Morning Note

August 11, 2011


US equity futures are lower this morning following yesterday's selloff over continued European sovereign debt wories, this time over rumors that France's triple-A credit rating could be cut. These rumors have since been vigorously denied, but concerns over US bank exposure to European banks coupled with prolonged low interest rates and prolonged slow growth in the US persist. Weekly jobless claims will be the economic focus at 08:30 ET.


Libor fixings 

- Overnight Libor: Dollar: 0.139% vs prior 0.138% ; Sterling: 0.576% vs prior 0.574%; Euro: 0.873% vs prior 0.988%
- 1-month Libor: Dollar: 0.207% vs prior 0.207% ; Sterling: 0.645% vs prior 0.644%; Euro: 1.316% vs prior 1.329%
- 3-month Libor: Dollar: 0.286% vs prior 0.281% ; Sterling: 0.847% vs prior 0.843%; Euro: 1.489% vs prior 1.502%

Sep WTI crude ($1.22) to $81.67

Natural gas ($0.02) to $3.99

Gold ($18.00)to $1776.26

10-year yield 2.2143%
30-year yield 3.5945%


Asian Markets

Asian shares were mixed today. Decent-sized early losses were largely reversed by the end of the day on bargain-hunting. Investors also took heart from a report saying the country’s pension fund spent CNY5-10B buying stocks yesterday to stabilize the market. South Korea pushed into positive territory on bargain-hunting. Most banks fell. Australia was down (2%) early on discouraging employment data, but recovered to finish flat. Taiwan fell slightly. Japan fell when the government lowered its FY GDP growth forecast from 1.5% to 0.5%. Most exporters fell again on a strong yen. China Construction Bank (939.HK) gained 2% on hopes that the other shoe will drop and Bank of America (BAC) will finally reduce its stake. Japan June core machinery orders +7.7% m/m vs cons +1.7%. Australia July unemployment 5.1% vs 4.9% cons. July number of people employed (100) m/m vs cons +10,000. The yen is trading at 77.57 to the US dollar.

European Markets

European equity markets continued their volatile action today trading higher led by the periphery, after the three credit rating agencies reaffirmed France's AAA cedit rating and stable out and the French goverenment refuted speculation of its debt being downgraded. Reported that the ECB has been in the market today buying Spanish and Italian government bonds. Societe Generale (GLE.FP) denied all market rumours which have affected its share price yesterday leading to a recovery in the sector following yesterday's sharp falls. Germany Jul Wholesale Price Index +8.2% y/y vs prior +8.5%
The pound and the euro are trading at $1.6166 and $1.4244 respectively.


Today's Economic Releases (Eastern Time)

08:30 US Initial Jobless Claims (06-Aug); consensus 406K
08:30 US Continuing Claims (30-Jul); consensus 3707K
08:30 US Trade Balance (Jun); consensus ($48.0B)
09:45 US Bloomberg Consumer Comfort (07-Aug); consensus n/a
10:30 US EIA Natural Gas Inventories (05-Aug); consensus n/a 

Today's Key Events (Eastern Time)

08:45 Neoprobe submits NDA for Lymphoseek: 877.407.8033 / Intl 201.689.8033
13:00 Treasury Auction of 30-yr Bonds
—:— Canaccord Genuity Global Growth Conference
—:— Jefferies Global Industrial and A&D Conference
—:— JP Morgan Auto Conference
—:— JP Morgan Group Lunch with Starwood Hotels & Resorts
—:— Military Vehicles Exhibition and Conference ~ MVEC 2011
—:— Siggraph 2011 


Company Specific News

Earnings
CSCO (Cisco Systems reports Q4 EPS $0.40 ex-items vs Reuters $0.38
Guides Q1 (Oct) revenue growth +1-4% y/y ; note that consensus was modeling a 2.1% increase heading into the release)
JACK (Jack In the Box (JACK) reports Q3 EPS $0.25 ex-items vs Reuters $0.40)
KGC (Kinross Gold (KGC) reports Q2 EPS $0.20 ex-items vs Reuters $0.17)
KSS (Kohl's reports Q2 EPS $1.09 vs Reuters $1.08. Reports Q2: Previously reported revenues of $4.25B on 4-August. Q3 Guidance: EPS $0.76-0.82 vs Reuters $0.76)
NWSA (News Corp (NWSA) reports Q4 cont ops EPS $0.35)
RDEN (Elizabeth Arden reports Q4 EPS $0.18 vs Reuters $0.10. Reports Q4:
Revenues $253.8M vs Reuters $242.8M)
SPB (Spectrum Brands reports Q3 EPS $0.66 ex-items vs Reuters $0.59. Reports Q3: Revenues $804.6M vs Reuters $790.3M)
TR (Tootsie Roll Industries reports Q2 EPS $0.11 vs year-ago $0.14. Reports Q2: Revenues $105.8M vs year-ago $106.0M)

Positive News
BA (Boeing (BA) discloses order for 12 777s valued at ~$3.3B)

Offerings
CARB (Carbonite 6.3M share IPO priced at $10/sh through BofA and JPMorgan)
HLSS (Home Loan Servicing Solutions files amended S-1; to offer 18.3M shares at $15 per share through Wells Fargo and Barclays. The new offering is the size and the expected price)
HLSS (Home Loan Servicing Solutions has applied to list ordinary shares on the Nasdaq under the symbol)
NFX (Newfield Exploration files mixed securities shelf of indeterminate amount)
PER (SandRidge Permian Trust 30M-unit IPO priced at $18/unit through Morgan Stanley, Raymond James, RBC and Wells Fargo)


Newspaper Articles / Headlines

Barrons
- Barron's Weekday Trader is positive on Unilever. Barron's Weekday Trader is positive on Unilever citing the company's growing presence in emerging markets, UN's large amount of free cash, a 4.3% dividend yield and a 33% return on equity. In addition, the article notes the company trades at 12x forward earnings and has out performed the S&P 500 in the last year by around 8.5%.

Financial Times
- Bank of America CEO says will not raise capital or resign. The FT, citing a conference call with investors, reports that as well as saying no capital increase, Brian Moynihan ruled out any near-term dividend increase he did not rule out putting Countrywide into bankruptcy.
- EADS looking for acquisitions. The FT, citing CFO Hans-Peter Ring at a conference in New York, reports that the company wants to put its eur11B of net cash to work abd rebalance its portfolio the company could do some bolt-on acquisitions but would also look "at bigger targets than we bought in the first half".
- Interserve PLC CEO says will pursue organic growth. The FT, citing Adrian Ringrose at the results announcement, reports that the company's strategy is "predominantly organic".
- Interserve (IRV.LN) says it has no intention to make an offer following rejection of a revised proposal to acquire Mouchel Group
- E.ON will cut 9-11K jobs. The FT, citing CEO Johannes Teyssen, reports that the cuts( of around 11-13% of the workforce) will be concentrated in administrative functions the aim is to save €1.5B pa until 2015 reducing controllable costs to €9.5B.

Globe and Mail
- Fairfax Financial CEO Prem Watsa thinks US will go through extended period of deflation. The Globe and Mail article largely gives Watsa's opinion without breaking any news. It notes that Watsa has set Fairfax's investment strategy in line with his beliefs.

New York Post
- Investment values Michael Kors at $2.5B; IPO possible next spring

New York Times
- US seeking ideas on turning inventory of foreclosed properties into rental units. The NYT reports that the administration wants the properties to be managed by private enterprise or sold en masse the goal is to help areas where large amounts of empty properties hurt the values of neighbouring properties and to clear the overhang of houses on the market the government is looking to unload around 250K properties owned by the Fannie Mae (FNMA) and Freddie Mac (FMCC), which accounts for about half of all properties foreclosed on and awaiting sale.
- NYT discusses US exposure to Italy. The NYT, citing Federal reserve stress tests, reports that when stress tests were conducted in 2010, it appeared that US banks would be okay unless Italy became a problem US banks had small exposure to government bonds as well as larger exposure to its banks and
companies.
- NYT discusses Italy's deficit reduction program. The NYT reports that The Italian government is working the traditional August holiday period to get a deficit reduction plan completed the question is whether the government has the political will to make the harsh changes necessary the government met labour unions and business leaders yesterday to discuss changes such as pension cuts and tax increases, but nothing concrete emerged according to news reports the government is looking at are raising the retirement age for women to 65 immediately cutting aid to local governments increasing property taxes on second properties.

Nikkei
- Panasonic moving operations out of Japan to combat strong yen. In an interview, MD Makoto Uenoyama tells the Nikkei that Panasonic is moving some procurement and production operations overseas. He says that Japan's power restrictions add another reason for the decision in relation to production.

Platts
- U.S. Steel raises spot flat-rolled prices by at least $60/short ton. The memo came out this morning, as Platts says it AK Steel raised its prices (see linked comment) a few hours after hearing about US Steel's price hike.

Wall Street Journal
- WSJ is negative on GDF Suez. A "Heard on the Street" column says the company will probably continue to trade at a discount to peers until it can make more money in France and Belgium, and politics in both countries may prevent that from happening anytime soon.
- WSJ is positive on Nestle. A "Heard on the Street" column says the company looks like a good defensive play, given that its earnings are in the strong Swiss franc.
- WSJ discusses Sprint Nextel's need for cash, including further investment in Clearwire (CLWR). The WSJ reports that the company needs cash for a variety of reasons just as borrowing has become more difficult the company needs to pay-off $2.3B in debt next March. Modernisation capex of $4-5B over the next 3-5 years. The company may need to make a big investment to support its partner Clearwire into 2013, according to people familiar with the matter
- Lee Enterprises to ask lenders to exchange debt, possibly tonight. A person familiar with the matter says that the process of trading $850M in senior debt for new debt with a later maturity at higher interest rates may result in some lenders' -- including Goldman Sachs (GS) -- owning 13% of Lee. The source says holders of at least two-thirds of Lee's senior debt are in favor of the exchange, and if it gets voted down (90% approval is necessary), Lee will enter into a prepackaged bankruptcy.
- Vodafone moves closer to Indian IPO. The WSJ reports that following the sale of 5.5% of Vodafone Essar, the conditions are in place for an IPO as the sale means the company is in adherence to India's foreign direct investment rules.
- Negotiations on restructuring Jefferson County, Alabama, debt so close to, yet so far from, success. People familiar with the matter tell the WSJ that only $100M separates the sides in the $3B issue, but an agreement is being held up by concerns that the county's poor will end up paying for banks' transgressions. Bondholders try to agree on concessions to preventJefferson County, Alabama, from declaring bankruptcy.
- Amazon.com sells books via cloud, bypassing Apple (AAPL). The WSJ reports that the company has released an app enabling people to buy and read electronic books from its Kindle store the app is accesses via a browser rather than an app through Apple's app store, meaning it doesn't have to share revenue with Apple.

France AAA rating confirmed as further austerity promised. Amid swirling rumors of a downgrade and fears about Societe Generale's (SCGLY.PK) liquidity, all of which sent global stocks plunging yesterday, S&P, Fitch and Moody's confirmed France's AAA rating with a stable outlook. Nicolas Sarkozy also pledged to reduce France's budget deficit from 7.1% last year to 3% by 2013 "whatever the evolution of the economic situation." His ministers have a week to formulate new measures as concern rises over France's growth prospects and its ability to meet that deficit target.SocGen shares turn sharply red. Shares in Societe Generale (SCGLY.PK) have made a sharp about turn, plummeting 5.9% after being firmly in the green earlier. That initial rise followed a 15% decline yesterday and came after CEO Frederic Oudea described a variety of rumors, including about SocGen's liquidity, as "absolutely rubbish." SocGen has officially requested that France’s market watchdog open a probe into the origins of the speculation. European stocks also fell into the red after rising earlier, although U.S. futures were up.

BofA in talks to sell China Construction Bank shares. The wild ride that is Bank of America (BAC) looks set to continue, with shares +1.9% premarket after earlier being up over 4% and oscillating all week. The company is in exploratory talks with Kuwait's and Qatar's sovereign-wealth funds about selling up to half its 10% stake in China Construction Bank (CICHY.PK). The shares are worth about $16B and any sale would be part of the bank's strategy, as laid out by CEO Brian Moynihan on an investor call, of selling non-core assets to raise capital and meet regulatory requirements. Analysts, though, believe BofA needs about $50B in total.

Cisco surges as Q4 beats forecasts. Shares in Cisco (CSCO) surged 11.8% premarket after the company's FQ4 earnings beat analyst expectations, with EPS coming in at $0.40 and revenues rising 3% to $11.2B. Cisco said it is ahead of its plan to cut annual expenses by $1B and it predicted its FQ1 revenue would rise by up to 4%. This would beat Street estimates but would be well below growth of 27% a year earlier, while the company also faces reduced government spending as budgets are cut around the world.
SNB ruminates on more options to stop the franc. The Swiss National Bank could ease monetary policy further to curb the franc's inexorable rise without resorting to selling the currency in the market, Deputy President Thomas Jordan has reportedly said. In addition, temporarily linking the franc to the euro would be legal under the bank's mandate. His comments sparked speculation that the SNB could impose negative interest rates and so force banks to charge clients to hold their money. The franc was -1.6% vs. the dollar and -2.2% vs. the euro in midday European trading.
CME increases gold margins. The CME last night hiked margin requirements for gold futures by 22% from $6,075 to $7,425. The news knocked a few dollars off the price of the metal, and futures were lower in midday European trading. Earlier, gold touched an all-time high $1,817.60 on the Comex in New York.
Murdoch eyes Carey as heir. Rupert Murdoch has virtually anointed News Corp. (NWS) COO Chase Carey as his successor and not son James. "If anything happened to me I'm sure he'll get it immediately - if I went under a bus," Murdoch senior said yesterday. His comments came after News Corp. reported that FQ4 EPS fell to $0.26 from $0.33 a year earlier, due to a $254M loss on the sale of Myspace. However, revenue climbed 11% to $8.96B, helped by advertising sales and fees at Fox TV and the company's cable networks.
U.S. bank regulations to be in line with Basel III. The Fed is reportedly formulating regulations for the U.S.'s largest U.S. banks that won’t be more stringent than global capital standards agreed to under Basel III. This would be in line with Governor Daniel Tarullo's "goal of congruence" between Basel and the Dodd-Frank Act. "There will be a sigh of relief" that the Fed is staying within the Basel framework, said a former Fed official.
SEC probes Deere for bribery. Deere (DE) has reportedly become the latest company to be investigated by the SEC for bribing foreign officials, with the farming-equipment firm receiving a request last month about payments made in Russia and nearby countries. The investigation comes as the company is trying to exploit the growth of cities in the developing world and the need for more food production globally. And with Russia accounting for 9% of the world's arable land, Deere sees it as a long-term source of growth.
Foreclosures drop to four-year low. The number of homes receiving foreclosure filings dropped to 212,764 in July, RealtyTrac said, down 4% on month and 35% on year. As in previous months, the decline was not due to a housing recovery but to the measures taken following the "robo-signings" scandal and government programs to help homeowners stave off repossession.
Plans for foreclosed properties get mixed reaction. White House proposals to help spark a housing rebound by selling tens of thousands of properties owned by state-backed entities to investors in bulk and at discounts, and for conversion to rentals, have received mixed reviews. Some industry participants approved, as demand for rentals is rising even as prices decline, while others pointed out that buyers pay close to list prices for repossessed homes.
Focus of Google antitrust probe sharpens. Regulators are reportedly focusing their antitrust probe into Google (GOOG) on Android and search. They want to know whether Google prevents phone makers that use Android from using rivals' services and if the company grants preferential placement on its website to its own products. The existence of the probe seems to have made Google alter its behavior, with the company tweaking its search engine to assuage its competitors and to avoid a clash with antitrust authorities.
Apple world's most valuable company. For the first time ever at the close of trading, Apple (AAPL) was the world's most valuable public company, knocking Exxon Mobil (XOM) off its perch. Apple was worth $337.17B vs. $330.77B for Exxon.

Research

Argus: upgraded NYX
Bank of America Merrill Lynch: upgraded RF, ZION
Barclays: upgraded semiconductor sector; upgraded ALTR, CODE, INTC and CYMI and downgraded ADI, MU, NVDA and XLNX
Bernstein: upgraded SLB
Cowen & Co: upgraded ERTS
Credit Suisse: upgraded AAP; downgraded KGC
Duncan Williams: upgraded HCSG
Goldman Sachs: upgraded WNR; downgraded CVE, DIS
KeyBanc: upgraded CAKE; downgraded IL
Moody's: downgraded SUN
Morgan Stanley: upgraded CREE, CSCO, CL
Oppenheimer: upgraded CVX
RBC Capital: upgraded O
RW Baird: upgraded QLIK
Stifel Nicolaus: upgraded CSCO
Ticonderoga: upgraded ROST
UBS: upgraded KIM, SPG, TCO
Wedbush: upgraded XIDE
Wells Fargo: upgraded COF; downgraded UPL
Wunderlich: upgraded CSCO

CSCO - After struggling the past few quarters, Cisco delivered a good quality beat in FQ4�11.  We believe constructive macro commentary on the enterprise and service provider markets and improving Y/Y order growth trends will help reassure investors that Cisco isn�t on a perpetual downward spiral. We come away feeling better on Cisco near term with FQ1�12 guidance relatively in line with our expectations and commentary suggesting short term gross margins may be stabilizing. We don�t, however, believe CSCO is out of the woods just yet as macro risk looms and competitive threats have not evaporated overnight. jpm

U.S. INITIAL JOBLESS CLAIMS FELL 7,000 TO 395,000 LAST WEEK

TRADE DEFICIT IN U.S. WIDENED 4.4% IN JUNE TO $53.1 BILLION







http://seaofopportunity.blogspot.com/ 


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