Wednesday, May 05, 2010

Today's Headlines

  • Portugal May Be Cut by Moody's as Contagion Spreads. Portugal may have its credit rating cut by Moody’s Investors Service for the first time as the country struggles to reduce its budget deficit and revive economic growth a sign that contagion from the Greek crisis is spreading. Moody’s today placed its Aa2 rating on review for a possible downgrade, a process that will conclude within three months, the company said in a statement. Portugal has held the third-highest Moody’s investment grade since 1998. “Today’s rating action reflects the recent deterioration of Portugal’s public finances as well as the economy’s long-term growth challenges,” Moody’s said. The company “believes that increased risk discrimination in the financial markets may raise Portugal’s financing costs for some time to come.” “Portugal’s growth problem is related more to its low productivity than its high costs per se,” Moody’s analyst Anthony Thomas said in the statement.
  • Greek Contagion Spurs Surge in Portugal, Spanish Debt Swaps. Contagion from the Greek deficit crisis swept through European credit markets, triggering a surge in the cost of insuring European banks against default to a one- year high and driving Spanish and Portuguese debt swaps wider. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers increased as much as 19 basis points to 154, the highest since April 28, 2009. Swaps on Portugal surged 85.5 basis points to a record 429.5, according to CMA DataVision prices, and contracts on Italy, Ireland and Greece also rose. There’s a threat of “grave contagion effects” from the Greek fiscal crisis, European Central Bank council member Axel Weber said. Policy makers must “contain the bush fire,” said EU Economic and Monetary Affairs Commissioner Olli Rehn, although financial assistance for other countries isn’t being proposed. “The risk is that the market’s confidence has been shattered,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to investors. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments soared as much as 24 basis points to an all-time high of 154, CMA prices show. Credit-default swaps on Greece climbed 77.5 basis points to 842, Spain increased 28 basis points to 235, Italy climbed 24 to 186 and Ireland increased 23 to 242, CMA prices show. The cost of insuring against default on corporate and bank bonds also increased, signaling deterioration in perceptions of credit quality. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 8 basis points to 105.75, JPMorgan Chase & Co. prices show.
  • Spain Borrowing Costs May Rise as Zapatero Faces Abyss. Spain’s borrowing costs may climb tomorrow at the country’s first debt sale since its credit rating was cut last week on concern the fiscal crisis pummeling Greek bonds will spread to fellow euro-region countries. The Treasury may sell as much as 3 billion euros ($3.89 billion) of five-year notes to yield 3.34 percent, according to the median estimate of seven analysts and investors in a Bloomberg News survey. The yield was 2.84 percent when Spain auctioned 4.5 billion euros of the same securities on March 4.
  • Greek Protests of Austerity Plan Leave 3 Dead. Greek demonstrations against government austerity measures turned deadly when three people were killed after protesters set fire to a bank in central Athens in what Prime Minister George Papandreou called a “murderous act.” “Greeks have a right to demonstrate, not a right to violence, especially violence which leads to murder,” Papandreou told parliament today. He said all Greek political parties were united in opposing violence. The violence came during a general strike called after Papandreou announced a second set of wage cuts for public workers, a freeze on pensions and a second sales-tax increase to secure a bailout from the European Union and the International Monetary Fund. The measures, which aim to tame a budget deficit of almost 14 percent of economic output, were denounced as “savage” by union leaders.
  • Commodities Slump, Led by Crude Oil, Copper, on Debt Concern. Commodities fell for a second day, led by a slump in oil and copper, on concern the Greek debt crisis will spread and undermine Europe’s economic recovery. The Reuters/Jefferies CRB Index of 19 raw materials declined as much as 1.9 percent, extending yesterday’s 2.3 percent retreat. The gauge was 1.8 percent lower at 266.86 points as of 2:45 p.m. in London. Crude oil fell as much as 4.3 percent, copper 5.6 percent and nickel 16 percent. The CRB’s 4.2 percent retreat is the biggest two-day drop in three months and comes amid growing expectations that Greece’s 110 billion-euro ($143 billion) rescue package will need to be repeated in Spain and Portugal. “The margin clerks were at work yesterday to find pockets of liquidity that could be tapped to meet margin calls,” said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter. “There may be more yet today.”
  • Cayne Blames Market Forces for Bear Stearns Collapse. James “Jimmy” Cayne, the former chairman and chief executive officer of Bear Stearns Cos., blamed market forces and loss of confidence in his firm for its collapse in 2008. “The market’s loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy,” Cayne told the Financial Crisis Inquiry Commission in Washington.
  • Oil-Soaked Crab Threatens Seafood Prices at Top-Ranked Eateries.
  • Buffett Says GM Rescue May Mean U.S. Can't Say No to States. Warren Buffett, chairman of Berkshire Hathaway Inc., said the U.S. would probably feel compelled to rescue a state facing default after the government committed $700 billion to bail out financial firms and automakers. “It would be hard in the end for the federal government to turn away a state having extreme financial difficulty when they’ve gone to General Motors and other entities and saved them,” Buffett, 79, told shareholders in Omaha, Nebraska, at the company’s May 1 annual meeting. “I don’t know how you would tell a state you’re going to stiff-arm them with all the bailouts of corporations.”
  • China Property Stocks Gauge Falls to Lowest in More Than a Year. Chinese property developers fell to the lowest in more than a year in Shanghai after Qiu Baoxing, China’s vice housing minister, said the nation must act to curb rising real estate prices and the formation of asset bubbles. The China Se Shang’s Property Index has declined 25 percent this year.
  • Nickel Extends Drop to Steepest in 19 Months as Supply Expands. Nickel slumped the most in 19 months on the London Metal Exchange to the lowest price in almost 10 weeks on expectations that supplies expanding at the fastest pace in a decade will overwhelm demand. The metal for delivery in three months dropped as much as $3,949, or 16 percent, to $20,701 a metric ton, the lowest intraday price since Feb. 26. The slide was the biggest since October 2008.
  • Goldman Sachs(GS) Credit Rating Outlook Cut to 'Negative' by Fitch. Goldman Sachs Group Inc.’s credit rating outlook was cut to “negative” from “stable” by Fitch Ratings, which said legal actions and regulatory changes could hurt the firm’s reputation and ability to earn money.

Wall Street Journal:
  • Greek Default Already Decided. The real decision made by euro-zone authorities last Sunday was not to save Greece, but to escort it to a safe house where the country’s massive debt can be cut down to size through a painful restructuring. That’s the view of Willem Buiter, a former member of the Bank of England’s Monetary Policy Committee and frequent consultant to the European Central Bank, who recently joined Citigroup as it’s chief economist. He’s not making a prediction. He’s saying the decision has already been made.
  • For Bill on Lawmaker Trading, Delay Is Long and Short of It. A bill that would require speedier disclosure of stock trades by lawmakers has languished for years on Capitol Hill, suggesting Congress has little appetite for new rules on how its members manage their money.
  • German Group to File Lawsuit Against German Aid to Greece Friday. The group of German professors seeking to derail Berlin's contribution to a Greek rescue plan will file a lawsuit against Germany's law that allows financial aid at 1000 GMT, Friday, the group said in a statement. "It's about the stability of the [euro] currency as a fundament of the currency union, and therefore also the economic and social fate of all citizens of the currency union," said the statement. The lawsuit will be filed after the scheduled vote on the Greek aid bill in the lower house and before the upper house of parliament has voted on it and before German President Horst Koehler would sign it should it pass. The group consists of Joachim Starbatty, a retired economics professor from the University of Tuebingen, Karl Albrecht Schachtschneider, a retired University of Nuremberg law professor and expert on the constitutional court, and retired economics professors Wilhelm Hankel and Wilhelm Noelling. Noelling is a one-time governor of the Bundesbank, Germany's central bank.
  • EU to Propose Regulating Currency Derivatives - Document.
  • BP Caps 1 of 3 Oil Leaks in Gulf.
Bloomberg Businessweek:
  • Fed's Rosengren Says Housing 'Something We Have to Worry About'. Federal Reserve Bank of Boston President Eric Rosengren said a weak housing market still poses a risk to the U.S. economy. “We have seen some stability over the last couple of quarters” in real estate, Rosengren said today in introductory remarks at a conference at the Boston Fed. “Nonetheless, it's something we have to worry about.”
  • Spain Faces 'Explosive Cocktail' of Risk on Jobs, Rotten Loans. Spain faces an “explosive cocktail of risk factors” as it wrestles with a fiscal deficit at 11 percent of gross domestic product caused by bad loans to builders and swelling unemployment, UniCredit SpA said. The nation’s budget gap is the third largest in the European Union and with an unemployment rate of more than 20 percent, the government in Madrid has limited room to maneuver, according to Stefan Kolek, a credit strategist at UniCredit. Bad loans at Spanish lenders climbed to 5.3 percent of total credit in January as the worst recession in 60 years forced borrowers to miss payments on their debt. “The high dependence of the economy on a highly leveraged construction sector in conjunction with still falling housing prices makes an explosive cocktail of risk factors,” Munich- based Kolek wrote in a note to investors.
Business Insider:
CME Group:
  • Obama Biggest Recipient of BP(BP) Cash. While the BP oil geyser pumps millions of gallons of petroleum into the Gulf of Mexico, President Barack Obama and members of Congress may have to answer for the millions in campaign contributions they’ve taken from the oil and gas giant over the years. BP and its employees have given more than $3.5 million to federal candidates over the past 20 years, with the largest chunk of their money going to Obama, according to the Center for Responsive Politics. Donations come from a mix of employees and the company’s political action committees — $2.89 million flowed to campaigns from BP-related PACs and about $638,000 came from individuals. On top of that, the oil giant has spent millions each year on lobbying — including $15.9 million last year alone — as it has tried to influence energy policy. During his time in the Senate and while running for president, Obama received a total of $77,051 from the oil giant and is the top recipient of BP PAC and individual money over the past 20 years, according to financial disclosure records.
  • JPMorgan(JPM) Chief Backs Reg Reform, CEOs More Upbeat.
  • German SPD Likely to Oppose Greece Aid Plan - Paper. Germany's largest opposition party, the Social Democrats (SPD), is unlikely to back a draft law on the German contribution to a financial aid package for Greece, a newspaper quoted senior party members as saying. Chancellor Angela Merkel's government does not need the SPD's support to get the bill through parliament but she would like to get as much backing for the measure as possible given stiff opposition among the public to bailing out Greece.
Xinhua News:
  • Ji Huaiyin, a deputy director of the fiscal and finance department under the State Council's Legislative Affairs Office, said imposing a property tax earlier is better than imposing the tax later, citing an interview with Ji.
  • The Beijing Housing Fund raised downpayments on second homes from today to 50% of the value of the property from 40%, citing an official from the organization. The fund, which provides mortgages to people who work in Beijing and who contribute to the fund with their employers, also suspended loans for third homes, citing Li Chiying, spokesman for the Beijing Housing Fund Center.
Yonhap News:

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