Today's Headlines

Bloomberg:

• Euro-Region Debt Rises to Highest in Currency's History. The debt of the euro region rose last year to the highest since the start of the single currency as governments increased borrowing to plug budget deficits and fund bailouts of fellow nations crippled by the fiscal crisis. The debt of the 17 euro nations climbed to 87.2 percent of gross domestic product in 2011 from 85.3 percent the previous year, official European Union figures showed today. That’s the highest since the euro was introduced in 1999. Greece topped the list with debt at 165.3 percent of GDP, while Estonia had the least at 6 percent of GDP. Euro-region nations are on the hook for the bulk of the 386 billion euros ($508 billion) in bailouts for Greece, Ireland and Portugal after those nations were forced to seek rescues when their borrowing costs become unsustainable. Concern that Spain and Italy may follow has led their bonds to decline for six weeks, pushing yields toward the 7 percent level that triggered the other aid programs. “The different debt trajectories of the euro-area countries crystallize the process of great divergence between the periphery and the core of the euro area and even more markedly between Germany and the rest of the region,” Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London, said by phone.
• European Services, Manufacturing Shrink for Third Month: Economy. Euro-area services and manufacturing output declined for a third month in April as the economy struggled to rebound from a fourth-quarter contraction. A euro-area composite index based on a survey of purchasing managers in both industries fell to 47.4, a five-month low, from 49.1 in March, London-based Markit Economics said in an initial estimate today. Economists had forecast an increase to 49.3, according to the median of 17 estimates in a Bloomberg News survey. A reading below 50 indicates contraction. Budget cuts by governments and surging unemployment are curbing the pace of Europe’s economic recovery as officials across the region battle the sovereign-debt crisis. Manufacturers from Europe to China have been buffeted as the fiscal squeeze has crimped demand. “Not only does it look highly likely that the euro zone suffered further economic contraction in the first quarter of 2012 after gross domestic product fell 0.3 percent quarter-on- quarter in the fourth quarter of 2011, but the April purchasing managers’ surveys suggest that a third quarter of GDP contraction is firmly on the cards for the second quarter of 2012,” said Howard Archer, an economist at IHS Global Insight in London.
• Netherlands Leads Rise in Sovereign Credit Risk on Deficit Woes. The Netherlands led an increase in the cost of insuring against default on European sovereign debt to the highest in four weeks as the government offered to resign after lawmakers split over austerity plans. Credit-default swaps on Dutch bonds jumped 11.5 basis points to 130 at 3:20 p.m. in London, according to data compiled by Bloomberg, the highest in five months. Corporate credit risk also rose as reports showed manufacturing contracted in the euro area and China. “There is a danger that we will see a move to more radical, less Europe-friendly policies in the Netherlands,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “A change in the Dutch government raises concern as to whether they will get the budget through and whether they lose their triple A rating which is causing the widening at the moment.” The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments jumped four basis points to 285. The debt of the 17 euro nations climbed to 87.2 percent of gross domestic product in 2011 from 85.3 percent the previous year, official European Union figures showed. That’s the highest since the euro was introduced in 1999. Greece topped the list with debt at 165.3 percent of GDP, while Estonia had the least at 6 percent of GDP. The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings increased 22.5 basis points to 695.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings advanced 6.5 basis points to 150.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose eight basis points to 263 and the subordinated index jumped 12.5 to 422.5.
• Weidmann Says ECB Firepower is Limited, Governments Must Act. European Central Bank council member Jens Weidmann said calls for the central bank to do more to fight the sovereign debt crisis overestimate its capacity. “Monetary policy is not a panacea and central bank firepower is not unlimited, especially not in a monetary union,” Weidmann said in a speech in New York today. “We can only win back confidence if we bring down excessive deficits and boost competitiveness. And it is precisely because these things are unpopular that makes it so tempting for politicians to rely instead on monetary accommodation.”
• Europe's Austerity Backlash Gathers Steam in Merkel Test. Europe’s backlash against austerity gained momentum, in a challenge to German Chancellor Angela Merkel’s budget-cutting prescriptions for resolving the debt crisis. French President Nicolas Sarkozy lost the first round of his re-election bid and a revolt against extra spending cuts in the traditionally budget-conscious Netherlands propelled Prime Minister Mark Rutte’s coalition toward an early breakup. Together with anti-austerity rumblings in a campaign for elections in Greece, the shift in grass-roots sentiment at the heart of Europe generated fresh doubts about the German-driven strategy for getting to grips with the two-year-old crisis.
• China's Stocks Decline on Manufacturing Report, ChiNext Rules. China’s stocks fell the most in almost a week after a preliminary report on manufacturing signaled a sixth month of contraction and officials tightened standards for small companies listed on the ChiNext Board. The Shanghai Composite Index (SHCOMP) slid 18.28 points, or 0.8 percent, to 2,388.59 at the close, the biggest drop since April 17. The CSI 300 Index (SHSZ300) lost 0.8 percent to 2,606.04. The ChiNext index declined 5.3 percent. Companies listed on the ChiNext Board will be delisted if they are censured by the exchange three times over a three-year period, the exchange said in an April 20 statement. The companies will also be removed from the board if their share prices close below par values for 20 consecutive days or net asset values are negative for the latest year, according to the statement. The exchange said it won’t support ChiNext companies seeking to regain listing status by means of reverse takeovers. The rules, which amend a plan announced in February, will come into effect on May 1, according to the statement.
• China March Copper Imports Decline as Exports Surge. Refined-copper imports by China declined 8 percent in March from a month earlier while exports surged on high inventories and tepid demand. Inbound shipments were 345,667 metric tons last month, according to data e-mailed by the General Administration of Customs today. This compares with 375,831 tons in February and 192,161 tons a year ago. Exports totaled 26,537 tons, the highest since April 2011, customs data showed. “April exports will probably be even higher than March,” said Wang Lixin, a Beijing-based analyst with researcher Custeel.com. “The domestic market faces huge pressure from the high inventories, which should cap imports in coming months.” Inventories at bonded warehouses, which are located in Shanghai’s free-trade zones, were about 600,000 tons, compared with less than 100,000 tons in 2008, Goldman Sachs Group Inc. said in a report on April 19. Inventories at LME warehouses in Asia climbed to 38,625 tons, a four-month high, as of April 20. “The bad news is that copper fabricators now even have inventories of their products, which was rarely seen in the past,” Wang said.
• Social Security Fund to Run Out in 2035, Trustees Say. The Social Security program will exhaust its trust fund in 2035 and have to start reducing benefits to senior citizens unless Congress intervenes, its trustees said. That is three years sooner than projected in 2011 for the retirement benefits program, which serves 44 million people, the trustees said in an annual report today. Social Security’s disability program, which aids 11 million Americans, will run through its trust fund in 2016, two years earlier than predicted. The report attributed the fiscal stress in part to the weak economy. The combined Social Security trust funds would be depleted in 2033, three years earlier than projected. The giant retirement programs are straining the government’s finances, and what to do about them is a central issue in the election-year debate between Democrats and Republicans as President Barack Obama seeks a second term. “Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible,” the report urged. “Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has adequate time to prepare.” The main fund that supports the Medicare health-care program for the elderly will run dry in 2024, the report said.
• Facebook(FB) to Buy AOL(AOL) Patents From Microsoft(MSFT) for $550 Million.
  

Wall Street Journal:

• No One Bids on Dinner at Warren Buffett's Childhood Home. A charity auction that offered dinner for ten in Warren Buffett’s boyhood home has gone flat.
• Wall Street Prepares to Cut Senior Banker Jobs. Wall Street's latest problem: too many bankers and not enough deals. Amid new regulation, lower profits and a dreary market for mergers and acquisitions, several banks are planning to trim investment-banking units that were built for an era of deals aplenty. Having already slashed bonuses, banks including Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley are preparing to cut dozens of jobs, including some held by senior bankers, according to people familiar with the matter.
  

MarketWatch:

• Goldman Sachs(GS) Under Pressure to Reveal Lobby Ties.

Business Insider:

• Jim Cramer: 'TheStreet.com Is Really In Turmoil'.
• Europe Ends With Total Carnage, Italy Plunges Nearly 4%.
• 14 Awful Facts About The French Economy.
• Here's The Real Reason Marine Le-Pen Should Scare Europe. The big issue is that Marine Le-Pen was wildly popular among youth voters according to pre-election polls. According to one poll in early April, Le-Pen was winning among 18-24 year old voters. When the future of rich European country like France is so strongly in favor of a Euroskeptic the political establishment around the Eurozone has to be pretty terrified.

Zero Hedge:

• Europe Slumps to 3-Month Lows as Spain Nears 2009 Lows. (graphs)

New York Times:

• China's Biggest Banks Are Squeezed for Capital. Within the last year, seven of the biggest Chinese banks tapped the markets for 323.8 billion renminbi ($51.4 billion ) in new funds, according to Citigroup estimates. Several financial firms are expected to raise another $17.7 billion in the next few months, with China’s fifth-biggest lender, the Bank of Communications, accounting for $9 billion.

Real Clear Politics:

• The Pain in Spain. Just when you thought the world economy might be improving, along comes Spain. It's Europe's next economic domino, struggling to cope with big budget deficits, massive unemployment and an angry public. Will it fail -- and, if so, with what consequences?

Reuters:

• Exclusive: Half Iran Tanker Fleet Storing Oil At Sea. Iran has been forced to deploy more than half its fleet of supertankers to store oil at anchorage in the Gulf as buyers of its crude cut back because of sanctions, two Iran-based shipping sources said.
• Greece Should Exit Euro to Save Economy - Ifo Head. Greece's ability to recover competitive economic standing will be severely constrained if it continues to use the euro, and other indebted euro zone countries will likely face similar struggles, the head of Germany's prominent Ifo economics institute said on Monday.

Telegraph:

• François Hollande's potential spending spree in France has caused concern in austerity Europe. Traders, rating agencies and the European Union at large could soon be "manning the barricades" in France. The country boasts a strong tradition of popular revolt but this time it is a socialist leader who is threatening to trigger resistance.

Finansavisen:

• Norway's Financial Supervisory Authority is worried about households' debt levels, FSA Director General Morten Baltzersen said.
  

Euro2day:

• Greece's central bank forecasts the economy will contract more than 4.5% of GDP this year.

OpenEurope Blog:

• German Media Looks For Meaning In French Presidential Election Result.
  

Kathimerini:

• EIB Inserts Drachma Clauses in Loans to Greek Firms. The European Investment Bank is hedging itself against a Greek exit from the eurozone by inserting drachma clauses in the loan deals it signs with Greek enterprises. The EIB proposed for the first time two new terms, one of them being the possible renegotiation of the agreement should Greece leave the eurozone or should the common currency area break up. The second was placing the agreement under English law, in case of any irregularities in the payback process. EIB sources suggest that the currency-change clause will be included in all contracts with countries applying economic stability programs (Greece, Portugal and Ireland) and gradually expand to all eurozone countries.