Evening Headlines
Bloomberg:
- EU to Push Levies on Banks, Financial-Transactions Tax at G-20. European Union leaders vowed to push for global taxes on banks and financial transactions, setting the stage for a conflict over worldwide regulation at next week’s Group of 20 meeting. With Germany, Britain and France pledging to impose levies on their own banks and to clamp down on financial speculation, the EU called for global taxes that have run into opposition from G-20 powers such as China. “We want a system of levies and taxes for financial institutions to ensure fair burden-sharing and rein in systemic risks,” German Chancellor Angela Merkel told reporters after an EU summit in Brussels yesterday. “We also want a global system.”
- Medvedev Says He 'Cannot Rule Out' Collapse of Euro. Russian President Dmitry Medvedev says he can’t rule out the collapse of the euro as the European Union struggles to contain the sovereign debt crisis. Asked if the emergency could threaten the single currency, Medvedev said, “So far, no. But one cannot rule out this danger because at least a unique situation has emerged,” according to the text of an interview with the Wall Street Journal that was provided by the Russian government. Commenting on the oil spill that forced London-based BP to set aside $20 billion for potential damages, Medvedev suggested the disaster could lead to the company’s breakup and said he wanted to assure that the interests of Russian shareholders in the TNK-BP venture are safeguarded. The venture, which accounts for almost a quarter of BP’s output, is half-owned by Russian billionaires, including Viktor Vekselberg.
- JPMorgan(JPM) Pressed for More Data on Fannie, Freddie Loan Buybacks. The Securities and Exchange Commission pressed JPMorgan Chase & Co. to tell investors more about mounting demands to buy back defective mortgages, an obligation that cost the four biggest U.S. lenders about $5 billion last year. The SEC asked the New York-based company to disclose more about reserves set aside to cover the cost of repurchasing bad loans it sold to Fannie Mae, Freddie Mac and other investors, according to a Jan. 29 letter released today. The SEC also told the bank to provide more details on when and how it recognizes losses on mortgages that have been modified as well as on soured credit-card debt. “What they’re asking for is a lot more than the banks put out in the public domain right now,” said Christopher Whalen, a bank analyst at Torrance, California-based Institutional Risk Analytics. “This is going to make life uncomfortable for a lot of the banks, because once they start mandating this kind of disclosures, it’s going to stay.”
- UAW's New President Focuses on Organizing Toyota's U.S. Workers. Bob King, new president of the United Auto Workers union, said organizing the U.S. factory workers of foreign companies such as Toyota Motor Corp. is his top priority. “If we don’t support Toyota, Honda, Nissan, Hyundai, Kia and all the non-union plants by supporting the right to organize, we cannot win back the concessions we have given up,” King said yesterday in his first address to delegates at the UAW’s constitutional convention in Detroit.
- Times Square Suspect Shahzad Indicted in Bomb Attempt. Faisal Shahzad, accused in the attempted May 1 car-bombing of New York’s Times Square, was indicted on 10 terrorism-related charges by a federal grand jury, Manhattan U.S. Attorney Preet Bharara said. Shahzad, 30, was charged with attempted use of a weapon of mass destruction in today’s indictment, which disclosed new details about the failed plot. He has been held without bail since appearing before a federal magistrate on May 18, when he was assigned a lawyer. In the indictment, prosecutors added five new charges to their case against Shahzad, including conspiracy counts and an attempted terrorist act transcending national borders. He was also charged with criminal possession of a 9 mm Kel-Tec rifle, which was found loaded in his car the day of his arrest. “The facts alleged in this indictment show that the Pakistani Taliban facilitated Faisal Shahzad’s attempted attack on American soil,” U.S. Attorney General Eric Holder said today in a statement. “Our nation averted serious loss of life in this attempted bombing, but it is a reminder that we face an evolving threat that we must continue to fight with every tool available to the government.”
- Illinois Sells Build Americas as Premium to Treasuries Climbs. Illinois sold $300 million of Build America Bonds at a yield premium over Treasuries about 40 percent higher than two months ago after lawmakers failed to close a $13 billion budget deficit for the year starting July 1. The fifth most-populous U.S. state sold the taxable debt maturing in 2035 priced to yield 7.1 percent yesterday, or 297 basis points over the 2040 Treasury to which it was benchmarked, according to data compiled by Bloomberg. Illinois offered Build Americas of similar maturity at spreads of 205 basis points and 210 basis points in two April issues, Bloomberg data show. Risk aversion among investors amid Greece’s efforts to impose austerity measures contributed to swell the state’s borrowing costs, said Tom Boylen, a managing director and municipal-bond trader in Chicago for BMO Capital Markets. “A lot of this is a global thing,” Boylen said. “There’s a bigger magnifying glass on credit.” The sale took place as the price of insuring Illinois bonds against default climbed to a record. The cost of a five-year credit-default swap to protect Illinois debt rose 7 basis points to 309.1 basis points, or $309,100 to insure $10 million of debt, according to CMA DataVision, a data provider owned by CME Group Inc.
- U.S. Debt and the Greece Analogy by Alan Greenspan. An urgency to rein in budget deficits seems to be gaining some traction among American lawmakers. If so, it is none too soon. Perceptions of a large U.S. borrowing capacity are misleading. Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences. Beneath the calm, there are market signals that do not bode well for the future. For generations there had been a large buffer between the borrowing capacity of the U.S. government and the level of its debt to the public. But in the aftermath of the Lehman Brothers collapse, that gap began to narrow rapidly. Federal debt to the public rose to 59% of GDP by mid-June 2010 from 38% in September 2008. How much borrowing leeway at current interest rates remains for U.S. Treasury financing is highly uncertain. At the height of budget surplus euphoria in 2000, the Office of Management and Budget, the Congressional Budget Office and the Federal Reserve foresaw an elimination of marketable federal debt securities outstanding. The 10-year swap spread in August 2000 reached a record 130 basis points. As the projected surplus disappeared and deficits mounted, the 10-year swap spread progressively declined, turning negative this March, and continued to deteriorate until the unexpected euro-zone crisis granted a reprieve to the U.S. The 10-year swap spread quickly regained positive territory and by June 14 stood at a plus 12 basis points. The sharp decline in the euro-dollar exchange rate since March reflects a large, but temporary, swing in the intermediate demand for U.S. Treasury securities at the expense of euro issues. The 10-year swap spread understandably has emerged as a sensitive proxy of Treasury borrowing capacity: a so-called canary in the coal mine. I grant that low long-term interest rates could continue for months, or even well into next year. But just as easily, long-term rate increases can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose almost four percentage points. The current federal debt explosion is being driven by an inability to stem new spending initiatives. Having appropriated hundreds of billions of dollars on new programs in the last year and a half, it is very difficult for Congress to deny an additional one or two billion dollars for programs that significant constituencies perceive as urgent. The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms. This is not new. For at least a quarter century analysts have been aware of the pending surge in baby boomer retirees. We cannot grow out of these fiscal pressures. Only politically toxic cuts or rationing of medical care, a marked rise in the eligible age for health and retirement benefits, or significant inflation, can close the deficit. I rule out large tax increases that would sap economic growth (and the tax base) and accordingly achieve little added revenues. With huge deficits currently having no evident effect on either inflation or long-term interest rates, the budget constraints of the past are missing. It is little comfort that the dollar is still the least worst of the major fiat currencies. But the inexorable rise in the price of gold indicates a large number of investors are seeking a safe haven beyond fiat currencies. The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy. Incremental change will not be adequate. In the past decade the U.S. has been unable to cut any federal spending programs of significance. I believe the fears of budget contraction inducing a renewed decline of economic activity are misplaced. The current spending momentum is so pressing that it is highly unlikely that any politically feasible fiscal constraint will unleash new deflationary forces. I do not believe that our lawmakers or others are aware of the degree of impairment of our fiscal brakes. Fortunately, the very severity of the pending crisis and growing analogies to Greece set the stage for a serious response. That response needs to recognize that the range of error of long-term U.S. budget forecasts (especially of Medicare) is, in historic perspective, exceptionally wide. Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis. Our policy focus must therefore err significantly on the side of restraint.
- Fed Emerging Intact From Challenge to Its Power. As the House and Senate move to finalize regulatory-overhaul legislation, the Federal Reserve has emerged as likely to retain most of the power and independence Fed officials have feared they might lose.
- Merrill Is Launching Online Discount Brokerage.
- Top Senator Sees Little Chance for FedEx(FDX) Unionization Proposal. Proposed U.S. legislation to make it easier to unionize at FedEx Corp. has no chance of clearing Congress, a top Senate Democrat said Thursday, dealing a blow to a lobbying campaign waged by rival United Parcel Service Inc. and the Teamsters union. "I know perfectly well if I put that in the bill ... it's not going to pass," Senate Commerce Committee Chairman John D. Rockefeller (D., W.Va.) said in an interview.
- Motorola's(MOT) Uneven Split. Motorola Inc. is planning to funnel billions of dollars to its money-losing cellphone business when it splits off into a separate company next year.
- Toyota's China Assembly Lines Vulnerable to Labor Unrest. Two work actions hit Toyota Motor Corp.-affiliated suppliers this week in the port city of Tianjin, prompting executives to warn that the company's assembly lines in China are vulnerable to labor turmoil that might disrupt its vehicle production. Toyota's brush with worker unrest follows a wave of strikes and other incidents in southern China that have affected Japan's Honda Motor Co. among other companies. "There is a fairly high risk that this type of unrest might spread to our supply chains in China," a Beijing-based Toyota executive said.
- Consumer Price Drop Squeezes Profits. In what is good news for shoppers but bad news for many companies, U.S. consumer prices fell 0.2% last month from April, even as commodity prices from metal to fuel to food remain higher than they were a year ago. The result: Many companies are finding their profit margins squeezed.
- U.S. Fights Challenge to Health Law. The federal government formally responded to the most serious legal challenge to the health-care overhaul, invoking its powers under the Constitution to regulate interstate commerce and impose taxes. At least 20 state attorneys general, most of them Republicans, have filed suit against the government. The attorneys general, led by Republican Bill McCollum of Florida, say the Constitution doesn't grant Congress the power to require that all Americans carry insurance. Under the health-care law, nearly all legal residents who don't carry insurance will pay a penalty starting in 2014 that gradually increases to at least $695 per person annually or 2.5% of income.
- Army Corps Suspends Permit Program For Surface Coal Mines.
- Behind the Huge Demand for Apple's(AAPL) New iPhone. A timely AT&T promotion helped push consumers—not to mention hardcore "Applephiles"—to clamor for the sleeker, upgraded iPhone 4. A new gadget from Apple (AAPL) is typically cause for a sales jolt, but demand for the latest redesign of the company's popular iPhone has been off the charts. AT&T (T), the smartphone's U.S. carrier, suspended sales of the device on June 16 after more than 600,000 early orders strained company computers. Some calls to Apple's service line weren't answered because of heavy volume. What accounts for such demand?
- Japan's Moneylenders Brace for Losses, Rules Shakeout. Japan’s consumer finance companies face multibillion-dollar losses and an industry shakeout as stricter loan rules that take effect today force them to slow lending, analysts said.
- BP(BP) Bond Deal Would Be Challenging. Banks advising troubled oil giant BP Plc are telling the company that a potential bond deal for the company to raise billions of dollars in new capital isn’t impossible, but would be “challenging,” FOX Business has learned.
- Drilling Moratorium Means Hard Times for Gulf Rig Workers. In addition to the fishermen and hoteliers whose livelihoods have been devastated by ’s hemorrhaging undersea well, another group of Gulf Coast residents is beginning to suffer: the tens of thousands of workers like Ronald Brown who run the equipment or serve in support roles on deepwater oil rigs in the Gulf of Mexico. Mr. Brown, known as Rusty to his friends, is a “shakerhand.” In the rugged vernacular of , that means he monitors the mud flowing back from the drill hole thousands of feet below. He works aboard the Ocean Monarch, which was idled along with 32 other oil rigs when the Obama administration ordered a six-month moratorium on all deepwater drilling after the April 20 Deepwater Horizon disaster. The rig’s owner is now seeking customers in other parts of the world. If the rig moves, Mr. Brown and his fellow motormen, roughnecks and roustabouts will be left behind, jobless, with few alternatives that would pay anything close to the $3,500 to $4,000 a month typical for such jobs.
Zero Hedge:
- Because Parity Is So May 2010: BNP Now Sees EURUSD at .98 by Mid 2011. When the ECB said recently that a slide toward parity would be tantamount to admitting defeat for the euro and the eurozone, we took it somewhat seriously. Which is why we were rather surprised to see that the biggest French bank, and by implication, organization which would suffer massively should the eurozone implode, is out with a EURUSD forecast that goes even beyond parity, and bottoms out at 0.98 by Q2 2011. As we have noted before, it is the very same European banks who are most interested in a destabilized euro, as it would merely entail trillion after trillion in ECB bailouts, providing quarterly bonus make whole packets for all bankers involved. So, without further ado, here is BNP's thesis, which just as easily could have come from Evans-Pritchard:
- How Wall Street Reform Falls Short. "One needs to hard wire as much of the regulation in place," economist and Columbia University professor Joseph Stiglitz said last week. "There's good reason to be suspicious that if we delegate to [regulators], we'll have the same kinds of problems we've had in the past." Fisher also warned that lawmakers leave regulators "wiggle room to perpetuate" the concept of "too big to fail.""Why should we think the future could, realistically, be any different - especially with even bigger banks that dominate the financial landscape today?," Fisher asked.
- Cost of Insuring Illinois Debt from Default Hits All-Time High; Illinois Pension Fund Loses $Billions in OTC Derivatives Positions. Congratulations of sorts go to the State of Illinois for having the most hopelessly underfunded pension plans in the US and also one of the biggest per capita budget deficits. Topping off the misery, the Illinois Teachers Retirement System is losing money in risky derivatives bets in what one analyst says amounts to “collecting nickels ahead of the bulldozer.” Given that sorry state of affairs it should be no surprise to discover Illinois Debt Default Insurance Climbs to Record.
Hussman Funds:
- US Seeing Zero Private Sector Expansion. Wall Street seems to have no concept at all that every bit of growth we've observed over the past year can be traced to government deficit spending, with zero private sector expansion when those deficits are factored out. As I noted last week, if one removes the impact of deficit spending, "the economy has recovered to the point where the year-over-year growth rate since early 2009 now matches the worst performance of any of the 50 years preceding the recent downturn."
- Let the Hedge Funds Run the Risks. Beginning in the late 1980s, traditional banks began complaining that they were losing market share and profits and all their best people to investment banks, which had cleverly constructed an alternative, or "shadow," banking system that was less regulated and backed by less capital. Their incessant whining and well-financed pleading eventually paid off in the late 1990s, when Congress dismantled the Depression-era wall between the two activities and let banks and investment banks merge. And it all worked splendidly -- until, of course, it didn't.
- Democrats Lack Consensus on Climate Bill. Senate Democrats emerged from a special caucus meeting in the Capitol on Thursday with no clear consensus yet on the fate of energy and climate legislation due on the floor before the August recess. Majority Leader Harry Reid of Nevada dedicated an hourlong session to a “full, frank discussion” of three competing proposals for overhauling the nation’s energy policies and trimming greenhouse gas emissions. But senators spoke for so long that they had to bump back a more detailed question-and-answer session for another meeting that’s tentatively scheduled for next week. “We’re not going to tell you today what we’re going to have in this legislation because it’s a work in progress,” Reid told reporters.
- Survey: Obama Disappoints Muslims. President Barack Obama’s efforts to improve diplomatic relations with Muslim nations have not translated into favorable images of the United States in key Muslim countries, according to a survey released Thursday by the Pew Global Attitudes Project. The Pew Global Attitudes survey found that the popularity of the United States remained low, and in some cases decreased, because of continued disagreements over U.S. policies.
- China Cites Euro Zone Woes Among Economic Headwinds. The global economy is facing many uncertainties, especially the debt crisis plaguing the euro zone, a senior Chinese official said on Friday.
- US Fed's Kohn Sees Europe Risk, But to Pull Through - WSJ. Europe's fiscal problems are a risk that will have some effect on U.S. growth during the rest of this year and 2011, U.S. Federal Reserve vice chairman Donald Kohn said in an interview with the Wall Street Journal.
- White House Moves to Weaken Shareholder Rights - Sources. The White House intervened to weaken a provision in the final financial regulation bill that aims to give shareholders more say on how companies are governed, three people familiar with matter said on Thursday. A select group of lawmakers are merging the Senate's reform bill with the House of Representatives' version.Both bills affirm the Securities and Exchange Commission's authority to adopt so-called "proxy access" rules, which would give shareholders an easier and cheaper way to nominate corporate board directors.But the White House pushed Senate negotiators to modify the measure and only allow shareholders owning at least 5 percent of a company for more than two years to nominate a corporate board director, according to a congressional aide and two industry sources.
- MetLife(MET) Chief Slams US Financial Reforms. The head of MetLife, the largest life assurer in the US, has criticised the financial reforms being finalised by Congress, saying some measures betray a “total misunderstanding” of the insurance industry and could hit the sector hard. In a video interview with the Financial Times, Robert Henrikson warned of “negative unintended consequences” from a financial overhaul that was too “bank-centric” and failed to take into account insurance companies’ needs. The MetLife chief, who steered the company through the financial crisis without the help of government bail-out funds, said the insurance industry had been “vilified” by Washington, in spite of faring better than the banking sector during the turmoil. “The language that has been worked on has been focused on bank language by bankers or people that have banking knowledge,” said Mr Henrikson. “That language then, without reinterpretation or reclassification . . . could have extremely negative unintended consequences to the insurance industry.” He said insurance groups might have to comply with planned changes to increase the capital banks set aside for derivatives trading, or spin off those businesses altogether, even though their use of those instruments was fundamentally different. Mr Henrikson argued that insurance companies were users rather than providers of derivatives and should be exempted from the new provisions affecting derivatives just like other non-bank entities that buy derivatives to hedge risks. He said the argument that exempting insurers could prompt banks to characterise their derivatives units as insurance “shows a total misunderstanding . . . of how an insurance company operates”. Mr Henrikson, who succeeded Robert Benmosche, the current AIG chief, at MetLife’s helm in 2006, also warned that insurance companies could be caught by the “Volcker Rule” banning financial groups from taking trading bets with their funds.He said the insurer’s general accounts - which contain premiums paid by customers and are invested by the company - could be included in the activities prohibited by the provision.
- ECB Must Buy 'Hundreds of Billions' of Bonds to Tame Europe's Debt Crisis. Fitch Ratings has warned that it may take massive asset purchases by the European Central Bank to prevent Europe's sovereign debt crisis escalating out of control. Brian Coulton, the agency's head of sovereign ratings, said German members of the ECB appeared to be blocking the sort of muscular intervention in southern European bond markets needed to restore the shattered confidence of investors. "There has been an unwillingness to follow through, and markets are going to want to see the ECB's money. It will require hundreds of billions in my opinion," he told a global banking conference. It has focused its firepower on Greece, mopping up some €25bn of government bonds. This has prevented a collapse of the Greek debt market but at the high political price of letting banks and funds dump their holdings onto the EU taxpayer. The Bundesbank is reportedly irked that French banks have led the rush to the exits while German banks have stuck by a gentleman's agreement to keep their Greek assets. The ECB's council insists that it has "sterilized" all purchases, offering no net stimulus. In effect, the ECB has done little to offset severe fiscal tightening by some eurozone states, and as the M3 money supply contracts. "The ECB commitment seems half-hearted," said Andrew Balls, head of PIMCO's team in Europe. "The European sovereign problem has started to contaminate the European banking sector and the global economy." A smooth auction of €3.5bn of Spanish bonds offered some respite yesterday after a week of stress on the EMU periphery, but Spain had to pay punitive rates. The average yield on 10-year bonds was 4.86pc, a near record spread of 220 basis points over German Bunds. Silvio Peruzzo from RBS said the auction does little to help Spanish banks and firms that have been frozen out the debt markets and face a funding crunch. "The ECB needs to act before contagion becomes endemic. Spain's banking system in at the heart of an ice-storm and there is a risk of 'sudden stop' if they can't roll over debt. We expect intervention, probably in covered bonds," he said. Fitch said European banks must refinance nearly €2 trillion of long-term debt by the end of 2012 in an unfriendly market. "There's an awful lot of debt coming due in 2011 and 2012, and that is becoming a concern," said Bridget Gandy, the agency's banking expert. Smaller banks have put off refinancing in the hope that spreads would fall and are now caught in a vice. Mrs Gandy said the situation could turn serious if global growth falters, tipping Europe into a double-dip recession. David Owen from Jefferies Fixed Income said the eurozone may start contracting again in the second half of the year. He said the "core problem" haunting the European debt markets is that investors have little faith in the EU strategy of forcing states to carry out draconian cuts in the middle of a recession. Mr Owen said these countries need sustained growth to claw their way out of debt-deflation traps, and that will require fully-fledged quantitiatve easing by the ECB, and drastic currency depreciation. "If the euro falls to parity or down to 80 cents against the dollar, we would start to see a solution," he said.
- FSA Chief Hector Sants: banks not 'practicing what they preach'. Banks are not practising what they preach and have failed to learn important lessons from the financial crisis, according to Hector Sants, chief executive of the Financial Services Authority (FSA).
- Bank Guarantee Extension Sought. The Irish Government is seeking to extend its bank guarantee scheme until the end of this year in discussions with the European Commission that will be completed this month, Minister for Finance Brian Lenihan said today. Last month, the EU approved the state guarantee scheme until the end of June and analysts expected the Government to seek a further extension. The guarantee was first issued for some €400 billion of bank liabilities at the height of the credit crisis in September 2008, in what then was one of the most extensive scheme of its kind.
- Global banking regulators plan to require banks to increase capital buffers during periods of economic growth for use during downturns. The Basel Committee on Banking Supervision is scheduled to decide on capital rules as early as July.
- China's exports to Europe have already suffered from the European debt crisis, citing Wang Zhiping, director general of the China Foreign Trade Centre. May export growth to Europe was less than 20%, "far less" than his organization's expectations, Wang said.
Citigroup:
- Reiterated Buy on (PPG), raised estimates, boosted target to $81.
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 126.0 -5.0 basis points.
- Asia Pacific Sovereign CDS Index 127.0 -1.0 basis point.
- S&P 500 futures +.04%.
- NASDAQ 100 futures +.09%.
Earnings of Note
Company/Estimate
- None of note
- None of note
- (DLTR) 3-for-2
- The (MA) annual meeting could also impact trading today.
No comments:
Post a Comment