Today's Headlines

Bloomberg:

• China's Stocks Decline Most in Six Weeks on Economy Concerns. China’s stocks slumped, driving the benchmark index down the most in six weeks, on concern the nation’s property curbs and Europe’s debt crisis will slow growth in the world’s third-largest economy. The Shanghai Composite Index retreated 108.23, or 4.3 percent, to close at 2,427.05, the most since May 17 and the lowest close in 14 months, after the Conference Board revised down its April gauge for China’s economic outlook to indicate a weaker expansion. Declines deepened after the gauge fell below a technical support level at 2,481. “There remains uncertainty over the magnitude of a slowdown in Chinese growth,” said Michael Liang, chief investment officer at Foundation Asset Management (HK) Ltd., which oversees $120 million. “Today’s break below a key technical level is prompting a rush of selling.” Jiangxi Copper Co. paced losses by commodity producers as raw material prices slumped and Citigroup Inc. said Chinese exports face “strong headwinds.” Bank of China Ltd. dropped among lenders on concern Agricultural Bank of China Ltd.’s initial public offering may divert investor funds away from existing equities. Health-care and technology shares led declines by small-company stocks on valuation concerns. The Shanghai Composite has tumbled 22 percent this quarter, heading for the biggest loss since the three months to March 2008, as policy makers tightened rules for the property market and concern grew that Europe’s austerity measures will hurt demand in China’s largest export destination. The equity index is the world’s third-worst performer this year, down 26 percent. The leading economic indicator for China rose 0.3 percent in April, less than the 1.7 percent gain reported on June 15, the Conference Board said. The previous release contained a “calculation error” for total floor space on which construction began, the research group said in a statement today. The Shanghai Composite’s breach of a “double-bottom” at 2,481 today is a “bearish signal” for China’s stocks, Jamie Coutts, technical analyst at BGC Partners in Singapore, said in e-mailed comments. Real estate industry and local-government financing vehicles will be sources of bad loans, Yvonne Zhang, a China banking analyst at Moody’s at a conference in Shanghai. Economic growth and government policy are key to loan quality at China’s banks, she said.
• Greece, Spain Lead Rise in Sovereign Debt Risk Near Record High. Greece and Spain led a surge in the cost of insuring against losses on sovereign debt to near a record as protests over austerity measures and concern banks may struggle to fund themselves triggered a credit-market sell-off. The Markit iTraxx SovX Western Europe Index of default swaps on 15 governments rose 6.5 basis points to 165, the highest level in three weeks and approaching the all-time high of 168.5 on June 4, according to CMA DataVision. Swaps on Spanish banks jumped after the Financial Times reported they are asking the European Central Bank to ease the effects of the end of a $540 billion funding program, which terminates this week. Credit-default swaps tied to Greek debt jumped 13 basis points to 1,101, having closed at an all-time high of 1,125 on June 4, according to CMA. Spanish contracts rose 9 to a record 275 basis points before retreating to 270.5. Contracts on Banco Santander SA, Spain’s biggest bank, gained 10.5 basis points at 210.5 and Banco Bilbao Vizcaya Argentaria SA jumped 15 basis points to 276. The Markit iTraxx Financial Index tied to the senior debt of 25 banks and insurers rose 5 basis points at 170, JPMorgan Chase & Co. prices show. Banks must repay 442 billion euros ($540 billion) July 1 that they borrowed from the ECB a year ago under the so-called Long-Term Refinancing Operation. Lenders in Spain, Ireland, Greece, Italy and Portugal have about 151 billion euros of central bank loans coming due this week, according to Barclays Capital estimates. Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 29 basis points to 574.5, according to JPMorgan, the highest since May 25.
• U.S. Economy: Consumer Confidence Sinks on Concern Over Jobs. Confidence among U.S. consumers sank in June more than forecast as Americans became distressed over the outlook for jobs and incomes. The Conference Board’s confidence index slumped to 52.9 this month, below the lowest forecast of economists surveyed by Bloomberg News, from a revised 62.7 in May, figures from the New York-based private research group showed today. “What we need are consistent job gains, not just a month or two,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, whose confidence forecast was the lowest of those surveyed. “Until we get that, I don’t think we’re going to see any gains in consumer confidence.” The median forecast of 71 economists surveyed by Bloomberg News projected the consumer confidence index would fall to 62.5 from a prior reading of 63.3 in May. The group’s measure of present conditions decreased to 25.5 in June from 29.8 a month earlier. The gauge of expectations for the next six months dropped to 71.2 from 84.6. Both gauges were the lowest in three months. The percent of consumers projecting more jobs to become available in the next six months and the proportion who expected their incomes to rise declined, today’s report showed. “Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence,” Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement. “Until the pace of job growth picks up, consumer confidence is not likely to pick up.” Consumers’ plans to buy automobiles, appliances and homes declined in June, with the percentage of people who said they intend to buy a car dropping to the lowest since records began in 1967, today’s report showed. Vacation plans also fell. Americans under the age of 35 and those making from $15,000 to $24,999 a year saw the biggest decreases in confidence this month.
• Commodities Fall Most in Six Weeks on Growth Outlook for China. Commodities fell the most in six weeks, led by declines in copper and other industrial metals, on concern that growth in China, the world’s largest consumer of all industrial metals, will slow. Raw materials as measured by the Reuters/Jefferies CRB Index lost as much as 2.6 percent, the biggest drop since May 14. Copper, nickel and zinc slumped as the Shanghai Composite Index ended the day at the lowest close in 14 months, after the Conference Board revised down its April gauge for China’s economic outlook to indicate a weaker expansion. “Clearly China is cooling,” said Nick Moore, head of commodity research at Royal Bank of Scotland Plc in London. Today’s price declines “are showing you the fear at the moment is about a double-dip” in the economy, he said by phone today. Copper for delivery in three months fell $349, or 5.1 percent, to $6,520 a metric ton as of 4:34 p.m. on the London Metal Exchange, taking the contract’s drop to 12 percent this year. Zinc slid 6.2 percent to $1,764, taking the year’s loss to 31 percent. Nickel dropped 5.8 percent to $19,457. China accounted for more than 45 percent of world consumption of zinc, and 41 percent of copper in 2009, according to Morgan Stanley. Its oil consumption is second only to the U.S. The Asian nation’s demand growth for commodities helped offset declines in usage from the U.S., Europe and Japan, which are also major users of industrial metals and energy. Oil for August delivery fell as much as $2.97, or 3.8 percent, to $75.28 a barrel on the New York Mercantile Exchange. It last traded at $75.63 a barrel.
• Volcker Rule May Give Goldman(GS), Citigroup(C) Until 2022 to Comply. Goldman Sachs Group Inc. and Citigroup Inc. are among U.S. banks that may have as long as a dozen years to cut stakes in in-house hedge funds and private- equity units under a regulatory revamp agreed to last week.
• New York MTA Borrows $600 Million as Losses Shut Subways, Buses. New York’s Metropolitan Transportation Authority, which eliminated two subway lines and cut bus service to save money, plans to sell $600 million in bonds as it grapples with an $800 million spending gap. The largest U.S. transit system’s yield premium has surged 24 percent since April 1 while subsidy payments were delayed as the state operated without a budget, and a payroll tax and dedicated real-estate levies produced less revenue than forecast.
• Treasury Two-Year Yield Drops to Record Low on Global Slowdown. Treasuries rose, pushing two-year note yields to a record low, on evidence of a slowing global economic recovery and the expiration of a European Central Bank lending facility. Ten-year note yields dropped below 3 percent for the first time in more than a year as U.S. consumer confidence fell this month more than economists forecast and an index of China’s leading economic indicators had its smallest gain in April in five months. U.S. government bonds were headed for their best quarter since the 2008 financial crisis. “The economy is certainly slowing down again, which means rates will be lower for longer,” said Larry Milstein, managing director of government debt trading in New York at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “The weak consumer confidence just plays into the weak-economic-data story we’ve seen globally. We are slicing through a technical level, which is causing the rally to feed on itself.”
• Google(GOOG) May Lose China Permit on Government Objections. Google Inc. may lose the right to operate a website in China, forcing the search-engine operator to abandon the world’s largest Web market, after the government objected to its efforts at avoiding censorship controls.
• Micron(MU) Drops on Extra Inventory, Production Concerns. Micron Technology Inc., the largest U.S. maker of computer memory, fell the most in seven weeks on the Nasdaq on concern it has too many unsold chips and that output of other products isn’t increasing fast enough.
• Democrats Draft Legislation to Tighten Coal-Mine Safety Rules. The bill would boost penalties for some types of violations and add protections for whistleblowers who report safety lapses. The measure would expand subpoena powers of the Mine Safety and Health Administration and broaden pay protections for miners who are out of work when violations lead to a mine being shut. “We are determined to put sharper teeth in our workplace safety laws and to step up federal enforcement,” Senator Tom Harkin, an Iowa Democrat and chairman of the Senate Health Committee, said in an e-mailed statement about the legislation.
• Rice Falls to 3-Year Low on Prospects for Bigger Supplies.
• Texas Braces for Alex Strike, Governor Calls Up Guard. As officials and residents in Texas braced for a strike from Tropical Storm Alex’s most ferocious side, energy companies worked to evacuate offshore rigs.
• Citigroup(C) Trade That Triggered Curb Is Canceled. A 17 percent plunge in Citigroup Inc. triggered a five-minute trading pause, making the bank the second company halted by the two-week-old circuit-breaker program created to prevent market panics. The order that caused the slump was canceled. It consisted of 8,820 shares of Citigroup at $3.32 traded at 1:03 p.m. in New York, according to data compiled by Bloomberg. The stock traded for $3.76 at 1:32 p.m. New York time, compared with yesterday’s close of $4.

Wall Street Journal:

• Burned Before, Railroads Take Risks. During the recession in the early 2000s, U.S. freight railroads slashed spending and services. When business revived, they were roundly criticized for bottlenecks and delays. This time around, the railroads have continued to spend heavily, plowing more than $20 billion into capital improvements to widen tracks and tunnels, upgrade cars and engines and enhance their technology. "Back in '03 and '04, we stumbled a bit. We really cut back too much, and when volume came back we were caught short," says James R. Young, the chairman, president and chief executive of Union Pacific Corp.
• Dubai Jet Order Is at Risk. The future of a $29 billion jetliner order that state-controlled Dubai Aerospace Enterprise placed with Airbus and Boeing Co.(BA) is uncertain amid the aircraft-leasing company's growing financial concerns, people familiar with the matter said. The company has an outstanding three-year-old order for 200 aircraft evenly divided between Airbus and Boeing. But it is looking at potentially deferring or canceling the purchases, these people said.
• Petraeus to Reassess Afghan Force Size. “While the exact numbers needed are still being determined, I am not wiling to say the currently approved strength of 305,600 will provide sufficient,” Petraeus wrote. He added that within the first three to four months of his command, he will make his own assessment of “the need for any increase” and recommend any changes up the chain of command.
• U.S. Charges 11 in Russian Spy Case. Federal prosecutors alleged 11 people were spies living secret lives in American communities, from Seattle to Washington D.C., sent years ago to infiltrate U.S. society and glean its secrets. In an extensive and bizarre affidavit whose details echoed Cold War spy thrillers, the Federal Bureau of Investigation claimed the alleged spies were sent here by the Russian overseas intelligence service known as the SVR—the successor to the Soviet KGB—as early as the mid-1990s, and were provided with training in language as well as the use of codes and ciphers. Their mission, according to the FBI, was contained in an encrypted 2009 message from Russian handlers in Moscow to one of the defendants that read in part: "You were sent to USA for long-term service trip. Your education, bank accounts, car, house etc.—all these serve as one goal: fulfill your main mission, i.e. to search and develop ties in policy-making circles in U.S. and send Intels [intelligence reports] to" Moscow. Many details of the alleged plot remained murky late Monday including the main impetus behind the intelligence program.

Fox News:

• Concern Over Financial Bill Still Lingers For Corporate Swap Users. Although the bill doesn't appear to intend to capture most end-users, the definition is still a bit vague and leaves it up to regulators to fill in the gaps. A major swap participant is defined as a firm that has a substantial position in swaps excluding positions used for hedging commercial risk and whose swaps create "substantial" counterparty exposure that may have serious adverse effects on the financial stability of the U.S. system. But regulators would still be left to define the meaning of "commercial risk" and "substantial position." How they define those terms could have an impact on who qualifies for an exemption.

CNBC:

• Like Others, Rich Are Also Falling Behind on Mortgages. Turns out the rich may not be so different from you and me: They, too, are falling behind on their mortgages. Growing numbers of well heeled Americans, their portfolios hammered by depressed markets, have stopped repaying loans or even walked away from mortgages. First American CoreLogic, which tracks U.S. real estate and mortgages, says the percentage of $1 million-plus loans more than 90 days delinquent rose to 13.3 percent in February, half again as high as the 8.6 percent overall delinquency rate. The million-dollar delinquency rate has exceeded the overall delinquency rate since April 2008. "The high end of the housing market has deteriorated at a worse rate than the market as a whole," said Sam Khater, senior economist at CoreLogic.
• Fannie-Freddie Bailout Could Cost Taxpayers $1 Trillion. For American taxpayers, now on the hook for some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans, that amount could be just the tip of the iceberg. According to the Congressional Budget Office, the losses could balloon to $400 billion. And if housing prices fall further, some experts caution, the cost to the taxpayer could hit as much as $1 trillion. Two things are clear: Taxpayers don’t want to foot the bill, and Fannie and Freddie, taken over by the government in 2008 to stanch the financial bloodletting, need a major overhaul. “Some of us who don’t even own homes are paying to support others and their home ownership, and they ask ‘why?’ said Robert J. Shiller, a Yale University economics professor and co-creator of the S&P/Case-Shiller Home Price Indices.

Business Insider:

• A Failed Debt Auction Proves That The ECB Is Being Ridiculously Dumb. Sorry, but it's becoming more and more obvious that the crisis in Europe is a major referendum on the ECB. First, there's this Spanish bank liquidity issue. Basically, the ECB is withdrawing what appears to be a key source of support, at what seems like the worst possible time. And then there's the fact that while the ECB is buying PIIGS sovereign debt, it's also "sterilizing" the purchases with asset sales, But why is it doing this? What possible justification does the ECB have in reducing liquidity, which is exactly what asset sales do by sucking cash out of the market? Anyway, the market is clearly giving a monster rejection of this strategy.

DealBreaker:

• Russian Spy Worked at Barclays, A(Possibly Fake) Hedge Fund, And Is "Full of Self-Control".

Huffington Post:

• Fine Print Weakens Bill. As the details emerge on the financial reform bill, it becomes apparent that it will do little to avert another financial crisis in the coming years. Huffpo notes the same regarding certain provisions of the Volcker Rule, intended to limit trading risks.

paidContent.org:

• Greek Plan to Tax Web Ads at 21.5% Draws Fire. One way Greece hopes to extricate itself from its economic crisis? Tax its news websites. In pension reform law due to be voted upon by parliament next Thursday, the government has proposed raising a 21.5 percent levy on news portals’ online advertising income. The money would go in to an existing journalists’ pension fund. Is that counterintuitive logic? After all, news websites depend on selling web ads to keep those journalists in jobs.

Washington Post:

• Stabilizing U.S. Debt is the Greater of Two G-20 Challenges. Official forecasts show the U.S. budget deficit plummeting as the economy recovers, tax revenue rebounds and spending on last year's economic stimulus package finally winds down. In January, the Obama administration predicted that the deficit would exceed $1.5 trillion this year -- the world's largest -- but dwindle to just over $700 billion by 2013. Some analysts note that the Obama forecast assumes much stronger economic growth in 2011 and beyond than many analysts and the International Monetary Fund consider probable. Obama has acknowledged that reining in the national debt, which now exceeds 56 percent of the U.S. economy's annual output, may require changes to Social Security, Medicaid and Medicare -- and to a "tax system that is messy and unfair," as he said Sunday in Toronto. But Obama has sought to postpone that reckoning until after this fall's midterm elections, creating an independent, bipartisan commission to develop a long-term plan to rebalance the federal budget.

Miami Herald:

• Report: South Florida Homes for Sale on Rise. After slimming down to about half its peak size over the past 20 months, South Florida's inventory of existing homes for sale has slowly begun to expand again, according to a report published Monday by real estate consultancy Condo Vultures. In the month of June, the number of condos, townhomes and single family residences on the market in Miami-Dade, Broward and Palm Beach counties rose by about 2.5 percent, posting increases for each of the last four weeks, the report found. It's the first time South Florida's supply of residences on the market -- which play a crucial role in determining home prices -- has risen four consecutive weeks since Condo Vultures begun tracking in 2008, said Peter Zalewski, a principal at the Bal-Harbour-based consultancy. The increasing inventory could be a signal that homeowners who have been waiting patiently for a rebound may be starting to put their homes back on the market, said Jack McCabe, CEO of McCabe Research & Consulting. The glut will likely grow greater as an additional tens of thousands of foreclosure files enter the market. ``The fact is that there's probably two to three times as much inventory as what the Realtors are saying on MLS,'' McCabe said. With South Florida condo prices still on the decline and single-family home prices only recently beginning to rebound, an increasing inventory could stall a recovery. ``There's been a continuous deterioration in prices,'' Zalewski said. ``If you factor in that increase in inventory, that deterioration is just going to continue to increase.''
  

Lloyd's List:

• Panamax Rates Collapse Further. Indices at lowest point in nearly nine months as brokers forecast gloom for next three months.

Politico:

• Elena Kagan, Jeff Sessions Spar. Supreme Court nominee Elena Kagan sparred with a top Republican senator Tuesday over her decision to deny military recruiters access to the career office at Harvard Law School while she was dean there. In her first day of public exchanges with senators, Kagan downplayed the effect of her decision to freeze military recruiters out of Harvard’s formal channels, following a federal appeals court ruling in 2004.
• How New York Dems United on Wall Street Bill.
  

UNODC:

• Spain Joins Campaign Against Human Trafficking. Spain is the first European country to join the Blue Heart Campaign, just as a new UNODC report shows that trafficking in persons is one of the most lucrative illicit businesses in Europe. According to the report, criminal groups are making around €2.5 billion per year through sexual exploitation and forced labor.

Reuters:

• Strikes Hit Greece and Spain as ECB Deadline Looms. Strikes in Greece and Spain highlighted resistance to Europe-wide austerity measures Tuesday as the euro and shares tumbled ahead of a deadline for banks to repay a giant European Central Bank cash injection. The fifth major strike this year by Greek unions disrupted tourism and public transport in protest at planned pension cuts and later retirement, while Spanish workers shut down Madrid's metro system in anger at a 5 percent public sector pay cut. Riot police in Athens fired teargas at a group of black-hooded youths hurling stones and petrol bombs and chanting "Burn parliament," hours before lawmakers were due to debate the sweeping EU/IMF-mandated pension reform. Public and private sector unions announced plans for a new 24-hour stoppage in early July over the pension plan.

Financial Times:

• Fresh Fears Over European Bank Sector. Fears rose over the health of the European banking system on Tuesday as interbank rates jumped to nine-month highs amid worries that the European Central Bank may be reducing emergency financial support to financial institutions too soon. Key three-month euribor rates, which measure the cost at which banks are prepared to lend to each other, jumped to the highest level since September and the biggest one-day rise since April 28. Bankers warn that the ECB’s decision to offer banks loans for only three months instead of a year is raising concerns that many institutions will come under further pressure in the strained interbank markets. Don Smith, economist at Icap, said: “There are major worries over the systemic risks for banks, with many struggling to access the private markets. The ECB is in effect weaning the banks off the artificial support system – and this is a concern.” In spite of the vast amount of support the ECB is offering to the market, with more than €800bn in outstanding loans to eurozone banks, analysts say the fact the ECB is no longer offering loans for a year has worried some investors. This is because the shorter-term loans create more dangers of so-called rollover risk. In other words, weaker banks relying on the ECB for lending as they struggle to access the private markets have less certainty over their financing than if they had the loans for a year.

El Economista:

• Spanish builders are planning a series of job cuts and lay-offs that will affect more than 50,000 workers. The planned cuts come after the government reduced investment in public works by $7.8 billion this year and next.

Expansion:

• The Bank of Spain has increased its vigilance of capital flight since $22 billion flowed out of funds and savings accounts this year. The central bank has told its inspectors to assess the impact of capital flight on each lender and what they are doing to contain it.

ABC Newspaper:

• Planned legislation on Spain's savings banks, known as cajas, will allow for institutions with solvency problems to be completely privatized. Savings banks with solvency problems will be able to sell securities with voting rights amounting to 100% of their value.

Efe:

• Spain's Finance Ministry is considering raising income tax next year, citing Deputy Finance Minister Carlos Ocana.

Shanghai Daily.com:

• Loan Warning for China's Banks. BAD loans are set to rise in Chinese banks, with property and local government financial vehicles as sources of worsening assets, Moody's said today. "A system-wide distress like the US's subprime crisis is unlikely in China but volatility exist in the housing and local government financial vehicles," said Yvonne Zhang, senior analyst of Moody's Investors Services, today in Shanghai. The property sector is the main contributor of pledged assets, which has the highest delinquency ratio among loans with collateral. A housing bubble is in the making before China tightens policy on the housing market, she said. "Indicators of higher leverage, panic buying on skyrocketing prices, low returns and high vacancy ratios are pointing to the growing of a bubble before the new policy," Zhang said.