by Calculated Risk on 5/05/2010 10:13:00 PM

Just a bit of an overview ... the European Central Bank (ECB) is meeting in Lisbon, Portugal, and will announce their interest rate decision at 4:45 AM ET. You can watch the news conference here live at 5:30 AM ET.

Great timing to meet in Lisbon since earlier today Moody's warned that Portugal may face a downgrade.

Ratings agency Moody's Investors Service on Wednesday placed Portugal's government bond ratings on review for possible downgrade, citing the recent deterioration of the country's public finances and "long-term growth challenges" to the economy.

In the event of a downgrade, the country's Aa2 ratings would fall by one or, at most, two notches, the agency said. Moody's said it expects to complete the review within three months.

Three months?

At the meeting, it is expected that the ECB will leave rates unchanged at 1%.

Professor Krugman argues Greece may end up leaving the euro: Greek End Game

Many commentators now believe that Greece will end up restructuring its debt — a euphemism for partial repudiation. I agree. But the reasoning seems to stop there, which is wrong. In effect, the consensus that Greece will end up defaulting is probably too optimistic. I’m growing increasingly convinced that Greece will end up leaving the euro, too.

And there was sad news from Greece, from Reuters: Europe leaders warn of contagion, 3 die in Greece

by Calculated Risk on 5/05/2010 05:40:00 PM

"[A]s we have noted for many months now, housing in America remains fragile with historically high delinquency and foreclosure levels, and high unemployment among the key risks."
Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr.

Press Release: Freddie Mac Reports First Quarter 2010 Financial Results

First quarter 2010 net loss was $6.7 billion. ...

Net worth deficit was $10.5 billion at March 31, 2010, driven primarily by a significant adverse impact due to the change in accounting principles. ...

The Federal Housing Finance Agency (FHFA), as Conservator, will submit a request on the company’s behalf to Treasury for a draw of $10.6 billion under the Senior Preferred Stock Purchase Agreement (Purchase Agreement).
emphasis added

The first quarter loss in 2009 was $9.97 billion and the Q4 2009 loss was $6.5 billion. The losses keep coming, but last quarter Haldeman warned about "a potential large wave of foreclosures", so it appears he is a little more optimistic.

by Calculated Risk on 5/05/2010 02:25:00 PM

From Nikolaj Gammeltoft and Peter Eichenbaum at Bloomberg: Whitney Says Banks Face ‘Tough’ Quarter, Housing Dip (ht jb)

Banks continue to suffer from losses on non-performing loans, and U.S. home prices will fall again amid increasing supply and sluggish demand, according to [banking analyst Meredith Whitney].

“I’m steadfast in my belief there’s going to be a double- dip in housing,” she said. “You will see clearly that the banks are under-reserved when housing dips again.”

I also think the repeat national house price indexes (Case-Shiller, LoanPerformance) will show further price declines later this year. But, we have to recognize that a majority of the national price declines are behind us, and any 'double-dip' in prices will be much smaller than the previous declines.

My guess is some mid-to-high end bubble areas will see the largest future price declines - so the impact on the banks will depend on their exposure to the those areas.

I think BofA with the Countrywide loans, Wells Fargo with Wachovia / Golden West, and JPMorgan with WaMu are all exposed to the mid-to-high end bubble areas. But all the acquiring banks took large write-downs for these loans earlier, so I'm not sure Whitney is correct about them being under-reserved (it is hard to tell). Of course there are the 2nd lien issues too.

by Calculated Risk on 5/05/2010 12:19:00 PM

A couple of resources ...

From NOAA: Deepwater Horizon Incident, Gulf of Mexico

From the Office of the Governor, Louisiana: Gulf Oil Spill 2010 Trajectory

Click on map for larger image in new window.

Update: from Google: Gulf of Mexico Oil Spill (ht Jan)

by Calculated Risk on 5/05/2010 10:02:00 AM

April ISM Non-Manufacturing index 55.4%, unchanged from March.

This shows further growth in the service sector, although employment contracted for the 28th consecutive month.

From the Institute for Supply Management: April 2010 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in April for the fourth consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee; and senior vice president — supply management for Hilton Worldwide. "The NMI (Non-Manufacturing Index) registered 55.4 percent in April, the same percentage as registered in March, and indicating growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 0.3 percentage point to 60.3 percent, reflecting growth for the fifth consecutive month. The New Orders Index decreased 4.1 percentage points to 58.2 percent, and the Employment Index decreased 0.3 percentage point to 49.5 percent."
...
Employment activity in the non-manufacturing sector contracted in April for the 28th consecutive month. ISM's Non-Manufacturing Employment Index for April registered 49.5 percent. This reflects a decrease of 0.3 percentage point when compared to the 49.8 percent registered in March.
emphasis added