Monday, December 05, 2011

Today's Headlines

  • Euro Erases Gain Against Dollar on Reports of S&P Moves on Credit Ratings. The euro erased gains against the dollar after a report that Standard & Poor’s plans to put Germany, France and other European nations on “creditwatch negative.” The 17-nation currency rose earlier after France and Germany said they want a rewrite of the European Union’s governing treaties to tighten economic cooperation in the region. The Financial Times reported the credit ratings company would release a statement later today. “The S&P warning is having an impact,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “This all speaks to the ultimate truth that the European policy makers are unwilling to recognize that the only way to solve this crisis is federal euro-bonds.”
  • Monti's Austerity Debut Risks Rousing Italian Wrath: Euro Credit. Prime Minister Mario Monti is asking Italians to swallow 30 billion euros ($40 billion) in additional emergency economic measures even as the nation’s fifth recession in the last decade looms next year. Monti, whose Cabinet approved the package yesterday, is due to present the plan to the legislature at 4 p.m. in Rome, with Parliament voting on it in the coming weeks. The premier has vowed “shared sacrifices” to cut the euro area’s second- biggest debt and regain investor confidence after Italian borrowing costs topped the 7 percent that led Greece, Ireland and Portugal to seek aid. Italy’s 10-year yield declined 52 basis points to 6.16 percent, its biggest drop in four months. “The huge public debt of Italy isn’t the fault of Europe, it’s the fault of Italians,” Monti, who took over last month after former Premier Silvio Berlusconi resigned, told a news conference as he detailed the package yesterday. “Together, we will make it.” Italian bonds have snapped a seven-week decline amid optimism that European policy makers may take steps to ease the crisis summits this week, with the 10-year yield difference to German bunds down by a percentage point in the past week to 3.94 points. Italy is still paying the highest rates in more than a decade on its debt, and offered more than 7 percent on new bonds for the third time in a week on Nov. 29. Monti’s plan ties pensions to contributions rather than a worker’s last salary, resurrects property taxes and includes a levy on luxury goods. Monti’s task in pushing through Italy’s third austerity package since July may be complicated by a recession next year and road bumps in Parliament and in the streets as protesters rally over a perceived lack of fairness.
  • Euro Bonds Are 'In No Case' a Crisis Solution, Sarkozy Says. Bonds issued jointly by all members of the euro zone are “in no case” a solution to the euro zone’s crisis, French President Nicolas Sarkozy said. “Germany and France are not going to pay the debts of other without being able to control the debt issues of others,” Sarkozy said at a joint press conference with German Chancellor Angela Merkel.
  • Sovereign, Financial Bond Risk Falls on Crisis Resolution Bets. The cost of insuring European sovereign and financial debt fell to the lowest levels in a month, extending the biggest-ever weekly decline, on speculation leaders are closer to resolving the region’s crisis. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments declined eight basis points to 318 at 2:30 p.m. in London. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers dropped for a sixth day, falling 31.5 basis points to 255, according to JPMorgan Chase & Co. A measure of subordinated financial debt risk tumbled 45 basis points to 460, JPMorgan prices show. Swaps on Belgium dropped 18 basis points to 272, according to CMA. The country will get a full-time government as soon as today, ending 540 days of post-election brinksmanship between the Dutch-speaking north and French south. France fell 12 basis points to 184, Germany was five lower at 92, Italy tumbled 20 to 428 and Spain fell 34 to 348. The cost of insuring corporate debt also dropped to the lowest in a month. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings declined for an eighth day, dropping 12.25 basis points to 166.75, JPMorgan prices show. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 36.5 basis points to 708.5.
  • Bank of Canada Governor Carney Says ECB Shouldn't Use 'Magical Printing Press'. Carney said European politicians must fix the region's debt crisis themselves, and the European Central Bank can't be used as a "magical printing press" at the expense of its inflation mandate. "It's absolutely guided in our opinion by that mandate, not some magical printing press that the ECB should just run and solve this issue because it's too inconvenient for the political class to solve it," Carney said in a Maclean's magazine interview published online today. "No, the political class has to make these decisions."
  • Short Sellers Place Record Place Record Molycorp(MCP) Bet as Rare Earths Sink. Investors’ bets against Molycorp Inc. stock are at their highest since the rare-earth producer’s July 2010 initial public offering on speculation prices for the minerals will keep falling.
  • Commodities Signaling Economic 'Trouble Ahead': Chart of the Day. Diverging commodity indexes may signal "more trouble ahead" for the world economy as they repeat a pattern seen in the slump of 2008, Commerzbank AG said. The Commodity Research Bureau/Reuters U.S. Spot Raw Materials index fell 1.5% in the past two months, as the S&P GSCI index of 24 exchange-traded items rose 11%. The CRB index covers 13 goods from steel scrap to burlap and wool that aren't exchange traded and so less likely to be affected by financial investors.
  • India Fertilizer Demand May Drop on High Prices, Cutting Imports. Fertilizer consumption in India, the world's third-largest potash importer, may tumble for a second year as rising prices of the soil nutrients deter farmers, cutting overseas purchases. Consumption of di-ammonium phosphate and potash may drop as much as 35% in the year starting April 1, compared with normal use of about 15 million metric tons, said U.S. Awasthi, managing director of the Indian Farmers Fertiliser Cooperative Ltd., which represents 55 million farmers. Demand this year is seen falling as much as 25%, he said.
Wall Street Journal:
  • Italy Union Says Dec 16 Strike Is Against Budget Measures. Italian metalworkers' union Fiom-CGIL will ask to extend a strike planned for December 16 to eight hours from four, in protest of Italy's latest round of austerity measures, Fiom-CGIL leader Maurizio Landini said Monday.
  • MF Global Workers Sue Jon Corzine. Two former employees of MF Global have filed a class-action lawsuit against the firm’s former CEO Jon Corzine, other senior executives and directors.’s Julie Steinberg reports the employee are suing on behalf of themselves and other MF Global employees, in part because they say they were forced to take compensation in company shares that are now worthless.
  • SEC Delays Call on Accounting Rules. A recommendation on whether U.S. companies should switch to international accounting rules will take a few more months, the Securities and Exchange Commission's chief accountant said Monday. The SEC's staff had been expected to make a recommendation by year-end on whether U.S. companies should adopt the global rules, known as International Financial Reporting Standards.
  • Greece's Samaras Sees Deep Recession Lingering. The head of Greece's opposition New Democracy party—the man most likely the country's next prime minister—expects Greece's economy to shrink by more than 6% this year and the recession to linger through 2013. In an interview, Antonis Samaras said that the country was also unlikely to meet its upwardly revised deficit target in 2011, underscoring Greece's difficulty in meeting the fiscal goals the country has promised its international creditors. "This year again you will have a 10% deficit... and the recession will be greater than 6%," he said. "We are entering into a fifth year of recession and very possibly it will extend to a sixth year, that is a European record." Despite almost two years of austerity measures and tough oversight from a troika of international inspectors from the European Commission, the International Monetary Fund and the European Central Bank, Greece has already admitted it won't meet its original deficit targets this year. Those targets were for a budget deficit of around 8.5% of GDP, or about €17.1 billion in 2011, but which the government now sees settling closer to 9% of GDP and €19.68 billion—a forecast shared by the troika. Some government officials have warned that the deficit could exceed even the new target. But all agree that those austerity measures have also pushed Greece deep into recession and many private sector economists fear that the economy will contract by more than an officially forecast 6% this year. A deeper recession will also mean a bigger deficit because of weaker revenue collections and greater social spending.
  • How Goldman(GS) Played a Key Role in Solyndra's Rise. While government officials and venture investors who supported Solyndra LLC are being put through the wringer by House Republicans, a powerful force on Wall Street that brought these players together has largely stayed out of the spotlight. Goldman Sachs Group Inc., which Solyndra hired in 2008, helped propel the solar panel maker from Silicon Valley start-up to White House showcase. It solicited investors for the company with rosy valuation projections and helped Solyndra win a $535 million Department of Energy loan guarantee. And it positioned itself to earn underwriting fees if the company held an initial public offering.
Business Insider:
Zero Hedge:
  • Prepare For A Different Financial Landscape by Mohamed El-Erian. Look for western banks to be less complex, less global, somewhat less inter-connected and, therefore, less systemic. With some banks teetering on the edge, certain European governments (e.g., Greece) will have no choice but to nationalize part of their financial system.
Financial Times:
  • BNP Predicts 25% Fall in Commodities Financing. Lending to the commodities trading industry is set to drop by more than a quarter, according to the sector’s most senior banker, as the European banks that dominate the market rein in their activities. The comments by Jacques-Olivier Thomann, head of commodity trade finance at BNP Paribas and president of Geneva’s commodities industry association, underscore a potential credit crunch that some fear could exacerbate the economic downturn by hobbling trade in raw materials.


  • Debt Crisis: Live. German Chancellor and French President want new treaty, seek involvement of all EU nations, want monthly meetings of leaders, but continue to rule out eurobonds and use of central bank as lender of last resort.
  • Zilch Again from Merkozy. No fiscal union, no Eurobonds, no ECB as lender of last resort – yet. Just the usual blather and a revamped Stability Pact (Fiskalunion). Yawn. Merkel seems to have backed off on demands that budget breaches will be justiciable before the European Court, so the Treaty chatter is mostly Quatsch, bĂȘtises, and eyewash. This Merkel climb-down makes it less likely that she will give in on real rescue measures, so why the market exuberance in Italy? Beats me. Private investors will not have to face further haircuts after Greece (if you believe anything they say on this subject) but that was already the case. Nothing further to add at this stage.
  • Greece, Portugal, Italy and Spain will struggle to return to sustainable public debt, citing calculations by the Freiburg, Germany-based Centre for European Policy. CEP's default indexes for Greece, Portugal and Italy, which measure debt sustainability, fell in the first half while Spain's stagnated.
Kyodo News:
  • Japan's government ordered a halt of rice shipments from Fukushima city's Watari district after detecting above-limit levels of radioactive cesium from grain produced in the region.

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