What’s the Story?

by CC June 4, 2012 9:08 am • Commentary


Finance Minister Vitor Gaspar of Portugal said Monday that gross domestic product was expected to grow next year by 0.2 percent, down from the 0.6 percent growth it estimated in late April. He also forecast that the country’s debt would peak next year at 118.6 percent of gross domestic product, 3 percentage points worse than expected.

Portugal’s economic restructuring “remains on track amidst continued challenges,” the International Monetary Fund said in a statement. “The authorities are implementing the reform policies broadly as planned and external adjustment is proceeding faster than expected.”

Portugal last year sought 78 billion euros, or $97 billion, from the European Union, the European Central bank, and the International Monetary Fund after a loss of confidence in its public finances left it unable to access the bond market. Of the funds, 12 billion euros was earmarked to repair banks’ tattered balance sheets.

Three banks — Millennium, Banco B.P.I. and Caixa Geral de Depositos — will draw a combined 6.7 billion euros to help them meet new capital requirements.


Mariano Rajoy, Spain’s prime minister, has called for centralised control of national budgets in the eurozone in an unexpected gesture to mollify Brussels and Berlin on the eve of what is expected to be a crucial week for Madrid.

Spain’s Treasury plans to auction sovereign bonds on Thursday, even though analysts say the country may soon need an international Crunch time in Spain for Rajoy and yields on its debt have risen close to the 7 per cent level that heralded previous rescues for Greece, Ireland and Portugal.

Calculated Risk

Just a few dates … the last two weeks will be very busy.

• Wednesday, June 6th: ECB Governing Council meeting. Here are a few comments from analysts at Nomura:

We expect the ECB to keep its policy rate unchanged at 1%, keeping the powder dry until there is more clarity on Greece’s euro-area membership. … We think the tone of the press conference and the statement will be significantly more dovish than last month given that the ECB’s assumption of a mid-summer recovery is currently at risk. We also expect the June quarterly forecast update to show downward revisions to both the inflation and the output outlook. In our view, such a dovish signal would firm expectations that the ECB will cut rates as soon as at the July meeting. … At the moment, we see a 30% probability of a 25bp rate cut next week.

• Thursday, June 7th: BoE rate decision. From the Telegraph: Bank of England to consider £50bn stimulus for economy

Worsening economic prospects could force the hand of the Bank’s Monetary Policy Committee, which last month voted to pause its purchase of government bonds after pumping £325bn into the market through quantitative easing. … The International Monetary Fund has recommended that the MPC consider a further reduction in interest rates, which have been at an all-time low of 0.5pc since March 2009, to help the UK weather the eurozone debt crisis.

• Monday, June 11th: IMF Report on Spanish Banks

Sunday, June 17th: Greek Election.

Monday, June 18th: Independent Spanish Bank Stress Tests. This is the preliminary results of the tests by Oliver Wyman Ltd. and Roland Berger Strategy Consultants. From Reuters: “Big Four” to audit Spain’s banking sector

Spain has picked the “Big Four” accounting firms KPMG KPMG.UL, PwC PWC.UL, Deloitte DLTE.UL and Ernst & Young ERNY.UL to carry a full, individual audit of its ailing banks, a source with knowledge of the decision told Reuters on Saturday.

The review, which should take a few months, will complement an ongoing exercise to stress test Spain’s banking sector by consultors Oliver Wyman and Roland Berger, whose first results are expected around mid-June.

Monday, June 18th: Start of two day G20 summit meeting in Los Cabos, Mexico

Thursday, June 21st: Meeting of euro zone finance ministers

Thursday, June 28th: Start of two day European summit in Brussels

Saturday, June 30th: Greece required to enact new austerity measures as part of the bailout agreement. Greece is currently funded until the end of June.


AutoNation Inc. AN -2.83%  shares rose 5.7%. Earlier Monday, the retailer reported sales of new vehicles in May rose 45%.

Auxilium Pharmaceuticals Inc. AUXL -1.31%  shares rallied 20% in the preopen. Early Monday, the company reported positive top-line Phase III trial results for Xiaflex as a potential treatment of Peyronie’s disease.

Shares of Immunogen Inc. IMGN -0.86%  rose 6%. The company on Monday revealed new clinical data on TAP — its so-called targeted antibody payload technology — as a potential treatment for non-Hodgkin’s lymphoma and other B-cell malignancies.


The index is now up a mere 1.63% for 2012, which is 9.94% off the interim closing high of April 2nd. That’s right at the traditional 10% correction threshold. Technicians will point out that today’s selloff put the index below its 200-day moving average.

From an intermediate perspective, the S&P 500 is 88.9% above the March 2009 closing low and 18.3% below the nominal all-time high of October 2007.