Evening Headlines
Bloomberg:
- Moody’s Downgrades 28 Spanish Banks on Sovereign Risk. Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s largest lenders, were downgraded by Moody’s Investors Service because of the country’s sovereign debt and souring real-estate loans. At least a dozen lenders were lowered to junk status, Moody’s said yesterday in a statement. The ratings company downgraded six banks by four levels and 10 by three grades with the rest getting one- and two-tier declines. “In Spain you have a combination of a significant sovereign-debt burden coupled with a collapsing real estate market,” said Bruce Simon, chief investment officer at Los Angeles-based City National Bank, which manages $14 billion in client assets and doesn’t own debt issued by the lenders. “That’s doubling the pressure on Spanish banks.” The lenders are facing the “reduced creditworthiness” of the nation as well as the “expectation that exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support,” the ratings firm said in its statement.
- German Lawmakers to Meet in July on Spain, Rheinische Post Says. German lawmakers will probably extend their current session into July to vote on Spain’s request for European Union aid to its banks, the Rheinische Post said, citing Hermann Otto Solms, the deputy president of the lower house of parliament, or Bundestag. The aim is to hold the vote by July 9, the newspaper reported in an e-mailed article to appear in tomorrow’s edition. Without emergency business, the Bundestag’s summer recess is due to start June 30, according to the chamber’s official schedule.
- Libor Guardians Said to Resist Changes to Broken Rate. The U.K. bankers and regulators charged with reviewing Libor in the wake of regulatory probes are resisting calls to overhaul the rate because structural changes risk invalidating trillions of dollars of contracts. The group, established by the British Bankers’ Association in March after probes into allegations that traders rigged the London interbank offered rate, may propose a code of conduct for banks and impose greater scrutiny of Libor’s correlation with other financial data over time, according to three people with knowledge of the discussions who asked not to be identified because the talks are private. It won’t propose structural changes such as basing the rate on actual trades or taking away oversight of the benchmark from the BBA, the people said.
- Shipping Bears Ascendant as Fleet Growth Swamps Cargoes: Freight. Shipping analysts are getting more bearish on the outlook for rates to haul iron ore and coal as China, the biggest consumer of both commodities, grows at the slowest pace in three years at a time of record fleet expansion. Capesizes, each holding about 180,000 metric tons of cargo, will earn an average of $11,709 a day in 2012, the lowest in at least 14 years, the median of 10 analyst estimates compiled by Bloomberg shows. They predicted $15,000 in a December survey. The fleet will expand 13 percent this year, compared with a 4 percent advance in cargo volumes, according to London-based Clarkson Plc (CKN), the world’s biggest shipbroker. Rates tumbled 85 percent since the start of January, more than for any other type of commodity carrier, as everyone from the World Bank to the Federal Reserve cut growth estimates. China, which imports more iron ore than all other nations combined, is expanding at the slowest pace since 2009 and the 17-nation euro region returned to recession this quarter, the median of 16 economist forecasts shows. “China’s growth hasn’t been as good as some people had hoped,” said Rahul Kapoor, a Singapore-based analyst at RS Platou Markets AS, who cut his 2012 forecast to $10,000 from $13,000 in December. “That’s being compounded by rather negative demand for iron ore in Europe. Fleet growth has also been huge and above most people’s expectations.”
- Princeton’s Blinder Says Fed Has Weak Weapons for Growth. Princeton University economist Alan Blinder said remaining options for Federal Reserve policy probably won’t provide a powerful boost to the U.S. economy. “The basic problem for the Fed is it’s used all the heavy artillery a long time ago and it’s down to relatively weak weapons,” Blinder, a former Fed vice chairman, said in an interview today on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. “Even a full-scale QE3 in mortgage-backed securities is not that powerful a weapon these days with mortgage rates as low as they are” and impediments to the market, including borrowers who can’t refinance because their mortgage is larger than their home’s value, he said. The Fed, seeking to cut borrowing costs, has bought $2.3 trillion of securities in two rounds of quantitative easing, or QE.
- Syria Knew Identify of Jet Before Shooting, Turkey Says. Syrian forces knew the identity of a Turkish military jet before shooting it down over international airspace, according to Turkey’s ambassador to the United Nations. “Radio communication among Syrian authorities clearly demonstrates that the Syrian units were fully aware of the circumstances and the fact that the aircraft belonged to Turkey,” Ertugrul Apakan, Turkey’s representative to the UN said in a letter to Secretary General Ban Ki-Moon obtained yesterday. Syrian forces also shot at a Turkish rescue plane sent to look for the downed pilots, even after Turkey “established coordination with the Syrian authorities,” according to the letter. Turkey’s latest allegations about last week’s events off the coast of Syria further raised tensions ahead of a North Atlantic Treaty Organization meeting on the incident today in Brussels.
- SodaStream(SODA) Plans to Enter U.S. Grocery, Drug Stores in 2014. SodaStream International Ltd. (SODA) plans to bring its do-it-yourself soda machines to U.S. drugstores and supermarkets in 2014 as the Israeli company looks to expand sales and household usage in the world’s No. 1 beverage market. “We will do it in 2014,” Chief Executive Officer Daniel Birnbaum said in a phone interview yesterday. “We will test a bit next year but it’s too early. There is a temptation to do it now but we have to make sure that when we enter retailers we provide enough velocity to justify the shelf space.”
- Swine Flu Deaths May Have Been 15 Times Higher Than Reported. The 2009 swine flu pandemic may have killed 15 times more people globally than reported at the time, according to the first study to estimate the death toll. The H1N1 influenza virus probably killed about 284,500 people worldwide, compared with 18,500 deaths reported to the World Health Organization, researchers from the U.S. Centers for Disease Control and Prevention wrote in the journal Lancet Infectious Diseases today. More than half the deaths may have been in southeast Asia and Africa, compared with 12 percent of officially reported fatalities, the authors wrote.
- Congress Said to Delay Automatic Budget Cuts Until March. Republican and Democratic congressional leaders are weighing whether to delay automatic federal spending cuts until March 2013, according to a House aide and industry officials who were briefed on the discussions. The $1.2 trillion in automatic spending cuts over a decade, half of which would affect the Defense Department, are scheduled to begin in January 2013. At the same time, lawmakers must decide what to do about Bush-era tax reductions scheduled to expire at the end of the year. Leaders in both chambers are discussing whether to propose a catch-all bill that would delay the automatic cuts, fund the government through March or later and temporarily extend the George W. Bush-era tax cuts and other tax laws, said the House aide and industry officials, who asked to speak on condition of anonymity. “It is being seriously considered as one of the options and there is no doubt about that,” Steve Bell, the senior director of the Economic Policy Project at the Bipartisan Policy Center, said in an interview.
- Default Coverage Costs More as Crisis Touches Berlin. Credit-default swaps on Germany, hitherto the safest of safe havens, have come under the gun as fears over the creditworthiness of Europe's strongest economy finally take root. The slow climb of German bund yields may have grabbed the headlines, but analysts point out that CDS rates—the cost of insuring a country's debt against default—also provide a telling measure of sentiment. The risk of German taxpayers having to foot the bill for their European neighbors has long been acknowledged. Likewise, the Continent's powerhouse defaulting on its debt is seen as a nearly impossible event. Nevertheless, growing calls from France, Italy and Spain for a permanent solution to the two-year-long crisis, such as arrangements for stronger governments to back the borrowings of weaker nations, are now beginning to affect its CDS rate, analysts say. Since the start of March, the cost of insuring $10 million of German debt against default for five years has risen from around $75,000 a year to around $101,000 a year Monday. By contrast, CDS on $10 million of U.K. debt cost around $70,000 a year, and only around $50,000 a year for U.S. debt. Christopher Clark, a credit strategist for ICAP, said pressure from the markets is mounting on Berlin. "There is a growing sense that Germany's balance sheet might have to be put on the line. The growing momentum for building a comprehensive solution to the crisis, which will inevitably lean on German credit, has taken some of the shine off German bunds and CDS spreads lately," Mr. Clark said. "The CDS market was the first market to react, most likely because it [is] not affected by flight-to-quality flows and can therefore be seen as a more responsive indicator on how the market perceives underlying risk." Strategists for Dutch bank ING Groep NV say, Germany's views won't stop a wide array of euro-saving "remedies" being discussed at the meeting in Brussels on Thursday and Friday. Unsurprisingly, each of the proposals would have a negative effect on Germany's perceived creditworthiness. Germany has already contributed to the permanent ESM fund, but it is still on the hook for a share of any losses the fund incurs. Both funds appear increasingly likely to be drawn upon. If Madrid loses access to the markets, supporting Spain's financing needs would cost the bailout funds €250 billion, ING economists say. But if Italy, which planned to borrow €440 billion in 2012 alone, falls under pressure, then the combined bailout funds would certainly be overwhelmed. "There is no rescue mechanism in place that could cater for an Italian bailout," ING analysts Alessandro Giansanti and Padhraic Garvey said in a note to clients.
- Court Splits on Arizona Law. Justices Rein In Law Aimed at Curbing Illegal Immigrants but Allow Police Checks. The Supreme Court struck down the harshest parts of an Arizona law targeting illegal immigrants, ruling the state interfered with congressional authority over U.S. borders, but it let stand a requirement that police check the immigration status of people they stop for traffic or other offenses.
- Chinese Target U.S. Homes. Lennar Corp. (LEN), one of the U.S.'s largest home builders, is in talks with the China Development Bank for approximately $1.7 billion in capital to jump-start two long-delayed San Francisco projects that would transform two former naval bases into large-scale housing developments, according to people familiar with the discussions.
- New Japan Defense Chief to Boost Security of Southwest Waters. Japan's new defense minister said the government is preparing to enhance its air and sea defense capabilities to protect islands and waters in the nation's southwest, part of the broad swath of the western Pacific where China has increased its maritime activities in recent years. "Japan has 6,800 islands, and territory that stretches over 3,300 kilometers [2,000 miles]; it's necessary to have troops at its southwestern end to beef up our warning and surveillance capability," Satoshi Morimoto told The Wall Street Journal on Monday in his first interview with a non-Japanese news organization since he took office this month.
- News Corp.(NWSA) Mulls Splitting in Two. News Corp. NWSA -1.35%is considering splitting into two companies, separating its publishing assets from its entertainment businesses, say people familiar with the situation. The split would carve off News Corp.'s film and television businesses, including 20th Century Fox film studio, Fox broadcast network and Fox News channel from its newspapers, book publishing assets and education businesses. News Corp.'s publishing assets include The Wall Street Journal, the Times of London and the Australian newspaper, as well as HarperCollins book publishing. If a separation occurs, the publishing company would be far smaller than the entertainment company.
- Weber Sees Euro Zone Surviving Crisis Intact. This week's long-anticipated European Union summit will fail to deliver a lasting solution to the euro-zone's economic and financial woes, according to former German central banker Axel Weber. In an interview with The Wall Street Journal, Mr. Weber, a former president of the Deutsche Bundesbank and former member of the European Central Bank's governing council, tamped expectations among some investors of a decisive deal at the meeting of European leaders Thursday and Friday in Brussels. "This is another policy meeting," Mr. Weber, who is now chairman of the Swiss bankUBS AG, said.
Business Insider:
- A New Drug Resistant Form Of Tuberculosis Is Spreading In India.
- The New Egyptian President Reportedly Said 'Jihad Is Our Path And Death In The Name Of Allah Is Our Goal'.
- Is Disney(DIS)/Pixar's Newest Lead Character Gay?
- Biderman On The Bernanke Put, Black Swans, And The Failure Of 'Perceived Truths'.
- On The Verge Of A Historic Inversion In Shadow Banking. (graphs)
- The Absurdity of NATO.
- Asia Hedge Funds Ditch Short-Selling for Long-Only Game. Some of Asia's oldest hedge funds are ditching short-selling as investors pull out of the strategy on concerns that bearish bets are failing to pay off and not worth the hefty fees they bring. The move from the traditional hedge fund structure to long only investing is part of the growing shake-out of Asia's $124 billion industry, and is a potential blow to the investment banks supporting the sector.
IBD:
NY Times:
- Is Your Hedge Fund Style "Drifting"? Quick, Catch It! Hedge fund style “drift” is said to occur when a hedge fund manager strays from their stated investment strategy. The term used to be an esoteric one, used only by professional hedge fund analysts. However, “drifting” is a problem that is lately coming into view more by regulators and in litigation by disgruntled investors.
- Government Wants More People On Food Stamps. More than one in seven Americans are on food stamps, but the federal government wants even more people to sign up for the safety net program. The U.S. Department of Agriculture has been running radio ads for the past four months encouraging those eligible to enroll. The campaign is targeted at the elderly, working poor, the unemployed and Hispanics. The department is spending between $2.5 million and $3 million on paid spots, and free public service announcements are also airing. The campaign can be heard in California, Texas, North Carolina, South Carolina, Ohio, and the New York metro area.
Reuters:
- Barclays says $8.2 bln Pulled from Commodities in May.
- Facebook(FB) taps COO Sandberg to be first woman on board. Facebook Inc named Chief Operating Officer Sheryl Sandberg a director on Monday, elevating the first woman to a board that includes seven men.
- EU Could Rewrite Eurozone Budgets. The European Union would gain far-reaching powers to rewrite national budgets for eurozone countries that breach debt and deficit rules under proposals likely to be discussed at a summit this week, according to a draft report seen by the Financial Times. The proposals are part of an ambitious plan to turn the eurozone into a closer fiscal union, giving Brussels more powers to serve like a finance ministry for all 17 members of the currency union. They are contained in a report to be presented at the summit, which will also outline plans for a banking union and political union.
- France plans to freeze spending for three years from 2013 through 2015, excluding debt and pension payments, citing a statement to the cabinet by Prime Minister Jean-Marc Ayrault. Spending is to be frozen in absolute terms without taking into account inflation.
- Moody's Warns on Canadian Mortgage Debt. The federal government’s attempt to cool the housing market “may have come too late” to prevent a harsh landing for residential real estate, Moody’s Investors Service is warning. After Finance Minister Jim Flaherty announced last week that Ottawa is tightening the rules on government-backed mortgages to keep the housing market from overheating, Moody’s said it is concerned the efforts may not be enough. High levels of household debt in Canada have left consumers with little flexibility to adapt to shifting markets, the credit rating agency said.
The Hindu Business Line:
- Government Allows Crude Oil Imports Thru Iranian Tankers. The Government has decided to allow public sector oil companies to import crude oil from Iran by Iranian tankers for a period of six months from July 1. This follows the representation made by the Petroleum Ministry following the European insures’ decision to deny cover to vessels carrying Iranian cargo from next month. Indian tankers are insured with the European protection and indemnity (P&I) clubs and therefore they will not be able to carry Iranian crude oil from July 1, unless they are able to get alternative insurance cover. A Shipping Ministry official confirmed that local refiners are allowed to import oil from Iran on c.i.f. basis for six months or till the European Union lifts its sanctions against Iran.
- China's central government will sell bonds on behalf of local governments, citing the revised draft for the budget law. Local government's can't currently issue debt directly.
Piper Jaffray:
- Rated (TITN) Overweight, target $35.
- Raised (ETH) to Strong Buy, target $26.
- D0wngraded (GEOY) to Underperform.
- Asian equity indices are -1.0% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 187.5 +7.0 basis points.
- Asia Pacific Sovereign CDS Index 149.50 +3.75 basis points.
- FTSE-100 futures +.03%.
- S&P 500 futures +.11%.
- NASDAQ 100 futures +.22%.
Earnings of Note
Company/Estimate
- (RBN)/.90
- (AVAV)/.72
- (HRB)/2.07
9:00 am EST
- The S&P/CS Home Price Composite 20 City YoY Index for April is estimated to fall -2.5% versus a -2.57% decline in March.
- Consumer Confidence for June is estimated to fall to 63.0 versus 64.9 in May.
Upcoming Splits
- (DLTR) 2-for-1
Other Potential Market Movers
- The Spanish Bill/Italian Bond auctions, German inflation data, 2Y T-Note auction, Richmond Fed Manufacturing Index for June, weekly retail sales reports, (NTAP) analyst day, (DG) investor meeting, (SMSC) analyst day and the Oppenheimer Consumer Conference could also impact trading today.
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