Thursday, February 03, 2011

Today's Headlines

  • Trichet Says Prices Warrant 'Very Close Monitoring'. European Central Bank President Jean- Claude Trichet signaled no immediate plans to raise interest rates even though the bank expects inflation to stay above its 2 percent limit for longer than it predicted just three weeks ago. Trichet said the ECB’s benchmark rate, which it left at a record low of 1 percent today, remains “appropriate” and despite “short-term upward pressure,” inflation risks are balanced. The euro fell more than a cent against the dollar as investors pared expectations for an increase in borrowing costs. “For now they are prepared to look through the inflation hump,” said Julian Callow, chief European economist at Barclays Capital in London. “Unless inflation expectations move up abruptly, the ECB will probably maintain its accommodative stance to help Europe to patch itself together again.” With Europe still struggling to contain its sovereign debt crisis, Trichet may be trying to temper investor expectations for higher ECB rates after his change in tone on inflation last month caused a five-cent surge in the euro.
  • U.S. Economy: Service Industries Expand by Most Since 2005. in the U.S. expanded in January at the fastest pace since August 2005, indicating the economic recovery is broadening.Service industries The Institute for Supply Management’s index of non- manufacturing businesses rose to 59.4, exceeding the median forecast in a Bloomberg News survey, after December’s 57.1. Orders were the highest in seven years, while companies showed more confidence to hire. Faster growth in household spending and the economy may generate bigger employment gains needed to bring down the jobless rate. Sales climbed 4.4 percent in January, exceeding forecasts, as retailers such as Limited Brands Inc. used promotions to lure shoppers before snowstorms gripped the nation, Retail Metrics Inc. data showed today. “The consumer will be a source of strength through this year,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “Everything points to more hiring as the expansion goes on.”
  • World Food Prices Rose to Record in January as Commodities Gained, UN Says. World food prices rose to a record in January on higher dairy, sugar and cereal costs and probably will remain elevated, the United Nations said. An index of 55 food commodities climbed 3.4 percent from December to 231 points, the seventh straight increase, the UN’s Food and Agriculture Organization said in a report today. Dairy prices led advances among five food categories, rising 6.2 percent, the Rome-based agency said. Elevated food prices contributed to protests in Tunisia that ousted President Zine El Abidine Ben Ali last month and demonstrations in Egypt that prompted Hosni Mubarak to say this week he won’t seek re-election as president. “The new figures clearly show that the upward pressure on world food prices is not abating,” Abdolreza Abbassian, senior economist at the FAO, said in a statement. “These high prices are likely to persist in the months to come.” Milk futures traded in Chicago jumped 26 percent last month and corn increased 4.8 percent. Wheat added 6.5 percent in Paris trading and raw sugar gained 5.8 percent in New York. The dairy index climbed to 221 points last month, and a gauge of oils and fats gained 5.6 percent to 278 points, the FAO said. The sugar-price index advanced 5.4 percent to 420 points, a measure of cereal prices increased 3 percent to 245 points, and a gauge of meat prices remained at 166 points, the report showed. Countries probably spent at least $1 trillion on food imports in 2010, with the poorest paying as much as 20 percent more than in 2009, the UN has said. Surging food and energy costs are stoking emerging-market inflation and have the power to topple governments, Nouriel Roubini, the New York University economist who predicted the financial crisis, said on Jan. 26. “High food prices are of major concern, especially for low-income food-deficit countries that may face problems in financing food imports and for poor households, which spend a large share of their income on food,” Abbassian said.
  • Bernanke Says Faster Job Gains Needed to Assure Recovery. Federal Reserve Chairman Ben S. Bernanke said the U.S. needs to see faster job growth for a sufficient time before policy makers can be assured the economic recovery has taken hold. “With output growth likely to be moderate for awhile and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level,” Bernanke said today in a speech at the National Press Club in Washington. “Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.” While Bernanke said economic growth will pick up this year and the Fed’s purchases of $600 billion in Treasuries are “providing significant support to job creation and the economy,” he gave no indication whether he’ll maintain or adjust monetary stimulus after the Fed finishes the asset buying in June. Bernanke has held the main interest rate near zero since December 2008. Fed policy makers are showing little alarm over the rise in food and energy prices. The central bank’s Jan. 26 statement acknowledged rising commodity prices while saying that longer- term inflation expectations were stable and “underlying inflation” was still on the decline. While prices of some “highly visible” items such as gasoline have “significantly” increased recently, “overall inflation remains quite low” and wage growth has slowed, Bernanke said. Bernanke omitted any mention of political turmoil in Egypt. Today’s appearance extends Bernanke’s public defense of the asset purchases dubbed QE2 for the second round of quantitative easing. The plan sparked a backlash from Republican leaders in Congress who said it may weaken the dollar.
  • Gold Jumps to Two-Week High as Egypt Tensions Spur Haven Demand. Gold futures jumped to a two-week high as the mounting conflict in Egypt boosted demand for the metal as a haven. Gold futures for April delivery rose $20.40, or 1.5 percent, to $1,352.50 an ounce at 12:14 p.m. on the Comex in New York.
  • Justice Sotomayor Becomes a Forceful Voice as Obama Top Court Appointee. On a U.S. Supreme Court full of justices with a lot to say, Sonia Sotomayor is beginning to find her voice. In her second term since President Barack Obama appointed her in 2009, Sotomayor is speaking out from the bench for the rights of prison inmates, banding with her fellow Democratic appointees on ideologically divisive issues and boring into the details of federal securities-fraud laws. And increasingly Sotomayor, 56, is making herself a public figure.
  • Sony(SNE) Profit Beats Estimates After Earnings From PlayStation Games Double. Sony Corp., Japan’s biggest exporter of consumer electronics, reported third-quarter profit that beat analysts’ estimates, after earnings from the PlayStation games division doubled.
  • MasterCard(MA) Profit Jumps 41%, Exceeding Estimates as Card Spending Climbed. MasterCard Inc., the world’s second- biggest bank-card network, said fourth-quarter profit jumped 41 percent on a surge in U.S. consumer spending and the global migration to electronic payments. Net income climbed to $415 million, or $3.16 a share, from $294 million, or $2.24, in the same period a year earlier, the Purchase, New York-based company said today in a statement. The average estimate of 30 analysts surveyed by Bloomberg was $3.05. “Based on the spending trends we’ve seen and the improving consumer confidence, I’m cautiously optimistic that we’ll see continued improvements in 2011,” Chief Executive Officer Ajay Banga said in a conference call with analysts.
  • No Armageddon Ahead for Financial Stocks, Options Traders Say. Options to protect U.S. banks and brokers are the cheapest since the crisis began in 2007, indicating that investors are betting financial companies will continue leading the stock-market recovery. Implied volatility, the key gauge of option prices, for at- the-money options expiring in three months on the Financial Select Sector SPDR Fund has tumbled to 19.96 this week. That’s the lowest since July 2007 relative to equivalent options on the SPDR S&P 500 ETF Trust, which tracks the Standard & Poor’s 500 Index, showing that investors are less uncertain about financial companies relative to other stocks than at any time since the worst economic downturn since the Great Depression.
  • Dallas Fed's Fisher Says He Won't Support Further Asset Buying After June. Richard W. Fisher, president of the Federal Reserve Bank of Dallas, said he isn’t inclined to support further quantitative easing after the central bank completes its purchase of $600 billion in Treasuries in June. “You can never say never, but I cannot imagine a convincing argument for further quantitative easing after this round, given what is developing now in the economy,” the 61- year-old regional bank chief said today on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. Fisher said he regards the Fed’s asset-purchase plan as a “fait accompli” and that he wouldn’t have supported it if he had a vote last year. “I do not foresee America reneging on its obligations to its investors and its securities,” yet the U.S. risks losing its AAA debt rating “if we don’t get our act together,” he said. There has been a “flight to quality” to the U.S. and a “rush back to the dollar,” yet “if we do not correct our situation, we will go the path of what happens to old horses in the glue factory.”
  • SEC Sues Expert Network Consultants for Giving Insider Tips to Hedge Funds.
  • UPS(UPS) May Increase Dividend on Strengthening Global Economy. United Parcel Service Inc. may increase its dividend today, signaling confidence at the world’s largest package-delivery company that the global economic recovery is gaining momentum, analysts said. UPS may raise the dividend to 52 cents from 47 cents, or 11 percent, according to a Bloomberg projection.

Wall Street Journal:
  • Regime Seeks to Appease After Days of Violence. Egyptian government officials took a number of steps aimed at addressing grievances long held by the regime's opponents, as protesters solidified their position in central Cairo's Tahrir Square. Egyptian Health Minister Ahmed Samih Farid said on state television that eight people had died and nearly 900 had been injured in the fighting that began Wednesday.
  • Army Sets Sights on New Rifle. For the first time in almost 50 years, the U.S. Army wants to replace the standard rifle shouldered by hundreds of thousands of frontline troops around the world. The service this week advertised its interest in a new weapon that would incorporate futuristic sights and other advances in rifle design and be able to handle improved ammunition.
  • Madoff Trustee's Suit Says J.P.Morgan(JPM) at 'Very Center' of Fraud. J.P. Morgan Chase & Co. stood "at the very center" of Bernard Madoff's fraud, according to a lawsuit unsealed Thursday that reveals for the first time how bank employees' concerns allegedly went unheeded and irregularities in his accounts were overlooked. The $6.4 billion lawsuit, filed in December and unsealed in federal bankruptcy court Thursday, says J.P. Morgan reported its long-held suspicions of Mr. Madoff to British authorities in late October 2008, less than two months before he surrendered and the fraud was exposed.
Business Insider:
Zero Hedge:
  • Niels Jensen Asks If Plunging Chinese Power Output is Indicative of a "Dramatic Economic Slowdown". The latest letter by Absolute Return Partners' Niels Jensen is a must read for anyone still on the fence about the Chinese "thesis." With many prominent pundits pitching either side of the China bull/bear case, often times covering up weaknesses in their arguments with extended and superfluous rhetoric, sometimes it gets easy to get lost in the noise: here is where Jensen's ability to create signal shines through. Jensen starts off with the official revelation that Chinese GDP is a made up number, discussed previously on Zero Hedge. "In a leaked 2007 cable Li Keqiang, who is the favourite to become the next premier, confided that official Chinese GDP figures are “man made” and “for reference only” (surprise, surprise), and that one should rather look at alternative measures such as electricity consumption, rail freight volumes and bank lending, if one wants a true picture of economic growth in China." It is all downhill from there. First, looking at trends in Chinese power output, indicates that the Chinese economy very likely fell off a cliff in 2010 despite what the fabricated GDP number was indicating:
  • Rice Take Out December 2009 Highs. (graph)
  • Nielsen: Apple(AAPL) iAds More Effective Than TV Ads. According to the soup company Campbell’s, Apple iAds are twice as memorable as TV ads to the general public. The iAd probably cost Campbell’s about $1 million whereas a similar TV campaign could cost a bit more than $25 million.
  • Hosni Mubarak Splits Israel from Neocon Supporters. As Israeli leaders worriedly eye the protests and street battles in neighboring Egypt, they’ve been dismayed to find that the neoconservatives and hawkish Democrats who are usually their most reliable American advocates are cheering for Egyptian President Hosni Mubarak’s fall. The Egyptian autocrat has kept his side of a chilly peace agreement with Israel for thirty years, permitting an era of relative stability in the Jewish state. And as Prime Minister Benjamin Netanyahu made clear in a cautious speech to the Knesset Wednesday, Israel is deeply worried what will happen to that relationship when Mubarak departs.
  • Fort Hood Inquiry Faults FBI, Army. A congressional investigation of the causes and response to the Fort Hood shootings faults the FBI and the Army for not doing enough to prevent the November 2009 massacre that left 13 people dead. In a report released Thursday by the Senate Homeland Security and Governmental Affairs Committee, the FBI is criticized for failing to notify the Army about alleged gunman Maj. Nidal Malik Hasan’s extremist views, while the Army lapsed in identifying and responding to his changing beliefs. “Our report’s painful conclusion is that that the Ft. Hood massacre could have and should have been prevented,” said Sen. Joe Lieberman, the committee’s chairman, said to reporters. “We have reached that conclusion because our investigation has found that employees of the Department of Defense and the FBI had compelling evidence of Nidal Hasan’s growing embrace of violent Islamist extremism in the years before the attack that should have caused them to discharge him from the U.S. Military and make him subject of an aggressive counter-terrorism investigation.”
  • Wolfgang Wiegard, a member of German Chancellor Angela Merkel's council of economic advisers, said there's reason for "justified doubt" that Greece will be able to avoid a restructuring of its debt. Greece will continue to require European support when its aid package expires, Wiegard said. While Spain is no "candidate" for the region's rescue fund "at the moment," the sovereign debt crisis isn't over, he said.
Folha de S.Paulo:
  • Brazilian Finance Minister Guido Mantega will ask support from his counterpart, U.S. Treasury Secretary Tim Geithner, to resist a proposal to regulate commodity prices. Mantega will raise the issue next week when Geithner will be in Brazil. Brazil opposes a French proposition made to the Group of 20 nations to regulate commodities markets.
The Globe and Mail:

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