Today's Headlines

Bloomberg:

• Italian Bonds Fall a Seventh Day as Demand Drops at 10-Year Sale. Italian bonds fell for a seventh day, the longest losing streak since February, as demand weakened at the first auction of 10-year securities since the European Central Bank began buying the nation’s debt. Italy’s 10-year bond yield increased two basis points to 5.11 percent as of 4:03 p.m. in London. They earlier climbed to 5.16 percent, the highest since Aug. 10.
  
• European Banks Need Bigger Writedowns on Greek Bonds, Standards Board Says. Some European banks haven’t sufficiently written down the value of Greek government bonds and other “distressed sovereign debt” they own, the organization that sets accounting rules in the region said. Banks and other financial institutions are valuing the bond holdings in a way that, in some cases, reflects internal models instead of market prices, the International Accounting Standards Board said in a letter published on its website today. “It is hard to imagine that there are buyers willing to buy these bonds at the prices indicated,” the IASB said in the letter, dated Aug. 4 and sent to the European Securities and Markets Authority. “This is a matter of great concern to us.” “Although the level of trading activity in Greek government bonds has decreased, transactions are still taking place,” meaning market prices can be assessed, Hoogervorst said. “A company cannot ignore relevant market data.”
• U.S. Consumer Confidence Plunges to Two-Year Low. Confidence among U.S. consumers plunged to the lowest level in more than two years as Americans’ outlooks for employment and incomes soured. The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July, figures from the New York-based research group showed today. It was the biggest point drop since October 2008. A separate report showed home prices declined for a ninth month. Economists predicted the Conference Board’s gauge would fall to 52 in August, according to the median forecast in the Bloomberg survey. The index averaged 98 during the economic expansion that ended in December 2007. The share of consumers who said jobs are currently hard to get increased to 49.1 percent, the highest since November 2009, from 44.8 percent in July. Confidence dropped in all nine U.S. regions. The Conference Board’s data showed a measure of present conditions declined to 33.3, the second-lowest this year, from 35.7 in July. The measure of expectations for the next six months slid to 51.9, the weakest since April 2009, from 74.9. The percent of respondents expecting more jobs to become available in the next six months fell to 11.4, the lowest since March 2009, from 16.9 the previous month. The proportion expecting their incomes to rise over the next six months declined to 14.3 from 15.9. The percent expecting a drop rose to 18.7, the highest since November 2009. Fewer respondents in the Conference Board’s survey indicated they were planning to buy a house, while more intended to purchase cars or major appliances in the next six months.
• China Money Rate Jumps Most in Seven Days on Cash Crunch Concern. China’s benchmark money-market rate jumped the most in seven days and the cost of one-year swaps climbed to a record on concern the central bank’s expansion of reserve requirements will worsen a cash crunch. The seven-day repurchase rate, which measures interbank funding availability, has surged 89 basis points this week after Standard Chartered Plc and Bank of America Merrill Lynch said the central bank issued a notice on Aug. 26 including margin deposits in the requirements. Guotai Junan Securities Co, the nation’s biggest brokerage by revenue, yesterday said banks will face “cash depletion” following the “bigger-than-expected” tightening measure. “The new policy will have a big impact on China’s liquidity situation in September,” said Shi Lei, head of fixed- income research in Beijing at Ping An Securities Co., a unit of the nation’s second-biggest insurance company. “The cash shortage will probably worsen in the second half of next month, when banks are desperate for cash to meet month-end capital requirements.” The seven-day repurchase rate climbed 55 basis points to 4.96 percent as of the 4:30 p.m. close in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. The one-year swap contract, the fixed cost needed to receive the floating seven-day repo rate, rose six basis points to 4.43 percent in Shanghai, according to data compiled by Bloomberg. It touched 4.52 percent today, the highest level since Bloomberg started compiling the data in 2006.
• Gold Rises on Expectations Fed Will Ease. Gold rose in New York on speculation that the Federal Reserve will ease monetary policy further to stimulate the economy, boosting the appeal of the precious metal as an alternative asset. “We need to do more,” Chicago Fed President Charles Evans said today in a CNBC interview. The Standard & Poor’s 500 Index fell after a report showed confidence among U.S. consumers plunged in August to the lowest in almost two years. Gold has rallied 12 percent this month, touching a record $1,917.90 an ounce on Aug. 23. Gold futures for December delivery gained $38.20, or 2.1 percent, to $1,829.80 at 11:09 a.m. on the Comex in New York. Gold futures for December delivery gained $38.20, or 2.1 percent, to $1,829.80 at 11:09 a.m. on the Comex in New York.
• Euro Weakens as Trichet Spurs Bets Rate Rises Over; Franc Gains. The euro weakened against most major counterparts on speculation the European Central Bank has finished raising interest rates as the region’s sovereign-debt crisis curbs economic growth. The euro dropped 0.6 percent to $1.4431 at 12:02 p.m. in New York.
• European Economic Confidence Falls Most Since December 2008. European confidence in the economic outlook plunged the most since December 2008 this month as a persistent debt crisis roiled markets and clouded growth prospects across the 17-nation euro region. An index of executive and consumer sentiment in the single- currency region fell to 98.3 from a revised 103 in July, the European Commission in Brussels said today. That’s the lowest since May 2010. Economists had forecast a decline to 100.2, according to the median of 29 estimates in a Bloomberg News survey. In Europe, a gauge of sentiment among manufacturers dropped to minus 2.9 from 0.9 in the previous month, today’s report showed. An indicator of services confidence fell to 3.7 from 7.9, while a measure of consumer confidence declined to minus 16.5 from minus 11.2.
• Icahn Says He'd Buy Clorox(CLX) for $78 a Share.
• Fed's Evans Favors 'Aggressive' Policy Easing After Weak First-Half Growth. Federal Reserve Bank of Chicago President Charles Evans urged easier monetary policy and said he favors setting unemployment and inflation markers that would trigger a pullback from near-zero interest rates. “I would favor more accommodation,” Evans, a voting member of the Fed’s policy-making committee, said today in a CNBC television interview. “I am in favor of some of the most aggressive policy actions of anyone on the committee.” “I am somewhat nervous about the economic recovery and where we stand at this point,” Evans said. “The first half of this year got revised down and we had very weak growth. We had been hoping to achieve something much more like a launch or escape velocity for growth.” Evans said he “would have wanted to do more” easing earlier this month, when the Fed decided to commit to keeping its target rate near zero through mid-2013. The commitment is conditioned on “low rates of resource utilization and a subdued outlook for inflation,” which Evans said may be too vague. “One thing I think we really ought to do is clarify what our policy intentions are going forward,” he said. “It is conditional. I think we need to explain what we mean by that conditionality.”

Wall Street Journal:

• Euro Zone Considers Bank Shares As Collateral For Greek Aid - Report. The euro zone is considering providing donor members including Finland with collateral in the form of Greek banking shares to secure the next aid package for Athens, Germany's Handelsblatt reported.

CNBC.com:

• Risk of Double Dip in Europe Increases: S&P. High unemployment and the recent decline in stock markets pose a risk to spending, rating agency Standard & Poor's wrote on Tuesday in a report headlined 'Slowing Growth in Europe Increases the Risk of a Double Dip.'

Business Insider:

• FOMC Minutes Show Deep Divisions In The Fed.
• Actually Chinese Inflation Hasn't Slowed And It's About To Get Worse. Economists have been virtually universal in their prediction that Chinese inflation would peak this summer — so much so that I’ve felt like a pretty lonely skeptic.

Zero Hedge:

• Lagarde Now Angers France, Which Blames The Collapse In Financial Markets On The Seasons.
• Israel Sends Two More Warships to Egyptian Border to Preempt Expected Militant Attack.
  

Insider Monkey:

• Hedge Fund Performance August 2011. Here is how individual hedge funds performed in August (You can see each fund’s entire 13F portfolio by clicking on each fund’s link):

Reuters:

• Libya Sees Oil Output at Pre-War Levels in 15 Months. The newly-appointed chairman of Libya's National Oil Corporation (NOC) said on Tuesday oil production can restart within weeks and will reach full pre-war output within fifteen months. "Starting up production will be within weeks, not months. After we start it will take less than 15 months (to reach full output)," Nouri Berouin, chairman of the NOC, told Reuters. The OPEC member was producing 1.6 million barrels per day before an uprising began in February against leader Muammar Gaddafi.
• BofA(BAC) Sued Over $1.75 Billion Mortgage Trust. Bank of America Corp was sued by the trustee of a $1.75 billion mortgage pool, which seeks to force the largest U.S. bank to buy back all of the loans in the trust because of alleged misrepresentations.
• Fed Should Not Undo Rate Commitment: Kocherlakota. A top Federal Reserve official who dissented from the U.S. central bank's move this month to ease monetary policy further signaled he would drop his opposition. But Minneapolis Fed President Narayana Kocherlakota stopped well short of saying he would support any further easing, and his remarks show he remains firmly on the hawkish wing of the Fed's policy-setting panel. "I see no reason to revisit the decisions of August 2011," Kocherlakota said in remarks prepared for delivery to the National Association of State Treasurers in Bismarck, North Dakota. "I believe that undoing this commitment in the near term would undercut the ability of the Committee to offer similar conditional commitments in the future, and this ability has certainly proved very useful in the past three years," Kocherlakota said. "So, I plan to abide by the August 2011 commitment in thinking about my own future decisions." Kocherlakota, whose turn to vote on the Fed's policy-setting Federal Open Market Committee runs through the end of this year, stopped short of promising not to dissent on future Fed decisions, however, saying that "the case for any additional easing would have to be made on its own merits." He expects the Fed's preferred gauge of inflation, core PCE (personal consumption expenditure), to rise to 2.1 percent next year versus an expectation of about 1.3 percent last November. Based on Kocherlakota's remarks, such a decision would be a hard sell for him, unless inflation dropped sharply. Both inflation and inflation expectations are higher, and unemployment is lower and expected to drop further, than last November when the Fed embarked on its most recent round of monetary stimulus, Kocherlakota said. Meanwhile, the U.S. unemployment rate, which was then at 9.8 percent, has dropped to 9.1 percent, and he expects it to fall to below 8.5 percent by the end of next year. While it was still "disturbingly high," he said, the Fed would have been unable to push it lower without boosting inflation above its 2 percent target, which in turn could unmoor inflation expectations and undercut the Fed's ability to keep inflation in check.

Financial Times:

• EFG Eurobank Ergasias SA and Piraeus Bank SA have used the Bank of Greece's Emergency Liquidity Assistance program, citing people familiar with the matter. Eurobank borrowed 3 billion euros, one day after Piraeus Bank secured 2 billion euros in emergency funds.
  

Globe and Mail:

• BYD to Cut Sales Staff by 70%. BYD Co Ltd , a Chinese car maker backed by U.S. billionaire Warren Buffett, plans to cut its sales force by about 70 per cent, a Chinese website said on Tuesday, after the company reported a nearly 90-per-cent drop in first-half earnings.

People's Daily:

• US Fed Chair May Face Tough Sell on Quantitative Easing.