Monday, June 07, 2010

Today's Headlines


  • Spreading European Fiscal Crisis Hurts Banks: Credit Markets. Signs the global economic recovery is faltering and Europe’s fiscal crisis is spreading added to investor concern that banks will have difficulty in clawing back the $2.4 trillion they’re owed by that region’s most indebted nations. The cost of insuring against a default on financial-company bonds surged, with the Markit iTraxx Financial Index of credit- default swaps linked to the senior debt of 25 European banks and insurers climbing 6 basis points to 189, according to CMA DataVision in London, near the highest level since March 2009. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments rose 0.5 basis point to 169, compared with the record-high 174.4 reached on June 4. Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance maturing bonds and fund deficits, according to Bank of America Corp. Data.
  • Lawmakers May Sacrifice Swaps Plan for Volcker Rule in Talks. Congressional negotiators meeting to resolve differences over bank-regulation legislation are likely to retain a proprietary-trading ban and higher capital standards while stripping a measure that would bar commercial lenders from running swaps desks, said lawmakers and analysts. Senator Blanche Lincoln’s swaps-desk provision, which has been criticized by bankers and regulators alike, probably will be sacrificed in favor of Volcker rule trading curbs in House- Senate talks that may begin this week. Higher capital levels for larger U.S. banks may remain in the final bill as a nod to Senator Susan Collins, the Maine Republican who voted with Democrats to ensure passage of the legislation. “The battleground will end up being the derivatives rule,” said Kevin Petrasic, a former bank regulator now with law firm Paul, Hastings, Janofsky & Walker LLP. “It will cause the Volcker rule to be locked in because folks will be willing to give on the derivatives rule if they think the Volcker rule will stay in place,” Petrasic said in a telephone interview.
  • Copper, Nickel Tumble on Concern Global Recovery Is Faltering. Copper, nickel and lead slumped on concern that the global economic recovery may be at risk, imperiling metals demand, as Europe battles a sovereign-debt crisis and the U.S. added fewer jobs than expected. Copper, which entered a bear market last week, slumped to the lowest price in more than seven months on the London Metal Exchange, losing as much as 3.2 percent to $6,076.25 a metric ton. Nickel fell for a sixth day to as low as $17,500 a ton, while lead dropped as much as 4.5 percent to $1,535 a ton. In Shanghai, copper, aluminum and zinc all fell by the daily limit.
  • Hon Hai Falls on Plan to Double Wages at China Plants. Hon Hai Precision Industry Co., the maker of Apple Inc. iPhones, dropped the most in a year in Taipei trading after the company agreed to more than double wages at its Shenzhen factories following a spate of suicides. The flagship of the Foxconn Technology Group, the world’s largest contract manufacturer of electronics, fell 5.6 percent to close at NT$117.50 in Taipei, the biggest drop since May 12, 2009, while the benchmark Taiex index fell 2.5 percent. Foxconn International Holdings Ltd., a Hong Kong-listed affiliate, tumbled 5.5 percent before trading was halted. At least 10 workers have died from suicide, five during May, with three more attempts, according to Hon Hai.
  • Merkel's Cabinet Backs 'Decisive' Cuts as US Urges Spending. Chancellor Angela Merkel’s Cabinet is meeting to tie up a “decisive” round of budget cuts that will shape government policy for years to come, fueling disagreement with U.S. officials who favor measures to step up growth.
  • Cameron Prepares UK for Cuts Hurting 'Every Single Person'. U.K. Prime Minister David Cameron, preparing voters for the deepest spending cuts in a generation, said the previous Labour government left the public finances in a weaker state than he anticipated. “The overall scale of the problem is even worse than we thought,” Cameron said in a speech today in Milton Keynes, 50 miles (80 kilometers) north of London. “The decisions we make will affect every single person in our country. And the effects of those decisions will stay with us for years, perhaps decades to come.” He said Treasury estimates show government debt-interest costs reaching 70 billion pounds ($101 billion) in five years’ time, up from 31 billion pounds in the last fiscal year. “Today we spend more on debt interest than we do on running schools in England,” Cameron said.
  • G-20 Silence on Euro Drop Signals Approval, Morgan Stanley Says. Group of 20 finance chiefs’ lack of comment on the 17 percent drop in the euro versus the dollar this year at last week’s meeting signals they approve of the shared currency’s direction, according to Morgan Stanley. “Despite the volatility we’ve seen in currency markets, there haven’t been complaints about the path of the euro,” Sophia Drossos, co-head of global foreign-exchange strategy at Morgan Stanley, said in an interview on Bloomberg Television’s “In the Loop With Betty Liu.”
  • Bristol(BMY) Rises After Drugs Combat Skin, Blood Cancers. Bristol-Myers Squibb Co. rose the most of any stock in the Standard & Poor’s 500 Index after studies showed two of its cancer drugs could change the standard of care for patients with deadly skin and blood malignancies.The New York-based drugmaker jumped $1.70, or 7.6 percent, to $24.14 at 10:28 a.m. in New York Stock Exchange trading, the biggest gain in 20 months. Also today, Goldman Sachs Group Inc. raised their recommendation on the stock to “buy” from “neutral” on the positive results reported at the meeting.
  • FCIC Subpoenas Goldman Sachs(GS), Seeking Docments. The U.S. panel investigating the causes of the financial crisis issued a subpoena to Goldman Sachs Group Inc. after the Wall Street firm failed to hand over documents in a “timely manner.” The Financial Crisis Inquiry Commission “has made it clear that it is committed to using its subpoena power” if firms under review don’t comply with information requests, the panel said in a statement today. Moody’s Corp. and Berkshire Hathaway Inc. Chief Executive Officer Warren Buffett were previously subpoenaed by the commission.
  • IMF Calls for 'Decisive Action' on Euro-Area Fiscal Problems. The International Monetary Fund urged euro-area governments to take “decisive action” to ensure the sovereign debt crisis doesn’t derail the region’s monetary integration. “Policy makers need to take decisive action to complete the project of monetary union,” the IMF said in a statement today. The IMF said European nations need to take action to “establish fiscal sustainability” and “spur growth.”

Wall Street Journal:
Bloomberg Businessweek:
  • Build America Bonds May Push Cities to Bankruptcy: Joe Mysak. The bonds designed by the U.S. government to help municipalities recover from the worst recession since the Great Depression may cost them millions of dollars in unforeseen borrowing costs instead of saving them money. Build America Bonds were part of the American Recovery and Reinvestment Act, passed in 2009. The government offered state and local issuers a 35 percent subsidy on interest costs if they sold bonds on a taxable basis, making such financing cheaper than borrowing in the traditional tax-exempt market. Now the Treasury says it will reduce the BAB subsidies by any amount issuers owe the government. This would force municipalities to come up with the cash to repay debt service at the same time they are trying to fill holes in their budgets. Three major cities that have discussed chapter 9 bankruptcy this year -- Detroit, Los Angeles and Miami -- have sold a combined $4.5 billion in BABs. The last thing these issuers need is a surprise.
  • In Brutal Job Market, More Than a Million Quit Looking. The staggering level of "discouraged workers" as the government calls them has swelled to historic proportions in 2010, past the million barrier for the first time since the Bureau of Labor Statistics has been tracking the number.
NY Times:
  • Changes in China Could Raise Prices Worldwide. The cost of doing business in China is going up. Coastal factories are raising salaries, local governments are hiking minimum wage standards and if China allows its currency, the renminbi, to appreciate against the U.S. dollar later this year, as many economists are predicting, the cost of manufacturing in China will almost certainly rise. Although the salaries of factory workers in China are still low compared to those in the United States and Europe (the minimum wage in southern China is close to $125 a month), economists say the changes will eventually ripple through the global economy, driving up the prices of everything from T-shirts and sneakers to computer servers and smart phones.
NY Post:
  • Sony, Discovery(DISCA) and IMAX Set 3D Venture. Sony, Discovery Communications and IMAX are expected to raise the curtain on their joint venture 3D channel this week, sources tell The Post. The partners, these sources add, have hired cable executive Tom Cosgrove, now Discovery Channel's chief operating officer and executive VP, as their new chief. The as-yet unnamed 24-hour 3D service is expected to launch in January, carrying a mix of movies, documentaries and children's programming.
Business Insider:
Zero Hedge:
Boston Globe:
Rasmussen Reports:
  • Pols Turn on Labor Unions. Spurred by state budget crunches and an angry public mood, Republican and some Democratic leaders are focusing with increasing intensity on public workers and the unions that represent them, casting them as overpaid obstacles to good government and demanding cuts in their often-generous benefits. Unlike past battles over the high cost of labor, this time pitched battles over wages and pensions are being waged from Sacramento to Springfield to New York City and the conflict is marked by its bipartisan tone, with public employee unions emerging as an intransigent public enemy number one in cities and state capitals across the country.
Lloyd's List:
  • Iran increased the number of supertankers it has storing crude oil by 20%, citing Steve Christy, head of reserach at E.A. Gibson Shipbrokers Ltd. Iran has 25 VLCCs and one suezmax used for storage, up from 21 VLCCs and one suezmax at the end of April. VLCCs hold 2 million-barrel cargoes. The storage charters have increased the total number of VLCCs not delivering their consignments to 47 vessels, the highest since April last year, it said.

Financial Times:
  • America's Jobless Picture is Alarmingly Bleak. We are drifting. We take comfort in bits of good news, but we are in dangerous waters; the Great Recession is being starkly revealed as a global crisis with the US, the traditional engine of recovery, sputtering on every cylinder. The US government responded with dramatic financial support by transferring money to the household sector. But outside of these transfers the personal income of Americans is still declining; the residential market remains stagnant at best; consumer growth is nominal. The only real energy in the economy has come from the cessation of inventory liquidation, which is now the main factor in rising industrial output and any modest improvement in the economy. The mood of US households is despondent. In May only 11.3 per cent believed they would see their income rise in the following six months, while 16.6 per cent thought they would see it decline. This is the first time in over four decades that more people believe they will be worse off than better. Any massive fiscal and monetary stimulus that might reverse the trend is likely to be politically unsustainable given the growing concern over the exploding national deficit.
El Confidencial:
  • Spain is considering raising the rate of capital gains tax as it seeks to boost revenue. An increase in the basic rate of 19% for capital gains to 24% is among tax proposals under analysis by the government that has the greatest chance of being enacted, citing people familiar with the situation.

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