Weekend Headlines
Bloomberg:
- Draghi on Offensive as Game Changer Sought in Crisis Battle. European Central Bank President Mario Draghi has gone on the offensive as he seeks a game changer in the battle against the sovereign debt crisis. Draghi, who sparked a global market rally last week by pledging to do whatever it takes to preserve the euro, is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before ECB policy makers convene on Aug. 2. He meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt today and is also attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases.
- Merkel Ally Meister Rules Out More Aid for Greece, FAS Reports. Greece shouldn’t get additional financial aid, according to Michael Meister, the deputy leader in parliament of German Chancellor Angela Merkel’s Christian Democratic Union, Frankfurter Allgemeine Sonntagszeitung reported. Greece’s problem is its government’s inability to carry out domestic changes, the newspaper cited Meister as saying in an interview. While advising against Greece being forced to exit the euro region, Meister called it “very difficult” to rebuild the country’s ability to pay its bills, FAS reported in a preview of an article for tomorrow’s edition.
- France’s Hollande Lays Dodo Bird Egg With First Budget. On Wednesday, France will become the first European country to impose a tax on financial transactions. This was a bad idea in the past; it’s a worse one now. As the most significant fiscal measure to be enacted thus far by the Socialist government of President Francois Hollande, it’s also a disturbing sign. The 0.2 percent tax, loosely modeled on the ideas of the U.S. economist James Tobin, will be applied to the purchase of shares in 109 French companies with market capitalizations of more than 1 billion euros ($1.2 billion). A similar levy will be imposed on high-frequency trading and so-called naked sovereign credit-default swaps. A Bloomberg News report recently showed that the tax is larded with loopholes, and the expected revenue is negligible: 170 million euros in 2012 and 500 million euros next year. At worst, it will frighten away investment and curb needed growth; at best, it is a distraction from the heavy lifting that Europe’s second-largest economy must do to revive.
- European Banking Regulator Imperiled by Zombie Banks in Germany. Germany's regulator balked last year when the European Banking Authority conducted stress tests on financial firms, objecting to the agency's definition of capital and allowing one state-owned lender to withhold some results. The refusal to go along with the European Union regulator reflects an aversion by governments to ceding control to a central authority that may doom talks about creating a banking union and thwart plans to shift the burden of bailing out Spanish and Irish lenders to other euro-area nations. "Germany didn't let the EBA dictate any terms to its troubled banks, why would it now hand over controls to a new regulator?" said Nicholas Spiro, managing director of Spiro Sovereign Strategy Ltd., a London consulting firm specializing in sovereign-credit risk. "The prospects of a new central authority are shaky at best."
- Japan Industrial Output Falls: Economy. Production fell 0.1 percent in June from May, when it slid 3.4 percent, Japan’s Trade Ministry said today. The median estimate of 29 economists surveyed by Bloomberg News was for a 1.5 percent gain.
- South Korea Manufacturer Confidence Drops to 3-Year Low. South Korean manufacturers’ confidence dropped to the lowest level in more than three years as Europe’s worsening fiscal crisis damped sentiment in a country where exports make up about half the economy. An index measuring expectations for August was at 70, the lowest level since May 2009, after dropping from a revised 81 in July, the Bank of Korea said in a statement in Seoul today. A measure of expectations at non-manufacturing companies also dropped to 69 from a revised 76.
- Most Chinese Stocks Fall on Earnings Concern; China Cosco Drops. Most Chinese stocks fell as concern earnings growth is slowing overshadowed speculation European Union policy makers will take action to ease the debt crisis. China Cosco Holdings Co. (601919) slumped the most in three weeks after saying it expects its first-half loss to widen from a year ago. Industrial & Commercial Bank of China Ltd. rose 0.5 percent as it was named among “high quality beta stocks” by Nomura Holdings Inc. The Shanghai Composite Index (SHCOMP) gained 0.1 percent to 2,131.7 as of 10:51 a.m. local time. About two stocks declined for each one that fell. The CSI 300 Index (SHSZ300) rose 0.6 percent to 2,362.36. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, climbed by the most in a month on July 27. “Second-quarter earnings for companies are really quite bad and are dragging on the market,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. “People have accepted that fact now, and eyes are on whether they will improve next quarter. Europe leaders’ pledge to protect the euro will boost confidence but we need to see concrete measures before the market can stabilize.” The Shanghai Composite has fallen 4.2 percent in July, poised for the third month of declines. It has fallen 13 percent from this year’s high on March 2 amid concern the economic slowdown is deepening and Europe’s debt crisis is worsening. Europe is China’s largest export market, making up 18 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.
- Chinese ’Nationalistic’ Education Draws Protesters in Hong Kong. Tens of thousands of parents, students and social activists marched through Hong Kong yesterday to oppose plans for national education lessons that detractors say will stifle independent thinking.
- SEC Freezes Trader Assets in Probe of Cnooc-Nexen Deal. The U.S. Securities and Exchange Commission obtained a court order to freeze assets of traders who allegedly reaped more than $13 million by trading illegally ahead of Cnooc Ltd. (883)’s announcement that it would buy Nexen Inc. Hong Kong-based Well Advantage Limited and other unknown traders stockpiled shares of Nexen based on confidential information about the deal, the SEC said in a July 27 statement announcing a complaint filed at federal court in Manhattan. The court order froze about $38 million in assets, the SEC said.
- Hedge Funds Add Wagers in Longest Streak Since 2009: Commodities. Hedge funds raised commodity bets in the longest bullish streak in three years as speculation that policy makers will increase economic stimulus drove prices toward the biggest monthly rally since October. Money managers raised their net-long positions across 18 U.S. futures and options by 3.4 percent to 1.17 million contracts in the week ended July 24, U.S. Commodity Futures Trading Commission data show. Wagers gained for seven weeks, the longest increase since June 2009. Corn bets climbed to the highest since September 2011, and traders are the most bullish on natural gas since October 2006. Investors added bets even as commodities fell 0.4 percent in the week to July 24.
- Subprime Auto ABS Grows as Lenders Chase Margins: Credit Markets. Sales of bonds tied to payments on subprime car loans are accelerating at the fastest pace in five years as investors seek high yields amid speculation the Federal Reserve will keep interest rates at record lows until mid-2015. Led by Santander Consumer USA, issuance of $10 billion this year in asset-backed debt linked to vehicle loans to borrowers with spotty credit records compares with $8.2 billion in in the same period of 2011, according to Barclays Plc. Sales are surging with the central bank holding its benchmark rate near zero to spur growth. Investors are seeking riskier assets to generate returns as private-equity firms such as Blackstone Group LP and Perella Weinberg Partners are drawn to the high profit margins in subprime auto lending. "There is broad-based demand for any reasonably safe bond that offers any meaningful amount of yield," said Harris Trifon, a debt analyst at Deutsche Bank in New York. Investors are realizing that "interest rates may remain extraordinarily low for years to come," he said.
- Obama Advisers Project $1.2 Trillion Deficit for 2012. The Obama administration forecast the federal budget deficit will be $1.21 trillion this year, down from $1.33 trillion projected in February, as gridlock in Congress slows government spending. The national unemployment rate will average 8 percent for the year, the president’s Office of Management and Budget said in an annual update of its budget projections. The updated figures were released yesterday amid a presidential election campaign in which the economy is the dominant issue. Economic growth from the fourth quarter of 2011 to the fourth quarter of this year is projected to be 2.6 percent, according to the OMB’s mid-session review. While that’s lower than what the administration said it expected in February, it remains higher than the forecasts of private economists.
- Facebook(FB) Stock Plunge Slashes $34 Billion of Market Value. Facebook Inc. has lost about $34 billion in market value since its May initial public offering, as the operator of the world’s largest social-networking service fails to assuage concerns about how it can make more money from almost a billion users. Facebook’s stock dropped 12 percent yesterday, its biggest one-day loss on record, after its first quarterly earnings report as a public company. That brought the plunge to 38 percent since the May 17 debut, which at $16 billion was the largest ever for a technology company.
- AT&T(T) Boosts Stock Buybacks by $11.1 Billion as Profit Climbs. AT&T Inc., the biggest U.S. telephone company, said its board authorized a repurchase of as much as $11.1 billion in stock, doubling a buyback program the company announced in December 2010. The effort will include as many as 300 million shares, or about 5 percent of the stock outstanding, Dallas-based AT&T said yesterday in a statement. The 2010 buyback plan also amounted to as many as 300 million.
- Solyndra Files Plan to Reorganize in Chapter 11 Bankruptcy. Solyndra LLC, the solar-panel maker that received a $535 million U.S. Energy Department loan guarantee for seeking bankruptcy protection, filed a Chapter 11 reorganization plan. The plan provides for holders of allowed administrative expenses and priority claims to be paid in full, and assets of Solyndra will be vested in the Solyndra Residual Trust, according to a filing yesterday in U.S. Bankruptcy Court in Wilmington, Delaware. Holders of Solyndra’s general unsecured claims, valued at $50 million to $120 million, are expected to recover from 2.5 percent to 6 percent, according to a disclosure statement filed with the plan.
- Miners Should Cut Back Spending as Prices Fall, AFI Says. Australian Foundation Investment Co. (AFI), a fund owning shares in BHP Billiton Ltd. (BHP) and Rio Tinto Group, said it would encourage companies to cut back on investments in new operations as commodity prices fall. Mining companies will start to question the economics of projects as prices fall and costs rise, Ross Barker, chief executive officer of the listed Melbourne-based fund with a market value of A$4.5 billion ($4.7 billion), told the Australian Broadcasting Corp.’s Inside Business program. “That is obviously something we would encourage because we don’t want to spend large amounts of money and not get good returns.”
- Republican Senator Says Obama ’Outsourced’ Syria Policy. President Barack Obama’s administration has turned over leadership on the escalating conflict in Syria to other countries and hasn’t strengthened the U.S. relationship with Israel, Senator Kelly Ayotte said today. The Obama administration has “outsourced leadership to the United Nations” on Syria, Ayotte, a New Hampshire Republican who serves on the Armed Services Committee, said today on CNN’s “State of the Union” program. Ayotte also criticized the administration’s record on Israel, which says it’s threatened by the possible development of weapons from Iran’s nuclear program.
- Syria Pounds Rebels in Aleppo as 200,000 Flee Fighting. Syrian troops backing President Bashar al-Assad stepped up their assault on rebels in Aleppo, prompting U.S. Defense Secretary Leon Panetta to predict that Assad’s use of “indiscriminate violence” will hasten the regime’s collapse. Government forces killed at least 120 people yesterday, mainly in Aleppo, the nation’s commercial hub, and Damascus, the capital, according to the Local Coordination Committees, an activist group. Syrian opposition fighters have seized eight neighborhoods in Aleppo and the road leading to the Turkish border, while the Syrian army resumed pounding the city with heavy weapons, according to Al Jazeera television. About 200,000 people have fled Aleppo and nearby areas in the past two days, Valerie Amos, the United Nations’ top humanitarian affairs official, said in a statement yesterday. The security situation in cities and along main transport routes is making it very difficult for humanitarian agencies to reach displaced families, she said.
- Chinese City Halts Waste Project After Thousands Protest. Authorities in eastern China scrapped plans for a pipeline to discharge waste from a paper mill into the sea after a protest by thousands of residents turned violent. The mayor of Nantong in Jiangsu province said on July 28 the project would be permanently canceled, a day after the vice mayor of Qidong, a lower-level coastal city where the demonstration took place, pledged to suspend construction of the pipeline from a paper factory run by a venture of Japan’s Oji Paper Co. The unrest was the latest in a series of confrontations between local governments and residents over pollution concerns linked to industrial projects.
Wall Street Journal:
- U.S. Says Afghans Abandoned Police Bases. Inspectors from a U.S. government watchdog agency discovered that several American-funded border police bases in Afghanistan have been largely abandoned or left unoccupied, raising questions about the coming hand-over of security duties to local forces. Among other findings, inspectors found that one base, Lal Por 2, wasn't being used by Afghan border forces because it had no water supply, a report due out Monday states. A second, Nazyan, "may soon be uninhabitable" because of shoddy construction that caused sewage overflow.
- Romney Talks Tough. He Defends Israel's Right to Prevent Iran Nuclear Weapon. Presidential hopeful Mitt Romney signaled a tougher approach to Iran's nuclear ambitions, telling Israelis on Sunday that "no option should be excluded," including the use of military force. Keeping Iran from obtaining nuclear weapons should be America's "highest national security priority," Mr. Romney said in a speech set against the backdrop of Jerusalem's Old City. "We recognize Israel's right to defend itself, and that it is right for America to stand with you."
- Bank Breakups: Not So Fast. Long before Sanford Weill suggested last week that big banks should split up, Bank of America Corp. executives and directors considered the idea and then decided against it, said people close to the nation's second-biggest bank by assets. While the Charlotte, N.C., company's exploration of a possible breakup in 2010 and 2011 came and went, it illustrates the powerful and contradictory forces buffeting giant financial companies even as the financial crisis recedes.
- New York Lender Files Libor Lawsuit. In the latest sign of the potential legal vulnerability facing banks ensnared in the world-wide probe of interest-rate manipulation, a New York lender alleges in a lawsuit that it was cheated out of interest income because rates on loans tied to Libor were "artificially" depressed. The lawsuit effectively argues that the alleged manipulation short-changed lenders by helping borrowers pay less for mortgages and other loans.
- U.S. Profit Streak Hit by Global Weakness.
- North-South Divide Marks Euro's Struggle. In Portugal, Finland, Two Different Views of Financial Crisis.
- The ECB Is On A Collision Course With The Bundesbank.
- 11 Incredible Charts On Pennsylvania's Booming Shale Energy Industry.
- Iran Is Readying A 'Nightmare Scenario' For The US Navy.
- Mario Draghi Is Either Blind Or Bluffing.
- Snow White Dumps Prince Charming.
- September: Crunchtime For Europe And Germany.
- Did The Market Remove Its Own QE Punchbowl?
- Biggest EPS Miss Since Lehman, And This Time It's Not The Tsunami's Fault.
CNBC:
- US Oil May Retest $100 as 'Stimulus Drums' Beat Louder: Survey. Oil prices will likely gain this week on expectations that the U.S. Federal Reserve may announce additional stimulus to help boost an anemic recovery in the world's largest economy while markets are looking towards the European Central Bank to suppress unsustainably high sovereign borrowing costs in Spain and Italy, according to CNBC's weekly survey of oil market sentiment.
- US Agricultural Exports to China Become Costly in Times of Drought.
Wall Street All-Stars:
IBD:
- GM(GM) Ramps Up Risky Subprime Auto Loans To Drive Sales. GM Financial auto loans to customers with FICO scores below 660 rose from 87% of total loans in Q4 2010 to 93% in Q1 2012. The worse the FICO score, the bigger the increase. From Q4 2010 to Q1 2012, GM Financial loans to customers with the worst FICO scores — below 540 — shot up 79% to more than $2.3 billion. The second worst category, 540-599, rose 28% from about $3.4 billion to $4.3 billion. Prime loans, those above 660, dropped 42% to $676 million.
- Banks Pushed for Mortgage Tie to Libor. As we await the full story, it’s worth remembering how Libor, the London interbank offered rate, became the world standard to begin with. You probably won’t be shocked to learn that in mortgages, at least, Wall Street played a role in pushing Libor over another rate benchmark — one that some bankers say was better for borrowers.
Reuters:
- German minister warns against ECB bond buying. Germany's Economy Minister Philipp Roesler has warned the European Central Bank (ECB) against any large-scale government bond purchases, amid market expectations the ECB is poised to buy more Spanish and Italian debt to drive down yields. Roesler, who is also Germany's Vice Chancellor and leader of Chancellor Angela Merkel's junior coalition partner the Free Democrat Liberals (FDP) told the Neue Osnabruecker Zeitung (OZ) in an interview published on Saturday, the ECB had to remain independent. "Preserving price stability must be the principal role of the ECB and not the financing of state debt. Buying government bonds cannot be a permanent solution. We can only establish new trust in the euro zone if budget discipline is strictly maintained and structural reforms are implemented." Roesler ruffled feathers last weekend when he told a German broadcaster that a Greek euro zone exit was no longer a taboo for experts and had lost "its fear factor." A party colleague branded his remarks "reckless." In his interview with OZ Roesler dismissed widespread criticism of his stance both from Athens and within his party. "In my ministry we've seen that the Greek government has been unable to implement very much." His comments come amid a growing chorus of voices within Merkel's centre-right coalition that insist there can be no new aid for Greece and that a Greek exit could be imminent. "Greece cannot be saved, that is simple mathematics," Michael Fuchs, deputy leader of the parliamentary group of Merkel's Christian Democrats and their Bavarian sister party told weekly business magazine Wirtschaftswoche. "The government has neither the will nor the means to implement reforms," he said. Hermann Otto Solms, a financial affairs expert for the FDP, also underlined in an interview with Wirtschaftswoche that should inspectors from the so-called troika criticise Athens's progress there should be no new aid for Greece, and it would have no choice but to leave the single currency.
- Durbin: US 'fiscal cliff' solution unlikely before election. The U.S. Congress is unlikely to resolve looming tax and spending issues before the Nov. 6 elections, a top Senate Democrat said on Sunday, but lawmakers are working on a proposal to tackle the issue after the elections.
The Telegraph:
- Lakshmi Mittal, ceo of the world's largest steelmaker, ArcelorMittal(MT), said more European plant closures and redundancies are likely.
- ECB could take haircut on Greek bonds in 'last chance' plan. Central banks across Europe are facing more huge losses under the terms of last-ditch efforts being made by EU authorities to keep Greece in the eurozone by slashing the country’s debt exposure.
- Germans 'better off without euro' - poll. The majority of Germans believe the country would be better off without the euro, a poll suggested on Sunday, as the economy minister reiterated doubts over whether Greece can stay in the single currency.
Welt am Sonntag:
- German Finance Minister Wolfgang Schaeuble denied that Spain plans to ask the European Financial Stability Facility to buy its bonds. There is "nothing in this speculation," citing Schaeuble in an interview. While rising interest rates are painful for Spain, the country will be able to manage them, he said.
WirtschaftsWoche:
- Germans feel little personal effect from the euro-region sovereign-debt crisis, citing an option poll by Allensbach research institute. About 3% of respondents predicted grave consequences for themselves from the crisis , according to the poll. Most of the people surveyed, or 51%, favor expelling highly indebted countries from the monetary union.
- Hermann Otto Solms, deputy president of Germany's lower house of parliament, said he doesn't see a majority in the Bundestag for a third Greek aid package, citing an interview. If Greece doesn't stick to its agreements, there's no other solution than for it to leave the euro area and introduce its own currency to regain competitiveness by devaluation, Solms said.
Dagens Naeringsliv:
- Norway's Finance Ministry is worried Norwegian banks' short-term borrowing about may make them vulnerable, citing a letter from the Ministry to the Financial Supervisory Authority of Norway.
Irish Independent:
- Beleaguered Spain denies bailout talks with Germany. THE Spanish government has strongly denied reports that it has discussed a full-scale bailout with Germany. The reports said Economy Minister Luis de Guindos brought up the issue with German finance minister counterpart Wolfgang Schaeuble in a meeting in Berlin last Tuesday. They came as Spanish unemployment hit the highest levels in at least a quarter of a century. The jobless rate rose to 24.6pc in the second quarter of the year, up from 24.4pc in the first three months, and the highest level since records began in 1976 -- the year after General Franco died.
Financial News:
- China should pull back property lending policies to prevent a bubble in the real estate industry if local governments don't cooperate, Financial News said in a commentary on its front page by reporter Xu Shaofeng. Policies can't be carried out correctly if local governments were to ask property developers to show inspectors "low- key" prices, the report says. China's State Council will from late July send eight teams to 16 provinces to check the implementation of property curb polices.
Caixin:
- China can not rely on fiscal stimulus for growth, citing NPC Standing Committee Member Gu Shengzu.
China Securities Journal:
- China should expand a property tax trial to additional cities as quickly as possible to curb speculation, according to a commentary on the front-page of the China Securities Journal. The property tax trial should be expanded from Chongqing and Shanghai to Beijing, Guangzhou and other tier-one cities, according to a reporter named Ding Bing. Property taxes should be imposed on bother new and existing homes. A national registration system and database to track the number of homes owned by individuals should be expanded to strictly impose the property tax.
Economic Information Daily:
Barron's:- China's large- and medium-sized steelmakers' combined first-half profit fell 96% y/y to 2.39b yuan, citing an official at the China Iron & Steel Association. Inventory at 76 key steelmakers totals 12.5m tons now, from 11.8m tons in early July. The 76 steelmakers sold products at 4,416 yuan/ton in mid July, down by 73 yuan/ton in early July.
- U.S. presented Netanyahu with contingency plan for Iran strike. U.S. National Security Adviser Tom Donilon shared Washington's contingency plans for a possible attack on Iran with Israel's PM, according to a senior American official.
- Made positive comments on (CAT), (FARM), (A) and (BWLD).
- Made negative comments on (PG).
- Asian indices are unch. to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 163.50 -6.5 basis points.
- Asia Pacific Sovereign CDS Index 136.50 -4.25 basis points.
- FTSE-100 futures +.49%.
- S&P 500 futures -.25%.
- NASDAQ 100 futures -.09%.
Earnings of Note
Company/Estimate
- (L)/.76
- (DBD)/.59
- (CNA)/.56
- (CIT)/-.53
- (EMN)/1.30
- (HTZ)/.32
- (MAS)/.11
- (APC)/.77
- (PPS)/.57
- (FLS)/1.91
- (JEC)/.75
10:30 am EST
- Dallas Fed Manufacturing Activity for July is estimated to fall to 2.0 versus 5.8 in June.
Upcoming Splits
- (AZZ) 2-for-1
- The Spanish GDP report and the Italian 10Y bond auction could also impact trading today.
