Tuesday, February 21, 2012

Today's Headlines

  • Greek Rescue Leaves Europe Default Risk Alive as Austerity Bites. Europe is still struggling to avoid the threat of default as investors warned Greece will soon risk violating the terms of its second bailout in three years. Seven months of negotiations ended in the pre-dawn hours in Brussels with Greece winning 130 billion euros ($172 billion) in aid it needs to avoid a March bankruptcy. Any respite may prove temporary after it signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year. Even with investors and central bankers chipping in to relieve the debt burden, economists from Citigroup Inc. to Commerzbank AG concluded Greece may again fail to deliver amid a fifth year of recession, looming elections and social unrest. The upshot could be the removal of aid and renewed debate over the merits of fresh assistance before year-end as policy makers shift toward doing more to inoculate the rest of Europe from contagion. “The bailout bandage is on, but it won’t take much to unravel,” said David Miller, partner at Cheviot Asset Management in London. “The euro zone has done its best to ensure that Greece will deliver on promises, but there is considerable scope for backtracking on deficit reduction.” Financial markets signaled doubt the accord will fix Greece’s travails permanently or spell an end to the two-year debt crisis. The euro surrendered initial gains against the dollar and European stocks fell from a six-month high.
  • Sovereign Credit-Default Swaps Rise Amid Greek Bailout Concerns. The cost of insuring against default on European sovereign bonds rose on concern the 130 billion-euro ($173 billion) bailout for Greece will fail to resolve the region’s debt crisis. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments increased eight basis points to 342 basis points at 11:26 a.m. in London. The Greek government’s decision to introduce legislation for so-called collective action clauses, allowing it to enforce losses on bondholders, makes it more likely that default swaps on the nation’s debt will be triggered. An International Swaps & Derivatives Association official said in an interview that the group is monitoring the situation “diligently.” The cost of insuring against losses on corporate debt also rose, with contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbing 7.5 basis points to 575.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.25 basis points to 133.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased nine basis points to 222 and the subordinated gauge was 10 higher at 372.5.
  • Oil Rises to Highest Level in Nine Months on Greek Aid, Iran Exports. Oil rose to the highest level in more than nine months after euro-area finance ministers agreed on a second bailout for Greece and Iran said it stopped selling oil to France and Britain. Prices gained as much as 2.1 percent after the ministers awarded 130 billion euros ($173 billion) in aid, wrung concessions from Greece’s private investors and engineered a profit transfer by the European Central Bank. Iran stopped selling oil to the two countries yesterday to preempt a European Union ban, according to an official news website. Oil for March delivery gained $1.61, or 1.6 percent, to $104.85 a barrel at 12:40 p.m. on the New York Mercantile Exchange after climbing to $105.44, the highest intraday price since May 5. Futures have risen 6.1 percent this year. The March contract expires at the close of floor trading today. The more actively traded April contract increased $1.56, or 1.5 percent, to $105.16 on the Nymex. Floor trading was closed yesterday because of the U.S. Presidents Day holiday. Brent oil for April settlement rose 52 cents, or 0.4 percent, to $120.57 a barrel on the ICE Futures Europe exchange in London.
  • Wal-Mart Profit Trails Estimates as Low Prices Hurt Margins. Wal-Mart Stores Inc., the world’s largest retailer, reported fourth-quarter profit that trailed analysts’ estimates as an emphasis on low prices hurt margins.
  • Home Depot(HD) Profit Beats Analysts' Estimates on Warm Weather. Home Depot Inc., the world's largest home-improvement retailer, reported fourth-quarter profit that exceeded analysts' estimates as warmer weather helped spur an increase in residential spending.
  • Iran Vows to Press On With Its Atomic Program as IAEA Visits. Iran pledged to press on with its efforts to develop atomic energy as the United Nations nuclear watchdog started a second day of meetings in Tehran to clarify aspects of the country’s activities. Iran has mastered the full nuclear-fuel cycle and the International Atomic Energy Agency supervises its work, Ramin Mehmanparast, a Foreign Ministry spokesman, told reporters in Tehran today. Iran is exercising its “right to peaceful nuclear energy,” he said in comments aired live by the state-run Press TV news channel. “There is nothing to negotiate.”
Wall Street Journal:
  • Top Banks in EU Rush for Safety. Top European banks, responding to new regulations and wary of lending, are stashing increasingly large sums of money at central banks around the world in a collective flight to safety. The eight giant European banks that have disclosed their annual results in recent weeks reported holding a total of about $816 billion in cash and deposits at central banks as of Dec. 31, according to calculations by The Wall Street Journal. That is up 50% from a year earlier, when the same banks were holding roughly $543 billion.
  • Paulson Sued Over Sino-Forest Wager. A former investor in John Paulson's hedge funds is suing Mr. Paulson's firm, alleging it failed to conduct sufficient due diligence into Sino-Forest Corp. before and after purchasing shares of the Chinese forestry company, an investment that cost Paulson & Co. about $500 million last year.
  • Comcast(CMCSA) Is Launching a Netflix(NFLX) Competitor.
Business Insider:
Zero Hedge:
  • Citigroup(C) to Allow Hedge Fund Managers Ownership Stakes Ahead of Volcker Rule. Citigroup Inc., the third-biggest U.S. bank by assets, will let managers of its hedge funds own part of the business ahead of rules that limit shareholders' cash in the unit, Chief Operating Officer John Havens said. Employees in the Citi Capital Advisors division, or CCA, will get a "significant" stake in managing the funds, Havens said in an interview. This will increase, he said, as New York-based Citigroup withdraws its own money and attracts outside investors to comply with the Volcker rule, which restricts deposit-taking banks from making bets with their own capital.
Time U.S.:


  • Insight: ECB Preparing to Close Liquidity Floodgates. The European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone's longer-term future. Powerful members of the central bank's 23-man governing council are privately hoping demand at the February 29 auction will fall well short of the 1 trillion euros some expect, backing their view that it should be the last. Central bank sources say they are worried that banks will become too reliant on ECB funds, removing the incentive to restart lending between themselves.
  • Gold Up One Percent On Greek Deal, Economic Uncertainty. Gold rose about one percent on Tuesday, outpacing gains in the euro and equities, as a massive European bailout deal as investors bought the metal amid doubts the bailout will work. Spot gold rose 1.2 percent on the day to $1,755.19 an ounce by 11:30 a.m. EST (1630 GMT), having earlier hit a high of $1,756.41, the loftiest price since February 3.
  • Airline Shares Tumble on Oil Price Rally. Airline shares fell broadly on Tuesday, with US Airways Group's stock leading the decline, as the price of oil rallied, which directly influences the cost of jet fuel. US Airways shares plummeted 10.4 percent to $7.97 on the New York Stock Exchange. Shares of United Continental Holdings were down 7.78 percent at $21.55, and Delta Air Lines' shares fell 6 percent to $10.18, both on the NYSE.

Financial Times:


Der Spiegel:

  • Portugal Needs More Money To Stay Afloat. With its massive austerity measures, Portugal has become the poster child of the troika of the EU, ECB and IMF. But the country is still stuck in a deep recession and it is unclear how it will return to growth. It may need to rely on European loans for years to come.


  • Greek banks will have to raise 50 billion euros of extra capital, rather than the 30 billion euros, originally estimated, citing a report on Greece's debt sustainability by the IMF, the EC and the ECB, the so-called troika.

Athens News:

  • New Measures 'Murdering the Market', Retailers Warn. Retailers are warning that new austerity measures set to be approved by parliament this week are "murdering the market" and worsening the country's recession. "Rampant over-taxation and failed recessionary measures are murdering the market and throwing Greek society into a Third World environment."

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