Weekend Headlines
Bloomberg:- Merkel Rejects Debt Sharing as Obama Urges Europe Action. German Chancellor Angela Merkel hardened her opposition to joint debt sharing in the euro region as President Barack Obama singled out Europe’s leaders for not doing enough to arrest the financial crisis. With Europe’s debt crisis cited last week for canceled IPOs, weaker-than-expected Chinese manufacturing figures and a rise in the U.S. jobless rate, Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds. Some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.
- Euro Drops as German Opposition Boosts Debt Crisis Woes. The euro fell versus the dollar, extending a five-week loss, amid signs European leaders are struggling to agree on how to resolve the region’s debt crisis. The 17-nation euro remained lower versus the yen, following last week’s slide, before German Chancellor Angela Merkel meets fellow coalition leaders today after opposing joint debt sharing in the euro area. The greenback gained versus the yen on prospects officials will stem the Japanese currency’s gains. It also rose as Asian stocks fell, boosting demand for the relative safety of U.S. currency. Australia’s dollar dropped before Reserve Bank policy makers meet tomorrow.
- Banks Cut Cross-Border Lending Most Since Lehman: BIS. Global banks scaled back cross-border lending to companies, governments and each other at the fastest rate since 2008 in the final quarter of last year, with lenders based in the euro area leading the way. Lenders reporting to the Bank for International Settlements, the record-keeper of the world’s central banks, shrank their cross-border assets by $799 billion, or 2.5 percent, in the three months ended Dec. 31, data released by the BIS show. The decline was the sharpest since the fourth quarter of 2008, when interbank lending markets froze worldwide following the collapse of Lehman Brothers Holdings Inc. “The decline was led by a significant drop in interbank lending arising from the spillover of the euro-area sovereign debt crisis to bank funding markets,” BIS said in its quarterly report. “The reduction was especially marked for cross-border claims on residents of the euro area and was mostly attributable to euro-area banks.” European banks were trimming their balance sheets to help meet stricter capital requirements set by the European Banking Authority and by the Basel Committee on Banking Supervision. Foreign banks also reduced their lending to European banks on concern that the region’s sovereign debt crisis is spreading, prompting concerns that a credit drought might further cripple the economy of the currency union.
- Merkel Presses Spain to Accept Bailout, Spiegel Reports. German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble are urging Spain’s government to take an international bailout as it struggles to shore up the country’s banks, Der Spiegel magazine reported, without saying where it got the information. Spain alone cannot solve its banking troubles and Merkel and Schaeuble want Spain to tap Europe’s temporary bailout fund, the European Financial Stability Facility, for aid for banks, Spiegel said. Schaeuble pressed Spanish Economy Minister Luis de Guindos on a bailout during the latter’s visit to Berlin last week, and de Guindos rebuffed him, Spiegel said. German government experts estimate that Spain’s banking industry will need a capital injection of 50-90 billion euros, Spiegel said.
- Bundesbank Tells FAZ Too Early to Set Up EU-Wide ‘Banking Union’. The European Union cannot in the short term set up a trade bloc-wide bank regulator, a central rescue fund for lenders and a central system of guarantees for deposits, Bundesbank Vice President Sabine Lautenschlaeger told the Frankfurter Allgemeine Zeitung. Such instruments, called collectively a “Banking Union” by their proponents, can only be set up “at the end of a long path,” Lautenschlaeger is cited as saying in an interview. The EU lacks a uniform set of administrative laws to create a single bank oversight body, she said. Creating a supra-national rescue fund for banks with cross- border business and a central pool for guaranteeing deposits “may imply that risks are shared” in the trade bloc, she said. “In my opinion, that can only be a success in a fiscal union with central controls and intervention rights.”
- Schaeuble Ministry Fears Weaker Euro If ESM Delayed, WiWo Says. Germany’s Finance Ministry, led by Wolfgang Schaeuble, fears the euro could weaken further against the U.S. dollar -- touching the $1.10-mark -- if the euro’s new rescue fund is delayed, WirtschaftsWoche reported, citing officials it didn’t name. Leaders in the euro area have pledged to have the European Stability Mechanism up and running on July 1, but the new and permanent fund may be delayed as German lawmakers wrangle over its approval in parliament, said the business weekly.
- Spanish Moves Pose Risk to Healthy Banks, Dancausa Tells Mundo. Maria Dolores Dancausa, chief executive officer of Bankinter SA (BKT), said that the measures the Spanish government introduced to bolster the banking system risk undermining healthy lenders, El Mundo reported. The increasing provisions demanded by the government may impose too great a burden on banks that aren’t facing future losses and that public support for Bankia SA (BKIA) tilts the market against well-run institutions that didn’t need bailing out, Dancausa said in an interview with the newspaper.
- Danish Housing Crisis Spells Pain for Banks, Moody's Says. Denmark’s housing crisis is set to deepen as private debt burdens remain high, property values sink and the job market struggles, Moody’s Investors Service said. “We see asset quality deteriorating among financial institutions and we expect those pressures to continue because of the operating environment,” Simon Harris, a London-based managing director at Moody’s, said in an interview. “Real estate prices are weakening” and “unemployment has risen and is at higher levels than a couple years ago.”
- Heineken Moved Excess Cash From Greece, Financieele Dagblad Says. Heineken NV (HEIA) moved excess cash from Greece as a preparation for a possible exit of the country from the euro, Het Financieele Dagblad reported today, citing an unidentified spokesman. Heineken transfers the money from euros into U.S. dollars or pounds when possible, the Dutch newspaper reported.
- Deutsche Bank(DB) Says It Sees No Need To Recapitalize, Welt Says. Deutsche Bank AG (DBK)’s new dual leadership of Anshu Jain and Juergen Fitschen reiterated the lender’s stance on expanding its capital base on its own strength and foregoing a recapitalization, Die Welt said.
- Germany May Call On EU To Choke China Solar Imports, WiWo Says. Germany may call on the European Union to apply high import tariffs on Chinese solar panels that are sold at less than production costs, Environment Minister Peter Altmaier told the WirtschaftsWoche busniess magazine. Germany is trying to slow down the expansion of solar energy to cut power prices, yet the country’s solar-panel makers face unfair competition from subsidized Chinese manufacturers, Altmaier told the weekly magazine. The U.S. in May raised import duties on Chinese-made panels for the same reason, WiWo said.
- China’s Non-Manufacturing Industries Grow at Slower Pace. China’s non-manufacturing industries expanded at the slowest pace in more than a year, as export orders declined and weakness in real estate countered strength in retailing and leasing, an official survey indicated. The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. That’s the lowest reading since March 2011 when the federation started seasonally adjusting the data. “The data reinforce the message that the slowdown has spread from the manufacturing sector to the services sector,” said Tim Condon, chief Asia economist at ING Financial Markets in Singapore. “The current slowdown is more complicated to read than the 2008 global financial crisis and is stressing the authorities’ vaunted fine-tuning skills.”
- China's Stocks Fall Most in 2 Weeks on Services, U.S. Jobs Data. The Shanghai Composite Index (SHCOMP) fell 29.7 points, or 1.3 percent, to 2,343.72 at 10:14 a.m. local time, heading for the biggest drop since May 18. About 7.77 billion shares changed hands on June 1, 3 percent lower than the daily average this year. The CSI 300 Index (SHSZ300) retreated 1.6 percent to 2,590.82. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, tumbled 3.4 percent to 87.22 on June 1 in New York, the biggest slump since Nov. 21.
- Hedge Funds in Longest Rout Since Global Recession: Commodities. Hedge funds curbed bullish bets on commodities for a third consecutive month, the longest retreat since the global recession, as Europe's worsening debt crisis and slowing U.S. job growth sent prices tumbling. Money managers reduced net-long positions across 18 U.S futures and options by 8.1% to 620,715 contracts in the week ended May 29, extending the monthly decline to 26%, CFTC data show. The S&P GSCI Spot Index of 24 raw materials slumped 13% in May.
Wall Street Journal:- Fed's 'Sensible Center' Wants No Policy Shift. At a time when the Federal Reserve looks persistently polarized, Sandra Pianalto, president of the Federal Reserve Bank of Cleveland, has positioned herself as a consensus seeker who tends to find herself right in the middle of the pack. She isn't running with the crowd at the Fed that wants early interest-rate increases to stave off higher inflation. Nor is she running with those arguing for more action to drive down unemployment. For now, at least, Ms. Pianalto wants to keep Fed policy where it is.
- European Project Trips China Builder. Chinese companies have wowed the world with superhighways, high-speed trains and snazzy airports, all built seemingly overnight. Yet a modest highway through Polish potato fields proved to be too much for one of China's biggest builders.
- Google(GOOG) Readies New Local-Ad Assault. As early as next month, the Internet company will try anew, as it trains its largest-ever assault on the roughly $20 billion market. Google plans to have its newest small-business service—which at one point it was calling Business Builder—up and running as early as July, said a person familiar with the matter.
- WellPoint to Buy 1-800-Contacts.
- Feds Eye MF's False Promise. Federal investigators are scrutinizing a series of conversations among MF Global Holdings Ltd. employees shortly before the securities firm erroneously told regulators that its customer funds were safe, said people with knowledge of the probe. Three days before MF Global filed for bankruptcy-court protection, CME Group Inc. was assured by the New York company of a $200 million cushion in accounts that ensured customer funds were being kept separate from the firm's own money.
- The Wisconsin Recall Stakes. A test of whether taxpayers can control the entitlement state.
Business Insider:
Zero Hedge:
CNBC:
Wall Street All-Stars:
LA Times:
- Voters Have Turned Against California Bullet Train, Poll Shows. A strong majority of voters have turned against the project just as Gov. Jerry Brown is pressuring the Legislature to green-light the start of construction in the Central Valley later this year, a major step in the plan to connect Los Angeles and San Francisco with high-speed rail service by about 2028. In a state renowned for betting big on mega-infrastructure projects, including the world's most famous freeways and canals that move oceans of water across hundreds of miles, the fast-approaching decision on the bullet train project marks a historic Golden State moment. Whether eroding public support will sway the Legislature is unclear. Brown, the Obama administration, labor unions and Democratic leaders, including Rep. Nancy Pelosi of San Francisco, are ramping up pressure on key state senators to cast aside doubts and commit funding this summer for an initial 130-mile section of track. But the new poll numbers show that proceeding could put lawmakers on the wrong side of public opinion. Across the state, 55% of the voters want the bond issue that was approved in 2008 placed back on the ballot, and 59% say they now would vote against it.
- Syria President Bashar Assad denies role in massacres. The Syrian leader assails what he calls a 'foreign war with internal tools' and offers no new initiatives to revive the U.N. peace plan.
NY Times:- Merrill Losses Were Withheld Before Bank of America(BAC) Deal. Days before Bank of America shareholders approved the bank’s $50 billion purchase of Merrill Lynch in December 2008, top bank executives were advised that losses at the investment firm would most likely hammer the combined companies’ earnings in the years to come. But shareholders were not told about the looming losses, which would prompt a second taxpayer bailout of $20 billion, leaving them instead to rely on rosier projections from the bank that the deal would make money relatively soon after it was completed.
Forbes:
- Chinese Purchasers Default on Commodity Contracts. Chinese buyers are either deferring or defaulting on iron ore and coal purchase contracts as inventories in China rise and prices fall. At the end of last month, there were at least six thermal coal cargoes—from the United States, Colombia, and South Africa—affected by these defaults.
- China's Housing Bubble Deflating. China’s housing bubble is still getting the wind knocked out of it. Real estate prices fell to a 16-month low in May as officials pledged to keep property curbs that have sapped demand, according to SouFun Holdings Ltd, owner of the nation’s biggest real estate website.
CNN:
Rasmussen Reports:
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows Mitt Romney picking up 48% of the vote, while President Obama attracts 44%. Three percent (3%) prefer some other candidate, and five percent (5%) are undecided.
Reuters:
- Scania CEO Sees Europe Truck Market Shrinking 10%. Scania Chief Executive Leif Ostling, who will leave the position to join the board of majority-owner Volkswagen, told Reuters on Saturday he expects the European truck market to shrink by about 10 percent this year.
- Emerging market central banks sell euros. Central banks in emerging markets have been dumping euros to shore up their own currencies, contributing to the euro’s drastic slide in recent weeks, according to traders.
The Telegraph:
- The week that Europe stopped pretending. The euro has essentially broken down as a viable economic and political undertaking. The latest rush of events reeks of impending denouement. Switzerland is threatening capital controls to repel bank flight from Euroland. The Swiss two-year note has fallen to -0.32pc, not that it seems to make any difference. Denmark’s central bank said it was battening down the hatches for a "splintering" of EMU. It has cut interest rates twice in a matter or days and pledged to do whatever it takes to stop euros flooding into the country. Contingency plans are on the lips of officials in every capital in Europe, and beyond. On a single day, the European Commission said monetary union was in danger of "disintegration" and the European Central Bank said it was "unsustainable" as constructed. Their plaintive cries may have fallen on deaf ears in Berlin, but they were heard all too clearly by investors across the world. Joschka Fischer, Germany’s former vice-Chancellor, said EU leaders have two weeks left to save the project.
- Spanish rescue draws closer as Cyprus buckles. Spain's ruling party has begun to crack under pressure, signalling for the first time that the country may need a European rescue to shore up its banking system.
The Times of India:
- Withhold All Aid to Pakistan Until Afridi is Freed: US Lawmakers. Two top American lawmakers have asked US President Barack Obama to withhold all aid to Pakistan until the country releases a doctor who helped the CIA track Osama bin Laden. "Until Dr (Shakil) Afridi is released from prison, we urge you to withhold all unallocated foreign assistance money for Pakistan remaining for this fiscal year. We must send a message not only to Pakistan but to any other countries seeking to use American taxpayer dollars to subsidize their subversion of America's global priorities," Senator Rand Paul and Congressman Dana Rohrabacher, said in a letter to Obama.
21st Century Business Herald:
- China Fujian Rebate Scheme Collapse Causes Bank Run. The collapse of a rebate scheme in Wuyishan city in China's Fujian province caused a rush of depositors to withdraw funds at banks and automated teller machines, citing local residents.
Weekend Recommendations
Barron's:- Made positive comments on (NILE), (SRE), (EIC), (PCG), (DECK) and (BBBY).
Night Trading- Asian indices are -2.75% to -1.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 210.50 +10.5 basis points.
- Asia Pacific Sovereign CDS Index 169.25 +6.75 basis points.
- FTSE-100 futures n/a.
- S&P 500 futures -.64%.
- NASDAQ 100 futures -.64%.
Morning Preview LinksEarnings of NoteCompany/EstimateEconomic Releases10:00 am EST- Factory Orders for April are estimated to rise +.2% versus a -1.5% decline in March.
Upcoming Splits
Other Potential Market Movers- The beginning of the IMF review of Spain, ISM New York for May, Jefferies Healthcare Conference, RBC Energy/Power Conference and the Goldman Sachs Lodging/Gaming/Restaurant/Leisure Conference could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.
