Today's Headlines

Bloomberg:

• EU Says Euro Area to Shrink in 2013 as Unemployment Rises. The euro-area economy will shrink in back-to-back years for the first time, driving unemployment higher as governments, consumers and companies curb spending, the European Commission said. Gross domestic product in the 17-nation region will fall 0.3 percent this year, compared with a November prediction of 0.1 percent growth, the Brussels-based commission forecast today. Unemployment will climb to 12.2 percent, up from the previous estimate of 11.8 percent and 11.4 percent last year. 
• ECB Says Banks to Repay Less Than Forecast of Second Loan. The European Central Bank said banks will repay only half the amount of emergency loans economists forecast, indicating financial institutions remain wary of lending to each other. Some 356 banks will hand back 61.1 billion euros ($80.5 billion) of the ECB’s second three-year loan on Feb. 27, the first opportunity for early repayment, the central bank said in a statement today. That compares with a forecast of 122.5 billion euros in a Bloomberg News survey of economists. The euro fell almost half a cent after the report to $1.3157.
• VW Forecasts 2013 Profit That Falls Short of Expectations. Volkswagen AG, Europe’s largest automaker, forecast that 2013 operating profit will match last year’s level, falling short of analysts’ estimates, as the shrinking auto market in its home region weighs on earnings.
• China’s Stocks Post Biggest Weekly Loss in 20 Months on Property. China’s stocks fell, dragging the benchmark index to its steepest weekly loss in 20 months, as higher home prices boosted concern the government will adopt tighter policies to prevent asset bubbles. SAIC Motor Corp., the biggest automaker, dropped 3.2 percent, adding to a five-day loss of 10 percent. China Construction Bank Corp., the largest mortgage lender, led declines for financial companies this week. A gauge of Shanghai property developers posted its worst weekly loss since July. New home prices rose in most cities the government tracked in January, government data showed today. The Shanghai Composite Index (SHCOMP) slid 0.5 percent to 2,314.16 at the close, adding to a 4.9 percent slump this week, the most since May 2011.
• Hong Kong Doubles Stamp Duty on All Property on Bubble Risk. Hong Kong doubled the sales tax on property costing more than HK$2 million ($258,000) and targeted commercial real estate for the first time as bubble risks spread from apartments to parking spaces, shops and hotels. The stamp duty will increase to 8.5 percent of the purchase price for all properties, Hong Kong Financial Secretary John Tsang said at a briefing today. The Hong Kong Monetary Authority also tightened mortgage terms for commercial properties and parking spaces.
• Economists Warn Fed Risks Losing Control Amid Budget Deficits. Four economists, including a former Federal Reserve governor who has co-written research with Chairman Ben S. Bernanke, warned that losses from the central bank’s more than $3 trillion balance sheet could lead to the Fed losing control of monetary policy. “The combination of a massively expanded central bank balance sheet and an unsustainable public debt trajectory is a mix that has the potential to substantially reduce the flexibility of monetary policy,” the economists write. “This mix could induce a bias toward slower exit or easier policy, and be seen as the first step toward fiscal dominance. It could thereby be the cause of longer-term inflation expectations and raise the risk of inflation overall.” The conclusion from economists, including Frederic Mishkin, a governor at the central bank from 2006 to 2008 and an academic collaborator with Bernanke before that, will be presented at the U.S. Monetary Policy Forum in New York. Their paper serves as a high-profile warning to an audience including Boston Fed President Eric Rosengren, Fed Governor Jerome Powell and St. Louis Fed President James Bullard. 
• Gasoline Rally Seen Fueling U.S. Stock Losses: Chart of the Day. (graph) 
• Aluminum Drops for Fifth Day as China Output Adds to Supplies. Aluminum fell for a fifth straight day, the longest slump in two months, on signs that increasing output in China will add to a global glut. Global output increased 5.7 percent in January from a year earlier to 3.917 million metric tons, the International Aluminium Institute said Feb. 20. Chinese production surged 16 percent, the IAI figures showed. Production exceeded demand by 419,400 tons last year, figures from the World Bureau of Metal Statistics showed this week.
• Fattened Margins Seen Shrinking 40% at Banks: Mortgages. Record mortgage profits that drove earnings at Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) are fading as increased competition keeps the rates banks are offering on new loans near all-time lows. The amount that lenders make from packaging each loan into securities and selling them to investors may be down as much as 40 percent from last quarter, Compass Point Research and Trading LLC estimates, as banks absorb most of the costs of tumbling bond prices.

CNBC:

• Italy Goes Down to the Wire as Nervous Investors Watch. Two of the four leading candidates in the Italian election are convicted criminals. Such is the state of politics in this highly-indebted country as Italians go to the polls this weekend to choose a new government. Recent market action shows global investors are nervous about the outcome.
• Pimco's Gross: Fed Not Vigilant Enough. (video) Pimco Founder Bill Gross called out the Federal Reserve on its vigilance in three major areas, during a CNBC interview on Friday. "I don't think the Fed is vigilant in terms of the negative aspects of zero-bound rates," Gross said in an appearance on "Squawk Box" with St. Louis Fed President James Bullard. "I don't think they're vigilant in terms of other central banks and their quantitative easing policies," he added. "I don't they're vigilant in terms of asset prices."
• More States Consider to Ban Credit Card Surcharges. 
• They Bailed On Their Homes - Now They Want Back In. Home sales are slowly climbing back, thanks to investor demand, improving consumer confidence in housing, and the surprising return of former homeowners who once walked away from their commitments. These so-called, "strategic defaulters," some of them investors and some owner-occupants, are coming back to the market, despite damaged credit, and apparently the market is welcoming them back.

Zero Hedge:

• Spain's "Inverse Austerity" Leads To Multi-Year High Budget Deficit. 
• ObamaCare: The Neutron Bomb That Will Decimate Employment. 
• Franco-German Divide Nears Record High. (graphs) 
• Europe's €1.7 Trillion Maturity Cliff In A Declining Excess Liquidity Context. (graph) 
• Bernanke: "There Is No Bubble". 
• Dr. Copper Sends A Deja Vu Warning Signal. (graphs) 
• What The 'Real' Money Thinks Of The Italian Election.

Business Insider:

• Chinese Hackers Have A Weapon Of Mass Destruction That No One Is Talking About. 
• We Now Have Definitive Proof That Higher Taxes Are Bad News For Consumption. 
• It Looks Like Europe Will Do The Unthinkable To Banker Bonuses. 
• 40 Obvious And Painless Ways For The US To Cut Its Budget. 
• Jon Stewart Tears Into Obama: 'What Is In Those Drone Memos That Is So Terrible?'
• China Admits Pollution Has Caused 'Cancer Villages'. 
• Obama's New Bonds Are Clearly A Gimmick To Hide Debt.  
• BREAKING: JUDGE GRANTS GREENLIGHT'S MOTION TO BLOCK APPLE VOTE. 
• Here's How Washington Insiders Think The Sequester Fight Is Going To Go Down. 
• I Have Seen The Scariest Chart In Europe — And It Very Much Resembles This One.

Reuters:

• Darden(DRI) warns on third-quarter profit, cuts FY forecast.Restaurant operator Darden Restaurants Inc cut its full-year profit forecast for the third time this year, as it expects a severe winter coupled with higher payroll taxes and gasoline prices to hurt third-quarter earnings. Darden's forecast underscores the pressure U.S. consumers are facing due to the Jan. 1 expiration of a 2 percentage point cut in payroll taxes, a delay in income tax refund payments and a 30 cent increase in gasoline prices this year through last week.
• METALS-Copper slides to two-month low on global economy concerns.
• Euro hits 6-week low as European bank repayments disappoint. 
• Political problems await when Fed needs to reverse policy -Bullard. Political problems await the U.S. Federal Reserve when it comes time to reverse its very accommodative monetary policies, Federal Reserve Bank of St. Louis President James Bullard said on Friday. "We're going to pay interest on reserves to large banks in the U.S., and to foreign banks, to the tune of tens of billions of dollars, at a time when we're not going to pay anything back to the U.S. Treasury," Bullard said in describing the part of the Fed's planned strategy for the future. "That sounds like a recipe for political problems."
• Abercrombie(ANF) holiday sales down, gives soft forecast. Abercrombie & Fitch Co on Friday reported a drop in comparable sales during the holiday quarter on weakness at its overseas stores and in its Hollister chain, and the youth retailer warned of a sluggish start to the new fiscal year.
  Shares were down 6.4 percent to $45.96 in midday trading.
• Brazil inflation cools less than expected in mid-February. 
• Fed's Bullard-Policy to stay easy despite exit chatter. The U.S. Federal Reserve will keep its monetary policy stance loose for a long while despite increasing signs of concern among policymakers about the potential costs of asset buying, a top Fed official said on Friday. "Fed policy is very easy and it's going to stay easy for a long time," James Bullard, St. Louis Fed president, said in an interview with CNBC television.

Telegraph:

• Eurozone to stay in recession for another year. Unemployment in Europe is "unacceptably high" and threatens "grave social consequences", the European Commission has warned as it painted a gloomy picture of the eurozone's troubled economy.
• France is a 'problem child', says Merkel ally. A leading member of German Chancellor Angela Merkel's conservatives said France was a "problem child" in the eurozone and must scrap its 35-hour work week as well as push back its retirement age.