News That Matters

The Trader wrote about the Spanish upcoming problems before the mainstream media discovered the country as we all got fed by news out of Greece back then. The Spanish inverse inquisition is now truly becoming the elephant in Europe’s room. Having denied the state of the economy for such a long time, the Spaniards are facing truly difficult times as the last summer of hope approaches. It is time to start preparing for the big fire sales of Spanish assets hitting mainly the property market. On zombie banks and more via Bloomberg.
Russian billionaire Mikhail Fridman has resigned as chief executive of BP’s Russian joint venture TNK-BP, plunging relations between the UK oil group and its local partners into fresh turmoil.  A person close to Alfa-Access-Renova (AAR), the consortium of Russian shareholders that owns 50 per cent of the company, said Mr Fridman quit due to a “breakdown in governance at TNK-BP”.  “The Russian shareholders have lost faith in BP as a partner,” the person close to AAR said. “This partnership appears to have run its course and we are most likely heading towards some kind of disengagement.”

Spain’s prime minister has insisted his country will not need an international rescue for its banks as investors recoiled at a €19bn rescue of Bankia, sending the country’s borrowing costs over Germany’s to the highest level since the start of the euro. Bankia, Spain’s second-biggest bank by local deposits, would have collapsed if Madrid had not agreed to the rescue last week, Mariano Rajoy warned, adding that this would have risked bringing down Spain itself.

Steep declines in the euro symbolise the woes of Europe’s monetary union but could have a silver lining: the boost to exporters may offer some much-needed support to economic growth across the 17-country region. Last year, even as the euro crisis escalated, the currency’s value remained remarkably steady. In recent weeks, however, financial market sentiment towards the euro has turned decisively for the worse.
Japan’s Nikkei Stock Average skidded 0.3%, Australia’s S&P/ASX 200 was flat, South Korea’s Kospi Composite added 0.5% and New Zealand’s NZX-50 was flat. Dow Jones Industrial Average futures were up 39 points in screen trade. Spanish banking woes dragged on financial plays across the region. In Tokyo, Sumitomo Mitsui Financial slipped 0.6% and Mizuho Financial 8411.TO 0.00%dropped 0.9%, while Westpac Banking WBC.AU +0.69%lost 0.2% in Sydney and Korea Exchange Bank fell 1.0% in Seoul.

Greece’s radical left party has upended the country’s politics with an idea as simple as it is seductive: Athens can renege on the deals it made in exchange for a bailout, and still remain in the euro. Greece’s future, and possibly that of Europe’s monetary union, may depend on how many Greeks buy into the idea. The Coalition of the Radical Left, known as Syriza, is competing with Greece’s conservative New Democracy to become the biggest party in Parliament in June 17 elections that could send further shock waves through Europe.

In the latest symptom of Europe’s financial turmoil, the region’s riskier companies are bypassing banks and investors at home and turning to the U.S. for loans. European companies borrowed some €14.4 billion (about $18 billion at current rates) in the U.S. leveraged-loan market this year through Friday, more than double the €6.7 billion for all of 2011, according to data from S&P Capital IQ LCD. That is the highest amount since at least 2007, the height of the last boom in leveraged lending, when full-year loan volume was €12.2 billion, according to S&P.  The leveraged-loan market is used by companies

Oil-producing nations have watched from the sidelines or nodded in approval as crude prices have fallen in recent weeks, but if the trend continues it will only be a matter of time before they flex their muscles. Rising government spending in many of these countries means they can’t afford for prices to slip much below $100 a barrel, analysts say. Bank of America Merrill Lynch recommended earlier this month that consumers brace for a rebound should prices fall below this figure, citing the price needed to balance the spending of many oil producers.

The diplomatic effort to prevent a deeper civil conflict inside Syria was in tatters Monday, as three days of attacks that left more than 150 people dead drew condemnations from around the globe but left Western leaders with few options to pressure the Assad regime. Kofi Annan, special envoy of the troubled United Nations-led effort to impose and monitor a cease-fire over the past month, flew to Damascus declaring himself “personally shocked and horrified” by the massacre of 108 people, mostly women and children, on Friday in the Houla region and promised blunt talks with the regime of President Bashar al-Assad on Tuesday. The move came after the U.N. Security Council unanimously condemned the Syrian government for the brutal weekend of artillery attacks and amid more violence Monday.
Crude-oil prices edged higher in electronic trading on Tuesday, holding over the $91 a barrel mark as U.S. index futures climbed during Asian trading hours. Oil for July delivery rose 28 cents to $91.14 a barrel in electronic trading on the New York Mercantile Exchange. The contract extended gains from Monday when trading was light due to a U.S. holiday made after polls indicated support for a pro-austerity government in Greece.

Gold futures held on to their gains and palladium prices jumped to recover some of the losses suffered last week as eased worries about Greece’s exit from the euro zone appeared to aid demand for precious metals. June gold futures climbed $5.90, or 0.4%, to $1,574.80 an ounce on the Comex division of the New York Mercantile Exchange. The actively-traded gold contract for delivery in August rose 0.4% to $1,577.40 an ounce.
The dollar is proving scarce, even after the Federal Reserve flooded the financial system with an extra $2.3 trillion, as the amount of the highest-quality assets available worldwide shrinks. From last year’s low on July 27, the greenback has risen against all 16 of its major peers. Intercontinental Exchange Inc.’s Dollar Index surged 12 percent, higher now than when the Fed began creating dollars to buy bonds under its extraordinary stimulus measures at the end of 2008.

Vietnamese stocks, Asia’s biggest losers during the past five years, are rising the most in 2012 as the nation’s largest money managers say falling interest rates will reverse the deepest earnings slump in three years. The benchmark may extend its rally by another 65 percent through 2013 after climbing 24 percent since December, said Samsung Asset Management. Financial and real-estate companies in Asia’s 13th-largest equity market may lead gains, Eastspring Investments said. Dragon Capital, Vietnam’s biggest private stock investor, favors consumer and agricultural shares such as Vietnam Dairy Products Joint Stock Co. and Petrovietnam Fertilizer & Chemical Joint Stock Co., the nation’s largest listed fertilizer maker.

Greece, responsible for 0.4 percent of the world economy, now poses a threat to international prosperity as investors raise bets its days using the euro are numbered. A Greek departure from the currency would inflict “collateral damage,” says Pacific Investment Management Co.’s Richard Clarida, a view echoed by economists from Bank of America Merrill Lynch and JPMorgan Chase & Co. At worst, it could spur sovereign defaults in Europe as well as bank runs, credit crunches and recessions that may spark more euro exits.
Greece handed 18 billion euros ($22.6 billion) to its four biggest banks on Monday, an official said, allowing the stricken lenders to regain access to European Central Bank funding. The long-awaited injectionvia bonds from the European Financial Stability Facility rescue fundwill boost the nearly depleted capital base of National Bank, Alpha , Eurobank and Piraeus Bank. “The funds have been disbursed,” an official at the Hellenic Financial Stability Facility, who declined to be named, told Reuters.  The HFSF was set up to funnel funds from Greece’s bailout programme to recapitalise its tottering banks. The HFSF allocated 6.9 billion euros to National Bank, 1.9 billion to Alpha, 4.2 billion to Eurobank and 5 billion to Piraeus.

A gleaming new $1.4 billion airport extension, a $5.2 billion bullet train and Samsung’s planned $7 billion electronics plant, touted as the largest single high-tech foreign investment in China, are sure signs of economic intent in ancient Xi’an. Along with a $1.4 billion subway, a crane-cluttered skyline and rapidly rising tower blocks shrouded in industrial smog that cloaks the 3,000-year old former dynastic capital, they show that fixed asset investment remains the main route to growth for China trod for three decades and likely for decades to come. For all of China’s talk of economic rebalancing to shield it from internal and external risks, the only real re-orientation in the medium term is geographic shifting infrastructure spending west to replicate rewards reaped by 30 years of coastal development.

When promising tech company Subex sold $180 million in five-year convertible bonds in March 2007 to fund the acquisition of a Canadian technology company, India was at the height of an unprecedented market boom. The economy was growing at more than 9 percent a year, the Indian rupee  was rallying towards a record high against the dollar and the Bombay Stock Exchange’s main index had surged six-fold in the previous five years, even trumping the performance of China’s much vaunted Shanghai stocks. Today, India and Subex face a different reality altogether. The stock market has dropped by a fifth from the end of 2007 and the rupee in recent weeks has hit successive record lows a costly combination for Indian companies which together face foreign currency convertible bond redemptions this year of nearly $5.5 billion.

Greece will leave the euro zone on June 18 if the populist government wins the country’s elections on the 17 as the rest of the euro zone rounds on “cheaters,” Nick Dewhirst, director at wealth management firm Integral Asset Management, told Monday. “The euro zone is a club but you get cheaters who get away with it until everyone finds out and at that point you need to remove them otherwise everyone will cheat. It’s better for Greece to leave,” Dewhirst said. He added that Greek society was built on cheating and scheming, saying “everyone does it” but that voters elsewhere in the euro zone were now calling Greece to account.

Italian two-year borrowing costs rose to their highest since December at a sale of zero-coupon paper on Monday as the prospect of a possible Greek euro exit and Spain’s banking woes continued to weigh on the debt of weaker euro zone borrowers. Italy sold 3.5 billion euros of a new May 2014 zero-coupon bond, the top of its planned target range.  A month ago and before inconclusive Greek electoral results soured euro zone sentiment, Italy had sold a similar bond, due in January 2014, at an average 3.36 percent yield.
Japanese retail sales rose 5.8% in April compared to a year ago, data released Tuesday showed. Economists had been expecting a 6.3% rise in retail sales, according to data compiled by Reuters. In March, retail sales rose 10.3%.

Japan Tuesday reported an April unemployment rate of 4.6%, seasonally adjusted, up 0.1% from March’s 4.5% reading. The number of unemployed totaled 3.15 million in April, down 140,000 from last year. The number of employed totaled 62.75 million, down 270,000 from the year-ago period. At the same time, the Japanese Ministry of Internal Affairs reported that average monthly consumption expenditure per household rose 3.2% to 301,948 yen in nominal terms and increased 2.6% in real terms compared to the year-ago period.
Citigroup Inc., the biggest U.S. bank to have regulators reject its capital plan this year, dismantled a board committee created during the credit crisis to police the disposal of toxic and unwanted assets. About $200 billion of such assets remained when directors broke up the Citi Holdings oversight panel last month under new Chairman Michael O’Neill. Shannon Bell, a spokeswoman for New York-based Citigroup, confirmed the move. Assets in Citi Holdings have shrunk from $600 billion since Chief Executive Officer Vikram Pandit, 55, created the unit after the bank almost collapsed in 2008. The division, which has posted losses of $19 billion since its inception, still holds Spanish and Greek loans, overdue U.S. mortgages, bonds worth a fraction of their face value and a consumer-finance lender that Pandit has yet to sell.
China will allow direct trading of the yuan and the Japanese yen, in a move aimed at promoting trade between Asia’s two biggest economies. This means the two countries will not be using the US dollar as an intermediary. China, which sometimes has a tense relationship with Japan, is the country’s biggest trading partner. China’s central bank said the China Foreign Exchange Trade system would launch this trade, starting next month.
Spanish stocks plunged to a nine-year-low and its borrowing costs rose as traders refused to believe Mariano Rajoy’s claim that Madrid could salvage its banks without a bail-out. At a press conference designed to reassure markets after the €19bn nationalisation of Bankia, the prime minister admitted that Spain was “finding it very difficult to finance itself”.  But Mr Rajoy blamed the soaring borrowing costs on advancing debt crisis across the eurozone, and tried to dismiss fears that Madrid will be crushed by the debts of its banks.

Bad stuff, they say, comes in threes. We’ve already got the banking and the eurozone sovereign debt crises. Next comes the corporate funding crisis. Just as you thought things couldn’t get any worse, credit markets are about to be hit by a veritable tsunami of maturing corporate debt. Standard & Poor’s estimates that companies in Europe, the US and the major Asian economies require a combination of refinancing and new money to fund growth over the next four years of between $43 trillion and $46 trillion. The wall of maturing debt is unprecedented, raising the prospect of further, extreme difficulties in credit markets. With the eurozone debt crisis still at full throttle, the Chinese economy slowing fast and a still tepid US recovery, it’s not clear that the banking system is in any position to deal with this incoming wave of demand.
A surge of house buyers trying to beat the axing of the first home owner bonus in Victoria has lifted new home sales from their record lows. New home sales jumped nationally by 6.9 per cent in April, seasonally-adjusted, after sinking to their worst levels in a decade in March, a Housing Industry Association survey of the country’s largest 100 builders shows. The biggest boost to April sales came out of Victoria, where they surged 17.2 per cent after the Baillieu government’s recent budget axed handouts to first home buyers. These gave them up to $19,500 in rebates if they purchased a new dwelling under $600,000. The cuts have sparked a rush of new home buyers in Melbourne’s suburban housing estates and apartment market seeking to claim the rebate before the June 30 cut-off date.
Prime Minister Enda Kenny warned on Monday that Ireland’s sovereign debt could be downgraded by rating agencies if the country rejects the European Union’s (EU) fiscal pact in a referendum on Thursday.  Mr Kenny’s comments came as the first votes in Ireland’s referendum were cast on five remote islands off the north-west coast ahead of the mainland ballot.

Former Greek prime minister Lucas Papademos warned Greece may run out of money by the end of June if international bailout funds are cut off following next month’s election, a newspaper reported on Sunday. ‘From late June onwards, the ability of the government to fund its obligations fully depends on the approval of the subsequent installments of loans from the EFSF and the IMF,’ To Vima newspaper quoted Mr Papademos as saying in a leaked memo. ‘The available funds in the Greek government will be reduced gradually from about 3.8 billion euros on May 11 to about 700 million euros (S$1.1 billion) on June 18 and from June 20 will enter negative territory at the level of around one billion euros.’
South Korea’s business sentiment weakened amid lingering concerns over external uncertainties such as Europe’s debt crisis and high oil prices, the central bank said Tuesday. The monthly business survey index (BSI), which gauges local manufacturers’ assessment of current business conditions, was unchanged at 84 in May, but the seasonally-adjusted figure stayed at a lower level of 80 last month, according to the Bank of Korea (BOK). The BSI for June, measuring manufacturers’outlook on business conditions for the upcoming month, retreated 4 points on-month to 86, and the reading adjusted with seasonal factors fell 2 points to 82, said the BOK.

Brazilian financial analysts lowered the country’s economic growth projection for 2012 for the third time to 2.99 percent out of gloomy performance in the first quarter, according to a poll published on Monday by the central bank. The Focus poll showed the projection was lower than the previous week’s 3.09 percent and last month’s 3.22 percent. The forecast was also far below the goal of 4.5 percent set by the Brazilian Finance Ministry and the lowered official prediction of 3.5 percent announced this weekend by Finance Minister Guido Mantega.

The International Monetary Fund on Monday urged Ukraine to put in place the agreed economic and financial reforms in order to resume a 15-billion-U.S. dollar aid program. “We are expecting the Ukrainian government initiatives on the adoption and implementation of a number of specific measures. Once they have determined and will be ready to do this, we are ready to continue discussions on financing,” IMF mission chief Christopher Jarvis told reporters. Raising gas tariffs for households, increasing the flexibility of the national currency and ensuring the planned budget deficit are among the main preconditions for the new tranche, Jarvis said.
The United States is well poised to withstand any fallout from Europe’s escalating debt crisis, a top Federal Reserve executive told the Wall Street Journal. Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said the United States should comfortably weather the debt crisis because its financial institutions have already cut their European exposure. Moreover, he said on the Journal’s Monday online edition that “a flood of liquidity” int o the United States, as investors seek safer assets, is more likely “than the drying up of liquidity.”
The macro economic environment looks very uncertain and far from encouraging, said Mr T.T. Srinivasaraghavan, Managing Director of Sundaram Finance Ltd.  “It’s very difficult and dangerous to forecast from what we know now,” he said when he was asked to comment on the company’s growth prospects for the current financial year. Announcing the company’s results for the year 2011-12, he said the year ahead is going to be quite challenging. With global uncertainties increasingly playing in Indian markets, “most of the key parameters we track are not looking great”.

Moody’s Investors Service, a leading credit rating agency, on Monday, said that depreciating rupee would only have a limited impact on India’s sovereign ratings. “Government foreign currency debt comprises only 7 per cent of total government debt and 5 per cent of GDP (gross domestic product). Most of it is owed to multilateral and bilateral creditors and has a maturity profile that keeps annual foreign currency repayments relatively low. Therefore, the direct effect of depreciation on the government’s own debt repayment capacity is limited,” said Moody’s Investors Service in its weekly Credit Outlook.
Companies in select sectors like consumer durables and telecom have doled out healthy, and in some cases hefty, bonuses and variable payouts this year in a tepid overall market.
Samsung India, for instance, has paid bonuses ranging from between 150 per cent and 400 per cent of the monthly basic salary of employees this year, says the company’s VP – corporate HR, Sanjay Bali. The consumer segment, backed by continuing domestic demand, has on the whole given out lucrative variable payouts this year. Samsung, which notched up Rs. 20,000 crore in sales in 2011, also announced an average increment of 19 per cent for its employees in India a week ago compared with 18 per cent last year.
Nearly six out of 10 South Korean companies expect overall economic conditions to deteriorate in the second half of this year mainly due to mounting eurozone woes and a slowdown in the Chinese economy, a poll showed Tuesday. The survey on 500 local companies by the Korea Chamber of Commerce and Industry (KCCI) showed 59 percent of all respondents predicting worsening conditions ahead, with 96 percent claiming economic conditions are already bad. The report by the country’s largest private economic organization with 135,000 members said only 19.4 percent of companies checked forecast improvements from July onwards, with 21.6 percent saying economic conditions will remain unchanged.
Iranian Central Bank Governor Mahmoud Bahmani has predicted that the inflation rate for the second calendar month of Ordibehesht (ended on May 20) was not over 0.5 percent above that of the first month, which was declared to be 21.8 percent. “I do not think the rise in inflation exceeds 0.5 percent,” he said. The inflation rate for the second month will be officially announced by May 30, he added, the ISNA News Agency reported.  A member of the Iranian parliament (Majlis) has rejected President Mahmoud Ahmadinejad’s recent claim that inflation rate in the country is around 6 percent.