Bloomberg:
- HSBC, BNP Earnings Spur Drop in Bank Swaps to Three-Month Low. HSBC Holdings Plc and BNP Paribas SA led a decline in the cost of insuring bank bonds to the lowest level in three months after posting profits that beat analysts’ estimates, easing concern of a global economic slowdown. The Markit iTraxx Financial Index of credit-default swaps linked to 25 banks and insurers fell 3 basis points to 112.5, near the lowest since April 21, according to JPMorgan Chase & Co. at 12:30 p.m. in London. HSBC, Europe’s biggest bank, and BNP Paribas are the latest companies to exceed profit forecasts in what Deutsche Bank AG strategist Jim Reid called a “blockbuster earnings season.” Credit-default swaps on London-based HSBC fell 1 basis point to 81 and contracts on BNP Paribas, France’s largest lender, declined 3 to 84, according to data provider CMA. Higher bank profits also helped fuel a rally in corporate credit, with the Markit iTraxx Europe Index of 125 companies with investment-grade ratings down 3 basis points at 102, the lowest since May 13. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings declined 12.5 basis points to 466.5.
- U.S. Economy: Manufacturing Slowed in July as Orders Cooled. The manufacturing rebound that propelled the U.S. out of the recession cooled in July, reflecting a slowing in orders and production. The Institute for Supply Management’s manufacturing gauge dropped to 55.5 last month, exceeding the median forecast of economists surveyed by Bloomberg News, from 56.2 in June. The ISM’s new orders measure dropped to 53.5, the lowest level since June 2009, from 58.5. The measure was as high as 65.7 in May. The group’s production gauge decreased to 57 from 61.4.
- Bernanke Says U.S. Consumer Spending to Accelerate. Federal Reserve Chairman Ben S. Bernanke said rising wages will probably spur household spending in the next few quarters, even as weak job gains drag down consumer confidence. While the U.S. has “a considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth,” Bernanke said today in a speech in Charleston, South Carolina. “We are maintaining strong monetary policy support for the recovery,” he said in response to an audience question, without discussing any further action the Fed could take to aid growth. The remarks signal Bernanke and his colleagues, when they meet in Washington next week, will stop short of making major changes in their policy statement or taking new steps to lower interest rates and reduce unemployment, said John Ryding, a former Fed researcher. Consumer spending, which accounts for about 70 percent of the economy, “seems likely to pick up in coming quarters from its recent modest pace,” Bernanke said. “Further action still has a pretty high hurdle to get over,” said Ryding, co-founder and chief economist at RDQ Economics LLC in New York. “The status quo on policy remains.”
- A gauge of U.S. corporate credit risk fell to the lowest in more than two months as manufacturing slowed less than economists had forecast, spurring investor optimism that the economy may avoid a double-dip recession. The Markit CDX North American Investment Grade Index declined 4.31 basis points to a mid-price of 100.08 basis points, the lowest since May 12, as of 12:37 pm in NY, according to Markit Group.
- Soybeans, Corn Rise as Drought Slashes Grain Output in Russia. Soybean and corn prices jumped to the highest level since January as drought slashed grain production in Russia and parts of Europe, boosting demand for supplies from the U.S., the world’s biggest producer and exporter. Soybean futures for November delivery rose 12.25 cents, or 1.2 percent, to $10.1725 a bushel at 10:20 a.m. on the Chicago Board of Trade. Earlier, the price reached $10.295, the highest level for a most-active contract since Jan. 11. In July, the oilseed jumped 11 percent, the most since May 2009. Corn futures for December delivery gained 6 cents, or 1.5 percent, to $4.1275 a bushel. Earlier, the price reached $4.18, the highest level since Jan. 12. In July, the price advanced 8.9 percent, the most since February.
- Copper Rises to Three-Month High as China May East Tightening. Copper prices rose to a three-month high on speculation that China’s government may cut back on policies aimed at slowing economic growth. Copper futures for September delivery rose 5.9 cents, or 1.8 percent, to $3.3705 a pound at 10:35 a.m. on the Comex in New York. Earlier, the price touched $3.3735, the highest for a most-active contract since April 30. Today’s gain would leave the metal up 0.7 percent this year.
- Ford(F) Debt Raised by S&P on Improved Image With Public. Ford Motor Co.’scredit rating was raised two levels by Standard & Poor’s because of expectations the company will remain profitable and signs that customers have a better impression of the automaker’s vehicles. The rating was raised to B+, the fourth level below investment-grade, from B-, S&P said today in a statement. The outlook is positive. Ford has “substantial” cash balances and likely will continue to generate free operating cash flow, the ratings firm said. The retail market has an “improved perception” of Ford’s vehicles and its efforts to introduce more fuel-efficient models in the next few years, S&P said.
- Funds Provide Inadequate Disclosure on Derivatives, SEC Says. U.S. regulators said mutual funds aren’t telling investors enough about why they use derivatives, with some funds providing “generic” disclosures and others failing to explain how the products affect performance. Regulators said they are concerned that the use of derivatives has increased in the mutual-fund industry without shareholders comprehending the risks or investment strategies.
- BlackRock's(BLK) Doll Sees U.S. Stocks Returning 8% a Year. U.S. stocks will return 8.1 percent a year and the Standard & Poor’s 500 Index will almost double by 2020 after its first losing decade made American equities appear cheap, BlackRock Inc. Vice Chairman Robert C. Doll said. The S&P 500, which closed at 1,101.6 on July 30, will rise 85 percent to 2,034 by the decade’s end, Doll said in a statement today. U.S. equity returns will outpace those of other developed nations because of attractive valuations, stronger economic growth, shareholder-friendly management practices and more serious problems in other economies, Doll said.
Wall Street Journal:
- U.S. Plans to Name North Korea's Partners. U.S. officials in charge of new sanctions against North Korea on Monday said they will name and shame banks and businesses in other countries that help Pyongyang with illegal activities.
- BP(BP) to Begin First Phase of Killing Damaged Well. BP PLC is poised to start the latest attempt to kill a damaged deepwater well in the U.S. Gulf of Mexico by flooding it with thousands of barrels of drilling mud, an executive said Monday.
- Global Chip Sales Rose 7.1% in Second Quarter. Global chip sales edged up 0.5% in June from a month earlier, contributing to 7.1% growth in the second quarter from the prior quarter. Meanwhile, gains for the month and quarter from last year were 49% and 45%, respectively, reflecting growth in a broad range of markets from an industry slowdown in the first half of last year.
- Glimcher, Blackstone to Buy Hawaii's Pearlridge Center. A partnership between shopping-mall owner Glimcher Realty Trust and buyout firm Blackstone Group LP has agreed to buy Pearlridge Center, one of the largest malls in Hawaii, for $242 million, according to people familiar with the talks.
- Better-Than-Expected Earnings Should Help Stocks: Cohen. Corporate earnings in the US and Europe have been "dramatically better than expected" and may give average investors more confidence in stocks, Abby Joseph Cohen, chief market strategist at Goldman Sachs, told CNBC Monday.
- Economist: V-Shaped Recovery Won't Go W-Shaped. The chances of a double-dip recession in the developed world are very weak despite a fall in global business confidence, according to researchers at Barclays Capital.
Business Insider:
- Scuttlebutt: FrontPoint Is Going To Completely Spin Off From Morgan Stanley(MS) And Everyone Wants A Piece. Morgan Stanley's hedge fund, FrontPoint Partners, will be completely spun off within the next three months, a single source at the hedge fund tells us.
- All This Stuff About Bailouts Preventing The Second Great Depression Is Just Propaganda.
- Freddie Mac Denies It's In The Zero-Down-Payment Business - We Disagree. Earlier today we highlighted, with some shock, that Freddie Mac, on its website was still promoting zero-down-payment mortgages, despite the events of the past few years. Here's what Freddie posted:
Automotive News:
- The New Ford(F) Has Learned to Think Small. Ford Motor Co., long known for pickups and SUVs, will emphasize cars, crossovers and fuel-efficient engines in the next few years. The company wants to be the fuel economy leader, and federal mpg standards are rising. Ford launched the Fiesta subcompact this summer and will introduce a redesigned Focus compact early next year. The Fiesta and Focus are the first U.S. vehicles from the One Ford plan. Under the plan, each region has global responsibility for certain models. For example, designers and engineers in Dearborn, Mich., will continue to work on trucks and crossovers that can be adapted worldwide. The Europeans are designing small cars.
- Other California Cities Stuck With the Tab for Bell Officials' Massive Pensions. Under the state's arcane, convoluted public pension system, Bell will pay a fraction of the city manager and police chief's pensions. Former employers and other cities will bear the brunt of the cost. The unfolding story of the high salaries paid to municipal officials in Bell has delivered a surprise twist to taxpayers in Glendale, Simi Valley, Ventura and several other Southern California cities — they're on the hook for the pension bills. More than half of former city manager Robert Rizzo's $600,000-a-year pension will be spread among 140 small cities and special districts such as Norco, La Cañada Flintridge and Goleta that are in the same pension liability pool as Bell. The rest would be shouldered by his former employers, Hesperia and Rancho Cucamonga, according to estimates made by The Times and reviewed by pension experts. In the case of its former police chief, Randy Adams, Bell escapes nearly all the costs of his estimated $411,300-a-year pension. Under CalPERS rules, the city is responsible for just 3% of that because he only worked there for one year. Taxpayers in Glendale, Simi Valley and Ventura would have to pick up the rest.
- Country Default Risk. Default risk for sovereign debt has declined quite a bit since the start of July when equity markets here in the US made their correction lows. Below we highlight the default risk as measured by 5-year credit default swap prices for a large number of countries as well as four US states that have the highest default risk. The left side is sorted by percent change since July 2nd, and the right side is sorted by CDS price (highest to lowest).
- A New Headache for Giannoulias? Another Rezko Loan. His family bank lent $22.75 million, in newly uncovered deal. By February 2006, businessman and political fixer Tony Rezko was already politically radioactive, caught up in a federal investigation that would see him criminally charged by the end of that year. News reports had linked Rezko, a key adviser and campaign fund-raiser for then-Gov. Rod Blagojevich, to shady deals involving state pension funds -- among the crimes that ultimately would send him to prison. This was the Tony Rezko who, looking for millions of dollars for a massive South Loop development, turned to Broadway Bank, owned by the family of Alexi Giannoulias. Giannoulias, the Democrat now running for U.S. Senate, had left his post as a senior loan officer at the Chicago bank in late 2005 to mount a successful campaign for Illinois state treasurer, though he still held an ownership stake in the bank. Rezko's company asked. And Broadway Bank came through.
- Ivory Coast to Triple Gold Output by 2015. Ivory Coast will triple gold output by 2015 to about 20 t/y as three new mines start up, including Randgold Resources' Tongon development, a government official told Reuters. The West African state, the world's top cocoa grower and a modest producer of oil, is eager to diversify its economy in part by developing its mining sector which now makes up just 1% of gross domestic product. "From here to 2015, production of gold in Ivory Coast will be at least 20 t/y because of the new mines," Mbe Adou, general director of mines and geology said in an interview late on Friday on the sidelines of an industry conference.
- Firms Crack Down on Staffers' Posts on Social Media Sites. What employees say on Facebook, Twitter, or YouTube could cost them their jobs, experts say.
- 57% Say Health Care Plan Bad For Country, 59% Favor Repeal. Voter pessimism towards the new national health care bill has reached an all-time high, while the number of insured voters who feel it will force them to switch their coverage is up 11 points from early last month. A new Rasmussen Reports national telephone survey finds that 57% of Likely U.S. Voters say the recently passed health care law will be bad for the country. That’s the highest level of pessimism measured since regular tracking began following Congress' passage of the law in late March. Thirty-two percent (32%) say the health care plan will be good for the United States.
- Republican Party Eyes Choking Healthcare Law Funding. Republicans may not be able to repeal the Democrats’ health care reform law next year, but they’re eyeing the next best thing: Deny the Obama administration the money it needs to implement the law. GOP candidates across the country are running on a promise to repeal the law. But simply winning the House and the Senate wouldn’t get them there; they’d need to corral two-thirds majorities to overcome what would be an almost certain veto from President Barack Obama. Resigned to that fact, Republicans are now readying a campaign trail message that voters should grant them the power of Congress’s purse strings so that they can choke off funding for the law. “Our goal remains to repeal the bill and replace it, but, clearly, with the president’s veto pen, we’re going to have to take interim steps,” said Rep. Kevin Brady of Texas, the top House Republican on the Joint Economic Committee.
- President Obama's Climate 'Plan B' in Hot Water. President Barack Obama’s ‘Plan B’ for tackling global warming is under attack in the courts and on Capitol Hill. Through federal lawsuits, two conservative attorneys general, a major coal company and the U.S. Chamber of Commerce are leading the charge to overturn the Environmental Protection Agency’s ability to write its own climate rules. Key coal-state Democrats and nearly all Republicans are also unified in their bid to slow down the EPA via legislation — and they’re determined to force a series of votes on the issue before the next big suite of rules start kicking in next January. “You attack it at all fronts,” Sen. Lisa Murkowski (R-Alaska), a leading advocate for stopping the EPA, told POLITICO. “You go the judicial route. You go the legislative route. I think this is important to make sure we are looking at all avenues.”
- Judge Greenlights Health Reform Suit. In the first substantive legal ruling on President Barack Obama’s health care reform law, a federal judge has rejected the Justice Department’s request to dismiss a lawsuit from Virginia’s state government challenging the reform’s requirement that individuals purchase health insurance. U.S. District Court Judge Henry Hudson ruled that enough factual issues were in dispute in the case to allow the suit, brought by Virginia Attorney General Ken Cuccinelli, to go forward against the health care reform law, Obama’s signature legislative accomplishment.
- Rating Sag for Obama's Handling of Wars. War-weary Americans are losing faith in President Obama's handling of conflicts in Afghanistan and Iraq, contributing to his lowest approval ratings since taking office. Barely one in three Americans favor Obama's management of the war in Afghanistan, a new USA TODAY/Gallup Poll shows. Forty-one percent support his handling of the war in Iraq, a new low for Obama. Overall, those surveyed Tuesday through Sunday disapproved of the way Obama is handling his job by a 53%-41% ratio, by far his lowest ratings since January 2009.
- Hedge Fund Noster Shorts Banks After Stress Tests. Hedge fund Noster Capital has begun shorting five European banks because it believes last month's stress tests were too weak and that problems over their sovereign debt holdings have not gone away. Managing partner Pedro de Noronha told Reuters he had put short positions on a basket of five banks -- Barclays (BARC.L), UBS (UBSN.VX), Intesa Sanpaolo (ISP.MI), UBI (UBI.MI) and BBVA (BBVA.MC) -- because the stress tests did not assume difficult enough conditions.
- SEC Zeroing In On U.S. 'Stub Quote' Ban - Sources.
Financial Times:
- US Tells China Not to Exploit Sanctions on Iran. Washington has told China to stop taking advantage of the UN sanctions regime against Iran by seizing opportunities left by departing European companies. China last month condemned moves by the European Union to ratchet up sanctions against Tehran’s nuclear programme by hitting transport, energy and finance. Iran is the third biggest oil supplier to China, and Beijing is investing heavily in the Islamic republic’s energy fields and refineries.
- Combined new loans in the four Chinese major banks, including Agricultural Bank of China, were 236 billion yuan, down from 356 billion yuan a year earlier, citing industry data.
- American Base in Basra on Frontline of Oil Boom. Oil executives buzz in and out of this American base, the former British base connected to the Basra airport, some for meetings with officials, some staying the night – or longer. The American mission in Basra, Iraq’s oil capital, is perhaps unlike that of any U.S. outpost in the world: to ensure the world’s largest oil companies have as few problems as possible as they start work on Iraqi oil contracts that could see the country become the largest producer ever. Of the 18 firms that formed winning consortiums for 11 oil development deals over the past year, only two were American companies. Yet the U.S. military presence in Iraq and the State Department has been ordered to help. “U.S. government policy at this time is that the USG in Iraq should assist in facilitating the mobilization of these companies without regard to the nationality of the companies,” said Kenneth Thomas, head of the energy and transportation section of the Basra Provincial Reconstruction Team, a U.S. Embassy initiative. “If more American companies come into Iraq, we will of course assist them in any way we can.” For the Americans – and the British, who maintain a consulate on the base and rent space to the two British oil companies awarded deals – it’s a hyper-inclusive distillation of their goals around the globe: sow peace through the free market.
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