Evening Headlines
Bloomberg:
- Italy to Tap Markets With $11 Billion Sale of Bonds as Monti Eyes Growth. Italy will sell as much as 8.5 billion euros ($11 billion) in bonds today, one day after borrowing costs plunged at an auction of shorter-maturity debt. The Treasury in Rome will sell bonds maturing in 2014, 2018, 2021 and 2022. Italy yesterday sold 9 billion euros of 179-day bills to yield 3.251 percent, down from 6.504 percent at the last auction on Nov. 25, after the European Central Bank offered unlimited three-year loans to euro-area banks last week. Today’s auction results are expected shortly after 11 a.m. in Rome. Prime Minister Mario Monti convened a Cabinet meeting yesterday to outline his government’s next measures to boost economic growth and may offer details at a press conference scheduled for noon in Rome today. The economy contracted 0.2 percent in the third quarter and probably also shrank in the three months through December, meaning Italy may have entered its fourth recession since 2001.
- Libor Gap Hints at Debt Crisis Money-Market Freeze: Euro Credit. The gap between the highest and the lowest rates that banks say they can borrow from each other in dollars is close to a 2 1/2 year high, a sign Europe's failure to end the debt crisis is straining the financial industry. The divergence from reported fixings by the 18 banks contributing to the three-month London interbank offered rate reached 28 basis points yesterday, within two basis points of the widest since May 2009. Libor for three-month loans climbed to .579 percent yesterday, the most since July 2009, even as central banks injected cash into the market.
- Bond Ratings Show Credit Quality May Have Peaked: Credit Markets. Credit-ratings firms are growing less optimistic about U.S. corporate borrowers, downgrading more companies as they forecast defaults will rise. The ratio of upgrades to downgrades fell to 1.08 this year from 1.4 in 2010, according to data from Moody's Capital Markets Group. A two-year rise in U.S. companies' creditworthiness may be drawing to a close as Europe's sovereign-debt crisis roils capital markets around the world, reducing the ability of riskier borrowers to raise money from investors to finance their operations. Moody's cut more grades that it raised in the second half of the year as yields on speculative-grade debt reached a two-year high in October.
- Li Ka-Shing’s Cheung Kong Loses S&P Credit Rating. Cheung Kong (Holdings) Ltd. (1), controlled by billionaire Li Ka-shing, had its long-term corporate credit rating withdrawn by Standard & Poor’s, which said it hasn’t been able to “accurately assess” the credit quality of the Hong Kong developer. The ratings company withdrew the A- “unsolicited” rating, which was based on publicly available information because it had “no access to the company management for the past three years,” S&P said in a statement yesterday. “We can’t evaluate Cheung Kong’s liquidity accurately due to recent revisions to our liquidity criteria as the company has made material acquisitions in the past 12 months and continues to be active on the acquisition trail,” analysts Christopher Lee and Bei Fu wrote in the statement.
- Oil Trades Near One-Week Low on U.S. Stockpile Gain, European Debt Crisis. Oil traded near the lowest level in a week in New York after a report showed U.S. crude stockpiles surged, indicating fuel demand may be weakening as Europe’s debt crisis threatens to slow the global economy. Futures were little changed after sliding 2 percent yesterday, the first decline in seven days, as record European Central Bank lending signaled the growing risk of the region’s crisis. The euro slid to the lowest level since January against the dollar, curbing investor demand for commodities priced in the U.S. currency. Crude inventories rose 9.57 million barrels last week, according to the industry-funded American Petroleum Institute.
- Takeovers Slump to Lowest in Year as Debt Crisis Saps Confidence. The value of global takeovers dropped to the lowest level in more than a year this quarter, and dealmakers say Europe’s debt crisis may hamper a recovery in 2012 as cash-rich companies hold off on major purchases. Mergers and acquisitions have slumped 16 percent from the previous three months to $457.1 billion, putting the fourth quarter on course to be the slowest since at least mid-2010, according to data compiled by Bloomberg. For the year to date, announced takeover volume has risen less than 3 percent to $2.25 trillion after regulatory hurdles scuttled AT&T Inc.’s bid for T-Mobile USA, which would have been 2011’s biggest deal. Tightening credit markets, the risk of a euro-zone collapse and stock-market swings (MXWO) have deterred companies from pursuing transformational deals that would spur sales growth, M&A bankers said.
- Dithering at the Top Turned EU Crisis to Global Threat. At a closed-door meeting in Washington on April 14, Europe's effort to contain its debt crisis began to unravel. Inside the French ambassador's 19-bedroom mansion, finance ministers and central bankers from the world's largest economies heard Dominique Strauss-Kahn, then-head of the International Monetary Fund, deliver an ultimatum. Greece, the country that triggered the euro-zone debt crisis, would need a much bigger bailout than planned, Mr. Strauss-Kahn said. Unless Europe coughed up extra cash, the IMF, which a year earlier had agreed to share the burden with European countries, wouldn't release any more aid for Athens.
- Criminal Charges Are Prepared in BP(BP) Spill. U.S. prosecutors are preparing what would be the first criminal charges against BP PLC employees stemming from the 2010 Deepwater Horizon accident, which killed 11 workers and caused the worst offshore oil spill in U.S. history, said people familiar with the matter. Prosecutors are focused on several Houston-based engineers and at least one of their supervisors at the British oil company, though the breadth of the investigation isn't known.
- Merkel, Sarkozy Could Meet Jan 9 In Berlin On Euro, Fiscal Pact - EU Source. German Chancellor Angela Merkel and French President Nicolas Sarkozy could meet Jan. 9 in Berlin as they resume efforts in the new year to wrap up negotiations over a pact to more closely align economic policies among the countries that share the euro currency, a European Union official familiar with the situation told Dow Jones.
- Big Funds Build Case for Housing. Big money is starting to wager on housing. Hedge funds run by Caxton Associates LP, SAC Capital Advisors LP, Avenue Capital and Blackstone Group LP have been buying housing-related investments, betting on a rebound. And formerly bearish research firm Zelman & Associates now predicts a housing pickup, as does Goldman Sachs Group Inc. Other investors seem to be making the same bet. Shares of home builders are up 30% since the end of the third quarter, as measured by the Dow Jones index tracking those shares, topping a nearly 10.5% gain for the Standard & Poor's 500.
- Banks Sweat as Tax Net Tightens. New Rules Target U.S. Citizens With Accounts Abroad and Noncitizens With Deposits at U.S. Banks.
- South Korea Flags Dimmer 2012 Outlook. The South Korean government on Thursday reiterated a warning about the uncertain economic outlook while the Bank of Korea flagged weaker domestic consumer consumption, highlighting increasing headwinds for the export-dependent country against the backdrop of an unexpected decline in November's industrial output. According to Statistics Korea, the country's industrial output fell by 0.4% in November from the previous month in seasonally adjusted terms following a 0.6% fall in October, missing market expectations for a 0.4% rise.
- Political Predictions for 2012.
Business Insider:
- JPMorgan(JPM) Just Told The MF Global Clients' Lawyer To Close His Bank Account.
- A Jail Term Is Now A Badge Of Honor For Putin's Critics.
- While Iran Baits The US - Russia's Beefing Up Its Nukes.
- The Greek Healthcare System Is Breaking Down Under The Weight Of Austerity.
- Today's Euro Swan Dive Has Us Asking 2 Questions. We have two questions: 1) Has the ECB shot its wad as the lender of last resort providing massive liquidity to the banking system and leaving little ammunition for the distressed sovereigns; 2) Will money demand remain stable in the eurozone as the monetary base explodes? That is, will the Germans keep their money in Europe?
CNBC:
- Funds Expect Surge of Bad Loans in China. Foreign and domestic distressed debt funds expect a big supply of bad loans to come on to the market in China after at least five years in which banks largely sat on their portfolios of troubled loans. Executives at Clearwater Capital, a Hong Kong-based fund, and at Guangzhou-based Shoreline Capital say Chinese lenders must dispose of existing bad loans to prepare for a new batch of non-performing debt, stemming from the credit binge Beijing encouraged following the global financial crisis. “Now that there is a new flow of bad loans, the banks have to dispose of their legacy loan problem,” says Ben Fanger, co-founder of Shoreline. “Deals being offered to Shoreline are at prices that are lower, on average, than in recent years. We are now having meaningful dialogues again.”
CNN:
LA Times:
- Pakistani Death Squads Go After Informants To U.S. Drone Program. The militant group known as Khorasan Mujahedin terrorizes villages near the Afghan border. Tribal elders say most of those killed are innocent.
- Iran Unlikely to Block Oil Shipments Through Straight of Hormuz, Analysts Say. The latest in a series of Iranian threats to block the vital Strait of Hormuz triggered a sharp response Wednesday from the U.S. Navy, although there appeared to be little chance that Tehran would make good on its warnings. Despite threats to close the narrow waterway if Western nations tighten sanctions on Iran by imposing an oil embargo, the Islamic republic needs the strait at least as much as its adversaries do, Iranian and foreign analysts said.
Rasmussen Reports:
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
- Mosaic(MOS) to Cut Phosphate Production on Excess Supply. Fertiliser producer Mosaic Co said it will cut phosphate production by 250,000 tonnes over the next three months as excess supply weighs on spot prices. "As dealers and distributors focus on the macroeconomic uncertainty and delay purchases for the North American Spring season, near-term supply of phosphate barges on the Mississippi River has exceeded near-term demand," Chief Executive Jim Prokopanko said. Shares of the company were trading down 2 percent after the bell.
- Traditional Lenders Shiver as Shadow Banking Grows. The banking system, as measured by total assets, has slowly reduced in scale since the 2008 crisis. But the so-called shadow banking system has recovered to its pre-crisis peak, rising to $60tn worth of assets in 2010. The shadow banking system includes any number of financial entities such as money market funds, hedge funds and private equity groups, according to the Financial Stability Board, the international financial watchdog set up by the Group of Seven nations.
- A Market-Based Plan to Regulate Banks. The Volcker rule is the part of the Dodd-Frank Bill that forbids large banks from proprietary trading. The rule cannot be implemented in its current form because legislators and regulators cannot even define precisely what a proprietary trade is.
- Martin Feldstein: French 'don't get' problems at euro's heart. The French government should concentrate on its own financial problems rather than lashing out at Britain, according to leading US economist Martin Feldstein.
- Bond Sale Puts Italy to the Test. Italy faces a crucial test tomorrow as the technocrat government of Mario Monti launches its first big auction of long-term bonds since a disastrous upset a month ago. The outcome will set the tone for a string of debt sales through early 2012 that risk stretching the eurozone bond markets to breaking point.
- China will shift the focus of its economic policy to the real economy next year and away from financial markets, Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in a commentary. Money will be diverted to projects like irrigation and away from the real estate sector, Yi, wrote. Regulation of the realty market will continue to ensure that "unendurably high" property prices return to a "reasonable level," he said.
- China's weak agricultural foundation may lead to consumer price rise, citing Yao Jingyuan, former chief economist at the National Bureau of Statistics
- None of note
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 205.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 162.0 unch.
- FTSE-100 futures -.03%.
- S&P 500 futures +.47%.
- NASDAQ 100 futures +.41%.
Earnings of Note
Company/Estimate
- None of note
8:30 am EST
- Initial Jobless Claims for this week are estimated to rise to 375K versus 364K the prior week.
- Continuing Claims are estimated to rise to 3600K versus 3546K prior.
9:45 am EST
- Chicago Purchasing Manager for December is estimated to fall to 61.0 versus 62.6 in November.
10:00 am EST
- Pending Home Sales for November are estimated to rise +1.5% versus a +10.4% gain in October.
11:00 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,500,000 barrels versus a -10,570,000 barrel decline the prior week. Distillate supplies are estimated to fall by -650,000 barrels versus a -2,353,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -500,000 barrels versus a -412,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a -.2% decline the prior week.
Upcoming Splits
- None of note
- The Italian debt auction, Kansas City Fed Manufacturing Activity Index, weekly EIA natural gas inventory report and the weekly Bloomberg Consumer Comfort Index could also impact trading today.