Thursday, April 21, 2011

Today's Headlines


Bloomberg:

  • Greece Default Hit on Banks Cushioned by ECB, Goldman Says. The impact of a Greek debt restructuring on non-Greek European banks would be “milder” now than a year ago thanks to European Central Bank loans, according to Goldman Sachs Group Inc. analysts. A so-called haircut of 20 percent to 60 percent on Greek government bonds corresponds to losses of between 13 billion euros ($19 billion) and 41 billion euros for European banks, Goldman Sachs banking analysts led by London-based Jernej Omahen said in a research note today. That represents 1 percent to 3 percent of their aggregate Tier 1 capital, they said. “In the context of the sector aggregate, this is small,” the analysts said. “By extending 91 billion euros of refinancing facilities to Greek banks (and a further 153 billion euros to Portuguese and Irish banks), the ECB has effectively dis-intermediated the ‘core’ banks from the periphery.” “As a consequence, the knock-on effects of a restructuring would be milder for European banks today than, say, just last year,” the analysts added.
  • JPMorgan(JPM) Sees S&P 500 Surpassing 2007 Peak: Technical Analysis. The Standard & Poor’s 500 Index will climb to record highs in the next three to four years because the market’s breadth indicates the rally will continue, according to JPMorgan Chase & Co.’s Michael Krauss. The cumulative advance-decline line for stocks listed on the New York Stock Exchange, which represents the number of daily gains minus the number of declines, exceeded its February peak on April 6, reaching the highest level since July 2004, when Bloomberg started tracking the data. That indicator of market breadth suggested the rally that began in March 2009 may lift the S&P 500 to 1,600, said Krauss. That’s 20 percent above the index’s closing level yesterday of 1,330.36. “The bull market is a ways from being completed,” Krauss, JPMorgan’s head of technical research, wrote in a note to clients today. “The A-D lines are in a downtrend for three to six months before a final bull-market peak.” He added, “we’re nowhere near that condition yet.”
  • Initial Jobless Claims in U.S. Fell 13,000 Last Week to 403,000. New applications for unemployment benefits in the U.S. fell less than forecast last week, indicating the labor market will take time to improve. Jobless claims decreased by 13,000 to 403,000 in the week ended April 16, Labor Department figures showed today in Washington. Economists projected a decline to 390,000, according to the median estimate in a Bloomberg News survey. “The labor market is improving gradually,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. “We have headwinds due to rising gasoline prices but there will be enough income generation to support moderate growth in consumer spending.” The four- week moving average, a less volatile measure than the weekly figures, rose to 399,000 last week, the highest since the week of Feb. 19, from 396,750. The number of people continuing to receive jobless benefits dropped by 7,000 in the week ended April 9 to 3.7 million, the fewest since September 2008. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 2.9 percent, today’s report showed.
  • Consumer Comfort Index in U.S. Climbs for Fourth Week on Economic Outlook. Consumer confidence rose for a fourth consecutive week as Americans became less pessimistic about the state of economy and their personal finances. The Bloomberg Consumer Comfort Index climbed to minus 42.6 in the period to April 17, the best reading since the end of February, from minus 43 the prior week. A measure of expectations fell to the lowest level since September, a sign rising fuel costs are causing families to think the economy will take a turn for the worse in coming months. While employment has picked up over the past two months, households are struggling to maintain spending as the price of gasoline climbs to the highest level in almost three years. The world’s largest economy probably grew at a slower pace in the first quarter as consumer spending cooled, according to economists surveyed by Bloomberg News. “Consumer sentiment is resting on the knife’s edge,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Sentiment is likely to continue to move based on labor market conditions, fuel costs and equity prices.”
  • Philadelphia-Area Manufacturing Slows More Than Estimated as Orders Drop. Manufacturing in the Philadelphia region slowed more than forecast in April as measures of orders and sales fell. The Federal Reserve Bank of Philadelphia’s general economic index dropped to 18.5, the lowest level since November, from 43.4 the prior month which was the highest level since 1984. Rising energy prices and supply-chain disruptions at auto producers like Ford Motor Co. (F) following last month’s earthquake and tsunami in Japan may slow manufacturing in coming months.
  • Funds Bet Aginst Volatility While VIX Notes Plummet 94%. Investors have poured about $265 million over the past year into exchange-traded notes that rise as stock-market volatility declines, looking for profits where others have lost. Accuvest Global Advisors and Armstrong Investment Managers LLP are two buyers using the exchange-traded notes, or ETNs, to bet against futures linked to the Chicago Board Options Exchange Volatility Index. The bet seeks to make money from the contracts’ tendency to decline in value over time, a phenomenon that causes losses for volatility speculators. Barclays Plc (BARC)’s VXX note, which gains when the futures rise, has lost 94 percent of its value since it started trading in 2009. “I was sitting around here and thinking, ‘If it’s that bad, what about getting on the other side of it?’” said David Garff, who helps manage about $350 million as president of Accuvest in Walnut Creek, California. He bought about $5 million of a UBS AG (UBSN) note called XVIX in January, seeking to profit from declining VIX futures prices.
  • India Builders Face 'Large-Scale Distress' on Debt Trap, Knight Frank Says. India’s real estate industry is expected to face “large-scale distress” amid rising borrowing costs and shrinking access to credit that may force developers into fire sales for assets, according to Knight Frank LLP. Indian developers will have to repay 1.8 trillion rupees ($40.8 billion) of debt to state-run banks, private equity funds and other lenders over the next two to three years, said Amit Goenka, national director of capital transactions at the Indian unit of Knight Frank. Their cash flow may also be under pressure as creditors seek earlier repayments, he said. “I see large-scale distress coming up,” Goenka said in an interview today. “Right now it’s more of financial jugglery which is keeping builders alive for a few months before everything starts to cave in.”
  • Pakistan at Impasse With U.S. on Drone Attacks After Meetings With Mullen. A visit by U.S. President Barack Obama’s top military officer to Pakistan underscored disagreements over the use of drone aircraft to target militants in the country’s mountainous northwest. Admiral Mike Mullen, the chairman of the U.S. Joint Chiefs of Staff, said his country won’t stop the attacks in Pakistan’s tribal areas bordering Afghanistan. He expressed concern that Pakistani intelligence has a “longstanding relationship” with a militant Afghan group headed by U.S.-designated terrorists.
Wall Street Journal:
  • BlackRock(BLK) Bondwatcher Says Rates May Not Rise Post QE2. A top fund manager at Blackrock Inc., the world’s biggest asset management firm by assets, said a rise in bond yields is not a “given” after the Federal Reserve steps aside in June, even after Standard & Poor’s cut its outlook on U.S. government debt to negative earlier this week. At a time when some of the asset management company’s chief rivals are betting against the U.S. Treasury bond market, Rick Rieder, chief investment officer of fixed income, fundamental portfolios and a member of the Fixed Income Executive Committee at BlackRock Inc. in New York is taking a more bullish view.
Bloomberg Businessweek:
  • Obama Says U.S. Probing Speculators, Traders in Oil Markets. President Barack Obama said a Justice Department probe will examine the role of “traders and speculators” in oil markets and how they contribute to high gas prices. “The attorney general’s putting together a team whose job it will be to root out any cases of fraud or manipulation in the oil markets that might affect gas prices, and that includes the role of traders and speculators,” Obama will say today in Reno, Nevada, according to text of his remarks released by the White House. “We are going to make sure that no one is taking advantage of the American people for their own short-term gain.”
MarketWatch:
  • Oil Trades Higher, Rising Above $111 a Barrel. Crude-oil futures inched higher Thursday on a weaker dollar, resuming their upward trajectory ahead of a three-day weekend for most markets. Crude for June delivery added 18 cents, or 0.2%, to $111.63 a barrel on the New York Mercantile Exchange. It traded marginally lower in early floor trading after spending most of electronic trading in the black. It earlier hit an intraday high of $112.48 a barrel.
  • N.Y. Times(NYT) Can't Get Out Of Its Own Way. Pity the plight of shareholders of the New York Times Co.’s stock. They have invested in a company with arguably the most famous brand name in the entire media business, and yet the Times can’t seem to maximize its prestige in its results.
  • China's Forex Reserves Spell Trouble For Banks. China’s bulging foreign exchange reserves may spell bad news for the nation’s lenders, as the central bank must drain the resulting liquidity through measures including further increases in banks’ reserve requirement ratios.
CNBC.com:
Business Insider:
Zero Hedge:
  • China Inflation And Wage Protests Spread, Turn Violent. Yesterday we reported news that has so far received almost no media exposure, namely that thousands of striking truck drivers had poured into Shanghai's Waigaoqiao zone, one of the city's busiest container ports, protesting over "rising fuel prices and low wages." Today, via Reuters, we learn that this situation has escalated materially, and progressed into violence: "A two-day strike over rising fuel prices turned violent in Shanghai on Thursday as thousands of truck drivers clashed with police, drivers said, in the latest example of simmering discontent over inflation.
New York Times:
  • Fiat to Raise Chrysler Stake to 46%. Fiat said on Thursday that it would spend $1.3 billion to raise its stake in the Chrysler Group to 46 percent, and aimed to have a majority shareholding this year. The Italian automaker, which increased its stake to 30 percent this month, is exercising its right to acquire an additional 16 percent once Chrysler pays off the roughly $7 billion it owes the American and Canadian governments. Fiat, based in Turin, Italy, and Chrysler, based in Auburn Hills, Mich., are working with their banks to refinance that debt before the end of June. The Italian company will then exercise a $1.3 billion equity call option for the 16 percent stake, with the money adding to Chrysler’s capital. Fiat will draw on its cash reserves of more than 14 billion euros ($20.4 billion) to purchase the stake.
FINalternatives:
  • Redemptions Drop To Historic Low, New Index Shows. Hedge fund redemption requests fell to near an all-time low this month, according to a new report from GlobeOp Financial Services. The hedge fund administrator's new Forward Redemption Index fell to just 2.45% on April 15, 81 basis points lower than it had been on March 20. The index stood at 19.27% in November 2008 at the height of the financial crisis, and at 2.83% a year ago.
Huffington Post:
  • Obama White House, Pentagon At Odds Over Libya Policy. After 26 months in office, President Obama still has not forged a smoothly working national security team that can both nimbly pounce on military crises and deftly manage festering problems, say current and former U.S. officials.
Politico:
  • GOP Escalates Debt-Limit Demands. One day after being named to a presidential task force to negotiate deficit reduction, House Majority Leader Eric Cantor fired off a stark warning to Democrats that the GOP “will not grant their request for a debt limit increase” without major spending cuts or budget process reforms.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).
Reuters:
  • Doha Trade Talks Chasm "unbridgeable today" - WTO. The gaps keeping trading nations from a deal that could promote global free trade remain "unbridgeable today", World Trade Organisation Director-General Pascal Lamy said on Thursday. In a statement accompanying the publication of hundreds of pages of legal texts outlining the state of play in the discussions, Lamy said the Doha round of world trade talks that began decade ago was at "serious risk of failure".
  • Portuguese Yields Soar Ahead of Easter Break. Yields on Portuguese and Irish government bonds soared on Thursday as markets scaled back exposure to sovereign risk ahead of the long Easter weekend even while stocks rallied on strong corporate results. Worries over a possible Greek debt restructuring were expected to keep pressure on rattled peripheral bond markets into next week, resulting in yields -- already at euro lifetime highs -- continuing to push higher. Given the extreme levels already offered on Greek debt, with two-year yields at more than 23 percent, Portuguese and Irish bonds bore the brunt of market uncertainty. "With what's happening in Greece and the expectations of restructuring, really the momentum behind that is so strong the risks are that Portugal and Ireland trend that way too," said Chris Scicluna, deputy head of economic research at Daiwa Capital Markets. "It's difficult to see what might turn it around in the near term and even into mid-May." Ten-year Portuguese bond yields PT10YT=TWEB rose above 10 percent for the first time since the launch of the euro, while two-year bond yields PT2YT=TWEB climbed by more than 100 basis points to 11.978 percent. Shorter-dated Irish yields rose by around 85 basis points <0#IEBMK=> while two-year Greek yields were up by around 25 bps.
  • US Public Pension Fund Assets Nearly $3 Trillion - Study. The assets held by state and local government pension funds rose to $2.93 trillion in 2010, a 35 percent increase from their lowest point during the financial crisis, two national associations said on Thursday.
Telegraph:
  • Rich Chinese Consider Leaving China. More than half of Chinese "new rich" said they want to leave the country and are considering buying citizenship elsewhere, according to a new report. While Western businessmen are heading East to make their fortunes, 60 per cent of those with fortunes of more than $10 million (£6 million), had either considered "investment immigration" or already completed the process.
  • Ben Bernanke's Life Gets Tougher as America is Sent to the Debt Doghouse. Forget Congress. It's the Fed that has the real headache now America's in the debt doghouse.
Financial Times Deutschland:
  • German Chancellor Angela Merkel doesn't have a majority in her coalition government in favor of bailing out eurozone members under current terms and conditions, citing people in the coalition.
Kyodo News:
  • Radiation in excess of 100 microsieverts per hour was measured at four locations between 2 to 3 kilometers away from Japan's Fukushima Dai-Ichi nuclear plant, citing the science ministry.
China Daily:

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