Evening Headlines
Bloomberg:
- Deposit Flight From European Banks Means Risk Piling Up at ECB. European banks are losing deposits as savers and money funds spooked by the region's debt crisis search for safe havens, a trend that could worsen economic and financial conditions. Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months. Meanwhile, European Union financial firms are lending less to one another and U.S. money-market funds have reduced their investments in German, French and Spanish banks. While the European Central Bank has picked up some of the slack, providing about 500 billion euros ($685 billion) of temporary financing, banks are cutting lending, which could slow growth in their home countries. They're also paying more to keep and attract deposits -- or, in the case of Italy, selling bonds to retail customers for five times the interest they offer on savings accounts -- which will erode profitability. “All of this is symptomatic of a lot of fear in the European financial sector,” said Kash Mansori, senior economist at Experis Finance in Charlotte, North Carolina, which advises U.S. and European companies. “It shows that even European banks don't trust each other anymore, so they're taking their money out of the EU system. It's similar to the distrust that happened worldwide in 2008.” Deposits by financial institutions in Greek banks, which make up 21 percent of the total, have fallen by one-third since the beginning of 2010, while those by non-financial firms and residents dropped 9 percent, according to Bank of Greece data. In Germany, deposits by financial institutions, which account for one-third the total, declined 12 percent over the same period and 24 percent since the September 2008 collapse of Lehman Brothers Holdings Inc., ECB figures show. In France, where the erosion started last year, the same type of deposits, which make up half the total, are down 6 percent since June 2010. They have fallen 14 percent since May 2010 at Spanish banks, where they account for one-fifth of the total. To make up the deficit, firms are leaning on the ECB for short-term funding. Borrowing by Italian lenders from the central bank more than doubled to 85 billion euros between June and August. Greek and Irish banks each took about 100 billion euros from the ECB in August. Irish lenders also got 56 billion euros from their domestic central bank. Portuguese banks borrowed about 46 billion euros from the ECB, while Spanish banks took 52 billion euros in July. By accepting those countries' bonds as collateral in exchange for funds, the ECB is piling up risk, said Desmond Lachman, a fellow at the American Enterprise Institute in Washington. In the event of a default, the ECB's losses would be borne by the EU's member states. Lending to the region's banks by the ECB and other central banks is about seven times the capital of the Eurosystem, the consolidated balance sheet of all euro zone central banks. “If there are sovereign defaults, the ECB will be left with garbage that has been accepted as collateral,” said Lachman. “It's putting EU taxpayers' money at risk in a very non-transparent way. But there's no alternative. The ECB is the only game in town.”
- Spain Faces Rating Risks on 'Downside' as Regions Lag Targets, Fitch Says. Spain faces risks “on the downside” to its credit rating as growth slows and regional governments fall behind schedule on deficit targets, Fitch Ratings Director Douglas Renwick said. “Risks for the credit rating are clearly on the downside,” London-based Renwick said in a telephone interview yesterday. “The regional deficit performance adds to pressure on the central government to make the needed cuts.” Fitch rates Spain AA+ with a “negative” outlook, and Renwick said weaker growth, failure to meet deficit targets, or larger-than-forecast use of public funds to rescue banks could be “clear triggers for the rating.” Moody’s Investors Service has an Aa2 rating on Spain and Standard & Poor’s rates it AA. Spain’s regional governments are behind schedule to meet deficit targets, according to data released last week that Moody’s said was “credit negative.” The regional governments manage more than a third of public spending, including health and education, and are suffering from a slump in revenues linked to real-estate transactions. The 17 semi-autonomous regions posted a budget deficit of 1.2 percent of gross domestic product in the first half, the Finance Ministry said on Sept. 8, citing data that isn’t directly comparable to the figures used in the final deficit calculations. The regions have a deficit target of 1.3 percent of GDP this year. Renwick said a slowdown in Germany, Europe’s largest economy, would make it more difficult for Spain to meet its 1.3 percent 2011 growth forecast. The government cut the prediction last year to reflect the impact of austerity measures. “For Spain, meeting the official GDP forecast is becoming more and more challenging, especially because the German economy is weakening,” Renwick said.
- Dollar Libor May Rise to .5 Percent by December, Barclays Says. The rate banks say they pay each other for three-month dollar loans may rise to a one-year high if European policy makers fail to stymie investors' concern the region's debt crisis is worsening, according to Barclays Plc. The three-month dollar London interbank offered rate, or Libor, will reach 0.5 percent by the end of the year, Barclays strategist Joseph Abate wrote in a note to clients Sept. 12. Libor was fixed yesterday at 0.347 percent, according to the London-based British Bankers' Association. The rate has risen this year from as low as 0.245 percent on June 15. European efforts to contain the region's debt crisis have failed to quell speculation that Greece may default on its debt and that the crisis may spread. The yield on the Greek two-year note reached a record 77 percent yesterday. Investors question the ability of Greece to implement austerity moves fast enough to get a sixth payment from last year's 110 billion-euro ($151 billion) bailout. "Unless there is some sort of clarity out of Europe and some type of resolution to the sovereign-debt crisis there is really nothing to prevent Libor from going higher," said New York-based Abate in a telephone interview yesterday. "There is stress in the financial system. We've already seen the volume of commercial paper issuance falling, with the amount of daily issuance down by about half, and the term of the paper being issued has shortened up. "
- China Must Avoid Lending to 'Troubled' Nations, Yu Yongding Says. China shouldn't buy bonds issued by individual euro-area countries because their leaders and the European Central Bank are in disarray, said Yu Yongding, a former adviser to China's central bank. "China has to wait until it can see a clearer road map by euro countries for solving sovereign-debt problems," Yu, who is based in Beijing, said today. The nation is not a lender of last resort for "troubled countries," he added. The ECB's own purchases of euro members' sovereign bonds are controversial, Yu said.
- ConAgra(CAG) to Cancel $5.18 Billion Ralcorp(RAH) Bid by Sept. 19 Unless Talks Begin. ConAgra Foods Inc. (CAG) said it would withdraw its $5.18 billion offer for cereal-maker Ralcorp Holdings Inc. (RAH) by Sept. 19 if the company doesn’t enter negotiations, ending a pursuit that began in March. ConAgra sent Ralcorp a presentation on the merits of its $94-a-share bid, and Ralcorp has been unwilling to engage in discussions, Omaha, Nebraska-based ConAgra said today in a statement. “Ralcorp’s stock is down pretty dramatically, so clearly the ball is their court,” said Jack Russo, an analyst for Edwards Jones & Co. in St. Louis. “The pressure is on Ralcorp to come up with a better plan for shareholders, and if they don’t they are going to hear a lot of griping from shareholders.”
- Obama Approval Rating Plummets on Doubts Over Jobs Plan. A majority of Americans don’t believe President Barack Obama’s $447 billion jobs plan will help lower the unemployment rate, skepticism he must overcome as he presses Congress for action and positions himself for re- election. The downbeat assessment of the American Jobs Act reflects a growing and broad sense of dissatisfaction with the president. Americans disapprove of his handling of the economy by 62 percent to 33 percent, a Bloomberg National Poll conducted Sept. 9-12 shows. The disapproval number represents a nine point increase from six months ago. The president’s job approval rating also stands at the lowest of his presidency -- 45 percent. That rating is driven down in part by a majority of independents, 53 percent, who disapprove of his performance.
- Solyndra Bankruptcy May Blunt Obama's Renewable Energy Drive. Solyndra LLC’s bankruptcy threatens to curb government incentives championed by the Obama administration to build a renewable energy industry in the U.S. Solyndra, a solar-panel manufacturer that received about $527 million in federal loan guarantees, shut down on Aug. 31, then filed for bankruptcy protection on Sept. 6. The House Energy and Commerce Committee has scheduled a hearing tomorrow on the award and the Federal Bureau of Investigation raided the company’s Fremont, California, offices two days after the bankruptcy court filing. The failure will probably diminish support in Washington for the Energy Department’s loan guarantees and for a renewable- energy grant program run by the Treasury Department said Stephen Munro, an analyst at Bloomberg New Energy Finance in Washington. The guarantee program will end this month and the Treasury grants are to expire at yearend. There’s little interest now in extending them, Munro said in an interview. “Solyndra has become a bit of a poster child for what can go wrong with government funding for renewable energy,” Munro said in an interview. Its troubles could result in a “hiatus in federal support for clean energy.”
- GE(GE) Sets Oct. 17 for $3.3 Billion Buffett Stake Redemption. General Electric Co. set a date of Oct. 17 for a $3.3 billion payment to repurchase preferred stock sold to Warren Buffett's Berkshire Hathaway Inc. as financial markets froze in October 2008. The shares, callable after three years at a 10 percent premium, helped Chief Executive Officer Jeffrey Immelt raise another $12 billion from public markets two weeks after Lehman Brothers Holdings Inc. filed for bankruptcy. GE disclosed the date today in a U.S. regulatory filing.
- Silvercorp Plunges After Muddy Waters Says It's Shorting Stock. Silvercorp Metals Inc., the Chinese silver miner accused of fraud in an anonymous letter last month, plunged 20 percent, the most in seven years, after Carson Block’s Muddy Waters LLC said it’s shorting the stock. Silvercorp shares fell C$1.58 to C$6.20 yesterday on the Toronto Stock Exchange, the biggest decline since Sept. 1, 2004. The shares have dropped 26 percent since the British Columbia Securities Commission announced last week it’s investigating allegations made against the company in the Aug. 29 letter as well as the source of the accusations.
- ADB Says India May Raise Interest Rates, Cuts Growth Forecast. India may raise interest rates further to tame inflation, the Asian Development Bank said as it cut the nation’s economic growth forecast for the current financal year. “Given the RBI’s commitment to battle persistent high inflation, there will be further monetary tightening in the remaining months of FY2011 until there is credible evidence of inflation trending to the RBI’s target range,” the Manila-based lender said in its Asian Development Outlook Update 2011 report. India’s benchmark wholesale-price inflation probably accelerated to 9.64 percent in August from 9.22 percent in July, according to the median of 25 estimates in a Bloomberg News survey. The commerce ministry will release the data today. Inflation in India may remain “elevated” in the first half of the current fiscal year because of higher fuel and transport costs and “evidence of wage-price spiral,” the report showed. The ADB raised its inflation forecast for the year ending March 31 to 8.5 percent from 7.8 percent, according to the report.
- SEC Questions Nasdaq's Reverse-Merger Plan. In the wake of a series of accounting scandals at U.S.-listed Chinese companies, securities regulators raised questions about a reform plan by the Nasdaq Stock Market in an order made public Tuesday, comparing it to a more stringent plan outlined by the New York Stock Exchange.
- Fortress Investment Changes Course, Likes Resurgent Dollar. Mega-hedge fund Fortress Investment Group LLC (FIG) is betting that the dollar will shine for the rest of the year, changing course after being burned on an "optimistic" view of riskier assets.
- BNY Mellon(BK) Forex Trades Cost Pensions. With Bank of New York Mellon Corp. under growing scrutiny by regulators for its trading practices on behalf of pension funds, a Wall Street Journal analysis shows that the bank executed some currency transactions for two large public pension funds in a way that could trigger higher costs.
- The 2013 Tax Cliff. Business had better enjoy the next 16 months. President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.
CNBC:
- Julian Robertson Expecting Greek Default. (video)
- Fed Set to Give Economy Therapy, Not Shock Treatment. The Federal Reserve, facing rising global financial strains and recession fears, is poised to increase downward pressure on longer-term interest rates next week in a bid to accelerate a sputtering U.S. recovery.
- ADB Revises Down Asia's Growth Forecasts. The headwinds in the global economy will be felt in Asia, according to the Asian Development Bank (ADB), as it sees growth in the region moderating from the second half of the year. "Asia is not completely decoupled from the Western world. Our exports go to the advanced economies, so inevitably the countries with the larger export sector will be influenced by the slowdown… there," Rhee Changyong, Chief Economist of ADB told CNBC on Wednesday. Rhee also flagged inflation risks, and says keeping prices in check will continue to be a priority for Asian policy makers in the near term. The ADB revised up its inflation projection for 2011 to 5.8 percent from its previous 5.3 percent projection. "In the first half… inflation was much higher than we expected because (of the) more than 30 percent increase of commodity prices," Rhee said.
- China's Wen Vows to Fight Inflation. China will keep monetary policy tight to keep a lid on inflation but he also signaled caution to avoid hurting the world's second-largest economy, Premier Wen Jiabao said on Wednesday.
Zero Hedge:
- Jefferies Describes The Europe Endgame.
- Wen Jiabao Says China Willing to Extend Help to Europe... For a Price.
- "High Frequency Minutes": HFT Explained In 6 Short Video Clips.
NY Times:
- From Europe, Mounting Pressure Over Greece's Debt. Facing market pressure to resolve the Greek once and for all, President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany will hold a video conference call Wednesday evening with the embattled Greek prime minister, George Papandreou, French officials announced on Tuesday. The announcement could portend yet another restructuring of Greek debt to stave off a default. A stopgap bailout plan announced on July 21 has yet to be approved by all 17 nations that share currency, and in recent weeks a renewed sense of crisis has engulfed the euro region. In the latest sign of turmoil, Italy — the euro region’s most indebted member, after Greece — was forced to pay record-high interest rates in order to complete an auction of its five-year bonds on Tuesday, despite continuing purchases by the European Central Bank. Spain, which plans a bond sale on Wednesday, could be subjected to similar investor wariness.
- Banks Brace for a Season of Fall-Offs. The worries of Wall Street banks keep growing. As if the troubles in Europe were not enough, two months of the most turbulent markets in decades are expected to seriously damp trading results for the nation’s largest banks. In a bellwether for other large financial firms, JPMorgan Chase warned that third-quarter trading revenue was likely to fall about 8 percent from a year ago. Investment banking income is also expected to drop by one-third from a year earlier, as corporations get cold feet about acquisitions as well as stock and debt offerings. “I think you can safely expect a decline in our markets revenue,” Jes Staley, the head of JPMorgan’s investment bank, said in remarks at the financial services conference on Tuesday.
- GOP Captures 2 Special House Elections. Democrats suffered a double blow in two special House election losses Tuesday, leaving the party at a political low point as it gears up for 2012. Republicans pulled off an upset in New York’s 9th Congressional District, a strongly Democratic seat that should have been an easy hold. And the GOP cruised as expected to an easy win in Nevada’s Republican-friendly 2nd District. The outcome in New York, where Republican Bob Turner prevailed over Democratic Assemblyman David Weprin in former Rep. Anthony Weiner’s old district, was particularly crushing. And Republicans were pointing to it as a rejection of President Barack Obama even before the race was called. “It was all Obama — not even a thought of anything else,” Turner consultant Steve Goldberg said.
- Generic Presidential Ballot. Generic Republican 47%, Obama 42%.
- CME(CME) CFO Visited Several States to Talk Relocation. CME Group Inc, whose roots in Chicago date to 1848, is serious about leaving Illinois to avoid high state taxes on business at its three futures exchanges, its chief financial officer said on Tuesday. "I've visited several states on this particular topic," Jamie Parisi said at a conference hosted by Barclays. "We've being doing what we can to see how we can lower our rate." Parisi joins several other CME executives, including Chief Executive Craig Donohue and Executive Chairman Terrence Duffy, who have recently raised the decibel level on complaints about Illinois taxes, which were increased sharply in January. Parisi did not say which states he visited, but Donohue has said the company was talking to Texas, Florida and Tennessee, among others.
- Geithner Won't Seek Bigger European Bailout Fund. Treasury Secretary won't push European finance ministers to increase the size of their bailout fund when he joins them at a Friday meeting in Poland, a U.S. official said on Tuesday. "Geithner does not plan to advocate for a bigger EFSF," the official said, referring to the 440 billion euro ($601 billion) European Financial Stability Facility they have established to help debt-strapped member countries.
- Ainslie's Maverick Capital Backfires in August. Maverick Capital's Lee Ainslie took a bath last month when his flagship hedge fund racked up a double-digit loss, pushing it solidly into the red for the year, said two people familiar with the results. A smaller more aggressive portfolio performed even worse, losing 23 percent in August, these people said. Ainslie, who oversees about $10 billion, is one of the better-known tech investors in the $2 trillion hedge fund industry. His poor performance in August ranks alongside the downbeat numbers turned in by another hedge fund giant, John Paulson manager of Paulson & Co. Maverick's flagship fund tumbled 11 percent last month, and is now down about 10 percent for the year, the two people familiar with the numbers said.
- BOJ Miyao Warns of Europe Woes, Risks to Japan Recovery.
- Schaeuble Sees Help for Greece Only if Criteria Met. Europe will help Greece reform if it meets criteria set by the "troika" of creditor institutions, but it cannot do more than that, German Finance Minister Wolfgang Schaeuble told a newspaper. "We have great respect for the efforts of the Greek government, but cannot go with aid beyond that which was agreed," he said in comments to be published in Rheinische Post on Wednesday. "It is up to Greece," he added. "If Greece consistently implements the reforms and consolidation steps agreed, it will be able to stand on its own feet," he said.
- Morgan Stanley(MS) Trading, Banking Hurt by Volatility. Market volatility has forced Morgan Stanley to cut back on risk taking in its trading business during the third quarter and led some investment banking clients to delay planned deals, Chief Financial Officer Ruth Porat said on Tuesday. The volatility has also prevented trading clients from taking much risk, Porat said at a conference in New York. Her comments provide further evidence that Wall Street banks are having a difficult quarter and may report disappointing results next month.
- Richard Sulik, chairman of Freedom and Solidarity, one of Slovakia's four ruling parties, said his party is opposed to the proposal to expand the European Financial Stability Facility because the EFSF "is not the right solution for the debt crisis," citing a telephone interview. "The eurozone is just trying to solve the debt crisis with more debt," Sulik said. The best solution for Greece would be for it to declare bankruptcy, Sulik said.
Evening Recommendations
- None of note
- Asian equity indices are -2.0% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 179.0 +3.0 basis points.
- Asia Pacific Sovereign CDS Index 161.75 +2.75 basis points.
- FTSE-100 futures -.81%.
- S&P 500 futures -1.04%.
- NASDAQ 100 futures -1.0%.
Earnings of Note
Company/Estimate
- (PLL)/.85
- (CLC)/.66
8:30 am EST
- The Producer Price Index for August is estimated unch. versus a +.2% gain in July.
- The PPI Ex Food & Energy for August is estimated to rise +.2% versus a +.4% gain in July.
- Advance Retail Sales for August are estimated to rise +.2% versus a +.5% gain in July.
- Retail Sales Less Autos for August are estimated to rise +.2% versus a +.5% gain in July.
- Retail Sales Ex Auto & Gas for August are estimated to rise +.3% versus a +.3% gain in July.
- Business Inventories for July are estimated to rise +.5% versus a +.3% gain in June.
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -3,000,000 barrels versus a -3,963,000 barrel decline the prior week. Distillate supplies are estimated to rise by +700,000 barrels versus a +709,000 barrel gain the prior week. Gasoline inventories are estimated to fall by -500,000 barrels versus a +199,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.85% versus a -.2% decline the prior week.
- None of note
- The weekly MBA mortgage applications report, 30-Year T-Bond Auction, ThinkEquity Growth Conference, Deutsche Bank Tech Conference, Morgan Keegan Industrial/Transportation Conference, Morgan Stanley Global Healthcare Conference, BMO Media/Telecom Conference, CSFB Chemical/Ag Science Conference, Deutsche Bank Transport/Aviation Conference and the (MSFT) financial analyst meeting could also impact trading today.
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