Thursday, December 08, 2011

Today's Headlines

  • Stocks, Euro, Italy Bonds Retreat as ECB Damps Debt-Buying Bets. Stocks slid, while the euro weakened and Spanish and Italian bonds tumbled, as the European Central Bank damped speculation it would boost debt purchases and regulators said the region’s lenders need to raise more capital than previously estimated. The Standard & Poor’s 500 Index lost 1.3 percent to 1,244.58 at 12:35 p.m. in New York. The Stoxx Europe 600 Index retreated 1.5 percent, reversing a 1 percent advance. The euro slid 0.9 percent to $1.3295. Yields on 10-year Italian and Spanish bonds jumped at least 47 basis points. The S&P GSCI Index of commodities lost 1.1 percent, erasing a gain of as much as 0.9 percent. Ten-year U.S. Treasury yields fell four basis points to 1.99 percent after gaining six points earlier. European equities and the euro turned lower as ECB President Mario Draghi said he did not necessarily signal the central bank would step up government bond purchases when he spoke last week, adding that the program was not eternal or infinite. Stocks extended losses as the European Banking Authority said the region’s banks will need to raise 114.7 billion euros ($152.7 billion) in fresh capital, up from a previous estimate of 106 billion euros. “The pessimism is coming from the fact that the ECB didn’t go any further on the possibility of buying debt,” Peter Jankovskis, who helps manage about $2.4 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “They continue to do things to Band-Aid the banking sector, but they aren’t getting at the fundamental issue here, which is that some of these underlying countries are nearing insolvency.”
  • Draghi Acts to Expand Credit to Banks, Doesn't Signal More ECB Bond Buying. European Central Bank President Mario Draghi cut interest rates and offered banks unlimited cash for three years while damping speculation the ECB will buy more government bonds to stem the region’s debt crisis. Policy makers meeting in Frankfurt today reduced the benchmark rate by a quarter percentage point to 1 percent, matching a record low. They also loosened collateral rules so that banks can borrow more from the ECB and announced two unlimited three-year loans. The measures “should ensure enhanced access of the banking sector to liquidity,” Draghi said at a press conference. Hours before European leaders meet in Brussels, Draghi kept the onus on them to solve the two-year debt crisis by repeating his call for a “fiscal compact” and denying he had hinted the ECB would automatically support such an initiative with more bond purchases. Draghi’s comments roiled markets, with stocks and the euro rising on the bank-lending measures before falling after he damped expectations of more ECB bond buying. The euro sank more than 1 percent and traded at $1.3310 at 6:30 p.m. in Frankfurt. “All euro-area governments urgently need to do their utmost” to deliver fiscal sustainability, Draghi said. He denied his Dec. 1 remark that “other elements” could follow a push toward fiscal union was a signal the ECB could step up its bond-market intervention, saying he was “kind of surprised” it had been interpreted that way.
  • EU Banks Must Raise $153B of Extra Capital: EBA. Europe’s banks will need to raise 114.7 billion euros ($152.8 billion) in fresh capital as part of measures introduced to respond to the euro area’s sovereign-debt crisis, according to documents from the region’s banking regulator. German banks need 13.1 billion euros and Italian banks 15.4 billion euros in core tier 1 capital, the European Banking Authority said in a document. European lenders will have to raise a total of 8 billion euros more than previously estimated by the EBA in October. The EBA estimated two months ago that the region’s financial institutions needed 106 billion euros to reach the 9 percent core Tier 1 capital goal by mid-2012, after marking their sovereign bonds to match market prices. European leaders are demanding the region’s banks bolster capital to withstand writedowns after they agreed to take losses on Greek bonds. The Bloomberg Europe Banks and Financial Services Index (BEBANKS) fell 3.1 percent to 72.45 in London.
  • Sovereign Debt Risk Jumps Most in Five Months Amid No Extra Bond Purchases. The cost of insuring against default on sovereign debt rose the most in five months after European Central Bank President Mario Draghi failed to signal the lender will buy more bonds. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed 31 basis points to 363 at 5 p.m. in London, the biggest jump since July. The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 48.5 basis points to 763, the highest in more than a week, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 10.5 basis points to 176.75 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 30 basis points to 297 and the subordinated index rose 51 to 530.
  • China Money Rate Rises on Speculation PBOC Favors Stability. China’s money-market rate rose for a third day as the central bank drained the most cash from the financial system in eight months, spurring speculation it will hold off from easing monetary policy further. “There’s limited scope for the repo rate to decline because the central bank hasn’t shown any sign that it will further ease monetary policy,” said Wang Botao, a bond analyst at China Post Securities Co. in Beijing.
  • Iran to Boost Oil Output by 45,000 Barrels a Day, PressTV Says. Iran, OPEC’s second-largest oil producer, plans to raise daily crude output by 45,000 barrels a day next year, Press TV reported, citing Mehdi Fakour, managing director of the Iranian Central Oil Fields Co. The increase would occur once the Sarvestan, Saadatabad and Khesht oil fields in southern Iran come on stream in March, Fakour said, according to the state-run news channel. Khesht has proven crude reserves of more than 1 billion barrels, and the other two fields together hold more than 1.4 billion barrels, the report said.
  • US Household Wealth Falls for Second Straight Quarter. Household wealth in the U.S. fell from July through September for a second straight quarter as the European debt crisis depressed stocks and home values decreased. Net worth for households and non-profit groups decreased by $2.45 trillion to $57.4 trillion, the Federal Reserve said today in its flow of funds report from Washington. Americans reduced debt in the third quarter, extending a string of declines dating back three years. A 14 percent slump in the Standard & Poor’s 500 Index, the worst quarter since 2008, combined with another decrease in households’ real estate values in the third quarter.
  • Jobless Claims in U.S. at Lowest in Nine Months. Jobless claims fell by 23,000 to 381,000 in the week ended Dec. 3, the fewest since February, Labor Department figures showed today in Washington. Other data showed consumer sentiment has stabilized around levels usually associated with recessions, and wholesalers boosted inventories heading into the holidays.
  • McDonald's(MCD) November Store Sales Rise 7.4%.
  • Oil Retreats in New York as ECB's Draghi Damps Bond-Purchase Speculation. Futures fell as much as 2.2 percent after Draghi said the ECB’s bond-purchase program was “neither eternal nor infinite,” damping speculation that the bank will buy more debt. Crude oil for January delivery dropped $1.70, or 1.7 percent, to $98.79 a barrel at 12:49 p.m. on the New York Mercantile Exchange. The contract was up as much as 1.2 percent before Draghi spoke. Futures are up 8.1 percent this year after advancing 15 percent in 2010. Brent oil for January settlement declined $1.22, or 1.1 percent, to $108.31 a barrel on the London-based ICE Futures Europe exchange.
  • Virginia Tech Says Two Killed in Campus Shooting After Police Traffic Stop. Virginia Tech University, the site of a 2007 massacre in which 33 people were killed, reported a police officer and another person were shot and killed on campus after a traffic stop. The suspect remains at large and students were instructed by the university to stay indoors and in a secure place, according to alerts posted on the Blacksburg, Virginia, school’s website. The school’s transit system was also suspended.
Wall Street Journal:
  • Debit-Fee Cap Has Nasty Side Effect. Jason Scherr had a lot on his mind the day after he opened his fifth Think Coffee shop in Manhattan last week. The fan was blowing too hard, the classical music was playing a little too loudly—and he was trying to figure out how to get more customers to pay with cash. A new law that was supposed to reduce costs for merchants that accept debit cards has instead sent Mr. Scherr's monthly processing bills much higher and forced him to reassess the way he does business. "My choice is to raise prices, discount for cash or get an ATM," says Mr. Scherr, a lawyer who has been in the coffee-shop business for more than a decade. Just two months after one of the most controversial parts of the Dodd-Frank financial-overhaul law was enacted, some merchants and consumers are starting to pay the price.
  • More Scrutiny of Former New Mexico Governor Bill Richardson(D). Besides Campaign Probe, Former Governor Faces a 'Pay to Play' Investigation.
  • Firms, In Shift, See End To Yuan's Steady Gains. A significant shift in trading of China's yuan is sending signals that investors and companies expect China to halt the appreciation of its currency, despite heightened pressure from Washington.
Business Insider:
Zero Hedge:
  • How's The Euro Crisis Affecting Hedge Funds? It's Shutting Them Down. Looks like John Paulson isn’t the only hedge fund manager who can’t get it right this year. In the third quarter 213 hedge funds went out of business. That’s the largest number of liquidations since the first quarter of 2010 when 240 funds closed, according to new data from Chicago-based Hedge Fund Research Inc. The European debt crisis and overall weak economy appears to making the jobs of so-called smart money managers tougher than they’ve been in awhile.
The Detroit News:
  • Nissan Emerges as Likely UAW Organizing Focus. As the United Auto Workers ramps up efforts to organize foreign-owned auto factories in the United States, union leaders say they have decided not to name a target — at least not publicly. But a source told The Detroit News that members of the UAW's executive board voted Tuesday night to focus those efforts on Nissan Motor Co.
  • Copper Falls on Renewed Euro Zone Worries.
  • Tullow Aims for 120,000 BPD From Ghana Early 2012. British oil firm Tullow Oil said on Thursday it hoped reach plateau production of 120,000 barrels per day from its Jubilee oil field in Ghana by "early next year" following a delay due to technical problems. "The Jubilee resources are intact so we are hoping to reach the 120,000 bpd (target) early next year," Tullow spokesman Gayheart Mensah told Reuters. Tullow Chief Financial Officer Ian Springett had said last month that the 120,000 bpd target would be achieved "sometime during 2012" after the company delayed the target twice in 2011.
Financial Times:


  • Better A Horrible End for Euroland, or Endless Horror? While we are waiting for Mario and Merkozy plus, just a quick thought on one of the EMU break-up reports hitting my desk daily, and sometimes in twos and threes.
  • Eurogeddon - Fear Not, It's Under Control. Draghi's insistence that the fiscal contract eurozone leaders are attempting to thrash out at their latest summit will be sufficient in itself to restore confidence is cloud cuckoo land. He cannot sincerely believe it. The problem in the eurozone is not fiscal indiscipline, though there has certainly been a lot of it, but current account imbalances entrenched by big differences in competitiveness. These cannot be made to go away with repeated rounds of growth stifling austerity, and as for Mr Draghi's claim that it is possible to have both fiscal austerity and decent growth provided competitiveness is improved, it's simply naive to believe that's what is going to happen in practice. In fact, most of the evidence from the eurozone periphery is that it is continuing to lose competitiveness against the surplus north, with Germany progressively improving its share of an ever-shrinking market. As long as that goes on, the debt problem is going to get worse, not better. This weekend's summit will do little to solve the fundamentals of this crisis. Only a fully functioning fiscal and political union, with tax and spending decisions centralised in one authority across all 17 nations can do that. Even turbo-charged by financial and economic crisis, that's a very long road indeed.


  • Chancellor Angela Merkel is prepared to call another European Union summit this month should the meeting that convenes today fail to achieve its goals, citing government officials.
  • European banks have 1.7 trillion euros of non-strategic or non-performing assets they could divest as regulators order them to raise capital.
Shanghai Daily:
  • Shanghai Home Supply Expected to Double Over Weekend. ABOUT 900 homes at five projects in Shanghai will be released in the market over the weekend, nearly doubling from last weekend, according to data released yesterday by real estate website The average selling price of the five developments, located beyond the city's Outer Ring Road, is about 17,000 yuan (US$2,681) per square meter, a drop of 5 percent from the same period a week earlier.
The Diplomat:
  • If China's Property Bubble Bursts. The cooling of China’s real estate sector is good for the economy. But the government is right to be worried about the social consequences of the bubble bursting.

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