Weekend Headlines
Bloomberg:
- Merkel Risks Revolt Over Greece. Chancellor Angela Merkel faces a gathering storm in her coalition over Germany’s share of euro- area rescues, threatening to undermine her ability to make concessions on additional help for Greece. Merkel’s Free Democratic coalition partner signalled a hardening of its stance on bailouts at a convention as the party leadership fought to quash a revolt over granting rescues. While a motion to eject aid recipients that miss debt-cutting targets from the euro was defeated, a leading rebel said that as many as 50 coalition lawmakers are ready to reject the post-2013 euro bailout fund when it goes to parliament later this year. “We know that public acceptance of European themes is dwindling,” Economy Minister Philipp Roesler told FDP members in the Baltic Sea port of Rostock yesterday in his first speech as party leader. Aid appraisals must be based on “clear conditions with sanctions for failure to adhere to rules,” he said, pledging “no taboos.” FDP lawmaker Frank Schaeffler, who last year called for Greece to sell its islands to cut debt, saw his demand for states to be ejected from the euro “at short notice” in cases of rule breaking defeated in a vote yesterday. Even so, he said that as many as 50 lawmakers across the coalition are prepared to join his revolt against the European Stability Mechanism due to take over from the current rescue fund in mid-2013. That’s an increase of at least 10 votes in the past three weeks, enough to eliminate Merkel’s 41-seat advantage over the opposition when the ESM goes to a vote after the summer recess, leaving her reliant on opposition support. “A year ago I was isolated in the party, but that’s no longer the case,” Schaeffler said in an interview. “A good many Free Democrats share the view in private that something is going badly wrong in solving this crisis.” The bailout skeptics aim to tap a vein of resentment that’s brewing in Germany and other AAA-rated countries such as Finland over being forced to rescue their euro-area neighbors. Twenty percent of Germans view Merkel’s decision last year to help Greece as “right,” according to a poll published May 8 by consumer survey company GfK SE. Another 47 percent of respondents said the decision was “wrong,” suggesting that Merkel’s coalition may struggle to justify any additional aid.
- IMF Chief Strauss-Kahn Charged With Attempted Rape. Dominique Strauss-Kahn, head of the International Monetary Fund and a potential candidate for the French presidency, was charged with attempted rape and a criminal sex act on a New York hotel maid, police said. The attack allegedly occurred yesterday against a 32- year-old female at a Sofitel hotel in midtown Manhattan, according to an e-mailed statement by the New York Police Department. Strauss-Kahn, who was taken into custody aboard an Air France flight at John F. Kennedy International Airport, also was charged with unlawful imprisonment. Strauss-Kahn, 62, denied the charges and will plead not guilty, his lawyer Benjamin Brafman said. He is scheduled to appear tonight or tomorrow morning for arraignment in Manhattan Criminal Court. New York police said Strauss-Kahn was picked out of a lineup today by the maid. The arraignment has been delayed while investigators seek a warrant to allow examination of the IMF chief’s body for scratches or the accuser’s DNA, police said. New York Police Deputy Commissioner Paul Browne said the assault occurred about 1 p.m. yesterday when the woman entered the $3,000-a-night suite -- Room 2806 -- Strauss-Kahn had checked into on May 13, Browne said. Strauss-Kahn is alleged to have emerged from a bathroom naked and made two attempts to forcibly have sex with the maid, Browne said in a telephone interview.
- Euro Crisis May Scuttle Eastern Europe Economy as Investors Bet on Region. Eastern Europe’s economic recovery may be scuttled by any Greek debt restructuring, which would curb lending by western banks and undermine investor bets that have propelled the region’s stocks, bonds and currencies. While the region has three of this year’s 10 best- performing currencies and five of the 10 equity indexes that rose the most, 76 percent of its banking market is controlled by western European lenders still threatened by the euro’s debt crisis. “You would expect that the Greek troubles now would have a bigger impact on emerging Europe,” said Neil Shearing, senior emerging-market analyst at Capital Economics in London. “It’s a puzzle. I suspect it might just be the calm before the storm.”
- Euro Falls Before Finance Ministers Meet to Discuss Avoiding Greek Default. The euro fell toward a six-week low against the dollar on concern European finance ministers may fail to quell speculation about Greece’s debt restructuring. “The market is closely watching what will come out from this week’s meetings,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign- exchange margin-trading services. “Any preemptive move is unlikely, and concern about Greece’s restructuring may spread to countries like Ireland. That may continue to give selling pressure for the euro.”
- Israel Clashes With Protesters on Four Fronts on 'Nakba Day'. Israel clashed with demonstrators on four of its borders, leaving as many as nine people dead in violence that Israeli officials blamed on Syria and Iran. The protests in the West Bank, Syria, Lebanon and the Gaza Strip marked the annual observance of what Palestinians call “nakba,” meaning “catastrophe” -- a reference to their displacement as a result of the 1948 establishment of the state of Israel. “I see fingerprints of Iranian provocation and an attempt to use Nakba Day to create conflict,” said Brigadier General Yoav Mordechai, a spokesman for the Israeli army. Finance Minister Yuval Steinitz accused Syrian President Bashar al-Assad of sending protesters across the border to deflect attention from domestic unrest. “The wave of anger that has been sweeping across Arab societies is clearly coming to Israel’s shores now,” said Yoram Meital, director of Ben Gurion University’s Herzog Center for Middle East Studies in Beersheva. “Today’s violence was unprecedented in the way that it happened on several borders at once, and I don’t think it’s over.”
- Louisiana Flood Forces Choices on River Family, Threatens Ruin.
- For the first time since July, Citigroup Inc.(C) is seen as more creditworthy than Goldman Sachs Group Inc(GS). Credit-default swaps protecting Citigroup debt from losses are trading at 124 basis points, 8 basis points below contracts on Goldman Sachs, according to data provider CMA.
- Credit-default swaps tied to Indian banks are rising the most this month among the so-called BRIC nations as banks increased provisions, saying their customers will feel the strain of higher interest rates. Contracts tied to government-owned State Bank of India, which some investors perceive as a proxy for the nation, increased 9 basis points to 173 basis points, according to CMA.
- Three U.S. Citizens Among Six Charged With Supporting Taliban in Pakistan. Two Americans of Pakistani descent face a court date tomorrow for allegedly providing “material support” to the Pakistani Taliban. A third U.S. citizen and three other people also were indicted in the case.
- Yahoo's(YHOO) China Toehold Threatened by Rift With Alibaba. Yahoo! Inc.’s toehold in China is under threat by a widening rift with Alibaba Group Holding Ltd., the e-commerce provider it partly owns and that analysts say may account for three-fourths of its market value.
- Oil will fall in the second half as high prices erode demand, said Francisco Blanch, global head of commodity research for Bank of America-Merrill Lynch. "We are already seeing signs of demand destruction," Blanch said today. "If you look at airline passenger loads and utilization, they are starting to drop." Brent crude oil will average $122 a barrel this quarter before declining to $94 in the fourth, he said. "If we go to $130 or $140 a barrel, that would kill the Chinese economy as well as the rest of the world," Blanch said.
- New Details in IMF Sex Case. The arrest of International Monetary Fund chief Dominique Strauss-Kahn on sexual-assault charges threatened to upend French politics and weaken the IMF's central role in resolving Europe's deepening debt crisis.
- Selloff Scares Away Few Bulls. Hedge funds and other investors still have large bets that commodity prices will continue to rise, even after one of the steepest selloffs in years. Money managers cut their net-long position in crude-oil futures by 10% on the New York Mercantile Exchange during the week ended Tuesday, according to data released Friday by the Commodity Futures Trading Commission. The decline left speculative investors holding 233,569 more long contracts that anticipate rising prices than short contracts wagering on a decline. A week earlier, these traders held 258,668 more long contracts. The data marked the beginning of an investor pullback from near-record bullish bets as investors became less enamored with commodities. As of this last report, for example, long positions in the oil market still outnumbered short positions by nearly six to one, even after the week through Tuesday saw crude futures for June delivery fall 6.5% to $103.88 on the New York Mercantile Exchange. Prices settled Friday at $99.65. "Even though we had a huge price plunge, the more salient item is that we are still net long," said Jim Ritterbusch, head of energy-trading adviser Ritterbusch & Associates. "We still have a ways to go as far as forcing more speculative traders out of the long side" in the oil market.
- Banks Woo Funds With Private Peeks. Some big investment banks offer their hedge-fund clients special access to senior deal makers and corporate executives, via dinners or other gatherings—a longstanding practice that is drawing fresh scrutiny.
- WellPoint(WLP) Shakes Up Hospital Payments. WellPoint Inc. is raising the stakes for reimbursing about 1,500 hospitals across the country, cutting off annual payment increases if they fail to deliver on the big health insurer's definition of quality patient care.
- Scandal in China Felt on Wall Street. The scandal of indicted Xinhua Finance founder Loretta Fredy Bush burned some of the sharpest minds on Wall Street, including one of the richest self-made women in the U.S. Last week, Ms. Bush was indicted by a U.S. grand jury on charges that she and two Xinhua directors committed conspiracy, mail fraud, and made false statements, enriching themselves by $50 million. It was the latest incident to highlight the sometimes opaque finances of publicly traded Chinese companies.
- Rising Stars in Resurgent Hedge Funds. Financial News has named its picks for its top 40 under 40 list of up-and-coming men and women in the hedge-fund industry.
- Profit Estimates Fall Most Since 2009 in Europe as Bull Run Ages. Analysts are cutting European earnings forecasts by the most in almost two years just as equities in the region trail U.S. shares by the widest margin since the bull market began. Estimates for Stoxx Europe 600 Index profit growth dropped by as much as 4 percentage points this year, including the biggest three-month reduction since September 2009, according to data compiled by Bloomberg. Should analysts’ lowest projections for 2011 prove correct, companies would earn about 24 billion euros ($34 billion) less than expected at the start of the year, the data show. Projections for earnings in the Standard & Poor’s 500 Index have risen 4 points in 2011.
- Huge Glencore IPO Brings Secretive Firm to Market. Swiss-based commodity trader Glencore is set to unveil the pricing of its mammoth $12 billion dual IPO in London and Hong Kong later this week, and in what will be be the biggest IPO of the year and the largest in the UK to date, its shares are expected to start regular trading on the London exchange on May 24 and in Hong Kong just one day later.
- Japan Readies New Tactics for Fukushima After Setback. Japanese officials are readying a new approach to cooling reactors at the Fukushima nuclear plant after discovering an Olympic swimming pool-sized pond of radioactive water in the basement of a unit crippled by the March earthquake and tsunami. The discovery has forced officials to abandon their original plan to bring under control the No. 1 reactor at the Fukushima Daiichi plant as they focus on how to deal with the rising pool that some experts see as a threat to groundwater and the Pacific coast.
NY Times:
- Cities Nationwide Heighten Vigilance on Terror. In large and midsize cities across the country, police chiefs and domestic security officials say they have drastically increased counterterrorism operations under the assumption that a “lone wolf” or a small group of terrorists will try to strike on American soil to avenge the killing of .
- Money Troubles Take Personal Toll in Greece. A year after Greece received a bailout from Europe and the I.M.F., people’s anxiety has grown into deep despair.
- ExxonMobil(XOM) CEO Says Oil Price Should Be $60 to $70 a Barrel. Rex Tillerson, the boss of ExxonMobil admitted last week that the price of oil–based purely on supply and demand- should be in the $60 to $70 a barrel range. The reason it’s above $100 a barrel, Tillerson explained, is due to the oil majors using futures contracts to lock in current high prices, and speculation that is engineered by the high-frequency trading of quantitative hedge funds.
- Is China Really Rebalancing? No. Those who were hoping the answer was yes will have been disappointed by the release Thursday of the World Bank’s China Quarterly Update – April 2011. Here is their summary:
- A Former JPMorgan(JPM) Guy Just Took Over For Dominique Strauss-Kahn.
- Druckenmiller Calls Out The Treasury Ponzi Scheme: "It's Not A Free Market, It's Not A Clean Market", Identifies The Real Bond Threat.
- Casualty Reported As Protesters Storm Israel Embassy In Cairo; Video of Palestinians, Syrians Entering Israel-Controlled Golan Heights.
- Is A Deluge Of Latent Accusations Against Strauss-Kahn Imminent?
San Francisco Chronicle:
- Social-Networking Sites Face New Privacy Battle. California could force Facebook and other social-networking sites to change their privacy protection policies under a first-of-its-kind proposal at the state Capitol that is opposed by much of the Internet industry. Under the proposal, SB242, social-networking sites would have to allow users to establish their privacy settings - like who could view their profile and what information would be public to everyone on the Internet - when they register to join the site instead of after they join. Sites would also have to set defaults to private so that users would choose which information is public.
- European Central Bank Executive Board member Juergen Stark said that further aid for Greece should be conditional on the country "making more consolidation efforts," citing an interview to be published Monday.
- The percentage of Germans whose trust in the single European currency is "very low" or "quite low" has increased by 4 percent since December to 58%.
- European Central Bank President Jean-Claude Trichet said "there is no crisis of the euro" and that the ECB would deliver price stability, in an editorial published today.
- A restructuring of Greece's debt mustn't be "excluded" if the current adjustment measures don't work, citing German opposition leader Frank-Walter Steinmeier. Private investors should also bear the cost of the financial crisis, Steinmeier said.
- Egg prices have risen 24% in China from a year earlier, citing its own monitoring system. Prices are up 5.2% since April 18, according to the report, which was posted on the central government's website.
- Pork prices in China on May 14 had increased 44% from a year earlier due to tight supplies. Pork prices on that day had increased more than 50% from a year earlier in the provinces of Liaoning, Jilin, Anhui, Hunan and Sichuan.
- China's inflation won't recede soon and the government will probably continue to tighten monetary and fiscal policies, citing its interview with John Lipsky, the first deputy managing director of the IMF.
- China still faces large inflationary pressures and consumer prices haven't peaked, citing Yu Bin, director general of the macroeconomic research department of the State Council's development research center. China's economic growth also faces a slowdown, Yu said.
- Financial crisis is "inevitable" for developing countries in the next five to 10 years, citing China central bank adviser Li Daokui. Developing countries like India and Brazil face fiscal deficits and problems that will emerge eventually, citing Li.
- China's unchanging interest rate margin threatens the financial system's safety and affects the effectiveness of regulation, citing Wang Junshou, a deputy head of the China Banking Regulatory Commission's Tianjin branch.
- More than 200 North Korean engineers are living in Iran to help the country develop nuclear weapons and ballistic missiles, citing a person familiar with the matter.
Barron's:
- Made positive comments on (SD).
- Made negative comments on (BBBB).
- Reiterated Buy on (RIG), target $90.
- Reiterated Buy on (TEVA), target $67.
- Asian indices are -1.25% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 108.0 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 114.50 +1.0 basis point.
- S&P 500 futures -.40%.
- NASDAQ 100 futures -.30%.
Earnings of Note
Company/Estimate
- (LOW)/.36
- (JCP)/.24
- (URBN)/.24
- (GBE)/-.37
8:30 am EST
- Empire Manufacturing for May is estimated to fall to 19.7 versus a reading of 21.7 in April.
- Net Long-Term TIC Flows for March are estimated at $32.6 Billion versus $26.9 Billion in February.
- The NAHB Housing Market Index for May is estimated to rise to 17 versus a reading of 16 in April.
- (HLF) 2-for-1
- The 3-Month/6-Month Treasury Bills Auctions, JPMorgan Tech/Media/Telecom Conference, (GFIG) investor day and the (TEX) analyst meeting could also impact trading today.
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