Today's Headlines

Bloomberg:

• Euro Chiefs Clash Over Greece as Concern on Italy Mounts. European finance chiefs clashed over how to dig Greece out of its financial hole just as markets battered the bonds of Spain and Italy, opening a new front in the debt crisis. Finance ministers weighed how to get private bondholders to maintain their exposure to Greek debt in a way that doesn’t prompt credit-rating companies to declare a formal default. Forcing bondholders to chip in would be “fatal,” Austrian Finance Minister Maria Fekter told reporters before a crisis meeting in Brussels today. “We will now in the eurogroup discuss the proposals on the table and their impact with respect to a Greek insolvency or classification as an insolvency.” Bonds of debt-strapped countries plunged, the euro sank and stocks dropped amid concern that European governments are powerless to prevent the financial distress spreading from Greece. Italian assets were upended by doubts whether Prime Minister Silvio Berlusconi, plumbing record-low approval ratings with two years left in office, will muster the political strength to push through 40 billion euros in planned deficit- cutting measures.
  
• Italy Is Two Percentage Points From Bailout as Yields Rise, Evolution Says. Italian bond yields are less than 2 percentage points away from disaster as its 10-year notes tumble, according to Gary Jenkins, head of fixed-income at Evolution Securities Ltd. Yields on Italy’s benchmark 10-year bonds closed above 5 percent for the first time since November 2008 on July 6 and were at 5.55 percent, a nine-year high, at 1:45 p.m. in London today. Italy is being dragged into the crisis because it has more than 1.6 trillion euros ($2.6 trillion) of bonds outstanding, the world’s third-largest pile of debt after the U.S. and Japan. “It is worth remembering how quickly bond yields can get out of control by looking at what happened to Greek, Irish and Portuguese 10-year yields,” said Jenkins, who predicted Greece’s bailout last year and who was formerly head of fundamental credit strategy at Deutsche Bank AG and global credit-research chief at Barclays Capital. “What would keep me awake at night if I was a European finance minister is that we are only about 2 percent away from a potential disaster scenario.” Greek, Irish and Portuguese 10-year bonds spent an average 43 days trading at more than 5.5 percent before rising above 6 percent “on a consistent basis,” said London-based Jenkins. They then spent an average of 24 days above 6 percent before breaching 6.5 percent, and 15 days above 6.5 percent before passing the 7 percent level and asking for a bailout, he said. The cost of insuring Italian government debt using credit- default swaps jumped to a record, helping also send the Markit iTraxx SovX Western Europe Index to an all-time high. Contracts on Italy surged 32 basis points to 283, according to CMA prices. The Markit iTraxx SovX WE climbed 33 basis points to a record 289. “The markets are focusing on Italy and Spain and combined they are too big to save,” said David Owen, an economist at Jefferies International Ltd. in London. “Note that they are all linked together by their banking systems -- the French banks are all over Spain and Italy.” The spread between yields on Italian and German 10-year debt rose 39 basis points today to 283, a euro-era high.
• Sovereign Credit-Default Swap Costs Surge to Record in Europe. The cost of insuring against default on European sovereign debt rose to a record, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 19 basis points to a record 275 at 8:30 a.m. in London. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 14 basis points to 438, the highest since Jan. 11, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.75 basis points to 116.75, the highest since Nov. 30. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 9.5 basis points to 181 and the subordinated index climbed 13 to 318.
• Credit-Ratings Firms May Have to Show EU Data. Credit-ratings companies may be forced to disclose the internal analyses they use when they decide to cut a European Union government’s rating, the region’s financial services commissioner said. Nations may win the right to check the data used by the companies in advance of downgrades of their sovereign ratings, Michel Barnier said in the text of a speech in Paris speech today. The measures may be included in legislation to rein in the ratings firms, he said.
• Gold Gains to Two-Week High as Debt, Growth Concerns Spur Investor Demand. Gold climbed for a fifth day in New York, rising to a two-week high, as concerns over Europe’s debt crisis and slowing economic growth spurred demand for the metal as a protection of wealth. Gold for August delivery gained as much as $16, or 1 percent, to $1,557.60 an ounce, the highest price since June 22, and was at $1,556.30 by 10:30 a.m. on the Comex in New York. Immediate-delivery gold was up 0.8 percent at $1,556.15 in London. Gold is up 9.5 percent in 2011 after climbing the past 10 years, the longest run of gains in at least nine decades in London.
• Crude Oil Falls for Second Day in New York on Italian Debt, Chinese Demand. Oil declined for a second day in New York on speculation that a slump in Chinese imports and rising unemployment in the U.S. may indicate fuel demand will falter in the world’s biggest crude-consuming nations. Futures slipped as much as 2 percent after government reports in China showed net oil imports shrank 10 percent in June to the lowest in eight months, according to Bloomberg calculations, while inflation surged to a three-year high. Crude for August delivery on the New York Mercantile Exchange fell as much as $1.88 to $94.32 a barrel, the lowest since July 5, and was at $94.62 at 1:56 p.m. London time. The contract dropped $2.47 to $96.20 on July 8. The price has risen 26 percent in the past year.
• Copper Falls Most in Five Weeks on Concern European Debt Woes Will Spread. Copper futures for September delivery declined 6.95 cents, or 1.6 percent, to $4.3425 at 10:56 a.m. on the Comex in New York.
• Brazil Economists Boost 2011 Inflation Forecast for First Time in 10 Weeks. Economists covering the Brazilian economy raised their 2011 inflation forecast for the first time in 10 weeks after prices rose faster than expected in June. Consumer prices will rise 6.31 percent this year, according to the median forecast in a July 8 central bank survey of about 100 economists published today. The figure was up from 6.15 percent the previous week. Economists also raised their prediction for 2012 inflation. Prices, as measured by the IPCA index, will rise 5.20 percent next year, the survey found, compared with a forecast of 5.10 percent the previous week. The June inflation number increased doubts that the central bank will hit its targets, said Pedro Tuesta, a Washington-based economist for Latin America at 4Cast Inc. “The market has started to talk about how the central bank isn’t going to make it,” Tuesta said in a telephone interview. “More and more people are thinking that inflation inertia, especially on service prices, will push 2012 inflation up.” Policy makers raised interest rates for a fourth consecutive meeting last month, boosting the benchmark lending rate a quarter-point to 12.25 percent. Economists expect the bank to raise the rate to 12.75 percent by the end of this year, from a week earlier forecast of 12.50 percent, the survey found.
• Cisco(CSCO) May Eliminate About 5,000 Jobs in August, Gleacher Analyst Reports.
• Bulgaria Default Swaps to Rise on Euro Debt, Unicredit Says. The cost of insuring Bulgarian bonds against non-payment is likely to increase because of the Balkan country’s economic ties with Greece, according to UniCredit SpA. Investors should buy Bulgarian credit-default swaps at 220 basis points, or 2.20 percentage points, on expectations the five-year contracts will climb to 270 points, the bank said in a report dated yesterday.

Wall Street Journal:

• Moody's Raises 'Red Flags' at 61 Chinese Firms. Credit-ratings firm Moody's Investors Service warned of "red flags" at 61 rated Chinese companies as it sought to provide transparency on its approach to ratings amid rising investor concern about corporate governance at such entities. The flags are meant to "highlight issues meriting scrutiny to identify possible governance or accounting risks for non-financial corporate issuers in emerging markets" and relate to issues such as weak corporate governance, riskier or more opaque business models, fast-growing-business strategies, poorer quality of earnings or cash flow, and concerns over auditors and quality of financial statements, the report, issued Monday, said. Four Hong Kong-listed companies were highlighted as having a particularly large amount of red flags: West China Cement Ltd. had 12, Winsway Coking Coal Holdings Ltd. had 11, China Lumena New Materials Corp. had 10, and Hidili Industry International Development Ltd. had nine. Moody's wrote that Winsway, Lumena and Hidili, as companies that mine coal or other minerals, "tend to attract scrutiny because it is often hard to value these assets and reserves in terms of size, value, or ownership rights."
• China will keep "strong" curbs on property prices, citing China Vanke Co. Chairman Wang Shi.
• Some Spanish Banks May Fail Stress Tests - Finance Minister. Some Spanish savings banks may show a capital shortfall in the European Union stress tests due to be released Friday, finance minister Elena Salgado said. Salgado had earlier said that she expected no Spanish bank to fail the tests.
• Tough Era for 'Macro' Funds. Today's markets seem like they are tailor-made for money managers investing based on big-picture, "macro" themes such as the European debt crisis and economic woes in the U.S. Instead, many are struggling. Macro-focused managers have been tripped up by whiplash-inducing swings in stocks, currencies and commodities, often brought about by the latest twists and turns of impossible-to-time political developments. Stubbornly low U.S. Treasury yields have been a trap for managers worried about inflation and the deteriorating U.S. fiscal outlook. Making matters worse is a tendency of markets around the world to move in lock step.
• Saudis Offer Extra Crude But Find Lackluster Response - Source. Top oil exporter Saudi Arabia has offered extra crude to its customers for August but refiners, particularly from Asia, have largely declined, a person familiar with the matter said Monday. "The response received from buyers wasn't very encouraging, so it is early to say if Saudi will up its production more this month," the person told Dow Jones Newswires. Saudi Arabia in June produced an extra 467,000 barrels a day to lift its crude oil production to almost 9.5 million barrels a day, according to a Dow Jones survey. The kingdom pledged to boost output to as high as 10 million barrels a day in response to mounting demand in the second half.
  

MarketWatch:

• Europe Stocks Tumble on Debt Fears as Italy Sinks. European stock markets fell sharply Monday, led lower by banking and insurance shares as fears that the euro-zone debt crisis is spreading to Italy spooked investors. The Stoxx Europe 600 index XX:SXXP -1.41% dropped 1.4% to end at 269.90, with banks and insurers among the worst performers. BNP Paribas SA FR:BNP -6.75% dropped 6.8% in Paris, Commerzbank AG DE:CBK -7.72% fell 8.6% in Frankfurt, and Dexia SA BE:DEXB -8.04% slumped 8% in Brussels.
• China's US-Listed Stocks Are Junk.
  

Business Insider:

• The Nastiest Divorce Battle In History and the Hedge Fund It's Tearing Apart. New details have emerged about the nasty divorce battle that threatens to destroy Ikos, a multi-billion hedge fund.
• The 19 Most-Liked Companies in America.
• Anonymous Hackers Announce An Imminent Attack on the Intelligence Community.
• There Is No Single Cure For The Many Outbreaks of European Debt Disease.
• 10 Things You Need to Know About Italy.
• The Mind-Boggling Expenses That Make Fannie Mae The Least Profitable Corporation in America.
  

Zero Hedge:

• Does the US Government Want to Prevent You From Leaving? Recently, the State Department quietly proposed a new ‘biographical questionnaire’ in lieu of the traditional passport application. The new form requires you to provide things like: - names, birth places, and birth dates of your extended family members - your mother’s place of employment at the time of your birth - whether or not your mother received pre-natal or post natal care - the address of your mother’s physician and dates of appointments - the address of every place you have ever lived in your entire life - the name and address of every school you have ever attended. Most people would find it impossible to provide such information, yet the form requires that the responses ‘are true and correct’ under penalty of imprisonment. Naturally, the privacy statement on the application also acknowledges that the responses can be shared with other departments in the government, including Homeland Security. If this proposal passes, then US citizens will have a nearly insurmountable hurdle to obtain a passport and be able to leave the country at will. Even if it doesn’t pass, it’s a clear demonstration of what the people who run the country are thinking.
• Congressman Brad Miller Blasts Legality of Bank of America's(BAC) $8.5 Billion RMBS Settlement.
  

Reuters:

• Why Won't Obama Cut Spending? President Barack Obama could have done two things that might have saved his Mother of All Budget Deals. First, he could have embraced market-centered, consumer -focused reforms to Medicare. That was about as likely as him accepting an Obamacare rollback. Second, he could have agreed — as House Speaker John Boehner and Republicans suggested — to sharply reduce tax rates in return for fewer special tax deductions/breaks/loopholes/subsidies. Recall that is what his own debt commission recommended.
• Traders Bet on Future Dollar Funding Stress. Investors trading the FRA/OIS spread SMKR29A were betting a key funding spread would widen 10 basis points by September, a move analysts said was a measure of expectations for future stress in the short-term funding markets. The FRA/OIS spread is a bet on the future Libor/OIS spread, which is the difference between the dollar London interbank offered rate and the rate on an overnight indexed swap, a common interest rate swap. The current Libor-OIS spread widened on Monday as well, reaching 15 basis points.
• Fed Could Do More to Deflate Bubbles - Fed Paper. U.S. policymakers could and should do more to identify and deflate asset bubbles before they pop and harm the economy, research from the San Francisco Federal Reserve suggested on Monday.

Telegraph:

• News Corp(NWSA) Forces Government to Refer BSkyB Deal to Competition Commisison.
• Tim Harford: The Euro Will End in Tears. (video) Tim Harford, author of Adapt: why success always starts with failure, tells Robert Miller why he thinks the single currency in its present form is doomed.

Financial Times Deutschland:

• Olli Rehn, the European Union's economic and monetary affairs commissioner, is "extremely concerned" about the region's debt crisis reaching Italy, citing an interview with an EU official. The official said concern about Italy is bigger than fears over Portugal, adding that a common solution to the problem must be found for all countries.

Handelsblatt:

• The European Central Bank is seeking advice from a private-sector bank on what to do in the event of a sovereign default in the euro area. The ECB has written to "more than five" financial institutions in recent days, requesting that they apply to act as advisers.

Shanghai Daily:

• Chinese Bankcard Holders Go Slow on Spending. CHINESE bankcard holders trimmed their non-essential spending in June due to rising cost of food, especially pork, an industry index showed yesterday. The bankcard consumer confidence index dipped to 86.06 points in June, down 0.24 points from a year ago. It also slipped 0.05 points from May as the second straight monthly drop, China UnionPay Co said 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. "Bankcard holders are cutting non-essential spending as rising food prices push them to shop less, aside from basic necessities," the Shanghai-based firm said in a statement. Its data from shops showed that contribution from restaurants, jewelers and entertainment facilities dropped to 12.68 percent, down 0.84 percentage points.
  

China Forex Magazine:

• The yuan may appreciate to as high as 6 yuan to the U.S. dollar and consumer prices may exceed 5% this year if global commodity prices continue to rise, citing Chen Bingcai, a researcher at the Chinese Academy of Governance's policy consultation department.