Friday, June 25, 2010

Today’s Top Stories; House/Senate reconciliation process wraps up; House/Senate reconciliation process wraps up $GS $JPM

Today’s Top Stories

· House/Senate reconciliation process wraps up after compromise reached on Lincoln derivatives amendment; sets stage for vote to take place next week & for Obama to sign into law by Jul 4 weekend break.  Democratic members of the House and Senate committees agreed at ~5:30amET this morning on a Lincoln compromise; no Republicans voted in favor of the reform package.  The Lincoln language was softened slightly. 

· Sens Lincoln Lautenberg Discuss Lincoln Health 91LMqHu-uhUl compromise reached - banks can trade in-house foreign exchange and interest rate swaps, gold and silver swaps, and derivatives designed to hedge their own risk.  But banks will need to spin off dealing desks to affiliates to handle agricultural, energy and metals swaps, equity swaps, and uncleared credit default swaps.  Non-financial companies "using swaps to hedge or mitigate commercial risk" are exempt from clearing the trades, as long as they explain to regulators how they are meeting financial obligations.  The financing arms of manufacturers do not have to clear swaps when they assist in selling the parent company's products.  Clearinghouses will not be forced to accept credit risk from other clearinghouses.  Capital and margin requirements for uncleared swaps done by non-bank swap dealers and major players will be set at "appropriate" levels (somewhat softer language than prior).  Regulators will have at least a year after the time of passage to implement the legislation.  Reuters 

· Volcker Rule compromise reached - would limit a bank’s investment in private-equity or hedge funds to 3 percent of a fund’s capital.

· Banks – global financial institutions win slight reprieve from Basel committee re Basel III liquidity standards (FT) 

· BP – w/the co’s stock falling to fresh lows, it is on the tape saying it remains financially strong, has the funds to meet the spill costs, and has no plans to file for bankruptcy (Reuters) 

· Europe – Romania, Greece, 12 month liquidity expiration – bunch of moving pieces today weighing on sentiment – in Romania, a court struck down a few austerity measures recently proposed, an action that could jeopardize an IMF bailout (this Romania situation today is similar to the Hungary incident of a couple weeks ago – both are nations on the fringe of Europe that don’t even use the Euro yet are still impacting the euro + broader sentiment).  Greece spreads continue to burst wider and it doesn’t seem like anyone has a great reason why.  There is a some month/Q-end rebalancing that is occurring and managers are having to sell out of their GGB positions thanks to the downgrade a few weeks back (that could be causing the widening).  There have been press reports too that Greece is setting up an EU10B fund to provide capital to its banks in the event any are found to be deficient of capital following the stress tests.  Finally, there is a lot of angst ahead of the expiration next week of the ECB’s EU500B 12 month liquidity facility (a few ECB officials are on the tape this morning indicating that the expiration won’t disrupt euro money markets). 

· Austria - becomes the first country in Europe to publish its bank stress tests - the results argue that its banks would be fine, although there are some issues.  First, the test is based on tier-1 capital (not core T1) - keep in mind that there is a sig. amount of gov't-capital in Austria banks that counts towards tier-1.  Also - liquidity wasn't really considered and "tail" sov risks (lie a Greek restructuring) aren't even looked at.  Bottom Line on these Austria tests - pretty much a non-event and other countries (Spain, France, Germany) will need to publish tests w/more disclosures and parameters.

· Euro strength - some speculation that China has been defending the euro to help keep the yuan from strengthening too quickly - says DJ - "China could be buying euros on a big scale to keep supporting the currency, and keep the dollar relatively weak, in a move designed to limit its own currency's gains" (DJ) 

· Asia - In China, the country’s Ministry of Commerce was on the tape trying to calm worries over the stronger Yuan saying it won’t impact the country’s exports. The Yuan today was fixed at 6.7896 per dollar by the PBOC (0.3% stronger than yesterday and 0.15% higher than the close in the spot market) and closed at 6.7921 per dollar, the strongest level since 1993.  On the eco front, China Industrial profit figures were released and showed a 82% increase YTD (a sequential slowdown vs. the 120% increase through the first two months of the year) while Japan’s inflation numbers came in better than expected (decline in core CPI slowed again in Apr).

· In Australia, optimism is fading that new PM Gillard will reverse the proposed mining tax but said this morning but said it was a priority to resolve the issue.

· Bernanke needs fresh monetary blitz as US recovery falters – Bernanke and his close allies at the Fed are worried that the US economy is running out of steam….however, he is waging battle w/a group of hawks who are against any further monetary stimulus.  Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion. London Telegraph. 

· Companies spending again to take advantage of eco upturn; WSJ article cites FDX specifically as one global company on the offensive when it comes to spending; this is an issue highlighted somewhat in the May-end earnings releases in recent days (ADBE, RHT, ORCL, and others, have all mentioned upping spending on facilities, sales, comp, etc, as biz trends improve); Barron’s highlighted the issue last weekend although viewed it in a neg. light, as something that could crimp op margins and prompt analysts to trim ests (indeed, one of the reasons ADBE was hit Wed was b/c of softer op margin guidance). 

· Tech - busy night of headlines - biggest earnings of the night came from ORCL, which posted a big EPS beat; a lot of the upside came from op income upside at Sun, although the core ORCL business performed well also; mgmt tone on the call remains bullish re the outlook (although a lot of this is b/c of ORCL's own strengths vs. the market).  Also in software, TIBX reported very strong earnings last night.  RIMM had a mixed report, w/EPS for the May-end Q beating, but missing on revs, ASPs, device sales, and net adds; however, op margins beat and mgmt's guidance for the Aug-end Q was fine (expectations weren't very high).  Accenture's report didn’t contain a ton of surprises and people were happy that the co reiterated its F11 local FX rev growth guidance.  Finally, Digitimes has a neg. article on the disk drives today (keep in mind these stocks have been under a lot of pressure of late due to cautious sell-side comments and the HTCH profits warning of a few weeks back).  Digitimes also is reporting that TSM and UMC will bost hike their capital spending budgets when they report earnings (this isn't really a shock as TSM yesterday said this was a possibility); the next big semi equipment data point will come the week of Jul 12 w/SEMICON and earnings (NVLS, ASML) starting.

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