Mar 30, 2011

The Yen Finally Eases

March 30, 2011

The Yen, which has been on a tear since the earthquake & tsunami, finally gave up some ground last night and the Nikkei popped 2.6%. Hitachi announced that their main plant will resume full operation next month in a possible sign economic activity may finally resume. There are still significant issues with the nuclear problem in Japan as tests showed that sea water near the reactor has radiation levels 3300x higher than legal limits. The local food supply, and probably also the global food supply, is now at significant risk of contamination. A herd in the mid-west tested positive for an isotope of cesium that is not naturally occurring, and has only been released from Japan.

The Case Shiller Home Price Index (see chart below) was released yesterday, and prices fell by 3.1% y/y. There has been much hand wringing about the weakness in new home starts and pricing, however, in my view this is a good trend. There is still an enormous amount of unsold inventory and foreclosures yet to clear the market, and basic economic theory dictates that when supply is high, prices must fall to stimulate demand. The government is out of bullets to support housing prices (ZIRP, HAMP, first time buyers credit, foreclosure prevention, initiatives, etc), so it appears that prices will find the bottom they should have found back in 2009 in the form of a housing double dip. The ADP employment report reported this morning that companies had hired 201K new workers in March, slightly less than last month (217K) and the estimate of 208K. The monthly employment data will be released Friday, with the estimates for nonfarm private payrolls at 203K, nonfarm payrolls 185K, and the unemployment rate at 8.9%.

Biotech drug maker Cephalon’s stock is up 28% this morning after receiving an unsolicited takeover offer from Valeant Pharmaceuticals. Data processing leader Acxiom is down 18% this morning after pre-announcing earnings and accepting the resignations of both the CEO and CFO.

Saudi Arabia announced plans to increase their rig counts by 28% as fast as possible from 92 to 118.

DigiTimes is reporting that prices for 12” blank wafers will rise 15% in Q3 due to supply constraints stemming from the March 11 earthquake in Japan. Japan’s SHE has 15-20% of the global market share, and was forced to shut down its plant in Fukushima. Additionally, interruptions of fiber glass, polishing slurries, and other materials may impact the semiconductor supply chain.

Oil prices have eased slightly the past two days after Qatar became the first Arab state to recognize the rebel forces in control of eastern Libya. The announcement came soon after Ali Tarhouni, a rebel official in charge of economic, financial and oil matters, was quoted in news reports as saying Qatar agreed to market crude oil produced in eastern Libya. Qatar's diplomatic recognition of the rebel forces was supported by the Gulf Cooperation Council. In fighting, the rebels appear to be losing ground due to a lack of munitions and fuel in spite of the NATO air support. NATO members are still prohibited from providing the rebels with arms due to a total arms embargo against the country.

A report by BNP Paribas concluded that inflation has taken away all of the benefits of the payroll tax cut which was pushed through Congress. According to the report there’s no sign of increased spending by consumers as rising food and energy prices more than consume the incremental take home pay.

Tokyo Electric Power announced they would write off four of the six reactors at Fukushima. The company plans to shut them down permanently. “We have no choice but to scrap the units” said interim President Tsunehisa Katsumata.

House GOP leaders have reached across the aisle to moderate Democrats to help avoid a government shutdown. Hard-liners in the GOP are taking a stand, saying they won’t extend the government’s spending authority without agreement on spending cuts of roughly $70 billion. Hard line Dems won’t agree to such “aggressive” cuts, and have proposed cuts of $6 billion. With a $1.7 trillion budget deficit it is obvious neither of these groups is fit to lead.

In a direct effort to minimize dollar inflow into Brazil, President Dilma Rousseff imposed a 6% tax on foreign bond sales and loans with maturities of less than 1 year. Finance Minister Guido Mantega said “the inflow of dollars is too strong, damaging the exchange rate, appreciating the Real and harming exporters.”

APAC markets were up last night. In addition to the strength in the Nikkei, the ASX 200 was up 1.4%, Kospi up 0.9%, hang Seng up 1.7%, Taiex up 0.6%, and NZX up 0.4%. Of the major indices, only the Shangai fell.

European markets are up today.

Have a great day


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