Wednesday, May 09, 2012

Today's Headlines

  • Greek Euro-Exit Talk Goes Public as Officials Air Doubts. From the monetary fortress of the European Central Bank to the pro-European duchy of Luxembourg, policy makers are beginning to air their doubts that Greece can stay in the euro. Post-election tumult in Athens has put the once-taboo subject of an exit from the 17-country currency union on the agenda, lifting the veil on possible scenario planning afoot behind the scenes. “If Greece decides not to stay in the euro zone, we cannot force Greece,” German Finance Minister Wolfgang Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels today. “They will decide whether to stay in the euro zone or not.” After 386 billion euros ($499 billion) in aid pledges for Greece, Ireland and Portugal, 214 billion euros in ECB bond purchases and another trillion euros in low-interest loans for banks, plus 17 high-level crisis summits, Greece’s political chaos thrust Europe into a perilous new phase. The world is witnessing an “important moment in European Union history, a moment of crisis,” EU President Herman Van Rompuy said in Brussels on the 62nd anniversary of the declaration by Robert Schuman, then France’s foreign minister, that launched postwar European integration.
  • Spain's Top Seven Banks Need $88 Billion as Buffer, RBS Says. Spain’s biggest seven banks need 68 billion euros ($88 billion) of additional capital as a buffer against bad loans and to meet regulatory requirements, according to Royal Bank of Scotland Group Plc. (RBS) “Not only only do banks need to raise more provisions against 323 billion euros of real estate exposure, but insolvencies are rising steadily on other loans too,” Alberto Gallo, the bank’s head of European credit strategy, wrote in a note. Using public money to fund the lenders may “result in a vicious circle of austerity,” Gallo said, which could create higher unemployment and increase insolvency rates.
  • China Stops Buying Europe Government Debt on Crisis Concern. China Investment Corp. has stopped buying European government debt because of an economic crisis on the continent, though it continues to look for new investments there, said CIC President Gao Xiqing. “What is happening in Europe right now is of course of concern,” Gao said today in an interview in Addis Ababa, Ethiopia, during the World Economic Forum on Africa. “We still have our people looking at opportunities in Europe, even though we don’t want to buy any government bonds.”
  • Spanish Stocks Plunge to Eight-Year Low on Europe Crisis. Spanish stocks declined to the lowest level in more than eight years amid concern the Mediterranean nation may have to seek a financial rescue and Greece may leave the euro currency union. Bankia (BKIA) SA led a selloff in banking shares as the country’s 10-year bond yield climbed above 6 percent. Mapfre SA (MAP) retreated 6.3 percent after reporting a 13 percent drop in first-quarter net income. Sacyr Vallehermoso SA (SYV), a property developer, slumped to the lowest price since at least October 1989. The IBEX 35 Index (IBEX) dropped 2.8 percent to 6,812.7 in Madrid, its lowest since Oct. 2, 2003. The benchmark gauge has plunged 20 percent this year, the worst performance of 18 western European markets. The volume of shares changing hands on IBEX 35 companies was 44 percent higher than the average in the past 30 days, data compiled by Bloomberg showed. “Investors worry about what will happen next, to the euro and to Spain,” said John Plassard, director at Louis Capital Markets SA in Geneva. “This should lead to increased market volatility over the coming weeks. Spain, as the icing on the cake, adds to concern with some voices fearing another revision of its deficit targets this year.”
  • Spanish Credit Risk Surges to Record on Bankia 'Zombie' Peril. The cost of insuring against a Spanish default surged to a record on concern a bailout of Bankia SA (BKIA), the nation’s third-biggest lender, won’t fend off a banking crisis triggered by bad real estate loans. “While there is no danger of an imminent collapse at Bankia, there is a risk that it becomes a zombie bank, which has to rely on the European Central Bank to fund it over the long term,” said Roger Francis, an analyst at Mizuho International Plc in London. There is growing speculation Spain may become the fourth European nation to seek a rescue as its lenders become overwhelmed by 184 billion euros ($239 billion) of what the nation’s central bank terms “problematic” assets linked to property. Of the 38 billion euros of real estate the Bankia group held at the end of 2011, about half was classed as either “doubtful” or at risk of becoming so, according to the lender’s annual report. Credit-default swaps insuring Spanish government debt rose 18.5 basis points to 517.25 basis points a 12:55 p.m. in London, according to data compiled by Bloomberg. Spanish 10-year government bonds extended a decline, pushing the yield on the securities above 6 percent for the first time since April 27. The yield climbed 17 basis points, or 0.17 percentage points, to 6.02 percent. Swaps on Valencia-based Bankia climbed nine basis points to 721 while contracts on Banco Santander SA (SAN), the largest Spanish lender, increased 15.5 basis points to 411 and Banco Bilbao Vizcaya Argentaria SA (BBVA), the second biggest, was up 19 basis points to 446.
  • Money-Market Stress Indicators Increase on Greece. Money-market indicators signaled increased stress in the market for borrow and lend short-term funds as Greek politicians struggled to form a government, fueling concern the nation may leave Europe’s currency union. The Libor-OIS spread, a gauge of banks reluctance to lend, traded in the forward market widened to 35.4 basis points, the June so-called FRA/OIS spread shows, from 33.4 basis points yesterday. The difference between the two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, widened to 33.44 basis points, the most since January.
  • Brazil Bulls Capitulate as State Intervention Spurs Outflows. Brazil’s efforts to boost economic growth with the most aggressive interest rate cuts are driving away investors, reducing equity valuations to five-year lows and fueling the world’s biggest currency tumble. MSCI Inc.’s Brazil Index has dropped to the cheapest level since 2006 versus global shares as investors pulled $869 million from the nation’s mutual funds this year, the only country among the four largest emerging markets to post outflows, according to data compiled by Bloomberg and EPFR Global. Brazil’s debt handed foreign investors the worst losses since September last month. Three months after saying Brazil was in a “sweet spot,” JPMorgan Chase & Co. is advising clients to reduce stock holdings as President Dilma Rousseff, 64, orders state banks to slash lending rates, threatening profits. The real is the world’s most overvalued major currency even after posting the worst slump in the past month, Morgan Stanley says.
  • Chilean Drops Most in Two Months as Trading Range Broken. Chile’s peso fell the most in two months as concern political turmoil in Greece may harm global growth prospects damped demand for commodities including copper, the South American country’s top export. The peso depreciated 1 percent to 490.55 per U.S. dollar at 11:02 a.m. in Santiago. The currency earlier plunged as much as 1.4 percent to 491.85, breaking through the 491 level for the first time since March 7. “It’s intraday still, but we’re breaking through and if we close above 491, the next is 495 or 500 pesos per dollar,” said Cristian Donoso, a trader at Banchile Inversiones in Santiago. “The trigger is the elections in Greece, and Spanish and Italian bonds are getting badly beaten up. That’s pushing down commodities, and emerging-market currencies are depreciating.” Copper for July delivery fell as much as 1.8 percent to a three-week low of $3.61 a pound on the Comex in New York. The metal accounts for more than half of Chile’s exports. BNP Paribas SA today recommended investors sell the Chilean peso versus the U.S. dollar, setting a target of 510 per dollar for the currency.
  • Commodities Drop a 6th Day as Greek Crisis Fuels Concerns. Commodities fell, heading for the longest slump since August, as a global equity rout and an unraveling bailout of Greece increased the risk that a slowdown in the global economy will curb demand for raw materials. The Standard & Poor’s GSCI Spot Index (MXWD), which tracks 24 commodities, lost 0.4 percent to 646.23 at 1:07 p.m. in New York, leaving the gauge little changed this year. The index fell as low as 641.8 yesterday, the lowest since Dec. 29, as the euro extended a drop. Silver and gold plunged to four-month lows. The MSCI All-Country World Index of equities dropped to the lowest since January.
  • Romney Says Obama Taking Unfair Credit for Oil-Production Gains. Mitt Romney, campaigning amid oil rigs dotting the landscape in Colorado, said President Barack Obama’s policies have hurt U.S. energy output and that regulation of hydraulic fracturing for natural gas should be left to states. “The president tries to take credit for the fact that oil production is up,” the former Massachusetts governor and presumptive Republican presidential nominee told supporters against the backdrop of an oil rig outside Fort Lupton. “I’d like to take credit for the fact that when I was governor, the Red Sox won the World Series,” he said, referring to the team’s 2004 title. “But neither one of those would be the case. It was not the president’s policies that led to oil production being up.”
  • U.K. Retail Sales Drop Most in More Than a Year, BRC Says. U.K. retail sales fell the most in more than a year last month as poor weather and consumer caution on spending curbed demand at stores. Sales at stores open at least 12 months, measured by value, declined 3.3 percent from a year earlier, the London-based British Retail Consortium said today. That’s the biggest monthly drop since March 2011. Including stores open less than 12 months, sales decreased 1 percent.
Wall Street Journal:
  • Hollande Meets Chief of European Council. French President-elect Fran├žois Hollande on Wednesday discussed some of the most burning issues in the European Union with European Council President Herman Van Rompuy, including how to revive growth on the Continent and the crisis in Greece. At the Socialist's campaign headquarters in Paris, in his first meeting with a foreign official since his election on Sunday, Mr. Hollande discussed with Mr. Van Rompuy how to boost growth.
  • Rehn: EU Has No Plans To Ease Budget Rules For The Netherlands. European Economic and Monetary Affairs Commissioner Olli Rehn Wednesday moved to quash speculation that the European Commission is considering relaxing its budget rules for the Netherlands.
  • No French Minister at Ecofin, Eurogroup Meetings - Source.
  • Banks Back Obama's Fed Nominees. President Barack Obama's two nominees to the Federal Reserve Board have received support from the financial-services industry, including Goldman Sachs Group Inc.(GS) and J.P. Morgan Chase & Co.(JPM)( Sen. David Vitter (R., La.) has effectively blocked Senate confirmation of the nominees, Harvard University economics professor Jeremy Stein and former private-equity executive Jerome Powell. Wall Street firms have been quietly pressing Mr. Vitter to drop his objections, an aide to the senator said.
  • Intimidation by Proxy. The campaign to intimidate companies from exercising their free-speech rights is in high gear as shareholder proxy season arrives, and the most prominent early target is health-insurer WellPoint. The arc of this attack will be one of the election year's political leitmotifs, and it should be on the radar of every corporate boardroom. In the favored new tactic of the left, unions and activists are using politicized shareholder resolutions to send a message to corporations: Drop support for free-market and conservative causes, or you'll take a political beating.
  • Dohmen: 'Soft Landing' in China? No Way!
  • Fed Exit Should Start in 6 to 9 Months: Kocherlakota. Recent improvements in the U.S. economy should mean the Federal Reserve's next policy move will be to raise interest rates, possibly by the end of the year, Narayana Kocherlakota, president of the Minneapolis Fed, said on Wednesday. "I don't see a need for additional accommodation," Kocherlakota told a group of lawyers in Minneapolis. The increase in inflation and decline in unemployment over the past year point to the need for tightening, he said. "I would say in six to nine months we should begin to be thinking about initiating our exit strategy," he said.
  • New Greek Poll Looms as Government Efforts Founder. Greece moved closer to a second snap election on Wednesday when the head of the biggest party launched a new attack on radical leftist Alexis Tsipras, saying his plans for a new government would push the country out of the euro zone.
  • Health-Care Costs in Retirement Rise to $240,000. Americans are making a dangerous assumption: that their current retirement savings will be enough to cover health-care costs. Two new reports, released this week from Fidelity Investments and Nationwide Financial show Americans drastically underestimate how much they will spend out-of-pocket on health-care costs during retirement. According to Fidelity, couples retiring this year will need, on average, $240,000 to cover medical expenses throughout retirement, or an out-of-pocket cost of up to $10,750 per year. This is 4 percent more than those who retired a year ago.
Business Insider:
Zero Hedge: New York Times:
  • In Spain, a Debt Crisis Rooted in Corporate Borrowing. In a country with one of the highest levels of company debt in the world, few businesses in Spain shoulder as big a burden as Grupo A.C.S., the global construction giant whose debt woes have become a mirror image of Spain’s own increasingly fraught financial struggle.

Seeking Alpha:


  • Germany's Steinbrueck: Plan B Needed for Smaller Euro Zone. Europe should prepare a 'plan B' to cope with any possible departure of a country from the euro zone, Germany's former finance minister Peer Steinbrueck said on Wednesday. "If I had political responsibility, I would want to prepare for a plan B that would foresee that the European currency union, that the euro zone, no longer necessarily consists of 17 member states," Steinbrueck said in an interview on German television, when asked about Greece's future. "And that means to make provisions so that other countries are not pulled into the maelstrom through contagion." Steinbrueck's comments, coming at a time of growing uncertainty over Greece, carry weight. He is a leading member of Germany's centre-left Social Democrats (SPD) and is considered one of the leading candidates in the party to challenge Chancellor Angela Merkel in next year's federal election.
  • US Money Funds Add Euro Zone Bank Debt in April - JPMorgan. U.S. prime money market funds raised their holdings of euro zone bank debt in April, resuming their return to this sector this year after scaling back their exposure in March, a report from J.P Morgan Securities released on Wednesday showed. Prime money market funds increased their euro zone debt holdings by $14 billion in April. This raised their total exposure to euro zone banks to $205 billion, up $52 billion since the beginning of the year, according to J.P. Morgan's latest monthly analysis of prime money funds' holdings.
  • Spain, Portugal Committed to Budget Consolidation. Spain and Portugal urged Greece on Wednesday to stick to its bailout programme and stay in the euro and promised to spare no effort in reducing their own budget deficits to ward off the growing euro zone debt crisis. "I hope that Greece stays in the European Union and remains part of the euro project," Spanish Prime Minister Mariano Rajoy told journalists after a summit with his Portuguese counterpart, Pedro Passos Coelho. Passos Coelho said the Greek election result was "worrying" and urged the country's politicians to establish a government in order to follow the terms of Athens' second bailout.

Financial Times:

  • Merkel's Austerity Put to Test in Poll. The austerity message of Angela Merkel, the German chancellor, and her insistence on balancing the budget and cutting government debt across the eurozone, is about to face its sternest test in a vital state election in Germany itself. On Sunday, a week after the French and the Greeks went to the polls, the 13m voters of North Rhine-Westphalia, Germany’s most populous state, will be called on to choose a new government. Ms Merkel’s Christian Democratic Union is fighting to win back power in the state by arguing for tougher budget discipline.


Die Zeit:

  • German Chancellor Angel Merkel's coalition may delay a parliamentary vote on the fiscal pact that had been planned for May 25, citing Rainer Bruederle, parliamentary head of Merkel's Free Democratic Party coalition partner. The coalition may decide to await the outcome of a May 23 special meeting of European Union leaders at which the pact will be discussed.


  • German economists including Kai Carstensen of the Ifo Institute and Michael Huether, who heads the IW economic institute, said Europe must prepare for a potential euro-exit by Greece. It is "absolutely appropriate" to develop a "plan B" that allows Greece to leave the common currency in as orderly a manner as possible, citing Carstensen. Huether said a country that no longer fulfills its obligations in the euro area cannot count on the solidarity of other members and may have to leave.
  • ECB Executive Board member Joerg Asmussen said the bank can't keep coming to the rescue during the sovereign debt crisis, citing an interview. "We did what we could and had to do, but we can't keep conducting operations that actually overburden monetary policy," Asmussen said.
  • Germany's Free Democratic Party, the junior coalition partner to Angela Merkel's Christian Democratic Union, says support payments to Greece should be stopped immediately, citing an interview with the party's parliamentary finance spokesman, Frank Schaeffler. A planned 5.2 billion-euro payment to Greece is "irresponsible", Schaeffler said.

La Vanguardia:

  • Spain plans to demand banks make a further EU32b in real estate provisions. The Spanish government, Bank of Spain are working on a proposal to increase to 30% from 7% the provisioning rate on loans to developers that are still performing.
Shanghai Daily:
  • Sales of Used Homes Decline. SHANGHAI'S existing property market failed to sustain March's strong sales last month amid a drop in supply and a continued caution among buyers, according to the latest market data. The market posted a 13.3 percent monthly drop in purchases of these properties, most of which were residential developments, to 14,300 units last month, Century 21 China Real Estate said in a report yesterday.

CRI English:

  • Sina(SINA) Looks to Guide Microblog User Behavior. China's leading microblog site,, issued the country's first "community convention" Tuesday which clarified users' behavior norms and a mechanism of net management. The convention stressed that users should respect others' rights of not being disturbed and should not defame and insult others. Microblog users should cite the original sources of their reposts and should not release false information, the convention said. On the same day, the site also issued another regulation and a community committee system on the management of microblogs with all the three papers to be put into use on May 28. The regulation made a clear range over irregularities, including releasing harmful and false information and comments that will arouse disputes among the users. The site will welcome reports on illegal users from the netizens who have verified their identities as well as inspection of illegal information, the regulation said.

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