Wednesday, December 07, 2011

Today's Headlines

  • European Stocks Decline After Germany Rejects Combining Euro Bailout Funds. European stocks dropped after Germany rejected combining the current and permanent euro-area rescue funds and expressed pessimism over the outcome of a European Union summit this week. Banca Monte dei Paschi di Siena SpA (BMPS), Italy’s third-biggest bank, led a drop among lenders. ING Groep NV (INGA) fell 4.7 percent after saying it plans to take a charge related to its U.S. annuity business. Airline shares slid after the International Air Transport Association forecast a decline in industry profits in 2012. “This once again highlights the difficulties European leaders are having in reaching agreement,” said Benoit Peloille, equity market strategist at Natixis.
  • Libor for Three-Month Dollars Climbs to Most Since July 2009. The rate at which London-based banks say they can borrow for three months in dollars rose to the highest level in almost 2 1/2 years as the euro region’s sovereign debt crisis intensifies. The London interbank offered rate, or Libor, for three- month dollar loans climbed to 0.54000 percent, from 0.53775 percent yesterday, data from the British Bankers’ Association showed. That’s the highest level since July 6, 2009, exceeding the previous high of 0.53925 percent reached June 17, 2010. The dollar Libor-OIS spread, a measure of bank reluctance to lend, widened. French banks have led the increase in Libor amid concern they may need additional capital as the debt crisis weighs on the values of their government bond holdings, according to data compiled by Bloomberg. Credit Agricole Corporate & Investment Bank submitted the highest rate today among the contributing panel of 18 lenders, at 0.5950 percent, the same as yesterday. HSBC Holdings Plc posted the lowest, unchanged at 0.340 percent. “The upward pressure on dollar Libor comes predominately from the scramble for funding by European banks,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “There are concerns about the euro-zone debt crisis and the uncertainty over European bank portfolio holdings of sovereign debt.” The European Central Bank said demand for three-month dollar loans surged after it almost halved the cost of the funds in a concerted action with five other central banks including the U.S. Federal Reserve.
  • Merkel-Sarkozy Letter Proposes Tighter Budget Rules in EU Treaty Overhaul. French President Nicolas Sarkozy and German Chancellor Angela Merkel proposed amending European treaties to tighten rules on deficit spending and water down provisions demanding investor losses. In a joint letter to European Union President Herman Van Rompuy, the French and German leaders said they want a decision at an EU summit starting tomorrow so that the measures can be ready by March 2012. The new treaty should call for “automatic consequences” for euro-zone members with deficits over 3 percent of their economic output. The treaty should “make clear that Greece required a unique and exceptional solution” and that other euro-area members “reaffirm their inflexible determination to honor fully their own individual sovereign signature.”
  • ECB To Consider More Measures to Stimulate Bank Lending. The European Central Bank may announce a range of measures tomorrow to stimulate bank lending, said three euro-area officials with knowledge of policy makers’ deliberations. Options on the table include loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer-term loans to grease the flow of credit to the economy, said the officials, who spoke on condition of anonymity because the discussions are private. Two said an interest rate cut is likely, with only the size of the reduction to be determined for the monthly decision tomorrow.
  • Belgian Economy Shrinks, Threating Di Rupo's Deficit Plan. Belgium’s economy contracted for the first time in more than two years, heaping pressure on new Prime Minister Elio Di Rupo as he tries to cut the deficit in a bid to stave off contagion from the European debt crisis. Gross domestic product in Belgium, the sixth-largest economy in the euro area, fell 0.1 percent in the third quarter from the previous three-month period, when it rose 0.4 percent, the National Bank of Belgium said today in a statement. The drop, revised from an earlier estimate of no growth, was the nation’s first GDP decline since the first quarter of 2009.
  • China Sees Growing Challenges as Declining Demand Weakens Exports: Economy. China sees an increase in domestic costs and a slowdown in overseas demand putting “severe” pressure on its exports next year, a sign that policy makers may have little appetite to allow faster gains in the yuan. Premier Wen Jiabao’s embrace of higher wages, along with a jump in land and raw-materials prices and a stronger yuan are restraining shipments, the Commerce Ministry said today. While the nation can achieve export gains as long as Europe’s crisis doesn’t deepen, it will need to focus on strengthening links with emerging markets, Wang Shouwen, head of the foreign trade department, said at a briefing in Beijing. The yuan weakened last month by the most in more than a year, a shift that may stoke the ire of U.S. lawmakers and presidential candidates who see the Asian nation’s competitiveness as a damper on American job growth. China’s surging trade surplus since joining the World Trade Organization a decade ago has helped the country accumulate a record $3.2 trillion in foreign-exchange reserves and made it the U.S.’s largest overseas creditor. “The room for yuan appreciation is very limited and the currency will have higher volatility,” said Dariusz Kowalczyk, a senior economist with Credit Agricole CIB in Hong Kong. “It seems China is moving to protect its exporters more aggressively, especially as the external environment deteriorates.”
  • Gold Futures Rebound as ECB Said to Weigh Measures to Bolster Bank Lending. Gold futures rose for the first time in three days as the European Central Bank was said to be planning to announce measures to bolster lending, reviving demand for the precious metal as an inflation hedge. Gold futures for February delivery rose 0.4 percent to $1,739 an ounce at 9:56 a.m. on the Comex in New York. The metal dropped 1.1 percent in the previous two days. Before today, the price climbed 22 percent this year, partly because the U.S. Federal Reserve has kept its benchmark interest rate at a record low.
  • Oil Fluctuates in New York as U.S. Supplies Increase. Gasoline supplies rose 5.15 million barrels to 215 million last week, the highest level since the week ended July 29, the report showed. Inventories of distillate fuel, a category that includes heating oil and diesel, climbed 2.53 million barrels to 141 million. Production of the fuels rose 205,000 barrels to 5.03 million barrels a day last week, the highest level since at least 1982 when the data starts.
Wall Street Journal:
  • S&P Waves the Downgrade Stick Again, Scaring Stocks. It just played that role again, putting the European Union and several large European banks on notice they could all get downgraded, too. Stocks, which were mostly neutral before the news, are now slightly lower, with the Dow down 16 points, the S&P off 6 and the Nasdaq down 18. This all follows naturally on its recent warning to 15 of 17 euro-zone nations that they could get downgraded (excluding basket-case Greece and already on-notice Cyprus). The EU is AAA rated. Here is the S&P’s press release on the EU:
  • Sarkozy, Merkel Outline Plan for New EU Treaty. French President Nicolas Sarkozy and German Chancellor Angela Merkel on Wednesday set out their plan to press ahead with changes to the European Union treaty, a day before EU leaders convene at a crucial Brussels summit to shore up the euro zone. Mr. Sarkozy and Ms. Merkel, who made their proposals in a letter to European Council President Herman Van Rompuy, issued an ultimatum to the 27 EU governments, saying they must decide whether they will accept greater central control over their national budgets.
  • Poll Shows Investor Bullishness Rising. Bullish sentiment rose among financial advisers surveyed in the weekly Investors' Intelligence poll from last Friday. The percentage of financial advisers who are bullish on the market rose to 47.4% from 44.2%, while bearish sentiment fell to 29.5% from 30.5%. The percentage of financial advisers expecting a market correction fell to 23.1% from 25.3%.
Business Insider:
Zero Hedge:
Chicago Tribune:
  • Staffing Company Lays Off Nearly 500 in Illinois. A Milwaukee-based temporary staffing company has laid off nearly 500 employees in Illinois, blaming the high cost of workers' compensation benefits in the state. Parallel Employment Group closed four of its five branches in Illinois that provided temporary labor to manufacturing clients in the Chicago area. "The only reason we are downsizing is competitive issues related to workers' compensation," said Kirk LaDu, executive vice president of operations. "It seems foolish to us to continue operating in a state where workers comp made it difficult to make money."
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 21% 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 -19 (see trends).
  • Italy's Monti Popularity Dips Over Austerity, Unions Call. Italy's new Prime Minister Mario Monti, trying to push through a tough austerity package he says is vital for the country's financial salvation, faced two calls for national strikes and saw a dip in his public support on Wednesday. The three main trade union confederations, after divisive dithering over their individual responses, announced a joint national three-hour strike in the private sector for December 12. Public sector workers will strike for eight hours on December 19 against the 30 billion-euro ($40.3 billion) package affecting pensions and property taxes. The labor actions were called as Monti was hit by a new poll that showed his overall approval rating had dropped to 64 percent from 73 percent late last month before the details of the package were known.
  • Europe's Debt Crisis Hits South Korea's Shipyards. South Korea's major shipbuilders have received requests to delay deliveries of 24 ships worth some $3 billion as the debt crisis in Europe bites and company credit lines tighten, with growing fears of a worsening crisis in the seaborne sector next year. South Korea is home to the world's biggest shipbuilders including Daewoo and Hyundai Heavy Industries . The Seoul stock market's shipbuilding subindex has slumped 40 percent over the past six months versus a 10 percent drop in the overall market. "Everybody is squeezed and banks are pulling back because of their concerns in Europe," Jens Martin Jensen, chief executive of Frontline, the world's largest independent tanker operator, told Reuters on Wednesday. "The pressure is building. Yes, we will see more of this (delays and cancellations) going on, absolutely." A glut of ships ordered when times were good have continued to hit the water this year, outpacing demand for commodities such as iron ore and coal in the dry bulk sector and crude oil in the tanker market, battering ship owner earnings. Tougher trading has been compounded by global economic turmoil.
  • France and Germany are "at odds" over the EU500B ceiling for ESM permanent bailout fund, citing EU sources. France and Germany are in agreement in opposition to Euro area bonds.
Financial Times:
  • Germany Insists On New Treaty For Europe. Germany on Wednesday insisted that its European partners must undertake the politically fraught process of changing European Union treaties, or at least accepting a binding new eurozone accord, to bring stability to the single currency and restore the confidence of investors. On the eve of a European summit in Brussels to stem the eurozone crisis, a senior German government official dismissed the suggestion by Herman Van Rompuy, European Council president, that tougher fiscal discipline could be enforced without a full-blown treaty overhaul.



  • Romano Prodi, former president of the European Commission, said the euro may collapse unless the region agrees to sell euro bonds, citing an interview. "If the European Central Bank isn't granted this option, then a collapse of the euro is really not far off."
  • The German government may force banks to accept state financing in certain cases as part of its revived Soffin bank-rescue fund.
Die Presse:
  • Slovak Prime Minister Iveta Radicova said the European Union should have let Greece default rather than bail it out last year, according to an interview. "It's obvious that the financial aid hasn't solved the problem," Radicova said. Asked whether the EU should have let Athens "go bankrupt," she said: "I'm absolutely certain of that." Radicova also said that the EU's policy choices are now between measures that will cause either "very high inflation or very high unemployment."
O Estado de Sao Paulo:
  • Vale SA agreed to cut iron-ore prices for delivery in the fourth quarter by 20% to 25% for China Steel Corp., citing Taiwan's largest steelmaker.
  • Everlight Electronics Sees Low Demand in LED Market Through 1Q. Everlight says low demand in the LED market will likely continue through 1Q, and sees LED lighting more likely to grow than LED TV backlighting, citing the co. chairman. Separately, DigiTimes cites unidentified industry sources saying global growth of MOCVD equipment in 2012 should stagnate due to current oversupply of machinery.

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