Tuesday, June 15, 2010

Today’s Top Stories $BP-Bankers all but give up on fighting “Volcker Rules”

Today’s Top Stories
· Europe moves to highs of the session after trading off 1% early in the session despite the Moody’s downgrade of Greece, reports that EU leaders will back a levy on financial institutions, cautious comments from Fitch, a WSJ article that Spain’s banks are facing a credit crunch, and weaker than expected eco readings (June German ZEW survey, Eurozone Apr. Trade Surplus and UK May CPI).
· Some positives helping equities include – reports in the FT that China is preparing to invest in Greek projects, reassuring comments from the VP of the European Commission that investors are “clearly overreacting” to the scale of the euro zone crisis, and positive newsflow out of China. China remains closed for a public holiday, however eco data remains encouraging (leading indicators for Apr. rose vs. March) and commentary out of J.P. Morgan’s China Conference was positive (see comments from J. Ulrich below).
· In Australia, the RBA minutes were release for the June Board meeting w/few surprises. North Korea has raised its military readiness though no signs of fresh provocation were visible (AP).
· Spain debt – there were reports early Mon that Spain was preparing to seek emergency financing assistance from the new EU SPV bailout fund (Spanish and European officials vehemently denied this talk, just as they did on Thurs and Fri when the chatter last hit the tape).  A separate DJ article discussed how Spanish banks are increasingly having difficulties accessing the international capital markets.  The country had decent 12 & 18-month auctions today, but all eyes are on the longer-maturity sales coming up on Thurs.  A German government official said on Tuesday that Spain was unlikely to be on the agenda of the European Union summit later this week.  Reuters 
· Ireland – debt sale goes well - Ireland sold 1.5 billion euros in bonds on Tuesday, at the top of its target range (Reuters)
· Germany - Angela Merkel's government threatened with collapse; German coalition faces trouble on several fronts; Election of new president could prove to be catalyst – Guardian. 
· BP – the co’s board meeting wrapped up Mon w/o any news announcements (although none were expected); there is going to be a drilling hearing in Congress today (execs from XOM, BP, COP, and others, will testify – see below); Obama is speaking tonight from the Oval Office (@ 8pmET) and on Wed BP’s chairman will travel to the White House.  On Wed, there is expected to be an official announcement on a $20B escrow account funded by BP to help pay for the clean-up.  The NY Post and other sources say the White House could threaten to yank BP’s oil and gas leases (which could wipe out ~$55B in revs from the company) unless it moves forward w/the escrow account. 

· GS – the co’s customers remain loyal despite all the recent headlines – per Sorkin in NYT – “there’s an inconvenient truth that’s been largely ignored: Most of Goldman’s big customers are not bolting”   NYT 
· Fed considering options in case growth falters or inflation falls further – WSJ lead article – consensus thinking at the Fed is that the recovery will continue to improve slowly, although some are growing more worried. 

· Fed Update – new report from the San Francisco Fed suggests rate hike won’t be for some time - based on projections for inflation and unemployment, suggests that the Fed may not need to raise short-term interest rates to curb growth or inflation until early 2012 (WSJ). 
· Bankers all but give up on fighting “Volcker Rules”     move onto other issues – as House and Senate negotiations kick into high gear, “they have largely agreed to stricter limits on so-called proprietary trading than those envisioned in the versions passed by either chamber”     Banks are now fighting against the so-called “Lincoln” amendment.  The latest Lincoln “compromise” wasn’t much of a change from her original proposal in the eyes of bankers.   NYT  
· Australia – Rudd could be near announcement on tax changes - Rudd's Labor government is near an agreement with some sectors of the nation's key mining industry over changes to the "resource super profits tax," which would assess a 40% tax on the net income of many mining companies, the Sydney Morning Herald reported.    Marketwatch  
· Commercial real estate – positive news for the CRE market as state insurance regulators backed away from a proposal that would have caused a sharp increase in the amount of capital that life insurers must set aside against their CRE holdings.  WSJ 
· Hedge Funds – B Wein thinks HF returns could fall by ~50% from 20% to 10%; separately, investment consultant Casey Quirk & Associates said industry AUM could surpass the prior mid-’08 record of $1.9T as early as this year (Bloomberg) 
· Carriers increasingly cutting back on data usage - Sprint to limit data roaming for laptop users according to a report in the WSJ; the carrier does not plan to limit wireless connection for high volume smartphone customers.
· Rating agencies – the financial regulatory reform reconciliation process kicks back off today @ 11amET; the focus today is expected to be on rating agencies; yesterday, the rating agency industry received some good news as Rep Frank proposed stripping the Franken amendment from the final bill; Franken was opposed to the move.  Separately, European officials stepped up their attacks on Moody’s this morning following the Greek action Mon (“the timing of Moody's decision to downgrade Greek sovereign debt was astonishing and unfortunate").
· TSM, UMC – both companies upbeat on chip demand – Reuters 
· SP500 technicals - Day support is at 1089/1083/1082.  Beyond that, short term support is 1077/1074/1072/1069/1067 and then 1052 before the low 1040s levels. Day resistance is 1098/1101. Beyond that is the key 1106-1114 clustered resistance.  Big 1041-1106 range remains intact. Bulls need to see progress vs. the top of the range to keep the tone positive. Short term bears retake the agenda below 1082/1083 (Krauss).

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