Weekend Headlines
Bloomberg:
- China Real Estate Bubble Bursts in Bond Market: Credit Markets. Dollar bonds sold by China real estate companies this year are the worst performers among Asian non-financial corporate debt denominated in the U.S. currency amid concern the nation’s property market is overheating. Investors are demanding greater yields to lend to China property firms, a sign they expect borrowers will have a harder time meeting debt payments amid a government clampdown down on lending. The amount of dollar bonds issued by China developers represents 45 percent of all corporate dollar debt sales in Asia outside Japan this year, Bloomberg data show.
- BP(BP), Government Risk Larger Spill to Stem Leak, Browner Says. BP Plc and U.S. government officials have decided to risk accelerating the largest oil spill in the country’s history in a bid to capture more of the crude before BP’s leaking well can be plugged in August, White House Energy Adviser Carol Browner said. Sometime during the next seven days, BP plans to saw away sections of a damaged pipe so that much of the oil can be diverted to a ship on the surface, Managing Director Robert Dudley said today on NBC’s “Meet the Press.” The step, endorsed by federal officials, risks increasing the leak by 20 percent, Browner said today in a “Face the Nation” interview on CBS. The joint decision comes after a three-day effort to plug the well by jamming it with drilling mud from the surface, a technique called a “top kill,” failed, Browner said.
- Debt Crisis Drying Up European Lending, Espirito Santo Says. Europe’s sovereign debt crisis is making financial institutions reluctant to lend, threatening to choke off credit to the region’s banks and consumers, said a senior executive of Banco Espirito Santo SA. “There is a problem with the real economy, because now credit is shortening completely,” said Jose Maria Espirito Santo Ricciardi, head of the investment banking unit of Portugal’s largest traded bank. “I will not say capital markets are completely closed, but it has been difficult, more for the banks than for sovereigns. Namely, the medium and small banks are having problems.” There are signs that U.S. banks are growing more concerned about lending to their European counterparts. U.S. commercial paper outstanding sold by foreign financial companies and their domestic units fell the most in 10 months as fund managers trimmed holdings of the short-term debt issued by European banks, the Federal Reserve said on May 27. “Until May it was very good, but I won’t say I am not concerned. This is becoming again a worldwide problem if in Europe people can’t have a strong and fast answer. The problem with Europeans is that they always come late and not with enough strong measures.”
- Hedge Funds Sell Gasoline Fastest Since 2006: Energy Markets. Hedge funds sold gasoline at the fastest pace since October 2006, dumping 57 percent of their bets on concern Europe’s debt crisis will hurt energy demand. Speculative net-long positions in gasoline futures and options on the New York Mercantile Exchange tumbled to 14,228 in the week ended May 25, the lowest level since February 2007, according to the Commodity Futures Trading Commission’s Commitments of Traders Report on May 28. Bullish bets are down 80 percent since setting a record 70,742 on May 4. “Coming into the month of May the market was heavily skewed with record long positions that exhausted the flow of buying,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.
- Amazon.com(AMZN) Said to Introduce Thinner Kindle in August.
- Treasury 10-Year Yield Falls Most in 17 Months on Europe Crisis. Treasuries climbed in May, lowering 10-year yields the most since the Federal Reserve dropped interest rates to a record low in December 2008 to spur the economy, on speculation efforts to contain Europe’s debt crisis will slow the global economic recovery. The gap between yields on 2- and 10-year notes narrowed the most since March 2009 as stocks plunged and stagnant U.S. consumer prices shifted the focus from inflation to deflation.
- Israel Won't Join in 'Flawed' Mideast Nuclear Talks. Israel called “deeply flawed” and “hypocritical” a United Nations resolution ratified by 181 countries that calls for a 2012 conference on a nuclear-free Mideast, and said it would not take part in the talks. “Israel is not obligated by the decisions of this conference, which has no authority over Israel,” a statement from Prime Minister Benjamin Netanyahu’s office distributed to press travelling with him in Toronto said. “It singles out Israel, the Middle East’s only true democracy and the only country threatened with annihilation,” the statement said. “It ignores the realities of the Middle East and the real threats facing the region and the entire world.” Agreement on the 2012 meeting helps the U.S. address a demand of Arab nations as President Barack Obama pressures Iran to halt the pursuit of nuclear technologies that might lead to development of an atomic weapon. Arab states have said Israel has a nuclear arsenal that must be part of the discussion.
- Czechs Choose Budget Cuts Amid European Debt Crisis. The Czech Civic Democratic Party and others that pledged to cut spending won the most votes in parliamentary elections as Czechs chose budget restraint amid the European debt crisis. The results are a blow to the Social Democratic Party, which campaigned to increase welfare spending.
- Rio's Chief Says Mining Tax Puts Half Its Balance Sheet at Risk. Rio Tinto Group, the world’s third- largest mining company, said as much as half its balance sheet is threatened by Australia’s plan to boost taxes on resources producers. The complexity of the proposal for a 40 percent super profits tax on resource companies makes it difficult to assess its costs precisely, Tom Albanese, Rio’s chief executive officer, said in an interview broadcast yesterday on ABC’s “Inside Business.” He said it may amount to more than 50 percent. “This is half our balance sheet at risk because we have someone now coming in to say, ‘I want to be your silent partner. I want 40 percent of your pretax profits and largely written-off assets,’” Albanese said. The tax has damaged Australia’s reputation overseas and added to sovereign risk, he said.
- Colin Powell Says Sanctions Won't End Iran's Nuclear Program. Former Secretary of State Colin Powell said that proposed stricter United Nations sanctions won’t bring an end to Iran’s nuclear program. “I don’t see that this causes sufficient pain,” Powell said on ABC’s “This Week” program. “The Iranians have been around for thousands of years, trading and selling and getting around various constraints and what not,” Powell said. “They’re very clever. And they know what sanctions might be coming. And I’m sure that they have done their own planning and have their own counter-sanction strategy.”
- Zapatero Losing Credit as Fitch Strips Spain of AAA. Spanish Prime Minister Jose Luis Rodriguez Zapatero, isolated in parliament and his popularity slumping amid the biggest budget cuts in 30 years, is finding his efforts aren’t paying off internationally either. Fitch Ratings late last week stripped Spain of its top AAA credit grade and questioned the nation’s ability to grow its economy as the government reduces spending. U.S. stocks and the euro declined after the downgrade to AA+, on concern the European debt crisis will deepen. “It’s bad news for the government,” said Fernando Fernandez, a former International Monetary Fund economist at IE business school in Madrid. “It shows a lack of confidence in the government internationally. It looks like the budget cuts haven’t helped.”
- Europe Economic Confidence Slips, Inflation Quickens. European confidence in the economic outlook unexpectedly worsened in May and inflation accelerated less than economists forecast as the euro region’s debt crisis shook markets. An index of executive and consumer sentiment in the 16 euro nations fell to 98.4 from 100.6 in April, the European Commission in Brussels said today. Economists had forecast an unchanged reading, based on the median of 25 estimates in a Bloomberg News survey.
- China is Failing to Fulfill Promises to Open Markets, EU Says. China is failing to carry out its pledges to liberalize its economy and open its markets to foreign companies, said the European Union, which accused the Asian nation of protectionism to prop up its domestic industry. “Even though China reiterates its firm commitment to continued opening-up and reform, this does not duly characterize the current situation in China,” John Clarke, head of the EU’s delegation to the World Trade Organization, said during China’s trade policy review in Geneva today. “In fact, our companies have reported a worsening of the business climate.”
- ECB Says Government Funding May Crowd Out Banks' Bond Issuance. The funding needs of governments in Europe may “crowd out” commercial banks’ bond issuance, the European Central Bank said. With governments facing “heavy financing requirements over the coming years” due to widened fiscal deficits, there’s a “risk of bank bond issuance being crowded out, thereby heightening roll-over risks, which are sizeable for some institutions,” the Frankfurt-based ECB said in its bi-annual Financial Stability Report today. “The risk that this implies for bank funding costs also raises the possibility of a setback to the recovery in banking sector profitability.”
- Credit Suisse Cuts China Stocks Targets on Earnings. Credit Suisse Group AG lowered its 12-month forecasts for three China stock indexes, saying analysts’ earnings estimates may be “too optimistic” given the nation’s policy tightening and Europe’s debt crisis.
- Chief Obama, Seeing Smoke, Didn't Buy Fire Truck: Kevin Hassett. While fault for the oil spill in the Gulf of Mexico clearly belongs to private entities, chief among them BP Plc and Transocean Ltd., responsibility for the resulting damage is shared by an incompetent government. More than one presidential administration deserves blame, but the lion’s share goes to President Barack Obama’s. Last year, a similar well blowout occurred in the Timor Sea off the coast of Australia. That didn’t stop drilling advocates in the U.S. from arguing that the chance of such a calamity happening here was close to zero. I wrote then that the environmental tragedy in the Timor Sea made those assurances “about as reliable as a subprime mortgage.” At the very least, wouldn’t you expect the U.S. government to develop an action plan based on the Timor Sea scenario? Think again. The Obama administration, by all indications, continued to assume that such a spill couldn’t happen here. As a result, the U.S. was so unprepared for the Gulf spill that it had to borrow equipment from Mexico and hire a hodgepodge fleet of fishing vessels to assist relief efforts.
- Hedge Funds Post Biggest Monthly Losses Since Lehman Aftershock. John Paulson, Louis Bacon and Andreas Halvorsen navigated the global market turmoil of 2008 with little or no damage. They weren’t as successful last month as the Dow Jones Industrial average had its worst May since 1940. Hedge funds lost an average of 2.7 percent through May 27, according to the HFRX Global Hedge Fund Index, as the sovereign debt crisis in Europe triggered declines in stocks, the euro and commodities, and the gap in yields between U.S. short-term and long-term debt narrowed. It was the biggest decline since November 2008, when hedge funds lost 3 percent in the wake of Lehman Brothers Holdings Inc.’s bankruptcy two months earlier. Paulson’s Advantage fund dropped 6.9 percent through May 21, dragging it to a year-to-date loss of 3.3 percent, according to investors with knowledge of the results, who asked not to be named because the information is private. Halvorsen’s Viking Global fund fell 3.4 percent in the same span and 2.9 percent for the year. Bacon’s Moore Global declined 7.7 percent as of May 20 and 4.8 percent in 2010, investors said. Many of the wagers that hedge funds put on to protect against falling markets didn’t work, Balter said. Their bets on falling stocks didn’t make enough money to counter losses in shares the managers expected to climb. SAC Capital Advisors LLC, the hedge-fund firm run by Steven Cohen in Stamford, Connecticut, with about $12 billion under management, lost 2.9 percent last month through May 21 with its SAC Capital International fund, trimming this year’s gain to about 4 percent, according to people familiar with the firm. Citadel Investment Group LLC, the $12 billion hedge-fund firm run by Ken Griffin, lost about 2 percent with its biggest funds last month through May 21, said people familiar with the Chicago firm.
- Copper, Aluminum, Zinc Drop on China Property, Growth Concern. Copper, aluminum and zinc declined on concern slumping property transactions and slowing manufacturing growth in China, the world’s biggest metals consumer, may hurt demand for commodities. Lead, nickel and tin fell. Three-month delivery copper lost as much as 2.1 percent to $6,790.25 a metric ton on the London Metal Exchange, and traded at $6,810 a ton at 10:33 a.m. Shanghai time. “Sentiment deteriorates amid mounting concerns over China’s property market,” Tan Wentao, an analyst at HNA Topwin Futures Co., said from Shanghai.
- Asian Stock Index May Fall 14%, CLSA Says: Technical Analysis. An index of Asian stocks outside of Japan may retreat at least 14 percent after forming a “double top” pattern, CLSA Asia-Pacific Markets said.
- Flotilla Assault Spurs Crisis. At least nine pro-Palestinian activists died when Israeli commandos boarded a ship headed to the blockaded Gaza Strip early Monday, plunging Israel into a diplomatic crisis that could obstruct action on the most pressing issues in the Mideast, from U.S.-backed peace talks to sanctions against Iran.
- Al Qaeda's Third-in-Command Killed. Al Qaeda's third-in-command, who played a key role in a recently foiled terrorist plot against the U.S., is believed to have been killed by a U.S. drone strike in Pakistan's tribal areas recent weeks, dealing a significant blow to the terrorist network.
- The Union Pension Bailout. Feeling tapped out after stimulus, ObamaCare and everything else? Senator Bob Casey has one more deal for you. If the Pennsylvania Democrat gets his way, U.S. taxpayers will also pick up the astonishing tab for poorly managed union pension plans. Mr. Casey is gathering support for his curiously named "Create Jobs and Save Benefits Act," a bailout for union-run retirement plans.
- Steel Prices Set to Fall. Analysts are turning gloomy on the European steel industry, saying Europe's economic problems and a slowdown in buying from big customers will cut into demand and push down prices. At the start of the year, 2010 was hailed as the year of recovery for steel demand. Now that is being pushed to 2011. Some companies warn that output is already outstripping demand. Restocking at the start of the year by distributors that sell to car companies and construction firms enabled mills to quickly ramp up production. That buying is now waning as the seasonally slow summer months in Europe approach.
- U.K. Recovery Is Vulnerable to Euro Crisis. The U.K. economic recovery is underway, but the country faces heightened threats from the worsening crisis in the euro zone and upheaval in global financial markets, the British Chambers of Commerce said Sunday.
- After Debt Crisis, New Tension Between ECB, Germany. The rift between the European Central Bank and Germany appeared to widen, as a top bank official offered what economists saw as a critique of the response of the euro zone's largest member to the rescue of Greece and other debt-burdened economies. In a speech Friday in Morocco, ECB executive board member Lorenzo Bini Smaghi said that "in one large euro-area country it was thought that public support for swift action could be achieved only by dramatizing the situation, for instance, by telling the public that 'the euro is in danger' or by considering the possibility of expelling a country from the euro area." Mr. Bini Smaghi didn't specifically name Germany. But the implication is clear, says Barclays Capital economist Julian Callow, that "this is a public chiding of Germany."
NY Times:
- Labor Unrest May Signal New Phase in Chinese Economy. Rapidly rising industrial wages are beginning to allow China’s workers to share in their country’s rising prosperity. The question is whether these gains can be maintained and even increased without disrupting supply lines to companies around the world, and without discouraging much future investment by Chinese and global companies alike. The biggest eye-opener for multinationals in China recently has been a nine-day-old strike at a sprawling transmission factory here in Foshan, about 100 miles northwest of Hong Kong. The strike, which has forced Honda to suspend production at all four of its joint venture assembly plants in China, has shown that Chinese authorities are willing to tolerate work stoppages at least temporarily, even at high-tech operations on which many other factories depend.
- The Doctor Will See You Now. Please Log On. Dr. Boultinghouse and two colleagues — Michael J. Davis and Glenn G. Hammack— run NuPhysicia, a start-up company they spun out from the in 2007 that specializes in face-to-face telemedicine, connecting doctors and patients by two-way video.
- Shorting Reform by Michael Lewis.
- Job Outlook for Teenagers Worsens. This year is shaping up to be even worse than last for the millions of high school and college students looking for summer jobs.
- Apple(AAPL) Probe Grows. The Justice Dept.'s probe into Apple is expanding to include how the iPhone and iPad maker does business with media outfits in areas beyond music, The Post has learned. According to several sources, the Justice Dept. has contacted a handful of the country's biggest media and technology companies to get their views on Apple, which, after years of casting itself as the tiny outsider, has become an 800-pound gorilla calling the shots in several arenas.
- Dow Ends Worst May in 70 Years. Stocks tumbled Friday at the end of the Dow's worst May in 70 years, after a downgrade of Spain's debt reminded investors that Europe's economic woes continue.
- Google(GOOG) Dumps Microsoft Windows Company-Wide -- Blames Windows For China Hacking Attack.
- Chinese Bank Chairman: Small Bank Lending Is Spinning Out of Control. The chairman of China Construction Bank, Guo Shuqing, has serious concerns about China's financial system. He's concerned about inflation, a risk which has been discussed substantially on this site before. The latest 31% year over year jump in M1 money is worrisome, for example. Yet what struck us was his description of the risks created by China's small banks during just the last year:
LA Times:
- Bill Would Aid Depositors at Failed IndyMac Bank. Legislation introduced in the House would retroactively extend the raised FDIC insured limit of $250,000 to deposits at financial institutions that failed beginning Jan. 1, 2008.
- Tension Grows in China Between Netizens and Online Censorship. When blogger Isaac Mao recently announced online an upcoming talk by a Beijing writer whose work is banned by the government, police showed up at his door at night to "convince" him to cancel the event, which he eventually agreed to do. But just to be sure, authorities turned off the electricity at the planned meeting space and barred the doors. Chinese officials say such actions are aimed at creating "social harmony."
- They've got problems in North Dakota. They've got jobs they can't fill; they've got so many people coming into Williston, heart of the Bakken oil play, that people are sleeping in their cars, and not because they're poor; they just can't build housing there fast enough to meet the demand from people who have jobs. But now there's a bigger problem. As Platts' Lucretia Cardenas reported Thursday, the Enbridge Pipeline, one of the main ways for Bakken crude to get to market, is going to be limiting shipments "for many months," according to a spokesman. The term is apportionment, and it's not rare. What is rare is for a company to project it out several months, which Enbridge did Thursday, citing the growing surge of Bakken crude. The ability to get oil out into market is obviously paramount in North Dakota, where supply is outstripping that capability to the point where rail has been used by some companies to bring it Cushing, Oklahoma, or even St. James, Louisiana (EOG Resources and NuStar, respectively). The choo-choo may become the only way out for new supplies in the coming months.
Politico:
- House, Senate Take Long Look at Lessons of 'The Big Short'. For a lot of Democrats — and even some Republicans — the book has created a kind of defining counternarrative of the economic collapse.
- General McChrystal Says Afghan Insurgents Trained in Iran. Afghan insurgents are being trained inside Iran and given weapons to fight security forces, the commander of U.S. and NATO forces said on Sunday, joining a rising drumbeat of criticism of Iran's role in the country.
- Apple(AAPL) Says Sold 2 Million iPads.
- Beijing Warned Property Bubble Worse Than US. The problems in China's housing market are more severe than those in the US before the financial crisis because they combine a potential bubble with the risk of social discontent, according to an adviser to the Chinese central bank. Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank's monetary policy committee, said recent state measures to cool the property market needed to be part of a long-term push to bring high prices under control . He added there were still signs the economy was overheating and urged modest increases in interest rates and the level of the currency. "The housing market problem in China is much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis," he said in an interview. "It is more than [just] a bubble problem." He was speaking ahead of yesterday's announcement by the State Council that it had approved reform of property taxes, the clearest indication yet that the government will impose an annual tax on some residential housing in order to rein in rising prices. Mr Li said the high cost of housing could hamper future growth by slowing urbanisation. Rising prices were also a potential political flashpoint, especially among younger people who felt locked out of the property market. "When prices go up, many people, especially young people, become very anxious," he said. "It is a social problem." Despite the sharp slowdown in property sales and the troubles in Europe, he said economic activity was still too strong. "China is running the risk or is on the verge of overheating," he said, although he added: "I would say the situation is not out of control."
- China postponed a plan to introduce credit default swaps to its domestic market. Certain regulators objected to the plan because of the derivatives' role in the global financial crisis, according to the report.
- Subprime Could be Best Warning of US Contagion. There are three C words on people’s minds at at the moment – crisis, containment and contagion. There are no longer doubts that Greek debt problems have escalated into a bigger crisis. The sequence of events has followed that of other recent debt-induced trouble spots, most specifically the risky US subprime mortgages that ultimately infected the entire global financial system. Potential losses related to an over-indebted Greece have, worryingly, again landed in the banking sector. The question now is whether the damage to other eurozone countries, and to the eurozone as a whole, can be contained. This is vital: European banks’ losses on Greek sovereign debt would hurt. Exposure to Spanish debt is many times greater. If Spain enters a no-confidence zone in the bond markets, like Greece did, the effects would be huge. This is where the third word, contagion, comes in. If containing fails, the next question is the extent of contagion. How many other countries in the eurozone will be hit? Will the single euro currency survive? How much will trade be affected? Will European banks take the brunt of losses or will US banks be hit too? It is this last possibility that is the most worrying to regulators when they discuss the turmoil behind closed doors. Reductions in global trade owing to a plunge in the euro would hit growth – unfortunate, but not a catastrophe. However, contagion that involved US banks could push the world into another systemic financial meltdown like the one seen in 2008. This time it would be harder for governments and central banks to ride to the rescue – much of their fire-power has already been used. US banks still hold plenty of mortgage-backed assets on their books. The ABX is a proxy for value of those assets. Any pressure on the financial condition of US banks means they will be likely to sell assets. This would probably include mortgage-backed debt. This would push ABX spreads up. So a rise in these spreads could be the first key sign that US banks are under pressure.
- US Pension Fund Eyes Commodity Investments. The US’s second-biggest public pension fund is poised to make its first investment in commodities as a hedge against the risk of rising inflation, in the latest sign of growing investor appetite for raw materials. The proposal by the California State Teachers’ Retirement System comes as US federal commodities regulators explore whether to impose limits on institutional investors’ exposure to raw material markets. Critics, including several senior lawmakers in Washington, worry that large investors helped inflate commodity prices in 2008 when oil, wheat, cotton and other markets surged. Gary Gensler, chairman of the US Commodity Futures Trading Commission, said last year that commodity markets experienced a “bubble” in 2008 fuelled by speculators. Calstrs is set to vote on Thursday on a “long-term strategic allocation to commodities”, adding bulk goods such as oil, sugar and copper to its $138.5bn portfolio of equities, bonds, real estate and private equity. Calstrs would join other pension fund managers in moving into commodities. It would be following its neighbour, the $198.7bn California Public Employees’ Retirement System, or Calpers, into the asset class.
- Euro Disney Hit by Growing Debt Fear. The theme park operator is expected to breach its debt covenants as holidaymakers stay at home.
- Fink: CGT Rise Will Deter Entrepreneurs. Mr Fink, 52, who made his name and £70m fortune as chief executive of Man Group, the world's largest quoted hedge fund manager, told The Sunday Telegraph: "If capital gains tax was brought up to 40pc-50pc with no business or taper relief or reduced rates, then I think it would cause a further flight of rich entrepreneurs from Britain and would reduce investment in Britain. It would be bad for our country.
- Barack Obama's Credibility Hits Rock Bottom After Oil spill and Sestak Scandal. The combination of Obama's passivity over the Gulf oil spill catastrophe and his cynical political manoeuvrings could spell disaster for him, argues Toby Harnden.
- Spain Races to Avert Banking Crisis as Euro Faces Slide. One of Spain’s biggest banks was this weekend negotiating a merger with five smaller rivals as part of a desperate government effort to restore confidence in the faltering economy, which threatens to drag down the rest of the eurozone. Caja Madrid, the country’s second-largest savings bank, opened talks in the hope of beating the June 30 deadline to tap a €99 billion (£84 billion) government bank rescue fund. The Spanish government wants the 45 regional caja banks to shrink to 15. Spain was hit by a credit downgrade on Friday, sending the euro lower. The currency faces further pressure from Greece, which is studying plans to restructure its debt despite a multi-billion-euro bailout from Germany, France and the IMF. The Centre for Economics and Business Research (CEBR), a London economics consultancy that is advising the Athens government, said Greece would be unable to escape its debt trap unless it devalued its currency to boost exports. The only way for this to happen is for Greece to leave the euro. Until now, Greek politicians have played down the prospect of abandoning the euro, which some observers fear could set in motion the break-up of the single currency.
- Eurozone Banks Facing Second Wave of Loan Losses. The European Central Bank sent tremors through financial markets last night when it warned that banks in the eurozone nations faced having to write off another €195 billion in bad loans over the next 18 months. In what it predicted would be “a second wave” of loan losses, the ECB forecast a fresh flood of red ink for eurozone banks that already have written off €238 billion (£200 billion) since the banking crisis erupted. The warnings are likely to exacerbate suspicions in the City that while British and American-based banks have grasped the nettle and written off the bulk of their sour loans, continental banks have been slower to do so, shielded by more forgiving accounting rules. The ECB said that eurozone banks were facing a “hazardous contagion” from the government debt crisis. Banks hold hundreds of billions of euros- worth of bonds issued by eurozone member nations. Some of these have plunged in value amid growing doubts about the creditworthiness not only of Greece but also of Portugal and Spain, which was stripped of its AAA credit rating by Fitch on Friday. The warnings were contained in the ECB’s latest Financial Stability Report, in which it predicted that eurozone banks would make loan losses of €90 billion this year and another €105 billion in 2011.
- German Draft Bill Could Restrict Trading in Equity and Currency Derivatives. Germany’s short selling ban could be replaced by tougher regulation which would ban speculation on currency derivatives and would restrict the use of equity futures to go short. The proposed regulation, which is in the form of a draft bill, would extend the ban to include all German equities. It would also ban the use of currency derivatives for speculation. The draft bill would ban currency derivatives based on the euro which are not used to hedge. Equity derivatives are not affected under the Bafin ban. But the draft bill says that the ban on uncovered short selling of shares also applies to derivatives whose value is dependent on the price of the shares. In other words, going short on equity derivatives without holding the equivalent equity would be banned. The draft bill will be sent to cabinet ministers on June 2. If it is voted through by the ministry, it will be passed through to parliament before it can become law.
- The European Central Bank may start withdrawing funds from the money market in July when banks are paying back a record 442 billion euros borrowed in a 12-month tender last June, Executive Board member Juergen Stark said. "This would be a possible start for a gradual exit, though we will smooth the transition," Stark said. "The danger isn't over yet that banks are starting to mistrust each other and stop lending to each other.
- Greece's biggest union, the General Confederation of Labor, won't take part in talks beginning today on changes to labor rules. The Labor Ministry has called employer and employee groups to discuss changes including raising the monthly cap of firings for companies with more than 200 employees to 4% of the workforce from 2%, as well as severance pay limits.
- French Budget Minister Francois Baroin said that maintaining France's AAA credit rating is a "tough objective" that in part dictates the government's fiscal policy, citing a television interview.
- French unions have called for a second day of strike action on June24 to protest President Nicolas Sarkozy's plans to reform the country's pension system, citing a union statement.
- Spain's opposition People's Party would win a majority in parliament if elections were held now, a poll by Sigma Dos published today. The PP would win 45.6% of the vote compared with 35.1% for the ruling Socialists, the poll showed.
- Xu Yuyuan, who hurt 29 children and three teachers in a stabbing attack April 29 at a kindergarten in east China's Jiangsu Province, was executed today.
- China's real estate closings in Beijing, Shanghai and Shenzhen in May plunged as contract numbers dropped by as much as 70% from April, citing data from a local property website, a property agent and the government. Beijing had 3,357 property signings in May, a drop of nearly 70% from April, according to bjfdc.gov.cn, while Shanghai may have fallen about 70% to 2,550 signings according to UWin Real Estate Information Services Co., the report said. Closings in Shenzhen fell 62% on the month to 109,200 square meters, citing the city's Urban Planning Land and Resources Commission.
- Some Chinese banks have begun limiting loans to the financing vehicles of local governments, citing commercial bank officials.
Barron's:
- Made positive comments on (HAR), (SAP), (ASML), (FMS), (LUX), (IEP) and (BP).
- Reiterated Buy on (MRVL), target $24.
- Reiterated Buy on (HEW), target $50.
- Downgraded (BEAT) to Sell, target $6.
- Asian indices are -.75% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 144.0 +15.5 basis points.
- S&P 500 futures -.58%.
- NASDAQ 100 futures -.56%.
Earnings of Note
Company/Estimate
- (PSS)/.76
10:00 am EST
- ISM Manufacturing for May is estimated to fall to 59.0 versus a reading of 60.4 in April.
- ISM Prices Paid for May is estimated to fall to 72.0 versus a reading of 78.0 in April.
- Construction Spending for April is estimated to rise +.1% versus a +.2% gain in March.
- None of Note
- The Dallas Fed Manufacturing Activity Index, ABC Consumer Confidence reading and the (ALU) General Meeting could also impact trading today.
