Tuesday, October 11, 2011

Today's Headlines

  • Slovakia May Approve EFSF After Rebel Party Topples Radicova's Government. Slovakia may approve the euro region’s retooled bailout fund this week after a political storm that is likely to topple Prime Minister Iveta Radicova’s ruling coalition. The largest opposition party, which said it won’t back the motion today, will support the revamped European Financial Stability Facility in a second vote, should the first try fail and bring down the government, Robert Fico, the group’s leader, told reporters in the capital Bratislava. That would give the measure a majority. There is no date set for a repeated vote. Slovakia is the only country in the 17-nation euro area that hasn’t ratified the measure, following approval in Malta yesterday. The Freedom of Solidarity party, one of the members of Radicova’s four-way coalition, said it won’t support the EFSF even after the premier tied a no-confidence motion on her government, denying the plan a majority. “The government is set to fall, but the bailout fund will eventually be approved,” Grigorij Meseznikov, the head of the Public Affairs Institute, a think-tank in Bratislava, said by phone after Fico’s comments. “It could take a few days, though.” Parliament convened for the session with the EFSF on the agenda at 1 p.m. in Bratislava. There were 12 remaining deputies registered to speak as of 7:50 p.m.
  • Rate Swap Spreads Rise With Europe Plan Elusive: Credit Markets. A gauge of stress in credit markets reached its highest level in 16 months even as stocks rallied, a sign that short-term funding concerns have persisted as European leaders recapitalize the region's banks. The two-year interest-rate swap spread, which measures perceived credit risk, climbed 5.75 basis points last week, the biggest jump since June, to 39 basis points, according to data compiled by Bloomberg. The gap expanded 9 basis points in the two weeks ended Oct. 7 as the MSCI World Index of global stocks climbed 2.85 percent.
  • Greece's 2011 Deficit May Close at 9.1% of GDP, Kathimerini Says. Greece’s 2011 budget deficit may be 9.1 percent of gross domestic product, according to a European Union, European Central Bank and International Monetary Fund mission, Kathimerini said. The so-called troika, which completed its fifth review of the country’s economy, found Greece will miss the original target of 7.5 percent of GDP as well as a revised target of 8.5 percent for this year in the 2012 budget draft, the Athens-based daily reported, without citing anyone.
  • European Banks May Face Forced Recapitalization, Welt Says. European governments are considering setting banks a deadline for boosting their capital levels, the German newspaper Die Welt said, citing an unidentified person involved in the negotiations. Under the plan, governments would force banks to accept public funds to increase their capital after the deadline has expired, the newspaper said today. For a public-funding guarantee to calm markets, European Union countries would have to act jointly, the newspaper cited the person as saying. While there is no agreement on the proposal at this time, a decision may be taken within the next two weeks, the newspaper cited unidentified people involved in the negotiations as saying.
  • U.S. Charges Two in Iranian Plot to Kill Saudi's US Ambassador. The Justice Department charged two men, one allegedly a member of a secret Iranian military unit and the other with dual U.S.-Iran citizenship, in a plot to use a weapon of mass destruction to kill Saudi Arabia’s ambassador to the U.S. Manssor Arbabsiar and Gholam Shakuri were charged in a purported conspiracy to murder Ambassador Adel Al-Jubeir in a plan hatched earlier this year, according to papers filed in Manhattan federal court. Arbabsiar, a naturalized U.S. citizen, wired more than a $100,000 to the U.S. as part of the alleged plot, the government said. U.S. Attorney General Eric Holder said today that the U.S. will hold Iran responsible for any terrorist actions tied to the plot, which he said was sponsored by the Iranian government. He called the conspiracy a “flagrant” violation of international law.
  • Chanos Says China Banks 'Deteriorating' as Government Buys Stock. Jim Chanos, the hedge-fund manager who’s been betting that Chinese bank stocks will tumble, said a rally spurred by government purchases of the shares hasn’t changed his bearish outlook. The MSCI China Financials Index surged 6 percent today after state-run Central Huijin Investment Ltd. started buying shares in the four biggest Chinese lenders. The gauge of banks, insurers and developers had tumbled as much as 43 percent in 2011 through Oct. 4, sending its price-to-earnings ratio to a record low of 5.6 on concern that slowing economic growth will spur bad debts after a three-year credit boom. “The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating,” Chanos, founder of New York-based hedge fund Kynikos Associates, said in a Bloomberg Television interview. Chanos, who told Bloomberg News last month he was selling short shares in “virtually all of the large banks in China,” said today that the country’s property market is in the “first parts of a very serious pullback.” China’s home transactions fell during last week’s public holidays after residential prices posted their first monthly decline in a year, according to Soufun Holdings Ltd., China’s biggest real estate website owner. “The property market is what investors ought to be watching, because that drives everything in China,” Chanos said. The decline in property sales volume last week, traditionally a peak period for Chinese developers, may mark a turning point for a property market that had defied the government’s recent efforts to contain surging home values, according to Credit Suisse Group AG.
  • Copper Drops Most in a Week as China's Exports May Ebb, Europe Woes Mount. Copper fell the most in a week on persistent concern that metal demand will wane as the global economy falters, Chinese exports wane and Europe’s debt woes escalate. Chinese export growth declined to 20.5 percent in September from 24.5 percent a month earlier, according to economists’ estimates compiled by Bloomberg. European Central Bank President Jean-Claude Trichet said the debt crisis threatens the financial system. Equities in the U.S. and Europe slumped. “China’s economy is contracting, and we are not seeing any greater demand there,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “Europe has real troubles that will drag on the world economy, and it will remain a concern for the next year at least.” Copper futures for December delivery fell 2.6 percent to $3.28 a pound at 10:46 a.m. on the Comex in New York. A close at that price would mark the biggest drop for a most-active contract since Sept. 30. In the third quarter, copper tumbled 26 percent, the most since 2008. The metal touched a 14-month low of $2.994 on Oct. 3. “With respect to China, not only are there growing concerns about growth prospects, but renewed attention is being placed on the state of Chinese banks and the billions of dollars of nonperforming loans they are carrying,” Edward Meir, a senior commodity analyst at MF Global Holdings Ltd. in Darien, Connecticut, said in a report.
  • Banks May Face Fraud, Municipal Claims After Foreclosure Accord. U.S. banks may still face state securities-fraud claims and municipal lawsuits over unpaid mortgage fees under a settlement that is “getting closer,” the official leading talks for state attorneys general said. Iowa Attorney General Tom Miller said in an interview yesterday that any settlement wouldn’t prevent a growing number of municipalities from suing banks for allegedly cheating them out of millions of dollars in filing fees, or individual states from pursuing securities claims against banks. “They won’t be released. They will go forward,” Miller said about securities claims brought by states. “There will be ongoing litigation” against the banks, he said.
  • Egyptians Rally After Clashes Between Christians and Army. Hundreds of mourners carried the body of a protester killed in clashes between Coptic Christians and security forces through Cairo’s Tahrir Square, the site of protests that brought down President Hosni Mubarak. Egypt’s ruling military council, which took over from Mubarak in February, ordered the Cabinet to form a fact-finding committee to investigate the Oct. 9 violence. The clashes, in which at least 25 people died, were the most deadly since Mubarak’s ouster. Sectarian tensions have increasingly turned violent amid complaints about a lack of security and fears expressed by many Christians about a stronger role for Islamists in post-Mubarak Egypt, where parliamentary elections are scheduled to start on Nov. 28. The fighting erupted while Christians were protesting an attack on a church in southern Egypt. “If these protesters hadn’t been Christians, they wouldn’t have been treated that way,” Emad Gad, an analyst at the Al Ahram Center for Political and Strategic Studies in Cairo, said in a telephone interview. “This is a watershed moment for Egypt.” Thousands of mourners chanted against the military during a mass funeral of 17 Christian protesters held late yesterday in the Coptic Christian Cathedral in Cairo, the Associated Press reported.
  • Volcker Rule Plan Released by Regulators. U.S. regulators requested public comment on Dodd-Frank Act restrictions that would ban banks from making short-term trades for their own accounts and prevent them from owning or sponsoring hedge funds and private-equity funds. The language of the rule is little changed from drafts that have been leaking in recent weeks. It would ban banks from taking positions held for 60 days or less, exempt certain market-making activities, change the way traders involved in market-making are compensated and make senior bank executives responsible for compliance. The board of the FDIC voted 3-0 today to seek comments on the proposal through January 13. The Federal Reserve also said it would accept feedback by that date.
  • Chanos Says He's Shorting Vale, Other Companies With China Ties. Jim Chanos, founder of New York- based hedge fund Kynikos Associates, said he’s betting against Vale SA and other commodity-related companies with ties to China. Vale, the world’s biggest iron ore producer and a major China exporter, is building “a fleet that is larger than the U.S. Navy,” Chanos said today at the GAIM/GMA conference in New York. Rio de Janeiro-based Vale shipped about 41 percent of its total iron ore and pellet sales to China in the first quarter. “Vale is one of the more aggressive miners that has capital expenditure closely tied to China,” Chanos said in an interview. Chanos said he’s also betting against cement producers, without naming them, and reiterated that he’s shorting Chinese banks and property developers.
Wall Street Journal:
  • Slovakia Dithers on European Bailout Vote. Slovakia's lawmakers were scrambling to vote on a crucial expansion of the euro zone's bailout fund, but their slow progress Tuesday renewed concerns about prospects for the region, while the European Central Bank's president warned the crisis has "reached a systemic dimension." Slovakia, the poorest country in the bloc, is the last of the 17 euro-zone countries to vote on the €440 billion ($600.34 billion) European Financial Stability Facility, which was agreed upon by euro-zone members in July to address the euro zone's debt crisis.
  • U.S., U.K. Regulators to Weigh High-Frequency Registration. Top market regulators of the U.S. and the U.K. this week will discuss the idea of formally registering high-speed electronic trading firms, the chairman of the U.S. Commodity Futures Trading Commission said Tuesday. Such a move could give regulators a better idea of the identities of the often small firms that use computer-driven strategies to power a big chunk of each day's trade in stocks, futures and options markets.
  • Christie to Endorse Romney for President.
  • Wall Street Job Losses Are Seen Hitting 10,000.
Business Insider:
Zero Hedge:
  • EBA Demands European Banks to Achieve 7% of Core Tier 1 Ratio in Internal Stress Tests. EU Banking regulator demands banks to achieve a core tier one ration of 7 pct in internal stress tests, - Reuters quotes a regulatory source as saying. But it is not clear whether capital qualifying for the core tier one will be defined as per Basel III or Basle 2.5. Source added that banks failing meet this will be asked to bolster their capital. Source expects a significant number of banks to fail in the current internal stress tests.
  • Obama Jobs Bill May Not Get 51 in Senate. President Barack Obama’s jobs plan is at risk of getting less than 51 votes Tuesday evening in the Senate as a handful of politically vulnerable moderate Democrats hold out on the president’s signature economic proposal. Adding to the uncertainty, Sen. Jeanne Shaheen (D-N.H.) who supports the proposal, may be a no-show due to a scheduling conflict, potentially leaving Democrats short of the symbolic simple majority on the jobs bill.
  • S&P Cuts 10 Spanish Banks, Including Santander, BBVA. Standard & Poor's on Tuesday downgraded the credit ratings of 10 Spanish banks, saying that dimming economic prospects for the country will continue to hurt the banking sector in the next 15-18 months. Among the banks downgraded were Santander and BBVA, the country's largest banks. S&P also revised the rating outlooks of four banks to negative from stable, and placed one bank on CreditWatch negative. The banks downgraded were:
Financial Times:
La Figaro:
  • Estonia wants the EFSF to be ratified as soon as possible and doesn't believe that the amount in the facility should be increased, citing the country's prime minister Andrus Ansip.
European Systemic Risk Board:
  • Introductory Statement by Jean-Claude Trichet. Let me start by describing the current situation and the actions that, in our view, need to be taken. The crisis has reached a systemic dimension. In a press release published after the ESRB General Board meeting of 21 September, we stated the following: “ Over the last months, sovereign stress has moved from smaller economies to some of the larger EU countries. Signs of stress are evident in many European government bond markets, while the high volatility in equity markets indicates that tensions have spread across capital markets around the world. The situation has been aggravated by the progressive drying-up of bank term funding markets. The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. This threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond.

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