Thursday, June 30, 2011

Today's Headlines


  • Papandreou Wins Vote on Second Greek Austerity Bill in Bid for More EU Aid. Greek Prime Minister George Papandreou’s drive to stave off the euro area’s first sovereign default stayed on track after lawmakers backed a bill to authorize an austerity plan required to keep rescue aid flowing. The premier won the vote by 155 to 136, allowing him to implement a 78 billion-euro ($112 billion) package of tax increases and asset sales that was a condition of receiving further European Union aid. Those steps were approved in a vote yesterday which was marred by street violence as police fired tear gas on crowds. That ballot was carried by 155 votes to 138. Greece’s largest public-sector labor union plans a further rally today in an extension of protests of more than 20,000 people that gripped the city center this week. Parliament has become the focus of repeated riots that underscore the challenge Papandreou faces in executing his plan in an economy suffering recession while appeasing the EU partners funding its debts. “Today’s vote is constructive, and will clear the way for EU help,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London. “However, it just buys time which creates a buffer to allow making a default or restructuring less painful. The market is expecting Greece to default and it will not change its mind.”
  • U.S. Credit Swaps Fall in Biggest Weekly Drop of 2011 as Greek Risk Wanes. Credit markets are rallying as concern ebbs that Greece will default on its debt and investors speculate the selloff earlier this month was overdone. “The Greece situation is resolving in a way that’s been in the near term pretty positive for the markets,” New York-based Barclays Capital credit strategist Jeffrey Meli said in a telephone interview. “It’s been quite a rally,” he said. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell for a fourth day, declining 2 basis points to a mid-price of 92.8 basis points, the lowest since June 1, as of 10:24 a.m. in New York, according to index administrator Markit Group Ltd. The index has dropped 8.8 basis points this week, the most since the five days ended Nov. 5. One Markit ABX index tied to subprime mortgage bonds that were rated AAA when issued in 2006 has climbed 10 percent this week after dropping more than 18 percent the previous 11 weeks. The index, which rises as investors gain confidence, advanced to 39.5 yesterday from 35.9 on June 24, prices from London-based Markit Group Ltd. show. A similar index tied to junior AAA ranked commercial- mortgage bonds created in 2007, known as the Markit CMBX, has climbed to 67.8 from an almost nine-month low of 63.7 on June 27.
  • Business Expands, Consumer Confidence Grows. Businesses in the U.S. unexpectedly expanded at a faster pace in June and consumer confidence reached a 10-week high, signs that economic growth may pick up in the second half of the year. The Institute for Supply Management-Chicago Inc.’s business barometer climbed to 61.1, exceeding the highest forecast in a Bloomberg News survey, from 56.6 in May. Readings greater than 50 signal expansion. The Bloomberg Consumer Comfort Index rose to minus 43.9 from minus 44.9. “The headwinds from the supply-chain disruption might have started to ease,” said Conrad DeQuadros, a senior economist at RDQ Economics LLC in New York. “We’ll see a pickup in economic growth in the second half.” The purchasing group’s gauge of new orders climbed to 61.2 in June from 53.5, while the production index increased to 66.9 from 56. Measures of employment, backlogs and inventories eased this month.
  • German Banks, Government Said to Agree on Draft Greek Plan. Germany’s biggest banks and insurers and the government agreed on a draft proposal to roll over Greek debt holdings before a meeting with Finance Minister Wolfgang Schaeuble today, people familiar with the plan said.
  • Germany Is Loser From Further Greek Bailout, Scott Writes in FT. Maintaining Europe’s economic and monetary union means wrecking Germany’s economy and public finances, said Derek Scott, the vice chairman of Open Europe, a U.K. policy review group. Writing in the Financial Times, Scott said the system has become “a disaster for Europe and Germany.” Acceptance of the Emu in Germany was based on collusion between manufacturers, bankers and politicians at households’ and taxpayers’ expense, in that, while the probable appreciation of the deutschmark would have made German manufactured goods less competitive, other parts of the economy would have been stimulated, raising growth and living standards, Scott said. The Emu replaced exchange-rate risk by credit risk, and now the credit bubble has burst, taxpayers are bailing out German and other EU banks; yet creditors always pay in the end, it’s just a matter of when and how, he said. The cost to Germany of default by Greece and other peripheral nations now is certainly less than it will be after further lending and then default, Scott concluded.
  • Germany's Homburg Expects Eurozone Breakup, Bild Says. Stefan Homburg, a public finance professor at Hanover University, predicts that Greece won’t be able to pay back its debt and the result will be a breakup of the eurozone, Bild-Zeitung reported, citing an interview. The euro rescue package sets wrong incentives and it’s only a matter of time before strong countries drop the common currency, the newspaper cited Homburg as saying. Leaving the eurozone now would cost Germany a low three-digit-billion euro amount, while contributing to further financial aid would be much more expensive, according to Homburg, Bild said.
  • Commodity Assets Fall Most Since October 2008, Barclays Says. Commodity assets under management declined $26 billion in May, the first drop since August and the largest since October 2008, according to Barclays Capital. Assets fell to $425 billion, down from a record $451 billion in April, Barclays said. Outflows of $2.6 billion from precious metals and $1.8 billion from agriculture were the most since at least January 2008, while withdrawals of $1.6 billion from energy and $700 million from industrial metals were the most since August.
  • Corn Tumbles Most Since November, Wheat Falls as U.S. Reports Acreage Gain. Corn futures tumbled the most since November and wheat plunged to an 11-month low as the government reported U.S. grain acreage and inventories that topped estimates by analysts. Soybeans also fell. U.S. farmers planted 92.282 million acres of corn this year, 1.8 percent more than projected by analysts in a Bloomberg News survey, and the second-highest since 1944, the Department of Agriculture said today. Stockpiles as of June 1 were 3.67 billion bushels, 12 percent higher than forecast. “The USDA again surprised the market,” said Chad Henderson, a market analyst for Prime Agricultural Consultants Inc. in Brookfield, Wisconsin. “Rising acreage will add 200 million bushels to this year’s corn crop. Demand rationing has taken place, and supplies are much more comfortable for 2012.” Corn futures for December delivery, the most-active by open interest, slid by the exchange limit of 30 cents, or 4.6 percent, to $6.205 a bushel at 11:30 a.m. on the Chicago Board of Trade. A close at that price would mark the biggest drop since Nov. 16. Before today, the grain jumped 89 percent in the past year on surging demand from ethanol producers and livestock farmers.
  • Oil Drops, Extending Quarterly Loss, as U.S. Demand Falters. Oil dropped, extending its first quarterly loss in a year, amid signs of faltering fuel demand in the U.S., the world’s biggest crude consumer. Futures in New York dropped as much as 0.7 percent, halting the biggest two-day rally in seven weeks. The U.S. Energy Department said yesterday gasoline demand dropped for a second week in the seven days to June 24. U.S. pump prices are up 29 percent from a year earlier. “The situation with very high gasoline prices isn’t sustainable,” Christophe Barret, a London-based oil analyst at Credit Agricole SA, said by phone. Futures are down 11 percent this quarter.
Wall Street Journal:
  • Democrats to Take Aim at Gun Laws Amid ATF Probe. The brewing scandal over a federal gun-running probe in Arizona is opening the way for Democrats to raise the issue of more gun-control laws. A report by the Democratic staff of the House Oversight and Government Reform Committee, released Thursday, criticized what it described as low penalties for gun-trafficking violations and lax paperwork requirements. The report cites recent congressional testimony by agents of the Bureau of Alcohol, Tobacco, Firearms and Explosives to make the case that weak gun laws are fueling smuggling to Mexico and drug-related violence.
  • Pension Rulings May Boost Cutback Efforts. In a pair of rulings that may bolster efforts to roll back public pensions nationwide, judges in Minnesota and Colorado have thrown out lawsuits challenging recent cuts to certain retiree benefits.
  • Smaller Businesses Seeking Loans Still Come Up Empty. Small businesses expected 2011 to be the moment a years-long credit freeze would finally begin to thaw. But borrowing has only gotten worse. Loans outstanding to small businesses totaled $609 billion at the end of March, an 8.6% drop from a year earlier, according to the most recent data from the Federal Deposit Insurance Corporation, which analyzes loans of less than $1 million. Another lending analysis, by the Federal Reserve Bank of Kansas City, shows that big banks' outstanding loans to small businesses dropped 14% between March 2010 and March 2011, while loans by smaller lenders fell 3%.
Business Insider:
Zero Hedge:
Boy Genius Report:
  • Obama Debt Ceiling Taunts Draw Fire From Republicans. Senate Minority Leader Mitch McConnell (R-Ky.) called on Obama to drop what he’s doing and come to the Capitol for a meeting. National Republican Senatorial Committee Chairman John Cornyn (R-Texas) said the president should put his money where his mouth is by canceling a Thursday night fundraiser in Philadelphia to focus on the debt. Rep. Raul Labrador (R-Idaho), a freshman lawmaker, sent Obama a letter asking him to put forward a specific deficit-reduction plan. “House Republicans acted, and now we await your spending reduction plan—perhaps not with open arms, but we do have open minds,” Labrador wrote. And Republicans haven’t even started talking about Obama’s weekly golf outings or his vacation plans this summer. But Democrats who thought Obama was churlish in his Wednesday White House press conference know that criticism is coming. “The president might as well cancel every golf game, Martha’s Vineyard vacation and fundraiser from here until doomsday because he’s living in a glass White House and Republicans are already throwing rocks,” said a senior congressional Democratic source who described watching Obama’s press conference in bewilderment.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-nine percent (39%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
  • U.S. Caught China Buying More Debt Than Disclosed. The rules of Treasury auctions may not sound like the stuff of high-stakes diplomacy. But a little-noticed 2009 change in how Washington sells its debt sheds new light on America's delicate balancing act with its biggest creditor, China.

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