Tuesday, June 26, 2012

Today's Headlines

Posted by Gary .....at 2:58 PM

Bloomberg:
  • Spain Poised for a Cut to Junk as Default Swaps Near Records. Spain is poised for a downgrade to junk by Moody’s Investors Service, according to investors who sent the cost of default insurance for the nation’s biggest banks and companies close to record highs. Credit-default swaps on Banco Santander SA, the country’s biggest bank, jumped 23 percent this quarter to 454 basis points, compared with an all-time high of 474 in November. Banco Bilbao Vizcaya Argentaria SA rose 26 percent to 477, approaching May’s record 516, while phone company Telefonica SA surged 70 percent to a record 540 basis points. Moody’s downgraded 28 Spanish banks yesterday including a two-step cut for Banco Santander and a three-level reduction for BBVA, a week after it lowered Spain’s rating to Baa3, on the cusp of junk. The country remains on review for another cut by New York-based Moody’s after it sought a 100 billion-euro ($125 billion) international bailout for its banks and on speculation losses from its real estate industry will worsen. “There’s more to come if Moody’s downgrades the sovereign as we expect in the next few weeks,” said Suki Mann, a credit analyst at Societe Generale SA in London. “A one-notch move to Ba1 will likely see all the country’s banking system in junk territory, with the possible exception of Santander.”
  • Italian, Spanish Notes Slide on Debt Sales. Italian notes had the biggest two- day drop in seven months, and Spanish securities slid, after borrowing costs rose at debt sales. Spain’s bonds led losses in the euro area after Moody’s Investors Service downgraded 28 Spanish banks and Bundesbank President Jens Weidmann said there can be no pooling of issuance in Europe until governments agree to give up their fiscal sovereignty. German bunds slipped before European Union leaders meet in two days about the crisis. The European Central Bank said Cypriot bonds have become ineligible as collateral in refinancing operations. “Demand is subdued, even for shorter-dated paper,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. The EU summit will probably be “a bit disappointing and for that reason we’d expect lower bund yields,” he said. The yield on Italian two-year notes climbed 35 basis points, or 0.35 percentage point, to 4.68 percent at 4:41 p.m. London time. The 88 basis-point increase in yields in the past two days is the biggest jump since Nov. 9. The 3 percent security due April 2014 tumbled 0.57, or 5.70 euros per 1,000- euro ($1,247) face amount, to 97.28. Similar-maturity Spanish yields were 36 basis points higher at 5.21 percent, adding to yesterday’s 42-basis point increase.
  • Hollande Reality Makes French Debt Less Attractive. During his first two weeks in office, President Francois Hollande saw French borrowing costs go in one direction, and that was down. Not anymore. The yield on the French benchmark 10-year bond advanced to 2.63 percent at 4:00 p.m. in Paris, up from a euro-era low of 2.071 percent on June 1. It was as high as 2.902 percent on May 15, when Hollande took office. The rate is at risk of rising further with French banks vulnerable to the region’s debt-ridden nations as economic growth stalls.
  • King is Pessimistic on Euro Crisis as Global Economy Teeters. Bank of England Governor Mervyn King said his vote for more stimulus this month reflected his worries about a deteriorating global economic outlook at a time when he’s pessimistic that Europe’s debt crisis can be resolved. “What’s concerned me in the last several months, and why I voted for easing in policy, is the worsening in the position in Asia and other emerging markets,” King told lawmakers in London today. Another reason is that “my colleagues in the U.S. are more concerned than they were at the beginning of the year about what’s happening in the American economy. It’s not a comfortable position,” he said. “I’m very struck by how much has changed” since the bank published forecasts on May 16, King said. “I am pessimistic, and I am particularly concerned because for two years now we’ve seen the situation in the euro area get worse, the problems have been pushed down the road.”
  • Chemicals Flash U.S. Economic Slump Warning: Chart of the Day. Slowing production of chemicals from caustic soda to polyvinyl chloride is signaling a drop in U.S. industrial output and greater risk that the economy may slip back into a recession, American Chemistry Council data show. The CHART OF THE DAY shows the Chemical Activity Barometer trailing behind the Federal Reserve’s Industrial Production index by the most since March 2009, when the U.S. was still in the longest and deepest recession since the Great Depression. The gauge tracks chemical production and prices, hours worked at producers, manufacturing output, building permits, and share prices for companies including Dow Chemical Co. (DOW) and DuPont Co.
  • Oil Declines for Second Day, Erasing Earlier 0.6% Gain. Oil fell for a second day, heading for the biggest quarterly decline in more than three years, as concern increased that Europe won’t solve its debt crisis and U.S. consumer confidence declined to a five-month low. Prices traded below $80 for a fourth day as borrowing costs for Spain and Italy neared a three-month high after German Chancellor Angela Merkel was said to have criticized a European proposal to reshape the euro zone. The New York-based Conference Board reported consumer confidence slid for a fourth month. “There is a lot of uncertainty in the market not just on the economic side but also on the fundamental side,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “Nothing that’s been done so far in Europe is really giving the market a lot of confidence.” Oil for August delivery fell 61 cents, or 0.8 percent, to $78.60 a barrel at 11:30 a.m. on the New York Mercantile Exchange. Prices have fallen 24 percent this quarter, the biggest drop since the final three months of 2008. Brent crude for August settlement rose 49 cents, or 0.5 percent, to $91.50 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to West Texas Intermediate widened for the third straight day, rising to $12.90 from yesterday’s $11.80.
  • Home Prices in U.S. Cities Fall at Slowest Pace Since ’10. Residential real estate prices fell in April at the slowest pace in more than a year, adding to signs the U.S. housing market was firming. The S&P/Case-Shiller index of property values in 20 cities dropped 1.9 percent in April from the same month in 2011, the smallest decline since November 2010, after decreasing 2.6 percent in the year ended March, the group said today in New York. The median forecast of 28 economists in a Bloomberg News survey projected a 2.5 percent drop.
  • Consumer Confidence In U.S. Declines To A Five-Month Low. Confidence among U.S. consumers dropped in June for a fourth consecutive month as mounting concern over jobs and incomes dimmed the outlook for spending. The Conference Board’s sentiment index fell to 62, a five- month low, from a revised 64.4 in May, figures from the New York-based private research group showed today. Another report showed home prices were stabilizing. The slide in confidence raises the risk that the slowdown in hiring revealed by last month’s jobs report will cause households to retrench, restraining the spending that accounts for about 70 percent of the economy. The weak labor market is overshadowing the benefit of the lowest gasoline prices in five months, one reason why companies like Ford Motor Co. (F) are keeping an eye on attitudes. “The employment situation continues to weigh on consumer minds,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly forecast the confidence index. “Usually consumers react to falling gasoline prices by increasing their spending, but this time around it looks like they’re a little bit cautious.” The Conference Board’s confidence gauge reflected growing concern about the short-term outlook. The gauge of expectations for the next six months fell to 72.3, the lowest level since November, from 77.3 a month earlier. The share of respondents in the Conference Board’s survey that expected more jobs to become available in the next six months declined to 14.1, the lowest this year, from 15.4 the previous month. The proportion projecting an increase in incomes dropped to 14.8 percent from 15.7 percent.
  • EPA Greenhouse-Gas Rules Upheld By U.S. Appeals Court. The U.S. Environmental Protection Agency’s limits on industrial emissions of greenhouse gases including carbon dioxide were upheld by a federal appeals court. A three-judge panel of the U.S. Court of Appeals in Washington ruled today that the EPA’s interpretation of the Clean Air Act was “unambiguously correct” and that the opponents don’t have the legal right to challenge the so-called timing and tailoring rules. The panel considered challenges to the agency’s finding that greenhouse gases are pollutants that endanger human health and to rules determining when states and industries must comply with regulations curtailing their use. Companies such as Massey Energy Co., business groups including the U.S. Chamber of Commerce and states led by Texas and Virginia sought to stop the agency through more than 60 lawsuits. Some argued that the EPA relied on biased data from outside scientists.
  • Bond Traders Shunning Freddie Means Taxpayers Lose: Mortgages. The bond market is telling Freddie Mac it’s not wanted even as taxpayers support two similar mortgage-finance companies. Securities it guarantees are hovering near record low prices relative to the debt of its larger rival Fannie Mae. That’s forcing Freddie Mac to rebate lenders that package loans into its bonds to compensate them for investors paying less for the debt, according to its disclosures and people familiar with its Market-Adjusted Pricing program. Banks slice off part of homeowner payments to buy its insurance. Freddie Mac still competes with Fannie Mae even now that they’re both 80 percent owned by the government after their 2008 bailouts. Expenses from the program may reach about $750 million annually, according to JPMorgan Chase & Co. analysts.
  • A surplus of the largest oil tankers competing to load crude at Persian Gulf ports reached a six-month high on slowing demand to charter ships, a Bloomberg News survey showed. There are 14% more VLCCs available for hire over the next 30 days than there are likely cargoes, according to a Bloomberg survey of seven shipbrokers and owners today. That's 4 percentage points more than the prior week. In terms of the monthly average, the surplus was the highest in June since December, according to a Bloomberg index.
  • Biggest U.S. Banks Curb Loans as Regional Firms Fill Gap. The biggest U.S. banks are extending less credit amid a faltering economic recovery as regional lenders step in to fill the gap. Total loans at the four largest U.S. banks -- JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C) and Wells Fargo & Co. (WFC) -- fell 4.9 percent to $3.04 trillion in the first quarter from the same period in 2010, according to data compiled by Bloomberg. Lending by the 17 smallest of the 24 firms in the KBW Bank Index (BKX) increased 9.8 percent to $1.27 trillion.
Wall Street Journal:
  • Banks Preparing For The End. Some of the biggest banks are being asked to submit by July 1 road maps for how they can be quickly and cleanly liquidated, but a top regulator said he doesn't back using the so-called living-will process to break them up. Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., also doesn't think that the new regulatory process will end "too big to fail"—the expectation that the government will bail out faltering financial firms rather than risk the damage their failure would inflict on the system.
  • Spain: Jan-May Government Budget Deficit Widens to 3.4% of GDP. Spain's central government budget deficit widened to 3.4% of gross domestic product in the first five months of the year, the country's budget ministry said Tuesday. The figure compares with a deficit of 2.4% of GDP in the January-April period, Deputy Budget Minister Marta Fernandez Curras said at a press conference, blaming the larger deficit on Spain's poor economic performance during the period, as well as earlier transfers of funds to regions than seen last year. Fernandez Curras said the government expects an improvement in the economy in coming months, which should have a positive impact on fiscal efforts. Last year, the budget deficit through May was at 2.6% of GDP. In the five-month period, Spain's central government revenue dropped by 0.1%, while expenses were up 12%, due to a lower contribution from the value-added tax, as well as the accelerated transfers to regions, respectively.
MarketWatch:
  • EU's Fiscal Union Road Map Gets Cool Reception. A document outlining a path to tighter fiscal integration across the euro zone and a European banking union got a cool reception from Germany and economists on Tuesday as European leaders prepare for a summit meeting later this week.

CNBC.com:

Business Insider:

Zero Hedge:

New York Times:

Market Folly:

Reuters:

  • German govt, states agree solar incentive cuts-MPs. Germany's government and federal states have agreed cuts to incentives for the solar power industry after a weeks-long dispute, under which incentives will be capped for installed capacity of 52 gigawatts (GW), parliamentary sources said.
  • Merkel: no EU total debt liability in my life: sources. "I don't see total debt liability as long as I live," Merkel was quoted as telling members of parliament from the Free Democrats (FDP), junior partners in her centre-right coalition, by sources who took part in the meeting. German Chancellor Angela Merkel was quoted as telling a meeting of one of the parties in her coalition on Tuesday that she does not think Europe will have shared total debt liability in her lifetime. The chancellor also said there would be no shared liability of debt in Germany either, days after her government agreed plans with federal states to issue joint "Deutschland bonds". Merkel has warned against focusing on proposals for shared debt liability - such as the eurobonds favored by France's new Socialist leader Francois Hollande - and other "easy" solutions to the euro zone crisis at this week's European Union summit. She said in a speech on Monday that sharing debt liability within the 17-nation single currency area would be "economically wrong and counterproductive".
  • US gasoline demand down on uncertain outlook-MasterCard(MA). U.S. gasoline demand fell last week as an uncertain economic outlook forced motorists to cut back on non-essential driving, MasterCard's SpendingPulse report showed on Tuesday. Demand fell by 3.5 percent in the week to June 22 compared with the same week a year ago, MasterCard data showed. Week-over-week gasoline consumption was flat over the last two weeks. Gasoline sold for $3.48 a gallon last week, down 10 cents from two weeks ago and 3.9 percent lower than during the comparable week last year. The four-week moving average for demand fell for the 66th consecutive week, down 3.2 percent from a year earlier.
  • Romney Would Get Tough on China - Portman. Republican presidential candidate Mitt Romney would move aggressively to open up more foreign markets for U.S. exports, while getting tougher with China on its trade and currency practices, Senator Rob Portman said on Tuesday. The potential Romney vice presidential running mate said President Barack Obama has allowed the United States to fall "behind in a very significant way (on trade) because we are not engaging in opening up markets virtually anywhere.
  • Brazil loan defaults hit record high as borrowing costs fall. Loan delinquencies at Brazilian banks rose to a record in May in a sign that a slowdown is hitting Latin America's largest economy despite its strong jobs market and aggressive cuts in borrowing costs. Loans in arrears for 90 days or more, the most widely followed gauge of bank defaults, rose to the equivalent of 6 percent of outstanding loans in May, compared with a revised 5.9 percent the prior month, the central bank said on Tuesday. The so-called default ratio had risen in April. The level is the highest for the default ratio since the central bank began keeping records of this gauge in June 2000. Despite efforts by consumers to refinance credit at lower interest rates, especially auto loans, the pace at which delinquency rates are increasing has continued to grow since last year.
  • OECD Raises Red Flag on US Long-Term Unemployment. The lengthy spells many Americans are spending without work risk leaving a lasting scar of higher unemployment on the U.S. economy and training programs are needed to avert the damage, the OECD said on Tuesday. The warning from the Organization for Economic Cooperation and Development comes against the backdrop of stalled U.S. jobs growth and an uptick in the unemployment rate in May. In a report on the U.S. economy, the Paris-based OECD estimated the unemployment rate which the economy could sustain without generating inflation at 6. 1 percent, up from 5.7 percent in 2007. In May, the rate stood at 8.2 percent.
  • Spain Considers Eliminating Property Tax Breaks. Spain is considering eliminating tax breaks on housing and raising petrol tax, the Treasury Secretary Marta Fernandez Curras said on Tuesday. "This is one of the options, one of the recommendations, by the European Union which is under consideration," she said.
  • Solar Production Glut to Persist to 2015 - Study. Solar panel manufacturers face three more years of tough conditions until the market shuts down excess production capacity, according to a new report issued on Tuesday by renewable power consultancy GTM Research. Production capacity for photovoltaic solar panels this year stands at 59 gigawatts, about double the 30 gigawatts expected to be sold into the global market, according to GTM analyst Shyam Mehta. About 21 gigawatts of the current production is expected to be retired by 2015 as panel prices continue their steep declines, GTM said.

Telegraph:

MNI News:

  • China may not ease controls on the property market until the next administration is in office, citing a person close to the National Development and Reform Commission. The economic conditions don't warrant easing, the person said.

Handelsblatt:

  • German Family Businesses Don't Back Merkel on Euro. Angela Merkel's current strategy is leading into an "abyss," Brun-Hagen Hennerkes, a board member of Germany's Foundation for Family Businesses, said. It is endangering Germany's national wealth even more, Hennerkes said. Hans-Peter Keitel, who heads Germany's BDI industrial employers association, was wrong to back Merkel without consulting members, Family Businesses Association head Lutz Goebel said.

Efe:

  • The Spanish government is studying a possible increase in sales tax following a recommendation from the European Commission. The standard sales tax rate is 18%. Competition Commissioner Joaquin Almunia said yesterday that complying with commission recommendations is obligatory for Spain.

Jyllands-Posten:

  • Denmark remains in the grips of a credit crunch as the country's banking industry continues to be plagued by losses that erode earnings, Business Minister Ole Sohn said.
Xinhua:
  • China's latest revision to the draft budget law removed amendments easing restrictions on local government issuing bonds. An article allowing local governments to sells bonds within an approved quota was removed in the second reading of the bill and a ban on local governments issuing bonds was reinstated.
Shanghai Securities News:
  • The sales of road pavers and bulldozers in China fell 30% last month because demand weakened on decreasing infrastructure projects, citing industry website China Construction Machinery Business Online. Sales of loaders fell by 26% and excavators decreased by 24% in May from a year earlier.
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