Tuesday, September 20, 2011

Today's Headlines

Posted by Gary .....at 3:07 PM

Bloomberg:
  • Greek Default Would Hit German Banks and Taxpayers. Germany’s bad banks, backed by the state to prevent the collapse of Hypo Real Estate Holding AG and WestLB AG during the credit crisis, would be the hardest hit in the event of a Greek default, leaving taxpayers to shoulder the bill a second time.
  • Italy Bonds Fall a 2nd Day on Downgrade, Greek Default Concern. Italian bonds fell for a second day after Standard & Poor’s cut the country’s credit rating and Greece prepared for further talks with its main creditors to avoid a default. Italian debt declined even as the European Central Bank was said to be buying the securities. The Italian 10-year yield rose nine basis points to 5.68 percent at 12:44 p.m. in London. The two-year yield climbed 10 basis points to 4.29 percent. Portugal’s 10-year yield increased 40 basis points to 11.66 percent, the biggest increase since Sept. 5 when it jumped 51 basis points. The extra yield, or spread, that investors demand to hold Italian 10-year bonds instead of similar-maturity German bunds widened nine basis points to 388 basis points.
  • German, Italian Credit Swaps Hit Records as Debt Crisis Deepens. The cost of insuring against a default on German and Italian government surged to records as Italy's downgrade signaled Europe's debt crisis is spreading. Credit-default swaps protecting Germany's bonds rose four basis points to a record 94 as of 4 p.m. in London, while contracts tied to Italy jumped 25 basis points to 513, according to CMA. Swaps on France increased five basis points to 186, and Spain was up 12 to 417 basis points. The Markit iTraxx SovX Western Europe Index of credit- default swaps on government debt was at 344 basis points at 14:35 in London, based on the price of latest series of the gauge that started trading today. That compares with 340 basis points on the previous series yesterday. The Markit iTraxx Crossover Index of credit-default swaps on 50 European companies with mostly high-yield credit ratings cost 795 basis points, according to JPMorgan Chase & Co. That compares with 747 basis points on the previous series, linked to 40 companies, at the close of trading yesterday. The Markit iTraxx Europe index of 125 companies with investment-grade ratings cost 185.25 basis points, compared with 186.75 yesterday. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers cost 291 and the subordinated index cost 495 basis points.
  • European Banks' Dollar Funding Costs Surge Amid Italy Downgrade. The cost for European banks to fund in dollars surged after Italy’s first ratings downgrade in five years stoked concern lenders will lose money on their euro- region sovereign debt holdings.The cost of converting euro payments into dollars, measured by the three-month cross-currency basis swap, was 99 basis points below the euro interbank offered rate at 3:15 p.m. in London, from 92 basis points yesterday, according to data compiled by Bloomberg. The cost was 112.5 basis points under Euribor on Sept. 12, when the swap was the most expensive since December 2008. The cost of one-year dollar funding also climbed, with the cross-currency basis swap for that period at 71 basis points less than Euribor, compared with 66 yesterday, Bloomberg data show. The difference widened to as much as 75 basis points a week ago. “It’s all about banks, the critical thing is trying to manage the euro crisis without it crashing the banks,” said Bill Blain, co-head of strategy at broker Newedge Group in London. “We’ve seen before that, when confidence goes in banking, it goes very quickly.” The Euribor-OIS spread, the difference between the three- month euro interbank offered rate and overnight index swaps, was at 79.9 basis points, from 79.7 yesterday, Bloomberg data show. That’s within five basis points of the highest level since March 2009, reached Sept. 12.
  • More Banks May Need Recapitalization, EU's Almunia Says. European governments may have to inject funds into more banks if they're unable to get the region's sovereign-debt crisis under control, European Union Competition Commissioner Joaquin Almunia said. “More banks may need to be recapitalized,” Almunia said today at a press conference in Brussels. “That's why it's so important to solve the sovereign-debt crisis without a delay,” or “the bill will only grow bigger,” he said.
  • EU Lawmakers, Governments Fail to Reach Deal on Naked CDS Law. European Union governments and lawmakers have failed to reach agreement on an EU law to curb sales of so-called naked credit-default swaps for sovereign debt at a two-hour meeting today. Representatives of Poland, which holds the rotating presidency of the EU, and the European Parliament were unable to reach a deal on how to limit trading in naked CDS, Sharon Bowles, chairwoman of the parliament’s economic and monetary affairs committee, said in a telephone interview.
  • Investors have more than tripled the amount of insurance on Australian government debt through credit-default swaps, amid a drop in property prices and concern China will slow purchases of iron ore and coal. Net notional Australian government debt covered by credit-default swaps surged in the past year, outpacing increases for contracts on U.S., French and German notes, according to the Depository Trust & Clearing Corp. 5-year default swap contracts on the Australian sovereign climbed 20 basis points this quarter to 77 basis points as of Sept. 19, and last month reached the most expensive relative to U.S. government bond protection since May 2009, CMA data show.
  • Gold Rises on European-Debt Concerns, Bets Fed Will Add to U.S. Stimulus. Gold futures rose as European debt concerns and prospects for more steps by the Federal Reserve to bolster the U.S. economy spurred demand for the precious metal as an alternative investment. Gold futures for December delivery gained $23.60, or 1.3 percent, to $1,802.50 an ounce at 10:13 a.m. on the Comex in New York. Before today, gold gained 25 percent this year, outperforming global equities and Treasuries. The metal reached a record $1,923.70 on Sept. 6.
  • $16 Muffins Found at U.S. Meetings. U.S. Justice Department agencies spent too much for food at conferences, in one case serving $16 muffins and in another dishing out beef Wellington appetizers that cost $7.32 per serving, an audit found. “Some conferences featured costly meals, refreshments, and themed breaks that we believe were indicative of wasteful or extravagant spending,” the Justice Department’s inspector general wrote in a report released today.
  • IMF Cuts Global Growth Estimate. The International Monetary Fund cut its forecast for global growth and predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal plan. The world economy will expand 4 percent this year and next, the IMF said today, compared with June forecasts of 4.3 percent in 2011 and of 4.5 percent in 2012. The U.S. growth projection for 2011 was lowered to 1.5 percent from 2.5 percent in June. “Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing,” the IMF said in its World Economic Outlook report today.
  • Obama $8 Billion Solar Betamax Bet Unwinds. The U.S. government’s $8 billion bet on solar energy that would pave the deserts with mirrors risks following the Betamax into the technological wilderness because of Chinese backing for a cheaper system. The Department of Energy guaranteed loans to six plants that will reflect sunlight to boil water for making electricity, aiming to kick-start commercial projects. Four of those, and a third of $26 billion pipeline encouraged by U.S. aid, may switch to standard photovoltaic panels that generate a charge directly from the sun, said Brett Prior, a solar analyst at GTM Research. The cost of generating power with panels plunged about 37 percent in the past year as Chinese factories cut prices, pushing three U.S. makers including Solyndra LLC into bankruptcy protection in the past quarter. Solar Millennium AG (S2M) walked away from a $2.1 billion U.S. loan guarantee last month and ditched thermal devices for a cheaper photovoltaic system. “If Solar Millennium, a major developer that has the technology, can’t do it with a loan guarantee, then it’s not clear who could,” Prior said in a phone interview from Boston. While the developers of some of the U.S. guaranteed projects said they are sticking with mirror-based devices, a switch by others will drain momentum for the technology and shift engineering jobs President Barack Obama aims to create in the southwestern U.S. to the panel plants of eastern China.
  • China's Policies Fueling 'Growing Frustrations," Locke Says. U.S. Ambassador to China Gary Locke said the Asian country’s business climate is leading to “growing frustrations” among business and government leaders abroad, planting “seeds of doubt” in the minds of investors. “There is a gap between the goals China identified in its five-year plan and the steps it is taking to achieve them,” Locke told U.S. business executives in Beijing.
  • Brazil Inflation Quickens More Than Expected After Rate Cut. Brazilian consumer prices jumped more than economists expected this month, limiting the central bank’s space to further cut interest rates to shore up growth in Latin America’s biggest economy. Yields on interest-rate futures rose. Consumer prices, as measured by the IPCA-15 index, rose 0.53 percent in the month through mid-September, the national statistics agency said today. That’s the fastest pace since May and steeper than 40 of 41 economists expected in a Bloomberg survey whose median forecast was for a 0.49 percent price rise. “Inflation has quite a lot of pressure and there’s no sign that the global slowdown is affecting the domestic scenario,” said Luciano Rostagno, chief strategist at CM Capital Markets in Sao Paulo. “The chances of inflation cooling down this month as the bank has been saying is less and less likely.” Inflation doubled this month from the 0.27 percent reading in mid-August, led by a 1 percent jump in clothing prices and 0.72 percent increase in the cost of food and beverages, the statistics agency said. Prices rose 7.33 percent from a year ago, the fastest pace in six years. Inflation first breached the 6.5 percent upper limit of the government’s target range in May.
Wall Street Journal:
  • Swiss Franc Tumbles as Market Eyes Possible SNB Moves. Widespread market speculation that Switzerland may adopt new measures to prevent its currency from inflicting further damage on its export sector sent the franc sharply lower Tuesday, with the move momentarily distracting traders from Europe's ongoing sovereign-debt problems.
CNBC.com:
 Business Insider:
 Zero Hedge:
 Reuters:
Telegraph:
  • Rio Tinto(RTP) Warns of Slowing Markets. Worries about the health of the world’s developed economies mean commodities markets have deteriorated since the start of the year, Rio Tinto, the world’s second biggest mining group, warned.
Guardian:
China Finance:
  • China can't force the economy to grow rapidly as it will result in problems including large debt, asset bubbles and inflation, Xiong Lu, a researcher with the central bank's financial research center, wrote in a commentary.

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