Wednesday, August 17, 2011

Morning Note & Options Flow Recap

August 17, 2011

US Futures are trading higher this morning, following yesterday's volatile session, when the US markets rebounded twice from negative headlines out of Europe, though still closed lower. First was the disappointing GDP figure from Germany (considered Europe's strongest economy) showing the economy had all but stalled and second came after the meeting between French President Sarkozy and German Cancellor Merkel after they reiterated opposition to Eurobonds. After the close, DELL beat on Q2 EPS, though missed on revenues and guided Q3 revenues below consensus, and reduced full-year revenue guidance.

Dallas Fed President Fisher speaks on monetary policy at 13:20 ET

II Data: Bullish sentiment decreases to 46.2% from 47.3% in the latest US Investor's Intelligence poll. Bearish sentiment is unchanged at 23.7%
Those expecting a market correction increases to 30.1% from 29.0%

Portugal T-Bill auction results 
Sells €0.99B 3M T-Bills, average yield 4.854% vs prior auction 4.967%, bid to cover 1.8 vs prior 2.6
Sells €0.17B 6M T-Bills, average yield 4.989% vs prior 4.960%, bid to cover 7.2 vs prior 3.7

Libor fixings 

- Overnight Libor: Dollar: 0.142% vs prior 0.143% ; Sterling: 0.579% vs prior 0.579%; Euro: 0.838% vs prior 0.843%
- 1-month Libor: Dollar: 0.212% vs prior 0.210% ; Sterling: 0.651% vs prior 0.650%; Euro: 1.298% vs prior 1.303%
- 3-month Libor: Dollar: 0.296% vs prior 0.293% ; Sterling: 0.858% vs prior 0.857%; Euro: 1.485% vs prior 1.488%

WTI +$1.31 at $87.96

Nat'l gas ($0.03) at $3.90

Spot Gold +$2.35 at $1787.90

10-year yield 2.2249%
30-year yield 3.6671%

Asian Markets

Asian markets were mixed after US markets fell overnight after a disappointing outcome to the Sarkozy-Merkel summit, where they failed to agree on the idea of common Euro-bonds which markets are pushing for. Better than expected US Industrial production data failed to buoy markets in the region with a low-volume directionless day. Australia led the region with commodities and banks leading the index 1.3% higher. Korea reversed early losses to end up 0.7% with strength in banks offest by losses in some industrials and exporters. Hong Kong stocks rose 0.48%, but ended off the highs after Chinese Vice Premier Li Keqiang said China will launch an ETF linked to Hong Kong stocks. China was moving slightly either side of the unchanged mark and ended down 0.3%. Japan stocks fell 0.6% after the weak housing starts number in the US and persistent strength in the yen. Tech-heavy Taiwan was the worst performer in the region following Dell's revised guidance with its suppliers. The yen is trading at 76.59 to the dollar.

European Markets

European equity markets fell from the open on disappointment of the outcome of the Merkel-Sarkozy meeting yesterday and mixed corporate results including a negative reaction to DELL's results overnight trading down (7.1%) in Frankfurt. Financials and exchanges were impacted by the German Chancellor and French President's proposal to introduce a financial transaction tax, Deutsche Boerse (DB1.GR) (7.4%), London Stock Exchnage (LSE.LN) (3.6%). Major indices hit session lows short after the open before paring declines. Swiss National Bank says intensifies measures against strong Swiss franc. Iceland raised its benchmark interest rate 25bps to 4.5%. BOE MPC Committee members voted 9-0 to keep rates at 0.5% vs last months vote 7-2 to maintain rates voted 8-1 to maintain QE at £200B, Posen voted for an increase of £50B. UK: Jul claimant count unemployment change 37.1k vs consensus 20.0k, prior revised to 31.3k from 24.5k. Jun ILO unemployment rate +7.9% vs consensus 7.7%, prior 7.7%. The pound and the euro are trading at $1.6406 and $1.4426 respectively. The pound fell post the release of BOE minutes and UK employment report.

Today's Economic Releases (Eastern Time)

04:30 UK BOE MPC minutes (Aug) voted 9-0 to keep rates at 0.5% vs last months vote 7-2 to maintain rates. BOE MPC Committee members voted 8-1 to maintain QE at £200B, Posen voted for an increase of £50B  
04:30 UK Jobless Claims (Jun); consensus 20.0k
04:30 UK ILO Unemployment rate (Jun) +7.9% vs consensus 7.7% and prior 7.7%
05:00 Eurozone CPI final y/y (Jul) +2.5% vs preliminary +2.5%
07:00 US MBA Mortgage Purchase Applications (9.1%) in 12-Aug week; total market index +4.1%. refi index +8.0% vs. +30.4%
08:30 US PPI (Jul); consensus +0.1%
08:30 US PPI ex Food & Energy (Jul); consensus +0.2%
10:30 US DOE Crude Inventories (12-Aug); consensus n/a 

Today's Key Events (Eastern Time)

08:30 Regeneron Pharmaceuticals discusses extension of the EYLEA BLA review: 888.660.6127 pc 92316573
08:30 Zogenix discusses phase III results for Zohydro to treat chronic pain: 866.788.0544
13:20 Fed's Fisher speaks on Fed and monetary policy
14:00 JMP Conference Call with KB Home CEO,CFO to discuss market strategy, co. update and housing market
—:— Bank of America Merrill Lynch Asian Technology Tour
—:— BB&T Auto Aftermarket Conference
—:— EnerCom Oil and Gas Conference
—:— Wedbush Securities Life Sciences Management Access Conference 

Company Specific News

BJ (BJ's Wholesale reports Q2 EPS $0.85 cont. operations vs Reuters $0.77. Reports Q2: Revenues $3.05B vs Reuters $3.01B)
CHS (Chico's FAS reports Q2 EPS $0.25 vs Reuters $0.24. Reports Q2: Revenues $551.4M vs Reuters $537.0M)
DE (Deere & Company reports Q3 EPS $1.69 vs Reuters $1.67. Reports Q3:
Net sales and revenues, excluding financial services and other, $7.72B vs Reuters $7.50B)
TGT (Target reports Q2 EPS $1.03 vs Reuters $0.97. Reports Q2: Revenues $16.24B vs Reuters $16.17B; note that retail sales have previously been reported. Q3 Guidance: EPS $0.70-0.75 vs Reuters $0.71. FY Guidance (Jan 2012): EPS $4.15-4.30 vs Reuters $4.12)

CNR (China Metro-Rural Holdings closes private placement of 5.9M units at $2.50/unit)
INHX (Inhibitex files $130M mixed shelf)
TUDO (Tudou Holdings 6M ADS IPO prices at $29/ADS through Credit Suisse and Deutsche Bank)

Newspaper Articles / Headlines

All Things Digital
Hewlett-Packard tablets not selling well. The article, citing sources familiar with the matter and who have seen internal HP reports, notes that Best Buy (BBY) has taken delivery of 270K touch pads and has sold less than 10%, and even that number may not include customers who have returned the item

Carlyle looking at Blackstone (BX) valuation for its IPO. The article, citing people briefed on the company's marketing materials, reports that the firm is saying it should be valued at least as much as its competitor Blackstone as its steadier earnings should reward shareholders with a more predictable dividend than other private-equity firms.

Financial Times
Google/Motorola (MMI) deal brings the company into US living rooms. Motorola Mobility is the second largest maker of set-top boxes that US cable companies lend to subscribers and so Google will control the manufacturing and the software inside them. The deal may help invigorate Google TV which didn't pan out last year partly over a lack of partnership with the big cable operators. Google may now be a competitor as well as a vendor to the cable companies.

Bank of England Governor more worried about Eurozone crisis than inflation. The Guardian, citing Mervyn King's letter to the Chancellor, reports that he expects inflation to peak at around 5% in the coming months before falling in 2012 he was very worried about the Eurozone where "Several member countries face substantial challenges in ensuring the sustainability of their fiscal positions and preserving the stability of their banking systems." which could impact the UK.

Competition heats up in the UK mortgage market. The Independent reports that lenders have been cutting rates as the chances of interest rate increases have receded and swap rates have come down.

New York Times
NYT discusses Sarkozy-Merkel summit. The NYT reports that the two leaders called for closer economic co-ordination between the 17 euro-zone countries and proposed a balanced budget obligation in their constitutions they said they would harmonize their two countries policies on corporate taxes and establish a common tax on financial transactions by 2013 they both rejected the creation of euro-bonds with Merkel saying it wouldn't help right now and Sarkozy saying they could be imagines one day "but at the end of the European integration process not at the beginning,”
Motorola/Google (GOOG) deal has $2.5B reverse break-up fee. The NYT, citing people with direct knowledge of the matter, reports that the fee is well above the usual 4-10% of a given transaction neither side is concerned about anti-trust risk as the deal is vertical integration rather than horizontal while the company didn't run a formal auction process, it pitted would-be buyers against each other to get the best deal.

Valor Economico
Carrefour CEO says Brazilian unit not for sale. Valor, citing Lars Olofsson on a visit to Brazil, reports that he wants to consolidate the process of restructuring the Brazilian business, led by a group of new executives last year and so rules out selling the unit.

Wall Street Journal
Seacoast Banking resumes paying dividends to Treasury. The WSJ, citing CEO Dennis Hudson in an interview, reports that Seacoast had missed $5.6M in dividend payments on preferred shares owned by the Treasury and paid that amount in full on Monday as well as the current quarterly payment of $625K
The company is not in a position to repay the TARP money any time soon.
Verizon increases the stakes in strike. The WSJ, citing a letter to employees, reports that the company has told union members it will suspend insurance and benefits from 31-Aug for all workers still on strike at that time.
Honda Motor US dealers say no inventory. The WSJ, citing various Hond dealers, reporst that they are bracing for a significant decline in sales this month as the company has been slower to lift production than its Japanese rivals after the earthquake, leaving a shortage of inventory at dealers.
WSJ discusses effect on refiners of Utica Shale field. The WSJ reports that if the field holds as much oil as some of the producerrs think then it could boost margins of local refineries what currently pay prices tied to the more expensive Brent benchmark increased activity by drilling companies such as Chesapeake Energy (CHK) and Devon Energy (DVN) has increased speculation of a major find.

European shares mixed after "Merkozy" meeting. European shares are mixed after Angela Merkel and Nicolas Sarkozy yesterday pledged closer fiscal integration with a "real economic government for the eurozone," but ruled out issuing eurobonds and increasing the EU's rescue fund to stem the debt crisis. Merkel called a eurobond a "last resort," although as reporter Faisal Islam noted, the time from "last resort" to signing the check can be measured in weeks. "Merkozy" also proposed a tax on financial transactions, sending shares in banks and stock exchanges lower.
SABMiller goes hostile with $10B Foster's bid. SABMiller (SBMRY.PK) has turned its A$9.51B ($9.97B) offer for Foster's Group (FBRWY.PK) hostile by making an off-market cash proposal to shareholders. The Australian brewer had rejected SABMiller's A$4.90 a share bid in June for being too low, and its shares closed at A$4.96 in Sidney today. SABMiller's offer is subject to 90% shareholder approval, and the U.K. company will cut the proposal by an amount equal to any dividend payment by Foster's in the future. Analysts are forecasting a 15 cent second half dividend to be announced next week.
Swiss franc rises after SNB disappoints. The Swiss franc is moderately higher after the Swiss National Bank announced further measures to try to curb the strong currency but stopped short of saying it would sell francs or even peg it to the euro despite mounting speculation. The bank will again increase liquidity through expanding banks' sight deposits to 200B francs ($254B) from 120B francs, and reiterated it is prepared to take further measures if necessary, although it didn't specify what these would be.
China to further loosen capital controls. China continues to use Hong Kong as a test bed to gradually ease capital controls and boost the yuan's international role, saying it will soon allow foreign investors to use the currency to buy up to 20B yuan ($3.1B) worth of mainland securities. China also disclosed plans to allow mainland companies other than financial firms to sell bonds in Hong Kong, which could vastly expand the territory as an offshore yuan market.
Dell plunges on reduced revenue guidance. Dell (DELL) shares fell 6.65% premarket after the company cut its FY revenue guidance as it became the latest PC company to fall foul of slowing sales to consumers, with orders from the U.S. government also weakening. Q2 revenue rose 0.8% to $15.66B and missed analyst forecasts, although EPS excluding items topped expectations and rose to $0.54 from $0.32. Strong demand from corporate customers helped to offset the downward pressures on earnings, while margins grew despite concerns about increased costs.
Staples profit rises and tops the Street. Staples (SPLS) Q2 earnings beat analyst estimates as adjusted EPS rose to $0.22 from $0.20 and revenue grew 5.2% to $5.82B. The company also said it expects FY adjusted EPS of $1.39-$1.45, comfortably above predictions of $1.36. Staples' operating income rate decreased 46 basis points to 4.78%, due to investments in labor and marketing in North America to support growth initiatives, which the retailer said "are building momentum." The fall in the rate was offset by improved product margins in North America and reduced overheads in Europe. Shares +8.3% premarket.
BofA in talks to sell $1B real-estate unit. Bank of America (BAC) is reportedly in negotiations to sell its Merrill Lynch real-estate unit to Blackstone (BX) for up to $1B. The sale would consist of properties in the U.S., Europe, and South America, and would be part of BofA's strategy of selling non-core assets so that it can focus on corporate borrowers, investment banking and U.S. retail customers. BofA also needs to raise money to comply with new international capital standards and cope with its huge mortgage liabilities.
BofA mortgage deal may omit New York. In an effort to bring a bit more certainty to its mortgage liabilities, Bank of America (BAC) may reportedly come to a settlement over inappropriate foreclosure practices with most state attorneys-general even if any deal omits New York and at least two other states. New York AG Eric Schneiderman opposes the agreement because he doesn't want it to halt his investigation into the bundling and sale of mortgages. In contrast, BofA wants the settlement to free it from liability for loan activities besides servicing such as securitization and lending.
Property-income ratio falls to 3.3 The ratio of property prices to income has fallen to 3.3 from a peak of 5.1 in 2005, a study from real-estate firm Zillow shows, although the figure is still above the 2.9 average in 1985-2000. Prices in Las Vegas and Detroit in particular have dropped significantly.
Court limits Galaxy ban. Samsung (SSNLF.PK) yesterday won a small battle in its global patent dispute with Apple (AAPL) after a German court scaled back a temporary EU-wide ban on Samsung's Galaxy Tab 10.1 tablet computer. The court said it doubted whether it has such a wide jurisdiction over a South Korean company, although the ban is still applicable in Germany. A hearing is set for Wednesday next week.
Judge upholds Rajaratnamn convictions. A federal judge has dismissed the request of Galleon Group founder Raj Rajaratnamn for a post-trial acquittal and upheld his convictions on 14 counts of conspiracy and securities fraud. Rajaratnamn is due to be sentenced next month, after which he is expected to appeal. Prosecutors are pressing for a sentence of over 24 years in prison.


Bank of America Merrill Lynch: downgraded REGN
BMO capital: downgraded HPQ
Canaccord Genuity: upgraded PAAS
Citi: upgraded HSP
Feltl & Company: downgraded VVTV
Morgan Stanley: downgraded DRIV
Needham: downgraded BCSI
RBC Capital: upgraded HAIN
Rodman & Renshaw: downgraded AMCF
Stephens: upgraded GLDD
Stifel Nicolaus: upgraded TW; downgraded BKD, FVE
UBS: upgraded ODP
William Blair: upgraded EQIX, VRTX


Report to Follow

Notable option market trades from yesterday’s session:

Macro / Thematic

SPY – 10,000 of the August 122 / 126 / 130 put fly was sold to buy 10,000 the September 106 / 110 / 114 put spread which traded for a net debit of $0.04.


CL – 6600 of the August 80 / 85 risk reversal traded at $1.95 to buy the November 77.5 / 85 risk reversal traded at $3.35. The traded appears to be a closing of an August combo and opening a collar or risk reversal in November.

F – 12,000 of the September 12 calls were bought for $0.30. The calls were bought to open.

GM – 3600 of the January 26 / 30 1x2 call spread was bought for $0.38. The position appears to be open however could be a roll down from the January 30 calls to the January 26s.

GME – 3800 of the August 21 calls were sold at $0.74. The calls were sold to open. The company will report earnings before the open on August 18th.

TIVO – 10,000 of the August 10 calls appear to be sold at $0.03 and the January 7.5 / 9 bullish risk reversal was bought for $0.35.


HAL – 6500 of the January 49 / 55 1x2 call spread was bought for $0.35. The trade was tied to $45.65 and appears to be to open.

SD – 10,000 of the September 9 calls appeared to be sold at $0.42.

Industrials / Materials

CAT – 3600 of the  February 95 / 105 1x2 call spread was bought for $0.40. The trade is tied to $89.60 stock and appears to be to open.

FCX – 20,000 of the August 47 / September 43 put spread was sold at $0.025 in two separate blocks of 10,000. The spread is likely a roll of a position from the August 47 puts to the September 43s.

NEM – 6700 of the March 70 calls were bought for $2.19. Newmont saw a lot of bullish activity today with over 38,400 calls and 8200 puts trading on the day.


ADSK – 3800 of the August 30 calls were bought for $0.95. The calls were bought to open.

MSFT – 15,000 of the January’13 22.5 puts appeared to be sold at $2.47. The trade was tied to 330,000 shares at $25.25. Separately, 9000 of the January 20 / 31 bullish risk reversal traded for $0.38. The trade while bullish from a directional standpoint takes advantage of the still very steep skew in Microsoft.

QCOM – 25,000 of the January’13 50 puts appeared sold at $8.30. The trade was tied to 1.05 million shares at $50.42 (42 delta). Earlier in the session 10,500 were sold at $8.35 also delta neutral.

TER – 15,000 of the January’13 10 puts appeared to be sold at $1.55.


BAC – 7500 of the January’13 10 puts were sold at $3.75.

MS – 4000 of the January’13 15 puts were sold at $2.88. The puts were sold to open.


ESRX – 2200 of the June 42.5 puts were sold at $3.00. The puts were sold to open.

PCYC – 4950 of the November 9 puts were sold at $0.60. The puts were sold to open.

RPTP – 4060 of the September 5 calls were bought for $0.35. The calls were bought to open.

Aug. 17 (Bloomberg) -- Eastman Kodak Co. may hold patents
orth five times more than the business itself, making the 131-
ear-old camera company a target in the billion-dollar hunt for
nventions used in mobile phones.
    Kodak, which once had a market value of more than $30
illion, has plunged 98 percent since its peak in the 1990s as
emand for film photography withered and smartphones equipped to
ake pictures siphoned off demand for its digital cameras. The
ochester, New York-based company has reported losses in five of
he past six years and has less than $600 million in equity
alue, according to data compiled by Bloomberg.



1.      The latest Franco-German strategy to counter the euro debt crisis stressed ideas already in the works, shunning bolder steps investors were seeking to calm markets.

2.      The leaders of Germany and France proposed a tax on financial transactions.

n  SWITZERLAND-- The franc strengthened after the  Swiss central bank stopped short of announcing a target rate or temporary peg to the euro in its third attempt in as many weeks  to drive down the currency.

n  BOE-- The nine-member Monetary Policy Committee voted unanimously to hold the key rate at a record-low 0.5%.

n  U.K.�

1.      U.K. unemployment claims increased the most in more than two years in July.

2.      Britain�s Banks Will Be Forced to Cut More Costs.

3.      London Financial Job Vacancies Decline 10% in July


1.      Chancellor Merkel �s resolve to defend Germany�s top credit rating in the wake of S&P�s U.S. downgrade is at odds with the likely expense of containing Europe�s debt crisis.

2.      German Euro Bond Critics Roused by U.S. Downgrade

n  U.S.A.�

1.      The U.S. �benefitted immeasurably� from dropping the gold standard four decades ago because the dollar became the world�s reserve currency, allowing borrowing costs to fall.

2.      Some of the gloom that settled over the U.S. economic outlook as stocks and sentiment plunged in recent weeks may soon dissipate as households keep spending  and factories keep producing.

3.      The Indiana Finance Authority  is leading five utility issuers selling about $2.5B this week as yields  on such bonds backed by customer payments are at their lowest in almost a year.

4.      Biden Carries Message of Reassurance to China on Treasuries

5.      President Obama plans to give a speech in early September to ask Congress for additional spending to boost the economy.

6.      Obama Says Strong U.S. Recovery Will Begin With Small Businesses

7.      Perry�s Swagger on Fed�s Bernanke May Raise Doubts Beyond Texas

n  CHINA-- unveiled the biggest package of measures supporting Hong Kong�s economy since the 2003 SARS epidemic, allowing more two-way investment in shares and sparking a rally in brokerage stocks.

n  INDIA-- India aims to pour $60B into ports by 2020 under a drive to spur the fastest growth in more than two decades and ease bottlenecks.

n  PERSIAN GULF� Bond sales by issuers in the Persian Gulf fell to a five-year low as debt crises in developed nations threaten a recovery in investor confidence.

n  IRAQ-- Iranian-Backed Militias Pose Top Threat to Iraq, General Says

n  SYRIA-- Syria Protesters Defy Forces as U.S. Condemns Latakia �Carnage�


1.      Efforts by U.S. regulators and government-controlled firms to recoup billions of dollars from BAC for faulty mortgages may backfire, hurting the same taxpayers they�re meant to protect.

2.      BAC may settle a state and federal probe of foreclosure practices in a deal that lets New York proceed with an inquiry into securitizations.

n  CORPORATE DEBT-- Companies are paying the most to borrow relative to benchmark government debt since September 2009 as investors shun all but the safest securities on concern the biggest economies are faltering.

n  BCS-- Barclays�s Todd Edgar Said to Leave After 2 Years to Start Fund


1.      SABMiller Takes A$9.5 Billion Bid for Foster�s Hostile

2.      Kodak Worth More in Breakup With $3 Billion Patents

3.      Manchester United Said to Plan $1 Billion Singapore Offer

4.      Gas Malaysia Said to Seek $252 Million in Initial Offering


1.      Oil Climbs From Two-Day Low

2.      Gold Gains for Third Day

3.      Wheat Rises for Third Day

4.      Coffee Rises

5.      Cocoa Drops

6.      Rubber Drops for Second Day

7.      Fertilizers Lag Food Costs

8.      Milk-Powder Prices Tumble to 12-Month Low as Demand Ebbs

n  DE-- Deere Net Beats Estimates as Global Farm-Equipment Demand Gains

n  DELL-- Dell said it saw some consumer demand weakness in June, moving into 3Q; cut year sales forecast.

n  VZ-- Verizon told 45,000 striking workers it will suspend certain benefits at the end of the month if they don�t return to work

n  TGT -- Target Sees Year EPS Above Est.; 2Q EPS Beats

n  FUTURES�1196.60, PLUS 4.30.

n  NEW HIGHS: 17.

n  NEW LOWS: 42.


n  OVERSOLD: 546.

By Arie Shapira
     Aug. 17 (Bloomberg) -- First Solar drops as much as 2.4%
premkt after co. announced departure of Jens Meyerhoff,
President of Utility Systems Business Group and former CFO.
  * Citi says mgmt overhaul complete; doesn�t believe
    Meyerhoff�s exit indicates problems w/ FSLR�s major utility
    projects; believes 3 projects that qualified for DoE loans
    �very much on track,� expects news as early as mid-Sept.
  * Separately, Goldman removed FSLR from conviction buy list,
    maintained buy rating; cut PTs across clean energy universe
    to reflect higher risk premium given global macro
  * FSLR has outperformed peers month-to-date: FSLR down 12% vs
    SPWRA down 19%, TSL down 15%, YGE down 13%
  * NOTE: YGE, CSUN report 8/18 premkt; FSLR presents at both
    BofA Clean Tech Conf., DnB NOR Renewable Energy Conf. on

 *Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!

 No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.


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