Wednesday, June 15, 2011

Today's Headlines


  • Greece Bailout Prospects Darken as European Bickering Weakens Papandreou. Greek economic prospects darkened as European bickering risked delaying the next rescue payment and defections weakened Prime Minister George Papandreou’s majority. An emergency session of euro finance chiefs in Brussels yesterday failed to break a deadlock on how to enroll investors in a second bailout without triggering a default, casting doubt on funds due from the International Monetary Fund next month. In Athens, Greek police used tear gas to disperse demonstrators around the Parliament as 20,000 people rallied against wage reductions and tax increases as lawmakers debated the budget cuts and asset sales that are conditions of the aid. Ports, banks, hospitals and state-run companies were paralyzed by strikes, while a Papandreou ally said he won’t support the austerity measures and another bolted his Socialist Party. Debt restructuring “seems to be increasingly probable,” Raghuram Rajan, a professor at the University of Chicago and a former chief economist at the IMF, said today in Singapore. “The political will required to do what would be necessary to service the level of debt that is building up is reaching the limits of what Greece can do.”
  • Greek Crisis Threats Pose Main Risk to Euro Financial Stability, ECB Says. The European Central Bank said the threat of the Greek debt crisis spilling over into the banking sector is the biggest risk to the region’s financial stability. “Greece could have a contagion effect,” ECB Vice President Vitor Constancio said at a briefing in Frankfurt today, when presenting the bank’s semi-annual Financial Stability Review. “That’s the reason why we are against any sort of default with haircuts and any form of private-sector event that could lead to a credit event or a rating event.”
  • Greek Unions Stage 24-Hour Strike to Oppose Papandreou's Cuts, Asset Sales. Greece’s ports, banks, hospitals and state-run companies ground to a halt today as the two biggest labor unions went on strike to oppose Prime Minister George Papandreou’s additional budget cuts and asset sales. ADEDY, the largest public-sector union, and the General Confederation of Labor, or GSEE, the biggest private-sector union, called the third general strike of the year to protest the government’s five-year fiscal plan and program of state asset sales, according to e-mailed statements. The two unions were due to march to parliament at 11 a.m. in Athens.
  • Consumer Prices in U.S. Rose in May. The cost of living in the U.S. rose more than forecast in May as prices for everything from autos to hotel rooms climbed, signaling raw-material expenses are filtering through the economy. The consumer-price index increased 0.2 percent last month and was up 3.6 percent from May 2010, the biggest year-over-year advance since October 2008, according to figures from the Labor Department today in Washington. Prices excluding food and fuel climbed 0.3 percent in May, the biggest one-month gain since July 2008, highlighting efforts by companies like McDonald’s Corp. (MCD) and Abercrombie & Fitch Co. (ANF) to charge customers more. The report may concern Federal Reserve policy makers like Chairman Ben S. Bernanke who are trying to maintain record stimulus while avoiding inflation. The cost of other goods and services also advanced. Hotel rates climbed 2.9 percent last month, clothing prices increased 1.2 percent and recreation expenses increased 0.3 percent. “We’re seeing a broad-based bleed-through of energy and commodity-price pressures into components throughout the core,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston, who correctly forecast the gain in core inflation. “The Fed has to be more adamant about their credibility as an inflation fighter.” Food costs increased 0.4 percent, today’s report showed. The 1.5 percent jump in meats, poultry, fish and eggs was the biggest since November 2003.
  • Manufacturing in New York Area Unexpectedly Contracts on Parts Shortages. Manufacturing in the New York region unexpectedly shrank in June, a sign the industry still faces parts shortages following the disaster in Japan. The Federal Reserve Bank of New York’s general economic index dropped to minus 7.8, the lowest level since November, from 11.9 in May. The median forecast in a Bloomberg News survey of economists was 12. The employment measure decreased to 10.2 from 24.7. Fewer manufacturers in June said they expect to boost payrolls in the coming year compared with January, according to a supplemental question in the Fed’s survey of businesses. An index of prices paid fell to 56.1 from 69.9, while prices received dropped to 11.2 from 28. Factory executives in the New York Fed’s district were less optimistic about the future. The gauge measuring the outlook six months from now declined to 22.5 from 52.7.
  • Homebuilder Confidence in U.S. Slides to Nine-Month Low on Sales Outlook. Confidence among U.S. homebuilders slumped in June to the lowest level in nine months as executives turned more pessimistic on the outlook for sales, a sign that any pickup will take time to develop. The National Association of Home Builders/Wells Fargo sentiment index unexpectedly fell to 13 from 16 in May, the biggest drop in a year, data from the Washington-based group showed today. The builders group’s index of sales expectations for the next six months decreased to 15, matching the lowest level on record, from 19. A gauge of current single-family home sales declined to 13, the lowest since September, from 15. The index of buyer traffic fell to 12 from 14 in May, the biggest one-month drop since July. “Builder confidence has waned even further as economic growth has stalled, foreclosures have continued to hit the market and the cost of building a home has risen,” NAHB Chief Economist David Crowe said today in a statement.
  • Papndreou Offers to Quit for Unity Cabinet. Greek Prime Minister George Papandreou offered to step aside to permit the formation of a unity government, as long as all opposition parties agreed to cuts required by an international bailout, said a person with direct knowledge of the matter. Papandreou’s bid, coming amid mounting popular protests and defections among his allies, countered a demand by the New Democracy opposition party that he quit and allow a so-called technical government renegotiate the terms of the rescue. The political turmoil came as European Union talks on forging a new bailout to prevent the first euro-area default stalled. The impasse over the aid formula and speculation of an impending government shakeup sent Greek bond yields surging to a record high and the euro weakening today. “When a government has so profoundly misjudged the anger, frustration and disillusionment in the population it is a matter of time until changes have to set in,” Jens Bastian, a visiting economist at St. Antony’s College, Oxford University in England, said in an interview.
  • Euro Plunges Most in Month as Greek Leader Loses Support Amid Debt Talks. The euro dropped the most in more than a month against the dollar after the Greek prime minister’s government lost political support as the European Union struggled to break a deadlock on a second financial rescue for the nation. Europe’s shared currency fell versus most of its major counterparts, except for Sweden’s krona and Norway’s krone, which dropped as commodity prices slumped. Demand for assets linked to growth also eased after reports showed slowing manufacturing in the U.S. Sterling fell versus the dollar after a report showed Britain’s jobless claims rose in May more than economists forecast. “The Greek issue doesn’t look like it’s going to go away any time soon,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “We see more downside risk for the euro area on the macro front, and for the euro as well.”
  • Europe's $103 Billion Yard Sale May Come Up Short as Buyers Seek Bargains. Prime Minister George Papandreou vowed in 2009 to scrap an agreement to sell a stake in Greece’s biggest phone company in a bid to get elected. This month, forced to raise cash, Greece triggered an option to sell 10 percent of Hellenic Telecommunications Organization SA (HTO), known as OTE, to Deutsche Telekom AG. (DTE) The price: less than one-third of what Europe’s largest phone company paid for shares when it last bought OTE stock in 2009. That deal underlines the challenge facing European countries such as Greece and Ireland, awash in debt, that are hoping to raise as much as 71.5 billion euros ($103 billion) in the continent’s largest yard sale of state assets in more than a decade. The push may founder as investors seek better returns in Asia and lower prices than governments are willing to accept, bankers and investors say. The threat of Greek default or euro breakup is scaring buyers and depressing prices, they say.
  • Crude Oil Falls on New York Manufacturing Slowdown and Europe Debt Crisis. Crude oil fell after manufacturing in New York unexpectedly contracted and concern grew that Europe’s debt crisis will deepen, reducing economic growth and fuel demand. “Crude oil is finding it hard to stay near $100 with all of the negative economic news,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. Crude oil for July delivery fell $1.60, or 1.6 percent, to $97.77 a barrel at 12:21 p.m. on the New York Mercantile Exchange. Prices are up 27 percent from a year ago. “We’ve had a slew of negative economic data, which is a bad signal for fuel demand in the months ahead,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The Greek crisis continues to overhang the market. This points to lower European demand and has triggered a flight to the dollar.” Demand for distillate fuel, a category that includes diesel and heating oil, tumbled 5.2 percent to 3.6 million barrels a day, the lowest level since January, the report showed.
  • Corn, Soybeans Fall on Bets Sluggish U.S. Economy to Damp Commodity Use. Corn fell, extending a slide to a four-week low, and soybeans declined on bets that the sluggish economy will curtail demand for food, animal feed and biofuel. Industrial production in the U.S. rose less than forecast in May and confidence among U.S. homebuilders slumped in June to the lowest in nine months, government and industry reports said today. Last week, output of ethanol, made mostly from corn, fell 3.8 percent, the biggest drop since mid-April. Corn futures for December delivery fell 15 cents, or 2.2 percent, to $6.70 a bushel at 11:24 a.m. on the Chicago Board of Trade. Earlier, the price touched $6.6775, the lowest for the most-active contract since May 12.
  • Democrats Propose Cutting Corporate Tax Breaks. Democrats gave Republicans a “menu of options” for phasing out tax expenditures benefiting corporations as part of a series of debt-reduction negotiations led by Vice President Joe Biden, said Maryland Representative Chris Van Hollen, a Democratic member of the bipartisan negotiating group. During today’s meeting, talks centered on how to control the debt long-term through caps on the budget deficit that could include automatic spending cuts and higher taxes to control its rate of growth, which Democrats favor, Van Hollen said. Republicans favor dollar-specific spending caps. Lawmakers and White House officials met for the tenth time today with a goal of wrapping up discussions by early next month to slash the federal debt and deficit by trillions of dollars, a condition Republicans have set for increasing the nation’s $14.3 trillion debt ceiling in the coming weeks.
  • The euro may fall below $1.40 for the first time in three weeks, according to Citigroup Inc., citing technical indicators.
  • Pandora(P) Surges After Pricing Shares Above Range. Pandora Media Inc., the online-radio company, surged as much as 63 percent on its first day of trading, a sign of accelerating demand for the limited number of Internet companies issuing shares.
Wall Street Journal:
  • Greek Yields Soar Amid Protests. Greek bonds were pummeled Wednesday, sending yields to their highest levels since the inception of the euro as mass rallies against austerity measures turned violent in Athens' streets. The cost of insuring Greek debt against default risk continued to rise to new record levels, with the five-year credit default swap spread on the country 1.36 percentage points wider at 17.25 percentage points, according to data provider Markit. This means it now costs an average of $1,725,000 a year to insure $10 million of debt issued by the country. The protests that roiled Athens on Wednesday underscore the challenge the government faces as it tries to reduce its budget deficit with harsh spending cuts to reassure investors, the European Union and the International Monetary Fund. Fresh fears that these measures could trigger a political upheaval are seen complicating efforts to find a fix for the country. Yield on the benchmark 10-year Greek bond soared 0.54 percentage point in thin volumes to 17.7%, with the bond now trading at close to half its face value in price terms. The two-year yield surged by 1.6 percentage points to 26.77%, according to Tradeweb. Bonds issued by other highly indebted euro-zone nations also fell across the board. Portugal and Ireland also hit new records, with the Portuguese five-year spread 0.31 percentage point wider at 7.8 percentage points. Ireland's five-year CDS spread was 0.29 percentage point wider at 7.6 percentage points. Tier-2 euro-zone bonds were also weaker Wednesday, with Spain increasingly coming under the spotlight as worries persist that the country's 17 regions won't be able to keep within their 2011 budgets. Spanish 10-year bonds now yield 5.55%, around 2.58 percentage points more than German bunds, and are close to breaking through the 5.60% cap under which they have traded all year.
Business Insider:
Zero Hedge:
LA Times:
  • Cable is the Only Cord Getting Cut. For the last year, top cable industry executives have dismissed the idea that consumers are cutting the cord and opting to get their content online. Turns out they're right. Consumers are cutting the cable cord, but not for the Internet. Instead they're signing up with satellite companies and phone companies offering the same services.
  • GE(GE) Pens Petrobras(PBR) Subsea Deal. GE Oil & Gas has bagged a lucrative four-year subsea contract with Brazilian oil giant Petrobras. The $120 million deal for the US equipment stalwart follows another large deal from the Brazilian outfit for its Wellstream business and another smaller subsea contract with Shell. Under the newest contract, GE is to repair, maintain and retrofit Petrobras’ subsea fleet operating in the Campos Basin. This week Petrobras handed GE a $200 million contract to provide flexible pipe and subsea equipment logistics services. GE is to invest $90 million in a logistics base adjacent to recently-acquired Wellstream’s flexible pipe manufacturing facility in Niteroi, near Rio de Janeiro. Yesterday it was reported that GE had tied up a $30 million, three-year deal with supermajor Shell for the provision of subsea equipment.
Miami Herald:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).
Caixin Online:
  • China won't loosen its current monetary tightening "easily" for some time, citing Xia Bin, an adviser to the People's Bank of China.

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