Friday, June 07, 2013

Today's Headlines

  • Debt Risk Heads for Third Weekly Rise as Yields Surge in Europe. The cost of insuring European corporate bonds is heading for its third weekly increase as yields surge amid concern central banks will curb their efforts to boost economic growth. The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings rose eight basis points this week, and was at 111 basis points at 10:51 a.m. in London, the longest stretch of weekly gains since March. Average yields on the debt rose nine basis points to a two-month high of 1.99 percent, according to Bank of America Merrill Lynch’s Euro Corporate index. Average yields on junk-rated notes climbed 23 basis points this week to 5.46 percent, the highest in a month, Bank of America Merrill Lynch index data show. The spread over government debt widened 27 basis points to 511, the most since April 18. The Markit iTraxx Crossover Index of default swaps on 50 companies with high-yield credit ratings reached a two-month high of 471 basis points yesterday, after jumping 49 basis points this week. An increase signals deterioration in perceptions of credit quality. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 16 basis points to 163 while the subordinated index climbed 22 basis points to 233. 
  • EU Says Countries Must Shoulder Responsibility for Ailing Banks. Euro-area states should only be able to seek direct help for their banking systems from the currency zone’s firewall fund if their national solvency is at risk, the European Commission said in a draft report. Otherwise, the European Stability Mechanism should lend funds to the affected nation, which would then be responsible for channelling the money to overhaul its lenders as was the case for Spain, according to the document obtained by Bloomberg News. Direct ESM aid is part of the European Union’s strategy to shore up its banking system through common supervision and standards for dealing with failing banks.
  • European Stocks Advance on U.S. Non-Farm Payroll Report. European stocks advanced, rebounding after the Stoxx Europe 600 Index fell to its lowest level in more than six weeks yesterday, as a U.S. report showed employers added more workers last month than forecast. The Stoxx 600 climbed 1.3 percent to 295.4 at the close of trading.
  • China’s Stocks Drop for Seventh Day Before Data. China’s stocks fell, capping the benchmark gauge’s first weekly decline in six weeks, as money-market rates jumped and economists forecast a report tomorrow will show export growth slowed last month. China Petroleum & Chemical Corp. (386), the nation’s biggest refiner, slid 1.6 percent after the government said it will cut gasoline prices. Industrial Bank Co. dropped 1.7 percent, adding to an 8.1 percent slump this week. China Coal Energy Co. (601898) led declines among coal producers. China’s exports may have grown 7.4 percent, half of April’s 14.7 percent, based on the median estimate of 38 economists. The government will release industrial output, retail sales, and inflation data on June 9. The Shanghai Composite Index (SHCOMP) fell for a seventh day, losing 1.4 percent to 2,210.90 at the close. It slid 3.9 percent this week, the first decline since the week ended April 26, amid concerns about slowing economic growth and tighter liquidity.
  • Brazil to Experience Tremors from Fed QE Program Tapering. End of quantitative easing program in the US could cause tremors for the world and Brazil, columnist Claudia Safatle reports, citing people from Brazil's economic team. Rising interest rates and depreciation of the real add important risk factors to the continuity of economic recovery, raising doubts about 2014 growth. GDP to grow about 2% in 2013; next year, growth will be similar or worse, depending on monetary tightening cycle and declines in currency. There may be some overshooting and overreaction, an official said.
  • Brazilian Real’s Rout Deepens as S&P Cuts Credit Rating Outlook. Brazil’s real fell to a four-year low after Standard & Poor’s cut the government’s credit-rating outlook to negative amid an economic slump that’s threatening to drive up the country’s debt levels. The real sank 0.8 percent to 2.1467 per dollar at 10:23 a.m. in Sao Paulo after earlier reaching 2.1533, the lowest on a closing basis since May 2009. Swap rates due January 2016 rose 11 basis points, or 0.11 percentage point, to 9.79 percent. The Ibovespa benchmark stock gauge slumped 0.5 percent. 
  • Commodity Investments Drop the Most in 11 Months as Gold Tumbles. Commodity investments fell $27 billion in April, the most in 11 months, on record sales of gold exchange-traded products, Barclays Plc (BARC) said. Assets under management dropped to $385 billion from $412 billion in March, the biggest decline since May 2012, London-based Barclays said in a report e-mailed today. Net redemptions in gold were a record 182 metric tons worth $8.7 billion in April followed by another 99 tons in May, it said. The Standard & Poor’s GSCI Total Return Index of 24 raw materials fell 4.7 percent in April, the biggest drop since May 2012. The gauge is down 3.1 percent this year.
  • Gold, Silver Tumble Most in Three Weeks on Stimulus Bets. Gold tumbled the most since mid-April after employment in the U.S. increased more than forecast in May, boosting concern that the Federal Reserve may scale back monetary stimulus. Silver fell more than 4 percent.
  • Greenspan Calls for Tapering of Federal Reserve Asset Purchases. Alan Greenspan, former chairman of the Federal Reserve, said the central bank needs to begin cutting back on its unprecedented asset purchases and move toward stopping them altogether. “The sooner we come to grips with this excessive level of assets on the balance sheet of the Federal Reserve, which everyone agrees is excessive, the better,” Greenspan said on CNBC television today. “The issue is not only a question of when we taper down, but when do we turn? And I think that the markets may not give us all of the leeway we would like to do that.” Greenspan, 87, said while slowing bond purchases must be an initial step, a lower rate of asset purchases will still add to the Fed’s balance sheet, which has reached a record $3.4 trillion. Asked if he thinks the economy is strong enough to drop the policy, known as quantitative easing, to zero, Greenspan said “we’ve got to do it even if we don’t think it’s strong enough.”
  • Mortgage-Bond Yields Approach 14-Month High After Jobs Report. Yields on Fannie Mae and Freddie Mac mortgage bonds that guide U.S. home-loan rates approached a 14-month high as May employment data failed to allay concern that the Federal Reserve will pare back its unprecedented stimulus. Fannie Mae’s current-coupon 30-year securities rose 0.03 percentage point to 2.96 percent as of 11 a.m. in New York, according to data compiled by Bloomberg. Yields reached 3 percent on June 4, the highest level since April 2012, climbing from a record-low 1.68 percent in September when the Fed said it would start buying $40 billion of home-loan debt a month to begin its third round of bond purchases.
  • Obama Surveillance Defies Campaign Civil Liberty Pledge. The news that Barack Obama continued the Bush administration’s domestic telephone surveillance program is sparking new doubts about a president who campaigned as a champion of civil liberties and greater transparency. “It’s remarkable that the man who rode his way to the presidency by suggesting George Bush’s anti-terrorism policies violated the Constitution is emulating those policies himself,” said Ari Fleischer, the former president’s press secretary. “It’s as if George Bush had gotten a fourth term.”
Wall Street Journal:
  • Fed on Track to Ease Up on Bond Buying Later This Year by Jon Hilsenrath. Federal Reserve officials are likely to signal at their June policy meeting that they're on track to begin pulling back their $85-billion-a-month bond-buying program later this year, as long as the economy doesn't disappoint. A good-but-not-great jobs report Friday ensured officials wouldn't want to act right away and would instead want to see more data before taking a delicate step toward winding down the program. Fed Chairman Ben Bernanke signaled last month that the central bank could start pulling back the program "in the next few meetings," a view echoed by other officials in recent weeks. The Fed's next meeting is June 18-19, and after that at the end of July and in mid-September.
  • Rehn Hits Back at IMF Over Greece. European Union Economics Chief Olli Rehn had harsh words for the International Monetary Fund Friday as he responded to a report by the IMF criticizing the European Commission over the Greek bailout. "I don't think it's fair and just that the IMF is trying to wash its hands and throwing the dirty water on European shoulders," Mr. Rehn said using unusually tough language.
  • Rapid Increase in Brazil Credit Poses Concerns For Households-IMF. The rapid growth of credit in Brazil poses some concerns for households, but not so much for the financial sector, the International Monetary Fund said Thursday. Although the overall level of debt in Brazil remains relatively low by international standards, the IMF expressed concern about the levels of household debt, and high debt-service burdens in particular, given the high interest rates and short loan maturities. Mortgages continue to be only a small share of the total consumer-credit portfolio, it said. "With average debt service-to-income estimated above 20%, there are indications that some households are already under financial distress," the report said. Recent data on delinquency rates and bounced checks suggest at least some households may have reached or exceeded the limit of their debt-carrying capacity, the IMF said.
Fox News: 
  • Obama: Phone, Internet data collection not 'Big Brother'. President Obama, speaking publicly for the first time about his administration's mass collection of phone and Internet data, said Friday that the programs have made a difference in tracking terrorists and are not tantamount to "Big Brother." Obama addressed the mounting controversy about the programs during remarks in California, ahead of a highly anticipated meeting with Chinese President Xi Jinping. As the administration moves to declassify some of the details about those programs, Obama assured that his administration is trying to strike the right "balance." "In the abstract, you can complain about Big Brother and how this is a potential program run amok, but when you actually look at the details, then I think we've struck the right balance," Obama said. Obama acknowledged that the U.S. government is collecting reams of phone records, including phone numbers and the duration of calls, but said this does not include listening to calls or gathering the names of callers.   
  • Mark Levin On NSA Tracking: "We Have The Elements Of A Police State Here". (video)
  • Misfired email tipped off DC officials to IRS scandal in 2010, earlier than previously known.
Zero Hedge:
Business Insider:
  • Bundesbank dampens optimism over German economy. Germany's central bank said the economy would slow considerably after a strong second quarter, cutting its 2013 growth forecast by 0.1 percentage points to 0.3 percent and its estimate for 2014 growth to 1.5 percent from 1.9 percent. The Bundesbank's 2013 prediction brought it into line with the International Monetary Fund, which halved its forecast for Germany on Monday.
  • TREASURIES-U.S. bonds slump on revived bets of less Fed buying.
  • Tumble in key interest rate highlights bank finance woes. A key overnight interest rate went negative twice last week, in a rare stumble that renewed attention on the distortions created by the Federal Reserve's asset-buying stimulus program. The overnight general collateral repo rate, or GC rate, effectively determines the interest earned on overnight secured loans to banks. A negative rate means lenders pay for the privilege of loaning money - an unsustainable position that has highlighted severe dysfunction in the so-called repo market. The GC rate fell to negative three basis points (bp) last Wednesday, and dropped two more bp the following day - its first tumble into negative ground since the 2011 eurozone crisis. That drop has renewed concerns that the repo market is clogged, with a shortage of the collateral it needs to function smoothly.
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.
  • Berlusconi Says Euro-Area Cohesion at Risk Over Growth. Former Italian PM says in interview with Il Foglio that Italy must confront German Chancellor Merkel and obtain EU growth policies. If response of Germany and EU allies is insufficient, nations must find own growth solutions "undoing the mechanisms of the euro area," Berlusconi said.
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.

No comments: