Wednesday, June 22, 2011

Today's Headlines


  • U.S. Growth, Employment Forecasts Are Lowered by Fed for This Year, Next. Federal Reserve officials lowered their forecasts for growth and employment this year and next, underscoring the Federal Open Market Committee’s statement today that the recovery “is continuing at a moderate pace, though somewhat more slowly” than previously expected. U.S. central bankers also said inflation, excluding food and energy, will be somewhat higher than previously forecast. At a two-day meeting that concluded earlier today in Washington, they said the pace of recovery is likely to “pick up over coming quarters.” U.S. central bankers said the economy will expand 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April. It was the second time this year that Fed officials lowered their forecasts for growth. For 2012, Fed officials expect the world’s largest economy to grow 3.3 percent to 3.7 percent, according to their central tendency forecasts. In April, their predictions ranged from 3.5 percent to 4.2 percent. Their projections for 2013 and the longer run were little changed. Fed officials predict the unemployment rate will average 8.6 percent to 8.9 percent in the final three months of 2011, compared with 8.4 percent to 8.7 percent projected in April. Their estimate for unemployment at the end of 2012 was in a range of 7.8 percent and 8.2 percent, compared with 7.6 percent to 7.9 percent in April.
  • Fed to Maintain Stimulus After Ending Treasury Purchases. Federal Reserve officials said they will maintain record monetary stimulus to support a flagging economic recovery after completing a $600 billion bond-purchase program as scheduled this month. “The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings,” the Federal Open Market Committee said today in a statement after a two-day meeting in Washington. “The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected.” “Recent labor market indicators have been weaker than anticipated,” the statement said. “The slower pace of the recovery reflects in part factors that are likely to be temporary,” such as supply chain disruptions stemming from the Japanese disaster in March. The Fed left its benchmark interest rate in a range of zero to 0.25 percent and repeated a pledge to keep it there “for an extended period.” The decision was unanimous. “Inflation has moved up recently, but the Committee anticipates that inflation will subside to levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate.”
  • Greece Vote Turns Spotlight Back on Germany, ECB to See Who Blinks First. The Greek Parliament’s vote of confidence in Prime Minister George Papandreou shifts the spotlight back to Germany and the European Central Bank as key to Greece’s quest for further international financial aid. Lawmakers in Athens supported Papandreou in a 155-143 vote after the prime minister shuffled his Cabinet and sought the chamber’s approval. The vote may bolster Greece’s chances of securing a 12 billion-euro ($17 billion) loan payment, which hinges on support from European leaders and on Greece’s ability to push through 78 billion euros in additional budget cuts next week. “The question that’s still lingering is the old cage match between the ECB and Germany, and who’s going to give and who’s going to blink, and how much,” said Ilan Solot, currency strategist at Brown Brothers Harriman in London.
  • Crude Oil Futures Advance After Report Showing Decline in U.S. Stockpiles. Crude oil climbed as a government report showed U.S. supplies fell a third week and refineries bolstered operating rates to the highest level in 10 months. Futures rose as much as 1.3 percent after the Energy Department said oil inventories dropped 1.71 million barrels to 363.8 million last week. Refineries operated at 89.2 percent of capacity, the most since the week ended Aug. 13. Crude oil for August delivery rose 35 cents, or 0.4 percent, to $94.52 a barrel at 12:08 p.m. on the New York Mercantile Exchange. Futures are up 22 percent from a year ago.
  • Shipping Rebound Lifts FedEx(FDX) 2012 Estimates. FedEx Corp. (FDX) predicted increased demand for international air-cargo shipments may push fiscal 2012 profit higher than analysts estimated as the economic recovery strengthens and jet-fuel costs ease. The earnings forecast of $6.35 to $6.85 a share compares with an average estimate of $6.54 from 26 analysts surveyed by Bloomberg. “The near term softness in the economy will be temporary as fuel prices have retreated from their April highs and the Japanese economy recovers,” FedEx Chief Executive Officer Fred Smith said on a conference call regarding the company’s fiscal fourth-quarter earnings. “Going forward, we see stronger economic growth.” FedEx expects the U.S. economy to grow 2.5 percent in calendar 2011 and 3 percent the year after, Mike Glenn, a company spokesman, said on the call.
  • China Money Rate Reaches Three-Year High as Bill Sale Suspended. China’s money-market rate climbed to the highest level in more than three years as a worsening cash crunch prompted the central bank to suspend a bill sale. The seven-day repurchase rate, which measures interbank funding availability, has more than doubled since June 14, when the People’s Bank of China ordered lenders to set aside more money as reserves for a sixth time this year. The central bank suspended a sale of bills tomorrow, according to a statement on its website today. “Banks have to hoard cash to meet the regulator’s capital or loan-to-deposit requirements by the end of every quarter,” said Liu Junyu, a bond analyst at China Merchants Bank Co., the nation’s sixth-largest lender. “So we won’t see the shortage easing.” The seven-day repo rate gained 47 basis points, or 0.47 percentage point, to 8.81 percent as of the 4:30 p.m. close in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It touched 8.93 percent, the highest level since October 2007.
  • Corn Tumbles Most in Six Weeks, Soybeans Decline on U.S. Weather Outlook. Corn fell the most in six weeks and soybeans declined on bets that favorable weather will boost yields in the U.S., the world’s biggest grower and exporter. National Weather Service computer models showed a shorter period of hot weather next week, and less heat will boost Midwest crop development, World Weather Inc. said. Increased soil-moisture reserves from rain this week and showers in the next two weeks will maintain favorable growing conditions, the forecaster said. The weather outlook “is pressuring the grain markets,” said Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa. “Rain and warmer temperatures are just what the crops need.” Corn futures for December delivery fell 24.5 cents, or 3.6 percent, to $6.5575 a bushel at 10:50 a.m. on the Chicago Board of Trade.
  • Goldman Sachs(GS) Says Libya Oil Exports May Rise, Near-Term Prices Choppy. Libyan oil exports could rise by as much as 355,000 barrels a day in the short term from the opposition-controlled part of the country after rebels pledged to resume shipments, according to Goldman Sachs Group Inc. (GS)
  • U.S. Postal Service to Stop Paying Into Pension Fund. The U.S. Postal Service, facing insolvency without approval to delay a $5.5 billion payment for worker health benefits, will suspend contributions to an employee retirement account to save $800 million this year. The Postal Service will stop paying employer contributions to the defined-benefit Federal Employees Retirement System, which covers about 85 percent of career postal workers, it said today in an e-mailed statement. The $115 million payment, made every other week, will stop on June 24, the statement said. Suspending payments to the retirement account will help “conserve cash and preserve liquidity,” the statement said. The agency estimates it has overpaid by $6.9 billion and has asked Congress to pass legislation to return that money. Congress must “make bold, quick and substantive reforms,” said Art Sackler, executive director of the Washington-based Coalition for a 21st Century Postal Service, which represents corporate mail customers. “The USPS is hanging by a thread.”
  • Rebel Leaders in Libya's Misrata Curb Press Freedoms as Casualties Mount. Rebel leaders in the besieged western Libyan city of Misrata imposed restrictions on the foreign press, marking a sharp contrast with their previous openness and with the policies of their counterparts in Benghazi in the east. Journalists traveling to Dafniya, a village near Misrata on the eastern frontline, are being turned back at checkpoints by rebel fighters, who say they have been told by authorities that some members of the western media may be spies.
  • Morgan Keegan to Pay $200 Million to Settle Fraud Allegations.
  • 62 Al-Qaeda Fighters Escape From Yemeni Jail Via Tunnel After Killing Guard. Sixty-two al-Qaeda militants escaped from a jail in southern Yemen via a tunnel they dug under their cells, after killing one guard and wounding another, a senior Yemeni intelligence official said. One of the militants snatched a gun from a guard and opened fire as the group fled the prison in the coastal city of Mukalla in Hadarmout province, said the official, who spoke on condition of anonymity because he isn’t authorized to speak to the media.
Wall Street Journal:
  • Live Blog: Ben Bernanke's Press Conference.
  • Investors Hazard Bold Bet Against China's Yuan. The U.S and the International Monetary Fund are pressuring China to let its currency, the yuan, climb in value. Big banks, including Goldman Sachs Group Inc. and Citigroup Inc., have told investors to bet on a rising yuan. But a number of investors with unconventional views are placing gutsy wagers against the yuan. The moves have caused some rivals and observers to scratch their heads or even scoff.
  • Relational to Report Stake in L-3(LLL). Activist investment firm Relational Investors LLC is expected to report on Wednesday that it has become the largest shareholder in defense firm L-3 Communications Holdings Inc., and is pushing for a breakup of the firm, people familiar with the situation said. Relational has acquired an almost 6% stake in the company since February, making it the biggest shareholder ahead of BlackRock Inc.'s nearly 5.9% stake, these people said.
  • Toxic Material at Japan Plan Raises Risks. Excessive levels of highly toxic strontium have been detected in seawater and groundwater at Japan's Fukushima Daiichi nuclear complex, the plant operator said Monday, a development that suggests an increased risk of radioactive contamination further entering the food chain.
Business Insider:
  • CBO Warns Debt Could Double GDP. Applying a little shock treatment to White House deficit talks, the Congressional Budget Office released new projections Wednesday showing that the U.S. debt could be nearly twice the nation’s GDP in 25 years absent real changes in spending and tax policy.
  • German Banks, Insurers to Discuss Greek Aid - Letter. The German government has invited private creditors to discuss voluntary participation in assistance for Greece in a meeting to start at 1330 GMT on Wednesday, according to the invitation letter seen by Reuters. Among companies invited to the talks are Deutsche Bank (DBKGn.DE), Commerzbank , Allianz , Munich Re (MUVGn.DE), HVB , LBBW , WestLB , HSH , DZ Bank (DGBGg.F) and Deka , three people familiar with the matter said. The Ministry's letter said the meeting would discuss all options for banks and insurers to help secure the solvency of Greece. "One possibility is to extend investment in Greek bonds upon expiry of current bonds," the letter said.
  • Democrats Call For New Spending in Debt Deal. Efforts in the U.S. Congress to head off a debt default faced a new hurdle on Wednesday as Democratic leaders called for additional spending to boost the sluggish economy. Democrats' demand for new stimulus spending is directly at odds with the efforts of negotiators, led by Vice President Joe Biden, who are trying to find trillions of dollars in budget savings as part of a deal that would allow Congress to sign off on new borrowing before the country runs out of money to pay its bills. Those talks have largely focused on spending cuts that would take effect over the coming 10 years. Senate Democrats want the deal to include money for highway construction, a payroll tax cut and clean-energy subsidies to bring down the 9.1 percent unemployment rate. A new report outlined the grim fiscal realities that are forcing lawmakers to consider deep cuts in everything from farm subsidies to student aid. The nonpartisan Congressional Budget Office said the rising cost of health and retirement benefits will swamp the economy unless Congress boosts taxes or slashes spending.
  • Allied Irish Bank has 'Defaulted' Says Derivatives Body. Banks that sold insurance on the debt of Allied Irish Banks will have to pay out to investors in the nationalised lender's debt despite complex legal manoeuvres by the Irish authorities to avoid putting the lender into default.

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