Tuesday, July 17, 2012

Today's Headlines

  • Investors Pay to Fund EFSF Aid With Bills at Negative Yield. Investors are paying the European Financial Stability Facility for the privilege of financing Europe’s temporary rescue fund, with demand to buy its debt increasing even as yields drop below zero. The facility auctioned 1.49 billion euros ($1.8 billion) of six-month bills at a yield of minus 0.0113 percent today, Germany’s Bundesbank, which acts as agent for the sales, said in a statement. Participants bid for 2.97 times the amount of debt allocated, compared to a so-called bid-to-cover ratio of 2.06 when the fund sold 182-day bills at a yield of 0.1421 percent on June 19. A negative yield on EFSF bills means investors who hold them to maturity will receive less than they paid to buy them. “Investors are keen to snap up any kind of paper that can offer security and the EFSF, to some extent, has safe-haven status,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “You can call it a paradox, but that’s the reality of the market.
  • Draghi Meets Noonan as ECB Shift Strengthens Irish Hand. Ireland’s Michael Noonan may press for a break on bank debt as he meets Mario Draghi after the European Central Bank argued for imposing losses on senior bondholders in failed lenders. Noonan and the ECB President will discuss today in Frankfurt “the long-term sustainability of the Irish financial system,” Paul Bolger, a spokesman for the Irish finance minister, said by e-mail yesterday. Those talks take place against the backdrop of a move by the ECB to advocate losses on senior bondholders at crippled euro-area banks, as cited yesterday by two officials with knowledge of the ECB’s thinking.
  • ZEW Investor Confidence Declines To Lowest Since January. German investor confidence declined for a third month in July as the euro area’s debt crisis and cooling global demand dimmed the economic outlook. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to minus 19.6 in July from minus 16.9 in the previous month. In the U.K., inflation dropped to the lowest in 2 1/2 years.
  • Hungary Starts IMF Talks as Economists Predict Delay. Hungary will probably miss its goal of obtaining an International Monetary Fund loan by the end of October as Prime Minister Viktor Orban gears up for a re- election bid in 2014, according to a survey of economists. Talks which started today in Budapest will yield an agreement after October, according to eight of 12 economists surveyed by Bloomberg News yesterday. Four expect a deal in October, six by the end of the year and two in 2013.
  • Bernanke Predicts Slow Progress On Unemployment. Federal Reserve Chairman Ben S. Bernanke told lawmakers that progress in reducing unemployment is likely to be “frustratingly slow” and repeated that the central bank is ready to take further action to boost the recovery, while refraining from pledging any new policies.
  • US to Lose 710,000 Jobs From Tax Rise, Chamber Says. The U.S. would lose 710,000 jobs and economic output would fall by 1.3 percent, or $200 billion, if tax cuts for high earners are allowed to lapse, said a report prepared for the U.S. Chamber of Commerce and other supporters of the tax breaks. The study by Ernst & Young LLP supports Republican efforts to extend all of the George W. Bush-era tax cuts set to expire at the end of the year. President Barack Obama called on Congress last week to pass a one-year extension of tax cuts for married couples making less than $250,000 a year while letting rates rise for higher earners. “The higher tax rates will have significant adverse economic effects in the long run: lowering output, employment, investment, the capital stock and real after-tax wages when the resulting revenue is used to finance additional government spending,” wrote the report’s authors, Robert Carroll and Gerald Prante. In addition to the Chamber of Commerce, the largest U.S. business lobby, the report was issued on behalf of the Independent Community Bankers of America, the National Federation of Independent Business and the S Corporation (SCI) Association. The report’s authors said they used an Ernst & Young economic model to examine the “long run” effects of an increase in the top tax rates.
  • Homebuilder Confidence Surges. The National Association of Home Builders/Wells Fargo confidence index climbed 6 points, the biggest gain since September 2002, to 35 this month, a report from the Washington- based group showed today. The gauge exceeded the most-optimistic projection in a Bloomberg News survey of 46 economists. Readings below 50 mean more respondents said conditions were poor.
  • International Demand for US Assets Rises on Europe Crisis. International demand for U.S. financial assets rose in May as investors sought shelter from the debt crisis in Europe. Net buying of long-term equities, notes and bonds totaled $55 billion during the month, compared with net purchases of $27.2 billion in April, the Treasury Department said today in Washington. Economists surveyed by Bloomberg News projected net buying of $41.3 billion of long-term assets, according to the median estimate. Including short-term securities such as stock swaps, foreigners bought a net $101.7 billion in May, compared with net selling of $8.2 billion the previous month.
  • US Industrial Production Rises, Utilization Falls. Output at factories, mines and utilities rose 0.4 percent last month after a revised 0.2 percent drop in May that was larger than previously reported, according to Federal Reserve data issued today in Washington.
  • New Oriental(EDU) Slides After Company Discloses SEC Probe. New Oriental Education & Technology Group Inc. (EDU), a Chinese test prep and online-education provider, fell the most since 2008 after it said the U.S. Securities and Exchange Commission was looking into its financial statements. New Oriental’s U.S. shares fell as much as 33 percent in intraday trading in New York, and were down 29 percent to $15.90 at 10:16 a.m. Before today, the shares had dropped 7.4 percent this year. The investigation may concern whether the company appropriately consolidated the earnings of Beijing New Oriental Education & Technology, a variable interest entity, into its statement, New Oriental said today in a quarterly earnings statement.
  • Traxis to Liquidate Biggs’s Hedge Fund, Transfer Assets.
Wall Street Journal:
  • State Finances on Unsustainable Path, Report Says. Rising pension and health-care costs are hampering states' efforts to improve infrastructure and provide college education to lower-income students, according to a new task force. A report by the State Budget Crisis Task Force, which is co-chaired by Paul Volcker, a former Federal Reserve chairman, and Richard Ravitch, a one-time lieutenant governor of New York, said the gap between entitlement costs and state revenues available to pay for them have become unsustainable.

Business Insider:

Zero Hedge:

Insider Monkey:

  • European Debt Problems are Major Determinant of Hedge Fund Performance in 2012. Hedge funds gained 0.66 per cent in June, according to the Barclay Hedge Fund Index compiled by BarclayHedge. The index is up 2.39 per cent year to date. “Each time that sentiment regarding Europe turns more negative, hedge funds have a down month as investors move into risk-off mode and sell equities,” says Waksman.



  • State Street(STT) to buy Goldman hedge fund administrator. State Street Corp, already a major service provider to hedge funds, said on Tuesday it will pay $550 million to buy Goldman Sachs Group Inc's hedge fund administration unit, making it the No. 1 in the world in that business.
  • Iron Ore-Shanghai rebar hits contract low, ore prices fall.
  • JP Morgan(JPM) downgrades DeereDE) on drought woes. J.P. Morgan Securities downgraded Deere & Co to "underweight" from "overweight," saying it expects the world's largest farm equipment maker to be hurt by the drought in the U.S. Midwest and declining farm yield.
  • Chinese internet stocks down on economy concerns. U.S.-listed shares of Chinese internet companies fell on Tuesday on ongoing concerns about a weak economic outlook in the world's second largest economy. Hong Kong shares produced their best day in more than two weeks and Chinese insurers and railway sectors jumped on anticipation of more policy support, but the gains were seen largely technical. Profit warnings that have emerged daily during the past week and Premier Wen Jiabo's downbeat comments on the Chinese economy pressured the internet stocks, one of the strongest growing sectors in equities. U.S.-traded shares of Baidu(BIDU) fell 3.5 percent to $103.63. Youku(YOKU) shares fell 8.5 percent to $16.48 and Sina Corp(SINA) shares lost 7.8 percent to 44.15. Sohu.com(SOHU) shares were down 4.2 percent to $35.68.
  • Funds Fear Legal Risk Over Euro Zone Break-Up Plans. European fund managers are keeping contingency plans for a euro zone break-up under wraps in case investors who incur losses use the information as ammunition with which to sue them. Too much or too little public planning for a collapse of the indebted currency union could land investment firms with lawsuits, management consultants and legal experts said.
  • Coal Drops Weighs on Kansas City Southern Revenue.


  • Boy Scouts Reaffirm Ban on Gays. After a confidential two-year review, the Boy Scouts of America on Tuesday emphatically reaffirmed its policy of excluding gays, ruling out any changes despite relentless protest campaigns by some critics. An 11-member special committee, formed discreetly by top Scout leaders in 2010, "came to the conclusion that this policy is absolutely the best policy for the Boy Scouts," the organization' national spokesman, Deron Smith, told The Associated Press. Smith said the committee, comprised of professional scout executives and adult volunteers, was unanimous in its conclusion — preserving a long-standing policy that was upheld by the U.S. Supreme Court in 2000 and has remained controversial ever since.


  • Debt crisis: unemployment in Portugal is 'number one' concern. Portugal may have its 2012 deficit target relaxed if the country’s economy continues to weaken, the International Monetary Fund has suggested, as the fund highlighted an alarming rise in unemployment during the first three months of the year.


  • Syria: Assad Regime 'ready to use chemical weapons'. The most senior Syrian politician to defect to the opposition has told the BBC the regime will not hesitate to use chemical weapons if it is cornered. Nawaf Fares, ex-ambassador to Iraq, said unconfirmed reports indicated such weapons might have already been used.

Der Standard:

  • European Central Bank Governing Council member Ewald Nowotny said Greece itself has to make an effort before it can expect to receive outside help. "A country that maneuvered itself into such a crisis must make a personal contribution to get help from outside," Nowotny said in an interview. "Only when this is done, can you deal with the question of additional time" to repay its debts, he said.

De Tijd:

  • Belgium's debt rose to the highest in 8 years to 377 billion euros or 101.8% of gdp in the first quarter of 2012, citing its calculations of government data. De Tijd said the 15.6 billion-euro increase was due to budget shortages and Belgian loans to other countries that use the euro.

Les Echos:

  • French Stock Transaction Tax Applies to 109 Companies. France's planned tax on financial transactions will apply to sales of shares in 109 companies, citing a government decree. They include Air Liquide, Altarea, Mercialys, Hermes, Legrand, Orpea, Ipsen. The tax will be a .2% levy.
  • U.S. Funds Hold 31% of CAC 40 Investments. U.S. funds hold the biggest share of invested funds in France's CAC 40 benchmark index, citing a report by FactSet and OpinionWay.
  • Sotheby's Says Rich French Are Moving Abroad. Rich French families are leaving the country because of fiscal measures being put in place by Francois Hollande's government, citing Sotheby's International Realty France.
  • Chinese premier says there are "more factors of instability and uncertainty," citing his remarks to U.S. group headed by Thomas Donohue, president of the U.S. Chamber of Commerce.

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