Tuesday, January 31, 2012

Today's Headlines

  • Greece Fights for Second Bailout as EU Leaders Seal Accord. Greece pledged a last-ditch effort to prevent the collapse of a second rescue package from creditors, aiming to complete talks this week on a financial lifeline that’s been in the works for six months. Greek Premier Lucas Papademos said he would try to meet German-led demands for a bigger debt writedown by investors and deeper budget cuts by his government. Stocks rose after European Union leaders endorsed key planks of a strategy to fight the financial crisis, agreeing to accelerate the setup this year of a full-time 500 billion-euro ($659 billion) rescue fund and backing a deficit-control treaty. EU and International Monetary Fund officials are in Athens thrashing out budget measures that would unlock the aid needed to keep the government functioning. Leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole -- and no announcement of how deep the need is. German Chancellor Angela Merkel voiced frustration with the Greece’s failure to carry out an economic makeover. “Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”
  • Italy's Jobless Rate Rose to Highest Since 2004 in December. Italy’s jobless rate rose to the highest in eight years in December as austerity measures meant to fight the debt crisis helped push the region’s third-largest economy toward a recession. Unemployment climbed to 8.9 percent, the highest since the data series began in January 2004, from a revised 8.8 percent in November, national statistics institute Istat said in a preliminary report today in Rome. Economists had expected a rate of 8.7 percent, according to the median of 9 estimates in a Bloomberg News survey. Prime Minister Mario Monti last month pushed through 20 billion euros ($26 billion) in tax increases and spending cuts that have further choked growth. The economy shrank 0.2 percent in the third quarter and the government has forecast another contraction in the final three months of last year, meaning Italy may already be in its fourth recession since 2001. “We are seeing all the predictable signs of Italy’s deepening recession -- rising unemployment, non-performing loans trending up, and credit standards getting tighter,” Vladimir Pillonca, an economist at Societe Generale SA in London, said in an e-mail. “We are barely at the initial phase of Italy’s recession, and it will get much worse.”
  • EU, IMF Demand 20% Cut in Greece's Minimum Wage, Ta Nea Reports. A mission to Greece by the European Commission, the European Central Bank and the International Monetary Fund wants the country’s minimum wage cut to 600 euros ($791) a month, from 751 euros, Ta Nea reported, without saying how it got the information. The delegation from the three institutions, known as the troika, is setting conditions for a new financing package for Greece that include reforms such as abolition of special labor agreements at state enterprises and banks, the Athens-based newspaper said. The troika officials rejected a proposal from Greece’s Labor Ministry to freeze private-sector salaries for three years and is demanding that twice-yearly holiday bonus payments are reduced or abolished, Ta Nea said.
  • Fed's Inflation Goal May Raise Issues, Bini Smaghi Writes in FT. The Federal Reserve’s decision to set a numeric inflation goal over the longer run may raise communication issues, former European Central Bank Executive Board (EURR002W) Member Lorenzo Bini Smaghi wrote in the Financial Times. Monetary policy produces its effects with two or three-year lags, meaning a longer-term inflation objective makes the inflation forecasts and the policy decision “unclear,” as the long-run isn’t a “policy-relevant” time frame, Bini Smaghi wrote in an article posted on the newspaper’s website today. The publication of the 17 Federal Open Market Committee members’ expectations of the Fed funds rate over the next few years may also raise “several questions,” he said. The market needs to know what forecasting model is used by FOMC members to update their interest-rate expectations, as they are conditional on the state of the U.S. economy, he wrote. “The suspicion may arise that the interest rate forecasts are ultimately dictated by the members’ short-term policy preferences, rather than by their ability to predict prices over the long-term,” Bini Smaghi said. The concept of a conditional interest-rate forecast may also not be understood by the public and politicians, which may lead to misunderstandings, the Italian economist wrote. “To be effective, central bank communication needs to be well understood not only by sophisticated market participants but also by the public,” Bini Smaghi said. “As they are currently designed, the new tools might turn out to be too complex, and risk creating confusion, for both groups.”
  • Confidence Decline Points to Cooling U.S. Growth. Consumer confidence unexpectedly dropped in January and a gauge of business activity fell, underscoring forecasts that the U.S. economy will cool after expanding at the fastest pace since the second quarter 2010. The New York-based Conference Board’s confidence index decreased to 61.1, lower than the most pessimistic forecast in a Bloomberg News survey of economists, from a revised 64.8 reading the prior month. The Institute for Supply Management-Chicago Inc. said its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth. Employers aren’t hiring fast enough to drive bigger gains in wages and consumer spending, while higher gasoline prices are cutting into household budgets. Another report today showed home prices fell more than forecast in November, eroding the wealth of families as they seek to rebuild savings.
  • UPS(UPS) Profit Forecast Tops Estimates. United Parcel Service Inc. (UPS), the world’s largest package-delivery company, forecast a 2012 profit that exceeded analysts’ estimates as shipping demand increases. Annual earnings, excluding some items, will be in the range of $4.75 to $5 a share, the Atlanta-based company said today in a statement. That topped the average estimate of $4.78 in a Bloomberg survey of 25 analysts.
  • Exxon(XOM) Drops After Fourth-Quarter Sales Are Lower Than Estimates. Exxon Mobil Corp., the world’s largest energy company by market value, declined after fourth- quarter sales fell short of analysts’ estimates and oil production slumped on five continents. Revenue rose 16 percent to $121.6 billion during the quarter, less than the $124.4 billion average of five analysts’ estimates compiled by Bloomberg. Exxon fell 1.9 percent to $83.90 at 1:42 p.m. in New York after earlier declining as much as 2.4 percent, the biggest intraday drop since Dec. 12.
  • Iron Ore Set for Worst Month Since October on Slowdown Concerns. Iron ore headed for the worst monthly performance since October amid concern that slowing global economic growth and Europe’s sovereign-debt crisis may curb demand for the raw material used in steelmaking. Iron ore with 62 percent content delivered to the Chinese port of Tianjin was little changed at $139.90 per metric ton yesterday, data from The Steel Index showed. The price is up 1 percent this month after falling 31 percent in October and rebounding 11 percent in November and 5.8 percent last month. China, the largest steelmaker, boosted annual output by the slowest pace in three years in 2011 as the nation’s economy cooled last quarter, cutting demand from makers of houses and autos. European leaders are sparring with Greece over a second rescue program, leaving a Brussels summit yesterday with no accord over how to plug the nation’s widening budget deficit. “World growth is going to be a bit subdued, and very anemic in Europe, so there’s not going to be any push for stronger iron ore prices,” said Michael Heffernan, a Melbourne- based client adviser at Austock Securities Ltd. “You’re not going to see iron ore prices skyrocket.”
  • Iran Stepping Up Spying, Support for Terror, Clapper Says. Iran is stepping up its support for international terrorism and its intelligence operations against the U.S., the Director of National Intelligence told Congress. “The 2011 plot to assassinate the Saudi ambassador to the United States shows that some Iranian officials -- probably including Supreme Leader Ali Khamenei -- have changed their calculus and are now more willing to conduct an attack in the United States in response to real or perceived actions that threaten the regime,” James Clapper said in a statement today to the Senate Intelligence Committee.
Wall Street Journal:
  • CBO: TARP Spending Will Be $61 Billion More in Fiscal 2012. The federal government will spend roughly $61 billion more in fiscal 2012 than it did in fiscal 2011 on its continuing emergency rescue fund instituted at the height of the 2008 financial crisis, the nonpartisan Congressional Budget Office said. This is largely due to declines in share prices of two companies in which the government still holds substantial shares: American International Group Inc.(AIG) and General Motors Co(GM). The two were among dozens of firms that received hefty bailouts from the federal government at the end of 2008 or early 2009. Between them, the Treasury and New York branch of the Federal Reserve still control a 77% stake in AIG. The firm received a total of $184 billion in loans and guarantees from the Treasury and Fed as it stood on the brink of collapse in 2008. The federal government owns a 32% stake in GM.
  • Deficit Again Expected to Top $1 Trillion. The federal budget deficit likely will top $1 trillion for the fourth consecutive year in fiscal 2012 as the economy continues to grow at a sluggish pace, the nonpartisan Congressional Budget Office predicted Tuesday. Congress's official budget scorekeeper projected a sober outlook in its semi-annual report Tuesday, forecasting that the unemployment rate will remain above 8% both this year and next year and above 7% until 2015. The economy will see a "continued slow recovery" as real gross domestic product grows 2% this year, measured from the fourth quarter of the previous calendar year, and by 1.1% next year.
  • S&P Warns of Cuts; Another Downgrade Coming? Concerns over the size of United States debt reared their head once again as ratings agency Standard & Poor’s warned that health care costs for a number of highly-rated Group of 20 countries, including the U.S., could hurt growth prospects and harm their sovereign creditworthiness from the middle of this decade.
  • Europe's Central Bank Can't Fix 'Dysfunctional' EU: Gross. The European Central Bank won't solve the euro zone's debt crisis as long as the European Union behaves like a "dysfunctional" family, Bill Gross, Pimco founder and co-chief investment officer, told CNBC on Tuesday.
Business Insider:
Zero Hedge:
Chicago Tribune:
  • Insight: Borrowing Spree Pushes Canadians to Edge of Debt Cliff. The growth of household debt in Canada to levels approaching those seen in the United States before the 2008-2009 crash seems to be keeping a lot of people awake - from central bankers to economists, lenders, real estate agents and the indebted consumers. Bank of Canada Governor Mark Carney has warned that the ratio of debt to income will rise from the already alarming 153 percent record reached last year, and many think it will approach the landmark 160 percent hit by the United States before the U.S. tipped into crisis more than three years ago.



  • Poll: Public Says Keystone XL Pipeline Would Be Jobs Creator. Congressional Republicans and proponents of TransCanada's Keystone XL pipeline have successfully put the issue on the map, as 78 percent of Americans believe the pipeline would create a “significant amount of jobs,” according to a late December poll by GOP pollster David Winston.
The Week:
Financial Times:
  • US Reits Are Drawn to Subprime Securities. Real estate investment groups in the US are set to raise more funds to buy subprime and other private mortgage-backed securities, aided by attractive returns and rising share prices. Real estate investment trusts, or Reits, have already been big buyers in the market for packages of mortgages backed by Fannie Mae, Freddie Mac and other government agencies, creating what some have termed a “shadow” financing system for US mortgages.


La Tribune:

  • French new car registrations fell 27% from Jan. 1 to Jan. 27 versus the year-earlier period. Renault SA's new French car registrations fell 45% in the period while PSA Peugeot Citroen had a 37% decline.
El Economista:
  • Spanish Prime Minister Mariano Rajoy expects forthcoming labor reforms in Spain to provoke strikes among workers.
Shanghai Daily:
  • Chinese Banks See Top 3 Risks to System. CHINESE banks have listed credit and macro-economic risks as well as liquidity to be the top three threats to the country's banking industry, a latest industry survey showed yesterday. Their overseas peers picked macro-economic risk as the top threat, according to the survey conducted by the London-based think tank, Centre for the Study of Financial Innovation, which interviewed 700 bankers in 58 countries and regions. Chinese bankers ranked the quality of risk management their No. 4 concern, compared with the global ranking of No. 10. The survey said Chinese bankers were worried that the current risk management system may not be strong enough to address global economic changes, especially as there didn't seem to be an end in sight for the eurozone debt crisis. Chinese bankers were concerned about asset quality due to China's cleanup of local government financing vehicles. They also worried about challenges in the property market and doubts about the macro-economy. Jimmy Leung, a PwC partner, said Chinese banks face risks as "the resulting credit risks may lead to liquidity challenges and impact the pace of business growth."
China National Radio:
  • The size for the official manufacturing PMI survey will be increased to about 3,000 samples from the current 820, citing Meng Qingxin, a director in the service industry survey dept. at the National Bureau of Statistics. The sample size for the non-manufacturing PMI survey will rise to about 8,000 from 1,200.

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