Wednesday, October 19, 2011

Today's Headlines

  • Euro Leaders Meet to Break Debt-Crisis Gridlock. Euro-area leaders assembled in Frankfurt seeking to narrow divisions four days before a summit to solve the sovereign debt crisis. The role of the European Central Bank in bolstering rescue efforts, hurdles to leveraging the 440 billion-euro ($607 billion) bailout fund and opposition from banks to forced recapitalization and deeper writedowns on Greek debt are slowing efforts to find a solution. French President Nicolas Sarkozy left Paris as his wife was giving birth to meet German Chancellor Angela Merkel, ECB President Jean-Claude Trichet, and International Monetary Fund Managing Director Christine Lagarde, according to a spokesman for Sarkozy.
  • EU Rescue Fund Insurance Plan May Not Translate Into Debt Crisis 'Bazooka'. The bond-insurance program European Union leaders are considering to boost their bailout fund’s firepower may not prove convincing to investors as a solution to the sovereign debt crisis, analysts and economists said. Even if euro-area leaders agree to leverage the temporary 440 billion-euro ($609 billion) European Financial Stability Facility by using it to insure a portion of national bond sales, it may not have enough capacity to provide loans to countries and support banks. Turning the fund into a “bond insurer is not enough unless it’s well capitalized in advance, so markets understand that EU governments are ready and willing to take losses and make good on obligations of either Greece or of the banks that will be impaired when Greece et al default,” Phillip Swagel, assistant U.S. Treasury secretary for economic policy in the George W. Bush administration, said by e-mail late yesterday. As EU leaders prepare for an Oct. 23 summit, momentum has gathered around a proposal for the EFSF to guarantee a portion of new borrowing by countries under pressure and for bondholders to take bigger losses on Greece. European Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that Greek bondholders need to play a bigger role. German Finance Minister Wolfgang Schaeuble, who has consistently opposed expanding the fund’s resources, has told lawmakers that its leverage should be increased, according to Financial Times Deutschland.
  • Papandreou Vows Further Austerity as Strikes Shut Greek Schools, Hospitals. Greek protesters clashed with police in central Athens after Prime Minister George Papandreou vowed to push through a further round of austerity and appealed to Europe to cut Greece’s debt load at an Oct. 23 summit. Riot police in white helmets used tear gas to hold back demonstrators from the parliament building in the Greek capital today as lawmakers debated the extra austerity measures demanded by Greece’s international creditors to keep aid flowing. Police said about 70,000 people gathered in Athens at the start of a 48-hour strike in one of the biggest protests yet against Papandreou’s latest program of cost-cutting and tax rises. “Without the measures, the 2011 budget won’t be met, neither will the budget in 2012,” Finance Minister Evangelos Venizelos told lawmakers in comments broadcast live, as groups of hooded protesters in gas masks lobbed Molotov cocktails at the riot police outside. “We are giving the battle of battles up to Sunday evening.” With a four-seat parliament majority, Papandreou is banking on his Pasok party lawmakers to face down public anger and pass the bill in a vote due tomorrow, when the unions have called more protests. A test of support for the bill will be held in parliament later today. The package, which follows a round of austerity measures passed in June, includes new taxes, more cuts to pensions and wages and plans to dismiss 30,000 state workers.
  • Derivatives Breaking With Bonds as PrimeX Falls: Credit Markets. Mortgage derivatives tied to the biggest U.S. home loans are plummeting in a divergence from the underlying bonds as firms from TCW Group Inc. to Wells Fargo & Co. say the credit-default swaps are sending false signals.
  • BlackRock(BLK) Seeks Ban on ETF Label for Funds Using Derivatives. BlackRock Inc., the world’s biggest provider of exchange-traded funds, urged U.S. lawmakers to bar products that rely on derivatives from being marketed as ETFs to avoid confusion with their traditional counterparts. “Today some sponsors have introduced new products of increased complexity that carry greater risk and may not be appropriate for retail ‘buy and hold’ investors,” BlackRock’s Noel Archard told a Senate subcommittee in Washington today, according to a copy of his prepared remarks. “BlackRock believes that they should not be labeled ETFs.”
  • Consumer Prices in U.S. Rise at Slower Pace. The cost of living in the U.S. rose in September at the slowest pace in three months, signaling inflation may moderate as Federal Reserve officials have predicted. The consumer-price index climbed 0.3 percent from the prior month, in line with the median projection of economists surveyed by Bloomberg News, a report from the Labor Department showed today in Washington. Excluding volatile food and fuel costs, the so-called core rose 0.1 percent, less than forecast and the smallest gain since March.
  • Housing Starts in U.S. Rise 15%, Beat Forecast. Builders began work on more U.S. homes than forecast in September and consumer prices climbed at the slowest pace in three months, supporting Federal Reserve forecasts for a pickup in growth and a moderation in inflation. Housing starts jumped 15 percent to a 658,000 annual rate, the most since April 2010, the Commerce Department reported today in Washington. Data from the Labor Department showed the cost of living climbed 0.3 percent from August, in line with the median projection of economists surveyed by Bloomberg News. The increase in building was led by a surge in construction of apartments and other multifamily dwellings that may continue to support the industry as the housing slump turns more Americans into renters.
  • Bullard Says Fed Policy 'Appropriately Easy,' Relapse Unlikely.
  • Rice May Rally as Thai Floods, State Buying Hand Export Advantage to India. Rice may advance 19 percent after floods cut supplies in Southeast Asia, including in the biggest shipper Thailand, and that nation’s government started a state- purchasing program, according to the country’s largest packer. The price of Thai parboiled rice may climb to $750 per metric ton on a free-on-board basis by year-end from $630, while the same product from India may gain to $500 per ton from $480, C.P. Intertrade Co. President Sumeth Laomoraphorn said in an interview in Bangkok. Parboiled rice is soaked, steamed and dried before milling, a technique that preserves vitamins. Costlier rice may push up global food costs and elevate inflation, complicating the task for the world’s central bankers as they seek to sustain economic growth hurt by the euro zone debt crisis.
  • Copper Drops for a Third Day as Europe's Debt Crisis May Cut Into Demand. Copper futures fell for the third straight day on concern that demand will ease as Europe’s debt crisis persists and economic growth slows in China, the world’s largest metal buyer. “Copper is under pressure because of a theme of slowing economies throughout the world,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “Prices will need to go lower to attract Chinese buyers as there’s ample supply” in the country, he said. Copper futures for December delivery dropped 1.9 percent to $3.297 a pound at 10:29 a.m. on the Comex in New York. The price fell 1.4 percent in the previous two days.
  • Top Income in U.S. Is... Gasp! Washington, DC Area. Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show. The U.S. capital has swapped top spots with Silicon Valley, according to recent Census Bureau figures, with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046.
  • America's Bills About to Exceed Its Paycheck: Chart of the Day.
Wall Street Journal:
  • EFSF Talks Focus On Collateral for Guarantees. European officials debating ways to increase the effectiveness of their bailout fund are focusing on using the fund to provide collateral to back up bond issues by troubled countries, according to people familiar with the matter. Lawyers for governments and European institutions have warned that using the bailout fund to provide direct guarantees would violate the European Union's restrictions on bailouts, pouring cold water on the widely circulated notion that the European Financial Stability Facility on its own could simply stand as a guarantor for euro-zone bond issues.
  • Oil Giants in $100 Billion Iraq Investment. Exxon Mobil Corp., BP PLC and Italy's Eni SpA will spend around $100 billion to upgrade three oilfields in southern Iraq, the top energy adviser to the Iraqi Prime Minister said Wednesday.
  • Hedge Fund Assets Dropped To $1.97T Despite Inflows. Hedge fund assets shrank on performance declines, despite investors continued to allocate new capital to the industry.
  • The IMF Should Pull The Plug On The Euro. Every financial crisis in the end boils down to one very simple question. Who pays? The euro EURUSD -0.05% debacle has now reached that point. After the G-20 summit in Paris last weekend, there is increasing talk of getting the rest of the world to help bail the single currency out of the mess it finds itself in.
Business Insider:
Zero Hedge:
Washington's Blog:
Breaking Views:
  • China, Grow Your Troubles Away. Credit Suisse estimates 12 percent of bank loans could go bad, equivalent to 17 percent of GDP. But the financial system has burst its banks. So-called “shadow banking”, including sketchy underground lending, could be 15 trillion yuan, says Societe Generale, equivalent to around a third of GDP this year. No-one knows how much of that will go bad, or in what form the government may be called in to plug the hole, but the bill will be high.
Rasmussen Reports:
  • Finnish PM: No Great EU Solution on Sunday. "I don't believe that such solutions could be made on Sunday that would ... fix everything. But I'm certain that there will be decisions that point to right direction," Jyrki Katainen said in a TV interview with public broadcaster YLE shown on Wednesday. Finnish prime minister said he did not believe the EU summit on Sunday could reach powerful decisions to fix euro zone debt crisis. "We live in a such a deep crisis that it can't be changed with one meeting, and that is why the expectations can be lowered a bit," he said. Katainen's comment echo German Finance Minister Wolfgang Schaeuble's earlier warning against unrealistic summit expectations. Dispute between France and Germany over how to increase the firepower of the region's bailout fund is holding up negotiations, French President Nicolas Sarkozy said on Wednesday.
USA Today:
  • Germany's government expects the economy to expand 1% next yer after 2.9% growth in 2011, citing people in the administration.
Bank For International Settlements:

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