News That Matters (September 29, 2011)

via The Trader,
Asian shares and commodities fell on Thursday, Reuters reports, on growing worries that Europe’s intractable debt problems will plunge the world into a second global financial crisis. Copper fell 3 per cent

Citigroup’s chief executive Vikram Pandit says he expects the company will return significant amounts of capital to shareholders from 2012, the WSJ says. Mr Pandit said the bank is still on track to return capital to investors next year,

Spain, Italy and France have extended bans on the short selling of select banks and other financial stocks, the FT reports. The French and Italian prohibitions are slated to last until November 11, while the Spanish rule remains in force until “market conditions allow” it to be lifted.

ING is selling its stake in Brazil’s insurance group SulAmerica in a deal that is likely to be worth at least $1bn, sparking a fierce bidding war in the fast-growing Brazilian market, the FT says, citing people close to the transaction. French insurer Axa and Japan’s Tokio Marine have so far emerged as the top bidders for ING’s 36 per cent stake in SulAmerica,

Spain has scrapped the €7bn privatisation of its state lottery in the face of turbulent markets and mounting domestic political opposition to what would have been Spain’s largest stock market flotation,

Europe’s top executives have experienced a third year of base pay freezes, with pay consultants warning them to expect the same again in 2012 in the new era of austerity, the FT reports. “Until we see a more upbeat macroeconomic and political climate,

Mortgage fraud reports by banks rose 88 per cent last quarter as lenders were asked to take back bad home loans sold to investors, the FT reports. A US Treasury Department report released Wednesday says during the three-month period ending in June,

UK banks should cut bonuses and dividends rather than reduce lending to customers as they try to strengthen their balance sheets and cope with falling profits, the Bank of England’s financial policy committee has warned. The committee,

The Securities and Exchange Commission is investigating Royal Bank of Scotland, Credit Suisse and other financial institutions for their handling of problem mortgage loans, the FT reports, citing public

A European Union proposal to impose a tax on financial transactions has been attacked by financial and business groups as an assault on the City of London and companies seeking to protect themselves against market uncertainty,

Federal Reserve chairman Ben Bernanke said on Wednesday the central bank might need to ease monetary policy further if inflation or inflation expectations fall significantly, Reuters reports. In his first public remarks since the Fed launched ‘Operation Twist’,

Greece’s private creditors have reacted angrily to suggestions that some eurozone countries want bondholders to suffer bigger losses than those agreed in the second bail-out of Athens. Banks and other bondholders are resisting the idea by lobbying countries such as Germany and the Netherlands, where hardliners are pushing for private creditors to write down more than the current 21 per cent agreed in July’s €109bn Greek rescue, according to people close to the deal.

Brazil’s government has been forced to cut taxes on petrol imports as the country struggles to keep a lid on inflation, with national strikes over pay threatening to boost prices even higher in Latin America’s biggest economy. The government announced on Tuesday that it would reduce the so-called CIDE tax, which applies to imports and sales of petrol to distributors, by 16 per cent – a move that will allow the country to maintain vital government price controls at the pumps.

China has warned Asian countries against provoking it under the cover of US military power, highlighting Beijing’s concern over moves from its neighbours and the US to contain its rise.  “Certain countries think as long as they can balance China with the help of US military power, they are free to do whatever they want,” said the People’s Daily, the mouthpiece of the ruling Communist party, in an editorial on Wednesday.
With Wall Street snapping a three-session winning streak on Wednesday, Japan’s Nikkei Stock Average lost 1.0%, Australia’s S&P/ASX 200 fell 1.5%, South Korea’s Kospi Composite lost 0.5% and New Zealand’s NZX-50 dropped 0.4%. Dow Jones Industrial Average futures fell 62 points in screen trade. Stocks exposed to the commodities and oil sectors slid after Thursday’s sharp selloff in this space.

Germany—As Angela Merkel races to convince Germans that their continued prosperity rests on preserving the euro, she is encountering strong resistance even from those in her own party who have been traditionally among the country’s most pro-European politicians. When German lawmakers vote Thursday on whether to put more money into Europe’s bailout fund—a step many investors see as essential to prevent a market panic—several conservative deputies, including Wolfgang Bosbach, a prominent champion of European integration, are expected to vote “no.” Mr. Bosbach, a high-ranking conservative in Ms. Merkel’s Christian Democratic Union, has recently become an outspoken critic of the bailout strategy.

Syrian opposition groups are calling for the first time for an international intervention to protect civilians from the Assad regime’s ongoing military onslaught, including the establishment of a United Nations-backed no-fly zone. The opposition’s formal calls drew a tepid response Wednesday from the Obama administration and European governments, who said there is currently little appetite to reprise the type of air campaign that helped dislodge long-serving Libyan strongman Moammar Gadhafi last month.

In little more than a month, copper has careened into a bear market, catching commodities traders off guard and triggering alarm bells across financial markets. Copper prices have plunged 23% this month—a decline of 20% or more is commonly considered a bear market. The declines have far exceeded the slide in the stock market, where the Standard & Poor’s 500-stock index has lost 5.6%. The fall in copper is seen as particularly significant because the metal is used in everything from Apple Inc.’s iPads to indoor plumbing and electrical wires, making it a good leading indicator for the global economy
Japanese retail sales declined 2.6% in August compared to the year-ago period, according to government statistics released Thursday. Sales rose 0.6% in July.

The nation’s weak labor market was “a national crisis” that required attention from the White House and Congress, Federal Reserve Chairman Ben Bernanke said Wednesday. “We’ve had close to 10% unemployment now for a number of years, and of the people who are unemployed, about 45% have been unemployed for six months or more. This is unheard of,” Bernanke said in a question-and-answer session following a speech in Cleveland. He called for policies “that could help them find work, train for work and retain their skills.”
Gold extended losses and dropped more than 1 percent on Thursday as investors turned to the safety of the U.S. dollar on uncertainty about a resolution of Europe’s debt crisis that has stirred up fears for global growth. Spot gold lost $3.55 an ounce to $1,604.35 by 0221 GMT (8:21 a.m. EDT), having fallen to a low around $1,582. It had plunged to a two-month low of $1,534.49 on Monday — down from a lifetime high around $1,920 an ounce struck in early September.

The yield on U.S. five-year Treasury notes briefly touched 1 percent on Wednesday, as dealers cleared room ahead of a $35 billion auction of new five-year debt. In the open market, the five-year government notes last traded down 8/32 in price for a yield of 0.99 percent, up nearly 5 basis points from late Tuesday. The result of the five-year Treasuries

U.S. businesses stepped up investment spending in August despite the upheaval caused by bitter political fighting in Washington, and some economists raised their forecast for economic growth for this quarter. The Commerce Department said on Wednesday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, increased 1.1 percent after falling 0.2 percent in July.

Lehman Brothers Holdings Inc unveiled the latest in a string of settlements with major financial creditors, reaching deals with Bank of America Corp (BAC.N) and Merrill Lynch that will reduce the banks’ claims against Lehman by a combined $7.5 billion. As part of the settlement, the banks have pledged support for Lehman’s $65 billion bankruptcy exit plan, according to court papers filed late on Wednesday in U.S. Bankruptcy Court in Manhattan. Bank of America will reduce its derivatives claims against Lehman entities by $4.5 billion, Lehman said. Merrill Lynch, a Bank of America subsidiary since 2008, will lower its claims by an additional $3 billion, court papers show.
Global investors anticipate Europe’s debt crisis leading to an economic slump, a financial meltdown and social unrest in the next year with 72 percent predicting a country abandoning the euro as a shared currency within five years, a Bloomberg survey found. About three-quarters of those questioned this week said the euro-area economy will fall into recession during the next 12 months and 53 percent said turmoil will worsen in a banking sector laden with government bonds, according to the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. Forty percent see the 17-nation currency bloc losing at least one member in the next year.

Most global investors predict Chinese growth will slow to less than half the pace sustained since the government began dismantling Mao Zedong’s communist economy three decades ago, a Bloomberg poll indicated. Fifty-nine percent of respondents said China’s gross domestic product, which rose 9.5 percent last quarter, will gain less than 5 percent annually by 2016. Twelve percent see such a slowdown within a year, and 47 percent said it will occur in two to five years, the quarterly Bloomberg Global Poll of investors, analysts and traders who are Bloomberg subscribers showed.

President Barack Obama for the second time this week criticized the response of European governments to the continent’s debt crisis, saying the turmoil continues to be a drag on the U.S. economy. “Some of the challenges that we’ve had over the last several months actually have to do with the fact that, in Europe, we haven’t seen them deal with their banking system and their financial system as effectively as they needed to,” Obama said yesterday in response to a question about U.S. economic growth at a roundtable discussion on Hispanic issues at the White House.

Sony Corp. (6758), Japan’s largest exporter of consumer electronics, said it expects a “huge impact” on earnings from the weaker euro, underscoring the company’s vulnerability to the European debt crisis. Sony doesn’t buy many components from Europe while its Asian suppliers settle in dollars, limiting its ability to hedge against the euro’s decline, Hiroshi Kurihara, corporate treasurer at Sony, said in an interview in Tokyo yesterday. “There are no countermeasures that we can take for the moment,” he said. “There is a huge impact on our earnings.”
Sovereign wealth funds may be shifting towards alternative investments such as infrastructure and property as they reconsider their investment strategies after a decade of equity underperformance against low-yielding fixed income. That means the $4 trillion sector is unlikely to play white knight to hobbled euro zone banks as it did in 2008, when state-owned investment vehicles ploughed $80 billion into troubled Western lenders.

The U.S. can learn how to boost long-run growth from successful emerging economies, U.S. Federal Reserve chairman Ben Bernanke said in a speech on Wednesday that will delight developing countries more used to admonishment than admiration from Washington.“Advanced economies like the U.S. would do well to relearn some of the lessons from the experiences of the emerging market economies,” said Mr Bernanke.
Greece may never be able to pay off its huge debts, but its bonds, long scorned by investors, are suddenly being gobbled up by hedge funds.  After a number of investors struck gold by betting against French banks, many have turned their attention to the hot yet risky euro zone trade of the moment: buying Greek government bonds that traders say are changing hands for as little as 36 cents for each euro of face value.  The investors hope to book a fat profit on the expectation that the European Union and the International Monetary Fund will once again bail out Greece, fearing a global financial disaster if they do not.
Chile and Venezuela, two countries in the opposite of the South American political spectrum, have something in common: both are interested in the Chinese yuan, or renminbi. With the growing clout of the world’s second largest economy and the slow but constant strengthening of its currency, the yuan is an increasingly attractive choice for reserve currency. While there currently are restrictions in its transactions, the two South American countries lead the flight from the U.S. dollar in the region.
Consumers earned less and spent less for a second straight year in 2010. The government data shows how Americans are struggling after the worst recession since the Great Depression. The Labor Department says in its annual survey of consumer behavior that spending fell 2% last year, only the second decrease since the government began the survey in 1984.
Europe’s banking woes have begun to set off a funding crunch in the emerging markets of Asia, Latin America, and Eastern Europe, leaving them nakedly exposed as the rich world slides into a double-dip downturn. Corporate bond issuance has collapsed by three-quarters over the past three months in these regions, touching the lowest level since depths of the Great Recession in early 2009, according to Bloomberg data.

Rents have increased for the third consecutive quarter, according to research by Paragon, the buy to let lender. But rising rents appear to be causing problems for many tenants. According to new research from the Money Advice Trust, the number of calls it receives about rent arrears has risen by 84pc in recent years. A spokesman said: “Many first time buyers cannot get a mortgage so demand for rented property have risen. But with landlords pushing up rents this has left some people struggling to meet bills, particularly as this has coincided with a rise in inflation, particularly of food and fuel costs.”

Credit conditions among UK households have eased in recent months, according to the latest snapshot from the Bank of England. The Bank’s Credit Conditions Survey indicated that both secured and unsecured credit became more available to households in the third quarter. There was a rise in the availability of loans with high loan-to-value ratios, defined as those greater than 75pc.
Top earners in Britain face the fourth-highest rate of personal income tax in the EU, with only Sweden, Denmark and the Netherlands asking for more, according to figures from the accountancy firm KPMG. The 50p top rate introduced by the last Labour Government kicks in at incomes above £150,000, and places the UK at joint No. 4 in the European high tax league, alongside Belgium and Austria. Withdrawal of the personal allowance on incomes over £100,000 means the marginal rate of tax is even higher, at 60 per cent, KPMG said.
Job vacancies in Australia rose 3.3 per cent to 187,100 in seasonally adjusted terms in the three months to end August, suggesting employment growth could start to pick up after several months of slowdown. Data from the Australian Bureau of Statistics out today showed vacancies for the three months to August were 2.9 per cent above the same period in 2010. Job vacancies in the private sector rose an adjusted 4.1 per cent in the August quarter to 170,000, to be 3.8 per cent higher than the same period last year.

Global creditors announced Wednesday the return of auditors to Greece in a bid to break an impasse over billions of euros in blocked bailout loans Athens needs to avoid default. Nearly four weeks after abruptly leaving the city, EU and IMF negotiators will restart tough number crunching from Thursday amid mounting social tension and what the European Union describes as the biggest challenge of its history.
British Foreign Secretary William Hague said on Wednesday that his assertion more than a decade ago that the euro zone was a ‘burning building with no exits’ had been proved right by the debt crisis. Mr Hague, one of the most eurosceptic members of Conservative Prime Minister David Cameron’s government, added that countries using the single currency would feel the ramifications of the crisis for decades to come.
GDP growth is predicted to remain above 9 percent this year amid growing fears over a global economic meltdown due to evolving debt crises in both Europe and the United States, a senior government think-tank economist said on Wednesday. However, the world’s second-largest economy may see declining GDP growth in the longer term, due to global conditions, said Lu Zhongyuan, deputy head of the Development Research Center of the State Council.

China will see a bumper harvest of grain this year, with grain output expected to jump to a record high of more than 550 million metric tons, Vice Minister of Agriculture Chen Xiaohua said Thursday. The strong harvest will mark eight consecutive years of growth for China’s grain output. The sound development of the agricultural industry has supported China’s efforts to manage inflationary expectations, improve livelihoods and maintain steady economic growth, Chen said at a press conference.

Chinese banks have extended more loans to small firms to ease their financial predicaments as the government tightens monetary supply, a banking regulator said Wednesday. Outstanding loans to small firms grew 26.6 percent year-on-year to hit 9.85 trillion yuan (1.55 trillion U.S. dollars) at the end of July, said Xiao Yuanqi, an official in charge of financial services for small enterprises at the China Banking Regulatory Commission. The growth was 10 percentage points higher than that of the banks’ total outstanding loans, Xiao told Xinhua.

China’s Vice Premier Zhang Dejiang on Wednesday called for intensified efforts in promoting the “three networks integration” program and pushing forward the development of the new generation of the information technology (IT) industry. Zhang made the remarks during his visit to the PT/Expo Comm China 2011, which runs from Monday to Friday. The IT industry is one of the country’s strategic emerging industries. The government will increase support for the sector, and communications companies should enhance their abilities to self-innovate and strive to make new breakthroughs in key technologies, Zhang said.

New Zealand investment in Australia rose by 23 percent to 51 billion NZ dollars (39.6 billion U.S. dollars) at the end of March, the government statistics agency announced Thursday. Banks increased lending to their Australian parents, New Zealand investors purchased shares in Australia, and the value of New Zealand-owned companies in Australia increased, said Statistics New Zealand balance of payments manager John Morris.

Brazil’s Central Bank on Tuesday warned that the plight in the world’s debt-ridden economies may linger for years and said sustained economic growth is the best solution. Central Bank President Alexandre Tombini told members of the Senate that the United States, the European Union and Japan will continue to face difficulties in reducing their massive public debt for the next five years.
Exports of China’s automobiles and automotive accessories have flourished since 2010 as the global economy started to recover in late 2009, a Chinese trade official said during a car export conference Tuesday. Automobile exports reached 465,000 units in the first seven months of 2011, up 53.3 percent year-on-year, according to statistics provided by the General Administration of Customs of the People’s Republic of China. From January to July, China exported cars and car accessories worth 22.86 billion U.S. dollars, up 33.3 percent from last year, the data showed.
Taking his cue from Europe, where the rich have offered to be taxed more to rescue economies out of the ongoing crisis, Home Minister P. Chidambaram on Wednesday made out a case for higher taxes for the wealthy, even while admitting that “many people” would not like his idea.  “We must raise the tax revenue to defend [the expected aggregate decline of resources]. I know many people won’t like this. But, I think, I can summon up the courage to make the statement,” he said in his address on ‘Inclusive growth: A challenging opportunity’ organised by the All India Management Association (AIMA) here
More than one out of 10 people in South Korea were aged 65 or older last year, data showed Thursday, indicating the nation is aging at a faster pace than other major advanced nations. According to the data provided by Statistics Korea, the number of people in the senior age group came to 5.36 million last year, accounting for 11 percent of the nation’s total population. The ratio is up from the previous year’s 10.7 percent and much higher than 7.2 percent tallied in 2000.

South Korea’s central bank said Thursday it plans to take a cautious approach to managing rate policy by considering risk factors at home and abroad due to greater economic uncertainty. The Bank of Korea (BOK) said in a monetary policy report that it will focus its monetary policy on further stabilizing prices while sustaining economic growth.
Pretoria - The government is scratching its head about how to stabilise the volatile rand, whose depreciation benefits sectors such as manufacturing but also triggers inflation, Finance Minister Pravin Gordhan said on Wednesday. Briefing journalists after last week’s annual World Bank and International Monetary Fund (IMF) meetings, Gordhan said he was not sure how South Africa could manage fiscal credibility and grow the economy at the same time

About 395 000 jobs were lost in 2010 compared to the previous year, Statistics SA said on Wednesday. Around 13.1 million people were employed in 2010 compared to 13.5 million in 2009. “This indicates the country has not yet fully recovered from the economic downturn in 2009,” Stats SA deputy director general for population and social statistics Kefiloe Masiteng told reporters.
Iran’s Oil Minister Rostam Qasemi, who is not anymore in the sanctions list of some Western countries, is set to chair the upcoming meeting of the OPEC in Vienna. Qasemi is scheduled to attend the meeting on December 14 after his name was “removed from the sanctions list of the Western countries” due to the efforts of the ministries of oil and foreign affairs, MEHR news agency reported on Wednesday.  The EU put Qasemi on a sanctions list in July 2010, preventing him from travelling or holding assets in the EU – echoing a similar US measure five months earlier.

Iran is ready to help Turkey in repairing on a natural gas transmission pipeline and to resume the flow of its gas export to neighboring Turkey within less than a week, an official said here on Wednesday. The speaker of National Iranian Gas Company (NIGC) told the Mehr news agency that NIGC has expressed its readiness to send Iranian technicians and specialists for helping Turkey to repair the natural gas transmission pipeline which was damaged in Turkish territory. While repairing and resuming the pipeline usually takes one week long, but it is expected that by helping of the experts and technical agents of the National Iranian Gas Company, they succeed to repair the pipeline in the shortest time, Majid Bojarzadeh added.
Dubai’s exports and re-exports recorded a 17 per cent growth during the first eight months of 2011, a top official said on Wednesday. “The emirate’s exports and re-exports rose to Dh162 billion during the January to August period from Dh138 billion in the same period last year,” said Abdul Rahman Saif Al Ghurair, Chairman of the Dubai Chamber of Commerce and Industry. Dubai also continues to cement its position as a major hub especially for the re-export of auto parts, with a strong and well-developed re-export sector, especially in auto parts due in part to the lack of an automotive manufacturing industry.
Great piece on the ever increasing stupidity of HFT Machines. No, HFT does not provide liquidity, efficiency, volume etc, but now provides fake trades, that the investor does not see. If anybody can explain the Economic Positive of the below trades, please send us a mail. As usual, great work by Nanex. Usually when algorithms go haywire in the markets, they execute trades at wild prices; many of which will later be canceled. ‘Pretend it didn’t happen‘ is the current mantra of our regulatory agencies. The regulators would also appreciate it if you didn’t talk about these events as they could harm investor confidence. What country are we in?

While the Equities market continue the HFT Domination, where now the latest is RumorAlgo HFT, the Credit Markets imply a much worse outlook of the Economy. Credit Markets actually do measure the Economy, while Equities Market more resemble a trip to Disneyland. Despite the many wishes out of European politicians, where we get mixed signals on a real time basis, Credit Markets are suggesting trouble ahead. Credit Markets are in a free fall mood. What Markets to trust, is up to the individual investor. We know our preference. Some Credit Markets Charts Update below, courtesy Macro Story.

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