- Italy, Spain Bonds Slump as Crisis Puntures Demand; Bunds Jump. Italy’s bond yields surged to a four- month high as the nation missed its maximum target for sales of five- and 10-year securities, stoking concern that Europe’s financial woes are denting investor appetite for the debt. Germany’s two-year yield reached zero for the first time. Five-, 10- and 30-year German bond yields fell to records as economic confidence in the euro area declined more than analysts forecast in May to the lowest in 2 1/2 years. Spanish bonds slumped, driving five-year yields to more than 6 percent for the first time since November, after Bank of Spain Governor Miguel Angel Fernandez Ordonez quit before his term expired amid criticism over the nationalization of Bankia group.
- Greek Exit From Euro Seen Exposing Deposit-Guaranty Flaws. The threat of Greece exiting the euro is exposing flaws in how banks and governments protect European depositors’ cash in the event of a run. National deposit-insurance programs, strengthened by the European Union in 2009 to guarantee at least 100,000 euros ($125,000), leave savers at risk of losses if a country leaves the euro and its currency is redenominated. The funds in some nations also have been depleted after they were used to help bail out struggling lenders, leading policy makers to consider implementing an EU-wide protection plan. “These schemes were not designed to deal with a complete meltdown of a banking system,” said Andrew Campbell, professor of international banking and finance law at the University of Leeds in the U.K. and an adviser to the International Association of Deposit Insurers. “If there’s a systemic failure, there needs to be some form of intervention.” With European officials openly discussing a Greek exit from the euro for the first time, savers in Spain, Italy and Portugal may start to withdraw cash on concern that those countries will follow Greece and their funds will be devalued with a switch to a successor currency. None of those nations has the firepower to handle simultaneous runs on multiple banks.
- Spain Credit-Default Swaps Surge to Record on Bank Bailout Woes. The cost of insuring against default on Spanish sovereign bonds rose to a record as the nation's debt crisis deepened amid concern over bank bailouts. Credit-default swaps linked to the nation's debt climbed 23 basis points to 583 at 11:44 a.m. in London, according to data compiled by Bloomberg. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose seven basis points to 320.5. "The pressure remains on Spain," Elisabeth Afseth, an analyst at Investec Bank Plc in London, wrote in a note. "The focus remains on how the government is going to deal with the banking crisis." The cost of insuring bank debt also increased with the Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rising eight basis points to 299 and the subordinated index jumping 12.5 to 497.5. Swaps on Banco Santander SA, the biggest Spanish lender, jumped 15.5 basis points to 421 while contracts on Banco Bilbao Vizcaya Argentaria SA added 15 to 461. Italy's bond yields surged to a four-month high as the nation missed its maximum target for sales of five- and 10-year securities, stoking concern that Europe's financial woes are crimping investor appetite for the debt. Swaps on the nation's debt jumped 20 basis points to 542, the highest since Dec. 16. The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings increased 16 basis points to 716. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings advanced five basis points to 175.5 basis points.
- EU Weighs Direct Aid to Banks as Antidote to Crisis. The European Commission challenged Germany’s remedies for the financial crisis, calling for direct euro-area aid for troubled banks and insisting on a “roadmap” for common bond issuance. The commission, the European Union’s central regulator, sided with Spain in proposing that the planned permanent rescue fund, the European Stability Mechanism, inject cash to banks instead of channeling the money via national governments.
- Euro-Area Economic Confidence Falls to 2 1/2 Year Low: Economy. Economic confidence in the euro area declined more than economists forecast in May to the lowest in 2 1/2 years after inconclusive Greek elections raised the specter of a euro breakup and Spain struggled to shore up its banks. An index of executive and consumer sentiment in the 17- nation euro area fell to 90.6 from a revised 92.9 in April, the European Commission in Brussels said today. That’s the lowest since October 2009 and below the 91.9 forecast by economists, according to the median of 28 estimates in a Bloomberg survey.
- European Stocks Drop on Concern Debt Crisis is Deepening. European stocks dropped the most in a week as Italy failed to meet its maximum target at a debt sale, Spain struggled to bolster its banking system and a Greek poll showed increased support for parties opposed to spending cuts. The Stoxx Europe 600 Index declined 1.5 percent to 240.56 at the close in London. The benchmark measure has tumbled 12 percent from this year’s high on March 16 amid growing concern that Greece will be forced to leave the euro currency union.
- National Systemic Banks to Face Core Capital Rules in Basel Plan. Global regulators will seek a deal this year to strengthen capital requirements and supervision at banks whose failure would harm national economies. The Basel Committee on Banking Supervision is preparing to identify so-called domestically systemic lenders and discussing “possible policy tools” that regulators should use to handle their collapse, Teo Swee Lian, deputy managing director of the Monetary Authority of Singapore, said in an e-mail. Rules on the amount of core capital that the lenders should hold are expected to be “an important part of the policy framework,” said Teo, a member of the Basel group.
- Pending Home Sales Fall By Most In A Year. The number of Americans signing contracts to buy previously owned homes fell in April by the most in a year, indicating the U.S. housing recovery remains uneven. The index of pending home resales dropped 5.5 percent following a revised 3.8 percent gain the prior month, figures from the National Association of Realtors showed today in Washington. The median forecast of 42 economists surveyed by Bloomberg News called for no change in the measure. Mortgage rates at record lows failed to sustain the pace of demand as some buyers may have waited for home prices to decline further. Limited access to credit and persistent foreclosures still weigh on housing, adding to concern it will remain a source of weakness for the world’s largest economy. “The pattern of demand is sluggish and volatile,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who projected a decline. “Until the supply issue is resolved, we could see further declines in prices and the housing market will continue to hover around the bottom. It’ll be a gradual improvement, we don’t expect anything stronger than that.”
- Treasury Yields Tumble to Records as Europe Spurs Bids. Treasury 10-year note yields fell to a record low as investors sought refuge from the deteriorating credit conditions of European sovereign borrowers. The benchmark yield reached 1.6254 percent, less than its previous all-time low of 1.6714 percent on Sept. 23, as Spain struggled to recapitalize its banks and Italian bonds fell as the country sold less than its target at a debt auction. The Federal Reserve announced Sept. 21 that it would buy $400 billion of longer-term Treasuries, funding the purchases with sales of shorter-term notes, in an effort to bolster the U.S. economy and spur jobs growth. “We could go a lot lower,” said Charles Comiskey, head of Treasury trading in New York at Bank of Nova Scotia, one of 21 firms that trade Treasuries with the Fed. “It’s fear about the solvency of the banking system in Europe and more money is pouring into dollars and into U.S. Treasuries. Yields don’t matter and prices don’t, it’s just being in the safe haven.”
- Copper Drops to 20-Week Low on Europe: Commodities at Close. The Standard & Poor’s GSCI gauge of 24 commodities fell 2.3 percent to 603.73 at 5 p.m. in London. The UBS Bloomberg CMCI index of 26 raw materials was down 1.8 percent at 1,445.638. Copper fell to a 20-week low in New York as a reduction of Spain’s credit rating fueled concern that Europe’s debt crisis will slow the economy and reduce demand for raw materials. Copper futures for July delivery declined 2.2 percent to $3.387 a pound on the Comex in New York, after touching $3.383, the lowest since Jan. 9. Before today, prices fell 9.6 percent in May.
- Verizon(VZ) Doubles FiOS Broadband Speeds In Race With Cable. Verizon Communications Inc. (VZ), the second-largest U.S. phone company, doubled the speed of its most expensive FiOS broadband Internet service, seeking an edge against cable providers. Verizon will begin offering five speeds of service next month, topping out at 300 megabits per second, according to a statement today. Pricing will be announced in June, the New York-based company said. The new top speed, up from a previous high of 150 megabits, is designed to let consumers handle multiple Internet devices and more bandwidth-hogging applications.
- Facebook(FB) Seen Dropping 20% to Gain Parity With Nasdaq Rivals. Facebook Inc. (FB)’s stock, which has already lost $25 billion in value since its public debut, would have to drop another 20 percent for its valuation to match other companies that do business over the Internet. Facebook, with a market capitalization of $79.1 billion, is trading at 29.5 times the company’s projected 2014 profit of $2.69 billion, data compiled by Bloomberg show. The stock would have to dive to $23.07 to match the average price-to-earnings ratio for the Nasdaq Internet Index based on estimated earnings in the next 12 months, according to the data.
- BofA(BAC) Chief Sees Europe's Crisis's Indirect Impact As Bigger Threat. Bank of America Corp. Chief Executive Officer Brian T. Moynihan said the main risk of Europe’s financial crisis will be the indirect effects on the rest of the global economy. Concern that European nations may not be able to pay their debts has already slowed the world’s economy, Moynihan said today at a Manhattan investor conference. His Charlotte, North Carolina-based company is ranked second by assets among lenders in the U.S., where Moynihan said consumer spending is being aided by lower gasoline prices and corporations keep finding ways to adjust their models to bolster profits.
- Monsanto(MON) Profit Forecast Tops Estimates as Seed Sales Climb. Profit will be $1.57 to $1.62 a share in the three months through May, excluding costs from a legacy tax matter, St. Louis-based Monsanto said today in a statement. The forecast topped the $1.29 average of 16 estimates compiled by Bloomberg. Monsanto said earnings in the year through August will be $3.65 to $3.70 a share, excluding the tax issue, settlement of pollution claims and discontinued operations. The company in April forecast $3.49 to $3.54, while the average of 17 estimates was $3.56. Earnings were $2.96 a share in fiscal 2011.
- Greenlight Added Investors After 6.8% First-Quarter Gain. Greenlight Capital Inc., the $7.8 billion hedge fund run by David Einhorn, opened to investors last quarter for the first time since 2008 after posting a 6.8 percent gain, according to a letter to investors. Greenlight increased assets by 6 percent last quarter and a “high percentage” of the capital raised was invested in the dollar-denominated class of the Greenlight Capital Gold funds, the firm said in the May 29 letter, which was obtained by Bloomberg News.
- U.S. Proposes Duties As High as 26% On China Wind-Tower Imports. The U.S. Commerce Department proposed duties of as much as 26 percent on wind-tower imports from China, siding with American manufacturers including Broadwind Energy Inc. (BWEN). The agency today released preliminary results of its investigation into a complaint from the Wind Tower Trade Coalition, which claims its members are being harmed by subsidies from the Asian nation. In addition to Broadwind of Naperville, Illinois, the group includes Otter Tail Corp. (OTTR)’s DMI Industries, Katana Summit LLC and a unit of Trinity Industries Inc. (TRN).
- Fed's Dudley Sees Economy Continuing to Grow at Moderate Pace. Federal Reserve Bank of New York President William C. Dudley said the U.S. expansion will probably continue at a “moderate” pace and that additional stimulus likely won’t be needed unless the economy falters. “As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs,” Dudley said today in the prepared text for a speech in New York.
- Delinquency Rate Hits All-Time High For CMBS. A surge in maturities for troubled loans has pushed the delinquency rate for commercial mortgage-backed securities to an all-time high of 10.04% for May, according to a loan-research service. That’s the first time the rate passed the 10% mark, fed largely by five-year loans that were made in 2007 — when standards were at their weakest — and are now coming due, according to Trepp LLC. Landlords have had difficulty paying these off given that standards and values are far more stringent now, with more properties falling into default. (Loans are delinquent when at least 30 days past due.) Tens of billions of commercial-property loans that were securitized have run into trouble in recent years, as a drop in rents and values during the downturn pushed many landlords into trouble, unable to pay off their debts. Even as the commercial-property market across the U.S. slowly recovers, more loans are falling into trouble because leases made during times when rents were higher are coming due, and because mortgages are reaching their maturity dates, with property owners unable to find new loans to replace them. The rate of delinquent loans, up from 9.8% in April and 9.68% in March, has remained relatively steady above 9% for well over a year, increasing recently due to the 2007-vintage maturities. Currently $59 billion in CMBS loans is past-due, according to Trepp.
- Networks Built on Milliseconds. Microwaves—Not Fiber Optics—Are Latest Thing for High-Frequency Traders.
- Morgan Stanley(MS) Chief Defends Facebook(FB) Handling. Morgan Stanley Chairman and Chief Executive James Gorman defended the securities firm's role in Facebook Inc.'s tumultuous initial public offering, telling employees internally that the firm worked "100% within the rules" and calling the steep decline in the social network's stock "disappointing."
- 6 Reasons Spain Will Leave the Euro First. The Spanish are a lot more likely to pull out of the euro than the Greeks, or indeed any of the peripheral countries. They are too big to rescue, they have no political hang-ups about rupturing their relations with the European Union, they are already fed up with austerity, and there is a bigger Spanish-speaking world for them to grow into. There are few good reasons for the country to stay in the euro — and little sign it has the will to endure the sacrifices the currency will demand of them.
- Auto Jobs: Sign of the Times. At the Hyundai plant in Montgomery, Alabama more than 20,000 people have applied for one of the 877 job openings. The surge of people applying may seem unusual, but it's not.
- India's Economy Slows, With Global Implications. While short-term growth has slowed but not ground to a halt, India’s problems have dampened hopes that it, along with China and other non-Western economies, might help revive the global economy, as happened after the 2008 financial crisis. Instead, India is now facing a political reckoning, as the country’s elected leaders must address difficult, politically unpopular decisions — or risk even deeper problems.
- Companies That Can Be Hedged With CDS Are Way More Likely To Go Bankrupt. Stavros Peristani found firms exposed to credit default swaps fell to bankruptcy at 13 to 36 percent higher rates that similarly risky investments (the third column of the chart below). Peristani also found that the problem grew significantly around the time of the financial crisis.
- The Biggest 10-Year Trend In Currency Markets Has Come To An End.
- Epic Italian Retail Sales Collapse. (graph)
- And The Hits Just Keep On Coming: Spain Sees €31 Billion Deposit Outflow In April. (graph)
- Einhorn Eviscerates Buffet: "If You Wrap Up All $100 Bills In Circulation, It Would Form A Cube 74 Feet Per Side".
- JPM(JPM) Max Pain At 6 Month Highs. (graph)
- European Bloodbath Continues. (graphs)
- FHA Subprime Defaults Hit 9% in California; Climbing Elsewhere. The American taxpayer is about to be saddled with another multi-billions bailout of subprime mortgage loan losses from the stealth Federal Housing Authority lending program that has been offering ultra-low 3.5 percent down payments since 2009. Delinquency rates are already at 9 percent in California and expanding rapidly across the United States.
- BoE's Fisher Says Can't Rule Out Euro Break Up: Paper. A break up of the euro zone cannot be ruled out, Bank of England policymaker Paul Fisher was quoted as saying on Wednesday, amid growing jitters about the stability of the single currency bloc. In an interview with the Leicester Mercury, Fisher, who sits on the BoE's Monetary Policy Committee and Financial Policy Committee for regulation of the wider financial system, was quoted as saying that the impact of a euro break up would depend on how it was handled by European authorities."No one is trying to anticipate a euro break-up, but you just can't rule it out," he said. His comments come after Prime Minister David Cameron and finance minister George Osborne met with BoE Governor Mervyn King and bank regulator Adair Turner to discuss contingency plans for a possible break-up of the euro zone.
- Anti-Bailout SYRIZA Party in the Lead: Greek Poll. The outcome of an election in Greece next month that may determine whether Athens can stay in the euro was thrown into doubt on Wednesday when a poll suggested the anti-bailout SYRIZA party would win, contradicting six previous forecasts. The poll, by VPRC for Epikaira magazine, showed SYRIZA, a radical leftist party which says it wants the debt-laden country to remain in the euro but to ditch austerity, would win 30 percent of the vote if elections were held now.The same poll put the pro-bailout conservative New Democracy party in second place with 26.5 percent of the vote. That was consistent with a previous VPRC forecast last week that also showed SYRIZA in the lead, with 28.5 percent, and New Democracy second with 26 percent. If Wednesday's result were repeated in a parliamentary election on June 17, it would be almost impossible to form a government without the participation of SYRIZA. SYRIZA's stated aim of jettisoning the international bailout deal and the tough austerity measures that went with it is a scenario that the country's international lenders have made clear is unacceptable, raising fears that Greece might be forced out of the single currency in chaotic fashion.
- Image Shows Buildings Gone at Iran Site: Diplomats. U.N. nuclear inspectors displayed new satellite imagery on Wednesday indicating that some small buildings had been dismantled and other possible clean-up work undertaken at an Iranian military site they want to visit. One image from May 25 showed signs that "ground-scraping activities" had taken place at the Parchin facility, as well as the presence of a bulldozer, according to diplomats who attended a closed-door briefing by U.N. nuclear agency officials. This will likely further strengthen Western suspicions that Iran is "sanitizing" the site of any incriminating evidence before allowing the International Atomic Energy Agency (IAEA) into the complex. "It is very clear," one Western envoy said.
- Europe's Money Contracts Again. (graph) Very quickly, today's ECB data shows that Euroland's money supply is contracting again. M3 fell by €51bn in April. M1 fell by €55bn. Private credit fell €55bn. I don't yet have the country breakdown. My guess is that the Club Med implosion is grim.
- Dublin forecasts 60pc of voters will back EU fiskalpakt. Ireland’s government is confident of victory in Thursday's eurozone fiscal pact referendum as secret official polling forecasts that over 60pc of Irish voters will tick the Yes box.
- Goldman Sachs Group Inc.(GS) chief economist Jan Hatzius warned against Greece exiting the euro as depositors in other countries might pull funds from banks on concern their nation could leave the common currency. Austerity measures in some European countries have stifled economic growth and Germany needs to accept a period of inflation to support other states, citing Hatzius in an interview.
- Spain's stock market regulator CNMV doesn't rule out another ban on short-selling of financial stocks, citing comments made by Julio Segura, head of the CNMV. The decision would only be taken along with the European Securities and Markets Authority, Segura said.
- Canada Seen Headed for US-Style Housing Collapse. Canadian home prices have been soaring thanks to loose credit and a solid economy, though excessive demand in the sector may send home prices eventually collapsing similar to the U.S. bust a few years ago, experts say. With mortgage loans under 3 percent, rising home prices suggest many Canadians are spending beyond their means, which serves as the building blocks for a collapse. "What we are seeing is the irrational exuberance that was present in the U.S.," says David Madani, a former Bank of Canada analyst now with the consultancy Capital Economics, the Christian Science Monitor reports.