Evening Headlines
Bloomberg:
- Draghi Says Governments Must Continue to Take Decisive Measures. European Central Bank President Mario Draghi said euro-region governments should continue to take “decisive measures” after the central bank’s liquidity provisions helped restore investor confidence. While the ECB’s injection of more than 1 trillion euros ($1.3 trillion) into the banking system has calmed markets, “no single institution can carry the burden of addressing a set of challenges that are simultaneously economic, financial and fiscal,” Draghi said in Berlin yesterday. “The current stabilization should not make us pause in our responses.” Finance ministers from the 17 nations will meet in Copenhagen on March 30 and Chancellor Angela Merkel gave her first indication yesterday that she is prepared to allow an increase in the debt-crisis firewall, saying that Germany could let the temporary and permanent rescue funds run in parallel. Merkel cited “fragility” in Spain and Portugal as she revealed Germany’s position on addressing the future backstop.
- BOE Says European Debt Concerns Persist as Yields Stay Elevated. The Bank of England said investors remain concerned about the euro-area outlook even after measures by policy makers helped reduced some tensions in markets. “Concerns about the indebtedness and competitiveness of some euro-area countries persisted and remained a key influence on financial markets,” Chief Economist Spencer Dale wrote in the bank’s Quarterly Bulletin, published in London today. Still, in the three months to March 9, “financial-market sentiment improved considerably over this period amid a range of actions by policy makers, both in the U.K and abroad.” Italian Prime Minister Mario Monti said over the weekend that Spain’s struggle with its finances could revive contagion in Europe as finance ministers prepare a deal to strengthen the region’s firewall. The Bank of England noted in the bulletin that sovereign bond yields in some countries remain “elevated.”
- Spanish Banks' Bond Buying Can't Cap Funding Costs: Euro Credit. Spanish banks are using loans from the European Central Bank to buy domestic government debt in a recycling exercise that hasn't stopped 10-year yields from climbing back above 5% in recent weeks. Investments in government debt by Spanish banks climbed to a record 230 billion euros in January from 178 billion euros in November, a jump of 29%, central bank figures show. "The increase in debt purchases by the Spanish banks has been massive and it's clear it's coming from the LTRO," said Tobias Blattner, an economist at Daiwa Capital Markets in London, referring to the ECB's loans program. "The key point is that Spanish banks can't keep up the pace because the situation is still so volatile and prone to changes of sentiment."
- Ackermann Says Spanish Contagion 'Not Off Table,' N-TV Reports. Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said that while the solution to Greece’s crisis reduced the risk of contagion to Spain and Portugal, such a scenario is “not completely off the table,” N-TV reported. Europe has “taken good steps” in solving its debt crisis, N-TV cited Ackermann as saying in an interview. He added that some “fundamental tasks” remain, with the biggest being in mid-term growth and unemployment, N-TV reported. If Europe’s debt problems are solved in five years, it would represent a “fantastic achievement,” Ackermann also told the news channel. While Europe has “all chances and a huge potential” to find a solution to the debt crisis, “brave steps” are needed, the TV station cited him as saying.
- Libor Flatlines as Europe-Wary See Stress Signs: Credit Markets. Stresses in the global financial system have stopped easing as a European Central Bank official signals they're unlikely to extend a third round of unlimited loans to the region's banks and as bond yields in Spain and Portugal begin to rise again. The 3-month libor has held at about .47 percent every day in March, after sliding from this year's high of .58 on Jan. 3. Measures from interest-rate swap spreads to the relative yields on short-term bonds sold by the world's biggest banks also show the health of the financial system isn't improving.
- China's Industrial Company Profits Fall 5.2% on Exports. Chinese industrial companies had their first January-February profit decline since 2009 as slowing exports and a government campaign to cool property prices damped earnings. Net income dropped 5.2 percent from a year earlier to 606 billion yuan ($96 billion), the National Bureau of Statistics said on its website today. That compared with a 34.3 percent gain in the first two months of 2011. The bureau didn’t release a figure for January because of a weeklong Chinese New Year holiday that disrupted production. “Earnings growth will continue to slow as companies are squeezed from both ends: slowing investment demand and elevated costs,” Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said before today’s release. “The government’s property curbs are having a chain effect by slowing housing investment and demand for all related goods such as steel, cement, construction machinery and electric appliances.”
- FHA Bailout Risk Looming Larger After Guarantee Binge: Mortgages. The Federal Housing Administration won’t be able to earn its way to financial health this year, increasing the chance it will need a taxpayer bailout, based on an updated forecast from Moody’s Analytics, which provides the agency’s housing-market analysis. The U.S. government mortgage-insurer, which guarantees $1.1 trillion in home loans, had been counting on “robust growth” in home prices to help rebuild its insurance fund after paying out $37 billion to cover defaults the past three years, according to its annual report to Congress, filed in November. It won’t get that growth until 2014, according to the latest outlook from Moody’s Analytics. Prices will fall 3 percent in fiscal 2012 before growing 1.4 percent in 2013 and 6.5 percent in 2014, said Celia Chen, a Moody’s Analytics housing economist who updated her estimate after providing the housing-market forecast for the FHA’s annual actuarial report. “The FHA’s economic projections are surreal,” said Andrew Caplin, a New York University economics professor who has testified to Congress on the agency’s finances. “They must believe there will be very few readers in Congress able to critically review such a complex report.”
- U.S. House Backs Exemptions to Swaps Rules in Bipartisan Vote. The U.S. House voted to exempt manufacturers and commercial swap-users from collateral requirements and ease regulations on inter-company trades in a bid to amend the Dodd-Frank Act financial overhaul. The collateral measure, approved 370-24 in Washington, is designed to bar regulators from requiring so-called end-users to post margin. MillerCoors LLC has sought an exemption for swaps it uses to hedge the price of aluminum, while Baltimore-based Constellation Energy Group (CEG) uses derivatives to hedge volatility in physical energy markets.
- Netanyahu Sees Strike on Iran's Nukes as Worth the Risk.
- Obama Says 'Bad Actors' Trying to Get Nuclear Material. President Barack Obama said there are “still too many bad actors” in the world trying to get their hands on nuclear material, which could result in a terror attack that kills large numbers of people. “These dangerous materials are still vulnerable in too many places,” Obama said today at the opening session of the Nuclear Security Summit in Seoul, which has drawn more than 40 world leaders. “It would not take much, just a handful or so of these materials, to kill hundreds of thousands of innocent people and that’s not an exaggeration, that’s the reality that we face.”
- Critics Seize on Obama's Promise of Post-Election 'Flexibility' to Russia. (video) Republicans questioned whether President Barack Obama was being forthright with Americans after he was heard telling Russian President Dmitry Medvedev that he will have more flexibility to negotiate differences over missile defense after the November election. In remarks that were picked up by microphones as Obama and Medvedev concluded a one-on-one meeting in Seoul, South Korea, Obama said he needs Russia’s President-elect Vladimir Putin, who takes office in May, to “give me space” to deal with Russian objections to a planned U.S. missile-defense system in Europe. “This is my last election, and after my election I have more flexibility,” Obama said to the Russian leader. “I understand,” Medvedev replied in English, adding he will “transmit this information to Vladimir.”
- EPA Said to Be Close to Tightening U.S. Greenhouse-Gas Limits. The Environmental Protection Agency is close to issuing the first limits to cut U.S. greenhouse gases from power plants, with an announcement possible as soon as tomorrow, according to people familiar with the matter. The rules from President Barack Obama’s administration would set emissions for all power plants at the level established for a natural-gas plant, or about half what is released from a coal-burning facility. Any new coal plants would need expensive carbon-capture equipment, according to the people, who declined to be identified before an announcement. “It will make it nearly impossible to build a new coal plant,” Michael Brune, executive director of the Sierra Club, said in an interview. Environmental groups such as the Sierra Club are pressing the Obama administration to issue tight standards to head off an increase in global warming that they warn could be catastrophic. “If old King Coal isn’t dead already, he’s certainly teetering toward life support,” said Frank O’Donnell, president of Clean Air Watch in Washington.
- JPMorgan(JPM) Tops The MF Global Witness List. A House subcommittee said a top lawyer at J.P. Morgan Chase & Co. will testify at a highly anticipated hearing Wednesday into the collapse of MF Global Holdings Ltd. Diane Genova, a deputy general counsel at J.P. Morgan, was one of seven witnesses announced by the House Financial Services subcommittee on oversight and investigations. The New York bank declined to comment Monday on Ms. Genova's likely testimony. J.P. Morgan hasn't previously been questioned by lawmakers about its ties to MF Global.
- Economist: World Bank Suggestions for China Reform "Garbage". The World Bank’s 2030 report on the reform priorities for the Chinese economy is “mainly garbage” according to an economist at Beijing’s Renmin University. “The reforms they propose make sense, but they have no idea where to start” Tao Ran, a professor with the Renmin University School of Economics at said in an interview with China Real Time on Thursday.
- Planned Pipelines to Rival Keystone XL. Two major energy companies are planning to build new pipelines that will move as much as 850,000 barrels of crude oil a day from Canada to refineries along the Gulf Coast by mid-2014, in the latest effort to cope with a surge of oil production in North America. The separate projects, planned by Houston-based Enterprise Products Partners LP and Enbridge Inc. of Calgary, will compete with TransCanada Corp.'s proposed Keystone XL pipeline, a massive project to move crude from the oil sands of Alberta to U.S. refineries.
- Digital-Privacy Rules Taking Shape. Frustrated by a flood of privacy violations, the Federal Trade Commission on Monday issued a strong call for commercial-data collectors to adopt better privacy practices and called for Congress to pass comprehensive privacy legislation. In a starkly-written 73-page report on privacy in the digital age, the agency called on U.S. commercial data collectors to implement a "Do Not Track" button in Web browsers by the end of the year or to face legislation from Congress forcing the issue.
- Steel Finds Sweet Spot In The Shale. Natural-Gas Boom Begets Low Prices for Fuel, Strong Demand for Piping—a Double Boon for Mills.
- Global Warming Models Are Wrong Again. The observed response of the climate to more CO2 is not in good agreement with predictions.
- China Life 2011 Profit Falls 45% On Stock Losses. China Life Insurance Co., the nation's biggest life insurer by premiums, said Monday its 2011 net profit plunged 45% because China's stock market losses battered the company's investment performance. The stock market rout, coupled with slower premium growth, made last year particularly tough for Chinese insurers.
- The Yen's Looming Day Of Reckoning. Japan is on an unsustainable path of a strong yen and deflation. The unprofitability of Japan’s major exporters and emerging trade deficits suggest that the end of this path is in sight. The transition from a strong to weak yen will likely be abrupt, involving a sudden and big devaluation of 30% to 40%. It will be a big shock to Japan’s neighbors and its distant competitors like Germany. The yen’s devaluation in 1996 was a main factor in triggering the Asian Financial Crisis. Japan’s neighbors must have a strong banking system to withstand a bigger devaluation of the yen.
- Australia Shows Signs of Coming Downturn: Dow(DOW) CEO. Dow Chemical Co.'s chief executive said Tuesday that he sees signs of a coming downturn in the Australian economy, arguing that jobs growth and overall competitiveness are in decline. Andrew Liveris was unveiling a plan to resurrect Australia's manufacturing sector at a conference held at the University of Technology in Sydney. "We are seeing troubling signs for our economy at large--maybe even signs of a coming downturn," he said. Liveris said Australia's current growth trajectory is "unsustainable" and that the country had grown far too reliant on China for its prosperity.
Zero Hedge:
- TBTF Get TBTFer: Top 5 Banks Hold 95.7%, Or $221 Trillion, Of Outstanding Derivatives. Every quarter the Office of the Currency Comptroller releases its report on Bank Derivative Activities, and every quarter we find that the Too Big To Fail get Too Bigger To Fail. To wit: in Q4 2011, of the total $230.8 trillion in US outstanding derivatives, the Top 5 banks (JPM, BofA, Morgan Stanley, Goldman and HSBC) accounted for 95.7% of all Derivatives.
- John Corzine - An Insider Helping Out Fellow Insiders.
- Chairman Of Armed Services Subcommittee Asks What Obama Has Offered To Russia As A Bargaining Chip.
- 4 Years Of Japanese Central Planning Failure Charted.
- Top Obama Donors Get To The White House. More than 60 of Obama's biggest campaign donors have visited the White House more than once for meetings with top advisers, holiday parties or state dinners, a review by The Associated Press has found.
- Third Round of Bond Buying Not Needed: Fed's Bullard. A third round of Treasurys purchase is not necessary unless the U.S. economy deteriorates further, according to James Bullard, president of St Louis Federal Reserve Bank. "I think QE3 would require the economy to deteriorate somewhat from where it is right now," Bullard said. "The basic story on the U.S. economy is that we've had good news over the last six months or so, especially compared to the recession scenario that was being painted in the August-September time period of last year." Injecting too much liquidity into the system will also have the effect of driving commodity prices higher and reducing real spending power, Bullard said. "I think one of the biggest mistakes is continue to throw us much more in the way of monetary injections into the economy and with that, you get a much higher increase in commodity prices and potentially produce less global consumption across the world, which slows economic activity down," Bullard said. "I'm afraid that's the real danger just now - that we've maintained too loose of a policy right across the global economy and what results is inflation and reduction in real spending power."
- US World Bank Nominee Under Fire Over Book. Jim Yong Kim, the US nominee to head the World Bank, is coming under fire over a book he co-authored that criticises “neoliberalism” and “corporate-led economic growth”, arguing that in many cases they had made the middle classes and the poor in developing countries worse off. Some economists are arguing that Dying for Growth, jointly edited by Dr Kim and published in 2000, puts too great a focus on health policy over broader economic growth. “Dr Kim would be the first World Bank president ever who seems to be anti-growth,” said William Easterly, professor of economics at New York University. “Even the severest of World Bank critics like me think that economic growth is what we want.”
NY Times:
- Support in U.S. for Afghan War Drops Sharply, Poll Finds. After a series of violent episodes and setbacks, support for the war in Afghanistan has dropped sharply among both Republicans and Democrats, according to the latest New York Times/CBS News poll. The survey found that more than two-thirds of those polled — 69 percent — thought that the United States should not be at war in Afghanistan. Just four months ago, 53 percent said that Americans should no longer be fighting in the conflict, more than a decade old. The increased disillusionment was even more pronounced when respondents were asked their impressions of how the war was going. The poll found that 68 percent thought the fighting was going “somewhat badly” or “very badly,” compared with 42 percent who had those impressions in November.
- Deutsche Bank(DB) No. 1 in Europe as Leverage Hits Market Valuation. Deutsche Bank AG, adding assets as other lenders trim their balance sheets, leapfrogged France’s BNP Paribas SA to reclaim the title of Europe’s largest bank. Assets at the Frankfurt-based company rose 14 percent to 2.16 trillion euros ($2.88 trillion) in 2011, making it the largest publicly traded bank in Europe for the first time in five years, according to data compiled by Bloomberg. Chief Executive Officer Josef Ackermann, who has called proposals to limit bank size “misguided,” will leave behind a balance sheet about 40 percent larger than in 2006, and more than 80 percent as big as Germany’s economy, when he steps down in May. The firm is the second-most leveraged and third-least capitalized of Europe’s 10 largest banks, even after Ackermann boosted reserves and trimmed dependence on borrowed money. “Deutsche Bank has been pretty decidedly opposed to reducing its balance sheet,” said Lutz Roehmeyer, who helps manage about $15 billion at Landesbank Berlin Investment. “It’s understandable: The higher your leverage, the higher the returns when times are good. They want to cut as little as possible to keep doing as much business as possible.”
- Muni Board Inches Toward More Electronic Trading. The board overseeing the $3.7 trillion U.S. municipal bond market on Monday moved closer to allowing more investors to use electronic trading platforms, officially seeking a change in a key regulatory definition. The Municipal Securities Rulemaking Board petitioned the Securities and Exchange Commission to redefine "sophisticated investor," which would help determine the suitability of transactions for some bond buyers. The MSRB, a self-regulatory organization made up of issuers, analysts and bankers, writes the rules that the SEC enforces.
- U.S. Gasoline Rises to Record Premium Over Ethanol.
- Spanish PM Mariano Rajoy's Election Defeat Fuels Bail-Out Fears. The Spanish ruling party’s failure to win control in a key state election is a “serious setback” that casts doubts over the government’s ability to stick to its financial reforms, economists have warned.
- The China Communist Party's central committee removed Chen Cungen as a standing member of Chongqing city's party committee. Chen Cungen served as the head of Chongqing's People Congress.
Jefferies:
- Rated (MU) Buy, target $11.
- Asian equity indices are +.25% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 147.50 -4.0 basis points.
- Asia Pacific Sovereign CDS Index 128.50 -1.0 basis point.
- FTSE-100 futures +.29%.
- S&P 500 futures +.01%.
- NASDAQ 100 futures +.01%.
Earnings of Note
Company/Estimate
- (LEN)/.05
- (MKC)/.53
- (WAG)/.77
- (RBN)/.74
- (PVH)/1.09
9:00 am EST
- The S&P/CS 20 City MoM% SA for January is estimated to fall -.3% versus a -.5% decline in December.
10:00 am EST
- Consumer Confidence for March is estimated to fall to 70.1 versus 70.8 in February.
- The Richmond Fed Manufacturing Index for March is estimated to fall to 18.0 versus 20.0 in February.
Upcoming Splits
- (CPRT) 2-for-1
Other Potential Market Movers
- The Fed's Bernanke speaking, Fed's Plosser speaking, Italy Bond Auction, 2Y T-Note Auction and the weekly retail sales reports could also impact trading today.
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