Monday, June 29, 2015

Today's Headlines

Posted by Gary .....at 3:05 PM
Bloomberg: 
  • Merkel Says Europe Can’t Put Principles Aside Temporarily. German Chancellor Angela Merkel said Europe can’t throw aside its principles after aid talks with Greece broke down, though she said she remains open to finding a compromise. “If the euro fails, Europe will fail,” Merkel told a party meeting marking the 70th anniversary of the chancellor’s Christian Democratic Union party in Berlin, reviving a phrase she used in earlier years of Europe’s debt crisis. “That’s why we have to fight for these principles,” she said. “We could maybe set them aside in the short term. We could maybe say we’ll just give in. But I say: in the medium and long term, we will suffer damage that way.” 
  • Greek Combat Makes Compromise Riskier Than Contagion for Europe. For Europe, compromise with Greece looks increasingly costlier than contagion. As German Chancellor Angela Merkel and her fellow euro-area leaders cast Greece’s July 5 referendum as a choice on whether to remain in the currency, the strategy suggests confidence the rest of the 19-country region is inoculated from any infection. Having spent five years dispensing aid and brokering deals with Athens, it also reflects a shift toward worrying that the bigger risk to the euro’s integrity lies in bowing to a member’s demands. “Although the indirect costs of a Grexit could be significant, this does not mean that they would necessarily outweigh the costs associated with an excessive compromise,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “Sending the wrong message across the euro area would risk undermining the medium-term stability of the monetary union.”
  • `Freight Train of Unknowns' Confronts Investors With Greece. It's one of those Monday mornings following one of those weekends which created more questions than answers. So it may be premature at best, or pointless at worst, to attempt to figure out what sort of long-term scar tissue will be left on global markets from the decision by Greece's leader to hold a referendum on the country's international aid. There are simply "a freight train of unknowns" confronting markets today,  as Weeden & Co.'s chief global strategist Michael Purves wrote in a note today. Among the boxcars on that train are piles of question marks surrounding the actual language of the Greek referendum, who will run the country if voters don't follow Prime Minister Alexis Tsipras's advice to reject terms of the international bailout, and what sort of social unrest could develop as a result of the whole mess. For investors looking for simple answers, there are only difficult questions as Greece shuts its banks and stock market for the week.
  • Credit Risk Gauges in Europe Rise by Most Since Lehman on Greece.
    Measures of risk in Europe's credit markets surged after Greek debt talks broke down, rising the most since Lehman Brothers Holdings Inc. failed in 2008. A benchmark of credit-default swaps rose by as much as 20 percent to the highest in more than a year, according to data compiled by Bloomberg. Greek bank bonds dropped to their lowest levels on record and contracts insuring the Mediterranean nation’s sovereign debt indicated a 91 percent probability of default. The Markit iTraxx Europe index of credit-default swaps on 125 investment-grade companies rose to as high as 80 basis points, and was at 74 basis points 1:29 p.m in London, Bloomberg data show. The index was the most-traded credit-default swap measure globally, with a gross $196 billion changing hands in the week through June 19, the most recent data published by the Depository Trust & Clearing Corp. The Markit iTraxx Europe Senior Financial Index of credit-default swaps on 30 European banks and insurers climbed by as much as 21 basis points to 98 basis points. The increase is the biggest in percentage terms since Sept. 15, 2008, Bloomberg data show.
  • Greece Risk May Pose Black Swan Dangers for Emerging Markets. Here we go again. A flight to haven assets has begun as Greece’s economy faces a tailspin, sparking concern defaults and bank collapses could spill over to other European nations, and impose a global impact. This time, though, Europe and the U.S. confront the risk of contagion with a strengthened policy toolkit -- including new mechanisms to monitor and support banks, and a system of swap lines to inject liquidity. In Japan, the central bank is led by a governor who’s already pumping unprecedented monetary stimulus. If developed markets can regard the risk of Grexit with less trepidation than the maelstrom of 2008, for emerging markets, some of the ground has shifted in an undesired direction. Their combined growth rate is less than half the pace of 2007. Some, including Indonesia and Malaysia, have mounted up on dollar-denominated debt even as their currencies slumped, increasing their vulnerability in a mass exodus from risk.   
  • Greek Crisis: What's Behind the Euro Strength. (video)
  • Shanghai Enters Bear Market. (video) 
  • China Economy Slowing for Several Years: Male. (video)
  • China’s CSRC Says Margin Trading ‘Controllable’ as Stocks Plunge. China’s securities regulator said Monday margin trading at brokerages was “controllable,” seeking to stem a stock-market rout amid concern traders had borrowed excessive amounts of money to buy shares. Margin calls on Monday morning on the off-market HOMS pooling system were only about 2.2 billion yuan ($354 million), a “fraction” of total transaction value, the China Securities Regulatory Commission said in a statement on its official microblog. Deposits in margin accounts were “nowhere near” dangerous levels, the regulator said.
  • Brazil ETF Leads Emerging-Market Outflows as Greece Adds to Woes. Brazil’s biggest exchange-traded fund tumbled to a one-month low amid speculation that a possible Greece exit from the euro would deepen the largest outflows among emerging markets this year. The iShares MSCI Brazil Capped ETF had about $800 million in withdrawals in the first six months of 2015, according to data compiled by Bloomberg. The fund extended this year’s slump to 12 percent. The Ibovespa retreated 2 percent to 52,936.38 at 1:58 p.m. in Sao Paulo, the most in the Americas. Brazilian shares have dropped 8.8 percent from this year’s high as the nation struggles to shore up the budget and keep its investment-grade credit rating at a time when the economy is set for the worst recession in 25 years. Stocks joined a global rout Monday after Greece shut lenders and imposed capital controls, a measure that will deepen the country’s recession and risk driving it toward an exit from the euro.
  • Worldwide Stock Volatility Soars as Sleepy VIX Awakens on Greece. Gauges of stock volatility surged around the world as the weekend meltdown in Greece collided with China’s market unraveling and traders bought hedges to stanch the bleeding. The Chicago Board Options Exchange Volatility Index surged 24 percent, its biggest increase since December, while a gauge of European share swings climbed 15 percent to an eight-month high. The surge shook U.S. traders out of a two-month-long slumber in which weekly changes in the S&P 500 have failed to exceed 1 percent for the longest stretch since 1993. 
  • European Banks Erase $67 Billion as Greece Edges Toward Exit. (video) European banks slumped the most since 2011, erasing almost 60 billion euros ($67 billion) in market value, after Greece imposed capital controls and shut lenders. The Stoxx 600 Banks Index fell as much as 4.4 percent, the biggest decline since November 2011. The gauge closed down 4 percent, eliminating most of last week’s rally. Lenders in Italy, Portugal and Spain were among the biggest decliners, led by Banco Comercial Portugues, which tumbled 11 percent.
  • Nickel Declines to Six-Year Low as Aluminum Nears Bear Market. Nickel slid to the lowest since May 2009 as Greece’s debt crisis undermined confidence in the global growth outlook. Aluminum fell closer to entering a bear market. The LMEX Index of six industrial metals is heading for a fourth straight quarterly loss, the longest streak since 2001. Greece’s standoff with its creditors is adding to economic concerns amid a slowdown in China. Europe is forecast to account for almost one-fifth of the world’s nickel demand this year, Morgan Stanley estimates.
  • Bond Insurers Drop, Credit Risk Jumps on Puerto Rico Concern. Shares of the two biggest bond insurers dropped while a gauge of their credit risk surged as Puerto Rico’s governor called the island’s $72 billion of debt unpayable. Assured Guaranty Ltd. dropped 12 percent in New York, while MBIA Inc. fell 16 percent. Credit-default swaps that protect against the risk that the insurers won’t be able to meet their obligations climbed by the most in a year. The insurers, who guaranteed a combined $9.4 billion of Puerto Rico debt, face the prospect of losses as Governor Alejandro Garcia Padilla -- who previously said the commonwealth would do whatever it takes to avoid default -- told the New York Times that investors should prepare to sacrifice. Credit-swaps tied to Assured Guaranty Municipal Corp. jumped 70 basis points to 441 basis points and earlier reached 461, the highest since January 2014, according to data provider CMA. Contracts linked to MBIA increased 101 to 732 basis points, the highest since April.
  • U.S. Rails Skid Into Bear Market on Triple Whammy Cargo Slump. U.S. railroads, Wall Street favorites for much of the past decade, are slumping into a bear market amid a three-way squeeze from plunging coal, crude-oil and grain shipments. An index of the four largest publicly traded U.S. carriers has dropped 20 percent from its peak in November, paced by Kansas City Southern, as the companies struggle to offset the loss of volumes. They haven’t tumbled this much since 2011.
  • EPA Loses at U.S. High Court on Power-Plant Emissions Rule. The U.S. Supreme Court ruled against the Obama administration’s effort to limit toxic pollution from the nation’s coal-fired power plants, leaving the fate of a landmark environmental regulation in doubt. The 5-4 decision went against an Environmental Protection Agency mercury rule that forces utilities to shutter old coal plants or invest billions of dollars in equipment to clean up the emissions from their smokestacks. The court said the EPA should have considered the costs and benefits before deciding whether to impose limits on the toxic emissions.
ZeroHedge: 
Reuters:
  • Puerto Rico needs debt restructuring, reforms: economists' report. Puerto Rico needs to restructure its debts and should make reforms including cutting the number of teachers and raising property taxes, a report by former International Monetary Fund economists on the Caribbean island's financial woes said. The report, which was obtained by Reuters, gave a damning review of how Puerto Rico has arrived at its current state, which it said requires both structural reform and debt restructuring to fix. "Puerto Rico faces hard times," the report said. "Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt... A crisis looms."
Telegraph: 
Deutschlandradio:
  • Issing Says ECB Greece Policy Bordering on State Financing. Former ECB Chief Economist Otmar Issing says the central bank's emergency funding for Greek banks has been bordering on state financing, which is banned by law. "It was high time the ECB put a stop to this barely concealed government funding," he said. "Bundesbank President Weidmann has pointed out for some time that the Greek central bank awards loans to banks in Greece which have no access to the capital market. These banks buy bonds of a country which has lost the confidence of investors. This comes very close to direct state funding." "It was more or less an increasing fiction that this is supporting solvent banks. The ECB, like other institutions, has to obey the law." "If the ECB had not set a limit, then more money would have been produced, withdrawn by the Greeks from their bank accounts and partially moved abroad. This leads to ever higher claims within the European system of central banks, far exceeding 100 billion euros, of which a substantial part affects Germany." "This money will be more or less lost," he said.

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