Today's Headlines

Bloomberg:

• Spanish Lenders Lead Decline in Bank Bond Risk, Debt Swaps Show. Spanish banks led a decline in the cost of insuring against default on financial company bonds as Caja Madrid and Bancaja began a merger process and Banco Santander SA eased profit concerns. Credit-default swaps on Caja Madrid dropped 29 basis points to 437 and Bancaja decreased 29 to 501, while contracts on Santander, Spain’s biggest lender, declined 31.5 basis points to 182.5, according to CMA DataVision. Banco Bilbao Vizcaya Argentaria SA fell 39 basis points to 221. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers dropped 9 basis points to 169 and the subordinated index declined 9 basis points to 257, JPMorgan Chase & Co. prices show. Swaps on corporate bonds also fell with contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high- yield credit ratings down 6.5 basis points at 599 and the Markit iTraxx Europe Index of 125 companies with investment-grade ratings 2.5 lower at 130, according to JPMorgan.
• U.S., China Object to 'Strange Meal' Draft UN Climate Pact. The U.S., China and Brazil joined dozens of nations criticizing a draft climate treaty issued in Bonn, where two weeks of United Nations talks conclude today. The negotiating text pares back alternatives from a document published in May, eliminating some potential targets to limit global warming and greenhouse gas emissions. In the closing forum of the talks, delegates criticized the document, and urged the chair who produced it, Zimbabwe’s Margaret Mukahanana-Sangarwe, to revise it. “I think there is something wrong with your kitchen,” said Mohammad Al Sabban, Saudi Arabia’s lead negotiator. “The recipe we have discussed over the last two weeks has been taken by you, and you gave us a very strange meal.”
• Loan Market Slump Forces Companies to Hold Off Debt Refinancing. Leveraged loans erased 77 percent of this year’s gains in a monthlong drop, causing companies to sideline proposed refinancing transactions that would rely on institutional investors.
• U.S. Economy: Retail Sales Fall for First Time Since September. Sales at U.S. retailers unexpectedly dropped in May for the first time in eight months, indicating the rebound in consumer spending is cooling as Americans boost savings. Purchases fell 1.2 percent, led by a record plunge in demand at building-material stores that may reflect the end of a government rebate on sales of energy-saving appliances, according to figures from the Commerce Department issued today in Washington.
• Dropping Swaps Plan for Volcker Rule May Not Reduce Bank Risk. A Congressional plan to ban proprietary trading by banks may still allow them to take risks with private derivatives in transactions initiated by customers. The Volcker rule, named for former Federal Reserve Chairman Paul Volcker, won’t stop Wall Street firms from betting on the direction of a market as long as the trade originated with a customer, said Brian Yelvington, head of fixed-income strategy at broker-dealer Knight Libertas LLC. If Congress passes the Volcker rule, a firm seeking to wager that a market will rise or fall may just avoid hedging the opposite side of a client order.

Wall Street Journal:

• Morgan Stanley(MS), J.P. Morgan(JPM) to Lead GM IPO. Morgan Stanley and J.P. Morgan Chase & Co. are expected to win the lead underwriting roles for General Motors' initial public offering, people familiar with the matter said Friday.
• Hedge Funds Try New Way to Avoid Big Redemptions. Many hedge funds are adopting a new way to avoid a repeat of the massive redemptions that crushed managers during the 2008 financial crisis. Some investors like the changes, while others don't. So-called investor-level gates are popping up all over the $2 trillion industry, replacing more traditional fund-level gates, according to investors.

CNBC:

• Obama Renews Call for $30 Billion Plan to Boost Hiring.

Business Insider:

• New Google(GOOG) News Spotted. Google (GOOG) is testing a new Google News homepage, SEL's Matt McGee reports. The changes, according to Matt:
• Check Out Just How Damaged German Banks Would Get If The PIIGS Default.
• The Inventory Adjustment That Boosted GDP is Now Over. (graph)
  

Zero Hedge:

• ECRI Leading Economic Index Drops to 44 Week Low. (graphs) David Rosenberg's favorite leading indicator, the Economic Cycle Research Institute (ECRI) Leading Index, fell to 123.2 in the week ended June 4, down from 124 the week before, a -3.5% annualized contraction: the first time this has gone negative in over a year. This is the lowest level since July 31, 2009, when it was at 122.4.
• SEC Associate Director King to Join High-Frequency Trader GETCO. Now that is has achieved complete regulatory capture, and the SEC has been purchased for 30 pieces of silver, Sky-Net is on the verge of sentience. Going forward nobody except the HFT computers will be trading with each other. The computerized market has now made a complete mockery of regulation, and it cost it about 1 day worth of frontrunning based profits. We fully expect the SEC to find "absolutely nothing wrong" with market structure when it concludes its probe into HFT manipulation. In all seriousness, just what is Getco so worried about if it needs to conduct such a blatant example of "regulatory capture"?
• Japan's New PM Warns Country at "Risk of Collapse" Under Massive Debt Load.
• S&P Warns it Could Cut Largest Spanish Deposit Bank Counterparty Credit Ratings.
  

Forbes:

• European Bank Shares Send Greek Default Signal. European bank stocks are sending an ominous signal: They are trading as if a default by Greece is not a question of "if" but one of "when"? While Greece has been touting its efforts to cut its massive deficit in recent days, the issue for Greece is that the moves it is taking are unlikely to help the country this year, says Stephen Pope, chief global equity strategist at Cantor Fitzgerald in London. Pope expects that Greece's deficit as a percentage of gross domestic product is likely to surge this year to 150% from 120% currently. The deficit-cutting measures "cannot be implemented this year," says Pope. "It is just kicking the tin can further" into the future. Pope says if all the PIIGS countries –an acronym which refers to Portugal, Ireland, Italy, Greece and Spain—had to restructure their debts, it would result in about 900 million to 1 billion euros in writedowns. "The banks can't handle that," says Pope.

CNNMoney.com:

• iPhones for BlackBerries at UBS. Up to one third of the the bank's 18,000 BlackBerries could migrate to Apple's smartphone.
• Questioning Keynes. In the 1930s, British economist John Maynard Keynes spearheaded a revolution in economic thinking: The free market is imperfect. And because of these imperfections, it's the government's job to intervene and somehow make things right. The global financial crisis ignited a resurgence in Keynesian thought -- specifically, the idea that government should spend big to pull out of a recession. But given Europe's sovereign debt crisis, is it time to ask where Keynes may have gone wrong? Or did European leaders misinterpret his teachings? And, given the growing complexity of the global financial system, are Keynes' ideas perhaps outdated?

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 27% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).

The Hill:

• Panel Commissioned by Barney Frank Recommends Nearly $1 Trillion in Defense Cuts. A panel commissioned by Rep. Barney Frank (D-Mass.) is recommending nearly $1 trillion in cuts to the Pentagon’s budget during the next 10 years. The Sustainable Defense Task Force, a commission of scholars from a broad ideological spectrum appointed by Frank, the House Financial Services Committee chairman, laid out actions the government could take that could save as much as $960 billion between 2011 and 2020.

Reuters:

• OECD Indicators Point to Slower Expansion, Brazil Peak. The pace of economic growth in the world's developed economies showed signs of slowing in April, with a potential peak emerging in Brazil and stronger evidence of expansion halting in China, France and Italy, according to an OECD survey on Friday.

TimesOnline:

• BP(BP) Plans to Defer Dividend After Pressure From Obama. BP is preparing to defer payment of its next dividend to shareholders by placing the money in an escrow account until the full scale of the company’s liabilities from the Gulf of Mexico disaster can be determined, The Times has learnt.

Xinhua:

• The average price of second-hand housing in Beijing in May fell 17% from April to 12,661 yuan per square meter, the city's statistics bureau said on its website today. The number of transactions of second-hand homes slumped by 70.7% from April and 64.8% from May last year to 3,028, according to the statement.