Retailer Bonds Pull Away as Time Warner(TWX) Raises $3 Billion: Credit Markets. Retailers, buoyed by sales growing at the fastest pace in four years, are outperforming the broader U.S. corporate bond market as investors wager the economy will avoid a double-dip recession and support consumer spending. The bonds have returned 2.8 percent since the end of May as the market gained 1.9 percent, according to Bank of America Merrill Lynch index data. Greensboro, North Carolina-based apparel maker VF Corp., the index’s best performer in June, returned 5 percent for the month.
Hamburg Deaf to U.S. 'Nonsense' as Exports Power German Growth. Hamburg, the port city that sends 1 million tons of goods to foreign markets each week, has a reply to those who say Germany’s economy is too reliant on exports. “Nonsense,” said Frank Horch, the city’s Chamber of Commerce president, in a June 24 interview in the offices of the 345-year-old trade group. “You cannot say Germany has to stop exports, it makes no sense. Germany was born out of this.” Hamburg, Germany’s largest port and a crossroads in European trade since at least the 13th century, is the city with the most to lose from U.S.-led calls on Chancellor Angela Merkel to reduce the trade surplus in Europe’s biggest economy. As global demand for German goods increases, Merkel is torn between fostering the export boom and honoring a Group of 20 pledge to bolster domestic growth and rely less on foreign trade. Her Cabinet’s backing yesterday of a $100 billion domestic savings program suggests she’s ignoring calls by President Barack Obama to tackle what some say are German imbalances. “Germany is very skilled at exporting, and it’s neither possible nor desirable for it to meet U.S. and European calls to curb exports,” said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels. “It’s politically convenient for some leaders and people to keep raising export surpluses, even if they know Germany can’t and won’t do anything about them.”
Trichet Faces Threat of Higher Market Rates as Debt Crisis Hurts Economy. European Central Bank President Jean- Claude Trichet is facing higher interest rates sooner than he may have planned. Interbank borrowing costs have been climbing since financial institutions had to pay back a record 442 billion-euro ($557 billion) ECB loan on July 1, threatening to hurt the economy just as investors fret about the health of the banking system and the ongoing sovereign debt crisis. That may force the ECB to consider additional lending measures when policy makers convene in Frankfurt today, economists and analysts said. The increase in funding costs comes as Europe’s economy shows signs of weakening after Greece’s fiscal crisis undermined investor confidence, forcing governments to cut spending and conduct stress tests on banks to prove their resilience. The European Overnight Index Average rate, or EONIA, jumped to 0.542 percent on June 30 from as low as 0.295 percent on June 3. The rate that banks charge each other to borrow for three months has increased to 0.8 percent, the highest in 10 months, from 0.63 percent at the end of March. “Less liquidity in the system is leading to a significant increase in money-market rates that in pre-crisis times could only be achieved with an interest-rate hike,” said Juergen Michels, chief euro-area economist at Citigroup Inc. in London. The ECB, which no longer offers banks 12-month loans, could look at a new six-month offering in an effort to boost liquidity and damp market rates, according to Citigroup and Commerzbank. Higher rates are “certainly causing the Greek, Spanish, Portuguese and Irish Governing Council members some headaches because it helps prolong their banks’ dependence on ECB money,” said Carsten Brzeski, an economist at ING Group in Brussels. “On the other hand, I don’t think the Germans will be too bothered.”
European Stress Tests Underestimate Probable Losses on Bonds, Analysts Say. European stress tests on 91 of the region’s biggest banks drew criticism from analysts who said regulators are underestimating probable losses on Greek and Spanish government bonds. The tests are designed to assess how banks will be able to absorb losses on loans and government bonds, the Committee of European Banking Supervisors said yesterday. Regulators have told lenders the tests may assume a loss of about 17 percent on Greek government debt, 3 percent on Spanish bonds and none on German debt, said two people briefed on the talks who declined to be identified because the details are private. “This isn’t a stress test,” said Jaap Meijer, a London- based analyst at Evolution Securities Ltd. It’s “merely the current valuation of government bonds.” Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default, more than three times the level said to be assumed by CEBS. “I wonder how much these stress tests are reverse- engineered to inspire confidence in the market” and banks, said Bruce Packard, an analyst at Seymour Pierce Ltd. in London. “I think they are letting the banks off lightly,” said Stephen Pope, London-based chief global equity strategist at Cantor Fitzgerald. “This sounds like the softest option possible.” Regulators should be applying a 20 percent haircut on Greek bonds and 7 percent on Spanish debt, he said. The tests assume a 3 percentage point deviation from the European Commission’s economic forecasts over two years and a deterioration of sovereign debt risk as compared to market prices in early May, CEBS said. The Commission estimates the EU’s economy will grow by 1 percent this year and 1.7 percent next year.
Paulson Said to Lose 6.9% in June With Advantage Plus Fund. John Paulson, the billionaire who has been betting on a U.S. economic recovery, lost 6.9 percent in June in his Advantage Plus hedge fund to bring his first-half decline to 8.8 percent, investors said.
BP(BP) to Put Sea Turtle Rescuers on Oil-Burn Boats. BP Plc will add trained sea turtle rescuers to all oil-spill clean up teams when controlled burning of the Gulf oil spill resumes as the weather clears, a lawyer for several wildlife advocacy groups said today. Four environmental groups sued BP and the U.S. Coast Guard last week seeking to block the practice of corralling and burning floating patches of oil or force BP to rescue any turtles inadvertently trapped inside the burn boxes. The parties reached a tentative settlement just before a July 2 hearing in New Orleans and worked through the holiday weekend to complete details, the lawyer said. “To keep us from rushing back to court, at a minimum BP and the Coast Guard have agreed to have an observer as part of every single burn team,’’ William Eubanks, the environmentalists’ lawyer, said in a phone interview today. “The things we asked the court for, we’ve gotten.’’
Russian Oil Erodes Middle East's Hold on Exports to Asia: Energy Markets. Russia is sending record amounts of oil to Asia, eroding the dominance of the Middle East, as refiners in South Korea and Japan increase purchases from a source that’s three weeks closer by ship. South Korean imports of Russian crude climbed to an all- time high of 179,000 barrels a day in May, equal to 7.3 percent of the country’s supplies, according to government data. Japan took an unprecedented 241,000 barrels a day, up 61 percent from a year ago, Ministry of Economy, Trade and Industry data showed.
Hedge Funds 'Frozen in Headlights' Cut Trading as Markets Swing. Hedge-fund managers, Wall Street’s best compensated and supposedly smartest investors, are dazed and confused. Reeling from the worst second-quarter performance in a decade, hedge funds have scaled back trading as they struggle to figure out where markets are headed amid sometimes vicious crosscurrents in stock, commodities and other markets, according to brokers and managers.
Wall Street Journal:
China Stalls U.N. Efforts Against North Korea. China is blocking a United Nations Security Council move to condemn North Korea for the sinking of a South Korean warship, say diplomats familiar with the negotiations, marking a rankling divide on the issue between the Washington and Beijing. China is refusing to blame North Korea for the March sinking of the corvette Cheonan, in which 46 South Korean sailors died, and won't label the incident an "attack," according to two Western diplomats. That comes about a week after U.S. President Barack Obama drew an angry response from China for suggesting it was guilty of "willful blindness" toward North Korea. An international investigation concluded in May that the Cheonan was sunk in South Korean waters by a North Korean torpedo, a charge Pyongyang denies. The Security Council has been struggling for weeks to reach agreement on a response. In addition to an international condemnation, Seoul sought a call for an apology and compensation from North Korea, the diplomats said, but China wouldn't agree to the last two points. "The Chinese will only allow condemning the attack—but they don't want to use the words 'condemning' or 'attack,' " said one of the diplomats. "We have to find ways to condemn without 'condemning.' " China also insists on calling the incident a "sinking," the diplomat added. China is North Korea's largest trading partner and one of its few allies.
BP(BP) Sets New Spill Target. Aims to Cap Well by July 27 Earnings; Backup Plans as Obama, Cameron Meet. BP PLC is pushing to fix its runaway Gulf oil well by July 27, possibly weeks before the deadline the company is discussing publicly, in a bid to show investors it has capped its ballooning financial liabilities, according to company officials.
Wells Fargo(WFC) to Cut 3,800 Jobs, Stop Subprime Loans. Wells Fargo & Co. said it will shut down a unit that makes what the San Francisco bank calls "non-prime" real estate, auto and credit card loans and stop originating nonprime mortgages, eliminating a total of 3,800 jobs. The third-largest U.S. bank in stock-market value behind J.P. Morgan Chase & Co. and Bank of America Corp. announced the closing of all 638 Wells Fargo Financial stores across the U.S.
Subway Bomb Plot Tied to Planned U.K. Attack. Federal prosecutors charged a senior al-Qaeda leader Wednesday with helping to mastermind last year's attempted bombing of New York City's subway and said the effort was part of a larger plot that included a failed terrorist attempt in the U.K.
Apartment Vacancies Fell in Quarter. Apartment vacancies fell slightly during the second quarter, the first drop in three years, as improving consumer confidence reversed the trend of renters doubling up or moving in with family during the recession. The improvement allowed landlords to modestly raise rents, though big increases aren't likely until U.S. job growth accelerates.
Bloomberg Businessweek:
Smartphone Use on the Web Goes 'Mainstream'. Smartphone use is gathering steam in the U.S., new research shows. Forty percent of American adults use their cell phones to surf the Web, e-mail, or use instant messaging, according to a study from Pew Research Center in Washington. That's up from 32 percent a year ago, based on Pew's survey of 2,252 adults ages 18 and older that was released on July 7.
Banks Lowering Estimated Hit They'll Take from FinReg. A consensus is forming among Wall Street chief executives that the costs of financial reform will be significantly less than originally predicted, with JPMorgan(JPM) CEO Jamie Dimon confidently predicting that with a little luck he can reduce the earnings hit to a little less than 10%, FOX Business Network has learned. The lower loss projections stemming from the legislation is a function of several factors, say senior people at the large banks. A plan to raise a bank tax appears to have hit a snag and likely won’t make the final bill, and top executives believe there is now enough wiggle room in the “Volcker Rule” so they can continue to take risk trading and maintain their holdings in hedge funds and private equity. Meanwhile, senior executives say they have received assurances from the Obama administration, and Treasury Secretary Tim Geithner, that US banking authorities will make sure that domestic firms are not “disproportionately impacted” with costs so it doesn’t put them at a competitive disadvantage with foreign banks. At the same time, Geithner is also calling major banks and other business leaders trying to dispel the notion that the Obama administration is “anti business,” said a senior executive at one major firm. President Obama has been criticized in recent weeks by several CEOs for adopting anti-business rhetoric and policies such as higher taxes and new entitlements that have dampened the economic outlook.
Business Insider:
Suddenly, The White House Claims It's Pro-Growth and Pro-Business. According to some folks "policy uncertainty" is one thing that's causing the economic rebound to be so weak. On its face it's depressing that so much economy depends on an accurate forecast of policy, but regardless, it sounds as though The White House is taking some moves to rectify this, or at last paint itself as being more pro-business. Earlier in the day, Fox Biz's Charlie Gasparino reported that Tim Geithner had launched a charm offensive with major corporations, trying to convince them that The White House did not see them as the enemy. A few hours later Geithner was on Larry Kudlow's show, pretty much preaching that exact message.
Vancouver Home Sales Plunge 30% - Now Comes The Price Collapse. The Real Estate Board of Greater Vancouver reported yesterday that home sales fell 30.2 per cent in June from the inflated levels of a year earlier, and 5.8 per cent from May. New property listings rose 1.2 per cent from May and 32 per cent from a year earlier. The Calgary Real Estate Board, meanwhile, reported sales of single family homes fell 16 per cent in June from May and 42 per cent from June of 2009, while condo sales fell 14 per cent from a month earlier and 40 per cent from a year earlier. This pattern is quite similar to how things cascaded in the US once the top was in.
DNA Leads to Arrest in Grim Sleeper Killings. LAPD task force traces evidence from a slice of pizza to Lonnie David Franklin Jr., 57, whom neighbors call 'a very good man.' For well over two decades, the killer had eluded police. His victims, most of them prostitutes in South Los Angeles, had lived on the margins of society, and their deaths left few useful clues aside from the DNA of the man who had sexually assaulted them in the moments before their deaths. A sweep of state prisons in 2008 failed to come up with the killer or anyone related to him. Then, last Wednesday, startling news came to the LAPD: A second "familial search" of prisons had come up with a convict whose DNA indicated that he was a close relative of the serial killer suspected of killing at least 10 women.
The Detroit News:
Obama Administration Close to GM, Chrysler Retooling Loans. Nearly two months later, the department is now working with Treasury and teams from both automakers to finalize their request for billions in new loans to retool factories to build more fuel efficient vehicles. GM has sought $14.4 billion in loans, including loans that Delphi Corp. had initially made for a unit that the Detroit automaker has since purchased. Chrysler has sought $8.55 billion.
Gallup:
Obama Job Approval Rating Down to 38% Among Independents. Thirty-eight percent of independents approve of the job Barack Obama is doing as president, the first time independent approval of Obama has dropped below 40% in a Gallup Daily tracking weekly aggregate. Over the past year, Obama has lost support among all party groups, though the decline has been steeper among independents than among Republicans or Democrats. Today's 38% approval rating among independents is 18 percentage points lower than the 56% found July 6-12, 2009.
Politico:
Arizona Suit Imperils Western Dems. The Obama administration's lawsuit over the stringent Arizona border law might have just made the incline a little steeper for many Western Democrats, providing instant fodder to Republicans who are already optimistic about regaining ground lost over the last two election cycles. The dust from the Department of Justice lawsuit filed Tuesday is just starting to settle, but the reflexive sense among strategists on both sides is that it will be a net negative for Democrats this fall.
USA Today:
Small Businesses, Charities Face More Reporting Rules. A little-known provision in the health care reform law could significantly increase tax recordkeeping requirements and costs for nearly 40 million self-employed workers, small businesses and charities, the IRS' national taxpayer advocate said Wednesday. Starting in 2012, self-employed workers, small businesses, charities and government agencies will be required to issue Form 1099s to every vendor from which they purchase more than $600 in goods during the year. For example, a self-employed consultant who buys a $700 computer from an office supply store would be required to send a Form 1099 to the store and the IRS. Currently, businesses are required to provide Form 1099s for services, such as payments to independent contractors, but not for goods. The Congressional Budget Office estimates that the new reporting requirement will raise $17 billion in tax revenue over 10 years, which would be used to offset some of the costs of health care reform.
Greeks Strike Against Pension Reform, Test Government. Striking Greek workers will take to the streets on Thursday to protest ahead of a vote in parliament on a sweeping pension reform, in a test of the Socialist government's resolve to implement austerity measures. Flights to and from Greece will be grounded for hours, ferries will remain docked at ports and public offices will shut down, as unions stage their sixth 24-hour strike this year. "We reject the pension reform bill, a bill that erases fundamental principles," Yannis Panagopoulos, head of private sector union GSEE, said. "We will not stop fighting."
Economic Peril Seen From US Offshore Drilling Ban. A Gulf of Mexico deepwater drilling ban has already cost offshore jobs in a nascent U.S. economic recovery and a lengthy moratorium will put the industry at peril, sector executives said on Wednesday."We're going to see companies go out of business. We're going to to see workers leave this industry," said Louis Raspino, chairman of the International Association of Drilling Contractors and chief executive officer of driller Pride International Inc (PDE). "In a very, very short period of time, we're going to see this industry implode," Raspino said. The oil drilling industry goes head-to-head with the Obama administration in court on Thursday over the White House effort to suspend deepwater drilling. "The blanket moratorium on offshore drilling is the wrong decision," said U.S. Representative Pete Olson, a Republican who represents voters in Houston's suburbs. "The policy is hurting the entire Houston economy and increasing costs for all Americans."The Energy Information Agency said on Wednesday the ban would cut 82,000 barrels per day of production next year. While the legal dispute is pending, oil firms are holding up new drilling operations in the Gulf.Smaller companies in particular cannot afford to lose six months of revenue waiting as the government decides on new regulations to make offshore drilling safer, Raspino said.
Financial Times:
Energy-Focuses Funds Feel Market Volatility. Hedge funds focused on energy markets have suffered a rocky start to the year, hit by volatile commodity prices and the Gulf of Mexico oil spill disaster. Many funds have been left nursing double-digit percentage losses over the first six months of the year. The average energy commodity fund had lost 2 per cent since the beginning of the year to the end of May, compared with gains of 1.3 per cent for the hedge fund industry as a whole, according to Hedge Fund Research. However, the numbers disguise the severe difficulties some energy hedge funds have faced over the past two months, say investors, where performance has been particularly poor. According to a report by JPMorgan, recent losses have led to falls of as much as 19 per cent for some global energy funds. The $2.3bn Norway-based Sector Asset Management, one of Europe’s largest energy-focused hedge fund managers, was the subject of rumours last week, though brokers said it was not winding down. A spokesperson for the firm did not return a call for comment. Sector, which has seen two of its funds lose more than 11 per cent so far this year, has suffered recently as a result of the BP oil spill in the Gulf of Mexico, an investor in the fund told the Financial Times. Other big-name commodity funds that have been hit by volatile markets include Willem Kooyker’s $3bn Blenheim Global Markets fund, which was down 11.29 per cent as at the end of May, according to an investor. Singapore-based Merchant Capital, which trades a selection of commodities including energy instruments was, meanwhile, down 17.6 per cent mid-June.
Telegraph:
EMU Break-Up Risks Global Deflation Shock That Would Dwarf Lehman Collapse, Warns ING. A full-fledged disintegration of the eurozone would trigger the worst economic crisis in modern history, devastate every country in Europe including Germany, and inflict a deflationary shock on the US. There would be no winners, warns the Dutch bank ING in a new report "Quantifying the Unthinkable". The US dollar would rocket to 85 cents against the euro equivalent, with a "temporary overshoot" to near 75 cents.
IMF Lifts Global GDP Forecast. The International Monetary Fund has upgraded its 2010 global growth forecast, on the back of robust growth in Asia and renewed US private demand, but flagged big risks to the recovery from Europe's debt problems."Downside risks have risen sharply amid renewed financial turbulence. In this context, the new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area, the IMF said in its latest update of the World Economic Outlook. The IMF raised its 2010 world output forecast to 4.6 per cent from 4.2 per cent previously, but said sovereign debt risks in Europe could escalate and drag on the global economy, in its latest updates of the World Economic Outlook and Global Financial Stability reports.
South China Morning Post:
China Mainland Home Prices Set to Fall by Up to 20%. Home prices on the mainland may fall sharply in the next few months as a result of Beijing's intensified crackdown on the overheated market, according to property consultancies who predict that developers will now begin offering discounts.
Lower Chinese Port Volumes Signal Slowdown in Global Trade. Monthly throughput at Shanghai and Shenzhen declines. Analysts foresee a slowdown in global trade on the horizon as the mainland's two biggest ports, Shanghai and Shenzhen, report lower volumes last month compared with May.
Evening Recommendations Citigroup:
Reiterated Buy on (VFC), target $100.
Night Trading
Asian equity indices are +.50% to +2.0% on average.
Asia Ex-Japan Investment Grade CDS Index 131.0 -7.0 basis points.
Asia Pacific Sovereign CDS Index 134.75 +1.0 basis point.
Initial Jobless Claims for last week are estimated to fall to 460K versus 472K the prior week.
Continuing Claims are estimated to fall to 4600K versus 4616K prior.
11:00 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a -2,007,000 barrel drawdown the prior week. Gasoline inventories are expected to rise by +100,000 barrels versus a +537,000 barrel gain the prior week. Distillate supplies are estimated to rise by +1,600,000 barrels versus a +2,457,000 barrel gain the prior week. Finally, Refinery Utilization is expected to rise by +.22% versus a -1.0% decline the prior week.
3:00 pm EST
Consumer Credit for May is estimated to fall -$2.3 Billion versus +$1.0 Billion in April.
Upcoming Splits
(CLB) 2-for-1
Other Potential Market Movers
The $12 Bln 10-Yr TIPS Auction, weekly EIA natural gas inventory report and ICSC June Retail Chain Store Sales could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 119.81 bps -.83%
European Financial Sector CDS Index 137.53 bps +1.33%
Western Europe Sovereign Debt CDS Index 147.50 bps -1.67%
Emerging Market CDS Index 264.60 bps -3.01%
2-Year Swap Spread 32.0 -4 bps
TED Spread 38.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .15% -1 bp
Yield Curve 237.0 +5 bps
China Import Iron Ore Spot $126.60/Metric Tonne -1.09%
Citi US Economic Surprise Index -20.80 -.3 point
10-Year TIPS Spread 1.73% +1 bp
Overseas Futures:
Nikkei Futures: Indicating +231 open in Japan
DAX Futures: Indicating +20 open in Germany
Portfolio:
Higher: On gains in my Biotech, Medical, Technology and Retail long positions
Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges, covered some of my (EEM) short, added to my (ISRG) long
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades substantially higher, as it pushes to session highs this afternoon. On the positive side, Airline, REIT, Bank, Semi, Computer, Coal, Disk Drive and Oil Service stocks are especially strong, rising 4.0%+. Cyclicals are outperforming today. (IYR) trades much better, rising +4.66%. (XLF) also trades well, rising +4.0%. Copper is rising another +1.77%. The S&P GSCI Ag Spot Index is jumping another +3.0% today to 315.68 and is now close to its 200-day moving average at 319.50. Weekly retail sales remain firm, rising +3.0% versus a +3.0% gain the prior week. The 10-year yield is rising +5 bps to session highs, which is also a positive at this point. On the negative side, Telecom, Drug, Biotech, HMO and Hospital shares are underperforming, rising less than 1.5%. Despite improvements in some gauges of European credit angst, three-month euro Libor is rising another +.19 basis point today to another multi-month high of 74.19 bps. The TED spread has also been trending higher again over the last few days. China Import Iron Ore Spot prices continue to decline. Weekly retail sales have held up well even as retail stocks have been crushed over the last few months. This could be one of the better performing groups during the upcoming earnings season. The broad market has likely begun a short-term move higher. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less real estate sector pessimism, bargain-hunting and diminishing economic fear.
U.S. Retailers' Sales Rise at Fastest Pace in 4 Years. U.S. retailers’ sales are growing at the fastest pace in four years, a sign consumers may be overcoming concern about unemployment and depressed home values. Sales probably expanded at an average monthly rate of 4 percent in the first five months of the retail fiscal year that began Jan. 31, the biggest gain since 2006, the International Council of Shopping Centers trade group said in advance of its June report tomorrow.
State Street Rises as Operating Profit Beats Estimates. State Street Corp., the third-largest U.S. custody bank, rose the most in more than a year in New York trading after reporting second-quarter operating profit that beat analysts’ estimates. State Street gained as much as 11 percent after reporting earnings per share of 93 cents, excluding some one-time items. The mean estimate of 15 analysts in a Bloomberg survey was for profit of 72 cents.
EU Stress Tests May Include 17% Loss on Greek Debt. European banking regulators have told lenders that their planned stress tests may assume a loss of about 17 percent on Greek government debt and 3 percent on Spanish bonds, according to two people briefed on the talks. There are unlikely to be so-called haircuts on German government securities under the stress tests being overseen by the Committee of European Banking Supervisors, said the people, who declined to be identified because the talks are private. CEBS is still weighing how much data to disclose and when, a European Union official familiar with the talks said. “If they set the criteria so stringently that the majority of the participants fail, then the financial industry in Europe fails with it,” said Ralph Silva, an analyst at London-based Silva Research Network, which specializes in financial-services firms. “These kind of numbers do not seem particularly robust,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “The stress on Greek and Spanish bonds seems too modest.”
Market Sets Greek Debt Losses at Three Times Stress-Test Level. Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default, more than three times the level said to be assumed by European banking regulators. Derivatives known as recovery swaps are trading at rates that imply investors would get back about 40 percent in a Greek default or debt restructuring. So-called stress tests designed to gauge banks’ strength will assume a loss, or haircut, of just 17 percent on the bonds, according to two people briefed on the regulators’ talks before an official announcement.
China Seeks to Tighten Liquidity Even as Growth Slows. The People’s Bank of China signaled it remains focused on reining in liquidity and stemming inflation even after evidence of slowing growth in the world’s third-biggest economy contributed to a global stock sell-off. A surfeit of cash is still the main problem facing monetary policy, and PBOC should at an appropriate time use interest rates to address it, Yang Guozhong, director of the bank’s business management department, wrote in China Finance magazine. Zhang Jianhua, director of the research bureau, wrote in the China Daily that the PBOC must “deal with” excess liquidity. “Price pressures have been building for almost a year now,” and inflation will likely accelerate in coming months, said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “Today’s comments suggest that inflation and easy liquidity remain at the top of the PBOC’s agenda.”
U.S. Commercial Property Sales Trail Average as Supply Limited. U.S. commercial real estate sales in the first half totaled about a quarter of the average of the previous six years as owners kept properties off the market, impeding investors with record funds for purchases. Buyers and sellers completed $34.2 billion of deals through June, or 26 percent of the average first-half dollar volume since 2004, according to preliminary figures from Real Capital Analytics. The total was about 12 percent of the 2007 peak, when $277.7 billion of properties changed hands in the same period, data from the New York-based real estate research firm show.
China Says Treasury Holdings Shouldn't Be Politicized. The manager of China’s foreign- exchange reserves said the U.S. bond market is important and changes in holdings of Treasuries “shouldn’t be politicized.” The benefits of investing in U.S. government debt include “relatively good” safety, liquidity and low trading costs, the State Administration of Foreign Exchange said today in a statement on its website. China increasing or cutting the amount of U.S. debt it owns “is normal” and decisions are made based on market conditions, it said.
Merkel's Cabinet Back $103 Billion Budget-Cut Plan. German Chancellor Angela Merkel’s Cabinet approved a four-year package of budget cuts, stepping up pressure on fellow European governments to reduce debt that risks tearing apart the euro area. Ministers meeting in Berlin today backed spending cuts and revenue-raising measures worth 81.6 billion euros ($103 billion) from 2011 through 2014. Snubbing President Barack Obama’s calls to focus on economic growth, Merkel says the cuts, equivalent to about 2.7 percent of gross domestic product in Europe’s biggest economy last year, aren’t deep enough to threaten the recovery. “Germany feels the responsibility to signal that it will continue to push strongly for fiscal discipline within the euro area,” Marco Annunziata, chief European economist at UniCredit Group in London, said in a telephone interview. “The only way to do it is to exercise leadership.”
Allstate(ALL) CEO Says State Borrowing 'Out of Control'. Allstate Corp. Chief Executive Officer Thomas Wilson said a surge in borrowing by U.S. state and local governments may trim the value of municipal debt holdings, and called for political leaders to cut costs. “Government borrowing is way out of control.” Wilson, 52, said yesterday in a Bloomberg Television interview from Aspen, Colorado. “We need to get our house in order.”
Fisher Says Fed Has 'Done Enough' to Spur Growth. Federal Reserve Bank of Dallas President Richard Fisher said that while the economy is slowing, there’s little risk it will sink back into a recession and policy makers have “done enough” to spur growth. “I don’t think we’re going to go backwards,” Fisher said in an interview with CNBC today. “I think we’ve done enough,” Fisher said. “We ought to be very careful about not going too far. Interest rates are zero. It’s not the cost of money that’s the issue.” Fisher said companies are holding back on investment because of uncertainty over government regulations in areas such as health care. He also said he expects the world’s largest economy to slow in the second half of the year as the contribution from business inventories wanes. Companies are “hoarding cash, they’re holding back, they’re not hiring people, they’re not building plant and equipment at the pace we’d like to see,” Fisher said. “This has nothing to do with monetary policy. We have been as accommodative as possible.” Asked about the prospect of additional asset purchases, Fisher said: “I’m not ruling it out, I’m just saying we have provided a lot of accommodation, there’s a lot of buildup of liquidity, there’s a lot of cash.” “Now it has to be utilized,” Fisher said. “It will be utilized only if there is confidence in the future.”
Prisoner-Swap Deal Expected in Russia Spy Case. In an apparent throwback to the Cold War, Moscow and Washington are discussing a deal to swap the 10 suspected deep-cover Russian agents arrested last month in the U.S. for prisoners held in Russia, according to people familiar with the talks.
Russia-To-Asia Pipeline Take Detour to U.S. Russian oil has taken an unexpected turn to the U.S., where it is making inroads on the West Coast. Oil refineries spanning the area between the Puget Sound in the Pacific Northwest and greater Los Angeles have been quick to try out oil that is landing in tankers sent from Russia's eastern coast. Imports have gone from zero to an estimated 100,000 barrels a day in a matter of months since a pipeline bringing crude from deep inside Eastern Siberia came online.
BP(BP) Open to Abu Dhabi Stake. BP PLC's Chief Executive Tony Hayward met this week with Abu Dhabi's powerful Crown Prince Mohammed bin Zayed Al Nahyan and would be open to seeing the oil-rich sheikdom buy a stake of up to 10% in the U.K. oil giant, a person with knowledge of the meeting told Zawya Dow Jones.
McDonald's(MCD) Blasts Criticism of Happy-Meal Toys. McDonald's Corp. Chief Executive Jim Skinner vowed to vigorously defend the company in its use of toys to promote Happy Meals against a threat by a consumer group to sue the fast-food giant over the practice.
Bloomberg Businessweek:
Euro's Downtrend Resistance May Halt Rally: Technical Analysis. The euro’s rebound versus the dollar to above its 55-day moving average will probably fade as the currency approaches resistance to further gains formed by its 16 percent slump since the beginning of December, according to Bank of Tokyo-Mitsubishi UFJ Ltd. “With such strong resistance still in place, it appears unlikely that the euro’s recent bounce will gain further momentum,” Hardman wrote. “It appears reasonable to expect the euro to now experience a period of undervaluation in the years ahead.” The shared European currency may fall below parity with the dollar, an “extreme undervalued level,” if Greece were to restructure its debt or one of the euro members left the currency union, Hardman wrote.
CNBC:
US Mortgage Applications Soar on Refinance Demand. Refinancing drove total U.S. mortgage applications to a nine-month high last week, while demand for loans to purchase homes sunk to a near 13-year low as buyers remained sidelined after the expiration of federal tax credits.
Financial Reform Has More Holes Than Swiss Cheese. Whew! That was close! After 18 months of threats, saber rattling, and posturing about the demise of the competitiveness of the American banking system, we finally have a financial reform bill, although it has more holes than a hunk of Swiss cheese. There is no return of Glass-Steagall, no breakup of the big banks. Crucial definitions, like one for “proprietary trading”, got lost in the Bermuda Triangle. An industry that was sweating bullets poured tens of millions of dollars into lobbying efforts to render this bill toothless, $6.7 million from JP Morgan (JPM) and $5.5 million from Citicorp (C) alone, and they certainly got their money’s worth. Hedge funds nearly got off Scot free, merely getting stuck with a fraction of the $20 billion tab for regulation if they manage over $10 billion. As I write this, teams of lawyers are burning the midnight oil, creating subsidiaries and special purpose vehicles to sidestep the most onerous aspects of the 1900 page opus, which we are assured, no one has read in its entirety.
Sources: Rolling Stone Quotes Made by Jr. Staff. Mag also accused of misrepresenting communications with McChrystal's HQ; e-mails support claim. The impolitic comments that torpedoed Gen. Stan McChrystal’s career were “almost all” made by his most junior staff — men who “make tea, keep the principal on time and carry bags” — who had no reason to believe their words would end up in print, according to a staff member who was on the trip to Europe during which the comments were made.
FINalternatives:
Hedgies Cool to Democrats As Wall Street Cuts Donations. Democrats bankrolled their successful efforts to retake Congress in 2006 and the White House in 2008 with huge donations from Wall Street, and especially from the hedge fund industry. But to defend those gains in 2010, they’ll have to make do with much less from the same people. Despite the big donations over the past several election cycles, Democrats pushed ahead with major financial reform legislation seen as hitting big banks. And it seems those big banks are hitting back, with donations from New York and its suburbs falling by 65% from two years ago, the Washington Post reports. New York-area residents have given the Democrat’s two Congressional campaign committees just $8.7 million this cycle, down from $23.9 million. In 2008, a whopping 28% of the committees’ money came from the New York area. In 2010, the figure is less than 10%. Despite their newfound coolness towards Democrats, Wall Street hasn’t exactly rushed to embrace the Republicans. The Republican Congressional committees have taken in just $2.7 million from the New York area, slightly more than in 2008, but still less than a third of what Democrats have taken in. The Democratic committees have raised more than 50% more than Republicans this cycle.
Hedge Funds Drop .94% As Distressed, Equity Hedge Funds Take Toll. Hedge funds shed 0.94% last month, extending their year-to-date loss to 1.2%, according to new figures from Hedge Fund Research. Just four of the 18 HFRX strategy indices ended the first half with a positive month. Distressed securities and fundamental growth funds, in particular, wilted in the summer heat, shedding 3.73% (up 0.38% year-to-date) and 2.85% (down 9.73% YTD, the worst of any strategy index), respectively. Equity hedge funds were no great shakes, either, declining 1.38% (down 3.42% YTD) in June. Macro funds lost 1.32% (down 2.32% YTD), market directional funds lost 1.14% (down 0.01% YTD) and the HFRX Equal Weighted Strategies Index dipped 0.99% (down 0.09% YTD). The strongest performer on the month was systematic diversified, which rose 0.64% to hit 4.53% on the year. The other strategies in the black in June were relative value arbitrage (0.29% on the month, 1.29% YTD), convertible arbitrage (0.11%, 1.92% YTD) and relative value arbitrage multi-strategy (0.1%, 3.23% YTD).
Lloyd's List:
Bulker Binge Sparks Fears of Oversupply. More than $6bn of new orders placed as bullish owners secure newbuilding prices at seven-year lows. A BULK carrier ordering binge has seen more than $6bn in new orders placed in Asian shipyards in May and June, stoking fears of a major oversupply of dry bulk vessels in 2011 and beyond.
McCain to Vote No on Kagan. Sen. John McCain (R-Ariz.) will vote against confirming Supreme Court nominee Elena Kagan, he announced Wednesday in an op-ed piece to be published in Thursday's USA Today. The main beef McCain cites, in fact his only beef, is with Kagan's move in 2004 to ban military recruiters from official recruiting channels at Harvard Law School.
Stop the Oil, Not Job Creation. Here in the Gulf, where Washington policy decisions have a real impact on the people and businesses most affected by BP’s Deepwater Horizon oil spill, we were thrilled by a federal judge’s recent decision to overrule President Barack Obama’s moratorium on deepwater drilling. We hope this gives the Obama administration time to reevaluate its drastic decision to cut off the nation’s access to important sources of oil and natural gas from the Gulf of Mexico.
The Elite Turn Against Obama. Even the Aspen Ideas Festival, an annual gathering of the country's brightest lights, isn't Obama country anymore. Lloyd Grove on the president's waning support among the intelligentsia. You’d think the well-heeled and enlightened eggheads at the Aspen Ideas Festival—which is running all week in this fashionable resort town with heady panel discussions and earnest disquisitions involving all manner of deep thinkers and do-gooders—would be receptive to an intellectually ambitious president with big ideas of his own. In a way, the folks attending this cerebral conclave pairing the Aspen Institute think tank with the Atlantic Monthly magazine might even be seen as President Obama’s natural base. Apparently not so much. during Monday’s kickoff session, offering a withering critique of Obama’s economic policies, which he claimed were encouraging laziness. “If you’re asking if the United States is about to become a socialist state, I’d say it’s actually about to become a European state, with the expansiveness of the welfare system and the progressive tax system like what we’ve already experienced in Western Europe,” Harvard business and history professor Niall Ferguson declaredFerguson was joined in his harsh attack by billionaire real estate mogul and New York Daily News owner Mort Zuckerman. Both lambasted Obama’s trillion-dollar deficit spending program—in the name of economic stimulus to cushion the impact of the 2008 financial meltdown—as fiscally ruinous, potentially turning America into a second-rate power. Zuckerman added that he detects in the Obama White House “hostility to the very kinds of [business] culture that have made this the great country that it is and was. I think we have to find some way of dealing with that or else we will do great damage to this country with a public policy that could ruin everything.” This was greeted by hearty applause from a crowd that included Barbra Streisand and her husband James Brolin. “Depressing, but fantastic,” Streisand told me afterward, rendering her verdict on the session. “So exciting. Wonderful!” The consensus was similar in an afternoon panel discussion on the decline of the American middle class. “He said jobs were going to be his No. 1 priority—there’s a huge disconnect between Washington and what’s going on out in the country,” nominal Obama supporter Arianna Huffington said.
Reuters:
U.S. Cancer Death Rates Continue Drop: Report. U.S. cancer death rates are falling, with big decreases in major killers such as colon and lung cancer, the American Cancer Society said on Wednesday.
Financial Times:
Cooling Chinese Demand to Hit Hard Commodities. A near-halving in the Baltic Dry Index since the end of May suggests that hard commodity prices will fall in the second half of the year, says Melissa Kidd at Lombard Street Research. She acknowledges that the recent drop in the BDI – a gauge of the cost of shipping dry bulk cargoes, such as iron ore and coal – pales in comparison to a 93 per cent slump during the financial crisis. She also says it reflects to some extent an oversupply of shipping following a surge in freight prices in 2008. “But examining underlying trends in hard commodity markets and world production suggests the BDI retains at least some of its value as a leading indicator,” she says, noting its historically close correlation with the S&P GSCI commodities index. “China has been the world’s engine of growth for coal and iron ore, and other commodities, over the last 12 to 18 months,” says Ms Kidd. “A cooling off in Chinese demand growth – prompted by ongoing monetary tightening – will impact heavily on global price developments. For some hard commodities, the process may already have started. “Recent falls in the Baltic Dry Index, in combination with signs of weakening hard commodity demand in China and softening global survey data, point to a slowing down in the global recovery. Hard commodity prices will find little support going forward in this environment.”
Bloomberg to Launch Derivatives Valuation Tool. Bloomberg, the privately held news and information company, is making a further push into over-the-counter derivatives amid growing calls from regulators and lawmakers for increased transparency in the $615,000bn market. A new derivatives valuation service expected to be launched by Bloomberg this week will analyse derivative instruments and price them, allowing users to also look at the models and assumptions that underpin the instruments. The new service, which will charge users according to complexity and the size of the derivatives portfolio that has to be valued, is aimed at tapping into demand for more independent valuations of these contracts, which have been widely criticised for being too opaque.
We Have Yet to Address the Cause of the Crisis. With the debate about US financial reform finally, it appears, about to end, should we all feel safer and more confident that a crisis will not recur? After all, the root causes of this crisis (including derivatives) have been identified and addressed. Measures have been taken to prevent system-wide bail-outs. We agree wholeheartedly with the need for financial reform and support many of the derivatives provisions in the bill. But have we addressed what actually happened in the financial crisis? Or have we left the real culprit lurking, ready to resurface and create more instability in the financial system? It’s clear today – and it was clear three years ago – that the culprit is real estate exposure. Bad lending, driven by poor underwriting standards and awful risk management, created and drove the crisis.
The Scotsman:
North Sea investment to top £16bn on oil industry bounce. A BUMPER £16 billion in potential investment in the North Sea could be "kick started" this year by a resurgent oil and gas industry, it was revealed yesterday. The latest economic report published by Oil & Gas UK, the pan-industry trade body, has highlighted signs of growing confidence across the sector with plans to develop a potential 70 fields in the pipeline. Both exploration work and development drilling is expected to exceed last year's levels in the search for oil and gas discoveries in the UK continental shelf (UKCS). Overall investment in the North Sea this year alone is expected to rise above £5.5bn, compared with £5bn in 2009.
El Mundo:
A new law that the Spanish government is preparing to overhaul rules governing savings banks, or cajas, will allow private investors to own as much as 50% of the lenders. Political influence on boards will be reduced and the new law will allow cajas to become commercial banks.
Expansion:
Spanish officials informed builders associations that the government would put 70 building projects for roads and railways on hold as part of its attempts to save money.
PAP:
Poland plans to freeze salaries for public workers and raise a tobacco excise tax next year to cut the budget gap and tame the growth of public debt, citing a Finance Ministry document on the 2011 budget plan. The measures are needed because of the risk of public debt exceeding 55% of gross domestic product.
Mercurio:
Codelco, Chile's state-owned copper producer, may increase annual production to 1.8 million metric tons between 2010 adn 2012. Production was 1.78 million tons last year.
DigiTimes:
HDD Prices Dropping Since End of June. Hard drive quotes in Taiwan at the end of June dropped 10-20% compared to levels seen at the beginning of the second quarter, according to sources from hard drive players. Supply had been tight since the second quarter of 2009 causing quotes to remain at a high level until the second quarter of 2010, when Europe's bond crisis occurred and started affecting PC demand. As PC brands started downwardly adjusting their shipment forecast for the third quarter, it relatively helped relieve the shortage of hard drives and even turned the market status to over-supply, as a result, the hard drive makers started reducing their quote. For the third quarter, the sources expect hard drive shipments will remain at levels seen in the second quarter, though previous years had generally seen strong growth in this time frame. Since the total number of hard drive suppliers worldwide has been reduced to only 4-5 players, the market is unlikely to see a price war this year, helping the industry to become healthier, the sources noted.
Sina:
China's coal output may rise 20% to 1.57 billion metric tons in the second half from a year earlier, citing Dong Yueying, vice director of economic operations at the China National Coal Assoc.
Al Eqtisadiah:
A Saudi business team is to hold direct talks with BP Plc(BP), which faces a large bill for the Gulf of Mexico oil spill. The team, including investors from the energy industry, is seeking to acquire between 10 and 15% of BP's shares.
