Wednesday, July 07, 2010

Today's Headlines

Posted by Gary .....at 3:00 PM

Bloomberg:
  • U.S. Retailers' Sales Rise at Fastest Pace in 4 Years. U.S. retailers’ sales are growing at the fastest pace in four years, a sign consumers may be overcoming concern about unemployment and depressed home values. Sales probably expanded at an average monthly rate of 4 percent in the first five months of the retail fiscal year that began Jan. 31, the biggest gain since 2006, the International Council of Shopping Centers trade group said in advance of its June report tomorrow.
  • State Street Rises as Operating Profit Beats Estimates. State Street Corp., the third-largest U.S. custody bank, rose the most in more than a year in New York trading after reporting second-quarter operating profit that beat analysts’ estimates. State Street gained as much as 11 percent after reporting earnings per share of 93 cents, excluding some one-time items. The mean estimate of 15 analysts in a Bloomberg survey was for profit of 72 cents.
  • EU Stress Tests May Include 17% Loss on Greek Debt. European banking regulators have told lenders that their planned stress tests may assume a loss of about 17 percent on Greek government debt and 3 percent on Spanish bonds, according to two people briefed on the talks. There are unlikely to be so-called haircuts on German government securities under the stress tests being overseen by the Committee of European Banking Supervisors, said the people, who declined to be identified because the talks are private. CEBS is still weighing how much data to disclose and when, a European Union official familiar with the talks said. “If they set the criteria so stringently that the majority of the participants fail, then the financial industry in Europe fails with it,” said Ralph Silva, an analyst at London-based Silva Research Network, which specializes in financial-services firms. “These kind of numbers do not seem particularly robust,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “The stress on Greek and Spanish bonds seems too modest.”
  • Market Sets Greek Debt Losses at Three Times Stress-Test Level. Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default, more than three times the level said to be assumed by European banking regulators. Derivatives known as recovery swaps are trading at rates that imply investors would get back about 40 percent in a Greek default or debt restructuring. So-called stress tests designed to gauge banks’ strength will assume a loss, or haircut, of just 17 percent on the bonds, according to two people briefed on the regulators’ talks before an official announcement.
  • China Seeks to Tighten Liquidity Even as Growth Slows. The People’s Bank of China signaled it remains focused on reining in liquidity and stemming inflation even after evidence of slowing growth in the world’s third-biggest economy contributed to a global stock sell-off. A surfeit of cash is still the main problem facing monetary policy, and PBOC should at an appropriate time use interest rates to address it, Yang Guozhong, director of the bank’s business management department, wrote in China Finance magazine. Zhang Jianhua, director of the research bureau, wrote in the China Daily that the PBOC must “deal with” excess liquidity. “Price pressures have been building for almost a year now,” and inflation will likely accelerate in coming months, said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “Today’s comments suggest that inflation and easy liquidity remain at the top of the PBOC’s agenda.”
  • U.S. Commercial Property Sales Trail Average as Supply Limited. U.S. commercial real estate sales in the first half totaled about a quarter of the average of the previous six years as owners kept properties off the market, impeding investors with record funds for purchases. Buyers and sellers completed $34.2 billion of deals through June, or 26 percent of the average first-half dollar volume since 2004, according to preliminary figures from Real Capital Analytics. The total was about 12 percent of the 2007 peak, when $277.7 billion of properties changed hands in the same period, data from the New York-based real estate research firm show.
  • China Says Treasury Holdings Shouldn't Be Politicized. The manager of China’s foreign- exchange reserves said the U.S. bond market is important and changes in holdings of Treasuries “shouldn’t be politicized.” The benefits of investing in U.S. government debt include “relatively good” safety, liquidity and low trading costs, the State Administration of Foreign Exchange said today in a statement on its website. China increasing or cutting the amount of U.S. debt it owns “is normal” and decisions are made based on market conditions, it said.
  • Merkel's Cabinet Back $103 Billion Budget-Cut Plan. German Chancellor Angela Merkel’s Cabinet approved a four-year package of budget cuts, stepping up pressure on fellow European governments to reduce debt that risks tearing apart the euro area. Ministers meeting in Berlin today backed spending cuts and revenue-raising measures worth 81.6 billion euros ($103 billion) from 2011 through 2014. Snubbing President Barack Obama’s calls to focus on economic growth, Merkel says the cuts, equivalent to about 2.7 percent of gross domestic product in Europe’s biggest economy last year, aren’t deep enough to threaten the recovery. “Germany feels the responsibility to signal that it will continue to push strongly for fiscal discipline within the euro area,” Marco Annunziata, chief European economist at UniCredit Group in London, said in a telephone interview. “The only way to do it is to exercise leadership.”
  • Allstate(ALL) CEO Says State Borrowing 'Out of Control'. Allstate Corp. Chief Executive Officer Thomas Wilson said a surge in borrowing by U.S. state and local governments may trim the value of municipal debt holdings, and called for political leaders to cut costs. “Government borrowing is way out of control.” Wilson, 52, said yesterday in a Bloomberg Television interview from Aspen, Colorado. “We need to get our house in order.”
  • Fisher Says Fed Has 'Done Enough' to Spur Growth. Federal Reserve Bank of Dallas President Richard Fisher said that while the economy is slowing, there’s little risk it will sink back into a recession and policy makers have “done enough” to spur growth. “I don’t think we’re going to go backwards,” Fisher said in an interview with CNBC today. “I think we’ve done enough,” Fisher said. “We ought to be very careful about not going too far. Interest rates are zero. It’s not the cost of money that’s the issue.” Fisher said companies are holding back on investment because of uncertainty over government regulations in areas such as health care. He also said he expects the world’s largest economy to slow in the second half of the year as the contribution from business inventories wanes. Companies are “hoarding cash, they’re holding back, they’re not hiring people, they’re not building plant and equipment at the pace we’d like to see,” Fisher said. “This has nothing to do with monetary policy. We have been as accommodative as possible.” Asked about the prospect of additional asset purchases, Fisher said: “I’m not ruling it out, I’m just saying we have provided a lot of accommodation, there’s a lot of buildup of liquidity, there’s a lot of cash.” “Now it has to be utilized,” Fisher said. “It will be utilized only if there is confidence in the future.”
  • Copper Gains for Third Day in NY on Falling Stockpiles.

Wall Street Journal:
  • Prisoner-Swap Deal Expected in Russia Spy Case. In an apparent throwback to the Cold War, Moscow and Washington are discussing a deal to swap the 10 suspected deep-cover Russian agents arrested last month in the U.S. for prisoners held in Russia, according to people familiar with the talks.
  • Russia-To-Asia Pipeline Take Detour to U.S. Russian oil has taken an unexpected turn to the U.S., where it is making inroads on the West Coast. Oil refineries spanning the area between the Puget Sound in the Pacific Northwest and greater Los Angeles have been quick to try out oil that is landing in tankers sent from Russia's eastern coast. Imports have gone from zero to an estimated 100,000 barrels a day in a matter of months since a pipeline bringing crude from deep inside Eastern Siberia came online.
  • BP(BP) Open to Abu Dhabi Stake. BP PLC's Chief Executive Tony Hayward met this week with Abu Dhabi's powerful Crown Prince Mohammed bin Zayed Al Nahyan and would be open to seeing the oil-rich sheikdom buy a stake of up to 10% in the U.K. oil giant, a person with knowledge of the meeting told Zawya Dow Jones.
  • McDonald's(MCD) Blasts Criticism of Happy-Meal Toys. McDonald's Corp. Chief Executive Jim Skinner vowed to vigorously defend the company in its use of toys to promote Happy Meals against a threat by a consumer group to sue the fast-food giant over the practice.
Bloomberg Businessweek:
  • Euro's Downtrend Resistance May Halt Rally: Technical Analysis. The euro’s rebound versus the dollar to above its 55-day moving average will probably fade as the currency approaches resistance to further gains formed by its 16 percent slump since the beginning of December, according to Bank of Tokyo-Mitsubishi UFJ Ltd. “With such strong resistance still in place, it appears unlikely that the euro’s recent bounce will gain further momentum,” Hardman wrote. “It appears reasonable to expect the euro to now experience a period of undervaluation in the years ahead.” The shared European currency may fall below parity with the dollar, an “extreme undervalued level,” if Greece were to restructure its debt or one of the euro members left the currency union, Hardman wrote.
CNBC:
MarketWatch:
Business Insider:
Zero Hedge:
Army Times:
  • Sources: Rolling Stone Quotes Made by Jr. Staff. Mag also accused of misrepresenting communications with McChrystal's HQ; e-mails support claim. The impolitic comments that torpedoed Gen. Stan McChrystal’s career were “almost all” made by his most junior staff — men who “make tea, keep the principal on time and carry bags” — who had no reason to believe their words would end up in print, according to a staff member who was on the trip to Europe during which the comments were made.
FINalternatives:
  • Hedgies Cool to Democrats As Wall Street Cuts Donations. Democrats bankrolled their successful efforts to retake Congress in 2006 and the White House in 2008 with huge donations from Wall Street, and especially from the hedge fund industry. But to defend those gains in 2010, they’ll have to make do with much less from the same people. Despite the big donations over the past several election cycles, Democrats pushed ahead with major financial reform legislation seen as hitting big banks. And it seems those big banks are hitting back, with donations from New York and its suburbs falling by 65% from two years ago, the Washington Post reports. New York-area residents have given the Democrat’s two Congressional campaign committees just $8.7 million this cycle, down from $23.9 million. In 2008, a whopping 28% of the committees’ money came from the New York area. In 2010, the figure is less than 10%. Despite their newfound coolness towards Democrats, Wall Street hasn’t exactly rushed to embrace the Republicans. The Republican Congressional committees have taken in just $2.7 million from the New York area, slightly more than in 2008, but still less than a third of what Democrats have taken in. The Democratic committees have raised more than 50% more than Republicans this cycle.
  • Hedge Funds Drop .94% As Distressed, Equity Hedge Funds Take Toll. Hedge funds shed 0.94% last month, extending their year-to-date loss to 1.2%, according to new figures from Hedge Fund Research. Just four of the 18 HFRX strategy indices ended the first half with a positive month. Distressed securities and fundamental growth funds, in particular, wilted in the summer heat, shedding 3.73% (up 0.38% year-to-date) and 2.85% (down 9.73% YTD, the worst of any strategy index), respectively. Equity hedge funds were no great shakes, either, declining 1.38% (down 3.42% YTD) in June. Macro funds lost 1.32% (down 2.32% YTD), market directional funds lost 1.14% (down 0.01% YTD) and the HFRX Equal Weighted Strategies Index dipped 0.99% (down 0.09% YTD). The strongest performer on the month was systematic diversified, which rose 0.64% to hit 4.53% on the year. The other strategies in the black in June were relative value arbitrage (0.29% on the month, 1.29% YTD), convertible arbitrage (0.11%, 1.92% YTD) and relative value arbitrage multi-strategy (0.1%, 3.23% YTD).
Lloyd's List:
  • Bulker Binge Sparks Fears of Oversupply. More than $6bn of new orders placed as bullish owners secure newbuilding prices at seven-year lows. A BULK carrier ordering binge has seen more than $6bn in new orders placed in Asian shipyards in May and June, stoking fears of a major oversupply of dry bulk vessels in 2011 and beyond.
Rasmussen Reports:
Politico:
  • McCain to Vote No on Kagan. Sen. John McCain (R-Ariz.) will vote against confirming Supreme Court nominee Elena Kagan, he announced Wednesday in an op-ed piece to be published in Thursday's USA Today. The main beef McCain cites, in fact his only beef, is with Kagan's move in 2004 to ban military recruiters from official recruiting channels at Harvard Law School.
  • Stop the Oil, Not Job Creation. Here in the Gulf, where Washington policy decisions have a real impact on the people and businesses most affected by BP’s Deepwater Horizon oil spill, we were thrilled by a federal judge’s recent decision to overrule President Barack Obama’s moratorium on deepwater drilling. We hope this gives the Obama administration time to reevaluate its drastic decision to cut off the nation’s access to important sources of oil and natural gas from the Gulf of Mexico.
The Daily Beast:
  • The Elite Turn Against Obama. Even the Aspen Ideas Festival, an annual gathering of the country's brightest lights, isn't Obama country anymore. Lloyd Grove on the president's waning support among the intelligentsia. You’d think the well-heeled and enlightened eggheads at the Aspen Ideas Festival—which is running all week in this fashionable resort town with heady panel discussions and earnest disquisitions involving all manner of deep thinkers and do-gooders—would be receptive to an intellectually ambitious president with big ideas of his own. In a way, the folks attending this cerebral conclave pairing the Aspen Institute think tank with the Atlantic Monthly magazine might even be seen as President Obama’s natural base. Apparently not so much. during Monday’s kickoff session, offering a withering critique of Obama’s economic policies, which he claimed were encouraging laziness. “If you’re asking if the United States is about to become a socialist state, I’d say it’s actually about to become a European state, with the expansiveness of the welfare system and the progressive tax system like what we’ve already experienced in Western Europe,” Harvard business and history professor Niall Ferguson declaredFerguson was joined in his harsh attack by billionaire real estate mogul and New York Daily News owner Mort Zuckerman. Both lambasted Obama’s trillion-dollar deficit spending program—in the name of economic stimulus to cushion the impact of the 2008 financial meltdown—as fiscally ruinous, potentially turning America into a second-rate power. Zuckerman added that he detects in the Obama White House “hostility to the very kinds of [business] culture that have made this the great country that it is and was. I think we have to find some way of dealing with that or else we will do great damage to this country with a public policy that could ruin everything.” This was greeted by hearty applause from a crowd that included Barbra Streisand and her husband James Brolin. “Depressing, but fantastic,” Streisand told me afterward, rendering her verdict on the session. “So exciting. Wonderful!” The consensus was similar in an afternoon panel discussion on the decline of the American middle class. “He said jobs were going to be his No. 1 priority—there’s a huge disconnect between Washington and what’s going on out in the country,” nominal Obama supporter Arianna Huffington said.
Reuters:

Financial Times:
  • Cooling Chinese Demand to Hit Hard Commodities. A near-halving in the Baltic Dry Index since the end of May suggests that hard commodity prices will fall in the second half of the year, says Melissa Kidd at Lombard Street Research. She acknowledges that the recent drop in the BDI – a gauge of the cost of shipping dry bulk cargoes, such as iron ore and coal – pales in comparison to a 93 per cent slump during the financial crisis. She also says it reflects to some extent an oversupply of shipping following a surge in freight prices in 2008. “But examining underlying trends in hard commodity markets and world production suggests the BDI retains at least some of its value as a leading indicator,” she says, noting its historically close correlation with the S&P GSCI commodities index. “China has been the world’s engine of growth for coal and iron ore, and other commodities, over the last 12 to 18 months,” says Ms Kidd. “A cooling off in Chinese demand growth – prompted by ongoing monetary tightening – will impact heavily on global price developments. For some hard commodities, the process may already have started. “Recent falls in the Baltic Dry Index, in combination with signs of weakening hard commodity demand in China and softening global survey data, point to a slowing down in the global recovery. Hard commodity prices will find little support going forward in this environment.”
  • Bloomberg to Launch Derivatives Valuation Tool. Bloomberg, the privately held news and information company, is making a further push into over-the-counter derivatives amid growing calls from regulators and lawmakers for increased transparency in the $615,000bn market. A new derivatives valuation service expected to be launched by Bloomberg this week will analyse derivative instruments and price them, allowing users to also look at the models and assumptions that underpin the instruments. The new service, which will charge users according to complexity and the size of the derivatives portfolio that has to be valued, is aimed at tapping into demand for more independent valuations of these contracts, which have been widely criticised for being too opaque.
  • We Have Yet to Address the Cause of the Crisis. With the debate about US financial reform finally, it appears, about to end, should we all feel safer and more confident that a crisis will not recur? After all, the root causes of this crisis (including derivatives) have been identified and addressed. Measures have been taken to prevent system-wide bail-outs. We agree wholeheartedly with the need for financial reform and support many of the derivatives provisions in the bill. But have we addressed what actually happened in the financial crisis? Or have we left the real culprit lurking, ready to resurface and create more instability in the financial system? It’s clear today – and it was clear three years ago – that the culprit is real estate exposure. Bad lending, driven by poor underwriting standards and awful risk management, created and drove the crisis.
The Scotsman:
  • North Sea investment to top £16bn on oil industry bounce. A BUMPER £16 billion in potential investment in the North Sea could be "kick started" this year by a resurgent oil and gas industry, it was revealed yesterday. The latest economic report published by Oil & Gas UK, the pan-industry trade body, has highlighted signs of growing confidence across the sector with plans to develop a potential 70 fields in the pipeline. Both exploration work and development drilling is expected to exceed last year's levels in the search for oil and gas discoveries in the UK continental shelf (UKCS). Overall investment in the North Sea this year alone is expected to rise above £5.5bn, compared with £5bn in 2009.
El Mundo:
  • A new law that the Spanish government is preparing to overhaul rules governing savings banks, or cajas, will allow private investors to own as much as 50% of the lenders. Political influence on boards will be reduced and the new law will allow cajas to become commercial banks.
Expansion:
  • Spanish officials informed builders associations that the government would put 70 building projects for roads and railways on hold as part of its attempts to save money.
PAP:
  • Poland plans to freeze salaries for public workers and raise a tobacco excise tax next year to cut the budget gap and tame the growth of public debt, citing a Finance Ministry document on the 2011 budget plan. The measures are needed because of the risk of public debt exceeding 55% of gross domestic product.
Mercurio:
  • Codelco, Chile's state-owned copper producer, may increase annual production to 1.8 million metric tons between 2010 adn 2012. Production was 1.78 million tons last year.
DigiTimes:
  • HDD Prices Dropping Since End of June. Hard drive quotes in Taiwan at the end of June dropped 10-20% compared to levels seen at the beginning of the second quarter, according to sources from hard drive players. Supply had been tight since the second quarter of 2009 causing quotes to remain at a high level until the second quarter of 2010, when Europe's bond crisis occurred and started affecting PC demand. As PC brands started downwardly adjusting their shipment forecast for the third quarter, it relatively helped relieve the shortage of hard drives and even turned the market status to over-supply, as a result, the hard drive makers started reducing their quote. For the third quarter, the sources expect hard drive shipments will remain at levels seen in the second quarter, though previous years had generally seen strong growth in this time frame. Since the total number of hard drive suppliers worldwide has been reduced to only 4-5 players, the market is unlikely to see a price war this year, helping the industry to become healthier, the sources noted.
Sina:
  • China's coal output may rise 20% to 1.57 billion metric tons in the second half from a year earlier, citing Dong Yueying, vice director of economic operations at the China National Coal Assoc.
Al Eqtisadiah:
  • A Saudi business team is to hold direct talks with BP Plc(BP), which faces a large bill for the Gulf of Mexico oil spill. The team, including investors from the energy industry, is seeking to acquire between 10 and 15% of BP's shares.

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