Today's Headlines

Bloomberg:

• Portugal Cut to Junk by Moody's Roils Spain, Italy Bonds as Risk Remains. Portugal’s downgrade to junk status and wrangling over the role of investors in a new Greek bailout package fueled concern about the solvency of the region’s high- debt nations, sending their bonds tumbling. The extra yield investors demand to hold Portugal’s 10-year bonds over German bunds surged 148 basis points to a euro-era record 949 after Moody’s slashed yesterday its credit rating four levels to Ba2, below investment grade. The yield on Italy’s 10-year bond reached the highest in almost three years, while Ireland’s 2-year yield topped 15 percent for the first time. “It’s a reminder that the sovereign debt crisis does not end with Greece and that risks remain with other nations in addition to Greece,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York.
• Sovereign, Corporate Credit-Default Swap Indexes Rise in Europe. The cost of insuring against default on European sovereign and corporate debt rose for a third day, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 11 basis points to 240.5 at 8:30 a.m. in London. Swaps on Portugal soared 67 basis points to 838, the highest level in more than a week, according to CMA. Contracts on Greece climbed 38 basis points to 1,962, Ireland jumped 25 to 760 and Spain rose 11 to 288, while Italy increased 11 to 209 and Belgium was 8 higher at 159. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 13 basis points to 409, the highest in a week, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.25 basis points to 109.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 8 basis points to 168 and the subordinated index climbed 12 to 298.
• Company Bond Window 'Slams Shut' on Portugal. Portugal’s downgrade to junk may stifle corporate bond sales in Europe, killing off a mini- revival in issuance spurred by investor optimism about Greece’s efforts to avoid default. “The primary window has almost slammed shut just as spectacularly as it had flung open,” said Suki Mann, senior credit strategist at Societe Generale SA in London.
• Stress Tests May Show 26 Rated Banks Need Aid, Moody's Estimates. European stress tests may show that 26 rated banks of the 91 lenders being examined by the European Banking Authority could need financial support, Moody's Investors Service said today.
• Ireland May Be Next to Face Junk After Portugal. Ireland’s credit rating may be cut to junk by Moody’s Investors Service after Portugal yesterday lost its investment grade rating, according to analysts. “If not re-entering the public funding markets has significance for a sovereign’s rating, then clearly if our view proves correct, then Ireland will suffer an imminent downgrade,” Cathal O’Leary, head of fixed income sales at Dublin-based NCB Stockbrokers, said in a note today. The yield on Irish two-year notes climbed 239 basis points to 15.27 percent as of 2:35 p.m. in London, the first time it has been above 15 percent. The downgrade of Portugal highlighted “contagion risks” for Ireland, Goodbody Stockbrokers said today.
• EU Seeks to Curb Big Three Rating Firms After Portugal Downgrade. European policy makers lashed out at rating companies after Moody’s Investors Service cut Portugal’s debt to junk, reviving calls to curtail their clout. German Finance Minister Wolfgang Schaeuble said the grip of the big three rating companies had to be broken when asked about Moody’s downgrade. “I have said before that we have to curb the influence of the rating agencies,” Schaeuble told reporters in Berlin today. There’s a need to “break up” the companies’ dominance, he said. European Commission President Jose Barroso said he “deeply” regrets the timing and magnitude of Portugal’s downgrade by Moody’s and said proposals for increasing regulation of the rating companies in Europe would come out this year.
• U.S. Housing Recovery Stymied by Government. The two women, who haven’t met, illustrate the deadlock crippling the U.S. housing market five years into the crash: While a record share of Americans want to buy homes, U.S. policies, often working at cross-purposes, are making it more difficult. Government-controlled Fannie Mae and Freddie Mac have boosted standards so high that some people previously considered prime borrowers no longer qualify. That’s limiting a real estate rebound that also has been damped by a state attorneys general probe into foreclosure practices and an Obama administration loan-modification program that has fallen short of expectations.
• China Raises Rates to Counter Inflation. China raised benchmark interest rates for the third time this year, adding to efforts to cool the world’s fastest-growing economy after inflation accelerated to the quickest pace since 2008. The one-year lending rate will increase to 6.56 percent from 6.31 percent tomorrow, the People’s Bank of China said on its website. The one-year deposit rate rises to 3.5 percent from 3.25 percent. A government report next week will show that China’s inflation accelerated to 6.2 percent in June, according to the median forecast in a Bloomberg News survey of economists. Consumer prices rose 5.5 percent in May, the most since July 2008, mainly driven by food costs. Standard & Poor’s has cut the outlook for the nation’s property developers to “negative” on the likelihood of slower sales and lower prices. Hazards for the economy also include power shortages, a credit squeeze for small and medium-sized companies, and signs export demand is weakening.
• China Faces 'Crisis' If Monetary Policy Lossened, Xie Says. China faces an “inevitable crisis” if the government loosens monetary policy in the second half of the year, according to Andy Xie, an independent economist. “The market consensus is that China will loosen in the second half,” Xie, formerly Morgan Stanley’s chief Asia economist in Hong Kong, said on Bloomberg Television today. Such a move could boost inflation and investors should “duck for cover” if that happens, he said.
• Corporate Yield Gap at Post-Lehman High on Curbs: China Credit. The premium investors demand to hold China's corporate bonds rather than sovereign debt rose to the highest level since Lehman Brothers Holdings Inc. failed as central bank policies curb economic growth and earnings. The gap between yields on 10-year bonds issued by top-rated companies and government securities widened 47 basis points this year to 173, hitting a 33-month high of 176 on July 1, Chinabond data show.
• Service Industries In U.S. Expanded Slower. Service industries in the U.S. expanded at a slower pace in June, a sign the economy cooled at the end of the first half of 2011. The Institute for Supply Management’s index of non- manufacturing businesses decreased to 53.3, less than projected, from 54.6 in May. Economists forecast the gauge would drop to 53.7, according to the median estimate in a Bloomberg News survey. The non-manufacturing survey’s measure of new orders decreased to 53.6 from 56.8 the prior month, today’s report showed. A gauge of order backlogs dropped to the lowest level this year. A measure of business activity eased to 53.4 from 53.6 in May. The group’s employment gauge was little changed at 54.1 in June after 54 a month earlier. The index of prices paid declined to 60.9 from 69.6.
• Announced U.S. Job Cuts Rose 5.3% in June, Challenger Says. Employers in the U.S. announced more job cuts in June than a year earlier, the first increase since February and a sign the labor market is struggling to improve. Planned firings rose 5.3 percent to 41,432 last month from June 2010, according to figures released today by Chicago-based Challenger, Gray & Christmas Inc. The figures are consistent with others indicating weaker demand in the first half of 2011 has prompted some companies to trim their workforces. Employers in June probably boosted payrolls at a pace that failed to reduce the jobless rate, according to a Bloomberg News survey before a report in two days. “The employment picture remains a bit cloudy,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “Hiring is coming in spurts and is not quite robust enough to make a significant dent in unemployment.”
• Danish Nurses Challenge Hedge Funds by Financing Windmills. Kirsten Gosvig’s pension fund bought a $485 million stake in Denmark’s largest offshore wind-power project, an investment that’s forecast to earn at least twice the average historical return of hedge funds. PKA Ltd., which manages retirement money for the 40-year- old nurse, will earn 7 percent to 9 percent a year on the Anholt wind farm. That’s the view of PensionDanmark, which joined PKA in the first investment ever by pension funds in an unbuilt wind park at sea. The return would beat the HFRX Global Hedge Fund Index’s 2.8 percent compounded annual gain in the last 10 years. Pension funds are sinking money into offshore projects that banks consider too risky as the payback depends on unproven gear that will be pummeled by gales and corrosive salt water in a 20- year lifetime.
• Risk of Fastest G-20 Inflation Sends Yields Higher: India Credit. Investors are driving up yields on India's bonds by the most since April as economists say there is a risk inflation may accelerate to the fastest among the Group of 20 nations. Wholesale-price increases will touch 10% by September, eight of 10 analysts surveyed by Bloomberg News predicted, while the other two said the rate will be higher than the 9% estimated by policy makers.
• Gold Gains for Second Day as Europe Debt Concerns Boost Demand for Haven. Gold rose for a second straight day as mounting government debt in Europe boosted demand for the precious metal as a haven. The euro declined against the dollar after Moody’s Investors Service cut Portugal’s credit rating to junk, renewing concerns another European nation will need a bailout. Gold fell in the previous two weeks as Greece avoided a default. “You’re getting a flight-to-quality fear coming in for gold,” said Adam Klopfenstein, a senior market strategist at broker Lind-Waldock in Chicago. “With the anxieties in Portugal and the ongoing debt-ceiling problems in the U.S., there are too many bullish cases for gold.”
• U.S. Farmland Boom May Peak on Rates After Five-Year Surge, Rabobank Says. A five-year bull market in U.S. farmland values may peak this year as interest rates increase and crop prices decline, Rabobank International said. Land costs may fall by as much as 15 percent in the next seven years, Sterling Liddell and Vernon Crowder, vice presidents at the bank, said in an interview. Gains in the past five years ranging from as much as from 70 percent in Nebraska to 20 percent in California were spurred by record grain and livestock prices and the lowest borrowing costs ever, Rabobank said in a report released today. “Margins are once again expected to diminish as increases in the volume of commodity production combine with higher input costs to squeeze profit margins,” the analysts said in the report. “The result should be a slowing in U.S. agricultural land value growth, accompanied by occasional sharp decreases.”
• Goldman(GS) Took Biggest Loan in Fed Program. Goldman Sachs & Co. borrowed $15 billion from the U.S. Federal Reserve on Dec. 9, 2008 -- the biggest single loan from a program whose details have been secret until today. The central bank released data for its so-called single- tranche open-market operations, which lent as much as $20 billion at a time between March 7, 2008, and Dec. 30, 2008, as confidence in credit markets collapsed. The data were released in response to a Freedom of Information Act request by Bloomberg News.

Wall Street Journal:

• Blackstone(BX) Super Sizes $15 Billion Fund. Blackstone Group’s new buyout fund already seemed huge last December, as the firm put the finishing touches on its much-anticipated launch. At $15 billion, the new fund was the largest since the financial crisis. But the buyout fund has seen enough interest that it is now sized at $16 billion, according to people close to the matter. And, though the people don’t expect it to grow much larger, it could come in at about $16.5 billion, making it one of the largest buyout funds on record.
• Salaries Sliding for Recent Law School Grads. Even for the lucky members of the law school class of 2010 who found jobs, their average salaries were 10 percent lower than those of their predecessors, a new report reveals.
• Emissions Plan May Hit Luxury Cars. The U.S. government's future fuel economy regulations could saddle auto makers with steep fines or bar the sale of certain models. Instead of fees ranging from $5 to hundreds of dollars a vehicle sold in the U.S., companies that violate government standards could get hit with penalties up to $25,000 a vehicle beginning in 2016.
  

CNBC.com:

• Hedge Fund Tax Advocates Are Fooling Themselves. Multiply $22 billion by 0.2 to arrive at a revenue number of $4.4 billion per year. (Which assumes that hedge fund managers would not take steps—such as restructuring their partnerships or moving them off-shore—to avoid the taxes.)
• Small Businesses Cut Jobs in June After Four-Month Gain. U.S. small business owners cut jobs in June, breaking a four-month streak of growth as employment was dragged down by cutbacks at construction firms, a survey released on Wednesday showed.

Business Insider:

• What You Saw Today Was Basically Europe's Worst Nightmare Playing Out.
• CNN Cancels Eliot Spitzer's Show.
• The 15 Fastest Growing Retailers In America.
• From Paradise to Slum: Shocking Facts About the NYC Wealth Gap.
• U.S. Warns Terrorists May Try to Surgically Implant Explosives in Humans to Blow Up Jets.
• The Latest on the Wage Inflation Mess Breaking Out All Over China.
• Credit Crisis in Brazil: Consumer Loan Rates Hit 47%, Defaults Soar.
  

Zero Hedge:

• Fed Releases Details on Secret $855 Billion Single-Tranche OMO Bailout Program: Just Another Foreign Bank Rescue Operation.

Reuters:

• Exclusive: Germany Puts Greek Bond Swap Back on Table. Germany has put a Greek bond swap back on the table as a model for private sector involvement in fresh aid for Athens, Deputy Finance Minister Joerg Asmussen told Reuters Insider TV on Wednesday. "The model put forward by some French banks is still a good base for discussions and we are currently working on this," Asmussen said in the interview, referring to a French proposal to roll over Greek debt. "But since rating agencies have signaled that they will consider modalities (such as) the French proposal as a selective default -- that means a rating event -- we can also put other options like a bond exchange on the table," he said, adding discussions would take place over the summer break.

MoneyWeek:

• What China's Bad Debt Problems Mean For You. Chinese news site Caixin reported that the company building toll roads in the Yunnan province in southwest China had failed to repay its debts. Income from toll roads fell short of hopes, meaning the company couldn’t repay the loans granted to it by various banks. In the end the local government bailed it out. But as one source told Caixin: “the issue has merely gone from [being] on the table to [being] under the table.” Why does this matter? Because it might be the tip of the iceberg.

Folha de S.Paulo:

• Brazil's government has offered cancer treatment to Venezuelan President Hugo Chavez.

Jiji Press:

• BOJ Expected to Lower Growth Forecast. The Bank of Japan is expected to lower its forecast for the country's economic growth for fiscal 2011 in light of the steep downturn following the March disaster, informed sources said Wednesday. The central bank is likely to cut its growth forecast for the year ending next March to a level below 0.5 pct from the previously estimated 0.6 pct, the sources said. The BOJ's Policy Board will review the forecast made in April at a two-day monetary policy meeting starting Monday.

Shanghai Daily:

• Shanghai Loses Its Edge to Competing Regions. SHANGHAI has lost ground in commercial activities due to fierce competition from other cities in China, the Shanghai Commission of Commerce said yesterday. Commission Chairman Sha Hailin said the strategically important sector is a "life and death issue to Shanghai in the next five years." Sha said "this sense of urgency" will help push Shanghai to maintain its position.