Tuesday, June 22, 2010

Today's Headlines


Bloomberg:

  • Bond Risk Rises in Europe as Bank Funding Concerns Resurface. The cost of insuring against losses on European corporate bonds rose amid renewed concern that some of the region’s banks will struggle to fund themselves and France’s largest lender was downgraded. The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies climbed from a six-week low, rising 10.4 basis points to 512.4, according to Markit Group Ltd. prices at 9:39 a.m. in London. The cost of protecting bank bonds rose after Fitch Ratings cut its ranking on BNP Paribas SA one step, citing deterioration in the bank’s asset quality, while Standard & Poor’s said Spain’s lenders face mounting credit losses. Sentiment had worsened after European Central Bank member Christian Noyer said yesterday that some banks face funding difficulties in the wake of Europe’s sovereign debt crisis. The Markit iTraxx Financial Index tied to the senior debt of 25 banks and insurers rose 1.5 basis points to 149.5 and the subordinated index was 2 higher at 227, according to JPMorgan Chase & Co. Contracts on BNP Paribas rose 3 basis points to 105, CMA DataVision prices show. Banco Santander SA, Spain’s biggest lender, increased 6 basis points to 166 and Banco Bilbao Vizcaya Argentaria SA climbed 9 basis points to 222. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 2 basis points to 115, Markit data show.
  • Sales of U.S. Existing Homes Fall as End of Tax Credit Looms. Sales of U.S. previously owned homes unexpectedly fell in May as demand began to slip even before a government tax credit expires. Purchases of existing houses, which are tabulated when a contract closes, decreased 2.2 percent to a 5.66 million annual rate, figures from the National Association of Realtors showed today in Washington. Builder shares dropped on concern the end of government stimulus, mounting foreclosures and unemployment may cause renewed weakness in the industry that precipitated the worst recession since the 1930s. Sales “will be pretty soft for the next few months,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, whose sales forecast was the closest among economists surveyed. “Ultimately, you’re going to need job growth to see a sustainable recovery in housing.” The median price climbed 2.7 percent to $179,600 from $174,800 in May 2009. The number of previously owned homes on the market dropped 3.4 percent to 3.89 million. At the current sales pace, it would take 8.3 months to sell those houses compared with 8.4 months at the end of the prior month. Declines in inventories have slowed in recent months, posing a risk for the market, Lawrence Yun, the group’s chief economist, said in a press conference. Yun said this “overhang” in supply is a concern and may lead to further declines in property values in coming months.
  • U.S. Deepwater Drilling Ban Lifted by New Orleans Federal Judge. A New Orleans federal judge lifted the six-month moratorium on deepwater drilling imposed by President Barack Obama following the largest oil spill in U.S. history.
  • Chinese Aluminum Production Cuts Loom on Record Output, Yuan. Chinese aluminum producers may cut output from a record if the price slump persists and after the world’s third-largest economy signaled an end to its currency’s fixed rate to the dollar. China, the largest maker of the metal, produced 1.42 million metric tons in May, the highest ever monthly total, said China International Futures (Shanghai) Co. analyst Wang Zhouyi, as escalating power costs were offset by tumbling prices of alumina, the raw-material ingredient. Aluminum prices have slumped 15 percent in Shanghai this year, while London Metal Exchange prices dropped 12 percent, on concern Europe’s debt crisis will slow the global recovery and lending curbs in China will cool demand. “We will see production curtailments in China unless the government rescues them, and the rhetoric from the government up till now has been precisely the opposite,” said Alan Heap, managing director of global commodity analysis at Citigroup Inc. An appreciation of the Chinese currency will put “further upward pressure” on costs, said Heap. “Exports are expected to increase if production continues to rise,” said China International’s Wang. “However, a stronger yuan will hurt exporters, so there’s little upside for the aluminum industry at the moment.” “These sort of circumstances, where the prices fall to the global industry average cash cost, that’s what you see in a full-on global recession,” Citigroup’s Heap said in a phone interview from Sydney. “So the aluminum industry is telling us the world is in economic recession, which I don’t think it is. Output cuts will protect the downside.” There’s little evidence of output cuts so far, even though more than 40 percent of the Chinese aluminum industry is incurring losses, Barclays Capital said yesterday. “It’s unprofitable to make aluminum but it will cost producers even more to stop making it, so unless the price holds below the cost of production in the next few months, it’s unlikely we’ll see output fall,” said Zhou. “Even if some of the smaller producers shut, there’s still new capacity coming on stream.” China is expected to add about 3 million tons of annual smelting capacity this year, Zhou said. The country is cutting overcapacity as stockpiles of the metal in warehouses monitored by the Shanghai exchange jumped 67 percent this year after smelters raised output on expectations demand will improve as the global economy recovers.
  • Corn Falls as Chinese Demand May Decline; Beans Also Decline. Corn fell for the second straight day on speculation that demand from China will not be as robust as first expected after the country announced it would no longer peg the yuan to the dollar. Soybeans also declined. “This China policy is more psychological than anything,” said William Bayer, a partner at PTI Securities Inc. in Chicago. “As far as the grains, it’s not going to have that much of an effect. The yuan needs to appreciate at least 40 to 50 percent to have an effect on commodities. The grain markets shrugged it off as a one-day event.” Corn futures for December delivery fell 5.75 cents, or 1.5 percent, to $3.69 a bushel at 10:23 a.m. on the Chicago Board of Trade. Before today, the price declined 9.6 percent this year, partly on sagging demand.
  • Top U.S. General Apologizes for Criticism of Obama Officials. The U.S. military commander in Afghanistan, General Stanley McChrystal, apologized for criticizing top officials of the Obama administration in a magazine profile to be published this week. “I extend my sincerest apology,” McChrystal said in the statement e-mailed by the press office of his command, the International Security Assistance Force, in Afghanistan. “It was a mistake reflecting poor judgment and should never have happened.”
  • Kerviel Could Have Bankrupted SocGen, Trader Says. Societe Generale SA, France’s second-largest bank by market value, could have been forced into bankruptcy by Jerome Kerviel’s unauthorized positions had they not been unwound immediately, a trader told a Paris court today.
  • Verizon(VZ) Likely to Sell Apple's(AAPL) iPhone Next Year, Barclays Says. Verizon Wireless, the biggest U.S. mobile-phone carrier, will probably begin selling Apple Inc.’s iPhone in early 2011, Barclays Plc said. Sales of Apple’s device could boost Verizon’s subscriber gains next year by 900,000 for a total of 2.8 million, said James Ratcliffe, a Barclays analyst, in a research note today.
  • Verizon(VZ) Chief Calls FCC Web Proposal 'Overbearing'. The U.S. Federal Communications Commission has proposed “overbearing” rules for phone and cable companies that could dampen investment, said Verizon Communications Inc. Chief Executive Officer Ivan Seidenberg. The FCC is moving toward “an unimaginative and overbearing set of rules,” Seidenberg said today in remarks to the Economic Club of Washington. The FCC’s current course “will cause uncertainty in the marketplace, create disincentives for investment” and make the U.S. telecommunications industry less competitive, he said.

Wall Street Journal:
  • Study: Subprime Lending Fueled by Campaign Cash. Make sure you’re sitting down for this one: A new study finds that the mortgage industry boosted its campaign contributions to congressional districts that had a large share of subprime borrowers during the housing boom in order to influence government housing policy. (Hat tip to Felix Salmon). The report, from researchers at the University of California, Berkeley, and the University of Chicago’s Booth School of Business, concludes that campaign cash from the mortgage industry outpaced contributions from the rest of the financial industry from 2002 to 2006, and that donors targeted members from both parties that had more subprime borrowers in their districts. The authors say that their research “demonstrates that the mortgage industry increasingly targeted representatives of subprime borrowers during the subprime lending expansion.” Perhaps unsurprisingly, the authors conclude that “the mortgage industry viewed high subprime share representatives as potential allies in shaping subprime market legislation.”
  • Apple(AAPL) iPad Sales Hit Three Million 80 Days After Launch.
CNBC:
Business Insider:
Zero Hedge:
standardspeaker.com:
  • Legislator Calls for 1-Year Moratorium on Natural Gas Drilling. Standing at a reservoir that provides drinking water to 30,000 residents in Luzerne County, state Rep. Phyllis Mundy on Monday called for a one-year moratorium on new natural gas drilling permits in Pennsylvania. "We are allowing this industry to move ahead too fast," Mundy said from the Huntsville Reservoir in front of approximately 75 concerned citizens. "We need to take a step back and give ourselves the necessary time to do this right. The risks of doing it wrong are simply too great and long-lasting."
Real Clear Markets:
  • Is Illinois the New California. If you go to Sacramento this week, don't be surprised to hear champagne corks popping and chants of "We're #2! We're #2!" The cause for celebration? Illinois has overtaken California as the worst credit risk among American states. As of Monday, the credit default swap spread for Illinois general obligation bonds climbed to 313 basis points for a five-year contract -- meaning a bondholder must pay over 3% of the bond's face value per year to be insured against default. That's a higher price than for all but seven sovereign entities tracked by CMA, and slightly higher than California, whose five-year CDS spread sits at 293. Investors rate Illinois's debt as slightly riskier than Iceland's or Latvia's, but not quite as big a gamble as Iraq's.
Politico:
  • Poll: Obama Lacks Oil Spill Plan. A wide majority of Americans believe President Barack Obama does not have a blueprint to combat the BP oil spill off the Gulf Coast, according to a new CBS/New York Times poll out Tuesday. Fifty-nine percent of 1,259 adults polled nationwide said the president does not have “clear plan” for combating the spill. Thirty-two percent said Obama does have a plan to fight the spill and 9 percent didn’t know. Sixty-one percent say the president’s response to the spill was “too slow” compared to 32 percent who found his timing “just right” and 2 percent who think he was “too quick.” Just as Obama gets low marks for his administration’s response to the spill, the poll shows that there is little confidence the spill will be plugged quickly or that Gulf Coast residents will get the help they need.
Rolling Stone:
  • The Runaway General. Stanley McChrystal, Obama's top commander in Afghanistan, has seized control of the war by never taking his eye off the real enemy: The wimps in the White House.
Reuters:

Financial Times:
  • Shrimp prices have climbed almost 63% since the Gulf of Mexico oil spill because of fishing bans, citing local fisherman. Shrimp costs $3.25 a pound compared with $2 earlier this year.
Die Welt:
  • China and Russia are the main sponsors of Web-based industrial espionage against German companies and state agencies.
Expansion:
  • Spain may raise taxes next year to ensure it meets its deficit-reduction target, Finance Minister Elena Salgado said.
Dagens Naeringsliv:
  • Europe's economy may take 10 years to fully recover, James Quigley, chief executive officer of Deloitte Touche Tohmatsu, said. Europe and the U.S. will have to rebalance the relationship between the public and private sectors, Quigley said.
E15:
  • ArcelorMittal Ostrava AS faces a "dramatic outage" in its production after Evraz Vitkovice Steel canceled its pig iron orders for July, AMO Chief Executive Augustine Kochuparampil said. Supplies to the Czech unit of Evraz Group SA, Russia's second-largest steel producer, represent about a fourth of AMO's total output, Kochuparampil said.

No comments: