Monday, January 23, 2012

Today's Headlines

  • Germany Proposes Combining Rescue Funds. Germany floated the idea of combining Europe’s two rescue funds, in a concession to bolster the fight against the fiscal crisis as Greece bargained with bondholders over debt relief. Germany may be open to boosting the combined aid limit from 500 billion euros ($651 billion) when a permanent fund runs alongside the temporary fund starting in July, government officials in Berlin said. The need for a beefed-up fund was dramatized by haggling between Greece, the trigger of the two- year-old crisis, and its creditors over debt reduction to stave off default. “It’s essential that we will be able to reinforce our financial firewalls,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters before a meeting of finance ministers in Brussels today. Finance chiefs will tackle the rescue funds, Greece’s latest offer to bondholders, a German-inspired deficit-control treaty and nominees to the European Central Bank’s board in meetings that started at 2:30 p.m. and will run until late evening.
  • Spain Risks Deficit Spiral as Election Postpones Budget Cuts: Euro Credit. Spain’s month-old government may postpone deeper budget cuts until after a regional election in March, adding to the risk the nation misses its deficit goal for the second year. The ruling People’s Party, led by Prime Minister Mariano Rajoy, will contest an election in the southern region of Andalusia to end 30 years of Socialist rule. Spain’s 10-year bond yields have risen 10 basis points to 5.5 percent since the PP government took over on Dec. 21, increasing the rate to 359 basis points more than German bunds of similar maturity. “Rajoy doesn’t want to get burnt before the Andalusian election,” Antonio Barroso, an analyst at Eurasia and a former Spanish government pollster, said in a telephone interview. “They’re so crucial for the PP that it won’t take any kind of measure that would undermine its ratings in the region.” Rajoy needs to slice the equivalent of 3.6 percent of gross domestic product off the budget deficit this year to meet a European Union target, just as the economy may be entering its second recession in two years. Postponing steps until after the March 25 election risks undermining confidence in Spain’s ability to meet its goal, which Fitch Ratings already has “doubts” the country will reach. “Rajoy has yet to explain how he will reduce the deficit when the economy is shrinking,” said Georg Grodzki, global head of credit research at London-based Legal & General Investment Management, which oversees about $515 billion. “I don’t think Spain can afford to wait for more than two months at the most.”
  • Corporate, Sovereign Bond Risk Fall in Europe, Debt Swaps Show. The cost of insuring against default on European corporate and sovereign debt fell, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings fell 17.5 basis points to 630, the lowest since Oct. 28, according to JPMorgan Chase & Co. at 3 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 6.5 basis points to 147.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers dropped 10 basis points to 219.5 and the subordinated index fell 17 to 403. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments decreased six basis points to 331.
  • Oil Rises for First Time in Four Days After EU Agrees to Ban Iranian Oil. Oil rose for the first time in four days after the European Union agreed to ban crude imports from Iran, raising concern that retaliation from the Islamic Republic may disrupt oil supply from the Middle East. Futures gained as much as 1.6 percent as the 27-nation bloc said it would implement the crude embargo starting July 1 to pressure the country over its nuclear program. Oil for March delivery gained $1.51, or 1.5 percent, to $99.84 a barrel at 1:10 p.m. on the New York Mercantile Exchange. Prices have increased 12 percent in the past year.
Wall Street Journal:
  • Lagarde Says Europe Mut Boost Firewall. The global economy faces a depression-era collapse in demand if Europe doesn't quickly act to dramatically boost the size of its debt-crisis firewall, implement pro-growth policies and further integrate the euro zone, the head of the International Monetary Fund warned Monday. "It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," IMF Managing Director Christine Lagarde said in prepared remarks before the German Council of Foreign Affairs in Berlin. "A moment, ultimately, leading to a downward spiral that could engulf the entire world," she said.
Dow Jones:
  • Greece shouldn't expect an increase in planned bailout loans even though the economy is worsening, citing people familiar with the matter. Any shortfalls have to be covered by more austerity or bigger losses by creditors. The IMF "has a similar stance," citing the source.
Business Insider:
Zero Hedge:
  • Exclusive: YouTube Hits 4 Billion Daily Video Views. YouTube, Google Inc's(GOOG) video website, is streaming 4 billion online videos every day, a 25 percent increase in the past eight months, according to the company. The jump in video views comes as Google pushes YouTube beyond the personal computer, with versions of the site that work on smartphones and televisions, and as the company steps up efforts to offer more professional-grade content on the site. According to the company, roughly 60 hours of video is now uploaded to YouTube every minute, compared with the 48 hours of video uploaded per minute in May.
  • U.S. Oil Production to Surge. A boom in shale oil production will raise U.S. domestic crude output by a fifth over the next decade, helping to slash the country's dependence on foreign oil imports, the Energy Information Administration said on Monday. Growing shale production as well as Gulf of Mexico development will push U.S. crude oil production to 6.7 million barrels per day in 2020, up 20 percent and 11 percent higher than the previous forecast, the EIA said in its annual domestic energy outlook. That would mark the highest level of U.S. oil output since 1994, thanks to advances in drilling techniques that have opened the door to tapping the nation's vast shale reserves. Shale oil production makes up 21 percent of output in the lower 48 states in 2010. By 2035, such production will account for 31 percent of that output.
  • Uptick Rule Could Curb Quant Fund Risk - Man Group CEO. The head of Man Group (EMG.L), the world's biggest listed hedge fund manager, is backing the reintroduction of the so-called 'uptick rule' to reduce the risk of a market crash prompted by lightning-fast computer traders. Peter Clarke told a conference on Monday that the U.S. rule, which only allowed short-selling -- bets on a share price falling -- if the last sale price of a stock was higher than the previous price, could help stop some rapid-fire computer hedge funds fuelling market falls.
The Economist:
  • Salve Italia. If Germany’s Angela Merkel wants to save the euro, she must do more for Italy’s Mario Monti. SADLY, the lull proved but brief. The first two weeks of the year were surprisingly calm for the storm-tossed euro zone. But a gale is blowing again. First a series of downgrades from Standard & Poor’s, a leading debt-rating agency, coincided with a stand-off in the “voluntary” restructuring talks between Greece and its private bondholders. Now there are signs of a continent-wide recession. The euro crisis is back. Indeed, the next few weeks could be decisive for the single currency’s future. Several euro-zone governments must sell huge amounts of debt in bond auctions. They are also due to wrap up negotiations over the new “fiscal compact”, demanded by Chancellor Angela Merkel of Germany to enforce budget discipline, at a European Union summit at the end of January. And the brinkmanship in Greece’s debt talks could yet lead to a disorderly default.

Financial Times:

  • Hedgies in Flux. The latest annual SEI/Greenwich Associates survey of investors’ perceptions of hedge funds is out. You find full details in the usual place, but here are the bullet points from the exec summary:


Bild Zeitung:
  • Inspectors from the European Union, the European Central Bank and the IMF were "shaken" by the state of Greece's administration.

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