Wednesday, May 16, 2012

Today's Headlines

  • ECB Stops Loans to Some Greek Banks as Draghi Talks Exit. The European Central Bank said it will temporarily stop lending to some Greek banks to limit its risk as President Mario Draghi signaled the ECB won’t compromise on key principles to keep Greece in the euro area. The Frankfurt-based ECB said today it will push the responsibility for lending to some Greek financial institutions onto the Greek central bank until they have sufficiently boosted their capital. “Once the recapitalization process is finalized, and we expect this to be finalized soon, the banks will regain access to standard Eurosystem refinancing operations,” the ECB said in an emailed statement. The move comes after Draghi acknowledged for the first time that Greece could leave the monetary union. While the bank’s “strong preference” is that Greece stays in the 17-nation euro area, the ECB will continue to preserve “the integrity of our balance sheet,” he said in a speech in Frankfurt today. “A Greek exit was seen as an absurdity up to now,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “It is gradually becoming the main scenario. The ECB is prioritizing its balance sheet over monetary-union geography.” Greece faces a fresh election on June 17 that may boost parties opposed to the conditions of its international bailouts, raising the specter of its exit.
  • ECB Said to Stick to Current Crisis Stance as Tools Reviewed. The European Central Bank is conducting a comprehensive review of all its policy tools and has no immediate plans to increase stimulus even as market tensions mount, two euro-area officials said. The review, mandated by the central bank’s six-member Executive Board, intends to assess the effectiveness of its measures, including the bond-buying program and long-term refinancing operations, and is scheduled to be completed in June or July, said the officials, who spoke on condition of anonymity because the deliberations are private. A third official said the ECB may not consider taking any further policy action until July, and that the bank sees current market tensions as a way of focusing politicians’ minds on reform efforts.
  • Euro-Area Inflation Slowed in April, March Exports Declined. European inflation slowed last month and exports dropped in March as the euro region’s spreading fiscal crisis undermined the economy and consumer demand. The inflation rate in the 17-nation euro area fell to 2.6 percent from 2.7 percent in March, the European Union’s statistics office in Luxembourg said today. That’s in line with an initial estimate published on April 30. Euro-region exports fell 0.9 percent in March from the previous month, when they rose 2.2 percent, it said in a separate statement. Euro-area imports dropped 1.1 percent from February, when they rose 3.2 percent, today’s report showed.
  • Traders Boost German Default Protection on Europe Crisis Woes. Investors are amassing record amounts of insurance on German government debt on concern Europe’s biggest economy will suffer from the region’s worsening crisis. The net amount of credit-default swaps outstanding on German bonds surged for a fourth week, climbing by $260 million in the period through May 11 to $20.5 billion, according to the Depository Trust & Clearing Corp. That’s up from $16.1 billion last June. Germany is the largest contributor to Europe’s bailout packages for Greece and a collapse of that nation’s economy and its possible exit from the euro area may weigh heavily on Chancellor Angela Merkel’s administration. “A euro breakup is going to be a burden on Germany as well as on any of the others,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “The alternative is a large scale bailout, which would obviously also add to German liabilities. It’s hard to see a very positive outcome in any case there.” The cost of insuring German debt is soaring, even as its bond yields fall. Credit-default swaps on Germany jumped 10 basis points this week to a four-month high of 98, signaling worsening perceptions of credit quality. The contracts cost 67 basis points March 19. Swaps on Spain soared as much as seven basis points to a record 553, before falling two basis points to 544. Contracts on Italy climbed eight basis points to 510.25 and swaps on Ireland rose 8.5 basis points to 663, both four-month highs. “If you get a Greek exit or threat of such, it will be more difficult for Ireland to come back to the market,” Afseth said. “If Greece leaves, a precedent has been set for a country leaving the single currency and the issue of contagion is quite real.” The cost of insuring European corporate and financial debt also rose today. The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings increased 16 basis points to 751. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings advanced for a seventh day, climbing 6.25 basis points to 180.25. Both are the highest since Jan. 9. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 6.5 basis points to 295.5 and the subordinated index jumped 11 to 486.
  • European Stocks Extend Four-Month Low Amid Greek Concern. European stocks dropped for a third day, to their lowest level this year, amid growing concern Greece will be forced to leave the euro area. National Bank of Greece SA tumbled 13 percent as the country’s central bank chief said citizens had withdrawn as much as 700 million euros ($891 million) since the May 6 election. Italy’s Banca Carige SpA (CRG) fell to its lowest since at least 1995. Cie. Financiere Richemont SA rose as earnings topped estimates. The Stoxx Europe 600 Index (SXXP) slipped 0.6 percent to 244.4 at the close of trading, having earlier advanced as much as 0.3 percent and lost 1.4 percent. The gauge has tumbled 10 percent from this year’s peak on March 16 amid continued political uncertainty in Greece, entering a so-called correction.
  • Bullard Says Labor Policy Is Key to Cut Joblessness. Federal Reserve Bank of St. Louis President James Bullard said fiscal policies are needed to reduce the 8.1 percent U.S. unemployment rate and additional asset purchases by the Fed, or quantitative easing, would risk a surge in inflation. “It may be better to focus on labor market policies to directly address unemployment instead of taking further risks with monetary policy,” Bullard said in Louisville, Kentucky. “If anything, the committee may be trying to do too much with monetary policy, risking monetary instability for the U.S. and the global economy.” “The U.S. macroeconomic data have been stronger than expected as of last autumn,” Bullard said to business people and community leaders in a presentation hosted by the St. Louis Fed. “The main risk is that the committee will, as it has in the past, overcommit to the ultra-easy policy. The policy has been appropriate so far, but could reignite a 1970s-type experience globally if pursued too aggressively.” Bullard also said near-zero interest rates could be creating “distortions” in the economy, including “punishing savers.”
  • Facebook's(FB) Saverin May Save $67 Million on U.S. Tax Bill by Renouncing Citizenship. Facebook Inc. (FB) co-founder Eduardo Saverin will save at least $67 million in federal income taxes by dropping U.S. citizenship, according to a Bloomberg analysis of the company’s stock price. Those savings will keep growing if Facebook’s shares increase.
  • Several on FOMC Said Easing May Be Needed on Faltering Economy. Several Federal Reserve policy makers said a loss of momentum in growth or increased risks to their economic outlook could warrant additional action to keep the recovery on track, minutes of their last meeting showed. “Several members indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough,” according to minutes of the Federal Open Market Committee’s April 24-25 meeting released today in Washington. Central bankers last month affirmed their plan to hold interest rates near zero at least through late 2014 as they sought to push down an unemployment rate that has stayed above 8 percent for more than three years.
  • Housing Starts Join U.S. Factories Topping Forecasts. Starts rose 2.6 percent to a 717,000 annual rate from March’s revised 699,000 pace that was stronger than previously reported, Commerce Department figures showed today in Washington. Industrial production climbed 1.1 percent, the most since December 2010, the Federal Reserve said.
Wall Street Journal:
  • High-Yield Market Feeling Euro Fears, CDS Spreads Widen. Investors in the European high-yield bond market vented their euro-zone crisis fears Wednesday by buying protection against a default of their companies, but avoided selling their cash bond holdings so far, traders said.
  • Facebook(FB) IPO: Insiders Cashing Out. Some of Facebook Inc.'s biggest holders are selling as much as $3.8 billion in extra shares in Friday's initial public offering, a move that could catch the attention of investors buying into the deal. Facebook said Wednesday that it will boost the size of its IPO by 25%, or about 100 million shares, as some of the venture capitalists and early investors decided to sell as much as half of their stakes in the company. Funds run by Goldman Sachs Group and Tiger Global Management, for example, now plan to sell as much as 50% of their stakes.
  • China Finds Shrinking Appetite for Loans. When growth in China's economy slows, government leaders typically call on state-owned banks to make loans to rev up activity. But that tactic may not work this time.
  • What End of Bush Tax Cuts Means for You. Bischoff: Unless Congress takes action, it's not just the "rich" who will see higher tax bills.
Business Insider:
Zero Hedge:
New York Times:
  • In Scrutiny of JPMorgan(JPM) Loss, Bigger Questions Left Unanswered. The Securities and Exchange Commission and the Federal Bureau of Investigation are looking into JPMorgan Chase’s trading debacle — and if you think anything is going to come of that, well, I’m pretty sure that JPMorgan has some derivatives it would love to sell you. A serious investigation is still necessary.
NY Post:
  • The Man Who Beached 'Moby Iksil'. Call him Boaz. A 38-year-old hotshot trader and chess master named Boaz Weinstein was the driving force behind the harpooning of the “London Whale,” hedge-fund industry sources told The Post. Weinstein, who runs Saba Capital Management, helped shine light on the credit default swap index trade that blew a $2.3 billion hole in JPMorgan Chase’s balance sheet.


  • Greece's Anti-Bailout SYRIZA Leftists Lead in Poll. Greece's radical leftist SYRIZA party is consolidating gains and on track to becoming the biggest group in parliament when voters return to the polls next month, while pro-bailout parties continue to suffer, an opinion poll showed on Wednesday. The VPRC survey polled Greeks over the May 10-14 period as party leaders struggled to cobble together a coalition following an inconclusive May 6 election. Leaders admitted failure on Tuesday, and Greece is set to return to the ballot on June 17, according to a party source.SYRIZA, which placed second in the election this month with nearly 17 percent of the vote, now commands support from 20.3 percent of voters, the poll showed.The conservative New Democracy's support slipped sharply to 14.2 percent while backing for the Socialist PASOK party dipped to 10.9 percent, both well below levels seen in a previous poll conducted after the election.


  • Rajoy Warns Spain Faces Lock-Out From Markets. Spain's prime minister warned Wednesday that the country faced the danger of being locked out of international markets as investors continued to fret about the future of the euro and Greece's place in the 17-country eurozone. "Right now there is a serious risk that (investors) will not lend us money or they will do so at an astronomical rate," Mariano Rajoy told Spanish lawmakers.


Valor Economico:

  • Brazil's government may transfer portfolios of bad loans from state-owned banks to Empresa Gestora de Ativos, a government-controlled institution, as it seeks to boost credit in the Latin American country.


  • Greece's privatization agency will not proceed with state-asset sales until a new government is formed.
Economic Times:
  • Hong Kong Shares Post Biggest Loss in Six Month, China Slides. The Hang Seng index posted its biggest loss in six months on Wednesday after mainland media reported flat loan growth for the country's "Big Four" state-owned banks in the first two weeks of May, fanning fears about the slowing Chinese economy. The Hang Seng Index ended down 3.2 percent at 19,259.83, the lowest close since Jan. 16 and its biggest drop in a day since Nov. 10, when it had slumped 5.2 percent. The benchmark broke below its 200-day moving average, currently at 19,831, which is likely to become a significant level for the benchmark with a possible break on either side setting the direction for the market. In the mainland Chinese markets, the CSI300 Index lost 1.6 percent, while the Shanghai Composite Index fell 1.2 percent.
CRI English:

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