Monday, May 07, 2012

Today's Headlines

Posted by Gary .....at 3:00 PM

Bloomberg:
  • Merkel Rejects Stimulus in Challenge to Hollande's Growth Plans. German Chancellor Angela Merkel rejected government stimulus as the way to spur economic growth in Europe, setting up a clash with French President-elect Francois Hollande before he’s even taken office. In her first response to Hollande’s victory in yesterday’s French election, Merkel rejected a return to the “huge” stimulus programs following the financial crisis in favor of business-friendly economic changes. She and Hollande will talk “very openly” about the form of growth to pursue, a discussion now taking place across Europe and “to which the new French president will bring his own accents.” “This discussion is not whether we should pursue consolidation or growth, it’s completely clear that we need both,” Merkel told reporters in Berlin today. “Rather, I think the core of the discussion is whether we again need debt- financed economic programs, or whether we need growth elements that are sustainable and oriented toward the economic strength of certain countries.”
  • Greek Election Raises Risk Country Will Exit Eurozone. Greece’s election, in which the two main parties failed to win a combined majority, raised the risk that the nation will exit the euro and prompted calls for policies to boost European economic growth. Greece now faces a 50% to 75% likelihood of leaving the euro in the next year to 18 months, Citigroup Inc. economists Guillaume Menuet and Juergen Michels wrote in a report Monday. They’d previously estimated the risk of a euro exit at 50%. “Every country can decide to leave the common euro area, of course Greece can as well,” Austrian Chancellor Werner Faymann told state radio ORF today. “You just have to know what it means — and the Greeks will have to consider that.”
  • Spain's Kindest Month April as Credit Squeeze Looms. Spain will find it harder to borrow in the coming months as interest payments and redemptions that bondholders had available to reinvest in April dry up, and US$1.3 trillion of European Central Bank funding runs out, according to Bloomberg. The nation needs to borrow 11 billion euros (US$14.4 billion) in May and June, according to estimates by Citigroup Inc. There are no scheduled payments in those months to investors who own existing debt, compared with the 16 billion euros available for reinvestment in April. Italy faces a similar squeeze, with its bond sales set to exceed interest and principal payments by 31 billion euros in the next two months. “There is no conviction buying on Spanish bonds from foreign investors, and there is no reason to believe it will suddenly appear,” said John Wraith, a strategist at Bank of America Merrill Lynch in London. “With the impact of the ECB’s loans worn off, reinvestments from coupon or redemptions help. As that goes away, that’s going to make life even harder.”
  • Europe, IMF Vow to Pursue Budget Checks on Next Greek Government. Europe and the IMF pledged to resume checks on Greece's eligibility for more aid disbursements when a new Greek government emerges after voters split over the rescue conditions. The EC in Brussels said it "hopes and expects" Greece will fulfill the budget-austerity requirements for a loan payment due in June following the May 6 election.
  • Euro Drops to 3-Month Low After Greek, French Elections. The euro weakened to a more than three-month low after Francois Hollande was elected president of France and as Greek voters flocked to anti-bailout parties, stoking concern austerity efforts in Europe may be derailed. The 17-nation currency slid for a sixth day, its longest series of declines since September, dropping as much as 1 percent before paring losses. Hollande, who becomes the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity and more growth in the region. The yen weakened against most of its major counterparts as stocks gained, boosting demand for risky assets. “It’s a pretty big deal for France and it’s something that’s going to hang over the euro and prevent it from seeing any material recovery over the course of this week,” said Kathy Lien, director of currency research with online-trading firm GFT Forex in New York. “For the European Central Bank, this is going to be yet another reason for them to consider their lack of dovishness.”
  • VIX Lowest to CDS Since '09 as Stock Hedges Trail Bonds. Risk perceptions among U.S. equity and credit investors are diverging the most since 2009 as signs of an economic slowdown spur bigger increases in prices to protect against losses in bonds than stocks. The VIX (VIX), the benchmark gauge of U.S. equity derivatives that usually rises when shares fall, closed last week at 0.032 times the level of the Markit CDX North America High Yield Index, which increases when confidence in debt issuers deteriorates, according to data compiled by Bloomberg. That’s near the 2 1/2-year low of 0.027 times reached in March. While the VIX is 21 percent below its one-year average after sinking 58 percent since October, the gauge of credit- default swaps is only 2.4 percent less than the mean. Worsening economic data and concern Europe’s debt crisis is intensifying may make stockholders more inclined to hedge their gains, according to Belmont Capital Group’s Stephen Solaka. “This could signal we have seen lows in the VIX.”
  • Commodities Close to Erasing 2012's Gains on Europe, U.S. Data. Commodities fell for a fourth day, all but erasing this year’s gains, after elections in France and Greece showed voters rejecting austerity, while U.S. employers added fewer jobs than forecast, fueling concern that raw- material demand will slow. The Standard & Poor’s GSCI Spot Index had its worst run since August, losing as much as 1.3 percent to 645.29, the lowest level since Dec. 30. The gauge, which tracks 24 raw materials, was at 652.46 by 12:51 p.m. in London, paring gains this year to 1.2 percent. Crude oil in New York slumped as much as 3.2 percent to $95.34 a barrel, the lowest intraday price since Dec. 20. Commodities retreated in March, April and this month on concern that the European debt crisis may endanger the global recovery. Slowing growth in China and worse-than-expected data from the U.S. have also spurred declines.
  • Vertex Cystic Fibrosis Combo Aid Breathing in Patients. Vertex Pharmaceuticals Inc. (VRTX), maker of the first medicine to target the underlying cause of cystic fibrosis, gained the most ever after a combination of that drug and a second therapy improved patients’ breathing ability. Vertex climbed 41 percent to $52.57 at 9:32 a.m. New York time, after touching $53.94 for the biggest intraday increase since the company’s shares began trading publicly in 1991.
Wall Street Journal:
  • Hollande to Meet Merkel, Discuss EU. French President-elect François Hollande will be inaugurated next Tuesday and head to Berlin soon afterward for a meeting with Chancellor Angela Merkel that will offer early clues on how far the two leaders are ready to go in reconciling their approaches to restoring confidence in the euro zone.
  • The New Greek Extremism. Voters are giving up on the political mainstream in Athens.
CNBC.com:
Business Insider:
 Zero Hedge:
New York Times:
  • Bank Chief Steps Down as Spain Considers Rescue. Rodrigo Rato, the executive chairman of Bankia, resigned Monday before an anticipated government recapitalization of the company, Spain’s largest real estate lender, which is sitting on €32 billion of troubled assets.

LA Times:

Reuters:

  • Greek Euro Exit Would Be Catastrophy - EFSF Head. A Greek exit from the euro zone would be catastrophic not just for Greece, the head of the euro zone's temporary rescue fund said on Monday, a day after pro-bailout ruling parties lost their majority in parliament in Athens. If Greece exited the euro zone that would "of course have a huge impact not just for other programme countries, not just for the banks, but also for Greece itself," Regling said, adding Greece's public creditors would also suffer. "It would be a catastrophe for Greece." Regling also said it was completely out of the question that the European Stability Mechanism (ESM) would directly recapitalise banks, a proposal by some policymakers to help Spanish banks.
  • Greece Might Run Out Of Cash By End-June If Not Govt - Sources. Greece might run out of cash by end-June if it does not have a government in place to negotiate a next aid tranche with the EU and the IMF and projected state revenues fall short, three finance ministry officials told Reuters on Monday. "If there is no government to negotiate the next tranche with the (EU/IMF/ECB) troika and if the state does not get the projected monthly cash flow, then we could have a liquidity problem from the end of June onwards," one of the officials said.
  • Cognizant(CTSH) Cuts Outlook on Weak Banking Demand. Information technology services provider Cognizant Technology Solutions Corp lowered its forecast for the full year for the first time in nearly four years, citing weak demand from financial services clients in North America. Shares of the company fell as much as 20 percent — their sharpest fall in about four-and-a-half years — to an eight-month low of $56.01.
  • Italians Reject Monti's Austerity in Local Vote. A maverick comic who wants Italy to quit the euro made big gains in local elections on Monday while former Prime Minister Silvio Berlusconi's party lost heavily as voters joined a wave of anti-austerity anger across Europe and punished incumbent parties. The results, following the victory of French Socialist Francois Hollande and major losses for traditional big parties in Greece on Sunday, will add to pressure for European leaders to ease measures adopted to counter the financial crisis.

Telegraph:

  • Hollande Wins and the End of the Euro Draws Nearer. In France, and in Greece, the anti-austerity backlash has achieved a double victory this weekend, bringing closer the point at which the euro breaks asunder. Continued German support for the single currency relies on acceptance of the austerity imposed by the fiscal compact. Both France and Greece have now resoundingly rejected the old political consensus, making the future of the single currency more uncertain than ever.

Xinhua:

Shanghai Daily:
  • Caution Dims Housing Sales. PURCHASES of new homes in Shanghai fell last week, and the average price slipped due to slack sales of mid- to high-end properties. The sales of new homes, excluding government-funded affordable housing, shed 9.6 percent from a week earlier to 153,200 square meters in the city during the seven days ended on Sunday, said a report released yesterday by Shanghai Deovolente Realty Co. "Home seekers have been taking a 'wait-and-see' attitude these days as they expect further price cuts by real estate developers while the developers are reluctant to offer larger discounts," said Lu Qilin, a researcher at Deovolente, explaining the reason for the current situation.

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