Thursday, January 05, 2012

Today's Headlines

  • EFSF Bond-Yield Boost Fails to Halt Slide in Demand for $4 Billion Issue. Europe’s bailout fund is losing its appeal as a bond issuer after investors ordered about 4.5 billion euros ($5.8 billion) of its 3 billion euros of notes compared with demand of nine times on its first deal a year ago. That’s after the European Financial Stability Facility offered investors a yield spread almost seven times what it paid to sell 5 billion euros of securities last January, according to data compiled by Bloomberg. “The book on the EFSF bond is far from stellar at just 4 billion,” said Padhraic Garvey, global head of developed- country debt and rates strategy at ING Groep NV in Amsterdam, said before the deal closed. “A much bigger cover would have given the thing a better gloss.” The new bond was the EFSF’s first three-year issue and follows a Nov. 7 sale that was delayed because of volatility caused by the euro region’s deepening sovereign crisis. Standard & Poor’s said last month that the fund, which will use the proceeds of today’s transaction to help finance the bailouts of Ireland and Portugal, may lose its top credit rating should one of its AAA rated guarantors be downgraded.
  • Financial Default Swaps Rise as Europe's Debt Crisis Worsens. The cost of insuring against default on European financial debt rose on concern the region’s debt crisis is deepening. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 banks and insurers climbed 16.5 basis points to 289 and the subordinated index was up 20 at 525, according to JPMorgan Chase & Co. at 3 p.m. in London. An increase signals deterioration in perceptions of credit quality. Spanish banks will have to increase provisions for troubled assets by as much as 50 billion euros ($64 billion), Economy Minister Luis de Guindos said. Greece warned there’s a risk of “disorderly default” as Hungary failed to secure an international bailout and French borrowing costs rose at a bond sale today. “As sovereigns go, so will banks go,” said Gary Jenkins, director of independent research firm Swordfish Research in London. “Their futures are tied up together.” The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose eight basis points to 375, nearing the record 385 set Nov. 25. The sovereign gauge exceeds the senior financial measure by the most since October. Swaps on Hungary rose 12 basis points to a record 734, according to CMA. That signals a 40 percent probability of default within five years, assuming investors would recover 25 percent of their holdings in the event. The contracts are up from 635 basis points at the end of last year. Contracts on Austria jumped 12.5 basis points to 226.5, Belgium increased four to 335 and France was 9.5 higher at 232, CMA prices show. Germany rose 4.5 to 109, Italy increased eight to 524 and Spain was up eight at 444. The cost of insuring corporate debt also rose. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose 16.5 basis points to 761. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings rose 5.75 basis points to 178.25.
  • European Stocks Slide on Bank Capital Raising Concern; Unicredit Tumbles. European stocks (SXXP) declined for a second day as concern that the region’s banks will have to raise capital overshadowed a report showing that U.S. companies added more workers to their payrolls than economists had predicted. UniCredit SpA, which announced a rights offer at a 43 percent discount yesterday, slumped to a 19-year low. Societe Generale SA dropped 5.4 percent after announcing it will cut corporate- and investment-banking staff. The Stoxx Europe 600 Index fell 0.9 percent to 247.39 at the close in London.
  • Retail Sales in Germany Unexpectedly Fell For Second Month in November. German retail sales (GRIORTMM) unexpectedly fell for a second month in November as Europe’s sovereign debt crisis weighed on the outlook for economic growth. Sales, adjusted for inflation and seasonal swings, decreased 0.9 percent from October, when they fell a revised 0.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.2 percent, the median of 13 estimates in a Bloomberg News survey (GRFRIAMM) showed.
  • China's Stocks Slide to Lowest Since March 2009 as Small Companies Plunge. China’s stocks (IFB1) fell to the lowest level since March 2009 on concern the European debt crisis will curb exports and a potential cash crunch before the Chinese new year holidays may boost lending costs for small companies. China Cosco Holdings Co. (601919), Asia’s largest shipping line, dropped 4.4 percent after Luxembourg’s prime minister said the European Union is facing a recession of unknown scope. Ufida Software Co. plunged 8 percent, leading declines for technology stocks, the worst performing industry. The Shanghai Composite Index (SHCOMP), which tracks the bigger of China’s stock exchanges, slid 20.94 points, or 1 percent, to 2,148.45 at the close. The CSI 300 Index slumped 1 percent to 2,276.39. The Shenzhen Composite lost 3.5 percent, while the ChiNext index of start-up companies plunged 5.7 percent. Anhui Anke Biotechonology (Group) Co. tumbled 9.5 percent to 9.99 yuan in Shenzhen. Gauges of technology and health-care companies in the CSI 300 dropped more than 3 percent, the most among industry groups.
  • U.S. Companies Added 325,000 Jobs: ADP. Companies added more workers than forecast in December, a sign that the U.S. labor market was gaining momentum heading into 2012, according to a private report based on payrolls. A Labor Department report tomorrow may show payrolls rose by 150,000, not enough to keep the unemployment rate (USURTOT) from rising to 8.7 percent, economists in a Bloomberg survey projected.
  • Job Cuts in U.S. Jumped 31% in December From Prior Year, Challenger Says. Planned firings (CHALTOTL) rose 31 percent to 41,785 last month from 32,004 in December 2010, which were the fewest since June 2000, according to Chicago-based Challenger, Gray & Christmas Inc. Job cuts totaled 606,082 for all of 2011, up 14 percent from the previous year, the report showed.
  • U.S. Services Grew Less Than Forecast. Service industries in the U.S. expanded less than forecast in December, indicating improvement in the economy will be uneven. The Institute for Supply Management’s index (NAPMNMI) of non- manufacturing industries, which account for almost 90 percent of the economy, rose to 52.6 last month from 52 in November, the Tempe, Arizona-based group said today.
  • Hedge Funds Fell 4.9% in 2011 as Europe Crisis Grew. Hedge funds fell 4.9 percent last year as global stock markets slumped amid fears that the European sovereign-debt crisis would spread and managers struggled with increased market volatility. The Bloomberg aggregate hedge-fund index (BBHFUNDS) dropped 0.9 percent in December, with long-short equity and multistrategy (BBHFMLTI) funds falling. Macro funds, which bet on global economic trends, rose last month and declined in 2011.
  • Oil Drops on Unexpected Inventory Increase. Oil stockpiles (DOESCRUD) increased 2.21 million barrels to 329.7 million, the Energy Department report showed. Total petroleum demand (DOEDTPRD) fell 2.6 percent to 18 million barrels a day. Gasoline inventories (DOESTMGS) rose 2.48 million barrels to 220.2 million. Distillate fuels (DOESDIST), which include diesel and heating oil, gained 3.22 million to 143.6 million.
Wall Street Journal:
  • Leading Indicators Index Gets Overhaul. “These adjustments have been designed to make the U.S. Leading Economic Index an even stronger predictor of peaks and troughs in the business cycle, while recognizing changes in the functioning and drivers of the economy in the short and medium term,” Conference Board chief economist Bart van Ark said in a press release. The firm said it will remove the M2 money supply measure and replace it with something entirely new, which it dubbed the “Leading Credit Index.” The Conference Board said the Leading Credit Index is made up financial market indicators including bond market yield curve data, interest rate swaps and data extracted from a periodic Federal Reserve survey of bank lending.
  • Where Did Nine Million Cable Subscribers Go?
Business Insider:
Zero Hedge:

LA Times:

  • North Korea's Kim Jong Un Wages Defector Crackdown. In North Korea, a new Kim may be in command but the same old human rights violations are still in play, including a renewed lethal crackdown on defectors, according to South Korean media reports. Weeks after 20-something Kim Jong Un assumed power following his father Kim Jong Il’s sudden death by heart attack last month, border guards have begun shooting down would-be defectors who try to flee the impoverished nation, the reports said. Three people who tried to flee the repressive regime were reportedly killed in recent days as they tried to cross the Yalu River along the Chinese border, part of a policy of tightened border controls that Pyongyang is enforcing after Kim Jong Il's Dec. 17 death. Under Kim Jong Un, North Korea has pledged to hunt down and imprison, or even kill, three generations of family left behind by escapees, successful or not, according to Seoul's Joongang Daily newspaper. North Korea watchers say the younger Kim may fear that a rise in defections could destabilize his fledgling hold on power as officials across Pyongyang's security apparatus jockey to demonstrate their loyalty to the regime's new strongman. "There was nothing like the eradication of three generations in the Kim Jong Il era, but now it's happening under Kim Jong Un," an unnamed official told the newspaper.
  • Global Property Funds Face Tough 2012. Private equity real estate funds face a challenging fundraising landscape in 2012 as investors grow more cautious about coughing up fresh capital amid growing global economic uncertainty, Preqin said on Thursday. The research firm's December survey of 180 institutional investors from North America, Europe and Asia found 53 percent do not expect to make new commitments this year, while 11 percent said they might considering doing so. The remaining 36 percent said they did plan new property fund commitments in 2012. At present, 450 funds are in the market seeking an aggregate of $165 billion, Preqin said.
  • EU/IMF Aid Schedule for Greece Pushed Back 3 Months. Greece's entire schedule of emergency loans from the European Union and International Monetary Fund is being pushed back by three months because of a delay in the payout of a tranche in 2011, the European Commission said on Thursday. The next 5 billion euro tranche for Greece that was originally scheduled to be paid in December 2011 is now to be paid out in March 2012, Commission spokesman Olivier Bailly said. A further 10 billion euros that Greece was originally to receive in March this year, will now be paid only in June and all of those sums can also be delayed if inspectors judge Athens is failing to deliver promised fiscal reforms.
Financial Times:
  • Meddling in Credit Swaps Poses Sizable Stability Risks. The potential for future shocks is still there.
  • Worries Grow as China Land Sales Slump. Land sales slowed sharply in China last year, according to a series of industry reports that highlight the deepening woes of debt-laden local governments that depend on land auctions as a crucial revenue source. While the falling sales are still far from reaching crisis point, analysts say, authorities are increasingly under pressure to choose between costly help for the worst-hit cities and an unpalatable relaxation of its policies aimed at preventing a dangerous property bubble.
  • Italian Bond Yields Jump Back Above 7%.



  • An exit from the euro by Greece would cause a chain reaction in other crisis countries within the currency area as citizens rush to withdraw savings from banks, Oxford University professor Clemens Fuest said, citing an interview.
Le Figaro:
  • Prime Minister Mario Monti said Italy would join any European Union oil sanctions against Iran as long as they are "gradual" and exclude shipments to reimburse Iran's 1 billion euro debt to Italian oil company Eni Spa.
Shanghai Daily:
  • Housing Index Sees Drop. SHANGHAI'S existing housing index fell for the third straight month in December, with prices declining in 80 percent of the areas monitored. The index, which tracks price fluctuations of the city's previously occupied homes, lost 6 points, or 0.22 percent, from November to 2,586, the Shanghai Existing House Index Office said yesterday. "As austerity measures continued to persist, more property owners seemed willing to offer larger price cuts," said Zhang Shu, an analyst at the index office. "Particularly, some owners in outlying districts have offered a discount of about 15 percent to lure buyers after a number of developers in the same area began to give discounts of between 20 and 30 percent." The price cuts in prime areas, however, were still largely confined to mostly between 4 and 6 percent, the office said.
China Finance:
  • China's life insurance industry may enter its hardest period during the first half of the year, the vice chairman of China Insurance Regulatory Commission, Chen Wenhui, wrote. Insurers face more solvency pressure than during 2008, during the international financial crisis, he said. The industry's solvency ratio was 60 percentage points lower in the third quarter than the start of last year, Chen said.
  • Some Chinese local governments may face "relatively large" repayment pressures as their financing vehicles enter a peak period for repaying debt, Wang Yiming, deputy director of macro-economic research institute under the National Development and Reform Commission, writes in an articles.

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