Tuesday, September 06, 2011

Tuesday Watch

Posted by Gary .....at 1:01 AM

Weekend Headlines
Bloomberg:
  • Merkel's Euro Debt Crisis Gambit Ends in Election Defeat in Her Home State. German Chancellor Angela Merkel’s party suffered its fifth election loss this year after she failed to sway voters in her home state with a campaign based on her handling of the euro-area debt crisis. The Social Democrats, the main opposition party nationally, took 35.7 percent to win yesterday’s election in Mecklenburg- Western Pomerania, preliminary results show. Merkel’s Christian Democratic Union had 23.1 percent, its worst tally since voting began in the state in 1990 after reunification that year between West Germany and the former communist East Germany. The result in the eastern state where Merkel’s election district is located means her national coalition has been defeated or lost votes in all six German state elections so far this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts. “Merkel’s problem is that she fails to generate confidence in her policies and those of her coalition partner,” Gero Neugebauer, a political science professor at the Free University in Berlin, said by phone. “It’s about the consistency of her statements” on bailouts for indebted euro countries.
  • Euro Falls as Merkel Election Defeat, Stock Losses Boost Haven Currencies. The euro weakened for a fifth day versus the dollar after an election loss for Germany’s ruling party stoked concern support is fading for bailouts of Europe’s most-indebted nations, boosting demand for refuge currencies. The Swiss franc rose against all major peers as Greek two- year note yields surged above 50 percent and the cost of insuring Europe’s government bonds from default rose to records. The Dollar Index climbed to a one-month high as economists said U.S. data tomorrow will show service industries slowed, adding to signs global growth is weakening. The yen gained versus the euro after German Chancellor Angela Merkel’s Christian Democratic Union was defeated in the election in her home state. “Another state that Merkel’s CDU has failed to secure in the vote, that’s six now in total, has spurred some euro selling,” said Lauren Rosborough, a senior strategist at Westpac Banking Corp. on London. “We’ve got risk aversion across the board with dollar buying, Swiss buying, gold a little bit stronger and the euro has been sold off.” The Stoxx Europe 600 Index of shares slumped for a second day, losing 4.1 percent, and gold for immediate delivery rose to as much as $1,903 an ounce. The Social Democrats, Germany’s main opposition party, won yesterday’s election in Mecklenburg-Western Pomerania with 36.1 percent of the vote, while Merkel’s party had 23.3 percent, ZDF television projections showed. The result in the eastern state, where Merkel’s election district is located, means her national coalition has been defeated or lost votes in all six German state elections this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts. “Positioning has turned against the euro again and news flow isn’t helping,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, wrote in an e- mailed note. Merkel’s defeat “simply adds to the sense that saving the euro is going to be made more difficult by opposition from within Germany.”
  • Merkel Said to Tell CDU Members That Greece Must Meet Conditions for Aid. German Chancellor Angela Merkel told members of her Christian Democrats that Greece will not receive aid payments due this month unless it meets conditions of the rescue, two party officials said. The remarks, made at a meeting of ruling party lawmakers in Berlin late yesterday, were repeated by Finance Minister Wolfgang Schaeuble and reiterate existing policy, one of the officials said, speaking on condition of anonymity because the talks were in private. “It was very clear that we expect Greece to meet its obligations, that there can’t be more aid without adequate behavior by Greece,” Peter Altmaier, the chief whip for Merkel’s Christian Democratic Union, told reporters after the talks. “But it was also very clear that we stand by our commitments within the euro stabilization and that we’re ready to maintain and defend the euro as our common currency.” Merkel’s coalition is trying to appease voter anger at government moves to prevent a euro-region breakup by putting more taxpayers’ money on the line. The coalition will introduce a bill in parliament today raising Germany’s share of loan guarantees to 211 billion euros ($297 billion) from 123 billion euros -- two days after Merkel’s CDU suffered its worst-ever result in an election in her home state.
  • Tremonti Rushes to Rome for Austerity Talks as Bonds Plunge. Finance Minister Giulio Tremonti canceled a public appearance in northern Italy to rush to Rome for budget talks as bonds plunged amid concern the government may backslide on its latest austerity package. “The minister received a request to head to Rome immediately to go to the Senate, just as he was coming to Piacenza,” Stefano Rodota, moderator of the conference where Tremonti had been scheduled to speak, announced at the event, which was broadcast live on the Internet. The Senate will begin a debate tomorrow on Prime Minister Silvio Berlusconi’s 45.5 billion-euro ($64 billion) austerity package just as CGIL, the nation’s biggest union, holds a strike across Italy against the measures. “The austerity plan runs the risk of becoming a farce and this weighs on those banks holding lots of government bonds,” Gianmaria Bergantino, a fund manager at Bank Insinger de Beaufort in Rome, said by phone. “As the government doesn’t seem to be responding to the ECB’s requests, investors are starting to price in a further budget adjustment within a month.” The price of the nation’s 10-year bond fell for an 11th day, pushing the yield to 5.57 percent, the highest in more than four weeks. Milan’s stock benchmark FTSE MIB Index closed down 4.8 percent, with UniCredit SpA and Intesa Sanpaolo SpA, Italy’s biggest banks, dropping 7.3 and 7 percent, respectively.
  • Bank, Sovereign Bond Risk Surge to Records as European Debt Crisis Deepens. The cost of insuring against default on European sovereign and financial debt surged to records on concern the region’s debt crisis is worsening. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 18 basis points to 328 at 5 p.m. in London. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers soared 24 basis points to 270, according to JPMorgan Chase & Co. Both gauges are at all- time highs based on closing prices. An election loss for German Chancellor Angela Merkel’s party and reports of a rift between Greece and the International Monetary Fund fueled concern that support for bailing out indebted nations is waning. A senior IMF economist forecast a “hard default” for Greece by March, the Wall Street Journal said, as officials suspended a budget review and Italy backtracked on its austerity pledges. Credit-default swaps on Greece soared 182 basis points to 2,532, according to CMA. Contracts on Italy jumped 44 basis points to a record 446.5, Portugal climbed 46 to 1,026 and Spain rose 28 to 420, while Germany increased 5 to 84 and France was up 14.5 at an all-time high of 186. The yield on 10-year Italian bonds has risen for 11 days, the longest streak since the euro’s 1999 debut. It’s now at 5.55 percent, less than a percentage point away from its level before the ECB started buying the country’s notes on Aug. 8. A U.S. lawsuit over the sale of mortgage-backed securities also undermined confidence in European lenders. Markit Group Ltd’s subordinated financial index jumped 39 basis points to 481, JPMorgan prices show. Default swaps on HSBC Bank Plc increased 10 basis points to 125 and Barclays Plc rose 22 basis points to 252, after both lenders were named in the suit. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 61.5 basis points to 755.5, the highest since July 2009. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 13.25 basis points to 183.25 basis points, the highest since March 2009.
  • Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show. The cost of insuring against default on European corporate debt rose, according to traders of credit- default swaps. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 26 basis points to 720, according to Markit Group Ltd. at 7:30 a.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up six at 171 basis points.
  • Greece's stance in the debt crisis roiling the country "is a provocation," said Rainer Bruederle, parliamentary leader of Germany's Free Democrats, the junior party in Chancellor Angela Merkel's coalition. "You can't just fail to meet your obligations," Bruederle told reporters. Halting Greece's second bailout is "a conceivable reaction" by other euro-area governments, he said.
  • Hermann Otto Solms, the deputy floor leader and finance spokesman of Germany's Free Democratic Party, said European governments should halt financial aid to Greece if the country falls behind on austerity goals. "Greece must keep to the conditions or it just won't get the money," the lawmaker told reporters in Berlin today. That would have to be a "common decision" by euro-area governments, he said.
  • Ackermann Says Market Reminiscent of 2008. Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said conditions in the stock and bond markets are reminiscent of the financial crisis of late 2008. “The ‘new normal’ is characterized by volatility and uncertainty -- not only in respect to market developments, but also in consideration of the future of the financial branch,” Ackermann said today at a conference in Frankfurt organized by Euroforum. “All this reminds one of the fall of 2008, even though the European banking sector is significantly better capitalized and less dependent on short-term liquidity.” The Bloomberg Europe Banks and Financial Services Index of 46 stocks dropped as much as 5.3 percent today, and tumbled 32 percent this year. Deutsche Bank fell 8 percent, the biggest decline in more than two years, by 2:05 p.m. in Frankfurt trading. Many European banks “obviously” wouldn’t be able to shoulder writedowns on sovereign debt held in their banking books based on market values, Ackermann said today. Therefore European governments agreed to financial aid measures for countries, and forcing banks to boost their capital would undermine the credibility of existing support measures, he said. Banks face “a row of challenges” and containing costs is increasingly important when it is hard to boost revenue, Ackermann said. Deutsche Bank would consider additional cost reductions if markets don’t improve from August levels and if the outlook for the investment-banking division remains difficult in the long term, he said. DZ Bank AG Chief Executive Officer Wolfgang Kirsch, speaking at the same conference, said European politicians need to agree on a solution for the sovereign debt crisis to avoid a repeat of the events of 2008. “Otherwise we will enter a very difficult market situation,” Kirsch said.
  • ECB Asked Spain to Cut Deficit, Change Labor Rules, Mundo Says. European Central Bank President Jean-Claude Trichet wrote to the Spanish government asking it to tackle the budget deficit and cut unemployment, El Mundo said. As part of the ECB’s plan to buy Spanish bonds on the secondary market, Trichet asked the government to take steps to prevent the budget deficit overshooting its target of 6 percent of gross domestic product this year, El Mundo reported, without saying where it got the information. He also urged the administration to carry out another overhaul of wage bargaining rules to allow for a deeper correction in Spanish salaries and to make hiring rules more flexible, the newspaper said.
  • Solyndra Says It Did Not Have to Warn Its Workers. The abrupt collapse of solar company Solyndra on Wednesday came without warning - and without WARN, a state and federal law requiring advance notice of a large layoff or shutdown. But the Fremont company most likely was exempt from notifying its 900 full-time and 200 contract workers ahead of time under a loophole in the law, officially known as the Worker Adjustment and Retraining Act. "Because we were actively seeking funding and hoping to avoid this up until the last minute, we didn't file WARN until we knew (that shutdown was inevitable), which was pretty much simultaneous to the announcement," said Dave Miller, a Solyndra spokesman.
  • Swaps on Treasuries Reach Record Low Against Bunds in S&P Denial. U.S. debt rated AA+ is beating AAA German bunds as investors seek the safety of the world’s biggest bond market amid slowing growth and Europe’s financial crisis. Traders are paying $73,840 a year to protect $10 million of Treasuries against default, less than during the height of the financial crisis in 2008 and below the $78,670 for higher-rated German bunds, according to CMA. The difference between prices of the credit-default swaps reached a record $17,370 on Aug. 29, even after Standard & Poor’s cut America’s credit rating. Investors have determined Germany, the largest European economy, is riskier because of rising costs to bail out Greece, Portugal and Ireland.
  • Global Investors Should Brace 'For More Pain' on China Policy, CICC Says. Global investors should brace “for more pain” as manufacturing growth slumps and prospects that Chinese monetary policies will loosen have faded, said China International Capital Corp., Asia’s biggest investment bank. China’s August manufacturing data was one of the lowest since the end of the global financial crisis, while factory output in South Korea, Taiwan, France, Italy, the UK and Sweden all dropped below expansion levels, Hao Hong, a Beijing-based global strategist at CICC, wrote in a report. CICC and Shenyin & Wanguo Securities Co. cut their earnings forecasts for publicly traded companies this year on speculation the central bank may not halt measures to curb credit growth and tame inflation. “Our view has been that rebounds are likely to be fleeting and feeble unless fundamentals start to improve,” Hong said. “For now, we should brace ourselves for more pain.” CICC is the top-ranked China research provider in Asiamoney magazine’s survey while Shenyin & Wanguo was ranked the country’s most influential brokerage for research by New Fortune magazine last year.
  • China Ties Suffer if Arms Sales Confirmed: Libya. Libya’s relations with China will suffer if there is confirmation of a report that Chinese state companies offered to sell Muammar Qaddafi $200 million worth of arms during the rebellion, the North African nation’s new leaders said. “If indeed the Chinese government agreed to sell arms to Qaddafi only a month ago, definitely it will affect our relationship with China,” the National Transitional Council’s finance minister, Ali Al Tarhouni, told Al Jazeera television yesterday. The outcome would be “not favorable,” he said. Tarhouni was speaking in response to a story by Toronto’s Globe and Mail newspaper, whose reporter in Tripoli said he found Qaddafi-government documents suggesting Chinese companies offered to sell to surface-to-air missiles designed to bring down aircraft, in addition to other weapons and munitions. The Arabic-language documents, copies of which were posted on the newspaper’s website on Sept. 4, include details of a trip to Beijing by Libyan security officials to discuss the possible purchase of weapons on July 16, when Libya was six months into the conflict and under a United Nations arms embargo.
  • Crude Oil Extends Drop on Signs of Slowing U.S. Economy, Rising Stockpiles. Oil extended declines in New York as investors speculated that signs of a weakening U.S. economy and increasing crude stockpiles indicate fuel demand will falter in the world’s biggest consumer of the commodity. Futures slid as much as 3.8 percent before a report today that may show service industries grew at the slowest pace in more than a year. Crude supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate oil, rose 2.4 percent on Sept. 1 from Aug. 31, according to DigitalGlobe Inc. London- traded Brent widened its premium to U.S. prices.
  • Gold Trades Within .6% of Record as Debt Concern Boosts Haven Demand. Gold may advance toward a record on speculation Europe’s debt crisis will worsen, damping economic growth and driving investors to protect their wealth. Gold for immediate delivery was little changed at $1,899.70 an ounce as of 10:03 a.m. Singapore time. The metal touched $1,903.48 earlier, within 0.6 percent of the all-time high of $1,913.50 reached Aug. 23. Futures for December delivery in New York were at $1,902.20, up 1.4 percent from their close on Sept. 2.
  • BofA(BAC), JPMorgan(JPM) Among 17 Banks Sued by U.S. for $196 Billion. Bank of America Corp. and JPMorgan Chase & Co. (JPM) were among 17 banks sued by the U.S. to recoup $196 billion spent on mortgage-backed securities bought by Fannie Mae and Freddie Mac. The Federal Housing Finance Agency, on behalf of Fannie Mae and Freddie Mac, filed 17 lawsuits yesterday in New York state and federal courts and in federal court in Connecticut. The FHFA accuses the banks of misleading Fannie Mae and Freddie Mac about the soundness of the mortgages underlying the securities. “The loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the enterprises for those securities,” the FHFA said in a statement.
  • RBS Leads Europe Banks Lower on U.S. Mortgage Suit, Liquidity Speculation. Royal Bank of Scotland Group Plc (RBS) led European banks lower, dropping the most in more than two years after 17 lenders were sued by the U.S. over the sale of mortgage-backed securities and on investor concern over interbank lending. RBS, Britain’s biggest government-owned lender, fell 12 percent to 21.78 pence in London, the sharpest decline since May 2009. Other European lenders also fell including Barclays Plc (BARC), down 6.7 percent to 154.15 pence and Deutsche Bank AG (DBK) retreated 7.5 percent to 23.82 euros.
  • Solarworld in Renewable Energy 'War' With China, Closing California Factory. Solarworld AG (SWV), Germany’s largest module maker, plans to close a factory to cut costs and compete against Chinese manufacturers that its chief executive officer says are subsidized by the state. Solarworld will shutter a California manufacturing plant and some production lines in Germany, the Bonn-based company said yesterday in a statement. The move was needed to increase efficiency and reduce costs as Chinese rivals have helped drive down the price of solar cells by 42 percent this year, CEO Frank Asbeck said.
  • US Taxpayers Rank Behind Solyndra Investors. The Obama administration let $385 million in taxpayer support for Solyndra Inc. take a back seat to funds from new investors in an unsuccessful effort to keep the solar-panel manufacturer operating. The Energy Department decided the January refinancing represented the “highest probable net benefit” for the government, according to a government document obtained by Bloomberg News. Investors provided the company $75 million that became senior debt, ahead of all but $150 million of the federal government’s stake. Solyndra said on Aug. 31 that it will file for bankruptcy reorganization next week in Wilmington, Delaware. The administration’s agreement to subordinate the government aid to new investment may add fuel to criticism by Republicans who have said President Barack Obama spent too much money pushing a favored company in the name of green energy.
  • California Employment at Record Low 55.4% as Fewer Women Find Jobs. The percentage of working-age Californians with jobs has fallen to a record low, and employment may not return to pre-recession levels until the second half of the decade, according to a research group. Just 55.4 percent of working-age Californians, defined as those 16 or older, had a job in July, down from 56.2 percent a year earlier and the lowest level since 1976, the Sacramento- based California Budget Project said in a report released late yesterday. California’s 12 percent unemployment rate in July, the nation’s second-highest after Nevada, compared with 9.1 percent nationwide.
  • Funds Increase Bullish Agriculture Bets on 'Explosive' Supply Constraints. Funds increased bullish bets on agricultural commodities by the most in more than a year on signs of tightening supplies amid adverse weather conditions. In the week ended Aug. 30, speculators raised their net- long positions in 11 commodities by 18 percent to 915,341 futures and options contracts, government data compiled by Bloomberg show. That was the biggest gain since Aug. 3, 2010. Holdings in wheat more than tripled, bullish corn bets reached an 11-week high, and soybean positions jumped to the highest since November 2010. Corn prices have jumped 70 percent in the past year and soybeans have gained 43 percent.
  • Leveraged Buyout Loans in Europe Lose Most Since Greek Bailout. Leveraged loans in Europe posted their biggest loss since Greece was first bailed out as the region’s slowing economy spurred selling of riskier assets. Loans used to fund leveraged buyouts ended August down 3.1 percent from the end of July, at an average of 88.3 percent of face value. That’s the biggest monthly drop since May 2010, when Greece got the first of two bailout packages for 110 billion euros ($155 billion) and loans dropped 3.8 percent, according to data compiled by Markit Group Ltd.
  • CEOs Cutting Estimates Fall 38% With Cheapest S&P 500 Since '85. The number of chief executive officers cutting profit forecasts fell 38 percent below average last month, even as the slowing economy pushed valuations to the lowest level at the start of September since 1985. A total of 138 companies reduced earnings forecasts in August, compared with the average of 221 for the same month since 2000, according to data compiled by Bloomberg. At the same time, the Standard & Poor’s 500 Index slumped 5.7 percent, pushing its price-earnings ratio to 13.3, the data show. For bears, the lowest multiples since March 2009 show companies will capitulate and lower their estimates, causing the benchmark index for American equities to fall this month, historically the worst for U.S. stocks, according to Bloomberg data since 1928. Bulls say CEOs are the better gauge and that lower multiples, combined with expectations for 15 percent earnings growth this quarter, will make stocks irresistible.
  • Carbon Cap Revival Led by Gillard Called Stupid by Xstrata. Julia Gillard, determined to join efforts to reduce global warming, intends to revive cap and trade as Europe puts curbs on the United Nations-run emissions credit market and the U.S. opts out entirely. The Australian prime minister’s plan to make factories and utilities either cut the nation’s greenhouse gases or pay for pollution-curbing programs abroad may force companies to buy an average 66 million metric tons of credits a year starting in 2015, sending prices up 29 percent, according to Bloomberg New Energy Finance. That’s about two-thirds of Europe’s annual demand since 2008. By pushing Australia into carbon trading, Gillard is seeking to satisfy Greens party members of her Labor-led coalition while breathing new life into a market that’s floundering elsewhere. The European Union is setting limits on UN credits to draw in less-developed nations. The U.S. rejected a federal cap-and-trade program for emissions last year.
Wall Street Journal:
  • Europe Signals Global Gloom. International financial markets tumbled as a darkening global economic outlook and deepening fissures in Europe over its debt crisis fueled fears the world economy could slip into a period of prolonged malaise. The Stoxx Europe 600 index fell 4.1% Monday, with banks hard hit.
  • U.S. Eyes Covert Plan to Counter Iran in Iraq. Military commanders and intelligence officers are pushing for greater authority to conduct covert operations to thwart Iranian influence in neighboring Iraq, according to U.S. officials. The move comes amid growing concern in the Obama administration about Iran's attempts in recent months to expand its influence in Iraq and the broader Middle East and what it says is Tehran's increased arms smuggling to its allies.
  • A Battered Firm's Long Road Back. Keefe Bruyette Has Strong Revenue and a Wall Street Niche, but It Still Lives With the Painful Memories of Sept. 11.
  • Immelt and GE(GE), 10 Years In. If Jeff Immelt could pick a period that captures his vision for General Electric Co., the fourth week in August might do: GE signed an electricity joint venture in China, the conglomerate's airplane jet-engine partnership won $2.2 billion in orders from a U.S. airline and the company at a ceremony in Brazil said it was extending its Olympics sponsorship. The part he might want to leave out: GE's stock ended that week in August down 15% from the start of the year and 61% lower than when he took over as chairman and chief executive.
CNBC:
Business Insider:
 Zero Hedge:
NY Times:
  • U.S. Is Appealing to Palestinians to Stall U.N. Vote. The Obama administration has initiated a last-ditch diplomatic campaign to avert a confrontation this month over a plan by Palestinians to seek recognition as a state at the United Nations, but it may already be too late, according to senior American officials and foreign diplomats.
  • Postal Service Is Nearing Default as Losses Mount. The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances. “Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.” In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year.
NY Post:
  • New Yorkers Moving to Charlotte for Charm, Lower Taxes. "The cost of living in New York is extremely high right now, while the cost of living in Charlotte is 93 percent -- 7 percent lower than national average -- where in New York City it is 140 percent, or 40 percent over the national average," Watkins said.
Forbes:
The Detroit News:
  • UAW's Williams: Be Grateful for Auto Bailout. Speaking at the annual Labor Day march, Williams called on the president to forget about the debt ceiling and start putting Americans back to work. "We don't care about the debt," he said. "Spend it."
Institutional Investor:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 20% 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 -23 (see trends).
Reuters:
  • China should continue to be on high alert against price increases, citing Ma Delun, a deputy governor of the People's Bank of China. Inflation may remain high in the near futures, Ma said.
  • Former German Leader Calls for 'United States of Europe'. Former German chancellor Gerhard Schroeder on Sunday called for the creation of a "United States of Europe", saying the bloc needed a common government to avoid future economic crises. Schroeder, a Social Democrat who ran the country from 1998 to 2005, said in an interview with Der Spiegel that European Union leaders were wrong to expect the euro to drive the bloc on its own. "The current crisis makes it relentlessly clear that we cannot have a common currency zone without a common fiscal, economic and social policy," Schroeder said. He added: "We will have to give up national sovereignty." "From the European Commission, we should make a government which would be supervised by the European Parliament. And that means the United States of Europe."
  • Pension Funds in New Crisis as Deficit Hole Grows. Pension funds in developed economies are facing a new crisis as falling equities and tumbling bond yields widen their deficits, threatening the incomes and retirement dates of future retirees. At the heart of their problems is a steady move by pension plans in the United States, euro zone, Japan and the UK to cut exposure to risk after the financial crisis. But this "de-risking" may end up depressing their long-term returns from stock market investment and challenge the conventional wisdom that shares generate higher returns than bonds. With weaker holdings and increased liabilities, companies will find it more difficult to fund existing pension schemes. They may cut new business investments as they use more cash to pay pensions. For future pensioners, it means they will potentially face a lower retirement income and a longer working life -- or both.
Financial Times:
  • Fed 'Hawk' Says Stimulus Will Only Hit Inflation. Further monetary stimulus from the US Federal Reserve would raise inflation without doing much to lower unemployment, one of the central bank’s leading ‘hawks’ on monetary policy said in an interview with the Financial Times. “My sense is that more monetary stimulus at this point would likely show up almost entirely in higher inflation with very little constructive influence on growth,” said Jeffrey Lacker, president of the Richmond Fed.
  • Hedge Funds Fail to Use Fitful Markets. Hedge funds found themselves once more in the firing line in August, with authorities pointing the finger of blame in their direction during periods of stress. But it should be investors who are venting their anger at the dismal performance of strategies supposed to benefit from volatile market conditions.
The Independent:
  • Banks Suffer as Eurozone Crisis Triggers Fresh Market Slump. Growth worries and concerns about a US sub-prime lawsuit add to investor fears. Banks were at the centre of another Europe-wide stock market sell-off last night as concerns about global growth and the eurozone's debt woes came back to haunt investors. The reversal wiped £49bn off the value of London's blue chips, with the FTSE 100 sliding by 3.6 per cent to 5,102.58. The index was outdone by Germany's DAX, which fell by more than 5 per cent to its lowest level in nearly two years. The French and Spanish markets were 4.6 per cent lighter at the beginning of the week, while the main Italian index fell by 4.8 per cent. Banks bore the brunt of the sell-off as traders fled on fears about the fallout of a US lawsuit over toxic mortgage debt. Royal Bank of Scotland, one of the 17 lenders being sued by a federal regulator over losses on subprime bonds, fell by more than 12 per cent amid speculation about potential damages. Lloyds lost 7.5 per cent of its value.
Sky News:
  • Exclusive: Moody's Poised To Deliver Bank Downgrades. The ratings agency Moody’s is poised to downgrade the creditworthiness of some of Britain’s biggest banks and building societies after a key report on banking reform this month that is set to recommend the imposition of robust firewalls and more stringent capital requirements. I have learned that executives at Moody’s met this week with a number of major UK financial institutions to renew a hint that the Independent Commission on Banking’s (ICB’s) report on September 12 would be followed by a decision to downgrade the credit ratings of some of the 14 lenders whose credit status it is reviewing. These include the state-backed Lloyds TSB and Royal Bank of Scotland (RBS) as well as Santander UK and the Yorkshire Building Society. The potential move by Moody’s – one of the world’s largest ratings agencies – may spark a row with senior British bankers, who argue that Sir John Vickers’ report should not provide a trigger for the agency to announce decisions which they are concerned could have consequences for their ability to fund themselves. An announcement is expected by Moody's before the end of September.
  • The 'greater risk' to Europe's economies, including the U.K., is that they will "bump along the bottom," with several going "in and out of recession," former U.K. Chancellor of the Exchequer Alistair Darling said today.
Der Spiegel:
  • Germany may be required to guarantee at least 250 billion euros of the European rescue fund. The German government has accepted a clause that calls for funds to be increased by 20% if needed. Germany has so far committed to backing the fund with 211 billion euros.
Wirtschaftswoche:
  • The European Central Bank is partly responsible for Italy rolling back some of its budget cuts after its lowered interest costs by buying the country's bonds, Otmar Issing, the ECB's former chief economist, said in an interview. The bond purchases take pressure off governments to consolidate finances and raise the expectations of additional support for debt-strapped countries, citing Issing.
Die Welt:
  • Ninety percent of Germans don't believe the euro-area debt crisis can be solved by means of an expanded European rescue fund, citing a poll by opinion research firm TNS Emnid.
Handelsblatt:
  • The European Commission is planning steps to rein in growing speculation in raw-material markets, citing proposals by financial services commissioner Michel Barnier. Investors and traders should be obliged to "prevent market abuse" and ensure proper pricing of raw materials including wheat, cooking oil and metals, citing a legal blueprint drawn up by Barnier.
Le Soir:
  • Luxembourg's Jean-Claude Juncker, who leads the group of euro-area finance ministers, said Belgium needs structural Economic reforms. Junk said he "wonders" if Belgium's caretaker government can push through such reforms, citing an interview.
  • Luxembuorg's Jean-Claude Juncker, who leads the group of euro-area finance ministers, called for "immediate sanctions" on countries that violate the single-currency zone's Stability and Growth Pact. Juncker said euro-area countries must return to "strict respect" of the pact and should reinforce it by "increasing penalties" on nations that "are at odds with the application of the rules," citing an interview. "We need immediate sanctions," Juncker said. "We're working on that."
Liberation:
  • Five French labor unions agreed to call for a day of protest on Oct. 11 against the government's austerity plan, citing a joint statement by the unions.
NET TV:
  • European Union, International Monetary Fund, and European Central Bank officials are asking Greece to better implement fiscal measures, Elias Plaskovitis, general secretary of the country's finance ministry said. "The troika assigns part of the blame for the recession to inefficient structural reforms," Plaskovitis said. "They are asking for more radical measures and the implementation of reforms."
Interfax:
  • Russia's oil output may reach a record this year, exceeding the 505 million tons produced in 2010, citing Energy Minister Sergey Shmatko.
  • Russian oil companies will invest $19 billion to expand production until 2015, citing energy minister Sergey Shmatko.
The Globe and Mail:
  • The Roots of the Sino-Forest Mystery. Partnering on the deal with Sino-Forest, which would soon obtain a stock market listing in Canada, was the Leizhou Forestry Bureau – an arm of the Chinese government. For Mr. Chan and his co-founder at Sino-Forest, a former Forestry Bureau official in Guangdong named Kai Kit Poon, the Leizhou deal served as a key pillar in the initial stages of building their business. Between 1994 and 1997, Sino-Forest would report $60-million (U.S.) in sales from the venture. There was just one problem: The Leizhou joint venture never produced a single panel, according to a key executive involved in the project. More than 17 years later, things are quickly unravelling for Mr. Chan and Mr. Poon.
Xinhua:
  • China's current price level will take "certain time" to fall, citing a central bank official.
Economic Information Daily:
  • China will take steps to curtail the blind expansion of heavy-energy-consuming and outdated production capacity. The National Development and Reform Commission and 9 other Chines government agencies plan to introduce the measures. They may include increasing punitive electricity fees and resource taxes, setting vehicle fuel-economy standards and creating an accountability system.
Financial News:
  • China's consumer prices likely rose around 6.2% in August, citing analysts. Inflation continues to be the focus of government policy, the central bank-run newspaper said. Managing liquidity should remain the central bank's priority, the report cited Wang Yong, a professor at the Zhengzhou Training Institute of the People's Bank of China.
  • Fan Jianping, director of economic forecasting at the Sate Information Center, said that China should withdraw its economic stimulus as soon as possible to curb inflationary pressures.
China Securities Journal:
  • Reserves places at the PBOC by 14 listed banks may increase by 700 billion yuan over the next 6 months after China required banks to include margin deposits when calculating reserve requirements.
Shanghai Securities News:
  • China should choose an "appropriate time" to raise interest rates and to ease the situation of negative real rates, Li Ruoyu, a researcher with the Sate Information Center, wrote in an article. China should appropriately allow the yuan to appreciate and crackdown on hot money to create room for domestic interest rate adjustments, according to the commentary.
Haaretz:
Weekend Recommendations
  • None of note
Night Trading
  • Asian indices are -2.0% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 175.0 +12.0 basis points.
  • Asia Pacific Sovereign CDS Index 154.75 +6.5 basis points.
  • FTSE-100 futures -1.21%.
  • S&P 500 futures -2.67%.
  • NASDAQ 100 futures -2.28%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (PAY)/.46
Economic Releases
10:00 am EST
  • The ISM Non-Manufacturing Composite for August is estimated to fall to 51.0 versus 52.7 in July.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Kocherlakota speaking, Citi Tech Conference and the Barclays Energy Conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open sharply lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.

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