Thursday, October 27, 2011

Today's Headlines

  • European Stocks Climb on Debt-Crisis Deal; Banks Lead Gains. European stocks rallied to the highest in 12 weeks after the region’s leaders agreed to expand a bailout fund to halt the sovereign debt crisis. BNP Paribas (BNP) SA, France’s biggest bank, and Deutsche Bank AG (DBK), Germany’s largest, surged at least 15 percent as policy makers decided to boost the firepower of the European rescue fund to 1 trillion euros ($1.4 trillion). PPR SA, the French owner of the Gucci luxury-goods brand, jumped 5.4 percent after third-quarter sales surpassed analyst estimates. The Stoxx Europe 600 Index rose 3.6 percent to 249.42 at the close, the highest since Aug. 3. The index has rallied 16 percent from this year’s low on Sept. 22 amid growing speculation that policy makers would agree on a solution to the region’s debt woes. “Some of the fear, which has been the dominant factor in the market, has been removed,” said Pierre Mouton, a fund manager who helps oversee $7.5 billion at Notz Stucki & Cie. in Geneva. “Europe came to an agreement and has a plan. This allows financial stocks to rise because there is no longer the specter of nationalization. There is a sense of relief for the banking sector.” National benchmark indexes gained in all of the 18 western European markets. Germany’s DAX jumped 5.4 percent, its biggest increase since April 2009. France’s CAC 40 climbed 6.3 percent and the U.K.’s FTSE 100 rose 2.9 percent.
  • European Bank Bond Risk Falls to 3-Month Low on Crisis Accord. The cost of insuring against default on European bank debt plunged to a three-month low as the region’s leaders agreed on plans to bolster lenders’ capital as part of a strategy to stem the debt crisis. The Markit iTraxx Financial Index of credit-default swaps linked to the senior debt of 25 banks and insurers including Credit Suisse Group AG and BNP Paribas SA fell 32.5 basis points to 209, the lowest since Aug. 4, JPMorgan Chase & Co. prices at 1 p.m. in London show. The gauge, which falls as perceptions of credit quality improve, rose to a record 314 on Sept. 12. Credit-default swaps on Credit Suisse, Switzerland’s second-largest bank, narrowed 15.5 basis points to 135, and BNP Paribas fell 25 to 212.5, according to CMA. RSA Insurance Group Plc dropped 15 basis points to 129 and Hammerson PLC was 17 lower at 170. The Markit iTraxx Financial Index of banks’ subordinated debt tumbled 54 basis points to 415, JPMorgan prices show. Europe’s crisis-fighting package also eased the risk of holding sovereign debt, with the Markit iTraxx SovX Western Europe Index dropping to the lowest since Sept. 1. The gauge of credit-default swaps on 15 governments dropped 34 basis points to 300, its steepest decline since May 11. Credit-default swaps on France fell 22 basis points to 166, the lowest since Sept. 16, according to CMA. Contracts on Italy fell 32 basis points to 425, Spain dropped 33 to 346 and Portugal fell 92 basis points to 1,016. The upfront price to insure $10 million of Greek bonds for five years dropped to $5.5 million from $6 million yesterday, CMA data show. The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 68 basis points to 652 basis points, and the Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 21 at 154 basis points.
  • Europe Bolsters Crisis-Fighting Tools. European leaders bolstered their crisis-fighting toolbox with a plan that may generate only limited relief for stressed sovereigns unless it can be fleshed- out within weeks. “It remains a deal long on intentions and short on details,” said Jens Larsen, chief European economist at RBC Capital Markets in London. “Until we know how the mechanisms will work, it will be hard to judge whether this will be sufficient to entice investors to provide support to European governments.”
  • Greece Default Swaps Failure to Trigger Casts Doubt on Contracts as Hedge.
  • Hedge funds reduced bets that stocks will rise to almost the lowest level since 2009 this week, according to data from Intl. Strategy & Investment Group. ISI's index of "net exposure" to stocks slipped to 44.7 yesterday, compared with its 2011 high of 54.2 in February, according to a note sent to clients. The measure climbed to 45.5 on Oct. 12 after declining to 44 on Sept. 21, the lowest level since April 2009.
  • U.S. GDP Expands at Fastest Pace in a Year. The U.S. economy grew in the third quarter at the fastest pace in a year as Americans reduced savings to boost purchases and companies stepped up investment in equipment and software. Gross domestic product, the value of all goods and services produced, rose at a 2.5 percent annual rate, up from 1.3 percent in the prior three months, Commerce Department figures showed today in Washington. Household purchases, the biggest part of the economy, increased at a 2.4 percent pace, more than forecast by economists. The increase in consumer spending last quarter followed a 0.7 percent gain in the previous period and exceeded the 1.9 percent median forecast in a Bloomberg News survey. Purchases added 1.7 percentage points to growth. Consumers lowered the pace of saving as incomes declined, the report showed. The savings rate last quarter dropped to 4.1 percent, the lowest since the last three months of 2007. After- tax incomes adjusted for inflation decreased at a 1.7 percent annual rate, the biggest drop since the third quarter of 2009. One bright spot is business investment. Corporate spending on equipment and software climbed at a 17.4 percent pace, the most in a year. It contributed 1.2 percentage point to growth.
  • Jobless Claims in U.S. Decreased to 402,000. Fewer Americans filed applications for unemployment assistance last week, while those on benefit rolls dropped to a three-year low, signaling limited improvement in the labor market. First-time jobless claims decreased by 2,000 to 402,000 in the week ended Oct. 22, Labor Department figures showed today in Washington. Today’s data showed the four-week moving average, a less volatile measure than the weekly figures, rose to 405,500 last week from 403,750. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, declined to 2.9 percent from 3 percent in the prior week.
  • Pending Home Sales Decrease by 4.6%. The number of contracts to purchase previously owned U.S. homes unexpectedly fell in September as lower prices and borrowing costs failed to support demand. The 4.6 percent decrease in the index of pending home sales, the biggest since April, followed a 1.2 percent drop the previous month, the National Association of Realtors said today in Washington. Economists forecast a 0.4 percent gain, according to the median of 38 estimates in a Bloomberg News survey.
  • Oil Futures Advance on U.S. Economic Growth, European Debt Fund Expansion. Oil rose for the fourth time in five days as data showed the U.S. economy grew at the fastest pace in a year and as European leaders reached a deal to contain the region’s debt crisis. Crude for December delivery rose $2.99, or 3.3 percent, to $93.19 a barrel at 11:47 a.m. on the New York Mercantile Exchange. Prices have gained 1.9 percent this year.
  • Copper Rises to Five Week High, Industrial Metals Jump on European Accord. Copper rose to a five-week high and industrial metals rallied after European leaders agreed to expand a bailout fund to ease the region’s sovereign-debt crisis. On the London Metal Exchange, copper for delivery in three months rose $400, or 5.2 percent, to $8,080 a metric ton ($3.67 a pound) at 3:40 p.m. Earlier, the price reached $8,140, the highest since Sept. 22. This month, the commodity has soared 15 percent, heading for the biggest gain since July 2009. Copper futures for December delivery gained 4.9 percent to $3.661 a pound on the Comex in New York.
Wall Street Journal:
  • CDS Spreads on U.S. Banks Slide After Europe Deal. The cost to insure debt issued by major U.S. banks fell on Thursday after European leaders unveiled a deal where private holders of Greek government debt will take a 50% writedown. The spread on credit default swaps on Bank of America(BAC) slid to 305 from 350, according to data from Markit. Spreads on Citigroup(C) also fell to 223 from 232 while Goldman Sachs(GS) saw its CDS spread decline to 265 versus 304. J.P. Morgan Chase(JPM) CDS spread slipped to 125 from 141 and Morgan Stanley(MS) likewise witnessed its spread falling to 315 versus 354 while the spread for Wells Fargo(WFC) CDS fell to 129 from 144, Markit said.
Business Insider:
Zero Hedge:
New York Times:
  • Will Desperate Hedge Funds Spark a Year-End Rally? HFR says 69% of hedge funds experienced net asset outflows last quarter - pretty dramatic considering the hedge fund industry overall has still enjoyed net asset inflows for the year. That implies a minority of funds are doing most of the gains (or least bad losses).
Charles Gasparino:
  • Libya's Liberation: Interim Ruler Unveils More Radical Than Expected Plans For Islamic Law. Mustafa Abdul-Jalil, the chairman of the National Transitional Council and de fact president, had already declared that Libyan laws in future would have Sharia, the Islamic code, as its "basic source". But that formulation can be interpreted in many ways - it was also the basis of Egypt's largely secular constitution under President Hosni Mubarak, and remains so after his fall. Mr Abdul-Jalil went further, specifically lifting immediately, by decree, one law from Col. Gaddafi's era that he said was in conflict with Sharia - that banning polygamy. In a blow to those who hoped to see Libya's economy integrate further into the western world, he announced that in future bank regulations would ban the charging of interest, in line with Sharia. "Interest creates disease and hatred among people," he said.
  • Europe's Punishment Union.
China Business News:
  • Cash positions of Guyangdong property developers have reached the lowest level in the past 10 years partly because of tightened money supply, citing research by the local government.

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