Today's Headlines

Bloomberg:

• Borrowing Costs Drop as France Joins Spain in $18.8 Billion of Bond Sales. France and Spain sold 14.6 billion euros ($18.8 billion) of bonds, with both nations’ funding costs falling in the first sale of medium and long-term debt since Standard & Poor’s downgraded their ratings. France sold 7.97 billion euros of notes, just short of its maximum target, with the average yield on the benchmark two-year notes sliding to 1.05 percent from 1.58 percent in October. Spain sold 6.61 billion euros in bonds maturing in 2022, 2019 and 2016, more than its maximum target of 4.5 billion euros. It issued debt due 2022 at an average of 5.403 percent, down from 6.975 percent in November.
• Banks Flush With ECB Cash Outperform. Banks are beating euro governments in credit markets by the most since July as European Central Bank loans stave off punitive borrowing costs for lenders such as BNP Paribas SA (BNP) and UniCredit SpA facing debt downgrades. The Markit iTraxx Financial Index of credit-default swaps linked to the senior debt of 25 European banks and insurers now costs 104 basis points less than the Markit iTraxx SovX Western Europe Index of swaps on 15 governments. That compares with a 28 basis-point gap at the end of November and a record 118 in July. Historically, it costs more to insure banks than governments. The ECB’s 489 billion euros ($623 billion) of three-year loans are a lifeline for lenders competing with governments to borrow about $2 trillion this year as they seek to refinance maturing bonds and bills, according to data compiled by Bloomberg. While banks based in euro-area countries that still have top credit grades are able to issue unsecured bonds, lenders from nations whose ratings have been lowered, or face cuts, are frozen out. “The ECB offered the banks a guaranteed source of liquidity,” said Nigel Sillis, who helps oversee about $53 billion as director of fixed income and currency research at Baring Asset Management Ltd. in London. “They’ve used it in big size and that’s taken the worst of the liquidity risk out of the market.”
• Sovereign, Corporate Bond Risk Falls, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt fell, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments declined nine basis points to 348 at 12 p.m. in London, the lowest since Dec. 7. A decline signals improvement in perceptions of credit quality. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 20.5 basis points to 664, the lowest since Oct. 31, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 4.25 basis points to 157.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 12 basis points to 337 and the subordinated index dropped 19 to 437.
• Obama's Rejection of Keystone Pipeline Sets Up Campaign Battle. President Barack Obama’s rejection of TransCanada Corp.’s Keystone XL pipeline permit exposed a split in a core Democratic constituency and handed Republicans a new line of election-year attack. Unions representing construction workers condemned the move while labor groups including the United Steel Workers, the United Auto Workers and the Service Employees International Union joined with environmental advocates in saying they support Obama’s decision. It also triggered swift criticism from congressional Republicans and the party’s presidential candidates. “The Republicans’ argument that he’s trying to run a populist campaign firing up the liberal base and that this is all politics at the expense of jobs is going to be an important continuing issue through much of the campaign,” said David Gergen, director of Harvard University’s Center for Public Leadership in Cambridge, Massachusetts, and an adviser to presidents of both parties. Obama is heading into his re-election campaign with the U.S. still rebounding from the worst recession since the Great Depression and an unemployment rate that has been stuck above 8 percent for almost three years.
• U.S. Jobless Claims Lowest in Nearly Four Years. Fewer Americans than forecast filed first-time applications for unemployment benefits last week, easing concern that post-holiday firings were on the rise. Claims plunged by 50,000 to 352,000 in the week ended Jan. 14, the lowest level since April 2008, Labor Department figures showed today in Washington. The median forecast of 41 economists in a Bloomberg News survey projected 384,000. A Labor Department spokesman said the decrease reflected volatility seen during this time of year. The four-week average, which smoothes out fluctuations, decreased to 379,000 last week from 382,500. Companies are slowing the pace of firings and beginning to step up the pace of hiring even as a slump in Europe spurred by a default crisis may limit U.S. growth. The improvement may be a sign that companies are looking to expand their workforces as sales climb. “You’ve got a gradual improvement in the labor market,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose forecast of 363,000 was the lowest. Because of “choppiness with the beginning of the calendar year, you have to look at the four-week moving average” which he said was “encouraging.” Other data today showed housing starts in December dropped more than forecast and consumer prices were little changed.
• Philadelphia-Area Manufacturing Increases. Manufacturing in the Philadelphia region expanded at faster pace in January as employment picked up and factories grew more optimistic about business in the next six months. The Federal Reserve Bank of Philadelphia’s general economic index increased to a three-month high of 7.3 from 6.8 in December, according to a report released today. Economists surveyed by Bloomberg News forecast the gauge would rise to 10.3. Readings greater than zero indicate expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
• Fracking Market to Grow 19% to $37 Billion Worldwide in 2012. The worldwide market for hydraulic fracturing will grow 19 percent this year to a record $37 billion, one-third the pace of expansion in 2011 after tumbling natural-gas prices discouraged exploration for the fuel, said Spears & Associates Inc. In North America, which accounted for 87 percent of the fracking market last year, spending on the technique used to extract oil and gas from shale will top $30 billion in 2012, said Richard Spears, vice president of the Tulsa, Oklahoma-based firm that advises about 400 oil producers, hedge funds, equipment providers and manufacturers. Demand for fracking services this year will grow slower than 2011’s 63 percent rate because of declining interest in searching for gas, which as recently as three years ago dominated the market, Spears said today during a conference call sponsored by Credit Suisse USA Holdings Inc. “Natural-gas drilling has not grown, it’s shrunk,” Spears said. “All the growth is on the oil side.”

Wall Street Journal:

• Kodak Files for Bankruptcy Protection. Eastman Kodak Co. filed for Chapter 11 bankruptcy protection in New York early Thursday morning, after the struggling photography icon ran short on cash needed to fund a long-sputtering turnaround.
• Perry Abandons Presidential Bid. Texas Gov. Rick Perry dropped out of the presidential race Thursday and threw his support behind Newt Gingrich for the Republican nomination. Mr. Perry, speaking at a news conference, said he saw no viable path forward and was therefore suspending his campaign and endorsing Mr. Gingrich.
• Google(GOOG) Deepens Push Into Display Ads.
  

MarketWatch:

• U.S. Gasoline Demand Dropped -3.5% From A Year Ago, 20th Straight Year-On-Year Decline. Gasoline prices rose 6 cents in the week to $3.39 a gallon, the most since Nov. 18, 2011, and were 9.7% above a year ago. Prices have gained 16 cents in the past three weeks.

CNBC.com:

• Fed's Latest Easing Could Cost $1 Trillion: Economists. The Federal Reserve is likely to step in with $1 trillion worth of easing that could be announced as soon as this month, according to a growing consensus of economists who see the recent uptick in economic growth as unsustainable.
• Pipeline's End Puts US at Disadvantage: Union Pacific CEO. The end of the Keystone Pipeline project puts the U.S. at a competitive disadvantage and was a personal disappointment to the chief executive of railroad Union Pacific.

Business Insider:

• Online Ad Spending To Rival That Of TV By 2016.
• Apple(AAPL) Reveals A Three Pronged Plan To 'Reinvent' Education.
  

Zero Hedge:

• Sovereigns At One-Month Tights Ahead Of Capital-Raise-Plan and Debt-Swap Deadline.
• Fed Back To Its Secretive Ways, Sells $7 Billion In Maiden Lane Assets Directly To Credit Suisse Without Public Auction.

Tages-Anzeiger:

• Harvard University Professor Kenneth Rogoff said he sees a risk of more than 80% that at least one or two countries will leave the 17-member euro region in the coming years. "Greece, Portugal, Ireland and possibly also Spain are involvent and need a restructuring of their debt." Rogoff also said it's "problematic" to think that the ECB "could create money with a magic act, purchase bonds of problem nations and hide them in a dark corner of its balance sheet." That's "a Ponzi scheme, which eventually collapses." He said European banks need "hundreds of billions of euros" of fresh capital.
  

Expansion:

• Spanish Prime Minister Mariano Rajoy forecast the economy may contract by more than .5% this year, citing officials who participated in a meeting this week between Budget Minister Cristobal Montoro and regional authorities.