Bloomberg:
- Draghi Urges Action on Debt-Crisis Agreements While ECB Focuses on Prices. European Central Bank President Mario Draghi pushed back against politicians and investors asking him to do more to end the sovereign debt crisis, expressing impatience with leaders’ failure to act. The ECB would quickly lose credibility if it departed from its primary role of keeping prices stable, Draghi said in a speech in Frankfurt today. “Where is the implementation” of government pledges to bolster the region’s rescue fund, he asked. “We should not be waiting any longer.” The comments suggest Draghi is unwilling to make large- scale bond purchases to extinguish a debt crisis that has spread from Greece to Ireland, Portugal, Italy and Spain, threatening to tear the 17-nation monetary union apart. While the ECB is intervening in debt markets in an attempt to lower soaring yields, it’s refusing to unleash the unlimited firepower that some governments are calling for. “Losing credibility can happen quickly -- and history shows that regaining it has huge economic and social costs,” Draghi said. Keeping prices stable “is the major contribution we can make in support of sustainable growth, employment creation and financial stability. And we are making this contribution in full independence.”
- Portugal Heading for 'Shock' Year as Crisis Deepens: Euro Credit. With an economy struggling in a recession, Portuguese Prime Minister Pedro Passos Coelho is fighting to avoid the market mayhem that toppled the Italian government last week. "2012 will be the year of shock," said Diogo Teixeira, chief executive officer of Optimize Investment Partners, a Lisbon-based firm that manages 45 million euros in assets and holds Portuguese government debt. "Most negative effects of the government's austerity measures will be felt in 2012, whereas the good effects, in terms of increased productivity, may only be felt in 2013 and beyond."
- Sovereign Debt Concern to Spread Beyond EU, Ackermann Says. Challenges stemming from the loss of sovereign debt’s risk-free status will spread beyond Europe, said Deutsche Bank AG Chief Executive Officer Josef Ackermann. “Another big shift in the financial markets is the still widely underestimated fact that sovereign debt can no longer be considered a risk-free asset,” Ackermann said in a speech at a conference in Frankfurt today. “Europe is at the forefront of these developments, but considering debt dynamics, as well as the political and demographic developments in other countries, it is only matter of time before these considerations will surface in other countries as well.” A renewed Franco-German spat increased concern that the region’s leaders can’t agree on how to contain the debt crisis, which has forced bailouts for Greece, Ireland and Portugal. Ackermann said “it will take years for the system” to recover from the “massive shock” that started in 2007. Banks have booked losses as they write down the value of their government holdings. “It will take years for the system to adjust to the new reality,” Ackermann said. “We are therefore well advised to expect, and, more importantly, to prepare for a prolonged period of volatility and uncertainty.”
- Bank Stress Gauges Show Pain Lasting Through '11: Credit Markets. Three weeks after European leaders hailed an "historic" agreement to restore confidence to the region's banking system, rising gauges of stress in funding markets signal tensions will last at least through year-end. The gap between three-month euro interbank borrowing and lending rates rose to the widest since March 2009 yesterday in the forward market, used to speculate on future interest rates, according to data compiled by Bloomberg. The cost for European banks to fund in dollars surged this month, with the three-month cross currency basis swaps falling to as much as 1.32 percentage points below the euro interbank offered rate, the most since December 2008."We are in the midst of the crisis," Chiara Manenti, a fixed-income strategist at Intesa Sanpaolo Spa in Milan, said in a telephone interview. "The liquidity in the money market is not flowing normally between banks. Tensions in the funding markets will remain through year-end, and will be more pronounced in Europe." Traders are wagering the struggle of the region's banks to obtain short-term funding will worsen as yields of Europe's most indebted nations surge, heightening concern that Italy may follow Greece, Ireland and Portugal in needing a bailout. The gap between two-year German interest-rate swaps and similar- maturity government bond yields climbed to the most since November 2008.
- Leading Economic Indicators in U.S. Climb. The index of U.S. leading indicators climbed more than forecast in October, signaling the world’s largest economy will keep growing in early 2012. The Conference Board’s gauge of the outlook for the next three to six months rose 0.9 percent, the biggest jump since February, after a 0.1 percent September increase, the New York- based research group said today. The median forecast of 56 economists surveyed by Bloomberg News projected the gauge would advance 0.6 percent.
- U.S. Birthrate Declines for Third Year on Economic Worries. The U.S. birthrate fell 3 percent last year, the third straight decline, as the economy faltered and women delayed having children. The birthrate dropped to 66.2 for every 1,000 women ages 15 to 44, the lowest since 1987, according to the Atlanta-based Centers for Disease Control and Prevention.
- Stress Indicators Flash Red in Europe. Many weeks have been called the worst of the financial crisis. But this week has as good a claim as any. Wild swings in euro-zone bond markets and a further deterioration of bank funding conditions have raised many stress indicators to levels last seen following the 2008 collapse of Lehman Brothers. The difference this time is that policy makers have fewer bullets to fire. In government bond markets, the gap between 10-year French and German debt rose to above two percentage points Thursday, a level that hasn't been seen since the early 1990s. That, together with moves in Dutch and Finnish debt, suggests investors are starting to see a real risk of a break-up of the euro-zone. The cost of insuring €10 million ($13.4 million) of European bank and insurer debt for five years via the Markit iTraxx Senior Financials index closed at €300,000 Thursday, close to a record and far above the peak of €211,000 seen in March 2009. The three-month Euribor/OIS spread hit 0.91 percentage points this week, the widest since March 2009, according to Bank of America Merrill Lynch. And European banks are having to pay through the nose to get dollars via the markets: the euro-U.S. dollar cross-currency basis swap reached a negative 1.3 percentage points Friday, according to RBS. This indicator went below minus two percentage points after Lehman's collapse, but quickly recovered. This time it has been deteriorating since April. In the wake of the Lehman collapse, central banks were able to ease strains by slashing interest rates and pumping liquidity into the system. But this time around, interest rates are low and liquidity is abundant: banks have €230.9 billion deposited overnight at the European Central Bank and bid to deposit another €260.5 billion for seven days this week at an €187 billion auction designed to sterilize ECB government-bond purchases. The ECB has announced new one-year refinancing operations and pledged to supply unlimited cash to banks until at least the middle of 2012. That suggests there may be worse weeks to come.
- Sovereign CDS Concerns Shift To Counterparty Risk. Investors and policy makers scrambling to determine how banks may be hurt by losses on risky European sovereign debt are looking beyond the hedges those banks have on and are trying to determine how reliable the banks' trading partners are.
- Inside the Obama Money Machine.
- Poll: Gingrich, Romney in Dead Heat in N.H.
CNBC.com:
Zero Hedge:
Boston Globe:
- ECB Has Secret 20 Billion Euro Bond-Buying Limit: Report. The European Central Bank has secretly imposed a weekly limit of about 20 billion euros ($27 billion) on its euro zone sovereign bond-buying program, according to a report in Germany's Frankfurter Allgemeine Zeitung published on Friday.
- US Deficit-Cutting Talks Appear to Be Near Collapse.
- Euro Zone Woes Squeeze Bank Funding. Fear over European banks' exposure to risky government debt stalked markets and harried bank executives on Friday, as unsecured lending between banks evaporated and the cost of secured loans rose.
Zero Hedge:
- Ireland: "Germany Is Our New Master".
- Instead of Relenting to Demands to Let ECB Print, Germany is Preparing to Kick Countries Out of Eurozone.
- Charting Who Owes What to Whom.
- Report Says Massachusetts Economy to Slow. Massachusetts’ economy is expected to slow dramatically and the state is unlikely to reach prerecession employment levels until mid-2014, according to a forecast to be released today by the New England Economic Partnership.
- UBS Analysts Predict 70% Collapse in EU CO2 Prices. European Union carbon prices could shed some 70 percent from current levels, as the bloc struggles with a mounting debt crisis and a glut of supply in the carbon market is unlikely to disappear until 2025, analysts at UBS said. The investment bank also said the EU emissions trading scheme (ETS), the 27-nation bloc's main policy tool to fight global warming, "isn't working" because carbon prices are "already too low to have any significant environmental impact." "We expect the recent carbon-price decline to escalate into a 'crash' as carbon market supply should double over the coming months," UBS analysts wrote in a Thursday statement to clients.
- US Tax Evasion Law 'Could Cost Big Banks $100 Million'. A U.S. law aimed at curbing tax evasion by citizens using foreign accounts could cost large multinational banks as much as $100 million apiece to implement in one-off systems costs, a top asset manager and a tax lawyer told a conference on Friday. The overall costs of implementing the Foreign Account Tax Compliance Act (FATCA), could approach the more than $8 billion FATCA is due to raise over 10 years, he said.
- Debt Crisis: Live. David Cameron and Angela Merkel present united front after meeting in Berlin, calling for more free trade in Europe and a "strong, sustainable" euro – but admit no agreement has been made on a treaty change.
- Hedge Fund Recovery Marred by Redemptions. Eleven of the thirteen hedge fund strategies tracked by the Paris-based Edhec Risk Institute posted positive performance in October, although many remained in negative year-to-date territory triggering heavy redemptions. Despite the encouraging returns hedge funds posted in October, investor redemptions were heavy. Total assets in the industry fell by $4.5bn for the month Eurekahedge data revealed, driven primarily by the redemption pipeline built up since August and September. Although the industry has made a significant recovery from the financial crisis over the last two years, these numbers indicate that investors remain edgy and will start to withdraw their capital based on movements in the underlying markets, Eurekahedge concluded.
- China and North Korea pledged to strengthen military exchanges and cooperation, citing an official visit by a Chinese military delegation.
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