Evening Headlines
Bloomberg:
- Debt Crisis Infects Companies via Bank Loan Costs: Euro Credit. Banks in Spain and Italy are curbing loans and charging customers more as aftershocks from the sovereign debt crisis drive their own borrowing cost higher. “They can’t lend what they don’t have, I suppose,” said Francesc Elias, the owner of Bomba Elias, a pumps and filters maker near Barcelona, which shelved a 100,000-euro ($144,000) plan to open a Bahrain office when it couldn’t get an affordable bank loan. “The banks are very clever about finding new ways to charge us more.” Spanish and Italian government bond yields surged to euro- era records this quarter as Greece struggled to avoid default, driving the cost of insuring against nonpayment by the region’s banks to a record and making it harder for them to sell bonds. Spain pays 5.35 percent for 10-year money, up from an average of 4.07 percent in the first half of 2010, while Italy pays 5.65 percent compared with a 4.05 percent average last year. As a result, banks such as Banco Santander SA, Spain’s biggest lender, are passing higher funding costs on to their customers. UniCredit SpA, Italy’s biggest lender, said on Aug. 3 it’s being more selective about who it lends to and levying higher rates. One out of three companies asking for credit in the second quarter period didn’t get it or obtained less than they asked for, according to Confcommercio, an Italian retailers’ lobby group. “The cost of financing our current activities has increased significantly,” said Riccardo Illy, chairman of Italian coffee maker Gruppo Illy SpA. “We don’t have any problems accessing credit because we’re large enough, but we know many businesses that are having trouble because banks’ requirements have become increasingly stringent.” Spanish banks including Santander and Bankia SA are shrinking their loan books after being pummeled by a collapse in credit demand for real-estate and surging loan defaults. Santander’s Spanish lending shrank an annual 7 percent through June, mirroring a trend in the Bank of Spain’s data that show a 1.9 percent annual drop in lending to companies and individuals. Lending at Bankia, the third-biggest lender formed from a merger of seven savings banks, was down 2.3 percent from December. Banks face a dilemma when trying to pass on increased funding costs in full because they risk driving more borrowers into default, said Barclays Capital’s Pascual. Bad loans in the Spanish banking system are near 7 percent of total lending, the highest since 1995. As lending slides in Spain and banks struggle to finance themselves, the outlook for growth is worsening, said Antonio Ramirez, an analyst at Keefe Bruyette & Woods in London. “It’s the negative feedback loop between what’s happening to the sovereign and the effect on banks and the economy,” said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. “To a large extent, the problems facing Spanish lenders also apply to Italy.” As financing costs rise in Italy, analysts have started revising down their growth estimates for that country.
- Greece Makes 'Good Progress' in Talks to Get Loan Payment. Greek Finance Minister Evangelos Venizelos made “good progress” in a second round of talks with the European Union and International Monetary Fund aimed at staving off default, the EU said. The telephone meeting late yesterday, which followed discussions the day before, were intended to damp concerns that Greece may miss deficit-reduction targets required to received rescue loans. The EU statement said a “full mission” will return to Athens next week after Venizelos’s talks in coming days at the IMF annual meeting in Washington. Staying in the euro area is an “irreversible and fundamental national choice,” Venizelos said in a statement yesterday. “We acknowledge that our fiscal data and economic structures are a problem for the euro area, which we are determined to tackle once and for all.”
- Chanos Shorting Chinese Banks, Property Developers as Debt is 'Staggering'. (video) Jim Chanos, founder of Kynikos Associates Ltd. hedge fund, talks about China's economy, real estate market and investing. He talks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart."
- Chanos Says Europe Stress Tests a 'Joke'. "These tests are a joke, the accounting is a joke and the markets are beginning to say, 'No more,'" Chanos said today in an interview on Bloomberg Television's "Street Smart With Carol Massar and Matt Miller." The austerity measures that the European Central Bank has demanded from member countries such as Greece, Portugal and Italy in return for emergency loans may slow recovery and make it harder for governments to meet deficit goals, Chanos said. "This is so built into the structure of the European economic system that starting down this austerity path, as Greece has found out and Ireland has found out, is not going to increase growth, it's going to decrease growth," said Chanos, whose New York-based hedge fund specializes in short sales.
- Bullion Vaults Run Out of Space on Gold Rally. Deep in the 7.4-acre Singapore FreePort next to Changi International Airport’s runways is the bullion vault of Swiss Precious Metals, behind seven-metric-ton steel doors built to survive a plane crash or earthquake. The rooms are almost full after demand rose fivefold in the year since the Geneva-based company opened the facility. The firm plans an extension, and relocated Chief Executive Officer Jean-Francois Pages to Singapore last month to cope with the surge of investors willing to pay as much as 1 percent of the value of their holdings each year to keep them secure.
- Oil Drops in New York on Speculation Demand Will Falter as Supplies Rise. Oil fell in New York as investors speculated that demand will falter amid increasing U.S. crude stockpiles in the world’s biggest consumer of the commodity. Brent oil’s premium to the U.S. contract widened. Crude for November delivery slipped as much as 60 cents to $86.32 a barrel in electronic trading on the New York Mercantile Exchange and was at $86.36 at 11:42 a.m. Sydney time. The contract yesterday advanced $1.11, or 1.3 percent, to $86.92. Prices are 18 percent higher the past year.
- Lending Curbs Help Propel Commercial Paper Yields to Record: China Credit. Companies in China face record interest rates on short-term debt as curbs on lending force them to rely on commercial paper to pay back loans. The average yield on top-rated, one-year corporate notes has risen 101 basis points since June 30 to 5.9 percent, and is poised for the biggest quarterly increase in Chinabond data going back to 2007. High yields reflect “the market concern about liquidity and also the view that monetary policy may not change in the short-term,” said George Weisi Tan, who oversees about 300 million yuan as head of bond investments at Fortune SGAM Fund Management Co. in Shanghai. “It’s hard to get a loan from the bank these days.” Banks are demanding near-record interest rates to lend to one another for six months or more, Shanghai interbank rates show. The Shibor rate on six-month yuan loans was 5.2968 percent yesterday, after reaching 5.3093 percent on July 14, the highest level since the daily fixing was introduced in October 2006. Five-year credit-default swaps on China’s sovereign bonds rose 49 basis points this quarter to 133 basis points yesterday, the highest since April 2009, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
- Reid Says Democrats Undecided on Handling of $447 Billion U.S. Jobs Plan.
- Solyndra Chief Won't Answer U.S. House Queries. Solyndra LLC Chief Executive Officer Brian Harrison will decline to answer questions this week at the House Energy and Commerce Committee’s investigation hearing into the failure of the solar-panel manufacturer. “Mr. Harrison intends to invoke his Fifth Amendment rights in response to any questions asked by this subcommittee and will not provide testimony,” Walter Brown, a lawyer at Orrick, Herrington & Sutcliffe LLP in San Francisco representing Harrison, wrote today to the investigations panel. The letter, obtained today, cited the Sept. 8 FBI raid on Solyndra’s Fremont, California, offices and a Justice Department investigation into the company, which got about $527 million in U.S. loan guarantees from President Barack Obama’s administration. The company sought bankruptcy protection two days before the raid by Federal Bureau of Investigation agents. “Mr. Harrison regrets that these circumstances prevent him from offering full and complete answers to this subcommittee,” Brown wrote to Representatives Cliff Stearns, a Florida Republican and chairman of the Energy committee’s investigation panel, and Diana DeGette of Colorado, the panel’s top Democrat. Solyndra spokesman David Miller said Harrison and Chief Financial Officer W.G. Stover Jr. wouldn’t provide “substantive answers” to questions from the committee.
- Australian Mortgage Stress Climbs as Rental Vacancies Decline. A quarter of Australian homeowners are experiencing mortgage stress and rental vacancies remain “tight,” driven by higher interest rates, rising costs and a shortage of rental properties in some cities. The number of homeowners facing mortgage stress has jumped from 21 percent in June, mortgage insurance provider Genworth Financial Inc. said in its September Homebuyer Confidence Index, based on surveys conducted from July 30 to Aug. 5, and released today. Rental vacancies slipped to 1.8 percent from 1.9 percent in the previous month and below the equilibrium 3 percent rate, according to data from SQM Research Pty.
- Full Text: Republicans' Letter to Bernanke Questioning More Fed Action. It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has not facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy. We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.
- Brazil Finance Minister: Euro Zone Must Fix Crisis Before BRICS Aid. Brazil has set a high bar for providing support to the euro-zone under a potential plan that would involve other large developing nations, demanding that the common currency bloc first find concrete solutions for its sovereign debt crisis.
- Banks Shun Financing of Riskier Buyouts. Wall Street banks are turning cautious about the normally lucrative business of financing buyouts and mergers, as less-hospitable credit markets are making deals harder to pull off.
- Hedge Fund Assoc. Readies for Regulation.
- Joyless Holiday Retail Forecast. Christmas is already shaping up to be a struggle for the nation's retailers. It isn't even fall yet, but the first forecasts of the all-important year-end period are out, and they're pointing to more muted gains than last year. Shoppers are expected to make fewer trips to stores and, when they do show up, to head straight for bargains they've researched in advance. Retailers, meanwhile, have been working down inventory where possible, hoping to avoid the markdowns that eat into their profit margins.
- Prosecutors Focus on Goldman(GS) Ex-Director. Federal prosecutors are moving closer toward bringing criminal charges against Rajat Gupta, a former Goldman Sachs Group Inc. director who allegedly leaked inside information about the Wall Street giant at the height of the financial crisis, according to people familiar with the situation.
- Commercial Space Starts to Wobble. Jittery investors, wary banks, the struggling economy and turbulent financial markets are stalling a two-year rebound in the U.S. commercial real-estate industry. Across the country, companies that were looking for large chunks of office space have delayed those plans as uncertainty has risen.
- U.S. Alleges Poker Site Stacked Deck. As professional poker players, Howard Lederer, Chris Ferguson and Rafael Furst got rich by bluffing players out of their money in televised tournaments. Now, the U.S. government alleges that they and their colleagues used this same approach in running one of the world's largest online poker sites.
- The Fed 'Twist' That Won't Dance by David Malpass. Bond-buying creates an obvious conflict of interest because the Fed's portfolio loses value if it raises interest rates.
- StanChart Warns on China's Local-Government Debt. Bank’s China chief: Up to 80% won’t be able to cover debt service. The majority of local-government financing vehicles cannot repay their debt principle and interest, and are putting an enormous strain on local governments, said Stephen Green, head of Standard Chartered Greater China research department, in a forum on Saturday.
- Oracle(ORCL) Tops Forecasts, Helped by Rise in Licensing. Oracle posted quarterly revenue slightly above Wall Street expectations, defying a weak outlook for global technology spending. New software sales, a gauge of future profit because they generate high-margin long-term service contracts, rose 17 percent compared with analysts' expectations for 15 percent.
- Adobe(ADBE) Profit Beats Expectations; Shares Jump. Adobe Systems reported quarterly profit that beat Wall Street estimates and forecast a strong end to the year, sending its shares higher in extended trade.
- House Probes Alternative Energy Loans After Solyndra. Republican lawmakers are stepping up their investigation into alternative energy loan programs in the wake of the collapse of the Solyndra solar company, the first company to receive such funding.
- Swift Exit From Emerging Market Currencies. The other shoe has finally dropped: emerging market currencies have followed emerging market equities into the global financial storm.
- Japan Exports Disappoint, Could Weaken Further. Japan's exports rose in the year to August at less than half the pace expected as a global economic slowdown, a strong currency and Europe's sovereign debt crisis put the country's own recovery increasingly in doubt. Exports rose 2.8 percent in August from a year earlier, much less than a median forecast for an 8.0 percent annual increase, Ministry of Finance data showed on Wednesday.
Washington Post:
- U.S. Building Secret Drone Bases in Africa, Arabian Peninsula, Officials Say. The Obama administration is assembling a constellation of secret drone bases for counterterrorism operations in the Horn of Africa and the Arabian Peninsula as part of a newly aggressive campaign to attack al-Qaeda affiliates in Somalia and Yemen, U.S. officials said. One of the installations is being established in Ethiopia, a U.S. ally in the fight against al-Shabab, the Somali militant group that controls much of the country. Another base is in the Seychelles, an archipelago in the Indian Ocean, where a small fleet of “hunter killer” drones resumed operations this month after an experimental mission demonstrated that the unmanned aircraft could effectively patrol Somali territory from there.
USA Today:
- GM(GM) Deal Moves Electric Car Development to China. General Motors agreed in Shanghai today to develop an electric vehicle platform with longtime Chinese partner SAIC. It effectively moves GM's future electric vehicle development to China. Unclear is whether this would also lead to assembly of future EVs for the U.S. market in China. The deal came as the Chinese government is pushing foreign automakers to give Chinese companies EV technology they lack, according to an Associated Press report. U.S. lawmakers have complained that China is "shaking down" GM to get Volt secrets. Electric vehicle development in the U.S. has been developed with extensive U.S. taxpayer funding.
- Taliban Says Won Rabbani Trust in Order to Kill Him. The Taliban said on Tuesday it had won assassinated former Afghan president Burhanuddin Rabbani's trust by using a high-level team that feigned interest in talks but instead was intent on killing him.
- Greek Default Could be Disaster for Portugal - PM. A debt default by Greece could have disastrous consequences for Portugal, which must take steps to avoid the fall-out from such an event, Prime Minister Pedro Passos Coelho said on Tuesday.
- Palestinian Move Hits Obama Vote Base. At a time when Mr Obama is sweating on every vote he can muster for the 2012 poll, the Palestinian push for statehood is playing into the Republican narrative that he has let Israel and the US Jewish community down. A sliver of the electorate, making up a little under 3 per cent of voters, the Jewish community is nonetheless pivotal in the swing states of Florida and Ohio, and also important for fundraising.
- Regulators Take Aim at Exchange-Traded Funds. Financial regulators across the world are racing to step up supervision and impose limits on the little known but rapidly growing world of exchange-traded funds, the investments that allegedly enabled junior trader Kweku Adoboli to rack up $2.3bn in losses at UBS. Concerns about mis-selling and systemic risk connected with ETFs have been mounting in recent months and the International Organisation of Securities Commissions recently launched a global study of the threats they pose to financial stability.
- Debt Crisis: EU 'Refusing to recognize China as a market economy'. China has signalled that the West must do more to recognise it as a market economy if Europe wants further help in fixing its debt crisis. Beijing's warning comes as Spain, Portugal, Greece and Italy have all turned to the Asian superpower as a potential buyer of their debt.
- The International Monetary Fund isn't considering the possibility of Greece leaving the euro under any scenario in the world economic outlook, IMF economist Jorg Decressin said in an interview. Greece exit from the euro is "not inevitable at all" and "can be avoided if the right policy decisions are being taken by everyone," Decressin says.
- China will end its home appliance purchase subsidies in November.
- China will launch an unmanned module next week that will pave the way for a planned space station, citing Cui Jijun, director of the Jiuquan Satellite Launch Center.
CSFB:
- Rated (HEI) Outperform, target $69.
- Rated (TGI) Outperform, target $64.
- Rated (ESL) Outperform, target $79.
- Asian equity indices are -.50% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 197.50 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 146.50 -8.0 basis points.
- FTSE-100 futures -.37%.
- S&P 500 futures +.55%.
- NASDAQ 100 futures +.38%.
Earnings of Note
Company/Estimate
- (IHS)/.84
- (GIS)/.62
- (BBBY)/.84
- (RHT)/.25
- (FUL)/.47
- (SCS)/.17
10:00 am EST
- Existing Home Sales for August are estimated to rise to 4.75M versus 4.67M in July.
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,300,000 barrels versus a -6,704,000 barrel decline the prior week. Distillate supplies are estimated to rise by +1,000,000 barrels versus a +1,711,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +1,350,000 barrels versus a +1,940,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.28% versus a -2.0% decline the prior week.
- The FOMC is expected to leave the benchmark fed funds rate at .25%.
- None of note
- The weekly MBA mortgage applications report, China Flash Manufacturing PMI, Barclays Clean Tech Conference, Deutsche Bank Energy Conference, Citi Industrials Conference, BMO Real Estate Conference, (CETV) investor day, (LVS) investor conference and the (INTU) investor day could also impact trading today.
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