Wednesday, December 21, 2011

Today's Headlines

  • Europe Stocks Drop as ECB Loans Fail to Ease Debt-Crisis Concern. European stocks fell for the first time in three days as lenders sought more funds from the European Central Bank than economists had predicted, reducing optimism that the debt crisis will be contained. The Frankfurt-based ECB awarded 489 billion euros ($640 billion) in 1,134-day loans, more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which it will lend at the average of its benchmark rate over the term of the loans. “The added liquidity is being seen as just another quick shot in the arm rather than anything more meaningful,” Yusuf Heusen, a sales trader at IG Index in London, wrote in e-mailed comments. “As a result hopes of an upbeat run to Christmas seem to be waning.” UniCredit, Italy’s biggest bank, dropped 4.4 percent to 70.8 euro cents and France’s Societe Generale (GLE) SA slid 3.4 percent to 16.63 euros. A gauge of banks in the Stoxx 600 slipped 0.7 percent.
  • Italian GDP Contracts as Nation Enters New Recession: Economy. The Italian economy contracted in the third quarter, signaling the country may have entered its fifth recession since 2001 as the government adopts new austerity measures that will further weigh on growth. Gross domestic product declined 0.2 percent from the second quarter, when it expanded 0.3 percent, national statistics institute Istat said in Rome today. It was the first contraction since the final three months of 2009 and matched the median forecast in a survey of 23 economists by Bloomberg News. Consumer spending declined 0.2 percent from the second quarter, with investment contracting 0.6 percent. Exports grew 1.6 percent in the quarter, while imports fell 1.1 percent.
  • French Banks Struggling to Raise $48 Billion for First-Quarter Debt Needs. BNP Paribas SA, Societe Generale SA (GLE), Credit Agricole SA and Groupe BPCE, France’s biggest banks, are struggling to fund about 37 billion euros ($48 billion) of debt payments due in the first quarter. As their access to U.S. dollar short-term funds dries and they face soaring costs in the bond market, French lenders are raising money by selling their debt through structured products and issuing bonds backed by mortgages on properties in Paris and regions including Cote-d’Azur, the French Riviera playground of the rich. The European Central Bank is also offering them three- year loans through a facility, which opened today. “It’s gotten harder and harder to get refinancing on the markets, and as time goes by rating agencies are taking negative actions, pushing up already high funding costs,” said Jacques- Pascal Porta, who helps manage 500 million euros at Ofi Gestion Privee in Paris and owns BNP Paribas shares.
  • Fitch to Cut Hungary Sovereign Credit by Two Steps to Junk, Origo Reports. Fitch Ratings has notified the Hungarian government of its intention to cut the country’s sovereign credit grade by two steps to junk, Origo news website reported, citing two “market sources independent of each other.” Hungary is currently rated BBB-, the lowest investment grade, with a negative outlook at Fitch.
  • The ECB's lending operation may buy the EU politicians more time to create a more comprehensive solution, though it won't increase "external demand" for peripheral sovereign debt, Nomura strategist Guy Mandy wrote in a note today. There were 523 bidders, which was less than the 1,121 participants in 2009, which indicates tehre wan't a wholesale take-up in operations for carry purposes.
  • The 3M EUR/USD Cross Currency Basis Swap is falling -11 bps to -128 bps, which is the lowest since Dec. 15 on a closing basis, after 523 banks borrowed EU489B at the ECB's 3-year LTRO.
  • Mortgage Bonds Miss Out on Rally as Europe Bank Sales Loom: Credit Markets. U.S. mortgage bonds that lack government backing are trading at about the lowest prices in more than a year, even as riskier assets from high-yield company bonds to stocks rally, with investors bracing for sales of home- loan debt by European banks. A group of prime jumbo-mortgage securities tracked by JPMorgan Chase & Co. as a benchmark fell to 93.3 cents on the dollar this month, the lowest level since August 2010. A set of subprime bonds tumbled to a two-year low of 28.1 cents. Banks across Europe have pledged to cut more than 950 billion euros ($1.2 trillion) of assets during the next two years, after regulators made them increase core capital to 9 percent by June instead of in 2019, according to data compiled by Bloomberg. Combined with the greater difficulty of trading in the $1.1 trillion market of non-agency mortgage bonds and concern that the U.S. housing market has yet to bottom, the threat of the region’s banks unloading their holdings is helping to depress values. “The European banks are scrambling for capital and the traditional route” of selling shares isn’t available as investors shun their equity securities, said Reza Ali, who heads Prosiris Capital Management LLC, a New York-based hedge fund that’s gained 10.7 percent since starting in July. “There are big question marks that don’t exist to the same degree for corporate bonds” and structured debt in the U.S. including collateralized loan obligations, aircraft-backed notes and commercial-mortgage securities.
  • China Stocks Drop for Third Day on Cash Crunch, Ping An's Fundraising Plan. China’s stocks fell for a third day as a cash crunch weighed on equities after banks hoarded cash to meet year-end reserve-ratio requirements and Ping An Insurance (Group) Co. (601318) plunged on fundraising plans. Ping An, China’s second-biggest insurer, slid 5.2 percent on a plan to sell as much as 26 billion yuan ($4.1 billion) of bonds after business expansion brought down its capital adequacy. China Vanke Co. led a decline for developers as cities including Shanghai extended the period limiting home purchases. “The economy and the capital markets are still facing a credit crunch as a result of two years of monetary tightening,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “The economy is experiencing a down cycle. Stocks are not a place to put money until economic growth picks up again.” The Shanghai Composite Index (SHCOMP) fell 1.1 percent to 2,191.15 at the close. The Shanghai Composite has fallen 6.1 percent in December as concern about an economic slowdown overshadowed the first cut in reserve requirement ratios in three years on Nov. 30. For the year, the measure is down 22 percent after the central bank raised interest rates three times to curb inflation and exports to Europe slowed because of the region’s debt crisis.
  • Wen Says China's Slowing Growth, Elevated Prices Add to Policy Challenge. Chinese PremierWen Jiabao said slowing growth and elevated prices are adding to the difficulties the government faces in helping manage the world’s second-biggest economy. The nation will keep its export policies such as tax rebates “basically stable” next year and the government will mainly use fiscal spending to support “structural tax cuts” and to improve people’s lives, Wen was cited as saying in a statement posted on the central government’s website yesterday. “The current economic growth momentum is generally sound, but we are also facing many new situations and problems,” Wen said. China will maintain prudent monetary and proactive fiscal policy next year and policies will be fine-tuned as needed in accordance with the changing situation, the ruling Communist Party said after an economic work meeting last week. Export growth slowed to the weakest pace since 2009 in November, a development that Wen said reflects a “grim” situation facing China.
  • Shale Boom Heralds Fifth Year of Gas Declines: Energy Markets. Booming U.S. natural gas production from shale formations and slowing demand from households, factories and power plants are poised to send prices down for an unprecedented fifth year in 2012. Gas may tumble 8.2 percent from its 2011 average next year, as output rises 2.8 percent to a record 67.72 billion cubic feet a day, according to the Energy Department. Demand will probably climb 1.7 percent, after a 1.8 percent increase this year, the department said in its Dec. 6 Short-Term Energy Outlook. "It's been practically impossible to turn off the shale- gas tap," Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington, said in a telephone interview Dec. 14. "Industrial demand has been rising, but it's not enough." Natural gas has dropped 28 percent on the New York Mercantile Exchange this year, the most since 2006, as improved drilling technology and profits from selling gas liquids encouraged producers to pump record amounts of the fuel from shale formations from Texas to Pennsylvania. Futures have dropped in each of the past three years, the longest stretch of declines since the contracts began trading on the Nymex in 1991.
  • Crude Futures Rise for Third Day as Inventories Decline Most in a Decade. Oil rose for a third day as U.S. inventories declined the most in a decade. Futures gained as much as 2.1 percent after the Energy Department reported supplies fell 10.6 million barrels to 323.6 million last week. It was the largest decline in barrels since Feb. 16, 2001, and almost five times the 2.13 million-barrel drop that was the median of 12 analyst estimates in a Bloomberg News survey. “Refiners are trying to reduce inventories to minimize their ad valorem taxes” in Texas, Andy Lipow, president of Lipow Oil Associates LLC in Houston, said in a telephone interview before the report. “This is accomplished by increasing exports of product and minimizing imports of crude oil to reduce inventories.”
  • Airlines Lose Fight Against EU Carbon Caps. International airlines lost a challenge to the European Union’s planned expansion of its carbon cap-and-trade system, the region’s highest court said. The EU Court of Justice “confirms the validity of the directive that includes aviation” in the emissions-trading program, the Luxembourg court ruled today.
  • Brazil CPI Accelerated for Second Month in Mid-December. Consumer prices, as measured by the IPCA-15 index, rose 0.56 percent in the month, compared with an increase of 0.46 percent in mid-November, the national statistics agency said today. The increase was in line with the median estimate of 43 analysts surveyed by Bloomberg. Annual inflation slowed to 6.56 percent, still above the 6.5 percent upper limit of the central bank’s target range.
  • Existing Homes Sold Since '07 Revised Down. Sales of existing homes in the U.S. rose in November to a 10-month high, showing demand may be starting to stabilize following a plunge over the past four years that was steeper than previously calculated. Purchases climbed 4 percent to a 4.42 million annual pace, the most since January, the National Association of Realtors said today in Washington. The group revised down figures going back to 2007 by an average 14 percent, putting them more in line with other measures of demand.
Wall Street Journal:
  • R&I Lowers Japan Sovereign Debt Rating. The Japanese credit-rating company Rating and Investment Information Inc. lowered Japan's sovereign debt rating to AA+, the first time a domestic firm has said the country's debt is not of triple-A caliber. While Japan isn't considered in immediate danger of default, the European debt crisis has brought more attention to its massive fiscal deficits and growing debt load. The government relies on fresh borrowing for 50% of its annual spending which has helped push the gross debt level to 200% of annual economic output. The debt load is by far the highest among major industrialized countries, outpacing even troubled economies such as Greece. In making the announcement, R&I said that even if a planned increase in the sales tax goes ahead, the added revenue won't be enough to halt the rise in Japan's debt load. The firm forecasts that the debt will continue to rise for "an extensive period of time." The government of Prime Minister Yoshihiko Noda is trying to push through a major increase in the national sales tax to help close the budget deficit.
  • CEO of TheStreet Inc. Stepping Down.
Business Insider:
Zero Hedge:


  • Hedge Funds Fall -.59% In Early Dec. Hedge funds aren't getting the help this month they need to avoid a losing year. As things stood at the end of November, the industry would have needed a major rally to get into the black for 2011. But hedge funds haven't gotten any kind of rally, and instead lost further ground in the first half of November, according to Hedge Fund Research. The HFRX Global Hedge Fund Index lost 0.59% through Friday. The benchmark is down just over 9% on the year, with two weeks to go before New Years Day. Over the same period, the Standard & Poor's 500 Index was down about 2.2%. Fundamental growth funds fell an average of 2.57% (down 15.01% YTD),equity hedge funds 1.61% (down 19.69% YTD), market directional funds 1.57% (down 18.98% YTD), fundamental value funds 1.14% (down 23.61% YTD), special situations funds 0.73% (down 3.74% YTD), event-driven funds 0.69% (down 5.03% YTD), North American funds 0.53% (down 3.8% YTD), distressed restructuring funds 0.49% (down 7.69% YTD) and multi-regional funds 0.49% (down 15.21% YTD).
  • Italy bank assn-ECB loans won't prompt banks to buy state bonds. Banks won't increase their exposure to sovereign debt even after the European Central Bank's massive three-year funding operation because European Bank Authority (EBA) rules discourage it, Italy's banking association (ABI) said on Wednesday."The EBA rules are a deterrent for buying sovereign bonds, so not even the ECB's important liquidity injection -- of almost 500 billion euros -- can be used to support sovereign debt," ABI director general Giovanni Sabatini told reporters. "The EBA created this problem by making the new toxic assets, in the eyes of the markets, sovereign bonds," Sabatini said. In new rules announced by the EBA earlier this month, banks will be required to mark to market their sovereign bond holdings, which has prompted ABI to threaten legal action. "Banks not only will not increase their exposure, but they will probably cut it, and this creates a potential problem for refinancing sovereign debt," he said.
  • Egypt Sees Clinton Remarks as "Interference" - Agency. The Egyptian foreign minister said on Wednesday that Egypt would not accept any interference in its internal affairs, in response to criticism by U.S. Secretary of State Hillary Clinton on the way security forces dealt with women protesters. In a speech on Monday, Clinton criticised the actions of Egyptian security forces as showing the "systematic degradation" of women that "disgraces the state", some of the strongest U.S. language used against Egypt's new rulers. Footage showed Egyptian soldiers beating protesters with batons, often after they had fallen to the ground, in what activists described as a forcible attempt to clear a sit-in demanding a swifter transfer to civilian rule. The clashes since Friday have left at least 13 dead and hundreds wounded. "Egypt does not accept any interference in its internal affairs and conducts communications and clarifications concerning statements made by foreign officials," the state news agency quoted Foreign Minister Mohame d Kamel Amr as saying. "Matters like that are not taken lightly," he was quoted as saying, in his response to a question about Clinton's remarks.


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