Thursday, December 22, 2011

Today's Headlines

  • Monti's Emergency Budget Package Wins Final Approval in Italian Parliament. Prime Minister Mario Monti’s emergency budget plan won final approval in Parliament today as Italy struggles to tame surging borrowing costs before facing 53 billion euros ($69 billion) in debt repayments early next year. The Senate voted 257 to 41 to approve the 30 billion-euro package in a confidence vote in Rome. The legislation, dubbed by Monti the “Save Italy Decree” and the nation’s third austerity plan since June, was passed by the Chamber of Deputies in a 402- to-75 vote last week. The plan includes a pension overhaul, a levy on primary residences and a crackdown on tax cheats, all measures aimed at convincing investors Monti is serious about cutting the euro region’s second-largest debt and meet the commitment of balancing the budget in 2013. It may also push Italy, which must sell 440 billion euros in debt next year, deeper into a recession that is forecast to begin in the current quarter. “The austerity package will be sufficient to bring the deficit-to-GDP ratio down to zero,” UniCredit SpA economists Chiara Corsa and Loredana Federico, both based in Milan, wrote in a note to investors today. “The pension reform is by all means a major achievement, which shows the government’s commitment to reduce public spending in a structural way.” The yield on the benchmark 10-year bond rose to 6.92 percent, up 13 basis points from yesterday. The difference with equivalent-maturity German bonds climbed to 497.3 basis points.
  • Financial Credit Risk at Two-Week Low on ECB Cash, U.S. Growth. The cost of insuring against default on financial debt fell to the lowest in two weeks amid optimism the European Central Bank’s cash injection will ease bank stress and after data signaled the U.S. economy is strengthening. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 European banks and insurers fell for a fourth day, dropping 12.5 basis points to 278, according to JPMorgan Chase & Co. at 4 p.m. in London. The Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 nations was little changed at 357.5, the lowest in two weeks. Swaps on Italy dropped eight basis points to 484, France declined one basis points to 223 and Germany was two basis points lower at 103, according to CMA prices. Spain rose two basis points to 391, while swaps on Hungary climbed 40 to 610, the highest this month, after the country was downgraded yesterday to junk status by Standard & Poor’s. The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings fell 19.5 basis points to a two-week low of 756. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 5.75 to 172.5, according to JPMorgan prices.
  • Merkel Adviser Bofinger Sees Six Months to Save Euro, WiWo Says. The future of the euro will be decided in the next six months and the joint currency has “no future” unless Germany changes its stand, Peter Bofinger, a member of Chancellor Angela Merkel’s council of economic advisers, was quoted as saying by Wirtschaftswoche.
  • HSBC Strategist on Europe Credit Crunch. (video) Garry Evans, head of global equity strategy at HSBC Holdings Plc, talks about the impact of the European debt crisis on the U.S. economy.
  • U.S. Jobless Claims Fall, Consumer Comfort Climbs. Fewer Americans than forecast sought jobless benefits and consumer confidence climbed, giving the world’s largest economy a boost heading into 2012. Unemployment claims fell by 4,000 to 364,000 in the week ended Dec. 17, the lowest level since April 2008, Labor Department figures showed today in Washington. The Bloomberg Consumer Comfort Index improved to minus 45 in the period ended Dec. 18 from a reading of minus 49.9 the prior week, marking the biggest seven-day gain since January.
  • U.S. Economy Expands Less Than Estimated. The economy in the U.S. grew less than previously estimated in the third quarter, reflecting a smaller gain in consumer spending that is giving way to a pickup in demand this quarter as the job market improves. Gross domestic product climbed at a 1.8 percent annual rate from July through September, down from the 2 percent estimated last month, revised Commerce Department figures showed today in Washington. The median forecast of 82 economists surveyed by Bloomberg News projected it would hold at 2 percent. Household purchases increased at a 1.7 percent rate, down from 2.3 percent.
  • Baghdad Blasts Kill 57 as Political Tensions Rise. Civilians were targeted in bombings across Baghdad that killed 57 people amid an escalation of political infighting in Iraq that has followed the withdrawal of U.S. troops from the country. Today’s attacks also injured 176, Ziad Tariq, a spokesman for the Health Ministry, said by phone from the capital. Residential areas, schools and shops were hit, said Qassim Atta al-Mousawi, spokesman for the security forces in Baghdad. The blasts took place in mainly Shiite Muslim areas, where security forces cordoned off areas and some businesses shut for the day. “The timing of the crimes and the choice of their areas confirms again to all those in doubt the political nature of the objectives that these people want to achieve,” Prime Minister Nouri al-Maliki said in a statement on his website. There was no immediate claim of responsibility for the attacks. Tensions between al-Maliki’s Shiite-led allies and Sunni politicians have intensified since a warrant was issued this week for the arrest of Vice President Tariq al-Hashimi, a Sunni, on terrorism charges. The case comes amid concern that the U.S. pullout will leave a security vacuum in Iraq, which seeks investment and expertise to develop the world’s fifth-largest crude reserves.
  • Oil Rises to $100 as Jobless Claims Decline, Leading Indicators Advance. Oil rose to $100 for the first time in a week as the applications for unemployment benefits in the U.S. decreased to a three-year low and the index of U.S. leading indicators signaled that economic growth will accelerate. Crude oil for February delivery rose $1.17, or 1.2 percent, to $99.84 a barrel at 12:39 p.m. on the New York Mercantile Exchange after climbing to $100 for the first time since Dec. 14. Prices have increased 9.3 percent this year after climbing 15 percent in 2010. Brent oil for February settlement gained 54 cents, or 0.5 percent, to $108.25 a barrel on the London-based ICE Futures Europe exchange. U.S. crude oil stockpiles fell 10.6 million barrels last week, the largest decrease since February 2001, yesterday’s Energy Department report showed. Imports dropped to 7.58 million barrels a day, the lowest level since September 2008. Civilians were targeted in bombings across Baghdad that killed 57 people amid an escalation of political infighting in Iraq that has followed the withdrawal of U.S. troops from the country. U.S. troops from the country. Today’s attacks also injured 176, Ziad Tariq, a spokesman for the Health Ministry, said by phone from the city. “The upsurge in violence in Iraq is probably adding to the oil price,” Lynch said. “Chances are that there will be no impact on the oil industry, but the increase in violence does add to a perception of instability.”
  • U.S. 30-Year Mortgage Rates Fall to Record-Low. Mortgage rates for 30-year U.S. loans dropped to the lowest level on record amid signs the housing market may be set for a turnaround. The average rate for a 30-year fixed loan fell to 3.91 percent in the week ended today, the lowest in data dating to 1971, from 3.94 percent, Freddie Mac said in a statement. The average 15-year rate matched last week’s previous all-time low of 3.21 percent, according to the McLean, Virginia-based mortgage-finance company.
  • Indian Banks' Bad Loans May More Than Double, RBI Says. Indian lenders’ bad loans may more than double by 2013 in a “severe risk” scenario, the Reserve Bank of India said in a report today. Soured loans may jump to as much as 5.8 percent of total advances within two years under such strained conditions, from 2.8 percent in September, according to the central bank report. The ratio is expected to climb to 3.2 percent to 3.5 percent by March 2013 under a baseline scenario, it said. India’s economy last quarter grew at the slowest pace in more than two years after the central bank raised interest rates by a record to tame the fastest inflation among so-called BRIC nations, the world’s largest emerging markets. Credit growth in India fell to a 20-month low of 17.73 percent in November, data compiled by the Reserve Bank of India shows. “While markets have already factored in some rise in bad loans, the higher projections made by the Reserve Bank will definitely weigh on investors’ sentiment,” Sandeep Jain, a banking analyst at IDBI Capital Market Services Ltd. in Mumbai, said by telephone today.
Wall Street Journal:
  • McConnell Calls for Payroll-Tax Deal. Senate Minority Leader Mitch McConnell (R., Ky.), seeking to end an impasse on renewing the payroll-tax cut set to expire at the end of the year, on Thursday urged House Republican leaders to pass a short-term extension and said Senate Democrats should name negotiators to work out a longer-term deal.
  • U.S. Erred in Deadly Pakistan Attack. New Report on Pakistan Airstrike That Killed 24 Acknowledges U.S. Culpability.
Dow Jones:
  • Barclays(BCS) Made 'Huge Losses' in Base Metals Trading. Barclays may reshuffle its base metals desk after a series of "huge" losses mostly tied to copper trading, citing people familiar with the situation. Traders estimate losses up to $500 million, though no official figure can be confirmed.
Business Insider:
Zero Hedge:
Washington Post:
  • U.S. Exporters Brace For Cutbacks In European Bank Lending. The European Central Bank’s decision Wednesday to offer loan help to the region’s financial institutions was closely watched by U.S. companies, which have extensive ties to troubled European markets. Boeing warned that European banks would cut lending to companies that buy planes. Pharmaceutical companies Pfizer and Bristol-Myers Squibb have said cash-strapped European governments that provide health care are cutting what they spend on drugs. And other U.S. exporters to the region, such as almond farmers, medical equipment manufacturers and car makers, must brace for the possibility that a European recession will depress their sales.

Finanaial Times:

  • The LTRO, The Switch and The Basis Swap Market. Were you puzzled by the immediate reaction of the euro following Wednesday’s LTRO? In short, so much euro liquidity hit the market that it didn’t matter that the ECB had just had a successful dollar funding operation. No one was willing to price currency basis swaps in any other way but one which reflected a dollar drought situation during a euro flood. In such a situation, the euro has no choice but to fall.


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