Thursday, December 15, 2011

Today's Headlines

  • Draghi Says Short-Term Contraction in Euro Area Unavoidable Amid Austerity. European Central Bank President Mario Draghi said the euro area may not be able to escape a recession due to governments’ austerity measures. “The unavoidable short-term contraction may be mitigated by the return of confidence,” Draghi said during a speech in Berlin today. “But in the medium term, sustainable growth can be achieved only by undertaking deep structural reforms that have been procrastinated for too long.”
  • IMF's Lagarde: Europe Crisis 'Escalating'. The European debt crisis is growing to the point that it won’t be solved by one group of countries, Christine Lagarde, the managing director of the International Monetary Fund said today. Lagarde said that if countries don’t work together, the world will face a situation similar to the 1930s, before the world slid into World War II. “There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super- advanced economies that will be immune to the crisis that we see not only unfolding, but escalating at a point where everybody would actually have to focus on what it can do,” Lagarde said. If the international community doesn’t work together, “the risk from an economic point of view is that of retraction, rising protectionism, isolation,” Lagarde said. “This is exactly the description of what happened in the ‘30s and what followed is not something we are looking forward to.” Lagarde said the world economic outlook “is quite gloomy” with pervasive downside risk, downward revisions, slower growth than expected, higher deficits than predicted and public finances in shaky condition. “And that is pretty much true the world over,” Lagarde said.
  • BlackRock(BLK) Says Euro Area Headed for 'Full-Fledged' Recession. BlackRock Inc. (BLK), the world’s biggest asset manager, said European nations including France and Germany are headed for a recession as the prolonged debt crisis has prompted companies to cut spending and stop hiring. “We now believe that we’re in for a full-fledged recession, including one in France and Germany, that could cut GDP by 1 percent to 2 percent,” according to a note published today by New York-based BlackRock’s investment institute. “Short-term austerity measures could worsen the recession, defeating their very purpose of closing budget gaps.”
  • Peripheral Europe May Face a Run on Banks in Coming Months, Kyle Bass. Kyle Bass, the Dallas-based hedge fund manager who said in 2009 that governments would default within three years, said Greek, Portuguese and Spanish depositors will withdraw money from banks in the coming months. “Just as Latvians ran to the ATMs this weekend, so will depositors all over peripheral Europe in the months ahead,” Bass, who runs Hayman Capital Management LP, said in an investor letter. “Deposits are now declining at an accelerated pace. What’s surprising is that it hasn’t happened much sooner.”
  • BlueCrest's Platt Says European Banks Insolvent. Michael Platt, the founder of the $30 billion hedge fund BlueCrest Capital Management LLP, said most of the banks in Europe are insolvent and the situation will worsen in 2012 as the region’s debt crisis accelerates. “I do not take any exposure to banks at all if I can avoid it,” Platt, 43, said today in an interview on Bloomberg Television’s “Inside Track With Erik Schatzker.” If European lenders had to mark their books to markets every day in the same way hedge funds do, most would be proven “insolvent,” he said.
  • East Europe Confidence Falls More On Euro Crisis, ZEW Says. Central and eastern Europe’s economic outlook worsened further in December as the euro-area debt crisis undermined growth prospects, the ZEW Center for European Economic Research and Erste Group Bank AG (EBS) said. The economic-sentiment indicator, a measure of investor confidence in the region, fell 4.6 points to minus 41.4 points, ZEW and Erste Bank said today in an e-mailed statement.
  • Jobless Claims in U.S. Drop to Three-Year Low. The fewest workers in three years filed claims for U.S. jobless benefits last week, indicating the world’s largest economy is strengthening heading into 2012. The number of applications for unemployment payments dropped by 19,000 to 366,000 in the week ended Dec. 10, less than the lowest forecast of economists surveyed by Bloomberg News and the least since May 2008, according to Labor Department figures issued today in Washington. Other reports showed manufacturing accelerated this month after pausing in November. “The U.S. economy, unlike the rest of the world, is gathering momentum as we head toward year-end,” said Eric Green, chief market economist at TD Securities Inc. in New York.
  • China Halts Project as Protests Erupt Over Death of Villager, Land Sales. China’s Communist Party halted a real estate project and are investigating local officials in a village in Guangdong province where protests have led to it being cordoned off, state media reported. Authorities in Wukan village will be questioned and the property construction plan will be stopped, China News Service said. Future land development will be undertaken only with the approval of a majority of villagers, the report said, citing Wu Zili, the mayor of Shanwei, which has jurisdiction over Wukan.
  • India's Bond Yields at This Week's High on Inflation Concern. India’s 10-year bonds were little changed, holding yields at this week’s highest level, on concern an accelerated slide in the rupee will boost the cost of imports and spur inflation. The rupee slid 8.3 percent this quarter, the biggest drop among Asian currencies, and touched a record low of 54.3050 per dollar today. The benchmark wholesale-price index rose 9.11 percent in November from a year earlier, government data showed yesterday. The Reserve Bank of India will keep the repurchase rate unchanged at 8.50 percent at a policy review tomorrow, according to all 14 economists in a Bloomberg survey. “The central bank can’t afford to ease its policy stance as inflation continues to be a worry,” said N.S. Venkatesh, head of treasury at Mumbai-based IDBI Bank Ltd. “The rupee’s drop will also push prices higher.”
  • Manufacturing May Shrink From China to Europe as Demand Weakens: Economy. Manufacturing may contract this month from China to the euro region as global demand slows and Europe’s leaders struggle to contain the worsening debt crisis. Chinese factory output may decline for a second month in December as Europe’s fiscal woes weigh on exports and home sales slide, preliminary results from a Markit Economics survey indicate. In the euro area, manufacturers may face a fifth straight month of contraction as the region endures its worst quarter for 2 1/2 years, a separate report showed. Ripples from Europe’s debt turmoil have dented confidence among companies and consumers and hit global demand. The Organization for Economic Cooperation and Development said last month that trade in goods stalled in most major economies in the third quarter and it cut its growth forecast. The slowdown is spilling over into unemployment, with Nokia Siemens Networks announcing last month that it plans to eliminate 17,000 jobs worldwide. “The near-term outlook is still bleak” in Europe, said Stella Wang, an economist at Nomura International Plc in London. “With the uncertainty about the sovereign debt crisis and slowing momentum of the euro area’s main trading partners, both businesses and consumers look set to continue holding back their investment and consumption decisions going into 2012.”
  • Chinese Cut Back on London Luxury Home Buying as Stock Market Losses Bite. Chinese investors’ share of prime London home purchases in the city’s most expensive neighborhoods fell by more than half in the third quarter as stock market declines hurt spending power, Hamptons International said. Buyers from the world’s second-largest economy accounted for 4.9 percent of sales in Chelsea, Kensington, Knightsbridge and Belgravia in the three months through September, down from 12.6 percent in the previous quarter, said Adam Challis, head of residential research the London-based property broker. They represented 10.6 percent of the purchases in the three months through March. “A lot of Asian wealth that’s spent on property is tied to the performance of equity markets,” Challis said in an interview. “When they wobble, there’s less money to spend.” The Hong Kong Hang Seng Index fell 22 percent and Japan’s Nikkei 225 Stock Average retreated 15 percent in the two months through September, as Europe’s sovereign debt crisis damped global investor confidence.
  • Crude Oil Decreases for Second Day as U.S. Industrial Production Falls. Oil fell to the lowest level in more than five weeks as U.S. industrial production declined for the first time in seven months, indicating a pause in manufacturing in the world’s largest oil-consuming country. Prices dropped as much as 1.1 percent after Federal Reserve data showed output at factories, mines and utilities fell 0.2 percent in November. “The industrial demand number is weighing on the oil market,” said James Williams, an economist at WTRG Economics, an energy research firm in London, Arkansas. “People are concerned that oil demand from factories will be weaker.” Crude for January delivery fell 86 cents, or 0.9 percent, to $94.09 a barrel at 1:15 p.m. on the New York Mercantile Exchange. Earlier, it touched $93.87 a barrel, the lowest intraday level since Nov. 7.
  • Obama's Support Among Young People Slips. Thirty-six percent of Americans age 18 to 29 predict that Obama will lose the election next year, while 30 percent say he will win. College students, who gave Obama some of his strongest support in 2008, now give the president a 48 percent approval rating, down from 60 percent in February, according to the poll.
  • Morgan Stanley(MS) to Eliminate About 1,600 Jobs.
Wall Street Journal:
  • Japan Orders Citi(C) to Suspend Fund Sales, Rate Operations. Citigroup Inc. has been ordered by regulators to temporarily suspend its Japanese mutual-fund sales and interest-rate trading businesses as a result of regulatory sanctions, people familiar with the situation said. As a result of the sanctions, which are expected to be announced Friday by Japan's Financial Services Agency, Citigroup will be required to close its mutual-fund business for 30 days and its interest-rate trading operations for 10 days.
  • Businesses Preparing for Higher Costs in 2012. Business executives are expecting their costs to increase again next year. But they may not be able to pass those costs along to their customers.
  • ECB Chief Plays Down Hopes For Bigger Bond Purchases. European Central Bank President Mario Draghi praised the results of the European Union's latest summit as a "breakthrough" Thursday, and once more poured cold water on hopes that the ECB might ramp up its government bond purchases to end the debt crisis.
Business Insider:
Zero Hedge:

  • Greek Unemployment at Record High, Seen Rising Further. Unemployment jumped to 17.7 percent in the third quarter from 16.3 percent in the previous three-month period, the Greek statistics service said -- the highest quarterly unemployment rate recorded since the series started in 1998.


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