Links: 2013-04-30

News links for 30 Apr 2013

As Earnings Season Rolls On, European Banks Show Signs of Health – NYTimes.com

“Despite persistent unemployment, malaise and continuing debt problems, one sector in Europe seems to be benefiting: European banks.
After years of painful job cuts and moves to make portfolios less risky, several large European institutions reported strong first-quarter results in recent days, helped by cost-cutting and better performance of major units.”

Greece suffers more misery as retails sales slump by nearly a third | World news | guardian.co.uk

“Barely a day after securing more international aid in exchange for yet more draconian reforms, Greece got a bitter taste of the price of austerity on Tuesday, when statistics showed that retail sales had shrunk by more than 30% over the past three years.
The impact of spending and budget cuts on private consumption has had a devastating effect on commerce, the engine of the Greek economy, according to the debt-stricken country’s statistics agency, Elstat.”

Discover Advances PayPal’s In-Store Service as First Data Holds Out – WSJ.com

“Discover Financial Services is making headway in its efforts to bring eBay Inc.’s online-payments service to physical retailers, even as one of the country’s largest merchant processors has opted not to support the service.
Discover said Tuesday it has deals with 50 merchant acquirers, which handle card transactions for retailers, to offer eBay’s PayPal service as a payment option at checkout counters.”

Austerity kills, economists warn | Business | guardian.co.uk

“New book points to devastating effects on health in Europe and US of government cuts”

Ireland may spend any spare budget cash rather than ease austerity | Reuters

“Ireland may spend any spare cash from future budgets rather than ease austerity measures, Finance Minister Michael Noonan said on Tuesday, after it left its plans to cut spending by 5.1 billion euro ($6.7 billion) for the next two years unchanged.”

Home Prices Score Highest Annual Gain Since 2006 – WSJ.com

“Sharp drops in the number of homes listed for sale and growing demand for home purchases sent U.S. home prices up by 9.3% in February from a year ago, the largest growth rate in nearly seven years, according to a report released Tuesday.
The Standard & Poor’s/Case-Shiller home-price index tracking 20 cities offered the latest signal that the U.S. housing market has rebounded after home prices reached a bottom in March 2012.
All 20 cities in the index posted an increase in prices versus one year ago for the second straight month. That hasn’t happened since 2005. Prices in Atlanta rose by 16.5%, the largest increase in the 21-year history of the Case-Shiller series for that market, and prices in Dallas were up by 7.1%, the record for the 12-year history of that index.”

Why the Baltic states are no model – FT.com

“These huge recessions do matter. For Latvia, the cumulative loss from 2008 to 2012 adds up to 77 per cent of the country’s pre-crisis annual output. On the same basis, the loss was 44 per cent for Lithuania and 43 per cent for Estonia. In the fourth quarter of 2012, Latvian GDP was 41 per cent below where it would have been if the 2000-7 trend had continued. Estonian and Lithuanian GDPs were 34 per cent below trend. Unemployment has been falling, but it was still 14 per cent of the Latvian labour force in December 2012, as it was in Ireland.
In brief, Latvia, worst-hit of the Baltic countries, suffered one of the biggest depressions in history. It is recovering. But it has not yet fully recovered. Are its policies a model for others? In a word, no.”

Poll: Nearly half of US college grads are underemployed – Business on NBCNews.com

“More than 40 percent of recent U.S. college graduates are underemployed or need more training to get on a career track, a poll released Tuesday showed.
The online survey of 1,050 workers who finished school in the past two years and 1,010 who will receive their degree in 2013 also found that many graduates, some heavily in debt because of the cost of their education, say they are in jobs that do not require a college degree.
Thirty-four percent said they had student loans of $30,000 or less, while 17 percent owed between $30,000 to $50,000.”

South Korea industrial output shrinks for third month | South China Morning Post

“South Korea’s industrial output in March contracted on monthly terms for a third consecutive month, government data showed on Tuesday, severely undershooting expectations and underscoring weak momentum in the trade-dependent economy.
Industrial output fell by a seasonally adjusted 2.6 per cent in March from the previous month, following a revised 0.9 per cent fall in February, Statistics Korea said in a statement. The revised February reading was also slightly worse than a provisional 0.8 per cent fall reported in late March.
The median forecast in a Reuters poll of economists was for industrial output to have risen by a seasonally adjusted 0.6 per cent in March from a month earlier, with forecasts ranging from a 1.0 per cent fall to a 2.3 per cent rise.
“Based on this data, the Bank of Korea may need to revise down its first-quarter growth estimates,” said HI Investment Chief Economist Park Sang-hyun. “This will add more weight to the case for additional stimulus.””

Japan April manufacturing PMI rises in March | South China Morning Post

“Japanese manufacturing activity expanded in April at the fastest pace in just over a year in an encouraging sign that stabilising overseas demand and a weaker yen are helping the economy.
The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 51.1 in April from 50.4 in March.
The index remained above the 50 threshold that separates expansion from contraction for the second consecutive month and showed that activity grew at the fastest pace since March last year.”

Japan household spending surges as Abenomics gains momentum | Reuters

“Household spending soared 5.2 percent in March from a year earlier in price-adjusted real terms, Ministry of Internal Affairs and Communications showed on Tuesday, as some individual investors cashed in on gains in stocks to increase spending on cars and home repairs.
That blew past the median estimate for a 1.8 percent annual increase and was the fastest gain since a 5.3 percent rise in the year to February 2004.
Such a big increase in spending is unlikely to be sustainable, and there are worries that wages have been slow to improve.”

Telefonica sells Central American assets for $500 million | Reuters

“Spain’s Telefonica (TEF.MC) has signed a deal to sell 40 percent of its assets in four Central American countries to Corporacion Multi Inversiones (CMI) for $500 million, as part of its drive to cut debt.”

Spain’s economy shrinks for seventh straight quarter | Reuters

“Euro zone member Spain’s jobless rate is 27.2 percent.
The National Statistics Institute said Spain’s gross domestic product contracted – on a preliminary reading – 0.5 percent in the first quarter from the last three months of 2012, mainly because of sliding domestic demand.
The government, nonetheless, said the worst of the slump has passed and expects quarterly growth before the end of this year mostly because the country has become more competitive and exports are growing.”

Apple wows market with record $17 billion bond deal | Reuters

“The $17 billion size easily trumps the previous biggest single deal according to Thomson Reuters/IFR data, a $14.7 billion deal from Abbott Laboratories spin-off AbbVie last November.
Earlier, a source said potential investors had been told on Monday that this would be Apple’s only bond deal of the year, apparently scuttling hopes of possible euro or sterling issues – and helping fuel demand for Tuesday’s mega-deal, which was led by Deutsche Bank and Goldman Sachs.”

Marc to Market: Great Graphic: Euro Area and US Consumer Prices

“We suspect that expectations around QE are obscuring the decline in measured inflation in the US.  Yet it is likely to increasingly draw the Fed’s attention.  The Fed puts more weight on the core PCE deflator.  Yesterday’s report for March showed a 1.1% year-over-year rate.   The combination of weaker growth and easier price pressures (even if the US is not targeting nominal GDP formally) is a major argument against those at the Fed,  who last month were talking about wanting to taper off purchases around mid-year. “

Spanish economy shrinks as housing market continues to fall | Business | The Guardian

“Spain is heading for another year of recession after figures showed GDP contracted in the first three months of 2013 amid a widespread slowdown in consumer spending, rising unemployment and predictions of further declines in house prices.
The economy shrank by 0.5% in the first quarter, according to Spain’s national statistics office, in line with government predictions that a recovery will be delayed until the end of the year.
One analyst said the economy, which started to decline in the summer of 2011, was on course to repeat last year’s 1.9% contraction before stabilising in 2014.
The gloomy outlook followed a raft of weak figures showing that Spain remains in the grip of a deep recession. A report by the credit ratings agency Standard & Poor’s showed that the housing market continued to be a drag on growth. House prices have already fallen by more than 40% in some areas, sparking a wave of repossessions. Tens of thousands of families are unable to sell their homes while they remain in negative equity.
“Spanish households are feeling the pain most severely,” said the S&P economist Sophie Tahiri. “We predict prices will fall by 8% this year and by another 5% in 2014, as precarious economic conditions deter buyers and as swathes of unsold housing stock drag on prices.””

Eurobonds or euro-exit: the choice is Germany’s | Business | guardian.co.uk

“Hans-Werner Sinn has deliberately distorted and obfuscated my argument. I was arguing that the current state of integration within the eurozone is inadequate: the euro will work only if the bulk of the national debts are financed by eurobonds and the banking system is regulated by institutions that create a level playing field within the eurozone.
Allowing the bulk of outstanding national debts to be converted into eurobonds would work wonders. It would greatly facilitate the creation of an effective banking union, and it would allow member states to undertake their own structural reforms in a more benign environment. “

Eurozone unemployment hits new high | Business | The Guardian

“Eurozone unemployment rose to 12.1% for March, an all-time high, according to Eurostat, the statistics office of the European Union. In the wider EU area of 27 countries, unemployment stood at 10.9%, as the rate increased in all but eight countries compared with a year earlier.
Economists said the figures, which coincided with the seventh consecutive quarter of contraction in Spain and a ratings downgrade for Slovenia, challenged the ECB’s view that the economy will start to recover this year.”

Slovenia doubts point to wider EU crisis – FT.com

“Catching investors’ attention are threats posed by Slovenia’s thinly-capitalised state banks and recession-hit economy. Highlighting market nervousness, the government’s borrowing costs soared in late March, raising doubts about its future ability to tap markets.
Investors have since become more relaxed, and the yield of the benchmark €1.5bn bond maturing in 2024 has slipped to 5.76 per cent, down from more than 7 per cent on March 28. Slovenia is even testing investor support for a new US dollar issue.
The risk, however, is that domestic resistance and tardy action by the Slovenian government, which only took office in March – or mishandling by European authorities – leads to a bungled turnround. Still in investors’ minds is the handling of Cyprus, in which Europe broke new ground by seeking to impose losses on bank deposits.”

Moody’s downgrades J.C. Penney’s CFR to Caa1; outlook remains negative

“Moody’s Investors Service today downgraded the long term ratings of J.C. Penney Company, Inc. (“JCP”) including its Corporate Family Rating to Caa1 from B3. The Speculative Grade Liquidity rating of SGL-3 remains unchanged. The rating outlook also remains negative.
The downgrade follows JCP’s announcement that it had entered into a commitment letter with Goldman Sachs under which Goldman Sachs has committed to provide a $1.75 billion senior secured term loan. The term loan will be secured by a first lien of real estate and a second lien on inventory and accounts receivable. The proceeds of the term loan will be used to fund ongoing working capital requirements, other general corporate purposes, and to amend, acquire, or satisfy and discharge the outstanding debentures due 2023.
The term loan will bolster JCP’s liquidity by increasing its cash balances and reducing its reliance on its revolving credit facility. Although the term loan bolsters JCP’s liquidity, it will not solve JCP’s longer term performance concerns nor reduce the level of anticipated cash burn at JCP over the next twelve months. The downgrade acknowledges that the term loan will greatly weaken JCP’s capital structure at a time when its earnings are at precarious levels. “

Revealed: The truth about Barclays and the Abu Dhabi investment /Euromoney magazine

“Amanda Staveley earned an astonishing £30 million fee for her role in helping to secure Abu Dhabi’s £3.5 billion investment in Barclays in 2008, a deal on which Sheikh Mansour made a profit of more than £3 billion. Euromoney reveals the extraordinary tale behind that trade, the battle for £110 million in fees paid by Barclays to Mansour, and just how close-run a deal which saved the bank from part-nationalization was – which is currently the subject of an investigation by the Serious Fraud Office.”