Friday, January 13, 2012

Today's Headlines

  • Greece Creditors Break Off Debt Talks. Greece’s creditor banks broke off talks after failing to agree with the government about how much money investors will lose by swapping their bonds, increasing the risk of the euro-area’s first sovereign default. Proposals put forward by a committee representing financial firms have “not produced a constructive consolidated response by all parties,” the Washington-based Institute of International Finance said in a statement today. “Discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.” The government said the two sides will reconvene discussions in five days. Greek officials and the nation’s creditors agreed in October to implement a 50 percent cut in the face value of Greek debt, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020. More than two months after the accord was announced, the two sides still need to agree on the coupon and maturity of the new bonds to determine the total losses for investors. “The current rescue program doesn’t work and requires a rethink that needs to be done very quickly to keep Greece from defaulting,” said Christian Schulz, a senior economist in London at Berenberg Bank. “The risk is high and the stakes are high: that Greece will be let go from the euro.”
  • France Loses AAA as Greek Talks Break Down in Crisis Blow. France was stripped of its top credit rating by Standard & Poor’s and banks suspended talks with Greece over debt restructuring, the first blows this year to efforts aimed at stemming Europe’s fiscal turmoil. France’s AAA rating will fall by one level at S&P, Finance Minister Francois Baroin told France 2 television today. Slovakia, Italy and Austria are among other countries to be downgraded, European officials said. Germany will keep its top rating, a person familiar with the matter said. S&P may release its report at about 9 p.m. Brussels time.
  • Euro Tumbles to Lowest in 16 Months Versus Dollar on S&P Downgrade Concern. The euro dropped, reaching a 16- month low versus the greenback, amid speculation Standard & Poor’s will downgrade the credit ratings of several countries in the 17-nation currency region today. The shared currency slid against 14 of its 16 most-traded peers tracked by Bloomberg, erasing weekly gains versus the dollar and yen. The euro tumbled to its weakest versus the yen since 2000 as talks between Greece and its creditor banks were put on hold. The Dollar Index (DXY) climbed as U.S. stocks fell after JPMorgan Chase & Co. said profit declined. “Coming into the weekend, people are going to be concerned that in the absence of the ability to trade, they are going to be stuck with something from Europe,” said Thomas Molloy, chief dealer at FX Solutions, an online currency-trading company in Saddle River, New Jersey. The euro weakened 1.2 percent to $1.2659 at 1:20 p.m. in New York. It touched $1.2624, the lowest level since Aug. 25, 2010, and was headed for a 0.5 percent weekly decline. The shared currency sank 1 percent to 97.35 yen and touched 97.20 yen, the weakest level since December 2000. The Japanese currency declined 0.2 percent to 76.90 per dollar.
  • Sovereign, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased eight basis points to 362.5 basis points at 5 p.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings was 11 basis points higher at 727, after rising as much as 21 basis points, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 0.75 basis point to 171.75 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers was up 4.5 basis points at 270.5, after rising as much as 13 basis points, and the subordinated index climbed five to 485.
  • Greece Planning Law That Could Force Investor Bond Swap. Greece plans to submit legislation on so-called collective-action clauses that could force holders of the nation’s debt to take part in a bond swap. “I don’t think today, but of course the information that such an adjustment will be submitted stands,” Pantelis Kapsis, a government spokesman, said in an interview with Athens-based radio station 9.84 today, according to an e-mailed transcript of his comments from his Athens office today. “This is a part of the discussions on the deal. It gives the legal ability to add these clauses.”
  • Hungarian Bonds Drop Most in Week as IMF Demands 'Tangible Steps' on Debt. Hungary’s bonds fell the most in more than a week and the forint dropped after the International Monetary Fund said the country needs to take “tangible steps” on resolving policy issues before aid talks can be resumed. The currency depreciated 0.9 percent to 310.7 per euro by 4:50 p.m. in Budapest, paring its weekly gain to 1.2 percent. The government’s 10-year bonds slumped, lifting yields 12 basis points to 9.673 percent, the biggest rise since Jan. 4.
  • European Stocks May Drop 10% in Next 3 Months, Goldman(GS) Strategist Says. European stocks may drop as much as 10 percent amid concern the region’s sovereign-debt crisis will harm the economy, before recovering in the second half of 2012, according to Goldman Sachs Group Inc. (GS) The Stoxx Europe 600 Index might decline to 225 in the next three months, Gerald Moser, Goldman Sachs’s London-based equity strategist, said at the bank’s Global Strategy conference in Zurich today. He expects the gauge to recover in the second half of the year to close at 250 to 270, a gain of as much as 20 percent from the trough. The index fell 0.6 percent to 247.97 at 3:09 p.m. in London today. “It will be a difficult year to navigate,” Moser said. “Investors are worried as there is a lot of uncertainty regarding the short-term outcome of the crisis, but we would expect equities to move higher on some resolution and a narrowing of spreads on a sustainable basis.”
  • JPMorgan(JPM) Profit Falls on Trading, Investment Bank Revenue. JPMorgan Chase & Co., the largest U.S. bank by assets, said fourth-quarter profit fell 23 percent as trading revenue and investment-banking fees declined. Net income dropped to $3.73 billion, or 90 cents a share, from $4.83 billion, or $1.12, in the same period a year earlier, the New York-based company said today in a statement. Earnings matched the average estimate of 28 analysts surveyed by Bloomberg. Revenue in every investment-banking business fell from a year earlier, including an 18 percent drop in trading. The division’s total revenue fell 30 percent to $4.36 billion as corporate clients stayed on the sidelines on concern Europe’s debt crisis would lead to an economic slowdown. The drop was larger than Chief Executive Officer Jamie Dimon forecast in December, when he said investment-banking revenue would be “essentially flat” from the third quarter’s $6.37 billion.
  • Import Prices in U.S. Fall in December. Prices of goods imported into the U.S. fell in December for the fourth time in the past five months as slowing global growth held down commodity costs. The 0.1 percent decrease in the import-price index followed a 0.8 percent gain in November, Labor Department figures showed today in Washington. Prices excluding fuel climbed 0.1 percent, the first increase in three months. For all of 2011, import prices climbed 8.5 percent, compared with a 5.3 percent increase the previous year. The cost of imported cars climbed 0.1 percent in December, and was up 3.7 percent in 2011, the biggest calendar year gain since 1993. Excluding autos, the cost of imported consumer goods rose 0.2 percent last month and was up 3.2 percent for the year, the most since 1990. Today’s report showed the cost of goods from China rose 0.1 percent in December, and was up 3.6 percent for the full year, the biggest gain since records began in 2003.
  • Oil Declines to Three-Week Low. Oil dropped to a three-week low after two European Union officials said an embargo on Iranian crude imports may be postponed for six months. Crude fell as much as 1.4 percent after the officials said that the ban would be delayed to allow nations to find other supplies. International Atomic Energy Agency inspectors will go to Tehran to discuss Iran’s nuclear program, two diplomats with knowledge of the talks said. Oil also declined on a report that Standard & Poor’s is stripping France of its AAA credit rating. “Some of the geopolitical premium has come out of the price during the last two days,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The announcement that the EU sanctions would be delayed has had a major impact on the market.” Members of the Organization of Petroleum Exporting Countries including Saudi Arabia would be able to make up for a drop in Iranian supplies to Europe, former OPEC President Chakib Khelil said today on Bloomberg Television’s “On the Move.”
  • China's Wen to Juggle Iran Oil Need With Saudi Ties on Persian Gulf Trip. China’s Wen Jiabao must balance his country’s need for Iranian crude with its budding energy partnership with Saudi Arabia on his first visit to the Gulf kingdom, a U.S.-based specialist in Middle East security said. The Chinese premier’s trip starting tomorrow comes amid signs that tighter economic sanctions may stop Iran, OPEC’s second-largest producer after Saudi Arabia, from selling its oil. Wen will also visit Qatar and the United Arab Emirates, fellow members of the Organization of Petroleum Exporting Countries, during the Persian Gulf tour ending Jan. 19. “China seems quite reluctant to get on the wrong side of Iran given the tensions existing in the region and Iran’s importance for its oil,” Paul Sullivan, a political scientist specializing in Middle East security at Georgetown University in Washington, said in a Jan. 11 e-mail.
  • Apple Opens Suppliers' Doors to Labor Group. Apple Inc. (APPL) agreed to let outside monitors into factories of suppliers such as Foxconn Technology Group (2317) following at least 15 deaths at its Chinese parts makers. The world’s most valuable technology company joins Nike Inc. (NKE), Nestle SA (NESN) and Syngenta AG (SYNN) in turning to the Fair Labor Association, set up in 1999 to monitor workplace conditions globally in an initiative by former U.S. President Bill Clinton. Apple is the first technology business to sign up to the FLA as a participating company, the Washington-based body said today in a press release. Apple’s affiliation with the FLA highlights the risk to multinational companies’ brands due to difficulties in policing suppliers as they outsource manufacturing to cut costs.
Wall Street Journal:
  • Crisis Live Blog: S&P to Cut France One Notch.
  • Obama Proposes Merging Agencies. President Barack Obama on Friday proposed merging six agencies that focus on trade and commerce into one new department, following through on a promise he made a year ago.
  • India OKs Prosecuting Web Firms for 'Unacceptable' Content. India's communications ministry Friday sanctioned the prosecution of Microsoft Corp.(MSFT), Google Inc.(GOOG), Yahoo Inc.(YHOO) and Facebook as well as 17 other companies over a complaint that their websites carry "unacceptable" content that could incite communal violence.
  • Clifford Chance Highlights Euro Exit Perils For Derivatives. If any country were to leave the euro, holders of derivative contracts based in that country should submit claims in English or New York courts as soon as possible to avoid lengthy wrangling over jurisdiction issues.
  • ECRI Leading Economic Index Still Rolling Over. (graph) Since this is Bad News Friday, let’s get this out of the way: The ECRI’s weekly leading index is falling again. The ECRI actually rose a tick this week to 121.2, but its four-week rolling growth rate, which smooths out weekly fluctuations, fell to -8.4%, the lowest since early November.


  • Videogame Stocks Fall On Weak December Sales. Videogame stocks slipped across the board Friday as investors digested data showing the sector rang up a disappointing level of sales in December despite the typically strong holiday shopping season. Late Thursday, NPD Group reportedsales of game software through traditional retail outlets in the U.S. fell by 14% during the month, compared to the same period at the end of 2010.
  • Apple(AAPL) Finds Environmental Violations in China Suppliers. Apple released a comprehensive audit of its major suppliers on Friday, saying it discovered a number of environmental violations in plants in China. The Cupertino, Calif.-based company, notorious for keeping its supply chain a secret, also for the first time released a list of its major suppliers.
  • Consumer Sentiment Jumps to Highest Since May.
  • Jamie Dimon: Regulators Undermining Economic Objectives. Regulatory policies are badly undermining the economic objectives of governments around the globe by hampering bank activity, JPMorgan Chase chief executive Jamie Dimon said in a conference call discussing fourth-quarter earnings Friday morning. “Regulatory policy is completely contradictory to government objectives,” Dimon said, citing restrictions on trading and new capital regulations as regulatory sources of slower economic growth. Dimon said that although regulators have provided additional clarity on new capital rules, the clarifications are have demonstrated that the capital rules are “bad.”
Business Insider:
Zero Hedge:

Seeking Alpha:

Wall Street All-Stars:


  • PBOC Branches Ask Banks Not To Front-Load Lending - Sources. China central bank regional branches have asked banks to refrain from lending too much in the early part of the year -- a time when banks typically boost loans to lay a foundation for good operational results for the year, banking sources said on Friday. The Shanghai headquarters of the People's Bank of China, for example, has asked banks in the city not to let first quarter new loans exceed 40 percent of total new loans they extended in 2011, the sources told Reuters.
  • GE(GE) Ordered to Defend Lawsuit Tied to 2008 Financial Crisis. A federal judge refused on Thursday to throw out a lawsuit accusing General Electric Co and its chief executive of misleading investors about the conglomerate's financial health and exposure to risky debt during the 2008 financial crisis. The decision by District Judge Richard Holwell in Manhattan keeps alive litigation seeking to hold the company responsible for investor losses during a six-month period when its stock price fell to about $10 from about $26, causing its market value to tumble by more than $150 billion. Investors claimed that GE withheld information regarding its health and the health of its GE Capital finance arm, including exposures to subprime and other low-quality loans. They also said GE misleadingly touted itself as being safer than rivals, despite the effects of the financial crisis. Holwell also let stand some claims accusing bank underwriters of omitting statements from offering documents for a $12.2 billion GE stock offering in October 2008.
  • Patriot Coal(PCX) to Idle Mines as Met Coal Demand Dips. Patriot Coal Corp said it will idle two production units and three contractor-operated mines in West Virginia as export demand for metallurgical coal wanes amid a weak global economy. St. Louis, Missouri-based Patriot Coal's shares fell 11 percent in morning trade Friday on the New York Stock Exchange. The stock was one of the biggest percentage losers on the exchange.
Financial Times:
  • Clients Spotted in the CDS Market. That’s Niall Cameron, the global head of credit trading at HSBC, being quoted by Chris Whittall of IFR. The article provides anecdotal evidence that actual clients (non-dealers) might be getting more involved in the market lately. Like so:


Les Echos:

  • France debt rating will be cut 1 level by S&P, while Spain, Italy and Portugal will see their ratings cut by 2 levels. S&P will make the announcements after the U.S. market close.
Yonhap News Agency:

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