Monday, October 31, 2011

Today's Headlines

  • Stocks, Italian Bonds Decline Amid Bailout Concern; Yen Tumbles. Stocks retreated from an almost three-month high as Italian and Spanish bonds fell amid concern European leaders will struggle to raise funds to contain the region’s debt crisis. The yen sank from a post-World War II record against the dollar after Japan intervened in the market. The MSCI All-Country World Index lost 2 percent at 11:51 a.m. New York time, trimming its monthly rally to a record 12 percent, as Deutsche Bank AG (DBK), BNP Paribas SA and Morgan Stanley (MS) dropped more than 5.6 percent. The Standard & Poor’s 500 Index slipped 1.3 percent. Italian five-year yields rose 17 basis points to 5.92 percent. German bunds and U.S. Treasuries advanced. The yen tumbled as much as 4.6 percent against the dollar, the most since 2008. Copper fell 2.3 percent in London. Stocks declined, led by banks, following the biggest weekly gain since 2009 after China’s official news agency Xinhua said the country can’t play the role of “savior” for Europe. Equities rallied on Oct. 26 amid speculation China might invest in the European rescue fund. The yen slumped after Japanese Finance Minister Jun Azumi said the government took steps to weaken the currency. Stocks and commodities also fell after a unit of MF Global Holdings Ltd. (MF) filed for bankruptcy. “Some of that rally that we’ve seen were on comments that China would provide support to Europe,” Mark Bronzo, who helps manage $23 billion at Security Global Investors in Irvington, New York, said in a telephone interview. “If you get a comment saying that they can’t be viewed as a savior, the market will react,” he said. “MF Global declaring bankruptcy is certainly not a positive for the perception about the financial sector.”
  • Europe Inflation Unexpectedly Stays at 3%, Jobless Rises. European inflation unexpectedly remained at a three-year high and unemployment increased, complicating the European Central Bank’s task of bolstering the region’s faltering economy. The inflation rate in the euro area held at 3 percent in October, the same as in the previous month, the European Union’s statistics office in Luxembourg said in an initial estimate today. That’s the highest rate since October 2008. European unemployment unexpectedly rose to 10.2 percent in September from 10.1 in August, according to a separate report.
  • Spain Economy Stalls in Third Quarter, Adding to Government's Difficulties. The Spanish economy stalled in the third quarter as unemployment surged, adding to the Socialist government’s difficulties three weeks before a general election. Gross domestic product stagnated from the previous quarter, when it grew 0.2 percent, the Bank of Spain in Madrid estimated today. “It will be very difficult to meet the deficit goals without additional austerity, which might push the economy back into recession,” said Ben May, a European economist at Capital Economics in London. Unemployment, which was 21.5 percent in the third quarter, may rise as high as 25 percent, he forecast. The yield on Spain’s benchmark 10-year bond, which touched an intraday euro-era record of 6.46 percent on Aug. 2, rose to 5.65 percent at 10:30 a.m. in Madrid, pushing the premium investors demand to hold Spanish 10-year bonds instead of German debt of the same tenor to 353 basis points. Spain’s Ibex-35 main share index fell 1.3 percent.
  • Bond Risk Increases as Doubts Mount Over European Rescue Plan. The cost of insuring against default on corporate and sovereign debt rose in Europe as confidence in the region’s rescue plan waned. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly junk credit ratings jumped 32.5 basis points to 650, according to JPMorgan Chase & Co. at 2:30 p.m. in London. The index dropped 110.5 basis points last week with a decline signaling improved perceptions of credit quality. The region’s largest banks may raise just a tenth of the total capital shortfall estimated by regulators, according to Morgan Stanley. Efforts to boost the bailout fund to 1 trillion euros ($1.4 trillion) with the help of China and cooperation of the International Monetary Fund may also prove difficult. “It’s the traditional reaction where it’s all very exciting at first and then everyone calms down, sobers up and realizes that actually nothing has changed,” Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London, said in an interview on Bloomberg TV’s “The Pulse” with Maryam Nemazee. “At the moment really we don’t know much more than we did before the grand plan.” The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 15 basis points to 305 basis points. Contracts on Italy increased 38 basis points to 443, according to CMA. Spain widened 26 basis points to 342, Ireland rose 28 basis points to 707, and France was 18 higher at 176 basis points. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 9.25 at 159 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers added 13.5 basis points to 221 and the subordinated gauge was 26.5 higher at 418.5.
  • Weidmann Says EU Hasn't Found Lasting Debt-Crisis Solution. European Union countries caught up in the debt crisis must cut budgets and carry out structural reforms to ensure a lasting end to the turmoil, Bundesbank President Jens Weidmann said in a column in Handelsblatt. Putting into practice last week’s EU decisions to recapitalize banks, ease Greece’s debt and leverage the euro area’s rescue fund requires enforcing strict conditionality on any aid, Weidmann, a member of the European Central Bank’s Governing Council, said in a commentary published in the Dusseldorf-based newspaper today. EU leaders left the currency union’s future shape unclear by increasingly taking on joint risk while leaving budget powers with national governments, the German central bank head wrote.
  • MF Global Files for Bankcruptcy Protection. MF Global Holdings Ltd., the holding company for the broker-dealer run by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy after making bets on European sovereign debt. The New York-based firm listed total debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. Its finance unit, MF Global Finance USA Inc., also filed, with debt of as much as $50 million and assets of as much as $500 million.
  • Business Activity in U.S. Grows as Factories Accelerate Economic Recovery. Business activity in the U.S. expanded in October at about the same pace as in the prior month, a sign overseas demand and business investment will help keep the economy expanding. The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 58.4 in October from 60.4 the prior month.
  • Oil Pares Biggest Monthly Rally in Two Years as Dollar Climbs. Crude oil dropped in New York as the dollar climbed and equities fell, trimming the biggest monthly gain in more than two years. Futures fell as much as 2.1 percent after Japan stepped in to foreign-exchange markets to weaken the yen against the dollar, making commodities priced in the U.S. currency less attractive to investors. Stocks retreated from a three-month high on concern European leaders will struggle to raise funds to contain the region’s debt crisis. Crude oil for December delivery declined $1.14, or 1.2 percent, to $92.18 a barrel at 10:13 a.m. on the New York Mercantile Exchange. Futures are up 16 percent this month, the biggest gain since May 2009.
Wall Street Journal:
  • EU Leaders Didn't Listen on Debt: Trichet. Too many European Union leaders did not understand the gravity of the Greek debt situation following years of failure to adhere to rules on borrowing, the outgoing boss of the European Central Bank told CNBC. “I have to say that since the very beginning, it is something that was potentially very important, and again that one should not underestimate the gravity of a situation. We were not, I have to say, pleasing a lot of interlocutors, including the governments that had a tendency to say — no, it's not that important, it's not a big deal — and so forth,” Jean-Claude Trichet said.
Business Insider:
Zero Hedge:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
Sky TG24:
  • Italy's labor market reforms may spur violence, Labor Minister Maurizio Sacconi said as European leaders ramped up demand that Italy's government do its part to combat the region's debt crisis. "Today I see a sequence of verbal violence, to spontaneous violence, to organized violence that I hope doesn't lead to death again," Sacconi said in an interview, referring to the 2002 murder of Marco Biagi, an economist who advised the government on changing labor laws.
  • Finland is ready to assess adding a clause into European Union treaties on how a country could leave the single currency, citing government documents.

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