Stock Market Awaiting The Outcome Of ECOFIN Meetings

U.S. stocks rose for a seventh straight week Friday, the longest rally since May 2007, buoyed by optimism about corporate earnings and European efforts to control the region's debt crisis. JPMorgan (JPM: 44.91 +0.46 +1.03%) jumped 2.9% as the lender posted record quarterly profit. Financial shares in the Standard & Poor's 500 Index climbed 3.2% after Wells Fargo (WFC: 32.75 +0.86 +2.70%) raised its rating for large banks on prospects for higher dividends. Higher oil prices boosted energy shares, which climbed the most among S&P 500 groups. Micron (MU: 9.71 +0.08 +0.83%), Nvidia (NVDA: 23.59 +0.20 +0.86%) and Novellus Systems (NVLS: 36.85 +4.04 +12.31%) all surged at least 12% amid optimism about semiconductor demand.

Today's Market Moving Stories

China Impacts

Overnight China's stocks fell 3%, driving the benchmark index to the lowest level in three months, as the central bank ordered banks to set aside more reserves and rising property prices signaled tightening measures may be expanded. Industrial and Commercial Bank of China Ltd. and China Construction Bank Corp. led declines for banks after the government boosted reserve requirements for the fourth time in two months. China Vanke Co. and Poly Real Estate Group Co., the nation's largest property developers, slid more than 3 percent. Qingdao Haier Co., a home appliances maker, dropped the most in two months on concern higher interest rates will damp spending.

The focus on China this week will be intense with the Hu/Obama meetings due to take place.  Some articles out over the weekend in the WSJ on this..

U.S. Presses China for Deals

The US pressing China to buy tens of billions of dollars in US aircraft, auto parts, agricultural goods and beef to build goodwill when the two countries' leaders meet Wednesday.  Chinese President Hu Jintao, in written answers to questions from The Wall Street Journal and another U.S. newspaper, emphasized the need for cooperation with the U.S. ahead of his U.S. visit this week, but called the present U.S. dollar-dominated currency system a "product of the past."

More Euro Uncertainty

The euro is weaker almost across the board ahead of Monday/Tuesday meetings of Ecofin and the Eurogroup. Nothing ground breaking has occurred, but several small developments have conspired against the currency. Over the weekend the UK's Telegraph reported that Irish banks are facing liquidity problems, while the ECB's Orphanides commented this morning that the market may have over-reacted to last week's ECB press conference (widely viewed as hawkish).

The US is closed today – so expect a slow start to the week – with most focus on any comments / sound bites coming out from ECOFIN meeting – Merkel comments over the weekend (see below) seems to confirm that Germany will not back an enlarged EFSF right now – but come up with a long lasting solution in March (Fiscal Union ?)

Merkel said on Saturday any measure to stabilize the euro should come within a complete strategic package, dampening hopes for a quick decision on moves to tackle the euro zone debt crisis. Germany faces mounting pressure from the European Commission and its euro zone partners to strengthen a rescue fund for troubled member states, the European Financial Stability Facility (EFSF)."If the discussion is about a further package of measures, it is above all important that we develop a complete strategy that must absolutely include closer economic coordination… (Sounds like a fiscal union, if Germany should.

More concern about emergency lending to Irish banks

Not ECB lending mind you – this is lending by the Irish central bank to Irish banks. Questions now being asked in the media whether Irish Central bank is indulging in a bit of QE "on the sly". All over the press – Saturday's FT, Sunday's Irish Independent, today's Telegraph, zerohedge, Irish chat rooms etc. Concern over the lack of transparency – the lending is listed under the "other assets" column on the central bank's balance sheet. No further details given. Basically, although ECB lending to Irish banks fell slightly in December, the lending via the Irish central bank increased by more than enough to compensate. In other words, things are still getting worse for the banks. Evans-P in the Telegraph headlines with: "Irish lenders besiege central bank for emergency loans"…

Telegraph says Irish lenders besiege central bank for emergency loans. And why is all this official cash needed? Because foreign depositors are pulling their cash out, even if the Irish public have not started to withdraw and bury theirs. Investors from outside the Euozone have pulled out 108 bn since late 2008. A lot of this would likely be destined for UK.

UK House Prices Up

The average price asked for by home-sellers in the U.K. edged up for the first time in three months, amid a shortage of supply that could offer some support to house prices in the coming months, data from an estate agency showed Monday. Property website Rightmove's January survey showed asking prices up 0.3% on the previous month, following sharp declines in November and December, and hovering 0.4% above prices in the comparative month a year before. Signs of cautious optimism from home-sellers contrast with the economic fundamentals facing the housing market. Prices are set to struggle under the weight of public-sector job cuts, pay rises that fail to match inflation, banks' continued reluctance to lend freely and the prospect of higher interest rates sooner or later.

Ernst & Young LLP's Item Club said say the Bank of England must "hold its nerve" and not raise its key interest rate until the recovery shows signs of overcoming the impact of the government's budget squeeze. "With inflation likely to reach 4 percent this spring, the Monetary Policy Committee will come under intense pressure," the research group said in a report in London today. It should "keep base rates where they are until it is clear that the economy is taking the fiscal adjustment in its stride." The central bank maintained emergency stimulus last week as it weighed the threats of spending cuts against the risk that higher oil prices and sales tax rate will keep inflation above the government's 3 percent limit. Citigroup Inc., Societe Generale and BNP Paribas SA said this month the bank may increase the benchmark rate faster than previously anticipated.

Company / Equity News

• Travis Perkins Plc: Down 2.4% as the U.K.'s biggest building merchant was downgraded to "sell" from a "buy" at Societe Generale
• UK & Irish banks are under pressure in Europe today with brief the press late evening Barclays shedding 1.3% as Prime Minister David Cameron said his government has had detailed talks with banks over pay and is pressing for lower bonuses, higher taxes for banks and more lending to small businesses.  "We've been having very detailed discussions with Barclays and the other major clearing banks to try to get settlement of this issue," Cameron said in an interview with BBC Radio 4's "Today" show.
• Lloyds: Slipped 2.4%on speculation it is to be broken up. On the ISEQ Allied Irish Banks has tumbled 5.3% bringing its decline in the past 12 months to 81 percent after Copenhagen-based Danske Bank said it was not considering buying Allied's Northern Ireland business, following a Sunday Times report.
• Schroders: Down 2.9% after UBS downgraded the stock to "neutral" versus "buy."
• BP (BP: 49.25 +1.71 +3.60%) deal with Russia has not gone down well in Washington, so expect some further deterioration of BP's hopes there (no longer #1 supplier to US Military and any further Govt related contracts look wishful thinking).
• Airbus SAS will today announce 2010 orders that will beat those of Boeing Co. in terms of value, daily Les Echos reported, without citing anyone. Gross orders at Airbus last year were close to 600 planes, with net orders between 540 and 550, the newspaper said. The company will announce a new order for the A320 NEO today, Les Echos added.
• Today is the deadline for final bids for EBS, with Irish Life & Permanent and Cardinal Asset Management reported to be the final two bidders. It is reported over the weekend that Cardinal has drawn up plans to bid for Irish Permanent if successful in acquiring EBS. The consortium is believed to have met with the NTMA, the Dept of Finance and the Central Bank. Separately, Irish Permanent is expected to raise its variable rates by 0.5% next month to 4.7%, in a move that is expected to be followed by the sector.

Crude Oil Falls As Alaska Pipeline Restarts, Gold Tests Support Near $1360

Commodities – Energy

Crude Oil Falls as Alaska Pipeline Restarts

Crude Oil (WTI) – $90.83 // $0.71 // 0.78%

Commentary: WTI is falling under $91 and Brent is unchanged near $97.43 as volume remains light following the MLK holiday in the U.S. Pit trading resumes on Tuesday, when we can expect the first settlement since last Friday.

Alyeska, operator of the Trans-Alaska Pipeline said that it has completed repairs to the line and that it is once again operational. It expects output to reach 0.5mmbbl/d within 24 hours. Prior to the leak, flows were near 0.6mmbbl/d.

Meanwhile, U.S. equity futures are falling modestly in overnight trade on word that Steve Jobs, CEO of tech giant Apple Inc, will be taking a medical leave of absence for an unspecified amount of time. This is the second time this has happened since 2008. While a single stock will not have a lasting impact on market direction, it could lead to pressure for a single day, especially since equities have rallied so strongly over the past few months.

Technical Outlook: Prices are drifting sideways having put in a bearish Dark Cloud Cover candlestick after retesting support-turned-resistance at rising trend line set from the swing bottom in November. On balance, positioning hints that a move lower is ahead. Initial support lines up at $87.33.

Commodities – Metals

Gold Tests Support Near $1360

Gold – $1363.35 // $0.70 // 0.05%

Commentary: Gold is holding near $1360 as the metal continues to test this notable level of technical support. As we said yesterday, "in order to see a sustainable decline in gold prices, we would need to see a meaningful reduction in investment demand for the metal. Preliminary signs of such a reduction are emerging. Gold ETF holdings have plunged 1.2 million troy ounces since peaking near 68 million troy ounces back in December. They are now at the lowest level since September, when gold was trading at prices more than $100 lower than they are now. Keep in mind, however, that this is by no means the largest drawdown in holdings during gold's 10-year bull run. For instance, we saw a drawdown in excess of over 3 million troy ounces during 2008 (incidentally, there was a big gold price correction during part of that year)."

Technical Outlook: Prices followed a Bearish Engulfing candlestick pattern below resistance at $1388.38, the 50% Fibonacci retracement of the 1/3-1/7 downswing, with a break through support at a rising trend line set from late October. Final confirmation of a larger bearish reversal requires a daily close below $1361.39, an outcome that would clear the way for a decline to the $1325-30 region. The trend line (now at $1368.32) has been recast as near-term resistance.

Silver – $28.30 // $0.02 // 0.05%

Commentary: The $28.30 level in silver is comparable to $1360 for gold. In the event of a meaningful correction in the precious metals complex, silver will likely sell off much more dramatically.

The gold/silver ratio rebounded to 48.1, remaining above the four-year low near 46 set last month. (The gold/silver ratio measures the relative value/performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance)

Technical Outlook: Prices reversed sharply lower at the $30.00 figure, dropping back to horizontal support at $28.32. A daily close below this level exposes $26.71. The $30.00 level remains as near-term resistance.

Three ETFs To Cash In On Intel

Chip bellwether, Intel Inc. (INTC: 21.08 -0.21 -0.99%), recently reported a quarterly profit of $3.39 billion, up nearly 48.7 percent from a year earlier, giving further confidence that the economy is improving and shinning a ray of light on exchange traded funds [[ETFs]] that track the semiconductor industry.

This profit of $0.59 per share came despite weaknesses seen in the consumer personal computer world and was primarily driven by increased business server demand, which aided in pushing revenues up to $11.46 billion.  This indicates that businesses are starting to loosen the grip on their wallets and make the purchases that were once put on the back burner in order to reduce operational costs. 

Furthermore, Intel continues to witness healthy gross margins, as its margins increased to 67.5 percent from 64.7 percent and above analyst expectations of 66.7 percent. 

As for the near term future of Intel, the company forecasts revenues for the current first quarter to be between $11.1 billion and $11.9 billion indicating that demand for its chips will remain elevated.  According to Miriam Gottfried of Barron's, this revenue is expected to be driven by sales of Intel's new Sandy Bridge processor. 

Other reasons Intel remains attractive include an expected $9 billion budget for capital expenditures during 2011, a ramp up in production of the company's first microprocessor based on 22 nanometers and its relative cheapness. Intel's shares are trading at roughly 10 times forward earnings as compared to nearly 21 times for competitor Advanced Micro Devices (AMD: 8.20 -0.06 -0.73%).

Although some analysts are saying that it is equally important to consider changes in consumer behavior as individuals are shunning away from PCs and turning to smartphones and tablets which don't use Intel chips, like the Apple (AAPL: 348.48 +2.80 +0.81%) iPad, these changes have already started to emerge, evident in a decline in PC sales, and Intel appears to be adapting just fine.

Some ETFs that will likely be impacted by Intel's performance include:

• Semiconductors HOLDRs (SMH: 34.41 +0.88 +2.62%), which boast Intel as its second largest holding at nearly 19.1 % of all assets.
• ProShares Ultra Semiconductors (USD: 45.375 +1.425 +3.24%), which is a leveraged play on the semiconductor industry and seeks to return 200 % of the performance of the Dow Jones US Semiconductors Index for a single day.  Intel makes up the largest equity piece of USD and allocates nearly 13.9% of its assets to Intel.
• iShares PHLX SOX Semiconductor Sector (SOXX), which allocates nearly 6.9% of its assets to Intel.

Sense On Cents Media Appearances

I believe one of the highest hurdles we have to elevating the level of 'sense on cents' within our nation is the very fact that we live 'in the moment and for the moment.' How can we achieve a greater sense of perspective on the shortcomings and failings we have had in the past so we can recognize them in the future?

Perhaps even more importantly, how can we be simply be more aware of past failings so we can more effectively navigate the economic landscape? Should we rely strictly on our financial media, our financial regulators, and our political operatives to protect our interests? Do not be so naive. We have to do better than that. We need to take personal control and pay personal attention to our own well being. How can we do that? Welcome to Sense on Cents.

In an attempt to more effectively spread the 'sense on cents', I have cleaned out some links here at the site which were not actively monitored. Additionally, I have added a Video link which highlights a few media appearances I have had over the last eighteen months. I do try to pride myself on perpetually pursuing truth, transparency, and integrity throughout our economy and our markets. On that note, I would like to highlight the material provided at this Video link. I write,

My pursuit of truth, transparency, and integrity while navigating our economic landscape is evidenced primarily via my regular writing here at Sense on Cents. In addition to my library of written work, however, I also have an extensive body of work and fabulous material archived in 65 hour long internet radio interviews with a wide array of fabulous professionals. Those interviews are retained here at my site at the No Quarter RadioSense on Cents with Larry Doyle link. Lastly, I have pursued the aforementioned virtues in the midst of media appearances on Fox Business and CNBC. Enjoy!!

>> Fox Business on September 3, 2009: discussing the Financial Industry Regulatory Authority (FINRA) in an 18-minute interview with fellow guests, former SEC chair Harvey Pitt, attorney Richard Greenfield,and Madoff investors Ronnie Sue and Dominic Ambrosino.

(If you watch only one of these videos, please take the time to watch the 18 minute clip highlighted above. The allegations made by Attorney Greenfield may leave you speechless but simultaneously incensed.)

>>CNBC on March 2, 2010: discussing Goldman Sachs. (GS: 175.00 +3.43 +2.00%)

>>CNBC on November 24, 2010 discussing insider trading scandal.

Excuse me for a little shameless self-promotion BUT the fact is I strongly believe the questions I ask and the points I raise in the midst of these appearances are consistent with my mission here. Additionally, where are the media, financial regulators, and politicians in terms of AGGRESSIVELY pursuing these virtues?

Bang the drum and spread the "Sense on Cents!!"

 

U.S. Schools Are Still Ahead—Way Ahead

From Duke/Harvard/Berkeley professor Vivek Wahwa, writing in Bloomberg;

"The independence and social skills American children develop give them a huge advantage when they join the workforce. They learn to experiment, challenge norms, and take risks. They can think for themselves, and they can innovate. This is why America remains the world leader in innovation; why Chinese and Indians invest their life savings to send their children to expensive U.S. schools when they can. India and China are changing, and as the next generations of students become like American ones, they too are beginning to innovate. So far, their education systems have held them back.

My research team at Duke looked in depth at the engineering education of China and India. We documented that these countries now graduate four to seven times as many engineers as does the U.S. The quality of these engineers, however, is so poor that most are not fit to work as engineers; their system of rote learning handicaps those who do get jobs, so it takes two to three years for them to achieve the same productivity as fresh American graduates.As a result, significant proportions of China's engineering graduates end up working on factory floors and Indian industry has to spend large sums of money retraining its employees. After four or five years in the workforce, Indians do become innovative and produce, overall, at the same quality as Americans, but they lose a valuable two to three years in their retraining.

Let's keep improving our education system and focus, in particular, on disadvantaged groups. Education is the future of our nation. But let's get over our inferiority complex. America is second to none. Rather than in mastery of facts learned by rote and great numbers of accomplished martinets, its strength lies in the diversity and innovation that arise in an open, creative society."