Monday, July 25, 2011

Today's Headlines


Bloomberg:

  • Greece Rating Cut to Second-Lowest Level by Moody's on 'Orderly Default'. Greece’s credit rating was cut three steps by Moody’s Investors Service, which said the European Union’s rescue for the debt-laden nation will cause substantial losses for investors and amount to a default. Greece’s long-term foreign currency debt was downgraded to Ca, its second-lowest rating, from Caa1, the company said in a statement in London today. Moody’s said it will reassess the risk profile of any outstanding or new securities issued by Greece after the debt exchange that’s part of the new rescue plan has been completed. “The combination of the announced EU program and the debt exchange proposals by major financial institutions imply that private creditors will experience substantial losses on their holding of Greek government bonds and this is something we need to reflect in the rating,” Moody’s senior analyst Sarah Carlson said in an interview.
  • Boehner Debt Plan Seeks $1 Trillion, $1.6 Trillion Debt Ceiling Raises. House Speaker John Boehner’s two- step debt-limit plan would raise the U.S. borrowing limit by up to $1 trillion and later by $1.6 trillion, according to Republican aides. The plan would require $1.2 trillion in spending cuts in the first phase and $1.8 trillion in the second step, the aides said. A committee would be created to identify spending cuts, one aide said, and Congress would vote later on a constitutional amendment requiring a balanced budget, another aide said. Boehner will present his plan to fellow House Republicans at a 2 p.m. closed-door meeting today.
  • Sovereign Debt Risk Rises on Bets Greek Rescue Won't End Crisis. The cost of insuring against default on sovereign and corporate debt rose for the first time in five days on concern Greece’s rescue may not end Europe’s crisis as the U.S. struggles to break a stalemate on its budget. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments increased 6 basis points to 265.5 at 3:30 p.m. in London. Investors are betting Greece’s second bailout in 15 months won’t be enough to stop the crisis from spreading to the rest of the euro area as Moody’s Investors Service cut the nation’s credit rating to its second-lowest grade. “A new outbreak of contagion remains a very real risk,” said Bill Blain, co-head of strategy at broker Newedge Group in London. Last week’s rescue “stemmed immediate fears of Greek catastrophe and contagion overwhelming Italy and Spain. But there remain nagging doubts.” Credit-default swaps on Greece fell 5 basis points to 1,590, adding to last week’s decline from a record 2,568 basis points July 18, CMA prices show. Swaps on Italy increased 15 basis points to 270, Spain climbed 17 to 327 and Portugal rose 12 to 919, while Belgium was 7 higher at 172 and Ireland was unchanged at 875, according to CMA. Swaps on the Netherlands jumped 7 basis points to 53, Austria rose 10 to 86 and Denmark climbed 7 to 66, according to CMA. Norway increased 3 to 27.5, Finland was 5 higher at 45 and France was up 9 at 112, while Germany rose 3 to 60. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 10 basis points to 171 and the subordinated index jumped 16 to 300, according to JPMorgan Chase & Co. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 14 basis points to 428. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.75 basis points to 114.75 basis points.
  • Dodd-Frank Reducing Bank Revenues by $9 Billion Spawns New Fees. Bank of America(BAC), JPMorgan(JPM) and Wells Fargo(WFC) are among the 10 largest U.S. banks that may lose more than $9 billion in annual revenue from two parts of the Dodd-Frank regulatory overhaul. The Dodd-Frank Act, passed in July 2010, may cost 23 U.S. financial companies - including the top-10 banks - at least $22 billion in additional expenses or lost revenue, according to a Bloomberg government study. Banks laid out plans this month to recoup some of that revenue with new fees and fewer customer perks such as debit-card rewards.
  • Fake Apple(AAPL) Stores Ordered Shut by Chinese City. Chinese authorities shut two unauthorized Apple Inc. stores in Kunming for operating without business licenses, a newspaper run by the southwestern city’s government reported. Investigators also examined three other stores that used Apple’s logo without the company’s permission, though they were found to have operating permits, according to the Dushi Shibao newspaper report posted today on the Kunming government’s website. The findings were part of a probe into more than 300 electronics vendors in the city, according to the report. The move comes about a week after the “BirdAbroad” blog began posting photographs of a fake Apple store complete with an acrylic staircase and crew of blue-shirted sales staff, showing the extent some dealers will go to profit from booming demand for iPhones and iPads. The company’s network of more than 900 retail outlets has failed to keep up with demand, forcing customers to buy from vendors not sanctioned by Apple. “In areas outside of the biggest cities, it’s difficult to find Apple products, and there is strong demand,” said Jim Tang, a technology analyst at Shenyin & Wanguo Securities Co. in Shanghai. “For a big country like China, Apple’s sales network doesn’t go far enough, and the company needs to expand.”
  • Food Costs Rising as Coke(KO), Chipotle(CMG) Pass on Commodity Gains. Food prices in the U.S. may be rising faster than the government forecast as companies including Coca-Cola Co., Safeway Inc. and Chipotle Mexican Grill Inc. pass higher commodity costs on to consumers. Rallies in meat, grain and dairy products since February may mean the increase in food costs will surpass the 3 percent to 4 percent that the U.S. Department of Agriculture predicts, said Christopher Hurt, an agricultural economist at Purdue University in West Lafayette, Indiana. The USDA today left its forecast for this year’s gains unchanged and said 2012 prices will increase 2.5 to 3.5 percent. “Food inflation will continue to increase through this summer to this fall,” Hurt said July 19 in a speech in Washington. “We can’t replenish supplies until a new crop comes in, and that puts a lot of basic pressure on food prices.” Costs for groceries and restaurant meals rose 3.7 percent in the 12 months through June, government data show.
  • Strike Contagion Afflicts BHP(BHP), Anglo as Miners Seek Bigger Share. Mine workers across three continents are striking over pay, disrupting production as near-record prices for coal, copper and gold boost profit at BHP Billiton Ltd. (BHP), Xstrata Plc (XTA) and Anglo American Plc. (AAL) BHP workers voted yesterday to extend their strike at the Escondida copper mine in Chile, the world’s largest.
  • Petrobras(PBR) to Raise as Much as $91 Billion in Debt to Fund Spending Program. Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, said it will boost debt and sell assets after approving a $224.7 billion investment plan. Petrobras, as the Rio de Janeiro-based company is known, will raise as much as $91 billion in debt and sell up to $13.6 billion of assets as part of the spending program for 2011 through 2015, the company said after markets closed on July 22. The crude producer is spending more than any other major oil company to develop fields located deep beneath a layer of salt under the ocean floor that are the Western Hemisphere’s largest discoveries in about three decades.
  • HCA(HCA) Shares Slump After Earnings Miss Estimates on Fewer Complex Surgeries.
Wall Street Journal:
CNBC.com:
Business Insider:
Zero Hedge:
NY Post:
  • Debt-Fight Doomsayers by Charles Gasparino. Obama's Absurd Default Talk. I've lost count of how many times President Obama and Treasury Secretary Tim Geithner have said over the last three days that America might default if the debt-ceiling impasse continues. For the good of the country, let's hope the markets have forgotten as well. It's hard to see how Obama, Geithner or White House Chief of Staff Bill Daley could have had the good of the country in mind as they made the rounds of the Sunday talk shows -- spreading dire predictions about default if the debt ceiling isn't raised in the fashion that they and their Democratic allies believe appropriate. For all their apocalyptic talk, they're still demanding a budget deal filled with jobs-killing taxes, even as unemployment remains north of 9 percent.
New York Times:
  • Merchants Leery of Wi-Fi as China Imposes New Controls. New regulations that require bars, restaurants, hotels and bookstores to install costly Web monitoring software are prompting many businesses to cut Internet access and sending a chill through the capital’s game playing, Web-grazing literati who have come to expect free Wi-Fi with their lattes and green tea. The software, which costs businesses about $3,100, provides public security officials the identities of those logging on to the wireless service of a restaurant, cafe or private school and monitors their Web activity. Those who ignore the regulation and provide unfettered access face a $23,000 fine and the possible revocation of their business license.
Politico:
  • Poll: Pessimism Hits 15-Year High. Americans are more pessimistic about where the economy will be a year from now than they have been at any time in almost the last 15 years, a new poll Monday showed. In all, 59 percent of those surveyed for a CNN/Opinion Research Corporation poll said they expect economic conditions in the United States to be poor a year from now, while 40 percent expect conditions to be good. That’s the highest percentage since CNN began asking the poll question in October, 1997. Twenty-nine percent of those surveyed said they expect the economy to be “very” poor a year from now, while 30 percent said they think it will be “somewhat” poor. At the same time, just four percent of those surveyed said they think the economy will be in “very” good shape next year.
  • David Wu Won't Resign. Embattled Rep. David Wu will not seek reelection in 2012, but he won’t resign from office now despite allegations that the Oregon Democrat had an “unwanted sexual encounter” with the teenage daughter of a close friend last Thanksgiving.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 23% 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 -21 (see trends).
  • 57% Favor Repeal of Health Care Law. The latest Rasmussen Reports national telephone survey of Likely Voters shows that 57% favor repeal of the health care law passed in March of last year, including 46% who Strongly Favor its repeal. That’s the strongest support for repeal since early May. Thirty-six percent (36%) oppose repeal of the law, including 24% who are Strongly Opposed.
Reuters:
  • Rail Crash Drops China Shares to a One-Month Low, Hong Kong Weak Too. Stocks linked to railways led Hong Kong and China shares broadly lower on Monday after the worst train accident in the mainland since 2008 compounded continuing concerns over a potential United States default. The Shanghai Composite Index had its biggest single day fall in six months, 3.0 percent, and it closed at 2,688.8 points, the lowest level in a month. In a clear bearish sign, the index broke below the 70-point range it has moved in for the last three weeks as turnover hit 120 billion yuan, almost 7 percent above the 20-day average. In the wake of the weekend's deadly train disaster, some investors dumped shares linked with rail stocks. The accident further weighed down markets already fragile after China's banking regulator said last Thursday it will strictly control risks associated with lending to property developers in second and third-tier cities. Property counters were also underperformers with the Shanghai property sub-index down 4.1 percent. A Credit Suisse report on Monday said developments in cities along new railway lines could be compromised in the near term after Saturday's high-speed train accident. "Land sales in several cities along the Beijing-Shanghai high-speed train line surged in 2009 and 2010," Credit Suisse property analysts said, adding that extra scrutiny on the property sector could be in store after Premier Wen Jiabao demanded investigations last week.
  • CNH Global(CNH) Q2 Blows Past Wall Street. Farm equipment maker CNH Global N.V. posted market-topping results for the ninth straight quarter and raised revenue growth outlook for the year, helped by higher crop prices, sending its shares up 10 percent.
Financial Times:
  • The Eurosion of Sovereign CDS. Here’s the smart thing in the eurozone plan unveiled last week. Whatever it does for Greece’s debt sustainability (little) and to ensure private sector involvement (nothing) it really sticks a knife, so to speak, into holders of CDS on Greek debt. That, we’d argue, is something that European politicians have been gunning for for some time.
Telegraph:
  • UK Household Squeeze At Its Worst for Two Years. British household finances have deteriorated to the lowest point since the depths of the recession, heightening concerns that the economy may be slipping back into a double-dip downturn. Markit's monthly survey of consumers shows that the triple blows of rising fuel costs, the government's fiscal squeeze and faltering global growth are all eating deep into spending power.
Die Welt:
  • German Chancellor Angela Merkel said German taxpayers may end up footing the bill for the aid package to Greece. Until now, Merkel has said loans to Greece could result in a profit.
Hamburger Abendblatt:
  • Germany's National Democratic Party should be banned because of its extremist views according to Social Democratic Party vice chairman Olaf Scholz. Scholz, a former Labor Ministers in German Chancellor Angela Merkel's first-term government, said the NPD isn't "compatible" with Germany's constitution.
Deccan Herald:
  • Pakistan Plans to Add 24 Nuclear-Capable Missiles to Its Arsenal. This will be the highest number of missiles Pakistan has ever produced in a year if the government achieves the target, The Express Tribune newspaper quoted its sources as saying. The air-to-air and surface-to-air missiles will be able to hit targets at a distance between 700 km and 1,000 km, thus putting nearly all major Indian cities within their range, the report claimed.
Shanghai Daily:
  • Luxuries Cost Nearly 8% More. CHINA'S wealthy have forked out 7.7 percent more for luxury consumer products so far this year than a year earlier due to growing demand, import duties and fluctuating exchange rates, Hurun Report said yesterday.

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