Wednesday, May 19, 2010

Today's Headlines

  • Merkel Isolated After Short-Selling Ban Fails to Win Backers. German Chancellor Angela Merkel’s curbs on government-bond trading proved a step too far for European allies, leaving her isolated as she pushes for a crackdown on euro-area states that flout budget-deficit rules. Merkel’s unilateral effort to control what she called “destructive” markets came 10 days after voters angry at aid for Greece dealt her a regional election setback that cost her control of the federal upper house of parliament. She’s now trying to win public support for another loan package, this time Germany’s share of a $1 trillion bailout to backstop the euro.
  • Gold Falls Below $1,200 on Euro's Rebound; Palladium Plunges. Gold tumbled below $1,200 an ounce as the euro rebounded from the lowest level in four years against the dollar, eroding demand for the metal as a haven. Palladium and platinum headed for the biggest declines since 2008. The euro climbed on bets that European will act to support the currency, which slipped 15 percent this year through yesterday. Before today, gold futures climbed 11 percent in 2010, reaching a record $1,249.70 an ounce on May 14. Palladium futures for June delivery plunged $47, or 9.3 percent, to $460 an ounce on the New York Mercantile Exchange. Before today, the metal gained 24 percent this year. “Some people are rushing to the exits because they think the deflation threat is going to be real in the short term,” Klopfenstein of Lind-Waldock said. “Palladium was overcooked on the upside, and now a lot of people are reevaluating their positions.”
  • ETFs Bearing Brunt of May 6 Drop Shows Hedging Worsened Losses. When $1 trillion briefly evaporated from the U.S. stock market on May 6, no group of securities got hurt more than exchange-traded funds, as attempts to protect against snowballing losses may have made the decline worse, a report by federal regulators shows. ETFs made up 70 percent of securities with trades that were later canceled because of excessive declines, the joint study by the Securities and Exchange Commission and Commodity Futures Trading Commission found. Traders selling the funds to offset falling stocks may have created “unusual liquidity demands,” causing buyers to pull out of the market, the report said. “No question there’s a direct correlation because ETFs are the new derivatives,” said Richard Weiss, who helps oversee $50 billion for City National Bank in Beverly Hills, California. “The ability to arbitrage to ensure prices are fair is theoretically a very good thing, but when you get perturbations or exogenous variables acting on prices, it can be bad.”
  • U.S. MBA Mortgage Applications Index Fell 1.5% Last Week. The number of mortgage applications in the U.S. dropped last week, depressed by the biggest plunge in purchases since 1997, as the expiration of a homebuyers’ tax credit drove away buyers. The Mortgage Bankers Association’s applications index fell 1.5 percent in the week ended May 14, the Washington-based group said today. The group’s purchase gauge slumped 27 percent, while the refinancing measure rose 15 percent. The drop in purchases follows a 9.5 percent decline the prior week, highlighting how the expiry of a tax credit worth as much as $8,000 may stifle housing demand in coming months.
  • Commercial Property Values Drop as Rebound Stalls. U.S. commercial real estate values fell in March, pushed lower by a quarterly drop in retail and office properties in the biggest metropolitan areas, Moody’s Investors Service said. The Moody’s/REAL Commercial Property Price Index fell 0.5 percent from February, the second straight monthly decline, Moody’s Investors Service Inc. said today in a report. Prices slid 25 percent from a year earlier and are down 42 percent from the October 2007 peak. “This is continued bad news for property owners,” Christopher Cornell, an economist at Moody’s in West Chester, Pennsylvania, said in a telephone interview. “The trend is basically flat prices.”
  • Fed in No Rush to Sell Mortgage Assets, Minutes Show. Federal Reserve policy makers last month said they were in no rush to sell $1.1 trillion of mortgage-backed securities, with a majority preferring to wait until after the central bank starts raising interest rates. “Most participants favored deferring asset sales for some time,” while others wanted to announce a schedule or start sales soon, the Fed said in minutes of its April 27-28 meeting in Washington, released today. Officials lowered their projections for inflation, excluding food and fuel, while keeping forecasts little changed for economic growth and unemployment in 2011 and 2012.
  • TIPS Tumble After Unexpected Decline in U.S. Consumer Prices. Treasury Inflation Protected Securities, or TIPS, plunged as a report showed U.S. consumer prices unexpectedly declined in April. Demand for the bonds, which are designed to protect investors against rising prices, weakened as the outlook turned from inflation to deflation. The break-even rate between yields on 10 year TIPS and nominal Treasuries, a gauge of trader expectations for consumer prices, contracted for a fifth straight day. Ten-year note yields were near the lowest level this year as global stocks dropped on concern that Europe will further regulate financial markets. “There is no inflation on the horizon,” said Keith Blackwell, an interest-rate strategist at Royal Bank of Canada in New York, one of the 18 primary dealers that trades with the Federal Reserve. “TIPS should continue to come under pressure.”

Wall Street Journal:
  • iPhone is Big in Japan. Apple Inc.'s(AAPL) iPhone has cracked the Japanese market, quickly becoming the best-selling smartphone here and challenging the long-held notion that this country's large cellphone market is hostile to foreign brands. The iPhone sold 1.7 million units in Japan, or 72% of all smartphones sold, in the fiscal year ended March 31, and its popularity has pushed the smartphone segment to double in size from a year earlier, according to Tokyo-based MM Research Institute Ltd. While the overall handset market in Japan is essentially flat, Apple, based in Cupertino, Calif., said iPhone sales in Japan nearly tripled in the latest quarter.
  • Senator Gregg: Derivatives Proposal Like 'Madhatter's Tea Party'. So much for Senate Banking Committee Chairman Chris Dodd’s attempted compromise on derivatives regulation. Sen. Judd Gregg (R., N.H.) promptly went to the Senate floor and said it stinks. “It’s almost as if we’re at the Madhatter’s Tea Party the way this derivatives” language is “evolving,” he said. “It just gets worse and worse in an almost incomprehensible” way, he said. He called it a “convoluted exercise in chaos” and a “byzantine exercise in regulatory absurdity.” After all that, think he might support the financial overhaul bill? Um, no. He said it should be renamed from the “Wall Street Reform Act” to the “The-Expansion-Of-Government-For-Making-Us-More-Like-Europe Act.”
Fox News:
  • Lawmaker Seeks Investigation Into ShoreBank Bailout. Just when officials at the politically connected community lender ShoreBank thought they were rescued from near-certain failure by a consortium of Wall Street firms, a top Republican lawmaker is investigating why the firms were so generous with their money, FOX Business has learned. Spencer Bachus, the ranking Republican on the House Financial Services Committee, wrote President Obama this morning asking for "all records of communication - including emails, phone logs and meeting records- related to the ShoreBank negotiations that exist between the Administration and representatives of ShoreBank, and executives of the banks involved in the bailout."
Business Insider:
Zero Hedge:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19. Today’s rating is the lowest earned by the president since the passage of his health care proposal two months ago (see trends).
  • China Buying of Australia Wheat Seen Drawing to End. Australia wheat exports to China are expected to slow to a trickle in the coming months after surging in the first half of the 2009/10 marketing year, one of the country's largest grain exporters said. China's demand for Australian wheat this year was coming to an end with only a few more cargoes expected to be shipped to fill current orders, said CBH Group Ltd's chief of grain marketing, Tom Puddy. During the first half of the official marketing year ending in September, China's demand for Australian wheat was almost double the whole of the previous year, helping to offset weaker sales in other markets as bumper northern hemisphere harvests flooded markets. Puddy said about 570,000 tonnes of mainly Australian Standard White (ASW) wheat would have been shipped to China from November to the end of May, the highest volume in five years. "China has been replenishing its reserve stocks of ASW type wheat that they find hard to produce in China," Mr Puddy said. "They have been just topping up the cupboard to make sure they've got sufficient reserves," he said.

  • Hedge Fund Selling Hits 18-Month High. In a sign of the speed with which market sentiment has deteriorated over the last month, hedge funds have made a dramatic switch from their biggest buying spree in more than two years to become big sellers once again, according to UBS. The latest data from UBS's prime brokerage business, which handles the Swiss bank's dealings with hedge funds, shows that as of the end of last week selling by funds was at its highest monthly level since January 2009. Based on the UBS data, hedge fund selling of bank shares has been relatively muted, with most of the net selling focused around the IT, consumer services and transport, telecoms, and metals and mining sectors. From heavy selling earlier in the year, hedge fund and long-only investors' buying of bank shares has picked up in the last two months, leading some to question why the German government decided to institute its ban now.
Irish Times:
  • The European Commission may ask the Irish government for additional spending cuts in order to push down the country's state debt, EU Economic and Monetary Affairs Commissioner Olli Rehn said.
  • Greece's black economy stands at around 40% of gross domestic product, or 95 billion euros, citing Finance Ministry Secretary General Dimitris Georgakopoulos. Tax evasion amounts to 40% of budget revenue, or 25 billion euros, he said.
El Universal:
  • Venezuela has taken over 31 brokerages for currency speculation, operations involving instruments known as mutuos and administrative problems.
  • China's raising of interest rates will trigger more capital inflows into the country, making it more difficult to control monetary policy, government adviser Ba Shusong wrote.

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