Evening Headlines
Bloomberg:
- Bernanke Says Fed Likely to Raise Rates Before Full Employment. Federal Reserve Chairman Ben S. Bernanke said the central bank will raise its benchmark interest rate from a record low before the U.S. economy returns to full employment or inflation surges. “It will be the case that when we start the process of tightening policy that the economy will not yet be back at full employment,” Bernanke said.
- Pimco's Crescenzi Sees 'Endpoint' in Devaluations. Nations have reached a “Keynesian endpoint” as exhausted balance sheets leave policy makers with few options to bolster economic growth, according to Anthony Crescenzi, an investor at Pacific Investment Management Co., the world’s largest bond-fund manager. “Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.” “The world is full of dirty shirts in terms of excessive debt, and the United States is one of those countries, but it still remains the reserve currency and still remains the flight- to-quality haven,” said Bill Gross, who runs the world’s biggest bond fund at Newport Beach, California-based Pimco. “The U.S. is the least dirty shirt,” he said in a June 4 radio interview on Bloomberg Surveillance with Tom Keene. The Obama administration forecast a $1.6 trillion budget deficit, the most ever, in the current fiscal year that began Oct. 1.
- Bund Spread With Spain Nears Danger Zone: Technical Analysis. The premium investors receive for holding Spain’s debt compared with Germany’s has risen to near a level that may trigger another flight to quality, according to Citigroup Inc. The difference in yield between the nations’ 10-year securities widened today to 2.04 percentage points, a level not seen since before the introduction of the euro in 1999. A close this week of 1.98 percentage points will signal renewed sovereign-debt concern in Europe, according to Tom Fitzpatrick, an analyst in New York at Citigroup, one of the 18 primary dealers required to bid at Treasury auctions. “There is real danger if the spread widens out further, similar to the equivalent of the pivot moment Greece had in April before the crisis really took off,” Fitzpatrick said in a telephone interview. “If we see a real breach, we will see a domino effect into anti-risk developments including weaker equities, a higher VIX and further strength to Treasuries and bunds -- just more flight to quality.”
- Aluminum prices in China have fallen below the cost of production, Luo Jianchuan, president of Aluminum Corp. of China Ltd., said in Shanghai today.
- China's aluminum export growth may stall should the yuan be allowed to appreciate against the dollar, the China Nonferrous Metals Industry Association said. Rising labor costs have already made China's products less competitive overseas, Li Defeng, director of aluminum at the association, said in slides prepared for the Antaike aluminum conference in Shanghai today. U.S. purchases accounted for 19% of China's overseas aluminum sales last year.
- Obama Gives States $250 Million to Review Premiums. Insurers led by UnitedHealth Group Inc.(UNH) and WellPoint Inc.(WLP) risk losing access to as many as 24 million customers a year under a plan announced by the White House today that expands funding for states to scrutinize “unreasonable” rate increases. The U.S. will give states $250 million in grants over five years to strengthen their ability to review premiums, starting with $51 million this year, said Kathleen Sebelius, the federal health secretary, in a statement today. UnitedHealth, WellPoint and Aetna Inc., the largest U.S. insurers, urged regulators in letters delivered last month to limit the new rate-review plans or risk driving insurers out of some markets.
- European government bonds show the debt crisis that sent the euro to its lowest level in four years against the dollar yesterday is spreading to nations that previously were considered safe. The extra yield investors demand to hold Belgian and French 10-year government bonds instead of benchmark German bunds doubled in the past week. Investors, having focused on the budget deficits of countries such as Greece and Portugal, are now starting to recognize that Europe's so-called core economies have excessive borrowings, according to Bob McKee, chief economist at Independent Strategy, an economics consultancy in London. "France has a deficit that is comparable to some of the peripheral countries," McKee said in an interview. "Belgium has a major debt problem and we won't find out if it has a government to deal with it until the weekend." France's debt load of 77.6% of gross domestic product last year was the fourth-largest in the 16-member currency region, after Italy, Greece and Belgium.
- Goldman(GS) Deserves Regulatory Probe in Bloomberg Poll. Goldman Sachs Group Inc. is being “legitimately scrutinized” by regulators who sued the firm for fraud based on conduct that many in the industry consider to be common practice, according to a Bloomberg survey. The most profitable securities firm in Wall Street history has suffered the worst reputational decline among its largest competitors, according to the global quarterly poll of 1,001 investors and analysts who are Bloomberg subscribers. Eighty- three percent of respondents said Goldman Sachs’s stature diminished in the past six months; the next closest were UBS AG, with 27 percent, and Citigroup Inc., at 26 percent.
- Investors Pick U.S. Over BRICs in Bloomberg User Poll. The U.S. has supplanted China and Brazil as the most attractive market for investors as confidence in the global economic recovery wanes in the wake of the Greek debt crisis. Following the U.S.’s 39 percent rating as the most promising market were Brazil, chosen by 29 percent; China, 28 percent; and India, 27 percent. Those are three of the four so- called BRICs, large emerging markets that also include Russia. Just 6 percent chose Russia. In a poll taken in January, China was the favorite followed by Brazil. Respondents were allowed to pick multiple countries.
- China, Hong Kong Stocks Downgraded at BofA Merrill. China and Hong Kong stocks were cut to “neutral” from “overweight” on speculation that policy easing may be “far away” and growth expectations will continue to fall, according to BofA Merrill Lynch Global Research. China is now the most “overbought” market in Asia while its yield curve has narrowed “sharply” to 102 basis points from 160 basis points in mid-April, strategists led by Sadiq Currimbhoy said in a report dated yesterday. They upgraded South Korea and India to “neutral,” and Singapore to “overweight.” “The Chinese 10-year bond is now 3.3 percent, down from 3.7 percent a few months ago, hardly a sign of accelerating either growth or inflation expectations,” the analysts wrote. “Any further narrowing and we would need to ‘underweight’ the market.” China has the highest number of “sell” signals within Asia based on a comparison of the markets’ 14-day relative strength index, according to the report.
- iPhone Gets Jump on Rivals With Video Chats, Screen Technology.
- Bernanke Says Economy Seems to Be on Track.
- Obama to Reopen Oil Drilling. The Obama administration, facing rising anger on the Gulf Coast over the loss of jobs and income from a drilling moratorium, said Monday that it would move quickly to release new safety requirements that would allow the reopening of offshore oil and gas exploration in shallow waters. Gulf Coast residents, political leaders and industry officials said delays in releasing the new rules, along with the administration's six-month halt on deepwater drilling—both issued amid public pressure—threatened thousands of jobs.
- Primaries to Watch From Coast to Coast.
- The Leading Men of Regulation. Geithner, Dodd, Frank to Play Big Role in Crafting Finance Rules Behind the Scenes.
MarketWatch:
NY Times:
- Goldman(GS) Gets Subpoena From Financial Crisis Panel. The commission investigating the causes of the financial crisis said Monday that it had subpoenaed Goldman Sachs and harshly accused the investment bank of trying to delay and disrupt its inquiry, The New York Times’s Sewell Chan reports from Washington. “Goldman Sachs has not, in our view, been cooperative with our requests for information, or forthcoming with respect to documents, information or interviews,” Phil Angelides, the chairman of the Financial Crisis Inquiry Commission, told reporters in a conference call. The deputy chairman, Bill Thomas, accused Goldman of “stonewalling,” and said, “They may have more to cover up than either we thought or than they told us.”
- Chinese Media Cites Foxconn Suicides In Calling for New Proletarian Revolution. Maoists have expressed concern with the growth of inequality in a country that only decades ago paid the same wage to all workers. Calls for a new proletarian revolution appears today in the state-owned People's Daily. Although many Chinese enjoy economic liberalization, technically everyone is still a Maoist. Watch what happens to the boom when this opinion catches on.
CNNMoney:
- Gulf Spill Widows: Don't Stop Drilling. The widows of two men killed on the Deepwater Horizon drill rig urged lawmakers Monday to allow drilling in the Gulf of Mexico to continue, saying the oil industry is a major source of income for families in the region. "Drilling in the gulf must continue," said Courtney Kemp, of Jonesville, La., whose husband was killed along with 11 other workers when the drill rig exploded and sank in April. The rig, operated by Transocean, was contracted to develop a well leased by BP. "If drilling ceases, not only would off-shore employees lose their jobs," said Kemp, "but the trickle-down effect would be devastating not only to the coastal states, but eventually to the entire country."
- Why a Rising U.S. Dollar is Horrible News for China. You'd think a country would be happy to have a strong exchange rate, so why is a rising dollar so bad for China? China used its pegged exchange rate to destroy the trading competition and grow its economy at 9% a year for the last 15 years. Hong Kong, Korea, Singapore, and Taiwan only managed 7%-8% growth over the same period. A 1% difference may not sound like much, but China basically used this edge to overtake Germany as the world's largest exporter in 2009 and build the largest lowest-cost manufacturing "sector" the world has ever seen. In other words, China fell for the classic trap. It built its future prosperity on the idea the dollar would always be cheap against other foreign currencies. Already, the Chinese renminbi has risen 16% against the euro over the last 120 days... This is the fastest, most violent move in the history of euro-renminbi markets. The Chinese renminbi has also risen 13% against the British pound, 13% against the Aussie dollar, and 5% against the Japanese yen. Europe is China's largest trading partner, and Chinese goods have just gotten 16% more expensive for Europeans. If you're a Chinese businessman and you're using a 2% profit margin to beat the competition and sell your goods to France, it only takes a 2% currency appreciation to put you out of business. As China's vice commerce minister put it recently, "Water doesn't boil if it's heated to 99 degrees Celsius. But it will boil if it's heated by one more degree."
- In Chinese Admiral's Outburst, a Lingering Distrust of U.S. Interviews in China with a wide range of experts, Chinese officials and military officers indicate that Guan's rant -- for all its discomfiting bluster -- actually represents the mainstream views of the Chinese Communist Party, and that perhaps the real outliers might be those in China's government who want to side with the United States. Guan's speech underscored that 31 years after the United States and China normalized relations, there remains a deep distrust in Beijing. That the United States is trying to keep China down is a central part of the party's catechism and a foundation of its claims to legitimacy. More broadly, many Chinese security experts and officials view the Obama administration's policy of encouraging Chinese participation in solving the world's problems -- including climate change, the global financial crisis and the security challenges in Iran and North Korea -- not as attempts to elevate China into the ranks of global leadership but rather as a scheme to enmesh it in a paralyzing web of commitments.
- The Ties That Bind. Remember Rahm Emanuel's Rent-Free D.C. Apartment? The Owner: A BP(BP) Adviser. In case you were tempted to buy the faux Washington outrage at BP and its gulf oil spill in recent days, here's a story that reveals a little-known corporate political connection and the quiet way the inner political circles intersect, protect and care for one another in the nation's capital. And Chicago. We already knew that BP and its folks were significant contributors to the record $750-million war chest of Barack Obama's 2007-08 campaign. Now, we learn the details of a connection of Rahm Emanuel, the Chicago mayoral wannabe, current Obama chief of staff, ex-representative, ex-Clinton money man and ex-Windy City political machine go-fer. Shortly after Obama's happy inaugural, eyebrows rose slightly upon word that, as a House member, Emanuel had lived the last five years rent-free in a D.C. apartment of Democratic colleague Rep. Rosa DeLauro of Connecticut and her husband, Stanley Greenberg. For an ordinary American, that would likely raise some obvious tax liability questions. But like Emanuel, the guy overseeing the Internal Revenue Service now is another Obama insider, Tim Geithner, who had his own outstanding tax problems but skated through confirmation anyway by the Democratic-controlled Congress. Remember this was all before the letters BP stood for Huge Mess. Even before the Obama administration gave BP a safety award. Now follow these standard Washington links if you can: Greenberg's consulting firm was a prime architect of BP's recent rebranding drive as a green petroleum company, down to green signs and the slogan "Beyond Petroleum." Greenberg's company is also closely tied to a sister Democratic outfit -- GCS, named for the last initials of Greenberg, James Carville, another Clinton advisor, and Bob Shrum, John Kerry's 2004 campaign manager. According to published reports, GCS received hundreds of thousands of dollars in political polling contracts in recent years from the Democratic Congressional Campaign Committee. Probably just a crazy coincidence. But you'll never guess who was the chairman of that Democratic Congressional Campaign Committee dispensing those huge polling contracts to his kindly rent-free landlord.
- Rep. Gutierrez Threatens to Oppose UAL Merger. A Chicago congressman Monday said he will oppose the pending merger of United and Continental airlines unless the carrier makes concessions to its customers and workers.
Politico:
- Harry Reid Lays Out Huge Senate Agenda. Majority Leader Harry Reid (D-Nev.) laid out an daunting summer agenda for the Senate on Monday afternoon, including a tax extenders bill, an emergency extension of unemployment benefits, a small-business jobs bill, the financial reform conference report and a war funding bill. To top that off, the Senate also has to begin the confirmation hearings of Supreme Court nominee Elena Kagan and deal with the ongoing oil spill crisis in the Gulf. "The work period between now and July 4 is short, but our to-do list is very long," Reid said. As if that’s not enough to deal with, Reid wants key Senate committees to draw up an energy bill in wake of the oil spill crisis.
- Iran Sanctions Vote Could Come Wednesday: U.N. Envoys. Western nations are hoping the U.N. Security Council will be able to vote on Wednesday on a resolution imposing a fourth round of sanctions on Iran over its nuclear program, diplomats said.
- New Crisis Could Expand German Short Ban - CESR Head. A new crisis could spark the expansion of Germany's new ban on naked short selling, but there is no reason for that now, a top European markets regulator said on Monday.
- Pennsylvania Halts EOG(EOG) Drilling After Blowout.
- China Steelmakers Face Tough Q3 - Baosteel Group Head. The Chinese steel industry will face its toughest time of the year during the third quarter, the head of the parent of Baosteel, China's biggest-listed steelmaker, said on Tuesday. "The third quarter will be the most difficult time of the year because iron ore prices will peak," Xu said. He added: "Demand from the downstream industry will be sluggish."
- William Hague Wins European Backing for Israeli Raid Inquiry. William Hague condemned Iran’s plan to send aid boats to Gaza yesterday, warning that the move would deliberately aggravate an already tense situation. “It is not helpful, and probably it is not designed to be helpful,” the British Foreign Secretary said after meeting Franco Frattini, his Italian counterpart. He and Mr Frattini agreed that Europe wanted an international presence in any Israeli inquiry into the deadly storming of the boats. Such an inquiry must be “transparent, honest and complete,” Mr Frattini said. When asked what form the international component could take because of Israeli opposition to a role by the United Nations, Mr Hague said: “The UN is not the only option, there are other organisations.”
- UK Would Have to Double Scale of Cuts to Match Canada's Public Sector Bonfire. The 20pc cut in public spending which Canada implemented in the 1990s would be equivalent today to some £140bn worth of public spending cuts, according to the Institute of Economic Affairs. This is dramatically higher than the £71bn the Conservatives signalled they would aim for ahead of the election, and would necessitate the biggest reduction in public spending on record. The warning came after David Cameron said that the imminent spending cuts, which will be spelt out by the coalition Government over the coming days, with George Osborne due to provide more detail of the mechanism for the cuts on Tuesday, would affect every Briton's life. He cited Canada as a country which successfully cut its national debt while maintaining stability and escaping recession.
- Now is the best time for China to reform its exchange rate mechanism because weakening pressure for appreciation of the yuan means there will be fewer negative effects from the change, citing government researcher Fan Jianjun.
- China's sales of land for residential development projects fell 14% in 70 cities in May from the previous month, citing the China Index Research Institute, which tracks the nation's real estate market.
- None of note
- Asian indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 147.50 -1.0 basis point.
- S&P 500 futures +.72%.
- NASDAQ 100 futures +.70%.
Earnings of Note
Company/Estimate
- (DG)/.34
- (TLB)/.16
- (PLL)/.50
7:30 am EST
- NFIB Small Business Optimism for May is estimated to rise to 91.0 versus 90.6 in April.
- (DHR) 2-for-1
- The Fed's Duke speaking, Fed's Evans speaking, Fed's Hoenig speaking, weekly retail sales reports, $36 Billion 3-Year Treasury Notes Auction, ABC Consumer Confidence reading, IBD/TIPP Economic Optimism Index, (PLXS) investor day, (ORBK) investor day, RBC Energy/Power Conference, Bank of America Merrill Lynch Small/Mid Cap Conference, Jefferies Life Sciences Conference, UBS Tech/Services Conference, Goldman Lodging/Gaming/Restaurant/Leisure Conference, JPMorgan Diversified Industries Conference, Piper Jaffray Consumer Conference, Needham Internet/Digital Media Conference and the (DPS) analyst meeting could also impact trading today.
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