- Portugal's Debt Rating Lowered by Fitch on Finances. Portugal’s credit grade was cut by Fitch Ratings for the first time, underscoring growing concern that Europe’s weakest economies will struggle to meet their debt commitments as finances deteriorate. The rating was lowered one step to AA- with a “negative” outlook, Fitch said in a statement today, adding that further economic or fiscal underperformance this year or in 2011 may lead to another downgrade. “A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal’s creditworthiness,” Douglas Renwick, associate director at Fitch, wrote in the statement from London. “Although Portugal has not been disproportionately affected by the global downturn, prospects for economic recovery are weaker than 15 European Union peers, which will put pressure on its public finances over the medium term.” The cost of protecting against losses on Portugal’s sovereign debt rose to the highest in almost a month, according to CMA DataVision prices for credit-default swaps. Five-year contracts insuring $10 million of bonds increased $6,000 a year to $140,000. The Portuguese and Greek economies may face a “slow death” as they dedicate a higher proportion of wealth to paying off debt and investors drive up government borrowing costs, Moody’s said on Jan. 13. While the two countries can still avoid such a scenario, their window of opportunity “will not be open indefinitely,” Moody’s said.
- U.S. Economy: Durable Goods Orders Climb, Home Sales Decline. Orders for durable goods rose in February for a third month and new-home sales fell to the lowest on record, indicating manufacturing will stay at the forefront of the economic recovery. The 0.5 percent increase in bookings for long-lasting goods followed a 3.9 percent surge the prior month, the Commerce Department said today in Washington. Excluding transportation equipment, orders advanced more than anticipated. Sales of new homes fell 2.2 percent to an annual pace of 308,000 in February, the Commerce Department reported. Blizzards, unemployment and foreclosures combined to produce the fewest sales of houses last month since record- keeping began in 1963. Treasury Secretary Timothy F. Geithner yesterday said it would take a “long time” to repair the housing market. The supply of homes at the current sales rate increased to 9.2 months’ worth, the highest since May, from 8.9 months. The median price of a new home in the U.S. increased 5.2 percent to $220,500 in February from a year earlier. The advance was the largest since September 2007. Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, increased 1.1 percent after dropping 3.9 percent the prior month. Shipments of those items, used in calculating gross domestic product, climbed 0.8 percent after a 1.9 percent decrease.
- Greece to Default 'At Some Point,' UBS's Donovan Says. Greece will default on its bonds “at some point” as the euro region fails to deal with its first major economic crisis, said Paul Donovan, deputy head of global economics at UBS Investment Bank. “I think it’s in an impossible situation,” said Donovan, who is based in London, in an interview with Bloomberg Radio today. “Europe has failed to clear its first serious hurdle. If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work. It’s a bad idea.” Columbia University Professor Charles Calomiris said it’s not “inevitable” Greece will default even though it needs to cut government spending by 25 percent. “A 25 percent reduction is something I’ve never seen in any country,” Calomiris said. “It would require a huge lift.”
- Blanchflower Says UK AAA Loss May Not Be Monumental. Britain might not face as “monumental” a situation as people assume if the nation were to lose its top AAA credit rating, former Bank of England policy maker David Blanchflower said. “We have to be concerned about that, but no one has well- enumerated what it would actually mean if we did,” he said in an interview with Bloomberg Television yesterday. “I’m not so sure it would actually be quite as monumental.” Former finance minister Norman Lamont said today “it’s a risk” that Britain loses the top ratings grade because the nation’s tax take may not be enough to cover the cost of borrowing. The public finances are too tight to allow Darling to increase spending, he said. “We are getting near to a situation where receipts are not necessarily going to be adequate for paying the debt interest,” Lamont said on Bloomberg Television. “It’s crystal clear that Alistair Darling doesn’t have any room for maneuver.”
- Big Banks Begin Effort to Improve Image, Set 'Record Straight'. One of Wall Street’s main lobbying groups is starting an image-improvement campaign aimed at showing the financial industry as trustworthy and a positive force after more than a year of being chastised in Washington. The board of the Financial Services Roundtable, which represents the 150 largest banks and insurance companies in the U.S., discussed the effort last week at a meeting in New York. The public relations campaign, which will come to fruition as the mid-term election season heats up, is being led by three firms: public relations specialists APCO Worldwide, pollster Luntz Maslansky Strategic Research and DDB, an advertising agency owned by New York-based Omnicom Group Inc.
- Treasuries Tumble as Five-Year Note Auction Draws Weak Demand. Treasuries dropped as the record- tying $42 billion auction of five-year notes drew the lowest demand from a group of investors that includes foreign central banks since July. Yields on current five-year notes rose the most since August and the 10-year note’s yield increased to the highest level in more than two months. U.S. interest rate swap spreads plunged to the lowest levels in more than two decades after Fitch Ratings’s downgrade of Portugal raised the risk of owning sovereign debt and corporate bond issuance surged.
Wall Street Journal:
- Tax-Break Battle Flares. J.P. Morgan(JPM) in Talks for $1.4 Billion; Stimulus Gives $12 Billion to 250 Firms. J.P. Morgan Chase & Co. is nearing a deal that would allow it to benefit from a tax refund of as much as $1.4 billion, becoming the latest company to tap a little-noticed plank in an economic stimulus bill.
- Google's(GOOG) Brin Talks About China Gamble.
- Oil Falls on Bigger-Than-Forecast Supply Gain, Surging Dollar. Crude oil fell after a government report showed a bigger-than-forecast increase in U.S. supplies and as the dollar surged to a 10-month high against the euro. “The crude number was a lot bigger than what was expected,” said Tom Bentz, a broker at BNP Paribas Commodity Futures Inc. in New York. “There hasn’t been much attention paid to the fundamentals lately. The market has been more focused on what happens to the dollar and equities.”
- Gold Tumbles to Five-Week Low as Stronger Dollar Curbs Demand. The dollar rose to a 10-month high against the euro after French and German leaders said an aid plan for Greece must give a role to the International Monetary Fund, and as Fitch Ratings lowered Portugal’s credit rating. The actions renewed concern that Greece’s fiscal crisis may spread. “You have investors talking about the euro going to parity,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “It’s very hard for the metals to hold up in that environment.” “The crisis in the Old World shows no signs of letting up,” said Jon Nadler, a Kitco Inc. analyst in Montreal. Fitch’s Portugal downgrade provides a “stark reminder that the region’s fiscal problems are clearly not confined to just Greece.” The euro will fall 25 percent to parity with the dollar, Gary Shilling, an economist and the president of A. Gary Shilling & Co., said today in a Bloomberg Television interview. He said Spain may develop the region’s next fiscal crisis. “Uncertainty looms and a potential disagreement on further action within euro-zone policymakers could add selling pressure to the euro,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report. That may “pull gold prices lower.”
- Euro May Fall 3.2% Versus Dollar on Charts: Technical Analysis. The euro may fall about 3.2 percent against the dollar by the end of next week after the currency dropped through a so-called support level, according to Mitsubishi UFJ Securities Co. in Tokyo. “Technically, a break of the previous support will accelerate the euro selling,” Shioiri said in an interview. “There seems to be a bigger downside risk for the euro now.”
- Businesses Want Apple's iPad, Too. Business demand for the iPad may be greater than expected. Companies and workers are buying the tablet to use it for communications and mobile productivity.
- Bloomberg's Budget Ax Draws Fresh Blood. With Albany's budget crisis smoldering, yesterday ordered a new round of devastating city cuts totaling $1.3 billion to prepare for a potential massive reduction in state aid. "By no means do I see a scenario where significant head-count reductions wouldn't be part of the answer," warned Deputy Mayor Ed Skyler, speaking of layoffs. "This is a very serious situation and we are highly concerned about it and its impact on the city." Skyler didn't put a number on potential layoffs, but in January the mayor had said it could be as high as 19,000.
- SEC's Porn Again. Staff Spent Hours Surfing Sexxxy Sites at Work. So that's what they were doing instead of watching out for fraudsters like Bernie Madoff.
- Cyber-Attack on U.S. Firms, Google(GOOG) Traced to Chinese. The cyber-attack on Google and other U.S. companies was part of a suspected Chinese government operation launched last year that used human intelligence techniques and high-technology to steal corporate secrets, according to U.S. government and private-sector cybersecurity specialists. More worrying, however, is the likelihood that the cyber-attacks that led Google this week to end its cooperation with Beijing-controlled censorship and move its search engine service to Hong Kong included planting undetectable software on American company networks that could allow further clandestine access or even total control of computers in the future.
- App Developers are Gearing up for Apple's iPad. For Scott Lahman, Apple's soon-to-launch iPad tablet computer could be the next big thing. Really. His company, Gogii, produces the TextPlus app for the
iPhone, which lets folks send text messages free, bypassing the phone network. It has been downloaded more than 5 million times.
- China's Assertive Policies Raise Investment Concerns. China's yuan stance is just part of a tide of assertive policies from Beijing that have unsettled American companies and risk stoking tensions, said the senior executive of a major U.S. business group. Myron Brilliant, senior vice president for international affairs at the U.S. Chamber of Commerce, told Reuters on Wednesday that China's campaign to encourage homegrown technology was also raising fears in the United States that foreign investors were being edged out. Strains between Washington and Beijing over currency, trade, technology policy and other economic issues are manageable, but could take a more volatile turn if both sides do not open up more frank discussion, said Brilliant.
- European Union Monetary Commissioner Olli Rehn said the Greek crisis may threaten the euro. "Greece may cause a severe hindrance to the euro, or then we may learn from the crisis," Rehn said.
- Petroleo Brasileiro SA will start commercial oil production at the offshore Tupi field, in the pre-salt region, in October, citing the company's Director of Exploration and Production Guilherme Estrella. The company initially expected to start output in Tupi in December or January of 2011. Production at Tupi is estimated at 100,000 barrels a day.