Month: February 2012

Oil could turn to headwind as Dow flirts with 13,000

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Worried oil could turn from a tailwind to a headwind, traders are watching to see if the Dow can once again crack and hold the 13,000 mark.

The Dow Tuesday crossed and then backed away from 13,000, a big round number with more psychological impact than anything else. The Dow was 15 points higher at 12,965. The SandP 500, meanwhile finished the day up just under a point at 1,362, one point below its 2011 closing high and 8 points below its 2011 intraday high.

But the real sizzler was oil, which jumped sharply on a combination of supply concerns and on expectations a new bailout of Greece will be good for Europe and on new easing by China. West Texas Intermediate futures (for April) finished up 2.6% Tuesday, at USD 106.25 per barrel, the highest level since May 4, 2011 and well off its October low of USD 75.67.

Oil was following the big gain made in electronic trading Monday, when regular floor trading was closed for the President`s Day holiday. Rising tensions with Iran sparked a jump in prices over the weekend. Brent crude, the international oil benchmark, saw a smaller gain Tuesday, rising 1.3% to USD 121.66 per barrel.

“As the Iranians are seen as more and more serious about being disruptive, you`ll see the price grinding higher… but if they can pull off getting everybody stepping back and even fake engagement in the negotiation process, it could go back to the mid USD 90s very quickly,” said John Kilduff of Again Capital.

Energy stocks were the big winner Tuesday, gaining 0.8% as the best performing sector, but airline stocks were under pressure from rising fuel costs.

Existing home sales is the big number for markets Wednesday, when the monthly number is reported at 10 a.m. EST. But Dell, which reported earnings Tuesday, could be a negative weight on markets Wednesday morning, casting a cloud over the tech sector. Dell forecast first-quarter revenue below expectations after reporting weaker-than-expected earnings for the fourth quarter. Dell`s net income was down 18% at USD 764 million, or USD 0.43 per share.

Earnings Wednesday are expected from Dollar Tree, Toll Brothers, TJX, Eaton Vance, R.R. Donnelley, MGM Resorts and Garmin. After the bell earnings are expected from Hewlett-Packard, Limited Brands, Express Scripts, Boston Beer, and Williams Companies. There is also a $35 billion auction of 5-year notes at 1 p.m.

Dow`s Key 13,000 Mark

Even as analysts expect the market to see a shallow pull back in the not too distant future, many believe that 13,000 will be a positive event for stocks.

“It affects the retail investors` confidence in the market, and it does impact overall consumer confidence,” said Peter Kenny, managing director at Knight Capital.

“What prevented it from happening today was Wal-Mart and after the bell, Dell disappointed. We`ve run into some numbers that form a bit of a hurdle for these levels, but I still think the momentum and the gradually improving macroeconomic story is giving the market a lift or a bid that might not be there otherwise,” he said. Wal-Mart profits, reported Tuesday, were hurt by price cutting which squeezed margins.

But the big hurdle for stocks? “I think it`s the geopolitics priced into oil. That`s the biggest problem that the street is looking at…That`s a problem, a really big problem for the market. It`s already started to act as a little bit of a decelerator,” Kenny said.

Economists worry that consumers will pull back as gasoline prices head towards $4, a number already showing up at the pump in some parts of the country.

Follow Patti Domm on Twitter: @pattidomm

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Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Jobs are biggest issue of next decade: Pandit, Others

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Employment is the most important issue facing the world over the next decade, Vikram Pandit, chief executive of Citigroup, along with the other co-chairs of the World Economic Forum, told journalists in Davos Wednesday.

The world needs 600 million new jobs in the next decade to cope with a rising population and the effects of the financial crisis, according to figures released earlier this week by the International Labor Organization.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is there money to fund Asia’s airline expansion?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While booming air travel in Asia has led to a rush of new aircraft orders, there is also a growing concern that financing this expansion may be difficult, especially for over-leveraged airlines given a global funding squeeze.

“If an airline is profitable, getting the financing for expansion won`t be a problem,” says Kapil Kaul, CEO, South Asia, CAPA – Centre of Aviation. “But for airlines which have been taking losses recently and are over-leveraged, I think the next few years could be very difficult.”

At present Asia Pacific airlines operate 5,436 passenger planes between them and have placed orders for another 3,200 planes, according to latest figures from US-based aviation industry analyst OAG.

India`s airlines are among the largest purchasers, with the current fleet of 427 planes set to reach 1,000 by 2020, according to CAPA. India`s Indigo and Go Air have between them recently ordered about 200 planes for more than USD 23 billion, according to a Reuters report.

Further east, Indonesia is also a market with huge potential. Indonesian carrier Lion Air ordered a record 230 planes from Boeing, finalizing this deal last week at the Singapore Airshow.

Its national carrier Garuda, which also operates a low cost carrier, CityLink, plans to expand its existing fleet of 89 aircraft to 194 by 2015.

Neighboring Malaysia`s low cost carrier Air Asia also ordered 200 Airbus aircraft last year.

“Asia has been the hot house for aircraft orders throughout the global economic downturn,” says Aviation Week`s International Editor Robert Wall. “It`s where the action is, with a widespread anticipation of huge future demand for air travel. But financing such an expansion is a worry in all this. Where will the funding come from?”

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According to industry watchers loss-making carriers may find attracting funds most difficult. A point in case is the fiercely competitive Indian market. “India`s airlines saw combined losses of around USD 6 billion between 2005 and the end of the first quarter of 2011,” says Kaul. “Many of them have balance sheet issues and there are also structural problems with the sector.”

CAPA estimates Indian carriers will incur a combined loss of USD 2.5 billion for the year that ends March 31, 2012.

Besides growing concerns over profitability, the timing is also not right given the current risk-aversion among European banks owing to the sovereign debt crisis, say some analysts.

But others argue that there is plenty of money in the market for buying mobile assets like planes.

“In terms of funding, we don`t foresee any problems,” says Elisa Lumbantoruan, Garuda`s Chief Financial Officer, “what we need we can still get.”

Airbus CEO Tom Enders told CNBC on the sidelines of the Singapore Airshow that while funding in general was not drying up, traditional sources of funding were. “Airlines need to look elsewhere (for funds). But there is lots of money around for mobile, efficient assets like aircraft.”

According to Robert Wall an aircraft is a moveable asset, which makes it easier to get finance. “You can always sell it to another airline, move it to another route, or even country.”

Export-import banks often step in to fund or offer guarantees that help secure funding for aircraft, say analysts. For example, Lion Air confirmed this week it would approach the US Ex-Im Bank to help fund its 230 plane order.

It has done this successfully before too, securing USD 1 billion in financing from the US Ex-Im Bank in 2009 to support an order for 30 Boeing 737-900ers.

Last year, the US Ex-Im Bank provided guarantees for about 29% of plane purchases from Boeing, according to the company`s finance arm.

While euro zone banks may be more reluctant to fund deals these days, “banks in the Gulf, Chinese banks, Japanese banks are also coming back, so there is money out there,” adds Wall.

But some airlines prefer leasing new aircraft instead of buying them. “These days it`s much better to lease,” says Lumbantoruan. “You can have a 7-10 year lease, with even early termination built into the contract, so you can provide passengers with latest planes every few years.”

For debt-laden and loss-making airlines especially, leasing planes makes better business sense. “With finance for over-leveraged companies difficult, what they`ll do is lease,” says Kaul. “They`ll do this to cover themselves until their balance sheets start looking healthier again in a few years` time.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Private equity firm bets on Asia’s frontier markets

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As investors chase yields by investing in high growth emerging markets, private equity firm Leopard Capital is looking beyond traditional economic powerhouses like China and India, to less talked about frontier markets including Myanmar, Bangladesh and Cambodia based on their future growth potential.

“Myanmar will be one of the great investment stories of 2013, it`s changing very rapidly now. This is a country, for 50 years that missed out on the whole Asian miracle,” said Douglas Clayton, Founder and CEO of Leopard Capital, which is in talks to launch a fund there.

“It is going to catch up very rapidly as the reforms take place…. everything is being changed, (from) the foreign exchange regime to the foreign investment code, and so on,” he added.

Cayman Islands-based Leopard Capital was set up in 2007 to invest in “pre-emerging” markets. The firm`s consulting partners include veteran investors such as Marc Faber and Jim Walker.

In terms of investment opportunities in Myanmar, Clayton says the firm is looking at sectors which represent the “essentials of life” including power, Internet, agriculture and financial services.

However, he notes that the lack of a stock exchange in the country means that it is difficult for institutional and retail investors to gain exposure to the market now. According to local media sources, Myanmar`s government has committed to developing a viable stock exchange in the country by 2015, and will start selling shares in state-owned enterprises this year.

Emerging manufacturing hubs

In addition to Myanmar, Clayton says Bangladesh and Cambodia, both of which are emerging manufacturing hubs and have growing consumer markets, look attractive.

“Bangladesh is one of the cheapest places to manufacture in, and as China gets more expensive, factories are rapidly moving down into places like Bangladesh and Cambodia,” he said.

In Bangladesh, the potential lies in traditionally “Indian-dominated” sectors such as textiles, pharmaceuticals, technology and outsourcing, he said. “We have a chance to `relive` the now foregone India play.”

According to Clayton, the best ways to invest in Bangladesh are via the stock market, the Dhaka Stock Exchange, which slumped over 35% in 2011, or private equity funds. Leopard Capital is currently putting together a USD 100 million fund for Bangladesh.

In Cambodia, where the company manages the country`s first private equity fund worth USD 34 million, sectors including financial services, consumer goods, power and telecom infrastructure and property, are the main focus, he said.

He said the 35 banks and 11 cell phone operators in Cambodia, most of which are international companies, illustrate the vast potential of the market.

While there is huge growth opportunity in these frontier markets, there are also risks to conducting business there, the most “daunting” being the lack of in-depth managerial experience within most of the local companies seeking capital, he said.

“Our team has to provide intensive operational support to help bring some portfolio companies up to international best practices,” Clayton said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Oil may extend gains as supply threats build: Survey

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Benchmark crude oil prices will likely rise this week as global supply threats build and markets price in a positive outcome to Greek debt talks, CNBC`s weekly survey showed.

Seven of this week`s sample group of eight respondents expect oil prices to climb, while one forecasts prices to remain unchanged.

Compass Global Markets` Peter Turville-Ince has a bullish call on oil this week and expects USD 120 “very soon in the WTI space” though momentum in Brent crude should “start to slow and should be limited towards USD 125/ USD 127 for now.”

Asian stocks markets rose on Monday reflecting optimism that Greece will seal a deal on a second bailout at a meeting with Euro zone officials later today.

Senior officials from euro zone finance ministries and the European Central Bank held a conference call on Sunday to go over the final details of the 130-billion-euro program, including a debt sustainability analysis critical to the IMF, Reuters reported.

While there is still skepticism in some countries that Greece will be able to live up to its commitments – including implementing 3.3 billion euros of spending cuts and tax increases – officials said momentum was behind approving the deal and that that line was likely to prevail on Monday, Reuters said.

“A lot of euro negativity priced in so a Greece deal may give a one day spike in euro against dollar, which would mean we could see a strong short term move up by oil,” said Tom James Chairman and Co-Founder of Navitas Resources. “So if you have to be short oil for some reason you could be in pain sometime this week.”

Brent crude and US crude futures hit fresh eight and nine-month highs, respectively during the Asia trading session after Iran cut supply to Britain and France. A move over the weekend by China to ease monetary policy also boosted sentiment.

“While macro data flow from the US continued to be surprisingly healthy, and there were encouraging developments over the next phase of the bailout for Greece, in our opinion, the key oil price drivers were crude supply disruptions and we are not just talking about Iran,” Societe Generale oil analysts led by Michael Wittner said in a report.

The bank identified the “big 3 current disruptions” as South Sudan, Syria, and Yemen, where oil output has been reduced by a total 730,000 barrels a day. “The level of these disruptions has gradually been creeping up, and has started to have an impact on the markets.”

Headline risk out of Iran continues to keep markets on edge and contribute to a building of the risk premium. In the latest development, Iran ordered a halt to its oil sales to Britain and France on Sunday in a move seen as retaliation against tightening EU sanctions, as a team of UN inspectors flew to Tehran to press the Islamic Republic over its disputed nuclear program.

The European Union enraged Tehran last month when it decided to impose a boycott on its oil from July 1. Iran, the world`s fifth-largest oil exporter, responded by threatening to close the Strait of Hormuz, the main Gulf oil shipping lane.

In a Feb. 15 research note, Deutsche Bank`s Soozhana Choi said global threats to oil supply were now looking the worst since the late 1970s or the early 1980s: “Our assertion is in part because of the Iranian threat to close the Strait of Hormuz. We view a blockade of the Strait as a low probability given the serious economic damage it would have on Iran itself. However, the mere utterance of such a threat is a grave concern for the oil market given the strategic importance of the Strait on a global scale.”

Kevin Kerr of Kerr Trading International added: “I think we will see more bullish undertones as long as the situation with Iran remains tense and uncertain but we are reaching critical levels here in crude and will need more data to push it much higher.”

Brent crude last week topped USD 120, validating a forecast from Dhiren Sarin, Barclays Capital`s Asia-Pac Chief Technical Strategist, who predicted move to USD 120.40 or USD 120.75 a week ago. Sarin said Brent`s move above USD 120.75 “would place the USD 127 area (2011 peaks) in focus.”

For this week, “we are maintaining our bullish outlook of the past couple of weeks as the uptrend has been orderly for a push towards USD 103.90 in WTI crude,” Sarin said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China RRR cut just ‘fine-tuning,’ more to come in 2012

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Chinese central bank`s move to boost economic growth by cutting the reserve requirement ratio (RRR) by 50 basis points over the weekend, for the second time in almost three months, is part of its “fine-tuning” of monetary policy, say analysts who expect more such easing in 2012.

Several analysts told CNBC that while they don`t expect interest rate cuts this year, further RRR easing of between 100 and 300 basis points is likely to support credit growth, even as inflationary pressures remain.

Brian Jackson, Senior Emerging Markets Strategist at Royal Bank of Canada, said Saturday`s RRR cut is a sign that China`s policymakers are making growth a priority, while still keeping an eye on inflation .

“They want to make sure that growth doesn`t tank too aggressively, but on the same hand they also want to make sure that inflation pressures don`t pick up again,” Jackson said. “So I think this is sort of the middle course, just fine-tuning policy.”

With China undergoing a leadership transition this year, Jackson says authorities will aim to keep economic policy as stable as possible.

Weak new bank loan data in January, which came in at USD 117 billion, below market forecasts of USD 158 billion, is one of the major reasons behind the People`s Bank of China`s decision to cut the reserve ratio now, according to Liu Li-Gang, Head of China Economic Research, ANZ.

“I think the biggest worry for them [central bank] is that the loan growth so far has been quite anemic and we have seen in January China`s total social financing figure, it fell by close to 50 percent, suggesting that at this moment the monetary conditions are still quite tight in China,” Liu said.

Social financing is an indicator published by the PBOC to measure aggregate financing in the real economy. It comprises loans, commercial paper, bonds, stocks and other instruments.

Liu says a more relaxed monetary policy will see state-owned sectors and large firms benefit immediately from the increased liquidity. He also expects small and medium-sized businesses to do better with more credit.

Liu expects to see up to four more RRR cuts this year totaling 200 basis points, while Jackson forecasts 200 to 300 basis point cuts in 2012.

Liquidity to Spur Inflation

While Frederic Neumann, Co-Head of Asian Economics Research at HSBC, also anticipates at least two more RRR cuts of 50 basic points each this year, he warns that if concerns over growth replace concerns over inflation it could be a “deteriorating trade-off.”

“Aggressive monetary easing – that is if China overplays its hand – could stoke more general inflation and might even re-ignite a liquidity driven rally in the stock market,” Neumann said.

“For the time being, growth is rightly the overriding concern in China. However, inflation risk lurks right beneath the surface and it may not take much easing before price pressures rebound.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Market outlook: Everyone is waiting for a stock pullback

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Markets head into the week ahead on a tentative note, even as Greece looks set to get its bailout funds.

Analysts have been saying for much of February that the market is ripe for a pullback, but the indices continue to rise, taking the SandP 500 close to its 2011 high and the Dow and Nasdaq to multi-year highs.

The SandP 500, in the past week, rose 18, or 1.4% to 1361, and it is now up 24% from its October low and nine points below its 2011 high. The Dow, up 1.2% for the week to 12,949 is in reach of 13,000, a key psychological level. It is also at the highest level since May, 2008.

“The market continues to work its way higher. We are knocking on the door of the April 29 recovery high. It feels like there are an awful lot of people calling for a correction-or at least a digestion-and I`m one of them,” said Sam Stovall, chief equity strategist at SandP Capital IQ.

Stovall said with history as a guide, when stocks rally, off a `baby bear` correction, like the one that ended in October, they on average rebound by about 23 percent within six months. The current market rally is ahead of schedule, and stocks have made similar gains in just 4-1/2 months.

“We think we`re going to get to where we are now, or even as high as 1380 (on the SandP) and then maybe go down to the low 1300s before approaching 1400. That`s the scenario our technicians are talking about,” he said. He said he would then look for a steeper correction in the second or third quarter.

Even if things go well for Greece at the European finance ministers meeting Monday, stocks could still give up some gains in the near future, analysts say.

US markets are closed Monday for the President`s Day holiday. The ministers are deciding on a 130 billion euro bailout plan that would stave off default for Greece.

“I honestly don`t have much faith in the deal though I think the ECB (European Central Bank) swap plan is technically to get them out from under and being swallowed up when a deal comes between Greece and its private creditors,” said Art Cashin, director of floor operations at UBS.

The ECB is reported to be planning to swap its Greek bonds for new bonds, in a move traders say will help it avoid the steep losses private investors are expected to take.

As Greece has edged closer to a deal, stock prices have increasingly appeared to be getting toppy.

“It`s tough not to be bearish. They do look overbought. There`s a lot of people saying the number of new highs have declined as the rally moved on. That`s a divergence and usually negative,” Cashin said. “I`m cautious in here.”

Many expect a shallow sell off but that has yet to be seen. “I won`t know until it starts,” said Cashin.

Citigroup`s chief US equities strategist Tobias Levkovich, in a note Friday, points out the market appears to be at a near term top.

“Metrics suggesting complacency and increasing margin pressures all argue that share prices may need to consolidate. Anecdotally, investors also seem more willing to buy now, fearing being left further behind the index benchmark,” he wrote.

Levkovich added, however, that his constructive view on the market is not changed, and his year-end target remains 1,425 on the SandP.

There is little US data in the coming week. In the past week, jobless claims and a few other economic reports provided a few positive surprises, giving support to the market`s gains. There are weekly jobless claims, as well as housing data in the coming week. There are also three auctions for a total USD 99 billion in Treasury notes scheduled.

Earnings season is winding down, but retailers are among the final companies to report this quarter, with Walmart and Home Depot reporting, among others.

“What`s particularly interesting about the earnings from retailers is they`ll tell you something about the different income brackets. You`ll have Saks on one hand, which will tell you about the upper income bracket and on the other hand, you have Walmart and Dollar Tree,” said Daniel Greenhaus, chief global strategist at BTIG.

Analysts have said an increasing concern for the consumer is the rise in gasoline prices, which are up 15 cents in the last month and are 40 cents higher than at the same time last year. Gasoline prices helped push the CPI higher, when it was reported up 0.2% Friday. Gasoline was up 0.9% for January.

What to Watch

Monday

President`s Day holiday

European Finance Ministers Meet on Greece

Tuesday

0100 pm USD 35 billion 2-year note auction

Earnings: Home Depot, Kraft Foods, Walmart, Macy`s, RadioShack, Saks, Steve Madden, Cabot Oil, Chesapeake energy, Dell

Wednesday

1000 am Existing home sales

0100 pm USD 35 billion 5-year note auction

Earnings: Hewlett-Packard, TJX, MGM Resorts, Limited Brands,Toll Brothers, Dollar Tree, William Cos, Express Scripts, Eaton Vance, Fluor, Hertz Global

Thursday

0830 am Weekly jobless claims

1000 am FHFA home price data

1100 am Kansas City Fed survey

0100 pm USD 29 billion 7-year auction

Earnings: Kohl`s, Target, Liberty Media, Safeway, Dish Network, Echostar, Foster Wheeler, AIG, Gap, Live Nation, Salesforce.com, TiVo, Healthsouth, Hormel, Echostar

Friday

0955 am Consumer sentiment

1000 am New home sales 1045 am St. Louis Fed President James Bullard and San Francisco Fed President John Williams on housing and monetary policy at the University of Chicago Booth School

0130 pm Philadelphia Fed Presdient Charles Plosser and New York Fed President William Dudley on fiscal challenges at the University of Chicago Booth School of Business Initiative on Global Markets

Earnings: JCPenney, Newmont Mining, Washington Post, Pinnacle West, Telefonica

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow