Today's Headlines

Bloomberg:

• U.S. Economy: Payrolls Trail Forecasts in Sign Growth May Cool. American companies hired fewer workers in May than forecast and workers dropped out of the labor force, indicating government support is still needed to spur economic growth. Private payrolls rose by 41,000, Labor Department figures showed today, trailing the 180,000 gain forecast by economists. Including government workers, employment rose by 431,000, boosted by a jump in hiring of temporary census workers. The jobless rate fell to 9.7 percent from 9.9 percent. The figures may deal a blow to the Obama administration as the Congressional elections approach, and bolster forecasts the Federal Reserve will maintain its pledge to keep interest rates low for “an extended period.” “The labor market is extremely weak and has been in a mild recovery,” said Steven Wieting, managing director of economic and market analysis at Citigroup Global Markets Inc. in New York. “Policy makers need to be careful. No one should be taking stability for granted.” The decrease in joblessness last month reflected a 322,000 drop in the labor force as Americans grew discouraged over hiring prospects. Temporary census jobs accounted for 411,000 of the May increase in payrolls, leaving the ex-census figure at 20,000. The hiring of temporary workers to conduct the decennial population count probably peaked last month, economists said. The unwinding of census employment may keep distorting the payroll figures for months as the government dismisses workers when the count is completed. President Barack Obama said the employment report showed the economy was moving in the right direction. The slower pace of hiring came as colleges and universities began sending a wave of more than 1.6 million men and women with new bachelor’s degrees into the labor force. Analysts said the scramble for jobs may depress pay and handicap future career opportunities for the recent graduates. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 16.6 percent from 17.1 percent.
• Hungary Bonds Sink, Forint at 12-Month Low on Default Comments. Hungarian bonds tumbled, pushing up borrowing costs by the most since October 2008, and the forint and stocks plunged after a government official said speculation of a default “isn’t an exaggeration.” The extra yield investors demand to own Hungary’s debt over U.S. Treasuries rose 149 basis points, or 1.49 percentage point, to 468, according to JPMorgan Chase & Co.’s EMBI Global Index. The BUX Index of equities tumbled as much as 8.4 percent, while the forint fell 1.7 percent to 286.74 per euro at 11:19 a.m. in New York, the weakest level since June 2009. “When people close to the government start talking about a higher risk of default, what do they expect investors to do?” said Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London. “You simply cannot talk like this in these markets. Investors will take money off the table, they will not risk it.” Hungary, the first EU nation to receive an international bailout during the credit crisis, has the equivalent of $26.9 billion of debt coming due this year, according to data compiled by Bloomberg. The government’s budget deficit could grow to as high as 7.5 percent of gross domestic product this year, compared with a 3.8 percent target set with the International Monetary Fund by the previous government, Mihaly Varga, Orban’s chief of staff, told M1 television on May 30.
• Europe Faces Reckoning as Rescue Fails, Niagara Hedge Fund Says. Niagara Capital Partners Ltd., operator of Canada’s two best-performing hedge funds over the last three years, is betting Europe’s almost $1 trillion debt- rescue plan will fail. “They’ve deferred the moment of reckoning in the hope that a default can be made in an orderly fashion,” David Rothberg, chairman of the Toronto-based firm, said during an interview in his office. “It seems inconceivably naive to me to think that they’re going to get out.” The Niagara Legacy Fund, managed by Friedberg Mercantile Group Ltd. founder Albert D. Friedberg, pared investments in an exchange-traded fund tracking Chinese equities and replaced Treasury Inflation-Protected Securities with regular Treasuries during the past six weeks out of concern the global recovery is fading. The Legacy fund and Niagara Discovery Fund, which Friedberg and Rothberg run, bought credit-default swaps on Greek, Portuguese, Spanish and Hungarian debt late last year. Niagara Legacy and Niagara Discovery lead the 48 Canadian hedge funds tracked by Bloomberg with annualized returns of 26 percent and 20 percent since 2007. In the past six months, the Legacy Fund, the Canadian equivalent of Friedberg’s C$648 million ($614 million) Cayman Islands-based Global-Macro Hedge Fund, made short sales and bearish options on the Standard & Poor’s 500 index its largest investments. Credit-default swaps on Greek debt have about tripled in price between late 2009, when Rothberg and Friedberg added them to their holdings. Rothberg said he didn’t have a chance to sell the contracts before they retreated when European leaders crafted the bailout for indebted countries. Had he exited those positions, he would have made another wager against Europe because of austerity measures demanded by the European Union and International Monetary Fund. “They’re saying, ‘You want this money from us? You’ve got to tighten your belts,’” he said. “It means deflation if you’re going to tighten your belt. It means you’re going to be shrinking your GDP.” Friedberg’s team became pessimistic on inflation-protected Treasuries and Chinese equities after U.S. Federal Reserve stimulus policies didn’t increase money supply. The annualized growth rate of the M2 money gauge in the U.S. declined to 1.6 percent in April from 10 percent in January 2009, according to the Fed. “It was as though it was shoveling money out of a factory into a warehouse, and it was saying to the banks, ‘Come and get it. We’ll only charge you 1 percent for the money,’ and they wouldn’t take it,” Rothberg said. “They would take it, but they would only buy gold back, and they would buy Treasuries. Without money, no matter how robust the economy would grow, you would not have an asset inflation.”
• Sovereign Credit-Default Swaps Surge on Hungarian Debt Crisis. Credit-default swaps on sovereign bonds surged to a record on speculation Europe’s debt crisis is worsening after Hungary said it’s in a “very grave situation” because a previous government lied about the economy. The cost of insuring against losses on Hungarian sovereign debt rose 63 basis points to 371, according to CMA DataVision at 3:30 p.m. in London, after earlier reaching 416 basis points. Swaps on France, Austria, Belgium and Germany also rose, sending the Markit iTraxx SovX Western Europe Index of contracts on 15 governments as high as a record 174.4 basis points. Swaps on Spanish government debt were up 22 basis points at 278, after earlier reaching a record 295.5, according to CMA. Contracts on Portugal were 26 basis points wider at 364.8, while Ireland was up 32 basis points at 292, and Italy climbed 30 basis points to an all-time high of 264, before retreating to 253. Contracts on Greece were 57 basis points higher at 783, down from 798 earlier. The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings jumped 27 basis point to 584, according to Markit Group Ltd. “Are we on the brink of something more serious?” Deutsche Bank AG strategist Jim Reid wrote in a note to clients today. “We’ve little doubt that the authorities have no appetite for imminent peripheral defaults but we do see the situation getting worse before it gets better. This leaves markets vulnerable until there is more certainty surrounding the structure of the peripheral funding bail-out.”
• McDonald's(MCD) Recalls 12 Million Cadmium-Tainted Glasses, AP Says. McDonald’s Corp. is recalling 12 million drinking glasses being sold to promote the new “Shrek” movie because they were found to be tainted with cadmium, the Associated Press reported, citing the company. The company said customers should stop using the 16-ounce glasses that were being sold for about $2 each, the news service said. Cadmium is a known carcinogen that can cause kidney problems and soften bones, AP said.
• China Iron Ore Stockpiles Rise 2.1%, Researcher Says. Iron ore inventories at major Chinese ports rose 2.1 percent this week as falling steel prices prompted some mills to cut production and buy less of the raw material, researcher Mysteel.com said. Stockpiles at 23 major ports, including Rizhao and Qingdao, increased by 1.43 million metric tons to 70 million tons from a week ago, Mysteel.com said today on its website. Chinese steel prices have fallen 8.8 percent from an 18- month high on April 15 amid concerns government measures to curb speculation in the property market may trim demand. Baoshan Iron & Steel Co., the country’s biggest publicly trader steelmaker, may cut automotive steel prices by 17 percent, the Shanghai Securities News reported today. “Smaller mills continue to cut production, curbing demand for imported ore,” Mysteel said in its weekly inventory report. “The market will remain weak over the short term. Most traders held off sales as bidding prices from the steelmakers were too low.” Rising stockpiles may lead steelmakers and traders in China, the biggest consumer of iron ore, to cut imports.
• Stainless-Steel Output to Increase 25% This Year, Recyclers Say. Output will increase to more than 30 million metric tons, from 24 million tons last year, according to forecasts from recyclers supplying stainless-steel scrap, said Michael Wright, president of the Brussels-based BIR’s Stainless and Alloy Board. The forecast in February was 28 million tons, he said. Output may expand to 32 million tons next year, Wright said. “Production has come back much faster than anticipated,” Wright, who is also chief operating officer of Sheffield, England-based stainless-steel recycler ELG Haniel Group GmbH, said in an interview in London yesterday. Production jumped 55 percent in the first quarter as the global economy rebounded, spurring demand for everything from houses to cars, ISSF estimates show. “We are having a lot of mills telling us that their order intake has dropped,” he said. “The fourth quarter I’m more optimistic and I think there is a good possibility that demand will return.”
• States Shrink 'Unaffordable' Benefits to Bridge $1 Trillion Gap.
• Obama's Drill Ban May Trigger Job Losses, Slow Gains. President Barack Obama’s six-month ban on new offshore drilling while a commission investigates BP Plc’s Gulf of Mexico oil spill may slow employment gains after U.S. companies added fewer jobs than forecast in May. The moratorium will cost as many as 20,000 Louisiana jobs in the next 12 months to 18 months during “one of the most challenging economic periods in decades,” Governor Bobby Jindal said in a letter to Obama released yesterday. Each drilling platform idled by the ban puts 1,400 jobs at risk, according to the National Ocean Industries Association, a Washington-based group for drillers and companies that support oil production.
• Schaeuble Says U.K., 'Many Others' Bank Financial Tax. German Finance Minister Wolfgang Schaeuble said he’s confident the U.K. and “many others” will join Germany in pushing for a European levy on all financial transactions if the Group of 20 fails to adopt the measure.
• WHO's Flu Advisers Got Payments From Roche, Glaxo, Report Finds. Experts who received money from Roche Holding AG and GlaxoSmithKline Plc also served as consultants to the World Health Organization in drawing up plans for dealing with pandemic influenza, the British Medical Journal and the Bureau of Investigative Journalism reported. The flu expert who recommended using and stockpiling antiviral drugs received payments from Roche, which makes the best-selling antiviral Tamiflu, for lecturing and consulting work when the guidance was produced and published in 2004, according to the report published today in the BMJ. He had also received payments from Glaxo, maker of the second best-selling flu drug Relenza, until 2002, the article said.
• Wal-Mart(WMT) Says Gas Prices, Unemployment Hurt Traffic. Wal-Mart Stores Inc., the world’s largest retailer, said gasoline prices and unemployment hurt traffic to its U.S. stores. “These external headwinds are real,” Eduardo Castro- Wright, vice chairman and U.S. stores chief, told shareholders today in Fayetteville, Arkansas. Competition from other retailers “is stiffer than ever,” he said.
• BP's(BP) Cap Is Recovering Gulf Oil, May Get 90% of Leak.
  

Wall Street Journal:

• Greek Tourism Workers To Strike June 30. Greece's tourist workers union said Friday it will stage a 24-hour strike on June 30, the latest blow to the important industry as it braces for another weak summer season. The Panhellenic Federation of Catering and Tourist Industry Employees, known as POEEYTE, said in an news conference that it was striking to protest a series of problems facing workers in the tourism sector as well as because of its opposition to recent Greek government austerity measures.
• Global Bank Pact Advances. International regulators are moving closer to an agreement that would require large multinational banks to raise vast sums to cushion any future losses. But in a concession to the banking industry and some governments, the rules are likely to take effect later than expected, according to people familiar with the matter. In the aftermath of the worst banking crisis since the Great Depression, regulators and finance ministers from more than 20 nations are racing to hammer out by year end the new rules concerning bank capital and liquidity.
• Tar Balls Wash Ashore in Florida. Brown tar balls were washing ashore on this popular Panhandle beach Friday as the Deepwater Horizon oil spill neared Florida's northwestern coastline on the Gulf of Mexico.

Bloomberg Businessweek:

• European Stocks Drop on Renewed Debt Concern; SocGen Tumbles. European stocks dropped as Hungary said its economy is in a “very grave” situation, reigniting concern the region’s debt crisis is spreading, and U.S. payrolls data missed economists’ forecasts. Societe Generale SA and Raiffeisen International Bank Holding AG tumbled more than 7 percent, leading a gauge of banks lower. “The market is still very nervous about sovereign risk and Hungary today,” said Lawrence Peterman, London-based investment director at Eden Financial Ltd., a brokerage firm. European stocks erased earlier gains after a spokesman for Hungarian Prime Minister Viktor Orban said the previous government “manipulated” figures and “lied” about the state of the economy. “It’s no exaggeration” to talk about a default, Hungarian spokesman Peter Szijjarto said today at a news conference in Budapest. A fact-finding committee, headed by State Secretary Mihaly Varga, will likely present preliminary figures on the state of the economy over the weekend, he said. Societe Generale, France’s second-largest bank by market value, slumped 7.3 percent to 31.70 euros. Austria’s Raiffeisen sank 7.3 percent to 31.49 euros. UniCredit SpA, Italy’s biggest bank, declined 4.7 percent to 1.58 euros. CNBC reported that Societe Generale is the subject of unconfirmed rumors of a derivatives loss, without saying where it got the information. The bank declined to comment on the report. Societe Generale is telling analysts that it didn’t suffer losses on derivatives, said two people familiar with the matter, who declined to be identified.

CNBC:

• Small Business Job Engine Remains Stuck in Low Gear.

MarketWatch:

• Hedge Funds Have Worst Month So Far This Year in May. Most managers avoided huge losses even as European debt crisis hit markets.

NY Times:

• Hedge Fund Investors Pull $3.5 Billion in April. Investors withdrew $3.5 billion from hedge funds in April, according to TrimTabs Investment Research and BarclayHedge estimates, Bloomberg News reported. Industry assets stood at $1.65 trillion globally, the highest level in 18 months, the companies said today in a statement.

Yahoo:

• Coast Guard Account of Deepwater Aftermath Contradicts White House Timeline. Documents obtained by the Center for Public Integrity—a nonprofit that funds investigative journalism—reveal that the Coast Guard knew from the get-go that the Deepwater Horizon platform explosion was a catastrophic environmental disaster in the making. The newly released Coast Guard log entries—which the Center analyzed in conjunction with The New York Times— contradict public statements from Obama administration officials about when federal officials know of the magnitude of any leaks from the accident.

Forbes:

• Praising Blanche Lincoln's Derivatives Proposal. The senator's reform initiative is needed, because financial regulation will never be enough to make derivatives safe.

CNNMoney.com:

• Euro-Damage: How the Union Made Europe's Weaklings Even Weaker.

ABC News:

• Myanmar's Secret Nuclear Program Revealed. Defector Says North Korea Helping Myanmar Develop Nuclear Weapons Program. With the help of North Korea, Myanmar, formerly known as Burma, has acquired components for a nuclear weapons program, including technology for uranium enrichment and long-range missiles, ABC News has learned. A defector from Myanmar -- an army major and deputy commander of a top-secret nuclear facility -- escaped the country with thousands of files detailing a secret nuclear and missile program. "The purpose is they really want a bomb. That is their main objective," said defector Sai Thein Win, the major who says he visited the installations and attended meetings at which the new technology was demonstrated.

Economic Cycle Research Institute:

• The growth rate of the Weekly Leading Index has declined to +.4% versus a high of +28.5% the week of October 9th, 2009. Over the last 3 weeks it has picked up downside steam, falling from +12.2%.

Huffington Post:

• Senate Financial Reform Bill DOESN'T End Too Big To Fail, Major Credit Rating Agency Says. So much for ending Too Big To Fail. The financial reform bill championed by the Obama administration and Senate Democrats as permanently ending the idea that large, interconnected financial institutions are too big to fail does no such thing, analysts at Moody's Investors Service cautioned today in a new report.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).

Politico:

• Issa Presses White House for Travel Answers. The top Republican on the House Committee on Oversight and Government Reform is pressing the administration to disclose the White House political office’s role in coordinating taxpayer-funded travel by government officials on behalf of Democratic candidates. Opening a new front in his push to investigate the Obama administration, Rep. Darrell Issa (R-Calif.) sent a letter Thursday to 21 Cabinet secretaries and department heads, seeking details on their political and official travel since February 2009, and whether the Office of Political Affairs coordinated those trips.

Institutional Investor:

• Hedge Funds Are Hiring Midtier Brokers to Spread Risk.

Absolute Return + Alpha:

• Congressman Questions if Paulson Helped Charity to Goose Subprime Bet.The House Committee on Oversight and Government Reform is investigating Paulson & Co.'s relationship with the Center for Responsible Lending, to which the firm donated $15 million in 2007 to help homeowners fight off foreclosure, but which may have helped the organization expand activities that could have enhanced the profits of Paulson's short subprime bets.
  

USA Today:

• Our View on Housing Finance: Don't Let Fannie and Freddie Return to Old Neighborhood. As bailouts go, nothing quite matches the torrent of taxpayer money still pouring into Fannie Mae and Freddie Mac, the housing giants that now guarantee nearly half of the nation's $11.7 trillion in mortgages. To cover loans that go sour, the federal government has already doled out almost $145 billion, and the non-partisan Congressional Budget Office estimates the final tab will be about $381 billion. That's about half the size of the 2008 bank bailout but, unlike that bailout, most of this money won't get paid back. And even now, there's little talk in Washington about how to fix the problem.

Reuters:

• Chinese exporters are demanding U.S. dollars instead of euros after pushing for the shared currency one year ago, citing manufacturers and local government officials. Manufacturers and local governments are avoiding the euro after it dropped more than 16% against the yuan this year. The government had been trying to diversify payments into euros as the European Union is the biggest buyer of Chinese exports.
• Copper Hits 4-Month Low After US Jobs Data. Copper hit a four-month low on Friday after weaker-than-forecast U.S. jobs data fractured confidence already dented this week by worries over Chinese monetary tightening and euro zone debt. Zinc hit a 10-month low, nickel and tin hit their lowest in nearly four months, aluminium hit its lowest in nearly eight months while lead hit its lowest in almost a year.

The Australian:

• US Hedge Funds Dump Australian Bank Shares. AUSTRALIA'S biggest banks have become the victims of aggressive international hedge funds, which are shorting the banks' stocks after growing concern about the strength of the domestic property market. The top four banks have suffered a sustained selldown since April, as the US funds slash their exposure to the local financial services sector. "There's a lot of scepticism in the US regarding the Australian property market," the hedge fund manager said. "A lot of people have doubts about whether the strength of the market is going to be maintained.

Yonhap News:

• South Korea Refers North Korea's Naval Attack to U.N. Security Council: President Lee. South Korean President Lee Myung-bak said Friday his government has formally asked the U.N. Security Council to discuss penalties against North Korea for its deadly attack on a South Korean warship in March. "Today, the government of the Republic of Korea referred North Korea's attack on the Cheonan to the United Nations Security Council," Lee said in a speech at an annual regional security forum under way here, using the South's official name.

21st Century Business Herald:

• China may introduce "severer" measures against lending between banks and trust companies if the practice isn't curbed by the end of June, citing an official at a trust company. Banks extended $275 billion to trust companies in the first four months of this year using off-balance sheet transactions. Trust companies are using these funds to extend loans, according to the report.