Tuesday, May 04, 2010

Today's Headlines

  • Greek Government Bonds Tumble, Bunds Climb Amid Debt Concern. Greek government bonds tumbled and German bunds rose amid concern Europe’s most-indebted nations will struggle to contain their deficits and as German Chancellor Angela Merkel’s coalition stepped up calls to allow “orderly” defaults in the euro region. Merkel said in an interview with ARD television late yesterday that it’s time to learn lessons from the Greek bailout and raised the option of “an orderly insolvency” as a way to make sure creditors participate in any future rescue. “Investors are reassessing the situation and realize there are still challenges ahead,” said Peter Chatwell, a fixed-income strategist at Credit Agricole SA in London. “The problem is far from over, and the market can’t rule out further fiscal deterioration and rating downgrades among peripheral countries.” Investors demanded an extra to 627 basis points for holding 10-year Greek debt instead of benchmark German bunds. The spread dropped earlier to 539 basis points, the lowest since April 21. Financial aid for Greece was “never designed” to cover the nation’s entire financing needs over the course of the three-year package, German Economy Minister Rainer Bruederle told reporters today. “I expect Greece to make the effort necessary to be able eventually to sell loans in the market,” he said. Any decline in German debt is “a buying opportunity,” wrote RBS’s Sian. “Deflationary forces in the euro area have never been higher, and the weakness of the periphery warrants low ECB rates for some time,” according to Sian.
  • Greek Rescue Doubts Spur Sovereign Debt Risk on Contagion Bets. The cost of insuring against default on sovereign bonds rose on concern that the $144 billion aid package for Greece may not solve the nation’s deficit crisis or prevent contagion to Europe’s debt-ridden economies. Credit-default swaps on Greece surged 84.5 basis points to 731, according to CMA DataVision prices, implying an almost 45 percent probability of default over five years. Contracts on Portugal, Spain, Italy and Ireland also rose. There’s “a deep mistrust among the investor base on the viability of the Greek story in a medium-term context,” Padhraic Garvey, head of investment-grade debt strategy at ING Groep NV in Amsterdam, wrote in a note to investors. Swaps on Spain increased 51 basis points to 208.5, Portugal rose 83 to 358, Italy climbed 23 to 157 and Ireland increased 46 to 223, CMA prices show. “Austerity measures might push these economies closer to the edge, triggering a private sector default cycle that cannot be easily stopped,” Philip Gisdakis, a Munich-based strategist at UniCredit SpA, wrote in a note to investors. The spending cuts may also weigh on the broader region “as the inevitable budget adjustments and normalization of current account deficits for the weaker economies will reduce aggregate demand in the eurozone,” Gisdakis wrote. The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 25 basis points to 451, according to JPMorgan Chase & Co. prices. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 7.25 basis points to 94.5, JPMorgan prices show. The Markit iTraxx Financial Index of 25 banks and insurers increased 12.5 to 131 and the subordinated index surged 25 to 205.
  • Oil Falls Most in Three Months as Dollar Surges, Equities Drop. Crude oil declined the most in three months as the dollar strengthened against the euro, curbing the appeal of commodities to investors, and a slowdown in Chinese manufacturing sent global equities lower. Oil fell more than $3 a barrel as the dollar climbed to the highest level versus the common currency in a year on concern the Greek debt crisis will spread. A Chinese purchasing managers’ index fell to a six-month low.
  • Copper Falls to Nine-Week Low as Chinese Manufacturing Slows. Copper fell to a nine-week low on concern that demand will falter after manufacturing in China, the world’s largest metals user, expanded at the slowest pace in six months. A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics slid to 55.4, the lowest level since October. Copper prices dropped 5.6 percent in April, the first monthly decline since January, partly on concern China’s efforts to cool its economy will slow demand for industrial commodities. “China is the driver,” said Donald Selkin, the chief market strategist at National Securities Corp. in New York. “People are worried about what impact their tightening will have, and this manufacturing report shows things are already slowing. Copper will have a tough time.” “This could be the start of a more sustained correction,” Daniel Brebner, an analyst at Deutsche Bank AG in London, said by phone. “China appears to be set on instilling some discipline on growth, draining liquidity to rein in inflation, and control excess speculation in some asset classes, such as real estate.”
  • Goldman(GS) Partners Give Blankfein Standing Ovation, Hintz Says. Goldman Sachs Group Inc.’s employee morale remains good and Chief Executive Officer Lloyd Blankfein received a standing ovation from partners at an April 20 earnings call, analyst Brad Hintz told clients. According to the firm, “employees are pulling together like a team under pressure,” Hintz, an analyst at Sanford C. Bernstein & Co., wrote in a note to clients today after a meeting with five senior executives at Goldman Sachs. “The partnership has closed ranks, too, and at Goldman’s April 20, 2010, managing directors earnings call, Lloyd Blankfein received a standing ovation from his partners.”
  • Obama Plans New Rules as For-Profit Colleges Mobilize. The Obama Administration is gearing up to produce tougher regulations that may reduce the amount of federal financial aid flowing to for-profit colleges, cutting the companies’ annual revenue growth by as much as a third.
  • Pfizer(PFE) Profit Beats Estimates on Added Wyeth Products. Pfizer Inc., the world’s biggest drugmaker, said first-quarter profit rose more than analysts estimated as products added from the acquisition of Wyeth overcame costs from the U.S. health overhaul.
  • Euro Falls to a One-Year Low as Greek Bailout Concern Persists. “The ECB’s credibility has been shot to pieces, and we’ve yet to see the political fallout from the Greek bailout,” said Steven Barrow, head of Group of 10 currency research at Standard Bank Plc in London. “The only restriction on the euro’s downside is that the market is already so short the currency.”
  • Wadhwani Sees Sovereign Crises 'Recurring' After Greek Bailout. The euro region faces the danger of further debt crises because of its delay in bailing out Greece and the failure to prepare a system to rescue other nations, former Bank of England policy maker Sushil Wadhwani said. “We don’t really have a credible mechanism in place to deal with potentially Portugal and Spain,” Wadhwani said in a televised interview at an event hosted by Fathom Financial Consulting in London today. “My strong suspicion is that we have recurring sovereign debt crises. Although I’m not sure how long it’ll take for the next one.”
  • Senators Take Aim at $40 Billion of Card-Industry 'Swipe' Fees. Visa Inc.(V) and MasterCard Inc.(MA) face a renewed threat to one of the credit-card industry’s biggest revenue sources after Senator Patrick Leahy backed legislation to curb fees charged to merchants on each transaction. Leahy, a Vermont Democrat and chairman of the Senate Judiciary Committee, will co-sponsor a measure by Senate majority whip Dick Durbin of Illinois, Durbin spokesman Max Gleischman said today. The so-called interchange or “swipe” fees average about 2 percent of each purchase. The industry has escaped previous attempts to curtail swipe fees, which bring in more than $40 billion a year. Now the nation’s biggest card networks and lenders, including Bank of America Corp. and JPMorgan Chase & Co., find themselves pitted against two of the most powerful senators over the fees, which some lawmakers and retailers have said are excessive and hurt small businesses.

Wall Street Journal:
  • Times Square Suspect Received Bomb Training. Times Square bombing suspect Faisal Shahzad told interrogators that he received training in bomb making during a recent five-month trip to Pakistan, according to a senior U.S. official familiar with the matter. The official said Mr. Shahzad received his training in the tribal region of Waziristan bordering the Afghan border. South Waziristan is currently the site of a continuing Pakistani military offensive against Islamic militants affiliated with al Qaeda. The region of North Waziristan is the locus of the Central Intelligence Agency campaign to kill militants with unmanned drone strikes. Mr. Shahzad, a 30-year-old naturalized U.S. citizen originally from Karachi, returned in February from a five-month visit to Pakistan, authorities said.
  • Debt Jitters Hit European Markets. European stocks slumped Tuesday, and the euro reached a fresh one-year low against the dollar as sovereign-debt concerns continued to mount and the focus shifted to Spain as the next high-profile victim of the euro-zone debt crisis. In equity markets, Spanish banks tumbled on speculation that ratings agencies could downgrade Spain's sovereign-debt rank. Although Fitch Ratings and Moody's Investors Service moved to dispel the market rumors of an imminent downgrade for Spain, Madrid's IBEX declined 5.4% to 9859.10, hitting lows not seen since last July.
  • Goldman(GS) Disciplined on Short Sales. The Securities and Exchange Commission and the regulatory arm of NYSE Euronext disciplined the equities arm of Goldman Sachs & Co. for alleged violations of rules on short-selling stocks.
  • Lawmakers Draft Web-Ad Privacy Safeguards. Advertisers and Internet companies have been scrambling to head off regulation they say will hamper growth of online advertising. The pressure is expected to build Tuesday as lawmakers prepare to announce proposed privacy legislation. More than a year in the making, the draft legislation proposes regulating Internet companies' tactics for collecting information about Web visitors and the use of that data for ad targeting. It also could apply to the practices for collecting consumers' information in the offline world.
  • Apple(AAPL) Draws Scrutiny From Regulators. FTC, Justice Department Discuss Possible Inquiry Amid Complaints From Application Developers, Advertising Firms. U.S. antitrust enforcers are taking a keen interest in recent changes that Apple Inc. made to its licensing agreement with iPhone application developers and are likely to open a preliminary investigation into whether the company's actions stifle competition in mobile devices, according to people familiar with the situation.
  • Citadel Senior Executive Has Left Firm. Patrik Edsparr has left Citadel Investment Group, making him the Chicago hedge-fund firm's latest top executive to depart. Citadel spokeswoman Katie Spring said Mr. Edsparr was "let go" from the firm within the last two weeks.
  • EU Close to Hedge-Fund Deal. European Union lawmakers are nearing an agreement on hedge-fund legislation that would significantly restrict the ability of funds based in some offshore tax havens to raise money from EU investors, the lawmaker in charge of the legislation at the European Parliament said Tuesday. The proposal would require European authorities to create a "black list" of countries, with European investors being prohibited from sending their money to funds based in those countries. To escape the list, countries would have to satisfy a list of four or possibly five criteria, said Jean-Paul Gauz├Ęs, the French politician who is leading debate.
Business Insider:
Zero Hedge:
  • CMBS Delinquencies Hit Fresh Record, Now at $51 Billion, 268% Increase From Prior Year. The latest RealPoint monthly CMBS delinquency report update is out and it continues to get worse and worse. In March, the total amount of delinquent CMBS increased by $3.2 billion to $51.5 billion, or 6.4% of the total notional outstanding. "Overall, the delinquent unpaid balance is up almost 268% from one-year ago (when only $13.89 billion of delinquent unpaid balance was reported for March 2009), and is now over 23 times the low point of $2.21 billion in March 2007.
  • Capital Flows to Asian Hedge Funds Stall. Following two consecutive quarters of capital inflows, the Asian hedge fund industry saw net redemptions of approximately USD700m in the first quarter of 2010, reflecting continued concerns about strategic and regulatory risks, according to data from Hedge Fund Research.
OC Register:
  • White House in P.R. 'Panic' Over Spill. The ferocious oil leak in the Gulf of Mexico is threatening President Barack Obama’s reputation for competence, just as surely as it endangers the Gulf ecosystem. So White House aides are escalating their efforts to reassure Congress and the public in the face of a slow-motion catastrophe, even though it’s not clear they can bring it under control anytime soon. “There is no good answer to this,” one senior administration official said. “There is no readily apparent solution besides one that could take three months. ... If it doesn’t show the impotence of the government, it shows the limits of the government.”
  • Democrats: New Drilling 'Dead on Arrival'. A group of Democratic senators said Tuesday that the massive oil spill in the Gulf of Mexico has rendered plans for new offshore drilling "dead on arrival." "I will make it short and to the point: the president's proposal for offshore drilling is dead on arrival," Sen. Bill Nelson (D-Fla.) said. "If offshore drilling off of the coast of the continental United States is part of it, this legislation is not going anywhere. "If I have to do a filibuster, which I had to five years ago.. I will do so again."
USA Today:
  • Winds Holding Gulf Oil Spill Offshore. Some good news swept through here Monday: Winds so far are keeping most of the Gulf oil spill away from shore, and chemicals are doing a decent job dispersing the giant swath of slick crude oil looming off the coast.
  • US Bank Bill To Exempt Existing Derivatives - Senator. A sweeping rewrite of U.S. financial regulations will probably be modified to exempt existing derivatives contracts from greater collateral requirements, Democratic Senator Ben Nelson said on Tuesday. "I think it is being resolved right now," Nelson told Reuters. The move could benefit Berkshire Hathaway Inc (BRK/A), the insurance and investment company run by billionaire Warren buffett. Berkshire, based in Nelson's home state of Nebraska, has objected to the current version of the bill because it would be required to post greater collateral on billions of dollars' worth of derivatives contracts.
  • U.S. Weekly Gasoline Demand Unchanged - Mastercard. U.S. retail gasoline demand was unchanged in the week to April 30 from the previous week, according to a MasterCard SpendingPulse report released on Tuesday. Gasoline demand averaged 9.213 million barrels per day last week for the second week running, the survey showed. Year-on-year, U.S. gasoline demand fell 2.3 percent, the SpendingPulse report said.
Financial Times:
  • Regulators around the world must be able to limit the size of banks they supervise and split them up if they have grown too large, Jaime Caruana, head of the Bank for International Settlements, told the Financial Times Deutscheland.

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