Today's Headlines

Bloomberg:

• ECB Dealt Blow as Board Member Stark Resigns. Juergen Stark resigned from the European Central Bank’s Executive Board after protesting the bank’s bond purchases on a conference call earlier this week, said a euro-area central bank official familiar with the meeting. During the Sept. 4 call, Stark, 63, expressed his strong opposition to the program, which was expanded last month when the ECB started buying Italian and Spanish bonds, said the official, who spoke on condition of anonymity because the discussions are confidential. Stark was supported by the central banks of Austria and the Netherlands, the person said. The resignation of Stark, the ECB’s chief economist, is a blow to the bank, the official said, noting he is the second German ECB member after Axel Weber to leave over the bond program. Stark’s resignation, less than two months before President Jean-Claude Trichet’s term ends, suggests policy makers are increasingly split over the best way to fight Europe’s debt crisis. The ECB’s bond purchases have also been opposed by Bundesbank President Jens Weidmann and his predecessor Weber, who earlier this year pulled out of the running to succeed Trichet. “There is quite a severe row going on,” said Juergen Michels, chief euro-region economist at Citigroup Inc. in London. “It seems that it went too far.”
• Bank, Sovereign Bond Risk Surge to Records on Greek Debt Woes. The cost of insuring European financial and sovereign debt rose to records after Juergen Stark said he will resign from the European Central Bank’s Executive Board and Greece’s debt woes deepened. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers increased 26 basis points to 290, according to JPMorgan Chase & Co. at 4:30 p.m. in London. The gauge, which is up from 246 basis points Sept. 2, is heading for the biggest weekly increase since March 2009. Swaps on Greece soared 701 basis points to a record 3,727 basis points, signaling a 94 percent probability of default, according to CMA. “A Greek default could accelerate the bank deleveraging process,” said Alberto Gallo, a strategist at Royal Bank of Scotland Group Plc in London. “Balance sheet losses and rising risk premia could force banks and investors to sell other assets. In an illiquid market, this could be a fire-sale.” The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 11 basis points to 333.5 basis points. The Euribor-OIS spread, a measure of banks’ willingness to lend to each other, widened to 82.3 basis points in London, the highest since March 2009 and up from 73.95 basis points yesterday. The premium European banks pay to borrow in dollars for one year through the swaps markets increased to the most since December 2008. The cost of converting euro-based payments into dollars, as measured by the one-year cross-currency basis swap, fell 7.1 basis points to 66.3 basis points below the euro interbank offered rate, or Euribor, indicating a higher premium to buy the greenback, according to data compiled by Bloomberg. Swaps on Portugal climbed 60 basis points to 1,126, Ireland rose 20 to 856 and Italy was up 24 at 458, CMA prices show. An index of credit-default swaps on banks’ subordinated debt jumped 47 basis points to an all-time high of 520 basis points. Swaps on the senior debt of Italy’s biggest lender UniCredit SpA increased 20 basis points to 260 and Germany’s WestLB AG rose 25 to 375, according to CMA. An increase signals deteriorating perceptions of credit quality. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 54 basis points to 769. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 17 to 191. Swaps on Porsche Automobil Holding SE jumped 50 basis points to 247, CMA prices show.
• Euro Falls to Six-Month Low on Concern Greece Considers Default. The euro declined to a six-month low against the dollar and yen rallied on concern Greece’s deteriorating financial condition may lead to default, deepening the region’s debt crisis. The yen strengthened against the dollar and the euro, erasing earlier losses, as investors sought the Japanese currency as an alternative to the U.S. currency. The 17-nation euro weakened amid speculation the region’s central bank will dilute a proposal to wean distressed banks off its emergency funding, said a euro-area official familiar with the deliberations. The Dollar Index headed for the biggest weekly gain since May 2010. “There is a lot of chatter right now that Greece may default over the weekend,” said Charles St-Arnaud, a foreign- exchange strategist at Nomura Holdings Inc. in New York. “A lot of investors are reducing their exposure and trying to find cover in case something happens over the weekend. The euro depreciated 1.7 percent to $1.3648 at 11:55 a.m. in New York, after dropping to $1.3643, the lowest level since Feb. 22. The currency has slumped 3.9 percent this week, the most since the period ended August 2010.
• Interest-Rate Swap Spreads Climb as Europe Debt Crisis Deepens. Two-year interest-rate swap spreads, a gauge of fear in the debt markets, rose to the highest since July 2010 as the cost to protect European financial and sovereign debt surged. The difference, or spread, between the two-year swap rate and the comparable-maturity Treasury note yield climbed 3.13 basis points to 34.32 basis points as of 12:02 p.m. in New York. The measure has climbed from 23.37 since the end of July as investor concern has mounted that Europe’s fiscal imbalances will spread and harm bank balance sheets. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers increased 18 basis points to 282, according to JPMorgan Chase & Co. at 2:30 p.m. in London. The gauge, which is up from 246 basis points Sept. 2, is heading for the biggest weekly increase since March 2009. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed six basis points to 328.5.
• Greece Must Cut Debt or 'Probably' Exit Euro, Flaherty Says. Greece may have to leave the euro if it fails to press ahead with its budget-cutting plans, Canadian Finance Minister Jim Flaherty said. "It's necessary for the Greek government to stay the course," Flaherty told reporters in Marseille, France, where he is attending a meeting of Group of Seven officials. "The alternative is probably that they leave the euro. I expect the Greek government would want to continue their fiscal consolidation."
• Greece Says No Plan to Publish Debt-Swap Numbers Either Today or Next Week. Greece has no plans to publish details of anticipated participation in its debt-swap program this week or next, said Petros Christodoulou, head of the country’s debt management office. The response so far has been “very positive,” he said in a telephone interview. “There will not be a number coming out of Athens today or next week. At this moment, more than half of the Europeans have not even responded. It is too early.” Credit-default swaps insuring Greek government bonds jumped 701 basis points to a record 3,727 basis points, according to CMA. The five-year contracts signal there’s a 94 percent probability the country won’t meet its debt commitments.
• Treasury 10-Year Yield Falls to Record on Greece Default Concern. Treasuries rallied, pushing 10-year note yields to a record low, as concern Greece may default this weekend stoked demand for a refuge from Europe’s deepening sovereign-debt crisis. Benchmark 10-year government securities headed for a second weekly gain as German Chancellor Angela Merkel’s government prepared plans to shore up the nation’s banks in the event that Greece fails to meet the terms of its aid package and misses a payment on its debt. “Fear is driving everything right now,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “People are nervous about Greece defaulting this weekend. That’s why you’re getting this kind of jump in the market.” Yields on 10-year notes dropped six basis points, or 0.06 percentage point, to 1.92 percent at 12:21 p.m. in New York, according to Bloomberg Bond Trader prices.
• Crude Oil Declines Most in Three Weeks as Dollar Rises on Greek Debt Woes. Oil dropped the most in three weeks in New York as the euro tumbled against the dollar on concern that Greece’s deteriorating debt crisis will lead to a default.Oil fell as much as 3.8 percent after Europe’s single currency declined to a six-month low and European bank and sovereign credit risk surged to all-time highs. A plan for jobs growth announced yesterday by President Barack Obama failed to boost confidence in the U.S., the world’s largest economy. “The concerns out of Europe and the positive relationship between oil prices and the euro are the catalyst,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania. “The euro is getting crushed and putting pressure on all our markets right now.” Crude for October delivery dropped $2.35, or 2.6 percent, to $86.70 a barrel at 1:18 p.m. on the New York Mercantile Exchange. The decline was the largest since Aug. 18. Prices are up 0.3 percent this week and down 5.2 percent this year.
• Copper Tumbles Most in a Month as Obama, Bernanke Fail to Boost Confidence. Copper tumbled the most in a month as President Barack Obama and Federal Reserve Chairman Ben S. Bernanke failed to boost investor confidence in the economy. Global equities dropped as Bernanke stopped short of detailing new plans to boost growth in the world’s largest economy in a speech yesterday, making no reference to further asset purchases by the central bank. Obama called on Congress to pass a plan that would inject $447 billion into the economy. The U.S. is the world’s biggest copper consumer after China. “Obama’s plan is just not convincing enough,” Matthew Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview. “Bernanke also disappointed investors. A lot of risk assets are lower. We will have more downside in the copper market.” Copper futures for December delivery declined 14.1 cents, or 3.4 percent, to close at $4.0025 a pound at 1 p.m. on the Comex in New York, the biggest loss since Aug. 8. The metal slumped 3 percent for the week, the first decline in three weeks.
• Shanghai Stocks Fall as Slowing Output Growth Deepens Concerns on Economy. China’s stocks fell, dragging the benchmark index to a second weekly decline, as slowing industrial output growth overshadowed a report showing inflation eased from a three-year high. Anhui Conch Cement Co., the biggest cement producer, slid to the lowest since January after industrial output rose 13.5 percent in August, compared with economists’ estimate of 13.7 percent. Citic Securities Co. led gains for brokerages on speculation they will benefit from a plan allowing yuan funds in Hong Kong to invest in mainland stocks. “The inflation controls have curbed industrial growth,” said Richard Chen, a strategist at Jianghai Securities Co. in Shanghai. “This will hurt the outlook for companies’ earnings as tightening measures won’t ease in the near term. Investors are selling into rallies as concerns over the economic slowdown may drag the index lower.” The Shanghai Composite Index lost 1.2 point, or 0.1 percent, to 2,497.75 at the 3 p.m. close, extending a weekly loss to 1.2 percent. The Shanghai gauge has slumped 11 percent this year as the central bank raised interest rates five times and ordered lenders to set aside more cash as deposit reserves 12 times since the start of 2010 to tame inflation.
• NYC Police Search Trucks on 9/11 Threat. New York police increased security, including vehicle checkpoints in midtown Manhattan and armed guards in front of the Office of Emergency Management, after receiving credible information that terrorists may be plotting an attack in the city around the Sept. 11 anniversary.
• Banks May Fight Banks as Mortgage Securities Investors Try for Class Suits. Banks including JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) may pay more to resolve claims over their alleged roles in the collapse of a $2.3 trillion mortgage- backed securities market if sophisticated investors are allowed to sue as a group along with less savvy ones.
• McDonald's(MCD) August Same-Store Sales Gain 3.5%, Trailing Analysts' Estimates. McDonald’s Corp. (MCD), the world’s largest restaurant chain, reported August same-store sales that trailed analysts’ estimates as U.S. consumers restrained spending and Hurricane Irene hurt traffic on the East Coast. Sales at stores open at least 13 months rose 3.5 percent, the Oak Brook, Illinois-based company said today in a statement. Analysts projected a gain of 5 percent, the average of seven estimates compiled by Bloomberg. U.S. sales advanced 3.9 percent, missing analysts’ estimates for a 4.5 percent gain.

Wall Street Journal:

• Stark's Sudden Departure Hits ECB Hard. To lose one central banker may be a misfortune. To lose two looks like carelessness. The resignation of Juergen Stark from the executive board of the European Central Bank marks more clearly than ever the loss of German faith in the ECB’s actions to stem the debt crisis.
• Germany, France Press EU on Transaction Tax. France and Germany on Friday urged the European Commission to present its proposals on a financial-transactions tax as soon as possible and to leave for later the politically sensitive question of how to use the revenue generated by the tax. In a joint letter to Tax Commissioner Algirdas Semeta, German Finance Minister Wolfgang Schäuble and his French counterpart, François Baroin, said the tax should be broadly based and "technically simple," covering transactions in bonds, equities, foreign exchange and derivatives.

Fox Business:

• BofA(BAC) CEO Still on Thin Ice. Bank of America (BAC) Chief Executive Brian Moynihan may be solidifying his power by firing top executives and streamlining operations, but he still has some skeptics on his board of directors--several of whom continue to question his ability to lead the big bank out of its current financial problems, sources tell the FOX Business Network.

CNBC.com:

• Dood-Frank is a Big Job Creator - For Lawyers.

Business Insider:

• A Look at Some Ugly Commodity Hedge Fund Returns.
• Here's What Hedge Funds Have to Say About Your Little Swiss Intervention.
• Here's Why Everyone's Thinking That Greece Might Default This Weekend.
• Meet The F-16 Pilot Who Went On A Kamikaze Mission To Bring Down The Fourth Hijacked Plane.
• Barry Eichengreen: Europe's On The Verge Of A Political Breakdown.
  

Zero Hedge:

• As Greece Denies, Germany Begins Greek Default Preparations.
• Things in Europe Go From Bad To Worse as Germany's FDP Party Seeks Referendum Over EFSF.
• European Liquidity at Worst Level in Years. (graphs)
  

ABC News:

• Energy Department Officials Sat in On Solyndra Meetings. Federal agents have expanded their examination of the now-bankrupt California solar power company Solyndra, searching the homes of the company's CEO and two of its executives, examining computer files and documents, iWatch News and ABC News have learned.

Financial News:

• Huge Equities Exposures Sting Hedge Funds. US hedge funds entered August with their highest exposure to equities since 2007, according to figures that shed light on the story behind the biggest one-month loss for equities hedge funds in almost three years.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 19% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -24 (see trends).

Reuters:

• Rabobank Accused of Libor Manipulation by U.S. Investors. Dutch cooperatively-owned Rabobank has been accused by some U.S. investors along with 15 other banks, of manipulating Libor interest rates in the past, bank spokesman Hendrik Jan Eijpe said on Friday.
• Economic Growth Gauge Ticks Up, Annualized Rate Falls: ECRI. A measure of future U.S. economic growth ticked higher in the latest week, but the annualized growth rate fell to its lowest level in nearly a year, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 123.0 in the week ended Sept 2 from 122.4 the previous week. That was originally reported as 122.5. It was a three-week high for the leading index. But the index's annualized growth rate tumbled to its lowest level since late October 2010, falling to minus 6.2 percent from minus 4.4 percent a week earlier.
• Fed's Bullard Says Hard to Coordinate Central Bank Policy. Closer coordination of monetary policy among the world's major economies is unlikely, even in times of crisis, St. Louis Fed President James Bullard said in an interview with Canadian television on Friday.

Telegraph:

• Debt Crisis Live. Rolling coverage of the rollercoaster in financial markets as the eurozone and US come under increasing pressure to deal with high debt levels and stave off another recession.

Handelsblatt:

• The German government needs to take action against the European Central Bank after the resignation of executive board member Juergen Stark, the financial affairs spokesman for the coalition free Democrats, Frank Schaeffler, said. "After the exit of Axel Weber, this is another heavy blow for the ECB and the euro," Schaeffler said, adding that Germany must finally take action against continued violations at the ECB regarding its controversial bond buyback program.

Xinhua:

• The global debt crisis may affect China through several channels including finance, trade and investment, citing Huang Libin, an official from China's Ministry of Industry and Information Technology.