Monday May 20 Housing and Economic stories

TOP STORIES:

Negative rates as a precursor to the death of banking - (www.ft.com) The euro pared gains while German Bund futures edged up on Friday after European Central Bank policymaker Ewald Nowotny said the central bank was open-minded about taking deposit rates into negative territory. Nowotny said he was “astonished” by the market’s reaction to his comments earlier in the day, when he said negative deposit rates were not relevant in the near term. That’s all a rather odd follow-up to Draghi’s comment during Thursday’s ECB press conference that he had an “open mind” about cutting the deposit rate into negative territory. The euro dropped on Draghi’s pronouncement recovered on Nowotny’s suggestion that “”markets have over-interpreted the discussion yesterday” and sagged a bit when he said he hadn’t said what we thought he said about Draghi not having said what we thought he said… or something.

EU Lowers Forecast as Euro Area Heads For Two-Year Slump - (www.bloomberg.com) The euro-area economy will shrink more than previously estimated in 2013 as part of a two-year slump that has pushed up unemployment to a record, according to the European Commission. Gross domestic product in the 17-nation currency bloc will fall 0.4 percent this year, compared with a February prediction of 0.3 percent, the commission said in a report issued in Brussels today. This follows a 0.6 percent contraction in 2012 and shows the region headed for its first ever back-to-back years of falling output. France, now projected to shrink 0.1 percent instead of growing by the same amount, joined seven other euro-area economies expected to contract this year. Growth across the currency bloc will return too slowly to reduce unemployment, as the euro area remains dependent on exports to offset the impact of the sovereign debt crisis and banking woes, the European Union said.

ECB's Nowotny: Markets 'Clearly' Over-Interpreted Talk of Negative Rates - (www.cnbc.com) European Central Bank Governing Council Member Ewald Nowotny told CNBC on Friday that the markets over-interpreted ECB President Mario Draghi's comments on negative deposit rates at Thursday's press conference. "Well I think the markets over-interpreted this point. Of course, there is always some kind of technical discussion about it but there is no specific plan in that direction," Nowotny said in Bratislava. "I personally think this is something where one really has to analyze very carefully the effects, side effects, psychological effects so this is not something that is of relevance in the immediate future." The euro jumped against the dollar after Nowotny's comments, rising to a session high of 1.3107.

Too-Big-to-Fail Danish Banks Seek Bailout Text in Sifi Law - (www.bloomberg.com) Denmark’s biggest banks want the state to clarify its readiness to bail them out. The six lenders identified by a government committee as systemically important for the Danish economy say they need to be shielded from the country’s bail-in legislation for their too-big-to-fail designation to be meaningful. Danske Bank A/S, Denmark’s biggest lender, argues the additional capital costs they face should be matched by explicit guarantees of state support, just like in neighboring Sweden. “We are very concerned about the fact that the legal wording is different to the extent that our rating is suffering,” Danske Chief Financial Officer Henrik Ramlau-Hansen said yesterday in an interview.

A good housing market might lead to a new great recession - (www.washingtontimes.com) Two sectors of the economy seem to be in particularly good shape right now. The first, of course, is the stock market, which is climbing to phenomenal highs. The second is the housing market. Although it has not yet returned to the pre-Great Recession-era, sales are up and new houses are being constructed at a speedy clip. This should raise a few red flags. The wealthy are the ones primarily benefitting from the stock craze. Middle and working class folks seldom have extra money to spend on risky investments, even if these might yield fantastic returns.  Members of the working classes, however, were the lion’s share of house buyers over the last decade. After the recession came along, they were the hardest hit. Considering that wages have decreased along with job opportunities, thus breaking the chain of socioeconomic mobility, the upswing in real estate becomes almost unexplainable.

OTHER STORIES:

California adds another Stockton - (www.centralvalleybusinesstimes.com)

Inflation angst evaporates in race for returns - (www.reuters.com)
The Corporate Tax Game - (www.nytimes.com)

VIX Clings to Stocks Like It’s 2007 as S&P 500 Peaks - (www.bloomberg.com)

China Service Industries Expand at Slower Pace: Survey - (www.bloomberg.com)

EU economies to breach deficit limits as economic picture darkens - (www.ft.com)

India Cuts Rates Third Time to Extend Sole BRIC Easing - (www.bloomberg.com)
American Auto Industry Has Best Performance in 20 Years - (www.bloomberg.com)

Ford Leads U.S. Carmakers’ Gains Building on 1Q Sweep - (www.bloomberg.com)