Currency Volatility Could Hurt $C to the Tune of $7B

“Citigroup Inc. (C) could lose as much as $7 billion on currency swings if Charles Peabody is right, putting the analyst at odds with peers who say the stock will be the best performer among big U.S. banks in the year ahead.

Peabody, who leads research at Portales Partners LLC, is among only four analysts out of 34 tracked by Bloomberg who recommend investors sell Citigroup shares. He estimates the bank may lose $5 billion to $7 billion in regulatory capital this year if the dollar gains against the yen, euro and currencies in emerging markets, which provide about half the firm’s profit. That would be its worst translation loss in five years, exceeding the $3.5 billion deficit in 2011.

Former Chief Executive Officer Vikram Pandit expanded Citigroup’s overseas businesses to help it recover from 2008’s U.S. credit crisis. Peabody, who predicted the mortgage market’s plunge as early as January 2005, said the firm’s reliance on revenue from abroad is now driving his concern that a global economic slowdown will hurt the bank more than U.S. rivals.

“Those currency risks are worth taking if the high-growth prospects are there,” said Peabody, 57. “But if global growth falters, then those risks get magnified and growth doesn’t offset the currency risks.”

Citigroup’s stock will climb about 7 percent to $55.67 within the next year, according to the average of 26 analyst estimates compiled by Bloomberg. While Peabody doesn’t disclose his price targets, he said the shares could fall 50 percent. The lender has been the best performer in the 24-company KBW Bank Index (BKX), jumping 87 percent in the 12 months through yesterday.

The other five largest U.S. banks will collectively gain 0.1 percent, led by JPMorgan Chase & Co.’s 4.7 percent advance, according to the analysts.

Citigroup’s Hedges…”

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“Dole Food Co. (DOLE) Chairman David Murdock offered to buy out other shareholders in the world’s biggest fresh fruit and vegetable producer in a bid he said amounts to an enterprise value of $1.5 billion.

Murdock offered $12 a share in cash for the 60 percent stake in Westlake Village, California-based Dole that’s not owned by him or his family, he said today in a statement. That’s 18 percent more than the stock’s $10.20 price at the close in New York yesterday.

The offer was made yesterday evening…”

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“Gold declined to the lowest price in more than two weeks in London on speculation the Federal Reserve will curb stimulus as the U.S. economy strengthens. Palladium retreated from a two-month high.

Standard & Poor’s lifted its outlook for the U.S.’s AA+ credit rating yesterday to stable from negative, citing receding fiscal risks. Federal Reserve Chairman Ben S. Bernanke said last month the central bank could curtail its $85 billion monthly bond purchases if the economy improves. Chinese markets remain closed today and tomorrow for holidays.

“Upbeat sentiment over the U.S. economic outlook continues to feed concerns of increasing U.S. yields and an easing pace to QE3,” Andrey Kryuchenkov, an analyst at VTB Capital in London, wrote in a report, referring to quantitative easing. “Volumes in Asia will be subdued due to holidays in China.”

Gold for immediate delivery slid 1.2 percent to $1,370.37 an ounce by 11:19 a.m. in London. Prices fell to $1,367.75, the lowest level since May 23. Bullion for August delivery was 1.2 percent lower at $1,369.40 on the Comex in New York. Futures trading volume was 7 percent below the average in the past 100 days for this time of day, according to data compiled by Bloomberg.

Morning Fixing

Bullion at the morning “fixing,” used by some mining companies to sell output, was at $1,369.50 in London, down from $1,383.25 yesterday afternoon….”

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“West Texas Intermediate declined for a second day before a report forecast to show crude stockpiles increased last week in the U.S., the world’s biggest consumer of the commodity.

Futures declined as much as 0.7 percent in New York. U.S. crude inventories probably rose by550,000 barrels to 391.8 million last week, and U.S. gasoline supplies by 500,000 barrels to 219.3 million, according to a Bloomberg News survey before the report tomorrow from the Energy Information Administration. The Organization of Petroleum Exporting Countries will release monthly estimates of supply and demand today.

“Fundamentals are still skewed towards over-supply, though there are some minor clouds on the horizon,” Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark.

WTI for July delivery fell by as much as 65 cents to $95.12 a barrel and was at $95.15 in electronic trading on the New York Mercantile Exchange at 11:37 a.m. London time. The volume of all futures traded was 27 percent below the 100-day average. The contract settled at $95.77 yesterday, the lowest close since June 6.

Brent for July settlement decreased 91 cents to $103.04 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to WTI shrank to as little as $7.87 a barrel today, the narrowest gap since May 22….”

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“June 11 (Bloomberg) — U.K. industrial production unexpectedly rose in April, boosted by increased output at oil and water companies. Manufacturing fell after gains in February and March.

Output at factories, utilities and mines rose 0.1 percent from March, the Office for National Statistics said today in London. The median forecast of 28 economists in a Bloomberg News survey was for no change. Manufacturing dropped 0.2 percent after gains averaging 0.9 percent in the previous two months.

Industrial output posted its strongest quarterly performance in almost three years through April, adding to signs the economy is gaining momentum after returning to growth in the first quarter. Surveys by Markit Economics published this month showed services and manufacturing were at the highest in 14 months in May. The euro area, Britain’s largest trading partner, is also showing signs of improvement, with European Central Bank President Mario Draghi saying last week the region’s economy will return to growth by the end of the year.

“The U.K. economy can and will get better,” said Rob Wood, an economist at Berenberg Bank in London. “Today’s industrial production data suggest the sector will contribute positively to growth in the second quarter.”

The pound fell after the data were published, and traded at $1.5553 at 10:43 a.m. in London, down 0.1 percent from yesterday.

Quarterly Growth

In the three months through April, industrial production gained 0.8 percent, the largest increase since July 2010, the ONS said. Manufacturing rose 0.5 percent, the most since September last year. From a year earlier, manufacturing fell 0.5 percent and industrial production declined 0.6 percent.

Out of 13 categories in manufacturing, 10 declined in April, while three increased. The fall on the month was led by transport equipment. There were also declines in the output of wood and paper products and basic metals and metal goods. The declines were largely offset by a 14 percent jump in pharmaceuticals production….”

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“European stocks slid to a seven-week low as the Bank of Japan refrained from expanding stimulus and Treasury yields climbed. U.S. index futures and Asian shares also declined.

Legrand SA retreated 4 percent after Wendel sold the remaining 14.4 million shares it holds in the world’s largest maker of switches, plugs and lighting controls. ICAP Plc dropped 3.6 percent after Credit Suisse Group AG recommended selling the shares. A gauge of European commodity producers retreated to the lowest since July 2009 as copper dropped for a fourth day in London trading.

The Stoxx Europe 600 Index fell 1.6 percent to 290.5 at 10:48 a.m. in London, the lowest since April 23. The gauge has retreated 6.4 percent since May 22 amid speculation the Federal Reserve will taper its bond-buying program as the U.S. economy strengthens. Standard & Poor’s 500 Index futures lost 0.8 percent, while the MSCI Asia Pacific Index dropped 0.2 percent.

“Uncertainty weighs on markets today,” said Eric Bernhardt, chief investment officer at Umblin AG in Zurich. “Investors are disappointed by the BOJ’s unchanged policy as they had hoped they would do more to solve the problems on the Japanese bond market.”

The benchmark 10-year U.S. Treasury yield climbed as much as five basis points to 2.26 percent, the highest level since April 2012.

The BOJ today refrained from expanding its tools to rekindle inflation and stoke growth, sticking with an April pledge to increase the monetary base by 60 trillion yen ($620 billion) to 70 trillion yen a year. Markets in China were closed for the Dragon Boat Festival.

Japan Focus…”

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“European Union regulators plan to request new powers to lower air-traffic charges and shorten flight routes in the bloc, challenging national controllers in a bid to offer relief for carriers.

The European Commission intends to present proposals today to tackle the national fragmentation of Europe’s airspace. The draft legislation would give the Brussels-based commission greater authority to enforce performance standards for air-traffic-control organizations and would open up their support services such as meteorology and data collection to competition…..”

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“Australia’s dollar fell to the lowest in almost three years versus the greenback after home-loan approvals grew at the slowest pace in three months, boosting the case for further cuts to borrowing costs.

Australia’s currency slid for a third day amid speculation the Federal Reserve will reduce stimulus this year, narrowing Australia’s interest-rate advantage. The Aussie and New Zealanddollars dropped against the yen after the Bank of Japan kept monetary policy unchanged, disappointing investors who had expected it to introduce measures to stem market volatility. The kiwi dollar was set for its lowest close in a year.

“Housing is the one area most likely to make up for the mining investment downturn, and it’s disappointed,” said Joseph Capurso, a Sydney-based foreign-exchange strategist atCommonwealth Bank of Australia. “You’ve got to say that the Aussie’s going to keep on falling.”

Australia’s dollar slid 1.1 percent to 93.61 U.S. cents as of 5:18 p.m. in Sydney after touching 93.54, the lowest since September 2010. New Zealand’s currency fell 0.9 percent to 78.34 U.S. cents, set for its weakest close since June 2012. The Aussie dropped 1.6 percent to 92.02 yen, while the kiwi tumbled 1.4 percent to 76.94 yen.

Australian home-loan approvals rose 0.8 percent in April from the month before, the smallest increase since January. Economists surveyed by Bloomberg News forecast a 2 percent rise. March’s gain was revised to 4.8 percent from 5.2 percent.

Reserve Bank of Australia Governor Glenn Stevens and his board reduced the overnight cash-rate target to a record 2.75 percent last month. A benign inflation outlook gave them scope to help industries including construction to rebalance growth away from resource investment….”

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“Emerging-market stocks retreated, sending the benchmark measure down 10 percent from this year’s peak, as disappointing Chinese data added to concern the global economy is faltering. India’s rupee slumped to a record.

PetroChina Co. (857) fell to the lowest price since 2010, while OAO Lukoil paced losses among Russian commodity stocks. Brazil’s Ibovespa extended a slump from this year’s high to 19 percent, as beef producer JBS SA slid. The rupee posted its largest drop in more than 20 months on bets the central bank will refrain from lowering borrowing costs. Mexico’s IPC index rose the most among major equity benchmarks in the Americas and Europe.

The MSCI Emerging Markets Index retreated 0.8 percent to 972.89, extending the decline from its Jan. 3 peak to 10 percent. China’s industrial production rose a less-than-forecast 9.2 percent last month, while export gains were at a 10-month low and imports dropped, data over the weekend showed. A government report on June 7 showed U.S. employers took on more workers than forecast last month.

“Investors are not seeking additional risk at this point,”Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $380 billion, said by phone. “The data from North Americacontinues to indicate recovery, but that’s not necessarily true for the rest of the world. The sun appears to be rising in the U.S. faster than in other geographies, and China is on the list.”

Consumer discretionary and commodity shares led losses in a measure of developing-nation stocks among 10 groups. The broad gauge extended this year’s drop to 7.8 percent, compared with a 10 percent jump in the MSCI World Index….”

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“SoftBank Corp. (9984), the Japanese mobile carrier controlled by Masayoshi Son, raised its offer for Sprint Nextel Corp (S). by 7.5 percent to $21.6 billion to counter a bid from billionaireCharlie Ergen’s Dish Network Corp (DISH).

SoftBank will pay $16.6 billion to Sprint shareholders and inject $5 billion of new capital into the target for a 78 percent stake, the Tokyo-based carrier said in a statement today. Dish has until June 18 to make its “best and final” offer as its current $25.5 billion proposal isn’t “actionable,” Sprint said separately.

Billionaire Son, who has the backing of Sprint’s board and second-largest investor Paulson & Co., raised the stakes to fulfill his ambition of expanding into North America with the third-largest U.S. carrier. Success for the Japanese company would thwart Ergen’s plan to break into wireless and offer a bundle of satellite TV, mobile and Internet services.

“If SoftBank can’t buy Sprint, it will mess up Son’s strategy for growth, so this is very positive,” said Masamitsu Ohki, a fund manager at Stats Investment Management Co., a Tokyo based hedge fund. “This would be the first step for his global strategy since he can’t expect growth from the Japanese domestic market.”

Shares (9984) of SoftBank fell 0.4 percent to 5,500 yen at the close of trade in Tokyo, trimming this year’s gain to 75 percent.Japan’s benchmark Nikkei 225 Stock Average fell 1.5 percent today. Sprint shares fell 0.8 percent to $7.18 yesterday in New York.

‘Tremendous Value’…”

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“Stocks, bonds and commodities fell around the world and the yen strengthened after Bank of Japan Governor Haruhiko Kuroda left his stimulus efforts unchanged, stoking speculation central banks will fail to keep the global recovery on track.

The MSCI All-Country World Index dropped 0.2 percent to 365.26 at 10:10 a.m. in London. The Standard & Poor’s 500 Index futures lost 0.4 percent. The S&P GSCI gauge of 24 raw materials retreated 0.4 percent. Japan’s currency strengthened at least 1 percent against all its 16 major peers. The Australian dollar sank to the lowest level in almost three years and Asian currencies declined. Greek, Portuguese and Irish bonds tumbled.

The BOJ left unaltered the one-year fixed-rate loan facility the bank has tapped seven times amid a surge in bond yields. At a press briefing in Tokyo, Kuroda said that the central bank will discuss longer funding operations if they become necessary. While global stocks have dropped 3.8 percent from this year’s peak on May 21 on speculation the Federal Reserve will taper bond purchases, they are still 7.5 percent higher in 2013.

“Investors are realizing that very low funding rates aren’t set in stone,” said Michael Leister, an interest-rate strategist at Commerzbank AG in London. “We are seeing a lot of volatility and the jury remains out on exactly what the BOJ will achieve.”

ICAP Downgrade

The Stoxx Europe 600 Index slid 1 percent, with more than six shares declining for every one that advanced. ICAP Plc slipped 4.1 percent, the most in two months, after Credit Suisse Group AG downgraded the world’s largest broker of transactions…”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Japan, Italy, Spain, France,  and Germany …

“Yoga and athletic apparel maker Lululemon Athletica Inc. (NASDAQ: LULU) reported first quarter 2013 results after markets closed today. For the quarter the company reported diluted earnings per share (EPS) of $0.32 on revenue of $345.8 million. In the same period a year ago, the company reported EPS of $0.32 on revenue of $285.7 million. First-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.30 and $341.07 million in revenues….”

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“FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.

Veteran Advisor Reveals 8 Great Investment Rules He Learned From A Non-Professional Investor (Advisor Perspectives)

Rob Isbitts of Sungarden Investment Research, who was named one of the top U.S. wealth advisors four times by Worth magazine, said he got some of his best investment advice from his father, a non-professional investor. Those are “ingrained” in his firm’s investment process.

1. “Never buy a security unless you believe the reward to risk ratio is at least 2:1 in your favor.” 2. Don’t waste too much time on predictions. 3. Stock will almost always fall faster than they rallied. 4. Have a target sale price and be ready to sell at or near your target. Also be open to changing your target when conditions change. 5. Don’t follow the rabble. 6.   “In a bull market, even if you sell prematurely, another opportunity will arise elsewhere. Falling in love is for mating, not investments.” 7. In a bear market be very flexible. 8. Keep your emotions in check when you’re investing.

BlackRock Is Giving Equity Managers The Boot (Pensions & Investments)

BlackRock has replaced portfolio managers on 80% of its equity teams in the past year and a half, according to Pensions & Investments. And this has extended to research analysts as well with entire teams being laid off. BlackRock saw $20.5 billion in net outflows from its active equity portfolios in the year through March 31. Active equity accounts for a smaller part of its AUM but a significant portion of revenue.

Last Month Was Very Bad For Low Volatility Strategies (Falkenblog)

Many researchers are questioning low volatility strategies after their underperformance relative to high beta strategies.

Falkenblog

Detroit-Based Advisor Agrees To Settle Charges That It Stole From A Pension Fund For The City’s Police And Firefighters (SEC)

Chauncey Mayfield and his MayfieldGentry Realty Advisors will pay back almost $3.1 million that was allegedly stolen from a pension fund it managed for Detroit’s police and firefighters, according to the SEC….”

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“The massive sell-off across emerging markets continues in force today.

One of the big themes in global markets over the past month has been the rise in U.S. Treasury yields and the attendant strength in the U.S. dollar. This has caused a big unwind in emerging markets, as EM currencies depreciate against the dollar and higher-yielding EM government bonds look less attractive relative to Treasuries.

The 10-year Turkish government bond yield rose 22 basis points today to 4.22%. In South Africa, 10-year yields rose 28 basis points to 7.84%. And in Mexico, 10-year government bond yields widened 5 basis points to 3.33%.

Business Insider/Matthew Boesler, data from Bloomberg

And if you’re looking for a really ugly chart, inflation linkers in Brazil are getting absolutely massacred….”

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“NEW YORK (Reuters) – The dollar rose again the yen and U.S. bond yields neared 14-month highs on Monday on improved sentiment toward the U.S. economy after rating agency Standard & Poor’s dropped its negative credit outlook for U.S. government debt.

S&P upgraded the U.S. credit outlook to “stable” from “negative,” saying the chances of a downgrade of the country’s rating is “less than one in three.

The dollar extended gains versus the yen to hit a session high, while prices for long-dated Treasury debt slipped, continuing a selloff sparked by uncertainty over when the Federal Reserve would begin scaling back bond purchases.

The 30-year bond’s yield rose to its highest since April 2012 after the S&P revision, while the 10-year note’s yield touched 2.20 percent for just the second time since then.

German Bund futures fell to a three-month low with the September Bund futures contract settling down 54 ticks at 142.85, its lowest since mid-March.

Analysts and investors said the S&P news was unlikely to spur a sharp rally or impact speculation about when the Fed might ease back on its bond buying, but added to generally upbeat sentiment about the outlook for the U.S. economy….”

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“Monsanto won another round in a legal battle with organic growers Monday as an appeals court threw out the growers’ efforts to stop the company from suing farmers if traces of its patented biotech genes are found in crops.

The U.S. Court of Appeals for the Federal Circuit affirmed a ruling that found organic growers had no reason to try to block Monsanto from suing them, as the company had pledged it would not take them to court if biotech crops accidentally mix in with organics.

Organic farmers and others have worried for years that Monsanto will sue them for patent infringement if their crops get contaminated with Monsanto biotech crops.

(Read More: Supreme Court Rules for Monsanto in Patent Case)

In its ruling Monday, the appellate court said that organic growers must rely on company assurances on its website that it will not sue them so long as the mix is very slight.

“Monsanto’s binding representations remove any risk of suit against the appellants as users or sellers of trace amounts (less than one percent) of modified seed,” the court stated in its ruling.

In a statement issued Monday, the company said, “The assertion that Monsanto would pursue patent infringement against farmers that have no interest in using the company’s patented seed technology was hypothetical from the outset.”

Monsanto has developed a reputation for zealously defending patents on its genetically altered crops, which include patented “Roundup Ready” soybeans, corn and cotton, genetically altered to tolerate treatments of its Roundup weedkiller….”

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“Texas Instruments said it expects second-quarter earnings of 39 to 43 cents a share. That’s narrower than the 37 cents to 45 cents a share TI had previously projected but still in line with the consensus estimate of 42 cents a share, according to a survey by Thomson Reuters.

The company expects revenue of $2.99 billion to $3.11 billion, narrower than the $2.93 billion to $3.17 billion previously expected, but in line with the $3.06 billion expected….”

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“As home prices rise, demand for jumbo mortgages is rising too. And as investors look for new ways to cash in on the housing recovery, these mortgages are starting to look more attractive.

Since the housing crash began, the market for jumbo mortgage-backed securities, pools of these loans sold to investors, has been close to nothing. Banks still make the loans, but hold them on their books. Now that is beginning to change.

While the number of jumbo loans originated in the first quarter of this year was up 15 percent from a year ago, the number of those loans securitized and sold by lenders was up 400 percent, according to Inside Mortgage Finance. Four billion worth of jumbo loans were sold to investors, more than the $3.5 billion in jumbos originated in all of 2012….”

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“The number of American households on food stamps reached a new record high in March, according to new data released by the Agriculture Department.

The March numbers the USDA released Friday reveal 23,116,441 households enrolled in the Supplemental Nutrition Assistance Program (SNAP), or food stamps, each receiving an average monthly benefit of $274.30.

The number of individuals on SNAP did not break any records but remained high, with 47,727,052 people enrolled in SNAP, receiving an average monthly benefit of $132.86.

The number of individuals on SNAP hit a record high in December, with 47,792,056 people enrolled.

SNAP has been in the news in recent years and months as the program’s rolls have ballooned and the cost has quadrupled since 2001 and doubled since President Obama took office.

Nearly 80 percent of the $955 billion farm bill represents funding for SNAP.  The Senate is expected to vote on the final passage of the farm bill Monday. The Senate’s bill cuts about $400 million a year from SNAP’s budget, or about half a percent of the total cost.

The House farm bill, which left committee last month, cuts about $2.5 billion from the program a annually, or about 3 percent of the SNAP budget.  The House bill is expected to come to the floor later this month….”

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