Tuesday, October 25, 2011

Today's Headlines

  • German, French Notes Advance on Debt-Crisis Concerns; Greek Bonds Slide. German and French two-year notes rose, with Germany’s yields dropping the most in seven weeks, amid speculation European leaders will fail to agree on a solution to the region’s debt crisis and avoid a Greek default. The securities extended gains after the U.K. government said a meeting of European Union finance ministers scheduled for tomorrow had been canceled. The EU leaders’ summit will still take place as scheduled, the statement said. Greek notes fell, sending two-year yields toward a euro-era record. Spain sold 3.48 billion euros ($4.83 billion) of bills, and the Netherlands auctioned 2 billion euros of notes. “If there’s any stumbling block or any sign of significant disunity, then without a doubt that will hurt the periphery and support German bonds,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “We have that divergence in terms of spread -- that seems to be the obvious way it will go.”
  • Bigger Bailout Fund for Europe Needs Work as Germany Faces Parliament Vote. Boosting the effectiveness of Europe’s bailout fund will require further talks with investors as German lawmakers prepare to vote on its new powers tomorrow, a European Union document showed. While the European Financial Stability Facility can be bolstered under two models that may be combined and implemented “quickly,” the extent to which the fund is leveraged can only be ascertained after discussions with investors and rating companies, the document provided to German lawmakers said. The draft underscores the gaps remaining in European Union efforts to address the debt crisis as Chancellor Angela Merkel and fellow leaders prepare to return to Brussels tomorrow for a second summit in four days. EU leaders are still jousting with banks over the size of losses they take on Greek bonds while deliberating over leveraging the fund after ruling out tapping the European Central Bank’s balance sheet. “A lot of people will wait to see the detail” of how the EFSF capacity is increased, Kit Juckes, head of foreign-exchange research at Societe Generale SA in London, said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “It’s hard to see that the ECB isn’t going to have to print some of this.”
  • Bank Bond Risk Increases as Finance Ministers' Meeting Canceled. The cost of insuring against default on European bank debt rose as a meeting of European Union finance ministers scheduled for tomorrow was canceled and U.S. consumer confidence unexpectedly fell. The Markit iTraxx Financial Index of credit-default swaps linked to senior debt of 25 banks and insurers increased 7.5 basis points to 242 and the subordinated gauge was six basis points higher at 474, according to JPMorgan Chase & Co. at 4 p.m. in London. “A complete blow up of the summit will be taken as a disaster from the market,” said Alessandro Giansanti, a senior interest-rates strategist at ING Groep NV in Amsterdam. “I think the full package will not be ready for tomorrow. There are too many details to define.” The Markit iTraxx Crossover Index of swaps on 50 companies with mostly high-yield credit ratings climbed six basis points to 714, according to JPMorgan. An increase signals a deterioration in perceptions of credit quality. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.5 basis points to 175 basis points. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 4.5 basis points to 335.
  • Italy Pressured by EU to Boost Economy. European leaders increased pressure on Italian Prime Minister Silvio Berlusconi to say how he will reach budget-reduction targets as German lawmakers prepared to vote on a revamped euro-area bailout package that officials raced to complete before a summit tomorrow. Italy needs to back up commitments with “specific actions” and come up with “clear timing,” European Commission spokesman Amadeu Altafaj said in Brussels today after a crisis Cabinet meeting yesterday failed to announce steps to spur growth. Berlusconi is writing a letter describing initiatives he’s planning to fight the crisis, two Italian officials said, adding that the proposals will be presented at the summit. The focus on Italy underscored a push by leaders to prevent the Greece-fueled debt crisis from swamping the third-biggest euro economy and piling risks onto France and Germany. Policy makers, pressed by politicians and investors around the world, are struggling to devise a plan that persuades markets they can stamp out the contagion.
  • Consumer Confidence Falls to 2-Year Low. The New York-based Conference Board’s household sentiment index slumped to 39.8 in October, the lowest level since March 2009 and less than the most pessimistic forecast in a Bloomberg News survey, the group’s data showed today. Estimates for the confidence index in a Bloomberg News survey of 76 economists ranged from 42.5 to 52. This month’s reading was even lower than the 53.7 average during the 18-month recession that ended in June 2009. The report showed American’s outlooks for employment and incomes soured. The share of consumers who said jobs were plentiful dropped to the lowest level since December 2009, while the proportion expecting their incomes to rise over the next six months decreased to smallest in a year.
  • U.S. Corporate Credit Risk Benchmark Rises as Confidence Sinks. A benchmark gauge of U.S. corporate credit risk rose from the lowest level in more than a month as consumer confidence unexpectedly sank and home prices fell. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 1.9 basis points to 128.1 basis points at 12:18 p.m. in New York, according to index administrator Markit Group Ltd.
  • Reserve Bank of India Raises Rates, Signals End to Cycle on Growth Concern. India raised interest rates for a 13th time since the start of 2010 and signaled it’s nearing the end of its record cycle of increases as the economy cools. Bonds rose and the stock index climbed to near a three-month high. “The likelihood of a rate action in the December mid- quarter review is relatively low,” the Reserve Bank of India said in a statement in Mumbai today after it boosted the repurchase rate to 8.5 percent from 8.25 percent. The Reserve Bank today cut India’s growth estimate, predicting the second-slowest expansion in nine years, and blamed the government’s “expansionary” budget for stoking inflation. “The damage that rate increases are starting to inflict on the economy is getting larger,” said Sanjay Mathur, Singapore- based head of research and strategy for Asia excluding Japan at Royal Bank of Scotland Group Plc. India’s benchmark wholesale-price inflation was 9.72 percent in September, staying above 9 percent since the start of December. By comparison, consumer prices rose 7.3 percent in Brazil, 6.1 percent in China and 7.2 percent in Russia.
  • Oil Rises to 12-Week High. Crude oil for December delivery increased $2.50, or 2.7 percent, to $93.77 a barrel at 1:14 p.m. on the New York Mercantile Exchange. The contract touched $94.65, the highest level since Aug. 2. Futures have rallied 24 percent since Oct. 4.
  • Copper Futures Decline on Concern Europe Struggles to Resolve Debt Crisis. Copper fell for the first time in three sessions as concerns escalated that European leaders are struggling to resolve debt woes. Copper futures for December delivery fell 0.8 percent to settle at $3.4205 a pound at 1:23 p.m. on the Comex in New York.
  • Hong Kong's September Exports Decline for First Time in Almost 2 Years. Hong Kong’s exports declined in September for the first time in almost two years and the government warned the outlook is “bleak,” adding to the risks the city will enter a recession. Overseas shipments fell 3 percent from a year earlier to HK$271.8 billion ($35 billion), the government said on its website today. That compared with a 6.8 percent gain in August. Exports last dropped in October 2009. Elevated unemployment in the U.S. and Europe’s debt crisis are damping economic expansion in the city by weakening overseas demand, Financial Secretary John Tsang said Oct. 16. Trade through Hong Kong is also being hurt by moderating growth in China, the world’s biggest exporting nation. “A prolonged period of low growth in the West, together with a soft landing in China, could mean further downside risk to export growth in the coming months,” Kelvin Lau, an economist at Standard Chartered Plc in Hong Kong, said before today’s report. “This should translate into a bigger drag on overall economic growth.”
  • UPS(UPS) Shares Fall as Overseas Growth Cools. United Parcel Service Inc. (UPS), whose deliveries make it a proxy for the economy, fell in New York trading after declining shipments from Asia to the U.S. curbed growth in the company’s international business. UPS cut its airlift capacity for Asia as shipments to the U.S. decreased, the Atlanta-based company said on a conference call after announcing third-quarter earnings. International deliveries overall increased 4.6 percent, trailing the 6.2 percent gain in the previous three months. UPS fell 1.8 percent to $69.58 at 12:06 p.m. after dropping as much as 3.7 percent, the biggest intraday decline since Sept. 22.
  • 3M(MMM) Declines After Cutting Forecast. 3M Co. (MMM) fell the most in almost a year after the maker of LCD television parts and Scotch-Brite sponges cut its 2011 forecast and posted profit that trailed analysts’ estimates for the first time in 10 quarters. Earnings will be $5.85 to $5.95 a share this year, the St. Paul, Minnesota-based company said today in a statement. 3M had predicted $6.10 to $6.25, including a 22-cent cost related to pension benefits. Electronics sales are slowing after several quarters of what 3M called “very good growth.” The company, whose stock rallied 14 percent this month before today, is seeing the effect of a slowdown in developed countries earlier than other manufacturers because some of its products, such as components for liquid-crystal-display TVs, are tied to consumer demand.
Wall Street Journal:
  • NY Health Firm Will Disclose Data. New York's largest health insurance company has agreed to publicly disclose more data used to justify premium increases. The agreement is part of an effort by state Financial Services Superintendent Benjamin Lawsky to make rate increase filings public, which could result in reducing the number of requested hikes. Lawsky says Tuesday that UnitedHealth Group(UNH) has agreed to end the secrecy now. A law passed in 2010 requires insurers to seek the prior approval of the Department of Financial Services for certain health insurance rate increases. The insurers must use data to support the request. Until now, those detailed filings were kept confidential.
  • China's Shadow Banking System: The Next Subprime?
  • Meeting The Hedge Fund Demon. He is eagerly anticipating an expansion of the European Financial Stability Facility and a recapitalization of European banks. Because he thinks both will ultimately fail. "Turning the EFSF into a monoline insurance company for European sovereigns will not prevent default, and will only temporarily stem fear," he explains. He expects the EFSF expansion to temporarily calm markets, leading to tighter spreads on credit default sw span#ExplainsLink a, span#ExplainsLink a img, span#ExplainsLink a:visited img, span#ExplainsLink a:visited {border:none;} aps. But this effect will be fleeting. Eventually spreads will blow out again.
  • Will US Taxpayers Be Drawn Into Euro Bailout Fund? Here’s your quick translation of the report that the International Monetary Fund is “considering” a plan to back a special investment vehicle being proposed as part of the expansion of the European Financial Stability Facility. Translation: The US taxpayer may wind up funding the EFSF bailout fund.
  • Greenspan: Why European Union Is Doomed to Fail.
  • EU Summit Unlikely to Reach Deal: Official. A European official says there is now serious doubt that EU heads of government will agree on a broad package of financial measures at a summit meeting in Brussels on Wednesday.
Business Insider:
  • IMF Is 'Considering' Participating In EU Bailout Fund. This means a bailout from the U.S. The IMF is "considering" a plan to back a special purpose investment vehicle (SPIV) that would leverage the European Financial Stability Facility, according to Reuters. Analysts have been chattering about the size of IMF involvement in the eurozone bailout, but this is the first confirmation that the fund is actively thinking about playing an even bigger role than it is now. That would equate with a substantial contribution from the U.S., by far the largest IMF subscriber, with a quota of 17.72%.
  • Citi's(C) Steven Englander: European Leaders Are Ignoring One Thing, And It Will Come Back To Haunt Them. The one area that the European leaders are ignoring, and which will come back to haunt the euro, is growth.
Zero Hedge:
Insider Monkey:
LA Times:
Open Secrets:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 18% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).
  • Heavy Weapons Lying Around Unsecured in Libya - HRW. Large numbers of weapons, including surface-to-air missiles that could down commercial airliners, are still strewn around unguarded in Libya more than two months after Muammar Gaddafi was toppled in a civil war, Human Rights Watch said on Tuesday.The New York-based group said it had seen two sites near Sirte, hometown of the late Gaddafi, containing surface-to-air missiles, tank and mortar rounds, munitions and thousands of guided and unguided aerial weapons. "Surface-to-air missiles can take down civilian aircraft, and the explosive weapons can be converted easily into car bombs and IEDs (improvised explosive devices or bombs) that have killed thousands in Iraq and Afghanistan," Peter Bouckaert, the group's emergencies director, said in a statement. He said Human Rights Watch had been warning the leaders of Libya's National Transitional Council (NTC) and its NATO supporters for months about stockpiles of unsecured weapons that had been regularly raided.
  • Gold Surges as U.S. Consumer Turn Gloomy. Gold rallied sharply on Tuesday after data showed U.S. consumers were at their gloomiest in 2-1/2 years this month, which undermined the dollar and fed safe-haven demand for bullion. Earlier, a European Union spokesman said a meeting of finance ministers on Wednesday had been canceled, while euro zone officials said leaders from the single currency bloc would be unlikely to provide many hard numbers to flesh out their response to the debt crisis. EU leaders are to meet on Wednesday to discuss tentative plans for Greece's debt to be reduced, European banks to be recapitalized and the euro zone's EFSF rescue fund to be increased to provide partial insurance for sovereign bonds. Spot gold was last up 2 percent on the day at $1,685.70 an ounce, having risen by 4.0 percent over the last three trading days, its best three-day performance in two months.
  • Plans to increase the euro rescue fund's firepower are aimed at supporting Italy and should be rejected, citing German Free Democratic Party lawmaker Frank Schaeffler. The euro region's sovereign debt crisis would take a "new dimension" if Italy would require access to the European Financial Stability Facility, citing Schaeffler. Even a leveraged EFSF won't be big enough to support Italy, Schaeffler said.

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