Monday, February 27, 2012

Today's Headlines

  • Merkel: "Incalculable' Damage If Greek Plan Rejected. Chancellor Angela Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk “incalculable” damage, defying a public backlash against more bailout funds. In a vote that showed dissent in her coalition growing, 496 members of the lower house, or Bundestag, voted in favor of the 130 billion-euro ($174 billion) package in Berlin; 90 voted against and five abstained. While questions on Greece’s remaining in the euro “have their justification,” Merkel warned that a failure of the euro might endanger the Europe Union and the global economy. “I think those risks are incalculable, and therefore indefensible,” Merkel told lawmakers in the Bundestag today. As chancellor, “I should and have to take risks, but I cannot embark on adventures. My oath forbids that,” she said. Merkel’s government pushed through the measure to stave off a collapse of the Greek economy amid signs of growing resistance and as one of her Cabinet ministers said Greece should leave the single currency. Euro leaders will now shift their focus on whether to bolster the region’s bailout firewall as they prepare for a summit meeting in Brussels on March 1-2.
  • Draghi's Unlimited Loans Are No Panacea for Banks: Euro Credit. European Central Bank President Mario Draghi's success in quelling a bond-market rout across the euro region's periphery masks a failure by the region's banks to bolster their capital. The ECB will offer a second round of unlimited three-year funds on Feb. 29. Firms will seek 470 billion euros ($629 billion), approaching the 489 billion euro take-up by 500 banks at the first long-term refinancing operation on Dec. 21, the median estimate of 28 analysts surveyed by Bloomberg show. "The worry is it may act to keep afloat institutions that aren't exactly viable," said Stewart Robertson, chief European economist at Aviva Investors in London, which manages more than $425 billion. "This buys time for banks, but does it really provide them with an incentive to sort out their books? The worry is it doesn't."
  • Sovereign, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed two basis points to 346.5 at 8:15 a.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 7.5 basis points to 582.5, according to BNP Paribas SA. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose two basis points to 132 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 1.5 basis points to 214.5 and the subordinated index rose five to 365.
  • Europe Bond Risk 9 Times Higher Than U.S. After Greek Pact. The bailout that rescued Greece from a looming default has failed to restore confidence in credit markets, where traders are paying nine times more to insure European government bonds than they are for Treasuries. While European stocks are off to their best start since 1998, the relative cost of credit default swaps has risen to a record, more than double the July level, according to CMA. To obtain 130 billion euros ($175 billion) in aid to help pay interest on bonds due March 20, Greek Prime Minister Lucas Papademos agreed to reduce debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year. While chances of defaults and the breakup of the euro may have diminished, investors are no longer rewarding European governments for reducing spending to cut debt as their economies shrink.
  • Pending U.S. Home Resales Show Housing Market Regaining Footing: Economy. More Americans than forecast signed contracts to buy previously owned homes in January, indicating the industry that sparked the last recession is improving. The index of pending home resales climbed 2 percent after a 1.9 percent decrease the prior month that was smaller than previously estimated, the National Association of Realtors said today in Washington. The median forecast of 44 economists surveyed by Bloomberg News called for a 1 percent advance.
  • Private Equity Funds Expect Credit Access to Worsen, PwC Says. Private equity funds expect the situation in the markets and access to credit to worsen this year, according to a study by PricewaterhouseCoopers LLP. Some 51 percent of the 170 private equity companies included in the study said they believe it will be more difficult to get funding, while 47 percent expect markets to deteriorate, PwC said in an e-mailed statement today. Still, 46 percent forecast rising investment volumes while 37 percent see a higher number of exits in 2012, according to the study.
Wall Street Journal:
  • China Plans 'Buy Local' Rule on Government Cars. It adds to the rising number of regulatory restrictions facing foreign auto makers, adding to what some foreign auto executives say is a worrying environment. Previous measures include an increasingly restrictive approval process for expansions and a shift away from efforts to draw foreign capital to the industry.
  • Spain Misses Deficit Target. The Spanish government said Monday it missed its 2011 budget-deficit target by a wide margin, highlighting the difficulties in closing one of the euro zone's largest budget gaps as the country's economy entered a new downturn. The Spanish budget ministry said Spain's total public-sector budget deficit stood at 8.51% of gross domestic product last year, above the 8% estimate the new government of Prime Minister Mariano Rajoy gave in December. Spain had been aiming for a budget deficit equal to 6% of GDP in 2011. According to the budget ministry, Spain's regions were responsible for the biggest portion of the 2011 overrun. They had a budget gap equal to 2.94% of GDP, compared to a target of 1.3%. In highly decentralized Spain, the regions control over one third of spending, complicating the government's deficit-reduction push.
Business Insider:
Zero Hedge:

The Detroit News:


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