Archive - Jul 6, 2011

• BofA's Mortgage-Bond Pact Draws Challenge (WSJ)
• Greek Rescue Snarled by Sales (WSJ)
• Portuguese downgrade darkens euro zone rescue hopes (Reuters)
• Rare-Earth Prices Decline in China (WSJ)
• Geithner has not told Obama he wants to go (Reuters)
• Bless this mess: AGs, banks near $60B deal on foreclosures (NY Post)
• Orszag: Why We Care About Price of Water in China (Bloomberg)
• How America Ceded Capitalism’s Bastion to German Boerse (Bloomberg)

I invite, if not challenge those who question the utility of the higher end of the blogoshpere to compare this opinion/analysis (as biting, cynical and hard hitting as it may be) to that of the mainstream media and the sell side analyst community of Wall Street to determine if independent, proprietarry research in the form of a blog is something that this country and the global investment community is in need of... or not!

Last year's Eyjafjoell and the recent Grimsvotn eruptions will have been a walk in the pyroclastic park if, as AFP reports, the most feared of all Iceland volcanoes, Hekla, is indeed about to blow. "Experts say one of Iceland's most feared volcanoes looks ready to erupt, with measurements indicating magma movement, raising fears of a new ash cloud halting flights over Europe. The Iceland Civil Protection Authority says it is closely monitoring the situation. "The movements around Hekla have been unusual in the last two to three days," University of Iceland geophysicist Pall Einarsson said." Hekla's eruption would certainly have far more dire consequences on European airspace than Grimsvotn, which merely succeeded in getting Obama to vacate Ireland sooner than expected: "The volcano, dubbed by Icelanders in the Middle Ages as the "Gateway to Hell," is one of Iceland's most active, having erupted some 20 times over the past millennium, most recently on February 26, 2000. Over the past 50 years, Hekla has gone off about once a decade." And so Europe, once again caught in the maelstrom of a sovereign debt crunch, will be sensitive to headline risk, as the last thing the continent which is now doing all it can to ostracize rating agencies, as if its insolvency is their fault, is a continent-wide grounding of all flights.

Moody's downgraded Portugal's sovereign rating to "junk" status yesterday (Ba2 from Baa1; outlook negative), which promoted risk-aversion during the European session, and weighed on EUR and equities. Bunds traded higher and record widening was observed in the Portuguese/German 10-year government bond yield spread. Meanwhile, the German deputy finance minister said that Germany will put the idea of a bond swap in Greek debt deal back on the table, adding that all options should be considered as rating agencies have signalled that the French model will lead to a selective default. Risk-appetite was further dented after the PBOC raised its one-year benchmark lending and deposit rates by 25 basis points each, effective from July 7th. Moving into the North American open, markets look ahead to Challenger job cuts data from the US, and building permits figures from Canada. In fixed income, Fed's Outright Treasury Coupon Purchase operation in the maturity range of Jan'14-Jun'15, with a purchase target of USD 2.5-3.5bln, is scheduled for later in the session. Markets will keep a close eye on any development with respect to Greek or Portuguese economies.

Forget new job formation. According to the just released Challenger jobs report, job destruction is starting to be an issue again, after the June report disclosed that "the number of planned job cuts announced by U.S.-based employers increased by 4,297 or 11.6 percent to 41,432 in June. The June increase is the second in as many months. Announced layoffs in May were up 2.0 percent to 37,135, after falling to a four-month low of 36,490 in April. The two consecutive months of increased job cuts did little to impact the overall slow pace of downsizing. For the quarter ending on June 30, a total of 115,057 job cuts were announced, down 12 percent from 130,749 in the first quarter and 1.2 percent lower than the second quarter in 2010 (116,494)." The worry is that after troughing in April we are now back to March levels, and just off from 2011 highs reached in February. The states with the biggest YTD layoffs by location are California: 35,114; District of Columbia: 15,771; New Jersey: 13,182; Florida: 13,006 and Texas: 12,165. The largest job cuts in June were not surprisingly in the government sector at 10,176, followed by health care, food, aerospace/defense and entertainment/leisure. Only 7 people were said to be expected to be fired in Real Estate. Overall, an ominous sign ahead of the ADP and the NFP later in the week.

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The Moody’s downgrade of Portugal has led to a brutal sell off in Portuguese debt in morning trade which has seen Portuguese 10 year bond yields surge from 11.02% to 12.23%. Yields on Portuguese two-year notes soared 212 basis points to over 15.14 percent. There is increasing speculation that another downgrading of Ireland is imminent and Ireland’s 10 year yield has surged to over 12%. Portugal received a $112 billion loan package only two months ago. It was due to sell 1 billion euros of treasury bills today but the Portuguese government debt agency IGCP said it sold 848 million euros of bills due in October. Portugal is a reminder that Greece is just the tip of the iceberg and Portugal, Ireland, Spain, Italy, Belgium, Hungary in Europe and the U.S. itself face similar challenges, of greater and lesser degrees.

Quiet day today, with just Challenger layoffs data and the non-manufacturing ISM, which incidentally may be a tad more important as services account fof about 70% of the US economy.

The PBoC just announced its 3rd interest rate hike for 2011. In a statement just released, the Chinese central bank hiked its one year benchmark deposit and lending rates by 0.25%. To those following the 1 and 2 Week SHIBOR and repo rates this is hardly a surprise, as the recent liquidity thawing experienced an abrupt reverse in the past two days. In the meantime, expect to see more realization that the Chinese soft landing may be in for some bumpy times.

From the Ponzi System...

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge

All you need to know.

By www.thetrader.se