Today's Headlines

Bloomberg:

• Papandreou Wins Budget Vote. Greek Prime Minister George Papandreou clinched enough votes to pass the first part of an austerity plan aimed at meeting European Union aid requirements and staving off default for his debt-laden nation. Papandreou won by 155 votes to 138, a wider margin than last week’s confidence ballot, as some opposition lawmakers abstained rather than oppose a package that is the condition for further rescue funds. The vote was overshadowed by a 48-hour strike and scuffles outside Parliament that saw police fire tear gas at demonstrators protesting budget cuts and asset sales. Greek bonds rose as approval of the 78 billion-euro ($112 billion) plan sparked optimism Papandreou can keep the country’s coffers intact for now. Attention now shifts to a second bill tomorrow that authorizes implementation of the measures. “Markets will calm down a little bit and the situation will improve a little,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “It’s of course only a matter of time until this starts all over again. Greece needs to continue to implement its reforms, and we can tell how difficult that is.”
• Sovereign, Bank Debt Risk Falls on Greece Vote, Rollover Bets. The cost of insuring against default on European sovereign and bank debt fell on speculation Greece’s government will approve austerity measures needed for a second bailout and investors will agree to rollover their bond holdings. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments dropped 6 basis points to 227 at 10 a.m. in London. “A positive vote in Greece today, and these proposals, would remove a significant risk in the near term,” London-based Frieser wrote in a note. “But the Greek issue will be a chronic one, so we wouldn’t get overly carried away on the news.” Swaps on Greece tumbled 60 basis points to 1,992 basis points, according to CMA. That’s down from a record 2,421 basis points June 27, and still implies an 82 percent chance of default within five years. Contracts on Ireland dropped 23 basis points to 756, Portugal declined 22 to 772 and Italy fell 11 to 180, while Spain was 11 lower at 277 and Belgium was down 9 at 151. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 6.5 basis points to 165.5 and the subordinated index dropped 10 to 288, according to JPMorgan Chase & Co. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings decreased 8 basis points to 417. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings declined 1.75 basis points to 111.5 basis points.
• Greek Debt Restructuring is 'Unavoidable,' Nielsen Tells FTD. A Greek debt restructuring is “unavoidable,” Guillermo Nielsen, a former Argentinian finance secretary who oversaw the country’s defaulted debt exchange in 2005, told Financial Times Deutschland. “Politicians in the euro zone consider a restructuring as one of many options and seem to believe that they can ride out the problem,” the German newspaper cited Nielsen as saying. “But lawmakers only have the option between an orderly restructuring and a disorderly sovereign default. A haircut on debt is unavoidable.” Greece would need a haircut of at least 64 percent on its bonds to stabilize its debt and another aid package of 150 billion euros ($216 billion), of which two thirds should be used to support the banking sector and one third to stimulate the economy, Nielsen told the newspaper.
• Lagarde Must Shield IMF Balance Sheet, El-Erian Writes in FT. Christine Lagarde, newly installed as managing director of the International Monetary Fund, should prepare the fund’s balance sheet for the risk of future impairment resulting from loans made in the past year, Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., wrote in the Financial Times. This is necessary so the fund doesn’t follow the European Central Bank in obscuring a solvency problem by shifting a member-country’s debt to its own balance sheet, thus becoming part of the problem rather than part of the solution, the Pimco chief said. Lagarde should also restore an appropriate separation between the IMF job and the political ambitions of the holder, a separation that’s been damaged by the widely held view that Dominique Strauss-Kahn, who resigned as IMF chief last month, was using the post as a springboard to the presidency of France, El-Erian said.
• China Inflation is 10-Year Problem: PBOC Adviser. China’s inflation, already at a three-year high, is “most likely chronic” and will remain a problem over the next decade, Li Daokui, an academic adviser to the People’s Bank of China said today. The central bank, which has raised borrowing costs four times since October, needs to increase interest rates further to combat price gains, Li, a professor at Tsinghua University, said at a conference in Beijing. Li, 47, said he was giving his view as an academic. “High inflation pressure will be a long-term structural issue for China, mainly driven by cost-push factors such as rising wages, energy and resources prices,” said Chang Jian, a Hong Kong-based economist with Barclays Capital, who previously worked at the World Bank and Hong Kong Monetary Authority. Inflation accelerated to 5.5 percent last month and may top 6 percent in June, banks including China International Capital Corp and Mizuho Securities Asia Ltd. say. “China needs to correct the situation of negative real interest rates so another three to four rate increases are needed by the end of 2012 to change that,” Chang said. The benchmark one-year deposit rate has lagged behind consumer-price gains for more than a year. Inflation will be a long-term problem in China due to changes in the structure of the economy, Li told reporters today. Wages of “blue collar” workers have kept rising, pushing up manufacturing costs, while prices of agricultural products are climbing as farm workers don’t want to “feed pigs in the countryside” and are migrating to the cities, he said. There is widespread discontent in Chinese society with market reforms, Li said today, citing income inequality as one factor. Pressure to speed up political reform is “visibly increasing” to improve transparency and accountability, and fight corruption, Li said. Reform will be increasingly driven by “grass roots” with public opinion having more of an impact on policies than before, he said.
• Crude Oil Extends Gain After Larger-Than-Expected Decline in Inventories. Oil rose the most in six weeks in New York after the U.S. government reported that supplies dropped almost three times as much as expected. Crude recouped all of its declines since the International Energy Agency’s June 23 announcement that its members will release 60 million barrels of oil from strategic reserves, including 30 million barrels from the U.S. The Energy Department said inventories fell for a fourth week, the longest stretch of drops this year, as imports decreased. “They show that we’re losing a lot of imports already, and we could see more of a decline in expected deliveries to the U.S. because of the IEA release.” Crude for August delivery rose $2.57, or 2.8 percent, to $95.46 a barrel at 12:43 p.m. on the New York Mercantile Exchange. Earlier, prices advanced as much as 3.2 percent and were poised for their biggest one-day increase since May 18. Futures have risen 26 percent in the past year. Imports fell 271,000 barrels a day, or 3 percent, to 8.88 million, the first drop in three weeks. Crude also rose amid speculation OPEC may reduce output in response to IEA’s release of oil from reserves. “There are concerns Saudi Arabia will cut production” in response to the IEA move, said Roland Stenzel, an oil trader at E&T Energie Handelsgesellschaft mbH, said from Vienna.
• Soggy Corn Fields Curb U.S. Planting as Demand for Ethanol, Feed Increase. U.S. corn farmers were unable to plant on soggy or flooded fields from Arkansas to North Dakota this year, signaling tighter grain stockpiles even after rising demand for livestock feed and ethanol sent prices surging. The U.S. Department of Agriculture may cut its planting forecast on June 30 to 90.629 million acres, according to a Bloomberg News survey of 31 analysts. That’s less than the 92.178 million that farmers predicted in a government survey three months ago and would be the USDA’s biggest such reduction from the March forecast since 1995. Higher grain prices mean consumers are paying more for everything from Hormel Foods Corp. (HRL)’s Jennie-O turkey to Del Monte Foods Co. (DLM)’s Kibbles ‘n Bits dog food. Global food prices are up 37 percent in the past year, reaching a record in February, according to the United Nations.
• India Bonds Drop a Second Day on Concern Inflation Will Quicken. India’s 10-year bonds declined a second day on concern inflation will accelerate after fuel prices were raised. Refiners including Indian Oil Corp., the nation’s biggest, increased diesel prices by 3 rupees (7 cents) a liter, kerosene by 2 rupees a liter and cooking gas by 50 rupees for every 14.2 kilogram bottle on June 24. “The fuel price increase will definitely push up inflation and that’s damping appetite for debt,” said Paresh Nayar, the Mumbai-based head of money markets and currency at FirstRand Ltd. “The bill sale is also a temporary negative from the point of view of liquidity.” The yield on the 7.8 percent bond due April 2021 rose two basis points, or 0.02 percentage point, to 8.28 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. The wholesale-price index, the main inflation gauge, rose 9.06 percent in May from a year earlier, compared with 8.66 percent in April, according to data published June 14. Wholesale prices will increase by more than 10 percent in July from a year earlier due to the fuel-price rise, Nomura Holdings Inc. Mumbai- based economists Sonal Varma and Aman Mohunta wrote in a note to clients yesterday.
• China Swaps Jump as Rate Speculation Revives. China’s interest-rate swaps jumped by the most in one week on speculation policy makers will boost interest rates after the central bank lifted the yield on one- year bills for a second sale. Inflation is likely to average 5.3 percent this year, topping the government’s 4 percent target, the Economic Information Daily reported today, citing Li Jianwei, director of the macro economy research institute under the State Council’s Development Research Center. “You have a lot of funding stresses” said Matthew Huang, Asian currency and rates strategist at Macquarie Group Ltd. in Singapore. “Most of the banks are still expecting another rate hike.” The one-year interest rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, increased six basis points to 3.82 percent as of 5:12 p.m. in Shanghai, according to data compiled by Bloomberg. Consumer-price increases may stabilize in the third quarter before accelerating in the fourth, driven by rising wages and imported inflation, the newspaper cited Li as saying. Inflation may reach 7.1 percent in the third quarter of next year, partly due to higher commodity prices, he said.
• Monsanto(MON) Raises Forecast as Net Gains 77%. Monsanto Co. (MON), the world’s largest seed company, raised its full-year profit forecast and posted third-quarter earnings that topped analysts’ estimates on higher sales of Roundup weed killer and genetically modified seeds.
• Stop The Fiscal War Against Our Children Now: Laurence Kotlikoff. Our war in Afghanistan may be ending, but our war against our children continues in full force. The Congressional Budget Office just released its annual long-term fiscal forecast. It shows, after some simple calculations, that our government’s fiscal gap -- the bill presumably being left to our children -- has grown enormously over the past year. How big is the fiscal gap? By my own calculations using the CBO data, it now stands at $211 trillion -- a huge sum equaling 14 times the country’s economic output. To arrive at that figure, I assumed that annual noninterest spending, as well as taxes, would grow indefinitely by 2 percent a year beyond 2075, the point at which the CBO’s estimates end.

Wall Street Journal:

• Greece Secures Austerity Vote. Greece's Parliament approved a five-year austerity plan demanded by its international creditors as a condition for a new bailout that promises short-term relief, but fails to resolve deeper questions about the country's ability to pay back its debts.
• Geithner Rejects GOP Debt-Ceiling Plan. Treasury Secretary Timothy Geithner pushed back against calls from a group of Republican lawmakers to prioritize paying interest on debt and cut spending instead of raising the debt ceiling.
• OPEC Calls on IEA to Avoid Oil Releases. OPEC's top official said Wednesday he wants to mend fences with the International Energy Agency and avoid a repeat of a release of oil from stockpiles that has strained consumer-producer relations. Abdalla Salem El-Badri, secretary general of the Organization of Petroleum Exporting Countries, said he hoped to set up a sit-down meeting with IEA Executive Director Nobuo Tanaka to discuss better coordination between consumers and producers. "We don't want this to be repeated," Mr. El-Badri said of the IEA's controversial release. Mr. El-Badri said he would tell Tanaka, "Let us not disturb the market."

CNBC.com:

• Commercial Lenders Take Step into Riskier Deals. The market for commercial real estate loans is coming back, but already some industry professionals are warning that risky practices that were common in the recent boom are returning.
• CNBC 2nd Quarter Survey Results.
  

Business Insider:

• Obama's Team Worried About His Reelection Chances.
• China's Small Businesses Are Going Bankrupt, Divesting and Increasing Capital Outflows.
  

Zero Hedge:

• This Message Saluting The Latest Banker Bailout Via The Greek Conduit, Brought to You by Dexia.
• Italy Banks Go For The Trifecta on Sigma X.
  

New York Times:

• Speculation Behind High Gas Prices, Report Says. Speculative commodities trading on Wall Street is significantly inflating prices at the gas pump, according to a new report by researchers at the University of Massachusetts, Amherst. The report criticizes regulators for not restraining speculative energy trading and calls upon the Commodity Futures Trading Commission to finally put trading limits in place. Turmoil in oil-producing countries across the Middle East and growing demand for oil elsewhere was responsible for some of the run-up in gasoline prices. But, the report contended, oil speculators drove much of this year’s surge in prices. The speculation, according to the report, cost the average consumer an extra 83 cents a gallon in May, amounting to a more than $1 billion premium across the country. Exxon Mobil’s chief executive, Rex W. Tillerson, recently told Congress that absent speculative trading, oil should cost only $60 to $70 a barrel, compared with the $90-to-$100 mark where it has hovered for several months. “A big chunk of what all of us are paying at the pump for gasoline today is going straight into the pockets of Wall Street speculators,” said the report’s co-author, Robert Pollin, a director of the Political Economy Research Institute and an economics professor at the University of Massachusetts, Amherst. Dr. Pollin, teaming up with a group of consumer advocates who favor strict financial regulation, is lobbying regulators to rein in speculative trading. Under the Dodd-Frank regulatory law enacted last year, the Commodity Futures Trading Commission is supposed to “diminish, eliminate or prevent excessive speculation.” Congress instructed the agency to start enforcing trading limits in January. But the commission has so far delayed a plan to enact so-called position limits on 28 commodities — oil, wheat, corn and the like. Existing position limits apply to only nine items. “There’s no reason that you can’t make position limits work,” Dr. Pollin said. “This is something that Congress passed, and it is the obligation of the C.F.T.C. to represent the interests of the American people and that means establishing serious position limits without hordes of exemptions.”
• China Opens Oil Field in Iraq. China’s largest oil company has begun operations at Al-Ahdab oil field in Iraq, making the field the first major new area to start production in Iraq in 20 years, according to an official news report on Tuesday.

Politico:

• Obama May Be Losing the Faith of Jewish Democrats. David Ainsman really began to get worried about President Barack Obama’s standing with his fellow Jewish Democrats when a recent dinner with his wife and two other couples — all Obama voters in 2008 — nearly turned into a screaming match.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-eight percent (38%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
• 75% Say U.S. Not Doing Enough to Develop Its Gas and Oil Resources. Just 19% believe the United States does enough to develop its own gas and oil resources.

Reuters:

• Exclusive: S&P to Deeply Cut U.S. Ratings If Debt Payment Missed. The United States would immediately have its top-notch credit rating slashed to "selective default" if it misses a debt payment on August 4, Standard & Poor's managing director John Chambers told Reuters. Chambers, who is also the chairman of S&P's sovereign ratings committee, told Reuters on Tuesday that U.S. Treasury bills maturing on August 4 would be rated 'D' if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply, he said.
• Three Week Outflow Streak for Equity Funds - ICI.
  

Qilu Evening News:

• China is studying control measures on property markets in smaller cities including Shandong province's Yantai city as prices rose sharply after the government limited purchases in major cities.

China National Radio:

• Banks in southern Chinese province of Guangdong are able to withstand a 50% price decline in home prices in the province, citing a stress test.