Today's Headlines

Bloomberg:

• Merkel Agrees to Voluntary Greece Bondholder Role. Chancellor Angela Merkel retreated from German demands that bondholders be forced to shoulder a “substantial” share of a Greek rescue, saying she’ll work with the European Central Bank to avoid disrupting markets. “We would like to have a participation of private creditors on a voluntary basis,” Merkel told reporters in Berlin today at a joint press conference with French President Nicolas Sarkozy. This “should be worked out jointly with the ECB and there shouldn’t be any dispute with the ECB on this.” The euro, stocks and Greek bonds rallied as Merkel and Sarkozy signaled a reconciliation between German calls for investors to help rescue Greece with warnings from the ECB and France that a compulsory move risked triggering the euro area’s first sovereign default. Attention now shifts to Athens, where Prime Minister George Papandreou overhauled his Cabinet to try and secure passage of austerity measures needed for a bailout.
• Greek Hunt for Debt 'Holy Grail' Pits ECB Against Naked Banks: Euro Credit. European policy makers are on a collision course with the bond market as they seek to resolve the Greek debt crisis without triggering payouts under credit- default swap insurance contracts. European Central Bank chiefs are determined to ensure any Greek debt restructuring won’t be deemed a credit event enabling buyers of protection to seek compensation from swaps sellers. It costs $2 million annually to insure against Greek default for five years, with Portuguese and Irish swaps also seeing all-time high prices. A debt restructuring that doesn’t trigger swaps would be more damaging to the market as it would devalue contracts, according to analysts at JPMorgan Chase & Co. and Bank of America Merrill Lynch. Such a move would leave banks with unprotected, or unhedged, holdings, forcing them to sell bonds and ultimately drive sovereign borrowing costs higher. “The ECB fears having to admit a colossal mistake when it declared euro zone governments as undefaultable,” said Georg Grodzki, head of credit research at Legal & General Investment Management in London, which oversees $580 billion of assets. “The ECB wants to protect its balance sheet and reputation.” The ECB’s total exposure to Greece may be between 130 billion euros ($184 billion) and 140 billion euros, Dutch Finance Minister Jan Kees de Jager said this week. The ECB provided 90 billion euros of liquidity to Greek banks, he said.
• Leading Economic Indicators Index Rises. The index of U.S. leading indicators rose more than forecast in May after declining for the first time in almost a year, a sign economic growth may pick up by the end of 2011. The Conference Board’s gauge of the outlook for the next three to six months rose 0.8 percent after a revised 0.4 percent drop in April, the New York-based research group said today.
• Payrolls Dropped in 27 States in May, Led by California and New York. Payrolls dropped in 27 U.S. states in May, indicating the weakening in the job market was broad- based. California led the nation with a 29,200 decrease followed by New York with 24,700 fewer jobs, figures from the Labor Department showed today in Washington.
• U.S. Oil Supply Highest for May Since 1980, API Says. U.S. oil supplies rose to the highest level in 31 years for the month of May as refineries processed less crude amid a decline in gasoline demand, according to the American Petroleum Institute. Inventories increased for a fifth consecutive month to 367.6 million barrels, a record for May in data going back to 1980, the industry-funded group said today in a report. Supplies were up 0.7 percent from April and 2.6 percent from a year earlier. Refineries processed 4.8 percent less crude than during the same month last year, at 14.7 million barrels a day. Demand for gasoline declined 0.7 percent from May 2010 to 9.16 million barrels a day, a two-year low. Gasoline pump prices averaged 37 percent higher in May from the same month last year and were up 2.5 percent from April, according to AAA data compiled by Bloomberg. Gasoline production was 2 percent higher than in May 2010 at 9.37 million barrels a day, a record for any May and the highest level this year. Jet-fuel use fell 7.3 percent to an average 1.32 million barrels a day last month compared with the same period in 2010. U.S. crude-oil production slipped 1.6 percent to an average 5.4 million barrels a day. Output in the lower 48 states dropped 2.7 percent to 4.77 million barrels a day.
• Crude Oil Falls to Near a Four-Month Low on European Debt Crisis, Economy. Oil fell to the lowest level in almost four months in New York on doubts that a German willingness to compromise on the Greek debt crisis will settle markets and spur economic growth. Oil is down 5.8 percent this week as data showed U.S. manufacturers turned pessimistic and diesel demand fell. “There are still a lot of questions about the Greek bailout and what that will mean for the demand picture,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The oil market seems more skeptical about the debt crisis than the equity market. A lot of technical damage was done to the market this week.” Crude oil for July delivery dropped $1.45, or 1.5 percent, to $93.50 a barrel at 10:45 a.m. on the New York Mercantile Exchange. The contract touched $92.12, the lowest price since Feb. 22. The market is heading for the biggest weekly decline in six weeks. The U.S. economy will grow 2.5 percent this year and 2.7 percent in 2012, down from the 2.8 percent and 2.9 percent projected in April, the IMF said today, citing higher commodity prices and bad weather in the first quarter and a weak housing market.
• Moynihan Says Capital Rules May Limit Lending, Discourage Bank Investors. Bank of America Corp. (BAC) Chief Executive Officer Brian T. Moynihan said excessive capital surcharges on the largest banks could limit lending and discourage investors from funding the industry. “If you impact our returns and our business to a point, investors are going to look around and say there’s other places to put the money,” Moynihan said today in an interview with Bloomberg Television in St. Petersburg, Russia, where the International Economic Forum is being held. “And that’s what you’ve actually seen in bank stocks.” The KBW Bank Index (BKX) of 24 U.S. lenders has fallen 9.6 percent this year, led by the 21 percent decline at Bank of America. The Basel Committee on Banking Supervision is considering a capital surcharge of as much as 3.5 percentage points on the largest banks if they get bigger, according to two people familiar with the talks.
• Consumers Hunt Value Amid Rising Inflation. McDonald’s Corp. (MCD) and Wal-Mart Stores Inc. (WMT) are getting a boost from value-minded consumers as rising commodity costs constrain discretionary income and confidence in the economy wanes. Energy and food costs have risen 19 percent and 4 percent since December, according to the Labor Department. That caused real disposable income, or the money left over after taxes and adjusted for inflation, to remain unchanged. The confluence of higher prices and unemployment at 9.1 percent has become especially acute for households making less than $75,000 a year, according to David Schick, an analyst at Stifel Nicolaus & Co. in Baltimore.
• Goldman Sachs(GS) Earnings Per Share Estimate Slashed 40% by Atlantic Equities. Goldman Sachs Group Inc. (GS)’s second- quarter profit estimate was reduced 40 percent by an analyst at Atlantic Equities LLP, who said the firm’s trading and investing revenue is declining, making job cuts more likely. Goldman Sachs will likely earn $2.17 per share, down from a previous estimate of $3.49, Richard Staite wrote today in a note to investors. Staite expects trading revenue to tumble to $4.9 billion, a 27 percent decrease from the first quarter, and investing and lending gains to narrow to $200 million from $2.7 billion, he wrote.
• Leveraged Loan Prices Poised to Fall for Sixth Week on Greek Debt Crisis. Leveraged loan prices in the U.S. are poised to fall for a sixth consecutive week, led by Caesars Entertainment Corp., the world’s biggest casino operator, and First Data Corp. amid concerns that Greece may default and signs of a slowing economy. The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index has declined for 12 consecutive days to 94.32 cents on the dollar in a six week slump not seen since December 2008 and the longest daily losing streak in almost five years. The decline underscores that senior secured loans are also not immune from investor fleeing from all assets but the safest government bonds as the European Central Bank tries to contain a sovereign debt crisis. Confidence is also eroding on signs that the expansion of the world’s largest economy has slowed.

Wall Street Journal:

• Madoff Claims Lure Banks. Some of the world's biggest banks are jumping into a multibillion-dollar market that buys up victims' claims in the Bernard Madoff Ponzi scheme, including two banks that have been sued in connection with the fraud. The buyers of claims offer defrauded investors who want immediate cash a fraction of what they are owed, intending to profit by collecting a larger payout when the settlement is made final, which can take years.
• Restaurant Groups Sue Labor Department. Trade groups representing the restaurant industry are suing the U.S. Labor Department for allegedly not allowing them to comment on new rules governing the way restaurants pay their employees.
• Europe Hits Back at U.S. Over Derivatives.
  

Fox Business:

• Hotels Warned of 'Mumbai-Style' Terror Threat. Federal authorities are warning hotels in major U.S. cities to be vigilant after intelligence recently obtained in Somalia shows Al Qaeda was planning to launch a “Mumbai-style” attack on an upscale hotel in London, England, Fox News has learned exclusively. The intelligence came from computer accessories and other materials gathered at the checkpoint in Mogadishu where Fazul Abdullah Mohammed, the Al Qaeda operative who masterminded the 1998 U.S. embassy bombings in East Africa, was killed Saturday, according to sources.

MarketWatch:

• RIM(RIMM) Shares Still Not Cheap Enough, Analysts Say. The 20% drop by early afternoon put the stock at a record-low valuation. Even with the stock’s potential appeal as a value play, most brokers still voiced concern about the outlook for the company and its core BlackBerry smartphone franchise.

CNBC.com:

• Bank of America(BAC), the largest U.S. lender, is prepared for lower economic growth as the housing slump and unemployment weigh on its customers, CEO Brian T. Moynihan said.
• With China Doubts High, Short Sellers Descend on Hong Kong. After a two-month steep decline in Hong Kong's market, some hedge funds and other investors have been ignoring bargain prices in some sectors, and what still appears to be a generally positive outlook on China's economy, and are increasingly putting on short positions on Chinese stocks.
• Misery Index at 28-Year High. Misery, as measured in the unofficial Misery Index that simply totals the unemployment and inflation rates, is at a 28-year high, reflective of how weak the economic recovery has been and how far there is to go.

Business Insider:

• The Weekly Leading Index Growth Indicator of the ECRI Declined to 3.7 From Last Week's 4.1. (graph)
• A Depressing Tale of Government Waste as Seen by a Small Business Owner in Boston.
• McKinsey Releases a Big Report Warning of a Bigger, More Expensive Obamacare. A new employer survey by McKinsey & Co. finds more than half American companies are going to "dump" their workers into government sponsored plans. The paper says more than 90 million workers with employer-provided care will end up in the "Obamacare" exchanges, increasing the cost of the plan by $400 billion over the next 10 years. Further suggesting the point of "Obamacare" is to put all Americans in the program, McKinsey projects the annual public cost would eventually increase by $800 billion.
• CHART OF THE DAY: The US Deficit Problem is at Civil War Levels.

Zero Hedge:

• Ice-Nine Spreads to Shanghai: Chinese Interbank Liquidity Evaporates. (graph)
• Consumer Confidence Misses, 5 Year Inflation Expectations Rise to Second Highest in 2011. (graph)

The Detroit News:

• Lawmakers Dispute Obama Claim That OK Not Needed for Libya War. Republicans and Democrats on Thursday derided President Barack Obama's claim that U.S. air attacks against Libya do not constitute hostilities and demanded that the commander in chief seek congressional approval for the 3-month-old military operation.

Sharenet:

• How EU's Greece Options Would Affect Ratings, CDS.

Seeking Alpha:

• The Euro Zone's Wacky Plan for Non-Default Default.

LA Times:

• Spam is Clogging Amazon's(AMZN) Kindle. Thousands of e-books are being published through the company's self-publishing system each month, including some that appear to be outright copies of other work.

Roll Call:

• Weiner's Pension, Benefits Could Top $1 Million. According to an analysis of his available benefits by the National Taxpayers Union, the New York Democrat’s pension and a savings plan lawmakers have access to similar to a 401(k) could be worth $1.12 million to $1.28 million. At 46, Weiner will not be eligible for his pension for another decade, at which point he could begin drawing a reduced rate of $32,357 a year, according to NTU. If he waits until age 62 to begin drawing his pension, he will receive his full benefits, or $46,224, according to NTU’s calculations.

Politico:

• Consumer Financial Protection Bureau Can Open Without Chief. The new Consumer Financial Protection Bureau won’t necessarily be handicapped by President Barack Obama’s delay in naming a director. If the bureau launches on July 21 without a director, Wall Street analysts and attorneys for the financial services industry are bracing for a slew of enforcement actions against major banks. With no director to issue rules and guidance for banks, the bureau most likely will set policy by conducting investigations, suggested Jaret Seiberg, an analyst for the brokerage firm MF Global. “The ability of the CFPB to investigate financial firms and then bring enforcement actions for violating existing laws is the most potent weapon the agency has absent a director,” he wrote in a recent report. “It is also one that will garner politically attractive headlines.”
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 22% 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 -19 (see trends).

Financial Times:

• Financials' Risk Premiums Jump Sharply. Risk premiums for US banks and other financial institutions have jumped sharply this month as investors question their credit quality, weighing on equity and credit markets. Given that US financials account for 15 per cent of the S&P 500, the outlook for the sector is crucial for broader market sentiment. That also applies to the credit markets, where bank debt is a major component of outstanding paper.

Telegraph:

• IMF: Debt-Ridden Eurozone Countries 'Playing With Fire'. The International Monetary Fund (IMF) has cut its forecast for US economic growth, warning Washington and debt-ridden European countries that they are "playing with fire" unless they take immediate steps to reduce their budget deficits.

Irish Times:

• ECB Unlikely to Support Noonan's Bondholder Losses Plan. THE EUROPEAN Central Bank is unlikely to back moves by the Government to inflict losses on senior bondholders in Anglo Irish Bank when the Government raises the issue with the bank in the autumn. Frankfurt has not changed its resistance to any measures to impose losses on senior bonds, according to a euro zone source.
• Leading EU Official Says State Bank Guarantee a Mistake. EUROPE’S COMPETITION commissioner has declared Ireland’s banking guarantee was a mistake whose sweeping scope served to concentrate losses on taxpayers. Joaquín Almunia told The Irish Times that the intervention in September 2008 resulted in citizens having to assume responsibility for losses that would have been “better distributed” in the absence of an unlimited guarantee.