Evening Headlines
Bloomberg:
- Greece Aiming to Close Swap in Second Bailout Faces Fight to Stay in Euro. Greece’s fight to win its second international bailout may only open a new chapter in its struggle to remain in the euro area. The rescue plan, which European officials and Greek creditors say may be wrapped up in coming days, includes a loss of more than 70 percent for bondholders in a voluntary exchange and loans likely to exceed the 130 billion euros ($171 billion) now on the table. That won’t stanch the bleeding, say economists including Holger Schmieding of Berenberg Bank in London. Greece will be saddled with too much debt, too little growth and too large a budget hole to do without even more money that euro nations led by Germany are increasingly reluctant to offer, they say. “Greece is in deep trouble,” Schmieding said in a Jan. 30 report. “The current Greek adjustment program is failing. Excessive austerity, a lack of supply-side reforms, administrative incompetence and political deadlock have pushed the Greek economy into an apparent death spiral. More of the same will not work.” As Greek officials negotiate with representatives of the so-called troika -- the European Commission, European Central Bank and International Monetary Fund -- Deutsche Bank AG Chief Executive Officer Josef Ackermann may travel to Athens this weekend for talks over a swap involving Greek debt with a face value of about 200 billion euros.
- Europe's Leaders Shouldn't Sacrifice Union to Save Common Currency: View. The euro-area crisis is forcing many of the European Union’s long-running political disputes to the surface at the same time. As they wrestle to save the currency, Europe’s leaders -- above all Britain’s David Cameron, France’s Nicolas Sarkozy and Germany’s Angela Merkel -- need to make sure they don’t dismantle the union in the process.
- China Restricts Mortgage Loans for Overseas Buyers to Cool Property Prices. China will limit mortgage loans for home purchases by foreigners to stem overseas investment in its property market as part of efforts to cool prices. The nation’s planning agency won’t approve medium- and long-term foreign debt quotas for overseas banks in 2012, if they intend to use such borrowings to fund mortgages taken out by foreigners, the National Development and Reform Commission said in a statement. Premier Wen Jiabao this week reiterated that the government will maintain curbs on the property market to bring prices down to a reasonable level. China last year increased down-payment requirements and mortgage rates on some homes and imposed housing purchase restrictions in about 40 cities.
- Fisher Calls Fed's Target Forecasts Misguided 'Guesswork'. Federal Reserve Bank of Dallas President Richard Fisher described policy makers’ forecasts for the central bank’s main interest rate as little more than speculation. “These are not binding commitments,” Fisher said today in a speech in Austin, Texas. Fed officials’ projections for the economy and interest rates are “largely guesswork, especially looking out over a multiyear period.” The Fed on Jan. 25 released federal funds rate forecasts by policy makers for the first time and extended its pledge to keep rates near zero at least through late 2014. Chairman Ben S. Bernanke today acknowledged improvement in some recent economic data while cautioning that the economy still faces risks, including fiscal deficits that in the long-run must be reduced. Fisher, who doesn’t vote on policy this year, has been among the most vocal critics of Fed easing, dissenting last year twice against moves to push down long-term rates and to keep the benchmark U.S. interest rate near zero until at least mid-2013. He voted five times in 2008 in favor of tighter policy and said today he opposes the 2014 interest rate pledge. “I resisted the notion of a need for a statement indicating that monetary accommodation be tied to a specific date, be it in mid-2013, late 2014 or any other,” Fisher said in a speech to the Headliners Club. “Instead, I feel that the key should be to calibrate monetary policy according to the state or condition of the economy.” The Dallas Fed leader told reporters after his speech that recent U.S. economic reports have been “pretty good,” and that he opposes additional Fed asset purchases to stimulate growth. “I don’t see how you could justify it given the status of the current economy,” he said. “Is it needed? I don’t think so. Secondly, it compounds the difficulty of an exit when the right time comes.” Monetary policy easing may not be effective in bolstering the labor market, Fisher said. Still, “accommodation will be in place until the economy gathers sufficient steam,” he said. “It is slowing gathering but it is slow.” In his prepared remarks, Fisher repeated his concern that monetary policy alone could do little to reduce U.S. unemployment, saying fiscal and regulatory policies have impeded job creation. Texas was one of three states that have regained jobs lost during the past recession, as well as North Dakota and Alaska, he said. “To the extent that inflation is running below 2 percent, the Federal Reserve may have somewhat greater latitude to pursue accommodation,” Fisher said. “However, the past few years have demonstrated, yet again, that allowing inflation to rise by no means guarantees faster job growth.”
- Banks Join Pensions in Squeeze as Federal Reserve's Low Rates Erode Profit. The Federal Reserve, which cut its target for the federal funds rate to a zero-to-0.25 percent range on Dec. 16, 2008, said last month that rates would remain “exceptionally low” at least through late 2014. While the unprecedented period of near-zero rates is meant to aid an ailing economy, it poses challenges for banks, insurers, pension funds, and savers. The hope is that by making mortgages and other loans cheaper, ultra-low rates eventually may revive economic growth, Bloomberg Businessweek reports in its Feb. 6 issue. For now they’re squeezing profits at banks and disrupting investment strategies at insurance companies and pension funds. They’ve reduced payouts on savings accounts and bonds, and may lead to higher bank fees and insurance premiums. “For most people, there’s been more downside to these low rates than upside,” says Barry Ritholtz, chief executive officer of FusionIQ, a New York-based investment research firm. “They’ve punished savers and people living on fixed income, and made insurance more expensive.”
- Kyle Bass Urges Texas Fund to Hold Gold Hedge as Assets Shrink. Kyle Bass, the Dallas hedge-fund manager, urged overseers of Texas’s state university endowment, the second-largest U.S. college fund, to stick with a $1 billion investment in gold bullion even as the fund’s assets decline. “I’m against selling any of the gold,” Bass said today at a meeting of fund directors in Austin, citing the need for a hedge against mounting risks driven by government deficits in the U.S. and Europe. “As every day goes by, I see deflation in the things you own and inflation in the things you need.
- MF Futures Customers Compete to Lead Lawsuit Against Corzine. MF Global Inc. futures customers are competing to lead a lawsuit against Jon Corzine, the parent company’s former chief executive officer, over the alleged theft of $1.2 billion of their assets. Court filings show at least seven actions against Corzine by futures customers in Manhattan federal court. Plaintiffs who’ve nominated themselves to lead a potential group suit include Sapere CTA Fund LP, which sued Corzine and other former MF Global Holdings Ltd. executives for $90 million; Seattle money manager William Fleckenstein along with Kay P. Tee LLC, a firm with a trading account at MF Global; and, together, Davide Accomazzo and Roberto Calle Gracey, who said in court papers they filed the first action on behalf of futures customers.
- Geithner Says Systemically Risky Firms to Be Named in 2012. U.S. Treasury Secretary Timothy F. Geithner said the first non-bank financial companies deemed systemically risky will be named this year, and the department will release more plans for an overhaul of housing finance.
- U.S. Senate Adopts Measure to Ban Bonuses at Fannie, Freddie. The U.S. Senate passed a prohibition on executive bonuses at Fannie Mae and Freddie Mac, the government-controlled mortgage companies that are dependent on taxpayer aid. The Senate voted 96-3 to approve a bill including the ban proposed by Republican John McCain of Arizona and Democrat John Rockefeller of West Virginia, which was added by voice vote earlier today. The measure was introduced after the companies’ regulator, the Federal Housing Finance Agency, approved nearly $13 million in bonuses to 10 executives. McCain, on the Senate floor this week, said he found it “hard to believe” it would be difficult to find people to run the firms “without the incentive of multi-million dollar bonuses.” “There are many examples of intelligent, well-qualified, patriotic individuals working in our federal government who make significantly less than the top executives at Fannie and Freddie with just as much responsibility,” McCain said.
- Japan Inc. Suppliers Cut Jobs as Yen Batters TV, Chip Profit. Japan Inc. is suffering and the supply chain is bearing the cost. The yen's 7 percent surge against the dollar in the past 12 months has widened losses at Sony, Mazda and Sharp Corp., which plans to halve TV production at its biggest factory to reduce inventory. Manufacturers have been forced to both relocate production outside of Japan and to press their suppliers for cost cuts.
- Wynn Macau Profit Misses Analysts' Estimates on Competition. Wynn Macau Ltd., the Hong Kong-listed casino unit of Wynn Resorts Ltd.(WYNN), missed analysts estimates for its full-year profit on rising competition in the world’s largest gambling hub. Fourth-quarter net income rose 15 percent to $239.9 million from $208.8 million a year earlier, the company said in a statement to the Hong Kong stock exchange. Based on numbers derived from the statement, full-year profit was $759.8 million, missing estimates of $795.3 million from 16 analysts surveyed by Bloomberg. Competition is increasing in Macau, the only place in China where casinos are legal, as Sands China Ltd. and other operators build more gaming centers to tap surging numbers of Chinese gamblers. Sands China Ltd., controlled by Sheldon Adelson’s Las Vegas Sands Corp.(LVS), this week posted annual profit that beat analysts’ estimates. “Wynn’s performance was weak relative to the market,” Macquarie Securities analyst Gary Pinge said in a report. The brokerage downgraded the stock to underperform and cut its share price target to HK$17 from HK$17.50.
- Futures on Credit-Default Swaps Seen as Natural Evolution. Efforts to create an exchange-traded futures contract tied to credit-default swaps haven't yet gained traction after 18 months of talks, but banks dealing in the private multitrillion-dollar market for credit derivatives believe such contracts will eventually appear for a simple reason: They should attract new players. Dealers have long been fiercely protective of keeping the status quo in credit-default swaps or "CDS" because they have booked fat profits from customers not being able to see where other customers are trading. But dealers believe that opening up the market with a futures contract could bring in a more diverse user base, and that they could make up for thinner margins with larger volumes. Dealers' proposed futures contracts would track the performance of a basket of CDS, allowing investors to trade around the expected future value of that default protection on a range of companies. The most commonly traded CDS indexes are the CDX North America Investment Grade index and the iTraxx Europe, both administered by Markit, which also has been involved in the dealer talks. The notional amount of CDSs rose 8% in the first half of last year to $32.4 trillion, according to the Bank for International Settlements, and as of the end of June 2011 represented about 5% of the $708 trillion swaps market.
- U.S. Fears Iran's Links to al Qaeda. U.S. officials say they believe Iran recently gave new freedoms to as many as five top al Qaeda operatives who have been under house arrest, including the option to leave the country, and may have provided some material aid to the terrorist group. The men, who were detained in Iran in 2003, make up al Qaeda's so-called management council, a group that includes members of the inner circle that advised Osama bin Laden and an explosives expert widely considered a candidate for a top post in the organization.
- Senate Passes Insider-Trading Ban. After years of delay, Congress took a big step toward approving new rules to ban lawmakers from trading stocks based on information they pick up in the halls of Capitol Hill—a move aimed in part at helping repair the institution's low approval ratings. The Senate voted overwhelmingly, 96-3, to pass the legislation, called the Stop Trading On Congressional Knowledge Act, or Stock Act. The bill now moves to the House, where Republican leaders said they would vote on it next week.
- Swiss Bank Wegelin Indicted on U.S. Tax Charges. U.S. prosecutors filed criminal charges against Switzerland's oldest bank, alleging it helped wealthy Americans hide more than $1.2 billion in secret accounts abroad, the latest move in an ongoing crackdown on overseas tax evasion. The indictment of Swiss private bank Wegelin & Co., founded in 1741, marks the first time U.S. authorities have charged a bank rather than individuals with helping Americans evade taxes.
- Banks Depleting Earnings Backstop. The rainy-day funds that U.S. banks have been tapping to boost their earnings could soon begin to dry up, and that doesn't bode well for bank profits. Many banks have been "releasing" reserves against bad loans since the worst of the crisis passed and the economy began recovering. That money flows to the bottom line, helping some banks boost earnings at a time when lending and trading profits have been soggy.
Zero Hedge:
- 4-Wk Avg NYSE Volume Lowest Since 1999. (graph)
- Morgan Stanley(MS) Cuts EURUSD Forecast From 1.20 To 1.15 On Upcoming ECB Easing.
- Europe's "Great Deleveraging" Has Only Just Begun. (graph)
- Fed Policy 'Too Loose For Too Long': Rep. Ryan. The U.S. is "limping out of this recession" at growth of 1.7 percent thanks to Federal Reserve policy that has been "too loose for too long," Rep. Paul Ryan, R.-Wis., chairman of the House Budget Committee, told CNBC.
- Hedge Funds Add 1.34% To Start Year, Credit Suisse Index Shows. Four of the five strategies tracked by the LAB indices posted gains, led by long/short, which rose 2.57%, and event-driven, which added 2.14%. Global strategies rose 0.59% and merger arbitrage 0.49%, while managed futures lost 0.27% on the month.
- Weak Customer Spending Hurts Acme Packet(APKT) Outlook, Shares Fall. Network gear maker Acme Packet Inc reported fourth-quarter results below analysts' expectations and forecast a weak full-year profit as its customers scaled back on spending and delayed orders. Acme Packet shares slid 12 percent to $27.17 in after-market trade on the Nasdaq.
- Deutsche Bank Concerned by Offer of ECB Loans. Deutsche Bank has risked a clash with the European Central Bank by indicating it sees a stigma attached to the long-term help offered to banks to try to ease the eurozone’s funding crisis. Josef Ackermann, chief executive, made clear that Deutsche might not take up the ECB’s next offer of unlimited three-year loans because it might be seen as tantamount to government aid that could damage the bank’s reputation.
- Eurozone Bail-Out Funds Not Enough, Warns OECD. International debt inspectors believe they have found another €15bn (£12.5bn) black hole in Greece’s public finances caused by the deepening recession, delivering the crippled nation another devastating blow. With pressure growing over talks with private investors about the terms of a €100bn debt write-off, officials calculated that to bring the country’s debts to a sustainable level at 120pc of GDP the international community would need to find an extra €15bn, raising the prospect of a Greek default. Sources told news organisations in Brussels that weak growth will make it even more difficult for Greece to resolve its debt problem, leaving the eurozone and the International Monetary Fund with the prospect of an even larger bail-out than the €130bn planned. The warning came as the Organisation for Economic Co-operation and Development (OECD) said the emergency bail-out funds are not big enough. The international think-tank said the European Financial Stability Facility’s (EFSF) €440bn (£366bn) firepower “is not enough” to support the lending requirements of indebted countries, particularly given that it “has not found it easy to raise funds with low yields”. Greece, Portugal, Italy, Ireland and Spain need to repay a total of €700bn this year and €400bn next year.
- Oil Price Could Fall to $70 in 2012 Amid Volatility, Shell Warns. Oil prices could fall to $70 a barrel during 2012, from current levels above $110, as high volatility in the economy and energy markets becomes "a fact of life", Royal Dutch Shell executives said.
- Ottawa Leans on Banks to Tighten Lending. Ottawa is becoming increasingly uncomfortable with record-low mortgage rates being offered by some Canadian banks and the ease with which some institutions are advancing lines of credit. Finance Department officials raised concerns with bankers in recent weeks about historically low mortgage rates as well as lending standards, industry sources said Thursday. After warning for several months about the debt levels of Canadian households, government officials were upset that banks continued to reduce rates and make a bigger push on home loans.
People's Daily:
- China should prevent using wealth accumulated to overspend on luxury goods, according to a commentary published on the People's Daily today written by Jiang Hongbing.
Citigroup Global Markets:
- Reiterated Buy on (ACE), boosted estimates, target $81.
- Reiterated Buy on (DOW), target $39.
- Asian equity indices are -1.0% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 172.0 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 141.50 -2.25 basis points.
- FTSE-100 futures +.13%.
- S&P 500 futures -.01%.
- NASDAQ 100 futures +.04%.
Earnings of Note
Company/Estimate
- (AXL)/.39
- (CLX)/.69
- (EL)/1.01
- (TSN)/.34
- (WY)/.07
- (BRO)/.22
- (SPG)/1.91
- (BAH)/.38
- (AON)/.96
8:30 am EST
- The Change in Non-Farm Payrolls for January is estimated at 140K versus 200K in December.
- The Unemployment Rate for January is estimated at 8.5% versus 8.5% in December.
- Average Hourly Earnings for January are estimated to rise +.2% versus a +.2% gain in December.
10:00 am EST
- ISM Non-Manufacturing for January is estimated to rise to 53.2 versus 52.6 in December.
- Factory Orders for December are estimated to rise +1.5% versus a +1.8% gain in November.
Upcoming Splits
- None of note
Other Potential Market Movers
- The (STJ) Investor Meeting could also impact trading today.
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