Today's Headlines

Bloomberg:

• China Local-Government Debt Risk Needs 'Attention,' Bank of China Says. China’s central bank urged “paying attention” to the credit risks of local-government financing vehicles because their debts have long maturities and are difficult to oversee. Some companies set up by provincial and municipal governments to fund infrastructure projects are unsustainable, the People’s Bank of China said in a report on its website late yesterday. The loans are “generally large, with long maturities, and it is difficult to oversee their use,” the central bank said. China is increasing scrutiny of local-government borrowing to fund the construction of roads, airports and other infrastructure because of the risk of banks being saddled with bad loans. Local governments, barred from selling bonds or borrowing directly from banks, had set up more than 10,000 financing vehicles by the end of 2010 to raise money, mostly for infrastructure, the central bank said.
  
• U.S. Jobless Claims Fell Less Than Forecast. More Americans than forecast filed applications for unemployment benefits last week, signaling the job market is weakening as employers trim staff to cut costs. Jobless claims fell by 6,000 to 422,000 in the week ended May 28, exceeding the 417,000 median forecast of economists surveyed by Bloomberg News, according to Labor Department figures today in Washington.
• Sudden China Slowdown May Mean 50% to 75% Drop in Commodities, S&P Says. A “sudden” slowdown in China may lead commodity prices to fall as much as 75 percent from current levels, Standard & Poor’s said. Unexpected shifts in government policies or problems in the banking sector may trigger such a slowdown, S&P said in a report e-mailed today. The floor for aluminum is 65 cents to 70 cents a pound ($1,433 to $1,543 a metric ton), compared with about $1.20 a pound now and copper’s floor is $1.50 to $1.75 a pound, compared with $4.10 a pound currently, S&P said. “Given the extent to which China has bolstered commodity prices, that’s something that we have to be concerned about,” S&P analyst Scott Sprinzen said by telephone from New York. “The efforts by the government in China to slow growth are having an effect on commodity prices. It’s been a pretty modest correction so far.” In case of a sudden slowdown in the world’s biggest consumer of commodities, iron ore’s floor is $85 to $95 a metric ton compared with about $170 now, seaborne coking coal at the mine has a floor of $100 to $120 a ton, compared with about $180 now, and hot rolled coil steel’s floor is $475 to $525 a ton compared with about $750 now, according to the report. Commodities may “easily” drop 25 to 40 percent in the next 12 months, presenting an “enormous opportunity” for investors, David Stroud, chief executive officer of TS Capital, a hedge fund manager in New York, said in an e-mail today. Markets are “starting to look a lot like 2008,” he said. That year, the GSCI dropped 43 percent.
• Goldman(GS) Said to Get Subpoena From New York Prosecutor. Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, received a subpoena from the Manhattan District Attorney’s office seeking information on the firm’s activities leading into the credit crisis, according to two people familiar with the matter.
• Company Bond Risk Rises to Six-Week High in Europe, Swaps Show. The cost of protecting European corporate bonds from default rose to the highest in six weeks, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 7 basis points to 379, the widest since April 18, according to JPMorgan Chase & Co. at 4 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1.25 basis points to 104.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed 4.5 basis points to 159 basis points and the subordinated index was up 5 at 261.
• Oil Declines After U.S. Reports Unexpected Increase in Crude Inventories. Crude oil futures fell for a second day after a U.S. government report showed an unexpected increase in inventories to the highest level in two years. Crude dropped as much as 1.8 percent after the Energy Department said supplies climbed 2.88 million barrels to 373.8 million in the week ended May 27, the highest level since May 2009. Inventories were forecast to decline by 1.6 million barrels, according to the median of 13 analyst estimates in a Bloomberg News survey. Gasoline inventories also gained. “The fact that there is a quite large build in gasoline seems very bearish,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “Refiners are not making distillates because they intentionally want to bring inventories down to a more manageable, healthier level and because they don’t see demand,” said Evans. The rate at which refineries operated fell to 86 percent from the previous week’s 86.3 percent. “Overall, the numbers are quite bearish,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “I am looking for prices to fall to $95 by next week.”
• Sports-Gear Prices May Rise in Sign of Consumer Inflation. Retailers are poised to boost prices on athletic footwear, apparel and sports equipment as they join other industries in passing along rising costs for commodities, foreign labor and freight. More than 90 percent of sporting-goods manufacturers paid higher input costs in the first quarter, and 41 percent of these companies already increased wholesale prices, according to a quarterly survey of private, independent vendors and retailers conducted by Robert W. Baird & Co. “This clearly demonstrates the emerging cost and price pressure across the sporting-good space,” said Peter Benedict, a retail analyst in Stamford, Connecticut, at Baird. “We’re hearing a consistent message from vendors and retailers that cotton, fuel and wage costs are starting to go up, and they’re slowly going to come through on the retail side later this year and certainly in 2012.”
• Fed's QE2 Failed to Boost U.S. Spending, Pimco's El-Erian Says: Tom Keene. The Federal Reserve’s quantitative easing policy failed to meet the “ultimate objective” of boosting employment and economic growth, said Mohamed El-Erian, chief executive officer at Pacific Investment Management Co. While the bond-purchase program pushed investors into higher-yielding assets such as stocks, the “transmission mechanism” to lower unemployment by driving more money into the economy didn’t work, El-Erian of Pimco, the world’s biggest manager of bond funds, said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “If success is defined in terms of the ultimate objective, which is pushing up valuation in order for people to spend more on goods and services and therefore get the economy to grow and unemployment to come down rapidly, then the answer is no,” El- Erian said from Newport Beach, California.

Wall Street Journal:

• Gas Prices, Economy Leave Retailers With Mixed May Sales. Upscale merchants and retailers that sell gasoline turned in the best sales growth in May, continuing to see strength while the momentum of many other retailers waned. Uncertainty over the economy and high gasoline prices contributed to U.S. shoppers' reluctance to spend. The 24 retailers tracked by Thomson Reuters posted 4.9% growth in May same-store sales, missing expectations for a 5.4% gain. This is retailers' first miss since December. The results follow 2.6% growth a year earlier.
  

Business Insider:

• Transcript of David Einhorn's Speech at the Ira Sohn Conference.
• Dick Bove: The Losses Bank of America(BAC) Is About to Take Are "Historic In Proportion".
• There Is More Debt In China Than We Can Possibly Know.
  

Zero Hedge:

• Moody's Puts BofA(BAC), Wells Fargo(WFC) and Citi(C) on Downgrade Review: Cites Risk of No Government Support, Mortgage Exposure as Risks.
• Moody's Says It Expects to Place US Rating for Downgrade Review If No Progress on Increasing Statutory Debt Limit. Translation: unless America promises to increase its total debt to 120% of GDP in one year, the current debt which is just under 100% will be downgraded.
• John Paulson Could Lose Up to $650 Million On Latest Alleged Chinese Fraud.
  

Seeking Alpha:

• 4 Healthcare Stocks Hedge Funds Are Buying Like Crazy.

Politico:

• FCC Could Make VoIP Providers Pay to Connect Calls. More and more Americans are abandoning home telephone lines in favor of mobile phones, Skype, Google Voice and Vonage — and that leaves the Federal Communications Commission with a problem: figuring out what digital-age companies should pay to connect calls to the old Ma Bell network. One possible upshot: higher rates for low-cost or “free” Internet calls.
  

Reuters:

• EU Agrees in Principle on New Greek Bailout - Sources. Senior euro zone officials have agreed in principle on a new international bailout of Greece that will give it more time to try to resolve its debt crisis, a source close to the talks said on Thursday. The Economic and Financial Committee of deputy ministers and senior officials of the 17-nation currency zone approved the plan in principle in talks in Vienna that ended in the early hours of the morning, the source said. The second bailout of Greece, which will effectively replace a 110 billion euro ($160 billion) scheme launched in May last year, will run until mid-2014, giving Athens an additional year of financial support beyond the original plan, the source said.

Efe:

• Talks between Spanish unions and employers over changes to collective wage-bargaining rules have broken down, citing people in the unions.