Wednesday, February 15, 2012

Today's Headlines

  • EU Says Greek Bond Swap in Aid Plan Requires Time For Investor Decisions. Greek investors will need time to review settlement details and make decisions as a debt swap takes shape along with a second rescue package for the country, the European Union said. Euro-area finance ministers need to agree on all elements of the bailout plan and the conditions Greece must meet to receive the bailout, Amadeu Altafaj, spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn, told reporters today in Brussels. When asked whether the debt swap would be technically able to proceed ahead of a broader deal, he responded that “decisions are first and foremost political.” Even though a framework and many of the details have been agreed upon, the bond exchange has stalled because of broader clashes between the EU and Greek authorities. EU officials have said Greece needs to show more commitment to promised reforms in order to receive the 130 billion-euro ($170 billion) aid package that was broadly endorsed in October. Finance ministers are discussing Greece on a conference call today, scheduled in place of a previously planned emergency meeting in Brussels. Institute of International Finance officials, who have been representing creditors in the negotiations and who had planned to be on the sidelines of the Brussels meeting, postponed their travels once the in-person meeting was canceled. The finance ministers have a regularly scheduled meeting in Brussels next week. Altafaj said today that there is an “urgency of proceeding smoothly” with all elements of the rescue package, including private-sector involvement.
  • Italian Economy Slips Into Recession, Contracts .7%. The Italian economy entered its fourth recession since 2001, contracting more than economists forecast in the fourth quarter as government austerity measures weighed on growth. Gross domestic product declined 0.7 percent from the previous three months, when it shrank 0.2 percent, national statistics institute Istat said in a preliminary report in Rome today. The contraction was more than the median forecast of a 0.6 percent decline by 22 economists surveyed by Bloomberg News.
  • Italian Government Debt Rises to $2.5 Trillion With Euro Bailout Costs. Italian government debt rose 4 percent in 2011 to 1.897 trillion euros ($2.5 trillion) on funding for European bailouts and a weaker euro that increased the cost of servicing foreign-denominated debt, the Bank of Italy said in a report today. The government contributed 9.2 billion euros to euro-region bailouts in 2011, about three times the amount of the previous year, the central bank said, after Greece, Ireland and Portugal needed rescues to avoid default. The decline in the euro added 200 million euros in debt financing costs, the report said.
  • Sovereign Default Risk Surges in Europe on Greek Bailout Delay. The cost of insuring European sovereign debt rose for a sixth day on concern delays to Greece’s bailout are increasing the chance of default. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed 12 basis points to a four-week high of 344 at 3:30 p.m. in London. Officials are considering postponing a full aid package until Greek elections in April, according to the Wall Street Journal, after finance ministers canceled a meeting today because they are unconvinced the nation will stick to austerity pledges. Greece needs the 130 billion-euro ($171 billion) deal, along with about 100 billion euros of debt relief from private bondholders, to avoid an economic collapse next month. “I can’t see them giving the money,” said Peter Tchir, founder of TF Market Advisors in New York. “Timing is getting tight.” Antonis Samaras, the leader of Greece’s second-biggest political party, sought to reassure European officials by providing a signed pledge to maintain the “objectives, targets and key policies” of the austerity program. He left open the possibility of “modifications” to Greek policies to promote growth. “It can’t be easy signing off on lending further cash when you don’t really believe that you are going to get it back,” Gary Jenkins, the director of independent credit firm Swordfish Research in London, wrote in a note to investors. The cost of insuring corporate and financial debt also rose, according to JPMorgan Chase & Co. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 24 basis points to 624. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 5.5 basis points to 143.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased four basis points to 237 and the subordinated index rose 15.5 to 405.5.
  • Paulson Says Euro Will Probably Unravel. Paulson & Co., the $23 billion hedge fund run by John Paulson, said the euro is “structurally flawed” and will eventually fall apart, according to a letter the firm sent to its investors. The collapse could be triggered by a Greek default, which would throw the world into recession and financial disorder, the New York-based firm said in the letter, a copy of which was obtained by Bloomberg News. “We believe a Greek payment default could be a greater shock to the system than Lehman’s failure, immediately causing global economies to contract and markets to decline,” the firm said. He sold his entire stakes in Citigroup Inc. and Bank of America Corp. last quarter before the shares started rallying this year. The holdings, which he began aggressively building in 2009, were among his largest last year. “While we have seen a reasonable recovery in the U.S. with leading indicators in early 2012 trending positive and equity valuations well below historical norms, the European sovereign debt crisis remains the overriding risk in the markets,” according to the letter. The hedge fund said it cut its so-called net exposure in one of its Advantage funds, among the firm’s largest, to 32 percent as of Jan. 31 from 82 percent at the start of last year. Paulson said it reduced net exposure because “we believe such a default could lead to a European banking crisis on par or worse than the world suffered in 2008 when Lehman Brothers failed.”
  • Obama Looks to Hollywood to Raise Millions for Re-Election Bid. Over the next three days Obama is seeking to raise more than $8 million for his re-election, the bulk of it coming from six fundraisers in Los Angeles, San Francisco and Corona Del Mar, California, including one event co-hosted by comedian Will Ferrell. He also plans to raise money in Washington state. Californians have given more to the president’s campaign than donors from any other state, according to the Center for Responsive Politics, a Washington-based group that tracks political money.
  • Deere(DE) Declines After Lowering Its Annual Forecast for U.S. Farmer Revenue. Deere & Co., the largest maker of agricultural equipment, fell the most in three months after lowering its forecast for U.S. farmer revenue, an indicator of demand for its signature green-and-yellow machines. Deere dropped 3.3 percent to $86.09 at 12:47 p.m. in New York. The shares earlier tumbled 3.8 percent, the biggest intraday decline since Nov. 9.
  • Iran Says It Loaded Locally Made Fuel Into Nuclear Reactor. Iran loaded locally built fuel plates into its nuclear research reactor in Tehran, state-run Press TV reported today, showing images of President Mahmoud Ahmadinejad inside the facility. Only a handful of countries, including France and the U.S., have the technology to build the 20-percent enriched fuel plates needed for the reactor, according to Iranian officials. Ahmadinejad described the step as a “major” nuclear feat.
Wall Street Journal:
  • U.S. Steps Up Watch of Syria Chemical Weapons. The U.S. and some Mideast allies are intensifying surveillance of Syria's chemical and biological depots amid fears that the weapons could go loose if unrest escalates out of control. The U.S. is using satellites and other surveillance equipment to monitor suspected chemical and biological weapons storage sites in Syria, military officials said, reflecting Washington's concerns about a growing proliferation threat.
  • Some Creditors Consider Delaying Full Greek Bailout. Some of Greece's euro-zone creditors are considering whether to delay a full bailout package for Greece until after the country's April elections, and they are floating the idea of issuing special bridge loans to cover the €14.4 billion ($18.91 billion) in bond redemptions coming due next month, according to several officials familiar with the situation. These officials emphasized that the thinking isn't broadly anchored among Greece's 16 euro-zone partners and currently isn't even in the proposal stage. The suggestion is coming from some of Greece's sovereign creditors holding triple-A credit ratings.
  • Goldman(GS) Analyst Under Investigation Was Known For Apple(AAPL) Supplier Calls. In Taiwan, Henry King, the Goldman Sachs analyst under investigation in the U.S. government’s broad insider-trading probe, was highly regarded and his calls were widely followed.
  • Fed Members Still Divided On Need For More Easing: Minutes. The Federal Reserve appears open to the idea of a third round of bond purchases to boost a still-modest recovery. But members remain divided over when or whether to take that step.
  • Mortgaage Apps Down as Purchase Demand Falls. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, dipped 1.0 percent in the week ended Feb 10. The gauge of loan requests for home purchases tumbled 8.4 percent, though the index refinancing applications edged up 0.8 percent.
  • Key Manufacturing Gauge Shows Sharp Gain. The Empire State Manufacturing Survey produced a January reading of 19.5, well above analyst expectations for a 15 and indicative that business conditions improved significantly. January's reading was 13.48. It was the highest level since June 2010.
  • US Industrial Production Unexpectedly Flat in January. U.S. industrial output was unexpectedly flat in January as steep declines in mining and utilities offset gains in manufacturing, a Federal Reserve report showed on Wednesday.
Business Insider:
Zero Hedge:
Washington Post:
  • Egypt's Muslim Brotherhood Rejects US Pressure Over Funding Of Pro-Democracy Groups. Egypt’s Muslim Brotherhood is throwing its weight behind the country’s military-backed government in an escalating dispute with the U.S. over pro-democracy groups Egypt accuses of seeking to foment protests against the country’s military rulers. The group praised in a statement Wednesday what it called the government’s “nationalist” position on the conflict over the role of the groups in Egypt’s politics.


  • Oliver Stone's Son Converts to Islam While In Iran. Sean Stone, the son of Oscar-winning director Oliver Stone and a defender of Iranian President Mahmoud Ahmadinejad, converted to Islam on Tuesday while filming a documentary in Iran, he told Agence France Presse. "The conversion to Islam is not abandoning Christianity or Judaism, which I was born with. It means I have accepted Mohammad and other prophets," Stone, whose famous father is Jewish and mother is Christian, told AFP. He underwent the ceremony in the city of Isfahan. The 27-year-old did not say why he converted. Iran's Fars news agency said he had become a Shiite and taken the Muslim first name Ali. In an interview with TheWrap at the Toronto Film Festival in September, he supported Iran's right to a nuclear program as a defense against threats from Israel.
  • Iron Ore - Shanghai Steel Falls For 5th Day, Ore at 6-Week Low.

USA Today:

  • Obama Wants Electric-Car Subsidies To Go To Automakers. We told you earlier about how the Obama administration is proposing to increase subsidies for electric cars, but it turns out that the breaks to go to automakers, not directly to consumers. Whether makers want to pass through the subsidies is their business.
Financial Times:
  • Bank Crisis Looms as Europe's Debt Woes Deepen. The eurozone debt crisis has expressed itself in bond market “spreads” – yield differentials of different countries’ ten-year government bonds vis-à-vis Germany’s Bunds. The logic behind this is that even if a stricken country’s debt problem lies in the private sector – as it does most spectacularly in Ireland and Portugal – the problem will show up as a banking crisis, requiring a government bail-out. So the government’s credit is the ultimate loser.


  • German banks and insurers have started including euro exit clauses in international financing contracts. The clause specifies that the transaction must take place in euros or the currency that is valid in Germany at the time.

Hamburger Abendblatt:

  • Frank Schaeffler, a lawmaker for the German Free Democratic Party, said he will not agree to a rescue package for Greece for the time being, citing an interview with the politician. The timeframe for approving the rescue in the German parliament is "questionable" and lawmakers should not be called on to decide the matter on short notice, he said.


  • China's southern region of Guangxi raised the minimum wage by about 22%, citing local officials.
  • China's railway fixed-asset investment fell almost 70% in January to $1.95 billion, citing statistics from the Ministry of Railways. Capital construction investment fell 76% to 8.73 billion yuan. Investment fell to less than the market had expected, even given the two holiday breaks last month.
Shanghai Daily:
  • Shanghai CPI Gains 4.9% to Beat National Figure. SHANGHAI'S Consumer Price Index rose 4.9 percent in January from a year earlier, higher than the national 4.5 percent growth, according to the Shanghai Statistics Bureau on Tuesday. Five out of the eight consumption expenditure categories covered by the CPI posted a price increase, the bureau said. The sub-indices for food jumped 11.5 percent, housing rose 5.2 percent and apparel up 4.8 percent. The prices of alcohol and cigarettes rose 1.2 percent while those of home appliance and maintenance services added percent.
  • Beijing's Office Costs Surge 38%. BEIJING posted the biggest increase in occupancy costs last year among global locations as landlords raised rents aggressively amid limited supply, according to a latest industry report released yesterday by a global real estate services provider. The average occupancy costs per workstation per annum in Beijing's CBD area rose 38 percent to US$8,830 in 2011, propelling the city to jump from 73rd to 35th in ranking, according to an annual Global Occupancy Costs - Office report by DTZ, which is now part of UGL Services, a division of UGL Ltd. The global ranking of Shanghai, particularly Jing'an District, rose to 37th in 2011 from 49th a year earlier. In the Asia-Pacific, Beijing and Shanghai were ranked the top 10 most expensive locations in 2011, with Beijing in ninth spot and Shanghai at No. 10. In 2010, Beijing was at 17th, and Shanghai at ninth. Globally, Hong Kong remains the world's most costly office location with occupancy costs per annum per workstation at US$25,160, ahead of London's West End and Geneva.

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