Tuesday, December 06, 2011

Today's Headlines

  • French, Spanish Bonds Fall as S&P Reviews Ratings, Before Summit. French government bonds dropped, leading declines among euro-area government securities, after Standard & Poor’s said it may lower credit ratings across the region. Spanish and Austrian bonds slid after S&P said 15 euro nations may have their rankings lowered as “continuing disagreements” among policy makers on how to tackle the debt crisis risks damaging their financial stability. France’s two- year note yield rose from a one-month low after German Finance Minister Wolfgang Schaeuble said the downgrade warning will help force European leaders to ratchet up efforts to resolve the two- year old crisis at a Dec. 8-9 summit. “The digestion of the ratings news has raised the stakes for the summit,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “The debt crisis and the outcome of the meeting of politicians on Friday is the focus for the markets. There was a rally last week on expectations of a positive outcome from this meeting and we see risk for a setback there.” French 10-year yields advanced 11 basis points to 3.24 percent at 4:49 p.m. London time. Two-year French notes and 10-year bonds rose the most in at least five years last week amid optimism that Europe is ready to act to stem the crisis.
  • S&P: EFSF May Lose AAA If Any AAA Euro Member Downgraded. The European Financial Stability Facility may lose its top credit rating if any of the bailout fund’s six guarantors face a downgrade from AAA, Standard & Poor’s said. “We could lower the long-term credit rating on EFSF by one or two notches if we were to lower the AAA sovereign ratings, which are currently on creditwatch, on one or more of EFSF’s guarantor members,” S&P said in a statement today. At the same time, the ratings company said it “could affirm the AAA ratings on EFSF and its issues if we affirm the rating on all six of EFSF’s guarantor members currently rated AAA.” Germany, France, the Netherlands, Finland, Austria and Luxembourg are the top-rated nations backing the rescue fund. European stocks the euro fell after S&P said late yesterday that it may cut the debt grade of 15 euro nations, including Germany and France. German Finance Minister Wolfgang Schaeuble said today the downgrade warning should spur European leaders to ratchet up efforts to resolve the region’s debt crisis at a summit in Brussels on Dec. 8-9. “The crisis has become a crisis of euro-zone governance and crisis management,” Moritz Kraemer, managing director of European sovereign ratings at S&P, said on a conference call today. He said the summit is of the “utmost importance” and that leaders must address the turmoil “in a more robust and comprehensive way than what we’ve seen so far.”
  • Sovereign, Company Bond Risk Rise in Europe, Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index linked to 15 governments increased five basis points to 325 at 3:30 p.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed nine basis points to 726.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings was up three at 172.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers added six basis points to 267 and the subordinated gauge was up 14 at 477.
  • U.S. Studies Derivatives That Let Investors 'Game' Tax Rules. U.S. lawmakers seeking to overhaul the Internal Revenue Code are examining how derivatives and other financial products can be used to exploit the tax system. Financial instruments, including exchange-traded notes and options, are susceptible to manipulation, according to a report by the nonpartisan Joint Committee on Taxation. Taxpayers can structure transactions to defer income, accelerate deductible losses and take advantage of lower capital gains rates.
  • Sovereign-Debt Test U-Turn Too Late to Save EBA Credibility. Less than five months after conducting stress tests that found banks needed to raise 2.5 billion euros ($3.4 billion), the European Banking Authority may tell lenders that they need 40 times that amount to defend against losses on sovereign debt. The regulator may release updated figures on how much capital lenders should raise to absorb losses from euro-area bonds as early as this week, three people familiar with the matter said. The London-based watchdog’s stress tests in July were criticized for failing to include writedowns on sovereign debt held to maturity. The EBA “has a fundamental problem, which is that they’ve lost credibility and it’s going to be very difficult to claw that back,” Bob Penn, a London-based financial regulation lawyer at Allen & Overy, said in a telephone interview. “Will anyone pay attention? I’m not so sure.”
  • UN Says Climate Pact 'Beyond Reach'. United Nations Secretary General Ban Ki-Moon said a global warming treaty may be “beyond our reach” this week as India and China rejected pressure for developing nations to adopt mandatory pollution targets. “We must be realistic about the opportunity of a breakthrough in Durban,” Ban said at UN climate talks in the South African port city today. “There are great economic troubles.” India, speaking with the Basic negotiating group of countries that also includes South Africa, Brazil and China, said industrial nations should move first in cutting fossil fuel emissions. The comments marked a hardening of positions that reduces the scope for an agreement in time for the meeting’s conclusion on Dec. 9. “Basic countries are not major polluters,” Indian Environment Minister Jayanthi Natarajan said today in Durban, South Africa, where the talks are being held. “They are emerging market economies. They have a small footprint in the context of historical emissions.”
  • Brazil Economy Contracts as Rousseff Tries to Revive Growth. Brazil’s economy shrank in the third quarter, prompting the government to slash its growth forecast for the year, one week after announcing stimulus measures to contain the spillover from Europe’s debt crisis. Gross domestic product contracted 0.04 percent from the previous three months, the national statistics agency said, as credit curbs, higher borrowing costs and budget cuts checked demand. The contraction, the first since the first quarter of 2009, is equivalent to an annualized decline of 0.17 percent.
  • Obama Says U.S. to Weigh Nations' Treatment of Gays in Issuing Foreign Aid. The Obama administration will weigh how countries treat gays and lesbians in making decisions about foreign aid, according to a presidential memorandum released by the White House. Laws prohibit same-sex sexual activity in many nations in the Middle East and Africa, and in two of the largest recipients of U.S. aid, Pakistan and Afghanistan. Homosexuality is punishable by death in Iran, Saudi Arabia and the United Arab Emirates and in some parts of Nigeria and Somalia.
Wall Street Journal:
  • Solving Euro-Zone Crisis Will Take Time, Hungarian Ministers Say. Members of the euro zone will surely solve the ongoing crisis, but it has to be accepted that the process won’t be fast, Hungarian Economy Minister Gyorgy Matolcsy said Monday. Prime Minister Viktor Orban said, however, that he anticipates major steps Friady at the European Union summit. “Everybody anticipates European leaders — we ourselves anticipate them also — to make decision that will stabilize Europe for many years to come and decide on the fate of the continent for even more than a decade,” Mr. Orban said after holding talks with German Finance Minister Wolfgang Schaeuble.
  • Blasts Kill Dozens in Afghanistan. Twin blasts in Kabul and the northern city of Mazar-e-Sharif targeted Afghanistan's minority Shiite community on Tuesday, killing nearly 60 people in one of the war's deadliest attacks and raising the danger of sectarian strife. A caller claiming to speak on behalf of Lashkar-e-Jhangvi, a Pakistani militant group notorious for attacks on Shiites, took responsibility for the attacks in a call to the Pashtu-language arm of Radio Free Europe. The claim couldn't be independently verified.
  • Geithner Doesn't See Fed Funding IMF Euro Bailout. U.S. Treasury Secretary Timothy Geithner said in Germany on Tuesday that the European Central Bank was playing a positive role in the euro zone debt crisis, but he played down talk that the U.S. Federal Reserve could boost IMF funding for the crisis.
Business Insider:
Zero Hedge:
Washington Times:
  • North Korea Making Missile Able to Hit U.S. New intelligence indicates that North Korea is moving ahead with building its first road-mobile intercontinental ballistic missile, an easily hidden weapon capable of hitting the United States, according to Obama administration officials.The intelligence was revealed in a classified Capitol Hill briefing last month.
Financial Times:
  • EU Talks On Doubling Financial Firewall. Eleventh-hour negotiations have begun to create a much bigger financial “bazooka” to present at this week’s European Union summit that could include running two separate rescue funds and winning increased support for the International Monetary Fund. This three-pronged rescue system would form part of a carefully crafted package EU leaders hope will win over financial markets, just two months after a similar summit failed to convince bond investors Europe could contain its spiralling debt crisis. The rescue system would be introduced alongside proposals to rewrite EU treaties with far tougher budget rules for the eurozone.



Die Welt:
  • European Commission President Jose Manuel Barroso said joint euro bonds present "no answer" to the current crisis, citing an interview. Barroso said euro bonds require a level of integration and discipline that the euro area does not currently have.
Hospodarske Noviny:
  • ArcelorMittal Ostrava, the Czech unit of the world's largest steelmaker, said steel prices started to fall in May, CEO Tapas Rajderkar said. The company doesn't have many indications when prices might recover, he added. The fourth quarter has been the worst of the year, he said.
Shanghai Daily:
  • Housing Deals Post Decline. HOME transactions in more than 70 percent of China's major cities in November fell monthly, with over half of them declining between 10 and 50 percent, according to a latest industry research yesterday. The report released by Soufun.com showed that transactions fell between 10 and 30 percent in 13 cities from October while they tumbled from 30 to 50 percent in 11 cities. "The central government's unwavering stance to curb housing speculation has begun to have an effect on real estate developers as some of them started to offer notable discounts in order to replenish their capital," said Tang Zhengwei, a Soufun analyst. "That could help explain the monthly rebound in sales recorded in some cities though sales in the majority were still very sluggish mainly due to the stringent enforcement of home purchase restrictions." Last weekend, the Ministry of Housing and Urban-Rural Development emphasized the need to maintain property restrictions as it ordered local governments to extend curbs, some of which will expire soon. The average home price fell in nearly 60 percent of the 47 cities from a month earlier, according to Soufun research.

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