Friday, October 07, 2011

Today's Headlines

  • Spain, Italy Credit Ratings Cut by Fitch on European Debt Crisis. Italy and Spain had their long-term issuer default ratings cut by Fitch Ratings, which cited factors including their vulnerability to the “Euro zone crisis.”Italy had its foreign and local currency long-term issuer default ratings cut to ‘A+’ from ‘AA-,’ while Spain had the same set of ratings cut to ‘AA-’ from ‘AA+.’ The outlook for both is negative. Fitch also said it was cutting its estimate of Spain’s medium-term growth. The ratings company maintained a rating watch negative on Portugal, indicating the nation may still be cut. Portugal’s foreign and local currency long-term issuer default ratings are ‘BBB-.’ Fitch said it still intends to complete its review in the fourth quarter.
  • Moody's Lowers Its Senior Debt, Deposit Ratings for Nine Portuguese Banks. Nine Portuguese banks had their debt ratings cut by Moody’s Investors Service by one or two levels, which cited concern about funding, bad loans and holdings of government debt. Moody’s cut the “standalone” debt ratings of three banks, Banco Espirito Santo SA (BES), Banco Comercial Portugues SA (BCP) and Banco BPI SA (BPI), by two levels, the ratings company said in a statement today. The downgrades for BCP and BPI reflected Greek sovereign- debt holdings, potential lack of access to wholesale debt markets and “increased asset risk” caused by holdings of Portuguese government bonds, Moody’s said. The moves conclude a review begun on July 15, when Portugal’s sovereign rating was cut to Ba2 with a negative outlook from Baa1.
  • ATP of Denmark Snubs French, Italian Bonds for Collateral. ATP, Denmark’s biggest pension fund, said it renegotiated contracts to avoid having to accept top- rated French sovereign bonds as collateral for funding. The 711 billion-kroner ($122 billion) fund reworked swap agreements to exclude the use of bonds sold by France, Italy and other southern European governments as collateral against equity derivatives, interest-rate swaps and repurchase agreements, or repos, Chief Executive Officer Lars Rohde said. Hilleroed, Denmark-based ATP holds 173 billion kroner of collateral, according to its 2011 half-year report. “We have changed the contracts,” Rohde said in an interview with Bloomberg’s Risk Newsletter this week. “We put ourselves in a position where we only receive the very highest quality collateral, which is German, Danish and U.S. government bonds.” The cost of insuring against default on French debt almost trebled in the past six months amid concern the nation will lose its top credit rating while having to bail out lenders hurt in the sovereign crisis.
  • Payrolls Beat Forecast as Concerns Ease. American employers added more workers in September than forecast and figures for the prior two months were revised higher, easing concern the economy is tipping into another recession. Payrolls rose by 103,000 after a 57,000 gain in August, the Labor Department said today in Washington. The median forecast in a Bloomberg News survey of economists called for an increase of 60,000. The figures reflected the end of a strike at Verizon Communications Inc. (VZ) that brought 45,000 people back to work. The jobless rate held at 9.1 percent. More Americans who would like a full-time job are settling for part-time work instead. They are counted in the underemployment rate, which increased to 16.5 percent, the highest this year, from 16.2 percent. The number of people working part-time for “economic reasons” jumped 444,000 to 9.3 million. Unemployment has exceeded 8 percent since February 2009, the longest stretch of such elevated joblessness since monthly records began in 1948.
  • U.S. Regional Mall Vacancies at Decade High. Vacancies at U.S. shopping malls climbed to the highest in at least a decade as feeble employment growth restrained consumer spending, Reis Inc. (REIS) said. Regional and super-regional mall vacancies rose to 9.4 percent in the three months ended Sept. 30 from 8.8 percent a year earlier and 9.3 percent in the second quarter, according to the New York-based property-research company. It was the highest since Reis began publishing the data in 2000. Store owners’ revenue is falling as the U.S. unemployment rate hovers above 9 percent, depressing consumer confidence, and online stores capture more customers.
  • China Baby Formula Maker Buying Arsenic Debt Reveals Unsecured Trust Loans. A Chinese baby-formula maker selling imported Australian milk to safety-conscious parents invested in the risky debt of lead, arsenic and cadmium refiners, seeking higher returns for its cash. The uncollateralized investment, sold by a middleman known as a trust, promises to pay Ausnutria Dairy Corp. about double China’s benchmark savings rate. It’s an example of how companies are undermining government efforts to cool lending that has led to soaring property prices and inflation of 6.2 percent, near a three-year high.
  • Copper Traders the Most Bullish Since August After Biggest Rout Since '08. Copper traders and analysts are the most bullish since August on speculation prices at a one-year low will spur China, the world’s largest buyer, to build stockpiles. Gold, sugar, corn and soybeans may also climb. Ten of 15 respondents surveyed by Bloomberg expect copper to rise next week and 5 predicted a drop, the most bullish reading in six weeks. It’s the first time in four weeks that the separate surveys forecast gains for all five commodities.
Wall Street Journal:
  • AFL-CIO President Visits Wall Street Protesters. The Wall Street protesters have gotten a boost from the leader of a big trade union federation. AFL-CIO President Richard Trumka appeared Friday morning at Manhattan's Zuccotti Park. Trumka said he came to show his support and hear the protesters' perspective. He also brought bagels, water and other supplies. Protesters have been camping out for weeks at the park near Wall Street.
  • ECRI Weekly Leading Index Still Drilling Downward. (graph) The Economic Cycle Research Institute, which has declared that a recession is coming — and, like the whacking of Tommy DeVito in Goodfellas, “we couldn’t do nothing about it” — offers up another piece of evidence this morning. Its weekly leading index fell again this week, and its rolling growth rate dropped to -8.1%, the lowest in at least a year.
  • Solyndra Casts Shadow on US Energy Loan Aid. Political furor over the Solyndra bankruptcy has dealt a body blow to the idea that the U.S. government should try to help clean tech start-ups through the costly "valley of death" to commercial viability.
Business Insider:
Zero Hedge:
New York Times:
  • Hedge Funds' Next Target: Hungary? French and Belgian bank stocks have crashed and the bond yields of Greece, Italy and Portugal may be peaking. Now hedge funds and bond vigilantes have begun to zero in on Hungary as the fashionable European country to bet against.
The Daily Caller:
  • White House Changes Tune on Double-Dip Recession. White House officials are using a new set of talking points to sell their stimulus plan: The economy’s possible slide into a second recession. During the summer, officials denied a double-dip recession was on the horizon. But yesterday and today, President Barack Obama and his deputies said the $447 billion jobs-stimulus bill is needed to prevent a “double-dip recession.”
  • Michael Bloomberg Tells Occupy Wall Street Protestors to Lay Off Banks. New York Mayor Michael Bloomberg slammed the Occupy Wall Street protesters on Friday, saying their attacks on banks could harm one of the city’s major employers. “Everyone’s got a thing they want to protest, some of which is not realistic,” Bloomberg said during his weekly radio show on Friday, according to The Village Voice. “And if you focus for example on driving the banks out of New York City, you know those are our jobs … You can’t have it both ways: If you want jobs you have to assist companies and give them confidence to go and hire people.”
  • Moody's Cuts Credit Ratings on UK Banks RBS and Lloyds. Credit rating agency Moody's downgraded Britain's part-nationalized banks Lloyds and Royal Bank of Scotland on Friday, although Britain's finance minister said UK banks were well-placed to cope with a European debt crisis. The cuts to RBS and Lloyds formed part of a broader downgrade of 12 British financial companies by Moody's, which had already been flagged by the agency earlier in the year. Moody's cut RBS by two notches to A2 from Aa3, and downgraded Lloyds TSB by one notch to A1 from Aa3. It also cut its ratings on Santander UK, the Co-Operative Bank, Nationwide Building Society and seven other smaller British building societies.
  • Hedge Funds Slide Deeper Into The Red In September. For hedge funds, September was even worse than August. The average fund lost 3.7 percent last month after dropping 3.4 percent in August, according to data released on Friday by industry consultant Hennessee Group. The third quarter is being called the worst in three years, and the average hedge fund is now down 5.2 percent this year. For many of the industry's most established stars, the news is even worse.
  • Brazil Inflation Hits 6-Year High, But Rate Cut Seen.
  • Germany, France Split on Bank Aid Before Summit. Germany and France were split ahead of crucial talks on Sunday over how to strengthen shaky European banks and fight financial market contagion to prepare for a possible Greek default. Under strong U.S. and market pressure -- and further downgrades to Italy and Spain late on Friday -- Chancellor Angela Merkel and President Nicolas Sarkozy will try to bridge differences on how to use the euro zone's financial firepower to counter a sovereign debt crisis that threatens the global economic recovery. A German source said Paris wanted to be able to tap the euro zone's 440 billion euro rescue fund to recapitalise its own banks, which have the largest exposure to peripheral euro zone debt, while Berlin insisted the fund should be used only as a last resort when no national funds are available. After meeting Dutch premier Mark Rutte, Merkel confirmed the German position was that the European Financial Stability Facility was a backstop to be used "only if that country is unable to cope on its own". A French Treasury source told Reuters that Paris believed banks unable to raise capital on the open market should be able to tap the fund, but talk of divergences with Berlin was premature since the issue had not yet been debated.
  • US Coal Consumption Down 13% Last Week.
Financial Times:
  • The Mystery of US Banks' European Exposure. This might just be the most important piece of paper in US banking right now:
  • Russia Urged to Monitor Banks. The International Monetary Fund has called for greater oversight of Russia’s banks, warning that the $14bn Bank of Moscow bail-out this summer raised serious concerns about the industry’s practices and transparency. Antonio Borges, the IMF’s Europe director, said the central bank’s discovery of a massive hole on Bank of Moscow’s balance sheet following its acquisition by state lender VTB caused a loss of confidence in the Russian banking sector.
Frankfurter Allgemeine Zeitung:
  • European Union banks may need as much as $53.7 billion in fresh capital should they write down the value of debt issued by some European countries, citing calculations by JPMorgan.
  • The European Commission proposed cutting countries' access to structural aid funds if they repeatedly breach the region's Stability and Growth Pact, citing a presentation by European Regional Affairs Commissioner Johannes Hahn.
  • Germany should seek a collateral deal modeled on the Finnish agreement in exchange for aid to debt-strapped Greece, junior lawmakers from Chancellor Angela Merkel's coalition parties said. If Greece doesn't sell government property, pledging it as collateral for guarantees should be considered, Oliver Luksic, a member of parliament for Merkel's Free Democratic Party coalition partner, was quoted as saying. The government should "definitely" check whether it is possible to demand collateral from Greece, Christian Hirte, a lawmaker from Merkel's Christian Democratic Union, said.
  • Peter Gauweiler, a federal lawmaker from the Bavarian sister party of Chancellor Angela Merkel's Christian Democrats, has urged German President Christian Wulff to veto enhancements to the euro rescue fund that were passed in parliament last week. The last to strengthen the EFSF is violating the German constitution, Gauweiler wrote in a letter to Wulff, Bild said.
  • China Shipbuilders' Deliveries Dropped 9% Year-Over-Year in August. Total deliveries were 4.7 million DWTs, citing the National Development and Reform Commission. The industry had 175.8m DWTs of orders on hand Aug. 31, down 9.4% y/y and 10% from end-2010. Eight-month orders fell 37% to 28.1 DWTs. August new orders plunged 60% to 4.49m DWTs. 40% of dockyards have had no new orders in 2011.

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