Tuesday, June 11, 2013

Today's Headlines

  • European Bonds Slide After BOJ, Draghi Damp Central-Bank Bets. European government bonds fell, pushing up borrowing costs for all euro-area sovereigns, as the Bank of Japan’s decision to leave monetary policy unchanged damped speculation central banks will increase debt purchases. Spanish 10-year yields climbed to the highest level in two months as European stocks slumped. Portuguese and Irish bonds slid after European Central Bank President Mario Draghi told German television yesterday that debt buying will only be used to target prices that are out of line with fundamentals. German 10-year yields rose to the most in more than three months as a court began hearings on the ECB’s stimulus plan. 
  • European Stocks Fall as BOJ Adds No New Stimulus. European stocks retreated for a second day as the Bank of Japan refrained from expanding stimulus and Treasuries sank amid speculation the Federal Reserve will trim bond purchases. Legrand SA (LR) retreated 4.1 percent after Wendel sold the remaining 14.4 million shares it holds in the world’s largest maker of switches, plugs and lighting controls. ICAP Plc dropped 3.6 percent after Credit Suisse Group AG recommended selling the shares. BHP Billiton Ltd. led a gauge of mining companies to the lowest level since 2009 as copper dropped for a fourth day. DNO International ASA surged to a five-year high. The Stoxx Europe 600 Index fell 1.2 percent to 291.74 at the close of trading, as Germany’s top court began hearings on the European Central Bank’s Outright Monetary Transactions program. The benchmark gauge earlier sank as much as 2.1 percent, reaching a seven-week low. The measure has retreated 6.1 percent since May 22.
  • Corporate Credit Risk Rises to Two-Month High on BOJ Decision. The cost of insuring against losses on European high-yield corporate debt rose to the highest in two months after Bank of Japan policy makers refrained from increasing monetary stimulus. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly junk credit ratings rose for a second day, jumping as much as 29 basis points to 477, the highest since April 5. The gauge was trading at 473 at 11:01 a.m. in London. The Markit iTraxx Europe Index of credit-default swaps linked to 125 companies with investment-grade ratings rose as much as seven basis points to 113, the highest since April 19. An increase signals deterioration in perceptions of credit quality. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed nine basis points to 167 and the subordinated index rose 12 basis points to 242
  • Kuroda’s April-Was-Enough Message Faces Investors Wanting More. Bank of Japan Governor Haruhiko Kuroda’s conviction his April plan to double the nation’s monetary base will be enough to end deflation is confronting its biggest test with a sustained sell-off in stocks. The Topix index fell 1 percent yesterday, extending its decline to 14 percent from a May 22 high, after the BOJ refrained from adding stimulus or expanding its toolkit for tackling volatility in bonds. Kuroda has repeatedly said the BOJ has taken all “necessary” measures.
  • Emerging-Market Stocks Tumble as Ibovespa Plunges 20% From High. Emerging-market stocks slumped to a nine-month low as Brazil’s benchmark Ibovespa (IBOV) dropped more than 20 percent from this year’s high and concern grew that global central banks will pare economic stimulus measures. OGX Petroleo & Gas Participacoes SA, the oil producer controlled by the Brazilian billionaire Eike Batista, led losses in the nation’s stock index since Jan. 3, tumbling 75 percent. The MSCI BRIC Index slipped for a 10th day, the longest losing streak since at least January 1995. OAO Gazprom, Russia’s natural gas exporter, slid to the lowest price since March 2009 as commodities plunged. Turkey’s benchmark stock index extended its drop to 19 percent from last month’s record as anti-government protesters clashed with riot police. The MSCI Emerging Markets Index retreated 1.7 percent to 956.87 at 11:20 a.m. in New York, set for the lowest close since Sept. 6. The 50-day volatility on the gauge rose to 12.4, a seven-month high.
  • Junk Bond ETF Volatility Hits Three-Year High to Stocks: Options. The cost of hedging against swings in a security tracking U.S. high-yield debt rose to a three-year high relative to equities on concern the bond market will extend losses should the Federal Reserve begin curtailing its stimulus. Implied volatility on the iShares iBoxx $ High Yield Corporate Bond Fund was .71 times the measure for the SPDR S&P 500 ETF Trust, according to Bloomberg. The ratio reached .73 on June 3, the highest level since May 2010.
  • Falling New Orders Signal U.S. Stock Inflation: Chart of the Day. (graph) Inflation has taken hold in the stock market as the prospects for earnings and the economy are worsening, according to Barry C. Knapp, Barclays Plc’s head of U.S. equity strategy. The CHART OF THE DAY shows how Knapp drew his conclusion, presented in a June 7 report. He compared the Standard & Poor’s 500 Index’s forward price-earnings ratio, based on anticipated profits, with the Institute for Supply Management’s new-order index for manufacturers. During May, the forward P/E climbed to a three-year high of 15.2, according to data compiled by Bloomberg. Yet the ISM gauge fell last month to 48.8, its lowest level since July.
  • Credit Swaps in U.S. Approach Two-Month High on Stimulus Concern. A gauge of U.S. corporate credit risk approached a two-month high as the Bank of Japan left stimulus efforts unchanged and concern lingered that the Federal Reserve will reduce bond buying. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, added 3.3 basis points to a mid-price of 87.4 basis points at 8:17 a.m. in New York, according to prices compiled by Bloomberg. The index reached 88.7 June 6, the highest intraday level since April 5
  • Crude Trade Shrinking Most Since Recession Seen Curbing Tankers. World trade in crude oil shrank the most last quarter since the global recession, leading to lower earnings for tankers and stunting the industry’s recovery, according to RS Platou Markets AS. Global imports slumped 4 percent compared with a year earlier as shipments declined to the U.S. and China, the biggest buyers, the Oslo-based investment bank said in an e-mailed report today. Rates for the largest tankers, known as VLCCs, will average $15,000 a day this year, down from a previous estimate of $20,000, according to the report. Surging production in the U.S. cut imports by 20 percent, and the cargoes aren’t going to other countries as high prices curb demand, Platou said in the report. Imports to China, the main source of demand growth, slid 2 percent, Platou estimated. Next year will be little changed.
  • Citigroup(C) Facing $7 Billion Hit on Dollar Gain, Peabody Says. Citigroup Inc. (C) could lose as much as $7 billion on currency swings if Charles Peabody is right, putting the analyst at odds with peers who say the stock will be the best performer among big U.S. banks in the year ahead. Peabody, who leads research at Portales Partners LLC, is among only four analysts out of 34 tracked by Bloomberg who recommend investors sell Citigroup shares. He estimates the bank may lose $5 billion to $7 billion in regulatory capital this year if the dollar gains against the yen, euro and currencies in emerging markets, which provide about half the firm’s profit. That would be its worst translation loss in five years, exceeding the $3.5 billion deficit in 2011.
  • Decrease in Job Openings Tempers U.S. Hiring Prospects: Economy. Job openings in the U.S. fell in April, showing companies were waiting to assess the effects of higher taxes and reduced government spending before committing to bigger staff increases. The number of positions waiting to be filled fell by 118,000 to 3.76 million, the fewest since January, from a revised 3.88 million in March, the Labor Department reported today in Washington.
  • OPEC Boosts Supply to Six-Month High; Demand Forecast Stable. The Organization of Petroleum Exporting Countries raised crude output in May to the highest level in six months while keeping its demand forecast for 2013 unchanged because of risks to the global economy. OPEC increased production by 106,000 barrels a day to 30.57 million a day last month, led by gains in Saudi Arabia, the group said today in its monthly market report, citing secondary sources. Global oil demand will increase by 780,000 barrels a day, or 0.9 percent, this year to 89.7 million a day, in line with estimates in the previous report.
Wall Street Journal:
  • Police Move to Recapture Istanbul Square. Prime Minister Erdogan Says Protests Are Illegal, Spurred On by Radical Groups. Turkish police moved to recapture a landmark square in Istanbul on Tuesday, sparking daylong clashes in the heart of the city as Prime Minister Recep Tayyip Erdogan took a tougher line against protesters after two weeks of nationwide demonstrations.
  • Money Flows Out of Emerging Markets. Money streamed out of emerging markets Tuesday, destabilizing currencies, sinking stocks and creating headaches for policy makers already worried about faltering growth. In the latest signs of turmoil, highflying stock markets fell sharply in Asia, while currencies in South Africa, India and Turkey reeled in the face of a surging U.S. dollar. Mexico's peso, which just a month ago was trading at its strongest level in almost two years, moved to its weakest level since late November.
Fox News: 
Zero Hedge:

Business Insider: 
  • Thermal coal ARA price for 2014 plunges as Credit Suisse cuts forecast. European coal for 2014 dropped to record as Credit Suisse AG analysts cut their price forecasts for the fuel and the region’s electricity costs. The price of coal for 2014 delivery to Amsterdam-Rotterdam-Antwerp declined as much as 1 percent to USD 88 a tonne, the lowest level since the contract started trading in January 2010. European coal will average USD 85 a tonne this year compared with a previous forecast of USD 108.20, the bank said. In 2014, the cost will average USD 92 a tonne from USD 114.10 predicted in December. European power will average EUR 37.5 per MW hour in 2016, down from EUR 46.60 forecast in December. Mr Zoltan Fekete and Mr Vincent Gilles said in a research note they are cutting their outlook amid expectations that stagnant power demand won’t be matched by reduced capacity, and on lowered price forecasts for carbon emission permits and coal. They said “At that anticipated level, gas plants will continue to lose vast amounts of money while coal spreads will come down to break even levels by the end of the decade.”
  • Bundesbank chief-sees risk ECB bond-buying could slow reforms. Bundesbank chief Jens Weidmann told Germany's Constitutional Court he saw a risk that the European Central Bank's (ECB) bond-buying (OMT) programme could slow euro zone reforms and dent the bank's credibility. "I see the danger that despite the per se welcome arrangements of the OMT programme, consolidation and reform efforts could slow and the credibility of monetary policy as a guarantor of price stability would dwindle." He added it would be problematic to mutualise the solvency risk of euro zone states via monetary policy
  • Half of Germans Want Court to Stop ECB's OMT. 48% of Germans want highest court to stop ECB's bond-buying program while 31% say plaintiffs' charges against ECB are unjustified.
Le Monde:
  • France Faces 'Rising Tide' of Job Cuts, Montebourg Says. The June 10 announcements of reorganization at Michelin and Lafuma and a lack of buyers for Virgin stores and Gad abbatoirs threaten 3,000 jobs in France. "The economy is declining everywhere in Europe, we're taking on a lot of water, we're in the middle of a storm," Industry Minister Montebourg said
Restructuring: Flowers slams Europe over inaction

While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true
  • Spain will probably have to tap its pensions reserve fund in July, citing people in the social security department.
Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.

While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

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