Thursday, July 07, 2016

Today's Headlines

  • Monte Paschi Bonds Drop as Italy-Europe Talks Halt in Deadlock. Banca Monte dei Paschi di Siena SpA’s subordinated bonds fell to a five-month low amid reports that Italy and the European Commission are in deadlock over how to boost the country’s broken banking system. Monte Paschi’s 379 million ($420 million) euros of notes due September 2020 fell 13 cents on the euro to 64 cents on Thursday, the lowest since Jan. 21, according to data compiled by Bloomberg. They were quoted above 90 cents last week. Italy and the EC are seeking ways to recapitalize Monte Paschi, Italy’s third-largest bank, and other lenders amid concerns they may fail critical stress tests due at the end of the month. Talks have foundered on whether creditors should face losses -- under so called bail-ins -- if taxpayer funds are used, according to people familiar with the discussions.
  • Italy’s Banking Woes Spark Fears of Market Contagion. (video)
  • Populist Politicians Take On Italy’s Massive Debt Pile. Unpaid bills stoke frustration over the country’s old guard. The Rome Olympics of 1960 marked the rebound of the Italian capital after years of war and reconstruction, an affirmation of the country’s renaissance and the city’s emergence as a symbol of dolce vita insouciance. Rome is still paying the bill, and the new mayor, Virginia Raggi, is sick of it. The city has roughly €13.6 billion ($15.2 billion) in debt and more than 12,000 creditors—though the pile is so complex no one really knows how much is owed to whom. Rome faces outstanding bills for operating its 61-year-old metro system, hauling trash, and running a network of unprofitable pharmacies that compete with private shops. The courts are grappling with hundreds of lawsuits over unpaid debts going back 50 years for land expropriated to build hospitals, streets, and other city projects—including some debts connected to the 1960 games, former Mayor Ignazio Marino has said.
  • Europe Banks Close to Breaching Crisis Lows on Italy Woes: Chart.
  • EU Commission Seeks Sanction on Spain, Portugal on Deficits. Spain and Portugal were hit by a European Union move to fine them for breaching budget deficit limits in an unprecedented step to enforce rules designed to avert another debt crisis. European finance ministers must now decide whether to back the proposal by the European Commission. Should the recommendation be approved, the commission would have 20 days to propose fines that could reach as high as 0.2 percent of gross domestic product, and a suspension of some regional funds. The penalties could be reduced or canceled for “exceptional” circumstances. “The two countries have veered off track in the correction of their excessive deficits and have not met their budgetary targets,” Valdis Dombrovskis, a commission vice-president, told reporters in Brussels. “Reducing the high deficit and debt levels is a pre-condition for sustainable economic growth in both countries."
  • Traders Pile Into Swaps Insuring U.K. Company Debt After Brexit. Credit-default swaps covering a gross $202 million of Next’s bonds traded in the week through July 1, compared with $29 million the week before, according to DTCC data. Contracts insuring Marks & Spencer Group Plc’s debt rose to $242 million, while those on Barclays Plc climbed 50 percent to $590 million and swaps on Royal Bank of Scotland Group Plc rose 87 percent to $331 million, the data show. The cost of insuring U.K. corporate debt rose along with trading volumes, according to data compiled by Bloomberg. Credit-default swaps on Next rose to an almost four-year high of 128 basis points on Thursday, while those on Marks & Spencer climbed to a three-year high of 188 basis points. Barclays and RBS reached the highest levels since 2013 this week.
  • German Output in May Unexpectedly Drops in Sign of Slowdown. German industrial production dropped the most in 21 months in May in a sign that the headwinds from a global economic slowdown and political uncertainty in Europe damped activity. Production, adjusted for seasonal swings, fell 1.3 percent from the previous month, when it rose a revised 0.5 percent, data from the Economy Ministry in Berlin showed on Thursday. Economists in a Bloomberg survey had predicted a 0.1 percent rise in the typically volatile gauge. Output fell 0.4 percent from a year earlier. The report underscores the challenges facing German manufacturers, with signs of fragility in the global economy now likely to be exacerbated by the U.K.’s decision to quit the European Union. The British vote in June could further weaken the German economy, Bundesbank President Jens Weidmann warned last week.
  • Merkel Says Russia Has ‘Deeply Shaken’ NATO’s Eastern Members. German Chancellor Angela Merkel said Russia has “deeply unsettled” countries in eastern Europe, underscoring the need to strengthen NATO’s presence in the region. Addressing parliament in Berlin a day before she’ll join fellow leaders of North Atlantic Treaty Organization countries in Warsaw, Merkel defended the alliance’s decision to deploy four battalions to rotate through the Baltic nations and Poland. At the same time, lasting security in Europe is only possible in cooperation with Russia and NATO still has an “outstretched hand” for dialogue, she said. “Russia’s actions in the Ukraine crisis have deeply shaken our eastern allies,” Merkel said in her speech on Thursday. “That has deeply unsettled our alliance partners. They therefore require the unequivocal reassurance by the alliance.”
  • Risks to China Property Market Increasing, CASS Researchers Say. China’s property prices and real estate investment are poised for slower growth even as home sales may rise to a record this year, according to a top government think tank. Real estate is due for a "short-term adjustment period" after heating up since 2015, the Chinese Academy of Social Sciences said in a report Wednesday. Price increases and investment will slow down in the second half of 2016 and the first half of 2017, with the divide between big cities and smaller ones continuing to widen.
  • China Provinces Meddle in Bank Loan Choices to Keep Firms Alive. China’s regional governments are meddling in decisions of state-owned lenders to prop up local steel makers and miners, in a setback to efforts to let the market decide who gets financing. Last week, the Shandong government took steps to protect companies that have outstanding loans of 500 million yuan ($74.7 million) or more by asking banks to form committees to block any lender that tries to cut funding lines to the firms. The Shanxi government urged banks last month not to withdraw lending to the seven coal firms owned by the northern province.
  • Australia Dealt AAA Blow as S&P Cuts Outlook on Fiscal Gridlock. S&P Global Ratings cut the outlook on Australia’s AAA credit rating to negative from stable as it warned the prospect of fiscal-policy gridlock could thwart government attempts to rein in a budget deficit. The agency acted following Saturday’s federal election, which hasn’t delivered either Prime Minister Malcolm Turnbull’s Liberal-National coalition or the main opposition Labor Party a strong mandate, potentially weakening the eventual winner’s ability to push through fiscal savings measures. While the coalition is edging ahead as counting continues, it remains unclear whether it will gain enough seats to form government in its own right.
  • European Equities Rise First Time in Four Days in Broad Rebound. European stocks rose, snapping their longest losing streak in three weeks. The Stoxx Europe 600 Index added 1.1 percent at the close of trading, as all industry groups advanced. Travel and leisure shares and financial firms, among shares that suffered the worst declines in the aftermath of Brexit, were the best performers, while banks rebounded from their lowest levels since 2011.
  • Commodities Rally Is Fizzling Out as Merchant Fund Sees Oil Drop. (video) The best is probably over for commodities this year as the Brexit vote adds risks to global growth and oil is set to retreat, according to the Merchant Commodity Fund, which returned 9 percent in the first half. The fund, run by ex-Cargill Inc. employees Doug King and Michael Coleman, has changed its commodities outlook to neutral from bullish earlier this year. The U.K. vote to exit the European Union has led to uncertainty and growth remains lackluster in top user China, King said. Oil may drop to $40 to $45 a barrel within three weeks as stockpiles fall more slowly than expected, he said.
  • Libya to Resume Oil Exports From Biggest Ports Within a Week. Libya will resume crude exports from two of its biggest oil ports within one week after clashes that forced Islamic State militants to pull out of the area, according to the commander of the petroleum guards in the region. Crude exports will resume from Es Sider, the country’s biggest oil port, and Ras Lanuf, the third-largest, and which have been closed since 2014, Ibrahim al-Jedran, a regional commander of Libya’s Petroleum Facilities Guard, said in a phone interview. The exports will be under the authority of the Tripoli-based Government of National Accord, which is seeking to reunify the divided country, he said.
  • Danone’s $10 Billion U.S. Deal Adds Soy Milk, Kale to Menu. (video) Emmanuel Faber’s first big move as Danone’s chief, the $10 billion takeover of WhiteWave Foods Co., is a foray into soy milk, protein shakes and kale aimed at kickstarting growth at the French yogurt maker that’s grappling with a drop in dairy consumption. The Paris-based producer of Actimel drinks agreed to buy the U.S. company for $56.25 a share in cash, gaining leadership in the burgeoning natural and organic food sector through its biggest acquisition in almost a decade.
Wall Street Journal:
  • House Republicans Push for New Hillary Clinton Investigation. Declaration comes as FBI chief defends recommendation against charging former secretary of state over handling of emails. House Republicans said Thursday they would ask for a new FBI investigation into Hillary Clinton’s handling of classified information, this one focused on whether Mrs. Clinton lied to Congress about it.
Fox News:
  • Comey testifies Clinton email claims ‘not true’ at heated Hill hearing. (video) FBI Director James Comey testified Thursday that Hillary Clinton’s claims -- some made under oath -- about her use of a private email server were “not true,” raising the question of whether in doing so she committed a felony. In a wide-ranging appearance before the House oversight committee, Comey also said Clinton’s email practices put America’s secrets at risk and her actions constituted the “definition of carelessness.”
Zero Hedge:
Business Insider:
Washington Post:
  • Trump, seeking GOP unity, has tense meeting with Senate Republicans. Donald Trump’s private meeting Thursday with Senate Republicans — designed to foster greater party unity ahead of the national convention in Cleveland — grew combative as the presumptive presidential nominee admonished three senators who have been critical of his candidacy and predicted they would lose their reelection bids, according to two Republican officials with direct knowledge of the exchanges. Trump’s most tense exchange was with Sen. Jeff Flake (R-Ariz.), who has been vocal in his concerns about the business mogul’s candidacy, especially his rhetoric and policies on immigration that the senator argues alienate many Latino voters and others in Arizona.
Financial Times:

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