by Calculated Risk on 7/13/2011 09:05:00 PM

The Euro zone summit meeting originally planned for Friday has apparently been delayed - probably until next week or until an agreement can be announced.

Meanwhile the bank stress test results will be released on Friday, and there is already disagreement about the results.

• From Reuters: Euro zone leaders summit on Greece seen next week-diplomats

Leaders of countries in the euro zone are likely to meet next week to discuss a second aid package for Greece as well as private-sector involvement in reducing the country's debt burden, EU diplomats said on Wednesday.

• From the Irish Times: Europe must be decisive on euro crisis, says Kenny

EUROPE HAS to respond “comprehensively and decisively’’ to the economic crisis, Taoiseach Enda Kenny told the Dáil. “Ireland will contribute to that,’’ he said.

Mr Kenny said there was no point in having a EU Council meeting tomorrow unless there was a decision, or set of decisions, on the European situation.

• From Bloomberg: Germany’s Helaba Snubs EU Stress-Test Regulator in Run Up to Publication

Germany’s Landesbank Hessen- Thueringen snubbed the European Union’s bank stress tests two days before the publication of results, refusing to give the European Banking Authority permission to publish all of its data.

The bank, known as Helaba, disputes the EBA’s measurements of Core Tier 1 capital, the factor by which banks are said to have passed or failed the tests, because they don’t include some instruments allowed by German regulators. The lender said it passed the exams with a capital ratio of 6.8 percent, counting contractual changes around state funds of 1.92 billion euros ($2.71 billion), not included in the EBA results.

• From the Irish Times: Irish bond yields soar to record highs on 'junk' status

by Calculated Risk on 7/13/2011 05:07:00 PM

From Moody's: Moody's Places US Aaa Government Bond Rating and Related Ratings on Review for Possible Downgrade

Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.
...
The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default.

Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate.

No surprise.

by Calculated Risk on 7/13/2011 01:00:00 PM

• From Bloomberg: Greece’s Issuer Default Ratings Cut to CCC From B+ by Fitch on Lack of Aid

Greece had its long-term foreign and local currency issuer default ratings cut to CCC from B+ by Fitch Ratings because of the lack of an aid program for the debt-laden country.

• Did Bernanke shift on QE3?

From Binyamin Appelbaum at the NY Times: Bernanke Says Fed Would Consider New Stimulus Effort

The unexpected weakness is forcing the Fed to reconsider its determination early this year to refrain from new efforts to stimulate growth. While no additional actions appear imminent, Mr. Bernanke said in Congressional testimony Wednesday that the Fed would be prepared to act if necessary ...

Mr. Bernanke made clear Wednesday that a resumption of the central bank’s economic revival campaign faces a high hurdle. He said that the Fed would look for two conditions: economic weakness beyond current expectations and a renewed threat of deflation.

The first seems obvious to most people. The second, however, may the more important factor.

From Jon Hilsenrath at the WSJ: Bernanke Shifts Tone on Further Policy Easing

Chairman Ben Bernanke acknowledged in his House testimony today that the Federal Reserve might need to take additional steps to ease monetary policy. “The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support,” he said.

This represents a slight shift in tone for the Fed chairman. In a press conference in June, Mr. Bernanke, in response to a question, laid out what the Fed COULD do if it saw a need to provide more stimulus to the economy. In his testimony Wednesday, he effectively said more stimulus MIGHT be needed, but only under certain conditions, namely persistent slow growth and a slowdown in inflation that again raises the prospect of Japan-style deflation.

This isn't like Jackson Hole last year when Bernanke telegraphed QE2. If this is a shift in tone, it is slight.

by Calculated Risk on 7/13/2011 10:00:00 AM

Note: Testimony starts at 10 AM ET.

Here is the CSpan feed

Here is the CNBC feed.

Prepared testimony from Fed Chairman Ben Bernanke: Semiannual Monetary Policy Report to the Congress

by Calculated Risk on 7/13/2011 09:00:00 AM

This is the new UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce Index^TM

Press Release: Pulse of Commerce Index Rebounds – Up 1.0 Percent In June

The Ceridian-UCLA Pulse of Commerce Index™ (PCI), issued today by the UCLA Anderson School of Management and Ceridian Corporation rose 1.0 percent in June on a seasonally and workday adjusted basis, a welcome rebound following declines in the previous two months. Despite the stronger performance in June, the economy continues to remain in idle with the PCI remaining below its level at the end of the first quarter.

“Over the past year the U.S. economy has been in ‘she loves me, she loves me not’ mode,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “Bad news has been alternating with good, leaving investors and forecasters nervous and unable to identify sustainable trends.”

Click on graph for larger image in graph gallery.

This graph shows the index since January 2000.

“The June PCI is anticipating industrial production to show modest growth of 0.17 percent for June when the number is released by the Government on July 15, 2011,” [said Craig Manson, senior vice president and Index expert for Ceridian]
...
The Ceridian-UCLA Pulse of Commerce Index™ is based on real-time diesel fuel consumption data for over the road trucking ...

This index has mostly been moving sideways all year. As Leamer noted, this "could be the start of a positive trend, but a one month spike does not make a trend, particularly in light of the many false starts experienced over the last year."

Notes: I've heard from other sources that trucking picked up a little at the end of June - perhaps because of lower fuel prices. This index does appear to track Industrial Production over time (with plenty of noise).

by Calculated Risk on 7/13/2011 07:21:00 AM

The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The seasonally adjusted Purchase Index decreased 2.6 percent from one week earlier. ... Refinance Index decreased 6.2 percent from the previous week, and was 42.1 percent lower than a year ago. The Refinance Index has decreased the past four consecutive weeks, reaching its lowest level since April 29, 2011.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.55 percent from 4.69 percent, with points increasing to 0.99 from 0.90 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The following graph shows the MBA Purchase Index and four week moving average since 1990.

Click on graph for larger image in graph gallery.

The four week average is still mostly moving sideways at about 1997 levels.

Of course this doesn't include the large number of cash buyers ... but this suggests purchase activity remains fairly weak.