Morning Note

July 14, 2011

Equity futures are trading mixed relative to fair value as European indices trade lower despite a satisfactory Italian bond issue. Asia opened weak on news of the potential downgrade by Moody’s of US debt, but managed to recoup losses and end flat to slightly up after yesterday's Chinese macroeconomic numbers gave some hint that China would still continue to have strong growth.

Libor fixings 

- Overnight Libor: Dollar: 0.123% vs prior 0.124% ; Sterling: 0.564% vs prior 0.564%; Euro: 1.410% vs prior 1.423%

- 1-month Libor: Dollar: 0.187% vs prior 0.187% ; Sterling: 0.629% vs prior 0.629%; Euro: 1.128% vs prior 1.406%

- 3-month Libor: Dollar: 0.250% vs prior 0.249% ; Sterling: 0.827% vs prior 0.827%; Euro: 1.551% vs prior 1.549%

Aug WTI crude +$0.03 to $98.08

Natural gas +$0.004 to $4.407

Gold +$11.0 to $1593.96

10-year yield 2.8987%

30-year yield 4.2085%

Asian Markets

Asian markets recovered to finish mixed after falling this morning on the Moody’s warning that it may cut its rating for US debt. China rose on the strength of yesterday’s economic data and gold miners. South Korea finished flat, unaffected by the central bank’s expected decision to keep its policy rate at 3.25%. Taiwan finished flat. A strong yen sent Japan lower. David Jones (DJS.AU) plunged 18% on a profit warning, pulling the retail sector and Australia down with it. News Corp (NWS.AU) rose 3% on giving up its attempt to take over BSkyB (BSY.LN). Rio Tinto (RIO.AU) recovered early losses to finish flat on higher Q2 iron-ore production. The yen is trading at 78.95 to the US dollar.

European Markets

European indices are trading lower hit by Moody's placing US Aaa debt rating on review for possible downgrade and Fitch's downgrade of Greece to 'CCC' from 'B+'. European leaders delayed a Greece summit meeting the NYT reported. The meeting, set for Friday, was resisted by German chancellor Angela Merkel, who argued that it was too early to deliver a comprehensive package. She is not opposed to holding a meeting later and the president of the European Council, Herman Van Rompuy hopes to organise the meeting for Monday or Tuesday. Banks are slightly lower ahead of tomorrow's test results. Helaba Landesbank Hessen-Thüringen in Germany announced it is pulling out of the stress tests to avoid failure. Industry groups trade lower 17-2 led lower by technology (1.5%), oil and gas production (0.85%) and retail (0.58%) whilst food and beverage lead relative performers. Eurozone June final CPI 2.7% y/y vs consensus 2.7% and prior +2.7%. The pound and the euro are trading at $1.6126 and $1.4226 respectively.

Today's Economic Releases (Eastern Time)

05:00 Eurozone CPI y/y (June); consensus n/a

08:30 US Initial Jobless Claims (09-Jul); consensus 404K

08:30 US Continuing Claims (02-Jul); consensus 3693K

08:30 US PPI (Jun); consensus (0.3%)

08:30 US PPI ex Food & Energy (Jun); consensus +0.2%

08:30 US Retail Sales (Jun); consensus (0.2%)

08:30 US Retail Sales ex Autos (Jun); consensus 0.0%

09:45 US Bloomberg Consumer Comfort (10-Jul); consensus n/a

10:00 US Business Inventories (May); consensus +0.8%

10:30 US EIA Natural Gas Inventories (08-Jul); consensus n/a 

Today's Key Events (Eastern Time)

08:00 H.B. Fuller Analyst and Investor Day

10:00 Bernanke testifies before the Senate Committee on Banking, Housing and Urban Affairs

13:00 Treasury Auction of 30-yr Bonds

—:— Capstone Investments with ISTA Pharmaceuticals

—:— Cisco Live

—:— FDA Panel: Oncologic Drugs Advisory Committee discuss two sBLAs for Seattle Genetics/Takeda’s Adcetris (brentuximab vedotin, SGN-35)

—:— FDA PDUFA: Class 2 resubmission of NDA for Transcept/Purdue Pharma’s Intermezzo for the treatment of insomnia

—:— International Meeting on Advanced Spine Techniques ~ IMAST

—:— Intersolar North America

—:— Needham with FuelCell Energy

—:— Rio Tinto Trading Update

—:— SEMICON West

—:— Storage Week 

Company Specific News

Earnings

JPM (JPMorgan Chase reports Q2 EPS $1.34, ex-items, vs Reuters $1.21;

Reports Q2: EPS figure exlcudes $0.27 in benefis and $0.34 in expenses/reserves. Revenues $26.78B vs Reuters $25.13B)

MAR (Marriott reports Q2 EPS $0.37 vs Reuters $0.37)

MTOX (Medtox Scientific reports Q2 EPS $0.16 vs Reuters $0.18. Reports Q2:

Revenues $27.9M vs Reuters $28.0M)

NXY (Nexen reports Q2 EPS C$0.48 vs Reuters C$0.38; Reports Q2: cash flow from operations of C$598M, or C$1.13/share)

TXI (Texas Industries reports Q4 EPS ($0.33) ex-items vs Reuters ($0.26))

YUM (YUM! Brands reports Q2 EPS $0.66 ex-items vs Reuters $0.61)

Positive News

HII (Huntington Ingalls Industries awarded $98.6M modification to previously awarded US Navy contract)

M&A

BTU (Peabody Energy (BTU) and steelmaker ArcelorMittal (MT) raised their offer for Australia's Macarthur Coal to $5.08 Billion, and agreed to start due diligence on the deal)

COP (ConocoPhillips pursuing plan to separate into two stand-alone, publicly traded companies)

ING (ING is in talks to sell its Latin American pensions unit to Saieh Group for ~$3B+.)

Offerings

CHEF (The Chefs’ Warehouse files amended S-1; to offer 8M shares in range $14-16 through Jefferies, BMO, and Wells Fargo)

TNGO (Tangoe Inc files amended S-1; to offer 8.77M shares in range of $9-10 through Deutsche Bank and Stifel Nicolaus Weisel)

Newspaper Articles / Headlines

Bazonline

- UBS looking to cut costs by CHF 1B, 5,000 jobs may be cut. UBS spokesman Peter Hart Meier says he will not comment on "rumors". Two days ago, he acknowledged that UBS will inform the market at the press conference in two weeks time about costs.

Bloomberg

-  ING's Latin American Pension Unit being considered by Saieh group for over $3B. Bloomberg reported earlier that, according to sources, Chilean entrepreneur Alvaro Saieh as well as Mexico’s Grupo Bal is in talks to buy ING Groep NV’s Latin American pension business, which is valued at over $3B.

The article notes that, according to people familiar with the matter, other members of the group include Colombia’s Santo Domingo family, J.C. Flowers & Co. and Metlife Inc. (MET). The same sources told Bloomberg that ING had suggested it may decide on the unit sale as soon as today. The article notes that, according to the people with knowledge of the plans, Saieh’s group, if successful in acquiring the ING division, plans to sell off the Mexican operations to Grupo Bal.

CNET

- UK want ads suggest Apple will launch iPhone in middle of August. CNET reports that Apple is recruiting iPhone sales staff to work 16-Aug to 29-Oct.

De Telegraaf

- Sara Lee to list Douwe Egberts in 2012. It is not clear if De Telegraaf is citing any sources. The article says the location and money to be sought from the listing have yet to be decided. Reuters reports that Douwe Egberts's annual revenues are $3B, and Sara Lee will also list Pickwick.

Digitimes

- Samsung Electronics to open new fab in September. Industry sources tell DigiTimes the factory in Hwaseong will focus on NAND chips; Samsung has said it will have a monthly capacity of 200K 12-inch wafers.

Economic Times

- Companies move work back to the UK. The Economic Times reports that Companies such as Santander (SAN. SM), Aviva (AV.LN) and BT (BT.A.LN) are moving call-centres back to the UK as a reaction to higher costs in India and a need to connect to customers back home and differentiating themselves with good PR. Companies such as Capita (CAP.LN) and Serco (SRP.LN) have been adding UK-based onshore call centres recently accoring to TechMarketView, as they try to capitalise on the trend.

Express Tribune

- Makro Habib, Metro Cash and Carry talking about merging. Officials from the Metro Pakistani unit imply to the Express Tribune that talks are in advanced stages, but no terms are given. The wholesalers have five doors each in Pakistan; sources familiar with the matter say average annual sales exceed PKR1B (€8.2M) per door.

Financial Times

- Citi changing mind, now likely to keep private-label credit-card arm. People familiar with the matter tell the FT that Citi will sell OneMain Financial and make decisions on some other assets before reaching a final decision on the credit-card arm. The article says Citi may have had trouble finding anyone willing to buy the entire unit.

- Senators call for investigation into News Corp over 9/11 victim hacking claims.

- Swedish regulators raid stock exchange to investigate competition suppression. The FT, citing the regulators, reports that they are investigating claims Nasdaq (NDAQ) and Verizon (VZ) are excluding rival operators from data centers.

- Pension regulator drops action against Chemtura after company agrees to pay £60M into scheme over 3 years. The FT reports that in December the regulator had issued a warning to the company to force contributions to its underfunded pension plan.

- Royal Bank of Scotland's loan losses to be lower than forecast. The FT, citing administrators of the Asset Protection Scheme, reports that

Losses should peak at £45B, 20% less than forecast one year ago.

In a stresses scenario, with severe macro-economic trouble in Ireland and Spain, losses would still be under £60B.

- James Murdoch unlikely to leave Chairmanship of British Sky Broadcasting. The FT, citing people close to the board, reports that although the board is uncomfortable about the scandal, the company would not change chairman, unless there are a lot of issues from shareholders.

- European Commission investigates state aid to Volkswagen (VOW.GR) and BMW (BMW.GR). The FT, citing officials at the EC, reports that they are looking at whether the €46M of aid given to a electric car project for BMW and €83.7M given to Volkswagen comply with EU state aid rules.

- Alstom bribery investigation can recommence. The FT, citing a judicial review, reports it can restart after two directors failed to win a legal challenge into the way the Serious Fraud Office gathered evidence.

Globe and Mail

- Ford looking for government help to retool assembly plant in Oakville, Ontario. An industry source tells the Globe and Mail that the project is C$500M-1B, putting Ford's requests to the Ontario and Canada governments at C$100-200M based on past programs. But the article notes that since the governments are providing almost 30% funding for Toyota's (7203.JP) Cambridge and Woodstock factories, Ford could be looking for C$300M.

GlobeSt.com

- Fisher Communications to sell Fisher Plaza headquarters building. The article notes that the company's Fisher Plaza building in Seattle is "officially" up for sale and was recently appraised at $142M. In addition, the story claims Fisher will stay in the building and lease the space.

Note that the GlobeSt article was also attached in an 8-K filed on 14-Jul.

Recall that on 22-Mar FSCI retained Moelis & Co. as its financial adviser to explore alternatives for maximizing the value of Fisher Plaza.

Indpendent

- UK's largest banks object to retail ring-fencing plan. The Independent reports that Barclays (BARC.LN), HSBC (HSBA.LN), Royal Bank of Scotland (RBS.LN), and Lloyds Banking Group (LLOY.LN) have all registered their objections with the Independent Commission on Banking. The article lays out specific objections raised by each of the four.

- British Sky Broadcasting likely to be asked to return capital to shareholders, change its board. The article is largely theoretical, rather than having any inside sources. The Independent reports that Pirc has called for an independent chairman to replace James Murdoch. Analysts say that special dividends, share buybacks, or acquisitions are possible, though one notes that News Corp (NWSA) still has 40% of the company, meaning purchases might be less likely.

London Telegraph

- European bailout vehicle (EFSF) needs to be increased to EU3.5T in order to fully end the crisis. 

New York Post

- Scripps Networks Interactive (SNI), Demand Media (DMD) exploring partnership. Sources tell the NY Post that talks are in early stages. The exact nature of the partnership is unclear -- the article says talks are "wide-ranging," though either company's buying the other seems unlikely.

New York Times

- British Sky Broadcasting drama has altered family dynamic. The NYT, citing people with knowledge of the discussions, reports that James Murdoch, chairman of BskyB argued that NewsCorp should press for regulatory approval of the deal Rupert Murdoch and CFO Chase Carey overuled him and only consulted him after the decision to withdraw the bid was final.

Nikkei

- Honda Motor seeks 15% market share in small business jets. An executive tells the Nikkei that the company thinks it can use the name "Honda" to reach the goal. Honda Aircraft has gotten orders for 100 planes at $4.5M each, and it is aiming to be profitable by 2017.

Politico

- GOP lacks lead messenger - Republicans are searching for a national figure who can go toe to toe with Barack Obama

RealtyTrac

- Foreclosure update from RealtyTrac - Foreclosure Activity Off 29 Percent For First Half Of 2011 According To RealtyTrac U.S. Foreclosure Report.  Foreclosure filings were reported on 222,740 U.S. properties in June, an increase of nearly 4 percent from the previous month, but a decrease of 29 percent from June 2010.  "It would be nice to report that foreclosure activity is dropping as a result of improvements in the economy or the housing market," said James J. Saccacio, chief executive officer of RealtyTrac. "Unfortunately, with unemployment rates inching back up, consumer confidence weak and home sales and prices continuing to languish, this doesn't appear to be the case. 

Reuters

- Germany aims for a balanced budget in 2014, aiming to reduce its current public sector shortfall faster than previously planned

SkyNews

- Melrose (MRO.LN) offers 830-840p/share for Charter. In his blog, Mark Kleinman claims to have learned of a new indicative proposal that was made within the past two days. He says Charter is considering whether to open its books to Melrose.

Wall Street Journal

- WSJ is cautious on Netflix, other companies that use internet bandwidth. A "Heard on the Street" column says that at some point, broadband providers will tier their charges for all internet usage, including fixed-line. When that happens, the price of video streaming will rise for consumers, even if Netflix leaves its prices the same.

- Credit Suisse to cut 3% of its workforce. The WSJ, citing a person familiar with the situation, reports that the roughly 1,500 jobs include staff at the private banking unit come as the group is struggling with a strong CHF 500 are at the private-bank and 600 have been previously announced.

- Borders Group bid falls apart. The WSJ reports that Najafi's Cos bid for the company was stopped after creditors complained that the private equity firm could liquidate the store after buying the business the company will be liquidated if no bids emerge for the company ahead of a Sunday headline.

- Regulators looking at what banks are saying about possible payments to settle mortgage issues. People familiar with the matter tell the WSJ that Bank of America's (BAC) announcement that it would incur $20.6B of mortgage-related charges in Q2 has led SEC officials to examine whether banks are actually telling shareholders about their "reasonably possible" losses from litigation or investigations. Other people involved in the discussions give higher numbers, but sources close to or familiar with the banks say their liabilities could be: Bank of America $7-8B, JPMorgan Chase (JPM) $4.5B, Citi (C) less than $2B, Wells Fargo (WFC) $4-5B.

- S&P has privately warned lawmakers it might d/g the US credit rating if the gov’t fails to make any of its expected payments (meaning it will d/g even if the Treasury continues to service its debt but fails to make Social Security or other payments). 

Research

Bank of America Merrill Lynch: upgraded PL; downgraded MMM

Barclays Capital: downgraded NTGR

BMO Capital: upgraded QLIK

Canaccord Adams: upgraded IMAX

Citi: upgraded EGN, NFG; downgraded CEL, MDU

Goldman Sachs: upgraded ZEUS, WSM, TOL; downgraded RTI, MTH

JP Morgan: downgraded SWC

Leerink Swann: upgraded SVNT

Morgan Keegan: upgraded ELX

RBC Capital: downgraded DGX

Stifel Nicolaus: downgraded VR

UBS: upgraded LUX

Wedbush: upgraded NTRI

Wells Fargo: upgraded NTRI

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 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.