Wednesday, January 19, 2011

Today's Headlines


  • China Business Environment for U.S. Firms Fails to Improve, Chamber Says. The business environment in China for U.S. companies has failed to improve and has in some cases worsened, according to a survey by the American Chamber of Commerce in Shanghai. Nearly two-thirds of U.S. companies in China surveyed said the regulatory environment has “not changed” or has deteriorated over the past year, according to the report released today. A total of 71 percent of companies surveyed said China’s enforcement of intellectual property rights has remained the same or gotten worse, an increase from the 61 percent that answered similarly in the chamber’s 2009 survey. Chinese rules including one to promote domestic innovation have lead companies and the U.S. government to express concerns about the treatment of foreign investors in the world’s fastest growing major economy. U.S. companies are concerned about rising protectionism in China, with 48 percent saying they see the regulatory environment as favoring Chinese firms, according to the chamber’s “China Business Report,” which surveyed 346 companies between November and December of last year.
  • Congressional Leaders to Skip State Dinner With Chinese Leader. and Senate Minority Leader Mitch McConnell won’t attend the black-tie event at the White House. House Minority Leader Nancy Pelosi, a critic of China’s human-rights policy, plans to go. Three of the four top U.S. congressional leaders plan to skip a state dinner tonight with Chinese President Hu Jintao, highlighting the contentious relationship between Congress and the major economic power. House Speaker John Boehner, Senate Majority Leader Harry ReidMembers of Congress are frequent critics of China, accusing the country of currency manipulation, abusing trade laws, threatening U.S. national security and violating human rights. A January survey conducted by the Pew Research Center for the People and the Press found that 53 percent of Americans said it was important for the U.S. to get tougher with China on trade and economic issues. One in five respondents said China posed the greatest threat of any country to the U.S., up from 11 percent in November 2009.
  • Corporate Bond Risk Declines to Lowest Since April in Europe. The cost of insuring European corporate bonds fell to the lowest level since April after euro area finance ministers signaled they will review their rescue fund for troubled states. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings decreased for a seventh day, declining 9 basis points to 400, according to JPMorgan Chase & Co. “There are signs that European leaders are moving toward a global solution to the debt crisis, and that’s part of what’s driving things,” said Greg Venizelos, a strategist at BNP Paribas SA in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings declined 3.75 basis points to 100.75, JPMorgan prices show. The Markit iTraxx Financial Index of senior swaps on 25 banks and insurers dropped 12 basis points to 170 and the subordinated gauge fell 22 to 287.5.
  • Portugal Borrowing Costs Fall, Demand Rises at 750 Million-Euro Bill Sale. Portugal’s borrowing costs fell and demand rose at the sale of 750 million euros ($1 billion) of 12- month bills, adding to other auctions this week that signal Europe’s high-deficit countries can still finance their debt. The yield fell to 4.029 percent from 5.281 percent, the highest in more than five years, at a sale of similar maturity securities on Dec. 1, the country’s debt agency said today in Lisbon. Investors bid for 3.1 times the amount of bills offered, more than the 2.5 times in December. “A decline of 120 basis points is really a relief, but if we look further back, this yield is quite high,” Filipe Silva, who manages 60 million euros including Portuguese bonds at Banco Carregosa in Oporto, Portugal, said in an e-mailed note.
  • Xie Says China Should Worry About Inflation, Not Growth: Video.
  • Greek Bonds Decline as Die Zeit Says Germans Are Proposing Debt Buyback. Greek bonds fell after Die Zeit reported that Germany is considering a plan that would help the Mediterranean nation buy back its own securities. Greece would be allowed to repurchase bonds with funds from the European Financial Stability Facility made available “with favorable interest conditions,” the German newspaper said, without saying where it got the information. Greek bonds pared their losses after Germany’s finance ministry denied it was working on a “restructuring” of Greek debt. “Any talk of adjustments generally makes the market nervous,” said Orlando Green, assistant director of capital- markets strategy at Credit Agricole Corporate & Investment Bank. “The progress being made hasn’t been enough to reduce the uncertainty.” The Greek 10-year bond yield was seven basis points higher at 11.36 percent at 1:09 p.m. in London. It earlier rose as high as 11.66 percent. The extra yield, or spread, investors demanded to hold Greek bonds instead of similar-maturity German bunds widened 12 basis points to 8.45 percentage points, according to Bloomberg generic data.
  • First New York Hires 19 Traders Amid Expansion Into Hedge Funds. First New York Securities LLC, a proprietary trading firm, hired 19 traders from hedge funds and banks as it expands across markets.
  • Default Swaps Climb to 6-Month High on Debt Sales: Japan Credit. Costs to protect against a default by Japan reached a six-month high as the nation sells longer- dated debt today and a record 144.9 trillion yen ($1.76 trillion) of bonds next fiscal year. Credit-default swaps, used to protect against nonpayment and speculate on changes in creditworthiness for five years, climbed to 86.49 basis points on Jan. 18 from as low as 52.78 on Oct. 13, before today’s sale of 1.1 trillion yen of 20-year notes. Japan’s debt load will be double its gross domestic product this year, the most in the world, according to the Organization for Economic Cooperation and Development.
  • Mosaic(MOS) Faces Possible Bid as Cargill Divests $24.3 Billion Stake. Mosaic Co., North America’s second- largest fertilizer producer, will be a “possible” takeover target as Cargill Inc. divests its $24.3 billion stake in the company over the next two years. Cargill, the agriculture and food business that’s the largest closely held company in the U.S., will exchange its 64 percent holding in Mosaic, or 286 million shares, for Cargill stock and debt, the companies said yesterday in a statement. The Mosaic shares will then be sold in secondary offerings. “It’s possible for Mosaic to be acquired” during the more than two years in which the secondary offerings take place, Mosaic Chief Executive Officer Jim Prokopanko said on a conference call with investors and analysts.
  • Iran Successfully Tests Surface-To-Air Missile Near Atomic Site, IRNA Says.
  • FDIC's Bair Calls for Foreclosure Commission Modeled on BP Fund. U.S. mortgage servicers should fund a foreclosure commission that would compensate borrowers to resolve complaints over home seizures, Federal Deposit Insurance Corp. Chairman Sheila Bair said today in a Washington speech.
  • Brazil Oil Fields May Hold More Than Twice Estimated. Brazilian oil deposits below a layer of salt in the Atlantic Ocean hold at least 123 billion barrels of reserves, more than double government estimates, according to a university study by a former Petroleo Brasileiro SA geologist. The research, which set out to show government figures were too optimistic, found they underestimated the area’s potential, said Hernani Chaves, a professor at the Rio de Janeiro State University who worked at Petrobras for 35 years. The forecast, which the study puts at a 90 percent probability, compares with the Brazilian oil regulator’s 50 billion-barrel estimate. “We started with a skeptical view and finished with bigger numbers,” Chaves said in an interview at the university, in the city of Rio. “When we got the first results I said: ‘Something is wrong, it’s too big.’”
  • Issa to Hold First Hearing on TARP; Geithner Invited. Representative Darrell Issa, the new chairman of the House Committee on Oversight and Government Reform, will hold his first hearing on a report by the special inspector general for the Troubled Asset Relief Program. The California Republican’s office said he has invited Treasury Secretary Timothy Geithner and inspector general Neil Barofsky to testify on Jan. 26, the same day Barofsky plans to deliver his quarterly report to Congress.
  • Goldman Sachs's Earnings Drop 52%, Matching Estimates. Goldman Sachs Group Inc. shares fell the most in almost two months after the firm reported its third straight quarterly earnings decline, led by a slowdown in trading and investment banking revenue. Fixed-income, currencies and commodities trading, the firm’s largest source of revenue, tumbled 48 percent from a year earlier to $1.64 billion, the New York-based company said today in a statement. Equities-trading revenue dropped 5 percent to $2 billion and investment banking fell 10 percent to $1.5 billion. Goldman Sachs’s clients bought and sold fewer stocks, bonds and other securities during the quarter because of the European debt crisis, regulatory changes and concern the economic rebound would stall, Chief Financial Officer David A. Viniar said on a conference call. While business picked up in January, Viniar said it’s too early to make predictions for the year.
  • Defaults by Cities Looming as U.S. Mayors Say Deficits Hinder Debt Payment. The mayors of Los Angeles and Chicago said the financial strains still weighing on local governments in the wake of the recession may cause cities to default on their bonds. Los Angeles Mayor Antonio Villaraigosa, a Democrat, said municipalities are being squeezed as states move to balance their own budgets, a step that can involve taking more funds that would otherwise be sent to towns and cities. “There’s no question you’ll see some cities in default,” Villaraigosa told reporters today at a press conference in Washington, where the U.S. Conference of Mayors is meeting.

Wall Street Journal:
  • Hedge Fund Assets Hit $1.917 Trillion. Hedge-fund assets grew at a record rate in the fourth quarter, Hedge Fund Research Inc. said Wednesday, as strong investment performance and new investor capital pushed industry assets to $1.917 trillion, just shy of their mid-2008 peak. But the industry isn't entirely back to health. Only 43% of funds ended the year at the level where they can collect performance fees on gains, and HFR data show that the vast bulk of new money is going to an elite group of large hedge-fund firms.
Business Insider:
Zero Hedge:
  • Germany Seeks Restraint on Bank Stress Test - Source. German regulators will lobby for the parameters in a new set of European bank stress tests not to be "overly stringent," a person briefed by German regulators said on Wednesday. Banks in Germany will receive formal notification of the new stress tests from the regulator in the next 14 days, the person said.
Market Folly:
  • General Motors Co.(GM) plans to invest more than $300 million in San Luis Potosi, Mexico, to expand its production facilities and assemble a new car that will be launched in 2012, citing economic development minister of state, Martha Meade Espinosa. Espinosa said that the investment will create more than 1,850 direct jobs.

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