Wednesday, June 16, 2010

Morning Note...


Futures ~50bps lower this morning on a relatively slow news day marked by ongoing concerns over Spain’s rising debt crisis (leading to some EUR/USD weakness and the highest German 10-yr bund/Spanish 10-yr bond spreads since 1999…Spain’s CDS spreads also widened) and slightly weaker economic data in the U.S.  Month-over-month Producer Prices (PPI) came in higher than expected, at -0.3% vs. -0.5%, and year-over-year PPI was also “hotter” at +5.3% vs. the +4.9% expectation.  Housing Starts and Building Permits for May were also slightly bearish, coming in lower than expected.  Industrial Production and Capacity Utilization data is due at 9:15am.  Regarding Spain, a Financial Times article claims “Spanish Banks Break ECB Loan Record,” as Spanish banks borrowed €85.6bn ($105.7bn) from the ECB last month. This is double the amount lent to them before Lehman collapse in 2008, and 16.5% of net Eurozone loans offered by the ECB – it also represents the highest amount since the 1999 launch of the Eurozone.  Further, while the EU denied reports of an EU/IMF/USA credit line for Spain, an article in El Econamista there says “EU, IMF, & US Treasury experts are designing €250bn liquidity plan” and the IMF’s Strauss-Kahn is due to visit Spain this Friday.  Elsewhere, U.K. jobless claims were lighter-than-expected.  Staying in Europe, I found this Bloomberg story very interesting…and given the general strike tentatively set for September in Spain, we may be hearing something similar from France soon:

Sarkozy Lifts Retirement Age to 62, Raises Taxes 2010-06-16 10:44:34.426 GMT  By Gregory    Viscusi and Helene Fouquet
June 16 (Bloomberg) -- French President Nicolas Sarkozy’s government said it will raise the retirement age and increase taxes on capital, seeking to stem losses in the pension system and safeguard the nation’s top credit rating. The retirement age will rise gradually to 62 by 2018 from 60, Labor Minister Eric Woerth said at a press conference in Paris today. The government will increase taxes on stock options, dividends and capital gains, and will raise the top income-tax rate one percentage point. “There is no trick,” Woerth said in the nationally televised briefing. “We can’t promise to work less, raise pensions and erase deficits.”  Europe’s debt crisis has added urgency to Sarkozy’s campaign to stem pension losses. The overhaul is aimed at bringing the system into balance by 2018. The state pension fund will lose 10.7 billion euros ($13.2 billion) this year, with the shortfall reaching 50 billion euros in 2020 under current policy, according to the Budget Ministry. Unions have held a series of strikes to protest the plan, which are also contested by the opposition Socialist Party. “Moving the age of retirement is an injustice,” Michel Sapin, a former finance minister from the Socialist Party, said on LCI television. “How about people who started work at 16? The jobs that start at a young age are often the most difficult.”

Obama successfully took BP to the woodshed in his speech last night in an effort to probably save face more than anything else.  There wasn’t much noteworthy to come out of it, although he did reference our addiction to fossil fuels as the root cause of the problem.  (Also, full disclosure…I turned the speech off after 5 minutes…I think the President is losing his mojo, seriously…it just sounded like more empty promises and when it seemed to cross that imaginary line from “My President is speaking” to “SNL skit,” I changed the channel…not sure what that indicates, but there it is…)  Worth noting that FNM and FRE are to be de-listed from the NYSE.  Looking ahead, the EU summit is tomorrow and recall that the S&P rebalance and options expiry is set for this Friday (see quote section below for S&P info). FDX reported better but made cautious 2011 comments, but it seemed to be related to pension issues rather than volumes and the broader economy.  NOK finally made good on that rumored profit warning. 

Regarding alternative assets that may offer another perspective on the economy, this clip from Bloomberg is interesting:

Fortress Investment Group LLC has $5 billion in unrealized losses from private-equity funds started since 2005, the beginning of a two-year buyout boom, more than its largest New York rivals combined. Blackstone Group LP, the biggest private-equity firm, had an unrealized loss of $861 million in the period and KKR & Co.’s buyout funds are down $708 million, according to regulatory filings in the past six weeks.

Additionally, here’s one more article from this morning that may prove indicative of a growing trend:

Russia to Buy Canadian, Aussie Dollars for First Time 2010-06-16 06:58:02.924 GMT By Paul Abelsky and Maria Levitov
June 16 (Bloomberg) -- Russia may add the Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. dollar and euro. “Adding the Australian dollar is being discussed,” Alexei Ulyukayev, the central bank’s first deputy chairman, said in an interview at an event hosted by Bloomberg in Moscow last night. “There are pros and cons. We have added the Canadian dollar but haven’t yet begun operations” with the currency.  U.S. dollars account for 47 percent of Russia’s reserves, while euros make up 41 percent, British pounds 10 percent and Japanese yen 2 percent, Ulyukyaev said in November. The central bank has reduced dollars from 50 percent in 2006, when euros accounted for 40 percent and the remaining 10 percent was in yen and pounds. Russia’s international reserves, the world’s third biggest, reached $458.2 billion on June 4. President Dmitry Medvedev last year suggested Russia would reduce its use of the U.S. dollar as a reserve currency after the greenback lost 34 percent of its value against the euro in 2 ½ years. The euro fell to a four-year low of $1.1877 on June 7 and has dropped 22 percent since Nov. 25 on investor concern policy makers may fail to contain Europe’s debt crisis.

Finally, on a relatively slow news day, I thought I might share this fun piece that made the rounds yesterday:

Do Volumes Really Dry-Up During the FIFA World Cup?
The more interesting studies would be on European and Global volumes – but for our purposes US markets will have to suffice. People will argue that the US does not care as much about the World Cup but markets are interconnected, as we have more than just Americans who invest in the US. Contrary to popular belief, there is life on the other sides of the Atlantic and Pacific Oceans.
1990 Il Mondiale – Italia (won by a Franz Beckenbauer coached West German squad)
Il Mondiale volume compared with YTD volume: -9.7%
Il Mondiale Group Stage (1st Round – 2 weeks where there are 3 games a day) vs. YTD volume: -6.8%
Il Mondiale volume compared to the month prior: -17.1%
Il Mondiale Group Stage vs. the month prior: -14.5%
1994 World Cup – United States of America (won by Brazil who was led by Golden Ball winner Romário)
World Cup Volume compared with YTD Volume: -12.5%
World Cup Group Stage vs. YTD Volume: -7.6%
World Cup Volume compared to the Month Prior: -1.0%
World Cup Group Stage vs. the Month Prior: +4.5%
1998 Coupe du Monde – France (won Les Bleus - the first time in 20 years that the home nation won the title)
Coupe de Monde Volume compared with YTD Volume: -0.3%
Coupe de Monde Group Stage vs. YTD Volume: +2.1%
Coupe de Monde Volume compared to the Month Prior: +8.0%
Coupe de Monde Group Stage vs. the Month Prior: +10.6%
*** This was a tumultuous period for Global Markets. The Asian Financial Crisis began a year earlier, LTCM was under duress, and the Russian Financial Crisis was heating up before the August “Joint Statement” from the Russian Government and the Central Bank of Russia that they would devalue the Ruble and eventually default on domestic debt.***
2002 세계 축구/ WSouth Korea / Japan (Ronaldo won the Golden Boot with 8 goals as Brazil claimed a record 5th title)
세계 축구/ W Volume compared with YTD Volume: +14.0%
세계 축구/ W Group Stage vs. YTD Volume: +10.4%
세계 축구/ W Volume compared to the Month Prior: +21.8%
세계 축구/ W Group Stage vs. the Month Prior: +17.9%
***This is a tough comparison because of the difficulties with viewing matches in a much different time zone. Games were not during US trading and the tournament fetched disappointing television ratings.***
2006 Weltmeisterschaft – Germany (an estimated 715 million viewers watched Zidane’s infamous Hand of Gaul head-butt and Italy later win in PK’s)
Weltmeisterschaft Volume compared with YTD Volume: -6.1%
Weltmeisterschaft Group Stage vs. YTD Volume: -0.7%
Weltmeisterschaft Volume compared to the Month Prior: -12.4%
Weltmeisterschaft Group Stage vs. the Month Prior: -7.4%
Notes:
·         All Readings are for US Primary Volume
·         Russell Rebalance Volume is Not Included

DWA cut at GSCO.  BofA/MLCO urges traders to cut back BP exposure.  GSCO cuts BYI, IGT.  CLC beats by 6c.  FSC announces 8M share offering.  NOk lowers guidance.  FDX beats by 1c.  PCLN upgrade at GSCO.  UTA prices $20M offering at $7/share.  BofA/MLCO ups AXL, JCI.  BMOC ups ONNN, POWI.  UBSS ups RS.  BofA/MLCO cuts AN. 

Japan & Australia up overnight, China re-opens from holiday tonight.  Europe slightly lower this morning.  EUR/USD $1.2272.  Oil -85bps.  Gold +25bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
COVIDIEN PLC                38.02    -8.85%  160
FANNIE MAE                  .9800    +6.01% 500
XEROX CORP                 9.00      -4.86%  1500
INTL GAME TECH            18.86    -3.73%  12900
PPG INDS INC                 67.93    +3.58% 2800
SUNOCO INC                  33.36    +3.47% 11300
JDS UNIPHASE               11.31    -3.17%  700
AMERICAN CAPITAL        5.75      +3.05% 10800
KEYCORP                       8.065    -2.95%  7500
EATON CORP                 72.32    -2.86%  100
ANADARKO PETROLE      43.50    -2.71%  24779
POLO RALPH LAURE        80.33    -2.56%  535646
MOTOROLA INC             6.88      -2.55%  148879
CBS CORP-B                  15.00    -2.41%  500
MYLAN INC                    18.00    -2.12%  210
FEDEX CORP                  81.26    -2.11%  153829
SCHLUMBERGER LTD      59.61    -2.07%  8400
NVIDIA CORP                 11.68    -2.03%  2555

Today’s Trivia:  Any guess as to the smallest nation – in population terms – represented at this year’s World Cup?
                                                                                                                                                                        
Yesterday's Answer:  Referee Ken Aston introduced the yellow- and red-card system to the World Cup in 1970 so that warnings and disqualifications would be more public and visible to all. 

Best Quotes:  The top five increases in weights are as follows:

Index
Symbol
Chg In Shs(%)
Old Wgt
New Wgt
Chg In Wgt
Net Shs Interest
% of ADV











500
C
1.77%
0.870%
0.887%
0.017%
46,457,274
5.30%

500
AAPL
0.35%
2.322%
2.333%
0.012%
496,226
1.63%

500
WFC
0.57%
1.457%
1.467%
0.011%
4,082,422
7.94%

500
INTC
0.72%
1.152%
1.162%
0.010%
5,291,267
7.10%

500
DIS
0.98%
0.671%
0.678%
0.008%
2,401,760
13.63%

400
UDR
4.31%
0.330%
0.344%
0.014%
388,227
12.12%

400
SNV
5.14%
0.220%
0.231%
0.011%
2,232,862
9.14%

400
SFD
4.41%
0.257%
0.268%
0.011%
361,105
15.79%

400
ESS
3.38%
0.331%
0.341%
0.010%
56,258
9.61%

400
OHI
4.78%
0.189%
0.198%
0.009%
246,803
24.03%

600
HME
3.92%
0.4126%
0.4268%
0.014%
67,979
12.13%

600
VSAT
4.89%
0.3013%
0.3146%
0.013%
94,719
36.41%

600
MAA
3.48%
0.3713%
0.3825%
0.011%
49,424
10.61%

600
PJC
9.18%
0.1262%
0.1372%
0.011%
77,682
44.44%

600
SUSQ
4.57%
0.2561%
0.2666%
0.011%
286,919
20.77%


The top five decreases in weight are as follows:

Index
Symbol
Chg In Shs(%)
Old Wgt
New Wgt
Chg In Wgt
Net Shs Interest
% of ADV














500
WMT
-2.64%
1.096%
1.069%
-0.027%
(5,760,158)
30.70%
500
IBM
-1.28%
1.685%
1.666%
-0.019%
(1,590,569)
18.62%
500
GS
-2.18%
0.721%
0.706%
-0.015%
(1,157,222)
7.97%
500
QCOM
-2.39%
0.600%
0.587%
-0.013%
(4,089,800)
18.28%
500
PG
-0.85%
1.790%
1.777%
-0.012%
(2,191,196)
13.73%
400
AAP
-5.25%
0.497%
0.470%
-0.027%
(305,666)
14.67%
400
DLTR
-3.90%
0.593%
0.569%
-0.024%
(219,860)
13.23%
400
PETM
-4.24%
0.429%
0.410%
-0.019%
(333,532)
20.92%
400
ARO
-5.62%
0.322%
0.303%
-0.019%
(350,928)
9.29%
400
NFLX
-2.37%
0.544%
0.530%
-0.014%
(66,232)
1.79%
600
TTC
-3.38%
0.4414%
0.4245%
-0.017%
(72,370)
17.05%
600
GEO
-4.71%
0.2514%
0.2385%
-0.013%
(149,746)
21.47%
600
MGLN
-3.49%
0.3284%
0.3155%
-0.013%
(76,536)
32.07%
600
PSSI
-2.91%
0.3200%
0.3093%
-0.011%
(111,212)
15.49%
600
PNY
-1.87%
0.4539%
0.4433%
-0.011%
(95,573)
20.38%