Today's Headlines

Bloomberg:

• U.S. Payrolls Grow at Slowest Pace in 9 Months. American employers added jobs at the slowest pace in nine months in June and the unemployment rate unexpectedly climbed to 9.2 percent, sending global stocks tumbling on concern the world’s biggest economy is faltering. Employers increased payrolls by 18,000 workers, less than the most pessimistic forecast in a Bloomberg News survey of economists, which called for growth of 105,000. The increase followed a 25,000 gain that was less than half the initial estimate. Hiring by companies was the weakest since May 2010. “Stunned,” was how Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, described his reaction. “This number will really turn your hair gray, that’s for sure. The economy remains mired in its soft patch, which is looking more like a deep bog." The unemployment rate, which rose in June to the highest level this year, was forecast to hold at 9.1 percent, according to the survey median. Estimates ranged from 8.9 percent to 9.2 percent. The jobless rate rose even as the participation rate declined to 64.1 percent, the lowest since March 1984. The Labor Department’s survey of households, used to calculate the unemployment rate, showed a 445,000 decrease in employment and a 173,000 increase in unemployment.
• Italian Yields Reach Nine-Year High as Debt Crisis Spreads; Bunds Surge. Italian bonds slid for the fifth straight day, driving yields to a nine-year high, as contagion from Greece’s fiscal crisis intensified in the region’s biggest government-debt market. The yield on 10-year Italian securities jumped to a euro-era record over German bunds as data showed industrial production in the Mediterranean nation dropped while Italian bank stocks fell, paced by UniCredit SpA. (UCG) A European Union document said governments should be ready to help banks that fail stress tests as a last resort. Spanish, Irish and Greek bonds also fell. “If you are talking about a default in Greece where contagion spreads through Ireland, Portugal and Spain, then Italy is the next stop,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. “Italy has an awful lot of debt.” The yield on 10-year Italian bonds rose 10 basis points to 5.27 percent at 5:03 p.m. in London, up from 4.87 percent a week ago. The yield reached 5.38 percent, the highest since June 2002. The 4.75 percent securities due in September 2021 fell 0.715, or 7.15 euros per 1,000-euro ($1,424) face amount, to 96.455. Italy’s two-year note yield jumped as much as 29 basis points to 3.61 percent, the most since November 2008. Credit- default swaps on Italy rose 23.5 basis points to 241, the highest level since Jan. 11, according to CMA. The difference in yield, or spread, between German and Italian 10-year debt touched 247 basis points, headed for its biggest weekly increase since at least January 2010. The difference in the price of Italian and German bond futures widened to a record as the Italian securities fell 0.8 percent to 104.57. The yield spread between Italian and Spanish 10-year bonds narrowed to 42 basis points, the least since March. “The reality now is that those pesky bond vigilantes have caught sight of Italy, and that is basically all that matters,” Michael Riddell, a London-based fund manager at M&G Investments, said in his blog on the company’s website. “Rising sovereign and bank borrowing costs will lead to credit-rating downgrades. In other words, credit ratings partly get cut because the bond prices fall.” Spanish 10-year yields rose four basis points to 5.66 percent. Yields on similar-maturity Irish bonds increased 20 basis points to 12.92 percent. Greek 10-year yields jumped 17 basis points to 16.86 percent, and the nation’s two-year note yields touched an all-time high 30.40 percent. Irish two-year note yields reached a record 16.74 percent. Portuguese 10-year bonds rose, pushing the yield down nine basis points to 12.82 percent.
• Portugal, Ireland Bond Risk Rises to Record, Credit-Default Swaps Indicate. The cost of insuring against default on Portuguese, Irish and Greek government debt rose to records, leading a gauge of the region’s sovereign risk to an all-time high, according to traders of credit-default swaps. Contracts on Portugal climbed 38 basis points to 1,016, signaling a 58 percent probability of default within five years, according to CMA prices at 3:30 p.m. in London. Swaps on Ireland jumped 59 basis points to 914, Greece surged 25 to 2,175, and the Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 10 to 256. Swaps on Italy increased 27.5 basis points to 245, the highest level since Jan. 11, while Spain climbed 7.5 to 310 and Belgium was up 13 at 174. The Markit iTraxx Crossover Index of contracts linked to 40 companies with mostly high-yield credit ratings jumped 11 basis point to 421, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 3 basis points to 112. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 7.5 basis points to 171 and the subordinated index increased 14 to 303.5.
• Oil Tumbles, Trimming Weekly Gain, as U.S. Jobless Rate Climbs. Crude oil dropped, paring a second weekly gain, after the U.S. added fewer jobs than forecast in June and the unemployment rate climbed, damping optimism for the economic rebound and fuel demand growth. Futures fell as much as 3.1 percent after the Labor Department said U.S. employers added the fewest workers in nine months and the unemployment rate rose to 9.2 percent, the highest level this year. The premium of London’s Brent oil over New York crude rose above $20 for the first time since June 15. Crude oil for August delivery declined $2.39, or 2.4 percent, to $96.28 a barrel at 12:33 p.m. on the New York Mercantile Exchange. The contract yesterday climbed to $98.67, the highest settlement since June 14. Prices are up 1.4 percent this week and have increased 28 percent in the past year.
• Copper Slides Most in Two Weeks on 'Disappointing' U.S. Employment Report. Copper fell the most in almost two weeks after U.S. payrolls rose less than forecast in June, damping growth prospects. Copper futures for September delivery declined 4.45 cents, or 1 percent, to $4.39375 a pound at 9:19 a.m. on the Comex in New York.
• China Debt Sale Fails for Third Time This Year as Cash Crunch Curbs Demand. China’s finance ministry failed to sell all of the debt offered at an auction for the third time this year as a cash crunch damped demand from banks. The ministry sold 11.76 billion yuan ($1.82 billion) of 182-day bills, falling short of its 15 billion yuan target, according to traders at financing companies required to bid at the auctions. The seven-day repurchase rate, which measures interbank funding availability, has almost doubled in the past month to 6.25 percent after the central bank pushed lenders’ reserve-requirement ratios to a record 21.5 percent on June 14. “Demand has declined as a cash shortage continues,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai.
• 'Rogue Executives' From Chinese Firms Dodge Singapore Laws by Staying Home. Singapore investors are demanding tougher rules to prosecute executives of China-based companies traded in the city-state after scandals from New York to Hong Kong have wiped out the market value of such firms. U.S. and Hong Kong regulators have been ramping up Chinese company probes as Muddy Waters LLC said last month that Sino- Forest Corp. overstated its timber holdings, erasing as much as 82 percent of the China-based tree plantation owner’s market capitalization in Toronto. With more than one in 10 Chinese firms listed in Singapore delisted or suspended since 2008, regulators must seek a balance between the need for investor protection and a desire to attract companies to Singapore’s exchange. Lawyers said executives of Chinese firms that trade in Singapore, so-called S-chips, are beyond the reach of current law as long as they remain in China.
• Greek Debt Woes Scuttle New Loans as Costs Jump to Highest Level for Year. The cost to raise money in the U.S. leveraged-loan market jumped to the highest level this year as sovereign-debt concerns threatened to dampen the global economic recovery. The spread on institutional term loans rated B+ or B by Standard & Poor’s rose to 6.42 percentage points yesterday, the highest level since November, according to Standard & Poor’s Leveraged Commentary & Data. Virtu Financial LLC increased the spread it offered investors by 1 percentage point this week as two deals worth $700 million were shelved the previous week, according to data compiled by Bloomberg.
• iPad, Android Drive 6% Increase in IDC's 2011 Tablet Sales Forecast. International Data Corporation raised its 2011 forecast for global sales of tablet computers by 6.2 percent to 53.5 million units on the strength of Apple Inc. (AAPL)’s iPad and Google Inc. (GOOG)’s Android operating system. Though sales in the first calendar quarter fell 28 percent from the prior quarter, Framingham, Massachusetts-based IDC raised its forecast for the year citing increased competition between tablets.
• Goldman Sachs(GS) Says U.S. Earnings Estimates Are Too Optimistic. Goldman Sachs Group Inc., the bank with the highest equities-trading revenue, said its rivals are too enthusiastic about second-quarter earnings prospects for Standard & Poor’s 500 Index companies. Operating profit will total $23.75 a share for the period, or 2.3 percent less than the average Wall Street estimate, said David Kostin, an equity strategist at New York-based Goldman Sachs. He said 2011 and 2012 earnings-per-share forecasts will be reduced by 2 percent and 8 percent, respectively.
• Syrian Forces Kill at Least Eight During Rallies Against Assad Government. Syrian security forces killed at least eight demonstrators as thousands of anti-government protesters rallied across the country against the rule of President Bashar al-Assad, activists said. Three people died today in Maat al-Numan, in Idlib, the northern province where at least 60 tanks were deployed along with helicopters this month, said Ammar Qurabi, head of the National Organization for Human Rights in Syria.

Wall Street Journal:

• Chasing Fraud, Then Chasing Cash. It is easier for regulators to get their man than it is to get their money. Since late 2005, the Securities and Exchange Commission and Commodity Futures Trading Commission have ordered $12.3 billion in penalties for alleged wrongdoing. The total includes fines, the return of ill-gotten profits and repayment of restitution to investors. But more than $4.5 billion hasn't been paid yet, according to the two agencies. The SEC is owed $3.78 billion, while the CFTC hasn't collected $752 million in fines alone.
• More Vacancies at U.S. Malls. Vacancy rates at U.S. malls and strip-mall centers continued to rise in the second quarter as small-store owners struggled with the sluggish economy and malls grappled with follow-on store closures. The average vacancy rate at malls in the top 80 U.S. markets increased to 9.3% in the second quarter from 9.1% in the first, according to real-estate research company Reis Inc. Those vacancy figures are the highest Reis had recorded for malls since it started tracking malls in 2000. Meanwhile, average lease rates at U.S. malls remained steady at $38.77 per square foot per year, unchanged from the first-quarter rate, according to Reis. The situation is similar for strip-mall centers, which are smaller shopping centers often anchored by a grocery store or big-box retailer. The average strip-center vacancy rate increased to 11% in the second quarter from 10.9% in the first, while lease rates remained steady at $16.54. Reis forecasts that, later this year, average strip-center vacancies will exceed 11.1%, their peak from the recession of the early 1990s.
• Few Easy Choices for Fed in Wake of Jobs Report.
  

CNBC.com:

• David Einhorn Dumps Yahoo(YHOO): 'This Wasn't What We Signed Up For'.
• Wall Street Slashing Pay - Even for Best Performers.
  

Business Insider:

• David Einhorn: There's A "Much More Ominous Problem" In Greece Than The Possibility of Default. Greenlight's latest investor letter is out, via Zerohedge, and David Einhorn had much to say on the crisis in Greece, but kept his Ben Bernanke slamming relatively contained, and asked why S&P is waiting to downgrade the U.S. So, firstly, Einhorn doesn't see how privatization of state assets in Greece will resolve the country's underlying insolvency issues. He believes the efforts so far "aren’t really designed to prevent what most people would recognize as a default or losses to bondholders. They are designed to hide a much more ominous problem." That problem? A credit event that would "trigger the payout" on credit default swaps.
• Finally! New Rules Will Force Governments to Tell the Truth About Pension Debt. In an effort to increase transparency about the size and liabilities of the country's troubled public pension funds, the Government Accounting Standards Board has proposed a new set of rules to fix unsound pension bookkeeping.
• More Details on Italy's Mushrooming Political Crisis That's Causing a Market Panic.

Zero Hedge:

• The Birth/Death Adjustment Was Responsible for Over 50% of the Payroll Gains in the Past Year. (graph)
• The Bank of England Blasts The Threat to Capital Markets That is High Frequency Trading.
• Labor Force Participation Rate Drops to Fresh 25-Year Low: 64.1%. (graph)
  
• More Records: Average Duration of Unemployment; People Not in Labor Force Who Want a Job Now Both at All Time Highs. (graphs)
  

FINalternatives:

• Hedge Fund Replicators, Like Replicatees, Slammed in June. One set of hedge fund replication indices certainly lived up to their name in June, to the detriment of their investors. IndexIQ's suite of hedge fund beta indices took a beating in June, replicating the pitiful performance of most hedge fund indices. All six of IndexIQ's strategy indices were in the red last month, as well as its IQ Hedge Composite Beta Index, which lost 1.22% on the month (up 0.63% year-to-date).

Bank Investment Consultant:

• 38% of Hedge Fund Managers Bearish on S&P 500. Hedge fund managers have turned decidedly bearing on U.S. equities and the economy, according to a survey of 87 managers by TrimTabs Investment Research and BarclayHedge. Thirty-eight are bearish on the S&P 500, up from 29% in May and at the highest level since February. Conversely, 27% are bullish, down slightly from 30% in May. “Downbeat views on domestic stocks characterized the first half of 2011,” said Sol Waksman, founder and president of BarclayHedge. “Hedge fund managers were net bearing on the S&P 500 in four of the six months of the year. The grim mood coincides with weak performance.

Seeking Alpha:

• The ECRI Weekly Leading Index: 11 Consecutive Weeks of Slowing Growth. (chart) The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) declined to 1.8 from last week's 1.9, a downward revision from 2.0. This is the eleventh consecutive week of decline from the 11-month interim high of 7.8 for the week ending on April 15.

Politico:

• Entitlement Talk Spooks Dems. Freshman Rep. Kathy Hochul put Medicare in the starkest political terms Thursday during a closed-door Democratic meeting in the Capitol basement: Drastic slashes are a loser for her party. Across the Capitol on Thursday, Democrats openly fretted about the potential reforms to Medicare and Social Security now at the center of President Barack Obama’s talks with congressional leaders to slash $4 trillion in exchange for raising the national debt ceiling.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 23% 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 -18 (see trends).

Reuters:

• EU States Ready to Rescue Bank Test Failures. European governments are ready to bail out those banks which cannot raise capital from investors after the EU details on July 15 which lenders have failed its latest, more vigorous stress test. European Banking Federation Secretary General Guido Ravoet said some banks may struggle to find enough capital. "Is the European financial market deep enough to respond to the needs for capital? We are not the only sector looking for capital," Ravoet said. News that EU governments appear serious about supporting banks that fail to maintain core capital of 5 percent in the face of several theoretical markets shocks lifted Bund futures and UK gilts. "In essence that puts even more pressure on the periphery (euro zone countries) to come up with measures, not only to shore up their budgets, but to support their banking sectors, which they can ill afford to do," said Marc Ostwald, strategist at Monument Securities. "It's basically a charge to safety on the back of this. This is a market which is living in mortal fear of anything to do with the euro zone and anything that puts the banking sector under more stress," Ostwald said. The Italian/German 10-year yield spread hit fresh euro-era highs amid fears that already fiscally stretched countries like Italy might have to dig into their pockets to bail out banks that fail the test as well. Shares in Italian bank UniCredit fell more than 5 percent on fears that Italy could be pulled into the debt crisis that has already forced Greece, Ireland and Portugal to take bailouts. Unlisted banks in Spain and Germany and a batch of banks that are already raising funds are the most likely to fail this year's health check, analysts at Nomura said.
• Euro States Should Give Up Debt Powers: Bini Smaghi. Euro zone countries should hand over their debt-issuing powers to Brussels while bailouts should not require unanimous support, European Central Bank Executive Board member Lorenzo Bini Smaghi said on Friday. The euro zone debt crisis continues to be the main source of worry for financial markets. ECB heavyweight Bini Smaghi warned the bloc was struggling to bring the problems under control and this was pushing up the cost of an eventual solution. "The longer a decision is delayed, the more unpalatable it ultimately becomes, as the action required to calm the markets and to restore stability has to be even stronger," he told a seminar organized by the Hellenic Foundation for European and Foreign Policy. "Crises then drag out as one quick fix gives way to another."
• Limiting US Healthcare Tax Break Weighed - Rep. Levin. U.S. deficit-reduction negotiators are looking at possibly imposing new limits on the existing tax breaks for employer-provided health insurance, a senior Democrat in the U.S. House of Representatives said on Friday. "I think limiting the deduction for the higher income brackets is something that is on the table" in the negotiations, Representative Sandy Levin told Reuters. Levin is the senior Democrat on the tax-writing House Ways and Means Committee.

Handelsblatt:

• The private sector contribution to Greece's aid package will amount to no more than 15 billion euros, half of what was originally planned, citing an EU-diplomat.

Ansa:

• Moody's Investors Service Senior Analyst Alexander Kockerbeck said the rating company is waiting to see whether the Italian government can implement its planned 40 billion euros in austerity measures. The analyst said it remains to be seen whether Italy's current political situation will allow for a successful implementation of the measures.