Tuesday, November 09, 2010

Today's Headlines

  • Spain Leads Surge in Sovereign Credit Risk to Record in Europe. Spain led a surge in the cost of insuring European government debt to a record on concern the region’s peripheral nations will struggle to cut budget deficits and repay debt. Credit-default swaps on Spanish government bonds jumped 10.5 basis points to 275.5, an all-time high based on closing prices, according to data provider CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 2.5 basis points to 179.5. Investors are shunning Europe’s most indebted nations, driving borrowing costs and swaps higher for an 11th consecutive day. Confidence in Spain is ebbing after its central bank estimated the economy stagnated from July to September after emerging from recession in the first quarter. Credit-default swaps on Portugal increased 6 basis points to 473.5 and Ireland climbed 3 to 602, both records based on closing prices. Italy was up 5 at 204 and Greece was 3 basis points higher at 871, CMA prices show. Sovereign debt concerns drove swaps on European bank bonds to the highest levels in six weeks. The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers rose 1.5 basis points to 141, and the subordinated index increased 2 basis points to 216.5, according to JPMorgan Chase & Co. Credit-default swaps on the senior debt of Allied Irish Banks Plc rose 17.5 basis points to a record 927 and Bank of Ireland Plc jumped 16.5 basis points to a record 739, CMA prices show. “These funding costs that you’re seeing right now are clearly not sustainable for countries that are not going to grow that fast for some years,” Erik Nielsen, chief European economist at Goldman Sachs Group Inc. said yesterday on Bloomberg Television’s “Midday Surveillance” with Tom Keene. “There is a big probability the Irish and the Portuguese will end up having to get help from” policy makers, he said.
  • China's Dagong Downgrades U.S. to A+ on Quantitative Easing. China’s Dagong Global Credit Rating Co. cut its credit rating for the U.S. to A+ from AA because of a Federal Reserve plan to purchase bonds to spur growth and inflation, according to Xinhua News Agency. The credit outlook for the U.S. is negative amid deteriorating debt repayment capability and a “drastic” drop in the government’s intention to repay debt, Dagong said, as cited by the state-controlled news agency. The Fed’s quantitative easing policy will erode the value of the dollar and is against the interests of creditors, the company said. “Serious defects in the U.S. economy will lead to long- term recession and fundamentally lower national solvency,” Dagong said, as cited by Xinhua. Chinese central bank adviser Xia Bin said Nov. 4 that the Fed’s $600 billion on planned bond purchases is “uncontrolled” money printing, and Vice Finance Minister Zhu Guangyao said yesterday that the program could “shock” emerging markets by flooding them with capital.
  • Quant Fund Assets Plunge After Strategies Underperform, Nomura Report Says. Quantitative funds, which choose stocks according to mathematical models, may have lost almost half their assets since 2007 after failing to capture swings in markets, according to a study by Nomura Holdings Inc. Money overseen at a sample of 137 quant funds fell 43 percent over three years to $44 billion, while the quant share of actively managed equity funds is also estimated to have halved since 2007, the Tokyo-based bank said in a Nov. 4 report. The funds lost 24 percent based on price since October 2007, with the rest of the shrinkage coming from withdrawals, the report showed.
  • Baltic Index Falls for Ninth Day; Capesizes Extend Losing Streak. The Baltic Dry Index, a measure of commodity-shipping costs, fell for a ninth day as hire rates for capesize vessels extended their longest losing streak in almost four months. The gauge dropped 15 points, or 0.6 percent, to 2,467 points, the lowest level since Oct. 1, according to data from the London-based Baltic Exchange. Rents for capesizes, typical iron-ore haulers and the biggest ships tracked by the index, declined for a 10th day, the longest run since an 11-session drop through July 15. There’s “a slight hole in demand” for capesizes, Jan Bagger, a director at London-based Clarkson Securities Ltd., a unit of Clarkson Plc, the world’s biggest shipbroker, said by phone today.
  • Natural Gas Futures Rise to 11-Week High On Below-Normal U.S. Temperatures. Natural gas futures rose to the highest level in more than 11 weeks on speculation that lower- than-normal temperatures in the U.S. will boost demand for the heating fuel. Gas advanced to $4.21 per million British thermal units, the highest level since Aug. 19, as forecasts showed temperatures will be below average across much of the nation from Nov. 14 to Nov. 22, according to the National Weather Service. Natural gas for December delivery rose 5.1 cents, or 1.2 percent, to $4.139 per million Btu at 1:03 p.m. on the New York Mercantile Exchange. There will be “widespread” cold weather in the U.S. East and Midwest beginning Nov. 14, according to Commodity Weather Group LLC in Bethesda, Maryland. Chicago will have a low of 22 degrees Fahrenheit (minus-6 Celsius) on Nov. 19, 10 degrees below normal, according to AccuWeather Inc. in State College, Pennsylvania. New York will have a low of 37 degrees. The Energy Department is expected to report that gas stockpiles increased by 23 billion cubic feet to 3.844 trillion, surpassing the current record of 3.837 trillion set in November 2009, according to the median of nine analyst estimates compiled by Bloomberg. The number of U.S. gas drilling rigs fell 12 to 955 in the week ended Nov. 5, the lowest level since the week ended June 18, according to Baker Hughes Inc. The rig count is 30 percent higher than a year ago. Consumption will average 65 billion cubic feet a day, down from 65.16 billion estimated in October.
  • High-Frequency Traders Lobby, Donate to Head Off U.S. Rules. The high-frequency trading industry is stepping out of the shadows in Washington. Closely held companies with undisclosed profits and obscure names like Getco LLC, Hard Eight Futures LLC and Quantlab Financial LLC, are beginning to act more like Wall Street banks, cutting checks to politicians, forming trade groups and hiring lobbyists and ex-regulators. They’re looking to fend off tighter rules and appease lawmakers who say the firms disadvantage small investors and contribute to wild swings in stock prices. They have more than quadrupled their political giving over the last four years, a Bloomberg News analysis shows. The top recipients include Eric Cantor, set to become House majority leader, and several incoming senators who won in last week’s Republican rout.
  • BofA(BAC), JPMorgan(JPM) Reprise Perfect Trading Records in Third Quarter. Bank of America Corp. and JPMorgan Chase & Co., the two biggest U.S. banks by assets, racked up perfect trading records for the second time this year, making money every day last quarter after accomplishing the same feat in the first three months of 2010.
  • Dollar Seen Strengthening as Price, Momentum Diverge: Technical Analysis. The dollar may rally to a level last reached in September as the greenback’s price against a basket of currencies including the euro and yen diverges from a momentum gauge, according to Citigroup Inc.
  • Job Openings in U.S. Decreased 163,000 in September. Job openings in the U.S. dropped in September for a second month, signaling a sustained labor market rebound will take time to develop, a government report showed.
  • U.S. Airline Cancellations Rise 62% After Tarmac Rule. U.S. airlines canceled 4,754 flights in September, a 62 percent jump from the same month a year ago, as the government requires carriers to let passengers off stuck flights within three hours. The cancellation rate, rising to 0.9 percent from 0.57 percent in September 2009, has increased in four of five months since the Transportation Department imposed a rule April 29 to discourage airlines from keeping passengers on delayed aircraft.
  • Manhattan Salaries Rose 11.9% in First Quarter, Fed by Financial Industry. New York City’s borough of Manhattan experienced an 11.9 percent increase in salaries between January and March, the most for any big county in the nation after federal policies helped stabilize the financial industry, according to the U.S. Labor Department. The jump in Manhattan, where average weekly wages surged to $2,404, the highest rate among the biggest U.S. counties, didn’t extend to the city’s four outer boroughs, where average pay declined in the 2010 first quarter, the department’s Bureau of Labor Statistics said today.

Wall Street Journal:
Business Insider:
New York Times:
  • Mining the Seafloor for Rare-Earth Minerals.
  • A Lack of Transparency in S.E.C. Disclosure Rule. Has the Securities and Exchange Commission bungled its disclosure rules? That’s the question being whispered around Wall Street trading floors after a series of company disclosures in recent weeks from the likes of Microsoft and Google that appear to have created an awful lot of confusion, potentially giving some savvy investors an edge while potentially putting the rest of us at a disadvantage.
  • The Return of the Risk Arbs. The business of betting on mergers and acquisitions is coming back from the dead. As Wall Street insists that the merger business will rise again, hedge funds are pouring money into betting on the outcomes of those mergers in a strategy known as merger, or risk, arbitrage.
NY Post:
  • Prime Rents Seen as Manhattan 'Malling'. The mall-ification of the Big Apple continues. This fall, rents for Manhattan retail space have bounced in tourist hot spots, including Fifth Avenue, Times Square and SoHo, the Real Estate Board of New York said in a report yesterday. Brokers said rents are being pushed higher by demand from big retail chains that already serve many tourists in their hometowns.
Richmond Times-Dispatch:
  • Legal Challenge Could Derail Health Care Law. When 21 states and several private groups initiated lawsuits challenging the constitutionality of the Obama health care law earlier this year, critics denounced the suits as frivolous political grandstanding. But it is increasingly clear that the plaintiffs have a serious case with a real chance of victory.
Real Clear Markets:
  • A lawmaker with Fianna Fail, the biggest member of Ireland's ruling coalition, said he may vote against the 2011 budget should the government cut old-age pensions. Noel O'Flynn said he couldn't accept cuts in pensions.
Irish Independent:
  • Ireland's government is considering introducing a property tax and flat-rate water charges as part of a plan to cut 6 billion euros from next year's budget.

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