Today's Headlines

Bloomberg:

• Greece Is Said to Require $65 Billion More in Emergency Loans From EU, IMF. European governments and the International Monetary Fund would lend as much as an extra 45 billion euros ($65 billion) to Greece under an expanded plan to avoid the euro area’s first sovereign default, two people with direct knowledge of the talks said. European estimates put Greece’s 2012-14 financing gap at as much as 170 billion euros, the people said. It would be filled by the loans, plus around 57 billion euros in unspent aid from last year’s bailout, roughly 30 billion euros in asset-sale proceeds and about 30 billion euros in rollovers by creditors. Structuring the rollovers remains the most sensitive part of the package, with European Central Bank President Jean-Claude Trichet warning on a teleconference of euro-area officials yesterday that German calls for a debt exchange might lead rating companies to declare Greece in default, the people said. “It’s hard to imagine something that’s truly voluntary in the current climate,” Bart Oosterveld, managing director for sovereign risk at Moody’s Investors Service, told reporters in Frankfurt today. “The default risks for peripheral European countries continue to increase.”
  
• Greece, Portugal, Ireland Risk Surges to Record, Credit-Default Swaps Show. The cost of insuring against default on government debt sold by Greece, Portugal and Ireland surged to records, according to traders of credit-default swaps. Contracts on Greece soared 30 basis points to 1,522, Portugal increased 16 to 722 and Ireland rose 10 to 690 as of 2:30 p.m. in London, according to CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 4 basis points to 203, the highest since Jan. 12. Swaps on Spain increased 6.5 basis points to 261.5, Italy climbed 6 basis points to 165 and Belgium was 4 basis points higher at 144, according to CMA. The Markit iTraxx Crossover Index of swaps on 40 companies with mostly high-yield credit ratings increased 2 basis points to 395, the highest since March 17, while the Markit iTraxx Europe Index of 125 investment-grade companies rose 1 basis point to a five- month high of 107.25, according to JPMorgan Chase & Co. The Markit iTraxx Financial Index of swaps linked to the senior debt of 25 European banks and insurers climbed 4.5 basis points to 163.5 and the subordinated index jumped 10 to 278, both the highest since March, JPMorgan prices show.
• ECB's Trichet Signals July Interest Rate Increase. The European Central Bank signaled a July rate increase while damping investor expectations for further moves by reiterating a forecast that inflation will fall below its 2 percent limit next year. The euro dropped more than a cent and German government bonds fell after ECB President Jean-Claude Trichet said the central bank hadn’t raised next year’s inflation forecast from 1.7 percent, fueling speculation it won’t increase rates as quickly as previously expected. At the same time, Trichet signaled the bank intends to lift its benchmark in July after keeping it at 1.25 percent today. Latest data confirm “continued upward pressure on inflation” and “strong vigilance is warranted,” Trichet said. “It means that we are in a mode where there might be in the next meeting an increase of rates, but we are never pre- committed. We are not signaling any particular pace for the next decisions on our interest rates.”
• Initial Jobless Claims in U.S. Unexpectedly Rose Last Week. U.S. initial jobless claims unexpectedly rose last week, a sign that the labor market is struggling to gain traction. Jobless claims increased by 1,000 to 427,000 in the week ended June 4, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 419,000, according to the median forecast. It was the ninth consecutive week that claims were above 400,000. Today’s data showed the four-week moving average, a less volatile measure than the weekly figures, fell to 424,000 last week from 426,750. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 2.9 percent from 3 percent, today’s report showed.
  
• Corn Futures Climb to Three-Year High as USDA Slashes Inventory Estimates. Corn jumped to the highest in almost three years after the U.S. Department of Agriculture forecast tighter supplies, as adverse weather hurt crops. U.S. stockpiles before the start of the 2012 harvest may fall to 695 million bushels, the lowest since 1996, even as farmers harvest a record crop, the USDA said. World inventories are projected to drop to the lowest since 2004 next year. Prices have more than doubled in the past year as global production trailed gains in demand for livestock feed and biofuels. “Today’s report should be viewed as very bullish,” Bill Gary, the president of Commodity Information Systems in Oklahoma City, said in a report to clients. Corn “ending stocks were forecast at the second tightest level in history,” based on reserves to cover daily usage, he said. The rally is boosting costs for meat producers including Tyson Foods Inc. (TSN) and ethanol makers such as Poet LLC. Global food prices have climbed in nine of the past 11 months, touching a record in February. Food-price inflation, high unemployment and corruption spurred unrest in northern Africa and the Middle East this year, ousting leaders in Tunisia and Egypt. Corn futures for July delivery rose 20 cents or 2.6 percent, to $7.84 a bushel at 10:34 a.m. on the Chicago Board of Trade. Earlier, the grain touched $7.93, the highest since June 2008.
• Maersk Only Shipper With Europe-Asia Profit as Rates Fall: Freight Markets. A.P. Moeller-Maersk A/S may be the only shipping line to profit from growing trade between Asia and Europe even as rates reach a two-year low. While Maersk is ordering the world’s biggest ships for the routes, companies such as Hapag-Lloyd AG may lose out. Maersk, the largest container shipping line, probably was the only major operator to make money on Asia-Europe trade in the first quarter, said Ben Gibson, a freight derivatives broker in London at Clarkson Plc, the world’s largest shipbroker.
• China's Ministry of Railways, the nation's biggest issuer of corporate debt, is paying a record yield premium to sell bonds as construction of the world's biggest high-speed network strains its finances. The difference between yields on its 10-year notes and similar-maturity Treasuries doubled in the last five months to reach 141 basis points this week, the most in ChinaBond data going back to September 2008. The gap was 140 basis points yesterday, having widened 36 basis points since the ministry reported a first-quarter loss of 3.76 billion yuan on May 4. The rail operator has 2 trillion yuan of borrowings, including 56 billion yuan of bonds falling due by end-2011.
• Muni Bond Holdings Cut by Mutual Funds, Households, Fed Says. U.S. mutual funds, money-market accounts and individuals cut their holdings of municipal bonds as borrowing by state and local governments dropped during the first three months of the year, the Federal Reserve said. The number of municipal bonds outstanding slid by $20.5 billion to $2.9 trillion during the first quarter, the Fed said in a release today. That marked the steepest drop since 1995, according to data compiled by Bloomberg. Holdings by households, the biggest owners of the debt, slipped by $5.6 billion to $1.08 trillion, while those owned by money- market and mutual funds dropped by $23.8 billion.
• Bair Says U.S. Must Avoid Amnesia in Response to Crisis. Federal Deposit Insurance Corp. Chairman Sheila Bair strongly defended higher capital buffers for the biggest banks and said U.S. regulators must guard against pressure to be less vigilant in financial-industry oversight as the nation recovers from the 2008 credit crisis. “I see a lot of amnesia setting in now,” Bair said today during a question-and-answer session at the Council on Foreign Relations in New York, where she discussed her tenure at the FDIC and the government’s response to the worst financial crisis since the Great Depression.
• Crude Oil Futures Rise a Third Day as OPEC Fails to Agree on Output Quotas. Crude oil increased for a third day after OPEC’s failure at a meeting in Vienna to reach an accord on output targets for the first time in at least 20 years. Futures gained as much as 1.7 percent after what Saudi Oil Minister Ali al-Naimi said “was one of the worst meetings we’ve ever had.” Ministers from the 12-nation Organization of Petroleum Exporting Countries were unable to come to an accord in five hours of talks yesterday. Crude oil for July delivery climbed $1.03, or 1 percent, to $101.77 a barrel at 1:45 p.m. on the New York Mercantile Exchange. Prices are up 37 percent in the past year.
• Biofuel From Algae, Wood Chips Approved for Airlines, ATA Says. U.S. safety authorities granted initial approval for biofuel from non-food materials to be blended with traditional jet fuel on commercial flights worldwide, the Air Transport Association said today. Fuel processed from organic waste or non-food materials, such as algae or wood chips, may comprise as much as 50 percent of the total fuel burned to power passenger flights, ATA spokesman Steve Lott and a Boeing Co. (BA) official told Bloomberg. The preliminary approval, granted this week by the Pennsylvania-based American Society for Testing & Materials, may allow Airbus SAS and Deutsche Lufthansa AG (LHA) to carry out a flight they have planned in the coming weeks using one engine powered 50 percent by biofuel from jatropha, camelina and animal waste.
• Dodd-Frank Swaps Rules to Create 'Black Hole' Because of Unresolved Issues. Swaps users may face a “black hole” when Dodd-Frank Act rules take effect next month because too much remains unresolved for markets to operate properly, the Senate Agriculture Committee’s top Republican said. “We don’t even know what a swap is” under the financial overhaul, Senator Pat Roberts said in an interview today at Bloomberg’s office in Washington. The Kansas Republican said the Commodity Futures Trading Commission needs to outline what provisions will apply when Dodd-Frank takes effect, and which will require rule-making that will delay implementation.

Wall Street Journal:

• Carriers Sweat as Texting Cools Off. Growth in the volume of text messaging is slowing sharply, just as new threats emerge to that lucrative source of wireless carrier profits. While U.S. cellphone users sent and received more than 1 trillion texts in the second half of 2010, according to CTIA, a wireless industry trade group, that was just an 8.7% increase from the prior six months. It was the slimmest gain since texting exploded last decade.

MarketWatch:

• Smucker(SJM) Warns of Spike in Production Costs. Jam maker J.M. Smucker, also home to Folgers coffee, Dunkin’ Donuts and Jif peanut butter, said Thursday the cost to make its products will jump 25% over the next 12 months. That is yet another sign consumers will be paying higher prices at grocery stores and that food companies face an uphill battle in trying to contain skyrocketing costs for staple food ingredients.
• Lagarde Supports Bigger IMF Role for China. French Finance Minister Christine Lagarde, a leading candidate in the race to be the next International Monetary Fund chief, said Thursday she agrees with Chinese leaders that the selection of the next IMF head should proceed "irrespective of nationality" and it would be appropriate if Beijing's current representative in the organization played a key role in future IMF management.

CNBC.com:

• Fed Easing Has Helped China and Brazil: El-Erian.

Business Insider:

• Don't Look Now, But The Japanese Nuclear Crisis is Entering a New Phase. In the latest addition to the ongoing Japanese spiral, officials there are considering evacuating more towns as new "hot-spots" of radiation are discovered farther from the foundering nuclear plant. The new locations are far outside the 19 mile radius previously imposed.
• Troika Report Leaked: Prognosis "Bleak" for Greece, Where Reforms Have Come to a "Standstill".
  

Zero Hedge:

• A Classic Technical Signal: China Breaks Down. (graph) China's stock market has broken a long-term flag to the downside. Look out below.
• US Taxpayers About to be Saddled With Another European Bailout Courtesy of AIG(AIG).
• German Federal Constitutional Court to Challenge Greek Bailout, Claims Action is Unconstitutional.
  

New York Times:

• Goldman(GS) Fined $10 Million Over 'Trading Huddles'. Massachusetts regulators have fined Goldman Sachs $10 million, a penalty that stems from an investigation of its research department. As part of the agreement, the bank has also agreed to halt internal meetings between traders and research analysts, gatherings known inside Goldman as “trading huddles.” “We verified that there was a preference of some customers at the expense of others,” William Galvin, the state’s chief financial regulator, said in an interview.

Chicago Tribune:

• CME Group(CME) Eyeing Illinois Exit. The executive chairman of Chicago-based CME Group said the exchange company is considering a move from Illinois, citing the state's corporate tax rate increase. In response to a January move by the Illinois government to raise the state's corporate tax rate to 7 percent from 4.8 percent, CME executive chairman Terry Duffy said he and CME's chief financial officer, Jamie Parisi, were exploring the possibility of moving CME's corporate tax-paying base. CME's threat comes at a time when other Illinois companies, including Caterpillar and Sears Holdings Corp., have raised the possibility of leaving Illinois. Other states have tried to dangle lucrative incentive packages to lure companies, and Illinois has offered up many incentives of its own to successfully retain big companies like Motorola Mobility. The result has resembled a national bidding war for some of Illinois' top companies.
  

CNN Money:

• Source: Weiner Told NY Colleague He Doesn't Plan to Resign, Citing Polling and Wife.

Real Clear Politics:

• Europe is Warning Us. All this European turmoil raises a paradox. If dispirited Europeans are conceding that something is terribly wrong with their half-century-long experiment with socialism, unassimilated immigrants, cultural apologies, defense cuts and post-nationalism, why in the world is the Obama administration intent on adopting what Europeans are rejecting?

Reuters:

• Deutsche Bank Has Not Cut Exposure to Greece. Deutsche Bank has not significantly cut its exposure to Greek government bonds, a spokesman said on Thursday. "We have kept to the agreement," the spokesman said, referring to the commitment of the German financial industry made last year to keep existing loans to Greece and Greek banks until 2012.
• Fed's Plosser Warns of Inflation Risks from QE. Senior U.S. Federal Reserve official Charles Plosser warned on Thursday of the risks to future inflation from its program of quantitative easing and reiterated that the bar for more stimulus for the economy was "very high." Charles Plosser, President of the Philadelphia Federal Reserve Bank and a policy voter at the Fed this year, said he believed that as the US economy improved, the potential for a rise in inflation was "quite large." "There's about 1.5 trillion dollars of what we call excess reserves in the banking system: they're just sitting there, they're not creating inflation, at least not yet. But they do have the potential to do that," he told Britain's BBC radio.

Handelsblatt:

• The European Central Bank should "give up its blockade against any kind of debt rescheduling" for Greece, Gerhard Schick, finance policy spokesman for the opposition Green party in German parliament, said. Giving further aid to Greece should serve the goal of reaching debt levels that are sustainable in the long run, Schick said, adding that proposals on Greece laid down by Finance Minister Wolfgang Schaeuble fail to reach that goal.

Shanghai Daily:

• Rising Food Prices See Cut in Chinese Consumer Spending. CHINESE bankcard holders trimmed their non-essential spending in May due to rising food prices caused by a drought that ravaged central and eastern China, an industry index showed yesterday. The bankcard consumer confidence index dipped to 86.11 in May, down 0.28 point from a year ago. It also slipped 0.69 point from April, said China UnionPay Co yesterday. The index tracks expenses of card users, including 200,000 individuals, in affluent cities who frequently use the cards to pay for 90 percent of their expenses. A higher index signals that more bankcards are being used to pay for non-necessity expenditure such as luxury goods and travel. "Bankcard holders are cutting non-necessity consumption as the rise in food prices pushes them to shop less, apart from basic needs," the Shanghai-based firm said in a statement. Prices of pork and vegetables rose as central and eastern China were hit by a drought that lasted two months, UnionPay said. Data from the Ministry of Agriculture showed the agricultural products wholesale index rose to 186.3 at the end of May from 180.1 at the start of the month. The decline in auto sales in the country in May also hit consumer confidence. Passenger car sales fell 6 percent to 1.01 million in May from April on the expiry of incentives, high fuel prices and output cuts by some Japanese auto makers due to the March earthquake and tsunami.