North American Investment Grade CDS Index 122.51 bps +4.89%
European Financial Sector CDS Index 169.62 bps +9.94%
Western Europe Sovereign Debt CDS Index 150.67 bps +.44%
Emerging Market CDS Index 290.38 bps +6.69%
2-Year Swap Spread 47.0 +3 bp
TED Spread 42.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .12% -1 bp
Yield Curve 248.0 -7 bps
China Import Iron Ore Spot $147.50/Metric Tonne +.20%
Citi US Economic Surprise Index +8.20 -6.6 points
10-Year TIPS Spread 1.97% -11 bps
Overseas Futures:
Nikkei Futures: Indicating -306 open in Japan
DAX Futures: Indicating -40 open in Germany
Portfolio:
Slightly Lower: On losses in my Biotech, Medical, Retail and Technology long positions
Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and added to my (EEM) short
Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades at the low end of its trading range over the last 2 weeks after failing at its 200-day moving average. On the positive side, HMO and Education stocks are holding up relatively well. On the negative side, Airline, Road&Rail, Gaming, REIT, Coal, Alt Energy, Steel, Semi, Disk Drive, Networking, Bank, Homebuilding and Construction shares are under significant pressure, falling more than 4.0%. (XLF) and (IYR) have been very heavy throughout the day. Copper continues to trade very poorly, as it breaks to the lowest level since October of last year. As well, the S&P GSCI Ag Spot Index is falling to the lowest level since Sept. of last year. As I cautioned recently, the euro has begun another disorderly move lower. The Portugal sovereign cds is rising +5.4% to 349.16 bps, the Greece sovereign cds is jumping 6.8% to 806.25 bps, the Hungary sovereign cds is soaring +19.4% to 350.80 bps and the Russia sovereign cds is gaining +8.8% to 199.2 bps. The total put/call was .6 on this morning's gap down open, which was very low given the damage. Moreover, today's decline is on only mediocre volume and is a bit too orderly to indicate some sort of capitulation. The 10-year yield is falling -16 bps and trades like another move lower in yield has begun as investors start to price in the possibility of a full blown global double dip. Over the coming months, an end to inventory rebuilding, less govt stimuli, the effects of the oil spill, renewed housing concerns, the decline in stocks, negative election rhetoric, tax hike worries and census firings will likely result is a further slowdown in gauges of economic activity. However, much will depend on developed Europe and China, as to whether or not a double dip global recession occurs. Asian indices will likely come under serious pressure Sunday night/Monday morning, which could lead to further losses in US stocks Monday morning. I expect US stocks to trade mixed-to-lower into the close from current levels on rising economic pessimism, more shorting, technical selling, rising financial sector pessimism, increasing sovereign debt angst and disorderly euro decline worries.
U.S. Economy: Payrolls Trail Forecasts in Sign Growth May Cool. American companies hired fewer workers in May than forecast and workers dropped out of the labor force, indicating government support is still needed to spur economic growth. Private payrolls rose by 41,000, Labor Department figures showed today, trailing the 180,000 gain forecast by economists. Including government workers, employment rose by 431,000, boosted by a jump in hiring of temporary census workers. The jobless rate fell to 9.7 percent from 9.9 percent. The figures may deal a blow to the Obama administration as the Congressional elections approach, and bolster forecasts the Federal Reserve will maintain its pledge to keep interest rates low for “an extended period.” “The labor market is extremely weak and has been in a mild recovery,” said Steven Wieting, managing director of economic and market analysis at Citigroup Global Markets Inc. in New York. “Policy makers need to be careful. No one should be taking stability for granted.” The decrease in joblessness last month reflected a 322,000 drop in the labor force as Americans grew discouraged over hiring prospects. Temporary census jobs accounted for 411,000 of the May increase in payrolls, leaving the ex-census figure at 20,000. The hiring of temporary workers to conduct the decennial population count probably peaked last month, economists said. The unwinding of census employment may keep distorting the payroll figures for months as the government dismisses workers when the count is completed. President Barack Obama said the employment report showed the economy was moving in the right direction. The slower pace of hiring came as colleges and universities began sending a wave of more than 1.6 million men and women with new bachelor’s degrees into the labor force. Analysts said the scramble for jobs may depress pay and handicap future career opportunities for the recent graduates. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 16.6 percent from 17.1 percent.
Hungary Bonds Sink, Forint at 12-Month Low on Default Comments. Hungarian bonds tumbled, pushing up borrowing costs by the most since October 2008, and the forint and stocks plunged after a government official said speculation of a default “isn’t an exaggeration.” The extra yield investors demand to own Hungary’s debt over U.S. Treasuries rose 149 basis points, or 1.49 percentage point, to 468, according to JPMorgan Chase & Co.’s EMBI Global Index. The BUX Index of equities tumbled as much as 8.4 percent, while the forint fell 1.7 percent to 286.74 per euro at 11:19 a.m. in New York, the weakest level since June 2009. “When people close to the government start talking about a higher risk of default, what do they expect investors to do?” said Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London. “You simply cannot talk like this in these markets. Investors will take money off the table, they will not risk it.” Hungary, the first EU nation to receive an international bailout during the credit crisis, has the equivalent of $26.9 billion of debt coming due this year, according to data compiled by Bloomberg. The government’s budget deficit could grow to as high as 7.5 percent of gross domestic product this year, compared with a 3.8 percent target set with the International Monetary Fund by the previous government, Mihaly Varga, Orban’s chief of staff, told M1 television on May 30.
Europe Faces Reckoning as Rescue Fails, Niagara Hedge Fund Says. Niagara Capital Partners Ltd., operator of Canada’s two best-performing hedge funds over the last three years, is betting Europe’s almost $1 trillion debt- rescue plan will fail. “They’ve deferred the moment of reckoning in the hope that a default can be made in an orderly fashion,” David Rothberg, chairman of the Toronto-based firm, said during an interview in his office. “It seems inconceivably naive to me to think that they’re going to get out.”The Niagara Legacy Fund, managed by Friedberg Mercantile Group Ltd. founder Albert D. Friedberg, pared investments in an exchange-traded fund tracking Chinese equities and replaced Treasury Inflation-Protected Securities with regular Treasuries during the past six weeks out of concern the global recovery is fading. The Legacy fund and Niagara Discovery Fund, which Friedberg and Rothberg run, bought credit-default swaps on Greek, Portuguese, Spanish and Hungarian debt late last year. Niagara Legacy and Niagara Discovery lead the 48 Canadian hedge funds tracked by Bloomberg with annualized returns of 26 percent and 20 percent since 2007. In the past six months, the Legacy Fund, the Canadian equivalent of Friedberg’s C$648 million ($614 million) Cayman Islands-based Global-Macro Hedge Fund, made short sales and bearish options on the Standard & Poor’s 500 index its largest investments. Credit-default swaps on Greek debt have about tripled in price between late 2009, when Rothberg and Friedberg added them to their holdings. Rothberg said he didn’t have a chance to sell the contracts before they retreated when European leaders crafted the bailout for indebted countries. Had he exited those positions, he would have made another wager against Europe because of austerity measures demanded by the European Union and International Monetary Fund. “They’re saying, ‘You want this money from us? You’ve got to tighten your belts,’” he said. “It means deflation if you’re going to tighten your belt. It means you’re going to be shrinking your GDP.” Friedberg’s team became pessimistic on inflation-protected Treasuries and Chinese equities after U.S. Federal Reserve stimulus policies didn’t increase money supply. The annualized growth rate of the M2 money gauge in the U.S. declined to 1.6 percent in April from 10 percent in January 2009, according to the Fed. “It was as though it was shoveling money out of a factory into a warehouse, and it was saying to the banks, ‘Come and get it. We’ll only charge you 1 percent for the money,’ and they wouldn’t take it,” Rothberg said. “They would take it, but they would only buy gold back, and they would buy Treasuries. Without money, no matter how robust the economy would grow, you would not have an asset inflation.”
Sovereign Credit-Default Swaps Surge on Hungarian Debt Crisis. Credit-default swaps on sovereign bonds surged to a record on speculation Europe’s debt crisis is worsening after Hungary said it’s in a “very grave situation” because a previous government lied about the economy. The cost of insuring against losses on Hungarian sovereign debt rose 63 basis points to 371, according to CMA DataVision at 3:30 p.m. in London, after earlier reaching 416 basis points. Swaps on France, Austria, Belgium and Germany also rose, sending the Markit iTraxx SovX Western Europe Index of contracts on 15 governments as high as a record 174.4 basis points. Swaps on Spanish government debt were up 22 basis points at 278, after earlier reaching a record 295.5, according to CMA. Contracts on Portugal were 26 basis points wider at 364.8, while Ireland was up 32 basis points at 292, and Italy climbed 30 basis points to an all-time high of 264, before retreating to 253. Contracts on Greece were 57 basis points higher at 783, down from 798 earlier. The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings jumped 27 basis point to 584, according to Markit Group Ltd. “Are we on the brink of something more serious?” Deutsche Bank AG strategist Jim Reid wrote in a note to clients today. “We’ve little doubt that the authorities have no appetite for imminent peripheral defaults but we do see the situation getting worse before it gets better. This leaves markets vulnerable until there is more certainty surrounding the structure of the peripheral funding bail-out.”
McDonald's(MCD) Recalls 12 Million Cadmium-Tainted Glasses, AP Says. McDonald’s Corp. is recalling 12 million drinking glasses being sold to promote the new “Shrek” movie because they were found to be tainted with cadmium, the Associated Press reported, citing the company. The company said customers should stop using the 16-ounce glasses that were being sold for about $2 each, the news service said. Cadmium is a known carcinogen that can cause kidney problems and soften bones, AP said.
China Iron Ore Stockpiles Rise 2.1%, Researcher Says. Iron ore inventories at major Chinese ports rose 2.1 percent this week as falling steel prices prompted some mills to cut production and buy less of the raw material, researcher Mysteel.com said. Stockpiles at 23 major ports, including Rizhao and Qingdao, increased by 1.43 million metric tons to 70 million tons from a week ago, Mysteel.com said today on its website. Chinese steel prices have fallen 8.8 percent from an 18- month high on April 15 amid concerns government measures to curb speculation in the property market may trim demand. Baoshan Iron & Steel Co., the country’s biggest publicly trader steelmaker, may cut automotive steel prices by 17 percent, the Shanghai Securities News reported today. “Smaller mills continue to cut production, curbing demand for imported ore,” Mysteel said in its weekly inventory report. “The market will remain weak over the short term. Most traders held off sales as bidding prices from the steelmakers were too low.” Rising stockpiles may lead steelmakers and traders in China, the biggest consumer of iron ore, to cut imports.
Stainless-Steel Output to Increase 25% This Year, Recyclers Say. Output will increase to more than 30 million metric tons, from 24 million tons last year, according to forecasts from recyclers supplying stainless-steel scrap, said Michael Wright, president of the Brussels-based BIR’s Stainless and Alloy Board. The forecast in February was 28 million tons, he said. Output may expand to 32 million tons next year, Wright said. “Production has come back much faster than anticipated,” Wright, who is also chief operating officer of Sheffield, England-based stainless-steel recycler ELG Haniel Group GmbH, said in an interview in London yesterday. Production jumped 55 percent in the first quarter as the global economy rebounded, spurring demand for everything from houses to cars, ISSF estimates show. “We are having a lot of mills telling us that their order intake has dropped,” he said. “The fourth quarter I’m more optimistic and I think there is a good possibility that demand will return.”
Obama's Drill Ban May Trigger Job Losses, Slow Gains. President Barack Obama’s six-month ban on new offshore drilling while a commission investigates BP Plc’s Gulf of Mexico oil spill may slow employment gains after U.S. companies added fewer jobs than forecast in May. The moratorium will cost as many as 20,000 Louisiana jobs in the next 12 months to 18 months during “one of the most challenging economic periods in decades,” Governor Bobby Jindal said in a letter to Obama released yesterday. Each drilling platform idled by the ban puts 1,400 jobs at risk, according to the National Ocean Industries Association, a Washington-based group for drillers and companies that support oil production.
Schaeuble Says U.K., 'Many Others' Bank Financial Tax. German Finance Minister Wolfgang Schaeuble said he’s confident the U.K. and “many others” will join Germany in pushing for a European levy on all financial transactions if the Group of 20 fails to adopt the measure.
WHO's Flu Advisers Got Payments From Roche, Glaxo, Report Finds. Experts who received money from Roche Holding AG and GlaxoSmithKline Plc also served as consultants to the World Health Organization in drawing up plans for dealing with pandemic influenza, the British Medical Journal and the Bureau of Investigative Journalism reported. The flu expert who recommended using and stockpiling antiviral drugs received payments from Roche, which makes the best-selling antiviral Tamiflu, for lecturing and consulting work when the guidance was produced and published in 2004, according to the report published today in the BMJ. He had also received payments from Glaxo, maker of the second best-selling flu drug Relenza, until 2002, the article said.
Wal-Mart(WMT) Says Gas Prices, Unemployment Hurt Traffic. Wal-Mart Stores Inc., the world’s largest retailer, said gasoline prices and unemployment hurt traffic to its U.S. stores. “These external headwinds are real,” Eduardo Castro- Wright, vice chairman and U.S. stores chief, told shareholders today in Fayetteville, Arkansas. Competition from other retailers “is stiffer than ever,” he said.
Greek Tourism Workers To Strike June 30. Greece's tourist workers union said Friday it will stage a 24-hour strike on June 30, the latest blow to the important industry as it braces for another weak summer season. The Panhellenic Federation of Catering and Tourist Industry Employees, known as POEEYTE, said in an news conference that it was striking to protest a series of problems facing workers in the tourism sector as well as because of its opposition to recent Greek government austerity measures.
Global Bank Pact Advances. International regulators are moving closer to an agreement that would require large multinational banks to raise vast sums to cushion any future losses. But in a concession to the banking industry and some governments, the rules are likely to take effect later than expected, according to people familiar with the matter. In the aftermath of the worst banking crisis since the Great Depression, regulators and finance ministers from more than 20 nations are racing to hammer out by year end the new rules concerning bank capital and liquidity.
Tar Balls Wash Ashore in Florida. Brown tar balls were washing ashore on this popular Panhandle beach Friday as the Deepwater Horizon oil spill neared Florida's northwestern coastline on the Gulf of Mexico.
Bloomberg Businessweek:
European Stocks Drop on Renewed Debt Concern; SocGen Tumbles. European stocks dropped as Hungary said its economy is in a “very grave” situation, reigniting concern the region’s debt crisis is spreading, and U.S. payrolls data missed economists’ forecasts. Societe Generale SA and Raiffeisen International Bank Holding AG tumbled more than 7 percent, leading a gauge of banks lower. “The market is still very nervous about sovereign risk and Hungary today,” said Lawrence Peterman, London-based investment director at Eden Financial Ltd., a brokerage firm. European stocks erased earlier gains after a spokesman for Hungarian Prime Minister Viktor Orban said the previous government “manipulated” figures and “lied” about the state of the economy. “It’s no exaggeration” to talk about a default, Hungarian spokesman Peter Szijjarto said today at a news conference in Budapest. A fact-finding committee, headed by State Secretary Mihaly Varga, will likely present preliminary figures on the state of the economy over the weekend, he said. Societe Generale, France’s second-largest bank by market value, slumped 7.3 percent to 31.70 euros. Austria’s Raiffeisen sank 7.3 percent to 31.49 euros. UniCredit SpA, Italy’s biggest bank, declined 4.7 percent to 1.58 euros. CNBC reported that Societe Generale is the subject of unconfirmed rumors of a derivatives loss, without saying where it got the information. The bank declined to comment on the report. Societe Generale is telling analysts that it didn’t suffer losses on derivatives, said two people familiar with the matter, who declined to be identified.
Hedge Fund Investors Pull $3.5 Billion in April. Investors withdrew $3.5 billion from hedge funds in April, according to TrimTabs Investment Research and BarclayHedge estimates, Bloomberg News reported. Industry assets stood at $1.65 trillion globally, the highest level in 18 months, the companies said today in a statement.
Yahoo:
Coast Guard Account of Deepwater Aftermath Contradicts White House Timeline. Documents obtained by the Center for Public Integrity—a nonprofit that funds investigative journalism—reveal that the Coast Guard knew from the get-go that the Deepwater Horizon platform explosion was a catastrophic environmental disaster in the making. The newly released Coast Guard log entries—which the Center analyzed in conjunction with The New York Times— contradict public statements from Obama administration officials about when federal officials know of the magnitude of any leaks from the accident.
Myanmar's Secret Nuclear Program Revealed. Defector Says North Korea Helping Myanmar Develop Nuclear Weapons Program. With the help of North Korea, Myanmar, formerly known as Burma, has acquired components for a nuclear weapons program, including technology for uranium enrichment and long-range missiles, ABC News has learned. A defector from Myanmar -- an army major and deputy commander of a top-secret nuclear facility -- escaped the country with thousands of files detailing a secret nuclear and missile program. "The purpose is they really want a bomb. That is their main objective," said defector Sai Thein Win, the major who says he visited the installations and attended meetings at which the new technology was demonstrated.
Senate Financial Reform Bill DOESN'T End Too Big To Fail, Major Credit Rating Agency Says. So much for ending Too Big To Fail. The financial reform bill championed by the Obama administration and Senate Democrats as permanently ending the idea that large, interconnected financial institutions are too big to fail does no such thing, analysts at Moody's Investors Service cautioned today in a new report.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
Politico:
Issa Presses White House for Travel Answers. The top Republican on the House Committee on Oversight and Government Reform is pressing the administration to disclose the White House political office’s role in coordinating taxpayer-funded travel by government officials on behalf of Democratic candidates. Opening a new front in his push to investigate the Obama administration, Rep. Darrell Issa (R-Calif.) sent a letter Thursday to 21 Cabinet secretaries and department heads, seeking details on their political and official travel since February 2009, and whether the Office of Political Affairs coordinated those trips.
Congressman Questions if Paulson Helped Charity to Goose Subprime Bet.The House Committee on Oversight and Government Reform is investigating Paulson & Co.'s relationship with the Center for Responsible Lending, to which the firm donated $15 million in 2007 to help homeowners fight off foreclosure, but which may have helped the organization expand activities that could have enhanced the profits of Paulson's short subprime bets.
USA Today:
Our View on Housing Finance: Don't Let Fannie and Freddie Return to Old Neighborhood. As bailouts go, nothing quite matches the torrent of taxpayer money still pouring into Fannie Mae and Freddie Mac, the housing giants that now guarantee nearly half of the nation's $11.7 trillion in mortgages. To cover loans that go sour, the federal government has already doled out almost $145 billion, and the non-partisan Congressional Budget Office estimates the final tab will be about $381 billion. That's about half the size of the 2008 bank bailout but, unlike that bailout, most of this money won't get paid back. And even now, there's little talk in Washington about how to fix the problem.
Reuters:
Chinese exporters are demanding U.S. dollars instead of euros after pushing for the shared currency one year ago, citing manufacturers and local government officials. Manufacturers and local governments are avoiding the euro after it dropped more than 16% against the yuan this year. The government had been trying to diversify payments into euros as the European Union is the biggest buyer of Chinese exports.
Copper Hits 4-Month Low After US Jobs Data. Copper hit a four-month low on Friday after weaker-than-forecast U.S. jobs data fractured confidence already dented this week by worries over Chinese monetary tightening and euro zone debt. Zinc hit a 10-month low, nickel and tin hit their lowest in nearly four months, aluminium hit its lowest in nearly eight months while lead hit its lowest in almost a year.
The Australian:
US Hedge Funds Dump Australian Bank Shares. AUSTRALIA'S biggest banks have become the victims of aggressive international hedge funds, which are shorting the banks' stocks after growing concern about the strength of the domestic property market. The top four banks have suffered a sustained selldown since April, as the US funds slash their exposure to the local financial services sector. "There's a lot of scepticism in the US regarding the Australian property market," the hedge fund manager said. "A lot of people have doubts about whether the strength of the market is going to be maintained.
Yonhap News:
South Korea Refers North Korea's Naval Attack to U.N. Security Council: President Lee. South Korean President Lee Myung-bak said Friday his government has formally asked the U.N. Security Council to discuss penalties against North Korea for its deadly attack on a South Korean warship in March. "Today, the government of the Republic of Korea referred North Korea's attack on the Cheonan to the United Nations Security Council," Lee said in a speech at an annual regional security forum under way here, using the South's official name.
21st Century Business Herald:
China may introduce "severer" measures against lending between banks and trust companies if the practice isn't curbed by the end of June, citing an official at a trust company. Banks extended $275 billion to trust companies in the first four months of this year using off-balance sheet transactions. Trust companies are using these funds to extend loans, according to the report.
Loan Selloff Forcing Borrowers to Boost Rates: Credit Markets. Calpine Corp.(CPN), the largest U.S. generator of natural-gas-fueled electricity, and at least five other borrowers are being forced to boost interest rates on proposed loans after the market’s worst month since 2008. The margin Calpine offered to pay over lending benchmarks for a $1.3 billion loan increased by as much as 2 percentage points to 5.5 percentage points, while the remaining companies had to raise rates from 0.75 percentage point to 4.5 percentage points, according to people familiar with the talks who declined to be identified because the terms weren’t set. For Houston- based Calpine, that’s an extra $26 million a year in interest. Prices of high-yield, high-risk loans fell 3.89 percent during last month as measured by the S&P/LSTA U.S. Leveraged Loan 100 Index as investors fled all but the safest government securities amid growing concern that rising budget deficits in Europe will cause the global economy to slow. The Federal Reserve said that U.S. commercial paper outstanding fell to the lowest on record. The U.S. market for short-term IOUs, commercial paper, declined $10.2 billion to $1.06 trillion in the week ended June 2, the lowest since at least 1999, data compiled by Bloomberg show. Without seasonal adjustment, debt outstanding fell $5.5 billion, the fifth straight week of declines, to $1.05 trillion, also the lowest on record. In Europe, financial companies’ overnight deposits with the European Central Bank rose to a record amid bank wariness of lending to each other during the continent’s sovereign debt crisis. Banks placed 320.4 billion euros ($389.9 billion) in the ECB’s overnight deposit facility at 0.25 percent, compared with 316.4 billion euros on June 2, the central bank said. That’s the most since the introduction of the euro in 1999. “The news flow over the past few weeks has spooked banks and since nobody knows how exposed individual financial institutions are, it’s deemed safer to park cash with the ECB rather than lend it on,” said Norbert Aul, an interest-rate strategist at Commerzbank AG in London.
California Teachers Fund to Use Commodities to Hedge Inflation. The California State Teachers’ Retirement System, the second-biggest U.S. public pension fund, agreed to begin investing in commodities as a hedge against inflation and to buffer losses in equities.
Krugerrand Output Jumps to 25-Year High on European Debt Crisis. Rand Refinery Ltd., the world’s largest gold-smelting facility, raised production of Krugerrand coins to a 25-year high as Europe’s sovereign-debt crisis boosted investor demand for bullion. Output last week jumped 50 percent to 30,000 ounces of blank coins for minting by SA Mint, Debra Thomson, Rand Refinery’s treasurer, said by telephone from Johannesburg today. That was the highest weekly production since 1985, she said. Demand is coming mostly from Germany, Thomson said.
Jindal Challenges Obama Drill Ban, Cites Loss of 20,000 Jobs. Louisiana Governor Bobby Jindal, whose state is bearing the brunt of the environmental damage from BP Plc’s Gulf of Mexico oil spill, challenged President Barack Obama’s decision to suspend deepwater drilling for six months. The moratorium may cost the state as many as 20,000 jobs in the next 12 months to 18 months during “one of the most challenging economic periods in decades,” Jindal said in a letter to Obama released today. Two thirds of the rigs subject to a ban are in Louisiana’s coastal waters, the governor said. A longer interruption could crimp U.S. oil-and-natural gas production, raising energy prices and costing jobs, lawmakers have said. “The last thing we need is to enact public policies that will certainly destroy thousands of existing jobs while preventing the creation of thousands more,” Jindal said in a statement. The moratorium will shut 33 deepwater rigs in the Gulf of Mexico, including 22 near Louisiana, costing as many as 6,000 jobs in the next three weeks and 20,000 by the end of next year, Jindal said. Each platform that is idled puts 1,400 jobs at risk, according to the National Ocean Industries Association, a Washington-based group that represents drillers and companies that support oil production. Lost wages could reach $10 million a month for each rig. “Shutting down the outer continental shelf, all that’s going to do is raise energy prices and cost American jobs,” U.S. Representative Joe Barton, a Texas Republican, said in an interview. “The right course is to continue the permitting process and become more diligent in the inspection and enforcement of existing wells.” One third of U.S.-produced oil and gas comes from the Gulf, and 80 percent of Gulf oil is extracted from deepwater wells, according to the Baton Rouge, Louisiana-based Mid-Continent Oil and Gas Association. The suspension will hurt rig owners, supply boats, welders, divers, caterers and other supporting contractors. About 80,000 barrels of new daily production, or 4 percent of deepwater Gulf output, will be delayed until after 2011 because of the ban, according to a May 28 report by Edinburgh- based Wood Mackenzie Consultants Ltd. The total may be as high as 130,000 barrels a day, according to Kevin Book, a managing director at ClearView Energy Partners LLC, a Washington-based policy analysis firm. The U.S. would spend $10 billion to buy imported oil through the end of 2011 to replace lost Gulf production, Book said in an e-mail. Companies probably will ship their rigs to the coasts of Brazil and China or to the North Sea in Europe to avoid sitting idle in the Gulf, he said. The moratorium will cost the government as much as $150 million in lost royalty payments as production of oil and gas stops, Gerard said.
G-20 Split on Increasing Bank Capital, Official Says. The Group of 20 nations is split on the scale and timing of increases in bank-capital requirements that have been under discussion since governments were forced to bail out lenders, an official from a G-20 government said. Countries such as the U.S. whose economies are largely financed by markets want banks to be required to hold more assets on their balance sheets to buffer against future crises, said the official, who will attend this weekend’s talks of G-20 finance chiefs in Busan, South Korea. Policy makers in continental Europe, where banks provide more financing, are concerned that too-high reserves risk choking off growth, the official told reporters on condition he not be named.
Meirelles Says Brazil Central Bank in Tightening Mood. Brazil central bank President Henrique Meirelles said the nation’s policy makers are already in a “tightening mood” as they work to keep inflation within their target range. “We are committed to keeping inflation on target,” Meirelles said today in a Bloomberg Television interview from Busan, South Korea. “We have exited from all the liquidity measures which were taken” during the financial crisis, and “we are taking the necessary steps to make sure the Brazilian economy is all balanced,” he said. “We are already in a tightening mood,” said Meirelles in Busan, where he is attending a gathering of Group of 20 finance ministers and central bank officials. Inflation, as measured by the government’s benchmark IPCA- 15 price index, was 5.26 percent in the 12 months through mid- May, the highest rate in a year. Annual price increases have exceeded the government’s target in each month this year.
The Australian dollar may drop toward its weakest in one year after completing so-called death cross and double-top formations on technical charts that analysts use to predict currency movements. The Aussie's 50-day moving average, currently at 89.50 U.S. cents, fell below the 200-day measure of 89.84 cents this week, triggering a "bearish signal," said Niall O'Connor, a technical analyst at JPMorgan Chase(JPM) in New York. The same formation in September 2008 heralded a 26% slide within eight weeks to a five-year low. The Aussie may slide 9% in three weeks after completing a double-top, said Barclays Capital, the world's third-largest currency trader. "You have a pretty substantial double-top formation that effectively completed on the break below 86 cents back on May 19," he said. "That suggests we're going to see a move to about 77 U.S. cents. Additionally you have base metals, which is a big proportion of what drives Aussie under significant pressure, so that's certainly going to hurt it as well." The London Metals Index, tracking the prices of copper, aluminum, lead, tin, zinc and nickel, dropped 2.3% yesterday, falling for a fourth straight session.
Japan's Recovery to Slow as BOJ Tarries, Morgan Stanley Says. Japan’s recovery is poised to slow as a leadership change in the government distracts from pressure on the central bank to step up efforts to defeat deflation, said Morgan Stanley’s Robert Feldman.
Bernanke Says Unemployment Takes a Toll on Families. said he’s concerned about the toll that joblessness is taking on Americans and that the central bank is trying encourage lending to creditworthy companies.Federal Reserve Chairman Ben S. Bernanke “High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole,” Bernanke said today at a Fed-hosted forum in Detroit, where the jobless rate exceeded 24 percent in April.
The euro may re-test a four-year low versus the dollar after failing to rebound on a so-called double bottom trading pattern, according to FXPrime Corp. The 16-nation currency last week fell back through double-bottom levels after initial gains that had the potential to be the first signs of a technically driven rebound, Hiroshi Yanagisawa, a Tokyo-based dealer at the foreign-exchange unit of Japanese trading house Itochu Corp. said in an interview. That opens the way for renewed weakness in the currency, he said. "The failure to rebound after forming a double bottom blew off positive technical signals for the currency," he said. "The euro is likely to resume a downtrend and re-test a 50% Fibonacci retracement line from a historical high."
Imports of soybeans into China's Shandong province ports are being held up as storage capacity is "full," the China National Grain & Oils Information Center said today.
Oil Pipe Cut in Effort to Contain Spill. Undersea Progress Raises Hopes Crude Can Be Captured, as Bill From Government, Rating Cuts Compound BP's(BP) Struggle.
Model Suggests Slick Could Zoom Up East Coast. New supercomputer studies suggest it is "very likely" ocean currents will carry oil from the Deepwater Horizon spill in the Gulf of Mexico around the tip of Florida and thousands of miles up the U.S. East Coast this summer, researchers announced Thursday. "It is truly a simulation, not a prediction," said Terry Wallace, principal associate director for science, technology and engineering at the Los Alamos National Laboratory in New Mexico, which collaborated on the project. "But it shows that when you inject something into the Gulf, it is likely to have much larger consequences."
South Korea's Lee to Press North on Nukes. South Korean President Lee Myung-bak, in a speech at a security conference in Singapore, on Friday will urge Pyongyang to give up nuclear weapons and encourage other countries not to accept North Korea as a nuclear state.
Reclusive Turkish Imam Criticizes Gaza Flotilla. Imam Fethullah Gülen, a controversial and reclusive U.S. resident who is considered Turkey's most influential religious leader, criticized a Turkish-led flotilla for trying to deliver aid without Israel's consent.
Fast Traders' New Edge. Some fast-moving computer-driven investment firms are getting an edge by trading on market data before it gets to other investors, according to market players and researchers who have studied the trading. The firms gain that advantage by buying data from stock exchanges and feeding it into supercomputers that calculate stock prices a fraction of a second before most other investors see the numbers. That lets these traders shave pennies per share from trades, which when multiplied by thousands of trades can earn the firms big profits.
Sebelius Defends Medicare Nominee. Health secretary Kathleen Sebelius Thursday rejected criticism of the Obama administration's nominee to run Medicare and Medicaid, saying Republicans were being unfair to Donald Berwick and she was confident he would be confirmed. Dr. Berwick, a Harvard pediatrician and health-quality advocate, has come under sharp attack from Republicans over his ties to Britain's national health system and past writings about how to make health care more efficient. The fight has replayed themes from the battle over health-overhaul legislation Congress passed in March, and it affects one of the most critical jobs for implementing that measure. The Centers for Medicare and Medicaid Services runs government-insurance programs for tens of millions of elderly and poor Americans.
Connecticut Rating Cut by Fitch Ahead of Debt Sale. Connecticut, the state with the highest tax-supported debt, had its bond rating lowered one level to AA by Fitch Ratings as it prepares to borrow money to cover a budget deficit for a second straight year. The state, whose residents are the wealthiest in the U.S., relies “on borrowing to address its ongoing fiscal challenges in the context of already high liabilities and large projected structural gaps,” Fitch analysts Doug Offerman and Laura Porter wrote in a press release today. Connecticut is preparing to borrow $956 million to close a budget gap in the fiscal year beginning July 1, after borrowing money last year to cover a deficit of $947.6 million, the analysts said. Lawmakers also chose to draw down the state’s rainy-day fund and raise the top income tax for residents after tax collections fell almost 15 percent in the year ending June 30, 2009, according to Fitch. “The downgrade reflects the state’s reduced financial flexibility, illustrated by its reliance on sizable debt issuances during the current biennium to close operating gaps in the context of already high liabilities,” Fitch said. A biennium refers to Connecticut’s two-year budgeting cycle. Connecticut has the highest net tax-supported debt among the 50 states, according to Moody’s. The state is also the wealthiest with per capita personal income of $54,397 in 2009, according to Department of Commerce data.
CNBC:
Increasingly Hawkish Fed Ponders Raising Rates. Three top Federal Reserve officials said on Thursday it may soon be time to begin raising interest rates as the economic recovery in the United States gathers momentum, despite persistently high unemployment.
Warren Buffett's Anti-Competitive Profits. We learned something important at Wednesday's Financial Crisis Inquiry Commission: the power of the duopoly privilege enjoyed by Moody’s and Standard & Poor’s is what drew Warren Buffett to make his Berkshire Hathaway, the biggest shareholder in Moody’s.
Recapping the SEC's High Frequency Trading Panel. Yesterday's SEC panel discussion on HFT was largely uncovered by the media, as it was for the most part a one-sided, lobbying effort of the HFT industry to make it seem that all is good with the market and to make it explicit that "once in a lifetime" events like the May 6th 1,000 point crash don't really occur and what was experienced (and will be again quite soon) was a statistical impossibility. Tell that to all those who got stopped out by the market's arbitrary 60% cut off for DK'ed trades and lost millions. For a good, clean, simplistic perspective on HFT, we present this most recent summary piece by the Daily Finance's Peter Cohan, called "What you need to know about HFT."
Why U.S. Debt Matters to You. Letting U.S. debt grow unabated is often framed as an unforgivable burden to heap on one's grandchildren. But there are plenty of reasons today's parents might be concerned for themselves and their kids.
Resource Investor:
Eurozone Credit Crunch & Shanghai Shakeout. Until mid-April, few traders knew much about the credit default swap (CDS) markets. They’re traded on an unregulated, over-the-counter market, and far from the public’s view. Yet nowadays, the CDS market has become a major battleground between high-stakes speculators and Euro-zone politicians, with the fate of the Euro currency hanging in the balance. In turn, the violent swings in the CDS markets are having a profound impact on the global bond, commodity, currency, and stock markets.
ABC News:
Fed Lends $6.64 Billion in 'Swap' Program. The Federal Reservesays it lent $6.64 billion through a program aimed at easing strains from the European debt crisis. Most of the money — $6.4 billion — went to the European Central Bank. The rest went to the Bank of Japan. The Fed is lending much-in-demand dollars to other central banks in exchange for their currencies. In turn, the central banks can lend the dollars out to banks in their home countries to prevent the crisis from spreading further.
Calculated Risk:
Euro Bond and CDS Spreads Widen. Here are two graphs from the Atlanta Fed weekly Financial Highlights released today (graph as of June 2nd):
Politico:
Reid Calls for Sweeping Energy Bill. Majority Leader Harry Reid (D-Nev.) is calling on the Senate's key committee leaders to come up with a comprehensive energy strategy by July 4, accelerating the push for legislation in wake of the worst oil spill in American history. "It is extremely important that you each examine what could be included in a comprehensive energy bill that would address the unfolding disaster in the Gulf of Mexico," Reid wrote to chairmen who oversee the nation's energy policies. "The economic, social and environmental devastation occurring there now due to the oil pollution is unprecedented." Committee leaders Max Baucus, Jeff Bingaman, Barbara Boxer, Chris Dodd, Patrick Leahy, Joe Lieberman, Blanche Lincoln and John Rockefeller all received the majority leader's letter and have been asked to contribute their ideas to developing a blue print for a comprehensive bill. A democratic aide close to the situation said Thursday's letter "is largely in response to the situation in the gulf" and that Reid will meet with the chairmen next week to discuss a way forward. Reid emphasized the particular need to hold oil companies more accountable in the case of disasters like the April 20 deepwater rig explosion that is leaking thousands of barrels of oil into the Gulf daily.
Fox Leads Charge in TV Deals. U.S. broadcast networks have made significant headway in clinching billions of dollars worth of advertising deals for the upcoming TV season, with Fox said to be leading the charge by nearly completing its dealmaking. According to advertising executives, the News Corp unit has locked up contracts with advertisers at prices running 8 percent to 9 percent above those from a year ago, and could complete its negotiations by Friday or early next week.
Now May Be Good Time for Fed to Sell Assets - Dallas Fed. The European debt crisis, and the investor flight to safe-haven U.S. government debt it has prompted, has handed the Federal Reserve an opportunity to shrink its bloated balance sheet and turn a profit at the same time, the Dallas Fed's head of research said on Thursday.
Drilling Halt May Be Worse Than Oil Spill. A backlash is building against the Obama administration's offshore drilling moratorium, which some argue worsens the harm to a Gulf Coast economy already losing fishing and tourism business to the oil spill.
Small US Businesses Less Optimistic on Hiring. Weak sales will keep hiring by small U.S. businesses subdued for a while even as their larger counterparts increase payrolls, according to a survey on Thursday. The National Federation of Independent Business (NFIB) said its measure of average employment per firm recorded a seasonally adjusted loss of 0.5 workers in May. The measure has been negative every month since January 2008. It also noted that most of the 823 businesses in the survey, conducted through May, reported they did not change employment, while 8 percent increased average employment by 2.5 workers. However, about 20 percent reduced their workforces by an average of 4.0 employees.
Telegraph:
Bank of England: 'Inflation not the way out of debt'. No one should fool themselves into believing that Britain can inflate its way out of its public debt mountain, the Bank of England's deputy governor has warned. In an opinion piece for Telegraph.co.uk on Friday, Mr Bean writes: "Some people have suggested that a bit of extra inflation now might actually be a good thing. After all, wouldn't it help to get the economy going by reducing the real value of public and private debt? This is severely misguided. "Aside from the dubious morality of redistributing wealth from savers to borrowers, we have seen from past experience that a bit of inflation has a nasty habit of turning into a lot of inflation." He said the MPC should stick to its 2pc inflation target.
If the European Climate Turns Nasty, The ECB Could Suffer From Exposure. The European Central Bank (ECB), that one-time paragon of sound money, has capital and reserves of €77.3bn (£66bn). But thanks to events in Greece, it is now supporting lending to Hellenic banks of €88.4bn, or at least it was at the end of April. Quite where that has got to by now is anybody's guess. And that April figure is a €17.8bn increase on the March total, according to Simon Ward, chief economist at Henderson Global Investors. On top of that exposure, the ECB has also taken on an extra €25bn through its buying of Greek government bonds. So the ECB's Greek exposure is bigger, by some margin, than its own capital and reserves. You will be reassured to learn that the Frankfurt-based central bank has taken Greek collateral to back these loans and insisted that collateral suffers a suitable discount, or haircut, in value to reflect the risk of default. What we don't know is what that haircut is, and how realistic it is, given the sensitive politics surrounding EU-Greece relations. So far the ECB has yet to make a call for more capital to support its lending operations to distressed European financial systems. But if a run on banks, as witnessed recently in Greece, is repeated in countries such as Italy, Portugal and Spain because confidence in institutions wavers further, this situation will change as a full scale banking bail out gathers pace.
Wen Wei Po:
The People's Bank of China may raise interest rates in the coming month to contain rising inflation, citing UBS AG economist Wang Tao. The inflation rate in China may surge to 4% in the coming months, Wang said.
Ming Pao Daily News:
Factories operating in the Pearl River Delta industrial region of southern China reported a 17% increase in wage levels in the past six months, citing a survey by the Hong Kong Trade Development Council.
Shanghai Securities News:
China's property developers may owe a combined $27.5 billion of unpaid value-added land taxes from last year, citing estimates by Shenzhen World Union Properties Consultancy Co.
Evening Recommendations Citigroup:
Upgraded (FE) to Buy, target $39.
Night Trading
Asian indices are -.50% to unch. on average.
Asia Ex-Japan Investment Grade CDS Index 135.0 +2.0 basis points.
The Change in Non-farm Payrolls for May is estimated at 536K versus 290K in April.
The Change in Private Payrolls for May is estimated at 180K versus 231K in April.
The Unemployment Rate for May is estimated at 9.8% versus 9.9% in April.
Average Hourly Earnings for May is estimated to rise +.1% versus unch. in April.
Upcoming Splits
None of note
Other Potential Market Movers
The Treasury's Geithner speaking, ASCO, (WMT) shareholders meeting, Goldman Sachs Basic Materials Conference, RBC Consumer/Retail Conference and the Sanford C. Bernstein Strategic Decisions Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
