Thursday, January 13, 2011

Today's Headlines


  • Sovereign Bond Risk Falls as EU Steps Up Debt-Plan Efforts. The cost of insuring sovereign bonds fell as the European Union’s leaders stepped up efforts to end the debt crisis. Credit-default swaps on Spain dropped 32 basis points to 317, the lowest level in six weeks. Contracts on Portugal, Belgium and Greece also fell, helping push the Markit iTraxx SovX Western Europe Index of swaps on 15 nations down 9 basis point to 197, according to CMA. Speculation policy makers will increase aid to Europe’s debt-ridden governments helped boost demand for Spanish debt today after lowering borrowing costs for Portugal yesterday. European finance ministers may extend help to Portugal, increase the size of their aid reserves, lower interest rates on bailout loans and authorize purchases of outstanding bonds. “The sovereign debt story will stay and dominate sentiment until actual measures are taken,” Christian Weber, a strategist at UniCredit SpA, wrote in a note to investors. “A strong commitment to a stronger capital base for Spanish banks is desperately needed to reduce uncertainty surrounding Spanish banks, allowing them to effectively consolidate.” Default swaps on Portugal declined 29 basis points to 477, Belgium dropped 21.5 basis points to 208 and Greece was down 37.5 at 960, CMA prices show. Italy decreased 18 basis points to 207 and Ireland fell 21 basis points to 637. Default swaps on Portugal declined 29 basis points to 477, Belgium dropped 21.5 basis points to 208 and Greece was down 37.5 at 960, CMA prices show. Italy decreased 18 basis points to 207 and Ireland fell 21 basis points to 637.
  • Top U.S. GDP Forecaster Herrmann Sees Consumer Aiding Growth. The world’s largest economy will expand in 2011 at the fastest pace in six years as American consumers boost spending, said John Herrmann, a senior fixed- income strategist at State Street Global Markets LLC. Herrmann, whose forecasts for gross domestic product were the most accurate over the past year according to data compiled by Bloomberg News, estimates the amount of all goods and services produced will grow 3 percent this year, the most since 2005. He said household purchases will also climb 3 percent after rising 1.8 percent in 2010, the first gain in three years. Herrmann is among the economists surveyed by Bloomberg this month who raised growth and spending estimates after President Barack Obama signed into law an $858 billion bill on Dec. 17 extending Bush-era tax cuts for two years. The measure also renewed emergency jobless benefits for the long-term unemployed and cut 2011 payroll taxes by two percentage points. “The tax-relief program is going to be a big support for growth,” Herrmann, who last month projected the economy would grow 2.9 percent this year, said in an interview.
  • Doctors Say Giffords Makes 'Major Leap Forward'. U.S. Representative Gabrielle Giffords, shot in the head in last weekend’s Arizona rampage, has made a “major leap forward” in her recovery and can move her legs on command, doctors in Tucson said. Doctors have started physical therapy and had her “dangling on the side of the bed” today, Peter Rhee, trauma chief at Tucson’s University Medical Center, told reporters at a news conference. She is starting to open her eyes and become aware of her surroundings, including the presence of family and friends, said neurosurgeon Michael Lemole. “She is able to move both of those legs to command,” Lemole said. “That’s huge.” “This is a major leap forward; this is a major milestone for her,” Lemole said. Rhee said doctors hope to put her in a chair tomorrow and may remove her breathing tube in the next few days.
  • OPEC to Cut Loadings as Asian Demand Slows, Oil Movements Says. The Organization of Petroleum Exporting Countries will reduce crude loadings this month, partly as demand from Asia slows, according to tanker-tracker Oil Movements. Shipments will drop 0.9 percent to 23.51 million barrels a day in the four weeks to Jan. 29 from 23.72 million barrels in the period to Jan. 1, Oil Movements said today in a report. Shipments to Asia from the Middle East and West Africa will drop to 14.6 million barrels a day in the four weeks to Jan. 29 from 15.1 million at the end of December, Mason said. A total of 478.33 million barrels of crude will be on board tankers in the month to Jan. 29, down 0.9 percent from the Jan. 1 figure of 473.86 million, according to Oil Movements.
  • Corn, Soybeans Extend Rallies on Signs of Smaller U.S. Reserves. Corn and soybean futures rose, extending a rally to the highest prices since July 2008, on signs that inventories will be tighter than expected in the U.S., the world’s largest grower and exporter. The U.S. Department of Agriculture yesterday cut its estimate of the country’s 2010 corn harvest and said inventories will fall to 5.5 percent of consumption, the lowest since 1996. The estimate of soybean output was cut for the third time since October, reducing reserves to 4.2 percent of projected demand. “The report gave all the bulls the confidence they need to own the market,” said David Smoldt, a vice president for FCStone Group LLC in West Des Moines, Iowa. The ratio of ending stockpiles to usage “in corn is the second tightest on record, and soybeans is a record low,” he said. Corn futures for March delivery rose 12.25 cents, or 1.9 percent, to $6.4325 a bushel at 10:12 a.m. on the Chicago Board of Trade, bringing its two-day advance to 6 percent.
  • Palladium Jumps to Highest Price Since 2001 on Automotive, Investor Demand. Palladium rose to the highest level since 2001 as improved prospects for the automotive industry, the main consumer, helped to spur investment demand amid falling gold prices. Palladium for March delivery climbed as high as $825.10 an ounce, the highest level since March 20, 2001, on the New York Mercantile Exchange. The metal, used in pollution-control gear for vehicles along with platinum, was up $9.10, or 1.1 percent, at $815.85 at 10:43 a.m. local time, gaining for a third day.
  • Commodity Speculation Limits Divide CFTC With Dodd-Frank Deadline Looming. Curbing speculation in raw materials including oil, gold and wheat has touched off a battle at the top U.S. commodities regulator with a legal deadline to rein in traders just four days away. Commissioner Scott O’Malia said today fellow commissioners are attempting a “Trojan horse” move that would impose limits without proper debate. The Dodd-Frank Act gave the CFTC until Jan. 17 to curb speculation in the energy and metals markets and until April in agricultural commodities. The plan under discussion would limit traders to 25 percent of deliverable supply in the contract nearest to expiration, followed by an all-month ceiling of 10 percent of open interest up to the first 25,000 contracts and 2.5 percent thereafter. Regulators and lawmakers are attempting to rein in commodity speculation amid concern that investors contributed to oil reaching the record high of $147.27 a barrel in 2008.
  • Chevron(CVX) to Drill Deeper to Expand Brazil Project. Chevron Corp., the second-largest U.S. oil company, plans to expand its $3 billion Frade project off Brazil’s coast as it bets on finding more crude by drilling deeper wells. Chevron may start work to tap deep-water reservoirs beneath a layer of salt in late 2011 or early 2012, said Ali Moshiri, head of exploration and production for Africa and Latin America.
  • Illinois Governor Pat Quinn to Seek $8.75 Billion Bond to Pay Bill Backlog. Illinois Governor Pat Quinn will ask lawmakers next month to authorize an $8.75 billion bond sale to pay $6 billion in backlogged bills. The state House of Representatives defeated a borrowing bill in the final hours of the legislative session Tuesday that was designed to eliminate the pile of invoices that is at least five months old. It was part of a package of measures that included a 67 percent increase in the personal income tax aimed at plugging a $13 billion budget hole amid the state’s worst financial crisis. Legislators are to return to Springfield next month. The biggest tax increase in Illinois history drew applause from investors, gloating from neighbors and scorn from taxpayers and businesses. Quinn went on the defensive. The tax boost was needed to protect a state that was “careening toward bankruptcy and fiscal insolvency,” the Democratic governor said at a news conference yesterday in Springfield, the capital. The personal income-tax rate increase to 5 percent from 3 percent, which took effect immediately, was the cornerstone of a budget-balancing package supported only by Democrats. The plan boosted the corporate income tax by 46 percent, to a rate of 7 percent from 4.8 percent. “It’s the worst time in the world to be raising taxes on the citizens and businesses of this state,” said W. James Farrell, former chief executive officer of Illinois Tool Works Inc. and chairman of the Commercial Club of Chicago, echoing the view of Chicago Mayor Richard Daley. Today, Texas Governor Rick Perry vowed that Texas would try to recruit Illinois employers. “You can’t have an economy that will grow if you tax and put a burden on those who will risk their capital that will in turn create the job,” he said in a speech to the Texas Public Policy Foundation’s annual legislative conference in Austin. “It’s just that simple.”
  • Trichet Moves to Inflation-Fighting as EU Bats Crisis. European Central Bank President Jean-Claude Trichet signaled he’s prepared to raise interest rates if needed to fight inflation even as leaders struggle to contain the region’s sovereign-debt crisis. “We are permanently alert, we are never pre-committed not to move interest rates and our level of interest rates is designed to deliver price stability,” Trichet said at a press conference in Frankfurt today. At the same time, the benchmark rate, which the ECB left at 1 percent, is still “appropriate.” Trichet is trying to keep a lid on inflation without roiling financial markets spooked by the euro region’s fiscal crisis. While increases in consumer prices exceeded the ECB’s ceiling for the first time in more than two years in December, higher interest rates would saddle debt-laden countries such as Ireland, Greece and Portugal with still higher borrowing costs.
  • Initial U.S. Jobless Claims Rose More Than Forecast to 445,000 Last Week. The number of first-time claims for unemployment insurance payments jumped in the first week of 2011 to the highest level since October as more Americans lined up to file following the holidays. Initial jobless claims rose by 35,000 to 445,000, according to Labor Department data released today. The median estimate in a Bloomberg News survey called for 410,000 filings. The average number of applications over the past four weeks, a less-volatile gauge, increased to 416,500. The unemployment rate among people eligible for benefits fell to 3.1 percent in the week ended Jan. 1, from 3.3 percent the prior week, today’s report showed.
  • Merck(MRK) Blood Thinner Studies Halted in Select Patients.

Wall Street Journal:
  • S&P, Moody's Warn On U.S. Credit Rating. Two leading rating firms have cautioned the U.S. on its credit rating, expressing concern over a deteriorating fiscal situation that they say needs correction. The warnings issued Thursday echoed prior statements by the companies, however, and financial markets largely ignored them. Treasury yields, which move in the opposite direction as prices, were lower in late-morning trade and the cost of insuring U.S. debt against the risk of default, already below that of Germany, the euro-zone benchmark, barely budged."My traders are shrugging it off as stuff we've heard before," said Tom Di Galoma, head of interest-rate trading at Guggenheim Partners in New York. Moody's Investors Service said in a report that the U.S. will need to reverse an upward trajectory in the debt ratios to support its triple-A rating. "We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the U.S., the likelihood of a negative outlook over the next two years will increase," said Sarah Carlson, senior analyst at Moody's. "The view of markets is that the U.S. will continue to benefit from the exorbitant privilege linked to the U.S. dollar" to fund its deficits, Carol Sirou, head of S&P France, said at a conference in Paris on Thursday. "But that may change. We can't rule out changing the outlook" on the U.S. sovereign debt rating in the future, she warned. She added the jobless nature of the U.S. recovery was one of the biggest threats to the U.S. economy. "No triple-A rating is forever," she said. Moody's said the U.S., Germany, France and the U.K. still have debt metrics, including the debt affordability, compatible with their triple-A ratings at Moody's. But all four countries must bring the future costs arising from pension and health care subsidies under control if they "are to maintain long-term stability in their debt burden credit metrics," Moody's said in its regular triple-A Sovereign Monitor report. The most recent official figures show the ratio of federal debt to revenue averaging 397% of gross domestic product in the period to 2020, while the ratio of interest to revenue will rise to 17.6% by 2020, from 8.6% in the last fiscal year. "These figures are "quite high for an Aaa-rated country," Moody's said. Debt affordability is "very important to the rating process," Ms. Carlson said. U.S. general government debt affordability, including states and municipalities, is "rising over time to a high level for an Aaa-rated country," the report said.
  • RIM(RIMM) Gives India Access to Messenger Services.
  • Christie Eyeing Teacher Tenure. Thanks to tenure, many believe that teachers' jobs are basically guaranteed, no matter how students do. New Jersey Gov. Chris Christie wants to change that: He is seeking to end tenure and on Wednesday said he would support switching to a system that gives individual teachers five-year contracts, which districts could renew based on merit. He said he believes that if the worst 5% of teachers were churned, there would be a "quantum effect" on performance.
  • Hedge Funds: The Next Too Big To Fail Members? Hedge fund regulation is having a seriously perverse—if entirely predictable—effect. Large hedge funds are growing larger, well-known star managers are accumulating more assets under management, and competition from start-ups is becoming scarcer. Barrier to entry and costs of regulatory compliance have risen dramatically. A new fund must start its life with at least $100 million of assets under management to be commercially viable, according to Hester Plumridge of Heard On The Street. A few years ago, the price of entry was just $50 million. Much of this is due to new reporting and regulatory requirements both in the US and Europe. The demise of the fund-of-funds sector—largely a side-effect of the Madoff scandal—has further contributed to the problem.
  • Economy to Grow 3-4% in 2011 But Hiring Still Lags: Bernanke.
Business Insider:
New York Times:
  • CalPERS Under Fire Over Portfolio Risk. One of the world’s largest hedge fund investors may be in some hot water over those investments. The Securities and Exchange Commission is looking into whether the California Public Employees’ Retirement System had misled investors about the risks in its massive portfolio when it backed a state bond sale, The New York Times reports. It is not clear that CalPERS’ hedge fund or private equity portfolios are a target of the SEC probe. But the asset classes are a sizeable chunk of the pension’s $220 billion portfolio and contributed to its 25% loss during the financial crisis. That loss has saddled California with billions in replacement costs. The SEC is looking into whether the state should have disclosed that possibility in its bond prospectus.
Institutional Investor:
  • Brevan Howard Suffers Its Worst Year. January 13, 2011 - Alan Howard’s massive Brevan Howard Master Fund suffered its worst year since its 2003 inception. The roughly $19 billion hedge fund finished the year up less than 1 percent (through December 23, 2010). The macro fund accounted for the bulk of the firm’s $27 billion in assets, which last year made it the UK’s largest hedge fund firm and the fourth largest in the world. The fund muddled along all year and lost money in each of the final three months.
  • Intel(INTC) Takes Aim at Chip-Maker. Well above average turnover of late in AIM stock IQE suggests something surely must be up. More than 10m shares in the compound semiconductor specialist changed hands again yesterday and the close was 4p better at a high of 52.25p amid whispers that not only a bullish trading update from the company is just around the corner but Intel, the world’s largest semiconductor chip maker, is looking to buy the company with loose change.
Irish Times:

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