduce the American nuclear arsenal. Any new nuclear weapons treaty would need Senate ratification, and the prospect of support from Congress was clouded by North Korea’s underground nuclear test blast yesterday, its third since 2006. Republican lawmakers cited what they called a growing threat from Kim’s totalitarian regime in demonstrating their opposition to further U.S. arms cuts, including to the nuclear arsenal. North Korea’s nuclear test poses a threat to the U.S. and “underscores the need for the United States to maintain its strong deterrent capabilities,” said Republican Senator John Hoeven of North Dakota, a member of Senate Appropriations Committee. “Yet now, even before implementing the reductions required under the New START Treaty of 2010, the Obama administration has signaled that it may be willing to reduce unilaterally the U.S. nuclear capability even further,” he said in a statement yesterday. “In light of North Korea’s actions today, this is clearly not the time to diminish these critical strategic forces.”
  • G-7 Roils Currency Markets With Split on Concern Over Yen. Group of Seven policy makers roiled the currency markets they sought to calm amid conflicting messages on how much of an economic threat is posed by the weakening yen. The yen whipsawed as the G-7 appeared at first yesterday to signal joint acceptance of the Japanese currency’s recent drop, only to see its members offer contradictory interpretations of the group’s stance. One G-7 official said there’s concern about excessive moves in the yen, while the U.K. said the group wasn’t singling out an individual country or exchange rate.
  • Japan Margin Trade Doubles Amid Rally, Looser Regulation. Japan’s margin trading doubled last month after collateral rules were eased amid the Nikkei 225 Stock Average’s longest weekly rally in a half century. Margin trades at Matsui Securities Co. and the brokerage unit of SBI Holdings Inc., the two biggest providers, jumped 2.2 times last month to 6.58 trillion yen ($70 billion) from December as the Nikkei 225 capped a 12-week advance. The Financial Services Agency on Jan. 1 eliminated a three-day waiting period on rolling over proceeds from the trades into new investments. Margin accounts allow investors to borrow to buy or sell shares. After a two-decade slide that’s left Japan’s benchmark gauge 71 percent below its 1989 peak, the Nikkei 225’s best three-month run since 2009 is luring individual investors. Retail investors made up 33 percent of equity turnover in the final week of January, up from a weekly average of 21 percent last year before the rally. Margin trades accounted for about 61 percent of transactions by individuals in the week ending Feb. 1, according to Japan Exchange data. That’s up from 55 percent for the week ended Dec. 28 before the rules were relaxed
  • Fed’s Lacker Says Crisis in 2007 Worsened by Rescue Policy. Federal Reserve Bank of Richmond President Jeffrey Lacker said the financial system was weakened further as it began to fall into crisis in 2007 and 2008 by an “ambiguous rescue policy.” The Richmond Fed president has been one of the biggest critics of an expanded safety net which he says reduces market discipline and creates more risk by raising expectations of bailouts. The Fed used multiple tools to aid financial institutions during the crisis, including opening a funding facility for corporate commercial paper and offering direct support for the Bear Stearns Cos. and American International Group Inc. Richmond Fed researchers estimate that as of December 31, 2011, that 57 percent of financial sector liabilities benefit from perceived government support, up from 45 percent over a decade ago. “It seems quite plausible to me that the signal sent by the Fed’s lending actions in August 2007 dampened the willingness of troubled institutions, such as Bear Stearns and Lehman Brothers, to seek safer solutions to the strains they were facing -- whether by raising capital, selling assets or reducing reliance on short-term funding,” Lacker said in a speech at his alma mater, Franklin & Marshall College in Lancaster, Pennsylvania.
  • Apple(AAPL) Said to Have Team Developing Wristwatch Computer. Apple Inc. has a team of about 100 product designers working on a wristwatch-like device that may perform some of the computing tasks now handled by the iPhone and iPad, two people familiar with the company’s plans said. The team, which has grown in the past year, includes managers, members of the marketing group and software and hardware engineers who previously worked on the iPhone and iPad, said the people, who asked not to be named because the plans are private. The team’s size suggests Apple is beyond the experimentation phase in its development, said the people.
  • Pharmacyclics(PCYC) Gains ‘Breakthrough’ Status for Cancer Drug. Pharmacyclics Inc., a drugmaker developing an experimental therapy for blood cancers, won “breakthrough” status from U.S. regulators for the medicine that may lead to quicker marketing approval. Pharmacyclics and its partner, New Brunswick, New Jersey- based Johnson & Johnson, will submit the therapy, ibrutinib, to the Food and Drug Administration for approval before the end of the year, the companies said today in separate statements. “This is a historic moment in oncology,” Bob Duggan, chief executive officer of Sunnyvale, California-based Pharmacyclics said in the statement. “We are truly honored to have received this breakthrough designation and are pleased for patients and clinicians with the FDA’s decision to expedite the development of ibrutinib.” 
Wall Street Journal:
  • Obama Readies Executive Action on Climate. After catapulting climate change to the top of the political agenda with an impassioned call for action in his second inaugural address, President Barack Obama Tuesday night said he’s ready to take unilateral action using executive powers to curb greenhouse-gas emissions if Congress doesn’t. In his first term, President Obama saw a cap-and-trade plan that would cut emissions pass the House, only to die in the Senate in 2010. In his State of the Union speech, he urged Congress to take up the cudgel yet again, but with House Republicans opposed to any plan that would put a price on carbon emissions, that seems unlikely. In the absence of legislation, Mr. Obama said, “I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy.”
  • Bid on Minimum Wage Revives Issue That Has Divided Economists. President Barack Obama's proposal Tuesday to raise the federal minimum wage is likely to rekindle debates over whether the measure helps or hurts low-income workers. White House officials say the move to boost the wage to $9 an hour, from $7.25, is aimed at addressing poverty and helping low-income Americans. But the proposal likely will be opposed by Republicans and business groups, which have traditionally said raising the minimum wage discourages companies from hiring low-skilled workers. 
  • A President Hungry for Action Has Bite-Size Budget. Behind that rhetoric lies a starker reality: The president actually has very little money to spend, so he proposed only limited new funding for these programs his party's liberal base loves. Spending caps, tax cuts, Republicans in Congress and the giant squeeze of entitlement programs that are sucking funds away from all else—all are tying his hands.
  • French Hint at Lower Growth Forecasts. President François Hollande laid the groundwork Tuesday for lowering France's growth forecasts as the state auditor warned the country will likely miss this year's deficit targets, leaving the Socialist with a policy dilemma as he battles to rein in public finances. France, the second-largest economy in the euro zone after Germany, has so far escaped recession and the depths of crisis seen in Southern Europe. But the country has posted little to no growth since April 2011. Unemployment is above 10% and rising. "It's pointless to present targets if they can't be met," Mr. Hollande said after a meeting with Luxembourg Prime Minister Jean-Claude Juncker. The French president said the government will "change [the growth forecasts] in the coming days if necessary." Mr. Hollande's comments follow the publication of a report by France's state auditor, the Cour des Comptes, that said the deficit-reduction targets were at significant risk because of the slowdown. The auditor said the government has depended too much on raising taxes in trying to balance its budget and needed to focus more on spending cuts. Taxes currently account for over 75% of the effort to bring the deficit down this year, the auditor said. "After three years of using tax-revenue increases massively, the absolute priority can only be to increase efforts already begun to control spending," said Didier Migaud, the head of the audit body
  • Embattled Economies Cling to Euro. The euro has weighed on winemaker Elio Grasso for years. The currency's high exchange rate shaves into profits of his U.S. exports, while his domestic customers suffer in Italy's long recession. But the silver-haired maker of Barolo wines doesn't want Italy to abandon the euro. "If we were on our own, we'd have bigger problems than Greece," he said in the cavernous cellar below his vineyard. Europe's common currency has left the continent's southern countries depressed, indebted and struggling to compete internationally. 
  • Apple(AAPL) Defends Position on Cash. Apple Inc. Chief Executive Tim Cook fired back against hedge-fund mogul David Einhorn, defending the company's distribution of cash to its shareholders and calling a recent lawsuit filed by Mr. Einhorn's firm "a silly sideshow." 
  • Sequester Looms, No Deal in Sight. Senate Democrats and Republicans squared off Tuesday over whether to try to block across-the-board spending cuts set to begin March 1. Senate Majority Leader Harry Reid (D., Nev.) said his party would seek to avert the cuts, known in Washington as the sequester. Senate Democrats were crafting a bill they plan to introduce this week to replace the cuts with a package of tax increases and other spending reductions that would lower the deficit by $120 billion over 10 years, senior Democratic aides said. But Senate Minority Leader Mitch McConnell (R., Ky.) said it was "pretty clear" the cuts will happen, saying he wasn't interested in "last-minute negotiations" to try to avoid the budgetary belt-tightening. He repeated that Republicans wouldn't support any effort by Democrats to increase federal revenue to avoid or defer the cuts. When asked if he had met with House Speaker John Boehner (R., Ohio) to kick-start talks to avert the sequester, Mr. Reid said he would meet with him later this week.
  • Millions Improperly Claimed U.S. Phone Subsidies. The U.S. government spent about $2.2 billion last year to provide phones to low-income Americans, but a Wall Street Journal review of the program shows that a large number of those who received the phones haven't proved they are eligible to receive them.
CNBC:
  • Plosser: Fed Too Vague With Guidance on Future Path of Rates. The Federal Reserve should be more explicit about the likely future path of interest rates, a top Fed official said on Tuesday, saying that while the central bank's recent changes to guidance on interest rates are a step in the right direction they do not go far enough.
Zero Hedge:
Business Insider:
NY Times:
  • Big Banks Are Told to Review Their Own Foreclosures. Washington is seeking help from an unlikely group in its effort to distribute billions of dollars to struggling homeowners in foreclosure: the same banks accused of abusing homeowners with shoddy foreclosure practices.
The Blaze: 
Reuters:
  • Cliffs Natural(CLF) posts loss after writedown, cuts payout. Cliffs Natural Resources Inc (CLF.N) reported a quarterly loss on Tuesday, dragged down by a writedown in the value of a Canadian acquisition, higher costs and lower iron ore prices, prompting the miner to slash its dividend by 76 percent. Shares of the Cleveland-based producer of iron ore and metallurgical coal dropped 7.5 percent to $33.86 in after-market trading.
  • Comcast(CMCSA) to buy rest of NBC stake for $16.7 billion. Comcast Corp on Tuesday said it would buy General Electric's remaining 49 percent equity stake in their NBCUniversal joint venture for about $16.7 billion, speeding up a deal that had not been expected until at least late 2014. Analysts said Comcast was getting a good deal at that price, while Comcast's chief executive said the company moved because it was eager to take control of the business sooner than planned. Comcast shares rose 7.5 percent in afterhours trading.
  • Rackspace(RAX) revenue misses as web hosting growth slows. Web hosting company Rackspace Hosting Inc reported a 25 percent rise in quarterly revenue that narrowly missed analysts' estimates, sending its shares down nearly 10 percent in extended trading on concerns that growth is slowing.
Yomiuri:
  • Japan's Suda Says 2% Inflation Goal Not Easy. Central bank's 2% inflation goal isn't easily achievable, former Bank of Japan policy board member Miyako Suda says in an interview. If Japan govt pressures BOJ into hastily achieving goal, central bank may be forced to undertake endless monetary easing, Suda said. The Bank of Japan's credibility would be undermined if BOJ law changed to give govt power to remove governor, Suda said.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.50%  to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 111.50 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 86.50 -1.5 basis points.
  • FTSE-100 futures -.03%.
  • S&P 500 futures +.05%.
  • NASDAQ 100 futures +.13%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (DPS)/.85
  • (H)/.12
  • (DF)/.30
  • (WCG)/1.30
  • (DE)/1.40
  • (DUK)/.64
  • (NVDA)/.30
  • (NTAP)/.56
  • (MET)/1.18
  • (IPI)/.25
  • (CAR)/-.07
  • (WFM)/.77
  • (CSCO)/.48
  • (AMAT)/.03
  • (JNY)/.08
  • (Z)/.00
Economic Releases
8:30 am EST
  • The Import Price Index for January is estimated to rise +.8% versus a -.1% decline in December.
  • Advance Retail Sales for January are estimated to rise +.1% versus a +.5% gain in December.
  • Retail Sales Less Autos for January are estimated to rise +.1% versus a +.3% gain in December.
  • Retail Sales Ex Auto & Gas for January are estimated to rise +.4% versus a +.6% gain in December.
10:00 am EST
  • Business Inventories for December are estimated to rise +.2% versus a +.3% gain in November.  
10:30 am EST
  •  Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,200,000 barrels versus a +2,623,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +500,000 barrels versus a +1,738,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,750,000 barrels versus a -1,042,000 decline the prior week. Finally, Refinery Utilization is estimated unch. versus a -.8% decline the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Bullard speaking, Eurozone GDP report, Eurozone Industrial Production, Itlay 10Y Bond auction, 10Y T-Note auction, BoE Inflation report, Japan GDP data, weekly MBA Mortgage Applications report, (WAG) analyst day, BofA Merrill Insurance Conference, BB&T Transport Services Conference and the Leerink Swan Healthcare Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity 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 day.

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