Tuesday, August 16, 2011

Today's Headlines

  • Merkel, Sarkozy Propose Closer Regional Cooperation, Shunning Euro Bonds. German Chancellor Angela Merkel and French President Nicolas Sarkozy said they’ll press for closer euro-area economic integration with tougher deficit rules and stricter supervision as they strive to stamp out the debt crisis. Merkel and Sarkozy rejected euro bonds and expanding the 440 billion-euro rescue fund and said they would propose a Europe-wide financial transaction tax, which was rejected in 2010. They set out joint proposals to strengthen the euro including plans for all euro-area states to demonstrate a “verifiable commitment” to anchoring debt limits in national law and a “euro council” to be headed by European Union President Herman van Rompuy. “It’s very obvious that in order for this to work we need a stronger convergence in finance and economic policy within the euro zone and Germany and France are at the vanguard of that effort,” Merkel said. The leaders met as investors clamored for indications that they would do more to stamp out the euro area debt crisis as their economies sputter. Joint euro region bond sales may be “imaginable one day,” though can only be the final step in the process of European integration, Sarkozy said. “I don’t think Europe has used its last resource yet and I don’t think we can resolve the problem with a single big-bang policy,” Merkel said.
  • Stocks Fall as Europe Floats Financial Tax. U.S. stocks fell for the first time in four days and the euro slid from a three-week high against the dollar after French President Nicolas Sarkozy said his nation and Germany will propose a financial transaction tax. Oil and copper fell. The Standard & Poor’s 500 Index declined 1.9 percent to 1,181.99 as of 1:07 p.m. in New York. NYSE Euronext and Nasdaq OMX Group Inc., two of the biggest exchange operators in Europe, dropped at least 5.8 percent. Caterpillar Inc., Deere & Co and 3M Co. each lost at least 2 percent, pacing declines in companies most-tied to the economy, after Europe’s economic growth trailed estimates. "Europe will continue to be an overhang until they come up with realistic policies," Peter Jankovskis, who helps manage about $2.6 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. "We’ve already got disappointing economic numbers out of Europe earlier today. Then, you have a program which is not really doing anything to address that."
  • Corporate, Sovereign Bond Risk Rises in Europe as Growth Slows. The cost of insuring sovereign and corporate debt rose in Europe after reports showed the region’s economic growth slowed more than forecast in the second quarter as Germany’s recovery almost ground to a halt. The Markit iTraxx Crossover Index of credit-default swaps linked to 40 companies with mostly high-yield credit ratings increased 22 basis points to 619.5, according to JPMorgan Chase & Co. at 1 p.m. in London. Contracts on the Markit iTraxx SovX Western Europe Index tied to the debt of 15 governments rose 7 basis points 282, snapping three days of declines. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 5 basis points to 147 basis points. Credit-default swaps on Spain increased 10 basis points to 356, according to CMA. The cost of insuring Italian government bonds climbed 2 basis points to 343. France was little changed at 148 and Ireland was 22 higher at 758.
  • European Economy Slows More Than Forecast as Debt Crisis Saps German Might. European economic growth slowed more than economists forecast in the second quarter as Germany’s recovery almost ground to a halt amid the worsening sovereign- debt crisis. Gross domestic product in the 17-nation euro area rose 0.2 percent from the first quarter, when it increased 0.8 percent, the European Union’s statistics office in Luxembourg said in a statement today. That’s the worst performance since the euro region emerged from a recession in late 2009. Economists had forecast the economy to expand 0.3 percent, according to the median of 34 estimates in a Bloomberg News survey. Europe’s economy may struggle to gather strength as governments from Italy to Spain step up budget cuts to fight the debt crisis. In Germany, Europe’s largest economy, growth almost stalled in the second quarter. “Growth may virtually stagnate in the second half and there’s a threat of a renewed recession,” said Martin van Vliet, senior economist at ING Groep NV in Amsterdam. “It’s up to Merkel and Sarkozy to prevent further contagion to the economy; the longer the turbulences persist, the higher the risk of a recession.” Euro-area exports dropped a seasonally adjusted 4.7 percent in June from the previous month, when they rose 1.5 percent, the statistics office said in a separate report today. Imports slumped 4.1 percent and the trade deficit widened to 1.6 billion euros ($2.3 billion) from 800 million euros. German GDP rose 0.1 percent in the second quarter after increasing 1.3 percent in the previous three months. That’s the worst performance since a contraction in the first quarter of 2009. The French economy unexpectedly stalled in the April-June period, while Italy’s GDP increased 0.3 percent. “With Germany’s economy faltering, the euro region didn’t have any significant growth impulses,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf, Germany. “The second half will only show a modest expansion overall.” Adding to signs of slowdown, European manufacturing growth eased in July and economic confidence slumped to the lowest in almost a year. German investors were the most pessimistic in 2 1/2 years last month and executive confidence also weakened. Industrial output unexpectedly dropped in June.
  • Roesler Tells Radio Germany Won't Bend in Rejecting Euro Bonds. German Economy Minister Philipp Roesler said his government won’t bend in its opposition to common euro bonds to help solve Europe’s debt crisis, the Free Democrat said in a Deutschlandfunk Radio interview. Germany backs creating a “stability union” that focuses on the sustainability of euro-region finances, Roesler said. That includes all states adopting “debt brakes” in their constitutions, automatic sanctions for infringements and boosting the economic competitiveness of the states, he said. “You’ll see that we unequivocally back this stability union. That’s the position of the German government and -- as made clear in statements -- we view euro bonds as the wrong way,” Roesler said.
  • Fannie Mae and Freddie Mac Would Survive in New Form Under Obama Proposal. The Obama Administration is working on a proposal to maintain a large government role in mortgage finance, effectively preserving most of the functions of Fannie Mae and Freddie Mac, according to a person with direct knowledge of the effort.
  • Gold Gains for a Second Day as Slowing Economies Stoke Investment Demand. Gold futures gained for the second straight day as the sagging European economy spurred demand for the precious metal as an investment haven. Gold futures for December delivery rose $29.30, or 1.7 percent, to $1,787.30 an ounce at 10:45 a.m. on the Comex in New York. Yesterday, the price climbed 0.9 percent. Before today, the metal jumped 45 percent in the past year, reaching a record $1,817.60 on Aug. 11.
  • Oil Drops in New York as Slowing German Economy Signals Demand May Falter. Crude oil fell after Germany’s economy almost stalled in the second quarter, bolstering concern that fuel consumption will diminish. “The disappointing German GDP number is responsible for the bulk of the sell-off we’ve seen today,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Germany was expected to carry the entire euro-zone and now its economy appears to be faltering.” Crude oil for September delivery declined $1.15, or 1.3 percent, to $86.73 a barrel at 12:51 p.m. on the New York Mercantile Exchange. Yesterday, the contract climbed 2.9 percent to $87.88, the highest settlement since Aug. 3. Prices have risen 15 percent in the past year.
  • Commodities May Be Poised to Decline 9.7%: Technical Analysis. The S&P GSCI Total Return Index of commodities may fall 9.7% after dropping below its 55-week moving average last week, Commerzbank AG said.
  • King Says 'Severe' Market Stress Could Threaten U.K.'s Economic Recovery. Bank of England Governor Mervyn King said that turmoil in the euro region and in world stock markets poses a risk to the U.K. and could push inflation too far below the 2 percent target. “Recent developments in world stock markets and in the euro area are of particular concern,” King said in a letter to Chancellor of the Exchequer George Osborne after inflation kept above the central bank’s 3 percent ceiling in data released today. There is a risk of “severe stress and dislocation in financial markets and, were this risk to crystallize, it would have a significant impact on the U.K. economy.” Inflation accelerated more than economists forecast in July to 4.4 percent, led by the cost of clothes and footwear, housing maintenance and rent. While King predicted that inflation will reach 5 percent in coming months, he said that it might be below 2 percent without the impact of temporary factors such as energy costs and will probably slow through 2012.
  • Import Prices in U.S. Rise .3%, Led by Gains in Costs of Fuel, Clothing. Prices of goods imported into the U.S. rose in July, led by gains in costs of fuel, industrial supplies and clothing. The 0.3 percent gain in the import-price index followed a revised 0.6 percent drop in June, Labor Department figures showed today in Washington. Economists projected a 0.1 percent decrease for July, according to the median estimate in a Bloomberg News survey. Prices excluding petroleum rose 0.2 percent. Compared with a year earlier, import prices rose 14 percent, today’s report showed. That was the largest 12-month increase since the 18.1 percent gain in the period from August 2007 to August 2008. The cost of imported petroleum rose 0.6 percent from the prior month and was up 49 percent from a year earlier. Excluding all fuels, import prices increased 0.2 percent from the prior month and were up 5.5 percent from July 2010. Imported food was 0.5 percent more expensive last month. Costs of imported automobiles, parts and engines fell 0.3 percent, the first decline since December 2010. They were up 3.9 percent over the past 12 months. Consumer goods excluding vehicles showed a 0.4 percent advance after increasing 0.2 percent in June.
  • Asia Inflation Risk May Climb With Yingluck Plan to Boost Thai Rice Prices. Yingluck Shinawatra became Thailand’s first female prime minister by pledging to lift rural incomes through higher rice prices. The rest of Asia may now have to pay for her campaign promise. Yingluck has said the government will buy unmilled grain from farmers at 15,000 baht ($502) a ton at harvest in November, above current market rates of 9,900 baht. With Thailand the world’s biggest exporter, that may raise rice prices across a region that accounts for 87 percent of global consumption. The leader presented her economic policies to Cabinet yesterday and is scheduled to announce them publicly by Aug. 24. “High rice prices will translate into higher inflation pressures in Asia, at a time when most inflation readings are flirting near the higher end of central-bank target or forecast ranges,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “Once the global backdrop stabilizes, inflation could come back strongly.”
  • Wal-Mart(WMT), Home Depot(HD) Raise Forecasts. Wal-Mart Stores Inc. (WMT) and Home Depot Inc. (HD) raised their full-year forecasts after second-quarter profits beat analysts’ estimates, helped by U.S. consumers shopping for discount items and tools to repair their homes. Profit in the year ending in January will rise to $4.41 to $4.51 a share, up from a previous projection of $4.35 to $4.50, Bentonville, Arkansas-based Wal-Mart, the world’s largest retailer, said today in a statement. Home Depot boosted its annual earnings-per-share forecast by 4.5 percent.
  • HTC Asks ITC to Block iPad, iPhone Imports. HTC Corp. (2498), Asia’s second-biggest maker of smartphones, filed a trade complaint at the U.S. International Trade Commission that seeks to block imports of Apple Inc.’s iPhone, iPad and Mac computers. The complaint filed today in Washington claims Apple is infringing three patents related to wireless technology and follows a case lodged last year at the ITC that made similar claims.
Wall Street Journal:
  • Europe Moves to Heal Crisis. The leaders of France and Germany said Tuesday they would propose electing a permanent head of the euro zone to shore up governance of the monetary union, but stopped short of more fundamental steps toward refashioning the area into a federal entity with its own debt agency. "We want to state our absolute will to defend the euro," said French President Nicolas Sarkozy after a meeting in Paris with German Chancellor Angela Merkel.
Business Insider:
  • The Americas Are the Next OPEC. Foreign Policy magazine is out with one of its "big trends" issues and ordinarily we avoid these things like the plague. However.
Zero Hedge:
NY Post:
  • Goldman(GS), JPMorgan(JPM) Lose $20M in Spat. Goldman Sachs and JPMorgan have killed their Motorola golden goose, The Post has learned. Motorola Mobility is putting them in the penalty box by not including them as advisers in its $12.5 billion sale to Google because, sources close to the matter said, the two Wall Street giants fought during an earlier Motorola deal.
  • More Wall Street Job Cuts Ahead. Wall Street firms, having already trimmed payrolls by as much as 15 percent since 2008, are sharpening the layoff ax again, The Post has learned. The second round of job cuts could start as soon as September, sources said, and could trim head counts by 5 percent to 10 percent. This could amount to the loss of thousands of jobs in one of the city’s best-paid sectors.
Financial Times:
  • Fitch Maintains US's Triple A Rating. The US still deserves a triple A credit rating with a stable outlook, Fitch Ratings said on Tuesday, highlighting the different tacks that leading agencies have taken on US creditworthiness.
  • France and Germany Plan Joint Taxation. France and Germany are to adopt a common corporate tax system by 2013, in an effort to signal greater co-ordination of economic policy after confidence in the euro was buffeted by the sovereign debt crisis.
  • Debt Crisis: Live. Rolling coverage of the rollercoaster in financial markets as the eurozone and US come under increasing pressure to deal with high levels of debt and stave off another recession.
Passauer Neue Presse:
  • European leaders have no more than "a few weeks left" to solve the region's debt crisis which could bring about a widespread collapse of banks, citing Anton Boerner, president of Germany's BGA lobby of exporters and wholesalers.
  • China's consumer price increases may be above 5% till the first quarter next year, citing Zhang Ping, a deputy director at the Chinese Academy of Social Science's economics institute.

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